MDG Meridian Gold

Headline of release should read: Meridian Gold Announces Third Quarter 2006 Results The release reads: MERIDIAN GOLD ANNOUNCES THIRD QUARTER 2006 RESULTS (All dollar amounts in U.S. currency) Meridian Gold Inc. (�Meridian Gold� or the �Company�) (TSX:MNG)(NYSE:MDG) is pleased to announce results for the quarter ended September 30, 2006. Meridian Gold continues its commitment to organic growth, with a focus on returns and a dedication to responsible mining, which are reflected in the third quarter results as follows: RESULTS: Quarterly net earnings of $5.7 million, or $0.06 per share Gold production of 74,180 ounces at a net cash cost of $66 per ounce using the by-product method of calculating cash cost Operating cash flow of $11.2 million for the quarter Initiated a strategic partnership with Codelco through the acquisition of a 56.7% controlling interest in Agua de la Falda S.A., that includes the Jeronimo Deposit estimated to contain 2.8 million ounces of gold (100% basis) Acquired and seamlessly integrated Minera Florida S.A. mining operations New portal to access Fortuna project at El Pe��n initiated; with 150 meters of advancement completed Commenced development of Rossi JV project with Barrick Exploration; expect production in Q2 2007 Continued aggressive exploration campaign in El Pe��n landblock and on the Mercedes project in Mexico Received two awards in recognition of mining reclamation excellence at former Beartrack Mine in Idaho Brian J. Kennedy, President and Chief Executive Officer, commented: �During the third quarter, Meridian Gold applied part of its strong cash position to acquire Minera Florida, a fully permitted and operating mine, for $100 million, and a 56.7% controlling interest in the Jeronimo project with a $20 million payment to Codelco. During this past quarter at El Pe��n, we incurred higher operating costs and unit production costs as the mine transitions from older mining areas to newer ones. As part of this transition, the mine will increase production to 2,800 tonnes per day by third quarter 2007. Our 2006 year-to-date mine development now totals over 23,000 meters of the planned 31,000 meters for the full year. I am also pleased to report that my successor, Edward Dowling, joined the Meridian Gold team just over one month ago and is moving forward in an orderly transition to assume the President and CEO position at year-end.� Exploration Report At El Pe��n, exploration drilling has been focused on infill drilling at the Providencia, Fortuna and Dominador veins; with four surface drills running. The infill drilling will be used to complete the Resource and Reserve estimates for 2006. During the fourth quarter, drilling is moving to focus on the continued expansion and delineation of the newly discovered Al Este and Angosta veins. The Company again expects to replace production at El Pe��n. At the Amancaya exploration project, located 120 kilometers south of El Pe��n in the Atacama Desert, one drill continues to test the extension of the known mineralization (see press release dated May 2, 2006 for drill results). Once drilling is completed in the fourth quarter, a resource estimate will be prepared. Meridian Gold continues with its exploration effort at the newly acquired Minera Florida operations where two drills continue to explore and delineate new resources outside of the current mine area, including the Tribuna and Peumo vein systems. The NI 43-101 technical report and audit is currently being completed by Scott Wilson Roscoe Postle Associates Inc. and will be released during the fourth quarter. Two drills continue to test Meridian�s 100% owned Mercedes project in the state of Sonora, Mexico. Last year Meridian discovered high grade mineralization in a previously untested area (see press release dated February 21, 2006 for drill results). Drilling during the third quarter of 2006 has been focused on extending this mineralization; in addition to drill testing other vein targets on the Mercedes concessions. A report of activities and a resource estimate will be released during the fourth quarter. Elsewhere, the Company continues to explore: the Natividad project in Nicaragua with its joint venture partner, Radius Gold Corporation; the Millo project in Peru with its joint venture partner Southwestern Resources Corporation; and the La Pepa project, in Northern Chile. Jeronimo On September 15, 2006, the Company initiated a strategic partnership and announced the acquisition of a 56.7% controlling interest in Agua de la Falda (ADLF), which includes the Jeronimo Deposit from the Corporacion Nacional del Cobre de Chile (�Codelco�) for $20 million. ADLF�s properties, located 50 kilometers southeast of El Salvador in the Third Region of Northern Chile, encompass over 240 km� and include the El Hueso, Coya and Agua de la Falda mines that produced over 660,000 gold ounces for Homestake Mining Company between 1988 and 2002. The Jeronimo Deposit is the downdip extension of the ADLF deposit and is estimated to contain up to 16.6 million tonnes of potential ore at a gold grade of 5.2 grams per tonne for a contained resource of at least 2.8 million ounces of gold (on a 100% basis). The potential mineral body is largely unoxidized and will require further metallurgical testing to determine the most economic processing techniques to recover the gold in a production environment. There is an existing scoping study on the property and as part of the agreement; Meridian will be required to prepare the feasibility study of the Jeronimo Deposit. A full scoping study will be underway by the first quarter 2007. Rossi The Company continues to advance the Rossi joint venture with Barrick Gold Exploration Inc. and commenced development of the underground workings. The mining contractor has mobilized equipment to the site and the majority of equipment has arrived. First production is scheduled for the second quarter of 2007. Sustainable Development Due to its stewardship in environmental practices, Meridian Gold received two awards for excellence in reclamation at its past producing Beartrack Mine in Salmon, Idaho. The Company received the �2006 Hardrock Mineral Environmental Award� from the U.S. Department of the Interior, in addition to the �Excellence in Reclamation-Hardrock Mines Over 75 Acres� from the Idaho Inter-Agency Reclamation Awards Committee. Health & Safety El Pe��n was recognized by Asociacion Chilena de Seguridad (ACHS) as one of five companies with the lowest accident rate during a three year period. ACHS is a Health and Safety organization which represents 36,700 member companies and with more than 1.6 million employees. Of the five companies, Meridian was the only mining company. Minera Florida�s processing team was selected to receive the �Premio Accion Paritario� by ACHS for safety committee activities during 2006. MANAGEMENT�S DISCUSSION AND ANALYSIS The following discussion is limited to matters that, in the opinion of management of Meridian Gold Inc. (�Meridian Gold�, �Meridian�, �We� or the �Company�), are material, and represents management�s knowledge through the date of this press release, October 24, 2006. OPERATIONS El Pe��n During the third quarter of 2006, El Pe��n further advanced its plant expansion and mine development projects. El Pe�on is in a transition period of mining lower gold grades and higher silver grades as production shifts to the newer areas of Cerro Martillo and Dorada. This change, along with a move to mine and process ore in line with reserve grades, has led to a decrease in gold ounces and an increase in silver ounces produced. The operation produced 53,700 ounces of gold and 1.5 million ounces of silver during the third quarter in 2006 versus 75,400 ounces of gold and 1.4 million ounces of silver during the third quarter of 2005. The decrease in gold ounces produced resulted from lower grades in the underground mine due to the variability of grades in the fringes of the Quebrada Colorada and Quebrada Orito veins. The mill feed was supplemented by stockpile ore to offset the shortfall in mined ore. The mine continues to source underground ore from the Cerro Martillo, Dorada, Quebrada Colorada and Quebrada Orito vein structures. Production from these structures provided 198,520 tonnes of ore during the third quarter of 2006 versus 189,820 tonnes of ore during the same period of 2005. During the third quarter 2005, 33,200 tonnes of ore were mined from the open pits, which ceased operating at that time. Underground production averaged 5,506 tonnes per day during the third quarter of 2006 including ore, development and non-mineralized material; an improvement of 21% compared to the third quarter rate for 2005 (an average of 4,550 tonnes per day). We continue to focus on development of the underground mine to improve mine flexibility in order to support the expansions occurring in the mill. The mine will continue to ramp up production expansion into the Cerro Martillo and Dorada veins, as well as continue to develop the Providencia and Fortuna areas. Mill throughput at El Pe��n was 234,700 tonnes or 2,551 tonnes per day for the third quarter of 2006, a 6% increase over production in the third quarter of 2005 of 221,000 tonnes or 2,397 tonnes per day. The increase in throughput resulted from completion or significant advancement in several of the mill expansion projects. The remaining projects will be completed during the first quarter of 2007. Average gold mill head grades decreased during the quarter to 7.4 grams per tonne of gold versus 11.0 grams per tonne of gold in the third quarter of 2005, while average silver mill head grades at 210 grams per tonne remained consistent with the third quarter of 2005. Drilling and engineering work continues to define the geology and mine plan of the Fortuna vein, while the exploitation permitting process continues. The permits for the construction of the underground access ramp and low-levels of mine production have been obtained. The access portal has been completed and the ramp has advanced nearly 150 meters. The required documentation for the additional permitting has been submitted and we expect to be able to commence full scale mining by second half 2007. During the quarter, the two access tunnels to the Providencia vein structure continued to advance. Access from the southern end of Quebrada Colorada has advanced 678 meters out of the planned total 820 meters. It is expected that during the fourth quarter of 2006 this access will reach the vein. Access from the Dorada structure has advanced nearly 692 meters out of the planned total 1,320 meters. Once the Providencia structure is reached, underground drilling and testing work on the vein will commence. Net cash cost including by-product credits for the third quarter 2006 was $0 per gold ounce versus $44 per gold ounce for the same period in 2005. Total net production costs including depreciation, depletion and amortization were $86 per gold ounce for the third quarter of 2006, compared to $91 per gold ounce in the third quarter of 2005. The decrease in cash cost for third quarter of 2006 versus third quarter of 2005 is the result of higher silver prices and slightly higher production, offset to some extent by increased costs for higher reagent and commodities prices and increased throughput. (The measurements for net cash cost and total net production cost are non-GAAP measurements. An explanation and reconciliation of these measurements can be found at the end of the management�s discussion and analysis section of this report.) Minera Florida Meridian exercised its purchase option agreement and took control of Minera Florida as of July 1, 2006. The information presented herein reflects the results from the date of acquisition. Historical comparisons are not presented. During the third quarter of 2006, Minera Florida�s operations produced 20,500 ounces of gold, 60,100 ounces of silver and 1,012 tonnes of zinc concentrate. The mine is currently sourcing underground ore principally from the Pedro Valencia, Millenium and Lo Prat veins. Production from these structures provided 105,600 tonnes of ore during the third quarter of 2006. This production resulted in an average production rate of 1,150 tonnes of ore per day. The current principal method of extraction is sub-level stoping. Development efforts are being directed at the Peumo and Berta vein structures as these will become important production zones for 2007. During the quarter, 2,661 meters of development drifts were completed. Mill throughput at Minera Florida was 109,446 tonnes or 1,189 tonnes per day for the third quarter of 2006. The mill has a 3 stage crushing, grinding, flotation and leaching circuit to produce a dor� bar followed by a production of a zinc concentrate. The material processed by the plant contained an average of 7.2 grams per tonne gold, 24 grams per tonne silver and 1.6% zinc. Drilling with two exploration rigs continues on the 12,500 hectares of leased mining claims within the Minera Florida land package. To date, the Company has drilled over 34,000 meters of the planned 40,000 meters for the full year 2006. The Company plans on adding two more drill rigs during the fourth quarter to continue the infill program. Net cash cost for the third quarter of 2006 was $239 per gold ounce. Total net production cost including depreciation, depletion and amortization was $420 per gold ounce for the quarter. The increased cash cost versus the forecast was due to the timing of zinc sales and one-time transition costs associated with administrative, legal and service costs resulting from the acquisition of Minera Florida. The Company expects net cash costs to be in line with the forecasted amount of approximately $200 per gold ounce going forward. The total cost results from depreciation and depletion expenses resulting from the allocation of the purchase price to the fixed assets of the mine and plant. Zinc produced and sold in the quarter is included in the revenue section. Zinc that has not been sold is included in inventory. (The measurements for net cash cost and total net production cost are non-GAAP measurements. An explanation and reconciliation of these measurements can be found at the end of the management�s discussion and analysis section of this report.) FINANCIAL RESULTS Third quarter 2006 vs. Third quarter 2005 Meridian Gold reported net earnings for the three months ended September 30, 2006 of $5.7 million ($0.06 per share), compared to net earnings of $9.0 million ($0.09 per share) for the same period in 2005. The decrease is explained in the following paragraphs. Total revenue of $62.2 million in the third quarter of 2006 increased $20.0 million or 47% over the third quarter revenue in 2005 of $42.2 million. Gold revenue increased 36% from $32.6 million in the third quarter of 2005 to $44.4 million for the third quarter 2006 due to a higher realized gold price versus the previous year�s quarter ($616 per ounce realized versus $440 per ounce or 40%), ounces sold were slightly lower for the third quarter 2006 versus the same period for 2005 (72,500 ounces versus 74,000 ounces). The decrease in ounces produced and sold was due to a 33% decrease in the gold grade at El Pe��n from 11.0 grams per tonne of gold in the third quarter of 2005 to 7.4 grams per tonne of gold in the same period of 2006, as explained in the operating section, offset by additional production from Minera Florida of 20,500 ounces. The silver revenues increased 80% from $9.6 million to $17.3 million due to higher realized silver prices versus the previous year�s quarter ($11.61 per ounce realized versus $7.07 per ounce) coupled with a 9% increase in silver ounces sold (1.48 million ounces versus 1.36 million ounces). The increase in silver production is a result of higher silver grades in the current mining areas at El Pe��n along with the additional silver ounces being produced at Minera Florida. While the Company produced 1,012 tonnes of zinc concentrate, it only recorded $0.5 million in zinc revenues for the quarter. Since zinc may not always be sold in the period produced because of contractual volume and shipping agreements. In the third quarter of 2006, cost of sales equaled $23.1 million, an increase of $9.6 million or 71% compared to cost of sales in the third quarter of 2005 of $13.5 million. This increase in cost of sales is partially due to the new costs related to the Minera Florida production of $6.3 million. The remaining increase is primarily related to higher production in the El Pe��n mine, higher throughput in the mill, and higher plant and mining costs associated with increases in reagent and materials costs. Depreciation, depletion and amortization increased $4.8 million to $8.5 million reflecting the additional charges from the Minera Florida mine ($3.7 million) along with increased depletion costs due to increased mine production occurring in higher capital cost areas of the El Pe��n mine. Exploration expense in the third quarter of 2006 of $6.2 million was consistent with the third quarter 2005 expense. In the third quarter of 2006 the company continued its aggressive exploration activities in Chile at its El Pe��n and Minera Florida properties. The Company also continues its exploration programs at the Natividad project in Nicaragua, on the La Pepa project in Chile, and on the Millo Project in Peru, and at the Mercedes property in Mexico. Selling, general and administrative expenses for the third quarter of 2006 were $10.1 million versus $3.1 for the same period in 2005. This increase is due, in part, to $5.5 million in expenses related primarily to the incentive payment, restricted and option share awards and pension costs associated with the retiring CEO as well as the costs associated with the hiring of the new CEO designate. Due to the accounting treatment for these costs, an estimated additional $1.2 million will be expensed in the fourth quarter of 2006. Operating margins in the third quarter of 2006 were $13.9 million or 22% of revenue, compared to operating margins of $15.4 million or 36% of revenue in the third quarter of 2005 as explained above. Income tax expense in the third quarter of 2006 was $10.8 million or an effective rate of 65%, compared to $8.3 million or an effective tax rate of 48% in the third quarter of 2005. The increase in the effective rate is due to the effect of increased costs in jurisdictions where no tax benefit is available while recording higher taxes due to increased earnings in Chile. The Company�s statutory tax rate in Chile, including the mining tax and royalty, is approximately 36%. During the third quarter of 2006, Meridian Gold paid $15.2 million in cash taxes. Net earnings in the third quarter of 2006 of $5.7 million were 9% of revenue, compared to $9.0 million or 21% in the third quarter of 2005. This decrease is the result of the additional higher proportional operating costs, increased selling, general and administrative costs and increased depreciation, depletion and amortization costs as explained above, partially offset by higher revenues due to higher realized average metals prices. Meridian Gold produced gold for a consolidated average of $66 net cash cost per gold ounce in the third quarter of 2006 compared to $44 per ounce net cash cost in the same period of 2005, using by-product method of accounting. (The measurement for net cash cost is a non-GAAP measurement. An explanation and reconciliation of these measurements can be found at the end of the management�s discussion and analysis section of this report.) First nine months of 2006 vs. First nine months of 2005 Total revenue of $175.0 million for the nine months ended September 30, 2006 increased $50.0 million or 40% over the same period in 2005 of $125.0 million. Gold revenues increased 20% from $97.6 million in the first nine months of 2005 to $117.3 million for the same period in 2006. The higher realized gold price versus the previous year�s nine months ($598 per ounce realized versus $432 per ounce), was offset by a 13% decrease in gold ounces sold (195,900 ounces versus 226.300 ounces). The decrease in ounces produced and sold was due to a 26% decrease in the gold grade processed at El Pe��n from 11.3 grams per tonne of gold in the nine months ended September 30, 2005 to 8.4 grams per tonne of gold in the same period of 2006. The silver revenues increased 108% from $27.4 million to $57.1 million due to higher realized silver prices versus the same period for the previous year ($11.19 per ounce realized versus $7.05 per ounce) in addition to a 31% increase in silver ounces sold (5.10 million ounces versus 3.89 million ounces). The increase in silver production is due to an increased proportion of ore coming from higher silver grade sectors of the mine, mainly Dorada and Cerro Martillo at El Pe��n and the additional ounces from Minera Florida. For the nine months ended September 30, 2006, cost of sales equaled $52.6 million, an increase of $13.0 million (33%), compared to cost of sales in the same period of 2005 of $39.6 million. A portion of this increase in cost of sales is due to the new costs related to the Minera Florida production equaling $6.3 million. The remaining increase is primarily related to higher production at El Pe��n from the underground mine and higher throughput in the mill, along with the associated increase in reagent and materials usage and higher costs. Depreciation, depletion and amortization increased $6.5 million to $18.5 million, reflecting the additional charges from the Minera Florida mine equal to $3.7 million, along with increased depletion due to higher mine production occurring in higher capital cost areas of the mine at El Pe��n. Exploration expense in the first nine months of 2006 of $18.0 million was $0.8 million less than exploration expense in the same period of 2005 of $18.8 million, primarily due to lower exploration spending at the Natividad project in Nicaragua. Selling, General and Administrative and other expenses for the nine months ended September 20, 2006 were $16.5 million versus $8.8 for the same period in 2005. The increase is due, in part, to $5.5 million in expenses related to the incentive payment , restricted and option share awards and pension costs associated with the retiring CEO and the hiring of the new CEO designate. Due to the accounting treatment for these costs, an estimated additional $1.2 million will be expensed in the fourth quarter of 2006. Tax expense in the first nine months of 2006 was $35.7 million or an effective rate of 46% compared to $22.6 million or an effective tax rate of 45% in the first nine months of 2005. The increase in the effective tax rate is due to increased spending in tax jurisdictions with no offsetting tax benefit. During the first nine months of 2006, the Company paid $27.9 million in cash taxes. Net earnings for the first nine months ended September 30, 2006 were $42.1 million ($0.42 per share) or 24% of revenue compared to net earnings of $27.9 million ($0.28 per share) or 22% of revenue for the same period of 2005. The increase is primarily related to higher silver production, high realized prices for gold and silver and the addition production of gold, silver and zinc from the Minera Florida property, partially offset by the lower gold production from the El Pe��n mine and higher costs, as explained above. Meridian Gold produced gold for a consolidated average of negative ($33) net cash cost per gold ounce for the nine months ended September 30, 2006 compared to $46 per ounce net cash cost in the same period of 2005, using by-product method of accounting. (The measurement for net cash cost is a non-GAAP measurement. An explanation and reconciliation of these measurements can be found at the end of the management�s discussion and analysis section of this report.) LOOKING AHEAD For 2006, the Company is revising its previous production estimates for El Pe��n and expects to produce approximately 235,000 ounces of gold and 6.7 million ounces of silver at a negative net cash cost of approximately ($50) per ounce, assuming an $11.02 silver price and the latest production estimates. At Minera Florida, the Company expects to produce 35,000 ounces of gold, 110,000 ounces of silver and 1,700 tonnes of zinc concentrate for the last 6 months of the year at a net cash cost of approximately $200 per ounce. Since we account for silver and zinc revenue as a by-product when calculating net cash cost, the net cash cost is sensitive to the fluctuations in the prices of these metals. The decrease in gold ounces as compared to previous forecasts is due to lower grades in mining of the older areas of the Quebrada Colorada and Quebrada Orito mines and as part of the transition to the newer areas of the mine. It is expected that the capital expansion projects in the mill at El Pe��n will continue through the fourth quarter and conclude early in the first quarter 2007. Meridian Gold will continue to focus on optimizing sustained cash flow from the El Pe��n mine. Minera Florida S.A. Purchase Meridian acquired Minera Florida S.A. and began consolidating its production and costs effective as of July 1, 2006. The transaction closed on July 31, 2006 with a payment for $100 million. Minera Florida was a privately held mining operation in Chile, which has been in operation for nearly 20 years. More recent historical production had been approximately 65,000 - 70,000 ounces of gold per year with additional by-product production of silver and zinc. Historical net cash costs averaged approximately $200 per ounce of gold using a by-product method of accounting. Meridian Gold has been exploring the property for 11 months under an option agreement that was signed in August of 2005. Meridian Gold is currently interpreting the existing and new exploration drilling results and expects to present a reserve and resource report by mid-fourth quarter 2006. With the upcoming release of the NI 43-101 report, the Company expects the mine and plant to continue to produce at the historic levels for the foreseeable future. Agua de la Falda S.A. Purchase On September 15, 2006, the Company initiated a strategic partnership and announced the acquisition of a 56.7% controlling interest in Agua de la Falda (ADLF), which includes the Jeronimo Deposit from the Corporacion Nacional del Cobre de Chile (�Codelco�) for $20 million. ADLF�s properties, located 50 kilometers southeast of El Salvador in the Third Region of Northern Chile, encompass over 240 km� and include the El Hueso, Coya and Agua de la Falda mines that produced over 660,000 gold ounces for Homestake Mining Company between 1988 and 2002. The Jeronimo Deposit is the downdip extension of the ADLF deposit and is estimated to contain up to 16.6 million tonnes of potential ore at a gold grade of 5.2 grams per tonne for a contained resource of at least 2.8 million ounces of gold (on a 100% basis). The potential mineral body is largely unoxidized and will require further metallurgical testing to determine the most economic processing techniques to recover the gold in a production environment. There is an existing scoping study on the property. As part of the agreement; Meridian will be required to prepare the feasibility study of the Jeronimo Deposit. A full scoping study will be underway by the first quarter 2007. Liquidity Cash balances, including restricted cash, short-term and long-term investments, decreased to $211.2 million as of September 30, 2006 due to the purchase of Minera Florida S.A. for $100 million and the purchase of Agua de la Falda S.A. for $20 million. Furthermore, the Company paid an additional cash tax of $10.3 million related to the Minera Florida purchase transaction, though we expect the payment will be fully refunded upon filing the Chilean tax return in April 2007. Working capital decreased to $171.1 million at September 30, 2006 from $265.4 million at December 31, 2005, mainly due to the cash outflows as explained above. Cash to meet the Company�s operating needs, finance capital expenditures and acquisitions, and fund exploration activities during the quarter was provided from operations and from existing cash reserves. Cash provided by operating activities, including changes in non-cash working capital and other operating amounts, was $11.2 million in the third quarter of 2006 compared to $17.1 million in the third quarter of 2005. Capital Resources Anticipated cash requirements for the full year 2006 include approximately $35 million for planned capital expenditures at El Pe��n (which includes approximately $13 million in mine development, as the mine continues with the project of expanding its mining production rate from 2,000 to 2,800 tonnes per day) as well as developing accesses to the Providencia structure, and development of the Fortuna project. An additional estimated $6 million will be required to fund capital expenditures at other Meridian Gold projects and locations. The Company expects to fund these capital projects using the existing cash balances. Exploration is at the heart of Meridian Gold�s growth strategy and will continue to be an important focus throughout the year. Meridian Gold plans to spend approximately $25 million in 2006 to fund exploration. The Company believes that the planned capital and exploration requirements will be funded by existing operating cash flows, current cash and investments. Should the Company decide to develop other exploration and development properties, additional capital might be required. If additional funds are necessary, management believes they may be borrowed from third parties or raised by issuing shares of Meridian Gold; however, no assurance can be given that such transactions will be available at terms and conditions acceptable to Meridian Gold, if at all. Changes in Accounting Policies and Presentation Silver Revenue and Refining Costs Commencing January 1, 2006, the Company recognizes silver sales as part of its revenue due to the increase in silver ounces mined and the significant increase in the price of silver. The Company previously recognized silver sales as a by-product and reported its silver revenue with cost of sales. The Company has also changed its classification of refining cost from netting against revenue to including it in cost of sales. Commencing January 1, 2006, both of these changes were adopted on a retroactive basis and revenue and cost of sales before depreciation, depletion and amortization for the three months and nine months ended September 30, 2005 have been increased by $10.1 million ($9.6 million silver revenue, $0.5 million refining expenses) and $28.8 million ($27.4 million silver revenue, $1.4 million refining expenses), respectively, from the amounts previously reported. Summary of Quarterly Results � (Unaudited and expressed in millions of US dollars, except per share data) � 2006� 2005� 2004� Q3 Q2 Q1 Q4 � Q3 Q2 Q1 Q4 Revenue $62.2� $57.3� $55.5� $49.3� $42.2� $40.9� $41.9� $41.1� Pre-impairment net earnings(1) 5.7� 18.8� 17.6� 12.3� 9.0� 9.1� 9.8� 7.5� Net earnings (loss) 5.7� 18.8� 17.6� (374.3) 9.0� 9.1� 9.8� 7.5� � Basic earnings per share, pre-impairment(2) $0.06� $0.19� $0.18� $0.12� $0.09� $0.09� $0.10� $0.08� Diluted earnings per share pre-impairment 0.06� 0.19� 0.18� 0.12� 0.09� 0.09� 0.10� 0.07� Basic earnings (loss) per share(2) $0.06� $0.19� $0.18� ($3.73) $0.09� $0.09� $0.10� $0.08� Diluted earnings (loss) per share 0.06� 0.19� 0.18� ($3.73) 0.09� 0.09� 0.10� 0.07� � (1) Pre-impairment net earnings is a non-GAAP measure and is equal to net earnings (loss) before impairment of mineral properties and other in the net amount of $386.3 million recorded in the fourth quarter of 2005 (2) Quarterly amounts do not sum to full year amounts due to rounding Outstanding Share Data As at September 30, 2006 101,084,401 (December 31, 2005 - 100,233,173) common shares were outstanding and 836,830 stock options were outstanding issued to directors and employees with exercise prices ranging between US$2.25 and US$26.79 per share, of which 544,636 were exercisable with expiry dates between December 2006 and March 2016. Non-GAAP Measures Meridian Gold has provided measures of �net cash cost per gold ounce�, �total net cost per gold ounce�, �cash cost per gold equivalent ounce� and �total cost per gold equivalent ounce�, which are included in this document. Net cash cost per gold ounce is determined according to the Gold Institute Standard and consists of site costs for all mining (except deferred mining and deferred stripping costs), processing, administration, resource taxes and royalties (the Chilean royalty tax is not included as it is considered an income tax), net of silver and/or zinc by-product credits, but does not include capital, exploration, depreciation, reclamation and financing costs. Total net cash cost per gold ounce is total net cash costs divided by gold ounces produced. Total net cost consists of �total net cash cost� plus depreciation, depletion, amortization and reclamation expenses. Total net costs per gold ounce are total net costs divided by gold ounces produced. Cash costs are equivalent to net cash cost adding back the silver by-product credit. Cash cost per gold equivalent ounce is total cash cost divided by the total of the gold ounces plus silver ounces converted to an equivalent amount of gold as determined by the ratio of the gold price per ounce divided by the silver price per ounce. Total cost consists of �total cash cost� plus depreciation, depletion, amortization and reclamation expenses. Total cost per gold equivalent ounce is �total cost� divided by the gold equivalent ounces produced. The Company believes that in addition to conventional measures, prepared in accordance with Canadian generally accepted accounting principles (�GAAP�), stakeholders use non-GAAP measures to evaluate the Company�s performance and its ability to generate cash flow. These non-GAAP performance measures do not have any standardized meaning prescribed by GAAP, and therefore, may not be comparable to similar measures presented by other companies. Accordingly, they are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. The calculation for these non-GAAP measures is explained below. � Third Quarter 2006 Third Quarter 2005 Non-Gaap Reconciliation MineraFlorida El Pe�on Consolidated MineraFlorida El Pe�on Consolidated � � � � � � � By-Product method of calculating cost per ounce Cost of sales (Before depreciation, depletion and amortization) $6.2� $16.9� $23.1� -� $13.5� $13.5� Silver revenues (0.7) (16.6) (17.3) -� (9.6) (9.6) Zinc revenues (0.5) -� (0.5) -� -� 0.0� Other (0.1) (0.3) (0.4) -� (0.6) (0.6) Total net cash costs 4.9� (0.0) 4.9� -� 3.3� 3.3� Gold production in ounces from active properties 20,461� 53,719� 74,180� -� 75,416� 75,416� Total net cash costs per gold ounce $239� ($0) $66� -� $44� $44� � Total net cash costs 4.9� (0.0) 4.9� -� 3.3� 3.3� Depreciation, depletion and amortization from operations 3.7� 4.6� 8.3� -� 3.6� 3.6� Total net cost $8.6� $4.6� $13.2� -� $6.9� $6.9� Gold production in ounces from active properties 20,461� 53,719� 74,180� -� 75,416� 75,416� Total net cost per gold ounce $420� $86� $178� -� $91� $91� � Gold equivalent ounce method of calculating cost per ounce (zinc as by-product) � Gold production in ounces from active properties 20,461� 53,719� 74,180� -� 75,416� 75,416� Silver Ounce conversion Factor: 53.1� 53.1� 53.1� -� 62.2� 62.2� Gold Price (avg. London PM fix) $ 622� $ 622� $ 622� $ -� $ 440� $ 440� Silver Price (avg. London fix) $ 11.70� $ 11.70� $ 11.70� $ -� $ 7.07� $ 7.07� Silver Ounces from active properties 60,106� 1,460,506� 1,520,612� -� 1,381,090� 1,381,090� Converted Silver Ounces (ounces / factor) 1,132� 27,495� 28,626� -� 22,209� 22,209� Gold Equivalent Ounces 21,593� 81,214� 102,806� -� 97,625� 97,625� � Cost of Sales $6.2� $16.9� $23.1� -� $13.5� $13.5� Zinc revenues ($0.5) -� ($0.5) -� -� $0.0� Other (0.1) (0.3) (0.4) -� (0.6) (0.6) Total Cash Cost 5.6� 16.6� 22.2� -� 12.9� 12.9� Total cash cost per gold equivalent ounce (zinc as by-product credit) $259� $204� $216� $ -� $132� $132� � Total Cash Cost $5.6� $16.6� $22.2� -� $12.9� $12.9� Depreciation, depletion and amortization from operations 3.7� 4.6� 8.3� -� 3.6� 3.6� Total Cost 9.3� 21.2� 30.5� -� 16.5� 16.5� Total Cost per gold equivalent ounce (zinc as by-product credit) $431� $261� $297� $ -� $169� $169� � � Nine months ended Sept 30, 2006 Nine months ended Sept 30, 2005 Non-Gaap Reconciliation MineraFlorida El Pe�on Consolidated MineraFlorida El Pe�on Consolidated � � � � � � � By-Product method of calculating cost per ounce Cost of sales (Before depreciation, depletion and amortization) $6.2� $46.4� $52.6� -� $39.6� $39.6� Silver revenues (0.7) (56.4) (57.1) -� (27.4) (27.4) Zinc revenues (0.5) -� (0.5) -� -� 0.0� Other (0.1) (1.5) (1.6) -� (1.7) (1.7) Total net cash costs 4.9� (11.5) (6.6) -� 10.5� 10.5� Gold production in ounces from active properties 20,461� 179,778� 200,239� -� 227,916� 227,916� Total net cash costs per gold ounce $239� ($64) ($33) -� $46� $46� � Total net cash costs 4.9� (11.5) (6.6) -� 10.5� 10.5� Depreciation, depletion and amortization from operations 3.7� 14.5� 18.2� -� 11.6� 11.6� Total net cost $8.6� $3.0� $11.6� -� $22.1� $22.1� Gold production in ounces from active properties 20,461� 179,778� 200,239� -� 227,916� 227,916� Total net cost per gold ounce $420� $17� $58� -� $97� $97� � Gold equivalent ounce method of calculating cost per ounce (zinc as by-product) � Gold production in ounces from active properties 20,461� 179,778� 200,239� -� 227,916� 227,916� Silver Ounce conversion Factor: 53.6� 53.6� 53.6� -� 61.1� 61.1� Gold Price (avg. London PM fix) $ 601� $ 601� $ 601� $ -� $ 432� $ 432� Silver Price (avg. London fix) $ 11.21� $ 11.21� $ 11.21� $ -� $ 7.07� $ 7.07� Silver Ounces from active properties 60,106� 5,166,926� 5,227,032� -� 3,925,478� 3,925,478� Converted Silver Ounces (ounces / factor) 1,121� 96,377� 97,498� -� 64,267� 64,267� Gold Equivalent Ounces 21,582� 276,155� 297,737� -� 292,183� 292,183� � Cost of Sales $6.2� $46.4� $52.6� -� $39.6� $39.6� Zinc revenues ($0.5) -� ($0.5) -� -� $0.0� Other (0.1) (1.5) (1.6) -� (1.7) (1.7) Total Cash Cost 5.6� 44.9� 50.5� -� 37.9� 37.9� Total cash cost per gold equivalent ounce (zinc as by-product credit) $259� $163� $170� $ -� $130� $130� � Total Cash Cost $5.6� $44.9� $50.5� -� $37.9� $37.9� Depreciation, depletion and amortization from operations 3.7� 14.5� 18.2� -� 11.6� 11.6� Total Cost 9.3� 59.4� 68.7� -� 49.5� 49.5� Total Cost per gold equivalent ounce (zinc as by-product credit) $431� $215� $231� $ -� $169� $169� CAUTIONARY STATEMENT Certain statements in this 2006 third quarter announcement, financial statements for the period ending September 30, 2006 and management�s discussion and analysis constitute �forward-looking statements� within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 and Canadian securities legislation. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company, or other future events, including forecast production, earnings and cash flows, to be materially different from any future results, performance or achievements or other events expressly or implicitly predicted by such forward-looking statements. When used herein, words such as �anticipate�, �estimate�, �believe�, �expect�, �predict�, �plan�, �should�, �may�, �could� and other similar expressions are intended to identify forward-looking statements. Such risks, uncertainties and other factors include those set forth in the Company�s Annual Information Form and other periodic filings. Important factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements include, but are not limited to, factors associated with fluctuations in the market price of precious metals, changes in the dollar exchange rate, mining industry risks, uncertainty of title to properties, risk associated with foreign operations, environmental risks and hazards, proposed legislation affecting the mining industry, litigation, governmental regulation of the mining industry, properties without known reserves, uncertainty as to calculations of reserves, mineral deposits and grades, requirement of additional financing, uninsured risks, risk of impairment of assets, risk of hedging strategies, competition, and dependence on key management personnel. Such information contained herein represents management�s best judgment as of the date hereof based on information currently available. The Company does not intend to update this information and disclaims any legal liability to the contrary. The Company�s filings with the securities regulatory authorities in Canada are available at www.sedar.com and its filings with the U.S. Securities and Exchange Commission are available at www.sec.gov through EDGAR. Third Quarter Conference Call The Company will host its Third Quarter Results Conference Call at 9am EDT on Wednesday October 25, 2006. The toll-free conference call dial-in number is 1-866-831-5605 and the international dial-in number is 617-213-8851; passcode for both dial-in numbers is 34885471. The conference call will be simultaneously web cast and archived at www.meridiangold.com in the Investor Center. A replay of the call will be available until November 1, 2006; toll-free at 1-888-286-8010, locally and overseas at 617-801-6888; passcode for both dial-in numbers is 16970704. For further information, please visit our website at www.meridiangold.com, or contact: Krista Muhr Tel: (800) 572-4519 Senior Manager, Fax: (775) 850-3733 Investor Relations E-mail: investorrelations@meridiangold.com Meridian Gold Inc. Operating Data (Unaudited and dollar amounts expressed in U.S. currency) � Three Months Ended Nine Months Ended September 30 September 30 2006� 2005� 2006� 2005� El Pe��n Mine Gold production (ounces) 53,719� 75,416� 179,778� 227,916� Silver production (ounces) 1,460,506� 1,381,090� 5,166,926� 3,925,478� Tonnes ore mined (thousands) 199� 223� 645� 693� Mill tonnes processed (thousands) 235� 221� 695� 648� Avg. mill gold ore grade (grams/tonne) 7.4� 11.0� 8.4� 11.3� Avg. mill silver ore grade (grams/tonne) 210� 210� 249� 204� Mill gold recovery 96% 97% 96% 97% Mill silver recovery 92% 93% 93% 92% � Net cash cost of production per gold ounce $ -� $ 44� $ (64) $ 46� Total net production cost per gold ounce $ 86� $ 91� $ 17� $ 97� � Cash cost of production per gold equivalent ounce $ 204� $ 132� $ 163� $ 130� Total production cost per gold equivalent ounce $ 261� $ 169� $ 215� $ 169� � Minera Florida Mine Gold production (ounces) 20,461� -� 20,461� -� Silver production (ounces) 60,106� -� 60,106� -� Tonnes ore mined (thousands) 106� -� 106� -� Mill tonnes processed (thousands) 109� -� 109� -� Avg. mill gold ore grade (grams/tonne) 7.2� -� 7.2� -� Avg. mill silver ore grade (grams/tonne) 24� -� 24� -� Mill gold recovery 81% -� 81% -� Mill silver recovery 72% -� 72% -� � Net cash cost of production per gold ounce $ 239� $ -� $ 239� $ -� Total net production cost per gold ounce $ 420� $ -� $ 420� $ -� � Cash cost of production per gold equivalent ounce $ 259� $ -� $ 259� $ -� Total production cost per gold equivalent ounce $ 431� $ -� $ 431� $ -� � Company Totals Ounces of gold produced 74,180� 75,416� 200,239� 227,916� Ounces of gold sold 72,546� 74,047� 195,948� 226,274� Ounces of silver sold 1,483,266� 1,357,006� 5,101,256� 3,893,803� Avg. realized gold price per ounce $ 616� $ 441� $ 598� $ 432� Avg. realized silver price per ounce $ 11.61� $ 7.07� $ 11.19� $ 7.05� Net cash cost of production per gold ounce $ 66� $ 44� $ (33) $ 46� Total net cost of production per gold ounce $ 178� $ 91� $ 58� $ 97� � Cash cost of production per gold equivalent ounce $ 216� $ 132� $ 170� $ 130� Total production cost per gold equivalent ounce $ 297� $ 169� $ 231� $ 169� � Average realized gold prices are revenues divided by gold ounces sold. Net cash cost and total net cost per gold ounce are net of silver by-product credits. � � � � � � � Capital Expenditures and Depreciation Detail - Q3 2006 (in millions of US$) Capital expenditures DD&A El Pe��n $9.2� $4.8� Minera Florida 2.0� 3.7� Other 0.1� -� Total $11.3� $8.5� Meridian Gold Inc. Interim Consolidated Balance Sheets (Unaudited and expressed in millions of US dollars) � � September 30 December 31 2006� 2005� (Restated - note 2) � Assets Current assets Cash and short-term investments $ 162.7� $ 267.6� Restricted cash 13.9� 13.9� Trade and other receivables 4.4� 1.2� Inventory 8.6� 7.1� Future income taxes - current 4.4� 3.7� Other current assets 14.7� 10.0� Total current assets 208.7� 303.5� � Mineral property, plant and equipment, net 265.0� 89.6� Future income taxes - long-term 1.1� 0.4� Other assets 40.5� 11.0� � Total assets $ 515.3� $ 404.5� � � Liabilities and Shareholders' Equity Current liabilities Accounts payable, trade and other $ 14.0� $ 13.4� Accrued and other liabilities 23.7� 24.7� Total current liabilities 37.7� 38.1� � Other long-term liabilities 93.1� 67.5� Future income taxes 29.9� 12.8� Non-controlling interest 15.3� -� Shareholders' equity (note 5) 339.3� 286.1� � Total liabilities and shareholders' equity $ 515.3� $ 404.5� See accompanying notes to interim consolidated financial statements Meridian Gold Inc. Consolidated Statements of Operations (Unaudited and expressed in millions of US dollars, except per share data) � � Three months ended Nine months ended September 30 September 30 2006� 2005� 2006� 2005� (Restated - note 2) (Restated - note 2) � Revenue $ 62.2� $ 42.2� $ 175.0� $ 125.0� � Costs and expenses Cost of sales before depreciation, depletion and amortization 23.1� 13.5� 52.6� 39.6� Depreciation, depletion and amortization 8.5� 3.7� 18.5� 12.0� Exploration 6.2� 6.2� 18.0� 18.8� Selling, general and administrative (note 9) 10.1� 3.1� 16.5� 8.8� Other 0.4� 0.3� 0.8� -� 48.3� 26.8� 106.4� 79.2� � Earnings before the following 13.9� 15.4� 68.6� 45.8� � Interest income 2.6� 1.9� 9.2� 4.6� Gain on sale of assets -� -� -� 0.1� Earnings before taxes 16.5� 17.3� 77.8� 50.5� � Income tax expense (10.8) (8.3) (35.7) (22.6) � Net earnings $ 5.7� $ 9.0� $ 42.1� $ 27.9� � Earnings per share Basic $ 0.06� $ 0.09� $ 0.42� $ 0.28� Diluted $ 0.06� $ 0.09� $ 0.42� $ 0.28� � Weighted average shares outstanding (in millions) Basic 100.9� 100.2� 100.7� 99.9� Diluted 101.3� 100.7� 101.2� 100.5� See accompanying notes to interim consolidated financial statements Meridian Gold Inc. Interim Consolidated Statements of Retained Earnings (Deficit) (Unaudited and expressed in millions of US dollars) � � Three months ended Nine months ended September 30 September 30 2006� 2005� 2006� 2005� � � � Balance at beginning of period $ (130.0) $ 198.9� $ (166.4) $ 180.0� Net earnings 5.7� 9.0� 42.1� 27.9� � � � � Balance at end of period $ (124.3) $ 207.9� $ (124.3) $ 207.9� See accompanying notes to interim consolidated financial statements Meridian Gold Inc. Interim Consolidated Statements of Cash Flows (Unaudited and expressed in millions of US dollars) � Three months ended Nine months ended September 30 September 30 2006� 2005� 2006� 2005� Cash flow from (used in) operating activities Net earnings $ 5.7� $ 9.0� $ 42.1� $ 27.9� Non-cash items: Provision for depreciation, depletion and amortization 8.5� 3.7� 18.5� 12.0� Gain on sale of assets, net -� -� -� -� Accretion of asset retirement obligations 0.4� 0.1� 1.0� 0.3� Stock-based compensation 2.8� 0.7� 4.4� 2.3� Provision for pension costs 0.1� 0.1� 0.3� 0.2� Income taxes 2.4� 4.0� 14.4� 11.8� Changes in non-cash working capital and other accounts: Trade and other receivables 5.9� 1.1� (1.1) 0.4� Inventory 0.4� (0.4) 0.1� (1.5) Other current assets (5.1) (1.2) (5.3) (0.3) Other assets (0.6) (1.2) (0.8) (1.5) Accounts payable, trade and other (0.2) 0.9� (3.3) 1.5� Accrued and other liabilities (4.9) 1.6� (3.8) (2.6) Other long-term liabilities (0.3) -� -� -� Reclamation expenditures (1.2) (1.3) (3.1) (3.1) Pension contributions (2.7) -� (2.7) (0.6) 11.2� 17.1� 60.7� 46.8� � Cash flow from (used in) investing activities Capital expenditures (11.3) (5.5) (22.8) (23.3) Proceeds from sale of assets -� 0.1� -� 0.2� Acquisitions (net of cash received of $0.7) (118.9) -� (118.9) -� Short-term investments 78.6� (69.2) 137.3� (21.0) Long-term investments (2.5) 1.5� (28.8) 6.5� (54.1) (73.1) (33.2) (37.6) � Cash flow from financing activities Repayment of loans (1.8) (1.8) Proceeds from issuance of share capital 1.6� 0.6� 6.7� 3.3� (0.2) 0.6� 4.9� 3.3� � Increase (decrease) in cash and cash equivalents (43.1) (55.4) 32.4� 12.5� Cash and cash equivalents, beginning of period 133.8� 115.2� 58.3� 47.3� Cash and cash equivalents, end of period $ 90.7� $ 59.8� $ 90.7� $ 59.8� � Cash and cash equivalents $ 90.7� $ 59.8� $ 90.7� $ 59.8� Short-term investments 72.0� 191.5� 72.0� 191.5� Cash and short-term investments $ 162.7� $ 251.3� $ 162.7� $ 251.3� � Cash paid for income taxes $ 15.2� $ 3.7� $ 27.9� $ 15.8� Cash paid for interest $ -� $ -� $ -� $ -� See accompanying notes to interim consolidated financial statements Meridian Gold Inc. Notes to Interim Consolidated Financial Statements (unaudited) Three months and nine months ended September 30, 2006 (In US dollars) 1. Basis of Presentation These unaudited interim consolidated financial statements have been prepared by the Company in accordance with Canadian generally accepted accounting principles (�GAAP�). These unaudited interim consolidated financial statements do not include all information and note disclosures required by Canadian GAAP for annual financial statements, and therefore should be read in conjunction with the Company�s audited consolidated financial statements for the year ended December 31, 2005. The preparation of these financial statements is based on accounting policies and practices consistent with those used in the preparation of the audited annual consolidated financial statements, except as disclosed in note 2. 2. Changes in Accounting Policies and Presentation Silver Revenue and Refining Costs Commencing January 1, 2006, the Company began recognizing silver sales as part of its revenue due to the increase in silver ounces mined and the significant increase in silver�s market price. The Company previously recognized silver sales as a by-product and reported its silver revenue as a credit to cost of sales. The Company has also changed its classification of refining cost from netting against revenue to including it in cost of sales. Commencing January 1, 2006, both of these changes were adopted on a retroactive basis and revenue and cost of sales before depreciation, depletion and amortization for the three months and nine months ended September 30, 2005 have been increased by $10.1 million and $28.8 million, respectively, from the amounts previously reported. There was no impact on net earnings. Other Certain balance sheet amounts in the prior period have been reclassified to conform to presentation adopted in the current period. 3. Property Impairment At each reporting period, the Company reviews the carrying value of its mineral properties in accordance with Canadian GAAP. The reviews include an analysis of the expected future cash flows to be generated by the project to determine if such cash flows exceed the project�s current carrying value. The determination of future cash flows is dependent on a number of factors, including future prices for gold, the amount of reserves, the cost of bringing the project into production, production schedules, and estimates of production costs. For non-producing properties, the reviews are based on whether factors that may indicate the need for a write-down are present at each location. Additionally, the reviews take into account factors such as political, social, legal and environmental regulations. These factors may change due to changing economic conditions or the accuracy of certain assumptions. The Company uses its best effort to fully understand all of the aforementioned to make an informed decision based upon historical and current facts surrounding the projects. Based on this review, management determined additional impairment was not necessary as of September 30, 2006. 4. Reclamation Liability The continuity of the reclamation liability for the three months and nine months ended September 30 is as follows: (in millions of US dollars) Three Months Ended September 30 Nine Months Ended September 30 � 2006� 2005� � � 2006� 2005� Balance, beginning of period $24.0� $10.2� $25.3� $11.8� Addition (Minera Florida) 12.1� -� 12.1� -� Accretion 0.4� 0.1� 1.0� 0.3� Expenditures (1.0) (1.3) � � (2.9) (3.1) Balance, end of period $35.5� $9.0� � � $35.5� $9.0� 5. Share Capital Shareholders� equity (in millions of US dollars) September 30, 2006 � December 31, 2005 Share capital $402.0� $390.8� Additional paid-in capital 7.5� 7.6� Retained earnings (deficit) (124.3) (166.4) Cumulative translation adjustment 54.1� � 54.1� Total shareholders� equity $339.3� � $286.1� Outstanding share data As at September 30, 2006, 101,084,401 (December 31, 2005 - 100,233,173) common shares were outstanding and stock options to purchase 836,830 shares held by directors and employees were outstanding with exercise prices ranging between US$2.25 and US$26.79 per share, of which options to purchase 544,636 shares were exercisable with expiry dates between December 2006 and March 2016. Stock options and restricted shares The stock option activity for the three months and nine months ended September 30 is illustrated in the tables below: Three Months Ended September 30 � � 2006� � 2005� Number of Options � Weighted Average Exercise Price � Number of Options � Weighted Average Exercise Price Stock options outstanding at beginning of period 1,007,648� $12.89� 1,506,517� $10.54� Granted -� 0.00� 172,300� 18.21� Exercised (156,159) 10.32� (72,326) 9.35� Expired and/or cancelled � (14,659) � 16.48� � (37,000) � 16.76� Stock options outstanding at end of period � 836,830� � $13.31� � 1,569,491� � $11.34� Nine Months Ended September 30 � � 2006� � 2005� Number of Options � Weighted Average Exercise Price � Number of Options � Weighted Average Exercise Price Stock options outstanding at beginning of period 1,557,481� $11.38� 1,932,151� $9.28� Granted 17,500� 25.62� 249,800� 17.26� Exercised (720,158) 9.36� (545,359) 6.25� Expired and/or cancelled � (17,993) � 16.23� � (67,101) � 16.51� Stock options outstanding at end of period � 836,830� � $13.31� � 1,569,491� � $11.34� Exercisable stock options � 544,636� � $11.72� � 970,445� � $9.23� Stock options vest in equal annual amounts over 1 to 3 years and have terms of 10 years The fair value of stock options granted was calculated using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 2006: dividend yield 0%, expected volatility of 50.0 percent, risk free interest rate of 4.6 percent, and expected lives of 5 years and with the following weighted average assumptions used for grants in 2005: dividend yield 0%, expected volatility of 56.3 percent, risk free interest rate of 3.5 percent, and expected lives of 5 years. During the three months and nine months ended September 30, 2006, options to purchase 52,459 shares and 242,374 shares, respectively, were exercised that had a grant date after January 1, 2002, the date the Company adopted the fair value method of accounting for stock options granted. During the three months and nine months ended September 30, 2006, the Company transferred $0.4 million and $1.8 million, respectively, from additional paid-in capital to share capital for the amount previously recorded as additional paid-in capital for the fair value of this stock-based compensation. During the three months and nine months ended September 30, 2006, the Company awarded 116,223 and 144,804 restricted shares that had a grant date average fair value of $25.90 and $24.49 per share, respectively. During the three months and nine months ended September 30, 2005, the Company awarded 39,325 and 62,036 restricted shares that had a grant date average fair value of $18.21 and $16.32 per share, respectively. Restricted shares issued to management typically vest one-third per year over 3 years. During the third quarter of 2006 the Board granted 50,000 restricted shares of which one-third immediately vested and one-third vest in each of the next two years. Restricted shares issued to non-executive directors vest immediately and remain restricted until the board member retires or ceases to be a member of the Board. 6. Employee future benefits For the three months and nine months ended September 30, 2006 the total net defined benefit expense of the Company�s pension plan was $0.2 million and $0.4 million, respectively (2005 -- $0.1 million for the three months and $0.2 million for the nine months). During the three months and nine months ended September 30, 2006, the Company contributed $2.7 million to the defined benefit plan. 7. Acquisitions During the third quarter of 2006, the Company acquired 100% of Minera Florida S.A. (�Minera Florida�) for $100.0 million cash. The Company acquired control of Minera Florida effective as of July 1, 2006 and has according determined this to be the date of acquisition. The transaction completed on July 31, 2006 at which time the Company made a cash payment of $100.0 million from available cash reserves. The earnings of Minera Florida are included in the statement of operations commencing July 1, 2006. Imputed interest from July 1 to July 31 of $0.4 million offsets the cash payment for a net purchase price $99.6 million. Minera Florida owns a producing gold mine in Alhue, Chile. The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition. As at July 1, 2006 � Current assets $ 4.4� Mineral property, plant and equipment 119.9� Total assets acquired 124.3� � Current liabilities (6.3) Long-term liabilities (18.4) Total liabilities assumed (24.7) � Net assets acquired $ 99.6� The purchase price allocation for Minera Florida has not been finalized and may be adjusted in the future on completion of a resource report. On September 22, 2006, the Company acquired 56.7% of Agua De La Falda S.A. (�ADLF�) for $20.0 million cash. The earnings of ADLF are included in the statement of operations as of the date of acquisition. ADLF�s properties are located 50 kilometers southeast of El Salvador in the Third Region of northern Chile and contains the Jeronimo deposit. Meridian is required to prepare a feasibility study on the Jeronimo deposit. The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition. Current assets $ 0.1� Property, plant and equipment 50.8� Other long-term assets -� Total assets acquired 50.9� � Current liabilities (0.6) Long-term liabilities (15.0) Total liabilities assumed (15.6) � Non-controlling interest (15.3) Net assets acquired $ 20.0� The purchase price allocation for ADLF has not been finalized as information on assets and liabilities is still pending, including information related to income tax values and asset retirement obligations. 7. Segments Meridian Gold has two reportable segments: El Pe��n and Minera Florida. Each segment is a producing gold mine. Three Months Ended September 30, 2006 (in millions of US dollars) � El Penon � Minera Florida � All other � Totals Revenues $ 49.1� $ 13.5� $ (0.4) $ 62.2� Income before taxes 26.9� 2.9� (13.3) 16.5� Expenditures for segment capital assets 9.1� 2.0� 0.2� 11.3� � Nine Months Ended September 30, 2006 (in millions of US dollars) � El Penon � Minera Florida � All other � Totals Revenues $ 161.6� $ 13.5� $ (0.1) $ 175.0� Income before taxes 100.1� 2.9� (25.2) 77.8� Segment assets 254.3� 149.8� 117.4� 521.5� Expenditures for segment capital assets 19.4� 2.0� 1.4� 22.8� As the Company only operated a single mine in 2005 no segment reporting is included for that period. 8. Capital leases Capital lease payments of Minera Florida are detailed as follows: (in millions of US dollars) Year As at September 30, 2006 2006� $ 0.6� 2007� 0.6� 2008� 0.6� 2009� 0.4� Subtotal 2.2� Less interest (at 7.51%) (0.1) Total 2.1� Less current (0.6) Long-term $ 1.5� Leased assets included in property, plant and equipment as at September 30, 2006 had a net book value of $1.8 million. 9. CEO transition costs Selling, General and Administrative and other expenses in the statement of operations for the third quarter of 2006 included $3.9 million in expenses related primarily to incentive pay, restricted shares and option awards and pension costs associated with the retiring CEO and also $1.6 million for costs associated with the hiring of the new CEO designate. Due to the accounting treatment on timing of recognition of expenses it is estimated an additional $1.2 million will be expensed in the fourth quarter of 2006 for additional retirement costs of the CEO. 10. Legal claims The Company is exposed to certain other contingent liabilities or claims incident to the ordinary course of business. Although the outcome of these matters is not determinable at this time, the Company believes none of these claims will have a material adverse effect on the Company�s financial position or results of operations. Headline of release should read: Meridian Gold Announces Third Quarter 2006 Results The release reads: MERIDIAN GOLD ANNOUNCES THIRD QUARTER 2006 RESULTS (All dollar amounts in U.S. currency) Meridian Gold Inc. ("Meridian Gold" or the "Company") (TSX:MNG)(NYSE:MDG) is pleased to announce results for the quarter ended September 30, 2006. Meridian Gold continues its commitment to organic growth, with a focus on returns and a dedication to responsible mining, which are reflected in the third quarter results as follows: RESULTS: -- Quarterly net earnings of $5.7 million, or $0.06 per share -- Gold production of 74,180 ounces at a net cash cost of $66 per ounce using the by-product method of calculating cash cost -- Operating cash flow of $11.2 million for the quarter -- Initiated a strategic partnership with Codelco through the acquisition of a 56.7% controlling interest in Agua de la Falda S.A., that includes the Jeronimo Deposit estimated to contain 2.8 million ounces of gold (100% basis) -- Acquired and seamlessly integrated Minera Florida S.A. mining operations -- New portal to access Fortuna project at El Penon initiated; with 150 meters of advancement completed -- Commenced development of Rossi JV project with Barrick Exploration; expect production in Q2 2007 -- Continued aggressive exploration campaign in El Penon landblock and on the Mercedes project in Mexico -- Received two awards in recognition of mining reclamation excellence at former Beartrack Mine in Idaho Brian J. Kennedy, President and Chief Executive Officer, commented: "During the third quarter, Meridian Gold applied part of its strong cash position to acquire Minera Florida, a fully permitted and operating mine, for $100 million, and a 56.7% controlling interest in the Jeronimo project with a $20 million payment to Codelco. During this past quarter at El Penon, we incurred higher operating costs and unit production costs as the mine transitions from older mining areas to newer ones. As part of this transition, the mine will increase production to 2,800 tonnes per day by third quarter 2007. Our 2006 year-to-date mine development now totals over 23,000 meters of the planned 31,000 meters for the full year. I am also pleased to report that my successor, Edward Dowling, joined the Meridian Gold team just over one month ago and is moving forward in an orderly transition to assume the President and CEO position at year-end." Exploration Report At El Penon, exploration drilling has been focused on infill drilling at the Providencia, Fortuna and Dominador veins; with four surface drills running. The infill drilling will be used to complete the Resource and Reserve estimates for 2006. During the fourth quarter, drilling is moving to focus on the continued expansion and delineation of the newly discovered Al Este and Angosta veins. The Company again expects to replace production at El Penon. At the Amancaya exploration project, located 120 kilometers south of El Penon in the Atacama Desert, one drill continues to test the extension of the known mineralization (see press release dated May 2, 2006 for drill results). Once drilling is completed in the fourth quarter, a resource estimate will be prepared. Meridian Gold continues with its exploration effort at the newly acquired Minera Florida operations where two drills continue to explore and delineate new resources outside of the current mine area, including the Tribuna and Peumo vein systems. The NI 43-101 technical report and audit is currently being completed by Scott Wilson Roscoe Postle Associates Inc. and will be released during the fourth quarter. Two drills continue to test Meridian's 100% owned Mercedes project in the state of Sonora, Mexico. Last year Meridian discovered high grade mineralization in a previously untested area (see press release dated February 21, 2006 for drill results). Drilling during the third quarter of 2006 has been focused on extending this mineralization; in addition to drill testing other vein targets on the Mercedes concessions. A report of activities and a resource estimate will be released during the fourth quarter. Elsewhere, the Company continues to explore: the Natividad project in Nicaragua with its joint venture partner, Radius Gold Corporation; the Millo project in Peru with its joint venture partner Southwestern Resources Corporation; and the La Pepa project, in Northern Chile. Jeronimo On September 15, 2006, the Company initiated a strategic partnership and announced the acquisition of a 56.7% controlling interest in Agua de la Falda (ADLF), which includes the Jeronimo Deposit from the Corporacion Nacional del Cobre de Chile ("Codelco") for $20 million. ADLF's properties, located 50 kilometers southeast of El Salvador in the Third Region of Northern Chile, encompass over 240 km2 and include the El Hueso, Coya and Agua de la Falda mines that produced over 660,000 gold ounces for Homestake Mining Company between 1988 and 2002. The Jeronimo Deposit is the downdip extension of the ADLF deposit and is estimated to contain up to 16.6 million tonnes of potential ore at a gold grade of 5.2 grams per tonne for a contained resource of at least 2.8 million ounces of gold (on a 100% basis). The potential mineral body is largely unoxidized and will require further metallurgical testing to determine the most economic processing techniques to recover the gold in a production environment. There is an existing scoping study on the property and as part of the agreement; Meridian will be required to prepare the feasibility study of the Jeronimo Deposit. A full scoping study will be underway by the first quarter 2007. Rossi The Company continues to advance the Rossi joint venture with Barrick Gold Exploration Inc. and commenced development of the underground workings. The mining contractor has mobilized equipment to the site and the majority of equipment has arrived. First production is scheduled for the second quarter of 2007. Sustainable Development Due to its stewardship in environmental practices, Meridian Gold received two awards for excellence in reclamation at its past producing Beartrack Mine in Salmon, Idaho. The Company received the "2006 Hardrock Mineral Environmental Award" from the U.S. Department of the Interior, in addition to the "Excellence in Reclamation-Hardrock Mines Over 75 Acres" from the Idaho Inter-Agency Reclamation Awards Committee. Health & Safety El Penon was recognized by Asociacion Chilena de Seguridad (ACHS) as one of five companies with the lowest accident rate during a three year period. ACHS is a Health and Safety organization which represents 36,700 member companies and with more than 1.6 million employees. Of the five companies, Meridian was the only mining company. Minera Florida's processing team was selected to receive the "Premio Accion Paritario" by ACHS for safety committee activities during 2006. MANAGEMENT'S DISCUSSION AND ANALYSIS The following discussion is limited to matters that, in the opinion of management of Meridian Gold Inc. ("Meridian Gold", "Meridian", "We" or the "Company"), are material, and represents management's knowledge through the date of this press release, October 24, 2006. OPERATIONS El Penon During the third quarter of 2006, El Penon further advanced its plant expansion and mine development projects. El Penon is in a transition period of mining lower gold grades and higher silver grades as production shifts to the newer areas of Cerro Martillo and Dorada. This change, along with a move to mine and process ore in line with reserve grades, has led to a decrease in gold ounces and an increase in silver ounces produced. The operation produced 53,700 ounces of gold and 1.5 million ounces of silver during the third quarter in 2006 versus 75,400 ounces of gold and 1.4 million ounces of silver during the third quarter of 2005. The decrease in gold ounces produced resulted from lower grades in the underground mine due to the variability of grades in the fringes of the Quebrada Colorada and Quebrada Orito veins. The mill feed was supplemented by stockpile ore to offset the shortfall in mined ore. The mine continues to source underground ore from the Cerro Martillo, Dorada, Quebrada Colorada and Quebrada Orito vein structures. Production from these structures provided 198,520 tonnes of ore during the third quarter of 2006 versus 189,820 tonnes of ore during the same period of 2005. During the third quarter 2005, 33,200 tonnes of ore were mined from the open pits, which ceased operating at that time. Underground production averaged 5,506 tonnes per day during the third quarter of 2006 including ore, development and non-mineralized material; an improvement of 21% compared to the third quarter rate for 2005 (an average of 4,550 tonnes per day). We continue to focus on development of the underground mine to improve mine flexibility in order to support the expansions occurring in the mill. The mine will continue to ramp up production expansion into the Cerro Martillo and Dorada veins, as well as continue to develop the Providencia and Fortuna areas. Mill throughput at El Penon was 234,700 tonnes or 2,551 tonnes per day for the third quarter of 2006, a 6% increase over production in the third quarter of 2005 of 221,000 tonnes or 2,397 tonnes per day. The increase in throughput resulted from completion or significant advancement in several of the mill expansion projects. The remaining projects will be completed during the first quarter of 2007. Average gold mill head grades decreased during the quarter to 7.4 grams per tonne of gold versus 11.0 grams per tonne of gold in the third quarter of 2005, while average silver mill head grades at 210 grams per tonne remained consistent with the third quarter of 2005. Drilling and engineering work continues to define the geology and mine plan of the Fortuna vein, while the exploitation permitting process continues. The permits for the construction of the underground access ramp and low-levels of mine production have been obtained. The access portal has been completed and the ramp has advanced nearly 150 meters. The required documentation for the additional permitting has been submitted and we expect to be able to commence full scale mining by second half 2007. During the quarter, the two access tunnels to the Providencia vein structure continued to advance. Access from the southern end of Quebrada Colorada has advanced 678 meters out of the planned total 820 meters. It is expected that during the fourth quarter of 2006 this access will reach the vein. Access from the Dorada structure has advanced nearly 692 meters out of the planned total 1,320 meters. Once the Providencia structure is reached, underground drilling and testing work on the vein will commence. Net cash cost including by-product credits for the third quarter 2006 was $0 per gold ounce versus $44 per gold ounce for the same period in 2005. Total net production costs including depreciation, depletion and amortization were $86 per gold ounce for the third quarter of 2006, compared to $91 per gold ounce in the third quarter of 2005. The decrease in cash cost for third quarter of 2006 versus third quarter of 2005 is the result of higher silver prices and slightly higher production, offset to some extent by increased costs for higher reagent and commodities prices and increased throughput. (The measurements for net cash cost and total net production cost are non-GAAP measurements. An explanation and reconciliation of these measurements can be found at the end of the management's discussion and analysis section of this report.) Minera Florida Meridian exercised its purchase option agreement and took control of Minera Florida as of July 1, 2006. The information presented herein reflects the results from the date of acquisition. Historical comparisons are not presented. During the third quarter of 2006, Minera Florida's operations produced 20,500 ounces of gold, 60,100 ounces of silver and 1,012 tonnes of zinc concentrate. The mine is currently sourcing underground ore principally from the Pedro Valencia, Millenium and Lo Prat veins. Production from these structures provided 105,600 tonnes of ore during the third quarter of 2006. This production resulted in an average production rate of 1,150 tonnes of ore per day. The current principal method of extraction is sub-level stoping. Development efforts are being directed at the Peumo and Berta vein structures as these will become important production zones for 2007. During the quarter, 2,661 meters of development drifts were completed. Mill throughput at Minera Florida was 109,446 tonnes or 1,189 tonnes per day for the third quarter of 2006. The mill has a 3 stage crushing, grinding, flotation and leaching circuit to produce a dore bar followed by a production of a zinc concentrate. The material processed by the plant contained an average of 7.2 grams per tonne gold, 24 grams per tonne silver and 1.6% zinc. Drilling with two exploration rigs continues on the 12,500 hectares of leased mining claims within the Minera Florida land package. To date, the Company has drilled over 34,000 meters of the planned 40,000 meters for the full year 2006. The Company plans on adding two more drill rigs during the fourth quarter to continue the infill program. Net cash cost for the third quarter of 2006 was $239 per gold ounce. Total net production cost including depreciation, depletion and amortization was $420 per gold ounce for the quarter. The increased cash cost versus the forecast was due to the timing of zinc sales and one-time transition costs associated with administrative, legal and service costs resulting from the acquisition of Minera Florida. The Company expects net cash costs to be in line with the forecasted amount of approximately $200 per gold ounce going forward. The total cost results from depreciation and depletion expenses resulting from the allocation of the purchase price to the fixed assets of the mine and plant. Zinc produced and sold in the quarter is included in the revenue section. Zinc that has not been sold is included in inventory. (The measurements for net cash cost and total net production cost are non-GAAP measurements. An explanation and reconciliation of these measurements can be found at the end of the management's discussion and analysis section of this report.) FINANCIAL RESULTS Third quarter 2006 vs. Third quarter 2005 Meridian Gold reported net earnings for the three months ended September 30, 2006 of $5.7 million ($0.06 per share), compared to net earnings of $9.0 million ($0.09 per share) for the same period in 2005. The decrease is explained in the following paragraphs. Total revenue of $62.2 million in the third quarter of 2006 increased $20.0 million or 47% over the third quarter revenue in 2005 of $42.2 million. Gold revenue increased 36% from $32.6 million in the third quarter of 2005 to $44.4 million for the third quarter 2006 due to a higher realized gold price versus the previous year's quarter ($616 per ounce realized versus $440 per ounce or 40%), ounces sold were slightly lower for the third quarter 2006 versus the same period for 2005 (72,500 ounces versus 74,000 ounces). The decrease in ounces produced and sold was due to a 33% decrease in the gold grade at El Penon from 11.0 grams per tonne of gold in the third quarter of 2005 to 7.4 grams per tonne of gold in the same period of 2006, as explained in the operating section, offset by additional production from Minera Florida of 20,500 ounces. The silver revenues increased 80% from $9.6 million to $17.3 million due to higher realized silver prices versus the previous year's quarter ($11.61 per ounce realized versus $7.07 per ounce) coupled with a 9% increase in silver ounces sold (1.48 million ounces versus 1.36 million ounces). The increase in silver production is a result of higher silver grades in the current mining areas at El Penon along with the additional silver ounces being produced at Minera Florida. While the Company produced 1,012 tonnes of zinc concentrate, it only recorded $0.5 million in zinc revenues for the quarter. Since zinc may not always be sold in the period produced because of contractual volume and shipping agreements. In the third quarter of 2006, cost of sales equaled $23.1 million, an increase of $9.6 million or 71% compared to cost of sales in the third quarter of 2005 of $13.5 million. This increase in cost of sales is partially due to the new costs related to the Minera Florida production of $6.3 million. The remaining increase is primarily related to higher production in the El Penon mine, higher throughput in the mill, and higher plant and mining costs associated with increases in reagent and materials costs. Depreciation, depletion and amortization increased $4.8 million to $8.5 million reflecting the additional charges from the Minera Florida mine ($3.7 million) along with increased depletion costs due to increased mine production occurring in higher capital cost areas of the El Penon mine. Exploration expense in the third quarter of 2006 of $6.2 million was consistent with the third quarter 2005 expense. In the third quarter of 2006 the company continued its aggressive exploration activities in Chile at its El Penon and Minera Florida properties. The Company also continues its exploration programs at the Natividad project in Nicaragua, on the La Pepa project in Chile, and on the Millo Project in Peru, and at the Mercedes property in Mexico. Selling, general and administrative expenses for the third quarter of 2006 were $10.1 million versus $3.1 for the same period in 2005. This increase is due, in part, to $5.5 million in expenses related primarily to the incentive payment, restricted and option share awards and pension costs associated with the retiring CEO as well as the costs associated with the hiring of the new CEO designate. Due to the accounting treatment for these costs, an estimated additional $1.2 million will be expensed in the fourth quarter of 2006. Operating margins in the third quarter of 2006 were $13.9 million or 22% of revenue, compared to operating margins of $15.4 million or 36% of revenue in the third quarter of 2005 as explained above. Income tax expense in the third quarter of 2006 was $10.8 million or an effective rate of 65%, compared to $8.3 million or an effective tax rate of 48% in the third quarter of 2005. The increase in the effective rate is due to the effect of increased costs in jurisdictions where no tax benefit is available while recording higher taxes due to increased earnings in Chile. The Company's statutory tax rate in Chile, including the mining tax and royalty, is approximately 36%. During the third quarter of 2006, Meridian Gold paid $15.2 million in cash taxes. Net earnings in the third quarter of 2006 of $5.7 million were 9% of revenue, compared to $9.0 million or 21% in the third quarter of 2005. This decrease is the result of the additional higher proportional operating costs, increased selling, general and administrative costs and increased depreciation, depletion and amortization costs as explained above, partially offset by higher revenues due to higher realized average metals prices. Meridian Gold produced gold for a consolidated average of $66 net cash cost per gold ounce in the third quarter of 2006 compared to $44 per ounce net cash cost in the same period of 2005, using by-product method of accounting. (The measurement for net cash cost is a non-GAAP measurement. An explanation and reconciliation of these measurements can be found at the end of the management's discussion and analysis section of this report.) First nine months of 2006 vs. First nine months of 2005 Total revenue of $175.0 million for the nine months ended September 30, 2006 increased $50.0 million or 40% over the same period in 2005 of $125.0 million. Gold revenues increased 20% from $97.6 million in the first nine months of 2005 to $117.3 million for the same period in 2006. The higher realized gold price versus the previous year's nine months ($598 per ounce realized versus $432 per ounce), was offset by a 13% decrease in gold ounces sold (195,900 ounces versus 226.300 ounces). The decrease in ounces produced and sold was due to a 26% decrease in the gold grade processed at El Penon from 11.3 grams per tonne of gold in the nine months ended September 30, 2005 to 8.4 grams per tonne of gold in the same period of 2006. The silver revenues increased 108% from $27.4 million to $57.1 million due to higher realized silver prices versus the same period for the previous year ($11.19 per ounce realized versus $7.05 per ounce) in addition to a 31% increase in silver ounces sold (5.10 million ounces versus 3.89 million ounces). The increase in silver production is due to an increased proportion of ore coming from higher silver grade sectors of the mine, mainly Dorada and Cerro Martillo at El Penon and the additional ounces from Minera Florida. For the nine months ended September 30, 2006, cost of sales equaled $52.6 million, an increase of $13.0 million (33%), compared to cost of sales in the same period of 2005 of $39.6 million. A portion of this increase in cost of sales is due to the new costs related to the Minera Florida production equaling $6.3 million. The remaining increase is primarily related to higher production at El Penon from the underground mine and higher throughput in the mill, along with the associated increase in reagent and materials usage and higher costs. Depreciation, depletion and amortization increased $6.5 million to $18.5 million, reflecting the additional charges from the Minera Florida mine equal to $3.7 million, along with increased depletion due to higher mine production occurring in higher capital cost areas of the mine at El Penon. Exploration expense in the first nine months of 2006 of $18.0 million was $0.8 million less than exploration expense in the same period of 2005 of $18.8 million, primarily due to lower exploration spending at the Natividad project in Nicaragua. Selling, General and Administrative and other expenses for the nine months ended September 20, 2006 were $16.5 million versus $8.8 for the same period in 2005. The increase is due, in part, to $5.5 million in expenses related to the incentive payment , restricted and option share awards and pension costs associated with the retiring CEO and the hiring of the new CEO designate. Due to the accounting treatment for these costs, an estimated additional $1.2 million will be expensed in the fourth quarter of 2006. Tax expense in the first nine months of 2006 was $35.7 million or an effective rate of 46% compared to $22.6 million or an effective tax rate of 45% in the first nine months of 2005. The increase in the effective tax rate is due to increased spending in tax jurisdictions with no offsetting tax benefit. During the first nine months of 2006, the Company paid $27.9 million in cash taxes. Net earnings for the first nine months ended September 30, 2006 were $42.1 million ($0.42 per share) or 24% of revenue compared to net earnings of $27.9 million ($0.28 per share) or 22% of revenue for the same period of 2005. The increase is primarily related to higher silver production, high realized prices for gold and silver and the addition production of gold, silver and zinc from the Minera Florida property, partially offset by the lower gold production from the El Penon mine and higher costs, as explained above. Meridian Gold produced gold for a consolidated average of negative ($33) net cash cost per gold ounce for the nine months ended September 30, 2006 compared to $46 per ounce net cash cost in the same period of 2005, using by-product method of accounting. (The measurement for net cash cost is a non-GAAP measurement. An explanation and reconciliation of these measurements can be found at the end of the management's discussion and analysis section of this report.) LOOKING AHEAD For 2006, the Company is revising its previous production estimates for El Penon and expects to produce approximately 235,000 ounces of gold and 6.7 million ounces of silver at a negative net cash cost of approximately ($50) per ounce, assuming an $11.02 silver price and the latest production estimates. At Minera Florida, the Company expects to produce 35,000 ounces of gold, 110,000 ounces of silver and 1,700 tonnes of zinc concentrate for the last 6 months of the year at a net cash cost of approximately $200 per ounce. Since we account for silver and zinc revenue as a by-product when calculating net cash cost, the net cash cost is sensitive to the fluctuations in the prices of these metals. The decrease in gold ounces as compared to previous forecasts is due to lower grades in mining of the older areas of the Quebrada Colorada and Quebrada Orito mines and as part of the transition to the newer areas of the mine. It is expected that the capital expansion projects in the mill at El Penon will continue through the fourth quarter and conclude early in the first quarter 2007. Meridian Gold will continue to focus on optimizing sustained cash flow from the El Penon mine. Minera Florida S.A. Purchase Meridian acquired Minera Florida S.A. and began consolidating its production and costs effective as of July 1, 2006. The transaction closed on July 31, 2006 with a payment for $100 million. Minera Florida was a privately held mining operation in Chile, which has been in operation for nearly 20 years. More recent historical production had been approximately 65,000 - 70,000 ounces of gold per year with additional by-product production of silver and zinc. Historical net cash costs averaged approximately $200 per ounce of gold using a by-product method of accounting. Meridian Gold has been exploring the property for 11 months under an option agreement that was signed in August of 2005. Meridian Gold is currently interpreting the existing and new exploration drilling results and expects to present a reserve and resource report by mid-fourth quarter 2006. With the upcoming release of the NI 43-101 report, the Company expects the mine and plant to continue to produce at the historic levels for the foreseeable future. Agua de la Falda S.A. Purchase On September 15, 2006, the Company initiated a strategic partnership and announced the acquisition of a 56.7% controlling interest in Agua de la Falda (ADLF), which includes the Jeronimo Deposit from the Corporacion Nacional del Cobre de Chile ("Codelco") for $20 million. ADLF's properties, located 50 kilometers southeast of El Salvador in the Third Region of Northern Chile, encompass over 240 km2 and include the El Hueso, Coya and Agua de la Falda mines that produced over 660,000 gold ounces for Homestake Mining Company between 1988 and 2002. The Jeronimo Deposit is the downdip extension of the ADLF deposit and is estimated to contain up to 16.6 million tonnes of potential ore at a gold grade of 5.2 grams per tonne for a contained resource of at least 2.8 million ounces of gold (on a 100% basis). The potential mineral body is largely unoxidized and will require further metallurgical testing to determine the most economic processing techniques to recover the gold in a production environment. There is an existing scoping study on the property. As part of the agreement; Meridian will be required to prepare the feasibility study of the Jeronimo Deposit. A full scoping study will be underway by the first quarter 2007. Liquidity Cash balances, including restricted cash, short-term and long-term investments, decreased to $211.2 million as of September 30, 2006 due to the purchase of Minera Florida S.A. for $100 million and the purchase of Agua de la Falda S.A. for $20 million. Furthermore, the Company paid an additional cash tax of $10.3 million related to the Minera Florida purchase transaction, though we expect the payment will be fully refunded upon filing the Chilean tax return in April 2007. Working capital decreased to $171.1 million at September 30, 2006 from $265.4 million at December 31, 2005, mainly due to the cash outflows as explained above. Cash to meet the Company's operating needs, finance capital expenditures and acquisitions, and fund exploration activities during the quarter was provided from operations and from existing cash reserves. Cash provided by operating activities, including changes in non-cash working capital and other operating amounts, was $11.2 million in the third quarter of 2006 compared to $17.1 million in the third quarter of 2005. Capital Resources Anticipated cash requirements for the full year 2006 include approximately $35 million for planned capital expenditures at El Penon (which includes approximately $13 million in mine development, as the mine continues with the project of expanding its mining production rate from 2,000 to 2,800 tonnes per day) as well as developing accesses to the Providencia structure, and development of the Fortuna project. An additional estimated $6 million will be required to fund capital expenditures at other Meridian Gold projects and locations. The Company expects to fund these capital projects using the existing cash balances. Exploration is at the heart of Meridian Gold's growth strategy and will continue to be an important focus throughout the year. Meridian Gold plans to spend approximately $25 million in 2006 to fund exploration. The Company believes that the planned capital and exploration requirements will be funded by existing operating cash flows, current cash and investments. Should the Company decide to develop other exploration and development properties, additional capital might be required. If additional funds are necessary, management believes they may be borrowed from third parties or raised by issuing shares of Meridian Gold; however, no assurance can be given that such transactions will be available at terms and conditions acceptable to Meridian Gold, if at all. Changes in Accounting Policies and Presentation Silver Revenue and Refining Costs Commencing January 1, 2006, the Company recognizes silver sales as part of its revenue due to the increase in silver ounces mined and the significant increase in the price of silver. The Company previously recognized silver sales as a by-product and reported its silver revenue with cost of sales. The Company has also changed its classification of refining cost from netting against revenue to including it in cost of sales. Commencing January 1, 2006, both of these changes were adopted on a retroactive basis and revenue and cost of sales before depreciation, depletion and amortization for the three months and nine months ended September 30, 2005 have been increased by $10.1 million ($9.6 million silver revenue, $0.5 million refining expenses) and $28.8 million ($27.4 million silver revenue, $1.4 million refining expenses), respectively, from the amounts previously reported. Summary of Quarterly Results -0- *T (Unaudited and expressed in millions of US dollars, except per share data) 2006 2005 2004 ------------------ -------------------------- ------ Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 ------------------ -------------------------- ------ Revenue $62.2 $57.3 $55.5 $49.3 $42.2 $40.9 $41.9 $41.1 Pre-impairment net earnings(1) 5.7 18.8 17.6 12.3 9.0 9.1 9.8 7.5 Net earnings (loss) 5.7 18.8 17.6 (374.3) 9.0 9.1 9.8 7.5 Basic earnings per share, pre- impairment(2) $0.06 $0.19 $0.18 $0.12 $0.09 $0.09 $0.10 $0.08 Diluted earnings per share pre- impairment 0.06 0.19 0.18 0.12 0.09 0.09 0.10 0.07 Basic earnings (loss) per share(2) $0.06 $0.19 $0.18 ($3.73) $0.09 $0.09 $0.10 $0.08 Diluted earnings (loss) per share 0.06 0.19 0.18 ($3.73) 0.09 0.09 0.10 0.07 (1) Pre-impairment net earnings is a non-GAAP measure and is equal to net earnings (loss) before impairment of mineral properties and other in the net amount of $386.3 million recorded in the fourth quarter of 2005 (2) Quarterly amounts do not sum to full year amounts due to rounding *T Outstanding Share Data As at September 30, 2006 101,084,401 (December 31, 2005 - 100,233,173) common shares were outstanding and 836,830 stock options were outstanding issued to directors and employees with exercise prices ranging between US$2.25 and US$26.79 per share, of which 544,636 were exercisable with expiry dates between December 2006 and March 2016. Non-GAAP Measures Meridian Gold has provided measures of "net cash cost per gold ounce", "total net cost per gold ounce", "cash cost per gold equivalent ounce" and "total cost per gold equivalent ounce", which are included in this document. Net cash cost per gold ounce is determined according to the Gold Institute Standard and consists of site costs for all mining (except deferred mining and deferred stripping costs), processing, administration, resource taxes and royalties (the Chilean royalty tax is not included as it is considered an income tax), net of silver and/or zinc by-product credits, but does not include capital, exploration, depreciation, reclamation and financing costs. Total net cash cost per gold ounce is total net cash costs divided by gold ounces produced. Total net cost consists of "total net cash cost" plus depreciation, depletion, amortization and reclamation expenses. Total net costs per gold ounce are total net costs divided by gold ounces produced. Cash costs are equivalent to net cash cost adding back the silver by-product credit. Cash cost per gold equivalent ounce is total cash cost divided by the total of the gold ounces plus silver ounces converted to an equivalent amount of gold as determined by the ratio of the gold price per ounce divided by the silver price per ounce. Total cost consists of "total cash cost" plus depreciation, depletion, amortization and reclamation expenses. Total cost per gold equivalent ounce is "total cost" divided by the gold equivalent ounces produced. The Company believes that in addition to conventional measures, prepared in accordance with Canadian generally accepted accounting principles ("GAAP"), stakeholders use non-GAAP measures to evaluate the Company's performance and its ability to generate cash flow. These non-GAAP performance measures do not have any standardized meaning prescribed by GAAP, and therefore, may not be comparable to similar measures presented by other companies. Accordingly, they are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. The calculation for these non-GAAP measures is explained below. -0- *T Third Quarter 2006 ------------------------------- Minera Non-Gaap Reconciliation Florida El Penon Consolidated ------- ---------- ------------ -------------------------------------- ------- ---------- ------------ By-Product method of calculating cost per ounce -------------------------------------- Cost of sales (Before depreciation, depletion and amortization) $6.2 $16.9 $23.1 Silver revenues (0.7) (16.6) (17.3) Zinc revenues (0.5) - (0.5) Other (0.1) (0.3) (0.4) -------------------------------------- ------- ---------- ------------ Total net cash costs 4.9 (0.0) 4.9 Gold production in ounces from active properties 20,461 53,719 74,180 -------------------------------------- ------- ---------- ------------ Total net cash costs per gold ounce $239 ($0) $66 -------------------------------------- ------- ---------- ------------ Total net cash costs 4.9 (0.0) 4.9 Depreciation, depletion and amortization from operations 3.7 4.6 8.3 -------------------------------------- ------- ---------- ------------ Total net cost $8.6 $4.6 $13.2 Gold production in ounces from active properties 20,461 53,719 74,180 -------------------------------------- ------- ---------- ------------ Total net cost per gold ounce $420 $86 $178 -------------------------------------- ------- ---------- ------------ Gold equivalent ounce method of calculating cost per ounce (zinc as by-product) -------------------------------------- Gold production in ounces from active properties 20,461 53,719 74,180 Silver Ounce conversion Factor: 53.1 53.1 53.1 Gold Price (avg. London PM fix) $622 $622 $622 Silver Price (avg. London fix) $11.70 $11.70 $11.70 Silver Ounces from active properties 60,106 1,460,506 1,520,612 Converted Silver Ounces (ounces / factor) 1,132 27,495 28,626 -------------------------------------- ------- ---------- ------------ Gold Equivalent Ounces 21,593 81,214 102,806 -------------------------------------- ------- ---------- ------------ Cost of Sales $6.2 $16.9 $23.1 Zinc revenues ($0.5) - ($0.5) Other (0.1) (0.3) (0.4) -------------------------------------- ------- ---------- ------------ Total Cash Cost 5.6 16.6 22.2 -------------------------------------- ------- ---------- ------------ Total cash cost per gold equivalent ounce (zinc as by-product credit) $259 $204 $216 -------------------------------------- ------- ---------- ------------ Total Cash Cost $5.6 $16.6 $22.2 Depreciation, depletion and amortization from operations 3.7 4.6 8.3 -------------------------------------- ------- ---------- ------------ Total Cost 9.3 21.2 30.5 -------------------------------------- ------- ---------- ------------ Total Cost per gold equivalent ounce (zinc as by-product credit) $431 $261 $297 -------------------------------------- ------- ---------- ------------ Third Quarter 2005 ------------------------------- Minera Non-Gaap Reconciliation Florida El Penon Consolidated ------- ---------- ------------ -------------------------------------- ------- ---------- ------------ By-Product method of calculating cost per ounce -------------------------------------- Cost of sales (Before depreciation, depletion and amortization) - $13.5 $13.5 Silver revenues - (9.6) (9.6) Zinc revenues - - 0.0 Other - (0.6) (0.6) -------------------------------------- ------- ---------- ------------ Total net cash costs - 3.3 3.3 Gold production in ounces from active properties - 75,416 75,416 -------------------------------------- ------- ---------- ------------ Total net cash costs per gold ounce - $44 $44 -------------------------------------- ------- ---------- ------------ Total net cash costs - 3.3 3.3 Depreciation, depletion and amortization from operations - 3.6 3.6 -------------------------------------- ------- ---------- ------------ Total net cost - $6.9 $6.9 Gold production in ounces from active properties - 75,416 75,416 -------------------------------------- ------- ---------- ------------ Total net cost per gold ounce - $91 $91 -------------------------------------- ------- ---------- ------------ Gold equivalent ounce method of calculating cost per ounce (zinc as by-product) -------------------------------------- Gold production in ounces from active properties - 75,416 75,416 Silver Ounce conversion Factor: - 62.2 62.2 Gold Price (avg. London PM fix) $- $440 $440 Silver Price (avg. London fix) $- $7.07 $7.07 Silver Ounces from active properties - 1,381,090 1,381,090 Converted Silver Ounces (ounces / factor) - 22,209 22,209 -------------------------------------- ------- ---------- ------------ Gold Equivalent Ounces - 97,625 97,625 -------------------------------------- ------- ---------- ------------ Cost of Sales - $13.5 $13.5 Zinc revenues - - $0.0 Other - (0.6) (0.6) -------------------------------------- ------- ---------- ------------ Total Cash Cost - 12.9 12.9 -------------------------------------- ------- ---------- ------------ Total cash cost per gold equivalent ounce (zinc as by-product credit) $- $132 $132 -------------------------------------- ------- ---------- ------------ Total Cash Cost - $12.9 $12.9 Depreciation, depletion and amortization from operations - 3.6 3.6 -------------------------------------- ------- ---------- ------------ Total Cost - 16.5 16.5 -------------------------------------- ------- ---------- ------------ Total Cost per gold equivalent ounce (zinc as by-product credit) $- $169 $169 -------------------------------------- ------- ---------- ------------ *T -0- *T Nine months ended Sept 30, 2006 ------------------------------- Minera Non-Gaap Reconciliation Florida El Penon Consolidated ------- ---------- ------------ -------------------------------------- ------- ---------- ------------ By-Product method of calculating cost per ounce -------------------------------------- Cost of sales (Before depreciation, depletion and amortization) $6.2 $46.4 $52.6 Silver revenues (0.7) (56.4) (57.1) Zinc revenues (0.5) - (0.5) Other (0.1) (1.5) (1.6) -------------------------------------- ------- ---------- ------------ Total net cash costs 4.9 (11.5) (6.6) Gold production in ounces from active properties 20,461 179,778 200,239 -------------------------------------- ------- ---------- ------------ Total net cash costs per gold ounce $239 ($64) ($33) -------------------------------------- ------- ---------- ------------ Total net cash costs 4.9 (11.5) (6.6) Depreciation, depletion and amortization from operations 3.7 14.5 18.2 -------------------------------------- ------- ---------- ------------ Total net cost $8.6 $3.0 $11.6 Gold production in ounces from active properties 20,461 179,778 200,239 -------------------------------------- ------- ---------- ------------ Total net cost per gold ounce $420 $17 $58 -------------------------------------- ------- ---------- ------------ Gold equivalent ounce method of calculating cost per ounce (zinc as by-product) -------------------------------------- Gold production in ounces from active properties 20,461 179,778 200,239 Silver Ounce conversion Factor: 53.6 53.6 53.6 Gold Price (avg. London PM fix) $601 $601 $601 Silver Price (avg. London fix) $11.21 $11.21 $11.21 Silver Ounces from active properties 60,106 5,166,926 5,227,032 Converted Silver Ounces (ounces / factor) 1,121 96,377 97,498 -------------------------------------- ------- ---------- ------------ Gold Equivalent Ounces 21,582 276,155 297,737 -------------------------------------- ------- ---------- ------------ Cost of Sales $6.2 $46.4 $52.6 Zinc revenues ($0.5) - ($0.5) Other (0.1) (1.5) (1.6) -------------------------------------- ------- ---------- ------------ Total Cash Cost 5.6 44.9 50.5 -------------------------------------- ------- ---------- ------------ Total cash cost per gold equivalent ounce (zinc as by-product credit) $259 $163 $170 -------------------------------------- ------- ---------- ------------ Total Cash Cost $5.6 $44.9 $50.5 Depreciation, depletion and amortization from operations 3.7 14.5 18.2 -------------------------------------- ------- ---------- ------------ Total Cost 9.3 59.4 68.7 -------------------------------------- ------- ---------- ------------ Total Cost per gold equivalent ounce (zinc as by-product credit) $431 $215 $231 -------------------------------------- ------- ---------- ------------ Nine months ended Sept 30, 2005 -------------------------------- Minera Non-Gaap Reconciliation Florida El Penon Consolidated -------- ---------- ------------ ------------------------------------- -------- ---------- ------------ By-Product method of calculating cost per ounce ------------------------------------- Cost of sales (Before depreciation, depletion and amortization) - $39.6 $39.6 Silver revenues - (27.4) (27.4) Zinc revenues - - 0.0 Other - (1.7) (1.7) ------------------------------------- -------- ---------- ------------ Total net cash costs - 10.5 10.5 Gold production in ounces from active properties - 227,916 227,916 ------------------------------------- -------- ---------- ------------ Total net cash costs per gold ounce - $46 $46 ------------------------------------- -------- ---------- ------------ Total net cash costs - 10.5 10.5 Depreciation, depletion and amortization from operations - 11.6 11.6 ------------------------------------- -------- ---------- ------------ Total net cost - $22.1 $22.1 Gold production in ounces from active properties - 227,916 227,916 ------------------------------------- -------- ---------- ------------ Total net cost per gold ounce - $97 $97 ------------------------------------- -------- ---------- ------------ Gold equivalent ounce method of calculating cost per ounce (zinc as by-product) ------------------------------------- Gold production in ounces from active properties - 227,916 227,916 Silver Ounce conversion Factor: - 61.1 61.1 Gold Price (avg. London PM fix) $- $432 $432 Silver Price (avg. London fix) $- $7.07 $7.07 Silver Ounces from active properties - 3,925,478 3,925,478 Converted Silver Ounces (ounces / factor) - 64,267 64,267 ------------------------------------- -------- ---------- ------------ Gold Equivalent Ounces - 292,183 292,183 ------------------------------------- -------- ---------- ------------ Cost of Sales - $39.6 $39.6 Zinc revenues - - $0.0 Other - (1.7) (1.7) ------------------------------------- -------- ---------- ------------ Total Cash Cost - 37.9 37.9 ------------------------------------- -------- ---------- ------------ Total cash cost per gold equivalent ounce (zinc as by-product credit) $- $130 $130 ------------------------------------- -------- ---------- ------------ Total Cash Cost - $37.9 $37.9 Depreciation, depletion and amortization from operations - 11.6 11.6 ------------------------------------- -------- ---------- ------------ Total Cost - 49.5 49.5 ------------------------------------- -------- ---------- ------------ Total Cost per gold equivalent ounce (zinc as by-product credit) $- $169 $169 ------------------------------------- -------- ---------- ------------ *T CAUTIONARY STATEMENT Certain statements in this 2006 third quarter announcement, financial statements for the period ending September 30, 2006 and management's discussion and analysis constitute "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 and Canadian securities legislation. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company, or other future events, including forecast production, earnings and cash flows, to be materially different from any future results, performance or achievements or other events expressly or implicitly predicted by such forward-looking statements. When used herein, words such as "anticipate", "estimate", "believe", "expect", "predict", "plan", "should", "may", "could" and other similar expressions are intended to identify forward-looking statements. Such risks, uncertainties and other factors include those set forth in the Company's Annual Information Form and other periodic filings. Important factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements include, but are not limited to, factors associated with fluctuations in the market price of precious metals, changes in the dollar exchange rate, mining industry risks, uncertainty of title to properties, risk associated with foreign operations, environmental risks and hazards, proposed legislation affecting the mining industry, litigation, governmental regulation of the mining industry, properties without known reserves, uncertainty as to calculations of reserves, mineral deposits and grades, requirement of additional financing, uninsured risks, risk of impairment of assets, risk of hedging strategies, competition, and dependence on key management personnel. Such information contained herein represents management's best judgment as of the date hereof based on information currently available. The Company does not intend to update this information and disclaims any legal liability to the contrary. The Company's filings with the securities regulatory authorities in Canada are available at www.sedar.com and its filings with the U.S. Securities and Exchange Commission are available at www.sec.gov through EDGAR. Third Quarter Conference Call The Company will host its Third Quarter Results Conference Call at 9am EDT on Wednesday October 25, 2006. The toll-free conference call dial-in number is 1-866-831-5605 and the international dial-in number is 617-213-8851; passcode for both dial-in numbers is 34885471. The conference call will be simultaneously web cast and archived at www.meridiangold.com in the Investor Center. A replay of the call will be available until November 1, 2006; toll-free at 1-888-286-8010, locally and overseas at 617-801-6888; passcode for both dial-in numbers is 16970704. For further information, please visit our website at www.meridiangold.com, or contact: -0- *T Krista Muhr Tel: (800) 572-4519 Senior Manager, Fax: (775) 850-3733 Investor Relations E-mail: investorrelations@meridiangold.com *T -0- *T Meridian Gold Inc. Operating Data (Unaudited and dollar amounts expressed in U.S. currency) Three Months Ended Nine Months Ended September 30 September 30 2006 2005 2006 2005 -------------------- ----------------------- El Penon Mine Gold production (ounces) 53,719 75,416 179,778 227,916 Silver production (ounces) 1,460,506 1,381,090 5,166,926 3,925,478 Tonnes ore mined (thousands) 199 223 645 693 Mill tonnes processed (thousands) 235 221 695 648 Avg. mill gold ore grade (grams/tonne) 7.4 11.0 8.4 11.3 Avg. mill silver ore grade (grams/tonne) 210 210 249 204 Mill gold recovery 96% 97% 96% 97% Mill silver recovery 92% 93% 93% 92% Net cash cost of production per gold ounce $- $44 $(64) $46 Total net production cost per gold ounce $86 $91 $17 $97 Cash cost of production per gold equivalent ounce $204 $132 $163 $130 Total production cost per gold equivalent ounce $261 $169 $215 $169 Minera Florida Mine Gold production (ounces) 20,461 - 20,461 - Silver production (ounces) 60,106 - 60,106 - Tonnes ore mined (thousands) 106 - 106 - Mill tonnes processed (thousands) 109 - 109 - Avg. mill gold ore grade (grams/tonne) 7.2 - 7.2 - Avg. mill silver ore grade (grams/tonne) 24 - 24 - Mill gold recovery 81% - 81% - Mill silver recovery 72% - 72% - Net cash cost of production per gold ounce $239 $- $239 $- Total net production cost per gold ounce $420 $- $420 $- Cash cost of production per gold equivalent ounce $259 $- $259 $- Total production cost per gold equivalent ounce $431 $- $431 $- Company Totals Ounces of gold produced 74,180 75,416 200,239 227,916 Ounces of gold sold 72,546 74,047 195,948 226,274 Ounces of silver sold 1,483,266 1,357,006 5,101,256 3,893,803 Avg. realized gold price per ounce $616 $441 $598 $432 Avg. realized silver price per ounce $11.61 $7.07 $11.19 $7.05 Net cash cost of production per gold ounce $66 $44 $(33) $46 Total net cost of production per gold ounce $178 $91 $58 $97 Cash cost of production per gold equivalent ounce $216 $132 $170 $130 Total production cost per gold equivalent ounce $297 $169 $231 $169 Average realized gold prices are revenues divided by gold ounces sold. Net cash cost and total net cost per gold ounce are net of silver by- product credits. ---------------------------------------------------------------------- *T -0- *T Capital Expenditures and Depreciation Detail Capital - Q3 2006 (in millions of US$) expenditures DD&A ------------------------- El Penon $9.2 $4.8 Minera Florida 2.0 3.7 Other 0.1 - ------------------------- Total $11.3 $8.5 ========================= *T -0- *T Meridian Gold Inc. Interim Consolidated Balance Sheets (Unaudited and expressed in millions of US dollars) September 30 December 31 2006 2005 ------------ ------------------- (Restated - note 2) Assets Current assets Cash and short-term investments $162.7 $267.6 Restricted cash 13.9 13.9 Trade and other receivables 4.4 1.2 Inventory 8.6 7.1 Future income taxes - current 4.4 3.7 Other current assets 14.7 10.0 ------------ ------------------- Total current assets 208.7 303.5 Mineral property, plant and equipment, net 265.0 89.6 Future income taxes - long-term 1.1 0.4 Other assets 40.5 11.0 ------------ ------------------- Total assets $515.3 $404.5 ============ =================== Liabilities and Shareholders' Equity Current liabilities Accounts payable, trade and other $14.0 $13.4 Accrued and other liabilities 23.7 24.7 ------------ ------------------- Total current liabilities 37.7 38.1 Other long-term liabilities 93.1 67.5 Future income taxes 29.9 12.8 Non-controlling interest 15.3 - Shareholders' equity (note 5) 339.3 286.1 ------------ ------------------- Total liabilities and shareholders' equity $515.3 $404.5 ============ =================== *T See accompanying notes to interim consolidated financial statements -0- *T Meridian Gold Inc. Consolidated Statements of Operations (Unaudited and expressed in millions of US dollars, except per share data) Three months Nine months ended ended September 30 September 30 2006 2005 2006 2005 ------ ------ ------- ------- (Restated - (Restated - note 2) note 2) Revenue $62.2 $42.2 $175.0 $125.0 Costs and expenses Cost of sales before depreciation, depletion and amortization 23.1 13.5 52.6 39.6 Depreciation, depletion and amortization 8.5 3.7 18.5 12.0 Exploration 6.2 6.2 18.0 18.8 Selling, general and administrative (note 9) 10.1 3.1 16.5 8.8 Other 0.4 0.3 0.8 - ------ ------ ------- ------- 48.3 26.8 106.4 79.2 ------ ------ ------- ------- Earnings before the following 13.9 15.4 68.6 45.8 Interest income 2.6 1.9 9.2 4.6 Gain on sale of assets - - - 0.1 ------ ------ ------- ------- Earnings before taxes 16.5 17.3 77.8 50.5 Income tax expense (10.8) (8.3) (35.7) (22.6) ------ ------ ------- ------- Net earnings $5.7 $9.0 $42.1 $27.9 ====== ====== ======= ======= Earnings per share Basic $0.06 $0.09 $0.42 $0.28 Diluted $0.06 $0.09 $0.42 $0.28 Weighted average shares outstanding (in millions) Basic 100.9 100.2 100.7 99.9 Diluted 101.3 100.7 101.2 100.5 *T See accompanying notes to interim consolidated financial statements -0- *T Meridian Gold Inc. Interim Consolidated Statements of Retained Earnings (Deficit) (Unaudited and expressed in millions of US dollars) Three months ended Nine months ended September 30 September 30 2006 2005 2006 2005 --------- -------- -------- -------- Balance at beginning of period $(130.0) $198.9 $(166.4) $180.0 Net earnings 5.7 9.0 42.1 27.9 --------- -------- -------- -------- Balance at end of period $(124.3) $207.9 $(124.3) $207.9 ========= ======== ======== ======== *T See accompanying notes to interim consolidated financial statements -0- *T Meridian Gold Inc. Interim Consolidated Statements of Cash Flows (Unaudited and expressed in millions of US dollars) Three months Nine months ended ended September 30 September 30 2006 2005 2006 2005 ------- ------- ------- ------- Cash flow from (used in) operating activities Net earnings $5.7 $9.0 $42.1 $27.9 Non-cash items: Provision for depreciation, depletion and amortization 8.5 3.7 18.5 12.0 Gain on sale of assets, net - - - - Accretion of asset retirement obligations 0.4 0.1 1.0 0.3 Stock-based compensation 2.8 0.7 4.4 2.3 Provision for pension costs 0.1 0.1 0.3 0.2 Income taxes 2.4 4.0 14.4 11.8 Changes in non-cash working capital and other accounts: Trade and other receivables 5.9 1.1 (1.1) 0.4 Inventory 0.4 (0.4) 0.1 (1.5) Other current assets (5.1) (1.2) (5.3) (0.3) Other assets (0.6) (1.2) (0.8) (1.5) Accounts payable, trade and other (0.2) 0.9 (3.3) 1.5 Accrued and other liabilities (4.9) 1.6 (3.8) (2.6) Other long-term liabilities (0.3) - - - Reclamation expenditures (1.2) (1.3) (3.1) (3.1) Pension contributions (2.7) - (2.7) (0.6) ------- ------- ------- ------- 11.2 17.1 60.7 46.8 ------- ------- ------- ------- Cash flow from (used in) investing activities Capital expenditures (11.3) (5.5) (22.8) (23.3) Proceeds from sale of assets - 0.1 - 0.2 Acquisitions (net of cash received of $0.7) (118.9) - (118.9) - Short-term investments 78.6 (69.2) 137.3 (21.0) Long-term investments (2.5) 1.5 (28.8) 6.5 ------- ------- ------- ------- (54.1) (73.1) (33.2) (37.6) ------- ------- ------- ------- Cash flow from financing activities Repayment of loans (1.8) (1.8) Proceeds from issuance of share capital 1.6 0.6 6.7 3.3 ------- ------- ------- ------- (0.2) 0.6 4.9 3.3 ------- ------- ------- ------- Increase (decrease) in cash and cash equivalents (43.1) (55.4) 32.4 12.5 Cash and cash equivalents, beginning of period 133.8 115.2 58.3 47.3 ------- ------- ------- ------- Cash and cash equivalents, end of period $90.7 $59.8 $90.7 $59.8 ======= ======= ======= ======= Cash and cash equivalents $90.7 $59.8 $90.7 $59.8 Short-term investments 72.0 191.5 72.0 191.5 ------- ------- ------- ------- Cash and short-term investments $162.7 $251.3 $162.7 $251.3 ======= ======= ======= ======= Cash paid for income taxes $15.2 $3.7 $27.9 $15.8 Cash paid for interest $- $- $- $- *T See accompanying notes to interim consolidated financial statements -0- *T Meridian Gold Inc. Notes to Interim Consolidated Financial Statements (unaudited) Three months and nine months ended September 30, 2006 (In US dollars) *T 1. Basis of Presentation These unaudited interim consolidated financial statements have been prepared by the Company in accordance with Canadian generally accepted accounting principles ("GAAP"). These unaudited interim consolidated financial statements do not include all information and note disclosures required by Canadian GAAP for annual financial statements, and therefore should be read in conjunction with the Company's audited consolidated financial statements for the year ended December 31, 2005. The preparation of these financial statements is based on accounting policies and practices consistent with those used in the preparation of the audited annual consolidated financial statements, except as disclosed in note 2. 2. Changes in Accounting Policies and Presentation Silver Revenue and Refining Costs Commencing January 1, 2006, the Company began recognizing silver sales as part of its revenue due to the increase in silver ounces mined and the significant increase in silver's market price. The Company previously recognized silver sales as a by-product and reported its silver revenue as a credit to cost of sales. The Company has also changed its classification of refining cost from netting against revenue to including it in cost of sales. Commencing January 1, 2006, both of these changes were adopted on a retroactive basis and revenue and cost of sales before depreciation, depletion and amortization for the three months and nine months ended September 30, 2005 have been increased by $10.1 million and $28.8 million, respectively, from the amounts previously reported. There was no impact on net earnings. Other Certain balance sheet amounts in the prior period have been reclassified to conform to presentation adopted in the current period. 3. Property Impairment At each reporting period, the Company reviews the carrying value of its mineral properties in accordance with Canadian GAAP. The reviews include an analysis of the expected future cash flows to be generated by the project to determine if such cash flows exceed the project's current carrying value. The determination of future cash flows is dependent on a number of factors, including future prices for gold, the amount of reserves, the cost of bringing the project into production, production schedules, and estimates of production costs. For non-producing properties, the reviews are based on whether factors that may indicate the need for a write-down are present at each location. Additionally, the reviews take into account factors such as political, social, legal and environmental regulations. These factors may change due to changing economic conditions or the accuracy of certain assumptions. The Company uses its best effort to fully understand all of the aforementioned to make an informed decision based upon historical and current facts surrounding the projects. Based on this review, management determined additional impairment was not necessary as of September 30, 2006. 4. Reclamation Liability The continuity of the reclamation liability for the three months and nine months ended September 30 is as follows: -0- *T (in millions of US dollars) Three Months Ended Nine Months Ended September 30 September 30 2006 2005 2006 2005 ---------------------------------------------------------------------- Balance, beginning of period $24.0 $10.2 $25.3 $11.8 Addition (Minera Florida) 12.1 - 12.1 - Accretion 0.4 0.1 1.0 0.3 Expenditures (1.0) (1.3) (2.9) (3.1) ---------------------------------------------------------------------- Balance, end of period $35.5 $9.0 $35.5 $9.0 ---------------------------------------------------------------------- *T 5. Share Capital Shareholders' equity -0- *T September 30, December 31, (in millions of US dollars) 2006 2005 ---------------------------------------------------------------------- Share capital $402.0 $390.8 Additional paid-in capital 7.5 7.6 Retained earnings (deficit) (124.3) (166.4) Cumulative translation adjustment 54.1 54.1 ---------------------------------------------------------------------- Total shareholders' equity $339.3 $286.1 ---------------------------------------------------------------------- *T Outstanding share data As at September 30, 2006, 101,084,401 (December 31, 2005 - 100,233,173) common shares were outstanding and stock options to purchase 836,830 shares held by directors and employees were outstanding with exercise prices ranging between US$2.25 and US$26.79 per share, of which options to purchase 544,636 shares were exercisable with expiry dates between December 2006 and March 2016. Stock options and restricted shares The stock option activity for the three months and nine months ended September 30 is illustrated in the tables below: -0- *T Three Months Ended September 30 2006 2005 ---------------------------------------------------------------------- Weighted Weighted Average Average Number of Exercise Number of Exercise Options Price Options Price ----------------------------------------- Stock options outstanding at beginning of period 1,007,648 $12.89 1,506,517 $10.54 Granted - 0.00 172,300 18.21 Exercised (156,159) 10.32 (72,326) 9.35 Expired and/or cancelled (14,659) 16.48 (37,000) 16.76 ---------------------------------------------------------------------- Stock options outstanding at end of period 836,830 $13.31 1,569,491 $11.34 ---------------------------------------------------------------------- *T -0- *T Nine Months Ended September 30 2006 2005 ---------------------------------------------------------------------- Weighted Weighted Average Average Number of Exercise Number of Exercise Options Price Options Price ----------------------------------------- Stock options outstanding at beginning of period 1,557,481 $11.38 1,932,151 $9.28 Granted 17,500 25.62 249,800 17.26 Exercised (720,158) 9.36 (545,359) 6.25 Expired and/or cancelled (17,993) 16.23 (67,101) 16.51 ---------------------------------------------------------------------- Stock options outstanding at end of period 836,830 $13.31 1,569,491 $11.34 ---------------------------------------------------------------------- Exercisable stock options 544,636 $11.72 970,445 $9.23 ---------------------------------------------------------------------- Stock options vest in equal annual amounts over 1 to 3 years and have terms of 10 years *T The fair value of stock options granted was calculated using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 2006: dividend yield 0%, expected volatility of 50.0 percent, risk free interest rate of 4.6 percent, and expected lives of 5 years and with the following weighted average assumptions used for grants in 2005: dividend yield 0%, expected volatility of 56.3 percent, risk free interest rate of 3.5 percent, and expected lives of 5 years. During the three months and nine months ended September 30, 2006, options to purchase 52,459 shares and 242,374 shares, respectively, were exercised that had a grant date after January 1, 2002, the date the Company adopted the fair value method of accounting for stock options granted. During the three months and nine months ended September 30, 2006, the Company transferred $0.4 million and $1.8 million, respectively, from additional paid-in capital to share capital for the amount previously recorded as additional paid-in capital for the fair value of this stock-based compensation. During the three months and nine months ended September 30, 2006, the Company awarded 116,223 and 144,804 restricted shares that had a grant date average fair value of $25.90 and $24.49 per share, respectively. During the three months and nine months ended September 30, 2005, the Company awarded 39,325 and 62,036 restricted shares that had a grant date average fair value of $18.21 and $16.32 per share, respectively. Restricted shares issued to management typically vest one-third per year over 3 years. During the third quarter of 2006 the Board granted 50,000 restricted shares of which one-third immediately vested and one-third vest in each of the next two years. Restricted shares issued to non-executive directors vest immediately and remain restricted until the board member retires or ceases to be a member of the Board. 6. Employee future benefits For the three months and nine months ended September 30, 2006 the total net defined benefit expense of the Company's pension plan was $0.2 million and $0.4 million, respectively (2005 -- $0.1 million for the three months and $0.2 million for the nine months). During the three months and nine months ended September 30, 2006, the Company contributed $2.7 million to the defined benefit plan. 7. Acquisitions During the third quarter of 2006, the Company acquired 100% of Minera Florida S.A. ("Minera Florida") for $100.0 million cash. The Company acquired control of Minera Florida effective as of July 1, 2006 and has according determined this to be the date of acquisition. The transaction completed on July 31, 2006 at which time the Company made a cash payment of $100.0 million from available cash reserves. The earnings of Minera Florida are included in the statement of operations commencing July 1, 2006. Imputed interest from July 1 to July 31 of $0.4 million offsets the cash payment for a net purchase price $99.6 million. Minera Florida owns a producing gold mine in Alhue, Chile. The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition. -0- *T As at July 1, 2006 Current assets $4.4 Mineral property, plant and equipment 119.9 --------------- Total assets acquired 124.3 --------------- Current liabilities (6.3) Long-term liabilities (18.4) --------------- Total liabilities assumed (24.7) --------------- Net assets acquired $99.6 =============== *T The purchase price allocation for Minera Florida has not been finalized and may be adjusted in the future on completion of a resource report. On September 22, 2006, the Company acquired 56.7% of Agua De La Falda S.A. ("ADLF") for $20.0 million cash. The earnings of ADLF are included in the statement of operations as of the date of acquisition. ADLF's properties are located 50 kilometers southeast of El Salvador in the Third Region of northern Chile and contains the Jeronimo deposit. Meridian is required to prepare a feasibility study on the Jeronimo deposit. The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition. -0- *T Current assets $0.1 Property, plant and equipment 50.8 Other long-term assets - ---------------- Total assets acquired 50.9 ---------------- Current liabilities (0.6) Long-term liabilities (15.0) ---------------- Total liabilities assumed (15.6) ---------------- Non-controlling interest (15.3) ---------------- Net assets acquired $20.0 ================ *T The purchase price allocation for ADLF has not been finalized as information on assets and liabilities is still pending, including information related to income tax values and asset retirement obligations. 7. Segments Meridian Gold has two reportable segments: El Penon and Minera Florida. Each segment is a producing gold mine. -0- *T Three Months Ended September 30, 2006 (in millions of US dollars) El Minera All Penon Florida other Totals ---------------------------------------------------------------------- Revenues $49.1 $13.5 $(0.4) $62.2 Income before taxes 26.9 2.9 (13.3) 16.5 Expenditures for segment capital assets 9.1 2.0 0.2 11.3 Nine Months Ended September 30, 2006 (in millions of US dollars) El Minera All Penon Florida other Totals ---------------------------------------------------------------------- Revenues $161.6 $13.5 $(0.1) $175.0 Income before taxes 100.1 2.9 (25.2) 77.8 Segment assets 254.3 149.8 117.4 521.5 Expenditures for segment capital assets 19.4 2.0 1.4 22.8 *T As the Company only operated a single mine in 2005 no segment reporting is included for that period. 8. Capital leases Capital lease payments of Minera Florida are detailed as follows: -0- *T (in millions of US dollars) As at September 30, Year 2006 ----------------------------------------------- 2006 $0.6 2007 0.6 2008 0.6 2009 0.4 ------------- Subtotal 2.2 Less interest (at 7.51%) (0.1) ------------- Total 2.1 Less current (0.6) ------------- Long-term $1.5 ============= *T Leased assets included in property, plant and equipment as at September 30, 2006 had a net book value of $1.8 million. 9. CEO transition costs Selling, General and Administrative and other expenses in the statement of operations for the third quarter of 2006 included $3.9 million in expenses related primarily to incentive pay, restricted shares and option awards and pension costs associated with the retiring CEO and also $1.6 million for costs associated with the hiring of the new CEO designate. Due to the accounting treatment on timing of recognition of expenses it is estimated an additional $1.2 million will be expensed in the fourth quarter of 2006 for additional retirement costs of the CEO. 10. Legal claims The Company is exposed to certain other contingent liabilities or claims incident to the ordinary course of business. Although the outcome of these matters is not determinable at this time, the Company believes none of these claims will have a material adverse effect on the Company's financial position or results of operations.