Q1 2011 Results - Part 2

European Goldfields Limited

Interim Condensed Consolidated Financial Statements

31 March 2011

Interim consolidated balance sheet

(Unaudited)

Interim consolidated income statement

(Unaudited)

For the three months ended 31 March

Interim consolidated statement of comprehensive income

(Unaudited)

For the three months ended 31 March

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

Interim consolidated statement of changes in equity

(Unaudited)

As at 31 March 2011

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

Interim consolidated statement of cash flow

(Unaudited)

For the three months ended 31 March

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

Notes to the interim condensed consolidated financial statements

For the three months ended 31 March 2011

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 registered address of the Company is Suite 200, Financial Plaza, 204 Lambert Street, Whitehorse, Yukon, Canada, Y1A 3T2.

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. 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 Company's activities are not affected by seasonal factors.

The underlying value of the deferred exploration and evaluation and development costs for mine properties is dependent upon the existence and economic recovery of reserves in the future, and the ability to fund the development of the properties.

The condensed consolidated interim financial statements of the Company as at 31 March, 2011 and for the three month period ended 31 March, 2011 and 2010 include the accounts of the Company and its subsidiary undertakings and the Company's interest in associates as detailed in note 2. The significant accounting judgements, estimates and assumptions made are described in note 5.

2. Basis of Presentation

The Company's condensed consolidated interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting using accounting policies consistent with International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards Board (IASB). These are the Company's first IFRS condensed consolidated interim financial statements for part of the period covered by the Company's first annual financial statements reported under IFRS. The Company's accounts were previously prepared in accordance with Canadian Generally Accepted Accounting Principles ("CGAAP"). In preparing these condensed consolidated interim financial statements IFRS 1 First-time Adoption of International Financial Reporting Standards has been applied. An explanation of how the transition to IFRS has affected the reported financial position, financial performance and cash flows of the Company is provided in note 13. On adoption of IFRS, the Company has applied exemptions allowed by IFRS 1 relating to business combinations and cumulative translation differences.

The condensed consolidated interim financial statements have been prepared on an historical cost basis, with the exception of derivative financial instruments, liabilities for cash settled share-based payment arrangements and financial assets available for sale, which are measured at their balance sheet date fair value.

The condensed consolidated interim financial statements are presented in US dollars, the Company's functional currency, and unless otherwise stated, all values are rounded to their nearest thousand (US$000).

The condensed consolidated interim 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, being a period of at least one year from the date the condensed consolidated interim financial statements were approved and authorised for issue.

In making this assumption the Directors have reviewed detailed operating and cash flow forecasts, including forecast capital requirements and forecast development of operations in Greece, Romania and Turkey, for the period of at least one year from the date the condensed consolidated interim financial statements were approved and authorised for issue. As a result of their review the Directors are satisfied that the Company will have sufficient resources to satisfy its current and forecast future obligations, and therefore they consider the going concern basis of preparation is appropriate.

3. Basis of consolidation

The results of operations of subsidiaries are fully consolidated from the acquisition date. The acquisition date is the date the Company obtains control, being the right to govern the financial and operating policies of the subsidiary and to benefit from its activities. If the Company no longer controls a subsidiary consolidation ceases from that date.

Investments in associates over which the Company has significant influence are accounted for using the equity method.

These condensed consolidated interim financial statements include the accounts of the Company and the following subsidiaries.

4. Summary of significant accounting policies

The accounting policies set out below have been applied consistently to all periods presented in these condensed consolidated interim financial statements and in preparing the opening IFRS balance sheet as at 1 January 2010 for the purpose of transition to IFRS, unless otherwise indicated.

(a) Foreign currency translation and foreign currency transactions

Functional and presentation currency

The consolidated financial statements are expressed in US dollars, which is the Company's presentation and functional currency. The Company and its subsidiaries each determine their functional currencies and items included in the financial statements of each entity are measured using that functional currency. The functional currencies of significant subsidiaries have been determined as the US Dollar.

The Company has elected to take the IFRS 1, First-time Adoption of IFRS exemption relating to cumulative translation differences, which has allowed the Company to deem cumulative translation differences to be zero at the date of transition to IFRS, as described in Note 14. These cumulative translation differences arose in subsidiary undertakings prior to their adopting the US Dollar as the functional currency.

Foreign currency transactions

Transactions in foreign currencies are recorded at the rates of exchange prevailing on the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end of monetary assets and liabilities using the spot rate of exchange are recognised in the income statement. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction.

(b) Business combinations and goodwill

The Company has taken the IFRS 1 exemption that allows them to choose an effective date from which to adopt IFRS 3 (Revised) Business Combinations (IFRS 3R). As a result business combinations that occurred prior to 1 June, 2007 are not accounted for in accordance with IFRS 3R Business Combinations or IAS 27 Consolidated and Separate Financial Statements.

Business combinations since 1 June, 2007 have been accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred at acquisition date fair value and the amount of any non-controlling interest in the acquiree. For each business combination the acquirer measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree's identifiable net assets. Transaction costs, other than those associated with the issue of debt or equity securities that the Company incurs in connection with a business combination are expensed as incurred.

Goodwill is initially measured at cost being the excess of the aggregate of the consideration transferred and the amount recognized for non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purposes of impairment testing, goodwill is allocated to each of the Company's cash-generating units that are expected to benefit from the combination.

Acquisitions of non-controlling interests are accounted for as transactions with equity holders in their capacity as equity holders and therefore no goodwill is recognised.

(c) Investment in associates

Investments in associates are accounted for using the equity method of accounting and are initially recognised at cost.  An associate is an entity over which the Company has significant influence. This allows the Company to participate in that entity's financial and operating policies, without having the power to control or jointly control them.

The Company's share of the 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 long-term interests that, in substance, form part of the investment, the Company does not recognise further losses, unless it has unsecured obligations or has made payments on behalf of the associate.

After application of the equity method, the Company reviews the carrying amount of its investment to determine whether an additional impairment loss is required with any additional loss recognised within 'share of profit/(loss) of associate' in the income statement.

When the Company 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 is adjusted to fair value as at that date and is transferred to another class of financial asset depending on the level of influence retained. The investment is then accounted for under the requirements of the new financial asset designation.

(d) Exploration and evaluation costs

When the Company has obtained the legal right to explore all exploration and evaluation expenditure is capitalised. Costs considered directly attributable to exploration and evaluation activity include the acquisition of rights to explore; topographical, geological, geochemical and geophysical studies; exploratory drilling; trenching; sampling and assessing the technical and commercial viability of extracting a mineral resource.

If there is an indication that the carrying amount of the exploration and evaluation assets may exceed their recoverable amounts, the Company carries out an impairment review, either individually or at the cash generating unit level. To the extent that this occurs, the excess is fully provided against, in the financial year in which this is determined. Exploration and evaluation assets are reassessed on a regular basis and these costs are carried forward provided the conditions outlined in IFRS 6 Exploration and Evaluation of Mineral Resources are met.

Once sufficient exploration and evaluation work has been performed and has demonstrated the existence of economically recoverable reserves, the costs capitalised are transferred to 'Mine properties and reserves'.

Exploration and evaluation assets acquired in a business combination are recognised initially at fair value and are stated subsequently at cost less accumulated impairment.

(e) Property, plant and equipment and mine properties

Mine properties and reserves

The cost of acquiring mineral reserves and resources is capitalised in the balance sheet as incurred.

All subsequent expenditure on the construction, installation or completion of facilities is capitalised within 'Mine properties and reserves'. 'Mine properties and reserves' are not depreciated until production starts. After production starts, all capitalised costs are transferred to 'Producing mines'.

Producing mines are stated at cost less accumulated depletion and accumulated impairment losses. The capitalisation of certain mine construction costs ceases and costs are either regarded as inventory or expensed, with the exception of those costs that continue to qualify for capitalisation relating to underground mine development or mineable reserve development.

Producing mines are depreciated on a unit of production basis over the economically recoverable reserves of the mine concerned.

Other property, plant and equipment

Other property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Other property, plant and equipment include vehicles, land and buildings and other plant and equipment at all locations within the Company. Other property plant and equipment, excludes capitalised costs and mining reserves and resources, which are included within 'Mine properties and reserves.' Cost comprises the aggregate amount paid and the fair value of any other consideration given to acquire the asset and includes costs directly attributable to making the asset capable of operating as intended.

Depreciation is provided on all property, plant and equipment on a straight-line basis over its expected useful life as follows

Residual values and useful lives are reviewed on an annual basis. If management consider an asset's residual value or useful life has changed, the change is considered a change in accounting estimate and accounted for prospectively.

(f) Impairment of assets

At each reporting date management review all non-financial assets to identify any indicator that an asset that may be impaired, excluding exploration and evaluation assets, which are assessed under IFRS 6 as described in (d) above. If there are indicators of impairment, a review is undertaken to determine if the carrying amounts are in excess of their recoverable amounts.

With the exception of those assets that generate cash flows largely independent from other assets, assets are allocated to cash-generating units (CGUs) for the purpose of this review. For individual assets and CGUs the recoverable amount is calculated, being the higher of its fair value less costs to sell and value in use (net present value of expected future cash flows). Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered to be impaired and it is written down to its recoverable amount.

To assess an asset or CGU's value in use the estimated future cash flows attributable to that asset or CGU are discounted to present value using a pre-tax market based discount rate. The estimated future cash flows are based on financial models, which are prepared for all of the Company's CGUs to which individual assets are allocated. Fair value less costs to sell is determined as the amount that would be obtained from the sale of the asset in an arms' length transaction between knowledgeable and willing parties.

All non-financial assets are held at cost and any impairment losses that result are therefore recognised in the income statement.

A previously recognised impairment loss is reversed if the impairment no longer exists or has decreased. The reversal is limited to the extent that the carrying amount of the asset does not exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised.

(g) Inventories

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. These costs include 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 on a weighted average basis and net realisable value.

(h) Financial instruments

The classification of financial assets and liabilities is determined at initial recognition with subsequent measurement dependent on their initial classification.

Cash and cash equivalents

Cash and cash equivalents include cash at banks and at hand and deposits with original maturities of three months or less.

Trade and other receivables

Trade and other receivables that have fixed and determinable payments and that are not quoted in active markets are carried at amortised cost less any impairment losses recognised. If trade and other receivables are expected to be settled in a period greater than twelve months they are discounted using the effective interest rate method. Trade and other receivables are assessed for impairment at each reporting date.

Trade and other receivables are recorded initially at their original invoiced amounts and are adjusted to reflect subsequent changes to these recoverable amounts. 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. At each reporting date sales are adjusted to fair value through revenue until the date of final price determination with trade receivables adjusted to reflect these changes to recoverable amounts.

Impairment

At each reporting date, trade and other receivables are assessed for impairment by identifying one or more events that have occurred since initial recognition that will impact estimated future cash flows and that can be estimated reliably. Evidence of impairment may include indications that debtors are experiencing significant difficulty, at which point the risks of default or probability of bankruptcy are considered.

Available for sale investments

The Company's investments and investments in marketable securities have been classified as available-for-sale and are recorded at fair value on the balance sheet. Available-for-sale financial assets are those non-derivative financial assets, principally equity securities, which 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 recognised as a separate component of equity until the investment is derecognised or until the investment is determined to be impaired. If the investment is determined to be impaired the cumulative gain or loss previously reported in equity is recognised in profit or loss.

Fair values are determined directly by reference to published price quotations in an active market.

Derivative financial instruments designated as effective cash flow 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 the income statement.

If a derivative financial 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 the income statement. Subsequent gains and losses from ineffective derivative instruments are recognised in the income statement in the period they occur.

(i) Provisions

Provisions are recognised when the Company has a present obligation, whether legal or constructive, as a result of a past event for which it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

Provisions are measured at the present value of management's best estimate of the expenditure required to settle the obligation at the balance sheet date. If the effect of the time value of money is material, provisions are discounted using a current pre tax rate that reflects the current market assessments of the time value of money and the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.

Decommissioning liability

Decommissioning costs are provided in full based on management's estimates of future costs to be incurred. Applicable costs include dismantling and removing structures, rehabilitating mines and tailings dams, dismantling operating facilities, closure of plant and waste sites, and restoration, reclamation and re-vegetation of affected areas.

When a provision is recognised it is either capitalised as part of the cost of the related property or written off to the income statement if utilised within one year. If costs are capitalised the provision is discounted to present value using a rate that reflects risks specific to the liability. At each reporting date management review the discount rate used. The periodic unwinding of the discount is recognised in the income statement as a finance cost. Changes in estimated future costs or in the discount rate applied are added or deducted from the cost of the asset.

(j) Share based compensation

The Company operates a share option scheme (Share Incentive Plan) and an equity participation plan (Restricted Share Units 'RSU'). The Company accounts for equity-based compensation granted under such plans using the fair value method of accounting. Under this method, the cost of equity-based compensation is estimated at fair value at the grant date and is recognised in the income statement as an expense, or capitalised as exploration and evaluation assets and mine properties when the compensation can be attributed to these activities. 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 completed or vesting for 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 ('DPU'). The Company accounts for the compensation using the fair value method. The cost of each unit is measured initially at fair value and expensed over the period until the vesting date. The provision is measured to fair value based on the Company's share price at the end of every reporting period and movements expensed in the period.

(k) Revenue recognition

Revenues from the sale of concentrates are recognised when the risks and rewards of ownership have been transferred to the customer and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received.

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 provisionally priced sales of concentrate contain an embedded derivative, which does not qualify for hedge accounting. These embedded derivatives are recognised at fair value through revenue 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.

(l) Income taxes

Current tax assets and liabilities are measured at the amount expected to be recovered or paid to the taxation authorities, based on tax rates and laws that are enacted or substantively enacted at the balance sheet date.

Deferred income tax is recognised on all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements, with the following exceptions:

·; Where the temporary difference arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss.

·; In respect of taxable temporary differences associated with investments in subsidiaries, associates and joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

·; Deferred income tax assets are recognised only to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, carried forward tax credits or tax losses can be utilised.

Deferred income tax assets and liabilities are measured on an undiscounted basis at the tax rates that are expected to apply when the related asset is realised or liability is settled, based on tax rates and laws enacted or substantively enacted at the balance sheet date.

The carrying amount of deferred income tax assets is reviewed at each balance sheet. Deferred income tax assets and liabilities are offset, only if a legally enforceable right exists to set off current tax assets against current tax liabilities, the deferred income taxes relate to the same taxation authority and that authority permits the Company to make a single net payment.

Income tax is charged or credited directly to equity if it relates to items that are credited or charged to equity, otherwise income tax is recognised in the income statement.

(m) Deferred revenue

The Company received 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.

The terms of the sale contract contain pricing provisions establishing a cap on the price to be received for the sale of the metals in concentrate. This pricing provision is considered as an embedded derivative, which is not required to be separated from the host contract for accounting purposes. The economic characteristics of the embedded derivative are closely related to the economic characteristics of the host contract.

(n) 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.

(o) Operating leases

Leases where the lessor retains a significant portion of the risks and benefits of ownership of the asset are classified as operating leases and rentals payable are charged to the income statement on a straight line basis over the lease term.

The Company has no finance lease arrangements.

5. Critical accounting judgements, estimates and assumptions

Estimates, risks and uncertainties - The preparation of financial statements in conformity with IFRS 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 costs in relation to mine properties and exploration and evaluation, decommissioning obligations and share-based compensation, current deferred tax and VAT receivable. While management believes that these estimates and assumptions are reasonable, actual results could vary significantly

Ore reserves and depletion of mine properties - In accordance with the Company's accounting policy, once production starts mine properties are classified as producing mines, which are stated at cost less accumulated depletion and impairment. Producing mines are depreciated on a unit of production basis over the economically recoverable reserves of the mine concerned. The estimation of recoverable reserves is based on professional evaluations using accepted international standards for the assessment of mineral reserves. The assessment involves the study of geological, geophysical and economic data and relies on a number of financial and technical assumptions. The estimate of reserves may be subject to change based on new information gained subsequent to the initial assessment, which may include additional information available from continuing exploration, results from the reconciliation of actual mining and plant production data against the original reserve estimates, or the impact of economic factors such as changes in metal prices, exchange rates or the cost of components of production. If actual reserves prove to be significantly different to current estimates, a material change to amounts charged to earnings could occur.

Decommissioning liability - The Company records a mine rehabilitation provision ("decommissioning liability") at fair value when legally incurred with the corresponding increase to the mineral property depreciated over the life of the mine. Management assesses the calculation of the mine rehabilitation provision annually, including the underlying assumptions and judgments made.

The liability is adjusted over time to reflect an accretion element. In accordance with IFRS the provision is discounted using a discount rate that reflects risks specific to the liability, with any change in the discount rate treated as a change in accounting estimate. Changes to estimated future costs are recognized in the statement of financial position by either increasing or decreasing the rehabilitation liability and asset if the initial estimate was recognised as part of an asset measured in accordance with IAS 16.

Any significant change to management's previous assumptions and to the cost of rehabilitation activities or the market based discount rate may result in future actual expenditure differing from the amounts currently provided. These changes or a change to the market based discount rate may result in a material change to amounts charged to earnings. At each reporting date the provision represents management's best estimate of the present value of the future rehabilitation costs required.

Share based compensation - The Company operates a share option scheme (Share Incentive Plan), an equity participation plan ('RSU') and a deferred phantom plan ('DPU'). Equity based compensation granted under these plans is accounted for using the fair value method of accounting. Under this method the cost of equity-based compensation is estimated at fair value at the grant date and recognised in the income statement as an expense, or capitalised to exploration and evaluation assets and mine properties when the compensation can be attributed to those assets.

For cash settled awards, the cost of each unit is measured initially at fair value and expensed over the period until the vesting date. The associated liability is revalued to fair value at each reporting date with movements expensed in the period.

Current and deferred tax - Tax regimes in certain jurisdictions can be subject to differing interpretations and are often subject to legislative change and changes in administrative interpretation in those jurisdictions. The interpretation by the Company and its subsidiary undertakings of relevant tax law as applied to their transactions and activities may not coincide with that of the relevant tax authorities. As a result, transactions may be challenged by tax authorities and may be assessed to additional tax or additional transactions taxes (for example stamp duty or VAT), which, in each case, could result in significant additional taxes, penalties and interest. These could have a material adverse impact on the Company's business, financial position and performance.

VAT receivable - The company has a VAT receivable due from the Greek Government totalling $25,145 (31 December 2010: $22,509). Whilst the Government has slowed down VAT repayments in the light of the current economic uncertainty that it faces, the directors believe that repayments will recommence during the year following the receipt of economic aid from the European Union. Accordingly, these amounts have been shown as current assets.

Long lived assets - All long lived assets held and used by the Company are reviewed for possible impairment at least annually or whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If changes in circumstances indicate that the carrying value of an asset that an entity expects to hold and use may not be recoverable, future cash flows expected to result from the continued use of the asset and its disposition must be estimated. An asset is considered to be impaired where its recoverable amount (being the higher of the asset's fair value less costs to sell and its value in use) is less than its current carrying amount. Under IFRS a significant adverse change during the period or anticipated to take place in the near future in the market in which the Company operates or in the market to which an asset is dedicated can be considered an indication of possible impairment. An example of such a change would be a fall in metal prices. In such circumstances management use cash flow forecasts to establish whether actual impairment has occurred. Estimates are based on future expectations and a number of assumptions and judgments made by management. Current metal prices do not suggest that there has impairment of any of the Company's non-current assets, although if such an impairment were to occur, it could result in a material charge to earnings.

6. Other property, plant and equipment

7. Exploration and evaluation assets

(a) Greece

As at 31 March 2011 capitalised exploration and evaluation expenditure in Greece related to further exploratory activity on the Greek mine properties.

(b) Romania

The Baita-Craciunesti exploration licence is 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 other exploration licences are held by the Company's wholly-owned subsidiary, European Goldfields Deva SRL.

As at the 31 March 2011, the following cost had been incurred on the remaining Romanian mineral properties:

(c) Turkey

The Turkish licences are held through a Turkish Company, Pontid Madencilik. Currently the Company has a 51% interest in all the properties and the Company will fund 100% of all costs related to the development of these properties. Ownership of the Ardala property may be increased to 80% by funding to completion of a Bankable Feasibility Study. All other concessions 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.

As at 31 March 2011 the following costs had been incurred on the Turkish mineral properties:

8. Mine properties and reserves

(a) Greece

Included within mine development and producing mines are amounts with cost of $192,676 and $11,457 respectively that were recognised as fair value uplift when the Company acquired Hellas Gold SA in November 2004.

(b) Romania

Mines under construction relate to the Certej exploitation licence that is held by the Company's 80%-owned subsidiary, Deva Gold SA. 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 and 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. No depletion has been charged in respect of the Certej licence.

9. Other liabilities and provisions

Provision for decommissioning costs

Management has estimated the total future decommissioning obligation based on the Company's ownership interest in the 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.

As at 31 March 2011, the undiscounted amount of estimated cash flows required to settle the obligation is $10,130 (2010 - $8,529). The estimated cash flow has been discounted using a risk adjusted rate specific to the liability of 6.966 % (2010 - 6.674%). The expected period until settlement is seven years (2010 - five years).

Deferred phantom unit plan

The provision represents the fair value of amounts payable to eligible persons under the Company's deferred phantom unit plan at each reporting date. Refer to note 10 for outstanding DPUs as at 31 March 2011 and 31 December 2010.

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

There were no amendments made to share based compensation plans in the period to 31 March 2011. Movements in existing plans during the period, being shares granted and vested under existing schemes, were as follows:

Share incentive plan

Equity participation plan

Deferred phantom unit plan

11. Commitments and operating leases

Commitments

The Company has spending commitments of $450 (2010 - $435) per year (plus service charges and value added tax) for a term of five years under the lease for its office in London, England, which commenced in November 2009.

Hellas Gold has spending commitments of $148 (2010 - $150) per year for a term of 9 years under the lease for its office in Athens, Greece, which commenced in December 2007. After the second anniversary, the rent escalates annually at a rate of consumer price index +1%. Hellas Gold's commitment through the lease agreement is extended to payment of all rental taxes, utilities, proportion of common charges as well as proportion of municipal taxes.

Deva Gold has spending commitments of $165 (2010 - $155) per year, with the Local Council of Certejul de Sus commune, for a term of 20 years, for forested land situated in Hondol village, Romania. The lease commenced in November 2010 and has the option of being extended for a period equal with a maximum of half of the initial period and by mutual agreement.

As at 31 March 2011, Hellas Gold had entered into off-take agreements pursuant to which Hellas Gold agreed to sell 13,065 dmt of zinc concentrates, 9,734 dmt of lead/silver concentrates and 20,869 dmt of gold concentrates until the financial year ending 31 December 2011.

During 2007, Hellas Gold entered into purchase agreements with Outotec Minerals OY for long-lead time equipment for the Skouries project with a cost of $46,516 which is to be paid in full by the end of December 2011. As at 31 March 2011, $46,030 of the commitment has been paid.

Operating leases

The amount recognised in the income statement in the three-month period ended 31 March 2011 in respect of operating leases was $137 (2010 - $64)

12. Transactions with related parties

These consolidated financial statements incorporate the accounts of the Company, and its subsidiary undertakings as disclosed in note 3. The following are also considered related parties of the Company.

Greek Nurseries SA

The Company's investment in Greek Nurseries SA is held through Hellas Gold SA who subscribed for 50% of the share capital.

Hellas Gold SA holds two out of the five Board positions and is not involved in the operating and management decision making process of Greek Nurseries SA. The investment is therefore accounted for as an associate, and Greek Nurseries SA is considered a related party of the consolidated Company.

Ellaktor SA

Ellaktor SA ("Ellaktor"), owns 19.3% of the Company's issued share capital. Aktor SA ("Aktor") Greece's largest construction Company and a 100% subsidiary of Ellaktor owns 5% of Hellas Gold SA, the Company's 95% owned subsidiary.

Ellaktor is deemed a related party and contracts management, technical and engineering services to Hellas Gold SA through its subsidiary undertakings including Aktor.

These costs have been recognised as costs of sales or capitalised as mine properties depending on the nature of services rendered. These expenditures were contracted in the normal course of operations and are recorded at the exchange amount agreed by the parties. The terms of the payable is 30 days (2010 - 30 days).

Transactions with related parties

For the three month periods ended 31 March, 2011 and 2010 the following transactions were entered into with related parties and the following amounts were outstanding as at 31 March 2011 and 31 December 2010.

Greek Nurseries SA

In the period ended 31 March 2011 the value of services provided to the Company by Greek Nurseries SA and by the Company to Greek Nurseries SA were Nil (2010 - Nil). No amount was due to Greek Nurseries SA as at 31 March 2011 and 31 December 2010.

Ellaktor SA

No amount was due to the Company from members of the Ellaktor Group at 31 March 2011 and 31 December 2010.

Transactions with key management personnel

Directors' loans

During the period ended 31 March, 2011 the Company loaned three of its Directors a total of $Nil (2010 - $95) in relation to employee withholding taxes paid by the Company on behalf of the Directors. These loans, which were taken out in the context of the Company's long term incentive plan to increase the Directors' equity investment in the Company are interest free and are repayable by mutual agreement. As at 31 March 2011 an amount of $95 (2010 - $95) was outstanding with regards to the above loan.

13. Transition to IFRS

For accounting periods up to and including the year ending 31 December 2010, the Company presented its financial statements in accordance with Canadian Generally Accepted Accounting Principles (CGAAP). As stated in note 2 these are the first condensed consolidated interim financial statements that have been prepared by the Company in accordance with International financial Reporting Standards (IFRS).

In adopting IFRS for the first time in the year ending 31 December 2011, the Company has adjusted amounts previously reported in accordance with CGAAP with an explanation of how the transition has affected the Company's financial position and performance outlined below.

Reconciliation of equity at 1 January 2010:

Reconciliation of equity at 31 March 2010: