Consolidated Financial Statem

RNS Number : 0396Y

Galantas Gold Corporation

27 August 2009

 



GALANTAS GOLD CORPORATION

TORONTO VENTURE EXCHANGE / LONDON STOCK EXCHANGE - AIM

Symbol : GAL

GALANTAS CASH POSITIVE IN SECOND QUARTER 2009

27 August 2009

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

HIGHLIGHTS  CDN$	Second Quarter 2009	Year to Date  2009	Second Quarter 2008	Year to Date 2008
Sales	$ 1,648,243	$ 2,791,247	$ 650,565	$1,272,352
Mine Cost of Sales excluding Financing charges etc	$ 1,149,926	$ 2,118,111	$ 693,104	$ 1,709,463
Financing, interest & other cash costs	$ 134,198	$ 169,231	$ 94,732	$ 297,898
Profit/(Loss) before amortization, foreign exchange and non-cash costs	$ 364,119	$ 503,905	($ 137,271)	($ 735,009)
Amortization, depreciation, foreign exchange and non cash costs	$ 598,444	$ 1,028,243	$ 575,002	$ 1,123,183
Net Profit/(Loss)	($ 234,325)	($ 524,338)	($ 712,273)	($ 1,858,192)

As noted in a Trading Update of 6th July 2009, production in the second quarter increased to approximately 1977 troy ounces of gold, 5972 troy ozs of silver and 90.4 tonnes of lead. The production and metal figures are provisional and subject to averaging or umpiring provisions under the concentrate off-take contract with Xstrata Corporation detailed in a press release dated 3rd October 2007.

This release has been reviewed by Leo O'Shaughnessy, Chief Financial Officer of the Company and a Qualified Person, from information prepared under his direction.

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

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

Enquiries

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

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

Blomfield Corporate Finance Ltd                          
Nick Harriss
Telephone: [phone]    

Lewis Charles Securities Limited.       
Kealan Doyle & Nicholas Nicolaides
Telephone: [phone]

Interim Consolidated Financial Statements

(Expressed in Canadian Dollars)

(Unaudited)

For the Three and Six Months Ended June 30, 2009

MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING

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

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

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

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

NOTICE TO READER

Under National Instrument 51ߛ102, Part 4, subsection 4.3(3)(a), if an auditor has not performed a review of the interim financial statements, they must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor.

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

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

INTERIM CONSOLIDATED BALANCE SHEETS 

(Expressed in Canadian Dollars)

(Unaudited)

                                                                                                June 30,    December 31,

                                                                                                     2009                   2008

Assets

Current

Cash                                                                                    $    488,354        $    587,489    

Accounts receivable and advances                                                694,346             330,467    

Inventory (Note 6)                                                                         680,858            652,306

                                                                                                1,863,558          1,570,262    

Property, plant and equipment (Note 7)                                   5,858,344          6,152,874    

Long-term deposit                                                                      101,900             101,900    

Deferred development and exploration costs (Note 8)            10,282,832        10,601,856    

Future income taxes                                                                 2,094,043         2,094,043

                                                                                          $    20,200,677  $    20,520,935

Liabilities

Current 

Accounts payable and accrued liabilities                                 $    2,109,111     $    2,298,303    

Current portion of financing facility (Note 9)                                       271,781             309,043    

    Due to related party (Note 11)                                                   2,911,999           2,504,275

                                                                                                  5,292,891           5,111,621    

Asset retirement obligation                                                          447,400               447,400    

Due to related party (Note 11)                                                        343,933              418,161    

Long-term portion of financing facility (Note 9)                               81,869              199,864 

                                                                                                   6,166,093           6,177,046

Shareholders' Equity

Share capital (Note 10(a))                                                         26,530,787            26,435,998    

Warrants (Note 10(b))                                                                    227,650                 180,640    

Contributed surplus                                                                    3,721,522             3,648,288

                                                                                                 30,479,959            30,264,926    

Deficit                                                                                      (16,445,375)          (15,921,037)

                                                                                                  14,034,584            14,343,889

                                                                                            $    20,200,677       $    20,520,935

Going concern (Note 1)

INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Expressed in Canadian Dollars)

(Unaudited)

                                                                              Three Months Ended               Six Months Ended

                                                                                        June 30,                                 June 30,

                                                                               2009                  2008               2009               2008    

Revenues

    Gold sales                                                  $    1,648,243        $    650,565    $    2,791,247     $    1,272,352        

Cost and expenses of operations

    Cost of sales                                                       989,285              431,708          1,802,669           1,134,187        

    Amortization and depreciation                               325,561              352,082             629,439             697,081

                                                                            1,314,846              783,790          2,432,108          1,831,268

Income (loss) before the undernoted                      333,397            (133,225)             359,139           (558,916)    

Other expenses and (income)

    Other operating expenses                                      160,641            261,396              315,442            575,276        

    Accounting and corporate                                        13,200              13,569                26,993              29,029        

    Legal and audit                                                       24,196              14,339                38,589              28,946        

    Stockߛbased compensation (Note 10(c))                  35,505            117,656                73,234             248,708        

    Shareholder communication and 

        public relations                                                   40,581              38,614                69,922              68,143        

    Transfer agent                                                         11,376               9,786                12,652              12,659        

    Consulting fees                                                                -               6,186                         -               6,186        

    General office                                                          12,139             12,238                21,075              25,338        

    Bank charges and interest                                        32,706             83,714                64,342            127,892        

    Foreign exchange loss                                            237,378            21,583               261,228            177,394        

    Interest income                                                                 -                 (33)                        -                 (295)       

                                                                                 567,722           579,048             883,477         1,299,276 

Net loss and comprehensive loss 

    for the period                                                  $  (234,325)       $(712,273)        $  (524,338)    $  (1,858,192)    

Basic and diluted loss per share                                 $    (0.00)         $    (0.00)      $        (0.00)      $       (0.01)

Weighted average number of shares 

    outstanding -basic                                             190,100,055      175,675,855      189,833,863      175,675,855    

Dilutive effect of stock options and warrants                              -                      -                       -                       -    

Weighted average number of shares 

    outstanding- diluted                                            190,100,055      175,675,855       189,833,863     175,675,855    

INTERIM CONSOLIDATED STATEMENTS OF DEFICIT

(Expressed in Canadian Dollars)

(Unaudited)

                                                           Three Months Ended                                  Six Months Ended

                                                                    June 30,                                                     June 30,

                                                        2009                        2008                          2009                        2008    

Deficit, beginning of period        $    (16,211,050)        $    (15,105,862)        $    (15,921,037)        $    (13,959,943)    

Net loss for the period                         (234,325)                  (712,273)                  (524,338)                (1,858,192)

Deficit, end of period                 $    (16,445,375)        $    (15,818,135)        $    (16,445,375)         $    (15,818,135)

INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY 

(Expressed in Canadian Dollars)

(Unaudited)

                                                                      Share                                 Contributed

                                                                     Capital           Warrants              Surplus                  Deficit                     Total

Balance, December 31, 2007                                                   $    26,134,279     $    2,417,700       $    844,247    $    (13,959,943)       $    15,436,283    

Shares issued under private placements           496,760                       -                        -                         -               496,760 

Warrants issued                                            (180,640)            180,640                        -                         -                      -    

Share issue costs                                            (14,401)                     -                         -                         -               (14,401)Warrants expired                                                      -          (2,417,700)          2,417,700                         -                        -  

Stock-based compensation                                        -                       -              386,341                         -             386,341

Net loss                                                                   -                    -                 -                         (1,961,094)       (1,961,094)

Balance, December 31, 2008                       26,435,998           180,640            3,648,288             (15,921,037)      14,343,889

Shares issued for debt (Note 10(a))                   141,799                     -                         -                          -               141,799 

Warrants issued                                              (47,010)            47,010                         -                          -                      -    

Stock-based compensation (Note 10(c))                     -                      -                 73,234                          -               73,234

Net loss                                                                  -                       -                        -                (524,338)            (524,338)
Balance, June 30, 2009                        $    26,530,787      $    227,650      $    3,721,522     $    (16,445,375)    $    14,034,584



INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS 

(Expressed in Canadian Dollars)

(Unaudited)

                                                                               Three Months Ended                          Six Months Ended

                                                                                         June 30,                                            June 30,

                                                                                2009                2008                             2009           2008    

CASH (USED IN) PROVIDED BY

OPERATING ACTIVITIES

Net loss for the period                                      $    (234,325)        $    (712,273)            $    (524,338)      $    (1,858,192)Adjustments for non-cash items:

Amortization and depreciation                             325,561                352,082                    629,439                697,081        

Stock-based compensation (Note 10(c))                35,505                 117,656                     73,234                248,708        

Foreign exchange                                                     27,397                   (5,250)                    29,901                    3,333        

Net change in non-cash working capital 

    (Note 12(a))                                                      (150,530)                   40,466                 (439,824)                347,504    

                                                                                3,608                 (207,319)                (231,588)               (561,566)    

INVESTING ACTIVITIES

Sale (purchase) of property, plant 

    and equipment                                                       4,086                (105,095)                     4,086               (349,651)        

Deferred development and exploration costs               (18,082)                         -                    (19,971)                         - 

                                                                              (13,996)               (105,095)                  (15,885)              (349,651)    

FINANCING ACTIVITIES

Net repayments of financing facility                            (57,518)               (131,522)                (155,257)               (207,915)     

Advances from related party                                      206,498                 332,052                  333,496              1,214,352

                                                                               148,980                200,530                  178,239              1,006,437    

NET CHANGE IN CASH                                            138,592               (111,884)                  (69,234)                 95,220        

Effect of exchange rate changes on cash 

    held in foreign currencies                                        (27,397)                   5,250                   (29,901)                 (3,333)     

CASH, BEGINNING OF PERIOD                                377,159                219,829                   587,489                 21,308    

CASH, END OF PERIOD                                      $    488,354          $    113,195              $    488,354         $    113,195   

SUPPLEMENTAL CASH FLOW INFORMATION (Note 12)

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS 

(Expressed in Canadian Dollars)

(Unaudited)

THREE AND SIX MONTHS ENDED JUNE 30, 2009

1.    GOING CONCERN

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

As at December 31, 2001, studies performed on Omagh's mineral property confirmed the existence of economically recoverable reserves. As at July 1, 2007, the mineral property was in the production stage and the directors believe that the capitalized development expenditures will be fully recovered by the future operation of the mine. The recoverability of Omagh's capitalized development costs is thus dependent on the ability to secure financing, future profitable production or proceeds from the disposition of the mineral property.  

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

2.     INCORPORATION AND NATURE OF OPERATIONS

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

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

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

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

3.    BASIS OF PRESENTATION AND ACCOUNTING POLICIES

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

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

New accounting policies

Goodwill and Intangible Assets

Effective January 1, 2009, the Company adopted Section 3064, 'Goodwill and Intangible Assets' which replaced the Canadian Institute of Chartered Accountants' Handbook ('CICA Handbook') sections 3062 and 3450, EICߛ27 and part of Accounting Guideline 11. Under previous Canadian standards, more items were recognized as assets than under International Financial Reporting Standards ('IFRS'). The objectives of CICA 3064 are to reinforce the principle based approach to the recognition of assets only in accordance with the definition of an asset and the criteria for asset recognition and to clarify the application of the concept of matching revenues and expenses such that the current practice of recognizing asset items that do not meet the definition and recognition criteria is eliminated. The portions in the new standard with respect to Goodwill remain unchanged. The provisions relating to the definition and initial recognition of intangible assets intends to reduce the differences with IFRS in the accounting for intangible assets. The new standard also provides guidance for the recognition of internally developed intangible assets (including research and development activities), ensuring consistent treatment of all intangible assets.

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

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

In January 2009, the Emerging Issues Committee of the CICA issued EICߛ173, 'Credit Risk and the Fair Value of Financial Assets and Financial Liabilities', which applies to interim and annual financial statements for periods ending on or after January 20, 2009. The adoption of this standard had no impact on the Company's presentation of its financial position or results of operations as at June 30, 2009.

Future Accounting Pronouncements

IFRS

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

Business Combinations, Consolidated Financial Statements and NonߛControlling Interests

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

4.    CAPITAL MANAGEMENT

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

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

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

5.    FINANCIAL RISK FACTORS

(a) Property risk

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

(b) Financial risk

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

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

Credit risk

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

Liquidity Risk

Liquidity risk is the risk that the Company will not have sufficient cash resources to meet its financial obligations as they come due. The Company's liquidity and operating results may be adversely affected if the Company's access to the capital market is hindered, whether as a result of a downturn in stock market conditions generally or related to matters specific to the Company. The Company manages liquidity risk by monitoring maturities of financial commitments and maintaining adequate cash reserves and available borrowing facilities to meet these commitments as they come due. As at June 30, 2009, the Company had negative working capital. All of the Company's financial liabilities have contractual maturities of less than 30 days other than the financing facility and certain related party loans. The Company is using operating cash flows to manage and is seeking additional capital to increase liquidity.

Market Risk

    Interest rate risk

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

Foreign currency risk

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

Price risk

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

Sensitivity Analysis

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

(i) The term loan facility and certain related party loans are subject to interest rate risk. As at June 30, 2009, if interest rates had decreased/increased by 1% with all other variables held constant, the loss for the six months ended June 30, 2009 would have been approximately $17,000 lower/higher, as a result of lower/higher interest rates from the term loan facility and certain related party loans. Similarly, as at June 30, 2009, shareholders' equity would have been approximately $17,000 higher/lower as a result of a 1% decrease/increase in interest rates from the term loan facility and certain related party loans.

(ii) The Company is exposed to foreign currency risk on fluctuations related to cash, accounts receivable and advances, longߛterm deposit, accounts payable and accrued liabilities, due to related party and financing facility that are denominated in British pounds. As at June 30, 2009, had the British pound weakened/strengthened by 5% against the Canadian dollar with all other variables held constant, the Company's loss for the six months ended June 30, 2009 would have been approximately $228,000 higher/lower as a result of foreign exchange losses/gains on translation of nonߛCanadian dollar denominated financial instruments. Similarly, as at June 30, 2009, shareholders' equity would have been approximately $228,000 lower/higher had the British pound weakened/strengthened by 5% against the Canadian dollar as a result of foreign exchange losses/gains on translation of nonߛCanadian dollar denominated financial instruments.

(iii) Commodity price risk could adversely affect the Company. In particular, the Company's future profitability and viability of development depends upon the world market price of gold. Gold prices have fluctuated widely in recent years. There is no assurance that, even as commercial quantities of gold may be produced in the future, a profitable market will exist for them. A decline in the market price of gold may also require the Company to reduce production of its mineral resources, which could have a material and adverse effect on the Company's value. Net loss would be impacted by changes in average realized gold prices. Sensitivity to a plus or a minus 10% change in average realized gold prices would affect net loss and shareholders' equity by approximately $232,000.

6.     INVENTORY

                                                                                     June 30,    December 31,

                                                                                          2009                   2008

    Concentrate inventory                                           $               -        $       12,796    

    Finished goods                                                           680,858               639,510    

                                                                                                $    680,858          $    652,306    

7.     PROPERTY, PLANT AND EQUIPMENT 

                                                                              June 30, 2009

                                                                               Accumulated

                                                                Cost        Amortization                     Net

    Freehold land and buildings        $    3,020,913          $    420,442        $    2,600,471    

    Plant and machinery                        5,584,828             2,369,628             3,215,200    

    Motor vehicles                                      65,724                 47,444                  18,280    

    Office equipment                                   79,575                 55,182                  24,393    

    Moulds                                                81,802                  81,802                          -    

                                                     $    8,832,842       $    2,974,498        $    5,858,344    

                                                                            December 31, 2008

                                                                                 Accumulated

                                                                Cost          Amortization                  Net

    Freehold land and buildings        $    3,020,913        $    393,941        $    2,626,972    

    Plant and machinery                        5,589,818          2,110,532               3,479,286    

    Motor vehicles                                     64,820                45,395                   19,425    

    Office equipment                                  79,575               52,384                    27,191    

    Moulds                                                81,802               81,802                            -    

                                                    $    8,836,928     $    2,684,054         $    6,152,874    

8.     DEFERRED DEVELOPMENT AND EXPLORATION COSTS 

                                                                                                           June 30, 2009

                                                                                                             Accumulated

                                                                                          Cost        Amortization                       Net

    Deferred development and exploration costs        $    11,466,661        $    1,183,829        $    10,282,832    

                                                                                                       December 31, 2008

                                                                                                               Accumulated

                                                                                           Cost           Amortization                 Net

    Deferred development and exploration costs        $    11,446,690        $    844,834        $    10,601,856    

9.     FINANCING FACILITY

Amounts payable on the long term debt are as follows:

                                                                                                    June 30,              December 31,

                                                                                Interest              2009                            2008

Financing facility (238,700 GBP)                  3.71%        $         -                   $    44,659    

Financing facility (180,000 GBP)                  3.97%                   -                         29,602    

Financing facility (199,160 GBP)                  4.03%          168,095                      194,735    

Term loan facility (250,000 GBP)    Bank rate + 2%          185,555                      239,911    

                                                                                    353,650                      508,907    

Less current portion                                                        271,781                     309,043    

                                                                                                    $    81,869               $    199,864    

Principal repayments over the next three years are as follows:

                                                                       2009                                        $        271,781

                                                                       2010                                                   43,325

                                                                       2011                                                   38,544

                                                                                                                     $        353,650

10.    SHARE CAPITAL

(a)    Authorized and issued

Authorized

Unlimited number of common and preference shares issuable in Series

Issued common shares

                                                                         Number of                  Stated

                                                                               Shares                   Value

Balance, December 31, 2008                      186,965,855       $    26,435,998    

Shares issued for debt (i)                                3,134,200                 141,799    

Warrants issued                                                         -                  (47,010)    

Balance, June 30, 2009                               190,100,055       $    26,530,787    

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

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

(b)    Warrants

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

                                                                                                      Weighted

                                                                                                        Average

                                                           Number of Warrants                  Price

Balance, December 31, 2008                         11,290,000             $    0.09    

Issued (Note 10(a)(i))                                       3,134,200                  0.09    

Balance, June 30, 2009                                 14,424,200             $    0.09    

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

                                      Number                 Fair           Exercise                         Expiry

                        of Warrants          Value ($)           Price ($)                           Date

                                   11,290,000           180,640                  0.09       December 29, 2009

                                     3,134,200            47,010                   0.09          January 14, 2010

                                    14,424,200          227,650    

(c)    Stock options

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

                                                                                                                           Weighted

                                                                                                                             Average

                                                                                        Number of Options            Price

Balance, December 31, 2008 and June 30, 2009                         8,650,000        $    0.14    

Stock-based compensation expense includes $35,505 and $73,234, respectively ($117,656 and $248,708, respectively for the three and six months ended June 30, 2008) relating to stock options granted in previous years that vested during the three and six months ended June 30, 2009.

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

                               Weighted                                                    Weighted

                                Average                                                       Average

                              Remaining                                                 Remaining

    Options          Contractual Life    Exercise        Options    Contractual Life       Exercise                   Expiry

    Outstanding          (years)             Price ($)    Exercisable         (years)               Price ($)                     Date

        200,000                0.87                    0.10           200,000            0.87                     0.10             May 13, 2010

        500,000                1.95                    0.26           500,000            1.95                     0.26             June 14, 2011

        500,000                2.96                    0.23           500,000            2.96                     0.23             June 15, 2012

        5,700,000              3.48                   0.14        3,800,000            3.48                      0.14     December 24, 2012

        250,000                 3.64                   0.16           166,667            3.64                     0.16       February 20, 2013

        1,500,000              4.25                   0.10           500,000            4.25                      0.10         October 2, 2013

        8,650,000              3.44                   0.14        5,666,667            3.28                      0.15

11.    RELATED PARTY TRANSACTIONS

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

The Company has the following transactions with related parties:

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

During the period, the Company signed an agreement for the rent of mining equipments with G&F Phelps, a Company controlled by a director of the Company. The Company can decide to purchase the mining equipments within the next year. If the Company decides to purchase the mining equipments, the Company may deduct from the purchase price 50% of the charges that it has paid to rent the equipment. During the three and six months ended June 30, 2009, the Company paid $40,075 and $40,075 respectively to G&F Phelps for the rent of the mining equipments.

                                                                                        June 30, 2009                          December 31, 2008

                                                                                      GBP                CDN$                  GBP                    CDN$

Amount owing to the President and companies controlled by the President of the Company. $513,963 (268,781 GBP) of the loan is secured by a second charge on the land owned by Omagh and the balance of the loan is unsecured. The loan bears interest at a base rate plus 2%. $749,164 (391,781 GBP) is due over a period of 3 years and the balance due on demand.	834,746	1,596,198	869,801	1,556,597
Amount owing to the company controlled by a director of the Company for financing of mining equipment. $789,088 (412,660 GBP) of the loan is for a period of 4.25 years, interest bearing at 4.04% and is secured by all of the equipment owned by the Company's whollyߛowned subsidiary Omagh.	647,660	1,238,455	647,660	1,159,052
Amount owing to the President and Chief Executive Officer of the Company who agreed to lend up to a total of $956,100 (500,000 GBP) to the Company for a period of 6 months. The loan is secured by the Company's inventory with cross guarantees provided by the Company's subsidiaries. The loan bears interest at a base rate of 4.5% per annum, such interest to be calculated monthly and compounded until repaid.	220,311	421,279	115,549	206,787

                                                                          1,702,717          3,255,932           1,633,010             2,922,436    

    Less: Current portion                                                               (2,911,999)                                    (2,504,275)    

    Long-term portion                                                                        343,933                                         418,161    

12.    SUPPLEMENTAL CASH FLOW INFORMATION

    (a)    Net change in non-cash working capital

                                                                                               Three Months                         Six Months

                                                                                                      Ended                                 Ended

                                                                                                     June 30,                             June 30,

                                                                                             2009           2008                2009               2008

    Accounts receivable and advances                            $    (191,586)     $    (40,467)    $    (363,879)      $    16,541    

    Inventory                                                                         37,710           (424,750)            (28,552)        (719,250)    

    Accounts payable and accrued liabilities                              3,346            366,954            (47,393)          648,939    

    Deferred revenue                                                                       -             138,729                     -            401,274

                                                                                  $    (150,530)        $    40,466    $    (439,824)     $    347,504 

    (b)    Supplemental information

    Interest paid                                                                $    23,628        $    20,081        $    48,736        $    30,850

    Shares issued for debt payment                                            $    -                 $    -        $   141,799                $    -

Interest paid includes $23,628 and $48,736, respectively (comparable period ߛ $20,081 and $30,850, respectively) of interest paid on the financing facility during the three and six months ended June 30, 2009, which was expensed to the statements of operations.

13.    SEGMENT DISCLOSURE

The Company, after reviewing its reporting systems, has determined that it has one reportable segment. The Company's operations are substantially all related to its investment in Cavanacaw and its subsidiaries, Omagh and Galántas. Substantially all of the Company's revenues, costs and assets of the business that support these operations are derived or located in Northern Ireland.

 

END

 

 

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