TIDMGAL
RNS Number : 0341Y
Galantas Gold Corporation
27 August 2009
?
GALANTAS GOLD CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
Three and Six Months ended June 30, 2009
27 August 2009
This document constitutes management's discussion and analysis (MD&A) of the
financial and operational results of Galantas Gold Corporation ("Galantas" or
the "Company") for the three and six months ended June 30, 2009. This MD&A is to
be read in conjunction with the audited consolidated financial statements for
the year ended December 31, 2008. The MD&A does not form part of these unaudited
financial statements. The Company prepares and files its financial statements in
accordance with Canadian Generally Accepted Accounting Principles ("GAAP"). The
currency referred to in this document is the Canadian dollar. The MD&A is
prepared in conformance with National Instrument 51-102F1 and was approved by
the Company's Audit Committee on August 24, 2009.
Enquiries
Galantas Gold Corporation
Jack Gunter P.Eng - Chairman
Roland Phelps C.Eng
- President & CEO
Email: info@galantas.com
Website:
www.galantas.com
Telephone: +44 (0) 2882 241100
Blomfield Corporate Finance Ltd
Nick
Harriss
Telephone: +44 (0) 207 489 4500
Lewis Charles Securities Limited.
Kealan Doyle & Nicholas
Nicolaides
Telephone: +44 (0) 207 456 9100
FORWARD LOOKING STATEMENTS
The information in the MD&A contains forward looking statements, including
statements about anticipated operating and financial performance. Such
statements are not guarantees of future performance which is subject to risks
and uncertainties only some of which are within the Company's control, and any
or all of which could cause the Company's performance to be materially different
from what directors may believe. Given the uncertainties associated with forward
looking statements, readers are cautioned not to place undue reliance on them.
The Company does not undertake to update any forward looking statements
contained herein.
OVERVIEW - STRATEGY - DESCRIPTION OF BUSINESS
Company Overview
Galantas Gold Corporation is a producing mineral resource issuer and the first
to acquire planning consent to mine gold in Northern Ireland. The Company's
wholly owned Ontario holding company, Cavanacaw Corporation, owns all of the
shares of two Northern Ireland companies - Omagh Minerals Limited, owner of
prospecting and mining rights, planning consent plus land, buildings and
equipment; and Galantas Irish Gold Limited, owner of rights to work, market and
sell part of the Company's gold production as certified Irish gold jewellery.
The second quarter of 2009 followed on 2008 which marked the first full year of
operations at the Omagh mine where commercial production commenced in mid 2007.
Mining at the Omagh mine is conducted by open pit methods. The mine produces a
flotation concentrate most of which is shipped to a smelter in Canada under a
life of mine off-take agreement. Some concentrate is set aside from that sold to
the smelter for separate processing in a specialist facility. The gold produced
by the separate facility becomes feed -stock for the Galantas Irish gold
jewellery business.
The Company's strategy to increase shareholder value is to:
* Increase the production of the open pit mine and processing plant on its Kearney
and nearby known deposits,
* Continue to explore and develop extensions to the Kearney and nearby known
deposits so as to expand minable reserves and increase gold production in
stages,
* Explore its 3 prospecting licences which aggregate 653 square kilometre,
focusing on the more than 50 gold targets identified to date, and
* Promote and expand on a commercial basis the Galantas Irish gold jewellery
business now that certified Irish gold from the mine has become available.
Reserves and Resources
During the second Quarter of 2008 ACA Howe International Ltd prepared an updated
estimate of mineral resources for the Omagh mine.
References
1. May 2008 : ACA Howe International Ltd. " Technical Report on the Omagh Gold
Project, Counties Tyrone
and Fermanagh, Northern Ireland (The Updated
Howe Report)
Ore reserves and mineral resources lie within eight veins in a 5 square
kilometre area at the eastern end of the Company's original prospecting licence
which encompasses a 20 by 6 kilometre fault-bounded inlier of Precambrian
"Dalradian" rocks and younger rocks underlain by Dalradian rocks. The deposits
sub-outcrop beneath a few meters of glacial and recent overburden and are open
to depth and usually along the strike. The steeply dipping Kearney deposit,
focus of the initial mine, is some 850 meters long.
A Press Release dated 12th June 2008 gave detail of a Resource and Exploration
review and contained the following disclosure :-
"The report of the mineral resource review on the Omagh property has been
prepared by independent consultants, ACA Howe International Ltd (Howe). The
report, entitled Technical Report on the Omagh Gold Project is dated 28th May
2008 and is published on www.sedar.com and www.galantas.com . Authors are G.
White FGS MAusIMM, J. Bennett C.Eng MIMMM and N. Holloway C.Eng MIMMM.
The resource review updates resource estimates for the Kearney deposit and the
other named veins. These are classified in accordance with CIM (Canadian
Institute of Mining, Metallurgy and Petroleum) Definition Standards on Minerals
Resources and Minerals Reserves, adopted by CIM Council on December 11, 2005.
The report was commissioned to be prepared in compliance with Canadian National
Instrument 43-101.
The reporting has been conservatively applied and there are some significant
differences with the JORC (Australian Joint Ore Reserve Committee) code (1995)
previously used to calculate resources. For instance, although the Elkins
mineralized structure has been found to be co-incident with an IP (Induced
Polarization) geophysical anomaly for the portion of its length that has been
drill tested, the portion of the anomaly that has not been drill tested has been
excluded from resource calculation. The potential Elkins extension is included
within a table of Resource Extension Targets. Previously the extension was
calculated within the JORC resource model.
The CIM / NI.43-101 resources as summarized in the report are as follows :
+----------+----------------+--------+--------+---------+--------+--------+--------+---------+--------+--------+--------+---------+
| | Measured | | Indicated | | Inferred |
+----------+--------------------------------------------+--------+---------------------------+--------+---------------------------+
| | Gold (Au) | Grade |Tonnage | | | Grade |Tonnage | | | Grade |Tonnage |
+----------+-------------------------+--------+---------+--------+--------+--------+---------+--------+--------+--------+---------+
| | Ozs | g/t | (t) | | ozs | g/t | (t) | | ozs | g/t | (t) |
| | | gold | | | | gold | | | | gold | |
+----------+-------------------------+--------+---------+--------+--------+--------+---------+--------+--------+--------+---------+
| Kearney | 16000 | 6.35 | 78000 | | 76000 | 6.74 | 350000 | |218000 | 9.27 |730,000 |
+----------+-------------------------+--------+---------+--------+--------+--------+---------+--------+--------+--------+---------+
| Elkins | | | | | 12000 | 3.3 | 113000 | | 3,600 | 3.82 | 29000 |
+----------+-------------------------+--------+---------+--------+--------+--------+---------+--------+--------+--------+---------+
| Kerr | | | | | | | | | 7800 | 4.03 | 60000 |
+----------+-------------------------+--------+---------+--------+--------+--------+---------+--------+--------+--------+---------+
| Joshua | | | | | | | | | 20400 | 3.96 | 160000 |
+----------+-------------------------+--------+---------+--------+--------+--------+---------+--------+--------+--------+---------+
| Gormley | | | | | | | | | 24300 | 6.57 | 115000 |
+----------+-------------------------+--------+---------+--------+--------+--------+---------+--------+--------+--------+---------+
| Garry | | | | | | | | | 1600 | 1.27 | 40000 |
+----------+-------------------------+--------+---------+--------+--------+--------+---------+--------+--------+--------+---------+
|Prince's | | | | | | | | | 12500 | 38.93 | 10000 |
+----------+-------------------------+--------+---------+--------+--------+--------+---------+--------+--------+--------+---------+
| Sammy's | | | | | | | | | 4100 | 4.26 | 30000 |
+----------+-------------------------+--------+---------+--------+--------+--------+---------+--------+--------+--------+---------+
| Kearney Nth | | | | | | | | | 3500 | 1.97 | 55000 |
+---------------------------+--------+--------+---------+--------+--------+--------+---------+--------+--------+--------+---------+
| | | | | | | | | | | | |
+----------+-------------------------+--------+---------+--------+--------+--------+---------+--------+--------+--------+---------+
| Total | 16000 | | | | 88000 | | | |295800 | | |
| ozs | | | | | | | | | | | |
+----------+----------------+--------+--------+---------+--------+--------+--------+---------+--------+--------+--------+---------+
Two new vein discoveries are reported upon, named as McCombs vein and Eastern
Lagoon vein, though no estimate of resources have been included for these
discoveries.
The report contains estimates of potential tonnage and grade of some of the
available targets and classifies these by Resource Extension or Exploration. The
potential quantity and grade is conceptual in nature and there has been
insufficient exploration to define mineral resources in these areas. It is
uncertain if further exploration will result in the targets being delineated as
mineral resource. The exploration potential does not represent a mineral
resource, does not have demonstrated economic viability and is disclosed in
accordance with NI 43-101 Rules and Policies, Section 2.3, disclosed as
potential quantity and grade, expressed as ranges, of a potential mineral
deposit that is to be the target of future exploration. The report states,
"However, the disclosed potential quantity and grade has been determined on the
basis of reasonable extrapolation from known and defined resources and/or
favorable geochemical/geophysical signatures and float/surface sampling, the
results of which make these areas highly prospective".
Table of Exploration Potential* (The updated Howe Report)
+----------------+--------------+--------------+--------------+--------------+
| Target Name | Potential TonnesRange (t) | Potential Grade Range (g/t |
| | | Gold) |
+----------------+-----------------------------+-----------------------------+
| RESOURCE EXTENSION TARGETS |
+----------------------------------------------------------------------------+
| | Low | High | Low | High |
+----------------+--------------+--------------+--------------+--------------+
| Kearney | 400,000 | 600,000 | 4.5 | 9.0 |
+----------------+--------------+--------------+--------------+--------------+
| Elkins | 200,000 | 400,000 | 2.0 | 4.0 |
+----------------+--------------+--------------+--------------+--------------+
| Joshua's | 190,000 | 380,000 | 2.0 | 4.0 |
+----------------+--------------+--------------+--------------+--------------+
| Kerr | 180,000 | 360,000 | 2.0 | 4.0 |
+----------------+--------------+--------------+--------------+--------------+
| Gormley | 230,000 | 460,000 | 3.3 | 6.5 |
+----------------+--------------+--------------+--------------+--------------+
| Sammy's | 30,000 | 60,000 | 2.1 | 4.2 |
+----------------+--------------+--------------+--------------+--------------+
| Prince's | 20,000 | 40,000 | 19 | 38 |
+----------------+--------------+--------------+--------------+--------------+
| Garry's | 80,000 | 160,000 | 0.7 | 1.3 |
+----------------+--------------+--------------+--------------+--------------+
| Total | 1,330,000 | 2,460,000 | | |
+----------------+--------------+--------------+--------------+--------------+
| EXPLORATION TARGETS |
+----------------------------------------------------------------------------+
| Peter's | 4,000 | 13,000 | 4.5 | 9.0 |
+----------------+--------------+--------------+--------------+--------------+
| "63 gram" | 33,000 | 101,000 | 4.5 | 9.0 |
+----------------+--------------+--------------+--------------+--------------+
| North of | 135,000 | 810,000 | 4.5 | 9.0 |
| Sammy's Barn / | | | | |
| East Cousins | | | | |
+----------------+--------------+--------------+--------------+--------------+
| Cornavarrow | 60,000 | 360,000 | 4.5 | 9.0 |
| Burn East | | | | |
+----------------+--------------+--------------+--------------+--------------+
| Corlea Burn | 60,000 | 360,000 | 4.5 | 9.0 |
+----------------+--------------+--------------+--------------+--------------+
| Legphressy | 60,000 | 360,000 | 4.5 | 9.0 |
+----------------+--------------+--------------+--------------+--------------+
| Cousins | 48,000 | 145,000 | 4.5 | 9.0 |
+----------------+--------------+--------------+--------------+--------------+
| Total | 400,000 | 2,149,000 | | |
+----------------+--------------+--------------+--------------+--------------+
| | | | | |
+----------------+--------------+--------------+--------------+--------------+
| TOTAL | 1,730,000 | 4,609,000 | | |
| EXPLORATION | | | | |
| POTENTIAL * | | | | |
+----------------+--------------+--------------+--------------+--------------+
Mining Project
The project embraces an open pit mine which supplies ore to a
crushing-grinding-froth flotation plant. The plant produces a gold and silver
rich sulphide flotation concentrate which is sold to a commercial smelter. The
plant was commissioned as stated in a press release dated June 26, 2007.
Galantas Irish Gold Limited
Several additional retailers were added to the jewelry distribution network
during the 2008 and internet advertising trialed with some success. However,
market conditions generally in the jewelry trade are poor and retailers have
become cautious in the current economic climate. As a consequence, management
focus has continued to be on the mine operation during the second quarter and
first six months of 2009.
Management and Staff
Overall management is exercised by one Executive Director along with a General
Manager who is in charge of operations in Omagh where the mine, plant and
administration employs 43 people.
Key Performance Driver
The key performance driver is the achievement of production and cash flow from
profitably mining the deposits at Omagh.
1.1 DATE OF THE MD&A
The MD&A was prepared on August 24, 2009
1.2 REVIEW OF FINANCIAL RESULTS
Three Months Ended June 30, 2009
The net loss for the three months ended June 30, 2009 amounted to $ 234,325
compared to a loss of $ 712,273 for the three months ended June 30, 2008.
Galantas changed its revenue recognition accounting policy for sales of
concentrates in the fourth quarter of 2008 whereby sales in the second quarter
of 2009 are now recognized at the time of shipment when title passes and
significant risks and benefits of ownership are considered to be transferred.
The final revenue figure at the end of any given period will be subject to
adjustment at the date of ultimate settlement as a result of final assay
agreement and metal prices changes. As the Company was in the early stages of
commercial production in the second quarter of 2008 appropriate estimates of
this final settlement were not able to be made. Accordingly, revenues for the
three months ended June 30, 2008 were not recognized until final settlement and
any payments received prior to settlement were included as deferred revenue on
the balance sheet. This had the effect that shipments for the second quarter of
2008 were excluded from sales and included in inventories. Sales revenues for
this period consist mainly of Quarter 1 2008 shipments for which the final
settlement value would only have been agreed during the three months ended June
30, 2008. The changes in accounting policy did not impact on the results for
either quarter as concentrate inventories were valued at net realizable value at
June 30, 2008 reflecting the Company's accounting policy for inventories being
valued at the lower of cost or net realizable value. There were no concentrate
inventories on hand at June 30, 2009.
Revenues from the sale of concentrate and jewelry for the three months ended
June 30, 2009 amounted to $ 1,648,243 which compared to revenues of $ 650,565
for the corresponding period of 2008.This increase in sales revenues reflects
both the change in accounting policy referred to above, the increased level of
concentrates produced and shipped during the quarter and higher gold prices.
Sales revenues primarily consisted of concentrate sales from the mine. Jewelry
sales remained low during the quarter. Cost of Sales, which consists primarily
of production costs at the mine, amounted to $ 989,285 for the three months
ended June 30, 2009 compared to $ 431,708 for the three months ended June 30,
2008. The increase in cost of sales for the second quarter of 2009 was due to
both higher production costs reflecting the increased production levels at the
mine and increased inventory levels during the second quarter of 2008 which had
the effect of reducing cost of sales for the three months ended June 30, 2008.
Amortization of Deferred development and exploration costs for the second
quarter of 2009 amounted to $ 193,607 compared to $ 119,484 for the second
quarter of 2008. The higher level of amortization during the second quarter of
2009 is due to a combination of higher deferred development and exploration
costs at June 30, 2009 and increased production levels in the second quarter on
which the amortization calculation is based. Depreciation of property, plant and
equipment during the second quarter of 2009 totaled $ 131,954 which compared
with $ 232,598 for the second quarter of 2008. The reduction in the depreciation
is due primarily to the depreciation charge being based on the reducing balance
of the assets together with a depreciation overprovision in the second quarter
of 2008.
This resulted in a Net Income before Other expenses and Income for the three
months ended June 30, 2009 of $ 333,397 compared to a Net Loss before Other
expenses and Income of $ 133,225 for the corresponding period of 2008. Other
Expenses and Income for the three months ended March 31, 2009 which include a
foreign exchange loss of $ 237,378 amounted to $ 567,722 compared to $ 579,048,
which included a foreign exchange loss of $ 21,583, for the corresponding period
of 2008. These exchange losses are mainly due to the strengthening of the UKGBP
currency against the Canadian Dollar during both periods. Other Expenses and
Income are set out in Section 1.15 Other MD&A Requirements. This has resulted in
a Net Loss for the three months ended June 30, 2009 of $ 234,325 compared to a
Net Loss of $ 712,273 for the corresponding period of 2008.
Cash balances at June 30, 2009 amounted to $ 488,354 compared to $ 587,489 at
December 31, 2008. Accounts receivable at June 30, 2009 amounted to $ 694,346 at
June 30, 2009 compared to $ 330,467 at December 31, 2008 and consist primarily
of trade debtors from the sale of concentrates. Accounts receivable also
includes reclaimable sales taxes and prepayments. This increase in accounts
receivable at June 30, 2009 is due primarily to an increase in trade debtors
relating to the increased level of concentrate sales during the period.
Inventory at June 30, 2009 amounts to $ 680,858 and compares with inventory of $
652,306 at December 31, 2008. Inventory consists mainly of jewelry products and
unworked gold belonging to the jewelry business . The non-cash asset of future
income taxes, which the Company anticipates is recoverable, amounted to $
2,094,043 at June 30, 2009 and at December 31, 2008.
Property plant and equipment net of depreciation at June 30, 2009 totaled $
5,858,344 compared to $ 6,152,874 at December 31, 2008. The decrease of $
294,530 was primarily due to the depreciation charged during the period.
Deferred development and exploration costs net of accumulated amortization
totaled $ 10,282,832 at June 30, 2009 compared to $10,601,856 at the end of 2008
with the decrease being due to the amortization charge for the six months ended
June 30, 2009.
Current liabilities at June 30, 2009 totaled $ 5,292,891 compared to $ 5,111,621
at December 31, 2008. The working capital deficit June 30, 2009 amounted to $
3,429,333 compared to $ 3,541,359 at December 31, 2008. Accounts payable and
accrued liabilities amounted to $ 2,109,111 compared to $ 2,298,303 at
December 31, 2008. The current portion of the external financing and term loan
facilities totaled $ 271,781 at June 30, 2009 and compares with $ 309,043 at the
end of 2008 reflecting repayments made during the quarter. Loans from related
parties at June 30, 2009 amounted to $ 2,911,999 compared to $ 2,504,275 at
December 31, 2008. The increase at the end of June 2009 reflects both the
increased indebtedness from related parties as a result of additional funding
during the period and the impact of the weakening of the Canadian Dollar against
Sterling during the period. The asset retirement obligation at December 31, 2008
amounted to $ 447,400 at June 30, 2009 and December 31, 2008. Non current loans
from related parties and external financing facilities total $ 425,802 at June
30, 2009 compared to $ 618,025 at December 31, 2008.
Six Months Ended June 30, 2009
The net loss for the six months ended June 30, 2009 amounted to $ 524,338
compared to a loss of $ 1,858,192 for the six months ended June 30, 2008.
Galantas changed its revenue recognition accounting policy for sales of
concentrates in the fourth quarter of 2008 whereby sales for the six months
ended June 30, 2009 are now recognized at the time of shipment when title passes
and significant risks and benefits of ownership are considered to be
transferred. The final revenue figure at the end of any given period will be
subject to adjustment at the date of ultimate settlement as a result of final
assay agreement and metal prices changes. As the Company was in the early stages
of commercial production during the first six months of 2008 appropriate
estimates of this final settlement were not able to be made. Accordingly,
revenues for the six months ended June 30, 2008 were not recognized until final
settlement and any payments received prior to settlement were included as
deferred revenue on the balance sheet. This had the effect that a significant
number of shipments for the first half of 2008 were excluded from sales and
included in inventories. Sales revenues for the first six months of 2008 would
have consisted mainly of Quarter 4 2007 and some Quarter 1 2008 shipments for
which the final settlement value would only have been agreed during the six
months ended June 30, 2008. The changes in accounting policy did not impact on
the results for either period as concentrate inventories were valued at net
realizable value at June 30, 2008 reflecting the Company's accounting policy for
inventories being valued at the lower of cost or net realizable value. There
were no concentrate inventories on hand at June 30, 2009.
Revenues from the sale of concentrate and jewelry for the six months ended June
30, 2009 amounted to $ 2,791,247 which compared to revenues of $ 1,272,352 for
the corresponding period of 2008.This increase in sales revenues reflects both
the change in accounting policy referred to above, the increased level of
concentrates produced and shipped during the period and higher gold prices.
Sales revenues primarily consisted of concentrate sales from the mine. Jewelry
sales continued to remain low during the six months ended June 30, 2009. Cost of
Sales, which consists primarily of production costs at the mine, amounted to $
1,802,669 for the six months ended June 30, 2009 compared to $ 1,134,187 for the
six months ended June 30, 2008. The increase in cost of sales for the first six
months was due to both higher production costs reflecting the increased
production levels at the mine and increased inventory levels during the first
half of 2008 which significantly reduced the cost of sales during that period.
Amortization of Deferred development and exploration costs for the first six
months of 2009 amounted to $ 338,995 compared to $ 237,854 for the first six
months of 2008. The higher level of amortization during the first six months of
2009 is due to a combination of higher Deferred development and exploration
costs at June 30, 2009 and higher production levels in the period on which the
amortization calculation is based. Depreciation of property, plant and equipment
during the first six months of 2009 totaled $ 290,444 which compared with $
459,227 for the first six months of 2008. The reduction in the depreciation is
due primarily to the depreciation charge being based on the reducing balance of
the assets together with a depreciation overprovision in the first six months of
2008.
This resulted in a Net Income before Other expenses and Income for the six
months ended June 30, 2009 of $ 359,139 compared to a Net Loss before Other
expenses and Income of $ 558,916 for the corresponding period of 2008. Other
Expenses and Income for the six months ended June 30, 2009 which include a
foreign exchange loss of $ 261,228 amounted to $ 883,477 compared to $
1,299,276, which included a foreign exchange loss of $ 177,394, for the
corresponding period of 2008. These exchange losses are mainly due to the
strengthening of the UKGBP currency against the Canadian Dollar during both
periods. Other Expenses and Income are set out in Section 1.15 Other MD&A
Requirements. This has resulted in a Net Loss for the six months ended June 30,
2009 of $ 524,338 compared to a Net Loss of $ I,858,192 for the corresponding
period of 2008.
1.3 SELECTED ANNUAL INFORMATION
Not applicable to Quarterly MD&A
1.4 RESULTS OF OPERATIONS
2009 Financing Activities
There were no financing activities during the three months ended June 30, 2009.
During the first quarter of 2009 the Company had announced in January that it
had received the consent of the TSX Venture Exchange in regard to the issue of
3,134,200 Galantas common shares in exchange for debt. The Company had arranged
with a creditor supplying drilling services for the exchange of GBP78,355 of
debt for the issue of 3,134,200 units with each unit comprising of one common
share priced at GBP0.025 and one warrant. Galantas had previously reported in
late December 2008 that it had completed a private placement for GBP282,250
through the placing of 11,290,000 common shares priced at GBP0.025 per share.
The placing comprised of brokered and un-brokered parts. The brokered part,
which raised GBP162,250 was subject to an arrangement fee of 5%. The Company
reported that it intends to use the funds from the placing to purchase capital
equipment and for general working capital purposes.
The Company had also announced in November 2008 that the President and Chief
Executive Officer had agreed to lend up to $ 901,100 (GBP500,000) to the Company
for a period of six months from November 4th, 2008 which repayment terms have
now been extended. The loan is secured on the Company's inventory with cross
guarantees provided by the Company' subsidiaries and bears interest at a base
rate plus 4.5% per annum, such interest to be calculated monthly and compounded
until repaid. At June 30, 2009 the amount drawn down under this loan totaled $
421,279 (GBP 220,311).
Production
Production at the Omagh mine continued to progress during the three months ended
June 30, 2009. Concentrate production for the second quarter of 2009 amounted to
661.0 dry tonnes of concentrate which compares to 390.0 dry tonnes for the
second quarter of 2008 - an increase of 69.5 %. Metal content of production for
the three months ended June 30, 2009 totalled 1,977 ounces of gold (61.5kg),
5,972 ounces of silver (185.8kgs) and 90.4 tonnes of lead. This compares with
metal content for the corresponding period of 2008 of 1,198 ounces of gold
(31.3kgs), 2,793 ounces of silver (86.9kgs) and 31.7 tonnes of lead which
represents a 65% increase in gold output, a 114% increase in silver output and a
185% increase in lead output. These production figures and metal contents are
provisional and subject to averaging or umpiring provisions under the
concentrate off - take agreement detailed in a press release dated October 3,
2007. Concentrate production in April was hampered by a breakdown in the plant
during the first half of the month. However concentrate production in May and
June improved substantially and set monthly production records. The increases in
production are due to improvements in productivity brought about by increased
capability of pit equipment and to enhanced lead and silver grades within the
open pit. An overhaul of of the Volvo EC460 at the mine is complete and has
moved top soil from part of the area of a second gold, the Kerr vein. The Kerr
vein is approximately 250 metres to the west of the Kearney vein which continues
to be the main focus of the operation. It is planned that the Kerr vein will be
later incorporated into the paste cell tailings storage arrangement. Stripping
operations are hampered by a shortage of the working capital required to carry
out the task and stripping must be carried out as a precursor to exposing ore
for mining.
Concentrate production for the six months of 2009 amounted to 1,141.7 dry tonnes
of concentrate which compares to 720.4 dry tonnes for the second quarter of 2008
- an increase of 58 %. Metal content of production for the six months ended June
31, 2009 totalled 3,487 ounces of gold (108.5kg), 10,757 ounces of silver
(334.6kgs) and 132.6 tonnes of lead. This compares with metal content for the
first six months of 2008 of 2,217 ounces of gold (68.9kgs), 4,972 ounces of
silver (154.6kgs) and 66.1 tonnes of lead which represents a 57% increase in
gold output, a 116% increase in silver output and a 100% increase in lead
output. These production figures and metal contents are provisional and subject
to averaging or umpiring provisions under the concentrate off - take agreement
detailed in a press release dated October 3, 2007.
Exploration
During 2008 all available historical and current exploration data was collated
into a GIS database which was then used to target particular areas in the three
licence areas held by the Company with fieldwork being conducted on targets of
highest priority which has resulted in a number of areas being identified as
having good potential for bedrock gold mineralisation. During the latter part of
2008 and the first half of 2009 the GIS database has been updated with all these
results so that fieldwork over the coming months can be efficiently
targeted. During the second quarter of 2009 the exploration program was put on
hold in order to focus the Company's resources on prioritising grade control
within the open pit. A program to recommence exploration on the Company's 653
square kilometre licence area is expected to recommence during the third quarter
of 2009.
1.5 SUMMARY OF QUARTERLY RESULTS
Revenues and net financial results in Canadian dollars for the first quarter of
2009 and for the seven preceding quarters are summarized below:
+-------------------+-------------------+-------------------+-------------------+
| Quarter Ended | Total Revenue | Net Profit (Loss) | Net Profit (Loss) |
| | | | per share & per |
| | | | share diluted |
+-------------------+-------------------+-------------------+-------------------+
| June 30,2009 | $ 1,648,243 | $ (234,325) | $ (0.00) |
+-------------------+-------------------+-------------------+-------------------+
| March 31, 2009 | $ 1,143,004 | $ (290,013) | $ (0.00) |
+-------------------+-------------------+-------------------+-------------------+
| December 31,2008 | $ 1,955,509 | $ (216,072) | $ (0.00) |
+-------------------+-------------------+-------------------+-------------------+
| September 30, | $ 1,175,104 | $ 113,170 | $0.00 |
| 2008 | | | |
+-------------------+-------------------+-------------------+-------------------+
| June 30,2008 | $ 650,565 | $ (712,273) | $0.00 |
+-------------------+-------------------+-------------------+-------------------+
| March 31, 2008 | $ 621,787 | $ (1,145,919) | $ (0.01) |
+-------------------+-------------------+-------------------+-------------------+
| December 31, 2007 | $ (63,505) | $ (1,070,540) | $ (0.01) |
+-------------------+-------------------+-------------------+-------------------+
| September 30, | $ 715,080 | $ (788,481) | $0.00 |
| 2007 | | | |
+-------------------+-------------------+-------------------+-------------------+
The results for the quarter ended June 30, 2009 are discussed under Section
1.2 - Review of Financial Results.
Revenues, commencing in quarter ended September 30, 2007 when the Omagh mine
started commercial production, are primarily from the sales of concentrates.
The sales decrease in the quarter ending December 31, 2007 is due to a change in
the revenue recognition accounting policy adopted by the Company during that
quarter whereby revenues were not recognized until the final settlement of each
shipment. This resulted in shipments for the fourth quarter of 2007 being
included in inventories at December 31, 2007 as the final settlement values of
those shipments could not be accurately estimated until the following quarter.
This revenue recognition policy was reversed during the three months ended
December 31, 2008 when the Company was able to more accurately determine the
sales value at the time of shipment. This resulted in the sales revenue for
the fourth quarter of 2008 including the value of shipments for both the third
quarter and fourth quarter of 2008 which explains the increased revenues in that
quarter. The changes in accounting policy did not materially impact on the Net
Loss for either quarter as concentrate inventories were valued at net realizable
value at the end of both periods - reflecting the Company's accounting policy
for inventories being valued at the lower of cost or net realizable value.
With the exception of quarter ended September 30, 2008 there have been losses in
each of the quarters, which losses, up to the current and previous quarter, have
been increasing since the Company commenced production. The Net Income in the
quarter ended September 30, 2008 and the reduced loss for the quarter ended
December 31, 2008 is due mainly to substantial foreign exchange gains in both
quarters. The reduced losses in the quarters ending March 31 and June 30, 2009
is as a result of both higher production/shipments and increased gold prices
during those quarters. The $ 234,325 loss for the quarter ended June 30, 2009
includes a foreign exchange loss of $ 237,378.
1.6 LIQUIDITY
The Company had a cash balance of $ 488,354 at June 30, 2009 which compared with
$ 587,489 at December 31, 2008.
As at June 30, 2009 the Company's working capital was in a deficit of $
3,429.333 which compared with a deficit of $ 3,541,359 at December 31, 2008.
This deficit is expected to persist during the remainder of 2009 but to
gradually reduce as cash from operations increases. Ore supply continues to be
a challenge with management focusing heavily on pit operations and there is
steady progress. Additional working capital may be required in the short term.
Related Party UK GBP loans increased by $206,498 during the three months ended
June 30, 2009 due partly to the weakening of the Canadian Dollar against the
UKGBP . Repayments on the financing facility totaled $ 57,518 during the period.
To date the company has been able to draw upon additional cash resources and
loans from the President of the company for working capital and finance of plant
and equipment.
The Company announced in January 2009 that it had received the consent of the
TSX Venture Exchange in regard to the issue of 3,134,200 Galantas common shares
in exchange for debt. The Company had arranged with a creditor supplying
drilling services for the exchange of GBP78,355 of debt for the issue of
3,134,200 units with each unit comprising of one common share priced at GBP0.025
and one warrant. Galantas had previously reported in late December 2008 that it
had completed a private placement for GBP282,250 through the placing of
11,290,000 common shares priced at GBP0.025 per share. The placing comprised of
brokered and un-brokered parts. The brokered part, which raised GBP162,250 was
subject to an arrangement fee of 5%. The Company reported that it intends to use
the funds from the placing to purchase capital equipment and for general working
capital purposes.
In November 2008 the Company had announced that the President and Chief
Executive Officer had agreed to lend up to $956,100 (GBP500,000) to the Company
for a period of six months from November 4th, 2008 which repayment terms have
now been extended. The loan is secured on the Company's inventory with cross
guarantees provided by the Company' subsidiaries and bears interest at a base
rate plus 4.5% per annum, such interest to be calculated monthly and compounded
until repaid. At June 30, 2009 the amount drawn down under this loan totaled $
421,279 (GBP 220,311) approximately.
The Company is continuing its efforts to raise funds for future developments and
operations to meet its ongoing obligations. There is however, no assurance that
the Company will be successful in its efforts, in which case the Company may not
be able to meet its obligations. The consolidated financial statements have been
prepared on a going concern basis as discussed in Note 1 of the June 30, 2009
consolidated financial statements.
Should the Company be unable to realize its assets and discharge its liabilities
in the normal course of business, the net realizable value of its assets may be
materially less than the amounts recorded on the consolidated balance sheet.
1.7 CAPITAL RESOURCES
As at June 30, 2008, the Company had capital requirements to repay, under
existing arrangements.
a) Accounts payable and accrued liabilities incurred in the normal course of
business.
b) A GBP financing facility with Barclays Lease Finance. The amounts
outstanding on this facility at June, 2009 amounted to $ 168,095.
c) A May 2007 term loan of GBP 250,000 for working capital use at a bank
interest base rate plus 2% from Allied Irish Banks which is repayable over 3
years. The amount outstanding on this loan at June 30, 2009 amounted to $
185,555.
d)Welsh Gold plc., a company controlled by the President, and the President
personally is due $ 1,596,198 (GBP 834,746) of which $ 749,164 (GBP 391,781) is
due over a period of 3 years This UKGBP loan bears interest at base rate plus
2%. A portion of this loan, $ 513,963 (GBP 268,781) is secured with a second
charge against the land in Omagh.
e) The Company obtained a UK GBP loan facility from G&F Phelps, a company
controlled by a director of the Company, in the amount of $ 1,238,455
(GBP 647,660) for the financing of mining equipment and working capital
purposes. The term loan is for a period of 4.25 years at 4.04% flat with monthly
interest payments of $ 16,814 (GBP8,793) and is secured by all equipment owned
by the Company's wholly-owned subsidiary Omagh Minerals.
f) The Company has also obtained a UK GBP loan facility from the President and
Chief Executive Officer of the Company, who has agreed to lend up to $ 956,100
(GBP 500,000) to the Company for a period of six months which period has now
been extended. The amount of the loan at June 30, 2009 totals $ 421,279 (GBP
220,311). The loan is secured on the Company's inventory with cross guarantees
provided by the Company' subsidiaries and bears interest at a base rate plus
4.5% per annum, such interest to be calculated monthly and compounded until
repaid.
1.8 OFF-BALANCE SHEET ARRANGEMENTS
The Company has no off-balance sheet transactions.
1.9 RELATED PARTY TRANSACTIONS
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 months and six months ended June 30, 2009.
Included in due to related party is $1,596,198 (GBP 834,746) (December 31, 2008
- $ 1,556,597 (GBP 869,801)) owing to a director and companies controlled by a
director of the Company. $ 513,963 (GBP 268,781) of the loan is secured against
a second charge on the land owned by Omagh and the balance of the loan is
unsecured.The loans bear interest at base rate plus 2%. $749,164 (GBP 391,781)
is due over a period of 3 years.
The Company obtained a UKGBP related party loan facility from G&F Phelps, a
company controlled by a director of the Company, in the amount of $1,238,455
(GBP 647,660) (December 31, 2008 - $ 1,159,052 (GBP 647,660) for the financing
of mining equipment. $789,088 (GBP 412,660) of the term loan is for a period of
4.25 years bearing interest at 4.04% flat with monthly payments of $ 16,814
(GBP 8,793 ) and is secured by all equipment owned by the Company's wholly-owned
subsidiary Omagh.
Also included in due to related party is $ 421,279 (GBP 220,311 ) (December
31,2008 - $ 206,787 (GBP 115,549) owing to the President and Chief
Executive Officer of the Company who agreed to lend up to a total amount of $
956,100 (GBP 500,000) to the Company for a period of six months which period has
now been extended. The loan facility is secured by the Company's inventory with
cross guarantees provided by the Company's subsidiaries. The loan bears interest
at a base rate plus 4.5% per annum, such interest to be calculated monthly and
compounded until repaid.
Transactions with related parties were in the normal course of operations and
were measured at the exchange amounts.
During the second quarter the Company signed an agreement for the rent of mining
equipment with G&F Phelps, a company controlled by a director of the Company.
The Company can decide to purchase the mining equipment within the next year. If
the Company decides to purchase the mining equipment, 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 spent
$ 40,075 and $ 40,075 respectively to G&F Phelps for the rent of the mining
equipment.
1.10 FOURTH QUARTER
Not applicable to Quarterly MD&A.
1.11 PROPOSED TRANSACTIONS
The Company presently has no planned or proposed business or asset acquisitions
or dispositions.
1.12 CRITICAL ACCOUNTING ESTIMATES
The preparation of the consolidated financial statements in conformity with
Canadian GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the consolidated
financial statements and the reported amount of revenues and expenses during the
reported period. Actual results could differ significantly from those estimates.
Specific items requiring estimates are ore reserves, accounts receivable,
property, plant and equipment, deferred development and exploration costs,
revenues, depreciation and amortization, asset retirement obligations, future
income taxes, stock based compensation, accrued liabilities and contingent
liabilities.
1.13 CHANGES IN ACCOUNTING POLICIES INCLUDING INITIAL ADOPTION
Changes in Accounting Policy
Revenue Recognition
The Company amended its Revenue Recognition Accounting Policy at the end of 2008
whereby revenues from the sales of gold concentrates are recognized at the time
of shipment when appropriate estimates of final settlement are made. The
previous policy recognized revenue at the time of final settlement when the
Company was in the early stages of commercial production and appropriate
estimates of sales revenues could not be made until final settlement.
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, EIC-27 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 EIC-173,
"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 profit oriented
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 2012 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 Non-Controlling
Interests
The CICA issued three new accounting standards in January 2009: Section 1582,
"Business Combinations", Section 1601, "Consolidated Financial Statements" and
Section 1602, "Non- 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 - 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 non-controlling interest in a subsidiary in
consolidated financial statements subsequent to a business combination. It is
equivalent to the corresponding provisions of IFRS lAS 27 - Consolidated and
Separate Financial Statements. The Company is in the process of evaluating the
requirements. of the new standards.
Mining Exploration Costs
On March 27, 2009, the Emerging Issues Committee of the CICA approved an
abstract EIC-174, "Mining Exploration Costs", which provides guidance on
capitalization of exploration costs related to mining properties in particular,
and on impairment of long-lived assets in general. The Company will apply this
new abstract for the year ended December 31, 2009.
1.14 FINANCIAL INSTRUMENTS AND OTHER INSTRUMENTS
The Company's current financial instruments consist of cash and cash
equivalents, accounts receivable, accounts payable and accrued liabilities. The
carrying values approximate the fair values of these financial instruments due
to the short-term maturity of these items.
1.15 OTHER MD&A REQUIREMENTS
Additional Disclosure for Venture Issuers without Significant Revenue or
Exploration Disclosure of Outstanding Share Data
Other Operating Expenses and (Income) for the Three Months ended June 30, 2009
and June 30, 2008 are detailed below:
+-----------------------+----------------------+----------------------+
| Expense Account | Three Months Ended | Three Months Ended |
| | June 30 2009 | June 30 2008 |
+-----------------------+----------------------+----------------------+
| Other operating costs | $ 160,641 | $ 267,582 |
+-----------------------+----------------------+----------------------+
| Accounting & | $ 13,200 | $ 13,569 |
| corporate | | |
+-----------------------+----------------------+----------------------+
| Legal & audit | $ 24,196 | $ 14,339 |
+-----------------------+----------------------+----------------------+
| Stock based | $ 35,505 | $ 117,656 |
| compensation | | |
+-----------------------+----------------------+----------------------+
| Shareholder | $ 40,581 | $38,614 |
| communication | | |
+-----------------------+----------------------+----------------------+
| Transfer agent | $ 11,376 | $ 9,786 |
+-----------------------+----------------------+----------------------+
| General Office | $ 12,139 | $ 12,238 |
+-----------------------+----------------------+----------------------+
| Bank interest and | $32,706 | $ 83,714 |
| charges | | |
+-----------------------+----------------------+----------------------+
| Foreign exchange loss | $ 237,378 | $ 21,583 |
+-----------------------+----------------------+----------------------+
| Interest (income) | $ 0 | ($ 33) |
+-----------------------+----------------------+----------------------+
| Total | $ 567,722 | $ 579,048 |
+-----------------------+----------------------+----------------------+
Other Operating Expenses and (Income) for the second quarter of 2009 totaled $
567,722 compared to $ 579,048 for the second quarter of 2008.
Other operating costs comprising of various costs at the mine including
administration, professional fees, insurance, shipping and royalty together with
the ongoing costs of the Company's jewelry business decreased from $ 267,582 for
the three months ended June 30, 2008 to $ 160,641 for the three months ended
June 30, 2009. This decrease is due primarily to the lower costs of the jewelry
business during the second quarter of 2008 reflecting reduced consulting fees
and sales costs which are activity related. Additionally in 2008 there were
certain costs at the mine which were included as Other operating costs but which
in 2009 have been included in the cost of sales category resulting in a further
variance when comparing 2009 and 2008 other operating costs. Accounting and
corporate costs for the first quarter of 2009 amounted to $ 13,200 which was in
line with costs of $13,569 for the second quarter of 2008. Audit and legal costs
totaled $ 24,196 for the second quarter of 2009 compared with costs of $14,339
for the second quarter of 2008. The increase in costs was primarily due to a
prior period under provision which has impacted adversely on the current
quarters costs
Stock based compensation costs decreased to $ 35,505 in the second quarter of
2009 from $ 117,656 in the second quarter of 2008. The reduction is mainly as
a result of there being no options issued during the second quarter of 2009.
Shareholder communication costs at for the second quarter 2009 amounted to $
40,581 which were in line with costs of $ 38,614 for the corresponding period of
2008. Transfer agents fees amounted to $ 11,376 for the second quarter of 2009
compared to second quarter 2008 fees of $ 9,786.
General office expenses for three months ended June 30, 2009 amounted to $
12,139 compared to $ 12,238 for the corresponding period of 2008. Bank interest
and charges have reduced from $ 83,714 in the second quarter of 2008 to $ 32,706
for the second quarter of 2009 due to the positive impact of lower interest
rates.
There was a foreign exchange loss of $ 237,378 for the three months ended June
30, 2009 compared to a foreign exchange loss of $ 21,583 for the corresponding
period of 2008. These exchange losses are mainly due to the strengthening of the
UKGBP currency against the Canadian Dollar during both periods.
Other Operating Expenses and (Income) for the Six Months ended June 30, 2009 and
June 30, 2008 are detailed below:
+-----------------------+----------------------+----------------------+
| Expense Account | Six Months Ended | Six Months Ended |
| | June 30 2009 | June 30 2008 |
+-----------------------+----------------------+----------------------+
| Other operating costs | $ 315,442 | $ 581,462 |
+-----------------------+----------------------+----------------------+
| Accounting & | $ 26,993 | $ 29,029 |
| corporate | | |
+-----------------------+----------------------+----------------------+
| Legal & audit | $ 38,589 | $28,946 |
+-----------------------+----------------------+----------------------+
| Stock based | $ 73,234 | $ 248,708 |
| compensation | | |
+-----------------------+----------------------+----------------------+
| Shareholder | $ 69,922 | $68,143 |
| communication | | |
+-----------------------+----------------------+----------------------+
| Transfer agent | $ 12,652 | $ 12,659 |
+-----------------------+----------------------+----------------------+
| General Office | $ 21,075 | $ 25,338 |
+-----------------------+----------------------+----------------------+
| Bank interest and | $ 64,342 | $ 127,892 |
| charges | | |
+-----------------------+----------------------+----------------------+
| Foreign exchange loss | $ 261,228 | $ 177,394 |
+-----------------------+----------------------+----------------------+
| Interest (income) | $ 0 | ($ 295) |
+-----------------------+----------------------+----------------------+
| | | |
+-----------------------+----------------------+----------------------+
| Total | $ 883,477 | $1,299,276 |
+-----------------------+----------------------+----------------------+
Other Operating Expenses and (Income) totaled $ 883,477 for the six months ended
June 30, 2009 compared to $ 1,299,276 for the corresponding period of 2008.
Other operating costs comprising of various costs at the mine including
administration, professional fees, insurance, shipping and royalty together with
the ongoing expenses of the Company's jewelry business decreased from $ 581,462
for the six months ended June 30, 2008 to $ 315,442 for the six months ended
June 30, 2009. This decrease is due primarily to the lower costs of the jewelry
business reflecting reduced consulting fees and sales costs which are activity
related. Additionally in 2008 there were certain costs at the mine which were
included as other operating expenses but which in 2009 have been included in the
cost of sales category resulting in a further variance when comparing 2009 and
2008 other operating expenses. Accounting and corporate costs for the first six
months of 2009 amounted to $ 26,993 which was marginally lower than $ 29,029 for
the first half of 2008. Legal and audit costs totaled $ 38,589 for the first six
months compared with costs of $ 28,946 for the corresponding period of 2008. The
increase in costs was primarily due to a prior period under provision which has
impacted adversely on the costs for the first six months of 2009.
Stock based compensation costs decreased to $ 73,234 in the first half of 2009
from $ 248,708 in the first half of 2008. The reduction in cost is mainly as a
result of their being no options issued during the first half of 2009.
Shareholder communication costs amounted to $ 69,922 for the first half of 2009
compared with costs of $ 68,143 for the corresponding period of 2008. Transfer
agents fees amounted to $ 12,652 for the first half of 2009 which are in line
with fees of $ 12,659 for the first half of 2008.
General office expenses for six months ended June 30, 2009 amounted to $ 21,075
compared to $ 25,338 for the corresponding period of 2008.
Bank interest and charges have reduced from $ 127,892 in the six months ending
June 30, 2008 to $ 64,382 for the six month ending June 30, 2009 due to the
positive impact of lower interest rates.
There was a foreign exchange loss of $ 261,228 for the six months ended June 30,
2009 compared to a foreign exchange loss of $ 177,394 for the corresponding
period of 2008. These exchange losses are mainly due to the strengthening of the
UKGBP currency against the Canadian Dollar during both periods.
Disclosure of Outstanding Share Data
Share Capital
The Company is authorized to issue in series an unlimited number of common and
preference shares. At June 30, 2008, there were a total of 190,100,055 shares
issued, 14,424,200 warrants outstanding expiring from December 2009 to January
2010 and 8,650,000 stock options expiring from May 2010 to October 2013.
IFRS IMPLEMENTATION PLAN
The Accounting Standards Board (AcSB) has confirmed that IFRS will replace
current Canadian GAAP for publicly accountable enterprises, effective for fiscal
years beginning on or after January 1, 2011. Accordingly, the Company will
report interim and annual financial statements (with comparatives) in accordance
with IFRS beginning with the quarter ended March 31, 2011.The Company has
commenced the development of an IFRS implementation plan to prepare for this
transition, and is currently in the process of analyzing the key areas where
changes to current accounting policies may be required. While an analysis will
be required for all current accounting policies, the initial key areas of
assessment will include:
- Exploration and development expenditures,
- Property, plant and equipment (measurement and valuation),
- Provisions, including asset retirement obligations,
- Stock-based compensation,
- Accounting for income taxes, and
- First-time adoption of International Financial Reporting Standards (IFRS 1)
As the analysis of each of the key areas progresses, other elements of the
Company's IFRS
implementation plan will also be addressed, including: the implication of
changes to accounting
policies and processes; financial statement note disclosures on information
technology; internal
controls; contractual arrangements; and employee training.
TRENDS AFFECTING THE COMPANY'S BUSINESS
Gold Price in US dollars and UK Sterling.
The Gold concentrate output from the Omagh Mine, which also contains silver and
lead credits, is sold in US dollars. Most of the value is accrued from the gold
content. The following table is composed from data published by the Bank of
England of average monthly gold price in US$ and GB GBP per troy ounce. From
January 2009 to June 2009 the gold price in US$ increased by 10.1%.The gold
price fell in April but recovered in May and June 2009 resulting in a gold price
increase of 6.1% in the period April 2009 to June 2009. The majority of costs at
the mine are incurred in United Kingdom Pounds Sterling and US dollar revenues
are converted to sterling. Data from the Bank of England demonstrates that, from
January 2009 to June 2009, there was a gold price decrease in sterling terms of
2.9%.The quarter to March 2009 exhibited the highest yet recorded average gold
price in sterling terms resulting in an increase of 9.4%. However during the
period March to June 2009 there was a pronounced strengthening of sterling
against the US dollar which has resulted in a gold price decrease in sterling
terms of 11.3% in this period.
+----------------+-------------+-------------+------------+-----------+
| MONTH | Gold Price | Gold Price | Quarter | Quarter |
| | US $ per | GB GBP per | end | end |
| | ounce | ounce | Average | Average |
| | | | US$ | GB GBP |
+----------------+-------------+-------------+------------+-----------+
| JANUARY 2009 | 858.69 | 595.87 | | |
+----------------+-------------+-------------+------------+-----------+
| FEBRUARY 2009 | 943.16 | 654.96 | | |
+----------------+-------------+-------------+------------+-----------+
| MARCH 2009 | 924.27 | 652.00 | 908.71 | 634.28 |
+----------------+-------------+-------------+------------+-----------+
| APRIL 2009 | 890.2 | 605.44 | | |
+----------------+-------------+-------------+------------+-----------+
| MAY 2009 | 928.65 | 602.43 | | |
+----------------+-------------+-------------+------------+-----------+
| JUNE 2009 | 945.67 | 578.51 | 921.51 | 594.79 |
+----------------+-------------+-------------+------------+-----------+
| JULY 2009 | 934.24 | 571.00 | | |
+----------------+-------------+-------------+------------+-----------+
The average monthly Gold prices measured in US$ per troy ounce declined from a
peak of approximately $ 968 in March 2008 to approximately $ 760 in November.
Since November prices have recovered and in March 2009 prices recovered to
average approximately $ 924 per ounce in March 2009 and to $ 945 in June 2009.
Many of the costs of mining are incurred in sterling whilst sales revenues are
mostly received in US dollars. The weaker sterling value has had a positive
impact on mine economics. The sterling value of US dollars had weakened markedly
from a range of $1.9 / $2.0 in the period January to July 2008 to a range of
$1.40 / $1.48 in the first quarter of 2009. The weaker sterling value has had a
positive impact on mine economics during the first quarter of 2009. The net
effect of Sterling weakness meant that the average monthly gold price per troy
ounce, expressed in Sterling, rose from GBP451.69 in January 2008 to GBP483.26
in March, fell to GBP443.95 in August, rose to GBP654.96 in February 2009 and
was GBP652 for March 2009. However sterling strengthened during the second
quarter of 2009 to average $1.55 and strengthened to $1.64 in June 2009. The has
resulted in a weakening of the gold price in sterling terms during the second
quarter of 2009 at a time when the gold price was strengthening The prices
quoted are drawn from Bank Of England published statistics.
Galantas has a policy of being un-hedged in regard to gold production.
The US Dollar / UK Sterling Currency Exchange Rate
The following table is drawn from Bank of England data that gives the monthly
average spot exchange rate of US $ into UK Sterling. The lowest month, which was
most favourable in terms of dollar exchange rates, was March 2009. Since then a
trend had developed which shows a rise in the value of sterling compared to the
US $, stabilizing between the months of June and July and indicating that the
short term rates in a band between $1.60 and $1.65 US$ /GBP. Recent changes to
that trend suggest that sterling has further strengthened to around $1.69.
+----------------------+-------------+-------------+
| MONTH | Average US | Quarter |
| | $ to UK GBP | 2009 |
| | | Average $ / |
| | | GBP |
+----------------------+-------------+-------------+
| JANUARY 2009 | 1.45 | |
+----------------------+-------------+-------------+
| FEBRUARY 2009 | 1.44 | |
+----------------------+-------------+-------------+
| MARCH 2009 | 1.42 | 1.43 |
+----------------------+-------------+-------------+
| APRIL 2009 | 1.47 | |
+----------------------+-------------+-------------+
| MAY 2009 | 1.54 | |
+----------------------+-------------+-------------+
| JUNE 2009 | 1.64 | 1.55 |
+----------------------+-------------+-------------+
| JULY 2009 | 1.64 | |
+----------------------+-------------+-------------+
A currency policy has been adopted of converting incoming payments into the
currency required within a short period of when they are received, thus avoiding
the taking of a large currency position on either side of the market.
The Canadian Dollar / UK Sterling Currency Exchange Rate.
The accounts of the corporation are expressed in Canadian Dollars. Many of the
debts of subsidiaries are due in UK Sterling. UK sterling against the Canadian $
has strengthened from the average of the first quarter of 2009. The
strengthening of sterling against the Canadian $ increases the Company's UK
liabilities when expressed in Canadian Dollars.
+----------------------+-------------+-------------+
| MONTH (BOE average | Average CAN | Quarter end |
| spot) | $ to UK GBP | Avrg. CAN$ |
| | | / GBP |
+----------------------+-------------+-------------+
| JANUARY 2009 | 1.77 | |
+----------------------+-------------+-------------+
| FEBRUARY 2009 | 1.80 | |
+----------------------+-------------+-------------+
| MARCH 2009 | 1.79 | 1.786 |
+----------------------+-------------+-------------+
| APRIL 2009 | 1.80 | |
+----------------------+-------------+-------------+
| MAY 2009 | 1.78 | |
+----------------------+-------------+-------------+
| JUNE 2009 | 1.84 | 1.81 |
+----------------------+-------------+-------------+
| JULY 2009 | 1.84 | |
+----------------------+-------------+-------------+
Difficulties in the Western credit markets have impacted on all companies
entering into banking credit arrangements and these may affect the ability of
the company to raise funds for capital expenditure.
In Northern Ireland, the widely acknowledged political agreement has
consolidated the positive financial effects of peace and stability in the
province, and although there was a short recent period with an increase in
activity by those not allied to the peace process, this appears to have
diminished.
RISKS AND UNCERTAINTIES
Galantas operates in a sector - mineral production and exploration - which
carries inherent risks only some of which are within management's ability to
reduce or remove. The main sector risk is always metal price. The Company's
other business, high value Irish gold jewelry, is dependent upon the mine
consistently being able to supply reliable certified Irish gold.
The Company has assessed the risks surrounding its business. It has concluded
that most if not all of the risks are standard to the industry and none of them
so profound as to inhibit pursuit of the Company's strategy. The main risks
identified and considered are:
Current Global Financial and Economic Conditions
Current global financial and economic conditions have been characterized by
extreme volatility. Several financial institutions and other major business have
either gone into bankruptcy or have had to be rescued by governmental
authorities. Access to financing has been negatively impacted by many factors as
a result of the global financial crisis. This may impact the Company's ability
to obtain funding in the future and on favorable terms. Additionally, global
economic conditions may cause decreases in asset values that are deemed to be
other than temporary. If such volatility and market turmoil continue, the
Company's business and financial condition could be adversely impacted.
Additional Funding Requirements
The risk is that additional funds, if required, may not be available. Continued
delays and difficulties in bringing the production up to capacity has resulted
in a cash shortage. Management continues to actively pursue additional working
capital and has implemented an aggressive ore extraction program. Until such
funds are secured and the mine consistently produces at an increased capacity
there is the uncertainty of continued operation. There is no guarantee that
future sources of funding will be available to the Company as and when required
in the current volatile markets.
Ore Reserves
Tonnage and grade of ore may be lower than anticipated. The Kearney deposit
along strike and to depth has been proven within the confines of the initial
open pit and indicated well beyond. Nevertheless, the ore is variable in detail
and it has proved difficult to mine at a consistent grade and supply the plant
with sufficient ore regularly and although the issue is being addressed, this
may persist into the future.
Mineral Processing
Generally the plant performs in line with the prior technical guidance.
Alterations and modifications to equipment and operating practices have been
made and have resulted in improvements in comminution and concentrate quality.
However, there is no certainty that the improvements will persist and were these
not to do so there would be a risk to cash flow and budget.
Environmental
The project was subject to one of Ireland's lengthiest public enquiries whereat
its design and operating fundamentals were challenged and defended to the
satisfaction of the independent assessors and industry experts representing
regulators and the Company. In operation, the facilities are subject to self
monitoring and monitoring by regulators. The Company's activities are subject to
laws and regulations controlling not only mining activities but also the
possible effects of such activities upon the environment. Environmental
legislation may change and make the mining and processing of ore uneconomic or
result in significant environmental or reclamation costs. Environmental
legislation provides for restrictions and prohibitions on spills, releases or
emissions of various substances produced in association with certain mineral
exploitation activities, such as seepage from tailings disposal areas that could
result in environmental pollution. A breach of environmental legislation may
result in the imposition of fines and penalties or the suspension or closure of
operations. In addition, certain types of operations require the submission of
environmental impact statements and approval thereof by government authorities.
Environmental legislation is evolving in a manner which may mean stricter
standards and enforcement, increased fines and penalties for non-compliance,
more stringent environmental assessments of proposed projects and a heightened
degree of responsibility for companies and their directors, officers and
employees. Permits from a variety of regulatory authorities are required for
many aspects of mineral exploitation activities, including closure and
reclamation. Future environmental legislation could cause additional expense,
capital expenditures, restrictions, liabilities and delays in the development of
the Company's properties, the extent of which cannot be predicted. In the
context of environmental permits, including the approval of closure and
reclamation plans, the Company must comply with standards and laws and
regulations which may entail costs and delays depending on the nature of the
activity to be permitted and how stringently the regulations are implemented by
the permitting authority. The Company does not maintain environmental liability
insurance.
Permitting
The Company has permission to carry out its activities. Overall consents were
granted in 2000 after fulfillment of more than 30 pre-conditions which attached
to the provisional consent granted in 1995. In all jurisdictions, regulatory
provisions are subject to change and the Company may be faced with additional
constraints in the future. The Company will require to make additional
applications for permitting in order to make additional ore available for
mining. The Company has applied for a variation of its consent to confirm early
restoration activities are permitted.
Title
The Company owns the land in secure freehold on which the project is located.
Precious metal licenses and mining licenses have been granted to the Company by
the Crown Estate and renewed as required since the mid - 1990's when initially
granted. Licenses and Leases are subject in the usual way to minimum performance
requirements which are set at a level so as not to inhibit development. There is
a dialogue ongoing with the Northern Ireland Development of Enterprise Trade and
Industry (DETI) concerning a license to extract base metals which occur with the
gold and silver in the quartz-sulphide veins and which may be recovered as a
by-product of gold and silver. The license if applicable may require a fee
payable to owners of surface rights. In the case of the Company's mine, since
the owner is the Company itself, it is thought unlikely that there will be a
material impact.
Political
Northern Ireland has achieved a stable political status conducive to business as
is evidenced by the relatively large amounts of inward investment that the
province has enjoyed over the past decade. It is noted that there was recently
an increase in activity by parties not allied to the peace process which now
appears to have abated. The mine is well removed from areas of potential urban
disturbance.
Uninsurable Risks
Mining activities involve numerous risks, including unexpected or unusual
geological operating conditions, rock bursts, cave-ins, fires, floods,
earthquakes and other environmental occurrences and political and social
instability. It is not always possible to obtain insurance against all such
risks and the Company may decide not to insure against certain risks as a result
of high premiums or other reasons. Should such liabilities arise, they could
negatively affect the Company's profitability and financial position and the
value of the common shares of the Company. The Company does not maintain
insurance against environmental risks.
Revenue
The Company has contracted sale of its concentrate to Xstrata. While the payment
terms are specific, there is risk that unit income may fall short of forecast.
This could be due to a number of factors including failure of the concentrate to
be within the specification contracted as regards both value elements and
penalty elements and failure to produce concentrate of consistent quantity.
Currency Fluctuations/Bullion Price
Currency fluctuations and the price of gold may affect the Company's future
operations, financial position and results. The Company's revenues are in US
dollars. Most of the costs of the company are incurred in British Pounds
Sterling resulting in dollar revenues being converted to sterling on an ongoing
basis. The value of sterling against the US dollar constantly fluctuates which
impacts on sterling revenue available to the Company. Financial results are
published in Canadian dollars. There is therefore a currency risk arising mainly
from the Company'snet liabilities being denominated in sterling, which
liabilities will fluctuate in Canadian dollar terms, giving rise to exchange
gains/losses in line with the ongoing fluctuations in the exchange rates.
The price of gold is beyond the Company's control, can fluctuate drastically and
could adversely affect the Company. Gold prices have fluctuated significantly in
recent years. The Company's policy is to not sell forward its bullion.
Construction and Development
Most construction costs have been incurred and are therefore known and reflected
in the accounts. Future development risk is attached to development of the
Kearney orebody, such as till stripping, where quantities are only estimated and
subject to adverse variance.
Personnel
Notwithstanding the relatively small scale of the Kearney mine, a level of
expertise is required in the mine, plant and ancillary activities including
geology and accounting. Albeit that a slow down worldwide in minerals
development has eased the shortage of skilled professionals, the Company
foresees potential difficulties in recruiting additional qualified people. The
risk is that costs, operations, future expansion and indeed excellence may be
impacted negatively.
Share Price Fluctuations
In recent years, and particularly in the current global financial conditions,
the securities markets in Canada have experienced a high level of price and
volume volatility, and the market price of securities of many companies,
particularly development stage companies, have experienced wide fluctuations in
price that have not necessarily been related to the underlying asset values or
prospects of such companies. There can be no assurance that fluctuations in the
Company's share price will not occur.
Potential Dilution
The issue of common shares of the Company upon the exercise of the options and
warrants will dilute the ownership interest of the Company's current
shareholders. The Company may also issue additional option and warrants or
additional common shares from time to time in the future. If it does so, the
ownership interest of the Company's then current shareholders could also be
diluted.
This information is provided by RNS
The company news service from the London Stock Exchange
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