United
States


Securities
and Exchange Commission


Washington,
DC 20549





Form
20-F





(Mark
one)


[   ]              Registration
Statement Pursuant to Section 12(b) or (g) of the Securities Exchange Act of
1934





or





[X]              Annual
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934




For
the fiscal year ended May 31, 2008





or





[   ]              Transition
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934




For the
transition period from _________ to _________





or





[   ]              Shell
Company Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934




Commission
file number: 0-30920




Kola
Mining Corp.


(Exact
name of Registrant as specified in its charter)




Kola
Mining Corp.


(Translation
of Registrant’s name into English)




British
Columbia, Canada


(Jurisdiction
of incorporation or organization)





#598,
999 Canada Place, Vancouver, British Columbia, Canada, V6C 3E1


(Address
of principal executive offices)





Igor
Kovarsky, (604) 688-4110, Suite 598, 999 Canada Place, Vancouver, B.C. Canada
V6E 4N7


(Name,
Telephone, E-mail and/or Facsimile number and Address of Company Contact
Person)





Securities
registered or to be registered pursuant to Section 12(b) of the
Act.  None





Securities
registered or to be registered pursuant to Section 12(g) of the
Act.




Common
Stock, No Par Value


(Title of
Class)





Securities
for which there is a reporting obligation pursuant to Section 15(d) of the
Act.  Not
Applicable





Indicate
the number of outstanding shares of each of the issuer’s classes of capital or
common stock as of the close of the period covered by the annual
report.  53,837,457
Common Shares as of May 31, 2008








Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.


 ̈ Yes                      ý No





If this
report is an annual or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.


 ̈ Yes                      ý No





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.


ý Yes                       ̈ No





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):





Large
accelerated filer   ̈                  Accelerated
filer   ̈                Non-accelerated
filer  ý





Indicate
by check mark which basis of accounting the registrant has used to prepare the
financial statements included in this filing:


U.S. GAAP
 ̈                                           International
Financial Reporting Standards as issuedOther ý


By the International Accounting
Standards Board  ̈





If
“Other” has been checked in response to the previous question, indicate by check
mark which financial statement item the registrant has elected to follow.ý Item 17 ̈ Item 18





If this
is an annual report, indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act)    ̈ Yesý No





-2-


General
Information:





Unless
otherwise indicated, all references herein are to Canadian dollars.





The
Company is required under Canadian law (National Instrument 43-101 Standards Of
Disclosure For Mineral Projects) (“NI 43-101”) to
calculate and categorize “mineral reserve”, “proven mineral reserve”, “probable
mineral reserve”, “mineral resource”, “measured mineral resource”, “indicated
mineral resource” and “inferred mineral resource” under the Canadian Institute
of Mining Metallurgy and Petroleum (“CIM”) Standards on
Mineral Resources and Reserves - Definitions and Guidelines adopted by the CIM
in August 2000.  These standards establish definitions and guidelines
for the reporting of exploration information, mineral resources and mineral
reserves in Canada.  These definitions have not been adopted for use
in the United States of America by the Securities and Exchange Commission (the
“SEC”).  Under
these guidelines, the CIM definitions of proven and probable reserves equate to
the definitions of proven and probable reserves as set out in Guide 7 of the
Securities Act Industry Guides adopted by the SEC (“Guide
7”).  In addition, Canadian law requires disclosure of mineral
resources that equate to measured, indicated and inferred
resources.




GLOSSARY





The
following is a glossary of some of the terms used in the mineral exploration
industry and referenced herein:




Ag
              silverandesite
              a
      dark colored, fine grained volcanic rock.Au
              goldbreccia
              rock
      comprised of large angular fragments suspended in a fine grained
      mineral.carbonaceous
      shale
              a
      fine grained, sedimentary rock that has a significant carbon
      content.chalcopyrite
              a
      very common mineral, copper iron sulfide, occurring in brass-yellow
      crystals or masses; copper pyrite.chloritization
              an
      alteration process where pre-existing minerals are replaced by
      chlorite.contained
      metal
              total
      measurable metal in pounds estimated to be contained within a mineral
      deposit.  Makes no allowance for economic criteria, mining
      dilution or recovery losses.Cu
              copperCut-off
      grade
              the
      lowest grade of mineralization that qualifies as ore in a resource
      calculationDevonian
              a
      period of time in the Paleozoic era covering a time period between 400 and
      345 million years ago.diorite
              an
      intrusive igneous rock largely comprised of feldspar, hornblende, pyroxene
      and quartz.feasibility
      study
              a
      detailed report assessing the feasibility, economics and engineering of
      placing a mineral deposit into commercial production.fuchsite
              a
      bright green chromium rich mica mineral.g
              grams
   -3-
 g/t
              grams
      per tonne.granodiorite
              an
      intrusive igneous rock comprised largely of quartz, feldspar, biotite and
      hornblende.greenschist
      facies
              a
      term used to describe rocks that have undergone low grade metamorphism
      associated with a temperature range between 300 and 500 degrees
      Celsius.greenstone
              a
      general term used to describe any dark green color metamorphosed igneous
      rock.igneous
              a
      rock that has solidified from molten or partly molten rock
      material.indicated
      resource
              (NI
      43-101 definition)
                means
      that part of a mineral resource for which quantity, grade or quality,
      densities, shape and physical characteristics can be estimated with a
      level of confidence sufficient to allow the appropriate application of
      technical and economic parameters, to support mine planning and evaluation
      of the economic viability of the deposit. The estimate is based on
      detailed and reliable exploration and testing information gathered through
      appropriate techniques from locations such as outcrops, trenches, pits,
      workings and drill holes that are spaced closely enough for geological and
      grade continuity to be reasonably assumed.inferred
      resource
              (NI
      43-101 definition) means that part of a mineral resource for which
      quantity and grade or quality can be estimated on the basis of geological
      evidence and limited sampling and reasonably assumed, but not verified,
      geological and grade continuity. The estimate is based on limited
      information and sampling gathered through appropriate techniques from
      locations such as outcrops, trenches, pits, workings and drill
      holes.infill
      drilling program
              a
      series of drill holes that have been laid out to intersect the untested
      areas between two previously drilled holes.intrusive
      rock
              a
      general term used to describe an igneous rock body that has intruded
      pre-existing rock and solidified without breaching the earth’s
      surface.km
              Kilometerm
              Metermafic
              a
      term used to describe igneous rocks comprised of dark colored iron and
      magnesium rich minerals.magma
              mobile,
      molten rock material.measured
      resource
              (NI
      43-101 definition) means that part of a mineral resource for which
      quantity, grade or quality, densities, shape, physical characteristics are
      so well established that they can be estimated with confidence sufficient
      to allow the appropriate application of technical and economic parameters,
      to support production planning and evaluation of the economic viability of
      the deposit. The estimate is based on detailed and reliable exploration,
      sampling and testing information gathered through appropriate techniques
      from locations such as outcrops, trenches, pits, workings and drill holes
      that are spaced closely enough to confirm both geological and grade
      continuity.
   -4-
  metamorphism
              the
      mineralogical, chemical, and structural adjustment of solid rocks to
      physical and chemical conditions which have been imposed due to prolonged
      exposure to heat and pressure.mineral
      reserve
              (NI
      43-101 definition) means the economically mineable part of a measured or
      indicated resource demonstrated by at least a preliminary feasibility
      study. This study must include adequate information on mining, processing,
      metallurgical, economic and other relevant factors that demonstrate, at
      the time of reporting, that economic extraction can be justified. A
      mineral reserve includes diluting materials and allowances for losses that
      may occur when the material is mined.mineral
      resource
              (NI
      43-101 definition) a body of mineralized material which has not yet been
      determined to be ore, and the potential for mining of which has not yet
      been determined; categorized as possible, probable and proven, according
      to the degree of certainty with which their grade and tonnage are known;
      sometimes referred to as a “geological resource” or “mineral
      inventory”.monzodiorite
              an
      igneous intrusive rock largely comprised of quartz and feldspar and minor
      pyroxene.Ordovician
              a
      period of time in the Paleozoic era covering a time period between 500 and
      440 million years ago.ore
              a
      naturally occurring rock or material from which economic minerals can be
      extracted at a profit.ounce
      or oz.
              a
      troy ounce or 20 pennyweights or 480 grains or 31.103
    grams.Paleozoic
              a
      period or era of time between 570 and 225 million years
  agoporphyry
              an
      igneous rock comprised of larger mineral crystals suspended in a matrix of
      finer grained crystals.probable
      reserve
              (NI
      43-101 definition) the economically mineable part of an indicated, and in
      some circumstances a measured resource demonstrated by at least a
      preliminary feasibility study. This study must include adequate
      information on mining, processing, metallurgical, economic, and other
      relevant factors that demonstrate, at the time of reporting, that economic
      extraction can be justified.professional
      association
              for
      the purposes of the definition of a Qualified Person below, means a
      self-regulatory organization of engineers, geoscientists or both engineers
      and geoscientists that (a) has been given authority or recognition by
      statute; (b) admits members primarily on the basis of their academic
      qualifications and experience; (c) requires compliance with the
      professional standards of competence and ethics established by the
      organization; and (d) has disciplinary powers, including the power to
      suspend or expel a member.proven
      mineral reserve
              (NI
      43-101 definition) means the economically mineable part of a measured
      resource demonstrated by at least a preliminary feasibility study. This
      study must include adequate information on mining, processing,
      metallurgical, economic, and other relevant factors that demonstrate, at
      the time of reporting, that economic extraction is
    justified.pyrite
              an
      ore mineral of iron and sulphur.
   -5-
  Qualified
      Person
              means
      an individual who (a) is an engineer or geoscientist with at least five
      years of experience in mineral exploration, mine development or operation
      or mineral project assessment, or any combination of these; (b) has
      experience relevant to the subject matter of the mineral project and the
      technical report; and (c) is a member in good standing of a professional
      association.quartz
              a
      rock-forming mineral of silica and oxygen, often found in veins
      also.reserve
              (SEC
      Guide 7 definition) that part of a mineral deposit which could be
      economically and legally extracted or produced at the time of the reserve
      determination.schist
              any
      of a class of crystalline metamorphic rocks whose constituent mineral
      grains have a more or less parallel or foliated
    arrangement.silicification
              an
      alteration process of pre existing rock involving the introduction of or
      replacement by fine grained silica.Silurian
              a
      period of time in the Paleozoic era covering a time period between 440 and
      400 million years ago.stockwork
              a
      metalliferous deposit characterized by the impregnation of the mass of
      rock with many small veins or nests irregularly
grouped.sulphidization
              an
      ore forming process where sulfur from an external source is introduced
      into pre existing rock or magma and bonds with metallic elements forming
      metallic sulphide minerals.tonne
              metric
      tonne (2,204.6 pounds).unconformity
              a
      substantial break or gap in the geologic record where a rock is overlain
      by another that is not the next unit in a continuous stratigraphic
      succession.vein
              a
      tabular body of rock typically of narrow thickness and often mineralized
      occupying a fault, shear, fissure or fracture crosscutting another
      pre-existing rock.





Forward
Looking Statements





The
Company cautions readers regarding forward looking statements found in the
following discussion and elsewhere in this annual report and in any other
statement made by, or on the behalf of the Company, whether or not in future
filings with the SEC.  Forward looking statements are statements not
based on historical information and which relate to future operations,
strategies, financial results or other developments.  Forward looking
statements are necessarily based upon estimates and assumptions that are
inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond the Company’s control
and many of which, with respect to future business decisions, are subject to
change.  See “Item 3.  Key Information - Risk
Factors”.  These uncertainties and contingencies can affect actual
results and could cause actual results to differ materially from those expressed
in any forward looking statements made by or on behalf of the
Company.  As a result, these forward-looking statements should be
considered in light of various important factors, including those set forth in
this annual report.  Important factors that could cause actual results
to differ materially from estimates or projections contained in the
forward-looking statement include, without limitation:


·
            overall
      economic and business conditions in
Russia;


·
            the
      ability to achieve anticipated efficiencies and other cost savings in
      connection with past and future
acquisitions;


·
            the
      success of exploration and development
  activities;






-6-






·
            decreases
      in the market price of nickel or
copper;


·
            the
      occurrence of labor disruptions;


·
            availability,
      terms and deployment of capital or
credit;


·
            changes
      in relevant government regulations, particularly environmental regulations
      and potential new legislation affecting mining and mineral
      rights;


·
            fluctuations
      in exchange rates, currency devaluations and other macroeconomic monetary
      policies; and


·
            political
      instability in Russia.





The
Company disclaims any obligation to update forward looking
statements.







PART
I





Item
1.  Identity of Directors, Senior Management and
Advisors.





Not
applicable.








Item
2.  Offer Statistics and Expected Timetable.





Not
applicable.








Item
3.  Key Information.





Selected
Financial Data





The
selected financial data of the Company for the years ended May 31, 2008, 2007,
2006, and 2005, was derived from the financial statements of the Company which
have been audited by Davidson & Company LLP, independent Chartered
Accountants, as indicated in their report which is included elsewhere in this
annual report.





The
information in the following table was extracted from the more detailed
consolidated financial statements and related notes included herein and should
be read in conjunction with such financial statements and with the information
appearing under the heading “Item 5.  Operating and Financial Review
and Prospects.”





Reference
is made to Note 16 of the Company’s consolidated financial statements included
herein for a discussion of the material differences between Canadian generally
accepted accounting principles (“GAAP”) and US GAAP,
and their effect on the Company’s financial statements.





On
September 14, 2005, the Company completed the acquisition of all of the issued
and outstanding common shares of 0724000 B.C. Ltd. (“724 BC”) in exchange
for common shares of the Company on a one-for-one basis, along with other
transactions.  On completion of the acquisition of 724 BC, the former
shareholders of 724 BC became the majority shareholders of the combined
Company.  Since this transaction resulted in the former shareholders
of 724 BC acquiring control of the Company, the acquisition has been treated for
accounting purposes as a recapitalization.  In accounting for this
transaction:




i)
            724
      BC is deemed to be the purchaser and parent company for accounting
      purposes.  Accordingly, its net assets are included in the
      consolidated balance sheets at their historical book
  value;




ii)
            Control
      of the net assets of the Company was acquired on September 14,
      2005.  The transaction has been accounted for as a purchase of
      the assets and liabilities of the Company by 724 BC;
  and




iii)
            The
      consolidated statements of operations and deficit and cash flows for the
      year ended May 31, 2006, include 724 BC’s results of operations and cash
      flows for the year ended May 31, 2006, and the Company’s results of






-7-




operations
      and cash flows from September 14, 2005.  The comparative figures
      for the year ended May 31, 2005 and period from February 4, 2004 (the date
      of incorporation of 724 BC) to May 31, 2004, and as at May 31, 2005 and
      2004, are those of 724 BC.





Year
      Ended
              May 31, 2008
            
            
            Year
      Ended
              May 31, 2007
            
            
            Year
      Ended
              May 31, 2006
            
            
            Year
      Ended
              May 31, 2005
            
            
            Period
      From
              February
      4,
              2004
      to
              May 31, 2004Interest
      and Other Income
            
            $
            133,131
            
            
            $
            42,993
            
            
            $
            19,455
            
            
            Nil
            
            
            NilGeneral
      and Administrative Expenses
            
            $
            4,102,354
            
            
            $
            1,949,793
            
            
            $
            1,194,486
            
            
            $
            162,633
            
            
            $
            75,974Loss
      From Continuing Operations
            
            $
            (6,586,225
            )
            
            $
            (2,036,069
            )
            
            $
            (1,206,667
            )
            
            $
            (161,466
            )
            
            $
            (75,903
            )Net
      Loss
            
            $
            (6,586,225
            )
            
            $
            (2,036,069
            )
            
            $
            (1,206,667
            )
            
            $
            (161,466
            )
            
            $
            (75,903
            )Total
      Assets
            
            $
            41,611,457
            
            
            $
            5,843,162
            
            
            $
            2,254,424
            
            
            $
            335,943
            
            
            $
            11,935Net
      Assets (Deficiency)
            
            $
            26,562,749
            
            
            $
            5,502,047
            
            
            $
            2,099,370
            
            
            $
            (214,258
            )
            
            $
            (69,158
            )Capital
      Stock
            
            $
            34,327,986
            
            
            $
            8,490,285
            
            
            $
            3,490,004
            
            
            $
            23,111
            
            
            $
            1,349Contributed
      Surplus
            
            $
            2,435,126
            
            
            $
            625,900
            
            
            $
            187,435
            
            
            Nil
            
            
            $
            5,396Weighted
      Average Number of Shares
            
            
            49,745,306
            
            
            
            19,576,880
            
            
            
            12,518,011
            
            
            
            1,469,962
            
            
            
            32Dividends
      per Share
            
            Nil
            
            
            Nil
            
            
            Nil
            
            
            Nil
            
            
            NilBasic
      and Fully Diluted Loss Per Share from Continuing
Operations
            
            $
            (0.13
            )
            
            $
            (0.10
            )
            
            $
            (0.10
            )
            
            $
            (0.11
            )
            
            $
            (2,371.97
            )Loss
      Per Share
            
            $
            (0.13
            )
            
            $
            (0.10
            )
            
            $
            (0.10
            )
            
            $
            (0.11
            )
            
            $
            (2,371.97
            )





Adjustment
to United States Generally Accepted Accounting Principles





The
consolidated financial statements of the Company have been prepared in
accordance with Canadian GAAP.  Canadian GAAP differs in certain
material respects from US GAAP.  The material differences between
Canadian and US GAAP and their effect on the Company’s consolidated financial
statements are summarized in the tables below.





Consolidated
Statements of Operations


2008
            
            
            
            2007
            
            
            
            2006
            
            
            
            2005$
            
            
            
            $
            
            
            
            $
            
            
            
            $Loss
      under Canadian GAAP
            
            
            (6,586,225
            )
            
            
            (2,036,069
            )
            
            
            (1,206,667
            )
            
            
            (161,466
            )Unproven
      mineral interests expensed
            
            
            (3,869,684
            )
            
            
            (384,958
            )
            
            
            (429,774
            )
            
            
            -Net
      loss under US GAAP
            
            
            (10,455,909
            )
            
            
            (2,421,027
            )
            
            
            (1,636,441
            )
            
            
            (161,466
            )Loss
      per share under US GAAP
            
            
            (0.21
            )
            
            
            (0.12
            )
            
            
            (0.13
            )
            
            
            (0.11
            )





Consolidated
Balance Sheets


2008
            
            
            
            2007
            
            
            
            2006$
            
            
            
            $
            
            
            
            $Shareholders’
      equityBalance
      per Canadian GAAP
            
            
            26,562,749
            
            
            
            5,502,047
            
            
            
            2,099,370Unproven
      mineral interests expensed
            
            
            (4,684,416
            )
            
            
            (814,732
            )
            
            
            (429,774
            )Balance
      per US GAAP
            
            
            21,878,333
            
            
            
            4,687,315
            
            
            
            1,669,596Unproven
      mineral interestsBalance
      per Canadian GAAP
            
            
            40,037,414
            
            
            
            1,491,844
            
            
            
            803,386Expensed
      under US GAAP
            
            
            (4,684,416
            )
            
            
            (814,732
            )
            
            
            (429,774
            )Balance
      per US GAAP
            
            
            35,352,998
            
            
            
            677,112
            
            
            
            373,612





-8-


Consolidated
Statements of Cash Flows


2008
            
            
            
            2007
            
            
            
            2006
            
            
            
            2005$
            
            
            
            $
            
            
            
            $
            
            
            
            $Operating
      activitiesCash
      used per Canadian GAAP
            
            
            (2,625,750
            )
            
            
            (1,464,627
            )
            
            
            (917,224
            )
            
            
            (85,261
            )Unproven
      mineral interests
            
            
            (5,676,409
            )
            
            
            (395,319
            )
            
            
            (157,548
            )
            
            
            -Cash
      used per US GAAP
            
            
            (8,302,159
            )
            
            
            (1,859,946
            )
            
            
            (1,074,772
            )
            
            
            (85,261
            )Investing
      activitiesCash
      used by per Canadian GAAP
            
            
            (12,653,519
            )
            
            
            (800,778
            )
            
            
            (174,090
            )
            
            
            (268,346
            )Unproven
      mineral interests
            
            
            5,676,409
            
            
            
            395,319
            
            
            
            157,548
            
            
            
            -Cash
      used per US GAAP
            
            
            (6,977,110
            )
            
            
            (405,459
            )
            
            
            (16,542
            )
            
            
            (268,346
            )





Unproven
      Mineral Interests





Mineral
property costs and related exploration expenditures are accounted for in
accordance with Canadian GAAP.  For US GAAP purposes the Company
follows the provisions of EITF 04-02 “Whether Mineral Rights are Tangible or
Intangible Assets” which concluded that mineral rights are tangible
assets.  Accordingly, the Company capitalizes certain costs related to
the acquisition of mineral rights.  The Company expenses, as incurred,
the exploration costs relating to unproven mineral properties.  When
proven and probable reserves are determined for a property and a feasibility
study prepared, then subsequent exploration and development costs of the
property would be capitalized.  The capitalized costs of such
properties would then be amortized using the unit of production method over the
estimated life of the ore body based on proven and probable reserves and would
be measured periodically for recoverability of carrying values.





Income
Taxes





In June
2006, the FASB issued Interpretation No. 48 “Accounting for Uncertainty in
Income Taxes – an interpretation of FASB Statement 109” (“FIN
48”).  This interpretation clarifies the recognition threshold and
measurement of a tax position taken or expected to be taken on a tax return, and
requires expanded disclosure with respect to the uncertainty in income
taxes.  FIN 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure and transition.  The Company adopted the provisions of FIN
48 on June 1, 2007 and the adoption of this policy did not result in an
adjustment to the Company’s consolidated financial
statements.




Recent
Accounting Pronouncements





United
      States Pronouncements





In
September 2006, the FASB issued SFAS No. 157, AFair Value
Measurements@ (ASFAS 157@). SFAS 157
defines fair value, establishes a framework for measuring fair value in
accordance with US GAAP and expands disclosures about fair value
measurements.  SFAS 157 is effective for fiscal years beginning after
November 15, 2007.  Any cumulative effect will be recorded as an
adjustment to the opening accumulated deficit balance, or other appropriate
component of equity.  The Company is currently evaluating the effect
SFAS 157 will have on the Company=s
consolidated financial position and results of operations.




In
February 2007, the FASB issued SFAS No. 159, AThe Fair
Value Option for Financial Assets and Financial Liabilities - Including an
Amendment of FASB Statement No. 115@ (ASFAS 159@), which
permits entities to choose to measure many financial instruments and certain
other items at fair value.  The fair value option established by SFAS
159 permits all entities to choose to measure eligible items at fair value
at specified election dates.  A business entity shall report
unrealized gains and losses on items for which the fair value option has been
elected in earnings at each subsequent reporting date.  Adoption is
required for fiscal years beginning after November 15, 2007.  The
Company is currently evaluating the impact of SFAS 159 on its consolidated
financial statements and is currently not yet in a position to determine such
effects.


-9-





In
December 2007, the FASB issued SFAS No. 160, “Non-controlling Interest in
Consolidated Financial Statements” (“SFAS 160”), which
clarifies that a non-controlling interest in a subsidiary is an ownership
interest in the consolidated entity that should be reported as equity in the
consolidated financial statements.  It requires consolidated net
income to be reported at amounts that include the amounts attributable to both
the parent and the non-controlling interest.  It also requires
disclosure, on the face of the consolidated statement of income, of the amounts
of consolidated net income attributable to the parent and to the non-controlling
interest.  This statement amends FASB 128, “Earnings per Share”; the
calculation of the earnings per share amounts in consolidated financial
statements will continue to be based on amounts attributable to the
parent.  SFAS 160 is effective for fiscal years beginning after
December 31, 2008.  The Company is currently evaluating the impact of
SFAS 160 on its consolidated financial position and results of
operations.





In
December 2007, FASB issued SFAS No. 141 “Business Combinations” (“SFAS 141”) (revised
2007) to improve the relevance, representational faithfulness, and comparability
of the information that a reporting entity provides in its financial reports
about a business combination and its effects.  SFAS 141 establishes
principles and requirements for the acquirer to (1) recognize and measure in its
financial statements the identifiable assets acquired, the liabilities assumed,
and any non-controlling interest; (2) recognize and measure the goodwill
acquired in the business combination or a gain from a bargain purchase; and (3)
determine what information to disclose to enable users of financial statements
to evaluate the nature and financial effects of the business
combination.  The effective date of SFAS 141 is December 15,
2008.  The Company is currently evaluating the impact of SFAS 141 on
its consolidated financial statements.





In March
2008, the FASB issued SFAS 161, ADisclosures
About Derivative Instruments and Hedging Activities - An Amendment of SFAS
133@.  SFAS
161 requires enhanced disclosures about an entity=s derivative
and hedging activities to provide information about (a) how and why an entity
uses derivative instruments, (b) how derivative instruments and related hedged
items are accounted for under SFAS 133 and its related interpretation, and (c)
how derivative instruments and related hedged items affected an entity=s financial
position, financial performance, and cash flows.  SFAS 161 is
effective prospectively for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with early application
encouraged.  The adoption of SFAS 161 is not expected to have an
effect on the Company=s financial
statements.





In May
2008, the FASB issued SFAS 162, AThe
Hierarchy of Generally Accepted Accounting Principles@.  SFAS
162 sets out the framework for selecting accounting principles to be used in
preparing financial statements that are presented in conformity with US
GAAP.  Up to now, the US GAAP hierarchy has been defined in the US
auditing literature. Because of the interrelationship with the auditing
literature, SFAS 162 will be effective 60 days following the SEC=s approval
of the PCAOB=s amendments
to their auditing standards.  The adoption of SFAS 162 is not expected
to have an effect on the Company=s financial
statements.





Exchange
Rate History




The
following table sets forth the average exchange rate for one Canadian dollar
expressed in terms of one U.S. dollar for the
fiscal years ended May 31, 2008, 2007, 2006 and 2005 and the period from
February 4, 2004 (the date of incorporation of 724 BC) to May 31,
2004.




Period
              
              AverageJune
      1, 2007 - May 31, 2008
              
              0.9892June
      1, 2006 - May 31, 2007
              
              0.8839June
      1, 2005 - May 31, 2006
              
              0.8581June
      1, 2004 - May 31, 2005
              
              0.7984February
      4, 2004 - May 31, 2004
              
              0.7424


-10-


The
following table sets forth the high and low exchange rates for one Canadian
dollar expressed in terms of one U.S. dollar for the six-month period ended
November 30, 2008.




Month
            High
            LowNovember
      2008
            0.8694
            0.7782October
      2008
            0.9428
            0.7727September
      2008
            0.9673
            0.9262August
      2008
            0.9755
            0.9366July
      2008
            0.9982
            0.9746June
      2008
            0.9989
            0.9726





Exchange
rates are based upon the noon buying rate in New York City for cable transfers
in foreign currencies as certified for customs purposes by the Federal Reserve
Bank of New York.





The noon
rate of exchange on December 1, 2008 reported by the United States Federal
Reserve Bank of New York for the conversion of Canadian dollars into United
States dollars was CAD $.8084 (US $1.00 = CAD$1.237).





Risk
Factors





The
Company has limited financial resources and if the Company is unable to secure
additional funding, the Company may fail.





The
Company has limited financial resources, no revenues, and has no assurance that
additional funding will be available to it.  As of August 31, 2008,
the Company had working capital of $2,351,642.  As of the date of this
annual report, the Company had not yet finalized its exploration budget for the
next 12 months, pending a review of all of its costs, projects and
overhead.  While the Company plans to take measures to reduce its
operating costs, the Company will need to raise significant funding to meet its
anticipated expenditures and ongoing costs.  In addition, the Company
will need to raise further funds based upon the results of the exploration
programs or if the Company acquires any additional properties.





The only
significant source of funds presently available to the Company is the sale of
its equity capital, and possibly the sale of its Kyrgyz assets.  There
can be no assurance that the Company will be able to obtain adequate financing
in the future or that the terms of such financing will be
favourable.  Failure to obtain such additional financing could result
in delay or indefinite postponement of further exploration and development of
its projects with the possible loss of such properties.





The
Company’s consolidated financial statements were prepared on a going concern
basis which assumes that the Company will be able to realize its assets and
discharge its liabilities in the normal course of business.





The
Company has limited history or experience in the mineral exploration business
and, as a result, its activities may be unsuccessful.





To date
the Company has limited experience in the mineral exploration
business.  There can be no assurance that the Company will generate
profits in the future.  The Company has experienced, on a consolidated
basis, losses in the years of its operations.  There is no assurance
that the Company will be able to achieve and maintain profitable
operations.  The likelihood of success of the Company must be
considered in light of the problems, expenses, difficulties, complication and
delays frequently encountered in connection with the establishment of any new
business. There is no assurance that the Company can generate revenues, operate
profitably, or provide a return on investment, or that it will successfully
implement its plans.






-11-




The
business of acquiring properties and mineral exploration companies is extremely
competitive and if the Company is unable to compete against other companies, the
Company may be unable to acquire other properties or exploration
companies.





Significant
competition exists for mineral opportunities.  As a result of this
competition, some of which is with large established mining companies with
substantial capabilities and greater financial and technical resources than the
Company, the Company may be unable to acquire additional attractive mineral
interests or exploration companies on terms it considers
acceptable.





The
Company’s operations are not, and may not be, diversified and, as such, the
Company may be subject to fluctuations in the business or industry in which the
Company may operate.





The
Company’s inability to diversify its activities into a number of areas may
subject it to economic fluctuations within a particular business or industry
and, therefore, increase the risks associated with its operations.





If
the Company is unable to effectively compete against other companies, or if the
Company cannot market any minerals discovered on its properties, the Company may
have to cease operations.





The
mineral industry is intensely competitive in all its phases.  The
Company competes with many companies possessing greater financial resources and
technical facilities than itself for the acquisition of mineral concessions,
claims, leases and other mineral interests as well as for the recruitment and
retention of qualified employees.





Even if
commercial quantities of ore are discovered, a ready market may not exist for
their sale.  Factors beyond the control of the Company may affect the
marketability of any substances discovered.  These factors include
market fluctuations, the proximity and capacity of natural resource markets and
processing equipment, government regulations, including regulations relating to
prices, taxes, royalties, land tenure, land use, importing and exporting of
minerals and environmental protection.  The exact effect of these
factors cannot be accurately predicted, but the combination of these factors may
result in the Company not receiving an adequate return on invested capital or
losing its investment capital.





The
trading volume of the Company’s common shares fluctuates and investors may not
be able to re-sell their shares.





To date,
the trading volume of the Company’s shares of common stock on the
Over-the-Counter Bulletin Board system, the Frankfurt Stock Exchange Open Market
and the TSX Venture Exchange (the “TSX-V”) has
fluctuated and has been limited at times.  Therefore, persons
purchasing shares of the Company’s common stock may not be able to resell the
shares and may have to hold the shares indefinitely.  In addition,
purchasers may not be able to use their shares for collateral or loans and may
not be able to liquidate at a suitable price in the event of an
emergency.





If
the Company issues shares or options to its officers, directors or key
employees, or if the Company obtains funding through the sale of additional
common shares, the shareholders will experience dilution.





The
Company has granted to some or all of its directors, officers, insiders and key
employees options to purchase the Company’s common shares as non-cash incentives
to those employees.  In the future, the Company may grant additional
options and such options may be granted at exercise prices equal to market
prices, or at prices as allowed under the policies of the TSX-V, when the public
market is depressed.  To the extent that significant numbers of such
options may be granted and exercised, the interests of then existing
shareholders of the Company will be subject to additional dilution.





The
price of the Company’s common shares is subject to market fluctuations and
volatility which may not be related to the Company’s activities and such
fluctuations may impact the Company’s ability to complete equity
financings.





In recent
years, the securities markets in Canada have experienced a high level of price
and volume volatility, and the market prices of securities of many companies,
particularly junior natural resources exploration companies, have experienced
wide fluctuations in price which have not necessarily been related to the
operating performance, underlying asset
values or prospects of such companies. In particular, the per share price of the
Company’s common shares fluctuated from a high of $0.78 to a low of $0.05 during
the 12-month period ending November 30, 2008.  Continued price
fluctuations will have a significant impact on the Company’s ability to complete
equity financings.




-12-





The
Company is dependent upon its management and the loss of any of its management
and/or if the Company is unable to recruit additional managers could negatively
impact the Company’s ability to continue its activities.





The
success of the activities of the Company is dependent to a significant extent on
the efforts and abilities of its management.  The loss of services of
any of its management could have a material adverse effect on the
Company.  Except for the Employment Agreement with Igor Kovarsky, the
Management Agreement with Chase Management Ltd. (“Chase”), the
Consulting Agreement between Mr. Oleg Kim and BMC, and the Consulting Agreement
between Mr. Vladimir Danilov and Centrasia Kazakhstan, the Company and/or its
subsidiaries has not entered into employment agreements with any of its officers
and is not expected to do so in the foreseeable future.  See “Item 6.
Directors, Senior Management and Employees – Compensation.” The Company has not
obtained key-man life insurance on any of its officers or
directors.  Notwithstanding the combined limited experience and time
commitment of management, loss of the services of any of these individuals could
adversely affect development of the Company’s business and its likelihood of
continuing operations.





It
is uncertain whether any of the property interests owned or optioned by the
Company will contain “reserves”; therefore, it is possible that the funds spent
by the Company on its exploration activities will be lost.





All of
the Company’s property interests are in the exploration stage and do not contain
any “reserves”, as that term is defined in Guide 7 adopted by the
SEC.  The term “reserves” is defined in Guide 7 as “that part of a
mineral deposit which could be economically and legally extracted or produced at
the time of the reserve determination.” Guide 7 is available from the SEC’s
website at:





http://www.sec.gov/divisions/corpfin/forms/industry.htm#secguide7





Mineral
exploration involves significant risk and few properties that are explored are
ultimately developed into producing mines.  The probability of an
individual prospect ever having reserves that meet the requirements of Guide 7
is extremely remote.  The Company’s property interests, in all
probability, may not contain any reserves and any funds spent on exploration of
the Company’s property interests may be lost.  If any of the Company’s
exploration programs are successful, the Company will require additional funds
to advance the property beyond the exploration stage.  Substantial
expenditures are required to establish reserves through drilling, to develop
metallurgical processes to extract the metal from the ore and, in the case of
new properties, to develop the mining and processing facilities and
infrastructure at any site chosen for mining.  If the Company is
unable to secure additional funding, the Company may lose its interest in one or
more of its mineral claims and/or may be required to cease all
activities.





Exploration
for minerals on the Company’s projects are subject to significant risks which
could increase the costs of exploration and could cause the Company to delay or
abandon its projects.





The
Company’s exploration projects are without known commercial ore
bodies.  Continued exploration of the Company’s projects depends on
satisfactory exploration results.  Mineral exploration involves a high
degree of risk and few properties which are explored are ultimately developed
into producing mines.  The long-term profitability of the Company’s
operations will be, in part, directly related to the cost and success of its
exploration programs, which may be affected by a number of factors beyond the
Company’s control.





Mineral
exploration involves many risks, which even a combination of experience,
knowledge and careful evaluation may not be able to
overcome.  Operations in which the Company has a direct or indirect
interest will be subject to all the hazards and risks normally incidental to
exploration for gold (also “Au”), silver (also “Ag”) and other metals including
but not limited to nickel (also “Ni”) and copper (also “Cu”), any of which could
result in work stoppages, damage to property, and possible environmental
damage.





The
Company will continue to rely upon consultants and others for exploration and,
if required, development expertise. If any of the Company’s exploration property
interests merit development, substantial expenditures will be required to
establish ore reserves through drilling, to develop metallurgical processes to
extract the metal from the ore and, in the case of new properties, to develop
the mining and processing facilities and infrastructure at any site chosen for
mining.  The Company may not discover minerals in sufficient
quantities to justify commercial operations and the Company may




-13-




not be
able to obtain the funds required for development on a timely
basis.  The economics of developing gold, silver, nickel, copper and
other mineral properties is affected by many factors including the cost of
operations, variations in the grade of ore mined, fluctuations in metal markets,
costs of processing equipment and such other factors as government regulations,
including regulations relating to royalties, allowable production, importing and
exporting of minerals and environmental protection.





Exploration
activities are subject to many risks, including economic risks, which may cause
the Company’s activities to be uneconomic and the Company may not have
sufficient experience to adequately conduct its proposed
activities.





Exploration
and development risks for the business of exploring for minerals and mining are
high. Few properties that are explored are ultimately developed into producing
mines. Major expenses may be required to advance a property beyond the
exploration stage, to develop metallurgical processes and to construct mining
and processing facilities at a particular site. It is impossible to ensure that
exploration programs planned by the Company will result in profitable
activities.





Unusual
or unexpected formations, formation pressures, fires, power outages, labour
disruptions, flooding, explosions, cave-ins, land slides and the inability to
obtain suitable or adequate machinery, equipment or labour are other risks
involved in mining activities and the conduct of exploration programs and the
advancement of a property beyond the exploration stage.  The Company
has limited experience in the conducting development programs and advancing
properties beyond the exploration stage.  The Company has relied and
may continue to rely upon consultants for expertise. The economics of developing
mineral properties are affected by many factors including the cost of
operations, variations of the grade of ore mined and fluctuations in the price
of minerals produced.  Depending on the price of minerals produced,
the Company may determine that it is impractical to commence or continue
commercial production.  Although precautions to minimize risk will be
taken, processing operations are subject to hazards such as equipment failure or
failure of retaining dams around tailings disposal areas, which may result in
environmental pollution and consequent liability.  There are no
assurances that the Company’s exploration activities will result in development
or mining operations.





The
Company’s foreign operations subject the Company to foreign currency
fluctuations which may increase the Company’s expenses and, in the event the
Company achieves profitability, reduce the Company’s profitability.





The
Company’s operations in the Russian Federation make it subject to foreign
currency fluctuation and such fluctuation may adversely affect the Company’s
financial position and results.  The Canadian dollar and the foreign
currencies vary under market conditions.  The Company’s foreign
subsidiaries comprise a direct and integral extension of the Company’s
operations.  The subsidiaries are also entirely reliant upon the
Company to provide financing in order for them to continue their
activities.  Consequently, the functional currency of the subsidiary
is considered by management to be the Canadian dollar and accordingly exchange
gains and losses are included in net income.  The Company maintains
its cash and cash equivalent amounts primarily in Canadian denominated
currencies.  The Company does not currently engage in hedging
activities.  See “Item 5.  Operating and Financial Review
and Prospects.”





The
Company’s mineral claim interests are located in foreign countries, which may
prevent or delay exploration activities and could cause the Company to abandon
its projects.





The
Company’s mining exploration activities are affected in varying degrees by
political stability and government regulations relating to foreign investment,
social unrest, corporate activity and the mining business in the Russian
Federation. Operations may also be affected in varying degrees by terrorism,
military conflict or repression, crime, extreme fluctuations in currency rates
and high inflation in Central Asia and the former Soviet Union. The relevant
governments have entered into contracts with the Company or granted permits or
concessions that enable it to conduct operations or development and exploration
activities. Notwithstanding these arrangements, the Company’s ability to conduct
operations or exploration and development activities is subject to renewal of
permits or concessions, changes in government regulations or shifts in political
attitudes beyond the Company’s control. There can be no assurance that
industries deemed of national or strategic importance like mineral production
will not be nationalized. Government policy may change to discourage foreign
investment, re-nationalization of mining industries may occur or other
government limitations,
restrictions or requirements not currently foreseen may be implemented. There
can be no assurance that the Company’s assets will not be subject to
nationalization, requisition or confiscation, whether legitimate or not, by any
authority or body.






-14-




Similarly,
the Company’s operations may be affected in varying degrees by government
regulations with respect to restrictions on production, price controls, export
controls, income taxes, expropriation of property, environmental legislation,
labour legislation, mine safety, and annual fees to maintain mineral properties
in good standing. There can be no assurance that the laws in these countries
protecting foreign investments will not be amended or abolished or that these
existing laws will be enforced or interpreted to provide adequate protection
against any or all of the risks described herein.





With
respect to the Company’s Russian properties, the current legal environment in
the Russian Federation is characterized by poorly-drafted and inconsistent
legislation, gaps where legislation is not yet available, and uncertainty in
application due to frequent policy shifts and lack of administrative experience.
Russian laws often provide general statements of principles rather than specific
guide to operations and government officials may be delegated or exercise broad
authority to determine matters of significance to the operations and business of
the Company. Such authority may be exercised in an unpredictable way and
effective appeal processes may not be available. In addition, breaches of
Russian law may involve severe penalties and consequences regarded as
disproportionate to the offence. Exploration for and extraction of minerals in
the Russian Federation is governed by the Law on Subsoil, the Licensing
Regulations, the Precious Metals Law and other laws. Given the fact that the
legislative scheme and the regulatory bodies governing this scheme are of
relatively recent origin, the law has been subject to varying interpretations
and inconsistent application. Therefore, it can be difficult to determine with
certainty in any given instance the exact nature of legal rights possessed by
persons using the subsoil. There are uncertainties in conclusively determining
all necessary information about required permits, approvals and licenses, and
there is no comprehensive index or system for determining all relevant
legislation. As well, the Russian legal system is a civil law system, and legal
precedents are not of the same determinative nature as in a common law system.
Additionally, officials often interpret regulations in an arbitrary or
unpredictable way, and this extends to most areas of regulation. There can be no
assurance that the Company has complied with all applicable laws or obtained all
necessary approvals in the Russian Federation. There can be no assurance that
laws, orders, rules, regulations and other Russian legislation currently
relating to the Company’s investment in the Russian Federation will not be
altered, in whole or in part, or that a Russian court or other authority will
not interpret existing Russian legislation, whether retroactively or otherwise,
in such a way that would have an adverse impact on the Company. In general,
there remains great uncertainty as to the extent to which Russian parties and
entities, particularly governmental agencies, will be prepared to respect the
contractual and other rights of the non-Russian parties with which they deal and
also as to the extent to which the rule of law has taken hold and will be upheld
in the Russian Federation. Procedures for the protection of rights, such as the
taking of security, the enforcement of claims and proceedings for injunctive
relief or to obtain damages are still relatively undeveloped in the Russian
Federation. Accordingly, there may be greater difficulty and uncertainty in
respect of the Company’s abilities to protect and enforce its rights (including
contractual rights). There can be no assurance that this will not have a
material adverse effect upon the Company.





Russian
corporate law is not extensively developed and is still very much evolving from
the former Soviet times. There are corporate law requirements of a technical
nature that are not complied with by significant numbers of Russian
corporations, which rarely result in action being taken by the authorities.
There is a risk however, of arbitrary action being taken against any of such
Russian corporations, including the Company’s Russian subsidiary, RPI, due to
these technical irregularities, and the result of such action could be
materially adverse to RPI and the Company.  In addition, the Souker
License confers upon RPI the right to explore, develop and mine the Souker
Deposit and the Souker License area. As with many Russian mineral properties
affected by the transitory nature of the legal system, there are certain issues
relating to the Souker Property which may adversely affect RPI’s interest. RPI
is taking and will continue to take all appropriate steps to protect its
interest.





Any
changes in government policy may result in changes to laws affecting ownership
of assets, mining policies, monetary policies, taxation, rates of exchange,
environmental regulations, labour relations, repatriation of income and return
of capital. This may affect both the Company’s ability to undertake exploration
activities in respect of present and future properties in the manner currently
contemplated, as well as its ability to continue to explore and conduct other
activities on those properties in which it has an interest or in respect of
which it has obtained exploration and development rights to date. The
possibility that future governments may adopt substantially different policies,
which might extend to expropriation of assets, cannot be ruled out.




-15-




The
effect of all of these factors cannot be accurately predicted.  The
Company does not maintain, nor does it intend to purchase, political risk
insurance.





The
Company’s activities are subject to governmental regulations which may subject
the Company to penalties for failure to comply, may limit the Company’s ability
to conduct exploration activities and could cause the Company to delay or
abandon its projects.





Various
regulatory requirements affect the current and future activities of the Company,
including exploration activities on its properties.  Exploration
activities require permits from various federal, state and local governmental
authorities and are subject to laws and regulations governing, among other
things, prospecting, exports, taxes, labor standards, occupational health, waste
disposal, toxic substances, land use, environmental protection, mine safety, and
others which currently or in the future may have a substantial adverse impact on
the Company.  Exploration activities are also subject to substantial
regulation under these laws by governmental agencies and may require that the
Company obtain permits from various governmental agencies. See “Item 4.
Information on the Company - Business Overview - Government
Regulations.”





Licensing
and permitting requirements are subject to changes in laws and regulations and
in various operating circumstances. There can be no assurance that the Company
will be able to obtain or maintain all necessary licenses and/or permits it may
require for its activities or that such permits will be will be obtainable on
reasonable terms or on a timely basis or that such laws and regulations will not
have an adverse effect on any project which the Company might
undertake.  If the Company is unable to obtain the necessary licenses
or permits for its exploration activities, the Company might have to change or
abandon its planned exploration for such non-permitted properties and/or to seek
other joint venture arrangements.  In such event, the Company might be
forced to sell or abandon its property interests.





Failure
to comply with applicable laws, regulations, and permitting requirements may
result in enforcement actions, including orders issued by regulatory or judicial
authorities causing exploration activities to cease or be curtailed, and may
include corrective measures requiring capital expenditures, installation of
additional equipment, or remedial actions. Parties engaged in mining activities
may be required to compensate those suffering loss or damage by reason of the
mining activities and may have civil or criminal fines or penalties imposed for
violations of applicable laws or regulations and, in particular, environmental
laws.





Any
change in or amendments to current laws, regulations and permits governing
activities of mineral exploration companies, or more stringent implementation
thereof, could require increases in exploration expenditures, or require delays
in exploration or abandonment of new mineral properties.  The cost of
compliance with changes in governmental regulations has a potential to increase
the Company’s expenses.





There
is no automatic renewal process for the Company’s licenses in the Russian
Federation.  Failure to obtain renewal of its Russian
Federation  licenses will limit the Company’s ability to conduct
exploration activities and could cause the Company to delay or abandon its
projects.





The
Company’s Souker combined production and subsoil use license, and its Tsaga and
Uleeta Subsoil Use Licenses are not automatically renewable. In the Russian
Federation, the rights and obligations of subsoil users arise from the date of
registration of the respective Subsoil Use License (“Exploration License”)
or Production and Combined Subsoil License (“Development
License”).  While there is some ambiguity in the law as to the
state body responsible for such registration of Exploration Licenses, the
ultimate responsibility lies with the Central Federal District Regional Subsoil
Use Agency (“FASU”).  Granting
of Exploration Licenses will require the preliminary consent of respective land
resources management bodies or landowners.





Exploration
and Development Licenses are issued for a specified period of
time.  Once granted, the Exploration and Development License documents
provide a list of terms and annual cash payments which are based on the
commodity being sought within the license area.  An Exploration or
Development License can be terminated under the terms of the license or
applicable law.  Russian law contains an extensive list of grounds for
termination, including breach of the




-16-


area and
multiple Exploration Licenses may be issued for the same area of
land.  Where this is the case the subsoil user relations are to be
determined in the course of granting their rights to use subsoil and the
respective terms are included in the licenses issued to such subsoil
users.  In contrast, a Development License grants the subsoil user the
exclusive rights to use the subsoil in the licensed area.





Exploration
Licenses restrict the subsoil user to conducting only preliminary exploration
work that does not involve material disturbance of the integrity of the subsoil,
in particular, the creation of any significant mine workings or the drilling of
wells for the purpose of extracting minerals.  A Development License
grants the subsoil user the right to conduct exploration or detailed prospecting
operations as well as production operations.





Because
the Company is subject to compliance with environmental regulation, the cost of
its exploration programs may increase.





The
Company’s operations may be subject to environmental regulations promulgated by
government agencies from time to time. Environmental legislation provides for
restrictions and prohibitions on spills, releases or emissions of various
substances produced in association with certain exploration and mining industry
operations, such as seepage from tailings disposal areas, which would result in
environmental pollution.  A breach of such legislation may result in
the imposition of fines and penalties.  In addition, certain types of
operations require the submission and approval of environmental impact
assessments.  Environmental legislation is evolving in a manner which
means stricter standards, and enforcement, fines and penalties for
non-compliance are more stringent.  Environmental assessments of
proposed projects carry a heightened degree of responsibility for companies and
directors, officers and employees.  The cost of compliance with
changes in governmental regulations has a potential to reduce the profitability
of operations.





The
economics of mineral exploration activities are subject to various factors which
could cause such activities to be uneconomic.





Mineral
exploration activities, and if warranted production and production costs, and
the economics of mineral products are affected by such factors as environmental
permitting regulations and requirements, weather, unforeseen technical
difficulties, unusual or unexpected geological formations and work
interruptions.  In addition, the grade of any ore ultimately mined may
differ from that indicated by drilling results.  Short-term factors
relating to ore reserves, such as the need for orderly development of ore bodies
or the processing of new or different grades may also have an adverse effect on
mining activities and on financial results.  There can be no assurance
that small-scale laboratory tests, which recover any metals or minerals, can be
duplicated in large-scale tests under on-site conditions or in production-scale
operations.





The
prices of metals fluctuate in the market and such fluctuations could cause
certain activities to become uneconomic.





Metal
prices may be unstable.  The mining industry in general is intensely
competitive and there is no assurance that, even if commercial quantities of a
mineral resource are discovered, a profitable market will exist for the sale of
it.  Factors beyond the control of the Company may affect the
marketability of any substances discovered.  The price of various
metals has experienced significant movements over short periods of time, and is
affected by numerous factors beyond the control of the Company, including
international economic and political trends, expectations of inflation, currency
exchange fluctuations, interest rates and global or regional consumption
patterns, speculative activities and increased production due to improved mining
and production methods.  The supply of and demand for metals are
affected by various factors, including political events, economic conditions and
production costs in major producing regions.  There can be no
assurance that the price of any metal will be such that the Company’s properties
can be mined at a profit.





The
Company may incur liability for certain risks against which the Company does not
have insurance, which could reduce or eliminate any future profitability and
negatively impact the price of the Company’s shares.





In the
course of exploration of mineral concessions, certain risks, and in particular,
unexpected or unusual geological operating conditions including rock bursts,
cave-ins, fires, flooding and earthquakes may occur.  It is not always
possible




-17-




result in
increasing costs and a decline in the value of the securities of the
Company.  The Company does not have any insurance coverage on its
mineral concessions.





The
Company may not be able to obtain supplies and infrastructure necessary to
conduct its exploration operations and, as such, may have to delay or abandon
its projects.





Some of
the Company’s property interests are not in developed areas and the availability
of infrastructure (water and power, and in some areas roads) at an economic cost
cannot be assured.  Power is an integral requirement of any production
facility on the Company’s properties.  In the event the Company is
unable to obtain water or power at any of its properties, the Company may not be
able to conduct exploration activities, or in the event the Company discovers
mineralization, the Company may not be able to begin a development program, in
which case the Company may lose its interest in the property or may have to
abandon the property.





Exploration
for minerals on the Company’s projects are subject to significant risks which
could increase the costs of exploration and could cause the Company to delay or
abandon its projects.





Mineral
exploration activities are subject to a variety of risks such as cave-ins and
other accidents, flooding, environmental hazards, the discharge of toxic
chemicals and other hazards.  Such occurrences may delay activities,
increase costs or result in liability.  The Company is not insured for
environmental liability or earthquake damage nor does it carry any accident or
liability insurance on its mineral property interests.





Conflicts
of interest may arise among the officers and directors of the Company and such
conflicts may cause the Company to enter into transactions on terms which are
not beneficial to the Company.




Certain
officers and directors of the Company are officers and/or directors of, or are
associated with or have significant shareholdings in, other natural resource
companies that acquire interests in mineral properties. Such associations may
give rise to conflicts of interest from time to time. The directors are required
by law, however, to act honestly and in good faith with a view to the best
interests of the Company and to disclose any interest which they may have in any
project or opportunity of the Company. If a conflict of interest arises at a
meeting of the board of directors, any director in a conflict will disclose his
interest and abstain from voting on such matter. The Company does not currently
have a right of first refusal pertaining to opportunities that come to
management’s attention insofar as such opportunities may relate to the Company’s
proposed business operations. The officers and directors are, so long as they
are officers or directors of the Company, subject to the restriction that all
opportunities contemplated by the Company’s plan of operation which come to
their attention, either in the performance of their duties or in any other
manner, will be considered opportunities of, and be made available to the
Company and the companies that they are affiliated with on an equal
basis.  If the Company or the companies in which the officers and
directors are affiliated with, both desire to take advantage of the
opportunities, the said officers and directors would abstain from negotiating
and voting upon the opportunity.  However, all directors may still
individually take advantage of opportunities if the Company declines to do so.
Except as set forth above, the Company has not adopted any conflict of interest
policy with respect to such transactions. In determining whether or not the
Company will participate in any project or opportunity, the director will
primarily consider the degree of risk which the Company may be exposed and its
financial position at the time.  See “Item 7. Major Shareholders and
Related Party Transactions - Related Party Transactions - Conflicts of
Interest”.




Investors
in the United States may not be able to enforce their civil liabilities against
the Company or its directors and officers.





The
Company is a corporation domiciled in British Columbia.  None of the
Company’s officers or directors is a resident of the United States, and all or a
substantial portion of the assets of non-U.S. resident officers and directors
are located outside of the United States.  As a result, it may be
difficult for U.S. holders of the Company’s common shares to effect service of
process on the non-U.S. resident officers and directors within the United States
or to enforce judgments obtained in the U.S. based on the civil liability
provisions of the U.S. federal securities laws against the Company or its
non-U.S. resident officers and directors.  In addition, a shareholder
should not assume that the courts of Canada (i) would enforce judgments of U.S.
courts obtained in actions against the Company, its officers or directors
predicated upon the civil liability provisions of the U.S. federal securities
laws or other laws of the United States, or (ii) would enforce, in original
actions, liabilities against the Company, its officers or directors predicated
upon the U.S. federal securities laws or other laws of the United
States.






-18-




However,
U.S. laws would generally be enforced by a Canadian court provided that those
laws are not contrary to Canadian public policy, are not foreign penal laws or
laws that deal with taxation or the taking of property by a foreign government
and provided that they are in compliance with applicable Canadian legislation
regarding the limitation of actions.  Also, a judgment obtained in a
U.S. court would generally be recognized by a Canadian court except where, for
example:





a)
            the
      U.S. court where the judgment was rendered had no jurisdiction according
      to applicable Canadian law;





b)
            the
      judgment was subject to ordinary remedy (appeal, judicial review and any
      other judicial proceeding which renders the judgment not final, conclusive
      or enforceable under the laws of the applicable state) or not final,
      conclusive or enforceable under the laws of the applicable
      state;





c)
            the
      judgment was obtained by fraud or in any manner contrary to natural
      justice or rendered in contravention of fundamental principles of
      procedure;





d)
            a
      dispute between the same parties, based on the same subject matter has
      given rise to a judgment rendered in a Canadian court or has been decided
      in a third country and the judgment meets the necessary conditions for
      recognition in a Canadian court;





e)
            the
      outcome of the judgment of the U.S. court was inconsistent with Canadian
      public policy;





f)
            the
      judgment enforces obligations arising from foreign penal laws or laws that
      deal with taxation or the taking of property by a foreign government;
      or





g)
            there
      has not been compliance with applicable Canadian law dealing with the
      limitation of actions.





Certain
of the directors and officers of the Company reside outside of
Canada.  Substantially all of the assets of the Company are located
outside of Canada.  Although the Company has appointed James Harris as
the Company’s agent for service of process in Canada, it may not be possible for
investors to effect service of process within Canada upon the directors and
officers who reside outside of Canada.  It may also not be possible to
enforce against certain of the directors and officers of the Company judgments
obtained in Canadian courts predicated upon the civil liability provisions of
applicable securities laws in Canada.





The
Company does not pay dividends on its common shares; therefore, investors
seeking dividend income should not purchase the common shares.





The
Company has never declared or paid cash dividends on its common shares and does
not anticipate doing so in the foreseeable future.  Additionally, the
determination as to the declaration of dividends is within the discretion of the
Company’s board of directors, which may never declare cash dividends on the
Company’s common stock.  Investors cannot expect to receive a dividend
on the Company’s common shares in the foreseeable future, if at
all.





The
Company’s shares are subject to the SEC’s penny stock rules, which may restrict
the ability of brokers to sell the Company’s common stock and may reduce the
secondary market for the common stock.





The SEC
has adopted rules that regulate broker-dealer practices in connection with
transactions in “penny stock”.  Generally, penny stocks are equity
securities with a price of less than US $5.00 (other than securities registered
on certain national securities exchanges or quoted on certain automated
quotation systems).  If the Company’s shares are traded for less than
US $5.00 per share, as they currently are, the shares will be subject to the
SEC’s penny stock rules unless (1) the Company’s net tangible assets exceed US
$5,000,000 during the Company’s first three years of continuous operations or US
$2,000,000 after the Company’s first three years of continuous operations; or
(2) the Company has had average revenue of at least US $6,000,000 for the last
three years.  The penny stock rules require a broker-dealer, prior to
a




-19-




market.  The
broker-dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction and monthly account statements showing the market
value of each penny stock held in the customer’s account.  In
addition, the penny stock rules require that prior to a transaction in a penny
stock not otherwise exempt from those rules, the broker-dealer must make a
special written determination that the penny stock is a suitable investment for
the purchaser and receive the purchaser’s written agreement to the
transaction.  These requirements may have the effect of reducing the
level of trading activity in the secondary market for a stock that becomes
subject to the penny stock rules.  Since the Company’s shares are
traded for less than US $5.00 per share, the Company’s common stock is subject
to the penny stock rules.  Therefore, the holders of the common stock
may find it difficult to sell the common stock of the Company.  These
rules may restrict the ability of brokers to sell the common stock and may
reduce the secondary market for the common stock.  A limited secondary
market may result in a decrease in the value of the shares and/or a partial or
total loss of an investor’s investment.





The
Company may be deemed to be a “Passive Foreign Investment Company” for U.S. tax
purposes which could subject U.S. Shareholders to increased tax
liability.





The
Company may be deemed to be a “Passive Foreign Investment Company” (“PFIC”).  See
“Item 10.  Additional Information - Taxation.” If the Company is
deemed to be a PFIC, a United States holder of the Company’s common shares would
be required to pay an interest charge together with tax calculated at maximum
tax rates on certain “excess distributions” (defined to include certain
dividends from a PFIC and any gain on the sale of stock of a PFIC) unless such
holder made an election either to (1) include in his or her taxable income his
or her pro rata share of the PFIC’s ordinary earnings and net capital gains
under the Qualified Electing Fund rules or (2) mark to market his or her Company
common shares at the end of each taxable year as set forth in Section 1296 of
the Internal Revenue Code of 1986, as amended. The elections require certain
conditions be met such as filing on or before the due date, as extended, for
filing the shareholder’s income tax return for the first taxable year to which
the election will apply.





This
annual report contains statements about future events and results which may not
be accurate.





Statements
contained in this annual report that are not historical facts are
forward-looking statements that involve risks and uncertainties. Such statements
may not prove to be accurate as actual results and future events could differ
materially from those anticipated in such statements.


Item
4.  Information on the Company.





History
and Development of the Company





The
Company was incorporated under the British Columbia Company Act (“BC Company Act”) on
December 10, 1999 under the name “Buck Ventures Ltd.”  On May 10,
2000, the Company changed its name to “QDM Ventures Ltd.”  On
September 25, 2001, the Company changed its name from QDM Ventures Ltd. to
“California Exploration Ltd” and changed its domicile through continuation from
British Columbia to the Yukon Territory under the Business Corporations Act
(Yukon) (the “YBCA”).  On
June 3, 2004 the Company changed its name from California Exploration Ltd. to
“Baradero Resources Limited”.  On September 14, 2005, the Company
changed its name to “Centrasia Mining Corp.”  Effective March 26,
2008, the Company changed its name to “Kola Mining Corp.”





From
March 2001 until March 2004, the Company’s focus was on its oil and gas
interests.  In March 2004, the Company sold its interests in oil and
gas properties.





On June
3, 2004, the Company completed a consolidation of its share capital on a one new
share for four old shares basis.





Effective
November 23, 2004, the Company continued its corporate jurisdiction from the
Yukon Territory into British Columbia under the British Columbia Business
Corporations Act, as amended (the “BCBCA”).  See
“Item 10. Additional Information - Memorandum and Articles of
Association.”


-20-


On
September 14, 2005, the Company completed a recapitalization whereby
it purchased all of the issued and outstanding common shares of 724 BC
(the “724
BCAcquisition”)and in
connection thereto:  (i) issued 3,700,100 common shares of its capital
stock to acquire 724 BC and 233,338 common shares with respect of a finder’s
fee; (ii) issued 1,900,000 units and 100,000 common shares in consideration of
$400,000 principal of loans which have been made to 724 BC; each unit comprised
one common share of the Company and one warrant, entitling the holder to
purchase an additional common share at a price of $0.40 per share expiring
September 14, 2007; and (iii) completed a private placement of 4,375,000 units
at a price of $0.20 per unit; each unit comprised one common share of the
Company and one warrant having the same terms as the warrants described
above.





724 BC’s
principal asset was an agreement (the “Marsa Option”) to
acquire all of the issued and outstanding share capital of BMC, from Marsa Gold
Corp. (“Marsa”), a privately
owned Kyrgyz company. The sole asset of BMC was a license permitting the
exploration of an area in the north-central part of the Kyrgyz Republic,
covering approximately 240 square kilometers (the “Bulakashu Gold
Property”). The Marsa Option effectively allowed 724 BC to acquire its
interest in the Bulakashu Gold Property. The completion of the Acquisition and
issuance of Company shares on the purchase of $400,000 of indebtedness of 724 BC
resulted in the 724 BC shareholders holding the majority of the combined
Company’s issued and outstanding common shares. Accordingly, the 724 BCAcquisition
was treated as a reverse takeover and effective September 14, 2005, the
financial statements were treated for accounting purposes as a
recapitalization.





In
November 2005, the Company agreed to reorganize its arrangement to acquire its
interest in the Bulakashu Gold Property, thereby replacing the Marsa
Option.  As a result, BMC transferred its ownership interest in
Bulakashu Gold Property back to Marsa. Marsa then assigned all of its interests
to Kantanna Company Limited (“Kantanna”). Both
Marsa and Kantanna are owned by Mr. Oleg Kim, a former director and current
officer of the Company.  Consequently, BMC held an option to acquire a
100% interest in the Bulakashu Gold Property from Kantanna under the same terms
as contemplated under the Marsa Option and directly hold the exploration
licenses on the Eastern Sary Jaz Property. The Company issued 200,000 common
shares to Kantanna as consideration for the Eastern Sary Jaz Property and the
transfer of 100% ownership of BMC to the Company.  See “Item
7.  Major Shareholders and Related Party Transactions - Related Party
Transactions.”





In August
of 2007, the Company entered into an amending agreement with Kantanna, pursuant
to which Kantanna agreed to forego the aggregate US$1,890,000 in exploration
expenditures for 2007 and 2008, which was one of the requirements for the
Company to acquire the remaining 62.5% interest in the Bulakashu Property that
it had not then yet acquired. The other requirement was the issuance of 375,000
shares to the vendor, which the Company has now issued. Thus the Company
acquired the remaining 62.5% interest in the Bulakashu Property and now owns the
entire Bulakashu Property.





Pursuant
to an Agency Agreement dated September 26, 2005 (the “Agency Agreement”)
between the Company and Canaccord Capital Corporation (“Canaccord”), on
October 28, 2005 the Company conducted a Short Form Offering of 3,076,923 units,
for gross proceeds of $2,000,000.  Each unit consisted of one common
share of the Company and one common share purchase warrant.  The
warrants were subsequently exercised.





On May
26, 2006, the Company entered into a Memorandum of Understanding to acquire a
90% interest in two base metal properties located in Kazakhstan (the “Kazakhstan MOU”) for
cash in the amount of US $8,500,000. However, the Company terminated the
Kazakhstan MOU on July 12, 2006 after it was unable to reach acceptable terms
for the proposed acquisition.





On August 25, 2006, the
Company and BMC entered into an agreement with Eurasian Minerals Inc.
(“Eurasian”), a British Columbia
corporation, and Altyn Minerals LLC (“Altyn
Minerals”), a
Kyrgyz Republic corporation wholly-owned by Eurasian, to acquire an option to
purchase a 100% interest in the Turgeldy Property from Eurasian (the
“Turgeldy
Agreement”).Terms
of the Turgeldy
Agreement included an immediate payment to Eurasian of 60,000 common
shares of the Company for an option (the “Turgeldy Option”) to
acquire all rights and title to the Turgeldy exploration license, with Eurasian
retaining a 1% Net Smelter Return royalty. The Company had up to six months from
the date of signing to exercise the Turgeldy Option by making a cash payment of
US $30,000 and issuing an additional 90,000 common shares to Eurasian. In the
fall of 2006, Company field crews completed a preliminary mapping and sampling
program at Turgeldy. The Company determined that the results from the sampling
program did not warrant the






-21-




exercise
of the Turgeldy option and on February 21, 2007, the Company terminated its
option to acquire a 100% interest in the Turgeldy property.





On May
11, 2007, the Company, its wholly-owned subsidiary, Magellan Holdings (BVI)
Corp., and Stargate Solutions Ltd. (“Stargate”) entered
into a share purchase agreement (as amended on June 8, 2007, June 22,
2007, July 11, 2007 and July 13, 2007, respectively,the “Share Purchase
Agreement”) whereby the Company agreed to purchase 100% of the issued and
outstanding shares of R.P.I.M. Minerals Ltd., a Cyprus company incorporated
solely to hold a 100% interest in the shares of ZAO Rudprominvest (“RPI”) (the “RPIM Acquisition”).
As a result of the RPIM Acquisition, the Company now holds a 100% interest in
the Souker Property and the Uleeta and Tsaga Properties (collectively the “Russian
Properties”).





The
consideration paid by the Company to Stargate under the Share Purchase Agreement
was:





i)
            an
      aggregate US $12,500,000, of which US $6,000,000 was payable at closing
      (the “Closing”), US
      $5,000,000 payable on the first anniversary of Closing, and US $1,500,000
      is payable on the second anniversary of Closing; andii)
            issuance
      of 12,500,000 common shares of the Company to be issued on
      Closing.




The
Company also agreed to pay DBM Capital Partners Ltd. (“DBM”) a finder’s fee
of US $625,000 cash and 625,000 common shares. The share portion of the finder’s
fee and US $300,000 of the cash fee was paid at Closing. The balance of the cash
finder’s fee is payable as the Company makes the balance of the payments for the
RPIM Acquisition.





As at May
31, 2007 the Company had advanced $226,860 (US $200,000) to RPI, paid $14,257
(US $12,472) in advances to DBM and incurred a total of $162,858 for due
diligence and professional fees. These amounts
were     recorded by the Company as deferred
acquisition costs and were included in the cost of the RPIM Acquisition on
Closing.





On July
24, 2007, the Company completed the Closing of the RPIM Acquisition whereby it
completed the initial cash payment of US $6,000,000 and issued 12,500,000 common
shares, at a fair value of $12,000,000, to Stargate. In addition, the Company
paid the initial finder’s fee of US $300,000 and issued 625,000 common shares,
at a fair value of $600,000, to DBM.  All of the shares issued for the
RPIM Acquisition and to DBM are subject to an escrow agreement pursuant to which
the shares will be released from escrow in the normal course over a period of
eighteen months.





On July
10, 2007, the Company completed a private placement for $12,600,000 from the
sale of 10,500,000 subscription receipts (the “Subscription Receipts”) at a
price of $1.20 per Subscription Receipt. The Subscription Receipts were then
released from escrow and exchanged for the issuance of 10,500,000 common shares
of the Company and 5,250,000 transferable share purchase warrants. Each warrant
entitles the holder to purchase one common share at a price of $1.70 until July
10, 2010.  A portion of the proceeds from this private placement was
used as cash consideration for the RPIM Acquisition.





The
Company also issued 82,615 common shares, at a fair value of $79,310, to a
company controlled by Cary Pinkowski, a director of the Company as a bonus for
providing a loan of US $500,000 to RPI prior to Closing. The loan was repaid
subsequent to completion of the RPIM Acquisition.  See “Item
7.  Major Shareholders and Related Party Transactions - Related Party
Transactions.”





On July
16, 2008, the Company completed a non-brokered private placement of 33,333,334
units, at a price of $0.30 per unit, for gross proceeds of
$10,000,000.  Each unit comprised one common share and one-half share
purchase warrant, with each full warrant entitling the holder to acquire an
additional common share at $0.45 per share on or before July 15,
2010.  The Company paid a finder’s fee of $250,000 in cash and
issued 833,334 common shares in respect of the private placement.





The
Company’s registered office is located at Suite 300, 576 Seymour Street,
Vancouver, British Columbia, V6B 3K1.  The Company’s head office is
located at Suite 598, 999 Canada Place, Vancouver, British Columbia, V6C
3E1.  The contact person is Igor Kovarsky.  The telephone
number is (604) 688-4110 and the facsimile number is (604)
688-4169.  The Company does not have a registered agent in the United
States.







-22-


The
Company’s common shares were listed on the TSX-V on October 1, 2001 and
currently trade under the symbol “KM”.  Effective January 27, 2002,
the Company’s common stock was approved for trading on the Over-the-Counter
Bulletin Board (the “OTC Bulletin Board”) operated by the National Association
of Securities Dealers.  The Company’s common shares currently trade on
the OTC Bulletin Board under the symbol “KMNFF”. Effective November 18, 2005,
the Company’s common stock commenced trading on the Frankfurt Stock Exchange
Open Market under the symbol “C8M”.  See “Item 9. The Offer and
Listing-Price History.”





Business
Overview





The
Company’s original goal was to identify, acquire, explore and develop oil and
natural gas reserves in the Western United States. From March 2001 until March
2004, the Company focused on its oil and gas interests and conducted oil and gas
operations during fiscal year 2003.  In 2004, the Company divested
itself of all its oil and gas interests and as of the date of this annual
report, the Company no longer holds any oil and gas interests or
leases.





During
the period May 2004 until March 2005, the Company assessed acquisition and joint
venture opportunities in both the oil and gas and mineral extraction
industries.





Properties
in the Kyrgyz Republic





During
the period March 2005 through August of 2007, the Company completed the 724 BC
Acquisition and in a series of related transactions finalized its interests, via
its subsidiary BMC, in the Bulakashu Property, the Kokjar Property, and the
Eastern Sary-Jaz Property, all located in the Kyrgyz
Republic.  See  “Item 4. Information on the Company -
History and Development of the Company.”





BMC is in
the process of exploring its mineral properties and has not yet determined
whether these properties contain ore reserves that are economically recoverable.
The recoverability of amounts expended by BMC in connection with the exploration
of its property interests is dependent upon the discovery and exploitation of
economically recoverable reserves, confirmation of BMC’s interest in the
underlying mineral claims, the ability of the Company to obtain necessary
financing to conduct exploration activities and advance properties beyond the
exploration stage, and future profitable activities on the properties or
proceeds from the disposition thereof.





The
Company’s main assets in the Kyrgyz Republic, via its subsidiary BMC,
are:





(i)
            The
      Bulakashu License (License No: AP 48, originally referred to as the “BMC
      License” in the Company’s 2005 Form 20-F filing and now referred to as the
      “Bulakashu
      License”), which permits the exploration of the Bulakashu
      Property.  Pursuant to the Bulakashu License, BMC obtained a
      license from the State Agency for Geology and Mineral Resources under the
      Government of the Kyrgyz Republic (“KSAG”) that
      provides BMC with the right to conduct geological research of basic and
      placer gold in the Bulakashu area of the Kyrgyz Republic, excluding the
      following gold alluvial placer licenses: Upper Karabulak, Lower Karabulak,
      Upper Tokailu and Lower Tokailu. BMC concurrently negotiated the size of
      the property to be explored and the terms of an exploration license
      agreement with the Geology Agency (the “Bulakashu License
      Agreement”).  The Bulakashu License Agreement is an
      integral part of the Bulakashu License and determines the exploration
      expenditures to be incurred by BMC on the Bulakashu Property and provides
      details of the proposed work
program.





The
      Bulakashu  License was issued for a term until December 31, 2005
      and can be extended for up to ten years subject to the approval of KSAG
      and provided that BMC is in compliance with the terms of the License
      Agreement.  BMC fulfilled the commitments of the Bulakashu
      License Agreement, and consequently, the Bulakashu License and Bulakashu
      License Agreement were renewed in 2006 for a period of four
      years.  See “Item 4. Information on the Company - Business
      Overview”.  However, the Law of the Kyrgyz Republic on “Subsoil”
      dated July 2, 1997 No. 42 (as amended) does not provide for any automatic
      procedure for renewal or obtaining of an exploration license after this
      period has expired. There can be no assurance that the Bulakashu License
      will be renewed.  If the Bulakashu License is not renewed, the
      Company’s investment in the Bulakashu Property may be
      worthless.







-23-


Each
      year, BMC is required to prepare and submit a report to KSAG to confirm
      that BMC has complied with the terms of the Bulakashu License Agreement.
      Upon approval by KSAG, extensions to the Bulakashu License and Bulakashu
      License Agreement may be applied for an annual basis, up to a maximum of
      ten years. Provided BMC is in compliance with the terms of the Bulakashu
      License Agreement, BMC is required to pay to KSAG approximately US $7 in
      payment of KSAG services associated with the application to extend the
      License Agreement. At the end of each annual license period, KSAG may
      require that areas of the Bulakashu License be relinquished by BMC. BMC,
      as the license holder, determines which areas are to be relinquished;
      however, BMC may have to relinquish areas which it wishes to
      retain.The
      Subsoil Laws provide that a sub soil user who has discovered a deposit has
      the indisputable, exclusive right to its exploitation.  Prior to
      any exploitation on the Bulakashu Property, BMC will be required to obtain
      approval from KSAG to conduct such exploitation and negotiate the terms of
      such exploitation, to include royalties, bonuses and other payments with
      KSAG.  There are no assurances that BMC will be able to obtain
      such approval.




(ii)
            The
      Eastern Sary Jaz License (AP 303), which was issued to BMC on November 14,
      2005, giving BMC the exclusive rights to explore the Eastern Sary Jaz
      Property for an initial period of two years, and renewable up to a period
      of ten years.  The Company acquired the Eastern Sary Jaz
      Property based on its favorable geological and structural setting for
      hosting gold mineralization. The Company’s 2006 license agreement with
      KSAG for the Eastern Sary Jaz Property required that a minimum of US
      $80,000 be spent on the Eastern Sary Jaz Property by December of 2006 and
      a further US $305,000 by December of 2007.  The Company has met
      this commitment for 2006 and 2007.  In 2007, the KSAG extended
      the License period until December 31, 2010. The extension of the license
      period will be subject to the Company successfully fulfilling the terms of
      annual license agreements until
2010.





The
Kokjar License (AP 383) was issued to BMC on February 10, 2006, giving BMC the
exclusive rights to explore the Kokjar Property for an initial period of two
years, and renewable up to a period of ten years.  The Company
acquired the Kokjar Property based on its favorable geological and structural
setting for hosting gold mineralization. Although the KSAG granted the Company
an exploration license for the Kokjar Property, the Company’s proposed 2006
exploration program for the Kokjar Property was not approved by the KSAG, and
the Company did not enter into a license agreement with KSAG that specified any
work commitment for Kokjar in 2006. As a result the Company did not conduct any
exploration work or incur any expenditure on the Kokjar Property in
2006.   The Company attempted to negotiate with the KSAG to
obtain approval for a proposed 2007 exploration program, but was unsuccessful.
The Company no longer has this license.





During
fiscal 2008 the Company was made aware of a legal dispute concerning the
ownership of BMC.  Due to the ongoing legal dispute and the Company’s
focus on the Souker Project described below, as at May 31, 2008, the Company has
determined to cease exploration activities in Kyrgyzstan and, accordingly,
recorded a $3,413,851 write-off of all of its unproven mineral interest costs
pertaining to its Bulakashu and Eastern Sary Jaz properties.





Properties
in the Russian Federation





The
Company completed its acquisition of its Russian Properties on July
24, 2007. The Company’s wholly owned subsidiary RPI is in the process of
exploring the Russian Properties and has not yet determined whether they contain
ore reserves that are economically recoverable.  The recoverability of
amounts expended by RPI in connection with the exploration of its property
interests is dependent upon the discovery and exploitation of economically
recoverable reserves, confirmation of RPI’s interest in the underlying mineral
Licenses, the ability of the Company to obtain necessary financing to conduct
exploration activities and advance properties beyond the exploration stage, and
future profitable activities on the properties or proceeds from the disposition
thereof.  See “Item 4. Information on the Company - History and
Development of the Company.”







-24-


The
Company’s main assets in the Russian Federation, via its subsidiary RPI,
are:





i)
            Souker
      - The Souker
      Production and Combined Subsoil License МУР 00695 ТЭ(the “Souker
      License”) was issued to RPI by the Territorial Agency on Subsoil
      Use for the Murmansk oblast, which is the territorial department of the
      Federal Agency on Subsoil Use as a result of an auction held on December
      15, 2004. The Souker License grants the RPI the right to explore, develop
      and extract minerals from the license area of approximately 1.6 kilometers
      (the “Souker
      Property”) subject to certain conditions stipulated by the license
      agreement. The Souker License is valid until December 15, 2030 and
      stipulates that the Company must commence production at a rate of no less
      than 300,000 ore tonnes of ore per annum, no later than December 31,
      2011.





ii)
            Tsaga -RPI
      obtained Subsoil Use License МУР 13487 ТП
      (the “Tsaga License”)
      for the preliminary exploration of the Tzaginsk and Medvezhje-Elskoozersk
      subsoil plot (the “Tsaga
      Property”) for the purposes of the search and valuation of deposits
      of copper and nickel, registered on February 22,
  2006.





iii)
            Uleeta-RPIobtained Subsoil
      Use LicenseМУР 13486
      ТП (the
      “Uleeta
      License”) for the preliminary exploration of the Ulitaozersk and
      Anistundra plot (the “Uleeta
      Property”) for the purposes of the search and valuation of deposits
      of nickel and platinum, registered on February 22,
  2006.





Government
Regulation





Kyrgyz
Republic





The
Kyrgyz Republic is a landlocked and mountainous country located in the middle of
the Asian continent. It borders Kazakhstan in the north, the People’s Republic
of China in the east, Tajikistan in the south-west and Uzbekistan in the west.
It is one of the smallest of the Central Asian nations and has a population of
approximately five million people. The Kyrgyz economy is predominantly
agricultural, with two-thirds of the country’s population living in rural areas.
The Kyrgyz Republic is a secular state and freedom of religion is protected in
its Constitution. Approximately 75% of the population is Muslim and 20% are
Russian Orthodox. The country contains deposits of gold, tin, tungsten,
antimony, mercury, and rare earth metals as well as locally exploitable coal,
oil and natural gas.





The
Kyrgyz Republic is a former constituent republic of the Soviet Union. The
country declared its independence from the Soviet Union in 1991 and became a
member of the Commonwealth of Independent States (the “CIS”), and has
overall been a politically-stable constitutional democracy. Since independence,
the nation has undertaken substantial economic and political reforms, such as
introducing an improved regulatory system and land reforms, and undergone a
transition to a market-orientated economy. The Government and international
financial institutions have also engaged in comprehensive medium-term poverty
reduction and economic growth strategies.





The
Kyrgyz Republic has generally not experienced the ethnic, civil or military
unrest that has befallen other former Soviet states, with the exception of very
few localized, politically-motivated conflicts and small-scale terrorist
activity in the southern Batken region of the country during 1999, 2000 and
early 2005. The Batken region is over 700 kilometers from the Bulakashu
Property. Since 2001, the Kyrgyz Republic has permitted military personnel from
the United States and other western countries to be stationed in the country. In
2002, construction of a large U.S. airbase began outside the nation’s capital of
Bishkek, which is now complete. The presence, in the past few years, of
international military coalition forces and the recent addition of a Russian
military base in Kyrgyz territory have brought increased stability to the
country.





The
country’s legal system, both legislative and judicial, has been substantially
reformed since 1991. However, the legal system has not matured to the level of
developed economies. These factors make it prudent for foreign investors to seek
additional protection through contractual agreements with the government in
order to stabilize the investment environment and provide for an independent
forum for conflict resolution.





The
national currency of the Kyrgyz Republic, the Som, is freely convertible into
U.S. dollars within the Kyrgyz Republic at a floating exchange rate and has
remained relatively stable over the last four years. The Kyrgyz economy,
although still recovering from the post-Soviet collapse and substantially
lagging in foreign investment when compared




-25-




with its
oil-rich neighbors Kazakhstan and Uzbekistan, exhibited positive economic signs
in 2004, with an inflation rate of 2.8% and gross domestic product (“GDP”) growth of 7.1%
in the same year. However, the political problems in 2005, along with decreased
foreign investment and slowing metals production, caused a 0.6% contraction in
2005 GDP. The Kyrgyz Republic was the first former CIS state to be accepted as a
member of the World Trade Organization and one of the first to receive financial
support from the International Monetary Fund (“IMF”). Further
restructuring of domestic industry and success in attracting foreign investment
are seen as keys to future growth. The IMF has forecast real GDP growth of 7.5%
for 2007.





The laws
of the Kyrgyz Republic that are most relevant to the Company’s activities are
the law of March 27, 2003, “On Investments in the Kyrgyz Republic” (the “Investment Law”) and
the law of March 6, 1992, “Law on Concessions and Foreign Concession Enterprises
in the Kyrgyz Republic” (the “Concessions
Law”).





The
Investment Law establishes the basic principles of the Kyrgyz Republic’s policy
toward foreign investment as well as investor protections. It provides that
foreign investors are entitled to freely use, possess and dispose of their
investments and to freely export or repatriate the proceeds of these
investments. The Investment Law prohibits all types of discrimination toward
foreign investors or investments, including that based on country of origin.
Investors are guaranteed freedom from interference by governmental bodies with
their economic activities, free conduct of monetary operations, the right to
hire both Kyrgyz citizens and expatriates and the ability to submit resolution
of disputes to international arbitration.





The
Investment Law states that expropriation of investments must be conducted in
accordance with Kyrgyz law and, where effected, must be in the public interest.
Expropriation must not be discriminatory and must be accompanied by timely,
proper and real compensation of losses, including lost profit. The amount of
such compensation is to be determined in accordance with the fair market value
of the expropriated investment, together with interest from the date of
expropriation. Investors who suffer losses as a result of war or other armed
conflict, upheaval or other similar circumstances will be granted the same legal
status and terms of operation as Kyrgyz nationals.





Under
Kyrgyz law, mining rights may be granted either by way of exploration or mining
licenses, both of which are issued by KSAG, or by a concession from the
Government of the Kyrgyz Republic. Although concessions are typically much more
difficult, expensive and time-consuming to obtain, they provide investors with
greater protection.





While a
license may be terminated without the licensee’s consent in certain
circumstances, including a breach of the law, a concession may only be
terminated in accordance with the terms and conditions of the agreement pursuant
to which it is granted.





The
Concessions Law establishes the procedure by which the Government of the Kyrgyz
Republic may grant concessions to foreign investors and provides for the status
and rights of such investors. The most important step is the execution of an
agreement between the Government of the Kyrgyz Republic and the relevant
investor, in which the Government of the Kyrgyz Republic gives permission to
possess and use the property granted under the concession and to gain proceeds
from such concession.





Russian
Federation





Russia
has been undergoing a substantial political transformation from a centrally
controlled command economy under communist rule to a pluralist market-oriented
democracy. While President Putin had maintained governmental stability and even
accelerated the reform process during the first few years of his first term as
the president of the Russian Federation (2000-2004), since the end of his first
term to the beginning of his second term (2004-2008), there have been signs of
increased concentration of power in the presidential executive. Russian politics
are now dominated by the President and his United Russia party and decisions
impacting certain strategic businesses in Russia may be substantially influenced
by the Kremlin.





Russian
laws, licenses, and permits have been in a state of change and new laws may be
given retroactive effect. Ambiguity exists in regard to the interpretation of
licenses and permits and the application of rules and regulations in regard to
mining activities and associated environmental requirements in the Russian
Federation. In such circumstances, mining activities may be significantly and
adversely affected. It is also not unusual in the context of dispute resolution
in




-26-




Russia
for parties to use the uncertainty in the Russian legal environment as leverage
in business negotiations. In addition, Russian tax legislation is subject to
varying interpretations and constant change.





The
prospects for future economic stability in the Russian Federation are largely
dependent upon the effectiveness of economic measures undertaken by the
government, together with legal, regulatory, and political developments. There
has been a recent proposal to restrict foreign participation in major strategic
subsoil properties. If realized, such restriction may negatively affect foreign
investments in such major strategic properties, including mining properties.
However, generally the regime for foreign investment in Russian subsoil
properties has not been negatively impacted.





Over the
last several years there have been some key changes in the Russian mining
industry which the Company believes have created a favorable environment for
exploring and developing mineral properties in Russia, including the devaluation
of the ruble in 1998, the reduction of corporate tax rates from 35% to 24% and
income tax rates from 35% to 13%, and liberalization in the area of foreign
currency controls.





Investment
Company Act of 1940





Although
the Company is subject to regulation under the Securities Act of 1933, and the
Securities Exchange Act of 1934, management believes the Company will not be
subject to regulation under the Investment Company Act of 1940. In the event the
Company holds passive investment interest in a number of entities, the Company
could be subject to regulation under the Investment Company Act. In such event,
the Company would be required to register as an investment company and could be
expected to incur significant registration and compliance costs. The Company has
obtained no formal determination from the Securities and Exchange Commission as
to its status under the Investment Company Act. Consequently, a violation of the
Investment Company Act could subject the Company to civil and criminal penalties
and could cause the Company to cease operations.





Investment
Advisers Act of 1940





Under the
Investment Advisers Act of 1940, an “investment adviser” means any person who,
for compensation, engages in the business of advising others, either directly or
through publications or writings, as to the value of securities or as to the
advisability of investing in, purchasing, or selling securities, or who, for
compensation and as part of a regular business, issues or promulgates analyses
or reports concerning securities. The Company does not intend to engage in the
business of advising others in investment matters for a fee or
otherwise.





Expenditures
and Dispositions





During
fiscal 2008, the Company recorded a total of $41,959,421 on the acquisition and
exploration of its mineral interests in Russia and the Kyrgyz Republic,
comprising:  (i) $34,717,738 attributable to unproven mineral
interests acquired in the RPIM Acquisition; (ii) the issuance of 375,000 common
shares, at a fair value of $405,000 as consideration for the waiver of a
remaining expenditure commitment on the Bulakashu Property; (iii) $635,260 for
the accretion of interest costs on the debts owed to Stargate and DBM; and (iv)
exploration expenditures totaling $6,201,423, of which $3,946,865 was incurred
on the Souker Property.





As at May
31, 2008, the Company has determined to cease exploration activities in
Kyrgyzstan and, accordingly, recorded a $3,413,851 write-off of all of its
unproven mineral interest costs pertaining to its Bulakashu and Eastern Sary Jaz
properties.





During
fiscal 2007, the Company recorded a total of $740,819 on the acquisition and
exploration of its mineral interests in the Kyrgyz Republic, comprising: (i) the
issuance of 200,000 common shares, at a fair value of $96,000, as consideration
for the Eastern Sary Jaz Property;  (ii) the  issuance of
250,000 common shares, at a fair value of $207,500, for an option payment on the
Bulakashu Property;  (iii) the issuance of 60,000 common shares, at a
fair value of $42,000, for an option payment on the Turgeldy Property; and (iv)
exploration expenditures totaling $395,319, of which $304,033 was incurred on
the Bulakashu Property.  The Company also incurred $23,865 for general
exploration activities in fiscal 2007.  During the latter part of
fiscal 2007, the Company investigated and negotiated the RPIM Acquisition, under
which the Company paid a $226,860 non-refundable deposit and incurred a total of
$162,858 for due diligence and professional fees as at May 31,
2007.  These amounts were recorded as deferred acquisition
costs.






-27-


In fiscal
2007, the Company withdrew from the Turgeldy Property and wrote-off $52,361 in
costs.  No dispositions occurred during fiscal 2006 or
2005.





Sales
      and Revenue Distribution





The
Company did not generate any sales or revenue during fiscal 2008, 2007 or
2006.





Total
interest income reported for fiscal 2008, 2007 and 2006, were as
follows:





2008
            
            
            2007
            
            
            2006Interest
      Income
            
            $
            133,131
            
            
            $
            42,993
            
            
            $
            19,455Total
      Interest Income
            
            $
            133,131
            
            
            $
            42,993
            
            
            $
            19,455





Principal
Properties





Russian
Federation Properties





Souker
Property





Technical
information provided herein for the Souker Property is based upon information
derived from the results of the Company’s 2007 exploration program and
information contained in a report (the “Souker Technical
Report”) entitled “Independent Technical Report on the Souker Ni-Cu
Deposit, Russian Federation” dated July 1, 2007, SRK Consulting (Canada) Inc.
(“SRK”). The
Souker Technical Report was prepared for the Company following the guidelines of
Canadian Securities Administrators National Instrument 43-101 and Form 43-101F1
and in conformity with generally accepted CIM “Exploration Best Practice
Guidelines”.





The
Souker Technical Report was compiled by Jeff Volk, P. Geo., as the responsible
Qualified Person. The technical information contained in this annual report with
respect to the Souker Property has been summarized from the Souker Technical
Report.





The
Souker exploration program is carried out under the direction of the Company’s
Vice President, Exploration and Qualified Person, Dr. William
Tafuri.





Property
Description and Location





The
Souker Property is located approximately 170 km northwest of the city of
Murmansk, the capital of Murmansk Oblast, 12 km East of the town of Nickel, and
14 km. west of the town of Zapolyarny. The property is accessible from the north
via the Nickel-Zapolyarny motorway and via the Nickel- Murmansk
railway.





The
location of the Souker Property in Murmansk, Oblast is shown on the following
map prepared by Lakehead Geological Services Inc. dated December 5,
2007:


-28-













The
Souker License, held by the Company’s subsidiary RPI, comprises an area of
approximately 1.6 square km and was legally surveyed in the fall of 2007. The
Souker License provides for mining to a depth of 900m and requires the following
obligations:





•
            Exploration
      must be completed and a reserve calculation submitted to the government
      for approval no later than December 31,
2009;


•
            Submission
      of mine plans sustaining a production rate of 300,000 tonnes per annum for
      approval by the commission no later than June 30,
  2010;


•
            Commence
      mining operations no later than December 31,
  2010;


•
            Attain
      minimum production of 300,000 tonnes per annum no later than December 31,
      2011.





The
Souker License is valid until December 15, 2030.





Accessibility,
Climate, Local Resources, Infrastructure and Physiography





The
Souker Property is located in a low mountainous area in the northwest corner of
the Kola Peninsula, characterized with rounded hills varying between 270m and
350m in elevation. The terrain is characterized as arctic tundra, and the area
displays numerous bogs and tundra lakes which are interconnected by a large
network of streams and creeks. The largest river in the area is the Souker-Yoki,
and there are no large lakes on or near the property.





-29-


The
climate can be characterized as Arctic Maritime, with temperatures ranging from
-44 degrees Celsius to 33 degrees Celsius. The average annual temperature is 0
Celsius, with the temperature remaining below 0 degrees Celsius 200 to
215 days per year. First snowfall is typically in September, with stable
snow cover in October, remaining until June. Snow depths can be as thick as
2.5m. The weather is typically unstable, with warm periods in winter and cold
periods in summer. Fog, wind, black ice and blizzards are common in the area.
Polar night starts in late October and lasts for two months. From the end of May
until the end of July, the sun never sets. Annual precipitation averages between
450 to 480mm, with most precipitation during the period July-October. The number
of days with precipitation can reach 200, with minimal precipitation in
February-March.





The
property is located approximately 12 km east of the town of Nickel and
approximately 14 km west of the town of Zapolyarny. The project area is
accessible via the Nickel-Zapolyarny motorway and via the Murmansk- Nickel
railway. Regional power lines run both north and south of the property, provided
by a series of Paz hydropower stations operated by “Kolenergo”. There is
well-established infrastructure in both the towns of Nickel (District
administrative center) and Zapolyarny.   There is no local fuel
supply in the area, though coal is provided from the Pechora coal basin and
firewood is available from Karelia and Archangelsk. Construction material for
roads and foundations are widely available throughout the area.





Geological
Setting





The
Souker deposit is located in the central portion of the Pechenga-Pasvik
Greenstone Belt, within the northwest corner of the Kola Peninsula. The Souker
deposit is hosted by the Pilgujarvi Sedimentary and Volcanic Formations,
consisting of clastic sedimentary rocks interbedded with mafic to ultra mafic
igneous rocks.





Deposit
Types





Ni-Cu
sulphide mineralization in the Pechenga Belt occurs in five distinct
settings:





1)
            Disseminated
      sulphides within ultra mafic – mafic igneous
  rocks


2)
            Massive
      sulphides occurring at the contacts between mafic-ultra mafic igneous
      rocks and fine grained carbonaceous
shales;


3)
            Sulphides
      in breccia matrix, occurring at the contacts between mafic-ultra mafic
      igneous rocks and black schists;


4)
            As
      chalcopyrite veins and veinlets


5)
            Pyrite-rich
      layers, concretions and lenses in the sedimentary
  rocks.





History





The
Souker Property was explored throughout the period 1954-1982 by Soviet era
exploration expeditions. Subsequent to the initial discovery in 1947, two
boreholes were drilled on the Souker Property, one of which intersected
significant Ni-Cu sulphide mineralization. The Pechenga expedition first
discovered nickel-copper mineralization at Souker in 1947 during regional
exploration of the western portion of the Kola Peninsula. In 1950, the first two
exploration drill holes were completed, with one of the two holes intersecting
significant Cu-Ni mineralization. Commencing in 1954, an intensive program of
surface mapping, magnetic surveys and drilling was conducted at the Souker
Property.





From
1956-1957, 59 surface drill holes were completed at the Souker Property, with
two of the prospecting drill holes intersecting mineralization in excess of 1%
Ni. By 1964, all previous exploration work was compiled on 1:10,000 scale maps.
In the period 1967- 1969, the deposit was drilled on a 200m x 200m grid down to
~ 400m depth.  The data from this drill program was used to calculate
a Soviet classified resource estimate.  In 1971, additional
geophysical surveys were conducted which identified anomalies for additional
follow up drilling. In 1973, one of the anomalies identified during this program
was subsequently drilled and intersected nickel and copper mineralization. In
1974, a revised structural-geologic interpretation was completed, characterizing
the deposit as complexly folded and faulted. Exploration resumed in 1977 and
continued through 1981, with additional drilling and geophysical surveys
conducted. The drilling continued to confirm and extend the known zones of
nickel and copper mineralization on the property.  Based on the known
mineralization, a Soviet style technical economic study was conducted in 1985 by
Gipronickel institute utilizing






-30-




an
updated Soviet classified resource estimate.  The results of the
technical economic study showed negative project economics, and development of
the project was halted.





RPI
acquired the license to Souker in January 2005 and subsequently engaged a local
consulting group to calculate a revised Soviet classified resource estimate and
produce a Soviet style technical-economic study with the regional mining and
resource authorities.  The study, completed In May 2005, indicated
positive project economics.





Currently,
RPI is conducting a 10,000 meter infill drilling program designed to determine
whether any NI43-101 compliant resources exists on the Souker
Property.   Additional work planned for 2008 includes resurveying
all drill hole collars and re-establishing the old surface topography with the
regional survey grid. Initiation of environmental baseline work is also planned
for this year, as well as additional geophysical surveys.





Historic
Russian based “resource” and “reserve” inventories cannot be considered a
mineral resource or a mineral reserve under Guide 7 or CIM guidelines, as
economic parameters used to create these estimates do not reflect accurately the
current economics of exploiting these deposits. Furthermore, procedures and data
used have not been reviewed and verified by a Qualified Person and therefore
cannot be classified as a mineral resource under CIM Standards on Mineral
Resources and Reserves Definitions and Guidelines adopted by CIM Council on
December, 2005.





Mineral
Resource Estimates





Upon
closing of the acquisition of the Souker Deposit, Kola implemented a drill
program to verify and convert the historic Soviet resource to a NI 43-101
compliant resource.  The previous operator had initiated a drill
program designed to infill the historic soviet resource on 100 meter centers in
order to convert the historic estimate from a C2 to C1 category.  The
Company modified this program so that the ore body will be drilled at spacing
sufficient to convert the historic estimate into either CIM or JORC
compliant resource categories.





A NI
43-101 compliant resource has been estimated for the Souker project of
103,000,000 tonnes at a grade of 0.26% Ni and 0.06% Cu classified as Indicated
Mineral Resources and an additional 261,000,000 tonnes at a grade of 0.24% Ni
and 0.06% Cu classified as Inferred Mineral Resources, containing a combined
indicated and inferred resource of 1.977 billion pounds (898,000 tonnes) of
nickel metal.  SRK Consulting (Canada) Inc. audited the resource prepared
by Kola Mining Corp. and completed the NI 43-101 Technical Report on July 25,
2008.  A summary of the resource report follows:





The
Mineral Resource Statement for the project in the table below is based on an
open pit optimization that utilized a nickel price of US $8.00/lb, a 70%
metallurgical recovery, and a smelter payable of 70%.  Copper was not
used in the pit optimization.





Cautionary
Note to Investors Concerning Estimates of Measured and Indicated
Resources





The
following table uses the terms “indicated resources” and “inferred
resources”.  Kola advises that while these terms are recognized and
required by Canadian securities regulations under NI 43-101, the U.S. Securities
and Exchange Commission does not recognize these terms.  Investors are cautioned not to assume
that any part or all of mineral deposits in these categories will ever be
converted into reserves.


-31-




Table
      1.
            Mineral
      Resource Statement* for the Souker Nickel-Copper Deposit, Murmansk Oblast,
      Russian Federation, SRK Consulting, June 11,
  2008.




Resource
      Classification
            Quantity
              (million
      tonnes)
            Grade
            Contained
      MetalNickel
      %
            Copper
      %
            Nickel
              (million
      pounds)
            Copper
              (million
      pounds)Indicated†
            103
            0.26
            0.06
            590
            132Inferred†
            261
            0.24
            0.06
            1,387
            346




*
            Mineral
      resources are not mineral reserves and do not have demonstrated economic
      viability.  All figures have been rounded to reflect the relative
      accuracy of the estimates.  The cut-off grades are based on metal
      price assumptions of US $8.00 per pound of nickel, and a metallurgical
      recovery of seventy percent for nickel, 70% smelter payable, unit mining
      costs US$1.75 per tonne, processing cost US$7.00 per tonne, G and A
      US$1.20, slope angle 50 degrees.  Copper was not used in the pit
      optimization.




†
            Reported
      at a cut-off grade of 0.131% Nickel contained within a potentially
      economic open pit.





Mineralization




At
Souker, Cu-Ni-sulphide mineralization occurs primarily as disseminated sulphides
within mafic – ultra mafic igneous rocks and breccia-matrix
ores.  Nickel mineralization occurs primarily in the form of
pentlandite, associated with pyrrhotite and
chalcopyrite.  Mineralization is currently defined in 11 ore bodies
and 14 lenses, with thicknesses ranging from 0.2 to 20m at a 0.3% Ni
cutoff.




Exploration
and Drilling





Data used
for the estimate set forth above included past Soviet era drilling and all
finalized drilling results from the 2007-2008 Kola drill programs up until May
15, 2008.  These data have been audited by SRK in accordance with “CIM
Estimation of Mineral Resources Best Practices Guidelines.”  The
resource model was interpolated using ordinary kriging with all of the assay
data available.  The drilling data is summarized below.





Table
      2.
            Summary
      of Data Provided by Kola Mining for the Souker Nickel-Copper Deposit,
      Russian Federation, as of May 15,
2008.





Drilling
      Period
            No.
      of Holes
            Metres
      Drilled
            Metres
      Assayed for Ni
            Metres
      Assayed for CuSoviet,
      1970’s and 1980’s
            97
            27,989.6
            6,978.3
            6,975.0Kola,
      2007-2008
            68
            8,630.3
            8,168.4
            7,965.8Total
            165
            36,619.9
            15,146.7
            14,940.8





Assay
values in the intervals reported were remarkably consistent, none of the
averages were unduly influenced by higher grade intervals.





The
mineralized intervals reported above were all associated with disseminated
sulphide mineralization (pentlandite, chalcopyrite, and pyrrhotite) within
layered, medium to coarse grained peridotite and pyroxenite.  The
hosting stratigraphy dips variably to the south.  The ore body
outcrops at surface and has excellent geometry for open pit mining.





The
Company continues to make steady progress toward completion of the Russian
feasibility study (TEO Konditsiy) and the Russian resource calculation with
an expected completion date of December 2008.  Assay results for this
year’s spring/summer drilling program since the completion of the drill holes
included in the Company’s 43-101 Resource estimate are illustrated
below.  These holes were not included in the resource
calculation.  The results from the latest drilling are consistent with
the ore body model developed to date.  Results of the drill program
will be incorporated into new resource estimates, mine plans and feasibility
updates at appropriate intervals.  It is expected that the final
average grade of the deposit that will be submitted to the Russian Federation
for registration will exceed the average grade indicated in the most recent
43-101 technical report.


-32-





Hole
      ID
            From
      (m)
            To
      (m)
            Length
      (m)
            Ni
      (%)ср-17
            67.8
            93.3
            25.5
            0.38ср-33
            2.4
            185
            182.6
            0.30ср-44
            2.7
            47.5
            44.8
            0.36ср-84
            226.9
            253.1
            26.2
            0.47ср-84
            28.9
            259.2
            230.3
            0.28cp-87
            205
            335
            130
            0.30ср-92
            216
            276
            60
            0.58ср-92
            128
            276.9
            148.9
            0.40ср-93
            196
            312
            116
            0.30ср-97
            97
            120
            23
            0.31ср-97
            233
            248
            15
            1.25ср-97
            182
            251
            69
            0.28





In
addition to the infill drilling this year, two hydrological test wells have been
completed and monitoring equipment has been installed.  Five
geotechnical holes for infrastructure planning and pit design have been
completed.  Preliminary metallurgical and rock mechanics test work is
in progress.  In addition to completing metallurgical test work in
Russia, the Company will be shipping an ore sample to SGS Laboratories in
Ontario, Canada for further metallurgical evaluation.





A
preliminary two-stage engineering and ecological study has been completed at
Souker, resulting in the collection of data and implementation of environmental
monitoring programs.  This data will be included into an EIA
(Environment Impact Assessment) in accordance with Western
standards.  Environmental monitoring has been in place for one year
and will remain in place through the potential development of the Souker
Deposit.  The conclusion from the preliminary report indicated that
future development and production from the Souker deposit will not have an
additional, negative impact on the existing environment.  A positive
conclusion was made with regard to the socio-economic impact the potential
development of the Souker Deposit would have on the Pechenga
region.





Future
Work - Recommendations from the Technical Report





Based on
recommendations by the Company’s independent mining consultant, SRK, the
geological setting and character of the nickel-copper mineralization currently
being developed at the Souker Property are of sufficient merit to justify the
following work program, primarily designed to address nine
objectives:


●
            Initiate
      additional metallurgical testwork to better assess the optimal processing
      methodology and metallurgical
recoveries;


●
            Continue
      infill drill campaign with the objective of conversion of inferred
      resources to indicated resources;


·
            Implement
      an assay QA/QC program independent of sample preparation and analytical
      laboratories using Russian certified material for submission of standard,
      blank samples, re-assay and duplicate analysis; the use of Alex Stewart
      laboratories as an umpire laboratory should be
  continued;


·
            Complete
      TEO Study (Russian Technical and Economic
  Evaluation)


·
            Initiate
      scoping study to assess project economics and
  schedule;


·
            Assess
      current geotechnical data and initiate additional geotechnical
      studies;


·
            Construct
      three dimensional geologic model for use in grade estimation in next phase
      of resource estimation;


·
            Continue
      environmental baseline studies and
fieldwork;


·
            And
      finally, regional exploration work outside the mining area in the
      remainder of the tenements in existing license areas to identify potential
      additional resources.





-33-


Uleeta
Property





Property
Description and Location





The
Uleeta License is located in the Murmansk Oblast within the Kola Peninsula of
the Russian Federation.  The Uleeta License covers an area of 202.5
square kilometers, the boundary of which is defined by the following corner
point coordinates.





68°31’00’’ N 32°00’00’’ E


68°31’00’’N32°19’00’’E


68°23’07’’N32°19’00’’E


68°23’01’’N32°15’04’’E


68°22’30’’N32°15’09’’E


68°22’30’’ N 32°00’00’’ E





The
location of the UleetaProperty in
the Russian Federation is shown on the following map prepared by Lakehead
Geological Services Inc. dated December 5, 2007.


















-34-





Accessibility,
Climate, Local Resources, Infrastructure and Physiography





The Uleeta Propertyis
undeveloped and unpopulated, but is road accessible during the summer months.
Access within most of the property is limited to foot and ATV travel. The
prospect is located in an area of low rolling terrain covered with typical
arctic vegetation. The area has numerous small streams and lakes with Lake
Uleeta being the largest.





The
climate is cold with summer temperatures ranging up to +200 C and
the minimum winter temperature being close to  -200C. There
is no permafrost in the Uleeta Propertyarea.





Geological
Setting





The
Uleeta License area is underlain by a layered ultra-mafic complex and various
Precambrian aged rock sequences.  The complex is situated within a
transform fault zone that connects Proterozoic Pechenga and Imandra-Varzugskaya
structures which are host to most of the known copper-nickel belts in the
Monchegorsk region.





Deposit
Types





The
geological setting of the Uleeta Property is a favourable environment to host
magmatic sulphide nickel, copper, chrome and platinum group
elements.





History





The
Company has been unable to confirm any previous exploration work on the Uleeta
Property, other than that the area has been covered by Soviet era aeromagnetic
surveys which outlined areas of interest.  Although there are
translated summaries of historic exploration work at the Uleeta Property, the
Company is unable to confirm any of the historic work completed on Uleeta
Project and it does not regard the historic results to be
significant.





Mineral
Resource Estimates





There are
no NI 43-101 or Guide 7 compliant resource estimates made for the Uleeta
Property.





Mineralization





The
Company has yet to confirm whether any sulphide nickel and copper mineralization
exists on the Uleeta Property.





Exploration





The
Company completed the first stage of its exploration program on the Uleeta
Property during the summer of 2007, consisting of geologic mapping, geochemical
sampling, and geophysical surveys. The final geophysical report has been
completed and is now being evaluated.  A total of 180 line km of
induced polarization, resistivity, and magnetic survey was completed. A total of
930 geochemical samples have been collected. Most of the assay results have not
yet been received, and so the final analysis of this year’s program cannot be
completed.  The preliminary results from all surveys are encouraging
and they have outlined potential areas of sulfide mineralization for follow up
exploration.





The 2008
work commitment is for 1,500 m of drilling and geophysics covering 10 square km
has been partially met.  The geophysics has been completed and
the drilling will be done in the late fall.  159 line km of
geophysics, covering more than 10 square km in area, consisting of IP,
resistivity and magnetic has been completed.





Drilling





The
Company is unaware of any drilling that has been conducted on the Uleeta
Property.





Proposed
Exploration and Development Program





The
Company’s board of directors has not yet determined what, if any, work will be
done on the Uleeta Property.





-35-


Tsaga
Property





Property
Description and Location





The Tsaga
License is located the within Lovozersky district of the Murmansk Oblast within
the Kola Peninsula of the Russian Federation, 80km east of Apatity station of
the St. Petersburg-Murmansk railway.  The Tsaga License covers an area
of 1970 square kilometers, the boundary of which is defined by the following
corner point coordinates.





67°35’00’’N35°12’00’’E


67°48’00’’N35°26’00’’E


67°40’00’’N36°24’00’’E


67°20’00’’N37°00’00’’E


67°11’00’’N37°00’00’’E


67°32’40’’N35°40’00’’E





The
location of the Tsaga Property in the Russian Federation is shown on page 34
[Map - 2] prepared by Lakehead Geological Services Inc. dated December 5,
2007.





Accessibility,
Climate, Local Resources, Infrastructure and Physiography





The Tsaga
License area is economically undeveloped and unpopulated. A 30 km long dirt road
connects the area with the railway Apatity-Revda.





The Tsaga
Property is characterized by low rolling hills with numerous small creeks and
lakes. Typical arctic vegetation covers the area.  Normal temperatures
range for a summer high of 20°C to a winter low of –20°C.  There is no
permafrost in the area.





Geological
Setting





Much of
the Tsaga Property area is underlain by a sequence of Lower Proterozoic
age-mafic and ultra-mafic intrusive rocks.





Deposit
Types





The
geological setting of the Tsaga Property is a favourable environment to host
magmatic sulphide nickel, copper, chrome, titanferous magnetite and platinum
group elements.





History





Other
than the historically reported titanium/magnetite occurrences on the Tsaga
Property, the Company has yet to complete a detailed search and compilation of
the historic exploration data from the Tsaga License area.





Mineral
Resource Estimates





There are
no NI 43-101 or Guide 7 compliant resource estimates made for the Tsaga
Property.





Mineralization





There is
a historic titaniferous magnetite deposit located in the southeast part of the
License area.  Titanium and iron oxide mineralization occurs as
complex zones of knot shaped massive lenses, disseminations and cumulate
layers.





-36-


Exploration





During
the summer of 2007, the Company completed the first phase of geophysical
surveys, geologic mapping and geochemical sampling. Assay results and a final
geophysical report are not complete at this time.





The 2008
work obligation of 1,000 m of drilling and 10 square km of geophysics has been
met; 1,000.7 meters of drilling has been done; 150 line km of geophysics
consisting of IP, resistivity, and magnetic has been done over an area larger
than 10 square km;  and 720 geochemical samples have also been
collected and analyzed.  Assay results from the drilling are not
yet complete.





Proposed
Exploration and Development Program





The
Company’s board of directors has not yet determined what, if any, work will be
done on the Tsaga Property.





Kyrgyz
Republic




Bulakashu
Property





The
Company has become aware that there is a dispute concerning the ownership of its
Kyrgyz subsidiary. The Company’s principal focus remains on the development of
the Souker Deposit and other exploration properties in Russia. The Company’s
properties held by its Kyrgyz subsidiary, including the Bulakashu Project, are
early stage exploration projects.  Management has retained legal
counsel to deal with this matter and intends to vigorously defend the interests
of the Company.  The Company has elected to suspend all operations and
exploration activities on the Bulakashu Project and the other projects in the
Kyrgyz Republic until it has resolved any potential land tenure issues resulting
from the dispute.  This would include compilation or review of all
exploration results from the 2007 exploration program.





The
Bulakashu Property is without known reserves as defined by Guide 7 or NI 43-101
and BMC’s programs at the Bulakashu Property are exploratory in
nature.





Technical
information provided herein for the Bulakashu Property is based upon information
derived from the results of the Company’s 2006 and 2007 exploration programs and
information contained in a report (the “Bulakashu Technical
Report”) entitled “The Bulakashu Property, The Bulakashu Mining District,
Chui Oblast, Kyrgyzstan” dated June 15, 2005, prepared by APEX Geoscience Ltd.
(“APEX”). The
Technical Report was prepared for 724 BC in compliance with NI 43-101 for
submission as an independent technical report to the TSX-V, the British Columbia
and the Alberta Securities Commission in connection with the Company’s
Management Proxy Circular and the 724 BC Acquisition. The Technical Report was
prepared by Mr. Dean J. Besserer, B.Sc., P.Geol. of APEX, as the responsible
Qualified Person. The technical information contained in this annual report with
respect to the Bulakashu Property has been summarized from the Technical
Report.





Data used
in the compilation of the Technical Report came from many sources and time
periods before the Company’s involvement.  Other than for the purpose
of conveying the history of all exploration work at the Bulakashu Property,
references to historical data cannot be verified and therefore were not relied
upon other than a general indication of the presence and style of mineralization
on the Bulakashu Property.  For example, many of the reports used to
prepare the Technical Report, were prepared under the supervision of and to the
specifications of the Department of the Kyrgyz SSR, prior to Kyrgyzstan’s
independence or by KSAG, after independence.  The Company believes,
the manner in which most of the data was collected and presented was reasonable
by current standards and unless specified should be considered
reliable.  The format of more recent reports compiled by the staff of
BMC and Marsa do not comply with NI 43-101 standards, however, Mr. Besserer had
no reason to believe that the information and observations contained within
those reports were not accurate.





The
Bulakashu exploration program is carried out under the direction of the
Company’s Vice President, Exploration and Qualified Person, Dr. William
Tafuri.





-37-


Property
Description and Location





The
Bulakashu Property lies within the Bulakashu mining district in the Chui Oblast,
Panfilov Region of the Republic of Kyrgyzstan, and falls within a broad band of
mineral deposits which are locally referred to as the Kyrgyz-Kungey mineral belt
which have historically produced gold and copper.  The primary
prospects located on the Bulakashu Property are the Karabulak Gold Prospect,
Severny Copper/Gold Prospect, and the Otradny Prospect.





The
location of the Bulakashu Property in the Kyrgyz Republic is shown on the
following map (Map -3) prepared by APEX Geoscience Ltd., dated June
2005:











The
Bulakashu License was originally issued to BMC on March 28, 2005 for a 4-year
period.  The exploration license is renewed annually and can be
extended for up to ten years subject to the approval of the KSAG and provided
that BMC is in compliance with the terms of the Bulakashu License Agreement or
any further license agreements.  Kyrgyz Subsoil Law does not provide
for any automatic procedure for renewal or obtaining of an exploration license
after this current license period has expired.  See “Item 4.
Information on the Company - Business Overview - Properties in the Kyrgyz
Republic.”


The
Bulakashu Property is defined by License No: AP 48 issued by the KSAG and
originally comprised an area of 240 km2.   Under
the annual license renewal process for the Kyrgyz Republic, 79 km2 of the
original Bulakashu License has been relinquished since 2005 and 25 km2 of new
license area has been added. As of 2007, the Bulakashu License remains a
contiguous license and currently covers an area of 186 km2.  In
2006, the Company entered into a new license agreement with KSAG that would
extend the term of the license to the end of 2010.  To fulfill the
terms of this agreement, the Company must incur minimum exploration expenditures
of 9,120,000 Som (approximately
   -38-
  USD$225,000)
annually until the end of 2010.  The boundary of the Bulakashu License
area is defined by the following coordinates:
  Corner
                North
      Latitude
                East
      Longitude1
                42.381
                73.6162
                42.385
                73.9673
                42.340
                73.9694
                42.338
                73.7975
                42.302
                73.7996
                42.300
                73.618
 
 Accessibility,
Climate, Local Resources, Infrastructure and Physiography
 
 The
Bulakashu Property is accessed by driving on paved roads westerly from Bishkek
to Kara Balta on highway M39 and then south from Kara Balta on highway M41 (the
Bishkek to Osh highway) for about 120 km.  A 5 km dirt road of varying
quality leads westerly from Highway M41 to the center of the Bulakashu
Property.
 
 The
region experiences long cold winters and cool summers.  Based on
long-term observations at the Tuya Ashu weather station, at an elevation of
3,586 m, the average annual temperature is -3.2 ̊C, with lowest average
temperatures in January (-12.8 ̊ C) and highest in July (+8.5 ̊ C). Sustained
subzero temperatures last from November to March inclusive.  Snowfall
can be expected from November to May.  There are no glaciers or
permanent snowfields within the Bulakashu Property.  Avalanches are
common throughout the area.  Average annual precipitation is 855 mm,
of which approximately 613 mm falls during the warm period from April to
October.  Highway M39 is kept open year round because it provides the
main access to Osh from Bishkek.  Highway M41, the Bishkek to Osh
highway, cuts the eastern edge of the Bulakashu License area.  A power
line runs through the east edge of the Bulakashu Property with the closest
established sub-station at Tuya Ashu.
 
 The
elevation at the property ranges from 2,500m to 4,050m in rugged mountainous
topography that is dominated by glacial features.  Higher elevations
are dominated by steep walled cirques and arêtes while the major valleys are
filled with moraines.  Moderate to gentle slopes are often covered by
talus and outcrop exposure is poor. Vegetation on the Bulakashu Property
consists of grasses and sparse shrubs with very few trees.  All the
major drainages have flowing streams.
 
 Any
necessary local labor will likely come from Kara Balta, Susdmir, or
Sosnovka.  Kyrgyzstan has a 98 percent literacy rate and mining is a
common profession.  Kara Balta is 60 km to the north and is the
closest large city and railhead.
 Initially,
the field season should be limited to the snow free months.  There may
be some weather caused delays if the project progresses past the exploration
stage but any future production should not be affected any more than similar
mines in severe climates.
 
 Access to
the Bulakashu Property is excellent.  A paved, year round, highway
crosses the property from which the main exploration camp at Bulakashu is
accessed by a five-kilometer dirt road. A 35-kilovolt power line runs through
the east edge of the Bulakashu Property. The climate is of the extreme
continental type with long cold winters and cool summers. Snow may come as early
as November and stay on the ground, at the lower elevations, until
May.  There are no glaciers or permanent snowfields within the
Bulakashu Property and avalanches are common throughout the area in the winter
and early spring.
 
 Although
conducting exploration or drill programs in mountainous terrain during winter
conditions can present challenges, successful winter drilling programs have been
conducted in similar terrain and climatic conditions as those present at the
Bulakashu Property.
 
 -39-
 Geological
Setting
 
 The
Bulakashu Mining District lies within the Northern Tien Shan terrain of the
Kyrgyz Republic. The Bulakashu Property falls within a broad band of mineral
deposits which are locally referred to as the Kyrgyz-Kungey mineral belt which
have historically produced gold and copper.
 
 The
geology of the Bulakashu Property is extremely complex due to the varied nature
of the volcanic stratigraphy, several stages of intrusive activity, structural
complexity consisting of several periods of folding and faulting, and
metamorphism. The stratigraphy of the Bulakashu district is represented by
volcanic and volcaniclastic rocks of Lower Mid-Ordovician to Lower Mid-Devonian
age.  The Silurian strata are absent and are represented by a
widespread unconformity throughout the Northern Tien Shan
terrain.  The composition of the rocks is varied representing the
multi-stages of volcanic activity in the district.
 
 Deposit
Types
 
 Gold
occurs in veins and vein/stockwork combinations in mafic volcanic rocks in
complex structural settings.  Copper-gold mineralization occurs within
granodiorite to diorite porphyry intrusions similar to many other such deposits
throughout the world.
 
 There are
two identified types of hard rock mineral occurrences in the Bulakashu district:
greenstone/mafic volcanic hosted gold deposits and porphyry copper/gold
deposits.  Gold occurs within small discontinuous quartz veins and
quartz vein stockworks in sheared greenstones in complex structural
settings.  These deposits are remarkably devoid of other metals and
the gold often occurs as free gold.
 
 Porphyry
copper/gold mineralization is mid-Ordovician in age and related to the island
arc stage of mineralization.  Mineralization occurs in diorite to
monzodiorite porphyries with zoning that is typical for porphyry copper
deposits.
 
 History
 
 In 1935
prospectors first recorded gold placers in the Susamir basin (Yarushevsky et al., 2003).
 
 Extensive
uranium exploration and geological mapping (1:200,000 scale) was conducted in
the area in 1946 and 1957.  However, the most interesting find of that
period was a small gold-bearing quartz vein found in Korgantash creek and a
great number of old placer excavations, found in the Tokailu-Karabulak area
(Yarushevsky et al.,
2003).
 
 In 1958,
gold bearing outcrops were found at Karabulak, Bulakashu, Altyn-Masha and the
placer gold content of Tokailu creek and the Karabulak river valley was
discovered (Yarushevsky et
al., 2003; Maximov, et
al., 1960).
 
 During
1960-1961, additional sampling was completed at Karabulak.  At the
same time, the Severny prospect was identified as being promising in terms of
gold, copper, and lead (Yarushevsky et al., 2003; Krivtsov, et al., 1978).
 The
Karabulak placer mine is located downstream along the drainage where it
coalesces with the stream that drains the Severny prospect. Certainly Karabulak
and perhaps Severny, along with other long since eroded deposits, may have
yielded significant gold input specific to the Karabulak placer deposit (Tafuri,
2005).
 
 Trenching
and continuous chip sampling completed by the Soviet era workers from 1960 to
1963 returned the following significant anomalous intervals from the Karabulak
gold prospect (Doljenko, et
al., 1963).   Over twenty wide spaced (40-60m apart)
trenches were excavated across sections of the apparent trend of the Karabulak
prospect and continuous chip samples were collected over the entire length of
the trenches.
  Trench
                Interval (m)
                Gold (g/t)K1
                8.2
                35.4K9
                4.0
                7.1K13
                22.2
                2.2Including
                6.0
                46.0K14
                6.0
                4.4
  -40-
   K15
                4.45
                5.1K16
                15.5
                2.26K17
                17.5
                2.37K18
                11.45
                6.49
 
 A number
of the trenches ended in mineralization indicating that some parts of the zone
may extend further north, south and along strike to the northeast and
southwest.  Mineralization encountered in the southern end of trench
K1 returned the highest gold values (35.4 g/t gold across 8.2 meters) and
remains open to the south.
 
 Based on
these sample results, Soviet geologists drove two adits to further investigate
the vertical down dip extent of the mineralization.  Adit one was
driven under the northeast Karabulak prospect and adit two was driven under the
western Karabulak prospect.  Crosscuts were driven from each
adit.  Each adit was sampled thoroughly and reported to be barren of
gold mineralization.  One drill hole was drilled from the face of adit
two and it was also reported to be barren with respect to gold.  The
Soviet’s interpretation of the Karabulak mineralization was that the
vein/stockwork system was vertical.  Both the adits and the lone drill
hole were intended to intercept the downward vertical projection of the surface
mineralization.
 
 During
the period from 1967 to 1971, extensive work was done by Soviet geologists on
the stratigraphy, petrology, and structure of the Bulakashu
district.  A structural lithological and forecast map of the district
was prepared at a scale of 1:100,000.  Lithogeochemical mapping was
completed at a scale of 1:10,000.  A distribution map of known
mineralization was also compiled.
 
 During
the period from 1981 to 1983 further reconnaissance studies of the Bulakashu
district were completed by Soviet geologists, with the purpose of collecting
additional information in order to initiate new exploration and evaluation work.
At the Karabulak prospect, 23 trenches were dug and five outcrops were
cleared.  Like many researchers before, the Soviet geologists also
came to the conclusion that, at deeper levels, Karabulak had high economic
potential (Yarushevsky et
al., 2003; Supambaev et
al., 1984).  In 1984 and 1985 the same crew of Soviet
geologists continued to explore the Bulakashu district for porphyry copper
deposits.  This resulted in finding several large low-grade porphyry
copper/gold occurrences with grades from surface sampling ranging from .02 to
0.25 % Cu and locally 2.0 g/t gold.   Work was discontinued due
to the low grade of the deposits and the steep topography that would have made
mining uneconomic under Soviet guidelines (Yarushevsky et al., 2003; Supamanbaev,
1986).
 
 In 1996,
Karabalta GMK, started production at the Upper Karabulak and Tokailu
placers.  This operation lasted two years.  Also during
1996, the Kyrgyz-Russian joint venture “Ordo,” put together an exploration plan
for Karabulak gold deposit, however, fieldwork ceased at start-up
stage.  Subsequently, the Tien-Shan Gold Company, a joint venture
between Cameco and Kyrgyzaltyn, performed verification exploration work
consisting of re-sampling of selected existing trenches and drilling four core
holes (Lopatko, et al.,
1996).  The Tien-Shan exploration was conducted at the Altyn Masha and
Otradny prospects.
 
 In 2002,
Marsa obtained an exploration license within the Bulakashu Mining District and
an exploitation license, which included the Karabulak gold placer
deposit.  During the summer of 2002, Marsa re-sampled many of the
trenches at the Karabulak prospect and re-evaluated the Karabulak placer
deposit.  During 2003, column leach tests were conducted on the assay
sample rejects from the 2002 sampling and Marsa commenced production at the
Karabulak gold placer deposit.  In 2004, Marsa established BMC as a
separate company and transferred the Bulakashu License to BMC.  The
Bulakashu License was renewed in BMC’s name as of March 28,
2005.  Marsa retained the Karabulak gold placer exploitation
license.
 
 Mineral
Resource Estimates
 
 There are
no NI 43-101 or Guide 7 compliant resource estimates made for any of the
prospects in the license area which is the subject of the Bulakashu
License.
 
 -41-
 Mineralization
 
 Karabulak Gold
Prospect
 
 Host
rocks for the gold mineralization at the Karabulak Gold Prospect are
mid-Ordovician altered, sheared, silicified and/or veined mafic volcanic
rocks.  The mafic rocks form a prominent series of outcrops along the
southern flanks of a west-southwest trending ridge.  The ridges are
cut by a narrow, steep north-south trending drainage that divides the prospect
into two halves: the Main and Western prospects (cumulatively termed the
Karabulak Prospect).  Both halves have been trenched on surface over a
distance of 400 meters and up to 80m across and have similar alteration,
silicification and veining characteristics.  Within the river valley,
immediately down drainage from the Karabulak zone is a large independent placer
operation (the Karabulak Placer) which is mined on a seasonal
basis.  BMC does not have any interest in the placer
operations.  The ridge appears to be the expression of a northeast
striking, shallow northwest dipping truncated thrusted sequence of sheared,
variably altered mafic volcanics.  Alteration within the known
mineralized zone at surface consists of silicification, chloritization,
localized fuchsite and, to a lesser extent, sulphidization.  It is
unclear what controls gold mineralization at this time, however, in general it
appears that shearing and alteration along thrust planes, tend to yield higher
grade gold.  The most intensely veined and silicified portion of the
zone is well exposed and resistant to weathering giving the surface exposure a
very dark knobby appearance.  Similar looking outcrop can be observed
for some distance along strike and adjacent to main trenched portion of the
Karabulak Gold Prospect.  There is no indication that any significant
sampling has been conducted on these similar looking outcrops.
 
 Localized
granitic intrusions south of the Karabulak prospect provide a nearby heat source
for mineralizing fluids. The Company believes the greenschist facies, mafic
volcanic rocks hosting the quartz stockwork at Karabulak are geochemically
favourable for the deposition of gold.
 
 Severny Copper/Gold
Prospect
 
 Mineralization
at Severny is hosted in a multi phase granodiorite/monzonite/diorite intrusive
complex with the best grades occurring in intrusive breccias within the
granodiorite body. The deposit has been described as a porphyry copper but
porphyritic textures are not ubiquitous and most of the observed rock was nearly
equigranular. Mineralization consisted of very fine chalcopyrite with spotty
occurrences of galena.  Very fine grained pyrite was ubiquitous.
Oxidation was almost absent and only traces of malachite were seen.
 
 The
southern and southwestern margins of the granodiorite had strong propylitic
alteration. The host rocks in the same area were often hornfelsed and had
epidote veining. The more central parts of the granodiorite had phyllic and weak
potassic alteration. Breccia zones had potassic alteration and fine granular
tourmaline. Chalcopyrite in the breccia zones was coarser than the rest of the
deposit and often up to several millimeters in size.
 
 Exploration
 
 During
2006, the road to the Severny Prospect was upgraded and extended giving access
to the upper part of the prospect.  Continuous chip samples were
collected along the new road cuts where bedrock was exposed.  On
October 5, 2006, the Company released results from a continuous sequence of 1
meter chip samples collected along a newly constructed drill road at
Severny.  Of the 81 new sample results from the road cut, four samples
assayed greater than 5.0 g/t Au, 32 samples assayed greater than 1.0 g/t Au and
44 of the 81 samples assayed greater than 0.5 g/t Au.  Within this
series, one mineralized interval assayed 2.27 g/t Au over 48 meters, including 1
meter intervals of 10.5 g/t Au, 7.85 g/t Au, 6.61 g/t Au and 6.64 g/t
Au.  Copper results from these samples were weakly anomalous with 22
of the 48 samples assaying greater than 100 ppm copper.  Of the
approximately 850 rock grab and chip samples collected from Severny Prospect
during the 2006 exploration program., assays ranged from nil to 4.5% Cu and up
to 37.7 g/t Au.  In addition to the surface rock sampling program, a
15 kilometer, dipole-dipole IP was completed over Severny.  Results
from the survey defined a large 1km by 2km conductive zone, approximately 50 to
100 meters from surface.  A very strong northwest trending, linear
resistivity anomaly was identified on the southwest side of the survey area
coincident with an area of silicification where surface sampling returned gold
values ranging from nil to 37.7 g/t Au over one meter.
 
 -42-
 During
the summer of 2006, a 15 kilometer, dipole-dipole IP survey was completed over
Severny and Karabulak.  The interpretation of the results defined a
zone of conductivity at Severny that remains open to the north and northeast,
approximately 50 to 100 meters from surface.  A very strong northwest
trending, linear resistivity anomaly was identified on the southwest side of the
Severny Prospect area, where surface sampling returned gold values ranging from
nil to 37.7 g/t Au over one meter.
 
 Based on
favourable results from the 2006 summer exploration program at Severny and
Karabulak, a local drilling and mining contractor, was contracted to complete a
2,000 meter drill program that would test targets, based on surface
mineralization and associated IP anomalies.  Drilling was originally
scheduled to commence at Severny in September, but was delayed until
mid-December.  Due to the late start and severe winter conditions
associated with the terrain at Severny, only one of the six proposed drill sites
(SV06-01) was completed and the remainder of the proposed drill program was
postponed until the spring of 2007.
 
 Drill
hole SV06-01 intersected a broad zone of gold mineralization hosted in an
alternating sequence of propylitically altered andesite and
granodiorite.  The mineralized interval returned an average grade of
1.15 g/t gold and anomalous copper mineralization over 50.5
meters.  Drill hole SV06-01 is a vertical hole, drilled to a depth of
250 meters and collared within the southeastern portion of a 1arge 1km x 2 km
zone of conductivity defined by the IP survey completed at Severny in the fall
of 2006.  Subsequent to the completion of drill hole SV06-01, the
numbering convention used to label drill holes on Severny was changed so that
the numbering carried on from the five drill holes completed on the Bulakashu
property, all at the Karabulak Prospect   As a result, drill hole
SV06-01 was re labeled as SV06-06.  Significant assay results from
hole SV06-06 are as follows.
 
 Drill
      Hole
              From
              To
              Interval(m)
              Au
      (g/t)
              Cu
      (ppm)SV06-06*
              33
              83.5
              50.5**
              1.15
              132Including
              48
              52
              4.0
              5.86
              248Including
              49
              50
              1.0
              11.50
              581
 *Previously
labeled as hole SV06-01 in company disclosure
 **There
is insufficient information to determine whether this interval represents true
width
 
 Within
the mineralized interval reported above, two samples assayed greater than 5.0
g/t Au, 17 samples assayed greater than 1.0 g/t Au and 34 samples assayed
greater than 0.50 g/t Au.  Several, sporadic intervals (1 - 3 meters)
of gold mineralization were also intersected from surface to 33
meters.  Assays for these intervals ranged from 0.10 g/t Au to 3.94
g/t Au.  Surface chip sampling at Severny last fall returned a
mineralized interval of 2.27 g/t Au over 48 meters within silicified andesite
along a newly exposed road cut approximately 320 meters east of drill hole
SV06-06.  The silicified andesite intersected in this trench and in
drill hole SV06-06 is similar in appearance to the altered andesite encountered
in the previous drilling and trenching at the Karabulak Prospect, 1.2 kilometers
to the south.
 
 In
February 2007, the Company retained a geophysics contractor to provide a
detailed, comprehensive interpretation of all ground geophysical data collected
to date from the Severny and Karabulak Prospects on the Bulakashu
Project.  The interpretation was used to finalize drill targets for
the summer of 2007.  A total of approximately 6,000 meters of drilling
has been proposed to test targets at Severny and Karabulak.  The
Company retained a local drilling and mining contractor to provide two core rigs
to conduct the year’s drill program; the same contractor was also mobilized to
the site with two drill rigs to complete the drilling they were contracted to do
last year and to build drill access roads, some of which required drilling and
blasting.
 
 During
the second week of May, 2007 the Company initiated its 2007 exploration and
drill program on the Bulakashu Property with the opening of the site camp, the
arrival of two drill rigs from Kichi Too Co. (“Kichi Too”) and
commencement of the regional reconnaissance program. Due to delays in receiving
all of the permits to operate in Kyrgyzstan, the two EDCO diamond drill rigs and
drill crews were not in a position to commence drilling as planned on June 1,
2007 and ultimately did not commence drilling until the last week of August
2007.  Because of this delay, the Company retained Kichi Too to
continue drilling past the amount specified in their
contract.  Although production from the Kichi Too drills has been
slow, it was essential to retain their services until the Company was certain
the EDCO was going to receive the necessary permits from the Kyrgyz government
and thus insure that this year’s program would be completed. EDCO received all
necessary permits and commenced drilling with two rigs at the end of August
2007.  Since Severny is the highest priority prospect on the property,
a decision was made to delay the drilling on Karabulak until
   -43-
  2008
and  keep all four drill rigs (2 EDCO and 2 Kichi Too) active at
Severny so as much drilling as possible could be completed at
Severny.
 
 Due to
winter conditions the Company completed its 2007 drill program at the Severny
Prospect at the end of October.  A total of 4,405 meters was completed
in 19 holes.  Based on favourable exploration results from the 2006
exploration programs carried out on the Severny and Karabulak prospects on the
Bulakashu property, the Company originally planned to carry out a 6,000 meter
drill program on both prospects, the bulk of which would be carried out on the
Severny Prospect.  The Company initiated the 2007 drill campaign with
2 drill rigs that were later joined by two more drill rigs in August of
2007.  Due to mechanical problems with heavy equipment (drills and
bulldozers) and poor drill rigs, bull dozers and poor production, only 19 drill
holes, totaling 4,405 meters of the proposed 6,000 meter program, were
completed, entirely at Severny. Assay results are still pending for some of the
drill holes completed to date.  Once received, a compilation and
interpretation of the drill results form the 2007 drill campaign will be used to
plan exploration activities for 2008.
 
 The
drilling at Severny was conducted at 200 metre centers along NE-SW trending
fences designed to test IP-resistivity anomalies and associated surface gold
mineralization identified in the fall of 2006.  Hole SV07-07 was
drilled to a depth of 296 metres, intersecting sporadic gold mineralization and
quartz-sericite-pyrite alteration (“QSP”) throughout most
of the hole.  Hole SV07-08, 200m to the southwest of Hole SV07-07, was
drilled to a depth of 501 metres, intersecting strengthening QSP alteration and
gold mineralization over wider intervals.  Hole SV07-09 was drilled to
a depth of 320 metres, under a road cut where a surface rock chip sample
returned 48m of 2.27 g/t gold.  Hole SV07-09 intersected two distinct,
broad zones of gold mineralization and associated intense QSP
alteration.  The mineralized intervals are separated by post mineral,
unaltered andesite dikes.  The mineralization and alteration vectors
point toward the southwest where last year’s rock chip surface sampling
encountered gold values ranging from 0.14 g/t up to 37.7 g/t in QSP altered
greenstones.  The drill holes are not being completed in sequential
order, and the table below shows the significant drill intercepts as of
September 20, 2007.
 
 Hole
              Azimuth/Dip
              From
      (metres)
              To
      (metres)
              Interval
      (metres)
              Au
      (g/t)SV07-07
              0/90
              54
              61
              7
              1.07SV07-08
              0/90
              34
              35
              1
              6.86101
              118
              17
              0.53128
              136
              8
              0.68151
              163
              12
              0.60171
              177
              6
              1.20188
              195.4
              7
              0.74SV07-09
              0/90
              1
              44
              43
              1.49*including
              
              1
              12
              11
              2.46including
              
              17
              25
              12
              2.3192
              149
              47
              1.38**including
              
              92
              97
              5
              2.80including
              
              100
              109
              9
              2.10including
              
              114
              118
              4
              2.45including
              
              126
              133
              7
              2.36
 *  Interval
contains 4 samples with gold analyses greater than 3.0 g/t Au (8.63, 4.58, 4.47
and 5.19 g/t Au)
 **  Interval
contains 6 samples with gold analyses greater than 3.0 g/t Au ( 8.69, 3.69,
3.49, 3.84, 3.67, and 4.26 g/t Au)
 
 In
addition to drilling, additional ground magnetic and IP/resistivity geophysical
surveys have been conducted in the Bulakashu River basin to the west of Severny
where extensions of the Severny structures and alteration halos were
found.  Preliminary results are encouraging and the pattern of
magnetic lows, probably caused by magnetite destruction, are coincident
with IP chargeability highs, probably caused by sulphidization, and are the same
as found at Severny.  The final interpretation and report is in
progress.
 
 -44-
 Eastern Sary Jaz
Property
 
 The
Eastern Sary Jaz Property was acquired by the Company based on its favorable
geological and structural setting for hosting gold mineralization. In November
2005, BMC, the Company’s 100% controlled Kyrgyz subsidiary, was granted an
exploration license for the Eastern Sary Jaz Property in Eastern Kyrgyzstan (the
“Eastern Sary Jaz
Property”).  The Eastern Sary Jaz License gives BMC the
exclusive rights to explore the Eastern Sary Jaz Property for a period of one
year, renewable up to a period of ten years.  The Company’s 2006
exploration contract with the KSAG required that a minimum of US $80,000 be
spent on the Eastern Sary Jaz Property by December of 2006. The Company met this
commitment for 2006, resulting in the renewal of the license for
2007.
 
 In 2007,
the KSAG extended the license period for Eastern Sary Jaz until December 31,
2010. The extension of the license period will be subject to the Company
successfully fulfilling the terms of annual license agreements until 2010. As
per the terms of the 2007 license agreement , the Company was required to incur
a minimum exploration expenditure of 12,207,000 som (approximately USD$305,000)
in 2007.  The Company met its spending requirement.
 
 Property
Description and Location
 
 The
Eastern Sary Jaz Property is defined by License No: AP 303, issued by KSAG and
comprises 912 km2 in size
(the “Eastern Sary Jaz
License”).  Concurrent with the license renewal for 2007, the
Company relinquished 90 km2 of the
license area and subsequently added 140 km2 of new
area, resulting in a revised, contiguous area of 962 km2.. The
boundary of the Eastern Sary Jaz License area is defined by the following
coordinates on the following map prepared by Lakehead Geological Services Inc.
dated December 4, 2007:
 
 
 Corner
              Longitude
                (degrees)
              Latitude
                (degrees)1
              79.54
              42.362
              80.00
              42.373
              80.14
              42.294
              80.03
              42.295
              80.03
              42.256
              79.98
              42.257
              79.98
              42.218
              79.45
              42.219
              79.45
              42.2410
              79.50
              42.2411
              79.50
              42.2712
              79.52
              42.2713
              79.52
              42.2814
              79.55
              42.28





-45-











Accessibility,
Climate, Local Resources, Infrastructure and Physiography





The
Eastern Sary Jaz Property covers an area of 912 square kilometers along the
Kyrgyzstan-Kazakhstan border, approximately 110 east of Centerra Gold Inc.’s
Kumtor Deposit.  The property is accessed by traveling east from town
Karakol approximately 100 kilometers by paved road to the property’s
northwestern boundary and then portions of the property can be accessed by a
network of gravel logging roads that enter the property from its northern
border.  More remote parts of the property are accessed by foot trail
and horse back.  Topography on the property is dominated by rugged
glaciated mountain terrain with elevations ranging from 3,100 to 6,200 meters
above sea level.   Many of the higher peaks are snow covered year
round and glaciers occupy many of the higher valleys.  Alpine type
vegetation occurs at more moderate elevations on the property, giving way to
coniferous forests at lower elevations. There are numerous glacier fed rivers,
streams and lakes on the property.  The property is completely snow
covered from late October to May with temperatures ranging from –30C in the
winter to +15 in the summer.





Geological
Setting and Deposit Types





The
Eastern Sary Jaz Property occurs in the Tien Shan Metallogenic belt which
extends from Uzbekistan in the west, through Tajikistan and Kyrgyzstan into
northwestern China.  The Tien Shan belt of rocks is a major
metallogenic province, which is host to a number of multi-million ounce gold
deposits.  One such deposit, the Kumtor Gold Deposit, is hosted within
Vendian rocks of the Jetymtau Formation consisting of pyritiferous black shales,
phyllite, slate, conglomerate and siltstone, bound by two major northeast
trending structures, the Nickolaev Line to the north and the Atbashi-Inylchek
fault to the south. This sequence of rocks extends northeastward from the Kumtor
Deposit, approximately 110 kilometers, onto the Eastern Sary Jaz
property.





-46-


History





Very
little exploration work has been conducted on the Eastern Sary Jaz Property and
the Company conducted its first exploration program on the property during the
summer for 2006.





Mineral
Resource Estimates





The
Eastern Sary Jaz Property is without known reserves as defined by Guide 7 or NI
43-101 and all current and historic work on the Eastern Sary Jaz Property has
been exploratory in nature.





Exploration





The
Company conducted its first exploration program on the property during the
summer for 2006. During the 2006 field season, field crews were successful in
discovering a series of quartz stockwork occurrences within a three kilometer
long zone of altered black pyritiferous shale.  The shale is capped by
a limestone unit, which has been locally altered, consisting of an assemblage of
fuchsite, pyrite, and quartz.  Over 500 surface chip and grab samples
have been collected. Analytical results received to date from this sampling has
returned assays ranging from nil up to 1.3 g/t Au, up to 69.1 g/t Ag and more
than 5.0% Cu. Based on these results, the Company carried out a small follow-up
exploration program consisting of surface prospecting and
mapping.  The Company has completed the 2007 exploration
program.  Due to the above mentioned legal reasons, the field program
for 2008 has been suspended.





Employees











Organizational
Structure





As
      of the date of this annual report, the Company has seven
      subsidiaries:





1.
            Magellan
      Holdings (BVI) Corp. (“Magellan
      Holdings”), a wholly-owned subsidiary of the Company, incorporated
      under the laws of the British Virgin Islands on May 9,
      2005.  Magellan Holding (BVI) Corp. owns Magellan Gold (BVI)
      Inc. and R.P.I.M. Minerals Ltd.





2.
            Magellan
      Gold (BVI) Inc. (“Magellan
      (BVI)”), a company incorporated under the laws of the British
      Virgin Islands on May 9, 2005. Magellan (BVI) is a wholly-owned subsidiary
      of Magellan Holdings (BVI) Corp. and owns Bulakashu Mining Company Ltd.
      and Centrasia Mining Kazakhstan
Ltd.





3.
            0724000
      B.C. Ltd. (“724
      BC”), a company continued under the laws of British Columbia, which
      is a wholly-owned subsidiary of the Company.  724 BC was
      incorporated as Magellan Gold Corp. on February 4, 2004, under the Nevada
      Business Corporations Act under the name Magellan Gold
      Corp.  724 BC changed its name to Centrasia Mining Corp. and
      continued its corporate jurisdiction from the State of Nevada to the
      Province of British Columbia on May 9, 2005.  On September 14,
      2005, 724 BC changed its name to its current name in connection with the
      724 BC Acquisition.





4.
            Bulakashu
      Mining Company Ltd. (“BMC”), a
      company registered in the Kyrgyz Republic on June 4, 2004.  BMC
      is a wholly-owned subsidiary of Magellan
BVI.





-47-


5.
            Centrasia
      Mining Kazakhstan Ltd. (“Centrasia
      Kazakhstan”) a company registered in the Republic of Kazakhstan in
      April 2006, but inactive until summer 2006.  Centrasia
      Kazakhstan is a wholly-owned subsidiary of Magellan
  BVI.





6.
            R.P.I.M.
      Minerals Ltd. (“RPIM”) a
      company registered in Cyprus on April 28, 2007 to hold the shares of Zao
      Rudprominvest





7.
            Zao
      Rudprominvest (“RPI”), a
      company incorporated in Russia on July 7,
2004.





Organizational
      Chart





Kola
      Mining Corp.
              (British
      Columbia)100%
            
            
            
            
            
            
            100%0724000
      B.C. Ltd.
              (British
      Columbia)
            
            
            
            Magellan
      Holdings (BVI) Corp.
              (British
      Virgin Islands)100%
            
            
            
            
            
            
            
            
            
            100%R.P.I.M.
      Minerals Ltd.
              (Cyprus)
            
            
            
            
            
            Magellan
      Gold (BVI) Corp.
              (British
      Virgin Islands)100%
            
            
            
            
            
            
            
            100%
            
            
            
            
            
            100%Zao
      Rudprominvest
              (Russia)
            
            
            
            Bulakashu
      Mining
              Company
      Ltd.
              (Kyrgyz
      Republic)
            
            
            
            Centrasia
      Mining
              Kazakhstan
      Ltd.
              (Republic
      of Kazakhstan)





Principal
Offices





The
Company’s corporate office is located at Suite #598, 999 Canada Place,
Vancouver, British Columbia, Canada, V6C 3E1.  The corporate office
facility lease runs through April 30, 2013 and requires rent of approximately
$11,000 per month.  The Company plans to sublease this space to
another company in order to reduce its overhead.





The
Company’s subsidiary BMC maintains an office in Bishkek, Kyrgyzstan on a yearly
basis, payable for each subsequent year in full at the rate of US$880 per
month.  The Company is in the process of closing this
office.





The
Company’s subsidiary Centrasia Kazakhstan maintains an office in Almaty,
Kazakhstan, on a month-to-month basis for US$700 a month.  The Company
is in the process of closing this office.





See “Item
7. Major Shareholders and Related Party Transactions - Related Party
Transactions.”





Item
4A.  Unresolved Staff Comments.





Not
applicable.
 
 -48-


Item
5.  Operating and Financial Review and Prospects.





The
following discussion of the results of operations of the Company for the fiscal
years ended May 31, 2008, 2007, and 2006, should be read in conjunction with the
consolidated financial statements of the Company and related notes included
therein.





The
Company’s consolidated financial statements are prepared in accordance with
Canadian GAAP, the application of which, in the case of the Company, conforms in
all material respects for the periods presented with US GAAP except for the
differences referred to in Note 16 of the consolidated financial statements of
the Company included herein.  The noon rate of exchange on
December 1, 2008, reported by the United States Federal Reserve Bank of New York
for the conversion of Canadian dollars into United States dollars was CDN
$0.8084 (US $1.00 = CDN$1.237).  The effects of inflation and price
changes have not had a material impact on the Company’s income or net sales
revenues during the past three years.  Foreign currency fluctuations
have not had a material impact on the Company during the last three fiscal years
and the Company does not engage in any foreign currency hedging
activities.





Overview





The
Company is a junior mineral exploration company actively engaged in the
acquisition, exploration and development of mineral properties located in Kyrgyz
Republic and other countries in Central Asia, Eastern Europe and
Russia.  On September 14, 2005, the Company completed a
recapitalization whereby it purchased all of the issued and outstanding common
shares of 724 BC in exchange for common shares of the Company on a one-for-one
basis (the “Acquisition”).





724 BC’s
principal asset was an agreement (the “Marsa Option”) to
acquire all of the issued and outstanding share capital of BMC, from Marsa Gold
Corp. (“Marsa”), a privately
owned Kyrgyz company.  The sole asset of BMC was a license permitting
the exploration of an area in the north-central part of the Kyrgyz Republic,
covering approximately 240 square kilometers (the “Bulakashu Gold
Property”).  The Marsa Option effectively allowed 724 BC to
acquire its interest in the Bulakashu Gold Property.





The
completion of the Acquisition and issuance of Company shares on the purchase of
$400,000 of indebtedness of 724 BC resulted in the 724 BC shareholders holding
the majority of the combined Company’s issued and outstanding common
shares.  Accordingly, the Acquisition was treated as a reverse
takeover and effective September 14, 2005, the financial statements were treated
for accounting purposes as a recapitalization.





In
November 2005, the Company agreed to reorganize its arrangement to acquire its
interest in the Bulakashu Gold Property, replacing the Marsa Option, whereby BMC
has transferred its ownership interest in Bulakashu Gold Property back to
Marsa.  Marsa then assigned all of its interests to Kantanna Company
Limited (“Kantanna”).  Both
Marsa and Kantanna are owned by Mr. Oleg Kim, a director of the
Company.  As a result, BMC now holds an option to acquire a 100%
interest in the Bulakashu Gold Property from Kantanna under the same terms as
contemplated under the Marsa Option and directly hold the exploration licenses
on the Eastern Sary Jaz Property.  The Company issued 200,000 common
shares to Kantanna as consideration for the Eastern Sary Jaz Property and the
transfer of 100% ownership of BMC to the Company.  In August of 2007,
the Company entered into an amending agreement with Kantanna, pursuant to which
Kantanna agreed to forego the aggregate US$1,890,000 in exploration expenditures
for 2007 and 2008, which was one of the requirements for the Company to acquire
the remaining 62.5% interest in the Bulakashu Property that it had not then yet
acquired. The other requirement was the issuance of 375,000 shares to the
vendor, which the Company has now issued.  Thus the Company acquired
the remaining 62.5% interest in the Bulakashu Property and now owns the entire
Bulakashu Property.





On May
11, 2007, the Company entered into a share purchase agreement to acquire a 100%
interest in the Souker Nickel-Copper deposit, and the Uleeta and Tsaga
Nickel-Copper exploration properties (collectively the “Russian Properties”)
for initial payments of US $6,000,000 and 12,500,000 shares of the Company,
with cash payments of an additional US $5,000,000 in 2008 and US $1,500,000
in 2009.  On July 24, 2007, the Company announced that it had
successfully completed the transaction and acquired a 100% interest in the
Russian Properties through the acquisition of a Cyprus-registered company which
owns a Russian-registered company which owns the Russian
Properties.  The Company made the initial cash payment of US
$6,000,000 and issued 12,500,000 shares of the Company to the vendor, Stargate
Solutions Limited (“Stargate”).  An
initial finders/success fee of US $300,000 cash plus 625,000 shares has
been paid to






-49-




DBM
Capital Partners Ltd. (“DBM”).  The
balance of the cash finders/success fee of US $325,000 will be payable as the
Company makes the balance of the loan payments.  All of the shares
issued for the acquisition and to DBM are subject to an escrow agreement
pursuant to which the shares will be released from escrow in the normal course
over a period of eighteen months.





Subsequent
to May 31, 2008, the Company paid US $5,000,000 of its long-term debt and
US$250,000 of its finders/success fee.





During
fiscal 2008 the Company was made aware of a legal dispute concerning the
ownership of BMC, the Company’s Kyrgyz subsidiary.  BMC holds the
interests in the Bulakashu and Eastern Sary Jaz properties.  Due to
the ongoing legal dispute and the Company’s focus on the Souker Project, as at
May 31, 2008, the Company has determined to cease exploration activities in
Kyrgyzstan and, accordingly, recorded a $3,413,851 write-off of all of its
unproven mineral interest costs pertaining to its Bulakashu and Eastern Sary Jaz
properties.





The
Company derives interest income on its bank deposits and other short-term
deposits, which depend on the Company’s ability to raise funds.  Of
most significance would be further cash received from issuance of shares to fund
ongoing activities.  The Company may require significant additional
financing and there is no assurance that funds will be available on terms
acceptable to the Company or at all.





The
Company’s consolidated financial statements were prepared on a going concern
basis which assumes that the Company will be able to realize its assets and
discharge its liabilities in the normal course of business.





Use
of Estimates





The
preparation of financial statements in conformity with Canadian GAAP requires
management to make estimates and assumptions that affect the reported amount of
assets and liabilities and disclosure of contingent liabilities at the date
of the financial statements, and the reported amounts of revenues and expenses
during the reported period.  Significant areas requiring the use of
management estimates relate to the estimation of stock-based compensation,
the determination of environmental and asset
retirement obligations, impairment of mineral claims and deferred
exploration expenditures, the related rates of amortization and the
determination of future income tax assets and liabilities.  Actual
results could differ from these estimates.





Unproven
Mineral Interests





Acquisition
and exploration costs directly relating to unproven mineral interests are
deferred until the mineral interests to which they relate are placed into
production, sold or abandoned.  The deferred costs will be amortized
over the life of the orebody following commencement of production or written off
if the property is sold or abandoned.  Administration costs and other
exploration costs that do not relate to any specific property are expensed as
incurred.





On a
periodic basis, management reviews the carrying values of deferred unproven
mineral interest acquisition and exploration expenditures with a view to
assessing whether there has been any impairment in value.  Management
takes into consideration various information including, but not limited to,
results of exploration activities conducted to date, estimated future metal
prices, and reports and opinions of outside geologists, mine engineers and
consultants.  When it is determined that a project or interest will be
abandoned or its carrying value has been impaired, a provision is made for any
expected loss on the project or interest.





Although
the Company has taken steps to verify title to mineral interests in which it has
an interest, according to the usual industry standards for the stage of
exploration of such interests, these procedures do not guarantee the Company’s
title.  Such interests may be subject to prior agreements or transfers
and title may be affected by undetected defects.





From time
to time, the Company acquires or disposes of interests pursuant to the terms of
option agreements.  Options are exercisable entirely at the discretion
of the optionee and, accordingly, are recorded as mineral interests costs or
recoveries when the payments are made or received.





-50-


Results
of Operations





On
September 14, 2005, the Company completed all the transactions under the
Acquisition as described in “Recapitalization and Acquisition” and “Selected
Financial Data”.  The Acquisition was treated as a recapitalization
and the consolidated financial statements represent a continuation of the legal
subsidiary, 724 BC as the legal parent.  Accordingly, as a public
company, the Company has experienced a significant increase in costs during
fiscal 2006.





Year
Ended May 31, 2008 Compared to Year Ended May 31, 2007





During
fiscal 2008, the Company recorded a loss of $6,586,225 ($0.13 per share)
compared to a loss of $2,036,069 ($0.10 per share) for fiscal 2007, an increase
in loss of $4,550,156.  The increase in the loss in fiscal 2008 is
mainly attributed to the write-off of unproven mineral interests, increased
activities in fiscal 2008 as a result of increased staffing, and the increase in
non-cash stock-based compensation in fiscal 2008, which was partially offset by
foreign exchange gain on long-term debt.





General
and administrative expenses of $4,102,354 were incurred during fiscal 2008, an
increase of $2,152,561, from $1,949,793 in fiscal 2007.  Specific
expenses of note during fiscal 2008 are as follows:





●
            accounting
      and administrative fees of $81,000 (2007 - $76,850) were charged by Chase,
      a private company controlled by Mr. Nick DeMare, a director of the
      Company;


●
            legal
      fees of $160,779 (2007 - $63,021) were incurred for services provided in
      preparing and reviewing property agreements and on-going legal
      matters;


●
            the
      Company incurred travel costs of $550,977 (2007 - $284,729) for review of
      potential property acquisitions in Central Asia, Russia and Eastern
      Europe, numerous Company site visits and participation in several
      international investment
conferences;


●
            management
      fees totaling $139,300 (2007 - $82,975) was paid to Mr. Douglas, Turnbull,
      the former President of the Company, for his full-time services, of which
      $95,169 (2007 - $46,214) has been expensed as management fees and $44,131
      (2007 - $36,761) has been capitalized to unproven mineral
      interests;


●
            office
      expenses increased by $182,931 from $122,551 in fiscal 2007 to $305,492 in
      fiscal 2008.  The increase is attributed to expenses required to
      maintain offices in Canada, Kazakhstan, Kyrgyz Republic and
      Russia;


●
            audit
      fees of $39,116 (2007 - $16,456) were incurred for the audit of the 2007
      year-end consolidated financial statements.  During fiscal 2007,
      the recorded audit fees were lower due to the change in the basis of
      recording audit fees;


●
            recorded
      $88,676 (2007 - $28,300) for investor relations fees of which $40,000
      (2007 - $nil) was paid to CP Capital Group Ltd. (“CP
      Capital”).  CP Capital is a private company controlled by
      Mr. Cary Pinkowski, the current President and CEO of the
      Company;


●
            recorded
      amortization of $107,213 (2007 - $46,518) on its capital assets in Canada,
      the Kyrgyz Republic, and Russia;


●
            rent
      totaling $101,878 (2007 - $50,706) were paid for rental of office space in
      the Kyrgyz Republic, Kazakhstan, Russia and
  Canada;


●
            corporate
      development expenses totaling $168,284 (2007 - $92,263) were incurred for
      an ongoing market awareness and promotional campaign and participation in
      several international investment
conferences;


●
            salaries
      totaling $575,806 (2007 - $238,980) were paid for increased administrative
      staff in the mining offices in the Kyrgyz Republic, Kazakhstan and
      Russia;


●
            professional
      fees of $239,666 (2007 - $224,382) were paid for services provided by
      consultants in the mining offices in the Kyrgyz Republic, Kazakhstan,
      Russia and Canada;


●
            during
      fiscal 2007, the Company incurred property due diligence costs of $99,242
      to investigate a potential acquisition of a mineral property in
      Kazakhstan; and


●
            recognition
      of $1,501,176 (2007 - $503,400) in non-cash stock based compensation on
      the granting and vesting of stock
options.





As the
Company is in the exploration stage of investigating and evaluating its unproven
mineral interests, it has no revenue.  Interest income is generated
from cash held with the Company’s financial institution.  During
fiscal 2008, the Company reported interest income of $133,131 compared to
$42,993 in fiscal 2007.  The increase is attributed to higher levels
of cash held during fiscal 2008.





-51-


During
fiscal 2008, the Company paid $6,642,344 (US$6,300,000), issued 13,207,615
common shares and long-term debt of US $6,825,000 and incurred $444,305 costs
associated with the RPIM Acquisition.  The Company also was required
to pay a further US $6,500,000 to Stargate and US $325,000 to
DBM.  These debt are non-interest bearing and, as a result, were
recorded at a discount rate of 12% to reflect management’s estimate of the fair
value of the debts at the time of completion of the transaction.  The
debts are being accreted to their face values over the terms of the debts by
recording interest costs.  During fiscal 2008 the Company accreted
$635,260 as interest costs, which have been capitalized to unproven mineral
interests.  The Company also recorded a foreign exchange gain in
fiscal 2008 of $796,849, compared to a foreign exchange loss of $76,908 in
fiscal 2007.  The foreign exchange gain was due to the favourable
effect of the strengthening of the Canadian dollar vis-a-vis the United States
dollar on the Company’s United States denominated debt.  The Company
has also recorded $8,157,000 future income tax liabilities related to the RPIM
Acquisition.  See “Company Overview”, “Exploration Update” and Note 3
to the May 31, 2008 audited consolidated financial statements for further
discussion of the RPIM Acquisition.





During
fiscal 2008, a legal dispute arose concerning the ownership of
BMC.  The dispute has created uncertainty regarding validity of the
Company’s tenureship over its mineral interests held in the Kyrgyz
Republic.  In light of the uncertainty, the Company recorded a
write-off of $3,413,851 relating to its mineral property interests located in
Kyrgyzstan.  During fiscal 2007, the Company recorded a write-off of
$52,361 as a result of its withdrawal from an option agreement on the Turgeldy
Property.





Year
Ended May 31, 2007 Compared to Year Ended May 31, 2006





During
fiscal 2007, the Company recorded a loss of $2,036,069 ($0.10 per share)
compared to a loss of $1,206,667 ($0.10 per share) for fiscal 2006, an increase
in loss of $829,402.  The increase in the loss in fiscal 2007 is
mainly attributed to the ongoing corporate costs as a public reporting and TSXV
listed company, increased activities in fiscal 2007 due to activities relating
to the Company’s increased exploration activities of its unproven mineral
properties, additional costs of ongoing reviews of and due diligence conducted
on potential property acquisitions in Central Asia and Russia and the
impact of non-cash stock-based compensation recognition.





General
and administrative expenses of $1,949,793 were incurred during fiscal 2007, an
increase of $755,307, from $1,194,486 in fiscal 2006.  Specific
expenses of note during fiscal 2007 are as follows:





●
            the
      Company incurred accounting, management and administrative fees of $76,850
      (2006 - $62,358) provided by Chase;


●
            the
      Company incurred legal fees of $63,021 (2006 -
      $93,785).  General legal expenses were incurred in fiscal 2007
      mainly for the preparation of the Form 20F, whereas the Company incurred
      significant legal expenses in fiscal 2006 negotiating the terms of the
      Acquisition;


●
            the
      Company incurred travel costs of $284,729 (2006 - $170,984) for review of
      potential properties in Central Asia, Russia and Eastern Europe, numerous
      Company site visits and the attendance to an investment conference in
      Frankfurt, Germany;


●
            the
      Company incurred total management fees of $82,975 (2006 - $80,500) to
      its President, of which $46,214 (2006 - $67,438) has been recorded as
      management fees and $36,761 (2006 - $13,062) has been capitalized to
      unproven mineral interests or deferred acquisition
  costs;


●
            expenses
      such as regulatory fees, shareholder costs and office expenses have
      increased significantly due to the reporting requirements of a public
      company;


●
            the
      Company incurred corporate development expenses totaling $92,263 (2006 -
      $60,655) for a market awareness and promotional campaign and participation
      in an investment conference in Frankfurt,
  Germany;


●
            the
      Company paid salaries of $238,980 (2006 - $75,193) for the administrative
      staff in the mining offices in the Kyrgyz Republic and
      Kazakhstan;


●
            the
      Company incurred professional fees of $224,382 (2006 - $151,170) mainly
      for administrative services provided by consultants in the mining offices
      in the Kyrgyz Republic, Kazakhstan and
Canada;


●
            the
      Company incurred property due diligence costs of $99,242 (2006 - $170,217)
      due to unsuccessful negotiations on a mineral property in Kazakhstan;
      and


●
            recorded
      $503,400 (2006 - $137,250) in non-cash stock based compensation on the
      vested portions of stock options granted during fiscal
    2007.





-52-


As the
Company is in the exploration stage of investigating and evaluating its unproven
mineral interests, it has no revenue.  Interest income is generated
from cash held with the Company’s financial institution.  During
fiscal 2007, the Company reported interest income of $42,993 compared to $19,455
in fiscal 2006.  The increase is attributed to higher levels of cash
held during fiscal 2007.





During
fiscal 2007, the Company spent $395,319 on exploration activities on its
unproven mineral interests mainly on the Bulakashu Property.  See
“Exploration Update” for further discussion.





During
fiscal 2007, the Company completed a non-brokered private placement of 4,000,000
units for gross proceeds of $2,000,000 and issued 4,904,863 common shares on the
exercise of stock options, warrants and agent options for gross proceeds of
$2,664,078.





Liquidity
and Capital Resources





During
fiscal 2008, the Company received gross proceeds of $12,600,000 on the
completion of a private placement for 10,500,000 units and completed the
RPIM Acquisition whereby it completed the initial cash payment of US $6,000,000
and issued 12,500,000 common shares of the Company to Stargate.  In
addition, the Company paid the initial finder’s fee of US $300,000 and issued
625,000 common shares to DBM.  The Company also issued 82,615 common
shares to a company controlled by a director of the Company as a bonus for
providing a loan of US $500,000 to RPI.  As at May 31, 2008, the
Company had a working capital deficit of $4,612,942.





Subsequent
to May 31, 2008, the Company completed a non-brokered private placement of
33,333,334 units, at a price of $0.30 per unit, for gross proceeds of
$10,000,000.  Each unit comprised one common share and one-half share
purchase warrant, with each full warrant entitling the holder to acquire an
additional common share at $0.45 per share on or before July 15,
2010.  The Company paid a finder’s fee of $250,000 in cash and
issued 833,334 common shares in respect of the private placement.





The
Company subsequently repaid US $5,250,000 of its long-term debt.





The
Company will require additional financing to meet its ongoing levels
of corporate overhead, retire existing liabilities and debt obligations and
implement the required work programs on its mineral interests.  The
Company expects to generate the necessary financial resources through the sale
of equity securities.  The Company’s consolidated financial statements
have been prepared on a going-concern basis which assumes that the Company will
be able to realize assets and discharge liabilities in the normal course of
business.  While the Company has been successful in securing
financings in the past, there can be no assurance that it will be able to do so
in the future.  Accordingly, it does not give effect to adjustments,
if any, that would be necessary should the Company be unable to continue as a
going concern and, therefore, be required to realize its assets and liquidate
its liabilities in other than the normal course of business and at amounts which
may differ from those shown in the consolidated financial
statements.





There are
no restrictions on the use of its cash resources.





There are
no material commitments for capital expenditures during fiscal
2009.





The
Company holds its cash and cash equivalents mainly in Canadian
funds.





Research
and Development





During
fiscal 2008, the Company recorded a total of $41,959,421 on the acquisition and
exploration of its mineral interests in Russia and the Kyrgyz Republic,
comprising:  (i) $34,717,738 attributable to unproven mineral
interests acquired in the RPIM Acquisition; (ii) the issuance of 375,000 common
shares, at a fair value of $405,000 as consideration for the waiver of a
remaining expenditure commitment on the Bulakashu Property; (iii) $635,260 for
the accretion of interest costs on the debts owed to Stargate and DBM; and (iv)
exploration expenditures totaling $6,201,423, of which $3,946,865 was incurred
on the Souker Property.





-53-





During
fiscal 2007, the Company recorded a total of $740,819 on the acquisition and
exploration of its mineral interests in the Kyrgyz Republic, comprising: (i) the
issuance of 200,000 common shares, at a fair value of $96,000, as consideration
for the Eastern Sary Jaz Property;  (ii) the  issuance of
250,000 common shares, at a fair value of $207,500, for an option payment on the
Bulakashu Property;  (iii) the issuance of 60,000 common shares, at a
fair value of $42,000, for an option payment on the Turgeldy Property; and (iv)
exploration expenditures totaling $395,319, of which $304,033 was incurred on
the Bulakashu Property.  The Company also incurred $23,865 for general
exploration activities in fiscal 2007.  During the latter part of
fiscal 2007, the Company investigated and negotiated the RPIM Acquisition, under
which the Company paid a $226,860 non-refundable deposit and incurred a total of
$162,858 for due diligence and professional fees as at May 31,
2007.  These amounts were recorded as deferred acquisition
costs.





Off
Balance Sheet Arrangements





The
Company does not have any material off balance sheet arrangements that have or
are reasonably likely to have a current or future effect on the Company’s
financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital
resources.





Tabular
Disclosure of Contractual Obligations





As of May
31, 2008, the Company had the following long-term debt obligations (in US
dollars):





Payments
      due by periodContractual
      Obligations
            Total
            Less
      than 1 year
            1
      – 3 years
            3
      – 5 years
            More
      than 5 yearsLong-term
      debt due to Stargate
            6,500,000
            5,000,000
            1,500,000
            --
            --Long-term
      debt due to DBM
            325,000
            250,000
            75,000
            --
            --Office
      lease
            649,000
            132,000
            264,000
            253,000
            --TOTAL
            7,474,000
            5,382,000
            1,839,000
            253,000
            --





Governmental
Policies





Except as
set forth in “Item 10.  Additional Information,” there are no
governmental economic, fiscal, monetary or political policies known to the
Company that have materially affected, or could materially affect, directly or
indirectly, the Company’s operations or investments by U.S.
shareholders.








Item
6. Directors, Senior Management and Employees.





Directors
and Senior Management





The
following table sets forth the names, positions held with the Company and terms
of office of each director and officer of the Company as of the date of this
annual report:





Name
            Position
      with the Company
            Term
      of Office (for each office held)Igor
      Kovarsky
            President
              Chief
      Executive Officer
            June
      1, 2008 to present
              June
      1, 2008 to presentMikhail
      Yuryev
            Chairman
              Director
            November
      20, 2008 to present
              November
      20, 2008 to presentNick
      DeMare
            Chief
      Financial Officer
              Director
            September
      24, 2003 to present
              October
      27, 2002 to presentGrigory
      A. Aleksenko
            Director
            July
      24, 2007 to presentSergey
      Makarov
            Director
            November
      20, 2008 to presentCary
      Pinkowski
            Director
            September
      14, 2005 to present






-54-




Name
            Position
      with the Company
            Term
      of Office (for each office held)


Oleg
      Kim
            Vice-President
      of Operations
            July
      3, 2007 to presentWilliam
      J. Tafuri
            Vice-President
      of Exploration
            September
      14, 2005 to presentDarrell
      Podowski
            Corporate
      Secretary
            November
      20, 2008 to present





Directors
are elected at each annual general meeting of the shareholders of the Company
and serve until the next annual general meeting or until their successors are
elected or appointed, unless his/her office is earlier vacated in accordance
with the Articles of the Company, or with the provisions of the Business
Corporations Act (British Columbia).  The Company does not have an
executive committee or a compensation committee. The Company’s audit committee
is responsible for reviewing the Company’s financial statements before they are
approved by the Company’s directors.





There are
no family relationships between any directors or executive officers of the
Company.  To the best of the Company’s knowledge, there are no
arrangements or understandings with major shareholders, customers, suppliers, or
others, pursuant to which any of the Company’s officers or directors was
selected as an officer or director of the Company.





Set forth
below are brief descriptions of recent employment and business experience of the
Company’s officers and directors.





Igor
Kovarsky (Age 51), President and Chief Executive Officer





Mr.
Kovarsky has almost 30 years of experience in the construction and mineral
sectors in exploration, engineering, development and
operations.  Since 1992, he worked with Centerra Gold Inc. and Cameco
Gold in various roles including Director and Vice-President, Government Affairs
& Business Development.  Mr. Kovarsky worked for 15 years with
various organizations in the former Soviet Union, including the Moscow regional
government as Chief of the Construction Department.  Mr. Kovarsky
spent years cultivating extensive relationships with the most influential
decision-makers at all levels of government in the former Soviet Union, Central
Asia, Mongolia and North America.   Mr. Kovarsky received his
Masters in Civil/Structural Engineering from Moscow Technical University (MADI)
in 1980, and Diploma in Foreign Relations & International Politics from
Moscow Political University in 1985.  He completed the Queen’s
Strategy Program at Queen’s School of Business, Queen’s University, Canada in
2005, and the Ivey Leadership Program at Richard Ivey School of Business,
University of Western Ontario, Canada in 2004.  He is a member of the
Prospectors and Developers Association of Canada.  He was made an
Honorary Miner of Kyrgyz Republic and Mongolia in 1998 and 2004
respectively.





Mikhail
Yuryev (Age 49), Chairman of the Board and Director





Mr.
Yuryev has been the Chief Executive Officer of Cvetmetholding Ltd., an
investment company specializing in mining projects in Russia and the
Commonwealth of the Independent States, since 2007. From 2005 to 2007, he was
the Chairman of the board of directors of Joint Stock Company Eurofinance Group,
an investment company with a diversified portfolio of projects from various
industries.  Before that, from 2003 to 2005, Mr. Yuryev was the
Chairman of the Board of the Investment and Industrial Group Eurasia, an
investment company with projects in construction, energy and finance
sectors.  He was the Deputy Speaker of the Duma for the Russian
Federation from 1996 to 1999.  In addition, Mr. Yuryev has
approximately ten years of experience dealing with Russian mining and oil and
gas companies.





Nick
DeMare (Age 54), Chief Financial Officer and Director





Mr.
DeMare holds a Bachelor of Commerce degree from the University of British
Columbia and is a member in good standing of the Institute of Chartered
Accountants of British Columbia.  Mr. DeMare devotes approximately
10-15% of his time (approximately 4-6 hours per week) to the affairs of the
Company.  Since May, 1991, Mr. DeMare has been the President of Chase
Management Ltd., a private company which provides a broad range of
administrative, management and financial services to private and public
companies engaged in mineral exploration and development, gold and silver
production, oil and gas exploration and production and venture
capital.  Mr. DeMare indirectly owns 100% of Chase.  Mr.
DeMare currently serves as an officer and/or director of Aguila American
Resources Ltd., Andean American Mining






-55-




Corp.,
Astral Mining Corporation, Atlas Minerals Inc., Ausex Capital Corp., Enterprise
Oil Limited, GeoPetro Resources Company, GGL Diamond Corp., Golden Peaks
Resources Ltd., Halo Resources Ltd., Lariat Energy Ltd., Lumex Capital Corp.,
Mawson Resources Limited, Mirasol Resources Ltd., Rochester Resources Ltd.,
Salazar Resources Limited, Sinchao Metals Corp., Tinka Resources Limited and
Tumi Resources Limited.  See “Item 7.  Major Shareholders
and Related Party Transactions - Related Party Transactions - Conflicts of
Interest.”





Grigory
A. Aleksenko (Age 39), Director





Mr.
Aleksenko is the managing partner and cofounder of AGA Management Ltd. AGA
Management Ltd., a leading, Moscow based consulting company specializing in
Russian financial and mergers and acquisitions (“M&A”) markets and
played an instrumental role in the acquisition of the Russian Properties as
agent for the vendor. He has more than nine years of professional experience in
M&A, strategic consulting and restructuring projects for international
corporations with Bain & Company (Moscow-Johannesburg-Sydney) and two years
as a manager with the investment banking division of Renaissance Capital. Mr.
Aleksenko graduated from Moscow State University and has an MBA from
the International School of Business, INSEAD.





Sergey
Makarov (Age 53), Director





Dr.
Sergey Makarov has been the General Director and co-founder of Closed Joint
Stock Company NPO Gimein, a company that promotes geological projects in Russia,
since 1992.  He was the President of Stargate from April 11, 2007 to
November 25, 2008.  Dr. Makarov has more than 20 years of experience
in environmental monitoring and environmental protection in different regions of
Russia, including the Kola Peninsula, and has wide experience as an entrepreneur
developer of the mining projects in Russia.  He is a graduate of
Moscow State University (1977) and holds a PhD in Geography
(1986).  Dr. Makarov’s experience includes being the head of the
Research Division in the Central Institute (Research Center) of the Russian
Federal Agency of Hydrometeorology and Environmental Protection.





Cary
Pinkowski (Age 38), Director





Mr.
Pinkowski has fifteen years of experience in dealing with North American and
European capital markets. Mr. Pinkowski was an investment adviser with Canaccord
Capital Corporation from June 1992 to November 2004. During this time Mr.
Pinkowski specialized in venture and resource company financings and maintained
a large retail and institutional clientele. Since December 2004, Mr. Pinkowski
has acted as a business and corporate development advisor to Entrée Gold
Inc.   See “Item 7.  Major Shareholders and Related
Party Transactions - Related Party Transactions - Conflicts of
Interest.”





Oleg
Kim (Age 49), Vice-President of Operations




Mr. Kim
is a Kyrgyz national. Mr. Kim has been the principal of Marsa Gold since 2003
and the General Director of BMC since July 2004. Mr. Kim has graduate and post
graduate qualifications in geology from Russia and Uzbekistan and further
qualifications in economics from McGill University. From 1985 to 1992 Mr.
Kim worked for a number of state geology organizations in the
Kyrgyz Republic and subsequently Kyrgyzaltyn, the principal mining state in
the Kyrgyz Republic. Mr. Kim was involved from 1993 until 2000 with the
development of the Kumtor gold deposit joint venture with Cameco Corporation and
in 1998 became exploration manager at Kumtor in charge of the major continuing
exploration program for this gold mine. Mr. Kim was also generally responsible
for Cameco’s CIS (former Soviet Union) exploration programs. Since 1992 Mr. Kim
has developed his own business interests in gold exploration and productions.
Since June 2004, Mr. Kim has been a General Director of Andash Mining Company in
the Kyrgyz Republic.  Mr. Kim has also held a controlling
interest in Kantanna since its inception in late 2004.  See “Item
7.  Major Shareholders and Related Party Transactions - Related Party
Transactions - Conflicts of Interest.”  Mr. Kim devotes at least 50%
of his time (approximately 20 hours per week) to the business and affairs of
BMC.





William
J. Tafuri (Age 67), Vice-President of Exploration





Dr.
Tafuri has a Ph.D. in geology and over 30 years of mining and exploration
experience in precious and base metals. In addition to Dr. Tafuri’s consulting
experience, he has worked for number of major international and mining companies
including Phelps Dodge Corporation, Santa Fe Pacific Gold Corporation, Kinross
Gold Corporation and Getty Mining. Prior to 1995, Dr. Tafuri worked primarily in
the western United States, as an exploration geologist early in his career and
ultimately as the Western U.S. Exploration Manager of Getty Mining.




-56-




From 1995
to 1998, Dr. Tafuri served as regional geologist for Santa Fe Pacific Gold
Corporation in Kazakhstan. For the year following, Dr. Tafuri served as senior
geologic advisor to Phelps Dodge Corporation in Kazakhstan and Russia assisting
with exploration, negotiation and acquisition of new projects. From 1999 to
2001, Dr. Tafuri worked for Kinross Gold Corporation principally involved with
the evaluation of projects in Russia, North and South America. Since 2001, Dr.
Tafuri has focussed on his consulting business, mainly conducting property
evaluations in Kazakhstan.  Dr. Tafuri is a member of the Society of
Economic Geologists and the Geological Society of America. See “Item
7.  Major Shareholders and Related Party Transactions - Related Party
Transactions - Conflicts of Interest.”  Dr. Tafuri devotes a portion
of his time to the affairs of the Company.





Darrell
Podowski (Age 46), Secretary





Mr.
Podowski is a business and securities lawyer with over 15 years of experience in
British Columbia and internationally, whose practice concentrates on the mining
resource and technology industries.  He has been with the firm of Lang
Michener LLP and became a partner in 2008.  Previously, Mr. Podowski
practiced law in British Columbia and Bermuda.  He was also corporate
counsel with Teck Cominco Limited from 2001 to 2004.  Apart from his
legal education, Mr. Podowski has a bachelor of science degree in Geophysics
from the University of British Columbia.  Mr. Podowski’s duties as
corporate Secretary of the Company do not require substantial time.





Compensation





Pursuant
to a management services agreement by and among the Company, Lakehead Geological
Services, Inc. (“Lakehead”) and
Douglas Turnbull dated September 1, 2007 (the “Lakehead Agreement”),
the Company retained Lakehead to provide management services to the Company, to
include the services of Douglas Turnbull as President of the
Company.  Lakehead is a private corporation owned by Mr.
Turnbull.





Pursuant
to the Lakehead Agreement, Mr. Turnbull agreed to spend approximately ninety
percent of his working hours, or up to 36 hours per week, working for the
Company.  In consideration for the services provided by Lakehead, the
Company agreed to pay Lakehead $12,500 per month.  Mr. Turnbull
resigned as the President and CEO on March 11, 2008 and the Lakehead Agreement
terminated June 1, 2008.  During the fiscal years ended May 31, 2008
and 2007, the Company was billed a total of $139,300 and $82,975, respectively,
by Lakehead for Mr. Turnbull’s services.





During
fiscal 2007, the Company was billed $97,513 for professional services provided
by William Tafuri, an officer of the Company, and $112,695 for legal services
provided by James Harris, then the Corporate Secretary of the
Company.  As at May 31, 2006, $34,751 remained outstanding and was
included in accounts payable and accrued liabilities.





Additionally,
pursuant to a consulting agreement, (the “Tafuri Agreement”),
between the Company and William Tafuri dated December 1, 2005, the Company
retained Dr. Tafuri to act as its Vice-President of Exploration and Director of
Operations, Asia effective as of December 1, 2005. The term of the Tafuri
Agreement was for an initial period of one year expiring on December 1, 2006,
subject to earlier termination in accordance with the agreement.  The
Tafuri Agreement is automatically renewed for successive one-year periods at the
end of the initial term of the agreement, unless either party gives to the other
written notice of non-renewal at least 90 days in advance of the expiration date
of the then current term.  The Company was billed $88,378 for Dr.
Tafuri’s services for fiscal 2008.





During
fiscal 2006, Oleg Kim, a director of the Company and principal of Marsa and
Kantanna, received US $60,300 in compensation from the Company. Additionally,
pursuant to a consulting agreement (the “Kim Agreement”)
between the Company’s subsidiary BMC and Oleg Kim dated November 23, 2005, BMC
has retained Mr. Kim to act as its General Director effective as of December 1,
2005. The term of the Kim Agreement was for an initial period of one year
expiring on December 1, 2006, subject to earlier termination in accordance with
the agreement.  The Kim Agreement is automatically renewed for
successive one-year periods at the end of the initial term of the agreement,
unless either party gives to the other written notice of non-renewal at least 90
days in advance of the expiration date of the then current term.  Mr.
Kim agreed to spend approximately fifty percent of his working hours working for
BMC.  In consideration for the services provided by Mr. Kim to BMC,
BMC pays Mr. Kim a base salary of $48,000 annually.  In addition, he
receives $3000 per month from the Company.





-57-


The
Company is required, under applicable securities legislation in Canada, to
disclose to its shareholders details of compensation paid to its directors and
officers.  The following fairly reflects all material information
regarding compensation paid by the Company to the persons who were serving as
its directors and officers as of May 31, 2008, which information has been
disclosed to the Company’s shareholders in accordance with applicable Canadian
law.





Summary
Compensation Table





“Named
Executive Officer” means each Chief Executive Officer (“CEO”) and each Chief
Financial Officer (“CFO”) of the Company,
regardless of the amount of compensation of that individual, and each of the
Company’s three most highly compensated executive officers, other than the CEO
and CFO, who were serving as executive officers at the end of the most recently
completed financial year and whose total salary and bonus exceeds $150,000. In
addition, disclosure is also required for any individual whose total salary and
bonus during the most recent completed year exceeds $150,000, whether or not
they were an executive officer at the end of the most recent fiscal
year.





During
the financial year ended May 31, 2008, the Company had three Named Executive
Officers, Mr. Douglas Turnbull, the Company’s former President and CEO, Mr. Cary
Pinkowski, the Company’s former President and CEO, and Mr. Nick DeMare, the
Company’s CFO.  The following table sets forth all annual and
long-term compensation awarded, paid to or earned by the Company’s Named
Executive Officers during the financial years ended May 31, 2006, 2007 and
2008.





Annual
      Compensation
            Long
      Term CompensationAwards
            PayoutsName
      and
              Principal
      Position
            Year(1)
            Salary
              ($)
            Bonus
              ($)
            Other
              Annual
              Compen-
              sation
              ($)
            Securities
              Under
              Options/SARS
              Granted
              (#)(2)
            Restricted
              Shares
      or
              Restricted
              Share
              Units
              ($)
            LTIP
              Payouts
              ($)
            All
              Other
              Compen-
              sation
              ($)Douglas
      Turnbull(3)(4)
              former
      President & CEO
            2008
              2007
              2006
            139,300(5)
              82,975(5)
              61,025(5)
            nil
              nil
              nil
            nil
              nil
              nil
            300,000
      / nil
              nil
      / nil
              300,000
      / nil
            n/a
              n/a
              n/a
            n/a
              n/a
              n/a
            nil
              14,776(6)
              nilCary
      Pinkowski(4)
              former
      President &
              CEO
            2008
              2007
              2006
            25,000
              n/a
              n/a
            nil
              n/a
              n/a
            nil
              n/a
              n/a
            525,000
              n/a
              n/a
            n/a
              n/a
              n/a
            n/a
              n/a
              n/a
            40,000(7)
              n/a
              n/aNick
      DeMare(3)
              CFO
            2008
              2007
              2006
            nil
              nil
              nil
            nil
              nil
              nil
            nil
              nil
              nil
            100,000
      / nil
              40,000
      / nil
              300,000(9)
      / nil
            n/a
              n/a
              n/a
            n/a
              n/a
              n/a
            81,000(8)
              76,850(8)
              86,458(8)





NOTES:


(1)
            Fiscal
      year ended May 31.


(2)
            Represents
      stock options granted during a particular year.  See “Options
      and Other Rights to Acquire
Securities”.


(3)
            On
      September 14, 2005, Mr. DeMare resigned as President and CEO of the
      Company.  Mr. Douglas Turnbull was appointed as President and
      CEO to fill the vacancy.


(4)
            On
      March 11, 2008, Mr. Turnbull resigned as President and CEO of the Company
      and Mr. Pinkowski, the Chairman of the Company, was appointed as President
      and CEO of the Company to fill the vacancy.  On June 1, 2008,
      Mr. Pinkowski resigned as the President and CEO of the Company and Mr.
      Kovarsky was appointed as the President and CEO of the Company to fill the
      vacancy.


(5)
            Billed
      by Lakehead Geological Services Inc., a private corporation owned by Mr.
      Douglas Turnbull, for services provided by Mr.
  Turnbull.




-58-




(6)
            Billed
      by Colourworks Presentation Inc., a private corporation owned by the
      spouse of Mr. Turnbull, for professional
  services.


(7)
            Billed
      by GP Capital Group Ltd., a private corporation owned by Mr. Pinkowski,
      for professional services rendered.


(8)
            Paid
      to Chase.  Chase personnel provides accounting, professional,
      secretarial and administrative services to the Company.  See
      also “Management Contracts”.


(9)
            Includes
      25,000 stock options granted to
Chase.





Long Term Incentive Plan Awards -
Award in Most Recently Completed Financial Year





The
Company has no long-term incentive plans in place and therefore there were no
awards made under any long-term incentive plan to the Name Executive Officers
during the Company’s most recently completed financial year. A “Long-Term
Incentive Plan” is a plan under which awards are made based on performance over
a period longer than one financial year, other than a plan for options, SARs
(stock appreciation rights) or restricted share compensation.





Options
and Share Appreciation Rights





The
following table sets forth stock options granted by the Company during the
financial year ended May 31, 2008 to the Named Executive Officers of the
Company:





Name
            Securities
      Under Options Granted (#)
            %
      of Total Options Granted in Financial Year(1)
            Exercise
      or Base Price(2)
              ($/Security)
            Market
      Value of Securities Underlying Options on Date of Grant
              ($/Security)
            Expiration
              DateDouglas
      Turnbull
            300,000
            9.82%
            1.20
            1.20
            Oct.
      26/12Cary
      Pinkowski
            200,000
              325,000
              525,000
            6.55%
              10.64%
              17.19%
            1.71
              1.20
            1.71
              1.20
            May
      18/12
              Oct.
      26/12Nick
      DeMare
            100,000
            3.27%
            1.20
            1.20
            Oct.
      26/12





NOTES:


(1)
            Percentage
      of all stock options granted during the financial
  year.


(2)
            The
      exercise price of stock options was set accordingly to the rules of the
      TSX Venture.  The exercise price of stock options may only be
      adjusted in the event that specified events cause dilution of the
      Company’s share capital.





The
following table sets forth details of all exercises of stock options during the
financial year ended May 31, 2008 by the Named Executive Officers, and the
financial year end value of unexercised options:





Name
            Securities
      Acquired on Exercise
              (#)
            Aggregate
      Value Realized
              ($)
            Unexercised
              Options/SARs
      at
              Financial
      Year -End
              Exercisable
      / Unexercisable
              (#)
            Value
      of Unexercised in the Money Options at
              Financial
      Year -End(1)
              Exercisable
      / Unexercisable
              ($)Douglas
      Turnbull
            nil
            n/a
            600,000
      / n/a
            30,000
      / n/aCary
      Pinkowski
            nil
            n/a
            925,000
      / n/a
            40,000
      / n/aNick
      DeMare
            nil
            n/a
            440,000(2)
      / n/a
            30,000
      / n/a





NOTES:


(1)
            The
      closing price of the Company’s common shares on May 31, 2008 was
      $0.30.


(2)
            Includes
      25,000 options granted to Chase.





-59-


Termination
of Employment, Change in Responsibilities and Employment Contracts





The
Company does not have any compensatory plan(s), contract(s) or arrangement(s)
with respect to the resignation, retirement or any other termination of the
Named Executive Officers’ employment, a change of control of the Company or a
change in the Named Executive Officers’ responsibilities following a change in
control, which entitle a Named Executive Officer to receive from the Company an
amount, including all period payments or installments, exceeding
$100,000.





Compensation
of Directors





Cash
Compensation





During
the financial year ended May 31, 2008, the Company paid US$48,454 salaries and
$41,526 for professional fees to Mr. Oleg Kim, a director who is not a Named
Executive Officer of the Company.





Non-cash
Compensation





The
following table sets forth stock options granted by the Company during the
financial year ended May 31, 2008 to the current and former directors who are
not the Named Executive Officers of the Company:





Name
            Securities
              Under
              Options/SARs
              Granted
              (#)
            %
      of Total
              Options/SARs
              Granted
      in
              Financial
      Year
              (%)
            Exercise
      or
              Base
      Price
              ($/Security)
            Market
      Value of
              Securities
              Underlying
              Options/SARs
      on
              the
      Date of Grant
              ($/Security)
            Expiration
              DateDirectors,
      as a group,
              who
      are not the Named Executive Officers
            500,000
              100,000
              350,000
              950,000
            16.37%
              3.27%
              11.46%
              31.10%
            1.20
              1.20
              1.20
            0.96
              1.20
              1.20
            Jul.
      24/12
              Aug.
      04/12
              Oct.
      26/12





The
following table sets forth details of all exercises of stock options during the
financial year ended May 31, 2008 by the current and former directors who are
not the Named Executive Officers, and the financial year end value of
unexercised options:





Name
            Securities
      Acquired on Exercise
              (#)
            Aggregate
      Value Realized
              ($)
            Unexercised
              Options/SARs
      at
              Financial
      Year -End
              Exercisable
      / Unexercisable
              (#)
            Value
      of Unexercised in the Money Options at
              Financial
      Year -End(1)
              Exercisable
      / Unexercisable
              ($)Directors,
      as a group,
              who
      are not the Named Executive Officers
            nil
            n/a
            1,275,000
      / n/a
            27,500
      / n/a





NOTE:


(1)
            The
      closing price of the Company’s common shares on May 31, 2008 was
      $0.30.





Securities
Authorized For Issuance Under Equity Compensation Plans





The
following table sets out, as of the end of the Company’s financial year ended
May 31, 2008, all information required with respect to compensation plans under
which equity securities of the Company are authorized for issuance:





-60-


Number
      of Securities to be Issued Upon Exercise of Outstanding Options, Warrants
      and Rights
            Weighted-Average
              Exercise
      Price of Outstanding Options, Warrants and Rights
            Number
      of Securities Remaining Available for Future Issuance
              Under
      Equity Compensation Plans (Excluding Securities
              Reflected
      in Column (a))Plan
      Category
            (a)
            (b)
            (c)Equity
      compensation plans approved by securityholders
            6,175,000(1)
            0.79
            See
      Note (1)Equity
      compensation plans not approved by securityholders
            n/a
            n/a
            n/aTotal
            6,175,000
            0.79
            See
      Note (1)





NOTE:


(1)
            The
      Company currently has in place a fixed stock option plan (the “Plan”) whereby
      the maximum number of common shares that may be reserved for issuance
      pursuant to the Plan was set at 10,777,000 shares, being 20% of the issued
      shares of the Company on or about the date the Plan was approved by
      shareholders, and 1,502,000options remain available for grant under the Plan as so
      approved.  See also “Particulars of Other Matters to be Acted
      Upon – A. Amendment of Stock Option
Plan”.





Indebtedness
of Directors, Executive Officers and Senior Officers





At no
time during the Company’s last completed financial year, was any director,
executive officer or senior officer of the Company, proposed management nominee
for election as a director or each associate or affiliate of any such director,
executive or senior officer or proposed nominee indebted to the Company or any
of its subsidiaries or indebted to another entity where such indebtedness was or
has been the subject of a guarantee, support agreement, letter of credit or
other similar arrangement or understanding provided by the Company or any of its
subsidiaries, other than routine indebtedness.





Board
Practices





Audit
Committee





The Audit Committee
Charter





Mandate





The
primary function of the audit committee (the “Committee”) is to assist the board
of directors in fulfilling its financial oversight responsibilities by reviewing
the financial reports and other financial information provided by the Company to
regulatory authorities and shareholders, the Company’s systems of internal
controls regarding finance and accounting and the Company’s auditing, accounting
and financial reporting processes. The Committee’s primary duties and
responsibilities are to:





●
            Serve
      as an independent and objective party to monitor the Company’s financial
      reporting and internal control system and review the Company’s financial
      statements.


●
            Review
      and appraise the performance of the Company’s external
      auditors.


●
            Provide
      an open avenue of communication among the Company’s auditors, financial
      and senior management and the board of
  directors.





Composition





The
Committee shall be comprised of three directors as determined by the board of
directors, the majority of whom shall be free from any relationship that, in the
opinion of the board of directors, would interfere with the exercise of his
independent judgment as a member of the Committee. At least one member of the
Committee shall have accounting or




-61-




related
financial management expertise. All members of the Committee that are not
financially literate will work towards becoming financially literate to obtain a
working familiarity with basic finance and accounting practices. For the
purposes of the Audit Committee Charter, the definition of “financially
literate” is the ability to read and understand a set of financial statements
that present a breadth and level of complexity of accounting issues that are
generally comparable to the breadth and complexity of the issues that can
presumably be expected to be raised by the Company’s financial
statements.





The
members of the Committee shall be elected by the board of directors at its first
meeting following the annual shareholders’ meeting. Unless a Chair is elected by
the full board of directors, the members of the Committee may designate a Chair
by a majority vote of the full Committee membership.





Meetings





The
Committee shall meet a least twice annually, or more frequently as circumstances
dictate. As part of its job to foster open communication, the Committee will
meet at least annually with the Chief Financial Officer and the external
auditors in separate sessions.





Responsibilities
and Duties





To
fulfill its responsibilities and duties, the Committee shall:





Documents/Reports
Review





(a)
            Review
      and update the Charter annually.


(b)
            Review
      the Company’s financial statements, MD&A and any annual and interim
      earnings, press releases before the Company publicly discloses this
      information and any reports or other financial information (including
      quarterly financial statements), which are submitted to any governmental
      body, or to the public, including any certification, report, opinion, or
      review rendered by the external
auditors).





External
Auditors





(a)
            Review
      annually, the performance of the external auditors who shall be ultimately
      accountable to the board of directors and the Committee as representatives
      of the shareholders of the Company.


(b)
            Recommend
      to the board of directors the selection and, where applicable, the
      replacement of the external auditors nominated annually for shareholder
      approval.


(c)
            Review
      with management and the external auditors the audit plan for the year-end
      financial statements and intended template for such
      statements.


(d)
            Review
      and pre-approve all audit and audit-related services and the fees and
      other compensation related thereto, and any non-audit services, provided
      by the Company’s external auditors.  Provided the pre-approval
      of the non-audit services is presented to the Committee’s first scheduled
      meeting following such approval such authority may be delegated by the
      Committee to one or more independent members of the
    Committee.





Financial Reporting
Processes





(a)
            In
      consultation with the external auditors, review with management the
      integrity of the Company’s financial reporting process, both internal and
      external.


(b)
            Consider
      the external auditors’ judgments about the quality and appropriateness of
      the Company’s accounting principles as applied in its financial
      reporting.


(c)
            Consider
      and approve, if appropriate, changes to the Company’s auditing and
      accounting principles and practices as suggested by the external auditors
      and management.


(d)
            Following
      completion of the annual audit, review separately with management and the
      external auditors any significant difficulties encountered during the
      course of the audit, including any restrictions on the scope of work or
      access to required information.


(e)
            Review
      any significant disagreement among management and external auditors in
      connection with the preparation of the financial
    statements.






-62-




(f)
            Review
      with the external auditors and management the extent to which changes and
      improvements in financial or accounting practices have been
      implemented.


(g)
            Review
      any complaints or concerns about any questionable accounting, internal
      accounting controls or auditing
matters.


(h)
            Review
      certification process.


(i)
            Establish
      a procedure for the confidential, anonymous submission by employees of the
      Company of concerns regarding questionable accounting or auditing
      matters.





Other





Review
any related-party transactions.





Composition of the Audit
Committee





The
following are the members of the Committee:





Independent
      (1)
            Financially
      Literate (1)Nick
      DeMare
            N
            YGrigory
      Aleksenko
            Y
            YSergey
      Makarov
            Y
            Y





NOTE:


(1)
            As
      defined by Multilateral Instrument 52-110 (“MI
  52-110”).





Relevant Education and
Experience





Nick
DeMare is a Chartered Accountant with significant experience working with
resource issuers as a chief financial officer and as an officer or director of
numerous reporting companies. Grigory Aleksenko is the managing partner and
cofounder of AGA Management Ltd., a leading, Moscow based consulting company
specializing in Russian financial and M&A markets.  Sergey Makarov
is the General Director and co-founder of Closed Joint Stock Company NPO Gimein,
a company that promotes geological projects in Russia, since 1992.  As
such each has acquired knowledge and understanding of the financial issues and
accounting principles that are relevant in assessing this Company’s financial
disclosures and internal control systems.





Audit Committee
Oversight





At no
time since the commencement of the Company’s most recently completed financial
year was a recommendation of the Committee to nominate or compensate an external
auditor not adopted by the board of directors.





Reliance on Certain
Exemptions





At no
time since the commencement of the Company’s most recently completed financial
year has the Company relied on the exemption in Section 2.4 of MI 52-110 (De
Minimis Non-audit Services), or an exemption from MI 52-110, in whole or in
part, granted under Part 8 of Multilateral Instrument 52-110.





Pre-Approval Policies and
Procedures





The
Committee has adopted specific policies and procedures for the engagement of
non-audit services as described above under the heading “External Auditors”
above.





Remuneration
Committee





The
Company does not have a separate Remuneration Committee.





-63-


Employees





Including
the Company’s officers, as of the date of this annual report, the Company has
two full-time employees and one part-time employee.  Corporate
accounting, management and administration were provided, in part, by Chase, a
company owned by Mr. Nick DeMare.  Chase provides its services to a
number of public and private companies and currently employs seven full-time
employees, (excluding Mr. DeMare).





The
Company also retains consultants to handle specific projects on a case-by-case
basis.  In the event the Company needs to employ personnel, it will
need to recruit qualified personnel to staff its operations.  The
Company believes that such personnel currently are available at reasonable
salaries and wages in the geographic areas in which the Company and its
subsidiaries operate.  There can be no assurance, however, that such
personnel will be available in the future.









See Item
6. Directors, Senior Management and Employees – Compensation” and “Item 4.
Information on the Company - Employees.”





Share
Ownership





The
following table sets forth certain information regarding ownership of the
Company’s shares by the Company’s officers and directors as of November 30,
2008.





Title
      of Class
            Name
      of Owner
            Shares
      and Rights Beneficially Owned or Controlled (1)
            Percent
      of Class (1)Common
      Stock
            Igor
      Kovarsky
            1,000,000
      (2)
            1.1%Common
      Stock
            Mikhail
      Yuryev
            0
            --Common
      Stock
            Nick
      DeMare
            830,149 (3)
            0.9%Common
      Stock
            Grigory
      A. Aleksenko
            820,000 (4)
            0.9%Common
      Stock
            Sergey
      Makarov
            0
            --Common
      Stock
            Cary
      Pinkowski
            5,968,214
      (5)
            6.6%Common
      Stock
            Oleg
      Kim
            1,400,000
      (6)
            1.6%Common
      Stock
            William
      J. Tafuri
            950,000 (7)
            1.1%Common
      Stock
            Darrell
      Podowski
            0
            --Common
      Stock
            TOTAL
      GROUP (9 persons)
            11,073,213 (8)
            11.8%





NOTES:


(1)
            Where
      persons listed on this table have the right to obtain additional shares of
      common stock through the exercise of outstanding options or warrants
      within 60 days from November 30, 2008, these additional shares are deemed
      to be outstanding for the purpose of computing the percentage of common
      stock owned by such persons, but are not deemed to be outstanding for the
      purpose of computing the percentage owned by any other
      person.  Based on 88,004,125 shares of common stock outstanding
      as of November 30, 2008.


(2)
            Options
      held by Mr. Kovarsky to acquire 1,000,000
  shares.


See
      “Item 6. Directors, Senior Management and Employees - Options, Warrants
      and Other Rights to Acquire
Securities.”


(3)
            Includes
      the following shares, options and warrants beneficially owned by Mr.
      DeMare:


a.
            9,000
      shares held by Mr. DeMare;


b.
            25,425
      shares held by Chase Management Ltd. (“Chase”), a company owned by Mr.
      DeMare;


c.
            255,724
      shares held by DNG Capital Corp., a company owned by Mr.
      DeMare;


d.
            options
      held by Mr. DeMare to acquire 515,000 shares;
  and


e.
            options
      held by Chase to acquire 25,000
shares.


See
      “Item 6. Directors, Senior Management and Employees - Options, Warrants
      and Other Rights to Acquire
Securities.”


(4)           Options
held by Mr. Aleksenko to acquire 820,000 shares.


See
      “Item 6. Directors, Senior Management and Employees - Options, Warrants
      and Other Rights to Acquire
Securities.”


(5)
            Includes
      the following shares, options and warrants beneficially owned by Mr.
      Pinkowski:




-64-




a.
            2,625,600
      shares held by Mr. Pinkowski;


b.
            1,065,948
      shares held by Prussian Capital Corp. (“Prussian”), a company owned by Mr.
      Pinkowski;


c.
            options
      held by Mr. Pinkowski to acquire 1,200,000
  shares;


d.
            warrants
      held by Mr. Pinkowski to acquire 779,250 shares;
  and


e.
            warrants
      held by Prussian to acquire 297,416
shares.


See
      "Item 6. Directors, Senior Management and Employees - Options, Warrants
      and Other Rights to Acquire Securities."(6)
              Includes
      the following shares and options beneficially owned by Mr.
      Kim:


a.
            850,000
      shares held by Kantanna, a company controlled by Mr. Kim;
    and


b.
            options
      held by Mr. Kim to acquire 550,000
shares.


See
      “Item 6. Directors, Senior Management and Employees - Options, Warrants
      and Other Rights to Acquire
Securities.”


(7)
            Includes
      the following shares, options and warrants beneficially owned by Dr.
      Tafuri:


a.
            400,000
      shares held by Dr. Tafuri; and


b.
            options
      held by Dr. Tafuri to acquire 550,000
shares.


See
      “Item 6. Directors, Senior Management and Employees - Options, Warrants
      and Other Rights to Acquire Securities.”(8)
            See
      footnotes 2 through 7 above.





All of
the Company’s shareholders have the same voting rights.





Options,
Warrants and Other Rights to Acquire Securities





Additionally,
as of November 30, 2008, the Company had granted or reserved a number of stock
options and issued a number of warrants pursuant to which up to 32,031,667
common shares of the Company may be issued. The following is a brief summary of
these stock options and warrants.





Stock OptionPlan





The
following information is intended to be a brief description of the Company’s
Stock Option Plan (the “Plan”) adopted by the
Company’s shareholders on September 12, 2005, as amended November 21, 2007.





The Plan
provides for equity participation in the Company by the directors, officers and
employees of the Company and their affiliates, employees of persons providing
management services of the Company, and consultants to the Company and its
affiliates, through the acquisition of common shares pursuant to the grant of
options to purchase common shares. The Plan is be administered by the board of
directors or, in certain circumstances, a committee of the board of directors.
Options may be granted to purchase common shares of the Company on such terms
that the administrator of the Plan may determine within the limitations of the
Stock Option Plan and subject to the rules of applicable regulatory
authorities.





On
November 21, 2007, the shareholders of the Company approved an amendment to the
Company’s Stock Option Plan to increase the number of shares issuable on the
exercise of options under the Plan by 7,503,000 shares, from 3,274,000
(previously approved at the 2006 Shareholders’ Meeting) to 10,777,000 shares and
thus, the maximum of aggregate number of common shares to be reserved and
authorized to be issued pursuant to options granted under the Plan is 10,777,000
common shares.





The
exercise price for options granted under the Plan may not be less than the
closing price of the common shares on the TSX-V on the trading day prior to the
date of grant (less up to the maximum discount permitted by applicable TSX-V
policies). Options granted under the Plan are subject to a minimum 18-month
vesting schedule whereby each option will vest equally on a quarterly basis, or
such other more restrictive vesting schedule as the administrator of the Plan
may determine. Options are non-assignable and are exercisable for a period of up
to five years from the date the option is granted, subject to earlier
termination after certain events such as the optionee’s cessation of service to
the Company or death. Under TSX-V rules all stock options granted under the Plan
and any common shares of the Company issued thereunder will be subject to a
minimum four-month hold period from the date of grant of the
option.





Insiders
of the Company will not be permitted to hold options entitling them to acquire
greater than 10% of the Company’s outstanding common shares. The Plan is
effective until ten years from its commencement, unless the Plan is extended or
earlier terminated by the administrator of the Plan in accordance with the terms
thereof.











-65-





As of
November 30, 2008, an aggregate of 9,175,000 incentive stock options to purchase
shares of the Company’s common stock were outstanding, of which 6,260,000 were
held or have been granted to persons who were directors and officers of the
Company at the time of the grant:





Optionee
            Nature
              of
      Option
            No.
      of
              Options
            Exercise
              Price/Share
            Expiry
      DateDouglas
      Turnbull
            Officer
      & Director
            300,000
            $0.20
            September
      14, 2010Nick
      DeMare
            Officer
      & Director
            275,000
            $0.20
            September
      14, 2010Oleg
      Kim
            Director
            275,000
            $0.20
            September
      14, 2010Cary
      Pinkowski
            Director
            400,000
            $0.20
            September
      14, 2010William
      Tafuri
            Officer
            275,000
            $0.20
            September
      14, 2010James
      Harris
            Officer
            150,000
            $0.20
            September
      14, 2010Chase
      Management Ltd.
            Consultant
            25,000
            $0.20
            September
      14, 2010Brian
      McEwen
            Consultant
            100,000
            $1.15
            February
      17, 2011William
      Tafuri
            Officer
            50,000
            $0.70
            September
      14, 2011Oleg
      Kim
            Director
            50,000
            $0.70
            September
      14, 2011Nick
      DeMare
            Director
            40,000
            $0.70
            September
      14, 2011James
      Harris
            Officer
            35,000
            $0.70
            September
      14, 2011Cary
      Pinkowski
            Director
            200,000
            $1.71
            May
      18, 2012Grigory
      Aleksenko
            Director
            500,000
            $1.20
            July
      24, 2012Douglas
      Turnbull
            Officer
      & Director
            300,000
            $1.20
            October
      10, 2012Nick
      DeMare
            Officer
      & Director
            100,000
            $1.20
            October
      10, 2012Oleg
      Kim
            Officer
      & Director
            150,000
            $1.20
            October
      10, 2012Cary
      Pinkowski
            Director
            325,000
            $1.20
            October
      10, 2012Brian
      McEwen
            Director
            100,000
            $1.20
            October
      10, 2012William
      Tafuri
            Officer
            150,000
            $1.20
            October
      10, 2012James
      Harris
            Officer
            100,000
            $1.20
            October
      10, 2012Igor
      Kovarsky (1)
            Director
            1,000,000
            $0.36
            July
      24, 2013Cary
      Pinkowski
            Director
            600,000
            $0.36
            July
      24, 2013Grigory
      Aleksenko
            Director
            320,000
            $0.36
            July
      24, 2013Nick
      DeMare
            Director
            100,000
            $0.36
            July
      24, 2013Douglas
      Turnbull
            Director
            75,000
            $0.36
            July
      24, 2013Oleg
      Kim
            Director
            75,000
            $0.36
            July
      24, 2013Brian
      McEwen
            Director
            40,000
            $0.36
            July
      24, 2013William
      Tafuri
            Officer
            75,000
            $0.36
            July
      24, 2013James
      Harris
            Officer
            75,000
            $0.36
            July
      24, 2013Total:
            
            6,260,000





NOTE:


(1)
            These
      options do not vest until April 30,
2009.





Warrants





As of
November 30, 2008, there were non-transferable common share purchase warrants
exercisable for the purchase of 22,856,667 common shares as
follows:





Number
            
            Exercise
              Price
              $
            
            Expiry
      Date840,000
            
            1.50
            
            July
      24, 20095,350,000
            
            1.70
            
            July
      10, 201016,666,667
            
            0.45
            
            July
      15, 201022,856,667





Additionally,
as of November 30, 2008, the directors and officers of the Company, as a group
(9 persons), held warrants to purchase 1,076,666 shares of the Company’s common
stock.






-66-


There are
no assurances that the options or warrants described above will be exercised in
whole or in part.


Item
7.  Major Shareholders and Related Party
Transactions.





Principal
Holders of Voting Securities





To the
best of the Company’s knowledge, it is not directly or indirectly owned or
controlled by another corporation, by any foreign government or by any other
person(s), severally or jointly.  The following table sets forth
certain information regarding ownership of the Company’s shares by all persons
who own five percent (5%) or more of the Company’s outstanding shares, as of
November 30, 2008.





Title
      of Class
            Name
      of Beneficial Owner
            Shares
      and Rights Beneficially Owned or Controlled (1)
            Percent
      of Class (1)Common
      Stock
            Stargate
      Solutions Ltd.
            9,093,750
            10.3%Common
      Stock
            Cary
      Pinkowski
            5,968,214(2)
            6.6%





(1)
            Where
      persons listed on this table have the right to obtain additional shares of
      common stock through the exercise of outstanding options or warrants
      within 60 days from November 30, 2008, these additional shares are deemed
      to be outstanding for the purpose of computing the percentage of common
      stock owned by such persons, but are not deemed to be outstanding for the
      purpose of computing the percentage owned by any other
      person.  Based on 88,004,125 shares of common stock outstanding
      as of November 30, 2008.


(2)
            Includes
      the following shares, options and warrants beneficially owned by Mr.
      Pinkowski:




a.
            2,625,600
      shares held by Mr. Pinkowski;b.
            1,065,948
      shares held by Prussian;c.
            options
      held by Mr. Pinkowski to acquire 1,200,000
shares;d.
            warrants
      held by Mr. Pinkowski to acquire 779,250 shares; ande.
            warrants
      held by Prussian to acquire 297,416
shares.


See
      “Item 6. Directors, Senior Management and Employees - Options, Warrants
      and Other Rights to Acquire
Securities.”











None of
the Company’s principal shareholders have different voting rights than any of
the Company’s other common shareholders.





Escrowed
Shares





Stargate
Escrowed Shares





Upon
completion of the RPIM Acquisition, a total of 13,125,000 shares of the
Company’s common stock were escrowed in accordance with the policies of the
TSX-V (the “RPIM
Escrow Securities”) in connection with the RPIM Acquisition and are
subject to the terms of an escrow agreement entered into between the Issuer,
each of the entities named below and Computershare Investor Services Inc. (the
“RPIM Escrow
Agreement”).





The RPIM
Escrow Securities will be released from escrow in the normal course over
a period of eighteen months.




As of November 30, 2008,
the following RPIM Escrow Securities were held in escrow in connection with the
RPIM Acquisition:


Name of Beneficial Holder
              No.
      of Shares
                Held in EscrowAGA
      Management Ltd.
              93,750DBM
      Capital Partners Limited
              156,250Stargate
      Solutions Ltd.
              3,031,250Total
              3,281,250








-67-


The RPIM
Escrow Agreement provides that the RPIM Escrow Securities held in escrow
pursuant to its terms and the beneficial ownership thereof may not be sold,
assigned, hypothecated, transferred within escrow or otherwise dealt with in any
manner without the prior written consent of the TSX-V. In the event of the
bankruptcy of an escrow shareholder, provided the TSX-V does not object, the
escrowed shares may be transferred to the trustees in the bankruptcy or such
person legally entitled to the escrowed shares which shares will remain in
escrow subject to the escrow agreement. In the event of the death of an escrow
shareholder, provided the TSX-V does not object, the escrowed shares held by the
escrow shareholder will be released from escrow.





Surplus
Escrowed Shares





Upon
completion of the 724 BC Acquisition, a total of 3,700,100 shares of the
Company’s common stock held by shareholders of 724 BC were escrowed in
accordance with the policies of the TSX-V (the “Surplus Escrowed
Securities”) in connection with the 724 BC Acquisition and were subject
to the terms of a Surplus Security Escrow Agreement entered into between the
Company, each of those shareholders of 724 BC and Computershare Investor
Services Inc.  The Surplus Escrow Agreement terminated September 14, 2008
and all of the remaining Surplus Escrowed Securities were released at that
time.




Changes
in Shareholdings
 
 As a
result of the 724 BC Acquisition, Douglas Turnbull, Cary Pinkowski and William
Tafuri each beneficially owned five percent or more of the Company’s outstanding
common shares at October 31, 2006.  As a result of the RPIM
Acquisition, as of November 30, 2008, Stargate Solutions Ltd. beneficially owned
10.3% of the Company’s outstanding common shares.  The beneficial
ownership of the Company’s outstanding common shares held by Douglas Turnbull,
Cary Pinkowski and Oleg Kim decreased as a result of the RPIM
Acquisition.   Douglas Turnbull and Oleg Kim each hold less than
5.0% of the Company’s outstanding common shares as of November 30,
2008.
 
 Change
of Control
 
 As of the
date of this annual report, there are no arrangements known to the Company which
may at a subsequent date result in a change of control of the
Company.
 
 United
States Shareholders
 
 As of
November 30, 2008, there were five registered holders of the Company’s common
shares in the United States, with combined holdings of 2,035,563 shares,
representing 2.31% of the issued shares of the Company.  The Company
does not know how many beneficial shareholders it has in the United States, but
management believes there are more than 300 such shareholders.
 
 Control
by Foreign Government or Other Persons
 
 To the
best of the Company’s knowledge, the Company is not directly or indirectly owned
or controlled by another corporation, any foreign government, or any other
natural or legal person, severally or jointly.
 
 Related
Party Transactions
 
 Other
than as disclosed below, for the period from June 1, 2005 through November 30,
2008, the Company has not entered into any transactions or loans between the
Company and any (a) enterprises that directly or indirectly through one or more
intermediaries, control or are controlled by, or are under common control with,
the Company; (b) associates; (c) individuals owning, directly or indirectly, an
interest in the voting power of the Company that gives them significant
influence over the Company, and close members of any such individuals’ family;
(d) key management personnel and close members of such individuals’ families; or
(e) enterprises in which a substantial interest in the voting power is owned,
directly or indirectly, by any person described in (c) or (d) or over which such
a person is able to exercise significant influence.





-68-








1.
            The
      Company entered into a Management Agreement dated September 14, 2005, with
      Chase Management Ltd., a company owned by Mr. Nick DeMare, the Chief
      Financial Officer of the Company, whereby the Company pays to Chase $3,000
      per month, to provide financial, accounting, and management services to
      the Company.  The term of the Management Agreement is renewable
      on an annual basis subject to earlier termination in accordance with the
      agreement.  The Company also pays Chase a base amount of $2,000
      per month for the services of Mr. DeMare as the Company’s Chief Financial
      Officer.In
      addition, the Company may request that Chase perform extra services in
      which case Chase will charge the Company for its employees’ services at
      competitive rates.  Such extra services include preparation for
      annual audits, non-routine securities filings and legal assistance,
      corporate representations, property acquisitions and public
      relations.  The Company has agreed to reimburse Chase, at a cost
      equal to the actual cost of the disbursements, for all costs and
      disbursements incurred by Chase for or on behalf of the Company including
      long distance charges, courier charges, photocopier and telefax charges,
      mail services and any such other charges normally associated directly and
      indirectly with the operation of the Company’s
    business.




Management
      believes the arrangement with Chase is fair to the Company and similar to
      terms which could be obtained from unrelated third
  parties.


During
      the period from June 1, 2007 to August 31, 2008, the Company was billed by
      Chase $104,000.See
      “Item 6. Directors, Senior Management and Employees –
      Employees.”
  2.
              Pursuant
      to a Consulting Agreement between Mr. Oleg Kim and the Company’s
      subsidiary BMC dated November 23, 2005 (the “Kim
      Agreement”), Oleg Kim provides consulting services to BMC. The term
      of the Kim Agreement was initially for a period of one year, subject to
      earlier termination in accordance with the agreement. If not terminated,
      the Kim Agreement will be renewed for successive one year periods at the
      end of the initial term of the agreement.  The Kim Agreement has
      been renewed annually since its inception.During
      the period from June 1, 2007 to August 31, 2008, the Company has been
      billed a total of US$105,977 by Mr.
Kim.
  See
      “Item 6. Directors, Senior Management and Employees –
      Compensation.”
 
 3.
              Pursuant
      to a Consulting Agreement between Mr. William Tafuri and the Company dated
      December 1, 2005 (the “Tafuri
      Agreement”), Dr. Tafuri served as the Vice-President of Exploration
      and Director of Operations, Asia for the Company through November 20,
      2008.  The term of the Tafuri Agreement was for a period of one
      year, subject to earlier termination in accordance with the agreement. If
      not terminated, the Tafuri Agreement will be renewed for successive one
      year periods at the end of the initial term of the
      agreement.  The Tafuri Agreement has been renewed annually since
      its inception.During
      the period from June 1, 2007 to August 31, 2008, the Company has been
      billed a total of US$71,462 by Dr.
Tafuri.
  See
      “Item 6. Directors, Senior Management and Employees –
      Compensation.”
 
 4.
              Mr.
      James Harris is associated with the law firm of James L. Harris Law
      Corporation, a firm which provides legal services to the
      Company.  Mr. Harris was the corporate secretary through
      November 20, 2008, and is a shareholder of the Company.  During
      the period from June 1, 2007 to August 31, 2008, James L. Harris Law
      Corporation billed $149,513 to the
Company.
 
 5.
              Pursuant
      to the Lakehead Agreement dated September 1, 2007, the Company, through
      Lakehead, retained the services of Douglas Turnbull to act as President
      and CEO of the Company. Mr. Turnbull resigned as the President and CEO on
      March 11, 2008 and the Lakehead Agreement terminated June 1,
      2008.


-69-







Management
      believes the arrangement with Lakehead was fair to the Company and similar
      to terms which could be obtained from unrelated third
    parties.During
      the period from June 1, 2007 to August 31, 2008, the Company has been
      billed a total of $140,200 by Lakehead for Mr. Turnbull’s
      services.




See
      “Item 6. Directors, Senior Management and Employees –
      Compensation.”





6.
            In
      August of 2007, the Company entered into an amending agreement with
      Kantanna, pursuant to which Kantanna agreed to forego the aggregate
      US$1,890,000 in exploration expenditures for 2007 and 2008, which was one
      of the requirements for the Company to acquire the remaining 62.5%
      interest in the Bulakashu Property that it had not then yet acquired. The
      other requirement was the issuance of 375,000 shares to the vendor, which
      the Company has issued.  Kantanna is owned by Mr. Oleg Kim, an
      officer and director of the Company.  See “Item 4.
      Information on the Company-History and Development of the
      Company.”





7.
            Pursuant
      to an employment agreement (the “Kovarsky
      Agreement”), the Company has retained Igor Kovarsky as an employee
      of the Company in the capacity as the President and CEO of the
      Company.  The term of the Kovarsky Agreement is for a period of
      five years, commencing June 1, 2008 and terminating on May 31, 2013,
      subject to earlier termination in accordance with the Kovarsky
      Agreement.  The Kovarsky Agreement may be




Pursuant
to the terms of the Kovarsky Agreement, Mr. Kovarsky shall devote his full time
to the Company’s business at a remuneration of $20,000 per month, plus benefits
and insurance.  The Kovarsky Agreement also required the Company to
grant to Mr. Kovarsky stock options to purchase 1,000,000 common shares of the
Company.  On July 24, 2008, the Company granted Mr. Kovarsky stock
options to purchase 1,000,000 common shares of the Company at a price of $0.36
per share, expiring July 24, 2013.
 
 During
the period from June 1, 2008, his commencement of employment, to August 31,
2008, Mr. Kovarsky was paid $60,000.
 
 Indebtedness of Directors,
Officers, Promoters and Other Management
 
 Except as
described below, no director, officer or promoter or other member of management
of the Company, or any associate or affiliate of any such person, is or has been
indebted to the Company.
 
 During
the Company’s last completed financial year ended May 31, 2008, no current or
former director, executive officer or senior officer of the Company, proposed
management nominee for election as a director or each associate or affiliate of
any such director, executive or senior officer or proposed nominee is or has
been indebted to the Company or any of its subsidiaries or is and has been
indebted to another entity where such indebtedness is or has been the subject of
a guarantee, support agreement, letter of credit or other similar arrangement or
understanding provided by the Company or any of its subsidiaries.
 
 Conflicts of
Interest
 
 The table
below shows that certain directors of the Company are also directors, officers
or shareholders of other companies which are engaged in the business of
acquiring, developing and exploiting natural resource properties.  The
directors and officers of the Company will not be devoting all their time to the
affairs of the Company, but will be devoting such time as required to
effectively manage the Company. Some of the directors and officers of the
Company are engaged and will continue to be engaged in the search for property
or assets or business prospects on their own behalf or on behalf of others. Such
associations may give rise to conflicts of interest from time to
time.
 
 Certain
of the directors, officers and shareholders of the Company are also directors,
officers and shareholders of other companies and conflicts of interest may arise
between their duties as directors of the Company and as directors of other
companies.  All such possible conflicts are required to be disclosed
in accordance with the requirements of the BCBCA,


-70-




and the
directors concerned are required to govern themselves in accordance with the
obligations imposed on them by law.





The
directors of the Company are required by law to act honestly and in good faith
with a view to the best interests of the Company and to disclose any interest
which they may have in any project or opportunity of the Company. If a conflict
of interest arises at a meeting of the board of directors, any director in a
conflict will disclose his interest and abstain from voting on such matter. The
Company does not currently have a right of first refusal pertaining to
opportunities that come to management’s attention insofar as such opportunities
may relate to the Company’s proposed business operations. The officers and
directors are, so long as they are officers or directors of the Company, subject
to the restriction that all opportunities contemplated by the Company’s plan of
operation which come to their attention, either in the performance of their
duties or in any other manner, will be considered opportunities of, and be made
available to the Company and the companies that they are affiliated with on an
equal basis. If the Company or the companies in which the officers and directors
are affiliated with both desire to take advantage of the opportunities, the said
officers and directors would abstain from negotiating and voting upon the
opportunity. However, all directors may still individually take advantage of
opportunities if the Company declines to do so. Except as set forth above, the
Company has not adopted any conflict of interest policy with respect to such
transactions. In determining whether or not the Company will participate in any
project or opportunity, the director will primarily consider the degree of risk
which the Company may be exposed and its financial position at the time. Except
for Mr. Turnbull, no members of management have entered into non-competition
agreements with the Company.




The
following table identifies the name of each director of the Company and any
company, other than the Company, which is a reporting issuer in Canada and the
United States, and for which such director currently serves as an officer or
director:
  Name
      of
                Director/Officer
              Name of Reporting
      Issuer
              Capacity
              TermNick
      DeMare
              Aguila
      American Resources Ltd.
              Director
              January
      2003 to presentAndean
      American Mining Corp.
              Director
              August
      2002 to presentAstral
      Mining Corporation
              Director
              February
      2004 to presentAtlas
      Minerals Corp.
              Director
              April
      2006 to presentAusex
      Capital Corp.
              Director
              August
      2007 to presentEnterprise
      Oil Limited
              Director
              April
      2007 to presentGGL
      Diamond Corp.
              Director
              May
      1989 to presentGeoPetro
      Resources Company
              Director
              March
      2006 to presentGolden
      Peaks Resources Ltd.
              Director
              January
      1992 to presentHalo
      Resources Ltd.
              Director
                CFO
              January
      1996 to present
                February
      2005 to presentLariat
      Energy Ltd.
              Director
              April
      2003 to presentLumex
      Ventures Inc.
              Director,
      President, CEO and CFO
              January
      2007 to presentMawson
      Resources Limited
              Director
              March
      2004 to presentMirasol
      Resources Ltd.
              Director
              August
      2005 to presentRochester
      Resources Ltd.
              Director
              January
      2007 to presentSalazar
      Resources Ltd.
              Director
              June
      1988 to presentSinchao
      Metals Corp.
              Director
              December
      2006 to presentTinka
      Resources Limited
              Director
              October
      2002 to presentTumi
      Resources Limited
              Director
              January
      2001 to present
 
 There are
no known existing or potential conflicts of interest among the Company,
promoters, directors, officers, principal holders of securities and persons
providing professional services to the Company which could reasonably be
expected to affect an investor’s investment decision except as described in this
section.
 
 Except
for the Kim Agreement, the Tafuri Agreement, the Danilov Agreement and the
Kovarsky Agreement, the Company and/or its subsidiaries do not have any
agreements with its officers or directors, including any officers or directors
with a conflict of interest, with respect to the amount of time they must spend
on the Company’s business. See “Item 6. Directors, Senior Management and
Employees – Compensation.”


-71-




Item
8.  Financial Information.





Description
      of Financial Statements
            PageAudited
      Consolidated Financial Statements for the Years Ended
              May
      31, 2008, 2007 and 2006.
            F-1
      to F-32





Significant
Changes





There
were no significant changes that occurred since the date of the annual financial
statements.





Dividend
Policy





The
Company has not paid any dividends on its common shares and does not intend to
pay dividends on its common shares in the immediate future.  Any
decision to pay dividends on its common shares in the future will be made by the
board of directors on the Company on the basis of earnings, financial
requirements and other such conditions that may exist at that time.




Legal
Proceedings
 
 The
Company knows of no material, active or pending legal or arbitration proceedings
against it; nor is the Company involved as a plaintiff in any material
proceeding or pending litigation or arbitration. The Company is not aware of any
governmental proceedings pending or known to be contemplated against the
Company.
 
 
 Item
9.  The Offer and Listing.
 
 Price
History
 
 The TSX-V
classifies listed companies into two different tiers based on standards, which
include historical financial performance, stage of development, and financial
resources of the listed company.  Tier 1 is the TSX-V’s premier tier
and is reserved for the TSX-V’s most advanced issuers with the most significant
financial resources.  Tier 1 issuers benefit from decreased filing
requirements and improved service standards.  The majority of the
companies listed on the TSX-V are Tier 2 companies.  The Company
trades on the TSX-V under the symbol “KM” and was upgraded to a Tier 1
company on July 17, 2007.
 
 There
have been no trading suspensions imposed by the TSX-V or any other regulatory
authorities in the past three years. However, in connection with the 724 BC
Acquisition, the Company’s shares were halted for trading on February 26,
2005.  The Company’s common shares resumed trading on August 22,
2005.
 
 The
following tables list the volume of trading and high and low sales prices on the
TSX-V for shares of the Company’s common stock for the periods indicated, as
adjusted for the Company’s one new for four old reverse stock split effective
June 3, 2004:
 
 TSX Venture Exchange - Stock Trading
Activity
 
 Sales
      PriceYear
      Ended
              Volume
              
              High
              
              LowMay
      31, 2008
              29,990,222
              
              $1.75
              
              $0.28May
      31, 2007
              12,270,865
              
              $1.92
              
              $0.43May
      31, 2006
              5,212,610
              
              $1.53
              
              $0.50May
      31, 2005 (1)
              181,441
              
              $0.35
              
              $0.21May
      31, 2004
              1,057,971
              
              $0.13
              
              $0.03







-72-





(1)
            Trading
      in the Company’s shares was halted on February 26, 2005 to allow for the
      announcement of the acquisition of 724 BC.  The shares resumed
      trading on August 22, 2005.





Sales
      PriceQuarter
      Ended
            Volume
            
            High
            
            LowNovember
      30, 2008
            2,069,846
            
            $0.27
            
            $0.04August
      31, 2008
            5,550,670
            
            $0.54
            
            $0.21May
      31, 2008
            2,179,922
            
            $0.56
            
            $0.28February
      29, 2008
            5,319,116
            
            $0.78
            
            $0.42November
      30, 2007
            13,534,951
            
            $1.36
            
            $0.63August
      31, 2007
            8,956,233
            
            $1.75
            
            $0.70May
      31, 2007
            7,595,428
            
            $1.92
            
            $0.71February
      28, 2007
            3,025,835
            
            $1.15
            
            $0.54November
      30, 2006
            1,018,202
            
            $0.75
            
            $0.43August
      31, 2006
            631,400
            
            $1.35
            
            $0.65





Sales
      PriceMonth
      Ended
              Volume
              
              High
              
              LowNovember
      30, 2008
              643,744
              
              $0.11
              
              $0.04October
      31, 2008
              569,343
              
              $0.13
              
              $0.06September
      30, 2008
              856,759
              
              $0.27
              
              $0.11August
      31, 2008
              460,775
              
              $0.37
              
              $0.24July
      31, 2008
              2,227,294
              
              $0.34
              
              $0.28June
      30, 2008
              2,862,601
              
              $0.43
              
              $0.21
 
 On
January 22, 2002, the Company’s common shares were approved for quotation on the
Over-the-Counter Bulletin Board system (the “OTCBB”) operated by
the National Association of Securities Dealers.  The Company currently
trades on the OTCBB under the symbol “KMNFF”.  The following tables
set forth the market price ranges and the aggregate volume of trading of the
common shares of the Company on the OTCBB system for the periods indicated, as
adjusted for the Company’s one new for four old reverse stock split effective
June 3, 2004:
  OTC
Bulletin Board - Stock Trading Activity
 
 Sales
      Price (US$)Year
      Ended
              Volume
              
              High
              
              LowMay
      31, 2008
              6,673,220
              
              $1.69
              
              $0.21May
      31, 2007
              315,308
              
              $1.95
              
              $0.35May
      31, 2006
              102,640
              
              $1.95
              
              $0.06May
      31, 2005
              6,000
              
              $0.205
              
              $0.06May
      31, 2004
              28,000
              
              $0.10
              
              $0.05
 
 Sales
      Price (US$)Quarter
      Ended
              Volume
              
              High
              
              LowNovember
      30, 2008
              441,800
              
              $0.25
              
              $0.03August
      31, 2008
              1,262,800
              
              $0.53
              
              $0.21May
      31, 2008
              1,047,600
              
              $0.58
              
              $0.28February
      29, 2008
              1,214,900
              
              $0.80
              
              $0.40November
      30, 2007
              3,553,200
              
              $1.41
              
              $0.64August
      31, 2007
              857,520
              
              $1.69
              
              $0.75May
      31, 2007
              171,300
              
              $1.51
              
              $0.45February
      29, 2007
              43,610
              
              $0.68
              
              $0.35November
      30, 2006
              25,612
              
              $0.62
              
              $0.35August
      31, 2006
              74,786
              
              $1.95
              
              $0.60


-73-





Sales
      Price (US$)Month
      Ended
            Volume
            
            High
            
            LowNovember
      30, 2008
            84,100
            
            $0.09
            
            $0.03October
      31, 2008
            196,100
            
            $0.14
            
            $0..04September
      30, 2008
            161,600
            
            $0.25
            
            $0.10August
      31, 2008
            276,900
            
            $0.37
            
            $0.23July
      31, 2008
            180,300
            
            $0.53
            
            $0.30June
      30, 2008
            805,600
            
            $0.40
            
            $0.21





These
above quotations reflect inter-dealer prices without retail mark-up, markdown,
or commissions and may not necessarily represent actual
transactions.





The OTCBB
is smaller and less liquid than the major securities markets in the United
States.  The trading volume of the Company’s shares on the OTCBB has been
volatile.  Consequently, shareholders in the United States may not be
able to sell their shares at the time and at the price they desire.




Item
10.     Additional Information.
 
 
 Articles
of Continuance and Bylaws
 
 The
Company was incorporated under the laws of British Columbia, Canada on December
10, 1999 by registration of its Memorandum and Articles with the B.C. Registrar
of Companies under the incorporation number 597349.  On September 25,
2001, the Company was continued under the YBCA to the Yukon Territory, Canada by
the registration of its Articles of Continuance with the Yukon Registrar of
Corporations.
 
 On March
29, 2004, the British Columbia legislature enacted the British Columbia Business
Corporations Act, as amended (the “BCBCA”), and repealed the British Columbia
Company Act (the “BC Company Act”).  The BCBCA removes many of the
restrictions contained in the BC Company Act, including
restrictions on the residency of directors, the location of annual general
meetings and limits on authorized share capital, as well, the BCBCA uses new
forms and terminology and has replaced the Memorandum with a Notice of
Articles.
 
 On
November 23, 2004, the Company was continued to British Columbia, Canada by the
registration of a Continuation Application with the BC Registrar of
Companies.
 
 On
November 17, 2006, the shareholders of the Company voted to approve by Special
Resolution the replacement of the Company’s Articles with a new set of
Articles.  The Company’s registration number is
C0709249.  There are no restrictions in the Company’s Articles on the
business which can be carried on by the Company.
 
 The
following is a summary of all material provisions of the Company’s Articles and certain
provisions of the BCBCA, applicable to the Company:
 
 A.
              Director’s power to
      vote on a proposal, arrangement or contract in which the director is
      materially interested.
 
 Under the
BCBCA, subject to certain exceptions, a director or senior officer of the
Company must disclose any material interest that he personally has, or that he
as a director or senior officer of another corporation has in a contract or
transaction that is material to the Company and which the Company has entered
into or proposes to enter into.






-74-





A
director or senior officer of the Company does not hold a disclosable interest
in a contract or transaction if:





1.
            the
      situation that would otherwise constitute a disclosable interest arose
      before the coming into force of the BCBCA, and the interest was disclosed
      and approved under, or was not required to be disclosed under legislation
      that applied to the Company before the coming into effect of the
      BCBCA;


2.
            both
      the Company and the other party to the contract or transaction are wholly
      owned subsidiaries of the same
corporation;


3.
            the
      Company is a wholly owned subsidiary of the other party to the contract or
      transaction;


4.
            the
      other party to the contract or transaction is a wholly owned subsidiary of
      the Company; or


5.
            the
      director or senior officer is the sole shareholder of the Company or of a
      corporation of which the Company is a wholly owned
    subsidiary.





A
director or senior officer of the Company does not hold a disclosable interest
in a contract or transaction merely because:





1.
            the
      contract or transaction is an arrangement by way of a security granted by
      the Company for money loaned to, or obligations undertaken by, the
      director or senior officer, or a person in whom the director or senior
      officer has a material interest, for the benefit of the Company or an
      affiliate of the Company;


2.
            the
      contract or transaction relates to an indemnity or insurance under the
      BCBCA;


3.
            the
      contract or transaction relates to the remuneration of the director or
      senior officer, in that person’s capacity as director,
      officer, employee or agent of the Company or of an affiliate of the
      Company;


4.
              the
      contract or transaction relates to a loan to the Company, and the director
      or senior officer, or a person in whom the director or senior officer has
      a material interest, is or is to be a guarantor of some or all of the
      loan; or
 5.
              the
      contract or transaction has been or will be made with or for the benefit
      of a corporation that is affiliated with the Company and the director or
      senior officer is also a director or senior officer of that corporation or
      an affiliate of that corporation.
 
 A
director or senior officer who holds such a material interest must disclose the
nature and extent of such interest in writing. The disclosure must be evidenced
in writing in a consent resolution, the minutes of a meeting or any other record
deposited with the Company’s record office.  A
director who has a disclosable interest in a contract or transaction is not
entitled to vote on any directors’ resolution to approve that
contract or transaction, but may be counted in the quorum at the directors’ meeting at which such vote is
taken.
 
 B.
              Directors’power, in the absence
      of an independent quorum, to vote compensation to themselves or any
      members of their body.
 
 The
compensation of the directors is decided by the directors unless the board of
directors specifically requests approval of the compensation from the
shareholders.  If the issuance of compensation to the directors is
decided by the directors, a quorum is the majority of the directors in
office.
 
 C.
              Borrowing powers
      exercisable by the directors and how such borrowing powers may be
      varied.
 
 The
Company, if authorized by the directors, may:
 
 1.
              borrow
      money in the manner and amount, on the security, from the sources and on
      the terms and conditions that they consider
  appropriate;
 2.
              issue
      bonds, debentures and other debt obligations either outright or as
      security for any liability or obligation of the Company or any other
      person and at such discounts or premiums and on such other terms as they
      consider appropriate;
 3.
              guarantee
      the repayment of money by any other person or the performance of any
      obligation of any other person; and
 4.
              mortgage,
      charge, whether by way of specific or floating charge, grant a security
      interest in, or give other security on, the whole or any part of the
      present and future assets and undertaking of the
  Company.




-75-





D.
            Retirement and
      non-retirement of directors under an age limit
      requirement.





There are
no such provisions applicable to the Company under the Notice of Articles,
Articles or the BCBCA.





E.
            Number of shares
      required for a director’s
qualification.





A
director of the Company is not required to hold a share in the capital of the
Company as qualification for his office.





F.           Indemnification.




The
Articles provide for indemnification of the Company’s officers and
directors.


G.
            Amendment of
      Articles.





The
Articles may be amended by the directors so long as such amendment does not
affect the rights attached to shares.




Description
of Common Shares
 
 The
authorized capital of the Company consists of an unlimited number of common
shares without par value.  A complete description is contained in the
Company’s Notice of Articles.
 
 Of the
Company’s unlimited share capital, a total of 88,004,125 common shares were
issued and outstanding as of November 30, 2008.
 
 All of
the common shares are fully paid and not subject to any future call or
assessment.  All of the common shares of the Company rank equally as
to voting rights, participation in a distribution of the assets of the Company
on a liquidation, dissolution or winding-up of the Company, the entitlement to
dividends and the right to share in the Company’s profits. The holders of the
common shares are entitled to receive notice of all shareholder meetings and to
attend and vote at such meetings.  Shareholders are not entitled to
cumulative voting.  Each common share carries with it the right to one
vote.  The common shares do not have preemptive or conversion
rights.  In addition, there are no sinking fund or redemption
provisions applicable to the common shares or any provisions discriminating
against any existing or prospective holders of such securities as a result of a
shareholder owning a substantial number of shares.  The Company’s
board of directors does not stand for re-election at staggered
intervals.
 
 Dividend
Record
 
 The
Company has not paid any dividends on its common shares and has no policy with
respect to the payment of dividends.
 
 Ownership
of Securities and Change of Control
 
 Except
for the Investment Canada Act, discussed below, there are no limitations on the
rights to own securities, including the rights of non-resident or foreign
shareholders to hold or exercise voting rights on the securities imposed by
foreign law or by the constituent documents of the Company.
 
 Any
person who beneficially owns or controls, directly or indirectly, more than 10%
of the Company’s voting shares is considered an insider, and must file an
insider report with the British Columbia and Alberta Securities Commissions
within ten days of becoming an insider disclosing any direct or indirect
beneficial ownership of, or control over direction over securities of the
Company.  In addition, if the Company itself holds any of its own
securities, the Company must disclose such ownership.


-76-





There are
no provisions in the Company’s Continuation Application, Notice of Articles and
Articles that would have an effect of delaying, deferring or preventing a change
in control of the Company operating only with respect to a merger, acquisition
or corporate restructuring involving the Company or its
subsidiaries.





Changes
to Rights and Restrictions of Shares





Under the
BCBCA and the Company’s Articles, if the Company wishes to change the rights and
restrictions of any class of shares the Company must obtain the approval of the
shareholders of that class by Special Resolution.





Shareholder
Meetings





Under the
BCBCA and the Company’s Articles, the Company’s annual general meeting is to be
held once in each calendar year and not more than 15 months after the previous
meeting.  No advance notice will be required to be published at a
meeting where directors are to be elected.  The Company, under the
BCBCA, must give shareholders not less than 21 days’ notice of any general
meeting of the shareholders.




An
extraordinary general meeting of shareholders may be called at any time for the
transaction of any business the general nature of which is specified in the
notice calling the meeting.




The BCBCA
contemplates three ways for a general meeting of shareholders to be called: (a)
by the directors; (b) by requisition by the shareholders; or (c) by court
order.
 
 (a)
              By
      the Directors:  The Company must give shareholders not less than
      21 days notice of any general meeting of the shareholders and not more
      than two months before the date of the meeting.  The
      directors may fix in advance a date, which is no fewer than 35 days or no
      more than 60 days prior to the date of the meeting, whereby all the
      holders of common shares as at that date are entitled to attend and vote
      at a general meeting.
 
 (b)
              Requisition
      by Shareholders:  The requisition must be made by shareholders
      holding not less than 1/20 of the issued shares carrying the right to vote
      at a general meeting at the time the Company receives the
      requisition.  If a general meeting is properly requisitioned,
      the directors must call a general meeting to transact the business
      specified in the requisition, to be held within four months after the date
      of the requisition is received by the Company.  The notice of
      the meeting must be sent at least 21 days and not more than four months
      before the date of the meeting.
 
 (c)
              By
      Court Order:  The court may on its own motion, or on the
      application of the Company, a director or a shareholder entitled to vote
      at the meeting, order that a meeting of shareholders be called, held and
      conducted in the manner the court considers appropriate, and may give
      instructions to that effect.  The court may make this order of
      if it is impracticable for the Company to call or conduct the meeting in
      the required manner, if the Company fails to do so, or for any other
      reason that the court considers
appropriate.
 
 On a show
of hands, every shareholder or proxy holder who is present and entitled to vote
shall have one vote.  Whenever a vote by show of hands shall have been
taken upon a question, unless a ballot thereon is so required or demanded, a
declaration by the Chairman of the meeting that the vote upon the resolution has
been carried or carried by the necessary majority or is defeated must be entered
in the minutes of the meeting and shall be conclusive evidence of the fact
without proof of the number or proportion of the votes recorded in favor of or
against the resolution and the result of the vote so taken shall be the decision
of the members upon the said question.
 
 Differences
from Requirements in the United States
 
 Except
for the Company’s quorum requirements, certain requirements related to related
party transactions, the requirement for notice of shareholder meetings and the
approval of amendments to the Company’s articles, which are discussed above,
there are no significant differences in the law applicable to the Company, in
the areas outlined above, in British Columbia versus the United
States.  In most states in the United States, a quorum must consist of
a majority of the shares entitled to vote.  Some states allow for a
reduction of the quorum requirements to less than a majority of the shares
entitled to vote.  Having a lower quorum threshold may allow a
minority of the shareholders to make decisions about the


-77-




Company,
its management and operations.  In addition, most states in the United
States require that a notice of meeting be mailed to shareholders prior to the
meeting date.  Additionally, in the United States, a director may not
be able to vote on the approval of any transaction in which the director has an
interest.  Generally, most states in the United States require
amendments to a company’s articles of incorporation and certain significant
transactions, such as mergers and the sale or transfer of all or substantially
all of a company’s assets, to be approved by at least a majority of the votes
cast by the holders of the issued and outstanding shares.  Some
states, or some older corporations, may require approval of amendments and
certain significant transactions by 2/3 of the votes cast by the holders of the
issued and outstanding shares.  In addition, in the United States
voting by separate voting groups may be required on the approval of any such
amendments and/or certain significant corporate transactions.





Material
Contracts





The
following is a listing of contracts material to the business of the Company,
which were not entered into in the ordinary course of business, during the two
years preceding the date of this annual report:





(1)
            In
      November 2005, the Company agreed to reorganize its arrangement to acquire
      its interest in the Bulakashu Gold Property and entered into the Kantanna
      Option.  As a result, BMC transferred its ownership interest in
      Bulakashu Gold Property back to Marsa. Marsa then assigned all of its
      interests to Kantanna. Both Marsa and Kantanna are owned by Mr. Oleg Kim,
      a director of the Company.  Consequently, BMC held an option to
      acquire a 100% interest in the Bulakashu Gold Property from Kantanna under
      the same terms as contemplated under the Marsa Option and directly held
      the exploration licenses on the Eastern Sary Jaz Property. The Company
      issued 200,000 common shares to Kantanna as consideration for the Eastern
      Sary Jaz Property and the transfer of 100% ownership of BMC to the
      Company.  See “Item
      4.   Information on the Company-History and Development of
      the Company.”
              
              In
      August 2007, the Company entered into an amending agreement with Kantanna,
      pursuant to which Kantanna agreed to forego the aggregate US$1,890,000 in
      exploration expenditures for 2007 and 2008, which was one of the
      requirements for the Company to acquire the remaining 62.5% interest in
      the Bulakashu Property that it had not then yet acquired. The other
      requirement was the issuance of 375,000 shares to the vendor, which the
      Company has issued. Thus the Company acquired the remaining 62.5% interest
      in the Bulakashu Property and now owns the entire
      Property.  See “Item
      4.   Information on the Company-History and Development of
      the Company.”




(2)
              Pursuant
      to the Kim Agreement between the Company’s subsidiary BMC and Oleg Kim
      dated November 23, 2005, BMC retained Mr. Kim to act as its General
      Director effective as of December 1, 2005. The term of the Kim Agreement
      was for an initial period of one year expiring on December 1, 2006,
      subject to earlier termination in accordance with the
      agreement.  The Kim Agreement is automatically renewed for
      successive one-year periods at the end of the initial term of the
      agreement, unless either party gives to the other written notice of
      non-renewal at least 90 days in advance of the expiration date of the then
      current term.  Mr. Kim agreed to spend approximately fifty
      percent of his working hours working for BMC.  In consideration
      for the services provided by Mr. Kim to BMC, BMC pays Mr. Kim a base
      salary of $36,000 annually.  See “Item 6. Directors, Senior
      Management and Employees –
Compensation.”
 
 (3)
              Pursuant
      to the Tafuri Agreement between the Company and William Tafuri dated
      December 1, 2005, the Company retained Dr. Tafuri to act as its
      Vice-President of Exploration and Director of Operations, Asia effective
      as of December 1, 2005. The term of the Tafuri Agreement was for an
      initial period of one year expiring on December 1, 2006, subject to
      earlier termination in accordance with the agreement.  The
      Tafuri Agreement is automatically renewed for successive one-year periods
      at the end of the initial term of the agreement, unless either party gives
      to the other written notice of non-renewal at least 90 days in advance of
      the expiration date of the then current term.  Dr. Tafuri agreed
      to spend approximately 100% percent of his working hours working for the
      Company.  In consideration for the services provided by Dr.
      Tafuri to the Company, the Company pays Dr. Tafuri a base salary of US
      $8,750 monthly.  See “Item 6. Directors, Senior Management and
      Employees – Compensation.”


-78-





(4)
            Pursuant
      to the Danilov Agreement between the Company’s subsidiary Centrasia
      Kazakhstan and Vladimir Danilov dated January 31, 2006, Centrasia
      Kazakhstan retained Mr. Danilov to act as its General Director effective
      as of February 1, 2006. The term of the Danilov Agreement was for an
      initial period of one year expiring on February 1, 2007, subject to
      earlier termination in accordance with the agreement.  The
      Danilov Agreement is automatically renewed for successive one-year periods
      at the end of the initial term of the agreement, unless either party gives
      to the other written notice of non-renewal at least 90 days in advance of
      the expiration date of the then current term. Mr. Danilov agreed to spend
      approximately fifty percent of his working hours working for Centrasia
      Kazakhstan.  In consideration for the services provided by Mr.
      Danilov to Centrasia Kazakhstan, Centrasia Kazakhstan pays Mr. Danilov a
      base salary of $36,000 annually.  See “Item 6. Directors, Senior
      Management and Employees –
Compensation.”





(5)
            On
      May 11, 2007, the Company, its wholly-owned subsidiary, Magellan Holdings
      (BVI) Corp. and Stargate entered into the Share Purchase Agreement whereby
      the Company agreed to purchase 100% of the issued and outstanding shares
      of RPI under the RPIM Acquisition. The Share Purchase Agreement was
      amended on June 8, 2007, June 22, 2007, July 11, 2007 and July 13, 2007,
      respectively, and the acquisition was completed on July 24,
      2007.  See “Item 4.   Information on the
      Company-History and Development of the
Company.”





(6)
            Pursuant
      to the Lakehead Agreement, by and among the Company, Lakehead and Douglas
      Turnbull dated September 1, 2007, the Company retained Lakehead to provide
      management services to the Company, to include the services of Douglas
      Turnbull as President of the Company.  Lakehead is a private
      corporation owned by Mr. Turnbull.  Mr. Turnbull resigned as the
      President and CEO on March 11, 2008 and the Lakehead Agreement
      terminated.  See “Item 6. Directors, Senior Management and
      Employees – Compensation.”




(7)
              Pursuant
      to the Kovarsky Agreement, the Company has retained Igor Kovarsky as an
      employee of the Company in the capacity as the President and CEO of
      the Company at a remuneration of $20,000 per month, plus benefits and
      insurance.  The Kovarsky Agreement also required the Company to
      grant to Mr. Kovarsky stock options to purchase 1,000,000 common shares of
      the Company, which were granted on July 24, 2008.  The term of
      the Kovarsky Agreement is for a period of five years, commencing June 1,
      2008 and terminating on May 31, 2013, subject to earlier termination in
      accordance with the Kovarsky Agreement.  The Kovarsky Agreement
      may be extended by the consent of both parties for additional terms of
      five years at the end of the initial term of the
  agreement.
 
 Exchange
Controls
 
 There are
no governmental laws, decrees, or regulations in Canada relating to restrictions
on the export or import of capital, or affecting the remittance of interest,
dividends, or other payments to non-resident holders of the Company’s common
stock.  Any remittances of dividends to United States residents are,
however, subject to a 15% withholding tax (5% if the shareholder is a
corporation owning at least 10% of the outstanding common stock of the Company)
pursuant to Article X of the reciprocal tax treaty between Canada and the United
States.  See “Item 10. Additional Information -
Taxation”.
 
 Except as
provided in the Investment Canada Act (the “Act”), there are no
limitations specific to the rights of non-Canadians to hold or vote the common
stock of the Company under the laws of Canada or the Province of British
Columbia or in the charter documents of the Company.
 
 Management
of the Company considers that the following general summary is materially
complete and fairly describes those provisions of the Act pertinent to an
investment by an American investor in the Company.
 
 The Act
requires a non-Canadian making an investment which would result in the
acquisition of control of a Canadian business, the gross value of the assets of
which exceed certain threshold levels or the business activity of which is
related to Canada’s cultural heritage or national identity, to either notify, or
file an application for review with, Investment Canada, the federal agency
created by the Investment Canada Act.


-79-





The
notification procedure involves a brief statement of information about the
investment in a prescribed form which is required to be filed with Investment
Canada by the investor at any time up to 30 days following implementation of the
investment.  It is intended that investments requiring only
notification will proceed without government intervention unless the investment
is in a specific type of business activity related to Canada’s cultural heritage
and national identity.





If an
investment is reviewable under the Act, an application for review in the form
prescribed is normally required to be filed with Investment Canada prior to the
investment taking place and the investment may not be implemented until the
review has been completed and the Minister responsible for Investment Canada is
satisfied that the investment is likely to be of net benefit to
Canada.  If the Minister is not satisfied that the investment is
likely to be of net benefit to Canada, the non-Canadian must not implement the
investment or, if the investment has been implemented, may be required to divest
himself of control of the business that is the subject of the
investment.





The
following investments by non-Canadians are subject to notification under the
Act:





(a)           an
investment to establish a new Canadian business; and


(b)           an
investment to acquire control of a Canadian business that is not reviewable
pursuant to the Act.





An
investment is reviewable under the Act if there is an acquisition by a
non-Canadian of a Canadian business and the asset value of the Canadian business
being acquired equals or exceeds the following thresholds:




(a)
              for
      non-WTO Investors, the threshold is $5,000,000 for a direct acquisition
      and over $50,000,000 for an indirect acquisition.  The
      $5,000,000 threshold will apply however for an indirect acquisition if the
      asset value of the Canadian business being acquired exceeds 50% of the
      asset value of the global
transaction;
 (b)
              except
      as specified in paragraph (c) below, a threshold is calculated for
      reviewable direct acquisitions by or from WTO Investors. The threshold for
      2006 is $265,000,000.  Pursuant to Canada’s international
      commitments, indirect acquisitions by or from WTO Investors are not
      reviewable; and
 (c)
              the
      limits set out in paragraph (a) apply to all investors for acquisitions of
      a Canadian business that:
 
 (i)
              engages
      in the production of uranium and owns an interest in a producing uranium
      property in Canada;
 (ii)
              provides
      any financial services;
 (iii)
              provides
      any transportation service; or
 (iv)
              is
      a cultural business.
 
 Notwithstanding
the above limits, any investment which is usually only notifiable, including the
establishment of a new Canadian business engaged in the activity of publication,
distribution or sale of books, magazines, periodicals, newspapers, film or video
recordings, audio or video music recordings, or music in print or machine
readable formmay
be reviewed if an Order-in-Council directing a review is made and a notice is
sent to the investor within 21 days following the receipt of a certified
complete notification.
 
 WTO
Investor as defined in the Act means:
 
 (a)
              an
      individual, other than a Canadian, who is a national of a WTO Member or
      who has the right of permanent residence in relation to that WTO
      Member;(b)
              a
      government of a WTO Member, whether federal, state or local, or an agency
      thereof;
 (c)
              an
      entity that is not a Canadian-controlled entity, and that is a WTO
      investor-controlled entity, as determined in accordance with the
      Act;(d)
              a
      corporation or limited partnership:
  (i)
              that
      is not a Canadian-controlled entity, as determined pursuant to the
      Act;
 (ii)
              that
      is not a WTO investor within the meaning of the
  Act;
 (iii)
              of
      which less than a majority of its voting interests are owned by WTO
      investors;
 (iv)
              that
      is not controlled in fact through the ownership of its voting interests;
      and
 (v)
              of
      which two thirds of the members of its board of directors, or of which two
      thirds of its general partners, as the case may be, are any combination of
      Canadians and WTO
investors;


-80-


(e)           a
trust:





(i)
            that
      is not a Canadian-controlled entity, as determined pursuant to the
      Act;


(ii)
            that
      is not a WTO investor within the meaning of the
  Act;


(iii)
            that
      is not controlled in fact through the ownership of its voting interests,
      and


(iv)
            of
      which two thirds of its trustees are any combination of Canadians and WTO
      investors, or





(f)           any
other form of business organization specified by the regulations that is
controlled by a WTO investor.





WTO
Member as defined in the Act means a member of the World Trade
Organization.





Generally
speaking, an acquisition is direct if it involves the acquisition of control of
the Canadian business or of its Canadian parent or grandparent and an
acquisition is indirect if it involves the acquisition of control of a
non-Canadian parent or grandparent of an entity carrying on the Canadian
business.  Control may be acquired through the acquisition of actual
or de jure voting control of a Canadian corporation or through the acquisition
of substantially all of the assets of the Canadian business.  No
change of voting control will be deemed to have occurred if less than one-third
of the voting control of a Canadian corporation is acquired by an
investor.





The Act
specifically exempts certain transactions from either notification or
review.  Included among the category of transactions is the
acquisition of voting shares or other voting interests by any person in the
ordinary course of that person’s business as a trader or dealer in
securities.




Taxation
 
 Material
Canadian Federal Income Tax Consequences
 
 Management
of the Company considers that the following discussion describes the material
Canadian federal income tax consequences applicable to a holder of Common Stock
of the Company who is a resident of the United States and who is not a resident
of Canada and who does not use or hold, and is not deemed to use or hold, his
shares of Common Stock of the Company in connection with carrying on a business
in Canada (a “non-resident shareholder”).
 
 This
summary is based upon the current provisions of the Income Tax Act (Canada) (the
“ITA”), the regulations thereunder (the “Regulations”), the current publicly
announced administrative and assessing policies of Canada Revenue Agency and all
specific proposals (the “Tax Proposals”) to amend the ITA and Regulations
announced by the Minister of Finance (Canada) prior to the date
hereof.  This description is not exhaustive of all possible Canadian
federal income tax consequences and, except for the Tax Proposals, does not take
into account or anticipate any changes in law, whether by legislative,
governmental or judicial action.
 
 Dividends
 
 Dividends
paid on the common stock of the Company to a non-resident will be subject to
withholding tax.  The Canada-U.S. Income Tax Convention (1980)
provides that the normal 25% withholding tax rate is reduced to 15% on dividends
paid on shares of a corporation resident in Canada (such as the Company) to
residents of the United States, and also provides for a further reduction of
this rate to 5% where the beneficial owner of the dividends is a corporation
which is a resident of the United States which owns at least 10% of the voting
shares of the corporation paying the dividend.  In the event of the
Company declaring and paying dividends it would withhold any applicable
taxes.
 
 Capital
Gains
 
 In
general, a non-resident of Canada is not subject to tax under the ITA with
respect to a capital gain realized upon the disposition of a share of a
corporation resident in Canada that is listed on a prescribed stock
exchange.  For purposes of the ITA, the Company is listed on a
prescribed stock exchange.  Non-residents of Canada who dispose of
shares of the Company will be subject to income tax in Canada with respect to
capital gains if:


-81-





(a)
            the
      non-resident holder;


(b)
            persons
      with whom the non-resident holder did not deal at arm’s length;
      or


(c)
            the
      non-resident holder and persons with whom the non-resident holder did not
      deal with at arm’s length,





owned not
less than 25% of the issued shares of any class or series of the Company at any
time during the five-year period preceding the disposition.





In the
case of a non-resident holder to whom shares of the Company represent taxable
Canadian property and who is resident in the United States, no Canadian taxes
will be payable on a capital gain realized on such shares by reason of the
Canada-U.S. Income Tax Convention (1980) (the “Treaty”) unless:





(a)
            the
      value of such shares is derived principally from real property situated in
      Canada; or


(b)           the
non-resident holder is an individual who:


(i)
            was
      a resident of Canada for 120 months during any period of 20 consecutive
      years preceding the disposition of the shares;
  and


(ii)
            was
      a resident of Canada at any time during the 10 years immediately preceding
      the disposition of the property and the shares (or shares for which such
      shares were substituted in a disposition the gain on which was not
      recognized for purposes of taxation in Canada) were owned by the
      individual at the time he ceased to be a resident of
    Canada.





In such
cases, certain transitional relief under the Treaty may be
available.


Material
United States Federal Income Tax Considerations
 
 The
following is a general discussion of certain possible U.S. federal income tax
consequences, under current law, generally applicable to a U.S. Holder (as
hereinafter defined) of common shares of the Company. This discussion is of a
general nature only and does not take into account the particular facts and
circumstances, with respect to U.S. federal income tax issues, of any particular
U.S. Holder. In addition, this discussion does not cover any state, local or
foreign tax consequences.
 
 The
following discussion is based upon the sections of the Internal Revenue Code of
1986, as amended (the “Code”), Treasury Regulations, published Internal Revenue
Service (“IRS”) rulings, published administrative positions of the IRS and court
decisions that are currently applicable, any or all of which could be materially
and adversely changed, possibly on a retroactive basis, at any time and which
are subject to differing interpretations.  This discussion does not
consider the potential effects, both adverse and beneficial, of any proposed
legislation which, if enacted, could be applied, possibly on a retroactive
basis, at any time.
 
 This
discussion is for general information only and it is not intended to be, nor
should it be construed to be, legal or tax advice to any U.S. Holder or
prospective U.S. Holder of common shares of the Company, and no opinion or
representation with respect to the U.S. federal income tax consequences to any
such U.S. Holder or prospective U.S. Holder is made.  Accordingly,
U.S. Holders and prospective U.S. Holders of common shares of the Company should
consult their own financial advisor, legal counsel or accountant regarding the
U.S. federal, state, local and foreign tax consequences of purchasing, owning
and disposing of common shares of the Company.
 
 U.S.
Holders
 
 As used
herein, a “U.S. Holder” means a holder of common shares of the Company who is
(i) a  citizen or individual resident of the U.S., (ii) a corporation
created or organized in or under the laws of the U.S. or of any political
subdivision thereof, (iii) an estate whose income is taxable in the U.S.
irrespective of source or (iv) a trust subject to the primary supervision of a
court within the U.S. and control of a U.S. fiduciary as described in Section
7701(a)(30) of the Code.  If a partnership or other “pass-through”
entity treated as a partnership for U.S. federal income tax purposes holds
common shares of the Company, the U.S. federal income tax treatment of the
partners or owners of such partnership or other pass-through entity generally
will depend on the status of such partners or owners and the activities of such
partnership or pass-through entity.


-82-




Persons Not
Covered
 
 This
summary does not address the U.S. federal income tax consequences to persons
(including persons who are U.S. Holders) subject to special provisions of U.S.
federal income tax law, including, but not limited to, (i) persons who are
tax-exempt organizations, qualified retirement plans, individual retirement
accounts and other tax-deferred accounts, financial institutions, insurance
companies, real estate investment trusts, regulated investment companies, or
brokers, dealers or traders in securities, (ii) persons who have a “functional
currency” other than the U.S. dollar, (iii) persons subject to the alternative
minimum tax, (iv) persons who own their common shares of the Company as part of
a straddle, hedging, conversion transaction, constructive sale or other
arrangement involving more than one position, (v) persons who acquired their
common shares of the Company through the exercise of employee stock options or
otherwise as compensation for services, (vi) persons that own an interest in an
entity that owns common shares of the Company (vii) persons who own, exercise or
dispose of any options, warrants or other rights to acquire common shares of the
Company,  (viii) persons who are partners or owners of partnerships or
other pass-through entities or (ix) persons who own their common shares of the
Company other than as a capital asset within the meaning of Section 1221 of the
Code.
 
 Distribution on Common
Shares of the Company
 
 U.S.
Holders receiving distributions (including constructive indirect distributions)
with respect to common shares of the Company are required to include in gross
income for U.S. federal income tax purposes the gross amount of such
distributions, equal to the U.S. dollar value of such distributions on the date
of receipt (based on the exchange rate on such date), to the extent that the
Company has current or accumulated earnings and profits, without reduction for
any Canadian income tax withheld from such distributions.  Such
Canadian tax withheld may be credited, subject to certain limitations,
against the U.S. Holder’s U.S. federal income tax liability or, alternatively,
may be deducted in computing the U.S. Holder’s U.S. federal taxable income by
those who itemize deductions.  (See more detailed discussion at
“Foreign Tax Credit” below).  To the extent that distributions from
the Company exceed current or accumulated earnings and profits of the Company,
such distributions will be treated first as a return of capital, to the extent
of the U.S. Holder’s adjusted basis in the common shares, and thereafter as gain
from the sale or exchange of the common shares of the Company. (See more
detailed discussion at “Disposition of Common Shares of the Company”
below).
  To the
extent that the Company is a Passive Foreign Investment Company, as defined
below, in the current or prior year as discussed below, the Company will not be
a “qualified foreign corporation” as defined in Section 1(h)(11)(C) of the Code.
Accordingly, distributions from the Company received by U.S. Holders, who are
subject to tax under Section 1 of the Code and for which the Company is a PFIC,
would not be eligible to be taxed at the preferred long-term capital gains tax
rate.
 
 In the
case of foreign currency received as a distribution that is not converted by the
recipient into U.S. dollars on the date of receipt, a U.S. Holder will have a
tax basis in the foreign currency equal to its U.S. dollar value on the date of
receipt.  Generally any gain or loss recognized upon a subsequent sale
or other disposition of the foreign currency, including the exchange for U.S.
dollars, will be ordinary income or loss.  However, an individual
whose realized gain does not exceed $200 will not recognize that gain, to the
extent that there are no expenses associated with the transaction that meet the
requirements for deductibility as a trade or business expense (other than travel
expenses in connection with a business trip) or as an expense for the production
of income.
 
 Dividends
paid on the common shares of the Company generally will not be eligible for the
“dividends received deduction” allowed to corporate shareholders receiving
dividends from certain U.S. corporations.  Under certain
circumstances, a U.S. Holder that is a corporation and that owns shares
representing at least 10% of the total voting power and the total value of the
Company’s outstanding shares may be entitled to a 70% deduction of the “U.S.
source” portion of dividends received from the Company (unless the Company
qualifies as a “Foreign Personal Holding Company” or a “Passive Foreign
Investment Company” as defined below).  The availability of the
dividends received deduction is subject to several complex limitations which are
beyond the scope of this discussion, and U.S. Holders of common shares of the
Company should consult their own financial advisor, legal counsel or accountant
regarding the dividends received deduction.
 -83-
  Certain
information reporting and backup withholding rules may apply with respect to
certain payments related to the Company’s common shares. In particular, a payor
or middleman within the U.S., or in certain cases outside the U.S., will be
required to withhold 28% of any payments to a U.S. Holder of the Company’s
common shares of dividends on, or proceeds from the sale of, such common shares
within the U.S., if a U.S. Holder fails to furnish its correct taxpayer
identification number or otherwise fails to comply with, or establish an
exemption from, the backup withholding tax requirements. Any amounts withheld
under the U.S. backup withholding tax rules will be allowed as a refund or a
credit against the U.S. Holder’s U.S. federal income tax liability, provided the
required information is furnished to the IRS.
 
 Foreign Tax
Credit
 
 A U.S.
Holder who pays (or has withheld from distributions) Canadian or other foreign
income tax with respect to the ownership of common shares of the Company may be
entitled, at the option of the U.S. Holder, to either receive a deduction or a
tax credit for U.S. federal income tax purposes with respect to such foreign tax
paid or withheld. Generally, it will be more advantageous to claim a credit
because a credit reduces U.S. federal income taxes on a dollar-for-dollar basis,
while a deduction merely reduces the taxpayer’s income subject to U.S. federal
income tax.  This election is made on a year-by-year basis and applies
to all foreign taxes paid by (or withheld from distributions to) the U.S. Holder
during that year.
 
 There are
significant and complex limitations that apply to the foreign tax credit, among
which is the general limitation that the credit cannot exceed the proportionate
share of the U.S. Holder’s U.S. income tax liability that the U.S. Holder’s
“foreign source” income bears to his or its worldwide taxable
income.  In applying this limitation, the various items of income and
deduction must be classified as either “foreign source” or “U.S.
source.”  Complex rules govern this classification
process.  In addition, this limitation is calculated separately with
respect to specific classes of income such as “passive income,” “high
withholding tax interest,” “financial services income,” “shipping income,” and
certain other classifications
of income.  Dividends distributed by the Company will generally
constitute “foreign source” income, and will be classified as “passive income”
or, in the case of certain U.S. Holders, “financial services income” for these
purposes.
 In
addition, U.S. Holders that are corporations and that own 10% or more of the
voting stock of the Company may be entitled to an “indirect” foreign tax credit
under Section 902 of the Code with respect to the payment of dividends by the
Company under certain circumstances and subject to complex rules and
limitations.The
availability of the foreign tax credit and the application of the limitations
with respect to the foreign tax credit are fact specific, and each U.S. Holder
of common shares of the Company should consult their own financial advisor,
legal counsel or accountant regarding the foreign tax credit rules.
 
 Disposition of Common Shares
of the Company
 
 A U.S.
Holder will recognize gain or loss upon the sale or other taxable disposition of
common shares of the Company equal to the difference, if any, between (i) the
amount of cash and the fair market value of any property received, and (ii) the
shareholder’s tax basis in the common shares of the Company.  This
gain or loss will be capital gain or loss if the common shares are a capital
asset in the hands of the U.S. Holder, which generally will be long-term capital
gain or loss if the common shares of the Company are held for more than one
year.
 
 Preferential
tax rates apply to long-term capital gains of U.S. Holders that are individuals,
estates or trusts.  If the common shares of the Company are held for
more than five years, a lower long-term capital gains tax rate may
apply.  There are currently no preferential tax rates for long-term
capital gains for a U.S. Holder that is a corporation (other than a corporation
subject to Subchapter S of the Code).  Deductions for net capital
losses are subject to significant limitations.  For U.S. Holders that
are not corporations, any unused portion of such net capital loss may be carried
over to be used in later tax years until such net capital loss is thereby
exhausted.  For U.S. Holders that are corporations (other than
corporations subject to Subchapter S of the Code), an unused net capital loss
may be carried back three years and carried forward five years from the loss
year to be offset against capital gains until such net capital loss is thereby
exhausted.
 -84-
  Other Considerations for
U.S. Holders
 
 In the
following circumstances, the above sections of this discussion may not describe
the U.S. federal income tax consequences to U.S. Holders resulting from the
ownership and disposition of common shares of the Company:
 
 Controlled
Foreign Corporation
 
 If more
than 50% of the total voting power or the total value of the Company’s
outstanding shares is owned, directly or indirectly, by citizens or residents of
the U.S., U.S. partnerships or corporations, or U.S. estates or trusts (as
defined by the Code Section 7701(a)(30)), each of which own, directly or
indirectly, 10% or more of the total voting power of the Company’s outstanding
shares (each a “10% Shareholder”), the Company could be treated as a “Controlled
Foreign Corporation” (“CFC”) under Section 957 of the Code.
 
 The
classification of the Company as a CFC would have many complex implications,
including that 10% Shareholders of the Company would generally (i) be treated as
having received a current distribution of the Company’s “Subpart F income” and
(ii) would also be subject to current U.S. federal income tax on their pro rata
shares of the Company’s earnings invested in “U.S. property.”  The
foreign tax credit may reduce the U.S. federal income tax on these amounts for
such 10% Shareholders (See more detailed discussion at “Foreign Tax Credit”
above).  In addition, under Section 1248 of the Code, gain from the
sale or other taxable disposition of common shares of the Company by a U.S.
Holder that is or was a 10% Shareholder at any time during the five-year period
ending with the date of sale is treated as ordinary income to the extent of
earnings and profits of the Company attributable to the common shares sold or
exchanged.
 
 If the
Company is classified as both a Passive Foreign Investment Company as described
below and a CFC, the Company generally will not be treated as a Passive Foreign
Investment Company with respect to 10% Shareholders.  This rule
generally will be effective for taxable years of 10% Shareholders beginning
after 1997 and for taxable years of the Company ending with or within such
taxable years of 10% Shareholders.
  Passive
Foreign Investment Company
 
 Certain
U.S. income tax legislation contains rules governing “Passive Foreign Investment
Companies” (“PFIC”) which can have significant tax effects on U.S. Holders of
foreign corporations.  Section 1297 of the Code defines a PFIC as a
corporation that is not formed in the U.S. and, for any taxable year, either (i)
75% or more of its gross income is “passive income” or (ii) the average
percentage, by fair market value (or, if the corporation is not publicly traded
and either is a controlled foreign corporation or makes an election, by adjusted
tax basis), of its assets that produce or are held for the production of
“passive income” is 50% or more.  “Passive income” includes, for
example, dividends, interest, certain rents and royalties, certain gains from
the sale of stock and securities, and certain gains from commodities
transactions.  However, gains resulting from commodities transactions
are generally excluded from the definition of passive income if “substantially
all” of a merchant’s, producer’s or handler’s business is as an active merchant,
producer or handler of such commodities.
 
 For
purposes of the PFIC income test and the assets test, if a foreign corporation
owns (directly or indirectly) at least 25% by value of the stock of another
corporation, such foreign corporation shall be treated as if it (a) held a
proportionate share of the assets of such other corporation, and (b) received
directly its proportionate share of the income of such other
corporation.  Also, for purposes of such PFIC tests, passive income
does not include any interest, dividends, rents or royalties that are received
or accrued from a “related” person to the extent such amount is properly
allocable to the income of such related person which is not passive
income.  For these purposes, a person is related with respect to a
foreign corporation if such person “controls” the foreign corporation or is
controlled by the foreign corporation or by the same persons that control the
foreign corporation.  For these purposes, “control” means ownership,
directly or indirectly, of stock possessing more than 50% of the total voting
power of all classes of stock entitled to vote or of the total value of stock of
a corporation.
 
 While the
Company has not determined whether it is a PFIC, if the Company were to be a
PFIC, a U.S. Holder who holds stock in the Company would be subject to U.S.
federal income taxation under one of three alternative tax
regimes.  The following is a discussion of such three alternative tax
regimes.
 -85-
 
 QEF
Election
 
 A U.S.
Holder who elects in a timely manner to treat the Company as a QEF (an “Electing
U.S. Holder”) will be subject, under Section 1293 of the Code, to current U.S.
federal income tax for any taxable year in which the Company qualifies as a PFIC
on his pro rata share of the Company’s (i) “net capital gain” (the excess of net
long-term capital gain over net short-term capital loss), which will be taxed as
long-term capital gain to the Electing U.S. Holder and (ii) “ordinary earnings”
(the excess of earnings and profits over net capital gain), which will be taxed
as ordinary income to the Electing U.S. Holder, in each case, for the
shareholder’s taxable year in which (or with which) the Company’s taxable year
ends, regardless of whether such amounts are actually distributed.
 
 The
effective QEF election also allows the Electing U.S. Holder to (i) generally
treat any gain realized on the disposition of the Company’s common shares (or
deemed to be realized on the pledge of his shares) as capital gain; (ii) treat
his share of the Company’s net capital gain, if any, as long-term capital gain
instead of ordinary income; and (iii) either avoid interest charges resulting
from PFIC status altogether, or make an annual election, subject to certain
limitations, to defer payment of current taxes on his share of the Company’s
annual realized net capital gain and ordinary earnings subject, however, to an
interest charge.  If the Electing U.S. Holder is not a corporation,
such an interest charge would generally be treated as “personal interest” that
is not deductible.
 
 Section
1291 Rules
 
 If a U.S.
Holder does not make a timely QEF election during a year in which it holds (or
is deemed to have held) the common shares in question and the Company is a PFIC
(a “Non-Electing U.S. Holder”), then special taxation rules under Section 1291
of the Code will apply to (i) gains realized on the disposition (or deemed to be
realized by reasons of a pledge) of the Company’s common shares and (ii) certain
“excess distributions” (generally, distributions received in the current taxable
year that are in excess of 125% of the average distributions received during the
three preceding years or, if shorter, the U.S. Holder’s holding period) by the
Company.
  A
Non-Electing U.S. Holder generally would be required to pro rate all gains
realized on the disposition of the Company’s common shares and all excess
distributions on the Company’s common shares over the entire holding period for
the common shares.  All gains or excess distributions allocated to
prior years of the U.S. Holder (other than years prior to the first taxable year
of the Company during such U.S. Holder’s holding period and beginning after
January 1, 1987 for which it was a PFIC) would be taxed at the highest tax rate
for each such prior year applicable to ordinary income.  The
Non-Electing U.S. Holder also would be liable for interest on the foregoing tax
liability for each such prior year calculated as if such liability had been due
with respect to each such prior year.  A Non-Electing U.S. Holder that
is not a corporation must generally treat this interest charge as “personal
interest” which, as discussed above, is wholly nondeductible.  The
balance of the gain or the excess distribution will be treated as ordinary
income in the year of the disposition or distribution, and no interest charge
will be incurred with respect to such balance.
 
 If the
Company is a PFIC for any taxable year during which a Non-Electing U.S. Holder
holds Company common shares, then the Company will continue to be treated as a
PFIC with respect to such Company common shares, even if it is no longer
definitionally a PFIC.  A Non-Electing U.S. Holder may terminate this
deemed PFIC status by electing to recognize gain (which will be taxed under the
rules discussed above for Non-Electing U.S. Holders) as if such Company common
shares had been sold on the last day of the last taxable year for which it was a
PFIC.
 
 Mark-to-Market
Election
 
 Effective
for tax years of U.S. Holders beginning after December 31, 1997, U.S. Holders
who hold, actually or constructively, marketable stock (as specifically defined
in the Treasury Regulations) of a foreign corporation that qualifies as a PFIC
may annually elect to mark such stock to the market (a “mark-to-market
election”).  If such an election is made, such U.S. Holder will
generally not be subject to the special taxation rules of Section 1291 discussed
above.  A U.S. Holder who makes the mark-to-market election will
include in income for the taxable year for which the election was made an amount
equal to the excess, if any, of the fair market value of the common shares of
the Company as of the close of such tax year over such U.S. Holder’s adjusted
basis in such common shares.  In addition, the U.S. Holder may be
allowed a deduction for the lesser of (i) the excess, if any, of such U.S.
Holder’s adjusted tax basis in the common shares over the fair market value of
such shares as of the close of the tax year, or (ii) the excess, if any, of (A)
 -86-
  the
mark-to-market gains for the common shares in the Company included by such U.S.
Holder for prior tax years, including any amount which would have been included
for any prior tax year but for the Section 1291 interest on tax deferral rules
discussed above with respect to Non-Electing U.S. Holders, over (B) the
mark-to-market losses for shares that were allowed as deductions for prior tax
years.  A U.S. Holder’s adjusted tax basis in the common shares of the
Company will be adjusted to reflect the amount included in or deducted from
income as a result of a mark-to-market election.  A mark-to-market
election applies to the taxable year in which the election is made and to each
subsequent taxable year, unless the Company’s common shares cease to be
marketable, as specifically defined, or the IRS consents to revocation of the
election.  U.S. Holders should consult their tax advisor regarding the
manner of making such an election.
 
 Inspection
of Documents
 
 Copies of
the documents referred to in this annual report may be inspected at the
Company’s corporate office at Suite 598 – 999 Canada Place, Vancouver, British
Columbia V6C 3E1, during normal business hours.
 
 
 Item
11.  Quantitative and Qualitative Disclosures About Market
Risk.
 
 Not
applicable.
 
 
 Item
12.  Description of Securities Other than Equity
Securities.
 
 Not
applicable.
 
 PART
II
 
 
 Item
13.  Defaults, Dividend Arrearages and
Delinquencies.
 
 Not
applicable.
 
 
 Item
14.  Material Modifications to the Rights of Security Holders and Use
of Proceeds.
 
 Not
applicable.
 
 
 Item
15T.  Controls and Procedures.
 
 Disclosure
Controls and Procedures
 
 Disclosure
controls and procedures, as defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934 (the “Exchange Act”), are controls and other procedures of
the Company that are designed to ensure that information required to be
disclosed by the Company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the SEC’s rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by the Company in the reports
that it files or submits under the Act is accumulated and communicated to the
Company’s management, including its Chief Executive Officer and Chief
Financial Officer, or persons performing similar functions, as appropriate to
allow timely decisions regarding required disclosure.  Rule 13a-15
under the Exchange Act, requires the Company to carry out an evaluation of the
effectiveness of the design and operation of its disclosure controls and
procedures as of May 31, 2008, being the date of the Company’s most recently
completed fiscal
 -87-
  year
end.  This evaluation was partially implemented under the supervision
and with the participation of the Company’s President and Chief Executive
Officer, Igor Kovarsky, and the Chief Financial Officer, Nick
DeMare.  It has become apparent that management relies upon
certain informal procedures and communication, and upon “hands-on” knowledge of
senior management.  Management intends to formalize certain of its
procedures.  Due to the small staff, however, the Company will
continue to rely on an active Board and management with open lines of
communication to maintain the effectiveness of the Company’s disclosure controls
and procedures.  Lapses in the disclosure controls and procedures
could occur and/or mistakes could happen.  Should such occur, the
Company will take whatever steps necessary to minimize the consequences
thereof.  As of the date of this annual report, the documentation and
evaluation of certain of the disclosure controls and procedures over the
Company’s operations have not been completed.
 
 Management’s Annual Report on
Internal Control Over Financial Reporting
 
 The
Company’s board of directors and audit committee are responsible for
establishing and maintaining adequate internal control over financial
reporting.  The Company’s internal control system was designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation and fair presentation of its consolidated financial
statements for external purposes in accordance with generally accepted
accounting principles.
 
 The
Company’s President and Chief Executive Officer, Igor Kovarsky, and its Chief
Financial Officer, Nick DeMare, have not completed their assessments of the
effectiveness of the Company’s internal control over financial reporting (as
defined in Rule 13a-15(f) and Rule 15d-(f) promulgated under the Exchange Act)
as of May 31, 2008, and therefore, are unable to assert that, as of May 31,
2008, the Company’s internal control over financial reporting is effective based
on the criteria established in Internal Control - Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(“COSO”).  Management is aware that certain weaknesses exist in
internal controls over financial reporting.  As is indicative of many
small companies, the lack of segregation of duties and effective risk assessment
were identified as areas where weaknesses existed.  The existence of
these weaknesses is to be compensated for by
senior management monitoring which exists. The Company is taking steps to
augment and improve the design of procedure and controls impacting these areas
of weakness over internal control over financial reporting.  It should
be noted that a control system, no matter how well conceived or operated, can
only provide reasonable assurance, not absolute assurance, that the objectives
of the control system are met.
 This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by the Company’s registered
public accounting firm pursuant to temporary rules of the SEC that permit the
Company to provide only management’s report in this annual report.
 
 Changes in Internal Control over
Financial Reporting
 
 During
the period covered by this annual report, there were no changes in the Company’s
internal control over financial reporting that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over
financial reporting.
 
 
 Item
16.  [Reserved]
 
 Not
applicable.
 Item
16A.  Audit Committee Financial Expert.
 
 The board
of directors has determined that the Company has at least one audit committee
financial expert, Mr. Nick DeMare, who serves on the Company’s audit
committee.  Mr. DeMare is not considered to be an “independent
director” as that term is defined in Rule 4200(a)(15) of the National
Association of Securities Dealers.
 -88-
  Item
16B.   Code of Ethics.
 
 The
Company has not yet adopted a code of ethics that applies to the Company’s
principal executive officer, principal financial officer, principal accounting
officer, or controller, or persons performing similar
functions.  Given the Company’s current operations, management does
not believe a code of ethics is necessary at this stage of the Company’s
development.
 
 
 Item
16C.  Principal Accountant Fees and Services.
 
 Audit
Fees
 
 For the
fiscal years ended May 31, 2008 and 2007, the Company’s principal accountant
billed the Company $38,500 and $35,000, respectively, for the audit of the
Company’s annual financial statements or services that are normally provided by
the accountant in connection with statutory and regulatory filings or
engagements.
 
 Audit-Related
Fees
 
 For the
fiscal years ended May 31, 2008 and 2007, the Company’s principal accountant
billed $nil and $nil, respectively, for assurance and related services that were
reasonably related to the performance of the audit or review of the Company’s
financial statements outside of those fees disclosed above under “Audit
Fees”.
 
 Tax
Fees
 
 For the
fiscal years ended May 31, 2008 and 2007, the Company’s principal accountant
billed $nil and $nil, respectively, for tax compliance, tax advice, and tax
planning services.
  All
Other Fees
 
 For the
fiscal years ended May 31, 2008 and 2007, the Company’s principal accountant
billed $nil and $nil, respectively, for products and services other than those
set forth above.
 
 Pre-Approval
Policies and Procedures
 
 Prior to
engaging the Company’s accountants to perform a particular service, the
Company’s audit committee obtains an estimate for the service to be
performed.  The Company’s audit committee reviews and pre-approves all
audit and audit-related services and the fees and other compensation related
thereto, and any non-audit services, provided by the Company’s external
auditors. Provided the pre-approval of the non-audit services is presented to
the audit committee’s first scheduled meeting following such approval such
authority may be delegated by the audit committee to one or more independent
members of the audit committee. The audit committee in accordance with
procedures for the Company approved all of the services described
above.
 
 At no
time since the commencement of the Company’s most recently completed financial
year has the Company relied on the waiver in paragraph (c)(7)(i)(C) of Rule 2-01
of Regulation S-X.
 
 To the
best of the Company’s knowledge, no more than fifty percent of the hours
expended on the auditors’ engagement to audit the Company’s financial statements
for the fiscal year ended May 31, 2008 were attributed to work performed by
persons other than the auditor’s full-time, permanent employees.
 
 
 Item
16D.   Exemptions from the Listing Standards for Audit
Committees.
 
 Not
applicable.
 -89-
 
 
 Item
16E.   Purchases of Equity Securities by the Issuer and
Affiliated Purchasers.
 
 During
the fiscal year ended May 31, 2008, there were no purchases made by or on behalf
of the Company or an “affiliated purchaser” (as defined in Rule 10b-18(a)(3)
adopted under the Securities Exchange Act of 1934), including any officer or
director of the Company, of the Company’s common shares
 
  PART
III
 
 
 Item
17.  Financial Statements.
 
 See
attached pages F-1 through F-32.
 
 
 Item
18.  Financial Statements.
 
 Not
applicable.
 
 
  -90-
  Item
19.  Exhibits.
 
 Exhibit Number
              Description1.1
              Certificate
      of Continuation and Notice of Articles (1)1.2
              Notice
      of Alteration - Form 11 (2)1.3
              Articles
      (3)4.1
              Stock
      Option Plan 2005, as amended November 21, 2007 (4)4.2
              Surplus
      Security Escrow Agreement among Baradero Resources Limited, Computershare
      Investor Services Inc., Douglas Turnbull, Cary Pinkowski, Gregory Crowe,
      Lindsay Bottomer, James Harris, William J. Tafuri, and Robin Merrifield
      dated September 12, 2005 (2)4.3
              Management
      Agreement between Chase Management Ltd. and Centrasia Mining Corp. dated
      September 14, 2005 (2)4.4
              Consulting
      Agreement between Bulakashu Mining Company Ltd. and Oleg Kim dated
      November 23, 2005 (3)4.5
              Consulting
      Agreement between Centrasia Mining Corp. and William Tafuri dated December
      1, 2005 (3)4.6
              Option
      Agreement between Bulakashu Mining Company Ltd., Marsa Gold Corp.,
      Magellan Gold (BVI) Inc., Centrasia Mining Corp. and Kantanna Company
      Limited dated January 6, 2006 (5)4.7
              Consulting
      Agreement between Centrasia Mining Kazakhstan Ltd. and Vladimir Danilov
      dated January 31, 2006 (3)4.8
              Share
      Purchase Agreement by and among Centrasia Mining Corp., its wholly-owned
      subsidiary, Magellan Holdings (BVI) Corp. and Stargate Solutions Ltd.
      (“Stargate”) dated May 11, 2007 (as amended on June 8, 2007, June 22,
      2007, July 11, 2007 and July 13, 2007, respectively)
(4)4.9
              Escrow
      Agreement by and among Centrasia Mining Corp., Computershare Investor
      Services Inc., Stargate Solutions Ltd., AGA Management Ltd. and DBM
      Capital Partners Limited dated June 28, 2007 (4)4.10
              Amending
      Agreement between Centrasia Mining Corp. and Kantanna Company Limited
      dated August 17, 2007 (4)4.11
              Employment Agreement
      between Kola Mining Corp. and Igor A. Kovarsky dated June 1,
      20088.1
              List
      of Subsidiaries (4)12.1
              Certification
      of Igor Kovarsky Pursuant to Rule 13a-14(a)12.2
              Certification
      of Nick DeMare Pursuant to Rule 13a-14(a)13.1
              Certification
      of Igor Kovarsky Pursuant to 18 U.S.C. Section 135013.2
              Certification
      of Nick DeMare Pursuant to 18 U.S.C. Section
  1350
   (1)
              Previously
      filed as an exhibit to the Company’s annual report on Form 20-F, filed
      with the Securities and Exchange Commission on December 3,
      2004.  File Number
0-30920.
 (2)
              Previously
      filed as an exhibit to the Company’s annual report on Form 20-F, filed
      with the Securities and Exchange Commission on October 28,
      2005.  File Number
0-30920.
 (3)
              Previously
      filed as an exhibit to the Company’s annual report on Form 20-F, filed
      with the Securities and Exchange Commission on December 1,
      2006.  File Number
0-30920.
   -91-
  (4)
              Previously
      filed as an exhibit to the Company’s annual report on Form 20-F, filed
      with the Securities and Exchange Commission on December 17,
      2007.  File Number
0-30920.
 (5)
              Previously
      filed as an attachment to the Company’s Form 6-K dated October 23, 2006,
      filed with the Securities and Exchange Commission on October 24,
      2006.  File Number
0-30920.
 
 
 
  -92-
  SIGNATURES
 
 
 The
registrant hereby certifies that it meets all of the requirements for filing on
Form 20-F and that it has duly caused and authorized the undersigned to sign
this annual report on its behalf.
  KOLA MINING
    CORP.Dated:
      Decenber 12, 2008
                
                /s/ Igor
      KovarskyIgor
      Kovarsky, President and Chief Executive Officer
                   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 KOLA
MINING CORP.
 (formerly
Centrasia Mining Corp.)
 (an
Exploration Stage Company)
 
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR THE
YEARS ENDED MAY 31, 2008, 2007 AND 2006
 
 (Expressed
in Canadian dollars, unless otherwise stated)
  
 
 
 
 
 
 F-1
 
 
 DAVIDSON&COMPANY
LLP           Chartered
Accountants               
A Partnership of Incorporated
Professionals
 
 INDEPENDENT
AUDITORS’ REPORT
  To the
Shareholders of
 Kola
Mining Corp.
 (formerly
Centrasia Mining Corp.)
 
 We have
audited the consolidated balance sheets of Kola Mining Corp. (formerly Centrasia
Mining Corp.) as at May 31, 2008 and 2007 and the consolidated statements of
loss and comprehensive loss, deficit, and cash flows for the years ended May 31,
2008, 2007 and 2006.  These financial statements are the
responsibility of the Company's management.  Our responsibility is to
express an opinion on these financial statements based on our
audits.
 
 We
conducted our audits in accordance with Canadian generally accepted auditing
standards and with the standards of the Public Company Accounting Oversight
Board (United States).  Those standards require that we plan and
perform an audit to obtain reasonable assurance whether the financial statements
are free of material misstatement.  An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.
 
 In our
opinion, these consolidated  financial statements present fairly, in
all material respects, the financial position of the Company as at May 31, 2008
and 2007 and the results of its operations and cash flows for the years ended
May 31, 2008, 2007 and 2006 in accordance with Canadian generally accepted
accounting principles.
 
 “DAVIDSON
& COMPANY LLP”
 
 Vancouver,
      Canada
                  Chartered
      AccountantsDecember
      10, 2008
 
 
 COMMENTS
BY AUDITORS FOR U.S. READERS ON CANADA –
 U.S.
REPORTING DIFFERENCE
 
 In the
United States, reporting standards for auditors require the addition of an
explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that cast substantial doubt on
the Company's ability to continue as a going concern, such as those described in
Note 1 to the consolidated financial statements or when there are changes in
accounting principles that have a material effect on the comparability of the
Company’s financial statements, such as the changes described in Note 2 to the
consolidated financial statements.  Our report to the shareholders
dated December 10, 2008 is expressed in accordance with Canadian reporting
standards which do not permit a reference to such events and conditions or
changes in accounting principles in the auditors' report when these are
adequately disclosed in the financial statements.
 
 “DAVIDSON
& COMPANY LLP”
 
 Vancouver,
      Canada
                  Chartered
      AccountantsDecember
      10, 2008
  1200 -
609 Granville Street, P.O. Box 10372, Pacific Centre, Vancouver, BC, Canada, V7Y
1G6
 Telephone
(604) 687-0947  Fax (604) 687-6172
 
 F-2
 KOLA
MINING CORP.
 (formerly
Centrasia Mining Corp.)
 (an
Exploration Stage Company)
 CONSOLIDATED
BALANCE SHEETS
 AS
AT MAY 31
 (Expressed
in Canadian dollars, unless otherwise stated)
 
 2008
              
              
              
              2007$
              
              
              
              $A
      S S E T SCURRENT
      ASSETSCash
              
              
              824,056
              
              
              
              3,581,199Amounts
      receivable
              
              
              25,034
              
              
              
              52,025Prepaids
              
              
              139,296
              
              
              
              89,262988,386
              
              
              
              3,722,486DEPOSITS
      AND EXPLORATION ADVANCES
              
              
              256,988
              
              
              
              -DEFERRED ACQUISITION
      COSTS (Note 3)
              
              
              -
              
              
              
              403,975EQUIPMENT(Note
      4)
              
              
              328,669
              
              
              
              224,857UNPROVEN MINERAL
      INTERESTS (Note 5)
              
              
              40,037,414
              
              
              
              1,491,84441,611,457
              
              
              
              5,843,162L
      I A B I L I T I E SCURRENT
      LIABILITIESAccounts
      payable and accrued liabilities
              
              
              737,803
              
              
              
              341,115Loans
      and advances
              
              
              71,511
              
              
              
              -Current
      portion of long-term debt (Notes 6 and 16(a))
              
              
              4,792,014
              
              
              
              -5,601,328
              
              
              
              341,115NON-CURRENT PORTION OF
      LONG-TERM DEBT(Note 6)
              
              
              1,290,380
              
              
              
              -FUTURE INCOME TAX
      LIABILITIES (Notes 3 and 11)
              
              
              8,157,000
              
              
              
              -15,048,708
              
              
              
              341,115S
      H A R E H O L D E R S ’ E Q U I T YSHARE CAPITAL(Note
      7)
              
              
              34,327,986
              
              
              
              8,490,285CONTRIBUTED SURPLUS(Note 9)
              
              
              2,435,126
              
              
              
              625,900DEFICIT
              
              
              (10,200,363
              )
              
              
              (3,614,138
              )26,562,749
              
              
              
              5,502,04741,611,457
              
              
              
              5,843,162
 
 NAME CHANGE, NATURE OF OPERATIONS AND
GOING CONCERN (Note 1)
 COMMITMENTS(Note
13)
 SUBSEQUENT EVENTS (Note
17)
 
 APPROVED
BY THE DIRECTORS
 
 “Nick
      DeMare”
              ,
      Director
              “Cary
      Pinkowski”
              ,
      Director
 
 
 F-3
 KOLA
MINING CORP.
 (formerly
Centrasia Mining Corp.)
 (an
Exploration Stage Company)
 CONSOLIDATED
STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
 FOR
THE YEARS ENDED MAY 31
 (Expressed
in Canadian dollars, unless otherwise stated)
 
 
 2008
              
              
              
              2007
              
              
              
              2006$
              
              
              
              $
              
              
              
              $EXPENSESAccounting
      and administrative
              
              
              81,000
              
              
              
              76,850
              
              
              
              62,358Amortization
              
              
              107,213
              
              
              
              46,518
              
              
              
              14,435Audit
              
              
              39,116
              
              
              
              16,455
              
              
              
              36,563Corporate
      development
              
              
              168,284
              
              
              
              92,263
              
              
              
              60,655General
      exploration
              
              
              24,746
              
              
              
              23,865
              
              
              
              -Interest
      on indebtedness
              
              
              -
              
              
              
              -
              
              
              
              11,532Investor
      relations
              
              
              88,676
              
              
              
              28,300
              
              
              
              16,250Legal
              
              
              160,779
              
              
              
              63,021
              
              
              
              93,785Management
      fees
              
              
              95,169
              
              
              
              46,214
              
              
              
              67,438Office
              
              
              305,492
              
              
              
              122,561
              
              
              
              63,439Professional
      fees
              
              
              239,666
              
              
              
              224,382
              
              
              
              151,170Property
      due diligence
              
              
              -
              
              
              
              99,242
              
              
              
              170,217Regulatory
      fees
              
              
              19,673
              
              
              
              11,942
              
              
              
              12,555Rent
              
              
              101,878
              
              
              
              50,706
              
              
              
              30,474Salaries
      and benefits
              
              
              575,806
              
              
              
              238,980
              
              
              
              75,193Shareholder
      costs
              
              
              25,944
              
              
              
              4,039
              
              
              
              1,542Stock-based
      compensation (Note 8)
              
              
              1,501,176
              
              
              
              503,400
              
              
              
              137,250Transfer
      agent
              
              
              16,759
              
              
              
              16,326
              
              
              
              18,646Travel
              
              
              550,977
              
              
              
              284,729
              
              
              
              170,9844,102,354
              
              
              
              1,949,793
              
              
              
              1,194,486LOSS
      BEFORE OTHER ITEMS
              
              
              (4,102,354
              )
              
              
              (1,949,793
              )
              
              
              (1,194,486
              )OTHER
      ITEMSInterest
      and other income
              
              
              133,131
              
              
              
              42,993
              
              
              
              19,455Foreign
      exchange
              
              
              796,849
              
              
              
              (76,908
              )
              
              
              (31,636
              )Write-off
      of unproven mineral interests (Note 5)
              
              
              (3,413,851
              )
              
              
              (52,361
              )
              
              
              -(2,483,871
              )
              
              
              (86,276
              )
              
              
              (12,181
              )LOSS
      AND COMPREHENSIVE LOSS FOR THE YEAR
              
              
              (6,586,225
              )
              
              
              (2,036,069
              )
              
              
              (1,206,667
              )BASIC
      AND DILUTED LOSS PER COMMON SHARE
              
              $
              (0.13
              )
              
              $
              (0.10
              )
              
              $
              (0.10
              )WEIGHTED
      AVERAGE NUMBER OF
                COMMON
      SHARES OUTSTANDING
              
              
              49,745,306
              
              
              
              19,576,880
              
              
              
              12,518,011
 
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
 F-4
 KOLA
MINING CORP.
 (formerly
Centrasia Mining Corp.)
 (an
Exploration Stage Company)
 CONSOLIDATED
STATEMENTS OF DEFICIT
 FOR
THE YEARS ENDED MAY 31
 (Expressed
in Canadian dollars, unless otherwise stated)
 
 
 
 2008
              
              
              
              2007
              
              
              
              2006$
              
              
              
              $
              
              
              
              $DEFICIT
      - BEGINNING OF YEAR
              
              
              (3,614,138
              )
              
              
              (1,578,069
              )
              
              
              (237,369
              )Net
      liabilities assumed at time of recapitalization (Note
3(b))
              
              
              -
              
              
              
              -
              
              
              
              (134,033
              )(3,614,138
              )
              
              
              (1,578,069
              )
              
              
              (371,402
              )LOSS
      FOR THE YEAR
              
              
              (6,586,225
              )
              
              
              (2,036,069
              )
              
              
              (1,206,667
              )DEFICIT
      - END OF YEAR
              
              
              (10,200,363
              )
              
              
              (3,614,138
              )
              
              
              (1,578,069
              )
 
 
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
 F-5
 KOLA
MINING CORP.
 (formerly
Centrasia Mining Corp.)
 (an
Exploration Stage Company)
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 FOR
THE YEARS ENDED MAY 31
 (Expressed
in Canadian dollars, unless otherwise stated)
 
 
 2008
              
              
              
              2007
              
              
              
              2006$
              
              
              
              $
              
              
              
              $CASH
      PROVIDED FROM (USED FOR)OPERATING
      ACTIVITIESLoss
      for the year
              
              
              (6,586,225
              )
              
              
              (2,036,069
              )
              
              
              (1,206,667
              )Adjustments
      for items not involving cashAmortization
              
              
              107,213
              
              
              
              46,518
              
              
              
              14,435Write-off
      of unproven mineral interests
              
              
              3,413,851
              
              
              
              52,361
              
              
              
              -Property
      due diligence
              
              
              -
              
              
              
              -
              
              
              
              133,164Stock-based
      compensation
              
              
              1,501,176
              
              
              
              503,400
              
              
              
              137,250Foreign
      exchange
              
              
              (831,606
              )
              
              
              -
              
              
              
              -(2,395,591
              )
              
              
              (1,433,790
              )
              
              
              (921,818
              )Decrease
      (increase) in amounts receivable
              
              
              37,015
              
              
              
              (37,647
              )
              
              
              10,136(Increase)
      decrease in prepaids
              
              
              294
              
              
              
              (52,335
              )
              
              
              (31,674
              )(Decrease)
      increase in accounts payable
                and
      accrued liabilities
              
              
              (267,468
              )
              
              
              59,145
              
              
              
              26,132(2,625,750
              )
              
              
              (1,464,627
              )
              
              
              (917,224
              )INVESTING
      ACTIVITIESAcquisition
      of RPIM
              
              
              (6,682,674
              )
              
              
              -
              
              
              
              -Cash
      assumed on acquisition of RPIM
              
              
              8,399
              
              
              
              -
              
              
              
              -Additions
      to equipment
              
              
              (195,719
              )
              
              
              (128,400
              )
              
              
              (147,899
              )Additions
      to unproven mineral interests
              
              
              (5,676,409
              )
              
              
              (395,319
              )
              
              
              (203,988
              )Deposits
      and exploration advances
              
              
              19,800
              
              
              
              -
              
              
              
              -Deferred
      acquisition costs
              
              
              (126,916
              )
              
              
              (277,059
              )
              
              
              -Advance
              
              
              -
              
              
              
              -
              
              
              
              (133,164
              )Cash
      assumed on recapitalization and acquisition
              
              
              -
              
              
              
              -
              
              
              
              404,139Amounts
      incurred or advanced to
                BMC
      prior to recapitalization
              
              
              -
              
              
              
              -
              
              
              
              (93,178
              )(12,653,519
              )
              
              
              (800,778
              )
              
              
              (174,090
              )FINANCING
      ACTIVITIESIssuance
      of common shares
              
              
              14,132,604
              
              
              
              4,664,078
              
              
              
              2,478,521Share
      issue costs
              
              
              (1,071,163
              )
              
              
              (74,232
              )
              
              
              (219,443
              )Repayment
      of loans and advances
              
              
              (539,315
              )
              
              
              -
              
              
              
              -Advances
      and promissory note prior to recapitalization
              
              
              -
              
              
              
              -
              
              
              
              84,485Indebtedness
              
              
              -
              
              
              
              -
              
              
              
              (18,125
              )12,522,126
              
              
              
              4,589,846
              
              
              
              2,325,438(DECREASE) INCREASE IN
      CASH FOR THE
      YEAR
              
              
              (2,757,143
              )
              
              
              2,324,441
              
              
              
              1,234,124CASH
      - BEGINNING OF YEAR
              
              
              3,581,199
              
              
              
              1,256,758
              
              
              
              22,634CASH
      - END OF YEAR
              
              
              824,056
              
              
              
              3,581,199
              
              
              
              1,256,758
 
 
 SUPPLEMENTAL CASH FLOW INFORMATION- Note 15
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
 F-6
 KOLA
MINING CORP.
 (formerly
Centrasia Mining Corp.)
 (an
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED MAY 31, 2008, 2007 AND 2006
 (Expressed
in Canadian dollars, unless otherwise stated)
 
 
 1.
              NAME
      CHANGE, NATURE OF OPERATIONS AND GOING
CONCERN
 
 On March 26, 2008 the Company changed
its name from Centrasia Mining Corp. to Kola Mining Corp.
 
 During
fiscal 2008 the Company’s principal business activity was the sourcing,
exploration and development of mineral properties in Russia and the Kyrgyz
Republic.  As at May 31, 2008 the Company has written-off all of its
mineral interests in the Kyrgyz Republic.  See also Notes 3 and
5(b).
 
 The
Company is in the process of exploring and evaluating its mineral
properties.  On the basis of information to date, it has not yet
determined whether these properties contain economically recoverable ore
reserves.  The underlying value of the unproven mineral interests is
entirely dependent on the existence of economically recoverable reserves, the
ability of the Company to obtain the necessary financing to complete development
and upon future profitable production.  The amounts shown as unproven
mineral interests represent net costs to date, less amounts written off, and do
not necessarily represent present or future values.
 
 During
fiscal 2008 the Company incurred a loss of $6,586,225 and, as at May 31, 2008,
had an accumulated deficit of $10,200,363 and a working capital deficiency of
$4,612,942.  The Company will require additional financing to meet its
ongoing levels of corporate overhead, retire existing liabilities and debt
obligations and implement the required work programs on its mineral
interests.  The Company expects to generate the necessary financial
resources through the sale of equity securities.  These consolidated
financial statements have been prepared on a going-concern basis which assumes
that the Company will be able to realize assets and discharge liabilities in the
normal course of business.  While the Company has been successful in
securing financings in the past, there can be no assurance that it will be able
to do so in the future.  Accordingly, it does not give effect to
adjustments, if any, that would be necessary should the Company be unable to
continue as a going concern and, therefore, be required to realize its assets
and liquidate its liabilities in other than the normal course of business and at
amounts which may differ from those shown in the consolidated financial
statements.
 
 Subsequent
to May 31, 2008 the Company completed an equity financing of 33,333,334 units
for gross proceeds of $10,000,000 and retired US $5,250,000 of its
long-term debt.  See Note 17.
 
 
 2.
              SIGNIFICANT
      ACCOUNTING POLICIES
 
 Basis
of Presentation
 
 These
consolidated financial statements have been prepared in accordance with Canadian
generally accepted accounting principles (“Canadian GAAP”).  The
significant differences between these principles and those that would be applied
under United States generally accepted accounting principles (“US GAAP”) are
disclosed in Note 16.
 
 These
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries, 0724000 B.C. Ltd.  (“724 BC”), a company
continued into the Province of British Columbia, Magellan Holdings (BVI)
Corp.  (“Magellan Holdings”) and Magellan Gold (BVI) Inc. (“Magellan
Gold”), both incorporated under the laws of the British Virgin Islands,
Centrasia Mining Kazakhstan, a company formed under the laws of the Republic of
Kazakhstan, Bulakashu Mining Company Ltd. (“BMC”), a company formed under the
laws of the Kyrgyz Republic, R.P.I.M. Minerals Ltd. (“RPIM”), a company formed
under the laws of Cyprus and Zao Rudprominvest (“RPI”), a company formed under
the laws of the Russian Federation.  Inter-company balances and
transactions are eliminated on consolidation.
 
 F-7
 KOLA
MINING CORP.
 (formerly
Centrasia Mining Corp.)
 (an
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED MAY 31, 2008, 2007 AND 2006
 (Expressed
in Canadian dollars, unless otherwise
stated)
 
 2.
                SIGNIFICANT ACCOUNTING
      POLICIES
(continued)
 Use of Estimates
 
 The
preparation of financial statements in conformity with Canadian GAAP requires
management to make estimates and assumptions that affect the reported amount of
assets and liabilities and disclosure of contingent liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reported period.  Significant areas requiring the use of
management estimates relate to the estimation of stock-based compensation, the
determination of environmental and asset retirement obligations, impairment of
mineral claims and deferred exploration expenditures, the related rates of
amortization and the determination of future income tax assets and
liabilities.   Actual results could differ from these
estimates.
 
 Unproven Mineral Interests
 
 Acquisition
and exploration costs directly relating to unproven mineral interests are
deferred until the mineral interests to which they relate is placed into
production, sold or abandoned.  The deferred costs will be amortized
over the life of the orebody following commencement of production or written off
if the property is sold or abandoned.  Administration costs and other
exploration costs that do not relate to any specific property are expensed as
incurred.
 
 On a
periodic basis, management reviews the carrying values of deferred unproven
mineral interest acquisition and exploration expenditures with a view to
assessing whether there has been any impairment in value.  Management
takes into consideration various information including, but not limited to,
results of exploration activities conducted to date, estimated future metal
prices, and reports and opinions of outside geologists, mine engineers and
consultants.  When it is determined that a project or interest will be
abandoned or its carrying value has been impaired, a provision is made for any
expected loss on the project or interest.
 
 Although
the Company has taken steps to verify title to mineral interests in which it has
an interest, according to the usual industry standards for the stage of
exploration of such interests, these procedures do not guarantee the Company’s
title.  Such interests may be subject to prior agreements or transfers
and title may be affected by undetected defects.
 
 From time
to time, the Company acquires or disposes of interests pursuant to the terms of
option agreements.  Options are exercisable entirely at the discretion
of the optionee and, accordingly, are recorded as mineral interests costs or
recoveries when the payments are made or received.
 
 The
Company also accounts for foreign value added taxes as part of deferred
costs.  The recovery of these taxes will commence on the beginning of
foreign commercial operations.  Should these amounts be recovered they
would be treated as a reduction in the carrying costs of mineral property
interests.
 
 Equipment
 
 Equipment,
which is comprised of mobile and field equipment and office furniture and
equipment, are recorded at cost less accumulated amortization calculated using
the straight-line method over their estimated useful lives of between three to
five years.
 
 
 
 F-8
 KOLA
MINING CORP.
 (formerly
Centrasia Mining Corp.)
 (an
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED MAY 31, 2008, 2007 AND 2006
 (Expressed
in Canadian dollars, unless otherwise
stated)
 
 2.
              SIGNIFICANT ACCOUNTING
      POLICIES (continued)
 
 Asset Retirement
Obligations
 
 The
Company recognizes the fair value of a liability for an asset retirement
obligation in the year in which it is incurred when a reasonable estimate of
fair value can be made.  The carrying amount of the related long-lived
asset is increased by the same amount as the liability.
 
 Changes
in the liability for an asset retirement obligation due to the passage of time
will be measured by applying an interest method of allocation.  The
amount will be recognized as an increase in the liability and an accretion
expense in the statement of operations.  Changes resulting from
revisions to the timing or the amount of the original estimate of undiscounted
cash flows are recognized as an increase or a decrease to the carrying amount of
the liability and the related long-lived assets.
 
 As at May
31, 2008 and 2007 the Company does not have any significant asset retirement
obligations.
 
 Impairment of Long-Lived
Assets
 
 Long-lived
assets are assessed for impairment when events and circumstances
warrant.  The carrying value of a long-lived asset is impaired when
the carrying amount exceeds the estimated undiscounted net cash flow
from  use and fair value.  In that event, the amount by
which the carrying value of an impaired long-lived asset exceeds its fair value
is charged to earnings.
 
 Stock-Based Compensation
 
 Stock-based
compensation is accounted for at fair value as determined by the Black-Scholes
option pricing model using amounts that are believed to approximate the
volatility of the trading price of the Company’s stock, the expected lives of
awards of stock-based compensation, the fair value of the Company’s stock and
the risk-free interest rate.  The estimated fair value of awards of
stock-based compensation are charged to expense as awards vest, with offsetting
amounts recognized as contributed surplus.
 
 Translation
of Foreign Currencies
 
 Integrated
foreign operations are translated using the temporal method.  Under
this method, the Company translates monetary items at the rate of exchange in
effect at the balance sheet date.  Non-monetary items are translated
at rates in effect during the period in which they were earned or
incurred.  Revenues and expenses are translated at average rates in
effect during the period except for depreciation and amortization which are
translated at historical rates.  Gains and losses resulting from the
fluctuation of foreign exchange rates have been included in the determination of
income (loss).
 
 Future Income Taxes
 
 Future
income tax assets and liabilities are recognized for the estimated future income
tax consequences attributable to differences between the amounts reported in the
consolidated financial statements and their respective tax bases, using enacted
income tax rates.  The effect of a change in income tax rates on
future income tax liabilities and assets is recognized in income in the period
that the change occurs.  Future income tax assets are recognized to
the extent that they are considered more likely than not to be
realized.
 
 
 
 
 F-9
 KOLA
MINING CORP.
 (formerly
Centrasia Mining Corp.)
 (an
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED MAY 31, 2008, 2007 AND 2006
 (Expressed
in Canadian dollars, unless otherwise
stated)
 
 2.
              SIGNIFICANT ACCOUNTING
      POLICIES (continued)
 
 Loss Per Share
 
 Loss per
share is computed by dividing loss to common shareholders by the weighted
average number of common shares outstanding during the year.  The
computation of diluted earnings (loss) per share assumes the conversion,
exercise or contingent issuance of securities only when such conversion,
exercise or issuance would have a dilutive effect on earnings per
share.  The dilutive effect of convertible securities is reflected in
diluted earnings per share by application of the “if converted”
method.  The dilutive effect of outstanding options and warrants and
their equivalents is reflected in diluted earnings (loss) per share by
application of the treasury stock method.
 
 Financial Instruments and Comprehensive
Income
 
 Effective
June 1, 2007 the Company adopted the Canadian Institute of Chartered Accountants
(“CICA”) Handbook Section 1530, Comprehensive Income, Section 3251, Equity,
Section 3855, Financial Instruments - Recognition and Measurement and Section
3861, Financial Instruments - Disclosure and Presentation and Section 3865,
Hedges.  These sections apply to fiscal years beginning on or after
October 1, 2006 and provide standards for recognition, measurement, disclosure
and presentation of financial assets, financial liabilities and non-financial
derivatives, and describe when and how hedge accounting may be
applied.  Section 1530 provides standards for the reporting and
presentation of comprehensive income, which is defined as the change in equity,
from transactions and other events and circumstances from non-owner
sources.  Other comprehensive income refers to items recognized in
comprehensive income but that are excluded from net income calculated in
accordance with generally accepted accounting principles.  A statement
of comprehensive income has not been presented as no components of comprehensive
income have been identified and therefore have notaffected the current or
comparative period balances on the financial statements.  Under these
new standards, all financial instruments are classified into one of the
following five categories: held-for-trading, held-to-maturity investments, loans
and receivables, available-for-sale assets or other financial
liabilities.  All financial instruments, including derivatives, are
included on the balance sheet and are measured at fair market value upon
inception with the exception of certain related party
transactions.  Subsequent measurement and recognition of change in the
fair value of financial instruments depends on their initial classification.
Held-for-trading financial investments are measured at fair value and all gains
and losses are included in operations in the period in which they
arise.  Available-for-sale financial instruments are measured at fair
value with revaluation gains and losses included in other comprehensive income
until the asset is removed from the balance sheet.  Loans and
receivables, investments held to maturity and other financial liabilities are
measured at amortized cost using the effective interest method.  Gains
and losses upon inception, derecognition, impairment write-downs and foreign
exchange translation adjustments are recognized
immediately.  Transaction costs related to financings will be expensed
in the period incurred.
 
 Upon
adoption of Section 3855 the Company designated its cash as held-for-trading,
which is measured at fair value.  Amounts receivable are classified as
loans and receivables, which are measured at amortized cost.  Accounts
payable and accrued liabilities, loans and advances and long-term debt are
classified as other financial liabilities, which are measured at amortized
cost.  The adoption of this standard had no material affect on the
Company’s consolidated financial statements.
 
 
 
 F-10
 KOLA
MINING CORP.
 (formerly
Centrasia Mining Corp.)
 (an
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED MAY 31, 2008, 2007 AND 2006
 (Expressed
in Canadian dollars, unless otherwise
stated)
 
 2.
              SIGNIFICANT ACCOUNTING
      POLICIES (continued)
 
 New Accounting
Pronouncements
 
 Assessing Going Concern
 
 The
Accounting Standards Board (“AcSB”) amended CICA Handbook Section 1400, to
include requirements for management to assess and disclose an entity’s ability
to continue as a going concern.  This section applies to interim and
annual financial statements relating to fiscal years beginning on or after
January 1, 2008.
 
 Financial Instruments
 
 The AcSB
issued CICA Handbook Section 3862, Financial Instruments - Disclosures, which
requires entities to provide disclosures in their financial statements that
enable users to evaluate (a) the significance of financial instruments for the
entity’s financial position and performance; and (b) the nature and extent of
risks arising from financial instruments to which the entity is exposed during
the period and at the balance sheet date, and how the entity manages those
risks.  The principles in this section complement the principles for
recognizing, measuring and presenting financial assets and financial liabilities
in Section 3855, Financial Instruments - Recognition and Measurement, Section
3863, Financial Instruments - Presentation, and Section 3865,
Hedges.  This section applies to interim and annual financial
statements relating to fiscal years beginning on or after October 1,
2007.
 
 The AcSB
issued CICA Handbook Section 3863, Financial Instruments - Presentation, which
is to enhance financial statement users’ understanding of the significance of
financial instruments to an entity’s financial position, performance and cash
flows.  This section establishes standards for presentation of
financial instruments and nonfinancial derivatives.  It deals with the
classification of financial instruments, from the perspective of the issuer,
between liabilities and equity, the classification of related interest,
dividends, losses and gains, and the circumstances in which financial assets and
financial liabilities are offset.  This section applies to interim and
annual financial statements relating to fiscal years beginning on or after
October 1, 2007.
 
 Capital Disclosures
 
 The AcSB
issued CICA Handbook Section 1535, which establishes standards for disclosing
information about an entity’s capital and how it is managed.  This
section applies to interim and annual financial statements relating to fiscal
years beginning on or after October 1, 2007.
 
 The
Company is currently assessing the impact of the above new accounting standards
on the Company’s financial position and results of operations.
 
 International Financial Reporting
Standards (“IFRS”)
 
 In 2006
the AcSB published a new strategic plan that will significantly affect financial
reporting requirements for Canadian companies.  The AcSB
strategic plan outlines the convergence of Canadian GAAP with IFRS over an
expected five year transitional period.  In February 2008 the AcSB
announced that 2011 is the changeover date for publicly-listed companies to use
IFRS, replacing Canada’s own GAAP.  The date is for interim and annual
financial statements relating to fiscal years beginning on or after January
1, 2011.  The transition date of January 1, 2011 will require the
restatement for comparative purposes of amounts reported by the Company for
the year ended May 31, 2011.  While the Company has begun assessing
the adoption of IFRS for 2011 the financial reporting impact of the
transition to IFRS cannot be reasonably estimated at this time.
 
 
 F-11
 KOLA
MINING CORP.
 (formerly
Centrasia Mining Corp.)
 (an
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED MAY 31, 2008, 2007 AND 2006
 (Expressed
in Canadian dollars, unless otherwise
stated)
 
 3.           RECAPITALIZATION
AND ACQUISITIONS
 
 (a)
              On
      May 11, 2007 the Company, Magellan Holdings and Stargate Solutions Ltd.
      (“Stargate”) entered into a share purchase agreement (the “Share Purchase
      Agreement”) whereby the Company agreed to purchase 100% of the issued and
      outstanding shares of RPIM (the “RPIM Acquisition”), a company
      incorporated solely to hold a 100% interest in the shares of
      RPI.  The consideration payable by the Company to Stargate under
      the Share Purchase Agreement was:
 
 i)
              an
      aggregate US $12,500,000, of which US $6,000,000 was payable on closing
      (the “Closing”), US $5,000,000 is payable on the first anniversary of
      Closing, and US $1,500,000 is payable on the second anniversary of
      Closing; and
 
 ii)
              issuance
      of 12,500,000 common shares of the Company to be issued on
      Closing.
 
 The
      Company also agreed to pay DBM Capital Partners Ltd. (“DBM”) a finder’s
      fee of US $625,000 cash and 625,000 common shares.  The share
      portion of the finder’s fee and US $300,000 of the cash fee was payable on
      Closing.  The balance of the cash finder’s fee will be payable
      as the Company makes the balance of the payments for the
      RPIM Acquisition.
 
 As
      at May 31, 2007 the Company had advanced $226,860 (US $200,000) to RPI,
      paid $14,257 (US $12,472) in advances to DBM and incurred a total of
      $162,858 for due diligence and professional fees.  These amounts
      were recorded by the Company as deferred acquisition costs and were
      included in the cost of the RPIM Acquisition on
  Closing.
 
 On
      July 24, 2007 the Company completed the Closing of the RPIM Acquisition
      whereby it completed the initial cash payment of US $6,000,000 and issued
      12,500,000 common shares, at a fair value of $12,000,000, to
      Stargate.  In addition, the Company paid the initial finder’s
      fee of US $300,000 and issued 625,000 common shares, at a fair value of
      $600,000, to DBM.  See also Notes 6 and
  17(a).
 
 The
      Company also issued 82,615 common shares, at a fair value of $79,310, to a
      company controlled by a director of the Company as a bonus for providing a
      loan of US $500,000 to RPI prior to Closing.  The loan was
      repaid subsequent to the completion of the RPIM
    Acquisition.
 
 In
      addition, as a result of differences in the book value and tax value of
      the mineral property interests acquired, the Company has recorded a future
      income tax liability of $8,157,000 with a corresponding amount
      capitalized to mineral property
interests.
 
 Since
      RPIM is not considered a business for accounting purposes, the RPIM
      Acquisition was accounted for effectively as an acquisition of the net
      assets of RPIM, as summarized in the following
  table:
  $Cash
      payments (US $6,300,000)
              
              
              6,642,344Common
      shares issued (13,207,615 shares)
              
              
              12,679,310Debt
      (US $6,825,000), discounted
              
              
              6,278,740Acquisition
      costs
              
              
              444,305Net
      purchase price
              
              
              26,044,699
 
 
 
 F-12
 KOLA
MINING CORP.
 (formerly
Centrasia Mining Corp.)
 (an
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED MAY 31, 2008, 2007 AND 2006
 (Expressed
in Canadian dollars, unless otherwise
stated)
 
 3.
              RECAPITALIZATION AND
      ACQUISITIONS (continued)
 
 The
      assets and liabilities acquired are as
follows:
  $Cash
              
              
              8,399Amounts
      receivable
              
              
              10,024Prepaids
              
              
              50,328Deposits
      and exploration advances
              
              
              276,788Unproven
      mineral interests
              
              
              34,717,738Equipment
              
              
              15,306Accounts
      payable and accrued liabilities
              
              
              (266,058
              )Loans
      and advances
              
              
              (610,826
              )Future
      income tax liabilities
              
              
              (8,157,000
              )Net
      assets acquired
              
              
              26,044,699
 
 (b)
              On
      March 17, 2005, the Company entered into a letter agreement (the “Letter
      Agreement”) with 724 BC and its shareholders (the “724 BC Shareholders”),
      pursuant to which the Company agreed to purchase all of the issued and
      outstanding common shares of 724 BC in exchange for common shares of the
      Company on a one-for-one basis (the “724 BC Acquisition”).  The
      terms of the Letter Agreement were finalized by a share purchase agreement
      (the “Formal Agreement”) dated July 25,
2005.
 
 724 BC’s
principal asset was an agreement (the “Marsa Option”) to acquire all of the
issued and outstanding share capital of BMC, from Marsa Gold Corp. (“Marsa”), a
privately owned Kyrgyz company.  The sole asset of BMC was a license
permitting the exploration of an area in the north central part of the Kyrgyz
Republic, (the “Bulakashu Gold Property”).  The Marsa Option
effectively allowed 724 BC to acquire its interest in the Bulakashu Gold
Property, as described in Note 5(b)(i).  The Company also agreed
to assume the share obligations of 724 BC under the Marsa Option upon completion
of the 724 BC Acquisition.
 
 The
Company also agreed to assume an aggregate of $400,000 principal of indebtedness
and the accrued interest on the indebtedness owed by 724 BC to its creditors
(collectively the “724 BC Indebtedness”), for which the Company would issue
1,900,000 units (the “Centrasia Units”) to holders of $380,000 of principal,
100,000 common shares to holders of $20,000 of principal and repay the accrued
interest in cash.
 
 On
September 14, 2005 (the “Effective Date”), the Company completed all of the
transactions contemplated under the 724 BC Acquisition and:
 
 (i)
              issued
      3,700,100 common shares of its capital stock to acquire 724
      BC;
 
 (ii)
              issued
      an aggregate of 1,900,000 Centrasia Units and 100,000 common shares of the
      Company on settlement of the 724 BC Indebtedness, and paid $37,975 of
      accrued interest on the 724 BC Indebtedness in
  cash;
 
 (iii)
              issued
      233,338 common shares in respect of a finder’s fee for the 724 BC
      Acquisition; and
 
 
 
 F-13
 KOLA
MINING CORP.
 (formerly
Centrasia Mining Corp.)
 (an
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED MAY 31, 2008, 2007 AND 2006
 (Expressed
in Canadian dollars, unless otherwise
stated)
 
 
 3.           RECAPITALIZATION AND
ACQUISITIONS (continued)
 
 (iv)
              issued
      200,000 common shares of its capital stock to Marsa under its assumption
      of 724 BC’s share issuance obligations pursuant to the Marsa
      Option.
 
 724 BC
also acquired effective control of BMC on the Effective Date.
 
 The
completion of the 724 BC Acquisition and issuance of Company shares on purchase
of the 724 BC Indebtedness resulted in the former shareholders of 724 BC holding
the majority of the combined Company’s issued and outstanding common
shares.  Since this transaction resulted in the former shareholders of
724 BC acquiring control of the Company, the 724 BC Acquisition has been treated
for accounting purposes as a recapitalization.  In accounting for this
transaction:
 
 (i)
              724
      BC is deemed to be the purchaser and parent company for accounting
      purposes.  Accordingly, its net assets are included in the
      interim consolidated balance sheets at their historical book
      value;
 
 (ii)
              control
      of the net assets of the Company was acquired on the Effective
      Date.  The transaction has been accounted as a purchase of the
      assets and liabilities of the Company by 724 BC.  The
      assets and liabilities of the Company have been recorded at their fair
      values, as follows:
 
 $Cash
              
              
              389,631Amounts
      receivable and prepaids
              
              
              15,566Accounts
      payable and accrued liabilities
              
              
              (20,715
              )Net
      working capital
              
              
              384,482Advances
      to 724 BC, eliminated on consolidation
              
              
              109,485Share
      subscriptions received
              
              
              (628,000
              )Net
      liabilities assumed
              
              
              (134,033
              )
 
 (iii)
              the
      consolidated statements of operations and deficit and cash flows for the
      year ended May 31, 2006, include 724 BC’s results of operations and
      cash flows for the year ended May 31, 2006, and the Company’s results of
      operations and cash flows from the Effective
  Date.
 
 
 
 F-14
 KOLA
MINING CORP.
 (formerly
Centrasia Mining Corp.)
 (an
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED MAY 31, 2008, 2007 AND 2006
 (Expressed
in Canadian dollars, unless otherwise
stated)
 
 3.           RECAPITALIZATION AND
ACQUISITIONS (continued)
 
 On
completion of the 724 BC Acquisition 724 BC also acquired effective control of
BMC.  On the date of the 724 BC Acquisition 724 BC had advanced a
total amount of $399,905 towards the Marsa Option.  This acquisition
was accounted for by the purchase method as summarized below and the results of
operations were recorded from the Effective Date.  The assets and
liabilities of BMC have been recorded at their fair values, as
follows:
  $Cash
              
              
              14,508Amounts
      receivable
              
              
              201Prepaids
              
              
              7,418Accounts
      payable
              
              
              (1,131
              )Net
      working capital
              
              
              20,996Equipment
              
              
              9,511Unproven
      mineral interest
              
              
              369,398Net
      assets acquired
              
              
              399,905
 
 
 4.
              EQUIPMENT
  2008
              
              
              
              2007$
              
              
              
              $Mobile
      and field equipment
              
              
              297,546
              
              
              
              232,532Office
      furniture and equipment
              
              
              199,289
              
              
              
              53,278496,835
              
              
              
              285,810Less
      accumulated amortization
              
              
              (168,166
              )
              
              
              (60,953
              )328,669
              
              
              
              224,857
 
 
 5.           UNPROVEN
MINERAL INTERESTS
 
 2008
              
              
              2007Acquisition
                Costs
                $
              
              
              Exploration
                Expenditures
                $
              
              
              Total
                $
              
              
              Acquisition
                Costs
                $
              
              
              Exploration
                Expenditures
                $
              
              
              Total
                $Russia:Souker
              
              
              35,352,998
              
              
              
              3,946,865
              
              
              
              39,299,863
              
              
              
              -
              
              
              
              -
              
              
              
              -Tsaga
              
              
              -
              
              
              
              561,803
              
              
              
              561,803
              
              
              
              -
              
              
              
              -
              
              
              
              -Uleeta
              
              
              -
              
              
              
              175,748
              
              
              
              175,748
              
              
              
              -
              
              
              
              -
              
              
              
              -Kyrgyz
      Republic:Bulakashu
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              853,338
              
              
              
              437,687
              
              
              
              1,291,025Eastern
      Sary Jaz
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              96,000
              
              
              
              104,819
              
              
              
              200,81935,352,998
              
              
              
              4,684,416
              
              
              
              40,037,414
              
              
              
              949,338
              
              
              
              542,506
              
              
              
              1,491,844
 
 
 
 F-15
 KOLA
MINING CORP.
 (formerly
Centrasia Mining Corp.)
 (an
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED MAY 31, 2008, 2007 AND 2006
 (Expressed
in Canadian dollars, unless otherwise
stated)
 
 5.           UNPROVEN MINERAL INTERESTS
(continued)
 
 (a)
              Russia
      Properties
 
 On
      July 24, 2007 the Company completed the RPIM Acquisition, as described in
      Note 3(a), and acquired 100% interest in three nickel-copper sulphide
      properties in Russia.
 
 i)           Souker Property
 
 The
Souker Property consists of a license (the “Souker License”) located in the
Pechanga District of Murmansk Oblast, Russia.  The Souker License
grants the Company the right to explore, develop and produce the deposit subject
to the following obligations:
 
 -
              exploration
      must be completed and a reserve calculation, as defined in the Souker
      License, submitted to the government for approval no later than December
      31, 2009;
 -
              submission
      of mine plans sustaining a production rate of 300,000 tonnes per annum for
      approval by the government  no later than June 30,
      2010;
 -
              commence
      mining operation no later than December 31, 2010;
  and
 -
              attain
      minimum production of 300,000 tonnes per annum no later than December 31,
      2011.
 
 ii)
              Tsaga
      Property
 
 The
      Tsaga Property consists of a license (the “Tsaga License”) located in the
      Lovoserky District of Murmansk Oblast,
Russia.
 
 iii)
              Uleeta
      Property
 
 The
Uleeta Property consists of a license (the “Uleeta License”) located in the
Kolsk District of Murmansk Oblast, Russia.
 
 (b)
              Kyrgyz
      Republic Properties
 
 During
fiscal 2008 a legal dispute arose regarding the ownership of the Company’s
Kyrgyz subsidiary which has resulted in uncertainty regarding the validity of
the Company’s tenureship over its mineral interests held in the Kyrgyz
Republic.  As at the date of the Auditor’s Report the dispute is still
unresolved.  Although management considers that the dispute is without
merit it has determined to write-off all acquisition and deferred costs relating
to these mineral interests.
 
 i)
              Bulakashu
      Property
 
 Under
      prior option agreements the Company had previously earned a 37.5% interest
      in the Bulakashu Property, located in the Kyrgyz Republic.  On
      August 17, 2007 the Company and Kantanna Company Limited (“Kantanna”)
      entered into an amending agreement pursuant to which the Company issued
      375,000 common shares of the Company, at a fair value of $405,000, to
      Kantanna and Kantanna agreed to forego the aggregate US $1,890,000
      remaining expenditure commitment to acquire the remaining 62.5%
      interest.  Kantanna is a private corporation owned by a director
      of the Company.
 
 F-16
 
 KOLA
MINING CORP.
 (formerly
Centrasia Mining Corp.)
 (an
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED MAY 31, 2008, 2007 AND 2006
 (Expressed
in Canadian dollars, unless otherwise stated)
 5.           UNPROVEN MINERAL INTERESTS
(continued)
 
 As
      at May 31, 2008 the Company recorded a $2,985,693 write-off of acquisition
      and exploration costs as an impairment
charge.
 
 ii)
              Eastern Sary Jaz
      Property
 
 During
      fiscal 2007 the Company issued 200,000 common shares, at a fair value of
      $96,000 to Kantanna, as consideration for a 100% interest in certain
      exploration licenses on the Eastern Sary Jaz Property, located in the
      northeastern region of the Kyrgyz
Republic.
 
 As
      at May 31, 2008 the Company recorded a $428,158 write-off of acquisition
      and exploration costs as an impairment
charge.
 
 iii)
              Turgeldy
      Property
 
 On
      August 25, 2006 the Company entered into a property and option agreement
      (the “Turgeldy Option”) to acquire a 100% interest in all rights and title
      to the Turgeldy (the “Turgeldy Property”), subject to a 1% net smelter
      royalty to the optionor.  Under the terms of the Turgeldy Option
      the Company issued 60,000 common shares, at a fair value of
      $42,000.  During fiscal 2007, the Company withdrew from the
      Turgeldy Option and, accordingly, wrote-off $52,361 in
    costs.
 
 
 6.
              LONG-TERM
      DEBT
  2008
              
              
              
              2007$
              
              
              
              $Due
      to Stargate
              
              
              5,792,756
              
              
              
              -Due
      to DBM
              
              
              289,638
              
              
              
              -6,082,394
              
              
              
              -Less:  current
      portion
              
              
              (4,792,014
              )
              
              
              -Non-current
      portion
              
              
              1,290,380
              
              
              
              -
 
 Long-term
debt consists of US $6,500,000 due to Stargate and US $325,000 due to DBM
pursuant to the RPIM Acquisition (see Note 3(a)).  The debts are
unsecured and non-interest bearing with US $5,250,000 due on July 24, 2008 and
US $1,575,000 due on July 24, 2009.  The fair value of these debts on
Closing was $6,278,740 (US $5,943,525) based on a discount rate of
12%.  The debts will be accreted to their face values over the term of
the debts by recording additional interest costs.  During fiscal 2008
the Company accreted $635,260 as interest costs, which has been capitalized to
unproven mineral interests.
 
 See also
Note 17(a).
 
 
 
 
 F-17
 KOLA
MINING CORP.
 (formerly
Centrasia Mining Corp.)
 (an
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED MAY 31, 2008, 2007 AND 2006
 (Expressed
in Canadian dollars, unless otherwise
stated)
 
 7.
              SHARE
      CAPITAL
 
 Authorized
- unlimited common shares without par value
 
 Issued:Number
      of
                Shares
              
              
              Par
      Value
                $
              
              
              Additional
      Paid-in
                Capital
                $
              
              
              Total
                $Common
      SharesBalance,
      May 31, 2005
              
              
              3,700,100
              
              
              
              4,654
              
              
              
              18,457
              
              
              
              23,111Adjustment
      of shares to reflect shares
                of
      the legal parent at time of recapitalization
              
              
              2,101,523
              
              
              
              -
              
              
              
              -
              
              
              
              -Adjustment
              
              
              -
              
              
              
              18,457
              
              
              
              (18,457
              )
              
              
              -Issued
      for cashPrivate
      placement
              
              
              4,375,000
              
              
              
              875,000
              
              
              
              -
              
              
              
              875,000Offering
              
              
              3,076,923
              
              
              
              2,000,000
              
              
              
              -
              
              
              
              2,000,000Exercise
      of warrants
              
              
              246,603
              
              
              
              140,100
              
              
              
              -
              
              
              
              140,100Exercise
      of agent’s option
              
              
              126,974
              
              
              
              91,421
              
              
              
              -
              
              
              
              91,421Reallocation
      from contributed surplus
                on
      exercise of agent’s option
              
              
              -
              
              
              
              19,046
              
              
              
              -
              
              
              
              19,046Issued
      for agent’s commission
              
              
              198,556
              
              
              
              129,061
              
              
              
              -
              
              
              
              129,061Issued
      for corporate finance fee
              
              
              100,000
              
              
              
              65,000
              
              
              
              -
              
              
              
              65,000Issued
      for unproven mineral interests
              
              
              400,000
              
              
              
              230,000
              
              
              
              -
              
              
              
              230,000Issued
      for 724 BC indebtedness (Note 3 (b))
              
              
              2,000,000
              
              
              
              400,000
              
              
              
              -
              
              
              
              400,000Issued
      for finder’s fee (Note 3(b))
              
              
              233,338
              
              
              
              46,668
              
              
              
              -
              
              
              
              46,66812,858,917
              
              
              
              4,014,753
              
              
              
              (18,457
              )
              
              
              3,996,296Share
      issue costs incurred on recapitalization
              
              
              -
              
              
              
              (233,672
              )
              
              
              -
              
              
              
              (233,672
              )Share
      issue costs on private placement and offering
              
              
              -
              
              
              
              (295,731
              )
              
              
              -
              
              
              
              (295,731
              )12,858,917
              
              
              
              3,485,350
              
              
              
              (18,457
              )
              
              
              3,466,893Balance,
      May 31, 2006
              
              
              16,559,017
              
              
              
              3,490,004
              
              
              
              -
              
              
              
              3,490,004Issued
      for cashPrivate
      placement
              
              
              4,000,000
              
              
              
              2,000,000
              
              
              
              -
              
              
              
              2,000,000Exercise
      of options
              
              
              50,000
              
              
              
              10,000
              
              
              
              -
              
              
              
              10,000Exercise
      of warrants
              
              
              4,674,145
              
              
              
              2,523,962
              
              
              
              -
              
              
              
              2,523,962Exercise
      of agent’s option
              
              
              180,718
              
              
              
              130,116
              
              
              
              -
              
              
              
              130,116Reallocation
      from contributed surplus
                on
      exercise of stock options
              
              
              -
              
              
              
              14,750
              
              
              
              -
              
              
              
              14,750Reallocation
      from contributed surplus
                on
      exercise of agent’s option
              
              
              -
              
              
              
              50,185
              
              
              
              -
              
              
              
              50,185Issued
      for unproven mineral interests
              
              
              510,000
              
              
              
              345,500
              
              
              
              -
              
              
              
              345,500Issued
      for finder’s fee
              
              
              113,750
              
              
              
              56,875
              
              
              
              -
              
              
              
              56,8759,528,613
              
              
              
              5,131,388
              
              
              
              -
              
              
              
              5,131,388Share
      issue costs on private placement
              
              
              -
              
              
              
              (131,107
              )
              
              
              -
              
              
              
              (131,107
              )9,528,613
              
              
              
              5,000,281
              
              
              
              -
              
              
              
              5,000,281Balance,
      May 31, 2007
              
              
              26,087,630
              
              
              
              8,490,285
              
              
              
              -
              
              
              
              8,490,285
 
 
 
 F-18
 KOLA
MINING CORP.
 (formerly
Centrasia Mining Corp.)
 (an
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED MAY 31, 2008, 2007 AND 2006
 (Expressed
in Canadian dollars, unless otherwise
stated)
 
 7.
              SHARE CAPITAL
      (continued)
  Number
      of
                Shares
              
              
              Par
      Value
                $
              
              
              Additional
      Paid-in
                Capital
                $
              
              
              Total
                $Common
      SharesBalance,
      May 31, 2007
              
              
              26,087,630
              
              
              
              8,490,285
              
              
              
              -
              
              
              
              8,490,285Issued
      for cashPrivate
      placement
              
              
              10,500,000
              
              
              
              12,600,000
              
              
              
              -
              
              
              
              12,600,000Exercise
      of options
              
              
              50,000
              
              
              
              10,000
              
              
              
              -
              
              
              
              10,000Exercise
      of warrants
              
              
              3,517,212
              
              
              
              1,522,604
              
              
              
              -
              
              
              
              1,522,604Issued
      for unproven mineral interests (Note 5(b))
              
              
              375,000
              
              
              
              405,000
              
              
              
              -
              
              
              
              405,000Issued
      for corporate finance fee
              
              
              100,000
              
              
              
              120,000
              
              
              
              -
              
              
              
              120,000Issued
      for acquisition (Note 3(a))
              
              
              13,207,615
              
              
              
              12,679,310
              
              
              
              -
              
              
              
              12,679,310Reallocation
      from contributed surplus
                on
      exercise of stock options
              
              
              -
              
              
              
              14,750
              
              
              
              -
              
              
              
              14,75027,749,827
              
              
              
              27,351,664
              
              
              
              -
              
              
              
              27,351,664Share
      issue costs
              
              
              -
              
              
              
              (1,513,963
              )
              
              
              -
              
              
              
              (1,513,963
              )27,749,827
              
              
              
              25,837,701
              
              
              
              -
              
              
              
              25,837,701Balance,
      May 31, 2008
              
              
              53,837,457
              
              
              
              34,327,986
              
              
              
              -
              
              
              
              34,327,986
 
 
 (a)
              During
      July 2007 the Company completed a brokered private placement of 10,500,000
      subscription receipts (the “Subscription Receipts”), at $1.20 per
      Subscription Receipt, for gross proceeds of $12,600,000.  Each
      Subscription Receipt was subsequently exchanged, without additional
      consideration, for one common share of the Company and one-half share
      purchase warrant.  Each whole warrant entitles the holder to
      acquire one common share at a price of $1.70 per share on or before July
      10, 2010.  The Company paid the agents cash commissions
      totalling $945,000 and issued 840,000 warrants.  Each warrant
      entitles the agents to acquire one common share at a price of $1.50 per
      share on or before July 24, 2009.  The Company also paid a
      corporate finance fee of 100,000 common shares, at a fair value of
      $120,000, and issued a further 100,000 warrants, with each warrant
      entitling the agent to purchase one common share at a price of $1.70 per
      share on or before July 10, 2010.  The Company also incurred
      $126,163 in legal, filing fees and other costs associated with the private
      placement.
 
 The fair
value of the warrants issued to the agents have been estimated using the
Black-Scholes option pricing model.  The assumptions used
were:  dividend yield - 0%;  expected volatility -
80%;  a risk-free interest rate of 4.51% - 4.54%;  and an
expected life of 2 years - 3 years.  The value assigned to the agents’
warrants was $322,800 which has been recorded as share issue costs.
 
 (b)
              During
      June 2006 the Company completed a non-brokered private placement of
      4,000,000 units at a price of $0.50 per unit, for gross proceeds of
      $2,000,000.  Each unit  comprised one common share and
      one-half share purchase warrant, with each full warrant entitling the
      holder to acquire an additional common share at a price of $0.75 per share
      on or before June 20, 2008.
 
 
 F-19
 KOLA
MINING CORP.
 (formerly
Centrasia Mining Corp.)
 (an
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED MAY 31, 2008, 2007 AND 2006
 (Expressed
in Canadian dollars, unless otherwise
stated)
 
 7.
              SHARE CAPITAL
      (continued)
 
 The
      Company paid finders’ fees totalling $56,875 in cash and issued 113,750
      units, at a fair value of $56,875.  The units issued have the
      same terms as the units issued under the private placement.  The
      Company also incurred $17,357 costs in legal and filing fees associated
      with the private
placement.
 A
      director of the Company and a private company, of which a director of the
      Company is the principal of the private company, purchased 2,120,000
      units.
 
 (c)
              During
      fiscal 2006, the Company:
 
 i)
              completed
      the recapitalization with 724 BC and issued 3,700,100 common shares of its
      share capital for 100% of the issued and outstanding common shares of 724
      BC (Note 3(b));
 
 ii)
              completed
      a non-brokered private placement and issued 4,375,000 units, for total
      gross proceeds of $875,000.  Each unit comprised one common
      share of the Company and one warrant, entitling the holder to purchase an
      additional common share at a price of $0.40 per share on or before
      September 14, 2007;
 
 iii)
              issued
      1,900,000 Centrasia Units and 100,000 common shares of the Company on the
      settlement of $400,000 of indebtedness.  Each Centrasia Unit
      comprised one common share and one warrant with the same terms as the
      warrants described in Note 7(c)(ii);
and
 
 iv)
              completed
      a short form offering (the “Offering”) of 3,076,923 units, at a price of
      $0.65 per unit, for $2.0 million gross proceeds.  Each unit
      comprised one common share and one transferable warrant.  Two
      warrants entitled the holder to acquire an additional common share at a
      price of $0.78 per share on or before April 28,
  2007.
 
 The
      Company paid the agent a commission of $150,000, of which $20,939 was paid
      in cash and $129,061 was paid through the issuance of 198,556 units, a
      $7,500 administration fee and a corporate finance fee of 100,000 units at
      a fair value of $65,000.  The Company also issued options to the
      agent entitling it to acquire 307,692 units at a price of $0.72 per unit,
      for a period of 18 months.  The units issued to the agent have
      the same term as the units issued under the Offering.  The fair
      value of the agent’s option have been estimated using the Black-Scholes
      option pricing model.  The assumptions used
      were:  dividend yield - 0%;  expected volatility -
      79%;  a risk-free interest rate of 3.19%;  and an
      expected life of nine months.  The value assigned to the agent’s
      option was $69,231.
 
 During
      fiscal 2006, the agent exercised the option to acquire 126,974 units and,
      in fiscal 2007, exercised the option to acquire the remaining 180,718
      units.
 
 
 
 
 F-20
 KOLA
MINING CORP.
 (formerly
Centrasia Mining Corp.)
 (an
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED MAY 31, 2008, 2007 AND 2006
 (Expressed
in Canadian dollars, unless otherwise
stated)
 
 
 7.
              SHARE CAPITAL
      (continued)
 
 (d)
              A
      summary of the number of common shares reserved pursuant to the Company’s
      outstanding warrants at May 31, 2008, 2007 and 2006 and the changes for
      fiscal 2008, 2007 and 2006 is
  as  follows:
  2008
              
              
              2007
              
              
              2006Number
                of
      Warrants
                Outstanding
              
              
              Weighted
                Average
                Exercise
                Price
                $
              
              
              Number
                of
      Warrants
                Outstanding
              
              
              Weighted
                Average
                Exercise
                Price
                $
              
              
              Number
                of
      Warrants
                Outstanding
              
              
              Weighted
                Average
                Exercise
                Price
                $Balance,
                beginning
      of year
              
              
              5,225,962
              
              
              
              0.54
              
              
              
              7,779,623
              
              
              
              0.48
              
              
              
              -
              
              
              
              -Issued
              
              
              6,190,000
              
              
              
              1.67
              
              
              
              2,147,234
              
              
              
              0.75
              
              
              
              8,026,226
              
              
              
              0.48Exercised
              
              
              (3,517,212
              )
              
              
              0.43
              
              
              
              (4,674,145
              )
              
              
              0.54
              
              
              
              (246,603
              )
              
              
              0.57Expired
              
              
              -
              
              
              
              -
              
              
              
              (26,750
              )
              
              
              0.78
              
              
              
              -
              
              
              
              -Balance,
      end of year
              
              
              7,898,750
              
              
              
              1.47
              
              
              
              5,225,962
              
              
              
              0.54
              
              
              
              7,779,623
              
              
              
              0.48
 
 The
      following table summarizes information about the number of common shares
      reserved pursuant to the Company’s outstanding warrants at May 31,
      2008:
  Number
              
              Exercise
                Price
                $
              
              Expiry
      Date1,708,750
              
              0.75
              
              June
      20, 2008840,000
              
              1.50
              
              July
      24, 20095,350,000
              
              1.70
              
              July
      10, 20107,898,750
 
 (e)
              As
      at May 31, 2008 an aggregate 7,117,515 common shares were held in escrow
      in accordance with the rules of the TSX Venture
  Exchange.
 
 (f)
              See
      also Note 17.
 
 
 8.           STOCK
OPTIONS AND STOCK-BASED COMPENSATION
 
 The
Company has established a stock  option plan (the “Plan”) which allows
the Company to grant a maximum number of 10,777,000 (2007 - 3,374,000) stock
options.
 
 During
fiscal 2008 the Company granted stock options to the Company’s directors,
employees and consultants to purchase 3,055,000 common shares of which 3,005,000
vested during the year resulting in stock-based compensation expense of
$1,193,300.  During fiscal 2007 the Company granted 965,000 stock
options, of which 482,500 vested in fiscal 2007 resulting in stock-based
compensation of $316,450 being recognized in fiscal 2007 and 482,500 vested in
fiscal 2008 resulting in additional stock-based compensation expense of $307,876
being recognized in fiscal 2008.  During fiscal 2006 the Company
granted 2,435,000 stock options, of which 1,217,500 vested in fiscal 2006
resulting in stock-based compensation of $137,250 being recognized in fiscal
2006 and 217,500 vested in fiscal 2007 resulting in additional stock-based
compensation expense of $186,950 being recognized in fiscal 2007.
 
 F-21
 
 KOLA
MINING CORP.
 (formerly
Centrasia Mining Corp.)
 (an
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED MAY 31, 2008, 2007 AND 2006
 (Expressed
in Canadian dollars, unless otherwise stated)
 8.           STOCK OPTIONS AND STOCK-BASED
COMPENSATION (continued)
  The fair
value of stock options granted to directors, employees and consultants is
estimated on the date of grant using the Black-Scholes option pricing model with
the following assumptions used for the grants made during fiscal 2008, 2007 and
2006:
  2008
              2007
              2006Risk-free interest rate
              2.93% - 4.17%
              3.97% - 4.08%
              3.21%Estimated volatility
              82% - 90%
              76% - 82%
              79%Expected life
              0.5 year - 5 years
              5 years
              2.5 yearsExpected dividend yield
              0%
              0%
              0%
       
 2008
              
              
              2007
              
              
              2006Number
                of Options
                Outstanding
              
              
              Weighted
                Average
                Exercise
                Price
                $
              
              
              Number
                of Options
                Outstanding
              
              
              Weighted
                Average
                Exercise
                Price
                $
              
              
              Number
                of Options
                Outstanding
              
              
              Weighted
                Average
                Exercise
                Price
                $Balance, beginning of year
              
              
              3,250,000
              
              
              
              0.38
              
              
              
              2,435,000
              
              
              
              0.22
              
              
              
              -
              
              
              
              -Granted
              
              
              3,055,000
              
              
              
              1.22
              
              
              
              965,000
              
              
              
              0.80
              
              
              
              2,435,000
              
              
              
              0.22Exercised
              
              
              (50,000
              )
              
              
              0.20
              
              
              
              (50,000
              )
              
              
              0.20
              
              
              
              -
              
              
              
              -Cancelled/expired
              
              
              (80,000
              )
              
              
              0.70
              
              
              
              (100,000
              )
              
              
              0.79
              
              
              
              -
              
              
              
              -Balance, end of year
              
              
              6,175,000
              
              
              
              0.79
              
              
              
              3,250,000
              
              
              
              0.38
              
              
              
              2,435,000
              
              
              
              0.22
 
 
 
 F-22
 KOLA
MINING CORP.
 (formerly
Centrasia Mining Corp.)
 (an
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED MAY 31, 2008, 2007 AND 2006
 (Expressed
in Canadian dollars, unless otherwise
stated)
 
 8.           STOCK OPTIONS
AND STOCK-BASED COMPENSATION(continued)
  The
following table summarizes information about the stock options outstanding and
exercisable at May 31,2008:
  Number
                Outstanding
              
              Number
                Exercisable
              
              Exercise
                Price
                $
              
              Expiry
      Date75,000
              
              75,000
              
              1.20
              
              December 31,
      20082,235,000
              
              2,235,000
              
              0.20
              
              September 14,
      2010200,000
              
              200,000
              
              1.15
              
              February 8,
      2011100,000
              
              100,000
              
              0.73
              
              February 17,
      2011585,000
              
              585,000
              
              0.70
              
              September 14,
      2011100,000
              
              100,000
              
              0.73
              
              March 14,
      2012200,000
              
              200,000
              
              1.71
              
              May 18,
      2012250,000
              
              250,000
              
              1.20
              
              July 3,
      2012500,000
              
              500,000
              
              1.20
              
              July 24,
      2012100,000
              
              100,000
              
              1.20
              
              August 4,
      20121,830,000
              
              1,780,000
              
              1.20
              
              October 26,
      20126,175,000
              
              6,125,000
  See also Note
16(b).
   9.           CONTRIBUTED
SURPLUS
  A
summary of the Company’s contributed surplus at May 31, 2008, 2007 and 2006 and
the changes for fiscal2008,
2007 and 2006 is as follows:
  2008
              
              
              
              2007
              
              
              
              2006$
              
              
              
              $
              
              
              
              $Balance, beginning of
      year
              
              
              625,900
              
              
              
              187,435
              
              
              
              -Stock-based compensation on
      stock options (Note 8)
              
              
              1,501,176
              
              
              
              503,400
              
              
              
              137,250Stock-based compensation on
      agents’
                warrants (Note
      7(a))
              
              
              322,800
              
              
              
              -
              
              
              
              -Stock-based compensation on
      agents’
                option (Note
      7(c)(iv))
              
              
              -
              
              
              
              -
              
              
              
              69,231Stock options
      exercised
              
              
              (14,750
              )
              
              
              (14,750
              )
              
              
              -Agent’s options
      exercised
              
              
              -
              
              
              
              (50,185
              )
              
              
              (19,046
              )Balance, end of
      year
              
              
              2,435,126
              
              
              
              625,900
              
              
              
              187,435
    
 F-23
 KOLA
MINING CORP.
 (formerly
Centrasia Mining Corp.)
 (an
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED MAY 31, 2008, 2007 AND 2006
 (Expressed
in Canadian dollars, unless otherwise
stated)
 
 10.
              RELATED PARTY
      TRANSACTIONS
  (a)
              The
      Company was charged for services provided by former and current directors
      and officers of theCompany,
      or corporations controlled by them, as
      follows:
  2008
              
              
              
              2007
              
              
              
              2006$
              
              
              
              $
              
              
              
              $Management
              
              
              139,300
              
              
              
              82,975
              
              
              
              80,500Legal
              
              
              125,300
              
              
              
              66,393
              
              
              
              112,695Accounting and
      administrative
              
              
              81,000
              
              
              
              76,850
              
              
              
              86,458Professional
              
              
              125,555
              
              
              
              183,209
              
              
              
              167,592Investor
      relations
              
              
              40,000
              
              
              
              -
              
              
              
              -511,155
              
              
              
              409,427
              
              
              
              447,245
  Management
fees have either been expensed to operations, capitalized to unproven mineral
interests,or
recorded as share issue costs based on the nature of the
expenditure.
  As
at May 31, 2008, $81,504 (2007 - $86,758;  2006 -$76,688)
remained outstanding and wasincluded
in accounts payable and accrued liabilities.
  These
transactions are in the normal course of operations and are measured at the
exchange amount,which
is the amount of consideration established and agreed to by the related
parties.
  (b)
              See also Notes 3(b), 5(b),
      7(b) and 13.
   11.
              INCOME
      TAXES
  Future income tax assets and
liabilities of the Company as at May 31, 2008 and 2007 are as
follows:
  2008
              
              
              
              2007$
              
              
              
              $Future income tax
      assetsLoss carry
      forwards
              
              
              1,791,000
              
              
              
              926,000Other
              
              
              513,000
              
              
              
              145,0002,304,000
              
              
              
              1,071,000Valuation
      allowance
              
              
              (2,304,000
              )
              
              
              (1,071,000
              )Net future income tax
      asset
              
              
              -
              
              
              
              -Future income tax
      liabilitiesMineral properties (Note
      3)
              
              
              8,157,000
              
              
              
              -
   
 F-24
 KOLA
MINING CORP.
 (formerly
Centrasia Mining Corp.)
 (an
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED MAY 31, 2008, 2007 AND 2006
 (Expressed
in Canadian dollars, unless otherwise
stated)
 
 11.
              INCOME
      TAXES(continued)
  The
recovery of income taxes shown in the consolidated statements of operations and
deficit differs from theamounts
obtained by applying statutory rates to the loss before provision for income
taxes as follows:
  2008
              
              
              
              2007
              
              
              
              2006$
              
              
              
              $
              
              
              
              $Income tax rate
      reconciliationCombined federal and
      provincial income tax rate
              
              
              33.03
              %
              
              
              34.12
              %
              
              
              34.12
              %Expected income tax
      recovery
              
              
              2,175,400
              
              
              
              718,500
              
              
              
              411,700Foreign income tax rate
      differences
              
              
              (445,700
              )
              
              
              -
              
              
              
              -Non-deductible stock-based
      compensation
              
              
              (495,800
              )
              
              
              (177,600
              )
              
              
              (46,800
              )Other
              
              
              332,800
              
              
              
              21,400
              
              
              
              34,200Unrecognized benefit of
      income tax losses
              
              
              (1,566,700
              )
              
              
              (562,300
              )
              
              
              (399,100
              )Actual income tax
      recovery
              
              
              -
              
              
              
              -
              
              
              
              -
   As
at May 31, 2008, the Company has non-capital losses of approximately $4.4
million and accumulated taxpools
of approximately $1.6 million carried forward for Canadian income tax purposes
and are available toreduce
taxable income of future years.  The non-capital losses expire
commencing in 2009 through 2028.  Themajority
of the cumulative tax pools are deducted for tax purposes over the remaining
four years.
  Through
its subsidiaries the Company also has cumulative losses of approximately $2.6
million which areavailable
to reduce taxable income of the subsidiaries in future
years.
   12.
              SEGMENTED
      INFORMATION
  The
Company operates solely within the mineral exploration industry.  The
Company’s equipment andunproven
mineral interests are located geographically as
follows:
  2008
              
              
              2007Equipment
                $
              
              
              Unproven
                Mineral
                Interests
                $
              
              
              Equipment
                $
              
              
              Unproven
                Mineral
                Interests
                $Canada
              
              
              11,239
              
              
              
              -
              
              
              
              5,120
              
              
              
              -Kyrgyz
      Republic
              
              
              205,748
              
              
              
              -
              
              
              
              219,737
              
              
              
              1,491,844Russia
              
              
              111,682
              
              
              
              40,037,414
              
              
              
              -
              
              
              
              -328,669
              
              
              
              40,037,414
              
              
              
              224,857
              
              
              
              1,491,844
    
 F-25
 KOLA
MINING CORP.
 (formerly
Centrasia Mining Corp.)
 (an
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED MAY 31, 2008, 2007 AND 2006
 (Expressed
in Canadian dollars, unless otherwise
stated)
 
 13.
              COMMITMENTS
  (a)
              The
      Company has signed a Vancouver office premise lease for approximately
      $11,000 per month,commencing
      April 15, 2008, and expiring April 30, 2013.  The Company’s
      lease costs may be reduceddue
      to recoveries through sub-leases.  During fiscal 2008, the
      Company has been reimbursed $8,374for
      rent.
  (b)
              Effective
      June 1, 2008, the Company entered into an employment agreement with the
      new Presidentof
      the Company.  Pursuant to the terms of the agreement, the
      President will be paid an initial salaryof
      $20,000 per month plus health benefits coverage for a term of five years,
      renewable thereafter fora
      further five year term.  The Company has also agreed to grant
      the President stock options to purchase1,000,000
      common shares of the
  Company.
  The
employment agreement may be terminated by the President, with three months
notice.  If theCompany
dismissed the President without cause, the President will be entitled to six
months pay inlieu
of notice.
   14.           FAIR
VALUE OF FINANCIAL INSTRUMENTS
  Fair
value approximates the amounts reflected in the financial statements for cash,
amounts receivable andaccounts
payable and accrued liabilities and loans and advances due to their relative
short periods to maturity.The
fair value of long-term debt has been determined based on management’s
estimate.
  The
Company may be subject to currency risk due to the fluctuations of exchange
rates between the Canadiandollar
and other foreign currencies.  However, the Company is not subject to
significant interest and credit risksarising
from these instruments.
   15.
              SUPPLEMENTAL CASH FLOW
      INFORMATION
  Non-cash activities conducted by
the Company are as follows:
  2008
              
              
              
              2007
              
              
              
              2006$
              
              
              
              $
              
              
              
              $Financing
      activitiesIssuance of common shares
      for unproven mineral interests
              
              
              405,000
              
              
              
              345,500
              
              
              
              1,258,000Issuance of common shares
      for corporate finance fee
              
              
              120,000
              
              
              
              -
              
              
              
              -Issuance of common shares
      for finder’s fees
              
              
              -
              
              
              
              56,875
              
              
              
              240,729Issuance of common shares
      on exercise of stock options
              
              
              14,750
              
              
              
              64,935
              
              
              
              -Issuance of common shares
      for RPIM
              
              
              12,679,310
              
              
              
              -
              
              
              
              -Contributed
      surplus
              
              
              308,050
              
              
              
              (64,935
              )
              
              
              69,231Share issue
      costs
              
              
              (442,800
              )
              
              
              (56,875
              )
              
              
              (309,960
              )Debt issued on
      acquisition
              
              
              6,278,740
              
              
              
              -
              
              
              
              -Accretion of discount on
      debt
              
              
              635,260
              
              
              
              -
              
              
              
              -Indebtedness exchanged for
      common shares
              
              
              -
              
              
              
              -
              
              
              
              (400,000
              )Subscriptions received
      previously exchanged for
                common
      shares
              
              
              -
              
              
              
              -
              
              
              
              (628,000
              )19,998,310
              
              
              
              345,500
              
              
              
              230,000
  
 F-26
 KOLA
MINING CORP.
 (formerly
Centrasia Mining Corp.)
 (an
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED MAY 31, 2008, 2007 AND 2006
 (Expressed
in Canadian dollars, unless otherwise
stated)
 
 15.
              SUPPLEMENTAL
      CASH FLOW INFORMATION(continued)
  2008
              
              
              
              2007
              
              
              
              2006$
              
              
              
              $
              
              
              
              $Investing
      activitiesDeferred acquisition
      costs
              
              
              530,891
              
              
              
              (126,916
              )
              
              
              -Additions to unproven
      mineral interests
              
              
              (29,084,299
              )
              
              
              (345,500
              )
              
              
              (230,000
              )Future income tax
      liabilities
              
              
              8,157,000
              
              
              
              -
              
              
              
              -(20,396,408
              )
              
              
              (472,416
              )
              
              
              (230,000
              )Operating
      activityIncrease in accounts
      payable and accrued liabilities
              
              
              398,098
              
              
              
              126,916
              
              
              
              -
  Other supplemental cash flow
information:
  2008
              
              
              
              2007
              
              
              
              2006$
              
              
              
              $
              
              
              
              $Interest paid in
      cash
              
              
              -
              
              
              
              -
              
              
              
              37,975Income taxes paid in
      cash
              
              
              -
              
              
              
              -
              
              
              
              -
   16.
              DIFFERENCES
      BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTEDACCOUNTING
      PRINCIPLES
  (a)
              The
      consolidated financial statements of the Company have been prepared in
      accordance withCanadian
      GAAP.  Canadian GAAP differs in certain material respects from
      US GAAP.  The materialdifferences
      between Canadian and US GAAP and their effect on the Company’s
      consolidated financialstatements
      are summarized in the tables
  below.
  Consolidated statements of
      loss and comprehensive loss
  2008
              
              
              
              2007
              
              
              
              2006$
              
              
              
              $
              
              
              
              $Loss and comprehensive loss
      under
                Canadian
      GAAP
              
              
              (6,586,225
              )
              
              
              (2,036,069
              )
              
              
              (1,206,667
              )Unproven mineral interests
      expensed
              
              
              (3,869,684
              )
              
              
              (384,958
              )
              
              
              (429,774
              )Loss under US
      GAAP
              
              
              (10,455,909
              )
              
              
              (2,421,027
              )
              
              
              (1,636,441
              )Loss per share under US
      GAAP
              
              
              (0.21
              )
              
              
              (0.12
              )
              
              
              (0.13
              )
   
 F-27
 KOLA
MINING CORP.
 (formerly
Centrasia Mining Corp.)
 (an
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED MAY 31, 2008, 2007 AND 2006
 (Expressed
in Canadian dollars, unless otherwise
stated)
 
 16.
              DIFFERENCES
      BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTEDACCOUNTING
      PRINCIPLES(continued)
  Consolidated Balance
Sheets
  2008
              
              
              
              2007$
              
              
              
              $Shareholders’
      equityBalance per Canadian
      GAAP
              
              
              26,562,749
              
              
              
              5,502,047Unproven mineral interests
      expensed
              
              
              (4,684,416
              )
              
              
              (814,732
              )Balance per US
      GAAP
              
              
              21,878,333
              
              
              
              4,687,315
  Unproven mineral
      interestsBalance per Canadian
      GAAP
              
              
              40,037,414
              
              
              
              1,491,844Expensed under US
      GAAP
              
              
              (4,684,416
              )
              
              
              (814,732
              )Balance per US
      GAAP
              
              
              35,352,998
              
              
              
              677,112
  Consolidated statements of
      cash flows
  2008
              
              
              
              2007
              
              
              
              2006$
              
              
              
              $
              
              
              
              $Operating
      activitiesCash used per Canadian
      GAAP
              
              
              (2,625,750
              )
              
              
              (1,464,627
              )
              
              
              (917,224
              )Unproven mineral
      interests
              
              
              (5,676,409
              )
              
              
              (395,319
              )
              
              
              (157,548
              )Cash used per US
      GAAP
              
              
              (8,302,159
              )
              
              
              (1,859,946
              )
              
              
              (1,074,772
              )Investing
      activitiesCash used provided by per
      Canadian GAAP
              
              
              (12,653,519
              )
              
              
              (800,778
              )
              
              
              (174,090
              )Unproven mineral
      interests
              
              
              5,676,409
              
              
              
              395,319
              
              
              
              157,548Cash used per US
      GAAP
              
              
              (6,977,110
              )
              
              
              (405,459
              )
              
              
              (16,542
              )
  Unproven Mineral
      Interests
  Mineral
property costs and related exploration expenditures are accounted for in
accordance withCanadian
GAAP as disclosed in Note 2.  For US GAAP purposes the Company follows
the provisionsof
EITF 04-02 “Whether Mineral Rights are Tangible or Intangible Assets” which
concluded thatmineral
rights are tangible assets.  Accordingly, the Company capitalizes
certain costs related to theacquisition
of mineral rights.  The Company expenses, as incurred, the exploration
costs relating tounproven
mineral properties.  When proven and probable reserves are determined
for a property anda
feasibility study prepared, then subsequent exploration and development costs of
the property wouldbe
capitalized.  The capitalized costs of such properties would then be
amortized using the unit ofproduction
method over the estimated life of the ore body based on proven and probable
reserves andwould
be measured periodically for recoverability of carrying
values.
   
 F-28
 KOLA
MINING CORP.
 (formerly
Centrasia Mining Corp.)
 (an
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED MAY 31, 2008, 2007 AND 2006
 (Expressed
in Canadian dollars, unless otherwise
stated)
 
 16.
              DIFFERENCES
      BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTEDACCOUNTING
      PRINCIPLES(continued)
  Income
      Taxes
  In
June 2006, the FASB issued Interpretation No. 48 “Accounting for Uncertainty in
Income Taxes -an
interpretation of FASB Statement 109" (“FIN 48").  This interpretation
clarifies the recognitionthreshold
and measurement of a tax position taken or expected to be taken on a tax return,
and requiresexpanded
disclosure with respect to the uncertainty in income taxes.  FIN 48
also provides guidanceon
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure andtransition.  The
Company adopted the provisions of FIN 48 on June 1, 2007 and the adoption of
thispolicy
did not result in an adjustment to the Company’s consolidated financial
statements.
  (b)
              Recent
      Accounting Pronouncements
  United
      States Pronouncements
  In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
157”).SFAS
157 defines fair value, establishes a framework for measuring fair value in
accordance withUS GAAP
and expands disclosures about fair value measurements.  SFAS 157 is
effective for fiscalyears
beginning after November 15, 2007.  Any cumulative effect will be
recorded as an adjustmentto
the opening accumulated deficit balance, or other appropriate component of
equity.  The Companyis
currently evaluating the effect of SFAS 157 will have on the Company’s
consolidated financialposition
and results of operations.
  In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets andFinancial
Liabilities - Including an Amendment of FASB Statement No. 115” (“SFAS 159”),
whichpermits
entities to choose to measure many financial instruments and certain other items
at fair value.The
fair value option established by SFAS 159 permits all entities to choose to
measure eligibleitems at
fair value at specified election dates.  A business entity shall
report unrealized gains and losseson
items for which the fair value option has been elected in earnings at each
subsequent reporting date.Adoption
is required for fiscal years beginning after November 15, 2007.  The
Company is currentlyevaluating
the impact of SFAS 159 on its consolidated financial statements and is currently
not yet ina
position to determine such effects.
  In
December 2007, the FASB issued SFAS No. 160, “Non-controlling Interest in
ConsolidatedFinancial
Statements” (“SFAS 160”), which clarifies that a non-controlling interest in a
subsidiary isan
ownership interest in the consolidated entity that should be reported as equity
in the consolidatedfinancial
statements.  It requires consolidated net income to be reported at
amounts that include theamounts
attributable to both the parent and the non-controlling interest.  It
also requires disclosure,on
the face of the consolidated statement of income, of the amounts of consolidated
net incomeattributable
to the parent and to the non-controlling interest.  This statement
amends FASB 128,“Earnings
per Share”; the calculation of the earnings per share amounts in consolidated
financialstatement
will continue to be based on amounts attributable to the parent.  SFAS
160 is effective forfiscal
years beginning after December 31, 2008.  The Company is currently
evaluating the impact ofSFAS
160 on its consolidated financial position and results of
operations.
      
 F-29
 KOLA
MINING CORP.
 (formerly
Centrasia Mining Corp.)
 (an
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED MAY 31, 2008, 2007 AND 2006
 (Expressed
in Canadian dollars, unless otherwise
stated)
 
 16.
              DIFFERENCES
      BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTEDACCOUNTING
      PRINCIPLES(continued)
  In
December 2007, FASB issued SFAS No. 141 “Business Combinations” (“SFAS 141”)
(revised2007)
to improve the relevance, representational faithfulness, and comparability of
the informationthat
a reporting entity provides in its financial reports about a business
combination and its effects.SFAS
141 establishes principles and requirements for the acquirer to (1) recognize
and measure in itsfinancial
statements the identifiable assets acquired, the liabilities assumed, and any
non-controllinginterest;
(2) recognizes and measures the goodwill acquired in the business combination or
a gain froma
bargain purchase; (3) determines what information to disclose to enable users of
financial statementstoevaluate
the nature and financial effects of the business combination. The effective date
of SFAS141
is December 15, 2008.  The Company is currently evaluating the impact
of SFAS 141 on itsconsolidated
financial statements.
  In
March 2008, the FASB issued SFAS No. 161, “Disclosures About Derivative
Instruments andHedging
Activities - An Amendment of SFAS 133” (“SFAS 161”), which requires enhanceddisclosures
about an entity’s derivative and hedging activities to provide information about
(a) howand
why an entity uses derivative instruments, (b) how derivative instruments and
related hedged itemsare
accounted for under SFAS 133 and its related interpretation, and (c) how
derivative instrumentsand
related hedged items affected an entity’s financial position, financial
performance, and cash flows.SFAS
161 is effective prospectively for financial statements issued for fiscal years
and interim periodsbeginning
after November 15, 2008, with early application encouraged.  The
adoption of SFAS 161is
not expected to have an effect on the Company’s consolidated financial
statements.
  In
May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
AccountingPrinciples”(“SFAS
162”) which  sets out the framework for selecting accounting
principles to be usedin
preparing financial statements that are presented in conformity with US
GAAP.  Up to now, the USGAAP
hierarchy has been defined in the US auditing literature. Because of the
interrelationship withthe
auditing literature, SFAS 162 will be effective 60 days following the SEC’s
approval of thePCAOB’s
amendments to their auditing standards.  The adoption of SFAS 162 is
not expected to havean
effect on the Company’s consolidated financial
statements.
  17.
              SUBSEQUENT
      EVENTS
  (a)
              On
      July 16, 2008 the Company completed a non-brokered private placement of
      33,333,334 units, ata
      price of $0.30 per unit, for gross proceeds of
      $10,000,000.  Each unit comprised one common shareand
      one-half share purchase warrant, with each full warrant entitling the
      holder to acquire an additionalcommon
      share at $0.45 per share on or before July 15, 2010.  The
      Company paid a finder’s fee of$250,000
      in cash and issued 833,334 common shares in respect of the private
      placement.
  The
      Company subsequently repaid the current portion portions of long-term debt
      of $5,063,500(US $5,000,000)
      to Stargate and $253,175 (US $250,000) to
      DBM.
  (b)
              Subsequent
      to May 31, 2008, the Company granted stock options to its directors,
      officers.employees and
      consultants to purchase 3,100,000 common shares of the Company at a price
      of$0.36 per
      share, expiring July 24,
  2013.
  (c)
              On
      June 20, 2008 warrants to purchase 1,708,750 common shares, at a price of
      $0.75 per share,expired
      without
exercise.
 
 F-30
 
 Schedule I
  KOLA MINING
CORP.
 (formerly Centrasia Mining
Corp.)
 (an Exploration Stage
Company)
 CONSOLIDATED SCHEDULE OF UNPROVEN
MINERAL INTERESTS
 FOR THE YEAR ENDED MAY 31,
2008
 (Expressed in Canadian dollars,
unless otherwise stated)
    Russia
              
              
              Kyrgyz
      RepublicSouker
                $
              
              
              Tsaga
                $
              
              
              Uleeta
                $
              
              
              Bulakashu
                $
              
              
              Eastern
                Sary
Jaz
                $
              
              
              Total
                $BALANCE - BEGINNING OF
      YEAR
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,291,025
              
              
              
              200,819
              
              
              
              1,491,844EXPENDITURESEXPLORATION
      COSTSAccess
      roads
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              43,832
              
              
              
              43,832Drilling
              
              
              1,835,197
              
              
              
              254,429
              
              
              
              -
              
              
              
              737,888
              
              
              
              -
              
              
              
              2,827,514Ecology
              
              
              148,013
              
              
              
              1,196
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              149,209Exploration site
      costs
              
              
              157,782
              
              
              
              6,165
              
              
              
              3,059
              
              
              
              5,358
              
              
              
              7,822
              
              
              
              180,186Field
      supplies
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              2,247
              
              
              
              1,578
              
              
              
              3,825Fuel
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              24,772
              
              
              
              5,262
              
              
              
              30,034Geological
              
              
              266,567
              
              
              
              -
              
              
              
              -
              
              
              
              227,839
              
              
              
              13,521
              
              
              
              507,927Geophysics
              
              
              6,189
              
              
              
              297,429
              
              
              
              19,440
              
              
              
              79,594
              
              
              
              -
              
              
              
              402,652Laboratory and
      sampling
              
              
              258,796
              
              
              
              2,584
              
              
              
              7,266
              
              
              
              117,951
              
              
              
              13,656
              
              
              
              400,253Mapping
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Production
      management
              
              
              115,598
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              115,598Repair and
      maintenance
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              8,306
              
              
              
              606
              
              
              
              8,912Salaries and
      benefits
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              81,815
              
              
              
              135,241
              
              
              
              217,056Surveying
              
              
              -
              
              
              
              -
              
              
              
              145,983
              
              
              
              -
              
              
              
              -
              
              
              
              145,983Topography
              
              
              549,412
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              549,412Travel
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              3,898
              
              
              
              2,822
              
              
              
              6,720Trenching
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              2,999
              
              
              
              2,999VAT
    tax
              
              
              609,311
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              609,3113,946,865
              
              
              
              561,803
              
              
              
              175,748
              
              
              
              1,289,668
              
              
              
              227,339
              
              
              
              6,201,423ACQUISITION
      COSTSAcquisition of RPI (Note
      3)
              
              
              34,717,738
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              34,717,738Issuance of common
      shares
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              405,000
              
              
              
              -
              
              
              
              405,000Accretion of
      debt
              
              
              635,260
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              635,26035,352,998
              
              
              
              -
              
              
              
              -
              
              
              
              405,000
              
              
              
              -
              
              
              
              35,757,99839,299,863
              
              
              
              561,803
              
              
              
              175,748
              
              
              
              1,694,668
              
              
              
              227,339
              
              
              
              41,959,421BALANCE BEFORE
      WRITE-OFF
              
              
              39,299,863
              
              
              
              561,803
              
              
              
              175,748
              
              
              
              2,985,693
              
              
              
              428,158
              
              
              
              43,451,265WRITE-OFF
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (2,985,693
              )
              
              
              (428,158
              )
              
              
              (3,413,851
              )BALANCE - END OF
      YEAR
              
              
              39,299,863
              
              
              
              561,803
              
              
              
              175,748
              
              
              
              -
              
              
              
              -
              
              
              
              40,037,414
    
 F-31
 
 Schedule I(A)
  KOLA MINING
CORP.
 (formerly Centrasia Mining
Corp.)
 (an Exploration Stage
Company)
 CONSOLIDATED SCHEDULE OF UNPROVEN
MINERAL INTERESTS
 FOR THE YEAR ENDED MAY 31,
2007
 (Expressed in Canadian dollars,
unless otherwise stated)
    Bulakashu
                $
              
              
              Eastern
                Sary
Jaz
                $
              
              
              Other
                $
              
              
              Total
                $BALANCE - BEGINNING OF
      YEAR
              
              
              779,492
              
              
              
              23,894
              
              
              
              -
              
              
              
              803,386EXPENDITURES DURING THE
      YEAREXPLORATION
      COSTSDrilling
              
              
              69,765
              
              
              
              -
              
              
              
              -
              
              
              
              69,765Exploration site
      costs
              
              
              5,801
              
              
              
              4,646
              
              
              
              1,063
              
              
              
              11,510Field
      supplies
              
              
              1,370
              
              
              
              356
              
              
              
              97
              
              
              
              1,823Fuel
              
              
              38,358
              
              
              
              1,493
              
              
              
              443
              
              
              
              40,294Geological
              
              
              16,799
              
              
              
              4,380
              
              
              
              686
              
              
              
              21,865Geophysics
              
              
              42,210
              
              
              
              -
              
              
              
              -
              
              
              
              42,210Laboratory and
      sampling
              
              
              36,833
              
              
              
              7,907
              
              
              
              1,510
              
              
              
              46,250Mapping
              
              
              8,188
              
              
              
              5,672
              
              
              
              -
              
              
              
              13,860Repair and
      maintenance
              
              
              3,672
              
              
              
              -
              
              
              
              -
              
              
              
              3,672Salaries and
      benefits
              
              
              71,200
              
              
              
              55,147
              
              
              
              6,350
              
              
              
              132,697Travel
              
              
              9,837
              
              
              
              919
              
              
              
              617
              
              
              
              11,373304,033
              
              
              
              80,520
              
              
              
              10,766
              
              
              
              395,319ACQUISITION
      COSTSIssuance of common
      shares
              
              
              207,500
              
              
              
              96,000
              
              
              
              42,000
              
              
              
              345,500511,533
              
              
              
              176,520
              
              
              
              52,766
              
              
              
              740,819BALANCE BEFORE
      WRITE-OFF
              
              
              1,291,025
              
              
              
              200,414
              
              
              
              52,766
              
              
              
              1,544,205WRITE-OFF
              
              
              -
              
              
              
              -
              
              
              
              (52,361
              )
              
              
              (52,361
              )BALANCE - END OF
      YEAR
              
              
              1,291,025
              
              
              
              200,414
              
              
              
              405
              
              
              
              1,491,844