PHILIPPINE METALS INC. (formerly New Meridian Mining Corp.) CONSOLIDATED FINANCIAL STATEMENTS (Unaudited Prepared by Management)

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1 CONSOLIDATED FINANCIAL STATEMENTS (Unaudited Prepared by Management) NINE MONTH PERIOD ENDED DECEMBER 31, 2010

2 MANAGEMENT S COMMENTS ON UNAUDITED INTERIM FINANCIAL STATEMENTS The accompanying unaudited interim consolidated financial statements of Philippine Metals Inc. as at December 31, 2010 and for the nine months ended December 31, 2010 and 2009 have been prepared by and are the responsibility of the Company s management. In accordance with National Instrument , the Company discloses that its auditors have not reviewed the accompanying unaudited interim consolidated financial statements for the nine months ended December 31,

3 CONSOLIDATED BALANCE SHEETS (Unaudited Prepared by Management) December 31, 2010 March 31, 2010 (Audited) ASSETS Current assets Cash $ 3,678,742 $ 6,635,579 Restricted cash 5,006 5,097 Receivables 35,972 28,106 Prepaid expenses and advances 130,585 38,319 3,850,305 6,707,101 Equipment (Note 3) 115,746 63,944 Mineral properties (Note 4) 4,468,268 3,092,361 $ 8,434,319 $ 9,863,406 LIABILITIES AND SHAREHOLDERS EQUITY Current liabilities Accounts payable and accrued liabilities $ 50,724 $ 344,297 Accounts payable to related parties (Note 5) 59, , , ,321 Shareholders equity Capital stock (Note 6) 12,318,907 12,268,907 Contributed surplus (Note 6) 1,267, ,236 Share subscriptions receivable - - Deficit (5,261,952) (3,508,058) Basis of presentation (Note 2) The accompanying notes are an integral part of these consolidated financial statements. 8,324,074 9,211,085 $ 8,434,319 $ 9,863,406 2

4 CONSOLIDATED STATEMENTS OF OPERATIONS, COMPREHENSIVE LOSS AND DEFICIT (Unaudited Prepared by Management) Three Month Period Ended December 31, 2010 Three Month Period Ended December 31, 2009 Nine Month Period Ended December 31, 2010 Nine Month Period Ended December 31, 2009 EXPENSES Accounting and audit (Note 5) $ 23,874 $ 12,402 $ 57,814 $ 36,148 Administration (Note 5) 9,538 11,175 41,380 28,992 Amortization 15,813 7,858 41,982 24,184 Consulting fees (Note 5) 6, ,335 11,398 Insurance 7,832 7,259 22,553 21,777 Interest expense - 1,216-1,216 Investor relations (Note 5) 116,651 15, ,789 45,675 Legal (Note 5) 15,914-52,173 51,389 Management fees (Note 5) 64,625 92, , ,025 Office and miscellaneous 28,280 18,814 97,587 53,677 Rent and utilities (Note 5) 27,495 12,608 71,460 39,594 Stock-based consideration 178, ,883 - Telephone 5,712 2,966 14,896 9,409 Transaction costs ,000 Transfer agent and filing fees 17,422 2,000 34,031 2,145 Travel and related costs 7,937 10,526 73,633 29,250 Wages and benefits 9,114 5,624 20,492 15,561 Loss before other items (534,866) (200,726) (1,763,858) (585,440) OTHER ITEMS Foreign exchange gain (loss) (22,344) (17,512) 3,023 (25,959) Interest income 1, , (20,960) (17,487) 9,964 (25,845) Loss and comprehensive loss for the period (555,826) (218,213) (1,753,894) (611,285) Deficit, beginning of period (4,706,126) (2,312,332) (3,508,059) (1,919,260) Deficit, end of period $ (5,261,953) $ (2,530,545) $ (5,261,953) $ (2,530,545) Basic and diluted loss per common share $ (0.01) $ (0.01) $ (0.05) $ (0.02) Weighted average number of common shares outstanding 38,810,206 35,959, ,758,669 35,959,201 The accompanying notes are an integral part of these consolidated financial statements. 3

5 CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited Prepared by Management) Three Month Period Ended December 31, 2010 Three Month Period Ended December 31, 2009 Nine Month Period Ended December 31, 2010 Nine Month Period Ended December 31, 2009 CASH FLOWS FROM OPERATING ACTIVITIES Loss for the period $ (555,826) $ (218,213) $ (1,753,894) $ (611,285) Items not affecting cash: Amortization 15,813 7,858 41,982 24,184 Accrued interest expense - 1,216-1,216 Stock-based consideration 178, ,883 - Changes in non-cash working capital items: Increase (decrease) in accounts receivable 16,649 (2,195) (7,866) (2,195) Increase in prepaid expenses and advances (43,833) (13,274) (92,266) (29,617) Increase (decrease) in accounts payable and accrued liabilities (79,316) 19,345 (277,428) 17,621 Increase (decrease) in accounts payable to related parties (13,410) (11,747) (209,660) 40,185 Net cash used in operating activities (481,828) (217,010) (1,482,249) (559,891) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of capital stock - 202, ,100 Share issue costs - (2,417) (86,816) (3,291) Promissory note - 100, ,000 Net cash provided by financing activities - 300,029 (86,816) 726,809 CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of equipment (890) - (93,784) (168) Mineral properties (508,822) (122,229) (1,294,079) (351,269) Restricted cash (6) Net cash used in investing activities (509,718) (122,229) (1,387,772) (351,437) Increase (decrease) in cash during the period (991,546) (39,210) (2,956,837) (184,519) Cash, beginning of period 4,670, ,263 6,635, ,572 Cash, end of period $ 3,678,742 $ 139,053 $ 3,678,742 $ 139,053 Supplemental disclosure with respect to cash flows (Note 10) The accompanying notes are an integral part of these consolidated financial statements. 4

6 1. NATURE OF OPERATIONS Philippine Metals Inc. (formerly New Meridian Mining Corp., the Company ) is an exploration stage public company and is listed for trading on the TSX Venture Exchange, NEX Board. On April 7, 2010, the Company s listing transferred from the NEX Board to TSX-Venture Tier 2. The Company s business is the exploration and development of mineral properties. On March 25, 2010, the Company completed its reverse takeover transaction with Philippine Metals Corp. ( PMC ). Other than the PMC properties, the Company has no other properties under development. These consolidated financial statements reflect the reverse takeover of the Company by PMC. PMC was incorporated under the laws of the Province of Alberta and its principal business activity is the exploration of its mineral property interests located in the Philippines. 2. BASIS OF PRESENTATION These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Significant inter-company balances and transactions are eliminated upon consolidation. The interim period consolidated financial statements have been prepared by the Company in accordance with Canadian generally accepted accounting principles. All financial summaries included are presented on a comparative and consistent basis showing the figures for the corresponding period in the preceding year. The preparation of financial data is based on accounting principles and practices consistent with those used in the preparation of annual consolidated financial statements, with the addition of the policies listed below. Certain information and footnote disclosure normally included in financial statements prepared in accordance with Canadian generally accepted accounting principles has been condensed or omitted. These interim period statements should be read together with the audited consolidated financial statements and the accompanying notes included in the Company's latest annual filing. In the opinion of the Company, its unaudited interim consolidated financial statements contain all adjustments necessary in order to present a fair statement of the results of the interim periods presented. The Company is in the process of exploring and developing its mineral properties and has not yet determined whether the properties contain mineral reserves that are economically recoverable. The recoverability of the amounts shown for mineral properties and related deferred exploration costs are dependent upon the existence of economically recoverable reserves, the ability of the Company to obtain necessary financing to complete the development of those reserves and upon future profitable production. These consolidated financial statements have been prepared 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 foreseeable future. The continuing operations of the Company are dependent upon its ability to continue to raise adequate financing and to commence profitable operations in the future. 5

7 2. BASIS OF PRESENTATION (cont d ) Change in accounting policy Effective April 1, 2009 the Company adopted the following accounting standards updates issued by the Canadian Institute of Chartered Accountants ( CICA ). Goodwill and intangible assets (Section 3064) In February 2008, the CICA replaced Section 3062 Goodwill and other intangible assets with Section 3064 Goodwill and intangible assets. This section provides the definition and establishes standards for the recognition, measurement and disclosure of goodwill and intangible assets. Accounting for goodwill and intangible assets following a business combination remains unchanged. Section 3064 also provides guidance for accounting for internally generated intangible assets. This section applies to interim and annual financial statements relating to fiscal years beginning on or after October 1, 2008 (the Company s 2010 fiscal year). Application of this standard did not have a material effect on the Company s financial statements. Amendment to Financial Instruments Disclosures CICA Handbook Section 3862, Financial Instruments Disclosures was amended to require disclosure about the inputs used in making fair value measurements, including their classification within a hierarchy that prioritizes their significance. The three levels of the fair value hierarchy are: Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities; Level 2 Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and Level 3 Inputs that are not based on observable market data. The Company has included the disclosure recommended by the new Handbook Section in Note 8 to these consolidated financial statements. New accounting pronouncements Business combinations (Section 1582), Consolidated financial statements (Section 1601) and Non-controlling interests (Section 1602) In January 2009, the CICA issued Handbook Sections 1582 Business Combinations, Section 1601 Consolidated Financial Statements and 1602 Non-controlling Interests which replaces CICA Handbook Sections 1591 Business Combinations and 1600 Consolidated Financial Statements. Section 1582 establishes standards for the accounting for business combinations that is equivalent to the business combination accounting standard under International Financial Reporting Standards ( IFRS ). Section 1582 is applicable for the Company s business combinations with acquisition dates on or after January 1, Early adoption of this Section is permitted. Section 1601 is applicable for the Company s interim and annual financial statements for its fiscal year beginning April 1, Early adoption of this Section is permitted. If the Company chooses to early adopt any one of these sections, the other two sections must also be adopted at the same time.. 6

8 2. BASIS OF PRESENTATION (cont d ) New accounting pronouncements (cont d ) International financial reporting standards ( IFRS ) In 2006, the AcSB published a new strategic plan that will significantly affect financial reporting requirements for Canadian companies. The AcSB strategic plan outlines the convergence of Canadian GAAP with IFRS over an expected five year transitional period. In February 2008, the AcSB announced that 2011 is the changeover date for publicly-listed companies to use IFRS replacing Canada s own GAAP. The date is for interim and annual financial statements relating to fiscal years beginning on or after January 1, The transition date of April 1, 2011 will require the restatement for comparative purposes of amounts reported by the Company for the year ended March 31, While the Company has begun assessing the adoption of IFRS for 2011, the financial reporting impact of the transition to IFRS cannot be reasonably estimated at this time. 3. EQUIPMENT December 31, 2010 March 31, 2010 Cost Accumulated Amortization Net Book Value Cost Accumulated Amortization Net Book Value Computer equipment $ 36,418 $ 26,751 $ 9,667 $ 29,281 $ 19,606 $ 9,675 Office furniture and equipment 12,587 10,580 2,007 12,587 7,677 4,910 Transportation equipment 82,332 42,891 39,441 73,308 30,970 42,338 Exploration software 10,116 1,654 8, Exploration equipment 83,405 27,236 56,169 15,899 8,878 7,021 $ 224,858 $ 109,112 $ 115,746 $ 131,075 $ 67,131 $ 63,944 7

9 4. MINERAL PROPERTIES Taurus Dilong Malitao Suhi Total Acquisition costs, March 31, 2010 $ 900,056 $ 674,217 $ 715,813 $ 283,384 $ 2,573,470 Additions during the period 289, ,907 46, , ,216 Acquisition costs, December 31, ,189, , , ,535 3,152,686 Deferred exploration costs, March 31, , , ,710 9, ,891 Additions during the period: Administration 3, ,855 Assaying 7, ,858 Camp costs 14, ,124 Community relations 24,021 1,260 10,514 2,990 38,785 Consulting 97,804 14,950 21,071 27, ,310 Drilling 213, ,682 Field personnel 12, ,704 Geochemical 41, ,904 99,227 Geophysics 63, ,988 GIS 4,510 26, ,623 Land tax 6, ,690 16,822 Licenses & permits 27-50,908 11,900 62,835 Mapping & sampling 20, ,784 25,339 Supplies 8, ,264 Telecommunications Travel and related 25,669 5,033 2, , ,601 47,789 85, , ,691 Deferred exploration costs, December 31, , , , ,975 1,315,582 Total mineral properties, December 31, 2010 $ 1,999,076 $ 970,364 $ 968,318 $ 530,510 $ 4,468,268 8

10 4. MINERAL PROPERTIES (cont d ) Title to mineral properties involves certain inherent risks due to the difficulties of determining the validity of certain claims as well as the potential for problems arising from the frequently ambiguous conveyancing history characteristic of many mineral properties. The Company has investigated title to all of its mineral properties, and, to the best of its knowledge, title to all of its properties, except as described below, are properly registered and in good standing. The Company has entered into a letter of intent ( LOI ) dated November 18, 2007 with Metex Mineral Resources Corporation ( Metex ) wherein Metex will assign, subject to the provisions of the LOI, all its rights, title, and interests in certain mining tenements/tenement applications in the Philippines (namely the Taurus, Malitao and Dilong properties) to the Company. Taurus project Metex entered into an exclusive option agreement with Citigroup Philippines Corporation ( Citigroup ) whereas Metex has been given an exclusive option ( Exclusive Option ) to acquire an Application for Exploration Permit ( the Leyte EXPA ) subject to certain terms and conditions. Pursuant to the LOI, Metex agreed to assign the Leyte EXPA to the Company. Any remaining payment obligations of Metex under the Exclusive Option with respect to the Leyte EXPA were assumed by the Company. The obligations to Citigroup under the Exclusive Option are as follows: 1. Pay US$700,000 over a period of 4 years payable to Citigroup in accordance with the following schedule: a. US$100,000 within 30 days from and after the execution of the Deed of Assignment (paid in fiscal 2008); b. US$200,000 on the first Anniversary date of the Deed of Assignment (paid in fiscal 2009); c. US$200,000 on the second Anniversary date of the Deed of Assignment (US$60,000 paid in fiscal 2010 and US$140,000 in fiscal 2011); and d. US$200,000 on the third Anniversary date of the Deed of Assignment (January 31, 2011) (US$5,000 and US$45,000 paid in fiscal 2010 and fiscal 2011, respectively). 2. Pay the sum of US$1,500,000 payable to Citigroup upon the actual commencement of commercial mining operations. 3. Pay 1.5% Net Smelter Royalty ( NSR ) on all recovered metals for the life of the mine. The Company has also assumed monthly payments of US$5,000 to Citigroup. The monthly payments under this item will be deductible from each of the US$200,000 payments and will cease when the US$700,000 has been paid. As consideration for the Leyte EXPA, the Company issued 2,500,000 common shares to Metex with a value of $500,000 and was required to pay US$100,000 upon completion of an Initial Public Offering by the Company on a recognized stock exchange (paid in April 2010). The shares were initially held in escrow and were released to Metex upon approval of the Leyte EXPA by the DENR of an exploration permit in the Company s name. 9

11 4. MINERAL PROPERTIES (cont d ) Malitao property Pursuant to the LOI, Metex has agreed to supersede the terms and conditions under a Memorandum of Agreement with Al Magan Mining Exploration Corp. ( AMMEC ) in respect of an Exploration Permit Application in the Province of Apayao ( Malitao EXPA ) and entered into an agreement with AMMEC and the Company. Under the new agreement dated July 14, 2008, AMMEC agreed to sell, transfer, assign and convey the legal title and all rights and privileges conferred under the Malitao EXPA. The Company paid AMMEC US$75,000 upon the execution of the Deed of Assignment by AMMEC. Upon approval and granting by the DENR of the Exploration Permit ( Malitao EP ), the Company will pay AMMEC a total of US$550,000. The instalments are as follows: 1. US$275,000, payable upon granting of the Malitao EP; 2. US$91,667, payable one year after the date of approval of the Malitao EP; 3. US$91,667, payable two years after the date of approval of the Malitao EP; and 4. US$91,666, payable three years after the date of approval of the Malitao EP. The Company is required to pay AMMEC monthly payments of US$5,000 after execution of the new agreement until the approval and issuance of the Malitao EP to the Company, provided that the total cumulative amount of such monthly payments will be considered as advances made by the Company to AMMEC to be credited to the US$275,000 payment payable upon granting of the Malitao EP. The monthly advance of US$5,000 will cease once the cumulative amount advanced by the Company equals or exceeds US$275,000. As of December 31, 2010, the Company paid US$145,000 to AMMEC. AMMEC will be entitled to a Royalty of 1% of Gross Proceeds of Products. The Company will have the right to purchase 50% of 1% Gross Proceeds of Products for a total amount of US$5,000,000. The Company issued 2,500,000 common shares to Metex with a value of $500,000. These shares are held in escrow and are to be released to Metex upon the following events: i) AMMEC s giving binding consent to the assignment of the rights and obligations of Metex between Metex and AMMEC in favour of the Company (completed on July 14, 2008); and ii) The Mines and Geosciences Bureau granting of the Malitao EP (which can be either to AMMEC or to the Company depending on whether the Company has met all payment obligations to AMMEC). 10

12 4. MINERAL PROPERTIES (cont d ) Dilong property Pursuant to the LOI between Metex and the Company, Metex agreed to transfer Exploration Permit No.36 located in Dilong ( Dilong EXPA ) to the Company. Metex has been assigned by the Heirs of Valeriano Damasen ( Heirs ) to Metex under a Deed of Assignment dated June 5, Under this Deed of Assignment between Metex and the Heirs, the Heirs will be entitled to a 1% Gross Smelter Royalty. The Company has assumed Metex s obligations on the underlying agreement between Metex and the Heirs. Under the underlying agreement, the Company is required to pay the Heirs: 1) US$2,500 per month until the Dilong EXPA application is approved; 2) US$25,000 upon formal and final approval of the EXPA application by the Secretary of Environment and Natural Resources ( First Payment ). The cumulative amount of the monthly payments outlined in (a) will be applied as a deduction from the First Payment. 3) US$25,000 per year on each anniversary date of the First Payment up to a maximum of US$375,000. As at December 31, 2010, the Company paid a total of US$92,500 and therefore payment of the First Payment is not required. As consideration for the Dilong EXPA, the Company issued 2,500,000 common shares to Metex with a value of $500,000. These shares are held in escrow and will be released to Metex upon approval by the Department of Environment and Natural Resources of the: i) Assignment of the Dilong EXPA to the Company (completed on July 28, 2008);and ii) The approval of an Exploration Permit in the Company s name; and The Company is also required to: 1) pay to Metex US$100,000 upon completion of the US$2,000,000 financing of the Company at US$0.50 per share (paid in fiscal 2008); and 2) pay to Metex US$100,000 upon completion of the Initial Public Offering by the Company on a recognized stock exchange (paid in April 2010). 11

13 4. MINERAL PROPERTIES (cont d ) Suhi property On November 5, 2008, the Company entered into an agreement with Canaan Richfield Inc ( CRI ) to purchase all mineral rights to the Copper-Gold-Zinc Prospects covered by certain exploration permit applications comprising but not limited to the Suhi Exploration Project in the Philippines. During the period of this agreement the Company will have the right to conduct exploratory and evaluation work on the property. In consideration for the exclusive option, the Company is required to pay the following: 1) US$25,000 upon signing a letter of intent (paid in fiscal 2009); 2) US$25,000 upon signing of a formal purchase agreement (paid in fiscal 2009); 3) US$25,000 within 30 days of the execution of the deed of Assignment (paid in fiscal 2009); and 4) US$600,000, half of which is payable in the Company s shares over a three-year period, according to the following schedule: a) US$37,500 and issuance of 46,875 common shares within 30 days of the execution of the deed of assignment (paid US$37,500 and issued 46,875 common shares for a value of $23,438 in fiscal 2009); b) US$62,500 and issuance of 78,125 common shares on the first anniversary date of assignment (November 5, 2009) (Paid US$62,500 and issued 78,125 common shares with a value of $23,438 in fiscal 2010); c) US$100,000 and issuance of 125,000 common shares on the second anniversary date of assignment (November 5, 2010) (Paid US$100,000 and issued 125,000 common shares with a value of $50,000 in fiscal 2011); d) US$100,000 and issuance of 125,000 common shares on the third anniversary date of assignment (November 5, 2011) (Paid US$7,500 as of December 31, 2010). The Company is required to pay monthly payments of US$2,500 to CRI. The monthly payments are deductible from the US$600,000 payment and will cease when the US$600,000 has been paid. As of December 31, 2010, the Company has paid a total of US$7,500 which will be applied to the US$100,000 payment due on November 5, The Company will pay CRI US$1,500,000 prior to the start up of any mining operations and a 1.5% NSR for the life of the mine. The Suhi exploration permits were approved and granted to the Company in June

14 5. RELATED PARTY TRANSACTIONS During the nine month period ended December 31, 2010, the Company entered into the following transactions with related parties: a) Paid or accrued to companies controlled by directors of the Company $43,750 ( $72,000) in management fees and $43,750 ( $nil) in consulting fees of which $24,875 ( $nil) were capitalized to mineral properties. b) Paid or accrued to an officer of the Company $16,875 ( $43,750) in management fees and $95,625 ( $28,125) in consulting fees, which were capitalized to mineral properties. c) Paid or accrued to a company controlled by an officer of the Company $53,725 ( $59,900) in management fees and $16,500 ( $7,150) in consulting fees, which were capitalized to mineral properties. d) Paid or accrued $51,500 ( $30,000) in management fees to a company controlled by an officer of the Company. e) Paid or accrued $54,000 ( $54,000) in administration and accounting fees to a company controlled by an officer and director of the Company. f) Paid or accrued $11,145 ( $11,445) in rent to a company with a common director. g) Paid or accrued $45,675 ( $45,675) in investor relations fees and $10,200 ( $nil) in rent to a company in which two directors of the Company are principals. h) Paid or accrued $85,358 ( $53,388) in legal fees of which $38,991 ( $nil) were capitalized to mineral properties to law firms in which the Company s and its subsidiary s corporate secretaries are partners. Amounts due to related parties are due to officers and companies controlled by directors and officers, are unsecured, are non-interest bearing and have no specific terms of repayment. These transactions were conducted in the normal course of operations and were measured at the exchange value which represented the amount of consideration established and agreed to by the related parties. 13

15 6. CAPITAL STOCK AND CONTRIBUTED SURPLUS Number of Shares Capital Stock Contributed Surplus Authorized Unlimited common voting shares, no par value Unlimited preferred shares Common shares issued Balance, March 31, ,732,760 $ 12,268,907 $ 450,236 Shares issued for mineral property interests 125,000 50,000 Stock-based compensation ,883 Balance, December 31, ,857,760 $ 12,318,907 $ 1,267,119 During the nine month period ended December 31, 2010, pursuant to the Suhi property agreement the Company issued 125,000 common shares to CRI on November 5, 2010 with a value of $50,000. During the year ended March 31, 2010, the Company completed the following private placements: a) As part of the Transaction, between February 24, 2010 and March 22, 2010, the Company completed four tranches of a private placement (the "Private Placement") issuing a total of 16,017,667 subscription receipts ("Subscription Receipts") at a price of $0.45 per Subscription Receipt for aggregate gross proceeds of $7,207,950. Immediately preceding the closing of the Transaction each Subscription Receipt entitled the holder to receive one common share and one half warrant, with each whole warrant entitling the holder to acquire one common share at a price of $0.65 until February 24, The Company paid the agent a cash commission of $283,600, a cash bonus fee of $50,000 and issued 720,253 compensation options valued at $133,599 entitling the agent to purchase 720,253 common shares at a price of $0.55 per share expiring on August 24, The fair value of the compensation options was determined using the Black-Scholes option pricing model with the following assumptions: risk-free rate of 1.63%, expected dividend yield of 0%, annualized volatilities of % and expected life of 1.5 years. The Company incurred finders fees of $61,085, of which $19,033 was settled in cash after the year-end and $42,052 by the issue of 93,450 Subscription Receipts. In connection with the Private Placement, the Company incurred additional professional adviser and other related expenses amounting to $175,426. b) The Company completed three tranches of private placements issuing a total of 2,125,331 common shares at $0.30 for gross proceeds of $637,600. In connection with the private placements, the Company issued a total of 47,733 common shares as finders fees with a value of $14,320 and, on November 13, 2009, issued to the subscribers of common shares under each of the three tranches of the private placement, one half warrant for each common share purchased, equivalent to 1,062,667 full common share purchase warrants. The warrants are exercisable at $0.60 any time for two years from the date of issue. The Company incurred additional share issue costs of $3,290 in connection to these tranches of private placements. 14

16 6. CAPITAL STOCK AND CONTRIBUTED SURPLUS (cont d ) c) The Company issued 78,125 common shares with a value of $23,438 pursuant to the Suhi property agreement as outlined in Note 4. Warrants There were no warrants issued during the nine month period ended December 31, During the year ended March 31, 2010 in connection with the Transaction, immediately prior to completion, the Company issued to its financial adviser 207,162 success warrants valued at $45,792 entitling the financial adviser to purchase 207,162 common shares at a price of $0.525 per share expiring on March 24, The fair value of the success warrants was determined using the Black-Scholes option pricing model with the following assumptions: risk-free rate of 1.63%, expected dividend yield of 0%, annualized volatilities of % and expected life of 2 years. Shares held in escrow On completion of the Transaction 14,308,432 shares were subject to an escrow agreement, which provides for the release from escrow of 10% of such escrowed shares on April 5, 2010 and 15% every six months thereafter for a period of 36 months. As at December 31, 2010, there were 10,731,325 shares held in escrow. Stock Options The Company has an incentive stock option plan under which it is authorized to grant options to executive officers and directors, employees and consultants equal to up to 10% of the issued and outstanding common shares of the Company. The terms upon which any options issued under the plan are subject to vesting provisions determined by the board of directors. The term of any options granted may not exceed 10 years and their exercise price will be determined by the board of directors pursuant to the policies of the TSX Venture Exchange. During the nine month period ended December 31, 2010 the Company granted 70,000 stock options with an exercise price of $0.45, which expire on September 15, 2015 and 170,000 options with an exercise price of $0,45, which expire on December 6, Number of Options Weighted Average Exercise Price Outstanding at March 31, ,720,000 $ 0.45 Granted 240, Exercised - Outstanding at December 31, ,960,000 $

17 6. CAPITAL STOCK AND CONTRIBUTED SURPLUS (cont d ) Stock Options (cont d) The following stock options were outstanding on December 31, 2010: Number of options Exercise Price Expiry Date 3,720,000 $ 0.45 March 25, ,000 $ 0.45 September 15, ,000 $ 0.45 December 6, 2015 Stock-Based Compensation Total stock-based compensation recognized under the fair value method was $1,340,067 ( $nil) using the Black-Scholes option pricing model. The stock-based compensation will be recognized over the option s vesting period. The stock-based compensation expense for the nine month period was $816,882 ( $nil), leaving an unamortized balance of $252,340 ( $nil). The following weighted average assumptions were used in the Black-Scholes option-pricing model calculation of the fair value of stock options granted during the year: Risk-free interest rate 2.23% 2.86% Expected life of options 5 years 5 years Annualized volatility % % Dividend rate - - Warrants Number of warrants Weighted Average Exercise Price Outstanding at March 31, ,784,895 $ 0.64 Granted - Exercised - Outstanding at December 31, ,784,895 $

18 6. CAPITAL STOCK AND CONTRIBUTED SURPLUS (cont d ) Warrants (cont d) The following warrants to acquire common shares were outstanding on December 31, 2010: Number of Warrants Exercise Price Expiry Date 1,666,670 $ 0.60 October 21, ,062,667 $ 0.60 November 13, ,055,558 $ 0.65 February 24, ,784,895 Success Warrants and Compensation Options Number of warrants Weighted Average Exercise Price Outstanding at March 31, ,415 $ 0.54 Granted - Exercised - Outstanding at December 31, ,415 $ 0.54 The following success warrants and compensation options were outstanding on December 31, 2010: Number of Warrants and Options Exercise Price Expiry Date Compensation options issued pursuant to the Private Placement 720,253 $ 0.55 August 24, 2011 Success warrants issued pursuant to the Transaction 207,162 $ March 25, ,415 17

19 7. CAPITAL MANAGEMENT The Company considers its components in shareholders equity as capital. The Company s objective when managing capital is to maintain adequate levels of funding to support the development of its business and maintain the necessary corporate and administrative functions to facilitate these activities. This is done primarily through equity financing, selling assets, and incurring debt. Future financings are dependent on market conditions and there can be no assurance the Company will be able to raise funds in the future. The Company invests all capital that is surplus to its immediate operational needs in short-term, high liquid, high-grade financial instruments. There were no changes to the Company s approach to capital management during the year. The Company is not subject to externally imposed capital requirements. The Company currently has adequate sources of capital to complete its exploration plan for the upcoming fiscal year, current obligations and ultimately the development of its business. 8. FINANCIAL INSTRUMENTS AND RISK The Company s financial instruments consist of cash, restricted cash, accounts payable and accrued liabilities and accounts payable to related parties. The fair value of these financial instruments approximates their carrying values due to their short term to maturity. The fair values of cash and restricted cash are based on level 1 inputs of the fair value hierarchy. The Company s risk exposures and the impact on the Company s financial instruments are summarized below: Credit risk Financial instruments that potentially subject the Company to a significant concentration of credit risk consist primarily of cash. The Company limits its exposure to credit loss by placing its cash with major financial institutions. Liquidity risk The Company s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when due. As at December 31, 2010, the Company had a cash balance of $3,678,742 ( $139,053) available to settle current liabilities of $110,245 ( $344,739). All of the Company s financial liabilities have contractual maturities of 30 days or due on demand and are subject to normal trade terms. Market risk Market risk is the risk of loss that may arise from changes in market factors such as interest rates, foreign exchange rates, and commodity prices. (a) Interest rate risk The Company has cash balances and no interest-bearing debt and therefore is not exposed to risk in the event of fluctuations. 18

20 8. FINANCIAL INSTRUMENTS AND RISK (cont d ) Market risk (cont d) (b) Foreign currency risk The Company operates in Canada and the Philippines and is therefore exposed to foreign exchange risk arising from transactions denominated in foreign currencies. The operating results and the financial position of the Company are reported in Canadian dollars. The fluctuations of the operating currencies in relation to the Canadian dollar will, consequently, have an impact upon the reported results of the Company and may also affect the value of the Company s assets and liabilities. The Company has not entered into any agreements or purchased any instruments to hedge possible currency risk. (c) Price risk The Company is exposed to price risk with respect to commodity prices. Commodity price risk is defined as the potential adverse impact on earnings and economic value due to commodity price movements and volatilities. The Company closely monitors commodity prices, and the stock market to determine the appropriate course of action to be taken by the Company. 9. SEGMENTED INFORMATION The Company has one reportable operating segment, being the acquisition and exploration of mineral properties. Details of identifiable assets by geographic segments are as follows: Total Assets Capital Assets Mineral Property Interests Other Assets December 31, 2010 Canada $ 3,744,438 $ 9,986 $ - $ 3,734,452 The Philippines 4,689, ,760 4,468, ,853 $ 8,434,319 $ 115,746 $ 4,468,268 $ 3,850,305 March 31, 2010 Canada $ 6,281,285 $ 779 $ - $ 6,280,506 The Philippines 3,582,121 63,165 3,092, ,595 $ 9,863,406 $ 63,944 $ 3,092,361 $ 6,707,101 19

21 10. SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS The significant non-cash transactions during the nine month period ended December 31, 2010 were as follows: a) Included in mineral properties is $35,080 recorded in accounts payable and accrued liabilities and $6,400 recorded in accounts payable to related parties. b) The Company issued 125,000 common shares pursuant to the Suhi property agreement with a value of $50,000. The significant non-cash transactions during the nine month period ended December 31, 2009 were as follows: a) Included in mineral properties is $10,860 recorded in accounts payable and accrued liabilities and $3,292 recorded in accounts payable to related parties. b) The Company issued 78,125 common shares pursuant to the Suhi property agreement with a value of $23,