##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
 QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
 For the quarterly period ended September 30, 2006
 or
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
 For the transition period from  to
 Commission file number 1-11887
 CANYON RESOURCES CORPORATION
   
 þ o
  o o þ
 o þ




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##### 



CANYON RESOURCES CORPORATION
 FORM 10-Q
 For the Nine Months ended September 30, 2006
 TABLE OF CONTENTS
 PART I FINANCIAL INFORMATIONItem 1.
    
    Financial Statements
    
    Page iiItem 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    Page 16Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    Page 27Item 4.
    
    Controls and Procedures
    
    Page 28PART II OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    Page 29Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    Page 29Item 3.
    
    Defaults Upon Senior Securities
    
    Page 29Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    Page 29Item 5.
    
    Other Information
    
    Page 29Item 6.
    
    Exhibits
    
    Page 29SIGNATURES
    
    Page 30Certification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906




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##### Table of Contents



PART I FINANCIAL INFORMATION
 
 Item 1. Financial Statements
   Consolidated Balance Sheets
    
    Page 1Consolidated Statements of Operations
    
    Page 2Consolidated Statements of Cash Flows
    
    Pages 3-4Consolidated Statement of Changes in Stockholders Equity
    
    Page 5Notes to Interim Consolidated Financial Statements
    
    Pages 6-15Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    Page 16Item 3. Quantitative and Qualitative Disclosures About
Market Risk
    
    Page 27Item 4. Controls and Procedures
    
    Page 28




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CANYON RESOURCES CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
  September 30,
    
    
    December 31,2006
    
    
    2005ASSETSCash and cash equivalents
    
    $
    1,354,400
    
    
    $
    5,649,200Short term investments
    
    
    4,500,000
    
    
    
    Restricted cash
    
    
    
    
    
    
    281,300Accounts receivable
    
    
    16,100
    
    
    
    16,400Metal inventories
    
    
    124,100
    
    
    
    65,900Prepaid and other current assets
    
    
    465,200
    
    
    
    170,900Total current assets
    
    
    6,459,800
    
    
    
    6,183,700Property, plant and mine development, net
    
    
    6,490,600
    
    
    
    5,276,700Restricted cash
    
    
    3,337,800
    
    
    
    2,939,900Other non current assets
    
    
    246,500
    
    
    
    246,400Total Assets
    
    $
    16,534,700
    
    
    $
    14,646,700LIABILITIES AND STOCKHOLDERS EQUITYAccounts payable
    
    $
    755,200
    
    
    $
    474,100Asset retirement obligations
    
    
    1,284,300
    
    
    
    1,210,600Payroll liabilities
    
    
    109,600
    
    
    
    216,900Other current liabilities
    
    
    21,400
    
    
    
    86,600Total current liabilities
    
    
    2,170,500
    
    
    
    1,988,200Notes
payable  long term
    
    
    825,000
    
    
    
    825,000Warrant liabilities
    
    
    147,400
    
    
    
    360,000Capital
leases  long term
    
    
    42,700
    
    
    
    25,900Asset retirement obligations
    
    
    3,581,100
    
    
    
    4,558,600Total liabilities
    
    
    6,766,700
    
    
    
    7,757,700Commitments and contingencies (Note 13)Common stock ($.01 par value) 100,000,000 shares authorized;
issued and outstanding: 43,838,702 at September 30, 2006, and
38,320,533 at December 31, 2005
    
    
    438,400
    
    
    
    383,200Capital in excess of par value
    
    
    139,727,200
    
    
    
    133,949,900Retained deficit
    
    
    (130,397,600
    )
    
    
    (127,444,100
    )Total Stockholders Equity
    
    
    9,768,000
    
    
    
    6,889,000Total Liabilities and Stockholders Equity
    
    $
    16,534,700
    
    
    $
    14,646,700
  1




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##### Table of Contents



CANYON RESOURCES CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
  Three months ended September 30,
    
    
    Nine months ended September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005REVENUESales
    
    $
    2,400
    
    
    $
    914,200
    
    
    $
    1,008,800
    
    
    $
    3,053,600EXPENSESCost of sales
    
    
    
    
    
    
    638,800
    
    
    
    866,600
    
    
    
    2,606,800Depreciation, depletion and amortization
    
    
    8,600
    
    
    
    198,000
    
    
    
    24,200
    
    
    
    1,812,600Selling, general and administrative
    
    
    1,005,600
    
    
    
    401,700
    
    
    
    2,644,300
    
    
    
    1,635,200Exploration costs
    
    
    381,800
    
    
    
    286,500
    
    
    
    1,115,000
    
    
    
    1,176,400Impairment
of long lived assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,242,100Accretion expense
    
    
    50,700
    
    
    
    33,400
    
    
    
    152,300
    
    
    
    100,400Debenture conversion expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    448,200Loss on asset disposals
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,7001,446,700
    
    
    
    1,558,400
    
    
    
    4,802,400
    
    
    
    17,024,400OTHER INCOME (EXPENSE)Interest income
    
    
    119,700
    
    
    
    45,300
    
    
    
    256,000
    
    
    
    119,900Interest expense
    
    
    (15,700
    )
    
    
    (13,000
    )
    
    
    (42,100
    )
    
    
    (67,100
    )Gain on sale of securities
    
    
    
    
    
    
    
    
    
    
    882,200
    
    
    
    Gain (loss) on derivative instruments
    
    
    240,900
    
    
    
    
    
    
    
    (69,600
    )
    
    
    Registration rights penalties
    
    
    (102,000
    )
    
    
    
    
    
    
    (102,000
    )
    
    
    Other
    
    
    200
    
    
    
    500
    
    
    
    (84,400
    )
    
    
    21,600243,100
    
    
    
    32,800
    
    
    
    840,100
    
    
    
    74,400Net Loss
    
    $
    (1,201,200
    )
    
    $
    (611,400
    )
    
    $
    (2,953,500
    )
    
    $
    (13,896,400
    )Basic and diluted net loss per share
    
    $
    (0.03
    )
    
    $
    (0.02
    )
    
    $
    (0.07
    )
    
    $
    (0.42
    )Basic and diluted weighted average
shares outstanding
    
    
    43,824,500
    
    
    
    34,542,100
    
    
    
    40,735,500
    
    
    
    33,122,600
  2




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##### Table of Contents



CANYON RESOURCES CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
  Nine months ended September 30,2006
    
    
    2005Cash flows from operating activities:Net loss
    
    $
    (2,953,500
    )
    
    $
    (13,896,400
    )Adjustments to reconcile net loss to net cash
used in operating activities:Depreciation, depletion and amortization
    
    
    24,200
    
    
    
    1,812,600Receivable write-off
    
    
    13,800
    
    
    
    Amortization of beneficial conversion feature
    
    
    
    
    
    
    11,300Debenture conversion expense
    
    
    
    
    
    
    448,200Impairment of inventory
    
    
    17,600
    
    
    
    143,100Impairment of long-lived assets
    
    
    
    
    
    
    9,242,100Loss on asset dispositions
    
    
    
    
    
    
    2,700Accretion of asset retirement obligation
    
    
    152,300
    
    
    
    100,400Share-based compensation expense
    
    
    294,900
    
    
    
    14,500Warrant extension cost
    
    
    70,800
    
    
    
    Gain on sale of securities
    
    
    (882,200
    )
    
    
    Loss on derivative instruments
    
    
    69,600
    
    
    
    Purchase of short term investments
    
    
    (6,501,800
    )
    
    
    Changes in operating assets and liabilities:(Increase) decrease in accounts receivable
    
    
    (13,500
    )
    
    
    605,900(Increase) decrease in inventories
    
    
    (75,800
    )
    
    
    950,800Increase in prepaid and other assets
    
    
    (294,400
    )
    
    
    (52,400
    )Decrease in accounts payable and other
current liabilities
    
    
    (42,000
    )
    
    
    (190,800
    )Decrease in asset retirement obligations
    
    
    (1,056,100
    )
    
    
    (1,676,700
    )Increase in restricted cash
    
    
    (116,600
    )
    
    
    (39,300
    )Total adjustments
    
    
    (8,339,200
    )
    
    
    11,372,400Net cash used in operating activities
    
    
    (11,292,700
    )
    
    
    (2,524,000
    )Cash flows from investing activities:Purchases and development of property and equipment
    
    
    (1,045,500
    )
    
    
    (164,400
    )Redemption of short term investments
    
    
    2,001,800
    
    
    
    Proceeds on asset dispositions
    
    
    10,000
    
    
    
    Proceeds from sale of securities
    
    
    882,200
    
    
    
    Net cash provided by (used in) investing activities
    
    
    1,848,500
    
    
    
    (164,400
    )Cash flows from financing activities:Issuance of stock
    
    
    5,100,000
    
    
    
    3,155,000Stock issuance cost
    
    
    (302,900
    )
    
    
    (47,500
    )Issuance of warrants
    
    
    357,200
    
    
    
    Payments on debt
    
    
    
    
    
    
    (924,000
    )Payments on capital lease obligations
    
    
    (4,900
    )
    
    
    (12,200
    )Net cash provided by financing activities
    
    
    5,149,400
    
    
    
    2,171,300Net decrease in cash and cash equivalents
    
    
    (4,294,800
    )
    
    
    (517,100
    )Cash and cash equivalents, beginning of year
    
    
    5,649,200
    
    
    
    4,638,300Cash and cash equivalents, end of period
    
    $
    1,354,400
    
    
    $
    4,121,200
  3




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##### Table of Contents



CANYON RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
 Nine months ended September 30,2006
    
    2005Supplemental disclosures of cash flow information:1. Interest paid
    
    $
    42,100
    
    
    $
    55,800Supplemental schedule of non-cash financing activities:Non-cash financing activities:1. Issuance of 936,200 shares to retire convertible debentures
    
    $
    
    
    
    $
    675,0002. Issuance of 500,000 shares to repurchase Briggs crusher
    
    $
    
    
    
    $
    370,0003. Issuance of 50,000 options to purchase shares to an investor relations
firm in connection with a contract for services
    
    $
    
    
    
    $
    14,5004. Issuance of 30,000 shares to purchase Suitcase/Mineral Hill property
    
    $
    30,300
    
    
    $
    5. Fair value of amended warrants
    
    $
    282,200
    
    
    $
    6. Issued 535,000 series A warrants for broker placement fee
    
    $
    219,300
    
    
    $
    
  4




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##### Table of Contents



CANYON RESOURCES CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
  Common Stock
    
    
    Capital in
    
    
    
    
    
    
    TotalNumber of
    
    
    At Par
    
    
    Excess of Par
    
    
    Retained
    
    
    StockholdersShares
    
    
    Value
    
    
    Value
    
    
    Deficit
    
    
    EquityBalances, December 31, 2005
    
    
    38,320,533
    
    
    $
    383,200
    
    
    $
    133,949,900
    
    
    $
    (127,444,100
    )
    
    $
    6,889,000Share-based compensation
    
    
    41,429
    
    
    
    400
    
    
    
    294,500
    
    
    
    
    
    
    
    294,900Fair value of amended warrants
    
    
    
    
    
    
    
    
    
    
    282,200
    
    
    
    
    
    
    
    282,200Warrant extension cost
    
    
    
    
    
    
    
    
    
    
    70,800
    
    
    
    
    
    
    
    70,800Shares issued for purchase
of property
    
    
    30,000
    
    
    
    300
    
    
    
    30,000
    
    
    
    
    
    
    
    30,300Stock and warrants issued for
cash, net of issuance costs
of $302,900
    
    
    5,100,000
    
    
    
    51,000
    
    
    
    4,746,100
    
    
    
    
    
    
    
    4,797,100Exercise of warrants
    
    
    346,740
    
    
    
    3,500
    
    
    
    353,700
    
    
    
    
    
    
    
    357,200Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,953,500
    )
    
    
    (2,953,500
    )Balances, September 30, 2006
    
    
    43,838,702
    
    
    $
    438,400
    
    
    $
    139,727,200
    
    
    $
    (130,397,600
    )
    
    $
    9,768,000
  5




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 1. Basis of Presentation :
   2. Management Estimates and Assumptions :
  3. Restricted Cash :
  September 30,
    
    
    December 31,2006
    
    
    2005Collateral for Letter of Credit (a)
    
    $
    249,000
    
    
    $
    249,000Collateral for reclamation bonds and other contingent events (b)
    
    
    162,100
    
    
    
    156,500Kendall Mine reclamation (c)
    
    
    2,078,500
    
    
    
    2,007,500McDonald Gold Project cash reclamation bond (d)
    
    
    526,900
    
    
    
    526,900Net proceeds from property sales (e)
    
    
    291,300
    
    
    
    281,300Briggs cash reclamation bond (f)
    
    
    30,000
    
    
    
    3,337,800
    
    
    
    3,221,200Current portion (e)
    
    
    
    
    
    
    281,300Noncurrent portion
    
    $
    3,337,800
    
    
    $
    2,939,900
 
 (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, 2006, 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. 6




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##### Table of Contents



(c)
    
    Held directly by the Montana Department of Environmental Quality (DEQ) in an
interest bearing account for use in continuing reclamation at the Kendall minesite. (See
Note 13(a) below)(d)
    
    Held directly by the Montana DEQ for reclamation at the McDonald Gold Property.(e)
    
    In connection with the auction of certain properties, cash has been sequestered
by court order. The balance was reclassified to long term during the second quarter of
2006 due to the uncertainty of when the restriction will be removed. (See Note 13(d)
below).(f)
    
    Cash bond held by Bank of America for the performance of reclamation
obligations for Cecil R exploration activities at the Briggs Mine. 4. Short Term Investments:
 .
 5. Inventories :
  6. Property, Plant and Mine Development:
  As of September 30, 2006Depreciation
    
    Asset Value
    
    
    Accumulated
    
    
    Net BookMethod
    
    at Cost
    
    
    Depreciation
    
    
    ValueBuildings and Equipment
    
    1 - 5 Years SL
    
    $
    5,966,800
    
    
    $
    4,036,300
    
    
    $
    1,930,500Mine Development
    
    UOP (a)
    
    
    1,092,400
    
    
    
    
    
    
    
    1,092,400Mineral Interest
    
    UOP
    
    
    7,130,900
    
    
    
    3,820,900
    
    
    
    3,310,000Asset Retirement Cost
    
    UOP
    
    
    157,700
    
    
    
    
    
    
    
    157,700$
    14,347,800
    
    
    $
    7,857,200
    
    
    $
    6,490,600
 
 (a)
    
    Unit of production (UOP) is a depreciation method that calculates depreciation expense
over the estimated proven and probable reserves of the related property.  7




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##### Table of Contents



As of December 31, 2005Depreciation
    
    Asset Value
    
    
    Accumulated
    
    
    Net BookMethod
    
    at Cost
    
    
    Depreciation
    
    
    ValueBuildings and Equipment
    
    1 - 5 Years SL
    
    $
    5,940,400
    
    
    $
    4,012,000
    
    
    $
    1,928,400Mine Development
    
    UOP
    
    
    
    
    
    
    
    
    
    
    Mineral Interest
    
    UOP
    
    
    7,011,500
    
    
    
    3,820,900
    
    
    
    3,190,600Asset Retirement Cost
    
    UOP
    
    
    157,700
    
    
    
    
    
    
    
    157,700$
    13,109,600
    
    
    $
    7,832,900
    
    
    $
    5,276,700
 7. Asset Retirement Obligations :
   Balance, December 31, 2005
    
    $
    5,769,200Settlement of liabilities
    
    
    (1,056,100
    )Accretion expense
    
    
    152,300Balance, September 30, 2006
    
    
    4,865,400Current portion
    
    
    1,284,300Non current portion
    
    $
    3,581,100
 8. Notes Payable :
  Balance, December 31, 2005
    
    $
    825,000Conversions/Retirements
    
    
    Balance, September 30, 2006
    
    
    825,000Current portion
    
    
    Non current portion
    
    $
    825,000
    8
    Table of Contents  9. Warrants and Warrant Liability:
  Range of Exercise
    
    Shares Underlying
    
    
    Weighted Average
    
    Weighted AveragePrices
    
    Warrants Outstanding
    
    
    Remaining Contractual Life
    
    Exercise Price$0.50$1.00
    
    
    281,000
    
    
    1.9 years
    
    $
    0.77$1.01$1.50
    
    
    8,038,483
    
    
    1.9 years
    
    $
    1.28$1.51$2.16
    
    
    2,199,836
    
    
    0.7 years
    
    $
    2.16Total/Average
    
    
    10,519,319
    
    
    1.7 years
    
    $
    1.45
  Accounting for Derivative Financial Instruments Indexed to,
and Potentially Settled in, a Companys Own Stock
   
 9
    Table of Contents  BalanceWarrant
    
    Exercise
    
    
    Expiration
    
    
    Issued
    
    
    
    
    
    
    Subject to
    
    
    UnamendedDescription
    
    Price
    
    
    Date
    
    
    Dec. 31, 2005
    
    
    Exercises
    
    
    Amendment
    
    
    Sep. 30, 2006Series A
    
    $
    1.30
    
    
    
    12/1/2008
    
    
    
    1,765,503
    
    
    
    
    
    
    
    743,803
    
    
    
    1,021,700Series B
    
    $
    1.08
    
    
    
    12/1/2006
    
    
    
    882,754
    
    
    
    
    
    
    
    371,902
    
    
    
    510,852Series C
    
    $
    0.76
    
    
    
    12/1/2008
    
    
    
    231,000
    
    
    
    
    
    
    
    95,500
    
    
    
    135,500Total/Average
    
    $
    1.19
    
    
    
    
    
    
    
    2,879,257
    
    
    
    
    
    
    
    1,211,205
    
    
    
    1,668,052
  10. Equity Transactions:
  11. Share-Based Compensation:
 Share-Based Payment
  10
    Table of Contents  2006
    
    2005Expected Volatility Incentive Stock Options
    
    
    50
    %
    
    
    75
    % Non-Qualified Stock Options
    
    
    50
    %
    
    
    65
    %Expected Option Term Incentive Stock Options
    
    2.5-3 years
    
    5 years Non-Qualified Stock Options
    
    1-3 years
    
    5 yearsWeighted Average Risk-Free Interest Rate Incentive Stock Options
    
    
    4.35.0
    %
    
    
    4.04.2
    % Non-Qualified Stock Options
    
    
    4.55.0
    %
    
    
    3.7
    %Forfeiture rate Incentive Stock Options
    
    
    
    
    
    
     Non-Qualified Stock Options
    
    
    
    
    
    
    
 11
    Table of Contents  Incentive Stock Options
  2006
    
    
    2005Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    ExerciseNumber
    
    
    Price
    
    
    Number
    
    
    PriceOutstanding  beginning of year
    
    
    1,165,925
    
    
    $
    1.32
    
    
    
    927,925
    
    
    $
    1.51Grants
    
    
    325,000
    
    
    $
    0.87
    
    
    
    200,000
    
    
    $
    0.74Exercises
    
    
    
    
    
    
    
    
    
    
    (10,000
    )
    
    $
    0.66Forfeitures
    
    
    (329,170
    )
    
    $
    1.54
    
    
    
    
    
    
    
    Expirations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding  end of period
    
    
    1,161,755
    
    
    $
    1.13
    
    
    
    1,117,925
    
    
    $
    1.38Exercisable  end of period
    
    
    1,061,755
    
    
    $
    1.16
    
    
    
    1,067,925
    
    
    $
    1.40
  Non-Qualified Options
  2006
    
    
    2005Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    ExerciseNumber
    
    
    Price
    
    
    Number
    
    
    PriceOutstanding  beginning of year
    
    
    591,601
    
    
    $
    2.65
    
    
    
    571,601
    
    
    $
    2.81Grants
    
    
    514,526
    
    
    $
    1.20
    
    
    
    80,000
    
    
    $
    0.79Exercises
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeitures
    
    
    (150,830
    )
    
    $
    3.01
    
    
    
    
    
    
    
    Expirations
    
    
    (139,526
    )
    
    $
    1.73
    
    
    
    (60,000
    )
    
    $
    1.70Outstanding  end of period
    
    
    815,771
    
    
    $
    1.83
    
    
    
    591,601
    
    
    $
    2.65Exercisable  end of period
    
    
    815,771
    
    
    $
    1.83
    
    
    
    511,601
    
    
    $
    2.94
  Stock Grants
  12
    Table of Contents  12. Earnings per Share
 Earnings
per Share
 13. Commitments and Contingencies :
 (a)
    
    Kendall Mine ReclamationThe Kendall Mine operates under permits granted by the Montana DEQ. In February 2002, the
DEQ issued a decision that a comprehensive Environmental Impact Statement (EIS) was
needed for completion of remaining reclamation at Kendall. The Montana DEQ has yet to
complete its work on this EIS. The Companys estimate to achieve mine closure could be
impacted by the outcome of an agency decision following an EIS. The Company has
deposited $2,078,500 in an interest bearing account with the DEQ for reclamation at the
Kendall Mine which is currently ongoing. The Company has spent approximately $11.0
million on Kendall from 1991 through the third quarter ended September 30, 2006.(b)
    
    Briggs Mine Surety BondsThe Briggs Mine operates under permits granted by various agencies including BLM, Inyo
County, California, the California Department of Conservation, and the Lahontan Regional
Water Quality Control Board (Lahontan). These agencies jointly have required the
Company to post a reclamation bond in the amount of $3,030,000 to ensure appropriate
reclamation. In September 2006, the Company was notified that the reclamation bond would
be increased for inflation by $127,300 and be subject to funding by mid-2007.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 company 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 company totaling $1.5 million over a three year period at the rate of
$0.5 million per year, commencing June 30, 2001. The Company has not made any deposits to
date, and has held discussions with the surety company to reschedule the deposit
requirements. If an acceptable rescheduling of the deposit requirements cannot be agreed
to, the surety company 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 company. In April 2004, the Company ceased active mining at Briggs due to lack of
development and began reclamation activities. The Company has spent approximately $3.8
million on Briggs reclamation from 2004 through the third quarter ended September 30,
2006. The Company has not requested release of liability for completion of certain
reclamation tasks due to uncertainties related to the potential re-start of Briggs that
may re-disturb past reclamation activities.
 13
    Table of Contents  (c)
    
    Contingent Liability  McDonald Gold ProjectDuring the third quarter of 2006, the outstanding $10 million contingent liability with
Phelps Dodge Corporation (Phelps Dodge) was released. The contingent liability was
related to a final purchase payment on the McDonald Gold Project. Phelps Dodge retains a
one-third interest in any proceeds received from the currently active takings lawsuit
with the State of Montana. The Montana lawsuit was filed to recover value lost due to
changes in the mining law and the cancellation of mineral leases related to our
wholly-owned Seven-Up Pete joint ventures interest in the McDonald Gold Project.In April 2006, the Companys complaint under the takings lawsuit was dismissed in U.S.
District Court for the District of Montana and the Company filed a notice of appeal to
the U.S. Court of Appeals for the Ninth Circuit. Briefs have been submitted to the U.S.
Court of Appeals for the Ninth Circuit. In addition, the Company has filed a breach of
contract complaint against the State of Montana related to the termination of the
McDonald Gold Projects state mineral leases.During the second quarter of 2005 in connection with the Montana Supreme Court decision
affirming the termination of the McDonald Gold Projects state mineral leases, the
Company wrote off their carrying value of $9,242,100.(d)
    
    Kendall Mine LawsuitsIn October 2001, a plaintiff group including members of the Shammel, Ruckman and Harrell
families filed suit in the State of Montana District Court against the Company and its
wholly-owned subsidiary, CR Kendall Corporation. The complaint alleges violation of
water rights, property damage, trespass and negligence in connection with the operation
of the Kendall Mine and seeks unspecified damages and punitive damages. The Company has
taken the position that the allegations are without merit and believes that it will
prevail in this matter.In August 2002, a Preliminary Injunction was issued in Montana District Court on behalf
of the Kendall Mine plaintiff group in connection with the Companys auction of certain
mineral rights and fee lands unrelated to the CR Kendall Corporation or its operation,
but also in western Montana. In October 2002, the Court issued a Supplemental Order which
sequesters any proceeds realized from the auction until such time as the lawsuit is
concluded. As of September 30, 2006, $291,300 is held by the Court as required by the
Order.In March 2004, the Montana Environmental Information Center and Earthworks Mineral Policy
Center brought civil action before the U.S. District Court for the District of Montana
against CR Kendall Corporation and the Company claiming that the defendants have polluted
waters of the U.S. with their operations at the Kendall Mine, near Lewistown, Montana.
On February 2, 2006, this case was dismissed without prejudice.
 14. Derivative Instruments and Price Protection Arrangements :
  15. Income Taxes :
  14
    Table of Contents  16. Recently Issued Financial Accounting Standards :
 Classification and Measurement of Freestanding Financial
Instruments Originally Issued in Exchange for Employee Services under FASB Statement No. 123(R).
 Fair Value Measurements
  Accounting for Uncertainty in Income
Taxes
 Accounting for Stripping Costs
Incurred during Production in the Mining Industry,
 15
    Table of Contents  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 volatility of gold prices;§
    
    the speculative nature of mineral exploration;§
    
    uncertainty of estimates of mineralized material and gold deposits;§
    
    compliance with environmental and governmental regulations, including reclamation
bonding requirements;§
    
    the potential lack of financing on acceptable terms or the inability to obtain
additional financing through capital markets, joint ventures, or other arrangements in
the future;§
    
    the outcome of the McDonald and Kendall Mine litigation as well as other possible
judicial proceedings;§
    
    economic and market conditions;§
    
    unanticipated grade, geological, metallurgical, processing or other problems;§
    
    operational risks of mining, development and exploration and force majeure events; and§
    
    other risk factors as described from time to time in the Companys filings with the
Securities and Exchange Commission (SEC).
  Overview of the Third Quarter 2006 and Future Outlook
  What did we spend cash on during the quarter?
  
    
    General and administrative expenses amounted to $1.0 million.
 o
    
    Includes holding costs at the Briggs Mine of $0.3 million.
 
    
    Exploration expense amounted to $0.4 million.
    
    Briggs Project capital spending amounted to $0.2 million for feasibility study engineering.
    
    Kendall closure site asset retirement spending amounted to $0.4 million for capping the
old leach pads and water treatment studies.
    
    Working capital and other miscellaneous changes amounted to $0.2 million due partly to a
build up of gold inventory that was sold in early October.
 What are our results of operation?
  16
    Table of Contents  How much property does the Company control?
  Fee
    
    FeeProperty/Location
    
    Surface
    
    Mineral
    
    Patented
    
    UnpatentedBriggs Operation  California
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    2,530Reward Project  Nevada
    
    
    
    
    
    
    
    
    
    
    220
    
    
    
    1,265Seven-Up Pete  Montana
    
    
    1,315
    
    
    
    1,828
    
    
    
    250
    
    
    
    80CR Montana  Montana
    
    
    
    
    
    
    902,681
    
    
    
    
    
    
    
    Converse JV  Wyoming (a)
    
    
    1,856
    
    
    
    
    
    
    
    
    
    
    
    2,860CR Kendall  Montana
    
    
    
    
    
    
    
    
    
    
    1,085
    
    
    
    Total Acreage
    
    
    3,171
    
    
    
    904,509
    
    
    
    1,560
    
    
    
    6,735
 
 (a)
    
    Sand Creek JV lands not included in these totals.  Mineralized
    
    
    
    
    
    Cut-off GoldMaterial
    
    Gold Grade
    
    GradeProperty/Location
    
    (Million Tons)
    
    (Ounce/Ton)
    
    (Ounce/Ton)Briggs Operation  Inyo County, California
    
    
    23.60
    
    
    
    0.023
    
    
    
    0.010Cecil R  Satellite Deposit
    
    
    5.75
    
    
    
    0.024
    
    
    
    0.015Mineral Hill  Satellite Deposit
    
    
    2.31
    
    
    
    0.035
    
    
    
    0.015Suitcase  Satellite Deposit
    
    
    0.33
    
    
    
    0.052
    
    
    
    0.01531.99
    
    
    
    0.024Reward Project  Beaty, Nevada
    
    
    3.35
    
    
    
    0.031
    
    
    
    0.011Seven-Up Pete  Lincoln, Montana
    
    
    17.00
    
    
    
    0.035
    
    
    
    0.020Total Mineralized Material
    
    
    52.34
    
    
    
    0.028
   How is the Briggs re-start going?
   17
    Table of Contents  What progress have we made on Briggs satellite deposits?
    What progress have we made on the Reward project?
  From
    
    To
    
    Length
    
    Length
    
    Au Assay
    
    Au AssayHole No.
    
    (feet)
    
    (feet)
    
    (feet)
    
    (meter)
    
    (oz/ton)
    
    (gram/ton)RC-03
    
    
    110
    
    
    
    385
    
    
    
    275
    
    
    
    83.8
    
    
    
    0.036
    
    
    
    1.240RC-10
    
    
    0
    
    
    
    70
    
    
    
    70
    
    
    
    21.3
    
    
    
    0.035
    
    
    
    1.210RC-13
    
    
    0
    
    
    
    360
    
    
    
    360
    
    
    
    109.7
    
    
    
    0.024
    
    
    
    0.844RC-15
    
    
    0
    
    
    
    145
    
    
    
    145
    
    
    
    44.2
    
    
    
    0.051
    
    
    
    1.730RC-21
    
    
    185
    
    
    
    370
    
    
    
    185
    
    
    
    56.4
    
    
    
    0.031
    
    
    
    1.078
   18
    Table of Contents  What are our plans for the Seven-Up Pete property?
  What is happening on the Companys uranium joint ventures?
     What is the status of the Companys legal cases?
 (Seven-Up Pete Venture, et al. v The State of Montana)
  19
    Table of Contents  Montana Environmental Information Center, Inc. and Earthworks/Mineral
Policy Center Inc., the Plaintiffs, vs. Canyon Resources Corporation and C.R. Kendall Corporation
 Is there anything else the Company is working on to increase shareholder value?
  Critical Accounting Policies and Estimates
   Reserves and Mineralized Material:
  20
    Table of Contents  Asset Retirement Obligations: Accounting
for Asset Retirement Obligations
  Impairments: Accounting for the Impairment or Disposal of Long-Lived Assets
  Derivatives Instruments and Hedging Activities: Accounting for Derivative
Instruments and Hedging Activities Accounting for Certain Derivative Instruments
and Certain Hedging Activities-an Amendment to SFAS No. 133. 21
    Table of Contents    Accounting for Derivative Financial Instruments Indexed to,
and Potentially Settled in, a Companys Own Stock
 Stock-Based Compensation: Share-Based Payment Accounting for Stock-Based Compensation Accounting for Stock Issued to Employees
  Income Taxes:
 Potential Litigation Liabilities:
 22
    Table of Contents  Results
of Operations  Three Months Ended 2006 versus Three Months Ended 2005
    Three Months Ended
    
    
    Three Months EndedSeptember 30, 2006
    
    
    September 30, 2005Average
    
    
    
    
    
    
    
    
    
    
    AverageGold
    
    
    Price Per
    
    
    Revenue
    
    
    Gold
    
    
    Price Per
    
    
    RevenueOunces
    
    
    Oz.
    
    
    $000s
    
    
    Ounces
    
    
    Oz.
    
    
    $000sDeliveriesSpot Sales
    
    
    
    
    
    $
    0
    
    
    $
    
    
    
    
    2,048
    
    
    $
    445
    
    
    $
    911
    
    
    $
    0
    
    
    
    
    
    
    
    2,048
    
    
    $
    445
    
    
    
    911Other transactionsSilver proceeds
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    $
    0
    
    
    $
    2
    
    
    
    2,048
    
    
    $
    446
    
    
    $
    914
  
    
    Negative variance of $0.3 million because there was no production or sales in the current quarter.
    
    Positive variance of $0.2 million due to lower depreciation, depletion and amortization.
    
    Negative variance of $0.6 million in selling, general and administrative expenses due
primarily to expensing the holding costs at the Briggs Mine and increased legal and auditor
expenses related to the filing of a registration statement.
    
    Negative variance of $0.1 million in exploration costs due to a general increase in
exploration activity.
    
    Positive variance of $0.2 million from gain on derivatives related to fair value
adjustments to the warrant liability.
 Results
of Operations  Nine Months Ended September 30, 2006 versus Nine Months Ended September
30, 2005
  
    
    Positive variance of $11.0 million due to last years $9.2 million impairment of
McDonald Gold Project that also reduced depreciation by $1.8 million.
    
    Positive variance of $0.4 million regarding last years debenture conversion expense.
    
    Positive variance of $0.9 million related to the gain on sales of securities.
    
    Negative variance of $1.0 million in selling, general and administrative cost primarily
due to the expensing of share-based payments and holding costs at the Briggs Mine.
    
    Negative variance of $0.3 million due to the reduced profit from lower gold sales.
 23
    Table of Contents  Nine Months Ended
    
    
    Nine Months EndedSeptember 30, 2006
    
    
    September 30, 2005Average
    
    
    
    
    
    
    
    
    
    
    AverageGold
    
    
    Price Per
    
    
    Revenue
    
    
    Gold
    
    
    Price Per
    
    
    RevenueOunces
    
    
    Oz.
    
    
    $000s
    
    
    Ounces
    
    
    Oz.
    
    
    $000sDeliveriesSpot Sales
    
    
    1,735
    
    
    $
    579
    
    
    $
    1,005
    
    
    
    7,020
    
    
    $
    433
    
    
    $
    3,0391,735
    
    
    $
    579
    
    
    
    1,005
    
    
    
    7,020
    
    
    $
    433
    
    
    
    3,039Other transactionsSilver proceeds
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    151,735
    
    
    $
    582
    
    
    $
    1,009
    
    
    
    7,020
    
    
    $
    435
    
    
    $
    3,054
 Liquidity & Capital Resources
     24
    Table of Contents  Operations
   Outstanding Warrants from Financings
  Expiration Date
    
    Underlying Shares
    
    Exercise PriceJune 1, 2007
    
    
    2,199,836
    
    
    $
    2.16December 1, 2006
    
    
    882,754
    
    
    $
    1.08August 31, 2007
    
    
    50,000
    
    
    $
    0.80March 14, 2008
    
    
    2,304,726
    
    
    $
    1.03December 1, 2008
    
    
    1,765,503
    
    
    $
    1.30December 1, 2008
    
    
    231,000
    
    
    $
    0.76June 1, 2009
    
    
    3,085,500
    
    
    $
    1.50Total/Average
    
    
    10,519,319
    
    
    $
    1.45
 Debt
  Contractual Obligations
  Payments due by PeriodLess than
    
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 yearsLong-term debt obligations
    
    $
    825,000
    
    
    $
    
    
    
    $
    
    
    
    $
    825,000
    
    
    $
    Capital lease obligations
    
    
    54,700
    
    
    
    12,000
    
    
    
    42,700
    
    
    
    
    
    
    
    Operating lease obligations
    
    
    71,500
    
    
    
    71,500
    
    
    
    
    
    
    
    
    
    
    
    Asset retirement obligations
    
    
    4,865,400
    
    
    
    1,284,300
    
    
    
    1,750,700
    
    
    
    1,345,800
    
    
    
    484,600Total
    
    $
    5,816,600
    
    
    $
    1,367,800
    
    
    $
    1,793,400
    
    
    $
    2,170,800
    
    
    $
    484,600
 25
    Table of Contents  Other Matters
 Federal Legislation
  Recently Issued Financial Accounting Standards
 Classification and Measurement of Freestanding Financial
Instruments Originally Issued in Exchange for Employee Services under FASB Statement No. 123(R).
 Fair Value Measurements
  Accounting for Uncertainty in Income
Taxes
 Accounting for Stripping Costs
Incurred during Production in the Mining Industry,
 26
    Table of Contents  Dividends
  
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
 Commodity Prices
    Interest Rates
  Foreign Currency
  27
    Table of Contents  Item 4. Controls and Procedures
 Disclosure Controls and Procedures
   Changes in Internal Control over Financial Reporting
   
    
    increasing the involvement in the review and analysis by senior management of our financial statements;
    
    adding more rigorous policies and procedures regarding the review and approval process for complex
calculations and transactions; and
    
    engaging outside consultants with accounting expertise regarding unusual and complex transactions.
   28
    Table of Contents  PART II OTHER INFORMATION
 
 Item 1. Legal Proceedings
    
    None
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    None
 
 Item 3. Defaults Upon Senior Securities
    
    None
 
 Item 4. Submission of Matters to Vote of Security Holders
    
    None
 
 Item 5. Other Information
    
    None
 
 Item 6. Exhibits
 31.1
    
    Certification of Chief Executive Officer pursuant to Rule
13(a)-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 200231.2
    
    Certification of Chief Financial Officer pursuant to Rule
13(a)-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 200232.1
    
    Certification of Chief Executive Officer pursuant to U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of Chief Financial Officer pursuant to U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
    Table of Contents  SIGNATURES
  CANYON RESOURCES CORPORATIONDate: November 13, 2006
    
    /s/ James K. B. HeskethJames K. B. HeskethPresident and Chief Executive Officer(Principal Executive Officer)Date: November 13, 2006
    
    /s/ David P. SuleskiDavid P. SuleskiChief Financial Officer, Treasurer and
Corporate Secretary
(Principal Financial and Principal Accounting Officer)
 30
    Table of Contents  Exhibit Index
 31.1
    
    Certification of Chief Executive Officer pursuant to Rule
13(a)-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 200231.2
    
    Certification of Chief Financial Officer pursuant to Rule
13(a)-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 200232.1
    
    Certification of Chief Executive Officer pursuant to U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of Chief Financial Officer pursuant to U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 31