MERREX GOLD INC. ANNUAL CONSOLIDATED FINANCIAL REPORT (Expressed in Canadian Dollars) FOR THE YEARS ENDED AUGUST 31, 2014 AND 2013

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1 ANNUAL CONSOLIDATED FINANCIAL REPORT

2 INDEPENDENT AUDITOR S REPORT To the Shareholders of Merrex Gold Inc. Report on the consolidated financial statements We have audited the accompanying consolidated financial statements of Merrex Gold Inc., which comprise the consolidated statements of financial position as at August 31, 2014 and 2013, and the consolidated statements of operations and 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 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 Merrex Gold Inc. as at August 31, 2014 and 2013, 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 matters and conditions that indicate the existence of a material uncertainty that may cast significant doubt about the Company s ability to continue as a going concern. Vancouver, Canada December 24, 2014 Morgan & Company Chartered Accountants PO Box 10007, West Georgia Street, Vancouver, British Columbia, Canada V7Y 1A1 Tel: (604) Fax: (604) info@morgancollp.com -

3 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION As at August 31, 2014 As at August 31, 2013 ASSETS Current assets Cash 40, ,595 Short-term investments 6,424 4,000 Marketable securities (Note 5) 229,811 - Taxes and other receivables 16,367 34,295 Prepaid expenses 2,602 17,181 Total Current Assets 295, ,071 Non-current assets Related party receivable (Note 12) 1 259,907 Equipment (Note 7) 28,714 39,808 Exploration and evaluation assets (Note 8) 23,365,400 23,377,299 Total Assets 23,689,554 24,060,085 LIABILITIES Current liabilities Accounts payable and accrued liabilities (Note 12) 3,362,369 1,821,327 EQUITY Share capital (Note 9) 52,775,995 51,275,995 Share-based payments reserve 7,458,865 6,131,603 Deficit (39,907,675) (35,168,840) Total Equity 20,327,185 22,238,758 Total Liabilities and Equity 23,689,554 24,060,085 See Nature of business and continuance of operations (Note 1) These consolidated financial statements were authorized for issue by the Board of Directors on December 24, Approved on behalf of the Board: Greg Isenor Director John Cumming Director The accompanying notes form an integral part of these consolidated financial statements. Page 1

4 CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS Years ended August Administrative Expenses Depreciation 11,094 15,313 Directors fees (Note 12) 20,000 27,950 Filing and transfer fees 28,948 34,295 Foreign exchange loss 46, ,437 Interest and bank charges 12,208 15,134 Management fees (Note 12) 287, ,395 Marketing and investor relations 3,711 30,712 Office and rent 204, ,545 Professional fees (Note 12) 219, ,769 Property investigation costs 5, Share-based payments (Notes 9 and 12) 1,327,262 - Travel and business development 47, ,337 Total Administrative Expenses 2,213,520 1,444,010 Loss before other income (expenses) (2,213,520) (1,444,010) Other income (expenses) Operator fees (76,639) (164,724) Unrealized gain (loss) on short-term investments 424 (6,000) Unrealized loss on marketable securities (798,434) Realised loss on sale of marketable securities (309,710) - Gain on sale of exploration assets - 150,000 Interest income ,089 Write down of exploration and evaluation assets, net of recoveries (1,081,925) - Write down of related party receivable (259,906) - Net loss and comprehensive loss for the year (4,738,835) (1,445,645) Loss per share basic and diluted (Note 11) (0.03) (0.01) The accompanying notes form an integral part of these consolidated financial statements. Page 2

5 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY YEARS ENDED AUGUST 31, 2014 AND 2013 COMMON SHARES WITHOUT PAR VALUE SHARES AMOUNT # SHARE-BASED PAYMENTS RESERVE DEFICIT TOTAL EQUITY Balance, August 31, ,899,793 50,875,995 6,131,603 (33,723,195) 23,284,403 Issuance of securities for: Debt settlement at 0.06 per share 6,666, , ,000 Net loss for the year (1,445,645) (1,445,645) Balance, August 31, ,566,460 51,275,995 6,131,603 (35,168,840) 22,238,758 Issuance of securities for: GRIT financing at 0.05 per share 30,000,000 1,500, ,500,000 Share-based payments 1,327,262-1,327,262 Net loss for the year (4,738,835) (4,738,835) Balance, August 31, ,566,460 52,775,995 7,458,865 (39,907,675) 20,327,185 The accompanying notes form an integral part of these consolidated financial statements. Page 3

6 CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended August Cash provided by (used in) the following activities Operating: Net loss for the year (4,738,835) (1,445,645) Adjustments for: Interest income recognized in net loss (875) (19,089) Write down of exploration and evaluation assets, net of recoveries 1,081,925 - Gain on sale of exploration assets - (150,000) Depreciation 11,094 15,313 Write down of related party receivable 259,906 - Realised loss on sale of marketable securities 309,710 - Share-based payments 1,327,262 - Unrealised loss on marketable securities 798,434 - Unrealized (gain) loss on short-term investments (2,424) 6,000 (953,803) (1,593,421) Change in non-cash working capital items: Taxes and other receivables 17,928 6,660 Prepaid expenses 14,579 50,459 Related party receivable - 199,649 Accounts payable and accrued liabilities 423,543 (316,715) Total Cash Outflow From Operating Activities (497,753) (1,653,368) Investing: Interest income received 875 9,089 Expenditures on exploration and evaluation assets 47,473 (3,034,317) Total Cash Outflow From Investing Activities 48,348 (3,025,288) Financing: Proceeds from sale of marketable securities 162,469 - Proceeds from sale of exploration assets - 150,000 Total Cash Inflow From Financing Activities 162, ,000 Net change in cash for the year (287,360) (4,528,596) Cash, beginning of the year 327,595 4,856,191 Cash, end of the year 40, ,595 See supplemental cash flow information (Note 10) The accompanying notes form an integral part of these consolidated financial statements. Page 4

7 1 NATURE OF BUSINESS AND CONTINUANCE OF OPERATIONS Merrex Gold Inc. (the "Company") was incorporated on November 28, 1985 (as LMX Resources Ltd.) under the Business Corporations Act of British Columbia. The Company is a public company listed on the TSX Venture Exchange (the TSX.V ), trading under the MXI symbol. The address of the Company s corporate office and principal place of business is Suite 802, 1550 Bedford Highway, Halifax, Nova Scotia, Canada. The Company s principal business activity is the acquisition and exploration of resource properties. The Company is in the process of exploring its mineral properties and has not yet determined whether these properties contain economically recoverable ore reserves. The recoverability of the amounts shown for mineral properties and related deferred exploration expenditures is dependent upon the existence of economically recoverable reserves, the ability of the Company to obtain necessary financing to complete the development of the properties, and upon future profitable production or proceeds of disposition thereof. These consolidated financial statements have been prepared in accordance with accounting principles applicable to a going concern, which assumes that the Company will realize its assets and discharge its liabilities in the ordinary course of business. The Company has incurred net losses to date and, as at August 31, 2014, the Company had a working capital deficiency of 3,066,930. The ability of the Company to fulfill its commitments, meet its planned business objectives and continue as a going concern is dependent upon the ability of the Company to raise additional financing and upon successful results from its mineral property acquisitions and exploration activities. There is no assurance that the Company will be successful in achieving these goals and this may cast significant doubt on the ability of the Company to continue as a going concern. These financial statements do not include any adjustments to the amounts and classifications of assets and liabilities that may be necessary should the Company be unable to continue in business, and these adjustments may be material. 2 BASIS OF PREPARATION a) Statement of Compliance These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ( IFRS ) as issued by the International Accounting Standards Board ( IASB ) and Interpretations of the International Financial Reporting interpretations Committee ( IFRIC ) applicable to the preparation of these financial statements. The accounting policies described below were applied consistently to all periods presented in these consolidated financial statements. b) Basis of Measurement These consolidated financial statements have been prepared on a historical cost basis, except short-term investment and sharebased payments which are measured at fair value, using the accrual basis of accounting, except for cash flow information. c) Basis of Consolidation These financial statements include the Company s wholly-owned subsidiary, Jubilee Minerals Limited, incorporated under the laws of Nova Scotia. All inter-company balances and transactions are eliminated. Page 5

8 3 SIGNIFICANT ACCOUNTING POLICIES The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements. a) Business Combinations Acquisitions of subsidiaries are accounted for using the acquisition method. The consideration for each acquisition is measured at the aggregate of the fair values (at the date of exchange) of assets given up, liabilities incurred or assumed, and equity instruments issued by the Company in exchange for control of the subsidiary. Acquisition related costs are recognized in the statements of operations and comprehensive loss as incurred. b) Cash Cash consists of cash on hand and demand deposits. c) Foreign Currency Translation These consolidated financial statements are presented in Canadian dollars, which is also the functional currency of the Company and its subsidiary. In preparing the financial statements, transactions in currencies other than the entity's functional currency are recorded at the rates of exchange prevailing at the dates of the transactions. At each statement of financial position date, monetary assets and liabilities are translated using the period-end exchange rate. Non-monetary assets and liabilities are translated using the historical rate on the date of the transaction. All gains and losses on translation of these foreign currency transactions are included in the consolidated statements of operations and comprehensive loss. d) Exploration and Evaluation Assets Exploration and evaluation expenditures include the costs of acquiring licenses, costs associated with exploration and evaluation activities, and the fair value (at acquisition date) of exploration and evaluation assets acquired in a business combination. Exploration and evaluation expenditures are capitalized as incurred. Costs incurred before the Company has obtained the legal rights to explore an area are recognized in profit or loss. Exploration and evaluation assets are assessed for impairment if (i) sufficient data exists to determine technical feasibility and commercial viability, and (ii) facts and circumstances suggest that the carrying amount exceeds the recoverable amount. Once the technical feasibility and commercial viability of the extraction of mineral resources in an area of interest are demonstrable, which management has determined to be indicated by a feasibility study, exploration and evaluation assets attributable to that area of interest are first tested for impairment and then reclassified to mining property and development assets. Recoverability of the carrying amount of any exploration and evaluation assets is dependent on successful development and commercial exploitation, or alternatively, sale of the respective areas of interest. It is management s judgement that none of the Company s exploration and evaluation assets have reached the development stage and as a result are all considered exploration and evaluation assets. Page 6

9 3 SIGNIFICANT ACCOUNTING POLICIES (Continued) e) Equipment Items of equipment are recorded at cost and depreciated over their estimated useful lives. The cost of an item includes the purchase price and directly attributable costs to bring the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Where an item of equipment comprises major components with different useful lives, the components are accounted for as separate items of equipment. Subsequent costs are included in the asset s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. All other repairs and maintenance are charged to the statements of operations and comprehensive loss during the financial period in which they are incurred. Depreciation is recognized using the following rates and methods: Leasehold improvements Office furniture and equipment Computer hardware Straight line over the remaining term of the lease 20% declining balance 30% declining balance Depreciation methods, useful lives and residual values are reviewed at each financial year end and are adjusted if appropriate. f) Impairment of Non-Financial Assets The Company's tangible assets are reviewed for an indication of impairment at each statement of financial position date. If indication of impairment exists, the asset's recoverable amount is estimated. Long-lived assets that are not amortized are subject to an annual impairment assessment. An impairment loss is recognized when the carrying amount of an asset, or its cash-generating unit, exceeds its recoverable amount. A cash-generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The Company considers each mineral property to be a cash-generating unit. Impairment losses are recognized in the statements of operations and comprehensive loss for the period. Impairment losses recognized in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to cashgenerating units and then to reduce the carrying amount of the other assets in the unit on a pro-rata basis. The recoverable amount is the greater of the asset's fair value less costs 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 current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. An impairment loss is reversed if there is an indication that there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. An impairment loss with respect to goodwill is never reversed. g) Share-based Payments The Company grants stock options to buy common shares of the Company to directors, officers, employees and service providers. The board of directors grants such options for periods of up to ten years, with vesting periods determined at its sole discretion and at prices equal to or greater than the closing market price on the day preceding the date the options were granted. The fair value of share purchase options granted are recognized as expenses or are capitalized as exploration and evaluation assets as appropriate, 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. Page 7

10 3 SIGNIFICANT ACCOUNTING POLICIES (Continued) g) Share-based Payments (Continued) The fair value for share purchase options granted to employees or those providing services similar to those provided by a direct employee are measured at the grant date and each tranche is recognized using the graded vesting method over the period during which the share purchase options vest. The fair value of the share purchase options granted are measured using the Black Scholes option pricing model, taking into account the terms and conditions upon which the share purchase options were granted. The fair value of the share purchase options granted to non-employees is measured at the fair value of the services received, on the date they are received. If the fair value of the services received cannot be estimated reliably, the fair value of the share purchase options is measured using the Black Scholes option pricing model, taking into account the terms and conditions upon which the share purchase options were granted. At each financial position reporting date, the amount recognized is adjusted to reflect the actual number of share purchase options that are expected to vest. h) Income Taxes Income tax consists of current and deferred tax and is recognized in the statements of operations and comprehensive loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity. Current tax expense is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at period end, adjusted for amendments to tax payable with regards to previous years. Deferred tax assets and liabilities are recognized for deferred tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted or substantively enacted tax rates expected to apply when the asset is realized or the liability settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that substantive enactment occurs. A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available against which the asset can be utilized. To the extent that the Company does not consider it probable that a deferred tax asset will be recovered, the deferred tax asset is reduced. The following temporary differences do not result in deferred tax assets or liabilities: the initial recognition of assets or liabilities, not arising in a business combination, that does not affect accounting or taxable profit; goodwill not deductible for tax purposes; investments in subsidiaries, associates and jointly controlled entities where the timing of reversal of the temporary differences can be controlled and reversal in the foreseeable future is not probable. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis. i) Loss Per Share Loss per share is computed by dividing the net loss attributable to common shareholders by the weighted average number of shares outstanding during the period. Diluted loss per share is computed similar to basic loss per share except that the weighted average shares outstanding are increased to include additional shares for the assumed exercise of stock options and warrants, if dilutive. The number of additional shares is calculated by assuming that outstanding stock options and warrants were exercised and that the proceeds from such exercises were used to acquire common stock at the average market price during the reporting periods. Page 8

11 3 SIGNIFICANT ACCOUNTING POLICIES (Continued) j) Financial Instruments The Company does not have any derivative financial instruments. All financial assets are classified into one of the following four categories: fair value through profit or loss ("FVTPL"), held to maturity ("HTM"), available for sale ("AFS") and loans and receivables. Financial assets are classified as FVTPL when the financial asset is held for trading or it is designated as FVTPL. Financial assets classified as FVTPL are stated at fair value and changes are recognized in the statement of operations. HTM investments are recognized on a trade-date basis and are initially measured at fair value, including transaction costs. AFS financial assets subsequent to initial recognition are measured at fair value and changes therein, other than impairment losses and foreign currency differences on AFS monetary items, are recognized in other comprehensive income or loss. When an investment is derecognized, the cumulative gain or loss on the investment revaluation reserve is transferred to the statement of operations. Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are initially recognized at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective interest method, less any impairment losses. The Company's cash, short-term investment and marketable securities have been classified as FVTPL financial assets and its related party receivable is classified as loans and receivables. The Company does not presently have any financial assets designated as AFS. The carrying value of the Company s financial assets approximates their fair value due to their short-term nature. The Company has the following non-derivative financial liabilities: amounts payable and accrued liabilities. The carrying value of financial liabilities approximates their fair value due to their short-term nature. Such financial liabilities are recognized initially at fair value net of any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortized cost using the effective interest method. Impairment of financial assets When an AFS financial asset is considered to be impaired, cumulative gains or losses previously recognized in other comprehensive income or loss are reclassified to the statement of operations in the period. Financial assets are assessed for indicators of impairment at the end of each reporting period. Financial assets are impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial assets, the estimated future cash flows of the investments have been impacted. For marketable securities classified as AFS, a significant or prolonged decline in the fair value of the securities below their cost is considered to be objective evidence of impairment. For all other financial assets, objective evidence of impairment could include: significant financial difficulty of the issuer or counterparty; or default or delinquency in interest or principal payments; or the probability that the borrower will enter bankruptcy or financial reorganization. For certain categories of financial assets, such as amounts receivable, assets that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis. The carrying amount of financial assets is reduced by the impairment loss directly for all financial assets with the exception of amounts receivable, where the carrying amount is reduced through the use of an allowance account. When an amount receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognized in the statement of operations. Page 9

12 3 SIGNIFICANT ACCOUNTING POLICIES (Continued) j) Financial Instruments (Continued) Impairment of financial assets (Continued) With the exception of AFS equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through the statement of operations to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized. In respect of AFS equity securities, impairment losses previously recognized through the statement of operations are not reversed through the statement of operations. Any increase in fair value subsequent to an impairment loss is recognized directly in equity. k) Flow-through Shares The Company will, from time to time, issue flow-through common shares to finance a portion of its exploration program. Pursuant to the terms of the flow-through share subscription agreements, these shares transfer the tax deductibility of qualifying resource expenditures to investors. On issuance, the Company bifurcates the flow-through share into i) a flow-through share premium, equal to the estimated premium, if any, investors pay for the flow-through feature, which is recognized as a liability, and ii) share capital. Upon expenses being incurred, the Company recognizes a deferred tax liability for the amount of tax reduction renounced to the shareholders and the premium liability is reversed. The reversal of the premium liability and the deferred tax liability are recognized as tax recoveries to the extent that suitable deferred tax assets are available. Proceeds received from the issuance of flow-through shares are restricted to be used only for Canadian resource property exploration expenditures within a two-year period. The portion of the proceeds received but not yet expended at the end of the Company s fiscal period is disclosed separately as flow-through share commitments. The Company may also be subject to a Part XII.6 tax on flow-through proceeds renounced under the Look-back Rule, in accordance with Government of Canada flow-through regulations. When applicable, this tax is accrued as a financial expense until paid. l) Decommissioning Liabilities A legal or constructive obligation to incur restoration, rehabilitation and environmental costs may arise when environmental disturbance is caused by the exploration, development or ongoing production of a mineral property interest. Such costs arising from the decommissioning of plant and other site preparation work, discounted to their net present value, are provided for and capitalized at the start of each project to the carrying amount of the asset, as soon as the obligation to incur such costs arises. A pretax discount rate that reflects the time value of money and the risks specific to the liability are used to calculate the net present value of the expected future cash flows. These costs are charged to the statement of operations over the economic life of the related asset, through depreciation expense using either the unit-of-production or the straight-line method as appropriate. The related liability is progressively increased each period as the effect of discounting unwinds, creating an expense recognized in the statement of operations. The liability is assessed at each reporting date for changes to the current market-based discount rate, amount or timing of the underlying cash flows needed to settle the obligation. Costs for restoration of subsequent site damage which is created on an ongoing basis during production are provided for at their net present values and charged against profits as extraction progresses. The Company has no material restoration, rehabilitation and environmental costs as the disturbance to date is minimal. Page 10

13 3 SIGNIFICANT ACCOUNTING POLICIES (Continued) m) Provisions A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as a finance expense ( notional interest ). Provisions are reviewed at each reporting date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of economic benefits will be required, the provision is reversed. The Company presently does not have any amounts considered to be provisions. n) Recent Accounting Pronouncements In May 2011, the IASB issued the following standards, effective for annual periods beginning on or after January 1, The Company has adopted the new and amended standards and does not expect the adoption of any of the new requirements to have a significant impact on its financial statements. International Financial Reporting Standard 10, Consolidation ( IFRS 10 ) IFRS 10 requires an entity to consolidate an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. IFRS 10 replaces SIC-12, Consolidation Special Purpose Entities, and parts of IAS 27, Consolidated and Separate Financial Statements. International Financial Reporting Standard 11, Joint Arrangements ( IFRS 11 ) IFRS 11 requires a venturer to classify its interest in a joint arrangement as a joint venture or joint operation. Joint ventures will be accounted for using the equity method of accounting whereas for a joint operation, the venturer will recognize its share of the assets, liabilities, revenue and expenses of the joint operation. IFRS 11 supersedes IAS 31, Interests in Controlled Entities Nonmonetary Contributions by Venturers. International Financial Reporting Standard 12, Disclosure of Interests in Other Entities ( IFRS 12 ) IFRS 12 establishes disclosure requirements for interests in other entities, such as joint arrangements, associates, special purpose vehicles and off balance sheet vehicles. The standard carries forward existing disclosures and also introduces significant additional disclosure requirements that address the nature of, and risks associated with, an entity s interests in other entities. International Financial Reporting Standard 13, Fair Value Measurement ( IFRS 13 ) IFRS 13 is a comprehensive standard for fair value measurement and disclosure requirements across all IFRS standards. The new standard clarifies that fair value is the price that would be received to sell an asset, or paid to transfer a liability in an orderly transaction between market participants, at the measurement date. It also establishes disclosures about fair value measurement. Page 11

14 3 SIGNIFICANT ACCOUNTING POLICIES (Continued) n) Recent Accounting Pronouncements (Continued) International Accounting Standard 12, Income Taxes ( IAS 12 ) The IASB issued amendments for the recovery of underlying assets. International Accounting Standard 27, Separate Financial Statements ( IAS 27 ) IAS 27, Consolidated and Separate Financial Statements, contains accounting and disclosure requirements for investments in subsidiaries, joint ventures and associates when an entity prepares separate financial statements. IAS 27 requires an entity preparing separate financial statements to account for those investments at cost or in accordance with IFRS 9. International Accounting Standard 28, Investments in Associates and Joint Ventures ( IAS 28 ) As a consequence of the issuance of IFRS 10, IFRS 11, and IFRS 12, IAS 28 has been amended and will further provide accounting guidance for investments in associates and will set out the requirements for the application of the equity method when accounting for investments in associates and joint ventures. This standard will be applied by the Company when there is joint control or significant influence over an investee. o) Accounting Standards Issued By Not Yet Adopted At the date of authorization of these financial statements, the following standards, amendments and interpretations have not been early adopted: New standard IFRS 9 Financial Instruments This standard addresses classification and measurement of financial assets and replaces the multiple category and measurement models in IAS 39 for debt instruments with a new mixed measurement model having only two categories: Amortized cost and fair value through profit or loss. IFRS 9 also replaces the models for measuring equity instruments and such instruments are either recognized at the fair value through profit or loss or at fair value through other comprehensive income. Where such equity instruments are measured at fair value through other comprehensive income, dividends are recognized in profit or loss to the extent not clearly representing a return of investment: however, other gains and losses (including impairments) associated with such instruments remain in accumulated other comprehensive income indefinitely. Requirements for financial liabilities were added in October 2010 which mainly carried forward existing requirements in IAS 39, Financial Instruments Recognition and Measurement, except that fair value changes due to credit risk for liabilities designated at fair value through profit and loss would generally be recorded in other comprehensive income. This new standard is a partial replacement of IAS 39 Financial Instruments: Recognition and Measurement. This new standard is effective for annual periods beginning on or after January 1, Revenue from contracts with customers On May 28, 2014, the IASB issued IFRS 15, Revenue from Contracts with Customers. The new standard contains a single model that applies to contracts with customers and two approaches to recognizing revenue: at a 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 revenue recognized. The new standards is effective for fiscal years ending on or after December 31, 2017 and is available for early adoption. The Company is currently evaluating the impact of IFRS 15 on its financial statements and expects to apply the standard in accordance with its future mandatory effective date. Separate financial statements IAS 27, Separate Financial Statements, has been amended for the issuance of IFRS 10, Consolidated Financial Statements, but retains the current guidance for separate financial statements. The Company does not anticipate this amendment to have a significant impact on its financial statements. Page 12

15 3 SIGNIFICANT ACCOUNTING POLICIES (Continued) o) Accounting Standards Issued By Not Yet Adopted (Continued) Investments in associates and joint ventures IAS 28, Investments in Associates and Joint Ventures, has been amended for conforming changes based on the issuance of IFRS 10, Consolidated Financial Statements, and IFRS 11, Joint Arrangements. The Company does not anticipate this amendment to have a significant impact on its financial statements. Intangible assets On May 12, 2014, the IASB issued amendments to IAS 38 Intangible Assets. The amendments in IAS 38 introduce a rebuttable presumption that the use of revenue is inappropriate. This presumption could be overcome only when revenue and consumption of the economic benefits of the intangible asset are highly correlated or when the intangible asset is expressed as a measure of revenue. The Company intend to adopt the amendments to IAS 38 in its financial statements for the annual period beginning on September 1, The extent of the impact of adoption of the amendments has not yet been determined. Offsetting financial assets and liabilities In December 2011, the IASB issued, Offsetting Financial Assets and Liabilities, an amendment to IAS 32, Financial Instruments: Presentation. The objective of this amendment to IAS 32 is to clarify when an entity has a right to offset financial assets and liabilities. This amendment is effective for annual periods beginning on or after January 1, 2014 and is to be applies retroactively. The Company expects to apply this standard to its financial statements for the annual period beginning on September 1, 2014 and does not expect the amendment to have a material impact on the financial statements. 4 USE OF ESTIMATES AND JUDGEMENTS The preparation of consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The preparation of financial statements also requires management to exercise judgment in the process of applying the accounting policies. On an on-going basis, management evaluates its judgments and estimates in relation to assets, liabilities and expenses. Management uses historical experience and various other factors it believes to be reasonable under the given circumstances, as the basis for its judgments and estimates. Revisions to accounting estimates are recognized prospectively from the period in which the estimates are revised. Actual outcomes may differ from those estimates under different assumptions and conditions. Critical Accounting Estimates The following are the key estimate and assumption uncertainties that have a significant risk of resulting in a material adjustment within the next financial year. Impairment Assets, especially exploration and evaluation assets are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts exceed their recoverable amounts. The assessment of the carrying amount often requires estimates and assumptions such as discount rates, exchange rates, commodity prices, future capital requirements and future operating performance. Page 13

16 4 USE OF ESTIMATES AND JUDGEMENTS (Continued) Critical Accounting Estimates (Continued) Share-based payment transactions The Company measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. Estimating fair value for share-based payment transactions requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the grant of shares. This estimate also requires determining the most appropriate inputs to the valuation model including the expected life of a share option, volatility and dividend yield and making assumptions about them. The assumptions and model used for estimating fair value for share-based payment transactions are disclosed in Note 9. Critical Judgments Used in Applying Accounting Policies Title to mineral property interests Although the Company has taken steps to verify title to mineral properties in which it has an interest, these procedures do not guarantee the Company s title. Such properties may be subject to prior agreements or transfers and title may be affected by undetected defects. Exploration and evaluation expenditures The application of the Company s accounting policy for exploration and evaluation expenditures requires judgment in determining whether it is likely that future economic benefits will flow to the Company, which may be based on assumptions about future events or circumstances. Estimates and assumptions made may change if new information becomes available. If, after the expenditure is capitalized, information becomes available suggesting that the recovery of the expenditure is unlikely, the amount capitalized is written off in the statement of operations in the period the new information becomes available. Income taxes Significant judgment is required in determining the provision for income and other taxes. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The Company recognizes liabilities and contingencies for anticipated tax audit issues based on the Company s current understanding of the tax law. For matters where it is probable that an adjustment will be made, the Company records its best estimate of the tax liability including the related interest and penalties in the current tax provision. Management believes they have adequately provided for the probable outcome of these matters; however, the final outcome may result in a materially different outcome than the amount included in the tax liabilities. In addition, the Company recognizes deferred tax assets relating to tax losses carried forward to the extent there are sufficient taxable temporary differences (deferred tax liabilities) relating to the same taxation authority and the same taxable entity against which the unused tax losses can be utilized. However, utilization of the tax losses also depends on the ability of the taxable entity to satisfy certain tests at the time the losses are recouped. Decommissioning liabilities Judgment is required to determine if there are legal or constructive obligations to incur restoration, rehabilitation and environmental costs when there is an environmental disturbance caused by exploration, development or ongoing productions of an exploration and evaluation asset. When it is determined that an obligation exists, a provision is recognized. The provision for decommissioning liabilities depends on estimates of current risk-free interest rates, future restoration and reclamation expenditures and the timing of those expenditures. Page 14

17 5. MARKETABLE SECURITIES SHARES AMOUNT SHARES AMOUNT Cost 813,450 1,500, Disposal (447,974) (162,045) - - Realised loss on disposal (309,710) Unrealized loss on marketable securities - (798,434) - - Total 365, , On February 12, 2014, the Company acquired 813,450 shares of Global Resources Investment Trust ( GRIT ) valued at 1.00 each, in consideration of 30,000,000 shares of the Company valued at 0.05 each. The GRIT shares trade through the facilities of the London Stock Exchange. On acquisition, the GRIT shares were valued at 1,500,000. The GRIT shares have been designated as fair value through profit or loss and are recorded at fair value, with unrealized gains and losses recognized in profit or loss. On August 5, 2014, the Company sold 447,974 GRIT shares for 162,045 incurring a realized loss of 309,710. As at August 31, 2014, the fair value of the remaining GRIT shares was 229, CAPITAL MANAGEMENT The Company s objective when managing capital is to maintain adequate levels of funding to support the acquisition and exploration of mineral properties and maintain the necessary corporate and administrative functions to facilitate these activities. The Company s definition of capital is equity and working capital. The properties in which the Company currently has an interest are in the exploration stage; as such, the Company is dependent on external financing, primarily equity financing, to fund its activities. There can be no assurance that the Company will be able to continue to raise capital in this manner. To carry out the planned exploration and fund administrative costs, the Company will utilize its existing working capital and raise additional amounts as needed. The Company will continue to assess new properties and seek to acquire an interest in additional properties if it believes there is sufficient geologic and economic potential and if it has adequate financial resources to do so. The Company invests all capital that is not used in immediate operations in short-term, highly liquid financial instruments, such as highinterest money market funds, held with a major Canadian financial institution. There were no changes to the Company s approach to capital management during the period. The Company is not subject to externally imposed capital requirements. Page 15

18 7. EQUIPMENT Cost August 31, 2012 Additions August 31, 2013 Additions August 31, 2014 Furniture and equipment 46,450-46,450-46,450 Computer hardware 50,087-50,087-50,087 Computer software 3,278-3,278-3,278 Leasehold improvements 115, , , , , ,169 Accumulated Depreciation August 31, 2012 Additions August 31, 2013 Additions August 31, 2014 Furniture and equipment 24,548 4,380 28,928 3,698 32,626 Computer hardware 31,161 5,678 36,839 4,931 41,770 Computer software 1,639 1,639 3,278-3,278 Leasehold improvements 102,700 3, ,316 2, , ,048 15, ,361 11, ,455 Carrying Amounts August 31, 2013 August 31, 2014 Furniture and equipment 17,522 13,824 Computer hardware 13,248 8,317 Leasehold improvements 9,038 6,573 39,808 28,714 Page 16

19 8. EXPLORATION AND EVALUATION ASSETS Balance Balance Balance August 31, 2012 Expenditures August 31, 2013 Expenditures Dispositions August 31, 2014 Jubilee Property 1,200,625 45,176 1,245,801 14,902-1,260,703 Mali Properties: Siribaya 18,235,870 2,785,469 21,021,339 1,052,302-22,073,641 Kakadian 487,399 61, ,583 4,520 (553,103) - Other Properties 334, , ,576 23,302 (553,822) 31,056 20,258,702 3,118,597 23,377,299 1,095,026 (1,106,925) 23,365,400 a) Jubilee Property The Jubilee Property is a 189-claim land position in Inverness and Victoria counties of Central Cape Breton, Nova Scotia. The claims are subject to a 2% Net Smelter Return and 1% of such Net Smelter Return may be purchased by the claimholders for 1,000,000. b) Mali Gold Properties The Company optioned a 100% interest in the Siribaya, Taya-Malea, Kambaya, Kofia and Bambadinka permits within a defined area of interest in the southern portion of what is referred to as the West Mali Gold Belt. Collectively, these permits are called the Siribaya Gold Project. Effective July 31, 2011, IAMGOLD Corporation ( IAMGOLD ) satisfied a 10.5 million exploration expenditure earn-in requirement and earned a 50% interest in the Siribaya Gold Project. All exploration expenses incurred after August 1, 2011 are being shared equally by the Company and IAMGOLD. All permits are subject to a 5% net profit interest royalty in favour of the Optionor and, if the properties are to be developed as a mine, a 20% dilution in favour of the Government of Mali, of which 10% is participating and 10% is carried. If the government of Mali elects not to participate, the 10% participating interest reverts to the Company and IAMGOLD as to 5% each. The Company has a 100% interest in the Kakadian Permit of approximately 55 square kilometres located in Mali. The Kakadian permit is subject to a 3% net profit interest royalty in favour of the Optionor and, if the property is to be developed as a mine, a 20% dilution in favour of the Government of Mali, of which 10% is participating and 10% is carried. If the government of Mali elects not to participate, the 10% participating interest reverts to the Company. In the current year, the Company wrote off this property as they do not have current plans to proceed with further exploration. c) Other Properties The Company s other properties include a 50% interest in 23 claims in Nova Scotia over a number of prospective zinc occurrences, 32 claims near Winterland, Newfoundland over a prospective zinc/molybdenum occurrence, a 1% Net Smelter Return royalty (subject to a 50% buy-back for 500,000) on 43 claims near Sand Brook Mountain, New Brunswick, a 100% interest in 4 claim groups comprising 30 prospecting licenses in Ireland, and a 50% interest in 337 claims in West Voisey s Bay. In the current year, the Company wrote off its 50% interest in the West Voisey s Bay properties and the Irish zinc prospecting licenses as it did not have current plans to proceed with further exploration. On June 2, 2011, the Company sold its 50% interest in its Hungry Hill and Sutherlands Pond properties in Newfoundland to Messina Minerals Inc. ( Messina ) for 500,000 common shares of Messina. The Company retains a 1% Net Smelter Returns Royalty, of which 50% can be bought by Messina for 500,000. Page 17