VERENA VERENA MINERALS CORPORATION 2006 ANNUAL REPORT

Transcription

1 VERENA VERENA MINERALS CORPORATION 2006 ANNUAL REPORT

2 V E R E N A M I N E R A L S C O R P O R A T I O N DEAR FELLOW SHAREHOLDERS: We are very pleased to report our corporate progress for 2006 and our plans for In 2006, we closed our acquisition of the Volta Grande project and focused on expanding and advancing its substantial gold resource. We also closed a second joint-venture agreement with our strategic partner, Kinross Gold Corporation, which now holds earn-in options on both our Monte do Carmo and Patrocinio projects. Looking ahead to 2007, we are well-funded and active on three outstanding gold projects. With robust markets for both mineral exploration and gold, we are exceptionally well-positioned for future success. Our 2006 accomplishments include the following: We closed our Volta Grande acquisition, on favourable terms. We drilled the first 5,000 metres of a planned 37,000-metre program at Volta Grande, focusing on the Grota Seca West and Grota Seca East target zones. The results were excellent, including near-surface gold intercepts of 74.9 metres of 1.33 grams/tonne, 66.0 metres of 1.59 grams/tonne, and 49.0 metres of 2.22 grams/tonne. We continue to build upon the extensive previous work on the property completed by TVX and Battle Mountain. We optioned our Patrocinio project to Kinross, allowing them to earn a 51-percent interest by spending US$3 million over three years, and an additional 14-percent interest by spending an additional US$5 million in that period. Our Monte do Carmo project returned excellent mapping and sampling results. Wide mineralized zones yielded grab samples of up to 46.5 grams/tonne gold and channel samples of up to 19.8 grams/tonne gold over 1.6 m. Kinross commenced its first drill program on the property late in the year. We hired George Flach as our VP of Exploration. Mr. Flach has been responsible for many important gold discoveries, serving as Chief Geologist, Exploration Manager, and as an independent consultant with several companies including Goldfields of South Africa, Billiton Bogosu, and St. Jude Resources Inc. We completed a private placement with Kinross, making them a significant shareholder and further strengthening our already solid relationship. Our primary objective for 2007 is the continued expansion and advancement of Volta Grande, where the next 10,000-metres of drilling recently commenced. Volta Grande is our most advanced project, hosting a total gold resource (indicated & inferred) exceeding 1.7-million ounces (using a 0.5 grams/tonne cut-off), according to Scott Wilson, Roscoe Postle Associates Inc. ( SWRPA ). We are very excited about the future of Verena Minerals Corporation. On behalf of the Board of Directors, we would like to once again thank you for your ongoing support. Please feel free to contact the Company at any time to discuss our progress and our plans. Stephen G. Roman Stephen Shefsky Stephen G. Roman Stephen M. Shefsky Executive Chairman President and Chief Executive Officer 1. VML:TSX-V

3 V E R E N A M I N E R A L S C O R P O R A T I O N REVIEW OF PROJECTS VOLTA GRANDE GOLD PROJECT The 100-percent owned Volta Grande Gold Project is located on the Xingu River, approximately 50 kilometres southwest of the city of Altamira in the Carajas mineral province of Para State in northern Brazil. It covers 7,943 hectares of the Très Palmeiras greenstone belt, an area known for artisanal gold mining. Verena entered an agreement to acquire the project in February 2004 and, following the conclusive resolution of land title issues in 2006, is now focused on the property s exploration and development. Volta Grande hosts a total gold resource (indicated & inferred) exceeding 1.7-million ounces (using a 0.5 grams/tonne cut-off), according to a NI Technical Report authored by SWRPA in December SWRPA has recommended a three-phase program including 37,000 metres of core drilling over a two-year period. The program objectives are to increase the drill hole density to 50-metre spacing, to upgrade the inferred mineral resources to indicated, and to better outline the higher-grade gold zones. The shear-hosted Volta Grande resource is contained in eight areas, six of which have been mined by artisanal miners. Within these areas, there are many lenses of higher grade gold mineralization, open along strike and at depth, with excellent potential for expansion. There is also good potential for discovery of additional mineralized gold zones within the large alteration envelope in the host intrusive. This envelope has been traced for more than three kilometers along strike and contains two types of gold mineralization: primary gold in intrusive rocks and secondary gold in an extensive saprolitic zone overlying the primary mineralization. In 2006, Verena completed the first 5,000 metres of recommended core drilling, focusing on the Grota Seca West and Grota Seca East target zones. Highlights from the program include intercepts of 74.9 metres of 1.33 grams/tonne gold (VVD-128), 66.0 metres of 1.59 grams/tonne gold (VVD-127), 49.0 metres of 2.22 grams/tonne gold (VVD-125), and 25.0 metres of 3.76 grams/tonne gold (VVD-123), all of which occurred within 200 metres of surface. Drilling will resume in the spring of 2007, with a 10,000 metre drilling program. MONTE DO CARMO PROJECT The Monte do Carmo Project is located in Tocantins State, Brazil, covering approximately 35,000 hectares. In September 2005, the project was optioned to Kinross Gold Corporation, which can earn a 70-percent interest by spending US$2-million and paying Verena US$650,000 over three years. Kinross is the project operator during the option period. In 2006, Kinross completed detailed mapping on the entire concession, taking 896 soil samples, 107 termite hill samples, 147 rock chip samples, and 352 channel samples. Initial sampling at Monte do Carmo was encouraging and indicated the presence of wide mineralized zones on the property. Kinross subsequently reported its focus on a 25 square-kilometre area featuring mild but pervasive deformation with abundant large veins, vein swarms, and veinlet networks. Grab sampling by Kinross returned gold values of up to 46.5 grams/tonne and selective channel sampling returned gold values of up to 19.8 grams/tonne over 1.6 metres, 17.3 grams/tonne over 1.6 metres, and 12.3 grams/tonne over 1.4 metres. Within the larger mineralized zones at the Conceicao Creek target, grab sampling returned gold values of up to 21.9 grams/tonne and channel sampling returned gold values of up to 4.9 grams/tonne over 0.6 metres and 4.3 grams/tonne over 0.9 metres. Grab sampling at the South Veins and North Veins targets 2. VML:TSX-V

4 V E R E N A M I N E R A L S C O R P O R A T I O N returned gold values of up to 39.5 grams/tonne and 16.4 grams/tonne, respectively. Kinross began drilling the property in early PATROCINIO GOLD PROJECT The Patrocinio Gold Project covers approximately 20,750 hectares of the Tapajos gold province in Para State of northern Brazil. In September 2006, the project was optioned to Kinross Gold Corporation, which can earn a 51-percent interest by spending US$3 million over three years, and an additional 14-percent interest by spending an additional US$5 million during the same period. Kinross is the project operator during the option period. Tapajos province is historically the most important gold producing region in Brazil, with a reported six million ounces of artisanal production since the 1950 s. Several public sources indicate that about one million ounces of gold have been produced by local miners at Patrocinio. Verena geologists have confirmed 19 property locations where current or former gold production has occurred from two types of mineralization: high-grade quartz veins and hydrothermally-altered granites where gold is associated with sulphides. Within mineralized zones, gold grades have been demonstrated to range from roughly 1 to 67 grams / tonne within the quartz veins and from roughly 1 to 37 grams/tonne within the granites. Channel sampling along a quartz vein in the Alcantara pit returned grades ranging from roughly 4 to 37 grams / tonne gold over about 8 metres. Limited geophysical and core drilling data are available on the property, some of which was completed by Barrick Gold Corporation in the mid- 1990s. BONFIM MINE PROJECT The 100-percent owned Bonfim Mine Project is located 120 kilometres west of the city of Natal in the Rio Grande do Norte State of northeastern Brazil. It consists of four mineral licenses covering 2,765 hectares surrounding the Bonfim Mine which produced scheelite (an ore containing tungsten) for 12 years in the 1970s and early-1980s. Operations at Bonfim concluded before the present environmental legislation in Brazil and, therefore, there are no environmental liabilities attached to the property. Exploration and drilling at Bonfim have identified gold mineralization at the former mine site and a significant IP anomaly at Bonfim North, one kilometre north of the mine. Exploration by CVRD and Rio Tinto in the 1990s included geochemical sampling, ground geophysical surveys, trenching, and core drilling. Fifty-nine (59) holes totaling 4,225 metres have been drilled on the property, including eight by Verena in 2002 and Highlights of the Verena program include intercepts of grams/tonne gold over 2.5 metres and 6.64 grams/tonne gold over 1.7 metres. Sampling of old dumps by SWRPA in 2002 and 2003 returned values ranging from 2.2 grams/tonne to grams/tonne gold. Additionally, eight small leach pads contain about 56,000 tonnes of tailings. Samples of this material consistently return values exceeding 1.0 grams/tonne gold. The property owner has reported recovered gold grades ranging from 2.15 grams/tonne to 4.67 grams/tonne from the processing of more than 21,000 tonnes of mine tailings. 3. VML:TSX-V

5 V E R E N A M I N E R A L S C O R P O R A T I O N MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS AS AT DECEMBER 31, 2006 GENERAL The following discussion of performance, financial condition and future prospects should be read in conjunction with the Audited Consolidated Financial Statements for the years ended December 31, 2006 and 2005 and notes thereto. This discussion covers the last completed fiscal year and the subsequent period up to the date of the filing of this management s discussion and analysis ( MD&A ). The financial statements are prepared in accordance with Canadian generally accepted accounting principles ( Canadian GAAP ). All dollar amounts are stated in Canadian dollars, unless otherwise noted. Readers are encouraged to read the Company s public information filings on Sedar at NATURE OF ACTIVITIES Verena Minerals Corporation (the Company or Verena ) is a Canadian company with an exploration strategy focused on gold in Brazil. Through its wholly owned Brazilian subsidiaries, the Company controls over 100,000 hectares of prospective exploration concessions covering major mineralized belts in Goias, Minas Gerais, Rio Grande do Norte, Para and Tocantins states. Verena s key gold projects are Volta Grande, Bonfim, Patrocinio and Monte do Carmo of the Porto Nacional project. During 2006 and 2005 the Company directed the majority of its exploration efforts toward the Bonfim, Volte Grande and Patrocinio projects. For the year ended December 31, 2006 the Company incurred deferred exploration expenditures of $1,996,028. The Audited Consolidated Financial Statements for the year ended December 31, 2006, include the following entities: Verena Mineração Ltda. (Brazil) 100% Intergemas Mineração e Industrialização Ltda. (Brazil) 100% Verena Minerals Holdings Inc. (Barbados) 100% MINERAL EXPLORATION ACTIVITIES At present the Company has sufficient funds to explore the Volta Grande, Bonfim, Patrocinio and Monte do Carmo projects. For the year ended December 31, 2006, the Company incurred deferred expenditures of $1,996,028 on mineral properties compared to $287,379 in the same period of VML:TSX-V

6 V E R E N A M I N E R A L S C O R P O R A T I O N The Company s mineral properties are comprised of: Property January 1, 2006 Deferred Exploration Additions December 31, 2006 Bonfim $ 767,480 $ 74,295 $ 841,775 Volta Grande 296,784 1,893,369 2,190,153 Patrocinio 116,357 26, ,939 Porto National 18,782 1,782 20,564 $1,199,403 $ 1,996,028 $ 3,195,431 Volta Grande Property During 2005, the Company signed an agreement modifying the terms of the acquisition of a 100% interest in the Volta Grande gold property located in the Para State on the Xingu River (the "Property"), approximately 50 kilometres southwest of the city of Altamira in Brazil. Under the original terms of the contract signed in 2004, the Company was to pay US$3,000,000 over four years. Under the modified agreement the Company agreed to pay to the Vendor a total of US$600,000 of which US$62,500 has been previously paid. The final payment of US$537,500 was made in December The transfer of title to the Verena is in course. In addition, the Company has committed to pay to the Companhia de Pesquisa de Recoursos Minerais ( CPRM ), a Brazilian state owned geological survey company, 3, Reals or approximately US$1,700,000 if a mineable deposit is defined on the Property. The loan will be paid beginning in two years, after the closing of the acquisition, only if the Company has produced a bankable feasibility study. Principal and interest can be paid over 10 years on a quarterly basis. The Company put US$1,722,708 on deposit, being the total amount outstanding that would be owed by the Company to the CPRM should the Company produce a bankable feasibility study for the Property. The Company with the assistance of Scott Wilson Roscoe Postle Associates ( Scott Wilson RPA ) prepared an updated NI report on its Volta Grande gold property, a copy of which can be accessed and viewed via The Scott Wilson RPA NI report recommended a total of 37,000 metres of diamond drilling be completed at the Volta Grande gold property, with the objective of upgrading the current open pittable 172,000 ounces indicated and 1,110,000 ounces inferred gold resources to the measured category as well as better defining the higher grade gold zones ( t of 1.19 g/t inferred and t of 1.4 g/t indicated; nominal cut-off grade of 0,75 g/t Au). All data was documented in the Scott Wilson RPA 2004 and December 2005 NI reports (See press release dated December 15, 2006). Area Category Tonnes Gold (g/t) Gold (ounces) Bedrock (primary) Indicated 3,500, ,664 Inferred 24,900, ,670 Saprolite Indicated 320, ,581 Inferred 4,090, ,701 Subsequent to year end the Company commenced exploration plans for its Volta Grande gold property, including 10,000 metres of core drilling. Verena's Volta Grande gold project covers 7,943 hectares of the Tres Palmeiras greenstone belt in northern Brazil. The 10,000 metres of diamond drilling is a continuation of a larger, long-term program that began last year following completion of the Company s acquisition of Volta Grande. It will commence 5. VML:TSX-V

7 V E R E N A M I N E R A L S C O R P O R A T I O N during the first half of fiscal 2007 and will include in-fill drilling on the existing resource and the testing of at least two new targets identified by positive geochemical sampling results. Additional new drill targets are expected over the next several weeks, following the receipt of additional geochemical assays and the completion of an airborne geophysical survey, also set to commence later this month, to be flown over the entire concession. Widespread gold mineralization was identified at Volta Grande in the 1990s by past operators TVX Gold (now Kinross) and Battle Mountain Exploration (now Newmont) which combined to drill over 24,000 metres on the property. The shear-hosted resource is contained in eight areas, six of which have been developed by artisanal workings. Within these areas, there are many narrow zones of higher-grade gold mineralization, open along strike and at depth, with excellent potential for expansion. Preliminary metallurgical work by the prior operators indicated that Volta Grande mineralization is amenable to conventional processing methods, with gold recoveries of up to 95- per cent in bottle roll tests. The Property area is on a greenstone belt, which includes two elongated diorite intrusions, located in the North Block and the other in the South Block approximately 5 kilometres apart. Both the greenstone belt and the intrusions trend northwest, and the intrusions are approximately the same size, approximately 8 km long and 1 km wide. In the North Block, where most of the work has been carried out to date, the gold mineralization occurs in a shear zone containing carbonate altered chloritic schists near the contact with the diorite intrusion. The Company believes that the South Block has similar potential but only seven drill holes in two targets were drilled by TVX and Battle Mountain Gold during the mid 1990 s under some artisanal mine workings. In 2006 the Company also completed the first 5,215 metres of the 37,000 diamond drill program recommended by Scott Wilson RPA. A total of 25 drill holes (VVD-122 to VVD-146) were completed, being 23 new drill holes and 2 diamond drill holes twinned by Verena last year (VVD- 122, VVD-123) in the Grota Seca West Target of the North Block. The results of holes VVD-122 through VVD-132 in Grota Seca West Target can be viewed on a press release dated November 9, The Company received the remaining results from drill holes VVD-127 and VVD-128, which together with drill hole VVD-138 showing the potential for much wider zones of mineralization than previously recognized (see press release dated November 21, 2006). In the previous press release issued November 9, 2006 only a portion of these drill holes were announced since all assays were not yet received. On December 15, 2006 the Company received further results from additional significant drill intersections from the Phase 1 drilling program at the Company s Volta Grande gold project, including the VVD-143 drill results from the Grota Seca East (GSE) target area received from SGS-Lakefield-Geosol laboratory in Belo Horizonte, Brazil. GSE lies 400 metres east and along strike from the Grota Seca West ( GSW ) target where the recently released drill holes from Phase 1 are located (see Press Release of November 21, 2006). The main zone at Grota Seca East is comparable in width and grade to the GSW target, and in addition the Grota Seca East target drilling has identified numerous parallel mineralized zones. One important observation is that the drilling results to date indicate the main zone of mineralization is quite wide, particularly when the parallel structures are included. The Grota Seca areas lend themselves well to a potential large scale open pit operation. With consistently wide zones of mineralization and a strong gold price holding above US$600 it is realistic to consider using a 0.5 g/t cut-off (see NI Report December, 2005). At this cut-off the estimated resources are 7.39 million 1.01 g/t indicated (240,000oz) a 93% increase in tonnes and a 40% increase in ounces and million 0.96 g/t (1,496,000oz) inferred 6. VML:TSX-V

8 V E R E N A M I N E R A L S C O R P O R A T I O N a 67% increase in tonnes and a 35% increase in ounces. The previously reported NI (December 19, 2005) resources estimate of 3.8 million 1.40 g/t indicated (172,000 oz) and g/t inferred (1,110,000 oz), was based on a 0.75 g/t cut-off. One important observation is that the drilling results to date indicate that the main zone of mineralization is quite wide, particularly when the parallel structures are included. The Grota Seca areas lend themselves well to a potential large scale open pit operation. The objective of the 2006 drilling program was to upgrade resources and outline higher grade zones within the previously estimated resources The drilling focused on the Grota Seca West and Grota Seca East target zones and included the following near-surface highlights: 74.9 metres of 1.33 g/t gold, 66.0 metres of 1.59 g/t gold, 49.0 metres of 2.22 g/t gold, and 25.0 metres of 3.76 g/t gold, as announced in Verena's press release of December 15, Previously there has been 22,720 metres of diamond drilling, 1,536 metres of reverse circulation drilling, and 5,943 metres of auger drilling completed by TVX and Battle Mountain Gold on the Property during the 1990 s. The 2006 drilling program was successful in demonstrating the continuity of the mineralization and the expansion of the Grota Seca West and Grota Seca East targets (see press release December 19, 2005). Grota Seca West now extends over 400 metres along strike and is open at depth. The Grota Seca East Target has now been better defined and extends over 530 metres along strike and is also open at depth. The remaining Phase 1 drill results tested a number of other locations (see press release December 15, 2006). Follow-up on these intersections will be done in the Phase 2 drill program scheduled to commence in the first quarter of Boart Longyear Geoserv, a Canadian-Brazilian drilling company, was the drilling contractor, and used two Diakore rigs and HQ/NQ core diameters in completing the drilling program. Survey of drill holes included detailed topographic survey of collar coordinates and down-hole survey using Sperry-Sun equipment, which provided data on hole deviation at 50 metre intervals. In general, core recovery during the drilling program was 98%. All the samples were assayed at the SGS- Lakefield-Geosol laboratory, by screen metallic and fire assay method. The Company s quality assurance/quality control (QA/QC) program included assays on standards and blanks for every 20 samples collected. Mr. George Flach, P.Geo., is the Qualified Person within the meaning of National Instrument Lengths reported are core intersection lengths and do not represent true widths. It is anticipated that true width estimates will be made possible after additional drilling. All the samples were assayed at the SGS-Lakefield-Geosol laboratory, by screen metallic and fire assay method. Verena s quality assurance/quality control (QA/QC) program included assays on standards and blanks for every 20 samples collected. Letter Agreement with Kinross Gold Corporation During 2005 the Company entered into a Letter Agreement with Kinross Gold Corporation ( Kinross ) on the Company s 100% owned Monte do Carmo project, located in Tocantines, Brazil (the Project ). This Agreement is contingent upon the Company receiving notice of renewal of title from the DNPM in Brazil. On September 14, 2005 the DNPM declared Verena s priority to the exploration rights on the Monte do Carmo property. 7. VML:TSX-V

9 V E R E N A M I N E R A L S C O R P O R A T I O N Monte do Carmo The initial work carried out by Kinross includes detailed mapping on approximately 350 square kilometers showing high density sulphide rich veining zones associated to the top zone of the sheared granitic intrusion and a total of 896 soil samples, 107 termite hill samples and 147 rock chip samples and 352 channel samples. Abundant significant high grade gold includes values between 10.1g/t and 46.5g/t on the main Monte do Carmo target and values as high as 21.9 g/t in grab samples and 4.9 g/t in channel samples on the new Conceição Creek target, which looks to be as big as the main Monte do Carmo target. On the basis of these encouraging results, Kinross started in November, 2006 a 2,000 metre drilling program on the property. Results and report are still pending but core drill logs are showing potential important intersections for the first two drill holes. Sample preparation and assay procedures are carried out by SGS Geosol Laboratory in Belo Horizonte, Brazil using fire assay method. Kinross will spend a total of US$2,000,000 in exploration work on the property over a three year period. Upon spending US$2,000,000 Kinross and making cash payments to Verena totaling US$650,000 will earn a 70% ownership interest in the property. OVERALL PERFORMANCE Management has strived to keep overhead expenses to a minimum while continuing to evaluate the Company s projects, and other potential mineral projects. The Company s financial condition has significantly improved over the past year ended December 31, During the year ended December 31, 2006 the Company closed private placements of 19,500,000 units for gross proceeds of $4,426,478 to the Company; raised $134,000 from the exercise of stock options and $308,527 from the exercise of warrants. The net loss for the year ended December 31, 2006 was $581,118 ($0.009 per share) compared to a net loss of $1,615,220 ($0.030 per share) for the prior year. For a discussion of trends that are reasonably likely to effect the Company s business, see Liquidity and Capital Resources Trends below. SELECTED FINANCIAL DATA The following table provides selected consolidated financial information that should be read in conjunction with the Audited Consolidated Financial Statements and Notes thereto of the Company for the applicable period, which have been prepared in accordance with Canadian generally accepted accounting principles. December 31, 2006 December 31, 2005 December 31, 2004 $ $ $ Total Revenue Nil Nil Nil Loss for the year 581,118 1,615, ,155 Loss per share- basic and diluted Total Assets 5,464,458 1,286,671 1, Total long-term debt Nil Nil Nil Cash dividends Nil Nil Nil 8. VML:TSX-V

10 V E R E N A M I N E R A L S C O R P O R A T I O N SUBSEQUENT EVENTS (i) Private placement On March 7, 2007 (the Closing Date ), the Company closed a private placement ( Placement ) of 8,000,000 common shares at a price of $0.55 per common share. The common shares issued under the Placement are subject to a four month hold period, expiring on July 6, The proceeds from the Placement will be used to advance exploration and development of its exploration projects and general corporate purposes. On March 9, 2007, the Company received $2,200,000 representing 50% of the purchase price for the common shares. On or before 90 days from the Closing Date, the Company will receive 25% ($1,100,000) of the purchase price and the final balance of 25% ($1,100,000) of the purchase price will be received on or before 180 days from the Closing Date. (ii) Exercise of warrants Subsequent to the year end the Company received gross proceeds of $2,388,750 from the exercise of warrants outstanding as of December 31, RESULTS OF OPERATIONS Year Ended December 31, 2006 During the year ended December 31, 2006, the Company incurred a loss of $581,118 ($0.009 per share) compared to a loss of $1,615,220 ($0.030 per share) during the same period in the prior year. The decrease of $1,034,102 for the year ended December 31, 2006 over 2005 is namely attributable to: (i) an increase of $52,872 in administrative expenses from $529,906 in 2005 to $582,778 in 2006; (ii) a write-off of $798,970 of mineral properties and deferred costs in 2005 (nil in 2006); (iii) an increase of $40,426 in stock-based compensation expense from $196,500 in 2005 to $236,928 in 2006; (iv) a gain of $211,892 in foreign currency fluctuation from a loss of $74,088 in 2005 to a gain of $137,804 in 2006; and (v) interest income of $119,514 in 2006 (nil in 2005). Three Months Ended December 31, 2006 During the three months ended December 31, 2006, the Company incurred a loss of $97,667 ($0.001 per share) compared to a loss of $1,075,105 ($0.013 per share) during the same period in the prior year. The decrease of $977,438 for the three months ended December 31, 2006 over 2005 is namely attributable to: (i) an increase of $88,219 in administrative expenses from $113,256 in 2005 to $201,475 in 2006; (ii) no write-off of mineral properties and deferred costs in 2006; as compared to $798,970 in 2005; (iii) an increase of $65,846 in stock-based compensation expense from $171,080 in 2005 to $236,926 in 2006; (iv) an increase of $229,128 in gain on foreign currency fluctuation from $14,957 in 2005 to $244,085 in 2006, and (v) interest income of $13,133 in 2006 (nil in 2005). 9. VML:TSX-V

11 V E R E N A M I N E R A L S C O R P O R A T I O N SUMMARY OF QUARTERLY RESULTS Selected consolidated financial information for each of the last eight quarters (unaudited): Quarter Ended Revenue Loss (income) for the Period Loss per Share * $ $ $ December 31, ,501 97, September 30, , , June 30, ,120 73, March 31, 2006 Nil 226, December 31, 2005 Nil 1,075, September 30, 2005 Nil 166, June 30, 2005 Nil 209, March 31, 2005 Nil 164, * Loss per share data is basic and diluted LIQUIDITY AND CAPITAL RESOURCES The working capital deficiency at December 31, 2006 was $417,543 as compared with working capital deficiency of $875,291 at December 31, Funds required to finance the Company s future overhead and planned exploration were obtained subsequent to year end through the exercise of existing warrants and the completion of an equity financing. See section above titled Subsequent Events. The Company has been successful in accessing the equity market in the past year however, there is no guarantee that the Company will continue to able to access the equity markets, or that financing will be available upon terms acceptable to the Company. Trends Mineral exploration is a speculative venture. There is no certainty that the money spent on exploration and development of mineral projects will result in any discoveries of commercial bodies of ore. The long-term profitability of the Company s operations will in part be related to the success of its exploration programs, which may be affected by a number of factors that are beyond the control of the Company. The mineral industry is intensely competitive in all its phases. The Company competes with many other mineral exploration companies who have greater financial resources and experience. The market price of precious metals and other minerals is volatile and cannot be controlled. RELATED PARTIES TRANSACTIONS Administrative charges totaling $36,000 ( $36,000) were paid to a company that has a common director. Administrative charges totaling $30,250 (2005 $NIL) were paid to directors and officers. Management fees totaling $81,000 ( $81,000) were paid to a company controlled by a common director. Management fees totaling $185,526 ( $151,477) were paid to companies in Brazil with common directors. 10. VML:TSX-V

12 V E R E N A M I N E R A L S C O R P O R A T I O N The following amounts are due to related parties and are included in accounts payable and accrued liabilities at year-end: Due to directors and officers $ 19,000 $ 12,000 Due to companies with common directors 3,824 57,750 Due to companies in Brazil with common directors 5,319 95,352 $ 28,143 $ 165,102 The amounts due to and from related parties are non-interest bearing and non-secured. DISCLOSURE CONTROLS AND PROCEDURES Although the Company continues to refine its disclosure controls and procedures from time to time, the CEO and CFO have concluded that, during the year ended December 31, 2006, the process was effective enough to ensure material information was accumulated and communicated to management in sufficient time for management to make decisions regarding the Company's disclosure required by securities legislation. FINANCIAL CONTROLS AND PROCEDURES Management has assessed the effectiveness of the Company s financial reporting disclosure controls and procedures as at December 31, 2006, and has concluded that such financial reporting disclosure controls and procedures were effective as at that date. CRITICAL ACCOUNTING POLICIES AND ESTIMATES Going Concern The Company s operations in Brazil are affected by Brazil s unpredictable and potentially unstable political and economic environment. Although the environment has been relatively stable in recent years, there is the risk that this situation could deteriorate and adversely affect the Company s operations. As is common with exploration companies, the Company's ability to continue its on-going and planned exploration activities and continue operations as a going concern, is dependant upon obtaining necessary equity financing from time to time. Should the Company be unable to continue as a going concern, amounts realized from disposal of its assets (primarily its mining properties) on a liquidation basis may be significantly less than their carrying amounts. As discussed above titled Subsequent Events, the Company to date received gross proceeds of $4,588,750 from the issuance of common shares and warrants and will receive an additional $2,200,000 during SIGNIFICANT ACCOUNTING POLICIES Critical accounting estimates used in the preparation of the financial statements include the Company s estimate of recoverable value on its mineral properties as well as the value of stockbased compensation. Both of these estimates involve considerable judgment and are, or could be, affected by significant factors that are out of the Company s control. 11. VML:TSX-V

13 V E R E N A M I N E R A L S C O R P O R A T I O N Mineral properties The Company s recorded value of its mineral properties is in all cases based on historical costs that expect to be recovered in the future. The Company s recoverability evaluation is based on market conditions for minerals, underlying mineral resources associated with the properties and future costs that may be required for ultimate realization through mining operations or by sale. The Company is in an industry that is exposed to a number of risks and uncertainties, including exploration risk, development risk, commodity price risk, operating risk, ownership and political risk, funding and currency risk, as well as environmental risk. Stock based compensation The factors affecting stock-based compensation include estimates of when stock options might be exercised and the stock price volatility. The timing for exercise is out of the Company s control and will depend, among other things, upon a variety of factors including the market value of the Company s shares and financial objectives of the holders of the options. The Company has used historical data to determine volatility in accordance with Black-Scholes modeling, however the future volatility is inherently uncertain and the model has its limitations. While these estimates can have a material impact on stock-based compensation and hence results of operations, there is no impact on the Company s financial condition. USE OF FINANCIAL INSTRUMENTS The Company has not entered into any specialized financial agreements to minimize its investment risk, currency risk or commodity risk. There are no off-balance sheet arrangements. The principal financial instruments affecting the Company s financial condition and results of operations is currently its cash and short-term money market investments. FORWARD LOOKING STATEMENTS This MD&A contains forward looking statements that are subject to a number of known and unknown risks, uncertainties and other factors that may cause actual results to differ materially from those anticipated in the Company s forward looking statements. Factors that could cause such differences include: changes in world gold markets, equity markets, costs and supply of materials relevant to the mining industry, change in government and changes to regulations affecting the mining industry. Although the Company believes expectations reflected in its forward looking statements are reasonable, results may vary, and the Company cannot guarantee future results, levels of activity, performance or achievements. The Company undertakes no obligation to update forward looking statements, unless required by securities law. OTHER MD&A REQUIREMENTS Additional Disclosure for Venture Issuers Without Significant Revenue Additional disclosure concerning the Company s general and administrative expenses and resource property costs is provided in the interim consolidated financial statements available through VML:TSX-V

14 V E R E N A M I N E R A L S C O R P O R A T I O N Share Capital (a) Authorized The authorized capital stock of the Company is comprised of an unlimited number of common shares without par value and an unlimited number of special shares. (b) Issued and outstanding Number of Shares Stated Value $17,5 88,819 Balance, December 31, ,705,643 Issue of common shares for cash net of issue costs 19,500,000 4,349,993 Less proceeds allocated to warrants - (176,428) Exercise of stock options 670, ,279 Exercise of warrants 1,714, ,733 Balance, December 31, ,589,680 $22,351,396 Subsequent to December 31, 2006 Issue of common shares 7,350,000 Balance, April 26, ,939,680 (c) (i) Warrant transactions were as follows: Number of Warrants Stated Value Balance, December 31, ,764,037 $119,596 Issued 7,350, ,913 Exercised (1,714,037) (116,206) Expired (50,000) (3,390) Balance, December 31, ,350,000 $252,913 Subsequent to December 31, 2006 Exercised 7,350,000 Balance, April 26, (ii) The Company had the following warrants outstanding at December 31, 2006: Expiry Date Grant Date Number of Warrants Exercise Price $ Stated Value February 21, 2007 February 21, ,500, $152,874 February 21, 2007 February 21, ,100, ,963 March 2, 2007 March 2, , ,553 March 2, 2007 March 2, , ,523 Outstanding and exercisable September 30, ,350,000 $252, VML:TSX-V

15 V E R E N A M I N E R A L S C O R P O R A T I O N (d) Options (i) Stock option transactions were as follows: Number of Options Weighted Average Exercise Price Outstanding, December 31, ,027,801 $0.19 Granted 1,000,000 $0.60 Expired (440,000) $0.20 Exercised (670,000) $0.20 Outstanding, December 31, ,917,801 $0.28 (ii) As at December 31, 2006 the following stock options were outstanding: ADDITIONAL INFORMATION Expiry Date Grant Date Number of Options Exercise Price $ September 10, 2008 September 10, , September 25, 2008 September 25, , December 18, 2008 December 18, ,063, May 26, 2009 May 26, , November 3, 2010 November 3, , December 1, 2011 December 1, ,000, ,917,801 Additional information on Verena Minerals Corporation can be found by visiting the Company s website at and by viewing regulatory filings on SEDAR at Stephen Shefsky President and Chief Executive Officer April 18, VML:TSX-V

16 Consolidated Financial Statements For the Years Ended December 31, 2006 and 2005

17 AUDITORS' REPORT To the Shareholders of Verena Minerals Corporation We have audited the consolidated balance sheets of Verena Minerals Corporation as at December 31, 2006 and 2005 and the consolidated statements of operations and deficit and cash flows for the years then ended. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the company as at December 31, 2006 and 2005 and the results of its operations and its cash flows for the years then ended, in accordance with Canadian generally accepted accounting principles. DMCT, LLP, Licensed Public Accountants March 23, 2007 Toronto, Ontario 1.

18 Consolidated Balance Sheets As at December 31 Note Assets Current Cash $ 117,131 $ 3,613 Prepaid expenses and sundry receivables 6,447 9, ,578 12,856 Mineral properties and deferred costs 3 3,195,431 1,199,403 Capital assets 4 58,928 74,412 Long-term investment 5 2,086,521 - $ 5,464,458 $ 1,286,671 Liabilities Current Bank indebtedness 6 $ 18,854 $ 10,662 Accounts payable and accrued liabilities 522, , , ,147 Shareholders' Equity Capital stock 7 22,351,396 17,588,819 Contributed surplus 7 2,128,673 1,918,636 Share purchase warrants 7 252, ,596 Deficit (19,809,645) (19,228,527) 4,923, ,524 $ 5,464,458 $ 1,286,671 Going concern (Note 1) Commitments and contingencies (Note 12) Subsequent events (Note 13) Approved by the Board Stephen Shefsky Director (signed) Stephen G. Roman (signed) Director See accompanying notes. 2.

19 Consolidated Statements of Operations and Deficit For the Years Ended December 31 Note Expenses Administration $ 582,778 $ 529,906 Write-off of mineral properties and deferred costs 3-798,970 Amortization 18,732 15,756 Stock-based compensation expense 7(d)(iii) 236, ,500 (Gain) loss on foreign currency fluctuations (137,804) 74,088 (700,632) (1,615,220) Interest income 119,514 - Net loss for the year (581,118) (1,615,220) Deficit at beginning of year (19,228,527) (17,613,307) Deficit at end of year $ (19,809,645) $ (19,228,527) Weighted average number of shares outstanding during the year 68,138,070 57,173,600 Basic and diluted loss per share $ $ See accompanying notes. 3.

20 Consolidated Statements of Cash Flows For the Years Ended December Cash flows from operating activities Loss for the year $ (581,118) $ (1,615,220) Add (deduct) items not affecting cash Amortization 18,732 15,756 Write-off of mineral properties and deferred costs - 798,970 Stock-based compensation expense 236, ,500 Unrealized foreign exchange gain on long-term investment (113,157) - (438,617) (603,994) Changes in non-cash working capital items Prepaid expenses and sundry receivables 2,796 11,579 Accounts payable and accrued liabilities (355,218) 233,003 (791,039) (359,412) Cash flows from investing activities Purchase of capital assets (3,248) (2,684) Purchase of long-term investment (1,973,364) - Increase in mineral properties and deferred costs, net of reimbursements (1,996,028) (287,379) (3,972,640) (290,063) Cash flows from financing activities Issue of shares and warrants, net of issue costs 4,426, ,265 Exercise of stock options 134, ,270 Exercise of warrants 308,527-4,869, ,535 Increase (decrease) in cash during the year 105,326 (4,940) Cash position at beginning of year (7,049) (2,109) Cash position at end of year $ 98,277 $ (7,049) Cash position is comprised of: Cash $ 117,131 $ 3,613 Bank indebtedness (18,854) (10,662) $ 98,277 $ (7,049) See accompanying notes. 4.

21 Notes to Consolidated Financial Statements December 31, 2006 and GOING CONCERN The Company is incorporated under the laws of the Province of Ontario and its activities are directed toward locating mineral properties in Brazil. The Company s operations in Brazil are affected by Brazil s unpredictable and potentially unstable political and economic environment. Although the environment has been relatively stable in recent years, there is the risk that this situation could deteriorate and adversely affect the Company s operations. As is common with exploration companies, the Company's ability to continue its on-going and planned exploration activities and continue operations as a going concern, is dependant upon obtaining necessary equity financing from time to time. Should the Company be unable to continue as a going concern, amounts realized from disposal of its assets (primarily its mining properties) on a liquidation basis may be significantly less than their carrying amounts. As disclosed in Note 13, subsequent to December 31, 2006, the Company received gross proceeds of $6,788,750 from issuance of common shares. 2. SIGNIFICANT ACCOUNTING POLICIES Basis of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions and balances have been eliminated. Significant subsidiaries include the following entities: Verena Mineração Ltda. (Brazil) 100% Intergemas Mineração e Industrialização Ltda. (Brazil) 100% Verena Minerals Holdings Inc. (Barbados) 100% 5.

22 Notes to Consolidated Financial Statements December 31, 2006 and SIGNIFICANT ACCOUNTING POLICIES (Cont'd) Mineral Properties and Deferred Costs All direct costs related to the acquisition and exploration of specific properties are capitalized as incurred. If a property is brought into production, these costs will be amortized against the income generated from the property. If a property is abandoned, sold or impaired, an appropriate charge will be made. Discretionary option payments arising on the acquisition of mining properties are only recognized when paid. Amounts received from other parties to earn an interest in the Company's mining properties are applied as a reduction of the mining property and deferred exploration costs. The amounts capitalized represent costs to be charged to operations in the future and do not necessarily reflect the present or future value of the particular mining properties. The recoverability of the amount shown for mineral properties and deferred costs is dependent upon the existence of economically recoverable reserves, the ability of the Company to obtain the necessary financing to complete exploration and development and future profitable production or proceeds from disposition of such properties. On a periodic basis, management reviews the carrying values of deferred mining property acquisition and exploration expenditures to assess whether there has been any impairment in value. In the event that management determines the carrying values of any mining property to be permanently impaired, the carrying value will be written down or written off, as appropriate. Although the Company has taken steps to verify title to mining properties in which it has an interest, these procedures do not guarantee the Company's title. Such properties may be subject to prior agreements or transfers and title may be affected by undetected defects. Foreign Exchange Translation The operations of the Company s subsidiaries are considered to be of an integrated nature. Accordingly, all monetary assets and liabilities in foreign currencies are translated into Canadian dollars at exchange rates prevailing as at the consolidated balance sheet dates. Non-monetary assets and liabilities are translated at historical exchange rates applicable at the transaction dates. Revenues and expenses are translated at the average exchange rate for the year, except for those related to assets translated at historical exchange rates. Foreign exchange gains and losses on transactions occurring during the year and on the year-end translation of the accounts of subsidiaries are reflected in operations. Investments Investments are carried at cost except where, in the opinion of management, there has been a loss in value that is other than a temporary decline, in which case the carrying value is reduced to its estimated fair value. 6.

23 Notes to Consolidated Financial Statements December 31, 2006 and SIGNIFICANT ACCOUNTING POLICIES (Cont'd) Capital Assets Capital assets are recorded at cost, less accumulated amortization. Amortization is provided over the following estimated useful lives of the assets on a straight-line basis as follows: Vehicles Furniture and office equipment 5 years 3-10 years Basic and Diluted Loss Per Share Basic loss per common share is calculated by dividing the loss by the weighted average number of common shares outstanding during the period. The treasury stock method is used to compute the dilutive effect of options, warrants and similar instruments. Accounting for Stock-based Compensation and Other Stock-based Payments The Company records all stock-based payments using the fair value method. Under the fair value method, stock-based payments are measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. Stock-based compensation costs are amortized over the vesting period. Share Issuance Costs Costs incurred in respect of raising capital are charged to capital stock as a reduction of the equity proceeds. Income Taxes The Company follows the asset and liability method of accounting for income taxes. Under this method, future income tax assets and liabilities are determined based on temporary differences between financial reporting and tax bases of assets and liabilities, as well as for the benefit of losses available to be carried forward to future years for tax purposes. Future income tax assets and liabilities are measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse. Future income tax assets are recorded in the financial statements if realization is considered more likely than not. 7.

24 Notes to Consolidated Financial Statements December 31, 2006 and SIGNIFICANT ACCOUNTING POLICIES (Cont'd) Use of Estimates The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenue and expenses during the year. Actual results could differ from those estimates. Significant areas requiring the use of management estimates relate to the carrying value of mineral properties and deferred costs, valuation of warrants issued, valuation of stockbased payments, valuation allowance on future tax assets and the fair values of financial instruments. Recent Accounting Pronouncements The Accounting Standard Board of the Institute of Chartered Accountants of Canada issued Handbook Sections Financial Instruments - Recognition and Measurement, Financial Instruments - Disclosure and Presentation, Equity, and Comprehensive Income, which will be applied by the Company for its interim and annual financial statements for fiscal periods beginning on January 1, Section 3855 prescribes the timing of when a financial asset, financial liability, or nonfinancial derivative is to be recognized on the balance sheet and the measurement of such amount. Section 3861 establishes standards for presentation of financial instruments and non-financial derivatives, and identifies the information that should be disclosed about them. Section 3251 establishes standards for the presentation of equity and changes in equity. Section 1530 introduces new standards for the presentation and disclosure of components of comprehensive income. Comprehensive income is defined as the change in net assets of an enterprise during a reporting period from transactions and other events and circumstances from non-owner sources. It includes all changes in net assets during a period except those resulting from investments by owners and distributions to owners. The Company is still assessing the implications of these new standards and has not yet determined the impact of the implementation of these standards on its 2007 financial statements. 8.