2010 Results - Part 2

European Goldfields Limited

Consolidated Financial Statements

(Audited)

31 December 2010 and 2009

Management's Responsibility for Consolidated Financial Statements

The accompanying consolidated financial statements of European Goldfields Limited are the responsibility of management and have been approved by the Board of Directors of the Company. The consolidated financial statements include some amounts that are based on management's best estimates using reasonable judgment.

The consolidated financial statements have been prepared by management in accordance with Canadian generally accepted accounting principles.

Management maintains an appropriate system of internal controls to provide reasonable assurance that transactions are authorised, assets safeguarded and proper records are maintained.

The Audit Committee of the Board of Directors has met with the Company's external auditors to review the scope and results of the annual audit and to review the consolidated financial statements and related financial reporting matters prior to submitting the consolidated financial statements to the Board of Directors for approval.

The consolidated financial statements have been audited by Ernst and Young LLP, Chartered Accountants, and their report follows.

Martyn Konig Timothy Morgan-Wynne

Executive Chairman Chief Financial Officer

Auditors' Report to the Shareholders of European Goldfields Limited

Independent Auditors' report

To the Shareholders of European Goldfields Limited:

We have audited the accompanying consolidated financial statements of European Goldfields Limited, which comprise the consolidated balance sheets as at 31 December 2010 and 2009, and the consolidated statements of profit and loss, shareholders' equity, cash flows and other comprehensive income/(loss) for the years then ended, and a summary of significant accounting policies and other explanatory information.

Management's responsibility for the consolidated financial statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Canadian generally accepted accounting principles, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors' responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of European Goldfields Limited as at 31 December 2010 and 2009 and the results of its operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles.

Ernst & Young LLP

London

March, 2011

Consolidated Balance Sheets

As at 31 December 2010 and 2009

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

Consolidated Statement of Profit and Loss

As at 31 December 2010 and 2009

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

Consolidated Statement of Shareholders' Equity

As at 31 December 2010 and 2009

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

Consolidated Statements of Cash Flow

As at 31 December 2010 and 2009

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

Consolidated Statements of Other Comprehensive Income/(Loss)

As at 31 December 2010 and 2009

The accompanying notes are not part of these consolidated financial statements.

Notes on Consolidated Financial Statements

As at 31 December 2010 and 2009

1. Nature of operations

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".

The Company is a developer-producer with globally significant gold reserves located within the European Union. The Company generates cash flow from its 95% owned Stratoni operation, a high grade lead/zinc/silver mine in North-Eastern Greece and the sale of gold concentrates from Olympias. European Goldfields will evolve into a mid tier producer through responsible development of its project pipeline of gold and base metal deposits at Skouries and Olympias in Greece and Certej in Romania. The Company plans future growth through development of its highly prospective exploration portfolio in Greece, Romania and Turkey.

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 fund 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.

2. Basis of Presentation

These consolidated financial statements have been prepared on a going concern basis in accordance with accounting principles generally accepted in Canada ("Canadian GAAP"), 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.

The Company has sufficient funding for its needs until all the permits to construct its new mines are received, at which point additional capital will be required. The Company intends to achieve this through a combination of debt and equity funding.

3. Significant accounting policies

These consolidated financial statements reflect the following significant accounting policies.

Basis of consolidation - Business acquisitions are accounted for under the purchase method and the results of operations of these businesses are included in these consolidated financial statements from the acquisition date. Investments in associates over which the Company has significant influence are accounted for using the equity method.

These consolidated financial statements include the accounts of the Company and the following subsidiaries:

The 20% minority interest held in the Company's 80% owned subsidiary, Deva Gold S.A. ("Deva Gold"), is accounted for in these consolidated financial statements. The Company is required to fund 100% of all costs related to the exploration and development of the mineral properties held by Deva Gold. 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.

Associates - 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 statement of profit and loss. Cumulative post-acquisition movements are adjusted against the carrying amount of the 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 unsecured obligations or made payments on behalf of the associate.

When the group no longer has significant influence over an associate, accounting for the investment as an associate ceases. The carrying value of the investment in the associate at the date it ceases to be an associate is transferred to the new designated class of financial asset. The investment is then accounted for under the requirements of the new financial asset designation.

Investments - Available-for-sale financial assets are those non-derivative financial assets, principally equity securities that are designated as available-for-sale or are not classified in any other investment category. After initial recognition available-for sale financial assets are measured at fair value with gains or losses being recognised as a separate component of equity until the investment is derecognised or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is recognised in profit or loss.

The fair values of investments that are actively traded in organised financial markets are determined by reference to quoted market bid prices at the close of business on the reporting date.

Inventory - Inventories of ore mined and metal concentrates are valued at the lower of combined production cost and net realisable value. Production costs include the costs directly related to bringing the inventory to its current condition and location, such as materials, labour, mine site overheads, related depreciation of mining and processing facilities and related depletion of mineral properties and deferred exploration and development costs. Exploration materials and supplies are valued at the lower of cost and net realisable value and on a weighted average basis.

Property, plant and equipment - Property, plant and equipment are recorded at cost less accumulated depreciation. Depreciation is calculated on a straight-line basis based on a useful life of 3 years for office equipment, 6 years for vehicles, 10 years for leasehold improvements, at rates varying between 3 and 5 years for exploration equipment and at rates varying between 4 and 20 years for buildings. Depreciation for equipment used for exploration and development are capitalised to mineral properties.

Deferred exploration and development costs - Acquisition costs of resource properties, together with direct exploration and development costs incurred thereon, are deferred and capitalised. Upon reaching commercial production, these capitalised costs are transferred from exploration properties to producing properties on the consolidated balance sheets and are amortised into operations using the unit-of-production method over the estimated useful life of the estimated related ore reserves.

Based on annual impairment reviews made by management, in the event that the long-term expectation is that the net carrying amount of these capitalisedexploration and development costs will not be recovered such as would be indicated where:

- Producing properties:

·; the carrying amounts of the capitalised costs exceed the related undiscounted net cash flows of reserves;

- Exploration properties:

·; exploration activities have ceased;

·; exploration results are not promising such that exploration will not be planned for the foreseeable future;

·; lease ownership rights expire; or

·; insufficient funding is available to complete the exploration program;

Then the carrying amount is written down to fair value accordingly and the write-down amount charged to operations.

Impairment of long-lived assets - All long-lived assets and intangibles held and used by the Company are reviewed for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If changes in circumstances indicate that the carrying amount of an asset that an entity expects to hold and use may not be recoverable, future cash flows expected to result from the use of the asset and its disposition must be estimated. If the undiscounted value of the future cash flows is less than the carrying amount of the asset, impairment is recognised based on the fair value of the assets.

Asset retirement obligation - The fair value of the liability of an asset retirement obligation is recorded when it is legally incurred and the corresponding increase to the mineral property is depreciated over the life of the mineral property. The liability is adjusted over time to reflect an accretion element considered in the initial measurement at fair value and revisions to the timing or amount of original estimates and for drawdowns as asset retirement expenditures are incurred. As at 31 December 2010 and 2009, the Company had an asset retirement obligation relating to its Stratoni property in Greece.

Deferred revenue - The Company receives prepayments for the sale of 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 as well as for sale of gold pyrite concentrate in northern Greece. The prepayments, which are accounted for as deferred revenue, are recognised as sales revenue on the basis of the proportion of the settlements during the period expected to the total settlements.

Revenue recognition - Revenues from the sale of concentrates are recognised and are measured at market prices when the rights and obligations of ownership pass to the customer. A number of the Company's concentrate products are sold under pricing arrangements where final prices are determined by quoted market prices in a period subsequent to the date of sale. These concentrates are provisionally priced at the time of sale based on forward prices for the expected date of the final settlement. The terms of the contracts result in non-hedge derivatives that do not qualify for hedge accounting treatment, because of the difference between the provisional price and the final settlement price. These embedded derivatives are adjusted to fair value through revenue each period until the date of final price determination. Subsequent variations in the price are recognised as revenue adjustments as they occur until the price is finalised.

Income taxes - Income taxes are calculated using the asset and liability method of tax accounting. Under this method, current income taxes are recognised for the estimated income taxes payable for the current period. Future income tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities, and are measured using the substantially enacted tax rates and laws that will be in effect when the differences are expected to reverse. The benefit of the temporary differences is not recognised to the extent the recoverability of future income tax assets is not considered more likely than not.

Equity-based compensation - The Company operates a share option plan and a restricted share unit plan. The Company accounts for equity-based compensation granted under such plans using the fair value method of accounting. Under such method, the cost of equity-based compensation is estimated at fair value and is recognised in the profit and loss statement as an expense, or recognised as deferred exploration and development costs when the compensation is directly attributed to mineral properties. This cost is recognised over the relevant vesting period for grants to directors, officers and employees, and measured in full at the earlier of performance completion or vesting of grants to non-employees. Any consideration received by the Company on exercise of share options is credited to share capital.

Cash settled awards - The Company operates a deferred phantom unit plan, and accounts for the compensation granted using the liability method of accounting. The cost of each unit is recognised at the date of grant and is marked-to-market based on the Company's share price at the end of every reporting period.

Earnings per share ("EPS") - EPS is calculated based on the weighted average number of common shares issued and outstanding. Diluted per share amounts are calculated using the treasury stock method whereby proceeds deemed to be received on the exercise or exchange of share options and warrants and on the granting of restricted share units in the per share calculation are applied to reacquire common shares at the average market price during the period.

Foreign currency translation - The Company's functional currency is the United States dollar. Monetary assets and liabilities denominated in foreign currencies are translated at the exchange rate in effect at the balance sheet date. Non-monetary assets and liabilities and revenue and expenses arising from foreign currency transactions are translated at the exchange rate in effect at the date of the transaction. Exchange gains or losses arising from the translation are included in operations.

Integrated foreign subsidiaries and associates are accounted for under the temporal method. Under this method, monetary assets and liabilities are translated at the exchange rate in effect at the balance sheet date. Non-monetary assets and liabilities are translated at historical rates. Revenue and expenses are translated at actual or average rates for the period. Exchange gains or losses arising from the translation are included in operations except for those related to mineral properties which are capitalised.

Self-sustaining foreign subsidiaries and associates are accounted for under the current rate method. Under this method, all assets and liabilities are translated at the exchange rate in effect at the balance sheet date. Revenue and expenses are translated at actual or average rates for the period. Exchange gains or losses arising from the translation are recorded in equity in the cumulative translation adjustment component of other comprehensive income.

Estimates, risks and uncertainties - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the period. Significant estimates and assumptions include those related to the recoverability of deferred exploration, development costs for mineral properties, asset retirement obligations and equity-based compensation. While management believes that these estimates and assumptions are reasonable, actual results could vary significantly.

Financial instruments - The Company'sinvestments and investments in marketable securities have been classified as available-for-sale and are recorded at fair value on the balance sheet. Fair values are determined directly by reference to published price quotations in an active market. Changes in the fair value of these instruments are reflected in other comprehensive income and included in shareholders' equity on the balance sheet.

All derivatives are recorded on the balance sheet at fair value. Marked-to-market adjustments on these instruments are included in net profit, unless the instruments are designated as part of a cash flow hedge relationship.

All other financial instruments are recorded at cost or amortised cost, subject to impairment reviews. Transaction costs incurred to acquire financial instruments are included in the underlying balance.

Cash and cash equivalents - Cash and cash equivalents include cash and deposits with original maturities of three months or less.

Hedges - The Company uses derivative and non-derivative financial instruments to manage changes in commodity prices. Hedge accounting is optional and it requires the Company to document the hedging relationship and test the hedging item's effectiveness in offsetting changes in fair values or cash flows of the underlying hedged item on an ongoing basis.

The Company uses cash flow hedges to manage base metal commodity prices. The effective portion of the change in fair value of a cash flow hedging instrument is recorded in other comprehensive income and is reclassified to earnings when the hedge item impacts profit. Any ineffectiveness is recorded in net profit.

If a derivative instrument designated as a cash flow hedge ceases to be effective or is terminated, hedge accounting is discontinued and the gain or loss at that date is deferred in other comprehensive income and recognised concurrently with the settlement of the related transaction. If a hedged anticipated transaction is no longer probable, the gain or loss is recognised immediately in profit. Subsequent gains and losses from ineffective derivative instruments are recognised in profit in the period they occur.

Comprehensive income - Comprehensive income includes both net profit and other comprehensive income. Other comprehensive income includes holding gains and losses on available-for-sale investments, gains and losses on certain derivative instruments and foreign currency gains and losses relating to self-sustaining foreign operations, all of which are not included in the calculation of net earnings until realised.

4. Accounts receivable

This balance comprises the following:

5. Inventory

This balance comprises the following:

The components of cost of sales were as follows:

6. Property, plant and equipment

The net book value amount of property, plant and equipment not amortised amounted to $88,601 (2009 - $75,499).

7. Deferred exploration and development costs

Greek mineral properties:

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 in certain areas while still developing the mine to reach commercial production.

Romanian mineral properties:

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

The Company acquired the Magura Tebii property in 2008, as part of a consolidation of exploration ground in the area. The Company carried out a series of exploration investigations including, soil surveys, ground geophysical surveys, trenching and diamond core drilling. These detailed programmes established that the mineralization located at Magura Teebii was of insufficient tenor and size to meet the Company's targets as either a satellite to the Certej project or a stand-alone mine and therefore the decision was made by the Company not to progress this project and the license will be allowed to expire. A total of $590 was written down being historic costs capitalized relating to Magura Tebii.

Since the award of the Cainel Exploration Licence in 2005, the Company conducted an extensive programme of mapping, surface sampling, investigation of historic workings and dumps, drilling and geological interpretation on the property. This work concluded that the main mineralised structures had been mined out to practical mining depths and that there were no indications of significant extensions to the known mineralisation. Permit wide soil sampling was completed in 2009 which identified no other near surface resources and therefore the decision was made by the Company to relinquish the licence. In 2009 a total of $1,171 was written down being historic costs capitalised relating to Cainel.

As at the 31 December 2010, the following cost had been incurred on the remaining Romanian mineral properties:

Turkish mineral properties: