WALLBRIDGE MINING COMPANY LIMITED

Transcription

1 Condensed Interim Consolidated Financial Statements of WALLBRIDGE MINING COMPANY LIMITED

2 Condensed Interim Consolidated Statements of Financial Position (expressed in Canadian Dollars) September 30, December 31, Assets Current assets: Cash and cash equivalents $ 952, ,244 Restricted cash (note 10 (b)) - 902,633 Restricted cash (note 17 (b)) 501,374 - Derivative asset (note 4) 448,000 - Accounts and other receivables (note 5) 4,486,430 95,156 Inventory (note 6) 980,851 - Deposits and prepaid expenses (note 7) 398,705 69,126 Marketable securities 15,420 4,044 Assets held for sale (note 9 (b)) 3,251,606-11,035,111 1,825,203 Restricted cash (note 17 (b)) 247, ,650 Investment in Duluth Metals Limited (note 8 (a)) 2,436,030 7,917,096 Exploration and evaluation assets (note 10) 15,698,365 20,948,977 Property and equipment (note 11) 5,020, ,923 $ 34,437,333 31,756,849 Liabilities and Shareholders' Equity Current liabilities: Accounts payable and accrued liabilities (note 12) $ 8,483,742 1,023,136 Deposit from Partner (note 10 (b)) - 902,633 Other payable (note 14 (b)) - 308,000 Current portion of long-term debt (note 13) 3,431,000 18,930 Liabilities held for sale (note 9 (b)) 942,899-12,857,641 2,252,699 Long-term debt (note 13) 20, ,207 Provision for Closure Plan (note 17 (a)) 167,000 - Deferred tax liability 752,000 1,239,000 Equity (note 15): Equity attributable to Wallbridge Mining Company Limited shareholders: Share capital 55,745,478 55,385,863 Warrants 146, ,000 Contributed surplus 7,690,313 7,499,312 Deficit (43,417,860) (35,275,033) Accumulated other comprehensive loss - (1,065,749) Equity attributable to Wallbridge Mining Company Limited shareholders 20,163,931 26,647,393 Non-controlling interest (note 9 (a)) 476, ,550 Total Equity 20,640,240 27,479,943 Nature of operations and going concern (note 1) Commitments and contingencies (note 17) Subsequent events (notes 13 and 18) $ 34,437,333 31,756,849 1

3 Condensed Interim Consolidated Statements of Loss (expressed in Canadian Dollars) Three months ended Nine months ended September 30, September 30, Revenue (note 3 (c)) $ 5,632,998-5,632,998 - Mining Operating Costs Production costs 5,671,833-5,671,833 - Royalty expense 60,757-60,757 - Amortization and depletion 1,048,171-1,048,171-6,780,761-6,780,761 - Loss from mining operations 1,147,763-1,147,763 - Other expenses and (income): General and administrative expenses 356, ,820 1,573,479 1,790,513 Interest on long-term debt (note 13) 50,892 15, ,249 16,992 Interest on bridge loan (note 13) 31,212-31,212 - Interest income (2,756) (2,329) (8,833) (8,314) Unrealized loss (gain) on marketable securities 999 (406) (11,376) 113 Unrealized loss (gain) on forward sales contract (note 4) (658,000) - (448,000) - Loss on forward sales contract 2,859-2,859 Loss (gain) on sale of property and equipment (163) - 5,279 (1,320) Impairment of investment in Duluth Exploration Limited (note 8(b)) ,584 Unrealized loss on investment in Duluth Metals Limited (note 8) 6,546,814-6,546,814 - Foreign exchange loss 37,622-37,622 - Write-down of exploration and evaluation assets (note 10) - 36,573-36,573 Impairment of equity investment in Miocene Metals Limited (note 9(a)) ,126 Total other expenses 6,365, ,136 7,861,305 2,344,267 Loss before income taxes 7,513, ,136 9,009,068 2,344,267 Deferred tax recovery (318,000) (185,000) (499,000) (477,000) Loss for the period $ 7,195, ,136 8,510,068 1,867,267 Attributable to: Equity holders of Wallbridge Mining Company Limited $ 7,149, ,682 8,142,827 1,585,581 Non-controlling interest in loss of subsidiary 46,075 86, , ,686 $ 7,195, ,136 8,510,068 1,867,267 Weighted average number of common shares - basic and diluted 167,160, ,270, ,885, ,270,882 Net loss per share - basic and diluted $ See accompanying notes to condensed interim consolidated financial statements. 2

4 Condensed Interim Consolidated Statements of Comprehensive Loss (expressed in Canadian Dollars) Three months ended Nine months ended September 30, September 30, Net loss for the period $ 7,195, ,136 8,510,068 1,867,267 Other comprehensive loss, net of tax: Items that may be reclassified subsequently to profit or loss: Unrealized loss on available-for-sale investment arising during the year 3,642,085 1,761,024 5,481,065 11,359,656 (net of tax months $nil, 9 months- $nil) (net of tax months $(269,000), 9 months - $(1,734,000)) Reclassification adjustment for loss included in net loss during the period (6,546,814) - (6,546,814) - Comprehensive loss for the period 4,290,756 2,096,160 7,444,319 13,226,923 Attributable to non-controlling interest 46,075 86, , ,686 Attributable to equity holders of Wallbridge Mining Company Limited $ 4,244,681 2,009,706 7,077,078 12,945,237 See accompanying notes to condensed interim consolidated financial statements. 3

5 Condensed Interim Consolidated Statements of Changes in Equity (expressed in Canadian Dollars) Number of Shares Share Capital Warrants Contributed Surplus Deficit Accumulated Other Comprehensive Income (loss) Equity attributable to Wallbridge shareholders Noncontrolling interests Total Balance, December 31, ,270,882 $ 55,385, ,000 7,499,312 (35,275,033) (1,065,749) 26,647, ,550 27,479,943 Private placements, net of share issuance costs 4,889, ,615 35, , ,615 Warrants issued in connection with bridge financing - - 8, ,000-8,000 Stock based compensation , ,500 11, ,500 Finders' compensation units - (9,000) - 9, Deferred stock units , ,501-62,501 Unrealized loss on available for sale securities, net of tax (5,481,065) (5,481,065) - (5,481,065) Transfer of accumulated other comrpensive loss to net loss for the period ,546,814 6,546,814-6,546,814 Net loss for the period (8,142,827) - (8,142,827) (367,241) (8,510,068) Balance, September 30, ,160,438 $ 55,745, ,000 7,690,313 (43,417,860) - 20,163, ,309 20,640,240 Balance, December 31, ,270,882 $ 55,385, ,000 7,210,499 (32,692,833) 13,946,305 43,973,834-43,973,834 Non-controlling interest of Miocene Metals upon consolidation ,347,064 1,347,064 Share issuances in Miocene , ,238 Dilution gain in Miocene Metals Limited ,582-18,582-18,582 Expiration of warrants - - (21,000) 21, Stock based compensation , ,000 68, ,200 Deferred stock units , ,313-20,313 Unrealized loss on available for sale securities, net of tax ,359,656 11,359,656-11,359,656 Net loss for the period (1,585,581) - (1,585,581) (281,686) (1,867,267) Balance, September 30, ,270,882 $ 55,385, ,000 7,417,812 (34,259,832) 25,305,961 53,952,804 1,270,816 55,223,620 See accompanying notes to condensed interim consolidated financial statements. 4

6 Condensed Interim Consolidated Statements of Cash Flows (expressed in Canadian Dollars) Nine months ended September 30, Cash flows from (used in) operating activities: Net loss for the period $ (8,510,068) (1,867,267) Adjustments for: Deferred tax recovery (499,000) (477,000) Write-down of exploration and evaluation assets - 36,573 Amortization of property and equipment 1,113,137 96,369 Interest on long term debt 132,249 16,992 Interest on bridge loan 31,212 Unrealized loss in investment in Duluth Metals Limited 6,546,814 - Impairment of investment in Duluth Exploration Limited - 84,584 Loss (gain) on disposition of property and equipment 5,279 (1,320) Impairment of equity investment in Miocene Metals Limited - 425,126 Unrealized loss (gain) on marketable securities (11,376) 113 Unrealized gain on forward sales contract (448,000) - Foreign exchange loss 37,622 - Stock-based compensation 130, ,200 Deferred share units 62,501 20,313 Changes in non-cash working capital: Accounts and other receivable (4,478,623) 214,240 Other payables 91, ,250 Inventory (804,851) - Deposits and prepaid expenses (342,079) 47,581 Accounts payable and accrued liabilities 8,060,194 (195,022) 1,116,761 (1,101,268) Cash flows from (used in) financing activities: Non-controlling interest - 155,820 Interest paid (132,249) (16,992) Proceeds from line of credit 1,250, ,000 Payments on long term debt (14,119) - Issuance of share capital 403,615 - Proceeds from bridge loan 1,352,098 (10,174) 2,859, ,654 Cash flows from (used in) investing activities: Exploration and evaluation assets (1,356,927) (891,160) Option payments received on exploration and evaluation assets 649,993 - Restricted cash (178,798) (394,650) Property and equipment expenditures (2,894,121) (17,067) Cash from Miocene Metals - 43,508 Proceeds on disposition of property and equipment 2,228 9,000 (3,777,625) (1,250,369) Net increase (decrease) in cash and cash equivalents 198,481 (1,472,983) Cash and cash equivalents, beginning of period 754,244 1,989,194 Cash and cash equivalents, end of period $ 952, ,211 See accompanying notes to condensed interim consolidated financial statements. 5

7 1. Nature of operations and going concern: Wallbridge Mining Company Limited ( Wallbridge or the Company ) is incorporated under the laws of Ontario and is engaged in the business of locating and exploring mineral properties. In addition, as of August 1, 2014, the Company began operations at its first polymetallic mine, producing copper, platinum, palladium, and gold from the Broken Hammer open pit mine in Sudbury, Ontario. The Company s head office is located at 129 Fielding Road in Lively, Ontario. These unaudited condensed interim consolidated financial statements have been prepared on the going concern basis, which contemplates that the Company will be able to realize its assets and discharge liabilities in the normal course of business. The Company has had recurring losses. There can be no assurance that the Company will either achieve or maintain profitability in the future. Sufficient liquidity does not currently exist to meet its current liabilities. In order to meet its planned mining operations and exploration and evaluation expenditures, cover its administrative costs, and meet current liabilities, the Company must meet its operating targets for the Broken Hammer open pit mine or raise additional financing. The continuation of the Company as a going concern is dependent on the Company s ability to successfully fund its cash obligations through operations or financing. Although the Company has been successful in obtaining the necessary financing to date, there can be no assurance that adequate or sufficient financing will be available in the future, or available under terms acceptable to the Company, or the Company will be able to generate sufficient positive cash flow from operations. The value of the investment in the Duluth shares has decreased significantly. The sale of the Duluth shares at $0.45 (see note 18 (a)) will not provide for sufficient funds for the Company to meet its obligations. These circumstances indicate that the existence of a material uncertainty which casts significant doubt as to the ability of the Company to meet its obligations as they come due, and accordingly, the appropriateness of the use of the accounting principles applicable to a going concern. These condensed financial statements do not reflect adjustments that would be necessary if the going concern assumption were not appropriate. Should the Company be unable to generate cash flow from operations or financing, the carrying value of the Company s assets could be subject to material adjustments and other adjustments may be necessary to these financial statements should such adverse events impair the Company s ability to continue as a going concern. 6

8 2. Basis of presentation: (a) Statement of compliance: These unaudited condensed interim consolidated financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting. These statements include the accounts of Miocene Metals Limited ( Miocene ). All significant intercompany balances and transactions have been eliminated on consolidation. These statements do not include all of the information required for full annual financial statements and should be read in conjunction with the annual financial statements for the year ended December 31, (b) Functional and presentation currency: These unaudited condensed interim financial statements are presented in Canadian dollars which is the Company s and its subsidiary s functional currency. (c) Judgments and estimates: Preparing the interim financial statements requires Management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. In preparing these unaudited condensed interim consolidated financial statements, significant judgments made by Management in applying the accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements for the year ended December 31, 2013, except for the following which pertain to the period ending September 30, 2014: Reserves and Resources During 2014, the Company commenced production at its Broken Hammer open pit mine. Significant estimates and assumptions relate to recoverability of mining operations. Certain assumptions are based upon reserves, which represent the estimated amount of ore that can be economically and legally extracted from the Company s property. Changes in reserves may affect the Company s financial results and financial position as follows: (i) (ii) (iii) Asset carrying values; Amortization charged in the statement of operations that are determined by the units of production basis; and Site restoration and environmental provisions may change where changes in estimated reserves affect expectations about the timing or cost of these activities; 7

9 2. Basis of presentation (continued): (c) Judgments and estimates: Revenue recognition The Company s smelter contracts provide for the final prices to be determined by quoted market prices in a period subsequent to the date of concentrate delivery. Revenue from the sale of metals concentrate is calculated using the forward price of the commodity for the period the contract is to be settled. The actual amounts in the settlement period may vary from the amount estimated. Determination of development phase The Company applies significant judgment when determining and assessing its criteria used to determine technical feasibility and commercial viability is demonstrable. The Company determined that the Broken Hammer Project has met the key factors used by management and, accordingly, that all costs of development activities will be capitalized to mineral properties. Commercial production The determination of the date on which a mine enters the commercial production stage is a significant judgment since capitalization of certain costs ceases and the recording of revenues and expenses commences upon entering commercial production. As a mine is constructed, certain costs incurred are capitalized and proceeds from sales are offset against the capitalized costs. This continues until the mine is available for use in the manner intended by management, which requires significant judgment. Production inventories The allocation of costs to inventories and the determination of net realizable value involve the use of estimates. There is a high degree of judgment in estimating future costs, future production levels, contained metals ounces, recovery levels, and prices. There can be no assurance that actual results will not differ significantly from estimates used in the determination of the carrying value of inventories. 8

10 3. Significant accounting policies: The accounting policies applied by the Company in these unaudited condensed interim consolidated financial statements are the same as those applied to the audited consolidated financial statements as at and for the year ended December 31, 2013 except for the following accounting policies which have been adopted during the period ended September 30, 2014: New accounting polices: (a) (b) Financial Instruments derivative financial instruments The Company holds derivative financial instruments to minimize its market price exposures. Derivatives are recognized initially at fair value and any associated transaction costs are recognized in profit and loss when incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes are recognized in profit and loss. Revenue from sales of metals concentrate: Revenue is recognized when the significant risks and rewards of ownership have been transferred to the buyer as evidenced by an executed sales agreement. The Company recognizes revenue from the sale of its metals upon the delivery of concentrate to the smelter or the designated shipping point, which is when title transfers and significant rights and obligations of ownership pass. The Company s smelter contracts provide for the final prices to be determined by quoted market prices in a period subsequent to the date of concentrate delivery. Revenue from the sale of metals concentrate is calculated using the forward price of the commodity for the period the contract is to be settled. Variations between the price recorded on initial revenue recognition and the final price received due to changes in market prices represents an embedded derivative in the sales contact. Revenue in every period is adjusted for any change in the value of the contract using the period end forward price for the period the contract is expected to settle. The variance between the forward price and the final price received is recorded in revenue. (c) Inventory: Inventory consists of crushed ore and concentrate. The inventory is valued at the lower of production cost and net realizable value. Crushed ore stockpiles represent coarse ore that has been extracted and crushed from the mine and is available for further processing. Concentrate inventory is processed ore that has not been shipped to the smelter. Included in production costs are costs that are directly attributable to mineral extraction and processing that are incurred in extracting and processing ore, including depletion and amortization. 9

11 3. Significant accounting policies: (d) Property and equipment mining project: Once a mining project has been established as commercially viable, technically feasible, and a development decision has been made, costs are transferred from Exploration and Evaluation assets to property and equipment. Costs associated with development of the project are capitalized to property and equipment. Upon commercial production, property and equipment is depleted on a unit of production basis on tonnes produced over the estimated reserves of the mine. New accounting standards: (a) IFRIC 21 Levies ( IFRIC 21 ) was issued in May 2013 and is an interpretation of IAS 37 Provisions, Contingent Liabilities and Contingent Assets ( IAS 37 ), on the accounting for levies imposed by governments. IAS 37 sets out criteria for the recognition of a liability, one of which is the requirement for the entity to have a present obligation as a result of a past event. IFRIC 21 clarifies that the obligating event that gives rise to a liability to pay a levy is the activity described in the relevant legislation that triggers the payment of the levy. There was no impact on these consolidated financial statements on adoption of this standard. (b) (c) IFRS 9 Financial Instruments ( IFRS 9 ) replaces the current standard IAS 39 Financial Instruments: Recognition and measurement, replacing the current classification and measurement criteria for financial asset and liabilities with only two classification categories: amortized cost and fair value. The effective date for annual periods beginning on or after January 1, 2018, with early adoption permitted. The Company will evaluate the impact of the change to its financial statements based on the characteristics of its financial instruments at the time of adoption. IFRS 15, Revenue from Contracts with Customers ( IFRS 15 ) was issued to clarify the principles for recognizing revenue. IFRS 15 establishes principles to address the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity s contracts with customers. IFRS will be effective for annual periods beginning on or after January 1, 2014, with early adoption permitted. The Company is currently assessing the effect of this standard on the financial statements. 10

12 4. Forward sales contracts: In 2014, the Company entered into forward sales contracts for approximately 20% of its projected payable copper, platinum, palladium and gold (PGE) from the Broken Hammer Mine production to protect against changes in the prices of these metals within the next year. The timing of settlement specified in the financial contracts matches the final pricing settlement periods for the metals pricing with the smelter. These derivative contracts are measured at fair value. Changes in the fair value of the contracts are recorded as unrealized gains or losses and are recorded in the statement of loss in other income or losses. The carrying value of the derivative contracts is recorded as a current derivative liability (or asset) in current liabilities (or assets). The fair value is estimated by discounting the difference between the contractual forward price and the mark-to-market price. At September 30, 2014, the fair value of the forward sales contract was $448, Accounts and other receivable: September 30, 2014 December 31, 2013 Accounts receivable from smelters $ 3,707,845 $ - Harmonized Sales Tax 702,515 13,832 Other 76,070 81,324 $ 4,486,430 $ 95,156 Accounts receivable from smelters represents the value of all copper, gold, and platinum group metals contained in concentrate shipped for smelting and refining using the September 30, 2014 forward metal prices and foreign exchange rates in the month the final pricing is determined (the month of accountability). Accounts receivable is recorded net of estimated treatment and refining costs which are subject to final assay adjustments. The bridge loan with Auramet International LLC ( Auramet ) (see notes 12 (b) and 18(b)) is secured with the Company s accounts receivable. 11

13 6. Inventory: September 30, 2014 December 31, 2013 Crushed ore $ 262,478 $ - Concentrate 718,373 - $ 980,851 $ - The production costs for September 2014 have been used to calculate the production cost of the inventory at September 30, The bridge loan with Auramet International LLC (see notes 12(b) and 18 (b)) is secured with the Company s inventory. 7. Deposits and prepaid expenses: The following table summarizes the amounts included in Deposits and prepaid expenses: September 30, 2014 December 31, 2013 Start-up fee re milling contract $ 373,925 $ - Prepaid expenses 24,780 69,126 $ 398,705 $ 69,126 On March 20, 2014, the Company signed a custom milling agreement for its Broken Hammer Project. The contract required payment of a start-up fee of $500,000 upon executing the agreement. The fee is amortized based on the tons of ore milled over the anticipated contract. 12

14 8. Investments: (a) Investment in Duluth Metals Limited: At September 30, 2014, the Company held 10,150,121 (December 31, ,150,121) common shares of Duluth representing an approximate 7.4% interest in Duluth. The shares are recorded at fair value based on quoted market prices with gains and losses recorded net of related income tax expense in Other Comprehensive Loss except if there is a significant or prolonged decline which would then be recorded in the Statement of Loss. Impairment losses cannot be reversed. At September 30, 2014, the Company has determined that the decline in the fair value of its investment in Duluth is significant and prolonged and recorded an impairment loss of $6,546,814 at September 30, 2014 in the Statement of Loss. The bridge loan with Auramet International LLC (see notes 12 (b) and 18(b)) is secured with the investment in Duluth Metals Limited. A summary of the Company s investment in Duluth is as follows: Cost Fair Value September 30, 2014 December 31, 2013 September 30, 2014 December 31, 2013 $ 8,994,802 $ 8,994,802 $ 2,436,030 $ 7,917,096 At September 30, 2014, the Company retained the pre-emptive participation right to increase its shareholding in Duluth to a maximum 15.67% of the fully diluted shares of Duluth through participation in certain future equity issuances. The Company retains this right until May 15, 2017, or the date on which one person shall have acquired all of the voting securities of Duluth, or the date on which Wallbridge s shareholding reaches 9.9% or lower of the issued and outstanding shares of Duluth less certain adjustments. These adjustments include new issuances of Duluth for stock options and other convertible securities, shares issued in an acquisition, merger, stock split, re-capitalization or like event, and shares issued for nonfinancing purposes to strategic partners or subsidiaries. The Company s shareholdings are in excess of 9.9% based on these adjustments. In November 2014, Duluth announced a proposed agreement that Antofagasta Investment Company Limited ("Antofagasta") will acquire, through a wholly-owned subsidiary, all of the outstanding common shares of Duluth Metals by way of a friendly take-over bid or a plan of arrangement at a price of $0.45 per share in cash (see note 18 (a)). 13

15 8. Investments: (b) Investment in Duluth Exploration Limited: In August 2011, the Company received a dividend from Duluth consisting of 676,674 special warrants of Duluth Exploration Limited ( DEL ), a wholly owned Canadian subsidiary of Duluth. These special warrants were recorded at fair value and adjusted each period to reflect changes in fair value through the consolidated statement of loss. On March 21, 2013, Duluth announced that it had decided to not proceed with an initial public offering financing and the special warrants expired on July 31, 2013 without conversion to DEL shares. 14

16 9. Investment in Miocene Metals Limited: (a) At September 30, 2014, the Company owns 28,447,326 shares of Miocene representing approximately 40.5% ( %) of the outstanding shares. Balance, January 1, 2013 $ 1,420,782 Impairment of equity investment in Miocene (425,126) Eliminated on consolidation (995,656) Balance, December 31, 2013 $ - The Company obtained de facto control over its investee effective January 18, 2013 with the amendments to the line of credit and the replacement of Miocene s CEO with a former CEO of Wallbridge and current Executive Chairman. Prior to the consolidation of Miocene, the Company adjusted its carrying value to fair value and recorded an impairment of $425,126 on the equity investment. As a result, Miocene is consolidated and the Company recorded non-controlling interest of $1,347,064 on the acquisition. The estimated fair value of the net assets acquired in 2013 was as follows: Fair value of Wallbridge s equity interest in Miocene $ 995,656 Fair value of 100% interest in Miocene $ 2,342,720 Fair value of net assets purchased: Current assets $ 79,476 Equipment 31,549 Exploration and evaluation assets 3,539,610 Current liabilities (1,307,915) $ 2,342,720 The non-controlling interest at September 30, 2014 is $476,309 (December 31, $832,550). 15

17 9. Investment in Miocene Metals Limited (continued): (b) Merger Agreement between Miocene and Carube Resources Inc. ( Carube ): On November 22, 2013, Miocene signed a Heads of Agreement ("HOA") with Carube that will lead to a business combination of the two companies. On January 15, 2014, the HOA was confirmed as being binding on both parties. On March 27, 2014, the definitive Merger Agreement was signed by both parties. The Merger Agreement is made among Miocene, Carube, and Ontario Inc., a wholly-owned subsidiary of Miocene, incorporated solely for the purposes of amalgamating with Carube. The Merger Agreement provides for the acquisition by Miocene of all of the outstanding Carube Shares by way of a three-cornered amalgamation pursuant to which Carube and Ontario Inc. will amalgamate under the provisions of the Business Corporations Act (Ontario). The shares of Miocene will be consolidated on a ten for one basis, all the issued and outstanding Carube shares will be exchanged for Miocene consolidated shares on the basis of one Miocene consolidated share for every one Carube share. The merger results in the reverse takeover ( RTO ) of Miocene by Carube. Following completion of the merger, Miocene shareholders will continue to have interests in the business of Miocene and, as a result of the merger will also hold an interest in the Carube properties. On April 29, 2014, Miocene received conditional TSX Venture Exchange approval for the RTO transaction with Carube, subject to Miocene fulfilling all the requirements of the Exchange by July 29, 2014, including the closing of the Carube financing. Miocene received an extension to October 30, 2014 to fulfill the requirements and has requested a further extension to November 28, On June 23, 2014, the shareholders of Miocene approved the RTO transaction. The proposed transaction will result in the RTO of Miocene by Carube, and upon the closing of the Carube financing and receipt of final approvals from the TSX Venture Exchange, the two companies will finalize the amalgamation whereby the shareholders of both companies will then continue as shareholders of one publicly listed company, Carube Copper Corp. The assets and liabilities of Miocene Metals Limited have been reclassified to Assets held for sale and Liabilities held for sale. Key contractual commitments of the Merger Agreement are: Miocene sourcing investors for Carube to subscribe $400,000 for Carube units at $0.20 per unit. Each unit consists of one Carube common share and a one-half common share purchase warrant, where each warrant entitles the holder to acquire one Carube common share at an exercise price of $0.30 on or prior to two years from the date of issuance. 16

18 9. Investment in Miocene Metals Limited (continued): (b) Merger Agreement between Miocene and Carube (continued): Key contractual commitments are: The parties co-operating in sourcing $2,400,000 additional funding through commercially reasonable best efforts private placement offerings consisting of an offering of Carube units at $0.20 per unit and a Carube subscription receipts offering at $0.20 per unit. Euro Pacific Canada Inc. ( EPC ), has been appointed by Carube to use its commercially reasonable best efforts in connection with offerings. The parties have agreed that Carube will have sufficient working capital to meet TSXV Tier 2 listing requirements, and, with the exception of (i) long term debt obligations owing to insiders in the maximum amount of up to $500,000, and (ii) $300,000 in convertible bridge loans (it is anticipated that these loans will be converted prior to completion of the merger or discharged shortly thereafter from the proceeds of the offerings), Carube will have no debt immediately prior to the transactions and shall be free of all material commitments other than its ongoing property and joint venture commitments. Miocene covenants to be debt free, with the exception of long-term debt obligations owing to insiders in the maximum amount of up to $500,000 upon the completion of the transactions and the payment of its transaction costs and the conversion of Miocene s indebtedness to Wallbridge as described below and shall be free of all material commitments excluding ongoing mineral property commitments. Concurrent with the closing of the transactions, Miocene covenants that it will complete the settlement of $1.0 million of its indebtedness owed to Wallbridge, by issuing Miocene post-consolidation shares to Wallbridge on the basis of one post-consolidation Miocene share for each $0.20 of indebtedness. The Merger Agreement may have been terminated at any time prior to April 18, 2014, by either Carube or Miocene in the event that either such party, in its sole discretion, is not satisfied with the results of its due diligence investigation, at any time prior to the amalgamation by mutual agreement of the respective boards of directors of the parties, or may be terminated at any time after May 15, 2014, or such other date as the parties may agree to from time to time, by either Carube or Miocene if the amalgamation has not occurred. If the Merger Agreement is terminated by either Carube or Miocene for any reason after Carube accepting subscriptions and receiving funds from investors, Carube shall immediately upon such termination offer to buy back all such Carube shares issued pursuant to such subscriptions for cash in the amount of the original per share subscription price, which amount shall be paid within 30 days of such termination against surrender of the shares which are the subject matter of the buy-back offer. 17

19 10. Exploration and evaluation assets: (a) Total exploration and evaluation expenditures are detailed as follows: Balance December 31, 2013 Expenditures Disposition/ Recovery (iii) Transfer to Property and Equipment Transfer to Assets held for sale Balance, September 30, 2014 Broken Hammer Project (i) $ 2,518,123 52,962 - (2,571,085) $ - Other Sudbury Projects 15,278,792 1,069,566 (649,993) - 15,698,365 BC Project (ii) 3,152,062 40, (3,192,338) - $ 20,948,977 1,162,804 (649,993) (2,571,085) (3,192,338) $ 15,698,365 (i) The Broken Hammer Project costs have been transferred to property and equipment upon approval of the development decision by the Board on March 18, An impairment test was completed upon transfer from exploration and evaluation assets. No impairment was noted. (ii) The BC Project belongs to Miocene Metals and has been reclassified to Assets held for sale (note 9 (b)). (iii) Option payments received on the properties in the Wisner amendment to the North Range Joint Venture agreement. Balance December 31, 2012 Consolidation of Miocene Expenditures Disposition/ Recovery Write-down Balance, December 31, 2013 Broken Hammer Project $ 2,093, ,163 (51,246) (i) $ 2,518,123 Other Sudbury Projects 15,397, ,515 (400,000) (ii) (59,265) (iii) 15,278,792 Other Ontario Projects 385,481 9,431 (394,912) (iv) BC Project (v) 3,539, ,536 (156,541) (vi) (372,543) (vii) 3,152,062 $ 17,876,229 3,539, ,645 (607,787) (826,720) $ 20,948,977 (i) Recovery for sale of sperrylite crystals of $51,246. (ii) Option Payment of $400,000 on Wisner properties under exploration joint venture with Lonmin. (iii) Write-down of the Manchester, Southeast Footwall, MacLennan, Levack North, and Daigle properties as no further work is planned and claims have expired or will expire in the near future. (iv) Write-down of the other Ontario Projects to $Nil as no further work is planned. (v) The BC Project has been included upon consolidation of Miocene in 2013 (note 9(a)). (vi) BC Mining Exploration Tax Credit on eligible BC exploration expenditures. (vii) Write-down of BC Properties to the estimated recoverable amount. (b) At September 30, 2014, Wallbridge has $Nil ( $902,633) of restricted cash which was used in the North Range Joint Venture which properties are part of Other Sudbury Projects. 18

20 11. Property and equipment: Cost: Broken Hammer Buildings, leaseholds and bridges Vehicles and equipment Total Balance, December 31, 2012 $ - $ 347,682 $ 1,235,411 $ 1,583,093 Consolidation of Miocene ,549 31,549 Additions - 38,303 38,303 Disposals - (60,106) (60,106) Balance, December 31, ,682 1,245,157 1,592,839 Reclassification from Exploration and Evaluation Assets 2,571,085 2,571,085 Additions 3,397,900-67,818 3,465,718 Disposals - - (24,613) (24,613) Reclassify to assets held for sale (note 9 (b)) (15,065) (15,065) Balance, September 30, 2014 $ 5,968,985 $ 347,682 $ 1,273,927 $ 7,589,964 Accumulated amortization: Broken Hammer Buildings, leaseholds and bridges Vehicles and equipment Total Balance, December 31, 2012 $ - $109,589 $907,360 $ 1,016,949 Additions - 11, , ,789 Disposals - (49,822) (49,822) Balance, December 31, , ,422 1,096,916 Additions 1,427,768 8,483 56,483 1,492,734 Disposals - - (17,104) (17,104) Reclassify to assets held for sale (note 9 (b)) (3,335) (3,335) Balance, September 30, 2014 $ 1,427,768 $ 129,977 $ 1,011,466 $ 2,569,211 19

21 11. Property and Equipment (continued): Carrying amounts: Broken Hammer Buildings, leaseholds and bridges Vehicles and equipment Total At December 31, 2013 $ - $ 226,188 $ 269,735 $ 495,923 At September 30, 2014 $ 4,541,217 $ 217,705 $ 261,831 $ 5,020,753 On March 18, 2014, the Board of Directors approved the development decision for the Broken Hammer open pit mine. The exploration and evaluation costs relating to Broken Hammer of $2,571,085 have been reclassified to property and equipment. Development costs to bring Broken Hammer to commercial production of $3,397,900 have been capitalized. Effective August 1, 2014, the Company declared the commencement of commercial production. The costs are depleted on a unit of production basis on tonnes produced over the estimated reserves of the mine. 12. Accounts payable and accrued liabilities: September 30, 2014 December 31, 2013 Accounts payable $7,720,177 $520,599 Accrued liabilities 265, ,260 Payroll related liabilities 167, ,246 Current portion of closure plan 331, ,000 $8,483,742 $1,023,135 At September 30, 2014, costs of $6,353,245 owing to the mining contractor relating to the Broken Hammer Project have been included in accounts payable. The contractor has agreed to be paid after payments are received from the smelters. 20

22 13. Current and long-term debt: Interest Rate Due Date September 30, 2014 December 31, 2013 Callinan Royalties Corporation ( Callinan ) 10% see (a) below $ 2,000,000 $ 750,000 Auramet International LLC ( Auramet ) 27.5% May 31, ,411,435 - Royal Bank of Canada 5.74% September ,099 41,873 RoyNat Inc. Lease 0% September ,918 12,264 3,451, ,137 Current portion of long-term debt (3,431,000) (18,930) $ 20,452 $ 785,207 (a) In December 2012, the Company completed a transaction with Callinan whereby Callinan provided the Company with a line of credit of up to $2 million to fund the development of the Broken Hammer Project. On August 13, 2013, the Company was advanced $750,000 on this line of credit. On March 21, 2014, the Company drew the remaining $1,250,000. Interest charged on the line of credit is the greater of 10% annual interest or a 1.5% NSR royalty. During the nine months ended September 30, 2014, interest is calculated at 10%, being the greater amount. The line of credit is for a period of three years or until the completion of the extraction and processing of minerals produced from the Broken Hammer Project, whichever comes first. The Company anticipates that the Broken Hammer Project will be completed within one year and has included the debt in its current portion. The Company paid a commitment fee of 3% of the undrawn funds, accrued after the first draw on the line of credit until March 21, During the nine months ended September 30, 2014, the Company paid $130,651 (nine months ended September 30, $14,795) in interest and commitment fees. (b) In August 2014, the Company secured a bridge loan with Auramet. Auramet advanced US $1.25 million on closing and the Company is required to pay US $1.5 million on the maturity date of May 31, 2015 to satisfy all interest and other costs associated with the loan facility. The bridge loan is secured with its investment in Duluth and other assets, including accounts receivable and inventory, which are not otherwise encumbered. Any equity or debt proceeds received by Wallbridge until the maturity date will be used towards retiring this debt. In connection with the bridge loan, the Company granted Auramet 600,000 share purchase warrants with an exercise price of $0.15 per share which expire on August 22, 2016 (see note 15 (c)). A portion of the proceeds from the bridge loan was allocated to warrants and classified as equity. The fair value of the warrants was $8,000. On November 10, 2014, the Company paid US $750,000 to Auramet.(see notes 18 (a) and (b)). (c) Interest paid on the Royal Bank of Canada loan during the nine months ended September 30, 2014 was $1,598 (nine months ended September 30, $2,198). 21

23 14. Related party transactions: (a) The Company had the following transactions with Duluth. The Executive Chairman of Wallbridge Mining Company Limited is a director of Duluth. The companies share office space and these expenses are for rent and shared office costs. Three months ended September 30, 2014 September 30, 2013 Nine months ended September 30, 2014 September 30, 2013 Office and administrative expenses $ 8,389 8,389 25,119 25,001 These transactions are in the normal course of operations and are measured at the exchange amount of consideration established and agreed to by the related parties. Included in accounts payable and accrued liabilities at September 30, 2014 is $Nil ( $Nil) of amounts owing to Duluth. (b) On April 8, 2013, the directors of Miocene agreed to defer payment of the amounts owing to them in respect of the 2012 and 2013 financial years until such time as Miocene completes a financing in sufficient amount to ensure there is adequate working capital. Amounts owing to the Miocene directors are recorded in liabilities held for sale totalling $399,250 ( $308,000). As a condition of the Merger Agreement, certain amounts owing to the directors will be settled by issuing post-consolidation shares on the basis of one post-consolidation share for each $0.20 of indebtedness (note 9 (b)). On June 23, 2014, approval was received from Miocene s disinterested shareholders for debt settlement agreements dated April 29, 2014 of $317,750 owing to directors and the Executive Chairman to be settled with the post-consolidation shares and $40,000 owing to the Executive Chairman to be settled with a promissory note due January 31, 2016 upon the post-consolidation shares being issued. The note bears interest at the rate of 12% per annum calculated annually. 22

24 15. Shareholders equity: (a) Share capital transaction: On May 8, 2014, the Company completed a private placement totaling 4,889,556 flowthrough units at $0.09 per flow-through unit for total gross proceeds of $440,060. Each flow-through unit consists of one common share and one half common share purchase warrant. Each whole common share purchase warrant entitles the holder to purchase one additional common share of the Company on or before May 8, 2015 at an exercise price of $0.16 per share. In connection with the private placement, finders were paid a 6% cash fee of $21,244 and received 6% compensation options totaling 236,040 options with a value of $9,000. Each compensation option is exercisable into a compensation unit at a price of $0.09 per unit for a period ending on May 8, Each compensation unit consists of one non-flow-through common share and one half of one common share purchase warrant. Each whole common share purchase warrant will entitle the holder to purchase one additional common share of the Company on or before May 8, 2015 at an exercise price of $0.16 per share. Share issuance costs of $45,445 for the private placements were charged as a reduction of share capital. An amount of $35,000 has been assigned to the fair value of the warrants. An amount of $9,000 has been assigned to the compensation options (note 15 (c)). (b) Share Based Compensation Plan: In May 2013, the shareholders approved and authorized the adoption of an omnibus share based compensation plan for the Company to replace the existing stock option plan. The plan is comprised of restricted share units, deferred share units and stock options. Awards under the plan may be granted to any non-employee director, officer, employee or consultant. Under the plan, no cash settlements will be made as settlement will be in common shares only. The number of common shares available for issuance may not exceed 15% of the issued and outstanding common shares. In addition, the number of common shares issued and issuable to insiders within one year period shall not exceed 10% of the issued and outstanding common shares and to any one insider within one year shall not exceed 5% of the issued and outstanding common shares. 23

25 15. Shareholders equity (continued): (b) Share Based Compensation Plan (continued): (i) Restricted Share Units ( RSUs ) RSUs may be granted to participants and are based on individual and corporate performance criteria. The Compensation Committee determines the vesting schedule at the time of grant. The RSUs will be paid out to the participant no later than three years from the year in which the RSUs were granted. A restricted share unit is automatically converted into one common share upon vesting for no additional consideration. RSUs are equity-settled and their fair value is based on the market value of the shares at the grant date. The Company s compensation expense is recognized over the vesting period based on the number of units estimated to vest. Management estimates and adjusts the number of awards likely to vest on grant and at each reporting date up to the vesting date. The estimated forfeiture rate is adjusted for actual forfeitures in the period. On settlement of RSUs, the shares are issued from treasury. On December 19, 2013, the Board approved the issuance of 675,000 RSUs which will vest on December 19, The total expense of $43,875 will be recognized over the two year vesting period. For the nine months ended September 30, 2014, $16,500 was recorded in stock based compensation expense ( $nil). (ii) Deferred Share Units ( DSUs ) DSUs may be used for partial payment of directors fees to non-employee directors. A DSU is a notional share that has the same value as one common share. Directors may choose to take all or part of their fees in DSUs, with the consent of the Company. DSUs are paid out to the directors when they retire from the Board and the grant of DSUs has not yet resulted in the issuance of common shares to directors. DSUs are equity settled and their fair value is based on the market value of the shares at the grant date. For the nine months ended September 30, 2014, directors fees owing from 2013 of $41,407 were settled in DSUs and for directors fees owing in 2014 of $21,093 ( $52,812). The following table summarizes the outstanding DSUs at September 30, 2014: Grant date Amount outstanding September 6, ,420 December 19, ,000 January 29, ,419 April 30, ,798 1,841,637 24

26 15. Shareholders equity (continued): (b) Share Based Compensation Plan (continued): (iii) Stock Options Stock options may be granted to participants of the plan. The Compensation Committee determines the exercise price, vesting period and exercise rights for each stock option granted. The exercise price of options granted in accordance with the plan must not be lower than the closing price for such shares as quoted on the Toronto Stock Exchange ( TSX ) on the last business day prior to the date of the grant. Alternatively, the exercise price must not be lower than the five day weighted average trading price of the shares for the last five days that the shares traded on the TSX prior to the date of the grant. On January 15, 2014, 200,000 stock options were granted with an exercise price of $0.10 which will expire on January 15, 2017 of which 100,000 vested immediately and 100,000 vested on July 16, On May 6, 2014, 200,000 stock options were granted with an exercise price of $0.10 which will expire on May 5, 2019 of which 100,000 vested immediately and 100,000 vested on November 6, On June 12, 2014, 200,000 stock options were granted with an exercise price of $0.08 which will expire on June 11, 2019 of which 100,000 will vest on June 12, 2015 and 100,000 will vest on June 12, During the nine months ended September 30, 2014, upon termination of employment contracts, 300,000 stock options were cancelled with an average exercise price of $0.09. A summary of the Company s stock options are as follows: Nine months ended Year ended September 30, 2014 December 31, 2013 Weighted Average Weighted Average Stock Options Number Exercise Price Number Exercise Price Outstanding at beginning of period 20,154,980 $ ,144,980 $ 0.19 Granted 600, ,180, Expired (1,420,000) 0.10 (1,015,000) 0.44 Cancelled/forfeited (300,000) 0.09 (155,000) 0.13 Outstanding at end of period 19,034,980 $ ,154,980 $ 0.14 At September 30, 2014, 14,812,480 stock options were exercisable. The weighted average exercise price of options exercisable at September 30, 2014 is $0.164 (December 31, ,404,980 exercisable stock options with a weighted average exercise price of $0.17 per share). The weighted average remaining contractual life of stock options outstanding is 2 years (December 31, years). 25

27 15. Shareholders equity (continued): (b) Share Based Compensation Plan (continued): (iii) Stock options (continued): For the nine months ended September 30, 2014, $103,000 of expense relating to stock options was recorded in stock based compensation ( $166,000). The fair value of stock options granted during the nine months ended September 30, 2014 has been estimated using the Black-Scholes pricing model to be $23,000 or $0.038 per common share. The assumptions used in the pricing model are as follows: September 30, 2014 December 31, 2013 Estimated risk free interest rate 1.15 to 1.28% 1.15% % Expected life 3 to 3.5 years 3.3 to 3.5 years Expected volatility * 58.8% to 59.4% 54.1% % Expected dividends $Nil $Nil Forfeiture rate * 3% - 3.7% 3%-3.5% * The expected volatility used was based on the historical volatility of the Company s share price over a period equivalent to the expected life of the options prior to their grant date. The forfeiture rate is based on historical rate of forfeitures at the time of stock option grant. The following table summarizes the stock options outstanding at September 30, 2014: Exercise Price Number Exercisable Expiry Date ,275,000 4,275,000 October 3, 2014 (1) , ,000 November 22, , ,000 February 8, ,000 75,000 March 3, ,909,980 2,909,980 August 23, , ,000 October 20, ,000 50,000 March 22, ,250,000 1,250,000 August 18, , ,000 January 15, ,300,000 3,300,000 March 22, , ,000 February 1, ,605,000 1,802,500 March 31, ,120,000 December 18, , ,000 May 5, ,000 June 11, 2019 Outstanding options 19,034,980 14,812,480 (1) 4,275,000 stock options expired unexercised on October 3,