CAU Canyon Resources Corp

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

þ		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2007

or

o		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                      to

Commission file number 1-11887

CANYON RESOURCES CORPORATION

(a Delaware Corporation)

I.R.S. Employer Identification Number 84-0800747

14142 Denver West Parkway, Suite 250
Golden, CO 80401
(303) 278-8464

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o            Accelerated filer o            Non-accelerated filer þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 53,047,824 shares of the Company’s common stock were outstanding as of November 7, 2007.

 

 

CANYON RESOURCES CORPORATION
FORM 10-Q
For the Nine Months ended September 30, 2007

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION
Item 1. Financial Statements		Page 1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		Page 17
Item 3. Quantitative and Qualitative Disclosures About Market Risk		Page 28
Item 4. Controls and Procedures		Page 29
PART II OTHER INFORMATION
Item 1. Legal Proceedings		Page 30
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		Page 30
Item 3. Defaults Upon Senior Securities		Page 31
Item 4. Submission of Matters to a Vote of Security Holders		Page 31
Item 5. Other Information		Page 31
Item 6. Exhibits		Page 31
SIGNATURES		Page 32
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certification of CEO Pursuant to Section 906
Certification of CFO Pursuant to Section 906

 i 

PART I FINANCIAL INFORMATION

The accompanying notes are an integral part of these consolidated financial statements.

The accompanying notes are an integral part of these consolidated financial statements.

The accompanying notes are an integral part of these consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. Nature of Operations and Liquidity:

Canyon Resources is a Delaware corporation based in Golden Colorado. Canyon was organized in 1979 to explore, acquire, develop, and mine precious metals, uranium and other mineral properties. References to “Canyon Resources”, “Canyon”, and the “Company”, mean Canyon Resources Corporation and all of the wholly-owned and majority-owned subsidiaries of Canyon Resources Corporation, or any one or more of them, as the context requires. Canyon is a non-accelerated filer and its common stock is listed on the American Stock Exchange (“AMEX”).

The Company is involved in all phases of the mining business from early stage exploration, exploration drilling, development drilling, feasibility studies and permitting, through construction, operation and final closure of mining properties. The Company has gold production operations in the western U.S., and conducts exploration activities in the search for additional valuable mineral properties primarily in the western U.S. Canyon’s exploration and development efforts emphasize precious metals (gold and silver) and uranium, but base metals and industrial minerals may also be considered. The Company has conducted a portion of its mineral exploration and development through joint ventures with other companies.

The Company’s primary focus continues to be on increasing the value of its three core properties of Briggs, Reward and the uranium joint ventures. The Briggs Mine located in southeastern California, has successfully increased the total mineralized material through both drilling and acquisitions. The Company has commissioned a feasibility study for the Reward property that is expected to be completed during the fourth quarter of 2007. The uranium joint ventures are fully carried by our joint venture partners for the first $2.0 to $2.8 million of expenditures. The Company announced significant drill results in August 2007 on the most recent drilling in Wyoming.

The drilling completed during 2006 and through the second quarter of 2007 at and around the Briggs Mine was successful in developing underground potential and also increased the size and confidence of the Cecil R satellite deposit located 3 miles north of the Briggs Mine. A permitted twenty hole drill program at Cecil R is being considered for the fourth quarter of 2007 with the intent to substantially increase the size of the deposit and enhance the potential value of the Briggs property. The initial Briggs feasibility study was completed in early 2007, which established open pit and underground reserves.

At Kendall Mine, located near Lewistown, Montana, the Company continued with reclamation and closure activities, principally relating to collection, treatment and disposal of water contained in the process system and mine area, and re-contouring the leach pads and pit areas.

The Company believes that its cash requirements over the next 12 months can be funded through a combination of existing cash, revenue from operations, asset sales, equity financing and debt. The Company’s liquidity will continue to be negatively impacted by decreasing residual gold production from rinsing the heap leach pads at the Briggs Mine. During 2007 this residual gold production was the only internal source of cash flow other than asset sales. Asset sales amounted to $0.5 million during the quarter.

The Company is continually evaluating strategic business opportunities such as joint ventures, mergers and acquisitions with the objective of creating additional cash flow to sustain the corporation, and to provide a future source of funds for improving the core properties. While the Company believes it will be able to finance its continuing activities, there are no assurances of success in this regard or of its ability to obtain additional financing through capital markets, joint ventures, or other arrangements in the future. If management’s plans are not successful, the Company’s ability to operate would be adversely impacted.

2. Basis of Presentation:

Management Estimates and Assumptions: Certain amounts included in or affecting the Company’s consolidated financial statements and related disclosures must be estimated, requiring that certain assumptions be made with respect to values or conditions which cannot be made with certainty at the time the consolidated financial statements are prepared. Therefore, the reported amounts of the Company’s assets and liabilities, revenues and expenses, and associated disclosures with respect to contingent assets and obligations are necessarily affected by these estimates. The Company evaluates these estimates on an ongoing basis, utilizing historical experience, consultation with experts, and other methods considered reasonable in the particular circumstances. Nevertheless, actual results may differ significantly from the Company’s estimates.

The more significant areas requiring the use of management estimates and assumptions are as follows:

	•		mineral reserves that are the basis for future cash flow estimates;
	•		units-of-production amortization determination;
	•		completion of feasibility studies;
	•		recoverability and timing of gold production from the heap leaching process;
	•		environmental, reclamation and closure obligations;
	•		asset impairments (including estimates of future cash flows);
	•		useful lives and residual values of intangible assets;
	•		fair value of stock based compensation;
	•		fair value of financial instruments and nonmonetary transactions;
	•		valuation allowances for deferred tax assets; and
	•		contingencies and litigation.

Short term investments are primarily auction rate certificates that are classified as available-for-sale securities with purchases and sales reflected in the consolidated statements of cash flows as investing activities.

Consolidation Principles: The Company’s consolidated financial statements include the accounts of Canyon and its significant active wholly-owned subsidiaries: CR Kendall Corporation; CR Briggs Corporation; CR Montana Corporation; CR Nevada; CR International Corporation; Judith Gold Corporation; and Industrial Minerals Corporation. All intercompany balances and transactions have been eliminated in the consolidated financial statements.

3. Restricted Cash:

Restricted cash related to the following properties were as follows:

Restricted cash related to the Kendall reclamation project consisted of (1) $2.2 million held directly by the Montana Department of Environmental Quality (“DEQ”); and (2) $0.2 million is sequestered by court order in connection with the sale proceeds of a portion of the Kendall property. The decrease from December 31, 2006 was due to a partial settlement of a pending lawsuit. See Note 10(d).

Restricted cash related to the reclamation bonds at the Briggs Mine and nearby satellite deposits consisted of (1) a cash collateralized $0.7 million bank account benefiting the surety; (2) $0.2 million of other cash on deposit with Inyo County, California. The increase from December 31, 2006 was due to a $0.3 million collateral deposit with the surety and a $0.2 million inflation adjustment paid to Inyo County. Refer to note 10(b) for discussion of June 2007 lawsuit.

Restricted cash related to the Seven-Up Pete Joint Venture consists of cash held directly by the Montana DEQ for reclamation of exploration activities controlled by the Seven-Up Pete Joint Venture. The decrease from December 31, 2006 was due to the Company being reimbursed $0.5 million related to the McDonald property that was transferred to a third party.

Restricted cash related to the Reward Project consists of a cash bond held by the Bureau of Land Management (“BLM”) for environmental reclamation regarding exploration activities.

Other restricted cash related to Tuscarora consists of a cash bond held by the BLM for environmental reclamation regarding exploration activities.

4. Metal Inventories:

Metal inventories consisted of doré gold of $67,800 and $47,300 as of September 30, 2007 and December 31, 2006, respectively. The Company had no write downs of its metal inventory at the Briggs Mine during the third quarters of 2007 and 2006 and nil and $17,600 for the first nine months of 2007 and 2006, respectively.

Briggs inventory included general and administrative expenses of approximately $32,700 and $21,100 as of September 30, 2007 and December 31, 2006, respectively.

5. Property, Plant and Mine Development:

The following is a summary of property, plant and mine development:

The year-to-date increase in property, plant and mine development was due primarily to the $0.5 million increase in mine development expenditures at Briggs, where the Company began capitalizing the direct costs of

developing mining operations since January 1, 2006 offset by a $0.1 million decrease primarily due to the sale of a loader at Briggs.

6. Asset Retirement Obligations:

The asset retirement obligations reconciliation from the beginning of the year to September 30, 2007 is as follows:

7. Notes Payable:

The notes payable reconciliation from the beginning of the year to September 30, 2007 is as follows:

The uncollateralized debentures expire in March 2011 and require quarterly interest payments of 6% per year. The holders have the right to convert principal to common stock of the Company, subject to adjustments for stock splits, reverse splits, and changes of control, at any time at a conversion rate of $1.38 per share of common stock.

Interest expense for the debentures was approximately $12,500 and $12,500 for the third quarters of 2007 and 2006 and $37,000 and $37,000 for the first nine months of 2007 and 2006, respectively.

8. Outstanding Warrants:

A summary of the outstanding warrants as of September 30, 2007 is as follows:

The measurement of the contingent warrant liability related to registration payment arrangements as of September 30, 2007 and December 31, 2006 is nil and nil, respectively, under the provisions of FASB Statement No. 5.

The Company has outstanding registration payment arrangements related to financing transactions that closed in May 2007, June 2006, and December 2005. For each of these transactions, the Subscription Agreement provided for certain registration rights associated with the issuance of the shares of common stock and shares of common stock issuable upon exercise of the warrants. Failure to meet the requirements of the Subscription Agreement,

such as initial registration and effectiveness, maintaining effectiveness during the term of the warrants, and maintaining the trading status of the common shares, would result in liquidating damages. Liquidated damages are payable in cash equal to 2% of the purchase price for the first 30 day period or portion thereof and 1% of the purchase price for each subsequent 30 day period or portion thereof. The liquidated damages associated with the registration payment rights are capped at 10% for the May 2007 and June 2006 financing transactions and payable only in cash. As of September 30, 2007, approximately 42% of the December 2005 financing transaction warrant holders executed an Amendment to the Subscription Agreement that capped such liquidated damages to 10% of the gross proceeds of the financing. All of the warrants have been accounted for as equity rather than as a liability.

9. Equity Transactions:

On May 25, 2007, the Company completed a private placement financing which raised $4.95 million (approximately $4.7 million net) through the sale of approximately 8.8 million units. The private placement consisted of the sale of approximately 8.8 million shares of the Company’s common stock, 2.5 million Series A Warrants with an exercise price of $0.640 and a term of one year from registration effectiveness, and 7.6 million Series B Warrants with an exercise price of $0.704 and a term of four years from closing. The Series A warrants have a redemption feature beginning six months from the closing date whereby the Series A Warrants can be redeemed by the Company for $0.01 per warrant upon ten trading day notice, if the price of the Company’s common stock exceeds $0.80 for a period of 10 consecutive trading days. The transaction was priced at $0.561 per share, representing a 10% discount to the 10 day volume weighted average of the closing price of the Company’s common stock prior to pricing. In connection with the financing, the Company paid a cash placement agent fee of approximately $0.2 million and 1.3 million warrants plus paid other legal and accounting fees associated with the financing and registration of the underlying shares. The broker warrants are at the same terms as the investors’ warrants. The Company filed a registration statement on June 29, 2007 with the SEC within 45 days of the closing date and the registration statement was declared effective by the SEC on October 17, 2007. The estimated fair value of the new warrants issued was approximately $2.4 million and this amount is included in capital in excess of par value in the consolidated statement of changes in stockholders’ equity.

The Board of Directors adopted a new Stockholder Rights Plan (the “rights plan”) that became effective on March 23, 2007. Canyon Resources’ former rights plan, adopted in 1997, expired on March 20, 2007. The rights plan is designed to protect all stockholders of the Company against potential acquirers who may pursue coercive or unfair tactics aimed at gaining control of the Company without paying all stockholders of the Company a full and fair price.

In implementing the rights plan, the Board of Directors has declared a dividend of one common stock purchase right for each outstanding share of the Company’s common stock held of record as of the close of business on April 16, 2007. Each right initially would entitle the holder thereof to purchase one share of common stock. The rights will expire on March 23, 2017. The distribution of rights under the plan will not interfere with the Company’s business plans or be dilutive or affect our reported per share results.

Under the plan, the preferred purchase rights generally become exercisable upon the acquisition of 20% or more of the Company’s outstanding common stock, unless the Board of Directors redeems the rights. If exercised, all holders of rights, other than the acquiring person or group, would be entitled to acquire shares of the Company’s common stock at a 50% discount to the then-current market price. In addition, if the rights become exercisable and the Company is acquired in a merger, each right would entitle the holder to purchase shares of the acquiring company at a 50% discount to the then-current market price.

10. Commitments and Contingencies :

	(a)		Kendall Mine Reclamation
			The Kendall Mine operates under permits granted by the Montana DEQ. In February 2002, the DEQ issued a decision that a comprehensive Environmental Impact Statement (“EIS”) was needed for completion of remaining reclamation at Kendall. The Montana DEQ has yet to complete its work on this EIS. The Company’s estimate to achieve mine closure could be impacted by the outcome of an agency decision following an EIS. The Company has deposited $2.2 million in an interest bearing account with the DEQ for reclamation at the Kendall Mine which is currently ongoing.

	(b)		Briggs Mine Surety Bonds
			The Briggs Mine operates under permits granted by various agencies including BLM, Inyo County, California, the California Department of Conservation, and the Lahontan Regional Water Quality Control Board (“Lahontan”). The Company has posted cash and reclamation bonds with these agencies in the amount of $4.3 million of which $4.2 million are reclamation bonds supported by a surety. All surety bonds are subject to annual review and adjustment and in March 2007, the Company posted a $0.2 million cash reclamation bond with Inyo County as an inflation adjustment.
			In 1999, in response to a demand for an increase in collateral by the surety company who issued the above described bonds, the Company granted a security interest in 28,000 acres of mineral interests in Montana. The Company further agreed to make cash deposits with the surety company totaling $1.5 million over a three year period at the rate of $0.5 million per year, commencing June 30, 2001. The Company made a $0.3 million deposit in March 2007, after the Company received notice from the surety that Canyon was in default of its obligations under the collateral agreement. In June 2007, the surety company filed a civil action in the U.S. District Court for the District of Colorado against the Company for monies due of $1.25 million and unspecified costs, damages and legal expenses. The Company answered the complaint in July 2007.
			In September 2007, the Company settled the complaint through negotiations with the surety company. The settlement required the Company to make a $250,000 collateral deposit in early October 2007 and additional collateral deposits totaling $751,000 no later than December 31, 2010. The Company has the option to make accelerated deposits to the collateral account upon certain events and any accelerated deposits will be applied against the next scheduled payment and total deposits will not exceed the additional $751,000 left to be funded as of November 1, 2007. The surety’s request for monies as collateral represents a reimbursable deposit that is included in restricted cash to support required future reclamation of the Briggs Mine site and therefore no liability has been accrued.
	(c)		McDonald Gold Project
			A lawsuit was filed against the State of Montana to recover value lost due to changes in the Montana mining law and the cancellation of mineral leases related to the Company’s wholly-owned Seven-Up Pete Joint Venture’s interest in the McDonald Gold Project. Phelps Dodge, a wholly-owned subsidiary of Freeport-McMoRan Copper & Gold Inc., retains a one-third interest in any proceeds which may be received from the currently active takings lawsuit.
			In April 2006, the Company’s complaint under the takings lawsuit was dismissed in U.S. District Court for the District of Montana and the Company filed a notice of appeal to the U.S. Court of Appeals for the Ninth Circuit. Briefs have been submitted to the U.S. Court of Appeals for the Ninth Circuit. In addition, the Company has filed a breach of contract complaint against the State of Montana related to the termination of the McDonald Gold Project’s state mineral leases.
			The takings lawsuit was heard in the U.S. Court of Appeals for the Ninth Circuit on November 7, 2007 and the results of that hearing may take up to a year to be announced.
	(d)		Kendall Mine Lawsuits
			In October 2001, a plaintiff group including members of the Shammel, Ruckman and Harrell families filed suit in the State of Montana District Court against the Company and its wholly-owned subsidiary, CR Kendall Corporation. The complaint alleges violation of water rights, property damage, trespass and negligence in connection with the operation of the Kendall Mine and seeks unspecified damages and punitive damages.

			In August 2002, a Preliminary Injunction was issued in Montana District Court on behalf of the Kendall Mine plaintiff group in connection with the Company’s auction of certain mineral rights and fee lands unrelated to the CR Kendall Corporation or its operation. In October 2002, the Court issued a Supplemental Order which sequesters any proceeds realized from the auction until such time as the lawsuit is concluded.
			In February 2007, the Company entered into a settlement and release agreement with eight of the twelve plaintiffs in this suit. The Company’s share of the settlement was $0.1 million and maintains a balance of $0.2 million recorded as a legal settlement accrual on the consolidated balance sheet as of September 30, 2007. As of September 30, 2007, $0.2 million is held by the Court as required by the above Supplemental Order. The Company’s share of the settlement was paid out of the funds held by the Court. The case with the remaining plaintiffs is scheduled for trial on September 22, 2008.
	(e)		Asset Exchange Agreement
			The Adelaide and Tuscarora properties were optioned as part of the Asset Exchange Agreement with Newmont. Under this agreement, we are required to spend a total of $3.0 million on both projects over five years to earn our interest in the properties, including a $250,000 firm commitment in 2007. The Company has the ability to sublease either property to third parties to meet its obligations under the agreement. As of September 30, 2007 approximately $0.2 million has been spent during 2007.

11. Fair Value of Financial Instruments:

The estimated fair values of the Company’s financial instruments approximate carrying values at September 30, 2007, and December 31, 2006. The following methods and assumptions were used to estimate the fair value of each class of financial instruments:

Cash and Cash Equivalents, Receivables, Short-term Investments and Restricted Cash: Carrying amounts approximate fair value based on the short-term maturity of those instruments.

Long-term Debt: Carrying values approximate fair values based on discounted cash flows using the Company’s current rate of borrowing for a similar liability.

12. Income Taxes:

The Company has not recorded a tax benefit for the current period as the realization is not likely during the year. The benefit is not expected to be realizable as a deferred tax asset as the Company anticipates recording a full valuation allowance for all deferred tax assets, except to the extent of offsetting reversals of expected deferred tax liabilities. There was no impact from the adoption of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes .

13. Share-Based Compensation:

The Company recorded $0.3 million of compensation expense during the nine months ended September 30, 2007, none of which was capitalized. All of the share-based compensation expense was recorded as selling, general and administrative costs in the consolidated statements of operations.

On June 6, 2006, the Company’s shareholders approved the Canyon Resources Corporation 2006 Omnibus Equity Incentive Plan (the “2006 Plan”) to provide more flexibility in the compensation of key personnel. All outstanding stock options under the old plans, the Amended and Restated Incentive Stock Option Plan and the Amended and Restated Non-Qualified Stock Option Plan, will remain active until all the options under those plans either expire or are exercised; however, no new options may be granted under such plans. As of September 30, 2007, there were 1.3 million and 1.8 million underlying shares outstanding under the old plans and the 2006 Plan, respectively, and 3.2 million underlying shares available for future issuance under the 2006 Plan.

The 2006 Plan is administered by the Compensation Committee of the Board of Directors consisting entirely of independent directors. The common stock issued or to be issued under the 2006 Plan consists of 5.0 million authorized shares and treasury shares. If any shares covered by an award are not purchased or are forfeited, the shares will again be available for future awards under the 2006 Plan. Directors and employees of, or consultants to, the Company or any of its affiliates are eligible to participate in the 2006 Plan. The Board of Directors may terminate or amend the 2006 Plan at any time and for any reason. The 2006 Plan shall terminate in any event ten years after its effective date of March 2, 2006. The exercise price of each stock option is based on and may not be less than 100% of the fair market value of its common stock on the date of grant. The fair market value is generally determined as the closing price of its common stock on the date of the grant. The term of each stock option is fixed by the Compensation Committee and may not exceed 10 years from the date of grant. The Compensation Committee determines the vesting requirements of the grant which may be accelerated by the Compensation Committee.

The fair value of each option award is estimated on the date of grant using a Black-Scholes-Merton option valuation model that uses the assumptions noted in the following table. Expected market volatility is based on a number of factors including historical volatility of the Company’s common stock, the Company’s market capitalization, current options trading in the marketplace and other fair value related factors. The Company uses a simplified method of estimating the expected term where the expected term equals the average of the vesting period and contractual term. The forfeiture rate is estimated based on the number of options or shares that are expected to actually vest. Historical forfeiture rates are considered each quarter and future rates are adjusted so that by the end of the grant vesting period total expense recognized equals total vested expense. Estimated forfeiture rates for grants vesting within one year to three years, currently range from 10% to 20%, respectively. The risk-free rate is based on the yields of U.S. Treasury bonds. The Company has never paid a dividend and does not expect to in the future and estimates the expected dividend yield to be nil.

The fair value of options issued during the nine months ended September 30, 2007 and 2006 were determined based on the following assumptions:

For the nine months ended September 30, 2007, there was $0.2 million of compensation expense recognized related to options. The weighted-average remaining contractual lives of the outstanding and exercisable options as of September 30, 2007 were 3.1 and 2.8 years, respectively. The aggregate intrinsic values of the outstanding and

exercisable options as of September 30, 2007 were nil and nil, respectively, based on a $0.39 market price per share. The weighted-average grant-date fair value of stock options granted during the nine months ended September 30, 2007 and 2006 were $0.18 and $0.28 per option or total fair value of $0.1 million and $0.2 million, respectively. As of September 30, 2007, there was $0.1 million of total unrecognized compensation cost and the cost is expected to be recognized over a weighted-average period of 1.2 years.

Stock Grants

Stock grant activity during the nine months ended September 30, 2007 was as follows:

For the nine months ended September 30, 2007, there was $0.1 million of compensation expense recognized related to shares grants. There was $0.1 million of total unrecognized compensation cost and the cost is expected to be recognized over a weighted-average period of 1.2 years.

14. Earnings per Share:

The Company computes EPS by applying the provisions of SFAS No. 128, Earnings per Share . Because the Company reported net losses for all periods presented, inclusion of common stock equivalents would have an antidilutive effect on per share amounts. Accordingly, the Company’s basic and diluted EPS computations are the same for all periods presented. Common stock equivalents, which include stock options, warrants to purchase common stock, stock grants and convertible debentures, in the three months ended September 30, 2007 and 2006 that were not included in the computation of diluted EPS because the effect would be antidilutive were 21.0 million and 13.1 million, respectively. Common stock equivalents which include stock options, warrants to purchase common stock, and convertible debentures in the nine months ended September 30, 2007 and 2006 that were not included in the computation of diluted EPS because the effect would be antidilutive were 16.7 million and 11.5 million, respectively.

15. Recently Issued Financial Accounting Standards :

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities . This Statement is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of FASB Statement No. 157, Fair Value Measurements. This Statement permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement is expected to expand the use of fair value measurement, which is consistent with the Board’s long-term measurement objectives for accounting for financial instruments. The Company will adopt SFAS No. 159 on January 1, 2008 and the Company does not expect a significant impact on the consolidated financial statements.

In September 2006, FASB issued SFAS No. 157, Fair Value Measurements . This standard provides guidance for using fair value to measure assets and liabilities. SFAS No. 157 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value but does not expand the use of fair value in any new

circumstances. The standard clarifies that for items that are not actively traded, fair value should reflect the price in a transaction with a markets participant, including an adjustment for risk. Under SFAS No. 157, fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market which the reporting entity transacts. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Earlier application is encouraged, provided that the reporting entity has not yet issued financial statements for that fiscal year, including financial statements for an interim period within that fiscal year. The Company will adopt SFAS No. 157 on January 1, 2008 and the Company does not expect a significant impact on the consolidated financial statements.

16. Subsequent Event :

In September 2007, the Company settled the complaint with the surety company. See footnote No. 10. Commitments and Contingencies, item (b) Briggs Mine Surety Bond, for more background information. As part of the settlement agreement the Company made a $250,000 collateral deposit in early October 2007. The settlement requires additional collateral deposits totaling $751,000 no later than December 31, 2010.

ITEM 2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview of the Third Quarter 2007 and Future Outlook

Summary of sources and uses of cash during the quarter?

We ended the quarter with $4.3 million of unrestricted cash and short term investments. The short term investments of $0.5 million consist of auction rate certificates. Cash used in operations during the third quarter of 2007 amounted to $1.4 million and capital spending at the Briggs Mine totaled $0.1 million. Significant uses of cash from operations are summarized as follows:

•

Selling, general and administrative spending amounted to approximately $0.9 million.

o

Includes holding costs at the Briggs Mine of $0.4 million.

	•		Exploration and development spending amounted to $0.4 million including amounts capitalized.
	•		Asset retirement obligation spending amounted to $0.2 million primarily for the Kendall Mine operations and continued leach pad dewatering at the Briggs Mine.
	•		Sources of cash during the quarter included gold sales of $0.2 million and asset sales of $0.5 million.

What are our results of operation?

During the third quarter of 2007, we had 265 ounces of gold sales. Further gold production and sales during 2007 is expected to be insignificant until a development plan can be finalized for the Briggs Mine and commercial production can be resumed. After receiving bids from mining contractors, the Company decided to delay its plan to develop a horizontal access into the Goldtooth structure until suitable financing or a joint venture can be arranged. The underground test mine will be useful in evaluating our production options that may include beginning operations primarily as an underground mine supplemented by the open pit reserves and develop better access for further exploration on the Goldtooth structure. We are continuing to evaluate all of our options on our mineral properties including their possible sale or joint venture.

What have we done to increase shareholder value?

We have determined that the underground reserve and mineralized material associated with the Goldtooth structure at Briggs represents the strongest potential for developing additional mineralization for future cash flow from gold production. Through surface sampling and reconnaissance we have tracked the Goldtooth fault for a distance of nearly six miles, most of which is under our control. We are reviewing our options, which may include asset sales or a joint venture in order to finance future production at the Briggs Mine.

We have increased the estimate of mineralized material along the Goldtooth structure and we are optimistic about its underground potential. This structure remains open for extension of mineralization both along strike and at depth. The potential development of these initial reserves and mineralization may provide us with the cash flows and the production base necessary to increase shareholder value and grow the Company. See “How is the Briggs re-start going?” and “What progress have we made on the Briggs satellite deposits?”

The feasibility study on the Reward Project is progressing on schedule and the results are expected to be announced during the fourth quarter of 2007. The associated permits for the project are well advanced and proceeding as planned. See “What progress have we made on the Reward Project?”

Our partners in the uranium joint ventures announced positive results of the drilling completed in the second quarter in August 2007. See “What is happening on our uranium joint ventures?”

In order to fund our current operations, possible underground test mining at Briggs, and the Reward feasibility study, we completed an equity financing which raised a net of $4.7 million. Further funding will be necessary for our development projects to reach commercial production and that may be derived from a combination of existing cash, short-term investments, asset sales, joint venture arrangements, equity financing and debt.

How much property and mineralized material do we now control?

Our mining properties and associated in-place mineralized material represent our most important assets. A summary of the property acreages that we control is as follows:

A summary of the in-place mineralized material estimated to be contained on the above properties is as follows:

As of December 31, 2006, Briggs’s proven and probable reserves amounted to 130,000 ounces contained in 4.3 million tons at an average gold grade of 0.030 ounces per ton (“opt”). A gold cutoff grade of 0.08 opt was used for underground stope designs and a cutoff grade of 0.013 opt was utilized for open pit estimation and underground development material which must be mined regardless of grade. A $500 gold price was utilized for mine design purposes compared to the year-to-date 2007 average gold price of approximately $672 per ounce as of October 23, 2007. We continually update our mineralized material estimates as we conduct additional drilling, complete feasibility studies or as the status of our land positions change.

How is the Briggs re-start going?

At year-end 2006, we completed the initial Briggs Mine feasibility studies for both the open pit and underground mining options and recently increased the size and quality of our estimate of the underground mineralized material. We decided to delay our plan to develop a horizontal access into the Goldtooth structure until suitable financing or a joint venture can be arranged.

Significant potential is possible from the Goldtooth structure which remains open along strike and to depth. This structure has been tested over a distance of 4,900 feet and to a depth of approximately 500 feet. Test mining would provide better and more cost effective access for further exploration and reserve development. Adequate

financing, availability of contract mining and crushing, and the availability of adequately trained personnel are the most significant risk factors that may impact our future plans.

What progress have we made on the Briggs satellite deposits?

We control four satellite deposits located within four miles of the Briggs Mine site. Three of these deposits have been drilled to sufficient density to support estimates of mineralized material. The Cecil R deposit has estimated in-place mineralized material of 5.75 million tons at an average grade of 0.024 opt using a cutoff of 0.015 opt. Metallurgical testwork indicates that good gold recovery can be expected using heap leach technology. A permitted twenty-hole drill program at Cecil R is being considered for the fourth quarter of 2007 with the intent to increase the size of the deposit and enhance the potential value of the Briggs property.

Evaluation of existing drill-hole and geologic information available for Mineral Hill and Suitcase supports an estimate of in-place mineralized material for Mineral Hill of 2.31 million tons at an average gold grade of 0.035 opt and for Suitcase an estimate of 0.33 million tons at an average grade of 0.052 opt. These estimates utilize a gold cutoff grade of 0.015 opt. Additional drilling is required to expand or to further validate these results.

These three satellite deposits remain open for potential expansion both along strike and at depth. These satellite deposits are located outside of the existing Briggs Mine permit area and will require a feasibility study including substantial permitting tasks before reserves can be established.

What progress have we made on the Reward Project?

Our Reward Project located near Beatty, Nevada, is currently in the feasibility stage. We have hired an engineering firm to complete the feasibility study to determine its economic potential. This feasibility study will build upon the January 2006 positive pre-feasibility study and a May 2007 report showing a significant increase in mineralized material. Many of the components of this study have already been completed or are in process including: heap leach pad design, electrical supply, water supply, geotechnical study and additional metallurgical test work. The Reward Project anticipates development by conventional open pit mining methods and standard crushing and heap leach technology for gold recovery. Leach solutions would be circulated through activated carbon, concentrating the gold. This loaded carbon would then be transported to the Briggs Mine in California or to a third party gold facility for production of gold doré for sale or shipment to a third party refiner.

The permitting process for the Reward Project is also proceeding as planned and is well advanced. A plan of operations was submitted to the Las Vegas field office of the Bureau of Land Management (“BLM”) and found to be complete. The BLM has completed an internal scoping review and an environmental assessment (“EA”) is being prepared to support the BLM’s review. Archaeological and biological assessment surveys were completed on the site and reports have been submitted to the BLM for review, and ultimate inclusion in the EA. Applications for a water pollution control permit and a reclamation permit have been submitted to the Nevada Division of Environmental Protection (“NDEP”). The NDEP has determined the applications are nearly complete and Canyon is providing additional information to complete the NDEP’s technical review. A design report for the heap leach facility is complete and was submitted to the BLM and NDEP. Potential water well sites have been identified and permits to conduct drilling and hydrologic testing are nearly complete.

What are our plans for the Seven-Up Pete property?

Our portion of the Seven-Up Pete property contains in-place mineralized material estimated at 17.0 million tons at an average gold grade of 0.035 opt based on a cutoff grade of 0.02 opt. Preliminary testwork utilizing conventional flotation and gravity concentration recovery has returned positive results. No further work is planned during 2007.

What is happening on our uranium joint ventures?

In the early 1980s, Canyon and its joint venture partners conducted an aggressive exploration program for uranium in the southern Powder River Basin of Wyoming. This program included mapping and drilling that resulted in the discovery of several uranium anomalous areas. Beginning in 2005 we reacquired land positions in this area through claim staking and leases with property holders.

Canyon entered into the Converse Uranium Joint Venture (“Converse JV”) with New Horizon Uranium Corporation (“New Horizon”) in January 2006. During 2006, the joint venture analyzed information provided by Canyon, consolidated land positions, and established drill targets around the known uranium-bearing roll fronts. New Horizon trades as NHU.V on the Toronto Venture Exchange. New Horizon has committed to spend $1.0 million over three years (to January 23, 2009) to earn their initial equity interest of 50% in the Converse JV; New Horizon may choose to spend an additional $1.0 million over the following two years to increase its interest in the Converse JV to 70%. After spending $2.0 million, New Horizon may also choose to complete a feasibility study in order to increase its interest in the Converse JV to 75%. As of October 23, 2007, New Horizon has not yet reached $1.0 million in spending and therefore has not earned its initial 50%.

In August 2006, the Converse JV joined with High Plains Uranium (“High Plains”) to form the Sand Creek Joint Venture (“Sand Creek JV”). Sand Creek JV is owned 70% by the Converse JV and 30% by High Plains. High Plains has been acquired by Energy Metals Corporation and functions as a wholly-owned subsidiary of Energy Metals. The purpose of these two joint ventures is to combine property positions over a portion of the total Converse JV area. The area of interest for the Sand Creek JV covers an area of approximately 92,000 acres, located east and south of Douglas, Wyoming. Canyon will not be required to provide funding until its partners have contributed between $2.0 and $2.8 million of expenditures in these two joint ventures.

In November 2006, a drill program began in the western portion of the Sand Creek JV area and by the end of 2006, 14 holes were completed totaling 10,395 feet, which clearly demonstrated the presence of “roll front” style uranium mineralization. A follow up drill program consisting of approximately 16 drill holes totaling 11,700 feet was completed in mid-2007 and the favorable results were announced in a press release in August 2007. Three of the 16 holes intercepted significant grades. The drilling program consisted primarily of wide-spaced, reconnaissance style drilling with drill hole spacing of 500 to 1,000 feet. In addition, the drill holes have provided considerable additional information regarding rock types and the location of a uranium-bearing roll fronts and their apparent orientation. Uranium mineralization has been previously identified in sediments of the White River Formation that trends through the Sand Creek JV area.

What is the status of the Company’s legal cases?

Surety Bonds

The Briggs Mine is bonded with $4.3 million of reclamation bonds of which $4.2 million is supported by a surety. In 1999, in response to a demand for an increase in collateral by the surety, we granted a security interest in 28,000 acres of mineral interests in Montana. In addition, we agreed to make cash deposits with the surety company totaling $1.5 million over a three year period at the rate of $0.5 million per year, commencing June 30, 2001. We made a $0.3 million deposit in March 2007, after we received notice from the surety that Canyon was in default of its obligations under the collateral agreement. In June 2007, the surety filed a civil action in the U.S. District Court for the District of Colorado against us for monies due of $1.25 million and unspecified costs, damages and legal expenses. In September 2007, we settled the complaint through negotiations with the surety company. The settlement required us to make a $250,000 collateral deposit in early October 2007 and additional collateral deposits totaling $751,000 no later than December 31, 2010. We have the option to make accelerated deposits to the collateral account upon certain events and any accelerated deposits will be applied against the next scheduled payment and total deposits will not exceed the additional $751,000 left to be funded as of November 1, 2007. The surety’s request for monies as collateral represents a reimbursable deposit that is included in restricted cash to support required future reclamation of the Briggs Mine site and therefore no liability has been accrued.

Kendall Mine

In October 2001, a plaintiff group including members of the Shammel, Ruckman, and Harrell families, filed suit in the State of Montana District Court against us and our wholly-owned subsidiary, CR Kendall Corporation. The Complaint alleges violation of water rights, property damage, trespass and negligence in connection with the operation of the Kendall Mine and seeks unspecified damages and punitive damages. The Kendall Mine ceased operations in 1996. In February 2007, we entered into a settlement and release agreement with eight of the twelve plaintiffs in this suit. The case with the remaining plaintiffs is scheduled for trial on September 22, 2008.

McDonald Takings

The former McDonald deposit was discovered and drilled by our now wholly-owned Seven-Up Pete Venture (“SPV”). This large, low grade, deposit is highly amenable to gold recovery utilizing cyanide recovery technology with heap leaching. Cyanide recovery technologies for new open pit gold and silver mines were made illegal in the State of Montana in 1998 with the passage of the anti-cyanide ballot initiative I-137. We, along with the other co-plaintiffs, filed suits against the State of Montana in state and federal courts in April 2000 seeking to overturn I-137 or, alternatively, to obtain a “taking” damage award for the value of the SPV properties (Seven-Up Pete Venture, et al. v The State of Montana) .

In April 2006, the Company’s complaint under the takings lawsuit was dismissed in U.S. District Court for the District of Montana and the Company filed a notice of appeal to the U.S. Court of Appeals for the Ninth Circuit. Briefs have been submitted to the U.S. Court of Appeals for the Ninth Circuit. In addition, the Company has filed a breach of contract complaint against the State of Montana related to the termination of the McDonald Gold Project’s state mineral leases.

The takings lawsuit was heard in the U.S. Court of Appeals for the Ninth Circuit on November 7, 2007 and the results of that hearing may take up to a year to be announced.

Liquidity & Capital Resources

In May 2007, we raised a total of $4.95 million in equity financing for general corporate purposes and underground test mining operations at the Briggs Mine. It is expected that our basic cash requirements over the next 12 months can be funded through a combination of existing cash, short-term investments, asset sales, joint venture agreements, equity financing and debt. During 2007 gold sales and asset sales amounted to $0.2 million and $0.5 million, respectively.

After receiving bids from mining contractors, we decided to delay our plan to develop a horizontal access into the Goldtooth structure to test ground conditions, ore control methods, and to provide additional geologic information. We decided that it would be prudent to consider other development options such as a joint venture or asset sale rather than continue forward without adequate financing to place the project into production. We are in the process of seeking joint venture partners or alternative financing that may include asset sales. The May 2007 financing is also being used to fund the Reward Project feasibility study.

We expect the leach solution remaining in the leach pad at Briggs to be evaporated in 2007 or early 2008 and gold revenues will be substantially less than comparable periods from the prior year. Depending on the future plan of operation adopted, the estimated capital requirements would range from $8 million to $13 million depending on the size and scope of the potential re-start of the Briggs Mine and the development of the Reward Project. Once we have raised enough capital to place one of the projects into production, the project could begin to generate operating cash flow within one year from the start of construction.

We are continually evaluating strategic business opportunities such as joint ventures, mergers and/or acquisitions with the objective of increasing share value by creating additional cash flow, both to sustain us and to provide future sources of funds for establishing additional sources of production. While we believe we will be able to finance our continuing activities, there are no assurances of success in this regard or in our ability to obtain additional financing through the asset sales, capital markets, joint ventures, sublease arrangements or other arrangements in the future. If management’s plans are not successful, our ability to operate could be adversely impacted.

Financing Transactions

During the nine months ended September 30, 2007, there were no exercises of warrants or options.

On May 25, 2007, we completed a private placement financing which raised $4.95 million (approximately $4.7

million net) through the sale of approximately 8.8 million units. The private placement consisted of the sale of approximately 8.8 million shares of the our common stock, 2.2 million Series A Warrants with an exercise price of $0.640 and a term of one year from registration effectiveness, and 6.6 million Series B Warrants with an exercise price of $0.704 and a term of four years from closing. The Series A warrants have a redemption feature beginning 6 months from the closing date whereby the Series A Warrants can be redeemed by us for $0.01 per warrant upon 10 trading day notice, if the price of our common stock exceeds $0.80 for a period of 10 consecutive trading days. The transaction was priced at $0.561 per share, representing a 10% discount to the 10-day volume weighted average of the closing price of our common stock prior to pricing.

On June 2, 2006, we completed a private placement financing that raised $5.1 million (approximately $4.8 million net) through the sale of 5.1 million units. This included the sale of 5.1 million shares of our common stock and 2.6 million Series A Warrants with an exercise price of $1.50 and a term of three years. The transaction was priced at $1.00 per unit, representing a 15% discount to the 20-day volume weighted average of the closing price of our common stock. In connection with the financing, we paid the placement agent a cash placement agent fee of $0.2 million and 0.5 million warrants plus legal and accounting fees associated with the financing and registration of the underlying shares. The placement agent warrants were not exercisable for a period of 6 months from the date of closing and had an exercise price of $1.50 and a term of three years.

During 2006, certain outstanding warrants were exercised which resulted in the issuance of 0.3 million shares of common stock and $0.4 million in proceeds were received.

During 2006, 0.3 million shares of restricted common stock were issued to employees of which half vested immediately, 41,429 shares of vested restricted common stock were issued to Directors and 10,000 shares of unvested restricted common stock were granted to non-employee consultants. During 2006 there were no exercises of stock options.

Debt

Our 6% convertible debentures due March 2011 in the aggregate principal amount of $0.8 million and convertible into our common stock at any time at a conversion rate of $1.38 per share of common stock for a total of 0.6 million underlying shares of common stock are currently outstanding.

Capital Expenditures

Capital expenditures for the nine months ended September 30, 2007 totaled $0.7 million due primarily to the capitalization of ongoing development costs at the Briggs Mine.

Outstanding Warrants

Warrants outstanding as of September 30, 2007 were as follows:

Results of Operations – Three Months Ended September 30, 2007 versus Three Months Ended September 30, 2006

We recorded a net loss of $0.8 million, or negative $0.02 per share, on revenues of $0.2 million for the third quarter ended September 30, 2007. This compares to a net loss of $1.2 million, or negative $0.03 per share, on revenues of near nil for the third quarter of 2006. The total variance between the quarters was positive by 0.4 million, but significant variances between cost categories are summarized below:

	•		Positive variance of $0.2 million in revenue was offset by $0.2 million negative variance in cost of sales.
	•		Positive variance of $0.2 million in selling, general and administrative costs due primarily to cost reduction measures.
	•		Negative variance of $0.1 million in exploration costs.
	•		Positive variance of $0.4 million for a gain on sales of excess mining equipment.

For the third quarter ended September 30, 2007, we had gold sales of 265 ounces. For the comparable period of 2006, we did not have any gold sales. The London PM Fix gold price averaged $680 and $622 per ounce for the third quarter 2007 and 2006, respectively. All of the revenues in 2007 and 2006 were from domestic activities.

The following table summarizes our gold ounces sold and revenues for the three months ended September 30, 2007 and 2006:

There was no current or deferred provision for income taxes during the third quarter of 2007 or 2006. Additionally, although we have significant deferred tax assets, principally in the form of operating loss carry forwards, we have recorded a full valuation allowance on our net deferred tax assets as of September 30, 2007 and 2006.

Our cost for diesel fuel continues to fluctuate with the market price of oil, and diesel fuel is a significant operating and reclamation expense. We expect continued high fuel costs and increased costs of hiring and retaining qualified mining personnel with the required specialized skills to operate and manage a mining operation to have a potential significant impact on continuing operations in the future.

Results of Operations – Nine Months Ended September 30, 2007 versus Nine Months Ended September 30, 2006

We recorded a net loss of $3.7 million, or negative $0.08 per share, on revenues of $0.2 million for the nine months ended September 30, 2007. This compares to a net loss of $3.0 million, or negative $0.07 per share, on revenues of $1.0 million for the nine months ended September 30, 2006. The negative variance of $0.7 million in net loss was due primarily to the following factors:

	•		Negative variance of $0.1 million in gross margin from gold sales due to the reduction in gold sales and production as a result of the depletion of gold ounces on the leach pad.
	•		Negative variance of $0.2 million in selling, general and administrative costs due primarily to the lack of gold production to allocate general and administrative costs.
	•		Negative variance of $0.2 million in exploration costs due to increased exploration drilling.
	•		Positive variance of $0.4 million for a gain on sales of excess mining equipment.

	•		Negative variance of $0.9 million related to last year’s gain on sales of securities.
	•		Positive variance of $0.3 million related to last year’s fair market adjustment on warrant liabilities, warrant extension expense, and registration rights penalties.

For the nine months ended September 30, 2007, we had gold sales of 365 ounces at an average price of $677. For the comparable period of 2006, we sold 1,735 ounces of gold at an average price of $579. The London PM Fix gold price averaged $666 and $601 per ounce for the nine months ended September 30, 2007 and 2006, respectively. All of the revenues in 2007 and 2006 were from domestic activities.

The following table summarizes our gold ounces sold and revenues for the nine months ended September 30, 2007 and 2006:

Off-Balance Sheet Arrangements

None.

Critical Accounting Policies and Estimates

The ensuing discussion and analysis of financial condition and results of operations are based on our consolidated financial statements, prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.”) and contained within this Quarterly Report on Form 10-Q. Certain amounts included in or affecting our financial statements and related disclosures must be estimated, requiring that certain assumptions be made with respect to values or conditions which cannot be made with certainty at the time the financial statements are prepared. Therefore, the reported amounts of our assets and liabilities, revenues and expenses, and associated disclosures with respect to contingent assets and obligations are necessarily affected by these estimates. The more significant areas requiring the use of management estimates and assumptions relate to mineral reserves that are the

basis for future cash flow estimates and units-of-production amortization determination; completion of feasibility studies, recoverability and timing of gold production from the heap leaching process; environmental, reclamation and closure obligations; asset impairments (including estimates of future cash flows); useful lives and residual values of intangible assets; fair value of stock based compensation; fair value of financial instruments and nonmonetary transactions; valuation allowances for deferred tax assets; and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

We believe the following significant assumptions and estimates affect our more critical practices and accounting policies used in the preparation of our consolidated financial statements.

Reserves and Mineralized Material: As of December 31, 2006, we have reported mineral reserves of 130,000 contained ounces of gold at our Briggs Mine and have reported mineralized material on a number of our properties. When we have producing mines or are developing a mine we estimate our ore reserves on at least an annual basis. We update our mineralized material estimates from time to time as we conduct additional drilling or as the status of our land positions change.

There are a number of uncertainties inherent in estimating quantities of reserves and mineralized material, including many factors beyond our control. Ore reserve and mineralized material estimates are based upon engineering evaluations of assay values derived from samplings of drill-holes and other openings. Additionally, declines in the market price of gold may render certain reserves containing relatively lower grades of mineralization uneconomic to mine. Further, availability of permits, changes in operating and capital costs, and other factors could materially and adversely affect ore reserves. We use our ore reserve estimates in determining the unit basis for mine depreciation and amortization of closure costs. Changes in ore reserve estimates could significantly affect these items.

Future gold production at our Briggs Mine would most likely utilize the heap leach process. This process involves the application of leach solutions by drip irrigation to ore stacked on an impervious pad. As the solution percolates through the heap, gold is dissolved from the ore into solution. This solution is collected and processed with activated carbon, which precipitates the gold out of solution and onto the carbon. Through the subsequent processes of acid washing and pressure stripping, the gold is returned to solution in a more highly concentrated state. This concentrated solution of gold is then processed in an electrowinning circuit, which re-precipitates the gold onto cathodes for melting into gold doré bars. No leach solutions have been added to the Briggs heap leach system since April 2005.

Impairments of Long-Lived Assets: The Company evaluates the carrying value of its mine development, mineral interest and mining properties when events or changes in circumstances indicate that the properties may be impaired. For these assets, an impairment loss is recognized when the estimated future cash flows (undiscounted and without interest) expected to result from the use of the asset are less than the carrying amount of the asset. Measurement of the impairment loss is based on discounted cash flows.

Intangible assets subject to impairment are assessed for impairment at least annually or more frequently when changes in market conditions or other events occur. Impairments are measured based on estimated fair value. Fair value with respect to such mineral interests, pursuant to Statement of Financial Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets , effective January 1, 2002, would generally be assessed with reference to comparable property sales transactions in the market place.

Asset Retirement Obligations: Accounting for Asset Retirement Obligations is based on the guidance of SFAS No. 143 which requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. Fair value is determined by estimating the retirement obligations in the period an asset is first placed in service and then adjusting the amount for estimated inflation and market risk contingencies to the projected settlement date of the liability. The result is then discounted to a present value from the projected settlement date to the date the asset was first placed in service or to the change in estimate or timing. The present value of the asset retirement obligation is recorded as an additional property cost and as an asset retirement liability. The amortization of the additional property cost

(using the units of production method) is included in depreciation, depletion and amortization expense and the accretion of the discounted liability is recorded as a separate operating expense in the Company’s statement of operations.

When a mine is shut down and begins the final reclamation, the Company may decide to record the reclamation liability on an undiscounted basis depending on the time frame and materiality of the expenditures. The asset retirement obligations of the Kendall mine and the Seven-Up Pete Venture are recorded on an undiscounted basis.

Warrant Liability: Registration payment arrangements related to warrants issued in connection financing activities until October 1, 2006 were subject to the provisions of Emerging Issues Task Force Issue 00-19 (“EITF 00-19”), Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock . In December 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) No. EITF 00-19-2, Accounting for Registration Payment Arrangements which changed the way that a contingent obligation under a registration payment arrangement was recorded. EITF 00-19 describes the criteria under which warrants should be classified as either equity or as a liability. If the warrant is determined to be a liability due to a registration payment arrangement, under the old method described in EITF 00-19, the liability is fair valued each reporting period with the changes recorded through earnings in the consolidated statements of operations and under the new guidance provided in EITF 00-19-2, the contingent obligation under a registration payment arrangement should be separately recognized and measured in accordance with FASB Statement No. 5, Accounting for Contingencies . We adopted EITF 00-19-2 on October 1, 2006 and recorded a change in accounting principal through a non-retrospective cumulative-effect adjustment to the opening balance of retained earnings and to additional paid in capital in the fourth quarter of 2006. The measurement of the contingent liability related to registration payment arrangements as of September 30, 2007, is nil under the provisions of FASB Statement No. 5.

Stock-Based Compensation: In December 2004, the FASB issued SFAS No. 123R, Share-Based Payment , which revised SFAS No. 123, Accounting for Stock-Based Compensation , and superseded Accounting Principles Board (“APB”) Opinion 25, Accounting for Stock Issued to Employees and its related implementation guidance. SFAS No. 123R requires that goods or services received in exchange for share-based payments result in a cost that is recognizable in the financial statements; that cost should be recognized in the income statement as an expense when the goods or services are consumed by the enterprise. We adopted SFAS No. 123R on January 1, 2006, using the modified prospective method. Accordingly, compensation expense will be recognized for all awards granted or modified after the effective date. The nonvested portion of awards will be recognized ratably over the remaining vesting period after the effective date.

The fair value of each award is estimated on the date of grant for current employees and Directors of the Board and on the closing share price on the day previous to the hire date for options granted to new employees using a Black-Scholes-Merton option valuation model. Expected market volatility is based on a number of factors including historical volatility of the Company’s common stock, the Company’s market capitalization, current options trading in the marketplace and other fair value related factors. The Company uses a simplified method of estimating the expected term where expected term equals the vesting period plus contractual term all divided by two. The forfeiture rate is expected to be nil for grants that vest immediately or within one year and 10% to 20% for grants that vest after 24 and 36 months, respectively. The risk-free rate is based on the yields of U.S. Treasury bonds. The Company has never paid a dividend and does not expect to in the future and estimates the expected dividend yield to be nil.

Income Taxes: We must use significant judgment in assessing our ability to generate future taxable income to realize the benefit of our deferred tax assets. The deferred tax assets are principally in the form of net operating loss carry forwards. A valuation allowance is to be provided for that fraction of the deferred tax assets that it is more likely than not that the deferred tax asset will not be realized. The “more likely than not” criterion of FAS 109 represents a probability of just over 50%. We currently have a valuation allowance equal to all of our deferred tax assets related to net operating loss carryforwards. There was no impact from the adoption of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes .

Potential Litigation Liabilities: We are subject to litigation as the result of our business operations and transactions. We utilize external counsel in evaluating potential exposure to adverse outcomes from judgments or

settlements. To the extent that actual outcomes differ from our estimates, or additional facts and circumstances cause us to revise our estimates, net income may be affected.

Other Matters

Federal Legislation

Legislation has been introduced in prior and current sessions of the U.S. Congress to modify the requirements applicable to mining claims on federal lands under the Mining Law of 1872. To date, no such legislation has been enacted. The timing and exact nature of any mining law changes cannot presently be predicted; however, we will continue our active role in industry efforts to work with Congress to achieve responsible changes to mining law.

Dividends

Since our inception, no cash dividends have been paid nor do we expect any to be paid for the foreseeable future.

Recently Issued Accounting Standards

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities . This Statement is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of FASB Statement No. 157, Fair Value Measurements. This Statement permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement is expected to expand the use of fair value measurement, which is consistent with the Board’s long-term measurement objectives for accounting for financial instruments. The Company will adopt SFAS No. 159 on January 1, 2008 and the Company does not expect a significant impact on the consolidated financial statements.

In September 2006, FASB issued SFAS No. 157, Fair Value Measurements . This standard provides guidance for using fair value to measure assets and liabilities. SFAS No. 157 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value but does not expand the use of fair value in any new circumstances. The standard clarifies that for items that are not actively traded, fair value should reflect the price in a transaction with a markets participant, including an adjustment for risk. Under SFAS No. 157, fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market which the reporting entity transacts. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Earlier application is encouraged, provided that the reporting entity has not yet issued financial statements for that fiscal year, including financial statements for an interim period within that fiscal year. The Company will adopt SFAS No. 157 on January 1, 2008 and the Company does not expect a significant impact on the consolidated financial statements.

ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Commodity Prices

Our future revenues, earnings and cash flow may be strongly influenced by changes in gold and uranium prices, which fluctuate widely and over which we have no control. We may, if market conditions justify, enter into gold or uranium price protection arrangements in the future, if necessary, to ensure that we generate enough cash flows to support our growth and exploration plans and any debt related to project financing. We had no gold or uranium related derivatives outstanding as of September 30, 2007.

The risks associated with price protection arrangements include opportunity risk by limiting unilateral participation in upward prices; production risk associated with the requirement to deliver physical ounces against a forward commitment; and credit risk associated with counterparties to the hedged transaction. As of September 30, 2007, we were not at risk related to gold related derivative instruments.

Our future earnings and cash flow may be significantly impacted by changes in the market price of gold, uranium and other commodities. Gold prices can fluctuate widely and are affected by numerous factors, such as demand, inflation, interest rates, and economic policies of central banks, producer hedging, and the strength of the U.S. dollar relative to other currencies. During the last five years, the London PM Fix gold price has fluctuated between a low of $311 per ounce in October 2002 and a high of over $800 per ounce in November 2007. We expect gold to be our primary product in the foreseeable future, but we cannot currently reasonably estimate our future production and therefore we cannot comment on the impact that changes in gold prices could have on our projected pre-tax earnings and cash flows over the next year.

Interest Rates

At September 30, 2007, our convertible debentures balance was approximately $0.8 million at a fixed interest rate of 6%. Currently, we believe our interest rate risk is minimal except to the extent we might incur new debt.

Foreign Currency

The price of gold is denominated in U.S. dollars, and our current gold production operations and significant properties are located primarily in the U.S. We own foreign mineral rights primarily in the form of royalties which may create foreign currency exposure in the future when, and if, these foreign properties are placed in production.

ITEM 4 CONTROLS AND PROCEDURES

DISCLOSURE CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in reports we file or submit under the Securities and Exchange Act of 1934 is processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Our Company’s Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934) as of the end of the period covered by this Quarterly Report on Form 10-Q, are effective based on their evaluation of these controls and procedures.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There have been no changes in our internal control over financial reporting for the period ended September 30, 2007 that have materially effected, or are reasonably likely to materially affect, our internal control over financial reporting.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with policies and procedures may deteriorate.

PART II OTHER INFORMATION

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		CANYON RESOURCES CORPORATION
Date: November 8, 2007		/s/ James K. B. Hesketh   James K. B. Hesketh
		President and Chief Executive Officer
		(Principal Executive Officer)
Date: November 8, 2007		/s/ David P. Suleski
		David P. Suleski
		Chief Financial Officer, Treasurer and Corporate Secretary
		(Principal Financial and Accounting Officer)

Grafico Azioni Canyon Resource (AMEX:CAU)
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