Interim Consolidated Financia

14th Aug 2008 07:00



Immediate Release

14 August 2008

European Goldfields Limited

Interim Consolidated Financial Statements

(Unaudited)

For the Three- and Six-Month Periods Ended

30 June 2008 and 2007

Disclosure of auditor review of interim consolidated financial statements

The interim consolidated financial statements of the Company for the three- and six-month periods ended 30 June 2008 and 2007 have not been reviewed by the auditors of the Company.

European Goldfields Limited Consolidated Balance Sheets As at 30 June 2008 and 31 December 2007 (Unaudited - Prepared by Management) (in thousands of US Dollars, except per share amounts)		30 June	31 December
		2008	2007
		$	$
Assets	Note	Unaudited	Audited
Current assets
Cash and cash equivalents		201,008	218,839
Accounts receivable		25,632	20,408
Prepaid expenses		6,283	7,769
Inventory	4	5,609	2,110
		238,532	249,126
Non current assets
Plant and equipment	5	60,129	48,776
Deferred exploration and development costs	6
Greek production stage mineral properties		28,754	29,525
Greek development stage mineral properties		402,710	401,829
		431,464	431,354
Romanian development stage mineral properties		42,078	38,285
Turkish exploration stage mineral properties		157	-
		473,699	469,639
Investment in associate	7	1,845	-
Restricted investment	8	4,900	4,900
Other Financial Assets		9,087	882
Future tax assets		8,345	8,808
		796,537	782,131
Liabilities
Current liabilities
Accounts payable and accrued liabilities		9,879	9,977
Income taxes payable		11,831	12,718
		21,710	22,695
Non current liabilities
Future tax liability	9	112,284	109,943
Non-controlling interest		3,662	3,341
Asset retirement obligation	10	6,872	6,805
Deferred revenue	11	66,741	65,344
		189,559	185,433
Shareholders' equity
Capital stock	12	538,656	537,275
Contributed surplus	12	6,523	5,997
Accumulated other comprehensive income		43,432	38,295
Deficit		(3,343)	(7,564)
		585,268	574,003
		796,537	782,131

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

Approved by the Board of Directors

(s) Timothy Morgan-Wynne (s) Mark Rachovides

Timothy Morgan-Wynne, Director Mark Rachovides, Director

European Goldfields Limited Consolidated Statements of Profit and Loss For the three-month and six-month periods ended 30 June 2008 and 2007 (Unaudited - Prepared by Management) (in thousands of US Dollars, except per share amounts)				3 months ended 30 June				6 months ended 30 June
		Note		2008 $		2007 $		2008 $		2007 $
Income
Sales				18,461		24,944		31,169		42,027
Cost of sales				(13,647)		(9,082)		(20,454)		(15,253)
Depletion of asset retirement obligation				(25)		(78)		(134)		(198)
Depreciation and depletion				(1,319)		(835)		(2,262)		(1,488)
Gross profit				3,470		14,949		8,319		25,088
Other income
Hedge contract profit				391		-		391		-
Interest income				1,502		1,116		3,259		1,569
Foreign exchange (loss)/gain				(27)		(265)		2,647		(417)
				1,866		851		6,297		1,152
Expenses
Corporate administrative and overhead expenses				1,301		884		2,565		1,731
Equity-based compensation expense				535		450		1,003		906
Hellas Gold administrative and overhead expenses				1,953		2,320		4,010		4,532
Hellas Gold water treatment expenses (non-operating mines)				1,048		1,078		2,091		2,180
Accretion of asset retirement obligation		10		33		31		67		60
Amortisation				188		112		339		231
				5,058		4,875		10,075		9,640
Share of loss in equity investment				(36)		-		(36)		-
Profit for the period before income tax				242		10,925		4,505		16,600
Income taxes
Current taxes				311		(2,082)		(441)		(3,243)
Future taxes				333		(714)		464		(1,272)
				644		(2,796)		23		(4,515)
Profit for the period after income tax				886		8,129		4,528		12,085
Non-controlling interest				(74)		(2,794)		(307)		(4,642)
Profit for the period				812		5,335		4,221		7,443
Deficit - Beginning of period				(4,155)		(28,655)		(7,564)		(30,763)
Deficit - End of period				(3,343)		(23,320)		(3,343)		(23,320)
Earnings per share		21
Basic				0.00		0.04		0.02		0.06
Diluted				0.00		0.04		0.02		0.06
Weighted average number of shares  (in thousands)
Basic				179,446		122,957		179,426		119,426
Diluted				180,981		124,652		181,285		121,105

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

European Goldfields Limited Consolidated Statements of Cash Flows For the three- and six-month periods ended 30 June 2008 and 2007 (Unaudited - Prepared by Management)  (in thousands of US Dollars, except per share amounts)	3 months ended 30 June		6 months ended 30 June
	2008 $	2007 $	2008 $	2007 $
Note
Cash flows from operating activities
Profit for the period	812	5,335	4,221	7,443
Share of loss in equity investment	36	-	36	-
Foreign exchange loss	(255)	290	(2,922)	486
Amortisation	906	651	1,449	1,070
Equity-based compensation expense	535	450	1,003	906
Accretion of asset retirement obligation	33	31	67	60
Current taxation	(311)	2,083	441	3,244
Future tax asset recognised	(333)	713	(464)	1,272
Non-controlling interest	74	2,794	307	4,642
Deferred revenue recognised	(1,404)	(1,014)	(1,758)	(1,014)
Depletion of mineral properties	627	373	1,287	846
	720	11,706	3,667	18,955
Net changes in non-cash working capital 14	(1,329)	1,489	(8,108)	(3,351)
	(609)	13,195	(4,441)	15,604
Cash flows from investing activities
Deferred exploration and development costs - Romania	(1,092)	(1,248)	(2,695)	(1,944)
Plant and equipment - Greece	(3,065)	(4,673)	(10,212)	(6,250)
Deferred development costs - Greece	(656)	(520)	(1,425)	(941)
Deferred exploration cost - Turkey	(50)	-	(50)	-
Purchase of equipment	(62)	(24)	(113)	(35)
Purchase of land	(2,366)	-	(2,705)	-
Restricted cash	-	56	-	28
Investment in subsidiary	(122)	-	(122)	-
Investment in associate	(1,858)	-	(1,858)	-
	(9,271)	(6,409)	(19,180)	(9,142)
Cash flows from financing activities
Proceeds from equity financing	-	130,059	-	130,059
Deferred revenue	-	57,500	3,563	57,500
Proceeds from exercise of share options	54	-	54	-
Share issue costs	-	(7,152)	-	(7,152)
	54	180,407	3,617	180,407
Effect of foreign currency translation on cash	152	444	2,173	140
Increase in cash and cash equivalents	(9,674)	187,637	(17,831)	187,009
Cash and cash equivalents - Beginning of period	210,682	33,959	218,839	34,587
Cash and cash equivalents - End of period	201,008	221,596	201,008	221,596

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

European Goldfields Limited Consolidated Statements of Comprehensive Income For the three- and six-month periods ended 30 June 2008 and 2007 (Unaudited - Prepared by Management)  (in thousands of US Dollars, except per share amounts)	3 months ended 30 June		6 months ended 30 June
	2008 $	2007 $	2008 $	2007 $
Profit for the period	812	5,335	4,221	7,443
Other comprehensive income in the period
Currency translation adjustment	22	3,336	22	1,714
Cash flow hedge adjustment	5,566	-	5,115	-
Comprehensive income	6,400	8,671	9,358	9,157

European Goldfields Limited

Notes to Consolidated Financial Statements

For the three- and six-month periods ended 30 June 2008 and 2007

(Unaudited - Prepared by Management) 

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

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".

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

Romania - The Company owns 80% of the Certej gold/silver project in Romania. 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 June 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.

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 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 uncured obligations or made payments on behalf of the associate.

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

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 15.

Change in functional currency - During the six month period ended 30 June 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. Business combination - Acquisition of 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 June	31 December
	2008	2007
	$	$
Ore mined	120	-
Metal concentrates	3,822	865
Material and supplies	1,667	1,245
	5,609	2,110

5. 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	9,329	76	3,626	13,031
Disposals	(14)	(8)	-	(22)
At 30 June 2008	41,016	2,000	25,149	68,165
Accumulated amortisation-2008
At 31 December 2007	3,151	1,076	2,153	6,380
Provision for the period	821	465	388	1,674
Disposals	(10)	(8)	-	(18)
At 30 June 2008	3,962	1,533	2,541	8,036
Net book value at 30 June 2008	37,054	467	22,608	60,129

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	467	178	889	1,534
Depletion of mineral properties	(1,238)	(186)	-	(1,424)
	(771)	(8)	889	110
Balance - 30 June 2008	28,754	237,276	165,434	431,464

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	137	8	11	-	156
Geosciences and tech. consulting	989	21	34	1	1,045
Samplers, miners and surveying	40	2	9	1	52
Project management	1,388	19	(18)	30	1,419
Project overhead	883	24	135	36	1,078
Amortisation	32	4	2	5	43
	3,469	78	173	73	3,793
Balance - 30 June 2008	36,384	3,244	1,340	1,110	42,078

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 June 2008.

Turkish mineral properties:

	Total $
Balance - 31 December 2007	-
Additions	157
	157
Balance - 30 June 2008	157

The Turkish licences 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 may be 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 June	31 December
	2008	2007
	$	$
Balance - Beginning of period	-	-
Shares acquired	1,858	-
Share of loss	(36)	-
Cumulative translation adjustment	23	-
Balance - End of period	1,845	-

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 issued 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 June	31 December
	2008	2007
	$	$
Mineral properties	104,581	104,752
Plant and equipment	1,059	701
Exploration and development expenditure	3,555	3,003
Accrued expenses	-	1,487
Cash flow hedge	3,089	-
	112,284	109,943

The tax liability primarily 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 Hellas Gold the owner of the Stratoni mines and facilities. This includes all estimated costs to dismantle, remove, reclaim and abandon the facilities where a liability exists 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 30 June 2008 and 31 December 2007:

	30 June	31 December
	2008	2007
	$	$
Asset retirement obligation - Beginning of period	6,805	6,031
Currency translation adjustment	-	650
Accretion expense	67	124
Asset retirement obligation - End of period	6,872	6,805

As at 30 June 2008, the undiscounted amount of estimated cash flows required to settle the obligation was $7,946 (31 December 2007 - $7,421). The estimated cash flow has been discounted using a credit adjusted risk free rate of 5.04% (2007 - 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 $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  30 June	31 December
	2008	2007
	$	$
Deferred revenue - Beginning of period	65,344	-
Additions	3,563	64,389
Revenue recognised	(2,166)	(3,738)
Foreign currency translation adjustment	-	4,693
Deferred revenue - End of period	66,741	65,344

For the six months period ended 30 June 2008, Hellas Gold delivered concentrate containing 1,388,903 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 June 2008	179,382,381	538,656

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

Contributed surplus:

 

	30 June	31 December
	2008	2007
	$	$
Equity-based compensation expense	5,945	5,419
Broker warrants	578	578
	6,523	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 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 (26,907,357 shares as at 30 June 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 30 June 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	50,000	4.70
2013	385,000	5.07
2013	165,000	6.80
	3,581,665	4.10

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

	Number of Options	Weighted average exercise price C$
Balance - 31 December 2007	3,006,665	3.80
Options granted	600,000	5.51
Options exercised	(25,000)	2.11
Options forfeited	-	-
Balance - 30 June 2008	3,581,665	4.10

Of the 3,581,665 (2007 - 3,306,999) share options outstanding as at 30 June 2008 2,378,332 (2007 - 2,581,999 were fully vested and had a weighted average exercise price of C$3.39 (2007 - C$3.02) per share. The share options outstanding as at 30 June 2008, had a weighted average remaining contractual life of 3.10 years (2007 - 3.43 years).

The weighted average grant date fair value of the 600,000 share options granted during the six-month period ended 30 June 2008 (2007 - 325,000) was C$5.51 (2007 - C$5.62). For outstanding share options which were not fully vested during the six-month period ended 30 June 2008, the Company incurred a total equity-based compensation cost of $656 (2007 - $532) of which $554 (2007 - $431) has been recognised as an expense in the income statement and $102 (2007 - $100) 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 June 2008).

As at 30 June 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 2009	30,000	5.74
	180,000	6.45

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

During the six-month period ended 30 June 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	(195,000)	5.08
RSUs cancelled	-	-
Balance - 30 June 2008	180,000	6.45

The weighted average grant date fair value of underlying shares of the 190,000 RSUs granted during the six-month period ended 30 June 2008 (2007 - 180,000) was C$6.60 (2007 - C$5.36). For outstanding RSUs which were not fully vested during the six-month period ended 30 June 2008, the Company incurred a total equity-based compensation cost of $1,207 (2007 - $1,736) of which $448 (2007 - $475) has been recognised as an expense in the income statement and $759 (2007 - $1,262) has been capitalised to deferred exploration and development costs.

14. Supplementary cash flow information

	3 months ended 30 June		6 months ended 30 June
	2008	2007	2008	2007
	$	$	$	$
Changes in non-cash operating accounts:
Accounts receivable, prepaid expenses and supplies	5,862	1,593	(3,733)	(3,245)
Accounts payable	(5,947)	(993)	121	1,638
Taxation	(1,396)	-	(1,396)	-
Inventory	152	889	(3,100)	(1,744)
	(1,329)	1,489	(8,108)	(3,351)
Supplemental disclosure of non-cash transactions:
Share options and restricted share units issued for non-cash consideration	879	916	1,864	2,261
Exercise of share options - Transfer from contributed surplus to share capital	(24)	(13)	(24)	(181)
Vesting of restricted share units	(974)	(618)	(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 June 2008 are as follows:

	30  June 2008 $	31 December 2007 $
Financial Assets:
Held-for-trading, measured at fair value
Cash and cash equivalents	201,008	218,839
Restricted cash	4,900	4,900
	205,908	223,739
Loans and receivables, measured at amortised cost
Accounts receivable	29,959	20,408
Prepaid expenses	1,956	7,769
	31,915	28,177
Financial Liabilities
Current liabilities, measured at amortised costs
Accounts payable and accrued liabilities	21,710	22,695
	21,710	22,695
Derivative Financial instruments - measured at fair value
Designated as cash flow hedges
Lead hedging contracts	9,087	882
	9,087	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 June 2008, the cash and restricted cash comprises the following:

	30 June 2008 $	31 December 2007 $
Interest bearing bank accounts	127,971	216,569
Short-term deposits	77,937	7,170
	205,908	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 June 2008, three customers represented 99% of the total. The Company does not anticipate any loss for non-performance. 

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

	30 June 2008 $	31 December 2007 $
Trade receivables	5,096	2,412
Value added taxes recoverable	17,074	17,996
Other accounts receivable	3,462	-
	25,632	20,408

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

Ageing	30 June 2008 $
Current	4,378
Past due (1-30 days)	709
Past due (31-60 days)	-
Past due (more than 60 days)	9
	5,096

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 six-month period ended 30 June 2008 interest income of $3,258 and $1,501 for three month period on cash and cash equivalents, based on rates of returns between 1.25% and 4.26% 

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 June 2008, the Company held the equivalent of $11,908 in foreign currencies. These balances are primarily made up of Euro and to a lesser extent Pound Sterling.

For the six-month period ended 30 June 2008 the Company recorded a foreign exchange gain of $2,647 and a loss of $27 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 June 2008, the Company's trade payables and accrued liabilities amounted to $15,810 all which fall due for payment within 12 months of the balance sheet date. The average credit period taken during the six-month period ended 30 June 2008 was 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 30 June 2008. 

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

	3 months  ended	6 months  ended
Impact on Net Profit (+/-)	30 June  2008 $	30 June  2008 $
Change of +/- 5 % US$: € foreign exchange rate	758	1,515
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 June 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 July 2008 and 31 December 2009 and strike prices as shown in the table below. The fair value of these contracts as 30 June 2008 amounted to $9,087 established by reference to market prices for lead.

	30 June 2008
Lead tonnes	12,600
US dollar price ($/tonne) - Put	2,464
US dollar contract amount ($'000) - Put	31,050
US dollar price ($/tonne) - Call	3,436
US dollar contract amount ($'000) - Call	43,290

16. 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. 

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 to maturity, selected with regards to the expected timing of expenditures from continuing operations.

The Company expects its current capital resources will be sufficient to carry 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 three-month period ended 30 June 2008. 

17. Commitments

As at 30 June 2008, the Company had remaining spending commitments of $635 (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 30 June 2008, Hellas Gold had entered into off-take agreements pursuant to which Hellas Gold agreed to sell 43,595 dmt of zinc concentrates, and 27,290 dmt of lead/silver concentrates until the end of 2008 and 281,439 dmt of gold concentrates until the financial year's ending 2011. As at 30 June 2008, 19,595 dmt of zinc concentrates, 9,290 dmt of lead/silver concentrates and 32,257 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 $56,840 (€36,057) of which is to be paid over three years beginning 2007. As at 30 June 2008, $14,133 $(€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 six-month period ended 30 June 2008, Hellas Gold incurred costs of $17,633 (2007 -$13,856) for management, technical and engineering services received from a related party, Aktor S.A.,  a 5% shareholder in Hellas Gold. As at 30 June 2008, Hellas Gold had accounts payable of $4,152 (2007 -$4,053) 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 June	31 December
	2008	2007
	$	$
Revenue
Canada	-	-
Greece	31,169	86,405
Romania	-	-
Turkey	-	-
United Kingdom	-	-
	31,169	86,405
Plant and equipment and deferred exploration and development costs
Canada	-	-
Greece	488,411	479,656
Romania	44,935	38,418
Turkey	157	-
United Kingdom	325	341
	533,828	518,415
Operating liabilities
Canada	301	832
Greece	20,019	20,037
Romania	294	659
Turkey	78	-
United Kingdom	1,018	1,167
	21,710	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 June 2008, the Company recognised the following costs:

	3 months ended 30 June		6 months ended 30 June
	2008 $	2007 $	2008 $	2007 $
Defined contribution plans	52	52	124	103

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 June		6 months ended 30 June
		2008 $	2007 $	2008 $	2007 $
Earnings		812	5,335	4,221	7,443
Effect of dilutive potential common shares		-	-	-	-
Diluted earnings		812	5,335	4,221	7,443
Weighted average number of common shares
	for the purpose of basic earnings per share	179,446	122,957	179,426	119,426
Incremental shares - Share options		1,535	1,695	1,859	1,679
Weighted average number of common shares
	for the purpose of diluted earnings per share	180,981	124,652	181,285	121,105

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. 

ENDIR PJMRTMMMBBTP

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Related Shares:

EGU.L