WALLBRIDGE MINING COMPANY LIMITED

Transcription

1 Condensed Interim Financial Statements of WALLBRIDGE MINING COMPANY LIMITED

2 Notice of Disclosure of Non-auditor Review of the Condensed Interim Financial Statements of Wallbridge Mining Company Limited for the three and nine months ended September 30, 2016 Pursuant to National Instrument , Part 4, subsection 4.3(3)(a) issued by the Canadian Securities Administrators, if an auditor has not performed a review of the interim financial statements, such statements must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor. The accompanying unaudited condensed interim financial statements of Wallbridge Mining Company Limited for the three and nine months ended September 30, 2016 with comparative figures for the three and nine months ended September 30, 2015, have been prepared in accordance with the International Accounting Standard 34 Interim Financial Reporting as issued by the International Accounting Standards Board and are the responsibility of the Company s management. The Company s independent auditors have not performed a review of these interim financial statements.

3 Condensed Interim Statements of Financial Position (expressed in Canadian Dollars) September 30, December 31, Assets Current assets: Cash and cash equivalents $ 615,705 2,300,524 Restricted cash (note 18 (c)) 336, ,400 Restricted cash (note 9 (a)) 33,284 - Derivative asset (note 4) - 140,000 Amounts receivable (note 5) 187,612 2,512,574 Deposits and prepaid expenses (note 6) 303, ,175 Marketable securities 6, ,483,292 5,634,491 Restricted cash (note 18 (c)) 241, ,674 Investment in Carube Copper Corp. (note 7) 438, ,736 Exploration and evaluation assets (note 9) 16,311,879 16,358,796 Deposits on acquistion of Fenelon Gold Mine Property (note 9 (c)) 1,200,000 - Deferred costs (note 10) 437,947 - Property and equipment (note 11) 341, ,411 $ 20,455,058 23,204,108 Liabilities and Shareholders' Equity Current liabilities: Accounts payable and accrued liabilities (note 12) $ 830,759 4,321,731 Deposit from partner (note 9 (a)) 33,284 - Current portion of provision for closure plan (note 18 (b)) 89,434 71, ,477 4,392,822 Provision for closure plan (note 18 (b)) 216, ,600 Deferred tax liability - 53,000 1,169,625 4,708,422 Equity (note 15): Share capital 57,235,420 55,761,678 Warrants 717,000 8,000 Contributed surplus 8,216,439 8,041,085 Deficit (46,883,426) (45,315,077) Total Equity 19,285,433 18,495,686 Nature of operations and going concern (note 1) Commitments and contingencies (note 18) Subsequent events (notes 9 (c), 12, 13, 15 (a) and (c), 18 (c) and 19) $ 20,455,058 23,204,108 See accompanying notes to condensed interim financial statements. 1

4 Condensed Interim Statements of Operations (expressed in Canadian Dollars) Three months ended September 30, Nine months ended September 30, Revenue (note 16) $ - 9,363,580 (237,471) 22,223,100 Mining Operating Costs: Production costs - 7,571,446-18,956,638 Royalty expense - 87, ,874 Amortization and depletion - 956,176-2,889,882-8,614,829-22,080,394 Earnings (loss) from mining operations - 748,751 (237,471) 142,706 Other expenses and (income): General and administrative expenses 317, ,239 1,145,827 1,351,578 Project evaluation costs 93,827 10, ,225 45,406 Amortization of property and equipment 12,211 19,323 36,629 58,696 Interest on debt ,398 Interest income (15,826) (14,022) (46,663) (21,615) Loss (gain) on derivative contracts (note 4) - 22,473 (109,814) (238,518) Unrealized loss (gain) on marketable securities (3,441) 876 (5,629) 12,463 Loss (gain) on disposition of assets - 2,417 (54,662) 2,417 Impairment of promissory note (note 8) 15,170-38,367 - Share of losses of Carube Copper (note 7) 50,366 59, ,799 59,689 Gain on loss of control of Miocene Resources Limited (298,483) Foreign exchange loss (gain) (377) (16,382) 3,508 (72,398) Loss on foreign currency contract - 280, ,337 Gain on sale of investment in Duluth Metals Limited (1,065,762) 469, ,077 1,383, ,208 Earnings (loss) before income taxes (469,562) 108,674 (1,621,349) (334,502) Deferred tax expense (recovery) - 111,000 (53,000) (309,000) Net loss for the period $ (469,562) (2,326) (1,568,349) (25,502) Attributable to: Equity holders of Wallbridge Mining Company Limited $ (469,562) (2,326) (1,568,349) 150,305 Non-controlling interest in loss of subsidiary (175,807) $ (469,562) (2,326) (1,568,349) (25,502) Weighted average number of common shares 190,680, ,160, ,465, ,160,438 Net earnings (loss) per share: Basic $ (0.00) (0.00) (0.01) 0.00 Diluted (0.00) (0.00) (0.01) 0.00 See accompanying notes to condensed interim financial statements. 2

5 Condensed Interim Statements of Comprehensive Loss (expressed in Canadian Dollars) Three months ended September 30, Nine months ended September 30, Net loss for the period $ (469,562) (2,326) (1,568,349) (25,502) Other comprehensive loss, net of tax: Items that may be reclassified subsequently to profit or loss: Reclassification adjustment for gain included in net earnings during the period (1,065,762) Comprehensive loss for the period (469,562) (2,326) (1,568,349) (1,091,264) Attributable to non-controlling interest (175,807) Attributable to equity holders of Wallbridge Mining Company Limited $ (469,562) (2,326) (1,568,349) (915,457) See accompanying notes to condensed interim financial statements. 3

6 Condensed Interim Statements of Changes in Equity (expressed in Canadian Dollars) Number of Shares Share Capital Warrants Contributed Surplus Deficit Accumulated Other Comprehensive Income (loss) Equity attributable to Wallbridge shareholders Noncontrolling interests Total Balance, December 31, ,835,438 $ 55,761,678 8,000 8,041,085 (45,315,077) - 18,495,686 - $ 18,495,686 Share issuances, net of share issuance costs (note 15 (a) and (c)) 30,450,000 1,273, , ,973,742 1,973,742 Agent warrants (note 15 (a)) , ,000 17,000 Expiration of warrants - - (8,000) 8, Share issuance, deposit on property acquisition (note 9 (c) and15 (a)) 2,381, , , ,000 Share based compensation (note 15 (b)) , ,152-32,152 Deferred share units (note 15 (b)) , , ,202 Net loss for the period (1,568,349) - (1,568,349) - (1,568,349) Balance, September 30, ,667,013 $ 57,235, ,000 8,216,439 (46,883,426) - 19,285,433 - $ 19,285,433 Balance, December 31, ,160,438 $ 55,745, ,000 7,751,110 (43,042,731) 1,065,762 21,665, ,359 $ 22,204,978 Share issuances and dilution gain in Miocene Resources Limited ,241-22, , ,000 Expiration of warrants - - (35,000) 35, Share based compensation , ,400-96,400 Deferred share units , ,000-30,000 Transfer of gain on sale of available for sale securities, net of tax (1,065,762) (1,065,762) - (1,065,762) Net earnings (loss) for the period , ,305 (175,807) (25,502) Deconsolidation of Miocene Resources Limited (536,311) (536,311) Balance, September 30, ,160,438 $ 55,745, ,000 7,912,510 (42,870,185) - 20,898,803 - $ 20,898,803 See accompanying notes to condensed interim financial statements. 4

7 Condensed Interim Statements of Cash Flows (expressed in Canadian Dollars) Nine months ended September 30, Cash flows from (used in) operating activities: Net loss for the period $ (1,568,349) (25,502) Adjustments for: Deferred tax recovery (53,000) (309,000) Amortization of property and equipment 36,629 2,948,578 Interest on debt ,398 Interest on promissory note receivable (43,195) (15,353) Gain on derivative contracts (109,814) (238,518) Cash received on settlement of derivative contracts 249, ,618 Gain on disposition of investment in Duluth Metals Limited - (1,065,762) Gain on disposition of assets (54,662) 2,417 Share of losses of Carube Copper 105,799 59,689 Impairment of promissory note 38,367 - Unrealized (gain) loss on marketable securities (5,629) 12,463 Share based compensation 32,152 96,400 Deferred share units 88,452 30,000 Gain on loss of control of Miocene Resources Limited - (298,483) Closure Plan obligations (28,109) (43,900) Changes in assets and liabilities held for sale - 4,388 Deferred charges (50,000) - Changes in non-cash working capital: Amounts receivable 2,429,790 (1,364,659) Inventory - 40,399 Deposits and prepaid expenses 274,283 (177,975) Accounts payable and accrued liabilities (3,797,905) (2,691,095) (2,455,086) (2,126,897) Cash flows from (used in) financing activities: Share issuances in Miocene Resources Limited - 195,000 Share issuances, net of share issuance costs 2,026,566 - Interest paid on debt (291) (164,612) Interest paid in advance (187,500) - Payment on line of credit - (1,000,000) Payment on bridge loan - (782,625) Payments on current debt (15,425) (14,754) 1,823,350 (1,766,991) Cash flows from (used in) investing activities: Exploration and evaluation assets expenditures (203,520) (1,242,661) Fenelon Gold Mine Property purchase payments (1,000,000) - Option payments received for exploration and evaluation assets 150, ,008 Restricted cash - 170,374 Purchase of investment in Carube Copper Corp. - (610,000) Received on line of credit receivable - 123,418 Proceeds from disposition of equipment Proceeds from disposition of investment in Duluth Metals Limited - 2,283,777 (1,053,083) 1,127,666 Net decrease in cash and cash equivalents (1,684,819) (2,766,222) Cash and cash equivalents, beginning of period 2,300,524 3,831,897 Cash and cash equivalents, end of period $ 615,705 1,065,675 Summary of non-cash transactions: Deposit on Fenelon Mine Property purchase - share issuance $ 200,000 - Exploration expense recovery included in accounts receivable 100,000 - Settlement of accounts payable with sale of equipment 54,662 - Settlement of accounts payable with deferred stock units 132,250 - Settlement of debt - receipt of shares - 1,000,000 Settlement of debt - promissory note receivable - 438,567 See accompanying notes to condensed interim financial statements. 5

8 1. Nature of operations and going concern: Wallbridge Mining Company Limited ( Wallbridge or the Company ) is incorporated under the laws of Ontario and is engaged in the acquisition, discovery, development and production of metals focusing on gold, copper, nickel and platinum group metals. The Company completed operations at its first polymetallic mine, producing copper, platinum, palladium, and gold from the Broken Hammer open pit mine in Sudbury, Ontario on October 30, On October 18, 2016, the Company completed the purchase of the Fenelon Gold Mine Property and has initiated a prefeasibility study and the permitting process with the goal of making a production decision in The Company s head office is located at 129 Fielding Road in Lively, Ontario. These unaudited condensed interim financial statements have been prepared on the going concern basis, which contemplates that the Company will be able to realize its assets and discharge liabilities in the normal course of business. There can be no assurance that the Company will either achieve or maintain profitability in the future. The Company has had recurring losses. At September 30, 2016, the Company has working capital of $529,815 (December 31, $1,241,669). On October 4, 2016, the Company closed on its short form prospectus raising $1,545,760 from the sale of 19,322,000 units to be used for general working capital purposes and development of the Fenelon Gold Mine Property, and $175,000 from the sale of 1,750,000 flow-through shares to be used to incur eligible Canadian Exploration Expenditures. In order to meet its planned activities, exploration and evaluation expenditures, the Company anticipates it will need to raise funds by the end of The continuation of the Company as a going concern is dependent on the Company s ability to successfully fund its cash obligations through financing or future operations. Although the Company has been successful in obtaining the necessary financing to date, there can be no assurance that adequate or sufficient financing will be available in the future, or available under terms acceptable to the Company. These circumstances indicate that the existence of a material uncertainty which casts significant doubt as to the ability of the Company to meet its obligations as they come due, and accordingly, the appropriateness of the use of the accounting principles applicable to a going concern. These financial statements do not reflect adjustments that would be necessary if the going concern assumption were not appropriate. Should the Company be unable to generate sufficient cash flow from financing activities, the carrying value of the Company s assets could be subject to material adjustments and other adjustments may be necessary to these financial statements should such adverse events impair the Company s ability to continue as a going concern. 6

9 2. Basis of presentation: (a) Statement of compliance: These unaudited condensed interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting. These statements do not include all of the information required for full annual financial statements and should be read in conjunction with the annual financial statements for the year ended December 31, (b) Judgments and estimates: Preparing the interim financial statements requires Management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. In preparing these unaudited condensed interim financial statements, significant judgments made by Management in applying the accounting policies and the key sources of estimation uncertainty were the same as those applied to the financial statements for the year ended December 31, (c) Functional and presentation currency: These unaudited condensed interim financial statements are presented in Canadian dollars which is the Company s functional currency. 3. Significant accounting policies: The accounting policies applied by the Company in these unaudited condensed interim financial statements are the same as those applied to the audited financial statements as at and for the year ended December 31, New accounting standards not yet adopted: (a) IFRS 9 Financial Instruments replaces the current standard IAS 39 Financial Instruments: Recognition and measurement, replacing the current classification and measurement criteria for financial asset and liabilities with only two classification categories: amortized cost and fair value. The effective date for annual periods beginning on or after January 1, 2018, with early adoption permitted. The Company will evaluate the impact of the change to its financial statements based on the characteristics of its financial instruments at the time of adoption. 7

10 3. Significant accounting policies (continued): (b) IFRS 15, Revenue from Contracts with Customers ( IFRS 15 ) was issued to clarify the principles for recognizing revenue. IFRS 15 establishes principles to address the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity s contracts with customers. IFRS will be effective for annual periods beginning on or after January 1, 2018, with early adoption permitted. The Company is currently assessing the effect of this standard on the financial statements. (c) IFRS 16, Leases ( IFRS 16 ) was issued in January This standard introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases with a term of more than twelve months, unless the underlying asset is of low value. A lessee is required to recognize a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. This standard is effective for annual periods beginning on or after January 1, 2019, and permits early adoption, provided IFRS 15, has been applied, or is applied at the same date as IFRS 16. The Company is in the process of determining the impact of IFRS 16 on its financial statements. (d) Classification and Measurement of Share-based Payment Transactions (Amendments to IFRS 2) On June 20, 2016, the IASB issued amendments to IFRS 2 Share-based Payment, clarifying how to account for certain types of share-based payment transactions. The amendments apply for annual periods beginning on or after January 1, As a practical simplification, the amendments can be applied prospectively. Retrospective, or early, application is permitted if information is available without the use of hindsight. The amendments provide requirements on the accounting for: the effects of vesting and non-vesting conditions on the measurement of cashsettled share-based payments; share-based payment transactions with a net settlement feature for withholding tax obligations; and a modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled. The Company intends to adopt the amendments to IFRS 2 in its financial statements for the annual period beginning on January 1, The extent of the impact of adoption of the standard has not yet been determined. 8

11 4. Derivative asset: In 2014 and 2015, the Company entered into forward sales contracts relating to its projected payable copper, platinum, palladium and gold (PGE) from the Broken Hammer Mine production to protect against changes in the prices of these metals. The timing of settlement specified in the financial contracts matched the final pricing settlement periods for the metals pricing with the smelter. Gains or losses on the metals forward sales contracts were recognized at fair value with the gain or loss relating to the change in fair value recorded in the statement of loss. September 30, 2016 December 31, 2015 Fair value of the forward sales contracts $ - $ 140,000 There were no gains or losses in the three months ended September 30, 2016 ( $22,473 loss) and a gain of $109,814 in the nine months ended September 30, 2016 ( $238,518 gain). All of the forward sales contracts were settled by March 31, Amounts receivable: September 30, 2016 December 31, 2015 Accounts receivable from smelters $ - $ 2,293,648 Harmonized Sales Tax 35,390 14,758 Other 152, ,168 $ 187,612 $ 2,512,574 Accounts receivable from smelters represented the value of all copper, gold, and platinum group metals contained in concentrate shipped for smelting and refining using the forward metal prices in the month the final pricing is determined (the month of accountability). Accounts receivable was recorded net of estimated treatment and refining costs and was subject to final assay adjustments. All of the accounts receivable from smelters were collected. 9

12 6. Deposits and prepaid expenses: September 30, 2016 December 31, 2015 Deposit relating to forward contract $ - $ 330,000 Interest on loan (note 13) 187,500 - Current portion of investor relation contract 100,000 - Prepaid expenses - other 15,892 60,175 $ 303,392 $ 390,175 In September 2015, the Company entered into several forward sales contracts. The Company provided a deposit of $330,000 to cover mark-to-market risk. The deposit earned interest of $1,160 and was returned in February On August 22, 2016, the Company paid $150,000 for investor relation services for an 18 month period starting October 1, The current portion of the contract is $100,000 and the balance of $50,000 is recorded as a long term asset in deferred costs (note 10). On September 27, 2016, the Company paid $187,500 in interest to William Day Holdings Limited which represents six months advance interest (note 14). 7. Investment in Carube Copper Corp. ( Carube Copper ): September 30, 2016 December 31, 2015 Investment in Carube Copper $ 438,937 $ 544,736 The Company holds 10,894,732 shares and 1,525,000 warrants of Carube Copper. On March 22, 2016, Carube Copper closed private placements of 3,000,000 units and 200,000 flow-through shares. Each unit is comprised of one common share and one-half of one common share purchase warrant. On July 21, 2016, Carube Copper closed private placements of 5,000,000 units. Each unit is comprised of one common share and one-half of one common share purchase warrant. On September 27, 2016, Carube Copper issued 238,148 common shares under a property option agreement. At September 30, 2016, Wallbridge holds 15.5% of the 70,126,581 shares of Carube Copper (December 31, % of 61,688,433 shares). At September 30, 2016, 5,541,183 shares (December 31, ,378,549) and 915,000 warrants (December 31, ,372,500) were held in escrow. The escrowed shares and warrants will be released in six month increments from January 7, 2017 to July 7,

13 8. Promissory Note Receivable from Carube Copper: Promissory note Impairment of promissory note Opening balance, December 31, 2015, principal plus interest $ 464,967 $ (464,967) Accrued interest at 12% on $436,415 to March 31, ,021 (13,021) Addition of other indebtedness to promissory note, March 31, 2016 (impairment of other indebtedness of $29,743 recorded at December 31, 2015) 24,914 (29,743) Recovery of impairment of other indebtedness, March 31, ,829 Balance, March 31, 2016 of amended promissory note $502,902 $(502,902) Accrued interest at 12% on $502,902, April 1 to September 30, ,175 (30,175) Balance, September 30, 2016 $ 533,077 $ (533,077) At December 31, 2015, the Company held a promissory note of $436,415 plus interest accrued at 12% per annum of $28,552 secured by Carube s Salal and Mackenzie properties, which was due September 30, On March 31, 2016, the Company signed an amending agreement with Carube Copper to extend the repayment date to December 31, 2017 from September 30, 2016 for the principal balance of $436,415 and accrued interest of $41,573 at March 31, 2016, and to include other indebtedness owing at March 31, 2016 of $24,914 into the promissory note. The total of the amended promissory note was $502,902 and the interest remained at 12% per annum. In consideration of extending the repayment date, the NSR royalty on the Salal and MacKenzie properties was increased from 1.5% to 1.75%. The buyback terms for the purchase of the NSR royalty, provided the new promissory note is repaid in full, is as follows: (i) for $350,000 at any time on or before December 31, 2017 (the maturity date); (ii) for $750,000 during the first year after the maturity date; or (iii) for $1.75 million at any time thereafter. During the three months ended September 30, 2016, the Company recorded an impairment of the promissory note of $15,170 and $38,367 for the nine months ended September 30, No impairment was recorded for the three or nine months ended September 30,

14 9. Exploration and evaluation assets: Total exploration and evaluation expenditures are detailed as follows: Balance, December 31, 2015 Expenditures Option payments/ recovery Balance, September 30, 2016 Other Sudbury Projects $ 8,143,983 22,855 - $ 8,166,838 Parkin Properties (i) 4,043, ,310 (226,000) 3,952,505 North Range and Wisner Properties (ii) 4,171,618 45,355 (24,437) 4,192,536 $ 16,358, ,520 (250,437) $16,311,879 Balance, December 31, 2014 Expenditures Option payments Balance, December 31, 2015 Other Sudbury Projects $ 8,101,206 42,777 - $8,143,983 Parkin Properties 3,466, ,407-4,043,195 North Range and Wisner Properties ii) 4,086, ,901 (412,038) 4,171,618 $ 15,654,749 1,116,085 (412,038) $ 16,358,796 (i) The recovery is part of the Parkin amendment to the North Range Joint Venture agreement. (ii) Option payments received were for the properties in the Wisner amendment to the North Range Joint Venture agreement. (a) At September 30, 2016, the Company has $33,284 (December 31, $nil) of restricted cash from the North Range Joint Venture partner which will be used for exploration on the North Range and Wisner Properties. (b) In May 2016, the Company was accepted as a successful applicant for the Junior Exploration Assistance Program ("JEAP") for two projects to be completed by December 31, 2016, including Parkin Properties and other properties in the Sudbury area. JEAP is sponsored by the Ontario Prospectors Association ( OPA ) and the Northern Ontario Heritage Fund Corporation and has committed to provide the Company with a grant equal to 33.3% of approved eligible exploration expenditures up to $100,000 on each of the two projects for a total of up to $200,000. The funds will be received after completion of the projects and upon approval by OPA of the final reports submitted by the Company on the projects. The funded projects are in the North Range and Sudbury Camp Joint Ventures. 12

15 9. Exploration and evaluation assets (continued): (c) The Company entered into a binding Letter of Intent ("LOI") dated May 24, 2016 to acquire 100% of the Fenelon Gold Mine Property (subject to certain royalty provisions) from Balmoral Resources Ltd ("Balmoral"). The Fenelon Gold Mine Property is located in West-Central Quebec, within the same geological belt that hosts the large Detour Lake Mine in Ontario. On July 25, 2016, the purchase agreement was signed. The agreement was amended on August 18, 2016 and September 20, 2016 for payment terms only. The terms of the final agreement and subsequent amendments are as follows: The Company issued to Balmoral 2,381,575 common shares of Wallbridge equal to $200,000 based on the 20 day volume weighted average trading price of the Company s common shares in the 20 days immediately prior to market close on May 20, 2016 of $0.084 per share. The Company paid $200,000 in cash on July 28, 2016, $300,000 in cash on August 22, 2016 and $500,000 in cash on September 23, A final payment of $2,500,000 to be made on the earlier of November 7, 2016 or that date on which the registration of the property into the name of Wallbridge is completed. This payment was made on October 18, Balmoral retains a 1% NSR on any future production from the Fenelon Gold Mine Property. The Company has recorded $1,200,000 as deferred costs on the Fenelon Gold Mine Property at September 30, 2016 (note 10). Upon the final payment of $2,500,000 on October 18, 2016, these costs will be reclassified as an exploration and evaluation asset. 13

16 10. Deferred costs: The deferred costs at September 30, 2016 are as follows: September 30, 2016 Share issuance costs re short form prospectus $ 245,702 Transaction costs re Fenelon Gold Mine Property 27,814 Long term debt transaction costs 114,431 Costs re investor relations contract long term (note 6) 50,000 $ 437,947 Share issuance costs are related to the issue of shares and units in the short form prospectus offering that closed in October 2016 (note 15 (a) (iv)). These costs are deferred until the securities are issued. At the time the securities are issued, the costs will be recognized as a reduction of share capital. Long term debt transaction costs are related to the loan agreement that closed in October 2016 (note 13). When the financing closes, the costs will be recognized as a reduction of the value of the related debt and amortized over the life of the debt using the effective interest method. There were no deferred charges at December 31,

17 11. Property and equipment: Cost: Broken Hammer Buildings, leaseholds and bridges Vehicles and equipment Total Balance, December 31, 2014 $ 6,021, ,682 1,291,802 $ 7,660,674 Disposals - - (106,358) (106,358) Balance, December 31, ,021, ,682 1,185,444 7,554,316 Disposals (329,626) - - (329,626) Balance, September 30, 2016 $ 5,691, ,682 1,185,444 $ 7,224,690 Accumulated amortization: Broken Hammer Buildings, leaseholds and bridges Vehicles and equipment Total Balance, December 31, 2014 $ 2,984, ,803 1,037,122 $ 4,154,022 Additions 3,037,093 10,744 64,760 3,112,597 Disposals - - (90,714) (90,714) Balance, December 31, ,021, ,547 1,011,168 7,175,905 Additions - 7,655 28,975 36,630 Disposals (329,626) - - (329,626) Balance, September 30, 2016 $ 5,691, ,202 1,040,143 $ 6,882,909 Carrying amounts: Broken Hammer Buildings, leaseholds and bridges Vehicles and equipment Total At December 31, 2015 $ - $ 204,135 $ 174,276 $ 378,411 At September 30, 2016 $ - $ 196,480 $ 145,301 $ 341,781 15

18 12. Accounts payable and accrued liabilities: September 30, 2016 December 31, 2015 Accounts payable $ 430,977 $ 3,505,184 Accrued liabilities 259, ,103 Payroll related liabilities 140, ,020 Current debt - 15,424 $830,759 $ 4,321,731 At September 30, 2016, a total amount of $nil (December 31, $3,130,353) was owing to the mining contractor and $nil (December 31, $61,768) to the milling contractor relating to the Broken Hammer open pit and was included in accounts payable. At September 30, 2016, an amount of $50,750 (December 31, $46,750) is owing to the directors of the Company for directors fees and is included in accrued liabilities. In January and April 2016, directors fees owing of $46,750 from 2015 were settled with the issuance of 935,000 deferred stock units ( DSUs ). In October 2016, the directors fees owing for the third quarter of 2016 of $50,750 was settled with the issuance of 734,095 DSUs. 13. Long-term debt: On September 27, 2016, the Company signed a loan agreement with William Day Holdings Limited for $2,500,000 to be repaid in 24 months at an interest rate of 15% with interest payments to be paid in advance at 6-month intervals. The maturity date may be extended up to 36 months if there are unexpected delays in obtaining permits or licenses required for the development of the Fenelon Gold Mine Property. The Company has the right at any time after 120 days from the advance of the principal amount of the loan to prepay all or any portion of the loan at any time upon 5 days prior notice, provided (i) the next scheduled payment of interest shall become due and payable and be paid at the time of prepayment and (ii) the minimum prepayment amount is not less than $500,000. The Company has secured the loan with a first mortgage, charge and hypothec registered against title to the Fenelon Gold Mine Property. The first interest payment of $187,500 was made on September 27, 2016 and is recorded in prepaid expense at September 30, On October 18, 2016, the funds were advanced and the final payment to Balmoral Resources Ltd. to acquire the Fenelon Gold Mine Property was made. 16

19 14. Related party transactions: The Company had the following transactions with related parties: Three months ended September 30 Nine months ended September Nuinsco Resources Limited (i) Office and administrative expenses $ 6,000 $ 6,000 $18,000 $16,000 Carube Copper Corp. (ii) Cost recoveries for accounting and administrative services - (8,008) - (8,008) Exploration and evaluation expenditures - 11,288-11,288 Interest income on promissory note (note 8) (15,170) (15,352) (43,196) (15,352) Impairment of promissory note, net of reversal of prior year impairment (note 8) 15,170-38,367 - (i) The Company and Nuinsco Resources Limited ( Nuinsco ) have a director in common. The Company paid $2,000 per month to Nuinsco for use of office space, equipment, and office costs. These transactions are in the normal course of operations and are measured at the exchange amount of consideration established and agreed to by the related parties. Effective October 1, 2016, the Company is no longer using office space, equipment or office costs from Nuinsco. (ii) The Company owns 15.5% of Carube Copper (note 7) at September 30, 2016 (December 31, %). The Company had provided accounting and other administrative services to Carube Copper, including office space. Carube Copper provided geological services to the Company. Prior to the reverse take-over transaction on June 18, 2015, these balances were eliminated upon consolidation. At September 30, 2016, the Company has a balance of $7,325 receivable from Carube Copper (December 31, $4,829). The Company has a promissory note receivable from Carube with principal and interest owing of $533,077 at September 30, 2016 (2015 $464,967 plus $24,914 of other indebtedness which was subsequently included in the promissory note at March 31, 2016) (see note 8). The Company recorded an impairment of $38,367 for the nine months ended September 30, 2016 ( $nil) and $15,170 for the three months ended September 30, 2016 ( $nil) in the promissory note from Carube Copper. These transactions are in the normal course of operations and are measured at the exchange amount of consideration established and agreed to by the related parties. 17

20 15. Shareholders equity: (a) Share capital transactions: (i) On April 29, 2016, the Company completed a private placement totaling 11,700,000 units at $0.05 per unit for total gross proceeds of $585,000. Each unit consists of one common share and one half common share purchase warrant. Each whole common share purchase warrant entitles the holder to purchase one additional common share of the Company on or before April 29, 2017 at an exercise price of $0.08 per share. The mining contractor for the Broken Hammer project, William Day Construction ("Day"), subscribed to $500,000 of the private placement and the Company has entered into a Cooperation Agreement with Day whereby they will be the preferred surface mining and transportation contractor for the Company s future projects based on commercially available terms. Share issuance costs of $20,720 for the private placement were charged as a reduction of share capital. An amount of $70,000 has been assigned to the fair value of the warrants (note 15 (c)). (ii) On May 31, 2016, the Company issued 2,381,575 shares to Balmoral in connection with a binding letter of intent. The shares issued were equal to $200,000 based on the 20 day volume weighted average trading price in the 20 days immediately prior to market close on May 20, 2016 of $0.084 per share (note 9 (c)). (iii) On August 19, 2016, the Company completed a private placement totaling 18,750,000 units at $0.08 per unit for total proceeds of $1,500,000. Each unit consists of one common share and one common share purchase warrant. Each common share purchase warrant entitles the holder to purchase one additional common share of the Company at an exercise price of $0.10 per share for a period of 36 months from closing. An amount of $630,000 has been assigned to the fair value of the warrants (note 15 (c)). Agent warrants totaling 449,247 were issued at a price of $0.08 per share for a period of 36 months from closing. An amount of $17,000 has been assigned to the fair value of the warrants (note 15 (c)) which has been included in the share issuance costs. Share issuance costs of $90,538 for the private placement were charged as a reduction of share capital. 18

21 15. Shareholders equity (continued): (a) Share capital transactions (continued): (iv) On September 21, 2016, the Company filed its final short form prospectus for the distribution of units and flow-through shares and the common shares and warrants underlying the units. The maximum offering would raise aggregate gross proceeds of $4,500,000 and $1,500,000 for the minimum offering. The units are issued at a price of $0.08 per unit, with each such unit consisting of one common share and one common share purchase warrant, where each unit warrant entitles the holder to purchase one common share at a price of $0.12 per share for a period of 36 months from the closing date of the offering. The flow-through shares are issued at a price of $0.10 per flow-through share, whereby each such flow-through share will be a common share in the capital of the Company that qualifies as a "flow-through share" within the meaning of the Income Tax Act (Canada) and the regulations thereunder. The proceeds from the sale of the units will be used for development of Fenelon Gold Mine Property as well as for general working capital. The proceeds from the sale of the flow-through shares will be used to incur eligible Canadian Exploration Expenses as defined by the Income Tax Act (Canada). The Company has granted to the agents an option, exercisable in whole or in part at the discretion of the agent at any time up to 30 days from and including the closing date, to purchase additional units representing in number up to 15% of the aggregate number of units and flow-through shares sold under the offering solely to cover over-allotments, if any, and for market stabilization purposes. In consideration for the services rendered by the agents in connection with the offering, the agents will be paid a cash fee equal to 6% of the gross proceeds of the offering received from the sale of units and flow-through shares sourced by the agents. As additional compensation, the Company will issue non-transferable warrants equal to 6% of the total number of the units and flow-through shares sold under the offering sourced by the agents. Each agent warrant will entitle the holder to purchase one common share at a price of $0.08 for a period of 36 months following the closing date. On October 4, 2016, the Company closed on its short form prospectus offering raising total gross proceeds of $1,720,760. The Company raised $1,545,760 from the sale of 19,322,000 units and raised $175,000 from the sale of 1,750,000 flow-through shares. The Company paid $92,780 to the agents and issued 1,039,500 warrants to the agents as compensation. 19

22 15. Shareholders equity (continued): (b) Share Based Compensation Plan: The number of common shares reserved for the purpose of the omnibus share compensation based plan was 10,277,902 at September 30, Restricted Share Units ( RSUs ) On January 11, 2016, 88,930 RSUs, which will vest on January 11, 2018, were granted. A total expense of $2,668 will be recognized over the two year vesting period. For the three months ended September 30, 2016 $8,417 ( $10,800) was recorded in share based compensation expense and for the nine months ended September 30, 2016, $25,252 (2015 $32,400) was recorded in share based compensation expense relating to RSUs. A summary of the outstanding RSUs are as follows: September 30, 2016 December 31, 2015 Outstanding at beginning of period 1,720, ,000 Granted 88,930 1,720,537 Vested and shares issued - (675,000) Outstanding at end of period 1,809,467 1,720,537 Deferred Share Units The directors have agreed that for 2016, DSUs will be granted in lieu of cash payment of fees and that the DSU calculation will not be based on a share price of less than $0.05, subject to review by the compensation committee from time to time. Between January and September 2016, 2,444,819 DSUs were granted to the directors of the Company in settlement of 2015 directors fees owing of $46,750 and 2016 directors fees owing of $85,500 and compensation of $2,952. There were no DSUs granted in the three and nine months ended September 30, At September 30, 2016, 6,192,416 DSUs are outstanding (December 31, ,747,597). In October 2016, the directors fees owing for the third quarter of 2016 of $50,750 was settled with the issuance of 734,095 DSUs. 20

23 15. Shareholders equity (continued): (b) Share Based Compensation Plan: Stock Options A summary of the Company s stock options are as follows: Stock Options September 30, 2016 December 31, 2015 Weighted Weighted Average Average Exercise Exercise Number Price Number Price Outstanding, beginning of period 15,200,000 $ ,359,980 $0.14 Granted - - 4,175,000 $0.05 Expired unexercised (1,300,000) $0.23 (3,334,980) $0.18 Outstanding, end of period 13,900,000 $ ,200,000 $0.10 At September 30, 2016, 12,887,500 stock options were exercisable (December 31, ,012,500). The weighted average exercise price of options exercisable at September 30, 2016 is $0.10 per share (December 31, $0.11). The weighted average remaining contractual life of stock options outstanding is 2.0 years (December 31, years). For the three and nine months ended September 30, 2016, $1,900 and $6,900 ( $10,000 and $64,000) of expense relating to stock options was recorded in stock based compensation respectively. The following table summarizes the stock options outstanding at September 30, 2016: Exercise Price Number Exercisable Expiry Date , ,000 January 15, ,300,000 3,300,000 March 22, , ,000 February 1, ,605,000 3,605,000 March 31, ,120,000 2,120,000 December 18, , ,000 May 5, , ,000 June 11, ,150,000 2,150,000 January 8, ,025,000 1,012,500 December 30, 2020 Outstanding options 13,900,000 12,887,500 21

24 15. Shareholders equity (continued): (c) Share purchase warrants: Each warrant entitles the holder to purchase one common share. At September 30, 2016, the Company has reserved shares for issuance as follows: September 30, 2016 December 31, 2015 Warrants Number Average Price Number Average Price Outstanding, beginning of period 600,000 $0.15 7,211,444 $0.21 Issued 25,049,247 $ Expired unexercised (600,000) $0.15 (6,611,444) 0.22 Outstanding, end of period 25,049,247 $ ,000 $0.15 The fair value of the warrants issued was estimated using the Black-Scholes pricing model to be $717,000 in 2016, $0.012 per warrant using the following assumptions: Estimated risk free interest rate 0.58% to 0.68% Expected life 1 to 3 years Expected volatility* 73% to 98% Expected dividends $nil * The expected volatility used was based on the historical volatility of the Company s share price over a period equivalent to the expected life of the warrants prior to their grant date. The following table summarizes the warrants outstanding and exercisable at September 30, 2016: Number Exercise Price Expiry Date 5,850,000 $ 0.08 April 29, ,750,000 $ 0.10 August 19, ,247 $0.08 August 19, ,049,247 22

25 16. Revenue from metal sales: Three months ended September 30, Nine months ended September 30, Revenue before adjustments: $ - $ 9,775,841 $ - $24,190,740 Adjustments for changes in the value of the contract due to pricing, assays, and foreign exchange relating to the prior period - (412,261) (237,471) (1,967,640) Revenue $ - $9,363,580 $(237,471) $22,223,100 The Company s smelter contracts provided for the final prices to be determined by quoted market prices in a period subsequent to the date of concentrate delivery. Revenue from the sale of metals concentrate was calculated using the forward price of the commodity for the period the contract is to be settled. Variations between the price recorded on initial revenue recognition and the final price received due to changes in market prices and foreign exchange represents an embedded derivative in the sales contact. Revenue in each period was adjusted for any change in the value of the contract using the period end forward price for the period the contract is expected to settle. The variance between the forward price and the final price received was recorded in revenue. All smelter contracts have been settled. The Company entered into forward sales contracts in 2014 and 2015 relating to its projected payable copper, platinum, palladium and gold (PGE) from the Broken Hammer Mine production to protect against changes in the prices of these metals (note 4). For the three months ended September 30, 2016, the Company did not incur a gain or loss (2015 loss of $22,473) and for the nine months ended September 30, 2016, the Company recorded gains on the forward sales contract of $109,814 ( gain of $238,518). The Company received cash of $nil for the three months ended September 30, 2016 ( $296,872) and received cash of $249,814 for the nine months ended September 30, 2016 ( $852,618). 17. Fair value of financial instruments: Carrying values for cash and cash equivalents, restricted cash, other amounts receivable, deposit from partner, and accounts payable and accrued liabilities approximate fair value due to their short term maturities and are classified as level 1. Marketable securities have a fair value of $6,447 at Level 1 at September 30, 2016 (December 31, $818). 23

26 18. Commitments and contingencies: (a) The Company s activities are subject to environmental regulation (including regular environmental impact assessments and permitting) in each of the jurisdictions in which its mineral properties are located. Such regulations cover a wide variety of matters including, without limitation, prevention of waste, pollution and protection of the environment, labour relations and worker safety. The Company may also be subject under such regulations to clean-up costs and liability for toxic or hazardous substances which may exist on or under any of its properties or which may be produced as a result of its operations. It is likely that environmental legislation and permitting will evolve in a manner which will require stricter standards and enforcement. This may include increased fines and penalties for noncompliance, more stringent environmental assessments of proposed projects and a higher degree of responsibility for companies, their directors and employees. The Company is not aware whether any provision for such costs is required and is unable to determine the impact on its financial position, if any, of environmental laws and regulations that may be enacted in the future due to the uncertainty surrounding the form that these laws and regulations may take. (b) The Company has a one-year renewable letter of credit of $498,074 pertaining to the closure plan for the Broken Hammer Project. At September 30, 2016, the estimated provision payable for the costs relating to the closure plan for the Broken Hammer Project is $305,582 (December 31, $333,691). In October 2016, the Ministry of Northern Development of Mines approved a reduction to the closure plan for progressive rehabilitation completed at December 31, 2015 of $136,829 and approved a revised letter of credit for $361,245. September 30, 2016 December 31, 2015 Provision for closure plan, beginning of year $ 333,691 $ 498,000 Closure plan expenditures (28,109) (164,309) Balance owing 305, ,691 Current portion due (89,434) (71,091) Provision for closure plan, long term $ 216,148 $ 262,600 The balance of $216,148 is expected to be spent between 2017 and The key assumptions applied for determination of the obligation were an inflation rate of 2% and a discount rate of 1.1 % to 1.7%. 24

27 18. Commitments and contingencies (continued): (c) At September 30, 2015, the Company s assignment of cash of $578,074 covers letters of credit of $523,074 and credit card contingencies of $55,000. Of the restricted cash, $336,852 (December 31, $290,400) relates to the credit card contingencies, and closure plan expenditures completed and due within one year and $241,222 (December 31, 2015 $287,674) is relating to long term liabilities and property commitments. On October 19, 2016, the Company decreased its assignment of cash by $191,829 to $386,245. The assignment was reduced by removing the credit card contingencies of $55,000 and revising the Broken Hammer letter of credit by $136, Subsequent events re the acquisition of the Fenelon Gold Mine Property: On October 18, 2016, $2.5 million was advanced on a loan agreement (note 13) and the final payment of $2.5 million to Balmoral Resources Ltd. to acquire the Fenelon Gold Mine Property was made (note 9 (c)). On October 4, 2016, the Company closed on its short form prospectus raising $1,545,760 from the sale of 19,322,000 units to be used for general working capital purposes and development of the Fenelon Gold Mine Property, and $175,000 from the sale of 1,750,000 flow-through shares to be used to incur eligible Canadian Exploration Expenditures. 25