Exhibit 4.2


 





 


RUSORO MINING LTD.

Consolidated Financial Statements
 FOR THE YEARS ENDED DECEMBER 31, 2007 AND
2006

(Expressed
in U.S. Dollars)


 

















 





 


	
   

  	
  Grant Thornton LLP
 Suite 1600, Grant Thornton Place

  333 Seymour Street

  Vancouver, BC

  V6B 0A4

   

  T (604) 687-2711

  F (604) 685-6569

  www.GrantThornton.ca

  



 


Report of Independent Registered


Chartered Accounting Firm


 


To the Directors of Rusoro Mining Ltd.:


 


We have audited the consolidated balance
sheets of Rusoro Mining Ltd. as at December 31, 2007 and 2006 and the
consolidated statements of operations and deficit, comprehensive income/loss,
accumulated other comprehensive income and cash flows for each of the years in
the two-year period ended December 31, 2007.  These financial statements are the
responsibility of the Company’s management. 
Our responsibility is to express an opinion on these financial
statements based on our audits.


 


We conducted our audits in accordance with the
standards of the Public Accounting Oversight Board (United States) and Canadian
generally accepted auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. 
The Company is not required to have, nor were we engaged to perform, an
audit of its internal controls over financial reporting.  Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion of the effectiveness of the Company’s internal control over financial
reporting.  Accordingly, we express no
such opinion.  An audit also 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.  We believe that our audits provide a
reasonable basis for our opinion.


 


In our opinion these consolidated financial
statements present fairly, in all material respects, the financial position of
the Company as at December 31, 2007 and 2006 and the results of its
operations and its cash flows for each of the years in the two-year period
ended December 31, 2007 in accordance with Canadian generally accepted
accounting principles.


 


	
  Audit · Tax · Advisory

  
	
  Grant
  Thornton LLP. A Canadian Member of Grant Thornton International Ltd

  



 

















 





 


Canadian generally accepted accounting
principles vary in certain respects from accounting principles generally
accepted in the United States of America. 
Information related to the nature and effect of such differences is
presented in Note 21 to the consolidated financial statements.


 


	
   

  	
   

  	
  /s/ Grant
  Thornton LLP

  
	
  Vancouver,
  Canada

  	
   

  	
  Independent
  Registered

  
	
  May 6,
  2008 except as to Notes 19 and 21

  	
   

  	
  Chartered
  Accounting Firm

  
	
  which are as
  of December 12, 2008

  	
   

  	
   

  



 


	
  Audit · Tax · Advisory

  
	
  Grant
  Thornton LLP. A Canadian Member of Grant Thornton International Ltd

  



 

















 


	
  RUSORO MINING LTD. 

  CONSOLIDATED BALANCE SHEETS 

  AS AT DECEMBER 31, 2007 AND 2006 

  (Expressed in U.S. Dollars)

  	
   

  	
  

  



 


	
   

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
  CURRENT ASSETS

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cash

  	
   

  	
  31,352,166

  	
   

  	
  11,121,109

  	
   

  
	
  Loans and receivables (Note 4)

  	
   

  	
  5,300,231

  	
   

  	
  411,445

  	
   

  
	
  Prepaid expenses and deposits (Notes 5 and
  13)

  	
   

  	
  8,187,746

  	
   

  	
  378,446

  	
   

  
	
  Inventories – gold (Note 6)

  	
   

  	
  7,634,989

  	
   

  	
  96,515

  	
   

  
	
  Inventories – materials

  	
   

  	
  3,089,999

  	
   

  	
  —

  	
   

  
	
  Assets held for sale (Note 22)

  	
   

  	
  855,000

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
  56,420,131

  	
   

  	
  12,007,515

  	
   

  
	
  Property, plant and equipment (Notes 7 and
  13)

  	
   

  	
  758,680,742

  	
   

  	
  3,696,951

  	
   

  
	
  Mineral properties (Notes 8 and 13)

  	
   

  	
  190,287,252

  	
   

  	
  26,822,013

  	
   

  
	
  Loans and receivables - non-current (Note
  4)

  	
   

  	
  1,136,092

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
  1,006,524,217

  	
   

  	
  42,526,479

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  CURRENT LIABILITIES

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Accounts payable and accrued liabilities
  (Note 9)

  	
   

  	
  21,422,340

  	
   

  	
  4,309,023

  	
   

  
	
  Short-term debt (Note 10)

  	
   

  	
  522,375

  	
   

  	
  —

  	
   

  
	
  Loan payable on acquisition (Note 14)

  	
   

  	
  2,500,000

  	
   

  	
  2,500,000

  	
   

  
	
   

  	
   

  	
  24,444,715

  	
   

  	
  6,809,023

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Asset retirement obligation (Note 12)

  	
   

  	
  2,284,178

  	
   

  	
  462,609

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Future income tax liability (Note 16)

  	
   

  	
  276,752,282

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Non-controlling interest (Note 3(b))

  	
   

  	
  —

  	
   

  	
  1,933,583

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SHAREHOLDERS’ EQUITY

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SHARE CAPITAL (Note 11(a))

  	
   

  	
  669,251,552

  	
   

  	
  89,161,949

  	
   

  
	
  CONTRIBUTED SURPLUS (Note 11(g))

  	
   

  	
  91,823,658

  	
   

  	
  7,198,983

  	
   

  
	
  ACCUMULATED OTHER COMPREHENSIVE INCOME

  	
   

  	
  37,251,489

  	
   

  	
  —

  	
   

  
	
  DEFICIT

  	
   

  	
  (95,283,657

  	
  )

  	
  (63,039,668

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  703,043,042

  	
   

  	
  33,321,264

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  1,006,524,217

  	
   

  	
  42,526,479

  	
   

  



 


Nature
of operations - Note 1


Commitments
and contingencies - Note 19


 


	
   

  	
  (See Accompanying Notes)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  APPROVED BY THE DIRECTORS:

  	
   

  	
   

  	
   

  	
   

  
	
  “George Salamis”

  	
  ,  

  	
  Director

  	
   

  	
  “Gordon Keep”

  	
  ,  

  	
  Director

  
	
  George Salamis 

  	
   

  	
   

  	
   

  	
  Gordon Keep

  	
   

  
							



 


1

















 


	
  RUSORO MINING LTD. 

  CONSOLIDATED STATEMENTS OF OPERATIONS AND 

  DEFICIT 

  FOR THE YEARS ENDED DECEMBER 31, 

  (Expressed in U.S. Dollars)

  	
   

  	
  

  



 


	
   

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  REVENUE

  	
   

  	
  3,494,613

  	
   

  	
  —

  	
   

  
	
  Cost of goods sold

  	
   

  	
  (7,282,856

  	
  )

  	
  —

  	
   

  
	
  GROSS LOSS

  	
   

  	
  (3,788,243

  	
  )

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  EXPENSES

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Administration expenses (Notes
  11(h) and 13)

  	
   

  	
  16,465,634

  	
   

  	
  3,731,467

  	
   

  
	
  Amortization

  	
   

  	
  31,823

  	
   

  	
  —

  	
   

  
	
  Asset retirement costs (Note 12)

  	
   

  	
  —

  	
   

  	
  37,462

  	
   

  
	
  Consulting (Notes 11(h) and 13)

  	
   

  	
  7,040,938

  	
   

  	
  155,494

  	
   

  
	
  Foreign exchange loss

  	
   

  	
  525,836

  	
   

  	
  4,032,987

  	
   

  
	
  Interest expense (income) (Note 13)

  	
   

  	
  (2,509,613

  	
  )

  	
  8,236,982

  	
   

  
	
  Professional fees (Note 13)

  	
   

  	
  1,682,806

  	
   

  	
  1,030,858

  	
   

  
	
  Salaries (Notes 11(h) and 13)

  	
   

  	
  1,915,948

  	
   

  	
  182,791

  	
   

  
	
  Stock-based compensation on reverse
  take-over (Note 3(a))

  	
   

  	
  —

  	
   

  	
  7,825,924

  	
   

  
	
  Donations

  	
   

  	
  1,149,484

  	
   

  	
  —

  	
   

  
	
  Transfer agent and filing fees

  	
   

  	
  118,009

  	
   

  	
  41,954

  	
   

  
	
  Travel and entertainment expenses (Note 13)

  	
   

  	
  3,706,515

  	
   

  	
  823,570

  	
   

  
	
   

  	
   

  	
  30,127,380

  	
   

  	
  26,099,489

  	
   

  
	
  Loss before undernoted

  	
   

  	
  (33,915,623

  	
  )

  	
  (26,099,489

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  OTHER EXPENSES (INCOME)

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Impairment of mineral properties (Note 8)

  	
   

  	
  289,743

  	
   

  	
  10,293,409

  	
   

  
	
  Other expense (income)

  	
   

  	
  127,091

  	
   

  	
  (407,085

  	
  )

  
	
  Loss on disposal of marketable securities
  and investments

  	
   

  	
  113,496

  	
   

  	
  3,695

  	
   

  
	
   

  	
   

  	
  530,330

  	
   

  	
  9,890,019

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  LOSS BEFORE INCOME TAXES AND
  DISCONTINUED OPERATIONS

  	
   

  	
  (34,445,953

  	
  )

  	
  (35,989,508

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Income tax recovery (Note 16)

  	
   

  	
  2,201,964

  	
   

  	
  —

  	
   

  
	
  Loss on discontinued operations (Note 18)

  	
   

  	
  —

  	
   

  	
  (1,507,426

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  NET LOSS

  	
   

  	
  (32,243,989

  	
  )

  	
  (37,496,934

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  DEFICIT

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Beginning of year

  	
   

  	
  (63,039,668

  	
  )

  	
  (25,542,734

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  End of year

  	
   

  	
  (95,283,657

  	
  )

  	
  (63,039,668

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  BASIC AND DILUTED LOSS PER
  SHARE

  	
   

  	
  (0.20

  	
  )

  	
  (2.01

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  WEIGHTED AVERAGE NUMBER OF
  SHARES OUTSTANDING

  	
   

  	
  161,105,435

  	
   

  	
  18,609,760

  	
   

  



 


2

















 


	
  RUSORO MINING LTD.

  FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006

  (Expressed in U.S. Dollars)

  	
  

  



 


CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME


 


	
   

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  NET LOSS

  	
   

  	
  (32,243,989

  	
  )

  	
  (37,496,934

  	
  )

  
	
  Unrealized foreign exchange gains and
  losses on translating self-sustaining foreign operations 

  	
   

  	
  37,251,489 

  	
   

  	
  — 

  	
   

  
	
  COMPREHENSIVE INCOME

  	
   

  	
  5,007,500

  	
   

  	
  (37,496,934

  	
  )

  



 


CONSOLIDATED STATEMENTS OF ACCUMULATED OTHER
COMPREHENSIVE INCOME


 


	
   

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  BALANCE – BEGINNING OF YEAR

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Unrealized foreign exchange gains and
  losses on translating self-sustaining foreign operations 

  	
   

  	
  37,251,489 

  	
   

  	
  — 

  	
   

  
	
  BALANCE – END OF YEAR

  	
   

  	
  37,251,489

  	
   

  	
  —

  	
   

  



 


3














 


	
  RUSORO
  MINING LTD. 

  CONSOLIDATED STATEMENTS OF CASH FLOWS 

  FOR THE YEARS ENDED DECEMBER 31, 

  (Expressed in U.S. Dollars)

  	
   

  	
  

  



 


	
   

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
  OPERATING
  ACTIVITIES

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Net loss for the year

  	
   

  	
  (32,243,989

  	
  )

  	
  (35,989,508

  	
  )

  
	
  Item not involving cash

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Amortization

  	
   

  	
  31,283

  	
   

  	
  —

  	
   

  
	
  Asset retirement costs

  	
   

  	
  —

  	
   

  	
  37,462

  	
   

  
	
  Stock based compensation
  (Note 11(h))

  	
   

  	
  16,826,115

  	
   

  	
  7,825,924

  	
   

  
	
  Impairment of mineral
  properties (Note 8)

  	
   

  	
  289,743

  	
   

  	
  10,293,409

  	
   

  
	
  Loss on disposal of assets

  	
   

  	
  113,496

  	
   

  	
  3,695

  	
   

  
	
  Future Income Taxes

  	
   

  	
  (2,201,964

  	
  )

  	
  —

  	
   

  
	
   

  	
   

  	
  (17,185,316

  	
  )

  	
  (17,829,018

  	
  )

  
	
  Changes in non-cash working
  capital items

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Inventories

  	
   

  	
  (691,889

  	
  )

  	
  3,987

  	
   

  
	
  Receivables

  	
   

  	
  (709,245

  	
  )

  	
  290,593

  	
   

  
	
  Prepaids

  	
   

  	
  (4,291,567

  	
  )

  	
  57,598

  	
   

  
	
  Assets held for sale

  	
   

  	
  (855,000

  	
  )

  	
  —

  	
   

  
	
  Accounts payables

  	
   

  	
  348,094

  	
   

  	
  3,039,786

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cash used in continuing
  operations

  	
   

  	
  (23,384,923

  	
  )

  	
  (14,437,054

  	
  )

  
	
  Cash used in discontinued
  operations

  	
   

  	
  —

  	
   

  	
  (1,193,964

  	
  )

  
	
   

  	
   

  	
  (23,384,923

  	
  )

  	
  (15,631,018

  	
  )

  
	
  FINANCING
  ACTIVITIES

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Proceeds from private placement

  	
   

  	
  225,000,000

  	
   

  	
  35,000,000

  	
   

  
	
  Cash acquired in Mena and
  Goldfields transactions

  	
   

  	
  60,418,601

  	
   

  	
  —

  	
   

  
	
  Share issue costs

  	
   

  	
  (13,799,022

  	
  )

  	
  (2,475,427

  	
  )

  
	
  Repayment of short-term
  borrowings

  	
   

  	
  (2,352,857

  	
  )

  	
  —

  	
   

  
	
  Cash received upon the
  exercising of share warrants

  	
   

  	
  514,940

  	
   

  	
  —

  	
   

  
	
  Cash received upon the
  exercising of stock options

  	
   

  	
  248,584

  	
   

  	
  —

  	
   

  
	
  Advances from related parties

  	
   

  	
  973,333

  	
   

  	
  71,568

  	
   

  
	
  Advances from shareholders

  	
   

  	
  —

  	
   

  	
  12,744,539

  	
   

  
	
  Cancellation of shares

  	
   

  	
  —

  	
   

  	
  (10,000,000

  	
  )

  
	
  Loan payment (Note 14)

  	
   

  	
  —

  	
   

  	
  (2,500,000

  	
  )

  
	
   

  	
   

  	
  271,003,579

  	
   

  	
  32,840,680

  	
   

  
	
  INVESTING
  ACTIVITIES

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cash paid to acquire
  Goldfields

  	
   

  	
  (205,523,442

  	
  )

  	
  —

  	
   

  
	
  Mineral property costs

  	
   

  	
  (11,456,746

  	
  )

  	
  (6,112,954

  	
  )

  
	
  Purchase of property, plant
  and equipment

  	
   

  	
  (10,963,761

  	
  )

  	
  (148,872

  	
  )

  
	
  Advances from related
  companies

  	
   

  	
  20,526

  	
   

  	
  97,613

  	
   

  
	
  Proceeds from sale of
  marketable securities and long term investments

  	
   

  	
  306,023

  	
   

  	
  —

  	
   

  
	
  Collection of collateral loan

  	
   

  	
  300,000

  	
   

  	
  —

  	
   

  
	
  Acquisition costs for Mena

  	
   

  	
  (70,199

  	
  )

  	
  —

  	
   

  
	
   

  	
   

  	
  (227,387,599

  	
  )

  	
  (6,164,213

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  INCREASE
  IN CASH

  	
   

  	
  20,231,057

  	
   

  	
  11,045,449

  	
   

  
	
  Cash - beginning of year

  	
   

  	
  11,121,109

  	
   

  	
  75,660

  	
   

  
	
  CASH
  – END OF YEAR

  	
   

  	
  31,352,166

  	
   

  	
  11,121,109

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Supplemental
  cash flow information

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Interest paid

  	
   

  	
  —

  	
   

  	
  8,236,982

  	
   

  
	
  Taxes paid

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Non-cash
  investing and financing transactions (Note 15)

  	
   

  	
   

  	
   

  	
   

  	
   

  



 


4


 

















 


	
  RUSORO MINING LTD.

  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  For the Years Ended December 31, 2007 and 2006 

  (Expressed in U.S. Dollars)

  	
  

  



 


1.             NATURE OF OPERATIONS


 


Rusoro Mining Ltd (“Rusoro”
or “The Company”) was incorporated under the laws of the Province of British
Columbia on March 1, 2000 under the name “Hollingfield Capital
Corporation”.  The Corporation changed
its name to “PKI Innovations (Canada) Inc.” on August 10, 2001. Prior to September 30,
2006, the Company had no business activities, but since then has entered into
transactions whereby its business has become the exploration and development of
mineral properties in Venezuela.


 


The Venezuelan
subsidiaries of the Company have received mining concessions for the
exploration, development, and exploitation of alluvial and vein gold and
diamonds.  The concessions have been
granted by the Ministry of Energy and Mines or by Corporación Venezolana de
Guayana (“CVG”), maturing in 20 to 25 years, with some concessions extendable
for subsequent periods of 10 years.


 


Promotora Minera de Guayana (“PMG”) owns an operating mine with
proven reserves (see Note 3(c)). Rusoro indirectly owns 95% of PMG with the
remaining 5% owned by Ferromineria Orinoco, CA, which is owned by CVG.


 


The Company continues
to explore its other mineral properties and has not yet determined whether the
properties contain reserves that are economically recoverable.  The recoverability of the capitalized costs
associated with these non-producing exploratory mineral properties is dependent
upon the existence of economically recoverable reserves, continuation of the
Company’s interest in the underlying mineral claims, the ability of the Company
to obtain the necessary exploitation permits on mining properties and obtaining
financing to complete their development and upon future profitable production
or disposition thereof.


 


Local and
international political and economic conditions, such as variations in the
price of gold, inflation, fluctuations in the exchange rate or the exchange
control, exploitation controls and local political-economic developments can
have a significant effect on the financial results of the Company’s operations.


 


2.             SIGNIFICANT ACCOUNTING
POLICIES


 


Basis
of Accounting and Consolidation


 


These consolidated
financial statements are prepared in accordance with Canadian Generally
Accepted Accounting Principles (“GAAP”). 
Summarized below are those policies considered particularly significant
to the Company.  References to the
Company included herein are inclusive of the accounts of the parent company and
its consolidated subsidiaries.  All intercompany
transactions and balances have been eliminated.


 


The Company presents
its financial statements in U.S. dollars as the majority of its activities are
denominated in U.S. dollars.


 


Use
of Estimates


 


The preparation of
financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the recorded amount of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements, as well as the reported amounts of revenue and
expenses incurred during the periods. 
Specific areas requiring the use of estimates include the determination
of depletion of reserves, amortization provisions for plant and equipment, the
estimated asset retirement obligations and the input variables used to
calculate stock-based compensation, future tax asset valuation allowance,
termination benefits and asset retirement obligations.  Actual results could differ from these
estimates.


 


5

















 


	
  RUSORO MINING
  LTD.

  Notes to Consolidated Financial Statements

  For the Years Ended December 31, 2007 and 2006

  Expressed in U.S. Dollars

  	
  

  



 


Translation
of Foreign Subsidiaries


 


The Company uses both
the current and temporal methods for the translation of the accounts of
subsidiaries.


 


The operations
acquired in November 2007 (Note 3(c)) are self sustaining and its main
economic operating environment is the Venezuelan market and its functional
currency is the Venezuelan Bolivar. 
Substantially all revenues as well as costs, expenses and investments,
are denominated in Venezuelan bolivars and have been translated into United
States dollars using the current rate method. Any foreign exchange gains or
losses arising upon translation are recognized on the balance sheet as a
component of accumulated other comprehensive income.


 


The remaining
subsidiaries (which are considered to be integrated foreign operations) have
been translated into United States dollars using the temporal method. Under
this method, monetary assets and liabilities are translated into United States
dollars at the exchange rate in effect at the end of the fiscal year while
non-monetary assets and liabilities are translated using the exchange rate in
effect on the date of such transaction. Income and expenses are translated at
average exchange rates for the month except for depreciation and amortization,
which are translated using the same rates as the related assets. Foreign
exchange gains and losses on translation are included in the consolidated
statement of operations.


 


Translation
of Foreign Currency Transactions and Balances


 


The Company
translates monetary assets and liabilities that are denominated in foreign
currencies at the rate of exchange in effect at the balance sheet date and
non-monetary assets and liabilities at historical exchange rates. Income and
expenses are translated at average rates in the month except for depreciation
and amortization, which are translated using the same rates as the related
assets. Foreign exchange gains and losses on monetary items are recorded on the
statement of operations.


 


Cash
and Cash Equivalents


 


Cash and cash
equivalents include highly liquid investments with original maturities of three
months or less.


 


Property,
Plant and Equipment


 


Plant and equipment
are recorded at cost less accumulated amortization and are amortized on a
straight-line basis over their estimated useful lives as follows:


 


	
  Facilities

  	
   

  	
  20-25 years

  	
   

  
	
  Machinery

  	
   

  	
  5 years

  	
   

  
	
  Furniture and equipment

  	
   

  	
  5 years

  	
   

  
	
  Vehicles

  	
   

  	
  4-5 years

  	
   

  
	
  Leasehold improvements

  	
   

  	
  Term of the lease

  	
   

  



 


Mineral
Properties


 


The Company defers
the cost of acquiring, maintaining its interest in, exploring, and developing
mineral properties until such time as the properties are placed into
production, abandoned, sold, or considered to be impaired in value.  Costs of producing properties will be
amortized on a unit of production basis and costs of abandoned properties are
written-off.  Proceeds received on the
sale of interests in mineral properties are credited to the carrying value of
the mineral properties, with any excess included in operations.  Write-downs due to impairment in value are
charged to operations.


 


The Company is in the
process of exploring and developing certain of its mineral properties and has
not yet determined the amount of reserves available.  Management reviews the carrying value of
mineral properties on a periodic basis and will recognize impairment in value
based upon current exploration results, the prospect of further work being
carried out by the Company, management assessment of the 


 


6

















 


	
  RUSORO MINING LTD.

  Notes to Consolidated Financial Statements

  For the Years Ended December 31, 2007 and 2006 

  Expressed in U.S. Dollars

  	
  

  



 


likelihood of
achieving profitable operations from the exploitation of the property or from
the sale of the property.  Amounts shown
for properties represent costs incurred net of write-downs and recoveries, and
are not intended to represent present or future values.


 


Environmental
expenditures that relate to current operations are expensed or capitalized as
appropriate.  Expenditures that relate to
an existing condition caused by past operations and which do not contribute to
current or future revenue generation are expensed.  Liabilities are recorded when environmental
assessments and/or remedial efforts are probable, and the costs can be
reasonably estimated.  Generally, the
timing of these accruals coincides with the earlier of completion of a
feasibility study or the Company’s commitment to a plan of action based on the
then known facts.


 


In order for
production to occur on mining properties under development, the Company must
first obtain an exploitation permit on such properties. Exploitation permits
are subject to the approval of the Venezuelan Government and Government
Controlled entities. There can be no assurance that such permits will be
obtained on properties under development.


 


Stripping
Costs


 


Stripping costs
associated with the removal of overburden and other mine waste materials that
are incurred in the production phase of mining operations are included in the
cost of inventory produced in the period in which they are incurred, except
when the charges represent a betterment to the mineral property. Charges
represent a betterment to the mineral property when the stripping activity
provides access to reserves that will be produced in future periods that would
not have been accessible without the stripping activity. When charges are
deferred in relation to a betterment, the charges are amortized over the
reserve accessed by the stripping activity using the unit of production method.


 


Inventories


 


Gold bars and gold in
process are stated at the lower of average production cost, which includes all
direct and indirect costs, including amortization of equipment and facilities
and net realizable value.


 


Materials inventory
is recorded at the lower of average cost and net realizable value.


 


Accrual
for Termination Benefits


 


The Venezuelan
subsidiaries accrue liabilities for their workers’ termination benefits, which
are payable when the working relationship between the employer and an employee
comes to a close,.  Termination benefits
are an acquired right of the worker based on the provisions of the Organic
Labour Law (“OLL”) and the collective bargaining agreements currently in
effect.  The OLL and the collective
bargaining agreement also call for additional benefits that are applicable
under certain circumstances and the Company, based on its experience, has
recorded an additional accrual for such liabilities.


 


The Law provides for
an additional indemnity for unjustified dismissals or involountary termination
of 30 days salary for each year of service and a maximum of 150 days of current
salary.


 


In the event of
involuntary termination, the Law provides for an additional indemnity of of up
to 90 days of current salary based on length of service. Accruals for these
amounts are included in accounts payable and accrued liabilities.


 


Future
Income Taxes


 


Income taxes are
accounted for under the asset and liability method.  Future tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carry forwards.  Future tax assets and liabilities are
measured using 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 tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.  Future
tax assets are reduced by a valuation allowance to the extent that the
recoverability of the asset is not considered to be more likely than not.


 


7

















 


	
  RUSORO MINING LTD.

  Notes to Consolidated Financial Statements

  For the Years Ended December 31, 2007 and 2006 

  Expressed in U.S. Dollars

  	
  

  



 


The Company’s
subsidiaries are mainly located in Venezuela and are therefore subject to the laws
and regulations of that country with respect to income taxation matters.  These laws and regulations differ from those
in Canada.


 


Revenue
Recognition


 


Revenue from mining
operations are recognized upon shipment of gold, when title has passed to the customer,
when persuasive evidence of an arrangement exists and collection of the sale
proceeds is reasonably assured.


 


Asset
Retirement Obligation


 


The Company
recognizes the estimated liability associated with an asset retirement
obligation (“ARO”) in the financial statements at the time the asset is
acquired and the liability is incurred. 
The estimated present value of the ARO liability is recorded as a
long-term liability, with a corresponding increase in the carrying amount of
the related asset.  The capitalized
amount is amortized over the useful life of the asset.  The liability amount is increased each
reporting period due to the passage of time and the amount of accretion is
charged to earnings in the period.  The
liability is also adjusted for changes in the estimates of timing of cash flows
or changes in the original estimated undiscounted cost.  Actual costs incurred upon settlement of the
ARO are charged against the ARO to the extent of the liability recorded.


 


Impairment
of Long-lived Assets


 


The Company assesses
the recoverability of its long-lived assets by determining whether the carrying
value of the long-lived assets can be recovered over their remaining lives
through undiscounted future operating cash flows.  In the event that future recoverability is
not supported, the amount of impairment, if any, is measured based on projected
discounted future operating cash flows using a discount rate reflecting the
company’s average cost of funds.  If the
discounted value of the future cash flows is less than the carrying amount of
the asset, impairment is recognized.


 


Share
Capital


 


Capital stock issued
for other than cash is valued at the price at which the stock traded on the
principal stock exchange on which the stock trades at the time the agreement to
issue the stock is made or, if such issuance is at the option of the Company,
at the time the Company determines to issue such stock.


 


Stock-based
Compensation


 


The Company records
stock-based compensation for consultants and employees using a fair value-based
method.  The Company recognizes
stock-based compensation expense on a straight line basis over the requisite
service period which is generally the vesting period. Consideration received on
the exercise of stock options and compensation options and warrants is recorded
as share capital and the related contributed surplus originally recognized when
the options were vested, is transferred to share capital.


 


Loss
per Share


 


When there is a loss
for the period, basic loss per share (“LPS”) is calculated by dividing the net
loss applicable to common shareholders by the weighted average number of common
shares outstanding for the year. 
Outstanding warrants and options are excluded from the calculation of
diluted LPS, as they are anti-dilutive.


 


Change
in Accounting Policies


 


Effective January 1,
2007, the Company adopted the Canadian Institute of Chartered Accountants (“CICA”)
Handbook Section 1530: Comprehensive Income, CICA Handbook Section 3251,
Equity, CICA Handbook Section 3855, Financial Instruments – Recognition
and Measurement, CICA Handbook Section 3861, Financial Instruments –
Disclosure and Presentation and CICA Handbook Section 3865, Hedges.  These new Handbook Sections, which apply to
fiscal years beginning on or after October 1, 


 


8

















 


	
  RUSORO MINING LTD.

  Notes to Consolidated Financial Statements

  For the Years Ended December 31, 2007 and 2006 

  Expressed in U.S. Dollars

  	
  

  



 


2006, provide
standards for recognition, measurement, disclosure and presentation of
financial assets, financial liabilities, derivatives, and hedge accounting.


 


Handbook Section 1530,
Comprehensive Income, establishes standards for reporting and displaying
Comprehensive Income, Comprehensive Income is defined as the change in equity
from transactions and other events from non-owner sources.  Other comprehensive income refers to items
recognized in comprehensive income but that are excluded from net income
calculated in accordance with Canadian generally accepted accounting principles.


 


Handbook Section 3251,
Equity, establishes standards for the presentation of equity in the reporting
period.


 


Handbook Section 3855,
Financial Instruments – Recognition and Measurement, establishes standards for
recognizing and measuring financial instruments, namely financial assets,
financial liabilities and derivatives. 
It requires that financial instruments be classified into one of the
following five categories: held for trading, held-to-maturity investments,
loans and receivables, available-for-sale financial assets or other financial
liabilities.  Subsequent measurement and
recognition of changes in the fair value of financial instruments depends on
their initial classifications.


 


The Company has
implemented the following classifications:


 


·      Cash and cash equivalents are classified as held for trading and are
measured at fair value.


 


·      Accounts receivable are classified as loans and receivables and are
measured at amortized costs.


 


·      Accounts payable, accrued liabilities and loan payable on acquisition
are classified as other financial liabilities and are recorded at amortized
costs.


 


Handbook Section 3861,
Financial Instruments – Disclosures and Presentation, establishes standards for
presentation of financial instruments, namely financial assets, financial
liabilities and derivatives.


 


Handbook Section 3865,
Hedges, specifies how to apply hedge accounting and the needed disclosures when
it is applied.


 


The adoption of the
foregoing new standards had no impact on the Company’s financial position or
results of operations.


 


Recent
Pronouncements in Accounting Standards


 


	
  a)

  	
  Handbook Section 1400, General
  Standards of Financial Presentation, was amended to include the requirements
  for assessing and disclosing an entity’s ability to continue as a going
  concern. The amendment is based upon International Accounting Standard IAS1,
  Presentation of Financial Statements.

  
	
   

  	
   

  
	
   

  	
  This section is applicable to interim and
  annual financial reporting statements relating to fiscal years beginning on
  or after January 1, 2008 with earlier adoption encouraged. The Company
  will adopt this section in fiscal 2008 but this will not have an impact on
  the financial statement disclosures as the Company is currently complying
  with this requirement.

  
	
   

  	
   

  
	
  b)

  	
  Handbook Section 1535, Capital
  Disclosures, requires disclosures about capital and is harmonized with
  recently amended International Accounting Standard IAS1. The standard is
  applicable to all entities, regardless of whether or not that they have
  financial instruments.

  
	
   

  	
   

  
	
   

  	
  Entities are required to disclose
  information about their objectives, policies and processes for managing
  capital as well as their compliance with any externally imposed capital
  requirements, where they may exist.

  
	
   

  	
   

  
	
   

  	
  This section is applicable to interim and
  annual financial statements relating to fiscal years beginning on or after
  October 1, 2007 with earlier adoption encouraged. The Company will adopt
  this section in 

  



 


9

















 


	
  RUSORO MINING LTD.

  Notes to Consolidated Financial Statements

  For the Years Ended December 31, 2007 and 2006 

  Expressed in U.S. Dollars

  	
  

  



 


	
   

  	
  fiscal 2008. 

  
	
   

  	
   

  
	
   

  	
  The Company
  is currently investigating the impact that this section will have on the
  Company’s disclosures. The impact is currently not known.

  
	
   

  	
   

  
	
  c)

  	
  Handbook Section 3031, Inventories,
  replaces Handbook Section 3030, Inventories and provides Canadian
  equivalent to International Accounting Standard IAS2, Inventories.

  
	
   

  	
   

  
	
   

  	
  This section provides guidance on the
  determination of cost and requires the allocation of overheads and other
  costs to inventory, allocation of fixed production overhead based on normal
  capacity levels, with unallocated overhead expensed as incurred. The section
  requires the consistent use (by type of inventory with similar nature and
  use) of either first-in, first-out (FIFO) or weighted average cost formula to
  measure the cost of other inventories. The use of the last-in, first-out
  (LIFO) formula to measure the cost of inventories is no longer acceptable.
  Under this section, when the circumstances that previously caused inventories
  to be written down below cost no longer exist or where there is clear
  evidence of an increase in net realizable value because of changed economic
  circumstances, the amount of the write-down is reversed, but the reversal is
  limited to the amount of the original write-down. This section also includes
  expanded disclosure requirements.

  
	
   

  	
   

  
	
   

  	
  This section is applicable to interim and
  annual financial reporting statements relating to fiscal years beginning on
  or after January 1, 2008. When applying the section for the first time,
  an entity can either apply this section to the opening inventory for the
  period and adjusts opening retained earnings by the difference in the
  measurement of opening inventory (prior periods are not restated) or apply
  the section retrospectively and restates prior periods in accordance with
  Handbook Section 1506, Accounting Changes. The Company will adopt this
  section in fiscal 2008.

  
	
   

  	
   

  
	
   

  	
  The Company is currently investigating the
  impact that this section will have on the Company’s financial position and
  results of operations. The impact is currently not known.

  
	
   

  	
   

  
	
  d)

  	
  Handbook Section 3064, Goodwill and
  Intangible Assets, replaces Handbook Sections 3062, Goodwill and Other Intangible
  Assets and 3450, Research and Development costs.

  
	
   

  	
   

  
	
   

  	
  This section establishes standards for the
  recognition, measurement, presentation, and disclosure of goodwill and
  intangible assets. Certain items are specifically excluded from the scope of the
  Section including the initial recognition, measurement and disclosure of
  goodwill and intangible assets acquired in a business combination, the
  establishment of a new cost basis for intangible assets as part of a
  comprehensive revaluation, intangible assets held by an entity for sale in
  the ordinary course of business, non-current intangible assets classified as
  held for sale or included in a disposal group that is classified as held for
  sale, etc.

  
	
   

  	
   

  
	
   

  	
  This section is applied to interim and
  annual financial statements relating to fiscal years beginning on or after
  October 1, 2008. Earlier adoption is encouraged. The Company will adopt
  this Section in fiscal 2009.

  
	
   

  	
   

  
	
   

  	
  The Company is currently investigating the
  impact that this section will have on the Company’s financial position and
  results of operations. The impact is currently not known.

  
	
   

  	
   

  
	
  e)

  	
  Handbook Section 3862, Financial
  Instruments – Disclosures

  
	
   

  	
   

  
	
   

  	
  Section 3862 replaces the disclosure
  requirements of previous Section 3861 Financial Instruments – Disclosure
  and Presentation and converges with International Financial Reporting
  Standard IFRS7, Financial Instruments – Disclosures. This
  Section applies to interim and annual financial reporting statements
  relating to fiscal years beginning on or after October 1, 2007. The
  Company will adopt this Section in fiscal 2008. 

  
	
   

  	
   

  
	
   

  	
  The Company is currently investigating the
  impact that this section will have on the Company’s disclosures. The impact
  is currently not known.

  



 


10

















 


	
  RUSORO MINING LTD.

  Notes to Consolidated Financial Statements

  For the Years Ended December 31, 2007 and 2006 

  Expressed in U.S. Dollars

  	
  

  



 


	
  f)

  	
  Handbook Section 3863, Financial
  Instruments – Presentation

  
	
   

  	
   

  
	
   

  	
  Section 3863 is consistent with
  previous Section 3861, which was based on International Financial
  Reporting Standard IFRS7. This section applies to interim and annual
  financial reporting statements relating to fiscal years beginning on or after
  October 1, 2007. 

  
	
   

  	
   

  
	
   

  	
  The Company will adopt this section in
  fiscal 2008. The Company is currently investigating the impact that this
  section will have on the Company’s financial position and results of
  operations. The impact is currently not known.

  



 


3.             ACQUISITIONS


 


(a)           Grupo Agapov Corp.


 


On November 7,
2006, the Company acquired all of the issued and outstanding securities of
Grupo Agapov Corp. (“Grupo Agapov”) in consideration for the issuance of
108,333,334 Rusoro shares to the shareholders of Grupo Agapov.  Rusoro also issued 5,833,336 share purchase
warrants in exchange for 5,833,336 share purchase warrants of Grupo Agapov upon
the transaction.  As part of the
acquisition, Rusoro also issued 10,000,000 performance warrants, 1,200,000
Rusoro shares as a finders fee and 210,000 Rusoro shares in settlement of debt
of approximately $512,811.  Also upon the
close of the transaction, stock options were granted entitling directors,
officers, employees, and consultants of Rusoro to purchase up to 7,105,000 Rusoro
shares.  These options were accounted for
at fair value using the Black-Scholes option pricing model.  The options have a life of 10 years and vest
over periods ranging from 6 months to 2 years. 
The total value of these options has been calculated as $7,825,924.


 


As a result of the November 7,
2006 transaction, the shareholders of Grupo Agapov became the owners of the
majority amount of the issued and outstanding common shares of the
Company.  Since the principals of Grupo
Agapov acquired effective control of the Company, the acquisition was accounted
for as a reverse takeover that does not constitute a business combination.  In accordance with EIC-10, “Reverse takeover”
accounting, Grupo Agapov was considered the acquiring company for accounting
purposes and the transaction was accounted for as an issuance of shares by
Grupo Agapov with a recapitalization of the consolidated entity.


 


The net assets of the
Company at the acquisition date were as follows:


 


	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Cash

  	
   

  	
  151,138

  	
   

  
	
  Other current assets

  	
   

  	
  5,843

  	
   

  
	
  Liabilities

  	
   

  	
  (56,001

  	
  )

  
	
   

  	
   

  	
  100,980

  	
   

  



 


In conjunction with
the Company’s acquisition of Grupo Agapov, Grupo Agapov changed its name to
Rusoro Mining (Panama) Inc., and completed a $35,000,000 equity financing and
issued a total of 11,666,667 common shares at a price of US$3.00 per share.  Each unit consisted of one share of Rusoro
Mining (Panama) Inc. and one-half a share purchase warrant, with each whole
warrant entitling the holder to purchase one share of Rusoro Mining (Panama)
Inc. for a two-year period at a price of $3.55 per share.  Of the proceeds, $10,000,000 was used to
purchase 3,333,333 shares from existing shareholders.  The remaining shares were exchanged into
shares of the Company on a one-for-one basis.


 


11

















 


	
  RUSORO MINING LTD.

  Notes to Consolidated Financial Statements

  For the Years Ended December 31, 2007 and 2006 

  Expressed in U.S. Dollars

  	
  

  



 


(b)           Mena Resources Inc.


 


Effective March 5,
2007, the Company acquired all of the issued and outstanding securities of Mena
Resources Inc. (“Mena”) in consideration of issuing a total of 31,424,255
common shares to the Mena shareholders, one common share of the Company was
issued for every 1.7 issued and outstanding Mena common shares.  In
addition, fully vested share purchase warrants and incentive stock options that
were outstanding in Mena were converted to 9,580,912 warrants and 744,118
options in the Company.  Mena holds
properties in Venezuela, Honduras, and Chile. 
As a result of the transaction, Mena became a wholly owned subsidiary of
the Company. The non-controlling interest in the subsidiary was eliminated and
Mena’s shares were de-listed from the TSX Venture Exchange.


 


Prior to this
acquisition Mena had a 24% interest in Balandria Ltd which wholly owned four
Venezuelan entities. The remaining 76% interest was owned indirectly by the
Company.


 


Immediately prior to
the closing of the Mena Acquisition, Mena completed a brokered private
placement, which provided net proceeds of CDN$67,750,810.


 


This transaction has
been accounted for as an asset purchase. 
The consideration paid has been allocated to the acquired assets based
on their fair value at the date of acquisition. 
The consolidated financial statements of the Company include the
operating results of Mena Resources Inc. commencing on the date of its
acquisition.


 


The allocation of the
purchase price is summarized below:


 


	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Cash

  	
   

  	
  57,706,229

  	
   

  
	
  Other current assets

  	
   

  	
  143,042

  	
   

  
	
  Mineral properties

  	
   

  	
  76,905,021

  	
   

  
	
  Plant and equipment

  	
   

  	
  15,788

  	
   

  
	
  Marketable securities

  	
   

  	
  106,712

  	
   

  
	
  Long-term investments

  	
   

  	
  112,323

  	
   

  
	
  Liabilities

  	
   

  	
  (157,717

  	
  )

  
	
  Future income tax liabilities

  	
   

  	
  (23,313,595

  	
  )

  
	
   

  	
   

  	
  111,517,803

  	
   

  



 


	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Consideration 31,424,255 shares issued @
  $3.05

  	
   

  	
  95,781,321

  	
   

  
	
  Fair value of options and warrants

  	
   

  	
  15,666,283

  	
   

  
	
  Acquisition costs

  	
   

  	
  70,199

  	
   

  
	
   

  	
   

  	
  111,517,803

  	
   

  



 


(c)           Gold Fields Netherlands Services BV


 


Effective November 30,
2007, the Company acquired all the Venezuelan assets and liabilities of Gold
Fields Netherlands Services BV (“GF Netherlands”), a company existing under the
law of the Netherlands and a wholly owned subsidiary of Gold Fields Limited (“Gold
Fields”) for consideration of $180 million in cash and the issuance of a total
of 140,000,000 common shares. This 100% ownership is subject to the claim on a
subsidiary of GF Netherlands as discussed below.


 


This transaction has
been accounted for as a business combination using the purchase method with the
Company identified as the acquiror.


 


12

















 


	
  RUSORO MINING LTD.

  Notes to Consolidated Financial Statements

  For the Years Ended December 31, 2007 and 2006 

  Expressed in U.S. Dollars

  	
  

  



 


The allocation of the
purchase price is summarized below:


 


	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Cash

  	
   

  	
  2,712,372

  	
   

  
	
  Inventories - gold

  	
   

  	
  1,390,462

  	
   

  
	
  Inventories - gold in process

  	
   

  	
  3,101,227

  	
   

  
	
  Inventories – stockpile

  	
   

  	
  5,165,080

  	
   

  
	
  Other current assets

  	
   

  	
  10,034,586

  	
   

  
	
  Mineral properties

  	
   

  	
  68,408,016

  	
   

  
	
  Property, plant and equipment

  	
   

  	
  702,834,974

  	
   

  
	
  Other long-term assets

  	
   

  	
  47,787

  	
   

  
	
  Current liabilities

  	
   

  	
  (17,885,421

  	
  )

  
	
  Other long-term liabilities

  	
   

  	
  (2,134,397

  	
  )

  
	
  Future income tax liabilities

  	
   

  	
  (244,475,368

  	
  )

  
	
   

  	
   

  	
  529,199,318

  	
   

  



 


	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Cash

  	
   

  	
  180,000,000

  	
   

  
	
  Consideration 140,000,000 shares issued @
  $2.31

  	
   

  	
  323,400,000

  	
   

  
	
  Acquisition costs (Notes 13 and 19(b)(ii))

  	
   

  	
  25,799,318

  	
   

  
	
   

  	
   

  	
  529,199,318

  	
   

  



 


In 1998, GF
Netherlands’ Venezuelan subsidiary Protomotora Minera de Venezuela, C.A. (“PMV”)
entered into an arrangement with CVG Ferrominera del Orinoco C.A. (“FMO”), a
state-owned company, wherein PMV would participate jointly in the development
of mining activities in Venezuela with FMO; PMV taking a 70% equity interest
and FMO taking a 30% equity interest in Protomotora Minera de Guayana (“PMG”).


 


In 2004, a shareholders’ meeting of PMG
was held.  PMV unilaterally increased PMG’s
capital by partially capitalizing the development costs previously disbursed by
PMV, therefore diluting the capital interest of FMO from 30% to 0.2%.


 


FMO disagreed with the resolution and
commenced a legal procedure to revoke this decision.  A meeting was held on June 14, 2005
between FMO and PMV and through negotiations, PMV agreed to pay $6 million to a
Venezuelan government ministry (Ministry of Basic Industries and Mining – “MIBAM”)
in exchange for an incremental 25% equity interest in PMG and a provisional
permit to produce 500 kg of gold until MIBAM issued the exploitation permit to
PMG.


 


PMV has paid $5
million of the $6 million agreed to under the foregoing 2005 agreement and the
Company and its legal counsel believe that this provides sufficient legal basis
to assert the ownership right of Rusoro over 95% of the equity of PMG. In order
to complete its commitments under the 2005 agreement, however, the Company’s
legal counsel believes the following steps need to be completed:


 


1.     MIBAM must deliver in writing to
PMV the transfer instructions and PMV must pay the last instalment of $1
million.


 


2.     PMV, FMO and PMG must hold a
shareholders meeting of PMG with the purpose of granting FMO an undilutable 5%
freely transferable equity interest in PMG.


 


Once
the foregoing steps are completed and FMO has formally abandoned any legal
action brought against PMV, the original joint venture agreement must be
terminated.


 


13

















 


	
  RUSORO MINING LTD.

  Notes to Consolidated Financial Statements

  For the Years Ended December 31, 2007 and 2006 

  Expressed in U.S. Dollars

  	
  

  



 


The acquisition of
the Venezuelan assets and liabilities of GF Netherlands has been accounted for
on the basis that Rusoro has acquired these net assets with a 5% indilutable
equity interest in PMG owned by the Venezuelan government. In management’s
opinion there is minimal likelihood that the Company will not be successful in
completing the foregoing steps. The final $1 million payment to be made in
connection with the 2005 arrangement (which remains outstanding) has been
accrued in the financial statements of the business acquired (see also Note
19(b)(ii)).


 


4.             LOANS AND RECEIVABLES


 


	
   

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (a) VAT receivable

  	
   

  	
  5,370,621

  	
   

  	
  —

  	
   

  
	
  (b) Other receivables

  	
   

  	
  1,014,456

  	
   

  	
  39,673

  	
   

  
	
  (c) Advances to related companies

  	
   

  	
  51,246

  	
   

  	
  71,772

  	
   

  
	
  (d) Loans

  	
   

  	
  —

  	
   

  	
  300,000

  	
   

  
	
   

  	
   

  	
  6,436,323

  	
   

  	
  411,445

  	
   

  
	
  (e) Non-current VAT receivable

  	
   

  	
  (1,136,092

  	
  )

  	
  —

  	
   

  
	
  Current loans and receivables

  	
   

  	
  5,300,231

  	
   

  	
  411,445

  	
   

  



 






(a) VAT
receivable relates to Value Added Taxes paid in Venezuela that are recoverable
from the requisite authorities. Some of these VAT receivables can be sold to
third parties at a slight discount and the remaining can be reclaimed when
production of gold commences which is anticipated to be before the end of 2008.


 


(b)
Other receivables consists of GST receivable, sundry receivables and employee
advances


 


(c) Advances
to related companies represents amounts owed to the Company by companies which
are controlled by senior management. The amounts are unsecured, non-interest
bearing and will be collected in the normal course of business, within the next
12 months.


 


(d) Included
in loans at December 31, 2006, was $300,000 advanced during 2006 to an
unrelated party as collateral for a loan of BVS 900,000,000 ($419,000) which
was advanced to Mineria MS, C.A. from Minera Hecla Venezuela.  On February 15, 2007, the Company was
reimbursed the $300,000 collateral.


 


(e) Included
in long-term VAT receivable are VAT receivables that management estimates will
not be able to be claimed for at least 12 months from the balance sheet date.


 


5.             PREPAIDS AND DEPOSITS


 


	
   

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (a) Prepaid expenses

  	
   

  	
  6,916,406

  	
   

  	
  378,446

  	
   

  
	
  (b) Deposits

  	
   

  	
  1,271,340

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
  8,187,746

  	
   

  	
  378,446

  	
   

  



 






(a) Included
in prepaids at December 31, 2007 is $3,739,427 (2006: $374,799) related to
advances to suppliers for goods and services to be provided at a later date.


 


(b)
Deposits includes amounts paid in advance for trucks destined for Venezuela.


 


14














 


	
  RUSORO MINING LTD.

  	
  

  
	
  Notes to Consolidated Financial Statements

  
	
  For the Years Ended December 31, 2007 and 2006

  
	
  Expressed in U.S. Dollars

  



 


6.             INVENTORIES - GOLD


 


	
   

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Gold bars

  	
   

  	
  4,288,801

  	
   

  	
  56,129

  	
   

  
	
  Gold in
  process

  	
   

  	
  1,944,753

  	
   

  	
  40,386

  	
   

  
	
  Gold -
  stockpile

  	
   

  	
  1,401,435

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
  7,634,989

  	
   

  	
  96,515

  	
   

  



 


7.             PROPERTY, PLANT AND EQUIPMENT


 


	
   

  	
   

  	
  2007

  $

  	
   

  
	
   

  	
   

  	
  Cost

  	
   

  	
  Accumulated

  Amortization

  and Depletion

  	
   

  	
  Net Book Value

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Facilities

  	
   

  	
  694,392,653

  	
   

  	
  (4,014,961

  	
  )

  	
  690,377,692

  	
   

  
	
  Machinery

  	
   

  	
  61,211,025

  	
   

  	
  (3,081,238

  	
  )

  	
  58,129,787

  	
   

  
	
  Furniture and equipment

  	
   

  	
  6,991,869

  	
   

  	
  (1,229,498

  	
  )

  	
  5,762,371

  	
   

  
	
  Vehicles

  	
   

  	
  1,973,257

  	
   

  	
  (445,473

  	
  )

  	
  1,527,784

  	
   

  
	
  Leasehold improvements

  	
   

  	
  78,263

  	
   

  	
  (7,684

  	
  )

  	
  70,579

  	
   

  
	
  Construction in progress

  	
   

  	
  2,812,530

  	
   

  	
  —

  	
   

  	
  2,812,530

  	
   

  
	
   

  	
   

  	
  767,459,597

  	
   

  	
  (8,778,854

  	
  )

  	
  758,680,743

  	
   

  



 


	
   

  	
   

  	
  2006

  $

  	
   

  
	
   

  	
   

  	
  Cost

  	
   

  	
  Accumulated

  Amortization

  and Depletion

  	
   

  	
  Net Book Value

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Facilities

  	
   

  	
  4,057,659

  	
   

  	
  (1,165,621

  	
  )

  	
  2,892,038

  	
   

  
	
  Machinery

  	
   

  	
  914,139

  	
   

  	
  (680,093

  	
  )

  	
  234,046

  	
   

  
	
  Furniture and equipment

  	
   

  	
  36,612

  	
   

  	
  (31,253

  	
  )

  	
  5,359

  	
   

  
	
  Vehicles

  	
   

  	
  207,289

  	
   

  	
  (145,823

  	
  )

  	
  61,466

  	
   

  
	
  Construction in progress

  	
   

  	
  504,042

  	
   

  	
  —

  	
   

  	
  504,042

  	
   

  
	
   

  	
   

  	
  5,719,741

  	
   

  	
  (2,022,790

  	
  )

  	
  3,696,951

  	
   

  



 


Construction
in Progress


 


The Company has
commenced construction of a production facility to process gold material.  Construction in progress includes the cost of
materials, construction labour, machinery, and equipment.  Upon completion, such costs will be amortized
over the plant’s estimated useful life.


 


The net book values
associated with the Company’s only operating property are as follows:


 


	
   

  	
   

  	
   

  	
   

  	
  Mineral Interests

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Depletable

  	
   

  	
  Non-Depletable

  	
   

  	
  Total

  	
   

  	
  Facilities

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Choco 10

  	
   

  	
  24,737,653

  	
   

  	
  640,859,204

  	
   

  	
  665,596,857

  	
   

  	
  24,780,835

  	
   

  	
  690,377,692

  	
   

  	
  —

  	
   

  



 


 


15

















 


	
  RUSORO MINING LTD.

  	
  

  
	
  Notes to Consolidated Financial Statements

  
	
  For the Years Ended December 31, 2007 and 2006

  
	
  Expressed in U.S. Dollars

  



 


8.             MINERAL PROPERTIES


 


	
   

  	
   

  	
  El Dorado

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  San Rafael

  El Placer

  	
   

  	
  Emilia

  	
   

  	
  CEIBA II

  	
   

  	
  Valle

  Hondo

  	
   

  	
  Increible 6

  	
   

  	
  Atlantida

  	
   

  	
  Minoro

  	
   

  	
  El Callao

  	
   

  	
  Other

  Properties

  	
   

  	
  Total

  	
   

  
	
   

  	
   

  	
  $000’s

  	
   

  	
  $000’s

  	
   

  	
  $000’s

  	
   

  	
  $000’s

  	
   

  	
  $000’s

  	
   

  	
  $000’s

  	
   

  	
  $000’s

  	
   

  	
  $000’s

  	
   

  	
  $000’s

  	
   

  	
  $000’s

  	
   

  
	
  Balance,
  Dec 31, 2005

  	
   

  	
  11,138

  	
   

  	
  1,006

  	
   

  	
  1,160

  	
   

  	
  828

  	
   

  	
  2,579

  	
   

  	
  10,169

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  2,805

  	
   

  	
  29,685

  	
   

  
	
  Acquisition
  and holding costs

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  233

  	
   

  	
  233

  	
   

  
	
  Exploration
  costs

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Camp,
  equipment and geological fees

  	
   

  	
  —

  	
   

  	
  933

  	
   

  	
  —

  	
   

  	
  146

  	
   

  	
  978

  	
   

  	
  8

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  158

  	
   

  	
  2,223

  	
   

  
	
  Drilling
  and assays

  	
   

  	
  1,178

  	
   

  	
  1,168

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  2,629

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  4,975

  	
   

  
	
   

  	
   

  	
  1,178

  	
   

  	
  2,101

  	
   

  	
  —

  	
   

  	
  146

  	
   

  	
  3,607

  	
   

  	
  8

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  158

  	
   

  	
  7,198

  	
   

  
	
  Writedown
  of mineral properties

  	
   

  	
  —

  	
   

  	
  (11

  	
  )

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  (10,177

  	
  )

  	
  —

  	
   

  	
  —

  	
   

  	
  (106

  	
  )

  	
  (10,294

  	
  )

  
	
  Balance,
  Dec 31, 2006

  	
   

  	
  12,316

  	
   

  	
  3,096

  	
   

  	
  1,160

  	
   

  	
  974

  	
   

  	
  6,186

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  3,090

  	
   

  	
  26,822

  	
   

  
	
  Acquisition
  of Mena properties

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  18,807

  	
   

  	
  39,319

  	
   

  	
  —

  	
   

  	
  15,215

  	
   

  	
  —

  	
   

  	
  3,564

  	
   

  	
  76,905

  	
   

  
	
  Acquisition
  of Goldfields properties

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  68,408

  	
   

  	
  —

  	
   

  	
  68,408

  	
   

  
	
  Foreign
  exchange gain

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  4,629

  	
   

  	
   

  	
   

  	
  4,629

  	
   

  
	
  Exploration
  costs

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Camp,
  equipment and geological fees

  	
   

  	
  2,520

  	
   

  	
  334

  	
   

  	
  —

  	
   

  	
  506

  	
   

  	
  3,667

  	
   

  	
  —

  	
   

  	
  44

  	
   

  	
  253

  	
   

  	
  236

  	
   

  	
  7,560

  	
   

  
	
  Drilling
  and assays

  	
   

  	
  2,134

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  65

  	
   

  	
  4,748

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  111

  	
   

  	
  7,058

  	
   

  
	
   

  	
   

  	
  4,654

  	
   

  	
  334

  	
   

  	
  0

  	
   

  	
  571

  	
   

  	
  8,415

  	
   

  	
  —

  	
   

  	
  44

  	
   

  	
  253

  	
   

  	
  347

  	
   

  	
  14,618

  	
   

  
	
  Reclassified
  to assets held for sale

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  (805

  	
  )

  	
  (805

  	
  )

  
	
  Write-down
  of mineral properties

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  (290

  	
  )

  	
  (290

  	
  )

  
	
  Balance,
  Dec 31, 2007

  	
   

  	
  16,970

  	
   

  	
  3,430

  	
   

  	
  1,160

  	
   

  	
  20,352

  	
   

  	
  53,920

  	
   

  	
  —

  	
   

  	
  15,259

  	
   

  	
  73,290

  	
   

  	
  5,906

  	
   

  	
  190,287

  	
   

  



 


The Company holds the
mineral rights of a group of projects in Bolivar State, southern Venezuela
totalling approximately 99,000 hectares. 
The Projects are located within a regional belt 200 km long and 50 km
wide, which includes, from north to south: El Callao, El Dorado, Cuyuni, and
Km88 mining districts.


 


El Dorado


 


The Company’s mineral
titles in the El Dorado district are comprised of Emilia, Emilia II, El Placer,
San Rafael, Ceiba, and others.  This
block of claims has a history of past gold production and contains the company’s
Emilia mill.


 


The existing Emilia
mill, which has been on care and maintenance since September 2006, is
located in the central portion of the El Dorado project.


 


During 2007, the
permitting process was completed and three permits have been recently
authorized for the continued exploration, development and future start-up of
gold production for the El Dorado projects (San Rafael/El Placer/Emilia).


 


Exploration during
2007 primarily consisted of 82,613 metres of drilling directed at a number of
targets.


 


Valle Hondo


 


The 13,000 hectare
Valle Hondo Project is located 40 km east of the Company’s Emilia mill.  During 2007, the Company drilled a total of
2,461 metres in 16 different holes on the Arenales Anomaly.


 


Significant upgrades
were completed to 45 km of access roads.


 


16

















 


	
  RUSORO MINING LTD.

  	
  

  
	
  Notes to Consolidated Financial Statements

  
	
  For the Years Ended December 31, 2007 and 2006

  
	
  Expressed in U.S. Dollars

  



 


Increíble 6


 


The Increíble 6
project is located in the El Callao Gold District, 10 km northeast of the Choco
mill.  Previous work at Increíble 6,
including geochemistry, geophysics trenching, and drilling has outlined a
series of gold targets.  The main gold
zones (Culebra, Cristina, Elisa, and Olga) are contained within a 4.5 km
long and 1.0 km wide east-west trending shear zone, which crosses the central
portion of the project.  A total of
111,965 metres of additional drilling was completed in 2007.


 


Additional work in
2007 in support of the drilling activities included rock sampling,
metallurgical testing, thin section analyses, surveying, construction of a
field camp and office, and upgrading of access.


 


Minoro


 


The Minoro project is
located in Honduras and covers 10,000 hectares. 
No field work was completed during 2007.


 


El Callao


 


The
El Callao project consists of ten titles covering 41,644 hectares, seven of
these titles; Choco 1, 2, 6, 9, 12 and 13 are located within the central
portion of the El Callao district with the remaining three titles; Bochinche
Zero, 1 and 2) located 40 km to the north-east.


 


Exploration during 2007 consisted of geological mapping and geochemical
sampling designed to prioritize existing anomalous zones that had been outlined
by previous work. A series of target areas were identified and several
subsequently tested by drilling 12 diamond drill holes totaling 1,421 metres.


 


Atlantida


 


The Atlantida project
is located 30 km north-east of Emilia. The project covers 4,975 hectares.
During 2006, the Company decided not to pursue further exploration work on this
project and all previously accumulated costs were written down (Note 19(b)(i)).


 


Km88


 


During 2006, the
Company acquired the Oro88 concessions, which are located in the Km88 district,
from a significant shareholder and director of the Company (Note 13).  The acquisition of these concessions has been
recorded at their cost to the related party transferor ($232,652).  The Company agreed to pay $5,000,000 for the
Oro88 concessions and as such, the $232,652 cost of the concessions has been
recorded as other acquisition costs with the balance of $4,767,348 recorded as
a reduction to contributed surplus.


 


At December 31,
2007, $2,500,000 of this $5,000,000 remained unpaid (Note 14).


 


The Km88 project is
an 18,000 hectare block of mineral titles located in the Km88 district
approximately 95 km south of the Emilia mill.  Exploration drilling was completed on the
northern portion of this project during 2007. A total of 2,074 metres were
drilled in 11 diamond drill holes to further investigate a series of surface
targets. Further drilling work is expected to be performed in 2008.


 


Other Bolivar State Projects


 


At the Trinidad
project, field work including data compilation, soil and rock sampling and
trenching, has outlined five anomalous zones. 
During 2007, drilling was performed on a series of surface gold
anomalies and data compilation, target selection and drilling was also
performed on the Increíble 14 project.


 


Honduras


 


In Honduras, the
Company holds the mineral rights to the 10,000 hectare Minoro project.  No field work was completed on this project
during 2007.


 


17

















 


	
  RUSORO MINING LTD.

  	
  

  
	
  Notes to Consolidated Financial Statements

  
	
  For the Years Ended December 31, 2007 and 2006

  
	
  Expressed in U.S. Dollars

  



 


9.             ACCOUNTS PAYABLE AND ACCRUED LIABILITIES


 


	
   

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Accounts payable

  	
   

  	
  16,306,773

  	
   

  	
  1,972,104

  	
   

  
	
  Accrued liabilities

  	
   

  	
  3,557,558

  	
   

  	
  1,692,617

  	
   

  
	
  Due to related parties

  	
   

  	
  1,044,901

  	
   

  	
  71,568

  	
   

  
	
  Accual for termination benefits

  	
   

  	
  513,108

  	
   

  	
  572,734

  	
   

  
	
   

  	
   

  	
  21,422,340

  	
   

  	
  4,309,023

  	
   

  



 


The amounts due to related parties are due on demand, bear no interest
and are owed to companies with directors in common.


 


10.          SHORT TERM DEBT


 


The short-term debt represents bank borrowing by the operating mine to
fund a temporary shortfall in working capital. The debt was unsecured and
attracted an interest rate of 15%.


 


The outstanding debt was fully repaid on January 19, 2008.


 


18

















 


	
  RUSORO MINING LTD.

  	
  

  
	
  Notes to Consolidated Financial Statements

  
	
  For the Years Ended December 31, 2007 and 2006

  
	
  Expressed in U.S. Dollars

  



 


11.          SHARE CAPITAL


 


Authorized Share Capital of Rusoro


 


Unlimited number of
common shares.


 


(a)           Issued Capital


 


	
   

  	
   

  	
  Number of

  Shares

  	
   

  	
  Amount

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Balance, December 31,
  2005 – Rusoro

  	
   

  	
  2,112,529

  	
   

  	
  2,036,844

  	
   

  
	
  Warrant exercise

  	
   

  	
  420,000

  	
   

  	
  154,000

  	
   

  
	
  Consolidation 0.6 for 1

  	
   

  	
  (845,012

  	
  )

  	
  —

  	
   

  
	
  Balance immediately prior to
  acquisition by Grupo Agopov

  	
   

  	
  1,687,517

  	
   

  	
  2,190,844

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Balance, December 31,
  2005 – Grupo Agapov

  	
   

  	
  105

  	
   

  	
  10,500

  	
   

  
	
  Share split (Note 11(b))

  	
   

  	
  104,895

  	
   

  	
  —

  	
   

  
	
  Debt settlement (Note 11(b))

  	
   

  	
  99,895,000

  	
   

  	
  66,114,065

  	
   

  
	
  Private placement

  	
   

  	
  11,666,667

  	
   

  	
  35,000,000

  	
   

  
	
  Shares repurchased

  	
   

  	
  (3,333,333

  	
  )

  	
  (10,000,000

  	
  )

  
	
  Share issue costs

  	
   

  	
  —

  	
   

  	
  (2,324,289

  	
  )

  
	
  Balance immediately prior to
  acquisition of Rusoro Mining Ltd.

  	
   

  	
  108,333,334

  	
   

  	
  88,800,276

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Rusoro Mining Ltd.

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Opening balance, per above

  	
   

  	
  1,687,517

  	
   

  	
  88,800,276

  	
   

  
	
  Finders fee (Note 11(c))

  	
   

  	
  1,200,000

  	
   

  	
  —

  	
   

  
	
  For debt

  	
   

  	
  210,000

  	
   

  	
  512,811

  	
   

  
	
  For acquisition

  	
   

  	
  108,333,334

  	
   

  	
  —

  	
   

  
	
  Share issue costs post acquisition

  	
   

  	
  —

  	
   

  	
  (151,138

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Balance, December 31,
  2006

  	
   

  	
  111,430,851

  	
   

  	
  89,161,949

  	
   

  
	
  Mena acquisition (Note 3(b))

  	
   

  	
  31,424,255

  	
   

  	
  95,781,321

  	
   

  
	
  Issued pursuant to exercise of stock
  options

  	
   

  	
  212,940

  	
   

  	
  248,584

  	
   

  
	
  Issued pursuant to exercise of warrants

  	
   

  	
  10,017,060

  	
   

  	
  514,940

  	
   

  
	
  Fair value of options exercised

  	
   

  	
  —

  	
   

  	
  450,875

  	
   

  
	
  Fair value of warrants exercised

  	
   

  	
  —

  	
   

  	
  37,886

  	
   

  
	
  Private placement (Note 11(e))

  	
   

  	
  93,750,000

  	
   

  	
  173,455,019

  	
   

  
	
  Gold Fields acquisition (Notes
  3(c) and 11(f))

  	
   

  	
  140,000,000

  	
   

  	
  323,400,000

  	
   

  
	
  Share issue costs

  	
   

  	
  —

  	
   

  	
  (13,799,022

  	
  )

  
	
  Balance, December 31,
  2007

  	
   

  	
  386,835,106

  	
   

  	
  669,251,552

  	
   

  



 


(b)           Stock Split and Settlement of Debt


 


During 2006, Grupo
Agapov replaced 105 outstanding shares with 105,000 shares with a nominal value
of $0.10 per share, and issued 99,895,000 shares to settle $66,114,065 of debt
owing to certain shareholders.  The
shareholders settled the balance of the debt owing in July 2006.


 


(c)           Acquisition by Grupo Agopov


 


On November 7,
2006, the Company completed its business combination with Grupo Agapov together
with a share consolidation on the basis of 0.6 post-consolidation common share
for one pre-consolidation common share. 
There were 1,200,000 shares issued for a finders fee which has been
recorded as a 


 


19

















 


	
  RUSORO MINING LTD.

  	
  

  
	
  Notes to Consolidated Financial Statements

  
	
  For the Years Ended December 31, 2007 and 2006

  
	
  Expressed in U.S. Dollars

  



 


charge to operations,
210,000 shares issued to settle debt on amount owing to New Dawn Ltd. (a former
shareholder of the Company) and there were 108,333,334 post consolidation
common shares issued in exchange for all of the issued and outstanding shares
of Rusoro Mining (Panama) Inc (formerly “Grupo Agapov”).  In addition, the Company issued 10,000,000
performance warrants executable at $0.05 per share for two years.  Share capital has been retroactively restated
to reflect the share consolidation.


 


(d)           Acquisition of Mena Resources Inc.


 


On March 5, 2007
the Company acquired all of the issued and outstanding securities of Mena
Resources Inc. (“Mena”), (Note 3(b)), in consideration of issuing a total of
31,424,255 common shares to the Mena shareholders, one common share of the
Company issued for every 1.7 issued and outstanding Mena common shares. 
In addition, the fully vested share purchase warrants and incentive stock
options, which were outstanding in Mena, were converted to 9,580,912 warrants
and 744,118 options in the Company.


 


The total fair value of the warrants and options
granted was estimated using the Black-Scholes option pricing model and resulted
in the following amounts:


 


	
   

  	
   

  	
  Warrants

  	
   

  	
  Options

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total fair value

  	
   

  	
  $14,000,722

  	
   

  	
  $1,665,561

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Assumptions

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Dividend yield

  	
   

  	
  0%

  	
   

  	
  0%

  	
   

  
	
  Annualized volatility

  	
   

  	
  62%-69%

  	
   

  	
  62%

  	
   

  
	
  Risk-free interest rate

  	
   

  	
  3.88%-4.23%

  	
   

  	
  3.88%

  	
   

  
	
  Expected life (years)

  	
   

  	
  1-5

  	
   

  	
  1-4

  	
   

  
	
  Grant Date Fair Value

  	
   

  	
  $1.02-$5.25

  	
   

  	
  $1.23-$2.48

  	
   

  



 


(e)           Private Placement


 


Prior to the Gold
Fields acquisition, the Company effected a private placement transaction which consisted
of the issuance of 93,750,000 units whereby each unit consisted of one common
share and one common share purchase warrant and raised gross funds of
CDN$225,000,000.  In connection with the
private placement, the Company paid cash of $13,500,000 to a third party as
compensation for sourcing the investment funds. 
Each warrant issued entitles the holder to purchase one common share of
the Company at an exercise price of CDN$4.00 until November 30, 2012.


 


(f)            Gold Fields Acquisition


 


On November 30, 2007,
the Company acquired 100% of the Venezuelan interests of Gold Fields Limited (“Gold
Fields”), (Note 3(c)), the consideration for this transaction consisted of
$180,000,000 cash plus the issuance of a total of 140,000,000 common shares
with a fair value of $2.31 per share. 
Subsequent to this transaction Gold Fields holds approximately 36.7% of
the Company’s shares.  Gold Fields has
agreed that it will not sell any of its shares until August 2008 and has
agreed to restrictions on resales after that time in order to maintain an
orderly market.


 


20














 


	
  RUSORO MINING LTD.

  	
  

  
	
  Notes to Consolidated Financial Statements

  
	
  For the Years Ended December 31, 2007 and 2006

  
	
  Expressed in U.S. Dollars

  



 


(g)           Contributed Surplus


 


	
   

  	
   

  	
  Amount

  	
   

  
	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Balance, December 31,
  2005

  	
   

  	
  4,449,500

  	
   

  
	
  Elimination of equity on acquisition

  	
   

  	
  (309,094

  	
  )

  
	
  Oro88 acquisition (Note 8)

  	
   

  	
  (4,767,347

  	
  )

  
	
  Stock based compensation

  	
   

  	
  7,825,924

  	
   

  
	
  Balance, December 31,
  2006

  	
   

  	
  7,198,983

  	
   

  
	
  Fair value of the stock options and
  warrants issued In conjunction with the Mena acquisition (Note 3(b))

  	
   

  	
  15,666,283

  	
   

  
	
  Reclassification to common shares on
  conversion of stock options

  	
   

  	
  (450,875

  	
  )

  
	
  Reclassification to common shares on
  conversion of warrants

  	
   

  	
  (37,886

  	
  )

  
	
  Fair value of the warrants issued in
  conjunction with the private placement (Note 11(e))

  	
   

  	
  51,544,980

  	
   

  
	
  Stock based compensation

  	
   

  	
  17,902,173

  	
   

  
	
  Balance, December 31,
  2007

  	
   

  	
  91,823,658

  	
   

  



 


(h)           Stock Options


 


The Company has a stock option plan for its directors, officers,
consultants and key employees under which the Company may grant options to acquire
a maximum number of common shares equal to 10% of the total issued and
outstanding common shares of the Company. 
Options are non-transferable and may have a term of up to 10 years from
the date of issue.  Vesting terms,
conditions and exercise price (market price at time of grant) are determined by
the board of directors at the time of grant.


 


The following stock
options were outstanding at December 31, 2007:


 


	
  Number of

  Options

  Outstanding

  	
   

  	
  Exercise Price 

  	
   

  	
   

  	
   

  	
  Expiry

  Date

  	
   

  	
  Number of

  Options

  Exercisable

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  38,236

  	
   

  	
  1.02

  	
   

  	
  CDN

  	
   

  	
  Nov 26, 2008

  	
   

  	
  38,236

  	
   

  
	
  17,647

  	
   

  	
  0.85

  	
   

  	
  CDN

  	
   

  	
  Oct 13, 2009

  	
   

  	
  17,647

  	
   

  
	
  350,000

  	
   

  	
  2.30

  	
   

  	
  CDN

  	
   

  	
  Oct 28, 2009

  	
   

  	
  —

  	
   

  
	
  334,117

  	
   

  	
  1.05

  	
   

  	
  CDN

  	
   

  	
  Dec 7, 2009

  	
   

  	
  334,117

  	
   

  
	
  47,060

  	
   

  	
  1.11

  	
   

  	
  CDN

  	
   

  	
  Mar 7, 2011

  	
   

  	
  47,060

  	
   

  
	
  94,118

  	
   

  	
  1.70

  	
   

  	
  CDN

  	
   

  	
  Apr 5, 2011

  	
   

  	
  94,118

  	
   

  
	
  7,105,000

  	
   

  	
  3.00

  	
   

  	
  USD

  	
   

  	
  Nov 6, 2016

  	
   

  	
  5,113,333

  	
   

  
	
  6,770,000

  	
   

  	
  2.12

  	
   

  	
  CDN

  	
   

  	
  Sept 10, 2017

  	
   

  	
  2,625,000

  	
   

  
	
  3,785,000

  	
   

  	
  2.30

  	
   

  	
  CDN

  	
   

  	
  Oct 28, 2017

  	
   

  	
  3,045,000

  	
   

  
	
  18,541,178

  	
   

  	
  2.62

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  11,314,511

  	
   

  



 


The weighted average
grant-date fair value of options granted during the year was $1.68.


 


21

















 


	
  RUSORO MINING LTD.

  	
  

  
	
  Notes to Consolidated Financial Statements

  
	
  For the Years Ended December 31, 2007 and 2006

  
	
  Expressed in U.S. Dollars

  



 


Stock option transactions are summarized as follows:


 


	
   

  	
   

  	
  Number of

  Options

  	
   

  	
  Weighted Average

  Exercise Price

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Outstanding,
  December 31, 2005

  	
   

  	
  22,372

  	
   

  	
  0.75

  	
   

  
	
  Issued

  	
   

  	
  7,455,000

  	
   

  	
  3.39

  	
   

  
	
  Forfeited

  	
   

  	
  (22,372

  	
  )

  	
  0.75

  	
   

  
	
  Outstanding,
  December 31, 2006

  	
   

  	
  7,455,000

  	
   

  	
  3.39

  	
   

  
	
  Exercised

  	
   

  	
  (212,940

  	
  )

  	
  1.29

  	
   

  
	
  Issued

  	
   

  	
  11,299,118

  	
   

  	
  2.08

  	
   

  
	
  Outstanding,
  December 31, 2007

  	
   

  	
  18,541,178

  	
   

  	
  2.62

  	
   

  



 


The total fair value of the options granted for the periods presented
was estimated using the Black-Scholes option pricing model and resulted in the
following amounts:


 


	
   

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total fair value of options granted during
  the year

  	
   

  	
  $19,004,061

  	
   

  	
  $17,739,393

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Assumptions

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Dividend yield

  	
   

  	
  0%

  	
   

  	
  0%

  	
   

  
	
  Annualized volatility

  	
   

  	
  56%-62%

  	
   

  	
  61%

  	
   

  
	
  Risk-free interest rate

  	
   

  	
  3.88%-4.33%

  	
   

  	
  3.97%-4.05%

  	
   

  
	
  Expected life (years)

  	
   

  	
  0.25-10

  	
   

  	
  2-10

  	
   

  
	
  Grant Date Fair Value

  	
   

  	
  $1.23-$2.48

  	
   

  	
  $1.15-$2.44

  	
   

  



 


The stock based compensation included in the statement of loss and
accumulated deficit during the year was $16,826,115 (2006: $7,825,924), of the
total stock-based compensation $1,076,058 (2006: $Nil) was capitalised as
mineral property expenditures.


 


The $16,826,115 stock-based compensation expensed directly to the income
statement has been allocated to the following expense categories;
administration $12,184,900 (2006: $Nil), consulting $3,788,076 (2006: $Nil) and
salaries $853,139 (2006: $Nil).


 


(i)            Warrants


 


Share purchase
warrant transactions for the year ended December 31, 2007, were as follows:


 


	
   

  	
   

  	
  Number of

  Warrants

  	
   

  	
  Weighted Average

  Exercise Price

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Outstanding,
  December 31, 2005

  	
   

  	
  700,000

  	
   

  	
  0.22

  	
   

  
	
  Expired

  	
   

  	
  (700,000

  	
  )

  	
  0.22

  	
   

  
	
  Issued

  	
   

  	
  420,000

  	
   

  	
  0.59

  	
   

  
	
  Issued

  	
   

  	
  10,000,000

  	
   

  	
  0.05

  	
   

  
	
  Issued

  	
   

  	
  5,833,336

  	
   

  	
  3.35

  	
   

  
	
  Exercised

  	
   

  	
  (420,000

  	
  )

  	
  0.59

  	
   

  
	
  Outstanding,
  December 31, 2006

  	
   

  	
  15,833,336

  	
   

  	
  1.28

  	
   

  
	
  Issued

  	
   

  	
  103,330,912

  	
   

  	
  4.03

  	
   

  
	
  Exercised

  	
   

  	
  (10,017,060

  	
  )

  	
  0.05

  	
   

  
	
  Outstanding,
  December 31, 2007

  	
   

  	
  109,147,188

  	
   

  	
  4.00

  	
   

  



 


22

















 


	
  RUSORO MINING LTD.

  	
  

  
	
  Notes to Consolidated Financial Statements

  
	
  For the Years Ended December 31, 2007 and 2006

  
	
  Expressed in U.S. Dollars

  



 


12.          ASSET RETIREMENT
OBLIGATION


 


The asset retirement
obligation is calculated based on estimated costs associated with the retirement
of long-lived assets that result from the acquisition, construction,
development, and normal use of the asset. 
The calculation has been performed with an expected cash requirement
over a ten-year period and has been discounted using a credit adjusted risk
free rate of 18.0% (2006 – 8.4%).


 


	
   

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
  Balance, beginning of the year

  	
   

  	
  462,609

  	
   

  	
  425,147

  	
   

  
	
  Change in estimate of future costs

  	
   

  	
  (462,609

  	
  )

  	
  —

  	
   

  
	
  Acquisition of Gold Fields (Note 3(c))

  	
   

  	
  2,134,397

  	
   

  	
  —

  	
   

  
	
  Accretion

  	
   

  	
  149,781

  	
   

  	
  37,462

  	
   

  
	
  Balance, end of the year

  	
   

  	
  2,284,178

  	
   

  	
  462,609

  	
   

  



 


In view of the
uncertainties concerning future asset retirement and progressive reclamation
costs, the ultimate costs to the Company could differ materially from the
amounts estimated.  The Company has recorded
an asset retirement obligation of $2,284,178 as of December 31, 2007 (December 31,
2006: $462,609). The accretion expense was calculated in 2007 using a rate of
18.0%. The initial amount was based on an estimate prepared by an independent
third party as to the cost of reclamation associated with the properties.


 


In view of the
uncertainties concerning environmental reclamation, the ultimate cost of
reclamation activities could differ materially from the estimated amount
recorded. The estimate of the Company’s asset retirement obligation is subject
to change based on amendments to laws and regulations and as new information
regarding the Company’s operations becomes available.


 


Future changes, if
any, to the estimated liability as a result of amended requirements, laws,
regulations, operating assumptions, estimated timing and amount of obligations
may be significant and would be recognized prospectively as a change in
accounting estimate. Any such such change would result in an increase or
decrease to the liability and a corresponding increase or decrease to the
mineral property and/or plant and equipment balance(s).


 


23

















 


	
  RUSORO MINING LTD.

  	
  

  
	
  Notes to Consolidated Financial Statements

  
	
  For the Years Ended December 31, 2007 and 2006

  
	
  Expressed in U.S. Dollars

  



 


13.          RELATED PARTY
TRANSACTIONS


 


In addition to
related party transactions and balances disclosed elsewhere are the following
related party transactions and balances:


 


·      Included in prepaid expense and deposits is $41,373 (2006: $ Nil)
related to a security deposit for a lease entered into with a company
controlled by certain directors.


 


·      Included in amounts capitalised as mineral properties is $2,774,738
(2006: $271,335) related to the provision of technical services and personnel
from companies which are controlled by certain directors and/or senior
management of the Company.


 


·      Included in property, plant and equipment is $65,267 (2006:
$Nil)  related to leasehold improvements
and office equipment acquired from a company controlled by certain directors.


 


·      Included in administrative expenses is $589,961 (2006: $41,452)
related to the cost of running the Company’s Moscow office, these expenses were
paid to a company controlled by certain directors.


 


·      Included in consulting expenses is $642,442 (2006: $148,297) related
to consulting fees charged by certain directors and/or a company controlled by
certain directors in accordance with the terms of consulting contracts that
they have with the Company.


 


·      Included in professional fees is $89,928 (2006: $Nil) related to the
provision of financial services support for the Moscow office, which were paid
to a company controlled by certain directors.


 


·      Included in travel and entertainment expenses is $2,540,016 (2006:
$Nil) related to the provision of travel services which have been supplied by a
company which is owned by a director. Also included in travel and entertainment
expenses are expenses relating to the provision of travel services for the
Moscow office, which were paid to a company controlled by certain directors.


 


·      Included in the acquisition costs of the Gold Fields acquisition is
$98,021 charged by a law firm in which a director is a partner (Note 3(c)).


 


·      Included in interest expense is $Nil (2006: $8,236,982) paid to a
director who is a significant shareholder and officer of the Company.


 


Related party
transactions are recorded at the exchange amount which is the consideration
agreed to between the parties.


 


14.          LOAN PAYABLE ON
ACQUISITION


 


In December 2006,
the Company acquired a group of Corporación Venezolana de Guayana contracts and
concessions granted by the Venezuelan Ministry of Energy and Mines known as
Oro88.  The contracts and concessions are
held by corporations, which were owned beneficially by a director.  The purchase price was $5,000,000 of which $2,500,000
was paid on signing of the acquisition agreement, with the balance owing to
companies owned by a director and to be paid on or before November 30,
2008.


 


The loan is unsecured
and does not attract interest.


 


24

















 


	
  RUSORO MINING LTD.

  	
  

  
	
  Notes to Consolidated Financial Statements

  
	
  For the Years Ended December 31, 2007 and 2006

  
	
  Expressed in U.S. Dollars

  



 


15.          SUPPLEMENTARY
DISCLOSURE OF NON-CASH TRANSACTIONS


 


Non-cash investing
and financing transactions that have been excluded from the cash flow and are
not disclosed elsewhere include:


 


	
   

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Accounts Payable - Mineral property
  expenditures

  	
   

  	
  2,056,962

  	
   

  	
  1,063,343

  	
   

  
	
  Stock-based compensation capitalized to
  mineral properties (Note 11(h))

  	
   

  	
  1,076,058

  	
   

  	
  —

  	
   

  
	
  Accounts Payable - Property, plant and
  equipment expenditures

  	
   

  	
  26,112

  	
   

  	
  —

  	
   

  
	
  Shares Issued for settlement of debt due to
  Shareholder

  	
   

  	
  —

  	
   

  	
  66,114,066

  	
   

  
	
  Shares Issued for settlement of debt to New
  Dawn

  	
   

  	
  —

  	
   

  	
  512,811

  	
   

  



 


16.          INCOME TAXES


 


a)             Provision for income taxes


 


	
   

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Loss before taxes

  	
   

  	
  (34,445,953

  	
  )

  	
  (35,989,204

  	
  )

  
	
  Statutory rax rate

  	
   

  	
  34.12

  	
  %

  	
  34.00

  	
  %

  
	
  Expected income tax recovery

  	
   

  	
  (11,752,959

  	
  )

  	
  (12,236,329

  	
  )

  
	
  Rate difference in foreign jurisdictions

  	
   

  	
  36,034

  	
   

  	
  —

  	
   

  
	
  Foreign exchange and other permanent
  differences

  	
   

  	
  (2,706,149

  	
  )

  	
  10,649,692

  	
   

  
	
  Impact of reduction in enacted rates

  	
   

  	
  2,057,344

  	
   

  	
  —

  	
   

  
	
  Prior year over (under) accruals

  	
   

  	
  94,947

  	
   

  	
  (37,789

  	
  )

  
	
  Change in commodity tax credits

  	
   

  	
  —

  	
   

  	
  900,755

  	
   

  
	
  Discountinued operations

  	
   

  	
  —

  	
   

  	
  (512,629

  	
  )

  
	
  Change in valuation allowance

  	
   

  	
  10,068,819

  	
   

  	
  1,236,300

  	
   

  
	
  Income tax recovery

  	
   

  	
  (2,201,964

  	
  )

  	
  —

  	
   

  



 


b)             Future tax balances


 


The tax effects of
temporary differences that give rise to future income tax assets and liabilities
are


 


	
   

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
  Future income tax assets (liabilities):

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Non capital loss carried forward

  	
   

  	
  6,487,426

  	
   

  	
  1,771,198

  	
   

  
	
  Property, plant and equipment

  	
   

  	
  3,999,845

  	
   

  	
  —

  	
   

  
	
  Mineral properties

  	
   

  	
  4,347,998

  	
   

  	
  —

  	
   

  
	
  Other

  	
   

  	
  6,473,353

  	
   

  	
  1,518,009

  	
   

  
	
  Valuation allowance

  	
   

  	
  (13,232,490

  	
  )

  	
  (3,289,207

  	
  )

  
	
   

  	
   

  	
  8,076,132

  	
   

  	
  —

  	
   

  
	
  Property, plant and equipment

  	
   

  	
  (284,828,414

  	
  )

  	
  —

  	
   

  
	
   

  	
   

  	
  (276,752,282

  	
  )

  	
  —

  	
   

  



 


As at December 31,
2007, the Company had available for deduction against future taxable income in
Canada non-capital losses of approximately CDN$16.7 million, (US$16.8 million).
These losses, if utilized, have expiration years ranging from 2026 to 2027. The
potential income tax benefit of these losses have been offset by a valuation
allowance.


 


25

















 


	
  RUSORO MINING LTD.

  	
  

  
	
  Notes to Consolidated Financial Statements

  
	
  For the Years Ended December 31, 2007 and 2006

  
	
  Expressed in U.S. Dollars

  



 


The Company also has
available for deduction against future taxable income in Venezuela losses
carried forward of approximately B’s 31.7 billion, (US$5.6 million), which
expire over the next three years. The potential income tax benefit of these
losses have been offset by a valuation allowance.


 


The Company also has
available for deduction against future taxable income in Chile losses carried
forward of 2.6 million pesos, (US$239,164), which carry forward indefinitely.
The potential income tax benefit of these losses have been offset by a valuation
allowance.


 


17.          SEGMENTED DISCLOSURE


 


For 2007, the Company
has two distinct business segments;


 


a)     The exploration of mineral properties.


 


b)    The extraction, processing and sale of
gold ore.


 


In 2007, all revenue
was generated in Venezuela and the Company had 6 principal customers (2006 – No
customers). In 2006, the Company was exclusively in the business of mineral
property exploration.


 


	
   

  	
   

  	
  Mineral

  Exploration

  2007

  	
   

  	
  Extraction

  and

  Processing

  2007

  	
   

  	
  Total

  2007

  	
   

  	
  Total

  2006

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
  Canada

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Current assets

  	
   

  	
  31,737,526

  	
   

  	
  —

  	
   

  	
  31,737,526

  	
   

  	
  7,977,072

  	
   

  
	
  Property, plant and equipment

  	
   

  	
  179,984

  	
   

  	
  —

  	
   

  	
  179,984

  	
   

  	
  2,760

  	
   

  
	
   

  	
   

  	
  31,917,510

  	
   

  	
  —

  	
   

  	
  31,917,510

  	
   

  	
  7,979,832

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Venezuela

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Current assets

  	
   

  	
  2,603,309

  	
   

  	
  20,355,268

  	
   

  	
  22,958,577

  	
   

  	
  2,377,406

  	
   

  
	
  Property, plant and equipment

  	
   

  	
  6,422,039

  	
   

  	
  752,078,719

  	
   

  	
  758,500,758

  	
   

  	
  3,694,191

  	
   

  
	
  Mineral properties

  	
   

  	
  114,848,896

  	
   

  	
  73,290,104

  	
   

  	
  188,139,000

  	
   

  	
   

  	
   

  
	
  Other long-term assets

  	
   

  	
  1,085,975

  	
   

  	
  50,117

  	
   

  	
  1,136,092

  	
   

  	
  26,822,013

  	
   

  
	
   

  	
   

  	
  124,960,219

  	
   

  	
  845,774,208

  	
   

  	
  970,734,427

  	
   

  	
  32,893,610

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Panama

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Current assets

  	
   

  	
  835,350

  	
   

  	
  —

  	
   

  	
  835,350

  	
   

  	
  1,653,037

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Chile

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Current assets

  	
   

  	
  855,000

  	
   

  	
  —

  	
   

  	
  855,000

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
  855,000

  	
   

  	
  —

  	
   

  	
  855,000

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Honduras

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Current assets

  	
   

  	
  33,678

  	
   

  	
  —

  	
   

  	
  33,678

  	
   

  	
  —

  	
   

  
	
  Mineral properties

  	
   

  	
  2,148,252

  	
   

  	
  —

  	
   

  	
  2,148,252

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
  2,181,930

  	
   

  	
  —

  	
   

  	
  2,181,930

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total assets

  	
   

  	
  160,750,009

  	
   

  	
  845,302,174

  	
   

  	
  1,006,524,217

  	
   

  	
  42,526,479

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Capital expenditures

  	
   

  	
  93,797,735

  	
   

  	
  832,502,171

  	
   

  	
  926,299,906

  	
   

  	
  148,872

  	
   

  



 


26














 


	
  RUSORO MINING LTD.

  Notes to Consolidated Financial Statements

  For the Years Ended December 31, 2007 and 2006

  Expressed in U.S. Dollars

  	
   

  	
  

  



 


	
   

  	
   

  	
  Mineral

  Exploration

  	
   

  	
  Extraction

  and

  Processing

  	
   

  	
  Total

  	
   

  	
  Total

  	
   

  
	
   

  	
   

  	
  2007

  	
   

  	
  2007

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Revenue

  	
   

  	
  —

  	
   

  	
  3,494,613

  	
   

  	
  3,494,613

  	
   

  	
  —

  	
   

  
	
  Cost of goods sold

  	
   

  	
  —

  	
   

  	
  (7,282,856

  	
  )

  	
  (7,282,856

  	
  )

  	
  —

  	
   

  
	
  Gross profit

  	
   

  	
  —

  	
   

  	
  (3,788,243

  	
  )

  	
  (3,788,243

  	
  )

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Administrative and other
  expenses

  	
   

  	
  (31,526,221

  	
  )

  	
  (584,938

  	
  )

  	
  (32,111,159

  	
  )

  	
  (6,007,291

  	
  )

  
	
  Impairment of mineral
  properties

  	
   

  	
  (289,743

  	
  )

  	
  —

  	
   

  	
  (289,743

  	
  )

  	
  (10,293,409

  	
  )

  
	
  Foreign exchange gain (loss)

  	
   

  	
  834,788

  	
   

  	
  (1,360,624

  	
  )

  	
  (525,836

  	
  )

  	
  (4,032,987

  	
  )

  
	
  Stock based compensation on

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  acquisition transaction

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  (7,825,924

  	
  )

  
	
  Interest income (expense)

  	
   

  	
  1,885,945

  	
   

  	
  623,667

  	
   

  	
  2,509,612

  	
   

  	
  (8,236,982

  	
  )

  
	
  Other income (expense)

  	
   

  	
  (18,978

  	
  )

  	
  (221,609

  	
  )

  	
  (240,587

  	
  )

  	
  407,085

  	
   

  
	
  Income tax recovery

  	
   

  	
  —

  	
   

  	
  2,201,964

  	
   

  	
  2,201,964

  	
   

  	
  —

  	
   

  
	
  Loss from discontinued
  operations

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  (1,507,426

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Net loss

  	
   

  	
  (29,114,209

  	
  )

  	
  (3,129,783

  	
  )

  	
  (32,243,992

  	
  )

  	
  (37,496,934

  	
  )

  



 


18.          DISCONTINUED
OPERATIONS


 


During the year ended
December 31, 2006, the Company ceased to purchase raw materials for processing
into gold for resale.  The Company does
not plan to resume this practice of purchasing raw materials for gold
production in the foreseeable future as the Company focuses its efforts on the
development of its mineral properties. 
However, the Company plans to use gold production facilities in the
future to process gold extracted from the Company’s mining resources once the
Company enters the exploitation phase in neighboring mining properties which is
expected to occur within the next 1-2 years. 
As a result, the Company does not believe the value of these facilities
has been impaired and no provision has been made.


 


The operations of
this unit relating to the purchase and processing of raw materials into gold
for sale have been reclassified and are presented in the consolidated financial
statements as discontinued operations.  A
summary of such discontinued operations of the formulation business is as
follows:


 


	
   

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Net sales

  	
   

  	
  —

  	
   

  	
  2,228,721

  	
   

  
	
  Cost of sales

  	
   

  	
  —

  	
   

  	
  (3,380,908

  	
  )

  
	
  Gross loss

  	
   

  	
  —

  	
   

  	
  (1,152,187

  	
  )

  
	
   

  	
   

  	
  —

  	
   

  	
   

  	
   

  
	
  Operating and other expenses

  	
   

  	
  —

  	
   

  	
  (355,239

  	
  )

  
	
  Loss before taxes

  	
   

  	
  —

  	
   

  	
  (1,507,426

  	
  )

  
	
  Income tax expense

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Loss from discontinued operations

  	
   

  	
  —

  	
   

  	
  (1,507,426

  	
  )

  



 


27

















 


	
  RUSORO MINING LTD.

  Notes to Consolidated Financial Statements

  For the Years Ended December 31, 2007 and 2006

  Expressed in U.S. Dollars

  	
   

  	
  

  



 


19.          COMMITMENTS AND
CONTINGENCIES


 


(a)           Operating Leases


 


At December 31,
2007, the Company is committed to payments under operating leases for premises
as follows:


 


	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  2008

  	
   

  	
  243,879

  	
   

  
	
  2009

  	
   

  	
  243,879

  	
   

  
	
  2010

  	
   

  	
  243,879

  	
   

  
	
  2011

  	
   

  	
  243,879

  	
   

  
	
  Beyond 2012

  	
   

  	
  324,432

  	
   

  
	
   

  	
   

  	
  1,299,948

  	
   

  



 


(b)           Legal
Contingencies


 


Corporación
Cabello Galvez


 


The Company has been
named as a defendant in two legal matters outstanding in relationship to the
disputed ownership of shares of Corporación Cabello Galvez.  The plaintiff expresses rights that would
effectively give that party full ownership of the mining property held by the
Company.  The Company denies these
ownership rights and asserts full ownership of Corporación Cabello Galvez.  The outcome of this matter cannot be
estimated at this time and no accrual for any provisions has been made.  Corporación Cabello Galvez’s single asset is
the mineral property concession of Atlántida which has a carrying value of $Nil
at December 31, 2007  (2006 - $Nil).


 


In addition,
Corporación Cabello Galvez’s term of incorporation elapsed under Venezuelan law
on February 1, 1997.  This
subsidiary remains in wind-up stage unless shareholders resolve to reactivate
it pursuant to Venezuelan law.


 


Ferrominera
del Orinoco


 


Ferrominera del
Orinoco (“FMO”), a Venezuelan government entity, has instigated legal
proceedings against a subsisiary of the Company asking for the annulment of a
shareholders meeting whereby FMO’s equity stake in Promotora Mineria de Guyana
(“PMG”) was diluted from 30% to 0.02%. The Company’s legal counsel believes
that there is no merit to the proceedings and the probability of the Company
losing the legal action is very low, although FMO in their statement of claim
has asked for $9 million as compensation (Note 3(c)). No amount has been
accrued in these financial statements for the claim by FMO since management and
the Company’s legal counsel have assessed that it is unlikely that FMO will be
successful in their claim.


 


Included in the costs
to acquire the Venezuelan assets and liabilities of GF Netherlands is $11.6
million paid to a BVI incorporated entity which acted as intermediary
consultant and advisor for the Company in completing this acquisition.  The services provided by the company were the
negotiation of release from this legal action in return for an indilutable 5%
ownership interest by FMO in PMG.  As
disclosed in Note 3(c), however, certain steps remain outstanding to firmly
document the completion of the transaction and until documented this action is
not legally released and remains outstanding.


 


Other
Matters


 


In the normal
course of business, the Company has been named as a defendant in various
matters before the courts and a mediator within Venezuela.  Total claims on these matters are
approximately $4,000,000 (at the official exchange rate).  Additionally, an action was commenced against
the Company in the Venezuelan courts by Cooperativa de Molineros El Callao II
RL against PMG claiming damages in the amount of approximately U.S.$10,500,000
(at the official exchange rate) for eviction from the Choco 10 minesite.  PMG is defending this latter action and
proceedings have been suspended pending notification of the Attorney General for
Venezuela.  The outcome of these matters
cannot be determined at this time and the Company has not accrued for any
losses as management believes the claims are without merit.


 


28

















 


	
  RUSORO MINING LTD.

  Notes to Consolidated Financial Statements

  For the Years Ended December 31, 2007 and 2006

  Expressed in U.S. Dollars

  	
   

  	
  

  



 


20.          RISKS


 


Financial
Instruments and Risks


 


The carrying value of
the Company’s financial instruments, consisting of cash, loans and other receivables,
advances to related companies, accounts payable and accrued liabilities,
short-term debt, asset retirement obligation and amounts due to related parties
approximate their fair value due to the short-term maturity of such
instruments.  The carrying value of the
loan payable on acquisition approximates to its fair value.  Unless otherwise noted, it is management’s
opinion that the Company is not exposed to significant interest rate risk
arising from these financial instruments.


 


Title
Risk


 


Title to mineral
properties and mining rights involves certain inherent risks due to the
difficulties of determining the validity of certain claims as well as the
potential for problems arising from the frequently ambiguous conveyancing
history characteristic of many mining properties.  Although the Company has investigated title
to all of its mineral properties for which it holds concessions or other
mineral leases or licenses, the Company cannot give any assurance that title to
such properties will not be challenged or impugned and cannot be certain that
it will have valid title to its mining properties.  The Company relies on title opinions by legal
counsel who base such opinions on the laws of countries in which the Company
operates.  The Company’s principal mineral
properties and mining rights are located in Venezuela.  In 2005, the Government of Venezuela
announced that it would be changing the mining title regime from a system where
title was granted in the form of either concessions or operating contracts to a
system where all new titles would be granted in the form of operating
contracts.  In order to effect this
change, the Government advised that it would need to create a national mining
company which would be the nation’s contracting party covering the entire
country of Venezuela.  The Government
also indicated that, given this change in title regime, it would also be
appropriate to review all existing mining companies in a single comprehensive
exercise to ensure that only companies found to be in compliance with their
existing title terms and conditions would qualify for the new title.


 


Country
Risk


 


The Company’s mineral
exploration and exploitation activities may be adversely affected by political
instability and legal and economic uncertainty in the countries where the
Company has operations.  The risks
associated with the Company’s foreign operations may include political unrest,
labour disputes, invalidation of governmental orders and permits, corruption,
war, civil disturbances and terrorist actions, arbitrary changes in laws,
regulation and policies, taxation, price controls, exchange controls, delays in
obtaining or the inability to obtain necessary permits, opposition to mining
from environmental or other nongovernmental organizations, limitations on
foreign ownership, limitations on the repatriation of earnings, limitations on
mineral exports and increased financing costs. These risks may limit or disrupt
the Company’s projects or operations, restrict the movement of funds or result
in the deprivation of contractual rights or the taking of property by
nationalization, expropriation or other means without fair compensation.  The Company’s mineral properties and mining
rights are located in Venezuela and as such, the Company may be affected by
political or economic instabilities.


 


Currency
Risk


 


The Company is
exposed to currency risk as certain of its assets are denominated in foreign
currencies.  Unfavourable changes in the
applicable exchange rate may result in a decrease or increase in foreign exchange
gains or losses.  The Company does not
use derivative instruments to reduce its exposure to foreign currency risk.


 


The Company’s
Venezuelan operations and cash holdings are currently subject to currency and
exchange controls.  These government
imposed controls may adversely affect the Company as such controls restrict the
Company’s ability to flow U.S. dollars out of the country.


 


29

















 


	
  RUSORO MINING LTD.

  Notes to Consolidated Financial Statements

  For the Years Ended December 31, 2007 and 2006

  Expressed in U.S. Dollars

  	
   

  	
  

  



 


As at December 31,
2007, the Company holds cash of $516,268 (2006 – $1,384,420) in Venezuelan
Bolivars.


 


	
  21.

  	
  DIFFERENCES BETWEEN CANADIAN AND UNITED STATES
  GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

  



 


A reconciliation of the Company’s consolidated
balance sheet determined in accordance with Canadian generally accepted
accounting principles (“Canadian GAAP”) to that determined under United States
generally accepted accounting principles (“US GAAP”) is as follows:


 


December 31, 2007


 


	
   

  	
   

  	
  Canadian

  	
   

  	
  US GAAP

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  GAAP

  	
   

  	
  adjustments

  	
   

  	
  US GAAP

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
  Assets

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Current assets

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cash and cash equivalents

  	
   

  	
  31,352

  	
   

  	
  —

  	
   

  	
  31,352

  	
   

  
	
  Loans and receivables

  	
   

  	
  5,300

  	
   

  	
  —

  	
   

  	
  5,300

  	
   

  
	
  Inventories

  	
   

  	
  10,725

  	
   

  	
  —

  	
   

  	
  10,725

  	
   

  
	
  Assets held for sale

  	
   

  	
  855

  	
   

  	
  —

  	
   

  	
  855

  	
   

  
	
  Prepaid expenses and deposits

  	
   

  	
  8,188

  	
   

  	
  —

  	
   

  	
  8,188

  	
   

  
	
  Total current assets

  	
   

  	
  56,420

  	
   

  	
  —

  	
   

  	
  56,420

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Plant and equipment

  	
   

  	
  758,681

  	
   

  	
  —

  	
   

  	
  758,681

  	
   

  
	
  Mineral properties

  	
   

  	
  190,287

  	
  (a)

  	
  (41,150

  	
  )

  	
  149,137

  	
   

  
	
  Other non-current assets

  	
   

  	
  1,136

  	
   

  	
  —

  	
   

  	
  1,136

  	
   

  
	
  Total assets

  	
   

  	
  1,006,524

  	
   

  	
  (41,150

  	
  )

  	
  965,374

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Liabilities

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Current liabilities

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Accounts payable and accrued
  liabilities

  	
   

  	
  21,422

  	
   

  	
  —

  	
   

  	
  21,422

  	
   

  
	
  Loan payable

  	
   

  	
  2,500

  	
   

  	
  —

  	
   

  	
  2,500

  	
   

  
	
  Other liabilities

  	
   

  	
  522

  	
   

  	
  —

  	
   

  	
  522

  	
   

  
	
  Total current liabilities

  	
   

  	
  24,444

  	
   

  	
  —

  	
   

  	
  24,444

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Asset retirement obligations
  and other liabilities

  	
   

  	
  2,284

  	
   

  	
  —

  	
   

  	
  2,284

  	
   

  
	
  Future income taxes

  	
   

  	
  276,752

  	
   

  	
  —

  	
   

  	
  276,752

  	
   

  
	
  Total liabilities

  	
   

  	
  303,480

  	
   

  	
  —

  	
   

  	
  303,480

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Shareholders’ equity

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Share capital

  	
   

  	
  669,252

  	
   

  	
  —

  	
   

  	
  669,252

  	
   

  
	
  Contributed surplus

  	
   

  	
  91,824

  	
   

  	
  —

  	
   

  	
  91,824

  	
   

  
	
  Deficit

  	
   

  	
  (95,284

  	
  )(a)

  	
  (41,150

  	
  )

  	
  (136,434

  	
  )

  
	
  Accumulated other
  comprehensive income

  	
   

  	
  37,252

  	
   

  	
  —

  	
   

  	
  37,252

  	
   

  
	
  Total shareholders’ equity

  	
   

  	
  703,044

  	
   

  	
  (41,150

  	
  )

  	
  661,894

  	
   

  
	
  Total liabilities and
  shareholders’ equity

  	
   

  	
  1,006,524

  	
   

  	
  (41,150

  	
  )

  	
  965,374

  	
   

  



 


30

















 


	
  RUSORO MINING LTD.

  Notes to Consolidated Financial Statements

  For the Years Ended December 31, 2007 and 2006

  Expressed in U.S. Dollars

  	
   

  	
  

  



 


December 31, 2006


 


	
   

  	
   

  	
  Canadian

  	
   

  	
  US GAAP

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  GAAP

  	
   

  	
  adjustments

  	
   

  	
  US GAAP

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
  Assets

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Current assets

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cash and cash equivalents

  	
   

  	
  11,121

  	
   

  	
  —

  	
   

  	
  11,121

  	
   

  
	
  Loans and other receivables

  	
   

  	
  411

  	
   

  	
  —

  	
   

  	
  411

  	
   

  
	
  Inventories

  	
   

  	
  97

  	
   

  	
  —

  	
   

  	
  97

  	
   

  
	
  Prepaid expenses and deposits

  	
   

  	
  378

  	
   

  	
  —

  	
   

  	
  378

  	
   

  
	
  Total current assets

  	
   

  	
  12,007

  	
   

  	
  —

  	
   

  	
  12,007

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Plant and equipment

  	
   

  	
  3,697

  	
   

  	
  —

  	
   

  	
  3,697

  	
   

  
	
  Mineral properties

  	
   

  	
  26,822

  	
  (a)

  	
  (26,822

  	
  )

  	
  —

  	
   

  
	
  Total assets

  	
   

  	
  42,526

  	
   

  	
  (26,822

  	
  )

  	
  15,704

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Liabilities

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Current liabilities

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Accounts payable and accrued
  liabilities

  	
   

  	
  4,309

  	
   

  	
  —

  	
   

  	
  4,309

  	
   

  
	
  Loan payable

  	
   

  	
  2,500

  	
   

  	
  —

  	
   

  	
  2,500

  	
   

  
	
  Other liabilities

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Total current liabilities

  	
   

  	
  6,809

  	
   

  	
  —

  	
   

  	
  6,809

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Asset retirement obligations
  and other liabilities

  	
   

  	
  463

  	
   

  	
  —

  	
   

  	
  463

  	
   

  
	
  Total liabilities

  	
   

  	
  7,272

  	
   

  	
  —

  	
   

  	
  7,272

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Minority interest

  	
   

  	
  1,933

  	
   

  	
  —

  	
   

  	
  1,933

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Shareholders’ equity

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Share capital

  	
   

  	
  89,162

  	
   

  	
  —

  	
   

  	
  89,162

  	
   

  
	
  Contributed surplus

  	
   

  	
  7,199

  	
   

  	
  —

  	
   

  	
  7,199

  	
   

  
	
  Deficit

  	
   

  	
  (63,040

  	
  )(a)

  	
  (26,822

  	
  )

  	
  (89,862

  	
  )

  
	
  Accumulated other
  comprehensive income

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Total shareholders’ equity

  	
   

  	
  33,321

  	
   

  	
  (26,822

  	
  )

  	
  6,499

  	
   

  
	
  Total liabilities, shareholders’
  equity and minority interest

  	
   

  	
  42,526

  	
   

  	
  (26,822

  	
  )

  	
  15,704

  	
   

  



 


31














 


	
  RUSORO MINING LTD.

  Notes to Consolidated Financial Statements

  For the Years Ended December 31, 2007 and 2006

  Expressed in U.S. Dollars

  	
   

  	
  

  



 


A reconciliation of the Company’s consolidated
statements of operations, comprehensive loss and cash flows determined in
accordance with Canadian GAAP to that determined under US GAAP is as follows:


 


Consolidated summarized statements of operations


 


	
   

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Net loss under Canadian GAAP

  	
   

  	
  (32,244

  	
  )

  	
  (37,497

  	
  )

  
	
  Deferred exploration expense (a)

  	
   

  	
  (14,328

  	
  )

  	
  2,863

  	
   

  
	
  Net loss under US GAAP

  	
   

  	
  (46,572

  	
  )

  	
  (34,634

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Basic and diluted net loss
  per share under US GAAP

  	
   

  	
  (0.29

  	
  )

  	
  (1.86

  	
  )

  



 


Consolidated summarized statements of comprehensive loss


 


	
   

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Net loss under US GAAP

  	
   

  	
  (46,572

  	
  )

  	
  (34,634

  	
  )

  
	
  Other comprehensive income

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Unrealized foreign exchange
  gains on translating self-sustaining foreign operations

  	
   

  	
  37,251

  	
   

  	
  —

  	
   

  
	
  Total comprehensive loss
  under US GAAP

  	
   

  	
  (9,321

  	
  )

  	
  (34,634

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Basic and diluted
  comprehensive loss per share under US GAAP

  	
   

  	
  (0.06

  	
  )

  	
  (1.86

  	
  )

  



 


Consolidated summarized
statements of cash flows


 


	
   

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cash flows used by operating
  activities under Canadian GAAP

  	
   

  	
  (23,385

  	
  )

  	
  (15,631

  	
  )

  
	
  Deferred exploration expense (a)

  	
   

  	
  (14,618

  	
  )

  	
  (7,430

  	
  )

  
	
  Cash flows used by operating
  activities under US GAAP

  	
   

  	
  (38,003

  	
  )

  	
  (23,061

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cash flows used by investing
  activities under Canadian GAAP

  	
   

  	
  (227,388

  	
  )

  	
  (6,164

  	
  )

  
	
  Deferred exploration expense (a)

  	
   

  	
  14,618

  	
   

  	
  7,430

  	
   

  
	
  Cash flows (used) provided by
  investing activities under US GAAP

  	
   

  	
  (212,770

  	
  )

  	
  1,266

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cash flows provided by
  financing activities under Canadian and US GAAP

  	
   

  	
  271,004

  	
   

  	
  32,841

  	
   

  



 


32

















 


	
  RUSORO MINING LTD.

  Notes to Consolidated Financial Statements

  For the Years Ended December 31, 2007 and 2006

  Expressed in U.S. Dollars

  	
   

  	
  

  



 


Differences between
Canadian and US GAAP as they affect the Company’s financial statements are as
follows:


 


(a)           Development
expenditures applicable to mineral properties


 


Under Canadian GAAP, exploration costs are
capitalized to the property until such time that the properties are placed into
production, abandoned, sold or considered impaired in value. Under US GAAP,
exploration costs incurred until the completion of a final feasibility study on
the property are charged to operations.


 


As at December 31, 2007, $41,150 (2006 -
$26,822) of exploration costs were included in mineral properties for Canadian
GAAP. This has been charged to retained earnings under US GAAP as at December 31,
2007 and 2006, respectively. For the year ended December 31, 2007, $14,328
of exploration costs were capitalized and for the year ended December 31,
2006, $7,430 of exploration costs were capitalized and $10,293 was written off.
For US GAAP, the exploration costs have been charged to the consolidated
statements of operations in the respective years and the write-off against the
previously capitalized exploration costs was reversed.


 


(b)           Stock-based compensation


 


The Company has a stock-based employee
compensation plan (Note 11 (h)). Under US GAAP, the Company should adopt
the fair value recognition provisions of SFAS 123, Accounting
for Stock-Based Compensation, prospectively to all employee awards
granted, modified, or settled after January 1, 2003. On January 1,
2007, the Company adopted SFAS 123R, Accounting for Stock-Based
Compensation, on a modified prospective basis, and, as a result,
prior periods were not restated. The application of SFAS 123R to stock purchase
options did not result in any significant change in the method of accounting
for these options.


 


Share-based benefits have been valued at fair
value using the Black-Scholes option pricing model for option grants and the
grant date fair market value for stock awards. Compensation amounts have been
expensed over the applicable vesting period.


 


(c)           Accounting for uncertainty in income taxes


 


In July 2006, the Financial Accounting
Standards Board (“FASB”) issued FASB Interpretation 48, Accounting
for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109
(“FIN 48”). FIN 48 clarifies the accounting for income taxes by prescribing a
minimum recognition threshold that a tax position is required to meet before
being recognized in the financial statements. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosures, and transition.


 


The Company adopted the provisions of FASB
Interpretation No. 48, Accounting for Uncertainty
in Income Taxes (“FIN 48”), on January 1, 2007. There was no
effect on the Company’s cumulative retained earnings as of January 1,
2007, as a result of the adoption of FIN 48. As of the date of adoption, there
were no unrecognized tax benefits. FIN 48 prescribes a recognition threshold
and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return.
FIN 48 requires that the Company recognize in its consolidated financial
statements, only those tax positions that are “more-likely-than-not” of being
sustained as of the adoption date, based on the technical merits of the
position. As a result of the implementation of FIN 48, the Company performed a
comprehensive review of its material tax positions. Based on this review the
provisions of FIN 48 had no effect on the Company’s financial position, cash
flows or results of operations at either January 1, 2007 or December 31,
2007.


 


33

















 


	
  RUSORO MINING LTD.

  Notes to Consolidated Financial Statements

  For the Years Ended December 31, 2007 and 2006

  Expressed in U.S. Dollars

  	
   

  	
  

  



 


The following is a tabular reconciliation of
the total amounts of unrecognized tax benefits for the year:


 


	
   

  	
   

  	
  $

  	
   

  
	
  Unrecognized tax benefit,
  opening balance

  	
   

  	
  —

  	
   

  
	
  Gross increases – tax
  positions in prior period

  	
   

  	
  —

  	
   

  
	
  Gross decreases – tax
  positions in prior period

  	
   

  	
  —

  	
   

  
	
  Gross increases – tax
  positions in current period

  	
   

  	
  2,069,000

  	
   

  
	
  Settlements

  	
   

  	
  —

  	
   

  
	
  Lapse of statute of limitations

  	
   

  	
  —

  	
   

  
	
  Unrecognized tax benefit, ending balance

  	
   

  	
  2,069,000

  	
   

  



 


The Company recognizes interest and penalties
related to unrecognized tax benefits within the income tax expense line in the
accompanying consolidated statement of operations. Accrued interest and
penalties are included within the related tax liability line in the
consolidated balance sheet. There were no interest or penalties recognized in
the statement of operations or included in the consolidated balance sheets for
the year ended December 31, 2007 and 2006.


 


The balance of unrecognized tax benefits at December 31,
2007 is equal to $2,069,000 that, if recognized, would affect the effective tax
rate.


 


The Company is subject to taxation in Canada,
Venezuela and other foreign jurisdictions. The Company’s tax years 2001 through
2007 are subject to examination by the Canadian tax authorities. The Company’s
tax years 2004 through 2007 are subject to examination by the Venezuelan tax
authorities.


 


(d)           Additional disclosure required by US GAAP


 


(i)            Pro
forma information on business combinations (unaudited)


 


Under US GAAP, SFAS 141 requires disclosure of
certain pro forma information when a business combination is affected. The
following pro forma financial summary is presented as if the acquisition of PMG
was completed as of January 1, 2007 and January 1, 2006. The pro
forma combined results are not necessarily indicative of the actual results
that would have occurred had the acquisition been consummated on those dates,
or of the future operations of the combined entities.


 


	
   

  	
   

  	
   

  	
   

  	
  Years

  ended

  December

  31,

  	
   

  
	
   

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total revenues

  	
   

  	
  20,151

  	
   

  	
  36,826

  	
   

  
	
  Net loss

  	
   

  	
  (77,987

  	
  )

  	
  (95,897

  	
  )

  
	
  Loss from continuing
  operations per share - basic and diluted

  	
   

  	
  (0.27

  	
  )

  	
  (0.50

  	
  )

  



 


34

















 


	
  RUSORO MINING LTD.

  Notes to Consolidated Financial Statements

  For the Years Ended December 31, 2007 and 2006

  Expressed in U.S. Dollars

  	
   

  	
  

  



 


(ii)           Impairment
of mineral properties


 


Under US GAAP, impairment of mineral properties
would be presented within “costs and expenses” in the statement of operations
and not within “other (expenses) income”. For the years ended December 31,
2007 and 2006, total “costs and expenses” are $30,417 and $36,393,
respectively, under US GAAP.


 


(iii)          Recently
issued accounting pronouncements


 


In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements (“SFAS 157”).
This statement defines fair value, establishes guidelines for measuring fair
value and expands disclosures regarding fair value measurements. SFAS 157 does
not require any new fair value measurements but rather eliminates
inconsistencies in guidance found in various prior accounting pronouncements.
SFAS 157 is effective for fiscal years beginning after November 15, 2007.
The Company expects that adoption of SFAS 157 will not have a material effect
on its financial condition or results of operation.


 


In February 2007, the FASB issued SFAS
159, The Fair Value Option for Financial Assets and
Liabilities - Including an amendment of FASB Statement No. 115
(“SFAS 159”). SFAS 159 permits entities to choose to measure certain financial
assets and liabilities at fair value (the “fair value option”). Unrealized
gains and losses, arising subsequent to adoption, are reported in earnings. The
Company is required to adopt SFAS 159 in the first quarter of 2008. The Company
is currently evaluating the impact, if any, that the implementation SFAS 159
will have on the Company’s results of operations or financial position.


 


In December 2007, the FASB issued SFAS No. 141
(revised 2007), Business Combinations (“SFAS
141(R)”). SFAS 141(R) establishes principles and requirements for how an
acquirer recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, any non-controlling interest in the
acquiree and the goodwill acquired. SFAS 141(R) also establishes
disclosure requirements to enable the evaluation of the nature and financial
effects of the business combination. SFAS 141(R) is effective for fiscal
years beginning after December 15, 2008. The Company is currently
evaluating the potential impact, if any, of the adoption of SFAS 141(R) on
its consolidated financial statements.


 


In December 2007, the FASB issued SFAS No. 160,
Non-controlling Interests in Consolidated Financial
Statements—an amendment of Accounting Research Bulletin No. 51
(“SFAS 160”). SFAS 160 establishes accounting and reporting standards for
ownership interests in subsidiaries held by parties other than the parent, the
amount of consolidated net income attributable to the parent and to the
non-controlling interest, changes in a parent’s ownership interest, and the
valuation of retained non-controlling equity investments when a subsidiary is
deconsolidated. SFAS 160 also establishes disclosure requirements that clearly
identify and distinguish between the interests of the parent and the interests
of the non-controlling owners. SFAS 160 is effective for fiscal years beginning
after December 15, 2008. The Company is currently evaluating the potential
impact, if any, of the adoption of SFAS 160 on its consolidated financial
statements.


 


In March 2008, the FASB issued FASB
Statement No. 161, Disclosures about
Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133.
This statement requires enhanced disclosures about an entity’s derivative and
hedging activities and how derivatives and hedging activities affect a company’s
financial position, financial performance and cash flows. This statement is
effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008, with early application encouraged. This
statement encourages, but does not require, comparative disclosures for earlier
periods at initial adoption. The Company is assessing the impact of the new
standard.


 


35

















 


	
  RUSORO MINING LTD.

  Notes to Consolidated Financial Statements

  For the Years Ended December 31, 2007 and 2006

  Expressed in U.S. Dollars

  	
   

  	
  

  



 


The recent SEC and FASB interpretations relate
to FASB Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities, and Emerging Issue Task Force (“EITF”)
EITF 00-19, Accounting for Derivative Financial Instruments
Indexed to and Potentially Settled in a Company’s Own Stock. In late
June 2008, FASB released EITF 07-5, Determining Whether an
Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock,
which provides further guidance on the accounting treatment for certain equity
instruments with elements of foreign currency risk.


 


The Company’s functional currency is the U.S.
dollar and it has issued and has outstanding warrants that have an exercise
price that is denominated in Canadian dollars. The Company has determined that
such warrants with an exercise price that is different from the entity’s
functional currency cannot be classified as equity based on the evaluation of
the warrant’s settlement provisions. As a result, these instruments will need
to be treated as derivatives and recorded as liabilities that are carried at
their fair value, with changes in the fair value from period to period recorded
as a gain or loss in the statement of operations.


 


EITF 07-5 is effective for interim and annual
financial statements related to fiscal years beginning after December 15, 2008,
and earlier adoption is not permitted. The Company is assessing the impact of
the new standard.


 


22.          SUBSEQUENT EVENTS


 


Disposition
of Mena Chile


 


On April 4,
2008, The Company announced that it had completed the sale of its 100% own
subsidiary, Compania Minera Mena Resources (Chile) Limitada (“Mena Chile”) to
Iron Creek Capital Corp (“Iron Creek”), an unrelated company listed on the TSX
Venture Exchange.


 


The consideration
consisted of 2,000,000 common shares in Iron Creek at a deemed price of $0.265
per common share and $325,000 in cash representing the repayment of a loan
advanced by the Company to Mena Chile. In addition and pursuant to the terms of
a royalty agreement, Mena Chile has granted a net smelter returns royalty to
the Company, on any metals recovered equal to 1% on the Vaquillas Property and
2% on mining and mineral interests held by Mena Chile with respect to the
Emilia & Pampa property, the Gavi & Mena 1-2 properties and
the Suerte property.


 


The Company has
reclassified the Mena Chile assets to assets held for sale at their net
realizable value of $855,000 as follows:


 


	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Cash

  	
   

  	
  37,857

  	
   

  
	
  Prepaids

  	
   

  	
  12,075

  	
   

  
	
  Mineral properties

  	
   

  	
  805,068

  	
   

  
	
   

  	
   

  	
  855,000

  	
   

  



 


23.          COMPARATIVE
FIGURES


 


Certain of the
comparative figures have been reclassified to conform to the current year’s
presentation.


 


36