3rd quarter interim results

RNS Number : 2237D

Galantas Gold Corporation

27 November 2009

 



GALANTAS GOLD CORPORATION

TORONTO VENTURE EXCHANGE / LONDON STOCK EXCHANGE - AIM

Symbol : GAL

November 27th 2009. 

GALANTAS THIRD QUARTER 2009 UPDATE

Galantas Gold Corporation (the Company), which has a 100% interest in an operating, open-pit, gold mine near Omagh, Northern Ireland, today announced its unaudited financial results for the third quarter, ending September 30th 2009. Highlights of the results are tabulated below. They should be read in conjunction with the full Unaudited Accounts, including notes and the corresponding Management Discussion and Analysis available on www.sedar.com and www.galantas.com .

HIGHLIGHTS  CDN$	Third Quarter 2009	Year to Date  2009	Third Quarter 2008	Year to Date 2008
Sales	$ 950,950	$ 3,742,197	$ 1,175,104	$ 2,447,456
Mine Cost of Sales excluding Financing charges etc	$ 968,154	$ 3,086,265	$ 845,116	$ 2,560,765
Financing, interest & other cash costs	$ 144,656	$ 378,229	$ 140,175	$ 431,887
Profit/(Loss) before amortization, foreign exchange and non-cash costs	$ (161,860)	$ 277,703	$ 189,813	($ 545,196)
Amortization, depreciation, and non cash costs	$ 430,015	$ 1,132,688	$ 466,379	$ 1,412,168
Foreign Exchange (Gain)	$ (426,887)	$(165,659)	$ (389,736)	$ (212,342)
Net Profit/(Loss)	$ (164,988)	$ (689,326)	$ 113,170	$ (1,745,022)

1.   Concentrate production

July's production was 184 wet tonnes . August saw 98 wet tonnes produced, with September's production measuring 102 wet tonnes, a total of 384 wet tonnes for the quarter (367.8 dry tonnes). October's production (first month quarter 4) has improved, with 210 wet tonnes (196 dry tonnes) in the month.

The metal content of the concentrate remains to be fully assessed, though it is anticipated that shipments for the third quarter contained approximately 31.25 kgs (1004.7 troy ounces) of gold, 70.36 kgs (2262 troy ozs) of silver and 35.3 tonnes of lead. 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.

2.   PIT OPERATION

Production equipment was diverted to the movement of till and peat during August, September and the first half of October to expand the operating length of the Kearney open pit by the stripping of overburden. A shortage of working capital prevented this being carried out independently of production. Approximately 120,000 cubic metres (loose) of overburden was moved into sound berms to the east of the Kearney vein and into a backfilling area in the south of the Kearney open pit. The restricted pit production zone during the third quarter reduced the opportunity to blend lower grades from the southern-most part of the pit with higher grades from the north. The addition of a hired bull-dozer for ripping and an extra hired truck increased productivity to partially offset the use of production equipment on the till strip. Total articulated truck movements in the third quarter of 2009 increased by 46% compared to the second quarter of 2009, due in part to shorter truck runs required on the movement of till. The quantity of mill feed was maintained at the same level as the previous quarter but grade dropped to approximately 3.64 g/t gold compared to the blended feed of the previous quarter at 6.1 g/t gold. Gold recovery in the third quarter dropped to approximately 90% from 93% in the second quarter due to the lower grade of ore.

This disclosure has been reviewed by Nicholas Hardie C.Eng FIMMM, (General Manager), a qualified person under the meaning of N.I 43-101, who is responsible for the technical information in this disclosure and by Leo O'Shaughnessy (Chief Financial Officer), who is responsible for the financial information in this disclosure. The information is based upon local production and financial data prepared by management under their supervision.

Galantas Gold Corporation Issued and Outstanding Shares total 190,100,055. 

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. 

Enquiries

Galantas Gold Corporation 
Jack Gunter P.Eng - Chairman
Roland Phelps C.Eng - President & CEO

Email: [e-mail]
Website: www.galantas.com 
Telephone:  [phone]

Blomfield Corporate Finance Ltd                          
Nick Harriss
Telephone: [phone]    

Beaufort International Associates Ltd
Telephone: [phone] Tanvier Malik

GALANTAS GOLD CORPORATION

Interim Consolidated Financial Statements

(Expressed in Canadian Dollars)

(Unaudited)

For the Three and Nine Months Ended September 30, 2009

MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING

The accompanying unaudited interim consolidated financial statements of Galantas Gold Corporation were prepared by management in accordance with Canadian generally accepted accounting principles. The most significant of these accounting principles have been set out in the December 31, 2008 audited consolidated financial statements. Only changes in accounting policies have been disclosed in these unaudited interim consolidated financial statements. Management acknowledges responsibility for the preparation and presentation of the unaudited interim consolidated financial statements, including responsibility for significant accounting judgments and estimates and the choice of accounting principles and methods that are appropriate to the Company's circumstances.

Management has established processes, which are in place to provide them sufficient knowledge to support management representations that they have exercised reasonable diligence that (i) the unaudited interim consolidated financial statements do not contain any untrue statement of material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it is made, as of the date of and for the periods presented by the unaudited interim consolidated financial statements and (ii) the unaudited interim consolidated financial statements fairly present in all material respects the financial condition, results of operations and cash flows of the Company, as of the date of and for the periods presented by the unaudited interim consolidated financial statements.

The Board of Directors is responsible for reviewing and approving the unaudited interim consolidated financial statements together with other financial information of the Company and for ensuring that management fulfills its financial reporting responsibilities. An Audit Committee assists the Board of Directors in fulfilling this responsibility. The Audit Committee meets with management to review the financial reporting process and the unaudited interim consolidated financial statements together with other financial information of the Company. The Audit Committee reports its findings to the Board of Directors for its consideration in approving the unaudited interim consolidated financial statements together with other financial information of the Company for issuance to the shareholders.

Management recognizes its responsibility for conducting the Company's affairs in compliance with established financial standards, and applicable laws and regulations, and for maintaining proper standards of conduct for its activities.

NOTICE TO READER

Under National Instrument 51-102, Part 4, subsection 4.3(3)(a), if an auditor has not performed a review of the interim financial statements, they must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor.

The accompanying unaudited interim consolidated financial statements of the Company have been prepared by and are the responsibility of the Company's management. 

The Company's independent auditor has not performed a review of these unaudited interim consolidated financial statements in accordance with standards established by the Canadian Institute of Chartered Accountants for a review of interim financial statements by an entity's auditor.

GALANTAS GOLD CORPORATION

INTERIM CONSOLIDATED BALANCE SHEETS 

(Expressed in Canadian Dollars)

(Unaudited)

	September 30,	December 31,
	2009	2008
	$	$
Assets
Current
Cash	112,074	587,489
Accounts receivable and advances	561,427	330,467
Inventory (Note 6)	620,706	652,306
	1,294,207	1,570,262
Property, plant and equipment (Note 7)	5,716,618	6,152,874
Long‑term deposit	101,900	101,900
Deferred development and exploration costs (Note 8)	10,276,609	10,601,856
Future income taxes	2,094,043	2,094,043
	19,483,377	20,520,935

 

 

Liabilities

Current

Accounts payable and accrued liabilities	1,920,268	2,298,303
Current portion of financing facility (Note 9)	84,441	309,043
Due to related party (Note 11)	3,081,278	2,504,275
	5,085,987	5,111,621
Asset retirement obligation	447,400	447,400
Due to related party (Note 11)	-	418,161
Long‑term portion of financing facility (Note 9)	47,560	199,864
	$ 5,580,947	$ 6,177,046

 

Shareholders' Equity

Share capital (Note 10(a))	26,530,787	26,435,998
Warrants (Note 10(b))	227,650	180,640
Contributed surplus	3,754,356	3,648,288
	30,512,793	30,264,926
Deficit	(16,610,363)	(15,921,037)
	13,902,430	14,343,889
	$ 19,483,377	$ 20,520,935

 

 Going concern (Note 1)

GALANTAS GOLD CORPORATION

INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

(Expressed in Canadian Dollars)

(Unaudited)

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2009	2008	2009	2008
	$	$	$	$
Revenues
Gold sales	950,950	1,175,104	3,742,197	2,447,456

Cost and expenses of operations

Cost of sales	808,622	619,832	2,611,291	1,754,019
Amortization and depreciation	397,181	360,520	1,026,620	1,057,601
	1,205,803	980,352	3,637,911	2,811,620
(Loss) income before the undernoted	(254,853)	194,752	104,286	(364,164)

 

Other expenses and (income)

Other operating expenses	159,532	225,284	474,974	806,746
Accounting and corporate	13,554	33,029	40,547	62,058
Legal and audit	30,238	26,713	68,827	55,659
Stock‑based compensation (Note 10(c))	32,834	105,859	106,068	354,567
Shareholder communication and
public relations	27,332	8,525	97,254	76,668
Transfer agent	2,058	2,240	14,710	14,899
General office	1,553	6,602	22,628	31,940
Bank interest and fees	69,921	63,066	134,263	190,958
Foreign exchange gain	(426,887)	(389,736)	(165,659)	(212,342)
Interest income	-	-	-	(295)
	(89,865)	81,582	793,612	1,380,858

 

Net (loss) income and comprehensive (loss)

income for the period

$ (164,988)

$ 113,170

$ (689,326)

$ (1,745,022)

 

 

Basic and diluted (loss) income per share

$ (0.00)

$ 0.00

$ (0.00)

$ (0.01)

Weighted average number of shares

outstanding ‑ basic	190,100,055	175,675,855	189,931,180	175,675,855
Dilutive effect of stock options and warrants	-	-	-	-

 

Weighted average number of shares

outstanding ‑ diluted

190,100,055

175,675,855

189,931,180

175,675,855

 

GALANTAS GOLD CORPORATION

INTERIM CONSOLIDATED STATEMENTS OF DEFICIT

(Expressed in Canadian Dollars)

(Unaudited)

	Three Months Ended		Nine Months Ended
	September 30		September 30,
	2009	2008	2009	2008
Deficit, beginning of period	$(16,445,375)	$(15,818,135)	$(15,921,037)	$(13,959,943)
Net (loss) income for the period	(164,988)	113,170	(689,326)	(1,745,022)
Deficit, end of period	$(16,610,363)	$(15,704,965)	$(16,610,363)	$(15,704,965)

GALANTAS GOLD CORPORATION

INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY 

(Expressed in Canadian Dollars)

(Unaudited)

	Share		Contributed
	Capital	Warrants	Surplus	Deficit	Total
Balance, December 31, 2007	$ 26,134,279	$ 2,417,700	$ 844,247	$ (13,959,943)	$ 15,436,283
Shares issued under private placements	496,760	-	-	-	496,760
Warrants issued	(180,640)	180,640	-	-	-
Share issue costs	(14,401)	-	-	-	(14,401)
Warrants expired	-	(2,417,700)	2,417,700	-	-
Stock-based compensation	-	-	386,341	-	386,341
Net loss	-	-	-	(1,961,094)	(1,961,094)
Balance, December 31, 2008	26,435,998	180,640	3,648,288	(15,921,037)	14,343,889
Shares issued for debt (Note 10(a))	141,799	-	-	-	141,799
Warrants issued	(47,010)	47,010	-	-	-
Stock-based compensation (Note 10(c))	-	-	106,068	-	106,068
Net loss	-	-	-	(689,326)	(689,326)
Balance, September 30, 2009	$ 26,530,787	$ 227,650	$ 3,754,356	$ (16,610,363)	$ 13,902,430

- 5 -

See accompanying notes to unaudited interim consolidated financial statements

GALANTAS GOLD CORPORATION

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS 

(Expressed in Canadian Dollars)

(Unaudited)

 

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2009	2008	2009	2008
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net (loss) income for the period	$ (164,988)	$ 113,170	$ (689,326)	$(1,745,022)
Adjustments for non‑cash items:
Amortization and depreciation	397,181	360,520	1,026,620	1,057,601
Stock‑based compensation (Note 10(c))	32,834	105,859	106,068	354,567
Foreign exchange	(34,625)	(11,879)	(4,724)	(8,546)
Net change in non‑cash working capital
(Note 12(a))	4,228	(165,612)	(435,596)	181,892
	234,630	402,058	3,042	(159,508)
INVESTING ACTIVITIES
(Purchase) sale of property, plant and equipment	(2,140)	(399,766)	1,946	(749,417)
Deferred development and exploration costs	(247,092)	-	(267,063)	-
	(249,232)	(399,766)	(265,117)	(749,417)
FINANCING ACTIVITIES
Net repayments of financing facility	(221,649)	(164,090)	(376,906)	(372,005)
(Repayments) advances from related party	(174,654)	266,003	158,842	1,480,355
	(396,303)	101,913	(218,064)	1,108,350
NET CHANGE IN CASH	(410,905)	104,205	(480,139)	199,425
Effect of exchange rate changes on cash held in foreign currencies	34,625	11,879	4,724	8,546
CASH, BEGINNING OF PERIOD	488,354	113,195	587,489	21,308
CASH, END OF PERIOD	$ 112,074	$ 229,279	$ 112,074	$ 229,279

 

 

 

SUPPLEMENTAL CASH FLOW INFORMATION (Note 12)

GALANTAS GOLD CORPORATION

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS 

(Expressed in Canadian Dollars)

(Unaudited)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009

1.    GOING CONCERN

These unaudited interim consolidated financial statements have been prepared on a going concern basis which contemplates that Galantas Gold Corporation (the "Company") will be able to realize assets and discharge liabilities in the normal course of business. In assessing whether the going concern assumption is appropriate, management takes into account all available information about the future, which is at least, but is not limited to, twelve months from the end of the reporting period. Management is aware, in making its assessment, of material uncertainties related to events or conditions that may cast significant doubt 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.  

Management is confident that it will be able to secure the required financing to enable the Company to continue as a going concern. However, this is subject to a number of factors including market conditions. These unaudited interim consolidated financial statements do not reflect adjustments to the carrying value of assets and liabilities, the reported expenses and balance sheet classifications used that would be necessary if the going concern assumption was not appropriate. Such adjustments could be material.

2.     INCORPORATION AND NATURE OF OPERATIONS

The Company was formed on September 20, 1996 under the name Montemor Resources Inc. on the amalgamation of 1169479 Ontario Inc. and Consolidated Deer Creek Resources Limited. The name was changed to European Gold Resources Inc. by articles of amendment dated July 25, 1997. On May 5, 2004, the Company changed its name from European Gold Resources Inc. to Galantas Gold Corporation. The Company was incorporated to explore for and develop mineral resource properties, principally in Europe. In 1997, it purchased all of the shares of Omagh which owns a mineral property in Northern Ireland, including a delineated gold deposit. Omagh obtained full planning and environmental consents necessary to bring its property into production.

The Company entered into an agreement on April 17, 2000, approved by shareholders on June 26, 2000, whereby Cavanacaw, a private Ontario corporation, acquired Omagh. Cavanacaw has established an open pit mine to extract the Company's gold deposit near Omagh. Cavanacaw also has developed a premium jewellery business founded on the gold produced under the name Galántas Irish Gold Limited ("Galántas").

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

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

GALANTAS GOLD CORPORATION

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS 

(Expressed in Canadian Dollars)

(Unaudited)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009

3.    BASIS OF PRESENTATION AND ACCOUNTING POLICIES

The unaudited interim consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles ("Canadian GAAP") for interim financial information. Accordingly, they do not include all of the information and notes to the consolidated financial statements required by Canadian GAAP for annual consolidated financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2009 may not necessarily be indicative of the results that may be expected for the year ending December 31, 2009.

The consolidated balance sheet at December 31, 2008 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by Canadian GAAP for annual consolidated financial statements. The unaudited interim consolidated financial statements have been prepared by management in accordance with the accounting policies described in the Company's annual audited consolidated financial statements for the year ended December 31, 2008, except as noted below. For further information, refer to the audited consolidated financial statements and notes thereto for the year ended December 31, 2008.

New Accounting Policies

Goodwill and Intangible Assets

Effective January 1, 2009, the Company adopted Section 3064, "Goodwill and Intangible Assets" which replaced the Canadian Institute of Chartered Accountants' Handbook ("CICA Handbook") sections 3062 and 3450, EIC-27 and part of Accounting Guideline 11. Under previous Canadian standards, more items were recognized as assets than under International Financial Reporting Standards ("IFRS"). The objectives of CICA 3064 are to reinforce the principle based approach to the recognition of assets only in accordance with the definition of an asset and the criteria for asset recognition and to clarify the application of the concept of matching revenues and expenses such that the current practice of recognizing asset items that do not meet the definition and recognition criteria is eliminated. The portions in the new standard with respect to Goodwill remain unchanged. The provisions relating to the definition and initial recognition of intangible assets intends to reduce the differences with IFRS in the accounting for intangible assets. The new standard also provides guidance for the recognition of internally developed intangible assets (including research and development activities), ensuring consistent treatment of all intangible assets.

The adoption of this standard had no impact on the Company's presentation of its financial position or results of operations as at September 30, 2009.

Credit Risk and the Fair Value of Financial Assets and Financial Liabilities

In January 2009, the Emerging Issues Committee of the CICA issued EIC-173, "Credit Risk and the Fair Value of Financial Assets and Financial Liabilities", which applies to interim and annual financial statements for periods ending on or after January 20, 2009. The adoption of this standard had no impact on the Company's presentation of its financial position or results of operations as at September 30, 2009.

GALANTAS GOLD CORPORATION

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS 

(Expressed in Canadian Dollars)

(Unaudited)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009

3.    BASIS OF PRESENTATION AND ACCOUNTING POLICIES (Continued)

Future Accounting Pronouncements

IFRS

In January 2006, the CICA's Accounting Standards Board ("AcSB") formally adopted the strategy of replacing Canadian GAAP with IFRS for Canadian enterprises with public accountability. On February 13, 2008 the AcSB confirmed that the use of IFRS will be required in 2011 for publicly accountable profit-oriented enterprises. For these entities, IFRS will be required for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. The Company will be required to have prepared, in time for its first quarter of fiscal 2011 filing, comparative financial statements in accordance with IFRS for the three months ended March 31, 2010. While the Company has begun assessing the impact of the adoption of IFRS on its consolidated financial statements, the financial reporting impact of the transition to IFRS cannot be reasonably estimated at this time.

Business Combinations, Consolidated Financial Statements and Non-Controlling Interests

The CICA issued three new accounting standards in January 2009: Section 1582, "Business Combinations", Section 1601, "Consolidated Financial Statements" and Section 1602, "Non- Controlling interests". These new standards will be effective for fiscal years beginning on or after January 1, 2011. Section 1582 replaces section 1581 and establishes standards for the accounting for a business combination. It provides the Canadian equivalent to IFRS 3 - Business Combinations. Sections 1601 and 1602 together replace section 1600, "Consolidated Financial Statements". Section 1601 establishes standards for the preparation of consolidated financial statements. Section 1602 establishes standards for accounting for a non-controlling interest in a subsidiary in consolidated financial statements subsequent to a business combination. It is equivalent to the corresponding provisions of IFRS lAS 27 - Consolidated and Separate Financial Statements. The Company is in the process of evaluating the requirements of the new standards.

4.    CAPITAL MANAGEMENT

The Company's objective when managing capital is to safeguard its accumulated capital in order to provide an adequate return to shareholders by maintaining a sufficient level of funds, in order to support continued production and maintenance at the Omagh Mine and to acquire, explore and develop other precious and base metal deposits in Northern Ireland. 

The Company manages its capital structure and makes adjustments to it, based on the level of funds available to the Company to manage its operations. In order to maintain or adjust the capital structure, the Company expects that it will be able to obtain equity financing and generate positive cash flow from operations to maintain and expand its operations. There are no assurances that these initiatives will be successful. Management reviews its capital management approach on an ongoing basis.

There were no changes in the Company's approach to capital management during the three and nine months ended September 30, 2009. Neither the Company nor its subsidiaries are subject to externally imposed capital requirements.

GALANTAS GOLD CORPORATION

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS 

(Expressed in Canadian Dollars)

(Unaudited)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009

5.    FINANCIAL RISK FACTORS

(a) Property risk

The Company's significant project is the Omagh Mine. Unless the Company acquires or develops additional significant projects, the Company will be solely dependent upon the Omagh Mine. If no additional projects are acquired by the Company, any adverse development affecting the Omagh Mine would have a material effect on the Company's financial condition and results of operations.

(b) Financial risk

The Company's activities expose it to a variety of financial risks: credit risk, liquidity risk, and market risk (including interest rate, foreign exchange rate and commodity price risk).

Risk management is carried out by the Company's management team with guidance from the Audit Committee under policies approved by the Board of Directors. The Board of Directors also provides regular guidance for overall risk management.

Credit risk

Credit risk is the risk of loss associated with a counterparty's inability to fulfill its payment obligations. The Company's credit risk is primarily attributable to cash, accounts receivable and long-term deposit. Cash and long-term deposit are held with reputable financial institutions and the United Kingdom Crown, respectively, from which management believes the risk of loss to be minimal. Accounts receivable consist mainly of a trade account receivable from one customer and Value Added Tax receivable. The Company is exposed to concentration of credit risk with one of its customers. Management believes that the credit risk is minimized due to the financial worthiness of this Company. Value Added Tax receivable is collectable from the Government of Northern Ireland. The Company does not have derivative financial instruments. No trade accounts receivable balances are past due or impaired.

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 related to 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 September 30, 2009, the Company had negative working capital. All of the Company's financial liabilities have contractual maturities of less than 30 days other than the financing facility and certain related party loans. The Company is using operating cash flows to manage and is seeking additional capital to increase liquidity.

Market Risk

           Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market interest rates. The Company has minimal cash balances and significant interest-bearing debt. The Company is exposed to interest rate risk on the term loan facility and certain related party loans which bear interest at variable rates.

GALANTAS GOLD CORPORATION

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS 

(Expressed in Canadian Dollars)

(Unaudited)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009

5.    FINANCIAL RISK FACTORS (Continued)

(b) Financial risk (Continued)

Market Risk (Continued)

Foreign currency risk

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

Price risk

The Company is exposed to price risk with respect to commodity prices. Commodity price risk is defined as the potential adverse impact on earnings and economic value due to commodity price movements and volatilities. The Company closely monitors commodity prices, as it relates to gold to determine the appropriate course of action to be taken by the Company.

Sensitivity Analysis

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

(i) The term loan facility and certain related party loans are subject to interest rate risk. As at September 30, 2009, if interest rates had decreased/increased by 1% with all other variables held constant, the loss for the nine months ended September 30, 2009 would have been approximately $23,000 lower/higher, as a result of lower/higher interest rates from the term loan facility and certain related party loans. Similarly, as at September 30, 2009, shareholders' equity would have been approximately $23,000 higher/lower as a result of a 1% decrease/increase in interest rates from the term loan facility and certain related party loans.

(ii) The Company is exposed to foreign currency risk on fluctuations related to cash, accounts receivable and advances, long-term deposit, accounts payable and accrued liabilities, due to related party and financing facility that are denominated in British pounds. As at September 30, 2009, had the British pound weakened/strengthened by 5% against the Canadian dollar with all other variables held constant, the Company's loss for the nine months ended September 30, 2009 would have been approximately $221,000 higher/lower as a result of foreign exchange losses/gains on translation of non-Canadian dollar denominated financial instruments. Similarly, as at September 30, 2009, shareholders' equity would have been approximately $221,000 lower/higher had the British pound weakened/strengthened by 5% against the Canadian dollar as a result of foreign exchange losses/gains on translation of non-Canadian dollar denominated financial instruments.

(iii) Commodity price risk could adversely affect the Company. In particular, the Company's future profitability and viability of development depends upon the world market price of gold. Gold prices have fluctuated widely in recent years. There is no assurance that, even as commercial quantities of gold may be produced in the future, a profitable market will exist for them. A decline in the market price of gold may also require the Company to reduce production of its mineral resources, which could have a material and adverse effect on the Company's value. Net loss would be impacted by changes in average realized gold prices. Sensitivity to a plus or a minus 10% change in average realized gold prices would affect net loss and shareholders' equity by approximately $328,000.

GALANTAS GOLD CORPORATION

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS 

(Expressed in Canadian Dollars)

(Unaudited)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009

6.    INVENTORY

	September 30,	December 31,
	2008	2009
Concentrate inventory	$ 31,771	$ 12,796
Finished goods	588,935	639,510
	$ 620,706	$ 652,306

 

7.    PROPERTY, PLANT AND EQUIPMENT 

	September 30, 2009
		Accumulated
	Cost	Amortization	Net
Freehold land and buildings	$ 3,020,913	$ 432,725	$ 2,588,188
Plant and machinery	5,584,828	2,498,787	3,086,041
Motor vehicles	65,724	48,401	17,323
Office equipment	81,715	56,649	25,066
Moulds	81,802	81,802	-
	$ 8,834,982	$ 3,118,364	$ 5,716,618

	December 31, 2008
		Accumulated
	Cost	Amortization	Net
Freehold land and buildings	$ 3,020,913	$ 393,941	$ 2,626,972
Plant and machinery	5,589,818	2,110,532	3,479,286
Motor vehicles	64,820	45,395	19,425
Office equipment	79,575	52,384	27,191
Moulds	81,802	81,802	-
	$ 8,836,928	$ 2,684,054	$ 6,152,874

GALANTAS GOLD CORPORATION

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS 

(Expressed in Canadian Dollars)

(Unaudited)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009

8. DEFERRED DEVELOPMENT AND EXPLORATION COSTS
	September 30, 2009
		Accumulated
	Cost	Amortization	Net
Deferred development and exploration costs	$ 11,713,753	$ 1,437,144	$ 10,276,609
	December 31, 2008
		Accumulated
	Cost	Amortization	Net
Deferred development and exploration costs	$ 11,446,690	$ 844,834	$ 10,601,856
9. FINANCING FACILITY
Amounts payable on the long term debt are as follows:
		September    30,	December 31,
	Interest	2009	2008
Financing facility (238,700 GBP)	3.71%	-	$ 44,659
Financing facility (180,000 GBP)	3.97%	-	29,602
Financing facility (199,160 GBP)	4.03%	132,001	194,735
Term loan facility (250,000 GBP)	Bank rate + 2%	-	239,911
		132,001	508,907
Less current portion		84,441	309,043
		$ 47,560	$ 199,864
Principal repayments over the next three years are as follows:
	2009/2010	$ 84,441
	2010/2011	47,560
		$ 132,001

GALANTAS GOLD CORPORATION

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS 

(Expressed in Canadian Dollars)

(Unaudited)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009

10. SHARE CAPITAL
(a)    Authorized and issued
Authorized
Unlimited number of common and preference shares issuable in Series
Issued common shares
		Number of	Stated
		Shares	Value
Balance, December 31, 2008		186,965,855	$ 26,435,998
Shares issued for debt (i)		3,134,200	141,799
Warrants issued		-	(47,010)
Balance, September 30, 2009		190,100,055	$ 26,530,787

(i) On January 14, 2009, the Company has received consent from the TSX Venture Exchange for the issue of Company shares for debt. The creditor, who supplied drilling services, has exchanged $141,799 (78,355 GBP) of debt for 3,134,200 units. Each unit comprises one common share and one warrant, such warrant being exercisable for one year at a price of $0.09 (0.05 GBP). The shares exchanged for debt are subject to a four month hold period, which expired May 15, 2009.

The fair value of the 3,134,200 warrants was estimated using the Black-Scholes option pricing model with the following assumptions: dividend yield - 0%; volatility - 153%; risk-free interest rate - 0.92% and an expected life of 1 year. The fair value attributed to the warrants was $47,010.

(b)    Warrants

The following table shows the continuity of warrants for the period ended September 30, 2009:

			Weighted
			Average
		Number of Warrants	Price
Balance, December 31, 2008		11,290,000	$ 0.09
Issued (Note 10(a)(i))		3,134,200	0.09
Balance, September 30, 2009		14,424,200	$ 0.09

As at September 30, 2009, the following warrants were outstanding:

Number	Fair	Exercise	Expiry
of Warrants	Value ($)	Price ($)	Date
11,290,000	180,640	0.09	December 29, 2009
3,134,200	47,010	0.09	January 14, 2010
14,424,200	227,650

GALANTAS GOLD CORPORATION

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS 

(Expressed in Canadian Dollars)

(Unaudited)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009

10.    SHARE CAPITAL (Continued)

(c)    Stock options

The following table shows the continuity of options for the period ended September 30, 2009:

		Weighted
		Average
	Number of Options	Price
Balance, December 31, 2008 and September 30, 2009	8,650,000	$ 0.14

Stock-based compensation expense includes $32,834 and $106,068, respectively ($105,859 and $354,567, respectively for the three and nine months ended September 30, 2008) relating to stock options granted in previous years that vested during the three and nine months ended September 30, 2009.

The following table reflects the Company's stock options outstanding and exercisable as at September 30, 2009:

	Weighted			Weighted
	Average			Average
	Remaining			Remaining
	Contractual			Contractual
Options	Life	Exercise	Options	Life	Exercise	Expiry
Outstanding	(years)	Price ($)	Exercisable	(years)	Price ($)	Date
200,000	0.62	0.10	200,000	0.62	0.10	May 13, 2010
500,000	1.70	0.26	500,000	1.70	0.26	June 14, 2011
500,000	2.71	0.23	500,000	2.71	0.23	June 15, 2012
5,700,000	3.23	0.14	3,800,000	3.23	0.14	December 24, 2012
250,000	3.39	0.16	166,667	3.39	0.16	February 20, 2013
1,500,000	4.00	0.10	500,000	4.00	0.10	October 2, 2013
8,650,000	3.19	0.14	5,666,667	3.03	0.15

GALANTAS GOLD CORPORATION

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS 

(Expressed in Canadian Dollars)

(Unaudited)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009

11.    RELATED PARTY TRANSACTIONS

Transactions with related parties were in the normal course of operations and were measured at the exchange amounts.

The Company has the following transactions with related parties:

Director fees of $nil and $18,000, respectively ($9,000 and $27,000, respectively for the three and nine months ended September 30, 2008) were paid or accrued during the three and nine months ended September 30, 2009.

During the period, the Company signed an agreement for the rent of mining equipment with G&F Phelps Limited ("G&F Phelps"), a Company controlled by a director of the Company. The Company can decide to purchase the mining equipment within the next year. If the Company decides to purchase the mining equipment, the Company may deduct from the purchase price 50% of the charges that it has paid to rent the equipment. During the three and nine months ended September 30, 2009, the Company accrued charges of $40,943 and $81,018, respectively payable to G&F Phelps for the rent of the mining equipment.

During the period, G&F Phelps and the Company entered into the following agreement:

-      G&F Phelps amalgamated it's UK loans to the Company and took over all loans from Welsh Gold plc and the
       President and Chief Executive Officer of the Company to Galantas. The amalgamated loans bear interest at 2%
       above UK base rate, are repayable on demand and are secured by a mortgage debenture over all the Company's
       assets;

-      G&F Phelps extended this loan arrangement with the Company by repaying the balance of $ 140,012 (UK£ 82,126)
       on the Company's UK£ term loan facility;

-      the Company have accrued a fee of $42,895 (UK£ 25,000) payable to G&F Phelps arising from the provision of limited
       support by them on certain financial obligations of the Company. This fee has been added to the outstanding loan of
       G&F Phelps; and

-      the Company to repay to G&F Phelps any costs incurred by G&F Phelps as a result of it entering into these
       agreements.

Interest accrued on related party loans is included under accounts payable and accrued liabilities. As at September 30, 2009, the amount of interest accrued is $197,399 (UK£ 115,048) (December 31, 2008 - $140,620 (UK£ 78,576)).

GALANTAS GOLD CORPORATION

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS 

(Expressed in Canadian Dollars)

(Unaudited)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009

11.  RELATED PARTY TRANSACTIONS (Continued)

	September 30, 2009		December 31, 2008
	GBP	CDN$	GBP	CDN$
Amount owing to the President and companies controlled by the President of the Company. As at September 30, 2009, $nil (December 31, 2008 ‑ $481,011 (268,781 GBP)) of the loan is secured by a second charge on the land owned by Omagh and the balance of the loan is unsecured. The loan bears interest at a base rate plus 2% and the balance is due on demand.	-	-	869,801	1,556,597
Amount owing to the company controlled by a director of the Company for financing of mining equipment. As at September 30, 2009, $nil (December 31, 2008 ‑ $738,496 (412,660 GBP)) of the loan is for a period of 4.25 years, interest bearing at 4.04% and is secured by all of the equipment owned by the Company's wholly‑owned subsidiary Omagh.	-	-	647,660	1,159,052
Amount owing to the President and Chief Executive Officer of the Company who agreed to lend up to a total of $857,900 (500,000 GBP) to the Company for a period of 6 months. The loan is secured by the Company's inventory with cross guarantees provided by the Company's subsidiaries. The loan bears interest at a base rate of 4.5% per annum, such interest to be calculated monthly and compounded until repaid.	-	-	115,549	206,787
G&F Phelps amalgamated loans, a Company controlled by a director of the Company, bearing interest at 2% above UK base rates, repayable on demand and secured by a mortgage debenture over all of the Company’s assets.	1,686,552	2,893,783	-	-
Directors current account	109,277	187,495	-	-
	1,795,829	3,081,278	1,633,010	2,922,436
Less: Current portion		(3,081,278)		(2,504,275)
Long‑term portion		-		418,161

GALANTAS GOLD CORPORATION

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS 

(Expressed in Canadian Dollars)

(Unaudited)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009

12.    SUPPLEMENTAL CASH FLOW INFORMATION
(a)    Net change in non-cash working capital
	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2009	2008	2009	2008
	$	$	$	$
Accounts receivable and advances	132,919	329,699	(230,960)	346,240
Inventory	60,152	(89,315)	31,600	(808,565)
Accounts payable and accrued liabilities	(188,843)	(552,300)	(236,236)	96,639
Deferred revenue	-	146,304	-	547,578
	4,228	(165,612)	(435,596)	181,892

    (b)    Supplemental information

Interest paid	18,805	19,229	67,541	50,079
Shares issued for debt payment	-	-	141,799	-

Interest paid includes $18,805 and $67,541, respectively (comparable periods - $19,229 and $50,079, respectively) of interest paid on the financing facility during the three and nine months ended September 30, 2009, which was expensed to the statements of operations.

13.   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.

 

END

 

 

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