EGU.L Regulatory News (EGU)

10 Nov 2009 07:02



 

European Goldfields Limited Interim Consolidated Financial Statements (Unaudited) For the Three-and Nine-Month Periods Ended30 September 2009 and 2008

Disclosure of auditor review of interim consolidated financial statements

The interim consolidated financial statements of the Company for the three- and nine-month periods ended 30 September 2009 and 2008 have not been reviewed by the auditors of the Company.

European Goldfields Limited Consolidated Balance Sheets As at 30 September 2009 and 31 December 2008 (Unaudited - Prepared by Management) (in thousands of US Dollars, except per share amounts)			30 September					31 December
			2009					2008
			$					$
Assets	Note		Unaudited								Audited
Current assets
Cash and cash equivalents	12		124,112					170,296
Accounts receivable	12		25,556					20,057
Hedge contract	12		545					10,282
Current taxes receivable			4,019					3,820
Future tax assets			698					2,004
Prepaid expenses			1,053					1,414
Inventory	3		4,663										3,069
			160,646										210,942
Non-current assets
Property, plant and equipment	4		104,367					74,401
Deferred exploration and development costs	5
Greek production stage mineral properties			24,417					26,652
Greek development stage mineral properties			404,897									403,907
			429,314									430,559
Romanian development stage mineral properties			49,880					45,187
Turkish exploration stage mineral properties			1,207										456
			480,401										476,202
Investment in associates	6		2,062					2,075
Future tax assets			2,394					2,475
			749,870											766,095
Liabilities
Current liabilities
Accounts payable and accrued liabilities	12		13,790					16,263
Current taxes payable			-					-
Future tax liabilities	7		185											3,496
			13,975											19,759
Non-current liabilities
Future tax liabilities	7		90,665					90,294
Asset retirement obligation	8		7,033					6,937
Deferred revenue	9		56,184												58,496
			153,882												155,727
Non-controlling interest			2,771						2,874
Shareholders' equity
Capital stock	10		540,204						538,316
Contributed surplus	10		8,826						7,788
Accumulated other comprehensive income	10		37,197						43,676
Deficit			(6,985)							(2,045)
			579,242							587,735
			749,870							766,095

The accompanying notes are an integral part of these interim consolidated financial statements.

Approved by the Board of Directors

(s) Timothy Morgan-Wynne (s) Jeffrey O'Leary

Timothy Morgan-Wynne, Director Jeffrey O'Leary, Director

European Goldfields Limited Consolidated Statements of Profit and Loss For the three- and nine-month periods ended 30 September 2009 and 2008 (Unaudited - Prepared by Management) (in thousands of US Dollars, except per share amounts)			3 months ended 30 September				9 months ended 30 September
	Note		2009 $		2008 $		2009 $		2008 $
Income
Sales			17,037		16,101		43,983		47,270
Cost of sales	3		(11,586)		(13,065)		(32,165)		(33,518)
Depreciation and depletion			(1,888)		(1,643)		(5,411)		(4,040)
Gross profit			3,563		1,393		6,407		9,712
Other income
Hedge contract profit			1,030		1,362		5,248		1,753
Interest income			147		1,306		788		4,565
Foreign exchange loss			(501)		(2,800)		(1,664)		(153)
Loss on dilution of interest in associates			(135)		-		(36)		-
Share of loss in equity investment			(52)		(66)		(73)		(102)
			489		(198)		4,263		6,063
Expenses
Corporate administrative and overhead expenses			1,135		1,353		3,204		3,918
Equity-based compensation expense			1,371		544		2,332		1,547
Hellas Gold administrative and overhead expenses			1,900		2,192		4,665		6,202
Hellas Gold water treatment expenses (non-operating mines)			782		1,764		2,550		3,855
Accretion of asset retirement obligation	8		34		35		96		101
Depreciation			162		166		481		506
			5,384		6,054		13,328		16,129
Profit/(loss) for the period before income taxes			(1,332)		(4,859)		(2,658)		(354)
Income taxes
Current taxes			(737)		1,639		(831)		1,198
Future taxes			(1,110)		(2,090)		(1,554)		(1,626)
			(1,847)		(451)		(2,385)		(428)
Profit/(loss) for the period after income taxes			(3,179)		(5,310)		(5,043)		(782)
Non-controlling interest			56		267		103		(40)
Profit/(loss) for the period			(3,123)		(5,043)		(4,940)		(822)
Deficit - Beginning of period			(3,862)		(3,343)		(2,045)		(7,564)
Deficit - End of period			(6,985)		(8,386)		(6,985)		(8,386)
Earnings/(loss) per share	19
Basic			(0.02)		(0.03)		(0.03)		0.00
Diluted			(0.02)		(0.03)		(0.03)		0.00
Weighted average number of shares (in thousands)
Basic			180,513		179,606		180,430		179,586
Diluted			180,513		179,606		180,430		179,586

The accompanying notes are an integral part of these interim consolidated financial statements.

 

European Goldfields LimitedConsolidated Statements of Equity As at 30 September 2009 and 2008 (Unaudited - Prepared by Management) (in thousands of US Dollars, except per share amounts)	Capital Stock $		Contributed Surplus $		Accumulated Other Comprehensive Income $		Deficit $		Total $
Balance - 31 December 2007	537,275		5,997		38,295		(7,564)		574,003
Equity-based compensation expense	-		2,888		-		-		2,888
Share issue costs	(10)		-		-		-		(10)
Restricted share units vested	1,314		(1,314)		-		-		-
Share options exercised or exchanged	77		(24)		-		-		53
Change in fair value cash flow hedge	-		-		3,882		-		3,882
Movement in cumulative translation adjustment	-		-		(291)		-		(291)
Loss for the period	-		-		-		(822)		(822)
	1,381		1,550		3,591		(822)		5,700
Balance -  30 September 2008	538,656		7,547		41,886		(8,386)		579,703
Equity-based compensation expense	-		(100)		-		-		(100)
Share issue cost	-		-		-		-		-
Restricted share units vested	(341)		341		-		-		-
Share options exercised or exchanged	1		-		-		-		1
Change in fair value cash flow hedge	-		-		2,022		-		2,022
Movement in cumulative translation adjustment	-		-		(232)		-		(232)
Profit for the period	-		-		-		6,341		6,341
	(340)		241		1,790		6,341		8,032
Balance - 31 December 2008	538,316		7,788		43,676		(2,045)		587,735
Equity-based compensation expense	-		2,315		-		-		2,315
Share issue costs	(28)		-		-		-		(28)
Restricted share units vested	801		(801)		-		-		-
Share options exercised or exchanged	1,115		(476)		-		-		639
Change in fair value cash flow hedge	-				(6,426)		-		(6,426)
Movement in cumulative translation adjustment	-		-		(53)		-		(53)
Loss for the period	-		-		-		(4,940)		(4,940)
	1,888		1,038		(6,479)		(4,940)		(8,493)
Balance - 30 September 2009	540,204		8,826		37,197		(6,985)		579,242

The accompanying notes are an integral part of these interim consolidated financial statements.

European Goldfields Limited Consolidated Statements of Cash Flows For the three- and nine-month periods ended 30 September 2009 and 2008 (Unaudited - Prepared by Management) (in thousands of US Dollars, except per share amounts)		3 months ended  30 September				9 months ended  30 September
	Note	2009 $		2008 $		2009 $		2008 $
Cash flows from operating activities
Profit/(loss)for the period		(3,123)		(5,043)		(4,940)		(822)
Foreign exchange (gain)/loss		(1,163)		2,906		(430)		(16)
Share of loss in equity investment		52		66		73		102
Loss on change of interest in associates		135		-		36		-
Depreciation		1,114		781		3,254		2,230
Equity-based compensation expense		1,371		544		2,332		1,547
Accretion of asset retirement obligation		34		35		96		102
Current taxation		737		(1,639)		831		(1,198)
Future tax asset recognised		1,110		2,090		1,554		1,626
Non-controlling interest		(56)		(267)		(103)		40
Deferred revenue recognised		(883)		(1,591)		(2,312)		(3,349)
Depletion of mineral properties		1,031		1,029		2,821		2,316
		359		(1,089)		3,212		2,578
Net changes in non-cash working capital	13	2,506		(5,332)		(11,003)		(13,440)
		2,865		(6,421)		(7,791)		(10,862)
Cash flows from investing activities
Deferred exploration and development costs - Romania		(1,652)		(1,420)		(4,168)		(4,115)
Plant and equipment - Greece		(20,649)		(2,971)		(33,052)		(13,183)
Deferred development costs - Greece		(129)		(519)		(1,351)		(1,944)
Deferred exploration cost - Turkey		(356)		(68)		(699)		(118)
Purchase of land		-		-		(88)		(2,705)
Purchase of equipment		(7)		(52)		(133)		(165)
Investment in subsidiary		-		-		-		(121)
Investment in associates		-		-		(143)		(1,858)
		(22,793)		(5,030)		(39,634)		(24,209)
Cash flows from financing activities
Deferred revenue		-		-		-		3,563
Proceeds from exercise of share options		-		-		638		54
Share issue costs		-		-		-		-
		-		-		638		3,617
Effect of foreign currency translation on cash		1,312		(2,001)		603		171
Increase/(decrease) in cash and cash equivalents		(18,616)		(13,452)		(46,184)		(31,283)
Cash and cash equivalents - Beginning of period		142,728		201,008		170,296		218,839
Cash and cash equivalents - End of period		124,112		187,556		124,112		187,556

The accompanying notes are an integral part of these interim consolidated financial statements.

European Goldfields Limited Consolidated Statements of Other Comprehensive Income For the three- and nine-month periods ended 30 September 2009 and 2008 (Unaudited - Prepared by Management) (in thousands of US Dollars, except per share amounts)	3 months ended  30 September				9 months ended  30 September
	2009 $		2008 $		2009 $		2008 $
Profit/(loss) for the period	(3,123)		(5,043)		(4,940)		(822)
Other comprehensive income/(loss) in the period
Currency translation adjustment	(11)		(314)		53		(291)
Change in fair value of cash flow hedge	1,605		(1,232)		4,940		3,883
Comprehensive income/(loss)	(1,529)		(6,589)		53		2,770

 

European Goldfields Limited

Notes to Consolidated Financial Statements

For the three- and nine-month periods ended 30 September 2009 and 2008

(Unaudited - Prepared by Management)

(in thousands of US Dollars, except per share amounts)

European Goldfields Limited (the "Company"), a company incorporated under the Yukon Business Corporations Act, is a resource company involved in the acquisition, exploration and development of mineral properties in Greece, Romania and South-East Europe.

The Company's common shares are listed on the AIM Market of the London Stock Exchange and on the Toronto Stock Exchange (TSX) under the symbol "EGU".

Greece - The Company holds a 95% interest in Hellas Gold S.A ("Hellas Gold"). Hellas Gold owns three major gold and base metal deposits in Northern Greece. The deposits are the polymetallic operation at Stratoni, the Olympias project which contains gold, zinc, lead and silver, and the Skouries copper/gold porphyry project. Hellas Gold commenced production at Stratoni in September 2005 and commenced selling an existing stockpile of gold concentrates from Olympias in July 2006. Hellas Gold is applying for permits to develop the Skouries and Olympias projects.

Romania - The Company owns 80% of the Certej gold/silver project in Romania.  In July 2008, the National Agency of Mineral Resources approved the technical feasibility study in support of its permit application and issued a new mining permit for the Certej project.

The underlying value of the deferred exploration and development costs for mineral properties is dependent upon the existence and economic recovery of reserves in the future, and the ability to raise long-term financing to complete the development of the properties.

For the coming year, the Company believes it has adequate funds available to meet its corporate and administrative obligations and its planned expenditures on its mineral properties.

These consolidated financial statements have been prepared on a going concern basis, which assumes the Company will be able to realise assets and discharge liabilities in the normal course of business for the foreseeable future. These consolidated financial statements do not include the adjustments that would be necessary should the Company be unable to continue as a going concern.

 

These interim consolidated financial statements have been prepared on the going concern basis in accordance with accounting principles generally accepted in Canada ("Canadian GAAP") using the same accounting policies as those disclosed in Note 2 to the Company's audited consolidated financial statements for the years ended 31 December 2008 and 2007.

These interim consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements for the years ended 31 December 2008 and 2007.

Goodwill and intangible assets - In February 2008, the Canadian Institute of Chartered Accountants ("CICA") issued Section 3064 Goodwill and intangible assets, replacing Section 3062, Goodwill and other intangible assets. It establishes standards for the recognition, measurement, presentation and disclosure of goodwill subsequent to its initial recognition and of intangible assets by profit-oriented enterprises. Standards concerning goodwill are unchanged from the standards included in the previous Section 3062. The Company adopted the new standards on 01 January 2009. The adoption of this new Section had no impact on the consolidated financial statements.

Credit Risk and the Fair Value of Financial Assets and Financial Liabilities (EIC 173) - In January 2009, the CICA issued EIC 173, "Credit Risk and the Fair Value of Financial Assets and Financial Liabilities". The EIC requires the Company to take into account the Company's own credit risk and the credit risk of the counterparty in determining the fair value of financial assets and financial liabilities, including derivative instruments. This EIC applies to interim and annual consolidated financial statements relating to fiscal years beginning on or after 01 January 2009. The adoption of this new accounting policy did not have any impact on the Company's consolidated financial statements.

Mining Exploration Costs (EIC 174) - In March 2009, the CICA issued EIC Abstract 174, "Mining Exploration Costs". The EIC provides guidance on the accounting and the impairment review of exploration costs. This EIC applies to interim and annual consolidated financial statements relating to fiscal years beginning on or after 01 January 2009. The adoption of this new accounting policy did not have any material impact on the Company's consolidated financial statements.

 

3. Inventory

This balance comprises the following:

	30 September		31 December
	2009		2008
	$		$
Ore mined	1,184		397
Metal concentrates	1,102		767
Material and supplies	2,377		1,905
	4,663		3,069

As at 30 September 2009, the value of total inventory carried at net realisable value amounted to $Nil (2008 - $767), which includes a write-down of $Nil (2008 - $953).

The components of cost of sales were as follows:

	3 months ended  30 September				9 months ended 30 September
	2009 $		2008 $		2009 $		2008 $
Mining cost	5,679		6,731		18,053		21,668
Direct labour	1,148		1,373		3,352		3,814
Indirect labour	116		242		356		714
Other overhead costs	1,345		1,968		4,199		5,498
Change in gross inventories	1,080		893		(1,268)		(2,164)
Freight charges	2,218		1,597		7,473		3,988
Write down of inventory to net realisable value	-		261		-		-
	11,586		13,065		32,165		33,518

4. Property, plant and equipment

	Plant and equipment $		Vehicles $		Land and  buildings $		Total $
Cost - 2009
At 31 December 2008	46,354		2,062		35,738		84,154
Additions	32,340		143		743		33,226
Disposals	-		-		-		-
At 30 September 2009	78,694		2,205		36,481		117,380
Accumulated depreciation - 2009
At 31 December 2008	4,668		1,284		3,801		9,753
Provision for the period	1,156		154		1,950		3,260
Disposals	-		-		-		-
At 30 September 2009	5,824		1,438		5,751		13,013
Net book value at 30 September 2009	72,870		767		30,730		104,367

At 30 September 2009, the net book value amount of plant and equipment not depreciated amounted to $75,173 (2008 - $43,095)

5. Deferred exploration and development costs

Greek mineral properties:

	Stratoni $		Olympias $		Skouries $		Other exploration $		Total $
Balance - 31 December 2008	26,652		237,362		166,292		253		430,559
Deferred development costs	205		355		1,072		24		1,656
Depletion of mineral properties	(2,440)		(461)		-		-		(2,901)
	(2,235)		(106)		1,072		24		(1,245)
Balance - 30 September 2009	24,417		237,256		167,364		277		429,314

The Stratoni, Skouries and Olympias properties are held by the Company's 95%-owned subsidiary, Hellas Gold. In September 2005, the Stratoni property commenced production.

Romanian mineral properties:

	Certej $		Other  exploration $		Total $
Balance - 31 December 2008	38,832		6,355		45,187
Exploration	2,766		406		3,172
Permit acquisition	107		-		107
Project overhead	1,265		95		1,360
Depreciation	43		11		54
	4,181		512		4,693
Balance - 30 September 2009	43,013		6,867		49,880

The Certej exploitation licence and the Baita-Craciunesti exploration licence are held by the Company's 80% owned subsidiary, Deva Gold. Minvest S.A. (a Romanian state owned mining company), together with three private Romanian companies, hold the remaining 20% interest in Deva Gold.  The Company is required to fund 100% of all costs related to the exploration and development of these properties. As a result, the Company is entitled to the refund of such costs (plus interest) out of future cash flows generated by Deva Gold, prior to any dividends being distributed to shareholders. The Voia and Cainel exploration licences are held by the Company's wholly-owned subsidiary, European Goldfields Deva SRL.

As at the 30 September 2009, the following cost had been incurred on the remaining Romanian mineral properties:

	30 September 2009 $		31 December 2008 $
Baita-Craciunesti	3,343		3,312
Voia	1,816		1,741
Magura Tebii	168		136
Cainel	1,540		1,166
	6,867		6,355

Turkish mineral properties:

	Ardala $		Other  exploration $			Total $
Balance - 31 December 2008	449		7			456

Exploration	24		25		49
Project overhead	505		59		564
Permit acquisition	108		17		125
Depreciation	11		2		13
	648		103		751
Balance - 30 September 2009	1,097		110		1,207

The Turkish licenses are held by the Joint Venture Company ("JV"), Pontid Madencilik. Currently the Company has a 51% interest in all the properties within the JV and the Company will fund 100% of all costs related to the development of these properties. Ownership of these properties maybe increased to 80% by funding to completion of a Bankable Feasibility Study. Any new concessions within the JV funded to a Bankable Feasibility Study will be 90% owned by the Company. The owner of the remaining 49% of the properties is Ariana Resources plc.

6. Investment in associates

	30 September 2009 $		31 December 2008  $
Balance - Beginning of period	2,075		-
Shares acquired	143		2,692
Share of loss	(74)		(105)
Cumulative translation adjustment	(18)		(517)
Equity-based compensation expense	-		5
Share issue cost	(28)		-
Loss on change of interest in associates	(36)		-
Balance - End of period	2,062		2,075

In January 2008, Hellas Gold acquired a 50% share of Greek Nurseries SA for a consideration of $834 (€530).

In May 2008, the Company subscribed for 20.13% of the issued share capital of Ariana through a $1,858 (£929) private placement of shares. The difference between the cost of the investment of $1,830 and the underlying net book value of Ariana is $132 at the date of acquisition. This excess represents additional fair value assigned to mineral properties of Ariana and will be depleted upon commencement of mining operations of Ariana. In January 2009, the Company acquired further shares in Ariana and held 19.87% of the issued share capital. During September 2009, Ariana carried out a further share placement and as at 30 September 2009, the Company held 16.58% of the issued share capital.

7. Future tax liability

The following table reflects future income tax liabilities:

	30 September  2009 $		31 December 2008 $
Mineral properties	84,664		85,167
Plant and equipment	1,979		882
Exploration and development expenditure	3,088		2,709
Accrued expenses & other	72		663
Inventory	-		-
Retirement obligation	862		873
Hedge contract	185		3,496
	90,850		93,790
Less: Current portion	(185)		(3,496)
Future income tax liabilities recognised	90,665		90,294

The majority of the future tax liability arises as a result of the increase in value placed on the mineral properties held by Hellas Gold on acquisition by the Company. This future tax liability will reverse as the corresponding mineral properties are amortised.

8. Asset retirement obligation

Management has estimated the total future asset retirement obligation based on the Company's net ownership interest in the Olympias, Skouries and Stratoni mines and facilities. This includes all estimated costs relating to the Company's obligation to dismantle, remove, reclaim and abandon the facilities and the estimated time period during which these costs will be incurred in the future. The following table reconciles the asset retirement obligations as at 30 September 2009 and 31 December 2008:

	30 September		31 December
	2009		2008
	$		$
Asset retirement obligation - Beginning of period	6,937		6,805
Accretion expense	96		132
Asset retirement obligation - End of period	7,033		6,937

As at 30 September 2009, the undiscounted amount of estimated cash flows required to settle the obligation was $7,805 (31 December 2008 - $7,805).  The estimated cash flow has been discounted using a credit adjusted risk free rate of 5.04% (2008 - 5.04%). The expected period until settlement is six years.

9.  Deferred revenue

In April 2007, Hellas Gold agreed to sell to Silver Wheaton (Caymans) Ltd. ("Silver Wheaton") all of the silver metal to be produced from ore extracted during the mine-life within an area of some 7 km² around its zinc-lead-silver Stratoni mine in northern Greece (the "Silver Wheaton Transaction"). The sale was made in consideration of a prepayment to Hellas Gold of $57.5 million in cash, plus a fee per ounce of payable silver to be delivered to Silver Wheaton of the lesser of $3.90 (subject to an inflationary adjustment beginning after year three) and the prevailing market price per ounce. The current Stratoni proven and probable silver reserve contains approximately 12 million ounces of silver. 

In April 2007, Hellas Gold entered in an agreement with MRI Trading AG for the sale of 25,000 wet metric tonnes of gold bearing pyrite concentrate. Hellas Gold received a prepayment of $2.18 million in cash. A further agreement with MRI Trading AG was entered into in March 2008, for the sale of a further 23,372 dry metric tonnes, for which Hellas Gold received a prepayment of $3.56 million in cash. The remaining balances relating to MRI prepayments were transferred to current liabilities reflecting the repayment of these amounts to MRI in February 2009. In September 2007, Hellas Gold entered into an agreement with a subsidiary of Celtic Resources Holdings Plc for the sale of 50,000 wet metric tonnes of gold bearing pyrite concentrate, for which Hellas Gold received a prepayment of $4.71 million in cash.

The following table reconciles movements on deferred revenue associated with the MRI and Celtic Resources prepayments, and the Silver Wheaton transaction:

	30 September		31 December
	2009		2008
	$		$
Deferred revenue - Beginning of period	58,496		65,344
Additions	-		3,564
Revenue recognised	(2,312)		(6,399)
Transferred to current liabilities	-		(4,013)
Deferred revenue - End of period	56,184		58,496

For the nine-month period ended 30 September 2009, Hellas Gold delivered concentrate containing 558,218 ounces (Year to 31 December 2008 - 1,038,762 ounces) of silver for credit to Silver Wheaton.

 

10. Capital stock

Authorised:

- Unlimited number of common shares, without par value

- Unlimited number of preferred shares, issuable in series, without par value

Issued and outstanding (common shares - all fully paid)

	Number of Shares		Amount $
Balance - 31 December 2008	179,382,381		538,316
Restricted share units vested	205,000		801
Share options exercised	300,000		1,115
Share issue costs	-		(28)
	505,000		1,888
Balance - 30 September 2009	179,887,381		540,204

Contributed surplus

	30 September		31 December
	2009		2008
	$		$
Equity-based compensation expense	8,248		7,210
Broker warrants	578		578
	8,826		7,788

Accumulated other comprehensive income 

The components of accumulated other comprehensive income were as follows:

	30 September 2009		31 December 2008
	$		$
Cumulative translation adjustment	36,837		36,890
Fair value of cash flow hedge (net of tax)	360		6,786
	37,197		43,676

11. Share options, restricted share units and deferred phantom units

Share Option Plan

The Company operates a Share Option Plan (together with its predecessor, the "Share Option Plan") authorising the directors to grant options to acquire common shares of the Company to the directors, officers, employees and consultants of the Company and its subsidiaries, on terms that the Board of Directors may determine, within the limitations of the Share Option Plan. The maximum number of common shares of the Company which may be reserved for issuance for all purposes under the Share Option Plan shall not exceed 15% of the common shares issued and outstanding from time to time (26,983,107 shares as at 30 September 2009).

An optionee under the Share Option Plan may elect to dispose of its rights under all or part of its options (the "Exchanged Rights") in exchange for the following number of common shares of the Company (or at the Company's option for cash) in settlement thereof (the "Settlement Common Shares"):

Number of  =	Number of Optioned X	(Current Price - Exercise Price)
Settlement	Shares issuable on	Current Price
Common	exercise of the
Shares	Exchanged Rights

As at 30 September 2009, the following share options were outstanding:

Expiry date	Number of Options		Exercise price C$
2009	360,000		3.07
2009	75,000		3.15
2010	309,999		2.00
2011	66,666		3.25
2011	600,000		3.85
2011	100,000		4.10
2012	250,000		5.66
2012	150,000		5.71
2012	270,000		5.87
2013	50,000		1.99
2013	360,000		3.54
2013	135,000		5.07
2013	165,000		6.80
	2,891,665		4.13

During the nine-month period ended 30 September 2009, share options were granted, exercised and forfeited as follows:

	Number of Options		Weighted average exercise price C$
Balance - 31 December 2008	3,491,665		4.01
Options granted	-		-
Options exercised for shares	(300,000)		2.67
Options forfeited	(300,000)		4.18
Balance - 30 September 2009	2,891,665		4.13

Of the 2,891,665 (2008 - 3,941,665) share options outstanding as at 30 September 2009, 2,314,999 (2008 - 2,621,669) were fully vested and had a weighted average exercise price of C$3.85 (2008 - C$3.48) per share. The share options outstanding as at 30 September 2009, had a weighted average remaining contractual life of years 2.15 (2008 - 3.27 years).

The weighted average grant date fair value of the NIL share options granted during the nine-month period ended 30 September 2009 (2008 - 960,000) was C$ NIL (2008 - C$4.78). For outstanding share options which were not fully vested during the nine-month period ended 30 September 2009, the Company incurred a total equity-based compensation cost of $703 (2008 - $1,204) of which $520 (2008 - $957) has been recognised as an expense in the income statement and $183 (2008 - $248) has been capitalised to deferred exploration and development costs.

 

Restricted Share Unit Plan

The Company operates a Restricted Share Unit Plan (the "RSU Plan") authorising the directors, based on recommendations received from the Compensation Committee, to grant Restricted Share Units ("RSUs") to designated directors, officers, employees and consultants. The RSUs are "phantom" shares that rise and fall in value based on the value of the Company's common shares and are redeemed for actual common shares on the vesting dates determined by the Board of Directors when the RSUs are granted. The RSUs vest on the dates below however upon a change of control of the Company they would typically become 100% vested. The maximum number of common shares of the Company which may be reserved for issuance for all purposes under the RSU Plan shall not exceed 2.5% of the common shares issued and outstanding from time to time (4,497,185 shares as at 30 September 2009).

As at 30 September 2009, the following RSUs were outstanding:

Vesting date	Number of RSUs		Grant date fair value of underlying shares C$
01 December 2009	271,250		3.31
01 December 2009	216,810		3.47
04 January 2010	242,390		2.65
04 January 2011	242,389		2.65
	972,839		3.02

During the nine-month period ended 30 September 2009, RSUs were granted, vested and forfeited as follows:

	Number of RSUs		Weighted average grant date fair value of underlying shares C$
Balance - 31 December 2008	205,000		4.09
RSUs granted	1,072,839		2.99
RSUs vested	(205,000)		4.09
RSUs forfeited	(100,000)		2.74
Balance - 30 September 2009	972,839		3.02

The weighted average grant date fair value of underlying shares of the 1,072,839 RSUs granted during the nine-month period ended 30 September 2009 (2008 - 365,000 ) was C$2.99  (2008 - C$5.26). For outstanding RSUs which were not fully vested during the nine-month period ended 30 September 2009, the Company incurred a total equity-based compensation cost of $1,612 (2008 - $1,683) of which $965 (2008 - $590) has been recognised as an expense in the income statement and $647 (2008 - $1,092) has been capitalised to deferred exploration and development costs.

Deferred Phantom Unit Plan 

The Company operates a Deferred Phantom Unit plan (the "DPU Plan") authorising the directors based on recommendation by the Human Capital Management Committee to grant Deferred Phantom Units ("DPUs") to independent eligible directors. The DPUs are units which gives rise to a right to receive a cash payment the value of which, on a particular date should be the market value of the equivalent number of shares at that date. The market value at 30 September 2009 has been included in current liabilities.

As at 30 September 2009, the following DPUs were outstanding:

Grant date	Number of DPUs		Grant date Fair Value of DPUs C$
05 December 2008	406,500		1.86
23 March 2009	9,276		3.63
15 May 2009	11,568		2.90
18 August 2009	10,377		3.38
	437,721		1.96

During the nine-month period ended 30 September 2009, DPUs were granted and forfeited as follows:

	Number of  DPUs		Fair Value of DPUs  C$
Balance - 31 December 2008	406,500		3.24
DPUs granted and vested	31,221		3.24
DPUs forfeited	-		-
Balance - 30 September 2009	437,721		4.98

Of the 31,221 (2008 - Nil) DPUs granted during the period, 31,221 (2008 - Nil) were fully vested.

The weighted average grant date fair value cost of the 31,221 DPUs granted during the nine-month period ended 30 September 2009 (2008 - Nil) was $3.24 (2008 - Nil). The weighted average fair value cost of the 437,721 DPUs as at the 30 September 2009, based on the period end share price, amounted to C$4.98 (2008 - Nil).

 

12. Financial instruments and financial risk management 

The Company's financial instruments consist of cash and cash equivalents, accounts receivable, restricted cash, accounts payable, accrued liabilities, embedded derivatives and hedge contracts. 

Short-term financial assets are amounts that are expected to be settled within one year. The carrying amounts in the consolidated balance sheets approximate fair value because of the short term nature of these instruments.

The embedded derivatives are classified as a short term financial asset. 

The carrying amounts for the financial instruments as at 30 September 2009 are as follows:

	30 September  2009 $		31 December  2008 $
Financial asset
Held for trading, measured at fair value
Cash and cash equivalents	124,112		170,296
Loans and receivables, measured at amortised cost
Accounts receivable	25,556		20,057
Derivative financial instruments - measured at fair value
Designated as cash flow hedge
Lead hedging contracts	545		10,282
Financial liabilities
Other liabilities, measured at amortised costs
Accounts payable, accrued liabilities and income taxes payable	13,790		16,263

Credit risk - Credit risk represents the financial loss the Company would suffer if the Company's counterparties to a financial instrument, in owing an amount to the Company, fail to meet or discharge their obligation to the Company.

Financial instruments that potentially subject the Company to concentration of credit risk consist of cash and cash equivalents, accounts receivable and hedging contracts. The cash equivalents consist mainly of short-term investments, such as money market deposits. The Company does not invest in asset-backed commercial papers and has deposited the cash equivalents only with the largest banks within a particular region or with top rated institutions. 

As at 30 September 2009, the cash and cash equivalent comprises the following:

	30 September  2009  $		31 December  2008 $
Interest bearing bank accounts	112,920		123,297
Short-term deposits	11,192		46,999
	124,112		170,296

The Company has accounts receivable from trading counterparties to whom concentrate products are sold. Where traders are chosen as counterparties, only the larger and most financially secure metal trading groups are dealt with. The Company may also transact agreements with trading groups who have direct interests in smelting capacity, or direct to the smelters themselves. 

Of the total trade receivables as at 30 September 2009, 5 (31 December 2008 - 3) customers represented 96% (31 December 2008 - 90%) of the total. The Company does not anticipate any loss for non-performance.

As at 30 September 2009, the accounts receivable comprises the following:

	30 September 2009 $		31 December 2008 $
Trade receivables	6,246		4,986
Value added taxes recoverable	17,726		11,780
Other accounts receivable	1,584		3,291
	25,556		20,057

As at the 30 September 2009, the Company considers its accounts receivable, excluding Value Added Taxes recoverable and other accounts receivable, to be aged as follows:

Ageing	30 September 2009 $		31 December 2008 $
Current	3,295		1,807
Past due (1-30 days)	3,589		2,632
Past due (31-60 days)	-		417
Past due (more than 60 days)	(638)		130
	6,246		4,986

Interest rate risk - The Company is exposed to interest rate risk arising from fluctuations in interest rates on its cash equivalents. The Company seeks to maximise returns on cash equivalents, without risking capital values. The Company's objectives of managing its cash and cash equivalents are to ensure sufficient funds are maintained on hand at all times to meet day to day requirements and to place any amounts which are considered in excess of day to day requirements on short-term deposits with the Company's banks so they earn interest. Upon placing amounts of cash and cash equivalents on short-term deposits, the Company uses top rated institutions and ensures that access to the amounts can be gained at short notice. During the nine-month period ended 30 September 2009, the Company earned interest income of $788 (30 September 2008 - $4,565) and $147 for the three-month period (30 September 2008 - $1,306) on cash and cash equivalents, based on rates of returns for the nine-month period between 0.15% and 3.59% (0.50% and 5.42% - 30 September 2008) and for the three-month period between 0.15% and 1.23% (0.50% and 5.04% - 30 September 2008).

Currency risk - The Company is exposed to currency risk on sales, purchases and cash holdings that are denominated in a currency other than the functional currencies of the individual entities in the group. As at the 30 September 2009, the Company held the equivalent of $4,005 in foreign currencies. These balances are primarily made up of Euro and Canadian dollar.

For the nine-month period ended 30 September 2009 the Company recorded a foreign exchange loss of $1,664 compared to a loss of $153 in the corresponding period to 30 September 2008; and for the three-month period ended 30 September 2009, a loss of $501 compared to a loss of $2,800 for the comparable period in 2008, mainly due to the strengthening of the Euro against the US dollar for both the nine and three-month period ended 30 September 2009.

The Company publishes its consolidated financial statements in US dollars and as a result, it is also subject to foreign exchange translation risk in respect of assets and liabilities nominated in Euros in its foreign operations.

Liquidity risk - Liquidity risk is the risk that the Company will not be able to meet its financial obligations when they become due.

The Company manages its liquidity risk by ensuring there is sufficient capital to meet short and long term business requirements after taking into account cash flows from operations and holdings of cash and cash equivalents. The Company believes that these sources will be sufficient to cover the likely short to medium term requirements. Senior management is also actively involved in the review and approval of planned expenditures by regularly monitoring cash flows from operations and anticipated investing and financing activities. 

The Company does not have any borrowing or debt facilities and settles its obligations out of cash and cash equivalents. The ability to do this relies on the Company collecting its accounts receivable in a timely manner and maintaining cash on hand. 

Financial liabilities consist of trade payables, accrued liabilities and income taxes payable. As at 30 September 2009, the Company's trade payables and accrued liabilities amounted to $13,790 (31 December 2008 - $16,263), all which fall due for payment within 12 months of the balance sheet date. The average credit period taken during the nine-month period ended 30 September 2009 was 30 days (30 days - 31 December 2008).

Commodity Price Risk - The value of the Company's mineral resource properties is related to the prices of gold, copper, zinc, lead and silver and outlook for these commodities.

Gold prices historically have fluctuated widely and are affected by numerous factors outside of the company's control, including, but not limited to, industrial and retail demand, central bank lending, forward sales by producers and speculators, levels of worldwide production, short-term changes in supply and demand because of speculative investing activities, macro-economic and political variables, and certain other factors related specifically to gold. Base metal prices have historically tended to be driven more by the demand and supply fundamentals for each metal. However, levels of speculative activity in the base metals market have increased in recent years.

The profitability of the Company's operations is highly correlated to the market price of its commodities in particular gold. To the extent that these prices increase, asset values increase and cash flows improve; conversely, declines in metal prices directly impact value and cash flows. A protracted period of depressed prices could impair the Company's operations and development opportunities, and significantly erode shareholder value.

The Company has completed a sensitivity analysis to estimate the impact on net profit of a 5% change in foreign exchange rates, a 1% change in interest rates and a 10% change in commodity prices during the period ended 30 September 2009 and 2008.  The results of the sensitivity analysis can be seen in the following table:

	3 months ended  30 September					9 months ended  30 September
Impact on profit/(loss) (+/-)		2009 $		2008 $		2009 $		2008 $
Change of + 5 % US$ : € foreign exchange rate		894		1,792		2,013		3,277
Change of - 5 % US$ : € foreign exchange rate		(907)		(1,762)		2,026		(3,277)
Change of +/- 1% in interest rates		221		342		697		1,051
Change of +/- 10% in commodities prices		1,699		1,112		7,273		6,368

Limitations of sensitivity analysis - The above table demonstrates the effect of either a change in foreign exchange rates, interest rates or commodities prices in isolation. In reality, there is a correlation between the two factors. Additionally, the financial position of the Company may vary at the time that a change in either of these factors occurs, causing the impact on the Company's results to differ from that shown above.

Hedging and specific commitments - The Company enters into financial transactions in the normal course of business and in line with Board guidelines for the purpose of hedging and managing its expected exposure to commodity prices. There are a number of financial institutions which offer metal hedging services. As with cash deposits, the Company deals with highly rated banks and in addition, those institutions who have demonstrated long term commitment to the mining sector. The Company has one counterparty relating to the remaining lead hedge contracts. If this counterparty were unable to honour its obligations under the hedge contracts, the Company would be exposed up to the entire value of the hedge stated in the accounts and would be exposed to the difference between the hedge and the then current market price at the date of the settlement of the hedged item. The hedges below are treated as cash flow hedges in accordance with CICA 3865: Hedges.

Lead hedging contracts - As at 30 September 2009, the Company had entered into forward hedging arrangements over tonnes of lead, using options to provide a minimum: maximum price exposure. The hedging contracts are put/call option collar contracts with maturity dates between 02 January 2009 and 05 January 2010 where the fair value amounted to $545 (31 December 2008 - $10,282), established by reference to market prices for lead.

	30 September 2009
Lead tonnes	1,800
US dollar price ($/tonne) - Put	2,500
US dollar contract amount ($'000) - Put	4,500
US dollar price ($/tonne) - Call	3,500
US dollar contract amount ($'000) - Call	6,300

During the nine and three-months period ended 30 September 2009, the Company recorded income relating to its lead hedging activities of $5,248 (2008 - $1,753) and $1,030 (2008 - $1,362) respectively.

13. Supplementary cash flow information

	3 months ended  30 September				9 months ended  30 September
	2009		2008		2009		2008
	$		$		$		$
Changes in non-cash operating accounts:
Accounts receivable, prepaid expenses and supplies	2,497		7,462		(5,334)		3,729
Accounts payable	282		(1,487)		(3,325)		(1,366)
Taxation	(831)		(11,831)		(831)		(13,227)
Inventory	558		524		(1,513)		(2,576)
	2,506		(5,332)		(11,003)		(13,440)
Supplementary disclosure of non-cash transactions:
Share options and restricted share units issued for non-cash consideration	601		1,024		2,315		2,888
Exercise of share options - Transfer from contributed surplus to share capital	-		-		(476)		(24)
Vesting of restricted share units	-		-		(801)		(1,314)

 

14. Capital Risk Management

The Company's objectives when managing capital is to maintain its ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to ensure sufficient resources are available to meet day to day operating requirements.

The Company's Board of Directors takes full responsibility for managing the Company's capital and does so through quarterly board meetings, review of financial information, and regular communication with Officers and senior management. 

In order to maximise ongoing development efforts, the company does not pay out dividends.

The Company's investment policy is to invest its cash in high-grade investment securities with varying terms and maturity, selected with regards to the expected timing of expenditures from continuing operations.

The Company expects its current capital resources will be sufficient to carry out its plans and operations through its current operating period.

The Company is not subject to externally imposed capital requirements and there has been no change in the overall capital risk management as at 30 September 2009. 

Capital under management was as follows:

	30 September  2009		31 December 2008
	$		$
Capital stock	540,204		538,316
Contributed surplus	8,826		7,788
Accumulated other comprehensive income	37,197		43,676
Deficit	(6,985)		(2,045)
	579,242		587,735

15. Commitments

The Company has spending commitments of $236 (£166) per year (plus service charges and value added tax) for a term of ten years under the lease for its office in London, England, which commenced in April 2004. The rent was subject to an upward only review in April 2009, for which the new rent became effective from November 2008. 

Hellas Gold has spending commitments of $142 (€104) per year for a term of 9 years under the lease for its office in Athens, Greece, which commenced in December 2007. The rent will be reviewed on the second anniversary of the commencement of the term to reflect any increase in rents in the market.

As at 30 September 2009, Hellas Gold had entered into off-take agreements pursuant to which Hellas Gold agreed to sell 45,388 dmt of zinc concentrates, 10,494 dmt of lead/silver concentrates and 128,832 dmt of gold concentrates until the financial year ending 2012.

During 2007, Hellas Gold entered into purchase agreements with Outotec Minerals OY for long-lead time equipment for the Skouries project with a cost of $50,474 (€34,470) which is to be paid by the end of 2009. As at 30 September 2009, $46,820 (€31,974) of the commitment had been paid.

 

16. Transactions with related parties

During the nine and three-month periods ended 30 September 2009, Hellas Gold incurred costs of $24,768 (2008 - $28,651) and $6,945 (2008 - $10,393) respectively for management, technical and engineering services received from a related party, Aktor S.A., a 5% shareholder in Hellas Gold. As at 30 September 2009, Hellas Gold had accounts payable of $8,673  (2008 - $4,216) to Aktor S.A. These expenses were contracted in the normal course of operations and are recorded at the exchange amount agreed by the parties. 

 

17. Segmented information

The Company has one operating segment: the acquisition, exploration and development of precious and base metal mineral resources properties located in Greece, Romania and Turkey.

Geographic segmentation of property, plant and equipment, deferred exploration and development costs and operating liabilities is as follows:

	30 September		31 December
	2009		2008
	$		$
Revenue
Canada	-		-
Greece	43,983		60,044
Romania	-		-
Turkey	-		-
United Kingdom	-		-
	43,983		60,044
Property, plant and equipment, deferred exploration  and development costs
Canada	-		-
Greece	530,540		501,852
Romania	52,712		47,946
Turkey	1,265		496
United Kingdom	251		309
	584,768		550,603
Operating liabilities
Canada	2,038		1,503
Greece	10,799		14,084
Romania	476		252
Turkey	73		80
United Kingdom	404		344
	13,790		16,263

 

18. Pension plans and other post-retirement benefits

The company's subsidiary, European Goldfields (Services) Limited, maintains a defined contribution pension plan for its employees. The defined contribution pension plan provides pension benefits based on accumulated employee and Company contributions. Company contributions to these plans are a set percentage of employees' annual income and may be subject to certain vesting requirements. The cost of defined contribution benefits is expensed as earned by employees.

As at 30 September 2009, the company recognised the following costs:

	3 months ended  30 September				9 months ended  30 September
	2009		2008		2009		2008
	$		$		$		$
Defined contribution plans	61		65		161		190

 

19. Earnings per share

The calculation of the basic and diluted earnings per share attributable to holders of the Company's common shares is based as follows:

		3 months ended  30 September				9 months ended  30 September
		2009 $		2008 $		2009 $		2008 $
Earnings/(loss) for the period		(3,123)		(5,043)		(4,940)		(822)
Effect of dilutive potential common shares		-		-		- -		-
Diluted earnings/(loss)		(3,123)		(5,043)		(4,940)		(822)
Weighted average number of common shares
	for the purpose of basic earnings per share	180,513		179,586 -		180,430 -		179,606 -
Incremental shares – Share options		-
Weighted average number of common shares
	for the purpose of diluted earnings per share	180,513		179,586		180,430		179,606

 

20. Reclassification of comparative figures

Certain comparative figures have been reclassified to conform to the current year's presentation.

 

21. Legal proceedings

In June 2005, certain residents of Stratoniki village submitted a request for the annulment of the Greek government's joint ministerial decision approving the environmental impact study for the Stratoni mine (the "JMD Approval"). In November 2005, the same petitioners submitted a request for the annulment of the decision of the Minister of Development approving the Technical Study for the exploitation of the Mavres Petres mine that forms part of the Stratoni complex (the "MOD Approval"). The JMD Approval and the MOD Approval are necessary for the continued operation of the Stratoni mine. In both cases the petitioners alleged a lack of legal basis for the approvals and potential harm to the environment and their properties. The Greek government, supported by the Company, the Association of Extractive Companies, and two workers' unions, has taken a position that the approvals are valid. In December 2005 the petitioners requested an injunction to stop work on the Stratoni project pending the hearing of the requests for annulment, but the court rejected the request. A hearing on both requests for annulment will be held shortly. The management of the Company believes that both requests for annulment are unfounded and unlikely to succeed.

 

22. New accounting pronouncements

Business Combination, Consolidated Financial Statements and non controlling interest - In January 2009, the CICA issued Handbook Sections 1582 - Business Combinations, 1601 - Consolidated Financial Statements and 1602 - Non-controlling Interests which replace CICA Handbook Sections 1581 - Business Combinations and 1600 - Consolidated Financial Statements. Section 1582 establishes standards for the accounting for business combinations that is equivalent to the business combination accounting standard under International Financial Reporting Standards. Section 1582 is applicable for the Company's business combinations with acquisition dates on or after January 1, 2011. Early adoption of this Section is permitted. Section 1601 together with Section 1602 establishes standards for the preparation of consolidated financial statements. Section 1601 is applicable for the Company's interim and annual consolidated financial statements for its fiscal year beginning January 1, 2011. Early adoption of this Section is permitted. If the Company chooses to early adopt any one of these Sections, the other two sections must also be adopted at the same time.

International Financial Reporting Standards ("IFRS) - In 2006, the Canadian Accounting Standards Board ("AcSB") published a new strategic plan that will significantly affect financial reporting requirements for Canadian companies. The AcSB strategic plan outlines the convergence of Canadian GAAP with IFRS over an expected five year transitional period. In February 2008 the AcSB announced that 2011 is the changeover date for public accountable companies to use IFRS, replacing Canada's own GAAP. The transition date is for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. The transition date of January 1, 2011 will require the restatement for comparative purposes of amounts reported by the Company for the year ended December 31, 2010.

ENDQRTILFFALTLAIIA