Interim Results

RNS Number : 5434K

Galantas Gold Corporation

22 August 2012

 



GALANTAS GOLD CORPORATION

TSXV & AIM : Symbol GAL

GALANTAS INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2012

22nd AUGUST 2012 : Galantas Gold Corporation (the Company) is pleased to announce its interim results for the six months ended June 30^th 2012 and second quarter results  for the three months ended 30 June 2012.

Financial Highlights

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

	Second Quarter Ended June 30		Six Months Ended June 30
All figures denominated in Canadian Dollars (CDN$)	2012	2011	2012	2011
Revenue	$ 1,902,980	$ 3,266,572	$ 2,928,126	$ 4,468,713
Cost of Sales	$    993,304	$ 1,345,291	$ 2,013,811	$ 2,374,153
Income before the undernoted	$    909,676	$ 1,921,281	$    914,315	$ 2,094,560
Amortization	$    186,624	$     241,727	$    371,189	$   381,860
General administrative expenses	$    397,052	$     644,217	$    852,514	$  992,350
Gain on debt extinguishment	$  (190,624)	$                0	$  (190,624)	$               0
Foreign exchange/(gain) loss	$    (27,110)	$      (4,047)	$    (19,109)	$          951
Net Income (loss) for the period	$    543,734	$  1,039,384	$    (99,655)	$ 719,399

Sales revenues for the six months ended June 30, 2012 amounted to CDN$ 2,928,126 (2011: CDN$ 4,468,713) with sales revenues for the three months ended June 30, 2012 amounted to CDN$ 1,902,980 (Q2 2011: CDN$ 3,266,572).  This reduction in sales revenues due to the lower level of metal produced and shipped during the quarter primarily due to the processing of lower grade ore.  Sales revenues increased in Q2 compared with Q1 2012 mainly as a result of first quarter revenues being adversely impacted by lower production in addition to a downward revision on December 2011 revenues arising from an over estimation of concentrate grades on December shipments.

Cost of sales for the six months ended June 30, 2012 amounted to CDN$ 2,013,811 (2011: CDN$ 2,374,153).  Cost of sales for the three months ended June 30, 2012 amounted to CDN $ 993,304 (Q2 2011: CDN$ 1,345,291). There was a decrease in various production costs at the Omagh mine during the second 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. General administrative costs for the six months ended June 30, 2012 amounted to CDN$ 852,514 (2011: CDN$ 991,350). There was a non-cash gain of CDN$ 190,624 ( 2011: CDN$ Nil) during the second quarter of 2012 following the extinguishment of the Company's convertible debenture debt.

The Net Loss for the six months ended June 30, 2012, amounted to CDN$ 99,655 (2011: Net Income CDN$ 719,399).  The cash generated from operating activities for the first half of 2012  amounted to CDN$ 253,003 (2011: $ 1,208,784). The cash generated from operating activities continued to contribute towards the cost of the exploration drilling programme at the Omagh mine. 

The Net Income for the three months ended June 30, 2012, amounted to CDN$ 543,734 (2011 Q2: CDN$ 1,039,384) and the cash generated from operating activities in the second quarter of 2012 amounted to CDN$ 556,321 (2011 Q2: CDN$ 1,358,594).

The Company had cash balances at June 30, 2012 of CDN$ 2,976,819 compared to CDN$ 4,240,081 at December 31, 2011.  The working capital deficit at June 30, 2012 amounted to CDN$ 472,142 which compared with a deficit of CDN$ 536,142 at December 31, 2011. 

Production

Production for comparative quarters is summarised below:-

	Three Months to June 30 2012	Three Months to June 30 2011	Six Months to June 30 2012	Six Months to  June 30 2011
Tonnes Milled	15,036	15,883	24,456	22,832
Average Grade g/t gold	2.36	5.39	2.65	4.97
Concentrate Dry Tonnes	355	754	623	1037
Gold Grade (concentrate)	100	103.1	104.0	102.6
Gold Produced (oz)	1142	2,500	2,074.5	3,410
Gold Produced (kg)	35.5	77.7	64.5	106
Silver Grade	294	232.2	282.0	241.1
Silver Produced (oz)	3,360	5,586	5,607	8,034
Silver Produced (kg)	104.5	173.8	174.5	249.9
Lead Produced tonnes	27	120.6	51.9	170.7
Gold Equivalent (oz)	1,245	2,829	2,251	3,892

Production at the Omagh mine during the three months ended June 30, 2012, while above production levels achieved during both the first quarter of 2012, was significantly below production levels of the second and subsequent quarters of 2011 due primarily to the processing of lower grade ore.  As a result of the lower grade ore, gold equivalent  production for the six months ended June 30, 2012 was 2,251 ounces (2011: 2,829 ounces). 

The main mine production focus during the second quarter has been on the open pit mining of the Kearney and Kerr veins together with the processing of ore from the low grade stockpile. Production from Kearney was restricted due to limitations in the disposal of surplus rock which had been stockpiled over a period of time and has now reached capacity levels which has impacted negatively on production from the Kearney open pit.

Ore mined   from Kearney north during the quarter produced lower than expected grades due to both lower grade of ore mined and narrower than expected widths which led to excessive dilution of the mined ore. Mining from the Kerr veins during the quarter was reasonably successful with two of the veins mined being of high grade with the remaining two being more problematical.

During the second quarter the mill was fed with a combination of lower grade ore which was blended with ore from Kearney and Kerr. However production was hampered by the ongoing variations in the metallurgy due to the inconsistent grade of ore being milled. Production was also hampered during the quarter by unplanned downtime in the plant which continued to be problematical.

The 2011 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 15,000 metre drilling programme with approximately 10,500 metres having being drilled since the programme commenced in 2011.

The drilling program, with six drills operational, continued during the second quarter of 2012 when nineteen additional holes were drilled covering 3,852 metres of exploration drilling mainly on the Kearney and Joshua veins with significant intersects being identified at depth. There were four holes drilled on the Kearney vein, thirteen on the Joshua vein and two holes were drilled north of Kerr to target induced polarization anomalies. Drilling at Kearney is being carried out with the objective of gaining a more accurate picture of the zone of mineralization for the purpose of underground development. Drilling on Kearney during the quarter was mainly at depth from off-site locations. Drilling on Joshua focused on the North and Central Joshua veins during the second quarter. On the North vein the strike has been further increased by 70 m during the second quarter and the proven depth of mineralisation on the northern section has increased by 40 m to a vertical depth of 115 m. The northern boundary of the site has now been reached and the rig has now moved onto south Joshua to target the vein at depth. Drilling on the Central Joshua vein was also successful and strengthened the view of a westerly dipping vein in this region with high grade mineralisation at depth.

Further phases of channel sampling continued on the Kearney, Joshua and Kerr veins during the quarter. Assay results released to date from both the drilling and channel sampling programme have been encouraging with significant gold intersections being identified as previously announced.  Assay results from this programme will continue to be announced as and when they are received. The encouraging exploration results to date, has enabled a further expansion of the program to receive active ongoing consideration. 

An independent, National Instrument 43-101 compliant, Mineral Resource Estimate and Preliminary Economic Assessment for Galantas Gold Corporation's Omagh gold deposit in Northern Ireland, prepared by ACA Howe International Ltd, has been filed with SEDAR and is available on the Company's website.  The study was summarised in a press release dated  3^rd July 2012. A further assessment  is scheduled after the 15,000 metre drilling program is complete.

Planning

Discussions with the regulatory authorities in Northern Ireland continued during the second quarter of 2012. While permission is still awaited regarding three of the four planning applications submitted to the planning service authorities in 2011 progress was made during the second quarter with permission expected to be granted in the near future. Two of the applications are in connection with proposals to drill boreholes to determine mineralization at depth on the Kearney and Joshua veins. The fourth application is in connection with the construction of a lower portal structure and truncated adit for underground mining on the Kearney vein. Permission has already been granted for the renovation and construction of passing bays for the removal of surplus rock in order to make additional ore available for mining.

A permitting application for an underground mine, with accompanying Environmental Impact Assessment (EIA), was lodged with the Planning Service, Department of Environment Northern Ireland (DOENI) on Friday 6^th June 2012. The EIA builds on some 13 years of detailed monitoring that has taken place on the Omagh site. Nine independent consultants have studied their areas of specialism related to the proposal and their reports form the body of the Assessment. The EIA covers Air Quality and Dust, Cultural Heritage, Flora and Fauna, Flood Risk and Drainage, Geology, Hydrogeology and Hydrology, Geotechnical, Landscape and Visual Amenity, Noise and Vibration, Socio-economic, Transportation and Traffic, which were the areas for study identified in guidance from the Planning Service (DOENI).

Roland Phelps, President & CEO, Galantas Gold Corporation commented, "The Preliminary Economic Assessment carried out by ACA Howe, which shows high Internal Rates of Return and low cash cost of production, in a politically stable jurisdiction, confirms our confidence in the Omagh property. We expect to continue to further invest in drilling and infra-structure, moving to a more detailed feasibility with the goal of establishing an underground operation around a target production of 50,000 ounces per year of gold in concentrate. Discussions have already been initiated with potential lenders to gauge interest in development loan finance opportunities, with encouraging results."

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]

Condensed Consolidated Interim Financial Statements
(Expressed in Canadian Dollars)

(Unaudited)
Three and Six Months Ended June 30, 2012

Galantas Gold Corporation

Condensed Consolidated Interim Statements of Financial Position

(Expressed in Canadian Dollars)

(Unaudited)

		As at			As at
		June 30,			December 31,
		2012			2011
ASSETS
Current assets
Cash (note 4)	$	2,976,819		$	4,240,081
Accounts receivable and advances (note 5)		1,117,283			1,056,573
Inventory (note 6)		354,549			347,016
Total current assets		4,448,651			5,643,670
Non-current assets
Property, plant and equipment (note 7)		3,806,081			3,547,393
Long-term deposit (note 4)		407,592			371,277
Deferred development and exploration costs (note 9)		6,116,441			4,507,753
Total assets	$	14,778,765		$	14,070,093
EQUITY AND LIABILITIES
Current liabilities
Accounts payable and other liabilities (note 8)	$	2,321,843		$	1,683,142
Due to related parties (note 14)		2,598,950			2,517,067
Convertible debenture (note 10)		-			1,979,603
Total current liabilities		4,920,793			6,179,812
Non-current liabilities
Asset retirement obligation		399,600			394,975
Total liabilities		5,320,393			6,574,787
Capital and reserves
Share capital (note 11)		30,267,493			27,808,316
Reserves		4,870,374			5,258,030
Deficit		(25,679,495	)		(25,571,040	)
Total equity		9,458,372			7,495,306
Total equity and liabilities	$	14,778,765		$	14,070,093

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

Going concern (note 1)
Contingent liability (note 16)
Subsequent event (note 17)

Galantas Gold Corporation

Condensed Consolidated Interim Statements of Income (Loss)

(Expressed in Canadian Dollars)

(Unaudited)

		Three Months Ended						Six Months Ended
		June 30,						June 30,
		2012			2011			2012			2011
Revenues
Gold sales	$	1,902,980		$	3,266,572		$	2,928,126		$	4,468,713
Cost and expenses of operations
Cost of sales (note 13)		993,304			1,345,291			2,013,811			2,374,153
Amortization and depreciation		186,624			241,727			371,189			381,860
		1,179,928			1,587,018			2,385,000			2,756,013
Income before the undernoted		723,052			1,679,554			543,126			1,712,700
General administrative expenses
Management and administration wages (note 14)		149,280			145,355			301,511			268,825
Other operating expenses		64,597			201,641			134,831			236,719
Legal and audit		27,886			55,155			52,517			128,035
Stock-based compensation (note 11(d))		45,445			31,621			93,011			53,161
Shareholder communication and investor relations		67,797			93,044			126,586			123,357
Transfer agent		10,442			11,975			13,129			14,754
Director fees (note 14)		8,750			10,750			16,100			20,500
General office		1,952			2,036			4,399			4,116
Accretion expenses (note 10)		-			41,998			45,529			52,149
Bank interest and fees		22,076			31,271			51,401			52,618
		413,004			644,217			866,960			991,086
Other expense
Loss (gain) on disposal of property, plant and equipment		(15,952	)		-			(14,446	)		1,264
Gain on debt extinguishment (note 10)		(190,624	)		-			(190,624	)		-
Foreign exchange loss (gain)		(27,110	)		(4,047	)		(19,109	)		951
		(233,686	)		(4,047	)		(224,179	)		2,215
Net income (loss) for the period		543,734			1,039,384		$	(99,655	)	$	719,399
Basic net income (loss) per share (note 12)	$	0.00		$	0.00		$	0.00		$	0.00
Weighted average number of common shares outstanding - basic		240,661,994			235,650,055			238,145,655			235,650,055
Diluted net income (loss) per share (note 12)	$	0.00		$	0.00		$	(0.00	)	$	0.00
Weighted average number of common shares outstanding - diluted		240,661,994			292,722,582			238,145,655			292,448,331

Galantas Gold Corporation

Condensed Consolidated Interim Statements of Comprehensive Income (Loss)

(Expressed in Canadian Dollars)

(Unaudited)

		Three Months Ended						Six Months Ended
		June 30,						June 30,
		2012			2011			2012			2011
Net income (loss) for the period		543,734			1,039,384		$	(99,655	)	$	719,399
Other comprehensive income (loss)
Foreign currency translation differences		13,553			(58,349	)		90,558			(46,853	)
Total comprehensive income (loss)		557,287			981,035		$	(9,097	)	$	672,546

Galantas Gold Corporation

Condensed Consolidated Interim Statements of Cash Flows

(Expressed in Canadian Dollars)

(Unaudited)

		Three Months Ended						Six Months Ended
		June 30,						June 30,
		2012			2011			2012			2011
Operating activities
Net income (loss) for the period		543,734		$	1,039,384		$	(99,655	)	$	719,399
Adjustment for:
Amortization and depreciation		186,624			241,727			371,189			381,860
Stock-based compensation (note 11(d))		45,445			31,621			93,011			53,161
Foreign exchange		(12,906	)		3,864			47,999			951
Loss (gain) on disposal of property, plant and equipment		(15,952	)		-			(14,446	)		1,264
Accretion expenses		-			41,998			45,529			52,149
Gain on debt extinguishment		(190,624	)		-			(190,624	)		-
Non-cash working capital items:
Accounts receivable and advances		(219,979	)		(404,252	)		(60,710	)		(1,011,582	)
Inventory		38,220			34,657			(7,533	)		59,392
Accounts payable and other liabilities		641,826			217,843			638,701			949,670
Net cash provided by operating activities		1,016,388			1,206,842			823,461			1,206,264
Investing activities
Purchase of property, plant and equipment		(33,856	)		(599,955	)		(539,284	)		(1,316,803	)
Proceeds from sale of property, plant and equipment		45,437			(122	)		77,537			18,592
Deferred development and exploration costs		(1,040,970	)		(314,194	)		(1,672,323	)		(427,390	)
Long-term deposit		(15,998	)		-			(31,968	)		-
Net cash used in investing activities		(1,045,387	)		(914,271	)		(2,166,038	)		(1,725,601	)
Financing activities
Warrants exercised		2,056,034			-			2,056,034			-
Net repayments of financing facility		-			(12,585	)		-			(31,266	)
Repayment of related party loan		94,392			77,643			-			57,563
Net advances from related parties		(41,487	)		-			81,883			-
Proceeds from convertible debenture		-			-			-			1,953,750
Financing charges related to convertible debenture		-			-			-			(14,594	)
Repayment of convertible debenture		(2,056,034	)		-			(2,056,034	)		-
Net cash provided by financing activities		52,905			65,058			81,883			1,965,453
Net change in cash		23,906			357,629			(1,260,694	)		1,446,116
Effect of exchange rate changes on cash held in foreign currencies		28,023			(37,242	)		(2,568	)		(54,880	)
Cash, beginning of period		2,924,890			3,732,647			4,240,081			2,661,798
Cash, end of period		2,976,819			4,053,034		$	2,976,819		$	4,053,034

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		-			53,161			-			-			-			-			53,161
Net loss and comprehensive income for the period		-			-			-			(46,853	)		-			719,399			672,546
Balance, June 30, 2011		27,808,316			4,122,206			976,414			(310,873	)		168,082			(26,462,631	)		6,301,514
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		-			93,011			-			-			-			-			93,011
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	)		-			-			-			-
Loss on debt extinguishment (note 10)		-			-			-			-			(168,082	)		(8,800	)		(176,882	)
Net loss and comprehensive income for the period		-			-			-			90,558			-			(99,655	)		(9,097	)
Balance, June 30, 2012	$	30,267,493		$	4,421,879		$	564,650		$	(116,155	)	$	-		$	(25,679,495	)	$	9,458,372

Galantas Gold Corporation

Notes to Condensed Consolidated Interim Financial Statements

June 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 June 30, 2012 , the Company had a deficit of $25,679,495 (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 (the "Exchange") and London Stock Exchange AIM under the symbol GAL. The primary office is located at 360 Bay Street, Suite 500, Toronto, Ontario, Canada, M5H 2V6.

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 interim consolidated 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 interim consolidated financial statements are based on IFRSs issued and outstanding as of August 17, 2012, the date the Board of Directors approved the statements. The same accounting policies and methods of computation are followed in these condensed interim consolidated financial statements as compared with the most recent annual 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 financial statements for the year ending December 31, 2012 could result in restatement of these condensed interim financial statements.

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
		June 30,			December 31,
		2012			2011
Cash	$	2,976,819		$	4,240,081
Long-term deposit		407,592			371,277
Total cash position	$	3,384,411		$	4,611,358

5.	Accounts Receivable and Advances

			As at			As at
			June 30,			December 31,
			2012			2011
Sales tax receivable - Canada		$	17,002		$	24,680
Sales tax receivable - Ireland			291,102			248,348
Accounts receivable			659,845			690,433
Prepaid expenses			149,334			93,112
		$	1,117,283		$	1,056,573
6.	Inventory

		As at			As at
		June 30,			December 31,
		2012			2011
Concentrate inventory	$	40,646		$	32,159
Finished goods		313,903			314,857
	$	354,549		$	347,016

7.	Property, Plant and Equipment

		June 30, 2012
					Accumulated
		Cost			amortization			Net
Freehold land and buildings	$	2,674,317		$	1,217,293		$	1,457,024
Plant and machinery		5,938,057			3,685,366			2,252,691
Motor vehicles		82,682			34,340			48,342
Office equipment		101,577			53,553			48,024
Moulds		58,139			58,139			-
	$	8,854,772		$	5,048,691		$	3,806,081

		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.	Accounts Payable and Other Liabilities

		As at			As at
		June 30,			December 31,
		2012			2011
Falling due within the year
Trade payables	$	2,321,843		$	1,683,142

9.	Deferred Development and Exploration Costs

		June 30, 2012
					Accumulated
		Cost			amortization			Net
Deferred development and exploration costs	$	11,955,513		$	5,839,072		$	6,116,441

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

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		52,149			-
Accretion charges - financing charges		613			-
Interest expenses		15,043			-
Foreign exchange		(22,711	)		-
Balance, June 30, 2011	$	1,816,168		$	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, June 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 June 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 June 30, 2012, the issued share capital amounted to $30,267,493. The change in issued share capital for the periods presented:

		Number of
		common
		shares			Amount
Balance, December 31, 2010, June 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
Balance, June 30, 2012		256,210,395		$	30,267,493

c)	Warrant reserve

The following table shows the continuity of warrants for the periods presented:

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

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

		Number			Fair			Exercise
Expiry date		of warrants			value ($)			price ($)
July 22, 2012 (Note 17)		24,550,000			564,650			0.10
		24,550,000			564,650			0.10

(d)	Stock options

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

					Weighted
		Number of			average
		options			price
Balance, December 31, 2010		10,800,000		$	0.13
Granted (i), (ii)		750,000			0.10
Balance, June 30, 2011		11,550,000		$	0.13
December 31, 2011		15,750,000		$	0.12
Cancelled		(1,000,000	)		0.19
Balance, June 30, 2012		14,750,000		$	0.11

Stock-based compensation expense includes $93,011 and $45,445 (three and six months ended June 30, 2011 - $16,625 and $33,250) relating to stock options granted in previous years that vested during the three and six months ended June 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 months ended March 31, 2011, included in stock-based compensation is $4,915 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 months ended March 31, 2012, included in stock-based compensation is $1,846 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 months ended March 31, 2012, included in stock-based compensation is $39,375 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 June 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			0.48			4,800,000			4,800,000			-
April 5, 2013		0.10			0.76			500,000			500,000			-
October 2, 2013		0.10			1.26			1,500,000			1,500,000			-
November 23, 2015		0.10			3.40			3,500,000			2,333,333			1,166,667
January 28, 2016		0.10			3.58			250,000			166,667			83,333
September 6, 2016		0.10			4.19			4,200,000			1,400,000			2,800,000
		0.11			2.31			14,750,000			10,700,000			4,050,000

12.	Net Income (Loss) per Common Share

The calculation of basic and diluted income (loss) per share for the six months ended June 30, 2012 and 2011 was based on the loss attributable to common shareholders of $99,655 (six months ended June 30, 2011 income of - $719,399) and the weighted average number of common shares outstanding of 238,145,655 (June 30, 2011 - 235,650,055) for basic income (loss) per share and 238,145,655 (June 30, 2011 - 292,448,331) for diluted income (loss) per share. Diluted loss did not include the effect of warrants and options for the six months ended June 30, 2012 as they are anti-dilutive.

13.	Cost of Sales

		Three months ended						Six months ended
		June 30,						June 30,
		2012			2011			2012			2011
Production wages	$	325,576		$	394,250		$	686,474		$	729,331
Oil and fuel		319,925			411,467			689,249			682,866
Repairs and servicing		104,559			176,100			242,212			343,851
Equipment hire		73,026			128,685			162,669			234,453
Consumable		54,955			94,928			106,466			163,670
Royalties		39,295			65,989			60,530			89,449
Carriage		17,559			23,656			28,727			35,923
Other costs		21,333			15,559			45,017			35,218
Production costs		956,228			1,310,634			2,021,344			2,314,761
Inventory movement		37,076			34,657			(7,533	)		59,392
Cost of sales	$	993,304		$	1,345,291		$	2,013,811		$	2,374,153

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						Six Months Ended
					June 30,						June 30,
		Notes			2012			2011			2012			2011
Rent of mining equipment with G&F Phelps		(i)		$	-		$	-		$	-		$	42,641
Interests on related party loans		(ii)			9,965			16,598			20,295			33,023

(i) During 2009, the Company signed an agreement for the rent of mining equipment with G&F Phelps Limited ("G&F Phelps"), a company controlled by a director of the Company. In January 2011, Omagh, the operator of the Omagh mine acquired this mining equipment at a cost of GBP 192,500, exclusive of VAT. At June 30, 2012, the Company has accrued charges of $nil (December 31, 2011 - $nil), payable to G&F Phelps for the rent of the mining equipment which is currently due and is included with due to related parties.

(ii) G&F Phelps, a company controlled by a director of the Company, had amalgamated loans to Galantas of $1,640,840 (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 June 30, 2012 , the amount of interest accrued is $64,046 (GBP 40,069) (December 31, 2011 - $43,085 - GBP 27,271).

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

		Three Months Ended						Six Months Ended
		June 30,						June 30,
		2012			2011			2012			2011
Salaries and benefits (1)	$	96,035		$	98,000		$	190,855		$	195,240
Stock-based compensation	$	28,103		$	-			53,884			-
	$	124,138		$	98,000		$	244,739		$	195,240

⁽¹⁾ Salaries and benefits include director fees. As at June 30, 2012 , due to directors for fees amounted to $16,100 (December 31, 2011 - $nil) and due to directors, mainly for salaries and benefits accrued amounted to $877,964 (GBP 549,277) (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 $532,509 (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 interim consolidated financial statements.

17.	Subsequent Event

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.

Click on, or paste the following link into your web browser, to view the associated PDF document.

http://www.rns-pdf.londonstockexchange.com/rns/5434K_-2012-8-22.pdf 

 

END

 

 

IR SEWSAEFESESA