CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 2011 AND 2010

Transcription

1 CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 2011 AND 2010

2 Buccaneer Gold Corp. (Formerly Verbina Resources Inc.) (A Development Stage Company) Consolidated FINANCIAL STATEMENTS SEPTEMBER 30, 2011 AND 2010 INDEX PAGE Independent Auditor s Report 1 Consolidated Balance Sheets 2 Consolidated Statements of Operations, Comprehensive Loss and Deficit 3 Consolidated Statements of Mineral Properties and Deferred Exploration Costs 4 Consolidated Statements of Cash Flows 5 Notes to the Consolidated Financial Statements 6-20

3 To the Shareholders of Buccaneer Gold Corp. INDEPENDENT AUDITOR S REPORT We have audited the accompanying consolidated financial statements of Buccaneer Gold Corp. and its subsidiary, which comprise the consolidated balance sheets as at September 30, 2011 and 2010, and the consolidated statements of operations, comprehensive loss, and deficit, consolidated statements of mineral properties and deferred exploration costs, and consolidated statements of cash flows for the years then ended, and a summary of significant accounting policies and other explanatory information. Management's Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Canadian generally accepted accounting principles 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 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 Buccaneer Gold Corp. and its subsidiary as at September 30, 2011 and 2010, and their financial performance and cash flows for the years then ended in accordance with Canadian generally accepted accounting principles. McGOVERN, HURLEY, CUNNINGHAM, LLP TORONTO, Canada January 12, 2012 Chartered Accountants Licensed Public Accountants

4 BUCCANEER GOLD CORP. Page 2 CONSOLIDATED BALANCE SHEETS AS AT SEPTEMBER 30, 2011 AND ASSETS CURRENT Cash and cash equivalents 4,956, ,992 Amounts receivable 30,354 13,081 Prepaid expenses 6,852 7,560 4,993, ,633 MINERAL PROPERTIES AND DEFERRED EXPLORATION COSTS (Statement and Notes 5 and 8) 1,070,091 1,609,771 6,064,077 2,208,404 LIABILITIES CURRENT LIABILITIES Accounts payable and accrued liabilities (Note 8) 48,830 65,460 Liability component of convertible debentures (Note 7) 4,511 45,108 53, ,568 LIABILITY COMPONENT OF CONVERTIBLE DEBENTURES (Note 7) 36, ,331 89, ,899 SHAREHOLDERS EQUITY CAPITAL STOCK (Note 6(b)) 7,871,134 2,396,337 EQUITY COMPONENT OF CONVERTIBLE DEBENTURES (Note 7) 5,831 66,361 WARRANTS (Note 6(e)) 819, ,801 CONTRIBUTED SURPLUS (Note 6(d)) 506, ,518 DEFICIT (3,228,865) (1,322,512) GOING CONCERN (Note 1) COMMITMENTS AND CONTINGENCIES (Notes 5 and 10) APPROVED ON BEHALF OF THE BOARD Kevin C. Swanborough, Director 5,974,481 1,780,505 6,064,077 2,208,404 Paul Zyla, Director See accompanying notes to the consolidated financial statements

5 BUCCANEER GOLD CORP. Page 3 CONSOLIDATED STATEMENTS OF OPERATIONS, COMPREHENSIVE LOSS AND DEFICIT EXPENSES Management fees (Note 8) 71,230 13,375 Filing fees and transfer agent fees 54,137 17,939 Professional fees 51,519 28,266 Office and administration 45,020 13,353 Interest 27,510 25,000 Travel and promotion (Note 8) 42, Stock-based compensation 43, ,861 Accretion 23,487 18,800 Insurance 10,486 10,650 Rent (Note 8) 7,500 6,000 (Gain) on foreign exchange (107,068) - Bank charges (Loss) before the under-noted (270,359) (265,243) Interest income 13, Write down of mineral properties and deferred exploration costs (Note 5) (1,649,770) (36,796) NET LOSS AND COMPREHENSIVE LOSS FOR THE YEAR (1,906,353) (301,787) DEFICIT, beginning of year (1,322,512) (1,020,725) DEFICIT, end of year (3,228,865) (1,322,512) NET LOSS PER SHARE Basic and diluted (0.086) (0.029) WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING, Basic and diluted 22,156,142 10,319,016 See accompanying notes to the consolidated financial statements

6 BUCCANEER GOLD CORP. Page 4 CONSOLIDATED STATEMENTS OF MINERAL PROPERTIES AND DEFERRED EXPLORATION COSTS Massey Vanward Gaiashk Banso / Muoso Total ACQUISITION COSTS Balance, September 30, , , ,300 Acquisition - 38, ,360 Balance, September 30, , , ,660 Acquisition - Shares issued , ,000 Acquisition - Cash paid - 40, , ,962 Write-off (99,999) (186,660) - - (286,659) Balance, September 30, , ,963 DEFERRED EXPLORATION COSTS Balance, September 30, , , ,270,648 Bulk sample expenses - 209, ,820 Proceeds from silica sales - (125,310) - - (125,310) Geology ,020-36,020 Other Consultants - 7, ,953 Write-off - - (36,796) - (36,796) Balance, September 30, , , ,363,111 VTEM Survey , ,150 Building ,978 30,978 Write-off (619,569) (743,542) - - (1,363,111) Balance, September 30, , ,128 BALANCE, SEPTEMBER 30, , , ,609,771 BALANCE, SEPTEMBER 30, ,070,090 1,070,091 See accompanying notes to the consolidated financial statements

7 BUCCANEER GOLD CORP. Page 5 CONSOLIDATED STATEMENTS OF CASH FLOWS CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) for the year (1,906,353) (301,787) Changes not involving cash: Accretion 23,487 18,800 Stock-based compensation 43, ,861 Unrealized foreign exchange gain (107,068) - Write down of mineral properties and deferred exploration costs 1,649,770 36,796 (296,298) (115,330) Changes in non-cash components of working capital (Increase) in amounts receivable (17,273) (6,021) Decrease (increase) in prepaid expenses 708 (3,490) (Decrease) in accounts payable and accrued liabilities (10,414) (137,955) Cash flows from operating activities (323,277) (262,796) CASH FLOWS FROM INVESTING ACTIVITIES Increase in mineral properties and deferred exploration expenditures (766,961) (180,428) Proceeds on sale of silica - 125,310 Cash flows from investing activities (766,961) (55,118) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from private placement 5,669, ,000 Share issue costs (465,467) (126,870) Proceeds from warrant exercises 157,625 - Proceeds from issue of convertible debentures - 500,000 Shareholder loan - received - 38,000 Shareholder loan - paid - (38,000) Cash flows from financing activities 5,361, ,130 Effect of foreign exchange rate changes on cash and cash equivalents 107,068 - Increase in cash and cash equivalents 4,378, ,216 CASH AND CASH EQUIVALENTS, beginning of year 577,992 22,776 CASH AND CASH EQUIVALENTS, end of year 4,956, , SUPPLEMENTAL INFORMATION Interest paid Change in accrued exploration expenditures 6,871 8,100 Common shares and warrants issued on 405,026 - conversion of convertible debentures Common shares issued for mineral property interests 350,000 - CASH AND CASH EQUIVALENTS September 30, September 30, Cash 528, ,992 Money market funds 4,428,002-4,956, ,992 See accompanying notes to the consolidated financial statements

8 BUCCANEER GOLD CORP. Page 6 1. NATURE OF OPERATIONS, BASIS OF PRESENTATION AND GOING CONCERN Buccaneer Gold Corp. (the Company or Buccaneer ), formerly Verbina Resources Inc., was incorporated under the laws of the Province of Ontario, Canada by Articles of Incorporation dated October 4, 2004 and changed its name to Buccaneer Gold Corp. pursuant to Articles of Amendment filed on April 11, The Company, which is in the development stage, as defined by the Canadian Institute of Chartered Accountants ( CICA ) Accounting Guideline 11, is engaged in the acquisition, exploration and development of gold and other mineral properties. The Company is in the process of conducting exploration on its properties to identify mineral resources and has not determined whether the properties contain economically recoverable reserves. The recovery of the amounts shown for the mineral properties and related deferred expenditures is dependent upon the existence of economically recoverable reserves, confirmation of the Company s interest in the underlying mineral claims or concessions, the ability of the Company to obtain necessary financing to complete the exploration, and upon future profitable production or alternatively, upon the Company s ability to dispose of its property interests on an advantageous basis. Although the Company has taken steps to verify title to the properties on which it is conducting exploration and in which it has an interest, in accordance with industry practice for the current stage of exploration of such properties, these procedures do not guarantee the Company s title. Property title may be subject to unregistered prior agreements and non-compliance with regulatory requirements. The Company s assets may also be subject to increases in taxes and royalties, renegotiation of contracts, and political uncertainty. The Company has no current revenues or cash flows from operations and working capital of approximately 4.9 million as at September 30, Management believes it will be successful in raising the necessary funds to continue in the normal course of operations; however, there is no assurance that these funds will be available on terms acceptable to the Company or at all. These consolidated financial statements have been prepared on the basis of accounting principles applicable to a going concern. These consolidated financial statements do not include the adjustments that would be necessary should the Company be unable to continue as a going concern. Such adjustments could be material. 2. SIGNIFICANT ACCOUNTING POLICIES These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles ( GAAP ) and their basis of application is consistent with that of the prior year, except as disclosed in Note 3. Outlined below are those policies considered particularly significant: (a) Cash and cash equivalents Cash and cash equivalents comprise cash on hand and money market funds, with original maturities of less than 90 days. The money market funds are held with a Canadian chartered bank or a financial institution controlled by a Canadian chartered bank. (b) Mineral properties and deferred exploration costs Interests in mineral properties and deferred exploration expenditures, net of pre-production revenues such as bulk sample sales, are carried at cost and are deferred until the properties are brought into production, at which time they are expected to be depleted on a unit-of-production method. Other general exploration expenses are charged to operations as incurred. The cost of mineral properties abandoned or sold and their related deferred exploration costs are expensed to operations in the year of abandonment or sale.

9 BUCCANEER GOLD CORP. Page 7 2. SIGNIFICANT ACCOUNTING POLICIES (Continued) (b) Mineral properties and deferred exploration costs (Continued) Costs include the cash consideration and the fair market value of the shares issued for the acquisition of mineral properties. The carrying value is reduced by option proceeds received and bulk sample sale proceeds until such time as the property cost and deferred exploration costs are valued to nominal amounts, at which point receipts are recorded in operations. Properties acquired under option agreements or by joint ventures, whereby payments are made at the sole discretion of the Company, are recorded in the accounts at the time of payment. The Company reviews its capitalized property costs on a periodic basis and recognizes impairment in value based upon current exploration results, if any, and upon management's assessment of the future probability of profitable revenues from the property or from sale of the property. Management's assessment of a property s estimated current value is also based upon a review of other property transactions that have occurred in the same geographic area as that of the property under review. (c) Asset retirement obligations Asset retirement obligations include the costs related to the abandonment of mineral properties and returning the land to its original condition. The Company recognizes an asset retirement obligation ( ARO ) in the period in which it is identified and a reasonable estimate of the fair value can be made. Fair value is estimated based on the present value of the estimated future cash outflows to abandon the asset, discounted at the Company s credit-adjusted risk-free interest rate. The fair value of the estimated ARO is recorded as a long-term liability with a corresponding amount capitalized to mineral property. The amount capitalized is charged to operations through the depletion and depreciation of mineral property. The ARO liability is increased each reporting period due to the passage of time and the amount of accretion is charged to operations. Revisions to the original estimated cost or the timing of the cash outflows may result in a change to the ARO. Actual costs incurred to settle the ARO reduce the long-term liability. Management is currently not aware of any existing AROs as at September 30, 2011 and 2010, and the Company does not currently have any legal obligations relating to the reclamation of its mining assets. (d) Income taxes The Company follows the asset and liability method of accounting for income taxes. Using this method, income tax liabilities and assets are recognized for the estimated tax consequences attributable to differences between the amounts reported in the financial statements of the Company and their respective tax bases, using enacted or substantively enacted income tax rates. The effect of a change in income tax rates on future tax liabilities and assets is recognized in operations in the period in which the change occurs or substantively occurs. A future income tax asset is recorded when the probability of realization is more likely than not. (e) Stock-based compensation The Company records stock-based compensation cost based on the fair value method of accounting for stock-based compensation. The fair value of stock options is estimated using the Black-Scholes option pricing model. The fair value of the options is recognized over the vesting period as compensation expense and contributed surplus. When options are exercised, the proceeds received, together with any related amount in contributed surplus, are credited to capital stock.

10 BUCCANEER GOLD CORP. Page 8 2. SIGNIFICANT ACCOUNTING POLICIES (Continued) (f) Flow-through financing The Company has financed a portion of its exploration activities through the issue of flow-through shares, which transfers the tax deductibility of exploration expenditures to the investor. Proceeds received on the issue of such shares have been credited to capital stock and the related exploration costs have been charged to mineral properties. Resource expenditure deductions for income tax purposes related to exploration and development activities funded by flow-through share arrangements are renounced to investors in accordance with income tax legislation. When these expenditures are renounced, temporary taxable differences created by the renunciation will reduce share capital. The Company has indemnified the subscribers for any tax related amounts that become payable by the subscriber as a result of the Company not meeting its expenditure commitments. (g) Loss per common share Basic loss per share is calculated using the weighted average number of shares outstanding. Diluted loss per share is calculated using the treasury stock method. In order to determine diluted loss per share, the treasury stock method assumes that any proceeds from the exercise of dilutive stock options and warrants would be used to repurchase common shares at the average market price during the period, with the incremental number of shares being included in the denominator of the diluted loss per share calculation. The diluted loss per share calculation excludes any potential conversion of options, warrants and convertible debentures that would decrease loss per share. See Notes 6(c), (e) and 7 for details on the Company s potentially dilutive securities. All of the Company s outstanding stock options, warrants and convertible debentures were anti-dilutive for the years ended September 30, 2011 and (h) Use of estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reported period. Such estimates and assumptions affect the carrying value of assets and impact decisions as to when exploration and development costs should be capitalized or expensed. Significant estimates include the valuation of interests in mineral properties and deferred exploration costs, warrants, stock-based compensation, asset retirement obligations, inventory, contingencies, convertible debentures and income tax accounts. The Company regularly reviews its estimates and assumptions; however, actual results could differ from these estimates and these differences could be material. (i) Financial instruments Financial assets and financial liabilities that are purchased and incurred with the intention of generating profits in the near term are classified as held-for-trading. Cash equivalents have been classified as heldfor-trading and these instruments are measured at fair value with subsequent changes in fair value included in operations. Financial assets that have a fixed maturity date and fixed or determinable payments, where the Company intends and has the ability to hold the financial asset to maturity, are classified as held-to-maturity and are measured at amortized cost using the effective interest rate method. Any gains and losses arising from the sale of held-to-maturity financial assets are included in operations. As at September 30, 2011 and 2010 the Company had no held-to-maturity financial assets.

11 BUCCANEER GOLD CORP. Page 9 2. SIGNIFICANT ACCOUNTING POLICIES (Continued) (i) Financial instruments (Continued) Items classified as loans and receivables are measured at amortized cost using the effective interest method. Any gains or losses on the realization of loans and receivables are included in operations. The Company s cash and amounts receivable are classified as loans and receivables. The estimated fair value of these financial instruments approximate their carrying value because of the limited term of these instruments. Available-for-sale assets are those financial assets that are not classified as held-for-trading, held-tomaturity or loans or receivables, and are carried at fair value. Any gains or losses arising from the change in fair value are recorded as other comprehensive loss. Available-for-sale securities are written down to fair value through operations whenever it is necessary to reflect other than temporary impairment. Cumulative gains and losses arising upon the sale of the instrument are included in operations. The Company did not have any available-for-sale assets as at September 30, 2011 and Financial liabilities that are not classified as held-to-maturity are classified as other financial liabilities, and are carried at amortized cost using the effective interest method. Any gains or losses arising from the realization of other financial liabilities are included in operations. The Company has classified accounts payable and accrued liabilities and the liability component of the convertible debenture as other financial liabilities, which are carried at amortized cost. (j) Convertible debentures The Company s convertible debt instruments are segregated into their debt and equity components at the date of issue, in accordance with the substance of the contractual agreements. The debt component of the debentures is classified as a liability, and recorded as the present value of the Company s obligation to settle the redemption value of the instrument. The carrying value of the debt component is accreted to the original face value of the instrument, over the term of the convertible debt instrument, using the effective interest method. The value of the conversion option makes up the equity component of the instrument. The conversion option is recorded using the residual value approach. Upon conversion, any gain or loss arising from extinguishment of the debt is recorded in operations of the current period. Financing charges associated with the debentures were prorated between the debt and equity components of the debentures. Those allocated to the debt portion of the debentures were deferred and are being expensed over the term of the debentures. 3. CHANGES IN ACCOUNTING POLICIES The Company adopted the following accounting policies during the year ended September 30, Basis of consolidation These consolidated financial statements include the accounts of Buccaneer Gold Corp. and its wholly owned subsidiary Buccaneer Gold (Ghana) Limited (from September 1, 2011). All significant intercompany balances and transactions have been eliminated upon consolidation.

12 BUCCANEER GOLD CORP. Page CHANGES IN ACCOUNTING POLICIES (Continued) Translation of foreign currencies and foreign subsidiary The functional and reporting currency of the Company is the Canadian dollar. Transactions in foreign currencies are translated into the currency of measurement at the exchange rates in effect on the transaction date. Monetary balance sheet items expressed in foreign currencies are translated into Canadian dollars at the exchange rates in effect at the balance sheet date. Non-monetary assets are translated at historical exchange rates. The resulting exchange gains and losses are recognized in operations. The Company s integrated foreign subsidiary is financially or operationally dependent on the Company. The Company uses the temporal method to translate the accounts of its integrated operations into Canadian dollars. Monetary assets and liabilities are translated at the exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are translated at historical rates. Revenues and expenses are translated at average rates for the period, except for amortization, which is translated on the same basis as the related asset. The resulting exchange gains or losses are recognized in operations. 4. FUTURE ACCOUNTING CHANGES International Financial Reporting Standards In January 2006, the Canadian AcSB adopted a strategic plan for the direction of accounting standards in Canada. As part of the plan, accounting standards in Canada for public companies are expected to converge with International Financial Reporting Standards ( IFRS ) by The transition date for the Company of October 1, 2011 will require restatement for comparative purposes of amounts reported by the Company for the year ended September 30, The Company continues to assess the impact of convergence of Canadian GAAP and IFRS. 5. MINERAL PROPERTIES AND DEFERRED EXPLORATION COSTS Massey Silica Project (the Massey Project ) On December 9, 2004, the Company entered into an option agreement with Salmay Resources Inc. ( Salmay ) to earn up to a 100% interest in six mining claims located in the May and Salter Townships, Ontario. Salmay staked an additional three claims subsequent to the signing of the option agreement for a total of nine mining claims pursuant to the option agreement. The Company earned an initial 65% undivided interest by paying a cash consideration of 100,000 and incurring 300,000 in exploration expenditures. To earn a further 15% interest, the Company must pay cash consideration of 100,000 and fund all permitting and licensing costs necessary to commence commercial production on the claims. The remaining 20% interest can be earned by paying cash consideration of 100,000 following the commencement of commercial production from the claims. This project is subject to a 3% net smelter return royalty ( NSR ), 2% of which may be purchased by the Company for 3,000,000. During the year ended September 30, 2011, the total acquisition and deferred exploration costs were written down to a nominal 1, as the Company has no immediate plans for the property. Vanward Silica Project (the Vanward Project ) On January 25, 2008, the Company signed a non-binding letter of intent ( LOI ) outlining the proposed terms of an option agreement with Vances Motor Inn Ltd., Fantastic Quartz Resources and Dan Patrie Exploration (the Vanward Optionors ) whereby the Company would acquire a 100% interest in two mining claims located in Deagle Township, Ontario.

13 BUCCANEER GOLD CORP. Page MINERAL PROPERTIES AND DEFERRED EXPLORATION COSTS (Continued) On April 10, 2008, the Company entered into a formal option agreement with the Vanward Optionors. Upon signing the agreement, the Company paid to the Vanward Optionors a non-refundable amount of 30,000. Subsequently, the Company executed an Option Agreement and Amending Agreement with the Vanward Optionors whereby, by certain additional payments totaling 150,000 over 3 years (paid), the Company could earn a 100% interest in the property subject to certain royalty payments on any production from the property. This project is subject to a 3% NSR of which up to 2% can be purchased at any time at the rate of 500,000 for each 0.5% of the NSR on any other commodities on the project other than silica quartz and their by-products. The Company will be required to pay a royalty on production from the project of between 1.00 and 2.50 per tonne, depending upon the quality of the quartz produced and sold and the time of shipment, which royalty payments can be bought out by the Company at any time up to October 20, 2012 for 600,000 less any royalty payments or advance royalties paid prior thereto. If, in any year after 2012, there is no annual production greater than 25,000 tonnes, the Vanward Project will be considered to be dormant and the Company will be required to either return the property in good standing to the Vanward Optionors, buy out the royalty payments, or pay advance royalties to the Vanward Optionors on the basis of 25,000 tonnes per year. On August 29, 2008, the Company signed an agreement in principle with Sitec s.e.c. ( Sitec ), to sell a bulk sample of high purity quartz (silica) ( Bulk Sample ) from its Vanward Project. The Company subsequently extracted and sold the Bulk Sample to Sitec and based on the quartz having met Sitec's specifications, entered into a definitive supply agreement with Sitec on November 24, 2008 for a 10 year term pursuant to which the Company agreed to sell, and Sitec agreed to purchase, a minimum of 50,000 metric tonnes of quartz in 2009 and for each year thereafter covered by the supply agreement, a volume of quartz production from the Vanward Project based on an annual supply forecast to be provided to the Company by Sitec. On August 25, 2010, the Company entered into a letter of intent with Sitec proposing the assignment of the interest in the option agreement for the Vanward property to Sitec. During the year ended September 30, 2011, the Company was advised by Sitec that it was no longer interested in pursuing the transfer of the Company s interest in the Vanward Project and as such, no definitive agreement was signed. Discussions which have been on-going with regard to the potential supply of quartz to Sitec from the Vanward property were terminated during the year ended September 30, The Company has no immediate plans for the Vanward Project, and accordingly, all acquisition and deferred exploration costs were written off during the year ended September 30, Gaiashk Uranium Project (the Gaiashk Project ) Upon signing of a LOI with Dan Patrie Exploration and Precambrian Ventures Inc. ( Precambrian ) in May 2007, the Company paid 100,000 and issued 100,000 shares of the Company valued at 32,000. In July 2007, the Company entered into a formal option agreement as amended on September 16, 2009 related to seven mining claims located in the Gaiashk Township. On December 9, 2009, upon review of the exploration results and the further consideration payable with respect to the Company s acquisition of the Gaiashk property, the Company decided not to pursue the Gaiashk option agreement. As a result the total acquisition and deferred exploration costs were written off and the property reverted to the optionors. Banso and Muoso Concessions (the Concessions ) In July 2010, as amended January 21, 2011, the Company entered into a non-binding LOI with Xtra-Gold Resources Corp. ( Xtra ), whereby, subject to the approval of the TSX Venture Exchange ( TSX-V ), the Company may earn a 55% undivided interest in certain concessions in Ghana, West Africa. Subsequently, Xtra decided to apply for mining licenses on each of the exploration concessions. Certain directors and officers of the Company are also directors and officers of Xtra.

14 BUCCANEER GOLD CORP. Page MINERAL PROPERTIES AND DEFERRED EXPLORATION COSTS (Continued) On February 16, 2011, the Company received TSX-V acceptance of the LOI with Xtra. As set out in the LOI, in order for the Company to acquire a 55% interest, the Company must make cash payments to Xtra in the aggregate of US425,000 within 90 days of regulatory acceptance (paid), issue 1,000,000 common shares of the Company upon the effective date (issued and valued at 350,000 based on the market price of the shares on the date of issuance) and must incur a total of US4,425,000 in exploration expenditures within five years of the regulatory acceptance date as follows: a minimum US500,000 within the first year from the effective date, US1,000,000 in each of years 2 through 4, and US925,000 in year 5. Once the Company has earned a 55% interest, a joint venture will be formed. At that time, the Ghanaian government would be entitled to a 10% interest in the property for no consideration. 6. CAPITAL STOCK The capital stock is as follows: (a) (b) Authorized Unlimited number of common shares Unlimited number of Class A special shares Unlimited number of Class B special shares Issued Common Shares Amount # Balance, September 30, ,812,167 2,111,007 Common shares issued for cash 5,000, ,367 Share issuance costs - (87,037) Balance, September 30, ,812,167 2,396,337 Common shares issued for cash 14,174,500 5,005,498 Common shares issued in conversion of debt (Note 7) 3,600, ,215 Common shares issued for property interest (Note 5) 1,000, ,000 Warrants exercised 1,137, ,068 Share issue costs - (410,984) Balance, September 30, ,724,167 7,871,134 On March 31, 2010, the Company completed a private placement of 5,000,000 units at 0.10 per unit for gross proceeds of 500,000. Each unit consisted of one common share and one-half of one common share purchase warrant, with each whole warrant entitling the holder to purchase one common share of the Company at a price of 0.15 per share on or before March 31, The warrants were valued at 127,633, or 0.06 per warrant, using the Black-Scholes option pricing model with the following assumptions: expected dividend yield of 0%; expected volatility of 140%; risk-free interest rate of 2.03% and an expected average life of three years. In connection with this private placement, the Company paid a 50,000 cash commission, representing 10% of the gross proceeds, and issued 500,000 broker warrants that entitle the holder to acquire one broker unit at for a period of three years until March 31, Each broker unit consists of one common share and one-half of one non-transferable common share purchase warrant, with each whole warrant entitling the holder to purchase one common share of the Company at a price of 0.15 per share on or before March 31, The grant date fair value of the broker warrants was estimated at 40,000, or 0.08 per broker warrant, using the Black-Scholes option pricing model with the following assumptions: expected dividend yield of 0%; expected volatility of 140%; risk-free interest rate of 2.03% and an expected average life of three years.

15 BUCCANEER GOLD CORP. Page CAPITAL STOCK (Continued) (b) Issued (Continued) In April 2011, the Company completed a non-brokered private placement for gross proceeds of 5,669,800 through the issuance of 14,174,500 units at a price of 0.40 per unit. Each unit consisted of one common share and one-half of one common share purchase warrant. Each whole warrant entitles the holder to acquire one additional common share at a price of 0.65 for a period of 15 months from the date of issuance. If the closing sale price of the Company s common shares on the TSX Venture Exchange is greater than 0.85 per common share for a period of 20 consecutive trading days at any time following the issuance of the warrants, the Company may accelerate the expiry date of the warrants by giving notice to the holders thereof within five (5) trading days of such 20 day period whereupon the warrants will expire on the 30th calendar day after the date on which such notice is given. The grant date fair value of the warrants was estimated at 664,302 or 0.09 per broker warrant, using the Black- Scholes option pricing model with the following assumptions: expected dividend yield of 0%; expected volatility of 101%; risk-free interest rate of 1.86% and an expected average life of 15 months. Three individuals who are directors and officers of the Company subscribed for a total of 125,000 units for aggregate proceeds of 50,000 pursuant to the April 2011 private placement. (c) Stock Options On April 11, 2011, the Company s 10% rolling stock option plan ( Plan ) was reviewed and received shareholder approval. The Plan provides that incentive-based stock options may be granted, at the Board of Directors discretion to a quantity not to exceed 10% of the issued and outstanding shares of the Company at the time of granting. On July 21, 2010, the Company granted 1,150,000 stock options to directors and officers of the Company and 50,000 stock options to consultants of the Company, exercisable at 0.22 per share until July 20, The fair value of the stock options was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions: expected dividend yield of 0%; expected volatility of 125%; risk-free interest rate of 1.73% and expected life of 3 years. The stock options were assigned a value of 130,861, or 0.11 per option, and vested immediately on the date of grant. In January 2011, 140,000 stock options exercisable at 0.50 per share and 100,000 options exercisable at 0.15 per share, were cancelled. On April 27, 2011, the Company granted 50,000 stock options to an officer of the Company exercisable at 0.45 per share until April 20, The fair value of the stock options was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions: expected dividend yield of 0%; expected volatility of 128%; risk-free interest rate of 2.11% and expected life of 3 years. The stock options were assigned a value of 16,500, or 0.33 per option, and vested immediately on the date of grant. On June 27, 2011, the Company granted 250,000 stock options to an officer of the Company with an exercise price of 0.40 per share. The fair value of the stock options was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions: expected dividend yield of 0%; expected volatility of 128%; risk-free interest rate of 1.40% and expected life of 2.2 years. The stock options were assigned a value of 55,000, or 0.22 per option, and vest as follows: 50,000 on each of September 1, 2011, March 1, 2012, September 1, 2012, March 1, 2013 and August 31, 2013.

16 BUCCANEER GOLD CORP. Page CAPITAL STOCK (Continued) (c) Stock Options (Continued) A summary of changes in stock options is as follows: Weighted Average Exercise Stock Options Price # Balance, September 30, , Expired (415,000) 0.37 Granted 1,200, Balance, September 30, ,440, Expired (240,000) 0.35 Granted 50, Granted 250, Balance, September 30, ,500, The following stock options to purchase common shares of the Company were outstanding as at September 30, 2011: Options Issued Options Exercisable Exercise Price # Expiry Date July 21, ,200,000 1,200, July 20, 2013 April 27, ,000 50, April 20, 2014 June 27, ,000 50, August 31, ,500,000 1,300,000 The weighted average remaining contractual life of issued and outstanding stock options as at September 30, 2011 was 1.85 years. The weighted average exercise price of options exercisable as at September 30, 2011 was (d) Contributed Surplus A summary of changes in contributed surplus is as follows: Amount Balance, September 30, ,190 Stock-based compensation - employees (Note 6(c)) 125,408 Stock-based compensation - non-employees (Note 6(c)) 5,453 Expiration of warrants (Note 6(e)) 89,467 Balance, September 30, ,518 Stock-based compensation - employees (Note 6(c)) 43,866 Balance, September 30, ,384

17 BUCCANEER GOLD CORP. Page CAPITAL STOCK (Continued) (e) Warrants A summary of changes in warrants is as follows: Warrants # Weighted Average Exercise Price Value Balance, September 30, , ,467 Expired (584,480) (0.84) (89,467) Issued (Note 6(b)) 3,500, ,801 Balance, September 30, ,500, ,801 Broker warrants exercised (520,000) (0.125) (41,600) Exercised (617,500) (0.15) (24,157) Issued on exercise of broker warrants 260, ,323 Issued on conversion of debt (Note 7) 1,800, ,811 Issued pursuant to private placement (Note 6(b)) 7,087, ,819 Balance, September 30, ,509, ,997 The following warrants to purchase common shares of the Company were outstanding as at September 30, 2011: Warrants Issued Exercise Price Warrant Value # Expiry Date March 31, ,000* ,400 March 31, 2013 March 31, ,007, ,533 March 31, 2013 February 24, , ,489 March 31, 2013 April 6, ,800, ,811 March 31, 2013 April 21, ,087, ,819 July 21, 2012 May 17, , March 31, ,509, ,997 *Exercisable into broker units, which would be comprised of 480,000 common shares and 240,000 nontransferable common share purchase warrants, exercisable at 0.15 per share on or before March 31, 2013, (Note 6(b)).

18 BUCCANEER GOLD CORP. Page CONVERTIBLE DEBENTURES During the year ended September 30, 2010, the Company issued 500,000 worth of 5,000 principal amount convertible debentures to fund working capital and exploration expenditures. These unsecured convertible notes bear interest at 10% per annum, payable quarterly and are due March 31, 2013 (the Maturity ). The principal amount and accrued interest is convertible into units at per unit. In connection with this private placement, the Company paid a 50,000 cash commission, representing 10% of the gross proceeds, and issued 500,000 broker options that entitle the holder to acquire one broker unit at for a period of three years until March 31, Each broker unit consists of one common share and one-half of one non-transferable common share purchase warrant, with each whole warrant entitling the holder to purchase one additional common share of the Company at a price of 0.15 per share on or before March 31, The grant date fair value of the broker options was estimated at 40,000 using the Black-Scholes option pricing model with the following assumptions: expected dividend yield of 0%; expected volatility of 140%; risk-free interest rate of 2.03% and an expected average life of three years. During the year ended September 30, 2011, debentures in the principal amount of 450,000 were converted to units at the conversion price of per unit. The Company issued 3,600,000 common shares and 1,800,000 whole common share purchase warrants with an aggregate value of 405,026. The fair value of the warrants was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions: expected dividend yield of 0%; expected volatility of 128%; risk-free interest rate of 1.88% and expected life of 2 years. The warrants were assigned a value of 86,811, or 0.02 per warrant. The convertible debentures are classified as liabilities, with the exception of the portion relating to the conversion feature which is classified as equity, resulting in the carrying value of the liability being less than its face value. The discount is being accreted over the term of the debentures, utilizing the effective interest rate method at a 17% discount rate. For the year ended September 30, 2011, accretion of the discount totaled 23,487 ( ,800). 8. RELATED PARTY TRANSACTIONS During the year ended September 30, 2011, the Company incurred 7,500 (2010-6,000) in rent, to a corporation which has officers and directors in common with the Company. Included in accounts payable and accrued liabilities at September 30, 2011 is 1,000 (2010 8,000) owing to this corporation. During the year ended September 30, 2011, the Company incurred 70,000 ( nil) for management fees plus 33,504 (2010 nil) included in travel and promotion expenses paid to officers and directors of the Company. Included in accounts payable and accrued liabilities at September 30, 2011 is Nil ( Nil) owing to these individuals. During the year ended September 30, 2011, the Company incurred 33,853 ( nil) for administrative services to an officer and former officer and director of the Company. Included in accounts payable and accrued liabilities at September 30, 2011 is 380 (2010-2,000) owing to these individuals. All amounts due to related parties are unsecured, non-interest bearing and payable on demand. The above related party transactions were in the normal course of operations and were measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. See also Note 5. See Note 6(b) for related party participation in private placement financings. See Note 6(c) for stock options granted to directors and officers of the Company.

19 BUCCANEER GOLD CORP. Page INCOME TAXES Provision for Income taxes Major items causing the Company s income tax rate to differ from the combined Canadian federal and provincial statutory rate of approximately 28.9% ( %) are as follows: Loss before taxes: (1,906,353) (301,787) Expected income tax benefit (551,700) (95,100) Adjustments to benefit resulting from: Stock-based compensation 12,700 41,200 Share issue costs (116,400) (19,200) Difference in tax rates 72,400 30,500 Non-deductible expenditures 6,800 - Other (20,100) - Change in valuation allowance 596,300 42,600 Income taxes - - Future Tax Balances The tax effects of temporary differences that give rise to future income tax assets and liabilities as at September 30 are as follows: Future income tax assets Non-capital losses 177,400 82,000 Share issue costs 122,000 53,800 Mineral properties 480,200 47, , ,300 Valuation allowance (779,600) (183,300) Net future tax asset (liability) - - As at September 30, 2011, the Company had approximately 729,000, 1,191,000 and 1,070,000 of Canadian development, Canadian exploration and foreign development and exploration expenditures respectively which, under certain circumstances, may be used to reduce taxable income of future years. The Company had approximately 709,700 of non-capital losses in Canada, which can be used to reduce taxable income in future years as follows. Amount Year of Expiry , , , , , , , ,700

20 BUCCANEER GOLD CORP. Page CONTINGENCIES Environmental Contingencies The Company s exploration activities are subject to various federal and provincial laws and regulations and Ghanaian laws governing the protection of the environment. These laws and regulations are continually changing and generally becoming more restrictive. The Company has made, and expects to make in the future, expenditures to comply with such laws and regulations. 11. FINANCIAL INSTRUMENTS AND RISK FACTORS Fair value Canadian generally accepted accounting principles require that the Company disclose information about the fair value of its financial assets and liabilities. Fair value estimates are made at the balance sheet date, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties in significant matters of judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect these estimates. Fair value measurements are classified using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy shall have the following levels: (a) quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1); (b) inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices) (Level 2); and (c) inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3). As at September 30, 2011, the Company s financial instruments that are carried at fair value, consisting of cash equivalents, have been classified as Level 2 within the fair value hierarchy. The carrying amounts of cash, amounts receivable, and accounts payable and accrued liabilities on the balance sheet approximate fair market value because of the limited term of these instruments. The Company's risk exposures and the impact on the Company's financial instruments are summarized below. There have been no changes in the risks, objectives, policies and procedures from the previous year. (a) Credit Risk The Company s credit risk is primarily attributable to amounts receivable. The Company has no significant concentration of credit risk arising from operations. Financial instruments included in amounts receivable consist of goods and services tax and harmonized sales tax due from the Federal Government of Canada. Management believes that the credit risk concentration with respect to financial instruments included in amounts receivable is remote. (b) Liquidity Risk The Company s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet its obligations when due. As at September 30, 2011, the Company had cash and cash equivalents of 4,956,780 ( ,992) available to settle current liabilities of 53,341 ( ,568). All of the Company s accounts payable have contractual maturities of less than 30 days and are subject to normal trade terms.

21 BUCCANEER GOLD CORP. Page FINANCIAL INSTRUMENTS AND RISK FACTORS (Continued) (c) Market Risk The Company is exposed to the following market risks: (i) Interest Rate Risk The Company has cash balances and no variable interest-bearing debt. The Company s current policy is to invest excess cash in investment-grade short-term deposit certificates issued by banking institutions. The Company periodically monitors the investments it makes and is satisfied with the credit ratings of its banks. (ii) Foreign Exchange Risk The Company s functional currency is the Canadian dollar but major purchases are transacted in Canadian dollars, United States dollars and Ghanaian Cedi. The Company holds a foreign currency balance of US1,377,155 (1,422,050) ( Nil) included in cash and cash equivalents and is subject to foreign currency risk. (iii) Price Risk The Company is exposed to price risk with respect to commodity prices. The Company closely monitors commodity prices to determine the appropriate course of action to be taken by the Company. (d) Sensitivity Analysis The Company holds balances in United States dollars that gives rise to foreign exchange risk. Based on management s knowledge and experience of the financial markets, the Company does not believe there would be any material movements as a result of changes in interest rates. A 10% change in the Canadian Dollar exchange rate as at September 30, 2011 compared to the US Dollar, with all other variable held constant, would impact the Company s net loss by approximately 138, CAPITAL MANAGEMENT The Company considers its capital to consist of shareholders equity and the liability component of convertible debentures. The Company manages its capital structure and makes adjustments to it, based on the funds available to the Company, in order to support the acquisition, exploration and development of mineral properties. The Board of Directors does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company s management to sustain future development of the business. The properties in which the Company currently has an interest are in the development stage; as such the Company is dependent on external financing to fund its activities. In order to carry out the planned exploration and pay administrative costs, the Company will spend its existing working capital and raise additional amounts as needed. The Company will continue to assess new properties and seek to acquire an interest in additional properties if it feels there is sufficient geological or economical potential and if it has adequate financial resources to do so. Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable. There were no changes in the Company s approach to capital management in the years ended September 30, 2011 and The Company and its subsidiary are not subject to externally imposed capital requirements.