Consolidated Financial Statements of. FIORE GOLD LTD. (formerly GRP Minerals Corp.) For the Fiscal Year Ending September 30, 2017

Transcription

1 Consolidated Financial Statements of FIORE GOLD LTD. (formerly GRP Minerals Corp.) For the Fiscal Year Ending September 30, 2017 And the Period April 14, 2016 (Inception) through Fiscal Year Ending September 30, 2016 (Expressed in U.S. Dollars)

2 Tel: Fax: West Riverside Ave Suite 900 Spokane, WA Independent Auditor s Report Board of Directors and Stockholders Fiore Gold, Ltd. Englewood, Colorado We have audited the accompanying consolidated financial statements of Fiore Gold, Ltd. (formerly GRP Minerals Corp.) (the Company ), which comprise the consolidated statements of financial position as of September 30, 2017 and 2016, and the related consolidated statements of loss and comprehensive loss, changes in equity, and cash flows for the year ended September 30, 2017 and for the period from April 14, 2016 (inception) through September 30, 2016, and the related notes to the consolidated financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards ( IFRS ) as issued by the International Accounting Standards Board; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms.

3 Opinion In our opinion, the accompanying consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Fiore Gold, Ltd. (formerly GRP Minerals Corp.) as of September 30, 2017 and 2016, and the consolidated financial performance and their consolidated cash flows for the year ended September 30, 2017 and for the period from April 14, 2016 (inception) through September 30, 2016, in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. Spokane, Washington January 24,

4 Consolidated Statements of Financial Position ($000 s of U.S. Dollars) Notes September 30, 2017 September 30, 2016 ASSETS Current Assets Cash and Cash Equivalents $ 15,124 $ 4,269 Other Receivable Inventories 4 5, Prepaid Expenses and Other Current Assets 5 1,796 1,926 23,305 6,502 Long Term Assets Mineral Property, Plant and Equipment, net 6 / 7 21,841 6,274 Reclamation Deposits 8 1,270 1,141 Other Long Term Assets Total Long Term Assets 23,561 7,564 Total Assets $ 46,866 $ 14,066 LIABILITIES AND EQUITY Current Liabilities Accounts Payable and Accrued Liabilities $ 3,091 $ 572 Accrued Payroll and Related Benefits Other Current Liabilities Total Current Liabilities 3,521 1,013 Long Term Liabilities Accrued Reclamation and Remediation 8 2,670 2,341 Warrant Derivative Liabilities 9 6,589 - Total Long-Term Liabilities 9,259 2,341 Total Liabilities $ 12,780 $ 3,354 Equity Share Capital 11 $ 50,551 $ 12,065 Reserves 11 3,905 - Accumulated Other Comprehensive Loss (25) - Accumulated Deficit (20,345) (1,353) Total Equity 34,086 10,712 Total Liabilities and Equity $ 46,866 $ 14,066 Approved on behalf of the Board of Directors and authorized for issue on January 24, 2018: Peter T. Hemstead Director (Chair of the Audit Committee) Peter C. Tallman Director Matthew L. Manson Director 4

5 Consolidated Statements of Loss and Comprehensive Loss ($000 s of U.S. dollars, except share and per share data) Notes Year Ended September 30, 2017 April 14, 2016 (Inception) through September 30, 2016 Revenue 2 $ 10,696 $ - Operating Expenses: Production Costs (8,590) - Depreciation and Depletion (302) - Total Cost of Sales $ (8,892) $ - Project Exploration and Evaluation Expense (1,216) (424) General & Administrative Expense (4,715) (849) Loss from Operations $ (4,127) $ (1,273) Other Income / (Expense): Accretion Expense 8 (278) (89) Foreign Exchange Loss (168) - Gain on Disposal of Asset - 9 Listing Expense 3 (13,354) - Other Income (Expense) 4 - Unrealized Loss on Change in Fair Value of Warrant Derivative 9 (1,069) - Total Other Income (Expense) $ (14,865) $ (80) Loss Before Income Tax (18,992) (1,353) Income Tax Benefit (Expense) Net Loss $ (18,992) $ (1,353) Other Comprehensive Loss for the Year: Cumulative Translation Adjustment (25) - Comprehensive Loss for the Year $ (19,017) $ (1,353) Net Loss Per Share 2 Weighted Average Number of Shares Outstanding 48,168,097 47,003,663 Basic and Diluted Net Loss Per Share $ (0.39) $ (0.03) 5

6 Consolidated Statements of Cash Flows ($000 s of U.S. dollars) Notes Year Ended September 30, 2017 April 14, 2016 (Inception) through September 30, 2016 CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss $ (18,992) $ (1,353) Non-Cash Elements Included in Net Loss: Depreciation and Depletion Accretion Share-Based Compensation 11 2,346 - Gain on Sale of Equipment - (9) Unrealized Loss on Change in Fair Value of Warrant Derivative 9 1,069 - Listing Expense 3 13,354 - Change in Assets and Liabilities: Amounts Receivable (440) - Inventories 4 (5,364) (174) Prepaid Expenses and Other Assets (2,075) Accounts Payable and Accrued Liabilities Net Cash Used in Operating Activities $ (7,177) $ (2,971) CASH FLOWS FROM INVESTING ACTIVITIES: Pre-Production Costs and Associated Working Capital Movements, 7 net of Pre-Production Revenue (3,058) (260) Additions to Mineral Property, Plant and Equipment 6 / 7 (1,669) (3,424) Cash Acquired in Arrangement 3 19,071 - Transaction Costs of Arrangement 3 (823) - Reclamation Deposit 8 (130) (1,141) Advanced Royalties 5 (296) - Net Cash Provided by (Used in) Investing Activities $ 13,095 $ (4,825) CASH FLOWS FROM FINANCING ACTIVITIES: Special Warrants Issued, Net of Issue Costs 11 4,937 - Common Stock Issued, Net of Issue Costs 11-12,065 Net Cash Provided by Financing Activities $ 4,937 $ 12,065 Increase in Cash and Cash Equivalents 10,855 4,269 Cash and Cash Equivalents, Beginning of Period 4,269 - Cash and Cash Equivalents, End of Period $ 15,124 $ 4,269 NON-CASH INVESTING AND FINANCING ACTIVITIES Change in Asset Retirement Obligation 51 2,251 Other Receivable Change Relating to Mineral Property 133 (133) Accounts Payable Change Relating to Capital Additions 1, Share-Based Compensation as Consideration in Arrangement 1,508-6

7 Consolidated Statements of Changes in Equity ($000 s of U.S. dollars, except share data) Share Capital Reserves (Notes 2 and 11) Shares Amount Options Warrants AOCI Deficit Total Equity Balance at April 14, $ - $ - $ - $ - $ - $ - Original Contributions 12,100, Private Placements 34,883,044 12, ,213 Payment of Services 500, Share Issuance Costs - (851) (851) Net Loss (1,353) (1,353) Balance at September 30, ,483,044 $ 12,065 $ - $ - $ - $ (1,353) $ 10,712 Shares Issued on Acquisition 43,453,987 35, ,138 Private Placements - Special Warrants , ,244 Special Warrant Exchange 6,554,897 5,244 - (5,244) Share Issuance Costs - (1,896) (1,896) Fair Value - Warrants Share-Based Compensation - - 3, ,854 Other Comprehensive Loss (25) - (25) Net Loss (18,992) (18,992) Balance at September 30, ,491,928 $ 50,551 $ 3,854 $ 51 $ (25) $ (20,345) $ 34,086 7

8 1. Nature of Operations Fiore Gold Ltd. (the Company or Fiore Gold ) was formed on September 25, 2017 pursuant to an Arrangement Agreement (the Arrangement ) dated July 24, 2017, whereby GRP Minerals Corp. ( GRP ) acquired Fiore Exploration Ltd. ( Fiore Exploration ), combining their businesses to create Fiore Gold Ltd., a new Nevada based gold production and development company. GRP was originally formed as a Colorado limited liability company on April 14, On June 29, 2016, GRP filed a statement of conversion with the Colorado Secretary of State and incorporated in Nevada. As part of the Arrangement, on September 25, 2017 GRP moved from the jurisdiction of Nevada to the jurisdiction of British Columbia prior to becoming Fiore Gold Ltd. The Company s shares are publicly listed on the Toronto Stock Venture Exchange ( TSX-V ) under the symbol F in Canada and on the OTCQB in the United States under the symbol FIOGF. The address of its registered and records office is Granville Street, P.O. Box 10325, Vancouver, British Columbia, V7Y 1G5. The Company s Pan project ( Pan ) is an operational heap leach project. The Gold Rock and Golden Eagle gold properties are exploratory-stage projects and have identified gold mineralization. Pampas El Peñon, Cerro Tostado, Río Loa and Lomas de Puquios in Chile are early-stage exploratory projects. These consolidated financial statements have been prepared by management on a going concern basis, which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the next twelve months. The Company incurred a net loss of $18.99 million ( $1.35 million) for the year ended September 30, As of September 30, 2017, the Company had $15.12 million in cash and cash equivalents and working capital of $19.78 million. The Company entered the commercial production phase and began generating revenues from operations during the quarter ended March 31, The Company considers itself to operate in a single segment, being the production of gold and mineral exploration and development of resources. The Company s principal product is gold doré produced by the Pan mine in Nevada. The Company s significant non-current assets as of September 30, 2017 were approximately 62% in the United States and 38% in Chile. 2. Significant Accounting Policies Statement of Compliance These consolidated financial statements as of and for the year ending September 30, 2017 are prepared in accordance with International Financial Reporting Standards ( IFRS ) as issued by the International Accounting Standards Board ( IASB ). Basis of Presentation These consolidated financial statements are expressed in U.S. dollars ( USD or $ ), unless otherwise noted, rounded to the nearest thousand, and include the accounts of the Company and its wholly-owned subsidiaries. These consolidated financial statements have been prepared on a historical cost basis except for certain financial instruments, which are measured at fair value through profit or loss. The accompanying consolidated financial statements include the accounts of Fiore Gold Ltd. and its subsidiaries, as listed below. Name of Subsidiary Country of Incorporation Ownership Interest Fiore Gold (US) Inc. USA 100% Fiore Exploration Ltd. Canada 100% GRP Pan, LLC USA 100% GRP Gold Rock, LLC USA 100% GRP Golden Eagle, LLC USA 100% GRP Eland, LLC USA 100% GRP Pinyon, LLC USA 100% GRP Services, LLC USA 100% Fiore Atacama SpA Chile 100% Fiore Andes SpA Chile 100% 8

9 The par value of the Company s common shares went from $0.001 per common share to no par value in connection with the Arrangement and becoming a British Columbia Corporation. Therefore, all periods within the statement of shareholder s equity have been re-cast to reflect no par value. All intercompany transactions, balances, revenue and expenses have been eliminated in full on consolidation. Foreign Currency Translation The functional currency of all the Company and all subsidiaries in the group is USD, except for Fiore Atacama SpA and Fiore Andes SpA, whose functional currency is the Chilean Peso. Transactions in currencies other than the functional currency are recorded at the rates of exchange prevailing on dates of transactions. At the end of each reporting period, monetary assets and liabilities that are denominated in foreign currencies are translated at the rates prevailing at that date. Nonmonetary assets and liabilities carried at fair value that are denominated in foreign currencies are translated at rates prevailing at the date when the fair value was determined. Nonmonetary items that are measured in terms of historical cost in a foreign currency are not retranslated. The financial statements of the subsidiaries with other than U.S. dollar functional currencies are translated into the U.S. dollar presentation currency as follows: Assets and liabilities are translated into the U.S. dollar using exchange rates prevailing at the end of the reporting period. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences are recognized in other comprehensive income and accumulated in equity. Generally, foreign exchange gains and losses resulting from the settlement of foreign currency transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in currencies other than a subsidiary s functional currency are recognized in the statement of loss. Cash and Cash Equivalents Cash and cash equivalents include highly liquid investments with original maturities of three months or less. To limit its credit risk exposure for amounts in excess of federally insured limits, the Company places its deposits with financial institutions of high credit standing. Inventories As of September 30, 2017, inventories include heap leach in-circuit, finished goods and materials and supplies. The Company commenced commercial production as of March 1, 2017 and began capitalizing inventory. Inventories are valued at the lower of cost or net realizable value. Costs include mining costs (ore and waste), leach pad processing costs and associated depreciation and depletion and an attributable portion of plant and overhead costs. Net realizable value is computed using expected metal prices reduced for any further estimated processing, refining, and selling costs. Costs based on the average cost per contained recoverable ounce of gold are removed from leach pad and in-circuit inventory as gold is recovered from the leach pad or converted into gold doré as applicable. Finished goods inventory is refined gold available for sale and is valued at the lower of average production cost per gold ounce or net realizable value. The cost of finished goods inventory includes the average cost of heap leach in-circuit inventory incurred plus applicable refining costs. Any write-downs of inventory to net realizable value are recorded as cost of sales in the Consolidated Statement of Loss, except prior to commercial production in which case the amounts are capitalized against mine construction and development costs. If there is a subsequent increase in the value of inventories, the previous write-downs to net realizable value are reversed to the extent that the related inventory has not been sold. 9

10 Materials and supplies are valued at the lower of weighted average cost or net realizable value. Cost includes applicable taxes and freight. Reclamation Deposits Amounts represent deposits held in escrow for a surety contract of a Pan reclamation bond as security for abandonment and remediation obligations. Property, Plant and Equipment All items of property, equipment and mine development are carried at cost less accumulated depreciation and accumulated impairment losses, if applicable. Normal maintenance and repairs are charged to operations while expenditures that extend an asset s useful life or increases it productive capacity are capitalized. Gains or losses on disposition are recognized in operations. Depreciation of property and equipment is computed using either units of production or straight-line methods over the estimated economic lives, as follows: Light vehicles Surface mine support equipment Office furniture Office equipment Computer equipment and software Mine infrastructure Plant machinery Buildings Leasehold improvements operating sites Leasehold improvements non-operating sites Land improvements Mine development Mineral property Mining properties Leach pads Ponds Asset retirement obligations 5 years 5 years 4 years 4 years 3 years Straight Line over Life-of-Mine Straight Line over Life-of-Mine Straight Line over Life-of-Mine Straight Line over Life-of-Mine Straight Line over Life-of-Mine Straight Line over Life-of-Mine Units-of-production Units-of-production Units-of-production Units-of-production Units-of-production Units-of-production When a project is determined to contain proven or probable reserves, costs incurred in anticipation of production are capitalized. Interest costs, if any, incurred during the development and construction phase, are capitalized until the assets are ready for their intended use. When a project commences production, amortization and depletion of capitalized costs commences and is computed on a unit-of production basis over the expected proven and probable reserves of the project based on estimated recoverable gold equivalent ounces. Depreciation of related capitalized equipment will be computed on a straight-line basis over the estimated economic life. Assets under construction are capitalized as construction-in-progress. The cost of construction-in-progress comprises its purchase price and any costs directly attributable to bringing it into working condition for its intended use. Construction-in-progress is not depreciated. Once the asset is complete and available for use it is transferred to mineral properties, plant and equipment and depreciation commences. Share Capital The Company records proceeds from share issuances, net of issue costs as common stock. Shares issued for consideration other than cash are valued at the quoted market price on the closing date for business combinations and at the date of issuance for other nonmonetary transactions. 10

11 Share Based Compensation The Company grants share purchase options to directors, officers, employees and consultants. The board of directors grants such options for periods of up to ten years, with vesting periods determined at its sole discretion and at prices equal to or greater than the closing price on the day proceeding the day the options were granted. The fair value of the options granted to employees is measured at the grant date, using the Black Scholes option pricing model, and is recognized over the vesting period, which is the period over which the specific vesting conditions are satisfied. Forfeitures are estimated at the grant date. The fair value is recognized as an expense with a corresponding increase in equity reserve. The amount recognized as expense is adjusted to reflect the number of share options which vest. When the Company grants share purchase options, which only vest upon satisfaction of a contingent event, the fair value of the option is measured on the date of grant using the same valuation model and assumptions used for options without performance conditions. The Company recognizes compensation expense based on an estimate of performance conditions that will be satisfied. Employee Benefits Total Employee Salaries and Benefits, excluding Stock Based Compensation, for the year and period ended September 30, 2017 and 2016, respectively, were $5.25 million and $1.24 million. These amounts are included within Production Costs and General & Administrative Expenses in the Statement of Loss and Comprehensive Loss. Revenue Recognition and Significant Customers The Company recognizes revenue when persuasive evidence exists that the shipment has been made; the significant risks and rewards of ownership of the product have been transferred to the buyer; neither continuing managerial involvement to the degree usually associated with ownership, nor effective control over the gold or silver sold, has been retained; the amount of revenue can be measured reliably; it is probable that the economic benefits associated with the sale will flow to the Company; and the costs incurred or to be incurred in respect of the sale can be measured reliably. Recognition of revenue is dependent on the specific terms of agreements with customers, but is typically when gold has been delivered to a customer and the sale transaction has been confirmed by both parties. In certain circumstances, the Company may receive an advance payment from customers, in which case revenue is recognized when title and risk of loss passes to the customer, which is generally at the time of shipment. Proceeds from sales of pre-commercial production are recorded as a reduction of Mineral Property, Plant and Equipment. All gold doré sales to metals brokers for year ended September 30, 2017 were geographically made within the United States. Sales to Customer A was 100% as a percentage of total revenue. We believe that there are other metal brokers available to sell gold doré, as necessary. Royalties and Advanced Royalties Royalties are based on gold sales and the liability is accrued as revenues are recognized. Royalties are separately reported as production costs and are not deducted from revenue. The Company is required to make certain advanced royalty payments for the Pan and Gold Rock projects. The advanced royalty is recorded within other current assets based on expected production from the property over the next twelve months and the remaining amount is recorded within other long-term assets. The advanced royalties balance will be expensed through production costs based on actual gold or equivalent production from the projects. Income Taxes Income tax expense is comprised of current and deferred tax. Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable net loss. 11

12 Current income taxes are recognized for the estimated income taxes payable or receivable on taxable income or loss for the current year and any adjustment to income taxes payable in respect of previous years. Current income taxes are determined using tax rates and tax laws that have been enacted or substantively enacted by the year-end date. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax is not recognized for all temporary differences associated with investments in subsidiaries, when the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be utilized. At the end of each reporting period the Company reassesses unrecognized deferred tax assets. The Company recognizes a previously unrecognized deferred tax asset to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred taxes relates to the same taxable entity and the taxation authority. Net loss per Share The Company presents loss per share utilizing a dual presentation of basic and diluted loss per share, when applicable. Basic loss per share includes no dilution and has been calculated based upon the weighted average number of common shares outstanding during the period. Diluted loss per share reflects the dilution that could occur if potentially dilutive securities, as determined using the treasury stock method, are converted into common stock. In periods when a loss is incurred, the effect of the potential issuances of shares is antidilutive, and accordingly basic and diluted loss per share are the same. New Accounting Pronouncements The IASB issued the following new or revised pronouncements that may affect the Company s future financial statements. The Company is currently evaluating the impact on the financial statements. IFRS 9: Financial Instruments ( IFRS 9 ): This standard replaces the current IAS 39: Financial Instruments Recognition and Measurement. Debt instruments will be measured with a new mixed measurement model having only two categories: amortized cost and fair value through profit and loss. The new standard also addresses financial liabilities which largely carries forward existing requirements in IAS 39, with the exception of fair value changes to credit risk for liabilities designated at fair value through profit and loss which are generally to be recorded in other comprehensive income. In addition, the new standard introduces a new hedge accounting model more closely aligned with risk management activities undertaken by entities. The new standard is effective for annual periods beginning on or after January 1, 2018, with an early adoption permitted. The Company is still in the process of assessing the impact, if any, on the financial statements of the new standard. IFRS 15: Revenue from Contracts with Customers ( IFRS 15 ): This standard replaces IAS 11: Construction Contracts, IAS 18: Revenue and IFRIC 13: Customer Loyalty Programs. The standard contains a single model that applies to contracts with customers. Revenue is recognized as control is passed to the customer, either at a point in time or over time. New estimates and judgmental thresholds have been introduced, which may affect the amount and/or timing of revenue recognized. The Company is still in the process of assessing the impact, if any, on the financial statements of this new standard. The new standard is effective for annual periods beginning on or after January 1,

13 IFRS 16: Leases ( IFRS 16 ): This standard replaces IAS 17 Leases and its associated interpretative guidance. IFRS 16 applies a control model to the identification of leases, distinguishing between a lease and a service contract on the basis of whether the customer controls the asset being leased. For those assets determined to meet the definition of a lease, IFRS 16 introduces significant changes to the accounting by lessees, introducing a single, on-balance sheet accounting model that is similar to current finance lease accounting, with limited exceptions for short-term leases or leases of low value assets. Lessor accounting remains similar to current accounting practice. The standard is effective for annual periods beginning on or after January 1, 2019, with early application permitted for entities that apply IFRS 15. The Company is still in the process of assessing the impact, if any, on the financial statements of the new standard. Management has evaluated other recently issued accounting pronouncements and does not believe that any of these pronouncements will have a significant impact on our consolidated financial statements and related disclosures. Use of Estimates in the Preparation of Financial Statements The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant areas requiring the use of management estimates include the metal content, recovery rates and valuation of ore on leach pads, the determination of impairment of mineral properties, equipment and mine development, the determination of proven and probable reserves, useful lives of assets used for depreciation and depletion, recognition of realizable future tax assets, and the determination of reclamation and environmental obligations. Actual results, as determined by future events, may differ from these estimates. We consider an accounting estimate to be critical if it requires significant management judgments and assumptions about matters that are highly uncertain at the time the estimate is made and if changes in the estimate that are reasonably possible could materially impact our financial statements. Ore Reserves Management estimates its ore reserves based upon information compiled by qualified persons as defined in accordance with the Canadian Securities Administrators National Instrument Standards for Disclosure for Mineral Projects requirements. The estimated quantities of economically recoverable reserves are based upon interpretations of geological models and require assumptions to be made regarding factors such as estimates of short and long-term commodity prices, future capital requirements and future operating performance. Changes in reported reserve estimates can impact the carrying value of mineral property, plant and equipment, mine development expenditures, asset retirement obligations, the recognition of deferred tax assets, as well as the amount of depreciation and depletion charged to net income within the consolidated statements of loss and comprehensive loss. Units of Production Management estimates recovered ounces of gold in determining the depreciation and depletion of mining assets, including buildings and land improvements and certain plant and equipment. This results in a depreciation charge proportional to the recovery of the anticipated ounces of gold. The life of the asset is assessed annually and considers its physical life limitations and present assessments of economically recoverable reserves of the mine property at which the asset is located. The calculations require the use of estimates and assumptions, including the number of recoverable ounces of gold. The Company s units of production calculations are based on ore tons stacked or recoverable gold ounces mined. Asset Retirement Obligations The Company records the fair value of the estimated liability for closure and removal costs associated with the retirement and removal of any tangible long-lived assets in the period in which the legal obligation is incurred. These obligations are initially estimated based on discounted cash flows with the related asset retirement cost capitalized as part of the tangible asset to which it relates. The asset retirement obligations are subsequently accreted to its full value over time through charges to operating income (loss). The related capitalized asset retirement cost is depreciated over the asset s respective useful life. 13

14 Commercial Production Management assesses the stage of each mine development project to determine when a mine commences the production stage. The criteria used to assess the start date of a mine are determined based on the unique nature of each mine development project. The Company considers various relevant criteria to assess when the mine is substantially complete, ready for its intended use and moves into the production phase. Some of the criteria include, but are not limited to, the following: completion of a reasonable period of testing of the mine plant and equipment; ability to produce metal in saleable form; and ability to sustain ongoing production. Stripping Costs As part of its mining operations, the Company incurs stripping costs during both the development and production phase. Stripping costs incurred in the development phase of a mine, before commercial production commences, are capitalized as part of the cost of constructing the mine and subsequently amortized over its useful life using a units-of-production method. Stripping costs incurred during the production phase of a mine are considered production costs and included in the cost of inventory produced during the period in which the stripping costs are incurred, unless the stripping activity provides additional access to the ore to be mined in the future, in which case the stripping costs are capitalized. Stripping costs incurred to prepare the ore body for extraction are capitalized as mine development costs (pre-stripping). Capitalized stripping costs are amortized on a unit-of-production basis over the estimated resource of the component to which they relate. The stripping activity asset is initially measured at cost, which is the accumulation of costs directly incurred to perform the stripping activity that provides additional access to the identified component of ore, plus an allocation of directly attributable overhead costs. If the costs of the inventory produced and the stripping activity asset are not separately identifiable, a relevant production measure is used to allocate the production stripping costs between the inventory produced and the stripping activity asset. This production measure is calculated for the identified component of the ore body and is used as a benchmark to identify the extent to which the additional activity of creating a future benefit has taken place. The Company uses the expected volume of waste extracted compared with the actual volume for a given volume of ore production of each component. The stripping activity asset is accounted for as an addition to, or an enhancement of, an existing asset, being the mine asset, and is presented as part of property, plant and equipment in the consolidated statements of financial position. This forms part of the total investment in the relevant cash generating unit, which is reviewed for impairment if events or changes of circumstances indicate that the carrying value may not be recoverable. Economically recoverable resources are used to determine the expected useful life of the identified component of the ore body. The stripping activity asset is then carried at cost less depreciation and any impairment losses. Mineral Properties Resource property acquisition costs are capitalized. These include any cash consideration and advance royalties paid, and the fair market value of shares issued, if any, on the acquisition of the resource property interest. Properties acquired under option agreements, whereby payments are made at the sole discretion of the Company, are recorded in the accounts when the payments are made. Exploration and evaluation expenditures are expensed as incurred. Once the technical feasibility and commercial viability of the extraction of resources from a particular mineral property has been determined, resource property acquisition costs are tested for impairment and then reclassified to mine properties within property, plant and equipment and carried at cost until the properties to which they relate are placed into commercial production, sold, abandoned or determined by management to be impaired in value. At each reporting date, capitalized resource property acquisition costs are assessed for indicators of impairment. Where a potential impairment is indicated, impairment tests are performed for each area of interest. To the extent that resource property acquisition costs are not expected to be recovered, they are charged to net loss. Proceeds from the sale of properties or cash proceeds received from option payments are recorded as a reduction of the related resource property costs. 14

15 Impairment of Long-Lived Assets The Company reviews and evaluates its long-lived assets for impairment whenever events or changes in circumstances that would indicate that the related carrying amounts may not be recoverable. Mineral properties in the exploration stage are monitored for impairment based on factors such as the Company's continued right to explore the area, exploration results, technical reports, the Company's continued plans to fund exploration and development programs on the property, future asset utilization, business climate and mineral prices. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first compares recoverable amount to its carrying amount. If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying amount exceeds its fair value. Fair value is determined through various valuation techniques, including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. Past impairments are also considered at each reporting period and where there is an indication that an impairment loss may have decreased, the recoverable amount is calculated as outlined above to determine the extent of the recovery. If the recoverable amount of the asset is more than its carrying amount, the carrying amount of the asset is increased to its recoverable amount and the impairment loss is reversed in the consolidated statement of loss for that period. The increased carrying amount due to reversal may not be more than what the depreciated historical cost would have been if the impairment had not been recognized. Determination of Purchase Price Allocation Asset acquisitions and business combinations require the Company to determine the identifiable asset and liability fair values and the allocation of the purchase consideration over the fair value of the assets and liabilities. This requires management to make judgements and estimates to determine the fair value, including the amount of mineral reserves or resources (when applicable) acquired, future metal prices, future operating costs, capital expenditure requirements and discount rates. Fair Value of Share Based Payments and Warrants Determining the fair value of share-based payments involves estimates of interest rates, expected life of options and warrants, expected forfeiture rate, share price volatility and the application of the Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires the input of highly subjective assumptions that can materially affect the fair value estimate. Stock options granted vest in accordance with the stock option plan. The valuation of stock-based compensation is subjective and can impact profit and loss significantly. Several other variables are used when determining the value of stock options and warrants using the Black-Scholes valuation model: Dividend yield: The Company has not paid dividends in the past. Also, the Company does not expect to pay dividends in the foreseeable future. Therefore, a dividend rate of 0% was used for the purposes of the valuation of the stock options and warrants. Volatility: The Company uses historical information on the market price of peer companies to determine the degree of volatility at the date when the stock options are granted. Therefore, depending on when the stock options and warrants were granted, and the year of historical information examined, the degree of volatility can be different when calculating the value of different stock options and warrants. Risk-free interest rate: The Company used the interest rate available for government securities of an equivalent expected term as at the date of the grant of the stock options and warrants. The risk-free interest rate will vary depending on the date of the grant of the stock options and warrants and their expected term. 15

16 3. Asset Purchase Agreements Asset Purchase Agreement with Midway Gold Corp. On April 28, 2016, GRP entered into an Asset Purchase Agreement (the Asset Purchase Agreement ), with Midway Gold Corp. s subsidiaries; Midway Gold US Inc., Golden Eagle Holding Inc., RR Exploration LLC, MDW PAN LLP, and MDW Gold Rock LLP (collectively referred to as Midway Gold Corp. ), providing for the purchase of Midway Gold Corp. s Pan Project, Gold Rock Project, Pinyon Project Golden Eagle Project and certain other assets, which include related owned and leased real property, owned and leased mining claims, water rights, assigned contract, permits, tangible property and other related assets ( Assets ). GRP acquired the Assets by submitting a Stalking Horse Bid and Midway Gold Corp. did not receive any competing bids that qualified as higher and better than the Company s binding proposal. On May 11, 2016, the Bankruptcy Court entered the Revised Order Under 11 U.S.C 105, 363, and 365 and Fed. Bankr. P. 2002, 6004, 6006, and 9014 (I) Approving (A) the Sale of Substantially All of Midway Gold Corp. s Assets Pursuant to the Asset Purchase Agreement with GRP and Related Agreements Free and Clear of Liens, Claims, Encumbrances and Other Interests and (B) the Assumption and Assignment of Certain Executory Contracts and Unexpired Leases in Connection with the Sale; and (II) Granting Related (the Order ) in the Bankruptcy Case, authorizing the parties to proceed with the transactions. GRP completed the acquisition of such Assets on May 17, The purchase price for the Assets was $5.25 million, less amounts needed to make cure payments to non-debtor parties for assigned contracts and to pay transfer taxes. Total cure payments and estimated transfer taxes and fees amounted to $0.39 million, resulting in actual cash paid at closing of $4.86 million. Additionally, GRP incurred $0.30 million of transaction costs which were capitalized into the total consideration. The asset purchase agreement was accounted for as an asset acquisition, as of the acquisition date of May 17, The following table summarizes the purchase price and allocated value of assets and liabilities acquired in thousands: May 17, Allocation of Purchase Price: 2016 Mining Properties, Plant & Equipment $ 4,659 Accrued Reclamation and Remediation (2,188) Bonding Collateral 1,141 Prepaid Royalties 1,023 Land 707 Materials & Supplies Inventory 136 Deposits 75 $ 5,553 Arrangement Agreement with Fiore Exploration Ltd. In July of 2017, GRP and Fiore Exploration entered into the Arrangement whereby GRP acquired Fiore Exploration combining their businesses to create Fiore Gold. Under the terms of the Arrangement, GRP acquired Fiore Exploration through a share-based payment transaction on the basis of shares of GRP exchanged for each share of Fiore Exploration. Outstanding options and warrants were also adjusted in accordance with the terms of the Arrangement. The Arrangement was implemented by way of a court-approved plan of arrangement under the Business Corporations Act (British Columbia). In August of 2017, Fiore Exploration and B.C. Ltd., a subsidiary of Fiore Exploration, closed on a brokered private placement financing for gross proceeds of CAD$17.01 million through the issuance of 55,762,561 subscription receipts at CAD$0.305 per subscription receipt. The subscription receipts converted into 14,777,078 units of Fiore Gold, with each unit consisting of one common share and one share purchase warrant exercisable for a period of three years from September 26, 2017 at CAD$1.70 per share. An aggregate of 3,331,833 broker warrants were also issued, which converted into 882,935 Fiore Gold warrants exercisable at the same terms as above. The proceeds from the financing were placed into an escrow account and released to Fiore Gold upon completion of the Arrangement. 16

17 In September of 2017, the shareholders of GRP and Fiore Exploration approved the Arrangement. Upon closing of the Arrangement, 27,070,988 common shares of Fiore Gold were issued for the previously outstanding Fiore Exploration common shares, in addition to the 14,777,078 common shares issued for the financing proceeds noted above. Success fees were paid to the GRP and Fiore Exploration advisors in the cumulative amount of 1,605,921 common shares of Fiore Gold. Total consideration paid was $41.68 million, inclusive of transaction costs $1.06 million capitalized into the total consideration. The Arrangement was accounted for in accordance with IFRS 2, Share Based-Payments. The Arrangement is considered to be a reverse takeover of Fiore Exploration by GRP. A reverse takeover transaction involving a non-public operating entity and a non-operating public company is in substance a share-based payment transaction, rather than a business combination. The transaction is equivalent to the issuance of equity instruments (shares, stock options and warrants) by GRP for the net assets and eventual public listing status of the non-operating company, Fiore Exploration. The fair value of the shares issued was determined based on the fair value of the common shares issued by GRP. Comparative figures presented within these consolidated financial statements are those of GRP. Total consideration paid was $41.68 million, inclusive of $1.51 million of share based compensation expense on assumed options and transaction costs of $1.06 million capitalized into the total consideration. Consideration given in excess of the net fair value of the assets received ($28.33 million) of $13.35 million has been recorded as a non-cash listing expense on the consolidated statements of loss and comprehensive loss for the year ended September 30, The following table summarizes the purchase price and allocated value of assets liabilities acquired, including a bridge loan from Fiore Exploration to GRP of CAD$6.00 million issued during July 2017, in thousands: September 26, Allocation of Purchase Price: 2017 Cash and Cash Equivalents $ 14,271 Mineral Properties 9,331 GRP Bridge Loan Receivable 4,844 Other Long-Term Assets 233 Other Current Assets 136 Current Liabilities (483) $ 28, Inventories The following table provides the components of inventories in thousands: September 30, 2017 September 30, 2016 Materials and Supplies $ 265 $ 174 Heap Leach In-Circuit 5,209 - Finished Goods Total Inventories $ 5,849 $ 174 As of September 30, 2017, and 2016, all inventories were recorded at cost. As of September 30, 2017, production-related inventories included $0.31 million of capitalized non-cash depreciation costs. The period-end market value of the Company s production-related inventories is determined in part by using expected realizable gold prices and is highly sensitive to this input. A decline in metal price levels, a reduction in recovery rates and/or an increase in production costs on a per unit basis could result in, or contribute to, a future write-down of production-related inventories. 17

18 5. Prepaid Expenses and Other Assets Prepaid expenses and other current assets and other long-term assets consisted of the following in thousands: September 30, 2017 September 30, 2016 Prepaid Expenses and Other Current Assets Prepaid Expenses $ 967 $ 960 Advanced Royalties (Pan) (Note 7) Total Prepaid Expenses and Other Current Assets $ 1,796 $ 1,926 Other Long Term Assets Deposits $ Advanced Royalties (Gold Rock) (Note 7) Total Other Long Term Assets $ 450 $ Mineral Property, Plant and Equipment Mineral property, plant and equipment consisted of the following in thousands: Mineral Properties Plants & Equipment Mining Properties Construction in Progress Land Total For the year ended September 30, 2017 Opening, Net Book Value $ 2,489 $ 1,966 $ 707 $ 98 $ 1,014 $ 6,274 Acquired Assets 9, ,331 Additions 3, ,653 7,101 Transfers ,658 (1,733) - Disposals Translation Adjustment (25) (25) Depreciation (247) (494) - (99) - (840) Ending, Net Book Value $ 14,790 $ 1,753 $ 707 $ 1,657 $ 2,934 $ 21,841 As of September 30, 2017 Cost 15,060 2, ,762 2,934 22,820 Accumulated Depreciation (270) (604) - (105) - (979) Net Book Value $ 14,790 $ 1,753 $ 707 $ 1,657 $ 2,934 $ 21,841 Mineral Properties Plants & Equipment Mining Properties Construction in Progress Land Total For the year ended September 30, 2016 Opening, Net Book Value $ - $ - $ - $ - $ - $ - Acquired Assets 2,606 1, ,367 Additions (94) ,014 1,046 Disposals Depreciation (23) (110) - (6) - (139) Ending, Net Book Value $ 2,489 $ 1,966 $ 707 $ 98 $ 1,014 $ 6,274 As of September 30, 2016 Cost 2,512 2, ,014 6,413 Accumulated Depreciation (23) (110) - (6) - (139) Net Book Value $ 2,489 $ 1,966 $ 707 $ 98 $ 1,014 $ 6,274 18