European Minerals Corporation
TSX : EPM
AIM : EUM

European Minerals Corporation

November 14, 2005 02:09 ET

European Minerals Corporation reports 3rd Quarter Results

LONDON, ENGLAND--(CCNMatthews - Nov. 14, 2005) - European Minerals Corporation (TSX:EPM)(AIM:EUM) (the "Company" or "EMC") announces the financial results for the third quarter ended September 30, 2005 (all amounts reported in $US's).

Overview

- The Company's working capital amounted to approximately $67.1 million as at September 30, 2005.

- The Company incurred a loss for the third quarter ended September 30, 2005 of $0.3 million or $Nil per share. The loss was comprised primarily of stock-based compensation of $0.3 million, administrative and investor relations expenses of $0.3 million and resource project costs written off of $0.2 million. These costs were offset by interest income of $0.5 million.

- During the quarter the company continued to focus on the development of its 100%-owned Varvarinskoye project in northern Kazakhstan. Overburden pre-stripping, which commenced last quarter, continued with approximately 500,000 bench cubic metres being removed to date, to waste dumps by local sub-contractors.

- The mining fleet, which the company ordered in February 2005, continued to be delivered to the project site. This includes key items, such as, the first O&K RH120E excavator and the first CAT 777D haul trucks. Mining support equipment including CAT bulldozers and graders has also been delivered to the site.

- MDM Ferroman (Pty) continued working on the civil engineering and concrete works for the process plant - approximately 3,000m3 of concrete has been poured to date.

- Final documentation for an US$80 million debt facility ("Debt Facility") is nearing completion along with the lump sum turnkey contract ("LSTK") for the supply and construction of the Varvarinskoye process plant and associated infrastructure. The Debt Facility and LSTK should be closed in quarter four of 2005.

- The drilling field season ended in November 2005. A total of 8,000m of diamond drilling was completed during the season, of this, approximately 3,300m was on exploration. Scout drilling was also undertaken on the 220km exploration surrounding the Varvarinskoye deposit. Results will be reported in due course.

Tony Williams Chairman of EMC commented today: "We are very pleased with the progress being made at Varvarinskoye. All our key milestones are being achieved and we remain on target to commence production by the end of 2006"



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Financial Highlights

(all amounts in thousands of United States dollars, except per share
figures)
---------------------------------------------------------------------
September 30, 2004 September 30, 2005
---------------------------------------------------------------------
3 months 9 months 3 months 9 months
ended ended ended ended
---------------------------------------------------------------------
Income 33 93 478 796
General & administrative costs 682 1,841 794 4,200
Net (loss) before unusual item (649) (1,748) (316) (3,404)
Per share (basic and diluted) (0.01) (0.03) Nil (0.02)
Cash flow from (used for)
operating activities (529) (1,467) (2,836) (11,518)
Net increase (decrease) in
cash (1,809) (4,627) (11,873) 50,781
Exploration expenditures
(capitalised) 1,280 3,232 9,071 11,466
Weighted average shares
outstanding (000's) 57,759 57,855 195,674 143,338

As at As at
September 30, 2004 September 30, 2005
Unrestricted cash at end of
period 10,475 46,769
Restricted cash - 12,111
Total cash and cash
equivalents 10,475 58,880
Total Current Assets 10,594 67,494
Total Current Liabilities 362 425
Working Capital 10,232 67,069
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The third quarter financial statements and accompanying Management Discussion and Analysis are available on SEDAR at www.sedar.com and the Company's website www.europeanminerals.com

About the Company

European Minerals Corporation is a junior natural resource company principally engaged in the development of its 100% owned Varvarinskoye gold-copper deposit in Kazakhstan. The Company's shares currently trade on the TSX and on the AIM (Alternative Investment Market) of the London Stock Exchange.



Management's Discussion and Analysis

Of the Financial Condition and Results of Operations
For the Third Quarter
and Nine Months Ended September 30, 2005
(in US dollars)


DIRECTORS, MANAGEMENT & CORPORATE INFORMATION
---------------------------------------------

ANTHONY J. WILLIAMS, Chairman and Director

WILLIAM G. KENNEDY, President, Chief Executive Officer and Director

DR. BARRY D. RAYMENT, Director

MERFYN ROBERTS, Director

GRAHAM A. POTTS, Vice President Administration and Corporate
Secretary

STEPHEN M. GLEDHILL, Chief Financial Officer

PRINCIPAL OFFICE
22 Grosvenor Square
London W1K 6LF
England
Telephone: +44 (0) 20 7529 7508
Facsimile: +44 (0) 20 7491 2244

REGISTERED OFFICE
Craigmuir Chambers
P.O. Box 71
Road Town, Tortola
British Virgin Islands

AUDITORS
PricewaterhouseCoopers LLP
Chartered Accountants
250 Howe Street, Suite 700
Vancouver, British Columbia V6C 3S7
Canada

TRANSFER AGENT AND REGISTRAR
Computershare Trust Company of Canada
100 University Avenue
Toronto Ontario M5J 2Y1
Canada

STOCK EXCHANGES
Toronto Stock Exchange
Alternative Investment Market of the London Stock Exchange

TRADING SYMBOLS
TSX: EPM (stock is quoted in Canadian Dollars)
AIM: EUM (stock is quoted in Pounds Sterling)

WEBSITE
www.europeanminerals.com

E-MAIL
enquiries@europeanminerals.com


This discussion and analysis has been prepared based on information available to European Minerals Corporation ("EMC" or the "Company") as of November 10, 2005. The MD&A of the consolidated operating results and financial condition of the Company for the nine months ended September 30, 2005 and September 30, 2004 should be read in conjunction with the Company's unaudited interim consolidated financial statements and the related notes for the nine months then ended and in conjunction with the MD&A for the year ended December 31, 2004. The unaudited interim consolidated financial statements and the related notes have been prepared in accordance with Canadian generally accepted accounting principles. All dollar amounts referred to in this discussion and analysis are expressed in United States dollars.

OVERALL PERFORMANCE

As at September 30, 2005, the Company had assets of $97.9 million and a net equity position of $92.3 million. This compares with assets of $17.2 million and a net equity position of $16.7 million as at December 31, 2004.

Assets increased by $80.7 million from $17.2 million at December 31, 2004. The Company's cash position increased by $50.8 million (to $58.8 million) mainly due to the closing of a public equity financing in April 2005 (the "April Offering") which provided net proceeds of $78.4 million. The remaining change in assets of $29.9 million is comprised of increases to resource assets of $21.0 million; capitalized financing costs of $0.4 million; and receivables and prepaids of $8.4 million.

EMC's cash flow of $50.8 million (2004 - $(4.6) million) was comprised of its financing activities of $78.2 million (2004 - $0.1 million) offset by its investing activities $15.8 million (2004 - $3.2 million), cash flow used for operations of $11.5 million (2004 - $1.5 million) and the effect of unrealized foreign exchange losses of $0.1 million (2004 - $Nil).

For the nine months ended September 30, 2005, the Company continued to post losses. Net loss for the period was $3.4 million or $(0.02) per share. The loss included expenditures totaling $2.1 million, stock-based compensation of $0.5 million and foreign exchange losses of $1.6 million offset by interest income of $800,000. This compares to expenditures totalling $1.8 million and stock-based compensation expenses of $Nil offset by interest income of $90,000 and foreign exchange gains of $12,000 for the same period in 2004.

Excluding stock-based compensation expense for the nine months ended September 30, 2005, expenditures have increased by $1.8 million over the same period in 2004. The increases are comprised of the following: administrative and investor relations expenses of $0.1 million; legal and professional fees of $0.1 million, and foreign exchange losses of $1.6 million. The unusually high exchange losses resulted from the exchange rate in effect on the closing date of the April Offering being different from that on the actual date of conversion of the net proceeds of the April Offering to US dollars.

OVERVIEW OF OPERATIONS

During the quarter the company continued to focus on the development of its 100%-owned Varvarinskoye project (the "Project") in northern Kazakhstan.

Overburden pre-stripping, which commenced last quarter, continued with approximately 500,000 bench cubic metres "(BCM") being removed to date, to waste dumps by local sub-contractors. From this total, almost 30,000 BCM of clay material was placed and compacted on the tailings dam starter walls. The mining fleet, which the company ordered in February 2005, continued to be delivered to the project site. This includes key items, such as, the first O&K RH120E excavator and the first CAT 777D haul trucks. Mining support equipment including CAT bulldozers and graders has also been delivered to the site. CAT engineers are currently on site assembling the equipment. JSC Varvarinskoye ("JSCV") expects to commence mining using its own equipment before year end.

MDM Ferroman (Pty) continued working on the civil engineering and concrete works for the process plant and approximately 3,000m3 of concrete has been poured to date. This is principally for the foundations of the process plant building, the mills and the leach tanks. Including sub-contractors, there are approximately 300 people working on site.

Final documentation for an US$80 million debt facility ("Debt Facility") is nearing completion along with the lump sum turnkey contract ("LSTK") for the supply and construction of the Varvarinskoye process plant and associated infrastructure. The Debt Facility and LSTK should be closed in quarter four of 2005.

The drilling field season ended in November 2005. A total of 8,000m of diamond drilling was completed during the season, of this, approximately 3,300m was on exploration. Scout drilling was also undertaken on the 220km exploration area surrounding the Varvarinskoye deposit. Results will be reported in due course.

RESULTS OF OPERATIONS

The Company continues to generate losses as it prepares to develop the Project. As pre-stripping on the Project site had commenced prior to December 31, 2004, the Company is considered to be in the development stage.

Three months ended September 30, 2005 compared to three months ended September 30, 2004

The Company's only source of income during the period was from interest on bank deposits which amounted to $478,000 compared to $33,000 over the same period in 2004. The increase in interest income is a result of the higher bank balances resulting from the April Offering completed during the second quarter.

The consolidated net loss for the 3 months ended September 30, 2005 amounted to $0.3 million ($Nil loss per share) compared to $0.6 million ($0.01 loss per share) during the third quarter of 2004. The consolidated net loss was comprised primarily of $Nil legal and professional fees (2004 - $0.2 million), stock-based compensation of $0.3 million (2004 - $Nil), administrative and investor relations expenses of $0.3 million (2004 - $0.4 million), foreign exchange losses of $46,000 (2004 - gain of $8,000) and resource project costs expensed of $157,000 (2004 - $59,000). These costs were offset by interest income of $0.5 million (2004 - $33,000).

Nine months ended September 30, 2005 compared to nine months ended September 30, 2004

Income during the period was derived from interest on bank deposits which amounted to $796,000, compared to $93,000 over the same period in 2004. The increase in interest income is a result of the higher bank balances resulting from the April Offering completed during the second quarter.

The consolidated net loss for the 9 months ended September 30, 2005 amounted to $3.4 million ($0.02 loss per share) compared to $1.8 million ($0.03 loss per share) during the same period in 2004. The consolidated net loss was comprised primarily of legal and professional fees of $0.5 million (2004 - $0.5 million), foreign exchange losses of $1.6 million (2004 - $Nil), administrative and investor relations expenses of $1.2 million (2004 - $1.1 million) and stock-based compensation costs of $0.5 million (2004 - $Nil). These costs were offset by interest income of $0.8 million (2004 - $93,000).

SUMMARY OF QUARTERLY RESULTS

The following summary of the Company's quarterly results has been prepared in accordance with Canadian GAAP.



---------------------------------------------------------------------
Unaudited 2005 2005 2005 2004
3rd Quarter 2nd Quarter 1st Quarter 4th Quarter
$'000s $'000s $'000s $'000s
---------------------------------------------------------------------
Total Revenues 478 291 26 27

Net loss before
discontinued
operations and
extraordinary items 316 2,401 687 760
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Net loss for the period 316 2,401 687 760
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Basic and diluted
loss per share $Nil $0.01 $0.01 $0.01
---------------------------------------------------------------------

Total assets 97,859 97,825 17,340 17,217

Total long-term debt - - - -

Shareholders' equity 92,262 92,216 16,111 16,668

Cash dividends
declared per share - - - -
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---------------------------------------------------------------------
Unaudited 2004 2004 2004 2003
3rd Quarter 2nd Quarter 1st Quarter 4th Quarter
$'000s $'000s $'000s $'000s
---------------------------------------------------------------------

Total Revenues 33 36 24 -

Net loss before
discontinued
operations and
extraordinary items 649 500 599 1,250
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Net loss for year 649 500 599 1,250
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Basic and diluted
loss per share $0.01 $0.01 $0.01 $0.02
---------------------------------------------------------------------

Total assets 17,010 17,550 18,101 18,303

Total long-term debt - - - -

Shareholders' equity 16,648 17,297 17,840 17,840

Cash dividends
declared per share - - - -

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The increase in losses between the first and second quarters of 2005 is mainly attributable to foreign exchange losses incurred in connection with the April Offering, the proceeds of which consisted of Canadian dollars and Pounds Sterling.

LIQUIDITY AND CAPITAL RESOURCES

In management's view, the most meaningful information concerning the Company relates to its current liquidity and solvency since it is not currently generating any income from its mineral projects.

The Company raises finance for its operations through the issuance of common shares, proceeds received from the exercise of options and share purchase warrants and the issuance of debt. Although the Company has been successful in the past in raising finance, there can be no assurance that any funding required by the Company in the future will be made available to it and, if such funding is available, that it will be offered on reasonable terms or that the Company will be able to secure such funding through third party financing or joint ventures. Furthermore, there is no assurance that the Company will be able to secure new mineral properties or projects or that they can be secured on competitive terms.

During the nine months ended September 30, 2005:

The Company issued 100,000 options at an exercise price of Cdn$0.71 per option (expiry of January 5, 2008), 150,000 options at an exercise price of Cdn$0.73 per option (expiry of January 28, 2008) and 100,000 options at an exercise price of Cdn$0.72 per option (expiry of August 31, 2008). This compares with the issuance of 200,000 options at an exercise price $0.86 per option (expiry of March 3, 2007) made during the same period of 2004. The Company also extended 400,000 options originally set to expire on May 16, 2005 by three years to May 16, 2008 and 835,000 options originally set to expire on September 5, 2005 by three years to September 5, 2008. The exercise prices per option remain unchanged at $0.37 and $0.50, respectively.

As required under GAAP, the difference in the value of the amended options in excess of the value of those options immediately prior to the amendment was calculated in both cases. Stock-based compensation related to the extension of the 400,000 options was $103,000 and was recorded in the second-quarter results. The stock-based compensation relating to the 835,000 options was $302,000 and is recorded in the current quarter's results.

The Company continues to work towards completing the documentation for the Debt Facility.

The Company raised gross proceeds of approximately $85.2 million (net proceeds of $78.3 million) under the April Offering which consisted of the sale of 138 million units. Each unit was comprised of one common share in the capital of EMC and one-half of one common share purchase warrant. Each whole common share purchase warrant entitles the holder to acquire one common share at a price of Cdn$1.20 per share until April 11, 2010.

The Company also raised proceeds during the quarter of $31,000 with the exercise of 75,000 options at $0.41.

Working Capital:

The Company's working capital amounted to approximately $67.1 million as at September 30, 2005, compared to approximately $7.8 million as at December 31, 2004. There have been no changes during the quarter to the estimated working capital requirements as described in the Company's annual MD&A. Management believes that both its working capital requirements and its capital requirements to the end of 2005 can be satisfied from the net proceeds of the April Offering.

As at September 30, 2005, the book value of resource assets amounted to approximately $29.0 million (2004 - $8.0 million) and relates to capitalized expenditures on the Project, the acquisition of the remaining 14% interest in the Project that the Company did not already own, and the Company's net investment in its residual oil interests. The net increase of $21.0 million is comprised of the discounted value of the Company's acquisition of the 14% interest in the Project ($7.0 million) plus the applicable future income tax obligations thereon ($3.1 million) and on additional Project expenditures (capitalized) of $11.5 million offset by a reduction of $0.6 million that the Company received as deferred consideration in connection with the sale of its oil interests in 1999.

The Company continues to estimate its expenditures for administrative costs (excluding foreign exchange losses) to be $3.0 million for 2005. Capital expenditures to place the Project into production are estimated at $115.0 million (including the purchase of the mining fleet, the cost of the processing plant and infrastructure costs but excluding capitalised financing and insurance costs), with approximately $25 million to be spent during quarter 4. This will bring the 2005 capital expenditures to approximately $50 million. The Company believes that it will have sufficient funds to place the Project into production when the Debt Facility is completed and drawn down. Additional funds may be required if new mineral projects are acquired.



Contractual obligations for future payments:

Payments due by Period ($000's)
---------------------------------------------------------------------
Total Less than 1 - 3 4 - 5 After
Contractual obligations 1 year years years 5 years
---------------------------------------------------------------------

Long-term debt - - - - -

Capital lease obligations - - - - -

Operating leases - - - - -

Purchase obligations $16,695 $16,695 - - -

Other short-term obligations(1) - - - - -

Other long-term obligations - - - - -

---------------------------------------------------------------------
Total contractual obligations $ 16,695 $ 16,695 - - -
---------------------------------------------------------------------
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(1)JSCV, the Company's now wholly-owned Kazakh subsidiary, holds the
licenses which allow it to explore and develop the Project. Under
these licenses, JSCV was required to expend a minimum of $6.0
million in exploration expenditures (completed). In addition, JSCV
has entered into a 2005 program of works with the Kazakh government
under its licenses, pursuant to which JSCV is required to conduct
field work and lab work totaling $3.4 million in 2005, both of
which have been completed.


In addition to the contractual obligations outlined in the table above, the Company has entered into agreements under which success fees are payable to Barclays Capital ($1.0 million) and ResourceWorks PLC ($96,000) for the successful completion of the Debt Facility.

The Company has historically managed its foreign currency risk by maintaining the majority of its cash balances in US dollars, its principal operating currency.

TRANSACTIONS WITH RELATED PARTIES

During the 9 months ended September 30, 2005 and the comparative period for 2004, the Company entered into the following transactions involving related parties:

Dragon Management International Services Limited ("DMIS") charged the Company a total of $188,000 (2004 - $152,000) in respect of the provision of office facilities, general office overheads and re-charged costs incurred on behalf of the Company. The provision of office facilities operates on a monthly basis. A. J. Williams, Chairman and a director of the Company, beneficially owns DMIS.

Dragon Capital Holdings Limited ("DCH") charged the Company a total of $225,000 (2004 - $131,000) in respect of the provision of the services of A. J. Williams as well as management and advisory services. A. J. Williams, Chairman and a director of the Company, beneficially owns DCH.

Mining Assets Corp ("MAC") charged the Company a total of $49,000 (2004 - $74,000) in respect of the provision of the consulting services and related expenses of B. D. Rayment. B. D. Rayment, a director of the Company, beneficially owns MAC.

Goodman and Carr LLP ("GC") charged the Company a total of $900,000 (2004 - $147,000) in respect of the provision of legal services and related expenses. M. J. Singer, a former director of the Company, was a partner of GC.

Sutton International Management Services Limited ("SIMS") charged the Company a total of $291,000 (2004 - $167,000) in respect of the provision of geological, mining, management and administration services as well as the services of W. G. Kennedy to act as President and Chief Executive Officer of the Company. W. G. Kennedy beneficially owns SIMS.

Endeavour Financial Corp ("EFC") charged the Company a total of $53,000 (2004 - $56,000) in respect of the provision of consulting services and related expenses. A. J. Williams, Chairman and a director of the Company, is a director and shareholder of EFC.

Keshill Consulting Associates Inc. ("KCA") charged the Company a total of $63,000 (2004 - $Nil) in respect of the provision of consulting services as well as the services of S. Gledhill to act as Chief Financial Officer of the Company. S. Gledhill beneficially owns KCA.

CRITICAL ACCOUNTING ESTIMATES

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amount of expenses during the reporting period. Actual results could differ from those estimates.

Carrying Value of Resource Assets

In preparing mineral reserve estimates, information is based partly on statistical inferences drawn from drilling and other data, which may prove to be unreliable. Future production estimates could vary materially from current estimates due to differences in actual mineralisation, compared to mineralisation estimated by sampling, variations in the grade of mineral reserves, as well as other factors that are beyond the control of the Company, for example, increases in mining, processing and reclamation costs and decreases in the market value of the end product.

As at September 30, 2005, the Company has determined that there was no impairment of its residual oil interests that are held through its 55%-owned subsidiary, Lisburne Holdings Limited ("Lisburne"). Lisburne disposed of the Tasbulat Oil Corporation ("Tasbulat") in 1999 and the balance of the deferred sales proceeds of approximately $2.5 million (as at September 30, 2005) is expected to be recouped from a final tranche of sales proceeds of $1.1 million and proceeds from a 1% gross overriding royalty. The final tranche of sales proceeds of $1.1 million is only payable once a cumulative 2.0 million barrels of oil equivalent ("MMBOE") is sold from the three oil fields in Kazakhstan in which Tasbulat holds interests ("Tasbulat Fields"). The 1% gross overriding royalty is payable from all oil sales exceeding 2.0 MMBOE from the Tasbulat Fields.

OTHER INFORMATION

Additional Information:

Additional information relating to the Company, including the Company's annual information form, may be accessed through SEDAR on the Internet at www.sedar.com.

Disclosure of Outstanding Share Data

The following table sets forth information concerning the outstanding securities of the Company as at August 12, 2005:



---------------------------------------------------------------------
Common shares of no par value ("Shares") Number in issue
---------------------------------------------------------------------

Shares 196,077,122

Share purchase warrants 77,800,000

Share purchase incentive stock options 4,765,000
---------------------------------------------------------------------
Note: Each share purchase warrant and share purchase incentive option
entitle the holder thereof to purchase one common share.


The Company's constating documents under the laws of the British Virgin Islands provide that the Company is authorized to issue one class and one series of shares divided into 100,000,000,000 common shares of no par value.

Cautionary Note

Some of the statements contained in this report are forward-looking statements, such as estimates and statements that describe the Company's future plans, objectives or goals, including words to the effect that the Company or management expects a stated condition or result to occur. Since forward-looking statements address future events and conditions, by their very nature, they involve inherent risks and uncertainties. Actual results in each case could differ materially from those currently anticipated in such statements.



Consolidated
Financial Statements
(Unaudited)


Third Quarter and Nine Months ended September 30, 2005
(In thousands of U.S. dollars)



EUROPEAN MINERALS CORPORATION
22 GROSVENOR SQUARE, LONDON W1K 6LF
ENGLAND
Tel: +44 (0) 20 7529 7508
Fax: +44 (0) 20 7491 2244


NOTICE OF NO AUDITOR REVIEW OF INTERIM FINANCIAL STATEMENTS

Under National Instrument 51-102, Part 4, subsection 4.3(3)(a), if an auditor has not performed a review of the interim financial statements, they must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor.

The accompanying unaudited interim financial statements of the Company have been prepared by and are the responsibility of the Company's management.

The Company's independent auditor has not performed a review of these financial statements in accordance with standards established by the Canadian Institute of Chartered Accountants for a review of interim financial statements by an entity's auditor.


European Minerals Corporation
Consolidated Balance Sheets (Unaudited)
As at September 30, 2005 and December 31, 2004
(In thousands of U.S. dollars)
---------------------------------------------------------------------
---------------------------------------------------------------------

2005 2004
---------------------------------------------------------------------

ASSETS

Current assets
Cash and cash equivalents (note 2) 58,880 8,099
Accounts receivable and prepaid expenses 8,614 272
------------------------
67,494 8,371

Resource assets (note 5) 29,012 7,970
Deferred financing costs 1,353 876
------------------------
97,859 17,217

LIABILITIES

Current liabilities
Accounts payable and accrued liabilities
(note 8) 425 549
------------------------
425 549

Long-term liabilities
Long-term liabilities (note 3) 2,072 -
Future income taxes (note 3) 3,100 -
------------------------
5,597 549
------------------------

SHAREHOLDERS' EQUITY

Share capital (note 6) 149,962 71,499
Stock-based compensation (note 6) 2,092 1,887
Share purchase warrants (note 6) 780 780
Deficit (60,572) (57,498)
------------------------
92,262 16,668
------------------------
97,859 17,217
------------------------
------------------------

The accompanying notes are an integral part of these consolidated
financial statements.
These consolidated financial statements have been approved by the
Company's directors.



European Minerals Corporation
Consolidated Statements of Operations and Deficit (Unaudited)
For the nine months ended September 30, 2005 and September 30, 2004
(In thousands of U.S. dollars except shares and per share amounts)
---------------------------------------------------------------------
---------------------------------------------------------------------

Three months ended Nine months ended
September 30 September 30
---------------------------------------
2005 2004 2005 2004
---------------------------------------

Income
Interest 478 33 796 93
---------------------------------------
478 33 796 93
---------------------------------------

Expenses
Investor relations 26 31 217 196
Administration 301 364 1,022 936
Legal and professional fees (38) 236 519 485
Stock-based compensation
(note 6) 302 - 536 -
Foreign exchange (gain)/loss 46 (8) 1,614 (12)
Resource projects 157 59 292 236
---------------------------------------
794 682 4,200 1,841
---------------------------------------

Net loss for the period (316) (649) (3,404) (1,748)
---------------------------------------
Adjustment to current year's
retained earnings for expired
stock options 330 - 330 -
---------------------------------------

Deficit - beginning of period
as previously reported (60,586) (56,089) (57,498) (53,118)
Adjust for stock-based
compensation - - - (1,872)
---------------------------------------
Deficit - beginning of
period as restated (60,586) (56,089) (57,498) (54,990)
---------------------------------------

Deficit - end of period (60,572) (56,738) (60,572) (56,738)
---------------------------------------
---------------------------------------

Basic and diluted loss
per common share $(0.00) $(0.01) $(0.02) $(0.03)
---------------------------------------

Weighted average number
of shares ('000s) 195,674 57,759 143,338 57,855
---------------------------------------

The accompanying notes are an integral part of these consolidated
financial statements.
These consolidated financial statements have been approved by the
Company's directors.



European Minerals Corporation
Consolidated Statements of Cash Flows (Unaudited)
For the nine months ended September 30, 2005 and September 30, 2004
(In thousands of U.S. dollars)
---------------------------------------------------------------------
---------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
---------------------------------------
2005 2004 2005 2004
---------------------------------------

Cash provided from (used for)

Operating activities
Net loss for the period (316) (649) (3,404) (1,748)
Adjustments to reconcile net
loss to cash flow from
operating:
Stock-based compensation 302 - 536 134
Unrealized foreign exchange
(gains)/losses 46 - 125 -
Financing fees (308) - (308) -
Changes in non cash working
capital:
(Increase)/decrease in
accounts receivable and
prepaid expenses (2,513) 11 (8,342) (102)
Increase/(decrease) in
accounts payable and
accrued liabilities (47) 109 (125) 249
---------------------------------------
Cash flow used for
operating activities (2,836) (529) (11,518) (1,467)
---------------------------------------

Investing activities
Exploration of resource assets (9,071) (1,280) (11,466) (3,232)
Acquisition of minority
interest in Varvarinskoye
project (note 3) - - (5,000) -
Sale of resource assets - - 640 -
---------------------------------------

Cash flow from investing
activities (9,071) (1,280) (15,826) (3,232)
---------------------------------------

Financing activities
Common shares issued, net
of issue costs 49 - 78,453 -
Proceeds from exercise
of stock options 31 - 31 72
Deferred financing costs - - (234) -
---------------------------------------
Cash flow from financing
activities 80 - 78,250 72
---------------------------------------

Effect of exchange rate
changes on cash and
cash equivalents (46) - (125) -
---------------------------------------

(Decrease)/increase in
cash and cash equivalents (11,873) (1,809) 50,781 (4,627)

Cash and cash equivalents
at beginning of period 70,753 12,284 8,099 15,102
---------------------------------------

Cash and cash equivalents
at end of the period 58,880 10,475 58,880 10,475
---------------------------------------
---------------------------------------

Cash and Cash Equivalents
comprise:
Cash balances on deposit
with bank 7,034 10,475 7,034 10,475
Restricted cash (collateral
for letters of credit) 12,111 - 12,111 -
High-interest deposit
accounts 39,735 - 39,735 -
---------------------------------------
58,880 10,475 58,880 10,475
---------------------------------------
---------------------------------------
The accompanying notes are an integral part of these consolidated
financial statements.
These consolidated financial statements have been approved by the
Company's directors.


1. Summary of Significant Accounting Policies

These interim consolidated financial statements follow the same accounting policies and their methods of application as the 2004 audited financial statements.

Not all disclosures required by generally accepted accounting principles for annual financial statements are present, and accordingly, these interim consolidated financial statements should be read in conjunction with the Company's 2004 audited consolidated financial statements.

Certain prior year amounts have been reclassified to conform to account presentation in the current year.

2. Cash and Cash Equivalents

Cash and cash equivalent balances include cash balances on deposit with bank or other financial institutions which may or may not be held in high interest bearing accounts. Also included are restricted funds not available for general or other purposes but are required as collateral for letters of credit valued at approximately $15 million issued by the Company to pay for the mine fleet that is to be delivered prior to year end.

3. Acquisition of 14% minority interest in Varvarinskoye Project

On June 23, 2005, the Company announced the completion of the acquisition of remaining 14% interest in the Varvarinskoye Project that it did not already own. The Company has agreed to pay $7.25 million to acquire the 14% interest in JSC Varvarinskoye, the holder of the licences covering the Varvarinskoye gold-copper deposit. A cash payment of $5 million was paid on closing with the remaining balance ($2.25 million) due on the earlier of the fifteenth business day following the first date upon which gold dore is produced from the Varvarinskoye mine or December 31, 2006. The discounted value of the remaining purchase price balance of $2.25 million was $2.07 million at September 30, 2005 and has been recorded as a liability due in greater than one year. Legal costs regarding the transaction were approximately $44,800, and have been capitalized to the resource asset account.

The acquisition resulted in the recognition of a future income tax liability of $3.1 million and an additional resource asset of $10.1 million.

4. Net investment in oil interests

Sales proceeds and royalties received will be recorded as a reduction to the carrying value of the Company's net investment in oil interests.

5. Resource assets

Changes in resource assets for the 9 months ended September 30, 2005 and the year ended December 31, 2004 are detailed in the following table:



2005 2004
$000's $000's
--------------------
Varvarinskoye Project:
Opening balance, January 1 4,786 -
Additions for the period 111,46 4,786
Capitalised interest 35 -
Acquisition of 14% minority interest
(including legal fees of $44,803) 10,181 -
--------------------
Closing balance 26,469 4,786
--------------------

Net investment in residual oil interests:
Opening balance, January 1 3,184 3,184
Sales proceeds and royalties (note 4) (640) -
--------------------
2,544 3,184
--------------------

29,012 7,970

--------------------
--------------------

6. Share capital

a) Authorised

100,000,000,000 common shares with no par value (note 10).

Issued

The balances as at September 30, 2005 and December 31, 2004 are as
follows:

---------------------------------------------------------------------
2005 2005 2004 2004
---------------------------------------------------------------------
Number of Number of
Shares Amount Shares Amount
($000's) ($000's) ($000's) ($000's)
---------------------------------------------------------------------

As at January 1 57,902 71,499 57,327 70,908
Common shares issued for cash,
net of issue cost 138,000 78,383 - -
Exercise of stock options 75 31 175 71
Common shares issued for
settlement of accounts
payable - - 400 350
Common shares issued for
consulting services 100 49 - -
Transfer of fair value of
stock-based compensation
on exercise of stock options - - - 170
---------------------------------------------------------------------

Balance - end of period 196,077 149,962 57,902 71,499

---------------------------------------------------------------------
---------------------------------------------------------------------


On April 11, 2005, the Company completed a public offering of approximately 120 million units at Cdn$0.75 (US$0.62) each and approximately 10 million units at Pounds Sterling 0.33 (US$0.62) each, raising gross proceeds of approximately US$80 million. Pursuant to the exercise of the over-allotment option granted to the agents in connection with the offering, on April 26, 2005, the Company issued an additional 8 million units at Cdn$0.75 (US$0.62) each, raising further gross proceeds of approximately US$5 million. Each unit is comprised of one common share in the capital of the Company and one-half of one common share purchase warrant. Each whole common share purchase warrant entitles the holder to purchase one common share until April 11, 2010 at a price of Cdn$1.20 per share. Issue costs totalled $6.8 million and have been recorded as a reduction to the value of the share capital account.

b) Share purchase warrants

A summary of the changes in the Company's share purchase warrants for the 9 months ended September 30, 2005 and the year ended December 31, 2004, are set out below:



---------------------------------------------------------------------
2005 2005 2004 2004
---------------------------------------------------------------------
Weighted Weighted
Warrants average Warrants average
Out- exercise Out- exercise
standing price standing price
(000's) ($) (000's) ($)
--------------------------------------
As at January 1 9,550 1.11 8,250 1.17
Granted 69,000 0.99(1) 1,300 0.77
Expired (750) 0.85 - -
---------------------------------------------------------------------
Balance - End of Period 77,800 1.01 9,550 1.11
---------------------------------------------------------------------
---------------------------------------------------------------------
(1) Converted to $US. Actual exercise price is Cdn$1.20.


A summary of the share purchase warrants outstanding and exercisable
as at September 30, 2005 and at December 31, 2004 is set out below:

---------------------------------------------------------------------
2005 2005 2005 2004 2004 2004
---------------------------------------------------------------------
Exercise Expiry Number Exercise Expiry Number
Price ($) Date (000's) Price ($) Date (000's)
---------------------------------------------------------------------
0.99(1) 11-Apr-10 69,000 - - -
- - - 0.85 23-Jun-05 750
1.20 23-Dec-08 7,500 1.20 23-Dec-08 7,500
0.77(2) 30-Sep-09 1,250 0.72 05-Oct-06 50
0.77 30-Sep-09 1,250
------ -----
Total 77,750 9,550
---------------------------------------------------------------------
---------------------------------------------------------------------
(1)Converted to $US. Actual exercise price is Cdn$1.20.
(2)Converted to $US. Actual exercise price is Pounds Sterling 0.40.


c) Incentive stock options

The Company maintains an incentive stock option plan (the "Plan") covering directors, officers, employees and consultants of the Company and its subsidiary companies. At September 30, 2005, a total of 10,160,000 options remained available for granting under the Plan.

A summary of the changes in the Company's stock options for the 9 months ended September 30, 2005 and the year ended December 31, 2004, is set out below:



---------------------------------------------------------------------
2005 2005 2004 2004
---------------------------------------------------------------------
Weighted average Weighted average
Outstanding exercise price Outstanding exercise price
(000's) ($) (000's) ($)
---------------------------------------------------------------------
As at
January 1 4,580 0.4 4,930 0.49
Exercised (75) 0.41 (175) 0.41
Granted 350 0.59(1) 200 0.86
Expired - - (300) 1.10
Forfeited (90) 0.41 (75) 0.41
---------------------------------------------------------------------
Balance-end
of period 4,765 0.49 4,580 0.48
---------------------------------------------------------------------
---------------------------------------------------------------------
(1)Converted to $US. Actual exercise prices range between Cdn$0.71
and Cdn$0.73.

A summary of the stock options outstanding and exercisable as at
September 30, 2005 and December 31, 2004, is set out below:


---------------------------------------------------------------------
2005 2005 2005 2004 2004 2004
---------------------------------------------------------------------
Exercise Expiry Number Exercise Expiry Number
Price ($) Date (000's) Price ($) Date (000's)
---------------------------------------------------------------------
0.37 16-May-08(1) 400 0.3 16-May-05 400
0.50 05-Sep-08(2) 835 0.50 05-Sep-05 835
0.76 23-Jan-06 330 0.76 23-Jan-06 330
0.41 01-Oct-06 400 0.41 01-Oct-06 565
0.425 16-Oct-06 2,250 0.425 16-Oct-06 2,250
0.86 03-Mar-07 200 0.86 03-Mar-07 200
0.57(3) 05-Jan-08 100 - - -
0.58(4) 28-Jan-08 150 - - -
0.61(5) 31-Aug-08 100 - - -
----- -----
4,765 4,580
---------------------------------------------------------------------
---------------------------------------------------------------------
(1)Options extended for 3 years prior to expiry.
(2)Option extended for 3 years prior to expiry.
(3)Converted to $US. Actual exercise price is in Cdn$0.71.
(4)Converted to $US. Actual exercise price is in Cdn$0.73.
(5)Converted to $US. Actual exercise price is in Cdn$0.72.


d) Stock-based compensation

The fair value of stock options granted for the 9 months ended September 30, 2005 was $129,911 ($0.58 - weighted average exercise price per option) which amount has been expensed in the statement of operations. In addition, the Company recognized compensation expense of $405,612 related to 400,000 options that had their expiry date extended from May 2005 to May 2008 and 835,000 options that had their expiry date extended from September 4, 2005 to September 4, 2008.

The fair value of stock options used to calculate compensation expense is estimated using the Black-Scholes option pricing model with the following assumptions:



---------------------------------------------------------------------
2005
---------------
Risk free interest rate 5.0%
Expected dividend yield Nil
Expected stock price volatility 98.7% - 117.5%
Expected option life in years 3
---------------------------------------------------------------------


Option pricing models require the input of highly subjective assumptions, including the expected price volatility. Changes in the subjective input assumptions can materially affect the fair value estimate and, therefore, the existing models do not necessarily provide a reliable single measure of the fair value of stock options granted by the Company.

7. Related party transactions

These interim consolidated financial statements include balances and transactions with directors and officers of the Company and/or corporations related to them. All transactions have been recorded at the exchange amount which is the consideration established and agreed to between the related parties. Details are as follows:



---------------------------------------------------------------------
Transactions during the 9 months ended September 30, 2005: Amount
$(000)
-------
Legal fees 271
Administrative costs 832
Deferred financing costs 667
-------
1,770
---------------------------------------------------------------------
---------------------------------------------------------------------

Related-party payables included in Accounts payable
and accrued liabilities 84

---------------------------------------------------------------------
---------------------------------------------------------------------


8. Segmented reporting

The Company has one operating segment, the exploration of natural resource properties. All capital assets of the Company are held in Kazakhstan. Short-term deposit interest, which is the Company's only regular source of income, is generally earned in the United Kingdom.

9. Significant differences from United States accounting principles

The United States generally accepted accounting principles ("U.S. GAAP") reconciliation is included solely for the purpose of the Company's filing on the Alternative Investment Market (AIM) of the London Stock Exchange. The Company is currently listed on the Toronto Stock Exchange and is not a registrant with the United States Securities and Exchange Commission.

These unaudited interim consolidated financial statements of European Minerals Corporation have been prepared in accordance with Canadian generally accepted accounting principles "Canadian GAAP" which differ, in certain material respects, from U.S. GAAP.

Had the Company prepared the consolidated financial statements in accordance with U.S. GAAP, certain items on the consolidated balance sheets, statements of operations and deficit, and statements of cash flows would have been reported as follows:



9 months ended 9 months ended
September 30, 2005 September 30, 2004
($000) ($000)
---------------------------------------

Consolidated statements
of operations
As reported in accordance
with Canadian GAAP (3,404) (1,748)
Exploration expenditures (a) - (3,232)
---------------------------------------
Net and comprehensive
loss under U.S. GAA (3,404) (4,980)
---------------------------------------
---------------------------------------

Basic and diluted loss per
common share under U.S. GAAP $(0.02) $(0.086)

Cash flows from operating
activities
Under Canadian GAAP (11,518) (1,467)
Exploration expenditures (a) - (3,232)
---------------------------------------
Under U.S. GAAP (11,518) (4,699)
---------------------------------------
---------------------------------------
Cash flows from investing
activities
Under Canadian GAAP (15,826) (3,232)
Exploration expenditures (a) - 3,232
---------------------------------------
Under U.S. GAAP (15,826) -
---------------------------------------
---------------------------------------

As at As at
Consolidated balance sheet September 30, 2005 December 31,2004
---------------------------------------
Resource assets
Under Canadian GAAP 29,012 7,970
Exploration expenditures (a) - (4,786)
---------------------------------------
Under U.S. GAAP 29,012 3,184
---------------------------------------
Total shareholders' equity
Under Canadian GAAP 92,262 16,668
Exploration expenditures (a) - (4,786)
---------------------------------------
Total shareholder's equity
under U.S. GAAP (b) 92,262 11,882
---------------------------------------
---------------------------------------


a) Resource Assets

Under Canadian GAAP, exploration and associated costs relating to non-specific projects / properties are expensed in the period incurred. Exploration costs relating to specific properties for which economically recoverable reserves are believed to exist may be deferred until the project to which they relate is sold, abandoned, placed into production or becomes impaired. For U.S. GAAP purposes, the Company expenses all expenditures relating to unproven mineral properties as they are incurred. When proven and probable reserves are indicated by a bankable feasibility study for a property, subsequent exploration and development costs of the property are capitalised. The Company completed a bankable feasibility study in November 2004. Since the costs incurred in December, 2004 were not material for U.S. GAAP, the Company has expensed all exploration expenditures incurred in 2004 and has begun to capitalize costs for U.S. GAAP purposes effective January 1, 2005. The capitalised costs of such properties would then be evaluated on a periodic basis to ensure that the carrying value can be recovered on an undiscounted cash flow basis. If the carrying value cannot be recovered on this basis, the mineral properties would be written down to its fair value. The Company uses future net cash flows, discounted at an appropriate interest rate, to arrive at an estimate of their fair value.

Under Canadian GAAP, exploration expenditures capitalised in the period are classified as investing activities on the consolidated statement of cash flows whereas under U.S. GAAP up to December 31, 2004, these expenditures would have been classified as operating activities.

b) Stock-based compensation

Effective January 1, 2004 for Canadian GAAP, the Company adopted CICA 3870 "Stock-based Compensation and Other Stock-based Payments" which requires an expense to be recognised in the financial statements for all forms of employee stock-based compensation. Adoption of CICA 3870 was applied retroactively, without restatement, as permitted by the standard. For U.S. GAAP purposes the Company adopted FAS 148 "Accounting for Stock-based compensation transition and disclosure". FAS 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. For U.S. GAAP, effective January 1, 2004, the Company applied the modified prospective method of adoption included in SFAS 148 which recognizes stock-based employee compensation for 2004 as if the fair value based accounting method in this statement had been used to account for all employee awards granted, modified or settled in fiscal years beginning after December 14, 1994. Since all stock options granted from that date to January 1, 2004 vested immediately, application of the modified prospective method for U.S. GAAP purposes in 2004 did not have any additional impact on the stock-based compensation charge for the nine months ended September 30, 2004 or 2005 or on total shareholders' equity under U.S. GAAP.

10. Continuance

The Company was continued from the Yukon Territory, Canada, to the British Virgin Islands on April 8, 2005 (the "Continuance"). As one of the results of the Continuance, the Company has changed its authorized share capital from unlimited to 100,000,000,000 common shares.

No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein.

Contact Information

  • Investor Information: United Kingdom
    European Minerals Corporation
    Anthony J. Williams/Bert Kennedy
    Chairman/President and CEO
    +44 (0) 20 7529 7508
    or
    Investor Information: United Kingdom
    European Minerals Corporation
    Graham A. Potts
    Corporate Secretary
    +44 (0) 20 7529 7508
    or
    Investor Information: North America
    Vanguard Shareholder Solutions Inc.
    Keith Schaefer
    (604) 608-0824
    ir@vanguardsolutions.ca