EXHIBIT 99.2
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying consolidated financial statements have been prepared by
management and are in accordance with Canadian generally accepted accounting
principles. Other information contained in this document has also been prepared
by management and is consistent with the data contained in the consolidated
financial statements. A system of internal control is maintained by management
to provide reasonable assurance that assets are safeguarded and financial
information is accurate and reliable.
The board of directors approves the financial statements and ensures that
management discharges its financial responsibilities. The board's review is
accomplished principally through the audit committee, which is comprised of
non-executive directors. The audit committee meets periodically with management
and the auditors to review financial reporting and control matters.
The consolidated financial statements have been audited by
PricewaterhouseCoopers LLP on behalf of the shareholders and their report
follows.
(Signed) (Signed)
Kerry J. Knoll T. Derek Price
President and Chief Executive Officer Vice President, Finance and Chief
Financial Officer
Toronto, Ontario
March 22, 2006
AUDITORS' REPORT
To the Shareholders of Glencairn Gold Corporation
We have audited the consolidated balance sheets of Glencairn Gold
Corporation as at December 31, 2005 and 2004 and the consolidated statements of
operations, deficit and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with Canadian generally accepted
auditing standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the company as at December 31,
2005 and 2004 and the results of its operations and its cash flows for the years
then ended in accordance with Canadian generally accepted accounting principles.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Chartered Accountants
Toronto, Ontario
March 22, 2006
1
GLENCAIRN GOLD CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2005 AND 2004
(US DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Note 2005 2004
-------- ------------- -------------
Sales $ 19,383 $ 19,669
------------- -------------
Cost of sales 15,931 14,770
Royalties and production taxes 1,078 1,131
Depreciation and depletion 1,641 2,513
Accretion expense 10 242 275
Environmental remediation 10 (938) (92)
------------- -------------
17,954 18,597
------------- -------------
Earnings from mining operations 1,429 1,072
------------- -------------
Expenses and other income
General and administrative 3,534 3,978
Stock options and warrants 11, 12 409 1,364
Exploration 1,389 4,598
Other expense and (income) 3 174 (274)
------------- -------------
5,506 9,666
------------- -------------
Net loss $ (4,077) $ (8,594)
============= =============
Loss per share - basic and diluted 13 $ (0.03) $ (0.06)
============= =============
Weighted average number of shares outstanding 155,600 133,059
============= =============
GLENCAIRN GOLD CORPORATION
CONSOLIDATED STATEMENTS OF DEFICIT
YEARS ENDED DECEMBER 31, 2005 AND 2004
(US DOLLARS IN THOUSANDS)
2005 2004
------------- --------------
Balance, beginning of year $ (10,072) $ (1,478)
Net loss (4,077) (8,594)
------------- --------------
Balance, end of year $ (14,149) $ (10,072)
============= ==============
The accompanying notes form an integral part of these consolidated financial
statements.
2
GLENCAIRN GOLD CORPORATION
CONSOLIDATED BALANCE SHEETS
AS AT DECEMBER 31, 2005 AND 2004
(US DOLLARS IN THOUSANDS)
Note 2005 2004
-------- ------------- -------------
Assets
Current
Cash and cash equivalents $ 6,799 $ 13,728
Marketable securities 4 210 1
Accounts receivable and prepaids 1,487 3,950
Note receivable 17 123 -
Product inventory 5 3,799 941
Supplies inventory 5,369 5,943
------------- -------------
17,787 24,563
Note receivable 17 - 353
Deferred financing costs 6 533 -
Restricted cash 7 250 150
Property, plant and equipment 8 51,669 35,907
------------- -------------
$ 70,239 $ 60,973
============= =============
Liabilities
Current
Accounts payable and accrued liabilities $ 7,933 $ 4,483
Current portion of long-term debt 9 3,500 -
Current portion of asset retirement obligations 10 210 1,387
------------- -------------
11,643 5,870
Long-term debt 9 2,500 -
Asset retirement obligations 10 1,672 2,260
------------- -------------
15,815 8,130
------------- -------------
Shareholders' Equity
Warrants 11 5,972 7,226
Agent's options 11 163 728
Contributed surplus 11 5,306 2,719
Common shares 11 57,132 52,242
Deficit (14,149) (10,072)
------------- -------------
54,424 52,843
------------- -------------
$ 70,239 $ 60,973
============= =============
Contingencies and Commitments 18
The accompanying notes form an integral part of these consolidated financial
statements.
Approved on behalf of the Board
(Signed) (Signed)
Ian J. McDonald Patrick J. Mars
Director Director
3
GLENCAIRN GOLD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2005 AND 2004
(IN THOUSANDS OF US DOLLARS)
Note 2005 2004
-------- ------------- -------------
Operating activities
Net loss $ (4,077) $ (8,594)
Asset retirement obligations settled 10 (451) (770)
Items not affecting cash:
Depreciation and depletion 1,641 2,513
Accretion expense 10 242 275
Environmental remediation 10 (938) (92)
Stock options and warrants 11, 12 409 1,364
Gain on sale of marketable securities 3 (262) (325)
Gain on sale of property, plant and equipment 3 (2,251) (494)
Amortization of deferred financing costs 6 235 -
Dobles award 3, 8 944 -
Write down of accounts and note receivable 3 379 200
Unrealized foreign exchange gain (24) (24)
Change in non-cash working capital 15 2,704 (1,161)
------------- -------------
Cash used in operating activities (1,449) (7,108)
------------- -------------
Financing activities
Deferred financing costs 6 (480) -
Long-term debt 9 6,000 -
Common shares issued 11 4,962 28,702
------------- -------------
Cash generated from financing activities 10,482 28,702
------------- -------------
Investing activities
Proceeds from sale of marketable securities 352 767
Increase in restricted cash 7 (100) -
Purchase of property, plant and equipment (18,800) (24,030)
Proceeds from sale of property, plant and equipment 2,586 494
------------- -------------
Cash used in investing activities (15,962) (22,769)
------------- -------------
Decrease in cash and cash equivalents (6,929) (1,175)
Cash and cash equivalents, beginning of year 13,728 14,903
------------- -------------
Cash and cash equivalents, end of year $ 6,799 $ 13,728
============= =============
Supplemental cash flow information 15
The accompanying notes form an integral part of these consolidated financial
statements.
4
GLENCAIRN GOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2005 AND 2004
(US DOLLARS - UNLESS OTHERWISE NOTED)
1. NATURE OF OPERATIONS
Glencairn Gold Corporation's (the "Company" or "Glencairn") business is
gold mining including exploration, development, extraction, processing and
reclamation. The Company's business also includes acquisition of gold properties
in operation or in the development stage. The Company owns the Limon Mine in
Nicaragua and the Bellavista Mine in Costa Rica. The Bellavista Mine achieved
commercial production in December 2005. The Company also owns the Keystone Mine,
a depleted property in Canada, which is currently under reclamation.
2. ACCOUNTING POLICIES
(a) Basis of consolidation
The consolidated financial statements of the Company, which are expressed
in U.S. dollars, have been prepared in accordance with Canadian generally
accepted accounting principles and include the accounts of the Company and its
subsidiaries. Intercompany transactions have been eliminated on consolidation.
(b) Use of estimates
The preparation of financial statements in conformity with Canadian
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Accounts which require management to make material estimates
and significant assumptions in determining amounts recorded include accounts
receivable, note receivable, product inventory, depreciation and depletion,
property, plant and equipment, accrued liabilities, provision for reclamation,
future income taxes and contingencies. Actual results may differ from these
estimates.
(c) Revenue recognition
Revenue from metal sales is recognized when the following conditions are
met: persuasive evidence of an arrangement exists; delivery of transfer and
title have occurred under the terms of the arrangement; the price is fixed or
determinable; and collectability is reasonably assured.
(d) Exploration and development expenditures
Significant property acquisition costs are capitalized. Exploration and
development expenditures are expensed until a feasibility study has been
completed that indicates the property is economically feasible. Capitalized
costs are written down to their estimated recoverable amount if properties are
determined to be uneconomic or are held for sale.
(e) Income taxes
The Company accounts for income taxes in accordance with the liability
method. The determination of future tax assets and liabilities is based on the
differences between the financial statement and the income tax bases of assets
and liabilities, using substantively enacted tax rates in effect for the period
in which the differences are expected to reverse. Future tax assets are recorded
to recognize tax benefits only to the extent that, based on available evidence,
it is more likely than not they will be realized.
5
GLENCAIRN GOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2005 AND 2004
(US DOLLARS - UNLESS OTHERWISE NOTED)
(f) Cash and cash equivalents
Cash and cash equivalents comprise cash and money market investments with
an original term of 90 days or less which are readily convertible into cash.
(g) Marketable securities
Marketable securities are carried at lower of cost or market.
(h) Product inventory
Product inventory consists of ore on heap leach pads, in-process inventory
and precious metals inventory.
Ore on heap leach pads
The recovery of gold from ore is achieved through the heap leaching
process. Under this method, ore is placed on heap leach pads where it is treated
with a chemical solution, which dissolves the gold contained in the ore. The
resulting "pregnant" solution is further processed in a plant where the gold is
recovered. For accounting purposes, costs are added to ore on heap leach pads
based on current mining costs. Costs are removed from ore on heap leach pads as
ounces are recovered based on the average cost per recoverable ounce of gold on
the heap leach pad.
The estimates of recoverable gold on the heap leach pads are calculated
from the quantities of ore placed on the heap leach pads (measured tons added to
the leach pads), the grade of ore placed on the heap leach pads (based on assay
data) and a recovery percentage (based on ore type).
Although the quantities of recoverable gold placed on the heap leach pads
are reconciled by comparing the grades of ore placed on pads to the quantities
of gold actually recovered (metallurgical balancing), the nature of the leaching
process inherently limits the ability to precisely monitor inventory levels. As
a result, the metallurgical balancing process is constantly monitored and
estimates are refined based on actual results over time. Variations between
actual and estimated quantities resulting from changes in assumptions and
estimates that do not result in write-downs to net realizable value are
accounted for on a prospective basis.
Ore on heap leach pads are carried at the lower of average cost or net
realizable value. Net realizable value represents the estimated future sales
price of the product based on prevailing metals prices, less the estimated costs
to complete production and bring the product to sale. Write-downs of ore on heap
leach pads from net realizable value impairments are included in cost of sales.
In-process Inventory
In-process inventories represent materials that are currently in the
process of being converted to a saleable product. Conversion processes vary
depending on the nature of the ore and the specific mining operation, but
include mill in-circuit and leach in-circuit inventories. In-process material is
measured based on assays of the material fed into the process and the projected
recoveries of the respective plants. In-process inventories are valued at the
average cost of the material fed into the process attributable to the source
material coming from the mines and/or heap leach pads plus the in-process
conversion costs, including applicable depletion related to mining operations
and depreciation relating to the process facilities incurred to that point in
the process.
In-process inventories are carried at the lower of average cost or net
realizable value. Net realizable value represents the estimated future sales
price of the product based on prevailing metals prices, less the estimated costs
to complete production and bring the product to sale. Write-downs of inventories
resulting from net realizable value impairments are included in cost of sales.
6
GLENCAIRN GOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2005 AND 2004
(US DOLLARS - UNLESS OTHERWISE NOTED)
Precious Metals Inventory
Precious metals inventories include gold dore and gold bullion. Precious
metals that result from the Company's mining and processing activities are
valued at the average cost of the respective in-process inventories incurred
prior to the refining process, plus applicable refining costs.
(i) Supplies Inventory
Supplies inventory is stated at the lower of average cost and replacement
cost.
(j) Deferred stripping costs
In December 2005, the Company's Bellavista mine, which is an open pit
operation, achieved commercial production. As a result, the Company adopted a
policy to capitalize certain costs related to the removal of waste rock at this
mine commonly referred to as "deferred stripping" costs. These post production
costs, which are considered betterments to the mineral property, will be
depreciated over the reserves that directly benefit from the "stripping
activity" on a units-of-production basis.
(k) Property, plant and equipment
Property, plant and equipment including mine development expenditures are
carried at cost less accumulated depreciation and depletion and less any
write-downs to recognize impairments. For producing properties, depreciation and
depletion are charged to earnings on a unit-of-production basis over estimated
mineral reserves using ounces of gold. For corporate property, depreciation is
charged to earnings on a declining balance basis over estimated useful life.
Properties under development include initial acquisition costs and costs
incurred subsequent to completion of an economic feasibility study.
When impairment conditions are identified, reviews of producing properties
and properties under development are conducted. The carrying values of property,
plant and equipment, which are impaired, are written down to fair value, which
is determined using a discounted cash flow model.
(l) Asset retirement obligations
The fair value of a liability for an asset retirement obligation is
recorded in the period in which it is incurred. When the liability is initially
recorded, the cost is capitalized by increasing the carrying amount of the
related long-lived asset. Over time, the liability is increased to reflect an
interest element (accretion expense) considered in the initial measurement at
fair value. The capitalized cost is amortized over the useful life of the
related asset. Upon settlement of the liability, a gain or loss is recorded if
the actual costs incurred are different from the liability recorded.
(m) Foreign currency translation
The Company's foreign operations are classified as integrated for foreign
currency translation purposes. Monetary assets and liabilities denominated in
foreign currencies are translated at the exchange rates in effect at the balance
sheet date. Non-monetary items are translated at historical rates. Revenues and
expenses are translated at the average exchange rate during the period with the
exception of depreciation and depletion which is translated at the historical
rate recorded for property, plant and equipment. Exchange gains and losses
arising on the translation of monetary assets and liabilities are included in
the determination of earnings for the current period. The functional currency of
the Company is the US dollar.
7
GLENCAIRN GOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2005 AND 2004
(US DOLLARS - UNLESS OTHERWISE NOTED)
(n) Stock-based compensation and other stock-based payments
The Company records compensation expense for stock options granted to
employees based on the fair value of the options on the grant date.
3. OTHER EXPENSE AND (INCOME)
2005 2004
---------------- ----------------
(in thousands)
Interest and other income $ (132) $ (280)
Gain on sale of marketable securities (262) (325)
Gain on sale of property, plant and
equipment (note 8) (2,251) (494)
Foreign exchange 848 9
Interest and finance fees 648 6
Municipal tax for depleted site - 610
Dobles award (note 8) 944 -
Write down of accounts and note
receivable (note 17) 379 200
---------------- ----------------
$ 174 $ (274)
================ ================
4. MARKETABLE SECURITIES
Marketable securities at December 31, 2005 consist of common shares of
publicly traded companies, recorded at $210,000 (2004 - $1), which have a market
value of $1,246,000 (2004 - $17,000).
5. PRODUCT INVENTORY
2005 2004
---------------- ----------------
(in thousands)
Recoverable gold on the heap leach pads $ 2,112 $ -
In-process inventories 1,234 302
Precious metals inventory 453 639
---------------- ----------------
Total $ 3,799 $ 941
================ ================
8
GLENCAIRN GOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2005 AND 2004
(US DOLLARS - UNLESS OTHERWISE NOTED)
6. DEFERRED FINANCING COSTS
On May 12, 2005, the Company entered into a loan agreement with RMB
Australia Holdings Limited ("RMB") (see note 9). The costs incurred in arranging
the loan agreement amounted to $768,000 and included the issue of 2,994,720
share purchase warrants to RMB valued at $288,000, an arrangement fee of
$210,000 and other costs of $270,000. These costs have been deferred and will be
charged to earnings over the term of the loan, which is 26 months.
2005 2004
---------------- ---------------
(in thousands)
Financing costs $ 768 $ -
Accumulated amortization (235) -
---------------- ---------------
$ 533 $ -
================ ===============
7. RESTRICTED CASH
The Company has placed a $250,000 (2004 - $150,000) deposit with a bank to
secure a letter of guarantee issued by the bank to a Costa Rican government
authority to ensure the Company's future reclamation obligations are completed.
9
GLENCAIRN GOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2005 AND 2004
(US DOLLARS - UNLESS OTHERWISE NOTED)
8. PROPERTY, PLANT AND EQUIPMENT
2005 2004
---------------- ----------------
(in thousands)
Producing properties
Limon Mine, Nicaragua (a)
Cost $ 22,889 $ 20,486
Accumulated depreciation and depletion (14,939) (14,318)
---------------- ----------------
7,950 6,168
---------------- ----------------
Bellavista Mine, Costa Rica (b)
Cost 43,846 28,140
Accumulated depreciation and depletion (615) -
---------------- ----------------
43,231 28,140
Deferred stripping 410 -
---------------- ----------------
43,641 28,140
---------------- ----------------
Development property held for sale
Vogel Project, Canada (c) - 1,498
---------------- ----------------
Corporate property
Cost 170 149
Accumulated depreciation (92) (48)
---------------- ----------------
78 101
---------------- ----------------
Depleted property
Keystone Mine, Canada (d)
Cost - 11,823
Accumulated depreciation and depletion - (11,823)
---------------- ----------------
- -
---------------- ----------------
$ 51,669 $ 35,907
================ ================
(a) Limon Mine, Nicaragua
The Limon Mine is located approximately 100 kilometres north of Managua,
the capital of Nicaragua and includes a 1,000 tonne per day mill, an underground
mine and a mineral concession that encompasses 120 square kilometers (12,000
hectares). Gold production from this mine is subject to a 3% net smelter return
("NSR") royalty.
(b) Bellavista Mine, Costa Rica
The Bellavista Mine is located approximately 70 kilometres west northwest
of San Jose, the capital of Costa Rica and includes two exploitation concessions
and one exploration concession under application, covering a contiguous area
totaling 40 square kilometers (4,000 hectares). The Bellavista Mine achieved
commercial production in December 2005. The Company is responsible for a final
purchase payment of Cdn$1,000,000 to a former owner of the property upon the
commencement of a specified level of production, which had not been attained by
December 31, 2005. Accordingly, the amount has not been accrued.
10
GLENCAIRN GOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2005 AND 2004
(US DOLLARS - UNLESS OTHERWISE NOTED)
The mine is subject to three royalty interests. The Carib royalty consists
of an annual advance payment of $200,000 and a dividend payable upon
commencement of production determined by a complex mechanism involving varying
percentages of the mine's net cash flow which is calculated after taking into
account all other royalties and any Costa Rican taxes due. The production
royalty escalates based on the extent to which mine expenditures have been paid
back to the Company. The project expenditures include all pre-production and
capital costs incurred from 1984 together with compounded interest (calculated
at the U.S. prime rate plus 2%) on such expenditures until production commences
(in total this number is known as the "expenditure base"). The Carib production
royalty is at 7.22% until the expenditure base is repaid, 13.25% until twice the
expenditure base is repaid and 25.78% thereafter. The Montezuma royalty is
calculated in a similar fashion to the Carib royalty, but is based on net cash
flow before income tax, and varies from 3% to 10%. The Dobles royalty is a 3%
percent net smelter return royalty, payable on production from Exploitation
Concession 21A Expansion (the Lagunilla area), up to a cap of $2.5 million. In
2003, Dobles commenced an arbitration hearing under the agreement. The
Arbitration panel determined that the royalty agreement, which contained an
option to buy out the royalty, should be interpreted as a purchase agreement and
ordered the Company to pay $850,000, which was the exercise price of the option,
plus costs of $94,000. The Company appealed the arbitration award to the Supreme
Court of Costa Rica for a review. In January 2006, the Company was advised that
the Supreme Court had declined to overturn the arbitration award. The decision
of the Supreme Court has not been issued, so the full details are not yet
available. Dobles will need to enforce this award by court action. The Company
is examining whether any further measures are available to challenge the award.
As there are no mineral reserves in the Lagunilla area, the Company has charged
$944,000 to earnings (see note 3).
(c) Vogel Project, Canada
On March 31, 2005, the Company sold the Vogel Project to Lake Shore Gold
Corp. ("Lake Shore"), a public company, for $2,480,000 and 100,000 Lake Shore
common shares valued at $65,000 which were subsequently sold. The gain realized
on the sale of the property was $1,046,000. Lake Shore will make a further cash
payment to the Company of Cdn$500,000 if 600,000 ounces of gold are mined from
the property or confirmed in a reserve or resource.
(d) Keystone Mine, Canada
The Keystone Mine is located approximately 1,000 kilometres northwest of
Winnipeg, Manitoba and includes a mill site in Lynn Lake, Manitoba and the
Farley Lake open pit. Mining operations ceased in November 1999 and milling of
stockpiled ore ceased in April 2000. Reclamation of the mill and mine sites is
in process.
On January 28, 2005, the Company sold the mill at the Keystone Mine to
Claude Resources Inc. ("Claude") for $82,000 and realized a gain of $82,000 on
the sale. Under the terms of the sale, Claude removed all equipment from the
mill site and demolished and removed the mill buildings. During the third
quarter, Claude completed the removal of all equipment and the demolition and
removal of the mill buildings. As a result, the Company recognized an additional
gain and a reduction of the asset retirement obligation of $877,000, which
represented the fair value of the removal and demolition work completed by
Claude.
On June 1, 2005, the Company sold certain mining leases and claims at the
Keystone Mine to Seymour Exploration Corp., a public company, for $198,000. The
gain realized on the sale of mineral properties was $198,000.
On December 31, 2005, the Company sold certain mining leases and claims at
the Keystone Mine to AMPX Corporation ("AMPX"), a private company, for 8,000,000
common shares of AMPX and a 2% net smelter return royalty. There was no gain
realized on the sale and no value assigned to the shares received.
Substantially all of the assets of the Keystone Mine have been sold or
disposed of at December 31, 2005.
11
GLENCAIRN GOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2005 AND 2004
(US DOLLARS - UNLESS OTHERWISE NOTED)
9. LONG-TERM DEBT
2005 2004
---------------- ----------------
(in thousands)
Total debt $ 6,000 $ -
Current portion (3,500) -
---------------- ----------------
Long-term debt $ 2,500 $ -
================ ================
On May 12, 2005, the Company entered into a loan agreement with RMB that
enabled the Company to borrow up to $6,000,000. The loan is secured by a first
charge on the Company's assets. Interest on the loan is at the Libor rate plus
8%. The loan is governed by several restrictive covenants that are usual to this
type of loan. The Company incurred costs of $768,000 in connection with
arranging the loan agreement (see note 6).
As at December 31, 2005, the Company had borrowed $6,000,000 under this
loan agreement. Repayments are scheduled as follows:
Date Amount
---- ------
March 31, 2006 $ 500,000
June 30, 2006 1,000,000
September 30, 2006 1,000,000
December 31, 2006 1,000,000
March 31, 2007 1,000,000
June 30, 2007 1,500,000
----------------
$ 6,000,000
================
10. ASSET RETIREMENT OBLIGATIONS
Year ended December 31, 2005
----------------------------------------------------------------
Limon Mine Bellavista Keystone Total
Mine Mine
Balance, beginning of period $ 1,697 $ 300 $ 1,650 $ 3,647
Liabilities incurred - 259 - 259
Liabilities settled - cash - - (451) (451)
Liabilities settled - non-cash - - (877) (877)
Accretion expense 118 20 104 242
Impact of revisions in estimated cash flows
Adjustment to earnings (900) (23) (15) (938)
------------ ------------ ------------ ------------
Balance, end of period 915 556 411 1,882
Less: current portion - - 210 210
------------ ------------ ------------ ------------
$ 915 $ 556 $ 201 $ 1,672
============ ============ ============ ============
12
GLENCAIRN GOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2005 AND 2004
(US DOLLARS - UNLESS OTHERWISE NOTED)
Year ended December 31, 2004
----------------------------------------------------------------
Limon Mine Bellavista Keystone Total
Project Mine
Balance, beginning of period $ 1,891 $ 15 $ 2,197 $ 4,103
Liabilities incurred - 284 - 284
Liabilities settled - - (770) (770)
Accretion expense 132 1 142 275
Impact of revisions in estimated cash
flows
Adjustments to carrying value of assets (153) - - (153)
Adjustment to earnings (173) - 81 (92)
------------ ------------ ------------ ------------
Balance, end of period 1,697 300 1,650 3,647
Less: current portion - - 1,387 1,387
------------ ------------ ------------ ------------
$ 1,697 $ 300 $ 263 $ 2,260
============ ============ ============ ============
The Company's asset retirement obligation relate to three sites:
(a) Limon Mine, Nicaragua
This site is operating. Future undiscounted cash obligations of
approximately $1,403,000, most of which will be incurred after the mine closes,
result mainly from the legal requirements to remove the surface facilities, seal
the access to the underground workings and revegetate the tailings impoundment
area. In 2005, the estimated future discounted cash flows decreased by $900,000
due to the removal of the soil cover requirement for the tailings impoundment
area. This amount was applied to earnings. In 2004, the estimated future
discounted cash flows decreased by $326,000 due to the increase in the mine life
by three years. Of the amount for 2004, $153,000 was applied to the carrying
value of asset retirement costs and $173,000 was applied to earnings. The
estimated cash flows were discounted using a credit adjusted risk free rate of
7%.
(b) Bellavista Mine, Costa Rica
This site is operating. Future undiscounted cash obligations of
approximately $978,000, which will be incurred after the mine closes, result
mainly from the legal requirements to remove the surface facilities and contour
the heap leach pad. In 2005, the estimated future discounted cash flows
decreased by $23,000 due to the reduction of certain costs. This amount was
applied to earnings. The estimated cash flows were discounted using a credit
adjusted risk free rate of 7%.
(c) Keystone Mine, Canada
This site is undergoing reclamation. Future undiscounted cash obligations
of approximately $465,000 consist of demolition and removal of buildings,
dredging of the tailings pond, revegetation of the open pits and water
treatment. In 2005, the estimated future discounted cash flows decreased by
$15,000 due to changes in the timing of future undiscounted cash obligations.
This amount was charged to earnings. In 2004, the estimated future discounted
cash flows increased by $81,000 due to changes in the timing of future
undiscounted cash obligations. This amount was charged to earnings. The
estimated cash flows were discounted using credit adjusted risk free rates
ranging from 6.25% to 6.50%. (see note 9)
13
GLENCAIRN GOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2005 AND 2004
(US DOLLARS - UNLESS OTHERWISE NOTED)
11. CAPITAL STOCK
i) Warrants
A summary of the transactions in the warrant account in 2005 and 2004 is as
follows:
Number of
Warrants Amount
--------------- -------------
(in thousands)
At December 31, 2003 19,468 $ 4,009
Prospectus financing (a) 17,250 2,066
Prospectus financing (b) 6,850 1,235
Exercise of warrants (1,599) (276)
Extension of warrant term (c) - 103
Expiry of warrants (210) -
Exercise of agent's options 467 89
--------------- -------------
At December 31, 2004 42,226 7,226
Prospectus financing (d) 7,900 135
Issue of warrants (e) 2,995 288
Exercise of warrant (221) (27)
Expiry of warrants (11,454) (1,709)
Exercise of agent's options 311 59
--------------- -------------
At December 31, 2005 41,757 $ 5,972
=============== =============
(a) The fair value of the warrants issued on March 3, 2004 was estimated using
the Black-Scholes pricing model with the following weighted-average
assumptions:
Expected life in years: 3.7
Risk free interest rate: 2.8%
Expected volatility: 35%
Dividend yield: 0%
(b) The fair value of the warrants issued on December 9, 2004 was estimated
using the Black-Scholes pricing model with the following weighted-average
assumptions:
Expected life in years: 3
Risk free interest rate: 2.8%
Expected volatility: 35%
Dividend yield: 0%
14
GLENCAIRN GOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2005 AND 2004
(US DOLLARS - UNLESS OTHERWISE NOTED)
(c) On August 10, 2004, the Company extended the expiry date of 1,982,500
warrants exercisable into common shares at Cdn$0.60 that were issued on
September 5, 2002 to March 5, 2005 from the original date of September 5,
2004. The Company recognized warrant expense of $103,000. The fair value of
the warrants was estimated on the extension date using the Black-Scholes
pricing model with the following weighted-average assumptions:
Expected life in months: 7
Risk free interest rate: 3.75%
Expected volatility: 65%
Dividend yield: 0%
(d) The fair value of the warrants issued on December 22, 2005 was estimated
using the Black-Scholes pricing model with the following weighted-average
assumptions:
Expected life in years: 1.0
Risk free interest rate: 3.33%
Expected volatility: 40%
Dividend yield: 0%
(e) On May 12, 2005, the Company issued 2,994,720 common share purchase
warrants to RMB in connection with a loan agreement (see notes 6 and 9).
Each common share purchase warrant entitles the holder to purchase one
common share at a price of Cdn$1.25 until November 26, 2008. The market
value of each warrant at the time of issue was Cdn$0.11.
The following table summarizes further information about the warrants
outstanding at December 31, 2005:
Number
Exercise Outstanding at
Price December 31, 2005 Expiry Date
-------------------- -------------------------- ----------------------
(Cdn$) (in thousands)
$0.55 7,900 December 22, 2006
$1.25 33,857 November 26, 2008
15
GLENCAIRN GOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2005 AND 2004
(US DOLLARS - UNLESS OTHERWISE NOTED)
ii) Agent's Options
A summary of the transactions in the agent's options account in 2004 and
2005 is as follows:
Number of
Agent's
Options Amount
--------------- -------------
(in thousands)
At December 31, 2003 3,389 $ 1,116
Exercise of agent's options for
common shares and warrants (388)
(934)
Expiry of agent's options -
(480)
--------------- -------------
At December 31, 2004 1,975 728
Prospectus financings (a) 1,580 163
Exercise of agent's options for
common shares and warrants (622) (259)
Expiry of agent's options (1,353) (469)
--------------- -------------
At December 31, 2005 1,580 $ 163
=============== =============
a) In 2005, as part of a prospectus financing, the Agents were granted an
option to acquire 1,580,000 units exercisable at Cdn$0.38 per unit expiring
December 22, 2007. Each unit consists of one common share and one-half of a
share purchase warrant with each full warrant entitling the holder to
acquire a further common share priced at Cdn$0.55 expiring December 22,
2006.
The fair value of the option to acquire common shares was estimated on the
closing date using the Black-Scholes pricing model with the following
weighted-average assumptions:
Expected life in years: 1.2
Risk free interest rate: 3.05%
Expected volatility: 60%
Dividend yield: 0%
iii) Contributed surplus
A summary of the transactions in the contributed surplus account in 2004
and 2005 is as follows:
Amount
---------------
(in thousands)
At December 31, 2003 $ 1,479
Grant of employee stock options 1,261
Exercise of employee stock options (21)
---------------
At December 31, 2004 2,719
Grant of employee stock options 409
Expiry of warrants 1,709
Expiry of agent's options 469
---------------
At December 31, 2005 $ 5,306
===============
16
GLENCAIRN GOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2005 AND 2004
(US DOLLARS - UNLESS OTHERWISE NOTED)
iv) Common shares
Authorized capital stock of Glencairn is an unlimited number of common shares.
A summary of the transactions in the common share account in 2004 and 2005 is
presented below:
Number of
Common Shares Amount
--------------- -------------
(in thousands)
At December 31, 2003 103,522 $ 26,245
Prospectus financings (a) 48,200 26,844
Share options exercised (b) (d) 143 84
Warrants exercised 1,599 1,099
Agent's options exercised 934 618
Less: share issue costs - (2,648)
------------ -------------
At December 31, 2004 154,398 52,242
Prospectus financings (c) 15,800 5,010
Share options exercised (b) (d) 166 34
Warrants exercised 221 134
Agent's options exercised 622 432
Less: share issue costs - (720)
------------ -------------
At December 31, 2005 171,207 $ 57,132
============ =============
(a) On March 3, 2004, the Company closed a prospectus financing of 30,000,000
units at a price of Cdn$0.85 per unit for aggregate gross proceeds of
Cdn$25.5 million ($19,072,000). Each unit consisted of one common share and
one-half of one common share purchase warrant. Each whole common share
purchase warrant entitles the holder to purchase one common share at a
price of Cdn$1.25 until November 26, 2008. The Company allocated Cdn$0.77
to each common share and Cdn$0.08 to each one half of one warrant. The
prospectus financing had an over-allotment option. On March 18, the Company
closed the over-allotment option of 4,500,000 units at a price of Cdn$0.85
per unit for aggregate gross proceeds of Cdn$3.8 million ($2,878,000).
On December 9, 2004, the Company closed a prospectus financing of
13,700,000 units at a price of Cdn$0.73 per unit for gross proceeds of
Cdn$10.0 million ($8,195,000). Each unit consisted of one common share and
one-half of one common share purchase warrant. Each whole common share
purchase warrant entitles the holder to purchase one common share at a
price of Cdn$1.25 until November 26, 2008. The Company allocated Cdn$0.62
to each common share and Cdn$0.11 to each one half of one warrant.
(b) Glencairn has a stock option plan whereby Glencairn's directors may from
time to time grant options to directors, officers, and employees. The
maximum term of any option may be ten years, but generally options are
granted for five years or less. The exercise price of an option is not less
than the average of the high and low price on the Toronto Stock Exchange on
the grant date. Generally, options are vested immediately. Compensation
expense was recognized for the options issued in 2004 and 2005. At December
31, 2005 there were 4,374,000 options available for grant under the plan.
17
GLENCAIRN GOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2005 AND 2004
(US DOLLARS - UNLESS OTHERWISE NOTED)
(c) On December 22, 2005, the Company closed a prospectus financing of
15,800,000 units at a price of Cdn$0.38 per unit for aggregate gross
proceeds of Cdn$6.0 million ($5,145,000). Each unit consisted of one common
share and one-half of one common share purchase warrant. Each whole common
share purchase warrant entitles the holder to purchase one common share at
a price of Cdn$0.55 until December 22, 2006. The Company allocated Cdn$0.37
to each common share and Cdn$0.01 to each one half of one warrant.
(d) A summary of the stock option transactions in 2004 and 2005 is presented
below:
Weighted-
Number of Average
Options Exercise Price
----------------- -----------------
(in thousands) (Cdn$)
At December 31, 2003 7,963 $ 0.80
Cancelled/Expired (670) 0.93
Exercised (143) 0.55
Granted 5,335 0.65
----------------- -----------------
At December 31, 2004 12,485 0.73
Cancelled/Expired (1,318) 0.87
Exercised (166) 0.25
Granted 1,745 0.45
----------------- -----------------
At December 31, 2005 12,746 $ 0.68
================= =================
The following tables summarize information about the stock options outstanding
at December 31, 2005:
Options outstanding and exercisable
Weighted-
Average Weighted-
Number Remaining Average
Exercise Outstanding at Contractual Exercise
Prices December 31, 2005 Life Price
--------------------- ----------------------- --------------- ---------------
(Cdn$) (in thousands) (in years) (Cdn$)
$0.23 to $0.50 3,823 2.7 $ 0.41
$0.55 to $0.95 8,835 3.0 0.79
$1.17 to $1.77 88 1.4 1.53
--------------------- ----------------------- --------------- ---------------
$0.23 to $1.77 12,746 2.9 $ 0.68
===================== ======================= =============== ===============
18
GLENCAIRN GOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2005 AND 2004
(US DOLLARS - UNLESS OTHERWISE NOTED)
12. STOCK - BASED COMPENSATION
The Company's stock option plan is described in Note 11. The Company uses
the fair value method of accounting and recognized stock option expense of
$409,000 (2004 - $1,261,000) for its stock-based compensation plan.
In 2005, the fair value of each option grant was estimated on the date of
grant using the Black-Scholes pricing model with the following weighted-average
assumptions:
Expected life in years: 3
Risk free interest rate: 3.26%
Expected volatility: 60%
Dividend yield: 0%
In 2004, the fair value of each option grant was estimated on the date of
grant using the Black-Scholes pricing model with the following weighted-average
assumptions:
Expected life in years: 3
Risk free interest rate: 3.75%
Expected volatility: 65%
Dividend yield: 0%
13. EARNINGS PER SHARE
Earnings per share ("EPS") is calculated using the weighted average number
of common shares outstanding during the period. The diluted EPS is calculated
using the treasury stock method. The calculation of diluted EPS assumes that
share options and warrants are exercised at the beginning of the period, or at
the time of issue, if later. Share options and warrants with an exercise price
greater than the average market price of the common shares were not included in
the calculation of diluted EPS, as the effect would be anti-dilutive
19
GLENCAIRN GOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2005 AND 2004
(US DOLLARS - UNLESS OTHERWISE NOTED)
14. INCOME TAXES
(a) The reconciliation of the combined Canadian federal and provincial
statutory income tax rate to the effective rate on income is as follows:
2005 2004
---------------- ----------------
Combined statutory rate 36.1% 36.1%
---------------- ----------------
(in thousands)
Expected income tax recovery at statutory rate $ (1,472) $ (3,102)
Difference in foreign tax rates 582 218
Non-recognition of benefit of losses 742 1,994
Non-deductible expenses
Stock option expense 148 455
Flow-through exploration expense - 435
---------------- ----------------
$ - $ -
================ ================
Effective tax recovery rate 0.0% 0.0%
================ ================
(b) The Company has operating losses of prior years available to offset future
taxable income in Canada and Nicaragua. Substantially all of these losses
are restricted in their utilization to income from mining operations and
expire as follows:
Canada Costa Rica Nicaragua
-------------- -------------- -------------
(in thousands)
Expiry
2006 $ 3,719 $ - $ 9,770
2007 3,894 - 5,024
2008 3,057 - 5,540
2009 2,400 - -
2010 2,722 624 -
2014 8,040 - -
2015 3,938 - -
-------------- -------------- -------------
$ 27,770 $ 624 $ 20,334
============== ============== =============
The potential benefit of these losses has not been recognized in the
consolidated financial statements.
(c) For Canadian income tax purposes, the Company has temporary differences of
$16,750,000, which do not expire and relate to mineral properties and fixed
assets; the benefit of these differences has not been recognized in the
consolidated financial statements as the criteria for realization has not
been met.
The Company's current tax structure involves significant amounts of
inter-company debt that generates interest expense and serves to reduce earnings
and therefore taxes in foreign jurisdictions. While management does not believe
that there is a significant risk to the Company's tax structure, there can be no
assurance that taxation authorities will not seek to challenge the structure in
the future.
20
GLENCAIRN GOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2005 AND 2004
(US DOLLARS - UNLESS OTHERWISE NOTED)
15. SUPPLEMENTAL CASH FLOW INFORMATION
Change in non-cash working capital
2005 2004
-------------- --------------
(in thousands)
Accounts receivable and prepaids $ 2,327 $ (2,416)
Product inventory (2,703) 751
Supplies inventory 574 (730)
Accounts payable and accrued liabilities 2,506 1,234
-------------- --------------
$ 2,704 $ (1,161)
============== ==============
Non-cash financing activities
2005 2004
-------------- --------------
(in thousands)
Deferred financing costs settled by issue of
warrants $ 288 $ -
============== ==============
Asset retirement obligations incurred $ 259 $ 284
============== ==============
Non-cash investing activities
2005 2004
-------------- --------------
(in thousands)
Marketable securities received as proceeds
from the sale of property, plant and
equipment $ 300 $ -
============== ==============
Asset retirement costs incurred $ 259 $ 284
============== ==============
Operating activities included the following cash payments:
2005 2004
-------------- --------------
(in thousands)
Interest paid $ 413 $ 6
============== ==============
16. FINANCIAL INSTRUMENTS AND FINANCIAL RISK
The carrying value of the Company's short term financial instruments,
comprised of cash and cash equivalents, accounts receivable, note receivable,
accounts payable and accrued liabilities, approximate their fair values due to
their short term nature.
The Company's potential significant financial risks are as follows:
Gold Price Risk - The profitability of the Company is directly related to
the market price of gold. The Company previously employed forward contracts
and options to manage exposure to fluctuations in the gold price. No gold
hedge contracts were outstanding at December 31, 2005.
21
GLENCAIRN GOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2005 AND 2004
(US DOLLARS - UNLESS OTHERWISE NOTED)
Foreign Currency Risk - The functional currency of the Company is the US
dollar but it also operates using the Canadian dollar, Nicaraguan Cordoba
and the Costa Rican Colon, and as such may be affected by fluctuations in
foreign exchange rates. Sales are denominated in US dollars, while a
significant percentage of the Company's expenses and financing are
denominated in non-US dollars. The Company monitors these currencies but
has not entered into derivative instruments to hedge against this risk.
Credit Risk - The Company is subject to the credit risk of its two
customers. It monitors this risk and does not consider the likelihood of a
material loss to be significant.
17. RELATED PARTY TRANSACTIONS
(a) Note receivable at December 31, 2005 and 2004 is a loan of Cdn $425,000
(2005 - $123,000, 2004 - $353,000) outstanding from a director of the
Company. This loan is non-interest bearing, repayable on or before
September 6, 2006 and secured by a pledge of 333,333 common shares of the
Company, which is the only recourse available to the Company. At December
31, 2005, the carrying value of the loan was written down by $230,000 to
its net realizable value of $123,000, which was the market value of the
pledged common shares.
(b) The Company has engaged a subsidiary of Breakwater Resources Ltd.
("Breakwater") to provide purchasing and logistics services for the Limon
and Bellavista Mines. A director of the Company is also a director of
Breakwater. Cost of sales for the year ended December 31, 2005 includes
fees of $108,000 (2004 - $110,000) arising from this agreement. Included in
accounts payable at December 31, 2005 is $17,000 (2004 - $8,000) related to
these costs. During 2005, the Company purchased materials and supplies from
Breakwater for $364,000 (2004 - $367,000). Included in accounts payable at
December 31, 2005 is $105,000 (2004 - $nil) related to these purchases. The
cost of these purchases has been included in cost of sales or inventory.
(c) During 2003, the Company engaged Endeavour Financial Ltd. ("Endeavour") to
provide assistance in arranging financing for its Bellavista Mine in Costa
Rica and to finance future acquisitions. A director of the Company is a
director of an Endeavour affiliate. A commission of $228,000 in connection
with the prospectus financing that closed on March 3, 2004 was paid to
Endeavour and was included in share issue costs. General and administrative
expense for the year ended December 31, 2004 includes consulting fees of
$45,000 paid to Endeavour. This contract was terminated in 2004.
(d) General and administrative expense at December 31, 2005 includes a recovery
of $227,000 (2004- $50,000) from Blue Pearl Mining Ltd. ("Blue Pearl") for
administrative services provided to Blue Pearl. Three of the directors of
Blue Pearl are also directors of the Company. Accounts receivable at
December 31, 2005 includes $22,000 (2004 - $70,000) related to these
amounts.
22
GLENCAIRN GOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2005 AND 2004
(US DOLLARS - UNLESS OTHERWISE NOTED)
18. CONTINGENCIES AND COMMITMENTS
(a) The Company's mining and exploration activities are subject to various
government laws and regulations relating to the protection of the
environment. These environmental regulations are continually changing and
generally becoming more restrictive. The Company believes that its
operations comply in all material respects with all applicable past and
present laws and regulations. The Company records provisions for
post-closure reclamation obligations based on management's estimate of such
costs at that time. Such estimates are, however, subject to changes in laws
and regulations.
(b) The Company is involved in various legal actions in the normal course of
business. In the opinion of management, the aggregate amount of any
potential liability is not expected to have a material adverse effect on
the Company's financial position or its results.
(c) (i) In November 2004, a complaint was filed by the State of Maine against
Black Hawk Mining Inc. ("Black Hawk"), a wholly owned subsidiary of the
Company; Kerramerican, Inc. ("Kerramerican"), a subsidiary of Noranda Inc.
("Noranda"); and Denison Energy Inc. ("Denison Energy") in respect of the
remediation of a former base metal mining operation near Blue Hill, Maine
in which Black Hawk held a 40% interest. The mine closed in 1977 and was
rehabilitated in accordance with the approved mine closure plan by
Kerramerican, who was the operator and holder of remaining 60% interest in
the operation. The complaint alleges that the mine site is a hazardous
waste treatment, storage or disposal facility and that each of the named
parties has or is contributing to past or present handling, storage,
treatment or disposal of hazardous wastes. The State of Maine had indicated
that its objective is the additional remediation of the site.
In February 2005, Kerramerican joined the Company and Denison Mines Inc. in
its pleadings. It is not possible to predict the likelihood of recovery
from the Company; however, under applicable federal and state law, any
potentially responsible party is jointly and severally liable for 100% of
all required remediation It is then up to the potentially responsible
parties to negotiate or obtain an adjudication of their respective
allocable shares of such responsibility. Glencairn believes that it is not
a proper party to the action and that Black Hawk is not responsible for the
additional remediation because Black Hawk was fully indemnified in the
joint venture agreement by Kerramerican. Proceedings have been commenced in
Ontario by Black Hawk to enforce the indemnity. The outcome of this
litigation cannot be determined at this time.
(ii) In November 2004, Black Hawk commenced proceedings in Ontario for,
inter alia, a declaration that Kerramerican, Keradamex Inc. ("Keradamex"),
a subsidiary of Noranda, and Noranda are bound to indemnify and save
harmless Black Hawk in accordance with the terms of the joint venture
agreement. In January 2005, Kerramerican, Keradamex, and Noranda issued a
counterclaim against Black Hawk, the Company, Dension Mines Inc., and
Denison Energy claiming damages in the amount of $15,000,000, contribution
and indemnity and a declaration that the defendants by counterclaim are
liable under Maine common law and U.S. statutory law for the contamination
of the Blue Hill property. The counterclaim is being defended on the
grounds that the Company is not a proper party and that Black Hawk has no
liability given the indemnity.
23
GLENCAIRN GOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2005 AND 2004
(US DOLLARS - UNLESS OTHERWISE NOTED)
(d) A small group of employees has intermittently interrupted operations at
the Limon site with road blockades in 2005. These employees agreed to
resolve disputes within the collective agreement mechanisms but have not
lived up to this agreement. Other groups from the local community have also
blockaded roads. Operations continue to be interrupted intermittently in
2006 and were suspended for three weeks in early 2006. Continuation of the
Limon Mine operation is dependent on resolving this situation on a
permanent basis and ending the production stoppages. Management is
currently seeking to resolve the issues, however, there can be no assurance
that a permanent solution to these disruptions will be found.
Contractual Obligations
The following table presents, as at December 31, 2005, the Company's known
contractual obligations, aggregated by type of contractual obligation:
Payments due in
---------------------------------------------------------------------------------------
2010
Description Total 2006 2007 2008 2009 and later
-------------------------- -------------- ------------- ------------- ------------ ------------ ------------
Long-term debt $ 6,000,000 $ 3,500,000 $ 2,500,000 $ - $ - $ -
Operating leases 577,000 364,000 137,000 76,000 -
Capital expenditures 6,237,000 6,237,000 - - - -
Purchase obligations 15,013,000 9,253,000 1,980,000 1,260,000 1,260,000 1,260,000
Site reclamation and
closure 2,846,000 223,000 79,000 81,000 82,000 2,381,000
-------------- ------------- ------------- ------------ ------------ ------------
$ 30,673,000 $ 19,577,000 $ 4,696,000 $ 1,417,000 $ 1,342,000 $ 3,641,000
============== ============= ============= ============ ============ ============
Operating leases are for premises and equipment. Capital expenditures are
for the final property payment and construction of the grinding mill at the
Bellavista Mine and mine development at the Limon Mine. Purchase
obligations are for the mining contract at the Bellavista Mine and
consumable supplies at the Bellavista and Limon Mines.
24
GLENCAIRN GOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2005 AND 2004
(US DOLLARS - UNLESS OTHERWISE NOTED)
19. SEGMENT INFORMATION
The Company is organized into three operating segments: Limon Mine
(Nicaragua), Bellavista Mine (Costa Rica) and Corporate (Canada). The Keystone
Mine, which ceased operating in April 2000, and the Vogel Project, which was
sold during the year, are included in the Corporate segment. The Company
evaluates performance based on net earnings or loss. The Company's segments are
summarized in the table below.
(i) Segment Statements of Operations (thousands of dollars)
Year ended December 31, 2005
---------------------------------------------------------------
Limon Mine Bellavista Corporate Total
Mine
------------- ------------ ------------ -------------
Sales $ 17,474 $ 1,909 $ - $ 19,383
------------- ------------ ------------ -------------
Cost of sales 14,615 1,316 - 15,931
Royalties and production taxes 1,040 38 - 1,078
Depreciation and depletion 1,217 382 42 1,641
Accretion expense 118 20 104 242
Environmental remediation (900) (23) (15) (938)
------------- ------------ ------------ -------------
16,090 1,733 131 17,954
------------- ------------ ------------ -------------
Earnings (loss) from mining operations 1,384 176 (131) 1,429
------------- ------------ ------------ -------------
Expenses and other income
General and administrative - - 3,534 3,534
Stock options and warrants - - 409 409
Exploration 1,387 - 2 1,389
Other (income) expenses 619 944 (1,389) 174
------------- ------------ ------------ -------------
2,006 944 2,556 5,506
------------- ------------ ------------ -------------
Net loss $ (622) $ (768) $ (2,687) $ (4,077)
============= ============ ============ =============
Year ended December 31, 2004
---------------------------------------------------------------
Limon Mine Bellavista Corporate Total
Mine
------------- ------------ ------------ -------------
Sales $ 19,669 $ - $ - $ 19,669
------------- ------------ ------------ -------------
Cost of sales 14,770 - - 14,770
Royalties and production taxes 1,131 - - 1,131
Depreciation and depletion 2,468 - 45 2,513
Accretion expense 132 1 142 275
Environmental remediation (173) - 81 (92)
------------- ------------ ------------ -------------
18,328 1 268 18,597
------------- ------------ ------------ -------------
Earnings (loss) from mining operations 1,341 (1) (268) 1,072
------------- ------------ ------------ -------------
Expenses and other income
General and administrative - - 3,978 3,978
Stock options and warrants - - 1,364 1,364
Exploration 3,295 - 1,303 4,598
Other income 241 - 515 (274)
------------- ------------ ------------ -------------
3,536 - 6,130 9,666
------------- ------------ ------------ -------------
Net loss $ (2,195) $ (1) $ (6,398) $ (8,594)
============= ============ ============ =============
25
GLENCAIRN GOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2005 AND 2004
(US DOLLARS - UNLESS OTHERWISE NOTED)
The Company's gold production is currently refined in Canada. Gold is sold
to customers in the United States, but due to the liquidity of the gold market
and the large number of potential customers world wide, future sales may not be
limited to these customers.
(ii) Segment Balance Sheets
(thousands of dollars)
Year ended December 31, 2005
---------------------------------------------------------------
Limon Mine Bellavista Corporate Total
Mine
------------- ------------ ------------ -------------
Capital expenditures $ 2,922 $ 16,116 $ 21 $ 19,059
============= ============ ============ =============
As at December 31, 2005
---------------------------------------------------------------
Limon Mine Bellavista Corporate Total
Mine
------------- ------------ ------------ -------------
Cash and cash equivalents $ 460 $ 163 $ 6,176 $ 6,799
Other current assets 7,106 3,579 303 10,988
Property, plant and equipment 7,950 43,641 78 51,669
Other non-current assets - 250 533 783
------------- ------------ ------------ -------------
Total assets $ 15,516 $ 47,633 $ 7,090 $ 70,239
============= ============ ============ =============
Year ended December 31, 2004
---------------------------------------------------------------
Limon Mine Bellavista Corporate Total
Mine
------------- ------------ ------------ -------------
Capital expenditures $ 2,947 $ 21,312 $ 55 $ 24,314
============= ============ ============ =============
As at December 31, 2004
---------------------------------------------------------------
Limon Mine Bellavista Corporate Total
Mine
------------- ------------ ------------ -------------
Cash and cash equivalents $ 2,072 $ 761 $ 10,895 $ 13,728
Other current assets 8,351 2,354 130 10,835
Property, plant and equipment 6,168 28,140 1,599 35,907
Other non-current assets - 150 353 503
------------- ------------ ------------ -------------
Total assets $ 16,591 $ 31,405 $ 12,977 $ 60,973
============= ============ ============ =============
26
GLENCAIRN GOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2005 AND 2004
(US DOLLARS - UNLESS OTHERWISE NOTED)
20. SUBSEQUENT EVENTS
In March 2006, the Company sold surplus land in Costa Rica which is near
the Bellavista Mine for $900,000. The gain on the sale of property is expected
to be $900,000 and will be recorded in 2006.
21. DIFFERENCES IN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES BETWEEN CANADA AND
THE UNITED STATES
The Company's consolidated financial statements are prepared in accordance
with generally accepted accounting principles in Canada (Canadian GAAP). The
differences between Canadian GAAP and accounting principles generally accepted
in the United States (US GAAP), insofar as they affect the Company's
consolidated financial statements, relate to accounting for depreciation and
depletion, intangible assets, asset retirement costs, derivative instruments,
investments, measurement of acquisition costs and reporting of comprehensive
income.
The following table reconciles the statement of operations amounts as
reported under Canadian GAAP with those amounts that would have been reported
under US GAAP:
Years ended December 31
-------------------------------------------
(in thousands) 2005 2004
Net loss - Canadian GAAP $ (4,077) $ (8,594)
Increased sales (a) 4,613 -
Increased cost of sales (a) (8,838) -
(Increased) decreased depreciation and depletion
expense(b) (794) 415
Decreased accretion expense(d) 14 28
Decreased environmental remediation(d) (3) (282)
Unrealized net gain on derivative instruments(g) - (44)
Increased (decreased) foreign exchange gain (loss)(a)(d) 433 (149)
----------------- ----------------
Net loss - US GAAP $ (8,652) $ (8,626)
================= ================
Other comprehensive income:
Realized gains on marketable securities, net of taxes(h) (16) (281)
Unrealized gains on marketable securities, net of taxes(h) 1,036 -
----------------- ----------------
Other comprehensive income - US GAAP 1,020 (281)
----------------- ----------------
Comprehensive loss - US GAAP $ (7,632) $ (8,907)
================= ================
Net loss per share - basic and diluted - US GAAP $ (0.05) $ (0.07)
================= ================
27
GLENCAIRN GOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2005 AND 2004
(US DOLLARS - UNLESS OTHERWISE NOTED)
The following table reconciles the balance sheet amounts as reported under
Canadian GAAP with those amounts that would have been reported under US
GAAP:
December 31, 2005 December 31, 2004
---------------------------------------------- ----------------------------------------------
Canadian US GAAP US Canadian US GAAP US.
(in thousands) GAAP Adjustments GAAP GAAP Adjustments GAAP
------------ --------------- ----------- ------------ -------------- -----------
Assets
Current
Cash and cash equivalents $ 6,799 $ - $ 6,799 $ 13,728 $ - $ 13,728
Marketable securities (h) 210 1,036 1,246 1 16 17
Accounts receivable and
prepaids 1,487 - 1,487 3,950 - 3,950
Note receivable 123 - 123 - - -
Product inventory (a) 3,799 871 4,670 941 - 941
Supplies inventory 5,369 - 5,369 5,943 - 5,943
------------ --------------- ----------- ------------ -------------- -----------
17,787 1,907 19,694 24,563 16 24,579
Note receivable - - - 353 - 353
Deferred financing costs 533 - 533 - - -
Restricted cash 250 - 250 150 - 150
Property, plant and
equipment (a) (b) (d) 51,669 (6,598) 45,071 35,907 (1,331) 34,576
------------ --------------- ----------- ------------ -------------- -----------
$ 70,239 $ (4,691) $ 65,548 $ 60,973 $ (1,315) $ 59,658
============ =============== =========== ============ ============== ===========
Liabilities
Current
Accounts payable and
accrued liabilities $ 7,933 $ - $ 7,933 $ 4,483 $ - $ 4,483
Current portion of long-
term debt 3,500 - 3,500
Current portion of asset
retirement obligations (d) 210 - 210 1,387 (197) 1,190
------------ --------------- ----------- ------------ -------------- -----------
11,643 - 11,643 5,870 (197) 5,673
Long-term debt 2,500 - 2,500 - -
Asset retirement
obligations (d) 1,672 (56) 1,616 2,260 (38) 2,222
------------ --------------- ----------- ------------ -------------- -----------
15,815 (56) 15,759 8,130 (235) 7,895
------------ --------------- ----------- ------------ -------------- -----------
Shareholders' Equity
Warrants 5,972 - 5,972 7,226 - 7,226
Agent's options 163 - 163 728 - 728
Contributed surplus 5,306 64 5,370 2,719 64 2,783
Common shares (i) 57,132 33,234 90,366 52,242 33,234 85,476
Comprehensive income (h) - 1,036 1,036 - 16 16
Deficit (j) (14,149) (38,969) (53,118) (10,072) (34,394) (44,466)
------------ --------------- ----------- ------------ -------------- -----------
54,424 (4,635) 49,789 52,843 (1,080) 51,763
------------ --------------- ----------- ------------ -------------- -----------
$ 70,239 $ (4,691) $ 65,548 $ 60,973 $ (1,315) $ 59,658
============ =============== =========== ============ ============== ===========
28
GLENCAIRN GOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2005 AND 2004
(US DOLLARS - UNLESS OTHERWISE NOTED)
The following table shows the Statement of Comprehensive Income for the years
ended December 31, 2005 and 2004:
Years ended December 31
---------------------------------
(in thousands) 2005 2004
Opening balance $ 16 $ 297
-------------- ---------------
Unrealized gains on marketable securities 1,036 -
Realized gains on marketable securities (16) (281)
-------------- ---------------
Ending balance $ 1,036 $ 16
============== ===============
Notes to the differences from US accounting principles
(a) Bellavista Mine Start of Operations
Canadian GAAP allows costs, net of revenue received, associated with the
period prior to commercial production of the Bellavista Mine to be included
in the cost of the property until such time that the operations achieve
commercial production. Under U.S. GAAP, commercial production occurs when
ore is stacked on the leach pad and is ready to be processed. The costs
incurred while ore is placed on the pad are included in product inventory.
For Canadian GAAP purposes, the Bellavista Mine achieved commercial
production in December 2005. However, for U.S. GAAP purposes, commercial
production began in April 2005.
The effect of the difference in the start date at the Bellavista Mine has
been to increase product inventory by $461,000 (December 31, 2004 - $nil),
decrease property, plant and equipment by $4,063,000 (December 31, 2004 -
$nil), increase sales by $4,613,000 (December 31, 2004 - $nil) and cost of
sales by $8,838,000 (December 31, 2004 - $nil).
Under Canadian GAAP, stripping costs have been deferred. Under US GAAP,
these costs are considered to be variable production costs and are included
in product inventory. This difference has resulted in a decrease of
property, plant and equipment of $410,000 and an increase in product
inventory of $410,000.
b) Depreciation and depletion
(i) Prior to 2003, the Company issued shares of common stock in connection
with the acquisition of certain mining properties that was accounted for by
the purchase method of business combinations. Under Canadian GAAP, the
measurement date for the consideration given was the date the transaction
closed. Pursuant to Accounting Principles Board Opinion No. 16 "Business
Combinations", as interpreted, the measurement date for US GAAP purposes
was the day the acquisition was announced. The difference in the
measurement date resulted in an increase in value of the common stock
issued for US GAAP purposes by $4,635,000. This difference was allocated to
property, plant and equipment with respect to the operating mine and
exploration site acquired.
(ii) The Company has, for Canadian GAAP, calculated depreciation based on
the costs incurred to develop the Limon Mine amortized into income based on
the proven and probable reserves for the mine. U.S. GAAP calculates
depreciation on the cost incurred to develop a certain area within the
overall mine.
29
GLENCAIRN GOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2005 AND 2004
(US DOLLARS - UNLESS OTHERWISE NOTED)
(iii) For Canadian GAAP, the Company has calculated depreciation for the
Bellavista Mine based on costs that were incurred during the period prior
to commercial production (see (a) above). Additionally, the Company has
depreciated the Bellavista Mine for the production period as defined under
Canadian GAAP. Under U.S. GAAP, depreciation has been calculated from April
2005.
The effect of the above adjustments has been to increase depreciation and
depletion expense by $794,000 for the year ended December 31, 2005 and
decrease depreciation by $415,000 for the year ended December 31, 2004.
c) Issuance of equity instruments for payment of liabilities
In connection with a royalty agreement entered into prior to 2002, the
Company was required to issue shares of common stock to settle these
royalty liabilities. As required by the agreement, these shares were issued
at a discount to the then current market price. SFAS No. 123 required these
transactions to be valued at the market value of the shares issued. The
difference in the valuations was recorded as an increase to share capital
and an increase to the retained deficit. There is no net income effect for
the years ended December 31, 2005 or 2004.
d) Asset retirement obligations
On January 1, 2003, the Company adopted Statement of Financial Accounting
Standard No. 143 "Accounting for Asset Retirement Obligations" (SFAS No.
143). In accordance with US GAAP, the cumulative effect for a change in
accounting policy is reflected in the statement of operations in the year
of adoption. The difference in adoption date for Canadian and US GAAP
purposes has resulted in a valuation difference in the asset retirement
obligation resulting from the change in exchange rates. These liabilities
mainly relate to obligations at the active and inactive mines to perform
reclamation and remediation activities to meet the legal requirements of
existing environmental laws and regulations that govern the Company's
mining properties.
Asset Retirement Obligations - US GAAP
Year ended Year ended
December 31, December 31,
(in thousands) 2005 2004
------------------ ------------------
Balance, beginning of period $ 3,412 $ 3,465
Liabilities incurred 259 284
Changes in cash flow estimates (935) 37
Liabilities settled (1,138) (621)
Accretion expense 228 247
------------------ ------------------
Balance, end of period 1,826 3,412
Less current portion 210 1,190
------------------ ------------------
$ 1,616 $ 1,616
================== ==================
e) Income taxes
For the years ended December 31, 2005 and 2004, no income tax benefits were
recorded on the US GAAP net loss reconciling items since it is not likely
that the Company will realize the benefit in future periods.
30
GLENCAIRN GOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2005 AND 2004
(US DOLLARS - UNLESS OTHERWISE NOTED)
f) Stock-based compensation
Effective January 1, 2003, the Company adopted Statement of Financial
Accounting Standards No. 123 "Accounting for Stock Based Compensation"
("SFAS No. 123"), as amended by Statement of Financial Accounting Standards
No. 148 "Accounting for Stock Based Compensation -- Transition and
Disclosure" ("SFAS No. 148"). The Company is applying the fair value
recognition provisions of SFAS No. 123, as amended by SFAS No. 148,
prospectively to all employee stock options granted after December 31,
2002. For employee stock option grants accounted for under SFAS No. 123,
compensation cost is measured at the fair value of the stock option at the
date of grant. This compensation cost is charged to earnings over the
vesting period. For stock options issued prior to January 1, 2003, the
Company will continue to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees", and related
interpretations ("APB No. 25"). For employee stock option grants accounted
for under APB No. 25, compensation cost is measured as the excess, if any,
of the quoted market price of the Company's common stock at the date of
grant over the exercise price of the options granted. This compensation
cost, if any, is charged to earnings over the vesting period. The Company's
policy is to grant options with an exercise price equal to the quoted
market price of the Company's common stock.
Stock option grant expense of $409,000 and $1,261,000 was recognized for
the years ended December 31, 2005 and 2004, respectively.
The following reconciles net loss to pro forma net loss as if the fair
value based method of accounting for employee stock options as prescribed
under the provision of SFAS No. 123 had been applied to all outstanding and
unvested employee stock options, and presents reported earnings per share
("EPS") and pro forma EPS for the year ended December 31, 2004. For the
year ended December 31, 2005, pro forma stock option expense was equal to
reported stock option expense.
(in thousands) 2004
-------------------
Net loss, as presented $ (8,626)
Add: stock option grant expense, as
reported 1,261
Less: stock option expense, pro forma (1,265)
-------------------
Net loss, pro forma (8,630)
===================
Loss per share, as presented
basic and diluted $ (0.07)
===================
Loss per share, pro forma
basic and diluted $ (0.07)
===================
31
GLENCAIRN GOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2005 AND 2004
(US DOLLARS - UNLESS OTHERWISE NOTED)
g) Derivative instruments
Under US GAAP, all derivatives, whether designated in hedging relationships
or not, are required to be recorded in the balance sheet at fair value. A
derivative must be designated in a hedging relationship in order to qualify
for hedge accounting. These standards include a determination of what
portions of hedges are deemed to be effective versus ineffective. In
general, a hedging relationship is effective when a change in the fair
value of the derivative is offset by an equal and opposite change in the
fair value of the underlying hedged item. In accordance with these
standards, effectiveness tests are performed in order to assess
effectiveness and quantify ineffectiveness for all designated hedges.
In August 2004 and 2005, as required by Nicaraguan law, the Company entered
into a one year supply contract to purchase electricity. The contract
established the price for electricity. However, the Company was only
obligated to pay for the electricity consumed. The Company does not
consider this contract to be a derivative instrument. The Company has also
entered into various contracts with vendors to supply materials used in the
production of gold. Under the terms of these contracts the Company is only
obligated to pay for materials delivered. The Company only contracts for
delivery of material that it expects to used in normal operations. The
Company does not consider these contracts to be derivatives.
From August 2001 to August 2003, as required by Nicaraguan law, the Company
entered into a series of one year contracts to purchase electricity. These
contracts fixed the amount of electricity to be purchased by the Company,
which was based on the estimated annual power consumption required by the
Company's mining operations. The contracts also fixed the price of
electricity, which was indexed to the price of oil. Under these contracts,
the Company was required to pay for the contracted quantity even if it was
not consumed. The Company considered these contracts to be derivative
instruments. The fair value of these contracts at December 31, 2004 was
nil. The fair value of these contracts at December 31, 2003 was estimated
to be $44,000 and was included in accounts receivable and prepaid expenses.
h) Marketable securities
Under Canadian GAAP, marketable securities are carried at cost. Pursuant to
Statement of Financial Accounting Standard No. 115 "Accounting for Certain
Investments in Debt and Equity Securities" (SFAS No.115) marketable
securities "available for sale" are to be carried at market value and the
unrealized gains or losses are included in the determination of other
comprehensive income. All of the Company's marketable securities held at
December 31, 2005 were classified as "available for sale".
i) Common shares
December 31, December 31,
(in thousands) 2005 2004
----------------- -----------------
Canadian GAAP $ 57,132 $ 52,242
----------------- -----------------
Acquisition of certain mining properties (b) 4,635 4,635
Issuance of equity instruments for payment of
liabilities (c) 208 208
Reversal of reduction in the paid-up share capital on
the common shares of Black Hawk 28,391 28,391
----------------- -----------------
33,234 33,234
----------------- -----------------
US GAAP $ 90,366 $ 85,476
================= =================
32
GLENCAIRN GOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2005 AND 2004
(US DOLLARS - UNLESS OTHERWISE NOTED)
j) Deficit
December 31, December 31,
(in thousands) 2005 2004
----------------- -----------------
Canadian GAAP $ (14,149) $ (10,072)
----------------- -----------------
Increased revenue (a) 4,613 -
Increased cost of sales (a) (8,838) -
Increased depreciation and depletion expense (b) (4,431) (3,637)
Increased foreign exchange gain (a) 623
Issuance of equity instruments for payment of
liabilities (c) (272) (272)
Asset retirement obligations (d) 56 235
Property, plant and equipment written down (2,329) (2,329)
Reversal of reduction in the paid-up share capital on
the common shares of Black Hawk (Note 12) (28,391) (28,391)
----------------- -----------------
(38,969) (34,394)
----------------- -----------------
US GAAP $ (53,118) $ (44,466)
================= =================
k) Recently released accounting standards
In 2004, the FASB issued Statement of Financial Accounting Standard No. 151
"Inventory Costs, an Amendment of ARB No. 43, Chapter 4" ("SFAS No. 151").
SFAS No. 151 established standards for how an issuer measures fixed
production costs and certain non-direct inventory costs when determining
inventory costs. SFAS No. 151 is effective for financial periods beginning
after November 1, 2004. Adoption of this standard has had no material
impact on the financial statements of the Company.
In 2004, the FASB issued Statement of Financial Accounting Standard No. 153
"Exchanges of Non-Monetary Assets - an amendment of APB Opinion No. 29"
("SFAS No. 153"). As SFAS No. 153 amends APB Opinions No. 29 and
establishes general rules for the exchange of non-monetary assets that have
no commercial value. The provisions of SFAS No. 153 are effective for
non-monetary exchanges after June 15, 2005. Adoption of this standard has
had no material impact on the financial statements of the Company.
In 2004, the FASB issued EITF 04-06 "Accounting for Stripping Costs
Incurred during Production in the Mining Industry". EITF 04-06 has
established that stripping costs during the production phase of a mine are
to be considered as part of the variable production costs and should
therefore be included in the cost of the inventory to be sold. The Company
has early adopted this standard. EITF 04-06 affects the variable production
costs at the Company's Bellavista mine. The Company has included stripping
costs during the production phase of the mine as part of the production
costs.
In December 2004, FASB issued Statement of Financial Accounting Standard
No. 123-R "Share-Based Payment (revised)" ("SFAS No. 123-R"). SFAS No.
123-R amends Statement of Financial Accounting Standard No. 123 "Accounting
for Stock Based Compensation" ("SFAS No. 123") by eliminating the intrinsic
value method for accounting of equity based transactions primarily with
employee based services. SFAS No. 123-R will have no material impact on the
financial results of the Company as the Company has not used the intrinsic
value method for its equity based transactions.
33
GLENCAIRN GOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2005 AND 2004
(US DOLLARS - UNLESS OTHERWISE NOTED)
In November 2005, FASB issued FASB Staff position Nos. FAS 115-1 and FAS
124-1 "The Meaning of Other-Than-Temporary Impairment and Its Application
to Certain Investments" ("FSP No. 115"). FSP No. 115 provided guidance as
to when an impairment in a marketable security was more than temporary in
nature and what, if any, loss on an impairment marketable security should
be recognized. FSP No. 115 is effective for financial periods beginning
after December 15, 2005. The Company is currently assessing the impact, if
any, FSP No. 115 will have on the financial statements.
34