Gold Mines of Sardinia Limited

-- Europe’s leading gold miner reports positive operating results --

Perth/London, 31 July 2000 – Gold Mines of Sardinia today announced operating results for second quarter 2000 (ended 30 June). Revenue from bullion sales increased 3.8% (unaudited) reflecting a combination of an increased number of gold and silver ounces sold and a lower average realised price.

Peter Hambro, Executive Chairman commented: "This is the third Quarterly Report we have issued since I became Chairman and I am delighted to say that Gold Mines of Sardinia is rare among junior gold miners in that it has cash in the bank as well as a strong development programme.

Financial results have not been helped by the ill-advised activities in the gold market by UK Chancellor Gordon Brown but, in spite of this, the GMS team have responded magnificently. Production is above budget, exploration is going well and we look forward to the first results of our strategic alliance with Homestake.

More than 1,300 people attended the open day held at the Furtei mine greatly improving the understanding of what the Group is accomplishing in Sardinia. Trading facilities for GMS shares are now in place for local residents with Banco di Sassari in Cagliari.

I am encouraged by the move from bench-scale to on-site pilot testing of the bacterial heap leach. Preliminary results from this are expected at the end of September.

The market’s perception of Navan Resources, where we hold a little over 10%, has improved and a London broker has recently issued a "Strong Buy" recommendation for the shares.

The Group’s corporate plans for Europeanisation are on track and I hope that the first practical steps will be taken in the current quarter."

For further information, please contact:

Gold production from oxide ore sources continued during the June quarter 2000. Gold production for the quarter was again above budget at 6,983.8oz – 6,740.7oz from the CIL circuit and 243.1oz from the dump leach operation. The average ore grade treated in the CIL plant was 3.97g/t.

Open pits continue to produce more gold than indicated by the original feasibility study model. Exploration has extended the life of oxide reserves by 16 months so far.

A total of 181,835 tonnes of material was mined (Table 1), of which 68 440 tonnes was CIL ore delivered to the plant at an average grade of 3.63g/t. A further 9,210 tonnes were placed on the dump leach pad at an average grade of 0.83g/t.

Overall material movement cost continues to be reduced by the use of waste rock for a major road-building project on the island. A total of 77,130 tonnes of pit waste was moved for this purpose during the quarter.

Mining of waste material to expose the sulphide orebodies began late in the March quarter and continued through the June quarter. A total of 63,220 tonnes of waste was moved and 4,260 tonnes of sulphide ore was stockpiled at a grade of 2.19g/t.

Construction of the trial bio leach dump pads began during the quarter. Test work is continuing with Lakefield Laboratories in South Africa and in conjunction with the treatment plant lab on site. Bacteria cultures were successfully produced from local sulphide material.

The average realised gold price for the three months to 30 June 2000 was US$289 an ounce, compared with the average spot price of US$292 for the same period, and a cash operating cost of US$191 gives a margin of US$98 per ounce for the quarter (March quarter US$152 per ounce).

Sales of gold into hedging instruments amounted to 5,249oz at an average price of US$288 an ounce (March quarter 3,276oz) and 1,937oz into the spot market at an average price of US$292 (March quarter 3,518oz at an average price of US$296 an ounce).

All silver sales were into the prevailing spot price on the day of delivery.

Committed Hedging

Spot Deferred Contracts 2,810oz at an average price of US$285/oz

Call Options 9,000oz at US$305/oz

Uncommitted Hedging

Put Options 9,000oz at an average price of US$280/oz

The put options were entered into to cover gold price downside and the spot deferred contracts can be used for the same purpose.

Bacterial testwork at Lakefield Research in South Africa is nearing completion and will be complemented by on-site bacterial heap leach trials in the near future.

Sulphides have been tested in GEOCOATâ columns. GEOCOATâ is a low-cost, heap bio-oxidation technology, marketed by GeoBiotics, Inc. The sulphide-oxidising bacteria grow within thin films of sulphide flotation concentrate applied to sized support rock. Over a period of months the bacteria oxidise the sulphide ore before washing and cyanidation for gold recovery. Pyrite was found to be amenable to bio-oxidation by mesophilic bacteria. The column testwork has achieved gold recoveries of 81% after 90 days’ operation. Much useful operating and design information was obtained from the column testwork.

The next stage is to scale up the pyrite bio-oxidation results to a process that is economically feasible. To this end the company is developing on-site trials. Two bacterial heap leach pads using ROM pyrite and +18mm-40mm pyrite ore (head grade 2g/t approx.) are under construction. These low grades have been economically bio-oxidised in heap leach dumps elsewhere, for example at Newmont’s Gold Quarry pit in Nevada. The Furtei plant laboratory has developed analytical methods for Fe(tot), Fe(II) and Eh in preparation for heap monitoring. A 1000 litre tank of iron oxidising bacterial culture has been grown from on-site bacteria to inoculate the heaps. Liaison with the University of Cagliari for use of specialised equipment is ongoing. Planning is also under way for GEOCOATâ trial heaps which can be built once SGM has the capacity to produce flotation concentrate on site. The trial heaps are the subject of an EU research grant application to help defray the costs of development.

The cost of treatment of the large stratabound pyrite deposit, with its relatively low head grade (2g/t) and concentrate grade (10g/t), has led to a review of concentration methods for the pyrite ore, before a possible bio-oxidation route. Physical separation and diagnostic leaching testwork is under way.

In parallel with the pyrite oxidation, oxidation of the much more refractory enargite is being examined. Enargite bio-oxidation, if successful, will release copper into solution and this can be recovered using Solvent Extraction /Electro-Winning. Gold recovery is by cyanidation of the residues, as for pyrite.

The mesophilic bacteria did not achieve economic levels of enargite oxidation. The thermophilic bacteria were slow to adapt to the enargite substrate and no copper dissolution was observed for the first 30 days of column operation. However the copper dissolution is now proceeding and this test is continuing.

Significant results of testwork in the June quarter are described below, together with batch data from the previous quarter.

These stirred batch bio-oxidation tests were undertaken to determine the amenability of pyrite, enargite and a pyrite/enargite blend to bio-oxidation by mesophilic bacteria (38^oC). This gives the maximum expected gold recovery by bio-oxidation, with the columns being somewhat less efficient than tank leaching.

The following gold recoveries were obtained:

Preparation and planning for the Osilo trial mining operation proceeded successfully during the quarter.

Negotiations with local landholders are proceeding smoothly, and have resulted in virtually all land acquired for the project being secured. Negotiations with local authorities are also virtually complete, with final approvals to begin works expected in late August.

An independent mining expert has produced, as a result of a visit and study of the Osilo data, a report recommending mining methods and mine designs for the full scale mining project, in addition to plans and schedules for the trial mining project.

Negotiations with the short-listed underground mining contractors, from both inside and outside Europe, are nearing completion.

Successful completion of the Osilo trial, and ongoing drilling, would lead to the development of a significant new mining area, incorporating an on-site treatment facility. With this in mind an environmental working group has been formed, comprising local experts, and a plant and tails dam site optimisation study has been started, with several potential sites already identified as a result.

A full scale Osilo mine, based upon current knowledge, would have a projected life well in excess of five years, and would have the potential to add an initial 50,000oz a year to the company’s gold production. Considerable potential exists to extend this life with feed material sourced from untested portions of the vast Osilo field. Deep drilling at Bunnari is expected to confirm the existence of a large high-grade zone at depth in this vein, the upper sections of which have been intersected by previous drilling.

Rod Jacobs, a 39 year old Australian who is married with two children, has been appointed as Osilo Project Manager. Rod Jacobs was previously a general manager with Coeur d’Alene at Wanaka (New Zealand) and Golden Cross (Australia).

Oxide mineralisation has been discovered in four separate areas south and east of Sa Perrima mine (Fig. 1). The oxides are part of the stratabound (gold-pyrite) style of mineralisation, where gold is hosted within flat lying pyroclastic units within andesite flows. Best results from RC and RAB drilling include 6m @ 2.44g/t Au, 7.5m @ 4.55g/t Au and 4.5m @ 2.44 g/tAu (Table 1). Infill drilling to 20m x 10m is under way.

A new resource estimate for the stratabound sulphides at Coronas-Arrubias was made using a 0.5g/t Au lower cut-off. The new indicated resource is 6.2Mt @ 1.52g/t Au for 304,000oz Au. This represents a 50% increase in total ounces and a 25% drop in grade from the previous published resource.

The stratabound mineralisation remains open to the north, south and east.

Epithermal quartz has been discovered in four new areas in the western part of the Osilo field - at Sa Vittoria and Serra Coloras, 1.5km and 0.7km along strike and east of Bunnari, respectively; at Bevegalza, 1km north of Bunnari structure; and at Matta Mala, 500m east of Pedra Bianca (Fig. 2). The quartz textures suggest the quartzes formed in the upper zones of the epithermal system and this is confirmed by low level gold at 0.1-0.9g/t and high mercury, up to 1000 ppm.

Mapping and sampling is continuing in the area. RC diamond drilling is planned.

At Sa Maddalena, a 29.9g/t Au result was returned from quartz float that was collected at the interpreted location of the eastern extension of the Sa Pala main vein. Another sample collected from a quartz outcrop close by returned 8.0g/t Au. These results confirm an earlier channel sample result from the same area of 42g/t.

Diamond drilling at the Bunnari vein was restricted to the completion of OBD 14 on the far western portion of the drilled panel. Further infill drilling to 50m x 50m spacing was delayed by access permission to construct the road and bridge to the proposed partial site for the Bunnari trial mine. Permission to construct, and hence drilling, was granted in late June and diamond drilling is scheduled to start again in early to mid-August. Assay results from OBD 14 were low and indicate the depth potential at this point along strike is restricted to the top 300m of the vein.

A new resource estimate for mine planning purposes was carried out for five veins in the Osilo field. The veins were re-interpreted using a 3g/t Au cut-off. Total indicated and inferred resources are 1.66Mt @ 7.02g/t Au (Table 2). The resource estimates for all of the veins were audited and verified by SRK Consulting (UK).

Wide-spaced RC drilling on 700m x 100m fences was performed in the cover material overlying andesitic volcanics that host epithermal silica-pyrite mineralisation exposed in a shallow well at Mitza Purdia.

Fifteen holes were drilled for 744 metres. Only half the holes penetrated to basement rocks because of drilling difficulties in the overburden.

A best result of 3m @ 0.96g/t Au was returned from SQR 114 from 21 m. This drill hole is located 350m to the south of Mitza Purdia structure.

An IP survey was performed over the north-south corridor around Mitza Purdia. A chargeability/resistivity anomaly is co-incident with the interpreted structure. Deeper RC or diamond drilling is planned to test this zone.

A first pass program of stream sediment sampling over the east-west trending corridor of arsenic-antimony-gold-wolfram mineralised structures was completed in the Eastern Paleozoics.

High gold results of 160 ppb Au were returned from Monte Ollasteddu, an area 15km WNW along strike from the gold-arsenic mineralisation at Baccu Locci. Anomalous copper, lead (0.27%) and zinc (0.26%) were also returned from the stream sediment survey.

Prospect scale mapping and sampling began at Genna Ureu and Baccu Locci. Rock chip sampling returned up to 9.38g/t Au and high silver, 402g/t, at Baccu Locci, and 6.6% Cu at Spilloncargiu mine, also at Baccu Locci.

Stream sediment sampling was completed over the area where visible gold in quartz vein was discovered by local prospectors. Best results include 42 ppb Au from – 80# stream sediment samples. Follow up mapping is in progress.

The Posada-Asinara suture zone in north-east Sardinia represents the paleo-collision zone between crustal rocks and ocean floor volcanics. Anomalous nickel (180 – 230 ppm), cobalt (30ppm) and chromium (110ppm) has been detected in previous stream sediment surveys that overlie this zone. A total of 61 stream sediment samples has been collected for PGM analysis. Results are awaited.

* * * * *

The Annual General Meeting confirmed Homestake strategic alliance by approving the issue of new shares. A visit to site by Homestake’s exploration team is scheduled for early August 2000.

Acquisition of 6,500,000 ordinary shares in Navan Mining, resulting from the Homestake issue, was completed. Since the completion this important stake has been the subject of a number of possible inquiries from third parties. A leading London broker has issued a "strong buy" recommendation for Navan shares.

The group treasury is in a healthy state:

Somewhat to SGM’s surprise more than 1,300 people attended the open day that was held at Furtei. The objective was to counter negative publicity that had been generated in the local media by some disaffected parties and followed a press conference in Cagliari that was held for the same purpose.

These initiatives, and the locally produced video, have greatly improved the understanding among Sardinians of what Gold Mines of Sardinia is doing on their island. Sardinian domestic public relations have been and remain a high priority.

An independent review of security was commissioned following the bombing incident and the preliminary report indicates that it was isolated and aberrational in nature. The recommendations of the report will be followed.

With the help of SG Securities and the Banco di Sassari in Cagliari trading facilities have been put in place whereby it is possible for residents to buy and sell GMS shares. It is hoped that this will encourage greater Sardinian shareholding.