Final Results

RNS Number : 4090B

Galantas Gold Corporation

16 April 2012

GALANTAS GOLD CORPORATION

TSXV & AIM : Symbol GAL

GALANTAS REPORTS RESULTS FOR THE YEAR ENDED DECEMBER 31, 2011

April 16th, 2012 : Galantas Gold Corporation (the 'Company') is pleased to announce its annual financial results for the Year Ended December 31, 2011. These financial results, together with the comparatives for the Year Ended December 31, 2010 are being reported for the first time under International Financial Reporting Standards ("IFRS") which replaces Canadian General Accepted Accounting Policies, effective January 1, 2011 for all publically accountable enterprises in Canada.

Financial Highlights

	Year Ended December 31
All in CDN$	2011	2010	%
Revenue	$9,492,157	$6,831,410	38.9%
Cost of Sales	$4,860,427	$4,032,757	20.5%
Income before the undernoted	$4,631,730	$2,798,653	65.5%
Amortization	$837,068	$762,422	9.8%
General administrative expenses	$2,263,741	$1,184,050	91.1%
Foreign exchange (gain) loss	$(80,069)	$101,981	-
Net Income for the year	$1,610,990	$750,200	114.7%
Working Capital Deficit	$536,142	$292,336
Cash generated from operating activities after changes in non-cash working capital	$3,339,617	$1,183,905	182.1%
Cash at December 31, 2011	$4,240,081	$2,661,798	59.3%

Production at the Omagh mine during the year ended December 31, 2011 was above production levels of both 2010 and earlier years with record production levels being achieved during the second quarter. The increased production level of 7,308 ounces of gold equivalent (2010: 6,402 ounces of gold equivalent), combined with the improved price of gold, accounted for the 38.9% increase in Revenue. Gold prices averaged $1,568 per oz in 2011 (2010: $1,225 per oz). Costs of sales increased by 20.5% to $4,860,427 (2010:$4,032,757), primarily due to increased fuel costs, repair and servicing costs.

Production Highlights

	Year Ended December 31
	2011	2010
Tonnes Milled	46,871	36,288
Average Grade g/t gold	4.46	4.74
Dry Tonnes Concentrate	2,265	1,500
Concentrate Gold Grade (g/t)	88.9	119.2
Gold Produced - kg (troy ozs)	201.5 kg (6,479oz)	177.2 kg (5,696oz)
Concentrate Silver Grade (g/t)	234.0	338.2
Silver Produced kg (troy ozs)	531.3 kg (17,082oz)	505.9 kg (16,267oz)
Lead Produced (tonnes)	280.1	251.2
Gold Equivalent ( troy.ozs)	7,308	6,402

Production

The main mine production focus during the year has been on the open pit mining of the Kearney and Kerr veins. Despite production in early 2011 being impeded by very poor weather conditions, production at the Omagh mine during the year ended December 31, 2011 was above production levels of both 2010 and earlier years with record production levels being achieved during the second quarter. However, mining from the Kearney pit was restricted during the second half of 2011 due to limitations in the disposal of surplus rock which had been stockpiled over a period of time, which resulted in additional ore being mined from other lower grade areas. Whilst the mine is required under its planning permission to dispose of the surplus rock, the consent to transport the surplus rock offsite from the current stockpile was not (at that time) confirmed from the relevant local authority. This has resulted in the level of stockpiled surplus rock now being at capacity levels which has and will have a significant adverse impact on production from the Kearney open pit going forward. Because of this risk to current and future production levels, discussions commenced with employees at the Omagh mine during 2011 with regards to a number of redundancies which are expected to be in place in early 2012, with some already completed in the first quarter of 2012. Subsequent to December 31, 2011 Omagh Minerals Limited obtained confirmation of planning permits to transport the surplus rock offsite to be integrated into the local aggregates industry. However, due to the conditions attached to the permit it will be some months before the transportation of this rock can commence. This will result in lower grade material being worked in 2012 which will result in both revenues and cash generation being reduced during 2012. Because of this ongoing restriction in mining, together with the positive assay results from the drilling program, it is likely that future increases in production from the lower levels will not be achieved until mining commences from the planned underground mine.

The mill refurbishment and upgrade program, which commenced in the fourth quarter of 2010 was completed in the second quarter of 2011. Tonnes milled during the year ended December 31, 2011 increased by 29.2% to 46,871 tonnes (2010: 36,288 tonnes) and concentrate production for 2011 increased by 51% to 2,265 dry tonnes (2010: 1,500.2 dry tonnes).

During 2011, the Omagh Mine and Processing plant operated safely and had zero lost-time accidents. It also operated within the strict environmental guidelines laid down by the regulating authorities. A detailed check was carried out by the Northern Ireland Environment Agency, which supported regular monitoring results and confirmed compliance with environmental standards.

Exploration

During 2011 the focus of exploration work has moved from mining geology to exploration based activities. Following both the receipt of loan funds in the first quarter and the improved financial results in the second quarter, the 2,000 metre diamond drilling program was expanded up to a 15,000 metre program, utilising four rigs, with a fifth rig being added at the end of 2011. During the year, 4,148 metres of exploration drilling was completed, with 42 holes being drilled. There were 31 holes drilled on the Joshua vein, 8 holes on the Kearney vein and 3 on the Kerr vein. Subsequent to December a sixth rig commenced drilling on the property and as of mid March a total of 6,373 metres (53 holes) had been drilled in the 15,000 drilling program.

Drilling on the Kearney vein was carried out at depth with the objective of gaining a more accurate picture of the zone of mineralization for the purpose of underground development. Channel sampling was also carried out on the Joshua and Kerr vein systems with the focus being mainly on Joshua due to higher grades and widths of mineralization. Assay results released to date from both the drilling and channel sampling program have been encouraging with significant gold intersections being identified.

In March 2012 the Company engaged ACA Howe International Ltd to provide an interim updated resource estimate for the Omagh mine to be prepared in accordance with Canadian National Instrument (NI) 43-101 standard which will estimate all resources discovered to early April in the current drilling program. This report is expected to be published during the second quarter of 2012 and will also address the underground mining scoping study currently underway at the Omagh mine. The drilling program will continue beyond April and a second interim report is expected to be prepared during the fourth quarter of 2012.

Galantas continues with exploration outside the mine, and in early 2011 an area licence OM4 covering an area of 252 square kilometres was granted for a two year period. This licence area covers most of the previous OM2 license area and the northern section of the OM3 license area both of which had lapsed in 2010. Fieldwork was carried out within three areas of the OM4 license during the fourth quarter of 2011. In addition an application was made for four exploration licenses in the Republic of Ireland, covering an area of 160 square kilometres, that forms a westerly extension to the existing OM4 license, which was subsequently granted in March 2012. A publicly funded geochemical and geophysical program is presently being carried out in these border areas and it is anticipated that the Omagh Minerals will benefit from the additional data.

Permitting

Discussions with the regulatory authorities in Northern Ireland continued during the year with regard to obtaining approval for the closure plan, which approval was granted in the first quarter of 2012. During the fourth quarter four planning applications were submitted to the planning service authorities, two of which were in connection with proposals to drill boreholes to determine mineralization at depth on the Kearney and Joshua veins. The remaining two were in connection with the construction and renovation of passing bays for the removal of surplus rock and the construction of a lower portal structure and truncated adit for underground mining on the Kearney vein. Further progress was made on both the underground development plans and the surface infrastructure development plans during the year. The underground mine plan is being finalised with a pre consultation exercise in place and an Environmental Impact Assessment being completed.

Roland Phelps, President & CEO, Galantas Gold Corporation, commented, "Solid results from the drilling program are supporting continued investment in the Omagh Mine. Subject to the results of the upcoming Howe report, the focus of operations in 2012 is expected to be directed towards achieving all that is necessary to establish an underground operation. Working with local representatives and the Planning Service, we expect to satisfy any issues arising from the upcoming planning application."

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 detailed in a press release dated 3rd October 2007.

Qualified Person

The financial components of this disclosure have been reviewed by Leo O' Shaughnessy (Chief Financial Officer) and the production components by Richard Crew (Chief Operating Officer), qualified persons under the meaning of NI. 43-101. The information is based upon local production and financial 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 and throughputs; mining operational risk, geological uncertainties; regulatory restrictions, including environmental regulatory restrictions and liability; risks of sovereign involvement; speculative nature of gold exploration; dilution; competition; loss of or availability of key employees; additional funding requirements; uncertainties regarding 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.

Galantas Gold Corporation Issued and Outstanding Shares total 235,650,055.

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.

The Consolidated Financial Statements and Management's Discussion and Analysis for the year ended December 31, 2011are available on the Company's website www.galantas.com.

Enquiries

Galantas Gold Corporation
Jack Gunter P.Eng - Chairman                                                      Investor Relations Consultant
Roland Phelps C.Eng - President & CEO                                   Courtenay Heading (Maclir Consulting Ltd)
Email: info@galantas.com                                                             Email : c.heading@Galantas.com
Website: www.galantas.com                                                         Telephone : (UK) +44 (0) 7624 424 455
Telephone: +44 (0) 2882 241100

Charles Stanley Securities

Mark Taylor / Luke Webster

Telephone +44 (0)20 7149 6000

GALANTAS GOLD CORPORATION

Consolidated Financial Statements
(Expressed in Canadian Dollars)

Years Ended December 31, 2011 and 2010

Management's Responsibility for Consolidated Financial Statements

The accompanying audited consolidated annual financial statements of Galantas Gold Corporation (the "Company") are the responsibility of the Board of Directors.

The audited consolidated annual financial statements have been prepared by management, on behalf of the Board of Directors, in accordance with the accounting policies disclosed in the notes to the audited consolidated annual financial statements. Where necessary, management has made informed judgments and estimates in accounting for transactions which were not complete at the statement of financial position date. In the opinion of management, the audited consolidated annual financial statements have been prepared within acceptable limits of materiality and are in compliance with all International Financial Reporting Standards.

Management has established processes, which are in place to provide it sufficient knowledge to support management representations that it has exercised reasonable diligence that (i) the audited consolidated annual 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 audited consolidated annual financial statements and (ii) the audited consolidated annual 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 audited consolidated annual financial statements.

The Board of Directors is responsible for reviewing and approving the audited consolidated annual 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 audited consolidated annual 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 audited consolidated annual 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.

(signed) "Roland Phelps"	(signed) "Leo O'Shaughnessy"
Roland Phelps	Leo O'Shaughnessy
President	Chief Financial Officer

April 12, 2012

Independent Auditor's Report

To the Shareholders of
Galantas Gold Corporation

We have audited the accompanying consolidated financial statements of Galantas Gold Corporation, which comprise the consolidated statements of financial position as at December 31, 2011, December 31, 2010 and January 1, 2010 and the consolidated statements of income, comprehensive income, cash flows and changes in equity for each of the years ended December 31, 2011 and December 31, 2010, and a summary of significant accounting policies and other explanatory information.

Management's responsibility for the consolidated financial statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as managem ent determines is necessary to enable the preparation o f consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor's responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Galantas Gold Corporation as at December 31, 2011, December 31, 2010 and January 1, 2010 and its financial performance and its cash flows for the years ended December 31, 2011 and December 31, 2010 in accordance with International Financial Reporting Standards.

Emphasis of matter

Without qualifying our opinion, we draw attention to note 1 in the consolidated financial statements which describes that the Company will require additional financing in order to fund its planned activities. This condition, along with other matters set out in note 1, indicates the existence of material uncertainties that may cast significant doubt about the Company's ability to continue as a going concern.

	"McCarney Greenwood LLP"

Toronto, Canada	McCarney Greenwood LLP
April 12, 2012	Chartered Accountants
	Licensed Public Accountants

Galantas Gold Corporation

Consolidated Statements of Financial Position

(Expressed in Canadian Dollars)

		As at			As at			As at
		December 31,			December 31,			January 1,
		2011			2010			2010
					(note 22(v))			(note 22(v))

ASSETS

Current assets
Cash (note 8)	$	4,240,081		$	2,661,798		$	485,997
Accounts receivable and advances (note 9)		1,056,573			751,233			657,515
Inventory (note 10)		347,016			411,605			445,666
Total current assets		5,643,670			3,824,636			1,589,178

Non-current assets
Property, plant and equipment (note 11)		3,547,393			2,299,608			2,379,769
Long-term deposit (note 8)		371,277			302,504			84,590
Deferred development and exploration costs (note 12)		4,507,753			3,485,774			4,303,084
Total assets	$	14,070,093		$	9,912,522		$	8,356,621

EQUITY AND LIABILITIES

Current liabilities
Accounts payable and other liabilities (note 13)	$	1,683,142		$	988,186		$	1,831,010
Current portion of financing facility (note 14)		-			31,266			77,830
Due to related parties (note 19)		2,517,067			3,097,520			3,382,332
Convertible debenture (note 15)		1,979,603			-			-
Total current liabilities		6,179,812			4,116,972			5,291,172

Non-current liabilities
Asset retirement obligation		394,975			387,825			422,949
Long-term portion of financing facility (note 14)		-			-			34,102
Total liabilities		6,574,787			4,504,797			5,748,223

Capital and reserves
Share capital (note 16)		27,808,316			27,808,316			26,530,787
Reserves		5,258,030			4,781,439			4,009,841
Deficit		(25,571,040	)		(27,182,030	)		(27,932,230	)
Total equity		7,495,306			5,407,725			2,608,398
Total equity and liabilities	$	14,070,093		$	9,912,522		$	8,356,621

The notes to the audited consolidated annual financial statements are an integral part of these statements.

Going concern (note 1)
Contingent liability (note 21)
Subsequent event (note 23)

Galantas Gold Corporation

Consolidated Statements of Income

(Expressed in Canadian Dollars)

		Year Ended
		December 31,
		2011			2010
					(note 22(v))

Revenues
Gold sales	$	9,492,157		$	6,831,410

Cost and expenses of operations
Cost of sales		4,860,427			4,032,757
Amortization and depreciation		837,068			762,422
		5,697,495			4,795,179

Income before the undernoted		3,794,662			2,036,231

Other expense
(Gain) loss on disposal of property, plant and equipment		(485	)		6,123

General administrative expenses
Management and administration wages (note 19)		701,205			429,436
Other operating expenses		457,269			169,078
Accounting and corporate		71,340			65,138
Legal and audit		184,855			175,986
Stock-based compensation (note 16(d))		251,202			59,204
Shareholder communication and investor relations		255,181			110,765
Transfer agent		21,243			27,770
Director fees (note 19)		39,000			48,427
General office		30,353			4,739
Accretion expenses (note 15)		140,721			-
Bank interest and fees		111,857			87,384
		2,264,226			1,177,927

Foreign exchange (gain) loss		(80,069	)		101,981
		2,184,157			1,279,908

Net income for the year	$	1,610,990		$	750,200
Basic net income per share (note 17)	$	0.01		$	0.00
Weighted average number of common shares outstanding - basic		235,650,055			212,832,704
Diluted net income per share (note 17)	$	0.01		$	0.00
Weighted average number of common shares outstanding - diluted		235,650,055			212,832,704

The notes to the audited consolidated annual financial statements are an integral part of these statements.

Galantas Gold Corporation

Consolidated Statements of Comprehensive Income

(Expressed in Canadian Dollars)

		Year Ended
		December 31,
		2011		2010
				(note 22(v))

Net income for the year	$	1,610,990	$	750,200

Other comprehensive income (loss)
Foreign currency translation differences		57,307		(264,020	)
Total comprehensive income	$	1,668,297	$	486,180

The notes to the audited consolidated annual financial statements are an integral part of these statements.

Galantas Gold Corporation

Consolidated Statements of Cash Flows

(Expressed in Canadian Dollars)

		Year Ended
		December 31,
		2011			2010
					(note 22(v))

Operating activities
Net income for the year	$	1,610,990		$	750,200
Adjustment for:
Amortization and depreciation		837,068			762,422
Stock-based compensation (note 16(d))		251,202			59,204
Foreign exchange		45,916			378,598
(Gain) loss on disposal of property, plant and equipment		(485	)		6,123
Accretion expenses		140,721			-
Non-cash working capital items:
Accounts receivable and advances		(305,340	)		(93,718	)
Inventory		64,589			34,061
Accounts payable and other liabilities		694,956			(712,985	)
Net cash provided by operating activities		3,339,617			1,183,905

Investing activities
Purchase of property, plant and equipment		(1,675,858	)		(429,810	)
Proceeds from sale of property, plant and equipment		21,531			31,026
Deferred development and exploration costs		(1,343,713	)		(16,655	)
Long-term deposit		(15,799	)		(224,949	)
Net cash used in investing activities		(3,013,839	)		(640,388	)

Financing activities
Issue of common shares		-			2,277,500
Share issue costs		-			(23,557	)
Net repayments of financing facility		(31,266	)		(80,666	)
Repayments to related parties		(947,940	)		(424,429	)
Advances from related parties		367,487			-
Proceeds from convertible debenture		1,953,750			-
Financing charges related to convertible debenture		(14,594	)		-
Net cash provided by financing activities		1,327,437			1,748,848

Net change in cash		1,653,215			2,292,365

Effect of exchange rate changes on cash held in foreign currencies		(74,932	)		(116,564	)

Cash, beginning of year		2,661,798			485,997

Cash, end of year	$	4,240,081		$	2,661,798

The notes to the audited consolidated annual financial statements are an integral part of these statements.

Galantas Gold Corporation

Consolidated Statements of Changes in Equity

(Expressed in Canadian Dollars)

					Reserves

					Equity settled					Foreign			Equity
					share-based					currency			portion of
		Share			payments		Warrant			translation			convertible
		capital			reserve		reserve			reserve			debenture		Deficit			Total
Balance, January 1, 2010	$	26,530,787		$	3,962,831	$	47,010		$	-		$	-	$	(27,932,230	)	$	2,608,398
Shares issued under private placements (note 16(b)(i)(ii))		2,277,500			-		-			-			-		-			2,277,500
Warrants issued		(976,414	)		-		976,414			-			-		-			-
Share issue costs		(23,557	)		-		-			-			-		-			(23,557	)
Warrants expired		-			47,010		(47,010	)		-			-		-			-
Stock-based compensation (note 16(d))		-			59,204		-			-			-		-			59,204
Net income and comprehensive loss for the year		-			-		-			(264,020	)		-		750,200			486,180
Balance, December 31, 2010		27,808,316			4,069,045		976,414			(264,020	)		-		(27,182,030	)		5,407,725
Convertible debenture (note 15)		-			-		-			-			168,082		-			168,082
Stock-based compensation (note 16(d))		-			251,202		-			-			-		-			251,202
Net income and comprehensive income for the year		-			-		-			57,307			-		1,610,990			1,668,297
Balance, December 31, 2011	$	27,808,316		$	4,320,247	$	976,414		$	(206,713	)	$	168,082	$	(25,571,040	)	$	7,495,306

The notes to the audited consolidated annual financial statements are an integral part of these statements.

Galantas Gold Corporation

Notes to Consolidated Financial Statements

Years ended December 31, 2011 and 2010

(Expressed in Canadian Dollars)

1.	Going Concern

These audited consolidated annual 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 December 31, 2011, the Company had a deficit of $25,571,040 (December 31, 2010 - $27,182,030; January 1, 2010 - $27,932,230). 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 audited consolidated annual 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 (the "Exchange") and London Stock Exchange AIM under the symbol GAL. The primary office is located at 360 Bay Street, Suite 500, Toronto, Ontario, Canada, M5H 2V6.

The audited consolidated annual financial statements were approved by the Board of Directors on April 12, 2012.

3.	Basis of Preparation

(a)	Statement of compliance and conversion to International Financial Reporting Standards ("IFRS")

IFRS replaced current Canadian generally accepted accounting principles ("GAAP") for publicly accountable enterprises, including the Company, effective for fiscal years beginning on or after January 1, 2011.

These are the Company's first IFRS audited consolidated annual financial statements to be presented in accordance with IFRS for the year ending December 31, 2011. IFRS 1 - First-Time Adoption of IFRS ("IFRS 1") has been applied and the impact of the transition from Canadian GAAP to IFRS is explained in note 22.

The accounting policies set out below have been applied consistently to all periods presented in these audited consolidated annual financial statements. They also have been applied in preparing an opening IFRS financial position at January 1, 2010 (note 22) for the purposes of the transition to IFRS, as required by IFRS 1. The accounting policies have been applied consistently by the Company and its subsidiaries.

(b)	Basis of presentation

These audited consolidated annual financial statements have been prepared on a historical cost basis with the exception of certain financial instruments, which are measured at fair value. In addition, these audited consolidated annual financial statements have been prepared using the accrual basis of accounting except for cash flow information.

In the preparation of these audited consolidated annual financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the period. Actual results could differ from these estimates. Of particular significance are the estimates and assumptions used in the recognition and measurement of items included in note 3(e).

(c)	Basis of consolidation

The audited consolidated annual financial statements incorporate the financial statements of the Company and its subsidiaries.

The results of subsidiaries acquired or disposed of during the periods presented are included in the consolidated statement of comprehensive income from the effective date of acquisition and up to the effective date of disposal, as appropriate. All intercompany transactions, balances, income and expenses are eliminated upon consolidation.

The following companies have been consolidated within the audited consolidated annual financial statements:

Company	Registered	Principal activity
Galantas Gold Corporation	Ontario, Canada	Parent company
Cavanacaw Corporation ⁽¹⁾	Ontario, Canada	Holding company
Omagh Minerals Limited ⁽²⁾⁽³⁾	Northern Ireland, Europe	Operating company
Galántas Irish Gold Limited ⁽²⁾⁽⁴⁾	Northern Ireland, Europe	Operating company

⁽¹⁾100% owned by Galantas Gold Corporation;
⁽²⁾100% owned by Cavanacaw Corporation;
⁽³⁾Referred to as Omagh (as defined herein); and
⁽⁴⁾Referred to as Galántas (as defined herein).

(d)	Functional and presentation currency

The audited consolidated annual financial statements are presented in Canadian Dollars ("CAD"), which is the Company's presentation currency.

Items included in the financial statements of each of the Company's subsidiaries are measured using the currency of the primary economic environment in which the entity operates (the "functional currency"). The functional currency of the subsidiaries is the U.K. pound sterling ("GBP").

Assets and liabilities of entities with functional currencies other than CAD are translated at the period end rates of exchange, and the results of their operations are translated at average rates of exchange for the period. The resulting translation adjustments are recognized as a separate component of equity.

The rates used for the translation were obtained from the official website of the Bank of Canada.

	Year ended	Year ended	As at
	December 31,	December 31,	January 1,
	2011	2010	2010

Closing rate	1.5799	1.5513	1.6918
Average for the year	1.5861	1.5918	-

(e)	Use of estimates and judgments

The preparation of these audited consolidated annual financial statements requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of expenses during the reporting period. Actual outcomes could differ from these estimates. These audited consolidated annual financial statements include estimates that, by their nature, are uncertain. The impacts of such estimates are pervasive throughout the audited consolidated annual financial statements, and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the period in which the estimate is revised and future periods if the revision affects both current and future periods. These estimates are based on historical experience, current and future economic conditions and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Critical accounting estimates

Significant assumptions about the future that management has made that could result in a material adjustment to the carrying amounts of assets and liabilities, in the event that actual results differ from assumptions made, relate to, but are not limited to, the following:

· the recoverability of accounts receivable that are included in the audited consolidated annual statements of financial position;

· the recoverability of deferred development and exploration costs incurred on the Omagh mine;

· the estimated life of the ore body based and the estimated recoverable ounces or pounds mined from proven and probable reserves of deferred development and exploration costs which are included in the audited consolidated annual statements of financial position and the related amortization and depreciation included in profit or loss;

· the estimated useful lives and residual value of property, plant and equipment which are included in the audited consolidated annual statement of financial position and the related amortization and depreciation included in profit or loss;

· the inputs used in accounting for stock-based compensation transactions in profit or loss;

· management applied judgment in determining the functional currency and presentation currency based on the facts and circumstances that existed during the period;

· management assumption of amount of material restoration, rehabilitation and environmental, based on the facts and circumstances that existed during the period; and

Critical accounting judgments

The determination of categories of financial assets and financial liabilities has been identified as an accounting policy which involves judgments or assessments made by management.

4.	Significant Accounting Policies

(a)	Foreign currency transactions

Transactions in foreign currencies are translated to the respective functional currencies of the Operations at exchange rates at the dates of transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising in retranslation are recognized in profit and loss, except for differences arising on the retranslation of available-for-sale equity instruments which are recognised in other comprehensive (loss) income. Non-monetary items that are measured in terms of historical cost in foreign currency are translated using the exchange rate at the date of the transaction.

(b)	Financial assets

The Company's financial instruments consist of the following:

Financial assets:	Classification:
Cash	Fair value through profit or loss
Accounts receivable and advances	Loans and receivables
Long-term deposit	Fair value through profit or loss
Financial liabilities:	Classification:
Accounts payable and other liabilities	Other financial liabilities
Financing facility	Other financial liabilities
Due to related parties	Other financial liabilities
Convertible debenture	Other financial liabilities

Fair value through profit or loss ("FVTPL"):

Financial assets are classified as FVTPL when acquired principally for the purpose of trading, if so designated by management (fair value option), or if they are derivative assets that are not part of an effective and designated hedging relationship. Financial assets classified as FVTPL are measured at fair value, with changes recognized in the consolidated statements of income.

Loans and receivables:

Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are initially recognized at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective interest method, less any impairment losses.

Other financial liabilities:

Other financial liabilities are recognized initially at fair value net of any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortized cost using the effective interest method. The effective interest method is a method of calculating the amortized cost of a financial liability and of allocating interest and any transaction costs over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability or (where appropriate) to the net carrying amount on initial recognition. Other financial liabilities are de-recognized when the obligations are discharged, cancelled or expired.

(b)	Financial assets (Continued)

Impairment of financial assets:

Financial assets are assessed for indicators of impairment at the end of each reporting period. Financial assets are impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial assets, the estimated future cash flows of the investments have been negatively impacted. Evidence of impairment could include:

· significant financial difficulty of the issuer or counterparty; or

· default or delinquency in interest or principal payments; or

· the likelihood that the borrower will enter bankruptcy or financial re-organization.

The carrying amount of financial assets is reduced by any impairment loss directly for all financial assets with the exception of accounts receivable, where the carrying amount is reduced through the use of an allowance account. When an account receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognized in profit or loss.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.

Financial instruments recorded at fair value:

Financial instruments recorded at fair value on the consolidated statement of financial position are classified using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:

· Level 1	- valuation based on quoted prices (unadjusted) in active markets for identical assets or liabilities;
· Level 2	- valuation techniques based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
· Level 3	- valuation techniques using inputs for the asset or liability that are not based on observable market data (unobservable inputs).

As of December 31, 2011, December 31, 2010 and January 1, 2010, the fair value of all the Company's financial instruments approximates the carrying value, due to their short-term nature.

(c)	Impairment of non-financial assets

At the end of each reporting period, the Company reviews the carrying amounts of its non-financial assets, other than inventory, with finite lives to determine whether there is any indication that those assets have suffered an impairment loss. Where such an indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. The recoverable amount is the higher of an asset's fair value less cost to sell or its value in use. In addition, long-lived assets that are not amortized are subject to an annual impairment assessment.

(d)	Property, plant and equipment

Property, plant and equipment ("PPE") are carried at cost, less accumulated depreciation and accumulated impairment losses.

The cost of an item of PPE consists of the purchase price, any costs directly attributable to bringing the asset to the location and condition necessary for its intended use and an initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located.

Depreciation is recognized based on the cost of an item of property, plant and equipment, less its estimated residual value, over its estimated useful life at the following rates:

Detail	Percentage	Method
Buildings	4%	Straight line
Plant and machinery	20%	Declining balance
Motor vehicles	25%	Declining balance
Office equipment	15%	Declining balance
Moulds	25%	Straight line
Deferred development and exploration costs		Units-of-production
Deferred till stripping costs		Units-of-production

An asset's residual value, useful life and depreciation method are reviewed, and adjusted if appropriate, on an annual basis.

(e)	Deferred development and exploration costs

Deferred development and exploration costs are capitalized until results of the related projects, based on geographic areas, are known. If a project is successful, the related expenditures will be amortized using the units-of-production method over the estimated life of the ore body based on estimated recoverable ounces or pounds mined from proven and probable reserves. Provision for loss is made where a project is abandoned or considered to be of no further interest to the Company, or where the directors consider such a provision to be prudent. As of July 1, 2007, the Company started production at the Omagh mine and has begun amortization.

(f)	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.

(g)

Inventory

Inventories are comprised of finished goods, concentrate inventory and work-in-process amounts.

All inventories are recorded at the lower of production costs on a first-in, first-out basis, and net realizable value. Production costs include costs related to mining, crushing, mill processing, as well as depreciation on production assets and certain allocations of mine-site overhead expenses attributable to the manufacturing process.

Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

(h)	Revenue recognition

Revenue from sales of finished goods is recognized at the time of shipment when significant risks and rewards of ownership are considered to be transferred, the terms are fixed or determinable, collection is probable, the associated costs and possible return of goods can be estimated reliably, and there is no continuing management involvement in the goods, and the amount of revenue can be measured reliably.

Revenue from sales of gold concentrate is recognized at the time of shipment when title passes and significant risks and benefits of ownership are considered to be transferred. The final revenue figure at the end of any given period is subject to adjustment at the date of ultimate settlement as a result of final assay agreement and metal prices changes.

(i)	Provisions

A provision is recognized when the Company has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation, and the amount of the obligation can be reliably estimated. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

A provision for onerous contracts is recognized when the expected benefits to be derived by the Company from a contract are lower than the unavoidable cost of meeting its obligations under the contract.

The Company had no material provisions at December 31, 2011, December 31, 2010 and January 1, 2010.

(j)	Share-based payment transactions

The fair value of share options granted to employees is recognized as an expense over the vesting period with a corresponding increase in equity. An individual is classified as an employee when the individual is an employee for legal or tax purposes (direct employee) or provides services similar to those performed by a direct employee, including directors of the Company.

The fair value is measured at grant date and recognized over the period during which the options vest. The fair value of the options granted is measured using the Black-Scholes option pricing model, taking into account the terms and conditions upon which the options were granted. At each financial position reporting date, the amount recognized as an expense is adjusted to reflect the actual number of share options that are expected to vest.

(k)	Income taxes

Income tax on the profit or loss for the periods presented comprises current and deferred tax. Income tax is recognized in profit or loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity.

Current tax expense is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at period end, adjusted for amendments to tax payable with regards to previous years.


(k)	Income taxes (Continued)

Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the financial position reporting date.

A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. To the extent that the Company does not consider it probable that a future tax asset will be recovered, it provides a valuation allowance against that excess.

(l)	Asset retirement obligation

A legal or constructive obligation to incur restoration, rehabilitation and environmental costs may arise when environmental disturbance is caused by the exploration, development or ongoing production of a mineral property interest. Such costs arising from the decommissioning of plant and other site preparation work, discounted to their net present value, are provided for and capitalized at the start of each project to the carrying amount of the asset, as soon as the obligation to incur such costs arises. Discount rates using a pretax rate that reflects the time value of money are used to calculate the net present value. These costs are charged against profit or loss over the economic life of the related asset, through amortization using either a unit-of-production or the straight-line method as appropriate. The related liability is adjusted for each period for the unwinding of the discount rate and for changes to the current market-based discount rate, amount or timing of the underlying cash flows needed to settle the obligation. Costs for restoration of subsequent site damage that is created on an ongoing basis during production are provided for at their net present values and charged against profits as extraction progresses.

As at December 31, 2011, the Company has recorded an asset retirement obligation in the amount of GBP 250,000 (December 31, 2010 - GBP 250,000; January 1, 2010 - GBP 250,000), equal to the amount of the bond that is required by the Crown in Northern Ireland.

(m)	Earnings per share

The Company presents basic and diluted earnings per share data for its common shares, calculated by dividing the earnings attributable to common shareholders of the Company by the weighted average number of common shares outstanding during the period. Diluted earnings per share is determined by adjusting the income attributable to common shareholders and the weighted average number of common shares outstanding for the effects of all dilutive potential common shares.

(n)	Future accounting changes

Certain new standards, interpretations and amendments to existing standards have been issued by the International Accounting Standards Board ("IASB") or International Financial Reporting Interpretations Committee that are mandatory for accounting periods beginning after January 1, 2011, or later periods. Updates that are not applicable or are not consequential to the Company have been excluded from the list below. The following have not yet been adopted and are being evaluated to determine their impact on the Company.

(n)	Future accounting changes (Continued)

(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, 2013.

(ii) 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. IFRS 10 is effective for annual period beginning on or after January 1, 2013. Earlier adoption is permitted.

(iii) 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. IFRS 11 is effective for annual periods beginning on or after January 1, 2013. Earlier application is permitted.

(iv) 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. IFRS 12 is effective for annual periods beginning on or after January 1, 2013. Earlier application is permitted.

(v) IFRS 13 - Fair value measurement ("IFRS 13") was issued by the IASB in May 2011. IFRS 13 is a new standard which provides a precise definition of fair value and a single source of fair value measurement considerations for use across IFRSs. The key points of IFRS 13 are as follows:

· fair value is measured using the price in a principal market for the asset or liability, or in the absence of a principal market, the most advantageous market;

· financial assets and liabilities with offsetting positions in market risks or counterparty credit risks can be measured on the basis of an entity's net risk exposure;

· disclosures regarding the fair value hierarchy has been moved from IFRS 7 to IFRS 13, and further guidance has been added to the determination of classes of assets and liabilities;

· a quantitative sensitivity analysis must be provided for financial instruments measured at fair value;

· a narrative must be provided discussing the sensitivity of fair value measurements categorised under Level 3 of the fair value hierarchy to significant unobservable inputs;

· and information must be provided on an entity's valuation processes for fair value measurements categorized under Level 3 of the fair value hierarchy.

IFRS 13 is effective for annual periods beginning on or after January 1, 2013. Earlier application is permitted.

(n)	Future accounting changes (Continued)

(vi) IAS 1 - Presentation of financial statements ("IAS 1") was amended by the IASB in June 2011 in order to align the presentation of items in other comprehensive income with US GAAP standards. 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. The amendments to IAS 1 are effective for annual periods beginning on or after July 1, 2012.

(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. The Interpretation is effective for annual periods beginning on or after January 1, 2013 with earlier application permitted.

5.	Capital Risk Management

The Company manages its capital with the following objectives:

· to ensure sufficient financial flexibility to achieve the ongoing business objectives including funding of future growth opportunities, and pursuit of accretive acquisitions; and

· to maximize shareholder return through enhancing the share value.

The Company monitors its capital structure and makes adjustments according to market conditions in an effort to meet its objectives given the current outlook of the business and industry in general. The Company may manage its capital structure by issuing new shares, repurchasing outstanding shares, adjusting capital spending, or disposing of assets. The capital structure is reviewed by management and the Board of Directors on an ongoing basis.

The Company considers its capital to be equity, comprising share capital, reserves and deficit which at December 31, 2011 totaled $7,495,306 (December 31, 2010 - $5,407,725; January 1, 2010 - $2,608,398). The Company manages capital through its financial and operational forecasting processes. The Company reviews its working capital and forecasts its future cash flows based on operating expenditures, and other investing and financing activities. The forecast is regularly updated based on its gold production activities. Selected information is frequently provided to the Board of Directors of the Company. The Company's capital management objectives, policies and processes have remained unchanged during the year ended December 31, 2011. The Company is not subject to any capital requirements imposed by a regulator or lending institution.

6.	Financial Risk Management

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 consolidated financial condition and results of operations.

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 currency risk 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.

(i) 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, accounts receivable and long-term deposit. Cash and long-term deposit are held with reputable financial institutions and the United Kingdom Crown, respectively, 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. Valued Added Tax receivable is collectable from the Government of Northern Ireland. The Company does not have derivative financial instruments. No trade accounts receivable balances are past due or impaired.

(ii) Liquidity risk

Liquidity risk is the risk that the Company will not have sufficient cash resources to meet its financial obligations as they come due. The Company's liquidity and operating results may be adversely affected if the Company's access to the capital market is hindered, whether as a result of a downturn in stock market conditions generally or matters specific to the Company. 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 December 31, 2011, the Company had negative working capital. All of the Company's financial liabilities have contractual maturities of less than 30 days other than the convertible debenture and certain related party loans. The Company is using operating cash flows to manage and seeking additional capital to increase liquidity. As at December 31, 2011, the Company was cash flow positive.

(iii) Market risk

Market risk is the risk of loss that may arise from changes in market factors such as interest rates, foreign exchange rates and commodity and equity prices.

(a) 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 cash balances and significant interest-bearing debt. The Company is exposed to interest rate risk on certain related party loans and the convertible debenture which bear interest at variable rates.

(b) Foreign currency risk

Certain of the Company's expenses are incurred in the currencies of Northern Ireland and the United Kingdom and the Company's revenues are received in the currency of United States and are therefore subject to gains and losses due to fluctuations in these currencies against the functional currency.

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

Based on management's knowledge and experience of the financial markets, the Company believes the following movements are reasonably possible over a twelve month period:

(i) The convertible debenture and certain related party loans are subject to interest rate risk. As at December 31, 2011, if interest rates had decreased/increased by 1% with all other variables held constant, the net income for the year ended December 31, 2011, would have been approximately $40,000 lower/higher respectively, as a result of lower/higher interest rates from the convertible debenture and certain related party loans. Similarly, as at December 31, 2011, shareholders' equity would have been approximately $40,000 higher/lower as a result of a 1% decrease/increase in interest rates from the convertible debenture and certain related party loans.

(ii) The Company is exposed to foreign currency risk on fluctuations related to cash, accounts receivable and advances, long-term deposit, accounts payable and other liabilities, due to related parties and convertible debenture that are denominated in British pounds. As at December 31, 2011, had the British pound weakened/strengthened by 5% against the Canadian dollar with all other variables held constant, the Company's consolidated comprehensive income for the year ended December 31, 2011 would have been approximately $16,000 higher/lower as a result of foreign exchange losses/gains on translation of non-Canadian dollar denominated financial instruments. Similarly, as at December 31, 2011, shareholders' equity would have been approximately $16,000 lower/higher had the British pound 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 production of its mineral resources, which could have a material and adverse effect on the Company's value. Net income 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 income and shareholders' equity by approximately $921,000.

7.	Categories of Financial Instruments

		As at		As at		As at
		December 31,		December 31,		January 1,
		2011		2010		2010
Financial assets:
FVTPL
Cash	$	4,240,081	$	2,661,798	$	485,997
Long-term deposit		371,277		302,504		84,590
Loans and receivables
Accounts receivable and advances		1,056,573		751,233		657,515
Financial liabilities:
Other financial liabilities
Accounts payable and other liabilities		1,683,142		988,186		1,831,010
Financing facility		-		31,266		111,932
Due to related parties		2,517,067		3,097,520		3,382,332
Convertible debenture		1,979,603		-		-

As of December 31, 2011, December 31, 2010 and January 1, 2010, the fair value of all the Company's financial instruments approximates the carrying value, due to their short-term nature.

8.	Cash Position

		As at		As at		As at
		December 31,		December 31,		January 1,
		2011		2010		2010

Cash	$	4,240,081	$	2,661,798	$	485,997
Long-term deposit		371,277		302,504		84,590
Total cash position	$	4,611,358	$	2,964,302	$	570,587

9.	Accounts Receivable and Advances

		As at		As at		As at
		December 31,		December 31,		January 1,
		2011		2010		2010

Sales tax receivable - Canada	$	24,680	$	13,868	$	8,079
Sales tax receivable - Ireland		248,348		148,943		84,160
Accounts receivable		690,433		544,978		553,420
Prepaid expenses		93,112		43,444		11,856
	$	1,056,573	$	751,233	$	657,515

10.

Inventory

		As at		As at		As at
		December 31,		December 31,		January 1,
		2011		2010		2010

Concentrate inventory	$	32,159	$	75,081	$	33,990
Finished goods		314,857		336,524		411,676
	$	347,016	$	411,605	$	445,666

11.	Property, Plant and Equipment

		December 31, 2011

				Accumulated
		Cost		amortization		Net

Freehold land and buildings	$	2,246,768	$	1,195,684	$	1,051,084
Plant and machinery		5,968,298		3,549,698		2,418,600
Motor vehicles		63,338		45,928		17,410
Office equipment		94,788		34,489		60,299
Moulds		57,466		57,466		-

	$	8,430,658	$	4,883,265	$	3,547,393

		December 31, 2010

				Accumulated
		Cost		amortization		Net

Freehold land and buildings	$	2,196,272	$	1,156,355	$	1,039,917
Plant and machinery		4,318,386		3,090,165		1,228,221
Motor vehicles		48,891		42,628		6,263
Office equipment		60,335		35,128		25,207
Moulds		56,425		56,425		-

	$	6,680,309	$	4,380,701	$	2,299,608

		January 1, 2010

				Accumulated
		Cost		amortization		Net

Freehold land and buildings	$	2,395,185	$	1,238,306	$	1,156,879
Plant and machinery		4,405,702		3,200,070		1,205,632
Motor vehicles		51,507		44,696		6,811
Office equipment		43,699		33,252		10,447
Moulds		61,536		61,536		-

	$	6,957,629	$	4,577,860	$	2,379,769

12.	Deferred Development and Exploration Costs

		December 31, 2011
				Accumulated
		Cost		amortization		Net
Deferred development and exploration costs	$	10,168,806	$	5,661,053	$	4,507,753

		December 31, 2010
				Accumulated
		Cost		amortization		Net
Deferred development and exploration costs	$	8,665,868	$	5,180,094	$	3,485,774

		January 1, 2010
				Accumulated
		Cost		amortization		Net
Deferred development and exploration costs	$	9,427,286	$	5,124,202	$	4,303,084

As at December 31, 2011, the Company has recorded an asset retirement obligation in the amount to $394,975 (GBP 250,000) (December 31, 2010 - $387,825 (GBP 250,000); January 1, 2010 - $422,949 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.

13.	Accounts Payable and Other Liabilities

		As at		As at		As at
		December 31,		December 31,		January 1,
		2011		2010		2010

Falling due within the year
Trade payables	$	1,683,142	$	988,186	$	1,831,010

14.	Financing Facility

Amounts payable on the long-term debt are as follow:

			As at		As at			As at
			December 31,		December 31,			January 1,
	Interest		2011		2010			2010

Financing facility (119,160 GBP)	4.03 %	$	-	$	31,266		$	111,932
Less current portion			-		(31,266	)		(77,830	)
		$	-	$	-		$	34,102

In June 2007, the Company obtained financing from Barclays Mercantile Business Finance Ltd. in the amount of 199,160 GBP for the purchase of mining equipment. The loan was for a period of four years at 4.03% with monthly principal and interest payments of 4,101 GBP, except for the third payment, which was paid for the amount of (33,764 GBP). The loan was secured by certain plant and machinery.

Borrowings were secured by a legal mortgage charge over the land with a letter of guarantee.

15.	Convertible Debenture

On March 10, 2011, the Company entered into a convertible unsecured loan agreement (the "Loan Agreement") with Kenglo One Limited of Jersey, Channel Islands ("Kenglo"). The loan amount agreed to be advanced under the Loan Agreement is GBP 1,250,000 (the "Loan").

The Loan carries interest of 2% per annum above the base rate of Barclays Bank. The Loan shall become repayable upon exercise by Kenglo of the previously issued warrants of the Company held by Kenglo (the "Warrants"), subject to the terms of the Warrants and the Loan Agreement. If the Warrants are not exercised by Kenglo by the applicable expiry dates of the Warrants (being June 8, 2012 and July 22, 2012, as applicable), the Company shall issue shares ("Loan Shares") to Kenglo, in lieu of a cash repayment of the Loan, in accordance with the terms of the Loan Agreement. The number of Loan Shares to be issued upon the Loan conversion shall be determined in accordance with the terms of the Loan Agreement, subject to the minimum conversion price of $0.10 per share. The Loan Shares will be subject to a four month resale restriction period imposed under the policies of the Exchange and applicable securities legislation. There are no finder's fees or any bonus (whether in the form of cash or securities) payable in connection with the Loan Agreement.

The Loan is classified as a liability, with the exception of the portion relating to the conversion features, resulting in the carrying value of the Loan being less than its face value. The fair value of the conversion option associated with the convertible note on the date of issuance was estimated at $169,347. The discount is being accreted over the term of the Loan Agreement, utilizing the effective interest rate method at a 10% discount rate. For the year ended December 31, 2011, accretion of the discount totalled $140,721.

Financing charges associated with the Loan were prorated between the debt and equity component of the Loan. Those allocated to the debt portion of the Loan were deferred and are being accreted over the term of the Loan Agreement. For the year ended December 31, 2011, $8,282 in deferred financing charges were accreted to operations.

					Equity
					portion of
		Convertible			convertible
		debenture			debenture

Balance, January 1, 2010 and December 31, 2010	$	-		$	-
Proceeds from issuance		1,953,750			-
Fair value of conversion option		(169,347	)		169,347
Financing charges		(13,329	)		(1,265	)
Accretion charges - effective interest rate		140,721			-
Accretion charges - financing charges		8,282			-
Interest expenses		39,936			-
Foreign exchange		19,590			-
Balance, December 31, 2011	$	1,979,603		$	168,082

16.	Share Capital and Reserves

a)	Authorized share capital

At December 31, 2011, the authorized share capital consisted of 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 December 31, 2011, the issued share capital amounted to $27,808,316. The change in issued share capital for the years ended December 31, 2011 and 2010 was as follows:

	Number of
	common
	shares		Amount

Balance, January 1, 2010	190,100,055	$	26,530,787
Issued under private placements (i)(ii)	45,550,000		2,277,500
Warrants issued (i)(ii)	-		(976,414	)
Share issue costs	-		(23,557	)
Balance, December 31, 2010 and December 31, 2011	235,650,055	$	27,808,316

(i)	On June 8, 2010, the Company closed the first tranche of a private placement for 21,000,000 units (the "Offering"). Each unit is priced at $0.05 and is comprised of one common share and one warrant. Each warrant entitles the holder to purchase one common share within 24 months from closing at a price of $0.10. A finders fee of 1% is payable to an independent agent.

	The fair value of the 21,000,000 warrants was estimated using the Black-Scholes option pricing model with the following assumptions: dividend yield - 0%; volatility - 174.36%; risk-free interest rate - 1.67% and an expected life of 2 years. The fair value attributed to the warrants was $411,764.

(ii)	On July 22, 2010, the Company completed the second tranche of a private placement. The Company issued 24,550,000 units pursuant to the second tranche. Each unit is priced at $0.05 and is comprised of one common share and one warrant. Each warrant entitles the holder to purchase one common share within 24 months from closing at a price of $0.10. A cash fee of 1% is payable to EF Malet de Carteret MCSI, an independent agent.

	The fair value of the 24,550,000 warrants was estimated using the Black-Scholes option pricing model with the following assumptions: dividend yield - 0%; volatility - 174.52%; risk-free interest rate - 1.55% and an expected life of 2 years. The fair value attributed to the warrants was $564,650.

c)	Warrant reserve

The following table shows the continuity of warrants for the years ended December 31, 2011 and 2010:

				Weighted
	Number of			average
	warrants			price

Balance, January 1, 2010	3,134,200		$	0.09
Issued (note 16 (b)(i)(ii))	45,550,000			0.10
Expired	(3,134,200	)		(0.09	)
Balance, December 31, 2010 and December 31, 2011	45,550,000		$	0.10

As at December 31, 2011, the following warrants were outstanding:

	Number	Fair	Exercise
Expiry date	of warrants	value ($)	price ($)

June 8, 2012	21,000,000	411,764	0.10
July 22, 2012	24,550,000	564,650	0.10
	45,550,000	976,414	0.10

(d)	Stock options

The Company has a stock option plan (the "Plan"), the purpose of which is to attract, retain and compensate qualified persons as directors, senior officers and employees of, and consultants to the Company and its affiliates and subsidiaries by providing such persons with the opportunity, through share options, to acquire an increased proprietary interest in the Company. The number of shares reserved for issuance under the Plan cannot be more than a maximum of 10% of the issued and outstanding shares at the time of any grant of options. The period for exercising an option shall not extend beyond a period of five years following the date the option is granted.

Insiders of the Company are restricted on an individual basis from holding options which when exercised would entitle them to receive more than 5% of the total issued and outstanding shares at the time the option is granted. The exercise price of options granted in accordance with the Plan must not be lower than the closing price of the shares on the Exchange immediately preceding the date on which the option is granted and in no circumstances may it be less than the permissible discounting in accordance with the Corporate Finance Policies of the Exchange.

The Company records a charge to the consolidated statement of comprehensive income using the Black-Scholes option pricing model. The valuation is dependent on a number of estimates, including the risk-free interest rate, the level of stock volatility, together with an estimate of the level of forfeiture. The level of stock volatility is calculated with reference to the historic traded daily closing share price at the date of issue.

Option pricing models require the input of highly subjective assumptions including the expected price volatility. Changes in the subjective input assumptions can materially affect the fair value estimate, and therefore the existing models do not necessarily provide a reliable measure of the fair value of the Company's share purchase options.

The following table shows the continuity of stock options for the years ended December 31, 2011 and 2010:

				Weighted
	Number of			average
	options			price

Balance, January 1, 2010	8,650,000		$	0.14
Expired	(200,000	)		(0.10	)
Cancelled	(1,150,000	)		(0.20	)
Granted (i)	3,500,000			0.10
Balance, December 31, 2010	10,800,000			0.13
Granted (ii)(iii)(iv)	4,950,000			0.10
Balance, December 31, 2011	15,750,000		$	0.12

Stock-based compensation expense includes $61,884 (year ended December 31, 2010 - $7,947) relating to stock options granted in previous years that vested during the year ended December 31, 2011.

(i)	On November 23, 2010, 3,500,000 stock options were granted to employees of the Company to purchase common shares at a price of $0.10 per share until November 23, 2015. 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 $133,000 and will be expensed in the consolidated statements of income and credited to equity settled share-based payments reserve as the options vest. Included in stock-based compensation is $61,884 (year ended December 31, 2010 - $51,257) related to the vested portion of these stock options.

	The fair value of the options was estimated using the Black-Scholes option pricing model with the following assumptions: dividend yield - 0%; volatility - 139.24%; risk-free interest rate - 2.32% and an expected life of 5 years.

(ii)	On January 28, 2011, 250,000 stock options were granted to a consultant of the Company to purchase common shares at a price of $0.10 per share until January 28, 2016. 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 $11,750 and will be expensed in the consolidated statements of income and credited to equity settled share-based payments reserve as the options vest. During the year ended December 31, 2011, included in stock-based compensation is $9,322 related to the vested portion of these options.

	The fair value of the options was estimated using the Black-Scholes option pricing model with the following assumptions: dividend yield - 0%; volatility - 141.25%; risk-free interest rate - 2.53% and an expected life of 5 years.

(iii)	On April 5, 2011, 500,000 stock options were granted to a consultant of the Company to purchase common shares at a price of $0.10 per share until April 5, 2013. The options vest one quarter equally over 3, 6, 9, and 12 months from the date of the grant. The fair value attributed to these options was $27,500 and will be expensed in the consolidated statements of income and credited to equity settled share-based payments reserve as the options vest. During the year ended December 31, 2011, included in stock-based compensation is $25,558 related to the vested portion of these options.

	The fair value of the options was estimated using the Black-Scholes option pricing model with the following assumptions: dividend yield - 0%; volatility - 151.35%; risk-free interest rate - 1.81% and an expected life of 2 years.

(iv)	On September 7, 2011, 4,200,000 stock options were granted to certain directors, officers and employees to purchase common shares at a price of $0.10 per share until September 6, 2016. 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 $315,000 and will be expensed in the consolidated statements of income and credited to equity settled share-based payments reserve as the options vest. During the year ended December 31, 2011, included in stock-based compensation is $154,438 related to the vested portion of these options.

	The fair value of the options was estimated using the Black-Scholes option pricing model with the following assumptions: dividend yield - 0%; volatility - 142.95%; risk-free interest rate - 1.30% and an expected life of 5 years.

The following table reflects the actual stock options issued and outstanding as of December 31, 2011:

		Weighted average		Number of
		remaining	Number of	options	Number of
	Exercise	contractual	options	vested	options
Expiry date	price ($)	life (years)	outstanding	(exercisable)	unvested

June 15, 2012	0.23	0.46	500,000	500,000	-
December 24, 2012	0.14	0.98	5,300,000	5,300,000	-
April 5, 2013	0.10	1.26	500,000	250,000	250,000
October 2, 2013	0.10	1.76	1,500,000	1,500,000	-
November 23, 2015	0.10	3.90	3,500,000	2,333,333	1,166,667
January 28, 2016	0.10	4.08	250,000	83,333	166,667
September 6, 2016	0.10	4.69	4,200,000	1,400,000	2,800,000

	0.12	2.73	15,750,000	11,366,666	4,383,334

17.	Net Income per Common Share

The calculation of basic and diluted income per share for the years ended December 31, 2011 and 2010 was based on the income attributable to common shareholders of $1,610,990 (year ended December 31, 2010 - $750,200) and the weighted average number of common shares outstanding of 235,650,055 (December 31, 2010 - 212,832,704) for basic income per share. Diluted income did not include the effect of warrants and options for the years ended December 31, 2011 and 2010 as they are anti-dilutive.

18.	Taxation

(a)	Provision for income taxes

A reconciliation of the expected tax recovery to actual is provided as follows:

		2011			2010

Income before income taxes	$	1,610,990		$	750,200
Expected tax recovery at statutory rate of 28.25% (2010 - 31%)		455,000			232,562
Difference resulting from:
Stock-based compensation		71,000			18,400
Foreign exchange		-			30,738
Foreign tax rate differential		52,000			(12,600	)
Expiry of warrants		-			7,300
Utilization of previously unrecognized losses		(897,000	)		(379,100	)
Non-capital losses not recognized		319,000			102,700
	$	-		$	-

(b)	Deferred tax balances

The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities that have not been recognized for financial statement purposes are as follows:

		2011			2010

Deferred income tax assets (liabilities)
Non-capital losses	$	4,025,900		$	4,356,100
Share issue costs		4,300			6,200
Property, plant and equipment and deferred development costs		(649,700	)		(427,600	)
Valuation allowance		(3,380,500	)		(3,934,700	)
	$	-		$	-

(c)	Losses carried forward

As at December 31, 2011, the Company had non-capital losses carried forward of $14,164,491 (2010 - $15,099,089) or income tax purposes as follows:

Expires	2014	$	426,803
	2015		568,540
	2026		1,064,484
	2027		598,595
	2029		373,962
	2030		440,510
	2031		993,770
Indefinite			9,697,827

19.	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).

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

			Year ended
			December 31,
	Notes		2011		2010
Rent of mining equipment with G&F Phelps	(i)	$	-	$	176,553
Interests on related party loans	(ii)		59,745		71,465

(i) During 2009, the Company signed an agreement for the rent of mining equipment with G&F Phelps Limited ("G&F Phelps"), a company controlled by a director of the Company. In January 2011, Omagh, the operator of the Omagh mine acquired this mining equipment at a cost of GBP 192,500, exclusive of VAT. At December 31, 2011, the Company has accrued charges of $nil (December 31, 2010 - $137,741 - GBP 88,791), payable to G&F Phelps for the rent of the mining equipment which is currently due and is included with due to related parties.

(ii) G&F Phelps, a company controlled by a director of the Company, had amalgamated loans to Galantas of $1,716,643 (GBP 1,086,552) (December 31, 2010 - $2,616,349 - GBP 1,686,552) 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 December 31, 2011, the amount of interest accrued is $43,085 (GBP 27,271) (December 31, 2010 - $34,291 - GBP 22,105).

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

		Year ended
		December 31,
		2011		2010

Salaries and benefits ⁽¹⁾	$	516,720	$	225,697
Stock-based payments		225,000		5,000
	$	741,720	$	230,697

⁽¹⁾Salaries and benefits include director fees. As at December 31, 2011, due to directors amounted to $757,339 (GBP 479,277) (December 31, 2010 - $309,139 - GBP 199,277), and is included with due to related parties.

20.	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.

21.	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 $526,345 (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 audited consolidated annual financial statements.

22.	Conversion to IFRS

(i)	Overview

IFRS replaced Canadian GAAP for publicly accountable enterprises for financial periods beginning on and after January 1, 2011.

These are the Company's first audited consolidated annual financial statements prepared in accordance with IFRS.

The accounting policies described in note 4 have been selected to be consistent with IFRS effective December 31, 2011, the Company's first annual IFRS reporting date. These policies have been applied in the preparation of these audited consolidated annual financial statements, including all comparative information.

(ii)	First-time adoption of IFRS

The adoption of IFRS requires the application of IFRS 1, which provides guidance for an entity's initial adoption of IFRS. IFRS 1 generally requires retrospective application of IFRS as effective at the end of its first annual IFRS reporting period. However, IFRS 1 also provides certain optional exemptions and mandatory exceptions to this retrospective treatment.

The Company has elected to apply the following optional exemptions in its preparation of an opening IFRS consolidated statement of financial position as at January 1, 2010, the Company's "Transition Date".

· To apply IFRS 2 - Share-based Payments only to equity instruments that were issued after November 7, 2002 and had not vested by the Transition Date.

· To apply IFRS 3 - Business Combinations prospectively from the Transition Date, therefore, not restating business combinations that took place prior to the Transition Date.

· To apply IAS 21 - The Effects of Changes in Foreign Exchange Rates prospectively from the Transition Date. The Company elected to reset all cumulative translation gains and losses to zero in opening deficit at its Transition Date.

· To apply IAS 23 - Borrowing Costs ("IAS 23") prospectively from the Transition Date. IAS 23 requires the capitalization of borrowing costs directly attributable to the acquisition, production or construction of certain assets.

IFRS 1 does not permit changes to estimates that have been made previously. Accordingly, estimates used in the preparation of the Company's opening IFRS consolidated statement of financial position as at the Transition Date are consistent with those that were made under Canadian GAAP.

The Company's Transition Date IFRS consolidated statement of financial position is included as comparative information in the consolidated statements of financial position in these audited consolidated annual financial statements.

(iii)

Changes to accounting policies

The following summarizes the significant changes to the Company's accounting policies on adoption of IFRS.

(a) Exploration and evaluation expenditures

IFRS allows an entity to retain its existing accounting policies related to the exploration for and evaluation of mineral properties, subject to some restrictions.

On transition to IFRS, the Company has retained its current accounting policy of deferring exploration and evaluation expenditures until such time as the properties are either put into commercial production, sold, determined not to be economically viable or abandoned. Therefore, there is no significant change to the related line items within its consolidated financial statements.

(b) Impairment of (non-financial) assets

IFRS requires a write-down of assets if the higher of the fair market value and the value in use of a group of assets is less than its carrying value. Value in use is determined using discounted estimated future cash flows. Canadian GAAP requires a write-down to estimated fair value only if the undiscounted estimated future cash flows of a group of assets are less than its carrying value.

Also, IFRS requires reversal of impairment losses for assets other than goodwill if certain criteria are met. Canadian GAAP does not permit reversal of impairment.

The Company's accounting policies related to impairment of non-financial assets have been changed to reflect these differences. There is no impact on the audited consolidated annual financial statements.

IFRS requires the recognition of a decommissioning liability for legal or constructive obligations, while current Canadian GAAP only requires the recognition of such liabilities for legal obligations. A constructive obligation exists when an entity has created reasonable expectations that it will take certain actions.

The Company's accounting policies related to decommissioning liabilities have been changed to reflect these differences. There is no impact on the audited consolidated annual financial statements.

(d) Cumulative translation differences

IFRS requires that the functional currency of each entity in the consolidated Group be determined separately in accordance with the indicators as per IAS 21 - Foreign exchange and should be measured using the currency of the primary economic environment in which the entity operates ("the functional currency"). The group's functional currency is the GBP except for Galantas Gold Corporation (parent company) which has Canadian dollar as the functional currency. The consolidated financial statements are presented in Canadian dollars which is the group's presentation currency.

(d) Cumulative translation differences (Continued)

Under IFRS, the results and financial position of all the group entities (none of which has the currency of a hyper-inflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

· assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;

· income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); and

· all resulting exchange differences are recognized as a separate component of equity.

Impact on Consolidated Statements of Financial Position

		As at			As at
		December 31,			January 1,
		2010			2010
Adjustment to property, plant and equipment	$	(1,490,326	)	$	(1,311,403	)
Adjustment to long-term deposit		(41,263	)		(34,228	)
Adjustment to deferred development and exploration costs		(2,582,542	)		(2,244,051	)
Adjustment to accounts payable and other liabilities		-			(9,778	)
Adjustment to asset retirement obligation		(59,575	)		(24,451	)
Adjustment to reserves		(264,020	)		-
Adjustment to deficit	$	(3,790,536	)	$	(3,555,453	)

Impact on Consolidated Statements of Income and Comprehensive Income

		Year ended
		December 31,
		2010
Adjustment to amortization and depreciation	$	2,702
Adjustment to foreign exchange (gain) loss		(237,785	)
Adjustment to foreign currency translation differences		(264,020	)
Adjustment to income and comprehensive income	$	(499,103	)

Impact on Consolidated Statements of Cash Flows

		Year ended
		December 31,
		2010
Adjustment to amortization and depreciation	$	(2,702	)
Adjustment to foreign exchange		237,785
Adjustment to net income	$	(235,083	)

(e) Reserves

Under Canadian GAAP, the Company recorded the value of warrants issued to warrants and share-based payments to contributed surplus.

IFRS requires an entity to present for each component of equity, reconciliation between the carrying amount at the beginning and end of the period, separately disclosing each change. IFRS requires a separate disclosure of the value that relates to "Reserves for warrants", "Reserves for share based payments" and any other component of equity.

(iv)	Presentation

Certain amounts in the audited consolidated annual statements of financial position, statements of comprehensive income and statements of cash flows have been reclassified to conform to the presentation adopted under IFRS.

(v)	Reconciliation between IFRS and Canadian GAAP

The January 1, 2010 Canadian GAAP consolidated balance sheet has been reconciled to IFRS as follows:

		January 1, 2010

					Effect of
		Canadian			transition to
		GAAP			IFRS			IFRS

ASSETS

Current assets
Cash	$	485,997		$	-		$	485,997
Accounts receivable and advances		657,515			-			657,515
Inventory		445,666			-			445,666
Total current assets		1,589,178			-			1,589,178

Non-current assets
Property, plant and equipment (note 22(iii)(d))		3,691,172			(1,311,403	)		2,379,769
Long-term deposit (note 22(iii)(d))		118,818			(34,228	)		84,590
Deferred development and exploration costs (note 22(iii)(d))		6,547,135			(2,244,051	)		4,303,084
Total assets	$	11,946,303		$	(3,589,682	)	$	8,356,621

EQUITY AND LIABILITIES

Current liabilities
Accounts payable and other liabilities (note 22(iii)(d))	$	1,840,788		$	(9,778	)	$	1,831,010
Current portion of financing facility		77,830			-			77,830
Due to related parties		3,382,332			-			3,382,332
Total current liabilities		5,300,950			(9,778	)		5,291,172

Non-current liabilities
Asset retirement obligation (note 22(iii)(d))		447,400			(24,451	)		422,949
Long-term portion of financing facility		34,102			-			34,102
Total liabilities		5,782,452			(34,229	)		5,748,223

Capital and reserves
Share capital		26,530,787			-			26,530,787
Reserves (note 22(iii)(e))		4,009,841			-			4,009,841
Deficit (note 22(iii)(d))		(24,376,777	)		(3,555,453	)		(27,932,230	)
Total equity		6,163,851			(3,555,453	)		2,608,398
Total equity and liabilities	$	11,946,303		$	(3,589,682	)	$	8,356,621

The December 31, 2010 Canadian GAAP consolidated balance sheet has been reconciled to IFRS as follows:

		December 31, 2010

					Effect of
		Canadian			transition to
		GAAP			IFRS			IFRS

ASSETS

Current assets
Cash	$	2,661,798		$	-		$	2,661,798
Accounts receivable and advances		751,233			-			751,233
Inventory		411,605			-			411,605
Total current assets		3,824,636			-			3,824,636


Non-current assets
Property, plant and equipment (note 22(iii)(d))		3,789,934			(1,490,326	)		2,299,608
Long-term deposit (note 22(iii)(d))		343,767			(41,263	)		302,504
Deferred development and exploration costs (note 22(iii)(d))		6,068,316			(2,582,542	)		3,485,774
Total assets	$	14,026,653		$	(4,114,131	)	$	9,912,522

EQUITY AND LIABILITIES

Current liabilities
Accounts payable and other liabilities	$	988,186		$	-		$	988,186
Current portion of financing facility		31,266			-			31,266
Due to related parties		3,097,520			-			3,097,520
Total current liabilities		4,116,972			-			4,116,972

Non-current liabilities
Asset retirement obligation (note 22(iii)(d))		447,400			(59,575	)		387,825
Long-term portion of financing facility		-			-			-
Total liabilities		4,564,372			(59,575	)		4,504,797

Capital and reserves
Share capital		27,808,316			-			27,808,316
Reserves (note 22(iii)(d)(e))		5,045,459			(264,020	)		4,781,439
Deficit (note 22(iii)(d))		(23,391,494	)		(3,790,536	)		(27,182,030	)
Total equity		9,462,281			(4,054,556	)		5,407,725
Total equity and liabilities	$	14,026,653		$	(4,114,131	)	$	9,912,522

The Canadian GAAP consolidated statement of income and comprehensive income for the year ended December 31, 2010 has been reconciled to IFRS as follows:

		Year ended December 31, 2010

					Effect of
		Canadian			transition to
		GAAP			IFRS			IFRS

Revenues
Gold sales	$	6,831,410		$	-		$	6,831,410

Cost of expenses of operations
Cost of sales		4,032,757			-			4,032,757
Amortization and depreciation (note 22(iii)(d))		765,124			(2,702	)		762,422
		4,797,881			(2,702	)		4,795,179

Income before the undernoted		2,033,529			2,702			2,036,231

Other expenses
Loss on disposal of property, plant and equipment		6,123			-			6,123

General and administrative expenses
Management and administration wages		429,436			-			429,436
Other operating expenses		169,078			-			169,078
Accounting and corporate		65,138			-			65,138
Legal and audit		175,986			-			175,986
Stock-based compensation		59,204			-			59,204
Shareholder communication and investor relations		110,765			-			110,765
Transfer agent		27,770			-			27,770
Director fees		48,427			-			48,427
General office		4,739			-			4,739
Bank interest and fees		87,384			-			87,384
		1,177,927			-			1,177,927

Foreign exchange (gain) loss (note 22(iii)(d))		(135,804	)		237,785			101,981
		1,042,123			237,785			1,279,908

Net income for the year	$	985,283		$	(235,083	)	$	750,200

Other comprehensive loss
Foreign currency translation differences (note 22(iii)(d))	$	-		$	(264,020	)	$	(264,020	)

Total comprehensive income	$	985,283		$	(499,103	)	$	486,180

The Canadian GAAP consolidated statement of cash flows for the year ended December 31, 2010 has been reconciled to IFRS as follows:

		Year ended December 31, 2010

					Effect of
		Canadian			transition to
		GAAP			IFRS			IFRS

Operating activities

Net income for the year	$	985,283		$	(235,083	) ⁽¹⁾	$	750,200
Adjustment for:
Amortization and depreciation		765,124			(2,702	)		762,422
Stock-based compensation		59,204			-			59,204
Foreign exchange		140,813			237,785			378,598
Loss on disposal of property, plant and equipment		6,123			-			6,123
Non-cash working capital items:
Accounts receivable and advances		(93,718	)		-			(93,718	)
Inventory		34,061			-			34,061
Accounts payable and other liabilities		(712,985	)		-			(712,985	)
Net cash provided by operating activities		1,183,905			-			1,183,905
Investing activities
Purchases of property, plant and equipment		(429,810	)		-			(429,810	)
Proceeds from sale of property, plant and equipment		31,026			-			31,026
Deferred development and exploration costs		(16,655	)		-			(16,655	)
Long-term deposit		(224,949	)		-			(224,949	)
Net cash used in by investing activities		(640,388	)		-			(640,388	)
Financing activities
Issue of common shares and warrants		2,277,500			-			2,277,500
Share issue costs		(23,557	)		-			(23,557	)
Net repayments of financing facility		(80,666	)		-			(80,666	)
Repayments from related party		(424,429	)		-			(424,429	)
Net cash provided by financing activities		1,748,848			-			1,748,848

Net change in cash		2,292,365			-			2,292,365

Effect of exchange rate changes on cash held in foreign currencies		(116,564	)		-			(116,564	)

Cash, beginning of year		485,997			-			485,997
Cash, end of year	$	2,661,798		$	-		$	2,661,798

⁽¹⁾Refer to Canadian GAAP consolidated statement of income and comprehensive income for the year ended December 31, 2010 reconciled to IFRS in note 22(v) above.

23.	Subsequent Event

On January 24, 2012, the Company announced that it has purchased a strategic parcel of land near Omagh, County Tyrone, Northern Ireland. The freehold land parcel is contiguous with the mine and lies to the north-west of the existing land holding. It was purchased for $390,235 (GBP 247,000).

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END

FR UNAARUSASAAR