GALIANO GOLD INC.

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
UNAUDITED

For the three and nine months ended September 30, 2023 and 2022

 

TABLE OF CONTENTS

GALIANO GOLD INC.

UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION

AS AT SEPTEMBER 30, 2023 AND DECEMBER 31, 2022

(In thousands of United States Dollars)

The accompanying notes form an integral part of these condensed consolidated interim financial statements.

Approved on behalf of the Board of Directors:

GALIANO GOLD INC.

UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

(In thousands of United States Dollars, except dollar per share amounts)

The accompanying notes form an integral part of these condensed consolidated interim financial statements.

GALIANO GOLD INC.

UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

(In thousands of United States Dollars, except for number of common shares)

The accompanying notes form an integral part of these condensed consolidated interim financial statements.

The accompanying notes form an integral part of these condensed consolidated interim financial statements.

1. Nature of operations

Galiano Gold Inc. ("Galiano" or the "Company") was incorporated on September 23, 1999 under the Business Corporations Act of British Columbia, Canada. The Company's head office and principal address is located at 1640 - 1066 West Hastings Street, Vancouver, British Columbia, V6E 3X1, Canada. The Company's registered and records office is located at Suite 3500, 1133 Melville Street, Vancouver, V6E 4E5. The Company's common shares trade on the Toronto Stock Exchange and NYSE American Exchange under the ticker symbol "GAU".

The Company's principal business activity is the operation of the Asanko Gold Mine ("AGM") through a joint venture arrangement (the "JV") associated with the Company's 45% equity interest in the entity that holds the AGM mining licenses and gold exploration tenements (see note 6). The Government of Ghana has a 10% free-carried interest in the AGM. The AGM consists of four main open-pit mining areas: Abore, Miradani North, Nkran and Esaase, multiple satellite deposits and exploration projects located on the Asankrangwa Gold Belt in the Amansie West District of the Republic of Ghana ("Ghana"), West Africa.

In addition to its interest in the AGM, the Company holds the 100% owned Asumura property in Ghana.

2. Basis of presentation

(a) Statement of compliance

These condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard ("IAS") 34 - Interim Financial Reporting, using accounting policies consistent with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") and Interpretations issued by the International Financial Reporting Interpretations Committee ("IFRIC"). These condensed consolidated interim financial statements do not include all of the necessary annual disclosures in accordance with IFRS and should be read in conjunction with the Company's audited consolidated annual financial statements for the year ended December 31, 2022.

The accounting policies followed in these condensed consolidated interim financial statements are the same as those applied in the Company's audited consolidated annual financial statements for the year ended December 31, 2022.

These condensed consolidated interim financial statements were authorized for issue and approved by the Board of Directors on November 14, 2023.

(b) Basis of presentation and consolidation

These condensed consolidated interim financial statements have been prepared on a historical cost basis, except for financial instruments carried at fair value.

All amounts are expressed in thousands of United States dollars, unless otherwise stated, and the United States dollar is the functional currency of the Company and each of its subsidiaries. References to C$ are to Canadian dollars.

These condensed consolidated interim financial statements incorporate the financial information of the Company and its subsidiaries as at September 30, 2023. Subsidiaries are entities controlled by the Company. Control exists when the Company has power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

2. Basis of presentation (continued)

Subsidiaries are included in the consolidated financial statements of the Company from the effective date of acquisition up to the effective date of disposition or loss of control.

All significant intercompany amounts and transactions between the Company and its subsidiaries have been eliminated on consolidation.

The principal subsidiaries and joint arrangements to which the Company is a party, as well as their geographic locations, were as follows as at September 30, 2023:

1Name changed from Asanko Gold Exploration Ghana Ltd. to Galiano Gold Exploration Ghana Ltd. effective March 29, 2023.

(c) Accounting standards adopted during the period

The Company adopted the following new IFRS standard effective January 1, 2023. The nature and impact of the new standard on the Company's current period financial statements, if any, are outlined below. Adoption of the standard was made in accordance with the applicable transitional provisions.

Amendments to IAS 1

On February 12, 2021, the IASB issued Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2, Making Materiality Judgements). The amendments help companies provide useful accounting policy disclosures and include requiring companies to disclose their material accounting policies rather than their significant accounting policies; clarifying that accounting policies related to immaterial transactions, other events or conditions are themselves immaterial and as such need not be disclosed; and clarifying that not all accounting policies that relate to material transactions, other events or conditions are themselves material to a company's financial statements. The amendments are effective for annual periods beginning on or after January 1, 2023, with early adoption permitted. The amendments to IAS 1 will be reflected in the Company's disclosures in its consolidated annual financial statements for the year ended December 31, 2023.

(d) Accounting standards and amendments issued but not yet adopted

There were no accounting standards or amendments to existing standards issued but not yet adopted as of September 30, 2023 that are expected to have a material effect on the Company's or the JV's financial statements in the future.

3. Significant accounting judgements and estimates

The preparation of financial statements, in conformity with IFRS, requires management to make judgements, estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Management believes the estimates and assumptions used in these condensed consolidated interim financial statements are reasonable; however, actual results could differ from those estimates and could impact future results of operations and cash flows and reported amounts of assets and liabilities.

The Company's and the JV's significant accounting judgements and estimates are unchanged as compared to those presented in note 5 of the Company's audited annual consolidated financial statements for the years ended December 31, 2022 and 2021.

4. Balances due from/to related party

Under the terms of the Joint Venture Agreement (the "JVA") that governs the management of the JV (note 6), the Company is the operator of the AGM and, in consideration for managing the operations of the mine, currently receives a gross annual service fee from the JV of $7.3 million (originally $6.0 million per annum, but adjusted annually for inflation).

During the three and nine months ended September 30, 2023, the Company earned a service fee of $1.4 million and $4.3 million, respectively, as operator of the JV (three and nine months ended September 30, 2022 - $1.4 million and $4.0 million, respectively). For the three and nine months ended September 30, 2023, the service fee was comprised of a gross service fee of $1.8 million and $5.4 million, respectively, less withholding taxes payable in Ghana of $0.4 million and $1.1 million (three and nine months ended September 30, 2022 - gross service fee of $1.7 million and $5.0 million, respectively, less withholding taxes payable in Ghana of $0.3 million and $1.0 million). As at September 30, 2023, the Company had a receivable due from the JV in respect of the service fee in the amount of $0.5 million, net of withholding taxes (December 31, 2022 - $1.7 million).

As at September 30, 2023, the Company had a payable due to the JV in the amount of $3.1 million relating to reimbursement for third party supplier costs and administrative and exploration services performed by the JV on the Company’s wholly owned Asumura property in Ghana (December 31, 2022 – $1.4 million). During the three and nine months ended September 30, 2023, the JV provided administrative and exploration services on the Company’s Asumura property totaling $9 and $0.2 million, respectively (three and nine months ended September 30, 2022 – $0.2 million for both periods).

All transactions with related parties have occurred in the normal course of operations. All amounts are unsecured, non-interest bearing and have no specific terms of settlement.

5. Financial assets

As part of the JV transaction with Gold Fields (note 6), the Company initially subscribed to 184.9 million non-voting fixed redemption price redeemable preferences shares in Shika Group Finance Limited (the "preference shares"), which were issued with a par value of $1 per redeemable share. The preference shares have no fixed redemption date. As these preference shares have no contractual fixed terms of repayment that arise on specified dates, they are measured at fair value through profit or loss at each reporting period-end and are classified as a Level 3 financial asset in the fair value hierarchy.

The following table summarizes the change in the carrying amount of the Company's preference shares held in the joint venture for the nine months ended September 30, 2023 and year ended December 31, 2022:

As at September 30, 2023, the Company re-measured the fair value of the preference shares to $74.1 million and recorded a positive fair value adjustment of $2.5 million and $7.3 million in finance income for the three and nine months ended September 30, 2023, respectively (three and nine months ended September 30, 2022 - positive fair value adjustments of $3.4 million and $16.6 million, respectively).

6. Asanko Gold Mine joint venture

On July 31, 2018, the Company completed a transaction (the "JV Transaction") with a subsidiary of Gold Fields Limited ("Gold Fields"), following which:

• the Company and Gold Fields each own a 45% equity interest in Asanko Gold Ghana Ltd. ("AGGL"), which owns the AGM, with the Government of Ghana retaining a 10% free-carried interest in the AGM;

• the Company and Gold Fields each own a 50% interest in Adansi Gold Ltd. ("Adansi Ghana"), which owns a number of exploration licenses; and

• the Company and Gold Fields each acquired a 50% interest in the JV entity, Shika Group Finance Limited ("Shika").

As the JV is structured within the legal entities of AGGL, Adansi Ghana and Shika, the JV represents a joint venture as defined under IFRS 11 - Joint Arrangements, and the Company commenced equity accounting for its interest in the JV effective July 31, 2018.

6. Asanko Gold Mine joint venture (continued)

The following table summarizes the change in the carrying amount of the Company's investment in the AGM joint venture for the nine months ended September 30, 2023 and year ended December 31, 2022:

The Company's share of the JV's net earnings for the three and nine months ended September 30, 2023 was $9.6 million and $29.9 million, respectively. For the three and nine months ended September 30, 2022, the Company did not recognize its share of the JV's net income as the recoverable amount of the Company's investment in the JV was estimated to be nil as at March 31, 2022, June 30, 2022 and September 30, 2022.

Operating and financial results of the AGM JV for the three and nine months ended September 30, 2023 and 2022

Summarized financial information for the AGM JV, on a 100% basis, is outlined in the tables below.

All disclosures in this note 6 are on a 100% JV basis, unless otherwise indicated. The JV applies the same accounting policies as the Company.

Statement of Income for the three and nine months ended September 30, 2023 and 2022

6. Asanko Gold Mine joint venture (continued)

The assets and liabilities of the AGM JV, on a 100% basis, as at September 30, 2023 and December 31, 2022 were as follows: 

6. Asanko Gold Mine joint venture (continued)

The Company has provided the following incremental disclosures for stakeholders to evaluate the financial performance and financial condition of the AGM. All amounts in the following tables and descriptions are on a 100% basis.

(i) Revenues

AGGL has an offtake agreement (the "Offtake Agreement") with a special purpose vehicle of Red Kite Opportunities Master Fund Limited ("Red Kite") under which the AGM will sell 100% of future gold production from the AGM up to a maximum of 2.2 million ounces. The gold sale price will be a spot price selected by Red Kite during a nine-day quotational period following shipment of gold from the mine.

During the nine months ended September 30, 2023, the AGM sold a portion of its production to the Bank of Ghana under the country's gold buying program. As agreed with Red Kite, gold ounces sold to the Bank of Ghana were considered delivered under the Offtake Agreement, and in consideration the AGM paid to Red Kite a "make whole" payment which was calculated in a similar manner to a nine-day quotational period. The "make whole" payments made to Red Kite were recognized as a reduction of revenues.

During the three and nine months ended September 30, 2023, the AGM sold 35,522 and 103,608 ounces of gold, respectively, to Red Kite under the Offtake Agreement (three and nine months ended September 30, 2022 - 45,482 and 133,647 gold ounces, respectively). As of September 30, 2023, the AGM has delivered 1,570,713 gold ounces to Red Kite under the Offtake Agreement.

Included in revenue of the AGM is $0.2 million and $0.4 million relating to by-product silver sales for the three and nine months ended September 30, 2023, respectively (three and nine months ended September 30, 2022 - $0.2 million and $0.5 million, respectively).

(ii) Production costs

The following is a summary of production costs by nature, on a 100% basis, incurred during the three and nine months ended September 30, 2023 and 2022:

During the three months ended September 30, 2023, the AGM recognized a $0.4 million downward net realizable value adjustment on its stockpile inventory, of which $0.3 million was recorded against production costs and $0.1 million was recorded against depreciation expense (three months ended September 30, 2022 - $4.1 million reversal of previously recorded net realizable value adjustments on stockpile inventory, of which $3.2 million was credited against production costs and $0.9 million was credited against depreciation expense).

6. Asanko Gold Mine joint venture (continued)

During the nine months ended September 30, 2023, there was no change in the net realizable value of the AGM's stockpiles (nine months ended September 30, 2022 - $14.6 million reversal of previously recorded net realizable value adjustments on stockpile inventory, of which $10.5 million was credited against production costs and $4.1 million was credited against depreciation expense).

(iii) Royalties

All of the AGM's concessions are subject to a 5% gross revenue royalty payable to the Government of Ghana. The AGM's Akwasiso mining concession is also subject to an additional 2% net smelter return royalty payable to the previous owner of the mineral tenement, and the AGM's Esaase mining concession is also subject to an additional 0.5% net smelter return royalty payable to the Bonte Liquidation Committee.

On April 3, 2023, the Government of Ghana imposed a special levy, the Growth and Sustainability Levy ("GSL"), on all companies operating in Ghana with an effective date of May 1, 2023. The purpose of the GSL is to support growth and fiscal sustainability of the Ghanaian economy. For mining companies in Ghana, the GSL is levied at a rate of 1% of gold revenues for the fiscal years 2023 to 2025. The JV has presented the 1% GSL as royalties expense in the Statement of Operations.

(iv) Inventories

The following is a summary of inventories held by the AGM, on a 100% basis, as at September 30, 2023 and December 31, 2022:

During the three months ended September 30, 2023, the JV recognized a $2.1 million provision against supplies inventory which was recorded in production costs (three months ended September 30, 2022 - nil).

During the nine months ended September 30, 2023, the JV reclassified $2.6 million of insurance and capital spares to mineral properties, plant and equipment (three and nine months ended September 30, 2022 - nil for both periods).

6. Asanko Gold Mine joint venture (continued)

(v) Reclamation deposit

The AGM is required to provide security to the Environmental Protection Agency of Ghana ("EPA") for the performance by the AGM of its reclamation obligations in respect of its mining leases.

The AGM deposits a reclamation deposit in a Ghanaian bank and the reclamation deposit is required to be held until receiving a final reclamation completion certificate from the EPA. The AGM is expected to be released from this requirement 45 days following the third anniversary of the date that the AGM receives a final completion certificate. The reclamation deposit accrues interest and is $5.0 million as of September 30, 2023 (December 31, 2022 - $5.0 million). Additionally, bank guarantees of $16.8 million have been provided to the EPA, 50% of which is provided by the Company (see note 9).

(vi) Mineral properties, plant and equipment Additions to mineral properties, plant and equipment

During the three and nine months ended September 30, 2023, the AGM capitalized $16.6 million and $33.0 million, respectively, in expenditures related to mineral properties, plant and equipment ("MPP&E"), excluding capitalized deferred stripping costs and asset retirement costs (three and nine months ended September 30, 2022 - additions of $5.6 million and $11.5 million, respectively). During the three months ended September 30, 2023, the JV also capitalized $19.9 million in right-of-use assets associated with a mining services contract.

The AGM did not incur any deferred stripping costs during the period as mining operations had yet to resume.

(vii) Lease liabilities

The following table shows the movement in the lease liabilities of the AGM for the nine months ended September 30, 2023 and year ended December 31, 2022:

6. Asanko Gold Mine joint venture (continued)

(viii) Asset retirement provisions

The following table shows the movement in the asset retirement provisions of the AGM for the nine months ended September 30, 2023 and year ended December 31, 2022: 

The asset retirement provisions consist of reclamation and closure costs for the JV's Ghanaian mining properties. Reclamation and closure activities include land rehabilitation, dismantling of buildings and mine facilities, ongoing care and maintenance and other costs.

As at September 30, 2023, the AGM's reclamation cost estimates were discounted using a long-term risk-free discount rate of 4.6% (December 31, 2022 - 3.9%). The change in estimate during the period was primarily due to an increase in the risk-free discount rate.

(ix) Legal provision

A services provider of the AGM filed a dispute with an arbitration tribunal alleging the AGM breached the terms of a services agreement and claimed approximately $25 million in damages. The arbitrator ruled in favour of the AGM that there had not been a breach of any terms of the contract, yet made an award to the counterparty of approximately $13 million plus interest for services rendered. The AGM, consistent with the arbitration ruling, maintains the view that there was no breach of contract and all contractual amounts were paid as due. The AGM therefore is undertaking an appeals process in the Court of Appeal in Ghana. A provision of $2.0 million has been recorded as of September 30, 2023 (December 31, 2022 - $2.0 million), as management's best estimate to settle the claim. While the Company cannot reasonably predict the ultimate outcome of these actions, and inherent uncertainties exist in predicting such outcomes, the Company believes the estimated provision is reasonable based on the information currently available.

(x)  Preferred shares

The following table shows the movement in the JV partners' preferred share investments in the JV for the nine months ended September 30, 2023 and year ended December 31, 2022:

6. Asanko Gold Mine joint venture (continued)

(xi) Finance expense and income

The following is a summary of finance expense incurred by the AGM JV during the three and nine months ended September 30, 2023 and 2022:

For the three and nine months ended September 30, 2023, finance income of $1.2 million and $3.2 million, respectively, related primarily to interest earned on cash balances and short-term investments (three and nine months ended September 30, 2022 - $0.2 million of finance income for both periods presented, related primarily to interest earned on cash balances).

(xii) Summary of cash flows

The cash flows of the AGM, on a 100% basis, were as follows for the three and nine months ended September 30, 2023 and 2022:

6. Asanko Gold Mine joint venture (continued)

(xiii) Revolving credit facility

In October 2019, the JV entered into a $30.0 million revolving credit facility ("RCF") with Rand Merchant Bank ("RMB"). During the year ended December 31, 2022, the maturity date of the RCF was extended to September 30, 2023 (with utilization subject to credit review) and is subject to a facility maintenance fee of 0.70% per annum. The JV is currently in discussions with RMB to extend the term of the RCF. As at September 30, 2023, the balance drawn under the RCF was nil (December 31, 2022 - nil).

During the three and nine months ended September 30, 2023, the AGM recognized facility maintenance fees associated with the RCF of $0.1 million and $0.2 million, respectively (three and nine months ended September 30, 2022 – $0.1 million and $0.4 million, respectively).

7. Share capital

(a) Authorized:

Unlimited common shares without par value or restrictions.

(b) Base shelf prospectus

On December 21, 2022, the Company filed a final short form base shelf prospectus (the "Prospectus") under which the Company may sell from time-to-time common shares, warrants, subscription receipts, units, debt securities and/or share purchase contracts of the Company, up to an aggregate of $300 million. The Prospectus has a term of 25 months from the filing date. As of September 30, 2023, no securities were issued under the Prospectus.

8. Equity reserves and long-term incentive plan awards

The Company has a stock option plan and a share unit plan under which restricted share units ("RSUs"), performance share units ("PSUs") and deferred share units ("DSUs") may be awarded to directors, officers, employees and other service providers. All awards under the share unit plan may be designated by the Company's Board of Directors to be settled in either cash, shares or a combination thereof. As at September 30, 2023, all units awarded have been cash-settled.

Under the two plans, when combined, the number of shares issuable cannot exceed 9% of the issued and outstanding common shares of the Company. Specifically, shares reserved for issuance under the share unit plan, when designated as equity-settled, may not exceed 5% of the issued and outstanding common shares of the Company. Share units awarded as cash settled units will not be considered in computing the limits of the share unit plan.

RSUs, PSUs and DSUs are cash-settled awards and therefore represent financial liabilities, which are recorded at fair value at each reporting date and adjusted for the completed proportion of the vesting period, with any changes recorded as shared-based compensation expense in the Statement of Operations and Comprehensive Income. The financial liability associated with these cash-settled awards is recorded in accounts payable and accrued liabilities for amounts expected to be settled within one year, and a separate long-term incentive plan liability for amounts to be settled in excess of one year, as of the balance sheet date.

(a) Stock options

Options granted typically vest in 1/3 increments every twelve months following the grant date for a total vesting period of three years. Stock options have a maximum term of 5 years following the grant date. The fair value of stock options granted is determined using the Black Scholes option pricing model.

8. Equity reserves and long-term incentive plan awards (continued)

The following table is a reconciliation of the movement in stock options for the period:

During the three and nine months ended September 30, 2023, the Company recognized $0.3 million and $0.8 million of share-based compensation expense, respectively, relating to stock options (three and nine months ended September 30, 2022 - $0.2 million of share-based compensation expense and a credit of $0.1 million to share-based compensation expense, respectively).

(b) Restricted Share Units

RSUs granted vest in 1/3 increments every twelve months following the grant date for a total vesting period of three years.

The following table is a reconciliation of the movement in the number of RSUs outstanding for the nine months ended September 30, 2023 and year ended December 31, 2022:

The following table is a reconciliation of the movement in the RSU liability for the nine months ended September 30, 2023 and year ended December 31, 2022:

8. Equity reserves and long-term incentive plan awards (continued)

(c) Performance share units

PSUs vest in either 1/2 or 1/3 increments every twelve months following the grant date for a total vesting period of two or three years and also contain a performance criterion applied to the number of units that vest on a yearly basis. The number of units that vest will be determined by the Company's relative share price performance in comparison to a peer group of companies or upon achievement of certain Company strategic objectives. The PSU performance multiplier ranges from 0% to 150%.

The following table is a reconciliation of the movement in the number of PSUs outstanding for the nine months ended September 30, 2023 and year ended December 31, 2022:

The following table is a reconciliation of the movement in the PSU liability for the nine months ended September 30, 2023 and year ended December 31, 2022:

8. Equity reserves and long-term incentive plan awards (continued)

(d) Deferred share units

DSUs granted vest over a period of one year and will be paid to directors upon their retirement from the Board of Directors of the Company or upon a change of control.

The following table is a reconciliation of the movement in the number of DSUs outstanding for the nine months ended September 30, 2023 and year ended December 31, 2022:

The following table is a reconciliation of the movement in the DSU liability for the nine months ended September 30, 2023 and year ended December 31, 2022:

The financial liability associated with cash-settled DSU awards is recorded in accounts payable and accrued liabilities.

(e) Phantom share units

On November 6, 2020, the Company granted 1,000,000 cash-settled phantom share units to the Chair of the Board. The units will vest three years from the grant date, but will only become payable upon the Chair's departure from the Board or upon a change of control of the Company, in a cash settlement amount equal to the value of 1,000,000 common shares as at the Chair's departure date or date of change of control.

The phantom share units represent a financial liability, as they will be settled in cash, and are marked-to-market at each reporting period end and presented in the Statement of Financial Position within accounts payable and accrued liabilities.

The following table is a reconciliation of the movement in the phantom share unit liability for the nine months ended September 30, 2023 and year ended December 31, 2022:

9. Commitments and contingencies

Commitments

The following table reflects the Company's contractual obligations as they fall due, excluding commitments and liabilities of the JV, as at September 30, 2023 and December 31, 2022:

In addition to the above commitments, the Company has provided various parent company guarantees related to the unfunded portion of the AGM's reclamation bond in the amount of $8.4 million (December 31, 2022 - parent company guarantee of $5.9 million).

Contingencies

Due to the nature of its business, the Company and/or the JV may be subject to regulatory investigations, claims, lawsuits and other proceedings in the ordinary course of its business. While the Company cannot reasonably predict the ultimate outcome of these actions, and inherent uncertainties exist in predicting such outcomes, the Company believes that the ultimate resolution of these actions is not reasonably likely to have a material adverse effect on the Company's or JV's financial condition or future results of operations.

10. General and administrative ("G&A") expenses

The following is a summary of G&A expenses incurred during the three and nine months ended September 30, 2023 and 2022. General and administrative expenses for the periods presented include, but are not limited to, those expenses incurred in order to earn the service fee as operators of the JV (note 4).

11. Exploration and evaluation ("E&E") expenditures

The following is a summary of E&E expenses incurred by the Company during the three and nine months ended September 30, 2023 and 2022. E&E expenses incurred relate to work performed on the Company's wholly owned Asumura and Mali properties.

12. Finance income

The following is a summary of finance income earned during the three and nine months ended September 30, 2023 and 2022:

13. Income per share

For the three and nine months ended September 30, 2023 and 2022, the calculation of basic and diluted income per share is based on the following data:

For the three and nine months ended September 30, 2023, excluded from the calculation of diluted weighted average shares were 8,328,001 stock options that were determined to be anti-dilutive. For the three and nine months ended September 30, 2022, there were no dilutive securities.

14. Supplemental cash flow information

The following table summarizes the changes in non-cash working capital for the three and nine months ended September 30, 2023 and 2022: 

15. Segmented information

Geographic Information

As at September 30, 2023, the Company has only one reportable operating segment being the corporate function with its head office in Canada. Total assets in West Africa include the Company's 45% interest in the Asanko Gold Mine JV.

Geographic allocation of total assets and liabilities

15. Segmented information (continued)

Geographic allocation of the Statement of Operations and Comprehensive Income

For the three months ended September 30, 2023:

For the three months ended September 30, 2022:

15. Segmented information (continued)

For the nine months ended September 30, 2023:

For the nine months ended September 30, 2022:

GALIANO GOLD INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS

For the three and nine months ended September 30, 2023 and 2022

(Expressed in United States dollars)

TABLE OF CONTENTS

This Management's Discussion and Analysis ("MD&A") of Galiano Gold Inc. ("Galiano" or the "Company") has been prepared by management as of November 14, 2023 and should be read in conjunction with the Company's unaudited condensed consolidated interim financial statements and the notes thereto for the three and nine months ended September 30, 2023 and 2022, the audited consolidated annual financial statements and the notes thereto for the year ended December 31, 2022 and the related MD&A. The unaudited condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard 34 - Interim Financial Reporting of the International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board.

Galiano was incorporated on September 23, 1999, under the Business Corporations Act of British Columbia, Canada.

Additional information on the Company, including its most recent Annual Information Form ("AIF"), is available under the Company's SEDAR+ profile at www.sedarplus.ca and the Company's website: www.galianogold.com.

All dollar amounts herein are expressed in United States dollars ("US dollars") unless otherwise stated. References to $ means US dollars and C$ are to Canadian dollars.

This MD&A contains forward-looking statements and should be read in conjunction with the risk factors described in sections "12. Risks and uncertainties" and "15. Cautionary statements" at the end of this MD&A.

1. Third quarter 2023 highlights

The Asanko Gold Mine ("AGM") is a 50:50 joint venture ("JV") with Gold Fields Limited ("Gold Fields"), which is managed and operated by Galiano. Galiano owns a 45% equity interest in the entity that holds the AGM mining licenses.

1.1 Key Metrics of the AGM JV (on a 100% basis)

• Safety: There was one lost-time injury ("LTI") and three total recordable injuries ("TRI") recorded during the quarter, resulting in 12‐month rolling LTI and TRI frequency rates of 0.54 and 1.61 per million employee hours worked, respectively.
• Production performance: Gold production of 35,779 ounces during the third quarter. Year-to-date gold production of 102,130 ounces. Full year gold production is expected to come in at the top end of guidance of between 120,000 to 130,000 ounces.
• Milling performance: Achieved milling throughput of 1.6 million tonnes ("Mt") of ore at a grade of 0.8 grams per tonne ("g/t") during the quarter. Metallurgical recovery in Q3 2023 was 87%.
• Cost performance and cash flow: Total cash costs1 of $1,056 per gold ounce ("/oz") and all-in sustaining costs1 ("AISC") of $1,445/oz for the three months ended September 30, 2023. Full year AISC1 guidance has been revised from between $1,650/oz to $1,750/oz to $1,500/oz to $1,600/oz due to higher gold sales and timing of sustaining capital expenditures. Additionally, the JV generated positive cash flow from operations of $39.7 million and Free Cash Flow1 of $24.0 million during the quarter.
• Financial performance: Gold revenue of $67.6 million generated from 35,522 gold ounces sold at an average realized price of $1,902/oz for the quarter. Net income of $21.3 million and Adjusted EBITDA1 of $25.5 million during the quarter.
• Restart of mining: Mining operations at the AGM restarted on October 1, 2023. The AGM’s mining contractor has mobilized a fleet of mining equipment and pre-stripping activities are ongoing. The Abore pit remains on track to deliver higher grade ore to the processing plant, than the current stockpile processing, in Q2 2024.
• Exploration focus: Initiated drilling programs at Abore to convert inferred mineral resources to the indicated mineral resource category, at Midras South to advance the deposit towards a maiden mineral reserve estimate, and at Nkran completed a phase 1 mineral resource upgrade and mineral reserve conversion drilling.
• Robust liquidity: $136.9 million in cash and cash equivalents, $4.4 million in gold sales receivables, $2.0 million in gold on hand and no debt as of September 30, 2023.

1.2 Highlights of the Company

• Stable balance sheet: Cash and cash equivalents of $56.1 million as at September 30, 2023, while remaining debt-free.
• Positive earnings: Net income of $11.4 million or $0.05 per common share during the quarter, which includes the Company's share of the JV's net earnings for the quarter.

2. Business overview

Galiano owns a 45% equity interest in the entity that holds the AGM mining licenses and gold exploration tenements and a 50% equity interest in an exploration entity (collectively the "joint venture" or "JV") on the Asankrangwa Gold Belt in the Republic of Ghana ("Ghana"), West Africa. Galiano is the operator of the JV and currently receives a gross annual service fee from the JV of $7.3 million. Gold Fields also owns a 45% equity interest in the AGM, with the Government of Ghana owning a 10% free-carried interest.

The AGM consists of four main open-pit mining areas: Abore, Miradani North, Nkran and Esaase, multiple satellite deposits and a carbon-in-leach ("CIL") processing plant, with a current capacity of 5.8 Mt per annum.

In addition to its interest in the AGM, the Company holds the 100% owned Asumura property in Ghana.

Galiano is focused on creating a sustainable business capable of value creation for all stakeholders through production, exploration, accretive business acquisitions and disciplined deployment of its financial resources. The Company's shares are listed on the Toronto Stock Exchange and the NYSE American Exchange under the symbol "GAU".

2.1  Updated NI 43-101 Technical Report

The Company published the details of a new life‐of‐mine ("LOM") plan for the AGM on March 28, 2023 in a National Instrument 43-101 ("NI 43-101") technical report titled "NI 43‐101 Technical Report and Feasibility Study for Asanko Gold Mine, Ghana" with an effective date of December 31, 2022 (the "2023 Technical Report"), which included the reinstatement of Mineral Reserves and demonstrated an improved long-term outlook for the mine. The 2023 Technical Report was prepared independently by SRK Consulting (Canada) Inc. Highlights of the 2023 Technical Report, on a 100% basis, include:

• Proven Mineral Reserves of 7.2 Mt at 0.67 g/t for 0.2 million ounces ("Moz") gold contained and Probable Mineral Reserves of 41.7 Mt at 1.43 g/t for 1.9 Moz gold contained. Mineral Reserves were reported assuming a gold price of $1,500/oz.
• Measured Mineral Resources of 7.4 Mt at 0.67 g/t for 0.2 Moz gold contained and Indicated Mineral Resources of 75.0 Mt at 1.39 g/t for 3.3 Moz gold contained, inclusive of Mineral Reserves. Mineral Resources were reported assuming a gold price of $1,800/oz.
• Inferred Mineral Resources of 25.1 Mt at 1.34 g/t for 1.1 Moz gold contained.
• 21% increase in total Measured and Indicated ounces and a 251% increase in total Inferred ounces compared to the previous technical report dated February 28, 2022.
• Diversified feed source with 4 main open-pit mining areas: Abore, Miradani North, Esaase and Nkran, and 2 satellite deposits: Dynamite Hill and Adubiaso.
• Robust mine economics with a $343 million after-tax net present value discounted at 5% ("NPV5%") and a $478 million pre-tax NPV5%, applying a $1,700/oz gold price.
• Low cash costs: $905/oz average total cash costs1 and $1,143/oz average AISC1 over the LOM.
• Increased production profile: annual average gold production of 254,000 ounces from 2025 to 2030, inclusive, and LOM average annual production of 217,000 ounces per year.
• Mining to recommence in 2023: mining contractors to be in operation at Abore during the fourth quarter.

For further information regarding the Mineral Reserve and Mineral Resource estimates and to review scientific and technical information contained in the 2023 Technical Report, readers are encouraged to read the entire 2023 Technical Report found under the Company's SEDAR+ profile at www.sedarplus.ca.

2.2  Key business developments in 2023

a) Mining Restart at the AGM

The AGM recommenced mining operations on October 1, 2023 in accordance with the LOM plan. With the mining contractor having  mobilized a fleet of mining equipment to the AGM, pre-stripping activities have commenced at the Abore pit which is scheduled to deliver higher grade mill feed, than the current stockpile processing, in the second quarter of 2024. During the quarter, crop compensation on all lands impacted by planned mining was paid and a public road diversion was completed. Work continues at the JV level to identify and execute on additional mine planning and cost optimization opportunities.

As Esaase was previously mined from 2018 to 2022, all infrastructure and permits are already in place which allows for an expeditious restart to mining when needed.

b) Changes to Board and Management

Gordon Fretwell did not stand for re‐election at the Company's Annual General Meeting and as such resigned as a director of the Company effective June 1, 2023.

On April 1, 2023, Krista Muhr joined the Company as Senior Vice President, Investor Relations. Mrs. Muhr brings nearly 20 years of experience working with public companies in the global metals and mining sector with strong ESG and capital market credentials at senior levels. Advisor to both corporate and trade association boards during her 10 years in executive roles, Mrs. Muhr most recently served as Senior Vice President, External Affairs and Sustainability for Eldorado Gold Corporation and currently serves as a director for Moneta Gold Inc. and Ensign Minerals Inc.

2.3  Financial and operating highlights

2.4  Environmental, Social and Corporate Governance ("ESG")

Sustainability is at the core of the Company's business strategy. The Company believes that a comprehensive sustainability strategy is integral to meeting its strategic objectives as it will assist the JV in positively supporting relationships with its local and external stakeholders, improve its risk management, reduce the AGM's cost of production and both directly and indirectly benefit the catchment communities that the JV and the Company operate in, beyond the life of the mine.

The Company implements its sustainability program with a focus on four key areas: (1) protecting human rights; (2) ensuring the occupational health and safety of our employees and local communities; (3) advancing the socio-economic welfare and health of local catchment communities; and (4) managing environmental impacts of our operations and exploration activities. For further details on the Company's sustainability program, refer to the Company's 2022 Sustainability Report (the "2022 Sustainability Report") published on July 27, 2023, which is available on the Company's website at www.galianogold.com. The disclosures and metrics of the 2022 Sustainability Report align with international reporting standards including the Global Reporting Initiative and the Metals and Mining Standards of the Sustainability Accounting Standards Board.

In May 2023, the Canadian Parliament passed Bill C-211, to enact the Fighting Against Forced Labour and Child Labour in Supply Chains Act and to amend the Customs Tariff Act. This will require Canadian companies to annually report on the due diligence steps they are taking to both identify and address labour risks in their supply chain. The Company has determined that it meets these mandatory reporting requirements and will provide a detailed report on measures it will take to identify, address, and prevent forced labour, prison labour, and child labour in its supply chain. The Company plans to submit this report no later than May 31, 2024, to the Minister of Public Safety and Emergency Preparedness. The Company is awaiting more information from the Government of Canada on its reporting and procedural guidelines to prepare for this submission.

In June 2023, the International Sustainability Standards Board ("ISSB") released its inaugural IFRS Sustainability Disclosure Standards, specifically IFRS S1 "General Requirements for Disclosure of Sustainability-related Financial Information" and IFRS S2 "Climate-related Disclosures", the purpose of which is to standardize a single, global baseline of sustainability disclosures for capital markets. IFRS S1 provides a set of disclosure requirements designed to enable companies to communicate to investors about the sustainability-related risks and opportunities they face over the short, medium and long term. IFRS S2 sets out specific climate-related disclosures and is designed to be used in conjunction with IFRS S1. Both standards fully incorporate the recommendations of the Task Force on Climate-related Financial Disclosures ("TCFD").  IFRS S1 and IFRS S2 are effective for annual reporting periods beginning on or after January 1, 2024, with early adoption permitted.

Although the ISSB has issued IFRS S1 and IFRS S2, the standards are not currently mandated in Canada. The Canadian Securities Administrators, who are responsible for Canadian reporting issuer disclosure requirements, have formed the Canadian Sustainability Standards Board ("CSSB") to review the final ISSB standards and consider their suitability for adoption in Canada.  Consultation efforts by the CSSB are currently underway and decisions about adoption, including how effective dates are determined in Canada, will be part of the CSSB's initial discussions.

In March 2022, the United States Securities and Exchange Commission ("SEC") announced plans to enhance and standardize climate-related disclosures for reporting issuers. The proposed disclosure rules would require reporting issuers to disclose both climate-related risks that are reasonably likely to have a material impact on their business, results of operations or financial condition, in addition to Scope 1, Scope 2, and certain Scope 3 emissions.  The SEC has yet to finalize its ESG disclosure rules for reporting issuers; however, it is expected that the rules and an implementation plan will be announced in 2023. It is not yet clear how the SEC's ESG disclosure rules will interact with Canadian standards.

During 2023, the Company advanced its development of Climate-Related Financial Disclosures with the completion of an assessment of our alignment with the TCFD recommendations.  The Company is currently evaluating how the ISSB's sustainability disclosure standards will impact its disclosure obligations. For further information on the Company's approach and policies on ESG, refer to the Company's MD&A for the year ended December 31, 2022, which is available under the Company's SEDAR+ profile at www.sedarplus.ca and the Company's website.

2.5  Macroeconomic factors

During the three months ended September 30, 2023, the average London PM gold price was $1,928/oz while gold prices traded in a range from $1,871/oz to $1,982/oz. With inflation readings in the US levelling, market expectations for further central bank rate increases have reduced. The US Federal Reserve increased its policy rate by 0.25% to 5.50% on July 26, 2023 and subsequently held this rate at its September meeting. With the US Federal Reserve indicating rates will remain "higher for longer", the yield on US 10-year Treasuries moved higher from a low of 3.25% in Q2 2023 to 5.02% on October 23, 2023. The most recent US Consumer Price Index readings as of September 2023 reported a 3.7% increase in inflation over the last 12-months, and as result market participants (CME Group) forecast the July rate hike as the last for 2023. Despite future rate hike expectations declining, the US dollar has remained robust. It is largely viewed that a weaker US dollar is a positive for gold prices.

Relatively strong gold prices benefitted the JV's operating performance during the quarter, and consequently the Company's share of the JV's net income. Management continues to implement and evaluate opportunities to hedge the JV's gold price risk, particularly in light of an expected capital-intensive period in Q4 2023 and Q1 2024 to support the restart of mining operations.

In October 2023, the International Monetary Fund ("IMF") and the Ghana government reached a staff-level agreement on the first review of its $3 billion financing arrangement over a 3-year period (the "IMF Loan"). The first tranche of the IMF loan totaling $600 million was paid in May 2023, and a second tranche of $600 million is expected to be approved by the IMF's executive board, pending Ghana and its creditors agreeing to a debt restructuring plan.

3. Guidance and outlook

3.1  2023 Guidance for the AGM JV (100% basis)

During Q1 2023, the Company provided preliminary guidance for 2023 based on the new LOM plan for the AGM, which outlined production of between 100,000 to 120,000 ounces at AISC1 between $1,900/oz and $1,975/oz. Following the outperformance of recoveries achieved on processed stockpiles, production guidance was revised upwards to between 120,000 to 130,000 ounces of gold production in Q2 2023. Full year gold production is forecast to come in at the top end of the revised guidance range. Given the strong financial performance of the AGM, AISC1 was revised lower in Q1 2023 to between $1,650/oz to $1,750/oz and this has been further revised downward to between $1,500/oz to $1,600/oz as of Q3 2023 due to higher gold sales and timing of sustaining capital expenditures. AISC1 is still anticipated to be elevated in 2023 compared to the expected LOM average primarily due to waste stripping necessary to restart mining at Abore in Q4 2023, which will benefit future years production, as well as higher expenditures on the tailings storage facility ("TSF").

It is currently expected that $37 million of sustaining capital expenditures (originally $38 million and revised to $43 million as of Q2 2023), excluding capitalized waste stripping at Abore estimated to be $13 million (previously $15 million), will be spent on the TSF Stage 7 expansion, plant infrastructure and water management in 2023 (spend as of September 30, 2023: $21.9 million, excluding Abore waste stripping costs).

Development capital of $10 million (originally $24 million and revised to $17 million as of Q2 2023) is expected to be spent on Abore and Miradani North site establishments (spend as of September 30, 2023: $4.7 million). The decrease in development capital is primarily due to timing of site establishment activities at Miradani North.

For 2023, the exploration budget at the AGM is estimated at $15 million (spend as of September 30, 2023: $10.5 million), which includes approximately 40,000 metres of drilling, as well as ground geophysics, trenching, soil sampling and regional mapping. The 2023 exploration program is focused on targeting discoveries on underexplored greenfield areas of the AGM tenements, as well as increasing the Mineral Reserve and Mineral Resources at known deposits.

___________________________

1  See "8. Non-IFRS measures"

4. Results of the AGM

All results of the AGM in this section are on a 100% basis, unless otherwise noted. The Company's attributable equity interest in the AGM is 45%.

4.1  Operating performance

The following table and subsequent discussion provide a summary of the operating performance of the AGM (on a 100% basis) for the three and nine months ended September 30, 2023 and 2022, unless otherwise noted.

2 Excludes Galiano's service fee for the three and nine months ended September 30, 2023 and 2022, and for the nine months ended September 30, 2022 severance costs associated with the AGM's workforce restructuring.

a) Health and safety

There was one LTI and three TRIs reported during the quarter, and the rolling 12‐month LTI and TRI frequency rates were 0.54 and 1.61, respectively. The Company reports recordable LTI and TRI cases in accordance with the International Council on Mining and Metals' (ICMM) Mining Principles.

b) Mining

As previously communicated, the AGM processed ore from existing stockpiles during the quarter and as such there was no mining activity. The AGM incurred $3.2 million of ore rehandle and mining overhead costs during the quarter.

c) Ore transportation

During the quarter, 0.7 Mt of stockpiled ore was trucked from the Esaase pit to the processing plant, consistent with 0.7 Mt in Q3 2022. Total ore transportation costs in Q3 2023 were $6.63/t, largely in line with historical averages.

d) Processing

The AGM produced 35,779 ounces of gold during Q3 2023, as the processing plant achieved milling throughput of 1.6 Mt of ore at a grade of 0.8 g/t with metallurgical recovery averaging 87%. Recoveries continued to improve from 73% in Q1 2023, when the mill feed comprised predominately Esaase fresh ore, to 87% in Q3 2023 due to the composition of the feed blend processed having a higher percentage of oxide ore during the current quarter.

The low grade stockpiled ore processed during the quarter had no accounting book value, and as such had no mining cost attributed to it. Stockpiled ore fed to the processing plant during the quarter yielded ounces that were in line with expectations. The nature of stockpiled ore, however, can result in highly variably grades and metallurgical recoveries; therefore, the current quarter performance may not be indicative of future performance.

Processing cost per tonne for Q3 2023 was $9.69 compared to $10.45 in Q3 2022. Processing costs per tonne were lower on a per unit basis in Q3 2023 due to higher tonnes treated.  On an absolute basis, processing costs were higher in Q3 2023 due to higher consumption of key reagents and consumables resulting from the nature of the ore treated as well as higher power costs due to an increase in the base rate during Q3 2023.

e) Total cash costs and AISC

For the three and nine months ended September 30, 2023, total cash costs1 were $1,056/oz and $1,088/oz, respectively, compared to the three and nine months ended September 30, 2022 of $1,001/oz and $1,189/oz, respectively. Although gold sales volumes decreased by 22% in Q3 2023, total cash costs per ounce1 in Q3 2023 were only 5% higher than Q3 2022 as a result of processing ore that had no carrying value for accounting purposes. 

Relative to Q2 2023, total cash costs1 were lower in Q3 2023, decreasing by 6% from $1,127/oz to $1,056/oz. Total cash costs per ounce1 were lower in Q3 2023 primarily due to 8% higher gold ounces sold.

For the three and nine months ended September 30, 2023, AlSC1 for the AGM amounted to $1,445/oz and $1,362/oz, respectively, compared to $1,178/oz and $1,385/oz in the comparative periods of 2022. The increase in AlSC1 from Q3 2022 to Q3 2023 was predominantly due to the increase in total cash costs per ounce1 described above and higher sustaining capital expenditures ($276/oz increase) to support the restart of mining in Q4 2023, construction of water treatment facilities and a TSF lift.

Relative to Q2 2023, AlSC1 increased by 5% from $1,374/oz to $1,445/oz. The increase in AISC1 was primarily due to higher sustaining capital expenditures ($121/oz increase) to support the restart of mining in Q4 2023 and construction of water treatment facilities, which was partly offset by the decrease in total cash costs per ounce1 mentioned above.

For the three and nine months ended September 30, 2023, the AGM incurred non-sustaining capital expenditures and exploration expenditures (net of changes in payables) of $7.3 million and $15.2 million, respectively, compared to $6.4 million and $13.8 million during the comparative periods in 2022. Non-sustaining capital expenditures during Q3 2023 amounted to $5.1 million and related primarily to Abore site preparations, while $2.2 million of non-sustaining exploration expenditures incurred related to first pass drilling at Gyagyatreso, extension drilling at Kaniago West and work performed on various greenfield exploration targets.

4.2  Exploration update

The JV holds a district-scale land package of 476km2 on the prospective and underexplored Asankrangwa Gold Belt. The following exploration programs were undertaken during the year to evaluate the current and potential expanded mineralization of several of the AGM's deposits to improve the mineral resource estimate and to assess the broader potential of these deposits. Additionally, work was undertaken to identify new growth targets across the wider regional AGM tenements.

• Nkran South - a phase 1 drilling program was completed during the year to upgrade a zone of inferred mineral resources at the south end of the deposit and determine the potential for growth in the open pit mineral reserves. In addition to the potential expansion of mineral reserves, the Company is incorporating the drilling results into the Nkran underground study that is currently underway. As of September 30, 2023, 13 holes have been completed for 6,689m.

Based on the positive results reported in the Company's news release dated October 25, 2023, the Company has confirmed the primary mineralized zones at Nkran are contiguous and remain open at the southern end of the deposit. The mineralized zones currently extend up to 185 meters immediately along strike to the south of the proposed Nkran Cut 3 pit shell. Drilling highlights from the Nkran South program included the following:

• Hole NKPC22-111: 19 meters @ 3.0 g/t gold from 567m
• Hole NKPC22-114W1: 18 meters @ 2.6 g/t gold from 361m
• Hole NKPC23-116: 19.5 meters @ 1.6 g/t gold from 451m
• Hole NKPC23-118: 9 meters @ 5.9 g/t gold from 565m
• Hole NKPC23-119: 19 meters @ 1.3 g/t gold from 483m and 7 meters @ 5.6 g/t gold from 324m

Refer to the Company's news release dated October 25, 2023 for additional information regarding these drill results, including data verification and quality assurance and quality control measures.

• Abore - an infill drilling program has been initiated to convert inferred mineral resources below the current mineral reserve pit shell and the infilling zones below the $1,800/oz mineral resource pit shell to the indicated mineral resource category. This program consists of a planned 63 holes totaling approximately 15,800m.  As of September 30, 2023, 14 holes have been completed for 5,730m.

Early results returned strong intercepts outside the current reserve pit shell including 36m @ 2.1 g/t gold and 21m @ 2.6 g/t gold, highlighting potential pit expansion opportunities. Refer to the Company's news release dated October 25, 2023 for additional information regarding these drill results, including data verification and quality assurance and quality control measures.

• Midras South - the Midras South deposit lies approximately 5 kilometers south of the AGM processing plant along the Takorase - Afraso shear zone. An infill drilling program for inferred mineral resources has been initiated to upgrade the primary mineralized zones to the indicated mineral resource category to advance the deposit towards a maiden mineral reserve estimate. This initial phase consisted of a planned 77 holes totaling approximately 7,400m and was drilled along vertical fences, spaced approximately 30m apart.  As of September 30, 2023, 52 holes have been completed for 5,061m. Two of the fertile structural trends that host mineralization at Midras South also remain open along strike and are considered targets for further exploration drilling.

Drilling highlights from the Midras South program included the following:

• Hole MSRC23-253: 28 meters @ 1.2 g/t gold from 24m
• Hole MSRC23-257: 10 meters @ 2.6 g/t gold from 18m
• Hole MSRC23-258: 12 meters @ 2.5 g/t gold from 5m
• Hole MSRC23-284: 18 meters @ 4.0 g/t gold from 7m
• Hole MSRC23-285: 3 meters @ 26.6 g/t gold from 24m
• Hole MSRC23-287: 17 meters @ 2.3 g/t gold from 24m

Refer to the Company's news release dated October 25, 2023 for additional information regarding these drill results, including data verification and quality assurance and quality control measures.

• Gyagyatreso - located approximately 4 kilometers northwest of the AGM processing plant. A drill program has been planned to test for potential near surface mineralization along the Esaase-Abore-Kaniago shear trend. This initial phase consisted of a planned 68 holes totaling approximately 7,100m.  As of September 30, 2023, 55 holes have been completed for 5,783m.

Drilling highlights from the Gyagyatreso program included the following:

• Hole GYDD23-004: 20 meters @ 1.7 g/t gold from 32m
• Hole GYDD23-011: 13 meters @ 1.3 g/t gold from 42m
• Hole GYDD23-038: 11 meters @ 3.6 g/t gold from 98m
• Hole GYDD23-045: 38 meters @ 2.0 g/t gold from 20m

Drill results received to date demonstrate that mineralization is present over at least 2 kilometers of strike length. The full extent of the surficial geochemical anomaly has not yet been tested and mineralization remains open along strike to the southwest and northeast. Refer to the Company's news release dated October 25, 2023 for additional information regarding these drill results, including data verification and quality assurance and quality control measures.

• Akwasiso - a drill program has been planned to evaluate the underground potential of the Akwasiso deposit. The program consists of 4 deep holes totaling approximately 2,500m which was completed as planned during the quarter.  The JV is awaiting the full assay results of the drill holes completed.
• Kaniago West - Drilling at Kaniago West is aimed at evaluating the strike and depth extent of the deposit in order to assess potential economic viability. As of September 30, 2023, 17 holes have been completed for 5,204m.

In addition to the drill programs above, the JV also initiated geophysical surveys and soil sampling programs on several regional greenfield targets across the AGM's tenements with an objective of identifying new potential drill targets.

4.3  Financial results

The following table presents excerpts of the financial results of the JV for the three and nine months ended September 30, 2023 and 2022. These results are presented on a 100% basis.

Three and nine months ended September 30, 2023 and 2022

1 Non-IFRS measure.  Adjusted net income as presented in the table was derived by adjusting the net income of the JV for the nine months ended September 30, 2022 by the $18.9 million severance provision associated with restructuring the AGM's workforce.   

a) Revenue

During Q3 2023, the AGM sold 35,522 ounces of gold at an average realized gold price of $1,902/oz for total revenue of $67.8 million (including $0.2 million of by-product silver revenue). During Q3 2022, the AGM sold 45,482 ounces of gold at an average realized gold price of $1,687/oz for total revenue of $76.9 million (including $0.2 million of by-product silver revenue). The decrease in revenue quarter-on-quarter was due to a 22% reduction in sales volumes relative to Q3 2022, partly offset by a 13% increase in realized gold prices.

During the nine months ended September 30, 2023, the AGM sold 103,608 ounces of gold at an average realized gold price of $1,898/oz for total revenue of $197.0 million (including $0.4 million of by-product silver revenue). During the comparative period of 2022, the AGM sold 133,647 ounces of gold at an average realized gold price of $1,787/oz for total revenue of $239.3 million (including $0.5 million of by-product silver revenue). The decrease in revenue period-on-period was due to a 22% reduction in sales volumes, partly offset by a 6% increase in realized gold prices.

The AGM continues to sell all the gold it produces to a special purpose vehicle of Red Kite Opportunities Master Fund Limited ("Red Kite") under an offtake agreement (the “Offtake Agreement”). The terms of the Offtake Agreement require the AGM to sell 100% of its gold production up to a maximum of 2.2 million ounces to Red Kite.  As of September 30, 2023, 1,570,713 gold ounces have been delivered to Red Kite under the Offtake Agreement (December 31, 2022 - 1,467,105 gold ounces delivered).

During the three and nine months ended September 30, 2023, the AGM sold a portion of its production to the Bank of Ghana under the country's gold buying program. As agreed with Red Kite, gold ounces sold to the Bank of Ghana were considered delivered under the Offtake Agreement, and in consideration the AGM paid to Red Kite a "make whole" payment which was calculated in a similar manner to a nine‐day quotational period. The "make whole" payments made to Red Kite were recognized as a reduction of revenues.

b) Production costs and royalties

During the three and nine months ended September 30, 2023, the AGM incurred production costs of $35.6 million and $103.9 million, respectively, compared to $41.8 million and $147.3 million in the comparative periods of 2022, respectively.

Production costs were lower in Q3 2023 primarily due to 22% fewer gold ounces sold and processing ore that had no carrying value for accounting purposes.

Production costs were lower in 2023 primarily due to 22% fewer gold ounces sold, lower mining contractor costs and processing ore that had no carrying value for accounting purposes. Labour costs were also lower in 2023 resulting from restructuring the AGM's workforce at the end of Q1 2022 ($6.4 million decrease). These factors were partly offset by inflationary pressures on key reagents and other consumables in 2023 and a $14.6 million reversal of previously recorded net realizable value adjustments on stockpile inventory in 2022, of which $10.5 million was credited against production costs.

The Ghanaian government charges a 5% royalty on revenues earned through sales of minerals from the AGM's concessions. The AGM's Akwasiso mining concession is also subject to a further 2% net smelter return royalty payable to the previous owner of the mineral tenement, and the Esaase concession is subject to a 0.5% net smelter return royalty payable to the Bonte Liquidation Committee, both of which are presented in production costs.

On April 3, 2023, the Government of Ghana imposed a special levy, the Growth and Sustainability Levy ("GSL"), on all companies operating in Ghana with an effective date of May 1, 2023. The purpose of the GSL is to support growth and fiscal sustainability of the Ghanaian economy. For mining companies in Ghana, the GSL is levied at a rate of 1% of gold revenues for the fiscal years 2023 to 2025. The JV has presented the 1% GSL as royalties expense in the Statement of Operations.

Royalties payable to the Government of Ghana are presented as a component of cost of sales and amounted to $4.1 million and $11.1 million for the three and nine months ended September 30, 2023, respectively (three and nine months ended September 30, 2022 - $3.8 million and $12.0 million, respectively). Royalties expense was higher in Q3 2023 due to the introduction of the GSL in April 2023, while royalties expense was lower year to date 2023 due to lower revenue, partly offset by the GSL.

c) Depreciation and depletion

Depreciation and depletion on mineral properties, plant and equipment ("MPP&E") recognized during Q3 2023 was $4.3 million compared to $5.5 million for Q3 2022. Depreciation and depletion expense was lower in Q3 2023 due to fewer gold ounces sold; and processing existing stockpiles that had no carrying value for accounting purposes.  These factors were partly offset by a $63.2 million impairment reversal on MPP&E recorded at December 31, 2022 and higher depreciation on capitalized leases ($1.3 million increase).

Depreciation and depletion on MPP&E recognized during the nine months ended September 30, 2023 was $9.3 million compared to $27.5 million in the comparative period of 2022. Depreciation and depletion expense was lower in 2023 due to fewer gold ounces sold; lower depreciation on mining related assets due to the temporary cessation of mining at the end of Q2 2022; processing existing stockpiles that had no carrying value for accounting purposes; and lower depreciation on capitalized leases ($5.0 million decrease).  These factors were partly offset by the impairment reversal on MPP&E described above and recorded at December 31, 2022.

d) Exploration and evaluation ("E&E") expenditures

During the three and nine months ended September 30, 2023, the AGM incurred E&E expenses of $2.2 million and $5.3 million, respectively, (see 4.2 "Exploration update") compared to $2.9 million and $9.3 million of E&E expenses in the comparative periods of 2022, respectively. E&E expenses were higher in 2022 as drilling programs were undertaken on several mining concessions to support the AGM's updated Mineral Reserve and Mineral Resource estimates.

e) General and administrative ("G&A") expenses

During the three and nine months ended September 30, 2023, the AGM incurred G&A expenses of $0.5 million and $2.0 million, respectively, compared to $0.9 million and $21.3 million in the comparative periods of 2022, respectively.

G&A expense was lower in Q3 2023 due to lower legal costs, audit fees and tax consulting services, while G&A expense was higher for the nine months ended September 30, 2022 due to the recognition of an $18.9 million severance provision related to the AGM's workforce restructuring undertaken at the end of Q1 2022.

f) Finance expense

Finance expense for the three and nine months ended September 30, 2023 was $1.4 million and $2.4 million, respectively, compared to $3.9 million and $5.4 million during the comparative periods of 2022, respectively. Finance expense was higher in Q3 2022 due to a $2.9 million provision related to a Ghana Revenue Authority ("GRA") audit, which was partly offset by $0.8 million higher interest expense on capitalized leases in Q3 2023.

For the nine months ended September 30, 2023, finance expense was lower primarily due to the previously mentioned GRA audit accrual recorded in Q3 2022, while the 2023 period also included a credit to finance expense of $0.7 million relating to an unrealized gain on the AGM's zero cost gold collar ("ZCCs") hedges. All gold hedges for the period January to September 2023 expired unutilized. In 2022, the AGM did not have any gold hedging instruments.

g) Finance income

Finance income of $1.2 million and $3.2 million for the three and nine months ended September 30, 2023, respectively, were higher than the comparative periods in 2022 due to higher interest rates earned on cash balances and short-term investments (maturities of 90 days or less).

h) Legal provision

A services provider of the AGM filed a dispute with an arbitration tribunal alleging the AGM breached the terms of a services agreement and claimed approximately $25 million in damages. The arbitrator ruled in favour of the AGM that there had not been a breach of any terms of the contract, yet made an award to the counterparty of approximately $13 million plus interest for services rendered. The AGM, consistent with the arbitration ruling, maintains the view that there was no breach of contract and all contractual amounts were paid as due. The AGM therefore is undertaking an appeals process in the Court of Appeal in Ghana. A provision of $2.0 million has been recorded as of September 30, 2023 as management's best estimate to settle the claim. While the Company cannot reasonably predict the ultimate outcome of these actions, and inherent uncertainties exist in predicting such outcomes, the Company believes the estimated provision is reasonable based on the information currently available.

4.4   Cash flows

The following table provides a summary of cash flows for the AGM on a 100% basis for the three and nine months ended September 30, 2023 and 2022:

a) Cash flows from operating activities

During the three and nine months ended September 30, 2023, the AGM generated cash flows from operations of $39.7 million and $76.7 million due to strong AISC margins1 of $457/oz and $536/oz, respectively (three and nine months ended September 30, 2022 - $509/oz and $402/oz, respectively).

The increase in operating cash flows in Q3 2023 was largely driven by lower working capital tie-up.

b) Cash used in investing activities

During Q3 2023, the AGM invested $16.6 million in additions to MPP&E, compared to $5.6 million in Q3 2022, and earned $1.2 million of interest on cash balances. Total cash expenditure on MPP&E during the quarter included $11.5 million of sustaining capital related primarily to raising the height of the TSF, construction of water treatment facilities and waste removal at Abore. Development and exploration capital expenditure was $5.1 million primarily related to Abore site preparations and haul road diversions and drilling programs at Abore, Akwasiso and Midras South.

The increase in cash flows invested in MPP&E in Q3 2023 resulted from higher sustaining capital expenditures ($9.4 million increase) related to raising the height of the TSF, construction of water treatment facilities and waste removal at Abore, and higher development capital ($1.6 million increase) related mainly to Abore site preparation and haul road construction as mentioned above.

During the nine months ended September 30, 2023, the AGM invested $33.0 million in additions to MPP&E, compared to $11.6 million in the comparative period of 2022, and earned $3.2 million of interest on cash balances. Total cash expenditure on MPP&E during 2023 included $23.1 million of sustaining capital related primarily to raising the height of the TSF and construction of water treatment facilities and $9.9 million of development and exploration capital expenditure mainly on Nkran South extension drilling, Abore and Midras South infill drilling and site preparations and haul road construction at Abore.

The increase in cash flows invested in MPP&E in 2023 resulted from higher sustaining capital expenditures ($16.0 million increase) related to raising the height of the TSF and construction of water treatment facilities, and higher development and exploration capital ($5.5 million increase) related to a drilling program at Nkran South, Abore and Midras South and development activities to support a restart of mining at Abore.

c) Cash used in financing activities

For the three and nine months ended September 30, 2023, cash used in financing activities related to lease payments on the JV's ore haulage contracts and fees associated with the JV's revolving credit facility ("RCF").  The decrease in cash used in financing activities during the three and nine months ended September 30, 2023, relative to the comparative periods of 2022, was due to the temporary cessation of mining activities in 2022 resulting in lower lease payments.

d) Liquidity position

In October 2019, the JV entered into a $30.0 million RCF with Rand Merchant Bank ("RMB"). During the year ended December 31, 2022, the maturity date of the RCF was extended to September 30, 2023 (with utilization subject to credit review) and is subject to a facility maintenance fee of 0.70% per annum.  The JV is currently in discussions with RMB to extend the term of the RCF. As at September 30, 2023, the balance drawn under the RCF was nil (December 31, 2022 - nil).

As at September 30, 2023, the JV held cash and cash equivalents of $136.9 million, $4.4 million in gold sales receivables and $2.0 million in gold on hand. This compares to December 31, 2022 when the JV held $91.3 million in cash and cash equivalents, $2.7 million in receivables from gold sales and $3.6 million in gold on hand. The Company does not control the funds of the JV. The liquidity of the Company is further discussed in section "7. Liquidity and capital resources".

e) Gold price hedges

During the nine months ended September 30, 2023, the AGM entered into ZCCs to mitigate gold price risk and protect AISC1 margins during a period of elevated capital investment. As of September 30, 2023, the ZCCs cover approximately 50% of the AGM’s forecast gold production for Q4 2023 with put strikes of $1,900/oz and call strikes between $2,115/oz to $2,222/oz. All gold hedges to date in 2023 expired unutilized.  Subsequent to quarter-end, the AGM entered into ZCCs covering approximately 50% of the AGM’s forecast gold production for H1 2024 with put strikes of $1,900/oz and call strikes between $2,097/oz to $2,173/oz.

5. Results of the Company

5.1 Financial performance

The following table is a summary of the Unaudited Condensed Consolidated Interim Statements of Operations and Comprehensive Income of the Company for the three and nine months ended September 30, 2023 and 2022.

a) Share of net income related to the AGM JV

For the three and nine months ended September 30, 2023, the Company recognized its 45% interest in the JV's net earnings which amounted to $9.6 million and $29.9 million. For the three and nine months ended September 30, 2022, the Company did not recognize its share of the JV's net income as the recoverable amount of the Company's investment in the JV was estimated to be nil at March 31, 2022, June 30, 2022 and September 30, 2022.

b) Service fee earned as operators of the AGM JV

Under the terms of the Joint Venture Agreement ("JVA"), the Company is the operator of the AGM and, in consideration for managing the operations of the mine, currently receives a gross annual service fee from the JV of $7.3 million (originally $6.0 million per annum, but adjusted annually for inflation). For the three and nine months ended September 30, 2023, the Company earned a gross service fee of $1.8 million (less withholding taxes payable in Ghana of $0.4 million) and $5.4 million (less withholding taxes payable in Ghana of $1.1 million), respectively.

During the three and nine months ended September 30, 2022, the Company earned a gross service fee of $1.7 million (less withholding taxes of $0.3 million) and $5.0 million (less withholding taxes of $1.0 million).  The increase in the gross service fee during 2023 was due to an annual inflationary adjustment made in Q3 2023.

c) G&A expenses

G&A expenses for the three and nine months ended September 30, 2023 and 2022 comprised the following:

G&A expenses in Q3 2023 were $0.6 million lower than Q3 2022 primarily due to a $0.7 million decrease in share-based compensation expense resulting from the timing of deferred share unit grants (which have no specific vesting conditions, thus the expense was recognized immediately on grant date) in the prior quarter. This was partly offset by an increase in the fair value of cash‐settled long‐term incentive plan awards linked to the Company's share price.

G&A expenses in 2023 were $1.6 million higher than 2022 mainly due to a $2.2 million increase in share-based compensation expense resulting from an increase in the fair value of cash‐settled long‐term incentive plan awards linked to the Company's share price and the vesting of the related awards over the quarter. Additionally, 2022 share‐based compensation expense was reduced by awards forfeited resulting from employee resignations. The increase in share-based compensation expense was partly offset by a $0.6 million decrease in consulting expenses as the prior period contained costs related to corporate development initiatives.

d) E&E expenditures

E&E expenses for the three and nine months ended September 30, 2023 were $0.2 million lower and $1.5 million higher than the comparative periods in 2022, respectively.  E&E expense was higher in 2023 due to a Phase 1 drilling campaign undertaken on the Company's wholly owned Asumura property in Ghana, which completed in the first half of 2023. During the comparative period, E&E expenses primarily related to holding costs on the Company's wholly owned Ghana and Mali properties.

e) Finance income

Finance income includes changes in the fair value of the Company's preferred share investment in the JV and interest earned on cash balances and short-term investments with maturities less than 90 days. For the three and nine months ended September 30, 2023, the Company recognized a $2.5 million and $7.3 million upward fair value adjustment, respectively, on its preferred shares in the JV (three and nine months ended September 30, 2022 - $3.4 million and $16.6 million upward fair value adjustments, respectively). The upward fair value adjustment on preferred shares in 2023 related to a reduced time period of expected cash distributions.

Relative to the comparative periods in 2022, interest earned on cash balances and short-term investments was $0.4 million and $1.6 million higher during the three and nine months ended September 30, 2023, respectively, due to rising interest rates.

6. Selected quarterly financial data

The following table provides a summary of unaudited financial data for the last eight quarters. Except for basic and diluted income (loss) per share, the totals in the following table are presented in thousands of US dollars.

The results of the Company are heavily influenced by its share of profits and losses related to the JV, which is directly related to the underlying performance of the AGM.

The net loss in Q4 2021 was due to the Company recognizing its 45% interest in the $153.2 million impairment recorded by the JV associated with the AGM not being in a position to declare a mineral reserve at December 31, 2021.  Additionally, the Company recorded a $7.6 million impairment on its equity investment in the AGM JV during Q4 2021 again due to the inability of the AGM to declare mineral reserves as a result of metallurgical uncertainty of the material mined from Esaase at that time.

Other expense for Q4 2021 includes a $7.5 million negative fair value adjustment on the Company's preference shares in the JV which resulted from the aforementioned impairment indicators.

From Q1 2022 to Q3 2022, the Company did not recognize its share of the JV's net earnings as the recoverable amount of the Company's equity investment in the JV was estimated to be nil during those periods. Other income for Q2 2022 and Q3 2022 includes a $13.2 million and a $3.4 million positive fair value adjustment on the Company's preference shares in the JV, respectively, largely driven by strong operating performance resulting in improved working capital of the AGM.

During Q4 2022, as a result of the JV's reinstatement of mineral reserves in the AGM's 2023 Technical Report, the Company recommenced the recognition of its share of the JV's net earnings and also recognized a $7.6 million impairment reversal on its equity investment in the JV, leading to a significant increase in net income over the prior quarters. Other expense in Q4 2022 includes a $22.2 million negative fair value adjustment on the Company's preference shares in the JV resulting from a change in the timing of expected cash distributions and applying a higher discount rate to forecast preference share redemptions primarily due to a Ghana country risk premium applied resulting from the economic conditions in the country at that time. Additionally, the Company also recognized a $1.6 million impairment on its wholly owned Mali exploration assets in Q4 2022.

During Q1 2023 to Q3 2023, improvements in net income and EBITDA over prior periods are reflective of the JV's underlying performance and rising gold price environment. In addition, other income for Q1 2023, Q2 2023  and Q3 2023 includes upward fair value adjustments on the Company's preference shares in the JV, as described in section 5, resulting from the passage of time.

7. Liquidity and capital resources

A key financial objective of the Company is to actively manage its cash balance and liquidity in order to meet the Company's strategic plans, as well as those of the JV in accordance with the JVA. The Company shares control of the JV and aims to manage the JV in such a manner as to generate positive cash flows from the AGM's operating activities in order to fund its operating, capital and project development requirements, and to return capital to the JV partners. A summary of the Company's net assets and key financial ratios related to liquidity are presented in the table below.  Note that the September 30, 2023 and December 31, 2022 balances below do not include any assets or liabilities of the JV.