TORONTO, Aug. 14, 2012 /CNW/ - Gran Colombia Gold Corp. (TSX: GCM) announced today the release of its unaudited interim condensed consolidated financial statements for the second quarter ended June 30, 2012 and accompanying management's discussion and analysis. All financial figures contained herein are expressed in U.S. dollars unless otherwise noted.

Second Quarter 2012 Highlights

• Gold production of 25,607 ounces in the second quarter of 2012 represented a 15 percent improvement over the same quarter last year bringing total gold production for the first half of 2012 to 51,867 ounces, up 21 percent over the first half of last year. After experiencing some delays in the second quarter, the new ball mill at Maria Dama came on-line in mid-May. Mill throughput subsequently increased, reaching an average of 737 tpd in the month of June, a 45 percent increase compared with the first quarter of 2012. Testing of the new ball mill has proved that it can handle loads of 1,000 tonnes of ore per day ("tpd"). New flotation cells being installed in the third quarter as part of the plant upgrade will address the issues that impacted mill recovery rates in the second quarter, enabling the plant to handle the increased volumes combined with the much higher grade ore delivered by the artisanal miners.
• Revenues of $40.7 million, 47 percent higher than the second quarter of 2011, brought total revenues for the first half of 2012 to $83.4 million. In the first half of 2012, the Company sold 49,232 ounces of gold at an average realized price of $1,650 per ounce.
• Consolidated cash cost of $1,313 per ounce of gold sold increased 10 percent from the first quarter of 2012, primarily due to a 10 percent decrease in the mill recovery rate at Maria Dama at Segovia.  Actions are being taken by management to improve operations at Maria Dama in the third quarter and to increase production in the second half of the year at Segovia, which are expected to reduce consolidated cash costs below $1,100 per ounce by the end of 2012.
• General and administrative ("G&A") expenses, which include $0.3 million of one-time advisory fees that helped the Company to begin recovering overdue VAT claims in Colombia, amounted to $4.2 million and $7.8 million, for the second quarter and first half of 2012, respectively. G&A expenses in the first half of 2012 represent a 25 percent reduction compared with the post-merger G&A expenses in the second half of 2011 (G&A in the second quarter and first half of 2011 is not comparable to the current year as it did not include G&A from Medoro Resources (Yukon) Inc. ("Medoro") prior to the June 10, 2011 merger).
• Net loss attributable to shareholders of $13.7 million, or $0.04 per share, in the second quarter of 2012, includes an impairment charge of $3.4 million related to the carrying value of its Mazamorras exploration property after entering into an agreement to sell the property for total consideration of $5.5 million, $2.9 million of mark-to-market losses on financial instruments and a $3.3 million foreign exchange loss.
• Cash balance at June 30, 2012 was $4.1 million.  During the second quarter of 2012, the Company used $1.0 million of its cash on hand, together with $3.7 million generated from operating activities and $0.9 million of net proceeds from additional Colombian bank debt facilities to fund $5.7 million of investing activities during the quarter.
• Exploration activities in the second quarter included the completion of a 12,000 metres drilling program at the El Zancudo Project that had commenced in April 2011.  Gran Colombia announced its exploration and in-fill drilling program had returned high grade gold and silver mineralization over a strike length of some 450 metres and dip length of 170 metres on the newly discovered Santa Catalina vein, which is open in all directions. An updated technical report is expected to be completed by the end of 2012.
• A Mineral Resource Estimate announced on June 21, 2012, highlighted an 18 percent increase to 11.8 million ounces of gold and a 26 percent increase to 80.3 million ounces of silver in the Measured and Indicated categories at the Company's Marmato Project.
• Financing: Gran Colombia made further progress in the second quarter related to a proposed $100 million debt facility to fund the planned expansion of the Segovia Operations. In addition to supporting the ongoing due diligence activities of Standard Bank Plc, the Company has commenced a parallel process to explore competitive proposals from several other financial institutions.
• Corporate: During the second quarter of 2012, the Company made several announcements related to common share purchases made by its Executive Co-Chairmen, Serafino Iacono and Miguel de la Campa, who increased their shareholdings to 3.3 percent and 0.9 percent, respectively, in the issued and outstanding common shares of the Company.

Commenting on the Company's progress in the second quarter of 2012, Maria Consuelo Araujo, Chief Executive Officer of the Company, said "We continue to focus on achieving our long-term target of developing our Segovia Operations to achieve a 200,000 ounce per year level.  Due to process issues at our Maria Dama plant, we have accelerated our planned upgrades to the plant infrastructure and now expect to achieve a run rate production of 1,000 tonnes per day in the fourth quarter, with the completion of the work to achieve a maximum capacity of 1,500 tonnes per day in early 2013.  Upon completion of a proposed $100 million project financing facility, we will move quickly to commence development of the mine and construction of the new mill at Segovia.  At Marmato, while the Company continues to explore the impact of deep zone mineralization on the options for the project, we continue working closely with the community and other key stakeholders to build a strong foundation for our development of the project."

Financial and Operating Summary

A summary of the financial and operating results for the second quarter of 2012 is as follows:

Segovia Operations Update

In the second quarter of 2012 production at the Segovia Operations totalled 20,610 ounces of gold with an average daily processing rate of 591 tonnes of ore per day ("tpd"), compared to 20,637 ounces of gold with an average daily processing rate of 509 tpd in the first quarter of 2012.

The Company is in the process of upgrading the Maria Dama plant to achieve a maximum capacity of 1,500 tpd.  The first phase of the expansion plan was expected to enable the Company to ramp production up to 1,000 tpd early in the second quarter of 2012, double the historical processing rate at Maria Dama. The new ball mill came on-line in mid-May and was tested over the weeks to follow under increasing loads. After experiencing some delays related to power supply interruptions due to problems at EPM's La Cruzada substation, together with the mill's motor bearings overheating due to misalignment problems, and subsequent delays due to temporary problems with the original crusher, the mill proved to be able to handle loads of 1,000 tpd. For the month of June 2012, the processing rate at Maria Dama reached an average of 737 tpd, however, as mill throughput increased in May and June, mill recovery rates decreased below historical levels, averaging only 86 percent for the second quarter of 2012 or about 10 percent lower than the first quarter of 2012. Despite earlier metallurgical consulting opinions that the flotation cells could handle the initial ramp up to 1,000 tpd, subsequent analysis showed that the capacity of the existing flotation cells was insufficient to handle the increased volumes combined with the exceptionally higher grade ore delivered by the artisanal miners during the latter half of the second quarter.

The Company has accelerated plans to implement the second phase of the Maria Dama expansion which includes the installation of six additional flotation cells, the first two of which should be in operation in early September and the other four during October. While these new flotation cells are being installed, the Company is limiting mill throughput to approximately 800 to 900 tpd to maintain mill recovery rates between 80 percent and 85 percent, and starting in October, to ramp up mill throughput to 1,000 tpd with mill recovery rates expected to improve to 90 percent.

The completion of the Maria Dama expansion activities in 2012 to deliver a maximum capacity of 1,500 tpd will enable the Company to increase Segovia's production in 2013 to between 120,000 and 140,000 ounces of gold. Since the existing Maria Dama mill expansion is fully funded from existing cash balances, operating cash flow and local Colombian bank debt, any delay in closing the proposed $100 million debt financing will not have an impact on the Company's ability to increase its gold production at the Segovia Operations in 2012 and 2013 as planned.

Upon closing of a proposed $100 million debt financing, the Company will commence with development of the new mechanized mine and construction of the new 2,500 tpd mill at its Segovia Operations.  The capital cost of the mill and mining equipment to be acquired for this expansion project is currently estimated to cost approximately $100 million and it is expected the capital costs will be spent over an approximately 18-month period following closing of the financing. Gold production will commence within 12 months of commencing the project and the new 2,500 mill will be commissioned for operation toward the end of the 18-month period. At that time, the Company expects that the Maria Dama mill may then be dedicated toward the processing of the higher grade ore from the artisanal miners at Segovia.

Marmato Project Update

At the Marmato Underground Operations, an average of 740 tpd was milled, producing 4,997 ounces of gold during the second quarter of 2012. Mining operations encountered some lower grade ore zones that resulted in a decrease in average head grades to 2.66 g/t in the second quarter of 2012 and contributing to the 11 percent decrease in the second quarter's gold production compared with the first quarter of 2012. Head grades for the second half of this year are expected to be approximately 2.9 g/t while throughput will be increased to an average of 750 tpd.

Gran Colombia commenced work on a prefeasibility study of the Marmato Project in 2011 to examine a number of feasible development options for mining, processing and mine waste management to provide the foundation for decision making for the optimum development of the project. The options include stand-alone open pit mining, modern underground mining and a phased combination of both open pit and underground mining. As a result of the newly discovered deep zone mineralization that is open at depth with increasing grades, the Company decided to delay completion of the prefeasibility study while its explores the significance of this high grade deep zone mineralization and its impact on the Company's options for the development of the Marmato Project.

Outlook

The Company now expects 2012 gold production is expected to be between 113,000 and 123,000 ounces, including production at its Segovia between 90,000 and 100,000 ounces and approximately 23,000 ounces from its Marmato Underground Operations.

The Company's longer term plan remains on track to reach a production rate of 200,000 ounces of gold annually at its Segovia Operations by 2014.

Webcast

As a reminder, the Company will host a conference call and webcast on Wednesday, August 15, 2012 at 9:00 a.m. Eastern Time (8:00 a.m. Bogota time) to discuss the results and provide an operational update.

Webcast and call-in details are as follows:

A replay of the webcast will be available at www.grancolombiagold.com from August 16, 2012 until September 16, 2012.

About Gran Colombia Gold

Gran Colombia is a Canadian-based gold and silver exploration, development and production company with its primary focus in Colombia. Gran Colombia is currently the largest underground gold and silver producer in Colombia with several underground mines in operation at its Segovia and Marmato Operations. In addition, Gran Colombia is advancing a project to develop a large-scale, gold and silver mine at its Marmato operations.

Additional information on Gran Colombia Gold can be found on the Company's website at www.grancolombiagold.com and by reviewing the Company's page on SEDAR at www.sedar.com.

This news release contains "forward-looking information", which may include, but is not limited to, statements with respect to the future financial or operating performance of the Company and its projects. Often, but not always, forward-looking statements can be identified by the use of words such as "plans", "expects", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates", or believes" or variations (including negative variations) of such words and phrases, or state that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Gran Colombia to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Factors that could cause actual results to differ materially from those anticipated in these forward-looking statements are described under the caption "Risk Factors" in the Company's Annual Information Form dated as of March 28, 2012 which is available for view on SEDAR at www.sedar.com. Forward-looking statements contained herein are made as of the date of this press release and Gran Colombia disclaims, other than as required by law, any obligation to update any forward-looking statements whether as a result of new information, results, future events, circumstances, or if management's estimates or opinions should change, or otherwise. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, the reader is cautioned not to place undue reliance on forward-looking statements. 

SOURCE: Gran Colombia Gold Corp.