1st Quarter Results

RNS Number : 0503Z

Galantas Gold Corporation

24 May 2016

 

GALANTAS GOLD CORPORATION

TSXV & AIM : Symbol GAL

GALANTAS REPORTS RESULTS FOR THE QUARTER ENDED MARCH 31, 2016

May 24, 2016:  Galantas Gold Corporation (the "Company") is pleased to announce its financial results for the Quarter ended March 31, 2016. 

Financial Highlights

Highlights of the first quarter 2016 results, which are expressed in Canadian Dollars, are summarized below:

	Quarter Ended March 31
All in CDN$	2016	2015
Revenue	$ 28,073	$ 1,123
Cost of Sales	$ (121,531)	$ (69,997)
Loss before the items below	$ (93,458)	$ (68,874)
Amortization	$ (47,551)	$  (52,293)
General administrative expenses	$ (336,111)	$ (261,532)
Unrealized gain on fair value of derivative financial liability	$ 79,000	$ 8,000
Foreign exchange gain (loss)	$ 24,775	$ (39,400)
Net (Loss) for the quarter	$ (373,345)	$ (414,099)
Working Capital (Deficit)	$ (4,012,704)	$ (3,677,040)
Cash (loss) generated from operations before changes in non-cash working capital	$ (416,547)	$ (501,088)
Cash at March 31, 2016	$ 568,284	$ 380,764

The Net Loss for the quarter ended March 31, 2016 amounted to CDN$ 373,345 (2015: CDN$ 414,099) and the cash outflow from operating activities before changes in non-cash working capital items for the quarter ended March 31, 2016 amounted to CDN$ 416,547 (2015: CDN$ 501,088).

Sales revenues for the quarter ended March 31, 2016 consisted mainly of jewelry sales and amounted to CDN$ 28,073 (2015: CDN $ 1,123). Following the suspension of production during the fourth quarter of 2013 there have not been any shipments of concentrates from the mine.

Cost of sales, which includes production costs and inventory movement, for the quarter ended March 31, 2016 amounted to CDN$ 121,531 (2015: CDN$ 69,997).  Production costs were mainly in connection with ongoing care, maintenance and restoration costs at the Omagh mine site. 

The Company had a cash balance of $ 568,284 at March 31, 2016 compared to $ 380,764 at March 31, 2015. The working capital deficit at March 31, 2016 amounted to $ 4,012,704 compared to a working capital deficit of                            $ 3,677,040 at March 31, 2015.

Subsequent to March 31, 2016 the Company announced a proposed private placement of shares and shares for debt exchange. The private placement is expected to be for 16 million shares at a price of $ 0.07875 per share for a total of   $1,260,000. While the placing is expected to be for 16 million shares the Company may close for less than or more than this amount. A four month hold period will apply to the shares and issuance will be subject to TSXV approval. In addition to the placing, Roland Phelps, President and CEO of the Company, intends to, subject to approvals, enter into a shares for debt exchange on the same terms as the placing. Mr. Phelps will exchange debt accruing to him, as of March 31, 2016, for up to $935,852 for up to 11,883,835 shares.

Production

Production at the Omagh mine remains suspended. However the granting of planning consent during the second quarter of 2015 for an underground operation at the Omagh site, now subject to a judicial review expected to be heard in September 2016, will permit the continuation and expansion of gold mining. The underground mine will utilize the same processing methods and will be the first underground gold mine, of any scale, in Ireland. The strategy is to establish the underground mine as soon as finance is available and look for further expansion of gold reserves on the property, which has many undrilled targets.

Exploration

The drilling programme, which recommenced in September 2015, continued into the first quarter of 2016 with two drill rigs in operation and a further six holes were completed before the rigs left the site in March. During the first quarter, 1,298 metres were drilled, bringing the total number of metres for the programme to 3,602 m. In early 2016 Galantas reported the assay results for three holes completed in 2015 (see press release dated January 26, 2016). Most notable was hole OML-DD-15-155 which intersected a wide zone (13 m) of the Joshua vein at a vertical depth of 117 m grading 9.9 g/t Au.  This drilling programme also identified a new vein, Kestrel, running 70 m west of Joshua. An initial shallow (42.4 m) intersect returned 35.8 g/t Au over 0.7 m. One of the drill holes completed this quarter, targeted the Kestrel vein ~80 north of the previous hole and hit mineralisation at a vertical depth of 73 m (3.7 g/t Au over 1 m).

Vertical longitudinal sections were constructed in Micromine for the Joshua and Kearney veins. Each intersect was categorised according to its width and grade. This enabled an evaluation of the spatial variability of mineralisation across the site and has identified key areas that should be targeted during the next drill programme.

In addition detailed analysis of all available historic maps and geophysical data for the eastern Lack region was conducted during the current quarter. The overall aim was to identify key areas for further study which may facilitate a better understanding of movement on the Lack and Luis shear zones, which are likely to have caused displacement of the main veins.  Fieldwork was carried out in the Cornavarrow, Creeven, Corlea and Botera burns during March to assess the availability of outcrop which could be incorporated into a detailed re-mapping exercise. The re-mapping exercise will focus on the Creeven Burn and is underway in parallel with a petrographic study on samples from the main and minor veins. It is hoped that detailed structural mapping, in conjunction with new geochemical information, can be used to tie mineralisation south of the Creeven Burn to the main veins.

Permitting

In June 2015 the Company reported that the Minister of Environment, Northern Ireland had granted planning consent for an underground gold mine at the Omagh site. The planning consent will permit the continuation and expansion of gold mining and is expected to create hundreds of jobs locally. The positive decision is the result of 3 years of examination of environmental and other factors regarding the application. Included were environmental studies by NIEA (Northern Ireland Environment Agency) and independent specialists. The consent includes operating and environmental conditions, which the Company has reviewed. Some conditions require clarification but appear workable with some modifications to operating and construction methodology. A number of conditions precedent to development are required to be satisfied and the Company is carrying those out.

Later in 2015 Galantas reported that they had been made aware of pre-action correspondence from an individual who intends to challenge, by judicial review, the actions of the Department of Environment Northern Ireland (DOENI) in granting planning permission for underground mining beneath the existing open pit. During the current quarter Galantas confirmed that this third party had obtained leave from Belfast High Court to bring a judicial review of the planning consent granted by Department of Environment Northern Ireland, for the Company's underground mine. The review is scheduled to be heard in September 2016.

Roland Phelps, President & CEO, Galantas Gold Corporation, commented, "Work continues at a low level at the mine, satisfying conditions precedent to the underground planning permit, progressing restoration and some advance works related to underground development. The processing plant has been subject to throughput checks and is operational, awaiting ore."

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

http://www.rns-pdf.londonstockexchange.com/rns/0503Z_1-2016-5-23.pdf

Qualified Person

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

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

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]

Grant Thornton UK LLP (Nomad)       

Philip Secrett, Richard Tonthat                                                    

Telephone: [phone]                       

Whitman Howard  Ltd (Broker & Corporate Adviser) 

Ranald McGregor-Smith, Nick Lovering

Telephone: [phone] 

NOTICE TO READER

The accompanying unaudited condensed interim consolidated financial statements of Galantas Gold Corporation (the "Company") have been prepared by and are the responsibility of management. The unaudited condensed interim consolidated financial statements have not been reviewed by the Company's auditors.

Galantas Gold Corporation

Condensed Interim Consolidated Statements of Financial Position

(Expressed in Canadian Dollars)

(Unaudited)

		As at			As at
		March 31,			December 31,
		2016			2015
ASSETS
Current assets
Cash	$	568,284		$	1,518,332
Accounts receivable and prepaid expenses (note 4)		135,883			249,659
Inventories (note 5)		26,859			43,875
Total current assets		731,026			1,811,866
Non-current assets
Property, plant and equipment (note 6)		8,189,771			8,686,902
Long-term deposit (note 8)		559,560			612,210
Exploration and evaluation assets (note 7)		2,183,751			2,371,328
Total non-current assets		10,933,082			11,670,440
Total assets	$	11,664,108		$	13,482,306
EQUITY AND LIABILITIES
Current liabilities
Accounts payable and other liabilities (note 9)	$	931,809		$	1,388,762
Current portion of financing facility (note 10)		6,454			6,947
Due to related parties (note 14)		3,805,467			4,022,216
Total current liabilities		4,743,730			5,417,925
Non-current liabilities
Non-current portion of financing facility (note 10)		27,259			31,122
Decommissioning liability (note 8)		586,066			637,988
Derivative financial liability (note 11(c))		53,000			132,000
Total non-current liabilities		666,325			801,110
Total liabilities		5,410,055			6,219,035
Capital and reserves
Share capital (note 11(a)(b))		33,960,190			33,960,190
Reserves		7,843,073			8,478,946
Deficit		(35,549,210	)		(35,175,865	)
Total equity		6,254,053			7,263,271
Total equity and liabilities	$	11,664,108		$	13,482,306

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

Going concern (note 1)
Contingency (note 16)
Events after the reporting period (note 17)

Galantas Gold Corporation

Condensed Interim Consolidated Statements of Loss

(Expressed in Canadian Dollars)

(Unaudited)

		Three Months Ended
		March 31,
		2016			2015
Revenues
Gold sales	$	28,073		$	1,123
Cost and expenses of operations
Cost of sales (note 13)		121,531			69,997
Depreciation (note 6)		47,551			52,293
		169,082			122,290
Loss before general administrative and other (incomes) expenses		(141,009	)		(121,167	)
General administrative expenses
Management and administration wages (note 14)		177,943			130,619
Other operating expenses		21,557			33,772
Accounting and corporate		15,465			15,396
Legal and audit		50,402			21,810
Shareholder communication and investor relations		39,080			30,217
Transfer agent		1,623			1,980
Director fees (note 14)		5,000			5,000
General office		1,949			1,981
Accretion expenses (note 8)		3,102			2,966
Loan interest and bank charges (note 14)		19,990			17,791
		336,111			261,532
Other (incomes) expenses
Unrealized gain on fair value of derivative financial liability (note 11(c))		(79,000	)		(8,000	)
Foreign exchange (gain) loss		(24,775	)		39,400
		(103,775	)		31,400
Net loss for the period	$	(373,345	)	$	(414,099	)
Basic and diluted net loss per share (note 12)	$	(0.00	)	$	(0.01	)
Weighted average number of common shares outstanding - basic and diluted		107,297,154			81,747,570

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

Galantas Gold Corporation

Condensed Interim Consolidated Statements of Other Comprehensive (Loss) Income

(Expressed in Canadian Dollars)

(Unaudited)

		Three Months Ended
		March 31,
		2016			2015
Net loss for the period	$	(373,345	)	$	(414,099	)
Other comprehensive (loss) income
Items that will be reclassified subsequently to profit or loss
Foreign currency translation differences		(635,873	)		254,399
Total comprehensive loss	$	(1,009,218	)	$	(159,700	)

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

Galantas Gold Corporation

Condensed Interim Consolidated Statements of Cash Flows

(Expressed in Canadian Dollars)

(Unaudited)

		Three Months Ended
		March 31,
		2016			2015
Operating activities
Net loss for the period	$	(373,345	)	$	(414,099	)
Adjustment for:
Depreciation		47,551			52,293
Interest expense		9,920			-
Foreign exchange		354,745			(134,248	)
Accretion expenses (note 8)		3,102			2,966
Unrealized gain on fair value of derivative financial liability (note 11(c))		(79,000	)		(8,000	)
Non-cash working capital items:
Accounts receivable and prepaid expenses		113,776			12,952
Inventories		17,016			(4,692	)
Accounts payable and other liabilities		(456,953	)		15,914
Due to related parties		(226,669	)		236,313
Net cash used in operating activities		(589,857	)		(240,601	)
Investing activities
Purchase of property, plant and equipment		(295,050	)		-
Exploration and evaluation assets		(11,191	)		(17,019	)
Net cash used in investing activities		(306,241	)		(17,019	)
Financing activities
Proceeds of private placements		-			607,062
Share issue costs		-			(49,197	)
Advances from related parties		-			45,362
Repayment of financing facility		(1,140	)		-
Net cash (used in) provided by financing activities		(1,140	)		603,227
Net change in cash		(897,238	)		345,607
Effect of exchange rate changes on cash held in foreign currencies		(52,810	)		14,898
Cash, beginning of period		1,518,332			20,259
Cash, end of period	$	568,284		$	380,764

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

Galantas Gold Corporation

Condensed Interim Consolidated Statements of Changes in Equity

(Expressed in Canadian Dollars)

(Unaudited)

					Reserves
					Equity settled						Foreign
					share-based						currency
		Share			payments			Warrant			translation
		capital			reserve			reserve			reserve			Deficit			Total
Balance, December 31, 2014	$	31,825,575		$	5,471,109		$	-		$	1,133,221		$	(33,382,788	)	$	5,085,186
Shares issued in private placement (note 11(b)(i))		607,062			-			-			-			-			607,062
Warrants issued (note 11(b)(i))		(32,000	)		-			-			-			-			(32,000	)
Share issue costs		(49,197	)		-			-			-			-			(49,197	)
Net loss and other comprehensive income for the period		-			-			-			254,399			(414,099	)		(159,700	)
Balance, March 31, 2015	$	32,351,440		$	5,471,109		$	-		$	1,387,620		$	(33,796,887	)	$	5,451,351
Balance, December 31, 2015	$	33,960,190		$	5,809,109		$	766,000		$	1,903,837		$	(35,175,865	)	$	7,263,271
Net loss and other comprehensive loss for the period		-			-			-			(635,873	)		(373,345	)		(1,009,218	)
Balance, March 31, 2016	$	33,960,190		$	5,809,109		$	766,000		$	1,267,964		$	(35,549,210	)	$	6,254,053

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

Galantas Gold Corporation

Notes to Condensed Interim Consolidated Financial Statements

Three Months Ended March 31, 2016

(Expressed in Canadian Dollars)

(Unaudited)

1.	Going Concern

These unaudited condensed interim consolidated financial statements have been prepared on a going concern basis which contemplates that Galantas Gold Corporation (the "Company") will be able to realize assets and discharge liabilities in the normal course of business. In assessing whether the going concern assumption is appropriate, management takes into account all available information about the future, which is at least, but is not limited to, twelve months from the end of the reporting period. Management is aware, in making its assessment, of material uncertainties related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. The Company's future viability depends on the consolidated results of the Company's wholly-owned subsidiary Cavanacaw Corporation ("Cavanacaw"). Cavanacaw has a 100% shareholding in both Omagh Minerals Limited ("Omagh") and Flintridge Resources Limited ("Flintridge") who are engaged in the acquisition, exploration and development of gold properties, mainly in Omagh, Northern Ireland. The Omagh mine has an open pit mine, which was in production and is reported as property, plant and equipment and an underground mine which is in the development stage and reported as exploration and evaluation assets. The production at the open pit mine was suspended in 2013.

The going concern assumption is dependent upon the ability of the Company to obtain the following:

	a.	Securing sufficient financing to fund ongoing operational activity and the development of the underground mine.
	b.	Obtaining consent for an underground mine which is currently subject to a judicial review process scheduled for September 2016.

Should the Company be unsuccessful in securing the above, there would be significant uncertainty over the Company's ability to continue as a going concern. The Company is currently in discussions with a number of potential financiers.

As at March 31, 2016, the Company had a deficit of $35,549,210 (December 31, 2015 - $35,175,865). Management is confident that it will be able to secure the required financing to enable the Company to continue as a going concern. However, this is subject to a number of factors including market conditions.

These unaudited condensed interim consolidated financial statements do not reflect adjustments to the carrying values of assets and liabilities, the reported expenses and financial position classifications used that would be necessary if the going concern assumption was not appropriate. These 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 and in 2013 production was suspended. On April 1, 2014, Galántas amalgamated its jewelry business with Omagh.

On April 8, 2014, Cavanacaw acquired Flintridge. Following a strategic review of its business by the Company during 2014 certain assets owned by Omagh were acquired by Flintridge.

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

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

3.	Significant Accounting Policies

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. These unaudited 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.

The policies applied in these unaudited condensed interim consolidated financial statements are based on IFRSs issued and outstanding as of May 20, 2016 the date the Board of Directors approved the statements. The same accounting policies and methods of computation are followed in these unaudited condensed interim consolidated financial statements as compared with the most recent annual consolidated financial statements as at and for the year ended December 31, 2015, except for changes noted below. Any subsequent changes to IFRS that are given effect in the Company's annual consolidated financial statements for the year ending December 31, 2016 could result in restatement of these unaudited condensed interim consolidated financial statements.

Change in accounting policies 

(i) IAS 1 - Presentation of Financial Statements was amended in December 2014 in order to clarify, among other things, that information should not be obscured by aggregating or by providing immaterial information, that materiality consideration apply to all parts of the financial statements and that even when a standard requires a specific disclosure, materiality considerations do apply. At January 1, 2016, the Company adopted this pronouncement and there was no material impact on the Company's unaudited condensed interim consolidated financial statements.

Recent accounting pronouncements 

(i) IFRS 9 - Financial Instruments ("IFRS 9") was issued by the IASB in October 2010 and will replace IAS 39 - Financial Instruments: Recognition and Measurement ("IAS 39"). IFRS 9 uses an incurred loss approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the expected loss approach in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of the financial assets. In July 2014, the IASB issued the final version of IFRS 9. The final amendments made in the new version include guidance for the classification and measurement of financial assets and a third measurement category for financial assets, fair value through other comprehensive income. The standard also contains a new expected loss impairment model for debt instruments measured at amortized cost or fair value through other comprehensive income, lease receivables, contract assets and certain written loan commitments and financial guarantee contracts. Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward unchanged to IFRS 9. IFRS 9 will be effective for accounting periods beginning January 1, 2018. The Company is currently assessing the impact of this pronouncement.

(ii) In May 2014, the IASB issued IFRS 15 - Revenue from Contracts with Customers ("IFRS 15") to replace IAS 18 - Revenue and IAS 11 - Construction Contracts and the related interpretations on revenue recognition. The new revenue standard introduces a single, principles based, five-step model for the recognition of revenue when control of a good or service is transferred to the customer. The five steps are identify the contract(s) with the customer, identify the performance obligations in the contract, determine transaction price, allocate the transaction price and recognize revenue when the performance obligation is satisfied. IFRS 15 also requires enhanced disclosures about revenue to help investors better understand the nature, amount, timing and uncertainty of revenue and cash flows from contracts with customers and improves the comparability of revenue from contracts with customers. IFRS 15 will be effective for annual periods beginning on or after January 1, 2018, with early adoption permitted.

(iii) IFRS 16 - Leases ("IFRS 16") was issued on January 13, 2016 to require lessees to recognize assets and liabilities for most leases. For lessors, there is little change to the existing accounting in IAS 17 - Leases.

The IASB issued its standard as part of a joint project with the Financial Accounting Standards Board ("FASB"). The FASB has not yet issued its new standard, but it is also expected to require lessees to recognize most leases on their statement of financial position.

The new standard will be effective for annual periods beginning on or after 1 January 2019. Early application is permitted, provided the new revenue standard, IFRS 15, has been applied, or is applied at the same date as IFRS 16.

4.	Accounts Receivable and Prepaid Expenses

		As at			As at
		March 31,			December 31,
		2016			2015
Sales tax receivable - Canada	$	5,406		$	3,083
Valued added tax receivable - Northern Ireland		61,015			141,976
Accounts receivable		38,496			62,725
Prepaid expenses		30,966			41,875
	$	135,883		$	249,659

Prepaid expenses includes advances for consumables and for construction of the passing bays in the Omagh mine.

The following is an aged analysis of receivables:

		As at			As at
		March 31,			December 31,
		2016			2015
Less than 3 months	$	66,422		$	165,666
3 to 12 months		-			1,837
More than 12 months		38,495			40,281
Total accounts receivable	$	104,917		$	207,784

5.	Inventories

		As at			As at
		March 31,			December 31,
		2016			2015
Concentrate inventories	$	12,124		$	13,265
Finished goods		14,735			30,610
	$	26,859		$	43,875

Refer to note 13 for inventory movement.

6.	Property, Plant and Equipment

		Freehold			Plant									Mine
		land and			and			Motor			Office			development
Cost		buildings			machinery			vehicles			equipment			costs			Total
Balance, December 31, 2014	$	2,440,515		$	5,159,328		$	81,732		$	111,292		$	14,943,018		$	22,735,885
Additions		-			10,278			40,198			-			855,937			906,413
Foreign exchange adjustment		315,480			663,775			14,714			14,387			1,931,651			2,940,007
Balance, December 31, 2015		2,755,995			5,833,381			136,644			125,679			17,730,606			26,582,305
Additions		-			-			-			-			295,050			295,050
Foreign exchange adjustment		(237,014	)		(499,264	)		(11,752	)		(10,809	)		(1,524,831	)		(2,283,670	)
Balance, March 31, 2016	$	2,518,981		$	5,334,117		$	124,892		$	114,870		$	16,500,825		$	24,593,685

		Freehold			Plant									Mine
		land and			and			Motor			Office			development
Accumulated depreciation		buildings			machinery			vehicles			equipment			costs			Total
Balance, December 31, 2014	$	1,969,052		$	4,300,385		$	75,803		$	85,203		$	9,217,987		$	15,648,430
Depreciation		24,105			173,340			6,466			4,000			-			207,911
Foreign exchange adjustment		266,155			560,042			10,085			11,191			1,191,589			2,039,062
Balance, December 31, 2015		2,259,312			5,033,767			92,354			100,394			10,409,576			17,895,403
Depreciation		5,321			38,504			2,812			914			-			47,551
Foreign exchange adjustment		(194,569	)		(432,482	)		(8,085	)		(8,680	)		(895,224	)		(1,539,040	)
Balance, March 31, 2016	$	2,070,064		$	4,639,789		$	87,081		$	92,628		$	9,514,352		$	16,403,914

		Freehold			Plant									Mine
		land and			and			Motor			Office			development
Carrying value		buildings			machinery			vehicles			equipment			costs			Total
Balance, December 31, 2015	$	496,683		$	799,614		$	44,290		$	25,285		$	7,321,030		$	8,686,902
Balance, March 31, 2016	$	448,917		$	694,328		$	37,811		$	22,242		$	6,986,473		$	8,189,771

7.	Exploration and Evaluation Assets

Exploration and evaluation assets are expenditures for the underground mining operations in Omagh. The proposed underground mine is dependent on the ability of the Company to obtain the necessary planning permission. On June 11, 2015, the Company announced that it had obtain planning consent for an underground gold mine at the Omagh site. However, the planning permission is subject to a judicial review which is scheduled for September 2016. The consent includes operating and environmental conditions.

		Exploration
		and
		evaluation
Cost		assets
Balance, December 31, 2014	$	2,070,772
Additions		40,636
Foreign exchange adjustment		259,920
Balance, December 31, 2015		2,371,328
Additions		11,191
Foreign exchange adjustment		(198,768	)
Balance, March 31, 2016	$	2,183,751

		Exploration
		and
		evaluation
Carrying value		assets
Balance, December 31, 2015	$	2,371,328
Balance, March 31, 2016	$	2,183,751

8.	Decommissioning Liability

The Company's decommissioning liability is a result of mining activities at the Omagh mine in Northern Ireland. The Company estimated its decommissioning liability at March 31, 2016 based on a risk-free discount rate of 1% (December 31, 2015 - 1%) and an inflation rate of 1.50% (December 31, 2015 - 1.50%) . The expected undiscounted future obligations allowing for inflation are GBP 330,000 and based on management's best estimate the decommissioning is expected to occur over the next 5 to 10 years. On March 31, 2016, the estimated fair value of the liability is $586,066 (December 31, 2015 - $637,988). Changes in the provision during the three months ended March 31, 2016 are as follows:

		As at			As at
		March 31,			December 31,
		2016			2015
Decommissioning liability, beginning of period	$	637,988		$	553,544
Accretion		3,102			12,341
Foreign exchange		(55,024	)		72,103
Decommissioning liability, end of period	$	586,066		$	637,988

As required by the Crown in Northern Ireland, the Company is required to provide a bond for reclamation related to the Omagh mine in the amount of GBP 300,000 (December 31, 2015 - GBP 300,000), of which GBP 300,000 was funded as of March 31, 2016 (GBP 300,000 was funded as of December 31, 2015) and reported as long-term deposit of $559,560 (December 31, 2015 - $612,210).

9.	Accounts Payable and Other Liabilities

Accounts payable and other liabilities of the Company are principally comprised of amounts outstanding for purchases relating to exploration costs on exploration and evaluation assets, general operating activities, amounts payable for financing activities and professional fees activities.

		As at			As at
		March 31,			December 31,
		2016			2015
Accounts payable	$	364,930		$	756,682
Accrued liabilities		566,879			632,080
Total accounts payable and other liabilities	$	931,809		$	1,388,762

The following is an aged analysis of the accounts payable and other liabilities:

		As at			As at
		March 31,			December 31,
		2016			2015
Less than 3 months	$	394,840		$	680,077
3 to 12 months		91,915			220,071
12 to 24 months		50,594			67,029
More than 24 months		394,460			421,585
Total accounts payable and other liabilities	$	931,809		$	1,388,762

10.	Financing Facility

Amounts payable on the long-term debt are as follow:

					As at			As at
					March 31,			December 31,
		Interest			2016			2015
Financing facility, beginning of period				$	38,069		$	-
Financing facility received (GBP 19,900)		6.79%			-			40,610
Less current portion					(6,454	)		(6,947	)
Repayment of financing facility					(1,140	)		(2,541	)
Foreign exchange adjustment					(3,216	)		-
Financing facility - long term portion				$	27,259		$	31,122

In June 2015, the Company obtained financing in the amount of GBP 19,900 for the purchase of a vehicle. The financing is for three years at interest of 6.79% per annum with monthly principal and interest payments of GBP 377 together with a final payment in June 2018 of GBP 9,383. The financing was secured on the vehicle.

11.	Share Capital and Reserves

a)	Authorized share capital

At March 31, 2016, the authorized share capital consisted of an 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.

No preference shares have been issued. The preference shares do not have a par value.

b)	Common shares issued

At March 31, 2016, the issued share capital amounted to $33,960,190. The change in issued share capital for the periods presented is as follows:

		Number of
		common
		shares			Amount
Balance, December 31, 2014		76,697,155		$	31,825,575
Shares issued in private placement (i)		10,599,999			607,062
Warrants issued (i)		-			(32,000	)
Share issue costs		-			(49,197	)
Balance, March 31, 2015		87,297,154		$	32,351,440
Balance, December 31, 2015 and March 31, 2016		107,297,154		$	33,960,190

(i) On February 16, 2015, the Company closed a private placement of 10,599,999 common shares at GBP 0.03 ($0.05727) per common share for gross proceeds of GBP 316,667 ($607,062). Commissions of $36,424 were paid in connection with the placement and was included in the share issue costs. The agent also received 636,000 broker warrants. Each broker warrant can be exercised for one common share at an exercise price of GBP 0.045 for a period of 3 years.

The fair value of the 636,000 broker warrants was estimated at $32,000 using the Black-Scholes option pricing model with the following assumptions: expected dividend yield - 0%, expected volatility - 168.98%, risk-free interest rate - 0.43% and an expected average life of 3 years. As a result of the exercise price of the broker warrants being denominated in a currency other than the functional currency, the broker warrants are considered a derivative financial liability.

c)	Warrant reserve

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

					Weighted
					average
		Number of			exercise
		warrants			price
Balance, December 31, 2014		10,330,000		$	0.18
Issued (note 11(b)(i))		636,000			0.08
Balance, March 31, 2015		10,966,000		$	0.18
Balance, December 31, 2015 and March 31, 2016		30,966,000		$	0.17

The following table reflects the actual warrants issued and outstanding as of March 31, 2016:

											Fair value
					Grant date						March 31,
		Number			fair value			Exercise			2016
Expiry date		of warrants			($)			price			($)
May 7, 2016		10,330,000			383,000			0.10	(1)		26,000
July 24, 2016		20,000,000			766,000			0.16			766,000
February 16, 2018		636,000			32,000			0.045	(1)		27,000
		30,966,000			1,181,000						819,000

⁽¹⁾ Exercise price is in GBP. As a result of the exercise price of the warrants being denominated in a currency other than the functional currency, the warrants are considered a derivative financial liability. The warrants are revalued at each period end with any gain or loss in the fair value being record in the unaudited condensed interim consolidated statements of loss as an unrealized gain or loss on fair value of derivative financial liability.

On March 31, 2016, the fair value of the warrants, denominated in a currency other than the functional currency, was estimated using the Black-Scholes option pricing model with the following assumptions: expected dividend yield of 0%; expected volatility of 119% to 192%; risk free interest rate of 0.54%; and an expected life of 0.10 years to 1.88 years. As a result, the fair value of the warrants was calculated to be $53,000 and the Company recorded an unrealized gain on fair value of derivative financial liability for the three months ended March 31, 2016 of $79,000 (three months ended March 31, 2015 - unrealized gain of $8,000).

d)	Stock options

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

					Weighted
					average
		Number of			exercise
		options			price
Balance, December 31, 2014 and March 31, 2015		940,000		$	0.50
Balance, December 31, 2015		4,440,000		$	0.17
Expired		(50,000	)		0.50
Balance, March 31, 2016		4,390,000		$	0.17

The following table reflects the actual stock options issued and outstanding as of March 31, 2016:

					Weighted average						Number of
					remaining			Number of			options			Number of
		Exercise			contractual			options			vested			options
Expiry date		price ($)			life (years)			outstanding			(exercisable)			unvested
September 6, 2016		0.50			0.44			690,000			690,000			-
June 1, 2020		0.105			4.17			3,550,000			3,550,000			-
June 12, 2020		0.105			4.21			150,000			150,000			-
		0.17			3.59			4,390,000			4,390,000			-

12.	Net Loss per Common Share

The calculation of basic and diluted loss per share for the three months ended March 31, 2016 was based on the loss attributable to common shareholders of $373,345 (three months ended March 31, 2015 - $414,099) and the weighted average number of common shares outstanding of 107,297,154 (three months ended March 31, 2015 - 81,747,570) for basic and diluted loss per share. Diluted loss did not include the effect of 30,966,000 warrants (three months ended March 31, 2015 - 10,966,000) and 4,390,000 options (three months ended March 31, 2015 - 940,000) for the three months ended March 31, 2016, as they are anti-dilutive.

13.	Cost of Sales

		Three Months Ended
		March 31,
		2016			2015
Production wages	$	60,480		$	24,532
Oil and fuel		18,269			8,799
Repairs and servicing		15,398			15,167
Equipment hire		-			2,113
Royalties		-			9,236
Other costs		13,434			10,150
Production costs		107,581			69,997
Inventory movement		13,950			-
Cost of sales	$	121,531		$	69,997

14.	Related Party Disclosures

Related parties include the Board of Directors, close family members, other key management individuals 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 fair value and approved by the Board of Directors in strict adherence to conflict of interest laws and regulations.

(a) The Company entered into the following transactions with related parties:

					Three Months Ended
					March 31,
		Note			2016			2015
Interest on related party loans		(i)		$	18,113		$	16,610

(i) G&F Phelps Limited ("G&F Phelps"), a company controlled by a director of the Company, had amalgamated loans to the Company of $2,458,994 (GBP 1,318,354) (December 31, 2015 - $2,690,365 - GBP 1,318,354) included with due to related parties 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 March 31, 2016, the amount of interest accrued is $309,723 (GBP 166,054) (December 31, 2015 - $320,053 - GBP 156,835).

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

		Three Months Ended
		March 31,
		2016			2015
Salaries and benefits (1)	$	121,486		$	116,288

⁽¹⁾ Salaries and benefits include director fees. As at March 31, 2016, due to directors for fees amounted to $88,750 (December 31, 2015 - $83,750) and due to key management, mainly for salaries and benefits accrued amounted to $948,000 (GBP 508,256) (December 31, 2015 - $928,048 - GBP 454,769), and is included with due to related parties.

(c) As of March 31, 2016, Kenglo One Limited owns 13,222,068 common shares of the Company or approximately 12.32% of the outstanding common shares of the Company. Ross Beaty owns 16,000,000 common shares of the Company or approximately 14.91% of the outstanding common shares. Roland Phelps, Chief Executive Officer ("CEO") and director, owns, directly and indirectly, 21,472,915 common shares of the Company or approximately 20.01% of the outstanding common shares of the Company. The remaining 52.76% of the shares are widely held, which includes various small holdings which are owned by directors of the Company. These holdings can change at anytime at the discretion of the owner.

The Company is not aware of any arrangements that may at a subsequent date result in a change in control of the Company.

15.	Segment Disclosure

The Company 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 Flintridge. Substantially all of the Company's revenues, costs and assets of the business that support these operations are derived or located in Northern Ireland. Segmented information on a geographic basis is as follows:

March 31, 2016		United Kingdom			Canada			Total
Current assets	$	354,655		$	376,371		$	731,026
Non-current assets		10,872,566			60,516			10,933,082
Revenues	$	28,073		$	-		$	28,073

December 31, 2015		United Kingdom			Canada			Total
Current assets	$	447,691		$	1,364,175		$	1,811,866
Non-current assets		11,609,887			60,553			11,670,440

16.	Contingency

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 $567,562 (GBP 304,290) 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. A hearing date for the appeal has not yet been determined. No provision has been made for the claim in the unaudited condensed interim consolidated financial statements.

17.	Events After the Reporting Period

(i) On May 7, 2016, 10,330,000 warrant with an exercise price of GBP $0.10 expired unexercised.

(ii) On May 11, 2016, the Company announced a proposed private placement of shares and shares for debt exchange. The private placement is expected to be for 16 million shares at a price of $0.07875 per share (the "Placing") for a total of $1,260,000. While the Placing is expected for 16 million shares the Company may close for less than or more than this amount. A four month hold period will apply to the shares and issuance will be subject to TSXV approval. The shares will rank pari passu with the existing shares in issue of the Company.

(ii) (continued) In addition to the Placing, Roland Phelps, President and CEO of the Company, intends to, subject to approvals, enter into a shares for debt exchange on the same terms as the Placing. Mr. Phelps will exchange debt accruing to him, as of March 31, 2016, for up to $935,852 for up to 11,883,835 shares.

 

END

 

 

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