CONSOLIDATED FINANCIAL STATEMENTS

Transcription

1 CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2017

2 INDEPENDENT AUDITORS' REPORT To the Shareholders of NRG Metals Inc. We have audited the accompanying consolidated financial statements of NRG Metals Inc., which comprise the consolidated statements of financial position as at December 31, 2017 and 2016 and the consolidated statements of loss and comprehensive loss, changes in shareholders equity and cash flows for the years then ended, and a summary of significant accounting policies and other explanatory information. Management s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors 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 auditors 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, these consolidated financial statements present fairly, in all material respects, the financial position of NRG Metals Inc. as at December 31, 2017 and 2016 and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards.

3 Emphasis of Matter Without qualifying our opinion, we draw attention to Note 1 in the consolidated financial statements which describes conditions and matters that indicate the existence of a material uncertainty that may cast significant doubt about the ability of NRG Metals Inc. to continue as a going concern. DAVIDSON & COMPANY LLP Vancouver, Canada Chartered Professional Accountants April 30, 2018

4 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION AS AT DECEMBER 31, ASSETS Current Cash $ 2,661,303 $ 1,168,176 Receivables (Note 4) 74,110 44,887 Prepaid expenses - 4,760 Assets held for disposal (Note 6) - 834,335 2,735,413 2,052,158 Exploration and evaluation assets (Note 5) 628,512 26,367 $ 3,363,925 $ 2,078,525 LIABILITIES AND SHAREHOLDERS EQUITY Current Accounts payable and accrued liabilities (Note 7) $ 354,438 $ 142,847 Liabilities associated with assets classified as held for disposal (Note 6) - 355, , ,343 Shareholders equity Share capital (Note 8) 29,713,380 24,480,281 Share subscriptions (Note 8) 5,500 - Reserves 6,664,564 4,715,203 Deficit (33,373,957) (27,615,302) 3,009,487 1,580,182 Nature and continuance of operations (Note 1) Subsequent events (Note 17) $ 3,363,925 $ 2,078,525 On behalf of the Board: Adrian F. C. Hobkirk Director Christopher P. Cherry Director The accompanying notes are an integral part of these consolidated financial statements. 4

5 CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS YEARS ENDED DECEMBER EXPENSES Administration $ 778,237 $ 92,501 Consulting fees 811, ,438 Directors fees (Note 13) 34,754 50,095 Exploration costs (Note 5) 1,022, ,985 Management fees (Note 13) 190, ,694 Professional fees (Note 13) 370, ,788 Share-based payments (Note 9) 2,723, ,592 Transfer agent and filing fees 79,163 38,696 Travel 109,725 69,356 (6,121,268) (1,600,145) Gain on plan of arrangement (Note 6) 185,000 - Foreign exchange gain 170,412 10,947 Gain on settlement of accounts payable 7,201 - Loss and comprehensive loss for the year $ (5,758,655) $ (1,589,198) Basic and diluted loss per common share $ (0.08) $ (0.04) Weighted average number of common shares outstanding 72,427,843 39,433,888 The accompanying notes are an integral part of these consolidated financial statements. 5

6 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (Expressed in Canadian Dollar Share Capital Common Shares Amount Share Subscriptions Deficit Reserves Total Shareholders Equity Balance, December 31, ,697,885 $ 21,882,919 $ - $ (26,026,104) $ 4,465,283 $ 322,098 Comprehensive loss for the year (1,589,198) - (1,589,198) Shares issued for cash, net 30,277,500 2,299, ,436 2,373,080 Options exercised 778, ,718 - (88,108) 89,610 Shares issued for mineral property 1,000, , ,000 Share-based payments , ,592 Balance, December 31, ,753,385 24,480,281 - (27,615,302) 4,715,203 1,580,182 Comprehensive loss for the year (5,758,655) - (5,758,655) Plan of arrangement - (813,839) (813,839) Shares issued for cash, net 19,400,000 1,924, ,924,000 Shares issuance costs finders warrants - (13,783) ,783 - Share subscriptions on warrant exercises - - 5, ,500 Shares issued for services 2,500, , ,000 Shares issued for mineral property 1,200, , ,000 Share-based payments ,038,620 2,038,620 Options exercised 875, , (103,041) 121,250 Warrants exercised 22,212,250 2,845, ,845,430 Balance, December 31, ,940,635 $ 29,713,380 $ 5,500 $ (33,373,957) $ 6,664,565 $ 3,009,487 The accompanying notes are an integral part of these consolidated financial statements. 6

7 CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER CASH FLOWS USED IN OPERATING ACTIVITIES Loss for the year $ (5,758,655) $ (1,589,198) Items not affecting cash: Share-based payments 2,723, ,592 Gain on plan of arrangement (185,000) - Gain on settlement of accounts payable (7,201) - Changes in non-cash working capital items: Receivables (29,223) (4,117) Prepaid expenses 4, ,698 Accounts payable and accrued liabilities 233,143 (43,337) Net cash used in operating activities (3,018,556) (1,260,362) CASH FLOWS USED IN INVESTING ACTIVITIES Evaluation and exploration acquisitions (220,145) (44,294) Cash spun out on plan of arragement (150,000) - Net cash used in investing activities (370,145) (44,294) CASH FLOWS FROM FINANCING ACTIVITIES Share subscriptions on warrant exercises 5,500 - Proceeds on issuance of share capital, net 4,876,328 2,444,690 Net cash provided by financing activities 4,881,828 2,444,690 Change in cash during the year 1,493,127 1,140,034 Cash, beginning of year 1,168,176 28,142 Cash, end of year $ 2,661,303 $ 1,168,176 Supplement disclosure with respect to cash flows (Note 16) The accompanying notes are an integral part of these consolidated financial statements. 7

8 1. NATURE AND CONTINUANCE OF OPERATIONS The Company was incorporated in the Province of Ontario on June 20, Effective January 15, 2007, the Company was granted a Certificate of Continuation under the Business Corporation Act from the jurisdiction of Ontario into British Columbia. The Company is an exploration stage junior mining company engaged in the identification, acquisition and exploration of mineral properties in Argentina. The Company s head office, principal address and registered records office is located at West Pender Street, Vancouver, British Columbia, Canada. The Company s consolidated financial statements have been prepared on a going concern basis, which presumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. Several conditions cast doubt on the validity of this assumption. For the year ended December 31, 2017 the Company incurred a net loss of $5,758,655 ( $1,589,198) and had an accumulated deficit of $33,373,957 ( $27,615,302). The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence. Such adjustments would be material. The ability of the Company to continue as a going concern and meet its commitments as they become due, including the acquisition and exploration of exploration and evaluation assets, is dependent on the Company s ability to obtain the necessary financing. Management is planning to raise additional capital to finance operations and acquire mineral properties. The outcome of these matters cannot be predicted at this time. The Company has incurred losses since inception and the ability of the Company to continue as a going concern depends upon its ability to develop profitable operations and to continue to raise adequate financing. These material uncertainties may cast significant doubt about the Company s ability to continue as a going concern. The Company is in the process of exploring its exploration and evaluation assets and has not yet determined whether these properties contain reserves that are economically recoverable. The recoverability of the amounts shown for exploration and evaluation assets and related deferred costs is dependent upon the existence of economically recoverable reserves, the ability of the Company to obtain necessary financing to complete the development of its mineral properties and upon future profitable production. 2. BASIS OF PRESENTATION Statement of Compliance These consolidated financial statements, including comparatives, have been prepared using accounting policies consistent with International Financial Reporting Standards ( IFRS ) as issued by the International Accounting Standards Board ( IASB ) and interpretations of the International Financial Reporting Interpretations Committee ( IFRIC ). They have been prepared on a historical cost basis, except for financial instruments classified as financial instruments at fair value through profit and loss, which are stated at their fair value. In addition, these financial statements have been prepared using the accrual basis of accounting except for cash flow information. These financial statements are presented in Canadian dollars unless otherwise noted. 8

9 2. BASIS OF PRESENTATION (continued) Approval of the financial statements The consolidated financial statements of the Company for the year ended December 31, 2017 were reviewed by the Audit Committee and approved and authorized for issue by the Board of Directors on April 30, Basis of Consolidation These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries: Gold Port Ltd. ( Gold Port ) incorporated in British Columbia on November 18, 2016, Gold Port (Guyana) Incorporated, incorporated in Guyana, South America, Gold Port Resources Limited, incorporated in Guyana until the spin out was completed on January 11, 2017 and NRG Metals S.A incorporated in Argentina on June 14, 2016 from the date control was acquired. Control exists when the Company possesses power over an investee, has exposures to variable returns from the investee and has the ability to use its power over the investee to affect its returns. All intercompany balances and transactions have been eliminated. New Accounting Standards adopted The following new standards and amendments to existing standards were not yet effective for the year ended December 31, 2017, and have not been applied in preparing these consolidated financial statements: New standard not yet adopted A number of new standards, amendments to standards and interpretations applicable to the Company are not yet effective for the year ended December 31, 2017 and have not been applied in preparing these consolidated financial statements. The new and revised standards are as follows: IFRS 2 Share Based Payments: the amendments eliminate the diversity in practice in the classification and measurement of particular share-based payment transactions which are narrow in scope and address specific areas of classification and measurement. It is effective for annual periods beginning on or after January 1, 2018, with early adoption permitted provided it is disclosed. The Company does not expect that the adoption of this standard will have a material effect on the Company s consolidated financial statements. IFRS 9 Financial Instruments: Applies to classification and measurement of financial assets and liabilities as defined in IAS 39. It is effective for annual periods beginning on or after January 1, 2018 with early adoption permitted. The Company does not expect that the adoption of this standard will result in increased disclosure requirements and fair value considerations for complex receivables. IFRIC 22 Foreign Currency Transactions and Advance Consideration: addresses how to determine the date of the transaction when applying IAS 21. It is effective for annual periods beginning on or after January 1, 2018 with early adoption permitted. The Company does not expect that the adoption of this standard will have a material effect on the Company s consolidated financial statements. 9

10 2. BASIS OF PRESENTATION (continued) New standard not yet adopted (continued) IFRS 16 Leases: On January 13, 2016, the IASB issued the final version of IFRS 16 Leases. The new standard will replace IAS 17 Leases and is effective for annual periods beginning on or after January 1, IFRS 16 eliminates the classification of leases as either operating leases or finance leases for a lessee. Instead, all leases are treated in a similar way to finance leases applying IAS 17. IFRS 16 does not require a lessee to recognize assets and liabilities for short term leases (i.e. leases of 12 months or less) and leases of low-value assets. The Company is evaluating the effect of this standard on the Company s consolidated financial statements. IFRIC 23 Uncertainty Over Income Tax Treatments: clarifies how to apply the recognition and measurement requirements in IAS 12 when there is uncertainty over income tax treatments. It is effective for annual periods beginning on or after January 1, 2019 with early adoption permitted. The Company does not expect that the adoption of this standard will have a material effect on the Company s consolidated financial statements. Critical Accounting Estimates and Judgments The preparation of these consolidated financial statements requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported expenses during the period. Actual results could differ from these estimates. Significant assumptions about the future and other sources of estimation uncertainty that management has made at the end of the reporting period, that could result in a material adjustment to the carrying amounts of assets and liabilities in the event that actual results differ from assumptions made, relate to, but are not limited to, the following: i) The carrying value and the recoverability of exploration and evaluation assets, which are included in the statements of financial position. The cost model is utilized and the value of the exploration and evaluation assets is based on the expenditures incurred. At every reporting period, management assesses the potential impairment which involves assessing whether or not facts or circumstances exist that suggest the carrying amount exceeds the recoverable amount. ii) The valuation of shares issued in non-cash transactions. Generally, the valuation of non-cash transactions is based on the value of the goods or services received. When this cannot be determined, it is based on the fair value of the non-cash consideration. When non-cash transactions are entered into with employees and those providing similar services, the non-cash transactions are measured at the fair value of the consideration given up using market prices. iii) The recognition of deferred tax assets. The Company considers whether the realization of deferred tax assets is probable in determining whether or not to recognize these deferred tax assets. iv) Share-based payments are subject to estimation of the value of the award at the date of grant using pricing models such as the Black-Scholes option valuation model. The option valuation model requires the input of highly subjective assumptions including the expected stock price volatility. Because the Company s stock options have characteristics significantly different from those of traded options and because the subjective input assumptions can materially affect the calculated fair value, such value is subject to measurement uncertainty. v) The fair value of the exploration and evaluation properties transferred in the plan of arrangement. Management estimated the fair value of the exploration and evaluation assets transferred which formed the value recorded on completion of the transaction. 10

11 3. SIGNIFICANT ACCOUNTING POLICIES Foreign currency translation The functional currency is the currency of the primary economic environment in which the entity operations and has been determined for each entity within the Company. The functional currency for all entities within the Company is the Canadian dollar. The functional currency determinations were conducted through an analysis of the consideration factors identified in International Accounting Standards ( IAS ) 21, The Effects of Changes in Foreign Exchange Rates. Foreign currency transactions and balances are translated into Canadian dollars as follows: (i) (ii) (iii) Monetary assets and liabilities, at the rate of exchange in effect at the statement of financial position date; Non-monetary assets and liabilities, at the exchange rates prevailing at the time of the acquisition of the assets or assumption of the liabilities; and Revenue and expense items (excluding amortization, which is translated at the same rate as the related asset), at the rate of exchange prevailing at the transaction date. Gains and losses arising from translation of foreign currency are included in the determination of net loss. Exploration and evaluation assets All costs related to the acquisition of exploration and evaluation assets are capitalized on a property by property basis, net of recoveries. Exploration costs incurred prior to the determination of the feasibility of mining operations and a decision to proceed with development are expensed to operations as incurred. If economically recoverable ore reserves are developed, capitalized costs of the related property are classified as mining assets and amortized using the unit-of-production method. When a property is abandoned, all related costs are written off to operations. The amounts shown for acquisition costs represent costs incurred to date and do not necessarily reflect present or future values. These costs are depleted over the useful lives of the properties upon commencement of commercial production or written off if the properties are abandoned or the claims allowed to lapse. From time to time, the Company may acquire or dispose of an exploration and evaluation asset pursuant to the terms of an option agreement. As the options are exercisable entirely at the discretion of the optionee, the amounts payable or receivable are not recorded. Option payments are recorded as property costs or recoveries when the payments are made or received. Proceeds received on the sale of an option of the Company s property are recorded as a reduction of the mineral property cost. The Company recognizes in income amounts received in excess of the carrying amount. Although the Company has taken steps to verify the title to exploration and evaluation assets in which it has an interest, in accordance with industry standards 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 or transfers and title may be affected by undetected defects. Evaluation and exploration assets are assessed for impairment by management when facts and circumstances suggest that the carrying amount exceeds the recoverable amount. When there is little prospect of further work on a property being carried out by the Company or its partners, when a property is abandoned, or when the capitalized costs are no longer considered recoverable, the related property costs are written down to management s estimate of their net recoverable amount. The recoverability of the carrying amount of exploration and evaluation assets is dependent on successful development and commercial exploitation or alternatively the sale of the respective areas of interest. 11

12 3. SIGNIFICANT ACCOUNTING POLICIES (continued) Decommissioning liabilities An obligation to incur decommissioning and site rehabilitation costs occurs when environmental disturbance is caused by exploration, evaluation, development or ongoing production. Decommissioning and site rehabilitation costs arising from the installation of plant and other site preparation work, discounted to their net present value, are provided when the obligation to incur such costs arises and are capitalized into the cost of the related asset. These costs are charged against operations through depreciation of the asset and unwinding of the discount on the provision. Depreciation is included in operating costs while the unwinding of the discount is included as a financing cost. Changes in the measurement of a liability relating to the decommissioning or site rehabilitation of plant and other site preparation work are added to, or deducted from, the cost of the related asset. The costs for the restoration of site damage, which arises during production, are provided at their net present values and charged against operations as extraction progresses. Changes in the measurement of a liability, which arises during production, are charged against operating profit. The discount rate used to measure the net present value of the obligations is the pre-tax rate that reflects the current market assessment of the time value of money and the risks specific to the obligation. Impairment of tangible assets The Company s tangible and intangible assets are reviewed for indications of impairment at each statement of financial position date. If indication of impairment exists, the asset s recoverable amount is estimated. An impairment loss is recognized when the carrying amount of an asset, or its cash-generating unit, exceeds its recoverable amount. A cash-generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Impairment losses are recognized in profit and loss for the period. An impairment loss is reversed if there is an indication that there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. Loss per share Basic loss per share is calculated using the weighted average number of common shares outstanding during the period. The Company uses the treasury stock method to compute the dilutive effect of options, warrants and similar instruments. Under this method, the dilutive effect on earnings per share is calculated presuming the exercise of outstanding options, warrants and similar instruments. It assumes that the proceeds of such exercise would be used to purchase common shares at the average market price during the period. However, the calculation of diluted loss per share excludes the effects of various conversions and exercise of options and warrants that would be antidilutive. Shares held in escrow, other than where their release is subject to the passage of time, are not included in the calculation of the weighted average number of common shares outstanding. 12

13 3. SIGNIFICANT ACCOUNTING POLICIES (continued) Share-based payments The Company grants options to acquire common shares of the Company to directors, officers, employees and consultants. The fair value of share-based payments to employees is measured at grant date, using the Black-Scholes option pricing model, and is recognized over the vesting period for employees using the graded vesting method. Fair value of share-based payments for non-employees is recognized and measured at the date the goods or services are received based on the fair value of the goods or services received. If it is determined that the fair value of goods and services received cannot be reliably measured the share-based payment is measured at the fair value of the equity instruments issued using the Black-Scholes option pricing model. For both employees and non-employees, the fair value of share-based payments is recognized as an expense with a corresponding increase in reserves. The amount recognized as expense is adjusted to reflect the number of share options expected to vest. Consideration received on the exercise of stock options is recorded in share capital and the related share-based payment in reserves is transferred to share capital. Income taxes Income tax expense consisting of current and deferred tax expense is recognized in the statement of loss and comprehensive loss. Current tax expense is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at year-end, adjusted for amendments to tax payable with regard to previous years. Deferred tax assets and liabilities and the related deferred tax expense or recovery are recognized for deferred tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using the enacted or substantively enacted tax rates expected to apply when the asset is realized or the liability settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that substantive enactment occurs. A deferred tax asset is recognized to the extent that it is probable that future taxable income will be available against which the asset can be utilized. To the extent that the Company does not consider it probable that a deferred tax asset will be recovered, the deferred tax asset is reduced. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis. 13

14 3. SIGNIFICANT ACCOUNTING POLICIES (continued) Financial instruments IFRS 7 Financial Instruments: Disclosures requires classification of fair value measurements using a fair value hierarchy that reflects the significance of inputs used in making the measurements. The levels of the fair value hierarchy are defined as follows: Level 1 quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 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); and Level 3 inputs for the asset or liability that are not based on observable market data (unobservable inputs). (i) Financial assets The Company classifies its financial assets in the following categories: held-to-maturity, fair value through profit and loss ("FVTPL"), loans and receivables, and available-for-sale ( AFS ). The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of financial assets at recognition. (a) Held-to-maturity Held-to-maturity financial assets are recognized on a trade-date basis and are initially measured at fair value using the effective interest rate method. (b) Fair value through profit or loss Financial assets are classified as FVTPL when the financial asset is held for trading or it is designated as FVTPL. A financial asset is classified as FVTPL if: it has been acquired principally for the purpose of selling in the near future; it is a part of an identified portfolio of financial instruments that the Company manages and has an actual pattern of short-term profit-taking; or it is a derivative that is not designated and effective as a hedging instrument. Financial assets classified as FVTPL are stated at fair value with any resultant gain or loss recognized in profit or loss. The net gain or loss recognized incorporates any dividend or interest earned on the financial asset. (c) Available-for-sale investments AFS financial assets are non-derivatives that are either designated as AFS or not classified in any of the other financial assets categories. Changes in the fair value of AFS financial assets, other than impairment losses, are recognized as other comprehensive income and classified as a component of equity. The Company does not have any assets classified as AFS financial assets. 14

15 3. SIGNIFICANT ACCOUNTING POLICIES (continued) Financial instruments (continued) (d) Loans and receivables Trade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Loans and receivables are initially recognized at the transaction value and subsequently carried at amortized cost less impairment losses. The impairment loss of receivables is based on a review of all outstanding amounts at year-end. Bad debts are written off during the reporting period in which they are identified. Interest income is recognized by applying the effective interest method, except for shortterm receivables when the recognition of interest would be immaterial. (ii) Financial liabilities and equity Debt and equity instruments are classified as either FVTPL, other financial liabilities or as equity in accordance with the substance of the contractual arrangement. An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities. Equity instruments issued by the Company are recorded as the proceeds received, net of direct issue costs. Financial liabilities are classified as other financial liabilities, based on the purpose for which the liability was incurred, and comprise trade payables and accrued liabilities. The liabilities are initially measured at fair value, net of transaction costs, and are subsequently measured at amortized cost using the effective interest method, with interest expense recognized on an effective yield basis. 15

16 4. RECEIVABLES December 31, 2017 December 31, 2016 GST recoverable $ 42,493 $ 13,966 Other receivables 31, Subscriptions received in advance - 30,000 $ 74,110 $ 44,887 During December 31, 2017, the Company delivered 300,000 common shares against payment received of $30,000 from the private placement completed in November 2016 (see Note 8). 5. EXPLORATION AND EVALUATION ASSETS Realization of assets The investment in mineral properties comprise a significant portion of the Company s assets. Realization of the Company s investment in these assets is dependent upon the establishment of legal ownership, the attainment of successful production from the properties or from the proceeds of their disposal. Resource exploration and development is highly speculative and involves inherent risks. While the rewards if an ore body is discovered can be substantial, few properties that are explored are ultimately developed into producing mines. There can be no assurance that current exploration programs will result in the discovery of economically viable quantities of ore. The amounts shown for acquisition costs represent costs incurred to date and do not necessarily reflect present or future values. Environmental The Company is subject to the laws and regulations relating to environmental matters in all jurisdictions in which it operates, including provisions relating to property reclamation, discharge of hazardous material and other matters. The Company may also be held liable should environmental problems be discovered that were caused by former owners and operators of its properties and properties in which it has previously had an interest. The Company conducts its mineral exploration activities in compliance with applicable environmental protection legislation. The Company is not aware of any existing environmental problems related to any of its current or former properties that may result in material liability to the Company. Environmental legislation is becoming increasingly stringent and costs and expenses of regulatory compliance are increasing. The impact of new and future environmental legislation on the Company s operations may cause additional expenses and restrictions. If the restrictions adversely affect the scope of exploration and development on the mineral properties, the potential for production on the properties may be diminished or negated. Groete Project, Guyana The Company held a 100% interest in the Groete Property located in Guyana subject to a 1.5% NSR, which may be purchased for US$3,000,000. This project was transferred to Gold Port as part of the plan of arrangement, see Note 6. 16

17 5. EXPLORATION AND EVALUATION ASSETS (continued) Lac Aux Bouleaux, Quebec Canada During the year ended December 31, 2015, the Company entered into an option agreement to acquire the Lac Aux Bouleaux Graphite Property in Quebec by issuing an aggregate of 2,000,000 common shares (issued at total value of $185,000), cash payments of $60,000 (paid) and carrying out an exploration and development program of $500,000 ($102,813 incurred to date) over a two year period. The property is encumbered by a 3% net smelter royalty which the Company may purchase at $1,000,000 for each 1%. This project was transferred to Gold Port as part of the plan of arrangement, see Note 6. Argentina Properties Luz Maria Claim Group Total purchase price is US$860,000 and 100,000 shares. A first payment of US$80,000 was made up front on execution date, with subsequent payments contingent upon drill results. Upon completion of a satisfactory drill program, the Company will pay US$80,000 within thirty days of results and issue 100,000 shares (issued at a fair value of $16,000 in fiscal 2017) of the Company, and then US$100,000 twelve months after execution date, (amended to US$60,000 due in twelve months, paid subsequent to December 31, 2017, and US$50,000 due in eighteen months), US$100,000 twenty-four months after execution, US$250,000 thirty-six months after execution year three and a final payment of US$250,000 forty-eight months after execution year four. The owner retains the right to mine diatomaceous soil from the project. Padre Jose Maria The total purchase price is US$1,060,000, with US$60,000 cash paid up front with execution of the option. Further payments of US$100,000 upon completion of a drill program with satisfactory results, US$220,000 twelve months later (amended to US$60,000 (paid) and 420,000 common shares due in 12 months), US$240,000 at twenty-four months and US$500,000 at thirty-six months. The Company must also pay ARS $75,000 for property fees in 2016, and a non-refundable ARS $60,000 upon signing (paid). Beatriz Claim Group Total Purchase Price is US$1,320,000, with US$60,000 upon execution of the Option Agreement (paid), US$60,000 upon drill results, US$200,000 twelve months from that date (amended to US$120,000 due in 12 months (paid) and US$100,000 due in 18 months), US$200,000 twenty-four months later, US$200,000 thirty-six months later, and a final US$600,000 forty-eight months later. The owners retained a 1% Net Smelter Royalty (NSR) which may be purchased for US$2,000,000. In addition, the owners retain the right to exploit the claim group for diatomaceous soils. La Fortuna Claim Group Total Purchase Price is US$2,450,000 with and 100,000 shares (issued at a fair value of $16,000 in fiscal 2017), with the owners retaining the right to exploit the claim group for diatomaceous soils. A payment of US$25,000 was paid up front while the share issuance was done subsequent to year-end. Payment schedule is US$175,000 upon drill results, US$200,000 six months after drill results, US$250,000 at eighteen months, US$750,000 at thirty months, US$750,000 at forty-eight months, and a final payment of US$300,000 at fifty-four months. The Company must also settle royalties of ARS $550,000. La Sophia Claim Group The owner maintains a right to use the project to mine diatomaceous soil subject to a buyout. The signing of a formal option is contingent upon completion of a drill program with positive results. The Company must pay US$1,000 upon signing the Letter of Intent, ARS $72,000 for property fees for 2015 and 2016 and ARS $50,000 (paid) to the original holder of the mining right. Upon signing an option to purchase, payment terms are US$120,000 at signing the formal option, US$200,000 at twelve months, US$200,000 at twenty-four months, US$500,000 at thirty-six months, and at any time five years from signing the option, the project may be purchased outright for US$5 million. 17

18 5. EXPLORATION AND EVALUATION ASSETS (continued) Hombre Muerto North ( HMN ) The project is being acquired through a purchase option agreement from a private borate producer from Salta, Argentina. Terms of the acquisition are US $5.65 million in cash payments and 10 million common shares staged over a 54- month period. The payment schedule is as follows: 1. US $50,000 (paid) on signing for a 90-day due diligence period and for the completion of a NI Technical Report on the project. The due diligence period may be extended to 120 days, if necessary. 2. Upon acceptance of the NI report by the TSX, NRG will pay Mr. Moreno US $100,000 and issue one million common shares of NRG common stock (issued at a fair value of $350,000 in fiscal 2017). 3. At March 17, 2018, US $250,000 and one million common shares of NRG. 4. At September 17, 2018, US $250,000 and one million common shares of NRG. 5. At March 17, 2019, US $1,000,000 and one million common shares of NRG. 6. At March 17, 2020, US $1,000,000 and two million common shares of NRG. 7. At March 17, 2021, US $1,000,000 and two million common shares of NRG. 8. At March 17, 2022, US $2,000,000 and two million common shares of NRG. 9. The project will be subject to a 3% Net Production Royalty, of which 50% may be purchased for US$3,000,000 within 36 months of Item 2. The Company incurred exploration costs during in 2017 as follows: Consultants and geologists $ 225,221 Field supplies 491,855 Drilling 269,114 Travel 36,697 Total $ 1,022,887 The Company incurred exploration costs in 2016 as follows: Geologists and consultants $ 19,337 Travel 1,500 Guyana expenditures 28,584 Argentina property evaluation 439,564 Total $ 488,985 18

19 6. PLAN OF ARRANGEMENT In January 2017, the Company completed a plan of arrangement (the Plan of Arrangement ) with its wholly-owned subsidiary, Gold Port Resources Ltd. ( Gold Port ). The Company transferred to Gold Port: Cash of $150,000, all the Company s rights and title and interest in the Groete Gold Copper Project and L.A.B Graphite Project, and certain related party payables relating to the projects in exchange for common shares of Gold Port to the shareholders of the Company. Pursuant to the Plan of Arrangement, the Company s shareholders exchanged their existing common shares of the Company and received one new common share and 0.25 common shares of Gold Port. The carrying value of the net assets transferred to Gold Port, pursuant to the Plan of Arrangement consisted of the following assets and liabilities: Assets: Cash $ 150,000 Exploration and evaluation assets 834,335 Total assets 984,335 Liabilities: Due to related party (355,496) Carrying value of net assets 628,839 Fair value of net assets distributed 813,839 Gain on transfer of spin-out assets $ 185,000 In accordance with IFRIC 17, Distribution of Non-Cash assets to Owners, the Company recognized the distribution of net assets to the Company s shareholders at fair value with the difference between that value and the carrying amount of the net assets recognized in the statement of loss and comprehensive loss. 7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES December 31, 2017 December 31, 2016 Accounts payables $ 319,438 $ 117,847 Accrued liabilities 35,000 25,000 $ 354,438 $ 142,847 19

20 8. SHARE CAPITAL Authorized: Unlimited common shares without par value Included in issued share capital are 90,000 ( ,000) escrowed common shares. Year ended December 31, 2017: During year ended December 31, 2017, the Company issued 22,212,250 common shares on the exercise of warrants for proceeds of $2,845,430. During the year ended December 31, 2017, the Company issued 875,000 shares on the exercise of options for proceeds of $121,250. During year ended December 31, 2017, the Company issued 1,200,000 common shares for property payments valued at $382,000. During year ended December 31, 2017, the Company issued 2,500,000 bonus shares to certain consultants valued at $685,000. In September 2017, the Company issued 2,000,000 units for gross proceeds of $200,000. Each unit is comprised of one common share and one common share warrant entitling the holder to acquire an additional common share for $0.20 per share for a period of two years. The Company paid a finder s fee of $16,000 and issued 160,000 finders warrants, with the same terms as the warrants attached to the units. The Company has estimated the fair value of the finder s warrants to be $13,783 based on the Black-Scholes option pricing model. The assumptions used for the Black-Scholes valuation of the finder s warrants were as follows: a risk-free interest rate of 1.65%, an expected life of three years, a dividend rate of 0%, forfeiture rate of 0%, and an annualized volatility of 276%. In October 2017, the Company issued 4,500,000 units for gross proceeds of $450,000. Each unit is comprised of one common share and one common share warrant entitling the holder to acquire an additional common share for $0.20 per share for a period of two years. In November 2017, the Company issued 12,150,000 units for gross proceeds of $1,215,000. Each unit is comprised of one common share and one common share warrant entitling the holder to acquire an additional common share for $0.20 per share for a period of two years. Year ended December 31, 2016: In March 2016, the Company issued 4,500,000 units for gross proceeds of $225,000. Each unit is comprised of one common share and one common share warrant entitling the holder to acquire an additional common share for $0.08 per share for a period of three years. In May 2016, the Company issued 5,000,000 units for gross proceeds of $250,000. Each unit is comprised of one common share and one common share warrant entitling the holder to acquire an additional common share for $0.10 per share for a period of three years. In June 2016, the Company issued 1,587,500 units for gross proceeds of $127,000. Each unit is comprised of one flow through share and one common share warrant entitling the holder to acquire an additional common share for $0.11 per share for a period of three years. The Company paid a finder s fee of $12,200 and issued 152,500 finders warrants, with the same terms as the warrants attached to the units. The Company has estimated the fair value of the finder s warrants to be $14,988 based on the Black-Scholes option pricing model. The assumptions used for the Black-Scholes valuation of the finder s warrants were as follows: a risk-free interest rate of 1.65%, an expected life of three years, a dividend rate of 0%, forfeiture rate of 0%, and an annualized volatility of 276%. 20

21 8. SHARE CAPITAL (continued) There was no flow-through premium associated with the issuances. In November 2016, the Company issued 14,400,000 units for gross proceeds of $1,440,000 (of which $30,000 was received subsequent to December 31, 2016 (Note 4)). Each unit is comprised of one common share and one common share warrant entitling the holder to acquire an additional common share for $0.20 per share for a period of two years. The Company paid a finder s fee of $66,000 (of which $12,000 was paid in January 2017) and issued 660,000 finders warrants, with the same terms as the warrants attached to the units. The Company has estimated the fair value of the finder s warrants to be $58,448 based on the Black-Scholes option pricing model. The assumptions used for the Black-Scholes valuation of the finder s warrants were as follows: a risk-free interest rate of 1.65%, an expected life of two years, a dividend rate of 0%, forfeiture rate of 0%, and an annualized volatility of 204%. As at December 31, 2016, the Company held 750,000 common shares of this private placement to be issued upon receipt of $75,000 and excluded this amount from the shares issued above, this amount was paid and the shares issued during fiscal During the year ended December 31, 2016, the Company issued 778,000 common shares for proceeds of $89,610 on the exercise of options (with a value of $88,108) and 4,790,000 common shares for proceeds of $422,000 on the exercise of warrants. 9. STOCK OPTIONS The Company has a rolling stock option plan (the plan ) that authorizes the board of directors to grant incentive stock options to directors, officers, consultants and employees, whereby a maximum of 10% of the issued common shares are reserved for issuance under the plan. Under the Plan, the exercise price of each option may not be less than the market price of the Company s shares at the date of grant, subject to a minimum exercise price of $0.10 per share. Options granted under the Plan will have a term not to exceed five years and be subject to vesting provisions as determined by the board of directors of the Company. Stock option transactions are summarized as follows: Number of Options Weighted Average Exercise Price Outstanding, December 31, ,600,000 $ 0.09 Granted 2,225, Exercised (778,000) 0.12 Cancelled (3,047,000) 0.11 Outstanding, December 31, Granted 9,850, Exercised (875,000) 0.14 Cancelled (450,000) 0.15 Outstanding and exercisable, December 31, ,525,000 $ 0.21 During the year ended December 31, 2017, the Company granted 9,850,000 (2016 2,225,000) stock options to directors, officers and consultants of the Company. The fair value of the options granted during the year is $2,038,620 (2016- $264,592), based on the Black-Scholes option pricing model. The weighted average of the fair value per option was $0.21 ( $0.21). 21

22 9. STOCK OPTIONS (continued) The following weighted average assumptions were used for the Black-Scholes option pricing model: Risk-free interest rate 1.65% 1.65% Expected life of options 4.3 years 5 years Annualized volatility 182% 233% Dividend rate 0.00% 0.00% Forfeiture rate 0.00% 0.00% As at December 31, 2017, the following options were outstanding and exercisable: Expiry Date Exercise Price Number of Options March 23, 2022 $0.15 4,275,000 April 18, 2019 $ ,000 September 8, 2022 $0.10 1,350,000 October 22, 2022 $ ,700,000 October 26, 2022 $0.43 1,000,000 8,525, WARRANTS The following table summarizes the Company s warrant activity for the year ended December 31, 2017 and the year ended December 31, 2016: Number of Warrants Weighted Average Exercise Price Outstanding, December 31, ,435,999 $ 0.09 Issued 27,050, Exercised (4,790,000) 0.09 Expired (1,892,666) 0.10 Outstanding, December 31, ,803, Issued 18,810, Exercised (22,212,250) 0.13 Expired (608,333) 0.10 Outstanding, December 31, ,792,750 $

23 10. WARRANTS (continued) As at December 31, 2017, the following warrants were outstanding and exercisable: Expiry Date Exercise Price Number of Warrants March 24, 2018 $0.08 3,950,000 May 26, 2018 $0.08 2,230,000 November 8, 2018 $0.08 1,500,000 May 12, 2019 $0.10 1,800,000 June 2, 2019 $ ,500 November 24, 2018 $0.20 8,140,250* September 14, 2019 $0.20 2,160,000 October 6, 2019 $0.20 4,500,000 November 15, 2019 $ ,150,000 36,792,750 *These warrants were accelerated subsequent to December 31, 2017, 7,740,000 warrants were exercised for proceeds of $ and expired unexercised. 11. INCOME TAXES Income tax expense differs from the amount that would be computed by applying the Canadian statutory income tax rate of 26% ( %) to income before income taxes. The reasons for the differences are as follows: Loss before income taxes $ (5,758,655) $ (1,589,199) Statutory income tax rate 27% 26% Expected income tax recovery $ (1,497,000) $ (413,000) Changes in statutory, foreign tax and foreign exchange rates (351,000) 4,000 Permanent difference 425,000 80,000 Impact of plan of arrangement 691,000 - Impact of flow through shares - 5,000 Unrecognized benefit of deferred tax assets 732, ,000 Total income tax expense $ - $ - In September 2017, the British Columbia (BC) Government proposed changes to the general corporate income tax rate to increase the rate from 11% to 12% effective January 1, 2018 and onwards. This change in tax rate was substantively enacted on October 26, The relevant deferred tax balances have been remeasured to reflect the increase in the Company's combined Federal and Provincial (BC) general corporate income tax rate from 26% to 27%. 23