Consolidated Financial Statements For the years ended December 31, 2014 and December 31, 2013

Transcription

1 Consolidated Financial Statements For the years ended and December 31, 2013

2 Deloitte LLP Brookfield Place 181 Bay Street Suite 1400 Toronto ON M5J 2V1 Canada INDEPENDENT AUDITOR S REPORT Tel.: Fax: To the Shareholders of Adriana Resources Inc. We have audited the accompanying consolidated financial statements of Adriana Resources Inc., which comprise the consolidated statements of financial position as at and December 31, 2013, and the consolidated statements of comprehensive loss, consolidated statements of changes in equity and consolidated statements of cash flows for the years then ended, and a summary of significant accounting policies and other explanatory information. Management s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation 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 audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and 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. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of 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 in our audits is sufficient and appropriate to provide a basis for our audit opinion.

3 Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Adriana Resources Inc. as at and December 31, 2013, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards. Chartered Professional Accountants, Chartered Accountants Licensed Public Accountants February 26, 2015

4 Adriana Resources Inc. Consolidated Statements of Financial Position As at December 31, 2013 ASSETS Note Current assets Cash and cash equivalents 5 $ 36,365,818 $ 41,656,195 Investment in equity securities 1,875 35,000 Other receivables 59,113 81,637 Receivable from Lac Otelnuk Mining Ltd. 8 10,815 50,130 Prepaid expenses and deposits 74, ,605 36,511,696 41,952,567 Non-current assets Investment in Lac Otelnuk Mining Ltd. 4 41,092,700 39,243,848 Property, plant and equipment 6 4,760,626 4,779,733 $ 82,365,022 $ 85,976,148 LIABILITIES Current liabilities Accounts payable and accrued liabilities 13 $ 4,674,647 $ 4,468,062 4,674,647 4,468,062 EQUITY Share capital 7 130,005, ,005,004 Capital reserves 7,628,499 7,450,499 Accumulated deficit (52,395,075) (48,399,364) Equity attributable to owners of the Company 85,238,428 89,056,139 Non-controlling interests 6 (7,548,053) (7,548,053) 77,690,375 81,508,086 $ 82,365,022 $ 85,976,148 Commitments and contingencies (Note 11) The accompanying notes form an integral part of the consolidated financial statements. Approved on behalf of the Board of Directors: "Ronald P. Gagel" (signed) Director "Donald K. Charter" (signed) Director

5 Adriana Resources Inc. Consolidated Statements of Comprehensive Loss Year ended December 31, 2013 Note Expenses Change in fair value of financial assets hjclassified as fair value through profit or loss $ 33,125 $ 97,500 General and administrative 14 1,817,304 2,200,268 Impairment charge 6-49,559,136 Land care and maintenance 6 1,541,280 - Loss on disposal of property, plant xyand equipment Foreign exchange loss/(gain) 71,836 (55,882) Share-based payment expense 7 178, ,596 Share of loss of Lac Otelnuk Mining Ltd , ,648 Professional and consulting fees 600, ,503 Total expenses 4,642,093 53,470,457 Interest income 582, ,609 Gain on disposal of mineral property interests 4 63,848 2,850,958 Total loss and comprehensive loss for the year $ (3,995,711) $ (49,845,890) Attributable to: Owners of the Company (3,995,711) (29,742,954) Non-controlling interests - (20,102,936) $ (3,995,711) $ (49,845,890) (Loss) per common share attributable dsa to owners Basic and diluted 7 $ (0.03) $ (0.19) The accompanying notes form an integral part of the consolidated financial statements. Page 5

6 Adriana Resources Inc. Consolidated Statements of Changes in Equity Capital Accumulated Attributable to owners Non-controlling Share capital reserves deficit of the Company interests Total equity Balance, January 1, 2013 $ 130,005,004 $ 6,855,903 $ (18,656,410) $ 118,204,497 $ 12,036,083 $ 130,240,580 Share-based payment expense - 594, , ,596 Non-controlling interest in cash contributions to Land , ,800 Net loss and total comprehensive loss - - (29,742,954) (29,742,954) (20,102,936) (49,845,890) Balance, December 31, 2013 $ 130,005,004 $ 7,450,499 $ (48,399,364) $ 89,056,139 $ (7,548,053) $ 81,508,086 Share-based payment expense - 178, , ,000 Net loss and total comprehensive loss - - (3,995,711) (3,995,711) - (3,995,711) Balance, $ 130,005,004 $ 7,628,499 $ (52,395,075) $ 85,238,428 $ (7,548,053) $ 77,690,375 The accompanying notes form an integral part of the consolidated financial statements. Page 6

7 Adriana Resources Inc. Consolidated Statements of Cash Flows Year ended December 31, 2013 (restated) (Note 2) Operating activities Net (loss) $ (3,995,711) $ (49,845,890) Adjustments for: Interest income (582,534) (773,609) Amortization 21,657 28,490 Share of Lac Otelnuk Mining Ltd. loss 400, ,648 Impairment charge - 49,559,136 Share-based payment expense 178, ,596 Gain on disposal of mineral property interests (63,848) (2,850,958) Change in fair value of financial assets classified as fair value through profit or loss 33,125 97,500 Changes in non-cash working capital Receivables and prepaid expenses 117, ,480 Accounts payable and accrued liabilities 206,586 (466,466) (3,685,006) (2,670,073) Investing activities Decrease in restricted cash - 1,040,181 Land expenditures - (520,897) Office property, plant and equipment expenditures (2,551) (1,155) Investment in Lac Otelnuk Mining Ltd. (2,291,767) (13,191,336) Cash interest received 582, ,609 Receipt of refundable tax credit proceeds 106,413 4,751,597 (1,605,371) (7,148,001) Net change in cash and cash equivalents during the year (5,290,377) (9,818,074) Cash and cash equivalents, beginning of year 41,656,195 51,474,269 Cash and cash equivalents, end of year $ 36,365,818 $ 41,656,195 The accompanying notes form an integral part of the consolidated financial statements. Page 7

8 1. Nature of Operations Adriana Resources Inc. (along with its subsidiaries, Adriana or the Company ) was incorporated under the laws of British Columbia and continued under the Canada Business Corporations Act. The Company s principal holdings include the investment in a joint venture company, Lac Otelnuk Mining Ltd. ( LOM ), formed to develop the Lac Otelnuk iron ore property in Nunavik, Québec (the Lac Otelnuk Property ), and land associated with a proposed iron ore port facility in Brazil (the Land ). The Company s common shares (the Common Shares ) are listed on the TSX Venture Exchange under the symbol ADI. The Company s registered head office is 15 Toronto Street, Suite 1000, Toronto, Ontario, M5C 2E3, Canada. Adriana has no source of operating cash flows, has not yet achieved profitable operation, has accumulated losses to of $52,395,075 since its inception and expects to incur further losses in the development of its business. On January 12, 2012 Adriana closed a Joint Venture Agreement (the JV Agreement ) with a wholly-owned subsidiary of WISCO International Resources Development & Investment Limited ( WISCO ). LOM was established to proceed with the continued exploration of the Lac Otelnuk and December Lake properties (the Lac Otelnuk Project ). Pursuant to the JV Agreement, WISCO funded $51,633,611 directly to Adriana and $40,000,000 was paid to LOM. The interest in the Lac Otelnuk Project was transferred from Adriana to LOM. WISCO acquired a 60% interest in LOM, while Adriana holds the remaining 40% interest. LOM is accounted for as an investment in associate by Adriana, as the Company retains significant influence. The consolidated financial statements are presented in Canadian dollars except where otherwise indicated. 2. Basis of Preparation These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ( IFRS ) as issued by the International Accounting Standards Board ( IASB ), effective for the year ended. The consolidated financial statements of the Company for the year ended were approved and authorized for issue by the Board of Directors on February 26, The consolidated financial statements have been prepared on the historical cost basis except for certain financial instruments, which are measured at fair value, consistent with the Company s significant accounting policies. These consolidated financial statements have been prepared on a going concern basis. Management believes there are no uncertainties that lead to significant doubt the Company can continue as a going concern for at least the next twelve months, including continuity of operations, realization of assets and the satisfaction of liabilities in the ordinary course of business. These consolidated financial statements include the investment in associate (40% of LOM) and the accounts of the following subsidiaries, which were unchanged during the year: ADI Mining Limited 100% Brazore Resources Inc. 100% Brazore Holdings Ltd. ( Brazore Holdings ) 60% Brazore Representação, Importação, Exportação e Consultoria Ltda. ( Brazore Ltda. ) 56.1% (effective interest) Adriana Resources Mineracao Ltda. 100% Adriana Resources (BVI) Inc. (inactive) 100% Adriana Resources Mexico, SA de CV (inactive) 100% The 60%-owned subsidiary, Brazore Holdings, with its 93.5%-owned subsidiary Brazore Ltda. (56.1% effective interest), are collectively referred to as Brazore in these consolidated financial statements. Page 8

9 A change in the presentation of interest income on the statement of cashflows resulted in certain comparative figures being reclassified within operating activities, to conform with the presentation adopted in the current year. 3. Summary of Significant Accounting Policies a) Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company and its subsidiaries. Control is achieved when the Company: has power over the investee; is exposed, or has rights, to variable returns from its involvement with the investee; and has the ability to use its power to affect its returns. The Company reassesses whether or not it controls a subsidiary if facts and circumstances indicate that there are changes to one or more of the three above mentioned elements. Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of loss from the date the Company gains control until the date when the Company ceases to control the subsidiary. Loss is attributed to the owners of the Company and to the non-controlling interests. Total comprehensive loss of subsidiaries is attributed to the owners of the Company and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Company s accounting policies. All intercompany transactions, balances, income and expenses are fully eliminated on consolidation. b) Interest income Interest income from a financial asset is recognized when it is probable that the economic benefits will flow to the Company and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable. c) Foreign currencies The consolidated financial statements are presented in Canadian dollars. The individual financial statements of each entity are presented in their functional currency, which is the currency of the primary economic environment in which the entity operates. The functional currency of all of the Company s operations is the Canadian dollar. Transactions in foreign currencies are initially recorded at the functional currency rate of exchange at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange at the date of the statement of financial position and the impact is recorded in the statement of comprehensive (loss) or income. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rate at the date when the fair value is determined. Page 9

10 d) Property, plant and equipment (i) Land Land is held at cost less accumulated impairment losses. (ii) Office Office property, plant and equipment ( PPE ) is depreciated over the useful lives of the assets using the straight-line method. As of January 1, 2014, the Company changed its depreciation method from the declining balance to the straight-line method. This change in estimate has been applied prospectively and did not have a material effect on the current year, nor is it expected to have a material effect in subsequent periods. An item of PPE is derecognized upon disposal, when held for sale or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on disposal of the asset, determined as the difference between the net disposal proceeds and the carrying amount of the asset, is recognized in the consolidated statement of comprehensive (loss) or income. The Company conducts an annual assessment of the residual balances, useful lives and depreciation methods being used for PPE and any changes in estimates arising from the assessment are applied by the Company prospectively. e) Share-based payments Employees (including directors, senior executives and consultants, which meet the definition of employee under IFRS 2) of the Company receive a portion of their remuneration in the form of share-based payment arrangements, whereby employees render services as consideration for equity instruments ( equity-settled transactions ). In situations where equity instruments are issued and some or all of the goods or services received by the entity as consideration cannot be specifically identified, they are measured at the fair value of the sharebased payment using the Black-Scholes option pricing model. The costs of equity-settled transactions with employees are measured by reference to the fair value at the date on which they are granted. The costs of equity-settled transactions are recognized, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (the vesting date ). The cumulative expense is recognized for equity-settled transactions at each reporting date reflecting the Company s best estimate of the number of equity instruments that will ultimately vest. The charge or credit to the statement of comprehensive (loss) or income for a period represents the movement in cumulative expense recognized as at the beginning and end of that period, and the corresponding amount is reflected in capital reserves. f) Taxation Income tax expense represents the sum of tax currently payable and deferred tax. Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amounts are those that are substantively enacted on the date of the statement of financial position. Page 10

11 Deferred income tax is determined using the asset and liability method on temporary differences, at the date of the statement of financial position, between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax assets and liabilities are measured using substantively enacted tax rates and laws that currently apply to the year when the asset is expected to be realized or the liability is expected to be settled, as the case may be. Deferred income tax relating to items recognized directly in equity is recognized in equity and not in the statement of comprehensive (loss) or income. g) Income or loss per share The basic income or loss per share is computed by dividing the net income or loss attributable to the owners of the Company by the weighted average number of common shares outstanding during the period. The diluted income per share reflects the potential dilution of common share equivalents, such as outstanding stock options, share purchase warrants and convertible debentures, in the weighted average number of common shares outstanding during the period, if dilutive. h) Financial assets All financial assets are initially recorded at fair value and designated upon inception into one of the following four categories: held to maturity, available for sale, loans and receivables or at fair value through profit or loss ( FVTPL ). Financial assets classified as FVTPL are measured at fair value with unrealized gains and losses recognized in the statement of comprehensive (loss) or income. Financial assets classified as loans and receivables and held to maturity are measured at amortized cost using the effective interest method less any allowance for impairment. The effective interest method is a method of calculating the amortized cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and amounts paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset, or, where appropriate, a shorter period. Financial assets classified as available for sale are measured at fair value with unrealized gains and losses recognized in other comprehensive loss. When the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously accumulated in other comprehensive loss is reclassified to profit or loss. Transaction costs associated with FVTPL financial assets are expensed as incurred, while transaction costs associated with all other financial assets are included in the initial carrying amount of the asset. i) Financial liabilities All financial liabilities are initially recorded at fair value and designated upon inception as FVTPL or other financial liabilities. Financial liabilities classified as other financial liabilities are initially recognized at fair value less directly attributable transaction costs. After initial recognition, other financial liabilities are subsequently measured at amortized cost using the effective interest method. The effective interest method is a method of calculating the amortized cost of a financial liability and of allocating interest expense over the relevant period. The Page 11

12 effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability or, where appropriate, a shorter period. Financial liabilities classified as FVTPL include financial liabilities held for trading and financial liabilities designated upon initial recognition as FVTPL. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments. Transaction costs on financial liabilities classified as FVTPL are expensed as incurred. Fair value changes on financial liabilities classified as FVTPL are recognized through the statement of comprehensive (loss) or income. At the end of each reporting period subsequent to initial recognition, financial liabilities at FVTPL are measured at fair value, with changes in fair value recognized directly in the statement of comprehensive (loss) or income in the period in which they arise. j) Impairment of financial assets The Company assesses at each date of the statement of financial position whether there are indications that a financial asset is impaired. If there is objective evidence that an impairment loss on assets carried at amortized cost has been incurred, the amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows discounted at the financial asset s original effective interest rate. The carrying amount of the asset is then reduced by the amount of the impairment. The amount of the loss is recognized in the statement of comprehensive (loss) or income. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed to the extent that the carrying value of the asset does not exceed what the amortized cost would have been had the impairment not been recognized. Any subsequent reversal of an impairment loss is recognized in the statement of comprehensive (loss) or income. k) Impairment of non-financial assets At each statement of financial position date, the Company reviews the carrying amounts of its tangible and intangible assets to determine whether there is an indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. Where it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the assets belong. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognized immediately in the statement of comprehensive (loss) or income. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but not to exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or cash-generating unit) in prior years. An impairment of goodwill or other intangibles with no finite lives, however, is not subsequently reversed. Page 12

13 l) Cash and cash equivalents Cash and cash equivalents in the statement of financial position comprise cash at banks and on hand, and short-term deposits with an original maturity of three months or less, which are readily convertible into a known amount of cash. m) Provisions Provisions are recognized when the Company has a present obligation (legal or constructive) that has arisen as a result of a past event and it is probable that a future outflow of resources will be required to settle the obligation, provided that a reliable estimate can be made of the amount of the obligation. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risk specific to the obligation. Any increase in a provision due solely to the passage of time is recognized as interest expense. n) Related party transactions Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties may be individuals or corporate entities. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties. Related party transactions that are in the normal course of business and have commercial substance are measured at the exchange amount. o) Significant accounting judgments and estimates The preparation of these financial statements requires management to make judgments and estimates and form assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of expenses during the reporting period. On an ongoing basis, management evaluates its judgments and estimates in relation to assets, liabilities, revenues and expenses. Management uses historical experience and various other factors it believes to be reasonable under the given circumstances as the basis for its judgments and estimates. Actual outcomes may differ from these estimates under different assumptions and conditions. The most significant estimates relate to assessments of the recoverability and carrying value of the investments in LOM and the Land, depreciation of property, plant and equipment and the calculation of share-based payments. The most significant judgments relate to recoverability of capitalized amounts, provisions in respect of royalty agreements, recognition of deferred tax assets and liabilities, the determination of the economic viability of a project and the functional currencies of the underlying entities. Adoption of New and Amended Accounting Pronouncements The IASB recently issued a number of new accounting standards. The new standards determined to be applicable to the Company are disclosed below. Other standards have been excluded as they are not applicable. Page 13

14 (i) IFRIC 21, Levies IFRIC 21, Levies ( IFRIC 21 ) provides guidance on the accounting for levies within the scope of IAS 37, Provisions, Contingent Liabilities and Contingent Assets. Levies are imposed by governments in accordance with legislation and do not include income taxes, which are accounted for under IAS 12, Income Taxes or fines or other penalties imposed for breaches of legislation. IFRIC 21 defines an obligating event as the activity that triggers the payment of the levy, as identified by legislation. IFRIC 21 also notes a liability to pay a levy is recognized progressively if the obligating event occurs over a period of time. The Company adopted the interpretation effective January 1, The adoption did not have any impact on the consolidated financial statements. (ii) IFRS 2, Share-Based Payment IFRS 2, Share-Based Payment ( IFRS 2 ) was amended by the IASB on December 12, The amendments clarify the definition of vesting conditions. The amendments change the definitions of vesting condition and market condition in the Standard, and add definitions for performance condition and service condition. They also clarify that any failure to complete a specified service period, even due to the termination of an employee s employment or a voluntary departure, would result in a failure to satisfy a service condition. This would result in the reversal, in the current period, of compensation expense previously recorded reflecting the fact that the employee failed to complete a specified service condition. These amendments are effective for transactions with a grant date on or after July 1, The Company adopted the amendments effective July 1, The adoption of these amendments did not have an impact on the Company s consolidated financial statements. (iii) IAS 36, Impairment of Assets IAS 36, Impairment of Assets ( IAS 36 ) was amended by the IASB in May The amendments require the disclosure of the recoverable amount of impaired assets when an impairment loss has been recognized or reversed during the period and additional disclosures about the measurement of the recoverable amount of impaired assets when the recoverable amount is based on fair value less costs of disposal, including the discount rate when a present value technique is used to measure the recoverable amount. The Company adopted these amendments effective January 1, The adoption of these amendments did not have any impact on the consolidated financial statements. Adoption of New and Amended Accounting Pronouncements: Issued but not yet Effective The Company is currently evaluating the impact of these standards and amendments issued but not yet effective, on its consolidated financial statements: (i) IFRS 8, Operating Segments IFRS 8, Operating Segments ( IFRS 8 ) was amended by the IASB on December 12, The amendments add a disclosure requirement for the aggregation of operating segments and clarify the reconciliation of the total reportable segments' assets to the entity's assets. The amendments are effective for annual periods beginning on or after July 1, (ii) IFRS 9, Financial Instruments IFRS 9, Financial instruments ( IFRS 9 ) was issued by the IASB on July 24, 2014 and will replace IAS 39, Financial instruments: recognition and measurement ( IAS 39 ). IFRS 9 utilizes a single approach to determine whether a financial asset is measured at amortized cost or fair value and a new mixed measurement model for debt instruments having only two categories: amortized cost and fair value. The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of the financial assets. Final amendments Page 14

15 released on July 24, 2014 also introduce a new expected loss impairment model and limited changes to the classification and measurement requirements for financial assets. IFRS 9 is effective for annual periods beginning on or after January 1, (iii) IFRS 11, Joint Arrangements IFRS 11, Joint Arrangements ( IFRS 11 ) was amended by the IASB on May 6, The amendments add new guidance on how to account for the acquisition of an interest in a joint operation that constitutes a business. The amendments are effective for annual periods beginning on or after January 1, (iv) IFRS 13, Fair Value Measurement IFRS 13, Fair Value Measurement ( IFRS 13 ) was amended by the IASB on December 12, The amendments clarify that the portfolio exception applies to all contracts within the scope of IAS 39, Financial Instruments: Recognition and Measurement or IFRS 9, Financial Instruments, regardless of whether they are financial assets or financial liabilities. The amendments are effective for annual periods beginning on or after July 1, The adoption of these amendments is not expected to have an impact on the Company s consolidated financial statements. (v) IFRS 15, Revenue from Contracts with Customers IFRS 15, Revenue from Contracts and Customers ( IFRS 15 ) was issued by the IASB on May 28, 2014, and will replace IAS 18, Revenue, IAS 11, Construction Contracts, and related interpretations on revenue. IFRS 15 sets out the requirements for recognizing revenue that apply to all contracts with customers, except for contracts that are within the scope of the standards on leases, insurance contracts and financial instruments. IFRS 15 uses a control based approach to recognize revenue which is a change from the risk and reward approach under the current standard. Companies can elect to use either a full or modified retrospective approach when adopting this standard and it is effective for annual periods beginning on or after January 1, (vi) IAS 24, Related Party Disclosures IAS 24, Related Party Disclosures ( IAS 24 ) was amended by the IASB on December 12, The amendments clarify the identification and disclosure requirements for related party transactions when key management personnel services are provided by a management entity. The amendments are effective for annual periods beginning on or after July 1, The adoption of these amendments is not expected to have an impact on the Company s consolidated financial statements. 4. Investment in LOM The Lac Otelnuk property is located approximately 165 kilometres northwest of Schefferville, in the Nunavik region of northern Québec, and consists of 1,398 mineral claims totalling approximately 673 square kilometres. The December Lake property is comprised of 160 mineral claims totalling approximately 74 square kilometres, and is located approximately 65 kilometres from the Lac Otelnuk property and 230 kilometres north of Schefferville. The Lac Otelnuk iron deposit is a large Lake Superior-type taconite deposit. Watts Griffis and McOuat completed an updated mineral resource estimate in compliance with National Instrument in October The results show that the Measured and Indicated Mineral Resources increased to billion tonnes, based on a Davis Tube Weight Recovery cutoff grade of 18%. Effective January 12, 2012, Adriana has been accounting for LOM as an investment in associate. Pursuant to the JV Agreement, WISCO funded an aggregate of $91,633,611 of which $51,633,611 was paid directly to Adriana and the remaining $40,000,000 was paid to LOM. Adriana recognized a gain on the transfer of Page 15

16 its interest in the amount of $53,417,789. On January 22, 2013, Adriana made a further investment of $4,000,000 in LOM pursuant to a cash call from LOM. On October 16, 2013, Adriana made an additional investment of $9,191,336 in LOM pursuant to an additional cash call. On August 11, 2014, Adriana made an additional investment of $2,291,767 in LOM pursuant to an additional cash call. During the first quarter of 2014, Adriana received $108,532 from Revenu Québec representing refundable tax credits, and interest thereon, for resource expenditures incurred on the Lac Otelnuk Project in In periods prior to the receipt of these monies, the Company had not given accounting recognition to these credits, reflecting the uncertainty of the outcome of the review. Other than interest of $2,119, these amounts relate to expenditures incurred before the closing of the JV Agreement, and hence the period in which Adriana owned 100% of the Lac Otelnuk Project. Accordingly, 60%, amounting to $63,848, of the refunds received have been recorded as an additional gain on the sale of the Lac Otelnuk Project, while the remaining 40%, amounting to $42,565, has been recorded as a reduction in the carrying value of Adriana s investment in LOM. Similarly, in 2013 an amount of $4,332,402 was received from Revenu Québec and amounts of $340,792 and $78,403 were received from Québec s Ministere des Ressources Naturelles representing refundable tax credits, and interest thereon, for resource expenditures incurred on the Lac Otelnuk Project in 2008, 2011 and In periods prior to the receipt of these monies, the Company had not given accounting recognition to these credits, reflecting the uncertainty of the outcome of Revenu Québec s review. Other than interest, these amounts relate to expenditures incurred before the closing of the JV Agreement, and hence the period in which Adriana owned 100% of the Lac Otelnuk Project. Accordingly, 60%, amounting to $2,850,958, of the refunds received was recorded as an additional gain on the sale of the Lac Otelnuk Project, while the remaining 40%, amounting to $1,900,639, was recorded as a reduction in the carrying value of Adriana s investment in LOM. Adriana s 40% Investment in LOM is summarized as follows: Balance at January 1, 2013 $ 28,597,799 Investments made during ,191,336 Refundable tax credit received from Revenu Québec (1,732,961) Refundable tax credits received from Ministere des Ressources Naturelles (167,678) Share of loss from January 1, 2013 to December 31, 2013 (644,648) Balance at December 31, ,243,848 Refundable tax credit received from Revenu Québec (42,565) Investments made during ,291,767 Share of loss from January 1, 2014 to (400,350) Balance at $ 41,092,700 Summarized information with respect to LOM (at 100%) is set out below: December 31, 2013 Cash and cash equivalents $ 9,691,614 $ 18,665,631 Other current assets 158, ,718 Non-current assets 179,295, ,597,295 Total assets 189,145, ,756,644 Total liabilities (current) 1,726,433 3,065,778 Revenue - - Dividends paid - - Total comprehensive loss for the year ended (1,000,875) (1,611,620) Page 16

17 Property, plant and equipment for LOM (at 100%): December 31, 2013 Cost Balance, beginning of the year $ 166,795,421 $ 150,489,543 Additions 17,457,267 16,037,511 Refundable tax credit received from Revenu Quebec (4,507,780) - Capitalized depreciation 272, ,367 Balance, for the year ended $ 180,017,236 $ 166,795,421 Accumulated Depreciation Balance, beginning of the year $ 448,126 $ 175,028 Depreciation 273, ,098 Balance, for the year ended $ 721,727 $ 448, Cash and cash equivalents Carrying value, beginning of the year $ 166,347,295 $ 150,314,515 Carrying value, for the year ended $ 179,295,509 $ 166,347,295 Cash and cash equivalents in the statement of financial position comprise cash at banks and on hand, and short-term deposits with an original maturity of three months or less from the date of acquisition, which are readily convertible into a known amount of cash. December 31, 2013 Cash and bank balances $ 26,291,258 $ 26,470,737 Cash equivalents 10,074,560 15,185,458 $ 36,365,818 $ 41,656,195 Page 17

18 6. Property, Plant and Equipment The Company s property, plant and equipment assets consist of the following: Land Office Land Total Cost Balance, January 1, 2014 $ 189,718 $ 4,738,517 $ 4,928,235 Additions 2,551-2,551 Balance, $ 192,269 $ 4,738,517 $ 4,930,786 Accumulated amortization Balance, January 1, 2014 $ (148,502) $ - $ (148,502) Charge for the year (21,657) - (21,657) Balance, $ (170,159) $ - $ (170,159) Carrying value, January 1, 2014 $ 41,217 $ 4,738,517 $ 4,779,733 Carrying value, $ 22,109 $ 4,738,517 $ 4,760,626 Office Land Total Cost Balance, January 1, 2013 $ 232,632 $ 53,214,449 $ 53,447,081 Additions 1,145 1,040,341 1,041,486 Impairment charge (42,863) (49,516,273) (49,559,136) Disposals (1,196) - (1,196) Balance, December 31, 2013 $ 189,718 $ 4,738,517 $ 4,928,235 Accumulated amortization Balance, January 1, 2013 (120,574) - (120,574) Charge for the year (28,490) - (28,490) Disposals Balance, December 31, 2013 $ (148,502) $ - $ (148,502) Carrying value, January 1, 2013 $ 112,058 $ 53,214,449 $ 53,326,507 Carrying value, December 31, 2013 $ 41,217 $ 4,738,517 $ 4,779,733 The Company currently holds a 56.1% effective indirect interest in the Land through a 60% owned indirect subsidiary, Brazore Holdings, which owns a 93.5% interest in Brazore Ltda., the Company s Brazilian subsidiary which owns the Land. Through, the Company has incurred $42,676,306 of cumulative cash expenditures (December 31, 2013 $41,499,000) relating to the Land, including all out-of-pocket expenses. During the fourth quarter of 2013, management engaged a third party to undertake a market study and a real estate appraisal. Management concluded that the Brazil port development would not be economically viable in the foreseeable future. Management determined that the recoverable amount of the Land, reflecting the estimated fair value less costs to dispose, was $4,738,517 and the Company recognized an impairment charge of $49,559,136, before tax. Management received an updated appraisal on the Land as at, and did not identify any indicators of impairment or impairment reversal. The non-controlling interest of $7,548,053 will continue to be carried in a deficit balance until either Brazore has sufficient earnings to eliminate the deficit, or until the Company ceases to control this subsidiary. In the event that the Company ceases to control the subsidiary, any deficit balance in non-controlling interest will be recognized through a charge in the Company s statement of comprehensive loss. Page 18

19 The Company s Brazilian subsidiary, which holds the Land, is a defendant in certain legal actions in Brazil pursuant to which a third party is seeking the payment of approximately $3,200,000 under a conditional agreement entered into by the Company in 2008 for the purchase of certain lands. The Brazilian courts have put a lien in the amount of approximately $2,800,000 on a separate parcel of land owned by Brazore Ltda. as security in this dispute. The Company is vigorously defending itself including seeking the return of its initial payment of approximately $850,000 and the annulment of the agreement on the basis of misrepresentations therein. Although the ultimate outcome of these actions cannot be measured with reliability, and hence has not been taken into account in determining the impairment in 2013, it is the opinion of management of the Company that these claims are without merit and the resolution of these matters will not have a material adverse effect on the financial position of the Company. During the twelve month period ended, the Company expensed care and maintenance costs of $1,541,280 relating to administrative, security and employee severance payments in Brazil. Prior to December 31, 2013, amounts directly related to the development of the Land were capitalized to property, plant and equipment. 7. Share Capital and Share-based Payments a) Authorized: The Company is authorized to issue an unlimited number of Common Shares. b) Issued: The Company had 157,554,238 Common Shares issued and outstanding having a carrying value of $130,005,004 as at January 1, 2013, December 31, 2013 and. c) Options and Share Based Payments: Pursuant to the Company s stock option plan re-approved by the shareholders of the Company on June 12, 2014, options may be granted in respect of authorized and unissued shares provided that the maximum aggregate number of shares reserved for issuance and which may be purchased upon the exercise of all options shall not exceed 10% of the issued and outstanding Common Shares. As of, the maximum number of Common Shares which may be issued under the stock option plan is 15,755,423. The Company may grant options to directors, employees, or consultants. The exercise price per share shall be determined by the Company at the time the option is granted but, in any event, shall not be less than the closing price of the shares on the TSX Venture Exchange on the trading day immediately preceding the date of the grant of the option, unless the grant of the option occurs during a blackout period, in which case the exercise price per share shall not be less than the closing price of the shares on the TSX Venture Exchange on the second trading day immediately following the expiry of the blackout period. Options granted pursuant to the plan shall vest and become exercisable by an optionee in three tranches: one third of the number of options vesting in each of six, twelve and eighteen months following the date of grant. The continuity of options is as follows: Number of Weighted average options exercise price Balance,January 1, ,225,000 $ 0.71 Granted 1,550, Cancelled (475,000) 0.71 Expired (2,075,000) 1.00 Balance, December 31, ,225, Granted 1,925, Forfeited (16,667) 0.22 Expired (3,858,333) 0.41 Balance, 6,275,000 $ 0.51 Page 19

20 During the year ended, under the Black-Scholes method, the amount of $178,000 (2013 $594,596) in share-based payment expense was recorded for options granted in current and prior periods to officers, directors, employees and consultants. As of, the following options to purchase Common Shares were outstanding: Number of Weighted Weighted Average Number of Weighted Year of Options Average Remaining Contractual Options Average Expiry Outstanding Exercise Price Life in Years Exercisable Exercise Price , , , , ,375, ,375, ,525, ,525, ,925, , ,275,000 $ ,880,553 $ 0.61 The fair value of the options was calculated using the Black-Scholes option pricing model with the following assumptions: December 31, 2013 Expected volatility is estimated based on the average historical share price volatility for a period equal to the expected life of the option. d) Loss per Share: The basic loss per share for the year ended is $0.03 (loss per share for year ended December 31, 2013 $0.19). The calculation is based on the total loss for the year ended attributable to the owners of the Company of $3,995,711 (loss for the year ended December 31, 2013 $29,742,954) and on the weighted average number of Common Shares outstanding of 157,554,238 (December 31, ,554,238). There was a loss for the years ended and 2013, therefore the effect of the loss is anti-dilutive and the diluted loss per share remains $0.03 (December 31, 2013 $0.19). 8. Related Party Transactions Risk free interest rate 1.2% 1.6% Expected dividend yield 0.0% 0.0% Expected volatility 84.3% 115.7% Pre-vest forfeiture rate 10.8% 7.9% Expected life of options 3.0 years 3.5 years Weighted average fair value of options $0.10 $0.50 Intercompany balances and transactions have been eliminated on consolidation and are not disclosed in this note. All related party transactions relate to the reimbursement of administrative expenses, including travel and meal expenses, with arm s-length third party suppliers that the Company pays on behalf of LOM. All related party transactions are at historical cost and there are no provisions for bad debts. From January 1, 2014 to, Adriana paid for expenses in the amount of $121,912 (December 31, 2013 $1,014,877, $583,333 of that amount to LOM s Chief Executive Officer ( CEO ) for his 2012 salary and six month period ended June 30, 2013) on behalf of LOM for travel costs. During the year ended, LOM reimbursed Adriana in the amount of $161,227 related to intercompany receivables (December 31, 2013 $1,027,228). Page 20

21 The total receivable from LOM as of is $10,815. Compensation of Key Management Personnel Key management personnel include the Board of Directors, CEO and Chief Financial Officer ( CFO ) of the Company. The remuneration of key management personnel were as follows: 9. Income Taxes The Company's effective rate of income tax differs from the statutory rate of 26.5% ( %) as follows: The Company has tax losses of $12,322,000 that will expire commencing in 2031 (December 31, 2013 $9,489,000) and other deductible temporary differences in Canada of $12,337,000 (December 31, 2013 $13,410,000) and in Brazil (before adjustment for non-controlling interest) of $18,069,000 (December 31, 2013 $18,790,000) as well as Canadian federal investment tax credits of $1,179,000 that will expire commencing in 2018 (December 31, 2013 $1,179,000) and Ontario minimum tax credits of $247,000 (December 31, 2013 $247,000) the benefits of which are not recognized in these financial statements, as management does not consider their utilization to be more likely than not. A taxable temporary difference arising from Adriana s Investment in LOM of $21,930,000 (December 31, 2013 $22,373,000) has not been recognized since the Company can control the timing of the reversal thereof, and it is probable that the difference will not reverse in the foreseeable future. 10. Financial Instruments Receivable from LOM, January 1, 2014 $ 50,130 Add: Payments made on behalf of LOM 121,912 Less: Amounts reimbursed from LOM (161,227) Receivable from LOM, $ 10,815 Year ended Year ended December 31, 2013 Short-term benefits $ 773,576 $ 1,045,578 Share-based payments 100, ,486 Total remuneration $ 873,819 $ 1,261,064 Year ended Year ended December 31, 2013 Tax (recovery) at statutory rates $ (1,059,000) $ (13,209,000) Non-deductible expenses/(non-taxable income) 253,000 (415,000) Change in unrecognized temporary differences 806,000 13,624,000 Income tax expense $ - $ - As at, the Company s financial instruments are comprised of cash and cash equivalents, investment in equity securities, receivable from LOM, deposits, other receivables and accounts payable and accrued liabilities. The amounts reflected in the statement of financial position are carrying amounts and approximate their fair values due to their short-term nature. These financial instruments are classified as follows: Cash and cash equivalents loans and receivables Investment in equity securities financial asset at FVTPL Page 21