----

----

----

----

----

|                                             | December 31, 2012 |    | December 31, 2011 |   |
|--------------------------------------------------|-------------------|---------|-------------------|--------|
|                                             |              |    |              |   |
| ASSETS                                           |              |    |              |   |
| Current                                          |              |    |              |   |
| Cash and cash equivalents (Note 4)               | $                 | 224     |              | $      | 2,975 |   |
| Short-term investments (Note 5)                  |              | 5,458   |              |   | 5,407 |   |
| Marketable securities (Note 6)                   |              | 4,984   |              |   | 13,707 |   |
| Other receivables and prepaid expenses           |              | 364     |              |   | 101 |   |
|                                             |              |    |              |   |   |   |
| Total Current Assets                             |              | 11,030  |              |   | 22,190 |   |
|                                             |              |    |              |   |   |   |
| Other long-term assets (Note 7)                  |              | 739     |              |   | 739 |   |
| Property, plant and equipment (Note 8)           |              | 911     |              |   | 1,063 |   |
| Exploration and evaluation assets (Note 9)       |              | 9,268   |              |   | 4,694 |   |
|                                             |              |    |              |   |   |   |
| Total Assets                                     | $                 | 21,948  |              | $      | 28,686 |   |
|                                             |              |    |              |   |   |   |
| LIABILITIES                                      |              |    |              |   |   |   |
| Current                                          |              |    |              |   |   |   |
| Accounts payable                                 | $                 | 1,527   |              | $      | 60 |   |
| Accrued and other liabilities                    |              | 461     |              |   | 955 |   |
|                                             |              |    |              |   |   |   |
| Total Current Liabilities                        |              | 1,988   |              |   | 1,015 |   |
|                                             |              |    |              |   |   |   |
| Decommissioning liability (Note 10)              |              | 2,148   |              |   | 1,907 |   |
|                                             |              |    |              |   |   |   |
| Total Liabilities                                |              | 4,136   |              |   | 2,922 |   |
|                                             |              |    |              |   |   |   |
| SHAREHOLDERS' EQUITY                             |              |    |              |   |   |   |
| Share capital (Note 11)                          |              | 87,250  |              |   | 77,052 |   |
| Reserves (Note 12)                               |              | 12,470  |              |   | 10,750 |   |
| Deficit                                          |              | (81,908 | )                 |   | (62,038 | ) |
|                                             |              |    |              |   |   |   |
| Total Shareholders’ Equity                 |              | 17,812  |              |   | 25,764 |   |
|                                             |              |    |              |   |   |   |
| Total Liabilities and Shareholders’ Equity | $                 | 21,948  |              | $      | 28,686 |   |
| Commitments (Note 20)                            |              |    |              |   |   |   |
|                                             |              |    |              |   |   |   |
|                                             |              |    |              |   |   |   |

| Approved by the Board of Directors:  |                          |   |
|-------------------------------------------|-------------------------------|--------|
|                                      | “John F. Kearney” |   | “Brian A. Atkins, CA” |
|                                      | Director                      |   | Director |

----

|                                          | Year ended December 31, |        |
|-----------------------------------------------|-------------------------|-------------|
|                                          | 2012                    |        | 2011 |   |
|                                          |                    |        |   |   |
| Income                                        |                    |        |   |   |
| Investment income                             | $                       | 164         |   | $ | 50 |   |
|                                          |                    |        |   |   |   |   |
| Expenses                                      |                    |        |   |   |   |   |
| Depreciation                                  |                    | 16          |   |   | 22 |   |
| Exploration and evaluation (Note 13)          |                    | 9,125       |   |   | 5,489 |   |
| Listing and regulatory                        |                    | 67          |   |   | 70 |   |
| Management and directors                      |                    | 673         |   |   | 672 |   |
| Office and general                            |                    | 586         |   |   | 730 |   |
| Professional                                  |                    | 329         |   |   | 279 |   |
| Project evaluation                            |                    | 34          |   |   | 27 |   |
| Shareholder and investor communications       |                    | 542         |   |   | 398 |   |
| Share-based compensation                      |                    | 107         |   |   | 238 |   |
|                                          |                    | 11,479      |   |   | 7,925 |   |
|                                          |                    |        |   |   |   |   |
| Other income (expenses)                       |                    |        |   |   |   |   |
| Finance costs (Note 10)                       |                    | (46         | ) |   | (58 | ) |
| Foreign exchange loss                         |                    | -           |   |   | (13 | ) |
| Loss on marketable securities (Note 6)        |                    | (8,804      | ) |   | (25,693 | ) |
| Tax deduction recovery (Note 14)              |                    | 295         |   |   | 277 |   |
|                                          |                    | (8,555      | ) |   | (25,487 | ) |
|                                          |                    |        |   |   |   |   |
| Net loss for the year                         |                    | (19,870     | ) |   | (33,362 | ) |
|                                          |                    |        |   |   |   |   |
| Other comprehensive income (loss)             |                    | -           |   |   | - |   |
|                                          |                    |        |   |   |   |   |
| Comprehensive loss for the year               | $                       | (19,870     | ) | $ | (33,362 | ) |
|                                          |                    |        |   |   |   |   |
|                                          |                    |        |   |   |   |   |
| Net loss per share - basic and diluted        | $                       | (0.13       | ) | $ | (0.26 | ) |
| Weighted average number of shares outstanding |                    |        |   |   |   |   |
|                                          |                    |        |   |   |   |   |
| Basic and diluted                             |                    | 157,936,692 |   |   | 130,816,879 |   |

----

|                                              | Year ended December 31, |    |
|---------------------------------------------------|-------------------------|---------|
|                                              | 2012                    |    | 2011 |   |
|                                              |                    |    |   |   |
| Operating Activities                              |                    |    |   |   |
| Net loss for the year                             | $                       | (19,870 | ) | $ | (33,362 | ) |
| Adjustment for items not involving cash:          |                    |    |   |   |   |   |
| Accretion and depreciation                        |                    | 216     |   |   | 298 |   |
| Loss on marketable securities (Note 6)            |                    | 8,804   |   |   | 25,693 |   |
| Tax deduction recovery (Note 14)                  |                    | (295    | ) |   | (277 | ) |
| Share-based compensation                          |                    | 107     |   |   | 238 |   |
| Change in non-cash working capital items:         |                    |    |   |   |   |   |
| Other receivables and prepaid expenses            |                    | (233    | ) |   | 34 |   |
| Accounts payable and accrued liabilities          |                    | 743     |   |   | 357 |   |
|                                              |                    | (10,528 | ) |   | (7,019 | ) |
|                                              |                    |    |   |   |   |   |
| Financing Activities                              |                    |    |   |   |   |   |
| Capital stock issued                              |                    | 9,119   |   |   | 8,486 |   |
| Issuance costs                                    |                    | (883    | ) |   | (564 | ) |
| Capital stock issued on exercise of stock options |                    | -       |   |   | 111 |   |
| Capital stock issued on exercise of warrants      |                    | 2       |   |   | 36 |   |
|                                              |                    | 8,238   |   |   | 8,069 |   |
|                                              |                    |    |   |   |   |   |
| Investing Activities                              |                    |    |   |   |   |   |
| Short-term investments                            |                    | (51     | ) |   | (2,507 | ) |
| Marketable securities sold                        |                    | 14      |   |   | - |   |
| Property, plant and equipment                     |                    | (183    | ) |   | (32 | ) |
| Government grants (Note 15)                       |                    | 170     |   |   | - |   |
| Exploration and evaluation assets                 |                    | (411    | ) |   | - |   |
|                                              |                    | (461    | ) |   | (2,539 | ) |
|                                              |                    |    |   |   |   |   |
| Net change in cash and cash equivalents           | $                       | (2,751  | ) | $ | (1,489 | ) |
|                                              |                    |    |   |   |   |   |
|                                              |                    |    |   |   |   |   |
| Cash and cash equivalents, beginning of year      | $                       | 2,975   |   | $ | 4,464 |   |
|                                              |                    |    |   |   |   |   |
| Net change in cash and cash equivalents           |                    | (2,751  | ) |   | (1,489 | ) |
|                                              |                    |    |   |   |   |   |
| Cash and cash equivalents, end of year            | $                       | 224     |   | $ | 2,975 |   |
|                                              |                    |    |   |   |   |   |
|                                              |                    |    |   |   |   |   |

----

|                                                    |   Common shares |                                  |                                                                                                                                               |                         |
|---------------------------------------------------------|---------------------------|---------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------|
|                                                    | Number                    | Amount                                | Reserves                                                                                                                                           | Deficit                      | Total |
|                                                    |                      |                                  |                                                                                                                                               |                         |   |
| Balance, December 31, 2010                              | 130,448,492               | $     70,314 | $      9,597                                                                                                         | $   (28,676)) | $     51,235 |
| Issue of shares between $0.67 and $0.75 per share       | 12,275,000                | 8,191                                 | -                                                                                                                                                  | -                            | 8,191 |
| Share issuance costs                                    | -                         | (685)                                 | -                                                                                                                                                  | -                            | (685) |
| Share purchase warrants                                 | -                         | (989)                                 | 989                                                                                                                                                | -                            | - |
| Exercise of options between $0.23 and $0.45 per share   | 295,000                   | 168                                   | (57)                                                                                                                                               | -                            | 111 |
| Exercise of warrants at $0.40 per share                 | 90,620                    | 53                                    | (17)                                                                                                                                               | -                            | 36 |
| Share-based compensation                                | -                         | -                                     | 238                                                                                                                                                | -                            | 238 |
| Net loss for the year                                   | -                         | -                                     | -                                                                                                                                                  | (33,362))                    | (33,362)) |
| Balance, December 31, 2011                              | 143,109,112               | 77,052                                | 10,750                                                                                                                                             | (62,038))                    | 25,764 |
| Issue of shares at $0.67 per share                      | 13,610,000                | 9,119                                 | -                                                                                                                                                  | -                            | 9,119 |
| Share issuance costs                                    | -                         | (761))                                | -                                                                                                                                                  | -                            | (761)) |
| Share purchase warrants                                 | -                         | (1,560))                              | 1,560                                                                                                                                              | -                            | - |
| Paragon Minerals Acquisition (Note 3)                   | 7,299,019                 | 3,394                                 | -                                                                                                                                                  | -                            | 3,394 |
| Options and warrants converted upon Paragon acquisition | -                         | -                                     |                         53 | -                            | 53 |
| Exploration and evaluation asset acquisition (Note 9)   | 9,520                     | 4                                     | -                                                                                                                                                  | -                            | 4 |
| Exercise of warrants at $0.40 per share                 | 4,130                     | 2                                     | -                                                                                                                                                  | -                            | 2 |
| Share-based compensation                                | -                         | -                                     | 107                                                                                                                                                | -                            | 107 |
| Net loss for the year                                   | -                         | -                                     | -                                                                                                                                                  | (19,870))                    | (19,870)) |
| Balance, December 31, 2012                              | 164,031,781               | $     87,250 | $    12,470                                                                                                                    | $   (81,908)) | $     17,812 |

----

| (a)   | Statement of Compliance |
|-----------------|-------------------------|

| (b)   | Basis of Preparation and Consolidation |
|-----------------|----------------------------------------|

----

| (c)   | Significant Accounting Judgments, Estimates and Assumptions |
|-----------------|-------------------------------------------------------------|

| (d)   | Financial Assets |
|-----------------|------------------|

----

| 2. | Significant Accounting Policies (continued) |
|----|---------------------------------------------|

| (e)   | Impairment of Non-Financial Assets |
|-----------------|------------------------------------|

| (f)   | Cash and Cash Equivalents |
|-----------------|---------------------------|

| (g)   | Short-term Investments |
|-----------------|------------------------|

| (h)   | Marketable Securities |
|-----------------|-----------------------|

| (i)   | Foreign Currency Transactions |
|-----------------|-------------------------------|

----

| (j)   | Property, Plant and Equipment (“PPE”) |
|-----------------|---------------------------------------------------|

| Mining equipment | 30% |
|------------------|-----|
| Office equipment | 20% |

| (k)   | Exploration and Evaluation Assets |
|-----------------|-----------------------------------|

| (l)   | Financial Liabilities |
|-----------------|-----------------------|

----

| 2. | Significant Accounting Policies (continued) |
|----|---------------------------------------------|

| (m)   | Decommissioning, Restoration and Similar Liabilities |
|-----------------|------------------------------------------------------|

| (n)   | Flow-through Shares |
|-----------------|---------------------|

| (o)   | Revenue Recognition |
|-----------------|---------------------|

| (p)   | Exploration and Evaluation Costs |
|-----------------|----------------------------------|

| (q)   | Share-based Compensation |
|-----------------|--------------------------|

----

| 2. | Significant Accounting Policies (continued) |
|----|---------------------------------------------|

| (r)   | Income Taxes |
|-----------------|--------------|

| (s)   | Earnings (Loss) Per Common Share |
|-----------------|----------------------------------|

| (t)   | Government Grants |
|-----------------|-------------------|

| (u)   | IFRS Standards Adopted |
|-----------------|------------------------|

| IFRS 7 (Amendment) | Financial Instruments: Disclosure |
|--------------------|-----------------------------------|
| IAS 12 (Amendment) | Income Taxes                      |

----

| 2. | Significant Accounting Policies (continued) |
|----|---------------------------------------------|

| (v)   | IFRS Standards Issued But Not Yet Effective |
|-----------------|---------------------------------------------|

| IFRS 7 (Amendment) | Financial Instruments: Disclosure (2) (4)                     |
|--------------------|---------------------------------------------------------------|
| IFRS 9             | Financial Instruments (4)                                     |
| IFRS 10            | Consolidated Financial Statements (2)                         |
| IFRS 11            | Joint Arrangements (2)                                        |
| IFRS 12            | Disclosure of Interests in Other Entities (2)                 |
| IFRS 13            | Fair Value Measurement (2)                                    |
| IAS 1 (Amendment)  | Presentation of Financial Statements (1)                      |
| IAS 19 (Revised)   | Employee Benefits (2)                                         |
| IAS 27 (Revised)   | Separate Financial Statements (2)                             |
| IAS 28 (Revised)   | Investments in Associates and Joint Ventures (2)              |
| IAS 32 (Amendment) | Financial Instruments: Presentation (3)                       |
| IFRIC 20           | Stripping Costs in the Production Phase of a Surface Mine (2) |

| (1)   | For annual periods beginning on or after July 1, 2012 |
|-----------------|-------------------------------------------------------|

| (2)   | For annual periods beginning on or after January 1, 2013 |
|-----------------|----------------------------------------------------------|

| (3)   | For annual periods beginning on or after January 1, 2014 |
|-----------------|----------------------------------------------------------|

| (4)   | For annual periods beginning on or after January 1, 2015 |
|-----------------|----------------------------------------------------------|

| Purchase price                                                   |   |   |   |                                                                                    |
|------------------------------------------------------------------|--------|--------|--------|-----------------------------------------------------------------------------------------|
| Issued 7,299,019 Canadian Zinc common shares at $0.465 per share |   |   |   | $    3,394                                                          |
| Acquired 7,000,000 Paragon shares at $0.06 per share             |   |   |   |               420 |
| Options and warrants converted upon acquisition                  |   |   |   | 53                                                                                      |
| Transaction costs                                                |   |   |   | 478                                                                                     |
|                                                             |   |   |   | $    4,345                                                          |
| Fair value of net assets acquired                                |   |   |   |                                                                                    |
| Cash and cash equivalents                                        |   |   |   | $    343                                                            |
| Other assets                                                     |   |   |   | 61                                                                                      |
| Accounts payable and accrued liabilities                         |   |   |   | (394)                                                                                   |
| Exploration and evaluation assets                                |   |   |   | 4,335                                                                                   |
|                                                             |   |   |   | $    4,345                                                          |

|                           | December 31, 2012       |                | December 31, 2011  |
|--------------------------------|-------------------------|---------------------|--------------------|
|                           |   # of Shares | OriginalCost        | FairValue          |   |   # of Shares | OriginalCost | FairValue |
|  Vatukoula Gold Mines plc | 12,573,380              | $  10,142 | $  4,984 |   | 12,573,380 | $  10,142 | $  13,707 |
|                           |                    | $  10,142 | $  4,984 |   |   | $  10,142 | $  13,707 |

----

|                     |   | Mining Equipment |   | Office Equipment |   | Leasehold Improvements |   | Prairie Creek Plant & Mill |   | Total  |   |
|--------------------------|--------|------------------|--------|------------------|--------|------------------------|--------|--------------------------------|--------|--------|--------|
| Cost                     |   |             |   |             |   |                   |   |                           |   |   |   |
| December 31, 2010        |   | $                | 1,623  |             | $      | 151                    |   | $                              | 60     |   | $      | 500 |   | $ | 2,334 |   |
| Additions                |   |             | 24     |             |   | 8                      |   |                           | -      |   |   | - |   |   | 32 |   |
| December 31, 2011        |   |             | 1,647  |             |   | 159                    |   |                           | 60     |   |   | 500 |   |   | 2,366 |   |
| Additions                |   |             | 13     |             |   | 5                      |   |                           | -      |   |   | - |   |   | 18 |   |
| December 31, 2012        |   | $                | 1,660  |             | $      | 164                    |   | $                              | 60     |   | $      | 500 |   | $ | 2,384 |   |
|                     |   |             |   |             |   |                   |   |                           |   |   |   |   |   |   |   |   |
| Accumulated Depreciation |   |             |   |             |   |                   |   |                           |   |   |   |   |   |   |   |   |
| December 31, 2010        |   | $                | 907    |             | $      | 113                    |   | $                              | 42     |   | $      | - |   | $ | 1,062 |   |
| Depreciation charge      |   |             | 219    |             |   | 11                     |   |                           | 11     |   |   | - |   |   | 241 |   |
| December 31, 2011        |   |             | 1,126  |             |   | 124                    |   |                           | 53     |   |   | - |   |   | 1,303 |   |
| Depreciation charge      |   |             | 154    |             |   | 9                      |   |                           | 7      |   |   | - |   |   | 170 |   |
| December 31, 2012        |   | $                | 1,280  |             | $      | 133                    |   | $                              | 60     |   | $      | - |   | $ | 1,473 |   |
|                     |   |             |   |             |   |                   |   |                           |   |   |   |   |   |   |   |   |
| Net Book Value           |   |             |   |             |   |                   |   |                           |   |   |   |   |   |   |   |   |
| December 31, 2010        |   | $                | 716    |             | $      | 38                     |   | $                              | 18     |   | $      | 500 |   | $ | 1,272 |   |
| December 31, 2011        |   |             | 521    |             |   | 35                     |   |                           | 7      |   |   | 500 |   |   | 1,063 |   |
| December 31, 2012        |   |             | 380    |             |   | 31                     |   |                           | -      |   |   | 500 |   |   | 911 |   |

----

|                                |   |   | December 31, 2012                    |   | December 31, 2011                    |
|-------------------------------------|--------|--------|--------------------------------------|--------|--------------------------------------|
| Prairie Creek Mine                  |   |   | $     4,889 |   | $     4,694 |
| Paragon properties (Notes 3 and 11) |   |   | 4,379                                |   | -                                    |
|                                |   |   | $     9,268 |   | $     4,694 |

|                              |   | December 31, 2012                    |   | December 31, 2011                    |
|-----------------------------------|--------|--------------------------------------|--------|--------------------------------------|
| Balance – beginning of year |   | $     1,907 |   | $     1,654 |
| Accretion expense                 |   | 46                                   |   | 58                                   |
| Change in estimates               |   | 195                                  |   | 195                                  |
| Balance – end of period     |   | $     2,148 |   | $     1,907 |

----

| (a)   | During the year ended December 31, 2012 |
|-----------------|-----------------------------------------|

| i.   | On January 6, 2012, the Company issued by way of public offering 7,610,000 units (“Units”) on a brokered basis at $0.67 per Unit, for aggregate gross proceeds of $5,099,000. Each Unit consists of one common share and one-half of one common share purchase warrant. Each whole warrant entitles the holder to purchase one common share of the Company at any time until January 6, 2014 at a price of $0.90 per common share. The agent to the private placement was paid a commission of 6.5% of the gross proceeds from the offering and received broker’s warrants to acquire 494,650 common shares at any time until July 6, 2013 at a price of $0.67 per share. Net proceeds from the issuance were $4,609,000 after issuance costs comprised of the agent’s commission of $331,000 and other issuance costs of $159,000. The Company allocated $704,000 of the gross proceeds to the fair value of the share purchase warrants issued and recognized non-cash costs for the fair value of the broker’s warrants granted of $109,000. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ii.   | On February 10, 2012, the Company issued by way of non-brokered private placement 6,000,000 units (“Units”) to Zhongrun International Mining Co. Ltd. (“Zhongrun”) at $0.67 per Unit, for aggregate gross proceeds of $4,020,000. Each Unit consists of one common share and one-half of one common share purchase warrant. Each whole warrant entitles the holder to purchase one common share of the Company at any time until February 10, 2014 at a price of $0.90 per common share. In connection with the Zhongrun financing the Company paid a finder’s fee to an arm’s length intermediary. Net proceeds from the issuance were $3,749,000 after issuance costs comprised of the finder’s fee of $201,000 and other issuance costs of $70,000. The Company allocated $747,000 of the gross proceeds to the fair value of the share purchase warrants. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| iii.   | 4,130 warrants were exercised at a price of $0.40 per common share for proceeds of $2,000. |
|------------------|--------------------------------------------------------------------------------------------|

| iv.   | On September 24, 2012, the Company acquired Paragon Minerals Corporation and issued 7,299,019 common shares valued at $3,394,000 based on the Company’s closing market price on September 24, 2012 of $0.465 per share in exchange for all outstanding Paragon shares that the Company did not already own. (See Note 3) |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| v.   | On December 3, 2012, the Company issued 9,520 common shares valued at $4,000 and $40,000 in cash pursuant to an agreement by Paragon Minerals Corporation to acquire an exploration property (see Note 9). |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (b)   | During the year ended December 31, 2011 |
|-----------------|-----------------------------------------|

| i.   | 295,000 options were exercised at prices between $0.23 and $0.45 per common share for proceeds of $111,000 and 90,620 warrants were exercised at a price of $0.40 per common share for proceeds of $36,000. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ii.   | Effective June 1, 2011, the Company did not renew its normal course issuer bid (the “Bid”). During the year to date period ended June 1, 2011, the Company did not purchase any common shares pursuant to the Bid. |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| iii.   | On December 30, 2011, the Company issued by way of private placement 3,275,000 flow-through shares on a brokered basis at $0.75 per share, for aggregate gross proceeds of $2,456,000. The agent to the private placement was paid a commission of 6.5% of the gross proceeds from the offering and received broker’s warrants to acquire 212,875 non-flow-through shares at any time until June 30, 2013 at a price of $0.75 per share. Net proceeds from the issuance were $2,199,000 after issuance costs comprised of the agent’s commission of $160,000 and other issuance costs of $97,000. The Company also recognized non-cash costs for the fair value of the broker’s warrants granted of $45,000. The sale of tax deductions of $295,000 is deferred and presented as other liabilities. |
|------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| iv.   | On December 30, 2011, the Company issued by way of non-brokered private placement 9,000,000 units (“Units”) to Zhongrun International Mining Co. Ltd. at $0.67 per Unit, for aggregate gross proceeds of $6,030,000. Each Unit consists of one common share and one-half of one common share purchase warrant. Each whole warrant entitles the holder to purchase one common share of the Company at any time until December 30, 2013 at a price of $0.90 per common share. In connection with the Zhongrun financing the Company paid a finder’s fee to an arm’s length intermediary. Net proceeds from the issuance were $5,598,000 after issuance costs comprised of the finder’s fee of $302,000 and other issuance costs of $130,000. The Company allocated $945,000 of the gross proceeds to the fair value of the share purchase warrants. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| (a)   | Stock Options |
|-----------------|---------------|

|                           | Year ended December 31, 2012 |   | Year ended December 31, 2011   |
|--------------------------------|------------------------------|--------|--------------------------------|
|                           | Number of Options            |   | Weighted AverageExercise Price |   | Number of Options |   | Weighted AverageExercise Price |
| Outstanding, beginning of year | 6,410,000                    |   | $  0.41              |   | 7,500,000 |   | $  0.46 |
| Granted                        | 960,000                      |   | 0.46                           |   | 300,000 |   | 0.71 |
| Converted                      | 310,533                      |   | 1.54                           |   | - |   | - |
| Exercised                      | -                            |   | -                              |   | (295,000) |   | 0.38 |
| Expired                        | (75,000)                     |   | 0.94                           |   | (870,000) |   | 0.90 |
| Forfeited                      | -                            |   | -                              |   | (225,000) |   | 0.45 |
| Outstanding, end of year       | 7,605,533                    |   | $  0.46              |   | 6,410,000 |   | $  0.41 |

----

| (a)   | Stock Options (continued) |
|-----------------|---------------------------|

|               | Options Outstanding |   | Options Exercisable             |
|--------------------|---------------------|--------|---------------------------------|
| Expiry Date        | Number of Options   |   | Weighted Average Exercise Price |   | Number of Options |   | Weighted Average Exercise Price |
| February 5, 2013   | 41,480              |   | 4.49                            |   | 41,480 |   | 4.49 |
| June 3, 2013       | 10,200              |   | 2.21                            |   | 10,200 |   | 2.21 |
| September 23, 2013 | 71,400              |   | 0.81                            |   | 71,400 |   | 0.81 |
| September 23, 2013 | 102,000             |   | 1.14                            |   | 102,000 |   | 1.14 |
| September 23, 2013 | 453                 |   | 4.93                            |   | 453 |   | 4.93 |
| March 27, 2014     | 1,575,000           |   | 0.23                            |   | 1,575,000 |   | 0.23 |
| December 31, 2014  | 40,800              |   | 1.14                            |   | 40,800 |   | 1.14 |
| May 12, 2015       | 4,460,000           |   | 0.45                            |   | 4,460,000 |   | 0.45 |
| January 27, 2016   | 300,000             |   | 0.71                            |   | 262,500 |   | 0.71 |
| February 1, 2016   | 10,200              |   | 1.29                            |   | 10,200 |   | 1.29 |
| July 4, 2016       | 34,000              |   | 0.81                            |   | 34,000 |   | 0.81 |
| October 3, 2017    | 960,000             |   | 0.46                            |   | - |   | - |
|               | 7,605,533           |   | $  0.46               |   | 6,608,033 |   | $  0.46 |

| Period of Grant                                                                                                                                             | Year ended December 31, 2012 (2) | Year ended December 31, 2011 |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------|------------------------------|
| Dividend Yield                                                                                                                                              | 0%                               | 0%                           |
| Risk free interest rate                                                                                                                                     | 1.2%                             | 1.9%                         |
| Expected life                                                                                                                                               | 2.6 to 3.5 years                 | 2.6 to 3.5 years             |
| Expected volatility (1)                                                                                                                                     | 71.4% to 73.1%                   | 79.4% to 85.1%               |
| Weighted average grant date fair value                                                                                                                      | $  0.22                | $  0.38            |
| Forfeiture rate                                                                                                                                             | 2%                               | 1%                           |
| (1) Determined based on historical volatility of the Company’s share price.(2) Excludes stock options converted upon Paragon acquisition (see Note 3) |                             |

----

| (b)   | Warrants |
|-----------------|----------|

|                           | Year ended December 31, 2012 |   | Year ended December 31, 2011   |
|--------------------------------|------------------------------|--------|--------------------------------|
|                           | Number of Warrants           |   | Weighted AverageExercise Price |   | Number of Warrants |   | Weighted AverageExercise Price |
| Outstanding, beginning of year | 5,054,148                    |   | $  0.88              |   | 431,893 |   | $  0.63 |
| Issued                         | 7,299,650                    |   | 0.88                           |   | 4,712,875 |   | 0.89 |
| Converted                      | 1,407,168                    |   | 1.51                           |   | - |   | - |
| Exercised                      | (4,130)                      |   | 0.40                           |   | (90,620) |   | 0.40 |
| Expired                        | (337,143)                    |   | 0.70                           |   | - |   | - |
| Outstanding, end of year       | 13,419,693                   |   | $ 0.95                         |   | 5,054,148 |   | $ 0.88 |

|              | Warrants Outstanding and Exercisable |
|-------------------|--------------------------------------|
| Expiry Date       |                                 | Number of Warrants |   | Weighted Average Exercise Price |
| June 30, 2013     |                                 | 212,875 |   | $  0.75 |
| July 6, 2013      |                                 | 494,650 |   | 0.67 |
| August 17, 2013   |                                 | 194,313 |   | 1.76 |
| December 30, 2013 |                                 | 4,500,000 |   | 0.90 |
| January 6, 2014   |                                 | 3,805,000 |   | 0.90 |
| February 10, 2014 |                                 | 3,000,000 |   | 0.90 |
| June 3, 2014      |                                 | 1,212,855 |   | 1.47 |
|              |                                 | 13,419,693 |   |  $  0.95 |

| Year of Grant                                                                                                                                               | Year ended December 31, 2012 (2) | Year ended December 31, 2011 |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------|------------------------------|
| Dividend Yield                                                                                                                                              | 0%                               | 0%                           |
| Risk free interest rate                                                                                                                                     | 0.95%                            | 0.96%                        |
| Expected life                                                                                                                                               | 1.4 to 1.9 years                 | 1.4 to 1.9 years             |
| Expected volatility (1)                                                                                                                                     | 74.5 to 78.2%                    | 77.3%                        |
| Weighted average grant date fair value                                                                                                                      | $  0.20                | $  0.21            |
| (1) Determined based on historical volatility of the Company’s share price.(2) Excludes stock options converted upon Paragon acquisition (see Note 3) |                             |

----

| (c)   | Summary |
|-----------------|---------|

|                                                 | Options                  | Warrants                               | Unexercised Options and Warrants | Normal Course Issuer Bid           | Total    |
|------------------------------------------------------|--------------------------|----------------------------------------|----------------------------------|------------------------------------|----------|
| Balance, December 31, 2010                           | 1,713                    |       98 | 7,182                            |  604                          | 9,597    |
| Share-based compensation                             | 238                      | -                                      | -                                | -                                  | 238      |
| Stock options exercised                              | (57)                     | -                                      | -                                | -                                  | (57))    |
| Stock options expired                                | (600))                   | -                                      | 600                              | -                                  | -        |
| Stock options forfeited                              | (54))                    | -                                      | 54                               | -                                  | -        |
| Broker and share purchase  warrants issued | -                        | 989                                    | -                                | -                                  | 989      |
| Broker warrants exercised                            | -                        | (17))                                  | -                                | -                                  | (17))    |
| Balance, December 31, 2011                           | 1,240                    | 1,070                                  | 7,836                            |  604                          | 10,750   |
| Share-based compensation                             | 107                      | -                                      | -                                | -                                  | 107      |
| Stock options expired                                | (29)                     | -                                      | 29                               | -                                  | -        |
| Broker and share purchase  warrants issued | -                        | 1,560                                  | -                                | -                                  | 1,560    |
| Broker warrants expired                              | -                        | (81))                                  | 81                               | -                                  | -        |
| Paragon acquisition                                  | 8                        | 45                                     | -                                | -                                  | 53       |
| Balance, December 31, 2012                           | $   1,326 | $   2,594               | $   7,946         | $     604 | $ 12,470 |

----

|                                            | Year ended December 31, 2012 | Year ended December 31, 2011 |
|-------------------------------------------------|------------------------------|------------------------------|
| Assaying and metallurgical studies              |                         |                         | $         120 |   |   |   | $          22 |
| Camp operation and project development          |                         |                         | 1,141 |   |   |   | 329 |
| Diamond drilling                                |                         |                         | 2,987 |   |   |   | 1,984 |
| Feasibility studies and mine planning           |                         |                         | 2,860 |   |   |   | 1,198 |
| Insurance, lease and rental                     |                         |                         | 64 |   |   |   | 59 |
| Permitting and environmental                    |                         |                         | 1,522 |   |   |   | 1,653 |
| Transportation and travel                       |                         |                         | 189 |   |   |   | 25 |
|                                            |                         |                         | 8,883 |   |   |   | 5,270 |
|                                            |                         |                         |   |   |   |   |   |
| Depreciation – mining plant and equipment |                         |                         | 154 |   |   |   | 219 |
| Total exploration and evaluation expenses       |                         |                         | $     9,037 |   |   |   | $     5,489 |
|                                            |                         |                         |   |   |   |   |   |
| Exploration and evaluation, beginning of year   |                         |                         | $   47,387 |   |   |   | $   41,898 |
| Total exploration and evaluation expenses       |                         |                         | 9,037 |   |   |   | 5,489 |
| Exploration and evaluation, end of year         |                         |                         | $   56,424 |   |   |   | $   47,387 |

----

|                                                            |   |   | 2012                              |   | 2011                                                                                                                                                                                                                                                                                                                                                                                                               |
|-----------------------------------------------------------------|--------|--------|-----------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Statutory tax rate                                              |   |   | 25.94%                            |   | 27.54%                                                                                                                                                                                                                                                                                                                                                                                                             |
| Income taxes/(recovery) computed at statutory rates             |   |   | $    (5,152)) |   | $    (9,187)                                                                                                                                                                                                                                                                                                                                                                                   |
| Permanent differences                                           |   |   | 42                                |   | 75                                                                                                                                                                                                                                                                                                                                                                                                                 |
| Renunciation of resource expenditures                           |   |   | 637                               |   | 1,377                                                                                                                                                                                                                                                                                                                                                                                                              |
| Other                                                           |   |   | (110))                            |   | (352))                                                                                                                                                                                                                                                                                                                                                                                                             |
| Loss on marketable securities subject to capital gains tax rate |   |   | 1,126                             |   |                                                                    3,566 |
| Purchase of Paragon (Note 3)                                    |   |   | (2,421))                          |   | -                                                                                                                                                                                                                                                                                                                                                                                                                  |
| Income tax rate changes                                         |   |   | 131                               |   |                                               44                                                                                                                                  |
| Tax benefits not yet recognized                                 |   |   | 5,747                             |   |                                                                    4,477 |
|                                                            |   |   | -                                 |   | -                                                                                                                                                                                                                                                                                                                                                                                                                  |

|                                       | 2012                                 |   | 2011                                 |
|--------------------------------------------|--------------------------------------|--------|--------------------------------------|
| Non-capital loss carry forwards            | $     5,986 |   | $     4,318 |
| Plant and equipment                        | 315                                  |   | 253                                  |
| Resource interests                         | 7,904                                |   | 5,089                                |
| Other                                      | 920                                  |   | 721                                  |
| Marketable securities                      | 695                                  |   | (442))                               |
| Net unrecognized deferred income tax asset | $    15,820      |   | $     9,939 |

----

|   | Year   | Total                                          |
|--------|--------|------------------------------------------------|
|   | 2014   | $       886 |
|   | 2015   | 895                                            |
|   | 2026   | 1,005                                          |
|   | 2027   | 3,137                                          |
|   | 2028   | 4,599                                          |
|   | 2029   | 2,955                                          |
|   | 2030   | 3,092                                          |
|   | 2031   | 3,523                                          |
|   | 2032   | 3,110                                          |
|   |   | $   23,202                      |

----

| (a)   | Categories of financial instruments |
|-----------------|-------------------------------------|

|                          |                        |   | December 31, 2012                              | December 31, 2011                    |
|-------------------------------|-----------------------------|--------|------------------------------------------------|--------------------------------------|
| Cash and cash equivalents     | FVTPL                       |   | $       224 | $     2,975 |
| Short-term investments        | FVTPL                       |   | 5,458                                          | 5,407                                |
| Marketable securities         | FVTPL                       |   | 4,984                                          | 13,707                               |
| Other receivables             | Loans and receivables       |   | 222                                            | 68                                   |
| Other long-term assets        | FVTPL                       |   | 739                                            | 739                                  |
| Accounts payable              | Other financial liabilities |   | (1,527))                                       | (60))                                |
| Accrued and other liabilities | Other financial liabilities |   | (461))                                         | (660))                               |

| (b)   | Fair value measurements |
|-----------------|-------------------------|

| December 31, 2012         | Level 1                                              | Level 2 | Level 3 | Total                                                |
|---------------------------|------------------------------------------------------|---------|---------|------------------------------------------------------|
| Cash and cash equivalents | $        224 | -       | -       | $        224 |
| Short-term investments    | 5,458                                                | -       | -       | 5,458                                                |
| Marketable securities     | 4,984                                                | -       | -       | 4,984                                                |
| Other long-term assets    | 739                                                  | -       | -       | 739                                                  |

| December 31, 2011         | Level 1                              | Level 2 | Level 3 | Total                                |
|---------------------------|--------------------------------------|---------|---------|--------------------------------------|
| Cash and cash equivalents | $     2,975 | -       | -       | $     2,975 |
| Short-term investments    | 5,407                                | -       | -       | 5,407                                |
| Marketable securities     | 13,707                               | -       | -       | 13,707                               |
| Other long-term assets    | 739                                  | -       | -       | 739                                  |

| (c)   | Market risk |
|-----------------|-------------|

| (d)   | Interest rate risk |
|-----------------|--------------------|

----

| (e)   | Foreign currency risk |
|-----------------|-----------------------|

| (f)   | Credit risk |
|-----------------|-------------|

| (g)   | Liquidity risk |
|-----------------|----------------|

| Year ending December 31, |   | Total                                    |
|--------------------------|--------|------------------------------------------|
| 2013                     |   | $      150 |
| 2014                     |   | 147                                      |
| 2015                     |   | 149                                      |
| 2016                     |   | 151                                      |
| 2017                     |   | 88                                       |
| 2018                     |   | -                                        |
|                     |   | $     685       |

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