Final Results
GALANTAS GOLD CORPORATION
TSXV & AIM : Symbol GAL
GALANTAS REPORTS RESULTS FOR THE YEAR ENDED DECEMBER 31, 2012
April 23rd, 2013: Galantas Gold Corporation (the 'Company') is pleased to announce its annual financial results for the Year Ended December 31, 2012.
Financial Highlights
The Net Loss for the Year Ended December 31, 2012 amounted to $ 593,866 which compared with a Net Income of $ 1,610,990 for the Year Ended December 31, 2011. The cash generated from operating activities before changes in non-cash working capital for 2012 amounted to CDN$ 177,737 (2011: $ 2,885,412). Highlights of the 2012 results, which are expressed in Canadian Dollars, are:
|
|
Year Ended December 31 |
|
|
All in CDN$ |
2012 |
2011 |
|
Revenue |
$ 4,659,330 |
$ 9,492,157 |
|
Cost of Sales |
$ 3,167,126 |
$ 4,860,427 |
|
Income before the undernoted |
$ 1,492,204 |
$ 4,631,730 |
|
Amortization |
$ 748,711 |
$ 837,068 |
|
General administrative expenses |
$ 1,604,162 |
$ 2,264,226 |
|
Gain on disposal of property, plant and equipment |
$ (86,816) |
$ (485) |
|
Gain on debt extinguishment |
$ (190,624) |
$ 0 |
|
Foreign exchange (gain) loss |
$ 10,637 |
$ (80,069) |
|
Net Income(Loss) for the year |
$ (593,866) |
$ 1,610,990 |
|
Working Capital (Deficit) |
$ (2,309,307) |
$ (536,142) |
|
Cash generated from operating activities before changes in non-cash working capital |
$ 177,737 |
$ 2,885,412 |
|
Cash at December 31, 2012 |
$ 1,164,868 |
$4,240,481 |
Sales revenues for the year ended December 31, 2012 amounted to CDN$ 4,659,330 (2011: CDN$ 9,492,157). The reduction in sales revenues when compared to 2011 was due to the lower level of metal produced and shipped during the year. The lower production levels were primarily due to the requirement to process lower grade ore from stockpile as a result of difficulties in accessing the lower part of the ore-body in the northern section of the Kearney Open Pit, as a result of the Company being unable to transport surplus rock off-site, following the planning consent being quashed on the grounds of procedural failure by the Planning Service.
Cost of sales for the year ended December 31, 2012 amounted to CDN$ 3,167,126 (2011: CDN$ 4,860,427). There was a decrease in various production costs at the Omagh mine during 2012 including production wages reflecting the reduced number of personnel arising from the rationalization programme, Oil and Fuel costs, Repairs and servicing costs and usage of Consumables which reductions were mainly attributable to the reduced level of mining activity during 2012. There was a non-cash gain of CDN$ 190,624(2011: CDN$ Nil) during 2012 following the extinguishment of the Company's convertible debenture debt during the second quarter.
The Net Loss for the year ended December 31, 2012, amounted to CDN$ 593,866 (2011: Net Income CDN$ 1,610,990). The cash generated from operating activities before changes in non-cash working capital for 2012 amounted to CDN$ 177,737 (2011: $ 2,885,412). The cash generated from operating activities after changes in non-cash working capital for 2012 amounted to CDN$ 569,610 (2011: $ 3,319,637). The cash generated from operating activities continued to contribute towards the cost of the exploration drilling programme at the Omagh mine.
The Company had cash balances at December 31, 2012 of CDN$ 1,164,868 compared to CDN$ 4,240,081 at December 31, 2011. The working capital deficit at December 31, 2012 amounted to CDN$ 2,309,307 which compared with a deficit of CDN$ 536,142 at December 31, 2011
Production Highlights
Production at the Omagh mine for the year ended December 31, 2012 is summarized below:
|
|
Year Ended December 31 |
|
|
|
2012 |
2011 |
|
Tonnes Milled |
44,112 |
46,871 |
|
Average Grade g/t gold |
2.3 |
4.46 |
|
Dry Tonnes Concentrate |
1,008 |
2,265 |
|
Concentrate Gold Grade (g/t) |
100.9 |
88.9 |
|
Gold Produced - kg (troy ozs) |
101.7 kg (3,271oz) |
201.5 kg( 6,479oz) |
|
Concentrate Silver Grade (g/t) |
227.6 |
234.0 |
|
Silver Produced kg (troy ozs) |
229.5 kg (7,379oz) |
531.3 kg (17,082oz) |
|
Lead Produced (tonnes) |
61.4 |
280.1 |
|
Gold Equivalent ( troy.ozs) |
3,507 |
7,308 |
Whilst ore milled during year ended December 31, 2012, at 44,112 tonnes, was 6% below ore milled in both concentrate and metal production in the third quarter were significantly lower than the year ended December 31, 2011 which was primarily due to the low grade of the ore milled. These low grades are directly attributable to the processing of low grade material during 2012. The high level of low grade material processed was due to the increasing lack of available ore from the Kearney open pit. Mine production during the year was mainly from the Kearney and Kerr veins. Production from Kearney, which had been adversely effected by the surplus rock stockpile on the site during the first half of the year became totally restricted in the third quarter when the surplus rock stockpile reached capacity levels. This surplus rock was due to commence being transported from the site during the third quarter with the Omagh mine having completed construction of public road improvements at its own cost to comply with the conditions of the recent planning consent. However, following a judicial review brought by a private individual on the grounds of procedural failings by Planning Service, the planning consent was quashed. This ongoing limitation has and will result in low grade material continuing to be worked for the foreseeable future which will have an adverse effect on both the Company's revenues and its ability to generate cash from operations. Because of adverse impact the current and future production levels would have on future revenues a number of redundancies were made during the fourth quarter to further reduce the workforce.
Mining from the Kerr veins during the year was reasonably successful with one of the veins mined (vein no.4) being of high grade. Kerr produced small quantities of high grade material, which was used to sweeten the grade of material to the processing plant.
Whilst the modifications that were made to the flotation and crushing circuits in 2011 and in the first quarter of 2012 proved to be successful, some further changes were completed later in 2012 to increase throughput. Production was hampered during the year by the ongoing variations in the metallurgy due to the inconsistent grade of ore being milled and an increased clay content. Improvements to the milling circuit, which resulted in decreased labour costs were completed in the fourth quarter and will contribute towards the Company's objective to achieve positive cash flow from operations in 2013.
Exploration
The major focus of exploration activities in 2012 was the continuation of the successful drilling programme. In total 16,347 metres have been drilled since the programme commenced in March 2011 and significant gold intersects have been reported.
The drilling programme expanded considerably at the commencement of 2012 with six drills operational during the first half of the year. The second half of the year saw the number of rigs progressively reduce. Three rigs remained to the end of the third quarter and one rig by the end of the year. The two principal objectives of the drilling programme were to complete the deeper holes on Kearney, in order to gain a more accurate picture of the zone of mineralisation for the purpose of the underground mine plan; also, to extend the strike of Joshua to the north and the south, and begin to target deeper sections of the vein. During the year 11,991 metres were drilled with 35 holes targeting the Joshua vein, 14 holes on the Kearney veins and 4 holes on the Kerr veins. Drilling on Kearney was mainly at depth from off-site locations. Several cores yielded more than one mineralised section. The vein appears to pinch and swell at depth, similar to what has been seen in the open pit. Vein intersects ranged in width from 0.2 m to 7.6 m. A number of shorter infill holes targeting Kearney were also drilled from west to east with variable success.
Land to the west of the current Joshua vein exposure was acquired early in the first quarter. This facilitated continued drilling which initially targeted the north and central sections of the Joshua vein. The strike length now extends a total of 208 metres beyond the previously known "RioFinex" limit and the proven depth of mineralisation within this northern section has increased by 40 m to a vertical depth of 115 m. Significant results were also achieved for central and southern Joshua which have improved the understanding of the structure and geometry of the vein in these areas. In the central region, the vein was intersected at a vertical depth of 160.6 m, yielding a 4.5 m wide mineralised section grading 8.4 g/t Au. Drilling and field observations strengthened the view of a westerly dipping vein with high grade mineralisation at depth. In the south, six holes revealed two or more vein intersects, some of these were narrow stringers, and others point towards the presence of a more pervasive secondary structure. A particularly wide and high grade zone was intersected and section drawings indicate that the vein steepens in this area, dipping 85o towards the east.
A desk based study was completed later in the year in order to prioritise new targets within the mine site. Some exploratory targets were drilled to test IP anomalies and auriferous overburden results previously reported around the current stockpile area. A narrow vein was picked up in one drill hole measuring 3.9 g/t Au. Mapping of the Kerr and McCombs veins showed that they fan out towards the north, indicating that there could be a central source towards the south of the property. Five holes were drilled in the Kerr, eastern lagoon and western lagoon regions during the second half of the year with encouraging results from one hole on the western side of the Kerr pit. This hole intersected mineralisation at a vertical depth of 108 m.
Channel sampling was carried out on the northern extension to Kearney in January and September. The Kerr veins were also subject to channel sampling in 2012. Excavations during March revealed that one of the veins sampled in 2011 was widening with depth, and becoming more continuous along strike. Subsequent excavations have increased the strike of this vein to 100 m, although it appears to narrow towards the north.
Assay results released to date from both the drilling and channel sampling programmes have been encouraging with significant gold intersections identified. Particularly positive were the assays from the ten drill holes on Joshua released in January 2013 with thirteen significant mineral intersects. Drilling has continued into 2013 using the company's own core drilling rig manned by in-house drillers. A further 1600 metres are planned in the short term, extending the programme to 18,000 metres following up the recently reported gold intersects on the Joshua vein.
In March 2012 the Company appointed ACA Howe International Ltd (Howe UK) to prepare an Interim Resource for the Omagh Gold Project to Canadian National Instrument NI 43-101 standard. During the third quarter Galantas reported that it had received initial data from ACA Howe related to the preparation of an NI 43-101 compliant mineral resource estimate and a Preliminary Economic Assessment (see press release dated July 3, 2012).This report, which was based on drilling results and analyses received to June 8, 2012, identified all resources discovered at that date. The Company subsequently filed a complete Technical Report on SEDAR in August 2012. A further updated report is expected to be prepared during the first half of 2013 when the remaining results of the extended 18,000 metre drilling programme are received. This updated report will incorporate all drilling results and analyses received subsequent to June 2012.
Permitting
Discussions with the regulatory authorities in Northern Ireland continued during the year. The underground mine plan and Environmental Impact Assessment were completed during the first half of 2012 and were then submitted to the Planning Services for planning consent. Discussions with the regulatory authorities continued during the second half of 2012 with regards to the underground mine plan and accompanying Environmental Statement. During the third quarter planning consent was received from the Planning Services for the construction of a lower portal structure and truncated adit for underground mining on the Kearney vein.
Roland Phelps, President & CEO, Galantas Gold Corporation, commented, "Solid results from the drilling program are supporting continued investment in the Omagh Mine. The focus of operations in 2013 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 has been reviewed by Leo O' Shaughnessy (Chief Financial Officer) and the production, exploration and permitting components by Roland Phelps (President & CEO), 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.
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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 (AIM Nomad & Broker)
Mark Taylor
Telephone +44 (0)20 7149 6000
GALANTAS GOLD CORPORATION
Consolidated Financial Statements
(Expressed in Canadian Dollars)
Years Ended December 31, 2012 and 2011
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, 2012 and 2011 and the consolidated statements of (loss) income, comprehensive (loss) income, cash flows and changes in equity for the years then ended, 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 management determines is necessary to enable the preparation of 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 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, 2012 and 2011 and its financial performance and its cash flows for the years then ended 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 upon the Company's ability to continue as a going concern.
|
|
"McCarney Greenwood LLP" |
|
|
|
|
Toronto, Canada |
McCarney Greenwood LLP |
|
April 15, 2013 |
Chartered Accountants |
|
|
Licensed Public Accountants |
|
Galantas Gold Corporation |
|
Consolidated Statements of Financial Position |
|
(Expressed in Canadian Dollars) |
|
As at December 31, |
|
2012 |
|
|
2011 |
|
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
Cash (note 8) |
$ |
1,164,868 |
|
$ |
4,240,081 |
|
|
Accounts receivable and advances (note 9) |
|
673,054 |
|
|
1,056,573 |
|
|
Inventory (note 10) |
|
326,249 |
|
|
347,016 |
|
|
Total current assets |
|
2,164,171 |
|
|
5,643,670 |
|
|
|
|
|
|
|
|
|
|
Non-current assets |
|
|
|
|
|
|
|
Property, plant and equipment (note 11) |
|
3,566,778 |
|
|
3,547,393 |
|
|
Long-term deposit (note 8) |
|
428,717 |
|
|
371,277 |
|
|
Deferred development and exploration costs (note 12) |
|
7,859,445 |
|
|
4,507,753 |
|
|
Total assets |
$ |
14,019,111 |
|
$ |
14,070,093 |
|
|
|
|
|
|
|
|
|
|
EQUITY AND LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
Accounts payable and other liabilities (note 13) |
$ |
1,670,729 |
|
$ |
1,683,142 |
|
|
Due to related parties (note 19) |
|
2,802,749 |
|
|
2,517,067 |
|
|
Convertible debenture (note 14) |
|
- |
|
|
1,979,603 |
|
|
Total current liabilities |
|
4,473,478 |
|
|
6,179,812 |
|
|
|
|
|
|
|
|
|
|
Non-current liabilities |
|
|
|
|
|
|
|
Asset retirement obligation (note 12) |
|
404,450 |
|
|
394,975 |
|
|
Total liabilities |
|
4,877,928 |
|
|
6,574,787 |
|
|
|
|
|
|
|
|
|
|
Capital and reserves |
|
|
|
|
|
|
|
Share capital (note 15) |
|
29,874,693 |
|
|
27,808,316 |
|
|
Reserves |
|
5,440,196 |
|
|
5,258,030 |
|
|
Deficit |
|
(26,173,706 |
) |
|
(25,571,040 |
) |
|
Total equity |
|
9,141,183 |
|
|
7,495,306 |
|
|
Total equity and liabilities |
$ |
14,019,111 |
|
$ |
14,070,093 |
|
The notes to the consolidated financial statements are an integral part of these statements.
Going concern (note 1)
Contingent liability (note 21)
|
Galantas Gold Corporation |
|
Consolidated Statements of (Loss) Income |
|
(Expressed in Canadian Dollars) |
|
|
|
Year Ended |
|
|||
|
|
|
December 31, |
|
|||
|
|
|
2012 |
|
|
2011 |
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
Gold sales |
$ |
4,659,330 |
|
$ |
9,492,157 |
|
|
|
|
|
|
|
|
|
|
Cost and expenses of operations |
|
|
|
|
|
|
|
Cost of sales (note 17) |
|
3,167,126 |
|
|
4,860,427 |
|
|
Amortization and depreciation |
|
748,711 |
|
|
837,068 |
|
|
|
|
3,915,837 |
|
|
5,697,495 |
|
|
|
|
|
|
|
|
|
|
Income before the undernoted |
|
743,493 |
|
|
3,794,662 |
|
|
|
|
|
|
|
|
|
|
General administrative expenses |
|
|
|
|
|
|
|
Management and administration wages (note 19) |
|
608,307 |
|
|
701,205 |
|
|
Other operating expenses |
|
265,338 |
|
|
457,269 |
|
|
Accounting and corporate |
|
65,018 |
|
|
71,340 |
|
|
Legal and audit |
|
139,650 |
|
|
184,855 |
|
|
Stock-based compensation (note 15(d)) |
|
148,831 |
|
|
251,202 |
|
|
Shareholder communication and investor relations |
|
201,156 |
|
|
255,181 |
|
|
Transfer agent |
|
16,992 |
|
|
21,243 |
|
|
Director fees (note 19) |
|
29,600 |
|
|
39,000 |
|
|
General office |
|
8,577 |
|
|
30,353 |
|
|
Accretion expenses (note 14) |
|
45,529 |
|
|
140,721 |
|
|
Loan interest and bank charges |
|
75,164 |
|
|
111,857 |
|
|
|
|
1,604,162 |
|
|
2,264,226 |
|
|
Other expense |
|
|
|
|
|
|
|
Gain on disposal of property, plant and equipment |
|
(86,816 |
) |
|
(485 |
) |
|
Gain on debt extinguishment (note 14) |
|
(190,624 |
) |
|
- |
|
|
Foreign exchange loss (gain) |
|
10,637 |
|
|
(80,069 |
) |
|
|
|
(266,803 |
) |
|
(80,554 |
) |
|
|
|
|
|
|
|
|
|
Net (loss) income for the year |
$ |
(593,866 |
) |
$ |
1,610,990 |
|
|
Basic net (loss) income per share (note 16) |
$ |
(0.00 |
) |
$ |
0.01 |
|
|
Weighted average number of common shares outstanding - basic |
|
247,246,030 |
|
|
235,650,055 |
|
|
Diluted net (loss) income per share (note 16) |
$ |
(0.00 |
) |
$ |
0.01 |
|
|
Weighted average number of common shares outstanding - diluted |
|
247,246,030 |
|
|
235,650,055 |
|
The notes to the consolidated financial statements are an integral part of these statements.
|
Galantas Gold Corporation |
|
Consolidated Statements of Comprehensive (Loss) Income |
|
(Expressed in Canadian Dollars) |
|
|
|
Year Ended |
|
|||
|
|
|
December 31, |
|
|||
|
|
|
2012 |
|
|
2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income for the year |
$ |
(593,866 |
) |
$ |
1,610,990 |
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
|
|
|
|
|
|
|
Foreign currency translation differences |
|
211,760 |
|
|
57,307 |
|
|
Total comprehensive (loss) income |
$ |
(382,106 |
) |
$ |
1,668,297 |
|
The notes to the consolidated 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, |
|
|||
|
|
|
2012 |
|
|
2011 |
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
|
|
|
|
|
|
Net (loss) income for the year |
$ |
(593,866 |
) |
$ |
1,610,990 |
|
|
Adjustment for: |
|
|
|
|
|
|
|
Amortization and depreciation |
|
748,711 |
|
|
837,068 |
|
|
Stock-based compensation (note 15(d)) |
|
148,831 |
|
|
251,202 |
|
|
Foreign exchange |
|
105,972 |
|
|
45,916 |
|
|
Gain on disposal of property, plant and equipment |
|
(86,816 |
) |
|
(485 |
) |
|
Accretion expenses (note 14) |
|
45,529 |
|
|
140,721 |
|
|
Gain on debt extinguishment (note 14) |
|
(190,624 |
) |
|
- |
|
|
Non-cash working capital items: |
|
|
|
|
|
|
|
Accounts receivable and advances |
|
383,519 |
|
|
(305,340 |
) |
|
Inventory |
|
20,767 |
|
|
64,589 |
|
|
Accounts payable and other liabilities |
|
(12,413 |
) |
|
694,956 |
|
|
Net cash provided by operating activities |
|
569,610 |
|
|
3,339,617 |
|
|
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
Purchase of property, plant and equipment |
|
(596,803 |
) |
|
(1,675,858 |
) |
|
Proceeds from sale of property, plant and equipment |
|
155,864 |
|
|
21,531 |
|
|
Deferred development and exploration costs |
|
(3,414,404 |
) |
|
(1,343,713 |
) |
|
Long-term deposit |
|
(48,534 |
) |
|
(15,799 |
) |
|
Net cash used in investing activities |
|
(3,903,877 |
) |
|
(3,013,839 |
) |
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
Warrants exercised |
|
2,056,034 |
|
|
- |
|
|
Net repayments of financing facility |
|
- |
|
|
(31,266 |
) |
|
Repayment of related party loan |
|
(95,040 |
) |
|
(947,940 |
) |
|
Advances from related parties |
|
380,722 |
|
|
367,487 |
|
|
Proceeds from convertible debenture |
|
- |
|
|
1,953,750 |
|
|
Financing charges related to convertible debenture |
|
- |
|
|
(14,594 |
) |
|
Repayment of convertible debenture |
|
(2,056,034 |
) |
|
- |
|
|
Net cash provided by financing activities |
|
285,682 |
|
|
1,327,437 |
|
|
|
|
|
|
|
|
|
|
Net change in cash |
|
(3,048,585 |
) |
|
1,653,215 |
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash held in foreign currencies |
|
(26,628 |
) |
|
(74,932 |
) |
|
|
|
|
|
|
|
|
|
Cash, beginning of year |
|
4,240,081 |
|
|
2,661,798 |
|
|
|
|
|
|
|
|
|
|
Cash, end of year |
$ |
1,164,868 |
|
$ |
4,240,081 |
|
The notes to the consolidated 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, December 31, 2010 |
$ |
27,808,316 |
|
$ |
4,069,045 |
|
$ |
976,414 |
|
$ |
(264,020 |
) |
$ |
- |
|
$ |
(27,182,030 |
) |
$ |
5,407,725 |
|
|
Convertible debenture (note 14) |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
168,082 |
|
|
- |
|
|
168,082 |
|
|
Stock-based compensation (note 15(d)) |
|
- |
|
|
251,202 |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
251,202 |
|
|
Net income and comprehensive income |
|
- |
|
|
- |
|
|
- |
|
|
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 |
|
|
Stock-based compensation (note 15(d)) |
|
- |
|
|
148,831 |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
148,831 |
|
|
Shares issued for exercise of warrants |
|
2,056,034 |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
2,056,034 |
|
|
Fair value of warrants exercised |
|
403,143 |
|
|
- |
|
|
(403,143 |
) |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
Warrants expired |
|
- |
|
|
8,621 |
|
|
(8,621 |
) |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
Fair value of extension of warrants' |
|
(392,800 |
) |
|
- |
|
|
392,800 |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
Loss on debt extinguishment (note 14) |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
(168,082 |
) |
|
(8,800 |
) |
|
(176,882 |
) |
|
Net loss and comprehensive loss |
|
- |
|
|
- |
|
|
- |
|
|
211,760 |
|
|
- |
|
|
(593,866 |
) |
|
(382,106 |
) |
|
Balance, December 31, 2012 |
$ |
29,874,693 |
|
$ |
4,477,699 |
|
$ |
957,450 |
|
$ |
5,047 |
|
$ |
- |
|
$ |
(26,173,706 |
) |
$ |
9,141,183 |
|
The notes to the consolidated financial statements are an integral part of these statements.
|
Galantas Gold Corporation |
|
Notes to Consolidated Financial Statements |
|
Years Ended December 31, 2012 and 2011 |
|
(Expressed in Canadian Dollars) |
1. Going Concern
These consolidated financial statements have been prepared on a going concern basis which contemplates that Galantas Gold Corporation (the "Company") will be able to realize assets and discharge liabilities in the normal course of business. In assessing whether the going concern assumption is appropriate, management takes into account all available information about the future, which is at least, but is not limited to, twelve months from the end of the reporting period. Management is aware, in making its assessment, of material uncertainties related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. The Company's future viability depends on the consolidated results of the Company's wholly-owned subsidiary Cavanacaw Corporation ("Cavanacaw"), the ability of the Company to obtain future financing and to recover its investment in Omagh Minerals Limited ("Omagh"). Cavanacaw has a 100% shareholding in Omagh which is engaged in the acquisition, exploration and development of gold properties, mainly in Omagh, Northern Ireland.
As at December 31, 2001, studies performed on Omagh's mineral property confirmed the existence of economically recoverable reserves. As at July 1, 2007, the mineral property was in the production stage and the directors believe that the capitalized development expenditures will be fully recovered by the future operation of the mine. The recoverability of Omagh's capitalized development costs is thus dependent on the ability to secure financing, future profitable production or proceeds from the disposition of the mineral property. While the Company is expending its best efforts in this regard, the outcome of these matters cannot be predicted at this time.
As at December 31, 2012, the Company had a deficit of $26,173,706 (December 31, 2011 - $25,571,040). 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 consolidated financial statements do not reflect adjustments to the carrying values of assets and liabilities, the reported expenses and financial position classifications used that would be necessary if the going concern assumption was not appropriate. Such adjustments could be material.
2. Incorporation and Nature of Operations
The Company was formed on September 20, 1996 under the name Montemor Resources Inc. on the amalgamation of 1169479 Ontario Inc. and Consolidated Deer Creek Resources Limited. The name was changed to European Gold Resources Inc. by articles of amendment dated July 25, 1997. On May 5, 2004, the Company changed its name from European Gold Resources Inc. to Galantas Gold Corporation. The Company was incorporated to explore for and develop mineral resource properties, principally in Europe. In 1997, it purchased all of the shares of Omagh which owns a mineral property in Northern Ireland, including a delineated gold deposit. Omagh obtained full planning and environmental consents necessary to bring its property into production.
The Company entered into an agreement on April 17, 2000, approved by shareholders on June 26, 2000, whereby Cavanacaw, a private Ontario corporation, acquired Omagh. Cavanacaw has established an open pit mine to extract the Company's gold deposit near Omagh. Cavanacaw also has developed a premium jewellery business founded on the gold produced under the name Galántas Irish Gold Limited ("Galántas").
As at July 1, 2007, the Company's Omagh mine began production.
The Company's operations include the consolidated results of Cavanacaw and its wholly-owned subsidiaries Omagh and Galántas.
The Company's common shares are listed on the TSX Venture Exchange (the "Exchange") and London Stock Exchange AIM under the symbol GAL. The primary office is located at 36 Toronto Street, Suite 1000, Toronto, Ontario, Canada, M5C 2C5.
3. Basis of Preparation
(a) Statement of compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") issued by the International Accounting Standards Board ("IASB") and interpretations of the International Financial Reporting Interpretations Committee ("IFRIC"), effective for the Company's reporting for the year ended December 31, 2012. The policies set out below are based on IFRS issued and outstanding as of April 15, 2013, the date the Board of Directors approved the statements.
(b) Basis of presentation
These consolidated 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 consolidated financial statements have been prepared using the accrual basis of accounting except for cash flow information.
In the preparation of these consolidated 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 consolidated financial statements and the reported amounts of expenses during the year. 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 consolidated financial statements incorporate the financial statements of the Company and its subsidiaries.
The results of subsidiaries acquired or disposed of during the years presented are included in the consolidated statement of comprehensive (loss) 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 consolidated 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, United Kingdom |
Operating company |
|
Galántas Irish Gold Limited (2)(4) |
Northern Ireland, United Kingdom |
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 consolidated 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 |
|
|
|
December 31, |
|
|
|
2012 |
2011 |
|
|
|
|
|
Closing rate |
1.6178 |
1.5799 |
|
Average for the year |
1.5840 |
1.5861 |
(e) Use of estimates and judgments
The preparation of these consolidated 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 consoldiated financial statements and reported amounts of expenses during the reporting period. Actual outcomes could differ from these estimates. These consolidated financial statements include estimates that, by their nature, are uncertain. The impacts of such estimates are pervasive throughout the consolidated 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 consolidated 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 consolidated statements of financial position and the related amortization and depreciation included in the consoldiated statement of (loss) income;
(e) Use of estimates and judgments (continued)
Critical accounting estimates (continued)
- the estimated useful lives and residual value of property, plant and equipment which are included in the consolidated statement of financial position and the related amortization and depreciation included in the consoldiated statement of (loss) income;
- the inputs used in accounting for stock-based compensation transactions in the consoldiated statement of (loss) income;
- management applied judgment in determining the functional currency and presentation currency based on the facts and circumstances that existed during the year; and
- management assumption of amount of material restoration, rehabilitation and environmental, based on the facts and circumstances that existed during the year.
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 the consoldiated statement of (loss) income, except for differences arising on the retranslation of available-for-sale equity instruments which are recognised in other comprehensive 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 |
|
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 (loss) 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.
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 the consolidated statement of (loss) income.
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 the consolidated statement of (loss) income 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, 2012 and December 31, 2011, 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 are carried at cost, less accumulated depreciation and accumulated impairment losses. The cost of an item of property, plant and equipment 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 |
|
Unit-of-production |
|
Deferred till stripping costs |
|
Unit-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 unit-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, 2012 and December 31, 2011.
(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 consolidated statement of (loss) income for the periods presented comprises current and deferred tax. Income tax is recognized in the consolidated statement of (loss) income 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.
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 the consoldiated statement of (loss) income 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, 2012, the Company has recorded an asset retirement obligation in the amount of GBP 250,000 (December 31, 2011 - GBP 250,000), equal to the amount of the bond that is required by the Crown in Northern Ireland.
(m) Earnings (loss) per share
The Company presents basic and diluted earnings (loss) per share data for its common shares, calculated by dividing the earnings (loss) attributable to common shareholders of the Company by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share is determined by adjusting the income (loss) 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 IASB or IFRIC that are mandatory for accounting periods beginning after January 1, 2013, 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.
(i) IFRS 9 - Financial instruments ("IFRS 9") was issued by the IASB in October 2010 and will replace IAS 39 -Financial Instruments: Recognition and Measurement ("IAS 39"). IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the multiple rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of the financial assets. Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward unchanged to IFRS 9. The new standard also requires a single impairment method to be used, replacing the multiple impairment methods in IAS 39. IFRS 9 is effective for annual periods beginning on or after January 1, 2015.
(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.
(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 United States Generally Accepted Accounting Principles. Items in other comprehensive income will be required to be presented in two categories: items that will be reclassified into profit or loss and those that will not be reclassified. The flexibility to present a statement of comprehensive income as one statement or two separate statements of profit and loss and other comprehensive income remains unchanged. The amendments to IAS 1 are effective for annual periods beginning on or after July 1, 2012.
(vii) IAS 27 - Separate Financial Statements ("IAS 27") was effective for annual periods beginning on or after January 1, 2013, as a result of the issue of the new consolidation suite of standards, IAS 27 has been reissued, as the consolidation guidance will now be included in IFRS 10. IAS 27 will now only prescribe the accounting and disclosure requirements for investments in subsidiaries, joint ventures and associates when an entity prepares separate financial statements.
(viii) IAS 32 - Financial instruments, Presentation ("IAS 32") was effective for annual periods beginning on or after January 1, 2014. IAS 32 was amended to clarify that the right of offset must be available on the current date and cannot be contingent on a future date.
(ix) 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, 2012 totaled $9,141,183 (December 31, 2011 - $7,495,306). 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, 2012. 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 risk, foreign currency risk and commodity and equity 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, value added tax receivable and sales 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. Sales tax receivable is collectable from government authorities in Canada. 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, 2012, the Company had negative working capital. All of the Company's financial liabilities have contractual maturities of less than 30 days other than certain related party loans. The Company is using operating cash flows to manage and seeking additional capital to increase liquidity. As at December 31, 2012, the Company was cash flow negative.
(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 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.
(c) Commodity and equity price risk
The Company is exposed to price risk with respect to commodity prices. Commodity price risk is defined as the potential adverse impact on earnings and economic value due to commodity price movements and volatilities. The Company closely monitors commodity prices, as it relates to gold to determine the appropriate course of action to be taken by the Company.
Sensitivity analysis
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) Certain related party loans are subject to interest rate risk. As at December 31, 2012, if interest rates had decreased/increased by 1% with all other variables held constant, the net loss for the year ended December 31, 2012, would have been approximately $17,000 lower/higher respectively, as a result of lower/higher interest rates from certain related party loans. Similarly, as at December 31, 2012, shareholders' equity would have been approximately $17,000 higher/lower as a result of a 1% decrease/increase in interest rates from certain related party loans.
Sensitivity analysis (continued)
(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 and due to related parties that are denominated in GBP. As at December 31, 2012, had the GBP weakened/strengthened by 5% against the CAD with all other variables held constant, the Company's consolidated comprehensive loss for the year ended December 31, 2012 would have been approximately $72,000 higher/lower as a result of foreign exchange losses/gains on translation of non-CAD denominated financial instruments. Similarly, as at December 31, 2012, shareholders' equity would have been approximately $72,000 lower/higher had the GBP weakened/strengthened by 5% against the CAD as a result of foreign exchange losses/gains on translation of non-CAD 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 loss and shareholders' equity by approximately $445,000.
7. Categories of Financial Instruments
|
As at December 31, |
|
2012 |
|
|
2011 |
|
|
Financial assets: |
|
|
|
|
|
|
|
FVTPL |
|
|
|
|
|
|
|
Cash |
$ |
1,164,868 |
|
$ |
4,240,081 |
|
|
Long-term deposit |
|
428,717 |
|
|
371,277 |
|
|
Loans and receivables |
|
|
|
|
|
|
|
Accounts receivable and advances |
|
673,054 |
|
|
1,056,573 |
|
|
Financial liabilities: |
|
|
|
|
|
|
|
Other financial liabilities |
|
|
|
|
|
|
|
Accounts payable and other liabilities |
|
1,670,729 |
|
|
1,683,142 |
|
|
Due to related parties |
|
2,802,749 |
|
|
2,517,067 |
|
|
Convertible debenture |
|
- |
|
|
1,979,603 |
|
As of December 31, 2012 and December 31, 2011, 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 December 31, |
|
2012 |
|
|
2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
$ |
1,164,868 |
|
$ |
4,240,081 |
|
|
Long-term deposit |
|
428,717 |
|
|
371,277 |
|
|
Total cash position |
$ |
1,593,585 |
|
$ |
4,611,358 |
|
9. Accounts Receivable and Advances
|
As at December 31, |
|
2012 |
|
|
2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales tax receivable - Canada |
$ |
21,705 |
|
$ |
24,680 |
|
|
Valued added tax receivable - Northern Ireland |
|
147,987 |
|
|
248,348 |
|
|
Accounts receivable |
|
258,504 |
|
|
690,433 |
|
|
Prepaid expenses |
|
244,858 |
|
|
93,112 |
|
|
|
$ |
673,054 |
|
$ |
1,056,573 |
|
10. Inventory
|
As at December 31, |
|
2012 |
|
|
2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Concentrate inventory |
$ |
10,246 |
|
$ |
32,159 |
|
|
Finished goods |
|
316,003 |
|
|
314,857 |
|
|
|
$ |
326,249 |
|
$ |
347,016 |
|
11. Property, Plant and Equipment
|
|
|
December 31, 2012 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
Cost |
|
|
amortization |
|
|
Net |
|
|
|
|
|
|
|
|
|
|
|
|
|
Freehold land and buildings |
$ |
2,706,776 |
|
$ |
1,240,146 |
|
$ |
1,466,630 |
|
|
Plant and machinery |
|
5,996,937 |
|
|
3,987,043 |
|
|
2,009,894 |
|
|
Motor vehicles |
|
84,171 |
|
|
54,149 |
|
|
30,022 |
|
|
Office equipment |
|
105,396 |
|
|
45,164 |
|
|
60,232 |
|
|
Moulds |
|
58,844 |
|
|
58,844 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
8,952,124 |
|
$ |
5,385,346 |
|
$ |
3,566,778 |
|
|
|
|
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 |
|
12. Deferred Development and Exploration Costs
|
|
|
December 31, 2012 |
|
||||||
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
Cost |
|
|
amortization |
|
|
Net |
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred development and exploration costs |
$ |
13,825,983 |
|
$ |
5,966,538 |
|
$ |
7,859,445 |
|
|
|
|
December 31, 2011 |
|
||||||
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
Cost |
|
|
amortization |
|
|
Net |
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred development and exploration costs |
$ |
10,168,806 |
|
$ |
5,661,053 |
|
$ |
4,507,753 |
|
As at December 31, 2012, the Company has recorded an asset retirement obligation in the amount to $404,450 (GBP 250,000) (December 31, 2011 - $394,975 (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 December 31, |
|
2012 |
|
|
2011 |
|
|
|
|
|
|
|
|
|
|
Falling due within the year Trade payables |
$ |
1,670,729 |
|
$ |
1,683,142 |
|
14. 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, 2012, accretion of the discount totalled $45,529 (year ended December 31, 2011 - $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, 2012, $1,924 (year ended December 31, 2011 - $8,282 in deferred financing charges were accreted to operations.
On June 8, 2012, the Company extinguished, in its entirety, the principal and interest obligations outstanding under the Loan Agreement using the proceeds from the warrants exercised (see note 15 (b)(i)). As a result of this extinguishment, a gain on debt extinguishment of $190,624 on the convertible debenture was recorded in the consoldiated statement of (loss) income and a loss on debt extinguishment of $8,800 on the equity portion of convertible debenture was recorded in equity.
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
portion of |
|
|
|
|
Convertible |
|
|
convertible |
|
|
|
|
debenture |
|
|
debenture |
|
|
|
|
|
|
|
|
|
|
Balance, 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 |
|
|
Accretion charges - effective interest rate |
|
45,529 |
|
|
- |
|
|
Accretion charges - financing charges |
|
1,924 |
|
|
- |
|
|
Interest expenses |
|
6,075 |
|
|
- |
|
|
Foreign exchange |
|
36,645 |
|
|
- |
|
|
(Gain) loss on debt extinguishment |
|
(190,624 |
) |
|
8,800 |
|
|
Debt extinguishment |
|
(1,879,152 |
) |
|
(176,882 |
) |
|
Balance, December 31, 2012 |
$ |
- |
|
$ |
- |
|
15. Share Capital and Reserves
a) Authorized share capital
At December 31, 2012, 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, 2012, the issued share capital amounted to $29,874,693. The change in issued share capital for the periods presented:
|
|
|
Number of |
|
|
|
|
|
|
|
common |
|
|
|
|
|
|
|
shares |
|
|
Amount |
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010 and December 31, 2011 |
|
235,650,055 |
|
$ |
27,808,316 |
|
|
Shares issued for exercise of warrants |
|
20,560,340 |
|
|
2,056,034 |
|
|
Fair value of warrants exercised |
|
- |
|
|
403,143 |
|
|
Fair value of extension of warrants' expiry date (i) |
|
- |
|
|
(392,800 |
) |
|
Balance, December 31, 2012 |
|
256,210,395 |
|
$ |
29,874,693 |
|
|
(i) |
On July 9, 2012, the expiry date of the 24,550,000 common share purchase warrants outstanding were extended for one year from July 22, 2012 to July 22, 2013. As a result of this modification, an incremental fair value of these warrants of $392,800 was recognized. |
|
|
|
|
|
The fair value of extension of warrants' expiry date was estimated using the Black-Scholes option pricing model with the following assumptions: dividend yield - 0%; volatility - 133.52%; risk-free interest rate - 0.97% and an expected life of 1 year. |
c) Warrant reserve
The following table shows the continuity of warrants for the periods presented:
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
average |
|
|
|
|
Number of |
|
|
exercise |
|
|
|
|
warrants |
|
|
price |
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010 and December 31, 2011 |
|
45,550,000 |
|
$ |
0.10 |
|
|
Exercised |
|
(20,560,340 |
) |
|
0.10 |
|
|
Expired |
|
(439,660 |
) |
|
0.10 |
|
|
Balance, December 31, 2012 |
|
24,550,000 |
|
$ |
0.10 |
|
As at December 31, 2012, the following warrants were outstanding:
|
|
|
Number |
|
|
Fair |
|
|
Exercise |
|
|
Expiry date |
|
of warrants |
|
|
value ($) |
|
|
price ($) |
|
|
|
|
|
|
|
|
|
|
|
|
|
July 22, 2013 (note 15(b)(i)) |
|
24,550,000 |
|
|
957,450 |
|
|
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 (loss) 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, 2012 and 2011:
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
average |
|
|
|
|
Number of |
|
|
exercise |
|
|
|
|
options |
|
|
price |
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010 |
|
10,800,000 |
|
$ |
0.13 |
|
|
Granted (i)(ii)(iii) |
|
4,950,000 |
|
|
0.10 |
|
|
Balance, December 31, 2011 |
|
15,750,000 |
|
|
0.12 |
|
|
Cancelled |
|
(1,000,000 |
) |
|
(0.19 |
) |
|
Expired |
|
(4,800,000 |
) |
|
(0.14 |
) |
|
Balance, December 31, 2012 |
|
9,950,000 |
|
$ |
0.10 |
|
Stock-based compensation includes $148,831 (year ended December 31, 2011 - $61,884) relating to stock options granted in previous years that vested during the year ended December 31, 2012 (year ended December 31, 2011).
(i) 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 (loss) income and credited to equity settled share-based payments reserve as the options vest. During the year ended December 31, 2012, included in stock-based compensation is $2,283 (year ended December 31, 2011 - $9,322) related to the vested portion of these options.
|
|
|
|
(d) |
Stock options (continued) |
(i) (continued) 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.
(ii) 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 (loss) income and credited to equity settled share-based payments reserve as the options vest. During the year ended December 31, 2012, included in stock-based compensation is $1,942 (year ended December 31, 2011 - $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.
(iii) 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 (loss) income and credited to equity settled share-based payments reserve as the options vest. During the year ended December 31, 2012, included in stock-based compensation is $124,747 (year ended December 31, 2011 -$154,438) related to the vested portion of these options.
The fair value of the options was estimated using the Black-Scholes option pricing model with the following assumptions: dividend yield - 0%; volatility - 142.95%; risk-free interest rate - 1.30% and an expected life of 5 years.
The following table reflects the actual stock options issued and outstanding as of December 31, 2012:
|
|
|
|
|
|
Weighted average |
|
|
|
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
remaining |
|
|
Number of |
|
|
options |
|
|
Number of |
|
|
|
|
Exercise |
|
|
contractual |
|
|
options |
|
|
vested |
|
|
options |
|
|
Expiry date |
|
price ($) |
|
|
life (years) |
|
|
outstanding |
|
|
(exercisable) |
|
|
unvested |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 5, 2013 |
|
0.10 |
|
|
0.26 |
|
|
500,000 |
|
|
500,000 |
|
|
- |
|
|
October 2, 2013 |
|
0.10 |
|
|
0.75 |
|
|
1,500,000 |
|
|
1,500,000 |
|
|
- |
|
|
November 23, 2015 |
|
0.10 |
|
|
2.90 |
|
|
3,500,000 |
|
|
3,500,000 |
|
|
- |
|
|
January 28, 2016 |
|
0.10 |
|
|
3.08 |
|
|
250,000 |
|
|
166,667 |
|
|
83,333 |
|
|
September 6, 2016 |
|
0.10 |
|
|
3.68 |
|
|
4,200,000 |
|
|
2,800,000 |
|
|
1,400,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.10 |
|
|
2.78 |
|
|
9,950,000 |
|
|
8,466,667 |
|
|
1,483,333 |
|
16. Net (loss) Income per Common Share
The calculation of basic and diluted (loss) income per share for the years ended December 31, 2012 and 2011 was based on the loss attributable to common shareholders of $593,866 (year ended December 31, 2011 - income of $1,610,990) and the weighted average number of common shares outstanding of 247,246,030 (December 31, 2011 -235,650,055) for basic (loss) income per share and 247,246,030 (December 31, 2011 - 235,650,055) for diluted (loss) income per share. Diluted (loss) income did not include the effect of warrants and options for the years ended December 31, 2012 and 2011, as they are anti-dilutive.
17. Cost of Sales
|
|
|
Year Ended |
|
|||
|
|
|
December 31, |
|
|||
|
|
|
2012 |
|
|
2011 |
|
|
Production wages |
$ |
1,009,074 |
|
$ |
1,478,482 |
|
|
Oil and fuel |
|
1,060,611 |
|
|
1,410,799 |
|
|
Repairs and servicing |
|
467,926 |
|
|
762,800 |
|
|
Equipment hire |
|
193,069 |
|
|
522,528 |
|
|
Consumable |
|
202,797 |
|
|
248,039 |
|
|
Royalties |
|
90,557 |
|
|
197,400 |
|
|
Carriage |
|
44,236 |
|
|
82,225 |
|
|
Other costs |
|
78,089 |
|
|
93,565 |
|
|
Production costs |
|
3,146,359 |
|
|
4,795,838 |
|
|
Inventory movement |
|
20,767 |
|
|
64,589 |
|
|
Cost of sales |
$ |
3,167,126 |
|
$ |
4,860,427 |
|
18. Taxation
(a) Provision for income taxes
A reconciliation of the expected tax recovery to actual is provided as follows:
|
Year Ended December 31, |
|
2012 |
|
|
2011 |
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
$ |
(593,866 |
) |
$ |
1,610,990 |
|
|
Expected tax recovery at statutory rate of 26.5% (2011 - 28.25%) |
|
(157,400 |
) |
|
455,000 |
|
|
Difference resulting from: |
|
|
|
|
|
|
|
Stock-based compensation |
|
39,400 |
|
|
71,000 |
|
|
Foreign tax rate differential |
|
6,900 |
|
|
52,000 |
|
|
Expiry of warrants |
|
1,300 |
|
|
- |
|
|
Utilization of previously unrecognized losses |
|
- |
|
|
(897,000 |
) |
|
Non-capital losses not recognized |
|
109,800 |
|
|
319,000 |
|
|
|
$ |
- |
|
$ |
- |
|
(b) Deferred tax balances
The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities that have notbeen recognized for financial statement purposes are as follows:
|
|
|
2012 |
|
|
2011 |
|
|
|
|
|
|
|
|
|
|
Deferred income tax assets (liabilities) |
|
|
|
|
|
|
|
Non-capital losses |
$ |
4,653,882 |
|
$ |
4,025,900 |
|
|
Share issue costs |
|
2,500 |
|
|
4,300 |
|
|
Property, plant and equipment and deferred development costs |
|
(1,018,199 |
) |
|
(649,700 |
) |
|
Valuation allowance |
|
(3,638,183 |
) |
|
(3,380,500 |
) |
|
|
$ |
- |
|
$ |
- |
|
(c) Losses carried forward
As at December 31, 2012, the Company had non-capital losses carried forward of $15,110,239 (2011 - $14,164,491) for income tax purposes as follows:
|
Expires |
2014 |
$ |
426,803 |
|
|
|
2015 |
|
568,540 |
|
|
|
2026 |
|
1,064,484 |
|
|
|
2027 |
|
598,595 |
|
|
|
2029 |
|
373,962 |
|
|
|
2030 |
|
440,512 |
|
|
|
2031 |
|
599,070 |
|
|
Indefinite |
|
|
11,038,273 |
|
|
|
|
$ |
15,110,239 |
|
The loss carry-forward amounts have not been recognized for accounting purposes.
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 |
|
|
2012 |
|
|
2011 |
|
|
Interests on related party loans |
|
(i) |
|
$ |
41,029 |
|
$ |
59,745 |
|
(i) G&F Phelps Limited ("G&F Phelps"), a company controlled by a director of the Company, had amalgamated loans to Galantas of $1,660,756 (GBP 1,026,552) (December 31, 2011 - $1,716,643 - GBP 1,086,552) 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, 2012, the amount of interest accrued is $86,023 (GBP 53,173) (December 31, 2011 - $43,085 - GBP 27,271).
(ii) During 2009, the Company signed an agreement for the rent of mining equipment with 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.
(b) Remuneration of Directors and key management of the Company was as follows:
|
|
|
Year Ended |
|
|||
|
|
|
December 31, |
|
|||
|
|
|
2012 |
|
|
2011 |
|
|
|
|
|
|
|
|
|
|
Salaries and benefits (1) |
$ |
393,300 |
|
$ |
516,720 |
|
|
Stock-based compensation |
|
84,027 |
|
|
206,250 |
|
|
|
$ |
477,327 |
|
$ |
722,970 |
|
(1) Salaries and benefits include director fees. As at December 31, 2012, due to directors for fees amounted to $nil (December 31, 2011 - $nil) and due to directors and key management, mainly for salaries and benefits accrued amounted to $1,055,970 (GBP 652,720) (December 31, 2011 - $757,339 - GBP 479,277), 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. Segemented information on a geographic basis is as follow:
|
December 31, 2012 |
|
United Kingdom |
|
|
Canada |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
$ |
1,258,821 |
|
$ |
903,350 |
|
$ |
2,162,171 |
|
|
Non-current assets |
|
11,792,853 |
|
|
62,087 |
|
|
11,854,940 |
|
|
Revenues |
$ |
4,659,330 |
|
$ |
- |
|
$ |
4,659,330 |
|
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 $538,972 (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 consolidated financial statements.
This information is provided by RNS
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