**D
E V I S S E R G R A Y**


**CHARTERED
ACCOUNTANTS**





401 - 905
West Pender Street


Vancouver,
BC Canada


V6C
1L6





Tel:
(604) 687-5447


Fax:
(604) 687-6737


























CONSENT
OF INDEPENDENT ACCOUNTANTS














We
consent to the incorporation in the Annual Report on Form 20-F of DRC Resources
Corporation of our report dated March 2, 2005 in connection with our audit of
the consolidated financial statements of that company as at December 31, 2004
and for the year then ended.








“De
Visser Gray”








**CHARTERED
ACCOUNTANTS**





Vancouver,
BC


March 31,
2005













DRC RESOURCES CORPORATION[An Exploration Stage Company]

AUDITED CONSOLIDATED FINANCIAL
STATEMENTS

DECEMBER 31, 2004 AND
2003

---

DE VISSER GRAYCHARTERED
ACCOUNTANTS401 - 905 WEST PENDER
STREETVANCOUVER,
B.C.V6C
1L6PHONE: 604-687-5447 FAX:
604-687-6737

AUDITORS' REPORT

To the Shareholders of DRC Resources
Corporation

We have audited the consolidated balance sheet of DRC
Resources Corporation as at December 31, 2004 and the consolidated statements of
operations and deficit, changes in shareholders' equity and cash flows for the
year 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 audit.

We conducted our audit 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, 2004 and the results of its operations and its
cash flows for the year then ended in accordance with Canadian generally
accepted accounting principles.

The consolidated financial statements as at and for
the years ended December 31, 2003 and 2002 were audited by other auditors who
expressed opinions without reservation on those financial statements in their
reports to the shareholders dated February 20, 2004 and February 17,
2003.

"DeVisser
Gray"

CHARTERED ACCOUNTANTS

Vancouver, British ColumbiaMarch 2, 2005

---

DRC RESOURCES
CORPORATION[An Exploration Stage
Company]CONSOLIDATED BALANCE SHEETSDECEMBER 31, 2004 AND 2003



**2004**
    
    **2003****ASSETS****CURRENT
      ASSETS**Cash and cash
      equivalents
    
    $
    25,029,585
    
    $
    24,737,161Marketable
      security
    
    
    ─
    
    
    1,500Accrued
      interest receivable
    
    
    71,912
    
    
    25,741Amounts
      receivable - government
    
    
    170,636
    
    
    58,832Prepaid
      expenses
    
    
    81,442
    
    
    20,00025,353,575
    
    
    24,843,234**MINERAL
      CLAIM INTERESTS - SCHEDULE** [Notes 2 and 3]
    
    
    5,933,932
    
    
    3,487,296**INVESTMENT
      PROPERTY**[Note 4]
    
    
    ─
    
    
    110,867**PROPERTY
      AND EQUIPMENT**[Notes 2 and 5]
    
    
    508,138
    
    
    28,999$
    31,795,645
    
    $
    28,470,396**LIABILITIES****CURRENT
      LIABILITIES**Accounts
      payable and accruals
    
    $
    1,164,350
    
    $
    95,940Capital taxes
      payable
    
    
    ─
    
    
    71,445Current
      portion of capital lease payable [Note 6]
    
    
    22,671
    
    
    ─1,187,021
    
    
    167,385**CAPITAL
      LEASE PAYABLE** [Note 6]
    
    
    30,228
    
    
    ─**FUTURE
      INCOME TAXES**[Note 7[c]]
    
    
    922,675
    
    
    875,9352,139,924
    
    
    1,043,320**SHAREHOLDERS'
      EQUITY****SHARE
      CAPITAL**[Note 8]
    
    
    33,008,361
    
    
    30,398,361**CONTRIBUTED
      SURPLUS**
    
    
    868,190
    
    
    ─**DEFICIT**
    
    
    (4,220,830
    )
    
    (2,971,285
    )29,655,721
    
    
    27,427,076$
    31,795,645
    
    $
    28,470,396**COMMITMENTS
      AND CONTINGENT LIABILITIES**[Note 13]


**APPROVED BY
THE BOARD:**
 "Chris
Bradbrook" **Director**
 "John
Kruzick" **Director**
 See accompanying
notes.




---

**DRC
RESOURCES CORPORATION
**[An
Exploration Stage Company]****
 **CONSOLIDATED
STATEMENTS OF OPERATIONS AND DEFICIT**
 **YEARS
ENDED DECEMBER 31, 2004, 2003 AND 2002**
 **2004**
    
    **2003**
    
    **2002****INCOME**Interest
      income
    
    $
    559,404
    
    $
    181,126
    
    $
    116,239Oil and gas
      royalties
    
    
    1,211
    
    
    1,713
    
    
    1,743Gain on sale
      of marketable security
    
    
    8,290
    
    
    ─
    
    
    ─Gain on sale
      of investment property
    
    
    32,801
    
    
    ─
    
    
    ─Foreign
      exchange gain [loss]
    
    
    (36,689
    )
    
    (74,929
    )
    
    (4,159
    )565,017
    
    
    107,910
    
    
    113,823**EXPENSES**Amortization
    
    
    40,518
    
    
    12,536
    
    
    12,068B.C. capital
      tax
    
    
    ─
    
    
    30,945
    
    
    ─Consulting
      and management fees
    
    
    270,848
    
    
    118,155
    
    
    85,641Financing and
      sponsorship
    
    
    ─
    
    
    ─
    
    
    52,000Insurance
    
    
    36,794
    
    
    14,000
    
    
    11,503Office,
      secretarial services and stationary
    
    
    131,667
    
    
    83,163
    
    
    81,886Professional
      fees
    
    
    116,328
    
    
    109,007
    
    
    57,644Regulatory
      and filing fees
    
    
    84,088
    
    
    66,871
    
    
    52,855Rent
    
    
    39,631
    
    
    22,103
    
    
    19,861Stock-based
      compensation [Note 8[c] and [d]]
    
    
    868,190
    
    
    ─
    
    
    ─Telephone
    
    
    5,114
    
    
    4,541
    
    
    4,826Transfer
      agent
    
    
    9,632
    
    
    9,031
    
    
    7,379Travel and
      promotion
    
    
    165,012
    
    
    53,259
    
    
    88,462Write-off of
      mineral claim interests
    
    
    ─
    
    
    1
    
    
    5,999Write-down of
      marketable security
    
    
    ─
    
    
    ─
    
    
    2,2501,767,822
    
    
    523,612
    
    
    482,374**LOSS
      FOR THE YEAR BEFORE INCOME TAXES**
    
    
    (1,202,805
    )
    
    (415,702
    )
    
    (368,551
    )**FUTURE
      INCOME TAXES**[Note
      7]
    
    
    (46,740
    )
    
    (802,669
    )
    
    182,644**LOSS
      FOR THE YEAR**
    
    
    (1,249,545
    )
    
    (1,218,371
    )
    
    (185,907
    )**DEFICIT,
      BEGINNING OF YEAR**
    
    
    (2,971,285
    )
    
    (1,752,914
    )
    
    (1,567,007
    )**DEFICIT,
      END OF YEAR**
    
    $
    (4,220,830
    )
    $
    (2,971,285
    )
    $
    (1,752,914
    )**WEIGHTED
      AVERAGE NUMBER OF SHARES OUTSTANDING**
    
    
    13,390,604
    
    
    9,746,722
    
    
    8,828,466**LOSS
      PER SHARE**
    
    $
    (0.09
    )
    $
    (0.13
    )
    $
    (0.02
    )


See accompanying notes.

---

DRC RESOURCES
CORPORATION[An Exploration Stage
Company]CONSOLIDATED STATEMENTS
OF CASH FLOWSYEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

**2004**
    
    **2003**
    
    **2002****CASH
      PROVIDED BY [USED FOR]:****OPERATING
      ACTIVITIES**Loss for the
      year
    
    $
    (1,249,545
    )
    $
    (1,218,371
    )
    $
    (185,907
    )Items not
      involving cash:Amortization
    
    
    40,518
    
    
    12,536
    
    
    12,068Stock-based
      compensation
    
    
    868,190
    
    
    ─
    
    
    ─Gain on sale
      of marketable security
    
    
    (8,290
    )
    
    ─
    
    
    ─Gain on sale
      of investment property
    
    
    (32,801
    )
    
    ─
    
    
    ─Write-off of
      mineral claim interests
    
    
    ─
    
    
    1
    
    
    5,999Write-down of
      marketable security
    
    
    ─
    
    
    ─
    
    
    2,250Future income
      taxes
    
    
    46,740
    
    
    762,169
    
    
    (182,644
    )(335,188
    )
    
    (443,665
    )
    
    (348,234
    )Net change in
      non-cash working capital items
    
    
    777,548
    
    
    191,095
    
    
    407,102Cash Provided
      By [Used For] Operating Activities
    
    
    442,360
    
    
    (252,570
    )
    
    58,868**INVESTING
      ACTIVITIES**Proceeds on
      sale of marketable security
    
    
    9,790
    
    
    ─
    
    
    ─Proceeds on
      sale of investment property
    
    
    143,668
    
    
    ─
    
    
    ─Payments for
      mineral claim interest exploration costs
    
    
    (2,386,636
    )
    
    (1,742,663
    )
    
    (1,173,040
    )Acquisition
      of property and equipment
    
    
    (451,644
    )
    
    ─
    
    
    (39,236
    )Cash Used For
      Investing Activities
    
    
    (2,684,822
    )
    
    (1,742,663
    )
    
    (1,212,276
    )**FINANCING
      ACTIVITIES**Payments on
      capital lease
    
    
    (15,114
    )
    
    ─
    
    
    ─Repurchase of
      shares for cancellation
    
    
    ─
    
    
    ─
    
    
    (726,083
    )Cash proceeds
      from shares issued
    
    
    2,550,000
    
    
    24,510,000
    
    
    2,100,000Share issue
      costs
    
    
    ─
    
    
    (1,649,750
    )
    
    (164,485
    )Cash Provided
      By Financing Activities
    
    
    2,534,886
    
    
    22,860,250
    
    
    1,209,432**INCREASE
      IN CASH AND CASH EQUIVALENTS**
    
    
    292,424
    
    
    20,865,017
    
    
    56,024**CASH
      AND CASH EQUIVALENTS, BEGINNING OF YEAR**
    
    
    24,737,161
    
    
    3,872,144
    
    
    3,816,120**CASH
      AND CASH EQUIVALENTS, END OF YEAR**
    
    $
    25,029,585
    
    $
    24,737,161
    
    $
    3,872,144**CASH
      AND CASH EQUIVALENTS COMPRISES:**Cash
    
    $
    60,461
    
    $
    27,760
    
    $
    65,781Term deposits
      and short-term discount notes
    
    
    24,969,124
    
    
    24,709,401
    
    
    3,806,363$
    25,029,585
    
    $
    24,737,161
    
    $
    3,872,144


* Supplemental disclosure of non-cash financing
and investing activities: refer to note 10

See accompanying notes.

---

DRC RESOURCES
CORPORATION[An Exploration Stage
Company]STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITYYEARS ENDED
DECEMBER 31, 2004, 2003 AND 2002

**Total****Common
      Stock**
    
    **Contributed**
    
    
    
    **Shareholders'****Shares**
    
    **Amount**
    
    **Surplus**
    
    **Deficit**
    
    **Equity****Balance
      as at December 31, 2001**
    
    
    8,283,766
    
    $
    7,133,578
    
    $
    ─
    
    $
    (1,567,007
    )
    $
    5,566,571Issued by
      private placement for cash
    
    
    700,000
    
    
    2,100,000
    
    
    ─
    
    
    ─
    
    
    2,100,000Repurchase
      for cancellation
    
    
    -252,000
    
    
    -726,083
    
    
    ─
    
    
    ─
    
    
    (726,083
    )Share issue
      costs
    
    
    ─
    
    
    -164,485
    
    
    ─
    
    
    ─
    
    
    (164,485
    )Tax effect on
      flow-through shares /special warrants
    
    
    ─
    
    
    -376,207
    
    
    ─
    
    
    ─
    
    
    (376,207
    )For mineral
      claim interests
    
    
    400,000
    
    
    120,000
    
    
    ─
    
    
    ─
    
    
    120,000Loss for the
      year
    
    
    ─
    
    
    ─
    
    
    ─
    
    
    (185,907
    )
    
    (185,907
    )**Balance
      as at December 31, 2002**
    
    
    9,131,766
    
    
    8,086,803
    
    
    ─
    
    
    (1,752,914
    )
    
    6,333,889Issued for
      cashExercise of
      stock options
    
    
    50,000
    
    
    150,000
    
    
    ─
    
    
    ─
    
    
    150,000Broker
      warrants
    
    
    70,000
    
    
    210,000
    
    
    ─
    
    
    ─
    
    
    210,000Issued by
      private placement for cash
    
    
    3,450,000
    
    
    24,150,000
    
    
    ─
    
    
    ─
    
    
    24,150,000Share issue
      costs
    
    
    ─
    
    
    -1,649,750
    
    
    ─
    
    
    ─
    
    
    (1,649,750
    )Tax effect on
      flow-through shares /special warrants
    
    
    ─
    
    
    -608,692
    
    
    ─
    
    
    ─
    
    
    (608,692
    )For mineral
      claim interests
    
    
    200,000
    
    
    60,000
    
    
    ─
    
    
    ─
    
    
    60,000Loss for the
      year
    
    
    ─
    
    
    ─
    
    
    ─
    
    
    (1,218,371
    )
    
    (1,218,371
    )**Balance
      as at December 31, 2003**
    
    
    12,901,766
    
    
    30,398,361
    
    
    ─
    
    
    (2,971,285
    )
    
    27,427,076Issued for
      cashExercise of
      stock options
    
    
    840,000
    
    
    2,550,000
    
    
    ─
    
    
    ─
    
    
    2,550,000For mineral
      claim interests
    
    
    200,000
    
    
    60,000
    
    
    ─
    
    
    ─
    
    
    60,000Value
      assigned to options granted
    
    
    ─
    
    
    ─
    
    
    868,190
    
    
    ─
    
    
    868,190Loss for the
      year
    
    
    ─
    
    
    ─
    
    
    ─
    
    
    (1,249,545
    )
    
    (1,249,545
    )**Balance
      as at December 31, 2004**
    
    
    13,941,766
    
    $
    33,008,361
    
    $
    868,190
    
    $
    (4,220,830
    )
    $
    29,655,721


See accompanying notes.

---

DRC RESOURCES
CORPORATION[An Exploration Stage
Company]SCHEDULE OF MINERAL CLAIM INTERESTSYEARS ENDED DECEMBER 31, 2004
AND 2003



**2004**
    
    **2003****Acquisition
      Costs**Kamloops
      "Afton" Claims
    
    $
    541,734
    
    $
    481,734Kamloops
      "Ajax-Python" Claims
    
    
    48,732
    
    
    48,732Timmins,
      Ontario Claims
    
    
    1
    
    
    1**Balance,
      End Of Year**
    
    
    590,467
    
    
    530,467
  **Deferred
      Exploration Costs****Ajax-****Afton**
    
    **Python****Claims**
    
    **Claims**
    
    **2004**
    
    **2003****Balance,
      Beginning Of Year**
    
    $
    2,897,533
    
    $
    59,296
    
    $
    2,956,829
    
    $
    1,822,859**Above-ground
      Exploration Costs**Assays and
      testing
    
    
    250
    
    
    10,769
    
    
    11,019
    
    
    77,018Drilling
    
    
    10,014
    
    
    121,930
    
    
    131,944
    
    
    984,845Engineering
    
    
    17,430
    
    
    19,950
    
    
    37,380
    
    
    437,603Geological
      consulting
    
    
    26,420
    
    
    25,195
    
    
    51,615
    
    
    158,050Labour
    
    
    3,367
    
    
    5,981
    
    
    9,348
    
    
    32,542Miscellaneous
    
    
    1,698
    
    
    5,580
    
    
    7,278
    
    
    5,994Staking and
      filing fees
    
    
    ─
    
    
    4,781
    
    
    4,781
    
    
    611Supplies and
      equipment
    
    
    983
    
    
    2,846
    
    
    3,829
    
    
    5,500Travel and
      accommodation
    
    
    7,001
    
    
    3,528
    
    
    10,529
    
    
    36,111Grant
      recoveries [Note 2[e]]
    
    
    -5,873
    
    
    (34,438
    )
    
    (40,311
    )
    
    4,388Tax effect of
      flow-through shares
    
    
    ─
    
    
    ─
    
    
    ─
    
    
    (608,692
    )61,290
    
    
    166,122
    
    
    227,412
    
    
    1,133,970**Underground
      Exploration Costs**Assays and
      testing
    
    
    1,049
    
    
    ─
    
    
    1,049
    
    
    ─Drilling
    
    
    59,556
    
    
    ─
    
    
    59,556
    
    
    ─Engineering
    
    
    184,494
    
    
    ─
    
    
    184,494
    
    
    ─Geological
      consulting
    
    
    233,552
    
    
    ─
    
    
    233,552
    
    
    ─Insurance
    
    
    36,161
    
    
    ─
    
    
    36,161
    
    
    ─Labour
    
    
    22,651
    
    
    ─
    
    
    22,651
    
    
    ─Miscellaneous
    
    
    6,728
    
    
    ─
    
    
    6,728
    
    
    ─Road
      construction and maintenance
    
    
    221,240
    
    
    ─
    
    
    221,240
    
    
    ─Supplies and
      equipment rental
    
    
    49,636
    
    
    ─
    
    
    49,636
    
    
    ─Travel and
      accommodation
    
    
    24,990
    
    
    ─
    
    
    24,990
    
    
    ─Tunnelling
      and decline costs
    
    
    1,319,167
    
    
    ─
    
    
    1,319,167
    
    
    ─2,159,224
    
    
    ─
    
    
    2,159,224
    
    
    ─**Balance,
      End Of Year**
    
    $
    5,118,047
    
    $
    225,418
    
    $
    5,343,465
    
    $
    2,956,829**Mineral
      Claim Interests**
    
    
    
    
    
    
    
    $
    5,933,932
    
    $
    3,487,296


See accompanying notes.

---



****DRC
RESOURCES CORPORATION**[An Exploration Stage
Company]**


**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
**DECEMBER
31, 2004****




|**1.** | NATURE OF BUSINESS
|------ | ------------------

DRC Resources Corporation is a public company
incorporated undr the Company Act (British Columbia). The common shares of the
Company are traded on the Toronto Stock Exchange ("TSX") and the American Stock
Exchange ["AMEX"].

The Company is in the process of exploring its mineral
claim interests to determine whether the properties contain ore reserves that
are economically recoverable.

The continued operations of the Company and the
recoverability of the amounts shown as mineral claim interests are dependent
upon the existence of recoverable reserves, the ability of the Company to obtain
financing to complete the developments, and upon future profitable production or
proceeds from disposition of its mineral claim interests.

Although the Company has taken steps to verify title to
mineral claim interests in which it has an interest in accordance with industry
standards for the current stage of exploration of such properties, these
procedures do not guarantee the Company's title. Property title may be subject
to unregistered prior agreements or transfers and may be affected by undetected
defects.

**2.**
    **SIGNIFICANT
      ACCOUNTING POLICIES**
 
 a]
    Principles
      of Consolidation
 
 These consolidated financial statements include the
accounts of the Company and its U.S. wholly-owned subsidiary, Dynamic Resources
Corporation, Inc. All significant inter-company transactions and balances have
been eliminated on consolidation. Effective January 1, 2005, the operations of
the wholly-owned subsidiary were wound up.




| | b] | Cash and Cash Equivalents
| | -- | -------------------------

Cash and cash equivalents consist of cash on deposit with
banks and highly liquid short-term interest bearing securities with maturities
at purchase dates of five months or less.



| | c] | Mineral Claim Interests
| | -- | -----------------------

The Company records its mineral claim interests at cost.
Exploration expenditures relating to mineral claim interests that have
economically recoverable reserves or significant mineralization, which in the
view of management justify additional exploration and are deferred until such
time as the mineral claim interest to which they relate is brought into
production, or is sold, allowed to lapse or abandoned. The costs will be
amortized on a unit of production basis following commencement of production or
written off to operations if the mineral claim interest is abandoned. Mineral
option payments are recorded when received and are charged against the related
mineral claim interest cost. General exploration, overhead and administration
costs are expensed in the year they are incurred.

The Company reviews capitalized costs on its mineral
claim interests on a periodic, or annual, basis and will recognize an impairment
in value based upon current exploration results and upon management's assessment
of the future probability of profitable revenues from the mineral claim
interests or from the sale of the mineral claim interests. Management's
assessment of the mineral claim interest's estimated current fair market value
may also be based upon a review of other mineral claim interest transactions
that have occurred in the same geographic area as that of the mineral claim
interest under review.

---

DRC RESOURCES
CORPORATION[An Exploration Stage
Company]NOTES TO CONSOLIDATED
FINANCIAL STATEMENTSDECEMBER 31,
2004

**2.**
    **SIGNIFICANT
      ACCOUNTING POLICIES [CONT'D]**
 
 c]
    Mineral
      Claim Interests [Cont'd]


The Company has accounted for its mineral interests as
tangible assets under the Canadian GAAP CICA Accounting Standards 3061. The
standard states that "mining interests are items of property, plant and
equipment represented by the capitalized costs of acquired mineral rights and
the costs associated with exploration for and development of mineral
reserves."

Upon the issuance of CICA Accounting Standards 3062 for
goodwill and other intangible assets the Company's management concluded that the
definition given of an intangible asset ["an asset, other than a financial
asset, that lacks physical substance". [3062.05[c]] does not apply to its
mineral claim interests and therefore is not applicable to the Company.

Under the Canadian GAAP Accounting Standards CICA 3061,
the amortization of the asset would be over its useful life once the asset is in
production. Under the Canadian GAAP Accounting Standard CICA 3062 a recognized
intangible asset should be amortized over its useful life. Under each of these
standards the amortization process would be the same in respect to the Company's
mineral interests.



| | d] | Property and Equipment
| | -- | ----------------------

Property and equipment are stated at cost less
accumulated amortization. Amortization is calculated using the straight-line
method at a rate of 5% per annum for building, 20% per annum for transportation
vehicles and 20% per annum for mining, office and computer equipment.
Amortization is recorded when the asset is fully operational.



| | e] | Grant Recoveries
| | -- | ----------------

Grant recoveries represent British Columbia Mining
Exploration Tax Credit claim refunds of 20% of eligible Canadian exploration
expenditures. These grants are for qualifying exploration expenditures at a
grassroots level for mineral claim interests in the Province of B.C.



| | f] | Loss Per Share
| | -- | --------------

Basic loss per common share is computed by dividing the
loss by the weighted average number of common shares outstanding during the
year. Diluted per share amounts reflect the potential dilution that could occur
if securities or other contracts to issue common shares were exercised or
converted to common shares. The treasury stock method is used to determine the
dilutive effect of stock options, warrants and other dilutive instruments. No
dilutive loss per share has been presented as the effect would be
antidilutive.



| | g] | Use of Estimates
| | -- | ----------------

The preparation of consolidated financial statements in
conformity with Canadian generally accepted accounting principles requires the
Company's management to make estimates and assumptions that affect the amounts
reported in these consolidated financial statements and accompanying notes.
Significant areas of estimate relate to mineral claim interests and related
deferred exploration costs, future site restoration costs, and the future income
tax asset valuation allowance. Actual results could differ from those estimates.
By their nature, these estimates are subject to measurement uncertainty, and the
impact on the consolidated financial statements of future changes in such
estimates could be material.

---

DRC RESOURCES
CORPORATION[An Exploration Stage
Company] NOTES TO CONSOLIDATED
FINANCIAL STATEMENTSDECEMBER 31,
2004

**2.**
    **SIGNIFICANT
      ACCOUNTING POLICIES (CONT'D)**
 
 h]
    Income
      Taxes


The Company recognizes and measures, as assets and
liabilities, income taxes currently payable or recoverable as well as future
taxes which will arise from the realization of assets or settlement of
liabilities at their carrying amounts, which differ from their tax bases. Future
tax assets and liabilities are measured using substantially enacted or enacted
tax rates expected to apply to taxable income in the years in which such
temporary differences are expected to be recovered or settled. A valuation
allowance is recognized to the extent the recoverability of future income tax
assets is not likely.



| | i] | Foreign Currency Translation
| | -- | ----------------------------

The Company's foreign operation is considered fully
integrated with the Company and is translated into Canadian dollars using the
weighted average rates for the period for items included in the statement of
operations and deficit, except for amortization which is translated at
historical rates, the rate prevailing at the balance sheet date for monetary
assets and liabilities, and historical rates for all other items. Exchange gains
or losses on translation are included in the current year's operations.



| | j] | Flow-Through Shares
| | -- | -------------------

The Company has adopted the new accounting pronouncement
relating to flow-through shares effective for all flow-through share
renunciations occurring after March 19, 2004. Under the Canadian Income Tax Act
an enterprise may issue securities referred to as flow-through shares whereby
the investor may claim the tax deductions arising from the related resource
expenditures. When resource expenditures are renounced to the investors and the
Company has reasonable assurance that the expenditures will be completed, future
income tax liabilities are recognized (renounced expenditures multiplied by the
effective corporate tax rate), thereby reducing share capital. As the Company
did not issue any flow through shares during the year, there is no impact on the
financial statements for the current year.



| | k] | Asset Retirement Obligations
| | -- | ----------------------------

The Company recognizes a liability for an asset
retirement obligation when it is determinable and calculates the liability based
upon undiscounted future payments to be made. A corresponding amount is added to
the carrying amount of the related long-lived asset, and this amount is
subsequently allocated to expense over its expected life. Adjustments will also
be made in subsequent periods to changes on asset retirement obligations due to
changes in estimates. As at December 31, 2004, the Company does not have any
asset retirement obligations.



| | l] | Stock-Based Compensation
| | -- | ------------------------

The Company adopted the recommendations of CICA Handbook
Section 3870, stock-based compensation and other stock-based payments, effective
to all awards granted on or after January 1, 2003. This established standards
for the recognition, measurement and disclosure of stock-based compensation and
other stock-based payments made in exchange for goods and services as the
options vest with the recipients.

As encouraged by CICA Handbook Section 3870, the Company
has enacted prospectively early adoption of the fair value based method of
accounting for awards issued to employees for the fiscal year beginning January
1, 2003.

The new standard requires that all stock-based awards
made to employees and non-employees be measured and recognized using a fair
value based method. In prior years, stock-based compensation expense was only
recognized when stock-based compensation awards were made to non-employees,
while pro-forma disclosure was acceptable for awards made to employees and
directors.

---

**DRC RESOURCES
CORPORATION[An Exploration Stage
Company]****NOTES TO CONSOLIDATED FINANCIAL
STATEMENTSDECEMBER 31,
2004**MINERAL CLAIM
INTERESTS



**3.**
    **MINERAL
      CLAIM INTERESTS**




- 

The Company entered into an option agreement dated
September 22, 1999 to acquire the Afton Mineral Claims Group, located in the
Kamloops Mining Division of B.C. Consideration is the issuance of 2,000,000
common shares of the Company in stages, with 1,000,000 shares issuable on the
effective date of shareholders' approval of the agreement, and 200,000 shares
annually for the next five years thereafter. The Company also agreed to complete
an aggregate work commitment of $6,500,000 over nine years and the vendor
retains a 10% net profit royalty in the property. The Company can purchase back
the 10% net profit royalty interest on or before December 1, 2010 for
$2,000,000.

On July 19, 2000, 1,000,000 common shares of the Company
were issued in accordance with the agreement. During the quarter ending March
31, 2002, the Company issued 200,000 common shares in accordance with the
agreement for year two and in the quarter ending December 31, 2002, the Company
issued 200,000 common shares in accordance with the agreement for year three.
During the quarter ending December 31, 2003, the Company issued 200,000 common
shares in accordance with the agreement for year four. During the quarter ended
December 31, 2004, the Company issued 200,000 common shares in accordance with
the agreement for year five. The cost per share issued pursuant to the terms of
the agreement was $0.30, for a total acquisition cost to the Company of $60,000.
Claim work completed has extended the claims in good standing until March 8,
2011.

A director of the Company has a one-half interest in the
option agreement above as one of the optionors. [See Notes 9 and 13]

- Kamloops, B.C., "Ajax" Mineral Interest

The Company owns a 100% interest in the Ajax - Python
Claim Group, subject to a 2% net smelter royalty, consisting of 72 mineral
claims and 5 crown grants in the Kamloops Mining Division of B.C. The cost of
the claims acquired was 100,000 common shares of the Company at a market value
of $0.50 per share. Claim work completed has extended the claims in good
standing until September 26, 2011.

- Timmins, Ontario, Mineral Interest

The Company has a 100% interest in 11 mineral claims
located in the Porcupine Mining Division of Ontario. The mineral claims are in
good standing until October 14, 2006.



|**4.** | INVESTMENT PROPERTY
|------ | -------------------

During the second quarter ending June 30, 2004, the
Company sold its 25% interest in approximately 358 acres of land located in
Texas, U.S.A., for cash proceeds of $143,668 ($107,698 U.S.), resulting in a
gain of $32,801.



|**5.** | PROPERTY AND EQUIPMENT
|------ | ----------------------

**Net
      Book Value****Cost**
    
    ****Accumulated**Amortization**
    
    **2004**
    
    **2003**Land
    
    $
    56,900
    
    $
    ─
    
    $
    56,900
    
    $
    ─Building
    
    
    104,700
    
    
    5,235
    
    
    99,465
    
    
    ─Transportation
      vehicles
    
    
    130,071
    
    
    32,420
    
    
    97,651
    
    
    17,814Mining
      equipment
    
    
    212,926
    
    
    ─
    
    
    212,926
    
    
    ─Office and
      computer equipment
    
    
    77,741
    
    
    36,545
    
    
    41,196
    
    
    11,185$
    582,338
    
    $
    74,200
    
    $
    508,138
    
    $
    28,999








DRC RESOURCES CORPORATION[An
Exploration Stage Company]  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2004


**6.**
    **CAPITAL
      LEASE PAYABLE**

**2004**
    
    **2003**GMAC, 0%,
      repayable in monthly instalments of $1,889,matures April 30,
      2007
    
    $
    52,899
    
    $
    ─Less: current
      portion due within one year
    
    
    (22,671
    )
    
    ─$
    30,228
    
    $
    ─


**7.**
    **INCOME
      TAXES**
 
 a]
    Profit
      [loss] before income taxes are as follows:


**2004**
    
    **2003**
    
    **2002**Canada
    
    $
    (1,222,636
    )
    $
    (415,736
    )
    $
    (368,353
    )U.S.A.
    
    
    19,831
    
    
    34
    
    
    (198
    )**TOTAL**
    
    $
    (1,202,805
    )
    $
    (415,702
    )
    $
    (368,551
    )


b]
    The
      provision for income taxes consist of the
following:
  **2004**
    
    **2003**
    
    **2002**FutureCanada
    
    $
    46,470
    
    $
    762,169
    
    $
    (182,644
    )U.S.A.
    
    
    ─
    
    
    ─
    
    
    ─Large
      Corporations TaxCanada
    
    
    ─
    
    
    40,500
    
    
    ─U.S.A.
    
    
    ─
    
    
    ─
    
    
    ─**TOTAL
      INCOME TAX EXPENSE [RECOVERY]**
    
    $
    46,470
    
    $
    802,669
    
    $
    (182,644
    )


c]
    Temporary
      differences that give rise to future income taxes are as
      follows:
  **2004**
    
    **2003**Long-term
      future tax liabilityMineral Claim
      Interests
    
    $
    909,057
    
    $
    886,423Equipment
    
    
    13,618
    
    
    (10,488
    )**TOTAL
      LONG-TERM FUTURE INCOME TAX LIABILITY**
    
    $
    922,675
    
    $
    875,935


d]
    Temporary
      differences that could give rise to future income tax
    assets:
  **2004**
    
    **2003**Long-Term
      Future Income Tax AssetsLoss carry
      forwards
    
    $
    948,462
    
    $
    646,062Share issue
      costs
    
    
    403,265
    
    
    612,791Total
      Long-Term Future Income Tax Assets
    
    
    1,351,727
    
    
    1,258,853Less
      Valuation Allowance
    
    
    (1,351,727
    )
    
    (1,258,853
    )**NET
      LONG-TERM FUTURE INCOME TAX ASSETS**
    
    $
    ─
    
    $
    ─




---

**DRC RESOURCES
CORPORATION[An Exploration Stage
Company]****NOTES TO CONSOLIDATED FINANCIAL
STATEMENTSDECEMBER 31,
2004**



|**7.** | INCOME TAXES [CONT'D]
|------ | ---------------------



| | e] | Subject to confirmation by the income
      tax authorities, the Company has the following undeducted tax
      pools:
| | -- | ----------------------------------------------------------------------------------------------------------------------

**2004**
    
    **2003**Canadian
      Exploration Expenses
    
    $
    2,866,209
    
    $
    539,559Canadian
      Development Expenses
    
    $
    651,480
    
    $
    591,480Undepreciated
      Capital Costs
    
    $
    451,039
    
    $
    56,879Share Issue
      Costs
    
    $
    1,071,942
    
    $
    1,546,671Non-Capital
      Losses, expiring at various dates to 2011
    
    $
    2,521,165
    
    $
    1,717,336




|**8.** | **SHARE
      CAPITAL**
|------ | -----------------------

a]
    Authorized




40,000,000common shares without par value


b]
    Issued




**Number
      Of****Shares**
    
    **Amount****Balance,
      December 31, 2002**
    
    
    9,131,766
    
    $
    8,086,803Issued for
      cashPrivate
      placement, net of share issue costs
    
    
    3,450,000
    
    
    22,500,250Issued for
      cashExercise of
      brokers warrants
    
    
    70,000
    
    
    210,000Exercise of
      stock options
    
    
    50,000
    
    
    150,000Issued for
      mineral claim interests
    
    
    200,000
    
    
    60,000Tax effect of
      flow-through shares/special warrants
    
    
    ─
    
    
    (608,692
    )**Balance,
      December 31, 2003**
    
    
    12,901,766
    
    
    30,398,361Issued for
      cashExercise of
      stock options
    
    
    840,000
    
    
    2,550,000Issued for
      mineral claim interests
    
    
    200,000
    
    
    60,000**Balance,
      December 31, 2004**
    
    
    13,941,766
    
    $
    33,008,361




- Year
  2004



During the
year the Company issued 690,000 shares upon the exercise of stock options at
$3.00 per share. Cash proceeds of $2,070,000 were received by the
Company.

During the year the Company issued 100,000 shares upon
the exercise of stock options at $3.05 per share. Cash proceeds of $305,000 were
received by the Company.

During the year the Company issued 50,000 shares upon the
exercise of stock options at $3.50 per share. Cash proceeds of $175,000 were
received by the Company.

During the last quarter ending December 31, 2004, 200,000
shares were issued at a price of $0.30 per share for the 2004 option payments in
accordance with the Afton mineral claim option agreement.

---

**DRC RESOURCES
CORPORATION[An Exploration Stage
Company]****NOTES TO CONSOLIDATED FINANCIAL
STATEMENTSDECEMBER 31,
2004**

**8.**
    **SHARE
      CAPITAL [CONT'D]**
 Year
  2003 On November 6, 2003 the Company
completed a private placement financing with a syndicate of underwriters. The
Company realized gross proceeds of $24,150,000 (net - $22,500,250) on the
issuance of 3,450,000 common shares, which included 450,000 underwriter options
exercised, all at a price of $7.00 per share. The Company paid a commission of
$1,569,750 and incurred fees of $80,000.


During the year the Company issued 50,000 shares upon the
exercise of stock options at $3.00 per share. Cash proceeds of $150,000 were
received by the Company.

During the year the Company issued 70,000 shares upon the
exercise of broker warrants at $3.00 per share. Cash proceeds of $210,000 were
received by the Company.

During the last quarter ending December 31, 2003, 200,000
shares were issued at a price of $0.30 per share for the 2003 year option
payments in accordance with the Afton mineral claim option agreement.



| | c] | Stock Options
| | -- | -------------

The Company presently has 700,000 stock options
outstanding. The 2003 stock option plan allows the Company to grant up to a
total of 1,000,000 stock options. All future stock options granted must be under
the new stock option plan. The term of the stock options granted are fixed by
the board of directors and are not to exceed ten years. The exercise prices of
the stock options are determined by the board of directors but shall not be less
than the closing price of the Company's common shares on the day preceding the
day on which the directors grant the stock option, less any discount permitted
by the TSX. The stock options vest immediately on the date of grant unless
otherwise required by the exchange, however, a four month hold period applies to
all shares issued under each stock option, commencing on the date of grant.

Other terms and conditions are as follows: all stock
options are non-transferable; no more than a 5% of the issued shares may be
granted to any one individual in any 12 month period; disinterested shareholder
approval must be obtained for [i] any reduction in the exercise price of an
outstanding option, if the holder is an insider, [ii] any grant of stock options
to insiders, within a 12 month period, exceeding 5% of the Company's issued
shares; and stock options will be reclassified in the event of any
consolidation, subdivision, conversion or exchange of the Company's common
shares.

**Weighted**
    
    **Weighted****Average**
    
    **Average****Options**
    
    **Exercise**
    
    **Remaining****Outstanding**
    
    **Price**
    
    **Life
      [Years]****Balance,
      December 31, 2002**
    
    
    890,000
    
    $
    3.04
    
    
    1.95Exercised
    
    
    (50,000
    )
    $
    3.00**Balance,
      December 31, 2003**
    
    
    840,000
    
    $
    3.03
    
    
    0.90Granted
    
    
    100,000
    
    $
    6.50Granted
    
    
    600,000
    
    $
    4.60Exercised
    
    
    (690,000
    )
    $
    3.00Exercised
    
    
    (100,000
    )
    $
    3.05Exercised
    
    
    (50,000
    )
    $
    3.50**Balance,
      December 31, 2004**
    
    
    700,000
    
    $
    4.87
    
    
    4.25
 
 The expiry dates of the options are:
 April 13,
      2006
    
    
    100,000
    
    
    options @
      $6.50October 12,
      2009
    
    
    600,000
    
    
    options @
      $4.60


---

**DRC RESOURCES
CORPORATION[An Exploration Stage
Company]****NOTES TO CONSOLIDATED FINANCIAL
STATEMENTSDECEMBER 31,
2004**

**8.**
    **SHARE
      CAPITAL [CONT'D]**
  c]
    Stock
      Options [Cont'd]
 
 On April 13, 2004, the Company granted the Vice President
of Exploration and Development the option to purchase 100,000 common shares at
an exercise price of $6.50 per share in accordance with the Company's Stock
Option Plan. The options vest as to 50,000 on January 1, 2005 and 50,000 on
January 1, 2006, and expire on April 13, 2006.


On October 12, 2004, the Company granted the new
President and chief executive officer the option to purchase 600,000 common
shares at an exercise price of $4.60 per share in accordance with the Company's
Stock Option Plan. The options are exercisable on or before October 12, 2009.
The fair value of these options was $823,440 with the Company expensing this
assigned value. The value was arrived at by using the Black-Scholes option
pricing model with the following weighted-average assumptions: risk-free rate of
3.44%; volatility factor of the expected market price of the Company's common
stock at 43%; option lives of 2.5 years; and no expected dividends.



| | d] | Compensation Options
| | -- | --------------------

The expiry dates of the options are:



November 6,
      2005
    
    
    345,000
    
    
    options @
      $7.50October 13,
      2006
    
    
    50,000
    
    
    options @
      $4.60




As at December
31, 2004, there are 345,000 non-assignable compensation options outstanding and
exercisable entitling the syndicate of underwriters to purchase 345,000 shares
of the Company at an exercise price of $7.50 per share expiring on November 6,
2005. [See Note 8[b]]

On October 13, 2004, the Company granted Orion Securities
Inc. a compensation stock option for services rendered with respect to
recruiting the new President and chief executive officer for the Company. The
Company granted an option to purchase 50,000 common shares at an exercise price
of $4.60 per share expiring on October 13, 2006. The fair value of these options
was $44,750 with the Company expensing this assigned value. The value was
arrived at by using the Black-Scholes option pricing model with the following
weighted-average assumptions: risk-free rate of 3.21%; volatility factor of the
expected market price of the Company's common stock of 36%; option lives of 1.5
years; and no expected dividends.



|**9.** | RELATED PARTY TRANSACTIONS
|------ | --------------------------

2004
    
    2003
    
    2002For consulting services charged
      by the President/Director of the Company.
    
    $
    46,460
    
    $-
    -
    
    $
    -For consulting, administration
      and exploration costs charged by a private company controlled by the
      former President/Director of the Company.
    
    $
    153,000
    
    $
    146,375
    
    $
    112,845For shares issued in payment on
      "Afton" mineral claim option agreement to a director of the Company.
      100,000 shares were issued during 2004 [cumulative total is 900,000 shares
      to date].
    
    $
    30,000
    
    $
    30,000
    
    $
    60,000For consulting services charged
      by a related person of a Director.
    
    $
    72,600
    
    $
    63,875
    
    $
    11,250For geological consulting
      services on mineral claim interests charged by an Officer of the
      Company.
    
    $
    101,060
    
    $-
    -
    
    $
    -


---

**DRC RESOURCES
CORPORATION[An Exploration Stage
Company]****NOTES TO CONSOLIDATED FINANCIAL
STATEMENTSDECEMBER 31,
2004**

**9.**
    **RELATED
      PARTY TRANSACTIONS [CONT'D]**
  **2004**
    
    **2003**
    
    **2002**For
      secretarial and administrative services charged by a privatecompany which a director has a 50% interest.
    
    $
    64,446
    
    $
    59,362
    
    $
    41,405
 
 **10.**
    **SUPPLEMENTARY
      CASH FLOW INFORMATION**

The
Company conducted non-cash investing and financing activities as
follows:

**2004**
    
    **2003**
    
    **2002**Value
      assigned to options granted
    
    $
    868,190
    
    $
    ─
    
    $
    ─Common shares
      issued for mineral claim interests
    
    
    60,000
    
    
    60,000
    
    
    120,000Vehicle
      acquired via capital lease
    
    
    68,013
    
    
    ─
    
    
    ─$
    996,203
    
    $
    60,000
    
    $
    120,000
 **11.**
    **SEGMENTED
      INFORMATION**
 The Company's operations consist of mineral exploration
in Canada. The other principal assets which are held in Canada consist primarily
of cash, term deposits, and corporate notes.
 **2004**
    
    **2003****CANADA**Current
      Assets
    
    $
    25,353,575
    
    $
    24,833,006Mineral Claim
      Interests
    
    
    5,933,932
    
    
    3,487,296Property and
      Equipment
    
    
    508,138
    
    
    28,99931,795,645
    
    
    28,349,301**U.S.A.**Current
      Assets
    
    
    ─
    
    
    10,228Investment
      Property
    
    
    ─
    
    
    110,867─
    
    
    121,095**TOTAL
      ASSETS**
    
    $
    31,795,645
    
    $
    28,470,396 ****
 ****
 **12.**
    **FINANCIAL
      INSTRUMENTS**
 The Company's financial instruments consist of cash, term
deposits, corporate notes, amounts receivable, accounts payable and capital
lease payable. Unless otherwise noted, it is management's opinion that the
Company is not exposed to significant interest, currency, or credit risks
arising from these financial instruments. The fair values of cash, term
deposits, corporate notes, amounts receivable and accounts payable approximate
their carrying values due to the relatively short period to maturity of these
instruments. At December 31, 2004 the Company had $321,263 in US dollars,
comprised of $21,263 in a current account and $300,000 in a term deposit, due
January 31, 2005.




|**13.** | COMMITMENTS AND CONTINGENT
      LIABILITIES
|------- | --------------------------------------------

The Company awarded a contract totalling $10,811,066 for
underground development work on the "Afton" Mineral Property in October 2004.
The work is expected to be completed by November 15, 2005.

---

**DRC RESOURCES
CORPORATION[An Exploration Stage
Company]****NOTES TO CONSOLIDATED FINANCIAL
STATEMENTSDECEMBER 31,
2004**



|**13.** | COMMITMENTS AND CONTINGENT
      LIABILITIES [CONT'D]
|------- | -----------------------------------------------------

The Company entered into an executive services contract
with the new President on October 12, 2004 to provide services as chief
executive officer of the Company at a base salary of $250,000 per annum to be
reviewed in June 2005. In addition, an annual performance bonus will be paid of
up to 40% of the base salary upon the achievement of certain individual and
corporate targets. In the event of termination of employment, without cause, or,
in the event of a change of control by merger or purchase of the Company, a
severance payment equal to three times the annual compensation will be
paid.

The Company entered into an executive services contract
with its former President on April 23, 2003 to provide services as chief
executive officer of the Company for a five year term on a per diem fee basis at
$500 per day during 2003. The per diem fee is subject to review on an annual
basis at the discretion of the board of directors. When a new President and
Chief Executive Officer was appointed on October 18, 2004, this contract was
amended to provide for services as chair of the Board of Directors. In the event
of termination of employment without cause, a lump sum severance payment equal
to one month base retainer fee [$10,000] times the number of years in which he
held the position of President [24 years] will be paid.

Under the terms of the option agreement to acquire the
"Afton" Mineral Property, the Company is required to issue an additional 200,000
shares in 2005 and to perform a work commitment of $6,500,000 over nine years.
To December 31, 2004, $7,191,924 has been expended.

The Company is committed to an operating lease for office
premise rentals in the aggregate of $89,300. The future minimum lease payments
as at December 31, 2004 are as follows:

2005
    
    $
    21,8252006
    
    
    24,7352007
    
    
    26,1902008
    
    
    14,550$
    87,300


1,095,000 common shares are reserved for issuance for
stock options and compensation options. [See Notes 8[c] and 8[d]]



|**14.** | ENVIRONMENTAL RISKS
|------- | -------------------

Existing and possible future
environmental legislation, regulations and action could give rise to additional
expense, including those for future removal and site restoration costs, capital
expenditures, restrictions and delays in the activities of the Company, the
extent of which cannot be predicted. Regulatory requirements and environmental
standards are subject to constant evaluation and may be significantly increased,
which could materially and adversely affect the business of the Company or its
ability to develop its mineral claim interests on an economic basis. Before
production can commence on any property, the Company must obtain regulatory and
environmental approvals. There is no assurance that such approvals will be
obtained on a timely basis or at all. The cost of compliance with changes in
government regulations has the potential to reduce the profitability of
operations or preclude entirely the economic development of mineral claim
interests.

Environmental expenditures that
relate to ongoing environmental and reclamation programs are charged against
operations as incurred or capitalized and amortized depending on their future
economic benefits. Estimated future removal and site restoration costs, when the
ultimate liability is reasonably determinable, are charged against operations
over the estimated remaining life of the related business operation, net of
expected recoveries.

---

**DRC RESOURCES
CORPORATION[An Exploration Stage
Company]****NOTES TO CONSOLIDATED FINANCIAL
STATEMENTSDECEMBER 31,
2004**



|**15.** | **DIFFERENCES
      BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND THE UNITED
      STATES**
|------- | ------------------------------------------------------------------------------------------------------------

These consolidated financial
statements are prepared in accordance with accounting principles accepted in
Canada. The United States Securities and Exchange Commission ["SEC"] requires
that financial statements of foreign companies contain a reconciliation
presenting the statements on the basis of accounting principles generally
accepted in the United States. Any differences in accounting principles as they
pertain to the accompanying consolidated financial statements are not material
except as follows:



| | [a] | Mineral Claim Interests
| | --- | -----------------------

Under Canadian GAAP applicable to
junior exploration companies, outlays related to the acquisition of mineral
claim interests and all related exploration expenditures may be carried as
deferred costs if the mineral claim interests have economically recoverable
reserves or significant mineralization which in the view of management justify
additional exploration. [See Note 2[c]]

Under U.S. GAAP, the recoverability
of capitalized mineral claim interests expenditures are generally considered
insupportable until a commercially mineable deposit is determined; therefore,
all mineral claim interests expenditures are expensed as incurred.



| | [b] | Stock Option Compensation
| | --- | -------------------------

United States Statement of Financial
Accounting Standards No. 123 ["SFAS 123"], "Accounting for Stock-Based
Compensation", requires that stock-based compensation be accounted for based on
a fair value methodology, although, in certain instances, it allows the effects
to be disclosed in the notes to the financial statements rather that in the
statement of operations. SFAS 123 also allows an entity to continue to measure
compensation costs for stock-based compensation plans using the intrinsic value
based method of accounting as prescribed by APB Opinion No. 25 ["APB 25"], which
is comparable to Canadian GAAP prior to January 1, 2003. To December 31, 2002,
the Company had elected to measure compensation cost for those plans using APB
25 for US GAAP purposes.

United States Statement of Financial
Accounting Standards 148 ["SFAS 148"], "Accounting for Stock-Based Compensation
- Transition and Disclosure - an amendment of FASB Statement No. 123", permits
the Company to adopt a fair value methodology on a prospective basis. Effective
January 1, 2003, for US GAAP purposes the Company prospectively adopted the fair
value method of accounting for stock-based compensation, a treatment consistent
with the accounting treatment used for Canadian GAAP.

Under APB 25, compensation cost must
be recognized for all compensatory stock options granted whenever the market
price of the Company's shares on the date of grant exceeds the exercise price.
The policies of the TSX Exchange permit the issuance of options with exercise
prices discounted up to 25% from the closing market value at the date of
granting. Such a discount, if provided option holders, would give rise to a
compensation expense under US GAAP as noted above. However, the Company has to
date only granted stock options where the exercise price is based on the fair
value of the stock at the date of the grant and, accordingly, under US GAAP,
would not have recognized any compensation costs.

Item [c] which follows presents the
mandatory pro-forma disclosure under SFAS 123 that was applicable to the Company
under US GAAP in 2002.

---

**DRC RESOURCES
CORPORATION[An Exploration Stage
Company]****NOTES TO CONSOLIDATED FINANCIAL
STATEMENTSDECEMBER 31,
2004**



|**15.** | **DIFFERENCES
      BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND THE UNITED
      STATES**
|------- | ------------------------------------------------------------------------------------------------------------



| | [c] | Pro Forma Information on Stock-Based
      Compensation
| | --- | -------------------------------------------------------

For the 2002 fiscal year, the
weighted-average fair values for stock options were estimated at the date of
grant or amendment using a Black-Scholes option pricing model with the following
weighted-average assumptions: risk-free interest rate of 2.8%, volatility factor
of the expected market price of the Company's common stock of 56%; option lives
of two years; and no expected dividends.

The following is a summary of the
Company's net loss and basic and diluted loss per share as reported and pro
forma as if the fair value based method of accounting defined in SFAS 123 had
been applied for the 2002 fiscal year:

**2002******
    
    **As
      Reported**
    
    **Pro
      Forma**Net loss for
      the year
    
    $
    (185,907
    )
    $
    (301,188
    )Basic and
      diluted loss per share
    
    $
    (0.02
    )
    $
    (0.03
    )
 
 [d]
    Application of U.S. GAAP to Financial
      Statements


The impact of the application of U.S. GAAP to the
Company's financial statements are summarized as follows:

**BALANCE
      SHEETS****2004**
    
    **2003**
    
    **2002****Assets**Mineral claim
      interests under Canadian GAAP
    
    $
    5,933,932
    
    $
    3,487,296
    
    $
    2,293,327Add back
      write-off of mineral claim interests under CanadianGAAP
    
    
    ─
    
    
    1
    
    
    5,999Mineral claim
      interests expenditures expensed under U.S.GAAP
    
    
    (2,446,636
    )
    
    (1,193,970
    )
    
    (806,322
    )Cumulative
      historical adjustments
    
    
    (3,487,296
    )
    
    (2,293,327
    )
    
    (1,493,004
    )Mineral claim
      interests under U.S. GAAP
    
    
    ─
    
    
    ─
    
    
    ─**Total
      Assets Under U.S. GAAP**
    
    $
    25,861,713
    
    $
    24,983,100
    
    $
    4,199,498**Shareholders'
      Equity**Deficit under
      Canadian GAAP
    
    $
    (4,220,830
    )
    $
    (2,971,285
    )
    $
    (1,752,914
    )Deduct net
      loss under Canadian GAAP
    
    
    1,249,545
    
    
    1,218,371
    
    
    185,907Add net loss
      under U.S. GAAP
    
    
    (3,696,181
    )
    
    (2,412,340
    )
    
    (1,064,130
    )Cumulative
      historical adjustments
    
    
    (3,487,296
    )
    
    (2,293,327
    )
    
    (1,493,004
    )Deficit under
      U.S. GAAP
    
    
    (10,154,762
    )
    
    (6,458,581
    )
    
    (4,124,141
    )**Total
      Shareholders' Equity Under U.S. GAAP**
    
    $
    23,721,789
    
    $
    23,939,780
    
    $
    3,962,662




---

DRC RESOURCES CORPORATION[An Exploration Stage Company]NOTES TO
CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2004



|**15.** | DIFFERENCES BETWEEN GENERALLY
      ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND THE UNITED
      **STATES
[cont'd]**
|------- | ---------------------------------------------------------------------------------------------------------------------

[d]
    Application
      of U.S. GAAP to Financial Statements
[Cont'd]
 
 **STATEMENTS
OF OPERATIONS**
 **2004**
    
    **2003**
    
    **2002****Loss
      for the year under Canadian GAAP**
    
    $
    (1,249,545
    )
    $
    (1,218,371
    )
    $
    (185,907
    )Add back
      write-off of mineral claim interests underCanadian
      GAAP
    
    
    ─
    
    
    1
    
    
    5,999Mineral claim
      interests expenditures expensed underU.S.
    GAAP
    
    
    (2,446,636
    )
    
    (1,193,970
    )
    
    (806,322
    )Stock option
      compensation 15[b]
    
    
    ─
    
    
    ─
    
    
    (72,500
    )**Loss
      for the year under U.S. GAAP**
    
    $
    (3,696,181
    )
    $
    (2,412,340
    )
    $
    (1,064,130
    )
 **STATEMENTS
      OF CASH FLOWS****2004**
    
    **2003**
    
    **2002****Operating
      Activities**Loss for the
      year under U.S. GAAP
    
    $
    (3,696,181
    )
    $
    (2,412,340
    )
    $
    (1,064,130
    )Non-cash
      issue of shares for mineral claim interests
    
    
    60,000
    
    
    60,000
    
    
    120,000Non-cash
      stock compensation costs
    
    
    868,190
    
    
    ─
    
    
    72,500Other
      components of operating activities which are similarunder Canadian
      and U.S. GAAP
    
    
    823,715
    
    
    965,801
    
    
    244,775Net cash used
      for operating activities under U.S. GAAP
    
    $
    (1,944,276
    )
    $
    (1,386,539
    )
    $
    (626,855
    )


[e]
    Loss
      Per Share







Under U.S. GAAP, the presentation of
both basic and diluted earnings per share ("EPS") is required for all entities
with complex capital structures including a reconciliation of each numerator and
denominator. Basic EPS excludes dilutive securities and is computed by dividing
income available to common stockholders by the weighted-average number of common
shares outstanding in the year. Diluted EPS reflects the potential dilution that
could occur if dilutive securities were converted into common shares and is
computed similarly to fully diluted EPS pursuant to previous accounting
pronouncements. These requirements under U.S. GAAP apply equally to loss per
share presentations.


The following is a reconciliation of the numerators and
denominators of the basic and diluted loss per share calculations:

**2004**
    
    **2003**
    
    **2002**Numerator,
      net loss for the year under U.S. GAAP
    
    $
    (3,696,181
    )
    $
    (2,412,340
    )
    $
    (1,064,130
    )Denominator:Weighted-average
      number of shares under Canadian GAAP
    
    
    13,390,604
    
    
    9,746,722
    
    
    8,704,716Weighted-average
      number of shares under U.S. GAAP
    
    
    13,390,604
    
    
    9,746,722
    
    
    8,704,716Basic and
      diluted loss per share under U.S. GAAP
    
    $
    0.28
    
    $
    0.25
    
    $
    0.12
 
 Stock options and warrants outstanding were not included
in the computation of diluted loss per share as their inclusion would be
antidilutive.


---

**DRC RESOURCES
CORPORATION[An Exploration Stage
Company]****NOTES TO CONSOLIDATED FINANCIAL
STATEMENTSDECEMBER 31,
2004**



|**15.** | **DIFFERENCES
      BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND THE UNITED
      STATES**
|------- | ------------------------------------------------------------------------------------------------------------



| | [f] | Flow-Through Shares
| | --- | -------------------

Under U.S. GAAP, a liability is recognized on the sale of
flow-through shares for the premium obtained by the Company, if any, of the sale
price per share over the market value at the time of issuance. Under Canadian
GAAP, no such premium is recognized. Upon renunciation of the flow-through share
proceeds to investors, the liability under U.S. GAAP is reversed and the Company
recognizes a deferred tax benefit for this amount. The Company follows the
policy or renouncing fully to investors the proceeds of all flow-through
financings received during the year, whether the underlying exploration
expenditures have been incurred or not, as at its fiscal year end, which
coincides with the personal taxation year of individuals in Canada. Accordingly,
the Company under a pro-forma application of U.S. GAAP would have recognized no
deferred tax benefits or amounts included in current operations, in connection
with issuances of flow-through shares.

---