CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS September 30, 2016 (Unaudited) TSX-V: ANF.

Transcription

1 CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS September 30, 2016 () TSX-V: ANF

2 NOTICE OF NO AUDITOR REVIEW The unaudited condensed consolidated interim financial statements, and accompanying notes thereto, for the periods ended September 30, 2016 and 2015 have not been reviewed by the Company s external auditors.

3 CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS Note September 30, 2016 December 31, 2015 ASSETS Current assets Cash and cash equivalents 4 $ 39,595,410 $ 651,584 Other receivable sale of subsidiary 5 2,818,339 4,037,979 Assets held for sale 5 3,114,401 3,114,401 Receivables 110,734 5,195 Prepaid expenses 920,038 3,299 46,558,922 7,812,458 Non-current assets Other receivable sale of subsidiary 5 29,592,252 43,309,168 Property, plant and equipment 7 30,835,888 - Total assets $ 106,987,062 $ 51,121,626 LIABILITIES Current liabilities Accounts payable and accrued liabilities 8 $ 4,056,201 $ 28,627 Loans payable 9-3,568,570 Total liabilities 4,056,201 3,597,197 EQUITY Share capital ,373,705 66,153,048 Share option reserve 4,206,844 3,505,416 Warrant reserve 9 26,096 - Accumulated other comprehensive loss (30,252) - Accumulated deficit (40,645,532) (22,134,035) 102,930,861 47,524,429 Total liabilities and equity $ 106,987,062 $ 51,121,626 Commitments and contingencies (Note 20) APPROVED BY THE DIRECTORS Director Director Marshall Koval John Murphy See Accompanying Notes to the Condensed Consolidated Interim Financial Statements

4 CONDENSED CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE (LOSS) INCOME Three months ended September 30, Nine months ended September 30, Note CONTINUING OPERATIONS Expenses Exploration and evaluation expenditures 12 $ 3,271,123 $ - $ 4,173,198 $ - Pre exploration and evaluation expenditures ,783 - Legal, audit and accounting 355,825 3, ,302 64,868 Property investigations 32, , , ,536 Fees, salaries and other employee benefits ,420 55,456 1,160, ,008 Regulatory and transfer agent fees 3, ,609 15,027 Office expenses 123,461 21, ,862 66,453 Travel 189, ,573 8,424 Investor relations 49,806 8,202 76,901 24,813 Insurance 101, ,441 - Depreciation 13,994-19,358-5,116, ,273 7,123, ,129 Other income (expenses) Change in fair value of convertible debentures ,848 - Interest and other income 19, ,199 3,052 Interest and accretion expense - (96,289) (249,520) (402,431) Foreign exchange (loss) gain (10,048) 60,089 (131,391) 77,462 9,704 (35,462) (333,864) (321,917) Net (loss) for the period from continuing operations (5,106,635) (272,735) (7,457,681) (1,047,046) DISCONTINUED OPERATIONS Income (loss) for the period from discontinued operations 5 1,057,143 4,691,566 (11,053,816) 9,183,682 Net (loss) income for the period (4,049,492) 4,418,831 (18,511,497) 8,136,636 Other comprehensive (loss) Other comprehensive (loss) to be reclassified to profit or loss in subsequent periods Exchange on translation of foreign operations (26,009) - (30,252) - Total comprehensive (loss) income for the period $ (4,075,501) $ 4,418,831 $ (18,541,749) $ 8,136,636 (Loss) per share from continuing operations: Basic 14 $ (0.05) $ (0.01) $ (0.11) $ (0.02) Diluted 14 $ (0.05) $ (0.01) $ (0.11) $ (0.02) Earnings (loss) per share from discontinued operations: Basic 14 $ 0.01 $ 0.11 $ (0.16) $ 0.21 Diluted 14 $ 0.01 $ 0.11 $ (0.16) $ 0.21 Weighted average number of shares outstanding: Basic 14 97,122,692 43,401,966 70,005,032 43,401,966 Diluted 14 98,352,172 43,401,966 70,980,601 43,401,966 See Accompanying Notes to the Condensed Consolidated Interim Financial Statements

5 CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS For the nine months ended September 30, 2016 and 2015 Nine months ended September 30, Note Operating activities Loss for the period from continuing operations $ (7,457,681) $ (1,047,046) Adjustment for non-cash items: Depreciation 19,358 - Interest expense 9 219, ,431 Accretion expense - w arrants 9 29,933 - Change in fair value of convertible debentures 6 (25,848) - Share-based payment ,428 27,421 Deduct: interest income (21,199) (3,052) Net changes in non-cash w orking capital items: Receivables (39,519) (1,088) Prepaid expenses (591,488) 1,369 Accounts payable and accrued liabilities (829,678) 26,260 Net cash utilized in continuing operations (7,995,107) (593,705) Discontinued operations (45,460) (76,880) Net cash utilized in operating activities (8,040,567) (670,585) Investing activities Expenditures on property, plant and equipment (6,105,526) - Convertible debentures 3, 6 (2,175,000) - Acquisition costs 3 (481,742) - Interest received 21,199 3,052 Investing activities from discontinued operations 5 3,928,200 3,266,019 Net cash (utilized in) provided by investing activities (4,812,869) 3,269,071 Financing activities Proceeds from loans 9 2,450,000 74,079 Repayment of loans 9 (5,309,313) (2,397,038) Interest paid on loans 9 (1,556,116) (27,041) Shares issued 10 56,999,999 - Cost to issue shares 10 (1,164,548) - Issuance of common shares on exercise w arrants 9 250,000 - Cash acquired on Magellan acquisition 3 144,362 - Net cash provided by (utilized in) financing activities 51,814,384 (2,350,000) Increase in cash and cash equivalents 38,960, ,486 Effect of foreign exchange on cash and cash equivalents (17,122) - Cash and cash equivalents, beginning of period 651, ,976 Cash and cash equivalents, end of period 4 $ 39,595,410 $ 911,462 See Accompanying Notes to the Condensed Consolidated Interim Financial Statements

6 CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN EQUITY For the nine months ended September 30, 2016 and 2015 Share Capital Note Number of Shares Amount Share Option Reserve Warrant Reserve Other comprehensive income (loss) Accumulated Deficit Total Balance, December 31, ,401,966 $ 66,153,048 $ 3,465,309 $ - $ - $ (21,495,309) $ 48,123,048 Share-based payment , ,421 Comprehensive income ,136,636 8,136,636 Balance, September 30, ,401,966 66,153,048 3,492, (13,358,673) 56,287,105 Share-based payment , ,686 Comprehensive loss (8,775,362) (8,775,362) Balance, December 31, ,401,966 66,153,048 3,505, (22,134,035) 47,524,429 Acquisition of Magellan 3, 10 19,034,855 17,131, ,131,369 Shares issued, net of issue costs 10 54,191,507 55,835, ,835,451 Share-based payment , ,428 Warrants issued , ,933 Warrants exercised 9 333, ,837 - (3,837) ,000 Foreign currency translation adjustment (30,252) - (30,252) Net loss (18,511,497) (18,511,497) Balance, September 30, ,961,661 $ 139,373,705 $ 4,206,844 $ 26,096 $ (30,252) $ (40,645,532) $ 102,930,861 See Accompanying Notes to the Condensed Consolidated Interim Financial Statements

7 1. NATURE OF OPERATIONS Anfield Gold Corp. ( Anfield or the Company ) is a publicly listed company incorporated in the Province of British Columbia, Canada. Anfield and its wholly-owned subsidiaries (collectively referred to as the Group ) are engaged in the acquisition, exploration and development of mineral resources. On May 6, 2016, Anfield completed the acquisition of Magellan Minerals Ltd. ( Magellan ) which holds the Coringa gold project ( Coringa ) in Brazil see Note 3 for further details. On May 10, 2016, the Company changed its name from Anfield Nickel Corp. to Anfield Gold Corp. The Company s head office and principal business address is Suite 410, 625 Howe Street, Vancouver, British Columbia, V6C 2T6. The Company s registered and records office is located at Burrard Street, Vancouver, British Columbia, V7X 1T2. 2. BASIS OF PREPARATION, GOING CONCERN AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of preparation These condensed consolidated interim financial statements for the three and nine months ended September 30, 2016, have been prepared in accordance with IAS 34 Interim Financial Reporting. They do not include all of the information and disclosures required in full annual financial statements and should be read in conjunction with the Group s annual financial statements as at December 31, 2015 which have been prepared in accordance with International Financial Reporting Standards ( IFRS ). These condensed consolidated interim financial statements have been prepared on a historical cost basis, except for financial instruments classified as financial instruments at fair value ( FV ) through profit and loss, which are stated at their estimated fair value. The condensed consolidated interim financial statements are presented in Canadian dollars. These condensed consolidated interim financial statements were approved and authorized for issue by the Board of Directors on November 28, (b) Going concern These condensed consolidated interim financial statements have been prepared on the going concern basis which assumes that the Group will be able to realize, into the foreseeable future, its assets and liabilities in the normal course of business as they come due. The Company has incurred cumulative losses of $40,645,532 as at September 30, At September 30, 2016, the Group held cash of $39,595,410 but owed $4,056,201 in accounts payable and accrued liabilities. The Group is continuing to develop Coringa and conduct a feasibility study which will require additional expenditures. The ability of the Group to continue as a going concern is dependent upon receipt of future payments due to the Company from the sale of Mayaniquel, S.A. ( MNSA ) (see Note 5), successfully integrating the acquisition of Magellan (see Note 3), financing the development of the Coringa gold project, sale of the Group s remaining assets in Guatemala (see Note 5), or a combination thereof. (c) Significant accounting policies The significant accounting policies that have been applied, on a consistent basis, in the preparation of these condensed consolidated interim financial statements are included in the Group s audited consolidated financial statements for the year ended December 31, Those accounting policies have been used throughout all periods presented in the condensed consolidated interim financial statements. There were no new accounting standards effective January 1, 2016 that had an impact on the Company s financial statements. Change in accounting policy Effective January 1, 2016, the Company voluntarily changed its accounting policy for exploration and evaluation ( E&E ) expenditures to recognize these costs in the statement of loss in the period incurred, as permitted under IFRS 6 Exploration for and Evaluation of Mineral Resources. Previously, all these expenditures were capitalized as exploration and evaluation assets on the Company s balance sheet. The Company changed its accounting policy as it believes that the new policy is more in line with the IFRS framework with respect to what constitutes an asset. The Company also believes that showing exploration and evaluation expenses separately on the statement of loss and in the operating activities section of the statement of cash flows more clearly represents the Company s activities. The change in accounting policy has been applied retrospectively. No change in accounting policy was made with regard to costs of acquiring mineral property licenses or rights which are disclosed as E&E Assets. There were no changes to the prior periods presented in these condensed consolidated interim financial statements as a result of this change of accounting policy

8 2. BASIS OF PREPARATION, GOING CONCERN AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (c) Significant accounting policies (continued) Change in accounting policy (continued) The new accounting policies related to E&E matters are as follows: Exploration and evaluation assets: All direct costs related to the acquisition of mineral property interests, an asset purchase or business combination (E&E Assets) are capitalized into intangible assets on a property by property basis. These E&E Assets are recognized at fair value and are capitalized in the property, plant and equipment section of the balance sheet. License costs paid in connection with a right to explore in an exploration area, for a period in excess of one year, are capitalized and amortized over the term of the license. Exploration and evaluation expenditures: Exploration and evaluation activities prior to acquiring an interest in a mineral concession area are charged to operations as pre exploration and evaluation expenditures. Exploration costs, net of incidental revenues, are charged to operations in the year incurred until such time as it has been determined that a property has economically recoverable resources, in which case subsequent exploration costs and the costs incurred to develop a property are capitalized into property, plant and equipment. On the commencement of commercial production, depletion of each mining property will be provided on a unitof-production basis using estimated reserves as the depletion base. (d) Adoption of accounting policies The following accounting policies supplement those in place as at December 31, 2015 and are disclosed to assist the reader of the financial statements following the change in the Company s business after completing the acquisition of Magellan (Note 3). Acquisition of mineral property interests The Company will treat the acquisition of a mineral property interest as either a business combination or asset purchase. The determination of treatment is based upon an assessment of factors at the time of acquisition. A business combination is a transaction in which control over one or more businesses is obtained. A business is defined as an integrated set of activities and assets that is capable of creating outputs which provide a positive economic return to stakeholders. If the integrated set of activities and assets is in the exploration or development stage and therefore does not have outputs, the Company considers other factors in the determination if the assets are a business. These include, but are not limited to, whether the set of activities and assets: (a) (b) (c) (d) has planned principal activities; has determined the resources and processes needed to generate the inputs required for output production; is pursuing a plan to produce outputs; and will be able to sell the produced outputs. Not all of the above factors need to be present for a particular integrated set of activities and assets in the development stage to qualify as a business. Business acquisitions are accounted for using the acquisition method, in which the acquired assets and liabilities are recorded at fair value at the date of acquisition. Any excess of consideration paid over the net fair value of the assets and liabilities is recorded as goodwill. Acquisitions in which a business is not acquired are treated as an asset purchase. Under an asset purchase, the fair value of the consideration provided is allocated to the individual fair value of assets and liabilities assumed at the time of acquisition. Consideration provided in excess of the net acquired assets and liabilities is treated as an E&E Asset. The costs of acquisition for both businesses and assets are deferred and capitalized in the period they are incurred. In the event the acquisition is not completed, these costs would be immediately expensed. The Magellan acquisition (Note 3) was treated as an asset purchase since at time of acquisition, it was not considered a business

9 2. BASIS OF PREPARATION, GOING CONCERN AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (d) Adoption of accounting policies (continued) Presentation currency and foreign currency translation Functional currencies of the Company s individual entities represent the currency of the primary economic environment in which the entity operates. Transactions in foreign currencies are translated to the appropriate functional currency at foreign exchange rates that approximate those on the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated to the appropriate functional currency at foreign exchange rates at the balance sheet date. Foreign exchange differences arising on translation are recognized in earnings. Non-monetary assets that are measured in a foreign currency at historical cost are translated using the exchange rate at the date of the transaction. In preparing the Company s consolidated financial statements, the financial statements of each entity are translated into Canadian dollars. The assets and liabilities of foreign operations are translated into Canadian dollars at exchange rates at the balance sheet date. Revenues and expenses of foreign operations are translated into Canadian dollars using foreign exchange rates that approximate those on the date of the underlying transaction. Foreign exchange differences are recognized in other comprehensive income. Property, plant and equipment Property, plant and equipment are recorded at cost and carried net of accumulated depreciation, depletion and amortization and accumulated impairment losses. The initial cost of an asset comprises its purchase price or construction cost, and any costs directly attributable to bringing the asset to the location and condition necessary for operation. Repairs and maintenance costs are expensed as incurred. However, expenditures on major maintenance rebuilds or overhauls are capitalized when it is probable that the expenditures will extend the productive capacity or useful life of an asset. For plant and other facilities, reclamation and remediation costs, production stage mineral property interests and plant expansion costs, the Company uses the units-of-production ( UOP ) method for determining depreciation, depletion and amortization. The expected useful lives used in the UOP calculations are determined based on the facts and circumstances associated with the mineral interest. The Company evaluates the proven and probable reserves at least on an annual basis and adjusts the UOP calculation to correspond with the changes in reserves. The expected useful life used in determining UOP does not exceed the estimated life of the ore body based on recoverable ounces to be mined from estimated proven and probable reserves. Any changes in estimates of useful lives are accounted for prospectively from the date of the change. Land held is stated at cost and is not depreciated as no finite useful life for land can be determined. Machinery and equipment, including motor vehicles and other equipment are depreciated, net of residual value, using the straight-line method, over the estimated useful life of the asset. Useful lives for machinery and equipment range from two to five years, but do not exceed the related estimated mine life based on proven and probable reserves. (e) Significant accounting judgments and estimates The preparation of the Group s consolidated financial statements in accordance with IFRS requires management to make certain judgments, estimates and assumptions about recognition and measurement of assets, liabilities, income and expenses. Actual results are likely to differ from these estimates. Information about the significant judgments, estimates and assumptions that have the most significant effect on the recognition and measurement of assets, liabilities, income and expenses in these condensed consolidated interim financial statements are discussed below. Judgments Assets held for sale: IFRS 5 Non-current assets held for sale and discontinued operations requires management to apply judgment to determine the classification of assets held for sale and to determine possible impairment in order to record the assets at the lower of cost or fair value less costs to sell. See Note 5 for further details

10 2. BASIS OF PREPARATION, GOING CONCERN AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (e) Significant accounting judgments and estimates (continued) Estimates and assumptions Other receivables sale of subsidiary: Amounts receivable by the Company following the sale of MNSA are due to be collected over the next three years. As disclosed in Note 5, these amounts are due in U.S. dollars and will fluctuate based upon future exchange rates and nickel prices. The Company has estimated the fair value of the receivable through a combination of (i) forward foreign exchange rates at September 30, 2016; (ii) forecast future nickel prices using the currently forecast 2018 / 2019 consensus analyst view; and (iii) present value calculations using an 8% discount rate. Changes to any of these assumptions will change the fair value assigned to the receivable balance. Convertible debentures: The Company issued two convertible debentures to fund advances to Magellan prior to the close of the acquisition. The convertible debentures were elected to be recorded at fair value through profit and loss. As disclosed in Note 6, the debentures were convertible at the Company s election into Magellan common shares. Management estimated the fair value of the convertible debentures by estimating the value of the conversion feature based upon the market price of Magellan shares at that date. Management further considered that the convertible debentures had a minimum value equal to the cash advanced plus accrued interest given the ability of Magellan to only repay early in cash. These debentures have been assumed upon the close of the Magellan acquisition (Note 3). Warrants issued with loans: The Company received loans during the nine months ended September 30, 2016 that bore interest at a rate of 12% per annum and that were issued with a warrant (see Note 9 for further details). The Company determined the fair value of the loans based on an 18% discount rate and allocated the residual balance to the warrants. These loans were repaid on May 20, Share-based payments: The Company utilizes the Black-Scholes Option Pricing Model ( Black-Scholes ) to estimate the fair value of stock options granted to directors, officers and employees. The use of Black-Scholes requires management to make various estimates and assumptions that impact the value assigned to the stock options including the expected price volatility of the stock price, the risk-free interest rate, dividend yield and the expected life of the stock options. Any changes in these assumptions could have a material impact on the sharebased payment calculation value. (f) Standards issued but not yet effective The standards and interpretations that are issued, but not yet effective, up to the date of authorization of these condensed consolidated interim financial statements are disclosed below. Management anticipates that all of the pronouncements will be adopted in the Group s accounting policy for the first period beginning after the effective date of the pronouncement. Information on new standards, amendments and interpretations that are expected to be relevant to the Group s financial statements is provided below. Certain other new standards and interpretations have been issued but are not expected to have a material impact on the Group s consolidated financial statements. IFRS 15 Revenue from Contracts with Customers: The IASB issued IFRS 15 in May The new standard provides a comprehensive framework for recognition, measurement and disclosure of revenue from contracts with customers, excluding contracts within the scope of the standards on leases, insurance contracts and financial instruments. IFRS 15 is effective for annual periods beginning on or after January 1, 2018 and is to be applied retrospectively with early adoption permitted. Management is currently evaluating the impact the final standard is expected to have on the Group s consolidated financial statements. IFRS 9 Financial Instruments: The IASB published the final version of IFRS 9 in July The final standard brings together the classification, measurement, impairment and hedge accounting phases of the IASB s project to replace IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 includes a loss impairment model, amends the classification and measurement model for financial assets and provides additional guidance on how to apply the business model and contractual characteristics test. This final version of IFRS 9 supersedes all previous versions of IFRS 9 and is effective for annual periods commencing on or after January 1, 2018, with early adoption permitted. Management is currently evaluating the impact the final standard is expected to have on the Group s consolidated financial statements

11 2. BASIS OF PREPARATION, GOING CONCERN AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (f) Standards issued but not yet effective estimates (continued) IFRS 16 Leases: On January 13, 2016, the IASB published a new standard, IFRS 16, eliminating the current dual accounting model for lessees, which distinguishes between on-balance sheet finance leases and off-balance sheet operating leases. Under the new standard, a lease becomes an on-balance sheet liability that attracts interest, together with a new right-of-use asset. In addition, lessees will recognize a front-loaded pattern of expense for most leases, even when cash rentals are constant. IFRS 6 is effective for annual periods beginning on or after January 1, 2019, with earlier adoption permitted. The Company is assessing the impact of adopting this standard on its consolidated financial statements. 3. ACQUISITION OF MAGELLAN MINERALS LTD. On May 6, 2016, Anfield completed a plan of arrangement (the Arrangement ) under the Business Corporations Act (British Columbia) whereby Anfield acquired all of the issued and outstanding shares of Magellan. Under the Arrangement, each former Magellan shareholder received shares of Anfield for each Magellan share held. 19,034,855 Anfield common shares were issued. All outstanding options and warrants to acquire Magellan shares were cancelled pursuant to the Arrangement. Consideration amounted to $19,669,597, consisting of shares issued, net of cash acquired, of $16,987,007, acquisition costs of $481,742 (Note 7) and the assumption of debts owing to the Company of $2,200,848 (Note 6). This acquisition has been accounted for as an asset purchase. The consideration paid has, preliminarily, been allocated to the financial liabilities assumed and assets acquired based on their estimated fair values at the date of acquisition, with any remaining consideration allocated to the mineral property as follows: Note Assets/Liabilities Acquired Receivables $ 66,020 Prepaid expenses 105,266 Prepayment for Troy Plant 2,026,280 Property, plant and equipment, net 27,249 Mineral properties 20,741,649 Accounts payable and accrued liabilities (2,669,595) Loan payable - Alan Carter 9 (139,851) Convertible debenture - Canada Cow oo Mining Corp. 9 (487,421) $ 19,669,597 Consideration paid in shares, net of cash acquired of $144,362 $ 16,987,007 Acquisition costs 7 481,742 Assumption of amounts ow ing to the Company 6 2,200,848 Total consideration $ 19,669, CASH AND CASH EQUIVALENTS The Group s cash and cash equivalents at September 30, 2016, consisted of cash of $39,173,865 and cash equivalents of $421,545 (December 31, 2015 cash of $165,938 and cash equivalents of $485,646). The Group s cash and cash equivalents are denominated in the following currencies and include the following components: September 30, 2016 December 31, 2015 Cash at bank and in hand Canadian dollars $ 35,526,811 $ 18,445 Cash at bank and in hand U.S. dollars 2,599, ,493 Cash at bank and in hand Brazilian real 1,047,922 - Short-term deposits U.S. dollars 421,545 - Short-term deposits Canadian dollars - 485,646 Cash and cash equivalents $ 39,595,410 $ 651,

12 5. DISPOSITION OF SUBSIDIARY, DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE In April 2014, Anfield entered into an agreement (the Agreement ) to sell its wholly-owned subsidiary, Mayaniquel S.A. which holds the Mayaniquel nickel laterite project in Guatemala, to Cunico Resources N.V.( Cunico ). Under the Agreement, Cunico acquired 100% of the issued and outstanding shares MNSA. Upon closing of the transaction, on June 16, 2014, Anfield received US$3,000,000. A further US$3,000,000 was received on June 15, On July 11, 2016, under the terms of a Waiver and Amendment Agreement, the payment of US$3,000,000 which was due on June 16, 2016 became payable in equal installments of US$1,000,000 on each of July 31, 2016 (received), August 31, 2016 (received), and September 30, 2016 (received) and the payments of US$3,000,000 owing on each of June 16, 2017 and June 16, 2018 are now payable in twenty-four monthly payments of US$250,000 on the first day of each month commencing on January 1, 2017 and ending on December 1, The final payment remains due on June 16, 2019 based upon the following formula: (Year 5 average nickel price per tonne / US$14,000 x US$43,000,000) US$15,000,000. Cunico s payment of future purchase price installments is secured by a pledge on the shares of MNSA, a pledge by Cunico s marketing subsidiary on certain accounts receivable arising from the sale of processed nickel, and a guarantee from Cunico s subsidiary for performance of all payment and performance obligations of Cunico pursuant to the Agreement. The receivable balances are financial instruments and have been designated as fair value through profit and loss. Fair value is based on the estimated present value of the cash to be received taking into account future forecast foreign exchange rates and nickel prices (see Note 2(e) for additional details on the assumptions utilized). Changes in fair value are recognized in profit and loss. Changes in the fair value of the receivable from Cunico for payments due are summarized below for the nine months ended September 30, 2016 and year ended December 31, Other receivable - Other receivable - current non-current Total Balance, December 31, 2014 $ 3,366,538 $ 45,479,688 $ 48,846,226 Cash received (3,696,900) - (3,696,900) Remeasurement recognized in profit or loss 889,630 1,308,191 2,197,821 Transfer to current receivable 3,478,711 (3,478,711) - Balance, December 31, ,037,979 43,309,168 47,347,147 Cash received (3,928,200) - (3,928,200) Transfer to current receivable 3,538,669 (3,538,669) - Remeasurement recognized in profit or loss (830,109) (10,178,247) (11,008,356) Balance, September 30, 2016 $ 2,818,339 $ 29,592,252 $ 32,410,591 The results of the Company s discontinued operations as presented in the condensed consolidated interim statements of comprehensive (loss) income are disclosed below: Three months ended September 30, Nine months ended September 30, Results of discontinued operations Income (expenses) (Loss) on disposal of subsidiary $ - $ - $ - $ (430,881) Change in fair value of receivable from sale of subsidiary 987,190 4,701,347 (11,008,356) 9,691,443 Interest income 80, , Operating expenses (10,696) (10,698) (124,335) (81,523) Foreign exchange gain (loss) (1,693) 4,606 Net income (loss) for the period from discontinued operations $ 1,057,143 $ 4,691,566 $ (11,053,816) $ 9,183,

13 5. DISPOSITION OF SUBSIDIARY, DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE (continued) The change in the receivable fair value was primarily due to a change in the prevailing analysts consensus forecast nickel price. The Company s remaining assets in Guatemala have been classified as assets held for sale with a carrying value of $3,114,401 (December 31, $3,114,401). The Company is engaged in a formal marketing process to dispose of these remaining Guatemalan assets which are available for immediate sale in their current condition. Costs related to holding these assets have been included in discontinued operations (operating expenses) as noted in the table above. 6. CONVERTIBLE DEBENTURES On February 26, 2016 and March 11, 2016, the Company entered into secured convertible debentures of $500,000 and $1,675,000, respectively, with Magellan. The debentures bore interest at 8% per annum. Upon completion of the Magellan acquisition (Note 3), the Company assumed the obligations from Magellan. Prior to assumption, the debentures were convertible as follows: (i) (ii) The principal on the $500,000 debenture was convertible into common shares of Magellan, at the Company s election, at a fixed price of $ per common share. Interest accrued is convertible into common shares at the market price of Magellan common shares as determined by the TSXV on the day of exercise. The principal on the $1,675,000 debenture was convertible into common shares of Magellan, at the Company s election, at a fixed price of $0.06 per common share. Interest accrued is convertible into common shares at the market price of Magellan common shares as determined by the TSXV on the day of exercise. The Company elected to value the convertible debentures at fair value through profit or loss. Movement in the fair value of the convertible debentures was as follows: Three months ended Nine months ended Note September 30, 2016 September 30, 2016 Convertible debentures principal, beginning of period $ - $ - Principal advanced - 2,175,000 Change in fair value - 611,838 Change in fair value on assumption - (585,990) Assumption of amounts ow ing to the Company 3 - (2,200,848) Convertible debentures, end of period $ - $

14 7. PROPERTY, PLANT AND EQUIPMENT Coringa Mineral Construction Machinery Properties in Progress and Equipment Total Cost Balance at December 31, 2015 $ - $ - $ - $ - Acquisition of Magellan (Note 3) 20,741,649-27,249 20,768,898 Additions - 9,600, ,136 10,099,478 Foreign currency translation - (14,112) 1,514 (12,598) Balance at September 30, 2016 $ 20,741,649 $ 9,586,230 $ 527,899 $ 30,855,778 Accumulated depreciation Balance at December 31, 2015 $ - $ - $ - $ - Depreciation ,358 19,358 Foreign currency translation Balance at September 30, 2016 $ - $ - $ 19,890 $ 19,890 Net book value December 31, 2015 $ - $ - $ - $ - September 30, 2016 $ 20,741,649 $ 9,586,230 $ 508,009 $ 30,835,888 Amount included above as at September 30, 2016: Assets not being depreciated (i) $ 20,741,649 $ 9,586,230 $ - $ 30,327,879 (i) Assets not being depreciated relate to capitalized evaluation costs, assets under construction and other assets that are in various stages of being readied for use. Coringa is located in the State of Para in Brazil and is comprised of 28,700 hectares. The Company has acquired a gold processing plant and associated mining equipment from Troy Resources Andorinhas mine located in Para state at a cost of US$4.5 million (included in Construction in Progress above). The processing plant and mining fleet will be moved to and used at Coringa. Sandstorm Gold Ltd. ( Sandstorm ) holds a 2.5% net smelter royalty ( NSR ) on the Coringa Project. In addition, Sandstorm has been provided with a right of first refusal on future royalty or gold stream financing for the Coringa Project. Exploration and evaluation assets At September 30, 2016, $20,741,649 of E&E Assets was included in property, plant and equipment (December 31, $Nil). The Company acquired $20,741,649 in E&E Assets as part of the Magellan acquisition (Note 3). Acquisition costs related to exploration and evaluation assets During the nine months ended September 30, 2016, the Company incurred costs relating to the acquisition of Magellan. These primarily relate to legal costs and totaled $481,742 of which $335,958 were previously capitalized as deferred acquisition costs on the balance sheet at June 30, Upon closing of the acquisition (Note 3) the $481,742 in costs have been included in the value of mineral properties. 8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Accounts payable and accrued liabilities are as follows: September 30, 2016 December 31, 2015 Trade payables $ 1,791,039 $ 16,619 Accrued liabilities 2,265,162 12,008 Total payables $ 4,056,201 $ 28,627 All amounts are short-term. The carrying value of trade payables and accrued liabilities is considered a reasonable approximation of fair value

15 9. LOANS PAYABLE AND WARRANTS Nine months ended Year ended Note September 30, 2016 December 31, 2015 Total loan balance, beginning of period $ 3,568,570 $ 5,417,225 Loans advanced 2,450,000 74,079 Warrants (29,933) - Assumed on Magellan acquisition 3 627,272 - Repayment of loans (5,309,313) (2,397,038) Interest paid (1,556,116) (27,041) Interest expense 219, ,345 Accretion expense 29,933 - Total loan balance, end of period $ - $ 3,568,570 On February 26, 2016, the Company received a loan from Kestrel Holdings Ltd. in the amount of $500,000. The loan accrued interest at a rate of 12% per annum, compounded annually, and was repayable on or before the earlier of June 30, 2016 or two business days after the date on which the Company undertakes any equity financing by way of private placement of shares. On March 11, 2016, the Company received loans from each of the following parties: (i) Kestrel Holdings Ltd. ($1,450,000); (ii) Marshall Koval ($250,000); (iii) Lyle Braaten ($150,000); and Emerson Holdings Inc. ($100,000). The loans accrued interest at a rate of 12% per annum, compounded annually, and were repayable on or before the earlier of June 30, 2016 or two business days after the date on which the Company undertakes any equity financing. Concurrent, the Company issued 2,599,999 non-transferable common share purchase warrants, exercisable for one common share at a price of $0.75 per warrant for a period of one year from the date of issuance. An 18% discount rate was used in the determination of a $29,933 warrant reserve. During the nine months ending September 30, 2016, 333,333 warrants were exercised for common shares for gross proceeds of $250,000 (no warrants were exercised during the three months ending September 30, 2016). At September 30, 2016, 2,266,666 warrants remain outstanding. The Company assumed an unsecured loan of US$100,000, which was previously provided by Alan Carter, a prior officer and director of Magellan (now a director of the Company), upon the closure of the Magellan acquisition (Note 3). The loan bore interest at a rate of 12% per annum. The Company assumed the liability for a convertible debenture of US$350,000 which was provided by Canada Cowoo Mining Corp. ( Cowoo ), a company controlled by a director of Magellan as part of the Magellan acquisition (Note 3). Subsequent to acquisition, the debt was held by a shareholder of the Company. The loan bore interest at a rate of 12% per annum, payable quarterly. The convertible debenture was due by September 2016 and at the option of Company, could be repaid in common shares at a conversion price of approximately $0.58 per common share of the Company. All outstanding loan and interest balances were paid in cash during the nine months ended September 30, 2016, as shown below: Accrued Note Principal interest Repayments Total Emerson Holdings Inc. $ 174,079 $ 10,355 $ (184,434) $ - Kestrel Holdings Ltd. 3,705,817 1,291,013 (4,996,830) - La Plata Holdings Company 47,038 34,941 (81,979) - Lyle Braaten 150,000 3,452 (153,452) - Marshall Koval 250,000 5,753 (255,753) BC Ltd. 292, ,384 (451,712) - Tugela Holdings Inc. 62,779 46,634 (109,413) - Loan payable - Alan Carter 3 139, (139,976) - Convertible debenture - Cow oo 3 487,421 4,459 (491,880) - Total $ 5,309,313 $ 1,556,116 $ (6,865,429) $

16 9. LOANS PAYABLE AND WARRANTS (continued) At December 31, 2015, the Company s total loans payable, by lender, were as follows: Accrued Principal interest Total Emerson Holdings Inc. $ 74,079 $ 4,652 $ 78,731 Kestrel Holdings Ltd. 1,755,817 1,117,485 2,873,302 La Plata Holdings Company 47,038 31,491 78, BC Ltd. 292, , ,199 Tugela Holdings Inc. 62,779 42, ,809 Total $ 2,232,041 $ 1,336,529 $ 3,568, SHARE CAPITAL Authorized: an unlimited number of common shares, without par value. Number of Note Common Shares Amount Balance, January 1, 2015 and December 31, ,401,966 $ 66,153,048 Share issues on the acquisition of Magellan 3 19,034,855 17,131,369 Shares issued, net of issue costs (i) 30,487,804 24,715,878 Shares issued, net of issue costs (ii) 23,703,703 31,119,573 Warrants exercised 9 333, ,837 Balance, September 30, ,961,661 $ 139,373,705 (i) In May 2016, the Company closed a $25,000,000 private placement of common shares at a price of $0.82 per share for proceeds of $24,715,878, net of issue costs of $284,122. (ii) In September 2016, the Company closed a $31,999,999 private placement of common shares at a price of $1.35 per share for proceeds of $31,119,573, net of issue costs of $880, SHARE-BASED PAYMENTS (a) Stock option plan The Company has adopted a stock option plan ( the Plan ) whereby it may grant options to directors, officers, employees, and consultants of the Group. The maximum number of shares that may be reserved for issuance under the Plan is limited to 9,290,000. The Plan permits the board of directors of the Company to set the terms for each stock option grant, such as the maximum exercise period and the vesting period. The exercise price of options granted is established in relation to the market price of the Company s shares which at any date is the volume weighted average trading price of the Company s shares on the five trading days prior to such date. During the three and nine month periods ended September 30, 2016, the Company granted 2,740,000 stock options (2015 nil) to directors, officers, employees and consultants at a weighted average exercise price of $1.46 and expiry dates of July 14, 2021 and August 26, The weighted average fair value of these was estimated between $0.55 to $0.59 per option at the grant date. The vesting schedule of the options was 1/3 on the grant date, 1/3 one year after the grant date and 1/3 two years after the grant date. The fair value used to calculate the compensation expense related to the stock options granted is estimated using Black-Scholes with the following assumptions:

17 11. SHARE-BASED PAYMENTS (continued) (a) Stock option plan (continued) September 30, 2016 December 31, 2015 Risk-free interest rate 0.53% % - Expected dividend yield nil - Expected stock price volatility 60% - Expected option life in years Expected rate of forfeiture 5% - The share price used in determining share-based payment amounts are equal to the closing share price on the day of the grant, with the exercise price of the grant being equal to the weighted average of the previous five closing share prices prior to the day to which the options are granted. Option pricing models such as Black- Scholes require the input of highly subjective assumptions including the expected price volatility. Changes in the subjective input assumptions can materially affect the fair value estimate, and therefore the existing models do not necessarily provide a reliable single measure of the fair value of the Company s stock options. Volatility is determined based upon historical volatility of the Company s common shares, generally for a period equal to the expected life of the stock options. Pursuant to the Company s accounting policy for share-based payments, the fair value of options vesting during the nine months ended September 30, 2016 amounted to $701,428 (nine months ended September 30, $27,421). Of this amount, $538,921 has been included in fees, salaries and other employee benefits (Note 13) (nine months ended September 30, $27,421) and $162,507 has been expensed to exploration and evaluation expenditures (Note 12(a)) ( $nil). (b) Outstanding stock options Stock options and weighted average exercise prices are as follows for the reporting periods presented: Three months ended September 30, Weighted Weighted Average Average Number of Exercise Number of Exercise Options Price Options Price Outstanding, beginning of period 1,490,000 $ ,719,000 $ 3.09 Granted 2,740,000 $ $ - Expired (470,000) $ $ - Outstanding, end of period 3,760,000 $ ,719,000 $ 3.09 Nine months ended September 30, Weighted Weighted Average Average Number of Exercise Number of Exercise Options Price Options Price Outstanding, beginning of period 1,699,000 $ ,299,000 $ 3.07 Granted 2,740,000 $ $ - Expired (520,000) $ 4.05 (580,000) $ 3.02 Forfeited (159,000) $ $ - Outstanding, end of period 3,760,000 $ ,719,000 $

18 11. SHARE-BASED PAYMENTS (continued) (b) Outstanding stock options (continued) For each reporting period, the Company had outstanding stock options, including weighted average remaining contractual life, as follows: September 30, 2016 Options Outstanding Options Exercisable Weighted Number of average life Exercise Number of Exercise Shares Expiry Date (years) Price Shares Price 515,000 November 20, $ ,000 $ ,000 December 27, $ ,000 $ ,240,000 July 14, $ ,675 $ ,000 August 26, $ ,667 $ ,760, $ ,933,342 $ 2.05 December 31, 2015 Options Outstanding Options Exercisable Weighted Number of average life Exercise Number of Exercise Shares Expiry Date (years) Price Shares Price 50,000 May 26, $ ,000 $ ,000 August 17, $ ,000 $ ,000 November 20, $ ,000 $ ,000 December 27, $ ,000 $ ,699, $ ,699,000 $ EXPLORATION / PRE EXPLORATION AND EVALUATION EXPENDITURES (a) Exploration and evaluation expenditures The Company s exploration and evaluation expenditures on the Coringa project are as follows: Three months ended September 30, Nine months ended September 30, Project management $ 8,930 $ - $ 253,993 $ - Transportation and accommodation 129, ,697 - Engineering and process 539, ,404 - Drilling and associated costs 1,699,191-1,699,191 - Mine design and geotechnical 146, ,359 - Field costs (camp and general) 59, ,885 - Social and community 109, ,566 - Environmental 196, ,019 - Fees, salaries and benefits (i) 326, ,357 - Field office and administration 55,208-89,528 - Metallurgical ,199 - Exploration and evaluation $ 3,271,123 $ - $ 4,173,198 $ - (i) Inclusive of share-based payments of $162,507(Note 11) for the three and nine months ended September 30,

19 12. EXPLORATION / PRE EXPLORATION AND EVALUATION EXPENDITURES (continued) (b) Pre exploration and evaluation expenditures 13. REMUNERATION Subsequent to the agreement to acquire Magellan on February 16, 2016, the Company commenced work evaluating Magellan s Coringa project in order to determine future work plans and logistics. The Company considers these costs to be pre exploration and evaluation expenditures as the Company did not own Magellan at the time they were incurred. The total pre-exploration and evaluation expenditures related to the Coringa project for the expense for the three and nine months ended September 30, 2016 were $Nil and $181,783, respectively (three and nine months ended September 30, $Nil). Expenses recognized for fees, salaries and other employee benefits are analyzed below: Three months ended September 30, Nine months ended September 30, Fees, salaries $ 398,106 $ 46,215 $ 577,484 $ 132,566 Social security and health benefits 38,393-44, Share-based payments (Note 11) 538,921 9, ,921 27,421 Fees, salaries and other employee benefits $ 975,420 $ 55,456 $ 1,160,578 $ 160, EARNINGS (LOSS) PER SHARE The calculation of basic and diluted earnings (loss) per share is based on the following data: Three months ended September 30, Net loss from continuing operations $ (5,106,635) $ (272,735) Net earnings from discontinued operations $ 1,057,143 $ 4,691,566 Weighted average number of common shares outstanding (basic) 97,122,692 43,401,966 Effect of dilutive common share equivalents 1,229,480 - Weighted average number of common shares outstanding (diluted) 98,352,172 43,401,966 Loss per share from continuing operations: Basic $ (0.05) $ (0.01) Diluted $ (0.05) $ (0.01) Earnings per share from discontinued operations: Basic $ 0.01 $ 0.11 Diluted $ 0.01 $ Nine months ended September 30, Net loss from continuing operations $ (7,457,681) $ (1,047,046) Net (loss) earnings from discontinued operations $ (11,053,816) $ 9,183,682 Weighted average number of common shares outstanding (basic) 70,005,032 43,401,966 Effect of dilutive common share equivalents 975,569 - Weighted average number of common shares outstanding (diluted) 70,980,601 43,401,966 Loss per share from continuing operations: Basic $ (0.11) $ (0.02) Diluted $ (0.11) $ (0.02) (Loss) earnings per share from discontinued operations: Basic $ (0.16) $ 0.21 Diluted $ (0.16) $ 0.21

20 14. EARNINGS (LOSS) PER SHARE (continued) Basic earnings (loss) per share is computed by dividing the net income (loss) by the weighted average number of common shares outstanding during the period. The diluted per share amounts reflects the potential dilution of common share equivalents, such as stock options and warrants, in the weighted average number of common shares outstanding during the period, if dilutive. Where the effect of stock options or warrants was anti-dilutive because their exercise price was higher than the average market price of the Company s common shares for the periods noted above, assumed exercise of those options was not included. All stock options and warrants are considered anti-dilutive when a loss is reported for a period. 15. CAPITAL RISK MANAGEMENT It is the Group s objective when managing capital to safeguard its ability to continue as a going concern in order that it may continue to seek acquisition targets, to explore and develop mineral properties and continue its operations for the benefit of its shareholders. The Group s objectives when managing capital are to: (a) (b) (c) (d) enable the Company to seek new mineral projects; explore and develop owned mineral properties; support any expansion plans; and maintain a capital structure which optimizes the cost of capital at acceptable risk. The Group manages its equity (which includes common shares, share option reserve, warrant reserve, foreign currency reserve and accumulated deficit) and loans as capital. The Group intends to expend existing working capital by carrying out its planned future acquisition, exploration and development activities on mineral properties and continuing to pay administrative costs. The Group manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristic of the underlying assets. In order to maintain or adjust the capital structure the Group may issue new shares. In order to facilitate analysis and management of its capital requirements, the Group prepares and updates annual budgets (as needed) to ensure that its acquisition and exploration operations can continue to progress. Budgets, once finalized, are approved by the Board of Directors. There have not been any changes to the Group s capital management objective, policies and processes compared to the prior year. The Group is not subject to any externally imposed capital requirements. 16. FINANCIAL INSTRUMENTS (a) Categories of financial assets and financial liabilities The Group s financial assets and financial liabilities are categorized as follows: Category September 30, 2016 December 31, 2015 Cash and cash equivalents Loans and receivables $ 39,595,410 $ 651,584 Other receivables - sale of subsidiary FV through profit and loss 32,410,591 47,347,147 Receivables Loans and receivables 80,499 - Accounts payable and accrued liabilities Other financial liabilities 4,056,201 28,627 Loans payable Other financial liabilities - 3,568,570 The recorded amounts for cash and cash equivalents, receivables, accounts payable and accrued liabilities and loans payable approximate their fair value due to their short-term nature. Income earned on the Group s cash and cash equivalents has been disclosed in the consolidated statements of comprehensive loss under the caption interest and other income. Other receivables are adjusted to their estimated fair value at each reporting period with changes in fair value recorded in profit and loss see Note 2(e)