CONSOLIDATED FINANCIAL STATEMENTS (EXPRESSED IN US DOLLARS) C2 202, Level 2, Office Block C, La Croisette, Grand Baie 30517, Mauritius Phone +230 269 4166 www.alphaminresources.com TABLE OF CONTENTS MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING... 2 INDEPENDENT AUDITORS REPORT... 3 CONSOLIDATED STATEMENT OF FINANCIAL POSITION... 9 CONSOLIDATED STATEMENT OF LOSS AND COMPREHENSIVE LOSS... 10 CONSOLIDATED STATEMENT OF CASH FLOWS... 11 CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY... 12 NOTES TO FINANCIAL STATEMENTS... 13
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING The accompanying annual consolidated financial statements of the Company were prepared by management in accordance with International Financial Reporting Standards. Management acknowledges responsibility for the preparation and presentation of the audited annual consolidated financial statements, including responsibility for significant accounting judgments and estimates and the choice of accounting principles and methods that are appropriate to the Company s circumstances. Management has established systems of internal control over the financial reporting process, which are designed to provide reasonable assurance that relevant and reliable financial information is produced. The Board of Directors of the Company is responsible for ensuring that management fulfills its financial reporting responsibilities and for reviewing and approving the annual audited consolidated financial statements together with other financial information. An Audit Committee, whose members are not officers of the Company, assists the Board of Directors in fulfilling this responsibility. The Audit Committee, on behalf of the Board of Directors, meets with management to review the internal controls over the financial reporting process, the annual audited consolidated financial statements together with other financial information of the Company, and the auditor s report. The Audit Committee reports its findings to the Board of Directors for its consideration in approving the annual consolidated financial statements for issuance to the shareholders. Management recognizes its responsibility for conducting the Company s affairs in compliance with established financial standards and applicable laws and regulations, and for maintaining proper standards of conduct for its activities. (signed) Boris Kamstra Chief Executive Officer (signed) Eoin O Driscoll Chief Financial Officer March 31, 2017 Page 2
Independent auditor s report To the Shareholders of Alphamin Resources Corp. Our opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated position of Alphamin Resources Corp. and its subsidiaries (together the Group) as at December 31, 2016 and December 31, 2015, and its consolidated performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards. What we have audited Alphamin Resources Corp. s (the Company s) consolidated financial statements set out on pages 9 to 31 comprise: the consolidated statements of financial position as at December 31, 2016 and December 31, 2015; the consolidated statements of loss and comprehensive loss for the years then ended; the consolidated statements of changes in stockholders equity for the years then ended; the consolidated statements of cash flows for the years then ended; and the notes to the consolidated financial statements, which include a summary of significant accounting policies. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor s responsibilities for the audit of the consolidated financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Group in accordance with the Code of Ethics for Professional Accountants issued by the International Ethics Standards Board (IESBA Code). We have fulfilled our ethical responsibilities in accordance with the IESBA Code. Material uncertainty related to going concern We draw attention to Note 1 to the consolidated financial statements which describes events and conditions that indicate a material uncertainty that may cast significant doubt about Alphamin Resources Corp. s ability to continue as a going concern. Our opinion is not modified in respect of this matter. PricewaterhouseCoopers Inc., 2 Eglin Road, Sunninghill 2157, Private Bag X36, Sunninghill 2157, South Africa T: +27 (11) 797 4000, F: +27 (11) 797 5800, www.pwc.co.za Chief Executive Officer: T D Shango Management Committee: T P Blandin de Chalain, S N Madikane, P J Mothibe, C Richardson, A R Tilakdari, F Tonelli, C Volschenk The Company's principal place of business is at 2 Eglin Road, Sunninghill where a list of directors' names is available for inspection. Reg. no. 1998/012055/21, VAT reg.no. 4950174682
Our audit approach Overview Overall group materiality Overall group materiality in respect of our audit of the consolidated financial statements for the year ended December 31, 2016: USD 821,000, which represents 1% of the Group s total consolidated assets as at December 31, 2016. Group audit scope The Group comprises of 2 operating components both of which are required to report on full scope audit procedures. Key audit matters The following key audit matters have been determined in respect of our audit of the consolidated financial statements for the year ended December 31, 2016: Material uncertainty related to going concern; and Assessment of impairment indicators of Exploration and Evaluation Assets (Alphamin Bisie Mining Tin Project). As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the consolidated financial statements. In particular, we considered where management made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including among other matters consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud. Materiality The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the consolidated financial statements. Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall group materiality for the consolidated financial statements as a whole as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our group audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and in aggregate on the consolidated financial statements as a whole. Overall group materiality In respect of our audit of the consolidated financial statements for the year ended December 31, 2016: USD 821,000 How we determined it 1% of the Group s total consolidated assets as at December 31, 2016 Rationale for the materiality benchmark applied We chose total consolidated assets as the benchmark because, in our view, it is the benchmark against which the performance of the Group is most commonly measured by users whilst the Group is in its Exploration and Evaluation phase, and is a generally accepted benchmark. We chose 1% which is consistent with quantitative materiality thresholds used for similar companies in this sector.
How we tailored our group audit scope We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the consolidated financial statements as a whole, taking into account the structure of the Group, the accounting processes and controls, and the industry in which the Group operates. The Group consists of 2 operating components (consisting of the corporate head office in Mauritius and the exploration and evaluation project in the Democratic Republic of Congo ( DRC )), both of which were included for full scope audit requirements. This results in 100% audit coverage of the consolidated financial statements. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements for the year ended December 31, 2016. These matters were addressed in the context of our audit of the consolidated financial statements for the year ended December 31, 2016 as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In addition to the matter described in the Material uncertainty related to going concern section above, we have determined the matter described below to be the key audit matter to be communicated in our report. Key audit matter for the year ended December 31, 2016 How our audit addressed the key audit matter Assessment of impairment indicators of Exploration and Evaluation Assets (Alphamin Bisie Mining Tin Project). In forming their assessment of possible impairment indicators of exploration and evaluation assets, management considered a number of factors as set out in note 6. At December 31, 2016, the Group was in the process of exploring and evaluating its Tin Project in the DRC (referred to as the Alphamin Bisie Mining Tin Project). Costs related to acquisition, exploration and evaluation of this project have been capitalised and, to date, amount to US$ 71.0 million. By its nature, there are numerous uncertainties inherent in estimating qualities and quantities of mineral reserves and estimated costs to develop and mine it. Due to the high level of judgement and estimation involved in determining whether impairment indicators exist, and the material impact that an impairment could have on exploration and evaluation assets, we considered this a matter of most significance to our audit of the consolidated financial statements for the year ended December 31, 2016. We evaluated management s assessment of impairment indicators, considering the factors per note 6, by performing the following procedures: (a) We inspected the mining permit for the specified area and noted that it is valid until 2045. We also inspected legal title to additional exploration permits adjacent to the aforementioned mining area. (b) We obtained the Group s updated feasibility study and noted that it indicates positive results as supported by geological studies performed by qualified and competent persons; and (c) We inspected the financial models forming part of the updated feasibility study, which indicate that the carrying amount of the exploration and evaluation asset is likely to be recovered in full from successful development or by sale. As part of our procedures in (b) and (c) above, we assessed the independence and competency of the external experts utilized by management by obtaining independence confirmations from the experts, as well as evidence relating to their qualifications and professional memberships. We made use of our internal valuation expertise to assess the integrity of the financial model, to evaluate the appropriateness of key market related
assumptions, including both short-term and longterm tin prices, and the discount rate applied to determine the net present value of the projected future cash flows of the project. We relied on the expertise and supporting documentation of the external experts utilized by management in projecting future cash flows. We reperformed the calculation of the discount rate using standard market related calculation methodologies. The discount rate applied by management fell within our independently calculated range and was therefore accepted as reasonable. The mathematical integrity of the model was checked by means of arithmetical testing. Based on the results of our procedures described above, we did not note any indicators of impairment. Other information Management is responsible for the other information. The other information comprises the Management s Responsibility for Financial Reporting Report and the Management Discussion and Analysis Report, which we obtained prior to the date of this auditor s report. Other information does not include the consolidated financial statements and our auditor s report thereon. Our opinion on the consolidated financial statements does not cover the other information and we do not express an audit opinion or any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of management and those charged with governance for the consolidated financial statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as the management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, the management is responsible for assessing the Group s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the management either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Group s financial reporting process. Auditor s responsibilities for the audit of the consolidated financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. Conclude on the appropriateness of management s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor s report. However, future events or conditions may cause the Group to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements for the year ended December 31, 2016 and are therefore the key audit matters. We describe these matters in our auditor s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor s report is Jean-Pierre van Staden. (signed) PricewaterhouseCoopers Inc. PricewaterhouseCoopers Inc. Chartered Accountants (South Africa) Johannesburg - South Africa March 31, 2017
CONSOLIDATED STATEMENT OF FINANCIAL POSITION, AS AT ALPHAMIN RESOURCE CORP. December 31, December 31, Consolidated Statements of Financial Position 2016 2015 As at (Expressed in US dollars) $ $ ASSETS Current assets Cash and cash equivalents 8 648 895 9 067 707 Prepaids and other receivables (Note 3) 602 858 953 051 Consumable Stores (Note 4) 393 685 - Total current assets 9 645 438 10 020 758 Non-current assets Plant and equipment (Note 5) 1 046 044 410 260 Prepaids and other receivables (Note 3) 444 868 297 246 Exploration and evaluation assets (Note 6) 70 968 191 62 487 300 Total non-current assets 72 459 103 63 194 806 Total assets 82 104 541 73 215 564 LIABILITIES AND STOCKHOLDERS EQUITY Current liabilities Accounts payable and accrued liabilities (Note 7) 996 315 800 013 Accounts payable and accrued liabilities - related parties (Note 9) 190 833 37 500 Warrants (Note 10) - 654 333 Total current liabilities 1 187 148 1 491 846 Stockholders Equity Capital stock (Note 8) 104 277 696 92 885 725 Reserves (Note 8) 8 956 258 8 803 074 Foreign Currency Translation Reserve (1 511 737) (1 511 737) Accumulated deficit (41 808 168) (37 681 668) Stockholders equity 69 914 049 62 495 394 Non-controlling interest 11 003 344 9 228 324 Total equity 80 917 393 71 723 718 Total liabilities and equity 82 104 541 73 215 564 Nature and continuance of operations (Note 1) Approved and authorized by the Board of Directors on March 31, 2017 (signed) Boris Kamstra, Director (signed) Eoin O Driscoll, Director The accompanying notes are an integral part of these consolidated financial statements. Page 9
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS For the For the Consolidated Statements of Loss Year Year and Comprehensive Loss Ended Ended For the periods ended December 31, December 31, (Expressed in US dollars) 2016 2015 US$ US$ Operating expenses: Accounting, audit and legal 541 237 615 997 Administrative 271 495 227 546 Bank charges and interest 158 611 110 471 Consulting fees 115 260 23 499 Directors fees 264 426 302 918 Depreciation (Note 5) 111 769 78 763 Foreign exchange loss 6 504 1 281 816 Corporate fees and salaries 2 957 708 2 653 839 Property examination and maintenance 14 555 136 181 Investor relations, filing and transfer fees 145 187 76 604 Insurance 34 211 9 515 Share-based payments (Note 8) 153 184 30 909 Warrants (Note 10) (319 704) (238 333) Telecommunication costs 154 347 174 444 Loss on disposal of assets 482 - Travel and accommodation 351 533 1 115 295 Witholding taxes 390 698 - TOTAL 5 351 503 6 599 464 Finance income (23) (1 566) Net loss and total comprehensive loss for the period 5 351 480 6 597 898 Loss and total comprehensive loss attributable to ; Equityholders 4 327 531 6 467 539 Non-controlling interests 1 023 949 130 359 5 351 480 6 597 898 Net Loss Per Share Basic and Diluted ** (0.01) (0.02) ** Weighted average number of shares used in the calculation of net loss per share 369 278 530 357 733 523 The accompanying notes are an integral part of these consolidated financial statements. Page 10
CONSOLIDATED STATEMENTS OF CASH FLOWS Consolidated Statements of Cash Flows For the For the For the year ended Year Year (Expressed in US dollars) Ended Ended 31 December 31 December 2016 2015 Cash Flows From Operating Activities Net loss before interest income for the period/year (5 351 503) (6 599 464) Adjustments for items not involving cash Share-based payments 153 184 30 909 Warrants (319 704) (238 333) Loss on disposal of assets 482 - Depreciation 111 769 78 763 Change in working capital items: Prepaids and other receivables - current (620 799) (540 764) Consumable stores (393 685) - Accounts payable and accrued liabilities 196 302 488 212 Due to related parties 153 333 (118 899) Cash used in operations (6 070 621) (6 899 576) Interest income 23 1 566 Net Cash Used in Operating Activities (6 070 598) (6 898 010) Cash Flows From Investing Activities Purchase of equipment (760 535) (280 459) Disposal of equipment 12 500 Investing in exploration and evaluation assets (7 462 449) (10 990 179) Prepaids and other receivables - non current (195 072) (297 246) Net Cash Used in Investing Activities (8 405 556) (11 567 884) Cash Flows From Financing Activities Issue of shares by subsidiary company (Note 8) 3 000 000 7 000 000 Proceeds from common stock and warrants 11 057 342 5 817 883 Net Cash Provided by Financing Activities 14 057 342 12 817 883 Decrease in cash and cash equivalents (418 812) (5 648 011) Cash and cash equivalents at beginning of period/year 9 067 707 14 715 718 Cash and cash equivalents at end of period/year 8 648 895 9 067 707 The accompanying notes are an integral part of these consolidated financial statements. Page 11
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY Capital Stock Reserves Foreign Total Share based Payment Currency Translation Stockholders' Equity Consolidated Statement of Changes in Stockholders' Equity Shares Amount Reserve Reserve Deficit (Deficiency) (Expressed in US dollars) # $ $ $ $ $ Non Controlling Interests Total Equity Balance, December 31, 2014 347 019 237 88 822 651 4 383 136 (1 511 737) (28 855 446) 62 838 604 62 838 604 Loss for the year (6 467 539) (6 467 539) (130 359) (6 597 898) Share based payments 4 419 938 4 419 938 4 419 938 Transfer of 5% interest in subsidiary company (2 361 732) (2 361 732) 2 361 732 Issue of shares by subsidiary company 3 049 3 049 6 996 951 7 000 000 Issue of shares on September 2, 2015 for private placement 32 500 000 4 063 074 4 063 074 4 063 074 Balance, December 31, 2015 379 519 237 92 885 725 8 803 074 (1 511 737) (37 681 668) 62 495 394 9 228 324 71 723 718 Loss for the year (4 327 531) (4 327 531) (1 023 949) (5 351 480) Issue of shares by subsidiary company 201 031 201 031 2 798 969 3 000 000 Issue of shares in private placement 36 683 329 8 498 040 8 498 040 8 498 040 Exercise of stock options 2 749 999 467 939 467 939 467 939 Exercise of warrants 10 833 332 2 425 992 2 425 992 2 425 992 Share based payments 153 184 153 184 153 184 Balance, December 31, 2016 429 785 897 104 277 696 8 956 258 (1 511 737) (41 808 168) 69 914 049 11 003 344 80 917 393 The accompanying notes are an integral part of these consolidated financial statements. Page 12
NOTES TO FINANCIAL STATEMENTS 1. Nature and Continuance of Operations Alphamin Resources Corp. (the Company ) is governed by the laws of Mauritius. The Company is in the business of locating, acquiring, exploring, evaluating and, if warranted, developing mineral properties. The registered office is located at C2 202, Level 2, Office Block C, La Croisette, Grand Baie, 30517, Mauritius. The Company was previously incorporated under the laws of British Colombia, Canada, however it was continued in Mauritius effective on September 30, 2014. These consolidated financial statements have been prepared on the basis of accounting principles applicable to a going concern, which assumes the realization of assets and satisfaction of liabilities in the normal course of business. From 2015, the Company has focussed exclusively on its principal project in the Democratic Republic of Congo. The Company has recently (subsequent to the financial year end) concluded an updated feasibility study on its principal exploration and evaluation asset. Although positive, the success of the Company s future activities is influenced by significant financial risks, legal and political risks and commodity prices. As at December 31, 2016, the Company has no source of operating cash flows, has not yet achieved profitable operations, has accumulated losses of $41,808,168, stockholders equity of $69,914,049 and working capital of $8,458,290 and expects to incur further losses in the development of its business, all of which cast significant doubt about the Company s ability to continue as a going concern. The Company s ability to continue as a going concern is dependent upon the Company obtaining additional equity and/or debt financing and/or new strategic partners in connection with the development of its properties in the Democratic Republic of the Congo. However, there is no assurance that further financings and/or strategic partnerships will be obtained on favorable terms or at all. Failure to obtain future financing and/or strategic partnerships could result in the delay or indefinite postponement of further exploration and development of the Company s properties and may result in the Company not meeting any of its operational and capital requirements. These material uncertainties may cast significant doubt upon the Company s ability to realize its assets and discharge its liabilities in the normal course of business. Although the Company has been successful in the past in obtaining financing, there is no assurance that it will be able to obtain adequate financing in the future or that such financing will be on terms advantageous to the Company. These consolidated financial statements do not give effect to adjustments that would be necessary to the carrying value and classification of assets and liabilities should the Company be unable to continue as a going concern. Such adjustments could be material. 2. Summary of Significant Accounting Policies a. Basis of Preparation These consolidated financial statements, including comparatives, have been prepared using accounting policies consistent with International Financial Reporting Standards ( IFRS ) as issued by the International Accounting Standards Board ( IASB ) and Interpretations issued by the International Financial Reporting Interpretations Committee ( IFRIC ).These consolidated financial statements have been prepared on a historical cost basis except for share based payments and financial instruments classified at fair value through profit or loss, which have been measured at fair value. In addition, the financial statements have been prepared using the accrual basis of accounting, except for cash flow information. b. Basis of Consolidation These consolidated financial statements incorporate the financial statements of the Company and its controlled subsidiaries. Control exists when an investor (the Company) has power over an investee (the Subsidiaries) that give it the current ability to direct the relevant activities, i.e. the activities that significantly affect the investee s returns. The consolidated financial statements include the accounts of the Company and its controlled subsidiaries, as follows: Page 13
2. Summary of Significant Accounting Policies (Continued) Name of Subsidiary Country of Incorporation Principal Activity Alphamin Bisie Mining SA (Formerly called Mining and Processing, Congo, SARL) Democratic Republic of the Congo Mineral exploration (84.55% owned by Alphamin Resources (BVI) Ltd) Alphamin Holdings (BVI) Ltd * British Virgin Islands Holding Company (100% wholly owned by Parent) Alphamin Resources (BVI) Ltd * British Virgin Islands Holding Company (100% wholly owned by Alphamin Holdings (BVI) Ltd) * These subsidiaries were incorporated as part of the acquisition of Alphamin Bisie Mining SA (Formerly called Mining and Processing Congo, Sarl.) All intercompany transactions and balances have been eliminated. Following the receipt of mining license number PE 13155 and in line with Article 71 of the Mining Code 2002, 5% of the Class B shares of Alphamin Bisie Mining SA, were issued to the Government of the Democratic Republic of the Congo. On December 31, 2015 Alphamin Bisie Mining SA received the first two tranches of the proposed $10m investment by the Industrial Development Corporation of South Africa Limited ( IDC ) in the amount of $7m, resulting in 10.45% ownership in ABM. The final tranche of $3m was received in the quarter ended June 30, 2016, which brought the IDC s ownership of ABM to 14.25%. The Government of the Democratic Republic of the Congo owns a non diluting 5% resulting in a Group ownership of 80.75%. c. Measurement Uncertainty and Critical Judgements The preparation of financial statements in accordance with IFRS as issued by the International Accounting Standards Board (IASB) and interpretations of the International Financial Reporting Interpretations Committee (IFRIC) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates and assumptions, which by their nature are uncertain, affect the carrying value of assets, impact decisions as to when exploration and evaluation costs should be capitalized or expensed and affects estimates for rehabilitation provisions. Other significant estimates made by the Company include factors affecting valuations of share based compensation and income tax accounts. The Company regularly review its estimates and assumptions, however actual results could differ from these estimates and these differences could be material. Significant assumptions about the future and other sources of estimation uncertainty that management has made at the end of the reporting period, that could result in a material adjustment to the carrying amounts of assets and liabilities in the event that actual results differ from assumptions made, relate to, but are not limited to, the following: Exploration and evaluation assets The Company is in the process of exploring and evaluating its exploration and evaluation assets. The recoverability of the amounts shown for exploration and evaluation assets are dependent upon the successful future development of the project, the ability of the Company to obtain necessary financing to complete the development of the project and upon future production or proceeds from the disposition thereof. Assumptions are used in estimating the Group s reserves and resources that might be extracted from the Group s properties. Judgement is applied in determining when an exploration and evaluation asset demonstrates technical feasibility and commercial viability and transitions to the development stage, requiring reclassification to construction in progress / mine development costs within property, plant and equipment. Page 14
2. Summary of Significant Accounting Policies (Continued) Share based payments The share based payments expense is estimated using the Black Scholes options pricing model as measured on the grant date to estimate the fair value of stock options, which requires inputs in calculating the fair value for share based payments expense included in profit or loss and share based issuance costs included in shareholders equity. This model involves the input of highly subjective assumptions, including the expected price volatility of the Company s common shares and the expected life of the options. The value of the share based payment expense for the year along with the assumptions and model used for estimating fair value for share based compensation are disclosed in Note 8. Income taxes The estimation of income taxes includes evaluating the recognition of deferred tax assets based on an assessment of the Company s ability to utilize the underlying future tax deductions against future taxable income prior to expiry of those deductions. Management assesses whether it is probable that some or all of the recognized or unrecognized deferred income tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income, which in turn is dependent upon the successful discovery, extraction, development and commercialization of mineral reserves. To the extent that management s assessment of the Company s ability to utilize future tax deductions changes, the Company would be required to recognize more or fewer deferred tax assets, and deferred income tax provisions or recoveries could be affected. No deferred tax assets have been recognized by the Group at this stage. Environmental rehabilitation The Company s policy with respect to provision for environmental rehabilitation is to record liabilities for statutory, legal, contractual or constructive obligations. To date, the Company s advancements on its projects have not created any significant disturbance on the land that would yield a material liability. Going concern The preparation of these financial statements requires management to make judgments regarding the going concern of the Company as disclosed in Note 1. As at December 31, 2016 the Company had working capital of $8,458,290. Additional financing will be required for the Company to continue as a going concern. d. Cash and Cash Equivalents Cash consists of cash on hand and on deposit in banks. e. Foreign Currency Translation and Transactions The functional currency of an entity is the currency of the primary economic environment in which the entity operates. Following the change in functional currency outlined above, the functional currency of all group entities is the United States dollar. Transactions and balances in currencies other than the United States dollar are recorded at exchange rates prevailing on the dates of the transactions. At the end of each reporting period, monetary assets and liabilities denominated in foreign currencies are translated at the period end exchange rate while non monetary assets and liabilities are translated at historical rates. Revenues and expenses are translated at the exchange rates approximating those in effect on the date of the transactions. Exchange gains and losses arising on translation are included in the statement of loss and comprehensive loss. Prior to the change in functional currency of the parent entity, the financial results and position of foreign operations whose functional currency was different from the reporting currency were translated as follows: i) assets and liabilities were translated at period end exchange rates prevailing at that reporting date; and ii) income and expenses were translated at average exchange rates for the period. iii) equity items were translated at historical rates. Exchange gains and losses were included as part of the Foreign Currency Translation Reserve on the statement of financial position. Page 15
2. Summary of Significant Accounting Policies (Continued) f. Exploration and Evaluation assets Recognition and measurement Exploration and Evaluation costs are those costs required to find a mineral property and determine technical feasibility and commercial viability. Exploration and Evaluation costs include costs to establish an initial mineral resource and determine whether inferred mineral resources can be upgraded to measured and indicated mineral resources and whether measured and indicated mineral resources are commercially viable. Costs incurred before the Company has obtained the legal right to explore an area are recognized in the consolidated statement of loss and comprehensive loss. Exploration and Evaluation costs relating to the acquisition of, exploration for and development of mineral properties are capitalized and include, but are not restricted to: drilling, trenching, sampling, surveying and gathering exploration data; tunnelling and development, calculation and definition of mineral resource; test work on geology, metallurgy, mining, geotechnical and geophysical; and conducting geological, geophysical, engineering, environmental, marketing and financial studies. Administration costs that do not relate directly to specific exploration and evaluation activity for capitalized projects are expensed as incurred. Impairment All capitalized Exploration and Evaluation expenditures are monitored for indications of impairment. Indicators of impairment include, but are not limited to: (a) the period for which the right to explore is less than one year; (b) further exploration expenditures are not anticipated; (c) a decision to discontinue activities in a specific area; and (d) the existence of sufficient data indicating that the carrying amount of an exploration and evaluation asset is unlikely to be recovered from the development or sale of the asset. Where a potential impairment is indicated, assessments are performed for each area of interest. To the extent that Exploration and Evaluation assets are not expected to be recovered, they are charged to the consolidated statement of loss and comprehensive loss. Reclassification to property, plant and equipment Capitalized Exploration and Evaluation costs for a project are classified as such until the project demonstrates technical feasibility and commercial viability. Upon demonstrating technical feasibility and commercial viability, and subject to an impairment analysis, capitalized exploration costs are transferred to construction in progress / mine development costs within property, plant and equipment. Demonstration of technical feasibility and commercial viability generally coincide with a board decision and approval to commence development and construction of a mine. This assessment also includes an assessment of initial development funding required as well as the availability of such funds. In addition, the assessment includes the estimation of projected future operating cash flows based on a detailed mine design plan supporting the extraction and production of established proven and probable reserves and an estimate of mineral resources expected to be converted into reserves in the future and includes initial construction and sustaining capital expenditures. However, this determination may also be impacted by management s assessment of certain modifying factors including legal, environmental, social and governmental factors. All subsequent expenditures on the development, construction, installation or completion of infrastructure facilities are capitalized as part of mine development / construction in progress within property, plant and equipment. Page 16
2. Summary of Significant Accounting Policies (Continued) g. Plant and Equipment Plant and equipment is carried at cost, less accumulated depreciation and accumulated impairment losses. Depreciation is recognized using the straight line method at the following annual rates: Motor vehicle Computer equipment Plant and machinery Land 3 5 years 2 years 5 10 years not depreciated h. Share based payments The stock option plan allows Company employees and consultants to acquire shares of the Company. The fair value of options granted is recognized as a share based payment expense with a corresponding increase in equity. An individual is classified as an employee when the individual is an employee for legal or tax purposes (direct employee) or provides services similar to those performed by a direct employee. Consideration paid on the exercise of stock options is credited to capital stock. The fair value is measured at grant date and each tranche is recognized over the period during which the options vest. The fair value of the options granted is measured using the Black Scholes option pricing model taking into account the terms and conditions upon which the options were granted. At each financial position reporting date, the amount recognized as an expense is adjusted to reflect the number of stock options that are expected to vest. Where equity instruments are granted to employees, they are recorded at the fair value of the equity instrument granted at the grant date. The grant date fair value is recognized in the statement of loss over the vesting period, described as the period during which all the vesting conditions are to be satisfied. Where equity instruments are granted to non employees, they are recorded at the fair value of the goods or services received in the statement of loss. Amounts related to the issuance of shares are recorded as a reduction of capital stock. When the value of goods or services received in exchange for the share based payment cannot be reliably estimated, the fair value of the shares or equity instruments issued is used. i. Income Taxes Deferred tax is recorded using the liability method, providing for temporary differences, between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Temporary differences are not provided for relating to goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect neither accounting or taxable loss, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the reporting date. A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilized. j. Basic and Diluted Earnings (Loss) Per Share The basic earnings (loss) per share is computed by dividing the net earnings (loss) attributable to ordinary shareholders of the parent company by the weighted average number of common shares outstanding during the year. Diluted earnings per share reflects the potential dilution of common share equivalents, such as outstanding stock options and share purchase warrants, in the weighted average number of common shares outstanding during the period, if dilutive. For this purpose, the treasury stock method is used for the assumed proceeds upon the exercise of stock options and warrants that are used to purchase common shares at the average market price during the period. k. Provision for Environmental Rehabilitation The Company recognizes liabilities for legal or constructive obligations associated with the retirement of exploration and evaluation assets and plant and equipment. The net present value of future rehabilitation costs is capitalized to the related asset along with a corresponding increase in the rehabilitation provision in the period incurred. Discount rates using a pretax rate that reflect the time value of money are used to calculate the net present value. The Company s estimates of reclamation costs could change as a result of changes in regulatory requirements, discount rates and assumptions regarding the amount and timing of the future expenditures. These changes are recorded directly to the related assets with a corresponding entry to the rehabilitation provision. The increase in the provision due to the passage of time is recognized as Page 17
2. Summary of Significant Accounting Policies (Continued) interest expense. The Company currently does not have any provisions for environmental rehabilitation for the years presented. l. Capital Stock Common shares are classified as equity. Incremental costs directly attributable to the issue of common shares and stock options are recognized as a deduction from equity. Common shares issued for consideration other than cash, are valued based on their market value at the date the shares are issued. The Company has adopted a residual value method with respect to the measurement of shares and warrants issued as private placement units. The Company first values the warrants at their fair value using option pricing methodologies. The balance is allocated to the common shares. m. Financial Instruments Financial assets The Company classifies its financial assets into one of the following categories: Fair value through profit or loss this category comprises derivatives and financial assets acquired principally for the purpose of selling or repurchasing in the near term. They are carried at fair value with changes in fair value recognized in profit or loss. Loans and receivables these assets are non derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are carried at amortized cost using the effective interest method less any provision for impairment. Held to maturity investments these assets are non derivative financial assets with fixed or determinable payments and fixed maturities that the Company's management has the positive intention and ability to hold to maturity. These assets are measured at amortized cost using the effective interest method less any provision for impairment. Not for sale non derivative financial assets not included in the above categories are classified as available for sale. They are carried at fair value with changes in fair value recognized in other comprehensive income (loss). Where a decline in the fair value of an available for sale financial asset constitutes objective evidence of impairment, the amount of the loss is removed from accumulated other comprehensive income (loss) and recognized in profit or loss. All financial assets except those measured at fair value through profit or loss are subject to review for impairment at least at each reporting date. Financial assets are impaired when there is objective evidence of impairment as a result of one or more events that have occurred after initial recognition of the asset and that event has an impact on the estimated future cash flows of the financial asset or the group of financial assets. Financial liabilities The Company classifies its financial liabilities into one of the following categories: Fair value through profit or loss this category comprises derivatives and financial liabilities incurred principally for the purpose of selling or repurchasing in the near term. They are carried at fair value with changes in fair value recognized in profit or loss. Other financial liabilities this category consists of liabilities carried at amortized cost using the effective interest method. Page 18
2. Summary of Significant Accounting Policies (Continued) n. Impairment of Assets At the end of each reporting period, the Company s assets are reviewed to determine whether there is any indication that those assets may be impaired. If such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment, if any. The recoverable amount is the higher of fair value less costs to sell and value in use. Fair value is determined as the amount that would be obtained from the sale of the asset in an arm s length transaction between knowledgeable and willing parties. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount and the impairment loss is recognized in profit or loss for the period. For an asset that does not generate largely independent cash flows, the recoverable amount is determined for the cash generating unit to which the asset belongs. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cashgenerating unit) is increased to the revised estimate of its recoverable amount, but to an amount that does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or cash generating unit) in prior years. A reversal of an impairment loss is recognized immediately in profit or loss. o. Accounting standards and interpretations not yet effective and not early adopted Certain pronouncements were issued by the IASB or the International Financial Reporting Interpretations Committee that are mandatory for accounting years ended after December 31, 2016. Many are not applicable or do not have a significant impact on the Company and have been excluded from the summary below. The Company does not plan to adopt any of these standards early. (i) IFRS 9, Financial Instruments ( IFRS 9 ) replaces IAS 39, Financial Instruments Recognition and Measurement ( IAS 39 ) and some of the requirements of IFRS 7, Financial Instruments: Disclosures ( IFRS 7 ). The objective of IFRS 9 is to establish principles for reporting of financial assets and financial liabilities in respect of the assessment of the amounts, timing and uncertainty of an entity s future cash flows. IFRS 9 is effective for annual periods beginning on or after January 1, 2018 with early adoption permitted. The Company is in the process of determining the impact of the adoption of this standard on the consolidated financial statements, if any. (ii) IFRS 15, Revenue from Contracts with Customers ( IFRS 15 ) replaces IAS 11, Construction Contracts ( IAS 11 ), IAS 18, Revenue ( IAS 18 ) and some revenue related interpretations. The objective of IFRS 15 is to provide a single comprehensive revenue recognition model that applies to contracts with customers using two approaches to recognizing revenue at one point in time or over time. The model features a contract based five step analysis of transactions to determine whether, how much and when revenue is recognized. New estimates and judgmental thresholds have been introduced, which may affect the amount and/or timing of the revenue recognized. IFRS 15 is effective for annual periods beginning on or after January 1, 2018, with early adoption permitted. The Company does not expect the impact of this new standard to have a significant impact on the financial statements as the Company s properties will not be in commercial production prior to the effective date. All future operating mines will adopt IFRS 15 upon achieving commercial production. (iii) IFRS 16, Leases ( IFRS 16 ) replaces IAS 17, Leases ( IAS 17 ). The new model requires the recognition of almost all lease contracts on a lessee s statement of financial position as a lease liability reflecting future lease payments and a right of use asset with exceptions for certain short term leases and leases of low value assets. In addition, the lease payments are required to be presented on the statement of cash flow within operating and financing activities for the interest and principal portions, respectively. IFRS 16 is effective for annual periods beginning on or after January 1, 2019, with early adoption permitted. As at December 31, 2016, the Company did not have any significant operating lease commitments. The Company is in the process of determining the impact that any existing or future lease commitments will have on the consolidated financial statements, if any. Page 19