3rd Quarter Results

RNS Number : 7515T

Galantas Gold Corporation

22 November 2013

 



GALANTAS GOLD CORPORATION

TSXV & AIM : Symbol GAL

GALANTAS INTERIM RESULTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2013

22nd NOVEMBER 2013: Galantas Gold Corporation (the Company) is pleased to announce its interim results for the nine months ended September 30^th 2013 and third quarter results for the three months ended September 30th 2013.

Financial Highlights

Highlights of the 2013 third quarter's and first nine months results, which are expressed in Canadian Dollars, are:

All figures denominated in Canadian Dollars (CDN$)	Third Quarter Ended  September 30       2013                    2012		Nine Months Ended  September 30       2013                         2012
Revenue	$   473,668	$ 855,813	$    1,362,200	$ 3,783,939
Cost of Sales	$    437,995	$    792,386	$    1,347,416	$ 2,806,197
Income before the undernoted	$      35,673	$    63,427	$  14,784	$     977,742
Amortization	$    115,105	$     155,078	$   361,935	$    526,267
General administrative expenses	$    262,189	$     374,078	$   853,969	$  1,241,038
(Gain) on sale of plant and equipment	$    (592)	$    (1,147)	$   (65,123)	$  (15,593)
(Gain) on debt extinguishment	$                0	$  0	$                 0	$(190,624)
Foreign exchange loss	$       22,715	$    31,078	$        25,964	$  11,969
Net (Loss) for the period	$ ( 363,744)	$    (495,660)	$  (1,161,961)	$  (595,315)
Working Capital (Deficit)	$ (3,477,309)	$ (1.672,628)	$ (3,477,309)	$(1,672,628)
Cash (loss) from operating activities before changes in non-cash working capital	$ (318,599)	$    (289,853)	$ (881,526)	$ (36,850)
Cash at September 30, 2013	$ 216,512	$2,021,513	$ 216,512	$2,021,513

The Net Loss for the three months ended September 30, 2013, amounted to CDN$ 363,744 (2012 Q3: Net Loss CDN$ 495,660) and the cash loss from operating activities before changes in non-cash working capital in the third quarter of 2013 amounted to CDN$ 318,599 (2012 Q3:Cash loss CDN$ 289,853). The cash generated from processing low grade material at the Omagh mine was positive on a strict operational basis before the inclusion of administration costs and overheads in the third quarter (Q3), following a reduction in costs.

Sales revenues for the nine months ended September 30, 2013 amounted to CDN$ 1,362,200 (2012: CDN$ 3,783,939) with sales revenues for the three months ended September 30, 2013 amounted to CDN$ 473,668 (Q3 2012: CDN$ 855,813).  This reduction in sales revenues is due to the lower level of metal produced and shipped during both periods primarily due to the requirement to process ore from the low grade stockpile at the Omagh mine as a result of difficulties in accessing ore from the open pits.  The gold price for the third quarter and first nine months of 2013 was below the price that prevailed in 2012 which has also adversely impacted sales revenues.

Cost of sales for the nine months ended September 30, 2013 amounted to CDN$ 1,347,416 (2012: CDN$ 2,806,197).  Cost of sales for the three months ended September 30, 2013 amounted to CDN $ 437,995 (Q3 2012: CDN$ 792,386). There was a decrease in various production costs at the Omagh mine during the third quarter, including production wages reflecting the reduced number of personnel arising from the rationalization programme, Oil and Fuel costs, Repairs and servicing costs, Equipment hire and usage of Consumables which reductions were primarily attributable to the reduced level of open pit mining during both periods when compared with 2012.

The Net Loss for the nine months ended September 30, 2013, amounted to CDN$ 1,161,961 (2012: Net Loss CDN$ 595,315).  The cash loss from operating activities before changes in non-cash working capital for the nine months of 2013 amounted to CDN$ (881,526) (2012: Cash loss $ 36,850).

Production

Production for comparative periods are summarized below:

	Three Months to September 30 2013	Three Months to September 30 2012	Nine Months to September 30 2013	Nine Months to  September 30 2012
Tonnes Milled	12,180	11,292	35,951	35,748
Average Grade g/t gold	1.37	1.9	1.32	2.4
Concentrate Dry Tonnes	173.3	226.7	463.3	849.7
Concentrate Gold Grade g/t	82.4	95.2	87.2	101.6
Gold Produced (oz)	459	696	1,297.7	2,780
Gold Produced (kg)	14.3	21.6	40.4	86.4
Concentrate Silver Grade g/t	185.7	117.3	169.8	238
Silver Produced (oz)	1,035	856	2,530	6,498
Silver Produced (kg)	32.2	26.6	78.7	202
Lead Produced tonnes	15.5	10.1	37.5	58.4
Gold Equivalent (oz)	500	722	1,380	2,973

Concentrate production at the Omagh mine during the three and nine months ended September 30, 2013 was significantly below production levels of the corresponding periods of 2012 due primarily to the to the requirement to process lower grade ore from the stockpile as a result of difficulties in accessing ore from the open pits. 

The main production focus during the third quarter has been on the processing of ore from the low grade stockpile. Earlier in the year there had been some limited open pit mining on the Kerr vein which ceased later in the first quarter when the pit met its planned design limit. From the second half of 2012 mining from the Kearney pit had become totally restricted as a result of the surplus rock stockpile on the site reaching capacity levels. This surplus rock was due to be transported from the site in 2012 with the Omagh mine having completed construction of public road improvements, at its own cost, to comply with the conditions of the planning consent. However, following a judicial review brought by a private individual on the grounds of procedural failings by Planning Service, the planning consent was quashed with the surplus rock remaining on site. This ongoing limitation will result in future production continuing to be from low grade sources. To generate cash from its operations going forward, the Company continued to improve efficiencies and cut costs during the third quarter.

During the three and nine months ended September 30, 2013  the mill was fed with the lower grade ore and production continued to be hampered by both the ongoing variations in the metallurgy due to the inconsistent grade of ore being milled and the clay content of stocked material. The concentrate gold grade fell during the third quarter and subsequent to September 30, 2013 the gold grade has weakened further. This has resulted in the Company commencing a review regarding the economics of continuing in production. In the meantime, further cost reduction measures are being implemented.

The 2013 production figures and metal contents are provisional and subject to averaging or umpiring provisions under the concentrate off - take agreement detailed in a press release dated October 3, 2007.

Exploration

The major focus of exploration activities in 2012 and the first nine months of 2013 has been the continuation of the successful drilling program. In total, 17,348 metres have been drilled since the program commenced in March 2011 with significant gold intersects being reported.

The drilling programme began in 2011 with the objective of extending the depth and extent of the Joshua vein and providing data for a potential underground operation based upon the Joshua and Kearney veins.  During 2011 and 2012 ninety five holes were drilled totaling 16,704 metres . Channel sampling was also carried out, during this period, on the Joshua, Kearney and Kerr vein systems. On Joshua, a total strike length of 213 metres was sampled. On Kerr, an increase in average vein width and gold grade was identified within depth over a 30 metre strike length.

The exploration programme had expanded considerably in 2012 with six drills operational during the first half of the year. The second half of the year saw the number of rigs progressively reduce with one rig, owned by the Company, remaining in operation by the end of 2012. The two principal objectives of the drilling programme were to complete the deeper holes on Kearney in order to gain a more accurate picture of the zone of mineralization for the purpose of the underground mine plan and to extend the strike of Joshua to the north and the south, and begin to target deeper sections of the vein. Drilling continued at a reduced rate in 2013 but this work has now been suspended, pending the availability of cash for further exploration. Following the scale back of drilling in 2013, more time was dedicated to logging remaining drill cores, the sealing off of all accessible drill holes, updating databases and progressing towards a resource estimate using the Micromine geological modelling computer program. 

Assay results released to date from both the drilling and channel sampling programme have been encouraging with significant gold intersections being identified. The updated resource estimate (Technical Report July 2013) contains all material data related to the program (with the exception of one hole detailed in a disclosure dated 27^th August 2013). Results to date have been positive, in particular the assays from the ten drill holes on Joshua released in January 2013 with thirteen significant mineral intersects. During the quarter Galantas reported positive assay results from the first drill hole completed on the Joshua vein during the third quarter. This drill hole is the second deepest intersect yet drilled on Joshua Vein and averaged 12.4 g/t gold, over a true width of vein of 2.8 metres. The top of the mineralised intersect is estimated to be at a vertical depth of 137.2 metres. The hole was terminated at a down-hole length of 171.8 metres (see press release dated August 27, 2013).

Once additional funding becomes available this drilling programme will continue. Up to a further 1,000 metres of drilling are planned, following up the recently reported gold intersects on the Joshua vein.

During 2012 the Company ACA Howe International Ltd (Howe UK) completed an Interim Resource Estimate to Canadian National Instrument NI 43-101 compliant mineral resource estimate and a Preliminary Economic Assessment for the Omagh Gold Project (see press release dated July 3, 2012) This report, which was based on drilling results and analyses received to June 8, 2012, identified all resources discovered at that date. The Company subsequently filed a complete Technical Report on SEDAR in August 2012. An updated resource estimate was prepared by the Company during the second quarter based on drilling results received to May 5, 2013 (see press release dated June 12, 2013). The drilling program, subsequent to June 2012, was targeted to increase the amount of measured and indicated resources related to the potential development of an underground mine. There has been an 50% increase in resources classified as measured and indicated from a total of 95,300 troy ounces gold (2012) to 142,533 troy ounces gold  and a 28% increase in Resources classified as inferred, from 231,000 troy ounces gold (2012) to 295,599 troy ounces gold (2013). The overall increase is 34%. Subsequent to June 30, 2013 Galantas filed an updated Technical Report on SEDAR in July 2013.

Limited exploration outside the mine licence area continued during the first half of 2013. With regards to the seven licenses held in the Republic of Ireland, geochemical soil sampling and geophysical data generated by the Tellus Border Project, a cross border initiative funded by the EU regional development fund, was released earlier in the year. The data revealed the continuation of a trend established on licence OM4 with anomalously high concentrations of gold pathfinder elements. This data has assisted in the design of a field programme which was carried out during the third quarter. Earlier in the year Omagh Minerals were awarded a grant to complete a project which will determine the prospectivity potential of the Tellus border zone as a whole. This research is supported by the EU INTERREG IVA-funded Tellus Border project, a cross border initiative financed by the EU regional development fund. It is based around the new Tellus Border data and the associated fieldwork was carried out during the third quarter. Application has been made for a further two prospecting licenses in the Republic of Ireland which were acknowledged during the quarter and are now awaiting a final decision.

Planning

Discussions continued with the planning services in Northern Ireland during the third quarter of 2013 with regards to the planning application for an underground mine plan and accompanying Environmental Statement which were submitted to the Planning Services in 2012. Consultations with statutory consultees continues to progress, with additional information requested now filed with the Planning Service for consideration by consulteees.

Roland Phelps, President & CEO, Galantas Gold Corporation, commented, "The Company continues to work with Planning Service and consultees to achieve underground planning consent.  The Company has been advised by its consultants that the time-line for planning determination will likely now slip into Q1 2014 although the date is undefined because it is in the hands of other parties.   Further cost reductions are being made and we look forward to updating shareholders in due course."

The detailed results and Management Discussion and Analysis (MD&A) are available on www.sedar.com and www.galantas.com and the highlights in this release should be read in conjunction with the detailed results and MD&A. The MD&A provides an analysis of comparisons with previous periods, trends affecting the business and risk factors. Some of the production and metal figures are provisional and subject to averaging or umpiring provisions under the concentrate off-take contract with Xstrata Corporation (now Glencore Canada Corporation) detailed in a press release dated 3rd October 2007.

The financial  disclosure has been reviewed by Leo O' Shaughnessy (Chief Financial Officer) and other disclosure by Roland Phelps (President & CEO), qualified persons under the meaning of NI. 43-101. The information is based upon financial and other data prepared under their supervision.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS: This press release contains forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995 and applicable Canadian securities laws, including revenues and cost estimates, for the Omagh Gold project. Forward-looking statements are based on estimates and assumptions made by Galantas in light of its experience and perception of historical trends, current conditions and expected future developments, as well as other factors that Galantas believes are appropriate in the circumstances. Many factors could cause Galantas' actual results,  the performance or achievements to differ materially from those expressed or implied by the forward looking statements or strategy, including: gold price volatility; discrepancies between actual and estimated production,  actual and estimated metallurgical recoveries; mining operational risk; regulatory restrictions, including environmental regulatory restrictions and liability; risks of sovereign involvement; speculative nature of gold exploration; dilution; competition; loss of key employees; additional funding requirements; planning and other permitting issues; and defective title to mineral claims or property. These factors and others that could affect Galantas's forward-looking statements are discussed in greater detail in the section entitled "Risk Factors" in Galantas' Management Discussion & Analysis of the financial statements of Galantas and elsewhere in documents filed from time to time with the Canadian provincial securities regulators and other regulatory authorities. These factors should be considered carefully, and persons reviewing this press release should not place undue reliance on forward-looking statements. Galantas has no intention and undertakes no obligation to update or revise any forward-looking statements in this press release, except as required by law.

The detailed results and Management Discussion and Analysis (MD&A) are available on www.sedar.com and www.galantas.com and the highlights in this release should be read in conjunction with the detailed results and MD&A.  Click on, or paste the following link into your web browser, to view the associated PDF document.

http://www.rns-pdf.londonstockexchange.com/rns/7515T_-2013-11-22.pdf 

Galantas Gold Corporation Issued and Outstanding Shares total 256,210,395.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Enquiries Galantas Gold Corporation Jack Gunter P.Eng - Chairman Roland Phelps C.Eng - President & CEO Email: [e-mail] Website: www.galantas.com Telephone: [phone]
Charles Stanley Securities (Nominated Adviser) Mark Taylor Telephone [phone]

NOTICE TO READER

The accompanying unaudited condensed interim consolidated financial statements of Galantas Gold Corporation (the "Company") have been prepared by and are the responsibility of management. The unaudited condensed interim consolidated financial statements have not been reviewed by the Company's auditors.

Condensed Interim Consolidated Statements of Financial Position

(Expressed in Canadian Dollars)

(Unaudited)

		As at			As at
		September 30,			December 31,
		2013			2012
ASSETS
Current assets
Cash (note 5)	$	216,512		$	1,164,868
Accounts receivable and advances (note 6)		537,966			673,054
Inventory (note 7)		350,278			326,249
Total current assets		1,104,756			2,164,171
Non-current assets
Property, plant and equipment (note 8)		3,211,342			3,566,778
Long-term deposit (note 5)		440,934			428,717
Deferred development and exploration costs (note 9)		8,503,802			7,859,445
Total assets	$	13,260,834		$	14,019,111
EQUITY AND LIABILITIES
Current liabilities
Accounts payable and other liabilities (note 10)	$	1,376,452		$	1,670,729
Due to related parties (note 15)		3,205,613			2,802,749
Total current liabilities		4,582,065			4,473,478
Non-current liabilities
Asset retirement obligation (note 9)		415,975			404,450
Total liabilities		4,998,040			4,877,928
Capital and reserves
Share capital (note 12)		29,874,693			29,874,693
Reserves		5,723,768			5,440,196
Deficit		(27,335,667	)		(26,173,706	)
Total equity		8,262,794			9,141,183
Total equity and liabilities	$	13,260,834		$	14,019,111

The notes to the unaudited condensed interim consolidated financial statements are an integral part of these statements.

Going concern (note 1)
Contingent liability (note 17)
Subsequent events (note 18)

Approved on behalf of the Board:
"Roland Phelps"	, Director	"Lionel J. Gunter"	, Director

Condensed Interim Consolidated Statements of Loss

(Expressed in Canadian Dollars)

(Unaudited

		Three Months						Nine Months
		Ended						Ended
		September 30,						September 30,
		2013			2012			2013			2012
Revenues
Gold sales	$	473,668		$	855,813		$	1,362,200		$	3,783,939
Cost and expenses of operations
Cost of sales (note 14)		437,995			792,386			1,347,416			2,806,197
Amortization and depreciation		115,105			155,078			361,935			526,267
		553,100			947,464			1,709,351			3,332,464
Loss before the undernoted		(79,432	)		(91,651	)		(347,151	)		451,475
General administrative expenses
Management and administration wages (note 15)		130,022			147,183			382,193			448,694
Other operating expenses		37,722			61,286			142,727			196,117
Accounting and corporate		14,764			13,709			42,735			41,655
Legal and audit		27,649			63,172			71,202			115,689
Stock-based compensation (note 12(d))		9,781			38,875			35,960			131,886
Shareholder communication and investor relations		21,593			27,249			105,026			153,835
Transfer agent		2,062			1,952			15,721			15,081
Director fees (note 15)		7,750			6,500			21,000			22,600
General office		2,171			1,999			6,062			6,398
Accretion expenses (note 11)		-			-			-			45,529
Loan interest and bank charges		8,675			12,153			31,343			63,554
		262,189			374,078			853,969			1,241,038
Other expenses
Gain on disposal of property, plant and equipment		(592	)		(1,147	)		(65,123	)		(15,593	)
Gain on debt extinguishment (note 11)		-			-			-			(190,624	)
Foreign exchange loss		22,715			31,078			25,964			11,969
		22,123			29,931			(39,159	)		(194,248	)
Net loss for the period	$	(363,744	)	$	(495,660	)	$	(1,161,961	)	$	(595,315	)
Basic and diluted net loss per share (note 13)	$	(0.00	)	$	(0.00	)	$	(0.00	)	$	(0.00	)
Weighted average number of common shares outstanding - basic and diluted		256,210,395			256,210,395			256,210,395			244,227,836

The notes to the unaudited condensed interim consolidated financial statements are an integral part of these statements.

Condensed Interim Consolidated Statements of Comprehensive Loss

(Expressed in Canadian Dollars)

(Unaudited)

		Three Months						Nine Months
		Ended						Ended
		September 30,						September 30,
		2013			2012			2013			2012
Net loss for the period	$	(363,744	)	$	(495,660	)	$	(1,161,961	)	$	(595,315	)
Items that will not be reclassified subsequently to loss
Foreign currency translation differences		354,915			(50,879	)		247,612			39,679
Total comprehensive loss	$	(8,829	)	$	(546,539	)	$	(914,349	)	$	(555,636	)

The notes to the unaudited condensed interim consolidated financial statements are an integral part of these statements.

Condensed Interim Consolidated Statements of Cash Flows

(Expressed in Canadian Dollars)

(Unaudited)

		Nine Months
		Ended
		September 30,
		2013			2012
Operating activities
Net loss for the period	$	(1,161,961	)	$	(595,315	)
Adjustment for:
Amortization and depreciation		361,935			526,267
Stock-based compensation (note 12(d))		35,960			131,886
Foreign exchange		(52,337	)		61,000
Gain on disposal of property, plant and equipment		(65,123	)		(15,593	)
Accretion expenses (note 11)		-			45,529
Gain on debt extinguishment (note 11)		-			(190,624	)
Non-cash working capital items:
Accounts receivable and advances		135,088			263,483
Inventory		(24,029	)		13,299
Accounts payable and other liabilities		(294,277	)		448,441
Net cash (used in) provided by operating activities		(1,064,744	)		688,373
Investing activities
Purchase of property, plant and equipment		(173	)		(568,005	)
Proceeds from sale of property, plant and equipment		213,416			77,537
Deferred development and exploration costs		(493,797	)		(2,532,281	)
Long-term deposit		-			(47,607	)
Net cash used in investing activities		(280,554	)		(3,070,356	)
Financing activities
Warrants exercised		-			2,056,034
Net advances from related parties		402,864			172,298
Repayment of convertible debenture		-			(2,056,034	)
Net cash provided by financing activities		402,864			172,298
Net change in cash		(942,434	)		(2,209,685	)
Effect of exchange rate changes on cash held in foreign currencies		(5,922	)		(8,883	)
Cash, beginning of period		1,164,868			4,240,081
Cash, end of period	$	216,512		$	2,021,513

The notes to the unaudited condensed interim consolidated financial statements are an integral part of these statements.

Condensed Interim Consolidated Statements of Changes in Equity

(Expressed in Canadian Dollars)

(Unaudited)

					Reserves
					Equity settled						Foreign			Equity
					share-based						currency			portion of
		Share			payments			Warrant			translation			convertible
		capital			reserve			reserve			reserve			debenture			Deficit			Total
Balance, December 31, 2011	$	27,808,316		$	4,320,247		$	976,414		$	(206,713	)	$	168,082		$	(25,571,040	)	$	7,495,306
Stock-based compensation (note 12(d))		-			131,886			-			-			-			-			131,886
Shares issued for exercise of warrants		2,056,034			-			-			-			-			-			2,056,034
Fair value of warrants exercised		403,143			-			(403,143	)		-			-			-			-
Warrants expired		-			8,621			(8,621	)		-			-			-			-
Fair value of extension of warrants' expiry date (note 12(b)(i))		(392,800	)		-			392,800			-			-			-			-
Loss on debt extinguishment (note 11)		-			-			-			-			(168,082	)		(8,800	)		(176,882	)
Net loss and comprehensive income for the period		-			-			-			39,679			-			(595,315	)		(555,636	)
Balance, September 30, 2012	$	29,874,693		$	4,460,754		$	957,450		$	(167,034	)	$	-		$	(26,175,155	)	$	8,950,708
Balance, December 31, 2012	$	29,874,693		$	4,477,699		$	957,450		$	5,047		$	-		$	(26,173,706	)	$	9,141,183
Stock-based compensation (note 12(d))		-			35,960			-			-			-			-			35,960
Warrants expired		-			957,450			(957,450	)		-			-			-			-
Net loss and comprehensive income for the period		-			-			-			247,612			-			(1,161,961	)		(914,349	)
Balance, September 30, 2013	$	29,874,693		$	5,471,109		$	-		$	252,659		$	-		$	(27,335,667	)	$	8,262,794

The notes to the unaudited condensed interim consolidated financial statements are an integral part of these statements.

Notes to Condensed Interim Consolidated Financial Statements

1.        Going Concern

These unaudited condensed interim consolidated 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. In assessing whether the going concern assumption is appropriate, management takes into account all available information about the future, which is at least, but is not limited to, twelve months from the end of the reporting period. Management is aware, in making its assessment, of material uncertainties related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. The Company's future viability depends on the consolidated results of the Company's wholly-owned subsidiary Cavanacaw Corporation ("Cavanacaw"), 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.

As at December 31, 2001, studies performed on Omagh's mineral property confirmed the existence of economically recoverable reserves. As at July 1, 2007, the mineral property was in the production stage 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. While the Company is expending its best efforts in this regard, the outcome of these matters can not be predicted at this time.

As at September 30, 2013, the Company had a deficit of $27,335,667 (December 31, 2012 - $26,173,706). 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 subject to a number of factors including market conditions. These unaudited condensed interim consolidated financial statements do not reflect adjustments to the carrying values of assets and liabilities, the reported expenses and financial position classifications used that would be necessary if the going concern assumption was not appropriate. Such adjustments could be material.

2.        Incorporation and Nature of Operations

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. 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 Galántas Irish Gold Limited ("Galántas").

As at July 1, 2007, the Company's Omagh mine began production.

The Company's operations include the consolidated results of Cavanacaw and its wholly-owned subsidiaries Omagh and Galántas.

The Company's common shares are listed on the TSX Venture Exchange and London Stock Exchange AIM under the symbol GAL. The primary office is located at 36 Toronto Street, Suite 1000, Toronto, Ontario, Canada, M5C 2C5.

3.        Basis of Preparation

Statement of compliance

The Company applies International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") and interpretations issued by the IASB. These unaudited condensed interim consolidated financial statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting. Accordingly, they do not include all of the information required for full annual financial statements.

The policies applied in these unaudited condensed interim consolidated financial statements are based on IFRSs issued and outstanding as of November 20, 2013, the date the Board of Directors approved the statements. The same accounting policies and methods of computation are followed in these unaudited condensed interim consolidated financial statements as compared with the most recent annual consolidated financial statements as at and for the year ended December 31, 2012. Any subsequent changes to IFRS that are given effect in the Company's annual consolidated financial statements for the year ending December 31, 2013 could result in restatement of these unaudited condensed interim consolidated financial statements.

4.        Significant Accounting Policies

Change in accounting policies

(i) IFRS 10 - Consolidated Financial Statements ("IFRS 10") was issued by the IASB in May 2011. IFRS 10 is a new standard which identifies the concept of control as the determining factor in assessing whether an entity should be included in the consolidated financial statements of the parent company. Control is comprised of three elements: power over an investee; exposure to variable returns from an investee; and the ability to use power to affect the reporting entity's returns. At January 1, 2013, the Company adopted this pronouncement and there was no material impact on the Company's unaudited condensed interim consolidated financial statements.

(ii) IFRS 11 - Joint Arrangements ("IFRS 11") was issued by the IASB in May 2011. IFRS 11 is a new standard which focuses on classifying joint arrangements by their rights and obligations rather than their legal form. Entities are classified into two groups: parties having rights to the assets and obligations for the liabilities of an arrangement, and rights to the net assets of an arrangement. Entities in the former case account for assets, liabilities, revenues and expenses in accordance with the arrangement, whereas entities in the latter case account for the arrangement using the equity method. At January 1, 2013, the Company adopted this pronouncement and there was no material impact on the Company's unaudited condensed interim consolidated financial statements.

(iii) IFRS 12 - Disclosure of Interests in Other Entities ("IFRS 12") was issued by the IASB in May 2011. IFRS 12 is a new standard which provides disclosure requirements for entities reporting interests in other entities, including joint arrangements, special purpose vehicles, and off balance sheet vehicles. At January 1, 2013, the Company adopted this pronouncement and there was no material impact on the Company's unaudited condensed interim consolidated financial statements.

(iv) IFRS 13 - Fair Value Measurement is effective for the Company beginning on January 1, 2013, provides the guidance on the measurement of fair value and related disclosures through a fair value hierarchy. At January 1, 2013, the Company adopted this pronouncement and there was no material impact on the Company's unaudited condensed interim consolidated financial statements given the existing asset and liability mix of the Company to which fair value accounting applies.

 (v) IAS 1 - Presentation of Financial Statements was amended by the IASB in June 2011 in order to align the presentation of items in other comprehensive income with United States Generally Accepted Accounting Principles. Items in other comprehensive income will be required to be presented in two categories: items that will be reclassified into profit or loss and those that will not be reclassified. The flexibility to present a statement of comprehensive income as one statement or two separate statements of profit and loss and other comprehensive income remains unchanged. At January 1, 2013, the Company adopted this pronouncement and there was no material impact on the Company's unaudited condensed interim consolidated financial statements.

(vi) IAS 27 - Separate Financial Statements ("IAS 27") was effective for annual periods beginning on or after January 1, 2013, as a result of the issue of the new consolidation suite of standards, IAS 27 has been reissued, as the consolidation guidance will now be included in IFRS 10. IAS 27 will now only prescribe the accounting and disclosure requirements for investments in subsidiaries, joint ventures and associates when an entity prepares separate financial statements. At January 1, 2013, the Company adopted this pronouncement and there was no material impact on the Company's unaudited condensed interim consolidated financial statements.

(vii) IFRIC 20 - Stripping Costs in the Production Phase of a Surface Mine ("IFRIC 20"). On 19 October 2011, the IASB issued IFRIC 20. The interpretation clarifies when production stripping should lead to the recognition of an asset and how that asset should be measured, both initially and in subsequent periods. At January 1, 2013, the Company adopted this pronouncement and there was no material impact on the Company's unaudited condensed interim consolidated financial statements.

Recent accounting pronouncements

(i) IFRS 9 - Financial Instruments ("IFRS 9") was issued by the IASB in October 2010 and will replace IAS 39 -Financial Instruments: Recognition and Measurement ("IAS 39"). IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the multiple rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of the financial assets. Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward unchanged to IFRS 9. The new standard also requires a single impairment method to be used, replacing the multiple impairment methods in IAS 39. IFRS 9 is effective for annual periods beginning on or after January 1, 2015. Earlier adoption is permitted. The Company is presently assessing the impact of this pronouncement.

(ii) IAS 32 - Financial Instruments, Presentation ("IAS 32") was effective for annual periods beginning on or after January 1, 2014. IAS 32 was amended to clarify that the right of offset must be available on the current date and cannot be contingent on a future date. Earlier adoption is permitted. The Company is presently assessing the impact of this pronouncement.

5.        Cash Position

		As at			As at
		September 30,			December 31,
		2013			2012
Cash	$	216,512		$	1,164,868
Long-term deposit		440,934			428,717
Total cash position	$	657,446		$	1,593,585

6.        Accounts Receivable and Advances

		As at			As at
		September 30,			December 31,
		2013			2012
Sales tax receivable - Canada	$	17,896		$	21,705
Valued added tax receivable - Northern Ireland		63,912			147,987
Accounts receivable		261,969			258,504
Prepaid expenses		194,189			244,858
	$	537,966		$	673,054

7.        Inventory

		As at			As at
		September 30,			December 31,
		2013			2012
Concentrate inventory	$	37,586		$	10,246
Finished goods		312,692			316,003
	$	350,278		$	326,249

8.        Property, Plant and Equipment

		September 30, 2013
					Accumulated
		Cost			amortization			Net
Freehold land and buildings	$	2,783,904		$	1,284,745		$	1,499,159
Plant and machinery		5,622,597			3,991,254			1,631,343
Motor vehicles		86,569			61,127			25,442
Office equipment		108,573			53,175			55,398
Moulds		60,521			60,521			-
	$	8,662,164		$	5,450,822		$	3,211,342

		December 31, 2012
					Accumulated
		Cost			amortization			Net
Freehold land and buildings	$	2,706,776		$	1,240,146		$	1,466,630
Plant and machinery		5,996,937			3,987,043			2,009,894
Motor vehicles		84,171			54,149			30,022
Office equipment		105,396			45,164			60,232
Moulds		58,844			58,844			-
	$	8,952,124		$	5,385,346		$	3,566,778

9.        Deferred Development and Exploration Costs

		September 30, 2013
					Accumulated
		Cost			amortization			Net
Deferred development and exploration costs	$	14,712,149		$	6,208,347		$	8,503,802

		December 31, 2012
					Accumulated
		Cost			amortization			Net
Deferred development and exploration costs	$	13,825,983		$	5,966,538		$	7,859,445

As at September 30, 2013, the Company has recorded an asset retirement obligation in the amount to $415,975 (GBP 250,000) (December 31, 2012 - $404,450 (GBP 250,000)). This is the amount of the bond that is required by the Crown in Northern Ireland. The Company has paid a deposit against this obligation.

10.      Accounts Payable and Other Liabilities

		As at			As at
		September 30,			December 31,
		2013			2012
Falling due within the year - Trade payables	$	1,376,452		$	1,670,729

11.       Convertible Debenture

					Equity
					portion of
		Convertible			convertible
		debenture			debenture
Balance, December 31, 2011	$	1,979,603		$	168,082
Accretion charges - effective interest rate		45,529			-
Accretion charges - financing charges		1,924			-
Interest expenses		6,075			-
Foreign exchange		22,903			-
Debt extinguishment (i)		(2,056,034	)		(168,082	)
Balance, September 30, 2012	$	-		$	-
Balance, December 31, 2012 and September 30, 2013	$	-		$	-

(i) On June 8, 2012, the Company extinguished, in its entirety, the principal and interest obligations outstanding under the loan agreement using the proceeds from the warrants exercised. As a result of this extinguishment, a gain on debt extinguishment of $190,624 on the convertible debenture was recorded in the unaudited condensed interim consolidated statement of loss and a loss on debt extinguishment of $8,800 on the equity portion of convertible debenture was recorded in equity.

12.       Share Capital and Reserves

a)          Authorized share capital

At September 30, 2013, the authorized share capital consisted of an unlimited number of common and preference shares issuable in Series. The common shares do not have a par value. All issued shares are fully paid.

b)           Common shares issued

At September 30, 2013, the issued share capital amounted to $29,874,693. The change in issued share capital for the periods presented:

			Number of
			common
			shares			Amount
Balance, December 31, 2011			235,650,055		$	27,808,316
Shares issued for exercise of warrants			20,560,340			2,056,034
Fair value of warrants exercised			-			403,143
Fair value of extension of warrants' expiry date (i)			-			(392,800	)
Balance, September 30, 2012			256,210,395		$	29,874,693
Balance, December 31, 2012 and September 30, 2013			256,210,395		$	29,874,693
(i)	On July 9, 2012, the expiry date of the 24,550,000 common share purchase warrants outstanding was extended for one year from July 22, 2012 to July 22, 2013. As a result of this modification, an incremental fair value of these warrants of $392,800 was recognized.
	The fair value of the extension of the warrants' expiry date was estimated using the Black-Scholes option pricing model with the following assumptions: dividend yield - 0%; volatility - 133.52%; risk-free interest rate - 0.97% and an expected life of 1 year.

c)          Warrant reserve 

The following table shows the continuity of warrants for the periods presented:

					Weighted
					average
		Number of			exercise
		warrants			price
Balance, December 31, 2011		45,550,000		$	0.10
Exercised		(20,560,340	)		0.10
Expired		(439,660	)		0.10
Balance, September 30, 2012		24,550,000		$	0.10
Balance, December 31, 2012		24,550,000		$	0.10
Expired		(24,550,000	)		0.10
Balance, September 30, 2013		-		$	-

As at September 30, 2013, there were no warrants outstanding.

(d)         Stock options

The following table shows the continuity of stock options for the periods presented:

					Weighted
					average
		Number of			exercise
		options			price
Balance, December 31, 2011		15,750,000		$	0.12
Cancelled		(1,000,000	)		0.19
Balance, September 30, 2012		14,750,000		$	0.11
Balance, December 31, 2012		9,950,000		$	0.10
Expired		(500,000	)		0.10
Cancelled		(3,250,000	)		0.10
Balance, September 30, 2013		6,200,000		$	0.10

Stock-based compensation includes $9,781 and $35,960, respectively (three and nine months ended September 30, 2012 - $38,875 and $131,886, respectively) relating to stock options granted in previous years that vested during the three and nine months ended September 30, 2013.

The following table reflects the actual stock options issued and outstanding as of September 30, 2013:

					Weighted average						Number of
					remaining			Number of			options			Number of
		Exercise			contractual			options			vested			options
Expiry date		price ($)			life (years)			outstanding			(exercisable)			unvested
October 2, 2013		0.10			0.01			1,500,000			1,500,000			-
November 23, 2015		0.10			2.15			1,000,000			1,000,000			-
January 28, 2016		0.10			2.33			250,000			250,000			-
September 6, 2016		0.10			2.94			3,450,000			3,450,000			-
		0.10			2.08			6,200,000			6,200,000			-

13.      Net Loss per Common Share

The calculation of basic and diluted loss per share for the three and nine months ended September 30, 2013 was based on the loss attributable to common shareholders of $363,744 and $1,161,961, respectively (three and nine months ended September 30, 2012 - $495,660 and $595,315, respectively) and the weighted average number of common shares outstanding of 256,210,395 (September 30, 2012 - 256,210,395 and 244,227,836, respectively) for basic and diluted loss per share. Diluted loss did not include the effect of warrants and options for the three and nine months ended September 30, 2013 and 2012, as they are anti-dilutive.

14.      Cost of Sales

		Three Months Ended						Nine months Ended
		September 30,						September 30,
		2013			2012			2013			2012
Production wages	$	146,086		$	261,057		$	459,368		$	947,531
Oil and fuel		168,677			258,000			526,350			947,249
Repairs and servicing		47,769			120,920			133,147			363,132
Equipment hire		9,659			57,236			28,244			219,905
Consumable		50,909			40,256			131,011			146,722
Royalties		10,019			15,330			32,725			75,860
Carriage		6,120			9,298			17,474			38,025
Other costs		29,320			9,457			43,126			54,474
Production costs		468,559			771,554			1,371,445			2,792,898
Inventory movement		(30,564	)		20,832			(24,029	)		13,299
Cost of sales	$	437,995		$	792,386		$	1,347,416		$	2,806,197

15.      Related Party Balances and Transactions

Transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note.

Related parties include the Board of Directors, close family members and enterprises that are controlled by these individuals as well as certain persons performing similar functions.

Related party transactions conducted in the normal course of operations are measured at the exchange value (the amount established and agreed to by the related parties) and approved by the Board of Directors in strict adherence to conflict of interest laws and regulations.

(a) The Company entered into the following transactions with related parties :

					Three Months Ended						Nine Months Ended
					September 30,						September 30,
		Notes			2013			2012			2013			2012
Interest on related party loans		(i)		$	10,162		$	10,060		$	29,894		$	30,355

(i) G&F Phelps Limited ("G&F Phelps"), a company controlled by a director of the Company, had amalgamated loans to the Company of $1,705,484 (GBP 1,024,992) (December 31, 2012 - $1,660,756 - GBP 1,026,552) bearing interest at 2% above UK base rates, repayable on demand and secured by a mortgage debenture on all the Company's assets. Interest accrued on related party loans is included with due to related parties. As at September 30, 2013, the amount of interest accrued is $120,064 (GBP 72,158) (December 31, 2012 - $86,023 - GBP 53,173).

(ii) During the nine months ended September 30, 2013, G&F Phelps acquired a container from the Company for $2,057 (GBP 1,300) which has been offset against the G&F Phelps loan.

(b) Remuneration of Directors and key management of the Company was as follows:

		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2013			2012			2013			2012
Salaries and benefits (1)	$	104,964		$	99,635		$	307,869		$	290,490
Stock-based compensation		5,821			23,334			21,318			77,218
	$	110,785		$	122,969		$	329,187		$	367,708

⁽¹⁾  Salaries and benefits include director fees. As at September 30, 2013, due to directors for fees amounted to $21,000 (December 31, 2012 - $nil) and due to directors and key management, mainly for salaries and benefits accrued amounted to $1,359,065 (GBP 816,795) (December 31, 2012 - $1,055,970 - GBP 652,720), and is included with due to related parties.

(c) As of September 30, 2013, Kenglo One Limited owns 66,110,340 common shares or approximately 25.8% of the outstanding common shares. Roland Phelps, Chief Executive Officer and director, owns, directly and indirectly, 35,538,980 common shares or approximately 13.9% of the outstanding common shares. Lionel J. Gunter, Executive Chairman and director of the Company, owns 16,965,441 common shares or approximately 6.6% of the outstanding common shares. The remaining 53.7% of the shares are widely held, except for 992,284 shares held, directly and indirectly, by the other directors and officers of the Company.

16.      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 Galántas. Substantially all of the Company's revenues, costs and assets of the business that support these operations are derived or located in Northern Ireland. Segmented information on a geographic basis is as follow:

September 30, 2013		United Kingdom			Canada			Total
Current assets	$	921,872		$	182,884		$	1,104,756
Non-current assets		12,094,841			61,237			12,156,078
Revenues	$	1,362,200		$	-		$	1,362,200

17.      Contingent Liability

During the year ended December 31, 2010, the Company's subsidiary Omagh received a payment demand from Her Majesty's Revenue and Customs in the amount of $554,330 (GBP 333,151) in connection with an aggregate levy arising from the removal of waste rock from the mine site during 2008 and early 2009. The Company believes this claim is without merit. An appeal has been lodged and the Company's subsidiary Omagh intends to vigorously defend itself against this claim. No provision has been made for the claim in the unaudited condensed interim consolidated financial statements.

18.      Subsequent Events

(i) On October 2, 2013, 1,500,000 options with an exercise price of $0.10 expired unexercised.

(ii) On October 10, 2013, the Company announced that Heads of Terms have been agreed for the production, marketing and sale of a tightly specified range of jewellery products, using Galántas gold.

The arrangement, with TJH Ltd of Dublin, Ireland ("TJH"), is subject to preparation of a detailed contract and sees Galántas gold, produced from the Company's Omagh mine, being sold to TJH at a material premium to and above a minimum London Metal Bullion price, with an additional royalty on sales payable on a quarterly basis. TJH is an established jewellery marketer and manufacturer, having developed other brands, including Irish oriented brands, previously.

 

END

 

 

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