UNITED STATES

Form 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d)

x Quarterly Report Pursuant to Section 13 or 15(d)

Commission file number 1-11887

CANYON RESOURCES CORPORATION

(a Delaware Corporation)

		Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
		Indicate by check mark whether registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act.) Yes o No x
		Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 29,053,803 shares of the Company’s Common Stock were outstanding as of September 30, 2004.

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

     The following unaudited consolidated financial statements have been prepared by Canyon Resources Corporation (“the Company”) pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such SEC rules and regulations.

     These consolidated financial statements should be read in conjunction with the financial statements and accompanying notes included in the Company’s Amendment No. 2 to Form 10-K/A for the year ended December 31, 2003.

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CANYON RESOURCES CORPORATION AND SUBSIDIARIES

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

2

CANYON RESOURCES CORPORATION AND SUBSIDIARIES

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

3

CANYON RESOURCES CORPORATION AND SUBSIDIARIES

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

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CANYON RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
(Unaudited)

Supplemental disclosures of cash flow information:

1.		The Company paid $105,400 of interest during the first six months of 2004, and $136,000 during the corresponding period of 2003.
2.		The Company paid no income taxes during the first six months of 2004 nor the corresponding period of 2003.

Supplemental schedule of noncash investing and financing activities:

1.		The Company financed an equipment lease buy-out in the amount of $1,582,800 during the first six months of 2003.
2.		The Company issued 2,099,600 shares of common stock with a fair market value of $1,952,600 to a creditor as payment for services during the first six months of 2003.
3.		The Company issued 81,800 shares of common stock with a fair market value of $129,600 to an employee as compensation for services during the first six months of 2004. During the first six months of 2003, the Company issued 55,800 shares of common stock with a fair market value of $75,400 (restated) to an employee as compensation for services.
4.		Non-cash stock compensation for the Company’s stock option plans under variable plan accounting was $367,600 and $142,500 during the first six months of 2004 and 2003, respectively.

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

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CANYON RESOURCES CORPORATION AND SUBSIDIARIES

(1)

Compensation expense determined under variable plan accounting for the Company’s stock option plan.

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

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CANYON RESOURCES CORPORATION

1.

Basis of Presentation:

     During interim periods, Canyon Resources Corporation (the Company) follows the accounting policies set forth in its Annual Report to Stockholders and its Report on Form 10-K/A filed with the Securities and Exchange Commission. Users of financial information produced for interim periods are encouraged to refer to the footnotes contained in the Annual Report to Stockholders when reviewing interim financial results.

     In the opinion of management, the accompanying interim financial statements contain all material adjustments, consisting only of normal recurring adjustments necessary to present fairly the financial position, the results of operations, and the cash flows of Canyon Resources Corporation and its consolidated subsidiaries for interim periods. These interim results are not necessarily indicative of the results of operations or cash flows for the full year ending December 31, 2004.

     The Company has restated its 2003 financial statements. For additional information, see Note 14.

2.

Management Estimates and Assumptions:

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

3.

Earnings per Share (EPS):

     The Company computes EPS by applying the provisions of Statement of Financial Accounting Standards (SFAS) No. 128, Earnings per Share. As the Company reported net losses for the periods presented, inclusion of common stock equivalents would have an antidilutive effect on per share amounts. Accordingly, the Company’s basic and diluted EPS computations are the same for the periods presented. For the three months ended June 30, 2004 and 2003, common stock equivalents that were not included in the computation of diluted EPS were 6,326,800 and 4,869,400, respectively. Common stock equivalents for the six months ended June 30, 2004 and 2003 that were not included in the computation of diluted EPS were 6,535,600 and 4,070,300, respectively.

4.

Stock Based Compensation:

     In accordance with the provisions of SFAS No. 123, Accounting for Stock-Based Compensation (SFAS No. 123), the Company measures compensation cost using the intrinsic value method prescribed by Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations to account for its stock option plans. However, because the Company had allowed option holders to exercise options by surrendering shares underlying vested but unexercised options in payment of the exercise price of the options, the Company’s outstanding options are accounted for using variable plan accounting. As a result, while no compensation cost has been recognized at the grant date as the exercise price of all stock option grants was at least equal to 100% of the market price of the Company’s common stock as of the date of grant, subsequent changes in the market price of the Company’s stock to the date of exercise or forfeiture result in a change in the measure of compensation cost for the award being recognized.

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CANYON RESOURCES CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

4.

Stock Based Compensation, continued:

     In December 2002, the Financial Accounting Standards Board issued SFAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure (SFAS No. 148). SFAS No. 148 amends SFAS No. 123 to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The amendments to SFAS No. 123 are effective for financial statements for fiscal years ending after December 15, 2002. Had compensation cost been determined under the provisions of SFAS No. 123, the following pro forma net loss and per share amounts would have been recorded for the three and six months ended June 30:

5.

Restricted Cash:

     Restricted cash consisted of the following at:

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CANYON RESOURCES CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

5.

Restricted Cash, continued:

(a)		In connection with the issuance of certain bonds for the performance of reclamation obligations and other contingent events at the Briggs Mine, a bank Letter of Credit was provided in favor of the Surety as partial collateral for such bond obligations. The Letter of Credit is fully collateralized with cash and will expire no earlier than December 31, 2004, and at the bank’s option, may be renewed for successive one-year periods.
(b)		Held directly by the Surety as partial collateral for reclamation and other contingent events at the Briggs Mine.
(c)		Held directly by the Montana Department of Environmental Quality in an interest bearing account for use in continuing reclamation at the Kendall minesite. (See Note 11(a))
(d)		Held directly by the Montana Department of Environmental Quality for reclamation at the McDonald Gold Property.
(e)		In connection with the auction of certain properties, cash has been sequestered by court order. (See Note 11(e)).
(f)		Earnest money received in connection with contracted property sales in 2002 which have not closed and held by the Company’s escrow agent. The Company rescinded the sales contracts because of uncertainty of the Montana Department of Environmental Quality decision on the Environmental Impact Statement. The money was refunded in June 2004.

6.

Inventories:

     Metal inventories consisted of the following at:

     The Company wrote down its metal inventory at the Briggs Mine to net realizable value by $411,800 and $732,500 (restated) during the second quarters of 2004 and 2003, and $964,100 and $732,500 (restated) for the first six months of 2004 and 2003, respectively.

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CANYON RESOURCES CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

7. Undeveloped Mineral Claims and Leases:

     The carrying value of the Company’s undeveloped mineral claims and leases consists of the following components at:

     Amortization of these properties commenced in 2002 at the rate of $2,671,900 per year. The properties are being amortized over eight years with no residual value. Future amortization of $2,671,900 per year will be recognized until the properties are fully amortized or events or circumstances change. See Note 11(e) for a discussion of the legal status of the properties and Note 15 for a discussion of recently issued accounting pronouncements.

8. Impairment of Long-lived Assets

     The Company tests for impairment of its long-lived assets when changes in events or circumstances occur. In accordance with SFAS No. 144 the Company uses estimates of future cash flows to test the recoverability of the Briggs Mine’s long-lived assets which includes mine development expenditures and plant and equipment. The estimated future cash flows include the projected revenues from in-ground estimated reserves based on the Company’s estimate of future gold prices and all future expenditures necessary to produce those in-ground reserves. As mining progressed in the second quarter of 2003, the Briggs Mine encountered projected ore which contained lower gold grade and higher sulfide contents (with low gold recovery) than expected. The Company determined that these gold ounces were no longer economic and, as such, decreased its reserves at the Briggs Mine. The Company recorded a write down of $3,382,000 of these assets to their estimated fair value of $4,634,300 as a consequence.

9. Notes Payable:

     Notes payable consisted of the following at:

(a)		In January 2003, the Company exercised a lease purchase option to buy the mining fleet at the Briggs Mine for approximately $1.6 million and arranged to finance the purchase price for one year at an interest rate of 6.75%. The outstanding balance was paid off during the second quarter of 2004.
(b)		In March 2003, the Company completed a private placement financing of 6%, two year convertible debentures. Approximately $1.2 million of the proceeds was used to pay off the Briggs Mine debt with the balance retained for general corporate purposes. The debentures require quarterly interest payments, and the holders have the right to convert principal to common stock of the Company, subject to certain adjustments, at any time at a conversion rate of $1.38 per share of common stock. The principal amount, unless otherwise converted, is due March 1, 2005. The Company’s stock price at the end of June 2004, was $3.89 per share.

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CANYON RESOURCES CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

10. Asset Retirement Obligations:

     The Company’s estimated asset retirement obligations include site specific costs for earthwork, revegetation, water treatment and dismantlement of facilities for its current or recently producing mineral properties.

     The following provides a reconciliation of the Company’s beginning and ending carrying values for its asset retirement obligations in the current year:

(1)

During the second quarter, the Company held discussions with the Montana Department of Environmental Quality (DEQ) concerning reclamation at the Kendall Mine site. After these discussions, the Company modified its reclamation plan to include items which had been developed by an engineering contractor to the DEQ and subsequently, revised its estimate to achieve closure of the Kendall Mine.

11. Commitments and Contingencies:

	(a)		Kendall Mine Reclamation
			The Kendall Mine holds permits granted by the DEQ. In February 2002, the DEQ issued a decision that a comprehensive Environmental Impact Statement (EIS) is needed for completion of remaining reclamation at Kendall. On June 30, 2004, the Company commenced significant earthwork reclamation. Subsequently, in August 2004, the DEQ notified the Company that it could not complete the final capping of the leach pads until the EIS was completed. The Company’s estimate to achieve mine closure could be impacted by the outcome of the DEQ’s decision following an EIS. The Company has $1,928,800 on deposit in an interest bearing account with the DEQ for reclamation at the Kendall Mine.
	(b)		Briggs Mine Surety Bonds
			The Briggs Mine operates under permits granted by various agencies including the U.S. Bureau of Land Management (BLM), Inyo County, the California Department of Conservation, and the Lahontan Regional Water Quality Control Board (Lahontan). These agencies have jointly required the Company to post a reclamation bond in the amount of $3,030,000 to ensure appropriate reclamation. Additionally, the Company was required by Lahontan to post a $1,010,000 bond to ensure adequate funds to mitigate any “foreseeable release”, as defined, of pollutants to state waters. Both bonds are subject to annual review and adjustment.
			In 2000, in response to a demand for an increase in collateral by the Surety who issued the above described bonds, the Company granted a security interest in 28,000 acres of mineral interests in Montana. In addition, the Company agreed to make cash deposits with the Surety totaling $1.5 million over a three year period at the rate of $0.5 million per year, commencing June 30, 2001. The Company has not made any deposits to date, and is in discussions with the Surety to reschedule the deposit requirements. If an acceptable rescheduling of the deposit requirements cannot be agreed to, the Surety could seek to terminate the bonds which could result in the

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CANYON RESOURCES CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

11. Commitments and Contingencies, continued:

			Company becoming liable for the principal amounts under its collateral agreement with the Surety. In April 2004, the Company ceased active mining at Briggs and has commenced reclamation activities.
	(c)		Contingent Liability
			On September 25, 1997, the Company, together with its wholly-owned subsidiary, CR Montana Corporation (CR Montana), purchased a 72.25% participating interest and underlying assets in the Seven-Up Pete Venture (SPV) from CR Montana’s partner in the SPV, Phelps Dodge Corporation (Phelps Dodge). The Company and its wholly-owned subsidiary now own 100% of the SPV. The SPV includes the McDonald Gold Project near Lincoln, Montana.
			The Company made an initial payment of $5 million and is required to make a final payment of $10.0 million upon issuance of all permits required for construction of the McDonald Gold Project, or alternatively, one-third of any proceeds received from any potential takings lawsuit. Due to the contingent nature of the transaction, the Company recorded only the initial payment of $5 million as additions to mining claims and leases. The purchase payments are collateralized only by the 72.25% participating interest and underlying assets in the SPV transferred from Phelps Dodge to the Company and CR Montana in this transaction, and the 50% co-tenancy interest in certain real property also transferred to the Company and CR Montana.
	(d)		Anti-Mining Initiative (I-137)
			In November 1998, the Montana electorate passed an anti-mining initiative (I-137) by a vote of 52% to 48%. I-137, as modified by the State Legislature in April 1999, that bans development of new gold and silver mines, which use open-pit mining methods and cyanide in the treatment and recovery process. In April 2000, the SPV filed lawsuits in Montana State District Court and in the United States District Court, seeking to have I-137 declared unconstitutional, or, alternatively, to obtain a “takings” or damage award for the lost value of the McDonald, Seven-Up Pete and Keep Cool mineral properties. These lawsuits are based on, amongst others, (i) the right not to be deprived of property without due process of law; (ii) the right to equal protection under the laws; and (iii) the right to be protected against laws which impair the obligations of existing contracts. The United States District Court issued a ruling August 30, 2001 in which the Court dismissed the SPV’s substantive due process claim but, as requested by the SPV, ruled that the remainder of the SPV’s claims could be pursued at such time as the State lawsuit was concluded. The Montana State District Court issued a ruling November 1, 2001 in response to a Motion to Dismiss and a Motion For Summary Judgment by the State of Montana. In this ruling, the Court dismissed four of the SPV’s fourteen counts, including its substantive due process and equal protection challenges to I-137’s validity. The decision maintained for adjudication the contract impairment validity challenge, contract damage claims, and all of the takings claims. Following the November 2001 ruling by the State District Court, the State filed a new Motion for Summary Judgment as to all claims. In an Order dated December 9, 2002, the Court granted the State Summary Judgment on all of the remaining legal claims of the Company’s lawsuit. On January 14, 2003, the Company filed an appeal with the Montana State Supreme Court. Oral arguments were heard by the Montana Supreme Court on October 28, 2003. The Company expects a ruling during 2004.
			On March 2, 2004, a local citizens group (Miners, Merchants and Montanans for Jobs and Economic Opportunity, FOR I-147), filed the language of a new initiative, I-147, to be placed before the voters of Montana at the November 2, 2004 ballot which, if enacted, would allow use of cyanide leaching in open-pit gold mines with specific, rigorous engineering practices and environmental safeguards. On July 14, 2004, the official certification for the ballot was announced by the Secretary of State. On July 23, 2004, the Montana

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CANYON RESOURCES CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

11. Commitments and Contingencies, continued:

			Environmental Information Center and a Montana rancher filed suit in the Supreme Court of the State of Montana and in Montana State District Court seeking to have I-147 declared legally insufficient and defective in substance and to enjoin the Secretary of State and Attorney General of Montana from placing I-147 on the ballot at the November 2, 2004 general election. The Montana Supreme Court subsequently refused to hear the suit and the Company believes that the initiative will remain on the ballot. If enacted by citizen vote, I-147 would make unnecessary any favorable court action on behalf of the Company’s legal actions described in the preceding paragraph and would allow the Company to resume permitting of the McDonald Gold Project. In any case, the Company will continue its legal efforts until the I-137 impediment is removed or otherwise resolved.
			Should I-137 be overturned through the legal process or by voter initiative, significant capital will be required to resume permitting and ultimately develop the McDonald Gold Project. No assurances can be made regarding the Company’s ability to obtain additional financing through capital markets, joint ventures, or other arrangements in the future.
	(e)		McDonald Gold Project - State Leases
			On September 24, 1998, the Montana Department of Natural Resources (DNRC), the entity that administers state mineral leases, unilaterally decided to cancel the permitting extension of the 10-year lease term of the state leases that pertain to the McDonald Gold Project which would require the Company, after a period of approximately seventeen months, to commence paying a delay rental of $150,000 per month in order to maintain the leases.
			In February 2000, pursuant to its September 1998 decision, the DNRC determined that the primary terms of the mineral leases had expired. The Company believes it held valid mineral leases and appealed the action of the DNRC in an administrative hearing process. Although a DNRC Hearing Examiner affirmed the DNRC action, it is the Company’s position that the permitting process has been interrupted by the threat and passage of I-137 and, thus, the permit extension is continued until the governmental impediment is resolved. As part of the I-137 lawsuit filed in April 2000 against the State of Montana, the Company asked the court to review and invalidate the DNRC’s action. The court, however, in its December 9, 2002 order as described in the preceding paragraph, denied the Company’s petition for judicial review. On January 14, 2003, the Company filed an appeal with the Montana State Supreme Court. Oral arguments were heard by the Montana State Supreme Court on October 28, 2003. The Company expects a ruling during 2004.
			The new initiative, I-147, described in Note 11(d), contains a provision which, if enacted, would restore all contractual interest or right in a mineral estate which was diminished or lost as a consequence of the enactment of I-137 to the same rights at the date of the enactment of I-137 (November 3, 1998). Since the state mineral leases were in full force and effect on November 3, 1998, the new initiative, if enacted by citizen vote in November 2004, would restore the state mineral leases to full validity.
			The Company believes the state leases are still in effect. The Company has made this determination based on our Montana legal counsel’s opinion, the clear statement by the State of Montana notifying the Company that annual rental payments, which are still being made and deposited by the State, would be refundable once the leases have been found to be terminated, and finally, the absence of actions of the State of Montana with respect to reclamation on the land covered by the leases.

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CANYON RESOURCES CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

11. Commitments and Contingencies, continued:

	(f)		Kendall Mine Lawsuits
			In October 2001, a Plaintiff group filed suit in Montana District Court against the Company and its wholly-owned subsidiary, CR Kendall Corporation, alleging violation of water rights and other torts in connection with the operation of the Kendall Mine. The Complaint seeks unspecified damages and punitive damages. The Company believes the allegations are completely without merit and that the Company will prevail in this matter.
			In August 2002, a Preliminary Injunction was issued in Montana District Court on behalf of the Plaintiff group in connection with the Company’s auction of certain mineral rights and fee lands in western Montana. In October 2002, the Court issued a Supplemental Order which will sequester up to $528,000 of any proceeds realized from the auction until such time as the lawsuit is concluded. As of June 30, 2004, $267,800 had been remitted to the Court as required by the Order. Including interest earned on the funds remitted, the Court held $272,100 as of June 30, 2004.
			In May 2004, the Company became aware of a suit filed in March 2004 in Montana District Court against the Company, CR Kendall Corporation, and the Kendall Mine alleging violations of the Federal Pollution Control Act. The Complaint was filed by the Montana Environmental Information Center, Inc. and Earthworks/Mineral Policy Center, Inc. and seeks declaratory judgment, injunctive relief, remediation and the imposition of civil penalties. The Company believes these allegations are completely without merit and that the Company will prevail in this matter.
	(g)		Other Items
			During 2003, the Company entered into an agreement with Gold Resource Corporation, a private Colorado Corporation, which is an affiliate of, and 36% owned by U. S. Gold Corporation, a public Colorado Corporation, to finance the exploration and possible development of a gold/silver project in the State of Oaxaca, Mexico.
			The Company, through June 30, 2004, had funded $500,000 of exploration and metallurgical test work. The Company is presently evaluating those results and will make a determination in the third quarter of 2004 whether to proceed to the next phase, which would require a $3.0 million commitment and allow the Company to earn a 50% interest in the project. Should the Company elect to not proceed with this phase, it will receive 600,000 shares of Gold Resource Corporation as consideration for its funding of $500,000 of exploration, engineering and metallurgical test work. See Note 16, “Subsequent Events.”

12. Derivative Instruments and Price Protection Arrangements:

     Gains on the Company’s forward contracts resulting from period to period changes in the mark-to-market calculations are as follows:

     The Company currently is unhedged and does not anticipate that any further price protection arrangements on the remaining Briggs production will be entered into.

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CANYON RESOURCES CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

13. Income Taxes:

     The Company has not recorded a tax benefit for the current period as the realization is not expected to be likely during the year. The benefit is also not expected to be realizable as a deferred tax asset at year end as the Company anticipates recording a full valuation allowance for all deferred tax assets, except to the extent of offsetting reversals of expected deferred tax liabilities.

14. Restatement of Prior Financial Information:

Briggs Asset Impairments

As a result of corrections to the Company’s impairment analyses, the Company has determined that certain long-lived assets at the Briggs Mine were impaired in earlier periods. The previous impairment analyses, in addition to the projected revenues from the estimated gold contained in the ore at the Briggs Mine, incorrectly included projected revenues from the sale of metals inventory. The reduction in the projected revenues due to the elimination of revenues from the sale of metals inventory resulted in the impairment of the long-lived assets at the Briggs Mine in prior periods. The impairment of the long-lived assets also reduced the Company’s annual depreciation, depletion and amortization (DD&A) capitalized as part of metals inventory and the related inventory valuation and cost of sales calculations. Changes in the asset impairments also impact the amount of gain (loss) recognized on the subsequent sales of mine assets. These adjustments increased the Company’s net loss by $2,796,700 or $0.13 per share in the second quarter of 2003 and $1,881,400, or $0.09 per share for the six months ended June 30, 2003.

Expense Funding of Exploration Activities

During 2003, the Company entered into an agreement with Gold Resources Corporation (GRC), which was in substance an agreement to fund GRC’s exploration efforts at a project in the State of Oaxaca, Mexico. (See Note 11(g)). Through December 31, 2003, the Company had provided GRC $400,000, with an additional $100,000 of funding in 2004, which the Company originally recorded as a note receivable. The Company has subsequently determined that the advances related to funding exploration costs should be expensed as incurred. This adjustment increased the Company’s net loss by $100,000 in the first quarter of 2004 and $400,000 for the year ended December 31, 2003.

Stock Compensation Adjustment

Prior to 2004, the Company issued 235,200 shares of unregistered common stock as partial compensation to an individual pursuant to an employment agreement. The Company originally recorded compensation expense for these unregistered shares using a share price which was approximately 15% lower than the market price. The Company has subsequently determined that compensation expense should be calculated using the market price of unregistered shares in accordance with APB 25, Accounting for Stock-Based Compensation. These adjustments increased the Company’s net loss by $8,900 in the second quarter of 2003 and $23,400 during the six months ended June 30, 2003. The adjustments had no material effect on per share amounts.

Beneficial Conversion Feature for Convertible Debt

In March 2003, the Company completed a private placement financing of its 6% two year convertible debentures which can be converted at any time into common stock at $1.38 per share. For certain investors, the common stock had a fair value at the commitment date in excess of the conversion price resulting in a beneficial conversion feature. Emerging Issues Task Force (EITF) No. 98-5, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Convertible Ratios, requires that the intrinsic value of a beneficial

15

CANYON RESOURCES CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

14.		Restatement of Prior Financial Information, continued:
		conversion feature be recorded to additional paid-in capital and a discount on the convertible debt. The discount is then amortized to interest expense over the term of the debt using the effective interest rate method. This adjustment increased the Company’s net loss by $17,800, or $0.01 per share, in the second quarter of 2003 and $23,600 (no material effect on per share amounts) during the six months ended June 30, 2003.
		Variable Plan Accounting on Stock Option Plans
		The Company has restated prior periods to account for the Company’s stock option plans using variable plan accounting, insofar as the Company had permitted option holders to exercise options by surrendering shares underlying unexercised options in payment of the exercise price of the options. While the Company had accounted for options issued under the plans as fixed awards, it has been determined that variable plan accounting would be appropriate. The use of variable plan accounting requires a charge to compensation expense, commencing at the grant date, in an amount by which the market price of the Company’s stock covered by the grant exceeds the option price. This accounting continues and subsequent changes in the market price of the Company’s stock from the date of grant to the date of exercise or forfeiture result in a change in the measure of compensation cost for the award being recognized but not resulting in an accumulated adjustment below zero. These adjustments increased the Company’s net loss by $97,900 (no material effect on per share amounts) in the second quarter of 2003 and $142,500, or $0.01 per share for the six months ended June 30, 2003.

     The following sets forth the effects of the aforementioned restatements to the Company’s Consolidated Statements of Operations for the three and six months ended June 30, 2003, and its Consolidated Statements of Cash Flows for the six months ended June 30, 2003.

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CANYON RESOURCES CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

14. Restatement of Prior Financial Information, continued:

CONSOLIDATED STATEMENTS OF OPERATIONS

(1)		Briggs Mine asset impairment
(2)		Stock compensation adjustment
(3)		Variable plan accounting on stock option plans
(4)		Beneficial conversion feature for convertible debt

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CANYON RESOURCES CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

14.

Restatement of Prior Financial Information, continued:

CONSOLIDATED STATEMENT OF CASH FLOWS

⁽¹⁾ Variable plan accounting on stock option plans
⁽²⁾ Briggs Mine asset impairment
⁽³⁾ Stock compensation adjustment
⁽⁴⁾ Beneficial conversion feature for convertible debt

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CANYON RESOURCES CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

15.

Recently Issued Financial Accounting Standards:

     In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46, Consolidation of Variable Interest Entities, (FIN No. 46) which provides guidance on the identification and reporting for entities over which control is achieved through means other than voting rights. FIN No. 46 defines such entities as variable interest entities (VIEs). A FASB Staff Position (FSP) issued in October 2003 deferred the effective date of FIN No. 46 to the first interim or annual period ending after December 15, 2003 for entities created before February 1, 2003 if certain criteria are met. Subsequently, during December 2003, the FASB issued a revision to FIN No. 46 (FIN No. 46R) which replaces the original interpretation. Application of this revised interpretation is required in financial statements for companies that have interests in VIEs or potential VIEs commonly referred to as special-purpose entities created after December 15, 2003. Application for entities created before January 1, 2004 is required in financial statements for periods ending after March 15, 2004. The Company believes it has no such variable interest entities and as a result FIN No. 46 did not have an impact on the Company’s financial position, results of operations, or cash flows.

     The EITF formed a committee (Committee) to evaluate certain mining industry accounting issues, including issues arising from the application of SFAS No. 141, Business Combinations (SFAS No. 141) and SFAS No. 142, Goodwill and Other Tangible Assets (SFAS No. 142) to business combinations within the mining industry, accounting for goodwill and other intangibles and the capitalization of costs after the commencement of production, including deferred stripping. The issues discussed also included whether mineral rights conveyed by leases represent tangible or intangible assets and the amortization of such assets. In March 2004, the EITF reached a consensus, subject to ratification by the FASB, that mineral rights conveyed by leases should be considered tangible assets. Mineral rights are defined by the EITF as the legal right to explore, extract, and retain at least a portion of the benefits from mineral deposits. The EITF also reached a consensus, subject to ratification by the FASB, on other mining related issues involving impairment and business combinations.

     On March 31, 2004, the FASB ratified the consensus of the EITF on other mining related issues involving impairment and business combinations. This did not have an impact to the Company’s financial statements since it did not change the Company’s accounting. The FASB also ratified the consensus of the EITF that mineral rights conveyed by leases should be considered tangible assets subject to the finalization of a FSP in this regard.

     On April 30, 2004, the FASB issued a FSP amending SFAS No. 141 and SFAS No. 142 to provide that certain mineral use rights are considered tangible assets and that mineral use rights should be accounted for based on their substance. If recharacterization of an asset results, prior period amounts in the statement of financial position are to be reclassified with any effects on amortization or depreciation prospectively applied. The FSP is effective for the first reporting period beginning after April 29, 2004, with early adoption permitted. As the Company does not presently have the legal right to extract minerals from the McDonald and Seven-Up Pete properties due to the I-137 constraint, the Company has not reclassified prior period amounts and will continue to amortize the carrying value of the properties until the legal impediment is resolved.

     The Committee is continuing its evaluation of mining industry accounting issues, which may have an impact on the Company’s accounting in the future.

16.

Subsequent Events:

     During the third quarter of 2004, the Company received proceeds of approximately $1.4 million in connection with the exercise of 834,000 warrants at $1.67 per share.

     In August 2004, the Company elected not to proceed with the financing of a gold/silver project in the State of Oaxaca, Mexico. As consideration for its prior funding of $0.5 million of exploration, engineering, and metallurgical test work on the property, the Company received 600,000 shares of Gold Resources Corporation, a private Colorado corporation.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statement for Purposes of the “Safe Harbor” Provisions of the Private Securities Litigation Reform Act of 1995.

     The matters discussed in this report on Form 10-Q, when not historical matters, are forward-looking statements that involve a number of risks and uncertainties that could cause actual results to differ materially from projected results. Such factors include, among others, the speculative nature of mineral exploration, commodity prices, production and reserve estimates, environmental and government regulations, availability of financing, force majeure events, and other risk factors as described from time to time in the Company’s filings with the Securities and Exchange Commission. Many of these factors are beyond the Company’s ability to control or predict. The Company disclaims any intent or obligation to update its forward-looking statements, whether as a result of receiving new information, the occurrence of future events, or otherwise.

Restatement of Prior Financial Statements

     The Company has restated its financial statements for prior periods for the financial impact resulting from i) accounting for the Company’s stock option plans variable plan accounting, insofar as the Company had permitted option holders to exercise options by surrendering shares underlying unexercised options in payment of the exercise price of the options; ii) corrections to the Company’s impairment analyses model used for impairment testing of the Briggs Mine assets and the associated impact on the impairment of long-lived assets, depreciation, depletion and amortization capitalized as part of metal inventories and related inventory valuation and cost of sales calculations; iii) expensing certain exploration costs that had been previously recorded as a note receivable; iv) correcting the fair market value of stock issued to an employee as compensation for services; and v) recognizing and amortizing a beneficial conversion feature associated with the Company’s 6% convertible debentures that were issued in March 2003. These adjustments increased the Company’s previously reported net loss for the three and six months ended June 30, 2003 by $2.9 million, or $0.14 per share and $2.1 million, or $0.10 per share, respectively. The ensuing discussion gives effect to the aforementioned adjustments.

Overview

     The Company’s financial condition and liquidity improved from December 31, 2003 to June 30, 2004, primarily due to an equity financing which resulted in proceeds of $7.1 million, the exercise of certain warrants, which resulted in proceeds of $1.0 million, and the exercise of certain stock options, which resulted in proceeds of $0.3 million. These inflows allowed the Company to absorb negative operating cash flow of $2.0 million, spend $0.4 million on development of the last area of known reserves at the Briggs Mine, and pay off the Briggs equipment financing of $1.0 million. The Company ended the quarter with $9.1 million of cash and cash equivalents.

     Revenues for the second quarter increased 72% from the prior year three month period, due to higher production levels associated with recoveries of the high grade North Briggs Layback ore placed on pad during the first quarter of 2004. Improving spot gold prices resulted in price realizations of $394 per ounce during the second quarter and $391 per ounce year to date for 2004, respectively, as compared to $350 per ounce in the second quarter and $326 per ounce year to date for 2003, respectively. Overall, the Company’s results of operations reflect a lower net loss during the second quarter of 2004 due to higher revenues and a favorable adjustment to stock compensation expense. Results for the six months ended June 30, 2004 reflect a lower net loss as the prior period included an impairment charge of $3.4 million, which was partially offset in the current period by higher depreciation, depletion and amortization, higher selling, general and administration costs (principally due to stock compensation expense) and costs associated with funding the I-147 campaign in Montana which is described in the following paragraph.

     On March 2, 2004, a local citizens group (Miners, Merchants and Montanans for Jobs and Economic Opportunity, FOR I-147), filed the language of a new initiative, I-147, to be placed before the voters of Montana at the November 2, 2004 ballot which, if enacted, would allow use of cyanide leaching in open-pit gold mines with specific,

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rigorous engineering practices and environmental safeguards. On July 14, 2004, the official certification for the ballot was announced by the Secretary of State. On July 23, 2004, the Montana Environmental Information Center and a Montana rancher filed suit in the Supreme Court of the State of Montana and Montana State District Court seeking to have I-147 declared legally insufficient and defective in substance and to enjoin the Secretary of State and Attorney General of Montana from placing I-147 on the ballot at the November 2, 2004 general election. The Montana Supreme Court subsequently refused to hear the suit and the Company believes that the initiative will remain on the ballot. If enacted by citizen vote, I-147 would make unnecessary any favorable court action on behalf of the Company’s legal actions and would allow the Company to resume permitting of the McDonald Gold Project. In any case, the Company will continue its legal efforts until the I-137 impediment is removed or otherwise resolved. (See “Other Matters — McDonald Gold Project — Anti-Mining Initiative”)

Critical Accounting Policies and Estimates

     The ensuing discussion and analysis of financial condition and results of operations are based on the Company’s consolidated financial statements, prepared in accordance with accounting principles generally accepted in the United States of America. Certain amounts included in or affecting the Company’s financial statements and related disclosures must be estimated, requiring that certain assumptions be made with respect to values or conditions which cannot be made with certainty at the time the financial statements are prepared. Therefore, the reported amounts of the Company’s assets and liabilities, revenues and expenses, and associated disclosures with respect to contingent assets and obligations are necessarily affected by these estimates. The more significant areas requiring the use of management estimates and assumptions relate to mineral reserves that are the basis for future cash flow estimates and units-of-production amortization determination; recoverability and timing of gold production from the heap leaching process; environmental, reclamation and closure obligations; asset impairments (including estimates of future cash flows); useful lives and residual values of intangible assets; fair value of financial instruments; valuation allowances for deferred tax assets; and contingencies and litigation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. Users of financial information produced for interim periods are encouraged to refer to the Company’s accounting policies, footnotes to the financial statements, and detailed discussion of critical accounting policies and estimates set forth in its Annual Report on Form 10-K/A.

Results of Operations

     The Company recorded a net loss of $2.4 million, or $0.09 per share, on revenues of $5.8 million for the second quarter of 2004. For the six months ended June 30, 2004, the Company recorded a net loss of $6.3 million, or $0.23 per share, on revenues of $7.6 million. This compares to a net loss of $5.8 million, or $0.28 per share, on revenues of $3.4 million for the second quarter of 2003 and a net loss of $6.9 million, or $0.33 per share, on revenues of $7.3 million during the first six months of 2003.

     For the three months ended June 30, 2004, the Company sold 14,805 ounces of gold at an average price of $394 per equivalent gold ounce. For the comparable period of 2003, the Company sold 9,681 ounces of gold and 4,043 ounces of silver at an average realized price of $350 per equivalent gold ounce. The New York Commodity Exchange (COMEX) gold price averaged $393 and $347 per ounce for the three months ended June 30, 2004 and 2003, respectively.

     The following table summarizes the Company’s gold deliveries and revenues for the three months ended June 30, 2004 and the comparable period for 2003:

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     For the six months ended June 30, 2004, the Company sold 19,345 ounces of gold and 2,200 ounces of silver at an average realized price of $391 per equivalent gold ounce. For the comparable period of 2003, the Company sold 22,231 ounces of gold and 8,343 ounces of silver at an average realized price of $326 per equivalent gold ounce. The New York Commodity Exchange (COMEX) gold price averaged $401 and $350 per ounce for the six months ended June 20, 2004 and 2003, respectively.

     The following table summarizes the Company’s gold deliveries and revenues for the six months ended June 30, 2004 and the comparable period for 2003:

     Cost of sales was $4.1 million for the three months ended June 30, 2004, as compared to $3.9 million for the three months ended June 30, 2003. For the six months ended June 30, 2004, cost of sales was $6.4 million as compared to $7.0 million in the prior period. For the three and six months ended June 30, 2004, cost of sales includes write downs of inventory to net realizable value of $0.4 million and $1.0 million, respectively. For the three and six months ended June 30, 2003, cost of sales includes write downs of inventory to net realizable value of $0.7 million (restated) and $0.7 million (restated), respectively.

     Depreciation, depletion and amortization was higher in the current periods due to a greater number of recoverable ounces mined as the Company finished mining of the high grade North Briggs layback.

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     Selling, general and administrative expense was approximately $0.07 million lower for the three months ended June 30, 2004, as compared to the same period ended June 30, 2003, due to a mark-to-market adjustment recorded in connection with the Company’s stock option plans partially offset by the Company’s funding of the I-147 campaign in Montana. For the six months ended June 30, 2004, selling, general and administrative expense was approximately $1.5 million higher than the six months ended June 20, 2003, due principally to compensation recorded with the Company’s stock option plans and costs associated with funding the I-147 campaign in Montana.

     During the second quarter of 2004, the Company held discussions with the Montana Department of Environmental Quality (DEQ) concerning reclamation at the Kendall Mine site. After these discussions, the Company modified its reclamation plan to include items which had been developed by an engineering contractor to the DEQ and subsequently, revised its estimate to achieve closure of the Kendall Mine. Which resulted in a charge of $0.9 million. Subsequently, in August 2004, the DEQ notified the Company that it could not complete the final capping of the leach pads until an Environmental Impact Study (EIS) was completed. The Company’s estimate to achieve mine closure could be further impacted by the outcome of the DEQ’s decision following an EIS.

     During the second quarter of 2003, the Company determined that certain gold ounces contained in sulfide ores were no longer economic and recorded a write down of $3.4 million on the Briggs Mine long-lived assets as a consequence.

     During the second quarter of 2004, the Company decided not to proceed with certain contemplated property sales. As a result, the Company wrote off certain expenses related to these property sales of $0.151 million of other expense.

     During the six months ended June 30, 2004, the Company recorded gains on forward gold contracts of approximately $0.1 million. During the three and six months ended June 30, 2003, gains were recorded on forward gold contracts of approximately $0.1 million and $0.6 million, respectively. The Company is currently unhedged and does not anticipate that any further price protection arrangements on the remaining Briggs production will be entered into.

     On January 1, 2003, the Company became subject to the accounting and reporting requirements of Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations (SFAS No. 143). SFAS No. 143 establishes accounting and reporting standards for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. Fair value is determined by estimating the retirement obligations in the period an asset is first placed in service and then adjusting the amount for estimated inflation and market risk contingencies to the projected settlement date of the liability. The result is then discounted to a present value from the projected settlement date to the date the asset was first placed in service. The present value of the asset retirement obligation is recorded as an additional property cost and as an asset retirement liability. The amortization of the additional property cost (using the units of production method) is included in depreciation, depletion and amortization expense and the accretion of the discounted liability is recorded as a separate operating expense in the Company’s Statement of Operations. Prior to adoption of SFAS No. 143, an accrual for the Company’s estimated asset retirement obligations (site specific reclamation costs for earthwork, revegetation, water treatment and dismantlement of facilities) was made using the units of production method over the life of the property and was included in cost of sales. Upon adoption of SFAS No. 143, the Company recorded a loss of $11,700 as the cumulative effect of a change in accounting principle.

Liquidity & Capital Resources

     For the six months ended June 30, 2004, operating activities used $2.0 million of cash, investing activities used $0.4 million of cash and financing activities provided $7.3 million, resulting in a net increase in cash of $4.9 million. Cash and cash equivalents at June 30, 2004 was $9.1 million.

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     During the first six months of 2004, the Company’s financing activities included: (i) $7.1 million received through the sale of 1,631,000 shares of common stock at a price of $4.37 per share, (ii) $1.0 million received in connection with the exercise of certain warrants, (iii) $0.2 million received in connection with the exercise of stock options, and (iv) $1.0 million used to pay off the Briggs equipment financing.

Outlook

Summary

     The Company believes that its cash requirements over the next 12 months can be funded through a combination of existing cash and cash flow from operations, even though there has been negative cash flow from operations for the six months ended June 30, 2004. The Company’s long-term liquidity may be impacted by the scheduled wind down of operations at the Briggs Mine during 2004-2005, which is currently the only internal source of cash flow. The Company is continually evaluating business opportunities such as joint ventures and mergers and acquisitions with the objective of creating additional cash flow to sustain the corporation, provide a future source of funds for growth, as well as to continue its litigation efforts with respect to the McDonald Gold Project. Moreover, should the I-137 legal impediment be removed through litigation or voter initiative (See “Other Matters — McDonald Gold Project - Anti-Mining Initiative”), significant capital will be necessary to resume permitting and ultimately develop the McDonald Gold Project. While the Company believes it will be able to finance its continuing activities, there are no assurances of success in this regard or in the Company’s ability to obtain additional financing through capital markets, joint ventures, or other arrangements in the future. If management’s plans are not successful, operations and liquidity may be adversely impacted.

Operations

     Active mining at the Briggs Mine was concluded in April 2004. Ore on the heap leach pad will be actively leached throughout 2004. Reclamation of the waste dumps commenced in the second quarter of 2004 and will continue through the year. The Company expects to spend approximately $1.1 million on reclamation over the next twelve months. The Briggs Mine is expected to produce approximately 31,000 ounces of gold in 2004 at cash operating costs of approximately $200 — $220 per ounce.

     The Company expects to spend up to $1.7 million on closure activities at the Kendall Mine during 2004 relating to pad capping, recontouring, and water management efforts.

     Expenditures at the McDonald Gold Project for legal and land holding costs are expected to be approximately $0.5 million in 2004. In addition, the Company is participating financially in the new initiative, I-147, for the November 2004 ballot which, if enacted, would allow use of cyanide leaching in open-pit mines with specific, rigorous engineering practices and environmental safeguards.

Financing

     At June 30, 2004, the Company had outstanding warrants issued in connection with previous transactions as follows: i) warrants to purchase 834,000 shares of common stock at an exercise price of $1.67 per share, which expire on September 30, 2004 (all warrants subsequently exercised prior to September 30, 2004) and ii) warrants to purchase 2,251,800 shares of common stock at a price of $1.98 per share through December 1, 2004, or at a price of $2.16 per share through December 1, 2005. Aggregate proceeds of between $5.9 million and $6.3 million would be realized on exercise of these warrants, depending on the terms in effect at the time of exercise.

     The Company’s 6% convertible debentures ($2.7 million of principal at June 30, 2004), are convertible by the holders to common stock of the Company at any time at a conversion rate of $1.38 per share of common stock. The principal amount, if not otherwise converted, is due March 1, 2005. The Company’s stock price at the end of June 2004 was $3.89 per share.

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Contractual Obligations

     The Company’s contractual obligations are as follows:

(1)		Convertible debentures due March 1, 2005, which can be converted by the holder at any time to common stock of the Company at a conversion rate of $1.38 per share of common stock. The Company’s stock price at the end of June 2004 was $3.89 per share.
(2)		One year purchase contract for cyanide consumption at the Briggs Mine.

Other Matters

McDonald Gold Project – Anti-Mining Initiative

     In November 1998, the Montana electorate passed an anti-mining initiative (I-137) by a vote of 52% to 48%. I-137, as modified by the State Legislature in April 1999, that bans development of new gold and silver mines, which use open-pit mining methods and cyanide in the treatment and recovery process. In April 2000, the SPV filed lawsuits in Montana State District Court and in the United States District Court, seeking to have I-137 declared unconstitutional, or, alternatively, to obtain a “takings” or damage award for the lost value of the McDonald, Seven-Up Pete and Keep Cool mineral properties. These lawsuits are based on, amongst others, (i) the right not to be deprived of property without due process of law; (ii) the right to equal protection under the laws; and (iii) the right to be protected against laws which impair the obligations of existing contracts. The United States District Court issued a ruling August 30, 2001 in which the Court dismissed the SPV’s substantive due process claim but, as requested by the SPV, ruled that the remainder of the SPV’s claims could be pursued at such time as the State lawsuit was concluded. The Montana State District Court issued a ruling November 1, 2001 in response to a Motion to Dismiss and a Motion For Summary Judgment by the State of Montana. In this ruling, the Court dismissed four of the SPV’s fourteen counts, including its substantive due process and equal protection challenges to I-137’s validity. The decision maintained for adjudication the contract impairment validity challenge, contract damage claims, and all of the takings claims. Following the November 2001 ruling by the State District Court, the State filed a new Motion for Summary Judgment as to all claims. In an Order dated December 9, 2002, the Court granted the State Summary Judgment on all of the remaining legal claims of the Company’s lawsuit. On January 14, 2003, the Company filed an appeal with the Montana State Supreme Court of the State District Court Order. Oral arguments were heard by the Montana Supreme Court on October 28, 2003. The Company expects a ruling during 2004.

     On March 2, 2004, a local citizens group (Miners, Merchants and Montanans for Jobs and Economic Opportunity, FOR I-147), filed the language of a new initiative, I-147, to be placed before the voters of Montana at the November 2, 2004 ballot which, if enacted, would allow use of cyanide leaching in open-pit gold mines with specific, rigorous engineering practices and environmental safeguards. On July 14, 2004, the official certification for the ballot was announced by the Secretary of State. On July 23, 2004, the Montana Environmental Information Center and a Montana rancher filed suit in the Supreme Court of the State of Montana and Montana State District Court seeking to have I-147 declared legally insufficient and defective in substance and to enjoin the Secretary of State and Attorney General of Montana from placing I-147 on the ballot at the November 2, 2004 general election. The Montana Supreme

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Court subsequently refused to hear the suit and the Company believes that the initiative will remain on the ballot. If enacted by citizen vote, I-147 would make unnecessary any favorable court action on behalf of the Company’s legal actions described in the preceding paragraph and would allow the Company to resume permitting of the McDonald Gold Project. In any case, the Company will continue its legal efforts until the I-137 impediment is removed or otherwise resolved.

McDonald Gold Project – State Leases

     On September 24, 1998, the Montana Department of Natural Resources (DNRC), the entity that administers state mineral leases, unilaterally decided to cancel the permitting extension of the 10-year lease term of the state leases that pertain to the McDonald Gold Project which would require the Company, after a period of approximately seventeen months, to commence paying a delay rental of $150,000 per month in order to maintain the leases. In February 2000, pursuant to its September 1998 decision, the DNRC determined that the primary terms of the mineral leases had expired. The Company appealed the action of the DNRC in an administrative hearing process and the DNRC Hearing Examiner affirmed the DNRC action. It is the Company’s position that the permitting process has been interrupted by the threat and passage of I-137 and, thus, the permit extension is continued until the governmental impediment is resolved. As part of the I-137 lawsuit filed in April 2000 against the State of Montana, the Company asked the court to review and invalidate the DNRC’s action, however, the court, in its December 9, 2002 order as described in the preceding paragraph, denied the Company’s petition for judicial review. On January 14, 2003, the Company filed an appeal with the Montana State Supreme Court. Oral arguments were heard by the Montana State Supreme Court on October 28, 2003. The Company expects a ruling during 2004.

     The new initiative, I-147, described above contains a provision which, if enacted, would restore all contractual interest or right in a mineral estate which was diminished or lost as a consequence of the enactment of I-137 to the same rights at the date of the enactment of I-137 (November 3, 1998). Since the state mineral leases were in full force and effect on November 3, 1998, the new initiative, if enacted by citizen vote in November 2004, would restore the state mineral leases to full validity.

     The Company believes the state leases are still in effect. The Company has made this determination based on our Montana legal counsel’s opinion, the clear statement by the State of Montana notifying the Company that annual rental payments, which are still being made and deposited by the State, would be refundable once the leases have been found to be terminated, and finally, the absence of actions of the State of Montana with respect to reclamation on the land covered by the leases.

Briggs Mine – Surety Matters

     The Briggs Mine operates under permits granted by various agencies including the U.S. Bureau of Land Management (BLM), Inyo County, the California Department of Conservation, and the Lahontan Regional Water Quality Control Board (Lahontan). These agencies have jointly required the Company to post a reclamation bond in the amount of $3,030,000 to ensure appropriate reclamation. Additionally, the Company was required by Lahontan to post a $1,010,000 bond to ensure adequate funds to mitigate any “foreseeable release”, as defined, of pollutants to state waters. Both bonds are subject to annual review and adjustment.

     In 2000, in response to a demand for an increase in collateral by the Surety who issued the above described bonds, the Company granted a security interest in 28,000 acres of mineral interests in Montana. In addition, the Company agreed to make cash deposits with the Surety totaling $1.5 million over a three year period at the rate of $0.5 million per year, commencing June 30, 2001. The Company has not made any deposits to date, and is in discussions with the Surety to reschedule the deposit requirements. If an acceptable rescheduling of the deposit requirements cannot be agreed to, the Surety could seek to terminate the bonds which could result in the Company becoming liable for the principal amounts under its collateral agreement with the Surety. In April 2004, the Company ceased active mining at Briggs and has commenced reclamation activities.

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Kendall Mine – Environmental Regulation

     The Kendall Mine holds permits granted by the Montana Department of Environmental Quality (DEQ). In February 2002, the DEQ issued a decision that a comprehensive Environmental Impact Statement (EIS) is needed for completion of remaining reclamation at Kendall. The Company feels that it is crucial that reclamation proceed at Kendall without further delay and, therefore, the company commenced significant earthwork reclamation in June 2004. The primary contractor for this $1.5 million phase of the project is MK Weeden Construction, a local Lewistown firm. The Company’s decision to change the method of funding this $1.5 million phase now has resulted in an increase in asset retirement obligations of $0.9 million. The Company had previously contemplated an exchange of land with this contractor for earthwork reclamation. During the second quarter of 2004, the Company decided to proceed with the reclamation work directly and defer the sale to a future date. The Company’s estimate to achieve mine closure could be impacted by the outcome of a DEQ decision following an EIS. The Company has $1,928,800 on deposit in an interest bearing account with the DEQ for reclamation at the Kendall Mine.

Kendall Mine – Legal Matters

     In October 2001, a Plaintiff group filed suit in Montana District Court against the Company and its wholly-owned subsidiary, CR Kendall Corporation, alleging violation of water rights and other torts in connection with the operation of the Kendall Mine. The Complaint seeks unspecified damages and punitive damages. The Company believes the allegations are completely without merit and that the Company will prevail in this matter.

     In August 2002, a Preliminary Injunction was issued in Montana District Court on behalf of the Plaintiff group in connection with the Company’s auction of certain mineral rights and fee lands in western Montana. In October 2002, the Court issued a Supplemental Order which will sequester up to $528,000 of any proceeds realized from the auction until such time as the lawsuit is concluded. As of June 30, 2004, $272,100 had been remitted to the Court as required by the Order.

     In May 2004, the Company became aware of a suit filed in March 2004 in Montana District Court against the Company, CR Kendall Corporation, and the Kendall Mine alleging violations of the Federal Pollution Control Act. The Complaint was filed by the Montana Environmental Information Center, Inc. and Earthworks/Mineral Policy Center, Inc. and seeks declaratory judgment, injunctive relief, remediation and the imposition of civil penalties. The Company believes these allegations are completely without merit and that the Company will prevail in this matter.

Recently Issued Financial Accounting Standards

     In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46, Consolidation of Variable Interest Entities, (FIN No. 46) which provides guidance on the identification and reporting for entities over which control is achieved through means other than voting rights. FIN No. 46 defines such entities as variable interest entities (VIEs). A FASB Staff Position issued in October 2003 deferred the effective date of FIN No. 46 to the first interim or annual period ending after December 15, 2003 for entities created before February 1, 2003 if certain criteria are met. Subsequently, during December 2003, the FASB issued a revision to FIN No. 46 (FIN No. 46R) which replaces the original interpretation. Application of this revised interpretation is required in financial statements for companies that have interests in VIEs or potential VIEs commonly referred to as special-purpose entities created after December 15, 2003. Application for entities created before January 1, 2004 is required in financial statements for periods ending after March 15, 2004. The Company believes it has no such variable interest entities and as a result FIN No. 46 did not have an impact on the Company’s financial position, results of operations, or cash flows.

     The Emerging Issues Task Force (EITF) formed a committee (Committee) to evaluate certain mining industry accounting issues, including issues arising from the application of SFAS No. 141, Business Combinations (SFAS No. 141) and SFAS No. 142, Goodwill and Other Tangible Assets (SFAS No. 142) to business combinations within the mining industry, accounting for goodwill and other intangibles and the capitalization of costs after the commencement of production, including deferred stripping. The issues discussed also included whether mineral rights conveyed by

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leases represent tangible or intangible assets and the amortization of such assets. In March 2004, the EITF reached a consensus, subject to ratification by the FASB, that mineral rights conveyed by leases should be considered tangible assets. Mineral rights are defined by the EITF as the legal right to explore, extract, and retain at least a portion of the benefits from mineral deposits. The EITF also reached a consensus, subject to ratification by the FASB, on other mining related issues involving impairment and business combinations.

     On March 31, 2004, the FASB ratified the consensus of the EITF on other mining related issues involving impairment and business combinations. This did not have an impact to the Company’s financial statements since it did not change the Company’s accounting. The FASB also ratified the consensus of the EITF that mineral rights conveyed by leases should be considered tangible assets subject to the finalization of a FASB Staff Position (FSP) in this regard.

     On April 30, 2004, the FASB issued a FSP amending SFAS No. 141 and SFAS No. 142 to provide that certain mineral use rights are considered tangible assets and that mineral use rights should be accounted for based on their substance. If recharacterization of an asset results, prior period amounts in the statement of financial position are to be reclassified with any effects on amortization or depreciation prospectively applied. The FSP is effective for the first reporting period beginning after April 29, 2004, with early adoption permitted. As the Company does not presently have the legal right to extract minerals from the McDonald and Seven-Up Pete properties due to the I-137 constraint, the Company has not reclassified prior period amounts and will continue to amortize the carrying value of the properties until the legal impediment is resolved.

     The Committee is continuing its evaluation of mining industry accounting issues, which may have an impact on the Company’s accounting in the future.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Commodity Prices

     The Company’s earnings and cash flow are significantly impacted by changes in the market price of gold. Gold prices can fluctuate widely and are affected by numerous factors, such as demand, production levels, economic policies of central banks, producer hedging, and the strength of the U.S. dollar relative to other currencies. During the last five years, the average annual market price has fluctuated between $271 per ounce and $364 per ounce.

Interest Rates

     At June 30, 2004, the Company’s debt was approximately $2.7 million which relates to its 6% convertible debentures. Thus, the Company is not presently subject to interest rate risk.

Foreign Currency

     The price of gold is denominated in U.S. dollars, and the Company’s gold production operations are in the United States. The Company conducts only a minor amount of exploration activity in foreign countries and has minimal foreign currency exposure.

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Item 4. Controls and Procedures

     The Company’s disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed in our Exchange Act reports are recorded, processed, summarized and reported as specified in the SEC’s rules. Disclosure controls and procedures are designed with the objective that information is accumulated and communicated to the Company’s management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosures. However, any system of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance that the objective of the system are met and management necessarily is required to apply its judgment in evaluating the cost benefit relationship of possible controls and procedures.

     The Company’s management, including our principal executive and financial officers have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934) as of the end of the period covered by this second quarter report on Form 10-Q for June 30, 2004. At the time of this evaluation, we were aware of the following weaknesses related to our internal control over financial reporting and as a result have concluded that the Company’s disclosure controls and procedures were not effective as of June 30, 2004.

     During the review of the financial statements for the first quarter ending March 31, 2004 PricewaterhouseCoopers, our independent registered public accountants, identified and communicated to the Company and its Audit Committee a material weakness which is also a reportable condition (as defined under standards established by the American Institute of Certified Public Accountants (AICPA) relating to the Company’s internal controls and procedures over its financial reporting for stock option plans. In response thereto, the Company performed a review of all stock option plans and the method of all related stock option exercises by employees since the plan’s inception in 1982. This review identified that a minority (approximately 25%) of the employee stock options were exercised using the share withholding method for payment of the exercise price. Based on this review, the Company determined that the stock option plans would have to be recorded in the financial statements under variable plan accounting, which resulted in the restatement filed as Amendment No. 1 to Form 10-K/A.

     During the review of the financial statements for the second quarter ending June 30, 2004, PricewaterhouseCoopers communicated with both the Company and its Audit Committee that the method used for testing possible impairment of the Briggs Mine may be inappropriate. After an evaluation of the method, the Company determined that it inappropriately included ounces recovered from the leach pad inventory. The Company changed its model using only projected ounces from in-ground reserves which resulted in earlier and more frequent impairments than had previously been recorded. The Company also determined that the following items should have been reported differently: 1) a loan made to a private exploration company, the proceeds of which were used for exploration, should have been accounted for as an exploration expense; 2) the cost of restricted shares issued under a contract for services should have been recorded at fair market value at the time the contract was executed and or amended; 3) a beneficial conversion feature and related amortization expense should have been recognized with regards to a private placement of a convertible debenture for certain subscribers that executed the subscription agreement on a date when the conversion price was lower than the market price of the Company’s common stock.

     The items discussed in the preceding paragraphs constitute material weaknesses in internal controls as defined by the standards established by the AICPA. A material weakness is a reportable condition in which the design or operation of one or more internal control components does not reduce to a relatively low level the risk that errors or fraud in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. The Company believes that the material weaknesses resulted from:

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1.		insufficient review of the method used for testing the impairment of the Briggs Mine;
2.		insufficient analysis, documentation and review of the selection and application of generally accepted accounting principles related to complex transactions.

     Our Audit Committee held a meeting with management and the independent registered public accountants and determined that the Company’s financial statements for 2003 and prior periods and quarterly period ended March 31, 2004, should be restated. Accordingly, the Company filed Amendment No. 2 to Form 10-K/A and Amendment No. 1 to Form 10-Q/A. The restatement of the Company’s prior period financial statements contained in this Form 10-Q are described in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations under Restatement of Financial Information,” and in Note 14 of the Notes to the Interim Consolidated Financial Statements included in Part I, Item 1.

     We have undertaken the following initiatives with respect to our internal controls and procedures in order to address the material weaknesses.

1.		adding additional staff at the corporate controller level,
2.		scheduled training for accounting staff to heighten awareness of generally accepted accounting principles,
3.		hired outside consultants to document our accounting processes and identify areas that require control or process improvements, and
4.		implementation of initial recommendations by the outside consultants.

     Other than retention of outside consultants to identify areas of improvement, for the period ending June 30, 2004, there have been no changes in the Company’s internal controls over financial reporting that have materially affected or are reasonably likely to materially affect internal controls over financial reporting for this period. Subsequent to June 30, 2004, we began implementation of the initiatives discussed above, which are reasonably likely to improve the Company’s internal controls over financial reporting.

     In connection with the identified internal control weaknesses, we have performed substantial additional procedures to confirm that the financial information fairly presents our operating results and financial condition for the periods presented, therefore our principal executive and financial officers have concluded that our disclosure controls and procedures were effective as of October 25, 2004.

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PART II OTHER INFORMATION

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SIGNATURES

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

	CANYON RESOURCES CORPORATION
Date: October 25, 2004	/s/ Richard H. De Voto
	Richard H. De Voto
	Chief Executive Officer

Date: October 25, 2004	/s/ Gary C. Huber
	Gary C. Huber
	Chief Financial Officer

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Index to Exhibits