Mountain Lake Resources Inc.

Transcription

1 Mountain Lake Resources Inc. Form F1 102F1 Management s Discussion & Analysis For the three months ended The following discussion and analysis, prepared as of October 26, 2009, should be read in conjunction with the unaudited interim financial statements for the three months ended and the related notes attached thereto, which are prepared in accordance with Canadian generally accepted accounting principles. All amounts are expressed in Canadian dollars unless otherwise noted. This Management s Discussion and Analysis is based on a review of the Company s operations, financial position and plans for the future based on facts and circumstances as of the date of this report. Except for historical information or statements of fact relating to the Company, certain information contained herein constitutes forward looking statements. Forward looking statements are based on the opinions, plans and estimates of management at the date the statements are made and are subject to a variety of risks, uncertainties and other factors that could cause the actual results to differ materially from those described in such statements. The primary risk factors affecting the Company are discussed further under the heading Risk Factors. The Company s projections are estimates only based on management s assessment of facts at the time of the projections. Management believes these projections to be reasonable but actual results may differ. The reader is cautioned not to place undue reliance on forwarding looking statements. OVERVIEW Mountain Lake Resources Inc. (TSX-V: MOA) is a diversified junior mining and exploration company whose corporate strategy is to build shareholder value through the exploration and development of economically viable mineral properties. Current projects include: a 100% interest in the Bobby s Pond base metals project (Newfoundland and Labrador) as well as an option to acquire initially a 51% interest in the surrounding claims from Cornerstone Resources; a 30% interest in the Valentine Lake gold project (Newfoundland and Labrador), with an option to acquire a 100% interest from Richmont Mines Inc.; a 13.07% stake in Etruscan Diamonds Limited, a diamond mining operation (South Africa); and an option to acquire a 100% interest in the Little River (Newfoundland and Labrador) gold exploration property. RESOURCE PROPERTY INTERESTS Bobby s Pond Project In 2005, the Company purchased the Bobby's Pond base metal massive sulphide property from Vale Inco for $100,000 cash and the issuance of 250,000 shares. The property is subject to a 2% net smelter returns royalty payable to the original prospector. The Bobby's Pond project (Mining Lease 187/4881M) is located in the Buchans area of central Newfoundland, renowned for the historic Buchans Mines (production ), and host to several other active volcanogenic massive sulphide (VMS) projects. The most advanced of the current projects is the Duck Pond deposit which was put into production in January 2007 by Aur Resources Inc. (now Teck Cominco Limited). The Bobby s Pond deposit is located approximately 45 kilometers west by road of the Duck Pond mine/mill development. The Company has incurred exploration expenditures of $1,837,156 to on the Bobby s Pond project. Prior to the Company acquiring the property, Vale Inco had incurred over US$3 million in exploration expenditures. In addition to reconnaissance and detailed geochemical sampling, geological mapping and prospecting, line cutting and geophysical surveys, a total of 78 holes (23,088 meters) have been drilled on the Mining Lease, including 39 holes (12,365 meters) by the Company to the end of the 2008 drill program. The latest undercut drilling confirmed the extension of the mineralized zone from near surface down to 460 metres, which is open at depth. Based on exploration work completed up to 2008, an independent resource update was prepared by Hrayr Agnerian of Scott Wilson Roscoe Postle Associates Inc. (see news release dated September 22, 2008). This study incorporated an additional 16 holes drilled since the previous resource calculation and estimated that the Bobby s Pond Deposit contains an indicated resource of 1,095,000 tonnes of 0.86% Cu, 4.61% Zn, 0.44% Pb, 16.6 gpt Ag, and 0.2 gpt Au in addition to an inferred resource of 1,177,000 tonnes of 0.95% Cu, 3.75% Zn, 0.27% Pb, gpt Ag and 0.06 gpt Au. Contained Cu increased to 45.4 million lbs from 28.9 million lbs in the 2007 report; and contained Zn increased to million lbs in the latest report from million lbs in the 2007 report. Along with the inclusion of the results from the additional 16 holes, the change in tonnage and grade is also due in part to different parameters used for the new resource calculation. The price of copper used in the latest NI report was $2.50 compared to $2.00 in the former report, which 1 #1700, Purdy s Wharf Tower 1, 1959 Upper Water Street, Halifax, Nova Scotia Canada B3J 3N2 Tel: (902) Fax: (902)

2 Mountain Lake Resources Inc. Form F1 102F1 Management s Discussion & Analysis For the three months ended resulted in the use of a lower cut off of 1.1% copper equivalent instead of the previous 2% copper equivalent. A preliminary metallurgical study was also commissioned in 2008 and the study was conducted by ALS Lakefield of Lakefield, Ont. The results of the study indicated that only relatively coarse grinding would be required (80% passing 90 microns) to achieve Cu and Zn recoveries for average grade ore of 80% for both, and produce concentrate grades of 23% for Cu and 58% for Zn. These results are preliminary in nature and it is expected that these recoveries can be improved with further testing. Gary Woods, P. Geo., President and CEO of the Company, is the Qualified Person, as defined under NI43-101, who supervised this program and reviewed and verified the technical information presented above. During the three months ended, the Company incurred $19,169 in expenditures on the Bobby s Pond property (2008: $32,008). Expenditures net of government grants for the nine months ended were $1,810 (2008: $463,174). The Company does not plan to conduct any additional exploration work on the property during 2009 due to the tight financing environment. Cornerstone License On February 20, 2007 (amended November 12, 2008) the Company entered into an option agreement with Cornerstone Resources Inc. (Cornerstone) to earn a 51% interest in a ground staked license comprising 62 claims extending both northeast and southwards from Mountain Lake s 2.4 sq km Bobby s Pond Mining Lease which hosts a significant zinc-copper-polymetallic VMS deposit. The option obligations of the Company are as follows: Due Date Exploration Expenditures Due Date Share Issuances On execution 25,000 (issued) By February 20, 2008 $ 150,000 (completed) By March 5, ,000 (issued) By February 20, 2010 $ 350,000 By March 5, ,000 (issued) By February 20, 2011 $ 500,000 By March 5, ,000 By February 20, 2012 $ 750,000 By March 5, ,000 By February 20, 2013 $1,000,000 By March 5, ,000 Total $2,750,000 Total 200,000 When the Company has earned its 51% interest, a joint venture will be formed whereby both parties will have the right to maintain their respective interest by funding their respective share of exploration costs. Under certain conditions, the Company may increase its interest to up to a 75% undivided interest by completing a feasibility study and arranging the project financing to production. Either party may dilute its participating interest based on its exploration expenditures. The 2008 exploration program consisted of linecutting, soil sampling, prospecting and geological mapping, trenching and diamond drilling. The linecutting and soil sampling survey focused on the northeastern section of the claim block. A strong and discrete base metal anomaly resulted which was followed up by a trenching and ultimately a diamond drilling program consisting of 560 m in 5 holes. Three short holes were targeted in the centre area of the soil geochemical anomaly to see if better concentrations of sulphides could be found than were indicated in the trenching program. DDH CS contained a 0.6 metre zone of 7.0% Zn, 0.15% Cu, 4.7% Pb, 80.6 ppm Ag and 1051 ppb Au within a 3.1 m zone of 2.6% Zn, 0.12% Cu, 0.93% Pb, 38.9 ppm Ag, and 251 ppb Au. This drill hole indicated that massive and semi massive sulphides with interesting base metal, silver and gold grades did indeed exist in this new alteration zone. The 2009 program consisted of a gravity survey and follow up diamond drilling in the vicinity of the new mineralized zone encountered in The Company completed three holes totaling 647 metres. A gravity survey completed in June 2009 identified two anomalies along strike from the 2008 intercept and an additional anomaly behind the collar of CS Two gravity highs that were drill tested unfortunately did not reflect zones of VMS mineralization. The third drill hole, collared 300 metres southwest of mineralization encountered in drill hole CS-08-03, was targeted on surface geochemistry and encountered a broad zone of silica and sericite altered felsic volcanics including a 1.5 metre zone of 0.73% Zn, 0.49% Pb, 0.15% Cu, #1700, Purdy s Wharf Tower 1, 1959 Upper Water Street, Halifax, Nova Scotia Canada B3J 3N2 Tel: (902) Fax: (902)

3 Mountain Lake Resources Inc. Form F1 102F1 Management s Discussion & Analysis For the three months ended gpt Ag and 0.12 gpt Au at the volcanic / sediment contact where massive sulphide deposits typically form. The results indicate that the mineralized and altered zone extends over a 300 metre strike length and further drilling will be required to determine if the mineralization encountered to date sits at the edge of a significant VMS deposit at depth. Gary Woods, P. Geo., President and CEO of the Company, is the Qualified Person, as defined under NI43-101, who supervised this program and reviewed and verified the technical information presented above. During the three months ended, the Company incurred $83,633 (2008: $58,474) in exploration expenditures on the Cornerstone property. Expenditures net of government grants for the nine months ended were $53,983 (2008: $58,948). The Company is not planning further expenditures in 2009 for the Cornerstone property. Valentine Lake Property The Company earned a 100% interest in 2008 from Xstrata Canada Corporation in 2 claim blocks totalling approximately 12,550 hectares and located approximately 55 kms south of the town of Buchans in Central Newfoundland, of which a 70% interest was earned by Richmont Mines Inc. (Richmont) by incurring $2,500,000 in expenditures under a sub-option agreement with the Company. In March 2008, the Company exercised its 100% option on the property by making a cash payment of $1.0 million. On February 5, 2009, the Company entered into an agreement with Richmont whereby the company has the right to earn a 100% interest in the Valentine Lake property. Under the terms of the agreement, the Company has agreed to pay an option fee to Richmont of 2,500,000 common shares of the Company (issued upon regulatory approval on April 3, 2009) and may exercise the option over a five-year period by making option payments of an additional $3.0 million (in cash, or in 50% cash and 50% common shares, at the sole discretion of the Company) and by incurring $1.0 million in exploration and development expenditures on the property, as follows: Due Date Option Payment (Note) Exploration Expenditures April 3, 2011 $ 500,000 $ 500,000 April 3, 2012 $1,000,000 $ Nil April 3, 2013 $1,500,000 $ Nil April 3, 2014 $ Nil $ 500,000 $3,000,000 $1,000,000 Note: To be paid in cash or 50% cash and 50% common shares at the option of the Company Xstrata Canada Corporation retains a 2% net smelter return royalty on base metals and a 1.5% net smelter return royalty on the first 250,000 oz. of gold produced, increasing at that point to 3%. Also, the Reid Newfoundland Company Ltd. retains a 7.5% net profits interest that accelerates the increase in Xstrata s net smelter return royalty on gold to 3% should a net profits interest royalty become payable prior to the first 250,000 oz. produced. Any amount payable to the Reid Newfoundland Company Ltd. for the net profits interest royalty reduces the net smelter royalty on gold payable to Xstrata. As outlined in the National Instrument compliant technical report (dated January 2005), the Valentine Lake property has inferred mineral resources of 1.3 million tonnes grading grams per tonne (g/t) gold. Cutting assays to 58 g/t gold, the average grade is 8.51 g/t gold, for a total estimated mineral resource of 359,000 ounces of gold in the Leprechaun Pond area. A National Instrument report dated March 23 rd, 2009 was filed on April 3, 2009 as a condition for regulatory approval of the Company s option agreement with Richmont. The exploration program for 2009 focused on several isolated single drill hole gold intercepts throughout the property to determine the potential for additional deposits on the property. Low levels of gold were encountered in these drill holes but a significant intercept was encountered in VL at the southwest end of the Leprechaun Pond resource area which encountered a metre interval of 2.22 gpt Au which included the following higher grade intercepts: 3 #1700, Purdy s Wharf Tower 1, 1959 Upper Water Street, Halifax, Nova Scotia Canada B3J 3N2 Tel: (902) Fax: (902)

4 Mountain Lake Resources Inc. Form F1 102F1 Management s Discussion & Analysis For the three months ended From m To m Length m Length ft Au gpt Includes The deposit had previously been thought to be cut off in this direction and the intercept in VL which targeted a 50 metre step out to the southwest indicates that the deposit is still open in this direction. Detailed drilling at the Leprechaun Pond deposit on the Valentine Lake property will take place once sufficient funding has been secured for a significant drill program. During the three months ended, the Company incurred $118,162 in exploration expenditures (2008: $71,324) on the Valentine Lake property. During the nine months ended August 31, 2009, the Company incurred $143,511 (2008: $72,531) in exploration expenditures on the property. Little River Property Effective August 14, 2008, the Company entered into an option agreement to acquire a 100% interest in the Little River Gold Property which consists of 448 mining claims comprising 11,200 hectares over a strike length of approximately 33 kilometers (kms) in the Baie D Espoir area of southern Newfoundland. To maintain the Option in good standing and earn its 100% interest in the Property, the Company must make scheduled payments to the Optionors as follows: Due Date Cash Payments Share Issuances On execution $50,000 (paid) 50,000 (issued September 5, 2008) By August 14, 2009 $40,000 (paid) 50,000 (issued August 5, 2009) By August 14, 2010 $50,000 50,000 By August 14, 2011 $40,000 50,000 By August 14, 2012 $60,000 50,000 Total $240, ,000 The Optionors will retain a 2.0% net smelter return royalty and have granted the Company the exclusive right and option to acquire 1.0% of the net smelter returns royalty for $1.5 million. During the quarter, a soil geochemical survey was carried out to the northeast of the 2008 survey grid, and returned the highest gold values to date. The trenching and sampling program is focusing on both the new mineral occurrences and additional zones of up to 400 metre long gold-arsenic-antimony soil geochemical anomalies (anomaly threshold 25 ppb Au with single point anomalies up to 755 ppb gold) that were identified in the 2009 fieldwork as well as the favourable areas identified in Twenty-one trenches excavated over a strike length of 8 kilometres (km) were targeted on soil geochemical anomalies and known gold occurrences. Results from bedrock grab samples taken from the trenches identified multiple mineralized zones with strong gold +/- antimony (stibnite or Sb) mineralization values coming from five areas. The highest values from bedrock grab samples from three of the zones ranged from 6.1 grams per tonne (gpt) Au to 32.7 gpt Au averaging 15.8 gpt Au, and an additional twenty-three samples contained from 1 to 6 gpt Au. Strong antimony values were discovered in two separate trench areas. Five samples from a 2.5 metre wide sulphide zone in the first trench ranged from 0.57% to 3.06% Sb (average of 1.6% Sb) and a sample from a pit dug 12 metres along strike contained an average of 1.31% Sb. Three samples from a 2 metre wide zone in the second trench area located 1.2 km to the south contained 4.6%, 4 #1700, Purdy s Wharf Tower 1, 1959 Upper Water Street, Halifax, Nova Scotia Canada B3J 3N2 Tel: (902) Fax: (902)

5 Mountain Lake Resources Inc. Form F1 102F1 Management s Discussion & Analysis For the three months ended 5.2% and 5.5% Sb. Notably, the 5.2% Sb sample also contained 4 gpt Au. Both zones are hosted by a schistose felsic volcanic containing numerous quartz arsenopyrite stibnite veins as well as disseminated mineralization. No historic drilling has ever taken place in the area of the 2009 trenching program. These results will determine the drill targets for the initial phase of drilling this fall. During the three months ended, the Company incurred $61,056 (2008: $1,126) in exploration expenditures on the Little River property. During the nine months ended, the Company incurred $69,019 (2008: $1,126) in exploration expenditures. The Company expects to incur exploration expenditures of approximately $125,000 on the property in 2009, net of an expected government grant. Hong Kong Property On January 6, 2005, the Company entered into an exploration agreement with Wallbridge Mining Company Limited ( Wallbridge ) whereby the Company was granted an option to earn a 50% interest in a mineral property known as the Hong Kong Claims in Ontario by funding 100% of the initial $500,000 in cumulative exploration expenditures by December 31, By November 30, 2005, a total of $515,889 in exploration expenditures were incurred on the property, thereby completing the Company s expenditure requirements to earn a 50% interest in the project. A joint venture was formed between Wallbridge and the Company, subject to dilution of the respective initial ownership interests based upon non-participation in future programs, provided that if any party is diluted to less than a 10% interest, its interest will be automatically converted to a 1.5% net smelter returns royalty. Based on management s assessment of the property at November 30, 2005, both the Company and Wallbridge decided not to carry out further exploration work on the property at that time and the related property costs were written off. The property has been maintained since that time and in 2008, Wallbridge staked additional claims within the joint venture area and applied excess assessment credits from outside the joint venture area. The Company participated in its share of the staking costs for the newly acquired claims ($5,400) but declined to participate in an exploration program proposed by Wallbridge. As a result, the Company now holds a 42.9% interest in the joint venture. The Company will continue to evaluate its participation in any future exploration programs proposed by Wallbridge. Etruscan Diamonds Limited, South Africa The Company holds an interest in Etruscan Diamonds (Pty) Ltd. (Etruscan Diamonds), a South African company in the business of alluvial diamond exploration and mining which operates the Blue Gum Project in the Ventersdoorp area of South Africa, through its 13.07% interest in Etruscan Diamonds Limited (EDL). In December 2008, due to the low price of diamonds, the project was placed under care and maintenance until economic conditions improve. The Blue Gum Diamond Project is operated through Blue Gum Diamonds (Pty) Limited, which is owned 74% by Etruscan Diamonds and 26% by Mogopa Blue Gum (Pty) Limited (Mogopa). Mogopa is Etruscan Diamond s Black Economic Empowerment (BEE) partner for the project as required by South African mineral legislation. A substantial diamond resource remains on the property for future production. On September 11, 2008, Etruscan Diamonds released the results of a new National Instrument compliant independent resource update on the Blue Gum Diamond Project. The new resource update demonstrated a substantial increase in both the indicated resource and the in situ value of the resource. The independent resource update (prepared by Dr. Tania Marshall of Explorations Unlimited) as of June 30, 2008 estimates that the Blue Gum Diamond Project contains 25.5 million cubic meters of indicated diamond resource which represents a 24% increase in the indicated resource from the previous resource calculation in February Details of the updated resource are set out below: 5 #1700, Purdy s Wharf Tower 1, 1959 Upper Water Street, Halifax, Nova Scotia Canada B3J 3N2 Tel: (902) Fax: (902)

6 Mountain Lake Resources Inc. Form F1 102F1 Management s Discussion & Analysis For the three months ended Indicated Resources (Million m 3 ) Inferred Resources (Million m 3 ) Grade (ct/100m 3 ) Value (USD/ct) Upper Gravel Package $606 Lower Gravel Package $606 Depleted by mining (2.365) (0.023) TOTAL $606 EDL is pursuing various alternatives to preserve the Blue Gum Project including potential joint ventures and asset sales. In the longer term, the ability of Etruscan Diamonds to continue as a going concern is dependent upon a recovery and stabilization of rough diamond prices. RISK FACTORS Under Canadian reporting requirements, management of the Company is required to identify and comment on significant risks and uncertainties associated with its business activities. For a summary of potentially significant inherent risks and uncertainties that management considers to be particularly unique to its operations and business plans in the upcoming years, please refer to the Company s 2008 Management Discussion and Analysis, which is available on the Canadian System for Electronic Document Analysis and Retrieval (SEDAR) at SELECTED FINANCIAL DATA The following table sets out selected financial information for the periods indicated. The Company s financial statements have been prepared in accordance with generally accepted accounting principles in Canada and all amounts are in Canadian dollars. OPERATIONS Quarters Ended August 31 Years Ended November $ $ $ $ $ Revenue Nil Nil Nil Nil Nil Net income (loss) and comprehensive income (loss) (169,897) (192,264) 1,043, ,896 (402,697) Basic income (loss) per share (0.01) (0.01) (0.02) Diluted income (loss) per share (0.01) (0.01) (0.02) BALANCE SHEET Working capital 664,667 1,530,080 1,348,743 2,556, ,583 Total assets 6,166,498 6,655,133 6,099,800 5,819,077 2,421,757 Total deferred exploration expenses 5,189,970 3,968,503 4,215,647 2,217,392 1,257,425 The Company s total assets have generally increased over the three-year period primarily due to the acquisition and exploration of mineral properties. The decline in total assets in the current quarter compared to the same quarter the previous year was due to the write-off of the derivative associated with the extinguishment of debt with EDL shares, and a reduction in cash. The Company s net income in 2008 was the result of a gain of $1,666,723 on the extinguishment of debt with EDL shares and a tax recovery of $155,000 associated with the renunciation of flow-through expenses. The Company s net income in 2007 was the result of the forgiveness of debt and a loan guarantee in conjunction with a restructuring of Etruscan 6 #1700, Purdy s Wharf Tower 1, 1959 Upper Water Street, Halifax, Nova Scotia Canada B3J 3N2 Tel: (902) Fax: (902)

7 Mountain Lake Resources Inc. Form F1 102F1 Management s Discussion & Analysis For the three months ended Diamonds and the tax recovery associated with the renunciation of flow-through expenses, offset by an increase in administrative expenditures associated with expanding its infrastructure to support growth in its exploration expenditures. RESULTS OF OPERATIONS The review of results of should be read in conjunction with the unaudited interim financial statements of the Company for the three months ended. Overview The Company reported a net loss for the three months ended of $169,897 compared to a loss of $192,264 for the three months ended August 31, Cash used in investing activities of $276,181 was lower than cash used of $403,216 for the same period in the prior year, primarily due to a $200,000 investment in Etruscan Diamonds Ltd. made in the prior year. Cash provided by financing activities was $Nil in the three months ended compared to $30,000 in government grants received in the same period in Administration Expenditures General and administrative expenses for the three months ended were lower at $170,960 compared to $206,078 for the same period in Specific changes are as follows: Management fees increased to $60,933 for the three months ended compared to $46,139 for the same period the prior year, due to a portion of management fees being charged to deferred exploration in the prior year. Stock-based compensation decreased to $41,718 for the three months ended compared to $96,658 for the same period in 2008 primarily due to the impact of a lower share price on the value of consultants options. Other Recoveries (Expenses) Interest and sundry income decreased to $1,651 for the three months ended compared to $54,745 for the same period in Interest income from short-term investments was $1,649 compared to $14,044 for the same period in the prior year, primarily due to a decrease in the invested cash balance and a decrease in interest rates. Interest and sundry income for 2008 also included amortization of debt premium of $95,625 which was offset by a change in the fair value of the derivative of $55,000. Interest expense on long-term debt was $Nil for the quarter compared to $38,895 for the same quarter in 2008, due to the extinguishment of long-term debt with EDL shares in November SUMMARY OF QUARTERLY RESULTS Quarter end: Aug. 31 May 31 Feb. 28 Nov. 30 Aug. 31 May 31 Feb. 29 Nov $ $ $ $ $ $ $ $ Revenue Nil Nil Nil Nil Nil Nil Nil Nil Administration expenditures (170,960) (211,507) (171,617) (189,657) (206,078) (218,209) (169,240) (193,723) Net income (loss) (169,897) (191,423) (165,494) 1,378,086 (192,264) (188,547) 46,432 (145,681) Basic and diluted income (loss) per share (0.01) (0.01) (0.01) 0.06 (0.01) (0.01) #1700, Purdy s Wharf Tower 1, 1959 Upper Water Street, Halifax, Nova Scotia Canada B3J 3N2 Tel: (902) Fax: (902)

8 Mountain Lake Resources Inc. Form F1 102F1 Management s Discussion & Analysis For the three months ended Administration expenses had been generally increasing quarterly through to the third quarter of fiscal 2008 due to the growth in the Company s infrastructure to support growth in exploration, but are now generally consistent from quarter to quarter. Accordingly, net loss had generally been increasing quarterly, with the exception of the fourth quarter of 2008 in which the Company recorded a gain associated with the extinguishment of debt using EDL common shares, and the first quarter of 2008 in which the Company recorded a tax recovery of $155,000 associated with the renunciation of flow-through expenditures. LIQUIDITY AND CAPITAL RESOURCES The Company has financed its acquisition and exploration of mineral properties and its ongoing operating costs with proceeds from equity subscriptions and the exercise of stock options and warrants. The availability of capital from the equity markets has diminished significantly as a result of world credit market issues, and equity available to mineral exploration companies has been sharply reduced. There can be no assurance that the Company can continue to raise proceeds from equity subscriptions in the short-term; however, the Company was successful in raising $1.7 million in equity in On October 22, 2008, the Company completed a non-brokered private placement for 1,000,000 Units at a price of $0.35 per Unit for gross proceeds of $350,000. Each Unit consists of one common share and onehalf of one common share purchase warrant, with each full warrant exercisable at a price of $0.42 per common share on or before October 22, The Company has the right to accelerate the expiry date of the warrants if the volume weighted average closing price of the Company s common shares exceeds $0.84 per share for more than 20 consecutive trading days, in which event the warrants will expire 30 days after the Company has given notice of the accelerated expiry to the warrant holders. The Agent received a commission of 70,000 Units on the same terms as the Units of the offering and 70,000 broker warrants exercisable at a price of $0.35 per common share on or before October 22, On March 7, 2008, the Company completed a brokered private placement for 2,260,000 Units at a price of $0.60 per Unit for gross proceeds of $1,356,000. Each Unit consists of one common share and one-half of one common share purchase warrant, with each full warrant exercisable at a price of $0.75 on or before March 7, The Agent received a commission of 158,200 Units on the same terms as the Units of the offering. Working capital At, the Company has working capital of $664,667, compared to working capital of $1,348,743 at November 30, 2008 and working capital of $1,530,080 at August 31, 2008 as follows: August 31, 2009 $ November 30, 2008 $ August 31, 2008 $ Cash and cash equivalents 716,573 1,574,560 1,770,843 Taxes and other receivables 35,667 63,829 40,878 Prepaid expenses 23,491 35,433 20,316 Accounts payable and accruals (111,064) (325,079) (172,313) Current portion of long-term debt - - (129,644) WORKING CAPITAL 664,667 1,348,743 1,530,080 Cash equivalents of $652,799 (2008: $1,614,161) are short-term, highly liquid investments with remaining maturities of three months or less at the time of acquisition that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value. 8 #1700, Purdy s Wharf Tower 1, 1959 Upper Water Street, Halifax, Nova Scotia Canada B3J 3N2 Tel: (902) Fax: (902)

9 Mountain Lake Resources Inc. Form F1 102F1 Management s Discussion & Analysis For the three months ended Cash flow Cash used in operating activities for the three months ended was $129,341 compared to cash used in operating activities of $101,743 for the same period in the previous year. The use of cash was primarily due to administrative expenditures of $125,050. Cash provided by financing activities for the three months ended was $Nil compared to $30,000 raised during the same period in 2008 through government grants. Cash used in investing activities for the three months ended was $276,181 in exploration expenditures (2008: $391,471) and $Nil for capital asset purchases (2008: $11,745). The higher use of cash for exploration expenditures in the prior year was primarily due to a $200,000 investment in Etruscan Diamonds Ltd. OFF-BALANCE SHEET ARRANGEMENTS The Company has no off-balance sheet arrangements. RELATED PARTY TRANSACTIONS Legal firms of which Directors are partners may from time to time provide legal services and charge for such services. A corporation owned by an Officer has a consulting agreement with the Company under which professional services fees are billed. The Directors of the Company did not receive compensation in their capacity as Directors. The Company has a five-year agreement with three directors of the Company, expiring in These individuals provide strategic planning advice; identification, negotiations, and acquisitions of mineral properties; and liaise with staff and auditors for the preparation and delivery of continuous disclosure documents. In 2007, the Company entered into an employment contract with its Chief Executive Officer who was also appointed a Director. During the three months ended, the Company paid or accrued the following amounts to related parties: For management fees $60,015 (2008: $60,405) to directors and officers of the Company per the agreements referred to above, of which $60,015 (2008: $44,244) was charged to income for the period and $Nil (2008: $16,161) was charged to deferred exploration; For professional services $14,876 (2008: $17,860) to a law firm in which a partner is a director of the Company and to a corporation of which an officer is a shareholder, of which $14,876 (2008: $17,860) was charged to income for the year and $Nil (2008: $Nil) was charged to share issue costs. Included in accounts payable and accrued liabilities are amounts owing to related parties totaling $20,304 (2008: $17,449). Included in prepaid expenses is an amount of $3,000 (2008: $3,000) representing a retainer on a services contract with an officer of the Company. Transactions with related parties are measured at the exchange amount of consideration established by the related parties. 9 #1700, Purdy s Wharf Tower 1, 1959 Upper Water Street, Halifax, Nova Scotia Canada B3J 3N2 Tel: (902) Fax: (902)

10 Mountain Lake Resources Inc. Form F1 102F1 Management s Discussion & Analysis For the three months ended SHARE CAPITAL As of the date of this report, the Company had authorized an unlimited number of common shares without par value and issued capital of 29,096,938 common shares. Warrants outstanding: Expiry date Exercise price per share Number of Shares March 7, 2010 $0.75 1,209,100 October 22, 2010 $ ,000 October 22, 2010 $ ,000 Stock options outstanding: 1,814,100 Expiry date Exercise price per share Number of Shares February 27, 2011 $ ,000 January 12, 2012 $ ,000 May 31, 2012 $ ,000 August 28, 2012 $ ,000 January 11, 2013 $ ,000 February 4, 2010 $ ,000 February 22, 2010 $ ,000 May 16, 2010 $ ,000 September 5, 2013 $0.40 1,350,000 September 10, 2010 $ ,000 June 22, 2014 $ ,000 3,410,000 CHANGES IN ACCOUNTING POLICY and RECENT ACCOUNTING PRONOUNCEMENTS Recently adopted accounting pronouncements Inventories: In June 2007 the CICA issued Section 3031, Inventories replacing Section 3030, Inventories. The new Section is effective for fiscal years beginning on or after January 1, 2008 and aligns accounting for inventories under Canadian GAAP with International Financial Reporting Standards (IFRS). This standard was adopted by the Company on December 1, 2008 and did not impact the Company s financial statements. Goodwill and intangible assets: In February 2008 the CICA issued Section 3064, Goodwill and Intangible Assets, replacing Section 3062, Goodwill and Other Intangible Assets, and Section 3450, Research and Development Costs. The new Section is applicable to financial statements relating to fiscal years beginning on or after October 1, Accordingly, the Company adopted the new standards for its fiscal year beginning December 1, Section 3064 establishes standards for the recognition, measurement, presentation and disclosure of goodwill subsequent to its initial recognition and of intangible assets by profit-oriented enterprises. Standards concerning goodwill are unchanged from the standards included in the previous Section This standard did not have a material impact on the Company s financial statements. 10 #1700, Purdy s Wharf Tower 1, 1959 Upper Water Street, Halifax, Nova Scotia Canada B3J 3N2 Tel: (902) Fax: (902)

11 Mountain Lake Resources Inc. Form F1 102F1 Management s Discussion & Analysis For the three months ended Credit risk and fair value of financial assets and financial liabilities: In January 2009, the CICA issued the Emerging Issues Committee (EIC) Abstract EIC 173, Credit Risk and the Fair Value of Financial Assets and Financial Liabilities, effective for interim and annual financial statements ending on or after January 20, Earlier adoption of this abstract is permitted. EIC-173 provides further information on the determination of the fair value of financial assets and financial liabilities under Section 3855, Financial Instruments Recognition and Measurement. It states that an entity s own credit and the credit risk of the counterparty should be taken into account in determining the fair value of financial assets and financial liabilities, including derivative instruments. EIC-173 should be applied retroactively, without restatement of prior periods, to all financial assets and liabilities measured at fair value. The Company adopted this abstract during the first quarter of the 2009 fiscal year, and this standard did not have a material impact on the Company s financial statements. (c) Recently issued accounting pronouncements In February 2008 the Accounting Standards Board announced that accounting standards in Canada are to converge with IFRS and companies will begin reporting, with comparative data, under IFRS for fiscal years beginning on or after January 1, While IFRS is based on a conceptual framework similar to Canadian GAAP, there are significant differences with respect to recognition, measurement and disclosure which the Company is beginning to assess. Business combinations: In January 2009, the CICA issued the new handbook Section 1582, Business Combinations effective for fiscal years beginning on or after January 1, Earlier adoption of Section 1582 is permitted. This pronouncement further aligns Canadian GAAP with US GAAP and IFRS and changes the accounting for business combinations in a number of areas. It establishes principles and requirements governing how an acquiring company recognizes and measures in its financial statements identifiable assets acquired, liabilities assumed, any non-controlling interest in the acquiree, and goodwill acquired. The section also establishes disclosure requirements that will enable users of the acquiring company s financial statements to evaluate the nature and financial effects of its business combinations. Although the Company is considering the impact of adopting this pronouncement on the consolidated financial statements, it will be limited to any future acquisitions beginning in fiscal Consolidated financial statements and non-controlling interests: In January 2009, the CICA issued the new handbook Section 1601, Consolidated Financial Statements, and Section 1602, Non-controlling Interests, effective for fiscal years beginning on or after January 1, Earlier adoption of these recommendations is permitted. These pronouncements further align Canadian GAAP with US GAAP and IFRS. Sections and 1602 change the accounting and reporting for ownership interest in subsidiaries held by parties other than the parent. Non-controlling interests are to be presented in the consolidated statement of financial position within equity but separate from the parent s equity. The amount of consolidated net income attributable to the parent and to the non-controlling interest is to be clearly identified and presented on the face of the consolidated statement of income. In addition, these pronouncements establish standards for a change in a parent s ownership interest in a subsidiary and the valuation of retained non-controlling equity investments when a subsidiary is deconsolidated. They also establish reporting requirements for providing sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the non-controlling owners. The Company is currently considering the impact of adopting these pronouncements on its consolidated financial statements in fiscal 2011 in connection with the conversion to IFRS. CRITICAL ACCOUNTING ESTIMATES The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and notes. Critical accounting estimates used in the preparation of the financial 11 #1700, Purdy s Wharf Tower 1, 1959 Upper Water Street, Halifax, Nova Scotia Canada B3J 3N2 Tel: (902) Fax: (902)

12 Mountain Lake Resources Inc. Form F1 102F1 Management s Discussion & Analysis For the three months ended statements include the Company s estimate of recoverable value of its mineral properties and related deferred expenditures, stock-based compensation and future income tax assets and liabilities. The Company s recoverability of the recorded value of its mineral properties and associated deferred expenses is based on market conditions for minerals, underlying mineral resources associated with the properties and future costs that may be required for ultimate realization through mining operations or by sale. The Company operates in an industry that is subject to a number of risk factors, including legal and political risks, the existence of economically recoverable reserves, and the ability of the Company to obtain necessary financing to complete the development and future profitable production or the proceeds of disposition thereof. The factors affecting stock-based compensation include estimates of when stock options might be exercised and the stock price volatility. The timing for exercise of options is out of the Company s control and will depend on a variety of factors including the market value of the Company s shares and the financial objectives of the stock-based instrument holders. Future income tax assets and liabilities are computed based on differences between the carrying amounts of assets and liabilities on the balance sheet and their corresponding tax values. Future income tax assets also result from unused loss carryforwards and other deductions. The valuation of future income tax assets is adjusted, if necessary, by use of a valuation allowance to reflect the estimated realizable amount. OTHER INFORMATION Additional information relating to the Company is available on SEDAR at 12 #1700, Purdy s Wharf Tower 1, 1959 Upper Water Street, Halifax, Nova Scotia Canada B3J 3N2 Tel: (902) Fax: (902)

13 Financial Statements (Expressed in Canadian Dollars) MOUNTAIN LAKE RESOURCES INC. for the three months ended The accompanying financial statements for the three months ended are unaudited.

14 Unaudited Balance Sheets ASSETS CURRENT November 30, 2008 Cash and cash equivalents $ 716,573 $ 1,574,560 Taxes and other receivables 35,667 63,829 Prepaid expense 23,491 35, ,731 1,673,822 RESOURCE PROPERTIES INTERESTS (Note 6) 5,189,970 4,215,647 INVESTMENT IN ETRUSCAN DIAMONDS LIMITED (Note 5) 162, ,618 RECLAMATION DEPOSITS (Note 7) 2,633 2,559 CAPITAL ASSETS (Note 8) 35,546 45,154 $ 6,166,498 $ 6,099,800 LIABILITIES CURRENT Accounts payable and accrued liabilities $ 111,064 $ 325,079 SHAREHOLDERS EQUITY SHARE CAPITAL (Note 10) 11,141,706 10,475,706 CONTRIBUTED SURPLUS (Note 11) 1,344,469 1,202,942 DEFICIT (6,430,741) (5,903,927) 6,055,434 5,774,721 $ 6,166,498 $ 6,099,800 (Going Concern see Note 1) See accompanying notes to financial statements. 1

15 Unaudited Statements of Operations, Comprehensive Loss and Deficit Three months ended August 31 Nine months ended August 31 ADMINISTRATION EXPENDITURES Amortization of equipment $ 3,203 $ 2,440 $ 9,608 $ 5,910 Consulting fees 2,000-2,000 - General and administrative 9,424 6,754 36,358 31,011 Management fees (Note 13) 60,933 46, , ,559 Professional fees (Note 13) 24,126 25,673 89, ,366 Shareholder information and communications 23,741 21,626 67,885 71,273 Share transfer, listing and filing fees 5,815 6,788 26,886 23,538 Stock-based compensation 41,718 96, , , , , , ,527 OTHER RECOVERIES (EXPENSES) Interest and sundry income (Note 9) 1,651 54,745 10, ,707 Foreign exchange gain (loss) (222) Recovery of resource property expenditures ,000 - Miscellaneous resource property investigation - (2,036) - (2,036) Interest expense (662) - (710) - Interest expense on long-term debt (Note 9) - (38,895) - (116,301) 1,063 13,814 29, ,148 NET LOSS AND COMPREHENSIVE LOSS BEFORE TAXES (169,897) (192,264) (524,187) (489,379) Tax (expense) recovery (Note 10) - - (2,627) 155,000 NET LOSS AND COMPREHENSIVE LOSS FOR THE PERIOD (169,897) (192,264) (526,814) (334,379) DEFICIT, beginning of period (6,260,844) (7,089,749) (5,903,927) (6,947,634) DEFICIT, end of period $ (6,430,741) $ (7,282,013) $ (6,430,741) $ (7,282,013) Loss per share basic and diluted (Note 12) $ (0.01) $ (0.01) $ (0.02) $ (0.01) See accompanying notes to financial statements. 2

16 Unaudited Statements of Cash Flows Three months ended August 31 Nine months ended August 31 CASH PROVIDED BY (USED IN): OPERATING ACTIVITIES Net income (loss) and comprehensive income (loss) for the period $ (169,897) $ (192,264) $ (526,814) $ (334,379) Items not involving cash: Amortization of equipment 3,203 2,440 9,608 5,910 Amortization of debt premium - (95,625) - (286,875) Fair value adjustment of derivative - 55, ,000 Amortization of deferred financing charges - 3,607-10,822 Stock-based compensation 41,718 96, , ,870 Tax benefits on flow-through expenditures (155,000) Unrealized foreign exchange gains (74) - (74) - Interest accrued on long term debt - 35, ,480 (125,050) (94,896) (375,753) (319,172) Cash provided by (used in) changes in non-cash working capital items: Taxes and other receivables (31,494) (13,797) 28, ,384 Prepaid expenses (1,178) (12,561) 11,942 (3,027) Accounts payable and accrued liabilities 28,381 19,511 (123,598) (174,801) Cash used in operating activities (129,341) (101,743) (459,247) (357,616) FINANCING ACTIVITIES Shares issued, net of issuance cost ,334,406 Government grant received - 30, , ,000 Cash provided by financing activities - 30, ,374 1,464,406 INVESTING ACTIVITIES Resource property expenditures deferred (236,181) (191,471) (471,114) (1,757,578) Resource properties acquired (40,000) - (40,000) - Investment in Etruscan Diamonds Ltd. - (200,000) - (200,000) Purchase of capital assets - (11,745) - (11,745) Cash used in investing activities (276,181) (403,216) (511,114) (1,969,323) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ (405,522) $ (474,959) $ (857,987) $ (862,533) CASH AND CASH EQUIVALENTS, beginning of period 1,122,095 2,245,802 1,574,560 2,633,376 CASH AND CASH EQUIVALENTS, end of period $ 716,573 $ 1,770,843 $ 716,573 $ 1,770,843 Cash and cash equivalents is comprised of: Cash $ 63,774 $ 156,682 $ 63,774 $ 156,682 Short-term deposits $ 652,799 $ 1,614,161 $ 652,799 $ 1,614,161 Supplemental cash flow information: Shares issued for finders fees or commission $ - $ - $ - $ 94,920 Change in incurred expenditures for resource properties in accounts payable $ 45,839 $ 96,783 $ (90,417) $ 96,783 Shares issued for mineral properties $ 7,750 $ - $ 666,000 $ 26,750 See accompanying notes to financial statements. 3

17 Notes to Financial Statements For the three months ended NOTE 1 NATURE OF OPERATIONS AND GOING CONCERN Mountain Lake Resources Inc. (the Company ) was incorporated under the laws of British Columbia on March 25, The Company is an exploration stage company engaged in the exploration for and development of base and precious metals. It holds interests in a number of properties in Newfoundland and Labrador: an exploration property (Valentine Lake), a mining lease (Bobby s Pond), the Little River Property comprising 13 mineral licenses and a mineral license surrounding Bobby s Pond mining lease (Cornerstone Option). It also holds an interest in a mineral claim in New Brunswick (Goodwin); and a 13.07% interest in Etruscan Diamonds Limited ( EDL ), a company in the business of diamond mining. These financial statements have been prepared in accordance with Canadian generally accepted accounting principles ( GAAP ) on a going concern basis, which presumes that the Company will realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. There is substantial doubt as to the Company s ability to continue as a going concern. The Company has incurred significant losses since inception. The recoverability of amounts shown for resource properties interests and the Company s continued viability is dependent upon the discovery of economically recoverable reserves, the ability of the Company to obtain necessary financing to complete their development, and upon future profitable production from or proceeds from the disposition of its interests. As at, the Company has a cash balance of $716,573 (November 30, $1,574,560) to settle current liabilities of $111,064 (November 30, $325,079). There are no assurances that the Company will be successful in achieving these goals. These financial statements do not include any adjustments to the amounts and classifications of assets and liabilities that might be necessary should the Company be unable to continue in business. NOTE 2 SIGNIFICANT ACCOUNTING POLICIES These financial statements have been prepared in accordance with Canadian generally accepted accounting principles, using the same accounting policies and methods as per the annual financial statements for the year ended November 30, 2008, with the following additions. These statements do not include all the disclosures required by generally accepted accounting principles and should be read in conjunction with the most recent annual financial statements of the Company. (b) Recently adopted accounting pronouncements Inventories: In June 2007 the CICA issued Section 3031, Inventories replacing Section 3030, Inventories. The new Section is effective for fiscal years beginning on or after January 1, 2008 and aligns accounting for inventories under Canadian GAAP with International Financial Reporting Standards (IFRS). This standard was adopted by the Company on December 1, 2008 and did not impact the Company s financial statements. Goodwill and intangible assets: In February 2008 the CICA issued Section 3064, Goodwill and Intangible Assets, replacing Section 3062, Goodwill and Other Intangible Assets, and Section 3450, Research and Development Costs. The new Section is applicable to financial statements relating to fiscal years beginning on or after October 1, Accordingly, the Company adopted the new standards for its fiscal year beginning December 1, Section 3064 establishes standards for the recognition, measurement, presentation and disclosure of goodwill subsequent to its initial recognition and of intangible assets by profit-oriented enterprises. Standards concerning goodwill are unchanged from the standards included in the previous Section This standard did not have a material impact on the Company s financial statements. Credit risk and fair value of financial assets and financial liabilities: In January 2009, the CICA issued the Emerging Issues Committee (EIC) Abstract EIC 173, Credit Risk and the Fair Value of Financial Assets and Financial Liabilities, effective for interim and annual financial statements ending on or after January 20, Earlier adoption of this abstract is permitted. EIC-173 provides further information on the determination of the fair value of financial assets and financial liabilities under Section 3855, Financial Instruments Recognition and Measurement. It states that an entity s own credit and the credit risk of the counterparty should be taken into account in determining the fair value of financial assets and financial liabilities, including derivative instruments. EIC-173 should be applied retroactively, without restatement of prior periods, to all financial assets and liabilities measured at fair value. 4