Consolidated Financial Statements for the Three...
GALANTAS GOLD CORPORATION
TSX Venture Exchange: GAL
London Stock Exchange AIM: GAL
27th November 2008
GALANTAS ANNOUNCES THIRD QUARTER RESULTS
Galantas Gold Corporation (`Galantas' or the `Company') (GAL - TSXV, GAL-AIM),
which has a 100% interest in Ireland's only gold mine, reports unaudited
quarterly results for the period ending 30th September 2008 (Q3).
Highlights of the Q3 results, which are expressed in Canadian Dollars, are :
Q3 2008 Q3 2007
Revenue : $1,175,104 $715,080
Cost of Sales $619,832 $909,123
Amortization $360,520 $266.449
Income (loss) before Other Costs/Income $194,752 ($460,492)
Other Costs/(Income)* $81,582 $327,989
(*Including Foreign Exchange Gain) $389,736 $82,662
Net Income (loss)after expenses,
amortisation etc : $113,170 ($788,481)
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 quarters, trends affecting the business
and risk factors.
The President and Chief Executive Officer of the Company, Roland Phelps, has
agreed to lend up to a total amount of $943,400 (500,000 GBP) to the Company for
a period of 6 months from November 4th 2008. The loan facility is secured by the
Company's inventory with cross guarantees provided by the Company's
subsidiaries. The loan bears interest at a rate of 4.5% per annum over the base
rate of Barclays Bank plc, such interest to be calculated monthly and compounded
until repaid. With the exception of the related party, who stood aside from the
decision, the Directors of the Company have consulted with the Nominated Adviser
and consider the terms of the loan to be fair and reasonable in so far as
shareholders are concerned. The loan is for working capital purposes and capital
expenditure aimed at increases in operational efficiency.
Galantas's operational open pit mine is situated near Omagh, County Tyrone,
Northern Ireland. The mine produces a flotation concentrate containing gold,
silver and lead, which is exported and sold to a Canadian smelter. Some gold
from the mine is down-streamed into certified Irish gold jewellery which is sold
on-line at www.galantas.com and via leading UK & Irish retailers.
Commenting on the results, Roland Phelps, (President & CEO, Galantas Gold
Corporation) said, "The results are a milestone for the Company brought about by
the Omagh operational team, led by Nicholas Hardie, General Manager. My thanks
go to the whole team for the turn-around which is the result of well executed,
hard work under difficult circumstances."
Galantas Gold Corporation Issued and Outstanding Shares total 175,675,855.
The TSX Venture Exchange has not reviewed and does not accept responsibility for
the adequacy or accuracy of the contents of this news release.
Enquiries:
Galantas Gold Corporation
Jack Gunter P.Eng - Chairman
Roland Phelps C.Eng - President and CEO
Email : info@galantas.com
Website : www.galantas.com
Telephone : +44 (0) 2882 241100
Blomfield Corporate Finance Limited
Nick Harriss
Telephone : +44 (0) 207 489 4500
Lewis Charles Securities Limited
Kealan Doyle
Telephone : +44 (0) 207 456 9100
Interim Consolidated Financial Statements
(Expressed in Canadian Dollars)
(Unaudited)
Three and Nine Months Ended September 30, 2008
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying unaudited interim consolidated financial statements of Galantas
Gold Corporation were prepared by management in accordance with Canadian
generally accepted accounting principles. The most significant of these
accounting principles have been set out in the December 31, 2007 audited
consolidated financial statements. Only changes in accounting policies have been
disclosed in these unaudited interim consolidated financial statements.
Management acknowledges responsibility for the preparation and presentation of
the unaudited interim consolidated financial statements, including
responsibility for significant accounting judgments and estimates and the choice
of accounting principles and methods that are appropriate to the Company's
circumstances.
Management has established processes, which are in place to provide them
sufficient knowledge to support management representations that they have
exercised reasonable diligence that (i) the unaudited interim consolidated
financial statements do not contain any untrue statement of material fact or
omit to state a material fact required to be stated or that is necessary to make
a statement not misleading in light of the circumstances under which it is made,
as of the date of and for the periods presented by the unaudited interim
consolidated financial statements and (ii) the unaudited interim consolidated
financial statements fairly present in all material respects the financial
condition, results of operations and cash flows of the Company, as of the date
of and for the periods presented by the unaudited interim consolidated financial
statements.
The Board of Directors is responsible for reviewing and approving the unaudited
interim consolidated financial statements together with other financial
information of the Company and for ensuring that management fulfills its
financial reporting responsibilities. An Audit Committee assists the Board of
Directors in fulfilling this responsibility. The Audit Committee meets with
management to review the financial reporting process and the unaudited interim
consolidated financial statements together with other financial information of
the Company. The Audit Committee reports its findings to the Board of Directors
for its consideration in approving the unaudited interim consolidated financial
statements together with other financial information of the Company for issuance
to the shareholders.
Management recognizes its responsibility for conducting the Company's affairs in
compliance with established financial standards, and applicable laws and
regulations, and for maintaining proper standards of conduct for its activities.
NOTICE TO READER
Under National Instrument 51-102, Part 4, subsection 4.3(3)(a), if an auditor
has not performed a review of the interim financial statements, they must be
accompanied by a notice indicating that the financial statements have not been
reviewed by an auditor.
The accompanying unaudited interim consolidated financial statements of the
Company have been prepared by and are the responsibility of the Company's
management.
The Company's independent auditor has not performed a review of these unaudited
interim consolidated financial statements in accordance with standards
established by the Canadian Institute of Chartered Accountants for a review of
interim financial statements by an entity's auditor.
INTERIM CONSOLIDATED BALANCE SHEETS
(Expressed in Canadian Dollars)
(Unaudited)
September 30, December 31,
2008 2007
Assets
Current
Cash $ 229,279 $ 21,308
Accounts receivable and advances 232,591 578,831
Inventory (Note 6) 1,842,161 1,033,596
Future income taxes 240,890 240,890
_______ _______
2,544,921 1,874,625
Property, plant and equipment (Note 7) 16,769,475 17,077,659
Future income taxes 1,362,027 1,362,027
_______ _______
$20,676,423 $20,314,311
======= =======
Liabilities
Current
Accounts payable and accrued liabilities $2,220,953 $ 2,124,314
Current portion of financing facility
(Note 8) 382,390 495,217
Due to related party (Note 10) 2,513,776 552,569
Deferred revenue 749,321 201,743
_______ _______
5,866,440 3,373,843
Due to related party (Note 10) 490,930 971,782
Long-term portion of financing facility
(Note 8) 273,225 532,403
_______ _______
6,630,595 4,878,028
_______ _______
Shareholders' Equity
Share capital (Note 9(a)) 26,134,279 26,134,279
Warrants (Note 9(b)) - 2,417,700
Contributed surplus 3,616,514 844,247
_______ _______
29,750,793 29,396,226
Deficit (15,704,965) (13,959,943)
_______ _______
14,045,828 15,436,283
_______ _______
$20,676,423 $20,314,311
======= =======
Going concern (Note 1)
INTERIM CONSOLIDATED STATEMENTS OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Expressed in Canadian Dollars)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
Revenues
Gold sales $ 1,175,104 $ 715,080 $ 2,447,456 $ 717,647
Cost and expenses of operations
Cost of sales 619,832 909,123 1,754,019 910,415
Amortization 360,520 266,449 1,057,601 267,933
___________________________________________________
980,352 1,175,572 2,811,620 1,178,348
___________________________________________________
Income (loss) before the
undernoted 194,752 (460,492) (364,164) (460,701)
___________________________________________________
Other expenses and (income)
Other operating expenses 225,284 290,427 800,560 349,592
Accounting and corporate 33,029 13,423 62,058 26,737
Legal and audit 26,713 5,306 55,659 55,354
Stock-based compensation
(Note 9(c)) 105,859 24,015 354,567 85,110
Shareholder communication
and public relations 8,525 46,328 76,668 172,873
Transfer agent 2,240 3,443 14,899 19,638
Consulting fees - - 6,186 5,489
General office 6,602 7,208 31,940 31,951
Bank charges and interest 63,066 21,112 190,958 25,678
Foreign exchange (gain)
loss (389,736) (82,662) (212,342) (137,207)
Interest income - (611) (295) (800)
___________________________________________________
81,582 327,989 1,380,858 634,415
___________________________________________________
Net income (loss) and
comprehensive income (loss)
for the period $ 113,170 $ (788,481) $(1,745,022) $(1,095,116)
===================================================
Basic and diluted income
(loss) per share $ 0.00 $ (0.00) $ (0.01) $ (0.01)
___________________________________________________
Weighted average number of
shares outstanding - basic 175,675,855 170,190,978 175,675,855 166,525,784
Dilutive effect of stock
options - - - -
___________________________________________________
Weighted average number of
shares outstanding -
diluted 175,675,855 170,190,978 175,675,855 166,525,784
___________________________________________________
INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Expressed in Canadian Dollars)
(Unaudited)
September 30, December 31,
2008 2007
Share Capital
Balance, beginning of period $26,134,279 $ 22,458,500
Issued under private placements - 3,342,036
Warrants issued - (504,600)
Stock options exercised - 590,000
Stock options exercised - valuation - 434,000
Warrants exercised - valuation - (185,657)
_______ _______
Balance, end of period $26,134,279 $ 26,134,279
======= =======
Warrants
Balance, beginning of period $ 2,417,700 $ 1,913,100
Issued - 504,600
Expired (2,417,700) -
_______ _______
Balance, end of period $ - $ 2,417,700
======= =======
Contributed Surplus
Balance, beginning of period $ 844,247 $ 848,985
Stock options vested (Note 9(c)) 354,567 429,262
Stock options exercised - (434,000)
Warrants expired 2,417,700 -
_______ _______
Balance, end of period $ 3,616,514 $ 844,247
======= =======
Deficit
Balance, beginning of period $(13,959,943) $ (11,794,287)
Net loss (1,745,022) (2,165,656)
_______ _______
Balance, end of period $ (15,704,965) $ (13,959,943)
======= =======
Total $ 14,045,828 $ 15,436,283
======= =======
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in Canadian Dollars)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net income (loss) for the
period $ 113,170 $ (788,481)$(1,745,022) $(1,095,116)
Adjustments for non-cash
items:
Amortization 360,520 266,449 1,057,601 267,933
Stock-based compensation
(Note 9(c)) 105,859 24,015 354,567 85,110
Foreign exchange (11,879) 51,349 (8,546) 51,807
Net change in non-cash working
capital (Note 11(a)) (165,612) 43,606 181,892 (371,600)
_____________________________________________
402,058 (403,062) (159,508) (1,061,866)
_____________________________________________
INVESTING ACTIVITIES
Purchase of property, plant
and equipment (399,766) (589,806) (749,417) (3,063,799)
_____________________________________________
FINANCING ACTIVITIES
Issue of common shares - 1,690,000 - 3,947,300
Share issue costs - (87,055) - (185,657)
Advances from financing
facility - 498,674 - 1,456,869
Repayments of financing facility (164,090) (184,992) (372,005) (349,387)
Advances from related party 266,003 64,703 1,480,355 64,703
_____________________________________________
101,913 1,981,330 1,108,350 4,933,828
_____________________________________________
NET CHANGE IN CASH 104,205 988,462 199,425 808,163
Effect of exchange rate changes on
cash held in foreign currencies 11,879 (51,349) 8,546 (51,807)
CASH, BEGINNING OF PERIOD 113,195 54,152 21,308 234,909
_____________________________________________
CASH, END OF PERIOD $ 229,279 $ 991,265 $229,279 $ 991,265
=============================================
SUPPLEMENTAL CASH FLOW INFORMATION (Note 11)
GALANTAS GOLD CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
(Unaudited)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008
1. GOING CONCERN
These unaudited 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 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.
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.
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 interim 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.
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.
3. BASIS OF PRESENTATION AND ACCOUNTING POLICIES
The unaudited interim consolidated 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 consolidated financial statements required by
Canadian generally accepted accounting principles for annual consolidated
financial statements. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included. Operating
results for the three and nine months ended September 30, 2008 may not
necessarily be indicative of the results that may be expected for the year
ending December 31, 2008.
The consolidated balance sheet at December 31, 2007 has been derived from
the audited consolidated financial statements at that date but does not
include all of the information and footnotes required by Canadian generally
accepted accounting principles for annual consolidated financial statements.
The unaudited interim consolidated financial statements have been prepared
by management in accordance with the accounting policies described in the
Company's annual audited consolidated financial statements for the year
ended December 31, 2007, except as noted below. For further information,
refer to the audited consolidated financial statements and notes thereto for
the year ended December 31, 2007.
Property, Plant and Equipment
Deferred Till Stripping Costs
Till stripping costs involving the removal of overburden are capitalized
where the underlying ore will be extracted in future periods. The Company
defers these till stripping costs and amortizes them on a unit of production
basis as the underlying ore is extracted.
Capital Disclosures and Financial Instruments - Disclosures and Presentation
On December 1, 2006, the Canadian Institute of Chartered Accountants (the
"CICA") issued three new accounting standards: Capital Disclosures (Handbook
Section 1535), Financial Instruments - Disclosures (Handbook Section 3862),
and Financial Instruments - Presentation (Handbook Section 3863). These new
standards became effective for the Company on January 1, 2008.
Capital Disclosures
Handbook Section 1535 specifies the disclosure of (i) an entity's
objectives, policies and processes for managing capital; (ii)
quantitative data about what the entity regards as capital; (iii)
whether the entity has complied with any capital requirements; and (iv)
if it has not complied, the consequences of such noncompliance. The
Company has included disclosures recommended by the new Handbook section
in Note 4 to these unaudited interim consolidated financial statements.
Financial Instruments
Handbook Sections 3862 and 3863 replace Handbook Section 3861, Financial
Instruments - Disclosure and Presentation, revising and enhancing its
disclosure requirements, and carrying forward unchanged its presentation
requirements. These new sections place increased emphasis on disclosures
about the nature and extent of risks arising from financial instruments
and how the entity manages those risks. The Company has included
disclosures recommended by the new Handbook sections in Note 5(b) to
these unaudited interim consolidated financial statements.
Inventories
Effective January 1, 2008, the Company adopted the new recommendations of
the CICA Handbook Section 3031, Inventories. The revised inventories section
brings the CICA standard in line with International Financial Reporting
Standards and allows for the upward revaluation of inventory that was
previously written down to net realizable value due to a change in
circumstances. The adoption of this standard had no impact on the Company's
financial results.
Overburden removal costs (CICA EIC-160)
CICA Emerging Issues Committee Abstract 160 ("EIC-160"), "Stripping Costs
Incurred in the Production Phase of a Mining Operation", requires stripping
costs to be accounted for as variable production costs to be included in the
costs of inventory produced, unless the stripping activity can be shown to
be a betterment of the mineral property, in which case the stripping costs
would be capitalized. Betterment occurs when stripping activity increases
future output of the mine by providing access to additional sources of
reserves. Capitalized stripping costs would be amortized on a
unit-of-production basis over the proven and probable reserves to which they
relate.
General standard of financial statement presentation
In June 2007, the CICA amended Handbook Section 1400, Going Concern, to
assess an entity's ability to continue as a going concern and disclose any
material uncertainties that cast doubt on its ability to continue as a going
concern. Section 1400 is effective for interim and annual reporting periods
beginning on or after January 1, 2008. The application of this new standard
had no impact on the Company's unaudited interim consolidated financial
statements as at and for the three and nine months ended September 30, 2008.
Future Accounting Pronouncements
International Financial Reporting Standards ("IFRS")
In January 2006, the CICA's Accounting Standards Board ("AcSB") formally
adopted the strategy of replacing Canadian GAAP with IFRS for Canadian
enterprises with public accountability. The current conversion timetable
calls for financial reporting under IFRS for accounting periods
commencing on or after January 1, 2011. On February 13, 2008 the AcSB
confirmed that the use of IFRS will be required in 2011 for publicly
accountable profit-oriented enterprises. For these entities, IFRS will
be required for interim and annual financial statements relating to
fiscal years beginning on or after January 1, 2011. The Company is
currently assessing the impact of IFRS on its consolidated financial
statements.
Goodwill and Intangible Assets
In November 2007, the CICA approved Handbook Section 3064, "Goodwill and
Intangible Assets" which replaces the existing Handbook Sections 3062,
"Goodwill and Other Intangible Assets" and 3450 "Research and
Development Costs". This standard is effective for interim and annual
financial statements relating to fiscal years beginning on or after
January 1, 2009, with earlier application encouraged. The standard
provides guidance on the recognition, measurement and disclosure
requirements for goodwill and intangible assets. The Company is
currently assessing the impact of this new accounting standard on its
consolidated financial statements.
4. CAPITAL MANAGEMENT
The Company's objective when managing capital is to safeguard its
accumulated capital in order to provide an adequate return to shareholders
by maintaining a sufficient level of funds, in order to support continued
production and maintenance at the Omagh Mine and to acquire, explore and
develop other precious and base metal deposits in Northern Ireland.
The Company manages its capital structure and makes adjustments to it, based
on the level of funds available to the Company to manage its operations. In
order to maintain or adjust the capital structure, the Company expects that
it will be able to obtain equity financing and generate positive cash flow
from operations to maintain and expand its operations. There are no
assurances that these initiatives will be successful. Management reviews its
capital management approach on an ongoing basis.
There were no changes in the Company's approach to capital management during
the three and nine months ended September 30, 2008. Neither the Company nor
its subsidiaries are subject to externally imposed capital requirements.
5. FINANCIAL RISK FACTORS
(a) Property risk
The Company's significant project is the Omagh Mine. Unless the Company
acquires or develops additional significant projects, the Company will be
solely dependent upon the Omagh Mine. If no additional projects are
acquired by the Company, any adverse development affecting the Omagh Mine
would have a material effect on the Company's financial condition and
results of operations.
(b) Financial risk
The Company's activities expose it to a variety of financial risks: credit
risk, liquidity risk, and market risk (including interest rate, foreign
exchange rate and commodity price risk).
Risk management is carried out by the Company's management team with
guidance from the Audit Committee under policies approved by the Board of
Directors. The Board of Directors also provides regular guidance for overall
risk management.
Credit risk
Credit risk is the risk of loss associated with a counterparty's inability
to fulfill its payment obligations. The Company's credit risk is primarily
attributable to cash and accounts receivable. Cash is held with reputable
financial institutions, from which management believes the risk of loss to
be minimal. Accounts receivable consist mainly of a trade account receivable
from one customer and Value Added Tax receivable. The Company is exposed to
concentration of credit risk with one of its customers. Management believes
that the credit risk is minimized due to the financial worthiness of this
company. Value Added Tax receivable is collectable from the Government of
Ireland. The Company does not have derivative financial instruments. No
trade accounts receivable balances are past due or impaired.
Liquidity Risk
The Company manages liquidity risk by monitoring maturities of financial
commitments and maintaining adequate cash reserves and available borrowing
facilities to meet these commitments as they come due. As at September 30,
2008 and December 31, 2007, the Company had negative working capital. All of
the Company's financial liabilities have contractual maturities of less than
30 days other than the financing facility and certain related party loans.
The Company is using operating cash flows to manage and is seeking
additional capital to increase liquidity.
Market Risk
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows
of a financial instrument will fluctuate due to changes in market
interest rates. The Company has minimal cash balances and significant
interest-bearing debt. The Company is exposed to interest rate risk on
the term loan facility and certain related party loans which bear
interest at variable rates.
Foreign currency risk
Certain of the Company's expenses and revenues are incurred and received
in the currencies of Northern Ireland and the United Kingdom and are
therefore subject to gains and losses due to fluctuations in these
currencies against the Canadian dollar.
Price risk
The Company is exposed to price risk with respect to commodity prices.
Commodity price risk is defined as the potential adverse impact on
earnings and economic value due to commodity price movements and
volatilities. The Company closely monitors commodity prices, as it
relates to gold to determine the appropriate course of action to be
taken by the Company.
Sensitivity Analysis
The Company designated, for accounting purposes, its cash as
held-for-trading, which is measured at fair value. Accounts receivable and
advances are classified for accounting purposes as loans and receivables,
which are measured at amortized cost and is equal to fair value. Accounts
payable and accrued liabilities, financing facility and due to related party
are classified for accounting purposes as other financial liabilities, which
are measured at amortized cost and is also equal to fair value.
Based on management's knowledge and experience of the financial markets, the
Company believes the following movements are "reasonably possible" over a
nine month period:
(i) The term loan facility and certain related party loans are subject
to interest rate risk. As at September 30, 2008, if interest rates had
decreased/increased by 1% with all other variables held constant, the
loss for the nine months ended September 30, 2008 would have been
approximately $15,000 lower/higher, as a result of lower/higher interest
rates from the term loan facility and certain related party loans.
Similarly, as at September 30, 2008, shareholders' equity would have
been approximately $15,000 higher/lower as a result of a 1%
decrease/increase in interest rates from the term loan facility and
certain related party loans.
(ii) The Company is exposed to foreign currency risk on fluctuations
related to cash, accounts receivable and advances, accounts payable and
accrued liabilities, due to related party and financing facility that
are denominated in U.K. pound sterling. As at September 30, 2008, had
the U.K. pound sterling weakened/strengthened by 5% against the Canadian
dollar with all other variables held constant, the Company's loss for
the nine months ended September 30, 2008 would have been approximately
$259,000 higher/lower as a result of foreign exchange losses/gains on
translation of non-Canadian dollar denominated financial instruments.
Similarly, as at September 30, 2008, shareholders' equity would have
been approximately $259,000 lower/higher had the U.K. pound sterling
weakened/strengthened by 5% against the Canadian dollar as a result of
foreign exchange losses/gains on translation of non-Canadian dollar
denominated financial instruments.
(iii) Commodity price risk could adversely affect the Company. In
particular, the Company's future profitability and viability of
development depends upon the world market price of gold. Gold prices
have fluctuated widely in recent years. There is no assurance that, even
as commercial quantities of gold may be produced in the future, a
profitable market will exist for them. A decline in the market price of
gold may also require the Company to reduce its mineral resources, which
could have a material and adverse effect on the Company's value. Net
loss would be impacted by changes in average realized gold prices.
Sensitivity to a plus or a minus 10% change in average realized gold
prices would affect net loss and shareholders' equity by approximately
$382,000.
6. INVENTORY
September 30, December 31,
2008 2007
Concentrate inventory $1,104,809 $ 703,606
Finished goods 737,352 329,990
_______ _______
$1,842,161 $1,033,596
7. PROPERTY, PLANT AND EQUIPMENT
September 30, 2008
Accumulated
Cost Amortization Net
Deferred development and exploration costs $10,698,636 $ 578,922 $ 10,119,714
Freehold land and buildings 3,020,912 352,886 2,668,026
Plant and machinery 5,507,869 1,896,357 3,611,512
Deferred till stripping costs 343,671 23,019 320,652
Motor vehicles 64,820 43,696 21,124
Office equipment 79,575 51,128 28,447
Moulds 81,802 81,802 -
_______________________________________
$19,797,285 $ 3,027,810 $ 16,769,475
_______________________________________
December 31, 2007
Accumulated
Cost Amortization Net
Deferred development and exploration costs $10,539,905 $ 209,216 $ 10,330,689
Freehold land and buildings 3,019,588 227,324 2,792,264
Plant and machinery 5,264,958 1,364,589 3,900,369
Motor vehicles 62,040 39,420 22,620
Office equipment 79,575 47,858 31,717
Moulds 81,802 81,802 -
_______________________________________
$19,047,868 $1,970,209 $ 17,077,659
8. FINANCING FACILITY
Amounts payable on the long term debt are as follows:
September 30, December 31,
Interest 2008 2007
Financing facility (238,700 GBP) 3.71% $ 74,730 $ 160,949
Financing facility (180,000 GBP) 3.97% 61,875 156,448
Financing facility (199,160 GBP) 4.03% 224,444 290,314
Term loan facility (250,000 GBP) 7.50% 294,566 419,909
____________________________
655,615 1,027,620
Less current portion 382,390 495,217
____________________________
$ 273,225 $ 532,403
Principal repayments over the next three years are as follows:
2009 $ 382,390
2010 212,900
2011 60,325
_______
$ 655,615
=======
9. SHARE CAPITAL
(a) Authorized and issued
Authorized
Unlimited number of common and preference shares issuable in Series
Issued common shares
Number of Stated
Shares Value
Balance, December 31, 2007 and September 30, 2008 175,675,855 $ 26,134,279
(b) Warrants
The following table shows the continuity of warrants for the period ended
September 30, 2008:
Weighted
Average
Number of Warrants Price
Balance, December 31, 2007 24,404,000 $ 0.34
Expired (24,404,000) (0.34)
Balance, September 30, 2008 - $ -
(c) Stock options
The following table shows the continuity of options for the nine months
ended September 30, 2008:
Weighted
Average
Number of Options Price
Balance, December 31, 2007 10,550,000 $ 0.15
Expired (1,650,000) 0.17
Granted (i) 250,000 0.16
Balance, September 30, 2008 9,150,000 $ 0.15
Stock-based compensation expense includes $101,857 and $333,125 relating to
stock options granted in previous years that vested during the three and
nine months ended September 30, 2008, respectively.
(i)On February 20, 2008, 250,000 stock options were granted to an
employee of the Company to purchase common shares at a price of $0.16 per
share until February 20, 2013. The options vest one-third upon grant,
one-third on the first anniversary of grant and one-third on the second
anniversary of grant. The fair value attributed to these options was
$32,250 and will be expensed in the statement of operations and credited
to contributed surplus as the options vest. Included in stock-based
compensation for the three and nine months ended September 30, 2008 is
$4,002 and $21,442, respectively related to the vested portion of these
stock options.
As at September 30, 2008, the following stock options were outstanding:
Weighted
Average
Remaining
Contractual Life Exercisable Number Exercise Expiry
(years) Options of Options Price ($) Date
1.62 200,000 200,000 0.10 May 13, 2010
2.70 500,000 500,000 0.26 June 14, 2011
3.71 333,333 500,000 0.23 June 15, 2012
4.24 2,566,667 7,700,000 0.14 December 24, 2012
4.39 83,333 250,000 0.16 February 20, 2013
________________________________________
4.07 3,683,333 9,150,000
10. RELATED PARTY TRANSACTIONS
The Company was charged $15,108 and $49,781 for the three and nine months
ended September 30, 2008, respectively ($14,202 and $33,546 for the three
and nine months ended September 30, 2007, respectively) for accounting and
corporate secretarial services by companies associated to an officer of the
Company. Accounts payable includes $41,585 (September 30, 2007 - $32,976)
owing to these companies.
Director fees of $9,000 and $27,000 ($4,500 and $23,000 for the three and
nine months ended September 30, 2007, respectively) were paid or accrued
during the three and nine months ended September 30, 2008, respectively.
Included in due to related party is $1,741,116 (922,788 GBP) owing to a
director and companies controlled by a director of the Company. $507,137
(268,781 GBP) of the loan is secured against a second charge on the land
owned by Omagh and the balance of the loan is unsecured. The loans bear
interest at base rate plus 2%. $739,312 (391,781 GBP) is due over a period
of 3 years. At September 30, 2008, interest of $105,173 (55,742 GBP) was
accrued and included in accounts payable and accrued liabilities.
Also, included in due to related party, the Company obtained a loan facility
from G&F Phelps, a company controlled by a director of the Company, in the
amount of $1,222,005 (647,660 GBP) for the financing of mining equipment.
$778,607 (412,660 GBP) of the term loan is for a period of 4.25 years
interest bearing at 4.04% flat with monthly payments of $16,591 (8,793 GBP)
and is secured by all equipment owned by the Company's wholly-owned
subsidiary Omagh.
Transactions with related parties were in the normal course of operations
and were measured at the exchange amounts.
11. SUPPLEMENTAL CASH FLOW INFORMATION
(a) Net change in non-cash working capital
Three Months Ended Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
Accounts receivable and
advances $ 329,699 $(120,861) $346,240 $(199,347)
Inventory (89,315) (3,183) (808,565) (15,191)
Accounts payable and accrued
liabilities (552,300) 167,650 96,639 (157,062)
Deferred revenue 146,304 - 547,578 -
______________________________________________
$(165,612) $ 43,606 $181,892 $(371,600)
==============================================
(b) Supplemental information
Amortization capitalized to deferred
development costs $ - $ - $ - $ 406,955
Interest paid $ 19,229 $ 27,324 $ 50,079 $ 49,839
Interest paid includes $50,079 (September 30, 2007 - $49,839) of interest
paid on the financing facility. Of these amounts, $nil (September 30, 2007 -
$22,515) were charged to deferred development costs and $50,079 (September
30, 2007 - $27,324) was expensed to the statement of operations.
12. 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 Corporation and its subsidiaries,
Omagh and Galantas. Substantially all of the Company's revenues, costs and
assets of the business that support these operations are derived or located
in Northern Ireland.
13. SUBSEQUENT EVENTS
(i) On October 2, 2008, 1,500,000 stock options were granted to an
employee and an officer of the Company to purchase common shares at a
price of $0.10 per share until October 2, 2013. The options vest one-third
upon grant, one-third on the first anniversary of grant and one-third on
the second anniversary of grant.
(ii) On November 4, 2008, the President and Chief Executive Officer of the
Company agreed to lend up to a total amount of $943,400 (500,000 GBP) to
the Company for a period of six months. The loan facility is secured by
the Company's inventory with cross guarantees provided by the Company's
subsidiaries. The loan bears interest at a base rate plus 4.5% per annum,
such interest to be calculated monthly and compounded until repaid.
-END-
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