Final Results

8 MAY 2006 GALANTAS GOLD CORPORATION (AIM:GAL) (TSX Venture Exchange: GAL) FINAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2005 Galantas Gold Corporation (Galantas), a company with a gold mine in development in Northern Ireland, today announces its maiden set of full year results, since listing on AIM this year. CORPORATE HIGHLIGHTS · Shares admitted to trading on AIM market effective March 31, 2006; · Closure of the Vancouver office resulting in a decrease in operating costs; · Increase in the exchange gain due to the strong Canadian dollar; · To further production a lease purchase equipment loan with Barclays Mercantile Finance Ltd. was arranged in March in the amount of $CDN. 359,252 to assist in the purchase of metallurgical equipment. CORPORATE STRATEGY · To operate an initial 150 tonnes-per-day open pit mine and construct a processing plant on its Kearney deposit to achieve production in 2006; · Explore and develop on extensions to the Kearney deposit and on nearby known deposits so as to expand production in stages; · Explore its 189 sq km prospecting licence, focusing on the targets identified from integration of all exploration data including that generated by the 2005 helicopter-borne VTEM survey; · Establish and expand the Galantas Irish Gold jewellery business once certified Irish gold from the mine becomes available. Galantas Gold Corporation is a Canadian resource company and the first to acquire mining rights, prospecting licences and planning consent to mine gold in Ireland. Ownership is through Galantas Gold's wholly owned Ontario holding company, Cavanacaw Corporation, which is sole owner of all the shares of two Northern Ireland companies - Omagh Minerals Limited, owner of the core business's prospecting and mining rights and planning consents, and Galantas Irish Gold Limited, owner of rights to work, market and sell the Company's gold production as certified Irish jewellery. Enquiries: Galantas Gold Corporation +44 (0) 2882 241100 Email: info@galantas.com Jack Gunter P.Eng Executive Chairman Roland Phelps C.Eng President & CEO Moe Lavigne P.Geo Vice President Website: www.galantas.com Bishopsgate Communications Ltd. +44 (0) 207 430 1600 Dominic Barretto Nick Rome ARM Corporate Finance Limited +44 (0) 20 7512 0191 Nick Harriss Lewis Charles Securities Limited +44 (0) 20 7065 1150 David Scott GALANTAS GOLD CORPORATION CONSOLIDATED BALANCE SHEETS AS AT DECEMBER 31, 2005 2004 Assets Current Cash $1,121,985 $ 133,756 Accounts receivable and advances 144,727 104,671 Inventory 101,363 217,554 Future income taxes (Note 9(b)) 302,900 - 1,670,975 455,981 Property, plant and equipment (Note 4(a)) 2,903,165 1,900,564 Deferred development costs (Note 4(b)) 4,314,368 3,218,811 Future income taxes (Note 9(b)) 466,900 - $9,355,408 $ 5,575,356 Liabilities Current Accounts payable and accrued liabilities $ 297,785 $ 134,575 Current portion of financing facility (Note 5) 99,207 7,330 Due to directors (Note 6) 253,103 429,711 650,095 571,616 Long-term portion of financing facility (Note 5) 271,664 - 921,759 571,616 Shareholders' Equity Share capital (Note 7(a)) 18,400,862 15,321,887 Warrants (Note 7(b)) 175,166 71,671 Contributed surplus (Note 8) 656,658 370,787 19,232,686 15,764,345 Deficit (10,799,037) (10,760,605) 8,433,649 5,003,740 $9,355,408 $ 5,575,356 Going concern (Note 1) Commitments and contingencies (Note 14) Subsequent events (Note 15) SIGNED ON BEHALF OF THE BOARD (Signed) "L.J. Gunter" (Signed) "Roland Phelps" Director Director GALANTAS GOLD CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT YEARS ENDED DECEMBER 31, 2005 2004 Sales $ 52,800 $175,831 Cost of goods sold 98,913 221,526 (46,113) (45,695) Expenses Accounting and corporate 28,880 22,524 Bank charges and interest 6,100 5,674 Consulting fees 50,750 - Foreign exchange gain (82,495) (10,860) Legal and audit 74,728 55,578 Management fees 164,000 83,500 Operating expenses 146,298 458,451 Shareholder communication and public relations 114,028 117,418 Stock-based compensation (Note 7(c)) 214,200 287,649 Transfer agent 14,753 15,760 Travel and general office 30,877 105,263 762,119 1,140,957 Loss before income taxes (808,232) (1,186,652) Future income tax recovery (Note 9(a)) 769,800 - Loss for the year (38,432) (1,186,652) Deficit, beginning of year (10,760,605) (9,573,953) Deficit, end of year $(10,799,037) $(10,760,605) Basic and diluted loss per share (Note 10) $ 0.00 $ (0.01) Weighted average number of shares outstanding 116,992,358 88,586,117 GALANTAS GOLD CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2005 2004 CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES Loss for the year $(38,432) $ (1,186,652) Adjustments for non-cash items - Amortization 24,504 69,622 Stock-based compensation 214,200 287,649 Future income tax recovery (769,800) - Net change in non-cash working capital (Note 11(a)) 239,345 (240,840) (330,183) (1,070,221) INVESTING ACTIVITIES Purchase of property, plant and equipment (1,161,188) (6,326) Deferred development costs (961,474) (37,419) Marketable securities - 2,096 (2,122,662) (41,649) FINANCING ACTIVITIES Issue of common shares 3,503,333 589,113 Share issue costs (249,192) (34,706) Advances from financing facility 555,000 - Repayments of financing facility (191,459) (23,739) Advances from directors (176,608) 89,743 3,441,074 620,411 NET CHANGE IN CASH 988,229 (491,459) CASH, BEGINNING OF YEAR 133,756 625,215 CASH, END OF YEAR $1,121,985 $ 133,756 GALANTAS GOLD CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2005 AND 2004 1. GOING CONCERN These 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. The recoverability of these consolidated amounts, which includes the consolidated results of the Company's wholly-owned subsidiary Cavanacaw Corporation (Cavanacaw), is dependent on the ability of the Company to obtain future financing and to recover its investment in Omagh Minerals Limited (Omagh). Cavanacaw has a 100% shareholding in Omagh which is engaged in the acquisition, exploration and development of gold properties, mainly in Omagh, Northern Ireland. As at December 31, 2001, studies performed on Omagh's mineral property confirmed the existence of economically recoverable reserves. The mineral property is currently in the development stage of operation 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. These development expenditures will be amortized over the estimated life of the ore body. 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 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). Cavanacaw operations include the consolidated results of Cavanacaw and its wholly-owned subsidiaries Omagh and Galántas. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles. The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. GALANTAS GOLD CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2005 AND 2004 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Principles of Consolidation These consolidated financial statements include the accounts of the Company and its subsidiaries. All material intercompany balances have been eliminated. Foreign Currency Translation The Company's operations expose it to significant fluctuations in foreign exchange rates. Cavanacaw, Omagh and Galántas are denominated in British pounds and are, therefore, subject to exchange variations against the reporting currency, the Canadian dollar. They are integrated foreign operations, and as such their financial statements have been translated into Canadian dollars using the temporal method. All assets and liabilities are translated at exchange rates effective at the end of each year and all non-monetary assets and liabilities are translated at their historical rates. Income and expenses are translated at the average exchange rate for the year. The foreign currency translation gains and losses are included in the determination of net loss. Inventory Inventory is stated at the lower of cost and net realizable value, with cost determined on a specific item basis. Cost comprises materials, direct wages and other direct production costs together with a proportion of production overheads relevant to the stage of completion of work in progress and finished goods. Property, Plant and Equipment The cost of property, plant and equipment is their purchase cost, together with any incidental costs of acquisition. Amortization is calculated at the following rates: Buildings 4 % straight line Plant and machinery 20 % declining balance Motor vehicles 25 % declining balance Office equipment 15 % declining balance Moulds 25 % straight line Freehold land is not amortized. Asset Retirement Obligation The Company is subject to the provisions of CICA Handbook Section 3110, Asset Retirement Obligations, which require the estimated fair value of any asset retirement obligations to be recognized as a liability in the period in which the related environmental disturbance occurs and the present value of the associated future costs can be reasonably estimated. As of December 31, 2005 the Company has not recognized any asset retirement obligations in respect of its mineral exploration property. Long-Lived Assets Long-lived assets, which comprise property, plant and equipment, are reviewed for impairment if events or changes in circumstances indicate that the carrying value may not be recoverable. If the sum of the undiscounted future cash flows expected from use and residual value is less than carrying amount, the long-lived asset is considered impaired. An impairment loss is measured as the amount by which the carrying value of the long-lived assets exceeds its fair value. GALANTAS GOLD CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2005 AND 2004 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Deferred Development Costs Deferred development costs are capitalized until results of the related projects, based on geographic areas, are known. If a project is successful, the related expenditure will be amortized using the units-of-production method over the estimated life of the ore body based on estimated recoverable ounces or pounds mined from proven and probable reserves. Provision for loss is made where a project is abandoned or considered to be of no further interest to the company, or where the directors consider such a provision to be prudent. Income Taxes The asset and liability method is used for determining income taxes. Under this method, future tax assets and liabilities are recognized for the estimated taxes recoverable or payable that would arise if assets and liabilities were recovered and settled at the financial statement carrying amounts. Future tax assets and liabilities are measured using the enacted tax rates expected to be in effect when the tax assets or liabilities are recovered or settled, respectively. Changes to these rates are recognized in income in the year in which the changes occur. Future income tax assets are recognized to the extent that it is more likely than not that the company will realize the benefit from the asset. Stock-Based Compensation The Company uses the fair value method to account for stock options granted on or after January 1, 2003. Accordingly, compensation cost is measured at fair value at the date of grant and is expensed over the vesting period. Other Stock-based Payments The Company accounts for other stock-based payments based on the fair value of the equity instruments issued in exchange for the receipt of goods and services from non-employees or the fair value of the goods and services received, whichever is the more reliable basis, by using the stock price and other measurement assumptions as at the measurement date. Loss Per Share Basic loss per share is computed by dividing the loss for the year by the weighted average number of common shares outstanding during the year. Diluted loss per share is calculated in a manner similar to basic loss per share, except the weighted average shares outstanding are increased to include potential common shares from the assumed excise of options and warrants, if dilutive. The number of additional shares included in the calculation is based on the treasury stock method for options and warrants. GALANTAS GOLD CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2005 AND 2004 4. PROPERTY, PLANT AND EQUIPMENT AND DEFERRED DEVELOPMENT COSTS (a) Property, Plant and Equipment 2005 2004 Accumulated Cost Amortization Net Net Freehold land and buildings $ 1,772,673 $ 28,706 $ 1,743,967 $ 1,748,807 Plant and machinery 1,458,487 342,731 1,115,756 106,633 Motor vehicles 34,511 27,297 7,214 9,624 Office equipment 70,783 34,555 36,228 19,835 Moulds 81,802 81,802 - 15,665 $3,418,256 $ 515,091 $ 2,903,165 $ 1,900,564 (b) Deferred Development Costs 2005 2004 Opening balance $3,218,811 $ 3,183,777 Additions during the period: Minerals and metallurgical 297,238 - Consultants 60,935 - Mining lease 19,522 - Fuel 14,852 - Wages 119,800 - Travelling 88,369 - Repairs and maintenance 47,594 - Construction 284,402 41,722 General 28,762 - Depreciation of plant equipment 134,083 - 1,095,557 41,722 Amortization - (6,688) 1,095,557 35,034 Total deferred development costs $ 4,314,368 $ 3,218,811 GALANTAS GOLD CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2005 AND 2004 5. FINANCING FACILITY On May 27, 2005, the Company obtained financing from Barclays Mercantile Business Finance Ltd. in the amount of $555,000 (238,700 GBP) for the purchase of mining equipment. The loan is for a period of four years at 3.71% with monthly installments of $10,172 (5,071 GBP). Amounts payable on the long term debt are as follows: Interest 2005 2004 Financing facility (184,551 GBP) 3.71% $ 370,871 $ - Term loan, unsecured, repayable in monthly instalments of $1,962, including principal and interest, maturing April 2005 7.00% - 7,330 Less current portion (49,455 GBP) 99,207 7,330 $ 271,664 $ - Principal repayments over the next four years are as follows: 2005 2004 2006 $ 99,207 $ 7,330 2007 106,937 - 2008 114,667 - 2009 50,060 - $ 370,871 $ 7,330 6. RELATED PARTY TRANSACTIONS As at December 31, 2005, the Company was indebted to directors in the amount of $253,103 (2004 - $429,711). This amount represents amounts paid by the directors on behalf of the Company along with unpaid management fees. These amounts are interest-free and there are no fixed terms of repayment. During the year $47,000 (2004 - $58,500) was paid to a company controlled by the former president of the Company, $35,183 (2004 - $29,193) was paid to a corporate services company in which an officer was a partner and $164,000 (2004 - $25,000) was paid or accrued to directors of the Company for management services which were in the normal course of operations and were measured at the exchange amount established and agreed to by the related parties. GALANTAS GOLD CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2005 AND 2004 7. 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, 2003 87,489,477 $ 14,821,581 Issued under private placements 2,866,825 430,024 Warrants exercised 945,554 176,659 Warrants issued - (71,671) Share issue costs - (34,706) Balance, December 31, 2004 91,301,856 15,321,887 Issued under private placement 35,033,333 3,503,333 Warrants issued - (175,166) Share issue costs - (249,192) Balance, December 31, 2005 126,335,189 $ 18,400,862 On August 25, 2004, the Company completed a private placement financing of 2,866,825 units at a price of $0.15 per unit for gross proceeds of $430,024. Each unit is comprised of one common share and one half common share purchase warrant. Each warrant entitles the holder thereof to acquire one common share at a price of $0.18 per share until August 25, 2005. The warrants were valued on the date of issue at $71,671. The value was obtained using the Black-Scholes option valuation model with the following assumptions: dividend yield of 0%; expected volatility of 100%; risk-free interest rate of 1.0%; and, an expected average life of 1 year. On April 4, 2005, the Company closed the first tranche of a private placement, issuing 23,333,333 units at a price of $0.10 per unit for gross proceeds of $2,333,333. Each unit consisted of one common share in the capital of the Company and one half of one common share purchase warrant. Each whole common share purchase warrant entitles the holder to purchase one common share at an exercise price of $0.15 until April 4, 2006. Finder's fees in the amount of $74,320 of the brokered portion of the placement were paid to several parties in connection with this placement. On April 14, 2005, the Company closed the second tranche of a private placement, issuing 11,700,000 units at a price of $0.10 per unit for gross proceeds of $1,170,000. Each unit consisted of one common share in the capital of the Company and one half of one common share purchase warrant. Each whole common share purchase warrant entitles the holder to purchase one common share at an exercise price of $0.15 until April 14, 2006. Finder's fees in the amount of $57,365 of the brokered portion of the placement were paid to several parties in connection with this placement. The fair value of the 17,516,666 warrants were estimated using the Black-Scholes option pricing model with the following assumptions: dividend yield - 0%; volatility - 68%; risk-free interest rate - 2.0% and an expected life of 1 year. The fair value attributed to the warrants was $175,166. GALANTAS GOLD CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2005 AND 2004 7. SHARE CAPITAL (continued) (b) Warrants Warrant transactions and the number of warrants outstanding are as follows: Number of warrants Amount ($) Balance, December 31, 2003 7,901,664 78,537 Issued under private placement 1,433,412 71,671 Exercised (945,554) (17,570) Expired (6,956,110) (60,967) Balance, December 31, 2004 1,433,412 71,671 Issued under private placements 17,516,666 175,166 Expired (1,433,412) (71,671) Balance, December 31, 2005 17,516,666 175,166 As at December 31, 2005, the following warrants were outstanding: Number Fair Exercise Expiry of Warrants Value ($) Price ($) Date 11,666,666 116,666 0.15 April 4, 2006 5,850,000 58,500 0.15 April 14, 2006 17,516,666 175,166 1,433,412 warrants issued on August 24, 2004 to acquire common shares at a price of $0.18 expired on August 25, 2005. (c) 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 TSX Venture Exchange immediately preceding the date on which the option is granted and in no circumstances be less than the permissible discounting in accordance with the Corporate Finance Policies of the Exchange. GALANTAS GOLD CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2005 AND 2004 7. SHARE CAPITAL (continued) (c) Stock options (continued) A summary of the status of the Company's stock option plan as at December 31, 2005 and 2004, and changes during the years ended on those dates, is presented below: Number of Weighted average stock options exercise price 2005 2004 2005 2004 Opening Balance 8,000,000 6,000,000 $0.16 $0.14 Options granted 300,000 2,000,000 0.10 0.22 Options cancelled/expired (400,000) - 0.12 - Ending Balance 7,900,000 8,000,000 $0.11 $0.16 Stock-based compensation expense includes $98,200 (2004 - $175,649) relating to stock options granted in 2003 that vested during the year. In 2004, 2,000,000 stock options were granted to acquire common shares of the Company. These options vest as to one-third immediately, one-third on the first anniversary of grant and one-third on the second anniversary of grant. For the purposes of the 2,000,000 stock options, the fair value of the options was estimated to be $336,000 and will be expensed in the statement of operations and deficit and recorded as contributed surplus as they vest. Accordingly, $112,000 (2004 - $112,000) was expensed as stock-based compensation expense relating to 666,667 (2004 - 666,667) of these options that vested during the year. On May 13, 2005, the Company granted 300,000 stock options to consultants of the Company to purchase common shares at a price of $0.10 per common share until May 13, 2010. 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 $12,000 and will be expensed in the statement of operations and deficit and recorded as contributed surplus as the options vest. Included in the stock-based compensation for 2005 is $4,000 relating to 66,667 vested options. 100,000 of these stock options were cancelled during the year. All granted stock options were valued on the date of grant using the Black-Scholes option pricing model with the following assumptions: 2005 2004 Risk-free interest rate 2.9% 2.7% Expected life of options 5 years 5 years Annualized volatility 68% 100% Dividend rate 0 % 0 % GALANTAS GOLD CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2005 AND 2004 7. SHARE CAPITAL (continued) (c) Stock options (continued) Details of the stock options outstanding at December 31, 2005 are as follows: Exercisable Number Exercise Expiry Options of Options Price ($) Date 1,000,000 1,000,000 0.15 February 13, 2006 1,500,000 1,500,000 0.12 May 17, 2007 3,200,000 3,200,000 0.15 April 10, 2008 1,333,334 2,000,000 0.10 April 01, 2009 66,667 200,000 0.10 May 13, 2010 7,100,001 7,900,000 On April 1, 2005, the Company received exchange approval to re-price 2,000,000 stock options granted in 2004 from $0.22 to $0.10. The Company also changed the expiry date of 1,000,000 stock options to correspond with the expiry date of a contract with a consultant of the Company. These 1,000,000 stock options were not exercised and expired February 13, 2006. 8. CONTRIBUTED SURPLUS The following table reflects the continuity of contributed surplus: Balance, December 31, 2003 $ 22,171 Stock-based compensation charged to statement of operations (Note 7(c)) 287,649 Value of expired warrants (Note 7(b)) 60,967 Balance, December 31, 2004 370,787 Stock-based compensation charged to statement of operations (Note 7(c)) 214,200 Value of expired warrants (Note 7(b)) 71,671 Balance, December 31, 2005 $656,658 GALANTAS GOLD CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2005 AND 2004 9. INCOME TAXES (a) Provision for income taxes Income taxes differ from the amount that would be computed by applying the Company's Canadian statutory rate of 36.12% (2004 - 36.12%) to loss before provision for, or recovery of, income taxes. The reasons for the differences are as follows: 2005 2004 Loss before income taxes $(808,232) $ (1,186,652) Expected tax recovery at statutory rate $(291,900) $ (428,600) Increase (decrease) resulting from: Stock-based compensation 77,400 103,900 Share issue costs (32,600) (9,600) Foreign exchange (29,800) (2,700) Tax depreciation in excess of accounting (229,500) 20,900 Change in future tax assets not previously recognized (539,400) - Foreign tax rate differences 68,200 6,100 Non-capital losses not recognized 207,800 310,000 $(769,800) $ - (b) Future tax balances The tax effects of temporary differences that give rise to future income tax assets and future income tax liabilities are as follows: 2005 2004 Future income tax assets (liabilities) Non-capital losses $2,726,300 $ 2,663,300 Share issue costs 34,200 37,300 Property, plant and equipment and deferred development costs (1,049,600) (1,240,500) Valuation allowance (941,100) (1,460,100) $769,800 $ - (c) Losses carried forward As at December 31, 2005, the Company had net operating losses carried forward of $8,475,747 ($2004 - $8,263,108) for income tax purposes as follows: Expires 2006 $165,060 2007 32,488 2008 240,733 2009 94,158 2011 249,460 2014 426,803 2015 568,540 Indefinite 6,947,965 $8,475,747 A future tax asset for non-capital losses of $2,565,970 has been recognized at December 31, 2005, as it has been determined that it is more likely than not that the benefit will be realized in the future. GALANTAS GOLD CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2005 AND 2004 10. LOSS PER SHARE As a result of the net losses for the years ended December 31, 2005 and 2004, diluted loss per share data is not presented as the exercise of options would have been anti-dilutive. 11. SUPPLEMENTAL CASH FLOW INFORMATION (a) Net change in non-cash working capital 2005 2004 Accounts receivable$ (40,056) $ 66,392 Inventory 116,191 6,013 Accounts payable 163,210 (313,245) $239,345 $(240,840) (b) Supplemental information 2005 2004 Interest paid $ 23,549 $ 5,674 Interest paid includes $17,449 of interest paid on the financing facility and charged to deferred development costs 12. FAIR VALUE OF FINANCIAL INSTRUMENTS For cash and short-term deposits, marketable securities, accounts receivable and advances, accounts payable and accrued liabilities and bank loans, the carrying amounts approximate fair values due to the relatively short term to maturity. For the amount due to directors, it is not practicable to determine the fair value with sufficient reliability since there are no fixed terms of repayment. 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 Corporation ("Cavanacaw") and its subsidiaries, Omagh and Galantas. Substantially all of Cavanacaw's revenues, costs and assets of the business that support these operations are derived or located in Northern Ireland. 14. COMMITMENTS AND CONTINGENT LIABILITIES There is a contingent liability in respect of contract bonds totaling $51,000 given by the bank, should the Company default on the terms of its mining lease. The Company has entered into a contract for the construction of the steel framing and cladding of a processing plant building. The total cost of construction is approximately $145,000 (73,000 GBP). GALANTAS GOLD CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2005 AND 2004 15. SUBSEQUENT EVENTS On March 17, 2006, the Company received a loan from Barclays Mercantile Business Finance Ltd in the amount of $359,252 (180,000 GBP) to assist in the purchase of certain metallurgical equipment having a cost of $716,510 (359,000 GBP). Effective March 31, 2006 the Company's shares were successfully admitted to trading on the Alternative Investment Market ("AIM") of the London Stock Exchange. As a result, the Company is dual-listed on both AIM and the TSX Venture Exchange in Canada. Subsequent to the year ended December 31, 2005, 17,516,666 warrants were exercised for gross proceeds of $2,627,500, representing the total warrants outstanding at December 31, 2005. GALANTAS GOLD CORPORATION AUDITORS' REPORT To the Shareholders of Galantas Gold Corporation We have audited the consolidated balance sheets of Galantas Gold Corporation as at December 31, 2005 and 2004 and the consolidated statements of operations and deficit and cash flows for the years then ended. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the company as at December 31, 2005 and 2004 and the results of its operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles. "Smith, Nixon & Co. LLP" Chartered Accountants Toronto, Ontario April 7, 2006 MANAGEMENT DISCUSSION AND ANALYSIS Year ending December 31st, 2005 This document presents management's discussion and analysis (MD&A) of the operational and financial results of Galantas Gold Corporation for the 2005 calendar year. The MD&A is to be read in conjunction with the audited consolidated financial statements for the same period. It supplements but does not form part of these financial statements. The company prepares and files its financial statements in accordance with Canadian generally accepted accounting principles (GAAP). This MD&A is prepared in conformance with National Instrument 51-102 F1 and was approved by the company's audit committee on April 26th 2006. FORWARD LOOKING STATEMENTS The information contained in this MD&A contains forward-looking statements, including statements regarding anticipated operational and financial performance. Such statements are not guarantees of the Company's future performance which is subject to risks and uncertainties only some of which are within the Company's control, and any or all of which could cause the Company's performance to be materially different from what Directors may believe. Given the uncertainties associated with forward-looking statements, the reader is cautioned not to place undue reliance on them. The Company does not undertake to update any forward-looking statement that is contained herein. INTRODUCTION - DESCRIPTION OF BUSINESS & STRATEGY Galantas Gold Corporation is a Canadian resource company and the first to acquire mining rights, prospecting licences and planning consent to mine gold in Ireland. Ownership is through Galantas Gold's wholly owned Ontario holding company, Cavanacaw Corporation, which is sole owner of all the shares of two Northern Ireland companies - Omagh Minerals Limited, owner of the core business's prospecting and mining rights and planning consents, and Galantas Irish Gold Limited, owner of rights to work, market and sell the Company's gold production as certified Irish jewellery. Galantas Gold Corporation aims to increase shareholder value by establishing and operating a gold mine on its property, by exploring to realise the full potential of the geology of its holdings, and by adding value to its gold production by using some of it in the manufacture, marketing and selling of Galantas® certified Irish gold jewellery products. The Company's strategy in summary is to - · Operate an initial 150 tonnes-per-day open pit mine and construct a processing plant on its Kearney deposit to achieve production in 2006; · Explore and develop on extensions to the Kearney deposit and on nearby known deposits so as to expand production in stages; · Explore its 189 sq km prospecting licence, focusing on the targets identified from integration of all exploration data including that generated by the 2005 helicopter-borne VTEM survey; · Establish and expand the Galantas Irish Gold jewellery business once certified Irish gold from the mine becomes available. SUBSEQUENT EVENTS 1. The company's shares were admitted to trading on the London Stock Exchange's AIM market effective March 31, 2006. 2. In early April all the outstanding share purchase warrants were exercised generating cash in the amount of $CDN. 2,627,500. 3. To further production a lease purchase equipment loan with Barclays Mercantile Finance Ltd. was arranged in March in the amount of $CDN. 359,252 to assist in the purchase of metallurgical equipment. Omagh Minerals Limited is proceeding to develop an initial open pit mine on proven reserves on its Omagh property and is continuing to explore with the aim of developing and mining known gold deposits close to the initial mine. In parallel, it is exploring identified targets elsewhere on its 189 square kilometre prospecting licence, all with the object of increasing the reserve and resource base with a view to future expansion. Reserve and Resource Base The Company's ore reserves and resources are contained within eight lode deposits in a 5 sq km area at the eastern extremity of its prospecting licence. All of the deposits sub-outcrop beneath a few metres of glacial and recent overburden and they are open to depth and most of them along the strike. The main one is the Kearney Deposit which is the focus of initial open pit mining. This steeply dipping deposit is approximately 850 metres long and an average of 4.3 metres wide. It has been drilled with 40 diamond drill holes down to 137 metres and was intersected in one hole at a depth of 300 metres. Below the average of 3 metres of glacial overburden cover, the uppermost 40 metres of the southernmost 441 metres of the strike length have been 70% stripped of overburden and mapped and sampled in detail. Using all of the resultant data, independent consultants have reported reserves and resources on the Kearney Deposit. Using a 1.0 gAu/t cut-off grade, A.C.A. Howe International, geological consultants, ("Howe") reported (references available on SEDAR: 1. Geological Report on the Omagh Gold Deposits….April 15, 2003; 2. Letter to Galantas directors dated August 20, 2004) "…a proven and probable reserve of 367,310 tonnes grading 7.52 gAu/t over a width of 4.43 metres was estimated for the main Kearney Deposit within the 850 metres strike length of the proposed Kilborn open pit to a depth of 37 metres. A further indicated reserve of 1,183,680 tonnes at a grade of 7.02 gAu/t over a width of 4.43 metres was estimated from the base of the proposed pit to a depth of 137 metres". Howe re-assessed grade and tonnage estimates and concluded that, "increasing the cut-off grade from 1 gAu/t to 3 g/Au/t, the minable grade of the Kearney resource increases by 56% to 12.4 gAu/t and the contained gold declines only about 10%. The total tonnage is also reduced by 42%. This relatively minor reduction (in contained gold) illustrates that gold distribution is tightly constrained to the lode structures and is thereby amenable to selective mining techniques, an approach which will optimise grade and minimise dilution in the pit…". Howe re-analysed the data pertaining to the 441 metres of strike length that had been subjected to most detailed sampling. They concluded that, "Using a 3 gAu/t cut-off grade and a density of 2.93 the measured resource to 20 metres over a strike length of 441 metres is 56,414 tonnes at a grade of 11.03 gAu/t and the indicated resource to 37 metres over the same strike length is 58,363 tonnes at 11.03 gAu/t. This partial evaluation of the Kearney deposit confirmed that higher grades can be maintained in a mining operation.". This conclusion is supported by comparison with the grade obtained from a selective mining trial ("bulk sampling") wherein four selectively mined samples aggregating 101.4 tonnes from the Kearney deposit contained an average of 53.41 gAu/t. The discrepancy between the gold content of the bulk samples and the grade estimate for the Kearney Deposit derived from surface channel samples is partly attributed to dilution created by original sampling, partly to gold loss during sampling and likely affected by inhomogeneous gold distribution. Ultimately, this discrepancy can only be resolved during full scale mining and processing although additional sampling prior to plant commissioning will be instructive in the early life of the mine. Gold mineralization is tightly constrained in the veins and lodes that make up the Kearney and other deposits, making them amenable to selective mining. In the expectation that mining grade will be consistently higher than the resource grade, the processing plant has been designed to accept ore grading 20 gAu/t. Exploration Targets Subsequent to year-end, a report was filed (reference: SEDAR - Appendix to "Technical Report", March 29, 2006) describing 53 specific targets on the Company's prospecting licence. The targets derive from integration of data describing soil and stream sediment geochemistry, geological, geophysical including VTEM anomalies, and results of historical exploration including diamond drilling and trenching largely carried out by Rio Tinto in the 1980's. The report, prepared by independent consultants A.C.A.Howe International, groups the 53 targets on a priority of 1 to 10. Scores were assigned which reflect technical merit and the likelihood of enhancing resources in the short term. Eight gold-rich veins of the Kearney Vein Swarm were classified as very high priority resource augmentation targets with scores of 9 and 10. These contain relatively high grade channel sample and/or drill intercepts and reserves (1995) and resources (1995 and 2004). Eight other veins not yet drilled or drilled with lower grades have target scores of 5 to 8. The remaining 37 targets comprise one target scoring 6, 6 targets scoring 5, 4 targets scoring 4, 11 targets scoring 2 and 7 targets scoring 1. Howe considers targets scoring 3 to 8 present some excellent opportunities for new discoveries on or near known vein structures of the Kearney Swarm and elsewhere in the greater part of the prospecting licence. Howe also considers it likely that aggressive exploration will add substantially to the reserves and resources and that it is possible that structures similar to the Kearney vein lie undiscovered. Further, Howe considers that the high gold grades and the widths and continuity of the present reserves and resources indicate that there is potential for underground production in the future. Plans are being laid to begin to test the priority targets in 2006. Initial Mine Construction Sufficient funds were raised in April, 2005, through equity financing and in May 2005 and March 2006 from equipment lease financing to enable an initial open pit mine and processing plant to be constructed and put into operation. An exploration programme was also initiated. Mining and processing equipment and buildings have been purchased, and key staff engaged. Site development was initiated in mid-2005 and continues to date (15/04/'06). At the time of writing (mid-April) preparation of site roads was advanced, clearing of peat and glacial till from paste tailings storage area was in progress, the water control system was under construction, the processing plant building steelwork erected, clad and the initial mining area of the Kearney deposit was stripped. The project embraces an open pit mine capable of supplying approximately 50,000 tonnes of ore per year, a crush-grind-flotation plant with a capacity of 150 tonnes per day. The site infrastructure encompasses a paste tailings storage facility, containment dam and water reticulation and discharge system, including a channel diverting run-off water around the working places. These elements are described in "Technical Report(s)" filed on SEDAR on March 29, 2006. Galantas Irish Gold Limited will continue to develop its nascent Galantas® jewellery business by test marketing 18ct jewellery made from gold produced from bulk samples taken by Omagh Minerals Limited once gold becomes available in late 2006. Jewellery sales of $CDN 453,546 have been achieved during trial marketing. Management and Staff The following executive appointments were made further to the Company's annual general meeting held on June 6: Mr. Roland Phelps as President and Chief Executive Officer, Mr. M. J. (Moe) Lavigne as Vice President, Mr. L. J. (Jack) Gunter as Executive Chairman, and Mr. George Duguay as Secretary. At the Omagh site, senior staff includes Mr. Karl Martin, hired at the beginning of April as construction manager and project engineer. Mr. Steven Higgins has completed his assignment as site engineer and has left to resume his consultancy practise. He remains as a consultant with particular respect to tailings disposal facilities. Ms. June Kaczmarek is financial controller. Candidates for the post of processing plant manager are being screened. OVERALL PERFORMANCE During the second quarter of 2005, Galantas Gold Corporation completed an equity financing and arranged debt financing to accomplish the objective of achieving initial production from the Kearney Deposit. The Company immediately placed orders for processing equipment, purchased mobile open pit equipment, engaged key staff and made arrangements with third parties including the N. Ireland planning authorities to enable commencement of site development in the third quarter of 2005. This duly got underway and has continued to date (April 15, 2006) with a target date of mid-summer for initial production. Revitalized exploration of the Company's prospecting licence was initiated by the awarding of a contract to have a helicopter-borne VTEM electromagnetic survey flown. Subsequently, this survey was completed early in the third quarter. An analysis and integration of the results with pre-existing body of geological, geochemical, and other data has been done and an independent report has been produced (refer to SEDAR - March 16 "Technical Report"). Sales of jewellery were $52,800 in the year, corresponding with $175,831 in 2004. The reason for the lower volume of sales was the shortage of certified Irish gold metal available. Prior to regular mine production, this shortage will persist. Current sales are deriving from a nearly depleted jewellery inventory. The equity financing arranged in the first quarter was completed early in April resulting in cash to the Company of $3,279,283. This was after paying aggregate finders' fees and other costs amounting to $224,050. A loan of $470,000 repayable after 4 years was obtained from Barclays Mercantile Business Finance Ltd. for the purchase of trucks, loaders and other mining equipment. Subsequent to the end of the period, on March 17, 2006, Barclays advanced a second loan in the amount of $359,252 being approximately one-half of the purchase cost of certain metallurgical equipment. Monthly lease payments are $11,132 for 36 months and Galantas has the right to purchase the equipment for a nominal sum at the end of the 3 year term. Also subsequent to the period, all of the 17,516,666 warrants outstanding as of the end of 2004 were exercised by the beginning of April. This has produced $CDN 2,627,500 for the treasury. The warrants were all exercised at the price of $CDN 0.15 and related to the equity financing completed in April of 2005. LIQUIDITY AND CAPITAL RESOURCES On December 31, 2005, the Company had working capital of $1,020,880 as compared with a working capital deficit of $115,635 at year-end, 2004. Cash at December 31, 2005 totalled $1,121,985. The increase in working capital resulted from cash derived from the issuance of common shares in the equity financing completed during the year. Funds available are considered by management to be adequate to get the initial mine and plant operating next year and to complete initial follow-up of the airborne survey. As at December 31, 2005, the Company had total assets of $9,355,408 as compared with $5,575,356 at 2004 year-end. The increase was mainly due to the cash raised in the financing. Total liabilities at December 31 were $921,759, compared with $571,616 in the previous year. The increase was due to the increase in debt related to the Barclays equipment lease finance and increased payables and accruals due to the development of the mine. The increase was partly offset by the reduction in directors' loans resulting from converting their debt to equity in the financing. RESULTS OF OPERATIONS The Company's core business is gold mining. Its only source of revenue derives from sales of gold jewellery which have been possible hitherto with test market products made from gold derived from bulk samples previously taken from the "Kearney Deposit". Such sales in 2005 amounted to $52,800. This compares with $175,831 in 2004, the decrease due to depleted inventories of both certified Irish gold and manufactured product. This situation will prevail until supplies of certified Irish gold become steadily available and this will be when Omagh Minerals Limited has established production from the Kearney mine, projected for mid-2006. SUMMARY OF ANNUAL RESULTS Selected Annual 2005 2004 2003 Information Net sales and total 52,800 175,83 224,91 revenues 1 5 Loss before - - - extraordinary items 808,23 1,186, 676,14 2 652 2 Basic and diluted loss per -0.01 -0.01 -0.01 share before extraordinary items Loss for the year - - - 38,432 1,186, 676,14 652 2 Basic and diluted loss 0.00 0.01 0.01 per share Total assets 9,355, 5,575, 6,167, 408 356 193 Long-term financial 271,66 0 9,715 liabilities 4 Cash dividends 0.00 0.00 0.00 Sales revenues decreased from 2003 to 2004 to 2005 as less gold remained from bulk sampling to supply jewellery marketing trials. The loss increased in 2004 from 2003 due to management fees, allowances for stock-based compensation, travel and general office costs. The loss decreased in 2005 due to reductions in management fees, travel and office costs, following closure of the Vancouver office. In 2005, the loss for the year is further reduced because of recognition that the company is likely to benefit from future income tax recovery in the amount of $769,800. The recovery has been included to the extent of $302,900 in current assets and $406,900 in long term assets. Long term financial liabilities have increased in 2005 mainly due to equipment leasing commitments. SUMMARY OF QUARTERLY RESULTS The Company's revenue and net financial result for the fourth quarter of 2005 and the seven preceding quarters is summarised ($CDN). Quarter ended Revenue Net Profit/(loss) Net Profit/(loss) per Share Dec 31, 2005 $ 8,771 $498,346 $0.01 Sept 30, 2005 7,909 134,265 0.00 June 30, 2005 15,623 (519,016) (0.01) March 31, 2005 20,497 (152,027) (0.00) Dec. 31, 2004 42,733 (289,160) (0.00) Sept. 30, 2004 20,561 (364,150) (0.00) June 30, 2004 69,213 ( 299,410) (0.00) March 31, 2004 43,324 (233,932) (0.00) OPERATING EXPENSES Cash disbursements for expenses in the 12 months ended December 31, 2005 were $547,919, a decrease of $305,389 from the previous year's expenditure of $853,308. This decrease can be attributed to the following; Ø the closure of the Vancouver office resulting in a decrease in operating costs of $312,386 and in travel costs of $74,386. Ø An increase in the exchange gain due to the strong Canadian dollar in the amount of $71,635 These savings were partially offset by; Ø Increase in management fees attributable to Messrs Gunter and Phelps assuming executive roles of $80,500. Ø Consulting fees of $50,750 paid to the past president. Ø Increase in legal and audit fees, related to the financing, of $19,150 Ø Miscellaneous other cost increases of $2,385. CAPITAL EXPENDITURES Purchase of plant and machinery related to the mine and processing plant at Omagh in the amount of $1,139,959 and office equipment totalling $21,229. This compares to $39,718 spent in 2004. Deferred development costs capitalised were $1,095,557 and included plant and site construction($791,510),travel($88,369), wages ($119,800), maintenance ($47,594), mining lease payments ($19,522) and general expense ($28,762). SHARE CAPITAL The Company is authorised to issue in Series an unlimited number of common and preference shares. At the end of 2004, a total of 91,301,856 common shares had been issued. The Company issued an additional 35,033,333 shares under private placements on April 4 and 14, 2005. The private placements were completed at a price of $0.10 per unit, the units comprising one common share and one-half of a common share purchase warrant exercisable before April 4 and 14, 2006, at a price of $0.15 per common share. Thus, at the end of 2005, a total of 126,335,189 common shares had been issued and 17,516,666 common share purchase warrants remained outstanding. Subsequent Event Between the end of December, 2005, and April 14, 2006, all of the outstanding warrants had been exercised, and an additional 17,516,666 common shares issued. This brings the total issued and outstanding common shares to 143,851,855. No warrants remain to be exercised. RELATED PARTY TRANSACTIONS At 2005 year-end, the Company was indebted to directors in the amount of $253,103 (2004 - $429,711). The indebtedness represented unpaid management fees and, subsequent to the end of the period, the fees have been paid. During the year, $47,000 (2004 - $58,500) was paid to a company controlled by the former president of the Company (Andrew Smith) and $164,000 (2004 - $25,000) was paid or accrued to directors of the Company for management services. During the year, $35,183 (2004 - $29,193) was paid to a corporate services company in which an officer (George Duguay) was a partner. STOCK BASED COMPENSATION The Company has 7,900,000 stock options outstanding to directors, employees and certain consultants at exercise prices ranging from 10 cents per share up to 22 cents per share. Number of Options Exercisable Options Exercise Price ($) Expiry Date 1,000,000 1,000,000 0.15 Feb. 16, 2006 1,500,000 1,500,000 0.12 May 17, 2007 3,200,000 3,200,000 0.15 Apr. 10, 2008 2,000,000 1,333,334 0.22 Apr. 01, 2009 200,000 66,667 0.10 May 13, 2010 7,900,000 7,100,001 As at publication date of this MD&A the number of options has reduced to 6,500,000 due to the expiry of 1,400,000 options. TRENDS AFFECTING THE COMPANY'S BUSINESS From a global perspective, metal prices including precious metal prices, have recovered after a long period of depression. This is thought to be due in the main to increasing consumption of metals in countries in the Far East, most notably China and India, which are experiencing rapid growth in manufacturing and resultant domestic economic buoyancy. Thus the fundamentals of the metals business once again are favourable for capitalising new mines. Investors, perhaps predominantly through funds, have returned to the mineral sector, selectively investing in mines through large public companies. For junior public resource companies such as Galantas, recovery in market valuation has improved the climate for raising funds for new projects particularly as the year has progressed. Increasing metal prices should fuel the demand for the shares of junior resource companies. Since markets are always uncertain, careful management of company resources continues to be the guiding principle for Galantas. In Northern Ireland, the climate for investment is positive as the province settles in to existence without the threat of violence acting as an inhibitor to building for the future. RISKS AND UNCERTAINTIES The Company currently operates in an industrial sector - early-stage mine development and exploration - which carries inherent risks, frequently not within the abilities of management to reduce or remove. The main risk in this category is always metal price. Its other business - high value "Irish Gold" jewellery - is dependent upon a mine being developed to provide a steady supply of certified Irish gold. Management has made a conscious effort to assess the risk environment that its business will have to operate within. It has concluded that all of the risks are standard to the industry, none of them so profound as to inhibit pursuit of the Company's strategy as outlined. The main risks for a new mining project normally are - 1. Ore Reserves: The general risk is that the tonnage and grade of ore available may be lower than anticipated. The persistence of the Kearney Deposit along strike and to depth has been proven within the confines of the initial pit and indicated well beyond that. The gold content has been estimated independently at 11.03 g/t. The Company carried out selective mining trials prior to committing to raising the finance and proceeding to build the mine. These trials returned a grade of over 53 gAu/t in the 100 tonnes sampled. As a result, the plant has been designed to accept ore at a grade of 20 gAu/t which is considered achievable in normal operating mode. 2. Mineral Processing: The risk is that the plant may not perform to design specifications. Ore from the Kearney Deposit has been subjected to extensive trials in industry-standard testing laboratories and pilot plants by the previous owner, Rio Tinto, and by Galantas. The flow sheet is simple and all technology is proven. 3. Environmental Risk: The mining project was subject to one of Northern Ireland's lengthiest public inquiries whereat the project was challenged and defended to the satisfaction of the independent assessors and industry experts representing the Company and the regulating authority as well as objectors. Therefore it is considered that there is not any inherent environmental risk in the project. In operation, the facility will be subject to strict self- monitoring and independent monitoring and management has been working to establish a culture of environmental care at the operation. 4. Permitting Risk: The Company has comprehensive environmental permission to carry out its business. The permission was gained in 2000 after an exhaustive public inquiry and fulfilment of more than 30 pre-conditions which accompanied the conditional planning consent granted in 1995. Remaining consents required - building regulations, archaeological supervision of excavation sites (mandatory in Ireland), compliance with IPPC regulations, review of effluent discharge consent - relate to operating procedures and are being addressed with the appropriate regulators as the project develops. IPPC authorisation has been received on 3rd November 2005. 5. Title Risks: The Company owns the land in secure freehold on which the processing plant and initial mine are located. Precious Metals licences and mining leases are owned by the Crown Estate and have been granted to the Company, renewed as required, since the mid-1980's. Both licences and leases are subject in the usual way to minimum performance requirements which are designed to encourage development. 6. Political Risk: Northern Ireland has achieved a stable political status conducive to business and the mine site is well removed from areas of potential urban disturbance. 7. Financial: The risk is that additional funds, if required, may not be forthcoming. The Company believes that it has sufficient capital to bring the Kearney mine to initial production. It is conducting the capitalisation of the project exercising the most stringent cost control regime. 8. Revenue: The Company has initial terms for sale of its concentrates from two mainline smelter/refiners. There is a risk that final terms may turn out to be less favourable than anticipated. Close contact with the smelters has been established and is being maintained and the Company considers revenue risk to be manageable. 9. Currency/Bullion Price: Most of the Costs to the Company are in Sterling. Gold price expressed in Sterling is close to 5 year highs and appears to be in a rising trend. There is a risk that this trend may reverse and reduce Sterling income. Results are published in Canadian dollars and there is therefore a currency risk. It is the Company's policy not to forward sell its bullion. 10. Construction Risk: The general risk is that the project takes longer to build than expected, with increased costs and or loss of revenue. This can be due to environmental, geological, materials, contractor or other related factors.

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