Anfield Resources Inc. (Formerly Equinox Exploration Corp.) CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2013 AND 2012 (Expressed in Canadian Dollars)
INDEPENDENT AUDITOR S REPORT To the Shareholders of Anfield Resources Inc. (formerly Equinox Exploration Corp.); We have audited the accompanying consolidated financial statements of Anfield Resources Inc. (formerly Equinox Exploration Corp.) which comprises of the consolidated statements of financial position as at 2013 and 2012, and the consolidated statements of comprehensive loss, changes in equity and cash flows for the years then ended, and a summary of significant accounting policies and other explanatory information. Management's Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence that we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Anfield Resources Inc. (formerly Equinox Exploration Corp.) as at 2013 and 2012, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards. Emphasis of Matter Without qualifying our opinion, we draw attention to Note 1 in the consolidated financial statements which describes certain conditions that indicate the existence of a material uncertainty that cast significant doubt about the Company s ability to continue as a going concern. Vancouver, Canada April 30, 2014 DALE MATHESON CARR-HILTON LABONTE LLP CHARTERED ACCOUNTANTS
Consolidated statements of financial position (Expressed in Canadian Dollars) Notes 2013 2012 Assets Current Assets Cash $ 38,056 $ 6,956 Sales tax receivable 16,035 11,360 Prepaids 79,321 9,728 133,412 28,044 Non-current Assets Equipment 4 134,868 149,396 Evaluation and exploration assets 5 4,376,670 3,316,011 Sales tax receivable 28,973 40,112 4,540,511 3,505,519 Total Assets $ 4,673,923 $ 3,533,563 Liabilities Current liabilities Accounts payable and accrued liabilities 6 $ 525,290 $ 587,061 Due to related parties 9 738,917 332,693 Total Liabilities 1,264,207 919,754 Equity Share Capital 7 8,311,460 7,025,175 Obligation to issue shares 7 330,916 Stock option reserve 7 770,476 1,047,442 Warrant reserve 7 26,157 23,842 Foreign exchange reserve 7 178,784 (12,292) Deficit (6,208,077) (5,470,358) Total Equity 3,409,716 2,613,809 Total Equity and Liabilities $ 4,673,923 $ 3,533,563 Going concern (Note 1) Subsequent events (Note 13) Approved on behalf of the Board of Directors: Corey Dias Chief Executive Officer Laara Shaffer Chief Financial Officer The accompanying notes are an integral part of these consolidated financial statements.
Consolidated statements of comprehensive loss (Expressed in Canadian Dollars) Notes 2013 For the years ended 2012 Revenue 5 $ 113,566 - Cost of goods sold 4, 5 (468,666) - Gross loss (355,100) - Expenses Amortization 4 1,318 $ 7,078 General and administrative 9 644,813 423,015 Investor relations 189,348 185,510 Gain on foreign exchange (2,999) (1,368) Share based payments 7, 9 9,000 336,743 (841,480) (950,978) Other Item Gain on debt settlement 7 172,895 - Net and comprehensive loss for the year $ (1,023,685) $ (950,978) Loss per share basic and diluted $ (0.18) $ (0.23) Weighted average shares outstanding 5,651,940 4,195,398 The accompanying notes are an integral part of these consolidated financial statements.
Notes Anfield Resources Inc. (Formerly Equinox Exploration Corp.) Consolidated statement of changes in equity Number of Shares Amount $ Obligation to issue shares $ Stock Option Reserve $ Warrant Reserve $ Foreign exchange reserve $ Balance as at 2011 2, 920,546 4,821,122 710,699 (4,519,380) 1,012,441 Shares issued - acquisition costs 7 650,000 717,500 717,500 Shares issued cash 7 1,133,467 1,575,200 1,575,200 Share issue costs cash 7 (64,805) (64,805) Share issue costs warrants 7 (23,842) 23,842 Share based payments 7 336,743 336,743 Foreign exchange on consolidation (12,292) (12,292) Comprehensive loss for the year (950,978) (950,978) Balance as at 2012 4,704,013 7,025,175 1,047,442 23,842 (12,292) (5,470,358) 2,613,809 Shares issued - private placement 7 333,805 500,708 500,708 Shares issued debt settlement 7 2,807,904 561,581 - - - - - 561,581 Shares issued - acquisition costs 7 750,000 242,500 242,500 Shares issue costs cash 7 (16,189) (16,189) Shares issue costs - broker warrants 7 (2,315) 2,315 Obligation to issue shares 7 330,916 330,916 Options cancelled (285,966) 285,966 Share based payment 7 9,000 9,000 Foreign exchange on consolidation 191,079 191,076 Comprehensive loss for the year (1,023,685) (1,023,685) Balance as at 2013 8,595,722 8,311,460 330,916 770,476 26,157 178,784 (6,208,077) 3,409,716 Deficit $ Total Equity The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Statement of Cash Flows (Expressed in Canadian Dollars) 2013 For the years ended 2012 Cash Flows from Operating Activities Net loss and comprehensive loss $ (1,023,685) $ (950,978) Adjustments for non-cash items: Amortization 16,453 7,078 Depletion 88,355 - Foreign Exchange (2,999) (12,292) Share based payments 9,000 336,734 Gain on debt settlement (172,895) - Changes in non-cash working capital Sales tax receivable 6,464 (42,544) Prepaids (69,593) (9,728) Accounts Payable and accrued liabilities 305,049 149,385 Due to related parties 406,224 - Net cash flows used in operating activities (437,627) (522,336) Financing Activities Net proceeds from share issuances 484,509 1,510,395 Obligation to issue shares 330,916 - Net cash flow from financing activities 815,425 1,510,395 Investing activities Purchase of equipment (1,925) (156,474) Expenditures on exploration and evaluation assets (218,478) (1,261,495) Acquisition costs and option payments (126,295) (500,630) Cash used in investing activities (346,698) (1,918,599) Increase (decrease) in cash 31,100 (930,540) Cash, beginning 6,956 937,496 Cash, ending $ 38,056 $ 6,956 Supplementary information Shares issued for acquisition of exploration and evaluation assets $ 242,500 $ 717,500 The accompanying notes are an integral part of these consolidated financial statements.
1. CORPORATE INFORMATION AND CONTINUANCE OF OPERATIONS Anfield Resources Corp. (the Company ) is a publicly listed company incorporated in British Columbia on July 12, 1989. The Company s shares are listed on the TSX Venture Exchange ( TSX.V ) under the symbol ARY. During the year ended 2013, the Company changed its name from Equinox Exploration Corp. to Equinox Copper Corp. and then to Anfield Resources Corp. The Company is engaged in the identification, acquisition and exploration of mineral properties in the United States and Chile. The Company s head office and its registered and records offices are located at Suite 608, 1199 West Pender Street, Vancouver, British Columbia, V6E 2R1. These consolidated financial statements have been prepared on the assumption that the Company will continue as a going concern, meaning it will continue in operation for the foreseeable future and will be able to realize assets and discharge liabilities in the ordinary course of operations. As at 2013 the Company had not advanced its properties to commercial production and is not able to finance day to day activities through operations. The Company incurred a loss of $1,026,685 during the year ended 2013 and had an accumulated deficit of $6,208,077 as at 2013. The Company s continuation as a going concern is dependent upon the successful results from its mineral property exploration activities and its ability to attain profitable operations and generate funds there from and/or raise equity capital or borrowings sufficient to meet current and future obligations. These factors indicate the existence of a material uncertainty that casts significant doubt about the Company s ability to continue as a going concern. Management intends to finance operating costs over the next twelve months with loans from directors and companies controlled by directors and or private placement of common shares or the issuance of debt. Should the Company be unable to continue as a going concern, the net realizable value of its assets may be materially less than the amounts on its consolidated statement of financial position. 2. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION a) STATEMENT OF COMPLIANCE TO INTERNATIONAL FINANCIAL REPORTING STANDARDS These financial statements of the Company have been prepared in accordance with International Financial Reporting Standards ( IFRS ) issued by the International Accounting Standards Board ( IASB ) and interpretations of the International Financial Reporting Interpretations Committee ( IFRIC ). The policies set out below were consistently applied to all periods presented unless otherwise noted below. These financial statements have been prepared on an historical cost basis except for financial instruments carried at fair value. b) BASIS OF PREPARATION The consolidated financial statements of the Company have been prepared on an accrual basis and are based on historical costs, modified where applicable. The consolidated financial statements are presented in Canadian dollars unless otherwise noted. Page 7
c) BASIS OF CONSOLIDATION These consolidated financial statements comprise the accounts of the Company and its whollyowned subsidiaries Equinox Exploration Holding Corp. ( EQX US ), Anfield Resources Holding Corp. ( ARC ) and Mineral Pro Chile, SA ( MPC ). d) SIGNIFICANT MANAGEMENT JUDGMENT AND ESTIMATES IN APPLYING ACCOUNTING POLICIES Significant estimates and assumptions The preparation of financial statements in accordance with IFRS requires the Company to make estimates and assumptions concerning the future. The Company s management reviews these estimates and underlying assumptions on an ongoing basis, based on experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revisions to estimates are adjusted for prospectively in the period in which the estimates are revised. Areas requiring a significant degree of estimation and judgment relate to the determination of the recoverability of the carrying value of exploration and evaluation assets, fair value measurements for financial instruments and stock based compensation and other equity based payments, the recognition and valuation of provisions for restoration and environmental liabilities, and the recoverability and measurement of deferred tax assets and liabilities. Actual results may differ from those estimates and judgments. Significant estimates and assumptions The preparation of financial statements in accordance with IFRS requires the Company to make judgments, apart from those involving estimates, in applying accounting policies. The most significant judgments in applying the Company s consolidated financial statements include: The assessment of the Company s ability to continue as a going concern and whether there are events or conditions that may give rise to significant uncertainty; and the classification / allocation of expenditures as exploration and evaluation expenditures or operating expenses. e) CASH AND CASH EQUIVALENTS Cash and cash equivalents comprise cash on hand, deposits held on call with banks, highly liquid investments that are readily convertible into known amount of cash and which are subject to insignificant risk of changes in value. Cash and cash equivalents have a term to maturity of three months or less from the date of acquisition. f) FINANCIAL INSTRUMENTS The Company classifies its financial instruments in the following categories: at fair value through profit or loss, loans and receivables, held-to-maturity investments, available-for-sale and financial liabilities. The classification depends on the purpose for which the financial instruments were acquired. Management determines the classification of its financial instruments at initial recognition. Financial assets are classified at fair value through profit or loss when they are either held for trading for the purpose of short-term profit taking, derivatives not held for hedging purposes, or when they are designated as such to avoid an accounting mismatch or to enable performance Page 8
evaluation where a group of financial assets is managed by key management personnel on a fair value basis in accordance with a documented risk management or investment strategy. Such assets are subsequently measured at fair value with changes in carrying value being included in profit or loss. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortized cost. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets. Held-to-maturity investments are non-derivative financial assets that have fixed maturities and fixed or determinable payments, and it is the Company s intention to hold these investments to maturity. They are subsequently measured at amortized cost. Held-to-maturity investments are included in non-current assets, except for those which are expected to mature within 12 months after the end of the reporting period. Available-for-sale financial assets are nonderivative financial assets that are designated as available-for-sale or are not suitable to be classified as financial assets at fair value through profit or loss, loans and receivables or held-tomaturity investments and are subsequently measured at fair value. These are included in current assets to the extent they are expected to be realized within 12 months after the end of the reporting period. Unrealized gains and losses are recognized in other comprehensive income, except for impairment losses and foreign exchange gains and losses on monetary financial assets. Non-derivative financial liabilities (excluding financial guarantees) are subsequently measured at amortized cost. Regular purchases and sales of financial assets are recognized on the trade-date the date on which the Company commits to purchase the asset. Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership. At each reporting date, the Company assesses whether there is objective evidence that a financial instrument has been impaired. In the case of available-for-sale financial instruments, a significant and prolonged decline in the value of the instrument is considered to determine whether an impairment has arisen. The Company does not have any derivative financial assets and liabilities. g) INCOME TAXES Current income tax Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date, in the countries where the Company operates and generates taxable income. Current income tax relating to items recognized directly in other comprehensive income or equity is recognized in other comprehensive income or equity and not in profit or loss. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate. Page 9
Deferred income tax Deferred income tax is provided using the asset and liability method on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. The carrying amount of deferred income tax assets is reviewed at the end of each reporting period and recognized only to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. h) LOSS PER SHARE Basic loss per share is calculated using the weighted-average number of shares outstanding during the year. The diluted loss per share reflects the potential dilution of common share equivalents, such as outstanding stock options and warrants, in the weighted average number of common shares outstanding during the period, if dilutive. i) SHARE-BASED PAYMENTS The Company operates a stock option plan. Share based payments to employees are measured at the fair value of the instruments issued and amortized over the vesting periods. Share based payments to non employees are measured at the fair value of goods or services received or the fair value of the equity instruments issued, if it is determined the fair value of the goods or services cannot be reliably measured, and are recorded at the date the goods or services are received. The corresponding amount is recorded to the option reserve. The fair value of options is determined using the Black Scholes Option Pricing Model. The number of shares and options expected to vest is reviewed and adjusted at the end of each reporting period such that the amount recognized for services received as consideration for the equity instruments granted shall be based on the number of equity instruments that eventually vest. j) EVALUATION AND EXPLORATION ASSETS Costs incurred before the Company has obtained the legal rights to explore an area are expensed as incurred. Exploration and evaluation expenditures include the costs of acquiring licenses and costs associated with exploration and evaluation activity. Option payments are considered acquisition costs provided that the Company has the intention of exercising the underlying option. Property option agreements are exercisable entirely at the option of the optionee. Therefore, option payments (or recoveries) are recorded when payment is made (or received) and are not accrued. Exploration and evaluation expenditures are capitalized. The Company capitalizes costs to specific blocks of claims or areas of geological interest. Exploration and evaluation assets are tested for impairment if facts or circumstances indicate that impairment exists. Examples of such facts and circumstances are as follows: the period for which the Company has the right to explore in the specific area has expired during the period or will expire in the near future, and is not expected to be renewed; substantive expenditure on further exploration for and evaluation of mineral resources Page 10
in the specific area is neither budgeted nor planned; exploration for and evaluation of mineral resources in the specific area have not led to the discovery of commercially viable quantities of mineral resources and the entity has decided to discontinue such activities in the specific area; and sufficient data exist to indicate that, although a development in the specific area is likely to proceed, the carrying amount of the exploration and evaluation asset is unlikely to be recovered in full from successful development or by sale. After technical feasibility and commercial viability of extracting a mineral resource are demonstrable, the Company stops capitalizing expenditures for the applicable block of claims or geological area of interest and tests the asset for impairment. The capitalized balance, net of any impairment recognized, is then reclassified to either tangible or intangible mine development assets according to the nature of the asset. Although the Company has taken steps that it considers adequate to verify title to exploration and evaluation assets which it has an interest, these procedures do not guarantee the Company s title. Title to exploration and evaluation assets in foreign jurisdictions is subject to uncertainty and consequently, such properties may be subject to prior undetected agreements or transfers and title may be affected by such instances. k) IMPAIRMENT OF NON-FINANCIAL ASSETS The carrying amount of the Company s assets (which include equipment and exploration and evaluation assets) is reviewed at each reporting date to determine whether there is any indication of impairment. If such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. An impairment loss is recognized whenever the carrying amount of an asset or its cash generating unit exceeds its recoverable amount. Impairment losses are recognized in the statement of comprehensive loss. The recoverable amount of assets is the greater of an asset s fair value less cost to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects the current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the cash-generating unit to which the asset belongs. An impairment loss is only reversed if there is an indication that the impairment loss may no longer exist and there has been a change in the estimates used to determine the recoverable amount. Any reversal of impairment cannot increase the carrying value of the asset to an amount higher than the carrying amount that would have been determined had no impairment loss been recognized in previous years. Assets that have an indefinite useful life are not subject to amortization and are tested annually for impairment. l) FOREIGN CURRENCY TRANSLATION The functional currency of each entity is measured using the currency of the primary economic environment in which that entity operates. The consolidated financial statements are presented in Canadian dollars which is the parent company s functional and presentation currency. The functional currency of MPC is Chilean Pesos. The functional currency of EQX US and ARC is the Page 11
US dollar. The functional currency determinations were conducted through an analysis of the consideration factors identified in IAS 21, the Effects of Changes in Foreign Exchange Rates. Transactions and balances Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the period-end exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when fair values were determined. Exchange differences arising on the translation of monetary items or on settlement of monetary items are recognized in the statement of comprehensive loss in the period in which they arise, except where deferred in equity as a qualifying cash flow or net investment hedge. Exchange differences arising on the translation of non-monetary items are recognized in other comprehensive income in to the extent that gains and losses arising on those non-monetary items are also recognized in other comprehensive income. Where the non-monetary gain or loss is recognized in profit or loss, the exchange component is also recognized in profit or loss. Foreign operations The financial results and position of foreign operations whose functional currency is different from the Company s presentation currency are translated as follows: - assets and liabilities are translated at period-end exchange rates prevailing at that reporting date; and - income and expenses are translated at average exchange rates for the period. Exchange differences arising on translation of foreign operations are recognized in other comprehensive income and recorded in the Company s foreign currency translation reserve in equity. These differences are recognized in the profit or loss in the period in which the operation is disposed. m) EQUIPMENT Equipment is initially recognized at cost. As well as the purchase price, cost includes directly attributable costs and the estimated present value of any future costs of dismantling and removing items. The corresponding liability is recognized within provisions. All items of equipment are subsequently carried at depreciated cost less impairment losses, if any. Depreciation is provided on all items of equipment to write off the carrying value of items over their expected useful economic lives. Depreciation is provided on a straight line basis over the estimated useful lives of the equipment at the following annual rates: Equipment (United States) 4 years Equipment (Chile) 9 years n) RESTORATION AND ENVIRONMENTAL OBLIGATIONS The Company recognizes liabilities for statutory, contractual, constructive or legal obligations associated with the retirement of long term assets, when those obligations result from the acquisition, construction, development or normal operation of the assets. The net present value of future restoration cost estimates arising from the decommissioning of plant and other site Page 12
preparation work is capitalized to exploration and evaluation assets along with a corresponding increase in the restoration provision in the period incurred. Discount rates using a pre tax rate that reflect the time value of money are used to calculate the net present value. The restoration asset will be depreciated on the same basis as other mining assets. The Company s estimates of restoration costs could change as a result of changes in regulatory requirements. These changes are recorded directly to mining assets with a corresponding entry to the restoration provision. The Company s estimates are reviewed annually for changes in regulatory requirements, discount rates, effects of inflation and changes in estimates. Changes in the net present value, excluding changes in the Company s estimates of reclamation costs, are charged to profit or loss for the period. The net present value of restoration costs arising from subsequent site damage that is incurred on an ongoing basis during production are charged to profit or loss in the period incurred. The costs of restoration projects that were included in the provision are recorded against the provision as incurred. The costs to prevent and control environmental impacts at specific properties are capitalized in accordance with the Company s accounting policy for exploration and evaluation assets. o) REVENUE Revenue from ore sales is recognized as revenue only when there is evidence of a sale arrangement, amounts are determinable, collection is reasonably assured and the Company no longer retains control over the goods sold. 3. ACCOUNTING STANDARDS ISSUED BUT NOT YET EFFECTIVE New standard IFRS 9 Financial Instruments This new standard is a partial replacement of IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the multiple rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of the financial assets. The new standard also requires a single impairment method to be used, replacing the multiple impairment methods in IAS 39. The effective date of IFRS 9 has not been specified. Amendments to IAS 32 Financial Instruments: Presentation These amendments address inconsistencies when applying the offsetting requirements, and is effective for annual periods beginning on or after January 1, 2014. The Company has not early adopted these revised standards and is currently assessing the impact that these standards will have on its consolidated financial statements. Other accounting standards or amendments to existing accounting standards that have been issued but have future effective dates are either not applicable or are not expected to have a significant impact on the Company s financial statements. Page 13
4. EQUIPMENT Equipment United States Equipment - Chile Total Cost: 2011 $ $ $ Additions 20,405 136,069 156,474 2012 20,405 136,069 156,474 Amortization: 2011 Charge for the year 1,936 5,142 7,078 2012 1,936 5,142 7,078 Net Book Value: 2012 18,469 130,927 149,936 Cost: 2012 20,405 136,069 156,474 Additions 1,925 1,925 2013 20,405 137,994 158,399 Amortization: 2012 1,936 5,142 7,078 Charge for the year 1,318 15,135 16,453 2013 3,254 20,277 23,531 Net Book Value: 2013 $ 17,151 $ 117,717 $ 134,868 During the year ended 2013, $15,135 (2012 - $nil) was included in cost of goods sold and $1,318 (2012 - $7,078) was included amortization in amortization expense. Page 14
5. EVALUATION AND EXPLORATION ASSETS As at 2013, the Company held interests in four copper exploration properties; the Northstar Property located in Piñal County, Arizona, the Binghampton and Copper Queen properties located in Yavapai County, Arizona and the Aura Mine Project located in Chile. The Company also holds interests in uranium exploration properties in both Utah and Arizona (heretofore described as Uranaium Properties ). A summary of costs incurred in the acquisition and exploration of these properties are as follows: North Star Aura Binghampton Copper Queen Utah Total Balance 2011 $ 194,206 $ - $ - $ - $ - $ 194,206 Acquisition and license costs 597,829 201,123 200,275 458,685 1,457,912 Assay - 837 344 25,662-26,843 Consulting 272,917 172,176 124,878 103,750 673,721 Diamond drilling - - 14,414 359,726-374,140 Geophysics 36,920-153,078 32,224-222,222 Sundry Field 82,242 67,639 33,637 183,449 366,967 Total for year 989,908 441,775 526,626 1,163,496-3,121,805 Balance 2012 1,184,114 441,775 526,626 1,163,496-3,316,011 Acquisition and license costs - - 242,500 118,182 8,113 368,795 Assay - - 2,029 33,501-35,530 Consulting 56,937-61,557 187,505-305,999 Diamond drilling - - - 5,149-5,149 Sundry Field - - 6,848 231,988-238,836 Foreign Exchange 91,322-37,018 66,365-194,705 Depletion - (88,355) - - - (88,355) Total for year 148,259 (88,355) 349,952 642,690 8,113 1,060,659 Balance 2013 $ 1,332,373 $ 353,420 $ 876,578 $ 1,806,186 $ 8,113 $ 4,376,670 a) NORTH STAR PROPERTY October 26, 2011, the Company entered into an agreement with NPX Metals Inc. to obtain the mining rights to the North Star Property. The Company has acquired a 100% interest in the North Star Property by completing the following: I. Paying $25,000 cash (paid); and II. Issuing 500,000 shares in escrow (issued), (Note 7). The property is subject to a 3% Net Smelter Royalty ( NSR ) with the Company having the option to purchase 2% of the NSR at the price of US$1,000,000 for 1% or US$2,000,000 for 2%. Page 15
b) AURA MINE PROJECT On September 10, 2012, the Company entered into an option agreement to acquire 100% of the issued and outstanding shares of MPC, a Chilean corporation and owner of the Aura Mine Project. The total consideration for the acquisition is comprised of cash payments totaling US$250,000, share issuances in the amount of 350,000 common shares of the Company and exploration expenditure commitments in the amount of US $1,000,000, payable as follows: Due date or event Cash Payments Shares issuances Exploration Commitments On signing (paid) US$ 10,000 US$ On closing (paid and issued with a fair value of $55,000) 40,000 50,000 1 st Anniversary of closing (i) 50,000 50,000 333,333 2 nd Anniversary of closing 50,000 75,000 333,333 3 rd Anniversary of closing 50,000 75,000 333,333 4 th Anniversary of closing 50,000 100,000 Total Consideration US$ 250,000 350,000 US$ 1,000,000 The vendor retained a 2% NSR. The Company has the right to purchase all or any part of the NSR for $250,000 per 1%, at any time. (i) The Company has not made the $50,000 cash payment or issued the 50,000 shares due on the 1 st anniversary of closing. Although the agreement is in default, the optionor and the Company are currently in negotiations to resolve the issue. However, there is a risk that negotiations will not be successful and, consequently, the optionor acts to terminate the agreement. During the year ended 2013, Company began surface mining on the Aura Mine Project. The Company is no longer incurring exploration costs on the property and plans to continue surface mining. As at 2013, the Company has no reserves related to the Aura Mine Project project. c) BINGHAMPTON AND COPPER QUEEN PROPERTIES On May 1, 2012 the Company entered into an agreement with Binghampton Holdings Inc. to acquire a 100% interest in mineral claims. The mineral claims are in two groups: the Binghampton claims and the Copper Queen claims. The Copper Queen claims initially represented 40% of the total of the Copper Queen claims. The optionor had entered a binding agreement to purchase the remaining 60% of the Copper Queen Property within 90 days of the date of the agreement and provide the Company with the right to acquire this holding for additional consideration of $275,000. The Company exercised this right and subsequently paid US$275,000 to the optionor for the remaining 60% of the Copper Queen Property during the year ended 2012. Page 16
Under the terms of the Agreement, the Company is required to pay a total of US$1,450,000 in cash and issue 500,000 shares as following: Due date or event Cash Payments Shares issuances On signing (paid) US$ 175,000 - On acceptance of the TSX.V May 17, 2012 (issued with a fair value of $112,500) 100,000 On Vendor securing final 60% of Copper Queen claims (paid) 275,000 1 st anniversary of TSX.V acceptance (i) 250,000 100,000 2 nd anniversary of TSX.V acceptance 250,000 100,000 3 rd anniversary of TSX.V acceptance 250,000 100,000 4 th anniversary of TSX.V acceptance 250,000 100,000 Total Consideration US$ 1,450,000 500,000 The Company allocated the acquisition costs to the Binghampton and Copper Queen properties based on the number of claims in each property. In the event that the Company files a NI 43-101 compliant resource estimate, then the Company will be required to make an additional payment of $250,000 and issue an additional 2,500,000 shares. The Vendor retained a 3% NSR. The Company has the right to purchase all or any part of the NSR for US$1,000,000 per 1%, at any time. (i) 100,000 shares were issued to the optionor during the year ended 2013 with a fair value of $112,500. On October 21, 2013, the Company extinguished US$157,183 of the US$250,000 due on the 1 st anniversary of TSX.V acceptance by issuing 650,000 common shares with a fair value of $130,000. The remaining US$92,817 was unpaid at year end. Although the agreement is in default, the optionor and the Company are currently in negotiations to resolve the issue. However, there is a risk that negotiations will not be successful and, consequently, the optionor acts to terminate the agreement. d) URANIUM PROPERTIES i) UTAH URANIUM PROJECT In December 2013, the Company announced that its application for mining leases in the state of Utah, USA was accepted and that nine mineral leases on Utah State Trust Land had been granted. The leases cover a total of approximately 5,500 acres. The costs to acquire these leases totaled $8,113. ii) MAG PROJECT On October 29, 2013, the Company the Company entered into an option agreement with MAG Exploration Services Inc. to acquire a 100% interest in 109 mineral claims located in San Juan County, Utah and 24 mineral claims located in Mohave County, Arizona. Page 17
Under the terms of the agreement, the Company is required to pay a total of US$600,000 in cash and issue 1,500,000 shares to be held in escrow for a period of three years from issuance as following: Date Cash Payments Shares issuances On acceptance by TSX.V US$ 100,000 1,500,000 1 st anniversary of TSX.V acceptance 150,000 2 nd anniversary of TSX.V acceptance 150,000 3 rd anniversary of TSX.V acceptance 200,000 Total Consideration US$ 600,000 1,500,000 The agreement was approved by the TSX.V subsequent to 2013. 6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 2013 2012 Trade payables $ 503,584 $ 256,232 Accrued liabilities 21,706 330,829 $ 525,290 $ 587,061 7. SHARE CAPITAL a) AUTHORIZED SHARE CAPITAL Unlimited number of common shares without par value. b) ISSUED SHARE CAPITAL On September 23, 2013 the Company consolidated its share capital on a ten for one basis. All share and per share information have been restated to retroactively reflect this consolidation for all periods presented. As at 2013, the Company had 8,595,722 (2012 4,704,013) issued and fully paid common shares, of which 484,112 (2012 852,335) were held in escrow. Page 18
c) SHARES FOR PROPERTY i) On February 14, 2012, pursuant to an agreement with NPX Metals Inc. and pursuant to the agreement to acquire the North Star Copper property (Note 5), the Company issued 500,000 shares under an Escrow Agreement The fair value of these shares was $550,000. Under the terms of the escrow agreement the shares will be released as follows: On signing of the TSX.V acceptance - February 14, 2012 (released) 25,000 6 months after acceptance (released) 25,000 12 months after acceptance (released) 50,000 18 months after acceptance (released) 50,000 24 months after acceptance 75,000 30 months after acceptance 75,000 36 months after acceptance 200,000 Total 500,000 ii) On May 17, 2012, 100,000 shares were issued to Binghampton Holdings LLC with a fair value of $112,500 and pursuant to the option agreement to acquire the Binghampton and Copper Queen properties (Note 5). iii) On August 28, 2012, 50,000 shares were issued to Mineral Pro LLC with a fair value of $55,000, pursuant to the option agreement to acquire the Aura Mine Project (Note 5). iv) On June 17, 2013, pursuant to the option agreement to acquire the Binghampton and Copper Queen Properties (Note 5), 100,000 common shares were issued to Binghampton Holdings LLC with a fair value of $112,500. v) On October 21, 2013, the Company extinguished US$157,183 of the US$250,000 due on the 1 st anniversary of TSX.V acceptance to acquire the Binghampton and Copper Queen Properties (Note 5), by issuing 650,000 common shares with a fair value of $130,000. vi) During the year ended 2013 the Company received $330,916 relating to share issuances made subsequent to 2013 (Note 13). d) PRIVATE PLACEMENTS i) On March 26, 2012, the Company completed a private placement of 883,467 units at $1.50 per unit for gross proceeds of $1,325,200. Each unit consists of one common share of the Company and one share purchase warrant with an exercise price of $2.00 per common share and an expiry date of March 23, 2013. No fair value was ascribed to the warrants. Share issuance costs of $59,650 were inucrred in connection with this transaction. A total of 26,600 finder s fee warrants issued with a fair value of $23,842 determined using the Black-Scholes Option Pricing Model with the following assumptions: risk free rate of 1.21%; expected life of 1 year; volatility of 118%; and a dividend yield of 0%. The compenation warrants have the same terms as the unit warrants. The warrants expired March 23, 2013, unexercised. ii) On September 19, 2012, pursuant to a private placement, the Company issued 250,000 units at $1.00 per unit for gross proceeds of $250,000. Each unit consists of one common share of the Company and one share purchase warrant with an exercise price Page 19
of $2.50 per common share and an expiry date of September 19, 2014. No fair value was ascribed to the warrants. Share issuance costs of $5,155 were incurred in connection with this transactions. iii) On April 12, 2013, the Company completed a private placment of 201,572 units at $1.50 per unit for gross proceeds of $302,358. Each unit consist of one common share of the Company and one share purcahse warrant with an exercise price of $2.50 per common share and an expiry date of April 12, 2015. No fair value was ascribed to the warrants. Share issuance costs of $693 were incurred in connection with this transaction. A total of 462 finder s fee warrants issued with a fair value of $536 determined using the Black- Scholes Option Pricing Model with the following assumptions: risk free rate of 0.95%; expected life of 2 years; volatility of 118%; and a dividend yield of 0%. The compensation warrants have the same terms as the unit warrants. iv) On June 10, 2013, the Company completed a private placment of 132,233 units at $1.50 per unit for gross proceeds of $198,350. Each unit consist of one common share of the Company and one share purchase warrant with an exercise price of $2.50 per common share and an expiry date of June 10, 2015. No fair value was ascribed to the warrants. Share issuance costs of $15,496 were incurred in connection with this transaction. A total of 2,405 finder s fee warrants issued with a fair value of $1,779 determined using the Black-Scholes Option Pricing Model with the following assumptions: risk free rate of 1.16%; expected life of 2 years; volatility of 118%; and a dividend yield of 0%. The compensation warrants have the same terms as the unit warrants. v) On October 21, 2013 the Company issued 3,457,904 shares, including 650,000 common shares with a fair value of $130,000 issued in relation to the Binghamton and Copper Queen Properties (Note 5), to extinguish debt of $864,476. The shares issued have a fair value of $691,581 resulting in a gain on debt settlement of $172,895. Page 20
e) WARRANTS Warrant transactions including the consolidation are summarized as follows: Number of Warrants Weighted Average Exercise price Expiry Date Balance, 2011 1,600,000 $ 2.30 Warrants expired (100,000) 3.00 Warrants granted 910,067 2.00 March 23, 2013 Warrants granted 250,000 2.50 September 19, 2014 Balance 2012 2,660,067 2.40 Warrants expired (2,410,067) 2.31 Warrants granted 202,034 2.50 April 12, 2015 Warrants granted 134,638 2.50 June 10, 2015 Balance at 2013 586,672 $ 2.50 The weighted average remaining life of the warrants oustanding as at 2013 is 1.52 years (2012 0.39 years). f) STOCK OPTIONS The Company has adopted an incentive stock option plan, which provides that the Board of Directors of the Company may from time to time, in its discretion, and in accordance with the TSX.V requirements, grant to directors, officers, employees and technical consultants to the Company, non-transferable stock options to purchase common shares, provided that the number of common shares reserved for issuance will not exceed 10% of the Company s issued and outstanding common shares. Such options will be exercisable for a period of up to a maximum of five years from the date of grant. In connection with the foregoing, the number of common shares reserved for issuance to any one optionee will not exceed five percent (5%) of the issued and outstanding common shares and the number of common shares reserved for issuance to all investor relation activities and consultants will not exceed two percent (2%) of the issued and outstanding common shares. Options may be exercised no later than 90 days following cessation of the optionee s position with the Company or 30 days following cessation of an optionee conducting investor relations activities position. With the exception of options granted for Investor Relations, all options granted typically vest on the grant date. On April 26, 2011, the Company granted 10,000 investor relations options. The options expire on April 25, 2016 and are exercisable at $2.20 per share. The fair value ascribed to these options was $23,557. The options were vested as to 25% on July 26, 2011 and an additional 25% on October 26, 2011, January 26, 2012 and April 26, 2012. The fair value ascribed to these options of $2,398 (2011 - $21,177) was recorded in share based payments in the statement of comprehensive loss for the year ended 2012. On April 8, 2012, the Company granted 140,000 options to officers, consultants and directors of Company. The options expire on April 8, 2017 and are exercisable as $1.70 per share. On May 22, 2012, the Company cancelled 20,000 options. The fair value ascribed to the options was Page 21
$190,488 and was included in the statement of comprehensive loss for the year ended 2012. On July 30, 2012, the Company granted 92,900 options to officers, directors and consultants of the Company. The options expire on July 29, 2017 and are exercisable at $1.40 per share. The fair value ascribed to these options was $106,532 and was included in the statement of comprehensive loss for the year ended 2012. On November 26, 2012, the Company granted 30,000 options to officers, directors and consultants of the Company. The options expire on November 2, 2017 and are exercisable at $2.00 per share. The fair value ascribed to these options was $37,325 and was included in the statement of comprehensive loss for the year ended 2012. On June 5, 2013, the Company granted 7,500 options to consultants of the Company. The options expire on June 5, 2015 and are exercisable at $1.50 per share. The fair value ascribed to these options was $9,000 and was included in share based payments in the consolidated statement of comprehensive loss for the year ended 2013. The fair value of these options was estimated on the date of grant using the Black-Scholes Option Pricing Model, with the following assumptions: 2013 2012 Expected dividend yield 0% 0% Volatility 118% 100%-118% Risk-free interest rate 1.05% 1.28%-1.34% Expected life 2 years 5 years The changes in options during the years ended 2013 and 2012 are as follows: Number of Options Weighted Average Exercise Price Balance 2011 290,000 $ 2.20 Options granted 262,900 1.60 Options cancelled (20,000) 1.70 Balance 2012 532,900 1.94 Options cancelled (142,500) 1.83 Options granted 7,500 1.50 Balance 2013 397,900 $ 1.88 The weighted average remaining life of the option as at 2013 was 2.91 years (2012 3.84 years). Page 22
g) RESERVES Stock options reserve The stock options reserve records items recognized as share-based payments expense until such time that the stock options are exercised, at which time the corresponding amount will be transferred to share capital. If the options expire unexercised, the amount recorded is transferred to deficit. Warrants reserve The warrants reserve records fair value of the warrants issued for services until such time that the warrants are exercised, at which time the corresponding amount will be transferred to share capital. Foreign exchange reserve The foreign exchange reserve recognizes the foreign exchange differences resulting from translation of group entities to the presentation currency that have a different functional currency than the presentation currency. 8. INCOME TAX A reconciliation of the expected income tax recovery to the actual income tax recovery is as follows: 2013 2012 Loss before income taxes $ (1,023,685) $ (950,978) Statutory tax rate 26% 25% Expected tax recovery (261,119) (237,919) Non-deductible expenses 21,570 84,186 Impact of tax rate changes 6,565 - Change in expected rates - 4,396 Temporary differences (22,395) (8,634) Change in valuation allowance 255,379 157,971 $ - $ - Page 23
The Company has the following deductible temporary differences for which no deferred tax asset has been recognized and that can be carried forward indefinitely. 2013 2012 Non-capital losses Canada $ 1,851,207 $ 1,081,200 Non-capital losses Chile 330,998 214,831 Non-capital losses United States 56,440 Equipment tax pools United States 3,254 1,936 Equipment tax pools Chile 20,278 5,143 Exploration and evaluation assets Canada 196,032 196,032 Share issuance costs 61,025 70,838 $ 2,519,234 $ 1,569,980 The Canadian and US non-capital losses expire between 2015 and 2034. 9. RELATED PARTY TRANSACTIONS AND BALANCES a) RELATED PARTY BALANCES As at 2013, an amount of $738,917 (2012 $332,693) was owed to related parties. This amounts are unsecured, non-interest bearing and has no fixed terms of repayment. b) KEY MANAGEMENT PERSONNEL COMPENSATION Transactions with directors and Companies controlled by directors of the Company: For the year ended 2013 2012 Capitalized to exploration and evaluation assets $ 525,769 $ 1,081,851 Consulting fees (i) 114,500 26,100 Management fees (i) 120,000 107,467 $ 760,269 $ 1,215,418 Key management compensation: For the year ended 2012 2012 Share based payments $ $ 61,135 Consulting fees (i) 114,500 26,100 Management fees (i) 120,000 107,467 $ 234,500 $ 194,702 (i) These expenses are included in general and administrative expenses in the statement of comprehensive loss. Page 24