1st Quarter Results
Galantas Gold Corporation
16 May 2006
16 MAY 2006
GALANTAS GOLD CORPORATION
(AIM:GAL)
(TSX Venture Exchange: GAL)
Q1 RESULTS
FOR THE THREE MONTHS ENDED 31 MARCH 2006
AND
NOTIFICATION OF AGM
Galantas Gold Corporation ('Galantas'), a company with a gold mine in
development in Northern Ireland, today announces its Q1 results for the three
months ended 31 March 2006.
The Board is also pleased to announce that its AGM will be held at the offices
of the Company's solicitors, McMillan Binch at BCE Place in Toronto at 14.00 on
14 June 2006.
Galantas Gold Corporation is a Canadian resource company and the first to
acquire mining rights, prospecting licences and planning consent to mine gold in
Ireland. Ownership is through Galantas Gold's wholly owned Ontario holding
company, Cavanacaw Corporation, which is sole owner of all the shares of two
Northern Ireland companies - Omagh Minerals Limited, owner of the core
business's prospecting and mining rights and planning consents, and Galantas
Irish Gold Limited, owner of rights to work, market and sell the Company's gold
production as certified Irish jewellery.
Enquiries:
Galantas Gold Corporation +44 (0) 2882 241100
Email: info@galantas.com
Jack Gunter P.Eng Executive Chairman
Roland Phelps C.Eng President & CEO
Moe Lavigne P.Geo Vice President
Website: www.galantas.com
Bishopsgate Communications Ltd. +44 (0) 207 430 1600
Dominic Barretto
Nick Rome
ARM Corporate Finance Limited +44 (0) 20 7512 0191
Nick Harriss
Lewis Charles Securities Limited +44 (0) 20 7065 1150
David Scott
Responsibility for Consolidated Financial Statements
The accompanying consolidated financial statements for Galantas Gold Corporation
have been prepared by management in accordance with Canadian generally accepted
accounting principles consistently applied. The most significant of these
accounting principles have been set out in the December 31, 2005 audited
consolidated financial statements. Only changes in accounting information have
been disclosed in these consolidated financial statements. These statements are
presented on the accrual basis of accounting. Accordingly, a precise
determination of many assets and liabilities is dependent upon future events.
Therefore, estimates and approximations have been made using careful judgment.
Recognizing that the Company is responsible for both the integrity and
objectivity of the consolidated financial statements, management is satisfied
that these consolidated financial statements have been fairly presented.
GALANTAS GOLD CORPORATION
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS (PREPARED BY MANAGEMENT)
March 31, December 31,
2006 2005
(Unaudited) (Audited)
Assets
Current
Cash $ 1,087,243 $ 1,121,985
Accounts receivable and advances 231,709 144,727
Inventory 101,522 101,363
Future income taxes (Note 10) 306,520 302,900
____________ ___________
1,726,994 1,670,975
Property, plant and equipment (Note 2(a)) 3,370,159 2,903,165
Deferred development costs (Note 2(b)) 4,811,687 4,314,368
Future income taxes (Note 10) 472,480 466,900
____________ ___________
$ 10,381,320 $ 9,355,408
____________ ___________
Liabilities
Current
Accounts payable and accrued liabilities $ 670,927 $ 297,785
Current portion of financing facility (Note 3) 175,818 99,207
Due to directors (Note 7) 104,303 253,103
____________ ___________
951,048 650,095
Long-term portion of financing facility (Note 3) 539,410 271,664
____________ ___________
1,490,458 921,759
____________ ___________
Shareholders' Equity
Share capital (Note 4) 19,328,773 18,400,862
Warrants (Note 5) 117,172 175,166
Contributed surplus 768,658 656,658
____________ ___________
20,214,603 19,232,686
Deficit (11,323,741) (10,799,037)
____________ ___________
8,890,862 8,433,649
____________ ___________
$ 10,381,320 $ 9,355,408
____________ ___________
GALANTAS GOLD CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(PREPARED BY MANAGEMENT)
(UNAUDITED)
Cumulative since
development stage on Three Months Ended
January 1, 2003 March 31,
March 31, 2006 2006 2005
Sales $ 457,391 $ 3,845 $ 20,497
_____________ _____________ _____________
Cost of goods sold 514,931 1,623 24,495
_____________ _____________ _____________
(57,540) 2,222 (3,998)
_____________ _____________ _____________
Expenses
Accounting and corporate 80,356 12,280 8,530
Bank charges and Interest 20,001 1,771 -
Consulting 50,750 - 3,250
Foreign exchange (gain)
loss (114,665) 9,155 (13,439)
Legal and audit 255,120 57,258 29,634
Management fees 247,500 - 25,000
Operating expenses 1,204,068 24,642 74,039
Shareholder 507,258 275,812 -
communications
Stock option compensation 634,600 112,000 -
Transfer agent 69,313 5,535 1,254
Travel and general office 193,089 37,673 19,761
_____________ _____________ _____________
3,147,390 536,126 148,029
_____________ _____________ _____________
Loss before income taxes (3,204,930) (533,904) (152,027)
Future income tax 779,000 9,200 -
recovery
_____________ _____________ _____________
Loss for the period (2,425,930) (524,704) (152,027)
DEFICIT, beginning of
period (8,897,811) (10,799,037) (10,760,605)
_____________ _____________ _____________
DEFICIT, end of period $ (11,323,741) $ (11,323,741) $ (10,912,632)
_____________ _____________ _____________
GALANTAS GOLD CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS (PREPARED BY MANAGEMENT)
(UNAUDITED)
Cumulative since
development stage on Three Months Ended
January 1, 2003 March 31,
March 31, 2006 2006 2005
CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES
Net loss for the period $ (2,425,930) $ (524,704) $ (152,027)
Adjustment for
Amortization 164,376 1,418 16,546
Stock option compensation 634,600 112,000 -
Future income taxes (779,000) (9,200) -
Net change in non-cash
working capital 287,469 286,001 71,856
____________ ___________ _________
(2,118,485) (134,485) (63,625)
____________ ___________ _________
INVESTING ACTIVITIES
Purchase of property, plant
and equipment (1,737,625) (530,393) -
Deferred development costs (1,434,231) (435,338) -
Marketable securities 2,096 - -
____________ ___________ _________
(3,169,760) (965,731) -
____________ ___________ _________
FINANCING ACTIVITIES
Issue of common shares for 6,006,470 869,917 -
cash
Share issue costs (360,400) - -
Cash received on shares to
be issued, net of issue costs - - 865,500
Advances from financing
facility 920,400 365,400 (7,330)
Repayments of financing
faciltiy (261,314) (21,043) -
Advances from (to) directors (22,837) (148,800) 68,621
____________ ___________ _________
6,282,319 1,065,474 926,791
____________ ___________ _________
NET CHANGE IN CASH 994,074 (34,742) 863,166
CASH, beginning of period 93,169 1,121,985 133,756
CASH, end of period $ 1,087,243 $ 1,087,243 $ 996,922
GALANTAS GOLD CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(PREPARED BY MANAGEMENT)
(Unaudited)
Shares issued and subscribed Warrant Contributed Accumulated
____________________________
# of Shares Share Value Value Surplus deficit Total
Balance at January 1, 2003 71,115,222 $ 13,082,493 $ - $ 1,420 $ (8,897,811) $ 4,186,102
Shares issued on exercise of
warrants 250,000 27,461 - - - 27,461
Common shares issued net of
issue costs 8,707,860 1,048,524 - - - 1,048,524
Common shares issued for
debt settlement 7,416,395 741,640 - - - 741,640
Valuation of agents options - - - 20,751 - 20,751
Valuation of warrants issued - (78,537) 78,537 - - -
Loss for the year - - - - (676,142) (676,142)
Balance at December 31, 2003 87,489,477 14,821,581 78,537 22,171 (9,573,953) 5,348,336
Shares issued on exercise of
warrants 945,554 159,089 - - - 159,089
Common shares issued net of
issue costs 2,866,825 395,318 - - - 395,318
Valuation of stock options
granted - - - 287,649 - 287,649
Shares issued on exercise of
stock options - - - - - -
Valuation of warrants issued - (71,671) 71,671 - - -
Valuation of warrants exercised
or expired - 17,570 (78,537) 60,967 - -
Loss for the year - - - - (1,186,652) (1,186,652)
Balance at December 31, 2004 91,301,856 15,321,887 71,671 370,787 (10,760,605) 5,003,740
Common shares issued, net
of issue costs 35,033,333 3,254,141 - - - 3,254,141
Valuation of warrants
issued - (175,166) 175,166 - - -
Valuation of warrants
expired - - (71,671) 71,671 - -
Valuation of stock options
granted - - - 214,200 - 214,200
Loss for the year - - - - (38,432) (38,432)
Balance at Decermber 31,
2005 126,335,189 18,400,862 175,166 656,658 (10,799,037) 8,433,649
Shares issued on exercise of
warrants 5,799,446 869,917 - - - 869,917
Valuation of warrants
exercised - 57,994 (57,994) - - -
Valuation of stock options
granted - - - 112,000 - 112,000
Loss for the period - - - - (524,704) (524,704)
Balance at March 31, 2006 132,134,635 $ 19,328,773 $ 117,172 $ 768,658 $ (11,323,741) $ 8,890,862
GALANTAS GOLD CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (PREPARED BY MANAGEMENT)
THREE MONTHS ENDED MARCH 31, 2006
(UNAUDITED)
1. ACCOUNTING POLICIES, GOING CONCERN, INCORPORATION AND NATURE OF OPERATIONS
These financial statements have been prepared on a going concern basis which
contemplates that Galantas Gold Corporation (the 'Company') will be able to
realize assets and discharge liabilities in the normal course of business. The
recoverability of these consolidated amounts, which includes the consolidated
results of the Company's wholly-owned subsidiary Cavanacaw Corporation
(Cavanacaw), is dependent on the ability of the Company to obtain future
financing and to recover its investment in Omagh Minerals Limited (Omagh).
Cavanacaw has a 100% shareholding in Omagh which is engaged in the acquisition,
exploration and development of gold properties, mainly in Omagh, Northern
Ireland. The Company is considered to be in the development stage as it has yet
to earn substantial revenues and it is devoting substantially all of its efforts
toward the development of this process.
As at December 31, 2001, studies performed on Omagh's mineral property confirmed
the existence of economically recoverable reserves. The mineral property is
currently in the development stage of operation and the directors believe that
the capitalized development expenditures will be fully recovered by the future
operation of the mine. The recoverability of Omagh's capitalized development
costs is thus dependent on the ability to secure financing, future profitable
production or proceeds from the disposition of the mineral property. These
development expenditures will be amortized over the estimated life of the ore
body.
Management is confident that it will be able to secure the required financing to
enable the Company to continue as a going concern. However, this is of subject
to a number of factors including market conditions. These consolidated
financial statements do not reflect adjustments to the carrying value of assets
and liabilities, the reported expenses and balance sheet classifications used
that would be necessary if the going concern assumption was not appropriate.
Such adjustments could be material.
The Company was formed on September 20, 1996 under the name Montemor Resources
Inc. on the amalgamation of 1169479 Ontario Inc. and Consolidated Deer Creek
Resources Limited. The name was changed to European Gold Resources Inc. by
articles of amendment dated July 25, 1997. On May 5, 2004, the Company changed
its name from European Gold Resources Inc. to Galantas Gold Corporation. The
Company was incorporated to explore for and develop mineral resource properties,
principally in Europe. Its first exploration project was a property in
Portugal. In 1997, it purchased all of the shares of Omagh which owns a mineral
property in Northern Ireland, including a delineated gold deposit. Omagh
obtained full planning and environmental consents necessary to bring its
property into production.
The Company entered into an agreement on April 17, 2000, approved by
shareholders on June 26, 2000, whereby Cavanacaw, a private Ontario corporation,
acquired Omagh. Cavanacaw has established an open pit mine to extract the
Company's gold deposit near Omagh. Cavanacaw also has developed a premium
jewellery business founded on the gold produced under the name Galantas Irish
Gold Limited (Galantas).
Cavanacaw operations include the consolidated results of Cavanacaw and its
wholly-owned subsidiaries Omagh and Galantas.
The unaudited financial statements have been prepared in accordance with
Canadian generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information and notes
to the financial statements required by Canadian generally accepted accounting
principles for annual financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three month
periods ended March 31, 2006 may not be necessarily indicative of the results
that may be expected for the year ending December 31, 2006.
GALANTAS GOLD CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (PREPARED BY MANAGEMENT)
THREE MONTHS ENDED MARCH 31, 2006
(UNAUDITED)
1. ACCOUNTING POLICIES, GOING CONCERN, INCORPORATION AND NATURE OF OPERATIONS
(continued)
The balance sheet at December 31, 2005 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by Canadian generally accepted accounting principles for
complete financial statements. The interim financial statements have been
prepared by management in accordance with the accounting policies described in
the Company's annual financial statements for the year ended December 31, 2005.
For further information, refer to the financial statements and notes thereto
included in the Company's annual financial statements for the year ended
December 31, 2005.
New accounting pronouncement
In January 2005, the Canadian Institute of Chartered Accountants issued four new
accounting standards: Handbook Section 1530, Comprehensive Income, Handbook
Section 3251, Equity, Handbook Section 3855, Financial Instruments -
Recognition and Measurement and Handbook Section 3865, Hedges. These standards
are effective for interim and annual consolidated financial statements for the
Company's fiscal years beginning January 1, 2007. As of March 31, 2006, the
impact of implementing these new standards is not yet determinable.
2. PROPERTY, PLANT AND EQUIPMENT AND DEFERRED DEVELOPMENT COSTS
(a) Property, Plant and Equipment
2006 2005
__________________________________
Accumulated
Cost Amortization Net Net
Freehold land and
buildings $ 1,955,035 $ 29,898 $ 1,925,137 $ 1,743,967
Plant and machinery 1,806,160 402,137 1,404,023 1,115,756
Motor vehicles 34,511 27,706 6,805 7,214
Office equipment 70,783 36,589 34,194 36,228
$ 3,866,489 $ 496,330 $ 3,370,159 $ 2,903,165
(b) Deferred Development Costs
2006
Opening balance $ 4,314,368
Additions during the period:
Consultants 70,409
Mining lease 152
Fuel 27,294
Wages 190,145
Interest 7,006
Travelling 26,977
Repairs and maintenance 46,832
Construction 51,791
General 14,734
Amortization of plant
equipment 61,979
497,319
Total deferred
development costs $ 4,811,687
GALANTAS GOLD CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (PREPARED BY MANAGEMENT)
THREE MONTHS ENDED MARCH 31, 2006
(UNAUDITED)
3. FINANCING FACILITY
On March 17, 2006, the Company received a loan from Barclays Mercantile Business
Finance Ltd in the amount of $365,400 (180,000 GBP) to assist in the purchase of
certain metallurgical equipment having a cost of $728,770 (359,000 GBP). The
loan is for a period of three years at 3.97% (flat interest) with monthly
blended installments of $11,323 (5,578 GBP).
Amounts payable on the long term debt are as follows:
Interest 2006 2005
Financing facility (172,329 GBP) 3.71% $ 349,828 $ 370,871
Financing facility (180,000 GBP) 3.97% 365,400 -
_________ _________
715,228 370,871
Less current portion (86,610 GBP) 175,818 99,207
_________ _________
$ 539,410 $ 271,664
_________ _________
Principal repayments over the next three years are as follows:
2007 $ 214,408
2008 231,600
2009 269,220
_________
$ 715,228
_________
4. SHARE CAPITAL
(a) AUTHORIZED
Unlimited number of common and preference shares issuable in Series
(b) COMMON SHARES ISSUED
_________ _________
NUMBER OF STATED
SHARES VALUE
Balance, January 1, 2006 126,335,189 $ 18,400,862
Warrant exercise 5,799,446 869,917
Warrant exercise - valuation - 57,994
Balance, March 31, 2006 132,134,635 $ 19,328,773
5. WARRANTS
As at March 31, 2006 the following warrants were outstanding:
Number Fair Exercise Expiry
of Warrants Value Price Date
$ $
5,867,220 58,672 0.15 April 4, 2006
5,850,000 58,500 0.15 April 15, 2006
11,717,220 117,172
During the period, 5,799,446 warrants expiring April 4, 2006 were exercised.
GALANTAS GOLD CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (PREPARED BY MANAGEMENT)
THREE MONTHS ENDED MARCH 31, 2006
(UNAUDITED)
6. STOCK OPTIONS
The Company has a stock option plan as detailed in Note 7(c) of the December 31,
2005 audited financial statements.
NUMBER OF WEIGHTED AVERAGE
STOCK OPTIONS EXERCISE PRICE
$
Balance, January 1, 2006 7,900,000 0.11
Expired/cancelled (1,400,000) 0.15
Balance, March 31, 2006 6,500,000 0.10
Details of the stock options outstanding at March 31, 2006 are:
Exercisable Number Exercise Expiry
Options of Options Price Date
$
1,500,000 1,500,000 0.12 May 17, 2007
2,800,000 2,800,000 0.15 April 10, 2008
1,333,334 2,000,000 0.10 April 01, 2009
66,667 200,000 0.10 May 13, 2010
5,700,001 6,500,000
On February 13, 2006, 1,000,000 stock options at an exercise price of $0.15
expired and 400,000 options at an exercise price of $0.15 expiring April 10,
2008 were cancelled.
No stock options were granted during the period.
7. RELATED PARTY TRANSACTIONS
As at March 31, 2006, the Company was indebted to directors in the amount of
$104,303 (2005 - $498,332). This amount represents amounts paid by the directors
on behalf of the Company along with unpaid management fees. These amounts are
interest-free and there are no fixed terms of repayment.
During the period, the Company was charged $nil (2004 - $25,000) by directors of
the Company for management services which are in the normal course of operations
and are measured at the exchange amount established and agreed to by the related
parties. Accounts payable includes $nil (2004 - $25,000) owing to these
directors for management services and repayment of expenses incurred on behalf
of the Company.
The Company was charged $20,640 (2005 - $nil) for accounting and corporate
secretarial services by companies associated to an officer of the Company.
Accounts payable includes $4,984 (2005 - $nil) owing to these companies.
8. SEGMENT DISCLOSURE
The Company, after reviewing its reporting systems, has determined that it has
one reportable segment. The Company's operations are substantially all related
to its investment in Cavanacaw and its subsidiaries, Omagh and Galantas.
Substantially all of Cavanacaw's revenues, costs and assets of the business that
support these operations are derived or located in Northern Ireland.
GALANTAS GOLD CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (PREPARED BY MANAGEMENT)
THREE MONTHS ENDED MARCH 31, 2006
(UNAUDITED)
9. BASIC AND DILUTED LOSS PER SHARE
Basic loss per share is computed by dividing the loss for the year by the
weighted average number of common shares outstanding during the year. Diluted
loss per share is calculated in a manner similar to basic loss per share, except
the weighted average shares outstanding are increased to include potential
common shares from the assumed exercise of options and warrants, if dilutive.
Stock options and warrants were not included in the diluted loss per share
calculation since the calculation would be anti-dilutive.
The following table sets out the computation for basic and diluted loss per
share:
2006 2005
Numerator:
Loss for the period $ 524,704 $ 152,027
Denominator:
Average number of common shares outstanding 128,327,160 91,301,856
Basic and diluted loss per share $ 0.00 $ 0.00
10. INCOME TAXES
Estimated taxable income for the period ended is $nil. Based on the level of
historical taxable income, it cannot be reasonably estimated at this time if it
is more likely than not that the Company will realize the benefits from future
income tax assets or the amounts owing from future income tax liabilities.
Consequently, the future recovery or loss arising from differences in tax values
and accounting values have been reduced by an equivalent estimated taxable
temporary difference valuation allowance.
The estimated taxable temporary difference valuation allowance will be adjusted
in the period that it is determined that it is more likely than not that some
portion or all of the future tax assets or future tax liabilities will be
realized.
11. SUPPLEMENTAL CASH FLOW INFORMATION
(a) Net change in non-cash working capital
2006 2005
Accounts receivable $ (86,982) $ 33,184
Inventory (159) 11,912
Accounts payable 373,142 26,760
_________ _________
$ 286,001 $ 71,856
_________ _________
(b) Supplemental information
Interest paid $ 8,776 $ -
_________ _________
Interest paid includes $7,005 of interest paid on the financing facility and
charged to deferred development costs
GALANTAS GOLD CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (PREPARED BY MANAGEMENT)
THREE MONTHS ENDED MARCH 31, 2006
(UNAUDITED)
12. OTHER INFORMATION
Effective March 31, 2006 the Company's shares were successfully admitted to
trading on the Alternative Investment Market ('AIM') of the London Stock
Exchange. As a result, the Company is dual-listed on both AIM and the TSX
Venture Exchange in Canada.
13. SUBSEQUENT EVENT
Subsequent to March 31, 2006, 11,717,220 warrants were exercised for gross
proceeds of $1,757,583, representing the total warrants outstanding at March 31,
2006.
MANAGEMENT DISCUSSION AND ANALYSIS
Three months ending March 31, 2006
This document presents management's discussion and analysis (MD&A) of the
operational and financial results of Galantas Gold Corporation for the 3 months
ending March 31, 2006. The MD&A is to be read in conjunction with the unaudited
financial statements for the same period. The MD&A does not form part of these
financial statements. The Company prepares and files its financial statements in
accordance with Canadian generally accepted accounting principles (GAAP). This
MD&A is prepared in conformance with National Instrument 51-102 F1 and was
approved by the Company's audit committee on May 12th, 2006.
The first quarter report and accounts and related MD&A form important reference
documents for the Company's annual meeting of shareholders. This year, the
meeting will be held in the offices of the Company's solicitors, McMillan Binch
at BCE Place in Toronto at 14.00 on June 14th.
FORWARD LOOKING STATEMENTS
The information in this MD&A contains forward-looking statements, including
statements regarding anticipated operational and financial performance. Such
statements are not guarantees of the Company's future performance which is
subject to risks and uncertainties only some of which are within the Company's
control, and any or all of which could cause the Company's performance to be
materially different from what directors may believe. Given the uncertainties
associated with forward-looking statements, readers are cautioned not to place
undue reliance on them. The Company does not undertake to update any
forward-looking statement that is contained herein.
INTRODUCTION - DESCRIPTION OF BUSINESS AND STRATEGY
Galantas Gold Corporation is a Canadian development stage resource company and
the first to acquire mining rights, prospecting licences and planning consent to
mine gold in Ireland. Ownership is through Galantas Gold's wholly owned Ontario
holding company, Cavanacaw Corporation, which is sole owner of all the shares of
two Northern Ireland companies - Omagh Minerals Limited, owner of the core
business's prospecting and mining rights and planning consents, and Galantas
Irish Gold Limited, owner of rights to work, market and sell the Company's gold
production as certified Irish gold jewellery.
Galantas Gold Corporation aims to increase shareholder value by establishing and
operating a gold mine on its property, by exploring to realise the full
potential of the geology of its holdings, and by adding value to its gold
production by using some of it in the manufacture, marketing and selling of
Galantas(R) certified Irish gold jewellery products.
The Company's strategy in summary is to:
• Develop and operate an initial 150 tonnes-per-day open pit mine and
processing plant on its Kearney deposit, achieving production in 2006,
• Explore and develop on extensions to the Kearney deposit and on nearby
known deposits so as to expand production in stages,
• Explore its 189 sq km prospecting licence, focusing on the more than 50
targets identified from integration of the Company's large body of
geological, geochemical and geophysical data,
• Establish and expand the Galantas Irish gold jewellery business once
certified Irish gold from the mine becomes available.
Omagh Minerals Limited is developing an initial open pit mine on proven reserves
on its Omagh property and is continuing to explore with the aim of developing
and mining known gold deposits close to the initial mine. In parallel, it is
exploring identified targets elsewhere on its 189 sq km prospecting licence, all
with the object of increasing the reserve and resource base with a view to
future expansion.
Reserves and Resources
Ore reserves and resources are contained within eight lode deposits in a 5 sq km
area at the eastern extremity of the Company's prospecting licence which
encompasses a 20 km long segment of prospective Precambrian 'Dalradian' rocks.
The deposits sub-outcrop beneath a few metres of glacial and recent overburden
and are open to depth and most of them along strike. The Kearney deposit is the
focus of initial open pit mining. This steeply dipping deposit is some 850
metres long, and an average of 4.3 metres wide. It has been drilled with 40
diamond drill holes down to 137 metres and was intersected in one hole at a
depth of 300 metres. Below the average 3 metres of overburden cover, the
uppermost 40 metres of the southernmost 441 metres of the strike length have
been 70% stripped of overburden and sampled in detail. Independent consultants
have calculated reserves and resources.
Using a 1.0 gAu/t cut-off grade, A.C.A.Howe International, ('Howe') reported
(references on www.SEDAR.com - 1. Geological Report on the Omagh Gold Deposits,
April 15, 2003; 2. Letter to Galantas Directors dated Aug. 20, 2004), ' ...a
proven and probable reserve of 367,310 tonnes grading 7.52 gAu/t over a width of
4.43 metres was estimated for the main Kearney Deposit within the 850 metres
strike length of the proposed Kilborn open pit to a depth of 37 metres. A
further indicated reserve of 1,183,680 tonnes grading 7.02 gAu/t over a width of
4.43 metres was estimated from the base of the proposed pit to a depth of 137
metres'.
Howe re-assessed grade and tonnage and concluded that, 'increasing the cut-off
grade from 1gAu/t to 3gAu/t, the minable grade of the Kearney resource increases
by 56% to 12.4 gAu/t and the contained gold declines only about 10%. The total
tonnage is also reduced by 42%. This relatively minor reduction (in contained
gold) illustrates that gold distribution is tightly constrained to the lode
structures and is thereby amenable to selective mining techniques, an approach
which will optimise grade and minimise dilution ....'.
Howe re-analysed the data for the 442 metres of strike length that had been
sampled in most detail. They concluded that, 'Using a 3 gAu/t cut-off grade and
a density of 2.93 the measured resource to 20 metres over a strike length of 441
metres is 56,414 tonnes at a grade of 11.03 gAu/t and the indicated resource to
37 metres over the same strike length is 58,363 tonnes at 11.03 gAu/t. This
partial evaluation of the Kearney deposit confirmed that higher grades can be
maintained in a mining operation.'.
This conclusion is supported by comparing the grade obtained from a mining trial
in the Kearney Deposit wherein four selectively mined samples aggregating 101.4
tonnes contained an average of 53.41 gAu/t. The difference between the gold
content of these large samples and the grade estimates for the Kearney Deposit
is attributed to dilution inbuilt into original sampling, to gold loss during
sampling, and to naturally inhomogeneous gold distribution. Ultimately, the
sustainable mining grade will be established through additional sampling prior
to plant commissioning and in the early life of the open pit. Gold
mineralisation is tightly constrained in the veins and lodes that make up the
Kearney and other deposits, making them amenable to selective mining, and thus
the processing plant has been designed to accept ore grading 20 gAu/t.
Exploration Targets
A 'Technical Report' report dated March 29, 2006, and filed on www.SEDAR.com
contains an appendix prepared by Howe describing 53 targets selected from
integration of existing extensive geological, geochemical and geophysical data.
The targets are grouped on a priority of 1 to 10. Scores were assigned which
reflect technical merit and the likelihood of enhancing resources in the short
term. Eight gold-rich veins of the Kearney Vein Swarm were classified as very
high priority resource augmentation targets with scores of 9 and 10. These
exhibit high grade channel sample and/or drill intercepts and have calculated
resources (1995 and 2004) and/or reserves (1995). Eight other veins not yet
drilled or drilled with lower grades have target scores of 5 to 8. The remaining
37 targets comprise one scoring 6, 6 scoring 5, 4 scoring 4, 11 scoring 2, and 7
scoring 1.
Howe considers targets scoring 3 to 8 to constitute excellent opportunities for
discoveries on or near known veins in the Kearney Swarm and elsewhere in the
greater part of the prospecting licence. Howe also considers it likely that
aggressive exploration will add substantially to the reserves and resources and
that it is possible that structures similar to the Kearney lie undiscovered.
Further, Howe considers that the high gold grades and the widths and continuity
of the present reserves and resources indicate that there is potential for
underground production in the future.
Funds required will be made available to enable a diamond drill follow-up
programme to start early in the second quarter of 2006.
Initial Mine Construction
The project embraces an open pit mine capable of supplying approximately 50,000
tonnes of ore per year, and a crush-grind-flotation plant with a capacity of 150
tonnes per day. Site infrastructure includes a diesel powered electrical
generating station, a paste tailings storage facility, containment dam and water
reticulation and discharge system including a channel diverting run-off water
around working places. This is described in some detail in 'Technical
Report(s)' filed on www.SEDAR.com on March 29, 2006.
Sufficient funds were raised in April, 2005, through sale of equity and in May,
2005, and March, 2006, from equipment lease finance and from exercise of
warrants in March and April, 2006, to enable an initial open pit mine and
processing plant to be constructed and put into operation. Mining and processing
equipment and buildings have been purchased and key staff engaged. Site
development initiated in mid-2005 has continued throughout the period. At the
time of writing (May, 2006), preparation of site roads was well advanced,
clearing of peat and glacial till from paste tailings storage areas was in
progress, the processing plant building was erected and installation of
crushing, grinding and flotation equipment in process. The initial mining areas
of the Kearney orebody were being stripped in readiness for grade control
sampling and initial mining.
Galantas Irish Gold Limited will continue to develop its Galantas(R) jewellery
business once gold becomes available in late 2006. Jewellery sales in the
quarter were low at $3,845 ($20,497 in first quarter, 2005) due to lack of
product pending new supplies of certified Irish gold from the mine.
Management and Staff
Executive appointments made in the middle of 2005 included: Roland Phelps as
President and Chief Executive Officer, L.J.(Jack) Gunter as Executive Chairman,
M.J. (Moe) Lavigne as Vice President Exploration and Development, and George
Duguay as Secretary.
At the Omagh site, senior staff includes Karl Martin, hired at the beginning of
April, 2006, as construction manager and project engineer. Mr. Steven Higgins
has completed his assignment as site engineer in the period and remains as
consultant with particular respect to tailings disposal. Ms June Kaczmarek is
financial controller. Candidates for the post of processing plant manager are
being screened. On the site, excluding contractors, 12 people including
equipment and plant operators, a mechanic, and a geologist are employed.
OVERALL PERFORMANCE
In early 2005, equity and debt finance was raised to accomplish the main
objective of achieving initial production from the Kearney Deposit. Site
development got underway in the third quarter and is continuing with a target of
production in mid-2006.
Revitalised exploration of the Company's prospecting licence was initiated in
the third quarter of 2005 with the completion of a helicopter-borne 'VTEM'
electromagnetic survey. An independent analysis of results including their
integration with the pre-existing large body of geological, geochemical,
geophysical and other technical data was completed under the direction of Howe
whose report was filed on March 16, 2006. (Refer to the appendix to the March
16th Technical Report filed on www.SEDAR.com).
The Galantas(R) jewellery business was essentially dormant.
The equity financing completed in April, 2005, brought $3,279,283 into treasury
after costs of $224,050. By the end of April, 2006, all of 17,516,666 warrants
(15 cents) associated with this financing had been exercised, producing net cash
of $2,627,500.
The mining fleet 'leaseback' loan of $470,000 extended by Barclays Asset Finance
in 2006 was followed on March 17, 2006, by a second loan from Barclays of
$365,400 for the purchase of metallurgical equipment. This second loan has
monthly lease payments of $11,132 for 36 months, Galantas having the right to
purchase the equipment at the end of the period for a nominal sum.
LIQUIDITY AND CAPITAL RESOURCES
On March 31, 2006, the Company had working capital of $775,946 compared with
$1,020,880 at December 31, 2005. Cash at the end of the period was $1,087,243
compared with $1,121,985 at year end. The decease in working capital reflected
expenditure on remaining capital items mainly for the processing plant.
Subsequent to the end of the period cash and working capital increased upon the
exercise of the remaining warrants which produced $1,757,583 cash. Funds
available are considered by management to be adequate to get the initial mine
and plant operational this year and to complete an initial exploration drilling
programme.
As at March 31, 2006, the Company had total assets of $10,381,320. This compared
with $9,355,408 at the end of December 2005, the increase reflecting the cash
raised from warrants being exercised during the quarter.
RESULTS OF OPERATIONS
The Company's core business is gold mining. Its only source of revenue derives
from sales of gold jewellery which have been possible hitherto with test market
products made from gold derived from selectively mined 'bulk samples' previously
taken from the Kearney Deposit. Such sales have dwindled over the past several
quarters and amounted to $3,845 in the current quarter, compared with $20,497 in
the first quarter of 2005. The decrease has been due to depleted inventories of
both certified Irish gold and manufactured product. Low sales will continue
until supplies of certified Irish gold become available upon production being
established later this year.
SUMMARY OF QUARTERLY RESULTS
The Company's revenues and net financial results for the first quarter of 2006
and the seven preceding quarters is summarised ($CDN):
Quarter ended Revenue Net Profit/(loss) Net Profit/(loss) per Share
______________________________________________________________________________
Mar. 31, 2006 3,845 (524,704) 0.00
Dec. 31, 2005 8,771 498,346 0.01
Sep. 30, 2005 7,909 134,265 0.00
June 30, 2005 16,623 (519,016) (0.01)
Mar.31, 2005 20,497 (152,027) (0.00)
Dec. 31, 2004 42,733 (289,160) (0.00)
Sep. 30, 2004 20,561 (364,150) (0.00)
June 30, 2004 69,213 (299,410) (0.00)
CUMULATIVE OPERATIONS AND DEFICIT
Since January 1, 2003, the Company has had sales of $457,391 resulting in a
negative gross margin of $57,540. All the sales were done as part of the market
trial of Galantas(R) jewellery products. Expenses in the same period have
amounted to $3,147,390. An overall loss of $3,204,930 reduced to a loss of
$2,425,930 after income tax recovery of $779,000. Deficit increased to
$11,323,741 from $8,897,811 at the beginning of the period.
EXPENSES
Expenses in the 3 months ending March 31, 2006, were $536,126, an increase from
$148,029 for the same period in 2005. The increase is attributed mainly to the
direct and indirect costs of having the Company's shares listed for trading on
the London Stock Exchange's AIM list, where trading began on March 31st.
Specific items are as follows:
• Direct costs of $275,812 (represented in the accounts as 'Shareholder
Communications') associated with the AIM listing.
• Legal and audit fees of $57,258 as compared with $29,634 in the
corresponding quarter of 2005
• Transfer agent fees of $5,535 compared with $1,254 in 2005
• Accounting fees of $12,280 compared with $8,530.
Travel and general costs were $37,673 as compared with $19,761 last year. Most
of this increase was attributable to increased activity on the site at Omagh.
Stock option compensation (a non cash expense) was $112,000 for the quarter
compared to nil for the first quarter of 2005.
These cost increases were partially offset by reduced consulting fees (nil as
against $3,250 in 2005; a foreign exchange loss of $9,155 compared to a gain of
$13,438 in the corresponding quarter, nil management fees as compared with
$25,000 charged a year earlier and operating expenses reduced from $74,039 in
the first quarter of 2005 to $24,642 in the present quarter.
CAPITAL EXPENDITURE
Plant and machinery related to the mine and processing plant at Omagh in the
amount of $530,393 was purchased, compared with nil expenditure in the
corresponding quarter of 2005.
Deferred development costs capitalized amounted to $4,811,687 at the end of the
period, up $497,319 in the quarter from $4,314,368 at December 31, 2005. The
capital additions were all related to development of the project at Omagh and
included wages and consultants at $260,554, depreciation at $61,979,
construction, fuel, maintenance at $140,651 and traveling at $26,977.
SHARE CAPITAL
The Company is authorized to issue an unlimited number of common and preference
shares in series. At the end of March 31, 2006, a total of 132,134,635 common
shares had been issued. This compared with 126,335,189 common shares issued at
the end of the prior year. The increase over the 3 months represented 5,799,446
shares issued on the exercise of warrants.
Subsequent to the end of the first quarter, 2006, all of the remaining warrants
were exercised and an additional 11,717,220 shares were issued, bringing the
total number of shares on issue to 143,851,855. No warrants remain to be
exercised.
RELATED PARTY TRANSACTIONS
As at March 31, 2006, the Company was indebted to directors in the amount of
$104,303 compared to $253,103 at December 31, 2005. The indebtedness represents
amounts paid by the directors on behalf of the Company along with unpaid
management fees. These amounts are interest-free and there are no fixed terms
for repayment.
During the quarter, the Company was charged $20,640 for accounting and corporate
secretarial services performed by Duguay and Ringler Limited, a principal of
which is an officer of the Company.
The President, Chief Executive Officer and Vice President Exploration and
Development have each been compensated $20,240 during the quarter for their
services. Compensation to these individuals have been capitalized to deferred
development costs.
STOCK BASED COMPENSATION
The Company has 6,500,000 stock options outstanding to directors, employees and
certain consultants at exercise prices ranging from 10 cents per share up to 15
cents per share. This compares with 7,900,000 options outstanding at end 2005,
the decrease representing the cancellation or expiry of 1,400,000 options.
Details of the options outstanding as at March 31, 2006, are:
Exercisable Options Number of Options Exercise Price ($) Expiry Date
1,500,000 1,500,000 0.12 May 17, 2007
2,800,000 2,800,000 0.15 April 10, 2008
1,333,334 2,000,000 0.10 April 01, 2009
66,667 200,000 0.10 May 13, 2010
No stock options were granted during the period.
TRENDS AFFECTING THE COMPANY'S BUSINESS
From a global perspective, metal prices including precious metal prices have
recovered after a long period of depression. This is thought to be largely due
to increasing consumption of metals in countries in the Far East, most notably
China and India, which are experiencing rapid growth in manufacturing and
resultant economic buoyancy. Thus, the fundamentals of the metals business once
again are favourable for capitalizing new mines and investors have returned to
the mineral sector,
For junior resource companies like Galantas, increasing metal prices has begun
to be reflected in increasing demand for shares. Since markets are always
uncertain, careful management of company resources continues to be the guiding
principle for Galantas.
In Northern Ireland, the climate for investment remains positive.
RISKS AND UNCERTAINTIES
The Company operates in a sector - early-stage mine development and exploration
- which carries inherent risks which are frequently not within the abilities of
management to reduce or remove. The main sector risk is always metal price. The
Company's other business, high value 'Irish Gold jewellery is dependent upon a
mine being developed to provide a steady supply of certified Irish gold.
Management has made a conscious effort to assess the risk environment
surrounding its business. It has concluded that all of the risks are standard to
the industry and none of them so profound as to inhibit pursuit of the Company
strategy as outlined. The main risks for a new mining project normally are:
1. Ore Reserves: The general risk is that the tonnage and grade of ore may be
lower than anticipated. The persistence of the Kearney deposit along strike
and to depth has been proven within the confines of the initial pit and
indicated well beyond. The gold content has been estimated independently at
11.03 gAu/t. Selective mining trials returned a grade of over 53 gAu/t in
the approximately 100 tonnes mined. As a result, the plant has been designed
to accept ore at a grade of 20gAu/t which is considered achievable in normal
operating mode.
2. Mineral Processing: The risk is that the plant may not perform to design.
Ore from the Kearney deposit has been subjected to extensive trials in
industry-standard testing laboratories and pilot plants by the previous
owner, Rio Tinto, and by Galantas. The flow sheet is simple and all
technology is proven.
3. Environmental: The project was subject to one of Northern Ireland's
lengthiest public inquiries whereat its design and operating fundamentals
were challenged and defended to the satisfaction of the independent
assessors and industry experts representing the Company and the regulating
authorities as well as objectors. In operation, the facilities will be
subject to strict self-monitoring and independent monitoring. Management has
been working to establish from the outset a culture of environmental care.
4. Permitting: The Company has comprehensive permission to carry out its
business. The overall consents were were granted in 2000 after an exhaustive
public inquiry and fulfillment of more than 30 pre-conditions which
accompanied the conditional planning consent earlier granted. Remaining
consents required - building regulations, archaeological supervision of
excavation which is mandatory in Ireland, compliance with IPPC regulations -
relate to operating procedures and are being addressed with the relevant
regulators as the project develops.
5. Title: The Company owns the land in secure freehold on which the project is
located. Precious metals licences and mining leases are owned by the Crown
Estate and have been granted to the Company, renewed as required, since the
mid-1990's when initially granted. Both licences and leases are subject in
the usual way to minimum performance requirements which are set at a level
to encourage development.
6. Political: Northern Ireland has achieved a stable political status conducive
to business and the mine site is well removed from areas of potential urban
disturbance.
7. Financial: The risk is that additional funds, if required, may not be
available. The Company believes that it has sufficient capital to bring the
Kearney mine to initial production. It is conducting the capitalization of
the project exercising stringent cost control measures.
8. Revenue: The Company has initial terms for sale of its concentrates from two
mainline smelter/refiners. There is risk that final terms may turn out to be
less favourable than anticipated. Close contact with the smelters has been
maintained and management considers revenue risk to be manageable.
9. Currency/Bullion Price: Most of the costs to the Company are in Sterling.
Gold price expressed in Sterling is close to or at 5 year highs and appears
to be rising. There is risk that this trend may reverse and reduce Sterling
income. Results are published in Canadian dollars and there is therefore a
currency risk. It is the Company's policy not to sell forward its bullion.
10. Construction and Development: The general risk is that the project will
take longer to build than expected with increased cost and/or loss of
revenue. This can be due to environmental, geological, contractor
performance, materials availability and cost and other related factors.
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