3rd Quarter Results

RNS Number : 8351R

Galantas Gold Corporation

23 November 2012

 



GALANTAS GOLD CORPORATION

TSXV & AIM : Symbol GAL

GALANTAS INTERIM RESULTS FOR THE NINE  MONTHS ENDED 30 SEPTEMBER 2012

23rd November 2012 : Galantas Gold Corporation (the Company) is pleased to announce its interim results for the nine months ended September  30^th 2012 and third quarter results  for the three months ended September 30th 2012.

Financial Highlights

Highlights of the 2012 third quarter's and first nine months results, which are expressed in Canadian Dollars, are:

All figures denominated in Canadian Dollars (CDN$)	Third Quarter Ended  September 30 unaudited       2012                     2011		Nine Months Ended September 30 unaudited       2012                         2011
Revenue	$    855,813              $ 2,510,985		$ 3,783,939             $ 6,979,698
Cost of Sales	$    792,386              $ 1,247,229		$ 2,806,197             $ 3,621,382
Income before the undernoted	$      63,427              $ 1,263,756		$    977,742              $ 3,358,316
Amortization	$    155,078              $     222,079		$    526,267              $    603,939
General administrative expenses	$    372,931              $     655,568		$ 1,225,445              $ 1,647,918
Gain on debt extinguishment	$                0              $                0		$  (190,624)               $               0
Foreign exchange/(gain) loss	$     31,078              $    (59,537)		$     11,969                $  (58,586)
Net Income (Loss) for the period	$ (495,660)              $     445,646		$  (595,315)               $1,165,045

Sales revenues for the nine months ended September 30, 2012 amounted to CDN$ 3,783,939 (2011: CDN$ 6,979,698). Sales revenues for the three months ended September 30, 2012 amounted to CDN$ 855,813 (Q3 2011: CDN$ 2,510,985).  The reduction in sales revenues in both periods when compared to the corresponding periods of 2011 was due to the lower level of metal produced and shipped during the quarter. 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 failings by the Planning Service.

Cost of sales for the nine months ended September 30, 2012 amounted to CDN$ 2,806,197 (2011: CDN$ 3,621,382).  Cost of sales for the three months ended September 30, 2012 amounted to CDN $ 792,386 (Q3 2011: CDN$ 1,247,229). There was a decrease in various production costs at the Omagh mine during the nine months and third quarter including production wages reflecting the reduced number of personnel arising from the rationalisation programme, oil and fuel costs, repairs and servicing costs and usage of consumables with reductions mainly attributable to the reduced level of mining activity during both periods.  There was a non-cash gain of CDN$ 190,624 (2011: CDN$ Nil) during the nine months ended September 30, 2012 following the extinguishment of the Company's convertible debenture debt during the second quarter.

The Net Loss for the nine months ended September 30, 2012, amounted to CDN$ 595,315 (2011: Net Income CDN$ 1,165,045).  The cash generated from operating activities after changes in non-cash working capital for the first nine months of 2012  amounted to CDN$ 688,373 (2011: $ 2,777,908). The cash generated from operating activities continued to contribute towards the cost of the exploration drilling programme at the Omagh mine. 

The Net Loss for the three months ended September 30, 2012, amounted to CDN$ 495,660 (2011 Q3: Net Income CDN$ 1,165,045). The cash loss from operating activities after changes in non-cash working capital in the third quarter of 2012 amounted to CDN$ (135,088) which compared with cash generated from operations of  CDN$ 1,514,081 for the third quarter of 2011.

The Company had cash balances at September 30, 2012 of CDN$2,021,513 compared to CDN$ 4,240,081 at December 31, 2011.  The working capital deficit at September 30, 2012 amounted to CDN$ 1,672,628 which compared with a deficit of CDN$ 536,142 at December 31, 2011. 

Production

Production for the third quarter and first nine months of 2012 are summarised below :-

	Three Months to September 30 2012	Three Months to September 30 2011	Nine Months to September 30 2012	Nine Months to  September 30 2011
Tonnes Milled	11,292	13,707	35,748	36,539
Average Grade g/t gold	1.9	4.34	2.4	4.73
Concentrate Dry Tonnes	226.7	545	849.7	1,582
Gold Grade (concentrate)	95.2	91.2	101.6	98.3
Gold Produced (oz)	696	1,597	2,780	5,007
Gold Produced (kg)	21.6	49.6	86.4	155.6
Silver Grade	117.3	236.6	238	239.4
Silver Produced (oz)	856	4,142	6,498	12,176
Silver Produced (kg)	26.6	128.8	202	378.7
Lead Produced tonnes	10.1	56.3	58.4	227
Gold Equivalent (oz)	722	1,766	2,973	5,658

Whilst ore milled during the third quarter of 2012, at 11,292 tonnes, was 18% below ore milled in the third quarter of 2011 both concentrate and metal production in the third quarter were significantly lower than the third quarter of 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 which accounted for 80% of ore milled. 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 quarter was mainly from the Kerr vein. Production from Kearney was totally restricted in the third quarter by the surplus rock stockpile on the site which reached capacity levels. This surplus rock was due to commence being transported from the site during the current 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 has now been quashed.  This ongoing limitation has and will result in low grade material continuing to be processed for the immediate future. To generate cash from its operations going forward, the Company has continued to cut costs. Because of adverse impact on current and future production levels it is unlikely that sufficient ore will be available to maintain current employment on the mine site until the underground mine is permitted. This resulted in the mine commencing a redundancy programme during the third quarter to further reduce the workforce. 

Mining from the Kerr veins during the quarter was reasonably successful with one of the veins mined (vein no.4) being of high grade.  For the short term, Kerr is expected to produce small quantities of high grade material, which will be used to sweeten the grade of material to the processing plant.

During the third quarter the mill was mainly fed with lower grade. Whilst the modifications that were made to the flotation and crushing circuits in 2011 and in the first quarter of 2012 have proven to be successful, some further changes are being completed to increase throughput. Production was hampered during the quarter by the ongoing variations in the metallurgy due to the inconsistent grade of ore being milled and an increased clay content. Planned improvements to the milling circuit, which will result in decreased labour costs, are expected to be completed in November and will contribute towards the Company's objective to achieve positive cash flow from operations for the remainder of the operating year.

The 2012 production figures and metal contents are provisional and subject to averaging or umpiring provisions under the concentrate off - take agreement detailed in a press release dated October 3, 2007. 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.

Exploration

The major focus of exploration activities in 2012 has been the successful drilling programme, with 14,016 metres having being drilled since the programme commenced in March 2011 and with significant gold intersects reported.

The drilling program continued into the third quarter of 2012 with the number of drills rigs in operation being reduced to three rigs by the end of the third quarter. During the third quarter 3,177 metres were drilled with fifteen holes targeting the Joshua vein, two holes on the Kearney vein and four holes on the Kerr vein. The main objective of the third quarter drilling programme was to continue to extend the known strike of the Joshua vein to the south, to hone in on areas of the Joshua vein which require further infill drilling to increase the indicated resource category, to complete the long hole drilling programme on the Kearney vein and to explore new targets at the eastern Lagoon and Kerr veins.

Most of the drilling on the Joshua vein during the third quarter has been concentrated on the central and southern regions of the Joshua vein. Earlier, section drawings of logged core and wireframe construction using Micromine, revealed that this portion of the vein dips steeply to the west, in contrast to the northern stretch which dips to the east. A series of new drill hole locations were developed with this model in mind, and recent drilling has continued to intersect the westerly dipping vein between vertical depths of 31 and 104 m.  Further drilling will continue to target the vein southwards in the fourth quarter. A review to prioritise new targets within the mine site, and in particular the mapping of the Kerr veins which showed that the veins fan out towards the north, has indicated that there could be a target towards the south of the property. Three holes have been drilled with an additional hole in progress at the end of the quarter and some significant intercepts have been identified at depth.

Further phases of channel sampling continued on the Kearney, Joshua and Kerr veins during the third quarter. Assay results released to date from both the drilling and channel sampling programme have been encouraging with significant gold intersections being identified (see press releases dated September 15, 2011, September 20, 2011, October 4, 2011 and October 20, 2011, November 28, 2011, January 12, 2012 April 5, 2012, June 11, 2012 and September 25, 2012). Assay results from this programme will continue to be announced as and when they are received.

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 it's 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 early in 2013 on completion of the 15,000 metre drilling programme incorporating drilling results and analyses received subsequent to June 2012.

Planning

Planning consent was received from the Planning Services during the third quarter for the application for the construction of a lower portal structure and truncated adit for underground mining on the Kearney vein. Planning consent is still awaited on applications in connection with the drilling of boreholes to determine mineralization at depth on the Kearney and Joshua veins. Discussions with the regulatory authorities continued during the quarter with regards to the underground mine plan and accompanying Environmental Statement which were submitted to the Planning Services during the second quarter.  

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.

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

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

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

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

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

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GALANTAS GOLD CORPORATION

Condensed Consolidated Interim Financial Statements
(Expressed in Canadian Dollars)

(Unaudited)
Three and Nine Months Ended September 30, 2012

NOTICE TO READER

The accompanying condensed consolidated interim financial statements of the Company have been prepared by and are the responsibility of management. The condensed consolidated interim financial statements have not been reviewed by the Company's auditors.

Galantas Gold Corporation

Condensed Consolidated Interim Statements of Financial Position

(Expressed in Canadian Dollars)

(Unaudited)

		As at			As at
		September 30,			December 31,
		2012			2011
ASSETS
Current assets
Cash (note 4)	$	2,021,513		$	4,240,081
Accounts receivable and advances (note 5)		793,090			1,056,573
Inventory (note 6)		333,717			347,016
Total current assets		3,148,320			5,643,670
Non-current assets
Property, plant and equipment (note 7)		3,690,731			3,547,393
Long-term deposit (note 4)		420,529			371,277
Deferred development and exploration costs (note 8)		6,908,801			4,507,753
Total assets	$	14,168,381		$	14,070,093
EQUITY AND LIABILITIES
Current liabilities
Accounts payable and other liabilities (note 9)	$	2,131,583		$	1,683,142
Due to related parties (note 14)		2,689,365			2,517,067
Convertible debenture (note 10)		-			1,979,603
Total current liabilities		4,820,948			6,179,812
Non-current liabilities
Asset retirement obligation		396,725			394,975
Total liabilities		5,217,673			6,574,787
Capital and reserves
Share capital (note 11)		29,874,693			27,808,316
Reserves		5,251,170			5,258,030
Deficit		(26,175,155	)		(25,571,040	)
Total equity		8,950,708			7,495,306
Total equity and liabilities	$	14,168,381		$	14,070,093

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

Galantas Gold Corporation

Condensed Consolidated Interim Statements of (Loss) Income

(Expressed in Canadian Dollars)

(Unaudited)

		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2012			2011			2012			2011
Revenues
Gold sales	$	855,813		$	2,510,985		$	3,783,939		$	6,979,698
Cost and expenses of operations
Cost of sales (note 13)		792,386			1,247,229			2,806,197			3,621,382
Amortization and depreciation		155,078			222,079			526,267			603,939
		947,464			1,469,308			3,332,464			4,225,321
(Loss) income before the undernoted		(91,651	)		1,041,677			451,475			2,754,377
General administrative expenses
Management and administration wages (note 14)		147,183			148,130			448,694			416,955
Other operating expenses		61,286			133,274			196,117			369,993
Accounting and corporate		13,709			18,415			41,655			55,267
Legal and audit		63,172			49,376			115,689			177,411
Stock-based compensation (note 11(d))		38,875			140,987			131,886			194,148
Shareholder communication and investor relations		27,249			69,704			153,835			193,061
Transfer agent		1,952			3,642			15,081			18,396
Director fees (note 14)		6,500			11,000			22,600			31,500
General office		1,999			9,498			6,398			13,614
Accretion expenses (note 10)		-			43,507			45,529			95,656
Loan interest and bank charges		12,153			28,035			63,554			80,653
		374,078			655,568			1,241,038			1,646,654
Other expense
(Gain) loss on disposal of property, plant           and equipment		(1,147	)		-			(15,593	)		1,264
Gain on debt extinguishment (note 10)		-			-			(190,624	)		-
Foreign exchange loss (gain)		31,078			(59,537	)		11,969			(58,586	)
		29,931			(59,537	)		(194,248	)		(57,322	)
Net (loss) income for the period	$	(495,660	)	$	445,646		$	(595,315	)	$	1,165,045
Basic net (loss) income per share      (note 12)	$	(0.00	)	$	0.00		$	(0.00	)	$	0.00
Weighted average number of common      shares outstanding - basic		256,210,395			235,650,055			244,227,836			235,650,055
Diluted net (loss) income per      share (note 12)	$	(0.00	)	$	0.00		$	(0.00	)	$	0.00
Weighted average number of common      shares outstanding - diluted		256,210,395			292,722,582			244,227,836			292,448,331

Galantas Gold Corporation

Condensed Consolidated Interim Statements of Comprehensive (Loss) Income

(Expressed in Canadian Dollars)

(Unaudited)

		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2012			2011			2012			2011
Net (loss) income for the period	$	(495,660	)	$	445,646		$	(595,315	)	$	1,165,045
Other comprehensive (loss) income
Foreign currency translation differences		(50,879	)		299,876			39,679			253,023
Total comprehensive (loss) income	$	(546,539	)	$	745,522		$	(555,636	)	$	1,418,068

Galantas Gold Corporation

Condensed Consolidated Interim Statements of Cash Flows

(Expressed in Canadian Dollars)

		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2012			2011			2012			2011
Operating activities
Net (loss) income for the period	$	(495,660	)	$	445,646		$	(595,315	)	$	1,165,045
Adjustment for:
Amortization and depreciation		155,078			222,079			526,267			603,939
Stock-based compensation (note 11(d))		38,875			140,987			131,886			194,148
Foreign exchange		13,001			(59,537	)		61,000			(58,586	)
Loss (gain) on disposal of property, plant and equipment		(1,147	)		-			(15,593	)		1,264
Accretion expenses		-			43,507			45,529			95,656
Gain on debt extinguishment		-			-			(190,624	)		-
Non-cash working capital items:
Accounts receivable and advances		324,193			510,899			263,483			(500,683	)
Inventory		20,832			(22,523	)		13,299			36,869
Accounts payable and other liabilities		(190,260	)		233,023			448,441			1,240,256
Net cash (used in) provided by operating activities		(135,088	)		1,514,081			688,373			2,777,908
Investing activities
Purchase of property, plant and equipment		(28,721	)		(181,649	)		(568,005	)		(1,498,452	)
Proceeds from sale of property, plant and equipment		-			-			77,537			18,592
Deferred development and exploration costs		(859,958	)		(401,250	)		(2,532,281	)		(828,640	)
Long-term deposit		(15,639	)		-			(47,607	)		-
Net cash used in investing activities		(904,318	)		(582,899	)		(3,070,356	)		(2,308,500	)
Financing activities
Warrants exercised		-			-			2,056,034			-
Net repayments of financing facility		-			-			-			(31,266	)
Repayment of related party loan		-			(552,685	)		-			(552,685	)
Net advances from related parties		90,415			-			172,298			-
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 (used in) financing activities		90,415			(552,685	)		172,298			1,355,205
Net change in cash		(948,991	)		378,497			(2,209,685	)		1,824,613
Effect of exchange rate changes on cash held in foreign currencies		(6,315	)		198,067			(8,883	)		143,187
Cash, beginning of period		2,976,819			4,053,034			4,240,081			2,661,798
Cash, end of period	$	2,021,513		$	4,629,598		$	2,021,513		$	4,629,598

Galantas Gold Corporation

Condensed Consolidated Interim Statements of Changes in Equity

(Expressed in Canadian Dollars)

(Unaudited)

					Reserves
					Equity settled						Foreign			Equity
					share-based						currency			portion of
		Share			payments			Warrant			translation			convertible
		capital			reserve			reserve			reserve			debenture			Deficit			Total
Balance, December 31, 2010	$	27,808,316		$	4,069,045		$	976,414		$	(264,020	)	$	-		$	(27,182,030	)	$	5,407,725
Convertible debenture		-			-			-			-			168,082			-			168,082
Stock-based compensation		-			194,148			-			-			-			-			194,148
Net income and comprehensive income           for the period		-			-			-			253,023			-			1,165,045			1,418,068
Balance, September 30, 2011		27,808,316			4,263,193			976,414			(10,997	)		168,082			(26,016,985	)		7,188,023
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		-			131,886			-			-			-			-			131,886
Shares issued for exercise of warrants		2,056,034			-			-			-			-			-			2,056,034
Fair value of warrants exercised		403,143			-			(403,143	)		-			-			-			-
Warrants expired		-			8,621			(8,621	)		-			-			-			-
Fair value of extension of warrants' expiry             date (note 11(b)(i))		(392,800	)		-			392,800			-			-			-			-
Loss on debt extinguishment (note 10)		-			-			-			-			(168,082	)		(8,800	)		(176,882	)
Net loss and comprehensive income for            the period		-			-			-			39,679			-			(595,315	)		(555,636	)
Balance, September 30, 2012	$	29,874,693		$	4,460,754		$	957,450		$	(167,034	)	$	-		$	(26,175,155	)	$	8,950,708

Galantas Gold Corporation

Notes to Condensed Consolidated Interim Financial Statements

September 30, 2012

(Expressed in Canadian Dollars)

(Unaudited)

1.        Going Concern

These condensed consolidated interim financial statements have been prepared on a going concern basis which contemplates that Galantas Gold Corporation (the "Company") will be able to realize assets and discharge liabilities in the normal course of business. In assessing whether the going concern assumption is appropriate, management takes into account all available information about the future, which is at least, but is not limited to, twelve months from the end of the reporting period. Management is aware, in making its assessment, of material uncertainties related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. The Company's future viability depends on the consolidated results of the Company's wholly-owned subsidiary Cavanacaw Corporation ("Cavanacaw"), the ability of the Company to obtain future financing and to recover its investment in Omagh Minerals Limited ("Omagh"). Cavanacaw has a 100% shareholding in Omagh which is engaged in the acquisition, exploration and development of gold properties, mainly in Omagh, Northern Ireland.

As at December 31, 2001, studies performed on Omagh's mineral property confirmed the existence of economically recoverable reserves. As at July 1, 2007, the mineral property was in the production stage and the directors believe that the capitalized development expenditures will be fully recovered by the future operation of the mine. The recoverability of Omagh's capitalized development costs is thus dependent on the ability to secure financing, future profitable production or proceeds from the disposition of the mineral property. While the Company is expending its best efforts in this regard, the outcome of these matters can not be predicted at this time.

As at September 30, 2012, the Company had a deficit of $26,175,155 (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 condensed consolidated interim financial statements do not reflect adjustments to the carrying values of assets and liabilities, the reported expenses and financial position classifications used that would be necessary if the going concern assumption was not appropriate. Such adjustments could be material.

2.        Incorporation and Nature of Operations

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

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

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

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

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

3.        Basis of Preparation

(a)      Statement of compliance

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

The policies applied in these condensed consolidated interim financial statements are based on IFRSs issued and outstanding as of November 19, 2012, the date the Board of Directors approved the statements. The same accounting policies and methods of computation are followed in these condensed consolidated interim financial statements as compared with the most recent annual consolidated financial statements as at and for the year ended December 31, 2011. Any subsequent changes to IFRS that are given effect in the Company's annual consolidated financial statements for the year ending December 31, 2012 could result in restatement of these condensed consolidated interim financial statements.

(b)      New standards not yet adopted and interpretations issued but not yet effective

There are no relevant changes in accounting standards applicable to future periods other than as disclosed in the most recent annual consolidated statements as at and for the year ended December 31, 2011.

4.        Cash Position

		As at			As at
		September 30,			December 31,
		2012			2011
Cash	$	2,021,513		$	4,240,081
Long-term deposit		420,529			371,277
Total cash position	$	2,442,042		$	4,611,358

5.        Accounts Receivable and Advances

		As at			As at
		September 30,			December 31,
		2012			2011
Sales tax receivable - Canada	$	19,171		$	24,680
Sales tax receivable - Ireland		250,698			248,348
Accounts receivable		356,726			690,433
Prepaid expenses		166,495			93,112
	$	793,090		$	1,056,573

6.        Inventory

		As at			As at
		September 30,			December 31,
		2012			2011
Concentrate inventory	$	22,216		$	32,159
Finished goods		311,501			314,857
	$	333,717		$	347,016

7.        Property, Plant and Equipment

					September 30, 2012
					Accumulated
		Cost			amortization			Net
Freehold land and buildings	$	2,655,075		$	1,212,019		$	1,443,056
Plant and machinery		5,926,654			3,771,672			2,154,982
Motor vehicles		82,563			50,049			32,514
Office equipment		101,854			41,675			60,179
Moulds		57,720			57,720			-
	$	8,823,866		$	5,133,135		$	3,690,731

		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

8.        Deferred Development and Exploration Costs

					September 30, 2012
					Accumulated
		Cost			amortization			Net
Deferred development and exploration costs	$	12,746,138		$	5,837,337		$	6,908,801

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

9.        Accounts Payable and Other Liabilities

		As at			As at
		September 30,			December 31,
		2012			2011
Falling due within the year
Trade payables	$	2,131,583		$	1,683,142

10.      Convertible Debenture

					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		95,653			-
Accretion charges - financing charges		613			-
Interest expenses		27,381			-
Foreign exchange		65,379			-
Balance, September 30, 2011	$	1,960,100		$	168,082
Balance, December 31, 2011	$	1,979,603		$	168,082
Accretion charges - effective interest rate		45,529			-
Accretion charges - financing charges		1,924			-
Interest expenses		6,075			-
Foreign exchange		22,903			-
Debt extinguishment (i)		(2,056,034	)		(168,082	)
Balance, September 30, 2012	$	-		$	-

(i)

On June 8, 2012, the Company extinguished, in its entirety, the principal and interest obligations outstanding under the loan agreement using the proceeds from the warrants exercised (see note 11 (b)). As a result of this extinguishment, a gain on debt extinguishment of $190,624 on the convertible debenture was recorded in profit and loss and a loss on debt extinguishment of $8,800 on the equity portion of convertible debenture was recorded in equity.

11.      Share Capital and Reserves

a)        Authorized share capital

At September 30, 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 September 30, 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, September 30, 2011, December 31, 2011		235,650,055		$	27,808,316
Shares issued for exercise of warrants		20,560,340			2,056,034
Fair value of warrants exercised		-			403,143
Fair value of extension of warrants' expiry date (i)		-			(392,800	)
Balance, September 30, 2012		256,210,395		$	29,874,693

(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

					Weighted
					average
		Number of			exercise
		warrants			price
Balance, December 31, 2010, September 30, 2011, December 31, 2011		45,550,000		$	0.10
Exercised		(20,560,340	)		0.10
Expired		(439,660	)		0.10
Balance, September 30, 2012		24,550,000		$	0.10

As at September 30, 2012, the following warrants were outstanding:

	Number	Fair	Exercise
Expiry date	of warrants	value ($)	price ($)
July 22, 2013 (note 11(b)(i))	24,550,000	957,450	0.10
	24,550,000	957,450	0.10

(d)       Stock options

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

					Weighted
					average
		Number of			exercise
		options			price
Balance, December 31, 2010		10,800,000		$	0.13
Granted (i)(ii)(iii)		4,950,000			0.10
Balance, September 30, 2011		15,750,000		$	0.12
Balance, December 31, 2011		15,750,000		$	0.12
Cancelled		(1,000,000	)		0.19
Balance, September 30, 2012		14,750,000		$	0.11

Stock-based compensation includes $38,875 and $131,886 (three and nine months ended September 30, 2011 -$140,987 and $194,148) relating to stock options granted in previous years that vested during the three and nine months ended September 30, 2012.

(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 income and credited to equity settled share-based payments reserve as the options vest. During the three and nine months ended September 30, 2012, included in stock-based compensation is $494 and $1,790 (three and nine months ended September 30, 2011 - $1,469 and $7,853) related to the vested portion of these options.

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

(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 income and credited to equity settled share-based payments reserve as the options vest. During the three and nine months ended September 30, 2012, included in stock-based compensation is $nil and $1,942 (three and nine months ended September 30, 2011 - $7,830 and $21,357) 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 income and credited to equity settled share-based payments reserve as the options vest. During the three and nine months ended September 30, 2012, included in stock-based compensation is $32,795 and $111,514 (three and nine months ended September 30, 2011 - $115,063 and $115,063) 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 September 30, 2012:

		Weighted average		Number of
		remaining	Number of	options	Number of
	Exercise	contractual	options	vested	options
Expiry date	price ($)	life (years)	outstanding	(exercisable)	unvested
December 24, 2012	0.14	0.23	4,800,000	4,800,000	-
April 5, 2013	0.10	0.51	500,000	500,000	-
October 2, 2013	0.10	1.01	1,500,000	1,500,000	-
November 23, 2015	0.10	3.15	3,500,000	2,333,333	1,166,667
January 28, 2016	0.10	3.33	250,000	166,667	83,333
September 6, 2016	0.10	3.94	4,200,000	2,800,000	1,400,000
	0.11	2.12	14,750,000	12,100,000	2,650,000

12.      Net (loss) Income per Common Share

The calculation of basic and diluted (loss) income per share for the nine months ended September 30, 2012 and 2011 was based on the loss attributable to common shareholders of $595,315 (nine months ended September 30, 2011 income of - $1,165,045) and the weighted average number of common shares outstanding of 244,227,836 (September 30, 2011 - 235,650,055) for basic (loss) income per share and 244,227,836 (September 30, 2011 - 292,448,331) for diluted (loss) income per share. Diluted loss did not include the effect of warrants and options for the nine months ended September 30, 2012, as they are anti-dilutive.

13.      Cost of Sales

		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2012			2011			2012			2011
Production wages	$	261,057		$	425,599		$	947,531		$	1,154,930
Oil and fuel		258,000			364,232			947,249			1,047,098
Repairs and servicing		120,920			208,949			363,132			552,800
Equipment hire		57,236			109,995			219,905			344,448
Consumable		40,256			39,003			146,722			202,673
Royalties		15,330			54,180			75,860			143,629
Carriage		9,298			23,393			38,025			59,316
Other costs		9,457			44,401			54,474			79,619
Production costs		771,554			1,269,752			2,792,898			3,584,513
Inventory movement		20,832			(22,523	)		13,299			36,869
Cost of sales	$	792,386		$	1,247,229		$	2,806,197		$	3,621,382

14.      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:

					Three Months Ended						Nine Months Ended
					September 30,						September 30,
		Notes			2012			2011			2012			2011
Interests on related party loans		(i)			10,060			14,328			30,355			47,351

(i) G&F Phelps, a company controlled by a director of the Company, had amalgamated loans to Galantas of $1,629,036 (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 September 30, 2012, the amount of interest accrued is $73,738 (GBP 46,467) (December 31, 2011 - $43,085 - GBP 27,271).

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

		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2012			2011			2012			2011
Salaries and benefits (1)	$	99,635		$	98,815		$	290,490		$	294,055
Stock-based compensation		23,334			-			77,218			-
	$	122,969		$	98,815		$	367,708		$	294,055

⁽¹⁾     Salaries and benefits include director fees. As at September 30, 2012, due to directors for fees amounted to $22,600 (December 31, 2011 - $nil) and due to directors and key management, mainly for salaries and benefits accrued amounted to $963,991 (GBP 607,468) (December 31, 2011 - $757,339 - GBP 479,277), and is included with due to related parties.

15.      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.

16.      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 $528,677 (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 condensed consolidated interim financial statements.

 

END

 

 

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