North Atlantic Resources Ltd.
TSX : NAC

North Atlantic Resources Ltd.

May 15, 2006 13:49 ET

North Atlantic Resources Ltd.: First Quarterly Report 2006

TORONTO, ONTARIO--(CCNMatthews - May 15, 2006) - North Atlantic Resources Ltd. (TSX:NAC) -

Report to Shareholders

For the Quarter Ended March 31, 2006

We are pleased to present the interim report and financial statements for the quarter ended March 31, 2006. The Company continues to focus on its gold exploration projects in the Republic of Mali. The Company currently has six exploration projects with a total combined area of 1,428 square kilometers (352,866 acres). During this quarter the Company announced the results from drill holes at the FT project in southern Mali including 42 meters grading 2.19 grams per tonne gold. Drilling at FT has been continuous throughout the quarter. In March the Company announced that it had acquired the 2,000 square kilometer Abelajouad uranium exploration permit in the Republic of Niger. The priority for the Company in the next quarter is to continue drilling at the FT project and to continue to acquire and explore additional gold projects in Mali and to initiate uranium exploration in Niger.

FT Gold Project

In total 13,876 meters of diamond core drilling (46 holes) have been completed at FT. The holes have been drilled over a strike length of 2 kilometers. The focus of the drilling has been to complete a pattern of holes at 50 m spacing in order to be able to model the geometry and grade of the gold zone and to ultimately estimate the contained gold resource.

The budget for exploration at FT in the second quarter of 2006 is approximately $ 1 million.

Abelajouad Uranium Project

The 2,000 square kilometre Abelajouad permit was acquired in March 2006. The permit is in northern Niger. The permit covers prospective stratigraphy and structures associated with the nearby uranium deposits operated by Cogema which produce approximately 10% of the global uranium supply. Planning is underway for an airborne survey and follow up ground work at Abelajouad in the 3rd and 4th quarters of 2006.

Other Projects

Small amounts of exploration at Massala and review of some new projects were completed during the quarter. Approximately 4,000 meters of reverse circulation drilling is planned at the Kantela gold project in western Mali contingent upon the availability of equipment and personnel.

Conclusion

For the balance of 2006, the Company will continue to explore and delineate the mineralized zone at the FT gold project, continue exploration at Massala and Kantela, initiate exploration at Abelajouad, and continue to conduct due diligence on new property acquisitions in Mali and Niger.



On behalf of the Board of Directors,
(signed)
Jon North, President and CEO
Toronto, Canada
May 5, 2006


UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS ENDED MARCH 31, 2006

Management's Comments on Unaudited Consolidated Financial Statements

The accompanying unaudited interim consolidated financial statements of North Atlantic Resources Ltd. for the three months ended March 31, 2006 have been prepared by management and approved by the Board of Directors of the Company.

These financial statements have not been reviewed by the Company's external auditors.

MANAGEMENT'S DISCUSSION AND ANALYSIS

Three Months Ended March 31, 2006

This Management Discussion and Analysis is dated May 5, 2006 and reflects the three-month period ended March 31, 2006 and should be read in conjunction with the consolidated financial statements and Management's Discussion and Analysis included in the Company's 2005 Annual Report and the Annual Information Form. These documents are available on SEDAR at www.sedar.com and from the office of the Company.

Company Overview

The Company, which was formed in 1997, is a public mineral exploration company concentrating its efforts and funds on exploring for gold in the Republic of Mali, west Africa. The Company's personnel have extensive education, training and experience in identifying and exploring mineral prospects and securing the required funding to advance its properties. During the past year, the Company continued to advance its mineral projects and announced a significant new gold discovery in Mali. The Company holds 1,428 square kilometres of mineral rights in Mali and recently acquired the Abelajouad uranium project in the Republic of Niger, west Africa. At March 31, 2006, cash on hand including short-term investments totalled $6,219,000 compared to $8,872,000 at December 31, 2005.

Results of Operations

During the three months ended March 31, 2006 the Company incurred a loss from operations of $305,000 or $0.01 per share, compared to a loss of $197,000 or $0.01 per share for the same period of 2005. In the current period, the Company received interest income of $55,000, compared to $68,000 in the same period of 2005. In the 2006 period, management costs have increased as the company commenced paying cash directors' fees ($11,000) and investor relations expenses increased by $45,000 for activities mainly related to the Niger uranium project. Other costs such as legal and travel were less in the current quarter compared to 2005.

Summary of Quarterly Results

Selected financial information for the first quarter of 2006 and each of the quarters of 2005 and 2004 is as follows (unaudited):



---------------------------------------------------------------------
1st Quarter
Ended
March 31,
2006
---------------------------------------------------------------------
Revenue $ 55,000
Loss for period $ 305,000
Loss per share (1) $ 0.02
---------------------------------------------------------------------


---------------------------------------------------------------------
4th Quarter 3rd Quarter 2nd Quarter 1st Quarter
Ended Ended Ended Ended
December 31, September 30, June 30, March 31,
2005 2005 2005 2005
---------------------------------------------------------------------
Revenue $ 63,000 $ 61,000 $ 60,000 $ 68,000
Loss for period $ 1,784,000 $ 180,000 $ 122,000 $ 197,000
Loss per share (1) $ 0.07 $ 0.01 $ 0.01 $ 0.01
---------------------------------------------------------------------


---------------------------------------------------------------------
4th Quarter 3rd Quarter 2nd Quarter 1st Quarter
Ended Ended Ended Ended
December 31, September 30, June 30, March 31,
2004 2004 2004 2004
---------------------------------------------------------------------
Revenue $ 61,000 $ 51,000 $ 48,000 $ 66,000
Loss for period $ 544,000 $ 100,000 $ 136,000 $ 125,000
Loss per share (1) $ 0.02 $ 0.01 $ 0.01 $ 0.01
---------------------------------------------------------------------

(1) basic and fully diluted loss per share

(2) the higher loss in the 4th Quarters of 2005 and 2004 is mainly
the result of stock option expense of $1,433,000 (2004 -
$231,000) and write-off of exploration projects of $188,000
(2004 - $223,000).


Mineral Property Activities

During the three-month period ended March 31, 2006, the Company incurred deferred exploration costs of $1,589,000, which was mainly related to diamond drilling at the F/T gold project, and incurred mineral property acquisition costs of $138,000 for the Abelajouad uranium project where an airborne survey and follow up ground work will commence later in 2006.

The budget for exploration at FT in the second quarter of 2006 is approximately $ 1 million.

Liquidity and Capital Resources

Cash and short-term investments at March 31, 2006 totalled $6,219,000, compared to $8,872,000 at December 31, 2005. During the three-month period ended March 31, 2006, the Company's operating activities used $251,000 of cash, compared to $192,000 in the same period of 2005. Cash spent on mineral properties and exploration during the three-month period in 2006, totalled $2,453,000, compared to $883,000 in the same period of 2005. In the three-month period ended March 31, 2006, the Company received $51,000 from the exercise of stock options.

During the balance of 2006, the Company will continue its extensive drilling and other exploration expenditures principally on the F/T, Massala and Kantela gold projects and will also complete preliminary exploration on the Abelajouad uranium project. Funds are presently available to continue exploration and corporate expenditures through 2006. Continued successful exploration will require additional funding in the future to advance exploration and to develop projects.

Related Party Transactions

A law firm, in which one of the directors and an officer are partners, invoiced the Company $15,000 (2005 - $20,000) for legal services during the three-month period ended March 31, 2006. The law firm charges the Company the same rates as it does to its other clients.

Critical Accounting Estimates

Critical accounting estimates used in the preparation of the consolidated financial statements include the Company's estimate of recoverable value of its mineral properties and related deferred exploration expenditures 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.

The factors affecting stock-based compensation include estimates of when stock options and compensation warrants might be exercised and the stock price volatility. The timing for exercise of options is out of the Company's control and will depend upon a variety of factors, including the market value of the Company's shares and financial objectives of the stock-based instrument holders. The Company used historical data to determine volatility in accordance with the Black-Scholes model. However, the future volatility is uncertain and the model has its limitations.

The Company's recoverability of its recorded value of its mineral properties and associated deferred exploration expenses is based on market conditions for minerals, underlying mineral resources associated with the properties and future costs that may be required for ultimate realization through mining operations or by sale. The Company is in an industry that is dependent on a number of factors including environmental, legal and political risks, the existence of economically recoverable reserves, the ability of the Company and its subsidiaries to obtain necessary financing to complete the development, and future profitable production or the proceeds of disposition thereof.

Outstanding Share Data

At May 5, 2006, the Company had 19,132,308 common shares issued and outstanding. In addition, there were 2,103,750 stock options granted (112,500 not vested) which, if exercised, would bring the fully diluted issued common shares to a total of 21,236,058.

Risks and Uncertainties

Exploration and Development Risks

The business of exploring for minerals involves a high degree of risk. Few properties that are explored are ultimately developed into producing mines. At present, none of the Company's properties have a known body of commercial ore. Major expenses may be required to establish ore resources and reserves, to develop metallurgical processes and to construct mining and processing facilities at a particular site. It is impossible to ensure that the current exploration programs planned by the Company will result in a profitable commercial mining operation.

Financing Risks

The Company has limited financial resources, has no operating cash flow and has no assurance that, other than funds on hand, sufficient funding will be available to it for further exploration and development of its projects or to fulfill its obligations under any applicable agreements. There can be no assurance that the Company will be able to obtain adequate financing in the future or that the terms of such financing will be favourable. Failure to obtain such additional financing could result in delay or indefinite postponement of further exploration and development of its projects with the possible forced sale or loss of such properties. The Company will require additional financing if ongoing exploration of its properties is warranted.

Mineral Properties and Deferred Exploration Expenditures

Mineral properties and deferred exploration expenditures represent the capitalized expenditures directly related to the exploration and development of mineral properties. Upon commencement of commercial production, all related capital expenditures for any given project are amortized over the estimated economic life of the property. If a property is abandoned or deemed economically unfeasible, the related project balances are written off.

Forward Looking Statements

These consolidated financial statements and management's discussion and analysis contain certain forward-looking statements relating but not limited to the Company's expectations, intentions, plans and beliefs. Forward-looking information can often be identified by forward-looking words such as "anticipate", "believe", "expect", "goal", "plan", "intend", "estimate", "may" and "will" or similar words suggesting future outcomes, or other expectations, beliefs, plans, objectives, assumptions, intentions or statements about future events or performance. Forward-looking information may include reserve and resource estimates, estimates of future production, unit costs, costs of capital projects and timing of commencement of operations, and is based on current expectations that involve a number of business risks and uncertainties. Factors that could cause actual results to differ materially from any forward-looking statement include, but are not limited to, failure to establish estimated resources and reserves, the grade and recovery of ore which is mined varying from estimates, capital and operating costs varying significantly from estimates, delays in obtaining or failures to obtain required governmental, environmental or other project approvals, inflation, changes in exchange rates, fluctuations in commodity prices, delays in the development of projects and other factors. Forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from expected results.

Potential shareholders and prospective investors should be aware that these statements are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those suggested by the forward-looking statements. Shareholders are cautioned not to place undue reliance on forward-looking information. By its nature, forward-looking information involves numerous assumptions, inherent risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and various future events will not occur. The Company undertakes no obligation to update publicly or otherwise revise any forward-looking information whether as a result of new information, future events or other such factors which affect this information, except as required by law.

May 5, 2006



NORTH ATLANTIC RESOURCES LTD.
Consolidated Balance Sheets
As at March 31, 2006 and December 31, 2005

2006 2005
----------------------------
(unaudited) (audited)
Assets
Current Assets
Cash and cash equivalents $ 2,718,711 $ 2,971,812
Short-term investments 3,500,000 5,900,000
Sundry receivables 81,738 75,099
----------------------------
6,300,449 8,946,911

Mineral Properties (Note 2) 614,046 475,791
Deferred Exploration Expenditures
(Note 3) 7,867,431 6,277,962
Capital Assets 120,589 129,823
----------------------------

$ 14,902,515 $ 15,830,487
----------------------------
----------------------------

Liabilities
Current Liabilities
Accounts payable and accrued
liabilities $ 419,987 $ 1,177,272

Shareholders' Equity
Share Capital (Note 4) 17,717,794 17,607,263
Contributed Surplus 2,505,121 2,481,088
Deficit (5,740,387) (5,435,136)
----------------------------
14,482,528 14,653,215
----------------------------

$ 14,902,515 $ 15,830,487
----------------------------
----------------------------


On Behalf of the Board of Directors

signed "Jon North" signed "Anthony Lloyd"
------------------ ----------------------
Jon W. North Anthony P. L. Lloyd
Director Director



NORTH ATLANTIC RESOURCES LTD.
Consolidated Statements of Operations and Deficit
For the Three Months Ended March 31, 2006 and 2005

2006 2005
----------------------------
Revenue
Interest $ 54,639 $ 67,571
----------------------------

Administrative and General Expenses
Management 87,840 70,412
Stock option compensation 30,510 -
Investor communications and travel 155,306 113,729
Professional fees 21,717 31,358
Regulatory fees 27,460 16,680
General and office administration 38,121 28,262
Foreign exchange (2,967) (3,285)
Amortization 1,006 1,257
General exploration 897 5,784
----------------------------
359,890 264,197
----------------------------

Net Loss for Period (305,251) (196,626)
Deficit, Beginning of Period (5,435,136) (3,151,751)
----------------------------
Deficit, End of Period $ (5,740,387) $ (3,348,377)
----------------------------
----------------------------

Basic and Diluted Loss per Share $ (0.02) $ (0.01)
----------------------------
----------------------------
Weighted Average Number of Shares
Outstanding 19,106,208 18,176,510
----------------------------
----------------------------



Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2006 and 2005
(unaudited)

2006 2005
----------------------------
Cash Provided from (Used for) Operations
Net loss for period $ (305,251) $ (196,626)
Items not involving cash
Stock option compensation 30,510 -
Amortization 1,006 1,257
Changes in non-cash working capital
items 22,833 3,785
----------------------------
(250,902) (191,584)
----------------------------
Investing Activities
Decrease in short-term investments 2,400,000 -
Mineral properties (85,015) (178,910)
Deferred exploration expenditures (2,367,998) (703,636)
Purchase of capital assets - (5,070)
----------------------------
(53,013) (887,616)
----------------------------
Financing Activities
Issue of share capital 50,814 -
----------------------------
50,814 -
----------------------------

Net Cash Used (253,101) (1,079,200)
Cash and Equivalents, Beginning of
Period 2,971,812 5,786,789
----------------------------
Cash and Equivalents, End of Period $ 2,718,711 $ 4,707,589
----------------------------
----------------------------


Notes to Consolidated Financial Statements

March 31, 2006 (unaudited)

1. Basis of Presentation

The interim financial statements of the Company are prepared by management using accounting principles generally accepted in Canada for interim financial statements and reflect the accounting principles set out in the notes to the Company's financial statements as at December 31, 2005, appearing in the Company's 2005 Annual Report. These interim financial statements should be read in conjunction with those annual financial statements and the notes thereto. The results of operations and cash flows for the current period are not necessarily indicative of the results to be expected for the full year.

2. Mineral Properties

Mineral properties are recorded at cost and consist of the following projects:



Balance Balance
December 31, 2006 March 31,
2005 Expenditures 2006
------------------------------------------
Diokeba $ 30,556 $ - $ 30,556
Dalakan 30,556 - 30,556
Sinzeni 30,555 - 30,555
Kantela 160,253 - 160,253
F/T 172,528 - 172,528
Massala 51,343 - 51,343
Abelajouad - 138,255 138,255
------------------------------------------
$ 475,791 $ 138,255 $ 614,046
------------------------------------------


Balance Balance
December 31, 2005 March 31,
2004 Expenditures 2005
------------------------------------------
Diokeba $ 30,556 $ - $ 30,556
Dalakan 30,556 - 30,556
Sinzeni 30,555 - 30,555
Kantela 100,003 60,250 160,253
F/T 53,868 118,660 172,528
Tinkeleni 56,767 - 56,767
------------------------------------------
$ 302,305 $ 178,910 $ 481,215
------------------------------------------


3. Deferred Exploration Expenditures

Deferred exploration expenditures are recorded at cost and are comprised as follows:



Balance Balance
December 31, 2006 March 31,
2005 Expenditures 2005
------------------------------------------
Diokeba $ 396,383 $ - $ 396,383
Dalakan 607,509 - 607,509
Sinzeni 272,009 - 272,009
Kantela 1,394,074 10,650 1,404,724
F/T 3,328,850 1,478,011 4,806,861
Massala 230,415 56,548 286,963
Other 48,722 44,260 92,982
------------------------------------------
$ 6,277,962 $ 1,589,469 $ 7,867,431
------------------------------------------


Balance Balance
December 31, 2005 March 31,
2004 Expenditures 2006
------------------------------------------
Diokeba $ 358,730 $ 60,933 $ 419,663
Dalakan 600,501 - 600,501
Sinzeni 268,577 - 268,577
Kantela 1,310,938 121,514 1,432,452
F/T 525,746 428,261 954,007
Tinkeleni 116,001 20,124 136,125
------------------------------------------
$ 3,180,493 $ 630,832 $ 3,811,325
------------------------------------------


In March 2006, the Company acquired the exploration rights for the Abelajouad, a 2,000 square kilometer uranium project, in the Republic of Niger. Under the terms of the agreement with the Niger government, the Company must spend US$200,000 in year one, US$600,000 in year two and US$1,400,000 in year three to maintain its interest in the property. Additional expenditures would be required in subsequent years. Should the project be advanced to commercial production the Niger government would retain a 10% interest and may acquire up to an additional 20% interest. The project would also be subject to mining royalties payable to the government.

4. Shareholders' Equity

During the three-month period ended March 31, 2006 the following common shares were issued:



Shares Amount
----------------------------
Balance - December 31, 2005 19,093,158 $ 17,607,263
Stock options exercised 39,150 50,814
Value of options exercised - 59,717
----------------------------
Balance - March 31, 2006 19,132,308 $ 17,717,794
----------------------------


5. Related Party Transactions

A law firm in which one of the directors and an officer are partners invoiced the Company $15,000 (2005 - $20,000) for legal services for the three-month period ended March 31, 2006. The law firm charges the Company the same rates as it does to its other clients.

Contact Information