Half Yearly Report

RNS Number : 6103P

Galantas Gold Corporation

20 August 2014

 



GALANTAS GOLD CORPORATION

TSXV & AIM : Symbol GAL

GALANTAS REPORTS RESULTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014

August 20th, 2014:  Galantas Gold Corporation (the 'Company') is pleased to announce its financial results for the three and six months ended June 30, 2014.

Financial Highlights

Highlights of the 2014 second quarter's and first six months results, which are expressed in Canadian Dollars, are summarized below:

All figures denominated in Canadian Dollars (CDN$)	Second Quarter Ended June 30		Six Months Ended  June 30
	2014	2013	2014	2013
Revenue	$   0	$    532,856	$    0	$ 888,532
Cost of Sales	$    99,446	$    511,833	$    176,680	$ 909,421
Income (Loss) before the undernoted	$      (99,446)	$    12,023	$  (176,680)	$   (20,889)
Depreciation	$    62,171	$     122,224	$   127,263	$    246,830
General administrative expenses	$    347,528	$     294,721	$   619,709	$  591,780
(Gain) on sale of property, plant and equipment	$        (19,312)	$  (64,531)	$      (19,860)	$   (64,531)
Unrealized (gain) on fair value of derivative financial liability	$ (210,000)	$ 0	$ (210,000)	$ 0
Foreign exchange loss	$       16,770	$    17,272	$        104,911	$  3,249
Net (Loss) for the period	$ ( 296,603)	$     (357,663)	$  (798,703)	$  (798,217)
Working Capital (Deficit)	$ (2,607,058)	$ (3,037,837)	$ (2,607,058)	$(3,037,837)
Cash (loss) from operating activities before changes in non-cash working capital	$ (450,143)	$    (323,010)	$ (969,676)	$ (562,927)
Cash at June 30, 2014	$ 458,849	$ 476,581	$ 458,849	$ 476,581

The Net Loss for the three months ended June 30, 2014, amounted to CDN$ 296,603 (2013 Q2: CDN$ 357,663) and the cash loss from operating activities before changes in non-cash working capital in the second quarter of 2014 amounted to CDN$ 450,143 (2013 Q2: CDN$ 323,010). The Net Loss for the six months ended June 30, 2014, amounted to CDN$ 798,703 (2013:CDN$ 798,217) and the cash loss from operating activities before changes in non-cash working capital for the first six months  of 2014 amounted to CDN$ 969,676 (2013: CDN$ 562,927).

Sales revenues for the second quarter and six months ended June 30, 2014 amounted to CDN$ Nil (2013: CDN $532,856 and CDN$ 888,532 respectively). Following the suspension of production during the fourth quarter of 2013 due primarily to lower concentrate gold grade coupled with falling gold prices, there were no shipments of concentrates sales from the mine during the second quarter and first six months. The Company continues to review the economics of continuing production through the processing of tailings cells.

Cost of sales for the second quarter and six months ended June 30, 2014 amounted to CDN$ 99,446 and CDN$ 176,680 respectively (2013: CDN$ 511,833 and CDN$ 909,421).  There was a decrease in all production costs at the Omagh mine during both periods following the suspension of production during 2013. 

The Company had cash balances of CDN$ 458,849 at June 30, 2014 compared to CDN$ 476,581 at June 30, 2013. The working capital deficit at June 30, 2014 amounted to CDN$ 2,607,058 compared to a working capital deficit of CDN$ 3,307,837 at June 30, 2013.

During the second quarter Galantas completed a private placement financing for aggregate gross proceeds of approximately UK£ 516,500. Pursuant to the offering, an aggregate of 10,330,000 units were sold at a price of UK£ 0.05/CDN$0.09375 per common share. Each unit is comprised of one common share and one common share purchase warrant. In addition a shares for debt exchange of 15,125,140 common shares for CDN$ 1,389,150/ UK£ 756,157of the Company's debt was completed during the second quarter.

Production

Production at the Omagh mine remains suspended awaiting planning consent to continue operations underground. Due to continued delays in the planning process, management had to make significant redundancies in the workforce, alongside other cost reduction measures.

During the first quarter of 2014 the Company commenced pilot tests with regards to the processing of tailing cells filled during the earlier operation of the mine. The results confirm pre-existing data that indicated the tailings contain between 0.5g/t gold and 1 g/t gold and meet European Union standards for definition as inert material. A low energy cost processing solution, based upon a Knelson CD12 centrifugal gravity concentrator, which was already utilized in the gold processing plant in a secondary role, was successfully pilot tested as a prime re-treatment component for flotation tailings. The tailings do not require comminution (crushing and grinding) for re-processing by this method. Extended in-house tests with the Knelson concentrator produced a variation in results in terms of grade and recovery. Consequently, alternative gravity oriented test-work was carried out. The results successfully indicate that it is possible to uprate tailings by a low energy consuming, bulk gravity method from 0.5-1.0 g/t to 2-3 g/t gold. The higher feed grade produced in testing has been tested with froth flotation in the Company's in-house laboratory to simulate production flotation in the company's processing plant, followed by an additional gravity scavenging treatment. The results indicate that a finer grind than was previously required may be necessary to enhance the concentrate grade. The existing Knelson concentrator, whilst large enough to test the process, is not large enough to satisfactorily operate the process at the scale required for robust economics at present gold prices. The economics of acquiring a larger concentrator unit and ancillary equipment is subject to satisfactory recoveries being confirmed. The test-work is continuing.

Reserves and Resources

Work continued during the first half of 2014 on updating the resource estimate to incorporate results from later drill holes not included previously. Also the main veins were re-strung to incorporate the new drill data and accommodate the revised cut-off grade and minimum mining width parameters.  Importantly, the Joshua and Kearney drill intersects were strung to individual historic channels, this time consuming process has incorporated all of the available assay data in order to make a more informed assessment of grade continuity and vein geometry. The improved statistical assessment is expected to allow some category upgrading in that portion of the resource affected. Based upon the updated technical analysis, work is also well advanced on finalising a revised NI 43-101 report. The work includes the delineation of mining reserves, the completion of a detailed mining plan, mining schedule and comprehensive cost estimates, based upon underground working of the Joshua and Kearney veins.

Subsequent to June 30, 2014 Galantas reported on the revised updated estimate of gold resources together with a Preliminary Economic Assessment (PEA) update (see press release dated July 28, 2014). The revised estimate of resources is in compliance with the Pan European Reporting Code (PERC), Canadian Institute of Mining, Metallurgy and Petroleum (CIM) standards and Canadian National Instrument (NI) 43-101 and is summarised below.

	RESOURCE ESTIMATE : GALANTAS 2014 CUT-OFF 2 g/t Au			Increase over GAL 2013 report
RESOURCE CATEGORY	TONNES	GRADE (Au g/t)	Au Ozs
MEASURED	138,241	7.24	32,202	55%
INDICATED	679,992	6.78	147,784	21.4%
INFERRED	1,373,879	7.71	341,123	15.4%

Minerals Resources that are not Mineral Reserves do not have demonstrated economic viability.

Overall there has been a 19% increase in resources since the Galantas June 2013 Resource Report and a 60% increase in resources since the July 2012 Resource Report by ACA Howe International Ltd The increases since 2012 largely relate to the Kearney and Joshua veins, since this is where the drilling program has been concentrated. The drilling program was mainly designed to focus on increasing the quantity of Measured and Indicated resources on these two veins, to support potential bank funding opportunities for the financing of production. The resource estimate for each vein is tabulated below.

RESOURCE ESTIMATE BY VEIN  :  GALANTAS 2014
		MEASURED			INDICATED			INFERRED
		Tonnes	Grade Au (g/t)	Contained Au (oz)	Tonnes	Grade Au (g/t)	Contained Au (oz)	Tonnes	Grade Au (g/t)	Contained Au (oz)
KEARNEY		76,936	7.48	18,490	383,220	6.66	82,055	909,277	6.61	193,330
JOSHUA		54,457	7.25	12,693	216,211	7.92	55,046	291,204	10.74	100,588
KERR		6,848	4.63	1,019	12,061	4.34	1,683	23,398	3.2	2,405
ELKINS					68,500	4.24	9,000	20,000	5.84	3,800
GORMLEYS								75,000	8.78	21,000
PRINCES								10,000	38.11	13,000
SAMMY'S								27,000	6.07	5,000
KEARNEY NORTH								18,000	3.47	2,000
TOTAL	138,241		7.25	32,202	679,992	6.78	147,784	1,373,879	7.71	341,123

The resources are calculated at a cut-off grade of 2 g/t gold (Au), numbers are rounded, gold grades are capped at 75 g/t gold and a minimum mining width of 0.9m has been applied.

Measured and Indicated resources on Kearney vein have increased to 100,545 ounces of gold from 69,000 ounces in 2012. Measured and Indicated resources on Joshua vein have increased to 67,739 ounces of gold from 15,800 ounces in 2012. The Kearney and Joshua veins are the early targets of underground mining. Combined Measured and Indicated resource category on these two veins are estimated at 168,284 ounces of gold, with 293,918 ounces of gold in the Inferred resource category. Both vein systems are open at depth.

With regards to the Preliminary Economic Assessment a restricted portion of Inferred resources for two veins - Joshua and Kearney have been included with the Measured and Indicated resources. The Inferred resources (which have lower statistical support than Measured or Indicated Resources) are contiguous with Measured or Indicated resources and / or lie within scheduled mining areas. The use of Inferred resources, in a restricted qualifying manner, is permitted by the PERC code in regard to economic studies but is excluded within NI 43-101, except within a Preliminary Economic Assessment.  PERC is an approved code is respect of NI 43-101. As part of PERC requirements, a comparative Feasibility study will be included in the detailed technical report which will not include Inferred resources and will also include studies on sensitivity to gold price.

The total of scheduled Measured and Indicated ounces utilised within the mining study is 104,627 ounces. The Inferred resources scheduled in the economic study are estimated at 60,635 ounces. Total Inferred resource estimated on the Joshua and Kearney orebodies is 293,918 ounces of gold. The amount of Inferred resources included in the PEA amounts to 20.6% of the total Inferred resources estimated on these veins. Were Inferred resources excluded within the mining plan, approximately 1 year would be removed from the estimate of mine life and annual output would be reduced.

At a gold price of UK£750 / US$ 1,260 oz, the pre-tax operating surplus after capital expenditure estimates an Internal Rate of Return of 72% and, at an 8% discount rate, a net present value of approximately UK£ 14.5m (CDN$ 26.6m) and a cash cost of production of UK£394 per ounce (USD$ 662 at $1.68/UK£). The study scheduled approximately 36% of the combined resources identified on the Kearney and Joshua veins.

The Company will file the complete Technical Report on SEDAR during the third quarter, as required by NI 43-101.

Exploration

Following the receipt of two new licences in the Republic of Ireland earlier in 2014 Omagh Minerals Limited now holds a total of 11 exploration licenses with a total coverage of 766.5 km². Exploration during the second quarter was restricted to conserve cash funds exploration reports and publications relating to the geology and known mineralisation of the two new licences referred to above were reviewed. Following this, some reconnaissance fieldwork was carried out in order to identify the areas which will be prioritised for exploration over the summer. Four broad exploration targets have been established, based on the potential for mineralisation with consideration given to land accessibility and suitable exposure

Permitting

Discussions continued with the planning services in Northern Ireland during the first half of 2014 with regards to the planning application for an underground mine plan and accompanying Environmental Statement which were submitted to the Planning Services in 2012. The Company has been advised that the final consultation response has been received and is positive. The Company understands a timeline in the fourth quarter of 2014 is possible for a final determination. However it should be noted that the timeline for delivery of the determination is not within the control of the Company. Shareholders may see progress on the public planning portal at :-http://epicpublic.planningni.gov.uk/PublicAccess/zd/zdApplication/application_detailview.aspx?caseno=M6QQVVSV30000

Roland Phelps, President & CEO, Galantas Gold Corporation, commented, "The robust results of the recent economic study, with the upcoming planning determination, which we expect to be positive, lead us to be confident about the establishment of a sound business based on the Omagh gold property. "

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.

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.

Click on, or paste the following link into your web browser, to view the associated Management, Discussion and Analysis PDF document:

http://www.rns-pdf.londonstockexchange.com/rns/6103P_-2014-8-20.pdf

Enquiries

Galantas Gold Corporation
Jack Gunter P.Eng - Chairman
Roland Phelps C.Eng - President & CEO
Email: [e-mail]
Website: www.galantas.com
Telephone: [phone]

Charles Stanley Securities (AIM Nomad & Broker)

Mark Taylor

Telephone [phone]

Condensed Interim Consolidated Statements of Financial Position
(Expressed in Canadian Dollars)
(Unaudited)
		As at			As at
		June 30,			December 31,
		2014			2013
ASSETS
Current assets
Cash	$	458,849		$	166,617
Accounts receivable and prepaid expenses (note 5)		238,281			405,124
Inventories (note 6)		351,053			338,865
Total current assets		1,048,183			910,606
Non-current assets
Property, plant and equipment (note 7)		10,391,063			10,100,319
Long-term deposit (note 9)		483,917			467,116
Exploration and evaluation assets (note 8)		1,983,194			1,875,771
Total non-current assets		12,858,174			12,443,206
Total assets	$	13,906,357		$	13,353,812
EQUITY AND LIABILITIES
Current liabilities
Accounts payable and other liabilities (note 10)	$	914,482		$	1,217,360
Due to related parties (note 14)		2,740,759			3,597,550
Total current liabilities		3,655,241			4,814,910
Non-current liabilities
Decommissioning liability (note 9)		553,597			528,810
Derivative financial liability (note 11(c))		296,000			-
Total liabilities		4,504,838			5,343,720
Capital and reserves
Share capital (note 11)		31,702,575			29,874,693
Reserves		6,615,708			6,253,460
Deficit		(28,916,764)			(28,118,061)
Total equity		9,401,519			8,010,092
Total equity and liabilities	$	13,906,357		$	13,353,812

Condensed Interim Consolidated Statements of Loss
(Expressed in Canadian Dollars)
(Unaudited)
		Three Months						Six Months
		Ended						Ended
		June 30,						June 30,
		2014			2013			2014			2013
Revenues
Gold sales	$	-		$	523,856		$	-		$	888,532
Cost and expenses of operations
Cost of sales (note 13)		99,446			511,833			176,680			909,421
Depreciation		62,171			122,224			127,263			246,830
		161,617			634,057			303,943			1,156,251
Loss before the undernoted		(161,617)			(110,201)			(303,943)			(267,719)
General administrative expenses
Management and administration wages (note 14)		130,671			126,523			268,704			252,171
Other operating expenses		27,477			34,627			64,381			105,005
Accounting and corporate		15,869			17,241			30,496			27,971
Legal and audit		52,411			16,640			81,353			43,553
Stock-based compensation (note 11(d))		-			13,089			-			26,179
Shareholder communication and investor relations		67,049			53,683			92,653			83,433
Transfer agent		24,527			11,642			27,603			13,659
Director fees (note 14)		9,250			8,250			14,250			13,250
General office		2,462			1,778			4,784			3,891
Accretion expenses (note 9)		2,898			-			5,781			-
Loan interest and bank charges		14,914			11,248			29,704			22,668
		347,528			294,721			619,709			591,780
Other expenses
Gain on disposal of property, plant and equipment		(19,312)			(64,531)			(19,860)			(64,531)
Unrealized gain on fair value of derivative financial liability (note 11(c))		(210,000)			-			(210,000)			-
Foreign exchange loss		16,770			17,272			104,911			3,249
		(212,542)			(47,259)			(124,949)			(61,282)
Net loss for the period	$	(296,603)		$	(357,663)		$	(798,703)		$	(798,217)
Basic and diluted net loss per share (note 12)	$	(0.00)		$	(0.01)		$	(0.01)		$	(0.02)
Weighted average number of common shares outstanding - basic and diluted		62,618,186			51,242,016			56,906,564			51,242,016

Condensed Interim Consolidated Statements of Comprehensive Loss
(Expressed in Canadian Dollars)
(Unaudited)
		Three Months						Six Months
		Ended						Ended
		June 30,						June 30,
		2014			2013			2014			2013
Net loss for the period	$	(296,603)		$	(357,663)		$	(798,703)		$	(798,217)
Other comprehensive loss
Items that will be reclassified subsequently to profit or loss
Foreign currency translation differences		(89,511)			323,508			362,248			(107,303)
Total comprehensive loss	$	(386,114)		$	(34,155)		$	(436,455)		$	(905,520)

Condensed Interim Consolidated Statements of Cash Flows
(Expressed in Canadian Dollars)
(Unaudited)
		Six Months
		Ended
		June 30,
		2014			2013
Operating activities
Net loss for the period	$	(798,703)		$	(798,217)
Adjustment for:
Depreciation		127,263			246,830
Stock-based compensation (note 11(d))		-			26,179
Foreign exchange		(74,157)			26,812
Gain on disposal of property, plant and equipment		(19,860)			(64,531)
Accretion expenses (note 9)		5,781			-
Unrealized gain on fair value of derivative financial liability (note 11(c))		(210,000)			-
Non-cash working capital items:
Accounts receivable and prepaid expenses		166,843			260,040
Inventories		(12,188)			6,535
Accounts payable and other liabilities		(262,211)			(404,234)
Due to related parties		363,900			-
Net cash used in operating activities		(713,332)			(700,586)
Investing activities
Purchase of property, plant and equipment		(68,534)			(112,463)
Proceeds from sale of property, plant and equipment		33,833			207,014
Exploration and evaluation assets		(42,035)			(265,346)
Net cash used in investing activities		(76,736)			(170,795)
Financing activities
Proceeds of private placement		968,438			-
Share issue costs		(23,706)			-
Repayment of related party loan		-			(32,278)
Advances from related parties		127,792			210,180
Net cash provided by financing activities		1,072,524			177,902
Net change in cash		282,456			(693,479)
Effect of exchange rate changes on cash held in foreign currencies		9,776			5,192
Cash, beginning of period		166,617			1,164,868
Cash, end of period	$	458,849		$	476,581
Supplemental information
Shares issued to settle accounts payable and other liabilities	$	40,667		$	-
Shares issued to settle due to related parties	$	1,348,483		$	-

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, 2012	$	29,874,693		$	4,477,699		$	957,450		$	5,047		$	(26,173,706	)	$	9,141,183
Stock-based compensation (note 11(d))		-			26,179			-			-			-			26,179
Net loss and other comprehensive loss for the period		-			-			-			(107,303)			(798,217)			(905,520)
Balance, June 30, 2013	$	29,874,693		$	4,503,878		$	957,450		$	(102,256)		$	(26,971,923)		$	8,261,842
Balance, December 31, 2013	$	29,874,693		$	5,471,109		$	-		$	782,351		$	(28,118,061)		$	8,010,092
Units issued in private placement (note 11(b)(i))		968,438			-			-			-			-			968,438
Warrants issued (note 11(b)(i))		(506,000)			-			-			-			-			(506,000)
Share issue costs (note 11(b)(i))		(23,706)			-			-			-			-			(23,706)
Common shares issued for debt (note 11(b)(ii))		1,389,150			-			-			-			-			1,389,150
Net loss and other comprehensive income for the period		-			-			-			362,248			(798,703)			(436,455)
Balance, June 30, 2014	$	31,702,575		$	5,471,109		$	-		$	1,144,599		$	(28,916,764)		$	9,401,519

Notes to Condensed Interim Consolidated Financial Statements

Three and Six Months Ended June 30, 2014

(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 Omagh Minerals Limited ("Omagh") which is engaged in the acquisition, exploration and development of gold properties, mainly in Omagh, Northern Ireland. Omagh has an open pit mine, which is in production and reported as property, plant and equipment and an underground mine which is in the exploration stage and reported as exploration and evaluation assets. The production at the open pit mine was suspended later in 2013 due to falling grades and gold prices.

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

	a.	Planning permission for the development of an underground mine in Omagh; and
	b.	Securing sufficient financing to fund ongoing operational activity and the development of the underground mine.

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.

As at June 30, 2014, the Company had a deficit of $28,916,764 (December 31, 2013 - $28,118,061). 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"). On April 1, 2014, Galántas amalgamated with Omagh.

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

On April 8, 2014, Cavanacaw acquired Flintridge Resources Limited ("Flintridge"), a dormant UK company.

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 and London Stock Exchange AIM under the symbol GAL. The primary office is located at 36 Toronto Street, Suite 1000, Toronto, Ontario, Canada, M5C 2C5.

3.             Basis of Preparation

Statement of compliance

The Company applies International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") and interpretations issued by the International Financial Reporting Interpretations Committee ("IFRIC"). These 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 August 15, 2014 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, 2013. Any subsequent changes to IFRS that are given effect in the Company's annual consolidated financial statements for the year ending December 31, 2014 could result in restatement of these unaudited condensed interim consolidated financial statements.

4.             Significant Accounting Policies

Change in accounting policies

IAS 32 - Financial Instruments, Presentation ("IAS 32") was effective for annual periods beginning on or after January 1, 2014. IAS 32 was amended to clarify that the right of offset must be available on the current date and cannot be contingent on a future date. At January 1, 2014, the Company adopted this pronouncement and there was no material impact on the Company's unaudited condensed interim consolidated financial statements.

Warrants with an exercise price denominated in a foreign currency denominated in a foreign currency are recorded at fair value and classified as a derivative financial liability. The liability is initially measured at estimated fair value with subsequent changes in fair value recorded as a gain or loss in the unaudited condensed interim consolidated statements of loss. As the warrants are exercised, the value of the recorded liability will be included in share capital along with the proceeds from the exercise. If these warrants expire, the related liability is reversed through the unaudited condensed interim consolidated statements of loss.

Recent accounting pronouncements

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 a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the multiple rules 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. 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.

5.             Accounts Receivable and Prepaid Expenses

		As at			As at
		June 30,			December 31,
		2014			2013
Sales tax receivable - Canada	$	13,142		$	21,866
Valued added tax receivable - Northern Ireland		10,569			10,752
Accounts receivable		47,044			202,205
Prepaid expenses		167,526			170,301
	$	238,281		$	405,124

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

The following is an aged analysis of accounts receivable:

		As at			As at
		June 30,			December 31,
		2014			2013
Less than 3 months	$	23,711		$	138,839
3 to 12 months		11,983			59,177
More than 12 months		35,061			36,807
Total accounts receivable	$	70,755		$	234,823

6.             Inventories

		As at			As at
		June 30,			December 31,
		2014			2013
Concentrate inventories	$	11,870		$	11,458
Finished goods		339,183			327,407
	$	351,053		$	338,865

7.             Property, Plant and Equipment

								Plant												Mine
		Freehold						and			Motor			Office						development
Cost		land			Buildings			machinery			vehicles			equipment			Moulds			costs			Total
Balance, December 31, 2012	$	2,315,212		$	391,563		$	5,996,937		$	84,171		$	105,396		$	58,844		$	12,422,216		$	21,374,339
Additions		-			-			-			-			-			-			343,588			343,588
Disposals		-			-			(1,369,832)			(11,986)			-			-			-			(1,381,818)
Foreign exchange adjustment		207,365			35,069			534,617			7,538			9,449			5,271			1,112,726			1,912,035
Balance, December 31, 2013		2,522,577			426,632			5,161,722			79,723			114,845			64,115			13,878,530			22,248,144
Additions		-			-			-			-			-			-			68,534			68,534
Disposals		-			-			(129,198)			-			-			-			-			(129,198)
Foreign exchange adjustment		90,731			15,346			184,647			2,868			4,131			2,306			499,177			799,206
Balance, June 30, 2014	$	2,613,308		$	441,978		$	5,217,171		$	82,591		$	118,976		$	66,421		$	14,446,241		$	22,986,686

								Plant												Mine
		Freehold						and			Motor			Office						development
Accumulated depreciation		land			Buildings			machinery			vehicles			equipment			Moulds			costs			Total
Balance, December 31, 2012	$	911,702		$	328,444		$	3,987,043		$	54,149		$	45,164		$	58,844		$	5,962,024		$	11,347,370
Depreciation		-			12,573			400,922			7,475			8,993			-			70,793			500,756
Disposals		-			-			(750,631)			(10,143)			-			-			-			(760,774)
Foreign exchange adjustment		81,657			30,599			391,847			5,553			4,897			5,271			540,649			1,060,473
Balance, December 31, 2013		993,359			371,616			4,029,181			57,034			59,054			64,115			6,573,466			12,147,825
Depreciation		-			5,572			114,566			2,854			4,271			-			-			127,263
Disposals		-			-			(115,225)			-			-			-			-			(115,225)
Foreign exchange adjustment		35,727			13,355			143,783			2,044			2,113			2,306			236,432			435,760
Balance, June 30, 2014	$	1,029,086		$	390,543		$	4,172,305		$	61,932		$	65,438		$	66,421		$	6,809,898		$	12,595,623

								Plant												Mine
		Freehold						and			Motor			Office						development
Carrying value		land			Buildings			machinery			vehicles			equipment			Moulds			costs			Total
Balance, December 31, 2013	$	1,529,218		$	55,016		$	1,132,541		$	22,689		$	55,791		$	-		$	7,305,064		$	10,100,319
Balance, June 30, 2014	$	1,584,222		$	51,435		$	1,044,866		$	20,659		$	53,538		$	-		$	7,636,343		$	10,391,063

8.             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.

		Exploration
		and
		evaluation
Cost		assets
Balance, December 31, 2012	$	1,399,254
Additions		357,061
Foreign exchange adjustment		119,456
Balance, December 31, 2013		1,875,771
Additions		42,510
Foreign exchange adjustment		64,913
Balance, June 30, 2014	$	1,983,194

		Exploration
		and
		evaluation
Carrying value		assets
Balance, December 31, 2013	$	1,875,771
Balance, June 30, 2014	$	1,983,194

9.             Decommissioning Liability

The Company's decommissioning liability is as a result of mining activities at the Omagh mine in Northern Ireland. The Company estimated its decommissioning liability at June 30, 2014 based on a risk-free discount rate of 1% (December 31, 2013 - 1%) and an inflation rate of 1.50% (December 31, 2013 - 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 June 30, 2014, the estimated fair value of the liability is $553,597 (December 31, 2013 - $528,810). Changes in the provision during the period ended June 30, 2014 are as follows:

		As at			As at
		June 30,			December 31,
		2014			2013
Decommissioning liability, beginning of period	$	528,810		$	404,450
Revision due to change in estimate		-			109,680
Accretion		5,781			14,680
Foreign exchange		19,006			-
Decommissioning liability, end of period	$	553,597		$	528,810

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 303,158 (December 31, 2013 - GBP 300,000), of which GBP 265,000 was funded as of June 30, 2014 and reported as long-term deposit of $483,917 (December 31, 2013 - $467,116).

10.          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
		June 30,			December 31,
		2014			2013
Accounts payable	$	443,307		$	545,557
Accrued liabilities		471,175			671,803
Total accounts payable and other liabilities	$	914,482		$	1,217,360

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

		As at			As at
		June 30,			December 31,
		2014			2013
Less than 3 months	$	247,611		$	376,400
3 to 12 months		286,159			361,376
12 to 24 months		83,447			122,183
More than 24 months		297,265			357,401
Total accounts payable and other liabilities	$	914,482		$	1,217,360

11.          Share Capital and Reserves

On April 14, 2014, the Company completed the consolidation of its issued and outstanding common shares on the basis of one post-consolidated common shares for five pre-consolidated common shares. As part of the share consolidation all applicable references to the number of shares, warrants and stock options and their exercise price and per share information has been restated.

a)             Authorized share capital

At June 30, 2014, 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 June 30, 2014, the issued share capital amounted to $31,702,575. The change in issued share capital for the periods presented is as follows:

		Number of
		common
		shares			Amount
Balance, December 31, 2012 and June 30, 2013		51,242,016		$	29,874,693
Balance, December 31, 2013		51,242,016		$	29,874,693
Units issued in private placement (i)		10,330,000			968,438
Warrants issued (i)		-			(506,000	)
Share issue costs (i)		-			(23,706	)
Common shares issued for debt (ii)		15,125,140			1,389,150
Balance, June 30, 2014		76,697,156		$	31,702,575

(i) On May 7, 2014, the Company completed a private placement of 10,330,000 units at GBP 0.05 ($0.09375) per unit for gross proceeds of GBP 516,500 ($968,438). Each unit is comprised of 1 common share and 1 warrant. Each warrant entitles the holder to purchase 1 further common share at GBP 0.10 per share for a period of two years. The common share issued are subject to a four month hold period. Commissions of $8,156 were paid in connection with the placement.

The fair value of the 10,330,000 warrants was estimated at $506,000 using the Black-Scholes pricing model with the following assumptions: expected dividend yield - 0%, expected volatility - 168.92%, risk-free interest rate - 1.07% and an expected average life of 2 years. 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.

(ii) On May 30, 2014, the Company issued 15,125,140 common shares as settlement of accounts payable and other liabilities of GBP 21,976 ($40,667) and due to related parties of GBP 718,256 ($1,319,054) and GBP 16,025 ($29,429).

Due to related parties consisted of amounts owing to Roland Phelps (President & Chief Executive Officer) for a loan of GBP 718,256 settled for 14,365,120 common shares and Leo O'Shaughnessy (Chief Financial Officer) for a loan of GBP 16,025 settled for 320,500 common shares.

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, 2012 and June 30, 2013		4,910,000		$	0.50
Balance, December 31, 2013		-		$	-
Issued (Note 11(b)(i))		10,330,000			0.18
Balance, June 30, 2014		10,330,000		$	0.18

The following table reflects the actual warrants issued and outstanding as of June 30, 2014:

		Grant date	Exercise	Fair value
	Number	fair value	price	June 30, 2014
Expiry date	of warrants	($)	(GBP)	($)
May 7, 2016	10,330,000	506,000	0.10	296,000

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 June 30, 2014, the fair value of the warrants was estimated using the Black-Scholes option pricing model with the following assumptions: expected dividend yield of 0%; expected volatility of 170.27%; risk free interest rate of 1.10%; and an expected life of 1.85 years. As a result, the fair value of the warrants was calculated to be $296,000 and the Company recorded an unrealized gain on fair value of derivative financial liability for the three and six months ended June 30, 2014 of $210,000.

d)             Stock options

The Company has a stock option plan (the "Plan"), the purpose of which is to attract, retain and compensate qualified persons as directors, senior officers and employees of, and consultants to the Company and its affiliates and subsidiaries by providing such persons with the opportunity, through share options, to acquire an increased proprietary interest in the Company. The number of shares reserved for issuance under the Plan cannot be more than a maximum of 10% of the issued and outstanding shares at the time of any grant of options. The period for exercising an option shall not extend beyond a period of five years following the date the option is granted.

Insiders of the Company are restricted on an individual basis from holding options which when exercised would entitle them to receive more than 5% of the total issued and outstanding shares at the time the option is granted. The exercise price of options granted in accordance with the Plan must not be lower than the closing price of the shares on the Exchange immediately preceding the date on which the option is granted and in no circumstances may it be less than the permissible discounting in accordance with the Corporate Finance Policies of the Exchange.

The Company records a charge to the consolidated statements of comprehensive loss using the Black-Scholes option pricing model. The valuation is dependent on a number of inputs and estimates, including the strike price, exercise price, risk-free interest rate, the level of stock volatility, together with an estimate of the level of forfeiture. The level of stock volatility is calculated with reference to the historic traded daily closing share price at the date of issue.

Option pricing models require the inputs including the expected price volatility. Changes in the inputs can materially affect the fair value estimate.

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

					Weighted
					average
		Number of			exercise
		options			price
Balance, December 31, 2012		1,990,000		$	0.50
Expired		(100,000)			0.50
Balance, June 30, 2013		1,890,000		$	0.50
Balance, December 31, 2013 and June 30, 2014		940,000		$	0.50

Stock-based compensation includes $nil (three and six months ended June 30, 2013 - $13,089 and $26,179, respectively) relating to stock options granted in previous years that vested during the periods.

The following table reflects the actual stock options issued and outstanding as of June 30, 2014:

		Weighted average		Number of
		remaining	Number of	options	Number of
	Exercise	contractual	options	vested	options
Expiry date	price ($)	life (years)	outstanding	(exercisable)	unvested
November 23, 2015	0.50	1.40	200,000	200,000	-
January 28, 2016	0.50	1.58	50,000	50,000	-
September 6, 2016	0.50	2.19	690,000	690,000	-
	0.50	1.99	940,000	940,000	-

12.          Net Loss per Common Share

The calculation of basic and diluted loss per share for the three and six months ended June 30, 2014 was based on the loss attributable to common shareholders of $296,603 and $798,703, respectively (three and six months ended June 30, 2013 - $357,663 and $798,217, respectively) and the weighted average number of common shares outstanding of 62,618,186 and 56,906,564, respectively (three and six months ended June 30, 2013 - 51,242,016) for basic and diluted loss per share. Diluted loss did not include the effect of warrants and options for the three and six months ended June 30, 2014 and 2013, as they are anti-dilutive.

13.          Cost of Sales

		Three Months						Six Months
		Ended						Ended
		June 30,						June 30,
		2014			2013			2014			2013
Production wages	$	46,901		$	161,696		$	87,364		$	313,282
Oil and fuel		14,581			183,828			26,139			357,673
Repairs and servicing		3,528			39,703			9,852			85,378
Equipment hire		8,523			3,553			8,842			18,585
Consumable		8,055			48,004			8,055			80,102
Royalties		11,684			14,197			20,662			22,706
Carriage		-			5,296			-			11,354
Other costs		6,174			22,170			15,766			13,806
Production costs		99,446			478,447			176,680			902,886
Inventory movement		-			33,386			-			6,535
Cost of sales	$	99,446		$	511,833		$	176,680		$	909,421

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 (the amount established and agreed to by the related parties) 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						Six Months
					Ended						Ended
					June 30,						June 30,
		Notes			2014			2013			2014			2013
Interest on related party loans		(i)		$	13,893		$	9,944		$	27,485		$	19,732

(i) G&F Phelps Limited ("G&F Phelps"), a company controlled by a director of the Company, had amalgamated loans to the Company of $2,217,374 (GBP 1,214,268) (December 31, 2013 - $2,017,000 - GBP 1,144,268) 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 June 30, 2014, the amount of interest accrued is $192,285 (GBP 105,298) (December 31, 2013 - $159,144 -GBP 90,284).

(ii) See Note 11(b)(ii).

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

		Three Months						Six Months
		Ended						Ended
		June 30,						June 30,
		2014			2013			2014			2013
Salaries and benefits (1)	$	119,350		$	103,400		$	234,148		$	202,905
Stock-based compensation		-			7,792			-			15,497
	$	119,350		$	111,192		$	234,148		$	218,402

⁽¹⁾ Salaries and benefits include director fees. As at June 30, 2014, due to directors for fees amounted to $42,000 (December 31, 2013 - $27,750) and due to key management, mainly for salaries and benefits accrued amounted to $289,100 (GBP 158,315) (December 31, 2013 - $1,393,656 - GBP 790,637), and is included with due to related parties.

(c) As of June 30, 2014, Kenglo One Limited ("Kenglo") owns 13,222,068 common shares of the Company or approximately 17.2% of the outstanding common shares of the Company. Roland Phelps, Chief Executive Officer and director, owns, directly and indirectly, 21,472,915 common shares of the Company or approximately 28.0% of the outstanding common shares of the Company. The remaining 54.8% 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 two 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. Segmented information on a geographic basis is as follow:

June 30, 2014		United Kingdom			Canada			Total
Current assets	$	582,928		$	465,255		$	1,048,183
Non-current assets		12,797,803			60,371			12,858,174
Revenues	$	-		$	-		$	-

16.          Contingent Liability

During the year ended December 31, 2010, the Company's subsidiary Omagh received a payment demand from Her Majesty's Revenue and Customs in the amount of $555,664 (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. No provision has been made for the claim in the unaudited condensed interim consolidated financial statements.

17.          Comparative Figures

Certain of the prior period's numbers have been reclassified and item descriptions changed to conform to the current period's presentation.

 

END

 

 

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