Peruvian Precious Metals Corp. (An Exploration Stage Company)

Transcription

1 Condensed Interim Consolidated Financial Statements For the three and six months ended and Expressed in Canadian Dollars (Unaudited Prepared by Management) Contents Management s Report 1 Condensed Interim Consolidated Financial Statements Condensed Interim Consolidated Statements of Financial Position 2 Condensed Interim Consolidated Statements of Loss and Comprehensive Loss 3 Condensed Interim Consolidated Statements of Cash Flows 4 Condensed Interim Consolidated Statements of Changes in Shareholders Equity (Deficiency)

2 The accompanying unaudited condensed interim consolidated financial statements of Peruvian Precious Metals Corp. for the three and six months ended and have been prepared by the management of the Company and approved by the Company s Audit Committee and the Company s Board of Directors. Under National Instrument , Part 4, subsection 4.3 (3) (a), if an auditor has not performed a review of the condensed interim consolidated financial statements, they must be accompanied by a notice indicating that an auditor has not reviewed the financial statements. The accompanying unaudited condensed interim consolidated financial statements of the Company have been prepared by and are the responsibility of the Company s management. The Company s independent auditor has not performed a review of these condensed interim consolidated financial statements. /s/ Brian Maher /s/ Kimberly Ann Brian Maher, Chief Executive Officer Kimberly Ann, Chief Financial Officer Vancouver, BC Canada Vancouver, BC Canada May 30, May 30, 1

3 Condensed Interim Consolidated Statements of Financial Position Notes ASSETS Current Assets Cash 76, ,804 Accounts receivable 5 12,692 23,869 Prepaid expenses 17,702 20,591 Total current assets 106, ,264 Non-current assets Exploration and evaluation assets 6 918, ,836 Advances for assets under construction 6 6,038,955 6,672,500 Property, plant and equipment 7 466,059 21,030 TOTAL ASSETS 7,530,391 7,730,630 LIABILITIES Current liabilities Accounts payable and accrued liabilities 8, 14 1,945,901 1,753,933 Interest payable 9, 10 37,166 17,908 Loans from related parties 9 182,351 - Convertible debentures , ,150 Promissory note 11 1,466,628 1,468,736 Derivative liability 10, 11 52, ,213 Total current liabilities 4,001,277 4,152,940 Decommissioning obligation 12 16,672 16,431 TOTAL LIABILITIES 4,017,949 4,169,371 SHAREHOLDERS EQUITY Share capital 13 44,428,973 44,174,640 Subscriptions received ,518 Share-based payment reserve 13 5,886,882 5,374,697 Warrants reserve 13 2,974,721 2,876,626 Accumulated other comprehensive loss (779,457) (618,662) Deficit (48,998,677) (48,444,560) TOTAL SHAREHOLDERS EQUITY 3,512,442 3,561,259 TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 7,530,391 7,730,630 Nature of Operations and Going Concern (Note 1) Commitments (Note 16) Contingency (Note 18) Approved on behalf of the Board: /s/ Brian J Maher /s/ Brian Imrie Director Director The accompanying notes to the Condensed Interim Consolidated Financial Statements are an integral part of this statement. 2

4 Condensed Interim Consolidated Statements of Loss and Comprehensive Loss For the three and six months ended and (Unaudited - Expressed in Canadian Dollars) Notes Three months ended Six Months Ended Operating expenses Communication and regulatory 18,981 20,386 38,388 49,790 Consulting fees, salaries and benefits , , , ,527 Depreciation 7 6,047 2,670 11,948 5,337 Foreign exchange (gain) loss (157,129) 150,062 (63,904) 236,672 Office and miscellaneous 36,822 58,021 62,666 95,159 Peruvian VAT recovery (968,788) Premises 16,860 12,810 31,907 26,847 Professional fees 21,923 38,513 71, ,176 Share-based payments 13, , ,974 Travel and promotion 47,077 31,466 61,730 55,729 Write-down of exploration and evaluation assets 6-107, ,159 Net loss before finance Items (228,581) (667,010) (1,160,382) (847,582) Finance items Interest expense 9, 10, 11 (73,446) (155,988) (142,798) (277,739) Change in fair value of derivative liability 10, 11 44, , , ,015 Transaction costs (2,851) (7,174) (2,851) (7,174) Net loss for the period (260,636) (322,698) (554,117) (220,480) Other Comprehensive Loss Foreign exchange difference on translation (470,425) (192,550) (160,795) (236,247) Total comprehensive loss for the period (731,061) (515,248) (714,912) (456,727) Basic and Diluted Loss per share (0.00) (0.00) (0.00) (0.00) Weighted average number of shares outstanding Basic and Diluted 249,770, ,321, ,520, ,082,073 The accompanying notes to the Condensed Interim Consolidated Financial Statements are an integral part of this statement. 3

5 Condensed Interim Consolidated Statements of Cash Flows For the six months ended and Cash flows from operating activities Net loss for the period (554,117) (220,480) Adjustments for items not affecting cash: Accretion expense 122, ,666 Depreciation 11,948 5,337 Accrued interest expense 19,258 71,048 Share-based payments 512, ,974 Change in fair value of derivative liability (751,914) (912,015) Non-cash transaction costs convertible debenture - 7,174 Write-down of exploration and evaluation assets - 218,519 (640,434) (54,137) Changes in non-cash working capital items: Accounts receivable 11,177 (6,939) Prepaid expenses 2,889 (69,722) Accounts payable and accrued liabilities 210,468 (846,953) Cash used in operating activities (415,900) (977,751) Cash flows from financing activities Proceeds from related party loans 184,588 - Proceeds from issuance of promissory note - 252,060 Proceeds from issuance of convertible debenture 136, ,420 Deferred financing costs - (3,306) Proceeds from issuance of common shares, net of share issue costs 153,910 1,393,230 Cash provided by financing activities 475,433 1,891,404 Cash flows from investing activities Mineral property expenditures (181,202) (218,159) Purchase of property, plant and equipment - (478,588) Cash used in investing activities (181,202) (696,747) Foreign exchange effect on cash (20,710) (157,802) (Decrease) increase in cash for the period (121,669) 216,906 Cash, beginning of period 218,804 56,795 Cash, end of period 76, ,899 Supplemental cash flow information (Note 17) Interest paid - - Income taxes paid - - The accompanying notes to the Condensed Interim Consolidated Financial Statements are an integral part of this statement. 4

6 Condensed Interim Consolidated Statements of Shareholders Equity (Deficiency) Share Capital (Number) Share Capital Warrants Reserve Share-Based Payment Reserve Subscriptions Received Accumulated Other Comprehensive Income (Loss) - Cumulative Translation Adjustments Deficit Total $ $ $ $ $ $ $ ,343,904 36,265,258 1,158,773 4,849,366 - (1,127,026) (46,022,178) (4,875,807) Units issued in private placement 12,490, , , ,411,119 Share issue costs - (17,889) (17,889) Shares issued for transaction costs 166,960 17, ,530 Fair value of finders warrants 475,208 (31,984) 31, Share-based payments , ,974 Foreign exchange translation difference (236,247) - (236,247) Net loss for the period (220,480) (220,480) 170,477,032 37,162,004 1,672,787 5,413,340 - (1,363,273) (46,242,658) (3,357,800) Units issued in private placement 59,197,130 5,537,180 1,017, ,554,389 Share issue costs - (131,688) (131,688) Shares issued to settle debt 14,158,871 1,683, ,683,313 Shares issued for transaction costs 984,615 98, ,461 Fair value of finders warrants 4,040,244 (186,630) 186, Fair value of finders shares 120,000 12, ,000 Share-based payments (38,643) (38,643) Subscriptions received , ,518 Foreign exchange translation difference , ,611 Net loss for the period (2,201,902) (2,201,902) 248,977,892 44,174,640 2,876,626 5,374, ,518 (618,662) (48,444,560) 3,561,259 Units issued in private placement 3,772, ,649 96, ,250 Share issue costs - (41,260) (41,260) Shares issued to settle debt 1,050, Cancellation of common shares (2,465,000) Fair value of finders units 164,375 14,944 1, ,438 Share-based payments , ,185 Subscriptions received (198,518) - - (198,518) Foreign exchange translation difference (160,795) - (160,795) Net loss for the period (554,117) (554,117) 251,499,767 44,428,973 2,974,721 5,886,882 - (779,457) (48,998,677) 3,512,442 The accompanying notes to the Condensed Interim Consolidated Financial Statements are an integral part of this statement.

7 For the Three and Six Months Ended and Note 1 Nature of Operations and Going Concern Peruvian Precious Metals Corp. (the Company ) was incorporated on July 28, 1987, under the Alberta Business Corporations Act. Following a number of name changes the Company became Peruvian Precious Metals Corp. on July 2, The Company is in the business of acquiring, exploring and evaluating mineral properties, and either joint venturing or developing these properties further or disposing of them when the evaluation is completed. The Company is a public company with its shares listed on the TSX Venture Exchange and the Lima Stock Exchange (Bolsa De Valores De Lima). The head office, principal address and records office of the Company are located at Hornby Street, Vancouver, BC, Canada, V6C 3B6. As its principal business, the Company acquires and explores mineral properties in areas deemed to have relatively high potential for mining success and relatively low political risk. The Company s business plan is to engage in these mining activities on a long-term basis. The Company is in the process of exploring mineral properties in Peru and has not yet determined whether the properties contain economically recoverable ore reserves. As the Company does not yet have cash flow from operations, it must rely on debt or equity financings to fund operations. To date the Company s main source of funding has been the issuance of equity securities or debt for cash, through private placements to sophisticated investors and through public offering to institutional investors. The Company has historically raised operating capital from the sale of equity and various forms of debt, something the Company will continue to do so. During the six months ended, the Company raised $700,238 through the completion of two tranches of a private placement, loans from related parties, and a convertible debenture to assist with funding ongoing operations. The condensed interim consolidated financial statements have been prepared on the basis of accounting principles applicable to a going concern. This assumes the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its obligations in the normal course of operations. The Company has incurred operating losses since inception, including $554,117 for the six months ended ( $220,480) and has accumulated a deficit of $48,998,677 as at (September 30 $48,444,560). The Company has a working capital deficiency of $3,894,458 as at (September 30 $3,889,676). The Company will need to raise additional funds in order to continue on as a going concern and there can be no assurances that sufficient funding, including adequate financing, will be available to explore its mineral properties and to cover general and administrative expenses necessary for the maintenance of a public company. The ability of the Company to arrange additional financing in the future depends in part, on the prevailing capital market conditions and mineral property exploration success. These material uncertainties may cast significant doubt on the Company s ability to continue as a going concern. Accordingly, the consolidated financial statements do not give effect to adjustments that would be necessary should the Company be unable to continue as a going concern and therefore be required to realize its assets and liquidate its liabilities, contingent obligations and commitments other than in the normal course of business and at amounts different from those in the consolidated financial statements. Note 2 Basis of Preparation The condensed interim consolidated financial statements of the Company have been prepared in accordance with International Accounting Standards 34, Interim Financial Reporting ( IAS 34 ), using accounting policies consistent with International Financial Reporting Standards ( IFRS ) as issued by the International Accounting Standards Board ( IASB ) and interpretations of the International Financial Reporting Interpretations Committee ( IFRIC ). These condensed interim consolidated financial statements do not include all of the information required for full annual financial statements and should be read in conjunction with the Company s annual consolidated financial statements for the year ended. These condensed interim consolidated financial statements were authorized for issue by the Board of Directors on May 30,. 6

8 For the Three and Six Months Ended and Note 3 Significant Accounting Policies These condensed interim consolidated financial statements are expressed in Canadian dollars, the Company s presentation currency and have been prepared on a historical cost basis, except for financial instruments that have been measured at fair value. In addition, these condensed interim consolidated financial statements have been prepared using the accrual basis of accounting, except for cash flow information. The significant accounting policies used in the preparation of these consolidated financial statements are described below. Consolidation The condensed interim consolidated financial statements include the accounts of the Company and its 100% owned subsidiaries in Peru, Sienna Minerals S.A.C. and Agraria Huaranchal S.A.C. All significant intercompany transactions and balances have been eliminated. Significant Accounting Estimates and Judgments The preparation of these condensed interim consolidated financial statements requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and reported amounts of expenses during the reporting period. Actual outcomes could differ from these estimates. These condensed interim consolidated financial statements include estimates which, by their nature, are uncertain. The impacts of such estimates are pervasive throughout the condensed interim consolidated financial statements, and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the period in which the estimate is revised and future periods if the revision affects both current and future periods. These estimates are based on historical experience, current and future economic conditions and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Critical Accounting Estimates Significant assumptions about the future and other sources of estimation uncertainty that management has made at the end of the reporting period, that could result in a material adjustment to the carrying amounts of assets and liabilities, in the event that actual results differ from assumptions made, relate to, but are not limited to, the determination of decommissioning obligations and income and sales tax obligations, the recoverability of exploration and evaluation assets, the assumptions used in the determination of the fair value of share-based payments and derivative liabilities, or recoverability of accounts receivable. The estimates and underlying assumptions are reviewed on an ongoing basis. Prior to 2014, the Company recorded a liability for the VAT refunds received on the basis that the regulations in Peruvian law that give rise to the VAT refund were technical and under certain circumstances may give rise to a repayment. During the year ended, the Company re-assessed the likelihood of being requested for repayment and determined that it was no longer necessary to continue to record this liability. As such the liability was reversed. Critical Accounting Judgments Critical accounting judgments are accounting policies that have been identified as being complex or involving subjective judgments or assessments, as follows: the point in time that an economic feasibility study has established the presence of proven and probable reserves; deferred tax assets recorded in the consolidated financial statements; in accordance with International Accounting Standards ( IAS ) 21 The Effects of Changes in Foreign Exchange Rates, management determined that the functional currency of the Company is the Canadian dollar and the functional currency of the Company s wholly-owned subsidiaries is the US dollar, as they are the currencies of the primary economic environments in which the companies operate; contingency as disclosed in Note 18; determination of derivative liability. 7

9 For the Three and Six Months Ended and Note 4 Accounting Standards IFRS Issued but not yet Effective The Company has reviewed new and revised accounting pronouncements that have been issued but are not yet effective. The Company has not completed its assessment of the impact that the new and amended standards will have on its financial statements. The Company also has not early adopted any of these standards in the consolidated financial statements. IFRS 9 Financial Instruments The IASB intends to replace IAS 39 Financial Instruments: Recognition and Measurement in its entirety with IFRS 9 which is intended to reduce the complexity in the classification and measurement of financial instruments. The standard is effective for annual periods beginning on or after January 1, 2018 with earlier application permitted. IFRS 15 Revenue from Contracts with Customers The IASB issued IFRS 15 in May The new standard provides a comprehensive five-step revenue recognition model for all contracts with customers and requires management to exercise judgment and make estimates that affect revenue recognition. IFRS 15 is effective for annual periods commencing on or after January 1, IFRS 16 Leases IFRS 16 specifies how an IFRS reporter will recognize, measure, present and disclose leases. The standard provides a single lessee accounting model, requiring lessees to recognize assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. Lessors continue to classify leases as operating or finance, with IFRS 16 s approach to lessor accounting substantially unchanged from its predecessor, IAS 17. The standard was issued in January and is effective for annual periods beginning on or after January 1, Note 5 Accounts Receivable Canadian GST recoverable 11,393 23,261 Other 1, Note 6 Exploration and Evaluation Assets IGOR Concession (Peru) Drilling, road and site preparation 721,401 Salaries, claims maintenance and staking 259,707 Social development 10,887 Write-down of capitalized costs (218,159) 773,836 Drilling, road and site preparation 55,182 Salaries, claims maintenance and staking 105,907 Social development 1,613 Foreign Exchange (17,980) 918,558 12,692 23,869 8

10 For the Three and Six Months Ended and Igor Concession On June 30, 2005, the Company, through its subsidiary Sienna Minerals S.A.C. acquired a 60% interest in the Igor Concession acquiring some 1,000 hectares in Peru and on March 9, 2006 acquired the remaining 40%. During the year ended 2013, due to the fact that no substantive expenditures on further exploration for and evaluation of mineral resources were budgeted or planned until the Company could raise sufficient funding, management decided to write down the capitalized costs. The Company continued the process of writing down the capitalized expenditures during the first two quarters of the fiscal year. Starting in the third quarter of the fiscal year, the Company started to capitalize the exploration and evaluation expenditures on the mineral resources again, as management determined that it can carry out its intended plan with respect to the Igor project. On February 4,, the Company signed a series of agreements with AM Mining SAC ( AMM ) who will construct and operate the Company s 350 metric tonne per day ( 350 mt/d ) gold and silver processing plant, utilizing CIP/CIL and Merrill-Crowe precious metal recovery, capable of producing precious metal dore at the Igor Project. AMM anticipates that it will take up to 18 months to fully commission the processing plant at the Igor Project and will operate the plant for up to 54 months. During the year ended, the Company paid AMM US$5,000,000 pursuant to the agreements with AMM. During the six months ended March 31, $467,320 (US$350,000) of the amount paid has been incurred as assets under construction costs. Please see Note 7. As at, $6,038,955 (US$4,650,000) remains as advances for assets under construction as compared to $6,672,500 (US$5,000,000) at. The Company has the right to terminate the agreements by paying AMM a termination fee based on potential loss of earnings from the anticipated processing plant operations. The base termination fee is US$13,500,000. For each month that the agreement is in effect, the termination fee is reduced by US$187,500, commencing at the end of the first month following the effective date of the agreement. The termination fee can be further reduced by applying a credit equal to 50% of any appreciation in value of the shares acquired by AMM in the private placement. AMM has the right to receive a 120-day notice in event of a termination of the agreements. On February 16,, the Company announced that it has entered into a non-binding agreement with RIVI Capital LLC ( RIVI ) to provide the Company with an investment of US$5,000,000 in return for a Metal Purchase Agreement ( MPA or Gold Streaming Agreement ) on future precious metal production from the Company s Igor 4 concession, at its Igor Project in northern Peru. The non-binding agreement is subject to normal due diligence by RIVI, completion of definitive documents by RIVI and the Company, and obtaining appropriate regulatory approvals. Key terms of the Gold Streaming Agreement are as follows: RIVI will purchase the Gold Streaming Agreement by making a first tranche payment of US$2,500,000 upon execution of definitive documents by RVI and the Company. The second tranche of an additional US$2,500,000 shall be payable upon meeting future production milestones, subject to the successful completion of the test mining program. RIVI shall be entitled to receive 23.5% of the Company s portion of the combined production of gold and silver ounces from the Igor 4 concession on a Gold Equivalent Ounce ( GEO ) basis. In addition to the initial tranches described above, the Company will also receive a payment of US$400 per GEO delivered under the Gold Streaming Agreement. Seventy-two months after receiving the second tranche of the financing, and when 20,000 GEOs have been delivered under the Gold Streaming Agreement, the Company shall have the option to reduce the delivery schedule to 12.5% of the GEOs produced on the Igor 4 concession by making a one-time payment of US$5,000,000 to RIVI. The spot price of gold must be greater than US$1,200 per ounce in order to exercise this option. 9

11 For the Three and Six Months Ended and Note 7 Property, Plant and Equipment Cost Equipment Assets Under Construction (1) Total Balance September , ,707 Foreign Exchange 10,922-10,922 Balance 111, ,629 Additions - 467, ,320 Foreign Exchange 4,207 (12,775) (8,568) Balance 115, , ,381 Accumulated Depreciation Balance September ,265-71,265 Additions 9,914-9,914 Foreign Exchange 9,420-9,420 Balance 90,599-90,599 Additions 11,948-11,948 Foreign Exchange 1,775-1,775 Balance 104, ,322 Net Book Value at 21,030-21,030 Net Book Value at 11, , ,059 (1) Assets under construction is pursuant to an agreement with AMM. Please see Note 6 Note 8 Accounts Payable and Accrued Liabilities Trade accounts payable 1,628,367 1,417,899 Acquisition of surface rights 317, , ,945,901 1,753,933 Expenses incurred by the Company in Peru, including deferred exploration expenses, are subject to a Peruvian Value Added Tax ( VAT ). The VAT is partially refundable. The portion refundable, net of allowance, is included in Accounts Receivable. The amount not refundable to the Company can be used in the future to offset amounts due to the Peruvian Revenue Service by the Company resulting from VAT charged on future sales. Prior to 2014, the Company recorded a liability for the refunds received on the basis that the regulations in Peruvian law that give rise to the VAT refund were technical and under certain circumstances may give rise to a repayment. During the year ended, the Company re-assessed the likelihood of being requested for repayment and determined that it was no longer necessary to continue to record this liability. As such the liability was reversed. Note 9 Loans from Related Parties On March 23,, the Company entered into a loan agreement in the principal amount of US$100,000 with an immediate family member of a director of the Company. The loan bears interest at 12% per annum and becomes due on July 30,. On March 29,, the Company entered into a loan agreement in the principal amount of $33,000 with a director of the Company. The loan bears interest at 12% per annum and becomes due on July 30,. On March 30,, the Company entered into a loan agreement in the principal amount of US$15,000 with another director of the Company. The loan bears interest at 12% per annum and becomes due on July 30,.

12 For the Three and Six Months Ended and The change in the loans from related parties is as follows: Balance, beginning of the period - Fair value at inception 184,588 Foreign Exchange (2,237) Balance, end of the period 182,351 During the three and six months ended, the Company incurred interest expense of $nil and $373 and a foreign exchange gain of $nil and $2,237. The accrued interest as at is $370. Note 10 Convertible Debentures On August 15, 2014, the Company entered into an agreement to issue a convertible debenture for aggregate proceeds of US$800,000. The convertible debenture was unsecured and bore an interest rate of 13% per annum, calculated on the principal balance, payable every four months commencing April 30,. The convertible debenture was nontransferable and could be converted into common shares of the Company at any time at a conversion price of US$0.065 for a period of one year. If the convertible debenture was not converted in the one year, the Company would repay the full amount of the debenture along with any outstanding accrued interest. The Company also issued 307,695 common shares, valued at $27,692, and US$6,243 as a finder s fee. During the year-ended, the Company settled the US$800,000 convertible debenture and accrued interest of US$104,000 by issuing 13,907,692 common shares at a price of $0.12 per share valued at $1,661,963, resulting in a loss on conversion of $478,446. The Company also issued 984,615 common shares, valued at $98,461 to an arm s length individual for assisting with the conversion of the debenture. On March 26,, the Company entered into an agreement to issue a second convertible debenture for proceeds of US$200,000. The convertible debenture is unsecured and bears an interest rate of 13% per annum, calculated on the principal balance, payable every four months commencing on. The convertible debenture is nontransferable and can be converted into 2,352,941 common shares of the Company at any time at a conversion price of US$0.085 per share for a period of one year. If the convertible debenture is not converted in the one year, the Company will repay the full amount of the debenture along with any outstanding accrued interest. The Company also issued 166,960 common shares, valued at $17,530 as a finder s fee. On January 22,, the Company entered into an agreement to issue a third convertible debenture for proceeds of US$100,000. The convertible debenture is unsecured and bears an interest rate of 12% per annum, calculated on the principal balance, payable every four months commencing on May 22,. The convertible debenture is nontransferable and can be converted into common shares of the Company at any time at a conversion price of $0.05 per share for a period of nine months. If the convertible debenture is not converted in nine months, the Company will repay the full amount of the debenture along with any outstanding accrued interest. The conversion feature of the convertible debentures meet the definition of a derivative liability as outlined in IAS 39. As a result, the conversion feature of the debentures is required to be recorded as a derivative liability and initially measured at fair market value and revalued on each subsequent reporting date with the changes in the fair value of the derivative liability being recorded in profit and loss. Also in accordance with IAS 39, the transaction costs are to be allocated on a pro-rata basis to the derivative liability and the convertible debentures. The amount allocated to the derivative liability is to be recorded in profit and loss while the amount allocated to the convertible debentures is a reduction in the initial fair value of the convertible debentures. On inception of the March 26, debenture, the fair value of the derivative liability related to the conversion feature was $102,075 and as at, the fair value was $nil ( - $106,015). The derivative liability was calculated using the Black-Scholes Option Pricing Model with the following assumptions. Dividend yield Nil Nil Risk free interest rate (%) Nil 0.50 Expected life (years) Nil Expected annualized volatility (%) Nil

13 For the Three and Six Months Ended and The conversion feature for the March 26, convertible debenture was initially valued at $102,075 with the resulting residual value being allocated to the host convertible debenture in the amount of $147,344, which was then reduced to $136,988 with the allocation of the pro-rated transaction costs of $10,356. On inception of the January 22, debenture, the fair value of the derivative liability related to the conversion feature was $91,415 and as at, the fair value was $31,936. The derivative liability was calculated using the Black-Scholes Option Pricing Model with the following assumptions. Dividend yield Nil Nil Risk free interest rate (%) 0.53 Nil Expected life (years) 0.56 Nil Expected annualized volatility (%) Nil The conversion feature for the January 22, convertible debenture was initially valued at $91,415 with the resulting residual value being allocated to the host convertible debenture in the amount of $46,985, which was then reduced to $45,520 with the allocation of the pro-rated transaction costs of $1,465. The change in the derivative liability related to the conversion feature is as follows: Balance, beginning of the period / year 106,015 1,294,334 Fair value at inception 91, ,075 Change in fair value including foreign exchange (165,494) (1,290,394) Balance, end of the period / year 31, ,015 The change in the convertible debentures is as follows: Balance, beginning of the period / year 199, ,004 Fair value at inception 46, ,344 Transaction costs (1,465) (10,356) Amortization of discount 83, ,475 Foreign exchange (11,744) 127,042 Loss on settlement - 423,404 Shares issued to settle convertible debenture - (1,470,763) Balance, end of the period / year 316, ,150 During the three and six months ended, in addition to the amortization of the discount on the convertible debentures, the Company incurred interest expense of $11,540 and $20,219 ( - $32,798 and $62,338) and a foreign exchange gain of $2,312 and $1,331 ( loss of $4,818 and $5,962). The total interest expense on the convertible debentures for the three and six months ended was $62,979 and $103,810 ( - $153,253 and $275,004) and the accrued interest as at was $36,796 ( - $17,908). Note 11 Promissory Note On June 8,, the Company entered into a promissory note agreement for proceeds of US$1,129,305 ($1,418,407). The promissory note is unsecured and is payable by the greater of cash payment of US$1,129,305 or 12,344,782 common shares of the Company. The promissory note was due February 3,. During the six months ended March 31,, the Company exercised an option to extend the due date by six months, pursuant to which the promissory note is now due August 3,. 12

14 For the Three and Six Months Ended and The repayment feature of the promissory note meets the definition of a derivative liability as outlined in IAS 39. As a result, the repayment feature of the promissory note is required to be recorded as a derivative liability and measured initially at fair market value and revalued on each subsequent reporting date with the changes in the fair value of the derivative liability being recorded in profit and loss. On inception, the fair value of the derivative liability was $61,544 and as at, the fair value was $20,778 ( $607,198). The derivative liability was calculated using the Black-Scholes Option Pricing Model with the following assumptions: Dividend yield Nil Nil Risk free interest rate (%) Expected life (years) Expected annualized volatility (%) The change in the derivative liability is as follows: Balance, beginning of the period / year 607,198 - Fair value at inception - 61,544 Change in fair value including foreign exchange (586,420) 545,654 Balance, end of the period / year 20, ,198 The change in the promissory note is as follows: Balance, beginning of the period / year 1,468,736 - Fair value at inception - 1,356,863 Amortization of discount 38,615 26,564 Foreign exchange (40,723) 85,309 Balance, end of the period / year 1,466,628 1,468,736 Note 12 Decommissioning Obligation The Company estimated the fair value of the decommissioning obligation that arose as a result of exploration activities to be $16,672. The fair value of the liability was determined to be equal to the estimated remediation costs. As at March 31,, the Company cannot make a reasonable estimate of the timing of the cash flows and the fair value of the future decommissioning provision cannot be reasonably determined. The following table describes the changes to the Company s decommissioning liability: Amount Balance at ,137 Foreign exchange (706) Balance at 16,431 Foreign exchange 241 Balance at 16,672 13

15 For the Three and Six Months Ended and Note 13 Share Capital a) Authorized Unlimited number of common shares, without par value; and unlimited number of preference shares, without par value. b) Issued Fiscal transactions On October 6,, the Company cancelled 2,465,000 common shares as part of a settlement agreement with a former director. Please see Note 14. On October 16,, the Company issued 1,050,000 common shares as part of a debt settlement with a former director. However, the Company s obligations under the debt settlement agreement have not been fulfilled yet and the shares are currently held in trust pending satisfaction of the obligations. On December 31,, the Company closed the first tranche of a non-brokered private placement issuing 828,750 units at a price of $0.10 per unit for gross proceeds of $82,875. Each unit consists of one common share and one common share purchase warrant. Each warrant entitles the holder to purchase one additional common share at a price of $0.15 for a period of two years from closing, provided that if the daily volume weighted average price for 20 consecutive days of trading of the Company s shares on the TSX Venture Exchange (or such other stock exchange on which shares of the Company are listed) exceeds $0.24 per share, the expiry date of the warrants may be accelerated to the day which is 30 calendar days after notice of acceleration has been sent by the Company to the warrant holder. In connection with the non-brokered private placement, the Company incurred legal and filing fees of $21,255 and issued 164,375 Finder's Units valued at $16,438. Each Finder's Unit consists of one common share and one common share purchase warrant (an "Agent Warrant") which entitles the holder to purchase one additional common share at a price of $0.15 on or before December 31,. The Company has assigned $7,535 to the warrants based on the estimated fair value using a Black-Scholes option pricing model with the balance of $75,340 assigned to the shares. The fair value of the warrants and Agent Warrants issued was estimated on the date of issue using the Black-Scholes option valuation model with the following weighted average assumptions: Dividend yield Nil Risk free interest rate (%) 0.48 Expected life (years) 2 Expected annualized volatility (%) On January 22,, the Company closed the second and final tranche of a non-brokered private placement issuing 2,943,750 units at a price of $0.10 per unit for gross proceeds of $294,375. Each unit consists of one common share and one common share purchase warrant. Each warrant entitles the holder to purchase one additional common share at a price of $0.15 for a period of two years from closing, provided that if the daily volume weighted average price for 20 consecutive days of trading of the Company s shares on the TSX Venture Exchange (or such other stock exchange on which shares of the Company are listed) exceeds $0.24 per share, the expiry date of the warrants may be accelerated to the day which is 30 calendar days after notice of acceleration has been sent by the Company to the warrant holder. In connection with the non-brokered private placement, the Company incurred legal and filing fees of $3,567. The Company has assigned $89,066 to the warrants based on the estimated fair value using a Black-Scholes option pricing model with the balance of $205,309 assigned to the shares. The fair value of the warrants issued was estimated on the date of issue using the Black-Scholes option valuation model with the following weighted average assumptions: Dividend yield Nil Risk free interest rate (%) 0.39 Expected life (years) 2 Expected annualized volatility (%) Fiscal transactions On October 7, 2014, the Company closed a non-brokered private placement with Proyectos La Patagonia S.A.C. ( Patagonia ) for gross proceeds of $478,588 for issuance of 5,317,644 common shares. On November 3, 2014, the Company completed a non-brokered private placement issuing 4,949,690 units at $0.13 per unit for gross proceeds of $643,460. Each unit consists of one common share and one common share purchase 14

16 For the Three and Six Months Ended and warrant. Each warrant entitles the holder to purchase one additional common share at a price of $0.18 for a period of two years from closing. Should the shares of the Company trade over $0.24 for twenty consecutive days, the expiry date of the warrants will be accelerated to 30 days from the date of the notice of acceleration. The Company also issued 319,555 Finder's Units to an arm's length finder. Each Finder's Unit consists of one common share and one Agent Warrant which entitles the holder to purchase one additional common share at a price of $0.18 on or before November 3,. The Company has assigned $323,080 to the warrants based on the estimated fair value using a Black-Scholes option pricing model with the balance of $320,380 assigned to the shares. The fair value of the warrants and Agent Warrants issued was estimated on the date of issue using the Black-Scholes option valuation model with the following weighted average assumptions: Dividend yield Nil Risk free interest rate (%) 1.01 Expected life (years) 2 Expected annualized volatility (%) On December 31, 2014, the Company completed a non-brokered private placement issuing 2,223,626 units at $0.13 per unit for gross proceeds of $289,071. Each unit consists of one common share and one common share purchase warrant. Each warrant entitles the holder to purchase one additional common share at a price of $0.18 for a period of two years from closing. Should the shares of the Company trade over $0.24 for twenty consecutive days, the expiry date of the warrants will be accelerated to 30 days from the date of the notice of acceleration. The Company also incurred legal and filing fees of $17,889 and issued 155,653 Finder's Units to an arm's length finder. Each Finder's Unit consists of one common share and one Agent Warrant which entitles the holder to purchase one additional common share at a price of $0.18 on or before December 31,. The Company has assigned $158,950 to the warrants based on the estimated fair value using a Black-Scholes option pricing model with the balance of $130,121 assigned to the shares. The fair value of the warrants and Agent Warrants issued was estimated on the date of issue using the Black-Scholes option valuation model with the following weighted average assumptions: Dividend yield Nil Risk free interest rate (%) 1.01 Expected life (years) 2 Expected annualized volatility (%) On March 26,, the Company issued 166,960 common shares as part of the transaction fee for the convertible debenture transaction. The shares were valued at $17,530. Please refer to note 10. On May 12,, the Company completed a non-brokered private placement issuing 15,385,390 units at $0.10 per unit for gross proceeds of $1,538,539. Each unit consists of one common share and one common share purchase warrant. Each warrant entitles the holder to purchase one additional common share at a price of $0.15 for a period of two years from closing. Should the shares of the Company trade over $0.24 for twenty consecutive days, the expiry date of the warrants will be accelerated to 30 days from the date of the notice of acceleration. The Company issued 655,304 Finder's Units to an arm's length finder. Each Finder's Unit consists of one common share and one Agent Warrant which entitles the holder to purchase one additional common share at a price of $0.16 on or before May 11, The Company also incurred legal and filing fees of $21,551, paid a cash Finder s fee of US$45,670 ($54,553) and issued 575,527 Agent Warrants to another arm s length finder, with each Agent Warrant entitling the holder to purchase one common share at a price of $0.16 on or before May 11, The Company has assigned $936,640 to the warrants based on the estimated fair value using a Black-Scholes option pricing model with the balance of $601,899 assigned to the shares. The fair value of the warrants issued was estimated on the date of issue using the Black-Scholes option valuation model with the following weighted average assumptions: Dividend yield Nil Risk free interest rate (%) 1.01 Expected life (years) 2 Expected annualized volatility (%) The fair value of the Agent Warrants issued was estimated on the date of issue using the Black-Scholes option valuation model with the following weighted average assumptions: 15

17 For the Three and Six Months Ended and Dividend yield Nil Risk free interest rate (%) 1.01 Expected life (years) 3 Expected annualized volatility (%) On July 13,, the Company completed a non-brokered private placement issuing 42,311,740 common shares at $0.115 per common share for gross proceeds of $4,865,850. In connection with the non-brokered private placement, the Company also incurred legal and filing fees of $37,950, issued 3,384,940 Finder's Units to an arm's length finder, each Finder's Unit consisting of one common share and one Agent Warrant which entitles the holder to purchase one additional common share at a price of $0.18 on or before July 13, The fair value of the Agent Warrants issued was estimated on the date of issue using the Black-Scholes option valuation model with the following weighted average assumptions: Dividend yield Nil Risk free interest rate (%) 1.01 Expected life (years) 2 Expected annualized volatility (%) On August 15,, the Company settled the US$800,000 convertible debenture plus accrued interest of US$104,000 by issuing 13,907,692 common shares at a price of $0.12 per common share valued at $1,661,963, resulting in a loss on conversion of $478,446. The Company also issued 984,615 common shares, valued at $98,461 to an arm s length individual for assisting with the conversion of the debenture. Please refer to Note 10. On September 1,, the Company issued 251,179 common shares valued at $21,350 as part of a debt settlement agreement of $25,118 with a former director and realized a gain on debt settlement of $3,768. Please refer to Note 14. On September 4,, the Company completed a non-brokered private placement issuing 1,500,000 units at $0.10 per unit for gross proceeds of $150,000. Each unit consists of one common share and one common share purchase warrant. Each warrant entitles the holder to purchase one additional common share at a price of $0.15 for a period of two years from closing. Should the shares of the Company trade over $0.24 for twenty consecutive days, the expiry date of the warrants will be accelerated to 30 days from the date of the notice of acceleration. The Company issued 120,000 common shares to arm s length finders valued at $12,000 and incurred legal and filing fees of $17,634. The Company has assigned $80,569 to the warrants based on the estimated fair value using a Black-Scholes option pricing model with the balance of $69,431 assigned to the shares. The fair value of the warrants issued was estimated on the date of issue using the Black-Scholes option valuation model with the following weighted average assumptions: Dividend yield Nil Risk free interest rate (%) 1.01 Expected life (years) 2 Expected annualized volatility (%) c) Share Purchase Options Pursuant to the Company s share option plan (the "Option Plan"), the Company may grant incentive share options to directors, officers, employees and consultants of the Company or any subsidiary thereof. The total number of shares issuable pursuant to the Option Plan is up to a maximum of 10% of the issued and outstanding common shares of the Company at any given time. The exercise price of each share option is to be determined at the discretion of the board of directors at the time of the granting of the share option, as are the term and vesting policies, provided that the exercise price shall not be lower than the market price or such discount from the market price as may be permitted by the stock exchange on which the common shares are listed and provided that no share option shall have a term exceeding ten years (or such longer period as is permitted by the stock exchange on which the common shares are listed). There may not be issued to insiders within a one-year period, a number of common shares exceeding 10% of the outstanding issue and no one eligible optionee can receive share options entitling the eligible optionee to purchase more than 5% of the total common shares. Finally, there may not be issued to any one insider and such insider's associates, within a one-year period, a number of common shares of the Company exceeding 5% of the outstanding issue. 16

18 For the Three and Six Months Ended and The changes in share options during the six months ended and the year ended are as follows: Weighted Average Exercise Price Number of Options Weighted Average Exercise Price Number of Options Beginning of the period / year 11,533, ,383, Granted 7,850, ,420, Expired - - (3,270,000) 0.22 End of the period / year 19,383, ,533, During the six months ended the Company granted 7,850,000 stock options to certain directors, officers and employees. The stock options have an exercise price of $0.10 per share and a life of 5 years. The options vest immediately upon issuance. The estimated fair value of the share options granted during the six months ended was $512,185. During the six months ended, the Company granted 4,200,000 share options to directors, officers and an employee. The share options have a weighted average exercise price of $0.16 per share and a life of 5 years. The options vested immediately upon issuance. The estimated fair value of the share options granted during the six months ended was $563,974. The fair value of the options granted during the six months ended and is estimated on the dates of grant using the Black-Scholes option valuation model with the following weighted-average assumptions: Dividend yield Nil Nil Expected annualized volatility (%) Risk-free interest rate (%) Expected life of options (years) Grant date fair value Forfeiture rate Nil Nil Option pricing models require the input of subjective assumptions including the expected price volatility and the expected option life. Expected price volatility was calculated based on the Company s historical share prices. Changes in these assumptions can materially affect the estimated fair value of the stock options granted. A summary of the Company s options outstanding and exercisable as at is as follows: Options Outstanding Number of Options Exercisable Exercise Price Remaining Contractual Life (Years) Expiry Date 1,663,000 1,663, November 25, 550, , April 16, ,350,000 2,350, February 28, ,550,000 1,550, ,200,000 4,200, October 28, ,220,000 1,220, November 24, 7,850,000 7,850, October 15, ,383,000 19,383,