heatherdale resources ltd. · to hunter dickinson services inc. ... , 2014, the company retained an...

HeatherdaleResourcesLtd.

CONDENSEDCONSOLIDATEDINTERIMFINANCIALSTATEMENTS

THREEMONTHSENDEDJANUARY31,2014

(ExpressedinUnitedStatesDollars,unlessotherwisestated)

(Unaudited)

NoticeofNoAuditorReviewofCondensedConsolidatedInterimFinancialStatements

In accordance with National Instrument 51‐102 Part 4, subsection 4.3(3)(a), if an auditor has not performeda review of these condensed consolidated interim financial statements they must be accompanied by a noticeindicating that the condensed consolidated interim financial statements have not been reviewed by anauditor.

The accompanying unaudited condensed consolidated interim financial statements of the Company havebeenpreparedbyandaretheresponsibilityoftheCompany'smanagement.

HeatherdaleResourcesLtd.CondensedConsolidatedInterimStatementsofFinancialPosition(Unaudited‐ExpressedinUnitedStatesDollars)

January31 October31Notes 2014 2013

ASSETS

Non‐currentassetsExplorationandevaluationassets 3 777,894$ 802,888$Restrictedcash 5 704,960 704,960

Totalnon‐currentassets 1,482,854 1,507,848

CurrentassetsAmountsreceivableandprepaidexpenses 4 44,211 63,944Cashandcashequivalents 5 411,615 692,937

Totalcurrentassets 455,826 756,881

TotalAssets 1,938,680$ 2,264,729$

EQUITY(DEFICIENCY)

Sharecapital 6 48,569,526$ 48,512,805$Reserves 4,038,088 4,026,555Accumulateddeficit (53,210,899) (52,550,922)

Totaldeficiency (603,285) (11,562)

LIABILITIES

Non‐currentliabilitiesConvertibledebenture 7 473,413 407,307Provisionforrehabilitationobligation 8 1,409,959 1,409,959

Totalnon‐currentliabilities 1,883,372 1,817,266

CurrentLiabilitiesDerivativefinancialliabilities 9 2,837 2,454Payablestorelatedparties 10 528,338 361,288Tradeandotherpayables 11 127,418 95,283

Totalcurrentliabilities 658,593 459,025

TotalEquityandLiabilities 1,938,680$ 2,264,729$

Theaccompanyingnotesareanintegralpartofthesecondensedconsolidatedinterimfinancialstatements

TheyaresignedontheCompany'sbehalfby:

/s/PatrickSmith /s/JudyThomson

PatrickSmith JudyThomsonDirector Director

ThesecondensedconsolidatedinterimfinancialstatementsareauthorizedforissuebytheBoardofDirectorsonMarch28,2014.

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HeatherdaleResourcesLtd.CondensedConsolidatedInterimStatementsofComprehensiveLoss(Unaudited‐ExpressedinUnitedStatesDollars) ThreemonthsendedJanuary31

Notes 2014 2013

Expenses 14Explorationandevaluationexpenses 251,081$ 874,266$Generalandadministrationexpenses 243,523 433,456Share‐basedcompensation 11,533 84,958

Lossfromoperatingactivities 506,137 1,392,680

Foreignexchange(gain)loss (3,997) (53)Interestincome (803) (4,561)Lossonconvertibledebenture 2(d),7 158,257 207,067Loss(gain)onderivativefinancialliabilities 9 383 (59,437)Transactioncostsonissueofconvertibledebenture 7 – 210,159

Lossbeforeincometaxes 659,977 1,745,855Incometaxes 13 – –

Lossandcomprehensivelossfortheperiod 659,977$ 1,745,855$

Basicanddilutedlosspercommonshare 6(b) 0.01$ 0.01$

Theaccompanyingnotesareanintegralpartofthesecondensedconsolidatedinterimfinancialstatements.

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HeatherdaleResourcesLtd.CondensedConsolidatedInterimStatementsofCashFlows(Unaudited‐ExpressedinUnitedStatesDollars)

ThreemonthsendedJanuary31Notes 2014 2013

CashflowsfromoperatingactivitiesLossfortheperiod (659,977)$ (1,745,855)$

Adjustmentsfornon‐cashornonoperatingitems:Depreciation 24,994 30,116Foreignexchangegain (3,256) (7,426)Loss(gain)onderivativefinancialliabilities 383 (59,437)Lossonconvertibledebenture 7 158,257 207,067Interestreceived (803) (4,561)Share‐basedcompensation 11,533 84,958Transactioncostsonissueofconvertibledebenture 7 – 210,159

191,108 460,876

Changesinnon‐cashworkingcapitalitems:Decreaseinprepaidexpensestoarelatedparty – 2,939Decreaseinamountsreceivableandprepaidexpenses 19,733 14,065Increaseintradeandotherpayables 32,136 55,427Increase(decrease)inpayablestorelatedparties 167,050 (175,582)

218,919 (103,151)

Netcashusedinoperatingactivities (249,950) (1,388,130)

CashflowsfrominvestingactivitiesInterestreceived 803 4,561

Netcashfrominvestingactivities 803 4,561

CashflowsfromfinancingactivitiesProceedsfromissueofconvertibledebenture 7 – 3,014,469Interestpaidonconvertibledebenture 7 (35,431) –Transactioncostsonissueofconvertibledebenture 7 – (210,159)

Netcash(usedin)fromfinancingactivities (35,431) 2,804,310

Net(decrease)increaseincashandcashequivalents (284,578) 1,420,741Effectofexchangeratefluctuationsoncashheld 3,256 7,426

(281,322) 1,428,167Cashandcashequivalentsatbeginningoftheperiod 692,937 1,363,561Cashandcashequivalentsatendoftheperiod 5(a) 411,615$ 2,791,728$

SupplementarycashflowinformationNon‐cashfinancingandinvestingactivitiesinclude:Sharesissuedforpaymentofinterestonconvertibledebenture 7 56,721$ –$

Theaccompanyingnotesareanintegralpartofthesecondensedconsolidatedinterimfinancialstatements.

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HeatherdaleResourcesLtd.CondensedConsolidatedInterimStatementsofChangesinEquity(Deficiency)(Unaudited‐ExpressedinUnitedStatesDollarsexceptforshareinformation)

Note

Numberofcommonshares

(Note6(a)) Amount

Equitysettledshare‐basedpaymentsreserve

Accumulateddeficit

Totalequity(deficiency)

BalanceatNovember1,2012 119,548,127 48,464,831$ 3,846,016$ (34,052,997)$ 18,257,850$Share‐basedcompensation – – 84,958 – 84,958Lossandcomprehensivelossfortheperiod – – – (1,745,855) (1,745,855)

BalanceatJanuary31,2013 119,548,127 48,464,831 3,930,974 (35,798,852) 16,596,953

BalanceatNovember1,2013 119,796,347 48,512,805$ 4,026,555$ (52,550,922)$ (11,562)$Sharesissuedforpaymentofinterestonconvertibledebenture 7 300,820 56,721 – – 56,721

Share‐basedcompensation – – 11,533 – 11,533Lossandcomprehensivelossfortheperiod – – – (659,977) (659,977)

BalanceatJanuary31,2014 120,097,167 48,569,526$ 4,038,088$ (53,210,899)$ (603,285)$

Theaccompanyingnotesareanintegralpartofthesecondensedconsolidatedinterimfinancialstatements

Sharecapital

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HeatherdaleResourcesLtd.NotestotheCondensedConsolidatedInterimFinancialStatementsForthethreemonthsendedJanuary31,2014and2013(Unaudited‐ExpressedinUnitedStatesdollars,unlessstatedotherwise)

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1. NATUREANDCONTINUANCEOFOPERATIONS

HeatherdaleResourcesLtd.(the"Company"or"Heatherdale")wasincorporatedunderthelawsofthe Province of Alberta, Canada on November 6, 2007 and continued under the laws of theProvinceofBritishColumbia,CanadaonNovember16,2009. TheCompany’scorporateofficeislocated at 1040West Georgia Street, 15th Floor, Vancouver, British Columbia. The Company islistedontheTSXVentureExchange("TSX‐V")underthesymbol"HTR".

These condensed consolidated interim financial statements ("Financial Statements") compriseHeatherdaleanditssubsidiaries(togetherreferredtoasthe"Group"andindividuallyas"Groupentities").HeatherdaleistheultimateparententityoftheGroup.

The Group’s principal mineral property interest is its 100% owned Niblack copper–gold–zinc‐silverprojectinsoutheastAlaska(the"NiblackProject")(note3).TheGroupisintheprocessofexploring the Niblack Project and has yet to determine if the project contains economicallyrecoverablemineralreserves.TheGroup’scontinuingoperationsandtheunderlyingvalueoftheNiblack Project is entirely dependent upon the existence of economically recoverable mineralreserves,theabilityoftheGrouptoobtainthenecessaryfinancingtocompletetheexplorationanddevelopment of the Niblack Project, obtaining the necessary permits tomine, future profitableproductionfromanymineandproceedsfromthedispositionoftheproject.

TheseFinancialStatementshavebeenpreparedonagoingconcernbasiswhichcontemplatestherealizationofassetsanddischargeofliabilitiesinthenormalcourseofbusinessfortheCompany’sfiscal year. As of the reporting date, the Group had cash and cash equivalents of $0.4million,workingcapitalof$0.2million,andaccumulatedlossesof$53millionsinceinception.

Ofthetotalcurrentliabilitiesof$0.6millionatthereportingdate,$0.5millionrelatestoapayabletoHunterDickinsonServicesInc.("HDSI")(note10).TheGroupreceivedconfirmationfromHDSIthatitwillnotdemandrepaymentthereofpriortoOctober31,2014,butwillcontinuetoprovideservicestotheGroup,notwithstanding.ManagementbelievesthattheavailablecashresourcesatJanuary31,2014, are sufficient to meet reduced corporate expenditure requirements, debtservicing and maintenance activities at the Niblack Project. The Group also intends to raiseadditionalfinancingtomeetitsworkingcapitalrequirements.TheGroup’sconvertibledebenture(note7) can be redeemed in cash or by issuance of Heatherdale’s common shares or by acombinationofcashandshares,atthesoleelectionoftheGroup. HalfofthecouponinterestontheconvertibledebentureispayableinHeatherdale’scommonshares.Additionaldebt,equityorotherfinancingoptionswillberequiredtofundfurtherexplorationordevelopmentprogramsattheNiblackProject.

TherecanbenoassurancesthattheGroup’splanstoraiseadditionalfinancinginthefuturewillbesuccessful.IftheGroupisunabletoraisethenecessarycapitalresourcesandgeneratesufficientcashflowstomeetobligationsastheycomedue,theGroupmayhavetofurtherreduceorcurtailits operations or obtain financing at unfavourable terms. Furthermore, failure to continue as agoing concernwould require that theGroup’s assets and liabilities be restated on a liquidationbasiswhichwoulddiffersignificantlyfromthegoingconcernbasis.TheseFinancialStatementsdonotincludeanyadjustmentstotheamountsandclassificationofassetsandliabilitiesthatmaybenecessaryshouldtheGroupbeunabletocontinueasagoingconcern.


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2. SIGNIFICANTACCOUNTINGPOLICIES

(a) StatementofComplianceThese Financial Statements have been prepared in accordance with IAS 34, Interim FinancialReporting,asissuedbytheInternationalAccountingStandardsBoard("IASB")andinterpretationsof the IFRS Interpretations committee ("IFRIC"s). They do not include all of the informationrequired by International Financial Reporting Standards ("IFRS") for complete annual financialstatements,andshouldbereadinconjunctionwiththeGroup’sconsolidatedfinancialstatements,asatandfortheyearendedOctober31,2013.Accordingly,accountingpoliciesappliedotherthannotedinNote2(f)arethesameasthoseappliedintheGroup’sannualfinancialstatementswhichwerefiledundertheCompany’sprofileonSEDARatwww.sedar.com.Certaincomparativeamountshavebeenreclassifiedtoconformtothepresentationadoptedinthecurrentperiod.

(b) BasisofPreparationThese Financial Statements have been prepared under the historical cost convention using theaccrual basis of accounting, except for cash flow information and for the revaluation of theconvertibledebentureandderivativefinancialliabilitiesatfairvaluethroughprofitorloss.

(c) BasisofConsolidationTheseFinancial Statements incorporate theaccountsof theCompanyandentities controlledbytheCompany(itssubsidiaries).ControlisachievedwhentheCompanyisexposed,orhasrights,tovariablereturnsfromitsinvolvementwiththeinvesteeandhastheabilitytoaffectthosereturnsthroughitspowerovertheinvestee.Specifically,theCompanycontrolsaninvesteeifandonlyifthe Company has power over the investee (i.e. existing rights that give it the current ability todirect the relevant activities of the investee); exposure, or rights, to variable returns from itsinvolvement with the investee; and the ability to use its power over the investee to affect itsreturns. Subsidiariesare fullyconsolidatedfromthedateonwhichcontrol is transferredtotheGroup.Intercompanybalances and transactions, including anyunrealized income and expenses arisingfromintercompanytransactions,areeliminatedinfullonconsolidation.


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AtJanuary31,2014,theCompanyretainedanownershipinterestinthefollowingsubsidiaries:NameofSubsidiary Placeof

IncorporationOwnershipInterest

PrincipalActivity

DeltaCanada(Holdco)Ltd. BritishColumbia,Canada

100% HoldsinterestinDeltaProjectHoldings(US)Inc.

DeltaProjectHoldings(US)Inc. Nevada,USA 100% PreviouslyheldinterestinDeltaProject(note3(b))

HeatherdaleAcquisitionsLtd. BritishColumbia,Canada

100% HoldsinterestinDeltaCanada(Holdco)Ltd.

HeatherdaleHoldings(Canada)Ltd. BritishColumbia,Canada

100% HoldsinterestinNiblackHoldings(US)Inc.

NiblackHoldings(US)Inc. Nevada,USA 100% Holds60%interestinNiblackProjectLLC

NiblackMineralDevelopmentInc. BritishColumbia,Canada

100% HoldsinterestinCBRAlaskaHoldingsInc.

CBRAlaskaHoldingsInc. BritishColumbia,Canada

100% HoldsinterestinAbacusAlaska,Inc.andCapeMuzonBarge,Inc.

AbacusAlaska,Inc. Alaska,USA 100% Holds40%interestinNiblackProjectLLC

CapeMuzonBarge,Inc. Alaska,USA 100% Ownssiteaccommodationbarge

NiblackProjectLLC Delaware,USA 100% ExplorationofNiblackProject

(d) FinancialLiabilitiesatFairValuethroughProfitorLoss

TheGrouphasdesignatedtheConvertibleDebenture(note7)asa financial liabilityat fairvaluethroughprofitorloss("FVTPL").A financial liability other than a financial liability held for tradingmay be designated at FVTPLuponinitialrecognitionifitformspartofacontractcontainingoneormoreembeddedderivatives,and IAS39, Financial Instruments:Recognition andMeasurement, permits the entire combinedcontract(assetorliability)tobedesignatedatFVTPL.A financial liability at FVTPL is stated at fair value, with any gains or losses arising on re‐measurementrecognizedinprofitorloss.Thetransactioncostisexpensedasincurred.Thenetgainorlossrecognizedinprofitorlossincorporatesanyinterestpaidonthefinancialliability.FairvalueisdeterminedinthemannerdescribedinNote7.

(e) SignificantAccountingEstimatesandJudgmentsThe preparation of these Financial Statements requires management to make estimates andassumptionsthataffectthereportedamountsofassetsandliabilitiesatthedateoftheFinancialStatementsandreportedamountsofexpensesduringthereportingperiod.Actualoutcomescoulddifferfromtheseestimates.TheseFinancialStatementsincludeestimateswhich,bytheirnature,areuncertain.TheimpactsofsuchestimatesarepervasivethroughouttheFinancialStatements,


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andmay require accounting adjustmentsbasedon future occurrences. Revisions to accountingestimatesarerecognizedintheperiodinwhichtheestimate isrevisedandfutureperiodsif therevisionaffectsbothcurrentandfutureperiods.ThecriticaljudgmentsandestimatesappliedinthepreparationoftheseFinancialStatementsareconsistentwith thoseapplied in theGroup’s consolidated financial statements,asatand for theyearendedOctober31,2013.

(f) AccountingStandards,InterpretationsandAmendmentstoExistingStandardsNewandamendedstandardsadoptedbytheGroupEffectiveNovember1,2013,theGroupadoptedthefollowingIFRSthatwereissuedbytheIASB:

IFRS10,ConsolidatedFinancialStatements IFRS11,JointArrangements IFRS12,DisclosureofInterestsinOtherEntities IFRS13,FairValueMeasurement IAS27,SeparateFinancialStatements(asrevisedin2011) IAS28,InvestmentsinAssociatesandJointVentures(asrevisedin2011) IFRIC20,StrippingCostsintheProductionPhaseofaSurfaceMine

TheadoptionoftheseIFRShadnomaterial impactontheamountsreportedforthecurrentandprioryearsbutmayaffecttheaccountingforfuturetransactionsorarrangements.

Newstandards,amendmentsandinterpretationstoexistingstandardsnotyeteffective

EffectivefortheGroup’sannualreportingperiodbeginningNovember1,2014• AmendmentstoIAS32,FinancialInstruments:Presentation

EffectivefortheGroup’sannualreportingperiodbeginningNovember1,2015 AmendmentstoIAS36,ImpairmentofAssetsEffectivedatetobedetermined IFRS 9, Financial Instruments, Classification and Measurement. In July 2013, the IASB

tentativelydecidedtodeferthemandatoryeffectivedateandleavethatdateopenpendingthefinalizationofotherphasesofIFRS9.

TheGrouphasnotearlyadoptedthesenewstandardoramendmentstoexistingstandards. TheGroupiscurrentlyassessingtheirimpactontheGroup’sfinancialstatements.


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3. EXPLORATIONANDEVALUATIONASSETS

(a) NiblackProjectThe100%ownedNiblackProjectistheGroup’sprincipalmineralpropertyinterest.TheNiblackProjectisheldthrougha100%ownershipinterestinNiblackProjectLLCwhichownsthe6,200‐acreNiblackproperty,locatedonPrinceofWalesIsland,some27milesfromKetchikan,Alaska.In the year endedOctober 31, 2013, due to continuing deterioration in the capitalmarkets forjunior resource companies, the carrying amount of themineral property interest in theNiblackProject ("NiblackMPI") exceeded theCompany’smarket capitalization. TheGroupassessed thedeclineinitsmarketcapitalizationinconjunctionwithotherindicators,including,butnotlimitedto,thedeteriorationintheavailabilityofcapitalresourcesnecessarytoadvanceexplorationandevaluationattheNiblackProjectandconcludedthatanimpairmenttestingoftheNiblackMPIwasnecessaryunderIAS36,ImpairmentofAssets. Duetomeasurementuncertaintiesinherentinthevaluationofmineralresourcesandinviewoftheprevailinguncertaintyinthecapitalmarkets,theGroup determined that a reasonable and reliable estimate of the recoverable amount for theNiblackMPIcouldnotbemade.Consequently,theGroupwrotedownthecarryingamountoftheNiblack MPI to a nominal amount in the year ended October 31, 2013. However, the Groupbelieves that theaggregate recoverableamountof thesiteplantandequipmentassociatedwiththe Niblack Project approximates their aggregate carrying amount. The estimated recoverableamountofthesiteplantandequipmentisbasedonsellingprice,lesscosttosell,whichhasbeendeterminedwith reference to the prices of comparable items of plant and equipment in activemarket. The Group considers the Niblack Project as a single cash generating unit and therecoverableamountofassetsassociatedwith theNiblackProject isdeterminedonanaggregatebasis.TheGroupwillbe required tomakeaone‐timepaymentof$1,250,000 toanarm’s length thirdparty upon the earliest to occur of: the commencement of commercial production, the Groupholdinglessthan35%interestintheNiblackProject,orachangeofcontrolofHeatherdale.

(b) DeltaProjectInMay2013,theGroupreturnedtheDeltaProject,a39,840‐acrepropertyineast‐centralAlaska,approximately 19miles from the Alaska Highway, to Agnico Eagle Mines Limited and as aconsequencederecognizedthecarryingvalueoftheDeltaProject.

4. AMOUNTSRECEIVABLEANDOTHERPREPAIDEXPENSES

January31 October31

Fallingduewithinoneyear 2014 2013

Salestaxreceivable $12,108 $11,005

Prepaidexpenses 32,103 52,939

$44,211 $63,944


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5. CASHANDCASHEQUIVALENTSANDRESTRICTEDCASH

(a) CashandCashEquivalents January31 October31

2014 2013

Businessandsavingsaccounts $411,615 $692,937

CashandcashequivalentscomprisecashinbusinessandsavingsaccountsheldatmajorfinancialinstitutionswhichareavailableondemandbytheGroup.

(b) RestrictedCash January31 October31

2014 2013

Cashdeposit $704,960 $704,960

Total $704,960 $704,960

ThecashdepositisheldataUnitedStatesfinancialinstitutionascollateralpledgedtothesuretyproviderofthesuretybondandacceptedbytheAlaskanregulatoryauthorities(note8).Thecashdeposit held will be released once reclamation work has been performed and assessed by theAlaskanregulatoryauthorities.

6. SHARECAPITALANDRESERVES

(a) AuthorizedShareCapitalAt January 31, 2014, the authorized share capital consisted of an unlimited (2013 – unlimited)number of common shares without par value and an unlimited (2013 – unlimited) number ofpreferredshareswithnoparvalue. At January31,2014,onlycommonshareswere issuedandoutstanding.Allissuedsharesarefullypaid.

(b) BasicandDilutedLossperShare

ThreemonthsendedJanuary31

2014 2013

Lossattributabletocommonshareholders $659,977 $1,745,855

Weightedaveragenumberofcommonsharesoutstanding 119,796,347 119,548,127

(c) ShareOptionPlan

ThefollowingsummarizesthechangesintheGroup’ssharepurchaseoptions("options")fortheperiodendedJanuary31,2014and2013:


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2014 2013

Continuityofshareoptions

Numberofoptions

outstanding

Weightedaverageexercise

price

Numberofoptions

outstanding


price

Balanceatbeginningofyear 5,582,310 Cdn$0.70 7,862,210 Cdn$0.79

Expired (199,650) Cdn$0.83 (2,089,400) Cdn$1.00

Forfeited (24,400) Cdn$0.19 (120,800) Cdn$1.09

Balanceattheendoftheperiod 5,358,260 Cdn$0.69 5,652,010 Cdn$0.70

Balanceexercisable 4,685,573 Cdn$0.77 3,572,300 Cdn$1.00

Theweightedaverageremainingcontractual lifeofoutstandingoptions is1.6years (2013–2.6years)andtheweightedaveragefairvalueofoptionsoutstandingatJanuary31,2014was$0.47(2013–$0.47)peroption.TherewerenoshareoptionsgrantedduringthethreemonthsendedJanuary31,2014and2013.The Group's management believes that the fair value of services provided by non‐employeesagainsttheissuanceofsharepurchaseoptionscannotbemeasuredreliably,astheoccurrenceandtimingofsuchservicesarenottypicallyascertainableatthetimeoftheoptiongrant.Accordingly,share‐basedpayments tonon‐employeeshavebeenmeasuredat theestimated fair valueof theshareoptionsissued.

7. CONVERTIBLEDEBENTURE

In December 2012, the Group completed a non‐brokered private placement with Sino‐CanadaNaturalResourcesFundI("Sino‐CanadaFund"),pursuanttowhichSino‐CanadaFundsubscribedfor a convertible debenture (the "Debenture") for an aggregate principal amount of $3,014,469(Cdn$3,000,000).TheDebenturehasatwo‐yeartermwithamaturitydateofDecember31,2014(the"MaturityDate").AtanytimeaftertheissuanceoftheDebentureandbeforetheMaturityDate,Sino‐CanadaFundcan convert the principal amount of the Debenture or any part thereof into common shares ofHeatherdale("HeatherdaleShares")atapriceofCdn$0.20perHeatherdaleShare.AttheMaturityDate,anyremainingprincipalandinterestamountswillberedeemedattheoptionoftheGroupincash, by the issuance ofHeatherdale Shares, or by a combination of both cash andHeatherdaleShares(the"RedemptionOption").TheDebenture earns interest at a rate of 8%per annum,with4%payable in cashquarterly inarrearsand4%payableinHeatherdaleSharessemi‐annuallyinarrears,atthehigherofCdn$0.20perHeatherdaleShareandthemarketpriceofHeatherdaleSharesonthedateofsuchconversion.The Group may, with Sino‐Canada Fund's consent, prepay in cash all or part of the amountsoutstandingundertheDebenture.TheGroupincurredatotaltransactioncostof$210,159whichis comprised of a finder’s fee of $180,918 (Cdn$180,000) and legal and other costs of $29,241(Cdn$28,977).


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TheGrouphas designated theDebenture at FVTPL. Its fair value has beendeterminedusing acombinationofthreevaluationmodelsnotedbelow:• thepartialdifferentialequationvaluationmodelforthedebthostandtheconversionoption;• theCox‐RubinsteinbinomialmodelforthepaymentofinterestinHeatherdaleShares;and• theBlack‐ScholesoptionpricingmodelfortheRedemptionOption.AtJanuary31,2014,thefairvalueoftheDebenturewasestimatedat$473,413(October31,2013–$407,307).TheGrouphasrecognizedalossincomprehensivelossforthethreemonthsendedJanuary31,2014of$158,257.The following assumptions were used in determining the fair value of the Debenture atJanuary31,2014:

AssumptionsJanuary31

2014October31

2013

Risk‐freeinterestrate 0.97% 1.12%

Expectedvolatility 156% 143%

Expectedlife 0.92years 1.17yearsValuationdateshareprice Cdn$0.05 Cdn$0.04

Expecteddividendyield Nil Nil

Creditspread 8.61% 8.61%

8. PROVISIONFORREHABILITATIONOBLIGATION

January31 October31

2014 2013

Balanceatbeginningandendofperiod $1,409,959 $1,409,959

The Group’s provision is based on a revised and updated reclamation and closure plan (the"RevisedPlan")thatwasapprovedbytheAlaskaDepartmentofNaturalResources(the"ADNR")for the restoration and rehabilitation of the Niblack Project site, including the undergroundworkings.Thesettlementoftheobligationistooccuruponclosureoftheminesite.The Group has a surety bond from an insurance company in favour of the ADNR for the fullamountoftheRevisedPlan.Pursuanttothetermsofthesuretybond,theGrouphasprovidedtothe surety provider cash collateral of $704,960, which has been classified as restricted cash(note5(b)).


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9. DERIVATIVEFINANCIALLIABILITIES

The followingsummarizessharepurchasewarrants (eachwarrantredeemable foronecommonshare)fortheperiodendedJanuary31,2014and2013:

2014 2013

Continuityofsharepurchasewarrants

Numberofsharessubjecttowarrantsoutstanding


price

Numberofsharessubjecttowarrantsoutstanding


price

Balanceatbeginningofyear 2,053,500 Cdn$1.22 22,584,088 Cdn$0.96

Expired – – (11,314,255) Cdn$1.20

Balanceattheendofperiod 2,053,500 Cdn$1.22 11,269,833 Cdn$0.71

Theweightedaverageremainingcontractuallifeofwarrantsoutstandingis0.9(2013–0.6)years.Alloutstandingwarrantsareexercisable.Thewarrantshaveanexercisepricedenominatedinacurrencyotherthanthefunctionalcurrencyof the Company. They do not meet the definition of an equity instrument and as a result areclassifiedasderivative financial liabilities. Thederivative financial liabilitieswererecognizedatfair valueondateof issuewith subsequent changes in fair valuedeterminedat the endof eachreportingperiodrecognizedinlossfortheperiod.At January 31, 2014, the fair value of thewarrant derivative financial liabilitieswas estimatedusingtheBlack‐Scholesoptionpricingmodelwiththefollowingweightedaverageassumptions:

Assumptions January31

2014October31

2013

Risk‐freeinterestrate 0.97% 1.09%

Expectedvolatility 155% 146%

Expectedlife 0.9years 1.1years

Sharepriceused Cdn$0.05 Cdn$0.04

Expecteddividendyield Nil Nil


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10. RELATEDPARTYBALANCESANDTRANSACTIONS

(a) TransactionswithKeyManagementPersonnelThe aggregate value of transactions with key management personnel which includes directors(executive and non‐executive) and senior management and advisors for the period endedJanuary31,2014and2013wasasfollows:

Transactions 2014 2013

Short‐termemployeebenefits(1) $76,473 $245,238

Share‐basedcompensation 5,059 44,145

Totalamountpayabletorelatedparties $81,533 $289,383

(1) Short‐termemployeebenefitsincludesalariesanddirectorsfees.Certain key management personnel are paid through private companies controlled by suchpersonnel.

January31 October31

Balancespayableontransactionswithkeymanagement 2014 2013

Balancepayableforservicesreceived $695 $446

(b) EntitieswithSignificantInfluenceovertheGroup

TheGroup’smanagementbelievesthatcertainentitieswhichtheGrouptransactswithhavepowerto participate in the financial or operating policies of theGroup. One of these entities,HDSI, aprivate company, has several directors and other key management personnel who are closebusiness associates and are also key management personnel of the Group. Pursuant to amanagement agreement between the Group and HDSI which has significant influence over theGroup, the Group receives geological, engineering, corporate development, administrative,managementandshareholdercommunicationservicesfromHDSI.FortheperiodendedJanuary31,2014and2013thevalueoftransactionswasasfollows:Transactions 2014 2013

Servicesreceivedbasedonannuallysetrates $209,316 $609,476

Reimbursementofthirdpartyexpensespaid $18,782 $40,233

January31 October31

Balances(payable)/prepaidexpenses 2014 2013

Balances(payable)forservicesreceivedbytheGroup $(527,643) $(360,842)


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January31 October31

Summary 2014 2013

Balancespayabletorelatedparties

Entitycontrolledbykeymanagementpersonnel $695 $446

EntitywithsignificantinfluenceovertheGroup 527,643 360,842


11. TRADEANDOTHERPAYABLES

January31 October31

Fallingduewithinoneyear: 2014 2013

Tradepayables $127,418 $95,283

Tradepayablesarenon‐interestbearingandarenormallysettledon30dayterms.

12. FINANCIALRISKMANAGEMENT

The Group has exposure to credit risk, liquidity risk and market risk from its use of financialinstruments. During the threemonths ended January 31, 2014, there were no changes in theGroup's objectives, policies and processes for measuring and managing risk, and the Group'smanagementofcapital.ThefairvalueoftheGroup’sfinancialassetsandliabilitiesapproximatetheircarryingvalues.Thefair value measurement of the Debenture and the derivative financial liabilities have beencategorizedwithin level3of the fairvaluehierarchyasbothusecertainsignificant inputthat isnotbasedonobservablemarketdata.Bothareexposedtomarketriskastheyemploythequotedmarket price of Heatherdale’s Shares, foreign exchange rates and in the case of the Debenture,certaininputsthatareobservable,eitherdirectlyorindirectly,forthehybridfinancialinstrument.

13. TAXATION

(a) ProvisionforcurrenttaxNoprovisionhasbeenmadeforcurrentincometaxes,astheGrouphasnotaxableincome.

(b) ProvisionfordeferredtaxAsfuturetaxableprofitsoftheGroupareuncertain,nodeferredtaxassethasbeenrecognized.Asat January31, 2014, the Group has unused non‐capital loss carry forwards of approximately$15,365,000 (October 31, 2013 – $15,540,000) in Canada and approximately $34,394,000(October31,2013–$33,675,000)intheUnitedStates.Inaddition,theGrouphasapproximately


Page18

$5,162,000(October31,2013–$5,655,000)ofresourcetaxpoolsavailable,whichmaybeusedtosheltercertainresourceincomeintheUnitedStates.

14. EMPLOYMENTCOSTS

Theamountofsalariesandbenefits includedinexpensesfortheperiodendedJanuary31,2014and2013isasfollows:

2014 2013

Salariesincludedin:

Explorationandevaluationexpenses $58,052 $302,477

Generalandadministrationexpenses 142,686 312,078

Share‐basedcompensation 11,533 84,958

Total $212,271 $699,513

15. SEGMENTREPORTING

TheGrouphasasinglereportableoperatingsegmentwhichincorporatestheNiblackProject.Allnon‐currentassetsareheldinAlaska,USA.

HeatherdaleResourcesLtd.

MANAGEMENT'SDISCUSSIONANDANALYSIS

THREEMONTHSENDEDJANUARY31,2014

HeatherdaleResourcesLtd.Management’sDiscussionAndAnalysisThreemonthsendedJanuary31,2014

2

TableofContents

1.1 Date............................................................................................................................................................3

1.2 Overview.................................................................................................................................................4

1.2.1 Summary ......................................................................................................................... 4

1.2.2 NiblackProject,SoutheastAlaska ................................................................................ 5

1.2.3 MarketTrends ................................................................................................................ 9

1.3 SelectedAnnualInformation........................................................................................................11

1.4 SummaryandDiscussionofQuarterlyResults.....................................................................11

1.5 ResultsofOperations.......................................................................................................................12

1.6 Liquidity.................................................................................................................................................14

1.7 CapitalResources...............................................................................................................................15

1.8 Off‐BalanceSheetArrangements................................................................................................16

1.9 TransactionswithRelatedParties..............................................................................................16

1.10 FourthQuarter....................................................................................................................................17

1.11 ProposedTransactions....................................................................................................................17

1.12 CriticalAccountingEstimates.......................................................................................................17

1.13 ChangesinAccountingPoliciesincludingInitialAdoption..............................................17

1.14 FinancialInstrumentsandOtherInstruments......................................................................18

1.15 OtherMD&ARequirements...........................................................................................................19

1.15.1 AdditionalDisclosureforVentureIssuerswithoutSignificantRevenue ................ 19

1.15.2 DisclosureofOutstandingShareData ........................................................................ 20

1.15.3 InternalControlsoverFinancialReporting ............................................................... 20

1.15.4 DisclosureControlsandProcedures .......................................................................... 21

1.15.5 RiskFactors .................................................................................................................. 21


3

1.1 Date

This Management’s Discussion and Analysis ("MD&A") should be read in conjunction with theunauditedcondensedconsolidatedinterimfinancialstatements("InterimFinancialStatements")ofHeatherdaleResourcesLtd.(the"Company"or"Heatherdale")forthethreemonthsendedJanuary31,2014andtheauditedconsolidatedfinancialstatements("FinancialStatements")ofHeatherdaleResources Ltd. (the "Company" or "Heatherdale") for the year ended October31,2013 and theannual MD&A for the same period, as publicly filed under the Company’s profile on SEDAR atwww.sedar.com.

TheCompanyreportsinaccordancewithInternationalFinancialReportingStandardsasissuedbythe International Accounting Standards Board ("IASB") and interpretations of the IFRSInterpretationsCommittee("IFRIC"s) (together, "IFRS"). The followingdisclosureandassociatedconsolidatedfinancialstatementsarepresentedinaccordancewithIFRS.ThisMD&Aispreparedas ofMarch 28, 2014. All dollar amounts herein are expressed inUnitedStatesDollars unlessotherwisespecified.Thereferencesto2013,2012and2011representeachoftheCompany’sfiscalyears ended October 31 respectively unless indicated otherwise and the three month periodsdenotedbytheletter"Q"aretheCompany’sfiscalquarters.

Thisdiscussionincludescertainstatementsthatmaybedeemed"forward‐lookingstatements".

Allstatementsinthisdisclosure,otherthanstatementsofhistoricalfacts,thataddresspermitting,explorationdrilling,exploitationactivitiesandeventsordevelopments that thecompanyexpectsare forward‐looking statements. Although the Company believes the expectations expressed insuch forward‐looking statements are based on reasonable assumptions, such statements are notguaranteesof futureperformanceandactual resultsordevelopmentsmaydiffermaterially fromthoseintheforward‐lookingstatements.Factorsthatcouldcauseactualresultstodiffermateriallyfrom those in forward‐looking statements include market prices, exploitation and explorationsuccesses, continuity of mineralization, potential environmental issues and liabilities associatedwithexploration,developmentandminingactivities,uncertaintiesrelated to theability toobtainnecessary permits, licenses and title and delays due to third party opposition, changes ingovernmentpoliciesregardingminingandnaturalresourceexplorationandexploitation,continuedavailabilityofcapitalandfinancing,andgeneraleconomic,marketorbusinessconditions.Investorsarecautionedthatanysuchstatementsarenotguaranteesoffutureperformanceandactualresultsordevelopmentsmaydiffermateriallyfromthoseprojectedintheforward‐lookingstatements.FormoreinformationontheCompany, investorsshouldreviewtheCompany'scontinuousdisclosurefilingsthatareavailableatwww.sedar.com.

Forward‐lookingstatementsaregenerally,butnotalways,identifiedbytheuseofforward‐lookingterminology such as "plans", "expects", "is expected", "budget", "scheduled", "estimates","forecasts", "intends", "anticipates", "projects", "potential", "believes" or variationsof suchwordsandphrasesorstatementsthatcertainactions,eventsorresults"may","could","would","should","might"or"willbetaken","occur"or"beachieved".

The Company reviews its forward‐looking statements on an ongoing basis and updates thisinformationwhencircumstancesrequireit.


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InformationConcerningEstimatesofIndicatedandInferredResources

The following discussion uses the terms "indicated resources" and "inferred resources".HeatherdaleadvisesinvestorsthatalthoughthesetermsarerecognizedandrequiredbyCanadianregulations under National Instrument 43‐101,StandardsofDisclosure forMineralProjects ("43‐101"), the U.S. Securities and Exchange Commission does not recognize them. Investors arecautionednottoassumethatalloranypartofthemineraldepositsinthesecategorieswilleverbeconvertedintoreserves.Inaddition,"inferredresources"haveagreatamountofuncertaintyastotheirexistence,andeconomicandlegalfeasibility.ItcannotbeassumedthatalloranypartofanInferred Mineral Resource will ever be upgraded to a higher category. Under Canadian rules,estimates of Inferred Mineral Resources may not form the basis of feasibility or pre‐feasibilitystudies, or economic studies except for a Preliminary Assessment as defined under 43‐101.Investors are cautioned not to assume that all or part of an inferred resource exists, or iseconomicallyorlegallymineable.

1.2 Overview

1.2.1 Summary

Heatherdale is an exploration and development company focused on its 100%‐owned NiblackProject("Niblack")insoutheastAlaska,USA.

Volcanogenicmassive sulphide ("VMS")mineralization occurswithin a folded sequence of felsicvolcanicrocks thatextendacross theNiblackproperty. Sixzonesof importantcopper‐gold‐zinc‐silvermineralization(Lookout,Trio,Dama,Lindsy,MammothandthehistoricNiblackmine)havebeenidentified. WorkcompletedsofarhasresultedinestimatesofsignificantmineralresourcesfortheLookoutandTriodeposits.ThepotentialtoexpandthemineralresourcesthroughfurtherexplorationatLookoutandTrioaswellastheotherknownzonesishighand,asonlyonequarteroftheextentoftheprospectivehorizonhasbeentestedbydrillingsofar,theopportunitytodiscoveradditionalVMSdepositsatNiblackisconsideredtobeexcellent.

As a result of market conditions in 2013, Heatherdale divested of other property interests andfocuseditsworksolelyontheNiblackProject.TheCompanycontinuestoassessitsavailablefundsandplansamodestsiteprogram,mainlyinvolvingmaintenanceandenvironmentalmonitoringin2014 to ensure that it meets all permitting requirements. Heatherdale’s pursuit of additionalfinancingisongoing,anditsplanstoprogresstheprojecttowardprefeasibilityarecommensuratewith its available funding. Priorities include additional drilling to expand resources, engineeringandenvironmentalstudies.

InMarch2014,theAlaskaStateSenatepassedanamendmenttoStateBill99("SB99")toauthorizetheAlaska IndustrialDevelopmentandExportAuthority ("AIDEA") to issuebondsofup to$125milliontofinancecertaininfrastructureandconstructioncostsoftheNiblackProjectattheGravinaIslandIndustrialComplex,andinfrastructureattheprojectsite. SB99muststillbepassedbytheAlaskaHouseofRepresentativesbeforeitbecomeslaw.


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Corporate

Subsequenttotheendofthequarter,DavidFurlongresignedandLenaBrommelandwasappointedtoHeatherdale’sboardofdirectorsasarepresentativeofRathdowneyResourcesLtd.

1.2.2 NiblackProject,SoutheastAlaska

1.2.2.1NiblackProjectAgreement

InJuly2009,Heatherdaleenteredintoanagreement(the"NiblackLLCAgreement")withNiblackMineralDevelopmentInc.("NIB")toformandoperatealimitedliabilitycompany("NiblackProjectLLC")thatwouldholdthejointventureassetsandconstructfacilitiesinordertoexplore,evaluateandiffeasible,developandminetheNiblackproperty.

UnderthetermsoftheNiblackLLCAgreement,Heatherdalefunded$15millioninexplorationanddevelopment expenditures on the Niblack Project in order to retain a 51% interest in NiblackProjectLLCandcompletedanoptiontoincreaseitsownershipinterestto60%byfundingafurther$10millioninadditionalexpenditures.

In October 2011, Heatherdale and NIB entered into an arrangement agreement relating to theacquisition by Heatherdale of all the issued and outstanding shares of NIB by way of a plan ofarrangement(the"Arrangement")undertheBusinessCorporationsAct(Alberta).TheacquisitionwascompletedonJanuary18,2012,andasaresult,HeatherdaleincreaseditsownershipinterestintheNiblackProjectto100%.

Heatherdalewillberequiredtomakeaone‐timepaymentof$1,250,000toanarm’s lengthpartyupontheearliesttooccurof:thecommencementofcommercialproduction,Heatherdaleholdingalessthan35%interestintheNiblackProject,orachangeofcontrolofHeatherdale.

1.2.3.2TechnicalPrograms

The6,200‐acreNiblackpropertyissituatedattidewateronPrinceofWalesIsland,some27milesfrom the City of Ketchikan in southeast Alaska. Ketchikan is a community of 8,000 peoplewithimportant services to support project development, including a deep water port and aninternationalairport.

History

TheNiblackpropertyhasahistoryofmineralexplorationanddevelopment.Itsupportedhistoricalundergroundminingoperations from1905‐08,andproducedapproximately20,000 tonsgrading4.9%copper,2.2g/tgoldand30g/tsilver.

Over 34 years to the end of 2008, a series of previous owners spent some $41 million onexplorationatNiblack,including:

Excavating a 2,800‐foot underground development drive and 500 feet of crosscuts: theundergrounddevelopmentfacilitatescost‐effectiveundergrounddrillingatNiblack;


6

Carryingoutpreliminarymetallurgicaltesting:averageresultsincluderecoveriestocopperconcentrate of 95% Cu, 56% Au and 53% Ag with payable metal factors of 96.5% forcopper,90.7%forgoldand89.5%forsilver;recoveriestozincconcentrateare93%zinc,16%goldand24%silverwithpayablemetalfactorsof85%forzinc,80%forgoldand20%forsilver;and

Completing 195,000 feet of surface and underground drilling in 246 holes: the last twoholes (U027 and U028) drilled from underground during the 2008 program intersectedimportantthicknessesofmineralizationwithgradessignificantlyhigherthanthehistoricalaverages,indicatingthepresenceofanewhigh‐gradezonetothesouthwestoftheLookoutDeposit;aninitialestimateofthemineralresourcesintheLookoutandTriodepositswascompletedinearly2009.

Geology

The geology of the Niblack property consists of three main rock units: the Footwall Successionconsistingprimarilyofdaciticandbasalticvolcanicandvolcaniclasticrocks;theFelsicSuccessioncomprisingfelsicflowsandvolcaniclasticrockswhichhostallknownsulphideoccurrences;andtheHangingWall Succession,madeupofmafic volcano‐sedimentary rocksandbasaltic flows. Alloftheseunitsarefolded,cutbymafictofelsicdykesand/orsills,andoffsetordisruptedbytwomainfaults.

KnownmineralizationoccursasVMSdepositsorzones.DifferingsomewhatfromtheclassicVMSmodel,mostofthesulphidedepositionatNiblackappearstohavetakenplacebeneaththeseafloorwithinpermeablevolcanicrocks;hence,semi‐massiveandmassivesulphidesoccuraspore‐spacefillingsor‘matrixreplacement’zones.

Copper, gold, zinc and silver are themainmetals of potential economic importance,with locallyelevated concentrations of lead. Gold content is noticeably higher than the average forvolcanogenicsystemsandisassociatedwithallstylesofmineralization.Importantly,therearelowconcentrations of ‘undesirable’ trace elements (e.g. arsenic, antimony, cadmium, mercury,selenium)forthedeposittype.

WorkbyHeatherdale

The potential for substantial high‐grade mineralization indicated by holes U027 and U028 ledHeatherdale to obtain an interest in the project inmid‐2009. Since that time, the Company hascompleted surface exploration and nearly 200,000 feet of drilling, including 176,000 feet inundergroundholesand23,300feetinsurfaceholes.

The Company’s 2009 and 2010 underground drilling programs focused on expanding the high‐gradediscoveryatLookout. Substantialincreasestothesizeofthedepositwereachievedandaninternal high‐grade zonewas identified. Additional underground and some surface drillingwascompletedin2011atLookoutandTrioandseveralothertargetareasontheproperty. Themostrecentestimateofthemineralresourceswascompletedinlate2011.


7

LookoutandTrioDeposits

The Niblack mineral resources tabulated below were estimated in November 2011, utilizing adatabaseof373drillholes,andthree‐dimensionalgeostatisticalmodelingtechniques.

LOOKOUTANDTRIOMINERALRESOURCESata$50NSRcutoff

INDICATEDDeposit Tonnes Cu(%) Au(g/t) Zn(%) Ag(g/t)Lookout(sulphide) 5,638,000 0.95 1.75 1.73 29.52TOTAL 5,638,000 0.95 1.75 1.73 29.52

INFERREDDeposit Tonnes Cu(%) Au(g/t) Zn(%) Ag(g/t)Trio(sulphide) 1,023,000 1.00 1.11 1.56 16.56Lookout(sulphide) 2,370,000 0.73 1.42 1.17 21.63TOTAL 3,393,000 0.81 1.32 1.29 20.10

Notes:NetSmelterReturn("NSR")cutoffsstatedaboveandbelowuselong‐termmetalforecasts:gold$1,150/oz,silver$20.00/oz,copper$2.50/lb,andzinc$1.00/lb;andrecoveries toCuconcentrateof95%Cu,56%Auand53%Agwithpayablemetalfactorsof96.5%forCu,90.7%forAu,and89.5%forAg;andtoZnconcentrateof93%Zn,16%Au,and24% Ag with payable metal factors of 85% for Zn, 80% for Au and 20% for Ag. Detailed engineering studies willdeterminethebestcutoff.

A continuous high grade zone occurs within the indicated resources of the Lookout Zone thatcomprises1.16milliontonnesgrading1.71%Cu,3.21g/tAu,3.83%Znand62.68g/tAgata$150NSRcutoff. Theoverallmineral resources in theLookoutdeposit couldalsobe increasedas thedepositremainsopeninseveralareas.

Themineral resourceswere estimatedbyDeonVanDerHeever, Pr. Sci.Nat., aQualifiedPersonwho is not independent of the Company. The estimates were reviewed and verified by SRKConsulting,asdescribedinatechnicalreportfiledunderHeatherdale’sprofileatwww.sedar.com.

OtherZonesandTargets

TheMammothzone is situatedapproximately3,000 feetnorthwestof theTriodepositalong theprospective felsic horizon at Niblack. Narrowwidths ofmineralization had been intersected inseveralholesdrilledinthisarea,historically,butonlylimitedeffortshadbeenmadetotracethoseintersectionsalongstrikeordowndip.SignificantmineralizationwasintersectedinholeU112(7feetof6.78%Cu,0.99g/tAu,7.07%Znand59g/tAg)andholeU114(8feetof1.67%Cu,19.51g/tAu,3.32%Znand263g/tAg)drilledfromundergroundbyHeatherdaleattheMammothzonein2011.FollowupdrillingisrequiredtodelineatemineralresourcesatMammoth.

Anumberofcompellingtargetsfromhistoricalworkhaveyettobefullyexplored.Thisincludesanintersectionof63feetgrading6.4%Cu,1.37g/tAu3.2%Znand53g/tAgattheDamazone.

Inaddition,detailedgeologicalmapping,samplinganddiamonddrillingcompletedbyHeatherdalefrom2009‐2011establishedseveralnewtarget‐areasalongthefavorablefelsicsequence.


8

Engineering

Theresultsofthe2011resourceestimateprovidedabaseonwhichtoinitiateengineeringstudiesfortheNiblackProject.

Preliminarystudiesofsitelogisticsandinfrastructureforapotentialminedevelopmenthavebeenundertaken.Theinitialresultsindicatebotheconomicandlogisticaladvantagestodirect‐shippingmaterial fromanundergroundmineatNiblacktoanoffsite location formillingandmetallurgicaltreatment. Several potential locations for the processing plant and tailings storage facility havebeenidentified, twoofwhichare industrialsites intheareaof theCityofKetchikaninsoutheastAlaska. These sites have advantages such as locally available and skilled workers, existingtransportationinfrastructureandaccesstohydroelectricpower.

In 2012,Heatherdale’s subsidiary,Niblack Project LLC, signed aMemorandumofUnderstanding("MOU")withtheKetchikanGatewayBorough("Heatherdale‐KGBMOU"),wherebythepartieswillworkcooperativelytoassessthesuitabilityofoneofthesesites,calledtheGravinaIslandIndustrialComplex("GIIC"),foramillandtailingsfacilityfortheNiblackProject.

In 2013, Heatherdale reached an MOU with the AIDEA ("Heatherdale‐AIDEAMOU"), a publiccorporationoftheStateofAlaska.AIDEAisAlaska’sdevelopmentfinanceauthority.Itsmissionistopromote, develop, and advance economic growth anddiversification in the state byprovidingfinancing and investment. AIDEA has a long history of supporting Alaska’s minerals industry,beginningwithitsfinancingandconstructionoftheDeLongMountainTransportationSystem,theroad and port serving the area that includes Red Dog Mine, as well as energy facilities andinfrastructureforotherminingprojectsinthestate.

Under the terms of the Heatherdale‐AIDEAMOU, Heatherdale and AIDEA will work together toevaluate the potential for processing, port and tailings storage facilities at the GIIC site nearKetchikan, and to investigate infrastructure requirements at the Niblack site on Prince ofWalesIslandastosuitabilityforAIDEAinvolvement.Theagreementidentifiesarangeofinitiativesthatmay be pursued, including investigating AIDEA‐supported financing options for projectinfrastructureandothermeanstomaximizelocalemploymentandothereconomicbenefits.

On March 26, 2014 the Alaska State passed an amendment to SB 99 to authorize AIDEA at itsdiscretion to issue bonds up to a maximum of $125 million to finance infrastructure andconstructioncostsoftheNiblackProject. Infrastructureandconstructioncosts includeamineralprocessing mill, and associated dock, loading and related infrastructure at the GIIC, andinfrastructure at theNiblack Project site on Prince ofWales Island. The infrastructure facilitieswouldbeeitherownedor financedbyAIDEA. Inaddition to the legislativeprocess,AIDEAmustalsogo through its traditionalprojectevaluationandduediligenceprocess. If theprocessesarefavorably completed, AIDEA will have legislative authorization necessary to use bonds for thefinancing,onceSB99becomeslaw.

Support from AIDEA through this infrastructure financing would contribute significantly to theadvancementoftheNiblackProject.


9

CommunityEngagement

HeatherdaleiscommittedtocontinuingtoworkwiththepeopleofsoutheastAlaskatofindwaystooptimizelocalbenefitsassociatedwithdevelopmentatNiblack. TheCompany’smanagementandtechnical team continues to engage with project stakeholders to get their input and keep theminformedaboutactivitiesrelatedtotheproject.

People in the communities aswell as the elected leadership at the local, state and federal levelshave demonstrated strong interest and involvement in the Niblack Project. For example, onJanuary30, 2013, SenatorMurkowski andSenatorBegich introducedBill S.181 to authorize theestablishmentoftheNiblackandBokanMountainminingarearoadcorridorsintheStateofAlaska.The road initiative is the resultof a grassrootseffort ledby the communitiesonPrinceofWalesIsland. The Niblack Project has also received support from elected officials, business andcommunity leaders throughout southeast Alaska. Heatherdale gratefully acknowledges thissupport.

1.2.3 MarketTrends

Thediscussioninthissectionreferencescalendaryears.

Copper prices showed a significant increase between late 2003 andmid‐2008, and after a steepdecline in late2008andearly2009, steadily increaseduntil late2011. Thepriceof copperwasvariablein2012and2013,butaveragedlowerineachyear. Priceshavebeenonadowntrendinearly2014.

Thegoldpricewasonanuptrendforoverthefiveyearsto2012.Pricesdecreased,overallin2013,buthaveshownimprovementin2014.

Zinc prices were variable in 2008 and 2009. In 2010, prices weakened mid‐year, and thenimproved steadily over the following twelvemonths, reaching as high as $1.13/lb in July 2011.Sincethattime,priceshavevariedwithinarangeof$0.82/lbto$0.99/lb,averaginglowerin2012and2013,buthaveshownsomeimprovementsofarinin2014.

Silverpriceswereimpactedbyeconomicvolatilityin2008‐2009.Anupwardpricetrendbeganin2010,andcontinuedtolateSeptember2011,withpricesreachingashighas$43/oz,andresultingin the average price in 2011 being the highest since 2008. Prices ranged between $26/oz and$35/ozbetweenOctober2011 and the endof 2012. Priceswereon anoverall downtrend fromFebruarytotheendof2013,buthavestabilizedinearly2014.

Average annual prices through 2013 aswell as the average prices so far in 2014 for gold (Au),copper(Cu),zinc(Zn)andsilver(Ag)areshowninthetablebelow:

YearAverageMetalPrice

Au Cu Zn Ag

2008 $871/oz $3.16/lb $0.80/lb $14.95/oz

2009 $974/oz $2.34/lb $0.75/lb $14.70/oz

2010 $1,228/oz $3.42/lb $0.98/lb $20.24/oz


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YearAverageMetalPrice

Au Cu Zn Ag

2011 $1,572/oz $4.00/lb $0.99/lb $35.25/oz

2012 $1,669/oz $3.61/lb $0.88/lb $31.16/oz

2013 $1,410/oz $3.32/lb $0.87/lb $23.80/oz

2014todateoftheMD&A $1,293oz $3.20/lb $0.92/lb $20.48/oz

Source:www.metalprices.com


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1.3 SelectedAnnualInformation

NotrequiredforinterimMD&A

1.4 SummaryandDiscussionofQuarterlyResults

AllmonetaryamountsinthetablebelowareexpressedinthousandsofUnitedStatesdollarsexceptpershareamountsandwhereotherwiseindicated.Minordifferencesareduetorounding.

Statementsof Comprehensive(Income)Loss

Jan312014

Oct312013

Jul312013

Apr302013

Jan312013

Oct312012

Jul312012

Apr302012

Expenses: Explorationandevaluation NiblackProject $251 $314 $409 $698 $790 $2,487 $1,000 $811DeltaProject – (1) 11 23 84 18 13 14

Total 251 313 420 721 874 2,505 1,013 825Generalandadministration 243 294 404 534 434 429 573 575Share‐basedcompensation 12 17 33 45 85 104 71 126

Lossfromoperatingactivities 506 624 857 1,300 1,393 3,038 1,657 1,526Derecognizeexplorationand

evaluationassets – – – 2,221 – – – –Write‐downofexploration

andevaluationassets – – – 14,412 – – – –Otherexpenseand(income)

items(i) 154 (1,568) (89) (1,005) 353 (165) (337) (1,628)Loss(income)andcomprehensiveloss(income) $660 $(944) $768 $16,928 $1,746 $2,873 $1,320 $(102)

Basicanddilutedloss(income)percommonshare $0.01 $(0.01) $0.01 $0.14 $0.01 $0.02 $0.01 $0.00

(i) Otherexpenseandincomeitemsincludeforeignexchangedifferences,financeincomeandcostsandfairvalueadjustmentsfor

financialinstrumentsthroughprofitandloss.

DiscussionofQuarterlyTrends

Explorationandevaluationexpenses("E&E")

BetweenQ2andQ3of 2012, activities at bothNiblack andDeltawounddownand focus turnedtowardsthecompletionofengineeringandtechnicalstudiesonNiblack.AttheendofQ3of2012,the Company initiated a 15,000‐foot surface drilling program at Niblack, which was completedduringQ4of2012.FromQ1toQ4of2013andQ1of2014,E&EdecreasedastheCompanyreducedsiteactivitiestoongoingsitemaintenanceandrequiredenvironmentalmonitoringactivitiesastheCompanydeferredfurtherexplorationatNiblackuntiladditionalfinancingisobtained.

Generalandadministrationexpenses("G&A")

G&Ahas fluctuatedover theperioddepending on the support required for exploration activitiesandongoingcontinuousdisclosureobligationsasalistedentityontheTSXVentureExchange.G&AwasimpactedbylegalandotherprofessionalservicesreceivedbytheCompanyinrelationtotheacquisitionof100%ofNIBandprivateplacements initiatedandcompletedduringthefirst three


12

quarters of 2012 and Q1 of 2013. FromQ2 of 2013 to Q1 of 2014, G&A has decreased due toreducedcorporateactivities.

Share‐basedcompensation

Share‐basedcompensationtypicallyfluctuatesbasedonthetimingofsharepurchaseoptiongrantsandthevestingperiodsassociatedwiththesegrants.Thefairvalueofshareoptionsisestimatedatthegrantdateforeachtrancheandrecognizedovertheperiodduringwhichshareoptionsvests.

Otherincomeandexpenseitems

Gains have been recognized fromQ2 of 2012 throughQ4 of 2013 on the change in the fairvalueofderivativefinancialliabilitiesrelatingtotheCompany’sCanadiandollardenominatedsharepurchasewarrants.InQ1of2014alossof$383wasrecognized.

TheCompanyhasrecognizedgainsinQ2of2013toQ4of2013onthere‐measurementoftheconvertibledebentureineachquarterafteralossof$207,000inQ1of2013.InQ1of2014,alossof$158,257wasrecognized.

Derecognitionandwrite‐downofExplorationandEvaluationassets

InQ2of 2013, theCompanyderecognized explorationand evaluationassets related to theDeltaProject, which was returned to Agnico Eagle Mines Limited, and impaired the Niblack mineralpropertyinteresttoanominalamount.

1.5 ResultsofOperations

ThefollowingfinancialdatahasbeenpreparedinaccordancewithIFRSeffectivefortheCompany’speriodendedJanuary31,2014andisexpressedinUnitedStatesdollarsunlessotherwisespecified.Minordifferencesareduetorounding.

1.5.1 ResultsofOperationsfortheThreeMonthsEndedJanuary31,2014vs.2013

The Company recorded a decrease in loss of $1,086,000 as compared to 2013 due primarily toNiblack site activities being reduced to ongoing site maintenance and required environmentalmonitoring.

E&Edecreasedby$623,000to$251,000intheperiod.ThereducedexpenditureatNiblackistheresultoftheCompanyfocusingonongoingsitemaintenanceactivitiesandrequiredenvironmentalmonitoring.In2013,theCompanyhadcompletedadrillingprograminthepriorquarterandwasfocusing on engineering and technical studies on theNiblack Project in addition to ongoing sitemaintenanceandenvironmentalmonitoring.


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Thefollowingtableprovidesthebreakdownofexpensesincurred:

E&E 2014 2013 Niblack Total Delta Niblack Total

Assaysandanalysis $1,107 $1,107 $1,599 $16,541 $18,140Depreciation 24,994 24,994 – 30,116 30,116Drilling – – – 1,872 1,872Engineering 22,525 22,525 – 95,152 95,152Environmental 75,557 75,557 – 61,321 61,321Equipmentrental 16,572 16,572 – 41,337 41,337Freight 646 646 – 5,480 5,480Geological 34,055 34,055 28,230 242,806 271,036Graphics – – – 194 194Propertyfeesandassessments 9,748 9,748 45,260 15,667 60,927

Siteactivities 53,735 53,735 8,313 242,697 251,010Travelandaccommodation 12,142 12,142 727 36,954 37,681

Total $251,081 $251,081 $84,129 $790,137 $874,266

G&Adecreasedby$190,000to$243,000intheperiodduetoreducedcorporateactivitiesin2014ascomparedto2013. Inthepursuitofadditional financingtheCompanyhas incurred increasedconsultingfees.

ThefollowingtableprovidesabreakdownoftheG&Aincurred:

G&A 2013 2013

Consulting $25,992 $9,159

Legal,accountingandaudit 25,601 13,582

Managementandadministration 122,455 275,376

Office 45,008 64,821

Shareholdercommunication 3,120 33,088

Travel 13,252 29,586

Trustandfiling 8,095 7,844

Total $243,523 $433,456

TheCompany recordedadecrease in share‐based compensation to$12,000 from$85,000 in theprior year due to the lower average fair value estimated for share purchase options ("options")vestingin2014ascomparedtotheaveragefairvalueestimatedforoptionsvestingin2013.

The Company recognized a loss of $383 on the change in the fair value of derivative financialliabilities which are the Company’s Canadian dollar denominated share purchase warrants, ascomparedtoagainof$59,000intheprioryear.

On the re‐measurement of the convertible debenture, the Company recognized a net loss of$158,000 in the period as compared to a loss of $207,000 in 2013. In 2013, the Company also


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incurred$210,000intransactionfeesontheissueoftheconvertibledebenture(furtherdisclosureson the convertible debenture can be found in Note7 in the Notes to the Interim FinancialStatementsthataccompanytheMD&A).

1.5.2 FinancialpositionasatJanuary31,2014vs.October31,2013

Totalassetsdecreasedto$1,939,000from$2,265,000. Thedecreaseismainlyattributabletothereductionincashandcashequivalentswhichwasutilizedforoperatingactivities.

1.6 Liquidity

At January31,2014, the Company had cash and equivalents of $0.4million, compared to$0.7millionatOctober31,2013.Ofthetotalcurrentliabilitiesof$0.7million,$0.5millionrelatestoapayabletoHunterDickinsonServicesInc.("HDSI"),arelatedparty(refer1.9TransactionswithRelatedParties).TheCompanyreceivedconfirmationfromHDSIthatitwillnotdemandrepaymentoftheamountsoutstandingpriortoOctober31,2014,butwillcontinuetoprovideservicestotheCompany, notwithstanding. Management as a result believes that the Company’s available cashresources will be sufficient to meet its known obligations, including debt servicing and sitemaintenanceactivitiesatNiblackfallingduetotheendofthefiscalyear.TheCompanyisactivelymanagingitscashresourcesandcurtailingactivitiesasnecessaryinorderensureitsabilitytomeetpayments as they come due. Additional debt, equity or other financing options including therelianceonjointventurepartnerstoprovidefunds,willberequiredtofundfurtherexplorationordevelopmentprogramsattheNiblackProject.

Since the latter part of calendar 2012, generalmarket conditions for junior resource companieshavedeterioratedsignificantlyandhaveresultedindepressedsharepricesforresourcecompanies,despite strong commodity prices. Although the Company was able to successfully complete aplacementofaconvertibledebenturein2013andanequityfinancingin2012,thedeteriorationinmarketconditionshaspotentially increased the costofobtaining further fundingand/or limitingtheavailabilityoffunds.Accordingly,managementisactivelymonitoringtheeffectsofthecurrenteconomic and financing conditions on the business and reviewing discretionary spending andoperatingexpendituresandimplementingappropriatecashandcostmanagementstrategies.

ConvertibleDebenture

In Q1 of 2013, the Company was able to raise $2.8million (net) in funding through a privateplacement of a convertible debenture ("Debenture"). Since the Debenture does not entitle itsholder to receivecash for therepaymentof theprincipalamount, theCompanybelieves that theissuanceoftheDebenturehasafavourableimpactontheCompany’sliquidityposition.Undertheterms of the Debenture, if there is any outstanding principal at maturity, the Company has anoption to redeem the Debenture in common shares, in cash or a combination of both. TheDebenture bears interest at the rate of 8% per annum, of which 4% per annum is payable incommonsharesoftheCompany.

Themining industry is capital intensive and sources of funding can be subject to fluctuations inmetalprices.TherecanbenocertaintythattheCompany'sexistingcashbalancesortheproceedsfrom the issuance of its common shares in the futurewill provide sufficient funds for all of the


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Company's cash requirements for future work programs. The Company may pursue otherfinancingoptionsorrelyonjointventurepartnerstosupplysomeofthefundsrequiredtoexploreand develop the Niblack Project. There is no assurance that the Companywill be successful inobtainingthefundsitwillrequireforitsprograms.

ThefollowingobligationsexistedJanuary31,2014: Paymentsduebyperiod Total Lessthan1year After5yearsAmountspayableandotherliabilities $127,418 $127,418 $–

DuetoHunterDickinsonServicesInc.(i) 527,643 527,643 –

DuetoC.E.C.EngineeringLtd.(i) 695 695 –

Rehabilitationprovision(ii) 1,409,959 – 1,409,959

Total $2,065,715 $655,756 $1,409,959

(i) Referto1.9TransactionswithRelatedParties.

(ii) Thesettlementoftheobligationwillonlyoccuruponclosureoftheminesite.TheCompanyhas a surety bondwith an insurance company in place in favour of the Alaska regulatoryauthoritiesforthefullamountandhaspursuanttothetermsofthesuretybondprovidedthesurety provider cash collateral of $704,960. The Company will be required to fund theshortfallof$704,999.

With the issue of the Debenture, the Company has a Cdn$3.0million long‐term obligation.However, the Debenture does not entitle the holder to receive cash for the repayment of theprincipalamount.

The Company is responsible for all maintenance payments on the Niblack property. Except asnotedabove,theCompanyhasnolongtermdebt,capitalleaseobligations,operatingleasesoranyotherlongtermobligation.TheCompanyhasno"PurchaseObligations",definedasanyagreementtopurchasegoodsorservicesthatisenforceableandlegallybindingontheCompanythatspecifiesall significant terms, including: fixedorminimumquantities tobepurchased; fixed,minimumorvariablepriceprovisions;andtheapproximatetimingofthetransaction.

1.7 CapitalResources

TheCompany’scapitalresourcesconsistofitscashreserves.Todate,theCompany'smajorsourceoffundinghasbeenthroughtheissuanceofequitysecuritiesandconvertibledebtinstrumentsforcash, primarily through private placements to sophisticated investors and institutions. TheCompany’saccesstofinancingisalwaysuncertain.TherecanbenoassurancesthattheCompanywillbesuccessfulinobtainingadditionalfinancing.

At January 31, 2014, the Company had long‐term debt in the form of the convertible debenture(referto1.6LiquidityforfurtherdiscussionontheDebentureissuedbytheCompany).

Otherthannotedabove, theCompanyhadnofurthercommitmentsforcapitalexpendituresasatJanuary31,2014.

TheCompanyhasnolinesofcreditorothersourcesoffinancingwhichhavebeenarranged.


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1.8 Off‐BalanceSheetArrangements

None.

1.9 TransactionswithRelatedParties

(a) EntitycontrolledbyadirectoroftheCompany

C.E.C. Engineering Ltd. ("CEC") is a private company controlled by a director that providesadministrativeandengineeringservicestotheCompanyatmarketrates. Asat January31,2014,theCompany’sbalancepayabletoCECamountedto$695(October31,2013–$446).

(b) EntitieswithsignificantinfluenceovertheCompany

TheCompany’smanagementbelievesthatcertainentitieswhichtheCompanytransactswithhavepower toparticipate in the financialoroperatingpoliciesof theCompany. Oneof theseentities,HDSIhasseveraldirectorsandotherkeymanagementpersonnelwhoareclosebusinessassociatesandarealsokeymanagementpersonnelof theCompany. Pursuant toamanagementagreementbetween theCompanyandHDSIwhichhassignificant influenceover theCompany, theCompanyreceives geological, engineering, corporate development, administrative, management andshareholdercommunicationservicesfromHDSI.WherethirdpartycostsareincurredbyHDSIonbehalfoftheCompany,theCompanyreimbursesHDSIforthesecosts.ThefollowingprovidesthevalueoftransactionsfortheperiodendedJanuary31,2014and2013:

Transactions 2014 2013

Servicesrenderedbasedonannuallysetrates $209,316 $609,476

Reimbursementofthirdpartyexpensespaid $18,782 $40,233

January31 October31

Balances(payable)/prepaidexpenses 2014 2013

Balances(payable)forservicesreceived $(527,643) $(360,842)

PrepaymentagainstservicestobereceivedbytheCompany $– $114,807

January31 October31

Summary 2014 2013

Balancespayabletorelatedparties

EntitycontrolledbyadirectoroftheCompany $695 $446

EntitywithsignificantinfluenceovertheCompany 527,643 360,842



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(c) AmendmenttoemploymentagreementofadirectoroftheCompany

OnMarch17,2014theCompanyandtheCompany’sChiefExecutiveOfficerandPresident,PatrickSmithagreedtoamendhisemploymentagreement,toamongotherthings,reducehisbasesalaryby50%foranindefiniteperiodinconsiderationforanincentive/retentionarrangementpursuanttowhichMr.Smithwillreceive:

(i) 500,000 options to purchase common shares in the Company subject to the rights andrestrictionsof theCompany’sshareoptionplan. Theoptionsshallhaveatermof5yearsand vest upon theCompany entering into a joint venture transactionwith a partner thatclosesincalendar2014.Shouldthismilestonenotbeachieved,theseoptionswillexpireonJanuary1,2015;and/or,

(ii) 500,000 options to purchase common shares in the Company, subject to the rights andrestrictionsof theCompany’sshareoptionplan. Theoptionsshallhaveatermof5yearsandvestupontheCompanyclosingafinancingintheCompanyofatleastCdn$5millionincalendar 2014. Should this milestone not be achieved, the options will expire onJanuary1,2015.

1.10 FourthQuarter

Not applicable.

1.11 ProposedTransactions

There are no proposed assets or business acquisitions or dispositions, other than those in theordinarycourse,beforetheboardofdirectorsforconsideration.

1.12 CriticalAccountingEstimates

NotrequiredastheCompanyisaventureissuer.

1.13 ChangesinAccountingPoliciesincludingInitialAdoption

AccountingStandards,AmendmentsandRevisedStandardsAdopted

The Company adopted a number of new and revised standards and amendments that becameeffectiveonNovember1,2013,whicharediscussedinNote2intheNotestotheInterimFinancialStatementswhichaccompanythisMD&A.

AccountingStandards,AmendmentsandRevisedStandardsNotYetEffective

TheCompanyhasdisclosedinformationandpotentialimpactthereofinNote2intheNotestotheInterimFinancialStatementswhichaccompanythisMD&A.


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1.14 FinancialInstrumentsandOtherInstruments

PleaserefertotheaccompanyingInterimFinancialStatements.

1.14.1 FinancialRiskManagement

Overview

TheCompanyhas exposure to credit risk, liquidity risk andmarket risk from its useof financialinstruments.This following presents information about the Company's exposure to each of these risks, theCompany'sobjectives,policiesandprocessesformeasuringandmanagingrisk,andtheCompany'smanagementofcapital.The Board of Directors has overall responsibility for the establishment and oversight of theCompany'sriskmanagementframework.

CreditRisk

CreditriskistheriskofpotentiallosstotheCompanyifthecounterpartytoafinancialinstrumentfailstomeet itscontractualobligations. TheCompany'screditriskisprimarilyattributableto itsliquidfinancialassetsincludingcashandcashequivalents,restrictedcashandamountsreceivable.TheCompanylimitsitsexposuretocreditriskonliquidfinancialassetsbyonlyinvestingitscashandcashequivalentsandrestrictedcashwithhigh‐creditqualityfinancialinstitutionsinbusinessand savings accounts. Amounts receivable consists of GST receivable from the Canadiangovernment.TherewasnochangeintheCompany’sobjectivesandpoliciesformanagingthisriskexceptforchangesinthecarryingamountsoffinancialassetsexposedtocreditrisk,andtherewasno significant change to the Company’s exposure to credit risk during the period endedJanuary31,2014.AtJanuary31,2014,theCompanyconcludedthatthereisnoobjectiveevidenceofimpairmenttoitsamountsreceivable.

LiquidityRisk

LiquidityriskistheriskthattheCompanywillnotbeabletomeetitsfinancialobligationsastheyfalldue.TherehasbeennochangeintheCompany’sobjectivesandpoliciesformanagingthisrisk.TheCompany’sliquiditypositionhasbeendiscussedin1.6Liquidity.

MarketRisk

Marketrisk is therisk thatchanges inmarketprices,suchas foreignexchangeratesand interestrateswill affect theCompany's incomeor thevalueof itsholdingsof financial instruments. Theobjective of market risk management is to manage and control market risk exposures withinacceptableparameters,whileoptimizingthereturn.


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InterestRateRisk

The Company is subject to interest rate risk with respect to its investments in cash and cashequivalents.TheGroup'spolicyistoinvestcashatfixedratesofinterestandcashreservesaretobe maintained in cash and cash equivalents in order to maintain liquidity, while achieving asatisfactoryreturnforshareholders.Fluctuationsininterestrateswhencashandcashequivalentsmature impact interest income earned; however, for the period ended January31,2014, theexposurefortheCompanyisnotsignificant.

ForeignExchangeRisk

Inthenormalcourseofbusiness,theCompanyentersintotransactionsforthepurchaseofsuppliesandservicesdenominatedinacurrencyotherthanthefunctionalcurrencyoftheCompany. Asaresult,theCompanyissubjecttoforeignexchangeriskfromfluctuationsinforeignexchangerates.TheCompanymanages foreign exchange risk by closelymonitoring relevant exchange rates andwhen possible, executes currency exchange transactions at timeswhen exchange rates aremostadvantageousfortheCompany.TheCompanyhasnotenteredintoanyderivativeorotherfinancialinstrumentstomitigatethisforeignexchangerisk.TherehasbeennochangeintheCompany’sobjectivesandpoliciesformanagingthisriskandtherewasno significant change to theCompany’s exposure to foreign exchange riskduring theperiodended January 31, 2014, except for the changes in the carrying amounts of financial assets andliabilitiesexposedtoforeignexchangeriskintheordinarycourse.

PriceRisk

Market risk arises from the possibility that changes inmarket priceswill affect the value of thefinancial instrumentsof theCompany. TheCompany is exposed to fair value fluctuationson theCanadian Dollar‐denominated convertible debenture and share purchase warrants, which havebeenclassifiedasafinancialliabilityatFVTPLandderivativefinancialliabilities,respectively.Fortheconvertibledebenture,threevaluationmodelshavebeenemployedtodetermineitsfairvalue.ThefairvalueofthewarrantshasbeendeterminedusingtheBlack‐Scholesvaluationmodel.TherelevantdisclosuresareincludedintheCompany’sInterimFinancialStatementswhichaccompanythisMD&AandwhicharepubliclyfiledundertheCompany’sprofileofSEDARatwww.sedar.com.Therehasbeennochange intheCompany’sobjectivesandpolicies formanagingthisriskduringtheperiodendedJanuary31,2014.

1.15 OtherMD&ARequirements

AdditionalinformationrelatingtotheCompanyisavailableonSEDARundertheCompany’sprofileatwww.sedar.com.

1.15.1 AdditionalDisclosureforVentureIssuerswithoutSignificantRevenue

(a) Capitalizedorexpensedexplorationanddevelopmentcosts


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Therequireddisclosureispresentedin1.5.1.

(b) expensedresearchanddevelopmentcosts

Notapplicable.

(c) deferreddevelopmentcosts

Notapplicable.

(d) generalandadministrationexpenses

Therequireddisclosureispresentedin1.5.1.

(e) anymaterialcosts,whethercapitalized,deferredorexpensed,notreferredto in(a) through(d)

None.

1.15.2 DisclosureofOutstandingShareData

Thefollowingdetailsthesharecapitalstructure:

Commonsharesissuedandoutstanding AsofMarch28,2014 120,097,167

Shareoptions–asofMarch28,2014 5,239,960(Weightedaverageexercisepricepershare:Cdn$0.70)Warrants(1)–asofMarch28,2014 2,053,500(Weightedaverageexercisepricepershare:Cdn$1.22)MaximumnumberofcommonsharestobeissueduponconversionoftheDebenture(2) 15,000,000

(1) Assumesthenumberofwarrantsthatcanberedeemedintoonecommonshare,takingintoaccountthatthe4,107,000warrantsassumedfromNIBcanonlyberedeemedinto2,053,500commonshares.

(2) TheCdn$3millionDebentureprincipalisconvertibleatCdn$0.20percommonshare.

Additionally, under the term of the Debenture agreement, the Company will issue a variablenumberof itscommonshares foraportionof interestpayableontheDebenture. ThemaximumnumberofcommonsharesthatmaybeissuedforinterestpaymentsoverthetermoftheDebentureis 1.2million common shares. As of the date of thisMD&A, 549,040 common shares havebeenissuedforpaymentofinterestontheDebenture.

1.15.3 InternalControlsoverFinancialReporting

The Company's management is responsible for establishing and maintaining adequate internalcontrols over financial reporting. Any system of internal controls over financial reporting, nomatterhowwelldesigned,hasinherentlimitations.Therefore,eventhosesystemsdeterminedtobeeffectivecanprovideonlyreasonableassurancewithrespecttofinancialstatementpreparationandpresentation.


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1.15.4 DisclosureControlsandProcedures

TheCompanyhasdisclosurecontrolsandproceduresinplacetoprovidereasonableassurancethatanyinformationrequiredtobedisclosedbytheCompanyundersecuritieslegislationisrecorded,processed, summarized and reported within the applicable time periods and that requiredinformationisgatheredandcommunicatedtotheCompany'smanagementsothatdecisionscanbemadeaboutthetimelydisclosureofthatinformation.

1.15.5 RiskFactors

TheriskfactorsassociatedwiththeprincipalbusinessofHeatherdalearediscussedbelow.Briefly,theseincludethehighlyspeculativenatureoftheminingindustrycharacterizedbytherequirementfor largecapital investment fromanearlystageandaverysmallprobabilityof findingeconomicmineral deposits. In addition to the general risks of mining, there are country‐specific risksassociatedwithoperatinginaforeigncountry,includingcurrency,political,social,andlegalrisk.

DuetothenatureofHeatherdale’sbusinessandthepresentstageofexplorationanddevelopmentof theNiblackProject,Heatherdalemaybe subject to significant risks. Readers should carefullyconsider all such risks set out in the discussion below. Heatherdale’s actual exploration andoperatingresultsmaybeverydifferentfromthoseexpectedasatthedateofthisMD&A.

ExplorationandMiningRisks

Resource exploration, development, and operations are highly speculative, characterized by anumber of significant risks, which even a combination of careful evaluation, experience andknowledgemaynoteliminate,including,amongotherthings,unprofitableeffortsresultingnotonlyfrom the failure to discover mineral deposits but from finding mineral deposits which, thoughpresent,areinsufficientinquantityandqualitytoreturnaprofitfromproduction.Fewpropertiesthat are explored are ultimately developed into producing mines. Unusual or unexpectedformations, formation pressures, fires, power outages, labour disruptions, flooding, explosions,cave‐ins,landslidesandtheinabilitytoobtainsuitableoradequatemachinery,equipmentorlabourare other risks involved in the operation of mines and the conduct of exploration programs.Heatherdale will rely on consultants and others for exploration, development, construction andoperating expertise. Substantial expenditures are required to establish mineral resources andmineral reserves through drilling, to develop metallurgical processes to extract the metal frommineralresources,andinthecaseofnewproperties,todeveloptheminingandprocessingfacilitiesandinfrastructureatanysitechosenformining.

No assurance can be given that minerals will be discovered in sufficient quantities to justifycommercialoperationsorthatfundsrequiredfordevelopmentcanbeobtainedonatimelybasis.Whether amineraldepositwillbe commerciallyviabledependsonanumberof factors, someofwhichare:

theparticularattributesofthedeposit,suchassize,gradeandproximitytoinfrastructure; metalprices,whicharehighlycyclical;and government regulations, including regulations relating to prices, taxes, royalties, land

tenure,landuse,importingandexportingofminerals,andenvironmentalprotection.


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The exact effect of these factors cannot accurately be predicted, but the combination of thesefactorsmayresultinHeatherdalenotreceivinganadequatereturnoninvestedcapital.

Heatherdale will carefully evaluate the political and economic environment in considering anyproperties foracquisition. There canbenoassurance that additional significant restrictionswillnot be placed on the Niblack Project and any other properties Heatherdale may acquire. SuchrestrictionsmayhaveamaterialadverseeffectonHeatherdale’sbusinessandresultsofoperation.

FutureProfits/LossesandProductionRevenues/Expenses

Heatherdale has no history of operations and expects that its losses will continue for theforeseeable future. No deposit on the Niblack Project has yet been found and shown to beeconomic.ItsentireprospectsrestsolelywiththeNiblackProject.TherecanbenoassurancethatHeatherdale will be profitable in the future. Heatherdale’s operating expenses and capitalexpendituresmayincreaseinsubsequentyearsascostsforconsultants,personnelandequipmentassociated with advancing exploration, development and commercial production of the NiblackProjectareincurred.Theamountsandtimingofexpenditureswilldependon:

theprogressofongoingexplorationanddevelopment; theresultsofconsultants’analysesandrecommendations; therateatwhichoperatinglossesareincurred; theexecutionofanyjointventureagreementswithstrategicpartners;and the acquisitionof any additionalproperties andother factors,manyofwhicharebeyond

Heatherdale’scontrol.

Heatherdaledoesnotexpecttoreceiverevenuesfromoperationsintheforeseeablefuture,ifatall.HeatherdaleexpectstoincurlossesunlessanduntilsuchtimeastheNiblackProjectoranyotherproperties Heatherdale may acquire enter into commercial production and generate sufficientrevenues to fund its continuing operations. The development of this project and any otherpropertiesHeatherdalehasandmayacquirewillrequirethecommitmentofsubstantialresourcesto conduct the time‐consumingexplorationanddevelopmentof theproperties. There canbenoassurance thatHeatherdalewill generate any revenuesor achieveprofitability. There canbenoassurancethattheunderlyingassumedlevelsofexpenseswillprovetobeaccurate.

AdditionalFundingRequirements

Further exploration on, and development of, the Niblack Project, will require additionalresources/funding. Heatherdale currently does not have sufficient funds to fund any furtherexplorationanddevelopmentoftheNiblackProject.Inaddition,apositiveproductiondecisionthatmay be made on this project or any other development projects acquired in the future wouldrequiresignificantresourcesorfundingforprojectengineeringandconstruction.Accordingly,thecontinuingdevelopmentoftheNiblackProjectandanyotherpropertiesHeatherdalemayacquirewilldependuponHeatherdale’sabilitytoobtainfinancingthroughdebt,equity,thejointventuringofprojects,orothermeans.ThereisnoassurancethatHeatherdalewillbesuccessfulinobtainingtherequiredfinancingforexplorationand/ordevelopmentpurposes,includingforgeneralworkingcapital.

Refertodiscussionin1.6Liquidity.


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EnvironmentalMatters

All of Heatherdale’s mining operations will be subject to environmental regulations, which canmakeoperationsexpensiveorprohibitthemaltogether.

Heatherdale may be subject to potential risks and liabilities associated with pollution of theenvironment and the disposal of waste products that could occur as a result of its mineralexploration,developmentandproduction.

To the extentHeatherdale is subject to environmental liabilities over and abovebonds set up infavourofregulatorybodies,thepaymentofsuchliabilitiesorthecoststhatitmayincurtoremedyenvironmental pollution would reduce funds otherwise available which could have a materialadverseeffectonHeatherdale.IfHeatherdaleisunabletofullyremedyanenvironmentalproblem,itmight be required to suspend operations or enter into interim compliancemeasures pendingcompletionof the required remedy. Thepotential exposuremaybe significant andcouldhaveamaterialadverseeffectonHeatherdale.

All of Heatherdale’s exploration, development and any production activities will be subject toregulationunderoneormoreenvironmentallawsandregulations.ManyoftheregulationsrequireHeatherdale toobtainpermits for itsactivities. Heatherdalemustupdateandreview itspermitsfrom time to time, and is subject to environmental impact analyses and public reviewprocessespriortoapprovaloftheadditionalactivities. It ispossiblethatfuturechangesinapplicablelaws,regulationsandpermitsorchangesintheirenforcementorregulatoryinterpretationcouldhaveasignificant impact on some portion of Heatherdale’s business, causing those activities to beeconomicallyre‐evaluatedatthattime.

MarketforSecuritiesandVolatilityofSharePrice

There can be no assurance that an active trading market in Heatherdale’s securities will beestablishedor sustained. Themarketprice forHeatherdale’s securities couldbe subject towidefluctuations.Factorssuchasannouncementsofexplorationresults,aswellasmarketconditionsinthe industry, may have a significant adverse impact on the market price of the securities ofHeatherdale. The stock market has from time to time experienced extreme price and volumefluctuations, which have often been unrelated to the operating performance of particularcompanies.

ConflictsofInterest

CertainofHeatherdale’sdirectorsandofficersmayserveasdirectorsorofficersofothercompaniesorcompaniesprovidingservicestoHeatherdaleortheymayhavesignificantshareholdingsinothercompanies. Situationsmayarisewhere thesedirectorsand/orofficersofHeatherdalemaybe incompetitionwithHeatherdale.Anyconflictsofinterestwillbesubjecttoandgovernedbythelawapplicabletodirectors’andofficers’conflictsofinterest.IntheeventthatsuchaconflictofinterestarisesatameetingofHeatherdale’sdirectors,adirectorwhohassuchaconflictwillabstainfromvoting for or against the approval of such participation or such terms. In accordance withapplicablelaws,thedirectorsofHeatherdalearerequiredtoacthonestly,ingoodfaithandinthebestinterestsofHeatherdale.


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PaymentofDividendsUnlikely

There is no assurance that Heatherdale will pay dividends on its shares in the near future.Heatherdalewilllikelyrequireallitsfundstofurtherthedevelopmentofitsbusiness.

LackofRevenues;HistoryofOperatingLosses

Heatherdale does not have any operational history or earnings and has incurred net losses andnegative cash flow from its operations since incorporation. Although Heatherdale hopes toeventuallygeneraterevenues,significantoperatinglossesaretobeanticipatedforatleastthenextseveralyearsandpossiblylonger.Totheextentthatsuchexpensesdonotresultinthecreationofappropriate revenues, Heatherdale’s business may be materially adversely affected. It is notpossibletoforecasthowthebusinessofHeatherdalewilldevelop.

GeneralEconomicConditions

MarketconditionsandunexpectedvolatilityorilliquidityinfinancialmarketsmayadverselyaffecttheprospectsofHeatherdaleandthevalueofitsshares.

Refertodiscussionin1.6Liquidity.

RelianceonKeyPersonnel

Heatherdalewillbedependenton thecontinuedservicesof its seniormanagement team,and itsabilitytoretainotherkeypersonnel.Thelossofsuchkeypersonnelcouldhaveamaterialadverseeffect onHeatherdale. There can be no assurance that any of theHeatherdale’s employeeswillremain with Heatherdale or that, in the future, the employees will not organize competitivebusinessesoracceptemploymentwithcompaniescompetitivewithHeatherdale.

Furthermore, as part of Heatherdale’s growth strategy, itmust continue to hire highly qualifiedindividuals.TherecanbenoassurancethatHeatherdalewillbeabletoattract,assimilateorretainqualifiedpersonnelinthefuture,whichwouldadverselyaffectitsbusiness.

heatherdale resources ltd. · to hunter dickinson services inc. ... , 2014, the company retained an...

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