Directors’ Report to Our Shareholders,Directors’ Report to Our Shareholders
Sargold made significant progress in the third quarter solidifying its ownership of the Sardinian assets. During the third quarter and up to this Directors Report, the Company successfully completed the purchase of Sardinia Gold Mines S.p.A. (“SGM”), from Medoro Resources Ltd. (“Medoro”) and restructured the existing agreement with Gold Fields Limited on the Monte Ollasteddu project. Furthermore, Sargold strengthened its management team with the addition of Bruce Nicol, Marlo Hamer-Jackson and Tracey Brix-Nielsen.
Since the company first negotiated an interest in the Furtei operation in 2004, it has successfully purchased and consolidated all of the known precious metal property on the island of Sardinia, Italy. Now controlling the largest precious metals exploration land in Sardinia, Sargold’s assets include a number of potential open pit and underground deposits, a 1,000 tonne-per-day treatment facility, and most importantly, a fully permitted mining concession including future tailings disposal.
In order to consolidate these assets, Sargold completed the following two transactions:
Sargold successfully completed the Medoro transaction during the third quarter. Under the terms of the deal, Sargold paid €1.0 million to complete the purchase of 90% of the issued and outstanding shares of SGM, and for an additional €1.0 million acquired all of Medoro’s 75% interest in SGM Ricerche SpA (“Ricerche”), the Italian company that holds the interests to the Monte Ollasteddu gold project in Sardinia. Progemisa S.p.A., a corporation owned by the Sardinian regional government, whose interests are carried, owns 10% of the common shares of both SGM and Ricerche.
On October 30, 2006, Sargold signed a letter of intent with Gold Fields Venezuela Holding B.V. (“Gold Fields”), an indirect subsidiary of Gold Fields Limited, whereby the Company will acquire Gold Fields 15% interest in the Monte Ollasteddu project. The formal agreement when completed will supersede the existing option agreement, which was assumed when Sargold acquired a 75% interest in Ricerche from Medoro as announced on August 22, 2006. As consideration for the purchase, the Company will issue to Gold Fields common shares with a value of $500,000 in three installments: one third on signing a formal agreement, based on a share price of $0.20 per share (833,333 shares), and one third on each of the first and second anniversaries of the signing, based on a share price which is the average of the preceding 30 trading days. Gold Fields will retain a right to acquire an undivided 60% interest in the Monte Ollasteddu tenements, subject to certain payments to the Company, which will be triggered when exploration work programs undertaken by Sargold have defined a minimum NI 43-101 compliant, measured and indicated resource estimate of 3.5 million ounces of gold. The formal agreement will supersede the existing option agreement, which was assumed when Sargold acquired the 75% interest in Ricerche.
With these transactions completed, Sargold will now move forward with an exploration strategy to realize the mining opportunities in this region. We see the potential restart at Furtei as a way for us to generate cash flow to fund our exploration programs at Furtei, Osilo and Monte Ollasteddu. In particular, we are looking forward to exploring the mineral tenements of the Monte Ollasteddu property, which has shown the potential to become a significant gold resource. As we move forward, our priorities continue to be focused around community engagement, in an effort to obtain the required permits to conduct a comprehensive drill program at Osilo and Monte Ollasteddu.
Sargold announced on September 26, 2006 that its common shares had been approved for listing on the Frankfurt Stock Exchange and commenced trading on September 20, 2006 under the symbol “DU4”.
Financing
In order to facilitate the above-mentioned acquisitions, Sargold completed a non-brokered private placement on July 28, 2006 of 17,250,000 units of the Company at a price of $0.18 per unit for gross proceeds of $3,105,000.
On October 30, 2006, the Company announced that Gold Fields agreed to subscribe for a private placement for 5,000,000 common shares of Sargold at a price of $0.25 per share, for proceeds of $1,250,000, which will be used for exploration work expenditures and working capital.
Personnel
Mr. Bruce Nicol started with the Company as Senior Vice-President and Chief Financial Officer on September 1, 2006. Mr. Nicol is a Chartered Accountant with 15-years of professional experience in the international mining industry, working with Placer Dome as an officer and in senior financial roles. Mr. Nicol replaced Donald B. Clark, who has been Chief Financial Officer of Sargold since June 2002. Mr. Clark continues as a Director of Sargold, a position he has held since February 1996.
Also during the third quarter, the Company appointed Mrs. Marlo Hamer-Jackson as Manager, Investor Relations and Corporate Communications, and Ms. Tracey Brix-Nielsen as Controller. Mrs. Hamer-Jackson and Ms. Brix-Nielsen bring to the Company extensive knowledge and experience in the resource sector working with Goldcorp Inc., Placer Dome Inc. and Teck Cominco Ltd.
Sargold granted 1,525,000 stock options at $0.21 to directors, officers, and employees of the Company for a period of 5 years expiring August 22, 2011.
With the progress in the third quarter, Management has now positioned Sargold for an exciting fourth quarter and new year. For further details please refer to our Financial Statements and Management Discussion and Analysis.
On behalf of the Board,
/S/ Richard W. Warke
Richard W. Warke November 9, 2006
President