GUYANA GOLDFIELDS INC.

Transcription

1 GUYANA GOLDFIELDS INC. MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED APRIL 30, 2008 Date: June 13, 2008 GENERAL The following discussion of performance, financial condition and future prospects should be read in conjunction with the unaudited Consolidated Financial Statements of Guyana Goldfields Inc. ( Guyana or the Company ) for the six and three months ended April 30, 2008 and the fiscal years ended October 31, 2007 and 2006 (the 2007 Financial Statements ), which have been prepared in accordance with Canadian generally accepted accounting principles. This discussion covers the most recently completed fiscal year of Guyana and the subsequent period up to the date of the filing of this management s discussion and analysis ( MD&A ). All dollar amounts are stated in Canadian dollars, unless otherwise noted. Readers are encouraged to read the Company s public information filings on Sedar at FORWARD LOOKING STATEMENTS Certain statements contained in the section Description of the Business of this Management s Discussion and Analysis constitutes forward-looking statements. These statements relate to future events or the Corporation s future performance, business prospects or opportunities. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as seek, anticipate, plan, continue, estimate, expect, may, will, project, predict, potential, targeting, intend, could, might, should, believe and similar expressions. Information concerning the interpretation of drill results, mineral resource and reserve estimates and capital cost estimates may also be deemed as forward-looking statements as such information constitutes a prediction of what mineralization might be found to be present and how much capital will be required if and when a project is actually developed. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. The Corporation believes that the expectations reflected in those forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this Management s Discussion and Analysis should not be unduly relied upon. These statements speak only as of the date of this Management s Discussion and Analysis. Actual results and developments are likely to differ, and may differ materially, from those expressed or implied by the forward-looking statements contained in this Management s Discussion and Analysis. Such statements are based on a number of assumptions which may prove to be incorrect, including, but not limited to, assumptions about: general business and economic conditions; the supply and demand for, deliveries of, and the level and volatility of prices of copper; the availability of financing for the Corporation s development project on reasonable terms; the ability to procure equipment and operating supplies in sufficient quantities and on a timely basis; the ability to attract and retain skilled staff; market competition; the accuracy of our resource estimate (including, with respect to size, grade and recoverability) and the geological, operational and price assumptions on which it is based; tax benefits and tax rates. These forward-looking statements involve risks and uncertainties relating to, among other things, changes in commodity and, particularly, copper prices, access to skilled mining development and mill production personnel, results of exploration and development activities, the Corporation s limited experience with production and development stage mining operations, uninsured risks, regulatory changes, defects in title, availability of materials and equipment, timeliness of government approvals, actual performance of facilities, equipment and processes relative to specifications and expectations and unanticipated environmental impacts on operations. Actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, the risk factors incorporated by reference herein. See Risk Factors. The Corporation cautions that the foregoing list of important factors is not exhaustive.

2 Investors and others who base themselves on the Corporation's forward-looking statements should carefully consider the above factors as well as the uncertainties they represent and the risk they entail. The Corporation also cautions readers not to place undue reliance on these forward-looking statements. Moreover, these forward-looking statements may not be suitable for establishing strategic priorities and objectives, future strategies or actions, financial objectives and projections other than those mentioned above. DESCRIPTION OF BUSINESS Guyana Goldfields Inc. is a Canadian based mineral exploration Company primarily focused on the exploration and development of gold deposits in the Guiana Shield of South America. The Guiana Shield is in the northern part of the Amazon Craton and covers parts of Guyana, Venezuela, Suriname, French Guyana and northern Brazil. The Company holds advanced exploration projects in various stages of development and has been operating in Guyana continuously since The Company is in the business of exploring mineral properties to determine whether the mineral properties contain economically recoverable ore reserves. The Company s focus is maintaining its interest in the Peters Mine Property, Aurora Mine Property and the Aranka Properties in Guyana, South America, by continually conducting exploration and development work. On March 22, 2006, the Company adopted a Shareholder Rights Plan designed to encourage the fair treatment of shareholders in connection with any take-over offer for the Company. The rights plan addresses the Company s concerns that existing Canadian legislation does not always require a take-over bid or other change of control transaction to be made to all shareholders nor does it allow sufficient time, if a take-over bid is made, for either the board of directors or the shareholders to properly consider the bid, or for the board of directors to seek alternatives to such a bid. For a full description of the Shareholders Rights Plan, please refer to the News Release issued by the Company on March 22, 2006 by viewing SUMMARY OF EXPLORATION EXPENDITURES The Aurora property has been the subject of a prior Technical Report written by Cargill Consulting Geologists Limited, dated December 30, 2005 and entitled NI Report on the Aurora Project, Guyana, 2005 (the Cargill report). Certain descriptions in this report of the property itself, its exploration history and its geology have been reproduced or paraphrased from the Cargill report. The Company is currently conducting exploration and development work on the Aurora property based upon the recommended program (the "Recommended Program") as contained in the technical report entitled: NI Report on the Aurora Project Guyana 2005, prepared for Guyana Goldfields Inc. by: D. George Cargill, Ph.D. P.Eng. dated December 30, 2005 (the Technical Report ). The Technical Report is available on SEDAR at The Company completed Phase 1 of the Recommended Program, and commenced certain aspects of Phase 2 of such Recommended Program. The budget initially ascribed to the Recommended Program as set forth in the Technical Report was $11,005,500 of which $5,076,000 was allocated to Phase 1 activities and $5,929,500 was allocated to Phase 2 activities. To date, the Company has incurred approximately $22,963,733 on the Aurora property in furtherance of the Recommended Program, notwithstanding that it has only recently commenced Phase 2 of such program. Accordingly, the Company anticipates that it will ultimately incur exploration expenditures on the Aurora property which are significantly in excess of those recommended by the Technical Report. These additional costs are primarily attributable to additional drilling and expediting activities which have been conducted in response to positive field results which were not anticipated in the original Recommended Program. In this regard, the Company has completed approximately 127,046 meters of drilling on the Aurora property as of April 30, 2008, as compared to 40,000 meters of drilling recommended by the Technical Report (comprised of 15,000 meters for Phase 1 and 25,000 meters for Phase 2 of the Recommended Program). A detailed comparison of costs incurred on the Aurora property to April 30, 2008 as compared to the Recommended Program is setforth below: 2

3 Actual Cost Over (Under) Actual Costs Recommended Program Recommended Program As At $ $ $ Consulting 2,089,649 1,865, ,649 Drilling and supplies 12,365,596 4,060,000 8,305,596 Assaying 669, , ,406 Expediting 5,771,877 2,310,000 3,461,877 Management fees 629, ,460 Land acquisition 214, ,900 Field equipment and supplies 1,178,015 1,400,000 (221,985) Other 44,830-44,830 22,963,733 10,005,000 12,958,733 Contingency - 1,000,500 (1,000,500) 22,963,733 11,005,500 11,958,233 The above-noted activities include both Phase 1 recommended activities, as well as certain matters related to the commencement of Phase 2 of the Recommended Program. Although Phase 1 of the Recommended Program was initially estimated to be completed over a period of approximately 12 months commencing in January, 2006, the Company has not followed a rigid timeline for these activities, and its work on the Aurora property in this regard has instead been influenced by various factors such as permissive weather, availability of manpower and unforeseen opportunities which have arisen as a result of positive field results. The Company expects to follow a similar approach on a going-forward basis with respect to Phase 2 of the Recommended Program. During the six months ended April 30, 2008, the Company incurred an aggregate of $4,848,176 in exploration and development costs relating to the Aurora property, consisting of (i) consulting fees ($649,399); (ii) drilling costs and supplies ($2,902,546); (iii) assaying ($170,016); (iv) expediting costs ($895,010); (v) land acquisitions ($98,950) and (vi) miscellaneous expenses ($17,178). These costs were incurred in connection with various activities undertaken by the Company in furtherance of the Recommended Program, noted above. For further details on the above exploration activities of the Company conducted during the six months ended April 30, 2008, please see section below titled Mineral Properties. MINERAL PROPERTIES Aurora Mine Project Guyana Goldfields Inc. is exploring and developing the Aurora Gold Project located at the northwestern Guyana since it acquired the property in The Company presently has 27,741 ha of ground under six contiguous Exploration Licenses and 17,418 ha covered by five non-contiguous Prospecting licenses. Readers who are interested in the broader scope of the project (i.e. background information as to location, topography, climate/vegetation, land tenures; project history; exploration programs; development of deposit modeling; program recommendation; maps and sections etc.) are herein referred to the Technical Reports are available on SEDAR at The Technical Reports were commissioned by Guyana Goldfields Inc. as an independent technical audit to review, analyze and critique the work done by the Company in the Aurora Project as of December, 2005 and to document resource estimate. Figures released to the public on November 29, These reports conform with the National Instrument (NI) , Companion Policy NI CP, and Form NI FI of the Canadian Securities Administrators (CSA) as administered by the provincial securities commissions that govern how issuers disclose scientific and technical information about mineral projects to the public. For further details the interested readers are invited to visit the Company s website at: and the official Company profile at 3

4 The work program activity for this reporting period consists of diamond drilling, trenching, geochemical prospecting using auger, road building, ground reconnaissance mapping with float tracing. There were four drill rigs effectively working in the project area. Reconnaissance prospecting was carried out on five Prospecting Licences that were acquired through Government Auction. The SRK Consulting structural geology project evaluation of Aurora s Golden Square Mile area was completed. Conclusion and recommendations are currently being tested as of this writing. Environmental and Social baseline study led by Mr. Charles Ceres of Georgetown, Guyana was completed. The final report dated April, 2007 was received. Micon International Limited ( Micon ) was retained by the Company to prepare an independent estimate of the mineral resources contained within the Rory s Knoll, East Walcott and Aleck Hill zones, which are three of several known gold prospects on the Aurora property in Guyana. Guyana Goldfields owns a 100% interest in the Aurora property and has been actively exploring it since at least The results of Micon s resource estimate for the Rory s Knoll, East Walcott and Aleck Hill zones were made public by the Company in a press release issued on October 10, 2007 and are discussed fully in the report (filed via SEDAR on November 23, 2007). The Qualified Person responsible for the preparation of this report is Dibya Kanti Mukhopadhyay, M.Sc., MAusIMM, a senior geologist with Micon. Mr. Mukhopadhyay visited the Aurora property between June 19 and 24, 2007, where he inspected rock exposures and drill core, observed drilling and sampling procedures, and held discussions with responsible geological staff of the Company with respect to the nature and style of occurrence of mineralization on the Aurora property. Mr. Mukhopadhyay also prepared the resource estimate discussed therein. To follow up the Baseline Environmental Study, a call for SOCIAL and ENVIRONMENTAL IMPACT ASSESSMENT proposal was released by the company to environmental and engineering consultants. Mr. Augusto Flores IV, P.Geo is the lead Geologists for the project. Mr. Rex Camit, P.Geo is the field data base manager and responsible for monitoring the directional drilling program. Mr. Norm Bayabayan, P.Geo was assigned to head the Area 1 assisted by Messrs. Alan Conda and Mr. Kelvin Abarra. Mr. Joey Pena was assigned in overseeing the Swamp Vein area and Gold creek areas. Messrs Baybayan and Pena conducted the reconnaissance investigation of the auctioned ground- particularly Alligator Cr. and environ. The Activities Diamond Drilling In the Rory s Knoll target, drilling for this reporting period was the continuation of wedging operation using the Devico system to reach the deeper extension of the mineralized zone. The Rory s Knoll drilling program is to assure that the right numbers of piercing point density for the zone will be acceptable for an NI compliant resource evaluation. Drilling was suspended from mid August 2007 due to flooding caused by higher than usual water levels in the Cuyuni river. In early September 2007 water levels subsided, the clean up of the grounds and buildings was completed and drilling commenced on higher ground. Follow- up exploration holes for Swamp vein and SE Aurora were drilled to test grounds that were identified earlier as having potentials for significant mineralization. These holes are continually proving presence of mineralization which may warrant delineation drilling in the future. Drilling of the Mad Kiss zone and re-evaluation of drill cores were conducted to follow-up and pursuant to the SRK structural geology conclusions and recommendations. This program is currently in progress as a special project of Mr. Augusto Flores IV, P.Geo. There were four (4) diamond drill machines; three (3) bulldozers; two (2) excavators; one backhoe (1) and three (3) tractors in the project as of September 30, Subsequent to September 30, 2007 a total of thirty nine (39) diamond drill holes with an aggregate 12,497.40m core length were completed. Thirty of these holes were all done in the close-spacing fill in drilling for Rory s Knoll. Nine holes were devoted in exploring Walcott Hill. 4

5 Presented in the tables below is the distribution of drilling activity according to months and to target areas. Table 1: Drilling Distribution for the three months ended March 31, 2008 Months No. of Holes Meters January February March TOTAL 36 11, Table 2: Drilling Distribution according to Target Area Target Area No. of Hole(s) Meterage Comments Rory s Knoll Infill drilling Aleck Hill Exploration follow-up holes North Aleck Hill Exploration holes East Walcott Hill Exploration holes Mad Kiss Exploration holes South Mad Kiss Exploration holes West Mad Kiss Exploration holes Southeast Rory s Knoll Exploration/wildcat TOTAL 36 11, A total of 82 holes have been drilled during the six months ended April 30, 008 for a total length of 25,572m. Since the commencement of the drilling program to April 30, 2008, a total of 465 holes have been drilled for a total length of 127,046m. During January 2008, three drill holes totalling 1,467 metres were drilled at Rory s Knoll. Rory s Knoll Rory s Knoll drilling activity in October 2007 of the deep drilling delineation program using the Devico directional drilling system. Purpose of this is to prove vertical continuity of mineralization at depth (approx: 1300m vertical) and distributing drill piercing points for acceptable density in resource calculation. This was done primarily by wedging off from two mother holes (i.e., RKD 60 and 62). The deeper portion (> minus 900m vertical depth) of the delineation drilling program was completed during this reporting period. The mid-elevation zone delineation drill program (< minus 900m vertical depth) immediately commenced after completion of the deep drilling. Main goal is to facilitate close space drill hole piercing points distribution that will be acceptable to categorize resource estimate from Inferred to Probable category. This is pursuant to the Phase 2 drilling program recommended by Dr. George Cargill to increase the confidence level in the mineralized zone resource estimate done by Micon International. Drilling at Rory s Knoll was designed to delineate the mineralized zone at close spaced piercing point intervals of no more than 50 m. This was done to increase the confidence level in the resource estimate done by Micon International Ltd. (4.65 million ounces Indicated and Inferred please see News Release dated October 10, 2007). Diamond drilling continues to confirm and define significant gold mineralization in the Rory s Knoll resource. High grade gold mineralization was encountered in both deep and shallow drill holes within broader zones of disseminated gold mineralization. For instance, drill hole RKD 101, intersected 190 metres averaging 5.24 g/t Au, including 25 metres of g/t. Drill hole RKD 103 which targeted much deeper areas between 500 and 700 metres below surface, intersected 80 metres averaging 7.7 g/t Au. These results, as well as those from approximately 30,000 metres of additional drilling, will be incorporated into a new resource calculation scheduled for the third quarter Drilling of the Walcott Hill zone was done based on re-evaluation of drill cores and pursuant to the SRK recommendations. Drilling target is the lateral and depth continuity of Walcott Hill vein and associated peripheral parallel auriferous zones. 5

6 WHD-22 is follow-up exploration drilling of the Walcott Hill mineralized zone. The hole intersected near surface mineralization consisting of crosscutting pyritized quartz vein/stockworks/breccias associated with quartz-sericite-pyrite alteration halo. Walcott Hill area is between the Rory s Knoll, East Walcott and Aleck Hill zones. It is immediately west and adjacent to the East Walcott zone which in turn was proven to merge with the Rory s Knoll zone. Mineralization is in the form of auriferous veins developed within a distinctly highly altered porphyritic tonalite unit. (See Press release dated December 12, 2007 and January 22, 2008) Surface Exploration Prospecting in the Gold Creek and Caleb s working area covering some 12 square kilometers was completed. Grid soil sampling using 200m x 50m array was accomplished. Interpretation and analysis is awaiting complete assay results as of this writing. Six exploration trenches were completed in investigating Swamp vein. It confirmed the northwesterly trend and near vertical dip of the vein. Assay returns yielded low values The geophysics ground survey was placed on hold due to the rainy season. Other Project Activities Environmental and Social base line study carried out under the supervision of Mr. Charles Ceres, of Georgetown, Guyana, following the guidelines forwarded by the World Bank-IFC organization, was completed in this reporting period. Final report dated April, 2007 was received by the Company. SNC-Lavelin completed an initial ground investigation for hydro-power and issued their report in March The Company is continuing to review the economics of the project and has engaged MWH Argentina S.A., an engineering firm to conduct further studies. Geostatistician from Micon International visited the project for due diligence work in regards to their resource evaluation assignment. Ongoing Exploration The Company continues to execute an aggressive regional exploration program both within the Golden Mine as well as on a regional basis. A recently completed study of the regional structural geology has assisted the Company s geotechnical team in targeting areas for additional drilling. See also Summary of Exploration Expenditures above. In January 2008 the Company initiated an extensive trenching program on four of five mineralized areas which lie in between the Aleck Hill and Rory's Knoll resources. Currently, 4.65 million ounces of gold, of which 1.79 million ounces are classified as indicated and 2.68 million ounces are classified as inferred, have been reported from these zones. (See press release dated October 10, 2007) Approximately four kilometers of trenching outside of these zones has been completed to date and currently, complete assay results are available for one zone, North Aleck Hill (See Press Release dated March 6, 2008). Six trenches were cut along grid lines fifty metres apart. Trenches averaged four metres in depth and varied in length from 183 metres to 243 metres. Broad zones of gold mineralization were discovered in trenches NAHT-2 through NAHT-5 inclusive. Trench NAHT-2 returned g/t Au, NAHT-3 averaged 2.42 g/t Au over 133 metres, NAHT-4 cut 141 metres grading 1.84 g/t Au as well as 6 metres grading 7.81 and NAHT-5 returned 1.16 g/t Au over 87 metres. Mineralization consists of a series of wide sheeted veins and breccias with moderate stockworking between zones. These intercepts appear to delineate a "swarm" of mineralized zones. The strike direction of the "swarm" is north-north westerly and conforms with the regional foliation as also observed at the Rory's Knoll area. Currently this new zone has a minimum strike length of 175 metres and pinches and swells between 36.5 and over 141 metres in width. Further information on the North Aleck Hill trenching and sampling program and procedures is available at The Company intends to publish an updated resource calculation for the Golden Mile area in the third quarter of 2008, which will include at least seven mineralized zones currently under investigation and delineation. 6

7 The Aurora exploration, drilling and trenching program is being carried out under the direction of Mr. Niel Silvio, a qualified person within the meaning of National Instrument Sample blanks, duplicates and recognized standards were inserted into the sample stream at regular intervals. The Company is utilizing the services of Loring Laboratories; a Canadian owned and operated facility located in Georgetown, Guyana. Central Zone The Company is presently focusing on defining additional resources in the Central Zone. This area is approximately 500 metres wide and 1000 metres long and lies between the Rory s Knoll and Alex Hill resources. In the southern sector it includes the Mad Kiss, West Mad Kiss and Walcott Hill zones and to the north, the North Aleck Hill districts. Additional trenching and drilling in these areas has continued to reveal significant widespread gold mineralization. Drill Hole NAHD 15 at North Aleck Hill intersected 7 metres (5.36 m True 3.72 g/t Au, 16 metres (12.25 m True 1.29 g/t Au and 10 metres (7.7 m True Width) of 2.85 g/t Au. Additional trenching in the Northern Zone has also expanded gold mineralization to the south and west, with trench NAHT 15 returning 16metres (13.6 m True 7.35 g/t Au and 16metres (13.6 m True 3.28 g/t Au. In the southern sector trenching and drilling has also expanded existing gold zones and has led to the discovery of parallel mineralized structures. Hole WMKD 19 returned 6metres (5.10 True Width) of 3.65 g/t Au and 18metres (15.30 True 3.88 g/t Au while trench WMKT 8 expanded at surface gold mineralization to the south by returning 19metres (18.01 True 6.77 g/t Au, including 5 metres (4.76 True Width) grading g/t Au. Approximately 200 metres north of this area trench WHT-6 returned 10.7 metres (9.96 True Width) grading 4.67 g/t Au. The Company has experienced delays in the receipt of assays from the laboratory. Currently, results from 18 holes are pending from the lab from the Central Zone. Results from this area will be incorporated into the new resource estimate. Management believes the highly encouraging results for the Central Zone may lead to a significant increase in the resources at the Aurora Property. The Aurora exploration, drilling and trenching program is being carried out under the direction of Mr. Neil Silvio, a qualified person within the meaning of National Instrument Sample blanks, duplicates and recognized standards were inserted into the sample stream at regular intervals. Peters Mine Project Introduction Guyana Goldfields Inc. is exploring and developing in conjunction with a JV partner the Peters Mine Gold Project located at the Puruni district, Guyana. The company presently has 3,382.6 ha of ground tenured as a mining concession through direct agreement with the Government of Guyana. Under this agreement Guyana Goldfields Inc. must make specific property payments and file reports of ongoing work. Readers who are interested in the broader and latest scope of the project (i.e. background information as to location, topography, climate/vegetation, land tenures; project history; exploration programs; development of deposit modeling; program recommendation; maps and sections etc.) are herein referred to the more encompassing company report entitled: Peters Mine Project, Guyana, and Prepared for Guyana Goldfields Inc. By: D. George Cargill, Ph.D. P.Eng., N.N. Gow, B.Sc. (Hons), P.Geo Dated - October 30, Amended January 29, 2004 (the Cargill Report ). The Cargill Report was commissioned by the Company as an independent technical report on the Peters Mine property. It was prepared to be consistent with the requirements of National Instrument ( NI ) , Companion Policy NI CP, and Form NI FI of the Canadian Securities Administrators (CSA) as administered by the provincial securities commissions that govern how issuers disclose scientific and technical information about mineral projects to the public. Option Agreement WSR Gold Inc. (formerly Westchester Resources Inc.) On November 17, 2006, the Company entered into an option agreement with WSR Gold Inc. ( WSR ) effective as of October 19, 2006, whereby WSR can earn a 50% interest in the Company s Peters Mine property (the WSR Agreement ). Pursuant to the WSR Agreement, in order to earn its 50% interest in the property, WSR is required to issue 5,000,000 7

8 common shares to the Company and spend a total of $5,000,000 in exploration on the property over a three-year period; $1,000,000 to be spent on or before the first anniversary date of the WSR Agreement, $2,000,000 to be spent on or before the second anniversary date of the WSR Agreement and $2,000,000 on or before the third anniversary date of the WSR Agreement. As of the date hereof, 5,000,000 common shares in the capital of WSR have been issued to the Company pursuant to the WSR Agreement. The shares were valued at $0.18 per share for a total of $900,000 which was credited as a recovery of costs of the Peters Mine mineral exploration property and recorded as marketable securities. Geophysical Surveys The Company has recently completed a ground geophysical survey covering approximately 41 line km consisting of 43 lines spaced 200 meters apart for both IP/Resistivity and Magnetic surveys. Coverage was focused on investigating the controlling north-south Mango trend (shear zone) as earlier identified by airborne EM-Magnetics survey, ground mapping and prospecting. Preliminary field interpretation of raw data indicates presence of IP and Magnetics anomalous zones correlative to geochemical auger drilling results. However, the company is awaiting processing and final report of the geophysics survey before it prioritizes exploratory drilling targets. Exploratory diamond drilling to investigate geophysical targets intercepted sulphides (Py) mineralization and alteration zones. However, many assay results were disappointingly low. The project was placed on care and maintenance in November 2007 awaiting review and re-evaluation of data. Coronation Gulf (Coppermine River) Project The Coppermine River Property consists of approximately 75,747 acres of staked and leased claims and is located in the Coronation Gulf region of Nunavut, Canada. The Company originally acquired its interest in the leased claims comprising Coppermine River Project pursuant to a lease agreement dated September 14, 1999 between the Company and Coppermine River Limited. The Company s interest in the Coppermine River Property originally consisted of a 100% mineral exploration right, subject to a 3% net smelter royalty in favor of Coppermine River Limited in respect of a portion of the Coppermine River Property consisting of 7,297 acres. The Company granted to Coronation Minerals Inc. ( Coronation Minerals ) the right to earn 50% of its interest in the Coppermine River Property pursuant to an agreement dated August 12, 2002 between Coronation Minerals and the Company (the Coronation Mineral Agreement ). In order to earn its interest in the Coppermine River Property, Coronation Minerals was required to (i) expend at least $1,500,000 in exploration expenditures on the Coppermine River Property over a three-year period ended August 12, 2005; (ii) issue an aggregate of 6,000,000 common shares in the capital of Coronation Minerals to the Company; and (iii) make aggregate cash payments totaling $300,000 to the Company over a two year period ending August 12, As at the date hereof, Coronation Minerals has earned its 50% interest in the Coppermine River Property by expending greater than $1,500,000 in exploration expenditures, paying $300,000 and issuing 6,000,000 common shares in the capital of Coronation Minerals to the Company pursuant to the Coronation Mineral Agreement. On April 29, 2005, the Company and Coronation Minerals entered into an agreement which allows for Coronation Minerals to acquire the remaining 50% of the Coppermine River Project. Terms of the agreement call for Coronation Minerals to issue to the Company 6,000,000 shares and the Company will retain a 1.5% net smelter royalty (NSR). Upon completion of the transaction the Company will hold approximately 27% of the issued shares of Coronation Minerals. No shares have been issued in satisfaction of this agreement as at October 31, 2007, due to an ongoing dispute between the Company and Coronation as to Coronation s obligation to complete the purchase. On May 7, 208 Watts, Griffis and McQuat Limited completed a mineral resource estimate which Coronation Minerals announced in a press release dated May 30, 2008 Aranka Gold Inc. Pursuant to an agreement dated June 3, 2005, Aranka Gold Inc. ( Aranka ) has granted the Company (the Companies ) a back in right to acquire a 50% interest in all areas held by Aranka in the country of Guyana for a period of 3 years. The Company exercised the back-in agreement with Aranka in The agreement entitled the Company to acquire a 50% interest in all exploration areas held by Aranka by paying 125% of the total expenditures on the properties. The carrying 8

9 value of the claims transferred of $2,037,767 has been recorded as mineral property expenses and the remaining $509,442 has been charged to deficit. Aranka has been granted three Prospecting Licences and three Reconnaissance Permits by the Guyana Government through its agency the Guyana Geology and Mines Commission (GGMC). A Reconnaissance Permit grants Aranka exclusive rights to explore and define areas of gold and other mineralization for a period of 18 months after which time Aranka may apply for Prospecting Licence(s) with an initial term of 5 years. Aranka has made an application for 20 Prospecting Licenses covering the areas under the Reconnaissance Permits. Aranka holds exclusive exploration rights to approximately 249,940 acres (101,147 hectares) comprised of Prospecting Licences, Reconnaissance Permits and joint venture agreements. In order to maintain the Prospecting Licences and Reconnaissance Permits, the Company negotiates annual work programs with the GGMC and makes prescribed land rental payments in accordance with the Mining Act of Guyana. The northern boundary of the Aranka district is located approximately nineteen miles north of the Aurora base camp. The geology of the Aranka district appears to be similar to that of the Aurora district. Aerial reconnaissance as well as historical reports indicates that the district hosts several areas of significant gold mineralization, the oldest of which date back to the Pigeon Island gold rush of 1912 which produced about 32,000 ounces of gold. Gold mineralization appears to be closely related to the margins of a granitic intrusive and metamorphosed acid and basic volcanic rocks. Aranka and the Company have an aggressive exploration program for the Aranka District. Total expenditures will be split on a 50/50 basis. The Company is assisting Aranka by providing valuable logistical and technical support that has been developed by ten years of ongoing exploration in the country of Guyana. The properties that are the subject matter of the exercise of the back in right are known as the Arangoy target area, the Raskassa target area, the Wynamu/Kalaloo target area, the Imotai target area, the Minabaru target area, the Maple Creek/New Workings target area and the Aranka (Red Hill) target area. Aranka conducted airborne geophysical surveys as well as the initial geological mapping and sampling of selected areas. Two areas of historical workings have returned multiple high grade sampling results from initial grab and channel sampling. In June 2007 drilling commenced at the Aranka group of properties. Two drills have been mobilized to the eastern target area. The first phase drilling program has just been completed. Summary of recent exploration activity A 200m x 50m grid soil-sampling program covering the Arangoy and Raskassa areas was completed this period. A total of line kilometers were brush-cut and 4,083 sampling stations established covering an area of square kilometers. The soil geochemical sampling results identified a boomerang-shaped gold anomaly in the Raskassa area centered on an airborne magnetic high, which was confirmed on the ground as a mafic andesitic stock. The gold anomaly measures about 3.5 kilometers long and 600 meters wide. The anomalous area was followed-up by pan gold count from the first 0.50 m depth, initially following a 100m x 50m infill grid. Pan gold count anomalous areas were followed with a 50m x 50m grid. A total of 558 samples from grid stations were collected for gold panning. Seven (7) pan gold count anomalies were identified averaging >10 gold count per station. At least two (2) areas are considered exceptional because of the size of the anomalous areas and pan gold counts which averages >20 per station. The follow-up for the aforementioned anomalous areas will be an excavator-assisted trenching program to determine the source of the gold mineralization Sampling of quartz floats and outcrops in the Arangoy and Raskassa area identified three (3) areas with >0.5 g/t Au results which were followed up by excavator-assisted trenching. A total of meters of trenches were dug with 386 channelcut samples from the trench walls. The trenching work for the quartz areas exposed mainly narrow quartz vein structures with pinch and swell. Trench sampling also returned mainly low gold values indicating that the widespread alluvial and eluvial gold mineralization in the Arangoy and Raskassa areas may not be related to these structures. A limited grid soil-sampling program at Aranka area delineated a 650-meter long gold anomaly using a 1.0-gram Au contour in the Red Hill area. It spans about 200 meters at its widest central portion. This anomaly is still open to the west and northeast. As a follow-up, an additional eighteen (18) auger drill holes with an aggregate depth of 66.9 meters were 9

10 sunk on the northern and southern sides of the western end of the gold anomaly to refine its boundaries. A total of 76 samples were collected from these auger holes. The two (2) excavator trenches excavated in the Red Hill area late last year were extended from both ends. Aggregate length of trenching this period is 360 meters with 316 channel-cut samples collected from the bottom trench walls. The trenches were successful in confirming two parallel quartz vein/stockwork zones over 300 meters of strike. A helicopter reconnaissance survey of the holdings was conducted this quarter. One of the objectives was to scout for new artisanal gold mining activities to the east and north of the Aranka Gold tenements. The aerial reconnaissance work was able to identify traces of old artisanal gold workings south of a broad airborne K-Channel anomaly associated with a regional northeast trending lineation. The Barama Company logging road system has already connected to the tractor road network of Aranka this quarter. This recent development basically simplified access to the northern sections of Aranka s holdings. Aranka deep auger gold anomaly An east-west trending 650-metre long gold anomaly was defined by a 1.0 g/t Au contour in the southern portion of the Aranka Properties. The anomaly was delineated through deep auger soil sampling from 163 grid stations averaging 3.8 metres in depth. A 25m x 50 m grid was laid out to guide the sampling. To avoid contamination from historical workings and tailings however, only stations from the relatively undisturbed hills were sampled. The gold anomaly appears to pinch and splay to the west but is quite wide (up to 200 metres width) and is open to the east. The soil gold anomaly juxtaposed with northeast trending, moderately northwest-dipping quartz veins and stockworks mapped and sampled from excavator-trenches and local miner s pits. Channel samples across the widths of the exposed quartz structures returned as high as g/t Au over 1 metre. The initial drilling in the area targeted the north-west trending copper mineralization drilled by the Geological Survey of British Guyana. There were indications in the old data that the gold might be related to the copper mineralization. The drilling results indicated that the gold is not consistently associated with the copper. Interpretations from new geological data suggest that the copper mineralization is older and occurring as lenses parallel to the northwest trending foliation in the metavolcanics. Gold on the other hand is associated with northeast trending quartz veins and stockworks cutting across the regional foliation. Quartz stockworks are usually well developed in weakly metamorphosed tuffaceous rocks. Aranka trenching results In addition, widely spaced trenching and sampling of historical pits to the northeast of the gold anomaly has returned significant gold values. Horizontal Channel samples, of near vertical structures in the trenches has returned 11.9 g/t Au over 2 metres, 1.07 g/t Au over 6 metres, 41.9 g/t Au over 2 metres as well as 2.15 g/t Au over 4 metres. Vertical channel samples, on near horizontal vein structures, in the same area have returned 5.74 g/t Au over 1.8 metres with an exposed strike length of 25 metres, 6.25 g/t Au over 2 metres and 2.68 g/t Au over 2 metres. The trenches and pits cover an area of approximately 250 metres by 250 metres and lies approximately 170 metres north east of hole RHD-7 (see Aranka press release dated November 5, 2007) which assayed 26.4 metres of 1.39 g/t Au from surface. The Companies plan additional trenching in the area to better define the anomaly followed by an aggressive drill program. In addition, assay results are still pending from approximately 4,000 samples from a major reconnaissance program to the north east of the discovered anomaly. Option agreements During the current period, Aranka entered into three option agreements to acquire mineral exploration and development rights to a total of (approximately) 77,893 acres in three separate land packages. The properties lie east and south-east of the Aranka s 275,000 acre land package. Fish Creek/Pomeroon Head Property (60,759 acres) The Property covers a large area of very favorable geology immediately east of the Aranka land package. The Property covers areas of significant historical gold workings. A newly completed road provides excellent access to the area and 10

11 Aranka geotechnical personnel have completed an initial reconnaissance of the southern part of the land package. Aranka may earn a 100% interest in the Property by paying $390,000 USD over a four year period. The vendors shall retain a 2% net smelter royalty (N.S.R.) and Aranka maintains the right to purchase the N.S.R. for $2,000,000 USD. Oko Group of Properties (8,000 acres) This area has been a significant producer of gold in Guyana since exploration began in the 1880s. Gold production from the area continues to this day from both alluvial sources as well as from crushing in situ high grade gold in quartz veins exposed at surface. The Property has not been subject to systematic exploration or developments. Aranka may earn a 100% interest in the Property by making annual payments totaling $285,000 USD over a four year period. The vendor shall retain a 2% N.S.R. and Aranka has the right to purchase the N.S.R. for $2,000,000 USD. Aremu Mine Property (9,134 acres) The Aremu mine is a former underground gold producer. In 1910 one of several known mineralized zones was developed by the sinking of a 170 foot vertical shaft as well as 1200 feet of underground development work. The mine produced 6,488 ounces of gold from 14,632 tons of ore for a recovered grade of.44 oz/ton Au. Gold recovery was by amalgamation. High transport costs and low throughput forced the mine closure after one year in In 1948, The Anaconda Mining (Guiana) Company carried out limited diamond drilling and tunneling in the immediate vicinity of the Aremu Mine. A review of historical drilling results indicates that both high grade vein-type gold as well as disseminated gold in host rocks is evident of the Property. Drilling, tunneling and airborne geophysics suggest the mineralized zone in the Aremu camp has a strike length of 16,000 feet and a width of approximately 2,000 feet. Mineralization is likely genetically related to the Aremu Granite to the north of the historical workings. Aranka plans an aggressive drilling program in the Aremu/Oko district. Aranka may earn a 100% interest in the Property by paying the vendors $600,000 USD over a four year period as well as issuing the vendors, on signing 50,000 common shares of Aranka Gold Inc. The vendors shall maintain a 2% N.S.R. and Aranka has the right to purchase the royalty for $2,000,000 USD Related Parties The Chief Executive Officer and Chief Financial Officer of the Company are also officers in the same capacity with Aranka Gold Inc. During the year, each of the Companies paid certain expenditures on behalf of each other, which were repaid in full. These transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. All technical disclosure covering the Aranka properties was prepared under the supervision of Norman Baybayan, P, Geo., a consultant to the Company and a qualified person within the meaning of National Instrument OVERVIEW OF PERFORMANCE In summary the Company s financial condition remains strong. Working capital decreased by $7,048,665 from $32,457,593 at October 31, 2007 to $25,408,928 at April 30, The net decrease is namely attributable to: (a) (b) (c) (d) proceeds of $1,263,000 from the exercise of stock options; expending $5,506,459 on mineral properties; net proceeds of $1,176,522 from the purchase and sale of short-term investments; working capital of $392,006 used in other corporate operations. RESULTS OF OPERATIONS Six Months Ended April 30, 2008 Net loss for the six months ended April 30, 2008 was $4,796,064 ($0.09 per share basic and diluted) compared to income of $197,129 ($0.00 per share- basic and diluted) for the same period in the prior year. The increase in net loss of $4,993,193 for the six months ended April 30, 2008 over 2007 is substantially attributable to the following: 11 (i) a decrease in stock-based compensation expense of $152,931 from $2,143,789 in 2007 to $1,990,858 in 2008;

12 12 (ii) a decrease in management fees of $301,585 from $423,323 in 2007 to $121,738 in A bonus of $300,000 was paid to the President and Chief Executive Officer in 2007, and $nil in 2008; (iii) An increase in office expense of $81,665 from $183,539 in 2007 to $265,204 in 2008 due to the relocation f the Company s office; (iv) a decrease in interest income of $106,790 from $693,128 in 2007 to $586,338 in 2008 due to a decrease in cash balance; (v) a foreign exchange gain of $292,797 in 2008 compared with $nil in 2007; (vi) a decrease on the gain on the sale of short-term investments of $1,601,693 from $2,295,465 in 2007 to $693,772 in 2008; and (vii) an increase in the unrealized loss on short-term investments of $4,010,509 from a gain of $358,444 in 2007 to a loss of $3,652,066; in 2008 Three Months Ended April 30, 2008 For the three months ended April 30, 2008 net loss was $1,099,378 ($0.02 per share- basic and diluted) compared to a net loss of $2,393,453 ($0.05 per share-basic and diluted) for the same period in the prior year. The decrease in net loss of $1,294,075 is substantially attributable to the following: (i) a decrease in interest income of $115,037 from $382,274 in 2007 to $267,237 in 2008 due to a decrease in cash balances; (ii) foreign exchange gain of $82,687 in 2008 compared with $nil in 2007; (iv) a decrease in the gain on the sale of short-term investments from $1,921,393 in 2007 to $nil in 2008; (v) an unrealized gain on marketable securities of $591,730 in 2008 as compared with a loss of $2,485,363 in For a discussion of trends that are reasonably likely to affect the Company s business, see Liquidity and Capital Resources-Trends below. SUMMARY OF QUARTERLY RESULTS The following tables reflect the summary of quarterly results for the periods set out (unaudited): Income (Loss) for the Period $ Income (Loss) Per Share * $ Quarter Ended Revenue $ April 30, (1,099,378) (0.02) January 31, (3,696,686) (0.07) October 31, (370,858) (0.02) July 31, ,962, April 30, (2,393,453) (0.05) January 31, ,861, October 31, (173,822) (0.00) July 31, (1,773,822) (0.04) * basic and diluted MINERAL EXPLORATION ACTIVITIES For the three month period ended April 30, 2008, the Company incurred net expenditures of $5,506,459 on mineral properties as compared to $5,344,526 during the same period in the prior year. Substantially all of the expenditures incurred were due to the ongoing drilling programs on the Aurora Property in Guyana, South America SUBSEQUENT EVENT Subsequent to April 30, 2008, 355,000 stock options were exercised for cash proceeds of $887,500. LIQUIDITY AND CAPITAL RESOURCES The Company s financial position at April 30, 2008 is strong. Working capital at April 30, 2008 was $25,408,928 compared with $32,457,593 at October 31, The decrease in working capital for the three months ended April 30, 2008 has been discussed in the section titled Overview of Performance.

13 The Company s cash position of approximately $21.3 million has been invested substantially in an interest bearing accounts with a major Canadian bank and in high quality financial instruments with a maturity date of less than three months. The Company has been successful in accessing the equity market in the past and, while there is no guarantee that this will continue to be available, management has no reason to expect that this capability will diminish in the near term. RISK FACTORS The Company is in the development stage and is subject to the risks and challenges similar to other companies in a comparable stage of development. The risks include, but are not limited to, limited operating history, speculative nature of mineral exploration and development activities, operating hazards and risks, mining risks and insurance, no mineral reserves, environmental and other regulatory requirements, competition, stage of development, fluctuations in commodity prices, currency risk, conflicts of interest, reliance on key individuals and no key man insurance and enforcement of civil liabilities. Limited Operating History An investment in the Company should be considered highly speculative due to the nature of the Company s business. The Company has no history of earnings, it has not paid any dividends and it is unlikely to enjoy earnings or paying dividends in the immediate or foreseeable future. Speculative Nature of Mineral Exploration and Development Activities Resource exploration and development is a speculative business, characterized by a number of significant risks including, among other things, unprofitable efforts resulting not only from the failure to discover mineral deposits but from finding mineral deposits which, though present, are insufficient in quantity and quality to return a profit from production. The marketability of minerals acquired or discovered by the Company may be affected by numerous factors which are beyond the control of the Company and which cannot be accurately predicted, such as market fluctuations, the proximity and capacity of milling facilities, mineral markets and processing equipment and such other factors as government regulations, including regulations relating to royalties, allowable production, importing and exporting of minerals and environmental protection, the combination of which factors may result in the Company not receiving an adequate return of investment capital. Substantial expenditures are required to establish mineral reserves through drilling, to develop metallurgical processes to extract the metal from the ore and, in the case of new properties to develop the mining and processing facilities and infrastructure at any site chosen for mining. Although substantial benefits may be derived from the discovery of a major mineralized deposit, no assurance can be given that minerals will be discovered in sufficient quantities and grades to justify commercial operations or that the funds required for development can be obtained on a timely basis. Estimates of mineral reserves, mineral deposits and production costs can also be affected by such factors as environmental permitting regulations and requirements, weather, environmental factors, unforeseen technical difficulties, unusual or unexpected geological formations and work interruptions. In addition, the grade of ore ultimately mined may differ from that indicated by drilling results. Short-term factors relating to reserves, such as the need for orderly development of orebodies or the processing of new or different grades, may also have an adverse effect on mining operations and on the results of operations. Material changes in mineral reserves, grades, stripping ratios or recovery rates may affect the economic viability of any project. The Company s mineral properties are in the exploration stage only and are without known bodies of mineral reserves, although a mineral resource has been established by the Company on its Aurora Mine Property. Development of any of the Company s mineral properties will only follow upon obtaining satisfactory exploration results. Few properties which are explored are ultimately developed into producing mines. Major expenses may be required to establish mineral reserves, develop metallurgical processes and construct mining and processing facilities at a particular site. There is no assurance that the Company s mineral exploration activities will result in any discoveries of commercial bodies of ore. Also, no assurance can be given that any or all of the Company s properties will not be subject to prior unregistered agreements or interests or undetected claims which could be materially adverse to the Company. Operating Hazards and Risks 13

14 Mineral exploration involves many risks, which even a combination of experience, knowledge and careful evaluation may not be able to overcome. The Company s operations will be subject to all the hazards and risks normally incidental to exploration, development and production of metals, such as unusual or unexpected formations, cave-ins or pollution, all of which could result in work stoppages, damage to property and possible environmental damage. Mining Risks and Insurance The business of mining for gold and other metals is generally subject to a number of risks and hazards including environmental hazards, industrial accidents, labour disputes, unusual or unexpected geological conditions, pressures, caveins, changes in the regulatory environment and natural phenomena such as inclement weather conditions, floods, blizzards and earthquakes. No assurance can be given that such insurance will continue to be available or that it will be available at economically feasible premiums. Mining operations will be subject to risks normally encountered in the mining business. No Mineral Reserves All of the Company properties are considered to be in the exploration stage only and do not contain a known body of commercial ore. Mineral reserves are estimates and no assurance can be given that the anticipated tonnages and grades will be achieved or that the indicated level of recovery will be realized. Reserve estimates for properties that have not yet commenced production may require revision based on actual production experience. Market price fluctuations of metals, as well as increased production costs or reduced recovery rates may render mineral reserves containing relatively lower grades of mineralization uneconomic and may ultimately result in a restatement of reserves. Moreover, short-term operating factors relating to the mineral reserves, such as the need for orderly development of the orebodies and the processing of new or different ore grades may cause a mining operation to be unprofitable in any particular accounting period. While the Company does have mineral resources, such resources are mineral reserves and do not have demonstrated economic viability. Environmental and Other Regulatory Requirements The Company s activities are subject to environmental regulations promulgated by government agencies from time to time. Environmental legislation generally provides for restrictions and prohibitions on spills, releases or emissions of various substances produced in association with certain mining industry operations, such as seepage from tailings disposal areas, which would result in environmental pollution. A breach of such legislation may result in imposition of fines and penalties. In addition, certain types of operations require the submission and approval of environmental impact assessments. Environmental legislation is evolving in a manner which means stricter standards and enforcement, fines and penalties for non-compliance are more stringent. Environmental assessments of proposed projects carry a heightened degree of responsibility for companies and directors, officers and employees. The cost of compliance with changes in governmental regulations has a potential to reduce the profitability of operations. The exploration operations of the Company and development and commencement of production on its properties require permits from various federal and local governmental authorities and such operations are and will be governed by laws and regulations governing prospecting, development, mining, production, exports, taxes, labour standards, occupational health, waste disposal, toxic substances, land use, environmental protection, mine safety and other matters. Companies engaged in the development and operation of mines and related facilities generally experience increased costs and delays in production and other schedules as a result of the need to comply with applicable laws, regulations and permits. The Company believes it is in substantial compliance with all material laws and regulations which currently apply to its activities. Failure to comply with applicable laws, regulations and permitting requirements may result in enforcement actions thereunder, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment, or remedial actions. Parties engaged in mining operations may be required to compensate those suffering loss or damage by reason of the mining activities and may have civil or criminal fines or penalties imposed for violations of applicable laws or regulations and, in particular, environmental laws. Foreign Operations All of the Company s current operations are presently conducted in Guyana, South America and as such, the Company s operations are exposed to various levels of political, economic and other risks and uncertainties. These risks and uncertainties vary from country to country and include, but are not limited to, currency exchange rates, high rates of inflation; labour unrest; renegotiation or nullification of existing concessions, license, permits and contracts, changes in 14

15 taxation policies, restrictions foreign exchange; and changing political conditions, currency controls and governmental regulations that favor or require the awarding of contracts to local contractors or require foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction. Changes, if any, in mining or investment politics or shifts in political attitude in the country of Guyana may adversely affect the Company s consolidated operations or profitability. Operations may be affected in varying degrees by government regulations with respect to, but not limited to, restrictions on production, price controls, export controls, currency remittance, income taxes, foreign investment, maintenance of claims, environmental legislation, land use, land claims of local people, water use and mine safety. Failure to comply strictly with applicable laws, regulations and local practices relating to mineral right applications and tenure, could result in loss, reduction or expropriation of entitlements. The occurrence of these various factors and uncertainties cannot be accurately predicated and could have an adverse effect on the Company s consolidated operations or profitability. Competition Significant and increasing competition exists for the limited number of mineral acquisition opportunities available. As a result of this competition, some of which is with large established mining companies with substantial capabilities and greater financial and technical resources than the Company, the Company may be unable to acquire additional attractive mineral properties on terms it considers acceptable. Accordingly, there can be no assurance that the Company s exploration and acquisition programs will yield any reserves or result in any commercial mining operation. Stage of Development The Company is in the business of exploring for, with the ultimate goal of producing, precious and base metals from its mineral exploration properties. None of the Company properties have commenced commercial production and the Company has no history of earnings or cash flow from its operations. As a result of the foregoing, there can be no assurance that the Company will be able to develop any of its properties profitably or that its activities will generate positive cash flow. The Company has not paid any dividends and it is unlikely to enjoy earnings or paying dividends in the immediate or foreseeable future. The Company has not sufficiently diversified such that it can mitigate the risks associated with its planned activities. The Company has limited cash and other assets. A prospective investor in the Company must be prepared to rely solely upon the ability, expertise, judgment, discretion, integrity and good faith of the Company s management in all aspects of the development and implementation of the Company s business activities. Fluctuations in Commodity Prices The profitability, if any, in any mining operation in which the Company has an interest is significantly affected by changes in the market price of precious and base metals which fluctuate on a daily basis and are affected by numerous factors beyond the Company s control. Currency Risk The Company has no ongoing revenues from operations. The Company relies on capital raised from the equity markets to obtain required funds to finance ongoing operations. Typically these funds are obtained in Canadian dollars. Most of the Company s expenditures that occur in Guyana are paid in U.S. currency. Accordingly, a strengthened U.S. dollar relative to the Canadian dollar would negatively impact the Company. Conversely, a strengthened Canadian dollar relative to the U.S. dollar positively impacts the Company. The Company does not currently engage in foreign currency hedging activities. Liquidity Risk The Company has no income and relies on equity fund-raising to support its exploration program. Management prepares budgets and ensures funds are available prior to commencement if any such program. Market Risk 15

16 Market risk arises from the possibility that changes in market prices will affect the value of the financial instruments of the Company. The Company is exposed to fair value fluctuations on the short-term investments. The Company s other financial instruments (cash and cash equivalents, accounts receivable and accounts payable and accrued liabilities) are not subject to market risk. Reliance on Key Individuals The Company s success depends to a certain degree upon certain key members of the management. These individuals are a significant factor in the Company s growth and success. The loss of the service of members of the management and certain key employees could have a material adverse effect on the Company. No Key Man Insurance The Company does not anticipate having key man insurance in place in respect of any of its senior officers or personnel. RELATED PARTY TRANSACTIONS Directors and officers Accounts payable and accrued liabilities include $184,600 due to the Chief Executive Officer and Chief Financial Officer. The balances are non-interest bearing and are payable on demand. During the period, fees of $195,198 were paid to the President and Chief Financial Officer. These expenditures have been allocated as follows: Management fees $99,198 Mineral exploration properties $96,000 During the period, fees of $30,100 were paid to a Director. These expenditures have been allocated to mineral exploration properties. These transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. Aranka Gold Inc. The Chief Executive Officer and Chief Financial Officer of the Company are also officers in the same capacity with Aranka Gold Inc. During the year, each of the companies paid certain expenditures on behalf of each other, which were repaid in full. These transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. CONTRACTUAL COMMITMENTS During the period the Company entered into an agreement for drilling services in the amount of approximately $2,500,000. As at April 30, 2008 the balance of the commitment is approximately $1,500,000. The Company is committed to rental payments for its office premises in Toronto, Ontario, under a lease agreement which expires June 13, There is an option to extend the lease for an additional five years. The Company s remaining rental commitments are as follows: Year Amount 2008 $ 37, $ 111, $ 111, $ 113, $ 113, $ 75,400 $ 562,400 16

17 The Company has no other material contractual obligations. All mineral property agreement commitments are at the option of the Company and the Company can terminate the agreements prior to being required to make payments on any underlying property. SIGNIFICANT ACCOUNTING POLICIES Critical accounting estimates used in the preparation of the financial statements include the Company s estimate of recoverable value on its mineral properties as well as the value of stock-based compensation. Both of these estimates involve considerable judgment and are, or could be, affected by significant factors that are out of the Company s control. Mineral resource properties The Company records its interest in mineral resource properties at cost. Direct costs relating to the acquisition, exploration and development of mineral properties, less recoveries, are deferred until such time as the properties are either put into commercial production, sold, determined not to be economically viable or abandoned. If the property is placed into production, deferred costs would be amortized over the estimated life of the mineral property. The deferred costs would be written off if the property is sold or abandoned. If it is determined that the carrying value of a property exceeds its net recoverable amount as estimated by management, or exceeds the selling value of the property, a provision is made for the decline in value and charged against operations in the year of determination of value. The amounts shown for mineral resource properties and related deferred costs represent costs incurred to date, less writeoffs and recoveries, and do not necessarily reflect present or future values of the particular properties. Stock-based compensation The Company adopted the Canadian Institute of Chartered Accountants (CICA) amended Handbook Section 3870, which provides guidance on accounting for stock-based compensation, to require the use of fair-value based method to account for stock options. Accordingly, compensation cost is measured at fair-value at the date of grant and is expensed over the vesting period. The factors affecting stock-based compensation include estimates of when stock options might be exercised and the stock price volatility. The timing for exercise is out of the Company s control and will depend, among other things, upon a variety of factors including the market value of the Company shares and financial objectives of the holders of the options. The Company has used historical data to determine volatility in accordance with Black-Scholes modeling, however the future volatility inherently uncertain and the model has its limitations. While these estimates can have a material impact on stock-based compensation and hence results of operations, there is no impact on the Company s financial condition. CHANGES IN ACCOUNTING POLICY On February 1, 2008, the Company adopted three new accounting standards included in the following Sections of the Canadian Institute of Chartered Accountants Handbook ("CICA Handbook"): Section 1535, Capital Disclosures, Section 3862, Financial Instruments Disclosures and Section 3863, Financial Instruments Presentation. Section 1535 specifies the disclosure of (i) an entity s objectives, policies and processes for managing capital; (ii) quantitative data about what the entity regards as capital; (iii) whether the entity has complied with any capital requirements; and (iv) if it has not complied, the consequences of such non-compliance. The Company has included disclosures recommended by this new Handbook section in note 6 to the unaudited interim consolidated financial statements. Sections 3862 and 3863 replace Handbook Section 3861, Financial Instruments Disclosure and Presentation, revising and enhancing its disclosure requirements, and carrying forward unchanged its presentation requirements. These new sections place increased emphasis on disclosures about the nature and extent of risks arising from financial instruments and how a company manages those risks. The Company has included disclosures recommended by this new Handbook section in note 7 to the unaudited interim consolidated financial statements. DISCLOSURE CONTROLS Disclosure controls and procedures have been designed to ensure that relevant and accurate information needed to comply with the Corporation s continuous disclosure obligations is accumulated and summarized to allow timely decisions regarding disclosure and to ensure that the risk of material error or fraud is minimal. Management has 17

18 concluded that the Corporation s disclosure controls and procedures, as of April 30, 2008, are effective in ensuring that material information is accumulated and disclosed accurately. Management believes that the cost-effective disclosure controls, disclosure procedures and internal control systems can only provide reasonable assurance, and not absolute assurance, that the objectives of the controls and procedures are met. INTERNAL CONTROLS OVER FINANCIAL REPORTING Management is responsible for designing, establishing and maintaining a system of internal controls over financial reporting to provide reasonable assurance that the financial information prepared by the Corporation for external purposes is reliable and has been recorded, processed and reported in an accurate and timely manner in accordance with GAAP. The Board of Directors is responsible for ensuring that management fulfills its responsibilities. The Audit Committee fulfills its role of ensuring the integrity of the reported information through its review of the interim and annual financial statements. There are inherent limitations in the effectiveness of internal controls over financial reporting, including the possibility that misstatements may not be prevented or detected. Accordingly, even effective internal controls over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Furthermore, the effectiveness of internal controls can change with circumstances. The Corporation has paid particular attention to segregation of duties matters surrounding its internal controls over financial reporting as the Corporation has only limited staff resources at the present time such that ideal segregation of duties is not feasible. This risk is mitigated by management and Board review where appropriate. At the present time, the Corporation does not anticipate hiring additional accounting or administrative staff as this is not considered necessary or practical and accordingly, will continue to rely on review procedures to detect potential misstatements in reporting of material to the public. The Corporation s management, including the CEO and CFO, believe that any internal controls over financial reporting, including those systems determined to be effective and no matter how well conceived and operated, have inherent limitations and can provide only reasonable, not absolute, assurance that the objectives of the control system are met with respect to financial statement preparation and presentation. Because of the inherent limitations in all control systems, they cannot provide absolute assurance that all control issues and instances of fraud, if any, within the Corporation have been prevented or detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by unauthorized override of the control. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Accordingly, because of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and not be detected. USE OF FINANCIAL INSTRUMENTS The Company has not entered into any specialized financial agreements to minimize its investment risk, currency risk or commodity risk. There are no off-balance sheet arrangements. The principal financial instruments affecting the Company s financial condition and results of operations are currently its cash and short-term money market investments. TECHNICAL DISCLOSURE All technical disclosure covering the Aurora and Peters Mine properties was prepared under the supervision of Alexander Po., P. Geo who is a director of the Company and a qualified person within the meaning of National Instrument All technical disclosure covering the Aranka properties was prepared under the supervision of Norman Baybayan, P, Geo., a consultant to the Company and a qualified person within the meaning of National Instrument OUTLOOK The primary focus of the Company will be the continued exploration of the Aurora property. As mentioned above, the Company s working capital at April 30, 2008 is $25,408,928 of which approximately $21.3 million is cash and cash 18

19 equivalents. Management believes the current working capital is sufficient to fund the Company s planned exploration activity in Guyana and the Company s overheads for the foreseeable future. OTHER MD&A REQUIREMENTS Additional information relating to the Company may be obtained on Sedar at Additional Disclosure for Venture Issuers Without Significant Revenue Additional disclosure concerning the Company s general and administrative expenses and resource property costs is provided in the Audited Consolidated Financial Statements for the three months ended April 30, 2008 available through or by visiting the Company s website at Three Months Ended April 30, 2008 Share capital (a) Authorized: Unlimited number of common shares (b) Issued Number Share of Shares Amount $ Balance October 31, ,285,643 62,676,137 Issued on exercise of options 506,500 1,263,000 Value of options exercised - 768,004 Balance April 30, ,792,143 64,707,141 Issued on exercise of option 335,000 Balance June 13, ,127,143 Average (c) Warrants Number Allocated Exercise of Warrants Value Price $ $ Balance April 30, 2008 and June 13, ,730,000 2,694, Warrants outstanding April 30, 2008 Issue Expiry Exercise Date Date Price Shares March 9, 2006 March 8, 2011 $4.40 1,730,000 19

20 Average (d) Options Number Allocated Exercise of Options Value Price $ $ Balance October 31, ,177,950 11,013, Granted 400, Value of options vested during the period - 1,990,858 - Exercised (506,500) (768,004) 2.49 Cancelled and expired (115,000) (413,466) 5.81 Balance April 30, ,956,450 11,822, Exercised (335,000) Balance June 13, ,621,450 Options outstanding April 30, 2008 Exercise Number Expiry Date Price of Options $ June 8, ,000 September 27, ,950 February 1, ,000 April 28, ,500 November 21, ,000 November 29, ,000 January 24, ,000 May 29, ,000 June 19, ,000 October 16, ,000 November 14, ,000 February 21, ,000 November 21, ,000 April 1, ,000 Balance, April 30, ,956,450 ADDITIONAL INFORMATION Additional information on Guyana Goldfields Inc. can be found by visiting the Company s website at and by viewing regulatory filings on SEDAR at 20