1 INTERIM CONSOLIDATED FINANCIAL STATEMENTS NINE MONTH PERIOD ENDED
2 UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS In accordance with National Instrument released by the Canadian Securities Administrators, the Company discloses that its auditors have not reviewed the unaudited interim consolidated financial statements for the nine month period ended 2011.
3 INTERIM CONSOLIDATED BALANCE SHEETS ASSETS 2011 November 30, 2010 (Audited) Current Cash $ 2,033,175 $ 559,643 Receivables 261, ,367 Short-term investments (Note 4) - 3,106,934 Prepaids 30,519 4,671 2,325,474 3,771,615 Equipment (Note 6) 24,872 5,083 Deposits (Note 7) 75,447 71,687 Mineral property (Note 8) 6,093,499 5,655,566 LIABILITIES AND SHAREHOLDERS' EQUITY 6,193,818 5,732,336 $ 8,519,292 $ 9,503,951 Current Accounts payable and accrued liabilities $ 412,567 $ 488,195 Accounts payable to related parties (Note 12) 21,870 16, , ,530 Shareholders' equity Capital stock (Note 10) 10,707,729 10,098,047 Contributed surplus (Note 10) 1,452,460 1,433,711 Deficit (4,075,334) (2,532,337) 8,084,855 8,999,421 Nature of operations (Note 2) $ 8,519,292 $ 9,503,951 On behalf of the Board: Cary Pinkowski Director Doug Turnbull Director The accompanying notes are an integral part of these interim consolidated financial statements.
4 INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS, COMPREHENSIVE LOSS AND DEFICIT Three Month Period Ended 2011 Three Month Period Ended 2010 Nine Month Period Ended 2011 Nine Month Period Ended 2010 EXPENSES Amortization $ 1,263 $ 406 $ 3,483 $ 542 Consulting 126,286 87, ,089 92,400 Corporate development 23,881 16,894 75,843 37,217 Filing fees 2, ,549 9,462 Financing costs (Note 9) ,000 General and administrative 79,741 74, ,503 83,562 General exploration 26,967-60,626 7,702 Insurance 1,492-1,492 - Interest expense on loans payable ,815 Management fees 45,000 32, ,000 93,504 Professional fees 25,981 41,523 58,957 65,428 Rent 16,345 6,313 49,786 14,000 Shareholder communications 53,204 51, ,475 86,007 Stock-based compensation (Note 10) 71, , , ,780 Transfer agent 4,901 5,831 10,525 11,861 Travel and related 16,389 20, ,947 72,647 Website design and maintenance ,380 7,050 Loss before other items (496,669) (1,269,772) (1,556,049) (1,723,977) OTHER ITEMS Loss on foreign exchange (4,115) (5,727) (22,250) (119) Interest income 540 2,094 12,869 2,752 Recovery on reversal of accounts payable ,433 - (3,575) (3,633) 13,052 2,633 Loss and comprehensive loss for the period (500,244) (1,273,405) (1,542,997) (1,721,344) Deficit, beginning of period (3,575,090) (610,487) (2,532,337) (162,548) Deficit, end of period $ (4,075,334) $ (1,883,892) $ (4,075,334) $ (1,883,892) Basic and diluted loss per common share $ (0.02) $ (0.05) $ (0.05) $ (0.07) Weighted average number of common shares outstanding 34,236,060 27,500,001 34,084,502 26,225,681 The accompanying notes are an integral part of these interim consolidated financial statements.
5 INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS Three Month Period Ended 2011 Three Month Period Ended 2010 Nine Month Period Ended 2011 Nine Month Period Ended 2010 CASH FLOWS FROM OPERATING ACTIVITIES Loss for the period $ (500,244) $ (1,273,405) $ (1,542,997) $ (1,721,344) Items not affecting cash: Amortization 1, , Financing costs on loans payable ,000 Stock-based compensation 71, , , ,780 Unrealized foreign exchange - (3,538) Change in non-cash working capital items (Increase) decrease in receivables (62,808) 25,811 (161,413) 11,074 Increase in deposits (874) (1,240) (3,760) (1,240) (Increase) decrease in prepaids 24,167 (24,638) (25,848) (28,624) Increase (decrease) in accounts payable and accrued liabilities (12,834) 40,464 (94,497) 58,271 Increase in accounts payable to related parties 3,515 4,096 5,535 20,508 Net cash used in operating activities (476,357) (301,264) (1,604,103) (525,522) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from the issuance of capital stock 50,000 5,025, ,037 5,035,000 Share issue costs - (420,284) - (420,284) Deferred financing costs (750) Loans payable ,000 Interest paid on loans payable - (7,815) - (7,815) Repayment of loans payable - (850,000) - (850,000) Net cash provided by financing activities 50,000 3,746, ,037 4,606,151 CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of EMC (1,743,756) Cash assumed on acquisition of EMC ,703 Mineral property expenditures (112,401) - (419,064) - Acquisition of equipment (1,585) - (23,272) - Acquisition of short-term investments - - (2,859,111) - Proceeds from the sale of short-term investments - - 5,966,045 - Net cash (used in) provided by investing activities (113,986) - 2,664,598 (1,710,053) Change in cash during the period (540,343) 3,445,637 1,473,532 2,370,576 Cash, beginning of period 2,573, , ,643 1,759,014 Cash, end of period $ 2,033,175 $ 4,129,590 $ 2,033,175 $ 4,129,590 Supplemental disclosure with respect to cash flows (Note 11) The accompanying notes are an integral part of these interim consolidated financial statements.
6 1. BASIS OF PRESENTATION These interim consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Exploraciones Mineras del Cantábrico, S.L. ( EMC ). These interim consolidated financial statements have been prepared by the Company in accordance with Canadian generally accepted accounting principles. All financial summaries included are presented on a comparative and consistent basis showing the figures for the corresponding period in the preceding year. The preparation of financial data is based on accounting principles and practices consistent with those used in the preparation of annual consolidated financial statements. Certain information and footnote disclosure normally included in annual consolidated financial statements prepared in accordance with Canadian generally accepted accounting principles has been condensed or omitted. These interim period statements should be read together with the Company s audited financial statements and the accompanying notes for the year ended November 30, In the opinion of the Company, its unaudited interim consolidated financial statements contain all adjustments necessary in order to present a fair statement of the results of the interim periods presented. 2. NATURE OF OPERATIONS Astur Gold Corp. (the Company ) was incorporated under the laws of the Province of British Columbia on August 20, 2007, and was classified as a Capital Pool Company ( CPC ) as defined by Policy 2.4 of the TSX Venture Exchange (the "TSX-V"). The Company completed its Initial Public Offering ( IPO ) in February 2008 and commenced trading on the TSX-V. In April 2010, the Company completed its Qualifying Transaction and was classified as a junior mining issuer with the TSX-V. The ability of the Company to fund its potential future operations and commitments is dependent upon the ability of the Company to obtain additional financing and/or generate profitable operations. The financial statements do not include any adjustments to assets or liabilities should the Company be unable to continue in existence. Title to mining properties involves certain inherent risks due to the difficulties of determining the validity of certain claims as well as the potential for problems arising from the frequently ambiguous conveyancing history characteristic of many mining properties. The Company has diligently investigated rights of ownership of all of the mineral licences in which it has an interest and, to the best of its knowledge, all agreements relating to such ownership rights are in good standing. However, this should not be construed as a guarantee of title. These mineral licences may be subject to prior claims, agreements or transfers and rights of ownership may be affected by undetected defects. 3. SIGNIFICANT ACCOUNTING POLICIES Use of estimates The preparation of consolidated financial statements in accordance with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amount of revenues and expenses during the period. Significant areas requiring the use of management estimates include financial instruments, assessment of recoverability and impairment of amounts capitalized as land and equipment and mineral properties, determination of asset retirement obligations, amortization of equipment, the estimation of stock-based compensation, and valuation allowances for future tax assets. Actual results could differ from these estimates.
7 3. SIGNIFICANT ACCOUNTING POLICIES (cont d ) Foreign currency translation The Company s subsidiary is an integrated foreign operation and is translated into Canadian dollars using the temporal method. Monetary items are translated at the exchange rate in effect at the balance sheet date and nonmonetary items are translated at historical exchange rates. Revenues and expenses are translated at the exchange rates approximating those in effect on the transaction dates. Exchange gains and losses arising on translation are included in the statement of operations. Equipment Equipment is recorded at cost less accumulated amortization. Amortization is provided annually over the estimated useful life using the following methods: Furniture and fixtures Office equipment Tools 20% declining balance 30% declining balance 20% declining balance Mineral properties All costs related to the acquisition, exploration and development of mineral properties are capitalized by property. If economically recoverable ore reserves are developed, capitalized costs of the related property are reclassified as mining assets and amortized using the unit of production method. When a property is abandoned, all related costs are written off to operations. If, after management review, it is determined that the carrying amount of a mineral property is impaired, that property is written down to its estimated net realizable value. A mineral property is reviewed for impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. The amounts shown for mineral properties do not necessarily represent present or future values. Their recoverability is dependent upon the discovery of economically recoverable reserves, the ability of the Company to obtain the necessary financing to complete the development, and future profitable production or proceeds from the disposition thereof. Asset retirement obligations The Company recognizes the fair value of a liability for an asset retirement obligation in the period in which it is incurred when a reasonable estimate of fair value can be made. The carrying amount of the related long-lived asset is increased by the same amount as the liability. The Company does not have any asset retirement obligations. Future income taxes Future income taxes are recorded using the asset and liability method whereby future tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future 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 future tax assets and liabilities of a change in tax rates is recognized in income in the year that substantive enactment or enactment occurs. To the extent that the Company does not consider it more likely than not that a future tax asset will be recovered, it provides a valuation allowance against the excess.
8 3. SIGNIFICANT ACCOUNTING POLICIES (cont d ) Loss per share The Company uses the treasury stock method to compute the dilutive effect of options, warrants and similar instruments. Under this method the dilutive effect on earnings per share is recognized on the use of the proceeds that could be obtained upon exercise of options, warrants and similar instruments. It assumes that the proceeds would be used to purchase common shares at the average market price during the period. Basic loss per share is calculated using the weighted average number of shares outstanding during the period. Stock-based compensation Stock options and direct awards of stock granted to employees and non-employees are recorded at fair value on the date of grant and the associated expense is recognized over the related vesting period. Consideration paid for the shares on the exercise of stock options is credited to capital stock. Comprehensive income The Company follows the Canadian Institute of Chartered Accountants ( CICA ) Handbook Section 1530 Comprehensive Income ( Section 1530 ). Section 1530 establishes standards for reporting and presenting comprehensive income which is defined as the change in equity from transactions and other events from non-owner sources. Other comprehensive income refers to items recognized in comprehensive income but that are excluded from net income calculated in accordance with Canadian generally accepted accounting principles. Financial instruments recognition and measurement All financial instruments are classified into one of five categories: held-for-trading, held-to-maturity investments, loans and receivables, available-for-sale financial assets or other financial liabilities. All financial instruments and derivatives are measured in the balance sheet at fair value except for loans and receivables, held-to maturity investments and other financial liabilities which are measured at amortized cost. Subsequent measurement and changes in fair value will depend on their initial classification. Held-for-trading financial assets are measured at fair value and changes in fair value are recognized in net income. Available-for-sale financial instruments are measured at fair value with changes in fair value recorded in other comprehensive income until the instrument is derecognized or impaired. Transaction costs related to the financial instruments will be expensed in the period incurred. The Company has classified its cash and short-term investments as held-for-trading and receivables and deposits as loans and receivables. Accounts payable and accrued liabilities and accounts payable to related parties are classified as other financial liabilities, which are measured at amortized cost. CICA Handbook Section 3862, Financial Instruments Disclosures was amended to require disclosure about the inputs used in making fair value measurements, including their classification within a hierarchy that prioritizes their significance. The three levels of the fair value hierarchy are: Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities; Level 2 Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and Level 3 Inputs that are not based on observable market data.
9 3. SIGNIFICANT ACCOUNTING POLICIES (cont d ) Capital disclosures The CICA has established standards for disclosing information about an entity s capital and how it is managed. The entity s disclosure should include information about its objectives, policies and procedures for managing capital and disclose whether it has complied with any capital requirements to which it is subject and the consequences of noncompliance (see Note 15). Recent accounting pronouncements Business combinations (Section 1582), Consolidated financial statements (Section 1601) and Non-controlling interests (Section 1602) In January 2009, the CICA issued Handbook Sections 1582 Business Combinations, Section 1601 Consolidated Financial Statements and 1602 Non-controlling Interests which replaces CICA Handbook Sections 1591 Business Combinations and 1600 Consolidated Financial Statements. Section 1582 establishes standards for the accounting for business combinations that is equivalent to the business combination accounting standard under International Financial Reporting Standards ( IFRS ). Section 1582 is applicable for the Company s business combinations with acquisition dates on or after January 1, Section 1601 is applicable for the Company s interim and annual consolidated financial statements for its fiscal year beginning December 1, Early adoption of this Section is permitted. If the Company chooses to early adopt any one of these sections, the other two sections must also be adopted at the same time. International Financial Reporting Standards ( IFRS ) In February 2008, the Canadian Accounting Standards Board confirmed that publicly accountable enterprises will be required to adopt IFRS for fiscal years beginning on or after January 1, 2011, with earlier adoption permitted. Accordingly, the conversion to IFRS will be applicable to the Company s reporting no later than in the first quarter of 2012, with restatement of comparative information presented. The conversion to IFRS will impact the Company s accounting policies, information technology and data systems, internal control over financial reporting, and disclosure controls and procedures. The transition may also impact business activities, such as foreign currency, certain contractual arrangements, capital requirements and compensation arrangements. The Company is currently evaluating the future impact of IFRS on its financial statements and will continue to invest in training, financial information systems and additional resources to ensure a timely conversion. The Company expects its first consolidated financial statements presented in accordance with IFRS to be for the three month period ended February 28, 2012, which includes presentation of its comparative results for fiscal 2011 under IFRS.
10 4. SHORT-TERM INVESTMENTS Short-term investments are comprised of the following: 2011 November 30, 2010 Fair Value Cost Fair Value Cost Banker s acceptances $ - $ - $ 3,106,934 $ 3,099,993 During the nine month period ended 2011, the Company sold all of its short-term investments. The Company recorded interest income of $12,869 (2010 $2,752) on its short-term investments held during the current period. 5. ACQUISITION In April 2010, the Company completed the acquisition of 100% of Exploraciones Mineras del Cantábrico, S.L. ( EMC ), a Spanish private company holding a 100% interest in the Salave property, located in the region of Asturias, Spain. Pursuant to an agreement dated February 20, 2010, a total of 95.04% of EMC was acquired from Rio Narcea Gold Mines Ltd. ( Rio Narcea ) for 5,296,688 common shares and an initial cash payment of $684,900 ( 500,000). There is a further 20,000,000 payment which is payable once certain open pit operating permits are obtained by EMC that allows for the production of at least 800,000 ounces of gold. In addition, pursuant to an agreement dated March 17, 2010, the Company acquired the remaining 4.96% of EMC for a cash payment of $820,925 ( 600,000). The Company also issued 500,000 common shares and paid $20,718 to a third party pursuant to a lease termination amending agreement in respect of the Salave property. The Company incurred costs related to the acquisition totalling $318,513 and also issued 200,000 shares to an advisor. The common shares issued to complete this transaction had a value of $0.60 per share. The EMC acquisition was accounted for as an acquisition of the net assets of EMC, as follows: Cash payments ( 1,100,000 and $20,718) $ 1,526,543 Common shares issued (5,996,688 shares) 3,598,013 Acquisition costs 318,513 Net purchase price $ 5,443,069 The assets and liabilities acquired were as follows: Cash $ 33,703 Receivables 69,439 Deposits 71,674 Equipment 5,480 Mineral properties 5,536,947 Accounts payable and accrued liabilities (274,174) Net assets acquired $ 5,443,069
11 6. EQUIPMENT 2011 November 30, 2010 Cost Accumulated Amortization Net Book Value Cost Accumulated Amortization Net Book Value Office equipment $ 24,902 $ 3,111 $ 21,791 $ 4,938 $ 274 $ 4,664 Furniture and fixtures 3, , Tools 1,110 1, , $ 29,320 $ 4,448 $ 24,872 $ 6,048 $ 965 $ 5, DEPOSITS Included in deposits is $74,207 ( 49,800) with respect to ongoing legal matters regarding the Salave property. 8. MINERAL PROPERTY Salave Gold Property Acquisition costs, November 30, 2010 $ 5,536,947 Additions during the period - Acquisition costs, ,536,947 Deferred exploration costs, November 30, 2010 $ 118,619 Additions during the period Administration 18 Consulting 175,217 Equipment rental 311 Field expenditures 2,950 Field personnel 173,089 Geological consulting 43,582 Mapping 14,539 Miscellaneous 11,187 Staking 8,607 Taxes 2,102 Travel and related 6,331 Total additions to deferred exploration costs during the period 437,933 Deferred exploration costs, ,552 Total mineral property and deferred exploration costs, 2011 $ 6,093,499
12 8. MINERAL PROPERTY (cont d ) Salave Gold Property In April 2010, the Company completed the acquisition of a 100% interest in the Salave property (see Note 5). The Salave property comprises five mineral concessions. There is a further 20,000,000 payment due to Rio Narcea for the acquisition of the Salave property once certain permits to operate an open pit mine are received. The Salave property is also subject to a pre-existing lease termination agreement which calls for five cash payments of US$5,000,000 each with the first payment due when certain permits to construct and operate an open pit mine are received, the second on commencement of commercial production and the remaining three payments based on certain production levels with the final payment due after 800,000 ounces have been produced. Pursuant to the lease termination amending agreement, at the option of the Company and subject to regulatory approval, any of these payments can be satisfied in whole by the issuance of common shares of the Company. The Salave property is also subject to a 5% net smelter return royalty ( NSR ) after 800,000 ounces have been produced, half of which can be purchased by the Company for a cash payment of US$5,000,000. In 2005, the regional government of Asturias, Spain halted open-pit project development of the Salave property due to the introduction of certain zoning legislation and the rejection of a specific authorization for mining of the property. Immediately thereafter legal proceedings were commenced by EMC and the former owners of the Salave property against the government seeking the reversal of the decision to halt open-pit project development. These legal proceedings are ongoing and the outcome of these proceedings are unknown. As part of the acquisition of the Salave property the Company will receive 50% of any monetary award, should the legal action be successful. 9. LOANS PAYABLE The Company received a total of $850,000 in aggregate principal amount pursuant to certain loan agreements with arms-length creditors. The funds were advanced in stages as required for working capital purposes with the final amounts received during the nine month period ended The loans were unsecured and bore interest at 5% per annum payable quarterly and were due on the earlier of the date that was two years from closing of the Company s qualifying transaction or on closing of a financing of not less than $2,000,000. On receipt of regulatory approvals the Company issued 340,000 shares on a pro-rata basis to the lenders. The ascribed value of the shares issued of $204,000 was expensed as financing costs during the period ended 2010.
13 10. CAPITAL STOCK AND CONTRIBUTED SURPLUS Number of Shares Amount Contributed Surplus Authorized Unlimited common shares, without par value Balance as at November 30, ,846,022 $ 10,098,047 $ 1,433,711 Exercise of agent warrants 240, ,037 - Exercise of stock options 200, ,000 - Adjustment for exercised agent warrants - 97,621 (97,621) Adjustment for exercised stock options - 99,024 (99,024) Stock-based compensation ,394 Balance as at ,286,060 $ 10,707,729 $ 1,452,460 Escrow shares As at 2011, 4,378,013 common shares are subject to an escrow agreement with 1,094,503 shares being released from escrow every six months. Stock options Stock option transactions are summarized as follows: Number of Options Weighted Average Exercise Price Outstanding, November 30, ,295,000 $ 0.92 Granted 427, Exercised (200,000) 0.93 Expired / Cancelled (75,000) 0.90 Outstanding, ,447,000 $ 1.07 Number of stock options exercisable, ,178,250 $ 0.96
14 10. CAPITAL STOCK AND CONTRIBUTED SURPLUS (cont d ) Stock options (cont d ) As at 2011, the following incentive stock options are outstanding: Number of Options Exercise Price Expiry Date 1,150,000 $ 0.90 June 3, , August 12, , August 22, , October 12, , October 15, , November 2, , January 24, , May 11, 2014 The Company has a stock option plan under which it is authorized to grant options to directors, employees and consultants, to acquire up to 10% of the issued and outstanding common stock. The exercise price of each option is based on the market price of the Company s stock at the date of grant. The options can be granted for a maximum term of 5 years and vest as determined by the board of directors. Exercised stock options On April 5, 2011, the Company issued 150,000 common shares at $0.90 per share for proceeds of $135,000 pursuant to the exercise of stock options with a June 13, 2013 expiry date. In relation to the exercised stock options, $78,280 of contributed surplus was transferred into share capital. On 2011, the Company issued 50,000 common shares at $1.00 per share for proceeds of $50,000 pursuant to the exercise of stock options with a September 1, 2011 expiry date. In relation to the exercised stock options, $20,744 of contributed surplus was transferred into share capital. Cancelled stock options On August 8, 2011, the Company cancelled 75,000 stock options exercisable at $0.90 until June 3, 2013.
15 10. CAPITAL STOCK AND CONTRIBUTED SURPLUS (cont d ) Agent s warrants Agent s warrants transactions are summarized as follows: Number of Agent s Warrants Weighted Average Exercise Price Outstanding, November 30, ,667 $ 0.95 Exercised (240,038) 0.95 Outstanding, ,629 $ 0.95 Number of agent s warrants exercisable, ,629 $ 0.95 As at 2011, the following agent s warrants are outstanding: Number of Options Exercise Price Expiry Date Exercised agent s warrants 219,629 $ 0.95 December 2, 2011 During the nine month period ended 2011, the Company issued 240,038 common shares at $0.95 per share for proceeds of $228,037 pursuant to the exercise of agent s warrants with a December 2, 2011 expiry date. In relation to the exercised agent s warrants, $97,621 of contributed surplus was transferred into share capital. Stock-based compensation During the nine month period ended 2011, the Company recognized $215,394 ( $930,780) in stock-based compensation. The Company granted 427,000 (2010 1,875,000) stock options valued at $466,544 ( $930,780). The Company expensed $254,534 ( $930,780) leaving an unamortized balance of $212,010 ( $Nil) to be recognized until May 12, The fair value of stock-based compensation was calculated using the Black-Scholes option-pricing model. The Company also cancelled 75,000 (2010 Nil) stock options valued at $39,140 ( $Nil) during the current period.
16 10. CAPITAL STOCK AND CONTRIBUTED SURPLUS (cont d ) The following weighted average assumptions were used for the Black-Scholes option-pricing model calculation of stock options granted during the period: Risk-free interest rate 1.89% 1.88% Expected life of options 2.88 years 3 years Expected annualized volatility % % Expected dividend rate SUPPLEMENTAL DISCLOSURES WITH RESPECT TO CASH FLOWS Cash paid during the period for interest $ - $ 7,815 Cash paid during the period for income taxes $ - $ - The significant non-cash transactions during the nine month period ended 2011 were as follows: a) The Company allocated $97,621 for exercised agent warrants from contributed surplus to capital stock. b) The Company allocated $99,024 for exercised stock options from contributed surplus to capital stock. c) Mineral property expenditures of $64,965 are included in accounts payable at The significant non-cash transactions during the nine month period ended 2010 were as follows: a) The Company issued 5,296,688 common shares valued at $3,178,013 as part of the consideration paid to acquire 95.04% of the issued and outstanding common shares of Exploraciones Mineras del Cantábrico, S.L. b) The Company issued 500,000 common shares valued at $300,000 to a third party in consideration for that party agreeing to amend an agreement in respect of the Salave property. c) The Company issued 200,000 common shares valued at $120,000 as an advisory fee for the Qualifying Transaction. d) The Company issued 340,000 common shares valued at $204,000 as a loan bonus.
17 11. SUPPLEMENTAL DISCLOSURES WITH RESPECT TO CASH FLOWS (cont d ) e) The Company issued 469,000 agent warrants valued at $190,740 as a commission for the June 2, 2010 private placement. f) Share issue costs of $35,720 attributed to the June 2, 2010 private placement were accrued in accounts payable. g) The Company transferred $750 from deferred financing costs to share issue costs for the June 2, 2010 private placement. 12. RELATED PARTY TRANSACTIONS During the nine month period ended 2011 and 2010 the Company incurred the following expenditures to companies controlled by directors and an officer of the Company as follows: Management fees $ 135,000 $ 55,000 Consulting fees 136,281 12,548 Administrative fees 27,825 11,641 Office rent 33,372 14,000 Accounts payable to related parties at 2011 consists of an amount due to a company which is controlled by an officer of the Company and two companies which are controlled by two directors of the Company. The related party transactions are in the normal course of operations and were measured at the exchange value, which represented the amount of consideration established and agreed to by the related parties. 13. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT Fair value The carrying value of receivables, accounts payable and accrued liabilities and accounts payable to related parties approximated their fair value because of the short-term nature of these instruments. The carrying value of deposits also approximates its fair value.
18 14. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (cont d ) Financial instruments measured at fair value on the balance sheet are summarized in levels of fair value hierarchy as follows: Assets Level 1 Level 2 Level 3 Total Cash $ 2,033,175 $ - $ - $ 2,033,175 The Company has exposure to the following risks from its use of financial instruments as follows: Credit risk Credit risk is the risk of potential loss to the Company if a customer or counter party to a financial instrument fails to meet its contractual obligations. The Company s credit risk is limited to the carrying amount on the balance sheet and arises from the Company s cash and receivables. The Company s cash is held with high-credit quality financial institutions. Receivables mainly consist of valueadded tax due from the Government of Spain. The Company does not believe it has significant exposure to credit risk. Liquidity risk Liquidity risk is the risk that the Company will not meet its financial obligations as they fall due. The Company manages its liquidity risk by forecasting cash flows from operations, and anticipating investing and financing activities. As at 2011, the Company had current assets of $2,325,474 to settle current liabilities of $434,437 which have contractual maturities of less than 30 days and are subject to normal trade terms. Market risk Market risk is the risk of loss that may arise from changes in market factors, such as interest rates and foreign exchange rates. a) Interest rate risk The Company currently has cash balances with no interest bearing debt and is not subject to significant interest rate risk. b) Foreign currency risk The Company s functional currency is the Canadian dollar and major purchases are transacted in Canadian dollars. The Company funds certain operations, exploration and administrative expenses in Spain by using Euros converted from its Canadian bank accounts. Management believes the foreign exchange risk derived from currency conversions is negligible and therefore does not hedge its foreign exchange risk Based on the Company s Euro denominated financial instruments at 2011, a 10% change in exchange rates between the Canadian dollar and the Euro would result in a $3,229 foreign exchange gain or loss.
19 15. CAPITAL MANAGEMENT The Company s capital structure consists of shareholders equity. The Company s objective when managing capital is to maintain adequate levels of funding to support the development of its business and maintain the necessary corporate and administrative functions to facilitate these activities. This is done primarily through equity financing, selling assets, and incurring debt. Future financings are dependent on market conditions and there can be no assurance the Company will be able to raise funds in the future. The Company invests all capital that is surplus to its immediate operational needs in short-term, high liquid, high-grade financial instruments. 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. The Company currently has adequate sources of capital to meet its current obligations. The Company will need to raise adequate capital by obtaining equity financing, selling assets and incurring debt to develop its business. 16. SEGMENTED INFORMATION The Company has one reportable operating segment, being the acquisition and exploration of mineral properties. All of the Company s capital assets are located in Spain. 17. SUBSEQUENT EVENTS Granted Stock Options On September 2, 2011, the Company granted 125,000 stock options exercisable at $2.00 per share until September 2, The options will vest 12.5% on grant date and 12.5% every three months thereafter. Exercised Agent s Warrants On September 7, 2011, the Company issued 1,354 common shares at $0.95 per share for proceeds of $1,286 pursuant to the exercise of agent s warrants with a December 2, 2011 expiry date.
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