Alphamin Resources Corp.

Transcription

1 For the Years Ended December 31, 2011 and 2010 Consolidated Financial Statements

2 December 31, 2011 Table of contents CONSOLIDATED STATEMENTS OF FINANCIAL POSITION... 5 CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS... 6 CONSOLIDATED STATEMENTS OF CASH FLOWS... 7 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIENCY)... 8 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

3 INDEPENDENT AUDITORS' REPORT To the Shareholders of Alphamin Resources Corp. We have audited the accompanying consolidated financial statements of Alphamin Resources Corp., which comprise the consolidated statements of financial position as at December 31, 2011, December 31, 2010 and January 1, 2010, and the consolidated statements of loss and comprehensive loss, changes in equity (deficiency) and cash flows for the years ended December 31, 2011 and 2010, 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. Auditors 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 auditors 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.

4 Opinion In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of Alphamin Resources Corp. as at December 31, 2011, December 31, 2010 and January 1, 2010 and its financial performance and cash flows for the years ended December 31, 2011 and 2010 in accordance with International Financial Reporting Standards. DAVIDSON & COMPANY LLP Vancouver, Canada Chartered Accountants April 27, 2012

5 Consolidated Statements of Financial Position As at December 31 December 31 January (Note 13) (Note 13) $ $ $ Assets Current assets Cash 5,778,221 20,354 68,463 Prepaids and other receivables 33,761 10,907 11,533 5,811,982 31,261 79,996 Non-current assets Investments - 149,484 - Plant and equipment (Note 3) 47, Exploration and evaluation assets (Note 5) 14,617,703-1,468,045 14,665, ,484 1,468,045 Total Assets 20,477, ,745 1,548,041 Liabilities Current liabilities Accounts payable and accrued liabilities (Note 12(b)) 527, , ,650 Equity (Deficiency) Capital stock (Note 7) 19,676,630 9,286,961 9,134,459 Subscriptions received in advance ,500 Commitment to issue shares (Note 4) 5,775, Convertible note (Note 6) 5,000, Reserves 3,428,119 2,434,883 2,365,864 Accumulated other comprehensive income (loss) 577,890 (36,510) - Deficit (14,507,640) (11,837,415) (10,412,432) 19,949,999 (152,081) 1,300,391 Total Equity (Deficiency) and Liabilities 20,477, ,745 1,548,041 Nature and continuance of operations (Note 1) Subsequent events (Note 14) Contingency (Note 4) Approved and authorized by the Board on April 27, 2012 Cosme M. Beccar Varela, Director Mark Gasson, Director See accompanying notes to the consolidated financial statements 5

6 Consolidated Statements of Loss and Comprehensive Loss Years ended December 31, 2011 and (Note 13) $ $ Expenses Accounting, audit and legal 248,639 84,103 Administrative 65,466 10,328 Bank charges and interest 195,322 1,492 Consulting fees 87,774 24,000 Depreciation (Note 3) 8,447 - Foreign exchange (8,591) 2,115 Management fees 178,732 78,453 Property examination and maintenance 93,737 4,214 Public relations, filing and transfer fees 95,368 21,276 Stock-based compensation (Note 7(d)) 1,533,620 9,021 Loss for the year before other items (2,498,514) (235,002) Other items Interest income 14,283 - Write-off of investment (Note 5(b)) (185,994) - Write-off of exploration and evaluation assets (Note 5 (a)) - (1,530,970) Gain on disposition of exploration and evaluation assets (Note 5(b)) - 340,989 Net loss for the year (2,670,225) (1,424,983) Other comprehensive income (loss): Loss on available-for-sale investment, net of tax - (36,510) Write-off of available-for-sale investment 36,510 Translation adjustment 577,890 - Total comprehensive loss (2,055,825) (1,461,493) Loss per share - basic and diluted (0.07) (0.05) Weighted average number of common shares outstanding 37,491,381 26,485,505 See accompanying notes to the consolidated financial statements 6

7 Consolidated Statements of Cash Flows Years ended December 31, 2011 and Operating activities Net loss for the year (2,670,225) (1,424,983) Items not involving cash: Stock-based compensation 1,533,620 9,021 Depreciation 8,447 - Write off of exploration and evaluation assets - 1,530,970 Gain on disposal of exploration and evaluation assets - (340,989) Write-off of investment 185,994 - Change in non-cash operating working capital items: Change in prepaids and other receivables (22,854) 626 Change in accounts payable and accrued liabilities 178,111 85,176 Cash provided by (used in) operating activities (786,907) (140,179) Investing activities Plant and equipment acquired (2,129) - Proceeds on disposal of exploration and evaluation assets - 154,995 Exploration and evaluation asset expenditures - (62,925) Cash acquired on acquisition of MPC (Note 4) 1,215 - Acquisition costs (Note 4) (243,118) - Cash used in investing activities (244,032) 92,070 Financing activities Issuance of convertible note 5,000,000 - Issuance of common stock options and warrants for cash 1,764,285 - Cash provided by financing activities 6,764,285 - Effect of foreign exchange on cash 24,521 - Increase (decrease) in cash during the year 5,757,867 (48,109) Cash at beginning of year 20,354 68,463 Cash at end of year 5,778,221 20,354 See the accompanying notes to the consolidated financial statements Supplemental disclosure Available for sale investment received upon disposal of exploration and evaluation assets - 185,994 Interest paid Shares issued/to be issued pursuant to the acquisition of subsidiary 8,085,000 - Shares issued for finders fees 641,250-7

8 Alphamin Resources Corp Consolidated Statements of Changes in Equity (Deficiency) Capital Stock Reserves Accumulated Subscriptions Commitment Other Received To Convertible Share-based Comprehensive Number of Amount in Advance Issue Shares Note Payment Warrants Income (Loss) Deficit Total Shares $ $ $ $ $ $ $ $ $ Balance at January 1, ,869,571 9,134, , ,365, (10,412,432) 1,300,391 Cash advanced on stock subscriptions - - (212,500) (212,500) Private Placement in January ,700, , , ,500 Stock based compensation expense , ,021 Loss for the year (1,424,983) (1,424,983) Other comprehensive loss (36,510) - (36,510) Balance at December 31, ,569,571 9,286, ,374,885 59,998 (36,510) (11,837,415) (152,081) Private Placement in February ,000, , , ,000,000 Private Placement in August ,000 96, ,000 Exercise of options 2,000, , ,000 Shares issued for acquisition (Note 4) 14,000,000 7,700,000-5,775, ,475,000 Convertible note issued ,000, ,000,000 Share issue costs - convertible note (641,250) (641,250) Finders' fees - shares issued (Note 4) 2,125,000 1,026, ,026,250 Reallocation for options exercised 898, (898,501) Exercise of warrants 1,019, , ,285 Stock based compensation expense ,533, ,533,620 Write-off of investments ,510-36,510 Translation adjustment , ,890 Loss for the year (2,670,225) (2,670,225) Balance, December 31, ,914,480 19,676,630-5,775,000 5,000,000 3,010, , ,890 (14,507,640) 19,949,999 See accompanying notes to the consolidated financial statements 8

9 1. Nature and continuance of operations The Company is incorporated under the British Columbia Business Corporations Act. The Company is in the business of locating, acquiring, exploring and, if warranted, evaluating mineral properties. The head office is located at Fraser Hwy, Surrey B.C. The registered and records office is located c/o James Harris Law Corporation, Seymour Street, Vancouver, B.C. These consolidated financial statements have been prepared on the basis of accounting principles applicable to a going concern, which assumes the realization of assets and satisfaction of liabilities in the normal course of business. The Company is in the process of exploring its exploration and evaluation assets. The success of the Company s future exploration and evaluation activities is influenced by significant financial risks, legal and political risks, commodity prices, and the ability of the Company to discover economically recoverable reserves and to bring such reserves into future profitable production. As of December 31, 2011, the Company has no source of operating cash flows, has not yet achieved profitable operations, has accumulated losses of $14,507,640, equity of $19,949,999 and working capital of $5,284,812, and expects to incur further losses in the development of its business, all of which cast doubt about the Company s ability to continue as a going concern. The Company s ability to continue as a going concern is dependent upon the Company obtaining additional equity and/or debt financing and/or new strategic partners and obtaining the necessary permits in connection with the development of its properties in the Democratic Republic of the Congo. In February 2011, the Company completed a financing for gross proceeds of $1,000,000; and in August 2011 the Company raised $5,000,000 through a convertible note financing. Management believes these funds will suffice for the next 12 months, along with additional financings contemplated in fiscal However, there is no assurance that further financings and/or strategic partnerships or the necessary permits will be obtained on favorable terms or at all. Failure to obtain future financing and/or strategic partnerships and the necessary permits could result in the delay or indefinite postponement of further exploration of the Company s properties and may result in the Company not meeting any of its operational and capital requirements. 2. Significant accounting policies (a) Conversion to International Financial Reporting Standards The Canadian Accounting Standards Board ( AcSB ) confirmed in February 2008 that International Financial Reporting Standards ( IFRS ) will replace Canadian generally accepted accounting principles ( GAAP ) for publicly accountable enterprises for financial periods beginning on or after January 1, These consolidated financial statements have been prepared using accounting policies consistent with IFRS as issued by the International Accounting Standards Board ( IASB ) and interpretations of the International Financial Reporting Interpretations Committee ( IFRIC ). These are the Company s first IFRS consolidated financial statements for the year ended December 31, Previously, the Company prepared its consolidated annual financial statements in accordance with GAAP. 9

10 2. Significant accounting policies (continued) (b) Basis of presentation These consolidated financial statements have been prepared on a historical cost basis except for financial instruments classified as fair value through profit or loss and available-for-sale, which have been measured at fair value. In addition, these consolidated financial statements have been prepared using the accrual basis of accounting, except for cash flow information. An explanation of how the transition to IFRS with a transition date of January 1, 2010 has affected the reported financial position and financial performance of the Company is provided in Note 13. Note 13 includes explanations of the Company s consolidated statements of financial position and statements of loss and comprehensive loss and cash flows for comparative periods prepared in accordance with GAAP and as previously reported to those prepared and reported in these consolidated financial statements in accordance with IFRS. The policies applied in these consolidated financial statements are based on IFRS issued and outstanding as at April 27, 2012, the date the Board of Directors approved these consolidated financial statements for issue. The preparation of these consolidated financial statements resulted in changes to the accounting policies as compared with the most recent annual financial statements prepared under GAAP. The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements. They also have been applied in preparing an opening IFRS statement of financial position at January 1, 2010 for the purposes of the transition to IFRS, as required by IFRS 1, First Time Adoption of International Financial Reporting Standards (IFRS 1). The impact of the transition from GAAP to IFRS is explained in Note 13. (c) Basis of consolidation These consolidated financial statements incorporate the financial statements of the Company and its controlled subsidiaries. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. During the year ended December 31, 2011, the Company incorporated two new subsidiaries in the British Virgin Islands, Alphamin Holdings (BVI) Ltd. ( Holdings, wholly owned by the Company) and Alphamin Resources (BVI) Ltd. ( Alphamin BVI, wholly owned by Holdings). These subsidiaries were incorporated as part of the acquisition of Mining and Processing Congo, SPRL. The consolidated financial statements include the accounts of the Company and its direct wholly-owned subsidiaries, as follows: Name of Subsidiary Country of Incorporation Principal Activity Exploraciones La Plata S.A. de C.V. Mexico Mineral exploration Mining and Processing, Congo, SPRL Democratic Republic of the Congo Mineral exploration Alphamin Holdings (BVI) Ltd. British Virgin Islands Holding Company Alphamin Resources (BVI) Ltd. British Virgin Islands Holding Company All intercompany transactions and balances have been eliminated. 10

11 2. Significant accounting policies (continued) (d) Measurement uncertainty The preparation of financial statements in accordance with IFRS as issued by the International Accounting Standards Board ( IASB ) and interpretations of the International Financial Reporting Interpretations Committee ( IFRIC ) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant areas requiring the use of management estimates include the carrying values of exploration and evaluation assets, fair value assumptions used in the measurement of warrants and stock-based compensation, and the recognition of deferred income taxes. Actual results may differ from those estimates. (e) Cash Cash consists of cash on hand and on deposit in banks. (f) Foreign currency translation The functional currency of an entity is the currency of the primary economic environment in which the entity operates. The functional currency of the Company and Exploraciones La Plata S.A. de C.V. is the Canadian dollar and for Mining and Processing, Congo, SPRL the functional currency is the U.S. 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: Transactions and balances in currencies other than the Canadian dollar are recorded at exchange rates prevailing on the dates of the transactions. At the end of each reporting period, monetary assets and liabilities denominated in foreign currencies are translated at the period end exchange rate while nonmonetary assets and liabilities are translated at historical rates. Revenues and expenses are translated at the exchange rates approximating those in effect on the date of the transactions. Exchange gains and losses arising on translation are included in comprehensive loss. Translation to reporting currency: The financial results and position of foreign operations whose functional currency is different from the reporting currency are translated as follows: i) assets and liabilities are translated at year-end exchange rates prevailing at that reporting date; and ii) income and expenses are translated at average exchange rates for the year. (g) Exploration and evaluation assets The Company expenses pre-exploration costs as incurred. The Company accounts for its exploration and evaluation assets on a cost basis whereby all direct costs, net of pre-production revenue, relative to the acquisition of, exploration for and development of the properties are capitalized. All sales and option proceeds received are first credited against the costs of the related property, with any excess credited to earnings. Once commercial production has commenced, the net costs of the applicable property will be charged to operations using the unit-of-production method based on estimated proven and probable recoverable reserves. The net costs related to abandoned properties are charged to operations. 11

12 2. Significant accounting policies (continued) (g) Exploration and evaluation assets (continued) The Company reviews the carrying values of its exploration and evaluation assets on a regular basis by reference to the project economics including the timing of the exploration and/or development work, the work programs and the exploration results experienced by the Company and others. The review of the carrying value of any producing property will be made by reference to the estimated future operating results and net cash flows. When the carrying value of a property exceeds its estimated net recoverable amount, provision is made for the decline in value. The recoverability of the amounts shown for exploration and evaluation assets is dependent on the confirmation of economically recoverable reserves, confirmation of the Company s interest in the underlying mineral claims, the ability of the Company to obtain the necessary financing to successfully complete their development and the attainment of future profitable operations or proceeds from disposition. (h) Plant and equipment Plant and equipment is carried at cost, less accumulated depreciation and accumulated impairment losses. Depreciation is recognized using the straight line method at the following annual rates: Motor vehicle Computer equipment Plant and machinery 5 years 2 years 10 years (i) Stock-based compensation The stock option plan allows Company employees and consultants to acquire shares of the Company. The fair value of options granted is recognized as a share-based payment expense with a corresponding increase in equity. An individual is classified as an employee when the individual is an employee for legal or tax purposes (direct employee) or provides services similar to those performed by a direct employee. Consideration paid on the exercise of stock options is credited to capital stock and the fair value of the options is reclassified from reserves to capital stock. The fair value is measured at grant date and each tranche is recognized over the period during which the options vest. The fair value of the options granted is measured using the Black-Scholes option pricing model taking into account the terms and conditions upon which the options were granted. At each financial position reporting date, the amount recognized as an expense is adjusted to reflect the number of stock options that are expected to vest. Where equity instruments are granted to employees, they are recorded at the fair value of the equity instrument granted at the grant date. The grant date fair value is recognized in the statement of loss over the vesting period, described as the period during which all the vesting conditions are to be satisfied. Where equity instruments are granted to non-employees, they are recorded at the fair value of the goods or services received in the statement of loss, unless they are related to the issuance of shares. Amounts related to the issuance of shares are recorded as a reduction of capital stock. 12

13 2. Significant accounting policies (continued) When the value of goods or services received in exchange for the share-based payment cannot be reliably estimated, the fair value is measured by use of a valuation model. The expected life used in the model is adjusted, based on management s best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations. (j) Income taxes Deferred tax is recorded using the liability method, providing for temporary differences, between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Temporary differences are not provided for relating to goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect neither accounting or taxable loss, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the reporting date. A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilized. (k) Earnings (Loss) per share The basic earnings (loss) per share is computed by dividing the net earnings (loss) by the weighted average number of common shares outstanding during the year. Diluted earnings per share reflects the potential dilution of common share equivalents, such as outstanding stock options and share purchase warrants, in the weighted average number of common shares outstanding during the period, if dilutive. For this purpose, the treasury stock method is used for the assumed proceeds upon the exercise of stock options and warrants that are used to purchase common shares at the average market price during the period. (l) Provision for Environmental Rehabilitation The Company recognizes liabilities for legal or constructive obligations associated with the retirement of exploration and evaluation assets and plant and equipment. The net present value of future rehabilitation costs is capitalized to the related asset along with a corresponding increase in the rehabilitation provision in the period incurred. Discount rates using a pre-tax rate that reflect the time value of money are used to calculate the net present value. The Company s estimates of reclamation costs could change as a result of changes in regulatory requirements, discount rates and assumptions regarding the amount and timing of the future expenditures. These changes are recorded directly to the related assets with a corresponding entry to the rehabilitation provision. The increase in the provision due to the passage of time is recognized as interest expense. The Company does not have provisions for environmental rehabilitation for the years presented. 13

14 2. Significant accounting policies (continued) (m) Financial instruments Financial assets The Company classifies its financial assets into one of the following categories as follows: Fair value through profit or loss - This category comprises derivatives and financial assets acquired principally for the purpose of selling or repurchasing in the near term. They are carried at fair value with changes in fair value recognized in profit or loss. Loans and receivables - These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are carried at amortized cost using the effective interest method less any provision for impairment. Held-to-maturity investments - These assets are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Company's management has the positive intention and ability to hold to maturity. These assets are measured at amortized cost using the effective interest method less any provision for impairment. Available-for-sale - Non-derivative financial assets not included in the above categories are classified as available-for-sale. They are carried at fair value with changes in fair value recognized in other comprehensive income (loss). Where a decline in the fair value of an available-for-sale financial asset constitutes objective evidence of impairment, the amount of the loss is removed from accumulated other comprehensive income (loss) and recognized in profit or loss. All financial assets except those measured at fair value through profit or loss are subject to review for impairment at least at each reporting date. Financial assets are impaired when there is objective evidence of impairment as a result of one or more events that have occurred after initial recognition of the asset and that event has an impact on the estimated future cash flows of the financial asset or the group of financial assets. Financial liabilities The Company classifies its financial liabilities into one of two categories as follows: Fair value through profit or loss - This category comprises derivatives and financial liabilities incurred principally for the purpose of selling or repurchasing in the near term. They are carried at fair value with changes in fair value recognized in profit or loss. Other financial liabilities: This category consists of liabilities carried at amortized cost using the effective interest method. 14

15 2. Significant accounting policies (continued) (n) Impairment of tangible and intangible assets At the end of each reporting period, the Company s assets are reviewed to determine whether there is any indication that those assets may be impaired. If such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment, if any. The recoverable amount is the higher of fair value less costs to sell and value in use. Fair value is determined as the amount that would be obtained from the sale of the asset in an arm s length transaction between knowledgeable and willing parties. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount and the impairment loss is recognized in profit or loss for the period. For an asset that does not generate largely independent cash flows, the recoverable amount is determined for the cash generating unit to which the asset belongs. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but to an amount that does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognized immediately in profit or loss. (o) New accounting standards and interpretations The Company has reviewed new and revised accounting pronouncements that have been issued but are not yet effective. The Company has not early adopted any of these standards and is currently evaluating the impact, if any, that these standards might have on its financial statements. Accounting Standards Issued and Effective January 1, 2012 IAS 12 Income Taxes (Amended) ( IAS 12 ), introduces an exception to the general measurement requirements of IAS 12 in respect of investment properties measured at fair value. IFRS 7 Financial instruments: Disclosures (Amended) requires additional disclosures on transferred financial assets. Accounting Standards Issued and Effective January 1, 2013 IFRS 10 Consolidated Financial Statements establishes principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities. This standard requires a parent entity (an entity that controls one or more other entities) to present consolidated financial statements. This standard: i. defines the principle of control, and establishes control as the basis for consolidation; ii. sets out how to apply the principle of control to identify whether an investor controls an investee and therefore must consolidate the investee; and iii. sets out the accounting requirements for the preparation of consolidated financial statements. IFRS 10 supersedes IAS 27 Consolidated and Separate Financial Statements and SIC-12 Consolidation Special Purpose Entities. 15

16 2. Significant accounting policies (continued) IFRS 11 Joint Arrangements establishes the core principle that a party to a joint arrangement determines the type of joint arrangement in which it is involved by assessing its rights and obligations and accounts for those rights and obligations in accordance with that type of joint arrangement. IFRS 12 Disclosure of Involvement with Other Entities requires the disclosure of information that enables users of financial statements to evaluate the nature of, and risks associated with, its interests in other entities and the effects of those interests on its financial position, financial performance and cash flows. IFRS 13 Fair Value Measurement defines fair value, sets out in a single IFRS a framework for measuring fair value and requires disclosures about fair value measurements. IFRS 13 applies when another IFRS requires or permits fair value measurements or disclosures about fair value measurements (and measurements, such as fair value less costs to sell, based on fair value or disclosures about those measurements), except for: share-based payment transactions within the scope of IFRS 2 Share-based Payment; leasing transactions within the scope of IAS 17 Leases; measurements that have some similarities to fair value but that are not fair value, such as net realizable value in IAS 2 Inventories or value in use in IAS 36 Impairment of Assets. IAS 27 Separate Financial Statements has the objective of setting standards to be applied in accounting for investments in subsidiaries, joint ventures, and associates when an entity elects, or is required by local regulations, to present separate (non-consolidated) financial statements. IAS 28 Investments in Associates and Joint Ventures prescribes the accounting for investments in associates and sets out the requirements for the application of the equity method when accounting for investments in associates and joint ventures. IAS 28 applies to all entities that are investors with joint control of, or significant influence over, an investee (associate or joint venture). Accounting Standards Issued and Effective January 1, 2015 IFRS 9 Financial Instruments replaces the current standard IAS 39 Financial Instruments: Recognition and Measurement, replacing the current classification and measurement criteria for financial assets and liabilities with only two classification categories: amortized cost and fair value. The Company is currently evaluating the impact of the above pronouncements 3. Plant and equipment Computer and Equipment Motor Vehicles Plant and Machinery Description Total Cost Balance, January 1, 2010 and December 31, 2010 $ - $ - $ - $ - Assets acquired 1,495 17,854 32,459 51,808 Balance, December 31, ,495 17,854 32,459 51,808 Accumulated Depreciation Balance, January 1, 2010 and December 31, Depreciation (993) (4,445) (3,009) (8,447) Balance, December 31, 2011 (993) (4,445) (3,009) (8,447) Foreign currency movement 48 1,275 2,800 4,123 Net Asset Value January 1, 2010 and December 31, 2010 $ - $ - $ - $ - December 31, 2011 $ 550 $ 14,684 $ 32,250 $ 47,484 16

17 4. Acquisition of Mining and Processing Congo SPRL and Contingency On August 18, 2011, the Company completed the acquisition of a 70% interest in Mining and Processing Congo, SPRL ( MPC ) in consideration for the issuance of 24,000,000 common shares of the Company, of which 14,000,000 were issued as at December 31, The remaining 10,000,000 were issued on March 18, 2012 and have been recorded as a commitment to issue shares as at December 31, An additional 1,200,000 common shares were issuable as a finder's fee, of which 700,000 have been issued on closing, and the remaining 500,000 were issued March 18, 2012 all of which were included in the purchase price. The Company can purchase (or be required to purchase by the vendor) an additional 20% of MPC for a period ending on March 17, 2014, the purchase price of which is payable in cash or shares (at the discretion of the vendor) and calculated based on the value of a percentage of the Company s issued share capital using a minimum $0.80 share price. Management has determined that it is not likely the vendor will force purchase of the additional 20% and has not accrued any amounts for it on these financial statements. The total purchase price of $14,103,118 includes the following: Acquisition costs common shares $ 13,475,000 Acquisition costs common shares issued for finders fees 385,000 Acquisition costs advances to subsidiary 243,118 $ 14,103,118 The total purchase price of $14,103,118 has been allocated as follows: Cash $ 1,215 Plant and Equipment 51,808 Accounts payable and accrued liabilities (15,699) Exploration and evaluation asset 14,065,794 $ 14,103, Exploration and evaluation assets Exploration and evaluation assets consist of: Bisie Project (c) Total Dec 31, 2011 Dec 31, 2010 $ $ 14,617,703-14,617,703 - Acquisition costs and deferred exploration expenditures incurred during the years ended December 31, 2011 and 2010 were as follows: Balance as at January 1, 2010 $ 1,468,045 Mining duties 37,136 Geological consulting 25,789 Write-off (1,530,970) Balance as at December 31, Acquisition costs (Note 4) 14,065,794 Foreign currency movement 551,909 Balance as at December 31, 2011 $ 14,617,703 17

18 5. Exploration and evaluation assets (continued) (a) The Company had the exclusive right to explore and develop the El Violin II claim. This Mexican property is situated mainly in the municipality of Mochitlan, with parts to the northeast and southeast, lying in the municipality of Quechultenango. The Company has an agreement to explore and develop the claim. The former owner retains a 3% net smelter royalty. As at December 31, 2010, the Company decided not to pursue this exploration project, and wrote-off $1,530,970 to operations. (b) In October 2006, the Company applied for and staked three concessions, Aurora, Aurora II and III (the Aurora ), in the municipality of Coynca de Catalon, State of Guerrero, Mexico. During the year ended December 31, 2008, management determined that the exploration and evaluation assets were impaired and the capitalized costs were written off. In June 2010, the Company closed a property purchase agreement with Cigma Metals Corporation ( Cigma ) regarding the sale and transfer by the Company of a 100% interest in the Aurora in consideration for $154,995 (US$150,000) and 1,000,000 common shares of Cigma. The Company recorded a gain of $340,989 on disposal of the Aurora. The Company will retain a 1.5% net smelter returns royalty on production from the Aurora. During the year ended December 31, 2011 the Company wrote off the investment of common shares of Cigma which originally had a value of $185,994. (c) During the year ended December 31, 2011., the Company closed its acquisition of a 70% interest in MPC (Note 4), a company incorporated in the Democratic Republic of the Congo and the holder of four prospecting permits constituting the Bisie Property in that country. 6. Convertible Note The Company was also granted a call option to purchase an additional 20% of MPC for a period of three years, the purchase price of which is payable in cash or shares of the Company at the option of the seller and calculated based on the value of a percentage of the Company s issued share capital using a minimum $0.80 share price. In conjunction with the acquisition of MPC (Note 4), the Company closed a $5,000,000 convertible note private placement, which notes bear interest at 8% per annum, and will be convertible automatically into shares of the Company on March 18, 2012 at $0.80 per share, for an aggregate 6,250,000 shares. Finders fees of an aggregate 1,425,000 shares were issued. Subsequent to December 31, 2011, all convertible notes were converted to shares (Note 14). 7. Capital stock and reserves (a) Capital stock The authorized capital stock of the Company consists of an unlimited number of common shares without par value. (b) Changes in issued capital stock and reserves during the year ended December 31, 2011 were as follows: (i) (ii) The Company issued 1,019,909 shares pursuant to the exercise of warrants at $0.165 per share. The Company issued 1,425,000 shares as finders fees for a $5,000,000 in convertible notes financing (Note 6). 18

19 7. Capital stock and reserves (continued) (iii) The Company issued 14,000,000 shares pursuant to the acquisition of MPC and the Bisie Property (Note 4). (iv) The Company closed a $96,000 private placement which consisted of 200,000 units at $0.48 per unit. Each unit consists of one common share and one share purchase warrant exercisable at $0.60 until August 16, (v) (vi) The Company issued 2,000,000 common shares pursuant to the exercise of stock options at $0.25 per share. The Company closed a $1,000,000 private placement which consisted of 5,000,000 units at $0.20 per unit. Each unit consists of one common share and one-half of one non-transferrable share purchase warrant exercisable at $0.25 until February 22, The securities issued were subject to a holding period that expired on June 23, The share purchase warrants were fair valued using an option pricing model with the following assumptions: no dividends will be paid, a volatility of the Company s share price of 211%, an expected life of the warrants of two years and an annual risk free rate of 1.68%. (c) Changes in issued capital stock and reserves during the year ended December 31, 2010 were as follows: (i) On January 19, 2010, the Company closed a $212,500 private placement which consisted of 1,700,000 units at $0.125 per unit. Each unit consisted of one common share and a nontransferable share purchase warrant exercisable until January 19, 2012 at $ The share purchase warrants were fair valued using an option pricing model with the following assumptions: no dividends will be paid, a volatility of the Company s share price of 40%, an expected life of the warrants of two years and an annual risk free rate of 1.25%. (d) Stock options The Company has a stock option plan (the Stock Option Plan ), under which, the Company may grant options to directors, officers, employees and other service providers. The number of options outstanding at any time may not exceed 20% of the total number of issued shares on a non-diluted basis. In addition, the Stock Option Plan limits the number of options which may be granted to any one individual to not more than 5% of the total issued and outstanding shares of the Company in a 12 month period and further limits options granted to any one person or consultant employed to provide investor relations activities to 2% of the total issued and outstanding shares of the Company in a 12 month period. The exercise price associated with each grant of options is determined by the board of Directors. Options granted under the Plan may have a maximum term of five years. The exercise price of options granted under the Plan will not be less than the discounted market price of the shares (defined as the last closing market price of the Company s shares immediately preceding the issuance of a news release announcing the granting of the options, less the maximum discount permitted by TSX Venture Exchange Policy) or such other price as may be agreed to by the Company and accepted by the TSX. All options granted under the Plan will become vested in full upon grant, except options granted to consultants performing investor relations activities, which options are subject to vesting restrictions such that onequarter of the options shall vest every three months subsequent to the date of the grant of the options. 19

20 7. Capital stock and reserves (continued) (d) Stock options (continued) A summary of stock option activity and information concerning currently outstanding and exercisable options are as follows: Options outstanding Weighted Number of average options exercise price $ Balance January 1, 2010 and December 31, ,000, Options granted 3,400, Options exercised (2,000,000) 0.25 Balance, December 31, ,400, The following table summarizes information concerning outstanding and exercisable options at December 31, 2011: Options outstanding and exercisable Weighted average Number Number exercise price outstanding exercisable Expiry date per share $ 3,100,000 3,100,000 April 7, , ,000 June 9, ,400,000 3,400, The Company recorded a charge to earnings of $1,533,620 ( $9,021) for the year ended December 31, 2011 for 3,400,000 stock options granted during the year. The weighted average grant date fair value per option was $0.45 ( $Nil). The stock-based compensation expense related to options granted was determined using the Black-Scholes option pricing model and the following weighted average assumptions: 2011 Forfeiture rate - Risk free interest rate 2.80% Expected life of options in years 5 Annualized volatility 125% Dividend rate 0.00% 20

21 7. Capital stock and reserves (continued) (e) Share purchase warrants A summary of warrants activity and information concerning outstanding warrants are as follows: Warrants outstanding Weighted Number of average warrants exercise price Balance, January 1, ,000,000 $ 0.20 Warrants issued during the year 1,700, Warrants expired during the year (5,000,000) 0.20 Balance, December 31, ,700, Warrants issued during the year 2,700, Warrants exercised during the year (1,019,909) Warrants expired during the year - - Balance, December 31, ,380,091 $ 0.25 The following table summarizes information concerning outstanding warrants as at December 31, 2011: 8. Related party transactions Number of Exercise warrants Expiry date price $ 680,091 January 19, (subsequently exercised) 2,500,000 February 22, ,000 August 16, During the year ended December 31, 2011, the Company incurred the following related party transactions : Item Party Management and director fees * $ 250,678 $ 78,453 Accounting fees Peter Rook-Green, Sheryl Jones 26,500 - Legal fees James Harris 52,049 - Accounts payable * $ 52,625 $ 28,511 * Cosme M. Beccar Valera, Cam Richardson, Carl Verley, Anna Styliandes 9. Segmented information The Company considers its business to consist of one reportable operating segment, being the acquisition, exploration and evaluation of exploration and evaluation assets. As at December 31, 2011, all of the Company s plant, equipment and exploration and evaluation assets were located in the Democratic Republic of the Congo. 21

22 10. Income Taxes The reconciliation of the combined Canadian federal and provincial income tax rate to the income tax recovery presented in the accompanying consolidated statements of comprehensive loss is provided below: Accounting Profit (Loss) before income taxes $ (2,670,225) $ (1,424,983) Combined federal and provincial statutory income tax rate 26.5% 28.5% Income tax expense (recovery) at statutory tax rates $ (708,000) $ (406,000) Impact of different foreign statutory tax rates on earnings of subsidiaries (26,000) (12,000) Non-deductible expenditures and non-taxable revenues 406, ,000 Impact of future income tax rates applied versus current statutory rate 15,000 24,000 Expiration of non-capital losses 60,000 - Change in unrecognized deductible temporary differences and other 253, ,000 Total $ - $ - The Canadian income tax rate declined during the year due to changes in the law that reduced corporate income tax rates in Canada. Significant components of deferred tax assets that have not been set up are as follows: Share issue costs $ 2,000 $ 2,000 Allowable Capital losses 139, ,000 Non-capital losses 885, ,000 Capital assets 2,000 - Mineral properties 429, ,000 Marketable securities 19,000 - Total $ 1,476,000 $ 1,265,000 22

23 10. Income Taxes (continued) Significant components of deductible and taxable temporary differences and unused tax losses that have not been included on the consolidated statements of financial position are as follows: 2011 Expiry dates 2010 Expiry dates Share issue costs $ 7, $ 10, Allowable Capital losses 556,000 No expiry 556,000 No expiry Non-Capital losses 3,354, to ,694, to 2030 Capital assets 4,000 No expiry - Mineral properties 1,531,000 No expiry 1,531,000 No expiry Marketable Securities 149,000 No expiry Capital management The Company s objectives when managing capital are to safeguard the Company s ability to continue as a going concern in order to pursue the evaluation and exploration of its exploration and evaluation assets and to maintain a flexible capital structure which optimizes the costs of capital at an acceptable risk. The Company depends on external financing to funds its activities. The capital structure of the Company currently consists of common shares, stock options and share purchase warrants. Changes in the equity accounts of the Company are disclosed in Note 7. The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Company may attempt to issue new shares, acquire or dispose of assets or adjust the amount of cash. In order to facilitate the management of its capital requirements, the Company prepares annual expenditure budgets, which are approved by the Board of Directors and updated as necessary depending on various factors, including capital deployment and general industry conditions. The Company anticipates continuing to access equity markets to fund continued exploration of its exploration and evaluation assets and the future growth of the business. As at December 31, 2011, the Company has shareholders equity of $19,949,999. The Company is not subject to any externally imposed capital requirements. 12. Financial instruments and risk management The Company s financial instruments are exposed to a number of financial and market risks, including credit, liquidity and foreign exchange risks. The Company may, or may not, establish from time to time active policies to manage these risks. The Company does not currently have in place any active hedging or derivative trading policies to manage these risks since the Company s management does not believe that the current size, scale and pattern of its operations would warrant such hedging activities. (a) Credit risk Credit risk is the risk that a counterparty to a financial instrument will not discharge its obligations, resulting in a financial loss to the Company. The Company has procedures in place to minimize its exposure to credit risk. Company management evaluates credit risk on an ongoing basis, including evaluation of counterparty credit rating, monitoring activities related to trade and other receivables and counterparty concentrations measured by amount and percentage. 23

24 12. Financial instruments and risk management (continued) The primary source of credit risk for the Company arises from the following financial assets: (1) cash; and (2) other receivables. The Company has not had any credit losses in the past, nor does it expect to have any credit losses in the future. At December 31, 2011, the Company has no financial assets that are past due or impaired due to credit risk defaults. The Company s maximum exposure to credit risk at the reporting date is as follows: $ Cash 5,778,221 Other receivables 30,261 5,808,482 (b) Liquidity risk Liquidity risk is the risk that the Company will not be able to meet its obligations with respect to financial liabilities as they fall due. The Company s financial liabilities are comprised of accounts payable and accrued liabilities. The Company frequently assesses its liquidity position by reviewing the timing of amounts due and the Company s current cash flow position to meet its obligations. The Company manages its liquidity risk by maintaining a sufficient cash balance to meet its anticipated operational needs. When there are not sufficient funds, the Company reduces its exploration and corporate spending to preserve liquidity. The Company s financial liabilities, consisting of accounts payable and accrued liabilities, arose as a result of corporate expenses. Payment terms on these liabilities are typically 30 to 60 days from receipt of invoice and do not generally bear interest. The following table summarizes the remaining contractual maturities of the Company s financial liabilities: Within 12 months Total $ $ Accounts payable and accrued liabilities 527, ,170 As at December 31, 2011 the Company has sufficient cash to meet its obligations. (c) Market risk Market risk is the risk that the fair value for assets classified as held-for-trading and available-for-sale or future cash flows for assets or liabilities considered to be held-to maturity, other financial liabilities, and loans or receivables of a financial instrument will fluctuate because of changes in market conditions. The Company evaluates market risk on an ongoing basis and has established policies and procedures for mitigating its exposure to foreign exchange fluctuations. The Company is not exposed to interest rate risk, as it does not hold debt balances and is not charged interest on its accounts payable balances. 24