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25 September 2009                                                                                                                    AIM: VGM

Vatukoula Gold Mines plc

('VGM' or 'the Company')

Unaudited Operational Update for the 4th Quarter 1 June 2009 - 31 August 2009

and for the year ending 31 August 2009 and completion of conditional placing.  

Highlights

• Gold production of 6,722 ounces for the final quarter above guidance given in interim operational update announced on 24 August 2009. 

• Average gold price achieved for the final quarter at US$ 941 / ounce (up from US$920 / ounce)

• Operating costs per ounce of gold production for the final quarter increased to US$ 1,041 / ounce, giving an average for the year of US$837 / ounce

• Conditional placing to raise £9 million before expenses at a placing price of 1.2p per share

Operations Update

The Company announced on the 24 August 2009, that it expected gold production from the Vatukoula mine to be between 6,000 and 6,500 ounces for the quarter ending 31 August 2009. All figures in the below table and in this announcement relating to the 12 months ending 31 August 2009 are provisional and unaudited.  

	4th quarter	3rd quarter	2nd quarter	1st  quarter	12 Months
	Ending	ending	ending	ending	Ending
	August	May	February	November	August
	2009	2009	2009	2008	2009
Mined tonnes (Underground Ore)	43,705	54,618	47,113	67,100	212,536
Mined grade -grams Au / tonne (Underground Ore)	7.49	7.46	7.37	7.84	7.59
Mined tonnes (Surface Ore)	35,770	-	-	-	-
Mined grade -grams Au / tonne (Surface Ore)	1.79	-	-	-	-
Gold produced -ounces (Oz)	6,722	8,711	7,471	10,522	33,426
Average gold sale price -US$ / Oz	941	920	884	792	877
Cash Cost -US$/ Oz	1,041	680	915	778	837
Mine Net Profit (Loss) £,000 (un-audited) 1	(982)	875	(195)	(117)	(419)

1 The Mined Net Profit (Loss) has been re-stated for the first, second and third quarter as a result of year end

adjustments, this however has not impacted the year end figure.

Underground Operations 

During the quarter, management instigated an accelerated underground development programme, which whilst resulting in lower production figures in the shorter term, should increase the mine's flexibility and allow the Company to realise its longer term production targets. In addition to the accelerated underground development programme management has increased the underground drill exploration programme to assist the Company with long term planning.  

Underground ore production for the quarter decreased to 43,705 tonnes, with an average mine grade of 7.49 grams of gold per tonne. This can be attributed to delayed delivery of underground mining equipment which subsequently constrains the underground development rates and access to the ore. Since the last announcement on 24 August 2009, a total of 5 of the 8 ordered pieces of underground equipment have been delivered to site, namely 2 EJC 415 Haulage Trucks, 2 Toro 151 loaders and 1 Toro 006 loader. A further 2 EJC 415 and 1 Toro 006 loader are due to be commissioned and delivered within the calendar year. The Company is currently in the process of sourcing the remaining 5 pieces of underground equipment.

Milling Operations 

The Vatukoula Treatment Plant continues to operate satisfactorily, with current gold recoveries at 84% of the head grade delivered to the mill, which is consistent with historic gold recoveries at the mine. The ore milled from underground has decreased as a result of the lower feed from the mining operations which has decreased the gold produced to 6,722 ounces for the quarter.

Oxide Operations 

The new oxide circuit has performed well and is operating at a rate of 650 tonnes per day. The average grade of material delivered from our low-grade stockpile has averaged 1.79 grams gold / tonne with recoveries of 86% of the head grade delivered to the mill.

Oxide Exploration

The mine geologists are currently undertaking an exploration programme near the Korowere hill area, a total of four holes have been drilled with a further 6 to be completed.  AMC Consultants is assisting the Company with a detailed resource statement which is expected to be released prior to the end of October 2009.

Conditional Placing

The Company is pleased to announce that it has conditionally raised approximately £9 million before expenses through the placing (the 'Placing') of 750,000,000 ordinary shares of the Company (the 'Placing Shares') at a price of 1.2p per share.  

The Placing is conditional, inter alia, on the resolutions being duly passed by the Shareholders at the General Meeting scheduled for 21 October 2009, with admission to trading on the AIM market of the London Stock Exchange plc ('AIM') expected to take place on 22 October 2009. The Placing Shares will rank pari passu in all respects with the Company's existing ordinary shares in issue. Following admission to trading on AIM, the Company's total issued share capital will be 3,486,371,027 ordinary shares. The Placing Shares will represent approximately 21% of the enlarged issued share capital of the Company.

Canadian Zinc Corporation ('CZN') and Sprott Asset Management Inc, both substantial shareholders of VGM have subscribed for 125,000,000 and 124,500,000 Placing Shares respectively. In addition CZN has the right to subscribe for additional shares under certain conditions as announced by VGM on 7 May 2009. The Placing therefore constitutes a related party transaction under Rule 13 of the AIM Rules for Companies. With the exception of John MacPherson and John Kearney, who are both directors of Canadian Zinc Corporation, the directors of the Company having consulted with W.H. Ireland Limited as nominated adviser to the Company, consider the terms of the Placing to be fair and reasonable so far as the shareholders of VGM are concerned.

 A circular convening the General Meeting is being sent to Shareholders today, and a copy will be available shortly on the Company's website www.vatukoulagoldmines.com.  

Use of Proceeds:

The net placing proceeds of £8.65 million will be used to assist the Company in increasing its' pro rata annual production to in excess of 100,000 ounces by the beginning of the 2011 calendar year. This is expected to be achieved via an increased underground capital development programme, allowing access to increased mining faces, increasing both the capacity of tonnage delivered from underground and an increase in delivered grade to the mill. Whilst the Company is confident of reaching its stated objectives there can be no guarantee that they will be achieved. The development programme primarily requires the 13 pieces of underground equipment of which 8 have been ordered and 5 have been delivered.

The capital development programme will also be supplemented by an underground and surface drilling programme which will allow the development programme to focus on higher grade ore bodies, optimise mine planning and mining techniques

The proceeds of the Placing are expected to be applied as follows:

• Approximately £2.0 million is expected be used to purchase capital equipment;

• Approximately £0.5 million will be used as a provision for the initial payment under the  social rehabilitation deed with the government of Fiji;

• Approximately £1.0 million is expected to be allocated to near mine exploration with the intention of increasing ore reserves and resources; and

• The balance of the funds, which is expected to exceed £5.0 million after placement expenses, is expected to be used to strengthen the Company's balance sheet and for general working capital purposes

In the announcement dated 26 March 2009, the Company estimated that it would require between US$6 million and US$8 million to acquire the underground haulage equipment. However as a result of the delayed delivery of this equipment, the resultant lower underground development rates and therefore the lower production, the Company required a portion of the funds raised to be used for working capital purposes rather than capital expenditure. 

Outlook

Subject to the delivery of underground mobile equipment, the board is confident that it has the resources available to achieve a targeted rate of in excess of 100,000 ounces of gold per annum by the beginning of the calendar year 2011. This rate of production should lower the Company's cash costs per ounce (assuming an oil price of 80$ / barrel) to less than US$ 600 /ounce. Detailed mine planning has budgeted for the build up of gold production over this coming year, which, when supplemented with the Company's oxide production, results in a targeted production of 60,000 ounces of gold for the year ending August 2010.

David Paxton, CEO, said, 'This quarter has seen production above the guidance given to the market in August but below the previous quarter primarily due to the delay in the delivery of underground equipment. With equipment beginning to arrive on-site, which will increase both the flexibility and production from our underground operations, we look forward to an improved first quarter next year both in production and cash costs. 

We are very pleased with the support we have received for our placing, which was oversubscribed, and would like to thank our existing shareholders for their continued support as well welcoming a number of new institutions on to our register'.

Qualified Person Kiran Morzaria B.Eng. (ACSM), MBA, has reviewed and approved the information contained in this announcement. Kiran holds a Bachelor of Engineering (Industrial Geology) from the Camborne School of Mines and an MBA (Finance) from CASS Business School. Kiran is the Finance Director of VGM. 

Enquiries:

Vatukoula Gold Mines plc
David Paxton	+ 44 20 7016 7861
Kiran Morzaria
Arbuthnot Securities Limited - Lead Broker to the Placing
John Prior	+ 44 20 7012 2000
Ed Burbidge
W.H. Ireland Limited - Nomad & Joint Broker
David Porter/James Joyce	+ 44 20 7220 1666
Religare Hichens, Harrison & Co plc - Joint Broker
Daniel Briggs	+ 44 20 7382 7776
Colin Rowbury	+ 44 20 7382 7771
Bishopsgate Communications
Nick Rome	+44 20 7562 3350

Notes to Editors

The Company acquired the Vatukoula Gold Mine in April 2008 and has since re-established gold mining operations. The mine has operated for over 75 years and over that time has produced approximately 6.9 million ounces of gold. Current planning is to restore mine operations at a rate of 100,000 ounces per year. The mine has a Proven and Probable Reserve of 858,000 ounces of gold and a Measured, Indicated and Inferred resource of 5.15 million of ounces gold. These current reserves and resources provide for a mine life at the current rate of production of approximately over 40 years. The Company has no forward gold sales.

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