FORAN MINING CORPORATION CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2010

Transcription

1 CONSOLIDATED FINANCIAL STATEMENTS

2 AUDITORS' REPORT To the Shareholders of Foran Mining Corporation We have audited the consolidated balance sheet of Foran Mining Corporation as at September 30, 2010 and 2009 and the consolidated statement of loss and deficit and statement of cash flows for the years then ended. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these financial statements present fairly, in all material respects, the consolidated financial position of the company as at September 30, 2010 and 2009 and the consolidated results of its operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles. SASKATOON, SASKATCHEWAN December 1, 2010 Chartered Accountants

3 CONSOLIDATED BALANCE SHEET ASSETS Current assets Cash and cash equivalents $ 3,867,030 $ 10,970 Accounts receivable 2, Deposits 5,000 8,181 Prepaid expenses 3,148 1,835 3,877,861 21,849 Portfolio investment (Note 3) 303, ,250 Mineral properties (Note 4) 3,839,098 3,636,983 Capital assets (Note 5) 54,291 85,683 LIABILITIES $ 8,075,210 $ 3,945,765 Current liabilities Accounts payable and accrued liabilities $ 49,672 $ 41,743 Minority interest 354, , , ,423 Contingency (Note 6) SHAREHOLDERS' EQUITY Share capital (Note 7) 41,231,666 37,175,516 Contributed surplus (Note 7) 974, ,331 Accumulated other comprehensive loss (30,688) (298,750) Deficit (34,504,976) (34,261,755) 7,670,858 3,549,342 Nature and continuation of operations (Note 1) Approved on behalf of the board $ 8,075,210 $ 3,945,765 "Brent Schuler" Director "Brad Summach" Director

4 CONSOLIDATED STATEMENT OF LOSS AND DEFICIT YEAR ENDED Interest income $ 153 $ 493 Expenses Administration 55,346 76,419 Agency fees 59,877 12,622 Amortization 19,724 30,704 Interest and bank charges 2,696 2,509 Professional fees 104,983 69,100 Rent 16,264 20,300 Repairs and maintenance 6,953 1,858 Stock based compensation 40, ,517 Wages and benefits 79,040 89, , ,551 Loss before the undernoted items (385,255) (666,058) Gain on disposal of capital assets 8,314 12,946 Realized gain on available-for-sale investments 133,720 - Write-down of mineral properties - (1,516,149) (142,034) 1,503,203 Loss from operations before minority interest (243,221) (2,169,261) Minority interest - (96,732) Net loss (243,221) (2,072,529) Deficit, beginning of year (34,261,755) (32,189,226) Deficit, end of year $ (34,504,976) $ (34,261,755) Basic and fully diluted loss per share $ (0.01) $ (0.07) Average weighted number of shares outstanding 34,212,950 30,308,155

5 CONSOLIDATED STATEMENT OF ACCUMULATED OTHER COMPREHENSIVE LOSS YEAR ENDED Balance, beginning of year $ (298,750) $ (68,750) Unrealized gain (loss) on available for sale investments 401,782 (230,000) Reclassification of realized gain on available for sale investments (133,720) - Balance, end of year $ (30,688) $ (298,750)

6 CONSOLIDATED STATEMENT OF CASH FLOWS YEAR ENDED Cash flows from operating activities Net loss $ (243,221) $ (2,072,529) Items not affecting cash Amortization 19,724 30,704 Gain on disposal of available-for-sale investments (133,720) - Gain on disposal of capital assets (8,314) (12,946) Write-down of mineral properties - 1,516,149 Minority interest - (96,732) Stock-based compensation 40, ,517 (325,006) (271,837) Net change in non-cash working capital items related to operations: Accounts receivable (1,820) 80,989 Deposits 3, Prepaid expenses (1,313) 1,325 Accounts payable and accrued liabilities 7,929 (19,230) (317,029) (207,974) Cash flows from investing activities Mineral property expenditures (202,115) (200,333) Proceeds from disposal of available-for-sale investments 299,071 - Proceeds from disposal of capital assets 19,983 26, ,939 (174,333) Cash flows from financing activities Proceeds from issuance of shares 4,270,000 - Share issuance costs (213,850) - 4,056,150 - Net (decrease) increase in cash during the year 3,856,060 (382,307) Cash, beginning of year 10, ,277 Cash, end of year $ 3,867,030 $ 10,970

7 1. Nature of continuation of operations Foran Mining Corporation ("the Company") was incorporated under the laws of British Columbia and continued in Saskatchewan. The Company's principal business activities include the acquisition and exploration of mineral properties. These financial statements have been prepared on the basis of Canadian generally accepted accounting principles as applicable to a going concern, which contemplates the realization of assets and discharge of liabilities in the normal course of business for the foreseeable future. For the year ended September 30, 2010, the Company reported an after-tax loss of $243,221, an accumulated deficit of $34,504,976 and working capital of $3,473,509. As at September 30, 2010, the Company has not generated positive cash flow from operations. The Company has incurred significant operating losses in its exploration operations and its ability to continue as a going concern is dependent upon the discovery of economically recoverable mineral reserves, the ability of the Company to obtain necessary financing to complete their development and fund their operations until commercially successful, and future production or proceeds from the disposition thereof. Management is actively targeting sources of additional financing through alliances with financial, exploration and mining entities, or other business and financial transactions which would assure continuation of the Company s operations and exploration programs. While the Company has been successful in raising financing to date, there can be no assurances that it will be able to do so in the future. These financial statements do not reflect the adjustments to the carrying values of assets and liabilities, the reported expenses and balance sheet classifications that would be necessary if the going concern assumption was inappropriate. These adjustments could be material. To assist in the Company s ability to continue as a going concern, management has initiated a strict cost control program, reduced management salaries and are disposing of non-core assets, including the sale of portfolio investments. 2. Significant accounting policies These financial statements are prepared in accordance with Canadian generally accepted accounting principles. The significant policies are detailed as follows: Basis of presentation These consolidated financial statements include the accounts of the Company and its whollyowned subsidiary, Saskatchewan Ltd. The Company consolidates the McIlvenna Saskatchewan Joint Venture since the Company exercises control over the joint venture through its 75% voting interest, the 25% non-controlled interest is recorded as a minority interest. All significant inter-company transactions and balances have been eliminated upon consolidation. Cash and cash equivalents Cash and cash equivalents consist of cash on hand, guaranteed investment certificates and bankers acceptance with maturities of less than one year.

8 2. Significant accounting policies (continued) Portfolio investment At the end of each financial reporting period, the Company's management estimates the fair value of investments (which are classified as available for sale). Mineral properties The Company capitalizes mineral property acquisition costs and exploration and development expenditures on a property-by-property basis. These costs will be amortized over the estimated productive lives of the properties upon commencement of production using the unit-ofproduction method, or written down to their estimated fair value. If the properties are abandoned, allowed to lapse, there is little prospect of further work being carried out by the Company, or if there has been an impairment in their value, they will be written down with the associated writedown being charged to operations. When options are granted on mineral properties or mineral properties are sold, proceeds are credited to the cost of the property; if no future capital expenditure is required and proceeds exceed costs, the excess proceeds are reported as a gain. Mineral property acquisition costs include the cash consideration paid and the fair value of common shares issued, based on the trading price of the shares on the date of the agreement to issue the shares. The amounts shown for mineral properties represent costs incurred to date, less recoveries and write-downs, and do not necessarily reflect present or future values. Capital assets Capital assets are recorded at cost. The Company provides for amortization using the decliningbalance method at rates designed to amortize the cost of the capital assets over their estimated useful lives. The annual amortization rates are as follows: Computer and survey equipment 30% Equipment 30% Furniture and fixtures 20% Trailers 25% Asset retirement obligations The Company recognizes the fair value of liabilities for asset retirement obligations in the period in which they occur and/or in which a reasonable estimate of such costs can be made. The asset retirement obligation is recorded as a liability with a corresponding increase to the carrying amount of the related long-lived asset. Subsequently, the asset retirement cost is allocated to expenses using a systematic and rational method and is also adjusted to reflect period-to-period changes in the liability resulting from passage of time and revisions to either timing or the amount of the original estimate of the undiscounted cash flow. The Company does not have any asset retirement obligations.

9 2. Significant accounting policies (continued) Income taxes The Company uses the asset and liability method of accounting for income taxes. Under this method, future tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases (temporary differences) and losses carried forward. Future tax assets and liabilities are measured using substantively enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is recorded against any future tax asset if it is more likely than not that the asset will not be realized. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of substantive enactment. The Company finances a portion of its exploration activities through the use of flow-through shares. The Company records the tax cost of expenditures renounced to subscribers on the date the deductions are renounced to the subscribers. Share capital is reduced and future income tax liabilities are increased by the estimated tax benefits renounced by the Company to the subscribers, except to the extent that the Company has unrecorded loss carryforwards and tax pools in excess of book value available for deduction. Non-monetary transactions Non-monetary transactions are measured at either the fair value of the asset given up or the fair value of the asset received or exchanged, whichever provides a more reliable measure. Stock-based compensation plan Options granted under the Company's share option plan are accounted for using the fair-value method. The fair value of stock options is measured at the grant date of the options using the Black-Scholes Option Pricing Model with assumptions for risk-free interest rates, dividend yields, volatility factors of the expected market price of the Company s common shares and expected life of the options and recognized over the vesting period of the options. The fair value of direct awards of shares is determined by the quoted market price of the Company s shares at the date of award. Awards based on share performance are recognized upon achievement of the targeted share price. Foreign currency translation Monetary items denominated in a foreign currency are translated into Canadian dollars at exchange rates prevailing at the balance sheet date. Non-monetary items are translated at exchange rates prevailing when the assets were acquired or obligations incurred. Foreign currency denominated revenue and expense items are translated at exchange rates prevailing at the transaction date. Exchange gains and losses are recognized in operations.

10 2. Significant accounting policies (continued) Earnings (loss) per share Basic earnings (loss) per share are computed using the weighted average number of common shares outstanding during the year. Diluted earnings (loss) per share amounts are calculated giving effect to the potential dilution that would occur if securities or other contracts to issue common shares were exercised or converted to common shares using the treasury stock method. The treasury stock method assumes that proceeds received from the exercise of stock options and warrants are used to repurchase common shares at the prevailing market rate. Use of estimates The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant areas requiring the use of management estimates include stock based compensation expenses, impairment of mineral properties, impairment of capital assets, useful lives for amortization of capital assets, reclamation and environmental obligations, and contingencies reported in the notes to the financial statements. Financial results as determined by actual events could differ from those estimates. 3. Portfolio investment During the fiscal year ended September 30, 2005, the Company made a $500,000 payment to Copper Reef Mines Limited ("Copper Reef") with respect to an Assignment Agreement on the McIlvenna Saskatchewan mineral property. During the year ended September 30, 2005, the Company had requested an arbitration hearing in an effort to rescind the Assignment Agreement. In May 2006, the arbitration hearing closed with a Settlement Agreement between Copper Reef and the Company. The Settlement Agreement considers the $500,000 to be a payment made on behalf of the Company to meet required instalments for the rights to the McIlvenna Saskatchewan project. As at September 30, 2010, the Company owns 3,799,500 (2009-5,750,000) common voting shares of Copper Reef. The Company does not exercise significant influence over Copper Reef, therefore, the investment is recorded at fair value, and is designated as available for sale.

11 4. Mineral properties Year Ended September 30, 2010 Net Balance September 30, Acquisition cost and exploration & development Mineral property Balance September 30, 2009 license fees expenditures write-down 2010 Kisseynew, MB $ 1 $ - $ - $ - $ 1 McIlvenna, SK 3,636, ,636,979 Saskatchewan Project 1 157,024 14, ,025 Manitoba Project 1 31, ,092 Other $ 3,636,983 $ 188,115 $ 14,000 $ - $ 3,839,098 Year Ended September 31, 2009 Net Balance September 30, Acquisition costs and exploration & development Mineral property Balance September 30, 2008 license fees expenditures write-down 2009 Kisseynew, MB $ 1 $ - $ - $ - $ 1 McIlvenna, SK 4,076,720-6,715 (446,456) 3,636,979 Saskatchewan Project 503, ,067 44,800 (674,797) 1 Manitoba Project 372,146 22,751 - (394,896) 1 Other $ 4,952,799 $ 148,818 $ 51,515 $ (1,516,149) $ 3,636,983

12 4. Mineral properties (continued) Details of the exploration and development expenditures incurred during each year ended September 30, 2010 and 2009 for the Company's major properties are as follows: Year Ended September 30, 2010 Saskatchewan project Total Staking $ 14,000 $ 14,000 Year Ended September 30, 2009 McIlvenna Saskatchewan project project Total Administration $ 266 $ - $ 266 Assaying, sampling, line cutting and mapping 1,600-1,600 Camp maintenance 1,100-1,100 Geological consulting Staking - 44,800 44,800 Miscellaneous purchase/repair 3,009-3,009 Travel, accommodation and field $ 6,715 $ 44,800 $ 51,515 (a) McIlvenna, Saskatchewan In January 2005, the Company entered into an option agreement to acquire a 100% interest in the McIlvenna mineral property located in Saskatchewan. Total consideration consisted of paying $1,006,500 to Cameco Corporation ("Cameco") and $493,500 to BHP Billiton ("Billiton") on or before January 25, 2005; $1,342,000 to Cameco and $658,000 to Billiton on or before May 31, 2006; or Foran Mining Corporation issuing common shares worth $2,013,000 to Cameco and $987,000 to Billiton on or before May 31, If the Company would have elected to satisfy the May 31, 2006 payment through the issuance of shares rather than by way of cash payment, the share price would have been calculated using the average trading price of the Company's common shares on the TSX for the first fifteen (15) trading days in May of The shares issued to Cameco and Billiton would have been freely tradable and not be subject to any form of statutory or exchange-imposed hold period or trading prohibition. In January 2005, the Company entered into an agreement to conditionally assign to Copper Reef all of its rights and interest in the property option agreement for the McIlvenna, Saskatchewan property. In a letter dated January 24, 2005, Cameco and Billiton conditionally consented to the assignment. The initial consideration consists of Copper

13 4. Mineral properties (continued) (a) McIlvenna, Saskatchewan (continued) Reef funding the payment of $1,500,000 to Cameco and Billiton. Copper Reef also agreed to issue 5,500,000 common shares to the Company, with an additional 2,500,000 issued at a price of $0.20 per unit, for a total of $500,000. The Company believed that the conditions had not been satisfied. By notice made July 19, 2005, the Company filed a Demand for Arbitration to rescind the Assignment Agreement entered into in January 2005 with Copper Reef. In January 2005, required payments of $1,006,500 and $493,500 to Cameco and Billiton respectively were made by Copper Reef. In May 2006, the arbitration was settled. The Settlement Agreement with Copper Reef resulted in the Company holding a 75% joint venture interest in the McIlvenna, Saskatchewan property, acting as the operator of exploration projects, owning 5,750,000 common shares of Copper Reef, giving up licences on a number of other mineral properties, and giving up the 2,500,000 shares previously issued by Copper Reef for $0.20 per share. If any venturer does not make cash payments within 30 days of the Company invoicing a cash-call, they will give up a proportion of its interest in McIlvenna, Saskatchewan based on a pro-rated calculation. If any ventures interest drops below 10%, they will give up their remaining interest and be assigned a net tonnage royalty of 0.75 cents per tonne on all ores hauled to the surface from the property. In May 2006, the Company made the last required payments of $1,342,000 and $658,000 to Cameco and Billiton respectively. During 2007, the Company commenced a drill program on the mineral property. The diamond drilling program has been developed with the intention to upgrade the mineral resource deposit from inferred to indicated. During 2008, a 6,903.9 meter drill program was conducted to establish the lower margins of the copper stringer zone with some fill-in holes giving continuity to the McIlvenna Bay deposit. Cameco and Billiton hold a 1% royalty interest in the property. Foran has the option to purchase from Cameco and Billiton the royalty interest for $1,000,000. In 2009, the Company determined that the McIlveena Bay project was impaired and a writedown of the property was warranted. The amount of the write-down of the exploration costs on the project was $446,456.

14 4. Mineral properties (continued) (b) Saskatchewan and Manitoba Projects On November 21, 2003, the TSX-V accepted for filing the Purchase Agreement dated November 11, 2003, for 100% of Aur Resource Inc.'s interest in 29 mining claim groups located in the Flin Flon, Snow Lake and Lynn Lake areas of Manitoba and Saskatchewan. The properties included 29 property claim groups totalling more than 50,000 hectares, all associated data files, airborne data for over 70 airborne EM surveys, as well as office and warehouse equipment, furnishings and supplies. The purchase gave the Company control of 21 sulphide zones, at least eight gold deposits/zones and provided numerous developed drill targets, most of which are designed to extend known zones. The Company has committed, through previous mineral property ownership agreements associated with the Saskatchewan and Manitoba projects, to pay various net smeltering and net profits interest royalty fees. The net smeltering fees range from 0% - 2% and the net profits interest royalty fees range from 0% - 15%. During the year ended September 30, 2006, the Company transferred, as part of the arbitration Settlement Agreement, 13 Manitoba properties. The properties transferred had a combined book value of $nil. The remaining 16 properties total more than 30,000 hectares. In 2009, the Company determined that both the Saskatchewan and the Manitoba projects were impaired and a write-down of the properties to a nominal amount was warranted. The amount of the write-downs on the Saskatchewan and Manitoba projects were $674,797 and $394,896 respectively. In 2010, the Company spent $188,115 (2009- $148,818) in license fees and $14,000 in staking ( $44,800) to keep the remaining properties in good standing. 5. Capital assets 2010 Net book value 2009 Net book value Accumulated Cost amortization Automobiles $ - $ - $ - $ 2,754 Computer and survey equipment 30,305 25,710 4,595 6,276 Equipment 175, ,869 34,167 56,823 Furniture and fixtures 13,498 9,509 3,989 4,897 Trailers 22,409 10,869 11,540 14,933 $ 241,248 $ 186,957 $ 54,291 $ 85,683

15 6. Contingency FORAN MINING CORPORATION a) During the year ended September 30, 2003, the Company, with two other companies, formed a general partnership that acquired an interest in the 1999 Investment Co. Limited Partnership. During that same year end, the Company received a cash distribution of $281,156 (less a finders fee of $8,430) from the general partnership which represents the aggregate amount of cash the Company expects to receive from this investment. No cash distributions were received by the Company in the years ended September 30, 2006 and On September 30, 2006, the Company sold the interest in the partnership to a non-related company. The Company is contingently liable for any liabilities that may occur associated with their investment in partnership where the liability originated during the time the Company held an interest in the partnership. b) The Company has provided an indemnification to subscribers of flow-through shares in an amount equal to the income tax that would be payable by subscribers in the event, and as a consequence, of the Company not incurring and renouncing qualifying CEE as required under the subscription agreement. Companies must pay Part XII.6 tax in respect of each month in the year of renunciation equal to the balance of funds in respect of the renunciation that have not been spent on qualifying CEE times the current prescribed interest rate. If funds remain unspent at the end of the year, there is an extra tax levy of 1/10 of the unspent balance. 7. Share capital On July 6, 2010, the Company proceeded with the consolidation of its common shares. The consolidation was approved by the shareholders of the Company on June 29, 2010 and was subsequently approved by the TSX-V. The consolidation results in each shareholder of the Company receiving one post-consolidation share for every four pre-consolidation common shares held. The number of shares, warrants and options and earnings per share data presented in these financial statements, have all been adjusted to reflect the impact of this share consolidation. Authorized an unlimited amount of common shares, without par value Common shares Share capital Issued Balance, September 30, ,308,159 37,175,516 Issued for cash - private placement 15,947,917 4,270,000 Share issue costs - (213,850) Balance, September 30, ,256,076 41,231,666

16 7. Share capital (continued) In June 2010, prior to the share consolidation, the Company issued 47,125,000 common shares at a price of $0.08 per unit for gross proceeds of $3,770, ,875,000 of these shares were issued on a flow-through basis. Once consolidated, the number of shares issued as a result of this placement was 11,781,250. In July 2010, the Company issued 4,166,667 non-flow-through units at a price of $0.12 per unit for gross proceeds of $500,000. Each unit consists of one non-flow through share and one purchase warrant. Each warrant has a term of 24 months with an exercise price of $0.12. Stock options The Company's Board of Directors approved the adoption of a stock option plan in accordance with the policies of the TSX Venture Exchange. The Board of Directors is authorized to grant options to directors, officers, consultants or employees. The maximum number of options that may be granted must not exceed 20% of the common shares outstanding at the time of the grant. The minimum vesting provisions are over an 18-month period with equal amounts vesting on a quarterly basis. A summary of the status of the Company's stock option plan and changes during the periods ended September 30, 2010 and 2009 is presented below. For options outstanding at September 30, 2010 and 2009, weighted average exercise prices are as follows: Options Average price Options Average price Outstanding, beginning of year 1,668,750 $0.52 1,918,750 $0.56 Options granted 400, , Expired or forfeited (550,000) 0.56 (750,000) 0.52 Outstanding, end of year 1,518,750 $0.47 1,668,750 $ Options price per share Number outstanding Weighted average remaining life $ , $ , $ , ,518,

17 7. Share capital (continued) The fair value of stock options issued in the year is estimated using the Black-Scholes option pricing model, with assumptions being made for each of the following variables: risk free rate, volatility factor, dividend yield, weighted average expected option life and expected forfeiture rate. During fiscal 2010, the company granted 400,000 options in September The strike price for the options were $0.40 for a period of five years. The value of these options, using the Black-Scholes option pricing model described above, was $154,780 ( $26,666) of which $40,525 ( $9,629) relates to options that vested in the current year and thus were expensed with a corresponding increase to contributed surplus. Assumptions used in the pricing model for the year are as follows: risk-free interest rate 1.94%, expected life of options five years, annualized volatility 189% and dividend rate of nil. Share purchase warrants and broker warrants The continuity of share purchase and broker warrants for the year ended September 30, 2010 is as follows: Expiry date Exercise price Balance September 30, 2009 Issued Exercised Expired Balance September 30, 2010 October 23, to ,142, (2,142,857) - October 23, , (150,000) - July 7, ,166, ,166,667 September 3, , (100,000) - 2,392,857 4,166,667 (2,392,857) 4,166,667 Expiry date Exercise price Balance September 30, 2008 Issued Exercised Expired Balance September 30, 2009 October 23, to ,142, ,142,857 October 23, , ,000 September 3, , ,000 2,392,857 2,392,857

18 7. Share capital (continued) Contributed surplus The fair value of certain stock options, warrants and broker warrants have been valued using the Black-Scholes option pricing model. The fair value on the grant of these securities is added to contributed surplus. Upon exercise, the corresponding amount of contributed surplus related to the security is removed from contributed surplus and added to share capital. A summary of the contributed surplus activity is as follows: Balance, beginning of year $ 934,331 $ 570,815 Fair value of options vested 40, ,516 Balance, end of year $ 974,856 $ 934, Related party transactions During the year, the Company paid or accrued $4,725 ( $1,200) for rent to a related party. The above transaction is in the normal course of operations and is measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. 9. Financial instruments Fair value of financial instruments The carrying amount of current financial assets and current financial liabilities approximate their fair value because of the short-term maturities of these items. The Company has designated its cash and cash equivalents as held-for-trading, which are measured at fair value. Accounts receivable are classified as loans and receivables, which are measured at amortized cost. Portfolio investments are comprised of shares of Copper Reef and are classified as available-for-sale. The Company has not entered into any hedging relationships and does not hold any other available-for-sale securities that would result in the recognition of other comprehensive income or loss. Accounts payable and accrued liabilities are classified as other financial liabilities, which are measured at amortized cost.

19 9. Financial instruments (continued) Liquidity risk Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. As at September 30, 2010, the Company believes it will have sufficient access to financial markets to continue to meet its obligations as they become due. The Company does not currently operate any producing properties and as such, is dependent upon the issuance of new equity to advance its exploration properties. Although the Company has been successful in the past in obtaining financing, there can be no assurance that the Company will be able to obtain adequate financing in the future or that the terms of such financing will be favourable. Failure to obtain additional financing on a timely basis may cause the Company to postpone development plans, forfeit rights in its properties or joint ventures or reduce or terminate its operations. Reduced liquidity or difficulty in obtaining future financing could have an adverse impact on the Company s future cash flows, earnings, results of operations and financial position. The Company is unsure if its current capital resources will be sufficient to carry out its exploration plans through its current operating period. 10. Capital disclosure The Company's objectives when managing capital are to safeguard the Company's ability to continue as a going concern, so that it can provide returns for shareholders and benefits for other stakeholders. The Company considers the items included in shareholders' equity as capital. The Company manages the capital structure and makes adjustments to it in response to changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Company may issue new shares, or acquire or dispose of assets. In order to facilitate the management of its capital requirements, the Company prepares annual expenditure budgets that are updated as necessary. The annual budgets are approved by the Board of Directors. In order to maximize ongoing exploration efforts, the Company does not pay out dividends. The Company's investment policy is to invest its cash in highly rated, liquid short-term interestbearing investments with an initial term to maturity of 12 months or less. The Company is not subject to externally-imposed capital requirements, except as disclosed.

20 11. Income taxes FORAN MINING CORPORATION Future income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's future tax assets and liabilities are as follows: Future income tax assets Capital assets $ 111,857 $ 108,777 Loss carried forward 936, ,117 Mineral properties 5,022,752 5,022,754 6,071,397 5,987,648 Valuation allowance (6,071,397) (5,987,648) Net future income tax asset $ - $ - As at September 30, 2010, the Company has non-capital losses carried forward in Canada of approximately $3,469,585 ( $3,119,790) that begin to expire Mineral property expenses of $22,087,203 ( $21,885,088) are available to be carried forward indefinitely. A reconciliation of income taxes at Canadian statutory rates with the reported income taxes is as follows: Loss for the year before taxes $ 243,221 $ 2,169,261 Expected income tax expense (recovery) $ (71,142) $ (661,625) Capital assets differences (16,925) 6,102 Write-down of mineral properties - 462,425 Non-deductible stock based compensation 11, ,873 Share issue costs (26,265) (14,342) Change in valuation allowance 102,478 96,567 Actual income tax expense (recovery) $ - $ -

21 12. Subsequent events On October 4, 2010, the Company issued 25,000 Common Shares for proceeds of $10,000 to an employee of the corporation. On October 17, 2010, the Company entered into an asset exchange agreement with Copper Reef Mining Corporation ("Copper Reef") which provides that Copper Reef shall sell, assign and transfer to the Corporation certain assets in exchange for the Corporation selling, assigning and transferring to Copper Reef certain assets. The purchase price for the Foran assets shall be the Copper Reef assets with a deemed value of $3,700,000 and the purchase price for the Copper Reef assets shall be the Foran assets with a deemed value of $3,700,000. Included in the asset exchange is an issuance of 4,000,000 common shares of the Company to Copper Reef. On November 24, 2010, the Company announced that Mr. Patrick Soares, P.Geo., has been appointed as President and CEO of the Company, and a member of the Board of Directors. On December 2, 2010, the Company closed a private placement with the CEO and issued 2,000,000 non-flow-through units at a price of $0.58 per unit for gross proceeds of $1,160,000. Each unit consists of one common share and one-half of one common share purchase warrant. Each whole warrant has a term of 5 years with an exercise price of $0.70. The warrants are subject to certain conditions before they may be exercised as follows: a) total of 250,000 warrants are exercisable at any time; b) total of 250,000 warrants are exercisable when the CEO recruits a management team on terms and conditions which are satisfactory to the Company; c) total of 250,000 warrants are exercisable when the Company completes an updated technical report in accordance with National Instrument which includes the copper stringer zone of the McIlvenna Deposit; and, d) total of 250,000 warrants are exercisable when the Company completes a scoping study in accordance with National Instrument which includes appropriate metallurgical test work.

22 13. Future accounting pronouncements In February 2008, the Accounting Standards Board ("AcSB") confirmed that Canadian GAAP for publicly accountable enterprises will be converged with International Financial Reporting Standards ("IFRS") effective in calendar year The Company's first financial statements presented in accordance with IFRS will therefore be the year ended September 30, Though IFRS uses a conceptual framework similar to Canadian GAAP, there are some significant differences on recognition, measurement and disclosure requirements. In the period leading up to the changeover, the AcSB will continue to issue accounting standards that are converged with IFRS, thus mitigating some of the impact of adopting IFRS at the changeover date. The International Accounting Standard Board ("IASB") will, however, also continue to issue new accounting standards during the conversion period. As a result, the final impact of IFRS on the Company's financial statements will only be measurable once all IFRS applicable at the conversion date are known. As a result of this convergence, the Company has developed a plan to convert its financial statements to IFRS. Management has not yet completed its quantification of the effects of adopting IFRS. The financial performance and financial position as presented in the Company's Canadian GAAP financial statements may be significantly different when presented in accordance with IFRS.