MercoPress. South Atlantic News Agency

Falkland's gold drilling ahead of schedule

This first year of operation has been filled with a range of activities that have been well managed and effectively completed.

We conducted a successful placement and public offering on London's Alternative Investment Market ('AIM'). In doing this we placed 20 million shares with institutions raising £8 million before costs and a further £2 million before costs from the sale of 5 million shares in a public offering.

After costs, this raised your Company £8.9 million which was available for the exploration activities as described in the November 2004 prospectus.

Given the Company's financial strength, the Board decided that the original exploration programme which anticipated the use of one drill rig could be accelerated. The Board approved the purchase of a second rig which has allowed the drilling programme to be re-planned such that the initial exploration of the twenty three drilling targets is now expected to be completed by the end of calendar year 2006, nearly a year ahead of the original schedule.

This new programme has a budgeted monthly net cash outflow of a little under £140,000. Thus, after this expenditure, corporate costs, the initial capital outlay on fixed assets and set up costs, there should still be over £5 million available for definition drilling and any other exploration activity that may become necessary such as flying aerial surveys and commissioning relevant economic studies. Whilst the Company is at this stage in its development, this should avoid the need for any additional shareholder funds.

Our Operations Manager, Derek Reeves, is to be complimented on the rate at which he and the exploration team have established operations on the Islands and the build up of the work programme. His institution of a rigorous safety programme has paid off with no safety failures and his rehabilitation programme has received the plaudits of the Falkland Islands Administration and local farmers.

Exploration and drilling went largely unhindered through the winter season. The exploration programme this year has covered ground geochemistry, stream geochemistry, ground geophysics and drilling.

Results

The ground geochemistry has been conducted using a probe which penetrates the peat to take a sample of the soil and clay immediately below. This work has helped refine target definition (improving our ability to accurately drill anomalies) in the Glorious Hill prospect (Target 11), in the Lafonia area of southern East Falklands, and will be used in a similar manner for the Albemarle prospect (Target 18), the Leicester prospect (Target 21) and the Warrah prospect in West Falklands. Ground geophysics was carried out by contractors over targets in both West and East Falklands also for refined target definition.

The drilling programme which commenced in Area 6 just north of Goose Green has had mixed success with some of the anomalies being explained by the intersection of doleritic and gabbroic dykes. This occurred in Targets T5, T2S and T8W.

In Targets T6, T7, T1N and T8E, the drilling was largely in tillite, with limited quartz veining, and in carbonaceous shales. There has been no clear reason for the geophysical anomaly or for the gold evidenced in the stream sediment sampling although some subeconomic gold results were determined in the carbonaceous shales. These results will be referred to outside consultants for a review of the geophysical model in the context of the drilling results to date.

The drilling has however given our team a much better appreciation of the geology and as a result three new targets namely T22, T23, and T24 have been generated to the south of Area 6 where there are linear features crosscutting the carbonaceous shale horizon.

The rigorous drilling programme in Area 6 and the northern section of East Falklands including the Malo prospect (Target 15) will continue through to early 2006. Drilling of the Lafonia targets, Peat Banks Target 10) and Glorious Hill (Target 11), both of which exhibit very different geological signatures, is scheduled in December 2005 and January 2006.

Some 7,150 metres of drilling were completed by the end of November 2005.

Analyses on the samples from the cores have been carried out by ALS Chemex in Perth, Australia and at this stage checks have been carried out for 51 elements to ensure full coverage. Additionally, radioactivity is checked in each core and on other anomalous samples to identify any possibility of uranium or allied mineralization. To date there have been no results of economic significance.

The new Mining Legislation was promulgated on 27 May 2005. As was referred to in our November 2004 prospectus, as a result of our admission to AIM, our licence was extended to 31 July 2009, which takes us well beyond the current planned exploration period, and as a result the Company is required to relinquish 50 per cent. of the Company's licence area by 16 January 2007.

Outlook

I remain confident that the potential that was demonstrated in the prospectus remains valid and exciting and that the work we will conduct in the coming year will generate the solutions to the various anomalies. We remain hopeful that this will lead on to some discoveries of economic value.

Richard Linnell - Executive Chairman

More information: www.FGML.com