Condensed Interim Consolidated Financial Statements For the three and six months ended June 30, 2018 and 2017 (Expressed in Canadian Dollars)

Transcription

1 Condensed Interim Consolidated Financial Statements and 2017 (Unaudited)

2 Notice to Reader Under National Instrument , Part 4, subsection 4.3(3)(a), if an auditor has not performed a review of the condensed interim consolidated financial statements, they must be accompanied by a notice indicating that the condensed interim consolidated financial statements have not been reviewed by an auditor. The accompanying unaudited condensed interim consolidated financial statements of the Company have been prepared by and are the responsibility of the Company s management. The Company s independent auditor has not performed a review of these condensed interim consolidated financial statements in accordance with the standards established by the Chartered Professional Accountants of Canada for a review of interim financial statements by an entity s auditor.

3 CONDENSED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Unaudited) Page 3 As at Notes June 30, 2018 December 31, 2017 ASSETS Cash 125, ,476 Receivable and refundable taxes 3, 4 12,349,675 10,607,151 Inventories 5 20,365,336 13,580,341 Investment in securities 6 6,901,131 8,536,072 Advance to Golden Reign Resources 6(iii) 4,040,329 Prepaid expenses, and other 548, ,365 44,331,126 34,348,405 Mineral property, plant and equipment 8 24,324,810 18,692,716 Resource property costs 9 30,956,256 29,259,411 Other assets 9 23,261 33,165 99,635,453 82,333,697 LIABILITIES Accounts payable and accrued liabilities 30,817,407 24,099,797 Due to related parties ,160 1,404,740 Loan 13 93,736, ,887,552 25,504,537 Deferred tax liability 260, ,349 Loan 13 70,879,955 Provision for reclamation and rehabilitation 12 6,935,385 6,594, ,083, ,146,191 SHAREHOLDERS' DEFICIT Share capital ,254, ,254,224 Contributed surplus 10 24,482,900 18,817,046 Accumulated other comprehensive income 15,741,113 18,878,921 Deficit (195,926,655) (181,762,685) (32,448,418) (20,812,494) 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.

4 CONDENSED INTERIM CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS (Unaudited) Page 4 For the three months For the six months Notes ended June 30, ended June 30, Revenue 12,488,903 16,731,175 20,413,438 49,350,466 Cost of sales Production costs 14 (a) (7,212,838) (6,159,161) (15,096,129) (16,001,207) Inventory write down 5 (1,202,783) (2,337,176) (3,268,830) (3,427,121) Depreciation, depletion and amortization (3,647,364) (7,974,769) (5,723,128) (27,376,940) (12,062,985) (16,471,106) (24,088,087) (46,805,268) Gross (loss) gain 425, ,069 (3,674,649) 2,545,198 Operating and administrative expenses Accounting and legal (227,014) (120,983) (312,064) (270,012) Exploration expenses (43,217) (1,569,281) (1,392,980) (2,645,812) General administrative expenses 11, 14 (b) (278,740) (472,333) (534,156) (945,807) Management and consulting fees 11 (1,079,276) (1,042,587) (1,368,993) (1,748,704) Salaries and benefits 10(c) & 11(a) (103,937) (92,929) (218,331) (163,821) Transfer agent fees and regulatory fees (23,205) (42,993) (67,052) (44,028) (1,755,389) (3,341,106) (3,893,576) (5,818,184) Other (expenses) and income Accretion and interest expense 12 & 13 (2,549,149) (1,692,043) (5,460,373) (3,252,228) Change in fair value of Deferred Consideration Receivable 4 (3,320) (4,780) 1,108 6,132 Foreign exchange (loss) gain (729,727) (1,874,312) (204,565) 179,157 Change in fair value of marketable securities 6(b) 2,338 (5,159) (1,564) (2,277) Loss on the settlement of Loan 13 (562,990) Interest and other income 221,780 43, , ,474 (3,058,078) (3,532,584) (5,413,034) (3,518,732) Loss before taxes (4,387,549) (6,613,621) (12,981,259) (6,791,718) Income tax expense (380,039) (380,039) Net loss for the period (4,387,549) (6,993,660) (12,981,259) (7,171,757) 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 (362,972) (1,633,376) (1,594,055) Items subject to reclassification into statement of loss Cumulative translation adjustment, net of taxes (2,377,280) 1,493,464 (1,504,432) 256,393 Other comprehensive loss for the period: (2,740,252) 1,493,464 (3,137,808) (1,337,662) Comprehensive loss for the period (7,127,801) (5,500,196) (16,119,067) (8,509,419) Basic and diluted loss from continued operations per share (0.03) (0.04) (0.08) (0.04) Weighted average number of shares outstanding 171,568, ,098, ,568, ,510,647 The accompanying notes are an integral part of these condensed interim consolidated financial statements.

5 CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited) Page 5 For the six months ended June 30, Notes Cash provided by (used for): Operating Activities Net loss for the period (12,981,259) (7,171,757) Non cash items 15 19,095,203 33,186,137 6,113,944 26,014,380 Changes in non cash working capital Receivable and refundable taxes (1,402,631) (4,107,536) Prepaid expenses, and other 61,208 (27,875) Inventories (2,218,372) (9,144,193) Accounts payable and accrued liabilities (3,917,425) 13,121,771 Due to / from related parties (380,733) (581,554) (1,744,009) 25,274,993 Investing Activities Purchase of investment securities (1,180,067) Expenditures on resource property costs (236,604) (159,581) Expenditures on mineral property, plant and equipment (12,815,960) (13,988,672) Other assets 11,467 (142,097) (13,041,097) (15,470,417) Financing Activities Common shares purchased and returned to treasury (768,940) Advance to Golden Reign Resources (4,000,000) Loan received 17,940,600 Loan repaid (9,857,650) 13,940,600 (10,626,590) Net change in cash (844,506) (822,014) Cash beginning of period 974,476 1,708,222 Foreign exchange gain on cash (4,143) 26,834 Cash end of period 125, ,042 Supplemental disclosure with respect to cash flows (Note 15) The accompanying notes are an integral part of these condensed interim consolidated financial statements.

6 CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (Unaudited) Page 6 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 (1,114,000) (768,940) (768,940) Share based payments 82,636 82,636 Other comprehensive loss (1,337,662) (1,337,662) Net loss (7,171,757) (7,171,757) Balance, June 30, ,813, ,465,374 17,701,839 17,897,603 (139,433,575) 19,631,241 Common shares returned to treasury (245,500) (211,150) (211,150) Share based payments 52,004 52,004 Gain on Wexford Loan modification 1,063,203 1,063,203 Other comprehensive income 981, ,318 Spin out of Sailfish (10,253,051) (10,253,051) Net loss (32,076,059) (32,076,059) 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 (3,137,808) (3,137,808) Gain on Wexford Loan 1,002,940 1,002,940 Share based payments 35,887 35,887 Net loss (12,981,259) (12,981,259) Balance, June 30, ,568, ,254,224 24,482,900 15,741,113 (195,926,655) (32,448,418) The accompanying notes are an integral part of these condensed interim consolidated financial statements.

7 (Unaudited) Page 7 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 4,387,549 and 12,981,259 (2017 6,993,660 and 7,171,757) for the three and six months ended June 30, 2018, respectively. As at June 30, 2018, the Company had an accumulated deficit of 195,926,655 and working capital deficit of 80,556,426. With the collection of its value added taxes (IVA), additional advances from Wexford Spectrum Investors LLC ( WSI ) and Wexford Catalyst Trading Limited ( WCT ) (together the Wexford Funds ) ( Wexford Loan ) (refer to Note 13), the cash flows being generated from the La Trinidad Mine, and the completion of the GRR Arrangement Agreement (refer to Note 18) 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. Refer to Note 18 for details on the recent definitive agreement entered into by the Company. In the event that the GRR Arrangment Agreement (Note 18) does not receive all necessary approvals and the cash flows generated from operations are not sufficient to fund operations for the next twelve months, including the repayment of outstanding loans and accrued interest on the maturity date, the Company will need to seek other forms of financing. A number of financing alternatives include, but are not limited to, selling an interest in one or more of its properties, entering in to a loan or completing an equity financing. There are no assurances that these initiatives will be successful. 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 August 29, 2018.

8 (Unaudited) Page 8 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, refer to Adoption of new accounting policies in the condensed interim consolidated financial statements for the three months ended March 31, 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.

9 (Unaudited) Page 9 2. BASIS OF PRESENTATION AND CONSOLIDATION (cont d) 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. 3. RECEIVABLE AND REFUNDABLE TAXES June 30, 2018 December 31, 2017 Value added taxes (IVA) 12,213,482 10,371,481 Deferred Consideration Receivable (Note 4) 90,563 89,455 Other 45, ,215 12,349,675 10,607,151 IVA credit refundable is from the Government of Mexico and is currently calculated as 16% of expenditures in Mexico.

10 (Unaudited) Page 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 June 30, 2018, the fair value of the Deferred Consideration Receivable is 90,563 (December 31, ,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 loss in the change in the fair value of the Deferred Consideration Receivable of 3,320 and a gain of 1,108 (2017 loss of 4,780 and a gain of 6,132), respectively, was recognized in the consolidated statement of loss and comprehensive loss. 5. INVENTORIES June 30, 2018 December 31, 2017 Ore in process 17,167,853 10,679,097 Finished metal inventory 1,446,340 1,466,564 Supplies and spare parts 1,751,143 1,434,680 20,365,336 13,580,341 As at June 30, 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 1,202,783 and 3,268,830 (2017 2,337,176 and 3,427,121), respectively. As at June 30, 2018, ore in process is comprised of stockpile inventory of 1,877,315, (December 31, ,483) and leach pad inventory of 15,290,538 (December 31, ,287,614).

11 (Unaudited) Page INVESTMENT IN SECURITIES Cost June 30, 2018 December 31, 2017 Fair Value Cost Fair value Golden Reign Resources Ltd. 36,297,264 (December 31, ,297,264) 5,227,601 6,896,482 5,227,601 8,529,859 common shares Canarc Resources Corp. 250,000 (December 31, ,000) warrants 10,575 4,649 10,575 6,213 Total 5,238,176 6,901,131 5,238,176 8,536,072 (a) Golden Reign Resources Ltd. ( Golden Reign ) (i) On January 24, 2017, the Company purchased 5,363,931 common shares in Golden Reign for cost of 1,180,067. As at June 30, 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. Also refer to Note 18. 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. For the three and six months ended June 30, 2018, the Company recorded a loss in the change in fair value of the Golden Reign shares of 362,972 and 1,633,376 (2017 Nil and 1,594,055), respectively, in other comprehensive income. (ii) (iii) On July 10, 2014, the Company, Sailfish and Golden Reign entered into a US15,000,000 (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 18). As part of the arrangement agreement entered into with Golden Reign to combine businesses and amend the stream agreement with Sailfish, which is further described in Note 18 (refer to GRR Arrangement Agreement), the Company entered into a definitive bridge loan agreement for a bridge loan from the Company to Golden Reign. On May 15, 2018, the Company advanced 4,000,000, having a term of one year and bearing interest at 8% per annum (the "Bridge Loan"). Upon completion of the proposed Transaction (as herein further defined in Note 18), the Bridge Loan will become intercompany debt and will be terminated. In the event that (a) Golden Reign shareholders vote not to approve the Transaction, or (b) the GRR Arrangement Agreement is terminated in accordance with its terms, then all accrued interest under the Bridge Loan will become immediately due and the maturity date of the Bridge Loan will accelerate to the earlier of the original maturity date or the date that is four months from the negative shareholder vote or termination of the GRR Arrangement Agreement.

12 (Unaudited) Page INVESTMENT IN SECURITIES (cont d) (b) Canarc Resources Corp. ( Canarc ) As at June 30, 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 gain in the change in the fair value of the Canarc warrants of 2,338 and a loss of 1,564 (2017 loss of 5,159 and 2,277), respectively, in the consolidated statement of loss and comprehensive loss. 7. 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 (US7,000,000). 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 US516,600 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 (US1,093,051). The advance is included in the total value distributed to the Company s shareholders. (Also refer to Note 18). (b) On December 18, 2017, the Company has agreed to make available to Sailfish a term facility in a maximum amount of US14,000,000 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 June 30, 2018, no amount was drawn on the Facility. (Also refer to Note 18).

13 (Unaudited) Page MINERAL PROPERTY, PLANT AND EQUIPMENT Mine Property Building Equipment Vehicles Total For the six months ended June 30, 2018 Opening net book value 16,762,915 21,594 1,767, ,588 18,692,716 Translation adjustment 974,879 1,073 84,758 6,190 1,066,900 Additions 13,612,285 69,508 13,681,793 Depreciation charge (8,921,443) (169,140) (26,016) (9,116,599) Closing net book value 22,428,636 22,667 1,752, ,762 24,324,810 As at June 30, 2018 Cost 93,113,325 26,383 3,414, ,025 97,361,776 Accumulated depreciation (70,684,689) (3,716) (1,661,298) (687,263) (73,036,966) Net book value 22,428,636 22,667 1,752, ,762 24,324,810 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

14 (Unaudited) 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 US600,000 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 US400; 1% if the price is greater than US400 but less than US499.99; and price per ounce of gold is less than US400; 1% if the price is greater than US400 but less than US499.99; and 1.5% if the price is equal or greater than US500. The NSR can be purchased by the Company for US1,000,000. 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 US400 and 1% if the price is greater than US400. Each 0.5% NSR can be purchased by the Company for US1,000,000. Following is a detailed breakdown of the mine property. As at Translation As at December 31, 2017 Additions adjustment June 30, 2018 Construction and mine costs 39,712, ,118 1,986,682 42,177,223 Deferred stripping costs 59,029,054 13,191,354 3,331,943 75,552,351 Provision for reclamation and rehabilitation 6,293,022 (57,187) 310,784 6,546,619 Capitalized borrowing costs 810,746 40, ,008 Pre commercial production loss 3,395, ,629 3,564,217 Reclassification from resource property costs 673,221 33, ,654 Property acquisition costs 395,992 19, , ,310,046 13,612,285 5,891, ,813,729 Depreciation (58,583,084) (8,921,443) (3,180,162) (70,684,689) Impairment (34,964,047) (1,736,357) (36,700,404) Total Mine Property 16,762,915 4,690, ,879 22,428,636

15 (Unaudited) 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: US1,295; 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. There was no impairment as at June 30, (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 US50 decrease in gold price assumptions would result in additional reductions in the recoverable amount of approximately 2.9 million.

16 (Unaudited) Page RESOURCE PROPERTY COSTS Commonwealth Other (a) (b) Total Balance December 31, ,027,996 7,231,415 29,259,411 Additions 236, ,604 Cumulative translation adjustment 1,093, ,304 1,460,241 Balance June 30, ,121,933 7,834,323 30,956,256 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 US4,500,000. Upon acquiring Commonwealth (US) in 2015, the Company was required to make the remaining option payments pursuant to the Commonwealth Agreement totaling US3,450,000 (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 (US3,250,000). 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 US2,000,000 in two separate payments of US1,000,000, each for 0.5%. The total US4,500,000 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 US4,500,000 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.

17 (Unaudited) 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 US750,000; and acquired the surface and mineral rights surrounding the patented mining claims of the Commonwealth Project for a purchase price of US3,600,000. (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 US2,000,000. 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 US1,350,000 (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 (US1,250,000). 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 US1,000,000. The total US2,000,000 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 US2,000,000 of the NSR. During the period ended December 31, 2017, the Company acquired land for a purchase price of 159,581 (US120,506).

18 (Unaudited) 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 (US3,573,996). 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 US500,000, payable as follows: US100,000 on signing (paid); US100,000 in 12 months; and US300,000 in 24 months. Restricted cash A reclamation bond of 19,751 (US15,000) (December 31, ,108 (US24,000)) has been posted with Arizona s Bureau of Land Management, against any potential future land reclamation costs.

19 (Unaudited) 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 June 30, ,000, * As at June 30, 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 June 30, 2018, 3,300,000 (December 31, 2017, 2,700,000) options had vested. The Company recorded share based payments of 16,735 and 35,887 ( ,893 and 82,636) for the three and six months ended June 30, 2018, respectively, which are included in salaries and benefits expense in the consolidated statement of loss and comprehensive loss. As of June 30, 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 * 6,000,000 3,300, * As part of the Sailfish spin out the exercise price of the outstanding options was increased from 0.15 to per option.

20 (Unaudited) Page RELATED PARTIES (a) Key management compensation Key management comprises directors and executive officers. The compensation to key management was as follows: For the three months ended June 30, For the six months ended June 30, Short term employment benefits Director fees 15,000 15,000 30,000 30,000 Senior management 163, , , ,283 Share based payments 16,736 36,893 35,887 82,636 Total 195, , , ,919 Amounts due to key management as at June 30, 2018 were 74,165 (December 31, ,665). (b) Related party transactions The Company entered into the following related party transactions: (i) During the three months ended June 30, 2018, fees relating to travel, investor relations and consulting services of Nil ( ,564 (US655,501)) 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 that was controlled by one director of the Company. Charges of Nil ( ,985 (US599,256)) are included in consulting fees and travel expenses of Nil ( ,579 (US56,245) are included in general administrative expenses. During the six months ended June 30, 2018, fees relating to travel, investor relations and consulting services of Nil (2017 1,714,466 (US1,281,822)) were charged by Sonoran. Charges of Nil (2017 1,537,108 (US1,148,815)) are included in consulting fees and charges of Nil ( ,357 (US133,007)) are included in general administrative expenses. During the three and six months ended June 30, 2018, fees of Nil ( ,282 (US54,640)) and Nil ( ,282 (US54,640)) were charged by Sonoran as part of the working capital paid to advance the Golden Reign s San Albino gold deposit, respectively. (Refer to Note 7(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 (US548,291) on the settlement of the Sonoran liability outstanding. Amounts payable to Sonoran as at June 30, 2018 were NIL (December 31, ,348,075 (US1,074,420).

21 (Unaudited) Page RELATED PARTIES (cont d) (b) Related party transactions (cont d) (ii) During the three and six months ended June 30, 2018, fees relating to consulting services of 486,791 (US380,000) and 1,184,051 (US918,905) were charged by Tes Oro Mining Group, LLC, a fullservice 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 June 30, 2018 were 230,474. (c) Transactions with controlling shareholder (i) As at June 30, 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 June 30, (ii) During the three and six months ended June 30, 2018, the Company received additional loans from the Wexford Funds in the amount of 5,787,900 (US4,500,000) and 17,940,600 (US14,000,000) (2017 repaid 9,857,650 (US7,500,000)) and recorded interest expenses of 2,327,683 and 5,052,499 (2017 1,570,803 and 3,019,745) and withholding taxes of 185,795 and 337,532 ( ,803 and 187,118), respectively, in the consolidated statement of loss and comprehensive loss. As at June 30, 2018, US63,000,000 (December 31, 2017 US49,000,000) 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 21,863 (US17,019) and 27,732 (US21,660) (2017 6,478 (US4,838) and 33,203 (US25,116)) for shared office space and administration services for the three and six months ended June 30, 2018, respectively. Amounts payable to the affiliate of the Wexford Funds as at June 30, 2018 were 28,521 (US21,660) (December 31, 2017 Nil).

22 (Unaudited) Page RECLAMATION AND REHABILITATION OBLIGATIONS The provision for environmental reclamation and rehabilitation as at June 30, 2018 is 6,935,385 (December 31, ,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 1.50 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 (44,747) Accretion expense 70,342 Cumulative translation adjustment 315,440 Balance June 30, ,935,385 June 30, 2018 December 31, 2017 Current liability Wexford Loan 80,309,405 Accrued interest and related withholding taxes 13,427,580 93,736,985 Non current liability Wexford Loan 59,625,117 Accrued interest and related withholding taxes 11,254,838 70,879,955 Total loan 93,736,985 70,879,955 As at June 30, 2018, the Company had a loan due to Wexford Funds of 82,958,400 (US63,000,000) (December 31, ,470,500 (US49,000,000). In addition to the principal amount owing to the Wexford Funds, the Company had interest and withholding taxes payable as at June 30, 2018 of 15,264,195 (US11,591,886) (December 31, ,395,288 (US9,083,530). 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

23 (Unaudited) Page LOAN (cont d) 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 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 six months ended June 30, 2018, the Wexford Funds loaned the Company an additional 17,940,600 (US14,000,000) increasing the Wexford Loan to US63,000,000. The difference between the estimated fair value and the face value of the loans received in the six months ended June 30, 2018 was 1,002,940. As the Wexford Funds are significant shareholders, management recognized the total gain in equity as contributed surplus. During the six months ended June 30, 2018, the Company recorded 5,390,031 (2017 3,206,863) of accreted interest and withholding taxes. At June 30, 2018, the Wexford Loan was recorded at amortized cost of 93,736,985 and includes accreted interest and withholding taxes of 13,427,580. During the year ended December 31, 2017, the Company repaid Wexford Funds 9,857,650 (US7,500,000) and recorded a loss on settlement of 562,990 in the statement of loss and comprehensive 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 (US19,000,000). 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.

24 (Unaudited) Page PRODUCTION COSTS AND GENERAL ADMINISTRATIVE EXPENSES (a) Production costs is comprised of: For the three months ended June 30, For the six months ended June 30, Mining, crushing and conveying, and processing 5,706,200 3,840,806 11,712,194 11,729,883 Mine general and administrative 1,243,509 2,015,128 2,729,000 3,172,898 Laboratory 97, , , ,721 Refining 29, ,538 57, ,679 Selling expenses and silver credits (50,789) (244,298) 7,126 (202,747) Royalty expenses and mining taxes 187, , , ,773 7,212,838 6,159,161 15,096,129 16,001,207 (b) General administrative expenses is comprised of: For the three months ended June 30, For the six months ended June 30, Bank charges and finance costs (5,640) 6,327 20,482 17,649 Communications and investor relations 30, ,176 66, ,189 Depreciation Directors' fees 32,498 15,000 47,498 30,000 Insurance expense 59,065 27,840 98,362 58,475 Office expenses 16,292 43,334 66, ,574 Telephone; IT services and supplies 25,673 20,937 33,059 68,057 Travel and promotion 61, , , , , , , ,807

25 (Unaudited) Page SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS For the six months ended June 30, The significant non cash investing transactions consisted of: Change in property, plant and equipment included in accounts payable and accrued liabilities 2,817,539 3,546,889 For the six months ended June 30, Non cash items Accretion expense 34,671 45,365 Change in fair value of Deferred Consideraton Receivable 1,108 (6,132) Change in fair value of securities 1,564 2,277 Depreciation, depletion and amortization 5,723,128 27,381,166 Gain on the settlement of accounts payable (690,847) Interest and other income 3,206,863 Interest expense 5,390,031 Loss on the settlement of Loan 562,990 Share based payments 35,887 82,636 Unrealized foreign exchange 5,330,831 (1,516,149) Write down of inventory to NRV 3,268,830 3,427,121 19,095,203 33,186, SEGMENT INFORMATION As at June 30, 2018, the Company has one business segment, the production of gold and exploration of resources. The Company s principal product is gold doré with the refined gold bullion sold in the London spot market by the subsidiary in Barbados. The gold doré is produced at the La Trinidad Mine in Mexico. All of the Company s significant non current assets are distributed by geographic locations as follows: As at Mineral property, plant and equipment June 30, 2018 December 31, 2017 Resource Mineral property, property costs plant and equipment Resource property costs Mexico 24,245,723 4,950,025 18,609,747 4,483,577 USA 79,087 26,006,231 82,969 24,775,834 Total 24,324,810 30,956,256 18,692,716 29,259,411

26 (Unaudited) Page FAIR VALUE OF FINANCIAL INSTRUMENTS Financial instruments must be classified at one of three levels within a fair value hierarchy according to the relative reliability of the inputs used to estimate their values. The three levels of the hierarchy are as follows: Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities; Level 2: Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and Level 3: Inputs that are not based on observable market data. The carrying values, fair market values, and fair value hierarchical classification of the Company s financial instruments are as follows: Investment in common shares are measured using level 1 and investments in warrants are measured using level 2. The Loans are classified as other financial liabilities and are carried at amortized cost. The fair value of all other financial instruments, other than marketable securities which are carried at fair value, approximates their carrying value due to their short term maturity or capacity of prompt liquidation. The Company does not have any financial instruments that are measured using level 3 inputs. During the six months ended June 30, 2018 there were no transfers between level 1, level 2 and level 3 classified assets and liabilities. 18. EVENTS AFTER THE REPORTING PERIOD Except as disclosed elsewhere in these condensed interim consolidated financial statements: (a) Proposed transaction On August 7, 2018, the Company, Sailfish and Golden Reign entered into a definitive agreement (the GRR Arrangement Agreement ), whereby Golden Reign will acquire all of the issued and outstanding shares of Marlin (following completion of the Marlin Reorganization (as defined) and satisfaction of all closing conditions of the business combination) by way of plan of arrangement (the Transaction ). As a condition to closing the Transaction (the Closing ), Sailfish has agreed to restructure its existing gold stream on San Albino. Under the terms of the GRR Arrangement Agreement, Golden Reign will acquire all of the outstanding Marlin common shares in exchange for of a Golden Reign common share (each whole common share, a GRR Share ) for each Marlin common share acquired (the Consideration ). In addition, Marlin will distribute an aggregate of 18,148,654 GRR Shares currently held by Marlin to the Marlin Shareholders on the basis of GRR Shares for each Marlin common share, bringing the total GRR Shares to be received by Marlin shareholders to of a GRR Share for each Marlin common share