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17 December 2009                                                                                                                                      AIM: VGM

Vatukoula Gold Mines plc

("VGM" or "the Company")

Operational Update for the First Quarter from 1 September 2009 - 30 November 2009

VGM, the AIM-quoted Fijian gold producer, is pleased to announce its' operational update from the wholly-owned Vatukoula Gold Mine in Fiji, highlights include:

• Mine net earnings of £ 1.292 million up from a loss of £ (1.587) million in the previous quarter (unaudited)

• Gold sales of 8,826ozs up from the previous quarter (6,617ozs)

• Average realised gold price of US$ 1,096/oz up compared with previous quarter (US$ 929/oz)

• Gold recovery of 12,227ozs, up from previous quarter (7,444ozs) 

• Cash costs of US$584/oz down from the previous quarter (US$1,111/oz) (unaudited)

• Capital expenditure during the period was £ 1.7 million (unaudited)

• Signed the Social Assistance Deed and Fiscal Agreement with the Government of Fiji 

   

  Gold Production Report for Q1 2010
  	Sept 2009 Nov 2009 Q1	June 2009  Aug 2009 Q4	12 Months  to 31 Aug 2009
  Underground Mining / Sulphide Processing
  Ore mined (t)	45,105	43,705	212,029
  Average grade	8.34	7.57	7.59
  Ore delivered (t)	43,406	45,310	188,344
  Sulphide head grade (g/t)	8.63	4.93	6.28
  Oxide Plant
  Ore delivered (t)	43,899	32,095	32,095
  Oxide head grade (g/t)	1.93	1.78	1.78
  Total
  Development (metres)	1,664	1,682	5,755
  Ore processed (t)	86,329	77,405	220,439
  Average ore head grade (g/t)	5.29	3.63	6.27
  Recovery (%)	84%	82%	75%
  Gold recovered * (oz)	12,227	7,444	33,757
  Gold shipped (oz)	8,826	6,617	33,246
  Cash Costs
  Cash cost / recovered ounce ** (US$) (unaudited)	584	1,111	910
  Cash cost / tonne *** (US$) (unaudited)	83	96	133
  Average realised gold price (US$ / oz)	1,096	929	881
  Mine Net Earnings (£ ,000) (unaudited)	1,292	(1,587)	(2,988)
  *       includes gold which has been partially processed during in the period but not as doré product which has been processed but not shipped  **     exclude amortization and depreciation, unrealised foreign exchange rate movements, provisions, and gold stock movements ***    only includes mining and milling costs plus royalties

Operations Update:  As announced on the 24 November 2009, gold production for the quarter exceeded management expectations mainly due to the higher grade material mined from underground. This resulted in a much lower than expected cash cost per ounce for the quarter. However the Directors cannot guarantee that the mine will continue to encounter high grades and therefore may not be able to maintain these lower cash cost levels.

During the quarter the mine increased daily production to over 500 tonnes per day. The introduction of some of the planned new (to the mine) underground fleet has had a positive impact on production in the form of consistent underground mining on a daily basis. The mine has an accelerated development plan that is currently being implemented and should result in increased and more consistent underground production.

The higher grade of ore delivered during the quarter was partly due to the recently implemented drilling campaign to improve the knowledge of the near term production stopes and an increased priority on mine planning. With the implementation of the in mine exploration programme the grade variation and therefore production scheduling should be better managed going forward.

Underground Operations: Underground production for the period increased to 45,105 tonnes, with an average mine grade of 8.34 grams of gold per tonne. The increase in underground mining has been predominantly affected by the availability and utilisation rates of the underground haulage equipment, which has limited the amount of ore we are able to transport to the mill. The purchase of additional underground earthmoving equipment will allow us to increase our mining rates.

Management has focused on mine planning to ensure that long term mine projections can be achieved. Of particular issue for planning is the lack of detailed information on the sections we are looking to mine in the near future. The mine is currently operating 5 underground exploration drills, providing advance information on the ore bodies to assist in the detailed planning.  The Company has ordered a further 5 underground drills to accelerate this very necessary function.   

Dewatering of the lower mine levels continues. Pumping at the Philip shaft has exposed the 18 level, which we plan to include in operations at some time in the future. Refurbishment work on access to 18 level is underway. Mining operation on 18 level Philip Shaft will require refurbishment on the Philip Shaft infrastructure between 15 and 18 level, which is planned to be undertaken in the early part of 2010.

In 2009 following an unseasonal rainfall the mine experienced higher that expected ingress of water. The mine management have taken the appropriate precautionary measures to restrict water ingress should this occur in the future. All major pumping stations underground have two pumps with an additional unit on surface as a stand-by. All water doors and sandbags that may be required are in place underground, and all potential sources of water ingress have been sealed and drainage provided on surface.  

Milling Operations: Towards the end of the quarter the Vatukoula Treatment Plant was affected by the break-down of the Fluidised Bed Roaster. On detailed inspection it was discovered that components of the roaster had not been maintained to an acceptable level.  This was aggravated by the input of some extremely fine material.  The Roaster was shut down and overhauled. A number of components were upgraded, modified and repaired. The Roaster is now operating satisfactorily.  

This delay in the roaster caused the Vatukoula Treatment Plant to build up gold in circuit. This caused no loss of gold recovered, but a delay in producing gold doré.  The gold in circuit is expected to be reduced to normal levels in the following quarter. 

A total of 43,406 tonnes of ore from underground sources was milled at a grade of 8.63 gram gold / tonne.  

The Oxide circuit continued to perform above company forecasts. During the quarter we treated 43,899 tonnes at a grade of 1.93 grams of gold / tonne. 

Overall the plant had recoveries of 84%, consistent with the previous quarter.

Power: The power plant experienced a number of failures which led to a shortage of power during part of the quarter. One of our key generators, which had been completely rebuilt as part of our ongoing refurbishment program, was restarted but suffered a failure within the first few hours of operation. On investigation it was shown that these particular units can have a history of failure on initial start-up.

Management took the decision to commission an outside power generating company to supply the mine with a reliable source of power. The new units were installed and operational within 3 weeks, and are currently providing over half of the power requirements presently on a much more reliable basis and at a slightly lower operating cost.

This has resulted in the Vatukoula Power Plant now having sufficient power for the mine and related infrastructure. This provides the Mine with the flexibility to shut down units when maintenance is required without the added pressure of power shortages.

Management continues to seek alternate means to reduce the power cost. In particular we are currently in discussions with several parties in relation to the provision of power from bio-fuel alternatives available in Fiji. 

Fijian Government: As announced on 14 December 2009 Vatukoula Gold Mines Limited (Fiji) signed the Social Assistance Deed and Fiscal Agreement with the Minister for Lands and Mineral Resources. This deed replaces the 10 August Deed and provides the Company with a number of fiscal concessions in return for supporting the Social Assistance Trust for the Vatukoula community.  

David Paxton, CEO, said "Historic difficulties with equipment availability are gradually being overcome and our efforts to increase the availability of underground equipment are now being rewarded. Detailed mine planning has been introduced, including increased underground exploration drilling. We have ordered a number of new units to assist us in accelerating this program. In the quarter the mine had a number of operational issues that management at the mine were able to quickly assess and put in place measures to restore production without major production delays. 

"We firmly believe in the future of the Vatukoula Gold Mines and as these quarter results indicate we are progressing well in returning the mine to historical operating levels. Mine staff have performed exceptionally well under trying conditions."

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 70167861

Kiran Morzaria

Religare Hichens, Harrison plc.

Daniel Briggs + 44 20 74440503

Colin Rowbury + 44 20 74440504

W.H. Ireland Limited

David Porter + 44 20 72201666

James Joyce

Bishopsgate Communications

Michael Kinirons +44 20 7562 3350

Notes to Editors

The Company acquired the Vatukoula Gold Mine in April 2008 and has since then 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 and has no bank debt.

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