Q3 2010 Results - Part 2

European Goldfields Limited

Consolidated Financial Statements

(Unaudited)

For the Three- and Nine- Month Periods Ended

30 September 2010 and 2009

Disclosure of auditor review of interim consolidated financial statements

The interim consolidated financial statements of the Company for the three- and nine-month periods ended 30 September 2010 and 2009 have not been reviewed by the auditors of the Company.

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

Approved by the Board of Directors

(s) Timothy Morgan-Wynne (s) Bruce Burrows

Timothy Morgan-Wynne, Director Bruce Burrows, Director

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

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

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

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

Notes to Consolidated Financial Statements

For the periods ended 30 September 2010 and 2009

(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".

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 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. 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 3 to the Company's audited consolidated financial statements for the years ended 31 December 2009 and 2008.

These interim consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements for the years ended 31 December 2009 and 2008.

3. Inventory

This balance comprises the following:

The components of cost of sales were as follows:

As at 30 September 2010, the value of total inventory carried at net realisable value amounted to $Nil (2009 - $Nil), which includes a write-down of $Nil (2009 - $Nil).

4. Property, plant and equipment

During the 9 month period ended 30 September 2010, the total depreciation charge amounted to $4,679 (2009 - $3,260) and the net book value amount of property, plant and equipment not amortised amounted to $75,859 (2009 - $75,173).

5. 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.

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.

As at the 30 September 2010, the following cost had been incurred on the remaining Romanian mineral properties:

Turkish Mineral Properties:

In April 2008, the Company entered into a Joint Venture ("JV") with Ariana Resources plc ("Ariana") which 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 fourteen other licences covering a total area of 211km², and a Strategic Partnership within the AOI to define new opportunities for the JV.

The Turkish licences are held by the JV through a Turkish Company, 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 the Ardala property may be increased to 80% by funding to completion of a Bankable Feasibility Study. All other concessions within the JV 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.

6. Investment in associates

In January 2008, Hellas Gold acquired a 50% share of Greek Nurseries SA for a consideration of $834 (€530), at the date of acquisition the Company had no net assets.

In May 2008, the Company subscribed for 20.13% of the issued share capital of Ariana through a $1,858 (£929) private placement of shares. The difference between the cost of the investment of $1,830 and the underlying net book value of Ariana was $132 at the date of acquisition. This excess represents additional fair value assigned to mineral properties of Ariana and will be depleted upon commencement of mining operations of Ariana.

In January 2009, Ariana undertook a share issue in which the Company subscribed which resulted in a dilution of ownership as the Company did not subscribe to 20.13% of the new shares being issued. After the share issue the Company held 19.87% interest in Ariana. During September 2009, Ariana carried out a further share placement in which the Company did not subscribe and as at 31 December 2009, the Company held 16.58% of the issued share capital. Since October 2009, the Company has not had a representative on the board of Ariana and therefore no longer has significant influence. As a result, the Company has accounted for its investment in Ariana as an investment available-for-sale as per note 7.

7. Investment other

The above investment is accounted for as an available-for-sale asset.

8. Future tax liability

The following table reflects future income tax liabilities:

9. Asset retirement obligation

Management has estimated the total future asset retirement 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. The following table reconciles the asset retirement obligation for the financial periods ended 30 September 2010 and 31 December 2009:

As at 30 September 2010, the undiscounted amount of estimated cash flows required to settle the obligation is $6,713 (31 December 2009 - $7,805). The estimated cash flow has been discounted using a credit adjusted risk free rate of 5.04% (31 December 2009 - 5.04%). The expected period until settlement is 4.25 years.

10. 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 effective from June 2010, lesser of $3.94) and the prevailing market price per ounce. During the nine-month period ended 30 September 2010, Hellas Gold delivered concentrate containing ounces 504,290 (31 December 2009 - 772,865 ounces) of silver for credit to Silver Wheaton.

In September 2007, Hellas Gold entered into an agreement with a subsidiary of Celtic Resources Holdings ("Celtic") 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. During the period a total of Nil wmt (31 December 2009 - 24,680 wmt) of concentrate was delivered to Celtic.

The following table reconciles movements on deferred revenue associated with Celtic and the Silver Wheaton transaction:

11. 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)

Contributed surplus

Accumulated other comprehensive income

The components of accumulated other comprehensive income were as follows:

Other reserves

12. Share options, restricted share units and deferred phantom 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 (27,471,345 shares as at 30 September 2010).

An option holder 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"):

As at 30 September 2010, the following share options were outstanding:

During the nine-month period ended 30 September 2010, share options were granted, exercised, exchanged and forfeited as follows:

Of the 4,573,666 (2009 - 2,891,665) share options outstanding as at 30 September 2010, 3,319,501 (2009 - 2,314,999) were fully vested and had a weighted average exercise price of C$5.28 (2009 - C$3.85) per share. The share options outstanding as at 30 September 2010, had a weighted average remaining contractual life of years 3.28 (2009 - 2.15 years).

The weighted average grant date fair value cost of the 1,800,000 share options granted during the period ended 30 September 2010 was C$6.28. No share options were granted in the period ending 30 September 2009. For outstanding share options, including options granted during the three-month period and those which were not fully vested during the nine-month period ended 30 September 2010, the Company incurred a total equity-based compensation cost of $3,740 (2009 - $703) of which $2,938 (2009 - $520) has been recognised as an expense in the statement of profit and loss and $801 (2009 - $183) has been capitalised to deferred exploration and development costs.

The fair value of the share options granted has been estimated at the date of grant using a Black-Scholes and Parisian option pricing model with the following assumptions: weighted average risk free interest rate of (0.05% - 0.65%); volatility factor of the expected market price of the Company's shares of (67.10% -68.40%); a weighted average expected life of the share options of 5 years, maximum term of 5 years and a dividend yield of Nil.

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 (4,578,558 shares as at 30 September 2010).

As at 30 September 2010, the following RSUs were outstanding:

During the nine-month period ended 30 September 2010, RSUs were granted, vested and forfeited as follows:

The weighted average grant date fair value cost of underlying shares of the 750,500, RSUs granted during the nine-month period ended 30 September 2010 (2009 - 1,072,839) was C$6.76 (2009 - C$2.99). For outstanding RSUs which were not fully vested, including RSU's granted during the nine-month period ended 30 September 2010, the Company incurred a total equity-based compensation cost of $4,930 (2009 - $1,612) of which $3,512 (2009 - $965) has been recognised as an expense in the statement of profit and loss and $1,418 (2009 - $647) has been capitalised to deferred exploration and development costs.

Jointly Owned Equity Plan

On 31 March 2010, the Company executed a trust deed constituting the European Goldfields Employee Share Trust (the "Trust") which is operated by an independent trustee (the "Trustee"). The establishment of the Trust enables the Trustee to acquire shares in the Company and to make available interests in those shares as jointly owned equity ("JOE") for the benefit of current and future employees under the Company's Share Option Plan and Restricted Share Unit ("RSU") Plan (the "Plans").

The Company has amended its Plans to enable the grant of share options and RSUs in the form of JOE awards, with the shares underlying such awards being jointly owned by the Trust and employees. The amendments to facilitate the JOE structure in each of the Plans do not alter the commercial or economic terms of the Plans or the benefits to the employees. The Company obtained approval from its shareholders at its annual general meeting on 12 May 2010, and as such, the Company accounts for the Trust under this "extension of parent" method.

On 1 April, 2010, the Trustee subscribed for 500,000 shares of the Company at a price per share of C$6.71 under the JOE structure, which relate to the RSUs granted in March 2010. Neither the Trustee nor any employee is entitled to vote or receive dividends in respect of these shares. None of these shares will vest until after the achievement of certain performance targets. To the extent that the relevant approvals are not obtained, the JOE awards will be cancelled.

Deferred Phantom Unit Plan

The company operates a Deferred Phantom Unit plan (the "DPU Plan") authorising the directors based on recommendation by the Human Capital Management Committee to grant Deferred Phantom Units ("DPUs") to all directors. The DPU are units which give rise to a right to receive a cash payment the value of which, on a particular date should be the market value of the equivalent number of shares at that date. The market value at 30 September 2010 has been included in current liabilities.

As at 30 September 2010, the following DPUs were outstanding:

During the nine-month period ended 30 September 2010, DPUs were granted and forfeited as follows:

Of the 78,136 (2009 - 31,221) DPU's granted during the period, 51,426 (2009 - 31,221) were fully vested.

The fair value cost of the 282,107 (2009 - 31,221) DPUs as at the 30 September 2010, based on the period end share price of C$10.90 (2009 - C$4.98), amounted to C$3,074 (2009 - C$1,444).

13. Financial instruments and financial risk management

Financial exposures, in varying degrees, arise in the normal course of the Company's consolidated operations and include commodity price risk, foreign exchange risk, interest rate risk, liquidity risk and credit risk associated with trade and financial counterparties. These exposures are monitored by Senior Management and are assessed and mitigated in accordance to the Group Risk Management Policy.

The Company's financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities 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 carrying amounts of the financial instruments and their fair values as at 30 September 2010 and 31 December 2009 are as follows: