EGU.L Regulatory News (EGU)

11 Nov 2008 07:02



European Goldfields Limited

Interim Consolidated Financial Statements

(Unaudited)

For the Three- and Nine-Month Periods Ended

30 September 2008 and 2007

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 2008 and 2007 have not been reviewed by the auditors of the Company.

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

 

 

 

 

 

 

	Capital Stock $	Contributed Surplus $	Accumulated Other Comprehensive Income $	Deficit $	Total $
Balance - 31 December 2006	246,890	7,135	4,276	(30,763)	227,538
Equity-based compensation cost	-	1,940	-	-	1,940
Shares issued for equity financing	130,059	-	-	-	130,059
Shares issued as consideration for acquisition	161,424	-	-	-	161,424
Share issue costs	(7,055)	-	-	-	(7,055)
Restricted share units vested	850	(850)	-	-	-
Share options exercised or exchanged	940	(888)	-	-	52
Movement in cumulative translation adjustment	-	-	16,363	-	16,363
Profit for the period	-	-	-	19,599	19,599
	286,218	202	16,363	19,599	322,382
Balance 30 September 2007	533,108	7,337	20,639	(11,164)	549,920
Equity-based compensation cost	-	548	-	-	548
Share issue cost	2,279	-	-	-	2,279
Restricted share units vested	1,796	(1,796)	-	-	-
Share options exercised or exchanged	92	(92)	-	-	-
Change in fair value cash flow hedge	-	-	882	-	882
Movement in cumulative translation adjustment	-	-	16,774	-	16,774
Profit for the period	-	-	-	3,600	3,600
	4,167	(1,340)	17,656	3,600	24,083
Balance - 31 December 2007	537,275	5,997	38,295	(7,564)	574,003
Equity-based compensation cost	-	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

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

		3 months ended  30 September		9 months ended  30 September
		2008 $	2007 $	2008 $	2007 $
	Note
Cash flows from operating activities
(Loss)/Profit for the period		(5,043)	12,156	(822)	19,599
Share of loss in equity investment		66	-	102	-
Foreign exchange (gain)/loss		2,906	(6,563)	(16)	(6,077)
Amortisation		781	545	2,230	1,615
Equity-based compensation expense		544	603	1,547	1,509
Accretion of asset retirement obligation		35	31	102	91
Current taxation		(1,639)	3,828	(1,198)	7,072
Future tax asset recognised		2,090	(1,065)	1,626	207
Non-controlling interest		(267)	348	40	4,990
Deferred revenue recognised		(1,591)	(1,151)	(3,349)	(2,165)
Depletion of mineral properties		1,029	1,095	2,316	1,941
Other non-cash items		-	565	-	-
		(1,089)	10,392	2,578	28,782
Net changes in non-cash working capital	14	(5,332)	(6,904)	(13,440)	(12,438)
		(6,421)	3,488	(10,862)	16,344
Cash flows from investing activities
Deferred exploration and develop.costs - Romania		(1,420)	(1,658)	(4,115)	(3,602)
Plant and equipment - Greece		(2,971)	(12,142)	(13,183)	(17,827)
Deferred development costs - Greece		(519)	(491)	(1,944)	(1,432)
Deferred exploration cost - Turkey		(68)	-	(118)	-
Purchase of equipment		(52)	(26)	(165)	(61)
Purchase of land		-	-	(2,705)
Further acquisition in Hellas Gold		-	(9,003)	-	(9,003)
Restricted cash		-	-	-	28
Investment in subsidiary		-	-	(121)	-
Investment in associate		-	-	(1,858)	-
		(5,030)	(23,320)	(24,209)	(31,897)
Cash flows from financing activities
Proceeds from equity financing		-	-	-	130,059
Deferred revenue		-	-	3,563	59,683
Proceeds from exercise of share options		-	52	54	52
Share issue costs		-	97	-	(7,055)
		-	149	3,617	182,739
Effect of foreign currency translation on cash		(2,001)	9,658	171	9,798
(Decrease)/increase in cash and cash equivalents		(13,452)	(10,025)	(31,283)	176,984
Cash and cash equivalents - Beginning of period		201,008	221,596	218,839	34,587
Cash and cash equivalents - End of period		187,556	211,571	187,556	211,571

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

	3 months ended  30 September		9 months ended  30 September
	2008 $	2007 $	2008 $	2007 $
(Loss)/Profit for the period	(5,043)	12,156	822	19,599
Other comprehensive income in the period
Currency translation adjustment	(314)	11,312	(291)	16,363
Cash flow hedge adjustment	(1,232)	-	3,883	-
Comprehensive income	(6,589)	23,468	4,414	35,962

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 - European Goldfields 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.

2. Significant accounting policies

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 2007 and 2006.

These interim consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements for the years ended 31 December 2007 and 2006.

Basis of preparation and principles of consolidation

Associates - are those entities in which the Company has a material long term interest and in respect of which the group exercises significant influence over operational and financial policies, normally owning between 20% and 50% of the voting equity, but which it does not control.

Investments in associates are accounted for using the equity method of accounting and are initially recognised at cost. The Company's share of its associates post-acquisition profits or losses is recognised in the income statement. Cumulative post-acquisition movements are adjusted against the carrying amount of investment. When the Company's share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Company does not recognise further losses, unless it has uncured obligations or made payments on behalf of the associate.

Company	Country of Incorporation	Ownership Percentage
Ariana Resources plc	United Kingdom	20.67%

Capital Disclosure - Effective 1 January 2008, the Company adopted CICA Handbook, Section 1535, Capital disclosures. The new standard requires disclosures of qualitative and quantitative information that enables users of financial statements to evaluate the Company's objectives, policies and processes for managing capital.

Inventories - Effective 1 January 2008, the Company adopted the CICA Handbook Section 3031, Inventories. The new section requires inventories to be measured at the lower of cost and net realisable value and provides guidance on the cost methodology used to assign costs to inventory, disallows the use of last-in-first-out inventory costing methodology and requires that, when circumstances which previously caused inventories to be written down below cost no longer exist, the amount previously written down is to be reversed. Upon adoption, the impact to the financial statements arising was immaterial.

Standards of Financial Statement Presentation - Effective 1 January 2008, the Company adopted CICA Handbook Section 1400, General standards of Financial Statement Presentation. This section provides guidance related to management's assessment of the Company's ability to continue as a going concern. The adoption of this standard had no impact on the Company's presentation of its financial position.

Financial Instruments Presentation and Disclosures - Effective 1 January 2008, the Company adopted CICA Handbook Sections 3862, Financial instruments - disclosures, and 3863, Financial instruments - Presentation. These new sections represent a revision and enhancement to Section 3861, Financial instrument - Presentation and disclosure. Under the new standards, the Company is required to disclose information about the significance of financial instruments for its financial position and performance and qualitative and quantitative information about its exposure to risks arising from financial instruments, as well as management's objectives, policies and processes for managing such risks. The adoption of these standards did not have an impact on the classification and valuation of financial instruments. The new disclosures resulting from adoption of these standards are included in note 15.

Change in functional currency - During the nine - month period ended 30 September 2008, Hellas Gold completed a long term planning exercise on its Stratoni mine. As a stand alone business, Stratoni was shown to generate excess of US dollar revenues over Euro expenses for its life of mine. Hellas Gold also has a series of development projects which will increase the excess of US dollar revenues over Euro denominated cost. Also taken into consideration along with the net cash flows, were the following factors:

All sales are priced in US dollars;

Sales markets are international, rather than domestic to Greece;

Day to day activities are financed by US dollar denominated sales;

Significant amounts of future financing earmarked for the development projects has already been raised in US dollars by European Goldfields Limited, and other financing activities in Hellas Gold, prepaid sales receipts, have all been US dollar denominated;

Labour and materials are predominantly denominated in Euros.

Overall, it was deemed that the net exposure to the US dollar was greater than the exposure to the Euro, and that the functional currency of Hellas Gold should change to the US dollar. The change in functional currency is effective 1 January 2008.

 3. Business combination - Acquisition of an additional 30% interest in Hellas Gold

In June 2007, the Company completed the acquisition of additional shares in Hellas Gold, increasing its total interest from 65% to 95%. The total consideration paid by the Company for the purchased shares was satisfied as follows:

(a) The issue of 35,447,246 common shares of the Company; and

(b) $8.42 million paid in cash to the vendor.

Transaction costs of $1.55 million were also accounted for as part of the acquisition.

A summary of the accounting treatment of fair value of net assets acquired and consideration paid is as follows:

	$
Current assets	31,272
Property, plant and equipment	12,220
Other assets	6,536
Current liabilities	(7,050)
Other liabilities	(20,470)
Mineral properties	198,518
Future tax liabilities	(49,630)
	171,396
Purchase consideration:	$
Cash paid	8,418
Shares issued (35,447,246)	161,424
Transaction costs	1,554
Purchase price	171,396

For accounting purposes, the Company has used an average share price based upon 5 days prior and post the announcement of the transaction, to value the share element of the purchase consideration.

 

4. Inventory

This balance comprises the following:

	30 September	31 December
	2008	2007
	$	$
Ore mined	786	-
Metal concentrates	2,479	865
Material and supplies	1,730	1,245
	4,995	2,110

5. Property, plant and equipment

	Plant and equipment $	Vehicles $	Mine development, land and buildings $	Total $
Cost - 2008
At 31 December 2007	31,701	1,932	21,523	55,156
Additions	12,507	103	3,442	16,052
Disposals	(14)	(6)	-	(20)
At 30 September 2008	44,194	2,029	24,965	71,188
Accumulated amortisation - 2008
At 31 December 2007	3,151	1,076	2,153	6,380
Provision for the period	1,233	169	990	2,392
Disposals	(11)	(7)	-	(18)
At 30 September 2008	4,373	1,238	3,143	8,754
Net book value at 30 September 2008	39,821	791	21,822	62,434

6. Deferred exploration and development costs

Greek mineral properties:

	Stratoni $	Olympias $	Skouries $	Total $
Balance - 31 December 2007	29,525	237,284	164,545	431,354
Deferred development costs	579	318	1,287	2,184
Depletion of mineral properties	(2,172)	(257)	-	(2,429)
	(1,593)	61	1,287	(245)
Balance - 30 September 2008	27,932	237,345	165,832	431,109

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 $	Baita-Craciunesti $	Voia $	Cainel $	Total $
Balance – 31 December 2007	32,915	3,166	1,167	1,037	38,285
Drilling and assaying	274	11	11	-	296
Geosciences and tech. consulting	1,288	24	34	1	1,347
Samplers, miners and surveying	57	2	9	1	69
Project management	2,234	26	(18)	30	2,272
Project overhead	1,332	32	133	38	1,535
Amortisation	52	6	2	5	65
	5,237	101	171	75	5,584
Balance – 30 September 2008	38,152	3,267	1,338	1,112	43,869

 

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 and the Company holds the pre-emptive right to acquire such 20% interest. 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.

Individual property spending commitments for each of the Company's Romanian licences have been met as at 30 September 2008.

Turkish mineral properties:

	Total
	$
Balance - 31 December 2007	-
Additions	226
	226
Balance - September 2008	226

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 joint venture 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.

7. Investment in associate

	30 September 2008 $	31 December 2007 $
Balance - Beginning of period	-	-
Shares acquired	1,858	-
Share of loss	(102)	-
Cumulative translation adjustment	28	-
		-
Balance - End of period	1,784	-

In April 2008, the Company signed definitive documentation governing a JV with Ariana Resources plc ("Ariana"). The transaction completed and the JV became effective in May 2008 after the transfer of Ariana's properties was confirmed by the General Directorate of Mining Affairs in Turkey. The JV involves the development of Ariana's current properties in an Area of Intent ("AOI") in the Greater Pontides region of north-eastern Turkey, which include the Ardala copper-gold porphyry and fifteen other licences covering a total area of 229km², and a Strategic Partnership within the AOI to define new opportunities for the JV. Upon completion, European Goldfields subscribed for 20% of the issue share capital of Ariana through a $1,830 (£929) private placement of shares.

8. Restricted investment

The balance consists of an amount of $4,900 pledged by Hellas Gold to the National Bank of Greece as collateral for a letter of guarantee issued by the National Bank of Greece to the Greek Ministry of Development to guarantee Hellas Gold's environmental commitments under its mining permit at Stratoni. The letter of guarantee expires on 31 December 2010. The investment bears a rate of interest of Euribor plus 0.8% per annum.

9. Future tax liability

The following table reflects future income tax liabilities:

	30 September	31 December
	2008	2007
	$	$
Mineral properties	104,182	104,752
Plant and equipment	1,077	701
Exploration and development expenditure	3,354	3,003
Accrued expenses	804	1,487
Cash flow hedge	2,455	-
	111,872	109,943

The 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.

10. 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 2008 and 31 December 2007:

	30 September	31 December
	2008	2007
	$	$
Asset retirement obligation - Beginning of period	6,805	6,031
Currency translation adjustment	-	650
Accretion expense	101	124
Asset retirement obligation - End of period	6,906	6,805

As at 30 September 2008, the undiscounted amount of estimated cash flows required to settle the obligation was $7,360 (31 December 2007 - $7,421).  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.

11. 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 US$57.5 million in cash, plus a fee per ounce of payable silver to be delivered to Silver Wheaton of the lesser of US$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 of Switzerland for the sale of 25,000 wet metric tonnes of gold bearing pyrite concentrate. Hellas Gold received a prepayment of US$2.18 million in cash. 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. In March 2008, 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 $3.56 million in cash.

The following table reconciles movements on deferred revenue associated with the MRI prepayment and the Silver Wheaton Transaction:

	30 September	31 December
	2008	2007
	$	$
Deferred revenue - Beginning of period	65,344	-
Additions	3,563	64,389
Revenue recognised	(3,804)	(3,738)
Foreign currency translation adjustment	-	4,693
Deferred revenue - End of period	65,103	65,344

During the nine-month period ended 30 September 2008, Hellas Gold delivered concentrate containing 601,752 ounces (Year to 31 December 2007 - 952,729) ounces of silver for credit to Silver Wheaton.

12. 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 2007	179,162,381	537,275
Restricted share units vested	195,000	1,314
Share options exercised	25,000	77
Share issue costs	-	(10)
	220,000	1,381
Balance - 30 September 2008	179,382,381	538,656

As at 30 September 2008, the Company had 35,447,246 (2007 - 35,447,246) common shares in respect of which trading restrictions applied.

Contributed surplus:

	30 September	31 December
	2008	2007
	$	$
Equity-based compensation expense	6,969	5,419
Broker warrants	578	578
	7,547	5,997

13. Share options and restricted share 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 (26,907,357 shares as at 30 September 2008).

An option under he 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 2008, the following share options were outstanding:

	Number of Options	Exercise price C$
Expiry date
2009	250,000	2.80
2009	250,000	4.20
2009	360,000	3.07
2009	75,000	3.15
2010	359,999	2.00
2010	150,000	2.40
2011	66,666	3.25
2011	600,000	3.85
2011	200,000	4.10
2012	250,000	5.66
2012	150,000	5.71
2012	270,000	5.87
2013	360,000	3.54
2013	50,000	4.73
2013	385,000	5.07
2013	165,000	6.80
	3,941,665	4.05

During the nine-month period ended 30 September 2008, share options were granted, exercised and cancelled as follows:

	Number of options	Weighted average exercise price
Balance - 31 December 2007	3,006,665	3.80
Options granted	960,000	4.78
Options exercised	(25,000)	2.11
Options forfeited	-	-
Balance - 30 September 2008	3,941,665	4.05

Of the 3,941,665 (2007 - 3,171,665) share options outstanding as at 30 September 2008, 2,621,669 (2007 - 2,059,999) were fully vested and had a weighted average exercise price of C$3.48 (2007 - C$3.10) per share. The share options outstanding as at 30 September 2008, had weighted average remaining contractual life of 3.27 years (2007 - 2.89 years).

The fair value of the share options granted has been estimated at the date of grant using a Black-Scholes option pricing model with the following assumptions: weighted average risk free interest rate at 2.35% (2007 - 3.35%); volatility factor of the expected market price of the Company's shares of 32.68% to 50.50% to (2007 - 57.80% to 58.81%); a weighted average expected life of the share options of 5 years (2007 - 5 years), maximum term of 5 years and a dividend yield of Nil (2007 - Nil).

The weighted average grant date fair value of the 960,000 share options granted during the nine-month period ended 30 September 2008 (2007 - 745,000) was C$4.78 (2007 - C$5.73). For outstanding share options which were not fully vested during the nine-month period ended 30 September 2008, the Company incurred a total equity-based compensation cost of $1,204 (2007 - $960) of which $957 (2007 - $806) has been recognised as an expense in the income statement and $248 (2007 - $154) 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 (4,484,560 shares as at 30 September 2008).

As at 30 September 2008, the following RSUs were outstanding:

Vesting date	Number of RSUs	Grant date fair value of underlying shares C$
31 December 2008	50,000	6.22
31 December 2008*	100,000	6.77
30 June 2008	30,000	5.74
31 May 2008	175,000	3.30
	355,000	3.39

* or earlier if certain milestones are achieved. Vesting conditional upon such milestones being achieved by 31 December 2008

During the nine-month period ended 30 September 2008, RSUs were granted, vested and cancelled as follows:

	Number of RSUs	Weighted average grant date fair value of underlying shares C$
Balance - 31 December 2007	185,000	4.86
RSUs granted	365,000	5.26
RSUs vested	(195,000)	5.08
RSU's forfeited	-	-
Balance - 30 September 2008	355,000	5.14

The weighted average grant date fair value of underlying shares of the 365,000 RSUs granted during the nine-month period ended 30 September 2008 (2007 - 290,000 ) was C$5.26 (2007 - C$5.50). For outstanding RSUs which were not fully vested during the nine-month period ended 30 September 2008, the Company incurred a total equity-based compensation cost of $1,683 (2007 - $988) of which $590 (2007 - $703) has been recognised as an expense in the income statement and $1,092 (2007 - $285) has been capitalised to deferred exploration and development costs.

14. Supplementary cash flow information

	3 months ended  30 September		9 months ended  30 September
	2008	2007	2008	2007
	$	$	$	$
Changes in non-cash operating accounts:
Accounts receivable, prepaid expenses and supplies	7,462	(8,354)	3,729	(11,599)
Accounts payable	(1,487)	3,367	(1,366)	2,822
Taxation	(11,831)	-	(13,227)	-
Inventory	524	(1,917)	(2,576)	(3,661)
	(5,332)	(6,904)	(13,440)	(12,438)
Supplementary disclosure of non-cash transactions:
Share options and restricted share units issued for non-cash consideration	1,024	(321)	2,888	1,940
Exercise of share options - Transfer from contributed surplus to share capital	-	(707)	(24)	(888)
Vesting of restricted share units	-	(232)	(1,314)	(850)

15. 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 2008 are as follows:

	30 September 2008 $	31 December 2007 $
Financial Assets:
Held-for-trading, measured at fair value
Cash and cash equivalents	187,556	218,839
Restricted cash	4,900	4,900
	192,456	223,739
Loans and receivables, measured at amortised cost
Accounts receivable	18,900	20,408
Prepaid expenses	5,549	7,769
	24,449	28,177
Financial Liabilities
Current liabilities, measured at amortised costs
Accounts payable and accrued liabilities	8,391	22,695
	8,391	22,695
Derivative Financial instruments - measured at fair value
Designated as cash flow hedge
Lead hedging contracts	7,220	882
	7,220	882

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 has deposited the cash equivalents only with the largest banks within a particular region or with top rated institutions, from which management believes the risk of loss to be remote and does not invest in asset-backed commercial papers.

As at 30 September 2008, the cash and restricted cash comprises the following:

	30 September 2008  $	31 December 2007 $
Interest bearing bank accounts	131,793	216,569
Short-term deposits	60,663	7,170
	192,456	223,739

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 receivable as at 30 September 2008, four customers represented 97% of the total. The Company does not anticipate any loss for non-performance.

As at 30 September 2008, the accounts receivable comprises the following:

	30 September 2008 $	31 December 2007 $
Trade receivables	6,408	2,412
Valued added taxes recoverable	9,445	17,996
Other accounts receivable	3,047	-
	18,900	20,408

As at the 30 September 2008, the Company considers its accounts receivable excluding Value Added Taxes recoverable and other accounts receivable to be aged as follows:

Ageing	30 September 2008 $
Current	5,526
Past due (1-30 days)	864
Past due (31-60 days)	-
Past due (more than 60 days)	18
	6,408

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 2008 interest income of $4,565 and $1,306 for three - month period on cash and cash equivalents, based on rates of returns between 1.25% and 4.00% 

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 2008, the Company held the equivalent of $51,429 in foreign currencies. These balances are primarily made up of Euro and to a lesser extent Pound Sterling.

For the nine-month period ended 30 September 2008 the Company recorded a foreign exchange loss of $153 and a loss of $2,800 for the three-month period, mainly due to the translation of its Euro balances in Hellas Gold.

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 2008, the Company's trade payables and accrued liabilities amounted to $8,391 (31 December 2007- $9,977), 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 2008 was 30 days,(30 days - 2007).

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 or a 1% change in interest rates during the period ended 30 September 2008.  The results of the sensitivity analysis can be seen in the following table:

	3 months ended 30 September 2008 $	9 months ended  30 September 2008 $
Impact on Net Profit (+/-)
Change of +/- 5 % US$: € foreign exchange rate	1,762	3,277
Change of +/- 1% in interest rates	515	1,030

Limitations of sensitivity analysis

The above table demonstrates the effect of either a change in foreign exchange rates or interest rates 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 hedges below are treated as cash flow hedges in accordance with CICA 3865: Hedges.

Lead hedging contracts - As at 30 September 2008, the Company had entered into forward hedging arrangements over 12,600 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 2 October 2008 and 31 December 2009 and strike prices as shown in the table below. The fair value of these contracts as 30 September 2008 amounted to $7,220 established by reference to market prices for lead.

	30 September 2008  $
Lead Tonnes	9,900
US dollar price ($/tonne) - Put	2,477
US dollar contract amount ($'000) - Put	24,525
US dollar price ($/tonne) - Call	3,459
US dollar contract amount ($'000) - Call	34,245

16. 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 maximize 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 it's 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 strategy during the thee-month period ended 30 September 2008. 

17. Commitments

As at 30 September 2008, the Company had remaining spending commitments of $634 (2007 - $970) over the remaining term of its Voia exploration licence in Romania which expires in March 2010.

The Company has spending commitments of $190 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 will be reviewed on the fifth anniversary of the commencement of the term to reflect any increase in rents in the market.

As at 30 September 2008, Hellas Gold had entered into off-take agreements pursuant to which Hellas Gold agreed to sell 22,455 dmt of zinc concentrates, and 8,146 dmt of lead/silver concentrates until the end of 2008 and 433,415 dmt of gold concentrates until the financial year's ending 2011.  As at 30 September 2008, 33,628 dmt of zinc concentrates, 14,765 dmt of lead/silver concentrates and 41,707 dmt of gold concentrates had been sold on account of the commitments.

During 2007 the Company entered into purchase agreements with Outotec Minerals OY for long-lead-time equipment and services for the Skouries project with a cost of $51,573 (€36,057) of which is to be paid over three years beginning 2007. As at 30 September 2008, $12,824 (€8,966) of the commitment had been paid. Hellas Gold has pledged $18,000 in support of a letter of credit issued on behalf of Outotec Minerals OY through Nordea Bank of Finland. 

18. Transactions with related parties

During the nine-month period ended 30 September 2008, Hellas Gold incurred costs of $28,651 (2007 - $20,884) for management, technical and engineering services received from a related party, Aktor S.A., a 5% shareholder in Hellas Gold. As at 30 September 2008, Hellas Gold had accounts payable of $4,216 (2007 - $8,836) 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. 

19. Segmented information

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

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

	30 September	31 December
	2008	2007
	$	$
Revenue
Canada	-	-
Greece	47,270	86,405
Romania	-	-
Turkey	-	-
United Kingdom	-	-
	47,270	86,405
Plant and equipment and deferred exploration and development costs
Canada	-	-
Greece	490,356	479,656
Romania	46,703	38,418
Turkey	265	-
United Kingdom	314	341
	537,638	518,415
Operating liabilities
Canada	156	832
Greece	6,942	20,037
Romania	213	659
Turkey	110	-
United Kingdom	970	1,167
	8,391	22,695

20. 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 2008, the company recognised the following costs:

	3 months ended  30 September		9 months ended  30 September
	2008	2007	2008	2007
	$	$	$	$
Defined contribution plans	65	58	190	161

21. 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
		2008 $	2007 $		2008 $	2007 $
(Loss)/Earnings		(822)	12,156		(5,043)	19,599
Effect of dilutive potential common shares		-	-		-	-
Diluted (loss)/earnings		(822)	12,156		(5,043)	19,599
Weighted average number of common shares
	for the purpose of basic earnings per share	179,606	178,860		179,586	137,570
Incremental shares - Share options		-	1,584		-	1,462
Weighted average number of common shares
	for the purpose of diluted earnings per share	179,606	180,444		179,586	139,032

22. Reclassification of comparative figures

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

23. 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.

24. New accounting pronouncements

Goodwill and intangible assets - In February 2008, the Canadian Institute of Chartered Accountants issued Section 3064 Goodwill and intangible assets, replacing Section 3062, Goodwill and other intangible assets. The new Section will be applicable to financial statements relating to fiscal years beginning on or after 1 October 2008. Accordingly, the Company will adopt the new standards for its fiscal year beginning 1 January 2009. 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 is currently evaluating the impact of the adoption of this new Section on its consolidated financial statements.

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 confirmed that publicly listed companies will be required to adopt IFRS for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011, and in April 2008, the AcSB issued for comment its Omnibus Exposure Draft, Adopting IFRS in Canada. Early adoption may be permitted, however it will require exemptive relief on a case by case basis from the Canadian Securities Administrators. 

The Company has begun assessing the adoption of IFRS and is in the process of completing its overall conversion plan. The plan assesses the possible benefits of early adoption, the key differences between IFRS and Canadian GAAP including disclosures as well as a timeline for implementation.

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