RE: Interim FS`s
(Formerly Aurogin Resources Ltd.)
Management’s Discussion and Analysis
For the three and six months ended June 30, 2007
This Management’s Discussion and Analysis (“MD&A”) relates to the financial condition and results of operations
of Castle Gold Corporation (formerly Aurogin Resources Ltd.(“Aurogin”)) (“Castle Gold” or the “Company”)
together with its Guatemalan subsidiary as of September 4, 2007, and is intended to supplement and complement the
Company’s interim consolidated financial statements for the period ended June 30, 2007. Readers are cautioned
that the MD&A contains forward-looking statements and that actual events may vary from management’s
expectations. Readers are encouraged to consult Aurogin’s audited consolidated financial statements and
corresponding notes to the financial statements for the year ended December 31, 2006, for additional details, which
are available on the Company’s website www.aurogin.com and on www.sedar.com. The interim consolidated
financial statements and MD&A are presented in United States dollars and have been prepared in accordance with
Canadian generally accepted accounting principles (“Canadian GAAP”). This discussion addresses matters we
consider important for an understanding of our financial condition and results of operations as of and for the three
and six months ended June 30, 2007.
This section contains forward-looking statements and should be read in conjunction with the risk factors described
in “Risk Analysis” and the “Cautionary Statement on Forward-Looking Information” at the end of this MD&A.
1. Description of the Business
Castle Gold is engaged in gold mining and related activities, including acquisition, exploration and
development of gold-bearing mineral properties in the Americas. Castle Gold’s gold production activities
are carried on in Guatemala while exploration activities are carried out principally in Guatemala, the
United States and Canada. Gold is produced in carbon in Guatemala, shipped to a custom carbon stripper
in the United States where it is processed into doré and then shipped to a refiner for final processing.
The profitability and operating cash flow of the Company is affected by various factors, including the
amount of gold produced and sold, the market price of gold, operating costs, interest rates, regulatory and
environmental compliance, general and administrative costs, the level of exploration and development
expenditures and other discretionary costs. Castle Gold is also exposed to fluctuations in foreign currency
exchange rates that can impact profitability and cash flow. The Company’s assets located outside of
North America are subject to foreign investment risk, including increases in taxes and royalties,
renegotiation of contracts and political uncertainty. While Castle Gold seeks to manage the level of risk
associated with its business, many of the factors affecting these risks are beyond the Company’s control.
Consolidated Financial and Operating Highlights(b)
Three months ended June 30, Six months ended June 30,
2007 2006 2007 2006
Gold ounces – produced 2,444 -5,452 -
Gold ounces – sold 3,561 -4,802 -
Metal sales $2,378,898 -$3,203,473 -
Cost of sales (a) $642,100 -$1,002,400 -
Accretion, depreciation, depletion
and amortization $278,297 -$415,820 -
Mine operating earnings $1,458,501 -$1,785,253 -
Net earnings (loss) $349,400 ($39,839) $243,631 ($132,392)
Basic and diluted earnings (loss) per share $0.01 ($0.00) $0.00 ($0.00)
Cash flow provided by (used in)
operating activities $1,124,054 47,607 $931,745 (28,966)
Average realized gold price per ounce $668 -$667 -
Cost of sales per ounce sold $180 -$209 -
(a) Cost of sales excludes accretion, depreciation, depletion and amortization.
(b) As a result of having to fully consolidate the results from the Company’s 50% owned El Sastre gold mine, the amounts above
represent 100% of the gold ounces produced and sold, metal sales, cost of sales and depreciation, depletion and amortization.
2. Impact of Key Economic Trends
Castle Gold’s (formerly Aurogin’s) 2006 annual MD&A contains a discussion of the key economic trends
that affect the Company and its financial statements. Included in this MD&A is an update that reflects
any significant changes since the preparation of the 2006 Annual MD&A.
Price of gold
The price of gold is the largest single factor in determining profitability and cash flow from the
Company’s operation. The average market price of gold during the second quarter 2007 was $667 per
ounce and $658 per ounce for the first six months of 2007. Prices in the first six months of 2007 ranged
from a low of $608 per ounce to a high of $691 per ounce. These prices compare with an average of $628
per ounce during the second quarter of 2006 and $590 in the first half of 2006. The Company realized an
average price of $668 per ounce on its sales of gold during the second quarter of 2007, $1 per ounce
better than the average for the quarter and $667 per ounce in the first six months of 2007 or $9 per ounce
better than the average for the first half of 2007.
Foreign Currencies
Castle Gold receives its revenues through the sale of gold in U.S. dollars. However, the Company has its
operation in Guatemala where a portion of the operating costs and capital expenditures are denominated
in the local currency (Guatemalan Quetzal) and its head office in Canada where substantially all of its
expenses are denominated in Canadian dollars. Therefore, movements in the exchange rate between these
currencies and the U.S. dollar have an impact on the Company’s profitability and cash flow. The value of
the Canadian dollar was stronger against the U.S. dollar in the second quarter and first six months of 2007
as compared to the same periods in 2006. The Guatemalan Quetzal was slightly weaker against the U.S.
dollar in the second quarter and first six months of 2007 as compared to same period in 2006. Overall the
Quetzal remained fairly stable reaching a high in the three and six month periods ended June 30, 2007 of
7.59 Quetzals to one U.S. dollar and reaching a low during the second quarter of 7.65 and during the first
six months of 7.72. This compares to a high of 7.54 and a low of 7.62 during the same periods of 2006.
Since the end of the second quarter the appreciation of the Canadian dollar has levelled off against the
U.S. dollar which will correspondingly stabilize head office general and administrative costs in U.S.
dollars. The Company does not currently actively manage foreign currency exposures.
3. Outlook
The following outlook relates to Aurogin only. Production and cost outlook is expected to be updated to
include Morgain Minerals Inc. at a subsequent date (see “Developments” below). The Company had
stated, as its goals for 2007, to produce 20,000 to 30,000 ounces from the El Sastre Main Zone Gold
Mine, expand the Guatemalan project resource base to greater than one million ounces of gold mineral
resource and complete phase one test drilling at its Lone Mountain property in Nevada, United States.
During the first quarter of 2007, the Company’s mining rate at the El Sastre gold mine was not yet at full
capacity and the majority of mining activity in January 2007 involved waste removal. This resulted in
lower than planned annualized production. However, in May 2007 the Company exceeded its planned
mining rate of 25,000 tonnes per month to be placed on the leach pad and crushing parts of the ore body
that had been by-passed during the initial stages of mining. This combination of placing run of mine and
crushed ore resulted in 84,000 tonnes of ore being place on the leach pad in the second quarter. Castle
Gold expects to produce approximately 15,000 to 20,000 ounces of gold in 2007. Cash operating costs
per ounce of gold sold during the quarter declined to $180 per ounce which also reduced cash operating
costs per ounce of gold sold for the six months ended June 30, 2007 to $209 per ounce. This significant
reduction in cash operating costs per ounce sold resulted from improvements in the method of
transporting carbon to the United States and the benefit of increased mining rates. Based upon a $550
gold price, the payback period for the Company’s investment in this gold mine is expected to be less than
one year.
General and administrative expenses during 2007, before evaluating the impact of the amalgamation with
Morgain are expected to be approximately $900,000. Stock compensation costs, if any, cannot be
budgeted for. Exploration expenses are expected to be higher than the six month period ended
December 31, 2006 as the Company begins to advance exploration initiatives on the El Sastre property.
All such expenditures are expected to be funded out of free operating cash flow from the El Sastre Main
Zone gold mine.
Expenditures on mineral properties including option payments and minimum expenditure requirements
during 2007 are expected to be approximately $1,000,000. During the three and six month periods ended
June 30, 2007, the Company incurred expenditures of approximately $213,000 and $370,000, respectively
towards this amount. Based on the average gold price to date in 2007, it is expected that the Company’s
existing cash balances and cash flow from operations will be sufficient to fund these expenditures.
4. Developments
Amalgamation with Morgain Minerals Inc. (“Morgain