Condensed Interim Consolidated Financial Statements For the three months ended March 31, 2018 and 2017 (Expressed in Canadian Dollars) (Unaudited)

Transcription

1 Condensed Interim Consolidated Financial Statements and 2017 (Unaudited)

2 CONDENSED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Unaudited) Page 2 As at Notes March 31, 2018 December 31, 2017 $ $ ASSETS Cash 4,533, ,476 Receivable and refundable taxes 3, 4 12,897,146 10,607,151 Inventories 5 10,031,949 13,580,341 Investment in securities 6 7,261,766 8,536,072 Prepaid expenses, and other 897, ,365 35,622,443 34,348,405 Mineral property, plant and equipment 8 30,505,328 18,692,716 Resource property costs 9 30,301,809 29,259,411 Other assets 9 22,482 33,165 96,452,062 82,333,697 LIABILITIES Accounts payable and accrued liabilities 31,133,937 24,099,797 Due to related parties ,783 1,404,740 Loan 13 83,746, ,090,149 25,504,537 Deferred tax liability 219, ,349 Loan 13 70,879,955 Provision for reclamation and rehabilitation 12 6,764,642 6,594, ,074, ,146,191 SHAREHOLDERS' DEFICIT Share capital ,254, ,254,224 Contributed surplus 10 24,181,014 18,817,046 Accumulated other comprehensive income 18,481,365 18,878,921 Deficit (191,539,106) (181,762,685) (25,622,503) (20,812,494) 96,452,062 82,333,697 Nature of operations and going concern (Note 1) Events after the reporting period (Note 17) Approved on behalf of the Board of Directors: Akiba Leisman Director (Chair of the audit committee) John Pontius Director The accompanying notes are an integral part of these condensed interim consolidated financial statements.

3 CONDENSED INTERIM CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS (Unaudited) Page 3 For the three months ended March 31, Notes $ $ Revenue 7,924,535 32,619,291 Cost of sales Production costs 14 (a) (7,883,291) (9,842,046) Inventory write down 5 (2,066,047) (1,089,945) Depreciation, depletion and amortization (2,075,764) (19,402,171) (12,025,102) (30,334,162) Gross (loss) gain (4,100,567) 2,285,129 Operating and administrative expenses Accounting and legal (85,050) (149,029) Exploration expenses (1,349,763) (1,076,531) General administrative expenses 11, 14 (b) (255,416) (473,474) Management and consulting fees 11 (289,717) (706,117) Salaries and benefits 10(c) & 11(a) (114,394) (70,892) Transfer agent fees and regulatory fees (43,847) (1,035) (2,138,187) (2,477,078) Other (expenses) and income Accretion and interest expense 12 & 13 (2,911,224) (1,560,185) Change in fair value of Deferred Consideration Receivable 4 4,428 10,912 Foreign exchange gain 525,162 2,053,469 Change in fair value of marketable securities 6(b) (3,902) 2,882 Loss on the settlement of Loan 13 (562,990) Interest and other income 30,580 69,764 (2,354,956) 13,852 Net loss for the period (8,593,710) (178,097) Other comprehensive (loss) income for the period: Items not subject to reclassification into statement of loss Change in fair value of marketable securities, net of taxes (1,270,404) (1,594,055) Items subject to reclassification into statement of loss Cumulative translation adjustment, net of taxes 872,848 (1,237,071) Other comprehensive loss for the period: (397,556) (2,831,126) Comprehensive loss for the period (8,991,266) (3,009,223) Basic and diluted loss from continued operations per share $ (0.05) $ (0.00) Weighted average number of shares outstanding 171,568, ,927,719 The accompanying notes are an integral part of these condensed interim consolidated financial statements.

4 CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOW Page 4 For the three months ended March 31, Notes $ $ Cash provided by (used for): Operating Activities Net loss for the period (8,593,710) (178,097) Non cash items 15 8,642,603 22,049,321 48,893 21,871,224 Changes in non cash working capital Receivable and refundable taxes (1,944,566) (1,078,213) Prepaid expenses, and other (247,551) (134,139) Inventories 7,739,146 (3,901,823) Accounts payable and accrued liabilities (2,550,815) 1,776,876 Due to / from related parties (504,110) (408,239) 2,540,997 18,125,686 Investing Activities Interest received 42,627 Purchase of investment securities (1,180,067) Expenditures on resource property costs (224,047) Expenditures on mineral property, plant and equipment (11,088,029) (5,831,364) Other assets 11,467 (15,474) (11,300,609) (6,984,278) Financing Activities Common shares purchased and returned to treasury (535,425) Loan received 12,152,700 Loan repaid (9,857,650) 12,152,700 (10,393,075) Net increase in cash 3,393, ,333 Cash beginning of period 974,476 1,708,222 Foreign exchange gain on cash 166,102 62,484 Cash end of period 4,533,666 2,519,039 Supplemental disclosure with respect to cash flows (Note 15) The accompanying notes are an integral part of these condensed interim consolidated financial statements.

5 CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY Page 5 Shareholders' Equity Accumulated other Number of Contributed comprehensive shares Amount surplus income / (loss) Deficit Total $ $ $ $ $ Balance, December 31, ,927, ,234,314 17,619,203 19,235,265 (132,261,818) 28,826,964 Common shares returned to treasury (797,000) (535,425) (535,425) Share based payments 45,743 45,743 Other comprehensive loss (2,831,126) (2,831,126) Net loss (178,097) (178,097) Balance, March 31, ,130, ,698,889 17,664,946 16,404,139 (132,439,915) 25,328,059 Common shares returned to treasury (562,500) (444,665) (444,665) Share based payments 88,897 88,897 Gain on Wexford Loan modification 1,063,203 1,063,203 Other comprehensive income 2,474,782 2,474,782 Spin out of Sailfish (10,253,051) (10,253,051) Net loss (39,069,719) (39,069,719) Balance, December 31, ,568, ,254,224 18,817,046 18,878,921 (181,762,685) (20,812,494) IFRS 9 transition adoption on January 1, ,627,027 (1,182,711) 3,444,316 Balance, January 1, 2018 (restated) 171,568, ,254,224 23,444,073 18,878,921 (182,945,396) (17,368,178) Other comprehensive loss (397,556) (397,556) Gain on Wexford Loan 717, ,789 Share based payments 19,152 19,152 Net loss (8,593,710) (8,593,710) Balance, March 31, ,568, ,254,224 24,181,014 18,481,365 (191,539,106) (25,622,503) The accompanying notes are an integral part of these condensed interim consolidated financial statements.

6 Page 6 1. NATURE OF OPERATIONS AND GOING CONCERN Marlin Gold Mining Ltd. ( Marlin Gold or the Company ) is a public company listed on the TSX Venture Exchange ( TSX V ) under the symbol MLN. The Company is incorporated and domiciled in British Columbia, Canada. The address of its registered and head office is Suite Burrard Street, Vancouver, B.C. V7X 1J1. The Company is primarily engaged in the exploration for, development of and production of gold in Mexico and exploration of gold and silver in Arizona. On December 22, 2017, the Company completed the spin out of Sailfish Royalty Corp. ( Sailfish ) whereby the shares in Sailfish were distributed to the shareholders of the Company (refer to Note 7). These condensed interim 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 foreseeable future. The Company incurred a net loss of $8,593,710 (2017 $178,097) for the three months ended March 31, As at March 31, 2018, the Company had an accumulated deficit of $191, and working capital deficit of $79,467,706. With the collection of its valueadded taxes (IVA), additional advances from Wexford Spectrum Investors LLC ( WSI ) and Wexford Catalyst Trading Limited ( WCT ) (together the Wexford Funds ) ( Wexford Loan ) (refer to Notes 13 and 19) and the cash flows being generated from the La Trinidad Mine, management believes that the Company will be able to continue to operate and meet its liabilities as they become due for the next twelve months. The Wexford Loans mature January 15, In the event that the cash flows generated from operations are not sufficient to fund operations for the next twelve months and to repay the loan and accrued interest on the maturity date, the Company will need to seek other forms of financing or renegotiate the maturity date of the Wexford Loans. The Company s controlling shareholder has provided approximately $162,856,000 of equity financings and loans to date. However, there are no assurances that these initiatives will be successful and while management is confident that financing will be available from the Company s controlling shareholder, when and if needed, no assurances have been given to that effect. A number of financing alternatives including, but not limited to, selling an interest in one or more of its properties, entering in to a loan or completing an equity financing are being evaluated with the objective of funding ongoing activities and obtaining additional working capital. This matter indicates the existence of material uncertainties that cast significant doubt about the Company's ability to continue as a going concern. These condensed interim consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence. Such adjustments could be material. These condensed interim consolidated financial statements were approved by the board of directors for issue on May 30, 2018.

7 Page 7 2. BASIS OF PRESENTATION AND CONSOLIDATION These condensed interim consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards ( IFRS ), as applicable to interim financial reports including International Accounting Standard 34 Interim Financial Reporting. Therefore, these condensed interim consolidated financial statements do not include all the information and note disclosures required by IFRS for annual financial statements and should be read in conjunction with the annual consolidated financial statements for the year ended December 31, 2017 ( 2017 Financial Statements ), which have been prepared in accordance with IFRS. The accounting policies applied in preparation of these condensed interim consolidated financial statements are the same as those applied in the most recent annual consolidated financial statements and were consistently applied to all the periods presented with the exception of IFRS 9 and IFRS 15 discussed below. These condensed interim consolidated financial statements are expressed in Canadian dollars and include the accounts of Marlin Gold Mining Ltd. and its subsidiaries. Subsidiaries are entities over which the Company has control. The Company controls a subsidiary when it is exposed, or has rights, to variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power over its subsidiary. The Company s subsidiaries are: Name of subsidiary Referred to as Place of Incorporation Proportion of Ownership Interest Principal Activity Marlin Gold Mining USA Ltd. "Marlin Mining" Canada 100% Parent of Commonwealth (US) Oro Gold de Mexico, S.A. de C.V. Oro Gold de Mexico Mexico 100% Holds mineral interests in Mexico Prestadora de Servicos Zacatecas, S.A. de C.V. Prestadora Mexico 100% Performs payroll functions in Mexico Exploracion y Desarrollo Minero Oro, S.A. de C.V. "EDM" Mexico 100% Inactive company in Mexico Marlin Gold Trading Inc. Marlin Gold Trading Barbados 100% Commodity streaming company Marlin Gold US Corporation "Marlin US" USA 100% Management services company Commonwealth Silver and Gold Corp. "Commonwealth (US)" USA 100% Holds mineral interest in USA Sailfish Royalty Corp. Sailfish British Virgin Islands 100% Royalty / streaming company (Disposed on December 22, 2017) All inter company transactions, balances, revenue and expenses are eliminated in full on consolidation. Adoption of new accounting policies The following accounting standards have been adopted as at January 1, 2018 in accordance with the transitional provisions outlined in the respective standards. IFRS 15 Revenue from contracts with customers The standard introduces a single, principles based, five step model for the recognition of revenue when control of goods is transferred to the customer. The five steps are: identify the contract(s) with the customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to each performance obligation and recognize revenue as each performance obligation is satisfied. The Company evaluated the effect the standard had on its sales recorded in its consolidated financial statements and determined there is no impact to the timing or amounts of revenue recognized in the consolidated statement of loss and comprehensive loss.

8 Page 8 2. BASIS OF PRESENTATION AND CONSOLIDATION (cont d) Adoption of new accounting policies (cont d) IFRS 15 Revenue from contracts with customers (cont d) The following is the accounting policy for revenue recognition under IFRS 15: Revenue recognition Revenue from contracts with customers be recognized upon the transfer of control over goods or services to the customer. IFRS 9 Financial Instruments The final version of IFRS 9, Financial Instruments, was issued in July 2014 to replace IAS 39, Financial Instruments: Recognition and Measurement. IFRS 9 has two measurement categories for financial assets: amortized cost and fair value. Classification is determined at initial recognition in one of the following categories: fair value through profit and loss ( FVTPL ), fair value through other comprehensive income ( FVOCI ) or at amortized cost. In addition, the standard amended some of the requirements of IFRS 7, Financial Instruments: Disclosures, including the requirement for added disclosures about investments in equity instruments measured at FVOCI and guidance on financial liabilities and derecognition of financial instruments. The Company adopted the standard on January 1, Retrospective application was required, but there was no requirement to restate comparative periods disclosed. The Company has assessed the classification and measurement of its financial assets and financial liabilities under IFRS 9 and have summarized the original measurement categories under IAS 39 and the new measurement categories under IFRS 9 in the following table: Measurement Categories IAS 39 IFRS 9 Cash Amortized cost Amortized cost Receivables Amortized cost Amortized cost Investment in marketable securities: Warrants FVTPL FVTPL Common shares AFS FVOCI Deferred consideration FVTPL FVTPL Accounts payable and accrued liabilities Amortized cost Amortized cost Due to related parties Amortized cost Amortized cost Loan Amortized cost Amortized cost The Company has elected to irrevocably designate on transition its investment in common shares marketable securities as FVOCI as they are not considered to be held for trading. As the Company is not restating prior periods, management has recognized the effects of modified retrospective application at the beginning of the reporting period that includes the date of initial application. Therefore, the adoption of IFRS 9 resulted in an increase in deficit of $1,182,711 and an increase to contributed surplus of $4,627,027 with a corresponding net adjustment of $3,444,316 to the Wexford Loan (Note 13) was recognized on January 1, 2018.

9 Page 9 2. BASIS OF PRESENTATION AND CONSOLIDATION (cont d) Adoption of new accounting policies (cont d) The following is the new accounting policy for financial instruments under IFRS 9: Financial instruments The Company recognizes financial assets and liabilities on the balance sheet when the Company becomes party to the contractual provisions of the instrument. Cash Cash includes cash on hand, deposits held with banks, and other short term highly liquid investments with original maturities of three months or less. Cash is classified and measured at amortized cost. Receivable, accounts payable and accrued liabilities, and due to related parties Receivable, accounts payable and accrued liabilities, and due to related parties are non interest bearing and are initially measured at fair value, subsequently recorded at amortized cost which approximates fair value due to the short term to maturity. Receivable are classified as financial assets measured at amortized cost and accounts payable and accrued liabilities, and due to related parties are classified as financial liabilities measured at amortized cost. Equity investments Equity investments in entities that are not subsidiaries, joint ventures or investments in associates are classified FVTPL unless they are irrevocably designated, on an individual basis, as FVOCI. These investments are measured at fair value on acquisition and at each reporting date. Any unrealized holding gains and losses related to long term investments designated as FVOCI included in other comprehensive income ("OCI"). Upon disposal, any accumulated gains and losses remain in equity. Derivatives Investments in warrants are classified as a derivate and is measured at fair value using the Black Scholes model ( BS model ) with changes in fair value recognized in the consolidated statement of loss and comprehensive loss. Debt The Company initially recognizes all financial liabilities at fair value and classifies them as subsequently measured at either FVTPL or amortized cost, as appropriate. For debt subsequently measured at amortized cost, the effective interest rate method is used. Debt required to be classified as FVTPL is measured at fair value on each financial period end date with gains and losses flowing through the consolidated statement of loss and comprehensive loss. For debt that is optionally classified as FVTPL, the part of the fair value change related to the Company s own credit risk is recorded in OCI rather than the consolidated statement of loss and comprehensive loss. Impairment of financial assets At each reporting date, the Company measures the loss allowance for the financial asset at an amount equal to the lifetime expected credit losses if the credit risk on the financial asset has increased significantly since initial recognition. If at the reporting date, the financial asset has not increased significantly since initial

10 Page BASIS OF PRESENTATION AND CONSOLIDATION (cont d) Adoption of new accounting policies (cont d) Impairment of financial assets (cont d) recognition, we measure the loss allowance for the financial asset at an amount equal to twelve month expected credit losses. Impairment losses on financial assets carried at amortized cost are reversed in subsequent periods if the amount of the loss decreases and the decrease can be objectively related to an event occurring after the impairment was recognized. Derecognition of financial assets Financial assets are derecognized when the investments mature or are sold, and substantially all the risks and rewards of ownership have been transferred. Gains and losses on derecognition of financial assets classified as FVTPL or amortized cost are recognized within other non operating income. Accumulated gains or losses on financial assets classified as FVOCI remain within accumulated other comprehensive income. New accounting standards issued but not yet effective The IASB issued the following new pronouncements that may affect the Company s future financial statements. The Company has evaluated the new standard and does not anticipate any material impact from the adoption of this standard but will continue to monitor as the adoption period approaches. 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, Key sources of estimation uncertainty and critical accounting judgement In preparing these condensed interim consolidated financial statements, management has made judgements and estimates that affect the application of the Company s accounting policies and the reported amounts of assets, liabilities, income and expense. Actual amounts incurred by the Company may differ from these values. The significant judgements made by management in applying the Company s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the 2017 Financial Statements.

11 Page RECEIVABLE AND REFUNDABLE TAXES March 31, 2018 December 31, 2017 $ $ Value added taxes (IVA) 12,727,506 10,371,481 Deferred Consideration Receivable (Note 4) 93,883 89,455 Other 75, ,215 12,897,146 10,607,151 IVA credit refundable is from the Government of Mexico and is currently calculated as 16% of expenditures in Mexico. 4. DEFERRED CONSIDERATION RECEIVABLE As part of the proceeds from the sale of the El Compas Gold Silver Mining Project ( El Compas ) the Company is to receive on each of the first three anniversaries of the closing date (October 30, 2015), 55 troy ounces of gold (or the US dollar equivalent) ( Deferred Consideration Receivable ). As at March 31, 2018, the fair value of the Deferred Consideration Receivable is $93,883 (December 31, 2017 $89,455) and is disclosed as a receivable in the statement of financial position. Changes in the fair value of the Deferred Consideration Receivable are recognized in the consolidated statement of loss and comprehensive loss., a gain in the change in the fair value of the Deferred Consideration Receivable of $4,428 (2017 $10,912) was recognized in the consolidated statement of loss and comprehensive loss. 5. INVENTORIES March 31, 2018 December 31, 2017 $ $ Ore in process 8,139,351 10,679,097 Finished metal inventory 598,445 1,466,564 Supplies and spare parts 1,294,153 1,434,680 10,031,949 13,580,341 As at March 31, 2018 and December 31, 2017, ore in process and finished metal inventory was recorded at net realizable value ( NRV )., the Company recorded write downs of $2,066,047 (2017 $1,089,945). As at March 31, 2018, ore in process is comprised of stockpile inventory of $436,390, (December 31, 2017 $391,483) and leach pad inventory of $7,702,961 (December 31, 2017 $10,287,614).

12 Page INVESTMENT IN SECURITIES Cost $ March 31, 2018 December 31, 2017 Fair Value $ Cost $ Fair value $ Golden Reign Resources Ltd. 36,297,264 (December 31, ,297,264) 5,227,601 7,259,455 5,227,601 8,529,859 common shares Canarc Resources Corp. 250,000 (December 31, ,000) warrants 10,575 2,311 10,575 6,213 Total 5,238,176 7,261,766 5,238,176 8,536,072 (a) Golden Reign Resources Ltd. ( Golden Reign ) On January 24, 2017, the Company purchased 5,363,931 common shares in Golden Reign for cost of $1,180,067. As at March 31, 2018, the Company held 36,297,264 (December 31, ,297,264) common shares of Golden Reign representing 18.51% of the issued and outstanding common shares of Golden Reign. The investment in Golden Reign is classified as FVOCI and is measured at fair value with changes in fair value recognized in other comprehensive income., the Company recorded a loss in the change in fair value of the Golden Reign shares of $1,270,404 (2017 $1,594,055) in other comprehensive income. On July 10, 2014, the Company, Sailfish and Golden Reign entered into a US$15,000,000 (the GRR Purchase Price ) Gold Streaming Arrangement (the GRR Arrangement ) for the construction and development of Golden Reign s San Albino gold deposit, located in Nueva Segovia, Nicaragua ( San Albino Property ). The GRR Purchase Price is only due once a preliminary cost assessment report has been provided for the development of the San Albino Property and has been approved by Sailfish. (Also refer to Notes 7 and 19). (b) Canarc Resources Corp. ( Canarc ) As at March 31, 2018, the Company owns 250,000 (December 31, ,000) warrants of Canarc. Each warrant entitles the holder to purchase one additional share at $0.12 and has an expiry date of March 3, The fair value of the Canarc warrants was calculated using the Black Scholes model ( BS Model )., the Company recorded a loss in the change in the fair value of the Canarc warrants of $3,902 (2017 gain of $2,882) in the consolidated statement of loss and comprehensive loss.

13 Page SPIN OUT OF SAILFISH On December 22, 2017, the Company completed the spin out of Sailfish, a wholly owned subsidiary of the Company, whereby the Company s ownership in Sailfish were distributed to the shareholders of the Company. Prior to the spin out, the Company subscribed to Sailfish common shares for $9,020,200 (US$7,000,000). The net asset value of Sailfish as at December 22, 2017 was as follows: $ Cash 8,920,900 Advances to the GRR Arrangement (a) 1,398,451 Other assets 58,674 Accounts payable (170,254) Net asset 10,207,771 Reclassification of foreign currency translation on spin out 45,280 Total value distributed to the Company s shareholders 10,253,051 (a) Advances to the GRR Arrangement On October 7, 2015, the Company entered into an agreement with Golden Reign (Refer to note 6(a)) whereby the Company will advance a minimum of US$516,600 to provide working capital to advance Golden Reign s San Albino gold deposit. All funds advanced under this agreement will be credited against the GRR Purchase Price pursuant to the GRR Arrangement and will earn interest at 8% per annum. As at December 22, 2017, the Company had advanced $1,398,451 (US$1,093,051). The advance is included in the total value distributed to the Company s shareholders. (Also refer to Note 17). (b) On December 18, 2017, the Company has agreed to make available to Sailfish a term facility in a maximum amount of US$14,000,000 to be applied to the GRR Purchase Price. The facility earns interest at a rate of 8% per annum ( Facility ) and is repayable three years after the first draw down on the Facility. As at March 31, 2018, no amount was drawn on the Facility. (Also refer to Note 17).

14 Page MINERAL PROPERTY, PLANT AND EQUIPMENT Mine Property Building Equipment Vehicles Total $ $ $ $ $ Opening net book value 16,762,915 21,594 1,767, ,588 18,692,716 Translation adjustment 683, ,597 3, ,474 Additions 11,966,149 3,525 11,969,674 Depreciation charge (794,946) (84,671) (12,919) (892,536) Closing net book value 28,617,735 22,195 1,734, ,328 30,505,328 As at March 31, 2018 Cost 89,641,000 25,834 3,276, ,212 93,734,084 Accumulated depreciation (61,023,265) (3,639) (1,541,968) (659,884) (63,228,756) Net book value 28,617,735 22,195 1,734, ,328 30,505,328 Mine Property Building Equipment Vehicles Total $ $ $ $ $ For the year ended December 31, 2017 Opening net book value 4,654,537 24,327 1,098, ,664 5,899,577 Translation adjustment (1,235,481) (1,557) (97,789) (8,955) (1,343,782) Additions 32,914,722 1,069, ,536 34,132,879 Write off fully depreciated (198,572) (198,572) Impairment (14,460,266) (14,460,266) Depreciation charge (5,110,597) (1,176) (103,690) (121,657) (5,337,120) Closing net book value 16,762,915 21,594 1,767, ,588 18,692,716 As at December 31, 2017 Cost 75,345,999 25,134 3,184, ,798 79,325,219 Accumulated depreciation (58,583,084) (3,540) (1,416,669) (629,210) (60,632,503) Net book value 16,762,915 21,594 1,767, ,588 18,692,716

15 Page MINERAL PROPERTY, PLANT AND EQUIPMENT (cont d) (a) Mine Property The Trinidad area is located in Sinaloa, Mexico and is comprised of 9 concessions, subject to the following agreements: Don Paulino Agreement Certain concessions, including the Trinidad area concessions, Nancy, Santa Cesilia and La Poderosa, are subject to an option to purchase agreement originally dated February 9, 2006, (as amended) (the Don Paulino Agreement ). Pursuant to the Don Paulino Agreement, the Company has the option to purchase all the concessions within nine years in consideration of an aggregate payment of US$600,000 and the grant of a 0.5% to 1.5% net smelter royalty ( NSR ) payable upon exercise of the option and once the Company has recovered its initial investment or the mine has been in production for 2 years. The NSR consideration will be 0.5% if the price per ounce of gold is less than US$400; 1% if the price is greater than US$400 but less than US$499.99; and price per ounce of gold is less than US$400; 1% if the price is greater than US$400 but less than US$499.99; and 1.5% if the price is equal or greater than US$500. The NSR can be purchased by the Company for US$1,000,000. Camargo Agreement Certain concessions, including La Nueva Trinidad and Nancy, are subject to an option to purchase agreement originally dated June 24, 2005, (as amended) (the Camargo Agreement ). Pursuant to the Camargo Agreement, the Company is required to make NSR payments to Minera Camargo S.A. de C.V. ranging from 0.5% to 1.0% payable upon the mine being in commercial production for two years. The NSR consideration will be 0.5% if the price per ounce of gold is less than US$400 and 1% if the price is greater than US$400. Each 0.5% NSR can be purchased by the Company for US$1,000,000. Following is a detailed breakdown of the mine property. As at Translation As at December 31, 2017 Additions adjustment March 31, 2018 $ $ $ $ Construction and mine costs 39,712, ,749 1,113,150 41,255,322 Deferred stripping costs 59,029,054 11,583,981 1,867,484 72,480,519 Provision for reclamation and rehabilitation 6,293,022 (47,581) 174,146 6,419,587 Capitalized borrowing costs 810,746 22, ,301 Pre commercial production loss 3,395,588 94,465 3,490,053 Reclassification from resource property costs 673,221 18, ,950 Property acquisition costs 395,992 11, , ,310,046 11,966,149 3,301, ,577,740 Depreciation (58,583,084) (794,946) (1,645,234) (61,023,264) Impairment (34,964,047) (972,694) (35,936,741) Total Mine Property 16,762,915 11,171, ,617 28,617,735

16 Page MINERAL PROPERTY, PLANT AND EQUIPMENT (cont d) (b) Impairment The Company conducted an impairment analysis whereby the carrying value of the La Trinidad Mine was compared to the mine s recoverable amount which was determined to be its VIU as at December 31, In carrying out the review of the La Trinidad Mine for impairment, the Company utilized discounted cash flow models incorporating estimates and assumptions that included such factors as future production levels, metallurgical recovery estimates, operating and capital costs in its life of mine plan, future metal prices, foreign exchange rates and discount rates. Management s estimate of the VIU of its CGUs is classified as level 3 in the fair value hierarchy. The Company s estimate of future cash flows is subject to risks and uncertainties and therefore could change in the future if the underlying assumptions change. The determination of VIU as at December 31, 2017, includes the following key applicable assumptions: Gold price per ounce: US$1,295; Operating and capital costs based on the resource report and estimated forecasts; Production volume and recoveries as indicated in the life of mine plan; Mine life until 2019; and a pre tax discount rate 10% The Company s analysis concluded that the carrying values of the La Trinidad Mine as at December 31, 2017 was impaired resulting in an impairment charge of $14,460,266 in the consolidated statement of loss and comprehensive loss. (c) Sensitivities The recoverable amount is most sensitive to changes in gold prices. A decrease in gold prices, recovery rates or recoverable ounces could result in the Company making amendments to the mine plan that would partially offset the effect of lower prices through lower operating and capital costs. Ignoring the impact on our mine plan, in isolation, a US$50 decrease in gold price assumptions would result in additional reductions in the recoverable amount of approximately $2.9 million.

17 Page RESOURCE PROPERTY COSTS Commonwealth Other (a) (b) Total $ $ $ Balance December 31, ,027,996 7,231,415 29,259,411 Additions 224, ,047 Cumulative translation adjustment 612, , ,351 Balance March 31, ,640,812 7,660,997 30,301,809 Commonwealth Other (a) (b) Total $ $ $ Balance December 31, ,576,716 2,779,225 26,355,941 Additions 4,679,613 4,679,613 Cumulative translation adjustment (1,548,720) (227,423) (1,776,143) Balance December 31, ,027,996 7,231,415 29,259,411 On May 21, 2015, the Company acquired the interest in the Commonwealth Project and the Blue Jeep, San Ignacio and Six Mile Hill properties in Arizona, United States. (a) Commonwealth Project On February 11, 2011, Commonwealth (US), signed a definitive lease with option to purchase agreement (the Commonwealth Agreement ), with the underlying property owners to acquire an 88% interest in eight patented mining claims hosting the historic Commonwealth Mine and 100% of the mineral rights on ten adjoining unpatented mining claims in Cochise County, Arizona for total option payments of US$4,500,000. Upon acquiring Commonwealth (US) in 2015, the Company was required to make the remaining option payments pursuant to the Commonwealth Agreement totaling US$3,450,000 (paid) to the underlying property owners. During the year ended December 31, 2016, the Company completed the acquisition of the mineral claims per the Commonwealth Agreement by making the final option payments (US$3,250,000). Upon completion of the property option payments, title in the mining claims was transferred to the Company. These mineral claims are subject to a 2% NSR royalty on all mineral production from the unpatented mining claims and on 88% of mineral production from the patented mining claims, up to 1% of which can be bought back at any time at the Company s discretion for US$2,000,000 in two separate payments of US$1,000,000, each for 0.5%. The total US$4,500,000 in property option payments represents an advance against the future NSR and in the event that the property goes into production, the amount will be recovered as a credit for pre payment of the first US$4,500,000 of the NSR. The Company shall have the right to transfer its interest in the property at all times and the property can be abandoned by the Company at any time with no further amounts owing and no minimum work requirements.

18 Page RESOURCE PROPERTY COSTS (cont d) (a) Commonwealth Project (cont d) Prior to the Commonwealth Arrangement, Commonwealth (US) had completed the outright purchase of an additional 10% interest in the eight patented mining claims, covered by the Commonwealth Agreement, bringing the Company s interest to 98%. There is no NSR on the additional 10% interest. Commonwealth (US) had also acquired a 100% ownership interest in the mineral rights on twelve unpatented mining claims and mineral and surface rights on a private parcel of land, all adjoining the mining claims covered by the Commonwealth Agreement. During the year ended December 31, 2016, the Company acquired land and associated patented mining claims contiguous to the Commonwealth Project for a purchase price of US$750,000; and acquired the surface and mineral rights surrounding the patented mining claims of the Commonwealth Project for a purchase price of US$3,600,000. (b) Other Blue Jeep, San Ignacio, Six Mile Hill properties On January 25, 2011, Commonwealth (US) signed a definitive lease with option to purchase agreement (the Cartmell Agreement ), with the underlying property owners to acquire a 100% interest in the mineral rights on thirty four unpatented mining claims in Cochise County, Arizona for total option payments of US$2,000,000. These mining claims surround the historic Commonwealth Mine in Pearce, Arizona and include the Blue Jeep, San Ignacio and Six Mile Hill properties. The Blue Jeep property consists of ten contiguous mining claims known as Blue Jeep 1 through 9 and the Brindle Steer. The San Ignacio property consists of eighteen mining claims known as San Ignacio 1 through 18. The original Six Mile Hill property consists of six mining claims known as San Ramon 1 through 6 as well as the surrounding claims known as CWSG #1 through #35 and CWSG #38 and #39. In July 2017, the Company expanded the Six Mile Hill property to include an additional 18 mining claims known as CWSG #102 through #119 and the open State Trust Lands directly to the south. Upon acquiring Commonwealth (US) in 2015, the Company was required to make the remaining option payments pursuant to the Cartmell Agreement totaling US$1,350,000 (paid) to the underlying property owners. During the year ended December 31, 2016, the Company completed the acquisition of the mineral claims per the Cartmell Agreement by making the final option payments (US$1,250,000). Upon completion of the property option payments, title in the mining claims was transferred to the Company. These mineral claims are subject to a 2% NSR royalty on all mineral production, 1% of which can be bought back at any time at the Company s option for US$1,000,000. The total US$2,000,000 in property option payments represents an advance against the future NSR and in the event that the property goes into production, the amount will be recovered as a credit for pre payment of the first US$2,000,000 of the NSR. During the period ended December 31, 2017, the Company acquired land for a purchase price of $159,581 (US$120,506).

19 Page RESOURCE PROPERTY COSTS (cont d) (b) Other (cont d) Gavilanes Property On August 17, 2017, the Company completed the acquisition of the Gavilanes Property located in Durango State, Mexico from Santacruz Silver Mining Ltd. for total cash consideration of $4,520,032 (US$3,573,996). The property is subject to a 3% NSR, up to a maximum of $2,000,000. On February 28, 2018, the Company entered into an option agreement with SilverCrest Metals Inc. whereby the Company has the option to purchase all the Guadalupe concessions surrounding Gavilanes for US$500,000, payable as follows: US$100,000 on signing (paid); US$100,000 in 12 months; and US$300,000 in 24 months. Restricted cash A reclamation bond of $19,340 (US$15,000) (2017 $30,108 (US$24,000)) has been posted with Arizona s Bureau of Land Management, against any potential future land reclamation costs.

20 Page SHARE CAPITAL AND CONTRIBUTED SURPLUS (a) Authorized Unlimited number of common shares with no par value. (b) Issued share capital is as follows: (i) During the year ended December 31, 2017, the Company purchased 1,359,500 common shares of the Company under the normal course issuer bid ( NCIB ) for $980,090. As at December 31, 2017, 1,359,500 common shares acquired by the Company under the NCIB were cancelled. (c) Stock options The Company has a share option plan for its employees, directors, officers and consultants. The plan provides for the issuance of incentive options to acquire up to a total of 10% of the issued and outstanding common shares of the Company. The exercise price of each option shall not be less than the minimum prescribed amount allowed under the TSX V. The options can be granted for a maximum term of 5 years with vesting provisions determined by the Company. The continuity of incentive stock options issued and outstanding is as follows: Number of Options Weighted Average Exercise Price $ Outstanding December 31, ,030, Expired during period (30,000) 1.10 Outstanding December 31, 2017 and March 31, ,000, As at March 31, 2018, the Company has 6,000,000 stock options outstanding, each stock option entitling the holder to purchase a common share at a price of $0.15 per common share for a period of five years, expiring on February 5, On the grant date, 300,000 stock options vested immediately, and 300,000 stock options will vest at each quarter commencing on March 31, 2016 with the last tranche vesting on September 30, The incremental fair value of these options was calculated as $453,233 using the BS model. As at March 31, 2018, 3,000,000 (December 31, 2017, 2,700,000) options had vested. The Company recorded share based payments of $19,152 (2017 $45,743) for the three months ended March 31, 2018 which are included in salaries and benefits expense in the consolidated statement of loss and comprehensive loss. As of March 31, 2018, the following options were outstanding and vested: Exercise Prices $ Number of Options Outstanding Number of Options Exercisable Weighted Average Remaining Contractual Life (Years) Weighted Average Exercise Price $ ,000,000 3,000,

21 Page RELATED PARTIES (a) Key management compensation Key management comprises directors and executive officers. The compensation to key management was as follows: 2017 $ $ Short term employment benefits Director fees 15,000 15,000 Senior management 198, ,900 Share based payments 19,152 45,743 Total 232, ,643 Amounts due to key management as at March 31, 2018 were $59,165 (December 31, 2017 $56,665). (b) Related party transactions The Company entered into the following related party transactions: (i) During the three months ended March 31, 2018, fees relating to travel, investor relations and consulting services of $508,842 (US$400,231) (2017 $897,858 (US$678,447)) were charged by Sonoran Resources, LLC, a full service engineering, procurement and construction management firm working exclusively with the Company ( Sonoran ). Sonoran is a private company controlled by one director of the Company. Charges of $490,366 (US$385,266) (2017 $716,631 (US$549,188) are included in consulting fees and travel expenses of $18,477 (US$14,965) (2017 $181,227 (US$129,259) are included in general administrative expenses. During the three months ended March 31, 2018, fees of $Nil (2017 $72,282 (US$54,640) were charged by Sonoran as part of the working capital paid to advance the San Albino Property. (Refer to Note 9 (a)). On February 9, 2018, the Company terminated the services of Sonoran whereby it negotiated a settlement on the outstanding liability owed by the Company. The Company recorded a gain of $690,847 (US$548,291) on the settlement of the Sonoran liability outstanding. Amounts payable to Sonoran as at March 31, 2018 were $NIL (December 31, 2017 $1,348,075 (US$1,074,420).

22 Page RELATED PARTIES (b) Related party transactions (cont d) (ii) During the three months ended March 31, 2018, fees relating to consulting services of $430,394 (US$336,000) were charged by Tes Oro Mining Group, LLC, a full service engineering, procurement and construction management firm working exclusively with the Company ( Tes Oro ). Tes Oro is a private company controlled by one director of the Company. Amounts payable to Tes Oro as at March 31, 2018 were $NIL. (c) Transactions with controlling shareholder (i) As at March 31, 2018, the Wexford Funds held 145,965,387 common shares of the Company. On a non diluted basis and after giving effect to the above changes in equity, Wexford Funds ownership percentage has remained at 85.08% of the Company s issued and outstanding common shares as at March 31, (ii) During the three months ended March 31, 2018, the Company received additional loans from the Wexford Funds in the amount of $12,152,700 (US$9,500,000) (2017 repaid $9,857,650 (US$7,500,000)) and recorded interest expenses of $2,724,816 (2017 $1,448,942) and withholding taxes of $151,737 (2017 $92,521)) in the consolidated statement of loss and comprehensive loss. As at March 31, 2018, US$58,500,000 (December 31, 2017 US$49,000,000) in principal is payable by the Company to the Wexford Funds. (iii) Under a service agreement, effective January 1, 2015, between the Company and an affiliate of the Wexford Funds, the Company was charged $5,869 (US$4,641) (2017 $26,825 (US$20,227)) for shared office space and administration services for the three months ended March 31, Amounts payable to the affiliate of the Wexford Funds as at March 31, 2018 were $5,984 (US$4,641) (December 31, 2017 $Nil).

23 Page RECLAMATION AND REHABILITATION OBLIGATIONS The provision for environmental reclamation and rehabilitation as at March 31, 2018 is $6,764,643 (December 31, 2017 $6,594,350). The expected timing of cash flows in respect of the provision is based on the estimated life of the mining operation. The provision was determined using a discount rate of 2.18% (December 31, %) and estimated cash outflows commencing in 1.75 years ( years) for the La Trinidad Mine. 13. LOAN $ Balance December 31, ,393,826 Changes in estimate (438,650) Accretion expense 119,225 Cumulative translation adjustment (480,051) Balance December 31, ,594,350 Utilized during the period (47,581) Accretion expense 34,671 Cumulative translation adjustment 183,203 Balance March 31, ,764,643 March 31, 2018 $ December 31, 2017 $ Non current liability Wexford Loan 70,682,182 59,625,117 Accrued interest and related withholding taxes 13,064,247 11,254,838 Total loan 83,746,429 70,879,955 As at March 31, 2018, the Company had a loan due to Wexford Funds of $75,429,900 (US$58,500,000) (December 31, 2017 $61,470,500 (US$49,000,000). In addition to the principal amount owing to the Wexford Funds, the Company had interest and withholding taxes payable as at March 31, 2018 of $13,182,816 (US$10,223,993) (December 31, 2017 $11,395,288 (US$9,083,530). The Wexford Loan bears interest at a rate of 8% per annum. The Loan agreement had amendments: on August 21, 2015 the maturity date was amended from November 13, 2015 to January 15, 2017; on March 18, 2016 the interest rate was decreased from 15% to 8% per annum and the maturity date was extended to January 15, 2018, and on August 30, 2017 the maturity date was extended again to January 15, 2019, (collectively, the Amendments ). Under IAS 39, when an entity made such Amendments, it must decide whether this modification was significant enough to constitute an extinguishment (either qualitatively or where the change in present value of cash flows exceeded 10% in accordance with the entity s accounting policy). If the modification was considered an extinguishment of the initial debt, the new modified debt was recorded at fair value and a gain/loss recognized in income for the

24 Page LOAN (cont d) difference between the carrying amount of the old debt and the new debt. This extinguishment accounting remains the same under IFRS 9. However, accounting under the newly adopted IFRS 9 differs where the change was not significant enough to be an extinguishment. Under IAS 39, modifications would not lead to an immediate income charge because the entity would typically discount the cash flows of the modified debt at a revised effective interest rate. However, under IFRS 9, the cash flows under the modified debt should be rediscounted at the original effective interest rate. This leads to an immediate income charge on the date of modification. As the Wexford Funds are significant shareholders, management has recognized the gain/loss in equity as contributed surplus. Since the Company determined that the modification made on August 30, 2017 was not significant enough to be an extinguishment under IAS 39, the cash flows have had to be rediscounted at the original effective interest rate upon adoption of IFRS 9 on January 1, Therefore, upon adoption of IFRS 9, management determined that the August 30, 2017 amended terms changed the net present value of the loan on the modification date which resulted in a gain of $4,627,027 in contributed surplus and an accretion expense of $1,182,711 in deficit for the period from August 30, 2017 to January 1, 2018 in deficit. During the three months ended March 31, 2018, the Wexford Funds loaned the Company an additional $12,152,700 (US$9,500,000) increasing the Wexford Loan to US$58,500,000. The difference between the estimated fair value and the face value of the loans received in the three months ended March 31, 2018 was $717,789. As the Wexford Funds are significant shareholders, management recognized the total gain in equity as contributed surplus. During the three months ended March 31, 2018, the Company recorded $2,876,553 (2017 $1,541,464) of accreted interest and withholding taxes. At March 31, 2018, the Wexford Loan was recorded at amortized cost of $70,682,182 and includes accreted interest and withholding taxes of $13,064,247. During the year ended December 31, 2017, the Company repaid Wexford Funds $9,857,650 (US$7,500,000) and recorded a loss on settlement of $562,990 in the statement of profit and loss. The loss represents the difference in the book value of the Wexford Loan at the date of repayment and the face value of the loan. During the year ended December 31, 2017, the Company received additional loans from the Wexford Funds in the amount of $24,295,060 (US$19,000,000). The difference between the estimated fair value and the face value of the loans received in the year ended December 31, 2017 was $1,456,443. As the Wexford Funds are significant shareholders, management recognized the total gain of $1,063,203 in equity as contributed surplus.

25 Page PRODUCTION COSTS AND GENERAL ADMINISTRATIVE EXPENSES (a) Production costs is comprised of: For the three months ended March 31, $ $ Mining, crushing and conveying, and processing 6,005,994 7,889,077 Mine general and administrative 1,485,491 1,157,770 Laboratory 186, ,844 Refining 28, ,141 Selling expenses and silver credits 57,915 41,551 Royalty expenses and mining taxes 119, ,663 7,883,291 9,842,046 (b) General administrative expenses is comprised of: For the three months ended March 31, $ $ Bank charges and finance costs 26,122 11,322 Communications and investor relations 36, ,013 Directors' fees 15,000 15,000 Insurance expense 39,297 30,635 Office expenses 50,488 95,240 Rent 28,348 42,300 Telephone; IT services and supplies 7,386 47,120 Travel and promotion 52,548 97, , ,474