UNITED STATES

SECURITIES AND
EXCHANGE COMMISSION

Washington, D.C. 20549





FORM
20-F



|                                                  |  | 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
        fiscal year ended December 31, 2016   
|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   
|Date of event requiring this shell company report:



Commission
file number: 0-18860







CANARC RESOURCE CORP.

(Exact name of Registrant as specified
in its charter)









Province
of British Columbia, Canada

(Jurisdiction of incorporation
or organization)



Suite
#301 - 700 West Pender Street, Vancouver, British Columbia, Canada, V6C 1G8



(Address of principal executive
offices)



Philip Yee, Chief Financial
Officer, Phone: (604) 685-9700, Fax: (604) 685-9744, e-mail: philip@canarc.net

Canarc
Resource Corp., Suite #301 - 700 West Pender Street, Vancouver, British Columbia, Canada, V6C 1G8



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








Securities registered pursuant
to Section 12(b) of the Act:None



Securities registered pursuant
to Section 12(g) of the Act: Common Shares, without par value



Securities for which there is
a reporting obligation pursuant to Section 15(d) of the Act: None








Indicate
the number of outstanding shares of each of the Registrant’s classes of capital or common stock as of the close of the period
covered by the annual report: 217,189,597 common shares as at December 31, 2016



Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.      Yes o
No þ









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 o No þ



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.          	Yes þ No o



Indicate by check mark whether
the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the Registrant was required to submit and post such files).	                            Yes o
No 



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



Large accelerated
filer o	Accelerated filer o

Non-accelerated filer þ	Emerging
growth company o

If an emerging growth company that prepares its financial
statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition
period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange
Act. o



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



U.S. GAAP o	International
Financial Reporting Standards as issued	Other o

by the International Accounting
Standards Board	þ



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:	Item 17 o	Item 18 þ



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).	Yes o No þ









TABLE OF CONTENTS





|PART I                                                             | 10
|------------------------------------------------------------------ | --
|ITEM 1.      IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS | 10
|ITEM 2.     OFFER STATISTICS AND EXPECTED TIMETABLE                | 10
|ITEM 3.     KEY INFORMATION                                        | 10
|3.A     Selected Financial Data                                    | 10
|3.B     Capitalization and Indebtedness                            | 13
|3.C     Reasons for the Offer and Use of Proceeds                  | 13
|3.D      Risk Factors                                              | 13
|ITEM 4.     INFORMATION ON THE COMPANY                             | 27
|4.A     History and Development of the Company                     | 27
|4.B     Business Overview                                          | 39
|4.C      Organizational Structure                                  | 45
|4.D     Property, Plants and Equipment                             | 45
|ITEM 4A.     UNRESOLVED STAFF COMMENTS                             | 65
|ITEM 5.     OPERATING AND FINANCIAL REVIEW AND PROSPECTS           | 65
|5.A     Operating Results                                          | 66
|5.B     Liquidity and Capital Resources                            | 76
|5.C     Research and Development, Patents and Licenses, etc.       | 82
|5.D     Trend Information                                          | 82
|5.E     Off-Balance Sheet Arrangements                             | 82
|5.F     Tabular Disclosure of Contractual Obligations              | 83
|5.G     Safe Harbor                                                | 85
|ITEM 6.     DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES             | 86







|6.A     Directors and Senior Management                         | 86 
|--------------------------------------------------------------- | ---
|6.B     Compensation                                            | 89 
|6.C     Board Practices                                         | 97 
|6.D     Employees                                               | 106
|6.E     Share Ownership                                         | 106
|ITEM 7.     MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS   | 112
|7.A     Major Shareholders                                      | 112
|7.B     Related Party Transactions                              | 114
|7.C     Interests of Experts and Counsel                        | 117
|ITEM 8.     FINANCIAL INFORMATION                               | 117
|8.A     Consolidated Statements and Other Financial Information | 117
|8.B     Significant Changes                                     | 120
|ITEM 9.     THE OFFER AND LISTING                               | 120
|9.A     Offer and Listing Details                               | 120
|9.B     Plan of Distribution                                    | 124
|9.C     Markets                                                 | 125
|9.D     Selling Shareholders                                    | 125
|9.E     Dilution                                                | 125
|9.F     Expenses of the Issue                                   | 125
|ITEM 10.     ADDITIONAL INFORMATION                             | 125
|10.A     Share Capital                                          | 126
|10.B     Notice of Articles and Articles of Association         | 126
|10.C     Material Contracts                                     | 134
|10.D     Exchange Controls                                      | 137
|10.E     Taxation                                               | 144
|10.F     Dividends and Paying Agents                            | 144







|10.G     Statement by Experts                                                                            | 144
|-------------------------------------------------------------------------------------------------------- | ---
|10.H     Documents on Display                                                                            | 144
|10.I     Subsidiary Information                                                                          | 145
|ITEM 11.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                  | 147
|ITEM 12.     DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                                      | 150
|PART II                                                                                                  | 151
|ITEM 13.     DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                                             | 151
|ITEM 14.     MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS                | 151
|ITEM 15.     CONTROLS AND PROCEDURES                                                                     | 151
|ITEM 16.     AUDIT COMMITTEE FINANCIAL EXPERT, CODE OF ETHICS AND PRINCIPAL ACCOUNTANT FEES AND SERVICES | 153
|16.A     Audit Committee Financial Expert                                                                | 153
|16.B     Code of Ethics                                                                                  | 153
|16.C     Principal Accountant Fees and Services                                                          | 154
|16.D     Exemptions from the Listing Standards for Audit Committees                                      | 154
|16.E     Purchases of Equity Securities by the Registrant and Affiliated Purchasers                      | 155
|16.F     Change in Registrant's Certifying Accountant                                                    | 156
|16.G     Corporate Governance                                                                            | 156
|16.H     Mine Safety Disclosure                                                                          | 156
|PART III                                                                                                 | 157
|ITEM 17.     FINANCIAL STATEMENTS                                                                        | 157
|ITEM 18.     FINANCIAL STATEMENTS                                                                        | 157
|ITEM 19.     EXHIBITS                                                                                    | 158











CAUTION – FORWARD-LOOKING
STATEMENTS



This annual report on Form 20-F
and the exhibits attached hereto contain “forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995, as amended. Such forward looking statements concern the Registrant’s anticipated results and
developments in the Registrant’s operations in future periods, planned exploration and development of its mineral property
interests, plans related to its business and other matters that may occur in the future. These statements relate to analyses and
other information that are based on forecasts of future results, estimates of amounts not yet determinable and assumptions of management.



Any statements that express or
involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events
or performance (often, but not always, using words or phrases such as “expects” or “does not expect”, “is
expected”, “anticipates” or “does not anticipate”, “plans”, “estimates” or
“intends”, or stating that certain actions, events or results “may”, “could”, “would”,
“might” or “will” be taken, occur or be achieved) are not statements of historical fact and may be forward-looking
statements. Forward-looking statements are subject to a variety of known and unknown risks, uncertainties and other factors which
could cause actual events or results to differ from those expressed or implied by the forward-looking statements, including, without
limitation:



| | · | risks related to our exploration and development activities;
| | - | ------------------------------------------------------------

| | · | risks related to the financing needs of our planned operations;
| | - | ---------------------------------------------------------------

| | · | risks related to estimates of mineral deposits, resources and reserves;
| | - | -----------------------------------------------------------------------

| | · | risks related to fluctuations in mineral prices;
| | - | ------------------------------------------------

| | · | risks related to the titles of our mineral property interests;
| | - | --------------------------------------------------------------

| | · | risks related to competition in the mineral exploration and mining industry;
| | - | ----------------------------------------------------------------------------

| | · | risks related to potential conflicts of interest with our officers and directors;
| | - | ---------------------------------------------------------------------------------

| | · | risks related to environmental and regulatory requirements;
| | - | -----------------------------------------------------------

| | · | risks related to foreign currency fluctuations;
| | - | -----------------------------------------------

| | · | risks related to our possible status as a passive foreign investment company;
| | - | -----------------------------------------------------------------------------

| | · | risks related to the volatility of our common stock; and
| | - | --------------------------------------------------------

| | · | risks related to the possible dilution of our common stock.
| | - | -----------------------------------------------------------



This list is not exhaustive of
the factors that may affect our forward-looking statements. Some of the important risks and uncertainties that could affect forward-looking
statements are described further under the sections titled “Risk Factors” and “Information on the Company”
of this annual report. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, believed, estimated or expected. We caution readers not to place undue
reliance on any such forward-looking statements, which speak only as of the date made. We disclaim any obligation subsequently
to revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the
occurrence of anticipated or unanticipated events other than as may be specifically required by applicable securities laws and
regulations.



1Canarc Resource Corp.Form 20-F







We qualify all the forward-looking
statements contained in this annual report by the foregoing cautionary statements.

Unless the context otherwise requires, all
references to “we” or “our” or the “Registrant” or the “Company” or “Canarc”
refer to Canarc Resource Corp. and/or its subsidiaries. All monetary figures are in terms of United States dollars unless otherwise
indicated.



EXPLANATORY NOTE REGARDING PRESENTATION
OF FINANCIAL INFORMATION



The annual audited consolidated
financial statements contained in this Annual Report on Form 20-F are reported in United States dollars. For the years ended December
31, 2016, 2015, and 2014, as presented in the annual audited consolidated financials contained in this Annual Report on Form 20-F,
we prepared our consolidated financial statements in accordance with International Financial Reporting Standards (‘‘IFRS’’)
as issued by the International Accounting Standards Board (“IASB”). For the years ended December 31, 2013 and 2012, which annual
audited consolidated financial statements are not presented in this Annual Report, we prepared our consolidated financial statements
in accordance with IFRS as issued by the IASB. Statements prepared in accordance with IFRS are not comparable in all respects with
financial statements that are prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”).



2Canarc Resource Corp.Form 20-F







CURRENCY



Unless we otherwise indicate in this Annual Report
on Form 20-F, all references to "Canadian Dollars" or "CAD$" are to the lawful currency of Canada, and all
references to "U.S. Dollars" or "US$" are to the lawful currency of the United States.



3Canarc Resource Corp.Form 20-F







GLOSSARY OF MINING TERMS



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



|1933 Act - means the United States Securities Act of 1933, as amended.                                                                                                                                                     
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|adit – a horizontal tunnel in an underground mine driven from a hillside surface.                                                                                                                                          
|Ag – silver.                                                                                                                                                                                                               
|alluvial mining - mining of gold bearing stream gravels using gravity methods to recover the gold, also known as placer mining.                                                                                            
|andesite - a volcanic rock of intermediate composition, the extrusive equivalent of diorite.                                                                                                                               
|arsenopyrite – an ore mineral of arsenic, iron, and sulphur, often containing gold.                                                                                                                                        
|assay – a precise and accurate analysis of the metal contents in an ore or rock sample.                                                                                                                                    
|Au - gold.                                                                                                                                                                                                                 
|auger drill – a handheld machine that produces small, continuous core samples in unconsolidated materials.                                                                                                                 
|autoclave – a mineral processing vessel operated at high temperature and pressure in order to oxidize sulfide and carbon compounds, so the contained metals can be leached and concentrated.                               
|Banka drilling - a hand operated drill specifically designed for sampling alluvial deposits. The drill rods (10-12 centimetres in diameter) are forced into the gravel and then the core sample is extracted from the rods.
|Commission- United States Securities and Exchange Commission, or S.E.C.                                                                                                                                                    
|concentrate – a concentrate of minerals produced by crushing, grinding and processing methods such as gravity or flotation.                                                                                                
|contained gold – total measurable gold in grams or ounces estimated to be contained within a mineral deposit.  Makes no allowance for economic criteria, mining dilution or recovery losses.                               
|Cu– copper.                                                                                                                                                                                                                
|cut-off grade –deemed grade of mineralization, established by reference to economic factors, above which material is considered ore and below which is considered waste.                                                   
|diamond drill – a large machine that produces a continuous core sample of the rock or material being drilled.                                                                                                              
|diorite – a plutonic rock of intermediate composition, the intrusive equivalent of andesite.                                                                                                                               

4Canarc Resource Corp.Form 20-F







|dorė– bullion of gold, with minor silver and copper produced by smelting, prior to refining.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|epithermal – used to describe hydrothermal mineral deposits, typically in veins, formed at lower temperatures and pressures within 1 km of the earth surface.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|Exchange Act – means the United States Securities Exchange Act of 1934, as amended.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|feasibility study – a detailed report assessing the feasibility, economics and engineering of placing a mineral deposit into commercial production.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|flotation – a mineral recovery process using soapy compounds to float finely ground metallic minerals into a concentrate.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|garimpeiros – a Brazilian term used in South America referring to small scale, artisanal miners and prospectors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|gold deposit - means a mineral deposit mineralised with gold.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|gold equivalent - a method of presenting combined gold and silver concentrations or weights for comparison purposes. Commonly involves expressing silver as its proportionate value in gold based on the relative values of the two metals.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|gold resource – see mineral resource.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|gpt- grams per tonne.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|grams per cubic meter - alluvial mineralisation measured by grams of gold contained per cubic meter of material, a measure of gold content by volume not by weight.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|greenstone - a field term for any compact dark-green altered or metamorphosed basic igneous rock that owes its colour to green minerals such as chlorite, actinolite or epidote.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|indicated resource -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.  Cautionary Note to U.S. Investors:  Please review the “Cautionary Note to U.S. Investors Regarding Reserve and Resource Estimates” below.
|inferred resource -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.  Cautionary Note to U.S. Investors:  Please review the “Cautionary Note to U.S. Investors Regarding Reserve and Resource Estimates” below.                                                                                                                                                                                                                                  
|laterite- highly weathered residual superficial soils and decomposed rocks, rich in iron and aluminum oxides, that are characteristically developed in tropical climates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|lode mining – mining of ore, typically in the form of veins or stockworks.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

5Canarc Resource Corp.Form 20-F







|measured resourcemeans 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.  Cautionary Note to U.S. Investors:  Please review the “Cautionary Note to U.S. Investors Regarding Reserve and Resource Estimates” below.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|mesothermal – used to describe hydrothermal mineral deposits, typically in veins, formed at higher temperatures and pressures deeper than 1 km of the earth’s surface.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|mineral reservemeans 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.  Cautionary Note to U.S. Investors:  Please review the “Cautionary Note to U.S. Investors Regarding Reserve and Resource Estimates” below.                                                                                                                                                                                                     
|mineral resource – 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”.  Cautionary Note to U.S. Investors:  Please review the “Cautionary Note to U.S. Investors Regarding Reserve and Resource Estimates” below.                                                                                                                                                                                                                                                                                                          
|net profits interest or NPI – a royalty based on the net profits generated after recovery of all costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|net smelter royalty or NSR - a royalty based on the gross proceeds received from the sale of minerals less the cost of smelting, refining, freight and other related costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|nugget effect – an effect of high variability of gold assays, due to the gold occurring in discreet coarse grains such that their content in any given sample is highly variable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|opt– troy ounces per ton.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|porknockers- a local term used in Guyana and Suriname to refer to small scale artisanal miners and prospectors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|porphyry – an igneous rock containing coarser crystals in a finer matrix.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|probable reserve- 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.  Cautionary Note to U.S. Investors:  Please review the “Cautionary Note to U.S. Investors Regarding Reserve and Resource Estimates” below.                                                                                                                                                                                                                                                                                               

6Canarc Resource Corp.Form 20-F







|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.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|prospect – an area prospective for economic minerals based on geological, geophysical, geochemical and other criteria                                                                                                                                                                                                                                                                                                                                                                                                                                     
|proven reservemeans 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.  Cautionary Note to U.S. Investors:  Please review the “Cautionary Note to U.S. Investors Regarding Reserve and Resource Estimates” below.                                                                 
|pyrite – an ore mineral of iron and sulphur.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|Qualified Personmeans 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|raise – a vertical or inclined tunnel in an underground mine driven upwards from below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|ramp – an inclined tunnel in an underground mine driven downwards from surface.                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|reverse circulation drill– a large machine that produces a continuous chip sample of the rock or material being drilled.                                                                                                                                                                                                                                                                                                                                                                                                                                  
|saprolite- a soft, earthy, clay rich and thoroughly decomposed rock with its original textures intact, formed in place by chemical weathering of igneous, sedimentary or metamorphic rocks.                                                                                                                                                                                                                                                                                                                                                               
|scoping study– a conceptual report assessing the scope, economics and engineering of placing a mineral deposit into commercial production.                                                                                                                                                                                                                                                                                                                                                                                                                
|shaft – a vertical or inclined tunnel in an underground mine driven downward from surface.                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|shear – a tabular zone of faulting within which the rocks are crushed and flattened.                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|stibnite – an ore mineral of antimony and sulphur.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|stock or pluton – a body of intrusive rock that covers less than 40 square miles, has steep dips and is discordant with surrounding rock.                                                                                                                                                                                                                                                                                                                                                                                                                 
|stockwork– multiple small veins of mineralisation that have so penetrated a rock mass that the whole rock mass can be considered mineralised.                                                                                                                                                                                                                                                                                                                                                                                                             
|strike length - the longest horizontal dimensions of a body or zone of mineralisation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|stripping ratio - the ratio of waste material to ore that is estimated for or experienced in mining an ore body.                                                                                                                                                                                                                                                                                                                                                                                                                                          

7Canarc Resource Corp.Form 20-F







|sulphide – an ore mineral compound linking sulphur with one or more metals.                                                                                            
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ton- short ton (2,000 pounds).                                                                                                                                         
|tonne- metric tonne (2,204.6 pounds).                                                                                                                                  
|trenching – the surface excavation of a linear trench to expose mineralization for sampling.                                                                           
|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.
|winze – an internal shaft in an underground mine.                                                                                                                      



For ease of reference, the following conversion
factors are provided:



|1 mile | = 1.609 kilometres | 1 pound                  | = 0.4535 kilogram
|------ | ------------------ | ------------------------ | -----------------
|1 yard | = 0.9144 meter     | 2,000 pounds/1 short ton | = 0.907 tonne    
|1 acre | = 0.405 hectare    | 1 troy ounce             | = 31.103 grams   





8Canarc Resource Corp.Form 20-F







CAUTIONARY NOTE TO U.S. INVESTORS
REGARDING MINERAL RESERVE AND RESOURCE ESTIMATES



The mineral reserve and resource
information in this annual report on Form 20-F has been prepared in accordance with the requirements of the securities laws in
effect in Canada, which differ materially from the requirements of United States securities laws. The terms “mineral reserve”,
“proven mineral reserve” and “probable mineral reserve” are Canadian mining terms as defined in accordance
with Canadian National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”) and the
Canadian Institute of Mining, Metallurgy and Petroleum (the “CIM”) - CIM Definition Standards on Mineral Resources
and Mineral Reserves, adopted by the CIM Council, as amended. These definitions differ materially from the definitions in the
United States Securities and Exchange Commission (“SEC”) Industry Guide 7 (“SEC Industry Guide 7”) under
the United States Securities Act of 1933, as amended. Under SEC Industry Guide 7 standards, a “final” or “bankable”
feasibility study is required to report reserves, the three-year historical average price is used in any reserve or cash flow analysis
to designate reserves and the primary environmental analysis or report must be filed with the appropriate governmental authority.



In addition, the terms “mineral
resource”, “measured mineral resource”, “indicated mineral resource” and “inferred mineral
resource” are defined in and required to be disclosed by NI 43-101; however, these terms are not defined terms under SEC
Industry Guide 7 and are normally not permitted to be used in reports and registration statements filed with the SEC. Investors
are cautioned not to assume that any part or all of mineral deposits in these categories will ever be converted into reserves.
“Inferred mineral resources” have a great amount of uncertainty as to their existence, and great uncertainty as to
their economic and legal feasibility. It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded
to a higher category. Under Canadian rules, estimates of inferred mineral resources may not form the basis of feasibility or pre-feasibility
studies, except in rare cases. Investors are cautioned not to assume that all or any part of an inferred mineral resource exists
or is economically or legally mineable. Disclosure of “contained ounces” in a resource is permitted disclosure under
Canadian regulations; however, the SEC normally only permits issuers to report mineralization that does not constitute “reserves”
by SEC standards as in place tonnage and grade without reference to unit measures.



Accordingly, information contained
in this report and the documents incorporated by reference herein containing descriptions of our mineral deposits may not be comparable
to similar information made public by U.S. companies subject to the reporting and disclosure requirements under the United States
federal securities laws and the rules and regulations thereunder, including SEC Industry Guide 7.



9Canarc Resource Corp.Form 20-F







PART I





ITEM 1.      IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS



Not applicable.



ITEM 2.      OFFER STATISTICS AND EXPECTED TIMETABLE



Not applicable.



ITEM 3.      KEY INFORMATION



3.A      Selected Financial Data





The following selected financial
data and information (stated in United States dollars) with respect to the last five fiscal years ended December 31, 2016, 2015,
2014, 2013 and 2012 have been derived from Canarc’s audited consolidated financial statements which are prepared in accordance
with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board
(“IASB”). The consolidated financial statements as of December 31, 2016 and 2015 and for the years ended December 31,
2016, 2015 and 2014 are set out and included in Item 18 of this annual report on Form 20-F. The selected financial data and the
information of the Company as at December 31, 2013 and 2012 and for the years then ended in the following table was derived from
the audited consolidated financial statements of the Company which are not presented in this Annual Report on Form 20-F.



The selected historical consolidated
financial information presented below is condensed and may not contain all of the information that you should consider. This selected
financial data should be read in conjunction with our annual audited consolidated financial statements, the notes thereto and the
sections entitled “Item 3. Key Information – D. Risk Factors” and ‘‘Item 5 — Operating and
Financial Review and Prospects.’’



10Canarc Resource Corp.Form 20-F









|                                                                |                                                                       | IFRS                                                |                  |                  |                  |                 
|--------------------------------------------------------------- | --------------------------------------------------------------------- | --------------------------------------------------- | ---------------- | ---------------- | ---------------- | ----------------
|Selected Financial Information                                  | As at and for the years ended December 31                            
|(stated in thousands of U.S. dollars, except per share amounts) | 2016                                                                  | 2015                                                | 2014             | 2013             | 2012            
|                                                                |                                                                       |                                                     |                  |                  |                  |                 
|(a)                                                             | Total revenues (1)                                                    | $              -                                    | $              - | $              - | $              - | $              -
|                                                                |                                                                       |                                                     |                  |                  |                  |                 
|(b)                                                             | Other incomes (2)                                                     | $       3,205                                       | $              - | $              - | $              - | $            77 
|                                                                |                                                                       |                                                     |                  |                  |                  |                 
|(c)                                                             | Income (loss) before discontinued operations and extraordinary items: |                                                     |                  |                  |                  |                 
|                                                                | (i)  Total                                                            | $       1,965                                       | $        (927)   | $     (1,831)    | $     (1,377)    | $     (1,206)   
|                                                                | (ii)  Basic earnings (loss) per share                                 | $         0.01                                      | $       (0.01)   | $       (0.01)   | $       (0.01)   | $       (0.01)  
|                                                                | (iii)  Diluted earnings (loss) per share                              | $         0.01                                      | $       (0.01)   | $       (0.01)   | $       (0.01)   | $       (0.01)  
|                                                                |                                                                       |                                                     |                  |                  |                  |                 
|(c)                                                             | Income (loss) from discontinued operations:                           |                                                     |                  |                  |                  |                 
|                                                                | (i)  Total                                                            | $       4,826                                       | $            (5) | $              - | $              - | $              -
|                                                                | (ii)  Basic earnings (loss) per share                                 | $         0.02                                      | $            -   | $            -   | $            -   | $            -  
|                                                                | (iii)  Diluted earnings (loss) per share                              | $         0.02                                      | $            -   | $            -   | $            -   | $            -  
|                                                                |                                                                       |                                                     |                  |                  |                  |                 
|(d)                                                             | Net income (loss):                                                    |                                                     |                  |                  |                  |                 
|                                                                | (i)  Total                                                            | $       6,791                                       | $        (932)   | $     (1,831)    | $     (1,377)    | $     (1,206)   
|                                                                | (ii)  Basic earnings (loss) per share                                 | $         0.03                                      | $       (0.01)   | $       (0.01)   | $       (0.01)   | $       (0.01)  
|                                                                | (iii)  Diluted earnings (loss) per share                              | $         0.03                                      | $       (0.01)   | $       (0.01)   | $       (0.01)   | $       (0.01)  
|                                                                |                                                                       |                                                     |                  |                  |                  |                 
|(e)                                                             | Total assets                                                          | $     19,708                                        | $     11,941     | $     12,564     | $     12,488     | $     13,983    
|                                                                |                                                                       |                                                     |                  |                  |                  |                 
|(f)                                                             | Total long-term debt (3)                                              | $              -                                    | $          117   | $            -   | $            -   | $            -  
|                                                                |                                                                       |                                                     |                  |                  |                  |                 
|(g)                                                             | Shareholders' equity (net assets)                                     | $     19,607                                        | $     10,814     | $     11,650     | $     11,412     | $     13,054    
|                                                                |                                                                       |                                                     |                  |                  |                  |                 
|(h)                                                             | Dividends per share                                                   | No cash dividends declared in any of these periods.
|                                                                |                                                                       |                                                     |                  |                  |                  |                 
|(i)                                                             | Shares:                                                               |                                                     |                  |                  |                  |                 
|                                                                | Diluted number of common shares                                       | 269,990,736                                         | 234,349,675      | 207,901,803      | 141,447,195      | 136,945,171     
|                                                                | Number of common shares                                               | 217,189,597                                         | 191,620,557      | 157,436,305      | 114,818,195      | 110,242,171     
|                                                                |                                                                       |                                                     |                  |                  |                  |                 







| | (1) | Canarc has no sources of operating revenues.
| | --- | --------------------------------------------

11Canarc Resource Corp.Form 20-F







| | (2) | Other income includes changes in the fair values of marketable securities and gains from the disposition
of marketable securities, if any, and investment and other income.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Canarc has no preferred shares.
| | --- | -------------------------------





The Company is involved with mineral
exploration and does not have any sources of operating revenues.



On April 21, 2017, the Bank of
Canada closing rate for the conversion of one United States dollar into Canadian dollars was CAD$1.3505.



The following table reflects the
monthly high and low exchange rates for U.S.$1.00 to the Canadian dollar for the following periods:





|Month         | Year | High  (CAD$) | Low  (CAD$)
|------------- | ---- | ------------ | -----------
|October       | 2016 | 1.3434       | 1.3005     
|November      | 2016 | 1.3588       | 1.3298     
|December      | 2016 | 1.3598       | 1.3081     
|January       | 2017 | 1.3458       | 1.2969     
|February      | 2017 | 1.3297       | 1.2981     
|March         | 2017 | 1.3535       | 1.3265     
|April 1 to 21 | 2017 | 1.3525       | 1.3229     
|              |      |              |            



The following table lists the
high, low, average and closing exchange rates for U.S.$1.00 to the Canadian dollar for the last five years:



12Canarc Resource Corp.Form 20-F







|Year                               | High (CAD$) | Low (CAD$) | Average Rate (CAD$) | Close (CAD$)
|---------------------------------- | ----------- | ---------- | ------------------- | ------------
|                                   |             |            |                     |             
|2012                               | 1.0443      | 0.9642     | 0.9996              | 0.9949      
|2013                               | 1.0704      | 0.9838     | 1.0298              | 1.0617      
|2014                               | 1.1672      | 1.0589     | 1.1045              | 1.1601      
|2015                               | 1.4003      | 1.1679     | 1.2787              | 1.3840      
|2016                               | 1.4661      | 1.2497     | 1.3248              | 1.3427      
|2017 (January 1 to April 21, 2017) | 1.3535      | 1.2969     | 1.3264              | 1.3505      





3.B      Capitalization and Indebtedness



Not applicable.





3.C      Reasons for the Offer and Use of Proceeds



Not applicable.





3.D      Risk Factors



The following is a brief discussion
of those distinctive or special characteristics of the Registrant’s operations and industry that may have a material impact
on, or constitute risk factors in respect of, the Registrant’s future financial performance.





13Canarc Resource Corp.Form 20-F





Risks Related to the Registrant’s
Business



The Registrant’s exploration
activities may not be commercially successful, which could lead it to abandon its plans to develop its mineral property interests
and its investments in exploration and there is no assurance given by the Registrant that its exploration and development programs
and mineral property interests will result in the discovery, development or production of a commercially viable ore body.



The business of exploration for
minerals and mining involves a high degree of risk. Few properties that are explored are ultimately developed into producing mines.
There is no assurance that the Registrant’s mineral exploration and development activities will result in any discoveries
of bodies of commercial ore. Unusual or unexpected geological structures or formations, fires, power outages, labour disruptions,
floods, explosions, cave-ins, land slides and the inability to obtain suitable or adequate machinery, equipment or labour are
other risks involved in the operation of mines and the conduct of exploration programs. The Registrant has relied and may continue
to rely upon consultants and others for construction and operating expertise. The economics of developing gold and other mineral
properties are affected by many factors including capital and operating costs, variations of the grade of ore mined, fluctuating
mineral 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. Depending on the price of
gold or other minerals produced, the Registrant may determine that it is impractical to commence or continue commercial production.
Substantial expenditures are required to establish reserves through drilling, to develop metallurgical processes to extract metal
from ore, and to develop the mining and processing facilities and infrastructure at any site chosen for mining. No assurance can
be given that funds required for development can be obtained on a timely basis. The marketability of any minerals acquired or discovered
may be affected by numerous factors which are beyond the Registrant’s control and which cannot be accurately foreseen or
predicted, such as market fluctuations, the global marketing conditions for precious and base metals, the proximity and capacity
of milling facilities, mineral markets and processing equipment, and such other factors as government regulations, including regulations
relating to royalties, allowable production, importing and exporting minerals and environmental protection. In order to commence
exploitation of certain properties presently held under exploration concessions, it is necessary for the Registrant to apply for
an exploitation concession. There can be no guarantee that such a concession will be granted.





The Registrant’s ability
to continue as a going concern is in doubt and the Registrant’s planned operations will require future financing and there
is no assurance given by the Registrant that it will be able to secure the financing necessary to explore, develop and produce
its mineral property interests.



The Registrant does not presently
have sufficient financial resources or operating cash flows to undertake by itself all of its planned exploration and development
programs. The development of the Registrant’s mineral property interests may therefore depend on the Registrant’s joint
venture partners, if any, and on the Registrant’s ability to obtain additional required financing. There is no assurance the Registrant will
be successful in obtaining the required financing, the lack of which could result in the loss or substantial dilution of its interests
(as existing or as proposed to be acquired) in its mineral property interests as disclosed herein. In addition, the Registrant
does not have sufficient experience in developing mining properties into production and its ability to do so will be dependent
upon securing the services of appropriately experienced personnel or entering into agreements with other major mining companies
which can provide such expertise.



14Canarc Resource Corp.Form 20-F









As noted in its audited consolidated
financial statements for the year ended December 31, 2016 the Registrant has no operating revenues, has incurred significant operating
losses in fiscal years prior to 2016, and has an accumulated deficit of approximately $44.1 million at December 31, 2016. Furthermore,
the Registrant lacks sufficient funds to achieve the Registrant’s planned business objectives. The Registrant’s ability
to continue as a going concern is dependent on continued financial support from its shareholders and other related parties, the
ability of the Registrant to raise equity financing, and the attainment of profitable operations, external financings and further
share issuances to meet the Registrant’s liabilities as they become payable.



The report of our independent
registered public accounting firm on the December 31, 2016 consolidated financial statements includes an additional paragraph that
states the existence of material uncertainties that cast substantial doubt about the Registrant’s ability to continue as
a going concern. The consolidated financial statements do not include adjustments that might result from the outcome of this uncertainty.





The figures for the Registrant’s
resources are estimates based on interpretation and assumptions and may yield less mineral production under actual conditions than
is currently estimated and there is no assurance given by the Registrant that any estimates of mineral deposits herein will not
change.



Although all figures with respect
to the size and grade of mineralized deposits included herein have been carefully prepared by the Registrant, or, in some instances
have been prepared, reviewed or verified by independent mining experts, these amounts are estimates only and no assurance can be
given that any identified mineralized deposit will ever qualify as a commercially viable mineable ore body that can be legally
and economically exploited. Estimates regarding mineralized deposits can also be affected by many factors such as permitting regulations
and requirements, weather, environmental factors, unforeseen technical difficulties, unusual or unexpected geological formations
and work interruptions. In addition, the grade of ore ultimately mined may differ from that indicated by drilling results. There
can be no assurance that gold recovered in small-scale laboratory tests will be duplicated in large-scale tests under on-site
conditions. Material changes in mineralized tonnages, grades, stripping ratios or recovery rates may affect the economic viability
of projects. The existence of mineralized deposits should not be interpreted as assurances of the future delineation of ore reserves
or the profitability of future operations. The refractory nature of gold mineralization at New Polaris project may adversely affect
the economic recovery of gold from mining operations.





15Canarc Resource Corp.Form 20-F





Changes in the market price
of gold, silver and other metals, which in the past have fluctuated widely, will affect the profitability of the Registrant’s
planned operations and financial condition and there is no assurance given by the Registrant that mineral prices will not change.



The mining industry is competitive
and mineral prices fluctuate so that there is no assurance, even if commercial quantities of a mineral resource are discovered,
that a profitable market will exist for the sale of same. Factors beyond the control of the Registrant may affect the marketability
of any substances discovered. The prices of precious and base metals fluctuate on a daily basis, have experienced volatile and
significant price movements over short periods of time, and are affected by numerous factors beyond the control of the Registrant,
including international economic and political trends, expectations of inflation, currency exchange fluctuations (specifically,
the U.S. dollar relative to other currencies), interest rates, central bank transactions, world supply for precious and base metals,
international investments, monetary systems, and global or regional consumption patterns (such as the development of gold coin
programs), speculative activities and increased production due to improved mining and production methods. The supply of and demand
for gold are affected by various factors, including political events, economic conditions and production costs in major gold producing
regions, and governmental policies with respect to gold holdings by a nation or its citizens. The exact effect of these factors
cannot be accurately predicted, and the combination of these factors may result in the Registrant not receiving adequate returns
on invested capital or the investments retaining their respective values. There is no assurance that the prices of gold and other
precious and base metals will be such that the Registrant’s properties can be mined at a profit.





Mineral operations are subject
to market forces outside of the Registrant’s control which could negatively impact the Company’s operations.



The marketability of minerals
is affected by numerous factors beyond the control of the entity involved in their mining and processing. These factors include
market fluctuations, government regulations relating to prices, taxes, royalties, allowable production, imports, exports and supply
and demand. One or more of these risk elements could have an impact on costs of an operation and if significant enough, reduce
the profitability of the operation and threaten its continuation.





There is no assurance given
by the Registrant that it owns legal title to its mineral property interests.



The acquisition of title to mineral
property interests is a very detailed and time-consuming process. Title to any of the Registrant’s mining concessions
may come under dispute. While the Registrant has diligently investigated title considerations to its mineral property interests,
in certain circumstances, the Registrant has only relied upon representations of property partners and government agencies. There
is no guarantee of title to any of the Registrant’s mineral property interests. The mineral property interests may be subject to prior
unregistered agreements or transfers, and title may be affected by unidentified and undetected defects. In British Columbia and
elsewhere, native land claims or claims of aboriginal title may be asserted over areas in which the Registrant’s mineral
property interests are located. To the best of the knowledge of the Registrant, although the Registrant understands that comprehensive
land claims submissions have been received by Indian and Northern Affairs Canada from the Taku Tlingit (Atlin) Band (which encompasses
the New Polaris property) and from the Association of United Tahltans and the Nisga’a Tribal Council (which may encompass
the Eskay Creek property), no legal actions have been formally served on the Registrant to date asserting such rights with respect
to mining properties in which the Registrant has an interest. Three First Nations bands (namely, Cheslatta Carrier Band, Nee-Tahi-Buhn
Band and the Skin Tyee Nation Band) have claims in the Windfall Hills property.



16Canarc Resource Corp.Form 20-F







The Registrant competes
with larger, better capitalized competitors in the mining industry and there is no assurance given by the Registrant that it can
compete for mineral properties, future financings and technical expertise.



Significant and increasing competition
exists for the limited number of gold acquisition opportunities available in North, South and Central America and elsewhere in
the world. As a result of this competition, some of which is with large established mining companies which have greater financial
and technical resources than the Registrant, the Registrant may be unable to acquire additional attractive gold mining properties
on terms it considers acceptable. Accordingly, there can be no assurance that the Registrant’s exploration and acquisition
programs will yield any new resources or reserves or result in any commercial mining operation.



The Registrant may also encounter
increasing competition from other mining companies in its efforts to hire experienced mining professionals. Competition for exploration
resources at all levels is currently very intense, particularly affecting the availability of manpower, drill rigs, mining equipment
and production equipment. Increased competition could adversely affect the Registrant’s ability to attract necessary capital
funding or acquire suitable producing properties or prospects for mineral exploration in the future.





A shortage of equipment
and supplies could adversely affect the Company’s ability to operate its business.



The Registrant is dependent on
various supplies and equipment to carry out its mineral exploration and, if warranted, development operations. Any shortage of
such supplies, equipment and parts could have a material adverse effect on the Registrant’s ability to carry out its operations
and therefore limit or increase the cost of potential future production.





17Canarc Resource Corp.Form 20-F





The Registrant’s directors
and officers may have conflicts of interest as a result of their relationships with other companies and there is no assurance given
by the Registrant that its directors and officers will not have conflicts of interest from time to time.



The Registrant’s directors
and officers may serve as directors or officers of other public resource companies or have significant shareholdings in other public
resource companies and, to the extent that such other companies may participate in ventures in which the Registrant may participate,
the directors of the Registrant may have a conflict of interest in negotiating and concluding terms respecting the extent of such
participation. In particular, Bradford Cooke, a Director of the Registrant, is also a Director of Aztec Metals Corp. (“AzMet”),
Aztec Minerals Corp. (“AzMin”) and Endeavour Silver Corp. (“Endeavour”), companies in which the Registrant
previously owned or currently owns shares. The interests of these companies may differ from time to time. In the event that such
a conflict of interest arises at a meeting of the Registrant’s directors, a director who has such a conflict will abstain
from voting for or against any resolution involving any such conflict. From time to time several companies may participate in the
acquisition, exploration and development of natural resource properties thereby allowing for their participation in larger programs,
permitting involvement in a greater number of programs and reducing financial exposure in respect of any one program. It may also
occur that a particular company will assign all or a portion of its interest in a particular program to another company due to
the financial position of the company making the assignment. In accordance with the laws of the Province of British Columbia, Canada,
the directors of the Registrant are required to act honestly, in good faith and in the best interests of the Registrant. In determining
whether or not the Registrant will participate in any particular exploration or mining project at any given time, the directors
will primarily consider the upside potential for the project to be accretive to shareholders, the degree of risk to which the Registrant
may be exposed and its financial position at that time.





The Registrant does not
insure against all risks which we may be subject to in our planned operations and there is no assurance given by the Registrant
that it is adequately insured against all risks.



The Registrant may become subject
to liability for cave-ins, pollution or other hazards against which it cannot insure or against which it has elected not to
insure because of high premium costs or other reasons. The payment of such liabilities would reduce the funds available for exploration
and mining activities.





The Registrant is subject
to significant governmental and environmental regulations and there is no assurance given by the Registrant that it has met all
environmental or regulatory requirements.



The current or future operations
of the Registrant, including exploration and development activities and commencement of production on its mineral property interests,
require permits from various foreign, federal, state and local governmental authorities and such operations are and will be governed
by laws and regulations governing prospecting, development, mining, production, exports, taxes, labour standards,
occupational health, waste disposal, toxic substances, land use, environmental protection, mine safety and other matters. Companies
engaged in the development and operation of mines and related facilities generally experience increased costs, and delays in production
and other schedules as a result of the need to comply with applicable laws, regulations and permits. There can be no assurance
that approvals and permits required in order for the Registrant to commence production on its various mineral property interests
will be obtained. Additional permits and studies, which may include environmental impact studies conducted before permits can be
obtained, are necessary prior to operation of the other properties in which the Registrant has interests and there can be no assurance
that the Registrant will be able to obtain or maintain all necessary permits that may be required to commence construction, development
or operation of mining facilities at these properties on terms which enable operations to be conducted at economically justifiable
costs.



18Canarc Resource Corp.Form 20-F







Failure to comply with applicable
laws, regulations, and permitting requirements may result in enforcement actions including orders issued by regulatory or judicial
authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation
of additional equipment or remedial actions. Parties engaged in mining operations 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. New laws or regulations or amendments to current laws, regulations and permits governing operations and activities
of mining companies, or more stringent implementation of current laws, regulations or permits, could have a material adverse impact
on the Registrant and cause increases in capital expenditures or production costs or reduction in levels of production at producing
properties or require abandonment or delays in development of new mining properties.



As a current and prior holder
of interests in U.S. mineral properties, the Registrant may be subject to the Comprehensive Environmental Response Compensation
and Liability Act of 1980, as amended (“CERCLA”). CERCLA, along with analogous statutes in certain states, imposes
strict, joint and several liability on owners and operators of facilities which release hazardous substances into the environment.
CERCLA imposes similar liability upon generators and transporters of hazardous substances disposed of at an off-site facility
from which a release has occurred or is threatened. Under CERCLA’s strict joint and several liability provisions, the Registrant
could potentially be liable for all remedial costs associated with property that it currently or previously owned or operated regardless
of whether the Registrant’s activities are the actual cause of the release of hazardous substances. Such liability could
include the cost of removal or remediation of the release and damages for injury to the natural resources. The Registrant’s
one prior property was located in a historic mining district and may include abandoned mining facilities (including waste piles,
tailings, portals and associated underground and surface workings). Releases from such facilities or from any of the Registrant’s
current and prior U.S. properties due to past or current activities could form the basis for liability under CERCLA and its analogs.
In addition, off-site disposal of hazardous substances, including hazardous mining wastes, may subject the Registrant to CERCLA
liability. The Registrant’s current and prior U.S. properties are not, to the Registrant’s knowledge, currently listed
or proposed for listing on the National Priority List and the Registrant is not aware of pending or threatened CERCLA litigation
which names the Registrant as a defendant or concerns any of its current or prior U.S. properties or operations. The Registrant
cannot predict the potential for future CERCLA liability with respect to its current or prior U.S. properties, nor can it predict
the potential impact or future direction of CERCLA litigation in the area surrounding its current and prior properties.



To the best of the Registrant’s
knowledge, the Registrant is operating in compliance with all applicable environmental and regulatory regulations.



19Canarc Resource Corp.Form 20-F









Regulations and pending
legislation governing issues involving climate change could result in increased operating costs, which could have a material adverse
effect on the Company’s business.



A number of governments or governmental
bodies have introduced or are contemplating regulatory changes in response to various climate change interest groups and the potential
impact of climate change. Legislation and increased regulation regarding climate change could impose significant costs on the Company,
and its suppliers, including costs related to increased energy requirements, capital equipment, environmental monitoring and reporting
and other costs to comply with such regulations. Any adopted future climate change regulations could also negatively impact the
Company’s ability to compete with companies situated in areas not subject to such limitations. Given the emotion, political
significance and uncertainty around the impact of climate change and how it should be dealt with, the Company cannot predict how
legislation and regulation will affect our financial condition, operating performance and ability to compete. Furthermore, even
without such regulation, increased awareness and any adverse publicity in the global marketplace about potential impacts on climate
change by the Company or other companies in its industry could harm its reputation. The potential physical impacts of climate change
on the Company’s operations are highly uncertain, and would be particular to the geographic circumstances in areas in which
it operates. These may include changes in rainfall and storm patterns and intensities, water shortages, changing sea levels and
changing temperatures. These impacts may adversely impact the cost, potential production and financial performance of the Company’s
operations.





Land reclamation requirements
for the Registrant’s properties may be burdensome.



There is a risk that monies allotted
for land reclamation may not be sufficient to cover all risks, due to changes in the nature of the waste rock or tailings and/or
revisions to government regulations. Therefore additional funds, or reclamation bonds or other forms of financial assurance may
be required over the tenure of the project to cover potential risks. These additional costs may have material adverse impact on
the financial condition and results of the Registrant.





Mining is inherently dangerous
and subject to conditions or events beyond the Registrant’s control, which could have a material adverse effect on the Registrant’s
business.



Mining involves various types
of risks and hazards, including:



20Canarc Resource Corp.Form 20-F





| | · | environmental hazards,
| | - | ----------------------

| | · | power outages,
| | - | --------------

| | · | metallurgical and other processing problems,
| | - | --------------------------------------------

| | · | unusual or unexpected geological formations,
| | - | --------------------------------------------

| | · | structural cave-ins or slides,
| | - | ------------------------------

| | · | flooding, fire, explosions, cave-ins, landslides and rock-bursts,
| | - | -----------------------------------------------------------------

| | · | inability to obtain suitable or adequate machinery, equipment or labour,
| | - | ------------------------------------------------------------------------

| | · | metals losses, and
| | - | ------------------

| | · | periodic interruptions due to inclement or hazardous weather conditions.
| | - | ------------------------------------------------------------------------



These risks could result in damage
to, or destruction of, mineral properties, production facilities or other properties, personal injury, environmental damage, delays
in mining, increased production costs, monetary losses and possible legal liability. The Registrant may not be able to obtain insurance
to cover these risks at economically feasible premiums. Insurance against certain environmental risks, including potential liability
for pollution or other hazards as a result of the disposal of waste products occurring from production, is not generally available
to the Registrant or to other companies within the mining industry. The Registrant may suffer a material adverse effect on its
business if it incurs losses related to any significant events that are not covered by its insurance policies.





The Registrant will
be required to locate mineral reserves for its long-term success.



Because
mines have limited lives based on proven and probable mineral reserves, the Registrant will have to continually replace and expand
its mineral reserves, if any. The Registrant’s ability to maintain or increase its annual production of gold and other base
or precious metals once its current properties are producing, if at all, will be dependent almost entirely on its ability to acquire,
explore, and develop new properties and bring new mines into production.





The Registrant’s
properties may be located in foreign countries and political instability or changes in the regulations in these countries may adversely
affect the Registrant’s ability to carry on its business.



21Canarc Resource Corp.Form 20-F





Certain of the Registrant’s
properties are located in countries outside of Canada, and mineral exploration and mining activities may be affected in varying
degrees by political stability and government regulations relating to the mining industry. Any changes in regulations or shifts
in political attitudes may vary from country to country and are beyond the control of the Registrant and may adversely affect its
business. Such changes have, in the past, included nationalization of foreign owned businesses and properties. Operations may be
affected in varying degrees by government regulations with respect to restrictions on production, price controls, export controls,
income and other taxes and duties, expropriation of property, environmental legislation and mine safety. These uncertainties may
make it more difficult for the Registrant and its joint venture partners to obtain any required production financing for its mineral
properties.





Fluctuations in foreign
currency exchange rates may adversely affect the Registrant’s future profitability.



In addition to CAD dollar currency
accounts, the Registrant maintains a portion of its funds in U.S. dollar denominated accounts. Certain of the Registrant’s
mineral property interests and related contracts may be denominated in U.S. dollars. Accordingly, the Registrant may take some
steps to reduce its risk to foreign currency fluctuations. However, the Registrant’s operations in countries other than Canada
are normally carried out in the currency of that country and make the Registrant subject to foreign currency fluctuations and such
fluctuations may materially affect the Registrant’s financial position and results. In addition future contracts may not
be denominated in U.S. dollars and may expose the Registrant to foreign currency fluctuations and such fluctuations may materially
affect the Registrant’s financial position and results. In addition, the Registrant is or may become subject to foreign exchange
restrictions which may severely limit or restrict its ability to repatriate capital or profits from its mineral property interests
outside of Canada to Canada. Such restrictions have existed in the past in countries in which the Registrant holds property interests
and future impositions of such restrictions could have a materially adverse effect on the Registrant’s future profitability
or ability to pay dividends.





The Registrant is reliant
on third parties.



The Registrant’s rights
to acquire interests in certain mineral properties may have been granted by third parties who themselves hold only a property option
to acquire such properties. As a result, the Registrant may have no direct contractual relationship with the underlying property
holder.





Jurisdiction and Enforcement
in U.S. and Canadian Courts.



22Canarc Resource Corp.Form 20-F





The enforcement of civil liabilities
under the U.S. federal and state securities laws may be affected adversely by the fact that the Registrant is incorporated under
the laws of a foreign country, that certain of its officers and directors are residents of a foreign country, that the independent
registered public accounting firm and some or all of the experts named in this report may be residents of a foreign country and
that all or a substantial portion of the assets of the Registrant and said persons may be located outside the U.S. In particular,
uncertainty exists as to whether Canadian courts would entertain claims or enforce judgments based on the civil liability provisions
of the U.S. federal and state securities laws.





The Registrant’s possible
PFIC status may have possible adverse tax consequences for United States Investors.



Potential investors who are United
States taxpayers should be aware that Canarc may be classified for United States tax purposes as a passive foreign investment company
(“PFIC”) for the current fiscal year and may also have been a PFIC in prior years, and may also be a PFIC in subsequent
years. This status arises due to the fact that Canarc’s excess exploration funds may be invested in interest bearing securities
creating “passive income” which, while modest and ancillary to the exploration business, has been Canarc’s only
substantive source of income in the past. If Canarc is a PFIC for any year during a United States taxpayer’s holding period,
then such a United States taxpayer, generally, will be required to treat any so-called “excess distribution” received
on its common shares, or any gain realized upon a disposition of common shares, as ordinary income and to pay an interest charge
on a portion of such distribution or gain, unless the taxpayer makes a qualified electing fund (“QEF”) election or
a mark-to-market election with respect to the shares of Canarc. In certain circumstances, the sum of the tax and the interest charge
may exceed the amount of the excess distribution received, or the amount of proceeds of disposition realized, by the taxpayer.
A United States taxpayer who makes a QEF election generally must report on a current basis its share of Canarc’s net capital
gain and ordinary earnings for any year in which Canarc is a PFIC, whether or not Canarc distributes any amounts to its shareholders.
A United States taxpayer who makes the mark-to-market election generally must include as ordinary income each year the excess of
the fair market value of the common shares over the taxpayer’s tax basis therein. Item 10.E provides further details.





While we believe we have
adequate internal control over financial reporting, internal controls cannot provide absolute assurance that objectives are met.



Pursuant to Section 404 of the
Sarbanes-Oxley Act of 2002, we have furnished a report by management on our internal controls over financial reporting in this
annual report on Form 20-F. Such report contains, among other matters, an assessment of the effectiveness of our internal control
over financial reporting, including a statement as to whether or not our internal control over financial reporting is effective.



The Registrant’s management
does not expect that its disclosure controls and procedures or internal controls and procedures will prevent all error and all
fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives
of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints,
and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems,
no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Registrant
have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also
is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design
will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because
of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent
limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.



23Canarc Resource Corp.Form 20-F







Differences in United States
and Canadian reporting of reserves and resources.



The disclosure in this Annual
Report on Form 20-F, including the documents incorporated herein by reference, uses terms that comply with reporting standards
in Canada. The terms “mineral resource”, “measured mineral resource”, “indicated mineral resource”
and “inferred mineral resource” are defined in and required to be used by the Company pursuant to NI 43-101; however,
these terms are not defined terms under SEC Industry Guide 7 and normally are not permitted to be used in reports and registration
statements filed with the SEC. Investors are cautioned not to assume that any part or all of mineral deposits in these categories
will ever be converted into reserves. “Inferred mineral resources” have a great amount of uncertainty as to their existence,
and as to their economic and legal feasibility. It cannot be assumed that all or any part of the measured mineral resources, indicated
mineral resources, or inferred mineral resources will ever be upgraded to a higher category. Under Canadian rules, estimates of
inferred mineral resources may not form the basis of feasibility, pre-feasibility studies or other economic studies, except in
rare cases.



Investors are cautioned not to
assume that all or any part of an inferred mineral resource exists or is economically or legally mineable. Disclosure of “contained
ounces” in a resource is permitted disclosure under Canadian regulations; however, the SEC normally only permits issuers
to report mineralization that does not constitute “reserves” by SEC Industry Guide 7 standards as in place tonnage
and grade without reference to unit measures.



Further, the terms “Mineral
Reserve”, “Proven Mineral Reserve” and “Probable Mineral Reserve” are Canadian mining terms as defined
in accordance with NI 43-101 and the CIM Standards. These definitions differ from the definitions in SEC Industry Guide 7. Under
SEC Industry Guide 7 standards, a “final” or “bankable” feasibility study is required to report reserves,
the three-year historical average price is used in any reserve or cash flow analysis to designate reserves and all necessary permits
or governmental authorizations must be filed with the appropriate governmental authority.



24Canarc Resource Corp.Form 20-F





Accordingly, information contained
in this Annual Report on Form 20-F and the documents incorporated by reference herein containing descriptions of the Company’s
mineral deposits may not be comparable to similar information made public by United States companies subject to the reporting and
disclosure requirements under the United States federal securities laws and the rules and regulations thereunder.





As a “foreign private
issuer”, the Company is exempt from Section 14 proxy rules and Section 16 of the Securities Exchange Act of 1934.



The Company is a “foreign
private issuer” as defined in Rule 3b-4 under the United States Securities Exchange Act of 1934, as amended (the “U.S.
Exchange Act”). Equity securities of the Company are accordingly exempt from Sections 14(a), 14(b), 14(c), 14(f) and 16 of
the U.S. Exchange Act pursuant to Rule 3a12-3 of the U.S. Exchange Act. Therefore, the Company is not required to file a Schedule
14A proxy statement in relation to the annual meeting of shareholders. The submission of proxy and annual meeting of shareholder
information on Form 6-K may result in shareholders having less complete and timely information in connection with shareholder actions.
The exemption from Section 16 rules regarding reports of beneficial ownership and purchases and sales of common shares by insiders
and restrictions on insider trading in our securities may result in shareholders having less data and there being fewer restrictions
on insiders’ activities in our securities.





Risks Related to the Registrant’s
Common Shares





The Registrant does not
intend to pay dividends.



The Registrant has not paid out
any cash dividends to date and has no plans to do so in the immediate future. As a result, an investor’s return on investment
will be solely determined by his or her ability to sell common shares in the secondary market.





The volatility of the Registrant’s
common shares could cause investor loss.



25Canarc Resource Corp.Form 20-F





The market price of a publicly
traded stock, especially a junior resource issuer like Canarc, is affected by many variables in addition to those directly related
to exploration successes or failures. Such factors include the general condition of the market for junior resource stocks, the
strength of the economy generally, the availability and attractiveness of alternative investments, and the breadth of the public
market for the stock. The effect of these and other factors on the market price of the common shares on the Toronto Stock Exchange
(the “TSX”) and NASD-OTC suggests that Canarc’s shares will continue to be volatile. Therefore, investors could
suffer significant losses if Canarc’s shares are depressed or illiquid when an investor seeks liquidity and needs to sell
Canarc’s shares.





Penny stock classification
could affect the marketability of the Registrant's common stock and shareholders could find it difficult to sell their stock.



The Registrant's stock may be
subject to "penny stock" rules as defined in the Exchange Act rule 3a51-1. The Securities and Exchange Commission has
adopted rules which regulate broker-dealer practices in connection with transactions in penny stocks. The Registrant’s common
shares may be subject to these penny stock rules. Transaction costs associated with purchases and sales of penny stocks are likely
to be higher than those for other securities. Penny stocks generally are equity securities with a price of less than U.S.$5.00
(other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current
price and volume information with respect to transactions in such securities is provided by the exchange or system).



The penny stock rules require
a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure
document that provides information about penny stocks and the nature and level of risks in the penny stock 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. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be
given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before
or with the customer’s confirmation.



Further, the penny stock rules
require that prior to a transaction in a penny stock not otherwise exempt from such 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 disclosure requirements may have the effect of reducing the level of trading activity in the
secondary market for the Registrant’s common shares in the United States and shareholders may find it more difficult to sell
their shares.





26Canarc Resource Corp.Form 20-F





Possible dilution to current
shareholders based on outstanding options and warrants.



At December 31, 2016, Canarc had
217,189,597 common shares and 16,445,000 outstanding share purchase options and 36,356,139 share purchase warrants outstanding.
The resale of outstanding shares from the exercise of dilutive securities could have a depressing effect on the market for Canarc’s
shares. At December 31, 2016, securities that could be dilutive represented approximately 24.3% of Canarc’s issued shares.
Certain of these dilutive securities were exercisable at prices below the December 31, 2016 closing market price of CAD$0.08 for
Canarc’s shares, which accordingly would result in dilution to existing shareholders.





ITEM 4. INFORMATION ON THE COMPANY



The Registrant is a Canadian mineral
exploration company and is subject to National Instrument 43-101, a National Instrument adopted by all of the Securities Commissions
in Canada that deals with standards of disclosure for mineral projects. It applies to all oral statements and written disclosure
of scientific or technical information, including disclosure of a mineral resource or mineral reserve, made by or on behalf of
a company in respect of its material mineral projects. In addition to other matters, it sets out strict guidelines for the classification
of and use of the terms “mineral resource” and “mineral reserve” and it requires all technical disclosure
on all material properties to be subject to review by a senior engineer or geoscientist in good standing with a relevant professional
association. The full text of NI 43-101 can be found at http://www.bcsc.bc.ca/policy.asp?id=2884&scat=4&title=4%20-%20Distribution%20Requirements.





4.A History and Development of the Company





Incorporation and Reporting Status



The Registrant was incorporated
under the laws of British Columbia, Canada, on January 22, 1987 under the name, “Canarc Resource Corp.”, by registration
of its Memorandum and Articles with the British Columbia Registrar of Companies.



The Company was originally incorporated
under the previous Company Act (British Columbia) and transitioned to the Business Corporations Act (British Columbia) in 2005;
the Business Corporations Act (British Columbia) replaced the Company Act (British Columbia) on March 29, 2004.



27Canarc Resource Corp.Form 20-F





The Registrant is a reporting
company in British Columbia, Alberta, Saskatchewan, Ontario and Nova Scotia. The Registrant became a reporting issuer under the
United States Securities Exchange Act of 1934, as amended, upon filing its registration statement on Form 20-F dated October 9,
1990 with the Securities and Exchange Commission.





Business Address



Office address:	                                    #301
- 700 West Pender Street

Vancouver,
British Columbia, Canada, V6C 1G8

Phone:
(604) 685-9700



Registered address:	                           #910 – 800 West
Pender Street

Vancouver, British Columbia, Canada, V6C 2V6

Phone: (604) 685-6100





Introduction



The Registrant commenced operations
in 1987 and, since inception, has been engaged in the business of the acquisition, exploration and, if warranted, development of
precious metal properties. The Registrant currently owns or holds, directly or indirectly, interests in several precious metal
properties, as follows:



-	        New Polaris property (British
Columbia, Canada),

-	        Windfall Hills property (British
Columbia, Canada),

-	         FG Gold property (British
Columbia, Canada), and

-	         Fondaway Canyon property
(Nevada, USA) which was acquired in March 2017,



of which the New Polaris property
is the material mineral property of the Registrant.



28Canarc Resource Corp.Form 20-F







In its consolidated financial
statements prepared in accordance with IFRS, the Registrant has capitalized costs, net of recoveries and write-downs, of approximately
$10.5 million in connection with the acquisition, exploration and development on its currently held properties as at December 31,
2016 and are summarized as follows for the past three fiscal years:





|                           |             | 2016              |            |  |              | 2015             |              |  |             | 2014             |           
|-------------------------- | ----------- | ----------------- | ---------- |  | ------------ | ---------------- | ------------ |  | ----------- | ---------------- | ----------
|                           | Acquisition | Exploration/      |            |  | Acquisition  | Exploration/     |              |  | Acquisition | Exploration/     |           
|(in terms of $000s)        | Costs       | Development       | Total      |  | Costs        | Development      | Total        |  | Costs       | Development      | Total     
|                           |             |                   |            |  |              |                  |              |  |             |                  |           
|British Columbia (Canada): |             |                   |            |  |              |                  |              |  |             |                 
|New Polaris                | $     3,858 | $           5,817 | $    9,675 |  | $      3,851 | $          5,556 | $    9,407   |  | $     3,876 | $          7,090 | $  10,966 
|Windfall Hills             | 349         | 447               | 796        |  | 339          | 356              | 695          |  | 401         | 437              | 838       
|FG Gold  (1)               | 19          | 6                 | 25         |  | -            | -                | -            |  | -           | -                | -         
|                           |             |                   |            |  |              |                  |              |  |             |                  |           
|Zacatecas (Mexico):        |             |                   |            |  |              |                  |              |  |             |                  |           
|El Compas  (2)             | -           | -                 | -          |  | 1,126        | 183              | 1,309        |  | -           | -                | -         
|                           |             |                   |            |  |              |                  |              |  |             |                  |           
|                           | $     4,226 | $          6,270  | $  10,496  |  | $      5,316 | $          6,095 | $     11,411 |  | $     4,277 | $          7,527 | $   11,804



| | (1) | Canarc entered into a property option agreement in August 2016 for the FG Gold property in which Canarc can earn up to a 75%
interest. Item 4.D provides further details.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | The El Compas property was acquired in October 2015 and was previously a material mineral property
of Canarc until it was sold to Endeavour in May 2016. Item 4.D provides further details.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





Further information and details regarding Canarc’s
mineral property interests are provided in Item 4.D.





Developments over the Last
Three Financial Years





Over the course of the past three
years ended December 31, 2016 and to the date of this Form 20-F, the Registrant had been engaged in exploration and development
of precious metal projects in Canada and previously in Mexico and more recently in the U.S. The major events in the development
of the Registrant’s business over the last three years are set out below. Information and details regarding the Registrant’s
properties are provided in Item 4.D.



29Canarc Resource Corp.Form 20-F







Letter of
Intent with Pan American Goldfields Ltd.



In February
2014, Canarc signed a Letter of Intent (the “LOI”) with Pan American Goldfields Ltd. (“Pan American”) with
respect to a business combination whereby Canarc would acquire all of the outstanding common shares of Pan American (the “Transaction”).
The main asset of Pan American was its interest in the La Cieneguita mine properties located in Chihuahua State, Mexico.



Pursuant to the terms of the LOI, Canarc had agreed
to pay $100,000 to Pan American, following the approval of the Toronto Stock Exchange (the “TSX”); funds of $40,000
were advanced in April 2014 which bore an interest rate of 1% per month and were written off in September 2014 as collectability
was doubtful.



In May 2014, as a result of its due diligence, the Company
terminated the LOI with Pan American.





Share Exchange
Agreement with Santa Fe Gold Corporation



On July 15,
2014, Canarc and Santa Fe Gold Corporation (“Santa Fe”) entered into a Share Exchange Agreement pursuant to which Santa
Fe was to issue 66,000,000 shares of its common stock to Canarc, and Canarc was to issue 33,000,000 of its common shares to Santa
Fe (the "Share Exchange"). Upon consummation of the Share Exchange, Santa Fe would own approximately 17% of Canarc's
outstanding shares and Canarc would own approximately 34% of Santa Fe's outstanding common shares. On October 15, 2014, the conditions
precedent set forth in the Share Exchange Agreement were not satisfied and the agreement terminated on that date.



Pursuant to the Share Exchange
Agreement, in July 2014, Canarc advanced a promissory note loan of $200,000 to Santa Fe, which initially bore an interest rate
of 12% per annum compounded monthly; both the principal and interest were due and payable on January 15, 2015, and any past due
principal and interest bore an interest rate of 14%. In September 2014, further funds of $20,000 were advanced to Santa Fe under
the promissory note. The promissory note receivable from Santa Fe along with accrued interest was determined to be impaired as
collectability was doubtful, and was written off at December 31, 2014. In August 2015, Santa Fe filed voluntary petitions under
Chapter 11 of the Bankruptcy Code in U.S. Bankruptcy Court for the District of Delaware, USA. In 2016, Canarc received notice for
the distribution of funds from the bankruptcy estate of Santa Fe in which funds of $10,000 were received in 2017. Canarc continues
with its efforts to collect the remaining balances owed by Santa Fe.





30Canarc Resource Corp.Form 20-F





Pre-Development and Earn-In Binding Agreement with
PanTerra Gold (British Columbia) Limited



On February 24, 2015, Canarc entered
into a Pre-Development and Earn-In Binding Agreement (the “Earn-In Agreement”) with PanTerra Gold (British Columbia)
Limited (“PanTerra”), a wholly-owned subsidiary of PanTerra Gold Limited pursuant to which PanTerra was granted a 30-month
option to earn a 50% interest in the New Polaris project by spending a total of CAD$10 million in three stages of predevelopment
activities including metallurgical test work, drilling, detailed mine planning, tailings dam design, environmental permitting,
and completion of a definitive feasibility study. In Stage One, PanTerra shall spend CAD$500,000 for laboratory production of flotation
concentrate followed by test work through the Glencore Technology Albion pilot plant and for comprehensive technical and economic
review and commencement of environmental baseline data collection required for permitting. In Stage Two, PanTerra can earn a 20%
interest in the New Polaris project by spending CAD$3.5 million in predevelopment expenditures which would include a 10,000 m drilling
program and engineering and completion of field data required for environmental permitting. In Stage Three, PanTerra can earn an
additional 30% interest in the project for a total interest of 50% by spending CAD$6 million in predevelopment expenditures which
would primarily focus on the completion of a definitive feasibility study and would include further 10,000 m of infill drilling,
additional metallurgical test work, and preliminary engineering. PanTerra can increase its interest in the New Polaris project
to 51% by purchasing 1% from Canarc within six months of completion of the definitive feasibility study at a cost of 1% of the
net present value established by the definitive feasibility study using a 10% discount rate.



Canarc received the CAD$500,000
for Stage One in 2015. As at December 31, 2016, funds of US$35,000 remain for Stage One expenditures as specified pursuant to the
agreement between Canarc and PanTerra, which remaining funds were used to settle existing payables for Stage One expenditures in
2017.



In August 2015, PanTerra had informed
Canarc that it will not be able to commit to further expenditures to commence Stage Two exploration and permitting work on Canarc’s
New Polaris project until PanTerra received the approval from the Dominican Republic government for importing New Polaris gold
concentrate into the country for processing. In September 2016, PanTerra provided 30-day notice of its intent to withdraw from
the first option of the agreement, which agreement was effectively terminated on October 22, 2016.





Agreement for the Purchase of All the Shares of
Oro Silver Resources Ltd. with Marlin Gold Mining Ltd. and

Purchase and Sale Agreement with Endeavour Silver
Corp.



In July 2015, Canarc and Marlin
Gold Mining Ltd. (“Marlin Gold”) entered into a letter of intent which resulted in the Agreement for the Purchase of
All the Shares of Oro Silver dated October 8, 2015 (the “Share Purchase Agreement”), whereby Canarc acquired 100% of
the shares of Marlin Gold’s wholly owned subsidiary, Oro Silver Resources Ltd. (“Oro Silver”), which indirectly
owned 100% of the El Compas gold-silver project located in Zacatecas, Mexico, in exchange for the issuance to Marlin Gold of 19
million common shares of Canarc. Canarc’s acquisition of Oro Silver closed on October 30, 2015. The terms of the agreement
included the following:



31Canarc Resource Corp.Form 20-F







| | - | On each of the first three anniversaries of the closing date of the
agreement, 55 troy ounces of gold (or the US dollar equivalent) will be paid by Canarc to Marlin Gold or to any of its subsidiaries;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | - | Certain mineral concessions named Altiplano include a 3% NSR royalty
and a buy back option. Marlin Gold retains the Altiplano royalty and buy back option and will receive a 1.5% NSR on all non-Altiplano
claims that currently have no royalties associated with them;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | - | Marlin Gold invested CAD$100,000 in Canarc’s private placement
of 1.67 million units at CAD$0.06 per unit with each unit comprised of one common share and one-half of one common share purchase
warrant; each whole warrant is exercisable to acquire one common share at an exercise price of CAD$0.08 per share until October
30, 2018; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | - | Marlin Gold nominated one person, namely, Mr. Akiba Leisman, to Canarc’s
board of directors.
| | - | --------------------------------------------------------------------------------------------



The closing of the Share Purchase Agreement
resulted in Marlin Gold becoming an insider of Canarc by virtue of having more than 10% (ie. 10.79%) interest in Canarc as at the
closing date of October 30, 2015.



The El Compas property is a fully permitted
gold silver project located in Zacatecas, Mexico and is comprised of 24 concessions totaling 3,900 hectares.



In October 2015, Canarc commissioned
Mining Plus Canada Consulting Ltd. (“Mining Plus”) to complete a NI 43-101 resource report and preliminary economic
assessment for the El Compas project to determine the project’s potential viability which was completed in January 2016.
Their technical report entitled “NI 43-101 Technical Report for the El Compas Project” (the “El Compas Technical
Report”) was authored by J Collins PGeo, N Schunke PEng, S Butler PGeo, L Bascome MAIG and F Wright PEng, who are independent
Qualified Persons as defined by NI 43-101, is dated January 19, 2016, and was prepared in compliance with NI 43-101.



In January 2016, Canarc signed
a definitive agreement with the Zacatecas state government to lease and operate the permitted 500 tonne per day La Plata ore processing
plant located in the city of Zacatecas, Mexico, approximately 20 kilometres from El Compas. Highlights of the lease agreement include
the following:



- Lease term was 5 years with the right to extend
for another 5 years;
- Canarc had assumed responsibility for the plant
as of January 29, 2016;
- Plant was to be exclusively operated by Canarc’s
Mexican subsidiary, Minera Oro Silver de Mexico SA de CV;
- Canarc was to pay a monthly lease payment of MXP
136,000;
- Grace period of 6 months was allowed for time for
plant refurbishing;
- Power and water were available for plant operations;
- Plant capacity was 500 tonnes per day with the possibility
to expand;
- Permitted tailings facilities had a capacity for
approximately 1 million tonnes;
- Certain plant refurbishment costs was to be reimbursed
to Canarc by lease payment offsets; and
- Canarc was to reserve up to 100 tonnes per day for
toll mining of ore produced by local small miners.



32Canarc Resource Corp.Form 20-F







In March 2016, Canarc entered
into an indicative term sheet for up to $10 million in debt financing by way of a gold prepaid facility to develop the El Compas
gold-silver project subject to a 60 day due diligence period which did not advance due to the subsequent sale of the project to
Endeavour in May 2016.



On May 6, 2016, Canarc entered
into a Purchase and Sale Agreement with Endeavour pursuant to which Canarc sold to Endeavour 100% of the shares of Canarc’s
wholly-owned subsidiary, Oro Silver, which indirectly holds a 100% interest in the El Compas project in Zacatecas, Mexico, in consideration
for 2,147,239 free-trading common shares of Endeavour, with an aggregate deemed value of CAD$10.5 million (the “Sale Transaction”).
The Endeavour shares had a deemed price of CAD$4.89 per share, equal to the volume-weighted average trading price on the TSX for
the 10 trading-day period immediately prior to May 6, 2016. As additional consideration, Endeavour assumed Canarc’s obligation
to deliver an aggregate of 165 troy ounces of gold (or the US dollar equivalent) to Marlin in three equal payments of 55 troy ounces
which are due in October 2016, 2017 and 2018. The foregoing gold delivery obligation was incurred by Canarc in connection with
its acquisition of El Compas from Marlin. The Sale Transaction closed on May 27, 2016 at which time Canarc received 2,147,239 free-trading
common shares of Endeavour with a fair value of CAD$3.99 per share at that date. In conjunction with the closing of the Sale Transaction
with Endeavour, Mr. Akiba Leisman, Marlin’s nominee to Canarc’s Board, resigned as a Director of Canarc.





Option Agreement regarding
the FG Gold Property with Eureka Resources, Inc.



On August 24, 2016, Canarc entered
into the Option Agreement regarding the FG Gold Property with Eureka Resources, Inc., (“Eureka”) which closed on October
12, 2016. In consideration for the grant of the property option agreement, Canarc issued 250,000 common shares at a value of CAD$0.10
per share to Eureka, and subscribed to Eureka’s private placement for 750,000 units at a price of CAD$0.14 per unit for a
total of CAD$105,000; each unit was comprised of one common share of Eureka and one-half of one common share purchase warrant with
an exercise price of CAD$0.20 and expiry date of September 9, 2018. Canarc can earn up to a 75% interest in the FG gold property
in two stages.

33Canarc Resource Corp.Form 20-F







In the first stage, Canarc can
earn an initial 51% interest over three years by:

| | - | incurring CAD$1.5 million in exploration expenditures with an annual minimum of CAD$500,000;
| | - | --------------------------------------------------------------------------------------------

| | - | issuing 750,000 common shares in three annual tranches of 250,000 shares; and
| | - | -----------------------------------------------------------------------------

| | - | paying 50% of the annual BC mineral exploration tax credits (“BC METC”) claimed by
Canarc to Eureka to an aggregate maximum exploration expenditure of CAD$1.5 million.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



In the second stage, Canarc can
earn an additional 24% interest for a total interest of 75% over the following two years by:

| | - | incurring CAD$1.5 million in exploration expenditures;
| | - | ------------------------------------------------------

| | - | issuing 1.5 million common shares in two annual tranches of 750,000 shares; and
| | - | -------------------------------------------------------------------------------

| | - | paying the greater of: (i) CAD$75,000 and (ii) 50% of the annual BC METC claimed by Canarc to Eureka
to an aggregate maximum exploration expenditure of CAD$1.5 million.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



If Canarc fails to satisfy the consideration
necessary to exercise the second stage, then a joint venture will be deemed to have formed with Canarc having a 51% interest and
Eureka with a 49% interest.



The
FG Gold project is located in the historic Cariboo Gold Camp within the Quesnel Trough area of central British Columbia. Mineralization
occurs as quartz veins and stringer zones containing coarse free gold and finer grained iron sulphides bearing gold in a broad
shear zone conformable to bedding within deformed and metamorphosed Paleozoic sedimentary rocks. The property consists of 33 contiguous
mineral claims totalling 10,400 hectares.





Purchase Agreement with American Innovative Minerals,
LLC



On February 28, 2017, Canarc entered
into the Letter Agreement with AIM and the AIM Securityholders to acquire either a direct or indirect 100% legal and beneficial
interests in mineral resource properties located in Nevada, Idaho and Utah (USA) for a total purchase price of $2 million. Upon
execution of the Letter Agreement, Canarc deposited $200,000 “in trust” towards the purchase price. The deposit was
only refundable in limited circumstances including where Canarc determined adverse circumstances exist relating to status of title,
material encumbrances, corporate standing, financial conditions, environmental liabilities, and litigation. Canarc had the option
to either acquire AIM or acquire AIM’s interests in the mineral properties. Certain of the mineral properties are subject
to royalties. There was a 30 day due diligence period. The Letter Agreement was to be replaced and superseded by the execution
of a definitive agreement on or before March 31, 2017. On March 20, 2017, Canarc entered into the Membership Interest Purchase
Agreement (the “AIM Agreement”) with the AIM Securityholders to purchase AIM, and closed the AIM Agreement on the same
date.



34Canarc Resource Corp.Form 20-F







AIM owns 10 gold properties in
Nevada of which two properties (Fondaway Canyon and Dixie Comstock) contain historic gold resource estimates, and owns one gold
property in Idaho, and has two royalty interests on other properties. These properties include the following:



| | · | Fondaway Canyonis an advanced exploration
stage gold property located in Churchill County, Nevada. The land package contains 136 unpatented lode claims. The property has
a history of previous surface exploration and mining in the late 1980s and early 1990s. The Fondaway Canyon mineralization is contained
in a series of 12 steeply dipping en-echelonquartz-sulphide shears outcropping at surface and extending laterally over
1200 m, with drill-proven depth extensions to > 400m. Additional exploration targets include near-surface oxide gold along favourable
structural and host rock targets and deeper extensions of the sulphide zones.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Dixie Comstock, also located in Churchill
County, Nevada, consists of 26 unpatented lode claims. It has evidence of some historic mining but no records of production are
available.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Clear Trunk property is located in
Pershing and Humboldt Counties, Nevada on 4500 acres of fee mineral and unpatented claims in the Sonoma Range, south of Winnemucca.
Identified exploration target include breccia pipes and quartz stockwork with untested gold anomalies and untested soil gold anomaly
overlying intrusive host rock.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Bull Run property is located in Elko
County, Nevada on two large patented claim groups of 500 acres near Jerritt Canyon.
| | - | ------------------------------------------------------------------------------------------------------------------------



| | · | Hot Springs Pointproperty is located
inEureka County, Nevada on 160 acres of fee land on north end of the prolific Cortez Trend. Klondex Mining claims surround
the project on three sides.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Jarbidgepropertyis locatedinElko County, Nevada on 8 patented claims along the east end of major gold veins in the Jarbidge mining district.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------



| | · | Lightning Treeproperty is located
inLemhi County, Idaho on 11 unpatented claims near the Musgrove gold deposit.
| | - | ---------------------------------------------------------------------------------------------------------------



| | · | Silver Kingpropertyis located
in Humboldt County, Nevada on 4 patented claims near Golconda Summit. Previous exploration focused on low grade gold values but
the property was never been explored for silver.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



35Canarc Resource Corp.Form 20-F





| | · | A&Tproperty is locatedinHumboldt Co., Nevada on 2 patented claims on Winnemucca Mountain. The property contains two veins and a quartz breccia in altered
shale adjacent to intrusive dikes.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Eimis property is located in Elko
County, Nevada on one 20 acre patented claim adjacent to a new Coleman Canyon gold discovery by Arnevut Resources. Gold anomalies
extend onto Eimis property.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Silver Peak property is located in
Esmeralda County, Nevada on 2 patented (40 acre) mining claims. The property is surrounded by claim blocks held by Scorpio Gold
Corporation at the Mineral Ridge mine.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





Item 4.D provides further details
regarding the Registrant’s mineral property interests.





Others





In November 2013, the TSX had advised
Canarc that the TSX was reviewing the eligibility for continued listing on the TSX of the securities of Canarc pursuant to Part
VII of the Toronto Stock Exchange Company Manual. Canarc was being reviewed under the Remedial Review Process and had been initially
granted 120 days to comply with all requirements for continued listing with subsequent extensions to comply. Specifically Canarc
needed to comply with expenditures of CAD$350,000 on exploration or development work on its mineral resource properties and with
adequate working capital. For the nine months ended September 30, 2014, Canarc closed private placements for gross proceeds totalling
CAD$3.26 million and completed its drilling program for the Windfall Hills property. In September 2014, the TSX confirmed that
Canarc satisfied the TSX’s continued listing requirements.



In fiscal 2013, Canarc received
demand loans of $126,000 from two directors, which were repayable on demand and bore an interest rate of 12% compounded monthly
with interest payable semi-annually. In January 2014, Canarc repaid all principal and interest in full settlement of outstanding
demand loans.



In January 2014, Canarc granted
500,000 stock options to an officer with an exercise price of CAD$0.05 and an expiry date of January 14, 2019, and which are subject
to vesting provisions in which 20% of the options vest immediately on the grant date and 20% vest every six months thereafter.



36Canarc Resource Corp.Form 20-F





On January 31, 2014, Canarc closed a
non-brokered private placement for 18 million units at a price of CAD$0.05 per unit for gross proceeds of CAD$900,000, with each
unit comprised of one common share and one-half of a whole common share purchase warrant. Item 5.B provides further details.



In March and April 2014, Canarc
closed a private placement in two tranches totalling 19.6 million units at a price of CAD$0.10 per unit for gross proceeds of CAD$1.96
million with each unit comprised of one common share and one-half of a whole common share purchase warrant. Item 5.B provides further
details.



On July 9, 2014, Canarc closed
a private placement for 5 million units at CAD$0.08 per unit for gross proceeds of CAD$400,000. Each unit was comprised of one
flow-through common share and one-half of a whole common share purchase warrant; each whole warrant is exercisable to acquire one
non-flow through common share at an exercise price of CAD$0.15 per share until July 9, 2016. Funds of CAD$386,000 were expended
for flow-through purposes in 2014 and 2015. Item 5.B provides further details.



In July 2014, Canarc granted 4,050,000
stock options to directors, officers and employees with an exercise price of CAD$0.10 and an expiry date of July 17, 2019, and
which are subject to vesting provisions in which 20% of the options vest immediately on the grant date and 20% vest every six months
thereafter.



In October 2014, Canarc received
1,074,000 shares from AzMet in settlement of debt owed to Canarc which Canarc had written off in 2013. In December 2014, AzMet
consolidated its share capital on a 3-for-1 basis.



In May 2015, certain directors and officers
of Canarc cancelled 3,360,000 stock options with exercise prices ranging from CAD$0.10 to CAD$0.145 and expiry dates from September
2015 to June 2017.



At Canarc’s annual general meeting
in June 2015, disinterested shareholders passed two resolutions relating to shares for debt settlements to certain insiders of
Canarc in which debts of up to CAD$63,520 owed to certain current and former directors would be settled by the issuance of up to
1.27 million shares and debts of up to CAD$127,400 owed to senior officers would be settled by the issuance of up to 2.55 million
shares.



In August 2015, Canarc extended the expiry
period of a total of 18.6 million warrants by a period of 18 months which were issued pursuant to two private placements which
closed in 2014. Expiry dates for 951,250 warrants which were issued to insiders in those private placements were not extended.
Item 5.B provides further details.



In September and October 2015, Canarc
closed a non-brokered private placement in two tranches totalling 13.2 million units at a price of CAD$0.06 per unit for gross
proceeds of CAD$790,000 with each unit comprised of one common share and one-half of one common share purchase warrant. Item 5.B
provides further details.



37Canarc Resource Corp.Form 20-F





On September 24, 2015, Canarc issued
2 million shares at a value of CAD$0.07 in settlement of partial salaries owed to certain officers and fees owed to directors in
which the latter also forgave a certain portion of outstanding directors fees owed, resulting in a gain on debt settlement of $54,000.



In
December 2015, Canarc granted 5,950,000 stock options to directors, officers and employees with an exercise price of CAD$0.06 and
an expiry date of December 8, 2020 and which are subject to vesting provisions in which 25% of the options vest immediately on
the grant date and 25% vest every six months thereafter.



In March 2016, Canarc closed a
private placement in two tranches totalling 22.7 million units at a price of CAD$0.09 per unit for gross proceeds of CAD$2.04 million,
with each unit comprised of one common share and one-half of one common share purchase warrant. Item 5.B provides further details.



In
October 2016, Canarc received 576,503 common shares of AzMin, in which AzMet and AzMin completed a distribution by way of a reduction
of AzMet’s paid up capital pursuant to Section 74 of the British Columbia Business Corporations Act whereby AzMet
distributed all its 11 million common shares of AzMin to its shareholders on the basis of one AzMin share for every two AzMet shares
held.



In 2016, Canarc granted the following
stock options:

| | - | 3,260,000 stock options to directors, officers and employees with an exercise price of CAD$0.08
and an expiry date of July 7, 2021, and which are subject to vesting provisions in which 25% of the options vest immediately on
the grant date and 25% vest every six months thereafter;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | - | 3,000,000 stock options to a director, officers and a consultant with an exercise price of CAD$0.08
and an expiry date of July 7, 2021, and which shall vest only when Canarc closes a material transaction or at the discretion of
Canarc’s Board of Directors;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | - | 1,000,000 stock options to consultants with an exercise price of CAD$0.08 and an expiry date of
July 7, 2021, and which fully vest on grant date; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------

| | - | 750,000 stock options to a consultant with an exercise price of CAD$0.11 and an expiry date of
September 21, 2021, and which fully vest on December 20, 2016.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------



In February 2017, Canarc received
regulatory approval for a normal course issuer bid to acquire up to 10.9 million its common shares, representing approximately
up to 5% of its issued and outstanding common shares at that time. The bid commenced on February 8, 2017 and will terminate on
February 7, 2018, or on such earlier date as the bid is complete. The actual number of common shares purchased under the bid and
the timing of any such purchases will be at Canarc’s discretion. Purchases under the bid shall not exceed 86,128 common shares
per day. Canarc will pay the prevailing market price at the time of purchase for all common shares purchased under the bid, and
all common shares purchased by Canarc will be returned to treasury and cancelled.



38Canarc Resource Corp.Form 20-F





As at April 21, 2017, Canarc had
purchased an aggregate of 380,000 common shares for an aggregate purchase price of CAD$34,250, resulting in an average price of
CAD$0.09 per share, and the cancellation of such shares will be completed in due course.



In
March 2017, stock options for 500,000 common shares were cancelled for the exercise of share appreciation rights for 272,727 common
shares.



In
April 2017, Canarc closed a private placement for 3.8 million flow through common shares at a price of CAD$0.13 per share for gross
proceeds of CAD$500,000. Finders fees include 6.5% cash and 6.5% finders fee warrants; each finder fee warrant is exercisable to
acquire one non-flow through common share at an exercise price of CAD$0.15 and has an expiry date of April 21, 2019.





4.B      Business Overview





Nature of operations and
principal activities



The Registrant’s principal
business activities are the acquisition, exploration and development of mineral resource property interests. The Registrant is
in the process of exploring and developing its mineral property interests and has not yet determined whether these mineral property
interests contain reserves. The recoverability of amounts capitalized for mineral property interests is dependent upon the existence
of economically recoverable reserves in its mineral resource properties, the ability of the Registrant to arrange appropriate financing
to complete further work on its mineral property interests, confirmation of the Registrant’s interest in the underlying properties,
the receipt of necessary permitting and upon future profitable activities on the Registrant’s mineral property interests
or proceeds from the disposition thereof. The Registrant has incurred significant operating losses and currently has no operating
revenues. The Registrant has financed its activities principally by the issuance of equity securities. The Registrant’s ability
to continue as a going concern is dependent on continued financial support from its shareholders and other related parties, the
ability of the Registrant to raise equity financing, and the attainment of profitable operations to fund its operations.



The Registrant and its management
group have in the past been actively involved in the evaluation, acquisition and exploration of mineral properties in North, Central
and South America. Starting with grass roots exploration prospects, it progressed to more advanced properties. To date, the Registrant
has not received any operating revenues from its mineral property interests. The Registrant plans to continue exploring and developing
its mineral property interests and, if appropriate, the Registrant intends to seek partners or buyers to purchase or to assist
in further advancement (by way of joint venture or otherwise) of its mineral property interests. The Registrant seeks to identify
properties with significant potential and to acquire those properties on the basis of property option agreements relying on the
representations and warranties of the vendor as to the state of title, with limited or no title work being performed by the Registrant.
Detailed title work is only undertaken once it has been determined that the property is likely to host a significant
body of ore, which may not occur. Consequently, there is a significant risk that adverse claims may arise or be asserted with respect
to certain of the Registrant’s mineral property interests. Items 3.D and 4.A provide further details.



39Canarc Resource Corp.Form 20-F









Further information and details
regarding the Registrant’s properties are provided in Item 4.D.



Sales and revenue distribution,
sources and availability of raw materials, and marketing channels



As of the date of this annual
report, the Registrant has not generated any operating revenues from its mineral property interests.



Competitive conditions



Significant competition exists
for natural resource acquisition opportunities. As a result of this competition, some of which is with large, well established
mining companies with substantial capabilities and significant financial and technical resources, the Registrant may be unable
to compete for nor acquire rights to exploit additional attractive mining properties on terms it considers acceptable. Accordingly,
there can be no assurance that the Registrant will be able to acquire any interest in additional projects that would yield reserves
or results for commercial mining operations.



Government and environmental
regulations



The Registrant’s operations
are subject to governmental regulations in Canada and the USA and Mexico, where the Registrant had interests in mineral properties.



The exploration and development
of a mining prospect are subject to regulation by a number of federal and state government authorities. These include the United
States Environmental Protection Agency (“EPA”) and the United States Bureau of Land Management (“BLM”)
as well as the various state environmental protection agencies. The regulations address many environmental issues relating to air,
soil and water contamination and apply to many mining related activities including exploration, mine construction, mineral extraction,
ore milling, water use, waste disposal and use of toxic substances. In addition, the Registrant is subject to regulations relating
to labor standards, occupational health and safety, mine safety, general land use, export of minerals and taxation. Many of the
regulations require permits or licenses to be obtained and the filing of Notices of Intent and Plans of Operations, the absence
of which or inability to obtain will adversely affect the ability for us to conduct our exploration, development and operation
activities. The failure to comply with the regulations and terms of permits and licenses may result in fines or other penalties
or in revocation of a permit or license or loss of a prospect.



40Canarc Resource Corp.Form 20-F







Mining Regulation



Federal



On lands owned by the United States,
mining rights are governed by the General Mining Law of 1872, as amended, which allows the location of mining claims on certain
federal lands upon the discovery of a valuable mineral deposit and compliance with location requirements. The exploration of mining
properties and development and operation of mines is governed by both federal and state laws. Federal laws that govern mining claim
location and maintenance and mining operations on federal lands are generally administered by the BLM. Additional federal laws,
governing mine safety and health, also apply. State laws also require various permits and approvals before exploration, development
or production operations can begin. Among other things, a reclamation plan must typically be prepared and approved, with bonding
in the amount of projected reclamation costs. The bond is used to ensure that proper reclamation takes place, and the bond will
not be released until that time. Local jurisdictions may also impose permitting requirements (such as conditional use permits or
zoning approvals).



Nevada



In Nevada, initial stage surface
exploration does not require any permits. Notice-level exploration permits (less than 5 acres of disturbance) are required (through
the BLM) to allow for drilling. More extensive disturbance required the application for a receipt of a “Plan of Operations”
from the BLM.



In Nevada, the Registrant is also
required to post bonds with the State of Nevada to secure environmental and reclamation obligations on private land, with amount
of such bonds reflecting the level of rehabilitation anticipated by the then proposed activities.



If the Registrant is successful
in the future at discovering a commercially viable mineral deposit on our property interests, then if and when the Registrant commences
any mineral production, the Registrant will also need to comply with laws that regulate or propose to regulate our mining activities,
including the management and handling of raw materials, disposal, storage and management of hazardous and solid waste, the safety
of our employees and post-mining land reclamation.



Environmental Regulation



41Canarc Resource Corp.Form 20-F





The Registrant’s mineral
projects are subject to various federal, state and local laws and regulations governing protection of the environment. These laws
are continually changing and, in general, are becoming more restrictive. The development, operation, closure, and reclamation of
mining projects in the United States requires numerous notifications, permits, authorizations, and public agency decisions. Compliance
with environmental and related laws and regulations requires the Registrant to obtain permits issued by regulatory agencies, and
to file various reports and keep records of our operations. Certain of these permits require periodic renewal or review of their
conditions and may be subject to a public review process during which opposition to the Registrant’s proposed operations
may be encountered. The Registrant is currently operating under various permits for activities connected to mineral exploration,
reclamation, and environmental considerations. The Registrant’s policy is to conduct business in a way that safeguards public
health and the environment. The Registrant believes that its operations are conducted in material compliance with applicable laws
and regulations.



Changes to current local, state
or federal laws and regulations in the jurisdictions where the Registrant operate could require additional capital expenditures
and increased operating and/or reclamation costs. Although the Registrant is unable to predict what additional legislation, if
any, might be proposed or enacted, additional regulatory requirements could impact the economics of our projects.



U.S. Federal Laws



The Comprehensive Environmental,
Response, Compensation, and Liability Act (“CERCLA”), and comparable state statutes, impose strict, joint and several
liability on current and former owners and operators of sites and on persons who disposed of or arranged for the disposal of hazardous
substances found at such sites. It is not uncommon for the government to file claims requiring cleanup actions, demands for reimbursement
for government-incurred cleanup costs, or natural resource damages, or for neighboring landowners and other third parties to file
claims for personal injury and property damage allegedly caused by hazardous substances released into the environment. The Federal
Resource Conservation and Recovery Act (“RCRA”), and comparable state statutes, govern the disposal of solid waste
and hazardous waste and authorize the imposition of substantial fines and penalties for noncompliance, as well as requirements
for corrective actions. CERCLA, RCRA and comparable state statutes can impose liability for clean-up of sites and disposal of substances
found on exploration, mining and processing sites long after activities on such sites have been completed.



The Clean Air Act (“CAA”),
as amended, restricts the emission of air pollutants from many sources, including mining and processing activities. Any future
mining operations by the Registrant may produce air emissions, including fugitive dust and other air pollutants from stationary
equipment, storage facilities and the use of mobile sources such as trucks and heavy construction equipment, which are subject
to review, monitoring and/or control requirements under the CAA and state air quality laws. New facilities may be required to obtain
permits before work can begin, and existing facilities may be required to incur capital costs in order to remain in compliance.
In addition, permitting rules may impose limitations on our production levels or result in additional capital expenditures in order
to comply with the rules.



42Canarc Resource Corp.Form 20-F





The National Environmental Policy
Act (“NEPA”) requires federal agencies to integrate environmental considerations into their decision-making processes
by evaluating the environmental impacts of their proposed actions, including issuance of permits to mining facilities, and assessing
alternatives to those actions. If a proposed action could significantly affect the environment, the agency must prepare a detailed
statement known as an Environmental Impact Statement (“EIS”). The United States Environmental Protection Agency (“EPA”),
other federal agencies, and any interested third parties will review and comment on the scoping of the EIS and the adequacy of
and findings set forth in the draft and final EIS. This process can cause delays in issuance of required permits or result in changes
to a project to mitigate its potential environmental impacts, which can in turn impact the economic feasibility of a proposed project.



The Clean Water Act (“CWA”),
and comparable state statutes, impose restrictions and controls on the discharge of pollutants into waters of the United States.
The discharge of pollutants into regulated waters is prohibited, except in accordance with the terms of a permit issued by the
EPA or an analogous state agency. The CWA regulates storm water mining facilities and requires a storm water discharge permit for
certain activities. Such a permit requires the regulated facility to monitor and sample storm water run-off from its operations.
The CWA and regulations implemented thereunder also prohibit discharges of dredged and fill material in wetlands and other waters
of the United States unless authorized by an appropriately issued permit. The CWA and comparable state statutes provide for civil,
criminal and administrative penalties for unauthorized discharges of pollutants and impose liability on parties responsible for
those discharges for the costs of cleaning up any environmental damage caused by the release and for natural resource damages resulting
from the release.



The Safe Drinking Water Act (“SDWA”)
and the Underground Injection Control (“UIC”) program promulgated thereunder, regulate the drilling and operation of
subsurface injection wells. The EPA directly administers the UIC program in some states and in others the responsibility for the
program has been delegated to the state. The program requires that a permit be obtained before drilling a disposal or injection
well. Violation of these regulations and/or contamination of groundwater by mining related activities may result in fines, penalties,
and remediation costs, among other sanctions and liabilities under the SWDA and state laws. In addition, third party claims may
be filed by landowners and other parties claiming damages for alternative water supplies, property damages, and bodily injury.



Nevada



Other Nevada regulations govern
operating and design standards for the construction and operation of any source of air contamination and landfill operations. Any
changes to these laws and regulations could have an adverse impact on our financial performance and results of operations by, for
example, requiring changes to operating constraints, technical criteria, fees or surety requirements.



The current and anticipated future
operations of the Registrant, including further exploration and/or production activities may require additional permits from governmental
authorities. Such operations are subject to various laws governing land use, the protection of the environment, production, exports,
taxes, labour standards, occupational health, waste disposal, toxic substances, mine safety and other matters.
Unfavourable amendments to current laws, regulations and permits governing operations and activities of mineral exploration companies,
or more stringent implementation thereof, could have a materially adverse impact on the Registrant and could cause increases in
capital expenditures which could result in a cessation of operations by the Registrant. To the best of its knowledge, the Registrant
is operating in compliance with applicable laws.



43Canarc Resource Corp.Form 20-F







We cannot predict the impact of
new or changed laws, regulations or permitting requirements, or changes in the ways that such laws, regulations or permitting requirements
are enforced, interpreted or administered. Health, safety and environmental laws and regulations are complex, are subject to change
and have become more stringent over time. It is possible that greater than anticipated health, safety and environmental capital
expenditures or reclamation and closure expenditures will be required in the future. We expect continued government and public
emphasis on environmental issues will result in increased future investments for environmental controls at our operations.





Trends



The cumulative annual average
for gold prices per ounce decreased from $1,266 in 2014 to $1,160 in 2015 and then increased to $1,251 in 2016 and closing at $1,282
on April 21, 2017. Gold prices did not achieve new highs in 2016 and 2015 relative to 2014. In 2014, gold prices per ounce reached
an annual high of $1,385 in mid-March 2014, but only achieved annual highs of $1,296 in 2015 and $1,366 in 2016. The high for 2017
was $1,284 on April 13, 2017 which is still lower than the annual highs in the prior three years.



During the period from January
2014 to December 2016, the closing market price for Canarc’s shares increased from CAD$0.05 to CAD$0.08 – an increase
of 60%, and the high of CAD$0.15 was on January 29, 2016. On April 21, 2017, the closing market share price was CAD$0.11. The lack
of financing and the absence of a joint venture partner to advance the New Polaris gold project contributed to the ongoing weaknesses
in the market price of Canarc’s shares in early 2014. The Share Exchange Agreement with Santa Fe in July 2014 provided market
support but then weakened when the conditions precedent set forth in the agreement were not satisfied in October 2014. In February
2015, the Company entered into a Pre-Development and Earn-In Binding Agreement with PanTerra to advance the New Polaris project
but PanTerra declared force majeure in August 2015 and requested an extension until PanTerra received approval from the Dominican
Republic government for importing New Polaris gold concentrate into the country for processing. In September 2016, PanTerra provided
30-day notice of its intent to withdraw from the first option of the agreement, which agreement was effectively terminated on October
22, 2016. The market price of Canarc’s shares strengthened in the latter half of 2015 from the acquisition of the El Compas
project and such strength continued into 2016 as the project progressed but weakened from the sale of the project to Endeavour
even though Canarc realized significant gains from such transaction. Canarc’s share price again strengthened from the property
option agreement with Eureka for the FG Gold property in August 2016 and the acquisition of AIM in March 2017. In February 2017,
the normal course issuer bid provided a certain baseline support for its market price. Items 4.A and 4.D provide further details.



44Canarc Resource Corp.Form 20-F





Risk factors in Item 3.D provide
further details regarding competition and government regulations.





4.C      Organizational Structure





The Registrant carries on its
business in large part through its subsidiaries. The Registrant has a number of direct or indirect wholly or majority owned subsidiaries
of which the active subsidiaries are as follows:



New Polaris Gold Mines Ltd. (“New
Polaris”) (formerly Golden Angus Mines Ltd. - name change effective April 21, 1997) is a corporation formed through the amalgamation
of 2820684 Canada Inc. (“2820684”), a former wholly-owned subsidiary of the Registrant incorporated under the Canada
Business Corporation Act on May 13, 1992, and Suntac Minerals Inc. The Registrant owns 100% of the issued and outstanding shares.



AIM U.S. Holdings Corp. is a corporation
duly incorporated in the State of Nevada, USA, on March 14, 2017. The Registrant owns 100% of its issued and outstanding shares.



American Innovative Minerals,
LLC (“AIM”) is a limited liability company existing pursuant to the laws of Nevada, USA, on January 20, 2011. The Registrant
owns 100% membership interest in AIM.



Oro Silver Prestadora SA de CV
is a company duly incorporated under the laws of Mexico on December 3, 2015. The Registrant owns 100% of its issued and outstanding
shares.





4.D      Property, Plant and Equipment





Description of Properties



Property Summary Chart (as of December 31, 2016):

45Canarc Resource Corp.Form 20-F









|Property Name   | Location   | Maximum % Interest Held (or to be earned) (1) | Capitalized Acquisition Expenditures(3) | Capitalized Exploration Expenditures(3) | Total Capitalized Expenditures(3)
|--------------- | ---------- | --------------------------------------------- | --------------------------------------- | --------------------------------------- | ---------------------------------
|New Polaris (2) | BC, Canada | 100.00%                                       | $3,858,000                              | $5,817,000                              | $9,675,000                       
|Windfall Hills  | BC, Canada | 100.00%                                       | $349,000                                | $447,000                                | $796,000                         
|FG Gold         | BC, Canada | 75.00%                                        | $19,000                                 | $6,000                                  | $25,000                          







1	Subject to any
royalties or other interests as disclosed below.

2	Previously known
as “Polaris-Taku”.

3Net of
recoveries and write-downs.



NOTE: All monetary figures
are in terms of U.S.$ unless otherwise noted. See below for further details on each property.





The following is a more detailed
description of the mineral properties listed above in which the Registrant has an interest.





Material Mineral Projects





We do not currently have any proven
and probable reserves under Industry Guide 7 standards, See “Cautionary Note to United States Investors Concerning Reserve
and Resource Estimates” above. The Company’s properties are currently in the exploratory stage. In order to determine
if a commercially viable mineral deposit exists in any of such properties, further exploration work will need to be done and a
final evaluation based upon the results obtained to conclude economic and legal feasibility. The following is a discussion of the
Company’s material mineral properties.





46Canarc Resource Corp.Form 20-F





Cautionary Note to U.S.
Investors concerning estimates of Measured and Indicated Resources. This section and certain related exhibits may
use the terms “measured” and “indicated resources”. We advise U.S. investors that while those terms are
recognized and required by Canadian regulations, the U.S. Securities and Exchange Commission does not recognize them. U.S. investors
are cautioned not to assume that any part or all of mineral deposits in these categories will ever be converted into reserves.
See “Cautionary Note to U.S. Investors Regarding Reserve and Resource Estimates” at the beginning of this annual report.



Cautionary Note to U.S.
Investors concerning estimates of Inferred Resources.This section and certain related exhibits may use the term
“inferred resources”. We advise U.S. investors that while this term is recognized and required by Canadian regulations,
the U.S. Securities and Exchange Commission does not recognize it. “Inferred resources” have a great amount of uncertainty
as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part
of an Inferred Mineral Resource will ever be upgraded to a higher category. Under Canadian rules, estimates of Inferred Mineral
Resources may not form the basis of feasibility or pre-feasibility studies, except in rare cases. U.S. investors are cautioned
not to assume that part or all of an inferred resource exists, or is economically or legally minable. See “Cautionary Note
to U.S. Investors Regarding Reserve and Resource Estimates” at the beginning of this annual report.





New Polaris Gold Project (British Columbia,
Canada)





James Moors, P.Geo, who was Vice
President Exploration of the Registrant at that time, was the Qualified Person for the purposes of the foregoing technical disclosure
on the New Polaris Gold Project. The information in the following summary on the New Polaris Gold Project has been derived in part
from and is partially based on the assumptions, qualifications and procedures set out in the Technical Report titled “Resource
Potential, New Polaris Project” (the “New Polaris Technical Report”) dated March 14, 2007 and prepared by R.J.
Morris, MSc, PGeo, of Moose Mountain Technical Services and G.H. Giroux, MASc, PEng, of Giroux Consultants Limited, who are independent
Qualified Persons as defined by National Instrument 43-101 (“NI 43-101”) and was prepared in compliance with NI 43-101,
to the best of the Registrant’s knowledge.



The following extracted from,
or are accurate paraphrasing of, the executive summary, or other sections as indicated from the New Polaris Technical Report, the
full copy of which is available online at www.sedar.com as filed on March 16, 2007. Defined terms and abbreviations used herein
and not otherwise defined shall have the meanings ascribed to such terms in the New Polaris Technical Report.





Extract of Selected Sections of the Summary from
the New Polaris Technical Report



47Canarc Resource Corp.Form 20-F









Summary



New Polaris (formerly Polaris-Taku)
is an early Tertiary mesothermal gold mineralized body located in northwestern British Columbia about 100 kilometres south of Atlin,
BC and 60 kilometres northeast of Juneau, Alaska. The nearest roads in the area terminate twenty kilometers due south of Atlin
and 10 kilometres southeast of Juneau. Access at the present time is by aircraft. A short airstrip for light aircraft exists on
the property.



The deposit was mined by underground
methods from 1938 to 1942, and from 1946 to early 1951, producing a total of 740,000 tonnes of ore at an average grade of 10.3g/t
gold.



The property consists of 61 contiguous
Crown-granted mineral claims and one modified grid claim covering 2,100 acres. All claims are 100% owned and held by New Polaris
Gold Mines Ltd., a wholly owned subsidiary of Canarc Resource Corp., subject to a 15% net profit interest held by Rembrandt Gold
Mines Ltd. Canarc can reduce this net profit interest to a 10% net profit.



The deposit is composed of three
sets of veins (quartz-carbonate stringers in altered rock), the “AB” veins are northwest striking and southwest dipping,
the “Y” veins are north striking and dipping steeply east and finally the “C” veins are east-west striking
and dipping to the south to southeast at 65o to vertical. The “C” veins appear to hook around to the north and
south into the other two sets of veins so that their junctions form an arc. The gold is refractory and occurs dominantly in finely
disseminated arsenopyrite grains that mineralize the altered wallrock and stockwork veins. The next most abundant mineral is pyrite,
followed by minor stibnite and a trace of sphalerite. The zones of mineralization range from 15 to 250 metres in length and 0.3
to 14 metres in width.



Canarc explored the “C”
vein system between 1988 and 1997, and carried out infill drilling in 2003 through 2006, to better define the continuity and grade
of the vein systems.



An updated resource estimate was prepared by Giroux
Consultants Ltd. using ordinary kriging of 192 recent drillholes and 1,432 gold assay intervals constrained within four main vein
segments as modeled in 3D by Canarc geologists. The total New Polaris database consists of 1,056 diamond drillholes with a total
of 31,514 sample intervals.



The geologic continuity of the C vein has been well
established through historic mining and diamond drilling. Grade continuity was quantified using a geostatistical method called
the semivariogram, which measures distances (ranges) and directions of maximum continuity. The four principle veins in the semivariogram
model produced ranges between 50 and 90 metres, both along strike and down plunge.



48Canarc Resource Corp.Form 20-F







For this study, the classification for each resource
block was a function of the semivariogram range. In general, blocks estimated using 1⁄4 of the semivariogram range were classed
as measured, blocks estimated using 1⁄2 of the semivariogram range were classed as indicated, and all other blocks estimated
were classed as inferred.



Thefollowingtableslisttheundilutedresourceestimate,includingthe“C”veinwest(CWM)
fromthe–90melevationdown,andthe“C”veineast(CLOEandCHIE)fromthe–135m elevationdown(theelevations,–90min the west, and–135min theeast, representthe lower elevations of previous mine development and production. The resource potential above these elevations has been
discounted in this study, but are listed in the History item, Section 8).



Measured, undiluted
resource

|Cutoffgrade,
        g/t
        Au | Tonnes>Cutoff
        (tonnes) | Grade
        >Cutoff
        Au (g/t) | Contained
        Metal (oz)
|----------------------------------- | ------------------------------ | -------------------------------------- | ----------------------------
|2.00                                | 390,000                        | 9.48                                   | 119,000                     
|4.00                                | 330,000                        | 10.62                                  | 113,000                     
|6.00                                | 271,000                        | 11.89                                  | 104,000                     
|8.00                                | 203,000                        | 13.54                                  | 88,000                      



Indicated,
undiluted resource

|Cutoffgrade,
        g/t
        Au | Tonnes>Cutoff
        (tonnes) | Grade
        >Cutoff
        Au (g/t) | Contained
        Metal (oz)
|----------------------------------- | ------------------------------ | -------------------------------------- | ----------------------------
|2.00                                | 1,280,000                      | 10.97                                  | 451,000                     
|4.00                                | 1,180,000                      | 11.65                                  | 442,000                     
|6.00                                | 1,017,000                      | 12.71                                  | 416,000                     
|8.00                                | 806,000                        | 14.22                                  | 368,000                     



Measured + Indicated, undiluted resource

|Cutoffgrade,
        g/t
        Au | Tonnes>Cutoff
        (tonnes) | Grade
        >Cutoff
        Au (g/t) | Contained
        Metal (oz)
|----------------------------------- | ------------------------------ | -------------------------------------- | ----------------------------
|2.00                                | 1,670,000                      | 10.62                                  | 570,000                     
|4.00                                | 1,510,000                      | 11.42                                  | 555,000                     
|6.00                                | 1,288,000                      | 12.54                                  | 519,000                     
|8.00                                | 1,009,000                      | 14.08                                  | 457,000                     



Inferred,
undiluted resource

|Cutoffgrade,
        g/t
        Au | Tonnes>Cutoff
        (tonnes) | Grade
        >Cutoff
        Au (g/t) | Contained
        Metal (oz)
|----------------------------------- | ------------------------------ | -------------------------------------- | ----------------------------
|2.00                                | 2,060,000                      | 10.52                                  | 697,000                     
|4.00                                | 1,925,000                      | 11.03                                  | 683,000                     
|6.00                                | 1,628,000                      | 12.15                                  | 636,000                     
|8.00                                | 1,340,000                      | 13.27                                  | 571,000                     





49Canarc Resource Corp.Form 20-F







The deposit represents an important gold resource and
follow-up work should include test mining and infill drilling.



Property Description and Location



“TheNewPolaris(formerlythePolaris-Taku mine)propertyconsistingofagroupof61 contiguous
crowngrantsandonemodifiedgridclaimtotaling1,196ha(2,956acres) located96km(60miles)southofAtlin,BCand64km(40miles)northeast ofJuneau, Alaska.Locatedat approximately133o37’WLongitude and58o42’NLatitude, thedeposit liesinclose
proximitytothe“Tulsequah Chief”property ofRedcorpontheeastern
flank ofthe Tulsequah RiverValley (Figure 6-1).



Theclaims are100% owned andheldbyNewPolarisGoldMinesLtd.,awhollyowned subsidiary ofCanarcResource
Corp.subjecttoa15%netprofitinterestheldby RembrandtGoldMinesLtd.whichCanarchastherighttoreduceto10%. Theclaims locationsare shownon Figure6-2 whileTable6-1 summarizes
the claimsshownon Figure 6-2. Withtheexception
of the W.W.1 claim, theclaims arecrown granted andare keptingood standingthroughannualtaxpayments.
TheW.W.1isamodified gridclaim. The claim has sufficient work filed on it to keep it
in good standing until
February 4, 2015.Thecrown granted claims werelegally
surveyed in1937. Themineralized
areas areshown on Figure 6-3and9-2,which shows thegeology of the property on
the mineral
showings. The Polaris No. 1, Silver
King No. 1, Silver King No. 5, Black Diamond, Lloyd
and Ant Fraction crown grants include the surface rights. Surface rights for the remainder
ofthe property liewith the Crown.



Thelocationoftheknown mineralizationrelativetotheoutsideboundaryoftheproperty isshownonFigure6-3.



MiningoftheABVeinsystem
andtoalesserextenttheYandCveinswascarriedout duringthe1930stoearly1950s.Muchoftheformerinfrastructurehasbeen reclaimed.A $200,000reclamation bondisinplaceanditisthewriter’sopinionthatthisadequately covers thecostofreclaimingtheoriginalmillsiteandinfrastructure.Atthistimethereis nolegalorregulatoryrequirement toremoveortreatthetailingsontheproperty.Itis recommendedthatsamplingofthetailingsandwaterbecarriedouttodetermineifthere acidwateror contaminants
drainingfromthetailingsandmineworkings. Aswell, sampling
of water down stream from the site to determine
if drainage form the tailings and waste
rock is affecting the water quality
of Whitewater Creek or the Tulsequah River. If there is contamination of the waters
down stream from
the waste dumps and tailings a mitigation
plan will be required. The cost of the mitigation will depend upon thelevelofcontamination ofthewater down stream.



50Canarc Resource Corp.Form 20-F





Priortocommencing explorationonthepropertyaNoticeofWorkisrequiredtobe submittedtotheMiningandMinerals Department of theBCMinistry of Energy and Mines. Work can onlycommence once approval has been
received.”



Location Map









51Canarc Resource Corp.Form 20-F







Table 1 - LIST OF CLAIMS



|Claim Name         | Lot No. | Folio # | Claim Name         | Lot No. | Folio #
|------------------ | ------- | ------- | ------------------ | ------- | -------
|Polaris No.1       | 6109    | 4472    | Snow               | 3497    | 4545   
|Polaris No.2       | 6140    | 5223    | Snow #2            | 3495    | 5088   
|Polaris No.3       | 6141    | 5223    | Snow #3            | 3494    | 5495   
|Polaris No.4       | 3498    | 4545    | Snow #4            | 3499    | 5495   
|Polaris No.5       | 6143    | 5223    | Snow #5            | 6105    | 4472   
|Polaris No.6       | 6144    | 5223    | Snow #8            | 6107    | 4472   
|Polaris No.7       | 6145    | 5223    | Snow #7            | 3500    | 4472   
|Polaris No.8       | 6146    | 5223    | Snow #6            | 6106    | 4472   
|Polaris No.9       | 6147    | 5223    | Snow #9            | 6108    | 4472   
|Polaris No.10      | 6148    | 5290    | Black Diamond      | 3491    | 4472   
|Polaris No.11      | 6149    | 5290    | Black Diamond No.3 | 6030    | 4944   
|Polaris No.12 Fr   | 6150    | 5290    | Blue Bird No.1     | 5708    | 4545   
|Polaris No.13 Fr   | 6151    | 5290    | Blue Bird No.2     | 5707    | 4545   
|Polaris No.14      | 6152    | 5290    | Lloyd              | 6035    | 5010   
|Polaris No.15      | 6153    | 5290    | Lloyd No.2         | 6036    | 5010   
|Silver King No.1   | 5489    | 4804    | Rand No.1          | 6039    | 5010   
|Silver King No.2   | 5490    | 4804    | Rand No.2          | 6040    | 5010   
|Silver King No.3   | 5493    | 4804    | Minto No.2         | 6033    | 4944   
|Silver King No.4   | 5494    | 4804    | Minto No.3         | 6034    | 4944   
|Silver King No.5   | 5491    | 4804    | Jumbo No.5         | 6031    | 4944   
|Silver King No.6   | 5492    | 4804    | Ready Bullion      | 6032    | 4944   
|Silver King No.7   | 5495    | 4804    | Roy                | 6042    | 5088   
|Silver King No.8   | 5717    | 4545    | Frances            | 6041    | 5010   
|Sliver Queen No 1  | 6026    | 4545    | Eve Fraction       | 6170    | 5495   
|Sliver Queen No 2  | 6027    | 4545    | Eve No.1 Fraction  | 6171    | 5495   
|Sliver Queen No 3  | 6028    | 4944    | P.T. Fraction      | 3493    | 5495   
|Sliver Queen No 4  | 6029    | 4944    | Ant Fraction       | 3492    | 5088   
|Silver Strand      | 6037    | 5010    | Atlin Fraction     | 3496    | 5088   
|Silver Strand No.2 | 6038    | 5010    | Powder Fraction    | 6043    | 5088   
|F.M Fraction       | 6044    | 5088    | Jay Fraction       | 6045    | 5088   
|Par Fraction       | 6154    | 5290    |                    |         |        



52Canarc Resource Corp.Form 20-F







Accessibility, Climate, Locate
Resources, Infrastructure and Physiography



“TheNewPolaris project arealiesontheeastern flankofthesteep,rugged,CoastRange Mountains.Reliefisextremewithelevationsrangingfromthesealevelto2,600metres.



Extensiverecentglaciationwasthedominantfactorintopographicdevelopment. The TakuandTulsequahRiversarethemostprominenttopographic feature ofbroadvalley bounded bysteepmountains. Numerous tributary streams flowfrom valleys filledwith glaciers. Themajority oftheglaciers arefingers branching
from theextensive Muir ice cap, lying to the northwestof the Taku River. The Tulsequahglacier,which terminates
intheTulsequahvalley about 16 kilometresnorth oftheNew Polaris minesite, isoneof the largest glaciers
in the immediate area. It forms a dam
causing a large lake in a tributaryvalleythatbreaksthrough theicebarrier(Jakülhlaup) during
thespringthaw every year, flooding
the Tulsequah and Taku valleys
below for three tofive days.



Small
aircraft providesaccessfromAtlin orJuneau. Ocean-goingbargeshavebeenused inthepasttoaccessthesitewhenheavierequipment isrequired. RedcorpVentures Ltd.
(Redcorp) hasappliedtocomplete
aroadtotheirprojectsite,acrosstheriverandtothe north,whichcouldchangethe infrastructure to
the site. The property can be operated year round,
however accesswould bedifficult during
break upand freeze up.



Theclimateisoneofheavyrainfalls duringthelatesummer andfallmonths, and comparatively
heavysnowfall,interspersed withrainduringthewinter. Theannual precipitationisapproximately1.5metresofwhich 0.7metresoccursas rainfall.
The snowseldomaccumulates
toa depthgreaterthan1.5metresonthelevel. Winter temperatures
are not severeandrarelyfallbelow–15oC. Summertemperatures,in July, average10oCwithdaytimetemperatures
reachingthe high20’son occasion.
The vegetationis typicalof northerntemperature
rainforest,consistingprimarilyof fir, hemlock,
spruceandcedarforestonthehillsidesandaspenandaldergrovesintheriver valley.”



History



53Canarc Resource Corp.Form 20-F





MontgomeryConsultantswerecommissionedtoconductaGeostatisticalStudyofthe GeologicalResourceforthePolaris-Taku Depositin1991.G.H. Girouxcarriedoutthis reviewandcalculated a totalresourceof 2,225,000
tonsgrading0.433optgoldbased on a geostatistical approach using a cut-offgrade of 0.25 optgold. Thesereserves were dividedinto333,000tonsat 0.437 optgold(probable)
and1,892,000
tonsat 0.432opt
gold (possible). The estimate discounted much
of the reserves around the old workings anddidnotinclude dilution andminimum
mining width provisions.
These estimates were based onbotholdand new drillingandextended theresource base down toroughly1200 feet BSL. This estimate does
not meet thedefinitionrequirements of NI43– 101 fora resource. TheAuthorhasnotdone sufficient worktoclassifythemascurrent reserves or resources and is not treating them as current. This estimate,therefore,should not be relied upon.



Watts,Griffis,andMcQuatwerecontractedtoreviewthepreviousreservesinAugust
1992.Theirreviewincorporatedtheresidualreserveswithinthemine workings, as estimated by Beacon
Hill in 1989, into their overall estimateof a total (diluted) mineral resource of 1,600,000tons at 0.46 opt
gold. Their estimations were based upon
a minimum mining width of 5 feet or 15 % dilution and
a cut-off grade of 0.25 opt gold. The
improvement in grade stems
from the inclusion of new deeper holes that extend the known mineralization to a depth
of 1200
feet BSL and exclusion of lower grade
material previously included in the Montgomery
estimate. This estimate does not meet the
definition requirements
of NI 43 – 101fora resource. TheAuthorhasnotdone sufficient workto classifythemas current reservesor resourcesand is not treatingthemas current. This estimate,
therefore, should not berelied upon.



Girouxwasfurthercontracted toprovideresourceupdatesthroughout 1992andin February1995here-estimatetheresourcesforthenewlydrilledportionsofthe"C" Zone.Recentdrillinghasalsoconfirmed theexistenceofanew"North"Zone,which, although
it appears to be low grade (0. 18 opt gold) has exhibited possible significant widthsintheorderof22feet.Girouxhasincludedestimations forthiszone,whichfor purposes ofthisreviewhavebeenexcluded duetograde.Theresultsofhisre-estimate
showthatthe"C"Vein discovered justpriortomineclosurerepresents asignificant
new additiontotheresourcebase.Hehasestimated atotalof85,700tonsgrading0.426opt gold (probable)
and 595,000 tons
grading 0.425 opt gold (possible)
for this zone below the 450 Level (elev. 313 ft BSL) and 1000
feet BSL.



Mostofthisresource liesabove800feetBSLandwithin200feetoftheexisting shaft bottom.ThetotalresourcesestimatedbyGirouxtodatearesummarizedon Table 4.2. Hisestimates
werein situbasedona 0.25optgoldcut-offanddidnotincludedilution provisions as shown below
and considered
to be relevant as they are based on a significant amount ofdata
and were independently calculated.



Inordertosummarizethevarietyofestimationsidentifiedabove;GodfreyWaltondid the following: Beacon Hill estimation
of residual reserves within and around the workingswastotaled. To thistotal, the geostatistical resourceestimationof Giroux was addedafter applying
ageneral dilution factorof25%atzero grade toGiroux's figures for
the" Y" Zoneand15%atzerogradeforthe"AB"and"C"Zones. Thein-situ
resource baseispresentlyestimatedas582,910tonsat 0.359 opt gold(Probable), and 2,614,210 tonsat0.363
opt gold(Possible)includingappropriate
dilutionfactors.The dilution factors were estimated
based on vein characteristics.
The "Y" veins are described as beinghighgrade,butnarrowwhichmakesthem proneto highdilution
fromover-break during mining as well as over mining. The "AB" veins
in-situ grade, as estimated by Giroux, already contains internaldilutionfromaparalleldyke.Tothistotal,Walton addedoveralladditionaldilutionof15%,which,hefelt, wasappropriate,asthe"C"vein wouldnot experience much
dilutionsince
it is generallythoughtto be fairly thick. This estimate does not meet
the definitionrequirements of
NI 43 – 101 for a resource.The Authorhas
not done sufficient workto classifythemas currentreserves or resourcesand isnottreatingthem ascurrent.This estimate,
therefore, should not
bereliedupon.



54Canarc Resource Corp.Form 20-F







IntheAuthor’s opinion,theresidualreservesinandaroundtheworkings
includedinthe BeaconHillestimationareunlikelytocontributesignificantly toanynewmining
operation.Forthemostpartitisinremnantsscatteredamongsttheoldstopes andwillbe difficulttoaccessanddevelop.”



Geological Setting



“TheNewPolarisMineliesonthewesternedgeofalargebodyofUpperTriassic
StuhiniGroupvolcanicrocks,whichhasbeenintruded byaJurassic-Cretaceous granodioritebodynorthofthe mine. OlderTriassicvolcanicrocksandearliersediments
underlietheStuhinivolcanicrocks. Thegranodiorite
is part of the Coast Plutonic Complex (Figure
9-1).



Thestructuraltrendintheareaisnorthwest-southeast,parallelingmajorfaultsandfolds totheeastandintrusivealignmenttothewest. TheTriassic volcanic rocks andolder
sedimentary rocks have been folded andshearedwith theStuhiniGroup rocks being deformedinto
broadtoisoclinal, doubly plunging
symmetrical foldswith large amplitudes.”



“CanarchascarriedoutextensivemappingofthePolaris-Takupropertysincetheearly1990’s.Theworkhasbeen done byanumberofemployees andcontractors andisshown in Figure9-2. The golddepositis hostedwithinan assemblage
of mafic (basalt and andesiteunits)volcanicrocksalteredto greenschist metamorphicfacies. The orientation of these
units is inconclusivebecause there are
no marker beds in the sequence. It is thought that
the unitsare steeplydipping (70o
to80o)tothe northbasedontheorientation
ofthelimestone/basalt
interface atthesouthern
portion ofthe property.



Aserpentinite unitislocatedtothenortheast,whichwasidentifiedinrecent(1996/97)
drillingandundergroundmapping. Thisunitappearstoformtheeasternextentofthe mineralization. Theagerelationship isunclear,
butit is assumed thattheserpentinite is a later stage
feature possibly associated with
tectonism inthe area.



The‘vein’zonesarestructurallycontrolled shearzonesandaretypifiedbysilicification andcarbonatizationcrosscuttingactualquartz-carbonateveins. Thesezoneshavesharp contactswiththewallrockandformanastamosing ribbonsanddilations. These zones
have been deformed severaltimes,which
makesoriginaltexturesdifficulttodetermine.
Thezonesaregenerallytabular ingeometry formingen-echelon sheetswithin themore
competent
host lithologies.



55Canarc Resource Corp.Form 20-F







Allofthestratawithinthepropertyhavebeensubjectedtocompression,rotationand subsequent extension. Theplungeoffoldsappears to be variable
though generally shallow. Small-scaleisoclinalfoldsstrikenorth-northwesterly and plungemoderately to thenorth. Numerous faultsarefoundonthe property,the moresignificant ofwhichare discussed
later.



The possible extension of the Llewellyn fault, termed the South Llewellyn fault, continues south from
the Chief Cross fault along mine grid coordinate4400 East. SlightlynorthofWhitewater Creekitisoffsettothewestbyaneast-westfault,the101 fault,tocontinueina moresoutheast orientation ofthe opposite
side ofWhitewater Creek. This northwest-southeast
orientation structure was named the Limestone
Fault due to its bedding parallel attitude within a discontinuous limestone/marblehorizon. It marksthesouthwest boundary
ofthe“minewedge”:thewedgeshapedpackageofrock within which allpastproduction took
place.The northern
boundary ofthe “minewedge” isfurtherdefinedasmentioned abovebytheWhitewater CreekSchistZone,azoneof schistose chlorite-amphibolite-serpentinite
less than 300 feet thick. A complex
network ofbrittle faults isalso found within this zone.



Threemajorfaults,Numbers
1and5,andanunnamed fault,liewithintheminewedge. TheNo.1andNo.5faultsstrikenorthwest-southeast, dippingapproximately45otothe northeast, andaresub-paralleltotheunnamedfault,whichdipssteeplytothesouthwest. TheNo.1faulthas reversedisplacement of up to 100feetwhilethe displacement of the No.5faultispoorlydefined. Thesouthwest dipping,unnamedfaultshowedno displacement,
as it apparently parallels the A-B vein
system. The mined
out areas indicatethe wedgeshape,thepredominant
orientationsandcontinuityof thezones,and theoverallplungeofthesystemtothesoutheast. Anearlyinterpretation ofthestructure showedthatvariousveinsappeartomeetandform“junction
arcs”whereboththickness and grade improve.



Deposit Types



TheNewPolarisdepositisclassifiedasa mesothermallode-golddepositHodgson,(1993).



“Ingeneral,itisquartz-vein-related, withassociatedcarbonatizedwallrocks. The depositsarecharacterized byahighgold/silver ratio,greatverticalcontinuitywithlittle verticalzonation,andabroadlysyn-tectonic
time ofemplacement.
They arecommonly associated with
pyrite, arsenopyrite,
tourmaline and molybdenite.
Mineralization may occur inanyrocktypeandrangesinformfromveins, toveinletsystems,
todisseminated replacement
zones. Mostmineralized zonesarehostedbyandalwaysrelatedtosteeply dipping reverse-
oroblique-slip brittle-fracture toductile-shear zones.”



“TheexplorationtargetontheNewPolarisprojectisorogeniclodegolddepositsalso knownasMesothermalveindeposits. Numerousexamplesofthistypeofdepositare knownthroughoutthework includingtheCambellRed Lake depositsin Ontarioandthe BralornedepositinBritishColumbia. Pastexplorationstudieshavedemonstrated that the NewPolarisveinsystems havealloftheattributes oftheorogenic veingolddeposit including,butnotlimitedtoassociationwithmajorstructuralbreak,quartz-carbonate veinassociation,low-sulphide assemblageofpyriteandarsenopyrite, chloriticand sericiticallyalteredwallrocks and persistentgoldmineralizationovera vertical distance ofnearly
1km.”



56Canarc Resource Corp.Form 20-F







ThedeposittypeandmodelisconsideredappropriateforaMesothermallode-golddeposit.



Mineralization



“MineralizationoftheNewPolarisdepositbearsstrongsimilaritiestomanyArchean lodegolddeposits suchasthearsenical goldcampofRedLake,Ontario wherethegold- bearing arsenopyrite
isdisseminated
inthe altered rock and inquartz-carbonate stringers.



Theveinmineralization consistsofarsenopyrite,pyrite,stibniteandgoldinagangueof quartzandcarbonates. Thesulphidecontentis upto 10%witharsenopyrite
themost
abundant and pyrite the next important.
Stibnite isfairly abundant insome specimens but overall comprises
lessthenone-tenth of1%oftheveinmatter.
Alteration minerals
include fuchsite, silica, pyrite,
sericite, carbonate and albite.



Ingeneral,thezonesofmineralizationrangingfrom15to250metresinlengthwith widthsupto14metresappeartohavebeendepositedonlyonthelargerandstronger shears. Their walls pinch and swell showing considerable
irregularity both verticallyand horizontally. Goldvalues inthe veins haveremarkable continuity
anduniformity, and are usually directly
associated with the amount of arsenopyrite present. The prominent strike directions are north-south and northwest-southeast,
which is interpreted to be withina majorshearzone. Up to 80%of the mineproductionwas from “structural
knots” or what is now known as “C” zones. In detail the “C” zones are arcuate structures. Figure
11-1 shows a3D view ofthe “C”
vein system.



Theveinmineralizationhaswellmarkedcontactswiththewallrock.Thetransitionfrom mineralizedtononmineralizedrockoccursoverafewcentimeters.Themineralization consists ofat least3 stagesofquartzveining. Theinitialstageofquartz-ankerite introducedinto the structurewas accompanied by a pervasivehydrothermal alterationof the immediatelysurrounding wall
rock. Arsenopyrite, pyrite and lesser stibnite
were depositedwith the alteration.Later
stages of quartz-ankeriteveiningare barren and have the effectofdiluting
the goldgrades inthe structure. The
sulphide minerals are very fine- grainedand disseminated
in both the wall rock and early quartzand ankeriteveins.Free goldis extremelyrareandto the endof 2005hadnot beenrecognized in coresamples. The majority of the gold
occurs in arsenopyrite and to a lesser extent in pyrite
and stibnite.Becausethereisnovisible goldandthehostsulphidesareveryfine-grained and disseminated
there is little nuggeteffectand gold
valueseven over short intervalsrarely
exceed 1opt.”



57Canarc Resource Corp.Form 20-F





Mineralizationwasobservedby Morrisduringthesitevisitbothindrillcoreandunderground. ThedescriptionofthemineralizationappearsapplicabletotheNewPolarisproject.



[End of Extract]





The economic analysis contained
in the PEA is considered preliminary in nature and there is no certainty that the preliminary economic assessment will be realized.
No inferred mineral resources form part of the PEA economic evaluation and no mineral reserves for the PEA have been established.
Mineral resources are not mineral reserves and have not demonstrated economic viability. There is no certainty that economic forecasts
outlined in the PEA will be realized. The PEA and the Mineral Resource (as presented above) may be materially affected by environmental,
permitting, legal, title, taxation, socio-political, marketing or other relevant factors.





In April 2011, Canarc completed
a preliminary economic assessment of the New Polaris property. The report which is dated April 10, 2011 is titled “New Polaris
Project - Preliminary Assessment Update”. J.H.Gray, P.Eng., R.J. Morris, M.Sc., P.Geo. and G.H. Giroux, MASc., P. Eng. were
the Qualified Persons for that Report. The Qualified Person (“QP”) pursuant to NI 43-101 for the updated preliminary
economic assessment report is Jim Gray, P. Eng.





Efforts had commenced on the application
for an underground development and exploration program at the New Polaris project in 2011 which was halted in February 2012, due
to the lack of financial resources.



In July 2012 Canarc significantly reduced
the estimated cost of the proposed work program to complete a feasibility study for commercial development of the New Polaris project
from CAD$26 million to approximately CAD$9 million. Canarc previously planned a CAD$26 million work program which included underground
mine development in order to complete a feasibility study for the project. Under the revised program, the underground mine development
work would be deferred to the post-feasibility mine development program. Instead, Canarc planned to carry out an additional 15,000
meters of infill core drilling in approximately 35 holes in order to provide sufficient measured and indicated resources for feasibility.
About CAD$4 million of the CAD$9 million revised cost was related to drilling and the balance was related to permitting and engineering.
The proposed work program to complete a feasibility study was subject to securing a partner for the project and/or financing.



In late September 2012, Canarc granted
Canford a 120-day period of exclusivity to complete its due diligence and to execute an option agreement to earn up to a 51% interest
in the New Polaris gold project in return for up to a CAD$30 million investment in exploration and development of the property.
Canarc was to be the manager of the project during the option period. Pursuant to an agreement to form a SMAP dated February 1,
2013, Canarc granted Canford a further 60-day period of exclusivity on the date on which Canarc was to close an acquisition opportunity
subject to the execution of a formal SMAP agreement on or before March 1, 2013. However, in March 2013, no formal SMAP agreement
was executed, and Canford was not able to commit or arrange financing for the proposed option and joint venture to develop the
New Polaris gold project.



58Canarc Resource Corp.Form 20-F









On February 24, 2015, Canarc entered
into a Pre-Development and Earn-In Binding Agreement with PanTerra. PanTerra had a 30-month option to earn a 50% interest in the
New Polaris project by spending a total of CAD$10 million in three stages of predevelopment activities including metallurgical
test work, drilling, detailed mine planning, tailings dam design, environmental permitting, and completion of a definitive feasibility
study. In Stage One, PanTerra shall spend CAD$500,000 for laboratory production of flotation concentrate followed by test work
through the Glencore Technology Albion pilot plant, and for comprehensive technical and economic review and commencement of environmental
baseline data collection required for permitting. In Stage Two, PanTerra can earn a 20% interest in the New Polaris project by
spending CAD$3.5 million in predevelopment expenditures which would include 10,000 m drilling program and engineering and completion
of field data required for environmental permitting. In Stage Three, PanTerra can earn an additional 30% interest in the project
for a total interest of 50% by spending CAD$6 million in predevelopment expenditures which would primarily focus on the completion
of a definitive feasibility study and would include further 10,000 m of infill drilling, additional metallurgical test work, and
preliminary engineering. PanTerra can increase its interest in the New Polaris project to 51% by purchasing 1% from Canarc within
six months of completion of the definitive feasibility study at a cost of 1% of the net present value established by the definitive
feasibility study using a 10% discount rate.



Canarc received the CAD$500,000
for Stage One in 2015. As at December 31, 2015, funds of US$35,000 remain for Stage One expenditures as specified pursuant to the
agreement between Canarc and PanTerra, which remaining funds were used to settle existing payables for Stage One expenditures in
2017.



In August 2015, PanTerra had informed
Canarc that it will not be able to commit to further expenditures to commence Stage Two exploration and permitting work on Canarc’s
New Polaris project until PanTerra received the approval from the Dominican Republic government for importing New Polaris gold
concentrate into the country for processing. In September 2016, PanTerra provided 30-day notice of its intent to withdraw from
the first option of the agreement, which agreement was effectively terminated on October 22, 2016.





Other Mineral Projects





The following projects are considered
not material by the Registrant do not have any Guide 7 compliant mineral reserves, and are not compliant with NI 43-101 unless
otherwise stated. There is currently no ongoing or proposed exploration or development programs for the properties set out below,
other than as specifically stated.



59Canarc Resource Corp.Form 20-F







Windfall Hills properties
(British Columbia, Canada)



In April 2013, Canarc entered
into two property purchase agreements to purchase 100% interests in two adjacent gold properties located in British Columbia, which
comprise the Windfall Hills properties. Canarc entered into a property purchase agreement with Atna Resources Ltd. (“Atna”)
whereby Canarc acquired a 100% undivided interest in the Uduk Lake properties by the issuance of 1,500,000 common shares at a fair
value of CAD$0.10 per share, honouring a pre-existing 1.5% NSR production royalty that can be purchased for CAD$1 million, and
granting Atna a 3% NSR production royalty. Canarc entered into a property purchase agreement with another vendor whereby Canarc
acquired a 100% undivided interest in the Dunn properties by the issuance of 500,000 common shares at a fair value of CAD$0.10
per share and granting the vendor a 2% NSR royalty which can be reduced to 1% NSR royalty for $500,000.



Canarc completed a Phase 1 exploration
program on its Windfall Hills project which included detailed soil and rock geochemical sampling over known target areas in 2011.
A total of 340 geochemical soil samples were collected on a 100 meter by 25 meter grid over the main 2.8 sq. km. prospect area.
Two anomalies were delineated on the basis of multi-element geochemistry.



In June 2014, Canarc received
government permit for the drilling program which was mobilized in July 2014 and was financed by a flow-through financing of CAD$400,000
which closed in July 2014. Funds of CAD$386,000 were expended for flow through purposes in 2014 and 2015. Canarc completed 3 holes
and 1,149 metres of drilling that intersected an alteration zone anomalous in gold-silver.



In October 2016, Canarc completed a geophysical
3D IP-resistivity survey which covered 3.8 sq km, representing about 10% of the property. The survey was at 100 m intervals on
200 m spaced line to a depth of 350 m below surface. The main exploration targets are low sulphidation epithermal, disseminated
and stockwork gold-silver deposits with tertiary rhyolite volcanic centers. The IP survey identified four geophysical anomalies
which cover an area of coincidental high resistivity and chargeability. Drill targets will be prioritized for drilling in the summer
of 2017.





El Compas Project (Zacatecas,
Mexico)



On October 8, 2015, Canarc and
Marlin Gold entered into a Share Purchase Agreement, whereby Canarc acquired 100% of the shares of Oro Silver, which indirectly
owns 100% of the El Compas gold-silver project located in Zacatecas, Mexico, in exchange for 19 million common shares of Canarc.
Canarc’s acquisition of Oro Silver closed on October 30, 2015. The terms of the agreement included the following:

60Canarc Resource Corp.Form 20-F







| | · | On each of the first three anniversaries
of the closing date of the agreement, 55 troy ounces of gold (or the US dollar equivalent) will be paid by Canarc to Marlin Gold
or to any of its subsidiaries;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Certain mineral concessions named Altiplano
include a 3% NSR royalty and a buy back option. Marlin Gold retains the Altiplano royalty and buy back option, and will receive
a 1.5% NSR on all non-Altiplano claims that currently have no royalties associated with them;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Marlin Gold invested CAD$100,000 in Canarc’s
private placement of 1.67 million units at CAD$0.06 per unit with each unit comprised of one common share and one-half of one common
share purchase warrant; each whole warrant is exercisable to acquire one common share at an exercise price of CAD$0.08 per share
until October 30, 2018; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Marlin Gold nominated one person, namely,
Mr. Akiba Leisman, to Canarc’s board of directors.
| | - | --------------------------------------------------------------------------------------------



The closing of the Share Purchase Agreement
resulted in Marlin Gold becoming an Insider of Canarc by virtue of having more than 10% (ie. 10.79%) interest in Canarc as at the
closing date of October 30, 2015.



The El Compas property is a fully permitted
gold silver project located in Zacatecas, Mexico, and is comprised of 24 concessions totaling 3,900 hectares.



In January 2016, Canarc signed
a definitive agreement with the Zacatecas state government to lease and operate the permitted 500 tonne per day La Plata ore processing
plant located in the city of Zacatecas, Mexico. Highlights of the lease agreement include the following:



| | · | Lease term was 5 years with the right to extend for another 5 years;
| | - | --------------------------------------------------------------------

| | · | Canarc assumed responsibility for the plant as of January 29, 2016;
| | - | -------------------------------------------------------------------

| | · | Plant would be exclusively operated by Canarc’s Mexican subsidiary,
, Minera Oro Silver de Mexico SA de CV;
| | - | -----------------------------------------------------------------------------------------------------------

| | · | Canarc was to pay a monthly lease payment of MXP 136,000;
| | - | ---------------------------------------------------------

| | · | Grace period of 6 months to allow time for plant refurbishing;
| | - | --------------------------------------------------------------

| | · | Power and water were available for plant operations;
| | - | ----------------------------------------------------

| | · | Plant capacity was 500 tonnes per day with the possibility to expand;
| | - | ---------------------------------------------------------------------

| | · | Permitted tailings facilities had a capacity for approximately 1
million tonnes;
| | - | --------------------------------------------------------------------------------

| | · | Certain plant refurbishment costs would be reimbursed to Canarc by
lease payment offsets; and
| | - | ---------------------------------------------------------------------------------------------

| | · | Canarc would reserve up to 100 tonnes per day for toll mining of
ore produced by local small miners.
| | - | ----------------------------------------------------------------------------------------------------

61Canarc Resource Corp.Form 20-F







In March 2016, Canarc entered
into an indicative term sheet for up to $10 million in debt financing by way of a gold prepaid facility to develop the El Compas
gold-silver project subject to a 60 day due diligence period which did not advance due to the subsequent sale of the project.



On May 6, 2016, Canarc entered
into a Purchase and Sale Agreement with Endeavour Silver Corp., a company sharing one common director, (“Endeavour”)
pursuant to which Canarc sold to Endeavour 100% of the shares of Canarc’s wholly-owned subsidiary, Oro Silver, which indirectly
holds a 100% interest in the El Compas project in Zacatecas, Mexico, in consideration for 2,147,239 free-trading common shares
of Endeavour, with an aggregate deemed value of CAD$10.5 million (the “Sale Transaction”). The Endeavour shares had
a deemed price of CAD$4.89 per share, equal to the volume-weighted average trading price on the TSX for the 10 trading-day period
immediately prior to May 6, 2016. As additional consideration, Endeavour assumed Canarc’s obligation to deliver an aggregate
of 165 troy ounces of gold (or the US dollar equivalent) to Marlin Gold in three equal payments of 55 troy ounces which are due
in October 2016, 2017 and 2018. The foregoing gold delivery obligation was incurred by Canarc in connection with its acquisition
of El Compas from Marlin Gold. The Sale Transaction closed on May 27, 2016 at which time Canarc received 2,147,239 free-trading
common shares of Endeavour with a fair value of CAD$3.99 per share at that date. In conjunction with the closing of the Sale Transaction
with Endeavour, Mr. Akiba Leisman, Marlin Gold’s nominee to Canarc’s Board, resigned as a Director of Canarc.





FG Gold property (British
Columbia, Canada)



On August 24, 2016, Canarc entered
into a property option agreement with Eureka which closed on October 12, 2016. In consideration for the grant of the property option
agreement, Canarc issued 250,000 common shares at a value of CAD$0.10 per share to Eureka, and subscribed to Eureka’s private
placement for 750,000 units at a price of CAD$0.14 per unit for a total of CAD$105,000; each unit was comprised of one common share
of Eureka and one-half of one common share purchase warrant with an exercise price of CAD$0.20 and expiry date of September 9,
2018. Canarc can earn up to a 75% interest in the FG gold property in two stages.



In the first stage, Canarc can
earn an initial 51% interest over three years by:

| | - | incurring CAD$1.5 million in exploration expenditures with an annual minimum of CAD$500,000;
| | - | --------------------------------------------------------------------------------------------

| | - | issuing 750,000 common shares in three annual tranches of 250,000 shares; and
| | - | -----------------------------------------------------------------------------

| | - | paying 50% of the annual BC METC claimed by Canarc to Eureka to an aggregate maximum exploration
expenditure of CAD$1.5 million.
| | - | --------------------------------------------------------------------------------------------------------------------------------



62Canarc Resource Corp.Form 20-F





In the second stage, Canarc can
earn an additional 24% interest for a total interest of 75% over the following two years by:

| | - | incurring CAD$1.5 million in exploration expenditures;
| | - | ------------------------------------------------------

| | - | issuing 1.5 million common shares in two annual tranches of 750,000 shares; and
| | - | -------------------------------------------------------------------------------

| | - | paying the greater of: (i) CAD$75,000 and (ii) 50% of the annual BC METC claimed by Canarc to Eureka
to an aggregate maximum exploration expenditure of CAD$1.5 million.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



If Canarc fails to satisfy the consideration
necessary to exercise the second stage, then a joint venture will be deemed to have formed with Canarc having a 51% interest and
Eureka with a 49% interest.





The
FG Gold project is located in the historic Cariboo Gold Camp within the Quesnel Trough area of central British Columbia. Mineralization
occurs as quartz veins and stringer zones containing coarse free gold and finer grained iron sulphides bearing gold in a broad
shear zone conformable to bedding within deformed and metamorphosed Paleozoic sedimentary rocks. The property consists of 33 contiguous
mineral claims totalling 10,400 hectares.



Canarc plans to implement an exploration
program in the summer of 2017, which will consist of diamond drilling on the most advanced prospective targets along the northwest
extension of the main zone and conducting soil sampling, prospecting and mapping to follow up on other highly prospective areas
of the property that have been identified by geophysics work done on the property. Six to eight diamond drill holes measuring 200
to 300 meters each, totaling approximately 2,000 meters, will be drilled into the northwest extension zone and the northwest offset
zone of the main zone. The estimated budget for this exploration program is CAD$500,000.





Mineral Properties Acquired from American Innovative
Minerals, LLC



On February 28, 2017, Canarc entered
into the Letter Agreement with AIM and the AIM Securityholders to acquire either a direct or indirect 100% legal and beneficial
interests in mineral resource properties located in Nevada, Idaho and Utah (USA) for a total purchase price of $2 million. Upon
execution of the Letter Agreement, Canarc deposited $200,000 “in trust” towards the purchase price. The deposit was
only refundable in limited circumstances including where Canarc determined adverse circumstances exist relating to status of title,
material encumbrances, corporate standing, financial conditions, environmental liabilities, and litigation. Canarc had the option
to either acquire AIM or acquire AIM’s interests in the mineral properties. Certain of the mineral properties are subject
to royalties. There was a 30 day due diligence period. The Letter Agreement was to be replaced and superseded by the execution
of a definitive agreement on or before March 31, 2017. On March 20, 2017, Canarc entered into the Membership Interest Purchase
Agreement (the “AIM Agreement”) with the AIM Securityholders to purchase AIM, and closed the AIM Agreement on the same
date.



63Canarc Resource Corp.Form 20-F





AIM owns 10 gold properties in
Nevada of which two properties (Fondaway Canyon and Dixie Comstock) contain historic gold resource estimates, and owns one gold
property in Idaho, and has two royalty interests on other properties. These properties include the following:



| | · | Fondaway Canyonis an advanced exploration
stage gold property located in Churchill County, Nevada. The land package contains 136 unpatented lode claims. The property has
a history of previous surface exploration and mining in the late 1980s and early 1990s. The Fondaway Canyon mineralization is contained
in a series of 12 steeply dipping en-echelonquartz-sulphide shears outcropping at surface and extending laterally over
1200 m, with drill-proven depth extensions to > 400m. Additional exploration targets include near-surface oxide gold along favourable
structural and host rock targets and deeper extensions of the sulphide zones.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Dixie Comstock, also located in Churchill
County, Nevada, consists of 26 unpatented lode claims. It has evidence of some historic mining but no records of production are
available.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Clear Trunk property is located in
Pershing and Humboldt Counties, Nevada on 4500 acres of fee mineral and unpatented claims in the Sonoma Range, south of Winnemucca.
Identified exploration target include breccia pipes and quartz stockwork with untested gold anomalies and untested soil gold anomaly
overlying intrusive host rock.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Bull Run property is located in Elko
County, Nevada on two large patented claim groups of 500 acres near Jerritt Canyon.
| | - | ------------------------------------------------------------------------------------------------------------------------



| | · | Hot Springs Pointproperty is located
inEureka County, Nevada on 160 acres of fee land on north end of the prolific Cortez Trend. Klondex Mining claims surround
the project on three sides.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Jarbidgepropertyis locatedinElko County, Nevada on 8 patented claims along the east end of major gold veins in the Jarbidge mining district.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------



| | · | Lightning Treeproperty is located
inLemhi County, Idaho on 11 unpatented claims near the Musgrove gold deposit.
| | - | ---------------------------------------------------------------------------------------------------------------



| | · | Silver Kingpropertyis located
in Humboldt County, Nevada on 4 patented claims near Golconda Summit. Previous exploration focused on low grade gold values but
the property was never been explored for silver.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



64Canarc Resource Corp.Form 20-F





| | · | A&Tproperty is locatedinHumboldt Co., Nevada on 2 patented claims on Winnemucca Mountain. The property contains two veins and a quartz breccia in altered
shale adjacent to intrusive dikes.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Eimis property is located in Elko
County, Nevada on one 20 acre patented claim adjacent to a new Coleman Canyon gold discovery by Arnevut Resources. Gold anomalies
extend onto Eimis property.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Silver Peak property is located in
Esmeralda County, Nevada on 2 patented (40 acre) mining claims. The property is surrounded by claim blocks held by Scorpio Gold
Corporation at the Mineral Ridge mine.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





Canarc has initiated a comprehensive
review of all the recently acquired Nevada properties to evaluate each property’s potential and to prioritize exploration
plans for each property.



In April 2017, Canarc received
an independent resource estimate for the Fondaway Canyon property located in Churchill County, Nevada. The NI 43-101 technical
report is in process and will be publicly filed in May 2017. The Fondaway Canyon property includes 136 unpatented claims covering
900 hectares.





ITEM 4A.      UNRESOLVED STAFF COMMENTS





Not
applicable.





ITEM 5.      OPERATING AND FINANCIAL REVIEW AND PROSPECTS





Management’s discussion
and analysis in this Item 5 are intended to provide the reader with a review of factors that affected the Registrant’s performance
during the years presented and factors reasonably expected to impact on future operations and results. The following discussion
of the financial condition, changes in financial condition and results of operations of the Registrant for the three fiscal years ended December 31,
2016, 2015 and 2014 should be read in conjunction with the consolidated financial statements of the Registrant and related notes
included therein.



65Canarc Resource Corp.Form 20-F









The Registrant’s consolidated
financial statements are prepared in accordance with IFRS as issued by the IASB, and all dollar amounts are expressed in United
States dollars unless otherwise indicated.



This discussion contains “forward-looking
statements” that are subject to risk factors set out under the heading “Item 3. Key Information – D. Risk Factors”.
See “Cautionary Note Regarding Forward-Looking Statements” above.





5.A      Operating Results





In accordance with IFRS, all costs
related to investments in mineral property interests are capitalized on a property-by-property basis. Such costs include mineral
property acquisition costs and exploration expenditures, net of any recoveries and write-downs.



The Registrant’s ability
to continue as a going concern is dependent on continued financial support from its shareholders and other related parties, the
ability of the Registrant to raise equity financing, and the attainment of profitable operations, external financings and further
share issuances to meet the Registrant’s liabilities as they become payable and for settlement of expenditures.



The Registrant is not aware of
any seasonality in the business that has a material effect upon its financial condition, results of operations or cash flows. The
Registrant is not aware of any changes in the results of its operations that are other than those normally encountered in its ongoing
business.





Fiscal Year 2016– Year ended December 31, 2016 compared with December 31, 2015



Canarc realized a net income of
$6.8 million for the year ended December 31, 2016 as opposed to a net loss of $932,000 for fiscal 2015, with commensurately higher
operating expenses in the current year. Net income (loss) was impacted by different functional expense items. The significant net
income for the current year was primarily attributable to the Sale Transaction with Endeavour for the sale of 100% of its interest
in its wholly owned subsidiary, Oro Silver, in consideration for 2,147,239 free-trading common shares of Endeavour which had a market
price of CAD$3.99 on the closing date of May 27, 2016, and to the changes in fair values of the Endeavour shares during the year.
The disposition of Oro Silver has been presented as a discontinued operation with a reclassification of comparative financial information.



66Canarc Resource Corp.Form 20-F







During the year ended December
31, 2016, Canarc realized a net income of $2 million from continuing operations and net earnings of $4.8 million from discontinued
operations.



Canarc has no sources of operating
revenues. In the past, operating losses were incurred for ongoing activities of Canarc in acquiring and exploring its mineral property
interests, seeking an appropriate joint venture partner to advance the New Polaris property, and pursuing mineral projects of merit.



Amortization was from the equipment
which was acquired in the El Compas project in October 2015 and then sold in May 2016 pursuant to the Sale Transaction with Endeavour
which was applied to net income from discontinued operations in the second quarter.



Corporate development expenses
were higher in the current year than in the prior comparative year. In the first quarter of 2016, negligible efforts were expended
on corporate development as the primary focus was the advancement of the El Compas project which was acquired in October 2015 and
the due diligence of the project by Endeavour, leading to the eventual sale of the project in May 2016. In the remaining quarters
of 2016, project generative efforts were re-initiated to identify projects of merit for acquisition purposes as precious metal
prices continued their upward trends which weakened in the latter part of the third quarter but would assist with reduced valuations
for acquisition purposes. These activities included the engagement of third party consultants to assist and to provide corporate
advisory services to allow greater breadth in seeking projects and financing possibilities for larger scaling of projects given
the current significantly improved financial resources of Canarc from the sale of the El Compas project. Such efforts resulted
in the property option agreement with Eureka for the FG gold project which has measured and indicated resources. In the first and
second quarters of fiscal 2015, efforts were focused on the viability of the Albion process for Canarc’s New Polaris project.
Then in the remaining quarters of fiscal 2015, Canarc focused its due diligence on the El Compas project in Mexico which culminated
in the Share Purchase Agreement with Marlin Gold in October 2015.



Remuneration for employees was
nominally lower in the current year relative to the prior year. Employee remuneration directly related to mineral exploration projects
was allocated to those specific projects rather than to operations, in which Canarc was active in advancing the El Compas project
resulting in a NI 43-101 technical report which provided resource estimates along with a preliminary economic assessment, in seeking
financing to develop the mine and to refurbish the mill/plant, due diligence by Endeavour pursuant to the Sale Transaction, project
generative activities including the FG Gold project, and the IP survey for the Windfall Hills project. Also a senior officer’s
remuneration was increased in the fourth quarter of 2015 which continued into 2016. In the fourth quarter of 2015, Canarc accrued
a severance settlement with a former senior officer and a bonus payable to another senior officer, both of which were paid in 2016.
In June 2016, bonuses were awarded to two senior officers for performance. In the first half of fiscal 2015, Canarc had active
exploration programs for its New Polaris project in terms of assessing the Albion process, arranging concentrates from prior
drill core samples and initiating environmental baseline data collection for environmental permitting, and such expenses were also
allocated to property investigation and project generation efforts as warranted. In the latter half of 2015, Canarc focused on
its due diligence on the El Compas project including its mineral resource estimate and economic assessment.



67Canarc Resource Corp.Form 20-F







General and administrative expenses
were comparable for both fiscal years. Legal fees were higher in 2016 to assist with the ongoing resolution and communication with
PanTerra, and for guidance and review with regulatory disclosure and corporate finance activities affecting the El Compas and FG
Gold projects.



Canarc initiated new shareholder
communications and marketing programs in the first quarter of 2016 as Canarc advanced the El Compas project. These shareholder
commitments had terms of up to 12 months and continued into the subsequent quarters of 2016. Canarc had completed a new resource
estimate and preliminary economic assessment of the El Compas project, signed a lease agreement for the La Plata processing plant
with the Zacatecas government, closed a private placement for CAD$2 million, and entered into an indicative term sheet with a resource
fund for debt financing of up to $10 million as a gold prepaid facility in 2016. In the third quarter of 2016, Canarc retained
a full time consultant to provide corporate development, growth strategy and market presence which ceased at the end of November
2016. Canarc was also active in its participation in various conferences to increase its marketing efforts and profile as Canarc
expanded its portfolio of projects with mineral resources and progressed its exploration programs. These shareholder relations
initiatives would also supplement project generative activities of Canarc. In the fourth quarter of fiscal 2015, shareholder communications
and marketing programs were initiated to specifically create market awareness of Canarc’s due diligence and subsequent acquisition
of the El Compas project.



Share-based payments were higher in the
current year. At the beginning of fiscal 2016, Canarc had 6 million stock options which were subject to vesting provisions as opposed
to 4.9 million stock options at the beginning of fiscal 2015, thereby contributing to higher expense. In the third quarter of 2016,
stock options for 8 million common shares were granted of which 1 million stock options fully vested, 4 million stock options are
subject to various vesting provisions, and 4 million stock options are performance based which performance was not satisfied in
2016. Forfeitures reduced share-based payments due to the resignation of a Director in May 2016 and consultants in August and November
2016. Forfeitures from the voluntary cancellation of stock options by certain directors and officers in May 2015 reduced share-based
payments. In December 2015, Canarc granted 5,950,000 stock options to directors, officers and employees, which were subject to
vesting provisions in which 25% of the options vest immediately on the grant date and 25% vest every six months thereafter, which
would result in a higher expense in subsequent quarters during the vesting periods.



Interest income is earned from Canarc’s
premium investment savings account which is interest bearing, and was higher in the 2016 fiscal year given its substantially more
cash resources from the disposition of Endeavour shares during the year.



Change in the fair value of marketable
securities is attributable to the market price changes in the shares of Endeavour and Eureka. Marketable securities are classified
as held for trading financial assets with any resulting gains or losses in fair values being recognized in profit or loss. Canarc
recognized gains in marketable securities from the increases in the fair values of shares of Endeavour on the date of disposition
of Endeavour shares and from increases in the fair values which increased from CAD$3.99 per share on the closing date of the Sale
Transaction to CAD$4.75 per share on December 30, 2016. Shares of Eureka had a nominal impact whereby Eureka share price decreased
from its subscription price of CAD$0.14 to a closing market price of CAD$0.10 on December 30, 2016. In the fourth quarter of 2016,
Canarc received shares of AzMin whereby shareholders of AzMet received AzMin shares by way of a reduction of AzMet’s paid
up capital pursuant to Section 74 of the British Columbia Business Corporations Act.There are no separately quoted market
values for the AzMet and AzMin shares. The fair values of AzMet shares cannot be reliably determined, and were recorded at cost,
net of any write-downs. AzMin shares were recorded at fair values.



68Canarc Resource Corp.Form 20-F









Canarc recognized a flow-through
financing cost of $4,000 from the tax impact for using the look-back rule in 2015 for the flow-through financing of CAD$400,000
in 2014 and for the tax indemnification for the short fall in the flow-through expenditures thereto.



In 2016, Canarc negotiated a debt
settlement with a creditor at a reduced cash payout amount resulting in the recognition of a gain of $105,000, which debt was paid
in July 2016. Also in 2016, Canarc de-recognized an amount payable to a foreign vendor which has not communicated with Canarc for
collection over the past several years. In September 2015, the shares for debt settlements with certain directors included forgiveness
of directors fees owed, resulting in a gain on debt settlement of $54,000.



Gains or losses from derivative
liability are attributable to the fluctuations in the spot prices for gold for the 55 gold ounces per year which are payable to
Marlin Gold for the El Compas project for total of 165 payable gold ounces (or in U.S. dollar equivalents). Loss from the derivative
liability was recognized in 2016 in discontinued operations as the El Compas project was sold to Endeavour in May 2016. In 2015,
a gain was recognized as the spot price for gold fell, resulting in a reduction in derivative liability.



Foreign exchange gain or loss
reflects the transactional impact in the foreign exchange fluctuations of the US$ relative to the CAD$, as Canarc’s functional
currency is the CAD$ and its reporting or presentation currency is the US$. The first quarter of 2016 foreign exchange was affected
by the translation effects of the Mexican pesos during which time Canarc had the El Compas project in Mexico prior to its sale
to Endeavour in May 2016.



In 2016, Canarc received notice of a
distribution of $10,000 from a bankruptcy estate which funds were received in 2017. This recovery relates to the promissory note
receivable of $275,000 which was written off in 2014 due to uncertain collectability.



A net income of $4.8 million was realized
from discontinued operations from the sale of Canarc’s wholly owned subsidiary, Oro Silver, to Endeavour pursuant to the
Sale Transaction in May 2016. Oro Silver indirectly owns the El Compas project through its Mexican subsidiary. This net income
has been adjusted for the loss from derivative liability which was attributable to the fluctuation in the spot prices for gold
for the 55 gold ounces per year which are payable by Canarc to Marlin Gold over 3 years for the acquisition of the El Compas project
for total of 165 payable gold ounces (or in U.S. dollar equivalents). The gold price per troy ounce increased from $1,062 to $1,216,
the date of closing the Sale Transaction with Endeavour, thereby increasing Canarc’s derivative liability to Marlin Gold
resulting in the loss recognition; Endeavour assumed responsibility for the gold payable ounces to Marlin Gold. The net income
of $4.8 million from discontinued operations (2015 – net loss of $5,000) is comprised of the following:



69Canarc Resource Corp.Form 20-F









|                                               |  |  |                    | December 31,          
|---------------------------------------------- |  |  | ------------------ | ----------------------
|($000s)                                        |  |  |                    | 2016                  
|                                               |  |  |                    |                       
|Amortization                                   |  |  |                    | $                  (2)
|Foreign exchange gain                          |  |  |                    | 5                     
|Legal                                          |  |  |                    | (3)                   
|Office and sundry                              |  |  |                    | (7)                   
|Rent                                           |  |  |                    | (3)                   
|Salaries and management                        |  |  |                    | (13)                  
|Property investigation                         |  |  |                    | (5)                   
|Gain from disposition of subsidiary            |  |  |                    | 4,879                 
|Loss from derivative liability                 |  |  |                    | (25)                  
|Net income (loss) from discontinued operations |  |  | $            4,826 |                       
|                                               |  |  |                    |                       
|                                               |  |  |                    |                       





A net loss of $5,000 for discontinued
operations was recognized for the 2015 comparative year for those expense items related to Oro Silver as disposed in 2016.



As at December 31, 2016, Canarc
has mineral property interests which are comprised of the following:



70Canarc Resource Corp.Form 20-F









|                                          |  | British Columbia (Canada) |                    | Mexico                |  |                         
|----------------------------------------- |  | ------------------------- | ------------------ | --------------------- |  | ------------------------
|($000s)                                   |  | New Polaris               | Windfall Hills     | FG Gold               |  | El Compas               
|                                          |  |                           |                    |                       |  |                         
|                                          |  |                           |                    |                       |  |                         
|Acquisition Costs:                        |  |                           |                    |                       |  |                         
|                                          |  |                           |                    |                       |  |                         
|Balance, December 31, 2014                |  | $            3,876        | $              401 | $                   - |  | $                      -
|Acquisition of subsidiary                 |  | -                         | -                  | -                     |  | 1,120                   
|Additions                                 |  | -                         | 3                  | -                     |  | -                       
|Foreign currency translation adjustment   |  | (25)                      | (65)               | -                     |  | 6                       
|Balance, December 31, 2015                |  | 3,851                     | 339                | -                     |  | 1,126                   
|Additions                                 |  | 2                         | -                  | 19                    |  | -                       
|Disposition of subsidiary                 |  | -                         | -                  | -                     |  | (1,256)                 
|Foreign currency translation adjustment   |  | 5                         | 10                 | -                     |  | 130                     
|Balance, December 31, 2016                |  | $            3,858        | $              349 | $                19   |  | $                      -
|                                          |  |                           |                    |                       |  |                         
|Deferred Exploration Expenditures:        |  |                           |                    |                       |  |                         
|                                          |  |                           |                    |                       |  |                         
|Balance, December 31, 2014                |  | $            7,090        | $              437 | $                   - |  | $                      -
|Additions (recoveries), net of recoveries |  | 23                        | (11)               | -                     |  | 183                     
|Foreign currency translation adjustment   |  | (1,557)                   | (70)               | -                     |  | -                       
|Balance, December 31, 2015                |  | 5,556                     | 356                | -                     |  | 183                     
|Additions, net of recoveries              |  | 12                        | 80                 | 6                     |  | 393                     
|Disposition of subsidiary                 |  | -                         | -                  | -                     |  | (576)                   
|Foreign currency translation adjustment   |  | 249                       | 11                 | -                     |  | -                       
|Balance, December 31, 2016                |  | $            5,817        | $              447 | $                  6  |  | $                      -
|                                          |  |                           |                    |                       |  |                         
|Mineral property interests:               |  |                           |                    |                       |  |                         
|Balance, December 31, 2015                |  | $            9,407        | $              695 | $                   - |  | $               1,309   
|Balance, December 31, 2016                |  | 9,675                     | 796                | 25                    |  | -                       
|                                          |  |                           |                    |                       |  |                         



Fiscal Year 2015– Year ended December 31, 2015 compared with December 31, 2014



Canarc incurred a net loss of
$932,000 for the year ended December 31, 2015 which is lower than the net loss of $1.8 million for fiscal 2014, with commensurately
lower operating expenses in the current period. Net losses were impacted by different functional expense items.



Canarc has no sources of operating
revenues. Operating losses continue to be incurred for ongoing activities of Canarc in acquiring, developing and advancing the
El Compas project, seeking an appropriate joint venture partner to advance the New Polaris property, and pursuing mining projects
of merit.



71Canarc Resource Corp.Form 20-F





Corporate development expenses
were substantially lower in the current fiscal year than in the prior fiscal year. In the first and second quarters of fiscal 2015,
efforts were focused on the viability of the Albion process for Canarc’s New Polaris project. Then in the remaining quarters
of fiscal 2015, Canarc focused its due diligence on the El Compas project in Mexico which culminated in the Share Purchase Agreement
with Marlin Gold in October 2015. Corporate development expenses were higher in the comparable period in fiscal 2014, and were
focused on the La Cieneguita mine properties in Mexico and the Santa Fe mine/mill project in New Mexico; the latter project has
a mine and mill which necessitated more technical due diligence resulting in higher expenses in the third quarter of fiscal 2014.



Remuneration for employees was
lower in the current year relative to the prior year. Employee remuneration directly related to mineral exploration projects was
allocated to those specific projects rather than to operations, in which Canarc had active exploration programs for its New Polaris
project in the current period in terms of assessing the Albion process, arranging concentrates from prior drill core samples and
initiating environmental baseline data collection for environmental permitting, and such expenses were also allocated to property
investigation and project generation efforts as warranted. In the latter half of 2015, Canarc focused on its due diligence on the
El Compas project including its mineral resource estimate and economic assessment. In the fourth quarter of 2015, Canarc accrued
a severance settlement with a former senior officer and a bonus payable to another senior officer. In the first quarter of 2014,
severance settlements for two senior officers contributed to higher employee remuneration along with no active exploration programs
to Canarc’s projects at that time.



General and administrative expenses
were lower for 2015 than for 2014. The principle factor was legal services rendered in 2014 to Canarc in relation to the letter
of intent for the La Cieneguita mine project, TSX delisting review, appointment of a new officer, severance settlements with two
officers, and corporate finance issues relating to its working capital. In 2015, legal services were for assistance to Canarc’s
continuous disclosure obligations. Office and sundry and rent reflect the ongoing expenditures for ancillary office support facilities
which are lower as Canarc reduced its personnel. Regulatory fees were lower in the current period as Canarc was less active in
its corporate finance activities and expiry of the shareholders rights plan in April 2015 and reduced legal fees for its AGM. Relative
to prior periods in 2015, general and administrative expenses would increase nominally subsequent to the acquisition of Oro Silver
in October 2015 for care and maintenance support for the El Compas project in Mexico.



Shareholder activities continued
from commitments from the first half of 2014 with no new shareholder initiatives being implemented in the first half of 2015. In
the fourth quarter of fiscal 2015, shareholder communications and marketing programs were initiated to create market awareness
of Canarc’s due diligence and acquisition of the El Compas project and its progress in advancing and developing the project.
Canarc had initiated and completed a new resource estimate and preliminary economic assessment of the El Compas project, signed
a lease agreement for the La Plata processing plant with the Zacatecas government, and entered into an indicative term sheet with
a resource fund for debt financing of up to $10 million as a gold prepaid facility in 2016. Shareholder relations activities were
heightened in early 2014 for shareholder communications and marketing services principally in Europe to attract a greater breadth
of investor base, to promote new interest in Canarc’s mineral properties, and to create greater awareness of its letter of
intent with Pan American for the La Cieneguita mine project at that time. Such activities provided the catalyst for Canarc to close
equity financings of CAD$3.26 million with a geographically diverse group of overseas shareholders in 2014 and CAD$790,000 in 2015
and CAD$2.04 million in March 2016.



72Canarc Resource Corp.Form 20-F





Share-based payments were higher in the
fourth quarter of fiscal 2015 but remain comparatively lower in fiscal 2015 than in the prior fiscal year. At the beginning of
fiscal 2015, Canarc had 4.9 million stock options which were subject to vesting provisions as opposed to 2.5 million unvested stock
options at the beginning of fiscal 2014 which resulted in a comparatively higher expense in the first two quarters of 2015. In
May 2015, certain directors and officers of Canarc cancelled 3,360,000 stock options with exercise prices ranging from CAD$0.10
to CAD$0.145 and expiry dates from September 2015 to June 2017. The retirement of a director in June 2015 resulted in forfeitures.
Then in December 2015, Canarc granted 5,950,000 stock options to directors, officers and employees with an exercise price of CAD$0.06
and an expiry date of December 8, 2020, and which are subject to vesting provisions in which 25% of the options vest immediately
on the grant date and 25% vest every six months thereafter, which contributed to a higher expense in the fourth quarter. The forfeitures
of stock options in January 2014 and April 2014 due to the retirement of two senior officers reduced share-based payments. In July
2014, Canarc granted 4,050,000 stock options with an exercise price of CAD$0.10 and an expiry date of July 17, 2019, and which
were subject to vesting provisions in which 20% of the options vest immediately on the grant date and 20% vest every six months
thereafter, which contributed to the higher expense in the third quarter of fiscal 2014. Also the 105,000 stock options which were
granted in June 2012 with an exercise price of CAD$0.145 and an expiry date of June 18, 2017 which will only vest when Canarc consummates
a major transaction or at the discretion of its Board of Directors have vested in December 2015.



Interest income is realized from
Canarc’s premium investment savings account which is cashable at any time.



Canarc recognized a flow-through
financing cost of $4,000 from the tax impact for using the look-back rule in 2015 for the flow-through financing of CAD$400,000
in 2014 and for the tax indemnification for the short fall in the flow-through expenditures thereto.



In September 2015, the shares
for debt settlements with certain directors included forgiveness of directors fees owed, resulting in a gain on debt settlement
of $54,000.



The gain in derivative liability
is attributable to the fluctuation in the spot prices for gold for the 55 gold ounces per year which are payable by Canarc to Marlin
Gold over 3 years for the acquisition of the El Compas project for total of 165 payable gold ounces (or in U.S. dollar equivalents).



Interest expense in 2014 was attributable
to the demand loans. Canarc repaid all principal and interest in full settlement of outstanding demand loans in January 2014. Canarc
has no outstanding demand loans in 2015.



Foreign exchange gain or loss
reflects the transactional impact in the foreign exchange fluctuations of the US$ relative to the CAD$, and not attributable to
translation effects, as Canarc’s functional currency is the CAD$ and its reporting or presentation currency is the US$.



73Canarc Resource Corp.Form 20-F







The write-offs of promissory notes
receivable of $275,000 in 2014 were for promissory notes and loans advanced and owed to Canarc in 2014 which were determined to
be uncollectible.



As at December 31, 2015, Canarc
had mineral property interests which were comprised of the following:





|                                        |  | British Columbia (Canada) |                       | Mexico |                        | 
|--------------------------------------- |  | ------------------------- | --------------------- | ------ | ---------------------- | 
|($000s)                                 |  | New Polaris               | Windfall Hills        |        | El Compas              | 
|                                        |  |                           |                       |        |                        | 
|                                        |  |                           |                       |        |                        | 
|Acquisition Costs:                      |  |                           |                       |        |                        | 
|                                        |  |                           |                       |        |                        | 
|Balance, December 31, 2013              |  | $              3,892      | $                408  |        | $                    - | 
|Additions                               |  | -                         | 27                    |        | -                      | 
|Foreign currency translation adjustment |  | (16)                      | (34)                  |        | -                      | 
|Balance, December 31, 2014              |  | 3,876                     | 401                   |        | -                      | 
|Acquisition of Oro Silver               |  | -                         | -                     |        | 1,120                  | 
|Additions                               |  | -                         | 3                     |        | -                      | 
|Foreign currency translation adjustment |  | (25)                      | (65)                  |        | 6                      | 
|Balance, December 31, 2015              |  | $              3,851      | $                339  |        | $             1,126    | 
|                                        |  |                           |                       |        |                        | 
|Deferred Exploration Expenditures:      |  |                           |                       |        |                        | 
|                                        |  |                           |                       |        |                        | 
|Balance, December 31, 2013              |  | $              7,938      | $                  92 |        | $                    - | 
|Additions, net of recoveries            |  | 23                        | 352                   |        | -                      | 
|Foreign currency translation adjustment |  | (871)                     | (7)                   |        | -                      | 
|Balance, December 31, 2014              |  | 7,090                     | 437                   |        | -                      | 
|Additions, net of recoveries            |  | 23                        | (11)                  |        | 183                    | 
|Foreign currency translation adjustment |  | (1,557)                   | (70)                  |        | -                      | 
|Balance, December 31, 2015              |  | $              5,556      | $                356  |        | $                183   | 
|                                        |  |                           |                       |        |                        | 
|Mineral property interests:             |  |                           |                       |        |                        | 
|Balance, December 31, 2014              |  | $            10,966       | $                838  |        | $                    - | 
|Balance, December 31, 2015              |  | 9,407                     | 695                   |        | 1,309                  | 
|                                        |  |                           |                       |        |                        | 



Environmental Liabilities



The Registrant’s policy
is to maintain all operations at North American standards, notwithstanding that certain of the countries within which it may operate
may not yet have fully developed such standards in respect to environmental concerns. In accordance with government requirements
in Canada, refundable deposits of CAD$250,000 have been placed with regulatory agencies in respect to the Registrant’s
New Polaris gold property in British Columbia. There are no known environmental contingencies in respect to these or any of the
other Registrant’s mineral property interests.



74Canarc Resource Corp.Form 20-F







Critical Accounting Policies



For the Registrant’s exploration
activities, there is no product, sales or inventory in the conventional sense. The recoverability of costs capitalized to mineral
property interests and the Registrant’s future financial success are dependent upon the extent to which it can discover mineralization
and the economic viability of advancing such mineral property interests beyond the exploration stage. Such activities may take
years to complete and the amount of resulting income, if any, is difficult to determine with any certainty. Many of the key factors
are outside of the Registrant’s control. The sales value of any mineralization discovered by the Registrant is largely dependent
upon factors beyond the Registrant’s control such as the market value of the metals.



As the carrying value and amortization
of mineral property interests and capital assets are, in part, related to the Registrant’s mineral reserves, the estimation
of such reserves is significant to the Registrant’s position and results of operations. As of the date of this annual report,
the Registrant has not established any reserves on its mineral property interests.



In accordance with an acceptable
accounting policy under IFRS, all costs related to investments in mineral property interests are capitalized on a property-by-property
basis. Such costs include mineral property acquisition costs and exploration and development expenditures, net of any recoveries.
The costs related to a mineral property interest from which there is production, together with the costs of mining equipment, will
be amortized using the unit-of-production method. When there is little prospect of further work on a mineral property interest
being carried out by the Registrant or its partners or when a property interest is abandoned or when the capitalized costs are
not considered to be economically recoverable, the related mineral property costs are written down to the amount recoverable. The
amounts for mineral property interests as shown in the Registrant’s consolidated financial statements represent costs incurred
to date, less write-downs and any recoveries, and are not intended to reflect present or future values.



The Registrant accounts for share-based
payments using a fair value-based method with respect to all stock-based payments to directors, officers, employees and non-employees.
Share-based payments to employees are measured at the fair value of the instruments issued and amortized over the vesting periods.
Share-based payments to non-employees are measured at the fair value of the goods or services received or the fair value of the
equity instruments issued, if it is determined the fair value of the goods or services cannot be reliably measured, and are recorded
at the date the goods or services are received. The offset to the recorded cost is to the reserve for share-based payments. Consideration
received on the exercise of stock options is recorded as share capital and the related reserve for share-based payments is transferred
to share capital. Upon expiry, the recorded fair value is transferred from reserve for share-based payments to deficit.



75Canarc Resource Corp.Form 20-F







5.B      Liquidity and Capital Resources



The Registrant is in the exploration
stage and has not yet determined whether its mineral property interests contain reserves. The recoverability of amounts capitalized
for mineral property interests is entirely dependent upon the existence of reserves, the ability of the Registrant to obtain the
necessary financing to complete the development and upon future profitable production. The Registrant knows of no trends, demands,
commitments, events or uncertainties that may result in the Registrant’s liquidity either materially increasing or decreasing
at the present time or in the foreseeable future. Material increases or decreases in the Registrant’s liquidity are substantially
determined by the success or failure of the Registrant’s exploration programs and overall market conditions for smaller mineral
exploration companies. Since its incorporation in 1987, the Registrant has endeavoured to secure mineral property interests that
in due course could be brought into production to provide the Registrant with cash flow which would be used to undertake work programs
on other projects. To that end, the Registrant has expended its funds on mineral property interests that it believes have the potential
to achieve cash flow within a reasonable time frame. As a result, the Registrant has incurred losses during each of its fiscal
years since incorporation. This result is typical of smaller exploration companies and will continue unless positive cash flow
is achieved.



The following table contains
selected financial information of Canarc’s liquidity:



|                             | December 31,      
|---------------------------- | ------------------
|($000s)                      | 2016              
|                             |                   
|Cash                         | $            8,079
|Working capital (deficiency) | 9,075             
|                             |                   



Canarc has no sources of operating
revenues, and ongoing operating expenses continue to reduce its cash resources and working capital. Operating losses continued
to be incurred for ongoing activities of Canarc in seeking an appropriate joint venture partner for the New Polaris property, in
exploring the Windfall Hills, FG Gold and AIM properties, and in pursuing new projects of merit.



Based on Canarc’s available
cash and working capital, Canarc anticipates it will be able to continue its current plan of operations and exploration programs
for at least the next 12 months without having to seek additional financing or cut-back on planned operations. Additional financing
will be sough through private and public equity financings or debt financings if available to Canarc at acceptable terms in the
interests of the shareholders and Canarc.]



76Canarc Resource Corp.Form 20-F





On January 31, 2014, Canarc closed a
private placement for 18 million units at a price of CAD$0.05 per unit for gross proceeds of CAD$900,000 with each unit was comprised
of one common share and one-half of a whole common share purchase warrant; each whole warrant is exercisable to acquire one common
share at an exercise price of CAD$0.10 per share until January 31, 2016. Finder’s fees of CAD$22,500 were paid for the private
placement.



In March and April 2014, Canarc closed
a private placement in two tranches totalling 19.6 million units at a price of CAD$0.10 per unit for gross proceeds of CAD$1.96
million with each unit comprised of one common share and one-half of a whole common share purchase warrant; each whole warrant
is exercisable to acquire one common share at an exercise price of CAD$0.15 per share for a three year period. On March 18, 2014,
Canarc closed the first tranche for 10.6 million units for CAD$1.06 million, and paid CAD$66,170 in cash and issued 661,718 in
warrants as finders’ fees. On April 3, 2014, Canarc closed the second tranche for 9 million units for CAD$900,000, and paid
CAD$6,070 in cash and issued 60,725 in warrants as finders’ fees. The finders’ fee warrants have the same terms as
the underlying warrants in the unit private placement.



On July 9, 2014, Canarc closed a private
placement for 5 million units at CAD$0.08 per unit for gross proceeds of CAD$400,000 with each unit comprised of one flow-through
common share and one-half of a whole common share purchase warrant; each whole warrant is exercisable to acquire one non-flow through
common share at an exercise price of CAD$0.15 per share until July 9, 2016. Funds of CAD$386,000 were expended for flow-through
purposes in 2014 and 2015.



In October 2014, Canarc received
358,000 shares from AzMet in settlement of debt owed to Canarc which Canarc had written off in 2013.



On February 24, 2015, Canarc entered
into a Pre-Development and Earn-In Binding Agreement with PanTerra. PanTerra had a 30-month option to earn a 50% interest in Canarc’s
New Polaris project by spending a total of CAD$10 million in three stages of predevelopment activities including metallurgical
test work, drilling, detailed mine planning, tailings dam design, environmental permitting, and completion of a definitive feasibility
study. In August 2015, PanTerra informed Canarc that it will not be able to commit to further expenditures to commence Stage Two
exploration and permitting work on Canarc’s New Polaris project until PanTerra received the approval from the Dominican Republic
government for importing New Polaris gold concentrate into the country for processing and PanTerra requested a 12 month extension
of the Earn-In Agreement. PanTerra declared a force majeure event under the terms of the Earn-In Agreement. In September 2016,
PanTerra provided 30-day notice of its intent to withdraw from the first option of the agreement, which agreement was effectively
terminated on October 22, 2016. Items 4.A and 4.D provide further details.



In May 2015, certain directors and officers
of Canarc cancelled 3,360,000 stock options with exercise prices ranging from CAD$0.10 to CAD$0.145 and expiry dates from September
2015 to June 2017.



In August 2015, Canarc extended the expiry
period of a total of 18.6 million warrants by a period of 18 months which were issued pursuant to two private placements which
closed in 2014. Expiry dates for 951,250 warrants which were issued to insiders in those private placements were not extended.
Material terms of the extended warrants are as follows:



|Number of Warrants | Exercise Price | Original Grant Date | Original Expiry Date | New Expiry Date   
|------------------ | -------------- | ------------------- | -------------------- | ------------------
|8,450,000          | $0.10          | January 31, 2014    | January 31, 2016     | July 31, 2017     
|5,915,773          | $0.15          | March 18, 2014      | March 18, 2017       | September 18, 2018
|4,214,475          | $0.15          | April 3, 2014       | April 3, 2017        | October 3, 2018   
|18,580,248         | Total         





77Canarc Resource Corp.Form 20-F









In September and October 2015, Canarc
closed a non-brokered private placement in two tranches totalling 13.2 million units at a price of CAD$0.06 per unit for gross
proceeds of CAD$790,000, with each unit comprised of one common share and one-half of one common share purchase warrant; each whole
warrant is exercisable to acquire one common share at an exercise price of CAD$0.08 per share for a three year period. On September
21, 2015, Canarc closed the first tranche of the private placement for 11.5 million units at a price of CAD$0.06 per unit for gross
proceeds of CAD$690,000. Canarc paid CAD$36,200 in cash and issued 594,844 in warrants as finders’ fees. The finders’
fee warrants have the same terms as the underlying warrants in the unit private placement. On October 30, 2015, Canarc closed the
second tranche of the private placement for 1.67 million units at a price of CAD$0.06 per unit for gross proceeds of CAD$100,000
with Marlin Gold.



On September 24, 2015, Canarc issued
2 million shares at a value of CAD$0.07 in settlement of partial salaries owed to certain officers and fees owed to directors in
which the latter also forgave a certain portion of outstanding directors fees owed, resulting in a gain on debt settlement of $54,000.



On
October 8, 2015, Canarc entered into the Share Purchase Agreement with Marlin Gold which closed on October 30, 2015 whereby Canarc
issued 19 million common shares at a value of CAD$0.07 per share to Marlin Gold to acquire a 100% interest in Marlin Gold’s
wholly-owned subsidiary, Oro Silver, which owns the El Compas project through its wholly-owned Mexican subsidiary, Minera Oro Silver.



In March 2016, Canarc closed a
private placement in two tranches totalling 22.7 million units at a price of CAD$0.09 per unit for gross proceeds of CAD$2.04 million
with each unit comprised of one common share and one-half of one common share purchase warrant; each whole warrant is exercisable
to acquire one common share at an exercise price of CAD$0.12 per share for a period of three years. On March 3, 2016, Canarc closed
the first tranche for 17.7 million units for gross proceeds of CAD$1.59 million. On March 14, 2016, Canarc closed the second tranche
for 5 million units for gross proceeds of CAD$449,500 with a finder’s fee of 311,111 units issued with the same terms as
the units in the private placement.



In March 2016, Canarc entered
into an indicative term sheet for up to $10 million in debt financing by way of a gold prepaid facility to develop the El Compas
gold-silver project subject to a 60 day due diligence period which did not advance due to the subsequent sale of the project to
Endeavour in May 2016.



The Sale Transaction with Endeavour
closed on May 27, 2016 at which time Canarc received 2,147,239 free-trading common shares of Endeavour with a fair value of CAD$3.99
per share at that date. During 2016, Canarc realized proceeds of CAD$11.6 million from the disposition of 1.9 million
common shares of Endeavour, and its investment in Endeavour common shares had a fair value of CAD$1.1 million at December 31, 2016.



78Canarc Resource Corp.Form 20-F









In September 2016, Canarc issued
250,000 common shares at a value of CAD$0.10 per share to Eureka for the FG gold property, and invested CAD$105,000 for 750,000
units of Eureka comprised of 750,000 common shares and 375,000 warrants. Canarc’s investment in Eureka common shares had
a fair value of CAD$75,000 at December 31, 2016.



During 2016, warrants for 1.31
million shares were exercised for proceeds of CAD$104,700 which included finder fee warrants for 58,333 shares with a fair value
of US$2,000. In 2016, stock options for 1 million shares were exercised for proceeds of CAD$80,000 with fair values of US$54,300.



At December 31, 2016, to maintain
its interest and/or to fully exercise the options under various property agreements covering its property interests, Canarc must
incur exploration expenditures on the properties and/or make payments in the form of cash and/or shares to the optionors as follows:



79Canarc Resource Corp.Form 20-F









|                                            | Cash                                                   | Exploration                          | Number of
|------------------------------------------- | ------------------------------------------------------ | ------------------------------------ | ---------
|                                            | Payments                                               | Expenditures                         | Shares   
|                                            | (CAD$000)                                              | (CAD$000)                            |          
|                                            |                                                        |                                      |          
|New Polaris:                                |                                                        |                                      |          
|Net profit interest reduction or buydown(1) | $                                                    - | $                                  - | 150,000  
|                                            |                                                        |                                      |          
|FG Gold:                                    |                                                        |                                      |          
|(i) Stage One:                              |                                                        |                                      |          
|By December 31:                             |                                                        |                                      |          
|2017                                        | 50% of BC METC(2)                                      | 491                                  | -        
|2018                                        | 50% of BC METC(2)                                      | 500                                  | -        
|2019                                        | 50% of BC METC(2)                                      | 500                                  | -        
|2020                                        | 50% of BC METC(2)                                      | -                                    | -        
|On or before September 9:                   |                                                        |                                      |          
|2017                                        | -                                                      | -                                    | 250,000  
|2018                                        | -                                                      | -                                    | 250,000  
|2019                                        | -                                                      | -                                    | 250,000  
|(ii) Stage Two:                             |                                                        |                                      |          
|By December 31:                             |                                                        |                                      |          
|2021                                        | Greater of (2):(i) CAD$75,000 and(ii) 50% of BC METC   | -                                    | -        
|2022                                        | Greater of (2):(i) CAD$75,000 and(ii) 50% of BC METC   | -                                    | -        
|On or before September 9:                   |                                                        |                                      |          
|2020                                        | -                                                      | -                                    | 750,000  
|2021                                        | -                                                      | 1,500                                | 750,000  
|                                            |                                                        |                                      |          
|                                            |                                                        | $                        2,991       | 2,400,000





| | (1) | The 15% net profit interest may be reduced to a 10% net profit interest within one year of commercial
production by issuing 150,000 common shares. Items 4.A and 4.D provide further details.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Maximum aggregate exploration expenditures for BC METC payable to Eureka are CAD$1.5 million for each
of Stage One and Stage Two. Items 4.A and 4.D provide further details.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



These amounts may be reduced in
the future as Canarc determines which properties to continue to explore and which to abandon.



Canarc has entered into a number
of option agreements for mineral property interests that involve payments in the form of cash and/or shares of Canarc as well as
minimum exploration expenditure requirements. Under Item 5.F, further details of contractual obligations are provided as at December
31, 2016.



80Canarc Resource Corp.Form 20-F







In February 2017, Canarc received
regulatory approval for a normal course issuer bid to acquire up to 10.9 million its common shares, representing approximately
up to 5% of its issued and outstanding common shares at that time. The bid commenced on February 8, 2017 and will terminate on
February 7, 2018, or on such earlier date as the bid is complete. The actual number of common shares purchased under the bid and
the timing of any such purchases will be at Canarc’s discretion. Purchases under the bid shall not exceed 86,128 common shares
per day. Canarc will pay the prevailing market price at the time of purchase for all common shares purchased under the bid, and
all common shares purchased by Canarc will be returned to treasury and cancelled. As at April 21, 2017, Canarc had purchased an
aggregate of 380,000 common shares for an aggregate purchase price of CAD$34,250, resulting in an average price of CAD$0.09 per
share, and the cancellation of such shares will be completed in due course.



In March 2017, Canarc paid $2
million to acquire AIM for 100% legal and beneficial interests in mineral exploration properties located in Nevada, Idaho and Utah
(USA).



In
March 2017, stock options for 500,000 common shares were cancelled for the exercise of share appreciation rights for 272,727 common
shares.



In
April 2017, Canarc disposed of 300,000 shares of AzMin at a price of CAD$0.32 per share for proceeds of CAD$96,000.



In
April 2017, Canarc closed a private placement for 3.8 million flow through common shares at a price of CAD$0.13 per share for gross
proceeds of CAD$500,000. Finders fees include 6.5% cash and 6.5% finders fee warrants; each finder fee warrant is exercisable to
acquire one non-flow through common share at an exercise price of CAD$0.15 and has an expiry date of April 21, 2019.





Canarc’s ability to continue
as a going concern is dependent on the ability of Canarc to raise debt or equity financings, and the attainment of profitable operations.
Management would need to raise the necessary capital to meet its planned business objectives.



Canarc will continue to rely upon
debt and equity financings as its principal source of financing its projects and its ongoing working capital needs.





81Canarc Resource Corp.Form 20-F





5.C      Research and Development, Patents
and Licenses, etc.



The Registrant does not currently
carry out research and development activities.



Items 4.A, 4.D, 5.A and 5.F provide
details of the Registrant’s mineral property interests, exploration activities, acquisitions and write-downs.





5.D      Trend Information



The Registrant knows of no trends,
demand, commitments, events or uncertainties that are reasonably likely to have a material effect on the Registrant’s net
sales or revenues, income from continuing operations, profitability, liquidity or capital resources or that would cause financial
information not necessarily to be indicative of future operating results or financial condition, other than disclosed or inferred
in this Form 20-F.



The Registrant currently has no
active business operations that would be affected by recent trends in productions, sales, etc. The Registrant has no material net
sales or revenues that would be affected by recent trends other than the general effect of mineral prices on its ability to raise
capital and those other general economic items as set out in Item 3.D.





5.E      Off-Balance Sheet Arrangements



There are no known significant
or material off-balance sheet arrangements other than those disclosed in this Form 20-F and in the Registrant’s audited consolidated
financial statements for the years ended December 31, 2016, 2015 and 2014.





Shareholder Rights Plan



On May 31, 2005, the shareholders
of the Registrant approved a shareholder rights plan (the “Plan”), that became effective on April 30, 2005. The Plan
was intended to ensure that any entity seeking to acquire control of the Registrant made an offer that represented fair value to
all shareholders and provided the board of directors with sufficient time to assess and evaluate the offer, to permit competing bids to emerge,
and, as appropriate, to explore and develop alternatives to maximize value for shareholders. Under the Plan, each shareholder at
the time of the Plan’s adoption was issued one Right for each common share of the Registrant held. Each Right entitled the
registered holder thereof, except for certain “Acquiring Persons” (as defined in the Plan), to purchase from treasury
one common share at a 50% discount to the prevailing market price, subject to certain adjustments intended to prevent dilution.
The Rights were exercisable after the occurrence of specified events set out in the Plan generally related to when a person, together
with affiliated or associated persons, acquired, or made a take-over bid to acquire, beneficial ownership of 20% or more of the
outstanding common shares of the Registrant. The Rights expired on April 30, 2015. Item 10.B provides further details.

82Canarc Resource Corp.Form 20-F







Share Appreciation Rights



At the discretion of the Board,
certain stock option grants provide the stock option holder the right to receive the number of common shares, valued at the quoted
market price at the time of exercise of the stock options, that represent the share appreciation since granting the stock options.





5.F      Tabular Disclosure of Contractual
Obligations



As the Registrant performs exploration
on its mineral property interests, it decides which ones to proceed with and which ones to abandon. Accordingly, the minimum expenditure
commitments are reduced as the Registrant narrows its interests. To fully exercise the options under various agreements for the
acquisition of interests in properties located in Canada and Mexico, the Registrant must incur exploration expenditures on the
properties and make payments to the optionors as follows as at December 31, 2016:



83Canarc Resource Corp.Form 20-F









|                                             |  | Cash Payments due by Period |                           | Exploration Expenditures Incurred by Period |                           | Number of Common Shares  
|-------------------------------------------- |  | --------------------------- | ------------------------- | ------------------------------------------- | ------------------------- | -------------------------
|                                             |  |                             |                           | (CAD$000s)                                  |                           |                          
|                                             |  |                             | Less                      |                                             |                           | More                     
|                                             |  |                             | than                      |                                             |                           | than                     
|                                             |  | Total                       | 1 year                    | 1-3 years                                   | 3-5 years                 | 5 years                  
|                                             |  |                             |                           |                                             |                           |                          
|New Polaris:                                 |  |                             |                           |                                             |                           |                          
|Net profit interest reduction or buydown (1) |  | $        -                  | $        -                | $        -                                  | $        -                | $        -               
|                                             |  |                             |                           |                                             |                           |                          
|FG Gold:                                     |  |                             |                           |                                             |                           |                          
|Stage One                                    |  | Refer to (2) and (4)        | Refer to (2) and (4)      | Refer to (2) and (4)                        | Refer to (2) and (4)      | $        -               
|Stage Two                                    |  | Refer to (3) and (4)        | $        -                | $        -                                  | Refer to (3) and (4)      | Refer to (3) and (4)     
|                                             |  |                             |                           |                                             |                           |                          
|Total                                        |  | Refer to (2), (3) and (4)   | Refer to (2), (3) and (4) | Refer to (2), (3) and (4)                   | Refer to (2), (3) and (4) | Refer to (2), (3) and (4)



| | (1) | The 15% net profit interest may be reduced to a 10% net profit interest within one year of commercial
production by issuing 150,000 common shares.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | 50% of BC METC. Maximum aggregate exploration expenditures for BC METC payable to Eureka is CAD$1.5
million for each of Stage One and Stage Two.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Greater of:
| | --- | -----------

| | (i) | CAD$75,000 and
| | --- | --------------

| | (ii) | 50% of BC METC
| | ---- | --------------



Maximum aggregate
exploration expenditures for BC METC payable to Eureka is CAD$1.5 million for each of Stage One and Stage Two.



| | (4) | Maximum aggregate exploration expenditures for BC METC payable to Eureka is CAD$1.5 million for each
of Stage One and Stage Two.
| | --- | --------------------------------------------------------------------------------------------------------------------------------





84Canarc Resource Corp.Form 20-F





These amounts may be reduced in
the future as the Registrant determines which properties continue to be of merit and abandons those with which it does not intend
to proceed. Items 4.A, 4.D and 5.B provide further details.





In February 2017, the Company
entered into an office lease arrangement for a term of five years with a commencement date of August 1, 2017. The basic rent per
year is CAD$46,000 for years 1 to 3 and CAD$48,000 for years 4 to 5. Effective August 1, 2017, the Company is committed to the
following payments for base rent at its corporate head office in Vancouver, BC, as follows:



|      |  | Amount            
|----- |  | ------------------
|      |  | (CAD$)            
|Year: |  |                   
|2017  |  | $               19
|2018  |  | 46                
|2019  |  | 46                
|2020  |  | 47                
|2021  |  | 48                
|2022  |  | 28                
|      |  |                   
|      |  | $             234 





5.G      Safe Harbor



This
document may contain forward-looking statements. See “Caution – Forward-Looking Statements” at the beginning
of this annual report. The Registrant desires to take advantage of the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 and is including this statement for the express purpose of availing itself of the protections of the safe harbor
with respect to all forward-looking statements. Several important factors, in addition to the specific factors discussed in connection
with such forward-looking statements individually, could affect the future results of the Registrant and could cause those results
to differ materially from those expressed in the forward-looking statements contained herein.



The Registrant’s estimated
or anticipated future results or other non-historical facts are forward-looking and reflect the Registrant’s current perspective
of existing trends and information. These statements involve risks and uncertainties that cannot be predicted or quantified, and
consequently actual results may differ materially from those expressed or implied by such forward-looking statements. Such risks
and uncertainties include, among others:



85Canarc Resource Corp.Form 20-F





| | · | risks related to our exploration and development activities;
| | - | ------------------------------------------------------------

| | · | risks related to the ongoing financing of our planned operations;
| | - | -----------------------------------------------------------------

| | · | risks related estimates of mineral deposits;
| | - | --------------------------------------------

| | · | risks related to fluctuations in mineral prices;
| | - | ------------------------------------------------

| | · | risks related to the title of our properties;
| | - | ---------------------------------------------

| | · | risks related to the highly competitive mineral exploration and mining
industry;
| | - | --------------------------------------------------------------------------------

| | · | risks related to potential conflicts of interest with our officers
and directors;
| | - | ---------------------------------------------------------------------------------

| | · | risks related to environmental and regulatory requirements;
| | - | -----------------------------------------------------------

| | · | risks related to foreign currency fluctuations;
| | - | -----------------------------------------------

| | · | risks related to the Registrant’s possible status as a passive
foreign investment company;
| | - | ------------------------------------------------------------------------------------------

| | · | risks related to the volatility of the Registrant’s common
stock; and
| | - | ---------------------------------------------------------------------

| | · | risks related to the possible dilution of the Registrant’s
common stock,
| | - | ------------------------------------------------------------------------



as well as other risks and uncertainties
detailed in this annual report and from time to time in the Registrant’s other SEC filings.



Therefore, the Registrant cautions
each reader of this document to consider carefully these factors as well as the specific factors that may be discussed with each
forward-looking statement in this document or disclosed in the Registrant’s filings with the SEC as such factors, in some
cases, could affect the ability of the Registrant to implement its business strategy and may cause actual results to differ materially
from those contemplated by the statements expressed therein. Forward-looking statements are subject to a variety of risks and uncertainties
including, but not limited to, the risks referred under the section “Risk Factors” under Item 3.D above.





ITEM 6.      DIRECTORS, SENIOR MANAGEMENT
AND EMPLOYEES





6.A      Directors and Senior Management



In accordance with the provisions
of the Business Corporations Act (British Columbia) the overall control of the business and affairs of the Registrant is
vested in its board of directors. The board of directors of the Registrant currently consists of four members elected by the shareholders
of the Registrant at each annual meeting of shareholders of the Registrant.

86Canarc Resource Corp.Form 20-F







The directors and senior management
of Canarc as of April 21, 2017 are:



|Name
        and
        Province/State
        and Country of Residence | Principal
        Occupation and Occupation during the Past 5 Years (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | Current
        Position with the Registrant and Period of Service                                                                                       
|------------------------------------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|COOKE,
        Bradford
        British Columbia,
        Canada         | Chairman and Director
        of Canarc Resource Corp.
        (since January
        22, 1987);
        Chief Executive
        Officer
        (from January
        22, 1987 to January 13, 2014);
        President of Canarc
        Resource Corp.
        (from January 22,
        1987 to January 1, 2006);
        Chief Executive
        Officer and Director of Endeavour Silver Corp.
        (since July 25,
        2002).                                                                                                                                                                                                                                                                      | Chairman and Director
        of Canarc Resource Corp.
        (since January
        22, 1987)                                                          
|MALHOTRA, Deepak(2)
        Colorada, USA                                | President of Resource Development Inc.
        (since June 1993)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | Director
        (since June 29,
        2015)                                                                                                           
|BURIAN, Martin (2)
        British Columbia,
        Canada              | Chief Financial Officer of Heffel Fine Art Auction
        House (since April 2016);
        Chief Financial Officer of ML Gold Ltd. (formerly,
        Cap-Ex Iron Ore Ltd. (since July 11, 2013);
        Director and Chief Financial Officer of Tinkerine Studio
        Ltd. (from Feb. 2014 to Feb. 2016);
        Managing Director of Investment Banking for Haywood
        Securities Inc. (from Nov. 2010 to May 2013);
        President (from July 2009 to Oct. 2010) and Vice-President
        Corporate Finance (from July 2005 to July 2009) of Bolder Investment Partners                                                                                                                     | Director
        (since November
        1, 2013)                                                                                                        
|HARRIS, Leonard (2)
        Colorado, USA.                               | Retired                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | Director
        (since June 5,
        2001)                                                                                                            
|CHILOFLISCHI,
        Catalin
        British Columbia,
        Canada   | Director of Corporate Communications for Aurcana Corporation
        (from September 2012 to December 2013);
        Manager/Director of Investor Communications for Selwyn
        Resources Corp.
        (from July 2010 to September 2012);
        Senior Analyst for Northwest & Ethical Investments
        (from August 2004 to July 2010)                                                                                                                                                                                                                                                                                                                                                              | Chief Executive
        Officer
        (since January
        13, 2014)                                                                                 
|BILES, Garry
        British Columbia,
        Canada                    | Vice-President,
        Mining, of Canarc Resource Corp.
        (from March 1,
        2007 to May 31, 2008);
        General Manager of Glencairn Gold Corp.
        (from April 2005 to January 2007)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | President and
        Chief Operating Officer
        (since June 1,
        2008)                                                                       
|YEE, Philip
        British Columbia,
        Canada                     | Chief Financial
        Officer and Vice-President (Finance) of Aztec Minerals Corp.
        (since July 2016);
        Chief Financial
        Officer, Vice-President (Finance) and Director of Caza Gold Corp.
        (from November
        2007 to February 2017);
        Chief Financial
        Officer and Vice-President (Finance) of Parallel Resources Ltd.
        (from November
        2009 to October 2011);
        Finance Manager
        and/or Controller for Canarc Resource Corp.
        (from May 2003
        to June 2005);
        Chief Financial
        Officer, Finance Manager and/or Controller for Endeavour Silver Corp.
        (from May 2003
        to February 2007) | Chief Financial
        Officer and Vice-President (Finance)
        (since June 2005);
        Secretary (Interim)
        (since December
        2015)





87Canarc Resource Corp.Form 20-F







| | (1) | Unless otherwise stated above, each of the above-named persons has held the principal occupation
or employment indicated for at least five years.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Members of the Audit Committee.
| | --- | -------------------------------





No director or officer has any
family relationship with any other director or officer. The term of office of each of the directors will continue until the next
annual general meeting, or until his successor is duly elected, unless his office is vacated in accordance with the articles of
the Registrant. Officers hold office at the pleasure of the directors.



To the best of the Registrant’s
knowledge, there are no arrangements or understandings with major shareholders, customers, suppliers or others, pursuant to which
any of the Registrant’s officers or directors was selected as an officer or director of the Registrant, other than as disclosed
in this Form 20-F.



88Canarc Resource Corp.Form 20-F







6.B      Compensation





Statement of Executive
Compensation



The
Registrant 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 to the Registrant's
directors and officers that has been disclosed to the Registrant’s shareholders under applicable Canadian law.



During
the fiscal period ended December 31, 2016, the aggregate compensation incurred by the Registrant to all individuals who were directors
and officers, at the time of their remuneration, in all capacities as a group was CAD$620,400 of which CAD$45,000 was for bonus.



The table below discloses information
with respect to executive compensation paid by the Registrant to its directors and officers for the fiscal year ended December
31, 2016. The following table sets forth, for the periods indicated, the compensation of the directors and officers.



89Canarc Resource Corp.Form 20-F







SUMMARY
OF COMPENSATION

PAID
TO DIRECTORS AND OFFICERS

(in
terms of Canadian dollars)



|Name and
        principal position                                                                    | Year                                 | Salary(1)
        ($) | Share-based awards($) | Option-based awards(2)
        ($) | Non-equity incentive
        plan compensation(3)
        ($) | Pension
        value(5)
        ($) | All other
        compensation(6)
        ($) | Total
        compensation(7)
        ($)
|------------------------------------------------------------------------------------------------------ | ------------------------------------ | --------------------- | --------------------- | ---------------------------------- | ------------------------------------------------------------- | ------------------------------------ | --------------------------------------------- | -----------------------------------------
|Annual
        Incentive
        plans(3)                                                              | Long-term
        incentive plans(4)
|Bradford J. Cooke(8)
        Director, Chairman and former CEO                                         | 2016                                 | Nil                   | Nil                   | $13,750                            | Nil                                                           | Nil                                  | Nil                                           | Nil                                      
|2015                                                                                                   | Nil                                  | Nil                   | $60,265               | $180,000                           | Nil                                                           | Nil                                  | Nil                                           | $240,265                                 
|2014                                                                                                   | Nil                                  | Nil                   | $63,620               | Nil                                | Nil                                                           | Nil                                  | $4,000                                        | $67,620                                  
|Leonard Harris
        Director                                                                        | 2016                                 | Nil                   | Nil                   | $5,375                             | Nil                                                           | Nil                                  | Nil                                           | $3,000                                   
|2015                                                                                                   | Nil                                  | Nil                   | $23,179               | Nil                                | Nil                                                           | Nil                                  | $3,000                                        | $26,179                                  
|2014                                                                                                   | Nil                                  | Nil                   | $23,858               | Nil                                | Nil                                                           | Nil                                  | $5,000                                        | $28,858                                  
|Martin Burian (9)
        Director                                                                     | 2016                                 | Nil                   | Nil                   | $2,375                             | Nil                                                           | Nil                                  | Nil                                           | $4,500                                   
|2015                                                                                                   | Nil                                  | Nil                   | $9,272                | Nil                                | Nil                                                           | Nil                                  | $5,500                                        | $14,772                                  
|2014                                                                                                   | Nil                                  | Nil                   | $23,858               | Nil                                | Nil                                                           | Nil                                  | $6,000                                        | $29,858                                  
|Bruce Bried(10)
        Former Director                                                                | 2016                                 | N/A                   | N/A                   | N/A                                | N/A                                                           | N/A                                  | N/A                                           | N/A                                      
|2015                                                                                                   | Nil                                  | Nil                   | Nil                   | Nil                                | Nil                                                           | Nil                                  | $2,000                                        | $2,000                                   
|2014                                                                                                   | Nil                                  | Nil                   | $23,858               | Nil                                | Nil                                                           | Nil                                  | $5,000                                        | $28,858                                  
|Deepak Malhotra(11)
        Director                                                                   | 2016                                 | Nil                   | Nil                   | $2,375                             | Nil                                                           | Nil                                  | Nil                                           | $3,500                                   
|2015                                                                                                   | Nil                                  | Nil                   | $9,272                | Nil                                | Nil                                                           | Nil                                  | $3,500                                        | $12,772                                  
|2014                                                                                                   | N/A                                  | N/A                   | N/A                   | N/A                                | N/A                                                           | N/A                                  | N/A                                           | N/A                                      
|Akiba Leisman(12)
        Director                                                                     | 2016                                 | N/A                   | N/A                   | N/A                                | N/A                                                           | N/A                                  | N/A                                           | N/A                                      
|2015                                                                                                   | Nil                                  | Nil                   | $9,272                | Nil                                | Nil                                                           | Nil                                  | Nil                                           | $9,272                                   
|2014                                                                                                   | N/A                                  | N/A                   | N/A                   | N/A                                | N/A                                                           | N/A                                  | N/A                                           | N/A                                      
|Catalin Chiloflischi (13)
        Chief Executive Officer                                              | 2016                                 | $246,067              | Nil                   | $12,000                            | Nil                                                           | Nil                                  | Nil                                           | Nil                                      
|2015                                                                                                   | $175,652                             | Nil                   | $50,993               | $35,000                            | Nil                                                           | Nil                                  | Nil                                           | $261,645                                 
|2014                                                                                                   | $154,852                             | Nil                   | $99,193               | Nil                                | Nil                                                           | Nil                                  | Nil                                           | $254,045                                 
|Garry D. Biles
        President and COO                                                               | 2016                                 | $210,000              | Nil                   | $14,750                            | $30,000                                                       | Nil                                  | Nil                                           | Nil                                      
|2015                                                                                                   | $214,615                             | Nil                   | $64,901               | Nil                                | Nil                                                           | Nil                                  | Nil                                           | $279,516                                 
|2014                                                                                                   | $207,925                             | Nil                   | $63,620               | Nil                                | Nil                                                           | Nil                                  | Nil                                           | $271,545                                 
|Stewart Lockwood(14)
        Former Secretary                                                          | 2016                                 | N/A                   | N/A                   | N/A                                | N/A                                                           | N/A                                  | N/A                                           | N/A                                      
|2015                                                                                                   | Nil                                  | Nil                   | Nil                   | Nil                                | Nil                                                           | Nil                                  | $75,825 (13)                                  | $75,825                                  
|2014                                                                                                   | Nil                                  | Nil                   | $3,976                | Nil                                | Nil                                                           | Nil                                  | $112,235 (13)                                 | $116,211                                 
|Philip Yee
        Chief Financial Officer and Vice-President, Finance and
        Secretary (Interim) | 2016                                 | $108,378              | Nil                   | $6,375                             | $15,000                                                       | Nil                                  | Nil                                           | Nil                                      
|2015                                                                                                   | $105,048                             | Nil                   | $27,815               | Nil                                | Nil                                                           | Nil                                  | Nil                                           | $132,863                                 
|2014                                                                                                   | $106,273                             | Nil                   | $31,810               | Nil                                | Nil                                                           | Nil                                  | Nil                                           | $138,083                                 







90Canarc Resource Corp.Form 20-F







Notes:



| | (1) | Includes the dollar value of cash and non-cash
base salary earned during a financial year covered.
| | --- | --------------------------------------------------------------------------------------------------

| | (2) | The amount represents the fair value, on the date
of grant and on each vesting date, as applicable, of awards made under Canarc’s Stock Option Plan. The grant date fair value
has been calculated using the Black Scholes Option Pricing Model in accordance with IFRS.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | These amounts include annual non-equity incentive
plan compensation, such as severance, bonuses and discretionary amounts for the year ended December 31, 2016.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (4) | N/A.
| | --- | ----

| | (5) | N/A.
| | --- | ----

| | (6) | These amounts cover all compensation other than
amounts already set out in the table for the year ended December 31, 2016 and include directors fees, as applicable, or other stipends
related to Board committee fees, if any.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (7) | These amounts include dollar value of total compensation
for the covered year. This is the sum of all amounts reported in columns with footnotes 1 to 6 above for each director and officer.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

91Canarc Resource Corp.Form 20-F





| | (8) | Mr. Bradford Cooke resigned as Chief Executive
Officer effective January 13, 2014 but remain Chairman and Director. In 2015, Canarc accrued a severance of CAD$180,000 which was
paid in March 2016.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (9) | Mr. Martin Burian was nominated to the Board of
Directors effective November 1, 2013.
| | --- | -------------------------------------------------------------------------------------

| | (10) | Mr. Bruce Bried retired as a Director effective
June 29, 2015.
| | ---- | --------------------------------------------------------------

| | (11) | Mr. Deepak Malhotra was nominated to the Board
of Directors effective June 29, 2015.
| | ---- | ------------------------------------------------------------------------------------

| | (12) | Mr. Akiba Leisman was nominated to the Board of
Directors effective October 30, 2015 pursuant to the Share Purchase Agreement with Marlin Gold and resigned May 28, 2016. Items
4.A and 4.D provide further details.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (13) | Mr. Catalin Chiloflischi was appointed Chief Executive
Officer effective January 13, 2014.
| | ---- | ------------------------------------------------------------------------------------------

| | (14) | Legal fees charged to Canarc by a law firm in
which Mr. Stewart Lockwood is a partner. Mr. Lockwood resigned a Secretary of Canarc effective December 8, 2015.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------





Item
10.C provides further details of employment contracts and agreements with current and former senior officers of the Registrant.





The
following table sets forth information concerning outstanding stock options under the Registrant’s Stock Option Plan as at
December 31, 2016to each director and officer of the Registrant. No SARs were outstanding.





Options and Stock Appreciation Rights (“SARs”)



The following table discloses
incentive stock options which were granted to directors and officers during the fiscal year ended December 31, 2016:



92Canarc Resource Corp.Form 20-F







SUMMARY
OF STOCK OPTIONS

GRANTED
TO DIRECTORS AND OFFICERS

From
January 1, 2016 to December 31, 2016



|Name
        and
        Principal
        Position                                                     | Date
        of Grant | Title
        of Underlying Security | Number
        of
        Underlying
        Security | Exercise
        Price per Share
        (CAD$) | Expiry
        Date
|------------------------------------------------------------------------------------------------------- | --------------------- | ------------------------------------ | ----------------------------------------------------- | ----------------------------------------------- | -------------------
|Bradford J.
        Cooke
        Chairman and
        Director                                         | July 7, 2016(1)       | Common shares                        | 600,000                                               | $0.08                                           | July 7, 2021       
|July 7, 2016(2)                                                                                         | Common shares         | 750,000                              | $0.08                                                 | July 7, 2021                                   
|Martin Burian
        Director                                                                          | July 7, 2016(1)       | Common shares                        | 300,000                                               | $0.08                                           | July 7, 2021       
|Leonard Harris
        Director                                                                         | July 7, 2016(1)       | Common shares                        | 300,000                                               | $0.08                                           | July 7, 2021       
|Deepak Malhotra
        Director                                                                        | July 7, 2016(1)       | Common shares                        | 300,000                                               | $0.08                                           | July 7, 2021       
|Catalin Chiloflischi
        Chief Executive
        Officer                                            | July 7, 2016(1)       | Common shares                        | 800,000                                               | $0.08                                           | July 7, 2021       
|July 7, 2016(2)                                                                                         | Common shares         | 750,000                              | $0.08                                                 | July 7, 2021                                   
|Garry Biles
        President and Chief Operating Officer                                               | July 7, 2016(1)       | Common shares                        | 600,000                                               | $0.08                                           | July 7, 2021       
|July 7, 2016(2)                                                                                         | Common shares         | 450,000                              | $0.08                                                 | July 7, 2021                                   
|Philip Yee
        Chief Financial
        Officer and Vice-President (Finance) and Secretary (Interim) | July 7, 2016(1)       | Common shares                        | 300,000                                               | $0.08                                           | July 7, 2021       
|July 7, 2016(2)                                                                                         | Common shares         | 300,000                              | $0.08                                                 | July 7, 2021                                   



| | (1) | These stock options are subject to vesting provisions in which 25% of the options vest immediately
on the grant date and 25% vest every six months thereafter.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | These stock options shall vest only when Canarc closes a material transaction or at the discretion
of Canarc’s Board of Directors.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------

93Canarc Resource Corp.Form 20-F









At the discretion of the directors,
certain option grants provide the holder with the right to receive the number of common shares, valued at the quoted market price
at the time of exercise of the stock options, that represent the share appreciation since granting the stock options.





Pension Plan



The Registrant does not have any
pension plan arrangements in place.





Report on Executive Compensation



The
Registrant’s executive compensation program is administered by the Compensation Committee on behalf the board of directors
(the “Board”).



Compensation
of Directors



Mr.
Bradford J. Cooke, the former Chief Executive Officer and a Director of Canarc, received compensation as consideration for his
duties as an operating officer of Canarc as disclosed in the Summary Compensation Table above; Mr. Cooke resigned as Chief Executive
Officer on January 13, 2014 but remains Chairman and a Director. Mr. Cooke was awarded a severance of CAD$180,000 in 2015 which
was accrued by Canarc, and which was paid in March 2016.



At
a Compensation Committee meeting held on June 26, 2014, it was resolved that fees for members of the Audit, Compensation and Nomination
Committees will be CAD$1,000 per quarter per Committee Chairman and CAD$500 per quarter per Committee Member, and are to be paid
each quarter. It was further resolved that no directors fees shall be payable to directors in their capacity as Directors. These
resolutions were effective July 1, 2014 and continued to be effective for 2015 and 2016.



94Canarc Resource Corp.Form 20-F





At Canarc’s annual general meeting
in June 2015, disinterested shareholders passed a resolution relating to shares for debt settlements to certain insiders of Canarc
in which debts of up to CAD$63,520 owed to certain current and former directors would be settled by the issuance of up to 1.27
million shares. On September 24, 2015, Canarc issued 1.27 million shares at a value of CAD$0.07 in settlement of fees owed to certain
former and current directors in which they also forgave a certain portion of outstanding directors fees owed, resulting in a gain
on debt settlement of US$54,000.



During
the year ended December 31, 2016, Canarcgranted 1.5 million stock options to directors with an exercise price of CAD$0.08
and an expiry date of July 7, 2021 and which are subject to vesting provisions in which 25% of the options vest immediately on
the grant date and 25% vest every six months thereafter. One director was granted an additional 750,000 stock options with an exercise
price of CAD$0.08 and an expiry date of July 7, 2021 and shall vest only when Canarc closes a material transaction or at the discretion
of Canarc’s disinterested Board of Directors.



Executive
Compensation Program



The
Registrant’s executive compensation program is based on a pay for performance philosophy. The executive compensation program
is designed to encourage, compensate and reward employees on the basis of individual and corporate performance, both in the short
and the long term. Base salaries are set at levels which are competitive with the base salaries paid by companies within the mining
industry having comparable capitalization to that of the Registrant, thereby enabling the Registrant to compete for and retain
executives critical to the Registrant’s long term success. Incentive compensation is directly tied to corporate and individual
performance. Share ownership opportunities are provided to align the interests of executive officers with the longer term interests
of shareholders.



Compensation
for directors and officers, as well as for executive officers as a whole, consists of a base salary, along with annual incentive
compensation in the form of an annual bonus, and a longer term incentive in the form of stock options. As an executive officer’s
level of responsibility increases, a greater percentage of total compensation is based on performance (as opposed to base salary
and standard employee benefits) and the mix of total compensation shifts towards stock options, thereby increasing the mutuality
of interest between executive officers and shareholders.



No
funds were set aside or accrued by the Registrant or its subsidiaries during the year ended December 31, 2016 to provide pension,
retirement or similar benefits for directors or officers of the Registrant pursuant to any existing plan provided or contributed
to by the Registrant or its subsidiaries under applicable Canadian laws.



Base
Salary



The
Board approves ranges for base salaries for executive employees of the Registrant based on reviews of market data from peer groups
and industry in general. The level of base salary for each employee within a specified range is determined by the level of past
performance, as well as by the level of responsibility and the importance of the position to the Registrant.

95Canarc Resource Corp.Form 20-F







The
Registrant’s Chief Executive Officer prepares recommendations for the Compensation Committee which are then presented to
the Board with respect to the base salary to be paid to the CEO and other senior executive officers. The CEO’s recommendations
for base salaries for the senior executive officers, including the Chief Executive Officer, President and Chief Operating Officer,
and the Chief Financial Officer, are then submitted for approval by the Board from the Compensation Committee.



At Canarc’s annual general meeting
in June 2015, disinterested shareholders passed a resolution relating to shares for debt settlements to certain insiders of Canarc
in which debts of up to CAD$127,400 owed to senior officers would be settled by the issuance of up to 2.55 million shares. On September
24, 2015, Canarc issued 748,300 shares at a value of CAD$0.07 in settlement of partial salaries owed to certain officers.



Bonus



The
Board annually evaluates performance and allocates an amount for payment of bonuses to executive officers and senior management.
The aggregate amount for bonuses to be paid will vary with the degree to which targeted corporate performance was achieved for
the year. The individual performance factor allows the Registrant effectively to recognize and reward those individuals whose efforts
have assisted the Registrant to attain its corporate performance objective.



The
CEO prepares recommendations for the Board with respect to the bonuses to be paid to the executive officers and to senior management.



A
bonus of CAD$35,000 was accrued for the CEO for fiscal 2015 and paid in March 2016. In fiscal 2016, Canarc paid CAD$45,000 in bonuses
to two other senior officers. No other bonuses were distributed nor paid to executive officers and senior management of Canarc
in the 2014 fiscal year.



Stock
Options



A
Stock Option Plan is administered by the Board. The Stock Option Plan is designed to give each option holder an interest in preserving
and maximizing shareholder value in the longer term, to enable the Registrant to attract and retain individuals with experience
and ability, and to reward individuals for current performance and expected future performance. The Board considers stock option
grants when reviewing executive officer compensation packages as a whole.



During
the fiscal year ended December 31, 2016, Canarcgranted the following stock options to
senior officers:

96Canarc Resource Corp.Form 20-F





| | - | 1.7 million stock options with an exercise price of CAD$0.08
and an expiry date of July 7, 2021 and which are subject to vesting provisions in which 25% of the options vest immediately on
the grant date and 25% vest every six months thereafter; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | - | 1.5 million stock options with an exercise price of CAD$0.08
and an expiry date of July 7, 2021 and which shall vest only when Canarc closes a material transaction or at the discretion of
Canarc’s Board of Directors.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Other
Compensation



Mr. Cooke resigned as Chief Executive
Officer of Canarc effective January 13, 2014 but remains its Chairman and a Director. Mr.
Cooke was awarded a severance of CAD$180,000 in 2015 which was accrued by Canarc and was paid in March 2016.



Directors’ and Officers’
Liability Insurance



Canarc has an insurance policy
for itself and its directors and officers against liability incurred by them in the performance of their duties as directors and
officers of Canarc. In January 2014, Canarc renewed its policy which had a CAD$1 million limit of liability, retentions of up to
CAD$50,000, and a policy period from January 1, 2014 to January 1, 2015 for a premium of CAD$14,000. In October 2014, Canarc increased
its coverage to CAD$5 million limit of liability and extended the term to October 17, 2015 for a net premium of $25,048. On October
17, 2015, Canarc renewed its annual coverage of CAD$5 million for a net premium of CAD$15,000. On October 17, 2016, Canarc increased
its directors and officers liability insurance coverage to CAD$10 million for an annual premium of CAD$20,000.





6.C Board Practices





Statement of Corporate Governance
Practices



The Registrant is required to
report annually to its shareholders on its corporate governance practices and policies with reference to National Policy 58-201,
Corporate Governance Guidelines (the “Policy”) and National Instrument 58-101, Disclosure of Corporate Governance
Practices, as adopted by the Canadian Securities Administrators, and effective June 30, 2005.



97Canarc Resource Corp.Form 20-F







The Board of Directors

The Board currently consists of
four directors, of which three directors (Messrs. Martin Burian, Deepak Malhotra and Leonard Harris) are currently “independent”
in the context of the Policy. Mr. Bradford J. Cooke is not an independent director because he was the Chief Executive Officer of
Canarc until his resignation on January 13, 2014 but remains its Chairman and a Director.



Directors are elected at the Registrant’s
annual general meeting and are re-elected for the ensuing year.



The number of years which each
director has served is as follows:



|Director        | Period of Service
        (Number of Years)
|--------------- | -------------------------------------------
|Bradford Cooke  | 30                                         
|Leonard Harris  | 15                                         
|Martin Burian   | 3                                          
|Deepak Malhotra | 2                                          





Certain directors of the Registrant
are presently directors of other issuers that are reporting issuers (or the equivalent) in any jurisdiction including foreign jurisdictions,
as follows:



|Director        | Other Reporting Issuers              
|--------------- | -------------------------------------
|Bradford Cooke  | Endeavour Silver Corp.               
|                | Radius Gold Inc.                     
|                |                                      
|Martin Burian   | Atlas Cloud Enterprises Inc.         
|                | Elysee Development Corp.             
|                |                                      
|Deepak Malhotra | Blackrock Gold Corp.                 
|                |                                      
|Leonard Harris  | Coronet Metals Inc.                  
|                | Cardero Resource Corp.               
|                | Wealth Minerals Ltd.                 
|                | Standard Tolling Corp.               
|                | Solitario Exploration & Royalty Corp.
|                |                                      





98Canarc Resource Corp.Form 20-F







The independent directors do not
hold regularly scheduled meetings at which non-independent directors and members of management are not in attendance. However,
during the course of a directors’ meeting, if a matter is more effectively dealt with without the presence of members of
management, the independent directors request members of management to leave the meeting, and the independent directors then meet.



Bradford J. Cooke is the Chairman
of the Board of Directors of Canarc. Martin Burian, as an independent director, was appointed the Lead Director of the Board, with
the mandate to ensure that the Board’s Agenda will enable it to successfully carry out its duties and to do so without interference
from the Chairman of the Board that could result from potential conflicts from his status as a non-independent Board member given
that Mr. Cooke as Chairman was the Chief Executive Officer until his resignation on January 13, 2014.



Since January 1, 2007, the Registrant
has held board meetings at least quarterly and at which the majority, if not all, Board members have attended, either in person
or by telephone conference call, during the time in which they were directors of the Registrant.



Board Mandate



The Board of Directors is responsible
for supervising management in carrying on the business and affairs of the Registrant. Directors are required to act and exercise
their powers with reasonable prudence in the best interests of the Registrant. The Board agrees with and confirms its responsibility
for overseeing management's performance in the following particular areas:



99Canarc Resource Corp.Form 20-F







- the strategic planning process of the Registrant;
- identification and management of the principal risks
associated with the business of the Registrant;
- planning for succession of management;
- the Registrant's policies regarding communications
with its shareholders and others; and
- the integrity of the internal controls and management
information systems of the Registrant.



In carrying out its mandate, the
Board relies primarily on management to provide it with regular detailed reports on the operations of the Registrant and its financial
position. The Board reviews and assesses these reports and other information provided to it at meetings of the Board and/or of
its committees. The CEO reports directly to the Board, giving the Board direct access to information in his areas of responsibility.
Other management personnel regularly attend Board meetings to provide information and answer questions. Directors also consult
from time to time with management and have, on occasion, visited the properties of the Registrant. The reports and information
provided to the Board include details concerning the monitoring and management of the risks associated with the Registrant's activities,
such as compliance with safety standards and legal requirements, environmental issues and the financial position and liquidity
of the Registrant. At least annually, the Board reviews management's report on its business and strategic plan and any changes
with respect to risk management and succession planning.



Position Descriptions



The Board of Directors has not
yet developed written position descriptions for the Chairman, the chairman of any Board committees, the CEO, the President or the
CFO. The Board is of the view that given the size of the Registrant, the relatively frequent discussions between Board members,
the CEO, the President and the CFO and the experience of the individual members of the Board, the responsibilities of such individuals
are known and understood without position descriptions being reduced to writing. The Board will evaluate this position from time
to time, and if written position descriptions appear to be justified, they will be prepared.



Orientation and Continuing
Education



The Board does not have a formal
policy relating to the orientation of new directors and continuing education for directors. The appointment of a new director is
a relatively infrequent event in the Registrant’s affairs, and each situation is addressed on its merits on a case-by-case
basis. The Registrant has a relatively restricted scope of operations, and most candidates for Board positions will likely have
past experience in the mining business; they will likely be familiar therefore with the operations of a resource company of the
size and complexity of the Registrant. The Board, with the assistance of counsel, keeps itself apprised of changes in the duties
and responsibilities of directors and deals with material changes of those duties and responsibilities as and when the circumstances
warrant. The Board will evaluate these positions, and if changes appear to be justified, formal policies will be developed and
followed.

100Canarc Resource Corp.Form 20-F







Ethical Business Conduct



The Registrant has adopted a whistle
blower policy, which is set out in its Charter of the Audit Committee which is available for viewing on SEDAR as a schedule to
the Registrant’s Annual Information Form dated March 14, 2017.



Nomination of Directors



The Board has neither a formal
policy for identifying new candidates for Board nomination. If and when the Board determines that its size should be increased
or if a director needs to be replaced, the nomination committee meeting shall be convened. The terms of reference of such a committee
will be determined, but are expected to include the determination of the independence of the candidate, his or her experience in
the mining business and compatibility with the other directors.



Compensation



Taking into account the Registrant’s
present status as an exploration-stage enterprise, the Board of Directors reviews the adequacy and form of compensation provided
to Directors on a periodic basis to ensure that the compensation is commensurate with the responsibilities and risks undertaken
by an effective director.



At
a Compensation Committee meeting held on June 26, 2014, it was resolved that fees for members of the Audit, Compensation and Nomination
Committees will be CAD$1,000 per quarter per Committee Chairman and CAD$500 per quarter per Committee Member, and are to be paid
each quarter. It was further resolved that no directors fees shall be payable to directors in their capacity as Directors. These
resolutions were effective July 1, 2014 and continued to be effective for 2015 and 2016.



At Canarc’s annual general meeting
in June 2015, disinterested shareholders passed a resolution relating to shares for debt settlements to certain insiders of Canarc
in which debts of up to CAD$63,520 owed to certain current and former directors would be settled by the issuance of up to 1.27
million shares. On September 24, 2015, Canarc issued 1.27 million shares at a value of CAD$0.07 in settlement of fees owed to certain
former and current directors in which they also forgave a certain portion of outstanding directors fees owed, resulting in a gain
on debt settlement of US$54,000.





101Canarc Resource Corp.Form 20-F







Audit Committee



The Audit Committee is comprised
of:

Chairman:	Martin
Burian

Members:	Deepak
Malhotra and Leonard Harris



The mandate of the Audit Committee
is as follows:



The Audit Committee will assist
the Board of Directors (the “Board”) of Canarc Resource Corp. (the “Company”) in fulfilling its oversight
responsibilities. The Committee will review the financial reporting process, the system of internal control and management of financial
risks, the audit process, and the Company's process for monitoring compliance with laws and regulations and its own code of business
conduct as more fully described below. In performing its duties, the Committee will maintain effective working relationships with
the Board of Directors, management, and the external auditors and monitor the independence of those auditors. To perform his or
her role effectively, each Committee member will obtain an understanding of the responsibilities of Committee membership as well
as the Company’s business, operations and risks.



In carrying out its oversight
responsibilities, the Audit Committee will:



| | (a) | Review and reassess the adequacy of this Charter annually and recommend any proposed changes to
the Board for approval.
| | --- | -----------------------------------------------------------------------------------------------------------------------

| | (b) | Review with the Company’s management and, as necessary, its external auditors and recommend
to the Board the Company’s quarterly and annual financial statements and management discussion and analysis that is to be
provided to shareholders, stakeholders and the appropriate regulatory authorities, including any financial statement contained
in a prospectus, information circular, registration statement or other similar document.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | Review the Company’s management annual and interim earnings press release before any public
disclosure.
| | --- | -------------------------------------------------------------------------------------------------------

| | (d) | Recommend to the Board the external auditors to be nominated for the purposes of preparing or issuing
an audit report or performing other audit’s review or attest services and the compensation to be paid to the external auditors.
The external auditors shall report directly to the Committee.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (e) | The Committee will annually review the qualifications, expertise and resources and the overall
performance of external auditor and, if necessary, recommend to the Board the termination of the external auditor (and its affiliates),
in accordance with the applicable securities laws.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (f) | Review with management the scope and general extent of the external auditors’ annual audit.
The Committee’s review should include an explanation from the external auditors of the factors considered in determining
the audit scope, including major risk factors. The
external auditors should confirm to the Committee whether or not any limitations have been placed upon the scope or nature of their
audit procedures.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

102Canarc Resource Corp.Form 20-F







| | (g) | Be directly responsible for the oversight of the work of the external auditors, including the resolution
of disagreements between management of the Company and the external auditors.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (h) | Review with the Company’s management and external auditors the Company’s accounting
and financial reporting controls. Obtain annually in writing from the external auditors their observations, if any, on significant
weaknesses in internal controls as noted in the course of the auditor’s work.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (i) | Evaluate the adequacy and effectiveness of management’s system of internal controls over
the accounting and financial reporting system within the Company and ensure that the external auditors discuss with the Committee
any event or matter which suggests the possibility of fraud, illegal acts or deficiencies in internal controls.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (j) | The Committee is to meet at least once annually, with the independent auditors, separately, without
any management representatives present for the purpose of oversight of accounting and financial practices and procedures.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (k) | Review with the Company’s management and external auditors significant accounting and reporting
principles, practices and procedures applied by the Company in preparing its financial statements. Discuss with the external auditors
their judgment about the quality of the accounting principles used in financial reporting.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (l) | Inquire as to the independence of the external auditors and obtain from the external auditors,
at least annually, a formal written statement delineating all relationships between the Company and the external auditors and the
compensation paid to the external auditors.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (m) | At the completion of the annual audit, review with management and the external auditors the following:
| | --- | ------------------------------------------------------------------------------------------------------

| | i. | The annual financial statements and related notes and financial information to be included in the
Company’s annual report to shareholders.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------

| | ii. | Results of the audit of the financial statements and the related report thereon and, if applicable,
a report on changes during the year in accounting principles and their application.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | iii. | Significant changes to the audit plan, if any, and any serious disputes or difficulties with management
encountered during the audit. Inquire about the cooperation received by the external auditors during the audit, including all requested
records, data and information.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | iv. | Inquire of the external auditors whether there have been any material disagreements with management,
which, if not satisfactorily resolved, would cause them to issue a not standard report on the Company’s financial statements.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (n) | Meet with management, to discuss any relevant significant recommendations that the external auditors
may have, particularly those characterized as “material” or “serious”. Typically, such recommendations
will be presented by the external auditors in the form of a Letter of Comments and Recommendations to the Committee. The Committee
should review responses of management to the Letter of Comments and Recommendations from external auditors and receive follow-up
reports on action taken concerning the aforementioned recommendations.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

103Canarc Resource Corp.Form 20-F





| | (o) | Have the sole authority to review in advance, and grant any appropriate pre-approvals, of all non-audit
services to be provided by the independent auditors and, in connection therewith, to approve all fees and other terms of engagement.
The Committee shall also review and approve disclosures required to be included in periodic reports filed with securities regulators
with respect to non-audit services performed by external auditors.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (p) | Be satisfied that adequate procedures are in place for the review of the Company’s disclosure
of financial information extracted or derived from the Company’s financial statements, and periodically assess the adequacy
of those procedures.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (q) | Review and approve the Company’s hiring of partners, employees and former partners and employees
of the present and past auditors.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------

| | (r) | Review with management and the external auditors the methods used to establish and monitor the
Company’s policies with respect to unethical or illegal activities by the Company employees that may have a material impact
in the financial statements.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (s) | The Committee will conduct an appropriate review of all proposed related party transactions to
identify potential conflict of interest and disclosure situations. The Committee shall submit the related party transaction to
the Board of Directors for approval by a majority of independent directors, excluding any director who is the subject of a related
transaction, and implementation of appropriate action to protect the Company from potential conflicts of interest.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (t) | The Committee will, if required, prepare a report for the inclusion on the Company’s proxy
statement for its annual meeting of stockholders describing the Committee’s structure, its members and their experience and
education. The report will address all issues then required by the rules of the regulatory authorities.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





Other Board Committees



Aside from the Audit Committee
which has previously been established, the Board has established committees for Compensation and Nomination and Technical, Environmental,
Social and Safety in 2011 comprised of the following Board members and their respective mandates:



|Committee                                | Members                    | Mandate                                                                                                                                                                                                                                                                                                                                                                             
|---------------------------------------- | -------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Nomination                               | Leonard Harris (Chairman)  | The function of the Nominating Committee is to identify individuals qualified to become board members and to select, or to recommend that the Board of Directors select the director nominees for the next annual meeting of stockholders,to oversee the selection and composition of committees of the Board of Directors, and to oversee management continuity planning processes.
|                                         | Deepak Malhotra           
|Compensation                             | Deepak Malhotra (Chairman) | The Compensation Committee shall advise and make recommendations to the Board of Directors in its oversight role with respect to the Company’s strategy, policies and programs on the compensation and development of senior management and directors.                                                                                                                              
|                                         | Martin Burian             
|Technical, Environmental, Social, Safety | Deepak Malhotra            | The Technical, Environmental, Social and Safety Committee shall advise and make recommendations in its oversight role with respect to technical, environmental, social and safety issues affecting the Company and its advanced mineral exploration projects.                                                                                                                       





104Canarc Resource Corp.Form 20-F









The Board has also a Disclosure
Committee comprised of the following management persons and its mandate:



|Members                                                 | Mandate                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Chief Executive Officer or President, and               | A Disclosure Policy
        Committee oversees corporate disclosure practices andensures implementation and adherence
        to this policy. The Disclosure Policy Committee's responsibilities include:
        ·maintaining an awareness and understanding of governing disclosure
        rules and guidelines, including any new or pending developments;
        ·developing and implementing procedures to regularly review;
        ·update and correct corporate disclosure information, including information
        on the Internet website;
        ·bringing this policy to the attention of directors, management and
        staff;
        ·monitoring compliance with this policy and undertaking reviews of any
        violations, including assessment and implementation of appropriate consequences and remedial actions;
        ·reviewing this policy and updating as necessary and appropriate to
        ensure compliance with prevailing rules and guidelines; and
        ·ascertaining whether corporate developments constitute material information
        and, if so, ensuring compliance with the procedures outlined in this policy.
|Vice-President or Manager of Investor Relations, if any





Assessments

105Canarc Resource Corp.Form 20-F







The Board has no formal process
for the assessment of the effectiveness and contribution of the individual directors. Each director has extensive public company
experience and is familiar with what is required of him. Frequency of attendance at Board and committee meetings and the quality
of participation in such meetings are two of the criteria by which the performance of a director will be assessed.





6.D      Employees



The Registrant’s business
is administered principally from its head office in Vancouver, British Columbia, Canada. As of April 21, 2017, the Registrant had
a staff of two full time and two part time employees based in Vancouver, BC, Canada.





6.E      Share Ownership





As at April 21, 2017, the share
ownership and number of stock options of the directors and officers of the Registrant are as follows:



106Canarc Resource Corp.Form 20-F







|                                                                                                        | Share Ownership          | Number of Stock Options
|------------------------------------------------------------------------------------------------------- | ------------------------ | -----------------------
|Name
        and
        Principal
        Position                                                     | Number
        of Shares | Percentage
        (1) 
|Bradford J.
        Cooke
        Chairman and Director                                                 | 8,268,580                | 3.74%                  
|500,000                                                                                                 | $0.08                    | June 26, 2018          
|1,350,000                                                                                               | $0.08                    | July 7, 2021           
|800,000                                                                                                 | $0.10                    | July 17, 2019          
|Martin Burian
        Director                                                                          | 24,820                   | 0.01%                  
|300,000                                                                                                 | $0.08                    | July 7, 2021           
|300,000                                                                                                 | $0.10                    | July 17, 2019          
|Deepak Malhotra
        Director                                                                        | 416,667                  | 0.19%                  
|300,000                                                                                                 | $0.08                    | July 7, 2021           
|Leonard Harris
        Director                                                                         | 2,074,290                | 0.94%                  
|200,000                                                                                                 | $0.08                    | June 26, 2018          
|300,000                                                                                                 | $0.08                    | July 7, 2021           
|300,000                                                                                                 | $0.10                    | July 17, 2019          
|Catalin Chiloflischi
        Chief Executive
        Officer                                            | 5,000                    | 0.002%                 
|1,550,000                                                                                               | $0.08                    | July 7, 2021           
|1,000,000                                                                                               | $0.10                    | July 17, 2019          
|Garry Biles
        President and Chief
        Operating Officer                                       | 1,077,766                | 0.49%                  
|400,000                                                                                                 | $0.08                    | June 26, 2018          
|1,050,000                                                                                               | $0.08                    | July 7, 2021           
|800,000                                                                                                 | $0.10                    | July 17, 2019          
|Philip Yee
        Chief Financial
        Officer and Vice-President (Finance) and Secretary (Interim) | 82,500                   | 0.04%                  
|300,000                                                                                                 | $0.08                    | June 26, 2018          
|600,000                                                                                                 | $0.08                    | July 7, 2021           
|400,000                                                                                                 | $0.10                    | July 17, 2019          





107Canarc Resource Corp.Form 20-F







| | (1) | As at April 21, 2017, Canarc had 221,308,478 common shares issued and outstanding. Under its normal
course issuer bid, as at April 21, 2017, Canarc had purchased an aggregate of 380,000 common shares for an aggregate purchase price
of CAD$34,250, resulting in an average price of CAD$0.09 per share, and the cancellation of such shares will be completed in due
course.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



(2)	Common shares.





In February 2017, Canarc received
regulatory approval for a normal course issuer bid to acquire up to 10.9 million its common shares, representing approximately
up to 5% of its issued and outstanding common shares at that time. The bid commenced on February 8, 2017 and will terminate on
February 7, 2018, or on such earlier date as the bid is complete. The actual number of common shares purchased under the bid and
the timing of any such purchases will be at Canarc’s discretion. Purchases under the bid shall not exceed 86,128 common shares
per day. Canarc will pay the prevailing market price at the time of purchase for all common shares purchased under the bid, and
all common shares purchased by Canarc will be returned to treasury and cancelled.



108Canarc Resource Corp.Form 20-F





As at April 21, 2017, Canarc had
purchased an aggregate of 380,000 common shares for an aggregate purchase price of CAD$34,250, resulting in an average price of
CAD$0.09 per share, and the cancellation of such shares will be completed in due course.





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





Details of all total outstanding options, warrants
and other rights to purchase securities of the Registrant and its subsidiaries as at April 21, 2017 unless otherwise stated, are
set forth below:





Stock Option Summary



Stock options which are outstanding as of April 21,
2017 are as follows:



|Amount Outstanding | Exercise Prices
        (CAD$) | Dates Granted    | Expiry Dates    
|------------------ | ------------------------------ | ---------------- | ----------------
|                   |                                |                  |                 
|30,000             | $0.145                         | June 18, 2012    | June 18, 2017   
|1,425,000          | $0.08                          | June 26, 2013    | June 26, 2018   
|3,650,000          | $0.10                          | July 17, 2014    | July 17, 2019   
|5,350,000          | $0.06                          | December 8, 2015 | December 8, 2020
|5,490,000          | $0.08                          | July 7, 2017     | July 7, 2021    
|                   |                                |                  |                 
|15,945,000         | TOTAL                          |                  |                 



109Canarc Resource Corp.Form 20-F





Of the 15,945,000 outstanding stock options, only 10,737,500
stock options are exercisable as at April 21, 2017.





Warrant Summary Chart



Warrants which are outstanding as of April 21, 2017
are as follows:



|Amount Outstanding | Exercise Prices
        (CAD$) | Date Issued        | Expiry Dates         
|------------------ | ------------------------------ | ------------------ | ---------------------
|                   |                                |                    |                      
|8,450,000          | $0.10                          | January 31, 2014   | July 31, 2017 (1)    
|5,254,055          | $0.15                          | March 18, 2014     | September 18, 2018(1)
|661,718            | $0.15                          | March 18, 2014     | September 18, 2018(1)
|4,153,750          | $0.15                          | April 3, 2014      | October 3, 2018(1)   
|60,725             | $0.15                          | April 3, 2014      | October 3, 2018(1)   
|5,332,776          | $0.08                          | September 21, 2015 | September 21, 2018   
|536,511            | $0.08                          | September 21, 2015 | September 21, 2018   
|8,852,576          | $0.12                          | March 3, 2016      | March 3, 2019        
|2,497,222          | $0.12                          | March 14, 2016     | March 14, 2019       
|155,556            | $0.12                          | March 14, 2016     | March 14, 2019       
|250,000            | $0.15                          | April 21, 2017     | April 21, 2019       
|                   |                                |                    |                      
|36,204,889         | TOTAL                          |                    |                      



110Canarc Resource Corp.Form 20-F





| | (1) | In August 2015, Canarc extended the expiry period of a total of 18.6 million warrants by a period
of 18 months which were issued pursuant to two private placements which closed in 2014. Expiry dates for 951,250 warrants which
were issued to insiders in those private placements were not extended. Item 5.B provides further details.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





Stock Option/Share Incentive Plan



The Registrant’s directors
and shareholders have approved a Share Incentive Plan (the “Plan”). The Plan was initially approved by the TSX in 1996.
The principal purposes of the Plan are to promote a proprietary interest in the Registrant among its directors, officers and employees;
to retain, attract and motivate the qualified managers of the Registrant; to provide a long-term incentive element in overall
compensation; and to promote the long-term profitability of the Registrant.



Incentives to participate under
the Plan may be provided by the granting of share options or share appreciation rights (SARs). The share appreciation right entitles
the participant in the Plan to elect, subject to approval by the Board of Directors, in lieu of exercising an outstanding share
option, to receive the number of common shares of the Registrant equivalent in value to the difference between the option exercise
price and the net existing market price of the Registrant’s common shares multiplied by the number of common shares over
which he could otherwise exercise his stock option.



Under the Plan, the Board of Directors
of the Registrant or its Executive Committee may from time to time grant to directors, officers, consultants and full and part
time employees of the Registrant and its associated, affiliated, controlled and subsidiary companies, as the Board or its Executive
Committee shall designate, the stock option to purchase from the Registrant such number of its common shares as the Board or its
Executive Committee may designate. The Registrant’s Plan allows it to grant stock options to its employees, directors and
consultants to acquire up to 18,888,434 common shares, of which stock options for 16,445,000 common shares were outstanding as
at December 31, 2016, provided that the total number of common shares to be optioned to any one optionee shall not exceed 5% of
the issued common shares of the Registrant at the time of grant. The exercise price of each option cannot be lower than the last
recorded sale of a board lot on the TSX during the trading day immediately preceding the date of granting or, if there was no such
sale, the high/low average price for the common shares on the TSX based on the last five trading days before the date of the grant.
Pursuant to the Plan, stock options shall be granted pursuant to a stock option agreement in a form that complies with the rules
and policies of the TSX, which provide as follows:



| | (a) | all stock options granted shall be non-assignable;
| | --- | --------------------------------------------------

| | (b) | a stock option must be exercisable during a period not extending beyond 10 years from the time
of grant; and
| | --- | ------------------------------------------------------------------------------------------------------------

(c)          	no financial assistance
will be provided with respect to the exercise of stock options.



111Canarc Resource Corp.Form 20-F





At the Registrant’s annual
general meeting held on June 5, 2012, shareholder approval was provided for the increase in the maximum aggregate number of common
shares which may be reserved for issuance under the Plan from 16,335,000 shares to 18,888,434 shares at that time.





ITEM 7.      MAJOR SHAREHOLDERS AND RELATED
PARTY TRANSACTIONS





7.A      Major Shareholders



To the best of the Registrant’s
knowledge, the Registrant is not directly or indirectly owned or controlled by another company or by any foreign government or
by any other natural or legal person(s) severally or jointly. There are no arrangements, known to the Registrant, the operation
of which may at a subsequent date result in a change in its control.



As at April 21, 2017, the only
persons or groups known to the Registrant to beneficially own 5% or more of the Registrant’s issued and outstanding common
shares and the number of common shares owned, directly or indirectly, by officers and directors of the Registrant as a group are
as follows:



|Title of Class | Identity of Person or Group                                          | Shares Owned (1) | Percentage of Class(2)
|-------------- | -------------------------------------------------------------------- | ---------------- | ----------------------
|Common Shares  | Canford Capital Inc. (3)
        Vancouver, British Columbia, Canada | 11,300,000       | 5.11%                 



| | (1) | Common shares.
| | --- | --------------



| | (2) | As at April 21, 2017, Canarc had 221,308,478 common shares issued and outstanding.
| | --- | ----------------------------------------------------------------------------------



| | (3) | As at April 21, 2017, Canford Capital Inc. (“Canford”) owned
11,300,000 common shares of Canarc representing a 5.11% interest in Canarc. Canford acquired the 11.3 million common shares of
Canarc pursuant to a private placement for CAD$1.13 million which closed in September 2012. In September 2012, Canarc and Canford
had entered into a 120-day period of exclusivity to complete Canford’s due diligence and to execute a property option agreement
to earn up to a 51% interest in the New Polaris gold project in return for
up to a CAD$30 million investment in exploration and development of the property. In February 2013, Canarc entered into a Strategic
Mine Acquisition Partnership (“SMAP”) with Canford for the purpose of acquiring, expanding and operating gold mines
in North America. In March 2013, no formal SMAP agreement was executed, and Canford did not commit nor arrange financing for the
proposed property option and joint venture to develop the New Polaris gold project nor for the SMAP to acquire operating gold mines
in North America. Canford does not exert control over Canarc nor over its Board of Directors nor has any nominees appointed to
its Board of Directors, is not actively involved in the operations of Canarc, and does not have any material interest, directly
or indirectly, in any transaction that has materially affected or will materially affect Canarc, to the best of Canarc’s
knowledge, except as disclosed in this Form 20-F. Item 4.D provides further details.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

112Canarc Resource Corp.Form 20-F







The closing of the Share Purchase Agreement
resulted in Marlin Gold becoming an Insider of Canarc by virtue of having more than 10% (ie. 10.79%) interest in Canarc as at the
closing date of October 30, 2015. In the second quarter of fiscal 2016, Marlin Gold was no longer an Insider of Canarc. Marlin
Gold appointed Mr. Akiba Leisman to Canarc’s Board of Directors pursuant to the Share Purchase Agreement which closed on
October 30, 2015 until the sale of the El Compas project to Endeavour in May 2016. Items 4.A and 4.D provide further details. Marlin
Gold and /or Mr. Leisman did not exert control over Canarc nor over its Board of Directors, was not a member of any of its Board
committees, was not actively involved in the operations of Canarc, and did not have any material interest, directly or indirectly,
in any transaction that had materially affected or would materially affect Canarc, to the best of Canarc’s knowledge, except
as disclosed in this Form 20-F.



In February 2017, Canarc received
regulatory approval for a normal course issuer bid to acquire up to 10.9 million its common shares, representing approximately
up to 5% of its issued and outstanding common shares at that time. The bid commenced on February 8, 2017 and will terminate on
February 7, 2018, or on such earlier date as the bid is complete. The actual number of common shares purchased under the bid and
the timing of any such purchases will be at Canarc’s discretion. Purchases under the bid shall not exceed 86,128 common shares
per day. Canarc will pay the prevailing market price at the time of purchase for all common shares purchased under the bid, and
all common shares purchased by Canarc will be returned to treasury and cancelled. As at April 21, 2017, Canarc had purchased an
aggregate of 380,000 common shares for an aggregate purchase price of CAD$34,250, resulting in an average price of CAD$0.09 per
share, and the cancellation of such shares will be completed in due course.



All shares of Canarc, including
all those held by any major shareholders, are common shares with similar voting rights. As of March 31, 2017 there were 217,462,324
common shares of Canarc which were issued and outstanding. Based on the records of Canarc’s registrar and transfer agent,
Computershare Investor Services Inc., of 3rd Floor, 510 Burrard Street, Vancouver, British Columbia, Canada, as at such date there
were 449 registered holders of Canarc’s common shares resident in the United States (71.38% of all registered holders) holding
73,806,617 common shares. This number represents approximately 33.94% of the total issued and outstanding common shares of Canarc
at that date.



Control by Another Corporation,
Foreign Government or Other Persons

113Canarc Resource Corp.Form 20-F







To the best of the Registrant’s
knowledge, the Registrant is not directly or indirectly owned or controlled by another corporation(s), by any foreign government
or by any other natural or legal person(s) severally or jointly.



Change of Control



As of the date of this Form 20-F
being April 21, 2017, there is no arrangement known to the Registrant which may at a subsequent date result in a change of control
of the Registrant.





7.B      Related Party Transactions



For the fiscal year ended December
31, 2016, the Registrant had transactions with related parties.



Key management includes directors
(executive and non-executive) and senior management. The compensation paid or payable to key management for employee services is
disclosed in the table below.



Except as may be disclosed elsewhere
in the Form 20-F, general and administrative costs during 2016, 2015 and 2014 include:



114Canarc Resource Corp.Form 20-F









|                                                                                                                                |                          |  |                    |  |                   |  | Net balance receivable (payable)
|------------------------------------------------------------------------------------------------------------------------------- | ------------------------ |  | ------------------ |  | ----------------- |  | --------------------------------
|($000s)                                                                                                                         | Years ended December 31, |  | as at December 31,
|                                                                                                                                | 2016                     |  | 2015               |  | 2014              |  | 2016                            
|                                                                                                                                |                          |  |                    |  |                   |  |                                 
|Key management compensation:                                                                                                    |                          |  |                    |  |                   |  |                                 
|Executive salaries and remuneration(1)                                                                                          | $             460        |  | $             415  |  | $             441 |  | $                  -            
|Severance                                                                                                                       | -                        |  | 141                |  | 136               |  | -                               
|Directors fees                                                                                                                  | 8                        |  | 11                 |  | 18                |  | (1)                             
|Share-based payments                                                                                                            | 245                      |  | 153                |  | 205               |  | -                               
|                                                                                                                                | $             713        |  | $             720  |  | $             800 |  | $               (1)             
|                                                                                                                                |                          |  |                    |  |                   |  |                                 
|Legal fees(2)                                                                                                                   | $                  -     |  | $               59 |  | $             102 |  | $                  -            
|                                                                                                                                |                          |  |                    |  |                   |  |                                 
|Net office, sundry, rent and salary allocations recovered from (incurred to) company(ies) sharing certain common director(s)(3) | (41)                     |  | (38)               |  | (74)              |  | (4)                             
|                                                                                                                                |                          |  |                    |  |                   |  |                                 





| | (1) | Includes key management compensation which is included in employee and director remuneration, mineral
property interests, and corporate development.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | In 2015 and 2014, legal fees which were included in general and administrative, share issuance
expenses and corporate development were incurred to a law firm in which a senior officer was a partner. The senior officer resigned
from the Company in December 2015.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | The companies include Endeavour and AzMet.
| | --- | ------------------------------------------





The above transactions were incurred
in the normal course of business and are recorded at the exchange amount, being the amount agreed upon by the related parties.



Canarc shares common office facilities,
employee and administrative support, and office sundry amongst companies with certain common director(s), and such allocations
to Canarc are on a full cost recovery basis. Any balances due to related parties are payable on demand.



115Canarc Resource Corp.Form 20-F





In fiscal 2013, Canarc received
demand loans of $126,000 from two directors of Canarc, which were repayable on demand and bore an interest rate of 12% compounded
monthly with interest payable semi-annually. In January 2014, Canarc repaid all principal and interest in full settlement of outstanding
demand loans.



At Canarc’s annual general meeting
in June 2015, disinterested shareholders passed two resolutions relating to shares for debt settlements to certain insiders of
Canarc in which debts of up to CAD$63,520 owed to certain current and former directors would be settled by the issuance of up to
1.27 million shares and debts of up to CAD$127,400 owed to senior officers would be settled by the issuance of up to 2.55 million
shares. On September 24, 2015, Canarc issued 2 million shares at a value of CAD$0.07 in settlement of partial salaries owed to
certain officers and fees owed to directors in which the latter also forgave a certain portion of outstanding directors fees owed,
resulting in a gain on debt settlement of $54,000.



Items 4.A, 4.D, 5.B and 7.A provide
further details of transactions with Marlin Gold.



Items 4.A, 5.B, 6.E and 7.A provide
further details of Canarc’s normal course issuer bid.



In each case the transactions
described below were, in the Registrant’s view, completed on terms no less favourable to the Registrant than if they had
been entered into with unaffiliated parties.



Compensation to Directors
and Senior Officers and Options to Purchase Securities



Item 6 provides further details
of compensation paid to, and options granted to and held by, directors and senior officers of the Registrant.



Indebtedness of Directors
and Senior Officers



At any time during the Registrant’s
last completed financial year, no director, executive officer or senior officer of the Registrant, proposed management nominee
for election as a director of the Registrant or each associate or affiliate of any such director, executive or senior officer or
proposed nominee is or has been indebted to the Registrant 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 Registrant or any of its subsidiaries, other than routine indebtedness and other than as disclosed
in the Registrant’s audited financial statements and in the Form 20-F.



116Canarc Resource Corp.Form 20-F





Interest of Insiders
in Material Transactions



Other than as set forth below
and in the Form 20-F and in the Registrant’s audited financial statements and other than transactions carried out in the
ordinary course of business of the Registrant or any of its subsidiaries, none of the directors or senior officers of the Registrant,
a proposed management nominee for election as a director of the Registrant, any member beneficially owning shares carrying more
than 5% of the voting rights attached to the shares of the Registrant nor an associate or affiliate of any of the foregoing persons
had since January 1, 2016 (being the commencement of the Registrant’s last audited fiscal period) any material interest,
direct or indirect, in any transactions which materially affected or would materially affect the Registrant or any of its subsidiaries.



The Registrant’s directors
and officers may serve as directors or officers of other public resource companies or have significant shareholdings in other public
resource companies and, to the extent that such other companies may participate in ventures in which the Registrant may participate,
the directors of the Registrant may have a conflict of interest in negotiating and concluding terms respecting the extent of such
participation. Also, certain directors and officers of Canarc are directors, officers and
/ or employees of AzMet, AzMin, and Endeavour.The interests of these companies may differ from time to time. Item 6.C provide
further details.





7.C      Interests of Experts and Counsel



Not applicable.





ITEM 8.      FINANCIAL INFORMATION





8.A      Consolidated Statements and Other
Financial Information





Canarc’s audited consolidated
financial statements have been prepared in accordance with IFRS as issued by the IASB, and all dollar amounts are expressed in
United States dollars unless otherwise indicated.



117Canarc Resource Corp.Form 20-F





Consolidated financial statements
audited by an independent registered public accounting firm and accompanied by an audit report are comprised of the following,
which are attached hereto and form a part hereof.



| | (a) | Consolidated Statements of Financial Position as of December 31, 2016 and 2015;
| | --- | -------------------------------------------------------------------------------

| | (b) | Consolidated Statements of Comprehensive Loss for each of the years ended December 31, 2016, 2015
and 2014;
| | --- | -----------------------------------------------------------------------------------------------------------

| | (c) | Consolidated Statements of Changes in Shareholders’ Equity for each of the years ended December
31, 2016, 2015 and 2014;
| | --- | ------------------------------------------------------------------------------------------------------------------------

| | (d) | Consolidated Statements of Cash Flows for each of the years ended
December 31, 2016, 2015 and 2014; and
| | --- | -------------------------------------------------------------------------------------------------------

| | (e) | Notes to the consolidated financial statements.
| | --- | -----------------------------------------------



The Registrant is not involved
and has not been involved in the recent past in any legal or arbitration proceedings which may have, or had in the recent past,
significant effects on the Registrant’s financial position or profitability, including governmental proceedings pending or
known to be contemplated other than as disclosed in the Company’s continuous disclosure documents, regulatory filings, Form
20-F and consolidated financial statements for the years then ended.



Dividend Policy



During its last three completed
financial years, the Registrant has not declared or paid any cash dividends on its common shares and does not currently intend
to pay cash dividends. Management intends for earnings, if any, to be retained to finance further growth and activities relating
to the business of the Registrant.



The Directors of the Registrant
may from time to time declare and authorize payment of such dividends, if any, as they may deem advisable and need not give notice
of such declaration to any shareholder. No dividend shall be paid otherwise than out of funds and/or assets properly available
for the payment of dividends and a declaration by the Directors as to the amount of such funds or assets available for dividends
shall be conclusive. The Registrant may pay any such dividend wholly or in part by the distribution of specific assets and in particular
by paid up shares, bonds, debentures or other securities of the Registrant or any other corporation or in any one or more such
ways as may be authorized by the Registrant or the Directors and where any difficulty arises with regard to such a distribution
the Directors may settle the same as they think expedient, and in particular may fix the value for distribution of such specific
assets or any part thereof, and may determine that cash payments in substitution for all or any part of the specific assets to
which any shareholders are entitled shall be made to any shareholders on the basis of other value so fixed in order to adjust the
rights of all parties and may vest any such specific assets in trustees for the persons entitled to the dividend as may seem expedient
to the Directors.

118Canarc Resource Corp.Form 20-F







Any dividend declared on shares
of any class by the Directors may be made payable on such date as is fixed by the Directors.



Subject to the rights of shareholders
(if any) holding shares with special rights as to dividends, all dividends on shares of any class shall be declared and paid according
to the number of such shares held.



The Directors may, before declaring
any dividend, set aside out of the funds properly available for the payment of dividends such sums as they think proper as a reserve
or reserves, which shall, at the discretion of the Directors, be applicable for meeting contingencies, or for equalizing dividends,
or for any other purpose to which such funds of the Registrant may be properly applied, and pending such application may, at the
like discretion, either be employed in the business of the Registrant or be invested in such investments as the Directors may from
time to time think fit. The Directors may also, without placing the same in reserve, carry forward such funds, which they think
prudent not to divide.



If several persons are registered
as joint holders of any share, any one of them may give an effective receipt for any dividend, bonuses or other moneys payable
in respect of the share.



No dividend shall bear interest
against the Registrant. Where the dividend to which a shareholder is entitled includes a fraction of a cent, such fraction shall
be disregarded in making payment thereof and such payment shall be deemed to be payment in full.



Any dividend, bonuses or other
moneys payable in cash in respect of shares may be paid by cheque or warrant sent through the post directed to the registered address
of the holder, or in the case of joint holders, to the registered address of that one of the joint holders who is first named in
the register, or to such person and to such address as the holder or joint holders may direct in writing. Every such cheque or
warrant shall be made payable to the order of the person to whom it is sent. The mailing of such cheque or warrant shall, to the
extent of the sum represented thereby (plus the amount of any tax required by law to be deducted) discharge all liability for the
dividend, unless such cheque or warrant shall not be paid on presentation or the amount of tax so deducted shall not be paid to
the appropriate taxing authority.



Notwithstanding anything contained
in the Registrant’s Articles of Incorporation, the Directors may from time to time capitalize any undistributed surplus on
hand of the Registrant and may from time to time issue as fully paid and non-assessable any unissued shares, or any bonds, debentures
or debt obligations of the Registrant as a dividend representing such undistributed surplus on hand or any part thereof.



Legal Proceedings



119Canarc Resource Corp.Form 20-F







The Registrant is not involved
in any legal or arbitration proceedings which have, or may have had in the recent past, significant effects on the Registrant’s
financial position or profitability other than as disclosed in the Registrant’s continuous disclosure documents, regulatory
filings, Form 20-F and consolidated financial statements for the years then ended.





8.B      Significant Changes



There has been no significant
change in the financial condition of the Registrant since December 31, 2016 other than as disclosed in this Form 20-F and in the
Registrant’s continuous disclosure documents.





ITEM 9.      THE OFFER AND LISTING





9.A      Offer and Listing Details



The Registrant’s common
shares are traded on the TSX in Canada under the symbol “CCM”. The following prices are stated in terms of Canadian
dollars.



The following tables set forth
the high and low prices of the common shares for the periods indicated.



(Stated in terms of Canadian dollars)





|Fiscal Year | High (CAD$) | Low (CAD$)
|----------- | ----------- | ----------
|            |             |           
|2016        | $0.15       | $0.05     
|2015        | $0.10       | $0.03     
|2014        | $0.13       | $0.03     
|2013        | $0.24       | $0.04     
|2012        | $0.22       | $0.09     
|            |             |           



120Canarc Resource Corp.Form 20-F







|Quarter     | High (CAD$) | Low (CAD$)
|----------- | ----------- | ----------
|            |             |           
|2017        |             |           
|1st Quarter | $0.12       | $0.08     
|            |             |           
|2016        |             |           
|4th Quarter | $0.13       | $0.07     
|3rd Quarter | $0.14       | $0.08     
|2nd Quarter | $0.14       | $0.06     
|1st Quarter | $0.15       | $0.05     
|            |             |           
|2015        |             |           
|4th Quarter | $0.09       | $0.04     
|3rd Quarter | $0.10       | $0.05     
|2nd Quarter | $0.07       | $0.03     
|1st Quarter | $0.06       | $0.03     
|            |             |           



121Canarc Resource Corp.Form 20-F







|Month    | High (CAD$) | Low (CAD$)
|-------- | ----------- | ----------
|         |             |           
|2017     |             |           
|March    | $0.12       | $0.09     
|February | $0.11       | $0.08     
|January  | $0.09       | $0.08     
|         |             |           
|2016     |             |           
|December | $0.10       | $0.07     
|November | $0.12       | $0.08     
|October  | $0.13       | $0.11     
|         |             |           





In the United States, the Registrant’s
common shares are quoted for trading on the Over-the-Counter Bulletin through March 19, 2015 and since that date on the OTCQB Marketplace
under the symbol “CRCUF”. The following prices are stated in terms of United States dollars.



In relation to the OTCBB and OTCQB,
the following quotations reflect inter-dealer prices without retail mark-up, mark-down or commission and may not represent actual
transactions. The following table sets forth the range of high and low bid prices during the periods indicated on the OTCBB and
OTCQB.



The following tables set forth
the high and low prices of the common shares for the periods indicated.





122Canarc Resource Corp.Form 20-F







|Fiscal Year | High  | Low  
|----------- | ----- | -----
|            |       |      
|2016        | $0.12 | $0.03
|2015        | $0.07 | $0.02
|2014        | $0.12 | $0.02
|2013        | $0.24 | $0.03
|2012        | $0.22 | $0.09
|            |       |      





|Quarter     | High  | Low  
|----------- | ----- | -----
|            |       |      
|2017        |       |      
|1st Quarter | $0.09 | $0.05
|            |       |      
|2016        |       |      
|4th Quarter | $0.10 | $0.05
|3rd Quarter | $0.11 | $0.06
|2nd Quarter | $0.12 | $0.04
|1st Quarter | $0.10 | $0.03
|            |       |      
|2015        |       |      
|4th Quarter | $0.07 | $0.03
|3rd Quarter | $0.07 | $0.03
|2nd Quarter | $0.06 | $0.02
|1st Quarter | $0.05 | $0.02
|            |       |      





123Canarc Resource Corp.Form 20-F







|Month    | High  | Low  
|-------- | ----- | -----
|         |       |      
|2017     |       |      
|March    | $0.09 | $0.07
|February | $0.08 | $0.06
|January  | $0.07 | $0.05
|         |       |      
|2016     |       |      
|December | $0.07 | $0.05
|November | $0.09 | $0.06
|October  | $0.10 | $0.08
|         |       |      





9.B      Plan of Distribution



Not applicable.



124Canarc Resource Corp.Form 20-F







9.C      Markets



Since November 2, 1994, the Registrant’s
common shares have traded on the TSX. From March 16, 1988 to June 2, 1995 and from September 1996 to February 12, 1999, the Registrant’s
common shares traded on the Vancouver Stock Exchange (“VSE”) (the VSE merged with the Alberta Stock Exchange in 2000,
which became known as the Canadian Venture Exchange, and then the TSX acquired the Canadian Venture Exchange to form the TSX Venture
Exchange). In February 1997, the Registrant was listed for trading on the Berlin Stock Exchanges and has since voluntarily delisted
from the exchange. On August 3, 1998, the Registrant was listed on the Frankfurt Exchange. Management of the Registrant is not
aware of any trading market for the Registrant’s common shares in the United States apart from the United States OTC Bulletin
Board, on which the Registrant is quoted under the symbol CRCUF; on March 19, 2015, the Registrant’s common shares continued
to be quoted on the OTCQB Marketplace.





9.D      Selling Shareholders



Not applicable.





9.E      Dilution



Not applicable.





9.F      Expenses of the Issue



Not applicable.





ITEM 10.      ADDITIONAL INFORMATION





125Canarc Resource Corp.Form 20-F





10.A      Share Capital



Not applicable.





10.B      Notice of Articles and Articles
of Association





The Registrant’s Notice
of Articles and articles of association, and related matters, are summarized below.



1.     	The Registrant was incorporated
under the laws of British Columbia on January 22, 1987 under the name, “Canarc Resource Corp.” by registration of its
Memorandum and Articles with the British Columbia Registrar of Companies. At the Registrant’s annual and extraordinary general
meeting held in May 2005, the shareholders approved the Notice of Articles be altered to remove the application of the “Pre-Existing
Company Provisions” as set forth in Table 3 of the Business Corporations Regulations under the B.C. Business Corporations
Act, S.B.C. 2002 (the “BCBCA”) and the replacement of the Articles with a new set of Articles which comply with
the BCBCA. The Registrant no longer has a Memorandum, which has been replaced by, in part, its Notice of Articles.



The Registrant’s Memorandum
and Articles do not provide for any specific objects or purposes.



2.	     Set forth below is a summary
of provisions contained in the Registrant’s Articles with respect to:



| | (a) | Director’s power to vote on a proposal, arrangement or contract in which the director is
materially interested:
| | --- | ---------------------------------------------------------------------------------------------------------------

| |  | A director who holds a disclosable interest in a contract or transaction into which the Registrant
has entered or proposes to enter is not entitled to vote on any directors’ resolution to approve that contract or transaction,
unless all the directors have a disclosable interest in that contract or transaction, in which case any or all of those directors
may vote on such resolution.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | Directors’ power, in the absence of an independent quorum, to vote compensation to themselves
or any members of their body:
| | --- | ---------------------------------------------------------------------------------------------------------------------------

| |  | See (a), above. A director does not hold a disclosable interest in a contract or transaction merely
because the contract or transaction relates to the remuneration of the director in that person's capacity as director, officer,
employee or agent of the Registrant or of an affiliate of the Registrant.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

126Canarc Resource Corp.Form 20-F





| | (c) | Borrowing powers exercisable by the directors and how such borrowing powers can be varied:
| | --- | ------------------------------------------------------------------------------------------

The
Registrant, if authorized by the directors, may:

| | (i) | borrow money in the manner and amount, on the security, from the sources and on the terms and conditions
that they consider appropriate;
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------

| | (ii) | issue bonds, debentures and other debt obligations either outright or as security for any liability
or obligation of the Registrant or any other person and at such discounts or premiums and on such other terms as they consider
appropriate;
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (iii) | guarantee the repayment of money by any other person or the performance of any obligation of any
other person; and
| | ----- | ------------------------------------------------------------------------------------------------------------------

| | (iv) | 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 Registrant.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (d) | Retirement or non-retirement of directors under an age limit requirement:
| | --- | -------------------------------------------------------------------------

| |  | The directors are not required to retire upon reaching a specific age.
| |  | ----------------------------------------------------------------------

| | (e) | Number of shares, if any, required for director’s qualification:
| | --- | ----------------------------------------------------------------

| |  | A director is not required to hold any shares of the Registrant.
| |  | ----------------------------------------------------------------



3.	     All common shares of the
Registrant rank equally as to dividends, voting powers and participation in assets (in the event of liquidation) and in all other
respects. Dividend entitlement is set by way of the shareholders status as a shareholder on the chosen record date and does not
lapse over time. Each share carries one vote per share at meetings of the shareholders of the Registrant. Directors do not stand
for re-election on staggered terms at present. There are no indentures or agreements limiting the payment of dividends and there
are no conversion rights, special liquidation rights, pre-emptive rights or subscription rights attached to the common shares.
The shares presently issued are not subject to any calls or assessments. There was a Shareholders Right Plan which expired in April
2015 as detailed in Item 10.B under Summary of Shareholders Rights Plan.



4.     	The rights of holders of
common shares may not be modified other than by vote of 2/3 of the common shares voting on such modification. The quorum for the
transaction of business at a meeting of shareholders is two persons who are, or who represent by proxy, shareholders who, in the
aggregate, hold at least 5% of the issued shares entitled to be voted at the meeting. Due to the quorum requirements, the rights
of holders of common shares may be modified by the votes of less than a majority of the issued common shares of the Registrant.



5.     	The directors of the Registrant
call all annual general meetings and extraordinary general meetings. The directors may set a date as the record date for the purpose
of determining shareholders entitled to notice of any meeting of shareholders. The directors, the president (if any), the secretary
(if any), the assistant secretary (if any), any solicitor for the Registrant, the auditor of the Registrant and any other persons
invited by the directors are entitled to attend any meeting of shareholders, but if any of those persons does attend a meeting
of shareholders, that person is not to be counted in the quorum and is not entitled to vote at the meeting unless that person is
a shareholder or proxy holder entitled to vote at the meeting.

127Canarc Resource Corp.Form 20-F







6.	     There are no limitations
on the rights to own securities.



7.	     There are no provisions
in the Registrant’s Articles that would have an effect on delaying, deferring or preventing a change of control other than
that the Registrant may remove any director before the expiration of his or her term of office only by way of special resolution.
In addition, there is a Shareholders Right Plan which expired in April 2015 as detailed in Item 10.B under Summary of Shareholders
Rights Plan.



8.	     There are no by-law provisions
governing the ownership threshold above which shareholder ownership must be disclosed.



9.	     The law of British Columbia,
Canada, relating to Items 2-8 is not significantly different from the law of the United States.



10.     	There are no conditions
in the Memorandum and Articles governing changes in capital that are more stringent than is required by law.



11.     	The BCBCA permits an unlimited
authorized share capital, and shares may be created with or without par value.



12.     	There are no residency
requirements for directors under the BCBCA.



13.     	Special Resolutions of
shareholders can be passed by a minimum of a two-thirds majority at a meeting of shareholders.



14.     	General meetings can be
held outside British Columbia if the location is approved by resolution of the directors.



15.     	The BCBCA provides for
shareholder proposals to be made at general meetings. Generally, shareholders holding at least 1% of the voting shares may submit
proposals to the Registrant three months prior to the anniversary of the last annual general meeting of shareholders of the Registrant.



128Canarc Resource Corp.Form 20-F







16.     	Under the BCBCA, dividends
may be declared out of profits, capital or otherwise. As well, the BCBCA does not automatically make directors liable to the Registrant
for the declaration of dividends while the Registrant is insolvent.



17.	     The BCBCA does not require
that a company’s offer to purchase or redeem its own shares be made on a pro-rata basis to all shareholders.



18.     	The BCBCA permits a company
to indemnify its directors without court approval, and may also require reimbursement of expenses in certain cases for claims that
are successfully defended. Defense costs may also be advanced by a company in certain cases.



19.	     All filings with the Registrar
under the BCBCA must be made electronically.



20.	     Directors’ and shareholders’
meetings may be held by any form of communications medium permitted under the Articles, including internet chat lines and telephones.
In addition, directors’ consent resolutions may be passed in the manner provided under the Articles, including e-mail.



21.	     A company may provide financial
assistance in connection with the purchase of its shares under the BCBCA.



22.	     A company may, in limited
circumstances, amalgamate with a foreign company under the BCBCA, without the requirement to first continue the second company
into British Columbia. Amalgamations do not require court approval, although court approval may still be requested.



23.     	The requisite majority to
pass a special resolution at a meeting of shareholders is a two-thirds majority.



24.     	General meetings of shareholders
may, if the location is approved by directors’ resolution, be held outside British Columbia.



25.     	General Meetings of shareholders
of the Registrant are required to be held each calendar year and not more than 15 months after the holding of the last preceding
annual general meeting.



129Canarc Resource Corp.Form 20-F





26.	     Any offer by the Registrant
to purchase or redeem its own shares, need not be made pro-rata to all the shareholders.



27.	     Changes to the Registrant’s
capital structure may be effected by ordinary resolution, including the following changes:

•	creation or cancellation
of one or more classes or series of shares;

•	creation or removal
of special rights and restrictions attaching to any class or series of shares;

•	changing the authorized
capital;

•	consolidating or
subdividing all or any of the Registrant’s issued or unissued shares; and

•	other alterations
to the share capital and authorized capital, where permitted under the BCBCA.



28.	     The Registrant’s name
may be changed by ordinary resolution or resolution of the directors.



29.	     The removal of court approval
of any agreement to indemnify a director or officer in most cases, as well as mandatory indemnification on certain eligible cases.



30.	     The remuneration of the
auditor of the Registrant may be set by the directors, without the need of seeking a resolution of the shareholders authorizing
the directors to set such remuneration.



31.     	A director of the Registrant
may be removed as a director of the Registrant before the expiration of the director’s term of office pursuant to an ordinary
resolution of the shareholders.





For further information, refer
to the full text of the Notice of Articles and Articles of the Registrant, which are available online at www.sedar.com as part
of the Registrant’s publicly available filings under the heading “Other”, as filed on November 10, 2005.





Summary of the Shareholder
Rights Plan



The following is a summary of
the terms of the Shareholder Rights Plan which was approved at the Registrant’s annual and extraordinary meeting held in
May 2005, and ratified and confirmed at the Registrant’s annual general meetings in April 2008 and again in June 2011. The Shareholder
Rights Plan expired in April 2015.



130Canarc Resource Corp.Form 20-F







General



The rights will be issued pursuant
to a shareholder rights plan agreement dated and effective April 30, 2005, between the Registrant and Computershare Trust Company
of Canada as the rights agent. Each right will entitle the holder to purchase from the Registrant one common share at the exercise
price of CAD$50.00 per share, subject to adjustments, at any time after the separation time (defined below). However, if a flip-in
event (defined below) occurs, each right will entitle the holder to receive, upon payment of the exercise price, common shares
having a market value equal to two-times the exercise price. The rights are non-exercisable until the separation time.



Trading of Rights



Until the separation time, the
rights will be evidenced by the outstanding certificates for common shares and the rights will be transferred with, and only with,
the common shares. As soon as practicable following the separation time, separate certificates evidencing the rights will be mailed
to holders of record of common shares as of the close of business at the separation time and the separate rights certificates will
thereafter evidence the rights.



Separation Time and Acquiring
Person



The rights will separate and trade
apart from the common shares and become exercisable at the separation time. “Separation time” generally means the close
of business on the 10th trading day following the commencement or announcement of the intent of any person to commence a take-over
bid, other than a permitted bid or a competing bid, but under certain circumstances can mean the eighth trading day after a person
becomes an “acquiring person” by acquiring 20% or more of the voting shares of any class.



Flip-in Event



A “flip-in event”
will, in general terms, occur when a person becomes an acquiring person. Upon the occurrence of a flip-in event, each right will
entitle the holder to acquire, on payment of the exercise price, that number of common shares having a market value equal to two-times
the exercise price. However, any rights beneficially owned by an acquiring person or by any direct or indirect transferees of such
person, will be void. The term “beneficial ownership” is defined to include, under certain circumstances, shares owned
indirectly through affiliates, associates, trusts and partnerships, other situations of ownership deemed by operation of law, shares
subject to acquisition or voting agreements and shares owned by persons acting jointly or in concert. There are several exceptions, including exceptions
directed towards investment managers, trust companies, and independent managers of pension plans who are not participating in a
take-over bid.



131Canarc Resource Corp.Form 20-F







Permitted Bids



Permitted bids are exempted from
the operation of the Shareholder Rights Plan. In summary, a permitted bid is a take-over bid made by way of take-over bid circular
which complies with the following provisions:



| | (a) | It is made to all holders of voting shares of the Registrant of a particular class and for all
those voting shares.
| | --- | -------------------------------------------------------------------------------------------------------------------

| | (b) | No voting shares can be taken up and paid for before the close of business on the “Permitted
Bid Expiry Date”, as described below, and unless more than 50% of voting shares held by shareholders independent of the offeror
are tendered and not withdrawn.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | Voting shares may be tendered at any time until the Permitted Bid Expiry Date and may be withdrawn
until taken up and paid for.
| | --- | -------------------------------------------------------------------------------------------------------------------------------

| | (d) | If the condition described in (b) above is met, there will be a public announcement and the take-over
bid will be open for a further period of 10 business days.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



The Shareholder Rights Plan contains
provisions designed to ensure that, if considered appropriate, the time for tendering to two or more competing permitted bids will
occur on the same date.



Permitted Bid Expiry Date



The Permitted Bid provisions require
that for a Take-Over to be a Permitted Bid it must be left open until the Permitted Bid Expiry Date. The “Permitted Bid Expiry
Date” means 60 days following the date of the Take-Over Bid.



Exchange Option



Under certain circumstances, the
board of directors of the Registrant can, on exercise of a right and payment of the exercise price, issue other securities or assets
of the Registrant in lieu of common shares. The board of directors of the Registrant can also determine to issue in exchange for
the rights, but without payment of the exercise price, common shares having a value equal to the exercise price or other securities
or assets of the Registrant having the same value.



132Canarc Resource Corp.Form 20-F







Adjustments



The exercise price, the number
and kind of shares subject to purchase upon exercise of each right and the number of rights outstanding are subject to adjustment
from time to time to prevent dilution in the event that the Registrant takes certain actions involving the Registrant's share capital
which would otherwise have a dilutive effect.



Redemption



At any time before the occurrence
of a flip-in event, the board of directors may elect to redeem the rights in whole at a redemption price of $0.0001 per right.



Waiver



The board of directors may waive
the application of the Shareholder Rights Plan to any flip-in event if it determines that a person became an acquiring person by
inadvertence, conditional upon such person having, within 10 days after the determination by the board of directors, reduced its
beneficial ownership of shares such that it is no longer an acquiring person. The board of directors may also, until a flip-in
event has occurred, waive the application of the Shareholder Rights Plan to any particular flip-in event, but in that event, the
board of directors shall be deemed to have waived the application of the Shareholder Rights Plan to any other flip-in event which
may arise under any take-over bid then in effect.



Amendments



The board of directors may amend
the Shareholder Rights Plan to correct clerical or typographical errors, to maintain the validity of the plan as a result of any
changes in any applicable legislation or to increase or decrease the exercise price. Any amendments required to maintain the validity
of the Shareholder Rights Plan must be submitted to the shareholders of the Registrant or, after the separation time, to the holders
of the rights for confirmation.



Other amendments can only be made
with the approval of the shareholders of the Registrant or, after the separation time, the holders of the rights. Any supplements
or amendments to the Shareholder Rights Plan require the prior written consent of the TSX.



133Canarc Resource Corp.Form 20-F







Term



The Shareholder Rights Plan has
a term of 10 years; however, it is subject to ratification at the Meeting, and also at each of the shareholder meetings following
the third and sixth anniversaries of the effective date of the Shareholder Rights Plan. If the Shareholder Rights Plan is not so
ratified at any meeting, the Shareholder Rights Plan shall terminate forthwith.



The text of the ordinary resolution,
in substantially the form which was presented to the shareholders, subject to such changes not affecting the general intent of
the said resolution as may be required by the regulatory authorities or by counsel for the Registrant, is set forth below:



“BE
IT RESOLVED, with or without amendment, as an ordinary resolution, that the Shareholder Rights Plan Agreement, dated for reference
April 30, 2005, between the Company and Computershare Trust Company of Canada, as described in the Information Circular of the
Company dated as at April 26, 2005, be and it is hereby approved, ratified and confirmed.”



The Shareholder Rights Plan expired
in April 2015.





10.C      Material Contracts



The following executive employment
agreements are in effect:



| | - | On January 10, 2014, as amended June 26, 2014 and then amended December 8, 2015, an Executive Employment
Agreement between Canarc and Mr. Catalin Chiloflischi was signed in respect of Mr. Chiloflischi’s capacity as Chief Executive
Officer for Canarc. The employment agreement provides that Mr. Chiloflischi’s base remuneration is CAD$225,000 per annum
plus a bonus based upon the achievement of performance targets as determined by the Compensation Committee of Canarc. Canarc accrued
a bonus for Mr. Chiloflischi which was paid in March 2016.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | - | An Executive Employment Agreement between Canarc and Mr. Garry Biles was signed on January 23,
2007, as amended on June 1, 2011, January 1, 2012 and June 26, 2014, in respect of Mr. Biles’ capacity as Chief Operating
Officer and President for Canarc. The employment
agreement provides that Mr. Biles’ base remuneration is CAD$200,000 per annum plus a bonus based upon the achievement of
performance targets as determined by the Compensation Committee of Canarc.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

134Canarc Resource Corp.Form 20-F









| | - | An Executive Employment Agreement between Canarc and Mr. James Moors was signed on June 1, 2011,
as amended on January 1, 2102, in respect of Mr. Moors’ capacity as Vice-President of Exploration for Canarc. The employment
agreement provided that Mr. Moors’ base remuneration was CAD$120,000 per annum plus a bonus based upon the achievement of
performance targets as determined by the Compensation Committee of Canarc. On January 31, 2014, Canarc and Mr. Moors entered into
a Settlement Agreement and General Release whereby Mr. Moors received a final settlement and severance of CAD$60,000 payable over
a 12 month period ending January 31, 2015 upon his retirement as Vice-President of Exploration for Canarc.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | - | An Executive Employment Agreement between Canarc and Mr. Gregg Wilson was signed on January 1,
2012, in respect of Mr. Wilson’s capacity as Vice-President of Investor Relations for both Canarc and Caza Gold Corp. (“Caza”)
The employment agreement provided that Mr. Wilson’s base remuneration is CAD$90,000 per annum plus a bonus based upon the
achievement of performance targets as determined by the Compensation Committee. Mr. Wilson’s remuneration was allocated between
Canarc and Caza. On March 31, 2014, Canarc and Mr. Wilson entered into a Settlement Agreement and General Release whereby Mr. Wilson
received a final settlement and severance of CAD$90,000 (paid) upon his retirement as Vice-President of Investor Relations for
Canarc effective April 30, 2014.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | - | An Executive Employment Agreement between Caza and Mr. Philip Yee was signed on June 1, 2011 in
respect of Mr. Yee’s capacity as Chief Financial Officer and Vice-President of Finance for Canarc, AzMet, AzMin, and Caza,
as approved by Compensation Committees of both companies. The employment agreement provided that Mr. Yee’s base remuneration
was CAD$180,000 per annum plus a bonus based upon the achievement of performance targets as determined by the Compensation Committee.
Effective January 1, 2012, Mr. Yee’s base remuneration was increased to CAD$193,500 per annum as approved by the Compensation
Committees of Caza and Canarc. Effective June 26, 2014, Mr. Yee signed an Executive Employment Agreement with Canarc with no change
in base remuneration as approved by Canarc’s Compensation Committee. Mr. Yee’s remuneration continues to be allocated
between Canarc, AzMet and AzMin.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





For the two years immediately
preceding April 21, 2017, there were no other material contracts entered into, other than contracts entered into in the ordinary
course of business, to which the Registrant or any member of the group was a party, and other than as disclosed in this Form 20-F.
For a description of those contracts entered into in the ordinary course of business refer to Items 4.A and 4.D.





135Canarc Resource Corp.Form 20-F





10.D      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 Registrant’s common shares. Any remittances of dividends to
United States residents are, however, subject to a 15% withholding tax (10% if the shareholder is a corporation owning at least
10% of the outstanding common shares of the Registrant) pursuant to Article X of the reciprocal tax treaty between Canada and the
United States.



Except as provided in the Investment
Canada Act (the “Act”), there are no limitations under the laws of Canada, the Province of British Columbia or in the
charter or any other constituent documents of the Registrant on the right of foreigners to hold or vote the common shares of the
Registrant.



Management of the Registrant considers
that the following general summary is materially complete and fairly describes those provisions of the Investment Canada Act pertinent
to an investment by an American investor in the Registrant.



The following discussion summarizes
the principal features of the Investment Canada Act for a non-resident who proposes to acquire the common shares.



The Investment Canada Act generally
prohibits implementation of a reviewable investment by an individual, government or agency thereof, corporation, partnership, trust
or joint venture (each an “entity”) that is not a "Canadian" as defined in the Investment Canada Act (a “non-Canadian”),
unless after review, the Director of Investments appointed by the minister responsible for the Investment Canada Act is satisfied
that the investment is likely to be of net benefit to Canada. An investment in the common shares by a non-Canadian other than a
“WTO Investor” (as that term is defined by the Investment Canada Act, and which term includes entities which are nationals
of or are controlled by nationals of member states of the World Trade Organization) when the Company was not controlled by a WTO
Investor, would be reviewable under the Investment Canada Act if it was an investment to acquire control of the Registrant and
the value of the assets of the Registrant, as determined in accordance with the regulations promulgated under the Investment Canada
Act, equals or exceeds $5 million for direct acquisition and over $50 million for indirect acquisition, or if an order for review
was made by the federal cabinet on the grounds that the investment related to Canada's cultural heritage or national identity,
regardless of the value of the assets of the Registrant. An investment in the common shares by a WTO Investor, or by a non-Canadian
when the Registrant was controlled by a WTO Investor, would be reviewable under the Investment Canada Act if it was an investment
to acquire control of the Registrant and the value of the assets of the Registrant, as determined in accordance with the regulations
promulgated under the Investment Canada Act was not less than a specified amount. A non-Canadian would acquire control of the Registrant
for the purposes of the Investment Canada Act if the non-Canadian acquired a majority of the common shares. The acquisition of
one third or more, but less than a majority of the common shares would be presumed to be an acquisition of control of the Registrant
unless it could be established that, on the acquisition, the Registrant was not controlled in fact by the acquirer through the
ownership of the common shares.



136Canarc Resource Corp.Form 20-F





Certain transactions relating
to the common shares would be exempt from the Investment Canada Act, including: (a) an acquisition of the common shares by a person
in the ordinary course of that person's business as a trader or dealer in securities; (b) an acquisition of control of the Registrant
in connection with the realization of security granted for a loan or other financial assistance and not for a purpose related to
the provisions of the Investment Canada Act; and (c) an acquisition of control of the Registrant by reason of an amalgamation,
merger, consolidation or corporate reorganization following which the ultimate direct or indirect control in fact of the Registrant,
through the ownership of the common shares, remained unchanged.





10.E      Taxation





ALL
SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISERS AS TO THE INCOME AND OTHER TAX CONSEQUENCES ARISING IN THEIR PARTICULAR CIRCUMSTANCES.
THE FOLLOWING IS A SUMMARY ONLY AND OF A GENERAL NATURE AND IS NOT INTENDED, NOR SHOULD IT BE CONSTRUED, TO BE LEGAL OR TAX ADVISE
TO ANY PARTICULAR SHAREHOLDER.





United
States Federal Income Tax Consequences



The following is a discussion
of material United States federal income tax consequences, under current law, applicable to a US Holder (as hereinafter defined)
of common shares of the Registrant. This discussion does not address consequences peculiar to persons subject to special provisions
of federal income tax law, such as those described below as excluded from the definition of a US Holder. In addition, this discussion
does not cover any state, local or foreign tax consequences. (Refer to “Certain Canadian Federal Income Tax Considerations”
for material Canadian federal income 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 that, 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 holder
or prospective holder of common shares of the Registrant and no opinion or representation with respect to the United States federal
income tax consequences to any such holder or prospective holder is made. Accordingly, holders and prospective holders of common
shares of the Registrant should consult their own tax advisors about the federal, state, local, and foreign tax consequences of
purchasing, owning and disposing of common shares of the Registrant.



137Canarc Resource Corp.Form 20-F





U.S. Holders



As used herein, a “U.S.
Holder” means a holder of common shares of the Registrant who is (i) a citizen or individual resident of the United States,
(ii) a corporation or partnership created or organized in or under the laws of the United States or of any political subdivision
thereof, (iii) an estate whose income is taxable in the United States irrespective of source or (iv) a trust subject to the primary
supervision of a court within the United States and control of a United States fiduciary as described Section 7701(a)(30) of the
Code. This summary does not address the tax consequences to, and U.S. Holder does not include, persons subject to specific provisions
of federal income tax law, such as 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,
broker-dealers, persons or entities that have a “functional currency” other than the U.S. dollar, shareholders subject
to the alternative minimum tax, shareholders who hold common shares as part of a straddle, hedging, conversion transaction, constructive
sale or other arrangement involving more than one position, and shareholders who acquired their common shares through the exercise
of employee stock options or otherwise as compensation for services. This summary is limited to U.S. Holders who own common shares
as capital assets within the meaning of Section 1221 of the Code. This summary does not address the consequences to a person or
entity holding an interest in a shareholder or the consequences to a person of the ownership, exercise or disposition of any options,
warrants or other rights to acquire common shares.



Distribution on Common Shares
of the Company



U.S. Holders receiving dividend
distributions (including constructive dividends) with respect to common shares of the Registrant are required to include in gross
income for United States 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 Registrant 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 federal income tax liability or,
alternatively, may be deducted in computing the U.S. Holder's federal taxable income by those who itemize deductions. (The section,
“Foreign Tax Credit”, below provides more details). To the extent that distributions exceed current or accumulated
earnings and profits of the Registrant, they will be treated first as a return of capital up to the U.S. Holder’s adjusted
basis in the common shares and thereafter as gain from the sale or exchange of the common shares. Preferential tax rates for long-term
capital gains are applicable to a U.S. Holder that is an individual, estate or trust. There are currently no preferential tax rates
for long-term capital gains for a U.S. Holder that is a corporation.



In the case of foreign currency
received as a dividend 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.



138Canarc Resource Corp.Form 20-F





Dividends paid on the common shares
of the Registrant generally will not be eligible for the dividends received deduction provided to corporations receiving dividends
from certain United States corporations. A U.S. Holder which is a corporation and which owns shares representing at least 10% of
the voting power and value of the Registrant may, under certain circumstances, be entitled to a 70% (or 80% if the U.S. Holder
owns shares representing at least 20% of the voting power and value of the Registrant) deduction of the United States source portion
of dividends received from the Registrant (unless the Registrant qualifies as a “passive foreign investment company,”
as defined below). The availability of this deduction is subject to several complex limitations that are beyond the scope of this
discussion.



Certain information reporting
and backup withholding rules may apply with respect to the Registrant’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 31% of any payments to a holder of the Registrant’s
common shares of dividends on, or proceeds from the sale of, such common shares within the U.S., unless the holder is an exempt
recipient, if the 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. U.S. Holders are urged to consult their own tax counsel regarding the information reporting and backup
withholding rules applicable to the Registrant’s common shares.



Foreign Tax Credit



A U.S. Holder who pays (or has
withheld from distributions) Canadian income tax with respect to the ownership of common shares of the Registrant may be entitled,
at the option of the U.S. Holder, to either receive a deduction or a tax credit for such foreign tax paid or withheld. Generally,
it will be more advantageous to claim a credit because a credit reduces United States federal income taxes on a dollar-for-dollar
basis, while a deduction merely reduces the taxpayer’s income subject to tax. This election is made on a year-by-year basis
and applies to all foreign taxes paid by (or withheld from) the U.S. Holder during that year. There are significant and complex
limitations that apply to the credit among which is the general limitation that the credit cannot exceed the proportionate share
of the U.S. Holder’s United States income tax liability that the U.S. Holder’s foreign source income bears to his or
its worldwide taxable income. In the determination of the application of this limitation, the various items of income and deduction
must be classified into foreign and domestic sources. 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 Registrant will generally constitute “passive income” or, in the case of certain
U.S. Holders, “financial services income” for these purposes. In addition, U.S. Holders which are corporations that
own 10% or more of the voting stock of the Registrant may be entitled to an “indirect” foreign tax credit under Section
902 with respect to the payment of dividends by the Registrant under certain circumstances and subject to complex rules and limitations.
The availability of the foreign tax credit and the application of the limitations on the credit are fact specific, and U.S. Holders
of common shares of the Registrant should consult their own tax advisors regarding their particular circumstances.



139Canarc Resource Corp.Form 20-F





Disposition of Common Shares
of the Company



A U.S. Holder will recognize gain
or loss upon the sale of common shares of the Registrant equal to the difference, if any, between (i) the amount of cash plus the
fair market value of any property received, and (ii) the shareholder’s tax basis in the common shares of the Registrant.
Preferential tax rates apply to long-term capital gains of U.S. Holders that are individuals, estates or trusts. 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 will be long-term
capital gain or loss if the common shares of the Registrant are held for more than one year. Deductions for net capital losses
are subject to significant limitations. For U.S. Holders which 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.



Other Considerations



In the following circumstances,
the above sections of this discussion may not describe the United States federal income tax consequences resulting from the holding
and disposition of common shares:



Foreign Investment
Company



If 50% or more of the combined
voting power or total value of the Registrant's outstanding shares is held, directly or indirectly, by citizens or residents of
the United States, United States domestic partnerships or companies, or estates or trusts other than foreign estates or trusts
(as defined by the Code Section 7701(a)(31)), and the Registrant is found to be engaged primarily in the business of investing,
reinvesting, or trading in securities, commodities, or any interest therein, it is possible that the Registrant may be treated
as a "foreign investment company" as defined in Section 1246 of the Code, causing all or part of any gain realized by
a U.S. Holder selling or exchanging common shares to be treated as ordinary income rather than capital gain. The Registrant does
not believe that it currently qualifies as a foreign investment company. However, there can be no assurance that the Registrant
will not be considered a foreign investment company for the current or any future taxable year.



Passive Foreign Investment
Company



As a foreign corporation with
U.S. Holders, the Registrant could potentially be treated as a passive foreign investment company ("PFIC"), as defined
in Section 1297 of the Code, depending upon the percentage of the Registrant's income which is passive, or the percentage of the
Registrant's assets which produce or are held for the production of passive income. U.S. Holders owning common shares of a PFIC
are subject to the highest rate of tax on ordinary income in effect for the applicable taxable year and to an interest charge based on the value of deferral
of tax for the period during which the common shares of the PFIC are owned with respect to certain “excess distributions”
on and dispositions of PFIC stock. However, if the U.S. Holder makes a timely election to treat a PFIC as a qualified electing
fund ("QEF") with respect to such shareholder's interest therein, the above-described rules generally will not apply.
Instead, the electing U.S. Holder would include annually in his gross income his pro rata share of the PFIC's ordinary earnings
and net capital gain regardless of whether such income or gain was actually distributed. A U.S. Holder of a QEF can, however, elect
to defer the payment of United States federal income tax on such income inclusions. Special rules apply to U.S. Holders who own
their interests in a PFIC through intermediate entities or persons. In addition, subject to certain limitations, U.S. Holders owning,
actually or constructively, marketable (as specifically defined) stock in a PFIC will be permitted to elect to mark that stock
to market annually, rather than be subject to the excess distribution regime of section 1291 described above. Amounts included
in or deducted from income under this alternative (and actual gains and losses realized upon disposition, subject to certain limitations)
will be treated as ordinary gains or losses. This alternative will apply to taxable years of U.S. Holders beginning after 1997
and taxable years of foreign corporations ending with or within such taxable years of U.S. Holders.

140Canarc Resource Corp.Form 20-F







Because the PFIC determination
is made annually on the basis of income and assets, there can be no assurance that the Registrant will not be classified a PFIC
in the current or in a subsequent year. In addition, there can be no assurance that the Registrant's determination concerning its
PFIC status will not be challenged by the IRS, or that it will be able to satisfy record keeping requirements which will be imposed
on QEFs in the event that it qualifies as a PFIC.



Controlled Foreign Registrant



If more than 50% of the total
combined voting power of all classes of shares entitled to vote or the total value of the shares of the Registrant is owned, actually
or constructively, by citizens or residents of the United States, United States domestic partnerships or corporations, or estates
or trusts other than foreign estates or trusts (as defined by the Code Section 7701(a)(31)), each of which own, actually or constructively,
10% or more of the total combined voting power of all classes of shares entitled to vote of the Registrant (“United States
Shareholder”), the Registrant could be treated as a controlled foreign corporation (“CFC”) under Subpart F of
the Code. This classification would affect many complex results, one of which is the inclusion of certain income of a CFC which
is subject to current U.S. tax. The United States generally taxes United States shareholders of a CFC currently on their pro rata
shares of the Subpart F income of the CFC. Such United States shareholders are generally treated as having received a current distribution
out of the CFC’s Subpart F income and are also subject to current U.S. tax on their pro rata shares of the CFC’s earnings
invested in U.S. property. The foreign tax credit described above may reduce the U.S. tax on these amounts. In addition, under
Section 1248 of the Code, gain from the sale or exchange of shares by a U.S. Holder of common shares of the Registrant which is
or was a United States Shareholder at any time during the five-year period ending with the sale or exchange is treated as ordinary
income to the extent of earnings and profits of the Registrant attributable to the shares sold or exchanged. If a foreign corporation
is both a PFIC and a CFC, the foreign corporation generally will not be treated as a PFIC with respect to United States Shareholders
of the CFC. This rule generally will be effective for taxable years of United States Shareholders beginning after 1997 and for
taxable years of foreign Registrants ending with or within such taxable years of United States Shareholders. Special rules apply
to United States Shareholders who are subject to the special taxation rules under Section 1291 discussed above with respect to
a PFIC. Because of the complexity of Subpart F, a more detailed review of these rules is outside of the scope of this discussion.
The Registrant does not believe that it currently qualifies as a CFC. However, there can be no assurance that the Registrant will
not be considered a CFC for the current or any future taxable year.



141Canarc Resource Corp.Form 20-F







Certain
Canadian Federal Income Tax Considerations



A brief description of certain
provisions of the tax treaty between Canada and the United States is included below, together with a brief outline of certain taxes,
including withholding provisions, to which United States security holders are subject under existing laws and regulations of Canada.
The consequences, if any, of provincial, state and local taxes are not considered.



The following information is general,
and security holders should seek the advice of their own tax advisors, tax counsel or accountants with respect to the applicability
or effect on their own individual circumstances of the matters referred to herein and of any provincial, state, or local taxes.



The discussion under this heading
summarizes the principal Canadian federal income tax consequences of acquiring, holding and disposing of shares of common stock
of the Registrant for a shareholder of the Registrant who is not a resident of Canada but is a resident of the United States and
who will acquire and hold shares of common stock of the Registrant as capital property for the purposes of the Income Tax Act
(Canada) (the “Canadian Tax Act”). This summary does not apply to a shareholder who carries on business in Canada through
a “permanent establishment” situated in Canada or performs independent personal services in Canada through a fixed
base in Canada if the shareholder’s holding in the Registrant is effectively connected with such permanent establishment
or fixed base. This summary is based on the provisions of the Canadian Income Tax Act and the regulations thereunder and on an
understanding of the administrative practices of Canada Revenue Agency, and takes into account all specific proposals to amend
the Canadian Tax Act or regulations made by the Minister of Finance of Canada as of the date hereof. It has been assumed that there
will be no other relevant amendment of any governing law although no assurance can be given in this respect. This discussion is
general only and is not a substitute for independent advice from a shareholder’s own Canadian and U.S. tax advisors.



The provisions of the Canadian
Tax Act are subject to income tax treaties to which Canada is a party, including the Canada-United States Income Tax Convention
(1980), as amended (the “Convention”).



Dividends on Common Shares
and Other Income



Under the Canadian Tax Act, a
non-resident of Canada is generally subject to Canadian withholding tax at the rate of 25 percent on dividends paid or deemed to
have been paid to him or her by a corporation resident in Canada. The Convention limits the rate to 15 percent if the shareholder
is a resident of the United States and the dividends are beneficially owned by and paid to such shareholder, and to 5 percent if
the shareholder is also a corporation that beneficially owns at least 10 percent of the voting stock of the payor corporation.



142Canarc Resource Corp.Form 20-F







The amount of a stock dividend
(for tax purposes) would generally be equal to the amount by which the paid up or stated capital of the Registrant had increased
by reason of the payment of such dividend. The Registrant will furnish additional tax information to shareholders in the event
of such a dividend. Interest paid or deemed to be paid on the Registrant’s debt securities held by non-Canadian residents
may also be subject to Canadian withholding tax, depending upon the terms and provisions of such securities and any applicable
tax treaty.



The Convention generally exempts
from Canadian income tax dividends paid to a religious, scientific, literary, educational or charitable organization or to an organization
operated exclusively to administer or provide pension, retirement or employee benefit fund, if the organization is a resident of
the United States and is generally exempt from income tax under the laws of the United States provided it is not carrying on a
trade or business.



Dispositions of Common Shares



Under the Canadian Tax Act, subject
to certain restrictions, a taxpayer’s capital gain or capital loss from a disposition of a share of common stock of the Registrant
is the amount, if any, by which his or her proceeds of disposition exceed (or are exceeded by, respectively) the aggregate of his
or her adjusted cost base of the share and reasonable expenses of disposition. The capital gain or loss must be computed in Canadian
currency using a weighted average adjusted cost base for identical properties. Fifty percent of the capital gains net of losses
are included in income. The amount by which a shareholder’s capital loss exceeds the capital gain in a year may be deducted
from a capital gain realized by the shareholder in the three previous years or any subsequent year, subject to certain restrictions
in the case of a corporate shareholder.



Under the Canadian Tax Act, a
non-resident of Canada is subject to Canadian tax on taxable capital gains, and may deduct allowable capital losses, realized on
a disposition of "taxable Canadian property”. Shares of common stock of the Registrant will constitute taxable Canadian
property of a shareholder at a particular time if the shareholder used the shares in carrying on business in Canada, or if at any
time in the five years immediately preceding the disposition 25% or more of the issued shares of any class or series in the capital
stock of the Registrant belonged to one or more persons in a group comprising the shareholder and persons with whom the shareholder
and persons with whom the shareholder did not deal at arm’s length and in certain other circumstances.



The Convention relieves United
States residents from liability for Canadian tax on capital gains derived on a disposition of shares unless:



(a)	the value of the shares
is derived principally from “real property” in Canada, including the right to explore for or exploit natural resources
and rights to amounts computed by reference to production;



143Canarc Resource Corp.Form 20-F





(b)	the shareholder was resident
in Canada for 120 months during any period of 20 consecutive years preceding the disposition, and at any time during the 10 years
immediately preceding, the disposition and the shares were owned by him or her when he or she ceased to be resident in Canada;
or



(c)	the shares formed part
of the business property of a “permanent establishment” that the holder has or had in Canada within the 12 months preceding
the disposition.





10.F      Dividends and Paying Agents



Not applicable.





10.G      Statement by Experts



Not applicable.





10.H      Documents on Display



We are subject to the informational
requirements of the Exchange Act and file reports and other information with the SEC. You may read and copy any of our reports
and other information at, and obtain copies upon payment of prescribed fees from, the Public Reference Room maintained by the SEC
at 100 F Street, N.E., Washington, D.C. 20549. In addition, the SEC maintains a Website that contains reports, proxy and information
statements and other information regarding registrants that file electronically with the SEC at http://www.sec.gov. The public
may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.



We are required to file reports
and other information with the securities commissions in Canada. You are invited to read and copy any reports, statements or other
information, other than confidential filings, that we file with the provincial securities commissions. These filings are also electronically
available from the Canadian System for Electronic Document Analysis and Retrieval ("SEDAR") (www.sedar.com), the Canadian
equivalent of the SEC's electronic document gathering and retrieval system.



144Canarc Resource Corp.Form 20-F





We "incorporate by reference"
information that we file with the SEC, which means that we can disclose important information to you by referring you to those
documents. The information incorporated by reference is an important part of this Form 20-F and more recent information automatically
updates and supersedes more dated information contained or incorporated by reference in this Form 20-F.



As a foreign private issuer, we
are exempt from the rules under the Exchange Act prescribing the furnishing and content of proxy statements to shareholders.



We will provide without charge
to each person, including any beneficial owner, to whom a copy of this Annual Report on Form 20-F has been delivered, on the written
or oral request of such person, a copy of any or all documents referred to above which have been or may be incorporated by reference
in this Annual Report on Form 20-F (not including exhibits to such incorporated information that are not specifically incorporated
by reference into such information). Requests for such copies should be directed to us at the following address: Suite #301 - 700
West Pender Street, Vancouver, British Columbia, Canada, V6C 1G8. The Company is required to file financial statements and other
information with the Securities Commission in each of the Provinces of Canada, except Quebec, electronically through SEDAR which
can be viewed at www.sedar.com.





10.I      Subsidiary Information



Not applicable.





ITEM 11.      QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK





Canarc’s audited consolidated
financial statements have been prepared in accordance with IFRS as issued by the IASB, and all dollar amounts are expressed in
United States dollars unless otherwise indicated.



Quantitative and qualitative disclosures
about market risk are provided in Canarc’s audited consolidated financial statements for the year ended December 31, 2016
and the notes thereto.



Item
3.D provides information concerning risk factors.



145Canarc Resource Corp.Form 20-F









Management
of Capital



The Registrant is an exploration
stage company and this involves a high degree of risk. The Registrant has not determined whether its mineral property interests
contain reserves of ore and currently has not earned any revenues from its mineral property interests and, therefore, does not
generate cash flows from operations. The Registrant’s primary source of funds comes from the issuance of share capital and
proceeds from notes payable. The Registrant is not subject to any externally imposed capital requirements.



The Registrant defines its capital
as debt and share capital. Capital requirements are driven by the Registrant’s exploration activities on its mineral property
interests. To effectively manage the Registrant’s capital requirements, the Registrant has a planning and budgeting process
in place to ensure that adequate funds are available to meet its strategic goals. The Registrant monitors actual expenses to budget
on all exploration projects and overhead to manage costs, commitments and exploration activities.



The Registrant has in the past
invested its capital in liquid investments to obtain adequate returns. The investment decision is based on cash management to ensure
working capital is available to meet the Registrant’s short-term obligations while maximizing liquidity and returns of unused
capital.



Although the Registrant has been
successful at raising funds in the past through the issuance of share capital, it is uncertain whether it will be able to continue
this financing in the future. The Registrant will continue to rely on debt and equity financings to meet its commitments as they
become due, to continue exploration work on its mineral property interests, and to meet its administrative overhead costs for the
coming periods.



There were no changes in the Registrant’s
approach to capital management during the year ended December 31, 2016.





Management
of Financial Risk



The
Registrant is exposed in varying degrees to a variety of financial instrument related risks, including credit risk, liquidity risk,
and market risk which includes foreign currency risk, interest rate risk and other price risk. The types of risk exposure and the
way in which such exposure is managed are provided as follows.



146Canarc Resource Corp.Form 20-F







The fair value hierarchy categorizes
financial instruments measured at fair value at one of three levels according to the reliability of the inputs used to estimate
fair values. The fair value of assets and liabilities included in Level 1 are determined by reference to quoted prices in active
markets for identical assets and liabilities. Assets and liabilities in Level 2 are valued using inputs other than quoted prices
for which all significant inputs are based on observable market data. Level 3 valuations are based on inputs that are not based
on observable market data.



The fair values of the Registrant’s
receivables, promissory note receivable, accounts payable and accrued liabilities and notes payable approximate their carrying
values due to the short terms to maturity. Cash is measured at fair values using Level 1 inputs. Disclosure is not made of the
fair value of the long-term investments as the shares do not have a quoted market price in an active market. There is no separately
quoted market value for the Registrant’s investments in the shares of AzMet and AzMin. Marketable securities of AzMin is
measured using Level 2 of the fair value hierarchy and AzMet is measured using Level 3 of the fair value hierarchy. In October
2014, the Registrant received 358,000 shares from Aztec in settlement of debt owed to the Registrant which the Registrant had written
off in 2013. All gains and losses are included in operations in the period in which they arise.Derivative
liability is measured using Level 1 inputs.



(a)	          Credit risk:



Credit risk is the risk
of potential loss to the Registrant if the counterparty to a financial instrument fails to meet its contractual obligations.



The Registrant's credit
risk is primarily attributable to its liquid financial assets including cash. The Registrant limits exposure to credit risk on
liquid financial assets through maintaining its cash with high-credit quality Canadian financial institutions.



Management has reviewed
the items comprising the accounts receivable balance which may include amounts receivable from certain related parties, and determined
that all accounts are collectible; accordingly there has been no allowance for doubtful accounts recorded.



(b)          	Liquidity risk:



Liquidity
risk is the risk that the Registrant will not be able to meet its financial obligations as they become due.



147Canarc Resource Corp.Form 20-F





The Registrant ensures that
there is sufficient capital in order to meet short-term business requirements, after taking into account the Registrant's holdings
of cash and its ability to raise equity financings. As at December 31, 2016, the Registrant had a working capital of $9.1 million
(2015 – working capital deficiency of $574,000). The Registrant has sufficient funding to meet its short-term liabilities
and administrative overhead costs, and to maintain its mineral property interests in 2017.



Accounts payable and accrued
liabilities are due in less than 90 days, and the notes payable, if any, are due on demand.



(c)	          Market risk:



The significant market risk
exposures to which the Registrant is exposed are foreign currency risk, interest rate risk and other price risk.



(i)	           Foreign currency
risk:



The Registrant’s mineral
property interests and operations are in Canada and previously in Mexico. A certain portion of its operating expenses are incurred
in Canadian dollars and previously in Mexican pesos. Fluctuations in the Canadian dollar would affect the Registrant’s consolidated
statements of comprehensive income (loss) as its functional currency is the Canadian dollar, and fluctuations in the U.S. dollar
would impact its cumulative translation adjustment as its consolidated financial statements are presented in U.S. dollars.



The Registrant is exposed
to currency risk for its U.S. dollar equivalent of assets and liabilities denominated in currencies other than U.S. dollars as
follows:



148Canarc Resource Corp.Form 20-F







|                                                      |  | Stated in U.S. Dollars
|----------------------------------------------------- |  | ----------------------
|($000s)                                               |  | Held in               
|                                                      |  | Canadian Dollars      
|                                                      |  |                       
|Cash                                                  |  | $            7,984    
|Marketable securities                                 |  | 955                   
|Receivables                                           |  | 24                    
|Accounts payable and accrued liabilities              |  | (101)                 
|                                                      |  |                       
|Net financial assets (liabilities), December 31, 2016 |  | $            8,862    
|                                                      |  |                       
|Cash                                                  |  | $                 70  
|Receivables                                           |  | 11                    
|Accounts payable and accrued liabilities              |  | (792)                 
|                                                      |  |                       
|Net financial assets (liabilities), December 31, 2015 |  | $             (711)   



Based upon the above net exposure
as at December 31, 2016 and assuming all other variables remain constant, a 15% (2015 - 15%) depreciation or appreciation of the
U.S. dollar relative to the Canadian dollar could result in a decrease (increase) of approximately $1.3 million (2015 - $99,450)
in the cumulative translation adjustment in the Registrant’s shareholders’ equity.



The Registrant has not entered
into any agreements or purchased any instruments to hedge possible currency risks at this time



(ii)          	Interest rate risk:



In respect of financial assets,
the Registrant's policy is to invest cash at floating rates of interest in cash equivalents, in order to maintain liquidity, while
achieving a satisfactory return. Fluctuations in interest rates impact on the value of cash equivalents. Interest rate risk is
not significant to the Registrant as it has no cash equivalents at period-end and the promissory notes receivable and notes payable,
if any, are stated at fixed interest rates.



| | (iii) | Other price risk:
| | ----- | -----------------



Other price risk is the risk
that the value of a financial instrument will fluctuate as a result of changes in market and commodity prices.



149Canarc Resource Corp.Form 20-F







The Registrant’s other
price risk includes equity price risk, whereby investment in marketable securities are held for trading financial assets with fluctuations
in quoted market prices recorded at fair value through profit loss. There is no separately quoted market value for the Registrant’s
investments in the shares of AzMet and AzMin.



The Registrant had recognized
a derivative liability pursuant to the share purchase agreement with Marlin Gold which closed on October 30, 2015, whereby the
Registrant shall pay 55 troy ounces of gold to Marlin Gold on each of the first three anniversaries of the closing date of the
agreement (or its U.S. dollar equivalent), for a total of 165 troy ounces of gold. The derivative liability fluctuated with the
gold spot prices resulting in the recognition of gains and losses in profit or loss in which the Registrant had not hedged the
payable gold ounces. Based upon the net exposure as at December 31, 2015 and assuming all other variables remain constant, a 20%
depreciation or appreciation of the gold spot prices could result in a decrease/increase of approximately $35,000 in the Registrant’s
net losses. Pursuant to the Sale Agreement between the Registrant and Endeavour which closed on May 27, 2016, Endeavour assumed
responsibility for the 165 troy ounces payable to Marlin Gold.



As certain of the Registrant’s
marketable securities are carried at market value and are directly affected by fluctuations in value of the underlying securities,
the Registrant considers its financial performance and cash flows could be materially affected by such changes in the future value
of the Registrant’s marketable securities. Based upon the net exposure as at December 31, 2016 and assuming all other variables
remain constant, a net increase or decrease of 100% in the market prices of the underlying securities would increase or decrease
respectively net income by $955,000; the Registrant had no marketable securities in 2015 and 2014.





ITEM 12.      DESCRIPTION OF SECURITIES
OTHER THAN EQUITY SECURITIES



A. – C.



Not Applicable.



D.	     American Depository Receipts



The Company does not have securities
registered as American Depository Receipts



150Canarc Resource Corp.Form 20-F











PART II





ITEM 13.      DEFAULTS, DIVIDEND ARREARAGES
AND DELINQUENCIES



None.





ITEM 14.       MATERIAL MODIFICATIONS TO
THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS





14.A - D



None.





14.E      Use of Proceeds



Not Applicable.





ITEM 15.      CONTROLS AND PROCEDURES





A.	     Disclosure Controls and
Procedures



At the end of the period
covered by this report, an evaluation was carried out under the supervision of and with the participation of the
Registrant’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer
(“CFO”), of the effectiveness of the design and operations of
the Registrant’s disclosure controls and procedures (as defined in Rule 13a – 15(e) and Rule 15d – 15(e) under
the Exchange Act). Based on that evaluation the CEO and the CFO have concluded that as of the end of the period covered by this
report, the Registrant’s disclosure controls and procedures were adequately designed and effective to give reasonable assurance
that: (i) information required to be disclosed by the Registrant in reports that it files or submits to the Securities and Exchange
Commission under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable
rules and forms; and (ii) material information required to be disclosed in our reports filed under the Exchange Act is accumulated
and communicated to the Registrant’s management, including its CEO and CFO, as appropriate, to allow for accurate and timely
decisions regarding required disclosure.



151Canarc Resource Corp.Form 20-F







B.	     Management’s Report on Internal Control
over Financial Reporting



The Registrant’s management,
including the CEO and CFO, does not expect that its disclosure controls and procedures or internal controls and procedures will
prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the
fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and
instances of fraud, if any, within the Registrant have been detected. These inherent limitations include the realities that judgments
in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can
be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.
The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and
there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over
time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures
may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may
occur and not be detected. The Registrant’s controls include policies and procedures that:



| | - | pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the Registrant;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | - | provide reasonable assurance that transactions are recorded as necessary
to permit preparation of financial statements in accordance with IFRS;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------

| | - | provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of the Registrant’s assets that could have a material effect on the annual
financial statements or interim financial statements; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | - | statement of management’s responsibility for establishing and
maintaining adequate internal control over financial reporting.
| | - | -----------------------------------------------------------------------------------------------------------------------------



152Canarc Resource Corp.Form 20-F





Management conducted an evaluation
of the design and operation of the Registrant’s internal control over financial reporting as of December 31, 2016 based on
the criteria in a framework developed by the Registrant’s management pursuant to and in compliance with the SEC’s Guidance
Regarding Management’s Report on Internal Control Over Financial Reporting Under Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, Release No. 33-8810 and based on the criteria set forth in Internal Control – Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO 2013 framework). This evaluation included
review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness
of controls and a conclusion on this evaluation. Based upon its assessment, management, including the Registrant’s Chief
Executive Officer and Chief Financial Officer, concluded that, as of December 31, 2016, the Registrant’s internal control
over financial reporting was effective.



C.	     Attestation Report of
the Registered Public Accounting Firm



This Annual Report on Form 20-F
does not include an attestation report of our independent registered public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant
to Section 404(c) of the Sarbanes-Oxley Act of 2002, as amended, which provides that issuers that are not an “accelerated
filer” or “large accelerated filer” are exempt from the requirement to provide an auditor attestation report.





D.	     Changes in Internal Controls
over Financial Reporting



There were no changes in the Registrant’s
internal controls over financial reporting identified in connection with the evaluation described above that occurred during the
period covered by this annual report that has materially affected or is reasonably likely to materially affect the Registrant’s
internal control over financial reporting.





ITEM
16.      AUDIT COMMITTEE FINANCIAL EXPERT, CODE OF ETHICS AND PRINCIPAL ACCOUNTANT FEES AND SERVICES





16.A      Audit Committee Financial Expert



The Registrant’s Board of
Directors has determined that Martin Burian qualifies as a financial expert (as defined in Item 407(d)(5)(ii) of Regulation S-K
under the Exchange Act) and is independent (as determined under Exchange Act Rule 10A-3 and Section 803A of the NYSE MKT Company
Guide).





153Canarc Resource Corp.Form 20-F







16.B      Code of Ethics



The Registrant has not adopted
a formal written code of ethics given its relatively small size.



Directors, including the director/employee
of the Registrant, are subject to the laws of the Province of British Columbia, Canada, whereby they are required to act honestly,
in good faith and in the best interests of the Registrant. Also, the Registrant’s legal counsel is available to the management
of the Registrant to provide a high standard of due care in the activities of the Registrant and to provide guidance when needed.



The Registrant expects all directors,
officers and employees to abide by the following code of ethics which have been communicated to them:



| | - | act with honesty and integrity and in an ethical manner resolve any actual or apparent conflicts
of interest between personal and professional relationships;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------

| | - | ensure that any public filings or announcements, whether they are statutory or regulatory filings
or other documents submitted for public disclosure and communication, are accurate, complete, fair, timely and understandable in
all material respects, taking into consideration applicable standards and regulations;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | - | comply with applicable laws, rules and regulations; and
| | - | -------------------------------------------------------

| | - | prompt internal reporting of any violations, whether actual or potential, in the code of ethics.
| | - | ------------------------------------------------------------------------------------------------

During the fiscal year ended December 31, 2016, the Company
did not substantively amend, waive or implicitly waive any provision of the Code with respect to any of the directors, officers
or employees subject to it.





16.C      Principal Accountant Fees and
Services



The following table discloses
accounting fees and services of the Registrant:

154Canarc Resource Corp.Form 20-F







(Stated in terms of Canadian dollars)



|Type of Services Rendered | 2016
        Fiscal Year
        (CAD$) | 2015
        Fiscal Year
        (CAD$)
|------------------------- | --------------------------------------- | ---------------------------------------
|                          |                                         |                                        
|(a)  Audit Fees           | $32,000                                 | $31,000                                
|                          |                                         |                                        
|(b)  Audit-Related Fees   | Nil                                     | Nil                                    
|                          |                                         |                                        
|(c)  Tax Fees             | Nil                                     | Nil                                    
|                          |                                         |                                        
|(d)  All Other Fees       | Nil                                     | Nil                                    
|                          |                                         |                                        



At an Audit Committee meeting
held in March 2017, the Audit Committee pre-approved all services to be performed by the auditors including certain non-audit services
requested by management for the 2017 fiscal year until the next Audit Committee meeting concerning the financial statements for
the year ended December 31, 2017, which services are not prohibited services under the independence requirements of the Securities
and Exchange Commission or professional standards in Canada or the United States.



The Audit Committee pre-approves
all non-audit services to be performed by the auditor in accordance with the Audit Committee Charter. There were no hours expended
on the principal accountant's engagement to audit the Registrant's financial statements for the most recent fiscal year that were
attributed to work performed by persons other than the principal accountant's full-time, permanent employees.





16.D      Exemptions from the Listing Standards for Audit Committees



Not applicable.

155Canarc Resource Corp.Form 20-F









16.E      Purchases of Equity Securities by the Registrant and
Affiliated Purchasers



None.





16.F      Change in Registrant’s Certifying Accountant



None.





16.G      Corporate Governance



Not applicable.





16.H      Mine Safety Disclosure



Pursuant to Section 1503(a) of
the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, issuers that are operators, or that have a subsidiary that
is an operator, of a coal or other mine in the United States are required to disclose in their periodic reports filed with the
SEC information regarding specified health and safety violations, orders and citations, related assessments and legal actions,
and mining-related fatalities with respect to mining operations and properties in the United States that are subject to regulation
by the Federal Mine Safety and Health Administration (“MSHA”) under the Federal Mine Safety and Health Act of 1977
(the “Mine Act”). During the year ended December 31, 2016, the Company had no mines in the United States that were
subject to regulation by the MSHA under the Mine Act.



156Canarc Resource Corp.Form 20-F





PART III





ITEM 17.      FINANCIAL STATEMENTS



Not Applicable





ITEM 18.      FINANCIAL STATEMENTS



The consolidated financial statements
of the Company have been prepared in accordance with IFRS as issued by the IASB, and all dollar amounts are expressed in United
States dollars unless otherwise indicated.



The
following financial statements and related schedules are included in this Item:



|Financial Statements                                                                                                                                                                                                                                             |        
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------
|1.1	Report of Independent Registered Public Accounting Firm dated March 14, 2017                                                                                                                                                                                 | 99     
|1.2	Consolidated statements of financial position as at December 31, 2016 and 2015 together with the consolidated statements of comprehensive loss, changes in shareholders’ equity and cash flows for each of the years ended December 31, 2016, 2015 and 2014. | 100-104





157Canarc Resource Corp.Form 20-F







ITEM 19.      EXHIBITS





|Exhibits 
|---------
|Exhibit #
|1-1      
|1-2      
|8-1      
|12-1     
|12-2     
|13-1.    
|13-2     
|15-1     
|15-2     
|15-3     
|15-4     
|15-5     

158Canarc Resource Corp.Form 20-F











SIGNATURE



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.



DATED at Vancouver, British Columbia, Canada, as of
April 27, 2017.



CANARC RESOURCE CORP.

Per:



/s/ Catalin
Chiloflischi



Catalin
Chiloflischi, Chief Executive Officer





159Canarc Resource Corp.Form 20-F











Consolidated Financial Statements
of



CANARC RESOURCE CORP.



(expressed in United States
dollars)





Years ended December 31, 2016
and 2015









160Canarc Resource Corp.Form 20-F









INDEPENDENTAUDITORS’REPORT





TOTHESHAREHOLDERSOFCANARCRESOURCECORP.



WehaveauditedtheaccompanyingconsolidatedfinancialstatementsofCanarcResourceCorp.,whichcomprisethe consolidated
statementsoffinancialposition asat December
31, 2016and2015,andtheconsolidatedstatementsof comprehensiveincome (loss),
changesin shareholders’
equity and
cash flows
for the
years ended
December31, 2016,
2015 and2014,anda summary ofsignificant
accountingpoliciesandotherexplanatory
information.



Management'sResponsibilityfortheConsolidatedFinancialStatements

Managementisresponsibleforthepreparationandfairpresentationoftheseconsolidated
financialstatements
in accordancewith InternationalFinancial
ReportingStandards,as issued
by the International
Accounting
Standards
Board, and
for such
internal controlas managementdeterminesis necessaryto enable the
preparation
of consolidated
financial
statements
that arefree from
material misstatement,
whether
duetofraud
orerror.



Auditors’Responsibility

Ourresponsibilityistoexpressanopinionontheseconsolidatedfinancialstatementsbasedonouraudits.We conductedour auditsin accordancewith Canadian
generally
acceptedauditingstandards
and the standards
of the Public
CompanyAccounting
OversightBoard(United States).Those
standardsrequirethat we comply
with ethical
requirements
andplanandperform
theaudittoobtainreasonable
assurance
aboutwhether
theconsolidated
financial
statements
arefreefrom materialmisstatement.



Anauditinvolvesperforming procedurestoobtainauditevidenceabouttheamountsanddisclosuresinthe
consolidatedfinancialstatements.Theprocedures selecteddependon
theauditors’judgement,includingthe
assessmentoftherisksofmaterialmisstatement oftheconsolidatedfinancialstatements,whetherduetofraudor
error. Inmakingthoseriskassessments,theauditor
considers internalcontrolrelevanttotheentity'spreparation
and fairpresentation oftheconsolidatedfinancialstatementsinorder todesignauditproceduresthatareappropriatein
the circumstances, but not for
the purpose of
expressing
an opinion on
the effectiveness of
the entity's
internal
control. Anauditalsoincludes
evaluatingtheappropriatenessofaccounting policiesusedand
thereasonablenessof accountingestimatesmadebymanagement,aswellasevaluatingtheoverallpresentationoftheconsolidatedfinancialstatements.



161Canarc Resource Corp.Form 20-F







We
believethattheaudit
evidencewehaveobtainedinourauditsissufficientandappropriatetoprovideabasis
for ourauditopinion.



Opinion

Inouropinion,theconsolidated
financialstatements
presentfairly,inallmaterialrespects,thefinancialpositionof CanarcResource
Corp.asatDecember
31,2016and2015,
anditsfinancial
performance
anditscashflowsforthe yearsendedDecember
31,2016,2015and2014inaccordancewithInternationalFinancialReportingStandards,
as issuedby theInternationalAccounting
Standards
Board.



EmphasisofMatter

Withoutqualifying
ouropinion,wedrawattentiontoNote1intheconsolidatedfinancialstatements,which describesmattersandconditionsthatindicatetheexistenceof materialuncertaintiesthat castsubstantial
doubtabout theCompany’s
abilitytocontinueasa goingconcern.











CharteredProfessionalAccountants



Vancouver,Canada

March 14,2017





162Canarc Resource Corp.Form 20-F







CANARC RESOURCE CORP.

Consolidated Statements of Financial Position

(expressed in thousands of United States dollars)





|                                           |  |            |  | December 31,          
|------------------------------------------ |  | ---------- |  | ----------------------
|                                           |  | Notes      |  | 2016                  
|                                           |  |            |  |                       
|ASSETS                                     |  |            |  |                       
|                                           |  |            |  |                       
|CURRENT ASSETS                             |  |            |  |                       
|Cash                                       |  |            |  | $               8,079 
|Marketable securities                      |  | 7(b) and 8 |  | 955                   
|Receivables and prepaids                   |  | 6          |  | 142                   
|Total Current Assets                       |  |            |  | 9,176                 
|                                           |  |            |  |                       
|NON-CURRENT ASSETS                         |  |            |  |                       
|Restricted cash                            |  | 9(a)(i)    |  | 35                    
|Mineral property interests                 |  | 9          |  | 10,496                
|Equipment                                  |  | 10         |  | 1                     
|Total Non-Current Assets                   |  |            |  | 10,532                
|Total Assets                               |  |            |  | $             19,708  
|                                           |  |            |  |                       
|LIABILITIES AND SHAREHOLDERS' EQUITY       |  |            |  |                       
|                                           |  |            |  |                       
|CURRENT LIABILITIES                        |  |            |  |                       
|Accounts payable and accrued liabilities   |  | 12 and 15  |  | $                  101
|Derivative liability, current portion      |  | 7 and 11   |  | -                     
|Total Current Liabilities                  |  |            |  | 101                   
|                                           |  |            |  |                       
|LONG TERM LIABILITIES                      |  |            |  |                       
|Derivative liability, long term portion    |  | 7 and 11   |  | -                     
|Total Liabilities                          |  |            |  | 101                   
|                                           |  |            |  |                       
|SHAREHOLDERS' EQUITY                       |  |            |  |                       
|Share capital                              |  | 13(b)      |  | 66,210                
|Reserve for share-based payments           |  |            |  | 759                   
|Accumulated other comprehensive loss       |  |            |  | (3,269)               
|Deficit                                    |  |            |  | (44,093)              
|Total Shareholders' Equity                 |  |            |  | 19,607                
|Total Liabilities and Shareholders' Equity |  |            |  | $             19,708  





Refer to the accompanying notes
to the consolidated financial statements.





Approved on behalf of the Board:



|/s/     Bradford Cooke |  | /s/     Martin Burian
|---------------------- |  | ---------------------
|                       |  |                      
|Director               |  | Director             





163Canarc Resource Corp.Form 20-F







CANARC RESOURCE CORP.

Consolidated Statements of Comprehensive Loss

(expressed in thousands of United States dollars, except
per share amounts)





|                                                         |  |                      |     | Years ended December 31,   
|-------------------------------------------------------- |  | -------------------- | --- | ---------------------------
|                                                         |  | Notes                |     | 2016                       
|                                                         |  |                      |     |                            
|Expenses:                                                |  |                      |     |                            
|Amortization                                             |  |                      |     | $                         -
|Corporate development                                    |  | 14 and 15            |     | 136                        
|Employee and director remuneration                       |  | 15                   |     | 461                        
|General and administrative                               |  | 14 and 15            |     | 193                        
|Shareholder relations                                    |  |                      |     | 311                        
|Share-based payments                                     |  | 13(c) and 15         |     | 301                        
|                                                         |  |                      |     |                            
|Loss before the undernoted                               |  |                      |     | (1,402)                    
|                                                         |  |                      |     |                            
|Interest and other income                                |  |                      |     | 28                         
|Change in fair value of marketable securities            |  | 8                    |     | 3,205                      
|Flow through financing costs                             |  | 12(b)                |     | -                          
|Gain from debt settlement                                |  | 12(a) and 13(b)(iii) | 108 |                            
|Gain from derivative liability                           |  | 11                   |     | -                          
|Interest and finance charges                             |  |                      |     | -                          
|Foreign exchange gain (loss)                             |  |                      |     | 16                         
|Recovery (write-off) of promissory notes receivable      |  | 6                    |     | 10                         
|                                                         |  |                      |     |                            
|Net income (loss) from continuing operations             |  |                      |     | 1,965                      
|                                                         |  |                      |     |                            
|Net income (loss) from discontinued operations           |  | 7(b)                 |     | 4,826                      
|                                                         |  |                      |     |                            
|                                                         |  |                      |     |                            
|Net income (loss) for the year                           |  |                      |     | 6,791                      
|                                                         |  |                      |     |                            
|Other comprehensive income (loss):                       |  |                      |     |                            
|Items that will not be reclassified into profit or loss: |  |                      |     |                            
|Foreign currency translation adjustment                  |  |                      |     | 70                         
|                                                         |  |                      |     |                            
|Comprehensive income (loss) for the year                 |  |                      |     | $                6,861     
|                                                         |  |                      |     |                            
|                                                         |  |                      |     |                            
|Basic and diluted earnings (loss) per share:             |  |                      |     |                            
|                                                         |  |                      |     |                            
|Continuing operations:                                   |  |                      |     |                            
|Basic                                                    |  |                      |     | $                  0.01    
|Diluted                                                  |  |                      |     | $                  0.01    
|                                                         |  |                      |     |                            
|Discontinued operations:                                 |  |                      |     |                            
|Basic                                                    |  |                      |     | $                  0.02    
|Diluted                                                  |  |                      |     | $                  0.02    
|                                                         |  |                      |     |                            
|Weighted average number of common shares outstanding     |  | 211,483,671          |     | 164,670,698                





Refer to the accompanying notes
to the consolidated financial statements.



164Canarc Resource Corp.Form 20-F







CANARC RESOURCE CORP.

Consolidated Statements of Changes in Shareholders’
Equity

(expressed in thousands of United States dollars)





|                                             |               |  |                 |  |                   |  | Accumulated               |  |                 |  |                  
|-------------------------------------------- | ------------- |  | --------------- |  | ----------------- |  | ------------------------- |  | --------------- |  | -----------------
|                                             | Share Capital |  | Reserve for     |  | Other             |  |                           |  |                
|                                             | Number of     |  |                 |  | Share-Based       |  | Comprehensive             |  |                 |  |                  
|                                             | Shares        |  | Amount          |  | Payments          |  | Income (Loss)             |  | Deficit         |  | Total            
|                                             |               |  |                 |  |                   |  |                           |  |                 |  |                  
|Balance, December 31, 2013                   | 114,818,195   |  | $        60,178 |  | $             590 |  | $                   (702) |  | $      (48,654) |  | $          11,412
|                                             |               |  |                 |  |                   |  |                           |  |                 |  |                  
|Private placement, net of share issue costs  | 42,618,110    |  | 2,780           |  | -                 |  | -                         |  | -               |  | 2,780            
|Share-based payments                         | -             |  | -               |  | 209               |  | -                         |  | -               |  | 209              
|Expiry of stock options                      | -             |  | -               |  | (168)             |  | -                         |  | 168             |  | -                
|Finders fee warrants                         | -             |  | (46)            |  | 46                |  | -                         |  | -               |  | -                
|Other comprehensive income (loss):           |               |  |                 |  |                   |  |                           |  |                 |  |                  
|Foreign currency translation adjustment      | -             |  | -               |  | 4                 |  | (922)                     |  | (2)             |  | (920)            
|Net loss for the year                        | -             |  | -               |  | -                 |  | -                         |  | (1,831)         |  | (1,831)          
|Balance, December 31, 2014                   | 157,436,305   |  | 62,912          |  | 681               |  | (1,624)                   |  | (50,319)        |  | 11,650           
|                                             |               |  |                 |  |                   |  |                           |  |                 |  |                  
|Acquisition of subsidary (Note 7(a))         | 19,000,000    |  | 1,017           |  | -                 |  | -                         |  | -               |  | 1,017            
|Private placement, net of share issue costs  | 13,165,552    |  | 523             |  | -                 |  | -                         |  | -               |  | 523              
|Shares for debt settlement                   | 2,018,700     |  | 106             |  | -                 |  | -                         |  | -               |  | 106              
|Share-based payments                         | -             |  | -               |  | 161               |  | -                         |  | -               |  | 161              
|Cancellation and expiration of stock options | -             |  | -               |  | (243)             |  | -                         |  | 243             |  | -                
|Finders fee warrants                         | -             |  | (21)            |  | 21                |  | -                         |  | -               |  | -                
|Modification of finders fee warrants         | -             |  | -               |  | 5                 |  | -                         |  | (5)             |  | -                
|Expiry of finders fee warrants               | -             |  | -               |  | (97)              |  | -                         |  | 97              |  | -                
|Other comprehensive income (loss):           |               |  |                 |  |                   |  |                           |  |                 |  |                  
|Foreign currency translation adjustment      | -             |  | -               |  | 2                 |  | (1,715)                   |  | 2               |  | (1,711)          
|Net loss for the year                        | -             |  | -               |  | -                 |  | -                         |  | (932)           |  | (932)            
|Balance, December 31, 2015                   | 191,620,557   |  | 64,537          |  | 530               |  | (3,339)                   |  | (50,914)        |  | 10,814           
|Private placement, net of share issue costs  | 22,699,596    |  | 1,440           |  | -                 |  | -                         |  | -               |  | 1,440            
|Finders fee shares                           | 311,111       |  | 26              |  | -                 |  | -                         |  | -               |  | 26               
|Property acquisition (Note 9(a)(iii))        | 250,000       |  | 19              |  | -                 |  | -                         |  | -               |  | 19               
|Exercise of stock options                    | 1,000,000     |  | 115             |  | (54)              |  | -                         |  | -               |  | 61               
|Share-based payments                         | -             |  | -               |  | 301               |  | -                         |  | -               |  | 301              
|Cancellation and expiration of stock options | -             |  | -               |  | (26)              |  | -                         |  | 26              |  | -                
|Exercise of warrants                         | 1,250,000     |  | 77              |  | -                 |  | -                         |  | -               |  | 77               
|Exercise of finder fee warrants              | 58,333        |  | 6               |  | (2)               |  | -                         |  | -               |  | 4                
|Finders fee warrants                         | -             |  | (10)            |  | 10                |  | -                         |  | -               |  | -                
|Other comprehensive income (loss):           |               |  |                 |  |                   |  |                           |  |                 |  |                  
|Foreign currency translation adjustment      | -             |  | -               |  | -                 |  | 70                        |  | 4               |  | 74               
|Net income for the year                      | -             |  | -               |  | -                 |  | -                         |  | 6,791           |  | 6,791            
|Balance, December 31, 2016                   | 217,189,597   |  | $        66,210 |  | $             759 |  | $                (3,269)  |  | $      (44,093) |  | $          19,607





Refer to the accompanying notes
to the consolidated financial statements.





165Canarc Resource Corp.Form 20-F







CANARC RESOURCE CORP.

Consolidated Statements of Cash Flows

(expressed in thousands of United States dollars)





|                                                                                |       |       |                    |       | Years ended December 31,
|------------------------------------------------------------------------------- | ----- | ----- | ------------------ | ----- | ------------------------
|                                                                                |       |       | 2016               |       | 2015                    
|                                                                                |       |       |                    |       |                         
|Cash provided from (used by):                                                   |       |       |                    |       |                         
|                                                                                |       |       |                    |       |                         
|Operations:                                                                     |       |       |                    |       |                         
|Net income (loss) from continuing operations                                    |       |       | $            1,965 |       | $               (927)   
|Items not involving cash:                                                       |       |       |                    |       |                         
|Accrued interest                                                                |       |       | -                  |       | -                       
|Amortization                                                                    |       |       | -                  |       | -                       
|Share-based payments                                                            |       |       | 301                |       | 161                     
|Change in fair value of marketable securities                                   |       |       | (3,205)            |       | -                       
|Flow through financing costs                                                    |       |       | -                  |       | 2                       
|Derecognition of accounts payable                                               |       |       | (3)                |       | -                       
|Gain from debt settlement                                                       |       |       | (105)              |       | (54)                    
|Gain on derivative liability                                                    |       |       | -                  |       | (13)                    
|(Recovery) write-off of promissory notes receivable                             |       |       | (10)               |       | -                       
|                                                                                |       |       | (1,057)            |       | (831)                   
|Changes in non-cash working capital items:                                      |       |       |                    |       |                         
|Receivables and prepaids                                                        |       |       | (91)               |       | 54                      
|Accounts payable and accrued liabilities                                        |       |       | (923)              |       | 184                     
|Operating cash flow used by continuing operations                               |       |       | (2,071)            |       | (593)                   
|Operating cash flow (used by) provided from discontinued operations (Note 7(b)) | (55)  |       | 9                  |       | -                       
|Net cash used by operating activities                                           |       |       | (2,126)            |       | (584)                   
|                                                                                |       |       |                    |       |                         
|Financing:                                                                      |       |       |                    |       |                         
|Issuance of common shares, net of share issuance costs                          |       |       | 1,466              |       | 523                     
|Exercise of stock options                                                       |       |       | 61                 |       | -                       
|Exercise of warrants                                                            |       |       | 81                 |       | -                       
|Repayment of demand loans                                                       |       |       | -                  |       | -                       
|Cash provided from financing activities                                         |       |       | 1,608              |       | 523                     
|                                                                                |       |       |                    |       |                         
|Investing:                                                                      |       |       |                    |       |                         
|Acquisition of marketable securities                                            |       |       | (81)               |       | -                       
|Proceeds from disposition of marketable securities                              |       |       | 8,931              |       | -                       
|Acquisition of subsidiary (Note 7(a))                                           |       |       | -                  |       | 8                       
|Restricted cash                                                                 |       |       | -                  |       | 69                      
|Promissory notes receivables                                                    |       |       | -                  |       | -                       
|Mineral property interests, net of recoveries                                   |       |       | (198)              |       | (75)                    
|Cash provided from (used by) investing activities from continuing operations    | 8,652 |       | 2                  |       | (662)                   
|Cash used by investing activities from discontinued operations (Note 7(b))      |       | (409) |                    | (262) |                         
|Net cash provided from (used by) investing activities                           |       |       | 8,243              |       | (260)                   
|                                                                                |       |       |                    |       |                         
|Increase (decrease) in cash                                                     |       |       | 7,725              |       | (321)                   
|Cash, beginning of year                                                         |       |       | 354                |       | 675                     
|                                                                                |       |       |                    |       |                         
|Cash, end of year                                                               |       |       | $            8,079 |       | $                354    







Refer
to the accompanying notes to the consolidated financial statements.





166Canarc Resource Corp.Form 20-F







CANARC RESOURCE CORP.

Consolidated Statements of Cash Flows

(expressed in thousands of United States dollars)





|                                                             |  |            |  | Years ended December 31,
|------------------------------------------------------------ |  | ---------- |  | ------------------------
|                                                             |  | Notes      |  | 2016                    
|                                                             |  |            |  |                         
|                                                             |  |            |  |                         
|Non-cash financing and investing activities:                 |  |            |  |                         
|                                                             |  |            |  |                         
|Issuance of shares for:                                      |  |            |  |                         
|Mineral property interests                                   |  | 9(a)(iii)  |  | $                   19  
|Finders fee                                                  |  | 13(b)(ii)  |  | 26                      
|Shares for debt settlement                                   |  | 13(b)(iii) |  | -                       
|                                                             |  |            |  |                         
|Fair value allocated to common shares issued on exercise of: |  |            |  |                         
|Stock options                                                |  | 13         |  | 54                      
|Finders fee warrants                                         |  | 13         |  | 2                       
|                                                             |  |            |  |                         
|Fair value of finders fee warrants from:                     |  |            |  |                         
|Issuance of finders fee warrants                             |  | 13         |  | 10                      
|Modification of finders fee warrants                         |  | 13(d)      |  | -                       
|                                                             |  |            |  |                         
|Expiration of:                                               |  |            |  |                         
|Stock options                                                |  |            |  | 26                      
|Finders fee warrants                                         |  |            |  | -                       
|                                                             |  |            |  |                         
|                                                             |  |            |  |                         
|                                                             |  |            |  |                         
|Income taxes paid                                            |  |            |  | -                       
|                                                             |  |            |  |                         
|Interest received                                            |  |            |  | -                       
|Interest paid                                                |  |            |  | -                       
|                                                             |  |            |  |                         





Refer to the accompanying notes
to the consolidated financial statements.





167Canarc Resource Corp.Form 20-F







CANARC RESOURCE CORP.

Notes to the Consolidated Financial Statements

Years ended December 31, 2016, 2015 and 2014

(tabular dollar amounts
expressed in thousands of United States dollars, except per share amounts)



|1. |  | Nature of Operations and Going Concern
|-- |  | --------------------------------------



Canarc Resource Corp. (the
“Company”), a company incorporated under the laws of British Columbia on January 22, 1987, is in the mineral exploration
business and has not yet determined whether its mineral property interests contain reserves. The recoverability of amounts capitalized
for mineral property interests is dependent upon the existence of reserves in its mineral property interests, the ability of the
Company to arrange appropriate financing and receive necessary permitting for the exploration and development of its mineral property
interests, and upon future profitable production or proceeds from the disposition thereof. The address of the Company’s registered
office is #910 – 800 West Pender Street, Vancouver, BC, Canada, V6C 2V6 and its principal place of business is #301 –
700 West Pender Street, Vancouver, BC, Canada, V6C 1G8.



The Company has no operating
revenues, has incurred significant net losses in prior years (2015 - $932,000 and 2014 - $1.8 million) and has a deficit of $44.1
million as at December 31, 2016 (2015 - $50.9 million and 2014 - $50.3 million). These consolidated financial statements have
been prepared on a going concern basis, which assumes the realization of assets and repayment of liabilities in the normal course
of business. The Company’s ability to continue as a going concern is dependent on the ability of the Company to raise debt
or equity financings, and the attainment of profitable operations. Management would need to raise the necessary capital to meet
its planned business objectives and continues to seek financing opportunities. There can be no assurance that management’s
plans will be successful. These matters indicate the existence of material uncertainties that cast substantial doubt about the
Company’s ability to continue as a going concern. These consolidated financial statements do not include any adjustments
to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern, and such adjustments could be material.



168Canarc Resource Corp.Form 20-F





CANARC RESOURCE CORP.

Notes to the Consolidated Financial Statements

Years ended December 31, 2016, 2015 and 2014

(tabular dollar amounts
expressed in thousands of United States dollars, except per share amounts)



|2. |  | Basis of Presentation
|-- |  | ---------------------



|(a) |  | Statement of compliance:
|--- |  | ------------------------



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



|(b) |  | Approval of consolidated financial statements:
|--- |  | ----------------------------------------------



These consolidated financial
statements were approved by the Company’s Board of Directors on March 14, 2017.







169Canarc Resource Corp.Form 20-F





CANARC RESOURCE CORP.

Notes to the Consolidated Financial Statements

Years ended December 31, 2016, 2015 and 2014

(tabular dollar amounts
expressed in thousands of United States dollars, except per share amounts)



|2. |  | Basis of Presentation (continued)
|-- |  | ---------------------------------



|(c) |  | Basis of presentation:
|--- |  | ----------------------



These consolidated financial
statements have been prepared on a historical cost basis except for certain financial instruments which are measured at fair value,
as disclosed in Note 5. In addition, these consolidated financial statements have been prepared using the accrual basis of accounting,
except for cash flow information.



|(d) |  | Functional currency and presentation currency:
|--- |  | ----------------------------------------------



The functional currency
of the Company and its subsidiaries is the Canadian dollar, and accounts denominated in currencies other than the Canadian dollar
have been translated as follows:



| |  | Monetary assets and liabilities at the exchange rate at the consolidated statement of financial
position date;
| | - | --------------------------------------------------------------------------------------------------------------

| |  | Non-monetary assets and liabilities at the historical exchange rates, unless such items are carried
at fair value, in which case they are translated at the date when the fair value was determined;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Shareholders equity items at historical exchange rates; and
| | - | ------------------------------------------------------------

| |  | Revenue and expense items at the rate of exchange in effect on the transaction date.
| | - | ------------------------------------------------------------------------------------



The Company’s presentation
currency is the United States dollar. For presentation purposes, all amounts are translated from the Canadian dollar functional
currency to the United States dollar presentation currency for each period. Statement of financial position accounts, with the
exception of equity, are translated using the exchange rate at the end of each reporting period, transactions on the statement
of comprehensive income (loss) are recorded at the average rate of exchange during the period, and equity accounts are translated
using historical actual exchange rates.

Exchange gains and losses
arising from translation to the Company’s presentation currency are recorded as cumulative translation adjustment, which
is included in accumulated other comprehensive income (loss).



| | (e) | Critical accounting estimates and judgements:
| | --- | ---------------------------------------------



The preparation of the consolidated
financial statements in accordance with IFRS requires management to make estimates, assumptions and judgements that affect the
application of accounting policies and the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the consolidated financial statements along with the reported amounts of revenues and expenses during the period.
Actual results may differ from these estimates and, as such, estimates and judgements and underlying assumptions are reviewed on
an ongoing basis. Revisions are recognized in the period in which the estimates are revised and in any future periods affected.



Significant areas requiring
the use of management estimates relate to determining the recoverability of mineral property interests, receivables and long-term
investments; valuation of certain marketable securities; the determination of accrued liabilities; fair value of derivative liability;
accrued site remediation; amount of flow-through obligations and recognition of deferred income tax liability; the variables used
in the determination of the fair value of stock options granted and finder’s fees warrants issued or modified; and the recoverability
of deferred tax assets. While management believes the estimates are reasonable, actual results could differ from those estimates
and could impact future results of operations and cash flows.



170Canarc Resource Corp.Form 20-F







CANARC RESOURCE CORP.

Notes to the Consolidated Financial Statements

Years ended December 31, 2016, 2015 and 2014

(tabular dollar amounts
expressed in thousands of United States dollars, except per share amounts)



|2. |  | Basis of Presentation(continued)
|-- |  | --------------------------------



| | (e) | Critical accounting estimates and judgements: (continued)
| | --- | ---------------------------------------------------------



The Company applies judgment
in assessing the functional currency of each entity consolidated in these consolidated financial statements. The functional currency
of the Company and its subsidiaries is measured using the currency of the primary economic environment in which that entity operates.



The Company applies judgment
in assessing whether material uncertainties exist that would cast substantial doubt as to whether the Company could continue as
a going concern.



At the end of each reporting
period, the Company assesses each of its mineral resource properties to determine whether any indication of impairment exists.
Judgment is required in determining whether indicators of impairment exist, including factors such as: the period for which the
Company has the right to explore; expected renewals of exploration rights; whether substantive expenditures on further exploration
and evaluation of resource properties are budgeted or planned; and results of exploration and evaluation activities on the exploration
and evaluation assets.



In the acquisition of Oro
Silver Resources Ltd. (“Oro Silver”) in October 2015, judgement was required to determine if the acquisition represented
a business combination or an asset purchase. More specifically, management concluded that Oro Silver did not represent a business
as the assets acquired were not an integrated set of activities with inputs, processes and outputs. Since it was concluded that
the acquisition represented the purchase of assets, there was no goodwill recognized on the transaction and acquisition costs were
capitalized to the assets purchased rather than expensed. The fair values of the net assets acquired were determined using estimates
and judgements. (Note 7(a)).



Judgment is applied in determining
whether disposal groups or cash generating unit represent a component of the entity, the results of which should be recorded in
discontinued operations in the consolidated statements of comprehensive income (loss) and cash flows.



|(f) |  | New accounting standards and recent pronouncements:
|--- |  | ---------------------------------------------------



The standards listed below
include only those which the Company reasonably expects may be applicable to the Company in the current period and at a future
date. The Company is currently assessing the impact of these future standards on the consolidated financial statements.



(i)	           The following standard
became effective in the current period:



Disclosure Initiative(Amendments
to IAS 1 Presentation of Financial Statements)



The amendments:



| | · | Clarify the existing presentation and disclosure requirements in
IAS 1, including the presentation of line items, subtotals and notes; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------

| | · | Provide guidance to assist entities to apply judgment in determining
what information to disclose, and how that information is presented in their financial statements.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



The change had no effect to
these consolidated financial statements.











171Canarc Resource Corp.Form 20-F







CANARC RESOURCE CORP.

Notes to the Consolidated Financial Statements

Years ended December 31, 2016, 2015 and 2014

(tabular dollar amounts
expressed in thousands of United States dollars, except per share amounts)



|2. |  | Basis of Presentation (continued)
|-- |  | ---------------------------------



|(f) |  | New accounting standards and recent pronouncements: (continued)
|--- |  | ---------------------------------------------------------------



(ii)	          The following standards
will become effective in future periods:



Disclosure Initiative (Amendments
to IAS 7 Statement of Cash Flows)



The amendments require entities
to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities.



Applicable to the Company’s
annual period beginning January 1, 2017.



Recognition of Deferred Tax
Assets for Unrealized Losses (Amendments to IAS 12 Income Taxes)



The amendments clarify how to
account for deferred tax assets related to debt instruments measured at fair value.



Applicable to the Company’s
annual period beginning January 1, 2017.



Classification and Measurement
of Share-based Payment Transactions (Amendments to IFRS 2 Share-based Payment)



The amendments provide guidance
on the accounting for:



| | · | the effects of vesting and non-vesting conditions
on the measurement of cash-settled share-based payments;
| | - | ----------------------------------------------------------------------------------------------------------

| | · | share-based payment transactions with a
net settlement feature for withholding tax obligations; and
| | - | ---------------------------------------------------------------------------------------------------

| | · | a modification to the terms and conditions
of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------



Applicable to the Company’s
annual period beginning January 1, 2018.



172Canarc Resource Corp.Form 20-F







CANARC RESOURCE CORP.

Notes to the Consolidated Financial Statements

Years ended December 31, 2016, 2015 and 2014

(tabular dollar amounts
expressed in thousands of United States dollars, except per share amounts)



|2. |  | Basis of Presentation (continued)
|-- |  | ---------------------------------



|(f) |  | New accounting standards and recent pronouncements: (continued)
|--- |  | ---------------------------------------------------------------



(ii)	          The following standards
will become effective in future periods: (continued)



IFRS 9 Financial Instruments



IFRS 9 will replace IAS 39
Financial Instruments: Recognition and Measurement and IFRIC 9 Reassessment of Embedded Derivatives. The final version
of this new standard supersedes the requirements of earlier versions of IFRS 9.



The main features introduced
by this new standard compared with predecessor IFRSare as follows:



| | · | Classification and measurement of financial
assets:
| | - | ---------------------------------------------------



Debt instruments are classified
and measured on the basis of the entity's business model for managing the asset and its contractual cash flow characteristics as
either: “amortized cost”, “fair value through other comprehensive income”, or “fair value through
profit or loss” (default). Equity instruments are classified and measured as “fair value through profit or loss”
unless upon initial recognition elected to be classified as “fair value through other comprehensive income”.



| | · | Classification and measurement of financial
liabilities:
| | - | --------------------------------------------------------



When an entity elects to
measure a financial liability at fair value, gains or losses due to changes in the entity’s own credit risk is recognized
in other comprehensive income (as opposed to previously profit or loss). This change may be adopted early in isolation of the remainder
of IFRS 9.



| | · | Impairment of financial assets:
| | - | -------------------------------



An expected credit loss
impairment model replaced the incurred loss model and is applied to financial assets at “amortized cost” or “fair
value through other comprehensive income”, lease receivables, contract assets or loan commitments and financial guarantee
contracts. An entity recognizes twelve-month expected credit losses if the credit risk of a financial instrument has not increased
significantly since initial recognition and lifetime expected credit losses otherwise.



| | · | Hedge accounting:
| | - | -----------------



Hedge accounting remains
a choice, however, is now available for a broader range of hedging strategies. Voluntary termination of a hedging relationship
is no longer permitted. Effectiveness testing now needs to be performed prospectively only. Entities may elect to continue to applying
IAS 39 hedge accounting on adoption of IFRS 9 (until the IASB has completed its separate project on the accounting for open
portfolios and macro hedging).



Applicable to the Company’s
annual period beginning January 1, 2018.



173Canarc Resource Corp.Form 20-F





CANARC RESOURCE CORP.

Notes to the Consolidated Financial Statements

Years ended December 31, 2016, 2015 and 2014

(tabular dollar amounts
expressed in thousands of United States dollars, except per share amounts)



|2. |  | Basis of Presentation (continued)
|-- |  | ---------------------------------



|(f) |  | New accounting standards and recent pronouncements: (continued)
|--- |  | ---------------------------------------------------------------



(ii)	          The following standards
will become effective in future periods: (continued)



IFRS 16 Leases



Earlier application permitted
for entities that also apply IFRS 15 Revenue from Contracts with Customers.



This new standard sets out
the principles for the recognition, measurement, presentation and disclosure of leases for both the lessee and the lessor. The
new standard introduces a single lessee accounting model that requires the recognition of all assets and liabilities arising from
a lease.



The main features of the new
standard are as follows:



| | · | An entity identifies as a lease a contract that conveys the right
to control the use of an identified asset for a period of time in exchange for consideration.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | A lessee recognizes an asset representing the right to use the leased
asset, and a liability for its obligation to make lease payments. Exceptions are permitted for short-term leases and leases of
low-value assets.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | A lease asset is initially measured at cost, and is then depreciated
similarly to property, plant and equipment. A lease liability is initially measured at the present value of the unpaid lease payments.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | A lessee presents interest expense on a lease liability separately
from depreciation of a lease asset in the statement of profit or loss and other comprehensive income.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | A lessor continues to classify its leases as operating leases or
finance leases, and to account for them accordingly.
| | - | ---------------------------------------------------------------------------------------------------------------------

| | · | A lessor provides enhanced disclosures about its risk exposure, particularly
exposure to residual-value risk.
| | - | -------------------------------------------------------------------------------------------------------------



The new standard supersedes
the requirements in IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating
Leases – Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.



Applicable to the Company’s
annual period beginning January 1, 2019.





174Canarc Resource Corp.Form 20-F





CANARC RESOURCE CORP.

Notes to the Consolidated Financial Statements

Years ended December 31, 2016, 2015 and 2014

(tabular dollar amounts
expressed in thousands of United States dollars, except per share amounts)



|3. |  | Significant Accounting Policies
|-- |  | -------------------------------



The accounting policies
set out below have been applied consistently to all periods presented in these consolidated financial statements.



|(a) |  | Basis of consolidation:
|--- |  | -----------------------



These consolidated financial
statements include the accounts of the Company and its wholly-owned subsidiaries including New Polaris Gold Mines Ltd. The financial
statements of subsidiaries are included in the consolidated financial statements from the date control commences until the date
control ceases. All significant intercompany transactions and balances are eliminated on consolidation.



Control is achieved when
the Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect
those returns through its power over the investee.



| | (b) | Financial instruments:
| | --- | ----------------------



(i)	           Financial assets:



The Company classifies its
financial assets in the following categories: fair value through profit or loss (“FVTPL”), loans and receivables, held-to-maturity
(“HTM”) and available-for-sale (“AFS”). The classification depends on the purpose for which the financial
assets were acquired. Management determines the classification of financial assets at initial recognition.



Financial
assets at FVTPL



Financial assets at FVTPL
are initially recognized at fair value with changes in fair value recorded through profit or loss. Cash, marketable securities
and restricted cash are included in this category of financial assets.



Loans
and receivables



Loans and receivables are
non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are classified
as current assets or non-current assets based on their maturity date. Loans and receivables are carried at amortized cost less
any impairment. Loans and receivables comprise of receivables.



Held to maturity



These assets are non-derivative
financial assets with fixed or determinable payments and fixed maturities that the Company’s management has the positive
intention and ability to hold to maturity. HTM investments are initially recognized on their trade-date at fair value, and subsequently
are measured at amortized cost using the effective interest rate method. If there is objective evidence that the investment is
impaired, determined by reference to external credit ratings and other relevant indicators, the financial asset is measured at
the present value of estimated future cash flows. Any changes to the carrying amount of the investment, including impairment losses,
are recognized in profit or loss. The Company has no HTM financial assets as at December 31, 2016 and 2015.



175Canarc Resource Corp.Form 20-F





CANARC RESOURCE CORP.

Notes to the Consolidated Financial Statements

Years ended December 31, 2016, 2015 and 2014

(tabular dollar amounts
expressed in thousands of United States dollars, except per share amounts)



|3. |  | Significant Accounting Policies (continued)
|-- |  | -------------------------------------------



| | (b) | Financial instruments: (continued)
| | --- | ----------------------------------



(i)           	Financial assets:
(continued)



Available-for-sale
financial assets



AFS financial assets are non-derivatives
that are either designated as available-for-sale or not classified in any of the other financial asset categories. Changes in the
fair value of AFS financial assets are recognized as other comprehensive income (loss) and classified as a component of equity.
AFS assets include investments in equities of other entities with the exception of marketable securities. The Company does not
have any AFS financial assets.



Management assesses the carrying
value of AFS financial assets at least annually and any impairment charges are also recognized in profit or loss. When financial
assets classified as AFS are sold, the accumulated fair value adjustments recognized in other comprehensive income (loss) are included
in profit or loss. The Company has no AFS financial assets.



(ii)	          Financial liabilities:



The Company classifies its
financial liabilities in the following categories: FVTPL and other financial liabilities.



Financial
liabilities at FVTPL



Financial liabilities at FVTPL
are initially recognized at fair value with changes in fair value recorded through profit or loss.



Derivatives are initially
recognized at their fair value on the date the derivative contract is entered into and are subsequently re-measured at their fair
value at each reporting period with changes in the fair value recognized in profit or loss.



Liabilities which are to be
settled in payable ounces (or the U.S. dollar equivalent) are recorded using the spot price of the commodity. This amount includes
derivative liability.



Other financial liabilities



Other financial liabilities
are non-derivatives and are recognized initially at fair value, net of transaction costs, and are subsequently measured at amortized
cost using the effective interest method. Any difference between the amounts originally received, net of transaction costs, and
the redemption value is recognized in profit or loss over the period to maturity using the effective interest method.



Other financial liabilities
are classified as current or non-current based on their maturity date. Financial liabilities include accounts payable and accrued
liabilities.



176Canarc Resource Corp.Form 20-F





CANARC RESOURCE CORP.

Notes to the Consolidated Financial Statements

Years ended December 31, 2016, 2015 and 2014

(tabular dollar amounts
expressed in thousands of United States dollars, except per share amounts)



|3. |  | Significant Accounting Policies (continued)
|-- |  | -------------------------------------------



| | (b) | Financial instruments: (continued)
| | --- | ----------------------------------



(iii)	         Fair value hierarchy:



The Company
categorizes financial instruments measured at fair value at one of three levels according to the reliability of the inputs used
to estimate fair values. The fair value of financial assets and financial liabilities included in Level 1 are determined by reference
to quoted prices in active markets for identical assets and liabilities. Financial assets and liabilities in Level 2 are valued
using inputs other than quoted prices for which all significant inputs are based on observable market data. Level 3 valuations
are based on inputs that are not based on observable market data.



(iv)         	Impairment of financial
assets:



The Company
assesses at each reporting date whether there is objective evidence that a financial asset or a group of financial assets is impaired.
An evaluation is made as to whether a decline in fair value is “significant” or “prolonged” based on indicators
such as significant adverse changes in the market, economic or legal environment.



Impairment
losses on financial assets carried at amortized cost are reversed in subsequent periods if the amount of the loss decreases and
the decrease can be related objectively to an event occurring after the impairment was recognized.



(v)          	Derecognition of
financial assets and liabilities:



Financial
assets are derecognized when the investments mature or are sold, and substantially all the risks and rewards of ownership have
been transferred. A financial liability is derecognized when the obligation under the liability is discharged, cancelled or expired.
Gains and losses on derecognition are recognized within profit or loss.



(c)	                           Impairment
of non-financial assets:



The carrying amounts of
non-current assets are tested for impairment when events or changes in circumstances indicate that the carrying amount may not
be recoverable. If there are indicators of impairment, the recoverable amount of the asset is estimated in order to determine the
extent of the impairment. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its
recoverable amount and is recorded as an expense in profit or loss.



177Canarc Resource Corp.Form 20-F





CANARC RESOURCE CORP.

Notes to the Consolidated Financial Statements

Years ended December 31, 2016, 2015 and 2014

(tabular dollar amounts
expressed in thousands of United States dollars, except per share amounts)



|3. |  | Significant Accounting Policies (continued)
|-- |  | -------------------------------------------



|(c) |  | Impairment of non-financial assets: (continued)
|--- |  | -----------------------------------------------



The recoverable amount is
the higher of an asset’s “fair value less costs to sell” for the asset's highest and best use, and “value-in-use”.
Where the asset does not generate cash flows that are independent from other assets, the recoverable amount of the cash-generating
unit to which the asset belongs is determined. “Fair value less costs to sell” is the price that would be received
to sell an asset in an orderly transaction between market participants at the measurement date less incremental costs directly
attributable to disposal of the asset, excluding financing costs and income tax expenses. For mining assets this would generally
be determined based on the present value of the estimated future cash flows arising from the continued development, use or eventual
disposal of the asset. In assessing these cash flows and discounting them to the present value, assumptions used are those that
an independent market participant would consider appropriate. In assessing “value-in-use”, the estimated future cash
flows expected to arise from the continuing use of the assets in their present form and from their disposal are discounted to their
present value using a pre-tax discount rate that reflects current market assessments of the time value of money and risks specific
to the asset.



For the purposes of impairment
testing, mineral property interests are allocated to cash-generating units to which the exploration or development activity relates.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the
revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that
would have been determined had no impairment loss been recognized for the asset (or cash-generating unit) in prior years. A reversal
of an impairment loss is recognized immediately in profit or loss.



|(d) |  | Mineral property interests:
|--- |  | ---------------------------



All costs related to
investments in mineral property interests are capitalized on a property-by-property basis. Such costs include mineral
property acquisition costs and exploration and development expenditures, net of any recoveries. The costs related to a
mineral property from which there is production, together with the costs of mining equipment, will be amortized using the
unit-of-production method. When there is little prospect of further work on a property being carried out by the Company or
its partners or when a property is abandoned or when the capitalized costs are not considered to be economically recoverable,
the related property costs are written down to the amount recoverable.



From time to time, the Company
may acquire or dispose of a mineral property interest pursuant to the terms of a property option agreement. As the property options
are exercisable entirely at the discretion of the optionee, the amounts payable or receivable are not recorded. Property option
payments are recorded as property costs or recoveries when the payments are made or received. Proceeds received on the sale or
property option of the Company’s property interest is recorded as a reduction of the mineral property cost. The Company recognizes
in income those costs that are recovered on mineral property interests when amounts received or receivable are in excess of the
carrying amount.



The amounts shown for mineral
property interests represent costs incurred to date and include advance net smelter return (“NSR”) royalties, less
recoveries and write-downs, and are not intended to reflect present or future values.



178Canarc Resource Corp.Form 20-F







CANARC RESOURCE CORP.

Notes to the Consolidated Financial Statements

Years ended December 31, 2016, 2015 and 2014

(tabular dollar amounts
expressed in thousands of United States dollars, except per share amounts)



|3. |  | Significant Accounting Policies (continued)
|-- |  | -------------------------------------------



|(e) |  | Equipment:
|--- |  | ----------



Equipment is recorded at
cost and, for equipment subject to amortization, the Company uses the declining balance method at rates of up to 30% annually.



|(f) |  | Proceeds on unit offerings:
|--- |  | ---------------------------



Proceeds received on the
issuance of units, consisting of common shares and warrants, are first allocated to the fair value of the common shares with any
residual value then allocated to warrants. Consideration received on the exercise of warrants is recorded as share capital and
any related reserve for share-based payments is transferred to share capital. Upon expiry of the warrants, the recorded fair value
of the warrants is transferred from the reserve for share-based payments to deficit.



|(g) |  | Non-monetary transactions:
|--- |  | --------------------------



Common shares issued for
consideration other than cash are valued at their quoted market price at the date of issuance.



|(h) |  | Flow-through common shares:
|--- |  | ---------------------------



The Company will from time
to time, issue flow-through common shares to finance a significant portion of its exploration program. Pursuant to the terms of
the flow-through share agreements, these shares transfer the tax deductibility of qualifying resource expenditures to investors.
On issuance, the Company bifurcates the flow-through shares into: (i) a flow-through share premium, equal to the estimated premium,
if any, investors pay for the flow-through feature, which is recognized as a liability and (ii) share capital. Upon expenses being
incurred, the Company derecognizes the liability and recognizes a deferred tax liability for the amount of tax reduction renounced
to the shareholders. The premium is recognized as other income and the related deferred tax is recognized as a tax provision.



Proceeds received from the
issuance of flow-through shares are restricted to be used only for Canadian resource property exploration expenditures with a two-year
period. The portion of the proceeds received but not yet expended at the end of the Company’s period is disclosed separately
as flow-through share proceeds.



The Company may also be
subject to a Part XII.6 tax on flow-through proceeds renounced under the Look-back Rule, in accordance with the Government of Canada
flow-through regulations. When applicable, this tax is accrued as a finance expense until paid.



179Canarc Resource Corp.Form 20-F







CANARC RESOURCE CORP.

Notes to the Consolidated Financial Statements

Years ended December 31, 2016, 2015 and 2014

(tabular dollar amounts
expressed in thousands of United States dollars, except per share amounts)



|3. |  | Significant Accounting Policies (continued)
|-- |  | -------------------------------------------



|(i) |  | Share buy-back:
|--- |  | ---------------



The Company has implemented
a normal course issuer bid whereby the Company would buy back its common shares on the exchange in which its shares are listed
at the prevailing market prices. Shares which are purchased would reduce share capital for the cash consideration paid including
any associated transaction costs.



| | (j) | Share-based payments:
| | --- | ---------------------



The Company has a stock
option plan that is described in Note 13(c). Share-based payments to employees are measured at the fair value of the instruments
issued and amortized over the vesting periods. Share-based payments to non-employees are measured at the fair value of the goods
or services received or the fair value of the equity instruments issued, if it is determined the fair value of the goods or services
cannot be reliably measured, and are recorded at the date the goods or services are received. The offset to the recorded cost is
to the reserve for share-based payments. Consideration received on the exercise of stock options is recorded as share capital and
the related reserve for share-based payments is transferred to share capital. Upon expiry, the recorded fair value is transferred
from reserve for share-based payments to deficit.



The Company has a share appreciation
rights plan, which provides stock option holders the right to receive the number of common shares that are equal in value to the
intrinsic value of the stock options at the date of exercise. Amounts transferred from the reserve for share-based payment to share
capital are based on the ratio of shares actually issued to the number of stock options originally granted. The remainder is transferred
to deficit.



| | (k) | Environmental rehabilitation:
| | --- | -----------------------------



TheCompany recognizes liabilities
forstatutory, contractual,constructive orlegal obligationsassociated with the retirement
of mineral property interests andequipment,when those obligations
result from
the acquisition,construction,development
or normal operation of the assets. The net present value of future
rehabilitation
cost estimates arising from the decommissioning
of plant and other site preparation
workis capitalized
to mining
assets along witha corresponding increase in the rehabilitation
provision in
the period incurred.
Discount
rates using a pre-taxrate that reflect the time
value of money are used to calculatethe net present value. The rehabilitation asset is
depreciated on the same basis
as mining
assets.



TheCompany’s
estimates of reclamation
costs could change asa result of
changes in regulatory
requirements, discount rates and
assumptions regarding the amount and
timing of thefuture
expenditures. These
changes are recorded directly
to mining assets with
acorresponding entry to the
rehabilitation
provision.
The Company’s estimates are reviewed
annuallyfor changes in
regulatory requirements, discount
rates, effectsofinflation and
changes in estimates.



Changesin the net present value,
excluding changes in
the Company’s estimates of reclamation
costs, are charged to profit or loss
forthe period.



180Canarc Resource Corp.Form 20-F







CANARC RESOURCE CORP.

Notes to the Consolidated Financial Statements

Years ended December 31, 2016, 2015 and 2014

(tabular dollar amounts
expressed in thousands of United States dollars, except per share amounts)



|3. |  | Significant Accounting Policies (continued)
|-- |  | -------------------------------------------



| | (k) | Environmental rehabilitation: (continued)
| | --- | -----------------------------------------



Thenet present value of restoration
costs arising from
subsequent site damage that is
incurred on an ongoing basis
during production are charged to profit
or loss in the periodincurred.



Thecosts of rehabilitation
projects thatwere included
in the rehabilitation
provision
are recordedagainst the provision
asincurred.
The cost of ongoing current programs to
prevent and controlpollutionis charged against
profit orloss
as incurred.



|(l) |  | Earnings (loss) per share:
|--- |  | --------------------------



Basic earnings (loss) per
share is computed by dividing the net income (loss) for the period by the weighted average number of common sharesoutstanding
during the period. The treasury stock method is used to calculate diluted earnings (loss) per common share amounts. Under the treasury
stock method, the weighted average number of common shares outstanding used for the calculation of the diluted per common share
amount assumes that the proceeds to be received on the exercise of dilutive share options and warrants are used to repurchase common
shares at the average market price during the period. In the Company’s case, diluted loss per share presented is the same
as basic loss per share as the effect of outstanding options and warrants in the loss per common share calculation would be anti-dilutive.



| | (m) | Provisions:
| | --- | -----------



Provisions
are recorded
when a present
legalor constructive obligation
existsas a result
ofpast events where
itis
probable
that an outflow ofresources embodying
economic benefits will be required to settle
the obligation, and areliable estimate of the amount
of the obligation can be made.



Theamount recognized as a provisionis the best estimate of the consideration
required to settle the present obligation
atthe statement of financial
positiondate, takinginto
account the risks and uncertainties
surrounding the obligation.Where a provision ismeasured using the cash flows estimated
to settle the present obligation,
its carrying amount is
thepresent value of those cash flows.
When some or allof the economic
benefits required
to settle a provision
are expected to be recovered from a third
party,the receivable
is recognized
as an assetif it isvirtuallycertain that reimbursement
willbe
received and the amount receivable
can be measured reliably.



| | (n) | Income taxes:
| | --- | -------------



The Company follows
the asset and liability method for accounting for income taxes. Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases, and losses carried forward. Deferred tax assets and
liabilities are measured using substantively enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in profit or loss in the period that includes the substantive enactment date. Deferred tax
assets are recognized to the extent that recovery is considered probable.





181Canarc Resource Corp.Form 20-F







CANARC RESOURCE CORP.

Notes to the Consolidated Financial Statements

Years ended December 31, 2016, 2015 and 2014

(tabular dollar amounts
expressed in thousands of United States dollars, except per share amounts)



| | 4. | Management of Capital
| | -- | ---------------------



The Company is an exploration
stage company and this involves a high degree of risk. The Company has not determined whether its mineral property interests contain
reserves of ore and currently has not earned any revenues from its mineral property interests and, therefore, does not generate
cash flows from operations. The Company’s primary source of funds comes from the issuance of share capital and proceeds from
debt. Recently the Company has generated cash inflows from the disposition of marketable securities. The Company is not subject
to any externally imposed capital requirements.



The Company defines its
capital as debt and share capital. Capital requirements are driven by the Company’s exploration activities on its mineral
property interests. To effectively manage the Company’s capital requirements, the Company has a planning and budgeting process
in place to ensure that adequate funds are available to meet its strategic goals. The Company monitors actual expenses to budget
on all exploration projects and overhead to manage costs, commitments and exploration activities.



The Company has in the past
invested its capital in liquid investments to obtain adequate returns. The investment decision is based on cash management to ensure
working capital is available to meet the Company’s short-term obligations while maximizing liquidity and returns of unused
capital.



Although the Company has
been successful at raising funds in the past through the issuance of share capital, it is uncertain whether it will be able to
continue this financing in the future. The Company will continue to rely on debt and equity financings to meet its commitments
as they become due, to continue exploration work on its mineral property interests, and to meet its administrative overhead costs
for the coming periods.



There were no changes in
the Company’s approach to capital management during the year ended December 31, 2016.



182Canarc Resource Corp.Form 20-F







CANARC RESOURCE CORP.

Notes to the Consolidated Financial Statements

Years ended December 31, 2016, 2015 and 2014

(tabular dollar amounts
expressed in thousands of United States dollars, except per share amounts)



| | 5. | Management of Financial Risk
| | -- | ----------------------------



The Company has classified
its cash and restricted cash as financial assets at FVTPL; marketable securities as held for trading financial assets at FVTPL;
and long-term investments as AFS financial assets; receivables as loans and receivables; accounts payable and accrued liabilities
as other financial liabilities; and derivative liability as FVTPL.



The Company’s investments
in shares of Aztec Metals Corp. (“AzMet”) and Aztec Minerals Corp. (“AzMin”), both companies sharing one
common director with the Company, are classified as FVTPL. There is no separately quoted market value for the Company’s investments
in the shares of AzMet and AzMin.



The fair values of the Company’s
receivables and accounts payable and accrued liabilities approximate their carrying values due to the short terms to maturity.
Cash and certain marketable securities are measured at fair values using Level 1 inputs. Marketable securities of AzMin is measured
using Level 2 of the fair value hierarchy and AzMet is measured using Level 3 of the fair value hierarchy. Derivative liability
is measured using Level 1 inputs.



The
Company is exposed in varying degrees to a variety of financial instrument related risks, including credit risk, liquidity risk
and market risk which includes foreign currency risk, interest rate risk and other price risk. The types of risk exposure and the
way in which such exposure is managed are provided as follows.



|(a) |  | Credit risk:
|--- |  | ------------



Credit risk is the risk
of potential loss to the Company if the counterparty to a financial instrument fails to meet its contractual obligations.



The Company's credit risk
is primarily attributable to its liquid financial assets including cash. The Company limits exposure to credit risk on liquid financial
assets through maintaining its cash with high-credit quality Canadian financial institutions.



Management has reviewed
the items comprising the accounts receivable balance which may include amounts receivable from certain related parties, and determined
that all accounts are collectible; accordingly, there has been no allowance for doubtful accounts recorded.



|(b) |  | Liquidity risk:
|--- |  | ---------------



Liquidity
risk is the risk that the Company will not be able to meet its financial obligations as they become due.



The Company ensures that
there is sufficient capital in order to meet short-term business requirements, after taking into account the Company's holdings
of cash and its ability to raise equity financings. As at December 31, 2016, the Company had a working capital of $9.1 million
(2015 – working capital deficiency of $574,000). The Company has sufficient funding to meet its short-term liabilities and
administrative overhead costs, and to maintain its mineral property interests in 2017.



Accounts payable and accrued
liabilities are due in less than 90 days, and the notes payable, if any, are due on demand.



183Canarc Resource Corp.Form 20-F







CANARC RESOURCE CORP.

Notes to the Consolidated Financial Statements

Years ended December 31, 2016, 2015 and 2014

(tabular dollar amounts
expressed in thousands of United States dollars, except per share amounts)



| | 5. | Management of Financial Risk (continued)
| | -- | ----------------------------------------



|(c) |  | Market risk:
|--- |  | ------------



The significant market risk
exposures to which the Company is exposed are foreign currency risk, interest rate risk and other price risk.



(i)	           Foreign currency
risk:



The Company’s
mineral property interests and operations are in Canada and previously in Mexico. A certain portion of its operating expenses
are incurred in Canadian dollars and previously in Mexican pesos. Fluctuations in the Canadian dollar would affect the
Company’s consolidated statements of comprehensive income (loss) as its functional currency is the Canadian dollar, and
fluctuations in the U.S. dollar would impact its cumulative translation adjustment as its consolidated financial statements
are presented in U.S. dollars.



The Company is exposed to
currency risk for its U.S. dollar equivalent of assets and liabilities denominated in currencies other than U.S. dollars as follows:







|                                                      |  | Stated in U.S. Dollars
|----------------------------------------------------- |  | ----------------------
|                                                      |  | Held in               
|                                                      |  | Canadian Dollars      
|                                                      |  |                       
|Cash                                                  |  | $            7,984    
|Marketable securities                                 |  | 955                   
|Receivables                                           |  | 24                    
|Accounts payable and accrued liabilities              |  | (101)                 
|                                                      |  |                       
|Net financial assets (liabilities), December 31, 2016 |  | $            8,862    
|                                                      |  |                       
|Cash                                                  |  | $                 70  
|Receivables                                           |  | 11                    
|Accounts payable and accrued liabilities              |  | (792)                 
|                                                      |  |                       
|Net financial assets (liabilities), December 31, 2015 |  | $             (711)   





Based upon the above net exposure
as at December 31, 2016 and assuming all other variables remain constant, a 15% (2015 - 15%) depreciation or appreciation of the
U.S. dollar relative to the Canadian dollar could result in a decrease (increase) of approximately $1.3 million (2015 - $99,450)
in the cumulative translation adjustment in the Company’s shareholders’ equity.



The Company has not entered
into any agreements or purchased any instruments to hedge possible currency risks at this time.



184Canarc Resource Corp.Form 20-F







CANARC RESOURCE CORP.

Notes to the Consolidated Financial Statements

Years ended December 31, 2016, 2015 and 2014

(tabular dollar amounts
expressed in thousands of United States dollars, except per share amounts)



| | 5. | Management of Financial Risk (continued)
| | -- | ----------------------------------------



|(c) |  | Market risk: (continued)
|--- |  | ------------------------



(ii)	          Interest rate risk:



In respect of financial assets,
the Company's policy is to invest excess cash at floating rates of interest in cash equivalents, in order to maintain liquidity,
while achieving a satisfactory return. Fluctuations in interest rates impact on the value of cash equivalents. Interest rate risk
is not significant to the Company as it has no cash equivalents at period-end and the promissory notes receivable and notes payable,
if any, are stated at fixed interest rates.



| | (iii) | Other price risk:
| | ----- | -----------------



Other price risk is the risk
that the value of a financial instrument will fluctuate as a result of changes in market and commodity prices.



The Company’s
other price risk includes equity price risk, whereby investment in marketable securities are held for trading financial
assets with fluctuations in quoted market prices recorded at FVTPL. There is no separately quoted market value for the
Company’s investments in the shares of AzMet and AzMin.



The Company had recognized
a derivative liability pursuant to the share purchase agreement with Marlin Gold Mining Ltd. (“Marlin Gold”) which
closed on October 30, 2015, whereby the Company shall pay 55 troy ounces of gold to Marlin Gold on each of the first three anniversaries
of the closing date of the agreement (or its U.S. dollar equivalent), for a total of 165 troy ounces of gold. The derivative liability
fluctuated with the gold spot prices resulting in the recognition of gains and losses in profit or loss in which the Company had
not hedged the payable gold ounces. (Notes 7 and 11). Based upon the net exposure as at December 31, 2015 and assuming all other
variables remain constant, a 20% depreciation or appreciation of the gold spot prices could result in a decrease/increase of approximately
$35,000 in the Company’s net losses. Pursuant to the Sale Agreement between the Company and Endeavour Silver Corp., a company
sharing one common director, (“Endeavour”) which closed on May 27, 2016, Endeavour assumed responsibility for the 165
troy ounces payable to Marlin Gold (Note 7(b)).



As certain of the Company’s
marketable securities are carried at market value and are directly affected by fluctuations in value of the underlying securities,
the Company considers its financial performance and cash flows could be materially affected by such changes in the future value
of the Company’s marketable securities. Based upon the net exposure as at December 31, 2016 and assuming all other variables
remain constant, a net increase or decrease of 100% in the market prices of the underlying securities would increase or decrease
respectively net income by $955,000; the Company had no marketable securities in 2015 and 2014.



185Canarc Resource Corp.Form 20-F





CANARC RESOURCE CORP.

Notes to the Consolidated Financial Statements

Years ended December 31, 2016, 2015 and 2014

(tabular dollar amounts
expressed in thousands of United States dollars, except per share amounts)



| | 5. | Management of Financial Risk (continued)
| | -- | ----------------------------------------



|(c) |  | Market risk: (continued)
|--- |  | ------------------------



| | (iii) | Other price risk: (continued)
| | ----- | -----------------------------



In February 2017, the Company
adopted a normal course issuer bid whereby the Company may acquire up to 10.9 million common shares of the Company, and shall pay
the prevailing market price at the time of purchase (Note 13(b)(i)). The cash consideration paid for any such purchases would be
subject to fluctuations in the market price of its common shares.





| | 6. | Promissory Note Receivable
| | -- | --------------------------



Pursuant to an agreement
in July 2014, the Company advanced a promissory note loan of $200,000, which bore an interest rate of 12% per annum compounded
monthly; both the principal and interest were due and payable on January 15, 2015, and any past due principal and interest bore
an interest rate of 14%. In September 2014, the Company advanced further funds of $20,000. In December 2014, the promissory note
receivable along with accrued interest was determined to be impaired as collectability was doubtful, and was written off. In 2016,
the Company received notice for the distribution of funds from the bankruptcy estate in which funds of $10,000 as included in receivables
and prepaids were received in 2017.



186Canarc Resource Corp.Form 20-F





CANARC RESOURCE CORP.

Notes to the Consolidated Financial Statements

Years ended December 31, 2016, 2015 and 2014

(tabular dollar amounts
expressed in thousands of United States dollars, except per share amounts)



| | 7. | Acquisition and Sale of Oro Silver Resources Ltd.
| | -- | -------------------------------------------------



| | (a) | Acquisition of Oro Silver Resources Ltd.
| | --- | ----------------------------------------



On October 8, 2015, the
Company entered into the Agreement for the Purchase of all the Shares of Oro Silver Resources Ltd. (“Oro Silver”) with
Marlin Gold which closed on October 30, 2015 (the “Share Purchase Agreement”). As consideration the Company issued
19 million common shares to Marlin Gold to acquire a 100% interest in Marlin Gold’s wholly-owned subsidiary, Oro Silver,
which owns the El Compas project through its wholly owned Mexican subsidiary, Minera Oro Silver de Mexico SA de CV (“Minera
Oro Silver”). The terms of the Share Purchase Agreement included the following:



| | - | On each of the first three anniversaries of the closing date of the
Share Purchase Agreement, 55 troy ounces of gold (or the U.S. dollar equivalent) shall be paid by the Company to Marlin Gold or
to any of its subsidiaries;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | - | Certain mineral concessions named Altiplano included a 3% NSR royalty
and a buy back option. Marlin Gold retained the Altiplano royalty and buy back option, and shall receive a 1.5% NSR on all non-Altiplano
claims that currently have no royalties associated with them;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | - | Marlin Gold invested CAD$100,000 in the Company’s private placement
at CAD$0.06 per unit with each unit comprised of one common share and one-half of one common share purchase warrant; each whole
warrant is exercisable to acquire one common share at an exercise price of CAD$0.08 per share until October 30, 2018 (Note 13(b)(iii));
and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | - | Marlin Gold nominated one person to the Company’s Board of
Directors.
| | - | ---------------------------------------------------------------------



The Share Purchase Agreement
was considered to be outside the scope of IFRS 3 Business Combinations since Oro Silver did not meet the definition of a
business, and as such, the transaction was accounted for as an asset acquisition.



The
following table sets forth an allocation of the purchase price to assets acquired and liabilities assumed, based on their fair
values at the date of acquisition in 2015:





|                                                |  |  |  | Oro SilverResources Ltd.
|----------------------------------------------- |  |  |  | ------------------------
|                                                |  |  |  |                         
|Assets:                                         |  |  |  |                         
|Cash                                            |  |  |  | $               8       
|Receivables and prepaids                        |  |  |  | 53                      
|Equipment                                       |  |  |  | 25                      
|Mineral property interest                       |  |  |  | 1,120                   
|                                                |  |  |  |                         
|Liabilities:                                    |  |  |  |                         
|Accounts payables and other accrued liabilities |  |  |  | (1)                     
|                                                |  |  |  |                         
|Total                                           |  |  |  | $        1,205          





187Canarc Resource Corp.Form 20-F





CANARC RESOURCE CORP.

Notes to the Consolidated Financial Statements

Years ended December 31, 2016, 2015 and 2014

(tabular dollar amounts
expressed in thousands of United States dollars, except per share amounts)



| | 7. | Acquisition and Sale of Oro Silver Resources Ltd. (continued)
| | -- | -------------------------------------------------------------



| | (a) | Acquisition of Oro Silver Resources Ltd. (continued)
| | --- | ----------------------------------------------------



Consideration
given in 2015:





|Share consideration:                  |  |                   |  |                 
|------------------------------------- |  | ----------------- |  | ----------------
|Number of shares issued               |  | 19,000,000        |  |                 
|Deemed value per share ($000s)        |  | $   0.0000535     |  |                 
|                                      |  |                   |  | $          1,017
|Derivative liability:                 |  |                   |  |                 
|Number of payable troy ounces of gold |  | 165               |  |                 
|Spot price per troy ounce ($000s)     |  | $           1.142 |  |                 
|                                      |  |                   |  | 188             
|Total consideration                   |  |                   |  | $          1,205





The closing of the Share
Purchase Agreement resulted in Marlin Gold becoming an Insider of the Company, at that time, by virtue of having a 10.79% interest
in the Company as at the closing date of October 30, 2015.



| | (b) | Sale of Oro Silver Resources Ltd.
| | --- | ---------------------------------



On May 6, 2016, the Company
entered into a Purchase and Sale Agreement with Endeavour which closed on May 27, 2016 pursuant to which the Company sold to Endeavour
100% of the shares of the Company’s wholly-owned subsidiary, Oro Silver, which indirectly holds a 100% interest in the El
Compas project in Zacatecas, Mexico, in consideration for 2,147,239 common shares of Endeavour (the “Sale Transaction”)
with a fair value of CAD$3.99 per share on May 27, 2016.



As additional consideration,
Endeavour assumed the Company’s obligation to deliver an aggregate of 165 troy ounces of gold (or the US Dollar equivalent)
to Marlin Gold in three equal payments of 55 troy ounces which are due in October 2016, 2017 and 2018. The foregoing gold delivery
obligation was incurred by the Company in connection with its acquisition of Oro Silver from Marlin Gold (Note 7(a)).





188Canarc Resource Corp.Form 20-F





CANARC RESOURCE CORP.

Notes to the Consolidated Financial Statements

Years ended December 31, 2016, 2015 and 2014

(tabular dollar amounts
expressed in thousands of United States dollars, except per share amounts)



| | 7. | Acquisition and Sale of Oro Silver Resources Ltd. (continued)
| | -- | -------------------------------------------------------------



| | (b) | Sale of Oro Silver Resources Ltd. (continued)
| | --- | ---------------------------------------------



The reported gain on the
sale of Oro Silver in 2016 is as follows:





|Consideration received from sale of Oro Silver:     |  |                     |  |                       
|--------------------------------------------------- |  | ------------------- |  | ----------------------
|Fair value of common shares of Endeavour            |  | $             6,571 |  |                       
|Derivative liability assumed by Endeavour (Note 11) |  | 200                 |  |                       
|                                                    |  |                     |  | $                6,771
|Cost of disposition of Oro Silver:                  |  |                     |  |                       
|Net assets of Oro Silver                            |  | 1,873               |  |                       
|Transaction costs                                   |  | 19                  |  |                       
|                                                    |  |                     |  | 1,892                 
|Gain from disposition of subsidiary                 |  |                     |  | $                4,879



The reported net income
from discontinued operations from the sale of Oro Silver is as follows:



|                                               |  |  |                    | December 31,          
|---------------------------------------------- |  |  | ------------------ | ----------------------
|                                               |  |  |                    | 2016                  
|                                               |  |  |                    |                       
|Amortization                                   |  |  |                    | $                  (2)
|Foreign exchange gain                          |  |  |                    | 5                     
|Legal                                          |  |  |                    | (3)                   
|Office and sundry                              |  |  |                    | (7)                   
|Rent                                           |  |  |                    | (3)                   
|Salaries and management                        |  |  |                    | (13)                  
|Property investigation                         |  |  |                    | (5)                   
|Gain from disposition of subsidiary            |  |  |                    | 4,879                 
|Loss from derivative liability                 |  |  |                    | (25)                  
|Net income (loss) from discontinued operations |  |  | $            4,826 |                       





189Canarc Resource Corp.Form 20-F





CANARC RESOURCE CORP.

Notes to the Consolidated Financial Statements

Years ended December 31, 2016, 2015 and 2014

(tabular dollar amounts
expressed in thousands of United States dollars, except per share amounts)



| | 7. | Acquisition and Sale of Oro Silver Resources Ltd. (continued)
| | -- | -------------------------------------------------------------



| | (b) | Sale of Oro Silver Resources Ltd. (continued)
| | --- | ---------------------------------------------



The reported cash flows
from discontinued operations from the sale of Oro Silver are as follows:





|                                                                    |  |  |  | December 31,         
|------------------------------------------------------------------- |  |  |  | ---------------------
|                                                                    |  |  |  | 2016                 
|                                                                    |  |  |  |                      
|Cash provided from (used by) discontinued operations:               |  |  |  |                      
|                                                                    |  |  |  |                      
|Operations:                                                         |  |  |  |                      
|Net income (loss) from discontinued operations                      |  |  |  | $            4,826   
|Items not involving cash:                                           |  |  |  |                      
|Amortization                                                        |  |  |  | 2                    
|Foreign currency translation                                        |  |  |  | (14)                 
|Gain from disposition of subsidiary                                 |  |  |  | (4,879)              
|Loss from derivative liability                                      |  |  |  | 25                   
|                                                                    |  |  |  | (40)                 
|Changes in non-cash working capital items:                          |  |  |  |                      
|Receivables and prepaids                                            |  |  |  | (8)                  
|Accounts payable and accrued liabilities                            |  |  |  | (7)                  
|Operating cash flow (used by) provided from discontinued operations |  |  |  | $                (55)
|                                                                    |  |  |  |                      
|Investing:                                                          |  |  |  |                      
|Mineral property interests, net of recoveries                       |  |  |  | $              (409) 
|Cash used by investing activities from discontinued operations      |  |  |  | $              (409) 



190Canarc Resource Corp.Form 20-F





CANARC RESOURCE CORP.

Notes to the Consolidated Financial Statements

Years ended December 31, 2016, 2015 and 2014

(tabular dollar amounts
expressed in thousands of United States dollars, except per share amounts)



|8. |  | Marketable Securities
|-- |  | ---------------------



|                                                              | December 31,             
|------------------------------------------------------------- | -------------------------
|                                                              | 2016                     
|                                                              |                          
|Balance, begin of year                                        | $                       -
|Held for trading securities received from:                    |                          
|Sale Agreement (Note 7(b))                                    | 6,571                    
|Property option agreement (Note 9(a)(iii))                    | 81                       
|Distribution of AzMin by reduction of AzMet's paid up capital | 86                       
|Disposition of held for trading securities at fair value      | (8,760)                  
|Change in fair value of marketable securities                 | 2,985                    
|Foreign currency translation adjustment                       | (8)                      
|Balance, end of year                                          | $                  955   





In September 2016, AzMet
and AzMin completed a distribution by way of a reduction of AzMet’s paid up capital pursuant to Section 74 of the British
Columbia Business Corporations Act whereby AzMet distributed all its 11 million common shares of AzMin to its shareholders
on the basis of one AzMin share for every two AzMet shares held. As at December 31, 2016, the Company had an interest of 5% in
AzMet (2015 – 7%) and 4% interest in AzMin (2015 – Nil%).



There are no separately
quoted market values for the AzMet and AzMin shares.



The quoted market value
and fair value of shares of companies was $955,000 at December 31, 2016 (2015 - $100).





191Canarc Resource Corp.Form 20-F









CANARC RESOURCE CORP.

Notes to the Consolidated Financial Statements

Years ended December 31, 2016, 2015 and 2014

(tabular dollar amounts
expressed in thousands of United States dollars, except per share amounts)



|9. |  | Mineral Property Interests
|-- |  | --------------------------



|                                          |  | British Columbia (Canada) |                      | Mexico                 |  |                           
|----------------------------------------- |  | ------------------------- | -------------------- | ---------------------- |  | --------------------------
|                                          |  | New Polaris               | Windfall Hills       | FG Gold                |  | El Compas                 
|                                          |  | (Note 9(a)(i))            | (Note 9(a)(ii))      | (Note 9(a)(iii))       |  | (Notes 7 and 9(b))        
|                                          |  |                           |                      |                        |  |                           
|Acquisition Costs:                        |  |                           |                      |                        |  |                           
|                                          |  |                           |                      |                        |  |                           
|Balance, December 31, 2014                |  | $              3,876      | $                401 | $                    - |  | $                        -
|Acquisition of subsidiary (Note 7(a))     |  | -                         | -                    | -                      |  | 1,120                     
|Additions                                 |  | -                         | 3                    | -                      |  | -                         
|Foreign currency translation adjustment   |  | (25)                      | (65)                 | -                      |  | 6                         
|Balance, December 31, 2015                |  | 3,851                     | 339                  | -                      |  | 1,126                     
|Additions                                 |  | 2                         | -                    | 19                     |  | -                         
|Disposition of subsidiary (Note 7(b))     |  | -                         | -                    | -                      |  | (1,256)                   
|Foreign currency translation adjustment   |  | 5                         | 10                   | -                      |  | 130                       
|Balance, December 31, 2016                |  | $              3,858      | $                349 | $                  19  |  | $                        -
|                                          |  |                           |                      |                        |  |                           
|Deferred Exploration Expenditures:        |  |                           |                      |                        |  |                           
|                                          |  |                           |                      |                        |  |                           
|Balance, December 31, 2014                |  | $              7,090      | $                437 | $                    - |  | $                        -
|Additions (recoveries), net of recoveries |  | 23                        | (11)                 | -                      |  | 183                       
|Foreign currency translation adjustment   |  | (1,557)                   | (70)                 | -                      |  | -                         
|Balance, December 31, 2015                |  | 5,556                     | 356                  | -                      |  | 183                       
|Additions, net of recoveries              |  | 12                        | 80                   | 6                      |  | 393                       
|Disposition of subsidiary (Note 7(b))     |  | -                         | -                    | -                      |  | (576)                     
|Foreign currency translation adjustment   |  | 249                       | 11                   | -                      |  | -                         
|Balance, December 31, 2016                |  | $              5,817      | $                447 | $                    6 |  | $                        -
|                                          |  |                           |                      |                        |  |                           
|Mineral property interests:               |  |                           |                      |                        |  |                           
|Balance, December 31, 2015                |  | $              9,407      | $                695 | $                    - |  | $                1,309    
|Balance, December 31, 2016                |  | 9,675                     | 796                  | 25                     |  | -                         
|                                          |  |                           |                      |                        |  |                           







192Canarc Resource Corp.Form 20-F







CANARC RESOURCE CORP.

Notes to the Consolidated Financial Statements

Years ended December 31, 2016, 2015 and 2014

(tabular dollar amounts
expressed in thousands of United States dollars, except per share amounts)



|9. |  | Mineral Property Interests (continued)
|-- |  | --------------------------------------



|(a) |  | Canada:
|--- |  | -------



(i)           	New Polaris:



The New Polaris property,
which is located in the Atlin Mining Division, British Columbia, is 100% owned by the Company subject to a 15% net profit interest
which may be reduced to a 10% net profit interest within one year of commercial production by issuing 150,000 common shares to
Rembrandt Gold Mines Ltd. Acquisition costs at December 31, 2016 include a reclamation bond for $187,000 (2015 - $182,000).



On February 24, 2015, the
Company entered into a Pre-Development and Earn-In Binding Agreement with PanTerra Gold (British Columbia) Limited, a wholly-owned
subsidiary of PanTerra Gold Limited, (“PanTerra”). PanTerra had a 30-month option to earn a 50% interest in the New
Polaris project by spending a total of CAD$10 million in three stages of predevelopment activities including metallurgical test
work, drilling, detailed mine planning, tailings dam design, environmental permitting, and completion of a definitive feasibility
study. In Stage One, PanTerra shall spend CAD$500,000 for laboratory production of flotation concentrate followed by test work
through the Glencore Technology Albion pilot plant, and for comprehensive technical and economic review and commencement of environmental
baseline data collection required for permitting. In Stage Two, PanTerra can earn a 20% interest in the New Polaris project by
spending CAD$3.5 million in predevelopment expenditures which would include 10,000 metre drilling program and engineering and completion
of field data required for environmental permitting. In Stage Three, PanTerra can earn an additional 30% interest in the project
for a total interest of 50% by spending CAD$6 million in predevelopment expenditures which would primarily focus on the completion
of a definitive feasibility study and would include further 10,000 metres of infill drilling, additional metallurgical test work,
and preliminary engineering. PanTerra can increase its interest in the New Polaris project to 51% by purchasing 1% from the Company
within six months of completion of the definitive feasibility study at a cost of 1% of the net present value established by the
definitive feasibility study using a 10% discount rate.



The Company had received the
CAD$500,000 for Stage One in 2015. As at December 31, 2016, funds of US$35,000 (2015 – US$69,000) remain for Stage One expenditures
as specified pursuant to the agreement between the Company and PanTerra, which remaining funds were used to settle existing payables
for Stage One expenditures in 2017.



In August 2015, PanTerra had
informed the Company that it will not be able to commit to further expenditures to commence Stage Two exploration and permitting
work on the Company’s New Polaris project until PanTerra received the approval from the Dominican Republic government for
importing New Polaris gold concentrate into the country for processing. In September 2016, PanTerra provided 30-day notice of its
intent to withdraw from the first option of the agreement, which agreement was effectively terminated on October 22, 2016.



193Canarc Resource Corp.Form 20-F





CANARC RESOURCE CORP.

Notes to the Consolidated Financial Statements

Years ended December 31, 2016, 2015 and 2014

(tabular dollar amounts
expressed in thousands of United States dollars, except per share amounts)



|9. |  | Mineral Property Interests(continued)
|-- |  | -------------------------------------



|(a) |  | Canada: (continued)
|--- |  | -------------------



(ii)	          Windfall Hills:



In April 2013, the Company
entered into a property purchase agreement with Atna Resources Ltd. (“Atna”) whereby the Company acquired a 100% undivided
interest in the Uduk Lake properties by the issuance of 1,500,000 common shares at a fair value of CAD$0.10 per share, honouring
a pre-existing 1.5% NSR production royalty that can be purchased for CAD$1 million, and granting Atna a 3% NSR production royalty.



In April 2013, the Company
entered into a property purchase agreement whereby the Company acquired a 100% undivided interest in the Dunn properties by the
issuance of 500,000 common shares at a fair value of CAD$0.10 per share and granting the vendor a 2% NSR royalty which can be reduced
to 1% NSR royalty for $500,000.



(iii)	         FG Gold:



On August 24, 2016, the Company
entered into a property option agreement with Eureka Resources, Inc., (“Eureka”) which closed on October 12, 2016.
In consideration for the grant of the property option agreement, the Company issued 250,000 common shares at a value of CAD$0.10
per share to Eureka, and subscribed to Eureka’s private placement for 750,000 units at a price of CAD$0.14 per unit for a
total of CAD$105,000; each unit was comprised of one common share of Eureka and one-half of one common share purchase warrant with
an exercise price of CAD$0.20 and expiry date of September 9, 2018. The Company can earn up to a 75% interest in the FG gold property
in two stages.



In the first stage, the Company
can earn an initial 51% interest over three years by:

| | - | incurring CAD$1.5 million in exploration expenditures with an annual minimum of CAD$500,000;
| | - | --------------------------------------------------------------------------------------------

| | - | issuing 750,000 common shares in three annual tranches of 250,000 shares; and
| | - | -----------------------------------------------------------------------------

| | - | paying 50% of the annual BC mineral exploration tax credits (“BC METC”) claimed by
the Company to Eureka to an aggregate maximum exploration expenditure of CAD$1.5 million.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In the second stage, the Company
can earn an additional 24% interest for a total interest of 75% over the following two years by:

| | - | incurring CAD$1.5 million in exploration expenditures;
| | - | ------------------------------------------------------

| | - | issuing 1.5 million common shares in two annual tranches of 750,000 shares; and
| | - | -------------------------------------------------------------------------------

| | - | paying the greater of: (i) CAD$75,000 and (ii) 50% of the annual BC METC claimed by the Company
to Eureka to an aggregate maximum exploration expenditure of CAD$1.5 million.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



If the Company fails to satisfy
the consideration necessary to exercise the second stage, then a joint venture will be deemed to have formed with the Company having
a 51% interest and Eureka with a 49% interest.

194Canarc Resource Corp.Form 20-F





CANARC RESOURCE CORP.

Notes to the Consolidated Financial Statements

Years ended December 31, 2016, 2015 and 2014

(tabular dollar amounts
expressed in thousands of United States dollars, except per share amounts)



|9. |  | Mineral Property Interests(continued)
|-- |  | -------------------------------------



|(b) |  | Mexico:
|--- |  | -------



El Compas:



In October 2015, the Company
acquired the El Compas project located in Zacatecas, Mexico, pursuant to the Share Purchase Agreement with Marlin Gold by way of
the acquisition of a 100% interest in Oro Silver (Note 7(a)). On each of the first three anniversaries of the date of the Share
Purchase Agreement, 55 troy ounces of gold (or the U.S. dollar equivalent) was to be paid by the Company to Marlin Gold or to any
of its subsidiaries. Certain mineral concessions named Altiplano include a 3% NSR royalty and a buy back option. Marlin Gold will
retain the Altiplano royalty and buy back option, and will receive a 1.5% NSR on all non-Altiplano claims that currently have no
royalties associated with them. (Notes 7(a) and 11).



In January 2016, the Company
signed a definitive agreement with the Zacatecas state government to lease and operate the permitted 500 tonne per day La Plata
ore processing plant located in the city of Zacatecas, Mexico. Highlights of the lease agreement included the following:



| | · | Lease term was for 5 years with the right to extend for another 5
years;
| | - | ------------------------------------------------------------------------

| | · | The Company assumed responsibility for the plant as of January 29,
2016;
| | - | ------------------------------------------------------------------------

| | · | The Company was to pay a monthly lease payment of MXP 136,000; and
| | - | ------------------------------------------------------------------

| | · | Grace period of 6 months to allow time for plant refurbishing.
| | - | --------------------------------------------------------------



In May 2016, the Company
entered into the Sales Transaction with Endeavour pursuant to which the Company sold to Endeavour 100% of the shares of the Company’s
wholly-owned subsidiary, Oro Silver, which indirectly holds a 100% interest in the El Compas project in Zacatecas, Mexico (Note
7(b)). Endeavour assumed responsibility for the troy ounces of gold payable to Marlin Gold and the lease for the ore processing
plant.



|(c) |  | United States:
|--- |  | --------------



On February 28, 2017, the
Company entered into a purchase agreement (the “Letter Agreement”) with American Innovative Minerals, LLC (“AIM”)
to acquire 100% legal and beneficial interests in mineral resource properties located in Nevada, Idaho and Utah for a total purchase
price of $2 million. Upon execution of the Letter Agreement, the Company deposited $200,000 “in trust” towards the
purchase price. The deposit is only refundable upon limited circumstances including status of title, material encumbrances, corporate
standing, financial conditions, environmental liabilities, and litigation. The Company has the option to either acquire AIM or
acquire AIM’s interests in the mineral properties. There is a 30 day due diligence period. The Letter Agreement will be replaced
and superseded by the execution of a definitive agreement on or before March 31, 2017. Certain of the mineral properties are subject
to royalties.



195Canarc Resource Corp.Form 20-F







CANARC RESOURCE CORP.

Notes to the Consolidated Financial Statements

Years ended December 31, 2016, 2015 and 2014

(tabular dollar amounts
expressed in thousands of United States dollars, except per share amounts)



|9. |  | Mineral Property Interests (continued)
|-- |  | --------------------------------------



|(d) |  | Expenditure options:
|--- |  | --------------------



As at December 31, 2016,
to maintain the Company’s interest and/or to fully exercise the options under various property agreements covering its properties,
the Company must make payments to the optionors as follows:





|                                         | Cash                                                   | Exploration                          | Number of
|---------------------------------------- | ------------------------------------------------------ | ------------------------------------ | ---------
|                                         | Payments                                               | Expenditures                         | Shares   
|                                         | (CAD$000)                                              | (CAD$000)                            |          
|                                         |                                                        |                                      |          
|New Polaris (Note 9(a)(i)):              |                                                        |                                      |          
|Net profit interest reduction or buydown | $                                                    - | $                                  - | 150,000  
|                                         |                                                        |                                      |          
|FG Gold (Note 9(a)(iii)):                |                                                        |                                      |          
|(i) Stage One:                           |                                                        |                                      |          
|By December 31:                          |                                                        |                                      |          
|2017                                     | 50% of BC METC(1)                                      | 491                                  | -        
|2018                                     | 50% of BC METC(1)                                      | 500                                  | -        
|2019                                     | 50% of BC METC(1)                                      | 500                                  | -        
|2020                                     | 50% of BC METC(1)                                      | -                                    | -        
|On or before September 9:                |                                                        |                                      |          
|2017                                     | -                                                      | -                                    | 250,000  
|2018                                     | -                                                      | -                                    | 250,000  
|2019                                     | -                                                      | -                                    | 250,000  
|(ii) Stage Two:                          |                                                        |                                      |          
|2021                                     | Greater of (1):(i) CAD$75,000 and(ii) 50% of BC METC   | -                                    | -        
|2022                                     | Greater of (1):(i) CAD$75,000 and(ii) 50% of BC METC   | -                                    | -        
|On or before September 9:                |                                                        |                                      |          
|2020                                     | -                                                      | -                                    | 750,000  
|2021                                     | -                                                      | 1,500                                | 750,000  
|                                         |                                                        |                                      |          
|                                         |                                                        | $                        2,991       | 2,400,000





| | (1) | Maximum aggregate exploration expenditures for BC METC payable to Eureka is CAD$1.5 million for each
of Stage One and Stage Two.
| | --- | --------------------------------------------------------------------------------------------------------------------------------





These amounts may be reduced
in the future as the Company determines which mineral property interests to continue to explore and which to abandon.





196Canarc Resource Corp.Form 20-F





CANARC RESOURCE CORP.

Notes to the Consolidated Financial Statements

Years ended December 31, 2016, 2015 and 2014

(tabular dollar amounts
expressed in thousands of United States dollars, except per share amounts)



|9. |  | Mineral Property Interests (continued)
|-- |  | --------------------------------------



|(e) |  | Title to mineral property interests:
|--- |  | ------------------------------------



The Company has diligently
investigated rights of ownership of all of its mineral property interests/concessions and, to the best of its knowledge, all agreements
relating to such ownership rights are in good standing. However, all properties and concessions may be subject to prior claims,
agreements or transfers, and rights of ownership may be affected by undetected defects.



|(f) |  | Realization of assets:
|--- |  | ----------------------



The Company’s
investment in and expenditures on its mineral property interests comprise a significant portion of the Company’s assets.
Realization of the Company’s investment in these assets is dependent on establishing legal ownership of the mineral properties,
on the attainment of successful commercial production or from the proceeds of their disposal. The recoverability of the amounts
shown for mineral property interests is dependent upon the existence of reserves, the ability of the Company to obtain necessary
financing to complete the development of the properties, and upon future profitable production or proceeds from the disposition
thereof.



|(g) |  | Environmental:
|--- |  | --------------



Environmental legislation
is becoming increasingly stringent and costs and expenses of regulatory compliance are increasing. The impact of new and future
environmental legislation of the Company’s operation may cause additional expenses and restrictions.



If the restrictions adversely
affect the scope of exploration and development on the mineral properties, the potential for production on the property may be
diminished or negated.



The Company is subject to
the laws and regulations relating to environmental matters in all jurisdictions in which it operates, including provisions relating
to property reclamation, discharge of hazardous materials and other matters. The Company may also be held liable should environmental
problems be discovered that were caused by former owners and operators of its current properties and former properties in which
it has previously had an interest. The Company is not aware of any existing environmental problems related to any of its current
or former mineral property interests that may result in material liability to the Company.





197Canarc Resource Corp.Form 20-F





CANARC RESOURCE CORP.

Notes to the Consolidated Financial Statements

Years ended December 31, 2016, 2015 and 2014

(tabular dollar amounts
expressed in thousands of United States dollars, except per share amounts)



|10. |  | Equipment
|--- |  | ---------





|                                                            |   |   |   |                         | Field                   | Office                 |                       
|----------------------------------------------------------- | - | - | - | ----------------------- | ----------------------- | ---------------------- | ----------------------
|                                                            |   |   |   | Building                | Equipment               | Equipment              | Total                 
|Cost:                                                       |   |   |   |                         |                         |                        |                       
|Balance, December 31, 2014                                  |   |   |   | $                     - | $                 -     | $                    9 | $                    9
|Acquisition of subsidiary (Note 7(a))                       |   |   |   | 7                       | 17                      | 1                      | 25                    
|Foreign currency translation adjustment                     |   |   |   | -                       | -                       | (1)                    | (1)                   
|Balance, December 31, 2015                                  |   |   |   | 7                       | 17                      | 9                      | 33                    
|Disposition of subsidiary (Note 7(b))                       |   |   |   | (8)                     | (18)                    | (1)                    | (27)                  
|Foreign currency translation adjustment                     |   |   |   | 1                       | 1                       | -                      | 2                     
|Balance, December 31, 2016                                  |   |   |   | -                       | -                       | 8                      | 8                     
|                                                            |   |   |   |                         |                         |                        |                       
|Accumulated amortization:                                   |   |   |   |                         |                         |                        |                       
|Balance, December 31, 2014                                  |   |   |   | -                       | -                       | 7                      | 7                     
|Add:   Amortization from discontinued operation (Note 7(b)) | - | - | 1 | 1                      
|Balance, December 31, 2015                                  |   |   |   | -                       | -                       | 8                      | 8                     
|Add:                                                        |   |   |   |                         |                         |                        |                       
|Amortization                                                |   |   |   | -                       | 2                       | -                      | 2                     
|Disposition of subsidiary (Note 7(b))                       |   |   |   | -                       | (2)                     | (1)                    | (3)                   
|Foreign currency translation adjustment                     |   |   |   | -                       | -                       | -                      | -                     
|Balance, December 31, 2016                                  |   |   |   | -                       | -                       | 7                      | 7                     
|                                                            |   |   |   |                         |                         |                        |                       
|Net book value:                                             |   |   |   |                         |                         |                        |                       
|Balance, December 31, 2015                                  |   |   |   | $                    7  | $                  17   | $                    1 | $                  25 
|Balance, December 31, 2016                                  |   |   |   | $                     - | $                     - | $                    1 | $                    1
|                                                            |   |   |   |                         |                         |                        |                       





198Canarc Resource Corp.Form 20-F







CANARC RESOURCE CORP.

Notes to the Consolidated Financial Statements

Years ended December 31, 2016, 2015 and 2014

(tabular dollar amounts
expressed in thousands of United States dollars, except per share amounts)



|11. |  | Derivative Liability
|--- |  | --------------------





|                                          |                          |  |                        |  |                             
|----------------------------------------- | ------------------------ |  | ---------------------- |  | ----------------------------
|                                          | Derivative Liability     |  |                       
|                                          | May 27, 2016             |  |                        |  |                             
|                                          | Disposition of           |  | December 31, 2015      |  | Gain (Loss) on              
|                                          | Oro Silver               |  |                        |  | Derivative Liability        
|                                          |                          |  |                        |  |                             
|                                          |                          |  |                        |  |                             
|Number of payable troy ounces of gold     | 165                      |  | 165                    |  |                             
|Spot price per troy ounce of gold ($000s) | $               1.216    |  | $               1.062  |  |                             
|Balance                                   | $                  200   |  | $                  175 |  | $                      (25) 
|Less:                                     |                          |  |                        |  |                             
|Sale Agreement with Endeavour (Note 7(b)) | (200)                    |  | -                      |  | 25                          
|Adjusted balance                          | $                      - |  | $                  175 |  | $                          -
|                                          |                          |  |                        |  |                             





|                                      |                               |                               |  |                                 
|------------------------------------- | ----------------------------- | ----------------------------- |  | --------------------------------
|                                      | Derivative Liability          |                               | 
|                                      |                               | October 30, 2015              |  | Gain (Loss) on                  
|                                      | December 31, 2015             | Acquisition of                |  | Derivative Liability            
|                                      |                               | Oro Silver                    |  |                                 
|                                      |                               |                               |  |                                 
|Number of payable troy ounces of gold | 165                           | 165                           |  |                                 
|Spot price per troy ounce of gold     | $                      1.062  | $                      1.142  |  |                                 
|Balance                               | $                         175 | $                         188 |  | $                             13
|                                      |                               |                               |  |                                 





On each of the first
three anniversaries of the date of the Share Purchase Agreement, 55 troy ounces of gold (or the U.S. dollar equivalent) was
to be paid by the Company to Marlin Gold or to any of its subsidiaries pursuant to the Share Purchase Agreement (Note 7(a)).
The estimated fair value is based on the spot market price of gold at the period end. Pursuant to the Sale Agreement with
Endeavour, Endeavour assumed responsibility for the troy ounces of gold payable to Marlin Gold (Note 7(b)).



199Canarc Resource Corp.Form 20-F







CANARC RESOURCE CORP.

Notes to the Consolidated Financial Statements

Years ended December 31, 2016, 2015 and 2014

(tabular dollar amounts
expressed in thousands of United States dollars, except per share amounts)



|12. |  | Accounts Payable and Accrued Liabilities
|--- |  | ----------------------------------------



|(a) |  | Debt Settlement and Derecognition:
|--- |  | ----------------------------------



In 2016, the Company entered
into a debt settlement with a creditor whereby a debt of $138,000 was settled with a cash payment of $33,000, resulting in a gain
on debt settlement of $105,000. In 2016, the Company also derecognized debt of $3,000 owed to a foreign creditor, and recognized
a gain of $3,000 from the derecognition of accounts payable.



In 2015, the Company entered
into shares for debt settlements with certain directors and officers, and recognized a gain on debt settlement of $54,000 (Note
13(b)(iii)).



|(b) |  | Flow-Through Tax Indemnification:
|--- |  | ---------------------------------



In 2015, the Company incurred
a shortfall of CAD$14,000 in Canadian exploration expenditures for flow through purposes, and recognized a provision of US$2,000
for flow through indemnification as at December 31, 2016 (2015 – US$2,000) which is included in accounts payable and accrued
liabilities.





|13. |  | Share Capital
|--- |  | -------------



|(a) |  | Authorized:
|--- |  | -----------



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



|(b) |  | Issued:
|--- |  | -------



(i)	           Normal course issuer
bid:



In February 2017, the Company
received regulatory approval for a normal course issuer bid to acquire up to 10.9 million common shares of the Company representing
approximately up to 5% of its issued and outstanding common shares at that time. The bid is effective on February 8, 2017 and will
terminate on February 7, 2018, or on such earlier date as the bid is complete. The actual number of common shares purchased under
the bid and the timing of any such purchases will be at the Company’s discretion. Purchases under the bid shall not exceed
86,128 common shares per day. The Company will pay the prevailing market price at the time of purchase for all common shares purchased
under the bid, and all common shares purchased by the Company will be cancelled. In 2017, the Company purchased 380,000 common
shares for CAD$34,250 with an average price of CAD$0.09 per share of which no common shares have been cancelled.



200Canarc Resource Corp.Form 20-F





CANARC RESOURCE CORP.

Notes to the Consolidated Financial Statements

Years ended December 31, 2016, 2015 and 2014

(tabular dollar amounts
expressed in thousands of United States dollars, except per share amounts)



|13. |  | Share Capital (continued)
|--- |  | -------------------------



|(b) |  | Issued: (continued)
|--- |  | -------------------



| | (ii) | In March 2016, the Company closed a private placement in two tranches totalling 22.7 million units
at a price of CAD$0.09 per unit for gross proceeds of CAD$2.04 million with each unit comprised of one common share and one-half
of one common share purchase warrant; each whole warrant is exercisable to acquire one common share at an exercise price of CAD$0.12
per share for a period of three years. On March 3, 2016, the Company closed the first tranche for 17.7 million units for gross
proceeds of CAD$1.59 million. On March 14, 2016, the Company closed the second tranche for 5 million units for gross proceeds of
CAD$449,500 with a finder’s fee of 311,111 units issued with the same terms as the underlying units in the private placement.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In September 2016, the Company
issued 250,000 common shares at a value of CAD$0.10 per share to Eureka for the FG gold property (Note 9(a)(iii)).



In 2016, warrants for 1.31
million shares were exercised for proceeds of CAD$104,700 which included finder fee warrants for 58,333 shares with a fair value
of US$2,000. In 2016, stock options for 1 million shares were exercised for proceeds of CAD$80,000 with fair values of US$54,300.



| | (iii) | On September 21, 2015, the Company closed the first tranche of a private placement for 11.5 million
units at a price of CAD$0.06 per unit for gross proceeds of CAD$690,000. Each unit was comprised of one common share and one-half
of one common share purchase warrant; each whole warrant is exercisable to acquire one common share at an exercise price of CAD$0.08
per share until September 21, 2018. The Company paid CAD$36,200 in cash and issued 594,844 in warrants as finders’ fees.
The finders’ fee warrants have the same terms as the underlying warrants in the unit private placement. On October 30, 2015,
the Company closed the second tranche of a private placement for 1.67 million units at a price of CAD$0.06 per unit for gross proceeds
of CAD$100,000 with Marlin Gold (Note 7(a)). Each unit was comprised of one common share and one-half
of one common share purchase warrant; each whole warrant is exercisable to acquire one common share at an exercise price of CAD$0.08
per share until October 30, 2018.
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



On September 24, 2015, the
Company issued 2 million shares at a value of CAD$0.07 in settlement of partial salaries owed to certain officers and fees owed
to certain directors in which the latter also forgave a certain portion of outstanding directors fees owed, resulting in a gain
on debt settlement of $54,000.



On October 8, 2015, the Company
entered into the Share Purchase Agreement with Marlin Gold which closed on October 30, 2015 whereby the Company issued 19 million
common shares at a value of CAD$0.07 per share to Marlin Gold to acquire a 100% interest in Marlin Gold’s wholly-owned subsidiary,
Oro Silver, which owns the El Compas project through its wholly-owned Mexican subsidiary, Minera Oro Silver (Note 7(a)).



201Canarc Resource Corp.Form 20-F







CANARC RESOURCE CORP.

Notes to the Consolidated Financial Statements

Years ended December 31, 2016, 2015 and 2014

(tabular dollar amounts
expressed in thousands of United States dollars, except per share amounts)



|13. |  | Share Capital (continued)
|--- |  | -------------------------



|(b) |  | Issued: (continued)
|--- |  | -------------------



| | (iv) | On January 31, 2014, the Company closed a private placement for 18 million units at a price of
CAD$0.05 per unit for gross proceeds of CAD$900,000. Each unit was comprised of one common share and one-half of one common share
purchase warrant; each whole warrant is exercisable to acquire one common share at an exercise price of CAD$0.10 per share until
January 31, 2016; in August 2015, 8.45 million warrants had their expiry date extended to July 31, 2017 (Note 13(d)). Finder’s
fees of CAD$22,500 were paid for the private placement.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In March and April 2014, the
Company closed a private placement in two tranches totalling 19.6 million units at a price of CAD$0.10 per unit for gross proceeds
of CAD$1.96 million with each unit comprised of one common share and one-half of one common share purchase warrant; each whole
warrant is exercisable to acquire one common share at an exercise price of CAD$0.15 per share for a three year period. On March
18, 2014, the Company closed the first tranche for 10.6 million units for CAD$1.06 million, and paid CAD$66,170 in cash and issued
661,718 in warrants as finders’ fees. In August 2015, 5.9 million warrants had their expiry date extended to September 18,
2018 (Note 13(d)). On April 3, 2014, the Company closed the second tranche for 9 million units for CAD$900,000, and paid CAD$6,070
in cash and issued 60,725 in warrants as finders’ fees. The finders’ fee warrants have the same terms as the underlying
warrants in the unit private placement. In August 2015, 4.2 million warrants had their expiry date extended to October 3, 2018
(Note 13(d)).



On July 9, 2014, the Company
closed a private placement for 5 million units at CAD$0.08 per unit for gross proceeds of CAD$400,000. Each unit was comprised
of one flow-through common share and one-half of one common share purchase warrant; each whole warrant is exercisable to acquire
one non-flow through common share at an exercise price of CAD$0.15 per share until July 9, 2016. The Company expended funds of
CAD$386,000 for flow through purposes (Note 12).





202Canarc Resource Corp.Form 20-F





CANARC RESOURCE CORP.

Notes to the Consolidated Financial Statements

Years ended December 31, 2016, 2015 and 2014

(tabular dollar amounts
expressed in thousands of United States dollars, except per share amounts)



|13. |  | Share Capital (continued)
|--- |  | -------------------------



|(c) |  | Stock option plan:
|--- |  | ------------------



The Company has a stock
option plan that allows it to grant stock options to its directors, officers, employees, and consultants to acquire up to 18,888,434
common shares, of which stock options for 16,445,000 common shares are outstanding as at December 31, 2016. The exercise price
of each stock option cannot be lower than the last recorded sale of a board lot on the TSX during the trading day immediately preceding
the date of granting or, if there was no such date, the high/low average price for the common shares on the TSX based on the last
five trading days before the date of the grant. Stock options have a maximum term of ten years and terminate 30 days following
the termination of the optionee’s employment, except in the case of death, in which case they terminate one year after the
event. Vesting of stock options is made at the discretion of the board at the time the stock options are granted.



At the discretion of the
board, certain stock option grants provide the holder the right to receive the number of common shares, valued at the quoted market
price at the time of exercise of the stock options, that represent the share appreciation since granting the stock options.



The continuity
of outstanding stock options for the years ended December 31, 2016, 2015 and 2014 is as follows:





|                                       |            | 2016           |          | 2015       |                | 2014    
|-------------------------------------- | ---------- | -------------- | -------- | ---------- | -------------- | --------
|                                       |            |                | Weighted |            |                | Weighted
|                                       |            |                | average  |            |                | average 
|                                       |            |                | exercise |            |                | exercise
|                                       |            | Number         | price    |            | Number         | price   
|                                       |            | of Shares      | (CAD$)   |            | of Shares      | (CAD$)  
|                                       |            |                |          |            |                |         
|Outstanding balance, beginning of year | 11,920,000 | $0.08          |          | 10,130,000 | $0.10          |         
|Granted                                |            | 8,010,000      | $0.08    |            | 5,950,000      | $0.06   
|Exercised                              |            | (1,000,000)    | $0.08    |            | -              | -       
|Forfeited                              |            | (1,965,000)    | $0.09    |            | (245,000)      | $0.11   
|Expired                                |            | (520,000)      | $0.10    |            | (3,915,000)    | $0.12   
|Outstanding balance, end of year       |            | 16,445,000     | $0.08    |            | 11,920,000     | $0.08   
|                                       |            |                |          |            |                |         
|Exercise price range (CAD$)            |            | $0.05 - $0.145 |          |            | $0.05 - $0.145 |         





203Canarc Resource Corp.Form 20-F





CANARC RESOURCE CORP.

Notes to the Consolidated Financial Statements

Years ended December 31, 2016, 2015 and 2014

(tabular dollar amounts
expressed in thousands of United States dollars, except per share amounts)



|13. |  | Share Capital (continued)
|--- |  | -------------------------



|(c) |  | Stock option plan: (continued)
|--- |  | ------------------------------



The
following table summarizes information about stock options exercisable and outstanding at December 31, 2016 and 2015:





|         |  | Options Outstanding |  | Options Exercisable
|-------- |  | ------------------- |  | -------------------
|         |  |                     |  | Weighted           
|         |  |                     |  | Average            
|Exercise |  | Number              |  | Remaining          
|Prices   |  | Outstanding at      |  | Contractual Life   
|(CAD$)   |  | Dec 31, 2016        |  | (Number of Years)  
|         |  |                     |  |                    
|$0.145   |  | 30,000              |  | 0.46               
|$0.08    |  | 1,425,000           |  | 1.48               
|$0.05    |  | 500,000             |  | 2.04               
|$0.10    |  | 3,650,000           |  | 2.54               
|$0.06    |  | 5,350,000           |  | 3.94               
|$0.08    |  | 5,490,000           |  | 4.51               
|         |  | 16,445,000          |  | 3.54               





|         |  | Options Outstanding |  | Options Exercisable
|-------- |  | ------------------- |  | -------------------
|         |  |                     |  | Weighted           
|         |  |                     |  | Average            
|Exercise |  | Number              |  | Remaining          
|Prices   |  | Outstanding at      |  | Contractual Life   
|(CAD$)   |  | Dec 31, 2015        |  | (Number of Years)  
|         |  |                     |  |                    
|$0.135   |  | 160,000             |  | 0.51               
|$0.145   |  | 105,000             |  | 1.46               
|$0.08    |  | 1,525,000           |  | 2.49               
|$0.05    |  | 500,000             |  | 3.04               
|$0.10    |  | 3,680,000           |  | 3.54               
|$0.06    |  | 5,950,000           |  | 4.94               
|         |  | 11,920,000          |  | 4.02               





204Canarc Resource Corp.Form 20-F





CANARC RESOURCE CORP.

Notes to the Consolidated Financial Statements

Years ended December 31, 2016, 2015 and 2014

(tabular dollar amounts
expressed in thousands of United States dollars, except per share amounts)



|13. |  | Share Capital (continued)
|--- |  | -------------------------



|(c) |  | Stock option plan: (continued)
|--- |  | ------------------------------



During the year ended December
31, 2016, the Company recognized share-based payments of $301,000 (2015 - $161,000 and 2014 - $209,000), net of forfeitures, based
on the fair value of stock options that were earned by the provision of services during the period. Share-based payments are segregated
between directors and officers, employees and consultants, as applicable, as follows:





|                       | December 31,     
|---------------------- | -----------------
|                       | 2016             
|                       |                  
|Directors and officers | $             245
|Employees              | 2                
|Consultants            | 54               
|                       |                  
|                       | $             301





The weighted average fair
value of stock options granted and the weighted average assumptions used to calculate share-based payments for stock option grants
are estimated using the Black-Scholes option pricing model as follows:





|                                            | 2016      |  | 2015      |  | 2014     
|------------------------------------------- | --------- |  | --------- |  | ---------
|                                            |           |  |           |  |          
|Number of stock options granted             | 8,010,000 |  | 5,950,000 |  | 4,550,000
|Fair value of stock options granted (CAD$)  | $0.07     |  | $0.05     |  | $0.08    
|                                            |           |  |           |  |          
|Market price of shares on grant date (CAD$) | $0.09     |  | $0.06     |  | $0.09    
|Pre-vest forfeiture rate                    | 15.99%    |  | 19.64%    |  | 5.29%    
|Risk-free interest rate                     | 0.55%     |  | 0.75%     |  | 1.38%    
|Expected dividend yield                     | 0%        |  | 0%        |  | 0%       
|Expected stock price volatility             | 140%      |  | 140%      |  | 118%     
|Expected option life in years               | 4.42      |  | 4.24      |  | 4.48     





205Canarc Resource Corp.Form 20-F





CANARC RESOURCE CORP.

Notes to the Consolidated Financial Statements

Years ended December 31, 2016, 2015 and 2014

(tabular dollar amounts
expressed in thousands of United States dollars, except per share amounts)



|13. |  | Share Capital (continued)
|--- |  | -------------------------



|(c) |  | Stock option plan: (continued)
|--- |  | ------------------------------



Expected stock price volatility
is based on the historical price volatility of the Company’s common shares.



In fiscal 2014, the Company
granted the following stock options:

| | - | 500,000 stock options to an officer with an exercise price of CAD$0.05
and an expiry date of January 14, 2019, and which are subject to vesting provisions in which 20% of the options vest immediately
on the grant date and 20% vest every six months thereafter.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | - | 4,050,000 stock options to directors, officers and employees with
an exercise price of CAD$0.10 and an expiry date of July 17, 2019, and which are subject to vesting provisions in which 20% of
the options vest immediately on the grant date and 20% vest every six months thereafter.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In May 2015, certain directors
and officers of the Company cancelled 3,360,000 stock options with exercise prices ranging from CAD$0.10 to CAD$0.145 and expiry
dates ranging from September 2015 to June 2017.



In December 2015, the Company
granted 5,950,000 stock options to directors, officers and employees with an exercise price of CAD$0.06 and an expiry date of December
8, 2020, and which are subject to vesting provisions in which 25% of the options vest immediately on the grant date and 25% vest
every six months thereafter.



In fiscal 2016, the Company
granted the following stock options:

| | - | 3,260,000 stock options to directors, officers and employees with an exercise price of CAD$0.08
and an expiry date of July 7, 2021, and which are subject to vesting provisions in which 25% of the options vest immediately on
the grant date and 25% vest every six months thereafter;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | - | 3,000,000 stock options to a director, officers and a consultant with an exercise price of CAD$0.08
and an expiry date of July 7, 2021, and which shall vest only when the Company closes a material transaction or at the discretion
of the Company’s Board of Directors;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | - | 1,000,000 stock options to consultants with an exercise price of CAD$0.08 and an expiry date of
July 7, 2021, and which fully vested on grant date; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------

| | - | 750,000 stock options to a consultant with an exercise price of CAD$0.11 and an expiry date of
September 21, 2021, and which fully vest on December 20, 2016.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------



206Canarc Resource Corp.Form 20-F





CANARC RESOURCE CORP.

Notes to the Consolidated Financial Statements

Years ended December 31, 2016, 2015 and 2014

(tabular dollar amounts
expressed in thousands of United States dollars, except per share amounts)



|13. |  | Share Capital (continued)
|--- |  | -------------------------



|(d) |  | Warrants:
|--- |  | ---------



At December 31, 2016, the Company had outstanding
warrants as follows:





|Exercise |                             |                   |            |             |            
|-------- | --------------------------- | ----------------- | ---------- | ----------- | -----------
|Prices   |                             | Outstanding at    |            |             |            
|(CAD$)   | Expiry Dates                | December 31, 2015 | Issued     | Exercised   | Expired    
|         |                             |                   |            |             |            
|$0.20    | January 11, 2016(1)         | 600,000           | -          | -           | (600,000)  
|         |                             |                   |            |             |            
|$0.20    | January 18, 2016(1)         | 1,000,000         | -          | -           | (1,000,000)
|         |                             |                   |            |             |            
|$0.10    | January 31, 2016            | 550,000           | -          | -           | (550,000)  
|         |                             |                   |            |             |            
|$0.10    | July 31, 2017 (2)           | 8,450,000         | -          | -           | -          
|         |                             |                   |            |             |            
|$0.15    | March 18, 2017              | 55,000            | -          | -           | -          
|         |                             |                   |            |             |            
|$0.15    | September 18, 2018 (2)      | 5,254,055         | -          | -           | -          
|         |                             |                   |            |             |            
|$0.15    | September 18, 2018 (2), (3) | 661,718           | -          | -           | -          
|         |                             |                   |            |             |            
|$0.15    | April 3, 2017               | 346,250           | -          | -           | -          
|         |                             |                   |            |             |            
|$0.15    | October 3, 2018(2)          | 4,153,750         | -          | -           | -          
|         |                             |                   |            |             |            
|$0.15    | October 3, 2018 (2), (4)    | 60,725            | -          | -           | -          
|         |                             |                   |            |             |            
|$0.15    | July 9, 2016                | 2,500,000         | -          | -           | (2,500,000)
|         |                             |                   |            |             |            
|$0.08    | September 21, 2018          | 5,749,443         | -          | (416,667)   | -          
|         |                             |                   |            |             |            
|$0.08    | September 21, 2018 (5)      | 594,844           | -          | (58,333)    | -          
|         |                             |                   |            |             |            
|$0.08    | October 30, 2018            | 833,333           | -          | (833,333)   | -          
|         |                             |                   |            |             |            
|$0.12    | March 3, 2019               | -                 | 8,852,576  | -           | -          
|         |                             |                   |            |             |            
|$0.12    | March 14, 2019              | -                 | 2,497,222  | -           | -          
|         |                             |                   |            |             |            
|$0.12    | March 14, 2019 (6)          | -                 | 155,556    | -           | -          
|         |                             |                   |            |             |            
|         |                             | 30,809,118        | 11,505,354 | (1,308,333) | (4,650,000)





207Canarc Resource Corp.Form 20-F





CANARC RESOURCE CORP.

Notes to the Consolidated Financial Statements

Years ended December 31, 2016, 2015 and 2014

(tabular dollar amounts
expressed in thousands of United States dollars, except per share amounts)



|13. |  | Share Capital (continued)
|--- |  | -------------------------



|(d) |  | Warrants: (continued)
|--- |  | ---------------------



| | (1) | The warrants were subject to an accelerated expiry whereby if after the four month plus one day
hold period from the closing date of the private placement, the volume weighted average trading price as traded on the TSX equals
or exceeds CAD$0.30 per share for a period of 10 consecutive trading days, the Company will have the right, within five business
days, to accelerate the expiry date of the warrants by giving not fewer than 30 days written notice to the warrant holder whereby
the warrants shall expire 30 days after such date of the notice.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | On August 28, 2015, the Company extended the terms of the expiry periods of the warrants by 18
months.
| | --- | ------------------------------------------------------------------------------------------------------



| | (3) | As these warrants are agent’s warrants, a fair value of $43,120 was originally recorded as
share issuance expense as applied to share capital with a corresponding credit to reserve for share-based payments calculated using
the Black-Scholes option pricing model with the following assumptions: volatility 120%, risk-free rate 1.17%, expected life 3 years,
and expected dividend yield 0%. On August 28, 2015, the agent’s warrants were modified by the extension of the expiry term
by 18 months resulting in a net fair value adjustment of $4,622 as applied to reserve for share-based payments with
a corresponding debit to deficit using the Black-Scholes option pricing model with the following revised assumptions: volatility
146%, risk-free rate 0.46%, expected life 3 years, and expected dividend yield 0%.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | As these warrants are agent’s warrants, a fair value of $3,335 was originally recorded as
share issuance expense as applied to share capital with a corresponding credit to reserve for share-based payments calculated using
the Black-Scholes option pricing model with the following assumptions: volatility 121%, risk-free rate 1.27%, expected life 3 years,
and expected dividend yield 0%. On August 28, 2015, the agent’s warrants were modified by the extension of the expiry term
by 18 months resulting in a net fair value adjustment of $386 as applied to reserve for share-based payments with a corresponding
debit to deficit using the Black-Scholes option pricing model with the following revised assumptions: volatility 146%, risk-free
rate 0.46%, expected life 3 years, and expected dividend yield 0%.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (5) | As these warrants are agent’s warrants, a fair value of $20,747 was recorded as share issuance
expense as applied to share capital with a corresponding credit to reserve for share-based payments calculated using the Black-Scholes
option pricing model with the following assumptions: volatility 147%, risk-free rate 0.57%, expected life 3 years, and expected
dividend yield 0%.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (6) | As these warrants are agent’s warrants, a fair value of $10,320 was originally recorded as
share issuance expense as applied to share capital with a corresponding credit to reserve for share-based payments calculated using
the Black-Scholes option pricing model with the following assumptions: volatility 150%, risk-free rate 0.58%, expected life 3 years,
and expected dividend yield 0%.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





208Canarc Resource Corp.Form 20-F





CANARC RESOURCE CORP.

Notes to the Consolidated Financial Statements

Years ended December 31, 2016, 2015 and 2014

(tabular dollar amounts
expressed in thousands of United States dollars, except per share amounts)



|13. |  | Share Capital (continued)
|--- |  | -------------------------



|(d) |  | Warrants: (continued)
|--- |  | ---------------------



At December 31, 2015, the Company had outstanding
warrants as follows:





|Exercise |                             |                   |           |           |              |                  
|-------- | --------------------------- | ----------------- | --------- | --------- | ------------ | -----------------
|Prices   |                             | Outstanding at    |           |           |              | Outstanding at   
|(CAD$)   | Expiry Dates                | December 31, 2014 | Issued    | Exercised | Expired      | December 31, 2015
|         |                             |                   |           |           |              |                  
|$0.20    | September 28, 2015 (1)      | 11,300,000        | -         | -         | (11,300,000) | -                
|         |                             |                   |           |           |              |                  
|$0.20    | September 28, 2015 (1), (2) | 904,000           | -         | -         | (904,000)    | -                
|         |                             |                   |           |           |              |                  
|$0.20    | December 19, 2015(1)        | 4,500,000         | -         | -         | (4,500,000)  | -                
|         |                             |                   |           |           |              |                  
|$0.20    | January 11, 2016(1)         | 600,000           | -         | -         | -            | 600,000          
|         |                             |                   |           |           |              |                  
|$0.20    | January 18, 2016(1)         | 1,000,000         | -         | -         | -            | 1,000,000        
|         |                             |                   |           |           |              |                  
|$0.10    | January 31, 2016            | 550,000           | -         | -         | -            | 550,000          
|         |                             |                   |           |           |              |                  
|$0.10    | July 31, 2017 (3)           | 8,450,000         | -         | -         | -            | 8,450,000        
|         |                             |                   |           |           |              |                  
|$0.15    | March 18, 2017              | 55,000            | -         | -         | -            | 55,000           
|         |                             |                   |           |           |              |                  
|$0.15    | September 18, 2018 (3)      | 5,254,055         | -         | -         | -            | 5,254,055        
|         |                             |                   |           |           |              |                  
|$0.15    | September 18, 2018 (3), (4) | 661,718           | -         | -         | -            | 661,718          
|         |                             |                   |           |           |              |                  
|$0.15    | April 3, 2017               | 346,250           | -         | -         | -            | 346,250          
|         |                             |                   |           |           |              |                  
|$0.15    | October 3, 2018(3)          | 4,153,750         | -         | -         | -            | 4,153,750        
|         |                             |                   |           |           |              |                  
|$0.15    | October 3, 2018 (3), (5)    | 60,725            | -         | -         | -            | 60,725           
|         |                             |                   |           |           |              |                  
|$0.15    | July 9, 2016                | 2,500,000         | -         | -         | -            | 2,500,000        
|         |                             |                   |           |           |              |                  
|$0.08    | September 21, 2018          | -                 | 5,749,443 | -         | -            | 5,749,443        
|         |                             |                   |           |           |              |                  
|$0.08    | September 21, 2018 (6)      | -                 | 594,844   | -         | -            | 594,844          
|         |                             |                   |           |           |              |                  
|$0.08    | October 30, 2018            | -                 | 833,333   | -         | -            | 833,333          
|         |                             |                   |           |           |              |                  
|         |                             | 40,335,498        | 7,177,620 | -         | (16,704,000) | 30,809,118       



209Canarc Resource Corp.Form 20-F







CANARC RESOURCE CORP.

Notes to the Consolidated Financial Statements

Years ended December 31, 2016, 2015 and 2014

(tabular dollar amounts
expressed in thousands of United States dollars, except per share amounts)



|13. |  | Share Capital (continued)
|--- |  | -------------------------



|(d) |  | Warrants: (continued)
|--- |  | ---------------------



| | (1) | The warrants are subject to an accelerated expiry whereby if after the four month plus one day
hold period from the closing date of the private placement, the volume weighted average trading price as traded on the TSX equals
or exceeds CAD$0.30 per share for a period of 10 consecutive trading days, the Company will have the right, within five business
days, to accelerate the expiry date of the warrants by giving not fewer than 30 days written notice to the warrant holder whereby
the warrants shall expire 30 days after such date of the notice.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | As these warrants are agent’s warrants, a fair value of $97,470 was recorded as share issuance
expense as applied to share capital with a corresponding credit to reserve for share-based payments calculated using the Black-Scholes
option pricing model with the following assumptions: volatility 107%, risk-free rate 1.14%, expected life 3 years, and expected
dividend yield 0%.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | On August 28, 2015, the Company extended the terms of the expiry periods of the warrants by 18
months.
| | --- | ------------------------------------------------------------------------------------------------------



| | (4) | As these warrants are agent’s warrants, a fair value of $43,120 was originally recorded as
share issuance expense as applied to share capital with a corresponding credit to reserve for share-based payments calculated using
the Black-Scholes option pricing model with the following assumptions: volatility 120%, risk-free rate 1.17%, expected life 3 years,
and expected dividend yield 0%. On August 28, 2015, the agent’s warrants were modified by the extension of the expiry term
by 18 months resulting in a net fair value adjustment of $4,622 as applied to reserve for share-based payments with a corresponding
debit to deficit using the Black-Scholes option pricing model with the following revised assumptions: volatility 146%, risk-free
rate 0.46%, expected life 3 years, and expected dividend yield 0%.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (5) | As these warrants are agent’s warrants, a fair value of $3,335 was originally recorded as
share issuance expense as applied to share capital with a corresponding credit to reserve for share-based payments calculated using
the Black-Scholes option pricing model with the following assumptions: volatility 121%, risk-free rate 1.27%, expected life 3 years,
and expected dividend yield 0%. On August 28, 2015, the agent’s warrants were modified by the extension of the expiry term
by 18 months resulting in a net fair value adjustment of $386 as applied to reserve for share-based payments with a corresponding
debit to deficit using the Black-Scholes option pricing model with the following revised assumptions: volatility 146%, risk-free
rate 0.46%, expected life 3 years, and expected dividend yield 0%.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (6) | As these warrants are agent’s warrants, a fair value of $20,747 was recorded as share issuance
expense as applied to share capital with a corresponding credit to reserve for share-based payments calculated using the Black-Scholes
option pricing model with the following assumptions: volatility 147%, risk-free rate 0.57%, expected life 3 years, and expected
dividend yield 0%.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



210Canarc Resource Corp.Form 20-F





CANARC RESOURCE CORP.

Notes to the Consolidated Financial Statements

Years ended December 31, 2016, 2015 and 2014

(tabular dollar amounts
expressed in thousands of United States dollars, except per share amounts)



|13. |  | Share Capital (continued)
|--- |  | -------------------------



|(d) |  | Warrants: (continued)
|--- |  | ---------------------



At December 31, 2014, the Company had outstanding
warrants as follows:





|Exercise |                             |                   |            |           |         |                  
|-------- | --------------------------- | ----------------- | ---------- | --------- | ------- | -----------------
|Prices   |                             | Outstanding at    |            |           |         | Outstanding at   
|(CAD$)   | Expiry Dates                | December 31, 2013 | Issued     | Exercised | Expired | December 31, 2014
|         |                             |                   |            |           |         |                  
|$0.20    | September 28, 2015 (1)      | 11,300,000        | -          | -         | -       | 11,300,000       
|         |                             |                   |            |           |         |                  
|$0.20    | September 28, 2015 (1), (2) | 904,000           | -          | -         | -       | 904,000          
|         |                             |                   |            |           |         |                  
|$0.20    | December 19, 2015(1)        | 4,500,000         | -          | -         | -       | 4,500,000        
|         |                             |                   |            |           |         |                  
|$0.15 /  | until January 11, 2015      | 600,000           | -          | -         | -       | 600,000          
|$0.20    | expiry January 11, 2016(1)  |                   |            |           |         |                  
|         |                             |                   |            |           |         |                  
|$0.15 /  | until January 18, 2015      | 1,000,000         | -          | -         | -       | 1,000,000        
|$0.20    | expiry January 18, 2016(1)  |                   |            |           |         |                  
|         |                             |                   |            |           |         |                  
|$0.10    | January 31, 2016            | -                 | 9,000,000  | -         | -       | 9,000,000        
|         |                             |                   |            |           |         |                  
|$0.15    | March 18, 2017              | -                 | 5,309,055  | -         | -       | 5,309,055        
|         |                             |                   |            |           |         |                  
|$0.15    | March 18, 2017 (3)          | -                 | 661,718    | -         | -       | 661,718          
|         |                             |                   |            |           |         |                  
|$0.15    | April 3, 2017               | -                 | 4,500,000  | -         | -       | 4,500,000        
|         |                             |                   |            |           |         |                  
|$0.15    | April 3, 2017 (4)           | -                 | 60,725     | -         | -       | 60,725           
|         |                             |                   |            |           |         |                  
|$0.15    | July 9, 2016                | -                 | 2,500,000  | -         | -       | 2,500,000        
|         |                             |                   |            |           |         |                  
|         |                             | 18,304,000        | 22,031,498 | -         | -       | 40,335,498       





| | (1) | The warrants are subject to an accelerated expiry whereby if after the four month plus one day
hold period from the closing date of the private placement, the volume weighted average trading price as traded on the TSX equals
or exceeds CAD$0.30 per share for a period of 10 consecutive trading days, the Company will have the right, within five business
days, to accelerate the expiry date of the warrants by giving not fewer than 30 days written notice to the warrant holder whereby
the warrants shall expire 30 days after such date of the notice.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | As these warrants are agent’s warrants, a fair value of $97,470 was recorded as share issuance
expense as applied to share capital with a corresponding credit to reserve for share-based payments calculated using the Black-Scholes
option pricing model with the following assumptions: volatility 107%, risk-free rate 1.14%, expected life 3 years, and expected
dividend yield 0%.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



211Canarc Resource Corp.Form 20-F







CANARC RESOURCE CORP.

Notes to the Consolidated Financial Statements

Years ended December 31, 2016, 2015 and 2014

(tabular dollar amounts
expressed in thousands of United States dollars, except per share amounts)



|13. |  | Share Capital (continued)
|--- |  | -------------------------



|(d) |  | Warrants: (continued)
|--- |  | ---------------------



| | (3) | As these warrants are agent’s warrants, a fair value of $43,120 was recorded as share issuance
expense as applied to share capital with a corresponding credit to reserve for share-based payments calculated using the Black-Scholes
option pricing model with the following assumptions: volatility 120%, risk-free rate 1.17%, expected life 3 years, and expected
dividend yield 0%.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | As these warrants are agent’s warrants, a fair value of $3,335 was recorded as share issuance
expense as applied to share capital with a corresponding credit to reserve for share-based payments calculated using the Black-Scholes
option pricing model with the following assumptions: volatility 121%, risk-free rate 1.27%, expected life 3 years, and expected
dividend yield 0%.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(e) |  | Common shares reserved for issuance:
|--- |  | ------------------------------------



|                           | Number of Shares
|-------------------------- | ----------------
|                           | December 31,    
|                           | 2016            
|                           |                 
|Stock options (Note 13(c)) | 16,445,000      
|Warrants (Note 13(d))      | 36,356,139      
|                           |                 
|Balance                    | 52,801,139      



|(f) |  | Shareholder rights plan:
|--- |  | ------------------------



On May 31, 2005, the shareholders
of the Company approved a shareholder rights plan (the “Plan”) that became effective on April 30, 2005. The Plan was
intended to ensure that any entity seeking to acquire control of the Company makes an offer that represents fair value to all shareholders
and provided the board of directors with sufficient time to assess and evaluate the offer, to permit competing bids to emerge,
and, as appropriate, to explore and develop alternatives to maximize value for shareholders. Under the Plan, each shareholder at
the time of the Plan’s adoption was issued one Right for each common share of the Company held. Each Right entitled the registered
holder thereof, except for certain “Acquiring Persons” (as defined in the Plan), to purchase from treasury one common
share at a 50% discount to the prevailing market price, subject to certain adjustments intended to prevent dilution. The Rights
were exercisable after the occurrence of specified events set out in the Plan generally related to when a person, together with
affiliated or associated persons, acquires, or makes a take-over bid to acquire, beneficial ownership of 20% or more of the outstanding
common shares of the Company. The Rights expired on April 30, 2015.



212Canarc Resource Corp.Form 20-F







CANARC RESOURCE CORP.

Notes to the Consolidated Financial Statements

Years ended December 31, 2016, 2015 and 2014

(tabular dollar amounts
expressed in thousands of United States dollars, except per share amounts)



|14. |  | Corporate Development and General and Administrative
|--- |  | ----------------------------------------------------



|                             |  | Years ended December 31,
|---------------------------- |  | ------------------------
|                             |  | 2016                    
|                             |  |                         
|Corporate Development:       |  |                         
|Corporate advisory           |  | $                 69    
|Geology and technical review |  | 22                      
|Legal                        |  | 7                       
|Metallurgy                   |  | -                       
|Salaries and remuneration    |  | 3                       
|Sundry                       |  | 4                       
|Travel and transportation    |  | 31                      
|                             |  | $               136     
|                             |  |                         
|General and Administrative:  |  |                         
|Accounting and audit         |  | $                 27    
|Legal                        |  | 29                      
|Office and sundry            |  | 50                      
|Regulatory                   |  | 53                      
|Rent                         |  | 31                      
|                             |  | $               190     





213Canarc Resource Corp.Form 20-F





CANARC RESOURCE CORP.

Notes to the Consolidated Financial Statements

Years ended December 31, 2016, 2015 and 2014

(tabular dollar amounts
expressed in thousands of United States dollars, except per share amounts)



|15. |  | Related Party Transactions
|--- |  | --------------------------



Key management includes
directors (executive and non-executive) and senior management. The compensation paid or payable to key management is disclosed
in the table below.



Except as disclosed elsewhere
in the consolidated financial statements, the Company had the following general and administrative costs with related parties during
the years ended December 31, 2016, 2015 and 2014:





|                                                                                                                                |                          |  |                    |  |                   |  | Net balance receivable (payable)
|------------------------------------------------------------------------------------------------------------------------------- | ------------------------ |  | ------------------ |  | ----------------- |  | --------------------------------
|                                                                                                                                | Years ended December 31, |  | as at December 31,
|                                                                                                                                | 2016                     |  | 2015               |  | 2014              |  | 2016                            
|                                                                                                                                |                          |  |                    |  |                   |  |                                 
|Key management compensation:                                                                                                    |                          |  |                    |  |                   |  |                                 
|Executive salaries and remuneration(1)                                                                                          | $             460        |  | $             415  |  | $             441 |  | $                  -            
|Severance                                                                                                                       | -                        |  | 141                |  | 136               |  | -                               
|Directors fees                                                                                                                  | 8                        |  | 11                 |  | 18                |  | (1)                             
|Share-based payments                                                                                                            | 245                      |  | 153                |  | 205               |  | -                               
|                                                                                                                                | $             713        |  | $             720  |  | $             800 |  | $               (1)             
|                                                                                                                                |                          |  |                    |  |                   |  |                                 
|Legal fees(2)                                                                                                                   | $                  -     |  | $               59 |  | $             102 |  | $                  -            
|                                                                                                                                |                          |  |                    |  |                   |  |                                 
|Net office, sundry, rent and salary allocations recovered from (incurred to) company(ies) sharing certain common director(s)(3) | (41)                     |  | (38)               |  | (74)              |  | (4)                             
|                                                                                                                                |                          |  |                    |  |                   |  |                                 





| | (1) | Includes key management compensation which is included in employee and director remuneration, mineral
property interests, and corporate development.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | In 2015 and 2014, legal fees which were included in general and administrative, share issuance
expenses and corporate development were incurred to a law firm in which a senior officer was a partner. The senior officer resigned
from the Company in December 2015.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | The companies include Endeavour and AzMet.
| | --- | ------------------------------------------



The above transactions are
incurred in the normal course of business. Notes 7(a), 9(b), 11 and 13(b)(iii) provide disclosure for the acquisition of Oro Silver
from Marlin Gold; Note 7(b) for the Sale Transaction with Endeavour; and Note 8 for marketable securities held in Endeavour, AzMet
and AzMin.



214Canarc Resource Corp.Form 20-F







CANARC RESOURCE CORP.

Notes to the Consolidated Financial Statements

Years ended December 31, 2016, 2015 and 2014

(tabular dollar amounts
expressed in thousands of United States dollars, except per share amounts)



|16. |  | Segment Disclosures
|--- |  | -------------------



The Company has one operating
segment, being mineral exploration, with assets located in Canada and previously in Mexico, as follows:





|                           | December 31, 2016 |                | December 31, 2015
|-------------------------- | ----------------- | -------------- | -----------------
|                           | Canada            | Total          |                  
|                           |                   |                |                  
|Restricted cash            | $           35    | $           35 |                  
|Mineral property interests | 10,496            | 10,496         |                  
|Equipment                  | 1                 | 1              |                  
|                           |                   |                |                  





|17. |  | Commitments
|--- |  | -----------



In January 2016, the Company
signed a definitive agreement with the Zacatecas state government to lease and operate the permitted 500 tonne per day La Plata
ore processing plant located in the city of Zacatecas, Mexico. The lease commitments were assumed by Endeavour in May 2016. (Note
9(b)).



In February 2017, the Company
entered into an office lease arrangement for a term of five years with a commencement date of August 1, 2017. The basic rent per
year is CAD$46,000 for years 1 to 3 and CAD$48,000 for years 4 to 5. Effective August 1, 2017, the Company is committed to the
following payments for base rent at its corporate head office in Vancouver, BC, as follows:





|      |  | Amount            
|----- |  | ------------------
|      |  | (CAD$)            
|Year: |  |                   
|2017  |  | $               19
|2018  |  | 46                
|2019  |  | 46                
|2020  |  | 47                
|2021  |  | 48                
|2022  |  | 28                
|      |  |                   
|      |  | $             234 



215Canarc Resource Corp.Form 20-F







CANARC RESOURCE CORP.

Notes to the Consolidated Financial Statements

Years ended December 31, 2016, 2015 and 2014

(tabular dollar amounts
expressed in thousands of United States dollars, except per share amounts)



|18. |  | Deferred Income Taxes
|--- |  | ---------------------



| | (a) | A reconciliation of income tax provision computed at Canadian statutory rates to the reported income
tax provision is provided as follows:
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------



|                                                                |  |                              |  |                             
|--------------------------------------------------------------- |  | ---------------------------- |  | ----------------------------
|                                                                |  | 2016                         |  | 2015                        
|                                                                |  |                              |  |                             
|                                                                |  |                              |  |                             
|Net income (loss) for the year                                  |  | $                   6,791    |  | $                    (932)  
|Canadian statutory tax rate                                     |  | 26.0%                        |  | 26.0%                       
|                                                                |  |                              |  |                             
|Income tax expense (benefit) computed at statutory rates        |  | $                   1,766    |  | $                    (242)  
|Temporary differences                                           |  | 125                          |  | (30)                        
|Items not taxable/deductible for income tax purposes            |  | (968)                        |  | 43                          
|Tax losses and tax offsets recognized/unrecognized in tax asset |  | (847)                        |  | 1,556                       
|Under (over) provided in prior years                            |  | (25)                         |  | (1,378)                     
|Impact of foreign exchange on tax assets and liabilities        |  | (51)                         |  | 51                          
|                                                                |  |                              |  |                             
|Deferred income tax recovery                                    |  | $                          - |  | $                          -
|                                                                |  |                              |  |                             



Effective January 1, 2013,
the Canadian federal corporate tax rate is 15% and the British Columbia provincial tax rate is 11% for a total Canadian statutory
tax rate of 26%.



216Canarc Resource Corp.Form 20-F





CANARC RESOURCE CORP.

Notes to the Consolidated Financial Statements

Years ended December 31, 2016, 2015 and 2014

(tabular dollar amounts
expressed in thousands of United States dollars, except per share amounts)



|18. |  | Deferred Income Taxes (continued)
|--- |  | ---------------------------------



| | (b) | The tax effected items that give rise to significant portions of the deferred income tax assets
and deferred income liabilities at December 31, 2016 and 2015 are presented below:
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                         |                                                            |                      |                    |                      |                   
|------------------------ | ---------------------------------------------------------- | -------------------- | ------------------ | -------------------- | ------------------
|                         |                                                            |                      | December 31,      
|                         |                                                            |                      | 2016               |                      | 2015              
|                         |                                                            |                      |                    |                      |                   
|                         |                                                            |                      |                    |                      |                   
|Deferred tax assets      |                                                            |                      |                    |                     
|                         | Non-capital losses carried forward                         |                      | $               25 |                      | $               83
|Deferred tax assets      |                                                            | 25                   |                    | 83                  
|                         |                                                            |                      |                    |                      |                   
|Deferred tax liabilities |                                                            |                      |                    |                     
|                         | Held for trading securities                                |                      | (25)               |                      | -                 
|                         | Book value over tax value of property, plant and equipment | -                    |                    | (8)                 
|                         | Book value over tax value of mineral properties            |                      | -                  |                      | (75)              
|Deferred tax liabilities |                                                            | -                    |                    | (83)                
|                         |                                                            |                      |                    |                      |                   
|Net deferred tax assets  |                                                            | $                  - |                    | $                  -





| | (c) | The Company recognizes tax benefits on losses or other deductible amounts where the probable criteria
for the recognition of deferred tax assets have been met. The Company’s unrecognized deductible temporary differences and
unused tax losses for which no deferred tax asset is recognized consist of the following amounts:
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                |  |                   |              |                  |     
|----------------------------------------------- |  | ----------------- | ------------ | ---------------- | ----
|                                                |  |                   | December 31,
|                                                |  |                   | 2016         |                  | 2015
|                                                |  |                   |              |                  |     
|                                                |  |                   |              |                  |     
|Non-capital losses                              |  | $           4,095 |              | $         16,102
|Capital losses                                  |  | -                 |              | 184             
|Available for sale securities                   |  | 44                |              | 42              
|Share issue costs                               |  | 195               |              | 207             
|Tax value over book value of mineral properties |  | 6,721             |              | 6,262           
|Tax value over book value of equipment          |  | 1,242             |              | 1,184           
|Unrecognized deductible temporary differences   |  | $         12,297  |              | $         23,981





217Canarc Resource Corp.Form 20-F





CANARC RESOURCE CORP.

Notes to the Consolidated Financial Statements

Years ended December 31, 2016, 2015 and 2014

(tabular dollar amounts
expressed in thousands of United States dollars, except per share amounts)



|18. |  | Deferred Income Taxes (continued)
|--- |  | ---------------------------------



|(c) |  | (continued)
|--- |  | -----------



As at December 31, 2016,
the Company’s unrecognized unused non-capital losses have the following expiry dates:





|     |  |                      | 
|---- |  | -------------------- | 
|2030 |  | $                245 | 
|2031 |  | 790                  | 
|2032 |  | 847                  | 
|2033 |  | 277                  | 
|2034 |  | 826                  | 
|2035 |  | 978                  | 
|2036 |  | 228                  | 
|     |  |                      | 
|     |  |                      | 
|     |  | $             4,191  | 
|     |  |                      | 





218Canarc Resource Corp.Form 20-F







EXHIBIT 8-1



LIST OF MATERIAL SUBSIDIARIES





The Registrant carries on its
business in large part through its subsidiaries. The Registrant has a number of direct or indirect wholly or majority owned subsidiaries
as follows:



New Polaris Gold Mines Ltd. (“New
Polaris”) (formerly Golden Angus Mines Ltd. - name change effective April 21, 1997) is a corporation formed through the amalgamation
of 2820684 Canada Inc. (“2820684”), a former wholly-owned subsidiary of the Registrant incorporated under the Canada
Business Corporation Act on May 13, 1992, and Suntac Minerals Inc. The Registrant owns 100% of the issued and outstanding shares.



AIM U.S. Holdings Corp. is a corporation
duly incorporated in the State of Nevada, USA, on March 14, 2017. The Registrant owns 100% of its issued and outstanding shares.



American Innovative Minerals,
LLC (“AIM”) is a limited liability company existing pursuant to the laws of Nevada, USA, on January 20, 2011. The
Registrant owns 100% membership interest in AIM.



219Canarc Resource Corp.Form 20-F







EXHIBIT 12.1



CERTIFICATIONS



I, Catalin Chiloflischi,
certify that:



| | 1. | I have reviewed this annual report on Form 20-F of Canarc Resource Corp.;
| | -- | -------------------------------------------------------------------------



| | 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. | Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as
of, and for, the periods presented in this report;
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4. | The Company’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the period in which this report is being prepared;
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b. | Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



220Canarc Resource Corp.Form 20-F





| | c. | Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | d. | Disclosed in this report any change in the Company’s internal control over financial reporting
that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially
affect, the Company’s internal control over financial reporting; and
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 5. | The Company’s other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s
board of directors (or persons performing the equivalent functions):
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. | All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize
and report financial information; and
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b. | Any fraud, whether or not material, that involves management or other employees who have a significant
role in the Company’s internal control over financial reporting.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------





DATED at Vancouver, British Columbia, Canada, as of
April 27, 2017.





/s/ Catalin
Chiloflischi

______________________________________________

Catalin
Chiloflischi, Chief Executive Officer



221Canarc Resource Corp.Form 20-F







EXHIBIT 12.2



CERTIFICATIONS



I, Philip Yee, certify that:



| | 1. | I have reviewed this annual report on Form 20-F of Canarc Resource Corp.;
| | -- | -------------------------------------------------------------------------



| | 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. | Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as
of, and for, the periods presented in this report;
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4. | The Company’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the period in which this report is being prepared;
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b. | Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



222Canarc Resource Corp.Form 20-F





| | c. | Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | d. | Disclosed in this report any change in the Company’s internal control over financial reporting
that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially
affect, the Company’s internal control over financial reporting; and
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 5. | The Company’s other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s
board of directors (or persons performing the equivalent functions):
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. | All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize
and report financial information; and
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b. | Any fraud, whether or not material, that involves management or other employees who have a significant
role in the Company’s internal control over financial reporting.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------





DATED at Vancouver, British Columbia, Canada, as of
April 27, 2017.





/s/ Philip Yee

________________________________________________

Philip Yee, Chief Financial Officer



223Canarc Resource Corp.Form 20-F







EXHIBIT 13.1



Certification of Chief Executive
Officer pursuant to

Title 18, United States Code,
Section 1350, as adopted pursuant to

Section 906 of The Sarbanes-Oxley
Act of 2002



I, Catalin
Chiloflischi, Chief Executive Officer of Canarc Resource Corp. ("Canarc"), certify, pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that, to the best of my knowledge:



| | 1. | The Annual Report on Form 20-F of Canarc Resource Corp. for the year ended December 31, 2016 (the
"Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C.
78m(a) or 78o(d)); and
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | The information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of Canarc.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------





|                                         |  |  | /s/ Catalin
        Chiloflischi                    
|---------------------------------------- |  |  | ----------------------------------------------------
|Vancouver, Canada
        April 27, 2017 |  |  | Catalin Chiloflischi
        Chief Executive Officer



A signed original of this written
statement required by Section 906 has been provided to Canarc and will be retained by Canarc and furnished to the Securities and
Exchange Commission or its staff upon request.



224Canarc Resource Corp.Form 20-F









EXHIBIT 13.2



Certification of Chief Financial
Officer pursuant to

Title 18, United States Code,
Section 1350, as adopted pursuant to

Section 906 of The Sarbanes-Oxley
Act of 2002



I, Philip Yee, Chief Financial Officer of Canarc Resource
Corp. ("Canarc"), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that, to
the best of my knowledge:



| | 1. | The Annual Report on Form 20-F of Canarc Resource Corp. for the year ended December 31, 2016 (the "Report") fully
complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of Canarc.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------



|                                         |  | by: | /s/ Philip Yee                            
|---------------------------------------- |  | --- | ------------------------------------------
|Vancouver, Canada
        April 27, 2017 |  |     | Philip Yee
        Chief Financial Officer



A signed original of this written
statement required by Section 906 has been provided to Canarc and will be retained by Canarc and furnished to the Securities and
Exchange Commission or its staff upon request.





225Canarc Resource Corp.Form 20-F