The losses for the fourth quarter of 2008 are low due to a deferred tax credit of GBP 70,303 and the increase in losses in the second quarter of 2009 is due to a reduction in bank interest received and an increase in administrative salaries together with the issue of additional share options. Losses for the third and fourth quarters of 2009 started to reduce as a result of a cost reduction programme implemented by the Company. Losses for the first quarter of 2010 increased slightly mainly as a result of the weakening of the GB Pound against the Canadian Dollar. Losses for the second quarter of 2010 further increased as a result of increased legal and professional charges in connection with financing options and the AGM. The continued weakening of the GB Pound against the Canadian Dollar resulted in a further increase in losses in the third quarter of 2010. OUTLOOK By the end of the fourth quarter of fiscal 2010, management expects to: -- Complete the NI43-101 Feasibility Study on Surface Engineering including Mill Expansion and Tailings Impoundment Area; Mine Surface Facilities; Port Infrastructure, Geological Resources, Mine Plan and updated Business Model. Shortly following this event, the Group will also draw down the second tranche payment of US$2m under the terms of the agreement with Sandstorm Resources Ltd. -- Complete the Mine Development Plan for submission to the Department of Natural Resources for the issuance of necessary permits to begin construction. -- Complete the geology determination for Nugget Pond mining as well as the detailed mine engineering on the resource. LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL POSITION Prior to Q3, 2010, the Group has relied on shareholder funding to finance its operations. During Q3, 2010 the Group entered into a financing arrangement in US dollars. With finite cash resources and no material income, the liquidity risk is significant. This risk is managed by controls over expenditure and concentrating on achieving the payment milestones under the financing arrangement. Success will depend largely upon the outcome of ongoing and future exploration and development programmes. Given the nature of the Group's current activities the entity will remain dependent on a mixture of debt and equity funding in the short to medium term until such time as the Group becomes self-financing from the commercial production of mineral resources. Directors are confident the Company has sufficient funds to maintain ongoing operations for the forthcoming 12 months and therefore have concluded that the Group is a going concern. At 21 June 2010, the Group has GBP 7.1 million in cash and cash equivalents with the proportion invested in short term deposits remaining consistent with year end. The majority of the Group's expenses are incurred in the Canadian dollar. The Group's principal exchange rate exposure is related to movements between the Canadian Dollar, US Dollar and GB pound. The Group's cash resources are held in GB pounds and Canadian Dollars. The Group has a downside exposure to any strengthening of the Canadian Dollar as this would increase expenses in GB pound terms. This risk is mitigated by holding substantially all of the Group's cash balances in Canadian Dollars. Any weakening of the Canadian Dollar would however result in the reduction of the expenses in GB pound terms and preserve the Group's cash resources. In addition, any such movements would affect the Consolidated Balance Sheet when the net assets of the Canadian Subsidiary are translated into PB sterling. As a result of the Group's main assets and its subsidiary being held in Canada which has a functional currency different to the presentational currency, the Group's balance sheet may be affected significantly by movements in the GB pound to the Canadian Dollar. The Group does not hedge its exposure of foreign investments held in foreign currencies. There is no significant impact on profit or loss from foreign currency movements associated with the Canadian subsidiary's assets and liabilities as the foreign currency gains or losses are recorded in the translation reserve. Exchange rate fluctuations may adversely affect the Group's financial position and results. The following table details the Group's sensitivity to a 10% strengthening and weakening in the Canadian Dollar/US dollar against the GB Pound. 10% represents management's assessment of the reasonable possible exposure. ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Equity ---------------------------------- ---------------------------------- 30 April 2010 31 July 2009 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- GBP GBP ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- 10% weakening of Canadian Dollar (2,550,415) (2,029,441) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- 10% strengthening of Canadian Dollar 2,805,457 2,254,933 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- 10% weakening of US Dollar 300,952 - ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- 10% strengthening of US Dollar (368,544) - ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Credit risk With effect from July 2007, the Group has held the majority of its cash resources in Canadian Dollars given that the majority of the Group's outgoings are denominated in this currency. Given the current climate, the Group has taken a very risk averse approach to management of cash resources and closely monitors events and associated risks on a continuous basis. There is little perceived credit risk in respect of trade and other receivables. The Group's maximum exposure to credit risk at 30 April 2010 was represented by receivables and cash resources. Interest rate risk The Group's policy is to retain its surplus funds on the most advantageous term of deposit available up to twelve month's maximum duration. If the interest rate on deposits were to fluctuate by 1% there would be no material effect on the Group's reported result. Cash and short terms deposits (expressed in British Pounds) were as follows: ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- At 30 April 2010 Currency Fixed Rate Assets Floating Rate Assets Total ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- British Pound 300,000 2,603,238 2,903,238 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Canadian Dollars 4,432,894 456,518 4,889,412 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Total 4,732,894 3,059,756 7,792,650 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- At 31 July 2009 Currency Fixed Rate Assets Floating Rate Assets Total ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- British Pound - 22,746 22,746 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Canadian Dollars 951,171 194,810 1,145,981 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Total 951,171 217,556 1,168,727 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- At 30 April 2010, the Group had outstanding obligations, including interest, relating to bank loans and leases of GBP 601,630 and an amount of GBP 3,312,587 under the Sandstorm financing agreement ('Gold Loan'). 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