CGA Mining Limited - Management's Discussion and Analysis

ABN: 88 009 153 128

PERTH, Western Australia, Feb. 14, 2012 /CNW/ -

Management's Discussion and Analysis

The Management's Discussion and Analysis ("MD&A") provides an analysis to enable readers to assess material changes in financial condition and results of operations for the 3 month period ended December 31, 2011. This MD&A, prepared as of February 14, 2012 is intended to complement and supplement our Interim Financial Statements. It should be read in conjunction with the MD&A for the period ended June 30, 2011, our Interim Financial Statements for the period ended December 31, 2011 and our Annual Information Form for 30 June 2011. Our financial statements and this MD&A are intended to provide investors with a reasonable basis for assessing our results of operation and our financial performance.

Our Interim Financial Statements are prepared in accordance with Australian Accounting Standards as issued by the Australian Accounting Standards Board and International Financial Reporting Standards ("IFRS"). All dollar amounts contained in this MD&A are expressed in US dollars, unless otherwise specified.

Where we say "we", "us", "our", the "Company" or "CGA", we mean CGA Mining Limited and/or one or more of all of its subsidiaries, as it may apply.

Background and Review of Operations

CGA is incorporated and domiciled in Australia.  The Company has been listed on the Australian Stock Exchange ("ASX") since April 1991 and on the Toronto Stock Exchange ("TSX") since February 2005.

During the 2007 year, the Company entered into agreements to acquire interests in the Masbate Gold Project in the Philippines, the Mkushi Copper Project in Zambia, and the Segilola Gold Project in Nigeria.

The Company executed a joint venture agreement on May 30, 2007 between Seringa Mining Limited ("SML"), a then wholly owned subsidiary of the Company, African Eagle Resources plc ("AFE") and Katanga Resources Limited ("Katanga"), a wholly owned subsidiary of AFE whereby CGA acquired a 51% interest in the Mkushi Copper Project in Zambia, with AFE retaining a 49% interest.

On May 27, 2007, the Company through its then wholly owned subsidiary, Segilola Gold Limited ("SGL"), entered into a joint venture agreement ("the JV Agreement") with Tropical Mines Limited ("TML"), to earn a 51% interest in the Segilola Gold Project in Nigeria, considered to be the most advanced gold exploration project in the country.  TML is a Nigerian company owned in joint venture by local investors and the Government.

On January 31, 2007, the Company entered into a Sale and Purchase Agreement ("SPA") for the acquisition of 100% of Thistle Mining Inc's interest in the Masbate Gold Project located in the Republic of the Philippines. The agreed purchase consideration was $51M, and the transaction was completed on March 19, 2007 through an issue of 40,985,538 shares and cash payments of $25M.

The Company completed a private placement, which closed on February 9, 2009, of 20M ordinary shares in the capital of the Company at C$1.25 per share for a total capital raising of C$25M. On June 12, 2009, the Company closed an additional private placement of 14,815,000 ordinary shares in the capital of the Company. The shares were sold at C$1.35 per share, raising C$20,000,250. The proceeds, in combination with existing cash reserves, were utilised to supplement working capital during the initial months of production at the Masbate Gold Mine.

During the 2009 year, the Company's focus continued to be the development and commissioning of the Masbate Gold Project with the construction of the processing plant completed in the 2009 March quarter and the power plant in the 2009 June quarter. The Masbate Gold Project achieved its first gold pour on 12 May 2009. Prior to commencement of commercial production, most costs were capitalised as development costs.

On October 30, 2009 the Company completed a private placement of 14,705,000 ordinary shares in the capital of the Company at C$1.70 per share for a total capital raising of C$24,998,500.  The net proceeds, after costs of the issue, in combination with existing cash reserves, were utilised to fund further enhancements in the plant and exploration activities at the Masbate Gold Mine.

A further private placement was completed on February 5, 2010 on a bought deal basis, of 39.1M ordinary shares in the capital of the Company at C$2.20 per share for total gross proceeds of C$86M. The net proceeds from the sale of the shares were used to repay indebtedness, including the early repayment of the loan facility with Meridian and Casten, the $25M Senior Promissory Notes, to increase exploration activity at the Masbate Gold Project and for general corporate purposes.

In 2010, the Company entered into a strategic alliance with Sierra Mining Limited ("Sierra"), which holds prospective gold exploration interests in the Philippines. Projects include the property immediately adjacent to Medusa Mining Limited's (TSX:MLL) rich Co-0 gold mine (December 2010 quarter - average grade 13.09g/t and cash costs of $185/oz) and other properties to the south of the King-king gold and copper deposit. This will leverage CGA's exploration expenditure and further capitalise on the success to date in the Philippines.  In November 2010, the Company purchased a further 4M shares in Sierra, increasing its holding to 19.7M shares or approximately 8.5%.

In 2010, the Company incorporated a new entity, Ratel Gold Limited ("Ratel") now called St Augustine Gold and Copper Limited ("SAU") which acquired the Company's African assets. During the 2010year, the Company announced a proposed spin-off of Ratel from the Company, with Ratel undertaking an initial public offering of common shares (the "Offering") in Ratel. The Offering closed successfully on 6 August 2010, with Ratel issuing 70M common shares at a price of C$0.20 per common share, for aggregate gross proceeds of C$14M.  The Offering, along with a subsequent issue of 2.5M shares by Ratel, diluted the Company's holding in Ratel to 19.4%. Accordingly the African assets, being the Segilola Gold Project and the Mkushi Copper Project, are no longer controlled by the Company or consolidated into its financial statements.

In October 2010 the Company entered into a strategic alliance with Ratel  (now called SAU) in connection with Ratel's agreement to acquire the interests held by Russell Mining & Minerals, Inc. and their subsidiaries (the "RMMI Group"), in the 20.7M equivalent gold ounce King-king Copper-Gold Project in the Philippines ('the King-king Interests"). As part of the acquisition, the Company agreed to provide a loan facility to the RMMI Group to fund the initial settlement payments to Benguet Corporation ("Benguet") and debt holders of Benguet, together with working capital, which was fully secured against the King-king Interests. The total amount loaned was $14,489,202, which was fully repaid to the Company on 7 January 2011, along with interest of $336,705. The acquisition was conditional on the successful completion of a C$25M capital raising at C$0.30 ('the Ratel Placement") per share and securing all necessary shareholder and TSX approval for the acquisition, share issue to the RMMI Group and the Ratel Placement. The Company subscribed for a total of 50M additional shares in the Ratel Placement, increasing its interest in Ratel Gold Limited (now called SAU) to its current interest of 20.8%. The Ratel Placement along with the acquisition of the King-king interests was successfully closed on 7 January 2011.

With the closure of the Ratel Placement, Ratel (now called SAU) completed a spin-off of its existing African assets, by way of an entitlement issue back to shareholders of shares in Ratel Group Limited ("Ratel Group"), a TSX-listed company trading under the symbol "RTG". Under the terms of the reorganization, the Company was issued a further 9,722,222 Ratel Group shares. The Company also participated in a capital raising of Ratel Group, taking up 19M shares at C$0.10 each. As a result the Company now holds a 19.1% interest in Ratel Group.

In June 2011, the Company successfully achieved Project Completion for the project finance facility for the Masbate Gold Project.  Having now satisfied Project Completion, the following additional benefits apply to the facility:

• the margin has reduced from LIBOR plus 3.65% to LIBOR plus 3.15%;
• any guarantees from CGA have been released and the project is non-recourse to CGA;
• the Project will be able to flow all excess funds (above and beyond the Debt Service Reserve Account) to any other entity within the CGA group, with any payment out of the security structure to be applied as to 25% to a further prepayment of the principal outstanding under the facility, subject to the satisfaction of normal financial ratios.

Operations at the Masbate Gold Project progressed well through the 2010-11 year. Mill throughput continued to improve with a ninth consecutive quarterly record set in the June 2011 quarter. Total tonnes milled for the 2011 financial year was 6,152,561 tonnes. A fourth mining fleet was commissioned during the June 2011 quarter to support further throughput improvements including the 6.5Mtpa plant upgrade.  The commissioning of the supplementary crusher occurred during September 2011. Work on the comprehensive scoping study to lift production rates to 10Mtpa is also well advanced and continues to track well.  Following the successful completion of the expansion scoping study by Sedgman WA, a FEED (Front End Engineering and Design) study has been commissioned. The study was awarded to Lycopodium Australia and will detail all the specifications of the major equipment and firm up the engineering plans. By the end of December 2011 the FEED study was 90% complete.

On 10 July 2011, cracks were detected in the SAG mill at the Masbate Gold Project. The SAG mill was shut down to be repaired, although interim production was re-established on 21 July 2011 with a reconfiguration of the grinding circuit and ore being fed directly into the ball mills. Production rates were steadily increased as the revised circuit was bedded down and the supplementary crushing circuit was ramped up.

On 20 September 2011, the supplementary crusher came online which assisted in improving the throughput rate at the plant whilst the SAG Mill was under repair. At the end of the quarter, the throughput rates were at the design of 500tp/h.  The supplementary crusher has performed better than original expectations and will ensure that throughput rates of 6.5mtpa can be maintained throughout the life of the project. Given the success of the supplementary crusher, an Optimisation Study was commissioned to look at using an expanded crushing circuit combined with the largest mills that can fit in the current foundations to achieve higher throughputs. The optimisation study is expected to take 8 to 10 weeks and has the potential to reduce the upfront capital of the expansion plans. The optimisation study will be run in parallel with the FEED study and will broaden the options available for expanding throughput. Repairs to the SAG mill were completed ahead of schedule on 25 December 2011 with recommissioning occurring over the ensuing days.  Initially production was set at 300-350tph to bed the mill in and make final mechanical checks. Production rates have subsequently been lifted to 700tph with all mechanical checks showing that the circuit has settled in and is running smoothly and back at full operating capacity. In the first month of production, following the repairs to the SAG mill, throughput was 479,305 tonnes for January 2012, compared to December 2011 of 263,762 tonnes - an 82% increase in throughput for the month. Throughput was impacted by bedding down the circuit at the start of the month and having a scheduled ball mill reline for a week. With the ball mill brought back on line at the end of January 2012, throughput is now at a steady state 6.5mtpa production rate.

All repairs were conducted under the supervision of mill specialists, Metso Minerals, who have repaired similar issues on this type of mill on a number of previous occasions.  All repair work was subjected to extensive Non Destructive Testing which showed that 100% of the weld was within specification.  Further engineering work in the form of the addition of gussets which "knit" the rotating element to the mill heads was also implemented to ensure improved structural integrity to the mill shell.

The purchase of a new rotating element is also in the process giving extra security against any chance of another prolonged shutdown.

Given the successful recommissioning of the SAG mill, the Masbate Gold Project is forecast to produce 100,000 ounces in the period January to June 2012 inclusive, with production in January 2012 already at 15,352 ounces.

During the December 2011 quarter, the Company completed the acquisition of 100% of the interests of Bloomsbury Holdings Limited in the companies owning a direct and indirect interest in the highly prospective Pajo MPSA, immediately to the north of our Colorado Pit. On 7 November 2011, the Company completed the purchase of the interests held by Bloomsbury Holdings Limited. 12 holes have been drilled in the Pajo MPSA to date and are awaiting assays. Further work has been temporarily delayed whilst landowner negotiations are finalized. It is expected that drilling will recommence in the next quarter.

During the 2011-12 year, the Company plans to extend its exploration program, with a focus on materially enhancing the reserve and resource base of the project. A $20M exploration program is well under way with $5.9M being spent between July and December 2011. The program is expected to increase to $2M per month going forward.  The expansion of the exploration program over the next 12 months will utilise additional diamond core and RC rigs being brought to site.  With the extra rigs on site, work continues on

• deep drilling beneath Colorado and Main Vein to assess the potential for underground resources;
  
  
• resource definition drilling on near mine targets (Blue Quartz, Old Lady, Pajo);
  
  
• infill drilling to upgrade Inferred Resources to Indicated within the current mining areas;
  
  
• exploration drilling of multiple outcropping mineralised quartz vein targets on EP10.

Additional exploration activities conducted also include:

• Developing a road to the Baleno copper anomaly to allow IP programs to test for porphyry ore bodies at depth;

• regional mapping and sampling over all of EP10 and the Vicar JV tenement; and

• geophysical surveys including ground IP and Resistivity which, combined with previously acquired helimag, will be used to identify non outcropping (buried) target zones and extensions of known mineralisation

The business of the Company and its shares should be considered speculative given the volatility in world stock markets (particularly with respect to mining and exploration companies) and the uncertain nature of mining and exploration activities generally.  Amongst other things, some of the key risk factors faced by CGA include:

• foreign exchange movements;
  
  
• movements in commodity prices (in particular the gold price and costs of production);
  
  
• access to new capital (both debt and equity) and meeting liquidity requirements;
  
  
• meeting forecast operating parameters, including grade, operating costs, throughput and reliability of mechanical components;
  
  
• the uncertain nature of exploration and development activities;
  
  
• commissioning risks in new development projects including the use of second hand equipment;
  
  
• satisfying banking requirements and covenants;
  
  
• increases in capital expenditures necessary to advance the Company's projects;
  
  
• the ability to profitably exploit new development projects;
  
  
• political, security and sovereign risks of the Philippines;
  
  
• permitting, local community and small scale miners support;
  
  
• environmental obligations; and
  
  
• weather conditions.

For further information on these and other risks inherent in the Company's business, we direct readers to Section 9 of this MD&A and the Company's Annual Information Form ("AIF") for the most recently completed financial year lodged on SEDAR at sedar.com.

1. Financial and Operating Highlights
(In thousands of dollars, except amounts per ounce, per tonne and per share)

	Three-month period ended		Year to date
	December 31, 2011	September 30, 2011	December 31, 2011
Gold ounces produced	27,820	14,935	42,755
Gold ounces sold	30,171	16,615	46,786
Proceeds - Gold and silver sales	39,347	16,287	55,634
Masbate Project operating gross profit/(loss)¹	8,516	(7,690)	826
Consolidated Group net profit/(loss) ²	2,927	(11,935)	(9,008)
Basic earnings per share	0.88	(3.58)	(2.70)
Diluted earnings per share	0.86	(3.52)	(2.66)
Group net revenue ³	40,279	17,048	57,328
Masbate Project cash flow from operating activities^4	14,330	(3,184)	11,146
Masbate Project operating cash flow per share^4	4.30	(0.95)	3.34
Average realized gold price (per ounce)	1,280	960	1,166
Cash operating cost (per ounce sold) ^4	832	1,167	951
Adjusted cash operating cost (per tonne processed) ^4	26	37	30

¹ The Masbate Project operating gross profit shows a combination of the operating results of our subsidiary, Phil. Gold Processing and Refining Corp. ("PGPRC") and our associate, Filminera Resources Corporation ("FRC"), excluding financing costs, fair value movements on derivative instruments and foreign exchange movements.
² Group net profit or loss represents the consolidated group and accordingly includes amounts that may not be related to the Masbate Gold Project, does not consolidate FRC and includes the margin on ore sales between PGPRC and FRC.
³ Group net revenue adjusts revenue from the sale of gold and silver for refining / selling costs, interest income and notional interest accretion.
⁴ Masbate Project cashflow from operating activities and adjusted cash operating cost per ounce reflects a combination of the operating results of PGPRC and FRC and excludes changes in working capital items, and adjusts for gold inventory and stockpile movements, capital expenditure, all taxes, royalties and corporate costs.

2. Consolidated Results
(In thousands of dollars, except amounts per ounce, per tonne and per share)

Profit and Loss

	Three-month period ended			Year to date
	December 31, 2011	September 30, 2011	Variation	December 31, 2011
Revenues	40,279	17,048	23,231	57,328
Group net profit/(loss)	2,927	(11,935)	14,862	(9,008)
Depreciation and amortisation¹	4,010	1,953	2,057	5,963
Interest	693	729	(36)	1,422
Basic earnings per share (continuing operations)	0.88	(3.58)	4.46	(2.70)

¹ Depreciation and amortisation reflects the accounting expense booked by the consolidated group so excludes depreciation and amortisation expensed by FRC.

The consolidated profit and loss results reflect the consolidated CGA group results and accordingly include a consolidation of PGPRC and do not consolidate the results of FRC.  On this basis, it includes the margin paid by PGPRC to FRC for the acquisition of ore, and some of the costs of FRC such as taxes paid, depreciation and other costs which are on charged to PGPRC as included in the mining fee. For the comparison of the quarter and year to date to the previous quarter and periods, please refer to Section 10 of this MD&A.

Consolidated Cash Flows from Operating Activities
(In thousands of dollars)

	Three months ended		Year to Date
	December 31, 2011	September 30, 2011	December 31, 2011
Reconciliation of net loss after tax to net cash flows from operations
Net profit/(loss)after related income tax	2,927	(11,935)	(9,008)
Adjustment for non-cash income and expense items:
Depreciation and amortisation	4,010	1,953	5,963
Unrealised foreign exchange (gain)/loss	75	(19)	56
Share-based payments	-	460	460
Share of loss of associate	1,206	949	2,155
Interest income on receivable from associate	(728)	(728)	(1,456)
Borrowing and finance costs	805	962	1,767
Movement in fair value of derivatives	151	471	622
Changes in assets and liabilities:
Change in working capital	(1,925)	(5,816)	(7,741)
Net cash inflow/(outflow) from operating activities	6,521	(13,703)	(7,182)

Consolidated cash flows from operations reflect the consolidated CGA group results and accordingly include a consolidation of PGPRC and do not consolidate the results of FRC.  On this basis, it includes the margin paid by PGPRC to FRC for the acquisition of ore, and some of the costs of FRC such as taxes paid, depreciation and other costs which are on charged to PGPRC as included in the mining fee. These cash flows also reflect the operating cash flows of the corporate entities within the group, which include activities not directly related to the Masbate Gold Project.

Cash flows from operating activities were a net inflow of $6.521M for the quarter ended 31 December 2011 (30 September 2011 net outflow of $13.703M). The decrease from the prior period is largely due to the increased gold sales resulting from the increased processing capacity of the mill.  Mill throughput increased during the quarter as a result of the commissioning of the supplementary crusher on 20 September 2011, with 866,140 tonnes milled for the December quarter, as compared to 566,938 tonnes for the previous quarter, producing 27,820 ounces of gold (September quarter: 14,935 ounces of gold), an increase of 86%. Sales of gold at spot prices have increased from the previous quarter due to increased production levels, resulting in an average gold sales price of $1,280 for December, compared to $960 for September, with 14,486oz of gold sales relating to hedge sales. Operating cash outflows have decreased as a result of the reduced mining operations and operating capacity of the SAG Mill, although fixed costs have remained constant.  Repair work on the SAG mill was completed during the quarter, and normal production is expected to resume in the March quarter.

3. Mining Operations
(In thousands of dollars, except amounts per ounce, per tonne and per share)

Masbate Gold Project	Three-month period ended			Year to date
Operating Data	December 31, 2011	September 30, 2011	Variance	December 31, 2011
Ore mined (tonnes)	1.22M	0.50M	0.72M	1.72M
Ore processed (tonnes)	0.87M	0.57M	0.30M	1.43M
Head grade (g/t) (processed)	1.10	0.92	0.18	1.03
Recovery (%)	90.6%	89.3%	1.3%	90.10%
Gold ounces produced	27,820	14,935	12,885	42,755
Gold ounces sold	30,171	16,615	13,556	46,786
Financial Data (in thousands of dollars)
Revenues - Gold and silver sales	39,347	16,287	23,060	55,634
Masbate Project cash operating costs	25,101	19,386	5,715	44,487
Excise tax¹	1,265	1,553	(288)	2,818
Depreciation and amortisation	3,694	2,544	1,150	6,238
Corporate / Makati administration	774	622	152	1,396
Interest²	778	821	(43)	1,599
Masbate Project gross profit/(loss)	8,516	(7,690)	16,206	826
Masbate Project net profit/(loss)	7,207	(9,110)	16,317	(1,901)
Masbate Project cashflow from operating activities³	14,330	(3,184)	17,514	11,145
Mining fleet capital payments	2,321	1,082	1,239	3,403
Total capital expenditure	8,178	8,185	(7)	16,363
Deferred mining expenditure	-	-	-	-
Tax related payments^4	513	1,814	(1,301)	2,327
Statistics ($)
Average realized price (per ounce)	1,280	960	320	1,166
Cash operating cost (per ounce sold)^2	832	1,167	(335)	951
Adjusted cash operating cost (per tonne processed) ^2	26	37	(11)	30

¹ Excise tax reflects tax paid rather than tax accrued for as there are quarterly payments that cross over accounting periods.
² Interest expense includes interest payments in relation to the BNP finance facility and the finance lease held by PGPRC for the Masbate project mine equipment.
³ Masbate Project cashflow from operating activities and adjusted cash operating cost per ounce reflects a combination of the operating results of PGPRC and FRC and excludes changes in working capital items, and adjusts for gold inventory and stockpile movements, capital expenditure, all taxes, royalties and corporate costs.
⁴ Taxes includes the VAT payments which are in part recoverable, and accordingly capitalised and not recognised in the net income figures, and other local taxes but excludes excise tax.

Masbate Operations

The financial and operating results set out above for the Masbate Gold Project are not based on the consolidated group financial statements as FRC, the entity that mines the ore and sells it to PGPRC for processing is not consolidated. The specific purpose analysis set out above is done as an illustration of the operating results of the project if you were to combine the financial results of PGPRC and FRC as if it were a group.

Revenue from metal sales for the December quarter increased by $23.060M or 142%, from the previous quarter, a result of production being 86% higher in the December quarter as compared to the September quarter.  The increased gold production resulted in increased gold sales at spot prices, with more than half of gold sales at spot prices, therefore increasing the average realised price of gold sold in the current quarter to $1,280/oz for the December quarter as compared to $960/oz for the September quarter. Mill throughput was increased as a result of the commission of the supplementary crusher on 20 September 2011. Mill throughput was 866,140 tonnes (September quarter: 566,938 tonnes) to produce 27,820 ounces (September quarter: 14,935 ounces) of gold. Gold production increased due to higher ore tonnes treated, and there was an improvement in the recovery rate of 90.6% (June quarter: 89.3%). The repairs to the SAG Mill were completed in the current quarter, which should see production return to normal previous levels.

Adjusted cash costs per tonne milled were $26/t compared to $37/t during the previous quarter, adjusted for waste deferral and ore stockpile valuation changes. Cash operating costs per ounce were down 29% to US$832/oz (US$1,167/oz in the September quarter) due to increased throughput and the impact of fixed operating costs on the production cost/oz.

4. Consolidated Balance Sheet
(In thousands of dollars, except amounts per ounce, per tonne and per share)

	For the period ended
	December 31, 2011	September 30, 2011	Variation
Cash and cash equivalents^1	72,996	83,220	(10,224)
Cash and liquid assets^2	144,355	174,416	(30,061)
Current assets	111,521	111,292	229
Restricted cash^1	9,000	9,000	-
Property, plant and equipment	190,457	191,615	(1,158)
Mining fleet finance lease	24,458	26,379	(1,921)
Investments and other assets	81,786	73,739	8,047
VAT receivable	20,452	20,109	343
Total Assets	444,891	438,264	6,627
BNP project finance facility	35,519	39,540	(4,021)
Derivative liabilities	74,126	91,286	17,160
Mining fleet finance lease	23,442	24,471	(1,029)
Total Liabilities	158,643	171,638	(12,995)
Shareholders' Equity	286,247	266,626	19,621

¹ Cash and cash equivalents at 31 December 2011 include an amount of $9,000,000 (30 September  2011: $9,000,000) held with BNP Paribas in line with the requirements of project financing facility agreement which requires two quarters of principal and interest payments due on the facility to be held on deposit.
² Cash and liquid assets includes cash and cash equivalents, held by the consolidated group, cash held by the consolidated group's associate, FRC, investments in listed securities valued as at the balance date, and gold on hand, valued at as at the balance date.

Total assets of the Company increased during the period, mainly attributable to the increase in gold sales during the quarter which resulted in the conversion of inventory at cost price into cash at the higher sales value, and increased inventory resulting from increased ore stockpiles. ($6.364M at 31 December 2011 compared to $2.616M at 30 September 2011). As at 31 December 2011, the Company had 5,882oz of gold on hand, with a market value of $9.3M (based on the market spot rate at 31 December 2011) however for accounting purposes this gold inventory is recorded at its cost value on the balance sheet and carried at $5.0M at the balance date. In addition, the Company has also repaid $4.021M in principal on the BNP finance facility during the current quarter, bringing the outstanding principal balance to $35.519M at 31 December 2011.

The VAT receivable reflects the payments made for VAT as at the balance date and represents an estimate of proceeds to be refunded or realised from a sale of those tax credits to other parties.

5. Derivative Financial Instruments

A hedging program of puts covering 46,079 ounces (which expired during the 2010 financial year) and forward sales covering 214,337 ounces was successfully executed during the September 2008 quarter. The effective portion of changes in the fair value of these derivatives that have been designated and qualify as cash flow hedges are recognised in equity in the cash flow hedge reserve. The gain or loss relating to the ineffective portion or portion that does not qualify for hedge accounting is immediately recognised in the income statement. If the forecast transaction is no longer expected to occur, amounts recognised in equity are transferred to the income statement. In March 2009, the Company subsequently executed further hedging comprising fuel hedges and interest rate swaps. The fuel hedges do not qualify for hedge accounting and all changes to the fair value of the fuel derivatives are recognised in the profit and loss. The gain or loss relating to the ineffective portion or portion that does not qualify for hedge accounting is immediately recognised in the income statement. If the forecast transaction is no longer expected to occur, amounts recognised in equity are transferred to the income statement.  The amount reflected in the group consolidated profit and loss for hedge related expenses is a loss of $0.151M for the quarter, which is the result of losses on its HFO and diesel fuel swap contracts of $0.344M and a gain of $0.193M on its interest rate swap which do not qualify for hedge accounting. The remaining balance of gold forward sales contracts as at 31 December, 2011 is 108,371 ounces at an average price of $894/oz.

Summary of gold forward sales contracts

Expiry Date	Settlement Date	Total Ounces	Average Price (US$)
27 Jan 2012 - 31 Dec 2012	27 Jan 2012 - 31 Dec 2012	58,146	875.47
29 Jan 2013 - 27 Dec 2013	31 Jan 2013 - 31 Dec 2013	50,225	912.67

Summary of interest rate swap contract

Start Date	End Date	Total Loan Amount (US$)	Fixed interest rate
31 Dec 2011	31 Mar 2012	17,800,000	2.41%
31 Mar 2012	30 Jun 2012	15,700,000	2.41%
30 Jun 2012	30 Sep 2012	13,600,000	2.41%
30 Sep 2012	31 Dec 2012	5,710,000	2.41%
31 Dec 2012	31 Mar 2013	4,600,000	2.41%
31 Mar 2013	30 Jun 2013	3,500,000	2.41%
30 Jun 2013	30 Sep 2013	2,350,000	2.41%
30 Sep 2013	31 Dec 2013	1,200,000	2.41%

Summary of HFO fuel swap contracts

Expiry Date	Settlement Date	Total Barrels	Average Price (US$)
1 Jan 2012 - 30 April 2012	1 Jan 2012 - 30 April 2012	11,392	58.06

Summary of diesel swap contracts

Expiry Date	Settlement Date	Total Barrels	Average Price (US$)
1 Jan 2012 - 30 April 2012	1 Jan 2012 - 30 April 2012	3,780	79.27

6. Commitments and Contingencies

	Consolidated
	Dec 2011	Sept 2011
	US$	US$
Operating lease commitments - Group as lessee
Due within one year	369,014	61,786
After one year but no more than five years	707,277	-
Aggregate lease expenditure contracted for at balance date	1,076,291	61,786
Finance lease commitments - Group as lessee
Due within one year	7,329,752	7,296,497
After one year but no more than five years	21,738,018	22,409,631
Aggregate lease expenditure contracted for at balance date	29,067,770	29,706,128

Other Commitments

(a)  Mining services commitments	10,974,000	21,948,000
(b)  Power services contract commitments	419,995	422,086
(c)  Camp Management commitments	86,301	86,301
(d)  Laboratory services commitments	205,431	205,431
(e)  Other capital commitments	1,526,790	2,434,635

The Company is party to a mining services contract between Leighton Contractors (Philippines) Limited and Filminera Resources Corporation which has been determined to contain a finance lease. Under the Ore Purchase Agreement, PGPRC is contracted to purchasing ore from Filminera at cost plus a profit margin. The Company is also party to a contract for the operation of the power station at the Masbate Gold Project. The contract has a 3 month termination notice period. The camp management commitments relate to capital commitments for camp improvements. Laboratory services agreements relate to a 3 month termination notice period on the laboratory services contract.

BNP project finance debt facility		31 Dec 2011	30 Sept 2011
Due within one year		8,313,120	12,334,810
After one year but no more than five years		27,205,890	27,205,220
		35,519,010	39,540,030

Insurance Premium Funding facility		31 Dec 2011	30 Sept 2011
Due within one year		7,230,294	-
After one year but no more than five years		-	-
		7,230,294	-

	Payments due by period
Contractual Obligations	Total	Less than 1 year	1 - 3 years	4 - 5 years	After 5 years
Debt
Finance Lease Obligations	29,067,770	7,329,752	18,607,092	3,130,926	-
Operating Leases	1,076,291	369,014	707,277	-	-
Purchase Obligations	13,212,517	13,212,517	-	-	-
Other Obligations	-	-	-	-	-
Total Contractual Obligations	43,356,578	20,911,283	19,314,369	3,130,926	-

7. Liquidity and Capital Resources 

As at 31 December, 2011, the Company had cash and cash equivalents of $72.9M as compared to $83.2M at 30 September 2011, and $78.3M at 31 December 2010. Cash and liquid assets of the Company were $144.4M at 31 December 2011 (30 September, 2011: $174.4M). The decrease from the prior quarter is principally due to the decrease of $13.4M in the market value of listed investments. 

During the 2010 financial year the Company completed a private placement, issuing 39.1M ordinary shares at C$2.20 per share in February 2010, raising a total of C$111.02M. The net proceeds from this issue were used, amongst other things, to repay the $25M promissory notes and $10M loan facility from Meridian and Casten and were used to increase exploration activity at the Masbate Gold Project.

During the current quarter, the Company has repaid $4.0M in principal and $0.5M in interest on the financing facility with BNP Paribas, reducing the balance owing at 31 December 2011 to $35.5M.

The Company manages liquidity risk through cash reserves, credit facilities and equity capital raising to meet the operating requirements of the business, investing excess funds in highly liquid short term cash deposits. The Company's liquidity needs can likely be met through cash on hand and short and long-term borrowings, subject to current forecast operating parameters being met.

The Company currently has in place an active program of financial forecasting and budgeting both at a corporate and project level to manage both the application of funds and planning for future financial needs to ensure that any shortfall in revenue funds is adequately covered by cash reserves or planned new sources being either debt or equity based on the then most cost effective weighted average cost of capital.

Credit Risk represents the loss that would be recognised if counterparties failed to perform as contracted. The Group's maximum exposures to credit risk at the reporting date in relation to each class of financial asset is the carrying amounts of those assets as indicated in the Balance Sheet.

8. Subsequent Events

The SAG Mill was brought back online on 25 December 2011 and has resulted in an 82% increase in throughput for the month of January 2012, with throughput now returned to a steady state 6.5mtpa production rate.

9. Risks and Uncertainties  

As a mining company, the Company faces the financial, operational, political and environmental risks inherent to the nature of its activities. These risks may affect the Company's profitability and level of operating cash flow.  The Company also faces risks stemming from other factors, such as fluctuations in gold prices, oil prices, interest rates, exchange rates, tax or royalty rates or the adoption of new interpretation relating thereto and financial market conditions in general. As a result, the securities of the Company must be considered speculative. Prospective purchasers of the common shares of the Company should give careful consideration to all of the information contained or incorporated by reference in this Management's Discussion and Analysis including the Annual Information Form for June 2011 and, in particular, the following risk factors.

Financial Risks

Fluctuation in Gold Prices
The profitability of CGA's operations will be significantly affected by changes in the market price of gold. Gold production from mining operations and the willingness of third parties, such as central banks, to sell or lease gold affects the gold supply. Demand for gold can be influenced by economic conditions, gold's attractiveness as an investment vehicle and the strength of the US dollar and local investment currencies. Other factors include the level of interest rates, exchange rates, inflation and political stability. The aggregate effect of these factors is impossible to predict with accuracy.  Gold prices are also affected by worldwide production levels.  In addition, the price of gold has on occasion been subject to very rapid short-term changes because of speculative activities.  Fluctuations in gold prices may adversely affect CGA's financial performance and results of operations.

Fluctuation in Oil Prices
Because CGA uses diesel and heavy fuel oil to power its mining equipment and power stations to supply its mining operations, CGA's operating results and financial results may be adversely affected by rising petroleum prices. A portion of the costs until April 2012 are the subject of fuel hedges.

Exchange Rate Fluctuations
The operations of CGA in the Philippines are subject to currency fluctuations and such fluctuations may materially affect the financial position and results of CGA. Gold is currently sold in US dollars and although the majority of the costs of CGA are also in US dollars, certain costs are incurred in other currencies. The appreciation of non-US dollar currencies against the US dollar can increase the cost of exploration and production in US dollar terms, which could materially and adversely affect CGA's profitability, results of operations and financial condition.

Access to Capital Markets
To fund its growth, CGA is often dependent on securing the necessary capital through loans or permanent capital.  The availability of this capital is subject to general economic conditions and lender and investor interest in CGA's projects.

Hedging Risk
The Group is exposed to movements in the gold price, other commodities and interest rates. As part of the risk management policy of the Group and in compliance with the conditions required by the Group's financiers, a variety of financial instruments (such as gold forward sales contracts and gold put options) are used from time to time to reduce exposure to unpredictable fluctuations in the project life revenue streams. Within this context, the hedging programs undertaken are structured with the objective of retaining as much upside to the gold price as possible, but in any event, by limiting hedging commitments to no more than 50% of the group gold reserves. The Group has also entered into a number of other derivative instruments including interest rate swaps and fuel hedging contracts.  In the event that the Group cannot deliver into these contracts due to insufficient gold production at the Masbate Gold Project, an early repayment of the loans or reduced fuel needs, the Group could be exposed to material mark to market adjustments which could cause material liquidity requirements which may not be able to be funded from the cashflow from operations.

Banking Covenants
Construction of the Masbate Project has in part been financed by project finance from commercial banks which has representations, financial commitments, banking ratios and other covenants which must be satisfied at all times. Given the risks to operating cashflow as described above, the Company is exposed to potential Events of Default which could make all amounts due and payable immediately or expose the group to working capital needs which may not be able to be funded by proceeds from operations. Such exposures can also cause cross-defaults on other debt facilities, making those due and payable immediately which may not be able to be funded from cash reserves.

Concentration of Share Ownership
Majority or significant shareholders may be are able to exercise significant influence over all matters requiring shareholder approval, including the election of directors and approval of significant corporate transactions and such parties may not act in the best interests of the Company.

Thistle, PGO Loan and Inter-Company Loans
Some of the Philippine Gold Limited ("PGO") (which was acquired from Thistle) loans and inter-company loans have been in place for a number of years. In 2005 and 2006, PGO, FRC and PGPRC undertook a restructuring of the inter-company loans acting on the advice of its tax consultants. Some inter-company loans were converted into interest-bearing loans, and a portion of the inter-company loans were converted into "additional paid-in capital".

There is a risk that the past and current structure of the inter-company loans may have adverse tax consequences.

Operational Risks

Uncertainty of Reserve and Resource Estimates
The figures for reserves and resources presented are estimates based on limited information acquired through drilling and other sampling methods.  No assurance can be given that the anticipated tonnages and grades will be achieved or that the indicated level of recovery will be realized.  The ore grade actually recovered may differ from the estimated grades of the reserves and resources.  Such figures have been determined based upon assumed gold prices and operating costs.  Future production could differ dramatically from reserve estimates for, among others, the following reasons:

• mineralization or formations could be different from those predicted by drilling, sampling and similar examinations;
  
  
• increases in operating mining costs and processing costs could adversely affect reserves;
  
  
• the grade of the reserves may vary significantly from time to time and there is no assurance that any particular level of gold may be recovered from the reserves; and
  
  
• declines in the market price of gold may render the mining of some or all of the reserves uneconomic.

Any of these factors may require CGA to reduce its reserves estimates or increase its costs. Short-term factors, such as the need for the additional development of a deposit or the processing of new different grades, may impair CGA's profitability.  Should the market price of gold fall, CGA could be required to materially write down its investment in mining properties or delay or discontinue production or the development of any new projects.

Production
No assurance can be given that the intended or expected production schedules or the estimated direct operating cash costs will be achieved in respect of the operating gold mine in which CGA has an interest.  Many factors may cause delays or cost increases, including, without limitation, labour and local issues, disruptions in power, transportation or supplies, and mechanical failure.  The revenues of CGA from the operating gold mines will depend on the extent to which expected operating costs in respect thereof are achieved.  In addition, short-term operating factors, such as the need for the orderly development of ore bodies or the processing of new or different ore grades, may cause a mining operation to be unprofitable in any particular period.

Nature of Mineral Exploration and Mining
CGA's profitability is significantly affected by CGA's exploration and development programs.  The exploration and development of mineral deposits involves significant financial risks over a significant period of time, which even a combination of careful evaluation, experience and knowledge may not eliminate. While the discovery of a gold-bearing structure may result in substantial rewards, few properties explored are ultimately developed into mines.  Major expenses may be required to establish and replace reserves by drilling, and to construct mining and processing facilities at a site. It is impossible to ensure that the current or proposed exploration programs on CGA's exploration properties will result in profitable commercial mining operations.

CGA's operations are, and will continue to be, subject to all of the hazards and risks normally associated with the exploration, development and production of gold, any of which could result in damage to life or property, environmental damage and possible legal liability for any or all damage.  CGA's activities may be subject to prolonged disruptions due to weather conditions depending on the location of operations in which CGA has interests. Hazards, such as unusual or unexpected formations, rock bursts, pressures, cave-ins, flooding or other conditions may be encountered in the drilling and removal of material. While CGA may obtain insurance against certain risks in such amounts as it considers adequate, the nature of these risks are such that liabilities could exceed policy limits or could be excluded from coverage.  There are also risks against which CGA cannot insure or against which it may elect not to insure. The potential costs which may be associated with any liabilities not covered by insurance or in excess of insurance coverage or compliance with applicable laws and regulations may cause substantial delays and require significant capital outlays, adversely affecting CGA's earnings and competitive position in the future and, potentially, its financial position and results of operations.

Whether a gold deposit will be commercially viable depends on a number of factors, some of which are the particular attributes of the deposit, such as its size and grade, proximity to infrastructure, financing costs and governmental regulations, including regulations relating to prices, taxes, royalties, infrastructure, land use, importing and exporting of gold, revenue repatriation and environmental protection. The effects of these factors cannot be accurately predicted, but the combination of these factors may result in CGA not receiving an adequate return on invested capital.

Depletion of the Company's Mineral Reserves
CGA must continually replace mining reserves depleted by production to maintain production levels over the long term.  This is done by expanding known mineral reserves or by locating or acquiring new mineral deposits. There is, however, a risk that depletion of reserves will not be offset by future discoveries of mineral reserves.  Exploration for minerals is highly speculative in nature and involves many risks.  Many projects are unsuccessful and there are no assurances that current or future exploration programs will be successful.  Further, significant costs are incurred to establish mineral reserves, open new pits and construct mining and processing facilities.  Development projects have no operating history upon which to base estimates of future cash flow and are subject to the successful completion of feasibility studies, obtaining necessary government permits, obtaining title or other land rights and the availability of financing.  In addition, assuming discovery of an economic mine or pit, depending on the type of mining operation involved, many years may elapse before commercial operations commence.  Accordingly, there can be no assurances that CGA's current programs will result in any new commercial mining operations or yield new reserves to replace and/or expand current reserves.

Licenses and Permits
CGA requires licenses and permits from various governmental authorities. CGA believes that it holds all necessary licenses and permits under applicable laws and regulations in respect of its properties and that it is presently complying in all material respects with the terms of such licenses and permits. Such licenses and permits, however, are subject to change in various circumstances. There can be no guarantee that CGA will be able to obtain or maintain all necessary licenses and permits that may be required to explore and develop its properties, commence construction or operation of mining facilities and properties under exploration or development or to maintain continued operations that economically justify the cost.

Competition
The mineral exploration and mining business is competitive in all of its phases. CGA competes with numerous other companies and individuals, including competitors with greater financial, technical and other resources than CGA, in the search for and the acquisition of attractive mineral properties and, increasingly, human resources. There is no assurance that CGA will continue to be able to compete successfully with its competitors in acquiring properties or prospects and in attracting and retaining human resources.

Cash Cost of Gold Production
CGA's cash operating cost to produce an ounce of gold is dependent on a number of factors, including the grade of reserves, recovery and plant throughput.  In the future, the actual performance of CGA may differ from the estimated performance. As these factors are beyond CGA's control, there can be no assurance that CGA's cash operating cost will continue at historical levels or perform as forecast.

Title Matters
While CGA has no reason to believe that the existence and extent of any mining property in which it has a participating interest is in doubt, title to mining properties is subject to potential claims by third parties.  The failure to comply with all applicable laws and regulations, including failure to pay taxes and carry out and file assessment work, may invalidate title to portions of the properties where the mineral rights are not held by CGA.

Outside Contractor Risk
The mining and exploration activities are conducted by outside contractors. As a result, CGA's operations at these sites will be subject to a number of risks, some of which will be outside CGA's control, including:

• negotiating agreements with contractors on acceptable terms;
  
  
• the inability to replace a contractor and its operating equipment in the event that either party terminates the agreement;
  
  
• reduced control over such aspects of operations that are the responsibility of the contractor;
  
  
• failure of a contractor to perform under its agreement with CGA;
  
  
• interruption of operations in the event that a contractor ceases its business due to insolvency or other unforeseen events;
  
  
• failure of a contractor to comply with applicable legal and regulatory requirements, to the extent that it is responsible for such compliance; and
  
  
• problems of a contractor with managing its workforce, labour unrest or other employment issues.

In addition, CGA may incur liability to third parties as a result of the actions of a contractor.  The occurrence of one or more of these risks could have a material adverse effect on CGA's business, results of operations and financial condition.

Safety and Other Hazards
The mining industry is characterised by significant safety risks.  To minimize these risks, the Company has established an Occupational Health Safety & Environment Management Plan ("OHS&E"). The Company provides OHS&E training and awareness programs to its employees and contractors to continuously improve work practices and the work environment however there are no guarantees that this will prevent safety issues, accidents or other hazards.

Political Risks
CGA currently holds interests in gold projects in the Republic of the Philippines, which may be considered to have high political and sovereign risk. The Company also has its head office operations located in Australia. Any material adverse changes in government policies or legislation of Australia, Nigeria, the Republic of Zambia (given the investment in Ratel Group) or the Republic of the Philippines or any other country that the Company has economic interest in that affect mineral exploration activities, may affect the viability and profitability of the Company.

While the government in the Philippines has historically supported the development of their natural resources by foreign companies, there is no assurance that the government will not in the future adopt different policies or interpretations respecting foreign ownership of mineral resources, royalties rates, taxation, rates of exchange, environmental protection, labour relations, repatriation of income or return of capital or the obligations of CGA under its respective mining codes. The possibility that the government may adopt substantially different policies or interpretations, which might extend to the expropriation of assets, may have a material adverse effect on CGA. Political risk also includes the possibility of civil disturbances and political instability.

Small Scale Miners
Small scale miners have been operating in Aroroy, Masbate since the time Atlas operated in the area. While their processing operations are not on FRC's property, there has been evidence of contamination from tailing and effluent discharges within the Company's boundary. Although FRC is not liable for their contamination, the Company has been diligent in attempting to limit the activities of these miners and informing the public about the risk of contamination. In line with attempts to limit and control their activities the Company, in coordination with local and National government is endeavouring to enter into agreements with small scale miners. The agreements will form local cooperatives to legally work on some areas of the Company's mineral tenements outside of its operations that are not suitable for large scale mining.  There is also a natural conflict in objectives between small scale miners and the Company and FRC as the small scale miners have no legal rights to mine and are keen to access as much ore as possible.  In contrast, the Company and FRC have a stated position of allowing some level of activity however, require it to be contained to nominated areas only.  Accordingly, there are risks that conflict can arise which could materially adversely affect the operations of CGA and/or FRC.

Dependence on Key Management Personnel and Executives
The Company will be dependent upon the continued support and involvement of a number of key management personnel. The loss of the services of one or more of such personnel could have a material adverse effect on the Company. The Company's ability to manage its exploration and development activities and, hence, its success, will depend in large part on the efforts of these individuals. The Company faces intense competition for qualified personnel and there can be no assurances that the Company will be able to attract and retain personnel.

Land Holdings
In general, Filminera has valid title to or preferential rights to use and possess the parcels of land needed for its mining operations at the Masbate Gold Project. The following are outstanding issues:
(i)  titles to three parcels of land are being judicially confirmed by applying for registration under the Land Registration Act; and
(ii)  three claimants have filed an action contesting the title of FRC to three parcels of land.

While FRC anticipates that these land issues will be resolved, no assurance can be given that the matters will be resolved in FRC's favour in a timely manner, or at all.

Community Relations
At the Masbate Gold Project, community support is critical to the continued successful operation of the project, including equitable and sensible co-operation with local small scale mining activities. The Philippines operates on a relatively decentralised system and accordingly, all constituents potentially have an impact on the operations of the project and may have interests that conflict with those of the project, which may have a material adverse effect on the project and the Company.

Regulations in the Philippines
The Philippines Constitution provides that all natural resources are owned by the State which may enter into a co-production, joint venture or production sharing agreement with citizens of the Philippines or corporations or associations at least 60% of whose capital is owned by Philippine citizens.

Commonwealth Act No. 108, as amended (otherwise known as the "Anti-Dummy" Act), provides penalties for, amongst others: (a) Filipinos who permit aliens to use them as nominees or dummies so that the aliens could enjoy privileges otherwise reserved for Filipinos or Filipino corporations, and (b) aliens or foreigners who profit from the adoption of these dummy relationships. It also penalises the act of falsely simulating the existence of minimum stock or capital as owned by citizens of the Philippines or any other country in cases in which a constitutional or legal provision requires that before a corporation or association may exercise or enjoy a right, franchise or privilege, not less than a certain percentage of its capital must be owned by such citizens.

The Anti-Dummy Act likewise prohibits aliens from intervening in the management, operation, administration or control of nationalised business or enterprises, whether as officers, employees or labourers, with or without remuneration, except that aliens may take part in technical aspects only, provided (a) no Filipino can do such technical work, and (b) it is with express authority from the Secretary of Justice. The Anti-Dummy Act also allows the election of aliens as members of the boards of directors or the governing bodies of corporations or association engaged in partially nationalised activities in proportion to their allowable participation or share in the capital of such entities. Although we have advice our structure complies with all Philippine regulations, there is a risk that it could be questioned or challenged given limited precedents to date in country.

Environmental Risks and Hazards
All phases of CGA's operations are subject to environmental regulation. Environmental legislation is evolving in a manner which will require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects, and a heightened degree of responsibility for companies and their officers, directors and employees. Environmental hazards which are unknown to CGA at present and which have been caused by previous or existing owners or operations of the properties may exist on CGA's properties. Failure to comply with applicable environmental laws and regulations may result in enforcement actions there under and may include corrective measures that require capital expenditures or remedial actions. There is no assurance that future changes in environmental laws and regulations and permits governing operations and activities of mining companies, if any, will not materially adversely affect CGA's operations or result in substantial costs and liabilities to CGA in the future.

Production at CGA's mines involves the use of sodium cyanide which is a toxic material. Should sodium cyanide leak or otherwise be discharged from the containment system, CGA may become subject to liability for clean-up work that may not be insured.  While all steps have been taken to prevent discharges of pollutants into ground water and the environment, CGA may become subject to liability for hazards that it may not be insured against.

10. Quarterly Information

Selected Quarterly Information
($US in thousands, except for per share information)
(unaudited, in accordance with IFRS)

	2012   Annual   Total	Q2    Dec -    11	Q1    Sep -     11	2011    Annual    Total	Q4    Jun -    11	Q3      Mar -    11	Q2     Dec -    10	Q1    Sep -    10	2010    Annual     Total	Q4    Jun -     10	Q3    Mar -     10
Gold and silver sales	55,634	39,347	16,287	235,314	72,942	43,483	68,539	50,350	155,476	47,270	40,477
Total revenues	57,328	40,279	17,049	238,481	73,625	44,272	69,542	51,042	158,024	47,360	41,358
Net profit/(loss)	(9,008)	2,927	(11,935)	65,082	18,800	7,263	26,983	12,036	15,992	2,940	5,413
Per share (undiluted US$ cents per share)	(2.70)	0.88	(3.58)	19.56	5.65	2.16	7.93	3.83	5.36	0.99	1.63
Per share (diluted US$ cents per share)	(2.66)	0.86	(3.52)	19.23	5.55	2.14	7.88	3.79	5.30	0.97	1.61

Fluctuations in the quarterly net loss or profit amounts over the two year period ended 31 December 2011 are predominantly due to the following factors:

• the ramp up of production at the Masbate Gold Project which commenced during the 2010 financial year and achieved a steady state in the 2011 financial year;
  
  
• Additional borrowing costs across the 2010 financial year in relation the Meridian and Casten loan facility and the promissory notes, both of which were repaid in the March quarter of the 2010 financial year;
  
  
• the recognition of fair value mark to mark movements of the Company's derivative instruments which do not qualify for hedge account, or the ineffective portion of those that do;
  
  
• exploration activities in Zambia and Nigeria for the periods up to 30 June 2010 and notional gain on the deconsolidation of the entities holding these project in quarter 1 of the 2011 financial year;
  
  
• the recognition of a notional expense on share options and warrants issued by the Company which expired in February 2010. Fluctuations in the theoretical fair value on the warrants were required to be recognised in the profit and loss statement each period. These amounts do not represent either a current or future cash flow or loss to the Company; and
  
  
• the decreased gold production during the current financial year, resulting from the breakdown of the SAG Mill in July 2011, which has resulted in lower gold sales and higher costs per ounce due to the fixed cost component of operations.

Quarterly Results
Three Months Ended December 31, 2011 Compared to the Three Months Ended September 30, 2011 and the Three Months Ended December 31, 2010

The Company's result for the three months ended December 31, 2011 was a net profit of $2.927M or 0.88 cents per share (undiluted) as compared to a net loss of $11.935M or 3.58 cents per share (undiluted) for the September 2011 quarter and a net profit of $26.983M or 7.93 cents per share (undiluted) for the December 2010 quarter. The result for the most recent quarter reflects the impact from the disruption to the SAG Mill during the previous quarter, which resulted in reduced processing capacity for the September 2011 quarter.  With the commissioning of the supplementary crusher in late September 2011, production in the December 2011 quarter increased and consequently resulted in increased metals sales and revenues in the current quarter of $39.347M, as compared to the September 2011 quarter sales revenue of $16.287M.  Cost of sales for the current quarter was $32.322M as compared to $23.541M in the previous quarter (including depreciation, amortisation and tax expenses). The increase in cost of sales from the September 2011 quarter was predominantly a result of the increased mining & processing activities during the current period as a result of the commissioning of the supplementary crusher on 20 September 2011.  The cost of sales includes a mark-up of 10% charged to PGPRC by FRC on the ore sales of $0.796M for the December 2011 quarter, an increase of 125%   compared to $0.354M for the September 2011 quarter, as FRC is an associate of the group and is therefore not consolidated for accounting purposes.  The increase is due to the increased production in the December 2011 quarter as a result of the commissioning of the supplementary crusher during September 2011, and therefore higher ore sales from FRC to PGPRC in the December 2011 quarter.

As previously mentioned, the Mkushi Copper Project and Segilola Projects that were previously operated by the Company were spun out and the interests are now held by the Ratel Group, a 19.1% associate of the Company. The market value of the investment in Ratel Group at 31 December 2011 was $4.93M ($6.95M September 2011).  The Company no longer incurs exploration and evaluation expenses in relation to these activities, however the Company has taken up its proportional share of their loss for the period, along with its other associates being SAU, Masminero Resources, Aroroy Resources and FRC. The total loss from associates taken up by the Company during the current period is $1.206M ($0.949M: September 2011 quarter).

Revenues

The Company earned $40.279M in revenue for the December 2011 quarter as compared to $17.049M in revenue for the prior quarter and $68.539M in revenue for the December 2010 quarter. The increase in revenues by $23.23M or 136% from the prior quarter is a result of an increase in gold ounces sold of 13,556oz or 82% for the December 2011 quarter, with the higher gold production resulting in increased levels of gold sales at spot prices, which resulted in the average gold sales price of $1,280/oz as compared to $960/oz in the previous quarter. In the December 2011 quarter 15,685oz gold was sold at an average unhedged gold sales price of $1,675/oz compared to 2,133oz of gold sold at an average unhedged sales price of $1,752/oz in the September 2011 quarter.  Gold production for the quarter was significantly higher than the previous quarter due to the commissioning of the supplementary crusher on 20 September 2011 which resulted in increased throughput capacity.  Additionally, other operating income was recognised for insurance compensation of $2.363M relating to the insurance claim lodged for repairs to the SAG Mill in the December 2011 quarter.

In addition, as a result of the acquisition of the Masbate Gold Project in late March 2007, the Company has recognised a receivable from its associate, FRC. The acquisition accounting for the business combination through which the Project was acquired requires the accretion of the interest on the discounted receivable to be recognised as revenue during each period. As FRC is an associate, it is required to be equity accounted by the group, with the Company recognizing its ownership portion of the FRC loss in the Company's accounts. As the notional interest accretion gain is recognised as income in the consolidated group and recognised as an expense in Filminera accounts, the amounts are largely offset. The notional interest accretion recognised for the 3 months ended December 30, 2011 was $0.728M (September 2011: $0.728M and December 2010 $0.652M).

Cost of Sales

Cost of sales for the December 2011 quarter was $32.322M as compared to $23.541M for the September 2011 quarter and $42.791M for the December 2010 quarter. Cost of sales increased as a result of the increased mining & processing operations during the December 2011 quarter, with variable costs increasing due to the increased throughput as a result of the commissioning of the supplementary crusher in September 2011.

Cash operating costs for the project (based on a combination of the results of FRC and PGPRC before depreciation, amortisation and taxes) were $832/oz as compared to $1,167/oz in the September 2011 quarter, with the decrease due to the improved throughput and production volumes from the September quarter. Total project cash operating costs for the current quarter increased by $5.715M or 29% as compared to the September 2011 quarter, largely due to the increased mining operations undertaken during the December, 2011 quarter, and the increase in ore processed from the prior quarter, 0.866M tonnes in December 2011 compared to 0.567M tonnes processed in the September 2011 quarter as previously discussed in the Masbate Operations section.  Consumables and supplies expense was $9.507M for the December 2011 quarter as compared to $7.004M for the September 2011 quarter, an increase of $2.503M or 35.7%. This is due to the increase in tonnes milled during the December quarter which has resulted in the increased processing costs for the current quarter.  .

The cost of ore (purchased from the Company's associate, FRC) was $12.145M for the December quarter, as compared to $9.214M for the September 2011 quarter, an increase of $2.931M. The movement in this expense is largely due to the increased mining undertaken in the December quarter.  Mining was suspended on 13 July 2011 as a result of the SAG Mill failure.  Upon recommencement, mining operations was limited to mining only high grade ore required for processing with minimal waste stripping, which resulted in lower quantities of ore produced. The supplementary crusher was commissioned on 20 September 2011 which increased the throughput capacity during the current quarter.

Production costs disclosed in the interim financial statements also include costs which are not included in the cash cost calculation, such as depreciation, amortisation, refining and treatment charges and tax expenses, along with the cost mark up on purchases of ore from its associate, FRC, of $0.796M for December 2011 quarter ($0.354M September 2011 quarter).

Other Expenses

Net other expenses (after cost of sales) for the December 2011 quarter were $7.446M as compared to $5.442M for the September 2011 quarter and a gain of $0.510M in the prior year comparative quarter, which occurred as result of the gain on the deconsolidation of Ratel Gold (now SAU).  Repairs & maintenance costs of $2.863M relating to the repair of the SAG Mill, were also incurred during the December 2011 quarter

Specific Items Contributing to Changes

Movement in fair value of derivative financial instruments
A loss of $0.151M was recognised in the profit and loss statement in December 2011 for the movement in the fair value of the Company's hedges, being losses on its HFO & diesel fuel swap contracts of $0.344M, partially offset by a gain of $193K on interest rate swap contracts. A loss of $0.471M was recognised in the profit and loss for the September 30, 2011 quarter. In the December 2010 quarter a gain of $0.175M was recognised in the profit and loss statement. The movements relate to the fair value of the Company's hedged instruments, and as such are determined by the prevailing market values at each balance date.

Finance costs
The Company incurred finance costs of $0.807M during the period which is comparable to the $0.781M incurred during the September 2011 quarter.  These comprise predominantly interest expense of $0.693M for December 2011 ($0.730M for September 2011) on borrowings on the $80.3M project finance facility with BNP Paribas and finance lease obligations, together with $0.78M for December 2011 ($0.51M for September 2011) of amortisation of capitalised borrowing costs.

Share of loss of associates
In the December 2011 quarter, the Company has recognised a loss of $1.206M in relation to its interests in the results of its associates FRC, Ratel Group, SAU, Aroroy Resources, Inc. ("Aroroy") and Masminero Resources Corporation ("Masminero"), an increase from than the previous quarter loss of $0.949M due to the acquisition of further interests in Aroroy & Masminero during the quarter.  In the December 2010 quarter, the Company recognised a loss of $0.496M, which related to FRC and Ratel Gold.

Administration and other costs
In the current quarter the Company incurred costs of $5.280M as compared to $3.241M for the previous quarter and $1.151M in December 2010. Audit & accounting fees of $0.276M were incurred in the prior quarter in relation to the year end audit, together with tax advice in relation to the Ratel Group spin off, and a notional value of $0.460M relating to employee share option expenses. Repairs & maintenance costs of $2.863M relating to the repair of the SAG Mill, were also incurred during the December 2011 quarter

Half Yearly Results
Six Months Ended December 31, 2011 Compared to the Six Months Ended December 31, 2010

The Company incurred a net loss of $9.008M for the six months ended 31 December 2011 or 2.70 cents per share as compared to a net profit of $39.019M or 11.76 cents per share for the same period the preceding year. The result for the current year reflects revenue from gold and silver sales at the Masbate Gold Project of $55.634M, offset against a cost of sales of $55.863M (including depreciation, amortisation and tax expenses).

Revenues and Cost of Sales

For the six month period ended December 31 2011, the Company earned $57.328M in revenue as compared with $120.584M in the comparable period prior year period. Revenue in the current six month period has been negatively impacted by the breakdown of the SAG Mill, which resulted in decreased gold production throughout the period. The revenue in the current period is almost entirely from proceeds from gold and silver sales, along with a non-cash notional interest accretion on the receivable from the associate of $1.456M. The total gold sales for the current period were 46,786 ounces, at an average price of $US1,167 per ounce. With the repair of the SAG Mill now completed, the Groups production is expected to return to normal for the second half of the financial year.  Other operating income for the current period is the insurance compensation of $2.363M due relating to the insurance claim lodged for SAG Mill repair costs.

Other Expenses

Expenses for the six months to December 2011 (after cost of sales) were $12.887M as compared with $3.778M for the six months ending 31 December 2010. The increase from the prior year is largely due to repairs & maintenance costs of $2.863M relating to the repair of the SAG Mill, and the $1.542M increase in the share of losses of associates from the December 2010 period, as the loss from associates in that period was solely from FRC and St Augustine, while the current period also includes Ratel Group, Masminero & Aroroy.  In the current period, there was a loss on the fair value of derivatives of $0.623M, compared to a gain of $0.175M in the 31 December 2010 period. A gain on deconsolidation of $2.929M was derived during the December 2010 period, which was netted against other expenses.

Specific Items Contributing to Changes

Movement in fair value of derivative financial instruments
The Company recognised a loss of $0.623M in the current half year period as compared to a gain of $0.174M in the prior half year period relating to the movement in fair value of the Company's derivative financial instruments which include commodity hedges and interest rate swaps. The current period loss was primarily due to a loss of $0.978M on the fair value of the HFO & diesel hedges, offset against a gain of $0.355M for the interest rate swap.

Finance costs
The Company incurred borrowing costs of $1.587M during the period. These comprise predominantly a $1.421M interest expense on borrowings on the $80.30M project finance facility with BNP Paribas and finance lease obligations, together with $0.129M amortisation of capitalised borrowing costs.

11. Information on Outstanding Shares

As at February 14, 2012 the Company had 334,725,726 common shares outstanding and 9,521,250 unlisted options on issue.  Each option is exercisable into one common share in the capital of the Company.

12. Disclosure Controls and Procedures

In accordance with Multilateral Instrument 52-109 - Certification of Disclosure in Issuers' Annual and Interim Filings, an evaluation of the effectiveness of the Company's disclosure controls and procedures (DC&P) and its internal control over financial reporting ("ICFR") was conducted. Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that DC&P and ICFR were effective as of the three-month period ended December 31 2011, and that, as a result, ICFR design provides reasonable assurance that material information relating to the Company, is made known to them by others within those entities, particularly during the period in which the annual filings are being prepared, and the information that the Company must present in its annual documents, its interim documents or in other documents it files or submits under securities regulations is recorded, processed, condensed and presented within the times frames prescribed by this legislation. Furthermore, ICFR design provides reasonable assurance that the Company's financial information is reliable and that its financial statements have been prepared, for the purpose of publishing financial information, in accordance with the Company's GAAP.  Lastly, no changes to the ICFR that have had or are likely to have a significant effect on this control mechanism were identified by management during the accounting period commencing on October 1, 2011 and ending on December 31, 2011.

13. Critical Accounting Estimates

The significant accounting policies used by CGA are disclosed in Note 2 to the annual financial statements for the year ended June 30, 2011. Certain accounting policies require that management make appropriate decisions with respect to the formulation of estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses.  Management reviews its estimates on a regular basis. The emergence of new information and changed circumstances may result in actual results or changes to estimated amounts that differ materially from current estimates.

14. Transactions between the group and its related parties

During the quarter ended December 31, 2011, the Company entered into transactions with related parties in the wholly-owned group:

• loans were advanced and repayments received on short term inter-company accounts; and
• loans were received from controlled entities on short term inter-company accounts.

During the quarter ended December 31, 2011 the Company entered into loan advances totalling $3.267M on short term intercompany accounts with its 40% associate, Filminera.

These transactions were undertaken on commercial terms and conditions except that:

• there is no fixed repayment of loans between the related parties; and
• no interest is payable on the loans at present.

During the financial year, the Company entered into the following transactions with related parties:

• Office accommodation and administrative support were provided at commercial rates to Ratel Group, in which the Company holds 19.1% of the outstanding share capital.  In the current quarter Ratel Group was charged $100,898 (excluding GST) in relation to the provision of these services.
  
  
• Ore was purchased from its 40% associate Filminera, pursuant to an Ore Sales and Purchases Agreement, which requires the Company to purchase ore mined from the associate's facility on a cost plus basis.  In the current quarter, $12,862,693 of ore was purchased from Filminera.

15. Additional Information and Continuous Disclosure

This MD&A has been prepared as of February 14, 2012. Additional information on the Company is available through regular filings of press releases, financial statements and its Annual Information Form on SEDAR (sedar.com). You may also find these documents and other information about CGA on our website at www.cgamining.com.

16. Forward-Looking Statements

This MD&A contains forward-looking statements. These forward-looking statements include, but are not limited to, statements regarding expectations of the Company as to the market price of gold, strategic plans, future commercial production, production targets, timetables, mining operating expenses, capital expenditures, and mineral reserve and resource estimates. Forward-looking statements involve known and unknown risks and uncertainties and accordingly, actual results and future events could differ materially from those anticipated in such statements. Factors that could cause future results or events to differ materially from current expectations expressed or implied by the forward-looking statements include, but are not limited to, fluctuations in the market price of precious metals, mining industry risks, uncertainty as to calculation of mineral reserves and resources, risks related to hedging strategies, risks of delays in construction, requirements of additional financing, increase in tax or royalty rates or adoption of new interpretations related thereto and other risks described in this MD&A and in the Company's other documents filed from time to time with Canadian securities regulatory authorities. Although the Company is of the opinion that these forward-looking statements are based on reasonable assumptions, those assumptions may prove to be incorrect. Accordingly, readers should not place undue reliance on forward-looking statements. Readers can find further information with respect to risks in the Annual Information Form of the Company and other filings of the Company with Canadian securities regulatory authorities available at sedar.com. The Company disclaims any obligation to update or revise these forward-looking statements, except as required by applicable law.

17. Future Outlook

The 6.5Mtpa plant upgrade at the Masbate Gold Project has now been completed, with commissioning of the supplementary crusher in  September 2011. The scoping study to lift production rates to 10Mtpa has also been completed along with a mining schedule and first pass economic analysis. The first pass economic analysis showed that the expansion was NPV positive and a FEED (Front End Engineering and Design) study has been commissioned and was 90% complete at December 2011.

Due to the successful impact of the supplementary crusher on throughput rates, an optimisation study has also been awarded to Lycopodium. This study will review the current crushing and grinding circuits to understand what throughput can be achieved by upgrading the crushers and mills within the existing foundations and footprint. This study is being run in parallel with the FEED study. The optimisation study has the potential to materially reduce the up-front capital cost of the expansion and would better utilise the existing circuits.

Full production resumed on 25 December 2011 with the completion of the repair of the SAG mill.  Production rates have been increased to 700tph.  Given the successful recommissioning of the SAG mill, the Masbate Gold Project is forecast to produce approximately 100,000 ounces in the period January to June 2012 inclusive.

During the 2011-12 year, the Company plans to extend its exploration program, with a focus on materially enhancing the reserve and resource base of the project. A $20M exploration program is well under way with $5.9M spent in the year to 31 December 2011.  The program is expected to increase to $2M per month going forward.  12 holes have been drilled in the Pajo MPSA to date and are awaiting assays.  Further work has been temporarily delayed whilst landowner negotiations are finalised.  Drilling is expected to recommence in the next quarter.  The Pajo MPSA is part of an expansion of the exploration program over the next 12 months which will include additional diamond core and RC rigs being brought to site. The rigs will focus on:

• deep drilling beneath Colorado and Main Vein to assess the potential for underground resources;
• resource definition drilling on near mine targets (Blue Quartz, Old Lady, Pajo);
• infill drilling to upgrade Inferred Resources to Indicated within the current mining areas;
• exploration drilling of multiple outcropping mineralised quartz vein targets on EP10; and

Additional exploration activities will include:

• developing a road to the Baleno copper anomaly to allow IP programs to test for porphyry ore bodies at depth;
  
  
• regional mapping and sampling over all of EP10 and the Vicar JV tenement; and
  
  
• geophysical surveys including ground IP and Resistivity which, combined with previously acquired helimag, will be used to identify non outcropping (buried) target zones and extensions of known mineralisation.

 

CGA Mining Limited
Level 5, BGC Centre
28 The Esplanade
Perth Western Australia 6000

Tel:  [phone]
Fax: [phone]
Email: [email protected] 

www.cgamining.com