Management’s
Responsibility for the Consolidated Financial Statements
 
 The
accompanying consolidated financial statements of Claude Resources Inc. are the
responsibility of Management and have been approved by the Board of
Directors.
 
 The
consolidated financial statements have been prepared by Management in conformity
with Canadian generally accepted accounting principles. The consolidated
Canadian financial statements include some amounts that are based on best
estimates and judgments. Financial information used elsewhere in the annual
report is consistent with that in the financial statements.
 
 The
Management of the Company, in furtherance of the integrity and objectivity of
data in the financial statements, has developed and maintains a system of
internal accounting controls. These internal accounting controls provide
reasonable assurance that financial records are reliable, form a proper basis
for preparation of financial statements and that assets are properly accounted
for and safeguarded. The internal accounting control process includes
Management’s communication to employees of policies which govern ethical
business conduct. Based on its evaluation, Management concluded that the
internal control over financial reporting was effective as of the end of the
period covered by its annual report.
 
 The
Board of Directors carries out its responsibility for the consolidated financial
statements in this annual report principally through its audit committee,
consisting of independent directors. The audit committee reviews the Company’s
annual consolidated financial statements and recommends their approval to the
Board of Directors. The shareholders’ auditors have full access to the audit
committee, with and without Management being present.
 
 These
consolidated financial statements have been examined by the shareholders’
auditors, KPMG LLP, Chartered
Accountants, in accordance with Canadian generally accepted auditing standards
and their independent professional opinion on the fairness of the financial
statements is attached.
  
 Neil
McMillan                                                                       Rick
Johnson, CA
 President
&                                                                           Vice
President Finance &
 Chief
Executive
Officer                                                        Chief
Financial Officer
 
 Saskatoon,
Canada
 March
28, 2008
 
 
 
 
 
 
 Auditors'
Report
 To
the Shareholders of Claude Resources Inc.
 
 We
have audited the consolidated balance sheets of Claude Resources Inc. as at
December 31, 2007 and 2006 and the consolidated statements of earnings (loss),
comprehensive income (loss), shareholders’ equity, and cash flows for the years
then ended. These financial statements are the responsibility of the
corporation's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
 
 We
conducted our audits in accordance with Canadian generally accepted auditing
standards. With respect to the consolidated financial statements for the year
ended December 31, 2007, we also conducted our audit in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.
 
 In
our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the corporation as at December 31,
2007 and 2006 and the results of its operations and its cash flows for the years
then ended in accordance with Canadian generally accepted accounting
principles.




Chartered
Accountants
 Saskatoon,
Canada
 March
28, 2008
 
  
 2
  Consolidated
Balance Sheets
 DECEMBER
31 (CANADIAN DOLLARS IN THOUSANDS)
 
 2007
              
              
              2006AssetsCurrent
      assets:Cash
              
              $
              2,628
              
              
              $
              5,331Accounts
      receivables
              
              
              3,404
              
              
              
              1,318Interest
      receivable on restricted promissory notes
              
              
              3,294
              
              
              
              506Inventories and
      stockpiled ore (Note 4)
              
              
              7,504
              
              
              
              6,288Shrinkage stope
      platform costs (Note 5)
              
              
              10,872
              
              
              
              9,987Prepaids
              
              
              594
              
              
              
              42528,296
              
              
              
              23,855Mineral
      properties (Note 6)
              
              
              76,904
              
              
              
              52,984Oil
      & natural gas properties (Note 7)
              
              
              9,099
              
              
              
              9,198Investments
      (Note 8)
              
              
              1,140
              
              
              
              1,428Deposits for
      reclamation costs (Note 13)
              
              
              2,389
              
              
              
              2,270Restricted
      promissory notes (Note 9)
              
              
              81,606
              
              
              
              55,982$
              199,434
              
              
              $
              145,717Liabilities
      and Shareholders’ EquityCurrent
      liabilities:Accounts
      payable and accrued liabilities
              
              $
              5,331
              
              
              $
              5,592Interest
      payable on royalty obligations
              
              
              3,205
              
              
              
              1,318Demand
      loans (Note 10)
              
              
              6,015
              
              
              
              8,000Other
      liabilities (Note 11)
              
              
              1,887
              
              
              
              91116,438
              
              
              
              15,821Obligations
      under capital lease (Note 12)
              
              
              1,612
              
              
              
              502Royalty
      obligations (Note 9)
              
              
              82,779
              
              
              
              56,496Deferred
      revenue (Note 9)
              
              
              7,291
              
              
              
              4,834Asset
      retirement obligations (Note 13)
              
              
              3,207
              
              
              
              2,486111,327
              
              
              
              80,139Shareholders’
      equity:Share
      capital (Note 14)
              
              
              85,591
              
              
              
              56,036Contributed
      surplus
              
              
              1,308
              
              
              
              1,062Retained
      earnings
              
              
              1,513
              
              
              
              8,480Accumulated
      other comprehensive loss
              
              
              (305
              )
              
              
              -88,107
              
              
              
              65,578Commitment
      (Note 20)Subsequent
      event (Note 23)$
              199,434
              
              
              $
              145,717
 
 
 See
accompanying notes to consolidated financial statements.
  On behalf
of the Board:
   
 Josef
Spross                   Ronald J. Hicks,
CA
 Chairman                           
Chairman,
Audit Committee
 
 3
 
 Consolidated
Statements of Earnings (Loss)
 YEARS
ENDED DECEMBER 31 (CANADIAN DOLLARS IN THOUSANDS)
 
 2007
              
              
              2006Revenues:Gold
              
              $
              29,922
              
              
              $
              32,495Oil
      & natural gas (net of royalties)
              
              
              3,026
              
              
              
              3,18432,948
              
              
              
              35,679Expenses:Gold
              
              
              25,311
              
              
              
              21,296Oil
      & natural gas
              
              
              2,384
              
              
              
              2,330Depreciation,
      depletion and accretion:Gold
              
              
              8,308
              
              
              
              9,968Oil and
      gas
              
              
              968
              
              
              
              72936,971
              
              
              
              34,323(4,023
              )
              
              
              1,356Other
      Expenses (Income):General
      and administrative
              
              
              3,575
              
              
              
              2,651Interest and
      other (Note 15)
              
              
              (113
              )
              
              
              229Stock
      compensation expense
              
              
              592
              
              
              
              523Loss
      (gain) on sale of assets (Note 16)
              
              
              12
              
              
              
              (5,925
              )Write-down of
      exploration properties
              
              
              583
              
              
              
              1554,649
              
              
              
              (2,367
              )Earnings
      (loss) before income taxes
              
              
              (8,672
              )
              
              
              3,723Income
      tax recovery (Note 17)
              
              
              1,705
              
              
              
              2,699Net
      earnings (loss)
              
              $
              (6,967
              )
              
              $
              6,422Net
      earnings (loss) per share (Note 18)Basic
      and diluted
              
              $
              (0.08
              )
              
              $
              0.09Weighted
      average number of common shares outstanding (000’s) (Note
      18)Basic
              
              
              88,296
              
              
              
              73,184Diluted
              
              
              88,296
              
              
              
              74,113
 
 
 See
accompanying notes to consolidated financial statements.
 
 4
 Consolidated
Statements of Comprehensive Income (Loss)
 YEARS
ENDED DECEMBER 31 (CANADIAN DOLLARS IN THOUSANDS)
 
 2007
              
              
              2006Net
      earnings (loss)
              
              $
              (6,967
              )
              
              $
              6,422Other
      comprehensive lossNet
      realized loss on disposition of available-for-sale
      securities
              
              
              (17
              )
              
              
              -Unrealized loss
      on available-for-salesecurities
              
              
              (751
              )
              
              
              -Other
      comprehensive loss
              
              
              (768
              )
              
              
              -Total
      comprehensive income (loss)
              
              $
              (7,735
              )
              
              $
              6,422
 
 
 See
accompanying notes to consolidated financial statements.
 
 Consolidated
Statements of Shareholders’ Equity
 YEARSENDED
DECEMBER 31 (CANADIAN DOLLARS IN THOUSANDS)
 
 2007
              
              
              2006Share Capital(Note
      14)Balance,
      beginning of year
              
              $
              56,036
              
              
              $
              53,109Common
      shares issued for cash
              
              
              27,957
              
              
              
              5,083Warrants
      exercised
              
              
              2,799
              
              
              
              167Flow-through
      renunciation
              
              
              (1,705
              )
              
              
              (2,699
              )Exercise of
      options
              
              
              294
              
              
              
              251Other
              
              
              210
              
              
              
              125Balance, end of
      year
              
              $
              85,591
              
              
              $
              56,036Contributed
      SurplusBalance,
      beginning of year
              
              $
              1,062
              
              
              $
              622Stock-based
      compensation
              
              
              592
              
              
              
              523Options
      exercised
              
              
              (101
              )
              
              
              (81
              )Warrants
      exercised
              
              
              (177
              )
              
              
              -Other
              
              
              (68
              )
              
              
              (2
              )Balance, end of
      year
              
              $
              1,308
              
              
              $
              1,062Retained
      EarningsBalance,
      beginning of year
              
              $
              8,480
              
              
              $
              2,058Net
      earnings (loss)
              
              
              (6,967
              )
              
              
              6,422Balance, end of
      year
              
              $
              1,513
              
              
              $
              8,480Accumulated
      other comprehensive lossBalance,
      beginning of year
              
              $
              -
              
              
              $
              -Transition
      adjustment (Note 3)
              
              
              463
              
              
              
              -Other
      comprehensive loss
              
              
              (768
              )
              
              
              -Balance, end of
      year
              
              $
              (305
              )
              
              $
              -Total
      retained earnings and accumulated other comprehensive
      loss
              
              $
              1,208
              
              
              $
              8,480Shareholders’
      equity, end of year
              
              $
              88,107
              
              
              $
              65,578
 
 
 
 See
accompanying notes to  consolidated financial statements.
   5
 Consolidated
Statements of Cash Flows
 YEARSENDED
DECEMBER 31 (CANADIAN DOLLARS IN THOUSANDS)
 
 2007
              
              
              2006Cash
      provided from (used in):Operations:Net
      earnings (loss)
              
              $
              (6,967
              )
              
              $
              6,422Non-cash
      items:Depreciation,
      depletion and accretion
              
              
              9,276
              
              
              
              10,697Stock-based
      compensation
              
              
              592
              
              
              
              523Write-down of
      exploration properties
              
              
              583
              
              
              
              155Loss
      (gain) on sale of assets
              
              
              12
              
              
              
              (5,925
              )Income
      tax recovery
              
              
              (1,705
              )
              
              
              (2,699
              )Net
      changes in non-cash operating working capital:Accounts
      Receivable
              
              
              (4,874
              )
              
              
              2,535Inventories and
      stockpiled ore
              
              
              (1,216
              )
              
              
              (335
              )Shrinkage stope
      platform costs
              
              
              (885
              )
              
              
              (1,046
              )Prepaids
              
              
              (169
              )
              
              
              (28
              )Accounts
      Payable and accrued liabilities
              
              
              1,626
              
              
              
              530Cash
      from (used in) operations
              
              
              (3,727
              )
              
              
              10,829Investing:Mineral
      properties
              
              
              (32,133
              )
              
              
              (20,507
              )Oil
      & natural gas properties
              
              
              (824
              )
              
              
              (2,204
              )Restricted
      promissory notes
              
              
              (25,624
              )
              
              
              (35,000
              )Investments
              
              
              (30
              )
              
              
              5,046Increase in
      reclamation deposits
              
              
              (119
              )
              
              
              (173
              )Cash
      used in investing
              
              
              (58,730
              )
              
              
              (52,838
              )Financing:Issue
      of common shares, net of issue costs
              
              
              30,914
              
              
              
              5,547Proceeds from
      royalty obligations
              
              
              25,756
              
              
              
              34,396Deferred
      revenue
              
              
              3,331
              
              
              
              4,200Bank
      indebtedness
              
              
              -
              
              
              
              (2,543
              )Demand
      loan:Proceeds
              
              
              -
              
              
              
              5,000Repayments
              
              
              (1,985
              )
              
              
              (1,261
              )Obligations
      under capital lease:Proceeds
              
              
              2,514
              
              
              
              841Repayment
              
              
              (776
              )
              
              
              (288
              )Cash
      provided from financing activities
              
              
              59,754
              
              
              
              45,892Increase
      (decrease) in cash
              
              
              (2,703
              )
              
              
              3,883Cash
      and cash equivalents, beginning of year
              
              
              5,331
              
              
              
              1,448Cash
      and cash equivalents, end of year
              
              $
              2,628
              
              
              $
              5,331
 
  2007
              
              
              2006Cash
      and cash equivalents comprised of:Cash
              
              $
              -
              
              
              $
              1,868Cash in
      bankless outstanding cheques
              
              
              (2,372
              )
              
              
              -Term
      deposits
              
              
              5,000
              
              
              
              3,463$
              2,628
              
              
              $
              5,331
 
 2007
              
              
              2006Supplemental
      cash flow disclosure:Interest
      paid
              
              $
              2,290
              
              
              $
              693
 
 See
accompanying notes to consolidated financial statements.
   6
 
 Notes To
Consolidated Financial Statements
 YEARS
ENDED DECEMBER 31
 TABULAR
DOLLAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT AS OTHERWISE
NOTED
 
 
 1.
Description of Operations:
 
 GOLD
 
 The
Seabee and area gold mines, owned 100% by Claude Resources, are located 125
kilometres northeast of La Ronge, Saskatchewan. Mining of the ore reserves at
Seabee commenced in 1991; mining of the Santoy 7 ore reserves commenced at the
beginning of the fourth quarter in 2007.
 
 OIL
& NATURAL GAS
 
 The
Company, through its wholly-owned subsidiary, 574095 Alberta Ltd., has an
interest in the Nipisi Gilwood No. 1 oil field and the Edson Gas Unit No. 1 gas
field and associated gas plant and gathering lines. Both areas are operated by
others. In addition to these properties, the Company has interests in producing
oil & natural gas wells at a number of other Alberta locations. The Alberta
properties are subject to an overriding royalty.
 
 In
the Gainsborough area of southeastern Saskatchewan, the Company owns a 75%
working interest in six vertical producing oil wells, one water disposal well
and a 33.75% working interest in four producing horizontal wells.
 
 2.
Significant Accounting Policies:
 
 The
consolidated financial statements have been prepared by Management in accordance
with Canadian generally accepted accounting principles. Generally accepted
accounting principles require that Management make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent liabilities at the date of the financial statements and the reported
amount of revenues and expenses during the year. The
most significant estimates are related to the lives and recoverability of
mineral properties, provisions for decommissioning and reclamation of assets,
financial instruments and mineral reserves.  Actual results could differ
from these estimates.
  This
summary of significant accounting policies is a description of the accounting
methods and practices that have been used in the preparation of these
consolidated financial statements and is presented to assist the reader in
interpreting the statements contained herein.
 
 CONSOLIDATION
PRINCIPLES
 
 The
consolidated financial statements include the accounts of the Company and its
subsidiaries. The accounts include the Company’s share of joint
operations.
  CASH
 
 Cash
and cash equivalents include cash and short-term investments which, on
acquisition, have a term to maturity of three months or less.
 
 INVESTMENTS
 
 Investments
are classified as available-for-sale securities and are initially measured at
fair value; measurement in subsequent reporting periods is also at fair
value.  Unrealized gains or losses from such revaluations are included
in other comprehensive income.  If available-for-sale securities
are disposed of, or there is an impairment in value that is other than a
temporary decline, these amounts are transferred from other comprehensive income
(loss) to net earnings.  Prior to January 1, 2007, the Company
accounted for investments at cost.
 
 DEPOSITS
FOR RECLAMATION COSTS
 
 Deposits
for reclamation costs, designated as held to maturity, consist of investment
certificates held as security for reclamation requirements and are carried at
the lower of cost and net realizable value.
  INVENTORIES
AND STOCKPILED ORE
 
 Gold
inventory, which includes gold bullion, gold contained in the milling circuit
and in stockpiled ore on surface, is valued at the lower of cost and net
realizable value. Costs include labour, equipment costs and operating overhead.
Material and supplies inventory is valued at the lower of cost and net
realizable value.
 
 7
 
 SHRINKAGE
STOPE PLATFORM COSTS
 
 The
Company utilizes the shrinkage stope and long-hole mining methods to mine its
ore body at the Seabee mine. Under these methods, ore used as a working platform
to access and mine further ore is valued at the lower of cost and net realizable
value. Costs include labour, equipment costs and operating overhead. This broken
ore is reclassified to inventory once transported to surface.
 
 MINERAL
PROPERTIES
 
 The
Company holds various positions in mining interests, including exploration
rights, mineral claims, mining leases, unpatented mining leases and options to
acquire mining claims or leases. All of these positions are classified as
mineral properties for financial statement purposes.
 
 All
costs related to the acquisition, exploration and development of mineral
properties and the development of milling assets are capitalized on a property
by property basis. Development costs on producing properties include only
expenditures incurred to develop reserves or for delineation of existing
reserves. Interest on debt directly related to the acquisition and development
of mineral properties is capitalized until commencement of commercial
production. Expenditures for maintenance and repairs are charged to operating
expenses as incurred.
 
 Upon
commencement of commercial production, the costs of each property are amortized
against future income using the unit of production method over estimated
recoverable ore reserves. Estimated recoverable ore reserves include proven and
probable mineral reserves. Costs which are not considered economically
recoverable through mining operations or through sale of reserves, or are
related to properties which are allowed to lapse, are expensed. Mining equipment
is depreciated over its estimated useful life of three years on a straight-line
basis.
 
 The
carrying value of mineral properties is reviewed regularly and, where necessary,
is written down to the estimated net recoverable amount.  Estimated
future net cash flow, on an undiscounted basis, is calculated for the property
using:  estimated recoverable reserves and resources; estimated
future metal price realization (considering historical and current prices, price
trends and related factors); and, estimated operating and capital cash
flows.  An impairment loss is recognized when the carrying value of an
asset exceeds the sum of undiscounted future net cash flows.  An
impairment loss is measured at the amount by which the asset’s carrying amount
exceeds its fair value. It is possible that changes could occur that may
affect the recoverability of the carrying value of mineral
properties.
 
 OIL
& NATURAL GAS PROPERTIES
 
 The
Company is engaged in oil & natural gas exploration and production in Canada
and substantially all of these activities are conducted with others. The
accounts reflect only the Company’s proportionate interest in such
activities.
 
 The
Company follows the full-cost method of accounting whereby all costs relating to
the exploration for and development of oil & natural gas reserves are
capitalized. Such costs include land acquisition costs, geological and
geophysical expenses, engineering fees, related direct administrative costs,
costs of drilling both productive and non-productive wells including production
equipment, the fair value of retirement obligations and the cost of constructing
processing facilities. Also capitalized are identifiable carrying charges on
undeveloped properties. Proceeds received from disposal of property interests
are credited against accumulated costs except when the disposition results in a
significant change in the depletion rate, in which case a gain or loss on
disposal is recognized.  Expenditures for maintenance and repairs are
charged to operating expenses as incurred.
 
 The
costs related to petroleum and natural gas properties are depleted on the unit
of production method based on the estimated proved reserves as determined by
independent consultants, before deduction of royalties and after conversion to
units of common measure based on relative energy content.
 
 The
carrying values of the Company’s oil & natural gas properties are compared
annually to an estimate of undiscounted future net cash flow from the production
of proved reserves, based on estimated future prices. If the carrying value is
not fully recoverable, the amount of impairment is measured by comparing the
carrying amount of the oil & natural gas properties to an amount equal to
the estimated net present value of future cash flows from proved plus probable
reserves. Any excess carrying value above the net present value of the future
cash flows would be recorded as a permanent impairment and charged to
earnings.
  ASSET
RETIREMENT OBLIGATIONS
 
 The
fair value of the liability for the Company’s asset retirement obligations is
recorded in the period in which it is incurred, discounted to its present value
using the Company’s credit adjusted risk-free interest rate and the
corresponding amount is recognized by increasing the carrying amount of the
related long-lived asset. The liability is accreted each period, and the
capitalized cost is depreciated over the useful life of the related
asset.
 8
 
 REVENUE
RECOGNITION
 
 Revenue
from gold sales are recognized when the rights and obligations of ownership pass
to the buyer. Settlement adjustments arising from final determination of metal
weights and assays are reflected in sales when determined. Revenue associated
with the sale of oil, natural gas liquids and natural gas represents the
Company’s share of the sale value of production.
 
 FOREIGN
CURRENCY TRANSLATION
 
 Revenue
and expense transactions denominated in foreign currencies are translated in
Canadian dollars at the rate of exchange prevailing at the date of the
transaction. Monetary assets and liabilities denominated in foreign currencies
are translated in Canadian dollars at the rate of exchange in effect at the
balance sheet date. Exchange gains and losses on these transactions are included
in earnings.
 
 HEDGING
TRANSACTIONS
 
 Derivative
financial instruments are periodically used by the Company in the management of
its foreign currency and commodity price exposures. The Company may enter into
foreign exchange and gold derivative contracts to hedge anticipated sales
denominated in US dollars.  Derivative instruments are not designated
as hedges and are recorded using the mark-to-market method of accounting whereby
instruments are recorded in the consolidated balance sheets as either an asset
or liability with changes in fair value recognized in net earnings.
 
 INCOME
TAXES
 
 Future
income tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying value of
existing assets and liabilities and their respective tax basis. Future income
tax assets and liabilities are measured using enacted or 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 future income tax assets and liabilities of a change in tax rates is
recognized in earnings in the period which includes the enactment or substantive
enactment date.  Future income tax assets are recorded in the
financial statements if realization is considered more likely than
not.  The valuation of future income taxes is adjusted, if necessary,
by the use of a valuation allowance to reflect the estimated recoverable
amount.
 
 FLOW-THROUGH
SHARES
 
 The
Company finances a portion of its exploration activities through the issue of
flow-through shares. The Company records the tax cost of expenditures renounced
to subscribers on the date the deductions are renounced to the subscribers.
Share capital is reduced and future income tax liabilities are increased by the
tax cost of expenditures renounced to the subscribers, except to the extent that
the Company has unrecorded tax benefits on loss carryforwards and tax pools in
excess of book values available for deduction against which a valuation
allowance has been provided.  In these circumstances, the future tax
liability reduces the valuation allowance and this reduction is recognized in
earnings.
 
 PER
SHARE AMOUNTS
 
 Basic
per share amounts are calculated using the weighted average number of shares
outstanding during the period. Diluted per share amounts are calculated based on
the treasury-stock method, which assumes that any proceeds obtained on exercise
of options and warrants would be used by the Company to repurchase common shares
at the average market price during the period. The weighted average number of
shares outstanding is then adjusted by the net change.
  STOCK-BASED
COMPENSATION PLANS
 
 The
Company has two stock-based compensation plans which are described in Note 14.
The Company accounts for all stock option awards using the fair-value method of
accounting. Under this method, the Company recognizes a compensation expense for
all stock options awarded based on the fair value of the options at the
date of the grant, which is determined using an option pricing model. The fair
value of the options is expensed over the vesting period with a corresponding
amount recorded as contributed surplus. Under the Employee Share Purchase Plan,
compensation expense is recognized for the value of the Company's contribution
to the plan. Consideration received on the exercise of stock options and the
employee share purchase plan is recorded as share capital and the related
contributed surplus is transferred to share capital.
 9
 
 3.
Accounting Standards
 
 (a)
Changes in Accounting Policies
 
 Effective
January 1, 2007, the Company adopted the following new accounting standards
issued by the Canadian Institute of Chartered Accountants (“CICA”) relating to
financial instruments. As required by the transitional provisions of these new
standards, these new standards have been adopted on a prospective basis with no
restatement to prior period financial statements.
 
 (i)
Financial Instruments - Recognition and Measurement
 
 This
standard sets out criteria for the recognition and measurement of financial
instruments for fiscal years beginning on or after January 1, 2007. This
standard requires all financial instruments within its scope, including
derivatives, to be included on a Company’s balance sheet and measured either at
fair value or, in certain circumstances when fair value may not be considered
most relevant, at cost or amortized cost. Changes in fair value are to be
recognized in the statements of operations or accumulated other comprehensive
income, depending on the classification of the related instruments.
 
 All
financial assets and liabilities are recognized when the entity becomes a party
to the contract creating the asset or liability. As such, any of the Company’s
outstanding financial assets and liabilities at the effective date of adoption
are recognized and measured in accordance with the new requirements as if these
requirements had always been in effect. Any changes to the fair values of assets
and liabilities prior to January 1, 2007 are recognized by adjusting opening
deficit or opening accumulated other comprehensive income.
 
 All
financial instruments are classified into one of the following categories: held
for trading, held-to-maturity, loans and receivables, available-for-sale
financial assets, or other financial liabilities. Initial and subsequent
measurement and recognition of changes in the value of financial instruments
depends on their initial classification:
 
 •
              Held-to-maturity
      investments, loans and receivables, and other financial liabilities are
      initially measured at fair value and subsequently measured at amortized
      cost. Amortization of premiums or discounts and losses due to impairment
      are included in current period net
earnings.
 •
              Available-for-sale
      financial assets are measured at fair value. Changes in fair value are
      included in other comprehensive income until the gain or loss is
      recognized in income.
 •
              Held
      for trading financial instruments are measured at fair value. All changes
      in fair value are included in net earnings in the period in which they
      arise.
 •
              Derivative
      financial instruments are measured at fair value, even when they are part
      of a hedging relationship. Changes in fair value are included in net
      earnings in the period in which they
arise.
 
 In
accordance with this new standard, the Company has classified its significant
financial instruments as follows:
 
 •
              Investment
      securities are classified as available-for-sale securities.  The
      Company has recorded a transition adjustment of $463,000 representing the
      unrealized gain on these investments at January 1,
    2007.
 •
              Restricted
      promissory notes relating to the Red Mile Resources Limited Partnership
      Agreements are classified as loans and
    receivables.
 •
              Reclamation
      deposits are classified as held to
maturity.
 
 (ii)
Derivatives
 
 The
Company has elected to continue accounting for contracts entered into for the
purpose of delivering or receiving non-financial items for its expected
purchase, usage or sales requirements as executory contracts.
  Derivatives
may be embedded in other financial instruments (the “host
instrument”).  Under the new standards, embedded derivatives are
treated as separate derivatives when their economic characteristics and risks
are not clearly and closely related to those of the host instrument, the terms
of the embedded derivative are the same as those of a stand-alone derivative,
and the combined contract is not held for trading or designated at fair
value.  These embedded derivatives are measured at fair value with
subsequent changes recognized in gains or losses on derivatives within interest
and other on the consolidated statements of earnings.  The Company has
not identified any material embedded derivatives which require separate
recognition and measurement.
 
 (iii)
Hedging
 
 This
new standard specifies the circumstances under which hedge accounting is
permissible and how hedge accounting may be performed. The Company has elected
not to apply hedge accounting.
 
 (iv)
Comprehensive Income
 
 This
standard requires the presentation of comprehensive income, and its components
in a separate financial statement that is displayed with the same prominence as
the other financial statements. Accumulated other comprehensive income is
presented as a new category in shareholders’ equity.
 10
 
 (b)
Future Changes in Accounting Policy
 
 (i)
Inventories
 
 Effective
January 1, 2008, the Company will adopt the new Canadian standard, CICA Handbook
Section 3031, Inventories, which supersedes
Handbook Section 3030 and converges with the International Accounting Standard
Board’s recently amended standard IAS 2, Inventories.
 
 The
standard introduces significant changes to the measurement and disclosure of
inventory.  The measurement changes include the elimination of the
last in first out method (LIFO), the requirement to measure inventories at the
lower of cost and net realizable value, the allocation of overhead based on
normal capacity, the use of the specific cost method for inventories that are
not ordinarily interchangeable or goods and services produced for specific
purposes, the requirement for an entity to use a consistent cost formula for
inventory of a similar nature and use, and the reversal of previous writedowns
to net realizable value when there is a subsequent increase in the value of
inventories.  Disclosures of inventories have also been
enhanced.  Inventory policies, carrying amounts, amounts recognized as
an expense, writedowns and the reversals of writedowns are required to be
disclosed.
 
 The
impact of this new standard on the Company's financial statements is currently
being assessed.
 
 (ii)
Financial Instruments - Disclosure and Presentation
 
 Effective
January 1, 2008, the Company will adopt two new Canadian
standards:  Handbook Section 3862, Financial Instruments - Disclosuresand Handbook Section 3863, Financial Instruments -
Presentation.These sections replace Handbook Section 3861,
Financial Instruments -
Disclosures and Presentation,and enhance the users’ ability to evaluate
the significance of financial instruments to an entity, related exposures and
the management of these risks.
 
 (iii)
Capital Disclosures
 
 Effective
January 1, 2008, the Company will adopt the new Canadian standard,
Handbook Section 1535, Capital
Disclosures.This section establishes standards for disclosure
of both qualitative and quantitative information that enable users to evaluate
the Company’s objectives, policies and processes for managing
capital.
  4.
Inventories and Stockpiled Ore:
 
 2007
                
                
                2006Gold in-circuit
                
                $
                1,100
                
                
                $
                1,076Stockpiled
      ore
                
                
                562
                
                
                
                427Materials
      and supplies
                
                
                5,842
                
                
                
                4,785$
                7,504
                
                
                $
                6,288
 
 5.
Shrinkage Stope Platform Costs:
 
 2007
                
                
                2006Stope
      Platform Costs
                
                $
                10,872
                
                
                $
                9,987
 
 Shrinkage
stope platform costs represent ore that is being used either as a working stage,
within the stope, to gain access to further ore or are costs incurred to access
ore within the long-hole stope. This ore is expected to be processed in the
following 12 months.
 
 11
 
 
 
 6.
Mineral Properties:
 
 Details
of the Company’s mineral related property, plant and equipment are as
follows:
 
 Accumulated
              
              
              
              
              
              
              
              
              Accumulateddepreciation,
              
              
              
              
              
              
              
              
              depreciation,depletion
      and
              
              
              2007
              
              
              
              
              
              depletion
      and
              
              
              2006Cost
              
              
              write-down
              
              
              Net
              
              
              Cost
              
              
              write-down
              
              
              NetProperty
      acquisition and mine development costs
              
              $
              93,879
              
              
              $
              62,907
              
              
              $
              30,972
              
              
              $
              77,675
              
              
              $
              57,805
              
              
              $
              19,870Buildings,
      plant and equipment
              
              
              83,975
              
              
              
              63,386
              
              
              
              20,589
              
              
              
              72,985
              
              
              
              59,715
              
              
              
              13,270Exploration
      properties
              
              
              30,541
              
              
              
              5,198
              
              
              
              25,343
              
              
              
              24,917
              
              
              
              5,073
              
              
              
              19,844$
              208,395
              
              
              $
              131,491
              
              
              $
              76,904
              
              
              $
              175,577
              
              
              $
              122,593
              
              
              $
              52,984
 
 There
have been no interest costs capitalized to date. Amounts reflected for
exploration properties not in commercial production represent costs incurred to
date, net of write-downs, and are not intended to reflect present or future
values. The recoverability of the costs is dependent upon the discovery of
economically recoverable ore reserves, the ability to obtain necessary financing
to complete development and the development of future profitable production from
the properties or realization of sufficient proceeds from the disposition of the
properties based on reserve estimates verified by the Company’s Qualified
Person. The Company performed a ceiling test calculation at December 31, 2007 to
assess the recoverable amount of its mineral properties.  The ceiling
test indicated no impairment.
 
 Expenditures
on exploration properties for the year ended December 31, 2007 and 2006, were
comprised largely of drilling and bulk sample costs on the Santoy and drilling
costs on the Madsen properties.
 
 7.
Oil & Natural Gas Properties:
 
 Details
of the Company’s oil & natural gas property, plant and equipment are as
follows:
 
 Accumulated
              
              
              
              
              
              
              
              
              Accumulateddepreciation,
              
              
              
              
              
              
              
              
              depreciation,depletion
      and
              
              
              2007
              
              
              
              
              
              depletion
      and
              
              
              2006Cost
              
              
              write-down
              
              
              Net
              
              
              Cost
              
              
              write-down
              
              
              NetProperty
      acquisition and drilling costs
              
              $
              14,808
              
              
              $
              10,875
              
              
              $
              3,933
              
              
              $
              14,511
              
              
              $
              10,534
              
              
              $
              3,977Gas
      plant and production equipment
              
              
              11,987
              
              
              
              6,821
              
              
              
              5,166
              
              
              
              11,459
              
              
              
              6,238
              
              
              
              5,221$
              26,795
              
              
              $
              17,696
              
              
              $
              9,099
              
              
              $
              25,970
              
              
              $
              16,772
              
              
              $
              9,198
 
 The
Company performed a ceiling test calculation at December 31, 2007 to assess the
recoverable amount of its oil & natural gas property, plant and equipment.
The ceiling test indicated no impairment.  The price forecast at
December 31, 2007 used in this evaluation, as outlined in the table below, was
provided by the Company’s independent reserve evaluator.
 
 Year
              
              Edmonton
      Par Price 40 degrees API
                ($Cdn
      / bbl)
              Alberta
      AECO-C Spot
                ($Cdn/MMBTU)2008
              
              88.17
              6.512009
              
              84.54
              7.222010
              
              83.16
              7.692011
              
              81.26
              7.702012
              
              80.73
              7.612013
              
              81.25
              7.782014
              
              82.88
              7.962015
              
              84.55
              8.142016
              
              86.25
              8.322017
              
              87.98
              8.51Thereafter
              
              Escalation
      rate of 2.0% thereafter
 
  12
  The
Alberta oil & natural gas properties are subject to an overriding royalty.
This obligation will cease when approximately $147,150,000 has been paid or when
the properties cease to produce.
 
 Amounts
of the cumulative overriding royalty paid by the Company are as
follows:
 
 December 31,
2007                                           $131,977,000
 December 31,
2006                                           $127,694,000
 
 8.
Investments:
 
 2007
                  Fair
      Value
              
              
              2006
                  Book
      ValueAvailable-for-sale
      securities
              
              $
              1,140
              
              
              $
              1,428
 
 At
December 31, 2007, available-for-sale securities had a cost of
$1,445.  At December 31, 2006, the fair value of the Company’s
available-for-sale securities was $1,891.
 
 9.
Restricted Promissory Notes and Royalty Obligations:
 
 a)In December 2007, the
Company entered into a Royalty Agreement (“2007 Agreement”) with Red Mile
Resources No. 11 Limited Partnership (“Red Mile No. 11”) whereby the Company
sold a “Royalty” on a portion of the gold production at its Seabee operations;
this agreement lasts the shorter of 10 years or the life of the Seabee
operations. The Company received cash of $28,955,250 which included royalty
income of $25,624,000, indemnity fees of $1,355,382 and interest income of
$1,975,868.
 
 Under
the terms of the 2007 Agreement, the Company is required to make Royalty
payments at fixed amounts per ounce of gold produced; these amounts can vary
between CDN $35.17 to $147.05 per ounce over the term of the 2007 Agreement. In
addition, the Company granted Red Mile No. 11 a Net Profits Interest (NPI) of
3.50%, 3.70% or 3.90% in years 2013 through 2017, payable only if each day's
price of gold in any of those calendar years is equal to or greater than CDN
$1,250, $1,500 or $1,675 per ounce, respectively.
 
 $25,625,000
of the cash received was placed with a financial institution; in return, the
Company received a restricted promissory note.  The restricted
promissory note earns interest at 7%, payable annually, and matures on February
15, 2017. Interest and principal from the restricted promissory note will be
sufficient to fund the expected basic royalty payments and any interest
expense.
  Under
certain circumstances the Company has the right, by way of a call option, to
acquire the partnership units of Red Mile No. 11, effectively terminating the
2007 Agreement, for the lower of market value or for the outstanding amount of
the restricted promissory note at the end of the tenth year of the 2007
Agreement.
 
 On
the balance sheet, the royalty payment received from Red Mile No. 11 is included
in "Royalty Obligations". These amounts are treated as debt and bear interest
which is included in interest expense. The indemnity fee and interest income of
$1,355,382 and $1,975,868 received by the Company are included in "Deferred
Revenue" on the balance sheet and recognized in income over the life of the 2007
Agreement.
 
 b)In December 2006, the
Company entered into a Royalty Agreement (“2006 Agreement”) with Red Mile
Resources No. 8 Limited Partnership (“Red Mile No. 8”) whereby the Company sold
a “Royalty” on a portion of the gold production at its Seabee operations; this
agreement lasts the shorter of 10 years or the life of the Seabee operations.
The Company received cash of $39,200,000 which included royalty income of
$35,000,000, indemnity fees of $436,000 and interest income of
$3,764,000.
 
 Under
the terms of the 2006 Agreement, the Company is required to make Royalty
payments at fixed amounts per ounce of gold produced; these amounts can vary
between CDN $40.82 to $254.66 per ounce over the term of the
agreement.  In addition, the Company granted Red Mile No. 8 a Net
Profits Interest (NPI) of 3.75%, 4.00% or 4.25% in years 2012 through 2016,
payable only if each day’s price of gold in any of those calendar years is
greater than CDN $975, $1,175 or $1,375 per ounce, respectively.
 
 $35,000,000
of the cash received was placed with a financial institution; in return, the
Company received a restricted promissory note. The restricted promissory note
earns interest at 7%, payable annually, and matures on February 16,
2016.  Interest and principal from the restricted promissory note will
be sufficient to fund the expected basic royalty payments and any interest
expense.
 
 13
  Under
certain circumstances the Company has the right, by way of a call option, to
acquire the partnership units of Red Mile No. 8, effectively terminating the
2006 Agreement, for the lower of market value or for the outstanding amount of
the restricted promissory note at the end of the tenth year of the 2006
Agreement.
 
 On
the balance sheet, the royalty payment received from Red Mile No. 8 is included
in “Royalty Obligations”.  These amounts are treated as debt and bear
interest which is included in interest expense.  The indemnity fee and
interest income received of $436,000 and $3,764,000, respectively was deferred
and is included in “Deferred Revenue” on the balance sheet and is being
recognized in income over the life of the 2006 Agreement.
 
 c)In December 2005, the
Company entered into a Royalty Agreement (“2005 Agreement”) with Red Mile
Resources No. 7 Limited Partnership (“Red Mile No. 7”) whereby the Company sold
a “Royalty” on a portion of the gold production at its Seabee operations; this
agreement lasts the shorter of 10 years or the life of the Seabee operations.
The Company received cash of $15,680,000 which included royalty income of
$14,000,000, indemnity fees of $907,000 and prepaid interest of
$773,000.
 
 Under
the terms of the 2005 Agreement, the Company is required to make Royalty
payments at fixed amounts per ounce of gold produced; these amounts can vary
between CDN $3.00 to $112.45 per ounce over the term of the 2005
Agreement.  In addition, the Company granted Red Mile No. 7 a Net
Profits Interest (NPI) of 1.00%, 2.00% or 3.00% in years 2011 through 2015,
payable only if each day’s price of gold in any of those calendar years is
greater than CDN $875, $1,075 or $1,275 per ounce, respectively.
 
 $14,000,000
of the cash received was placed with a financial institution; in return, the
Company received a restricted promissory note. The restricted promissory note
earns interest at 6%, payable annually, and matures on February 15,
2015.  Interest and principal from the restricted promissory note will
be sufficient to fund the expected basic royalty payments and any interest
expense.
 
 Under
certain circumstances the Company has the right, by way of a call option, to
acquire the partnership units of Red Mile No. 7, effectively terminating the
2005 Agreement, for the lower of market value or for the outstanding amount of
the restricted promissory note at the end of the tenth year of the 2005
Agreement.
 
 On
the balance sheet, the royalty payment received from Red Mile No. 7 is included
in “Royalty Obligations”.  These amounts are treated as debt and bear
interest which is included in interest expense.  Of the indemnity fees
received, $907,000 was deferred and is included in “Deferred Revenue” on the
balance sheet and recognized in income over the life of the 2005
agreement.  The prepaid interest received, $773,000, was deferred and
recorded as income in 2006.
 
 d)In December 2004, the
Company entered into a Royalty Agreement (“2004 Agreement”) with Red Mile
Resources No. 3 Limited Partnership (“Red Mile No. 3”) whereby the Company sold
a “Royalty” on a portion of the gold production at its Seabee operations; this
agreement lasts the shorter of 10 years or the life of the Seabee operations.
The Company received cash of $8,018,000 which included royalty income of
$7,112,000, indemnity fees of $625,000 and prepaid interest of
$281,000.
  Under
the terms of the 2004 Agreement, the Company is required to make Royalty
payments at fixed amounts per ounce of gold produced; these amounts can vary
between CDN $1.00 to $24.53 per ounce over the term of the 2004
Agreement.  In addition, the Company granted Red Mile No. 3 a Net
Profits Interest (NPI) of 2.50%, 3.00% or 4.00% in years 2010 through 2014,
payable only if each day’s price of gold in any of those calendar years is
greater than CDN $800, $900 or $1,200 per ounce, respectively.
 
 $6,982,000
of the cash received was placed with a financial institution; in return, the
Company received a restricted promissory note. The restricted promissory note
earns interest at 6%, payable annually, and matures on December 10,
2014.  Interest and principal from the restricted promissory note will
be sufficient to fund the expected basic royalty payments and any interest
expense.
 
 Under
certain circumstances the Company has the right, by way of a call option, to
acquire the partnership units of Red Mile No. 3, effectively terminating the
2004 Agreement, for the lower of market value or for the outstanding amount of
the restricted promissory note at the end of the tenth year of the 2004
Agreement.
 
 On
the balance sheet, the royalty payment received from Red Mile No. 3 is included
in “Royalty Obligations”.  These amounts are treated as debt and bear
interest which is included in interest expense.  Of the indemnity fees
received, $625,000 was deferred and is included in “Deferred Revenue” on the
balance sheet and recognized in income over the life of the 2004
agreement.  The prepaid interest received, $281,000, was deferred and
recorded as income in 2005.
 
 e)In accordance with AcG 15 -
“Consolidation of Variable Interest Entities” and EIC 157 - “Implicit Variable
Interests under AcG 15”, the Company has determined that these Red Mile Limited
Partnerships are variable interest entities for which the Company holds variable
interests. However, as the Company is not the primary beneficiary under these
arrangements it is not required to consolidate these entities.
 
 14
  The
following supplemental schedules present the effects of the Red Mile Agreements
on the Restricted Promissory Notes, Royalty Obligations, and Deferred Revenue
balances presented on the Company’s balance sheet:
 
 Restricted
Promissory Note Schedule
 
 2007
              
              
              2006Balance,
      beginning of year
              
              $
              55,982
              
              
              $
              20,982Net
      additions
              
              
              25,624
              
              
              
              35,000Balance,
      end of year
              
              $
              81,606
              
              
              $
              55,982
 
 Royalty
Obligation Schedule
 
 2007
              
              
              2006Balance,
      beginning of year
              
              $
              56,496
              
              
              $
              21,112Net
      additions
              
              
              26,283
              
              
              
              35,384Balance,
      end of year
              
              $
              82,779
              
              
              $
              56,496
 
 Schedule
of prepaid interest, indemnification fees and  loan agreement
fees
  2007
              
              
              2006Balance,
      beginning of year
              
              $
              5,455
              
              
              $
              2,243Indemnification
      fees
              
              
              1,355
              
              
              
              436Prepaid
      interest and fees received
              
              
              1,976
              
              
              
              3,764Indemnification
      fee income recognized
              
              
              (189
              )
              
              
              (215
              )Recognition
      of loan fees and prepaid interest
              
              
              (337
              )
              
              
              (773
              )Balance,
      end of year
              
              
              8,260
              
              
              
              5,455Less: current portion (Note
      11)
              
              
              (969
              )
              
              
              (621
              )$
              7,291
              
              
              $
              4,834
 
 Interest
and fees are amortized over the term of the respective agreements utilizing the
effective interest method.
 
 10.
Demand Loans:
 
 The
Company has a $3,500,000 operating line of credit which bears interest at prime
plus 0.75%. These funds are available for general corporate purposes. At
December 31, 2007 and December 31, 2006, the Company had not drawn on the bank
line.
 
 2007
              
              
              2006Demand
      loan, repayable in monthly payments of $96,514 including interest at
      5.99%, due February 2010.
              
              $
              2,348
              
              
              $
              3,300Demand
      loan, repayable in monthly payments of $83,333 plus interest at bank prime
      plus 1.5%, due August 2011
              
              
              3,667
              
              
              
              4,700$
              6,015
              
              
              $
              8,000
 
 The
demand loans are secured by a general security agreement covering all assets of
the Company, excluding oil and gas assets in Alberta.
 
 11.
Other Liabilities:
 
 2007
              
              
              2006Deferred
      revenue (Note 9)
              
              $
              969
              
              
              $
              621Obligations
      under capital lease (Note 12)
              
              
              918
              
              
              
              290$
              1,887
              
              
              $
              911
  15
 
 12.
Obligations under Capital Lease:
 
 Obligations
under capital lease bear interest between 3.3% and 8.0% per annum, are due from
2008 to 2012 and are secured by the leased equipment. The estimated principal
repayments on the leases are as follows:  2008 - $918,000, 2009 -
$806,000, 2010 - $632,000, 2011 - $134,000 and 2012 - $40,000.
 
 13. Asset
Retirement Obligations:
 
 The
Company’s asset retirement obligations consist of reclamation and closure costs
for both mineral and oil & natural gas properties. The present value of
obligations relating to mineral properties is currently estimated at $2,566,000
(2006 - $1,889,000) and was determined using a 7.5% discount rate and expected
payment of future obligations of $5.3 million over the next 6 to 11 years. The
present value of obligations relating to oil & natural gas properties is
currently estimated at $641,000 (2006 - $597,000) and was determined using a
7.5% discount rate and expected payment of future obligations of $1.4 million
over the next 4 to 17 years. An accretion expense component of $187,000 (2006 -
$175,000) has been charged in 2007 to reflect an increase in the carrying amount
of the asset retirement obligations.
 Changes
to the asset retirement obligation during the year are as follows:
 
 
 2007
              
              
              2006Asset
      retirement obligations, beginning
              
              $
              2,486
              
              
              $
              2,311Accretion
      expense
              
              
              187
              
              
              
              175Revisions
      in estimated future cash out flows
              
              
              534
              
              
              
              -Asset
      retirement obligations, ending
              
              $
              3,207
              
              
              $
              2,486
 
 As
required by regulatory authorities, the Company has provided letters of credit
as security for reclamation related to the Madsen and Seabee properties in the
amounts of $658,000 (2006 - $658,000) and $1,619,000 (2006 - $1,483,000),
respectively. As security for these letters of credit, the Company has provided
investment certificates in the amount of $2,277,000 (2006 - $2,181,000). The
Company has also deposited $112,000 (2006 - $89,000) for its reclamation
obligations on certain of its Saskatchewan oil properties.
  2007
              
              
              2006Deposits
      for reclamation costs, beginning
              
              $
              2,270
              
              
              $
              2,097Additions:Mineral
      properties
              
              
              96
              
              
              
              150Saskatchewan
      oil properties
              
              
              23
              
              
              
              23Deposits
      for reclamation costs, ending
              
              $
              2,389
              
              
              $
              2,270
 
 14.
Shareholders’ Equity:
 
 AUTHORIZED
 
 The
authorized share capital of the Company consists of an unlimited number of
common shares and two classes of unlimited preferred shares issuable in
series.
 
 The
first preferred shares are issuable in series and rank ahead of the second
preferred shares and the common shares in respect of dividend payment,
dissolution or any other distribution of assets. The other rights, privileges,
restrictions and conditions attached to each series of the first preferred
shares are fixed by the Board of Directors at the time of creation of such
series.
 
 The
second preferred shares are issuable in series and rank ahead of the common
shares in respect of dividend payment, dissolution or any other distribution of
assets. The other rights, privileges, restrictions and conditions attached to
each series of the second preferred shares are fixed by the Board of Directors
at the time of creation of such series.
 
 The
common shares of the Company are entitled to vote at meetings of the
shareholders and, upon dissolution or any other distribution of assets, to
receive such assets of the Company as are distributable to the holders of the
common shares.
  16
 
 ISSUED
AND OUTSTANDING COMMON SHARES
 
 2007
              
              
              2006Number
              
              
              Amount
              
              
              Number
              
              
              AmountBeginning
      of year
              
              
              76,272,791
              
              
              $
              56,036
              
              
              
              72,461,686
              
              
              $
              53,109ESPP
      (a)
              
              
              122,289
              
              
              
              210
              
              
              
              108,327
              
              
              
              125Exercise
      of stock options (b)
              
              
              270,000
              
              
              
              294
              
              
              
              230,000
              
              
              
              251Exercise
      of warrants (c)
              
              
              2,173,533
              
              
              
              2,799
              
              
              
              139,750
              
              
              
              167Flow-through
      shares (d)
              
              
              -
              
              
              
              -
              
              
              
              3,333,028
              
              
              
              5,500Issue
      costs
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (417
              )Equity
      issue (e)
              
              
              14,375,000
              
              
              
              23,000
              
              
              
              -
              
              
              
              -Issue
      costs
              
              
              -
              
              
              
              (1,560
              )
              
              
              -
              
              
              
              -Flow-through
      shares (f)
              
              
              3,783,784
              
              
              
              7,000
              
              
              
              -
              
              
              
              -Issue
      costs
              
              
              -
              
              
              
              (483
              )
              
              
              -
              
              
              
              -Tax
      effect of flow-through shares
              
              
              -
              
              
              
              (1,705
              )
              
              
              -
              
              
              
              (2,699
              )End
      of year
              
              
              96,997,397
              
              
              $
              85,591
              
              
              
              76,272,791
              
              
              $
              56,036
  (a)
EMPLOYEE SHARE PURCHASE PLAN (“ESPP”)
 
 The
ESPP was established to encourage employees to purchase Company common shares.
Under the plan, eligible employees may contribute up to 5% of their basic annual
salary and the Company shall contribute common shares in an amount equal to 50%
of the employee’s contribution. Shares of the Company are issued to employees
based on a weighted average market price over a specific period. During 2007,
the Company issued 122,289 common shares (2006 - 108,327) for $210,000 (2006 -
$125,000) pursuant to this plan. The maximum number of common shares of the
Company available for issue under this ESPP is 10% of the Company’s common
shares outstanding.
 
 (b)
SHARE OPTION PLAN
 
 The
Company has established a stock option plan under which options may be granted
to directors, officers, key employees and consultants.  The maximum
number of common shares available for option under the stock option plan is 9%
of the Company’s common shares outstanding. Options granted have an exercise
price of the prior day’s closing price of the common shares on the stock
exchange on which the shares are traded. The majority of the options granted
vest over two years and expire 10 years from the date of the grant of the
option.
  For
director and employee options outstanding at December 31, 2007 and 2006,
weighted average exercise prices are as follows:
 
 2007
                  Options
              
              
              Average
                  Price
              
              
              2006
                  Options
              
              
              Average
                  PriceBeginning
      of year
              
              
              3,380,000
              
              
              $
              1.17
              
              
              
              2,755,000
              
              
              $
              1.11Options
      granted
              
              
              925,000
              
              
              
              1.63
              
              
              
              965,000
              
              
              
              1.35Options
      exercised
              
              
              (270,000
              )
              
              
              0.81
              
              
              
              (230,000
              )
              
              
              0.74Options
      lapsed
              
              
              (398,333
              )
              
              
              1.64
              
              
              
              (110,000
              )
              
              
              2.13End
      of year
              
              
              3,636,667
              
              
              $
              1.27
              
              
              
              3,380,000
              
              
              $
              1.17
 
 For
director and employee options outstanding at December 31, 2007, the range of
exercise prices, the weighted average exercise price and the weighted average
remaining contractual life are as follows:
 
 Options
      Price
              
              Weighted
      Average
              
              
              Weighted
      Average Per ShareNumber
              
              
              Exercise
      Price
              
              
              Remaining
      Life$0.53-$0.96
              
              
              741,000
              
              
              $
              0.63
              
              
              
              4.77
      years$1.05-$1.47
              
              
              1,712,333
              
              
              
              1.26
              
              
              
              4.11
      years$1.54-$2.10
              
              
              1,183,334
              
              
              
              1.68
              
              
              
              8.58
      years3,636,667
              
              
              $
              1.27
              
              
              
              5.70
      years
 
 The
fair value of stock options issued in the year was estimated using the
Black-Scholes option pricing model with assumptions of a six year weighted
average expected option life, no expected forfeiture rate, 47% to 60% volatility
(2006 - 60% to 61%) and interest rates ranging from 3.96% to 4.70% (2006 - 3.90%
to 4.20%). In 2007, the fair value and the compensation expense recorded in
respect of stock options issued was $592,000 (2006 - $523,000).
    17
  (c)
EQUITY ISSUE
 
 During
2005, the Company completed a private placement consisting of a total of
4,023,100 units, issued at a price of $1.00 per unit, and a total of 4,547,273
common shares, issued on a flow-through basis at a price of $1.10 per common
share, for gross proceeds of $9,025,000. Each unit consisted of one common share
and one-half of one common share purchase warrant. Each whole purchase warrant
entitled the holder, upon exercise at any time up to and including June 23, 2007
and upon payment of $1.20, to subscribe for one common share. In partial
consideration of services provided to the Company in connection with the
offering, the Underwriters were issued broker options entitling them to purchase
up to an aggregate of 201,155 broker units at any time up to and including June
23, 2007 at a price of $1.10 per broker unit. Each broker unit consisted of one
common share and one-half of a broker warrant. Each whole broker warrant
entitled the holder to subscribe for one common share for a period up to and
including June 23, 2007 at an exercise price of $1.30. With respect to the
flow-through share portion of the private placement, the Company was required to
expend $5,002,000 in qualifying Canadian Exploration Expenses as defined in the
Income Tax Act (Canada) prior to December 31, 2006.
 
 (d)
FLOW-THROUGH SHARES
 
 During
2006, the Company completed a non-brokered private placement consisting of a
total of 3,333,028 common shares, issued on a flow-through basis, at a price of
$1.65 per share, for proceeds of $5,500,000.  With respect to the
flow-through share portion of the private placement, the Company was required to
expend $5,500,000 in qualifying Canadian Exploration Expenses as defined in the
Income Tax Act (Canada) prior to December 31, 2007.
  
 (e)
EQUITY ISSUE
 
 During
2007, the Company completed an equity issue that consisted of a total of
12,500,000 common shares at a price of  $1.60 per share, for proceeds
of $20,000,000.  In addition, the Underwriters of the offering
exercised the over-allotment option to purchase an additional 1,875,000 common
shares a price of $1.60 per share for additional gross proceeds of $3,000,000,
resulting in the aggregate issuance under the offering of 14,375,000 common
shares of the Company for aggregate gross proceeds of $23,000,000.
  (f)
FLOW-THROUGH SHARES
 
 During
2007, the Company completed a non-brokered private placement consisting of a
total of 3,783,784 common shares, issued on a flow-through basis, at a price of
$1.85 per share, for proceeds of $7,000,000.  The Company is required
to expend $7,000,000 in qualifying Canadian Exploration Expenses as defined in
the Income Tax Act (Canada) prior to December 31, 2008. As at December 31, 2007,
$6.0 remains to be expended.
  15.
Interest and Other:
 
 2007
              
              
              2006Interest
      expense
              
              $
              4,228
              
              
              $
              2,011Interest
      and other income
              
              
              (4,341
              )
              
              
              (1,782
              )Interest
      and other
              
              $
              (113
              )
              
              $
              229
 
 
 16.
Loss (Gain) on Sale of Assets:
 
 During
the year, the Company realized nominal losses primarily on the sale of
certain available-for-sale investments.  In 2006, the Company
realized a $4.8 million gain on the sale of certain available-for-sale
investments and a $1.1 million gain on the sale of an exploration
property.
  18
   
 17.
Income Taxes:
 
 The
significant components of future income tax assets at December 31 are as
follows:
 
 2007
              
              
              2006Future
      income tax assets:Mineral
      properties(1)
              
              $
              (369
              )
              
              $
              7,796Non-capital
      loss carryforwards
              
              
              -
              
              
              
              -Asset
      retirement obligations
              
              
              866
              
              
              
              771Share
      issue costs
              
              
              604
              
              
              
              316Royalty
      obligation(1)
              
              
              22,350
              
              
              
              17,515Deferred
      revenue
              
              
              2,230
              
              
              
              1,691Future
      income tax assets before valuation allowance
              
              
              25,681
              
              
              
              28,089Valuation
      allowance
              
              
              (25,681
              )
              
              
              (28,089
              )Future
      income tax assets
              
              $
              -
              
              
              $
              -
 
 
 (1)Reflects
impact of Royalty Agreements and utilization of mineral tax pools as disclosed
in Note 9.
 
 The
provision for income taxes differs from the amount computed by applying the
combined expected federal and provincial income tax rate to earnings before
income taxes. The reasons for these differences are as follows:
 
 2007
              
              
              2006Earnings
      (loss) before income taxes
              
              $
              (8,672
              )
              
              $
              3,723Combined
      federal and provincial tax rate
              
              
              36
              %
              
              
              37
              %Expected tax
      expense (recovery)
              
              
              (3,122
              )
              
              
              1,378Increase
      (decrease) in taxes resulting from:Crown
      royalties
              
              
              -
              
              
              
              256Alberta
      Royalty Tax Credit
              
              
              -
              
              
              
              (125
              )Resource
      allowance
              
              
              -
              
              
              
              (292
              )Other
      permanent differences
              
              
              271
              
              
              
              (658
              )Effect
      of change in effective tax rates
              
              
              4,149
              
              
              
              7,422Valuation
      allowance
              
              
              (3,003
              )
              
              
              (10,680
              )Income
      tax recovery
              
              $
              (1,705
              )
              
              $
              (2,699
              )
 
 18.
Per Share Amounts:
 
 The
calculation of earnings (loss) per share have been calculated based on the
weighted average number of shares outstanding during the year ended December 31,
2007 of 88,295,773 shares (2006 - 73,183,917 shares).
  2007
              
              
              2006Basic
      earnings (loss) per share:Net
      earnings (loss) available to common shareholders
              
              $
              (6,967
              )
              
              $
              6,422Weighted
      average number of common shares outstanding
              
              
              88,296
              
              
              
              73,184Basic
      earnings (loss) per share
              
              $
              (0.08
              )
              
              $
              0.09Diluted
      earnings (loss) per share:Net
      earnings (loss) available to common shareholders
              
              $
              (6,967
              )
              
              $
              6,422Weighted
      average number of common shares outstanding
              
              
              88,296
              
              
              
              74,113Diluted
      earnings (loss) per share
              
              $
              (0.08
              )
              
              $
              0.09
  In
2007, there was no effect of applying the treasury-stock method to the weighted
average number of shares outstanding as the options were
anti-dilutive.
 
 In
2006, the net effect of applying the treasury-stock method to the weighted
average number of shares outstanding included the dilutive effect of 634,000
share options and 295,000 warrants.  Excluded from the computation of
diluted earnings per share were options
outstanding on 675,000 shares with an average exercise price greater than the
average market price of the Company’s common shares.
  19
 
 19.
Financial Instruments:
 
 To
manage risks associated with prices for gold, oil & natural gas and changes
in foreign currency, the Company may use commodity and foreign currency
derivative instruments. Financial assets which are subject to credit risks
include cash and receivables and commodity and currency instruments. The Company
minimizes risks on its financial assets by holding instruments with credit
worthy entities. Sales of commodities are to entities considered to be credit
worthy.
 
 The
carrying amounts of cash and equivalents, receivables, reclamation deposits,
payables and accrued liabilities, and demand loans approximate their fair values
due to their short term nature.
  
  At
December 31, 2007 and 2006, the Company had no outstanding forward gold or
foreign exchange contracts.
 
 20.
Commitment:
 
 To
satisfy its commitment pursuant to the issuance of flow-through shares, the
Company is required to expend $7.0 million of qualifying Canadian Exploration
Expenses as defined in the Income Tax Act (Canada) prior to December 31, 2008.
At December 31, 2007, $6.0 million remains to be expended.
 
 21.
Segmented Information:
 
 The
Company has two reportable industry segments:  (1) gold mining and
exploration and (2) oil, natural gas liquids and natural gas
production.  The Company’s entire asset base is located in
Canada.  The Company’s producing gold operations are the Seabee
and Santory 7 properties, located in northern
Saskatchewan.  Mineral exploration properties are located in
Saskatchewan and Ontario.  The Company’s oil & natural gas assets
are located in Alberta and Saskatchewan.  The accounting policies of
the segments are the same as those described in Note 2 and Note 3.
 
 2007
              
              Gold
              
              
              Oil
      & Natural Gas
              
              
              All
      Others
              
              
              TotalRevenue
              
              $
              29,922
              
              
              $
              9,029
              
              
              $
              -
              
              
              $
              38,951Crown
      royalties
              
              
              -
              
              
              
              (1,720
              )
              
              
              -
              
              
              
              (1,720
              )Alberta
      royalty tax credit
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Overriding
      royalties
              
              
              -
              
              
              
              (4,283
              )
              
              
              -
              
              
              
              (4,283
              )Net
      Revenue
              
              
              29,922
              
              
              
              3,026
              
              
              
              -
              
              
              
              32,948Operating
      expenses
              
              
              25,311
              
              
              
              2,384
              
              
              
              -
              
              
              
              27,695Depreciation,
      depletion and accretion
              
              
              8,308
              
              
              
              968
              
              
              
              -
              
              
              
              9,276Write-down
      of exploration properties
              
              
              583
              
              
              
              -
              
              
              
              -
              
              
              
              583Non-segmented
      loss
              
              
              -
              
              
              
              -
              
              
              
              2,361
              
              
              
              2,361Net
      earnings (loss)
              
              $
              (4,280
              )
              
              $
              (326
              )
              
              $
              (2,361
              )
              
              $
              (6,967
              )Assets
              
              
              93,453
              
              
              
              10,361
              
              
              
              95,620
              
              
              
              199,434Capital
      expenditures for the year
              
              
              32,133
              
              
              
              824
              
              
              
              -
              
              
              
              32,957
   Oil
      &2006
              
              Gold
              
              
              Natural
      Gas
              
              
              All
      Others
              
              
              TotalRevenue
              
              $
              32,495
              
              
              $
              8,893
              
              
              $
              -
              
              
              $
              41,388Crown
      royalties
              
              
              -
              
              
              
              (1,979
              )
              
              
              -
              
              
              
              (1,979
              )Alberta
      royalty tax credit
              
              
              -
              
              
              
              500
              
              
              
              -
              
              
              
              500Overriding
      royalties
              
              
              -
              
              
              
              (4,230
              )
              
              
              -
              
              
              
              (4,230
              )Net
      Revenue
              
              
              32,495
              
              
              
              3,184
              
              
              
              -
              
              
              
              35,679Operating
      expenses
              
              
              21,296
              
              
              
              2,330
              
              
              
              -
              
              
              
              23,626Depreciation,
      depletion and accretion
              
              
              9,968
              
              
              
              729
              
              
              
              -
              
              
              
              10,697Write-down
      of exploration properties
              
              
              155
              
              
              
              -
              
              
              
              -
              
              
              
              155Non-segmented
      income
              
              
              -
              
              
              
              -
              
              
              
              (5,221
              )
              
              
              (5,221
              )Net
      earnings
              
              $
              1,076
              
              
              $
              125
              
              
              $
              5,221
              
              
              $
              6,422Assets
              
              
              66,487
              
              
              
              10,538
              
              
              
              68,692
              
              
              
              145,717Capital
      expenditures for the year
              
              
              20,507
              
              
              
              2,204
              
              
              
              -
              
              
              
              22,711
  20
 
 22.
Comparative Figures:
 
 Certain
prior years’ balances have been reclassified to conform to the current year’s
financial statement presentation.
 
 23.
Subsequent Event:
 
 On
March 13, 2008, the Company announced plans to proceed with a non-brokered, best
efforts debenture offering of up to $20 Million.  The proposed
offering, which is subject to regulatory approval, will feature a 12%, five year
term with monthly interest only payments.  Debenture holders will be
entitled to warrants in the amount of 10% of the debenture purchase (100
warrants per $1,000 of debentures).  Each warrant will entitle the
holder to acquire one common share at the exercise price of $2.00 per common
share for a period of five years from the date of closing.  The
debenture will be secured by a general security agreement covering all the
Company’s assets.  The security interest will be subordinated to all
bank debt.
 
 
 21
 
 
 Josef
Spross
 Chairman
 
 Neil
McMillan
 President
& Chief Executive Officer
 
 Rick
Johnson, CA
 Vice
President Finance & Chief Financial Officer
 
 Philip
Ng, P. Eng
 Vice
President Operations
 
 Ronald
J. Hicks, CA
 Director
 
 Ted
Nieman
 Director
 
 J.
Robert Kowalishin, P.Eng.
 Director
 
 Ray
McKay
 Director
 
 
 
 
 
 Claude
Resources Inc.
 
 (CRJ
- TSX)
 (CGR
- AMEX)
 200,
224 - 4th Avenue South, Saskatoon
 Saskatchewan,
Canada
 S7K
5M5
 306.668.7505
 306.668.7500
Fax
 
 Incorporation
 
 Canada
Business
 Corporations
Act
 
 Capitalization
 and
Listings
 
 96,997,397
 common
shares
 outstanding
 Exempt
issuer under
 SEC
Regulation
 12g3-2(b)
  Transfer
Agent
 
 Valiant
Trust Company
 Calgary,
Canada
 
 22
 
 Auditors
 
 KPMG
LLP
 Saskatoon,
Canada
 
 Solicitors
 
 MacPherson
Leslie & Tyerman
 Saskatoon,
Canada
 
 Bank
 
 Canadian
Western Bank
 Saskatoon,
Canada
 
 The
Annual General Meeting of the shareholders of Claude Resources Inc. will be held
in Saskatoon at the Sheraton Cavalier Hotel at the Top of the Inn at 10:00 a.m.
on Friday, May 9, 2008.
 
 Shareholders
are encouraged to attend. Those unable to attend should complete the form of
proxy included with the Management Information Circular and forward it to
Valiant  Trust Company at the address specified on the form of proxy
for receipt no later than 24 hours before the meeting.
 
 
 
 CLAUDE
RESOURCES INC. 2007 ANNUAL REPORT
 
 Claude
Resources Inc.
 200,
224 - 4th Avenue South
 Saskatoon,
Saskatchewan, Canada, S7K 5M5
 P
306.668.7505  F 306.668.7500
 www.clauderesources.com
 clauderesources@clauderesources.com
   23