RATHDOWNEY RESOURCES LTD.

Transcription

1 CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE AND 2013 (Expressed in Euro, unless otherwise stated) (Unaudited)

2 Notice to Reader In accordance with subsection 4.3(3) of National Instrument , management of the Company advises that the Company's auditors have not performed a review of these interim financial statements.

3 Rathdowney Resources Ltd. Consolidated Interim Statements of Financial Position (Expressed in Euro) ASSETS Current assets June 30, December 31, (Unaudited) Cash and cash equivalents (note 4) 756,902 2,137,005 Amounts receivable and other assets (note 5) 125, ,728 Balance receivable from related party (note 9) 30,938 Total current assets 882,124 2,273,671 Non current assets Equipment (note 3) 59,379 71,682 Mineral property interest 1,997 1,997 Available for sale financial assets (note 6) 1,130, ,000 Total non current assets 1,191, ,679 Total assets 2,073,500 2,877,350 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Balance payable to related parties (note 9) 391,427 Amounts payable and other liabilities 171, ,194 Total current liabilities 562, ,194 Shareholders' equity Share capital (note 7) 30,820,065 30,820,065 Reserves 2,001,889 1,312,805 Accumulated deficit (31,311,087) (29,448,714) Total shareholders' equity 1,510,867 2,684,156 Total liabilities and shareholders' equity 2,073,500 2,877,350 The accompanying notes are an integral part of these condensed consolidated interim financial statements. /s/ Rene Carrier Rene G. Carrier Director /s/ David Copeland David Copeland Director

4 Rathdowney Resources Ltd. Condensed Consolidated Interim Statements of Comprehensive Loss (Unaudited Expressed in Euro, except weighted average number of common shares) Three months ended June 30 Six months ended June Expenses Exploration and evaluation 566, ,282 1,174,065 1,591,589 Assays and analysis 7,768 19,178 Drilling 4,067 88,609 Engineering 71, , , ,500 Geological 93, , , ,077 Property fees and assessments 3,102 Site activities 190, , , ,706 Sustainability 174, , , ,592 Travel 36,258 59,154 91,112 88,825 Administration 276, , ,020 1,003,889 Legal, accounting and audit 13, ,981 15, ,784 Office and administration 191, , , ,914 Shareholder communications 44,717 58,307 89, ,343 Travel 15,503 24,246 26,235 55,119 Trust and filing 10,659 7,028 22,924 20,729 Share based payments (note 8) 87,918 2,208 95,467 6,097 Exploration and evaluation 41,694 2,108 48,525 4,192 Administration 46, ,942 1,905 Loss before the following: 930,885 1,368,506 1,830,552 2,601,575 Interest income (2,063) (20,934) (5,458) (31,745) Gain from disposal of equipment (note 3) (33) (18,957) Impairment of available for sale financial assets (note 6) 230,000 1,310,000 Foreign exchange loss/(gain) (16,629) 174,809 37, ,610 Loss before income tax 912,193 1,752,348 1,862,373 4,009,483 Income tax expense (note 12) Loss for the period 912,193 1,752,348 1,862,373 4,009,483 Other comprehensive loss/(gain) Items that may be reclassified subsequently to loss: Net change in fair value of available for sale financial assets (note 6) 30,000 (600,000) Foreign currency translation adjustment 2,239 15,974 6,383 35,126 Total other comprehensive loss/(gain) 32,239 15,974 (593,617) 35,126 Total comprehensive loss 944,432 1,768,322 1,268,756 4,044,609 Basic and diluted loss per share Weighted average number of common shares outstanding 83,681,881 82,674,881 83,681,881 82,674,781 The accompanying notes are an integral part of these condensed consolidated interim financial statements.

5 Rathdowney Resources Ltd. Condensed Consolidated Interim Statements of Cash Flows (Unaudited Expressed in Euro) Six months ended June Cash flows from operating activities Loss for the period (1,862,373) (4,009,483) Adjustments for: Amortization 5,513 19,147 Equity settled share based payments (note 8) 95,467 6,097 Gain from disposal of equipment (note 3) (18,957) Interest income (5,458) (31,745) Impairment of available for sale financial assets (note 6) 1,310,000 Unrealized foreign exchange (1,475) 126,868 (1,768,326) (2,598,073) Change in amounts receivable and other assets (19,124) 170,741 Change in balance receivable from related parties 30,938 (93,484) Change in amounts payable and other liabilities (22,865) (401,641) Change in balance payable to related parties 391,427 (31,651) (1,387,950) (2,954,108) Income taxes paid Cash used in operating activities (1,387,950) (2,954,108) Cash flows from investing activities Acquisition of equipment (note 3) (863) Proceeds from the sale of equipment (note 3) 19,931 Interest received 5,458 31,745 Cash provided by investing activities 5,458 50,813 Cash flows from financing activities Proceeds from options exercised (note 8) 161 Cash provided by financing activities 161 Decrease in cash and cash equivalents (1,382,492) (2,903,134) Effect of exchange rate fluctuations 2,389 (160,053) (1,380,103) (3,063,187) Cash and cash equivalents, beginning of period 2,137,005 6,900,752 Cash and cash equivalents, end of period 756,902 3,837, ,902 The accompanying notes are an integral part of these condensed consolidated interim financial statements.

6 Rathdowney Resources Ltd. Condensed Consolidated Interim Statements of Changes in Equity (Unaudited Expressed in Euro, except for share information) Share capital Number of shares Amount Accumulated deficit Investment revaluation reserve Foreign currency translation reserve Equity settled employees benefits reserve Total shareholders' equity Balance at January 1, ,671,881 30,655,138 (22,847,701) (27,450) 1,419,812 9,199,799 Other comprehensive loss for the period (35,126) (35,126) Loss for the period (4,009,483) (4,009,483) Total comprehensive loss for the period (4,009,483) (35,126) (4,044,609) Share issuance pursuant to exercise of share purchase options (note 8) 3, (298) 161 Equity settled share based payments (note 8) 6,097 6,097 Balance at June 30, ,674,881 30,655,597 (26,857,184) (62,576) 1,425,611 5,161,448 Balance at January 1, ,681,881 30,820,065 (29,448,714) (39,689) 1,352,494 2,684,156 Other comprehensive income/(loss) for the period 600,000 (6,383) 593,617 Loss for the period (1,862,373) (1,862,373) Total comprehensive income/(loss) for the period (1,862,373) 600,000 (6,383) (1,268,756) Equity settled share based payments (note 8) 95,467 95,467 Balance at June 30, ,681,881 30,820,065 (31,311,087) 600,000 (46,072) 1,447,961 1,510,867 The accompanying notes are an integral part of these condensed consolidated interim financial statements.

7 Rathdowney Resources Ltd. Notes to the Condensed Consolidated Interim Financial Statements For the three and six months ended June 30, 2014 and 2013 (Unaudited Expressed in Euro, unless otherwise stated) 1. Nature of Operations and Going Concern Rathdowney Resources Ltd. ("Rathdowney") is a public company incorporated on April 3, 2008 under the laws of the Province of British Columbia, Canada. The address of the Company's corporate office is 15th Floor, 1040 West Georgia Street, Vancouver, BC, Canada V6E 4H1. These condensed consolidated interim financial statements ("Interim Financial Statements") of the Company as at and for the three and six months ended June 30, 2014 comprise the Company and its subsidiaries (together referred to as the "Company" and individually as "Company entities"). Rathdowney Resources Ltd. is the ultimate legal parent entity of the Company. The Company is in the process of exploring its mineral property interests and has not yet determined whether its mineral property interests contain economically recoverable mineral reserves. The Company's continuing operations are entirely dependent upon the existence of economically recoverable mineral reserves, the ability of the Company to obtain the necessary financing to continue the exploration and development of its mineral property interests and to obtain the permits necessary to mine, and on future profitable production or proceeds from the disposition of its mineral property interests. These Interim Financial Statements have been prepared on a going concern basis, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future. The Company has a history of losses with no operating revenue, an accumulated deficit at June 30, 2014 of 31.3 million (December 31, million), and working capital at June 30, 2014 of 0.3 million (December 31, million). The Company will need to seek additional financing to meet its exploration and development objectives. These factors indicate the existence of a material uncertainty that raises significant doubt about the Company s ability to continue as a going concern. The Company has a reasonable expectation that additional funds will be available when necessary to meet ongoing exploration and development costs. However, there can be no assurance that the Company will continue to be able to obtain additional financial resources or will achieve profitability or positive cash flows. If the Company is unable to obtain adequate additional financing, the Company will be required to re evaluate its planned expenditures until additional funds can be raised through financing activities. These Interim Financial Statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. 2. Significant Accounting Policies These Interim Financial Statements have been prepared in accordance with IAS 34, Interim Financial Reporting ("IAS 34"). Accordingly, these Interim Financial Statements do not include all of the information and footnotes required by International Financial Reporting Standards ("IFRS") for complete financial statements for year end reporting purposes. These Interim Financial Statements should be read in conjunction with the financial

8 Rathdowney Resources Ltd. Notes to the Condensed Consolidated Interim Financial Statements For the three and six months ended June 30, 2014 and 2013 (Unaudited Expressed in Euro, unless otherwise stated) statements of the Company as at and for the year ended December 31, 2013 which were prepared in accordance with IFRS and are publicly available at Results for the period ended June 30, 2014, are not necessarily indicative of future results. The preparation of Interim Financial Statements in conformity with IAS 34 requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. Actual results may differ from such estimates. There was no change in the use of estimates and judgments during the current period as compared to those described in note 2 of the Company s Consolidated Financial Statements for the year ended December 31, These Interim Financial Statements were authorized by the Audit Committee of the Company on August 27, 2014 for issuance. The accounting policies used in the preparation of these Interim Financial Statements are consistent with those used in the audited consolidated financial statements of the Company for the year ended December 31, 2013, except for the adoption of the amendments, interpretations, revised and new standards. (a) Amendments, Interpretations, Revised and New Standards Adopted by the Group Effective January 1, 2014, the Company adopted new and revised IFRS that were issued by the IASB. The application of these new and revised IFRS has not had any material impact on the amounts reported for the current and prior years but may affect the accounting for future transactions or arrangements. (b) Accounting standards issued but not yet effective Effective for annual periods beginning on or after July 1, 2014 Amendments to IAS 19, Employee benefits Annual improvement to IFRS ( ) and ( ) Effective for annual periods beginning on or after January 1, 2015 Amendments to IFRS 7, Financial Instruments Disclosure Effective for annual periods beginning on or after January 1, 2016 Amendments to IAS 16, Property Plant and Equipment Amendments to IAS 38, Intangible Assets Amendments to IFRS 11, Joint Arrangements Effective for annual periods beginning on or after January 1, 2018 IFRS 9, Financial Instruments The Company has not early adopted these revised standards and is currently assessing the impact that these standards will have on the Company's financial statements.

9 Rathdowney Resources Ltd. Notes to the Condensed Consolidated Interim Financial Statements For the three and six months ended June 30, 2014 and 2013 (Unaudited Expressed in Euro, unless otherwise stated) 3. Equipment Six months ended June 30, 2014 Cost Computer Equipment Fittings & Equipment Motor Vehicles Balance at January 1, ,094 15,816 84, ,790 Additions Disposals Currency differences (174) (18) (275) (467) Balance at June 30, ,920 15,798 84, ,323 Total Accumulated depreciation Balance at January 1, ,751 10,665 37,692 96,108 Charge for the period 2, ,216 11,756 Disposals Currency differences 87 3 (10) 80 Balance at June 30, ,435 11,611 45, ,944 Carrying amount June 30, ,485 4,187 38,707 59,379 Year ended December 31, 2013 Cost Computer Equipment Fittings & Equipment Motor Vehicles Balance at January 1, ,920 18, , ,013 Additions Disposals (7,300) (2,425) (91,686) (101,411) Currency differences 611 (81) (1,205) (675) Balance at December 31, ,094 15,816 84, ,790 Total Accumulated depreciation Balance at January 1, ,364 9, , ,848 Charge for the year 10,832 3,409 17,582 31,823 Disposals (6,326) (2,425) (91,686) (100,437) Currency differences (119) 2 (9) (126) Balance at December 31, ,751 10,665 37,692 96,108 Carrying amount December 31, ,343 5,151 47,188 71,682 Depreciation has been included in profit or loss and has been classified as exploration expenses site activities.

10 Rathdowney Resources Ltd. Notes to the Condensed Consolidated Interim Financial Statements For the three and six months ended June 30, 2014 and 2013 (Unaudited Expressed in Euro, unless otherwise stated) 4. Cash and Cash Equivalents The components of cash and cash equivalents are as follows: June 30, 2014 December 31, 2013 Cash held in business and saving accounts 481,251 1,184,140 Held in guaranteed investment certificates 275, ,865 Total 756,902 2,137, Amounts Receivable and Other Assets June 30, 2014 December 31, 2013 Value added taxes refundable 78,717 68,809 Deposits and advances 20,744 17,006 Prepaid expenses 25,761 19,913 Total 125, , Available For Sale Financial Assets June 30, 2014 December 31, 2013 Common shares in Heatherdale Resources Ltd. 1,130, ,000 At June 30, 2014 and December 31, 2013, the Company s available for sale financial assets consist of common shares of Heatherdale Resources Ltd. ("Heatherdale"), a Canadian public company. 7. Share Capital Authorized share capital At June 30, 2014 and December 31, 2013, the authorized share capital was comprised of an unlimited number of common shares without par value.

11 Rathdowney Resources Ltd. Notes to the Condensed Consolidated Interim Financial Statements For the three and six months ended June 30, 2014 and 2013 (Unaudited Expressed in Euro, unless otherwise stated) 8. Equity Settled Share Based Payments Reconciliation of movement in the number of share options The following summarizes the changes in the Company s share options. Exercise price amounts are denoted in Canadian dollars ("C$") as the Company is listed on a Canadian stock exchange: Six months ended June 30, 2014 Options in respect of shares of the Company Weighted average exercise price Balance as at December 31, ,254,100 C$ 0.83 Share options expired (679,600) C$ 1.00 Share options granted 2,986,625 C$ 0.25 Share options forfeited (114,000) C$ 0.37 Balance as at June 30, ,447,125 C$ 0.42 Six months ended June 30, 2013 Options in respect of shares of the Company Weighted average exercise price Balance at December 31, ,046,700 C$ 0.54 Share options exercised (3,000) C$ 0.07 Share options forfeited (67,300) C$ 0.61 Balance at June 30, ,976,400 C$ 0.54 The weighted average share price for options exercised in six months ended June 30, 2013 was C$ Share purchase options outstanding at June 30, 2014 and December 31, 2013 were: June 30, 2014 Exercise price Number of share purchase options outstanding Weighted average remaining contractual life (years) Number of share purchase options exercisable C$ 0.22 C$ ,282, ,667 C$ 0.41 C$ , ,000 C$ 0.98 C$ , ,700 4,447,125 1,331,367

12 Rathdowney Resources Ltd. Notes to the Condensed Consolidated Interim Financial Statements For the three and six months ended June 30, 2014 and 2013 (Unaudited Expressed in Euro, unless otherwise stated) December 31, 2013 Exercise price Number of share purchase options outstanding Weighted average remaining contractual life (years) Number of share purchase options exercisable C$ 0.22 C$ , ,667 C$ 0.41 C$ , ,000 C$ 0.98 C$ ,636, ,636,100 2,254,100 2,020, Related Party Transactions The components of balance receivable from related parties are as follows: June 30, 2014 December 31, 2013 Key management personnel (note 9(a)) Hunter Dickinson Services Inc. (note 9(b)) 30,938 Total 30,938 The components of balance payable to related parties are as follows: June 30, 2014 December 31, 2013 Key management personnel (note 9(a)) 27,157 Hunter Dickinson Services Inc. (note 9(b)) 364,270 Total 391,427 (a) Key management personnel Key management personnel ("KMP") consist of directors and officers of Rathdowney and its material subsidiaries.

13 Rathdowney Resources Ltd. Notes to the Condensed Consolidated Interim Financial Statements For the three and six months ended June 30, 2014 and 2013 (Unaudited Expressed in Euro, unless otherwise stated) Transactions with key management personnel were as follows: Three months ended June 30 Six months ended June Amounts paid and payable to HDSI for services of KMP employed by HDSI (i) 154, , , ,721 Payments to KMP or to an entity owned by a KMP (ii) 33, ,843 86, , , , , ,125 Share based payments 37,077 2,084 37,077 4,168 Total 224, , , ,293 Other amounts: Office rent paid ,000 2,000 (i) (ii) Certain HDSI personnel serve as executive directors and officers for the Company. Includes director fees paid to independent directors and C.E.C Engineering Ltd., a private company controlled by a director. (b) Entities with significant influence over the Company The Company's management believes that certain entities have the power to participate in the financial or operating policies of the Company. Several directors and other key management personnel of those entities, who are close business associates, are also key management personnel of the Company. Hunter Dickinson Services Inc. ("HDSI") HDSI is a private company with certain directors and other key management personnel in common with the Company. Pursuant to an agreement dated July 2, 2010, HDSI provides geological, corporate development, corporate communications, administrative and management services to the Company at annually agreed rates. HDSI also incurs third party costs on behalf of the Company.

14 Rathdowney Resources Ltd. Notes to the Condensed Consolidated Interim Financial Statements For the three and six months ended June 30, 2014 and 2013 (Unaudited Expressed in Euro, unless otherwise stated) Transactions with HDSI were follows: Three months ended June 30 Six months ended June Services received from HDSI: Technical, geological and engineering services 168, , , ,244 Corporate communication, investor relations, administrative and management services 167, , , ,443 Information technology services 20,063 22,543 39,906 44,936 Total amount of services receive from HDSI 355, , , ,623 Reimbursement of third party expenses to HDSI 34,492 42, ,330 93,083 Total 390, , ,843 1,063,706 (c) Other related parties Heatherdale Resources Ltd. ("Heatherdale") Heatherdale is a public company listed on the TSX Venture Exchange, and has certain directors in common with the Company (note 6). 10. Employees Benefits Expenses The amount of employees' salaries and benefits included in various expenses are as follows: Three months ended June 30, Six months ended June 30, Exploration and evaluation 338, , , ,698 Administration 199, , , ,628 Total (i) 538, ,089 1,123,714 1,509,326 (i) Employment benefit expenses include the cost of services received from HDSI (note 9(b)). 11. Fair Value At June 30, 2014 and December 31, 2013, Company s available for sale financial assets were carried at fair value based on unadjusted quoted prices in active markets, represented by level 1 of the fair value hierarchy (note 6). At June 30, 2014 and December 31, 2013, the carrying values of the Company's financial assets and financial liabilities carried at amortized cost approximate their fair values.

15 Rathdowney Resources Ltd. Notes to the Condensed Consolidated Interim Financial Statements For the three and six months ended June 30, 2014 and 2013 (Unaudited Expressed in Euro, unless otherwise stated) 12. Taxation (a) Provision for current tax No provision has been made for current income taxes, as the Company has no taxable income. (b) Provision for deferred tax As future taxable profits of the Company are uncertain, no deferred tax asset has been recognized. As at June 30, 2014, the Company had unused non capital loss carry forwards of 4,445,000 (as at December 31, ,317,000) in Canada and approximately 19,815,000 (December 31, ,652,000) in Ireland, Luxembourg and Poland. 13. Liquidity Risk Liquidity risk is the risk that the Company will not be able to meet its financial obligations when they become due. The Company ensures that there is sufficient capital in order to meet short term business requirements, after taking into account cash flows from operations and the Company's holdings of cash and cash equivalents. The Company receives services from HDSI (note 9(b)). The Company has received a confirmation from HDSI that, while continuing to provide services to the Company, HDSI will not demand, prior to September 30, 2015, the payment of amounts outstanding as of the reporting date. Accordingly, management believes that its current assets at June 30, 2014, are sufficient to meet its known obligations falling due in next 12 months and to maintain its mineral rights in good standing for the next twelve months. The following obligations existed at June 30, 2014: Payments due by period Total Less than 1 year 1 5 years After 5 years Amounts payable and other liabilities 171, ,206 Amounts payable to key management personnel (note 9a) 27,157 27,157 Amounts payable to HDSI (note 9b) 364, ,270 Total 562, , ,270

16 Rathdowney Resources Ltd. Notes to the Condensed Consolidated Interim Financial Statements For the three and six months ended June 30, 2014 and 2013 (Unaudited Expressed in Euro, unless otherwise stated) The following obligations existed at December 31, 2013: Payments due by period Total Less than 1 year 1 5 years After 5 years Amounts payable and other liabilities 193, ,194 Amounts payable to key management personnel (note 9) Amounts payable to HDSI (note 9) Total 193, , Events Occurring After the Reporting Period On August 12, 2014, the Company announced that it had completed the first tranche of a private placement of approximately 27,840,000 common shares at a price of $0.25 per share for gross proceeds of 4,725,371 (C$6,960,000). The shares are subject to applicable resale restrictions, including a 4 month hold under Canadian legislation. Fees of up to 6% are payable on a portion of the financing.

17 1

18 1 DATE This Management's Discussion and Analysis ("MD&A") should be read in conjunction with the unaudited interim consolidated financial statements for the three and six months ended June 30, 2014 and the audited consolidated financial statements of Rathdowney Resources Ltd. (the "Company" or "Rathdowney") for the year ended December 31, 2013, which are publicly available at This MD&A is prepared as of August 27, All currency amounts stated herein are expressed in Euros, unless otherwise specified. For dollar amounts, "$" refers to Canadian dollars and "US$" refers to United States dollars. Cautionary Comments This discussion includes certain statements that may be deemed "forward looking statements". All statements in this discussion, other than statements of historical facts, that address future production, reserve potential, exploration drilling, exploitation activities and events or developments that the Company expects are forward looking statements. Although the Company believes the expectations expressed in such forward looking statements are based on reasonable assumptions, such statements are not guarantees of future performance and actual results or developments may differ materially from those in the forward looking statements. Assumptions used by the Company to develop forward looking statements include the following: the Olza project will obtain all required environmental and other permits and all land use and other licenses, studies and development of the Olza project will continue to be positive, and no geological or technical problems will occur. Factors that could cause actual results to differ materially from those in forward looking statements include market prices, exploration and exploitation successes, continuity of mineralization, potential environmental issues and liabilities associated with exploration, development and mining activities, uncertainties related to the ability to obtain necessary permits, licenses and title and delays due to third party opposition or litigation, changes in laws and government policies regarding mining and natural resource exploration and exploitation, continued availability of capital and financing, and general economic, market or business conditions. Investors are cautioned that any such statements are not guarantees of future performance and actual results or developments may differ materially from those projected in the forward looking statements. 2

19 Cautionary Note to US Investors Concerning Estimates of Inferred Resources The following section uses the term "inferred resources". The Company advises investors that although this term is recognized and required by Canadian regulations, the SEC does not recognize it. "Inferred resources" have a great amount of uncertainty as to their existence, and as to their economic and legal feasibility. It cannot be assumed that all or any part of a mineral resource will ever be upgraded to a higher category. Under Canadian rules, estimates of inferred mineral resources may not form the basis of economic studies, except in rare cases. Investors are cautioned not to assume that all or any part of an inferred resource exists, or is economically or legally mineable. 2 OVERVIEW Rathdowney's principal business activity is the exploration of mineral properties, with a primary focus on finding and developing the next generation of base metal deposits. The Company s current programs are directed toward advancing the Olza zinc lead silver project ( Project Olza or Olza ) in Poland. Project Olza is a 150 square kilometre property in Poland s Upper Silesian Mining District, a region of world class Mississippi Valley type ( MVT ) zinc lead deposits. Rathdowney holds a 100% interest in Project Olza through its wholly owned subsidiary, Rathdowney Polska Sp z o.o. Exploration by Polish State Surveys during the 1950s to 1980s, including some 180,000 metres of drilling, identified significant MVT deposits in the area of Project Olza. Several historical estimates of the zinc lead resources were also done and reported under a Soviet style classification system. Rathdowney's technical team was attracted to the area by the high probability for confirmation of these major historically documented zinc lead deposits and also by the opportunity to make new discoveries. Following initial property acquisition and assessment of the historical database, Rathdowney commenced drilling at Olza in mid 2011 with the objective of confirming the continuity and grade of the mineralization and establishing mineral resources under modern standards. This work was successful. In September 2012, the Company released an initial estimate of the mineral resources in a portion of the Olza zinc lead deposits. Preliminary metallurgical test work was also done during this initial phase, indicating excellent recoveries. This Phase I established a base on which to move the project forward. In mid 2013, Rathdowney initiated a Phase II program, designed to advance project evaluation and permitting as outlined for projects in Poland. This program, involving environmental and engineering studies and stakeholder engagement activities, will be the focus of work in 2014 and into The Company has also formalized a process to consider all financing and partnership options available to advance the project. This includes working closely with other operations in the area to explore synergies that would limit the project footprint, reduce development costs and, potentially, enhance the timeline for permitting the project. 3

20 Financing July 2014 On August 12, 2014, the Company announced that it had completed the first tranche of a private placement of approximately 27,840,000 common shares at a price of $0.25 per share for gross proceeds of 4,725,371 (C$6,960,000). The shares are subject to applicable resale restrictions, including a 4 month hold under Canadian legislation. Fees of up to 6% are payable on a portion of the financing. Pursuant to this private placement, one of the places has the right to appoint two individuals to the Company's Board of Directors. Accordingly, Stephen Hodgson and Robert Schafer resigned from the Board, and George Ireland and Myron Manternach were appointed to the Board. 2.1 Project Olza, Poland Project Olza comprises the Zawiercie, Rokitno and Chechlo concessions, covering an area of over 150 square kilometres in a relatively flat lying, partially forested region of southwestern Poland. Road accessible, the project is about one hour s drive from Krakow, a city with full services, including an international airport. The deposits at Olza are along strike from the long life Pomorzany zinc lead mine and past producing Olkusz and Boleslaw mines. Importantly, the property is located 30 kilometres from the ZGH zinc smelter at Boleslaw and a railway line to the smelter runs through the Olza project area. Rathdowney s Phase I program focused on resource assessment, and involved drilling and preliminary metallurgical testing. The Company drilled 225 holes mainly along a trend called the East Mineralized Corridor on the Zawiercie and Rokitno concessions. The stratiform mineralization in this area occurs within Middle Triassic dolomite at depths generally ranging from 100 to 250 metres. Mineral Resources In September 2012, Rathdowney announced the results of an initial mineral resource estimate for the central part of the East Mineralized Corridor based on 955 diamond drill holes: 780 core holes drilled historically by the Polish State as well as confirmatory drilling in 175 core holes carried out by Rathdowney. The mineral resources, estimated at a range of cut offs, are tabulated below: Cutoff Zn % Rathdowney Project Olza Inferred Mineral Resources Tonnes (millions) Zn % Pb % Zn+Pb % Contained Zn (millions lb) Contained Pb (millions lb) , , , , Results may not add exactly due to reporting precision and rounding. 4

21 Robert L. Sandefur, P.E., of Chlumsky Armbrust & Meyer, LLC, an international mineral resources and engineering group, is the independent Qualified Person responsible for the estimate. The effective date of the estimate is May 2012, the date of the completion of the last drill hole used in the estimation. Assaying was done at ISO 17025:2005 accredited Omac Laboratories Ltd. (Stewart Group/ALS Laboratory Group) in Loughrea, Ireland. A technical report has been filed on the Rathdowney profile at Rathdowney drilled 48 additional holes along the East Mineralized Corridor since the resource estimate. These holes were drilled both within and stepping out from the initial resource area. Strong grades and thicknesses of zinc and lead mineralization were encountered, continuing to confirm continuity of the mineralization and indicating that the initial resource area remains open to expansion. Zinc lead mineralization was also identified by the historical drilling in a number of areas outside the East Mineralized Corridor; however, much of this drilling was done on irregular and sparse grids. Other areas of the large Olza property have seen little (widely spaced) to no drilling. The potential to make new discoveries and increase the mineral resources is considered to be excellent. Project Metallurgy Preliminary metallurgical test work was performed in 2013 at SGS Mineral Services UK Ltd. s test laboratory near Truro, Cornwall, UK under the direction of Melis Engineering Ltd. A bulk composite was prepared from the core of 25 holes from Rathdowney s drilling, representing the Olza mineralization styles in proportion to their relative abundance in the documented resource area. Sulphides present include sphalerite, galena and marcasite. The average head grade of the overall test composite was 6.1% Zn and 1.4% Pb for a combined head grade of 7.5% Zn+Pb with 20 g Ag/t. These zinc and lead contents are comparable to the grades of the September 2012 mineral resource. Initially, open cycle batch flotation tests were completed on the bulk composite which determined that the Olza mineralization is relatively soft: the ball mill Bond Work Index is 10.6 kwh/t. The results also showed that standard zinc and lead flotation conditions without any upgrading, ahead of flotation on initial rougher and cleaner flotation produced optimum metallurgy. This work was followed up by a standard six cycle lock cycle test to quantify recoveries and concentrate grades under conditions approaching steady state. Results were excellent, and included: a projected recovery of 92% Zn to a 58% zinc concentrate. The zinc concentrate assayed a very low 0.4% Fe, and 1.7% MgO. It also assayed 179 g/t Ag, representing 83% recovery of silver to the zinc concentrate. a projected recovery of 90% Pb, or better, to a lead concentrate assaying 70% Pb.* The lead concentrate contained 55 g/t Ag, representing 4% distribution of silver to the lead concentrate. * The actual lock cycle result was 87% lead recovery to a 79% lead concentrate. Reducing the lead concentrate grade closer to a typical 70% Pb grade would increase lead recovery to lead concentrate to 90% as quantified from lead grade/recovery curves. 5

22 Current Activities The Phase II program is designed to advance the project and facilitate permitting for Project Olza. Work in 2014 has involved a research and planning phase, environmental baseline studies, potentially conducting more drilling for environmental and engineering studies and ongoing consultation with government and local communities about work that is underway and plans for the project. The permitting process in Poland has several aspects. These include an assessment of geological documentation, consideration of local land use plans and collection of data for completion of studies necessary to prepare an Environmental Impact Assessment report. This work is carried out in parallel with deposit development planning. A comprehensive appraisal of the historical data compiled by the Polish government surveys was completed by the Rathdowney technical team in context with the information collected during the Company s initial programs in order to determine what data will best support development of the project. Rathdowney submitted a bid for the purchase of historical drill data; it also combined this data with information from the Company s Phase I drill program in the Geological Documentation Report, which was submitted to the Minister of Environment for Poland, securing the Project Olza tenure (for further details see Title Risk, Section 16 below). Rathdowney has also planned for comprehensive data collection programs to support engineering studies and the environmental assessment process. Baseline investigations (flora, fauna, air, ground and surface water, soil and rock, climate, land use, protected areas and monuments) have been designed to characterize existing environmental and social conditions of the project area. An extensive hydrological study led by the AGH Krakow University of Science and Technology ( AGH ) began in The program involves desk top study as well as a survey of hundreds of existing hand dug and drilled wells and surface water bodies, from which data on flow rates and chemistry is being collected. Once an initial assessment of the regional hydrology has been made, AGH will propose locations for additional groundwater monitoring stations, as required. Concurrently, a regional hydrogeological model is being developed from over 1000 historical drill holes. This compilation of historical data and new data for Olza is expected to create one of the most comprehensive hydrological models in Poland. The Polish NGO Fundacja Przyroda i Człowiek (Nature and Human Foundation) has been commissioned by Rathdowney to conduct flora and fauna baseline studies. The baseline work will extend over an area of 100 square kilometres. Rathdowney is also looking to take best advantage of the project s excellent location, and is exploring potential synergies with local mining companies as well as energy, construction, mining and processing contractors that offer real opportunities to reduce project costs and timelines. Community Engagement Rathdowney established a local team and began an active engagement program with government and local landowners in In all, nearly 1,800 meetings have been held since 2010 including meetings with landowners (land access), key stakeholders (local, regional, and national government authorities) and local communities. 6

23 In 2013, the Company also began a series of meetings to provide the broader public in the surrounding communities with information on the work carried out so far and the Company s plans moving forward. Thirty four public meetings, involving some 400 participants have been held and more are planned. 2.2 Other Interests Properties in Ireland Rathdowney holds over 1,233 square kilometres of prospecting licenses in Ireland. The Company carried out early stage exploration work on its properties in Ireland from and initial drill testing in In 2012, the Company focused on rebalancing the risk profile of its project portfolio while maintaining significant exposure to successful discoveries. To this end, management chose to farm out its Irish exploration properties and bolster its near term development pipeline by gaining an interest in later stage projects. Rathdowney can benefit from exploration success through retained minority interests or net smelter return ("NSR") royalties. Agreement with Teck Ireland Ltd. In September 2012, Rathdowney optioned 31 Prospecting Licenses that comprise the Westmeath South, Westmeath North, Galway, Laois, Longford and Meath properties (the Prospecting Licences ) located in the Irish Midlands zinc lead district held by the Company to Teck Ireland Ltd. ( Teck Ireland ), a subsidiary of Teck Resources Limited. As part of the transaction, Teck Resources Limited completed a 270,000 ($350,000) investment in Rathdowney. Teck Ireland has the option (the Option ) to acquire a 100% interest in the Prospecting Licences by incurring expenditures on the Prospecting Licences totalling 3,500,000 on or before December 31, Upon exercise of the Option by Teck Ireland, the Company will retain a 2% NSR royalty on minerals extracted from the areas covered by the Prospecting Licences. Investment in Heatherdale Resources Ltd. In July 2012, the Company acquired 22 million common shares in Heatherdale Resources Ltd. ( Heatherdale ). Rathdowney can appoint up to two members to Heatherdale s Board of Directors and to provide input to Heatherdale s technical management group. Currently, Rathdowney holds an interest of approximately 16% in Heatherdale and has one representative on the Heatherdale Board. Rathdowney believes that its investment in Heatherdale provides shareholders with a low cost opportunity to participate in a project with excellent potential. Drilling by Heatherdale since 2009 has significantly expanded Niblack s mineral resources. More recently, Heatherdale has signed agreements with local and state government agencies to assist in assessing infrastructure sites that would support development at Niblack. The project enjoys strong local government and community support which, combined with existing underground infrastructure, would facilitate production in the near term. 7

24 In early May 2014, Heatherdale announced that the Alaska State Legislature unanimously passed Senate Bill 99 (the bill ) to authorize the Alaska Industrial Development and Export Authority ( AIDEA ) to issue bonds of up to $125 million to finance certain infrastructure and construction costs of the Niblack Project at the Gravina Island Industrial Complex, and infrastructure at the project site. Support from AIDEA through this infrastructure financing would contribute significantly to the advancement of the Niblack Project. 2.3 Market Trends Zinc is used predominantly to galvanize and protect steel from corrosion for the construction, automobile and domestic appliance (such as fridges, washing machines etc.) manufacturing sectors. Lead is used in lead storage batteries, and in alloys such as fusible metals and anti friction metals. In terms of zinc and lead markets, the major demand comes from China, comprising an estimated 44 percent of the global demand in Current demand, particularly for zinc, in combination with the expected closure, due to ore exhaustion, of some major zinc mines in the world over the next few years, is expected to widen the gap in the medium term between mine supply and the demand for zinc, as well as drawing down the large stocks of zinc. With the Olza zinc lead project, Rathdowney is among a short list of junior exploration companies that are well placed to benefit from this looming squeeze in the supply of zinc concentrates. Silver is not only a precious metal but its characteristics make it useful in a variety of industrial (in electronics) and chemical (as a catalyst) applications, and medical and consumer (as antimicrobial) products. Zinc and lead prices were variable in 2008 and In 2010, prices weakened mid year, and then improved steadily through most of Prices were variable in 2012 and 2013, and averaged lower in both years. Lead prices have been relatively steady in 2014, ranging between US$0.91/lb and US$1.00/lb. Zinc prices in 2014 have been more variable, ranging between US$0.88/lb and US$0.94/lb until early June when an uptrend began. Recent zinc price is US$1.03/lb. Silver prices were impacted by economic volatility in An upward trend in the silver price began in 2010, and continued to late September 2011, resulting in the average for 2011 being at the highest level since Prices trended downward in 2012 and 2013, but have stabilized in 2014, ranging between $19.20/oz and $22.05/oz. Average annual prices since 2008 as well as the average prices so far in 2014 for zinc, lead and silver are shown in the table below: 8

25 Zinc US$/lb Lead US$/lb Silver US$/oz to date SELECTED ANNUAL INFORMATION Not required for interim MD&A. 4 SUMMARY AND DISCUSSION OF QUARTERLY RESULTS All monetary figures in the following table are expressed in thousands of Euros, except per share amounts. Small differences are due to rounding. Summary of quarterly results Jun Mar Dec Sep Jun Mar Dec Sep Exploration expenses (1) ,050 1,167 Administrative expenses (1) Share based payments Operating loss ,087 1,368 1,214 1,516 1,661 Impairment loss ,080 1,117 Other items (2) (19) (37) 199 (216) Net loss ,682 1,752 2,257 2,832 1,445 Basic and diluted loss per share (1) Excluding share based payments (2) Other items include interest income and foreign exchange differences and may include other non recurring transactions such as gains on disposal of equipment. Discussion of Quarterly Trends The Company s quarterly operating losses followed an overall decreasing trend from Q through Q4 2013, as the Company completed drilling, mineral resource estimation, and metallurgical test work for its mineral project in Poland. The Company s operating losses remained 9

26 steady from Q through Q as the Company developed the project while continuing to conserve its cash resources. Administrative expenses tended to follow the level of activity in the Company's exploration and business development activities. The impairment loss recorded by the Company is related to its investment in Heatherdale Resources Ltd. due to declines in market price and the weakening of the Canadian dollar against the Euro. The fair value of this investment has increased from 530,000 at December 31, 2013 to 1,130,000 at June 30, The increase has been included in other comprehensive income. 5 RESULTS OF OPERATIONS AND FINANCIAL POSITION 5.1 Results of Operations The following discussion and analysis of the Company s financial results of its operations should be read in conjunction with the Company s interim consolidated financial statements and related notes. Certain comparative figures have been reclassified to conform to the presentation adopted in the current year. The loss for the three and six months ended June 30, 2014 was 912,000 and 1,862,000, compared to a loss of 1,752,000 and 4,009,000 for the same periods of the previous year. Exploration and Evaluation Expenses Exploration and evaluation expenses, excluding share based payments for the three and six months ended June 30, 2014 decreased to 567,000 and 1,174,000, compared to 890,000 and 1,592,000 in the same periods in the previous year. Higher exploration and evaluation expenses in the prior periods were primarily because the Company completed its Phase I drill program last year and conducted preliminary metallurgical testwork on mineralization from the Project Olza. 10

27 An analysis of the exploration and evaluation expenditures, excluding share based payments, for the three and six months ended June 30, 2014 and 2013 is as follows: Three months ended June 30, 2014 Project Olza Irish properties Other (i) Total Engineering 60,185 11,605 71,790 Geological and permitting 88,843 4,439 93,282 Site activities 174,757 15, ,526 Sustainability 174, ,708 Other 36,258 36,258 Total 534,751 15,769 16, ,564 Three months ended June 30, Project Olza Irish properties Other (i) Total Engineering 112, ,161 Geological 357,901 7,142 2, ,790 Site activities 107,121 15, ,839 Sustainability 215, ,503 Other 71,016 (27) 70,989 Total 863,884 23,651 2, ,282 (i) Includes expenses related to technical administration of the projects and other technical work not allocated to any specific project. Six months ended June 30, 2014 and 2013 Six months ended June 30, 2014 Project Olza Irish properties Other (i) Total Engineering 136,626 12, ,426 Geological and permitting 208,413 4, ,852 Site activities 363,433 34, ,926 Sustainability 322, ,749 Other 91,112 91,112 Total 1,122,333 34,493 17,239 1,174,065 11

28 Six months ended June 30, 2013 Project Olza Irish properties Other (i) Total Engineering 182,633 4, ,500 Geological 527,107 57,695 10, ,077 Site activities 218,329 57, ,706 Sustainability 333, ,592 Other 195,028 4, ,714 Total 1,456, ,625 10,275 1,591,589 (i) Includes expenses related to technical administration of the projects and other technical work not allocated to any specific project. Administrative Expenses Administrative expenses, excluding share based payments, decreased to 276,000 and 561,000 for the three and six months ended June 30, 2014, compared to 476,000 and 1,004,000 for the same period in Administrative expenses in the current three and six months period were lower due to cost cutting measures in administrative activities, legal and accounting, and shareholder communications expenses. 6 LIQUIDITY The Company is in the process of exploring its mineral property interests and has not yet determined whether its mineral property interests contain economically recoverable mineral reserves. The Company's continuing operations are entirely dependent upon the existence of economically recoverable mineral reserves, the ability of the Company to obtain the necessary financing to continue the exploration and development of its mineral property interests and to obtain the permits necessary to mine, and on future profitable production or proceeds from the disposition of its mineral property interests. As at June 30, 2014, the Company had cash and cash equivalents of 0.8 million (December 31, million) and working capital of approximately 0.3 million (December 31, million). However, on August 8, 2014, subsequent to the end of reporting period, the Company closed a private placement financing of its common shares (see section 2 Overview). The Company will need to seek additional financing to meet its exploration and development objectives. The Company has a reasonable expectation that additional funds will be available when necessary to meet ongoing exploration and development costs. However, there can be no assurance that the Company will continue to be able to obtain additional financial resources or will achieve profitability or positive cash flows. If the Company is unable to obtain adequate additional financing, the Company will be required to re evaluate its planned expenditures until additional funds can be raised through financing activities. 12