Minco Base Metals Corporation

Transcription

1 Consolidated Financial Statements (1)

2 Management's Responsibility for Financial Reporting The consolidated financial statements are the responsibility of the Board of Directors and management. The consolidated financial statements have been prepared by management in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board and include certain estimates that reflect management s best judgments on information currently available. In the opinion of management, the accounting practices utilized are appropriate in the circumstances and the consolidated financial statements fairly reflect the financial position and results of operations of Minco Base Metals Corporation within reasonable limits of materiality. The Audit Committee of the Board of Directors is composed of three Directors and meets with management and the independent auditors to review the scope and results of the annual audit and to review the consolidated financial statements and related financial reporting matters prior to submitting the consolidated financial statements to the Board of Directors for approval. The consolidated financial statements have been audited by PricewaterhouseCoopers LLP, who was appointed by the shareholders. The auditors report outlines the scope of their examination and their opinion on the consolidated financial statements. Dr. Ken Cai President and CEO Larry Tsang, CPA, CA Chief Financial Officer Vancouver, Canada January 28, 2018 (2)

3 January 29, 2018 Independent Auditor s Report To the Shareholders of Minco Base Metals Corporation We have audited the accompanying consolidated financial statements of Minco Base Metals Corporation and its subsidiaries, which comprise the consolidated statements of financial position as at September 30, 2017 and September 30, 2016 and the consolidated statements of operation and comprehensive loss, statements of changes in shareholders equity and statements of cash flow for the years then ended, and the related notes, which comprise 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. Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Minco Base Metals Corporation and its subsidiaries as at September 30, 2017 and September 30, 2016 and their financial performance and their cash flows for the years then ended in accordance with International Financial Reporting Standards. (Signed) PricewaterhouseCoopers LLP Chartered Professional Accountants PricewaterhouseCoopers LLP PricewaterhouseCoopers Place, 250 Howe Street, Suite 1400, Vancouver, British Columbia, Canada V6C 3S7 T: , F: PwC refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership. (3)

4 Index Consolidated Financial Statements 5-8 Page Consolidated Statements of Financial Position 5 Consolidated Statements of Operation and Comprehensive Loss 6 Consolidated Statements of Changes in Shareholders Equity 7 Consolidated Statements of Cash Flows General information 9 2 Basis of preparation and restatement 9 3 Significant accounting policies 9 4 Cash and cash equivalents 17 5 Short-term investments 18 6 Other receivables 18 7 Inventories 18 8 Property, plant and equipment 19 9 Exploration and evaluation assets Related party transactions Share capital Provision for restoration and rehabilitation Income tax Financial instruments and fair values Capital management 27 (4)

5 Consolidated Statements of Financial Position September 30, September 30, Assets $ $ Current assets Cash and cash equivalents (note 4) 982,778 1,802,902 Short-term investments (note 5) 19,718,809 22,451,868 Other receivables (note 6) 305, ,845 Prepaid expenses and deposits 37,174 48,496 Inventories (note 7) 1,708, ,700 22,752,533 24,884,811 Reclamation bond (note 9) 100, ,000 Exploration and evaluation assets (note 9) 153,916 1,604,905 Property and equipment (note 8) 3,019, ,677 Total Assets 26,025,908 27,523,393 Liabilities Current liabilities Accounts payable and accrued liabilities 488, ,153 Current taxes payable (note 13) 1,636,679 1,565,816 Due to related parties (note 10) 52, ,439 2,177,663 1,826,408 Non-current liabilities Provision for restoration and rehabilitation (note 12) 20,536 20,536 Deferred tax liabilities (note 13) 419, ,146 Total liabilities 2,617,935 2,347,090 Shareholders equity Share capital (note 11(a)) 665, ,343 Contributed surplus 1,022, ,102 Retained earnings 21,720,354 23,711,858 Total shareholders equity 23,407,973 25,176,303 Total liabilities and shareholders equity 26,025,908 27,523,393 Approved by the Board of Directors: Ken Cai Tony Guo Ken Cai Tony Guo Director Director The accompanying notes are an integral part of these consolidated financial statements (5)

6 Consolidated Statements of Operation and Comprehensive Loss $ $ Administrative expenses Accounting and audit 69,143 51,182 Amortization 767 4,572 Consulting 64,983 61,853 Directors' fees 34,000 53,000 Legal, regulatory and filing 17,752 17,078 Office expenses 89,002 81,961 Property investigation 42, ,725 Rent 87,652 76,444 Travel 14,004 36,726 Salaries and benefits 580,768 72,581 Share-based compensation (note 11 (b)) 223, ,057 1,223, ,179 Loss before other income (1,223,530) (944,179) Foreign exchange loss (1,110,944) (1,870,561) Interest income (note 6) 350, ,181 Loss for the year before income taxes (1,984,255) (2,256,559) Income tax recovery (expenses), current (note 13) (87,659) (188,255) Income tax recovery (expenses), deferred (note 13) 80, ,322 Total (7,249) (40,933) Net loss and comprehensive loss for the year (1,991,504) (2,297,492) Loss per share Basic and diluted (0.14) (0.16) Weighted average number of common shares outstanding Basic and diluted 13,992,257 13,992,257 The accompanying notes are an integral part of these consolidated financial statements (6)

7 Consolidated Statements of Changes in Shareholders Equity Number of shares Share Contribute Retained capital d surplus earnings Total $ $ $ $ Balance October 1, ,992, , ,045 26,009,350 27,165,738 Comprehensive loss for the year (2,297,492) (2,297,492) Share-based compensation , ,057 Balance - September 30, ,992, , ,102 23,711,858 25,176,303 Balance October 1, ,992, , ,102 23,711,858 25,176,303 Comprehensive loss for the year (1,991,504) (1,991,504) Share-based compensation , ,174 Balance - September 30, ,992, ,343 1,022,276 21,720,354 23,407,973 The accompanying notes are an integral part of these consolidated financial statements. (7)

8 Consolidated Statements of Cash Flow $ $ Cash flows from operating activities Net loss for the year (1,991,504) (2,297,492) Adjustments for: Amortization 767 4,572 Deferred income tax recovery (80,410) (147,322) Share-based compensation (note 11 (b)) 223, ,057 Unrealized foreign exchange loss related to short-term investments and cash and cash equivalents 1,110,944 1,870,561 Changes in items of working capital: Other receivables 12,523 74,186 Prepaid expenses and deposits 11,322 (30,322) Inventory (577,724) - Accounts payable and accrued liabilities 365,827 79,887 Due from/to related parties (85,438) 85,632 Current taxes payable 70, ,485 Net cash (used in) generated from operating activities (939,656) 144,244 Cash flows from investing activities Reclamation bonds - (100,000) Mineral property costs (687,991) (761,577) Acquisition of mineral interests - (1,014,333) Acquisition of property and equipment (814,594) (971,913) Purchase of short-term investments (19,661,309) (57,500) Proceeds from redemption of short-term investments 21,308,692 3,028,359 Net cash generated from investing activities 144, ,036 Effect of exchange rates on cash and cash equivalents (25,266) (64,884) Increase (decrease) in cash and cash equivalents (820,124) 202,396 Cash and cash equivalents - Beginning of year 1,802,902 1,600,506 Cash and cash equivalents - End of year 982,778 1,802,902 The accompanying notes are an integral part of these consolidated financial statements. (8)

9 1. General information Minco Base Metals Corporation ( MBM or the Company ) was incorporated on May 22, 2007 under the Business Corporations Act (British Columbia). Its principal business activity is the acquisition, exploration and development of resource properties. The Company s registered office is West Georgia Street, Vancouver, British Columbia, Canada. The Company is currently exploring, developing, and operating placer mineral interests in the area near Quesnel, British Columbia, Canada and the Company continues to review and assess new mineral exploration or development projects for acquisition. 2. Basis of preparation These consolidated financial statements have been prepared in accordance with and using accounting policies in compliance with the International Financial Reporting Standards ( IFRS ) as issued by the International Accounting Standards Board ( IASB ) and Interpretations of the IFRS Interpretations Committee ( IFRIC ). These consolidated financial statements were approved by the board of directors for issue on January xx, Significant accounting policies The significant accounting policies used in the preparation of these consolidated financial statements are described below. Consolidation These consolidated financial statements include the accounts of the Company and its subsidiaries, Minco Mining & Metals Limited ( MM&M HK ), a company incorporated in Hong Kong, Allgold B.C. Ltd. ( Allgold ), a company incorporated in British Columbia, and Minco Mining (BVI) Ltd. ( Minco BVI ), a company incorporated in the British Virgin Islands. All intercompany transactions, balances and unrealized gains and losses from intercompany transactions are eliminated on consolidation. Information about subsidiaries is as follows: Name Principal activities (ownership interest) Country of Incorporation MM&M HK Treasury company (100%) Hong Kong Allgold Exploring and producing mineral properties (100%) Canada Minco BVI Holding company (100%) British Virgin Islands Use of estimates and judgments The preparation of these consolidated financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual areas of estimation include assumptions used in income taxes, impairment of non-financial assets and inventory. Actual results may differ from these estimates. (9)

10 3. Significant accounting policies (continued) Use of estimates and judgments (continued) Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements is included in the notes to the financial statements where applicable. a) Critical judgments in applying accounting policies Determination of functional currency In accordance with IAS 21, The Effects of Changes in Foreign Exchange Rates, management determined that the functional currency of the Company and its wholly owned subsidiaries is the Canadian dollar. The functional currency of the Company and its wholly owned subsidiaries are reassessed by management when conditions indicate a change may be warranted. Determination of commercial viability and technical feasibility of the QR Project, and determination of commercial production The application of the Company s accounting policy for exploration and evaluation assets requires judgment to determine when technical feasibility and commercial viability of the QR Project was demonstrable. The determination of when a placer operation is in the condition necessary for it to be capable of operating in the manner intended by management (referred to as commercial production ) is a matter of significant judgement. In making this determination, management will consider specific facts and circumstances. Factors considered in making this judgment are discussed in the exploration and evaluation asset accounting policy. b) Key sources of estimation uncertainty Current taxes payable Uncertainties exist with respect to the interpretation of complex tax regulations and the amount and timing of taxable income. The Company establishes provisions, based on reasonable estimates, for possible consequences of audits by the tax authorities. The amount of such provisions is based on various factors, such as experience of previous tax audits and differing interpretations of tax regulations by the taxable entity and the responsible tax authority. Impairment of non-financial assets The application of the Company s accounting policy for impairment of non-financial assets requires judgment to determine whether indicators of impairment exist including factors such as: the period for which the Company has the right to explore; expected renewals of placer mining rights; whether substantive expenditures or further placer mining and project development of exploration and evaluation assets are budgeted. As required by IFRS 6, Exploration and Evaluation of Mineral Resources, the Company completed an impairment test for the QR project as at July 1, 2017, prior to its reclassification from an exploration and evaluation asset under IFRS 6 to property and equipment under IAS 16, Property, Plant and Equipment. The key assumptions used in this impairment test are outlined in note 9. (10)

11 3. Significant accounting policies (continued) Use of estimates and judgments (continued) Inventory The product inventory is carried at the lower of cost and net realizable value. The determination of forecast sales prices, exchange rates, recovery rates, grade, and assumed contained gold require significant assumptions that may impact the stated value of the inventory and lead to changes in net realizable value. Share-based payments Share-based compensation for directors, officers and employees or others providing equivalent services is determined based on the grant date fair value. Compensation expense is recognized over each tranche s vesting period based on the number of awards expected to vest. If stock options are ultimately exercised, the applicable amounts of contributed surplus are transferred to share capital Foreign currency translation (i) Functional and presentation currency The financial statements of each entity in the group are measured using the currency of the primary economic environment in which the entity operates (the functional currency ). The consolidated financial statements are presented in Canadian dollars. The functional currency of the Company and its wholly owned subsidiaries is the Canadian dollar. (ii) Transactions and balances Foreign currency transactions are translated into the functional currency of an entity using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of foreign currency transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in currencies other than an operation s functional currency are recognized in the statements of operation and comprehensive income. Financial instruments Financial assets and liabilities are recognized when the Company becomes a party to the contractual provisions of the instrument. Financial assets are derecognized when the rights to receive cash flows from the assets have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership. Financial liabilities are derecognized when the obligation specified in the contract is discharged, cancelled or expires. Financial assets and liabilities are offset and the net amount reported in the statements of financial position when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously. At initial recognition, the Company classifies its consolidated financial instruments in the following categories: (i) Financial assets and liabilities at fair value through profit or loss: A financial asset or liability is classified in this category if acquired principally for the purpose of selling or repurchasing in the short-term. (11)

12 3. Significant accounting policies (continued) Financial instruments (continued) Financial instruments in this category are recognized initially and subsequently at fair value. Transaction costs are expensed in the consolidated statements of operation and comprehensive income. Gains and losses arising from changes in fair value are presented in the consolidated statements of operation and comprehensive income within other gains and losses in the period in which they arise. Financial assets and liabilities at fair value through profit or loss are classified as current except for the portion expected to be realized or paid beyond twelve months of the balance sheet date, which is classified as non-current. (ii) Loans and receivables: Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. The Company s loans and receivables are comprised of cash and cash equivalents, short-term investments, other receivables and deposits. Loans and receivables are initially recognized at the amount expected to be received less, when material, a discount to reduce the loans and receivables to fair value. Subsequently, loans and receivables are measured at amortized cost using the effective interest method less a provision for impairment. Cash and cash equivalents comprise of cash at banks and on hand and guaranteed investment certificates with initial maturities of less than three months. Short-term investments comprise of guaranteed investment certificates with initial maturity of greater than three months, but less than one year. (iii) Financial liabilities at amortized cost: Financial liabilities at amortized cost include accounts payable and accrued liabilities and due to related parties. Financial liabilities are classified as current liabilities if payment is due within twelve months. Otherwise, they are presented as non-current liabilities. Impairment of financial assets At each reporting date, the Company assesses whether there is objective evidence that a financial asset is impaired. If such evidence exists, the Company recognizes an impairment loss as follows: Financial assets carried at amortized cost: the loss is the difference between the amortized cost of the loans and receivables and the present value of the estimated future cash flows, discounted using the instrument s original effective interest rate. The carrying amount of the asset is reduced by this amount either directly or indirectly through the use of an allowance account. Impairment losses on financial assets carried at amortized cost are reversed in subsequent periods if the amount of the loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized. (12)

13 3. Significant accounting policies (continued) Exploration and evaluation assets Exploration and evaluation costs include costs to acquire exploration rights, geological studies, exploratory drilling and sampling and directly attributable administrative costs. Exploration and evaluation costs relating to non-specific projects or properties or those incurred before the Company has obtained legal rights to explore an area are expensed in the period incurred. Exploration and evaluation cost relating to specific projects or properties after the Company has obtained legal rights to explore are capitalized. The Company determines that a property is in the development stage once the technical feasibility and commercial viability of the extraction of resources is established. Once this has been established, capital costs attributed to that property are first tested for impairment and then reclassified to property and equipment. Development costs incurred prior to commercial production (defined below) are capitalized and included in the carrying amount of the related property in the period incurred. Proceeds from the sale of minerals prior to the achievement of commercial production (defined below), proceeds from sale of properties, or cash proceeds received from option payments are recorded as a reduction of the related mineral property as incurred. Mineral interests The determination of when a placer operation is in the condition necessary for it to be capable of operation in the manner intended by management (referred to as commercial production ) is a matter of significant judgment. In making this determination, management considers specific facts and circumstances. These factors include, but not limited to, whether the major capital expenditures to bring the operations to the condition necessary for it to be capable of operating in the manner intended by management have been completed, and consistent operation results being achieved at a pre-determined level of design capacity for a reasonable period of time. When a property has achieved operational results that are expected to remain at a sustainable operational level over a period of time, that property enters the commercial production stage. Quantitative and qualitative factors indicating the achievement of commercial production stage include but are not limited to the following: A significant portion of planned capacity, production levels, grades and recovery rate are achieved at a sustainable level; completion of major mine and plant components; management s intended operating results are being achieved consistently for a period of time. Upon commencement of commercial production, mineral rights and properties and capitalized expenditures are depleted over the mine s estimated life using the units of production method over the area to be mined during the mine life. Costs incurred after the property is placed into production that increase production volume or extend the life of a mine are capitalized. (13)

14 3. Significant accounting policies (continued) Provisions Provisions represent liabilities of the Company for which the amount or timing is uncertain. Provisions are recognized when the Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and the amount can be reliably estimated. Provisions are measured at the current best estimate required to settle the obligation and when necessary estimation techniques are utilized. A provision for restoration and rehabilitation is recognized when there is a present legal or constructive obligation as a result of exploration and development activities undertaken; it is more likely than not that an outflow of economic benefits will be required to settle the obligation and the amount of the provision can be measured reliably. The estimated future obligation includes the cost of removing facilities, abandoning sites and restoring the affected areas. The provision for future restoration costs is the best estimate of the present value of the expenditure required to settle the restoration obligation at the reporting date. The estimated cost is capitalized into the cost of the related asset and amortized on the same basis as the related assets. If the estimated cost does not relate to an asset, it is charged to earnings in the period in which the event giving raises to the liability occurs. Property and equipment Property and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. The carrying amount of a replaced asset is derecognized when replaced. The major categories of property, plant and equipment are depreciated on a straight-line basis as follows: Mining Equipment Office Equipment and Furniture Vehicles Mobile home 5 years 5 years 5 years 5 years Impairment losses are included in as part of other gains and losses on the consolidated statements of operations and comprehensive income. Inventories The classification of metals inventory is determined by the stage at which the mined material is in the production process. The Company s inventory consists of product inventories produced during test mining activities and production and is valued at the lower of cost and net realizable value. The cost of product inventories includes mining costs, cost of materials and supplies, direct labor costs, depreciation and depletion, and applicable production overhead costs, based on normal operating capacity. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sales. (14)

15 3. Significant accounting policies (continued) Earnings (loss) per share Basic earnings per share are computed using the weighted average number of common shares outstanding during the period. Diluted earnings 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. If the Company incurs net losses in the period, basic and diluted loss per share is the same. Income tax Income tax on the statement of operations for the years presented comprises current and deferred tax. Income tax is recognized in the statement of operations except to the extent that it relates to items recognized directly in equity or other comprehensive income, in which case the income tax is recognized in equity or other comprehensive income. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted, or substantively enacted, at the end of the reporting year, and any adjustment to tax payable in respect of previous years. Current tax assets and current tax liabilities are only offset if a legally enforceable right exists to set off the amounts, and the Company intends to settle on a net basis, or to realize the asset and settle the liability simultaneously. Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for the initial recognition of assets or liabilities that is not a business combination and that affects neither accounting nor taxable profit nor loss. Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for the initial recognition of assets or liabilities that is not a business combination and that affects neither accounting nor taxable profit nor loss. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized. (15)

16 3. Significant accounting policies (continued) Accounting standards and amendments issued but not yet adopted IFRS 9, Financial Instruments, addresses classification and measurement of financial assets. It replaces the multiple category and measurement models in IAS 39 Financial Instruments: Recognition and Measurement for debt instruments with a new mixed measurement model having only two categories: amortized cost and fair value through profit or loss. Requirements for financial liabilities are largely carried forward from the existing requirements in IAS 39 except that fair value changes due to credit risk for liabilities designated at fair value through profit and loss are generally recorded in other comprehensive income. The effective date of this new standard will be for periods beginning on or after January 1, The Company has not yet assessed the impact of this standard. IFRS 15 Revenue from Contracts with Customers, which will replace IAS 18, Revenue, is effective for fiscal years beginning on or after January 1, The standard contains a single model that applies to contracts with customers. Revenue is recognized as control is passed to the customer, either at a point in time or over time. New estimates and judgmental thresholds have been introduced, which may affect the amount and/or timing of revenue recognized. The Company is still in the process of assessing the impact, if any, on the financial statements of this new standard. The IASB has replaced IAS 17, Leases in its entirety with IFRS 16, Leases, which will require lessees to recognize nearly all leases on the balance sheet to reflect their right to use an asset for a period of time and the associated liability to pay rentals. IFRS 16 is effective for annual periods commencing on or after January 1, The Company is in the process of evaluating the impact the standard is expected to have on our consolidated financial statements. (16)

17 4. Cash and cash equivalents As at September 30, 2017, cash and cash equivalents consisted of $93,998 ( $108,053) cash and a term deposit of $888,780 with original maturity 90 days or less ( $1,694,849). The yield of this term deposit was between 1.1% and 1.4% per annum. Amount in original currency Canadian dollar equivalent ($) September 30, 2017 Cash denominated in Canadian dollars 79,594 79,594 Cash denominated in Chinese RMB 4,816, , ,778 September 30, 2016 Cash denominated in Canadian dollars 75,230 75,230 Cash denominated in Chinese RMB 8,766,552 1,727,672 1,802,902 All of the cash denominated in RMB is maintained in the People s Republic of China ( PRC ), where the remittance of funds to a jurisdiction outside the PRC is subject to government rules and regulations on foreign currency controls. Remittance of these funds back to Canada may require approvals by the relevant government authorities or designated banks in the PRC or both. The Company is a foreign entity in China and does not have a registered Chinese subsidiary. Therefore it is not allowed to open a bank account in China. In order to hold the funds from the disposition of the Company s interest in Gansu Keyin Mining Co. Ltd. ( Keyin ) and the White Silver Mountain property in 2009, the Company entered a trust agreement dated December 21, 2009 (the Trust Agreement ) and subsequently renewed on November 30, 2011 with Beijing Zhongjia Kailong Technology Development Co. Ltd. ( Zhongjia ), a Chinese registered entity controlled by a brother of the Chief Executive Officer of the Company. Pursuant to the Trust Agreement, Zhongjia held the cash denominated in Chinese RMB in trust for the benefit of the Company. The Company was charged $5,786 ( $6,084) for the safekeeping. (17)

18 5. Short-term investments The Company s short-term investments consisted of one guaranteed investment certificate of $57,500 and three term deposits with maturity of 365 days: September 30, 2017 September 30, 2016 $ $ Term deposits denominated in RMB 19,661,309 22,394,368 Term deposits denominated in Canadian dollar 57,500 57,500 19,718,809 22,451,868 All of the short-term investments are held with high creditworthy financial institutions. The yields on the 365 days deposits ranged from 1.65% to 1.95% per annum (2016 between 1.65% and 1.95%). Pursuant to the Trust Agreement, all term deposits denominated in RMB are held by Zhongjia for the benefit of the Company for the years ended September 30, 2017 and 2016 (note 4). 6. Other receivables September 30, 2017 September 30, 2016 $ $ Interest receivable 207, ,291 GST/HST receivable 19,356 68,554 Other receivable 78,886 5, , ,845 During the year ended September 30, 2017, the Company earned interest income of $350,219 from the cash and cash equivalents and short-term investments held by the Company (2016-$558,181). 7. Inventories During 2017, the Company has been developing its QR Placer Gold project (note 9) located in Quesnel, BC. On July 1, 2017, the QR Placer Gold project achieved commercial production. As at September 30, 2017, the carrying cost of the Company s inventories as follows: Supplies for production $ 4,725 Finished goods mineral concentrate 1,703,725 Total $ 1,708,450 As at November 30, 2017, the cost of the inventory was approximately equal to its net realizable value. (18)

19 8. Property and equipment Continuity of the Company s property and equipment is as follows: Mineral interest (QR Project) Mining equipment Motor vehicles Office equipment, furniture and mobile home Total $ $ $ $ $ October 1, ,766 14,445 2,284 38,495 Additions - 649, ,558 65, ,797 Disposition - - (12,884) - (12,884) Amortization - (48,640) (22,817) (5,274) (76,731) September 30, , ,302 62, ,677 Additions (note 9) 1,842, , ,246 40,427 2,673,040 Disposition - - (15,903) - (15,903) Amortization/depletion (315,443) (181,763) (58,420) (15,729) (571,355) September 30, ,527,100 1,054, ,225 86,743 3,019,459 As at September 30, 2016 Cost - 671, ,651 68,222 1,007,506 amortization/depletion - (49,303) (18,349) (6,177) (73,829) Net - 622, ,302 62, ,677 As at September 30, 2017 Cost 1,842,543 1,285, , ,649 3,664,643 amortization/depletion (315,443) (231,066) (76,769) (21,906) (645,184) Net 1,527,100 1,054, ,225 86,743 3,019,459 During the year ended September 30, 2017, the amortization and depletion of the Company s property and equipment was $571,355, of which $166,562 has been capitalized to the QR Placer Gold project (or QR Project ) (note 9) and $404,026 has been directly added to the Company s product inventory. (19)

20 9. Exploration and evaluation assets As at the year ended September 30, 2017, the Company had the following exploration and evaluation assets: QR Project Lucky Project $ $ Balance, September 30, Acquisition 909, ,000 Amortization of equipment 72,159 - Capitalized expenditures 758,997 2,580 Environmental rehabilitation 20,536 - Transfer to inventory (263,700) - Balance, September 30, ,497, ,580 Acquisition - - Amortization of equipment 166,562 - Capitalized expenditures 643,656 46,336 Environmental rehabilitation - - Transfer to inventory (465,000) - Reclassified to property in commercial production (note 8) (1,842,543) - Balance, September 30, ,916 On July 1, 2017, the Company concluded that technical feasibility and commercial viability of the QR Project had been demonstrated, and the project transitioned from an exploration and evaluation asset under IFRS 6 to property and equipment under IAS 16. At the time of the transition, the Company completed an impairment test as required by IFRS 6. The impairment test compared the carrying amount of the QR Project to its recoverable amount. The recoverable amount is the higher of the fair value less costs of disposal and value in use. The Company estimated the recoverable amount based on the value in use using a discounted cash flow model for a 27-month period ending September 30, The significant assumptions that impact the resulting fair value include: Future gold prices ranging between US$1,249/oz to US$1,300/oz based on third party forecasts US dollar to Canadian dollar exchange rate of based on third party forecasts Operating costs based on actual results for the project to date Equipment salvage value of $1.0 million at the end of the testing period; and Gold production based on the Company's current mine plan. Given the short life of the project, the model is highly sensitive to all of the key inputs. Upon completion of the impairment test, the Company concluded there was no impairment The QR Project also entered production commencing July 1, The Company started to deplete the capitalized mineral interest based on the area mined during the period from July 1 to September 30, In connection with the QR Project, the Company has provided a reclamation bond of $100,000 to the government that is expected to be recovered after the QR project is completed. (20)

21 10. Related party transactions The Company, Minco Gold Corporation ( Minco Gold ), and Minco Silver Corporation ( Minco Silver ) are related as all three entities have the same senior management team. Shared expenses The Company, Minco Gold, and Minco Silver share offices and certain administrative expenses in Vancouver. During the year ended September 30, 2017, the Company paid Minco Gold an amount of $42,555 ( $32,462) in respect of rent, and $136,942 ( $94,534) in respect of other shared office expenses and administrative expenses; During the year ended September 30, 2017, the Company reimbursed a Chinese subsidiary of Minco Silver ( MSV Subsidiary) an amount of $54,930 for shared office space and supplies, $307,755 for labor charges, and $ 69,909 for administration services in connection with the use of labor of this MSV Subsidiary in connection with the QR Project. Key management compensation During the years ended September 30, 2017 and 2016, the following compensation was paid to key management. Key management includes the Company s directors and senior management. This compensation is included in administrative expenses. Years ended September 30, $ $ Cash remuneration 128, ,823 Share-based compensation 122, ,615 Total 251, ,438 The above transactions are conducted in the normal course of business. Amount due to related parties September Due to Minco Silver $ $ - Reimbursement of the shared expenses 39, ,240 Due to Minco Gold: - Reimbursement of the shared expenses 12,178 17,199 Total due to related parties 52, ,439 The amounts due are unsecured, non-interest bearing and payable on demand. (21)

22 10. Related party transactions (continued) Exchange of funds with Minco Silver The Company keeps most of its funds in China, and the remittances of these funds from China to Canada require approval by the relevant government authorities or designated banks in China or both. The Company borrows Canadian funds from Minco Silver in Canada, and repays the amounts in RMB to Minco Silver s subsidiaries in China from time to time. During the year ended September 30, 2017, the Company received $2,030,000 from Minco Silver in Canada in exchange for a RMB 10,594,527 payment to Minco Silver s subsidiaries in China. 11. Share capital (a) Common shares Authorized: unlimited number of common shares without par value. (b) Stock options The Company may grant up to 10% of its issued and outstanding shares as options to its directors, officers, employees and consultants under its incentive stock option plan. On November 30, 2015, the Company granted stock options, exercisable to purchase up to an aggregate of 911,000 shares of the Company, to directors, consultants, and employees. These options vest in three tranches over a three-year period, have an exercise price of $0.89 per share, and will expire on November 30, 2020 if unexercised. During the year ended September 30, 2017, the Company recorded $223,174 ( $308,057) of share-based compensation expenses. The following table sets out options granted by the Company: Number outstanding Weighted average exercise price $ Balance, September 30, Granted 911, Balance, September 30, 2016 and , (22)

23 11. Share capital (continued) Options outstanding Options exercisable Exercise prices Number outstanding Weighted average remaining contractual life (year) Weighted average exercise price Number exercisable Weighted average exercise price $ $ $ , , The Company used the Black-Scholes option pricing model to determine the fair value of the options granted with the following assumptions: Risk-free interest rate N/A 0.91% Annual pre-vest forfeiture rate N/A 8.64% Volatility N/A 113% Expected annual dividend yield N/A 0% Estimated expected lives N/A 5 years Option pricing models require the use of highly subjective estimates and assumptions including the expected stock price volatility. In the absence of a volatility of the Company s share price, the Company has used the annual volatility of the share prices of six Canadian junior mining public companies as a proxy to estimate the Company s share price volatility for use in the Black-Scholes option pricing model. Changes in the underlying assumptions can materially affect the fair value estimates and therefore, in management s opinion, existing models do not necessarily provide a reliable measure of the fair value of the Company s stock options. 12. Provision for restoration and rehabilitation During the year ended September 30, 2017, the Company did not accrue any additional provision for restoration and rehabilitation associated with the Company s QR Project. As at September 30, 2017, the undiscounted amount required to settle the Company s restoration and rehabilitation provision is $20, 640 (2016- $20,750) expected to be incurred over the next two years. The estimated costs have been discounted using a discount rate of 0.52 % per annum. 13. Income taxes Effective January 1, 2008, the Corporate Income Tax Law approved by the National People s Congress (NPC) of China established a unified 25% tax rate for both domestic enterprises and foreign invested enterprises (FIEs). The law also established a Withholding Income Tax on overseas companies obtaining income in China. Withholding income tax was determined by the Chinese taxation authority at 10% on the net gain from the sale of the Company s ownership in Keyin, and were paid by the Company. Interest income of MM&M HK earned in China is subject to a 7% withholding tax. (23)

24 13. Income taxes (continued) Income tax expense differs from the amount that would result from applying the Canadian federal and provincial income tax rates to earnings before income taxes. These differences result from the following items: Tax rate 26% 26% $ $ Income taxes at statutory rates (515,907) (584,566) Non-deductible (taxable) items 39,033 99,472 China withholding tax 24, ,230 Deferred tax asset not recognized 248,947 94,647 Change in tax rate and others 210, ,150 Income tax expense (recovery) 7,249 40,933 Deferred taxes arise from temporary differences in the recognition of income and expenses for financial reporting and tax purposes. The significant components of deferred tax assets and liabilities as at September 30, 2017 and 2016 are as follows: $ $ Resource property and equipment costs (262,761) 21,076 Unrealized taxable foreign exchange gain (504,228) (737,166) Tax losses carried forward 852, ,894 Deferred tax assets not recognized (504,897) (255,950) Deferred tax assets (liability) (419,736) (500,146) As at September 30, 2017, the Company recorded liabilities of $1,296,488 ( $1,248,901) to account for uncertain tax positions, including accrued interest, relating to the sale of White Silver Mountain project in The Company also has $2,531,562 of non-capital losses carry-forward for Canadian income tax purposes which start expiring in The losses expire as follows: $ , , ,217, ,956 Total 2,531,562 (24)

25 13. Income taxes (continued) The Company is subject to taxation in China where tax rules and requirements might be unclear or not fully understood / implemented, resulting in tax deductions and return filing positions being challenged. The risk remains that the relevant authorities could take different positions with regard to interpretive issues and the effect could be significant. 14. Financial instruments As explained in note 3, financial assets and liabilities have been classified into categories that determine their basis of measurement and, for items measured at fair value, whether changes in fair value are recognized in the statement of operations or comprehensive income. Those categories are: fair value through profit or loss; loans and receivables; and, for liabilities, amortized cost. The following table shows the carrying values of the financial assets and liabilities of these categories: September 30, 2017 September 30, 2016 $ $ Loans and receivables: Cash and cash equivalents 982,778 1,802,902 Short-term investments 19,718,809 22,451,868 Other receivables 305, ,845 Other financial liabilities: Accounts payable and accrued liabilities 488, ,154 Due to related parties 52, ,439 Fair value measurement Financial assets and liabilities that are recognized on the balance sheet at fair value can be classified in a hierarchy that is based on significance of the inputs used in making the measurements. The levels in the hierarchy are: Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities, Level 2 - inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is derived from prices), and Level 3 - inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs). The fair value of the Company s cash and cash equivalents, short-term investments, other receivables, accounts payables and accrued liabilities and amounts due to related parties approximate their carrying value given their short duration. Financial risk factors The Company s activities expose it to a variety of financial risks: market risk (including currency risk and interest rate risk), credit risk and liquidity risk. Risk management is carried out by management under policies approved by the board of directors. Management identifies and evaluates the financial risks. The board provides written principles for overall risk management. (25)

26 14. Financial instrument (continued) Interest rate risk Financial instruments that expose the Company to interest rate risk are the cash and cash equivalents and short-term investments owned by the Company. The Company is not exposed to interest rate risk as it does not have variable interest instruments. Liquidity risk Liquidity risk includes the risk that the Company cannot meet its financial obligations as they fall due. As at September 30, 2017, the Company has positive working capital of approximately $20.6 million. However, due to government rules and regulations on remitting funds from PRC to Canada and the limited amount of cash in Canada, the Company may face increased liquidity risk when expanding its operations outside of the PRC. Credit risk factors Counterparty credit risk is the risk that the financial benefits of contracts with a specific counterparty will be lost if the counterparty defaults on its obligation under the contract. This includes any cash amounts owed to the Company by these counterparties, less any amounts owed to the counterparty by the Company where a legal right of set-off exists and also includes the fair value of contracts with individual counterparties which are recorded in the financial statements. The Company considers the following financial assets to be exposed to credit risk: (a) (b) Cash and cash equivalents to minimize the risk, cash has been deposited in major financial institutions in the PRC (not subject to deposit insurance) and one major bank in Canada (subject to deposit insurance up to $100,000 in general). Cash equivalents consist of term deposits placed with one major PRC bank with maturities less than 90 days when acquired. The yields on the term deposit were between 1.1% and 1.4% per annum. Short-term investments are term deposits with maturities of greater than 90 days when acquired. At September 30, 2017, short-term investments totaled at $19,718,809 ( $22,451,868) and were placed with one major PRC bank earning interest at the rate between 1.65% and 1.95% per annum for a 360-day term ( interest at the rate between 1.65% and 1.95% for a 360-day term). Cash and cash equivalents and short-term investments are being held in trust by Zhongjia, a Chinese registered entity, controlled by a brother of the Company s Chief Executive Officer. (26)