During the third quarter, the mine plan will focus on completing the 162/550 and 2B6514 stopes while developing stoping blocks on the 570 and 680 metre levels. The increased number of work areas and corresponding increase in availability of tonnage is expected to result in improved operating results for the fourth quarter.

Oil and Gas

Oil, NGLs and gas operations continue to positively impact Company earnings and cash from operations before net change in non-cash working capital. Solid production and prices resulted in contributed cash flows for the first six months of 2004 of $.7 million ($0.01 per share), compared to $1.5 million ($0.03 per share) for the same period in 2003. Extensive drilling at the Nipisi Unit is expected to increase oil and NGLs reserves while maintaining current production.


Exploration

During the second quarter of 2004, the Company remained active on the exploration front. Three drills were working in the Seabee mine area: at Porky Lake, 2 kilometres northeast of the mine and in the Santoy Lake area 15 kilometres southeast.

Work at Porky Lake consisted of infill drilling of the Porky Main Zone to upgrade confidence levels and to determine the continuity of the zone in preparation for an underground bulk sampling program.

Drilling also took place on a new discovery called the Porky West Zone (GAS Zone), which is 1.2 kilometres on strike to the west of the Porky Main Zone. Drilling returned excellent results that defined a 350 metre long, 1.5 to 5 metre wide gold bearing zone in the silicified feldspathic arenite, similar to the Porky Main Zone in mineralization style. The downward and strike extension of the GAS zone will be further tested during the next drill program.

Two drills were working on the Santoy Lake 7 and 8 zones east of the Seabee mine. This was a follow-up to the 2003 prospecting program in which sampling along a 4 kilometre corridor returned encouraging gold values. This program is currently underway and results will be released when completed.

Elsewhere in Saskatchewan, an all-weather access trail is being constructed to Claude’s Jojay gold property north of Otter Lake. This trail will be a continuation of the all-weather road that accesses the Jolu mine from Highway #102.

The Jojay gold property hosts a resource of approximately 300,000 tonnes at a grade of 9 grams of gold per tonne. Geophysical and ground sampling in the deposit area indicate great potential to expand its dimensions by further exploration. The new access trail enhances accessibility and will enable the Company to expeditiously carry out its future programs.

At the Tartan Lake mine near Flin Flon, Manitoba, permits have been received and dewatering of the mine workings and site restoration is underway. This will facilitate a 4,500 metre underground drill program to test a largely untested structure to the west of existing mine workings.

At Claude’s Madsen property in Red Lake, Ontario, final results are pending from Placer Dome’s drill program on the Treasure Box zone completed in the second quarter of 2004. Over 1,650 assays remain to be processed and Claude will report these results as soon as they are received. Placer has identified numerous exploration targets in addition to the Treasure Box and is currently prioritizing these targets for further exploration.


Financial

Three Months

For the three months ended June 30, 2004, the Company recorded a net loss of $96,000 ($0.00 per share) compared to restated net earnings due to changes in accounting policies of $79,000 ($0.00 per share) for the same period in 2003. Cash flow from operations before net changes in non-cash working capital items was $1.1 million ($0.02 per share) in the second quarter, compared to $1.4 million ($0.03 per share) in the similar period of 2003.

Total revenue generated for the quarter was $8.1 million, 8% lower than revenue generated in the second quarter of 2003. The Seabee mine contributed $5.8 million to revenue for the second quarter of 2004 compared to $6.0 million for the same period last year. Gold sales volume for the period declined 13% from 12,500 ounces in 2003 to 10,900 ounces in 2004. The reduction in sales volume was largely offset by the improvement in average gold prices per ounce realized for the period: Q204 – US $389 (CDN $529); Q203 – US $344 (CDN $481). The 18% decrease in oil, NGLs and gas revenue was due to the normal production decline of our gas wells, combined with lower average realized petroleum prices due to Canadian dollar strengthening.

Due largely to the commissioning of the shaft extension, total mine operating costs fell 4% from $4.6 million in the second quarter of 2003 to $4.4 million this period. The improved operating costs were offset by lower sales volume and an appreciating Canadian dollar for the period, which resulted in an 11% increase in cash operating costs per ounce1: Q204 – US $295; Q203 – US $266.

The 64% increase in operating costs at the Company’s oil and gas properties, period over period, was a result of a repairs and maintenance charges incurred at the Nipisi Unit and Edson Gas Plant.

(1) The Company reports its operating, depreciation and depletion costs on a per ounce basis, based on uniform standards developed by the Gold Institute. Management uses this measure to analyze the profitability, compared to average realized gold prices, of the Seabee mine. Investors are cautioned that the above measures may not be comparable to similarly titled measures of other companies, should these companies not follow Gold Institute standards.


Year to Date

For the six months ended June 30, 2004, the Company recorded a net loss of $.5 million ($0.01 per share) compared to restated earnings of $.6 million ($0.01 per share) for the same period in 2003.

Revenue

Total revenue generated for the first half of 2004 was $15.7 million, 11% lower than the $17.7 million reported for the same period in 2003. The Seabee mine contributed $11.1 million in the first half compared to $11.9 million for the first half of 2003. As expected, gold sales volume for the first two quarters of 2004 fell 14%, from 24,100 ounces in 2003 to 20,800 this period. Mill throughput continues to originate primarily from the lower grade development and sill ore on the 500 and 600 metre levels, resulting in the lower sales volume.

The decline in gold sales was partially offset by the improvement in average gold prices realized for the period: 2004 – CDN $536 (US $400); 2003 – CDN $493 (US $339). Despite the improvement, gold sales continue to be negatively influenced by the appreciating Canadian dollar. Based on assumptions comparable to first half 2003 actual exchange levels, first half 2004 revenue would have increased an additional $1.0 million, or $0.02 per share.

Gross oil, NGLs and gas revenue totalled $4.6 million, 21% lower than the $5.8 million generated for the first half of 2003. This was largely due to normal production declines of gas wells as well as a weakening in petroleum prices due to the strengthening Canadian dollar.

Expenditures

Total mine operating costs fell 9% from $9.4 million in 2003 to $8.6 million this half. These results continue to reflect the benefits of the extension of the mine shaft commissioned towards the end of 2003. The lower sales volume during the half contributed to a 15% increase in total cash operating costs per ounce: 2004 – US $309; 2003 – US $269. The strengthening Canadian dollar resulted in a US $25 increase in the half’s cash operating cost per ounce figure.

Oil, NGLs and gas operating costs rose 17% from $.6 million in the first half of 2003 to $.7 million in the same period of 2004. This was a result of a repairs and maintenance charges at the Nipisi Unit and Edson Gas Plant.

General and administrative costs increased 25% largely due to increased costs associated with the Company’s American Stock Exchange (AMEX) listing and added emphasis on investor relations. Interest and other costs and the provision for income taxes remained relatively unchanged.

Depreciation and depletion of the Company’s gold assets increased 5% from $2.2 million for the first half of 2003 to $2.3 million this period. This was due to a combination of an increased asset base offset by a constant reserve base and lower tonnes broken in the period. Depreciation and depletion costs per ounce for the period increased to US $83 from US $62 in 2003, the result of a combination of lower sales volume and the strong Canadian dollar.

Liquidity and Financial Resources

Cash flow from operations before net changes in non-cash working capital items was $2.1 million ($0.04 per share) for the first half of 2004, compared to a restated $3.0 million ($0.06 per share) for the similar period of 2003.

Capital expenditures on mineral properties in the first six months of 2004 amounted to $7.7 million, a 3% increase over the $7.5 million incurred in the first half of 2003. This half’s balance reflects $4.7 million in Seabee mine development expenditures (2003 - $2.6 million); exploration expenditures of $2.4 million (2003 - $1.0 million); and $.5 million in property and plant expenditures (2003 - $4.0 million. The 2003 property and plant expenditures relate to the shaft extension and tailings upgrade project.) Capital expenditures related to oil and gas properties increased from $.4 million in 2003 to $.9 million this half. This was due to drilling costs on the Nipisi Unit and plant expenditures at Edson.

Financing activities during the half included the exercise of 1,138,450 common share warrants for gross proceeds of $2.1 million pursuant to a January 2003 private placement.

At June 30, 2004, the Company had $7.5 million in working capital, a $4.4 million decrease from the year ended December 31, 2003. This was due to declining earnings from oil and gas properties and capital expenditures financed from operating cash flows.


Outlook

Seabee Mine

The increased time required to develop the larger stopes in or near production has delayed access to the ore that was expected to improve operating results starting in the third quarter. These stopes will not be available for free pull until the fourth quarter of 2004, resulting in third quarter production levels similar to those in the first two quarters of this year. As a result, production forecast for the Seabee mine is expected to range between 44,000 and 48,000 ounces.

Mine operating costs in 2004 should still return to historic levels of approximately $16.5 million. Total cash operating costs per ounce will rise to US $275, a combination of sales volume decline and Canadian dollar appreciation.

Development costs at the Seabee mine have been revised upward to reflect current near term requirements. Development costs are expected to be between $6.5 million and $7.0 million.

Oil and Gas

The Company’s oil and gas contribution margin forecast remains unchanged. Oil and NGLs sales volumes are expected to be equal or better than 2003, a result of the investment in drilling at the Nipisi Unit. Gas production is expected to fall by normal production declines of 8% to 10%. Operating costs are expected to remain at $1.2 million to $1.4 million. Capital expenditures remain forecast at $1.8 million.


Derivative Instruments and Hedging Activities

To mitigate effects of price fluctuations on revenue, the Company may undertake hedging transactions from time to time, in respect of foreign exchange rates and the price of gold.

At June 30, 2004, the Company had no outstanding forward gold contracts and had outstanding foreign exchange contracts to sell US $10 million at an average CDN/US dollar exchange rate of 1.3507, with a market value gain inherent in these contracts of US $.1 million.


Auditors

This management report and the accompanying financial statements for the six month period ended June 30, 2004 have not been reviewed by our external auditors.


Caution Regarding Forward-Looking Information

Some of the statements contained in this report are forward-looking statements, such as estimates and statements that describe the Company’s future plans, objectives or goals. This includes words to the effect that the Company or management expects a stated condition or result to occur. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results in each case could differ materially from those currently anticipated in such statements.