edgewater exploration ltd. · edgewater exploration ltd. consolidated balance sheets (expressed in...

EDGEWATER EXPLORATION LTD.

CONSOLIDATED FINANCIAL STATEMENTS(Expressed in Canadian Dollars)

DECEMBER 31, 2014 AND 2013

PricewaterhouseCoopers LLPPricewaterhouseCoopers Place, 250 Howe Street, Suite 700, Vancouver, British Columbia, Canada V6C 3S7T: +1 604 806 7000, F: +1 604 806 7806, www.pwc.com/ca

“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.

April 30, 2015

Independent Auditor’s Report

To the Shareholders of Edgewater Exploration Ltd.

We have audited the accompanying consolidated financial statements of Edgewater Exploration Ltd.and its subsidiaries, which comprise the consolidated balance sheets as at December 31, 2014 andDecember 31, 2013 and the consolidated statements of loss and comprehensive loss, changes inshareholders’ equity and cash flows for the years then ended, and the related notes, which comprise asummary of significant accounting policies and other explanatory information.

Management’s responsibility for the consolidated financial statementsManagement is responsible for the preparation and fair presentation of these consolidated financialstatements in accordance with International Financial Reporting Standards, and for such internal controlas management determines is necessary to enable the preparation of consolidated financial statementsthat are free from material misstatement, whether due to fraud or error.

Auditor’s responsibilityOur 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. Thosestandards require that we comply with ethical requirements and plan and perform the audit to obtainreasonable assurance about whether the consolidated financial statements are free from materialmisstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures inthe 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 controlrelevant to the entity’s preparation and fair presentation of the consolidated financial statements in orderto design audit procedures that are appropriate in the circumstances, but not for the purpose of expressingan opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating theappropriateness of accounting policies used and the reasonableness of accounting estimates made bymanagement, 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 abasis for our audit opinion.

OpinionIn our opinion, the consolidated financial statements present fairly, in all material respects, thefinancial position of Edgewater Exploration Ltd. and its subsidiaries as at December 31, 2014 andDecember 31, 2013 and their financial performance and their cash flows for the years then ended inaccordance with International Financial Reporting Standards.

2

Emphasis of matterWithout qualifying our opinion, we draw attention to Note 1 in the financial statements which describesconditions and matters that indicate the existence of a material uncertainty that may cast significant doubtabout Edgewater Exploration Ltd.’s ability to continue as a going concern.

signed “PricewaterhouseCoopers LLP”

Chartered Accountants

EDGEWATER EXPLORATION LTD.CONSOLIDATED BALANCE SHEETS(Expressed in Canadian Dollars)AS AT DECEMBER 31

Note 2014 2013

ASSETS

CurrentCash $ 249,530 $ 375,462GST and other receivables 3 50,367 629,505Short-term investment 4 190,000 380,000Prepaid expenses 5 51,685 73,240

541,582 1,458,207

Non-currentExploration and evaluation assets 6 - 38,193,922Deposits for exploration and evaluation 6(a) - 100,000Reclamation deposits 7 1,385,240 1,800,746Property and equipment 17,962 184,769

$ 1,944,784 $ 41,737,644

LIABILITIES AND SHAREHOLDERS’ EQUITY

CurrentTrade and other payables 8 $ 756,263 $ 1,424,651Subscription and other liabilities - 261,832Current provision for government grants 9 95,633 99,625

851,896 1,786,109

Non-currentDeferred revenue 6(a) 3,591,683 3,210,342Provision for government grants 9 143,448 298,876Provision for reclamation 10 77,608 562,510

4,664,635 5,857,837Shareholders’ equity (deficit)

Share capital 11 30,416,443 34,572,842Share-based payments reserve 4,752,082 4,603,835Warrants reserve 6,377,023 6,075,273Accumulated other comprehensive income 1,271,139 1,923,123Accumulated deficit (45,536,536) (11,295,265)

(2,719,850) 35,879,807$ 1,944,784 $ 41,737,644

Nature of operations and going concern 1Commitments 14

On behalf of the Board:

“Danny Lee” Director “Douglas Forster” Director

The accompanying notes are an integral part of these consolidated financial statements.

EDGEWATER EXPLORATION LTD.CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)(Expressed in Canadian Dollars)FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2014

Common shares

Number Amount

Share-basedpayments

reserveWarrantsreserves

Accumulatedother

comprehensiveincome (loss)

Accumulateddeficit Total

Balance – January 1, 2013 77,682,437 $30,087,781 $4,232,215 $5,983,853 $(565,074) $(9,211,745) $30,527,030

Issued for cash (Note 11(a)(ii)) 11,112,000 4,485,061 - 91,420 - - 4,576,481

Share-based compensation - - 371,620 - - - 371,620

Net loss for the year - - - - - (2,083,520) (2,083,520)

Foreign currency translation - - - - 2,488,197 - 2,488,197

Balance – December 31, 2013 88,794,437 $34,572,842 $4,603,835 $6,075,273 $1,923,123 $(11,295,265) $35,879,807

Common shares

Number Amount

Share-basedpayments

reserveWarrantsreserves

Accumulatedother

comprehensiveincome

Accumulateddeficit Total

Balance – January 1, 2014 88,794,437 $34,572,842 $4,603,835 $6,075,273 $1,923,123 $(11,295,265) $35,879,807Issued for cash(Note 11(a)(i)) 15,800,000 456,015 - 295,892 - - 751,907Issued as finder’s fees(Note 11(a)(i)) 100,000 (5,859) - 5,859 - - -

Return of capital (Note 6(b)) - (4,606,555) - - - - (4,606,555)

Share-based compensation - - 148,247 - - - 148,247

Net loss for the year - - - - - (34,241,271) (34,241,271)

Foreign currency translation - - - - (651,984) - (651,984)Balance – December 31,2014 104,694,437 $30,416,443 $4,752,082 $6,377,023 $1,271,139 $(45,536,536) ($2,719,850)


EDGEWATER EXPLORATION LTD.CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS (INCOME)(Expressed in Canadian Dollars)FOR THE YEARS ENDED DECEMBER 31

2014 2013

EXPENSESAccounting and audit fees $ 82,449 $ 186,063Amortization 33,636 56,133Consultants 68,826 261,836Director fees - 38,000Due diligence costs - 880Finance costs 3,987 15,599Foreign exchange loss 3,352 2,569Gain from sale of land (Note 12) (280,992) -Insurance 37,739 52,374Investor relations, marketing and conferences 15,591 225,817Legal 72,752 47,517Management fees 103,271 300,802Office costs 116,238 367,772Rent 106,807 116,685Property maintenance 48,548 -Share-based compensation (Note 11(b)) 79,247 131,648Travel 3,520 1,040Trust and regulatory fees 13,863 38,272Write-off of equipment 38,387 -Write-down of mineral properties/loss on disposal of subsidiary (Notes 6(a) and (b)) 33,710,145 -Write-off of land purchase options (Note 6(a)) - 136,904Write-off of receivables/advances paid (Note 6(a)) 7,926 138,999

34,265,292 2,118,909

OTHER INCOMEFinance income (24,021) (35,390)

Net loss for the year 34,241,271 2,083,520

OTHER COMPREHENSIVE LOSS (INCOME)

Items that will be reclassified subsequently to profit or loss:Foreign currency translation 361,813 (2,488,197)Reclassification of foreign currency translation upon disposal of subsidiary 290,171 -

Comprehensive loss (income) for the year $ 34,893,255 $ (404,677)

Loss per share – basic and diluted $ 0.33 $ 0.02

Weighted average number of shares outstanding:Basic and diluted 104,345,944 87,454,908


EDGEWATER EXPLORATION LTD.CONSOLIDATED STATEMENTS OF CASH FLOWS(Expressed in Canadian Dollars)FOR THE YEARS ENDED DECEMBER 31

2014 2013

CASH PROVIDED BY (USED IN):

Cash flows from operating activities:Net loss for the yearInterest income reclassified to cash flow from investing activities

$ (34,241,271)(24,021)

$ (2,083,520)(35,390)

Non-cash items:Write-down of land purchase options - 136,904Write-down of advance paid - 138,999Write-down of equipment 38,387 -Write-down of mineral properties 33,710,145 -Write-down of receivables 7,926 -Gain on sale of land (280,992) -Accretion of finance costs - 15,599Share-based compensation 79,247 131,648Unrealized foreign exchange 75,458 (13,367)Amortization 33,636 56,133

Changes in non-cash working capital:Trade and other receivables 569,092 948,179Prepaid expenses 20,217 50,337Trade and other payables 11,386 (202,674)

(789) (857,152)

Cash flows from investing activities:Sale (purchase) of property and equipment 39,746 (124,999)Cash received on disposition of subsidiary 150,000 -Proceeds from sale of land 219,160 -Proceeds from sale of available-for-sale investments - 39,522Deposits on mining interest expenditures - (100,000)Reclamation spending - (201,501)Finance income 24,021 35,390Return of reclamation deposits 356,266 -Repayment of government grants (151,025) (46,278)Redemption of short-term investment 190,000 474,519Exploration and evaluation assets (1,493,330) (6,735,099)

(665,162) (6,658,447)

Cash flows from financing activities:Subscription and other liabilities - 261,832Shares issued for cash, net of share issuance costs 551,906 4,576,480

551,906 4,838,313

Effect of exchange rate on cash (11,886) 90,422

Decrease in cash (125,932) (2,586,863)

Cash – beginning of year 375,462 2,962,326

Cash – end of year $ 249,530 $ 375,462

Supplemental Disclosure on Non-cash Investing and Financing ActivitiesFair value of shares issued as finder’s fees $ 5,859 $ -Reallocation of subscription receipts $ 200,000 $ -Exploration and evaluation assets included in trade and other payables $ 561,364 $ 699,183


EDGEWATER EXPLORATION LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Expressed in Canadian Dollars)FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013

1. NATURE OF OPERATIONS AND GOING CONCERN

Edgewater Exploration Ltd. and its subsidiaries (collectively, “Edgewater” or the “Company”) are in the mineralproperty exploration and development business in Spain. Edgewater Exploration Ltd., the parent, is a public companythat is listed on the TSX Venture Exchange (symbol: EDW). It is incorporated in Canada and its head office is locatedat Suite 1820 – 999 West Hastings Street, Vancouver, British Columbia, V6C 2W2.

These consolidated financial statements have been prepared in accordance with International Financial ReportingStandards (“IFRS”) applicable to a going concern, which assumes that the Company will be able to realize its assetsand discharge its liabilities in the normal course of business. Several adverse conditions cast significant doubt on thevalidity of this assumption. The Company has no source of revenue, is unable to self-finance operations, and hassignificant cash requirements to meet its overhead and continue its exploration activities. The Company has incurredoperating losses since inception. As at December 31, 2014, the Company had $45,536,536 in accumulated deficit and anegative working capital of $310,314.

The Company’s ability to meet its administrative expenses is dependent upon management’s ability to obtain additionalfinancing and settle its dispute with the Galician Government in Spain. The Company is continuing to hold discussionswith the Galician Government and should these discussions not progress, the Company will consider other alternativesavailable to it. There is no assurance that the Company will be able to obtain additional financing or resolve its disputewith the Galician Government in the future.

The Company’s consolidated financial statements do not reflect adjustments in the carrying values of the assets andliabilities, the reported expenses, and the balance sheet classifications used that would be necessary if the Companywere unable to realize its assets and settle its liabilities as a going concern in the normal course of operations, suchadjustments could be material.

The Board of Directors approved the statements for issue on April 23, 2015.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Statement of compliance

These consolidated financial statements have been prepared in accordance with International Financial ReportingStandards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

Basis of measurement

The financial statements have been prepared under the historical cost convention.

Basis of consolidation

These consolidated financial statements incorporate the financial statements of the Company and its subsidiaries. Thesignificant subsidiaries of the Company are as follows:

Entity Property Location 2014 2013

Subsidiaries (Consolidated)Mineira de Corcoesto, S.L. Corcoesto Project Spain 100% 100%Corcoesto, S.A. - Panama 100% -

Subsidiaries are entities over which the Company has control. The Company controls an entity when the group isexposed to, or has rights to variable returns from its involvement with the entity and has the ability to affect thosereturns through its power over the entity.

The financial statements of subsidiaries are included in the consolidated financial statements from the date whichcontrol is transferred to us until the date that control ceases.


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d.)

All intercompany transactions and balances have been eliminated on consolidation.

Significant judgments, estimates and assumptions

The preparation of the Company’s financial statements in conformity with IFRS requires management to makejudgments, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of assetsand liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period.Estimates and assumptions are continually evaluated and are based on management’s experience and other factors,including expectations of future events that are believed to be reasonable under the circumstances. Actual results coulddiffer from these estimates. The areas that require management to make significant judgments, estimates andassumptions in determining carrying values include, but are not limited to:

Impairment of exploration and evaluation assets

Management assesses its exploration and evaluation assets for impairment indicators at the end of each reportingperiod. Such assessment is based on the facts and circumstances for each project, which considers the Company’sintentions for a property. If any impairment indicator exists, an estimate of the recoverable amount is undertaken. If theasset’s carrying amount exceeds its recoverable amount, an impairment loss is recognized in the statement of loss andcomprehensive loss.

In calculating recoverable amount, the Company uses discounted cash flow techniques to determine fair value when it isnot possible to determine fair value either by quotes from an active market or a binding sales agreement. Thedetermination of discounted cash flows is dependent on a number of factors, including future metal prices, the amountof reserves, the cost of bringing the project into production, production schedules, production costs, sustaining capitalexpenditures, and site closure, restoration and environmental rehabilitation costs. Additionally, the reviews take intoaccount factors such as political, social and legal, and environmental regulations. These factors may change due tochanging economic conditions or the accuracy of certain assumptions and, hence, affect the recoverable amount. TheCompany uses its best efforts to fully understand all of the aforementioned to make an informed decision based uponhistorical and current facts surrounding its projects.

Provision for reclamation

The Company assesses its provision for reclamation on an annual basis or when new material information becomesavailable. Mining and exploration activities are subject to various laws and regulations governing the protection of theenvironment. In general, these laws and regulations are continually changing and the Company has made, and intends tomake in the future, expenditures to comply with such laws and regulations. Accounting for reclamation and remediationobligations requires management to make estimates of the future costs the Company will incur to complete thereclamation and remediation work required to comply with existing laws and regulations at each mining operation.

Actual costs incurred may differ from those amounts estimated. Also, future changes to environmental laws andregulations could increase the extent of reclamation and remediation work required to be performed by the Company.Increases in future costs could materially impact the amounts charged to operations for reclamation and remediation.The provision represents management’s best estimate of the present value of the future reclamation and remediationobligation. The actual future expenditures may differ from the amounts currently provided.

Cash

Cash includes cash on account, demand deposits and money market investments with maturities from the date ofacquisition of three months or less, which are readily convertible to known amounts of cash and are subject toinsignificant changes in value.

Short-term investments

Investments held for a period not exceeding one year or with an outstanding tenor to maturity not exceeding one yearare classified as short-term investments. Short-term investments are recorded at amortized cost with interest earnedwhile holding them reported as interest income in the statement of comprehensive loss.



Exploration and evaluation assets

Once a license to explore an area has been secured or an option agreement is signed and binding, expenditures onexploration and evaluation activities are capitalized to exploration and evaluation assets. Exploration expendituresrelate to the initial search for deposits with economic potential and to detailed assessments of deposits or other projectsthat have been identified as having economic potential. Management reviews the exploration and evaluation assetswhen events or changes in circumstances indicate that the carrying amount may not be recoverable. If the facts andcircumstances suggest the carrying value exceeds the recoverable amount, the carrying amount of the asset is reducedto its recoverable amount and an impairment loss is recognized in the statement of loss and comprehensive loss.

Once an economically viable reserve has been determined for an area and the decision to proceed with development hasbeen approved, exploration and evaluation assets attributable to that area are first tested for impairment and thenreclassified to resource properties within property, plant and equipment.

Income taxes

Income tax is recognized in profit or loss except to the extent that it relates to items recognized directly in equity, inwhich case it is recognized in equity. Current tax expense is the expected tax payable on the taxable income for theyear, using tax rates enacted or substantively enacted at year end, adjusted for amendments to tax payable with regardsto previous years.

Deferred tax is recorded using the asset-liability method, providing for temporary differences, between the carryingamounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Thefollowing temporary differences do not result in deferred tax assets or liabilities: goodwill not deductible for taxpurposes; the initial recognition of assets or liabilities that affect neither accounting or taxable loss; and differencesrelating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. Theamount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount ofassets and liabilities, using tax rates enacted or substantively enacted at the date of the balance sheet.

A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be availableagainst which the asset can be utilized. To the extent that the Company does not consider it probable that a future taxasset will be recovered, it does not recognize the asset. Deferred tax assets and liabilities are offset when there is alegally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxeslevied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a netbasis.

Share capital

The Company records proceeds from share issuances net of issue costs and any tax effects. The Company recordsproceeds from the exercise of stock options and warrants as share capital in the amount for which the option or warrantenabled the holder to purchase a share in the Company. Share capital issued for non-monetary consideration is recordedat the fair value of the non-monetary consideration received, or at the fair value of the shares issued if the fair value ofthe non-monetary consideration cannot be measured reliably, on the date of issue. The proceeds from the issue of unitsis allocated between common shares and common share purchase warrants on a pro-rata basis on a relative fair valuebasis, wherein, the fair value of the common shares is based on the market close on the date the units are issued; andthe fair value of the common share purchase warrants is determined using the Black-Scholes pricing model.

Loss per share

The Company presents basic loss per share for its common shares, calculated by dividing the loss attributable tocommon shareholders of the Company by the weighted average number of common shares outstanding during the year.Diluted loss per share does not adjust the loss attributable to common shareholders or the weighted average number ofcommon shares outstanding when the effect is anti-dilutive.



Financial instruments

Financial assets

The Company classifies its financial assets into the following categories:

Held-to-Maturity (“HTM”); Loans and receivables; and Available for sale (“AFS”).

Held to maturity (“HTM”)

These assets are non-derivative financial assets with fixed or determinable payments and fixed maturities that theCompany’s management has the positive intention and ability to hold to maturity. These assets are measured atamortized costs using the effective interest method. If there is objective evidence that the asset is impaired, determinedby reference to external credit ratings and other relevant indicators, the financial asset is measured at the present valueof estimated future cash flows. Any changes to the carrying amount of the investment, including impairment losses, arerecognized in the statement of loss and comprehensive loss.

Loans and receivables

Loans and receivables are financial assets with fixed or determinable payments that are not quoted on an active market.Such assets are initially recognized at fair value plus any direct attributable transaction costs. Subsequent to initialrecognition loans and receivables are measured at amortized cost using the effective interest method, less anyimpairment losses. This category includes cash, GST and other receivables, short-term investment, and restrictedreclamation deposits.

Available for sale (“AFS”)

Non-derivative financial assets not included in the above categories are classified as available-for-sale. They are carriedat fair value with changes in fair value recognized directly in equity. 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 equity andrecognized in the statement of loss and comprehensive loss.

Financial liabilities

Financial liabilities are classified into one of two categories:

Fair value through profit or loss; and Other financial liabilities

Fair value through profit or loss

This category comprises of derivatives, or liabilities acquired or incurred principally for the purpose of selling orrepurchasing it in the near term. They are carried in the balance sheet at fair value with the changes in fair valuerecognized in the statement of loss and comprehensive loss.

Other financial liabilities

This category includes trade and other payables and provision for government grants, all of which are recognized atamortized cost using the effective interest method.

Impairment of financial assets

Financial assets are assessed for indicators of impairment at the end of each reporting period. Financial assets areimpaired when there is objective evidence that, as a result of one or more events that occurred after the initialrecognition of the financial assets, the estimated future cash flows of the investments have been impacted.



For all 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 it becoming probable that the borrower will enter bankruptcy or financial re-organization.

For certain categories of financial assets, such as receivables, assets that are assessed not to be impaired individuallyare subsequently assessed for impairment on a collective basis. The carrying amount of financial assets is reduced bythe impairment loss directly for all financial assets with the exception of receivables, where the carrying amount isreduced through the use of an allowance account. When a receivable is considered uncollectible, it is written off againstthe allowance account. Subsequent recoveries of amounts previously written off are credited against the allowanceaccount. Changes in the carrying amount of the allowance account are recognized in the statement of loss andcomprehensive loss.

If, in a subsequent year, the amount of the impairment loss decreases and the decrease can be related objectively to anevent occurring after the impairment was recognized, the previously recognized impairment loss is reversed through thestatement of comprehensive loss to the extent that the carrying amount of the investment at the date the impairment isreversed does not exceed what the amortized cost would have been had the impairment not been recognized, unless thefinancial instrument is an equity instrument.

Fair value hierarchy

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transactionbetween market participants at the measurement date. The fair value hierarchy establishes three levels to classify theinputs to valuation techniques used to measure fair value, by reference to the reliability of the inputs used to estimatethe fair values.

Level 1 - Quoted prices in active in active markets for identical assets or liabilities.

Level 2 - Inputs other than quotes prices included within Level 1 that are observable for the asset or liability, eitherdirectly or indirectly.

Level 3 - Inputs for the asset or liability that are not based on observable market data.

Share-based payments

The Company grants stock options to certain directors, employees, and consultants of the Company. Each tranche in anaward is considered a separate award with its own vesting period and grant date fair value. Fair value of each tranche ismeasured at the date of grant using the Black-Scholes option pricing model. Compensation expense is recognized overthe tranche’s vesting period by increasing share-based payments reserve based on the number of awards expected tovest. The number of awards expected to vest is reviewed at least annually, with any impact being recognizedimmediately. Consideration received on the exercise of stock options is recorded as share capital and the related share-based payments reserve is transferred to share capital.

Currency translation

Items included in the financial statements of each of the group’s entities are measured using the currency of the primaryeconomic environment in which the entity operates (‘the functional currency’). The functional currency of EdgewaterExploration Ltd. (parent) and Mineira de Corcoesto, S.L. is the Canadian dollar and Euro respectively. The presentationcurrency of the consolidated financial statements is the Canadian dollar.



The results and financial position of subsidiaries that have a functional currency different from the presentationcurrency are translated into the presentation currency as follows:

Assets and liabilities are translated at the period-end exchange rate; Income and expenses for each statement of income are translated at average exchange rates for the period;

and All resulting exchange differences are recognized in other comprehensive income as cumulative translation

adjustments.

On consolidation, exchange differences arising from the translation of the net investment in foreign entities are taken toother comprehensive income as foreign currency translation reserve. When a foreign operation is sold or control is lost,such exchange differences are recognized in the consolidated statement of loss and comprehensive loss as part of thegain or loss on disposition.

Property and equipment

Property and equipment is carried at cost, less accumulated depreciation and accumulated impairment losses. Costcomprises the fair value of consideration given to acquire or construct an asset and includes the direct chargesassociated with bringing the asset to the location and condition necessary for putting it into use, along with the futurecost of dismantling and removing the asset.

When parts of an item of property and equipment have different useful lives, they are accounted for as separate items(major components) of property and equipment. The cost of major overhauls of parts of property and equipment isrecognized in the carrying amount of the item if it is probable that the future economic benefits embodied within thepart will flow to the Company, and its cost can be measured reliably. The carrying amount of the replaced part isderecognized. The costs of the day-to-day servicing of property and equipment are recognized in profit or loss asincurred.

Equipment associated with mining operations is depreciated over the estimated useful lives of the assets either on aunits-of-production basis or declining balance basis at a rate of 20% per annum. All other equipment is amortized overthe estimated useful life of the assets using the declining balance method at rates of 20% to 55% per annum, asappropriate. Leasehold improvements are amortized on a straight-line basis over the term of the lease. Land is notsubject to depreciation. Depreciation methods and useful lives are reviewed at each reporting date and adjusted asrequired.

Provision for reclamation

The Company holds provisions for close down and restoration costs which include the remediation of disturbed areas.Close down and restoration costs are a normal consequence of mining. Although the ultimate cost to be incurred isuncertain, the Company estimates reclamation costs based on the best available information. Estimated close down andrestoration costs are provided for in the accounting year when the obligation arising from the related disturbanceoccurs, whether this occurs during the mine development or during the production phase, based on the net present valueof estimated future costs. Provisions for close down and restoration costs do not include any additional obligationswhich are expected to arise from future disturbance. The cost estimates are updated periodically during the life of theoperation to reflect known developments, e.g., revisions to cost estimates and to the estimated lives of operations, andare subject to formal review at regular intervals.

The initial closure provision together with other movements in the provisions for close down and restoration costs,including those resulting from new disturbances, updated cost estimates, changes to the estimated lives of operationsand revisions to discount rates are capitalized within exploration and evaluation costs. These costs are then depreciatedover the lives of the assets to which they relate. The amortization or “unwinding” of the discount applied in establishingthe net present value of provisions is charged to the income statement each year. The amortization of the discount isshown as a finance cost. Where rehabilitation is conducted systematically over the life of the operation, rather than atthe time of closure, provision is made for the estimated outstanding continuous rehabilitation work at each statement offinancial position date and the cost is charged to the statement of loss and comprehensive loss.



Other provisions and liabilities are recognized in the year when it becomes probable that there will be a future outflowof funds resulting from past operations or events and the amount of cash outflow and timing can be reliably estimated.The timing of recognition and quantification of the liability requires the application of judgment to existing facts andcircumstances, which can be subject to change. A change in estimate of a recognized provision or liability would resultin a charge or credit to net income in the year in which the change occurs, with the exception of close down andrestoration costs described above. If the effect of the time value of money is material, provisions are determined bydiscounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value ofmoney and the risks specific to the liability. Contingent liabilities are possible obligations whose existence will only beconfirmed by future events not wholly within the control of the Company. Contingent liabilities are not recognized inthe financial statements but are disclosed unless the possibility of an outflow of economic resources is consideredremote.

Provision for government grants

Provision for government grants relates to loans granted by governmental authorities in Spain for the exploration ofmineral deposits. If the government deems these projects as unsuccessful, the loans will be forgiven and credited to therelated exploration and evaluation costs or the statement of loss and comprehensive loss as subsidy revenue. Provisionfor government grants are measured at their fair value on initial recognition. After initial measurement, provision forgovernment grants are measured at their amortized cost using the effective interest method with the unwinding of thediscount being recognized as finance costs on the statement of loss and comprehensive loss for the year.

Recent accounting pronouncements

The Company has adopted the new and revised standards and interpretations issued by the IASB listed below effectiveJanuary 1, 2014. These changes were made in accordance with the transitional provisions outlined in the respectivestandards and interpretations. Amendment to IAS 32, Financial Instruments: Presentation, on offsetting financial assetsand financial liabilities. This amendment clarifies that the right of set-off must not be contingent on a future event. Itmust also be legally enforceable for all counterparties in the normal course of business, as well as in the event ofdefault, insolvency or bankruptcy. The amendment also considers settlement mechanisms. The amendment did not havean effect on the Company’s financial statements.

Amendments to IAS 36, Impairment of Assets (“IAS 36”), on the recoverable amount disclosures for non-financialassets. This amendment removed certain disclosures of the recoverable amount of CGUs which had been included inIAS 36 by the issue of IFRS 13, Fair Value Measurement (“IFRS 13”). The amendments did not impact the Company’sfinancial statements.

IFRIC 21, Levies, sets out the accounting for an obligation to pay a levy if that liability is within the scope of IAS 37,Provisions. The interpretation addresses what the obligating event is that gives rise to pay a levy and when a liabilityshould be recognized. The interpretation had no impact on the Company’s financial statements.

A number of new standards and amendments to standards and interpretations are effective for annual periods beginningafter January 1, 2015, and have not been applied in preparing these consolidated financial statements. Those standardswith the potential to impact the Company are as follows:

IFRS 9, Financial Instruments (“IFRS 9”), addresses the classification, measurement and recognition of financial assetsand financial liabilities. The complete version of IFRS 9 was issued in July 2014. It replaces the guidance in IAS 39that relates to the classification and measurement of financial instruments. IFRS 9 retains but simplifies the mixedmeasurement model and establishes three primary measurement categories for financial assets: amortized cost, fairvalue through other comprehensive income (“OCI”) and FVTPL. There is now a new expected credit losses model thatreplaces the incurred loss impairment model used in IAS 39. For financial liabilities there were no changes toclassification and measurement except for the recognition of changes in own credit risk in OCI, for liabilitiesdesignated at FVTPL. The standard is effective for accounting periods beginning on or after January 1, 2018. Earlyadoption is permitted. The Company is currently assessing the impact of IFRS 9.

There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a materialimpact on the Company.


3. GST AND OTHER RECEIVABLES

2014 2013

Value added tax credits $ 16,266 $ 629,505Other receivables 34,101 -

$ 50,367 $ 629,505

4. SHORT-TERM INVESTMENT

Guaranteed investment certificate (“GIC”) with a principal value of $190,000 (2013 – $380,000) is held with aCanadian chartered bank as at December 31, 2014. The GIC is for a 1-year term, redeemable at any time withoutpenalty, and earns an interest rate of approximately 1.10% per annum.

5. PREPAID EXPENSES

2014 2013

Security deposit – office lease $ 30,000 $ 30,000Insurance 10,083 17,307Advances - 12,954Rent paid in advance 10,056 9,574Other 1,546 3,405

$ 51,685 $ 73,240

6. EXPLORATION AND EVALUATION ASSETS

Enchi Gold ProjectGhana

Corcoesto Gold ProjectSpain

2014 2013 2014 2013 2014 2013

Acquisition costsBalance, beginning of year $ 506,427 $ 506,427 $ 7,379,370 $ 7,379,370 $ 7,885,797 $ 7,885,797Impairment charge/loss on disposal (506,427) - (7,379,370) - (7,885,797) -Balance, end of year $ - $ $506,427 $ - $ 7,379,370 $ - $ 7,885,797

Exploration expendituresBalance, beginning of year $ 11,270,753 $ 9,519,741 $ 19,037,373 $ 12,006,093 $ 30,308,126 $ 21,525,834

Camp costs 18,949 46,229 - - 18,949 46,229Consulting - - 123,434 551,941 123,434 551,941Drilling - 4,210 - 298,740 - 302,949Equipment rental - - - 3,302 - 3,302Feasibility study - - 4,709 2,056,827 4,709 2,056,827General and administrative 3,231 25,210 31,350 164,474 34,581 189,684Geochemistry - 52,720 170 152,525 170 205,245Logistics - - - 9,295 - 9,295Management fees 58,245 192,887 43,613 158,601 101,859 351,488Permits and licenses 37,520 1,683 - 27,698 37,520 29,381Public relations 73 1,107 41,792 299,071 41,866 300,178Repairs and maintenance 6,251 - - 12,130 6,251 12,130Resource estimate 53,691 - - - 53,691 -Salaries and wages 90,081 516,905 202,173 1,148,010 292,253 1,664,916Share-based compensation 10,007 37,553 58,993 202,419 69,000 239,972Travel and lodging 1,084 - 25,600 285,123 26,684 285,123Vehicle rental 23,613 109,389 20,953 62,444 44,566 171,832

$ 302,745 $ 987,893 $ 552,788 $ 5,432,599 $ 855,533 $ 6,420,492Impairment charge/loss on disposal (6,589,363) - (19,234,986) - (25,824,349) -Disposition of mineral property (4,756,555) - - - (4,756,555) -Revaluation (Note 10) - - (453,863) - (453,863) -Foreign exchange (227,580) 763,119 98,687 1,598,681 (128,893) 2,361,800Balance, end of year $ - $ 11,270,753 $ - $ 19,037,373 $ - $ 30,308,126

Cumulative exploration andevaluation costs $ - $ 11,777,179 $ - $ 26,416,741 $ - $ 38,193,922


6. EXPLORATION AND EVALUATION ASSETS (cont’d.)

a) Corcoesto Gold Project, Spain

The Company acquired Mineira de Corcoesto, S.L. (“Mineira”) (formerly Rio Narcea Gold Mines S.L.) from LundinMining Corporation (“Lundin”) for US$8,000,000 in 2010. Mineira owns a 100% interest in the Malpica-Tuy Goldproject including the Corcoesto Gold Deposit in northwest Spain as well as an additional 7 gold and gold-copperprojects in southwest Spain. Lundin retains a 1.5% net smelter return (“NSR”) royalty (“Lundin NSR Royalty”) uponthe commencement of commercial production from the Corcoesto Gold Project subject to Edgewater having the right tore-purchase 1.0% of the Lundin NSR Royalty at any time for US$1,500,000.

In 2012, the Company created and sold to an arm’s length third party a 1.0% NSR royalty on production from theCorcoesto Gold Project for gross proceeds of $3,426,500. The net proceeds on the sale of $3,210,342 (which is net ofcosts of $216,158) were recorded as deferred royalty on the balance sheet and will be amortized to revenue over the lifeof the mine based on a “units of production” method. As at December 31, 2014, the value of the deferred royalty is$3,591,683 once translated into the presentation currency. In addition, the Company sold to the same party its right tothe Lundin NSR Royalty for gross proceeds of $489,500. The net proceeds were applied against the carrying value ofthe Corcoesto Gold Project.

The Company signed a contract with Tetra Tech Company (“Tetra Tech”) to complete a National Instrument 43-101compliant feasibility study for the Corcoesto Gold Project during 2012. An advance payment of $283,601 was paid toTetra Tech during in 2012. On March 8, 2013, the Company terminated its contract with Tetra Tech. The Companyapplied the entire advance payment against all outstanding payables as at December 31, 2013 which resulted in theremaining balance of $138,999 being written-off during 2013.

During 2013, the Company engaged Micon International (“Micon”), KD Engineering, and a subsidiary of GolderAssociates to complete a definitive feasibility study and feasibility-level engineering design for the Corcoesto GoldProject. On May 2, 2013, a deposit of $100,000 was paid to Micon which was to be applied against future invoices. Thedeposit was applied against existing invoices during 2014.

During 2013, the Company wrote-off $136,904 in land purchase options acquired during 2012 and 2013. These landpurchase options, which expired unexercised, were for land parcels surrounding the Corcoesto Gold Project that gavethe Company an option to purchase the land at an agreed upon price prior to the expiry date.

During 2013, the Galician Government took the view that the Company had failed to demonstrate the requisitetechnical expertise and financial ability to fund the development of the Corcoesto Gold Project, even while thefeasibility process was still being completed. The Galician Government took the view that the Company and itssubsidiary had to demonstrate funding sources in the amount of €30 million, which is approximately 25% of the totalcapital costs estimated by the Company in its previous engineering studies. On March 20, 2014, the Company wasnotified by the Galician authorities that its permitting applications had been denied. Notwithstanding the foregoing,based on discussions with the Galician Government, the Company understands that: (i) Edgewater's approved EIS forthe Corcoesto Gold Project remains in good standing until December 2017; and (ii) Edgewater may re-apply for finalCorcoesto mining permits at any time once the financial and technical (operational) requirements as formulated by theGalician Government in 2013 are met.

As at December 31, 2014, given the lack of progress in discussions and uncertainties of a fair outcome, the Companydecided to write-off the entire carrying value of the Corcoesto Gold Project. The Company recognized an impairmentcharge on the Corcoesto Gold Project of $26,614,356 during the year ending December 31, 2014.


6. EXPLORATION AND EVALUATION ASSETS (cont’d.)

b) Enchi Gold Project, Ghana

On May 5, 2010, the Company entered into an option agreement with Kinross Gold Corporation (“Kinross”), pursuantto which the Company acquired an option to earn an undivided 51% interest in Kinross’ legal and beneficial ownershipin the Enchi Gold Project in Ghana, representing a 45.9% direct interest in the Enchi Gold Project after taking intoaccount the 10% project interest held by the Government of Ghana. Edgewater was required to spend a total of $5.0million on work expenditures on the project within 26 months of the closing of the transaction in order to earn 51% ofKinross’ ownership in the Enchi Gold Project licenses. Edgewater earned and vested in the 51% interest in the EnchiGold Project during 2012.

As consideration, Edgewater issued to Kinross 2,500,000 common share purchase warrants exercisable at $0.50 percommon share and 2,500,000 common share purchase warrants (collectively the “Enchi Warrants”) exercisable at$1.00 per common share. The Enchi Warrants are exercisable until September 21, 2015 and are only exercisable byKinross if Edgewater is able to delineate at least 3.0 million National Instrument 43-101 compliant ounces of gold inthe Measured and Indicated resource categories on the Enchi Gold Project. The Enchi Warrants were cancelled during2014 as a result of the disposition transaction with Pinecrest Resources Ltd. discussed below.

On December 5, 2014, the Company completed the disposition of the Enchi Gold Project to Pinecrest Resources Ltd.(“Pinecrest”) (TSX-V: PCR), a related party to Edgewater. Edgewater sold 100% interest in Cape Coast ResourceLimited (“CCRL”), the Ghanaian entity that holds a 51% interest in the Enchi Gold Project through a joint ventureagreement with Red Back Mining Ghana Limited (“RBMGL”), a subsidiary of Kinross, in exchange for shares ofPinecrest. Immediately upon closing, Edgewater distributed the Pinecrest shares pro-rata to the shareholders ofEdgewater in accordance with their share ownership of Edgewater as a return of capital.

Details of the sale transaction with Pinecrest are as follows:

Edgewater received one Pinecrest post-consolidated common share (the “Acquisition Shares”) for every fivecommon shares of Edgewater issued and outstanding on the closing date, which represented approximately 40%of the issued common shares of Pinecrest post-closing of the transaction. The total number of Acquisition Sharesissued to Edgewater was 20,938,887 shares valued at $4,606,555 using Pinecrest’s share price on the date of thetransaction; and

Pinecrest paid Edgewater a cash payment of $150,000.

The aggregate consideration received from Pinecrest of $4,756,555 was credited to exploration and evaluation assets asdisposition of mineral property. The transaction with Pinecrest resulted to the Company recognizing a loss of$7,095,790 calculated as follows:

Consideration from Pinecrest:Common shares of Pinecrest $ 4,606,555Cash 150,000

Total consideration $ 4,756,555Enchi Gold Project, cost (12,142,516)Reclassification of CTA from AOCI upon disposal of subsidiary 290,171Loss on disposal of subsidiary $ (7,095,790)


7. RECLAMATION DEPOSITS

2014 2013

Opening balance $ 1,800,746 $ 1,610,911Return of reclamation deposits (356,266) -Foreign exchange (59,240) 189,835Ending balance $ 1,385,240 $ 1,800,746

During 2014, reclamation bonds amounting to $356,266 (equivalent to € 242,952) were returned to the Company. Thefunds returned relate to a bank guarantee for a subsidy from the Ministry of Industry of Spain and unallocatedreclamation deposits. Subsequent to the year ending December 31, 2014, reclamation deposits totaling $509,853(equivalent to €370,721) were returned to the Company. The Company has applied to authorities to have all remainingdeposits related to El Valle reclamation returned to the Company as the Company has fulfilled its obligation in respectto this property.

8. TRADE AND OTHER PAYABLES

2014 2013

Trade payables $ 587,022 $ 1,154,766Payables due to related parties 129,241 142,385Accruals 40,000 127,500

$ 756,263 $ 1,424,651

Amounts due to related parties relate to unpaid fees incurred in the normal course of operations. The amounts outstandingare unsecured and will be settled in cash. No guarantees have been given or received. These related party payables haveno interest or specific repayments terms. All related party transactions were recorded at the amount agreed upon by therelated parties.


9. PROVISION FOR GOVERNMENT GRANTS

2014 2013

Opening balance $ 398,501 $ 401,052Installment payments (151,025) (46,278)Foreign exchange (8,395) 43,727

239,081 398,501Less: current portion (95,633) (99,625)Ending balance $ 143,448 $ 298,876

The Company has a payment plan with the Spanish government to commenced paying back the government grants inten semi-annual instalments beginning in 2012. The principal balance of €338,355 will be paid in two instalments peryear of €33,835 each before or on January 1st and July 1st. Interest will be applied on the remaining balance based onthe October Euribor rate of the preceding year in which will be paid by the Company at each payment interval.

10. PROVISION FOR RECLAMATION

2014 2013

Opening balance $ 562,510 $ 682,972Reclamation spending - (201,501)Change in valuation (453,863) -Foreign exchange (31,039) 70,042Accretion expense - 10,996Ending balance $ 77,608 $ 562,510

Provision for reclamation relates to the environmental rehabilitation and restoration of the El Valle and Carlésproperties in Spain, which had previously been owned by Rio Narcea Gold Mines, S.L. prior to the Company’sacquisition of the Corcoesto Gold Project from Lundin. The provision is recognized for the present value of the costs tobe incurred for the restoration of the mining sites.

As at December 31, 2014, the Company has fulfilled all site reclamation work relating to the El Valle property. As aresult, the Company revalued its reclamation obligation to solely reflect the reclamation cost associated with the Carlésproperty. The undiscounted reclamation obligation estimated for Carlés is $77,608. Management presently does nothave an estimated timeline for remediation of the Carlés property


11. SHARE CAPITAL

The authorized share capital of the Company is comprised of an unlimited number of common shares without parvalue.

(a) Private Placements

(i) On January 7, 2014, the Company completed a non-brokered private placement of $790,000. The privateplacement consisted of the Company issuing 15,800,000 units at a price of $0.05 per unit for gross proceeds of$790,000. Each unit consists of one common share and one common share purchase warrant. Each warrantentitles the holder to acquire an additional common share for $0.10 until January 7, 2019. Share issuance costspaid in cash amounted to $38,094. Edgewater paid finder's fees totaling $15,000 in cash and issued 100,000 unitsin connection with the private placement. The Company allocated $295,892 of the net proceeds to the fair valueof the warrants issued in connection with the financing with the remaining $456,015 allocated to share capital.The Company also allocated $5,859 of the net proceeds to the fair value of the warrants issued as finder’s feeswith the offsetting reduction to share capital. The fair value of the warrants was determined using the Black-Scholes pricing model with a risk free rate of 1.91%, a volatility factor of 103.05%, and an expected life of fiveyears. Insiders of the Company participated in the private placement by acquiring 5,800,000 units of the15,800,000 units issued.

(ii) On February 13, 2013, the Company completed a $5,000,000 private placement basis consisting of11,112,000 common shares at a price of $0.45 per common share. The Company paid the underwriters a cashcommission equal to 6% of the gross proceeds of the offering as well as 666,720 broker warrants exercisable at$0.47 per common share until February 13, 2015. The Company allocated $91,420 of the net proceeds to the fairvalue of the broker warrants issued in connection with this financing with the remaining $4,485,061 allocated toshare capital. The fair value of the broker warrants was determined using the Black-Scholes pricing model with arisk free rate of 1.15%, a volatility factor of 63%, and an expected life of two years. Share issuance costs settledin cash amounted to $423,920.

(b) Stock Options

The maximum number of stock options that the Company may grant under its current Stock Option Plan is 13,500,000.As at December 31, 2014, the Company has 3,100,000 stock options available for grant. All stock options granted aresubject to the following vesting schedule: 25% at grant date and 25% every six months thereafter.

During 2014, the Company granted 3,075,000 stock options to directors, officers, employees and consultants of theCompany. The stock options are at an exercise price of $0.10 per share and are valid for a period of five years from thedate of grant. During 2013, the Company granted 350,000 stock options to an officer of the Company and 300,000stock options to a consultant. The stock options were granted at an exercise price of $0.50 and $0.20 per sharerespectively. The fair value of the stock options granted has been estimated at the grant date using the Black-Scholesoption pricing model with the following assumptions:

2014 2013

Share price on grant dates $0.10 $0.35 /$0.17Weighted average risk-free interest rate 1.51% 1.56%Weighted average expected life 5.00 5.00Weighted average expected share price volatility 92.28% 108%Weighted average expected dividend yield Nil NilWeighted average expected forfeiture Nil Nil

The total fair value of stock option compensation during the year was $148,247 (2013 - $371,620) of which $79,247was expensed and $69,000 was capitalized into exploration and evaluation assets.


11. SHARE CAPITAL (cont’d.)

A summary of the Company’s stock options as at December 31, 2014 is presented below:

Exerciseprice

January 1,2014 Granted Forfeited Expired

December 31,2014 Expiry date

Remainingcontractuallife in years

Number ofoptionsvested

$0.10 300,000 - - (300,000) - June 8, 2014 - -$0.30 200,000 - - - 200,000 April 5, 2015 0.26 200,000$0.61 1,300,000 - - - 1,300,000 May 5, 2015 0.34 1,300,000$1.00 200,000 - - - 200,000 June 1, 2015 0.42 200,000$0.85 400,000 - - - 400,000 July 12, 2015 0.53 400,000$1.15 250,000 - - - 250,000 November 8, 2015 0.85 250,000$1.10 100,000 - - - 100,000 January 10, 2016 1.03 100,000$0.85 250,000 - - - 250,000 March 29, 2016 1.24 250,000$0.82 100,000 - - - 100,000 April 14, 2016 1.29 100,000$0.85 1,625,000 - - (25,000) 1,600,000 August 2, 2016 1.59 1,600,000$0.66 250,000 - - - 250,000 November 8, 2016 1.86 250,000$0.52 400,000 - - - 400,000 January 9, 2017 2.03 400,000$0.40 1,630,000 - - (5,000) 1,625,000 October 11, 2017 2.78 1,625,000$0.40 25,000 - - - 25,000 November 22, 2017 2.90 25,000$0.50 350,000 - - - 350,000 April 5, 2018 3.26 350,000$0.20 300,000 - - - 300,000 August 30, 2018 3.67 225,000$0.10 - 3,075,000 (18,750) (6,250) 3,050,000 July 14, 2019 4.54 762,500

7,680,000 3,075,000 (18,750) (336,250) 10,400,000 8,037,500

$0.62 $0.10 $0.10 $0.16 $0.48 Weighted average exercise price

A summary of the Company’s stock options as at December 31, 2013 is presented below:

Exerciseprice

January 1,2013 Granted Forfeited Expired



Number ofoptionsvested

$0.10 300,000 - - - 300,000 June 8, 2014 0.44 300,000$0.30 200,000 - - - 200,000 April 5, 2015 1.26 200,000$0.61 1,300,000 - - - 1,300,000 May 5, 2015 1.34 1,300,000$1.00 200,000 - - - 200,000 June 1, 2015 1.42 200,000$0.85 400,000 - - - 400,000 July 12, 2015 1.53 400,000$1.15 250,000 - - - 250,000 November 8, 2015 1.85 250,000$1.10 100,000 - - - 100,000 January 10, 2016 2.03 100,000$0.85 250,000 - - - 250,000 March 29, 2016 2.24 250,000$0.82 225,000 - - (125,000) 100,000 April 14, 2016 2.29 125,000$0.85 1,625,000 - - - 1,625,000 August 2, 2016 2.59 1,625,000$0.66 250,000 - - - 250,000 November 8, 2016 2.86 250,000$0.80 150,000 - - (150,000) - December 1, 2013 - -$0.52 400,000 - - - 400,000 January 9, 2017 3.03 400,000$0.40 1,660,000 - (15,000) (15,000) 1,630,000 October 11, 2017 3.78 1,222,500$0.40 25,000 - - - 25,000 November 22, 2017 3.90 18,750$0.50 - 350,000 - - 350,000 April 5, 2018 4.26 175,000$0.20 - 300,000 - - 300,000 August 30, 2018 4.67 75,000

7,335,000 650,000 (15,000) (290,000) 7,680,000 6,891,250$0.65 $0.36 $0.40 $0.79 $0.62 Weighted average exercise price


11. SHARE CAPITAL (cont’d.)

c) Share Purchase Warrants

A summary of the Company’s share purchase warrants as at December 31, 2014 is presented below:

Exerciseprice

January 1,2014 Issued Cancelled



$0.50 2,500,000 - (2,500,000) - June 21, 2015 -$1.00 2,500,000 - (2,500,000) - June 21, 2015 -$0.47 666,720 - - 666,720 February 13, 2015 0.12$0.10 - 15,900,000 - 15,900,000 January 7, 2019 4.02

5,666,720 15,900,000 (5,000,000) 16,566,720

$0.72 $0.10 $0.75 $0.11 Weighted average exercise price

A summary of the Company’s share purchase warrants as at December 31, 2013 is presented below:

Exerciseprice

January 1,2013 Issued Expired



$0.50 2,500,000 - - 2,500,000 June 21, 2015 1.47$1.00 2,500,000 - - 2,500,000 June 21, 2015 1.47$1.40 5,206,500 - (5,206,500) - September 21, 2013 -$1.40 2,600,000 - (2,600,000) - October 7, 2013 -$1.10 6,515,000 - (6,515,000) - June 16, 2013 -$1.10 360,000 - (360,000) - June 28, 2013 -$0.50 2,436,250 - (2,436,250) - September 25, 2013 -$0.47 - 666,720 - 666,720 February 13, 2015 1.12

22,117,750 666,720 (17,117,750) 5,666,720

$1.06 $0.47 $1.15 $0.72 Weighted average exercise price

12. GAIN ON SALE OF LAND

During 2014, the Company sold land parcels relating to the El Valle property in Spain for total proceeds of $280,992(equal to €189,900). The land parcels are outside of the Corcoesto Gold Project. The land had a carrying value of $nil,thus the total amount of proceeds has been recorded as a gain in the statement of loss and comprehensive loss.

13. RELATED PARTY TRANSACTIONS

Key management includes the Company’s senior management and members of the Board of Directors.Compensation of key management is as follows:

2014 2013

Short-term benefits $ 272,860 $ 1,053,579Share-based payments 114,058 261,826

$ 386,918 $ 1,315,405


14. COMMITMENTS

a) The Company has a five-year office rental lease agreement which will expire in June 30, 2020. All lease costs of theCompany are expensed in the year incurred. The future lease obligation of the Company under this agreement is asfollows:

2015 2016 2017 2018 2019+

Lease obligation $113,872 $107,069 $109,222 $111,375 $167,062

b) The Company has several management consulting agreements in place with terms ranging up to three years. TheCompany may terminate these agreements for any reason (other than by the expiry of the term or change of control)with a lump sum payment equal to the consultants’ annual compensation. The aggregate lump sum that the Companywould have to pay should it decide to terminate these agreements is $930,000 based on existing management consultingagreements.

15. SEGMENTED INFORMATION

The Company’s business is the acquisition, exploration, evaluation, and development of mineral resource properties,which is currently conducted principally in Spain. The Company’s Ghanaian subsidiary was sold in 2014 (Note 6(b)). TheCompany is in the exploration stage and accordingly, has no reportable segment revenues.

2014 2013Assets by geographic location, at cost

CanadaTotal assets $ 290,437 $ 14,721,101Total liabilities $ 478,233 $ 1,082,348Net loss for the year $ 708,607 $ 1,679,743

GhanaTotal assets $ - $ 8,254,452Total liabilities $ - $ 27,606Net loss for the year $ 7,095,790 $ 17,846Write-down of mineral property $ 7,095,790 $ -

SpainTotal assets $ 1,654,347 $ 18,762,090Total liabilities $ 4,186,401 $ 4,747,883Net loss for the year $ 26,436,874 $ 385,930Write-down of mineral property $ 26,614,356 $ -Gain on sale of land $ 280,992 $ -

16. FINANCIAL INSTRUMENTS

The Company’s financial assets and liabilities consist of cash, GST and other receivables, short-term investments,reclamation deposits, trade and other payables, and government grants.

(a) Liquidity Risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. TheCompany attempts to ensure there is sufficient access to funds to meet short-term business requirements. One ofmanagement’s goals is to maintain an optimal level of liquidity through the active management of the Company’s assets,liabilities, and cash flows. The Company prepares annual budgets which are approved by the Board of Directors andprepares cash flows and liquidity forecasts when appropriate. The Company’s cash is held as cash deposits or invested inGICs which are available on demand to fund the Company’s short-term financial obligations. All current liabilities are duewithin the next 12 months. For further discussion, see Note 1 of the financial statements.


16. FINANCIAL INSTRUMENTS (cont’d.)

(b) Credit Risk

The Company’s credit risk is primarily attributable to its cash and GST and other receivables. The risk exposure islimited to their carrying values at the balance sheet date. Cash are held as cash deposits or invested in GICs withcounterparties that carry investment grade ratings as assessed by external rating agencies. GST and other receivablesconsist mainly of refundable value added tax credits.

(c) Market Risks

The significant market risks to which the Company is exposed are currency risk and interest rate risk. The Companydoes not currently use derivative or hedging instruments to reduce its exposure to fluctuations in such risks.

i) Currency Risk

The Company’s functional currencies are the Canadian dollar and Euro. The Company is exposed to foreigncurrency risk on cash and receivable balances and the settlement of purchases that are denominated in other than thefunctional currencies. With all other variables held constant, the Company’s shareholders’ equity and earnings aftertax would both increase (decrease) due to changes in the carrying value of monetary assets and liabilities.

ii) Interest Rate Risk

The Company’s interest rate risk arises from the interest earned on its deposits, short-term investments, and theinterest charged on the repayable government grants. Deposits including its short-term investments are invested on ashort-term basis to enable adequate liquidity for payment of operational and capital expenditures. The Company’sother financial assets and liabilities are not subject to interest rate risk since they do not bear interest.

(d) Capital Management

The Company’s objectives in managing its capital resources are to safeguard the entity’s ability to continue as a goingconcern and maximize returns to shareholders in the context of the market. The Company satisfies its capitalrequirements through management of its cash resources and by utilizing equity issues, as necessary, based on theprevailing economic conditions of both the industry and the capital markets and the underlying risks characteristics ofthe related assets. The Company’s principal source of capital is from the issuance of common shares. To meet theobjectives, management monitors the Company’s ongoing capital requirements against net working capital and assessesadditional capital requirements on a case-by-case basis. The Company is not subject to any externally imposed capitalrequirements. The capital structure of the Company consists of equity attributable to common shareholders, comprisingof issued capital, share-based payments reserve, warrants reserve, accumulated other comprehensive income, andaccumulated deficit.


17. INCOME TAXES

The reconciliation of the income tax provision computed at statutory rates to the reported income tax provision for theyears ended December 31 is as follows:

2014 2013

Loss for the year before income taxes $ (34,241,279) $ (2,083,520)Effective statutory rate 26% 25.75%Expected income tax recovery $ (8,902,733) $ (536,506)Non-deductible expenses 5,090,240 (38,222)Share issue costs (135,624) (130,995)Tax assets derecognized (145,471) (204,892)Effect of tax rate difference between Canada and foreigncountries 589,849 17,315Other items (279,345) (10,851)Change in tax benefits not recognized 3,783,083 904,151

$ - $ -

Deferred income tax assets and liabilities reflect the net effects of temporary differences between the carrying amountof assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The significantcomponents of the Company’s deferred income tax assets and liabilities as at December 31 are as follows:

2014 2013

Deferred income tax assets not recognized:Non-capital loss carry forwards $ 9,245,493 $ 5,195,095Undeducted share issue costs 135,624 257,468Provision for reclamation costs 23,282 168,753

$ 9,404,399 $ 5,621,316

The Company has non-capital losses of approximately $31 million (2013 - $18 million), which can be used to reducetaxable income in future years. Non-capital loss carry-forwards in Canada and Spain are approximately $8 million and$23 million respectively. These non-capital loss carry-forwards are subject to expire between 2015 and 2034.

In accordance with Spain legislation, income taxes cannot be considered definitive until they have been inspected andagreed by the Spanish tax authorities or before the relevant inspection year has lapsed. As a consequence of thedifferent fiscal legislation interpretation, additional liabilities could arise from such tax inspections. Management doesnot expect that such tax liabilities, if they occur, will significantly affect the accounts of the Company.

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