2008 Q1 Results Part 2

14th May 2008 07:00



European Goldfields Limited

Financial Statements

(Unaudited)

 First Quarter 2008

Disclosure of auditor review of interim consolidated financial statements

The interim consolidated financial statements of the Company for the three-month periods ended 

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

 

European Goldfields Limited Consolidated Balance Sheets As at 31 March 2008 and 31 December 2007 (Unaudited – Prepared by Management) (in thousands of US Dollars, except per share amounts)
		31 March 2008 $	31 December 2007 $
	Note	Unaudited	Audited
Assets
Current assets
Cash and cash equivalents		210,682	218,839
Accounts receivable		29,384	20,408
Prepaid expenses		8,389	7,769
Inventory	3	5,983	2,110
		254,438	249,126
Non current assets
Plant and equipment	4	55,517	48,776
Deferred exploration and development costs	5
Greek production stage mineral properties		28,893	29,525
Greek development stage mineral properties		402,269	401,829
		431,162	431,354
Romanian development stage mineral properties		40,413	38,285
		471,575	469,639
Restricted investment	6	4,900	4,900
Other financial assets		431	882
Future tax asset		8,050	8,808
		794,911	782,131
Liabilities
Current liabilities
Accounts payable and accrued liabilities		15,346	9,977
Income taxes payable		13,419	12,718
		28,765	22,695
Non current liabilities
Future tax liability	7	109,243	109,943
Non-controlling interest		3,575	3,341
Asset retirement obligation	8	6,839	6,805
Deferred revenue	9	68,553	65,344
		188,210	185,433
Shareholders’ equity
Capital stock	10	537,605	537,275
Contributed surplus	10	6,642	5,997
Accumulated other comprehensive income		37,844	38,295
Deficit		(4,155)	(7,564)
		577,936	574,003
		794,911	782,131

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

Approved by the Board of Directors

(s) Timothy Morgan-Wynne	(s) Jeffrey O'Leary
Timothy Morgan-Wynne, Director	Dr Jeffrey O'Leary, Director

 

European Goldfields Limited Consolidated Statements of Profit and Loss For the three-month periods ended  31 March 2008 and 2007 (Unaudited - Prepared by Management) (in thousands of US Dollars, except per share amounts)
		Three months ended
		31 March	31 March
		2008	2007
	Note	$	$
Income
Sales		12,708	17,083
Cost of sales		(6,806)	(6,171)
Depreciation and depletion		(1,053)	(773)
Gross profit		4,849	10,139
Other income
Interest income		1,757	453
Foreign exchange gain/(loss)		2,674	(152)
		4,431	301
Expenses
Corporate administrative and overhead expenses		1,264	847
Equity based compensation expense		468	456
Hellas Gold administrative and overhead expenses		2,057	2,211
Hellas Gold water treatment expenses (non-operating mines)		1,043	1,102
Accretion of asset retirement obligation	8	34	29
Amortisation		151	119
		(5,017)	(4,764)
Profit for the period before income tax		4,263	5,676
Income taxes
Current taxes		(752)	(1,161)
Future taxes		131	(558)
		(621)	(1,719)
Profit for the period before non-controlling interest		3,642	3,957
Non-controlling interest		(233)	(1,848)
Profit for the period		3,409	2,109
Deficit - Beginning of period		(7,564)	(30,763)
Deficit - End of period		(4,155)	(28,654)
Earnings per share	19
Basic		0.02	0.02
Diluted		0.02	0.02
Weighted average number of shares (in thousands)
Basic		179,199	115,827
Diluted		180,903	117,636

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

European Goldfields Limited Consolidated Statements of Equity As at 31 March 2008 and 2007 (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 2006	246,890	7,135	4,276	(30,763)	227,538
Equity based compensation expense	-	1,345	-	-	1,345
Share options exercised or exchanged	168	(168)	-	-	-
Movement in cumulative translation adjustment	-	-	1,714	-	1,714
Restricted share units vested	232	(232)	-	-	-
Profit for the period	-	-	-	2,109	2,109
	400	945	1,714	2,109	5,168
Balance - 31 March 2007	247,290	8,080	5,990	(28,654)	232,706
Equity based compensation expense	-	1,143	-	-	1,143
Shares issued for equity financing	130,059	-	-	-	130,059
Shares issued as consideration  for acquisition	161,425	-	-	-	161,425
Share issue cost	(4,777)	-	-	-	(4,777)
Restricted share units vested	2,414	(2,414)	-	-	-
Share options exercised or exchanged	864	(812)	-	-	52
Movement in cumulative translation adjustment	-	-	31,423	-	31,423
Change in fair value cash flow hedge	-	-	882	-	882
Profit for the period	-	-	-	21,090	21,090
	289,985	(2,083)	32,305	21,090	341,297
Balance - 31 December 2007	537,275	5,997	38,295	(7,564)	574,003
Equity based compensation expense	-	985	-	-	985
Restricted share units vested	340	(340)	-	-	-
Share options exercised or exchanged	-	-	-	-	-
Share issue cost	(10)	-	-	-	(10)
Change in fair value cash flow hedge	-	-	(451)	-	(451)
Profit for the period	-	-	-	3,409	3,409
	330	645	(451)	3,409	3,933
Balance - 31 March 2008	537,605	6,642	37,844	(4,155)	577,936

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

European Goldfields Limited Consolidated Statements of Cash Flows For the three-month periods ended 31 March 2008 and 2007 (Unaudited - Prepared by Management) (in thousands of US Dollars, except per share amounts)
		Three months ended
		31 March	31 March
		2008	2007
	Note	$	$
Cash flows from operating activities
Profit for the period		3,409	2,108
Foreign exchange (gain) / loss		(2,667)	196
Amortisation		543	419
Equity based compensation expense		468	456
Accretion of asset retirement obligation	8	34	29
Current taxation		752	1,720
Future tax recognised		(131)	-
Non-controlling interest		233	1,848
Deferred revenue recognised		(354)	-
Depletion of mineral properties		659	473
		2,946	7,249
Net changes in non-cash working capital	12	(6,779)	(4,840)
		(3,833)	2,409
Cash flows from investing activities
Deferred exploration and development costs - Romania		(1,603)	(696)
Plant and equipment - Greece		(7,147)	(1,577)
Deferred development costs - Greece		(769)	(421)
Restricted cash		-	(28)
Purchase of land		(339)	-
Purchase of equipment		(51)	(11)
		(9,909)	(2,733)
Cash flows from financing activities
Proceeds from exercise of share options		-	-
Share issue costs		-	-
Deferred revenue		3,563
		3,563	-
Effect of foreign currency translation on cash		2,022	(304)
Decrease in cash and cash equivalents		(8,157)	(628)
Cash and cash equivalents - Beginning of period		218,839	34,587
Cash and cash equivalents - End of period		210,682	33,959

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

European Goldfields Limited Consolidated Statements of Comprehensive Income For the three-month periods ended 31 March 2008 and 2007 (Unaudited - Prepared by Management) (in thousands of US Dollars, except per share amounts)
		Three months ended
		31 March	31 March
		2008	2007
		$	$
Profit for the period		3,409	2,109
Other comprehensive income in the period
Currency translation adjustment		-	1,714
Cash flow hedge adjustment		(451)	-
Comprehensive income		2,958	3,823

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

European Goldfields Limited

Notes to Consolidated Financial Statements

For the three-month periods ended 31 March 2008 and 2007

(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% (2007 - 65%) 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. The Company submitted in March 2007 a technical feasibility study to the Romanian government in support of a permit application to develop the project. In March 2008, the Company submitted the Environmental Impact Study to the Romanian environmental authorities to start the assessment of the environmental impact of 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 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.

Significant changes in accounting policies

Capital Disclosures - 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 are a replacement of and represent a revision and enhancement to Section 3861 - Financial instruments - 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 13.

Change in functional currency - During the three month period ended 31 March 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 costs. 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.  Inventory

This balance comprises the following:

	31 March	31 December
	2008	2007
	$	$
Ore mined	365	-
Metal concentrates	4,430	865
Material and supplies	1,188	1,245
	5,983	2,110

4. Plant and equipment

	Plant and equipment $	Vehicles $	Mine development, land and buildings $	Leasehold Improvements $	Total $
Cost - 2008
At 31 December 2007	31,701	1,932	21,212	311	55,156
Additions	6,612	37	881	5	7,535
Disposals	(14)	(8)	-	-	(22)
At 31 March 2008	38,299	1,961	22,093	316	62,669
Accumulated  amortisation -2008
At 31 December 2007	3,151	1,076	2,068	85	6,380
Provision for the year	400	55	328	8	791
Disposals	(9)	(7)	-	-	(16)
At 31 March 2008	3,542	1,124	2,396	93	7,155
Net book value at 31 March 2008	34,757	837	19,697	223	55,514

  5. Deferred exploration and development costs

Greek mineral properties:

	Stratoni $	Olypmias $	Skouries $	Total $
Balance - 31 December 2007	29,525	237,284	164,545	431,354
Deferred development costs	293	41	456	790
Depletion of mineral properties	(926)	(56)	-	(982)
Currency translation adjustment	-	-	-	-
	(633)	(15)	456	(192)
Balance - 31 March 2008	28,892	237,269	165,001	431,162

The Stratoni, Skouries and Olympias properties are held by the Company's 95%-owned (2007 - 65%) 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	24	-	4	-	28
Geosciences and tech. consulting	667	6	21	1	695
Samplers, miners and surveying	13	1	9	1	24
Project management	799	11	25	18	853
Project overhead	454	8	37	10	509
Amortisation	14	2	-	3	19
	1,971	28	96	33	2,128
Balance - 31 March 2008	34,886	3,194	1,263	1,070	40,413

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 31 March 2008.

6. 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.

7. Future tax liability

The following table reflects future income tax liabilities:

	31 March 2008 $	31 December 2007 $
Mineral properties	104,638	104,752
Plant and equipment	888	701
Exploration and development expenditure	3,426	3,003
Accrued expenses & other	291	1,487
	109,243	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.

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 to dismantle, remove, reclaim and abandon the facilities at the Stratoni property, and the estimated time period during which these costs will be incurred in the future. The following table reconciles the asset retirement obligation as at 31 March 2008 and 31 December 2007:

	31 March	31 December
	2008	2007
	$	$
Asset retirement obligation - Beginning of period	6,805	6,031
Currency translation adjustment	-	650
Accretion expense	34	124
Asset retirement obligation - End of period	6,839	6,805

As at 31 March 2008, the undiscounted amount of estimated cash flows required to settle the obligation is $6,894 (31 December 2007 - $7,421). The estimated cash flow has been discounted using a credit adjusted risk free rate of 5.04% (31 December 2007 - 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. 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 and Celtic Resources prepayments, and the Silver Wheaton Transaction:

	31 March	31 December
	2008	2007
	$	$
Deferred revenue - Beginning of period	65,344	-
Additions	3,563	64,389
Revenue recognised	(354)	(3,738)
Foreign currency translation adjustment	-	4,693
Deferred revenue - End of period	68,553	65,344

For the three months period ended 31 March 2008, Hellas Gold delivered concentrate containing 92,674 ounces (Year to 31 December 2007 - 952,729 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 2007	179,162,381	537,275
Restricted share units vested	50,000	340
Share options exercised or exchanged	-	-
Share issue costs	-	(10)
	50,000	330
Balance - 31 March 2008	179,212,381	537,605

As at 31 March 2008, the Company had Nil (2007 - Nil) common shares held in escrow or in respect of which trading restrictions applied.

Contributed surplus:

	31  March	31 December
	2008	2007
	$	$
Equity based compensation expense	6,064	5,419
Broker warrants	578	578
	6,642	5,997

  11. 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 with a maximum term of 5 years, 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 (26,881,857 shares as at 31 March 2008).

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 Settlement Common Shares

=

Number of Optioned Shares issuable on exercise of the Exchanged Rights

X

(Current Price - Exercise Price) Current Price

As at 31 March 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	25,000	2.11
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	165,000	6.80
	3,171,665	3.96

  During the three-month period ended 31 March 2008, share options were granted, exercised, exchanged and cancelled as follows:

	Number of Options	Weighted average exercise price C$
Balance - 31 December 2007	3,006,665	3.80
Options granted	165,000	6.80
Options exchanged for shares	-	-
Options cancelled	-	-
Balance - 31 March 2008	3,171,665	3.96

Of the 3,171,665 (2007 - 3,295,999) share options outstanding as at 31 March 2008, 2,053,332 (2007 -  2,370,999) were fully vested and had a weighted average exercise price of C$3.24 (2007 - C$3.94) per share. The share options outstanding as at 31 March 2008, had a weighted average remaining contractual life of 2.83 years (2007 - 3.43 years).

The weighted average grant date fair value of the 165,000 share options granted during the period ended 31 March 2008 (2007 - 250,000) was C$353 (2007 - C$ 747). For outstanding share options which were not fully vested during the period ended 31 March 2008, the Company incurred a total equity-based compensation cost of $313 (2007 - $226) of which - $279 (2007 - $181) has been recognised as an expense in the income statement and $34 - (2007 - $45) has been capitalised to deferred exploration and development costs.

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 of 2.95% (2007 - 3.10%); volatility factor of the expected market price of the Company's shares of 32.68% - 48.94% (2007 - 59%); and a weighted average expected life of the share options of 1.68 - 3.68 years (2007 - 5 years).

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 (4,480,310 shares as at 31 March 2008).

As at 31 March 2008, the following RSUs were outstanding:

Vesting date	Number of RSUs	Grant date fair value of underlying shares C$
19 May 2008	40,000	5.94
31 May 2008	75,000	3.24
30 June 2008	30,000	5.74
31 December 2008 *	50,000	6.22
31 December 2008 *	100,000	6.77
30 June 2009	30,000	5.74
	325,000	5.58

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

During the three-month period ended 31 March 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	190,000	6.60
RSUs vested	(50,000)	5.94
RSUs cancelled	-	-
Balance - 31 March 2008	325,000	5.58

The weighted average grant date fair value of underlying shares of the 190,000 RSUs granted during the period ended 31 March 2008 (2007 - 180,000) was C$699 (2007 - C$965). For outstanding RSUs which were not fully vested during the period ended 31 March 2008, the Company incurred a total equity-based compensation cost of $672 (2007 - $1,125) of which $190 (2007 - $275) has been recognised as an expense in the income statement and - $483 (2007 - $850) has been capitalised to deferred exploration and development costs.

12. Supplementary cash flow information

	31 March	31 March
	2008	2007
	$	$
Changes in non-cash operating accounts:
Accounts receivable and prepaid expenses	(9,595)	(4,838)
Inventory	(3,252)	(2,633)
Accounts payable and accrued liabilities	6,068	2,631
	(6,779)	(4,840)
Supplemental disclosure of non-cash transactions:
Equity based compensation  issued for non-cash consideration	985	1,345
Exercise or exchange of share options - Transfer from contributed surplus to share capital	-	(168)
Vesting of restricted share units	340	(232)

  

13. 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 31 March 2008 are as follows:

	31  March 2008 $	31 December 2007 $
Financial Assets:
Held-for-trading, measured at fair value
Cash and cash equivalents	210,682	218,839
Restricted cash	4,900	4,900
	215,582	223,739
Loans and receivables, measured at amortised cost
Accounts receivable	29,384	20,408
Prepaid expenses	8,389	7,769
	37,773	28,177
Financial Liabilities
Current liabilities, measured at amortised costs
Accounts payable and accrued liabilities	28,765	22,695
	28,765	22,695
Derivative Financial instruments - measured at fair value
Designated as cash flow hedges
Lead hedging contratcts	431	882
	431	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 31 March 2008, the cash and restricted cash comprises the following:

	31 March 2008 $	31 December 2007 $
Interest bearing bank accounts	134,450	216,569
Short-term deposits	81,132	7,170
	215,582	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. For the three-month period ended 31 March 2008, two base metal concentrate customers represented 87% (86% 2007) of total sales.

Of the total trade receivable as at 31 March 2008, three customers represented 94%(97% - 2007) of the total. The Company does not anticipate any loss for non-performance. 

As at 31 March 2008, the accounts receivable comprises the following:

	31 March 2008 $	31 December 2007 $
Trade receivables	6,792	2,412
Value added taxes recoverable	21,957	17,996
Other accounts receivable	635	-
	29,384	20,408

  

As at the 31 March 2008, the Company considers its accounts receivable excluding Value added taxes recoverable and other accounts receivable to be aged as follows:

Aging		31 March 2008 $
Current		365
Past due (1-30 days)		3,708
Past due (31-60 days)		2,667
Past due (more than 60 days)		52
		6,792

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 three-month period ended 31 March 2008 interest income of $1,757 ($453 - 2007) on cash and cash equivalents, based on rates of returns between 2.15% and 5.20% (2.50% and 5.40% - 2007).

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 31 March 2008, the Company held the equivalent of $24,575 (31 December 2007- $36,107) in foreign currencies. These balances are primarily made up of Euro and to a lesser extent Pound Sterling.

For the three month period ended 31 March 2008 the Company recorded a foreign exchange gain/ (loss) of $ 2,672 (2007 - $(102)), 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 31 March 2008, the Company's trade payables and accrued liabilities amounted to $15,346 (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 three-month period ended 31 March 2008 was 30 days (2007 - 30 days)

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 factor 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 31 March 2008. 

  

The results of the sensitivity analysis can be seen in the following table:

Impact on Net Profit (+/-)	Period to 31 March 2008 $
Change of +/- 5 % US$: € foreign exchange rate	995
Change of +/- 1% in interest rates	539

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 31 March 2008, the Company had entered into forward hedging arrangements over 14,400 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 April 2008 and 31 December 2009 and strike prices as shown in the table below. The fair value of these contracts as 31 March 2008 amounted to $431 (31 December 2007 - $882) established by reference to market prices for lead.

	31  March 2008	Total
Lead tonnes	14,400	14,400
US dollar price ($/tonne) - Put	2,453	2,553
US dollar contract amount ($'000) - Put	35,325	35,325
US dollar price ($/tonne) - Call	3,416	3,416
US dollar contract amount ($'000) - Call	49,185	49,185

  

14.  Capital risk management 

The Company includes cash and cash equivalents and equity, comprising share capital, contributed surplus and accumulated deficit.

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 requirement.

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. 

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 three-month period ended 31 March 2008. 

15. Commitments

As at 31 March 2008, the Company had remaining spending commitments of $710 (2007 -$1,080) over the remaining term of its Voia exploration licence in Romania which expires in March 2010.

The Company has spending commitments of $193 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 31 March 2008, Hellas Gold had entered into off-take agreements pursuant to which Hellas Gold agreed to sell 34,632 dmt of zinc concentrates, and 25,270 dmt of lead/silver concentrates until the end of 2008 and 209,304 dmt of gold concentrates until the financial year's ending 2011.

During the year, the Company entered into purchase agreements with Outotec Minerals OY for long-lead -time equipment for the Skouries project with a cost of $57,014 (€36,057) of which is to be paid over three years beginning 2007. As at 31 March 2008, $14,177 (€8,966) of the commitment had been paid. Hellas Gold has pledged $26,393 (€18,692) in support of a letter of credit issued on behalf of Outotec Minerals OY through Nordea Bank of Finland.

16. Transactions with related parties

During the three-month period ended 31 March 2008, Hellas Gold incurred costs of $8,497 (2007 - $6,265) for management, technical and engineering services received from a related party, Aktor S.A., a 5% shareholder in Hellas Gold. As at 31 March 2008, Hellas Gold had accounts payable of $10,385 (2007 - $7,409) 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 and Romania.

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

	31 March 2008 $	31 December 2008 $
Revenue
Canada	-	-
Greece	12,708	86,405
Romania	-	-
United Kingdom	-	-
	12,708	86,405
Plant and equipment and deferred exploration and development costs
Canada	-	-
Greece	485,872	479,656
Romania	40,885	38,418
United Kingdom	336	341
	527,093	518,415
Operating liabilities
Canada	432	832
Greece	27,390	20,037
Romania	290	659
United Kingdom	653	1,167
	28,765	22,695

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 31 March 2008, the Company recognised the following costs:

	31 March 2008	31 March 2007
	$	$
Defined contribution plans	73	58

  

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:

	31 March	31 March
	2008	2007
	$	$
Earnings	3,409	2,108
Effect of dilutive potential common shares	-	-
Diluted earnings	3,409	2,108
Weighted average number of common shares for the purpose of basic earnings per share	179,199	115,827
Incremental shares - Share options	1,704	1,809
Weighted average number of common shares for the purpose of diluted earnings per share	180,903	117,636

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. Post Balance Sheet

In April 2008, the Company signed definitive documentation governing a Joint Venture ("JV") with Ariana Resources plc (AIM: AAU) ("Ariana"). The transaction completed and the JV became effective in May 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 the Greater Pontides region of north-eastern Turkey ("the AOI"), 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 issued share capital of Ariana through a £929,000 private placement of shares and David Reading joined the board of Ariana as a non-executive director.

23.  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 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. While the Company has begun assessing the adoption of IFRS for 2011, the financial reporting impact of the transition to IFRS cannot be reasonably estimated at this time.

ENDQRFUOOKRWRRVAAR

---

Related Shares:

EGU.L