EXHIBIT
99.2






MANAGEMENT’SRESPONSIBILITY FOR THECONSOLIDATEDFINANCIALSTATEMENTS




The
accompanying consolidated financial statements of Claude Resources Inc. are the
responsibility of Management and have been approved by the Board of
Directors.




The
consolidated financial statements have been prepared by Management in conformity
with Canadian generally accepted accounting principles. The consolidated
financial statements include amounts that are based on estimates and judgments.
Financial information used elsewhere in the annual report is consistent with
that in the financial statements.




The
Management of the Company, in furtherance of the integrity and objectivity of
data in the financial statements, has developed and maintains a system of
internal accounting controls. These internal accounting controls provide
reasonable assurance that financial records are reliable, form a proper basis
for preparation of financial statements and that assets are properly accounted
for and safeguarded. The internal accounting control process includes
Management’s communication to employees of policies which govern ethical
business conduct. Based on its evaluation, Management concluded that the
internal control over financial reporting was effective as of the end of the
period covered by its annual report.




The
Board of Directors carries out its responsibility for the consolidated financial
statements in this annual report principally through its audit committee,
consisting of independent directors. The audit committee reviews the Company’s
annual consolidated financial statements and recommends their approval to the
Board of Directors. The shareholders’ auditors have full access to the audit
committee, with and without Management being present.




These
consolidated financial statements have been examined by the shareholders’
auditors, KPMG LLP, Chartered Accountants, in accordance with Canadian generally
accepted auditing standards and PCAOB.




neil mcmillan siganature
                          rick johnson signatureNeil
      McMillan
                          Rick
      Johnson, CAPresident
      &

                              Chief
      Executive Officer
                          Vice
      President Finance &

                              Chief
      Financial OfficerSaskatoon,
      CanadaMarch
      27, 2009




2


Auditors’ Report
 
 To the Shareholders of Claude Resources
Inc.
 
 We have audited the consolidated balance
sheets of Claude Resources Inc. as at December 31, 2008 and 2007 and the
consolidated statements of earnings (loss), comprehensive income (loss),
shareholders’ equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
 
 We conducted our audits in accordance
with Canadian generally accepted auditing standards and the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform an audit to obtain reasonable assurance whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.
 
 In our opinion, these consolidated
financial statements present fairly, in all material respects, the financial
position of the Company as at December 31, 2008 and 2007 and the results of its
operations and its cash flows for the years then ended in accordance with
Canadian generally accepted accounting principles.
 
 
 
 Chartered
Accountants
 Saskatoon, Canada
 March 27, 2009




3




Consolidated
Balance Sheets




DECEMBER
31 (CANADIAN DOLLARS IN THOUSANDS)




2008
                                    
                                    
                                    2007AssetsCurrent
      assets:Cash
      and cash equivalents
                                    
                                    $
                                    8,390
                                    
                                    
                                    $
                                    2,628Accounts
      receivable
                                    
                                    
                                    275
                                    
                                    
                                    
                                    2,350Interest
      receivable on restricted promissory notes
                                    
                                    
                                    4,830
                                    
                                    
                                    
                                    3,294Inventories and
      stockpiled ore (Note
      4)
                                    
                                    
                                    10,028
                                    
                                    
                                    
                                    7,504Shrinkage stope
      platform costs (Note
      5)
                                    
                                    
                                    12,091
                                    
                                    
                                    
                                    10,872Prepaids
                                    
                                    
                                    193
                                    
                                    
                                    
                                    381Assets
      held for sale (Note
      7)
                                    
                                    
                                    912
                                    
                                    
                                    
                                    1,26736,719
                                    
                                    
                                    
                                    28,296Mineral
      properties (Note
      6)
                                    
                                    
                                    89,038
                                    
                                    
                                    
                                    76,904Assets
      held for sale (Note
      7)
                                    
                                    
                                    4,857
                                    
                                    
                                    
                                    9,211Investments(Note
      8)
                                    
                                    
                                    607
                                    
                                    
                                    
                                    1,140Deposits for
      reclamation costs (Note
      14)
                                    
                                    
                                    2,277
                                    
                                    
                                    
                                    2,277Restricted
      promissory notes (Note
      9)
                                    
                                    
                                    81,938
                                    
                                    
                                    
                                    81,606$
                                    215,436
                                    
                                    
                                    $
                                    199,434Liabilities
      and Shareholders’ EquityCurrent
      liabilities:Accounts
      payable and accrued liabilities
                                    
                                    $
                                    5,794
                                    
                                    
                                    $
                                    4,146Interest
      payable on royalty obligations
                                    
                                    
                                    4,709
                                    
                                    
                                    
                                    3,205Demand
      loans (Note
      10)
                                    
                                    
                                    3,969
                                    
                                    
                                    
                                    6,015Liabilities
      related to assets held for sale (Note
      7)
                                    
                                    
                                    732
                                    
                                    
                                    
                                    1,185Other liabilities
      (Note
      12)
                                    
                                    
                                    2,307
                                    
                                    
                                    
                                    1,88717,511
                                    
                                    
                                    
                                    16,438Obligations
      under capital lease (Note
      13)
                                    
                                    
                                    1,614
                                    
                                    
                                    
                                    1,612Debenture(Note
      11)
                                    
                                    
                                    16,575
                                    
                                    
                                    
                                    -Royalty
      obligations (Note
      9)
                                    
                                    
                                    83,130
                                    
                                    
                                    
                                    82,779Deferred
      revenue (Note
      9)
                                    
                                    
                                    6,434
                                    
                                    
                                    
                                    7,291Liabilities
      related to assets held for sale (Note
      7)
                                    
                                    
                                    342
                                    
                                    
                                    
                                    641Asset
      retirement obligations (Note
      14)
                                    
                                    
                                    2,758
                                    
                                    
                                    
                                    2,566128,364
                                    
                                    
                                    
                                    111,327Shareholders’
      equity:Share
      capital(Note
      15)
                                    
                                    
                                    83,960
                                    
                                    
                                    
                                    85,591Contributed
      surplus
                                    
                                    
                                    1,748
                                    
                                    
                                    
                                    1,308Retained
      earnings
                                    
                                    
                                    1,896
                                    
                                    
                                    
                                    1,513Accumulated
      other comprehensive loss
                                    
                                    
                                    (532
                                    )
                                    
                                    
                                    (305
                                    )87,072
                                    
                                    
                                    
                                    88,107Subsequent
      Event(Note
      22)$
                                    215,436
                                    
                                    
                                    $
                                    199,434




See
accompanying notes to consolidated financial statements.






On
      behalf of the Board:josef spross signature
              ronald hicks signatureJosef
      Spross
              Ronald
      J. Hicks, CAChairman
              Chairman,
      Audit Committee




4




Consolidated
Statements of Earnings (Loss)


YEARS
ENDED DECEMBER 31 (CANADIAN DOLLARS IN THOUSANDS)


2008
                                                  
                                                  
                                                  2007Revenue
                                                  
                                                  $
                                                  40,999
                                                  
                                                  
                                                  $
                                                  29,922Expenses:Operating
      expenses
                                                  
                                                  
                                                  32,166
                                                  
                                                  
                                                  
                                                  25,311Depreciation,
      depletion, and accretion
                                                  
                                                  
                                                  12,524
                                                  
                                                  
                                                  
                                                  8,308General
      and administrative
                                                  
                                                  
                                                  4,657
                                                  
                                                  
                                                  
                                                  4,167Interest and
      other (Note
      16)
                                                  
                                                  
                                                  1,325
                                                  
                                                  
                                                  
                                                  (113
                                                  )Loss
      (gain) on sale of assets
                                                  
                                                  
                                                  (166
                                                  )
                                                  
                                                  
                                                  12Write-down of
      exploration properties
                                                  
                                                  
                                                  862
                                                  
                                                  
                                                  
                                                  58351,368
                                                  
                                                  
                                                  
                                                  38,268Loss
      from continuing operations before income taxes
                                                  
                                                  
                                                  (10,369
                                                  )
                                                  
                                                  
                                                  (8,346
                                                  )Income
      taxes (Note
      17)
                                                  
                                                  
                                                  2,240
                                                  
                                                  
                                                  
                                                  1,705Loss
      from continuing operations
                                                  
                                                  
                                                  (8,129
                                                  )
                                                  
                                                  
                                                  (6,641
                                                  )Earnings
      (loss) from operations held for sale (Note
      7)
                                                  
                                                  
                                                  8,512
                                                  
                                                  
                                                  
                                                  (326
                                                  )Net
      earnings (loss)
                                                  
                                                  $
                                                  383
                                                  
                                                  
                                                  $
                                                  (6,967
                                                  )Net
      earnings (loss) per share (Note
      18)Basic
      and dilutedFrom
      continuing operations
                                                  
                                                  $
                                                  (0.08
                                                  )
                                                  
                                                  $
                                                  (0.08
                                                  )Net
      earnings (loss)
                                                  
                                                  $
                                                  0.00
                                                  
                                                  
                                                  $
                                                  (0.08
                                                  )Weighted
      average number of commonshares outstanding (000’s) (Note
      18)Basic
                                                  
                                                  
                                                  97,100
                                                  
                                                  
                                                  
                                                  88,296Diluted
                                                  
                                                  
                                                  97,301
                                                  
                                                  
                                                  
                                                  88,296See
      accompanying notes to consolidated financial statements.Consolidated
      Statements of Comprehensive Income (Loss)YEARS
      ENDED DECEMBER 31 (CANADIAN DOLLARS IN THOUSANDS)2008
                                                  
                                                  
                                                  2007Net
      earnings (loss)
                                                  
                                                  $
                                                  383
                                                  
                                                  
                                                  $
                                                  (6,967
                                                  )Other
      comprehensive income (loss)Unrealized loss
      on available-for-sale securities
                                                  
                                                  
                                                  (227
                                                  )
                                                  
                                                  
                                                  (768
                                                  )Total
      comprehensive income (loss)
                                                  
                                                  $
                                                  156
                                                  
                                                  
                                                  $
                                                  (7,735
                                                  )




See
accompanying notes to consolidated financial statements.




5




Consolidated
Statements of Shareholders’ Equity


YEARS
ENDED DECEMBER 31 (CANADIAN DOLLARS IN THOUSANDS)


2008
                                  
                                  
                                  2007Share Capital(Note
      15)Balance,
      beginning of year
                                  
                                  $
                                  85,591
                                  
                                  
                                  $
                                  56,036Common
      shares issued for cash
                                  
                                  
                                  -
                                  
                                  
                                  
                                  27,957Warrants
      exercised
                                  
                                  
                                  -
                                  
                                  
                                  
                                  2,799Flow-through
      renunciation
                                  
                                  
                                  (2,240
                                  )
                                  
                                  
                                  (1,705
                                  )Fair
      value of warrants issued
                                  
                                  
                                  550
                                  
                                  
                                  
                                  -Options
      exercised
                                  
                                  
                                  -
                                  
                                  
                                  
                                  294Other
                                  
                                  
                                  59
                                  
                                  
                                  
                                  210Balance, end of
      year
                                  
                                  $
                                  83,960
                                  
                                  
                                  $
                                  85,591Contributed
      SurplusBalance,
      beginning of year
                                  
                                  $
                                  1,308
                                  
                                  
                                  $
                                  1,062Stock-based
      compensation
                                  
                                  
                                  449
                                  
                                  
                                  
                                  592Options
      exercised
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (278
                                  )Other
                                  
                                  
                                  (9
                                  )
                                  
                                  
                                  (68
                                  )Balance, end of
      year
                                  
                                  $
                                  1,748
                                  
                                  
                                  $
                                  1,308Retained
      EarningsBalance,
      beginning of year
                                  
                                  $
                                  1,513
                                  
                                  
                                  $
                                  8,480Net
      earnings (loss)
                                  
                                  
                                  383
                                  
                                  
                                  
                                  (6,967
                                  )Balance, end of
      year
                                  
                                  $
                                  1,896
                                  
                                  
                                  $
                                  1,513Accumulated
      other comprehensive (loss)Balance,
      beginning of year
                                  
                                  $
                                  (305
                                  )
                                  
                                  $
                                  -Transition
      adjustment (Note
      8)
                                  
                                  
                                  -
                                  
                                  
                                  
                                  463Other
      comprehensive loss
                                  
                                  
                                  (227
                                  )
                                  
                                  
                                  (768
                                  )Balance, end of
      year(1)
                                  
                                  $
                                  (532
                                  )
                                  
                                  $
                                  (305
                                  )Total
      retained earnings and accumulated other comprehensive loss
                                  
                                  $
                                  1,364
                                  
                                  
                                  $
                                  1,208Shareholders’
      equity, end of year
                                  
                                  $
                                  87,072
                                  
                                  
                                  $
                                  88,107


(1)
Accumulated other comprehensive loss is comprised of unrealized losses on
available-for-sale securities (Note 8).




See accompanying notes to
consolidated financial
statements.




6




Consolidated
Statements of Cash Flows


YEARS
ENDED DECEMBER 31 (CANADIAN DOLLARS IN THOUSANDS)


2008
                                                      
                                                      
                                                      2007Cash
      provided from (used in):Operations:Loss
      from continuing operations
                                                      
                                                      $
                                                      (8,129
                                                      )
                                                      
                                                      $
                                                      (6,641
                                                      )Non-cash
      items:Depreciation,
      depletion and accretion
                                                      
                                                      
                                                      12,524
                                                      
                                                      
                                                      
                                                      8,308Stock-based
      compensation
                                                      
                                                      
                                                      449
                                                      
                                                      
                                                      
                                                      592Write-down of
      exploration properties
                                                      
                                                      
                                                      862
                                                      
                                                      
                                                      
                                                      583Loss
      (gain) on sale of assets
                                                      
                                                      
                                                      (166
                                                      )
                                                      
                                                      
                                                      12Interest and
      other
                                                      
                                                      
                                                      (816
                                                      )
                                                      
                                                      
                                                      (527
                                                      )Income
      taxes
                                                      
                                                      
                                                      (2,240
                                                      )
                                                      
                                                      
                                                      (1,705
                                                      )Net
      changes in non-cash operating working capital:Accounts
      receivable
                                                      
                                                      
                                                      539
                                                      
                                                      
                                                      
                                                      (4,873
                                                      )Inventories and
      stockpiled ore
                                                      
                                                      
                                                      (2,524
                                                      )
                                                      
                                                      
                                                      (1,216
                                                      )Shrinkage stope
      platform costs
                                                      
                                                      
                                                      (1,219
                                                      )
                                                      
                                                      
                                                      (885
                                                      )Prepaids
                                                      
                                                      
                                                      188
                                                      
                                                      
                                                      
                                                      (266
                                                      )Accounts
      payable and accrued liabilities
                                                      
                                                      
                                                      3,152
                                                      
                                                      
                                                      
                                                      1,463Cash
      provided by (used in) continuing operations
                                                      
                                                      
                                                      2,620
                                                      
                                                      
                                                      
                                                      (5,155
                                                      )Cash
      provided by operations held for sale (Note
      7)
                                                      
                                                      
                                                      2,336
                                                      
                                                      
                                                      
                                                      9014,956
                                                      
                                                      
                                                      
                                                      (4,254
                                                      )Investing:Mineral
      properties
                                                      
                                                      
                                                      (25,328
                                                      )
                                                      
                                                      
                                                      (32,133
                                                      )Assets
      held for sale
                                                      
                                                      
                                                      (1,097
                                                      )
                                                      
                                                      
                                                      (846
                                                      )Proceeds on
      disposition of assets held for sale
                                                      
                                                      
                                                      11,230
                                                      
                                                      
                                                      
                                                      -Restricted
      promissory notes
                                                      
                                                      
                                                      (332
                                                      )
                                                      
                                                      
                                                      (25,624
                                                      )Investments
                                                      
                                                      
                                                      473
                                                      
                                                      
                                                      
                                                      (30
                                                      )Increase in
      reclamation deposits
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      (97
                                                      )Cash
      used in investing
                                                      
                                                      
                                                      (15,054
                                                      )
                                                      
                                                      
                                                      (58,730
                                                      )Financing:Issue
      of common shares, net of issue costs
                                                      
                                                      
                                                      50
                                                      
                                                      
                                                      
                                                      30,914Debenture
      proceeds, net of issue costs
                                                      
                                                      
                                                      16,972
                                                      
                                                      
                                                      
                                                      -Royalty
      obligations
                                                      
                                                      
                                                      351
                                                      
                                                      
                                                      
                                                      26,283Deferred
      revenue
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      3,331Demand
      loan repayments
                                                      
                                                      
                                                      (2,046
                                                      )
                                                      
                                                      
                                                      (1,985
                                                      )Obligations
      under capital lease:Proceeds
                                                      
                                                      
                                                      2,071
                                                      
                                                      
                                                      
                                                      2,514Repayments
                                                      
                                                      
                                                      (1,538
                                                      )
                                                      
                                                      
                                                      (776
                                                      )Cash
      provided from financing activities
                                                      
                                                      
                                                      15,860
                                                      
                                                      
                                                      
                                                      60,281Increase
      (decrease) in cash and cash equivalents
                                                      
                                                      
                                                      5,762
                                                      
                                                      
                                                      
                                                      (2,703
                                                      )Cash
      and cash equivalents, beginning of year
                                                      
                                                      
                                                      2,628
                                                      
                                                      
                                                      
                                                      5,331Cash
      and cash equivalents, end of year
                                                      
                                                      $
                                                      8,390
                                                      
                                                      
                                                      $
                                                      2,6282008
                                                      
                                                      
                                                      2007Cash
      and cash equivalents comprised of:Cash
                                                      
                                                      $
                                                      9,963
                                                      
                                                      
                                                      $
                                                      -Less
      outstanding cheques
                                                      
                                                      
                                                      (1,573
                                                      )
                                                      
                                                      
                                                      (2,372
                                                      )Term
      deposits
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      5,000$
                                                      8,390
                                                      
                                                      
                                                      $
                                                      2,6282008
                                                      
                                                      
                                                      2007Supplemental
      cash flow disclosure:Interest
      paid
                                                      
                                                      $
                                                      1,997
                                                      
                                                      
                                                      $
                                                      702




See
accompanying notes to consolidated financial statements.




7




1.
Description of Operations:




GOLD




Claude
Resources Inc. (“Claude” or the “Company”) is engaged in the production of gold
at its 100 percent owned  Seabee operation located 125 kilometres
northeast of La Ronge, Saskatchewan. Mining of the ore reserves at Seabee
commenced in 1991.  The Company also owns 100% of the Madsen Mine, an
advanced exploration property, located in Red Lake, Ontario.




OIL
& NATURAL GAS




The
Company has interests in oil and natural gas properties located in Alberta and
Saskatchewan.




During
the third quarter of 2008, the Company adopted a formal plan to dispose of its
oil & natural gas properties.  The related assets and liabilities
of the remaining oil & natural gas properties have been reported as Assets
held for sale and Liabilities related to assets held for sale in separate
captions in the consolidated balance sheets and the related results of
operations have been presented as operations held for sale in the consolidated
statements of income and cash flows for all periods
presented.  Additional disclosure regarding these assets held for sale
is outlined in Note 7.




2.
Significant Accounting Policies:




The
consolidated financial statements have been prepared by Management in accordance
with Canadian generally accepted accounting principles. Generally accepted
accounting principles require that Management make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent liabilities at the date of the financial statements and the reported
amount of revenues and expenses during the year.  The most significant
estimates are related to the lives and recoverability of mineral properties,
recoverability of inventory and shrinkage stope platform costs, provisions for
decommissioning and reclamation of assets and financial instruments and mineral
reserves.  Actual results could differ from these
estimates.




This
summary of significant accounting policies is a description of the accounting
methods and practices that have been used in the preparation of these
consolidated financial statements and is presented to assist the reader in
interpreting the statements contained herein.




CONSOLIDATION
PRINCIPLES




The
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiaries.   The accounts include the Company’s
proportionate share of joint operations.




CASH




Cash
and cash equivalents include cash and short-term investments which, on
acquisition, have an initial term to maturity of three months or
less.




INVESTMENTS




Investments
are classified as available-for-sale securities and measured at fair
value.  Unrealized gains or losses from revaluations of the securities
are included in other comprehensive income.  If available-for-sale
securities are disposed of, or there is an impairment in value that is other
than a temporary decline, these amounts are transferred from other comprehensive
income (loss) to net earnings (loss).




INVENTORIES
AND STOCKPILED ORE




Gold
inventory, which includes gold bullion, gold contained in the milling circuit
and in stockpiled ore on surface, is valued at the lower of cost and net
realizable value. Costs include labour, equipment costs and operating overhead.
Material and supplies inventory is valued at the lower of cost and net
realizable value.




SHRINKAGE
STOPE PLATFORM COSTS




The
Company utilizes the shrinkage stope and long-hole mining methods to mine its
ore body at the Seabee mine. Under these methods, ore used as a working platform
to access and mine further ore is valued at the lower of cost and net realizable
value. Costs include labour, equipment costs and operating overhead. This broken
ore is reclassified to inventory once transported to surface.




MINERAL
PROPERTIES




The
Company holds various positions in mining interests, including exploration
rights, mineral claims, mining leases, unpatented mining leases and options to
acquire mining claims or leases. All of these positions are classified as
mineral properties for financial statement purposes.




8




All
costs related to the acquisition, exploration and development of mineral
properties and the development of milling assets are capitalized on a property
by property basis. Development costs on producing properties include only
expenditures incurred to develop reserves or for delineation of existing
reserves. Interest on debt directly related to the acquisition and development
of mineral properties is capitalized until commencement of commercial
production. Expenditures for maintenance and repairs are charged to operating
expenses as incurred.




Upon
commencement of commercial production, the costs of each property are amortized
against future income using the unit of production method over estimated
recoverable ore reserves. Estimated recoverable ore reserves include proven and
probable mineral reserves. Costs which are not considered economically
recoverable through mining operations or through sale of reserves, or are
related to properties which are allowed to lapse, are expensed. Mining equipment
is depreciated over its estimated useful life of three years on a straight-line
basis.




The
carrying value of mineral properties is reviewed regularly utilizing a two part
test and, where necessary, is written down to the estimated fair
value.  Estimated future net cash flow, on an undiscounted basis, is
calculated for the property using:  estimated recoverable reserves and
resources; estimated future metal price realization (considering historical and
current prices, price trends and related factors); and, estimated operating and
capital cash flows.  An impairment loss is recognized when the
carrying value of an asset exceeds the sum of undiscounted future net cash
flows.  An impairment loss is measured at the amount by which the
asset’s carrying amount exceeds its fair value.  Where estimates of
future net cash flows are not available and where other conditions suggest
impairment, management assesses if carrying values can be recovered. If the
carrying values exceed estimated recoverable values, then the costs are
written-down to fair values. It is possible that changes could occur that may
affect the recoverability of the carrying value of mineral
properties.




OIL
& NATURAL GAS PROPERTIES




The
Company is engaged in oil & natural gas exploration and production in Canada
and substantially all of these activities are conducted with others. The
accounts reflect only the Company’s proportionate interest in such
activities.




The
Company follows the full-cost method of accounting whereby all costs relating to
the exploration for and development of oil & natural gas reserves are
capitalized. Such costs include land acquisition costs, geological and
geophysical expenses, engineering fees, related direct administrative costs,
costs of drilling both productive and non-productive wells including production
equipment, the fair value of retirement obligations and the cost of constructing
processing facilities. Also capitalized are identifiable carrying charges on
undeveloped properties. Proceeds received from disposal of property interests
are credited against accumulated costs except when the disposition results in a
significant change in the depletion rate, in which case a gain or loss on
disposal is recognized.  Where
estimates of future net cash flows are not available and where other conditions
suggest impairment, management assesses if carrying values can be
recovered.  If the carrying values exceed estimated recoverable
values, then the costs are written-down to fair values.Expenditures for
maintenance and repairs are charged to operating expenses as
incurred.




The
costs related to petroleum and natural gas properties are depleted on the unit
of production method based on the estimated proved reserves as determined by
independent consultants, before deduction of royalties and after conversion to
units of common measure based on relative energy content.




The
carrying values of the Company’s oil & natural gas properties are compared
annually to an estimate of undiscounted future net cash flow from the production
of proved reserves, based on estimated future prices. If the carrying value is
not fully recoverable, the amount of impairment is measured by comparing the
carrying amount of the oil & natural gas properties to an amount equal to
the estimated net present value of future cash flows from proved plus probable
reserves. Any excess carrying value above the net present value of the future
cash flows would be recorded as a permanent impairment and charged to
earnings.




DEBENTURE




The
Company’s debenture is a compound financial instrument, as it contains
components that are both debt and equity.  The debt and equity
components are presented separately on the Company’s Balance
Sheet.  Transaction costs incurred with the completion of this
debenture have been netted against proceeds received.  The liability
portion of the Debenture is classified as another financial liability and is
carried for at amortized cost using the effective interest basis.




ASSET
RETIREMENT OBLIGATIONS




The
fair value of the liability for the Company’s asset retirement obligations is
recorded in the period in which it is incurred, discounted to its present value
using the Company’s credit adjusted risk-free interest rate and the
corresponding amount is recognized by increasing the carrying amount of the
related long-lived asset. The liability is accreted each period, and the
capitalized cost is depreciated over the useful life of the related
asset.




ENVIRONMENTAL
COSTS




Costs
related to ongoing environmental programs are charged against earnings as
incurred.




REVENUE
RECOGNITION




Revenue
from gold sales are recognized when the rights and obligations of ownership pass
to the buyer. Settlement adjustments arising from final determination of metal
weights and assays are reflected in sales when determined. Revenue associated
with the sale of oil, natural gas liquids and natural gas represents the
Company’s share of the sale  value of production.




9




OTHER
FINANCIAL INSTRUMENTS




In
addition to those financial assets and liabilities disclosed above, the
following financial instruments has been reclassified as follows:




Accounts
      receivable and Restricted promissory notes relating to the Red Mile
      Resources Limited Partnership are classified as loans and receivables and
      are accounted for at amortized
cost.


Deposits
      for reclamation costs, designated as held to maturity, consist of
      investment certificates held as security for reclamation requirements and
      are carried at amortized cost.


Derivative
      financial instruments, which include foreign exchange and gold derivative
      contracts, are not designated as hedges.  These instruments are
      recorded using the mark-to-market method of accounting whereby instruments
      are recorded in the consolidated balance sheets as either an asset or
      liability with changes in fair value recognized in net
      earnings.




FOREIGN
CURRENCY TRANSLATION




Revenue
and expense transactions denominated in foreign currencies are translated in
Canadian dollars at the rate of exchange prevailing at the date of the
transaction. Monetary assets and liabilities denominated in foreign currencies
are translated to Canadian dollars at the rate of exchange in effect at the
balance sheet date. Exchange gains and losses on these transactions are included
in earnings.




INCOME
TAXES




Future
income tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying value of
existing assets and liabilities and their respective tax basis. Future income
tax assets and liabilities are measured using enacted or substantively enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.  The
effect on future income tax assets and liabilities of a change in tax rates is
recognized in earnings in the period which includes the enactment or substantive
enactment date.  Future income tax assets are recorded in the
financial statements if realization is considered more likely than
not.  The valuation of future income taxes is adjusted, if necessary,
by the use of a valuation allowance to reflect the estimated recoverable
amount.




FLOW-THROUGH
SHARES




The
Company finances a portion of its exploration activities through the issue of
flow-through shares. The Company records the tax cost of expenditures renounced
to subscribers on the date the deductions are renounced to the subscribers.
Share capital is reduced and future income tax liabilities are increased by the
tax cost of expenditures renounced to the subscribers, the Company has
unrecorded tax benefits on loss carryforwards and tax pools in excess of book
values available for deduction against which a valuation allowance has been
provided.  In these circumstances, the future tax liability reduces
the valuation allowance and this reduction is recognized in
earnings.




PER
SHARE AMOUNTS




Basic
per share amounts are calculated using the weighted average number of shares
outstanding during the period. Diluted per share amounts are calculated based on
the treasury-stock method, which assumes that any proceeds obtained on exercise
of options and warrants would be used by the Company to repurchase common shares
at the average market price during the period. The weighted average number of
shares outstanding is then adjusted by the net change.




STOCK-BASED
COMPENSATION PLANS




The
Company has two stock-based compensation plans which are described in Note 15.
The Company accounts for all stock option awards using the fair-value method of
accounting. Under this method, the Company recognizes a compensation expense for
all stock options awarded based on the fair value of the options at the date of
the grant, which is determined using an option pricing model. The fair value of
the options is expensed over the vesting period with a corresponding amount
recorded as contributed surplus. Under the Employee Share Purchase Plan,
compensation expense is recognized for the value of the Company's contribution
to the plan. Consideration received on the exercise of stock options and the
employee share purchase plan is recorded as share capital and the related
contributed surplus is transferred to share capital.




10




3.
Accounting Standards:




(a)
Changes in Accounting Policies




(i)
Inventories




Effective
January 1, 2008, the Company adopted Canadian Institute of Chartered Accountants
(“CICA”) Handbook Section 3031, Inventories, which supersedes
CICA Handbook Section 3030 and converges with the related International
Financial Reporting Standards (“IFRS”).




The
standard introduces significant changes to the measurement and disclosure of
inventory.  The measurement changes include the elimination of the
last in first out method (LIFO), the requirement to measure inventories at the
lower of cost and net realizable value, the allocation of overhead based on
normal capacity, the use of the specific cost method for inventories that are
not ordinarily interchangeable or goods and services produced for specific
purposes, the requirement for an entity to use a consistent cost formula for
inventory of a similar nature and use, and the reversal of previous writedowns
to net realizable value when there is a subsequent increase in the value of
inventories.  Disclosures of inventories have also been
enhanced.  Inventory policies, carrying amounts, amounts recognized as
an expense, writedowns and the reversals of writedowns are required to be
disclosed.




The
effects of the adjustment were not material to the consolidated financial
statements of the Company.




(ii)
Financial Instruments - Disclosure and Presentation




Effective
January 1, 2008, the Company adopted CICA Handbook Section 3862, Financial Instruments - Disclosuresand CICA Handbook Section 3863, Financial Instruments -
Presentation.These sections replace CICA Handbook Section
3861, Financial Instruments -
Disclosures and Presentation,and enhance the users’ ability to evaluate
the significance of financial instruments to an entity, related exposures and
the management of these risks.  The additional disclosures required by
these new sections are included in Note 19.




(iii)
Capital Disclosures




Effective
January 1, 2008, the Company adopted CICA Handbook Section 1535, Capital
Disclosures.This section establishes standards for disclosure
of both qualitative and quantitative information that enable users to evaluate
the Company’s objectives, policies and processes for managing
capital.  This standard requires disclosure of an entity's objectives,
policies and processes for managing capital, quantitative data about what the
entity regards as capital and whether the entity has complied with any capital
requirements and, if it has not complied, the consequences of such
non-compliance.  The additional disclosure required by this new
section is disclosed in Note 20.




(b)
Future Changes in Accounting Policy




(i)
International Financial Reporting Standards




The
Canadian Accounting Standards Board (“AcSB”) has confirmed that Canadian
publicly accountable enterprises will be required to adopt IFRS effective
January 1, 2011.  An April 2008 exposure draft issued by the CICA,
Adopting IFRS in
Canada, makes possible the early adoption of IFRS by Canadian
entities.




In
January 2008, the United States Securities and Exchange Commission (“SEC”)
issued a final rule that would allow some foreign private issuers to use IFRS,
without reconciliation to United States Generally Accepted Accounting Principles
(“GAAP”).  The Company does not plan to adopt IFRS prior to the CICA
mandatory deadline of January 1, 2011.




Although
IFRS employs a conceptual framework that is similar to Canadian GAAP, there are
significant differences in recognition, measurement and
disclosure.  The Company has undertaken a project to assess the
potential impacts of the transition to IFRS and has developed a detailed project
plan to ensure compliance with the new standards.




The
Company has completed the initial phase of the implementation project including
the detailed diagnostic analysis which included a high-level impact assessment
to identify key areas that may be impacted by the adoption of
IFRS.  This analysis resulted in the prioritization of areas to be
evaluated in the next phase of the project plan, component evaluation. This
phase, which is currently in progress, includes the analysis of accounting
policy alternatives available under IFRS as well as the determination of changes
required to existing information systems and business processes.  The
Company’s analysis of the areas that may be impacted by the adoption of IFRS has
identified a number of differences and is currently assessing the impact on the
results of operations, financial position and financial statement
disclosures.  In addition, the Company continues to assess the impact
of the conversion on internal controls over financial reporting and disclosure
controls and procedures.  The Company has and will continue to invest
in training and resources throughout the transition period.




11




(ii)
Goodwill and Intangible Assets




Effective
January 1, 2009, the Company will adopt CICA Handbook Section 3064, Goodwill and Intangible
Assets, which supersedes CICA Handbook Section 3062 (Financial Instruments - Goodwill
and Other Intangible Assets) and CICA Handbook Section 3450 (Research and Development
Costs) and substantially harmonizes with IFRS.  This standard
introduces guidance for the recognition, measurement, presentation and
disclosure of goodwill and intangible assets, including internally generated
intangible assets.  The changes are effective for interim and annual
financial statements beginning on or after October 1,
2009.  Concurrent with the introduction of this standard, the CICA
withdrew Emerging Issues Committee (“EIC”) 27 - Revenues and Expensesduring
the pre-operating period which removes the ability for companies to defer costs
and revenues incurred prior to commercial production at new mine
operations.  The Company is currently reviewing this new standard in
order to determine its impact.




(iii)
Consolidated Financial Statements




Effective
January 1, 2009, the Company will adopt CICA Handbook Section 1601, Consolidated Financial Statementswhich supersedes the existing standards.  This section
establishes the standards for preparing consolidated financial statements and is
effective for periods beginning on or after January 1, 2011.  The
Company does not expect the adoption of this standard to have a material impact
on its consolidated financial statements.




4.
Inventories and Stockpiled Ore:




2008
                      
                      
                      2007Gold
      in-circuit
                      
                      $
                      1,471
                      
                      
                      $
                      1,100Stockpiled
      ore
                      
                      
                      625
                      
                      
                      
                      562Materials
      and supplies
                      
                      
                      7,932
                      
                      
                      
                      5,842$
                      10,028
                      
                      
                      $
                      7,504




5.
Shrinkage Stope Platform Costs:




2008
                
                
                2007Stope
      Platform Costs
                
                $
                12,091
                
                
                $
                10,872


This
represents ore that is being used either as a working stage within the stope to
gain access to further ore or are costs incurred to access ore within the
long-hole stope. This ore is expected to be processed in the following 12
months.




6.
Mineral Properties:




Details
of the Company’s mineral related property, plant and equipment are as
follows:




Cost
                                  
                                  
                                  Accumulateddepreciation,depletion
      andwrite-downs
                                  
                                  
                                  2008Net
                                  
                                  
                                  Cost
                                  
                                  
                                  Accumulateddepreciation,depletion
      andwrite-downs
                                  
                                  
                                  2007NetProperty
      acquisitionand mine development costs
                                  
                                  $
                                  102,337
                                  
                                  
                                  $
                                  71,229
                                  
                                  
                                  $
                                  31,108
                                  
                                  
                                  $
                                  93,879
                                  
                                  
                                  $
                                  62,907
                                  
                                  
                                  $
                                  30,972Buildings,
      plant andequipment
                                  
                                  
                                  91,308
                                  
                                  
                                  
                                  68,629
                                  
                                  
                                  
                                  22,679
                                  
                                  
                                  
                                  83,975
                                  
                                  
                                  
                                  63,386
                                  
                                  
                                  
                                  20,589Exploration
      properties
                                  
                                  
                                  41,311
                                  
                                  
                                  
                                  6,060
                                  
                                  
                                  
                                  35,251
                                  
                                  
                                  
                                  30,541
                                  
                                  
                                  
                                  5,198
                                  
                                  
                                  
                                  25,343$
                                  234,956
                                  
                                  
                                  $
                                  145,918
                                  
                                  
                                  $
                                  89,038
                                  
                                  
                                  $
                                  208,395
                                  
                                  
                                  $
                                  131,491
                                  
                                  
                                  $
                                  76,904


Those
Debenture interest costs relating to the Madsen project totaling $0.6 million
have been capitalized in accordance with the Company’s accounting
policy.  Amounts reflected for exploration properties not in
commercial production represent costs incurred to date, net of write-downs, and
are not intended to reflect present or future values. The recoverability of the
costs is dependent upon the discovery of economically recoverable ore reserves,
the ability to obtain necessary financing to complete development and the
development of future profitable production from the properties or realization
of sufficient proceeds from the disposition of the properties based on reserve
estimates verified by the Company’s Qualified Person.




Expenditures
on exploration properties for the year ended December 31, 2008 and 2007, were
comprised largely of drilling and bulk sample costs on the Santoy and Porky
properties and drilling costs on the Madsen properties.




12




7.
Assets Held For Sale and Related Operations:




During
the third quarter of 2008, the Company adopted a formal plan to dispose of its
oil & natural gas properties.  The related assets and liabilities
of the remaining oil & natural gas properties have been reported as Assets
held for sale and Liabilities related to assets held for sale in separate
captions in the consolidated balance sheets and the related results of
operations have been presented as operations held for sale in the consolidated
statement of income and cash flows for all periods presented.  The
Company sold certain of these assets in the last quarter of the year for gross
proceeds of $11.2 million, realizing a gain of $6.5 million.




The
Assets held for sale and the related liabilities were as follows:




2008
                              
                              
                              2007AssetsAccounts
      receivable
                              
                              $
                              770
                              
                              
                              $
                              1,054Prepaids
                              
                              
                              142
                              
                              
                              
                              213912
                              
                              
                              
                              1,267Oil
      & natural gas properties
                              
                              
                              4,715
                              
                              
                              
                              9,099Deposits
      for reclamation costs (Note 14)
                              
                              
                              142
                              
                              
                              
                              1124,857
                              
                              
                              
                              9,211$
                              5,769
                              
                              
                              $
                              10,478LiabilitiesAccounts
      payable and accrued liabilities
                              
                              $
                              732
                              
                              
                              $
                              1,185Asset
      retirement obligations (Note 14)
                              
                              
                              342
                              
                              
                              
                              641$
                              1,074
                              
                              
                              $
                              1,826




The results of these operations were
as follows:




2008
                                    
                                    
                                    2007Revenue
                                    
                                    $
                                    7,357
                                    
                                    
                                    $
                                    9,029Less:
      royalties
                                    
                                    
                                    (2,782
                                    )
                                    
                                    
                                    (6,003
                                    )Revenue,
      net of royalties
                                    
                                    
                                    4,575
                                    
                                    
                                    
                                    3,026Operating
      expenses
                                    
                                    
                                    2,141
                                    
                                    
                                    
                                    2,384Depreciation,
      depletion, and accretion
                                    
                                    
                                    619
                                    
                                    
                                    
                                    9682,760
                                    
                                    
                                    
                                    3,352Earnings
      (loss) from operations held for sale
                                    
                                    
                                    1,815
                                    
                                    
                                    
                                    (326
                                    )Other
      incomeAsset
      retirement obligation change in estimate
                                    
                                    
                                    232
                                    
                                    
                                    
                                    -Gain on
      sale of assets
                                    
                                    
                                    6,465
                                    
                                    
                                    
                                    -Net
      earnings (loss) from operations held for sale
                                    
                                    $
                                    8,512
                                    
                                    
                                    $
                                    (326
                                    )The
      cash flows provided by operations held for sale were as
      follows:2008
                                    
                                    
                                    2007Net
      earnings (loss) from operations held for sale
                                    
                                    $
                                    8,512
                                    
                                    
                                    $
                                    (326
                                    )Adjustments
      for:Depreciation,
      depletion, and accretion
                                    
                                    
                                    619
                                    
                                    
                                    
                                    968Asset
      retirement obligation change in estimate
                                    
                                    
                                    (232
                                    )
                                    
                                    
                                    -Gain on
      sale of assets
                                    
                                    
                                    (6,465
                                    )
                                    
                                    
                                    -Decrease
      (increase) in receivables
                                    
                                    
                                    284
                                    
                                    
                                    
                                    (1
                                    )Decrease in
      prepaids
                                    
                                    
                                    71
                                    
                                    
                                    
                                    97Increase
      (decrease) in payables and accrued liabilities
                                    
                                    
                                    (453
                                    )
                                    
                                    
                                    163$
                                    2,336
                                    
                                    
                                    $
                                    901
   13




Details
of the Company’s oil and natural gas property, plant and equipment are as
follows:




Accumulated
                          
                          
                          
                          
                          
                          
                          
                          Accumulateddepreciation,
                          
                          
                          
                          
                          
                          
                          
                          depreciation,depletion
      and
                          
                          
                          2008
                          
                          
                          
                          
                          depletion
      and
                          
                          
                          2007Cost
                          
                          write-downs
                          
                          
                          Net
                          
                          
                          Cost
                          
                          write-downs
                          
                          
                          NetProperty
      acquisitionand drilling costs
                          
                          $
                          11,533
                          
                          
                          $
                          9,230
                          
                          
                          $
                          2,303
                          
                          
                          $
                          14,808
                          
                          
                          $
                          10,875
                          
                          
                          $
                          3,933Gas
      plant andproduction equipment
                          
                          
                          6,561
                          
                          
                          
                          4,149
                          
                          
                          
                          2,412
                          
                          
                          
                          11,987
                          
                          
                          
                          6,821
                          
                          
                          
                          5,166$
                          18,094
                          
                          
                          $
                          13,379
                          
                          
                          $
                          4,715
                          
                          
                          $
                          26,795
                          
                          
                          $
                          17,696
                          
                          
                          $
                          9,099


During
the second quarter of 2008, in exchange for one third of the Company’s working
interest in its Alberta oil and natural gas assets, the Company eliminated the
70 percent overriding royalty on the associated production.




8.
Investments:




2008
                    
                    
                    2007Available-for-sale
      securities, beginning of year
                    
                    $
                    1,140
                    
                    
                    $
                    1,428Transition
      adjustment(1)
                    
                    
                    -
                    
                    
                    
                    463Acquisition
      of available-for-sale securities
                    
                    
                    73
                    
                    
                    
                    30Disposal
      of available-for-sale securities
                    
                    
                    (379
                    )
                    
                    
                    (13
                    )Mark-to-market
      loss for the year
                    
                    
                    (227
                    )
                    
                    
                    (768
                    )Available-for-sale
      securities, end of year
                    
                    $
                    607
                    
                    
                    $
                    1,140


(1)Effective January 1, 2007, the Company adopted CICA Handbook Section
3855, Financial Instruments.  In accordance with this section, the
Company designated its investments as available-for-sale securities and realized
a transition adjustment of $463,000 representing the unrealized gain on these
investments at January 1, 2007.




By
holding these investments, the Company is exposed to various risk factors
including market price risk and liquidity risk.




9.
Restricted Promissory Notes and Royalty Obligations:




(a)In December 2007, the
Company entered into a Royalty Agreement (“2007 Agreement”) with Red Mile
Resources No. 11 Limited Partnership (“Red Mile No. 11”) whereby the Company
sold a “Royalty” on a portion of the gold production at its Seabee operations;
this agreement lasts the shorter of 10 years or the life of the Seabee
operations. The Company received cash of $28,955,250 which included royalty
income of $25,624,000, indemnity fees of $1,355,382 and interest income of
$1,975,868.




Under
the terms of the 2007 Agreement, the Company is required to make Royalty
payments at fixed amounts per ounce of gold produced; these amounts can vary
between CDN $35.17 to $147.05 per ounce over the remaining term of the 2007
Agreement. In addition, the Company granted Red Mile No. 11 a Net Profits
Interest (NPI) of 3.50 percent, 3.70 percent or 3.90 percent in years 2013
through 2017, payable only if each day's price of gold in any of those calendar
years is equal to or greater than CDN $1,250, $1,500 or $1,675 per ounce,
respectively.




$25,625,000
of the cash received was placed with a financial institution; in return, the
Company received a restricted promissory note.  The restricted
promissory note earns interest at 7 percent, payable annually, and matures on
February 15, 2017. Interest and principal from the restricted promissory note
will be sufficient to fund the expected basic royalty payments and any interest
expense.




Under
certain circumstances the Company has the right, by way of a call option, to
acquire the partnership units of Red Mile No. 11, effectively terminating the
2007 Agreement, for the lower of market value or for the outstanding amount of
the restricted promissory note at the end of the tenth year of the 2007
Agreement.




On
the balance sheet, the royalty payment received from Red Mile No. 11 is included
in "Royalty Obligations". These amounts are treated as debt and bear interest
which is included in interest expense. The indemnity fee and interest income of
$1,355,382 and $1,975,868 received by the Company are included in "Deferred
Revenue" on the balance sheet and are being recognized in income over the life
of the 2007 Agreement.




(b)In December 2006, the
Company entered into a Royalty Agreement (“2006 Agreement”) with Red Mile
Resources No. 8 Limited Partnership (“Red Mile No. 8”) whereby the Company sold
a “Royalty” on a portion of the gold production at its Seabee operations; this
agreement lasts the shorter of 10 years or the life of the Seabee operations.
The Company received cash of $39,200,000 which included royalty income of
$35,000,000, indemnity fees of $436,000 and interest income of
$3,764,000.




14




Under
the terms of the 2006 Agreement, the Company is required to make Royalty
payments at fixed amounts per ounce of gold produced; these amounts can vary
between CDN $40.82 to $198.95 per ounce over the remaining term of the
agreement.  In addition, the Company granted Red Mile No. 8 a Net
Profits Interest (NPI) of 3.75 percent, 4.00 percent or 4.25 percent in years
2012 through 2016, payable only if each day’s price of gold in any of those
calendar years is greater than CDN $975, $1,175 or $1,375 per ounce,
respectively.




$35,000,000
of the cash received was placed with a financial institution; in return, the
Company received a restricted promissory note. The restricted promissory note
earns interest at 7 percent, payable annually, and matures on February 15,
2016.  Interest and principal from the restricted promissory note will
be sufficient to fund the expected basic royalty payments and any interest
expense.




Under
certain circumstances the Company has the right, by way of a call option, to
acquire the partnership units of Red Mile No. 8, effectively terminating the
2006 Agreement, for the lower of market value or for the outstanding amount of
the restricted promissory note at the end of the tenth year of the 2006
Agreement.




On
the balance sheet, the royalty payment received from Red Mile No. 8 is included
in “Royalty Obligations”.  These amounts are treated as debt and bear
interest which is included in interest expense.  The indemnity fee and
interest income of $436,000 and $3,764,000 received by the Company are included
in “Deferred Revenue” on the balance sheet and are being recognized in income
over the life of the 2006 Agreement.




(c)In December 2005, the
Company entered into a Royalty Agreement (“2005 Agreement”) with Red Mile
Resources No. 7 Limited Partnership (“Red Mile No. 7”) whereby the Company sold
a “Royalty” on a portion of the gold production at its Seabee operations; this
agreement lasts the shorter of 10 years or the life of the Seabee operations.
The Company received cash of $15,680,000 which included royalty income of
$14,000,000, indemnity fees of $907,000 and prepaid interest of
$773,000.




Under
the terms of the 2005 Agreement, the Company is required to make Royalty
payments at fixed amounts per ounce of gold produced; these amounts can vary
between CDN $14.93 to $112.45 per ounce over the remaining term of the 2005
Agreement.  In addition, the Company granted Red Mile No. 7 a Net
Profits Interest (NPI) of 1.00 percent, 2.00 percent or 3.00 percent in years
2011 through 2015, payable only if each day’s price of gold in any of those
calendar years is greater than CDN $875, $1,075 or $1,275 per ounce,
respectively.




$14,000,000
of the cash received was placed with a financial institution; in return, the
Company received a restricted promissory note. The restricted promissory note
earns interest at 6 percent, payable annually, and matures on February 15,
2015.  Interest and principal from the restricted promissory note will
be sufficient to fund the expected basic royalty payments and any interest
expense.




Under
certain circumstances the Company has the right, by way of a call option, to
acquire the partnership units of Red Mile No. 7, effectively terminating the
2005 Agreement, for the lower of market value or for the outstanding amount of
the restricted promissory note at the end of the tenth year of the 2005
Agreement.




On
the balance sheet, the royalty payment received from Red Mile No. 7 is included
in “Royalty Obligations”.  These amounts are treated as debt and bear
interest which is included in interest expense.  The indemnity fee of
$907,000 received by the Company is included in “Deferred Revenue” on the
balance sheet and is being recognized in income over the life of the 2005
agreement.  The prepaid interest of $773,000 received by the Company
was deferred and recorded as income in 2006.




(d)In December 2004, the
Company entered into a Royalty Agreement (“2004 Agreement”) with Red Mile
Resources No. 3 Limited Partnership (“Red Mile No. 3”) whereby the Company sold
a “Royalty” on a portion of the gold production at its Seabee operations; this
agreement lasts the shorter of 10 years or the life of the Seabee operations.
The Company received cash of $8,018,000 which included royalty income of
$7,112,000, indemnity fees of $625,000 and prepaid interest of
$281,000.




Under
the terms of the 2004 Agreement, the Company is required to make Royalty
payments at fixed amounts per ounce of gold produced; these amounts can vary
between CDN $11.62 to $24.53 per ounce over the remaining term of the 2004
Agreement.  In addition, the Company granted Red Mile No. 3 a Net
Profits Interest (NPI) of 2.50 percent, 3.00 percent or 4.00 percent in years
2010 through 2014, payable only if each day’s price of gold in any of those
calendar years is greater than CDN $800, $900 or $1,200 per ounce,
respectively.




$6,982,000
of the cash received was placed with a financial institution; in return, the
Company received a restricted promissory note. The restricted promissory note
earns interest at 6 percent, payable annually, and matures on December 10,
2014.  Interest and principal from the restricted promissory note will
be sufficient to fund the expected basic royalty payments and any interest
expense.




Under
certain circumstances the Company has the right, by way of a call option, to
acquire the partnership units of Red Mile No. 3, effectively terminating the
2004 Agreement, for the lower of market value or for the outstanding amount of
the restricted promissory note at the end of the tenth year of the 2004
Agreement.




15




On
the balance sheet, the royalty payment received from Red Mile No. 3 is included
in “Royalty Obligations”.  These amounts are treated as debt and bear
interest which is included in interest expense.  The indemnity fee of
$625,000 received by the Company is included in “Deferred Revenue” on the
balance sheet and is being recognized in income over the life of the 2004
agreement.  The prepaid interest of $281,000 received by the Company
was deferred and recorded as income in 2005.




(e)In accordance with CICA
Accounting Guideline (“AcG”) 15 - “Consolidation of Variable Interest Entities”
and EIC 157 - “Implicit Variable Interests under AcG 15”, the Company has
determined that these Red Mile Limited Partnerships are variable interest
entities for which the Company holds variable interests. However, as the Company
is not the primary beneficiary under these arrangements, it is not required to
consolidate these entities.




The
following supplemental schedules present the effects of the Red Mile Agreements
on the Restricted Promissory Note, Royalty Obligation, and Deferred Revenue
balances presented in the Company’s consolidated balance sheets:




Restricted Promissory Note
Schedule




2008
                    
                    
                    2007Balance,
      beginning of year
                    
                    $
                    81,606
                    
                    
                    $
                    55,982Additions
                    
                    
                    -
                    
                    
                    
                    25,624Net
      interest
                    
                    
                    332
                    
                    
                    
                    -Balance,
      end of year
                    
                    $
                    81,938
                    
                    
                    $
                    81,606


Royalty Obligation
Schedule




2008
                      
                      
                      2007Balance,
      beginning of year
                      
                      $
                      82,779
                      
                      
                      $
                      56,496Net
      additions
                      
                      
                      -
                      
                      
                      
                      26,283Net
      interest
                      
                      
                      351
                      
                      
                      
                      -Balance,
      end of year
                      
                      $
                      83,130
                      
                      
                      $
                      82,779


Schedule of prepaid interest,
indemnification fees and loan agreement fees




2008
                      
                      
                      2007Balance,
      beginning of year
                      
                      $
                      8,260
                      
                      
                      $
                      5,455Indemnification
      fees
                      
                      
                      -
                      
                      
                      
                      1,355Prepaid
      interest and fees received
                      
                      
                      -
                      
                      
                      
                      1,976Indemnification
      fee income recognized
                      
                      
                      (311
                      )
                      
                      
                      (189
                      )Recognition
      of loan fees and prepaid interest
                      
                      
                      (658
                      )
                      
                      
                      (337
                      )Balance,
      end of year
                      
                      
                      7,291
                      
                      
                      
                      8,260Less:
      current portion (Note
      12)
                      
                      
                      (857
                      )
                      
                      
                      (969
                      )$
                      6,434
                      
                      
                      $
                      7,291




10.
Demand Loans:




The
Company has a $3,500,000 operating line of credit which bears interest at prime
plus 1.25 percent.  These funds are available for general corporate
purposes. At December 31, 2008 and December 31, 2007, the Company had not drawn
on the bank line.




2008
                          
                          
                          2007Demand
      loan, repayable in monthly payments of $96,514 includinginterest
      at 5.99 percent, due February 2010.
                          
                          $
                          1,302
                          
                          
                          $
                          2,348Demand
      loan, repayable in monthly payments of $83,333 plusinterest at
      bank prime plus 1.5 percent, due August 2011
                          
                          
                          2,667
                          
                          
                          
                          3,667$
                          3,969
                          
                          
                          $
                          6,015


The
demand loans are secured by a general security agreement covering all assets of
the Company, excluding oil and gas assets in Alberta.




16




11.
Debenture:




On
June 30, 2008, the Company completed its debenture offering for gross proceeds
of $18.1 million.  The debenture features a 12 percent interest rate,
five year term with monthly interest only payments.  Debenture holders
are entitled to warrants in the amount of 10 percent of the debenture
purchase.  Each warrant will entitle the holder to acquire one common
share at the exercise price of $1.60 per common share for a period of five years
from the date of closing.  The fair value of the warrants associated
with the debenture on the date of issuance was $550,000.  This amount
is reflected in share capital.




The
Company incurred $1.7 million of issue costs associated with the completion of
this debenture offering.  Pursuant to Company policy, these costs
reduce the carrying value of the debenture and will be amortized using the
effective interest rate method at an effective rate of 14.7 percent over the
five year term of the liability.




2008
                      
                      
                      2007Debenture
      payable
                      
                      $
                      18,095
                      
                      
                      $
                      -Less:Debt
      issue costs
                      
                      
                      (1,123
                      )
                      
                      
                      -Warrant
      valuation
                      
                      
                      (550
                      )
                      
                      
                      -16,422
                      
                      
                      
                      -Add:
      Amortization of debt issue costs
                      
                      
                      153
                      
                      
                      
                      -$
                      16,575
                      
                      
                      $
                      -




The
debenture is secured by a general security agreement covering all of the
Company's assets and contains early retraction and redemption
provisions.  The general security interest, excluding the Alberta oil
& natural gas assets, is subordinated to all bank debt.




12.
Other Liabilities:




2008
                    
                    
                    2007Current
      portion of:Deferred
      revenue (Note
      9)
                    
                    $
                    857
                    
                    
                    $
                    969Obligations
      under capital lease (Note
      13)
                    
                    
                    1,450
                    
                    
                    
                    918$
                    2,307
                    
                    
                    $
                    1,887


13.
Obligations under Capital Lease:




Obligations
under capital lease bear interest between 3.3 percent and 8.0 percent per annum,
are due from 2009 to 2012 and are secured by the leased equipment. The estimated
principal repayments on the leases are as follows:  2009 - $1,450,000,
2010 - $1,308,000, 2011 - $266,000, and 2012 - $40,000.




14.
Asset Retirement Obligations:




The
Company’s asset retirement obligations consist of reclamation and closure costs
for both mineral and oil & natural gas properties. The present value of
obligations relating to mineral properties is currently estimated at $2,758,000
(2007 - $2,566,000) and was determined using a 7.5 percent discount rate and
expected payment of future obligations of $5.4 million over the next 5 to 10
years. The present value of obligations relating to  the assets held
for sale is currently estimated at $342,000 (2007 - $641,000) and was determined
using a 7.5 percent discount rate and expected payment of future obligations of
$1.2 million over the next 5 to 35 years. An accretion expense component of
$227,000 ($192,000-gold and $35,000-gas assets held for sale) was recorded in
2008, offset by revisions made to the gas assets held for sale obligations,
resulting in a decrease in the overall carrying amount of the asset retirement
obligations. Changes to the asset retirement obligation during the year are as
follows:




2008
                      
                      
                      2007Gold:Asset
      retirement obligations, beginning of year
                      
                      $
                      2,566
                      
                      
                      $
                      1,890Accretion
      expense
                      
                      
                      192
                      
                      
                      
                      142Revisions
      in estimated future cash out flows
                      
                      
                      -
                      
                      
                      
                      534Asset
      retirement obligations, end of year
                      
                      $
                      2,758
                      
                      
                      $
                      2,566
  17
 
 2008
                      
                      
                      2007Assets
      held for sale (Note
      7):Asset
      retirement obligations, beginning of year
                      
                      $
                      641
                      
                      
                      $
                      596Accretion
      expense
                      
                      
                      35
                      
                      
                      
                      45Revisions
      in estimated future cash out flows
                      
                      
                      (334
                      )
                      
                      
                      -Asset
      retirement obligations, end of year
                      
                      $
                      342
                      
                      
                      $
                      641




As
required by regulatory authorities, the Company has provided letters of credit
as security for reclamation related to the Madsen and Seabee properties in the
amounts of $658,000 (2007 - $658,000) and $1,619,000 (2007 - $1,619,000),
respectively. As security for these letters of credit, the Company has provided
investment certificates in the amount of $2,277,000 (2007 - $2,277,000). The
Company has also deposited $142,000 (2007 - $112,000) for its reclamation
obligations on certain of its assets held for sale.




2008
                                
                                
                                2007Gold:Deposits
      for reclamation costs, beginning of year
                                
                                $
                                2,277
                                
                                
                                $
                                2,181Additions
                                
                                
                                -
                                
                                
                                
                                96Deposits
      for reclamation costs, end of year
                                
                                $
                                2,277
                                
                                
                                $
                                2,2772008
                                
                                
                                2007Assets
      held for sale (Note
      7):Deposits
      for reclamation costs, beginning of year
                                
                                $
                                112
                                
                                
                                $
                                89Additions
                                
                                
                                30
                                
                                
                                
                                23Deposits
      for reclamation costs, end of year
                                
                                $
                                142
                                
                                
                                $
                                112




15.
Shareholders’ Equity:




AUTHORIZED




The
authorized share capital of the Company consists of an unlimited number of
common shares and two classes of unlimited preferred shares issuable in
series.




The
first preferred shares are issuable in series and rank ahead of the second
preferred shares and the common shares in respect of dividend payment,
dissolution or any other distribution of assets. The other rights, privileges,
restrictions and conditions attached to each series of the first preferred
shares are fixed by the Board of Directors at the time of creation of such
series.




The
second preferred shares are issuable in series and rank ahead of the common
shares in respect of dividend payment, dissolution or any other distribution of
assets. The other rights, privileges, restrictions and conditions attached to
each series of the second preferred shares are fixed by the Board of Directors
at the time of creation of such series.




The
common shares of the Company are entitled to vote at meetings of the
shareholders and, upon dissolution or any other distribution of assets, to
receive such assets of the Company as are distributable to the holders of the
common shares.




ISSUED
AND OUTSTANDING COMMON SHARES




2008
                      
                      
                      
                      
                      
                      2007Number
                      
                      
                      Amount
                      
                      
                      Number
                      
                      
                      AmountBeginning
      of year
                      
                      
                      96,997,397
                      
                      
                      $
                      85,591
                      
                      
                      
                      76,272,791
                      
                      
                      $
                      56,036ESPP
      (a)
                      
                      
                      114,633
                      
                      
                      
                      159
                      
                      
                      
                      122,289
                      
                      
                      
                      210Exercise
      of stock options (b)
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      270,000
                      
                      
                      
                      294Exercise
      of warrants (c)
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      2,173,533
                      
                      
                      
                      2,799Equity
      issue (d)
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      14,375,000
                      
                      
                      
                      23,000Flow-through
      shares (e)
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      3,783,784
                      
                      
                      
                      7,000Issue
      costs
                      
                      
                      -
                      
                      
                      
                      (100
                      )
                      
                      
                      -
                      
                      
                      
                      (2,043
                      )Tax
      effect of flow-through shares
                      
                      
                      -
                      
                      
                      
                      (2,240
                      )
                      
                      
                      -
                      
                      
                      
                      (1,705
                      )Fair
      value of warrants issued (f)
                      
                      
                      -
                      
                      
                      
                      550
                      
                      
                      
                      -
                      
                      
                      
                      -End
      of year
                      
                      
                      97,112,030
                      
                      
                      $
                      83,960
                      
                      
                      
                      96,997,397
                      
                      
                      $
                      85,591




18




(a)
EMPLOYEE SHARE PURCHASE PLAN (“ESPP”)




The
ESPP was established to encourage employees to purchase Company common shares.
Under the plan, eligible employees may contribute up to 5 percent of their basic
annual salary and the Company shall contribute common shares in an amount equal
to 50 percent of the employee’s contribution. Shares of the Company are issued
to employees based on a weighted average market price over a specific period.
During 2008, the Company issued 114,633 common shares (2007 - 122,289) for
$159,000 (2007 - $210,000) pursuant to this plan. The maximum number of common
shares of the Company available for issue under this ESPP is 10 percent of the
Company’s common shares outstanding.




(b)
SHARE OPTION PLAN




The
Company has established a stock option plan under which options may be granted
to directors, officers, key employees and consultants.  The maximum
number of common shares available for option under the stock option plan is 9
percent of the Company’s common shares outstanding. Options granted have an
exercise price of the prior day’s closing price of the common shares on the
stock exchange on which the shares are traded. The majority of the options
granted vest over two years and expire 10 years from the date of the grant of
the option.




For
director and employee options outstanding at December 31, 2008 and 2007,
weighted average exercise prices are as follows:




2008
                    
                    
                    Average
                    
                    
                    2007
                    
                    
                    AverageOptions
                    
                    
                    Price
                    
                    
                    Options
                    
                    
                    PriceBeginning
      of year
                    
                    
                    3,636,667
                    
                    
                    $
                    1.27
                    
                    
                    
                    3,380,000
                    
                    
                    $
                    1.17Options
      granted
                    
                    
                    583,000
                    
                    
                    
                    0.92
                    
                    
                    
                    925,000
                    
                    
                    
                    1.63Options
      exercised
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (270,000
                    )
                    
                    
                    0.81Options
      lapsed
                    
                    
                    (678,332
                    )
                    
                    
                    1.38
                    
                    
                    
                    (398,333
                    )
                    
                    
                    1.64End
      of year
                    
                    
                    3,541,335
                    
                    
                    $
                    1.19
                    
                    
                    
                    3,636,667
                    
                    
                    $
                    1.27




For
director and employee options outstanding at December 31, 2008, the range of
exercise prices, the weighted average exercise price and the weighted average
remaining contractual life are as follows:




Weighted
      AveragePer
      ShareOptions
      Price
                  Number
                  Exercise
      Price
                  Remaining
      Life$0.34-$1.02
                  1,092,668
                  $
                  0.67
                  5.67
      years$1.11-$1.47
                  1,490,333
                  
                  1.25
                  4.09
      years$1.54-$2.10
                  958,334
                  
                  1.69
                  7.89
      years3,541,335
                  $
                  1.19
                  5.60
      years




The
fair value of stock options granted in the year was estimated using the
Black-Scholes option pricing model with assumptions of a six year weighted
average expected option life, no expected forfeiture rate, 47 percent to 56
percent volatility (2007 - 47 percent to 60 percent) and interest rates ranging
from 2.80 percent to 3.69 percent (2007 - 3.96 percent to 4.70 percent). In
2008, the compensation expense recognized in respect of stock options was
$449,000 (2007 - $592,000).




(c)
EQUITY ISSUE




During
2005, the Company completed a private placement consisting of a total of
4,023,100 units, issued at a price of $1.00 per unit, and a total of 4,547,273
common shares, issued on a flow-through basis at a price of $1.10 per common
share, for gross proceeds of $9,025,000. Each unit consisted of one common share
and one-half of one common share purchase warrant. Each whole purchase warrant
entitled the holder, upon exercise at any time up to and including June 23, 2007
and upon payment of $1.20, to subscribe for one common share. In partial
consideration of services provided to the Company in connection with the
offering, the Underwriters were issued broker options entitling them to purchase
up to an aggregate of 201,155 broker units at any time up to and including June
23, 2007 at a price of $1.10 per broker unit. Each broker unit consisted of one
common share and one-half of a broker warrant. Each whole broker warrant
entitled the holder to subscribe for one common share for a period up to and
including June 23, 2007 at an exercise price of $1.30.  At December
31, 2007 there were no warrants outstanding.




(d)
EQUITY ISSUE




During
2007, the Company completed an equity issue consisting of 12,500,000 common
shares at a price of  $1.60 per share, for proceeds of
$20,000,000.  In addition, the Underwriters of the offering exercised
the over-allotment option to purchase an additional 1,875,000 common shares a
price of $1.60 per share for additional gross proceeds of $3,000,000, resulting
in the  aggregate issuance under the offering of 14,375,000 common
shares of the Company for aggregate gross proceeds of $23,000,000.




19




(e)
FLOW-THROUGH SHARES




During
2007, the Company completed a non-brokered private placement consisting of a
total of 3,783,784 common shares, issued on a flow-through basis, at a price of
$1.85 per share, for proceeds of $7,000,000.  The Company was required
to expend $7,000,000 in qualifying Canadian Exploration Expenses as defined in
the Income Tax Act (Canada) prior to December 31, 2008.  The Company
completed all required expenditures by December 31, 2008.




(f)
DEBENTURE ISSUE




During
2008, the Company completed a debenture offering for gross proceeds of $18.1
million.  Debenture holders received warrants in the amount of 10
percent of the debenture purchase.  Each warrant entitles the holder
to acquire one common share at the exercise price of $1.60 per common share for
a period of five years from the date of closing.  The fair value of
the warrants associated with the debenture on the date of issue was
$550,000.  This amount is reflected in share capital.




16.
Interest and Other:




2008
                    
                    
                    2007Interest
      on long term debt
                    
                    $
                    1639
                    
                    
                    $
                    506Other
      interest expense
                    
                    
                    5,509
                    
                    
                    
                    3,722Interest
      capitalized to mineral properties
                    
                    
                    (605
                    )
                    
                    
                    -Interest
      and other income
                    
                    
                    (5,218
                    )
                    
                    
                    (4,341
                    )Interest
      and other
                    
                    $
                    1,325
                    
                    
                    $
                    (113
                    )


17.
Income Taxes:




The
significant components of future income tax assets are as follows:




2008
                          
                          
                          2007Future
      income tax assets:Mineral
      properties(1)
                          
                          $
                          (724
                          )
                          
                          $
                          (369
                          )Asset
      retirement obligations
                          
                          
                          837
                          
                          
                          
                          866Share
      issue costs
                          
                          
                          369
                          
                          
                          
                          604Royalty
      obligation(1)
                          
                          
                          22,445
                          
                          
                          
                          22,350Deferred
      revenue
                          
                          
                          1,968
                          
                          
                          
                          2,230Future
      income tax assets before valuation allowance
                          
                          
                          24,895
                          
                          
                          
                          25,681Valuation
      allowance
                          
                          
                          (24,895
                          )
                          
                          
                          (25,681
                          )Future
      income tax assets
                          
                          $
                          -
                          
                          
                          $
                          -


(1)Reflects
impact of Royalty Agreements and utilization of mineral tax pools as disclosed
in Note 9.




The
provision for income taxes differs from the amount computed by applying the
combined expected federal and provincial income tax rate to earnings before
income taxes. The reasons for these differences are as follows:


2008
                            
                            
                            2007Earnings
      (loss) before income taxes
                            
                            $
                            (1,857
                            )
                            
                            $
                            (8,672
                            )Combined
      federal and provincial tax rate
                            
                            
                            32
                            %
                            
                            
                            36
                            %Expected tax
      expense (recovery)
                            
                            
                            (594
                            )
                            
                            
                            (3,122
                            )Increase
      (decrease) in taxes resulting from:Other
      permanent differences
                            
                            
                            119
                            
                            
                            
                            271Effect
      of change in effective tax rates
                            
                            
                            (276
                            )
                            
                            
                            4,149Valuation
      allowance
                            
                            
                            (1,489
                            )
                            
                            
                            (3,003
                            )$
                            (2,240
                            )
                            
                            $
                            (1,705
                            )




20




18.
Per Share Amounts:




The
calculation of earnings (loss) per share have been calculated based on the
weighted average number of shares outstanding during the year ended December 31,
2008 of 97,099,782 shares (2007 - 88,295,773 shares).




2008
                                    
                                    
                                    2007Basic
      earnings (loss) per share:Net
      earnings (loss) available tocommon
      shareholders
                                    
                                    $
                                    383
                                    
                                    
                                    $
                                    (6,967
                                    )Weighted
      average number
      ofcommon shares
      outstanding
                                    
                                    
                                    97,100
                                    
                                    
                                    
                                    88,296Basic
      net earnings (loss) per share
                                    
                                    $
                                    0.00
                                    
                                    
                                    $
                                    (0.08
                                    )Diluted
      earnings (loss) per share:Net
      earnings (loss) available tocommon
      shareholders
                                    
                                    $
                                    383
                                    
                                    
                                    $
                                    (6,967
                                    )Weighted
      average number
      ofcommon shares
      outstanding
                                    
                                    
                                    97,100
                                    
                                    
                                    
                                    88,296Dilutive effect
      of stock options
                                    
                                    
                                    201
                                    
                                    
                                    
                                    -Weighted
      average number
      ofcommon shares
      outstanding
                                    
                                    
                                    97,301
                                    
                                    
                                    
                                    88,296Diluted
      net earnings (loss) per share
                                    
                                    $
                                    0.00
                                    
                                    
                                    $
                                    (0.08
                                    )




In
2008, the net effect of applying the treasury-stock method to the weighted
average number of shares outstanding included the dilutive effect of 666,000
share options.  Excluded from the computation of diluted (loss)
earnings per share were:




i)
options outstanding on 2,875,335 shares with an average exercise price greater
than the average market price of the Company’s common shares; and




ii)
options and warrants that were anti-dilutive.




19.
Financial Instruments:




The
Company is exposed in varying degrees to a variety of financial instrument
related risks by virtue of its activities.  The overall financial risk
management program focuses on preservation of capital and protecting current and
future Company assets and cash flows by reducing exposure to risks posed by the
uncertainties and volatilities of financial markets.




The
Board of Directors has responsibility to ensure that an adequate financial risk
management policy is established and to approve the policy.




The
Company’s Audit Committee oversees Management’s compliance with the Company’s
financial risk management policy, approves financial risk management programs,
and receives and reviews reports on management compliance with the
policy.




The
types of risk exposures and the way in which such exposures are managed are as
follows:




Credit Risk - The Company’s
credit risk is primarily attributable to its liquid financial assets including
cash and cash equivalents, receivables, and commodity and currency
instruments.  The Company limits exposure to credit risk on liquid
financial assets through maintaining its cash and equivalents and reclamation
deposits with high-credit quality financial institutions.  Sales of
commodities are to entities considered to be credit worthy. The Company does not
have financial assets that are invested in asset backed commercial
paper.




Liquidity Risk - The Company
ensures that there is sufficient capital in order to meet short term business
requirements, after taking into account cash flows from operations and the
Company’s holdings of cash and cash equivalents.  The Company believes
operating cash flows will be sufficient to fund the continued exploration at
Madsen and ongoing capital improvements at the Seabee properties.  The
Company intends to continue divesting its non core assets, the proceeds of which
may decrease the need for additional capital to be raised through equity
issues.  The Company’s cash is invested in business accounts with
quality financial institutions and which is available on demand for the
Company’s programs.




21




Payments/Commitments
      due by periodTotal
                                                                                                          
                                                                                                          
                                                                                                          Less
      than 1 year
                                                                                                          
                                                                                                          
                                                                                                          2-3
      years
                                                                                                          
                                                                                                          
                                                                                                          4-5
      years
                                                                                                          
                                                                                                          
                                                                                                          More
      than 5 yearsContractual
      ObligationDemand
      loans
                                                                                                          
                                                                                                          
                                                                                                          3,969,000
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          2,110,000
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          1,859,000
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -Interest
      on demand loans
                                                                                                          
                                                                                                          
                                                                                                          297,000
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          197,000
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          100,000
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -Debenture
                                                                                                          
                                                                                                          
                                                                                                          18,095,000
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          18,095,000
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -Debenture
      interest
                                                                                                          
                                                                                                          
                                                                                                          9,534,600
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          2,171,400
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          4,342,800
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          3,020,400
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -Capital
      lease obligation
                                                                                                          
                                                                                                          
                                                                                                          3,064,000
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          1,450,000
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          1,574,000
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          40,000
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -Office
      lease
                                                                                                          
                                                                                                          
                                                                                                          73,000
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          73,000
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -Royalty
      payments(1)
                                                                                                          
                                                                                                          
                                                                                                          53,288,000
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          5,518,000
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          11,405,000
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          12,736,000
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          23,629,000Royalty
      obligations(1)
                                                                                                          
                                                                                                          
                                                                                                          83,130,000
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          83,130,000171,450,600
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          11,519,400
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          19,280,800
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          33,891,400
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          106,759,000




Market Risk - The significant
market risk exposures to which the Company is exposed are foreign exchange risk,
interest rate risk and commodity price risk.  These are discussed
further below:




Foreign exchange risk - The
Company’s revenues from the production and sale of gold are denominated in US
dollars.  However, the Company’s operating expenses are primarily
incurred in Canadian dollars and its liabilities are primarily denominated in
Canadian dollars.  The results of the Company’s operations are subject
to currency risks.  The operating results and financial position of
the Company are reported in Canadian dollars in the Company’s consolidated
financial statements.  The fluctuation of the US dollar in relation to
the Canadian dollar will consequently have an impact on the profitability of the
Company and may also affect the value of the Company’s assets and the amount of
shareholder’s equity.




To
manage risks associated with changes in foreign currency, the Company may use
foreign currency derivative instruments.  For a $0.01 movement in the
US$/CDN$ exchange rate, gold earnings and cash flow will have a corresponding
movement of $0.4 million, or $0.00 per share.




Interest rate risk - In
respect to the Company’s financial assets, the interest rate risk mainly arises
from the interest rate impact on our cash and cash equivalents, reclamation
deposits, and debt.  In respect to financial liabilities, one of the
Company’s demand loans carries a floating interest rate with the balance of
Company debt at fixed interest rates. The Company chooses to fix its interest
costs to avoid variations in cash flows.  Due to the greater
proportion of fixed rate debt, a 1% change in interest rates would not
materially impact earnings or cash flows.




Commodity price risk - The
value of the Company’s mineral resources is related to the price of gold and the
outlook for this mineral.  Gold prices historically have fluctuated
widely and are affected by numerous factors outside of the Company’s control,
including, but not limited to, industrial and retail demand, central bank
lending, forward sales by producers and speculators, levels of worldwide
production, short-term changes in supply and demand because of speculative
hedging activities, and certain other factors related specifically to
gold.  The profitability of the Company’s operations is highly
correlated to the market price of gold.  If the gold price declines
below the cost of production at the Company’s mines, for a prolonged period of
time, it may not be economically feasible to continue production.




To
manage risks associated with changes in gold price, the Company may use gold
derivative instruments. For a US $10 movement in gold price per ounce, earnings
and cash flow will have a corresponding movement of CDN $0.5 million, or $0.00
per share.




Fair Value - The Company has
various financial instruments comprised of cash and cash equivalents,
receivables, restricted promissory notes, reclamation deposits, accounts payable
and accrued liabilities and short term debts.




22




The
carrying amounts and fair values of financial assets and liabilities are as
follows:




December
      31
                  
                  
                  December
      312008
                  
                  
                  2007Carrying
                  
                  
                  Estimated
                  
                  
                  Carrying
                  
                  
                  EstimatedValue
                  
                  
                  Fair
      Value
                  
                  
                  Value
                  
                  
                  Fair
      ValueLoans
      and receivablesAccounts
      receivable(1)
                  
                  
                  275
                  
                  
                  
                  275
                  
                  
                  
                  2,350
                  
                  
                  
                  2,350Interest
      receivable on restricted promissory note(1)
                  
                  
                  4,830
                  
                  
                  
                  4,830
                  
                  
                  
                  3,294
                  
                  
                  
                  3,294Restricted
      promissory note(2)
                  
                  
                  n/a
                  
                  
                  
                  n/a
                  
                  
                  
                  n/a
                  
                  
                  
                  n/aAvailable-for-sale
      financial assetsInvestments
      (3)
                  
                  
                  607
                  
                  
                  
                  607
                  
                  
                  
                  1,140
                  
                  
                  
                  1,140Held-for-tradingCash
      and cash equivalents(1)
                  
                  
                  8,390
                  
                  
                  
                  8,390
                  
                  
                  
                  2,628
                  
                  
                  
                  2,628Reclamation
      deposits(1)
                  
                  
                  2,277
                  
                  
                  
                  2,277
                  
                  
                  
                  2,277
                  
                  
                  
                  2,277Other
      financial assetsAssets
      held for sale (Note 7)(1)
                  
                  
                  912
                  
                  
                  
                  912
                  
                  
                  
                  1,166
                  
                  
                  
                  1,166Other
      financial liabilitiesDemand
      loans(1)
                  
                  
                  3,969
                  
                  
                  
                  3,969
                  
                  
                  
                  6,015
                  
                  
                  
                  6,015Payables and
      accrued liabilities(1)
                  
                  
                  5,794
                  
                  
                  
                  5,794
                  
                  
                  
                  4,146
                  
                  
                  
                  4,146Liabilities
      related to assets held for sale (Note
      7)(1)
                  
                  
                  732
                  
                  
                  
                  732
                  
                  
                  
                  1,185
                  
                  
                  
                  1,185Interest
      payable on royalty obligations(1)
                  
                  
                  4,709
                  
                  
                  
                  4,709
                  
                  
                  
                  3,205
                  
                  
                  
                  3,205Debenture
                  
                  
                  16,575
                  
                  
                  
                  18,095
                  
                  
                  
                  -
                  
                  
                  
                  -


(1) Due to
the nature and/or short maturity of these financial instruments, carrying value
approximated fair value


(2)The
cash flows associated with the restricted promissory notes and royalty
obligations match.  Due to the lack of comparable market information,
the fair value of these instruments is not determinable


(3)Based
on quoted market prices




20.
Capital Disclosures:




The
Company’s objective when managing its capital is to safeguard its ability to
continue as a going concern so that it can continue to provide adequate returns
to shareholders and benefits to other stakeholders.  The Company
manages the capital structure and makes adjustments to it in light of changes in
economic conditions and the risk characteristics of the underlying
assets.  In order to maintain or adjust the capital structure, the
Company may issue new shares through private placements, sell assets or incur
debt.  The Company is not subject to externally imposed capital
requirements.




The
Company utilizes a combination of short-term and long term debt and equity to
finance its operations and exploration.  The Company’s capital
structure at December 31, 2008 was as follows:




2008
                        
                        
                        2007Operating
      line of credit (Note
      10)
                        
                        $
                        -
                        
                        
                        $
                        -Demand
      loan # 1 (Note
      10)
                        
                        
                        1,302
                        
                        
                        
                        2,348Demand
      loan # 2 (Note
      10)
                        
                        
                        2,667
                        
                        
                        
                        3,667Debenture
      (Note
      11)
                        
                        
                        16,575
                        
                        
                        
                        -Total
      debt
                        
                        
                        20,544
                        
                        
                        
                        6,015Less:
      cash and cash equivalents
                        
                        
                        8,390
                        
                        
                        
                        2,628Net
      debt
                        
                        
                        12,154
                        
                        
                        
                        3,387Shareholders’
      equity
                        
                        
                        87,072
                        
                        
                        
                        88,107Total
      capital
                        
                        $
                        99,226
                        
                        
                        $
                        91,494




The
Company is bound by and has met all covenants on these credit
facilities.




21.
Comparative Figures:




Certain
of prior years’ balances have been reclassified to conform to the current year’s
financial statement presentation.




22.
Subsequent Event:





23




JOSEF SPROSS


Chairman




NEIL
MCMILLAN


President
& Chief Executive Officer




RICK
JOHNSON, CA


Vice
President Finance & Chief Financial Officer




PHILIP
NG, P.ENG.


Vice
President Mining Operations




BRIAN
SKANDERBEG, P.GEO.


Vice
President Exploration




RONALD
J. HICKS, CA


Director




TED
NIEMAN


Director




J.
ROBERT KOWALISHIN, P.ENG.


Director




RAY
MCKAY


Director




Claude
Resources Inc.




(CRJ
- TSX)


(CGR
- NYSE Amex)


200,
224 - 4th Avenue South, Saskatoon Saskatchewan,
Canada   S7K 5M5 306.668.7505 306.668.7500
Fax




Incorporation




Canada
Business  Corporations Act




Capitalization  and
Listings




97,112,030  common
shares  outstanding Exempt issuer under  SEC
Regulation  12g3-2(b)









Transfer
Agent




Valiant
Trust Company Calgary, Canada




Auditors




KPMG
LLP
Saskatoon, Canada




Solicitors




MacPherson
Leslie & Tyerman Saskatoon, Canada




Bank




Canadian
Western Bank Saskatoon, Canada




The
Annual and Special Meeting of the shareholders of Claude Resources Inc. will be
held in Saskatoon at the Sheraton Cavalier Hotel at the Top of the Inn at 10:00
a.m. on Thursday, May 14, 2009.




Shareholders
are encouraged to attend. Those unable to attend should complete the form of
proxy included with the Management Information Circular and forward it to
Valiant  Trust Company at the address specified on the form of proxy
for receipt no later than 24 hours before the meeting.








CLAUDE
RESOURCES INC.  2008 ANNUAL REPORT




Claude
Resources Inc. 200, 224 - 4th Avenue South Saskatoon, Saskatchewan,
Canada, S7K 5M5 P 306.668.7505  F 306.668.7500
www.clauderesources.com clauderesources@clauderesources.com