| 1.  | Definitions |
|----------|-------------|

|   | (b) | "Annual Compensation"      shall mean an amount equal to Executive's annual base salary at the      annual rate in effect at his Date of Termination, the Target Bonus plus      all benefits, quantified as 10% of the Executive's annual base salary,      paid or payable. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (c) | "Board of Directors"      means the board of directors of the Corporation as at the date of      this Agreement. |
|--------|-----|------------------------------------------------------------------------------------------------------------------|

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|   | (d) | "Cause" shall mean      termination of Executive's employment by the Corporation or any subsidiary      thereof or successor thereto, by reason of  Executive's: |
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|   | (i) | gross      negligence in the performance of hisduties; |
|--------|-----|--------------------------------------------------------|

|   | (ii) | wilful      and continued failure to substantially perform his duties determined on a      historic basis prior to a Change of Control with the      Corporation; |
|--------|------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (iii) | wilful      engagement in conduct which is materially injurious to the Corporation or      its subsidiaries (monetarily or otherwise);or |
|--------|-------|------------------------------------------------------------------------------------------------------------------------------------------|

|   | (iv) | conviction      of a criminal offence involving moralturpitude. |
|--------|------|-----------------------------------------------------------------|

|   | (e) | "Change of Control"      means the occurrence of any one or more of the following      events: |
|--------|-----|------------------------------------------------------------------------------------------------|

|   | (i) | the      Corporation shall not be the surviving entity in a merger, amalgamation or      other reorganization (or survives only as a subsidiary of an entity other      than a previously wholly-owned subsidiary of the    Corporation); |
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|   | (ii) | The      Corporation sells, leases or exchanges greater than 35 % of its assets to      any other person or entity (other than a wholly-owned subsidiary of the      Corporation); |
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|   | (iii) | the      Corporation is to be dissolved andliquidated; |
|--------|-------|--------------------------------------------------------|

|   | (iv) | any      person, entity or group of persons or entities acting jointly or in      concert acquires or gains ownership or control (including, without      limitation, the power to vote) more than 35 % of the Corporation's      outstanding voting securities; or |
|--------|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (v) | as      a result of or in connection with: (A) the contested election of      directors, or; (B) a transaction referred to in subparagraph 1(e)(i)      above, the persons who were directors of the Corporation before such      election shall cease to constitute a majority of the Board of      Directors. |
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|   | (f) | "Date of Termination"      means: |
|--------|-----|-----------------------------------|

|   | (i) | if      Executive's employment is terminated by the Executive following a      Triggering Event, the date specified in the Notice of Termination provided      by the Executive to the Corporation;and |
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|   | (ii) | if      Executive's employment is terminated for any other reason, the date      specified in the Notice of Termination provided by the Corporation to the      Executive, and shall mean termination from active employment, and shall      not include any notice period. |
|--------|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (g) | "Disability" means      incapacity due to physical or mental illness, which shall have caused      Executive to have been absent from, or unable to perform, the Executive's      duties with the Corporation on a full-time basis for six consecutive      months. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (h) | "Notice of Termination"      shall mean notice which shall indicate the specific termination      provisions in this Agreement relied upon and shall set forth in reasonable      detail the facts and circumstances claimed to provide a basis for      termination of Executive's employment under the provisions so      indicated. |
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|   | (i) | "Severance Amount" shall      mean an amount equal to 2 times the Executive's Annual      Compensation. |
|--------|-----|---------------------------------------------------------------------------------------------------------|

|   | (j) | "Target Bonus" shall      mean an amount equal to the previous year's bonus granted to the      Executive, but shall not exceed 25% of the Executive's annual base      salary. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (j) | "Triggering Event" means      any one of the following events which occurs without the express agreement      in writing of the Executive: |
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|   | (i) | a      material adverse change in the salary or benefits of the Executive as they      exist immediately prior to the Change of  Control; |
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|   | (ii) | a      removal of the designation of Chief Financial Officer in the title of the      Executive immediately prior to the Change of Control or a material adverse      change in the responsibilities, duties, powers, rights and discretion      associated with such title; |
|--------|------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (iii) | a      change in the person or body to whom the Executive reports immediately      prior to the Change of Control, except if such person or body is of      equivalent rank or stature or such change is as a result of the      resignation or removal of such person or the persons comprising such body,      as the case may be, provided that this shall not include a change      resulting from a promotion in the normal course of business;      or |
|--------|-------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (iv) | a      change in the location at which the Executive is regularly required      immediately prior to the Change of Control to carry out the terms of his      employment with the Corporation, which is of a distance greater than 50      kilometers from the City of Toronto, unless the terms of employment of the      Executive include the obligation to receive geographic transfers from time      to time in the normal course of business, or unless the Executive consents      to the change. |
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| 2.  | Term |
|----------|------|

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| 3.  | Termination of      Employment |
|----------|--------------------------------|

|  | (a) | Termination by the Corporation      Without Cause. The Corporation shall be entitled to terminate      Executive's employment at any time without Cause by giving the Executive a      one-time payment equal to the Executive's Annual Compensation, plus an      additional one months' worth of Annual Compensation for each completed      year of employment to a maximum of 18 months Annual Compensation. Such      lump sum cash payment is payable on or before the fifth day following the      Date of Termination. In addition, subject to the receipt of all necessary      regulatory approvals, the Corporation shall permit any vested options to      purchase common shares in the capital of the Corporation held by      Executives to be exercisable for 6 months after the Date of Termination.      All options that have not vested shall expire upon the Date of      Termination. In the event of termination of Executive's employment without      Cause, rights and benefits of Executive under executive benefit plans and      programs of the Corporation, unless prohibited by the relevant plan, will      be continued for a twelve-monthperiod. |
|--|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (b) | Termination by the Corporation      for Cause. The Corporation shall be entitled to terminate the      Executive's employment at any time for Cause without notice and without      any payment in lieu of notice. In the event of a termination of      Executive's employment for Cause, the Corporation's obligations hereunder      shall immediately cease and terminate and the Executive shall be      immediately relieved of the Executive's position and responsibilities, and      in such an event there will be no continued salary payments by the      Corporation to the Executive and any rights and benefits of Executive      under executive benefit plans and programs (including medical and dental      insurance) will terminate as of the Date of Termination in accordance with      the terms of such plans and programs. Upon the Date of Termination all      vested options to purchase common shares in the Capital of the Corporation      held by the Executive shall be cancelled, and all unvested options shall      expire. |
|--|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (c) | Termination Due to Disability.      The Corporation shall be entitled to terminate the Executive's      employment at any time due to the Disability of the Executive, provided      that such Disability has not occurred in the execution of the business of      the Corporation. In the event of a termination of Executive's employment      due to Disability, the Executive shall be entitled to receive compensation      equal to the Executive's Annual Compensation for the first year after the      Date of Termination, whereafter the Executive shall be entitled to receive      such compensation, if any, as may be determined by the Corporation, within      the Corporation's discretion. All options shall be deemed cancelled and      expired upon the Date of Termination, unless the Corporation, acting      within its discretion, decidesotherwise. |
|--|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (d) | Termination following a Change      of Control. If, following a Change of Control, the Corporation      shall terminate Executive's employment other than for death, Disability or      Cause, within 18 months after the date upon which a Change of Control      occurs, or if Executive shall terminate his employment within 6 months      following a Triggering Event, then the Executive shall be entitled to the      following: |
|--|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | (i) | Salary      and Benefits. The Corporation      shall pay Executive a lump sum cash payment in an amount equal to the      Severance Amount on or before the fifth day following the Date of      Termination; |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (ii) | Equity      Based Compensation. Subject to the      receipt of all necessary regulatory approvals, the Corporation shall cause      any and all outstanding options or other securities or rights to acquire      share in the Corporation to purchase common shares in the capital of the      Corporation held by Executive will vest and become immediately exercisable      in full and not to lapse until the expiry of their original term;      and |
|--------|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (iii) | Legal      Fees. The Corporation      shall pay all reasonable legal fees and expenses incurred by Executive as      a result of such termination (including all such fees and expenses, if      any, incurred in contesting or disputing such termination or in seeking to      obtain or enforce any right or benefit provided by this Agreement)      promptly, from time to time, at Executive's request, as such fees and      expenses are incurred. |
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| 4.  | General |
|----------|---------|

|  | (a)  | Amounts      herein not subject tomitigation |
|--|-----------|----------------------------------------------|

|  | (b)  | Successors |
|--|-----------|------------|

|  | (c)  | Severability |
|--|-----------|--------------|

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|  | (d)  | Time |
|--|-----------|------|

|  | (e)  | Currency |
|--|-----------|----------|

|  | (f)  | Governing      Law |
|--|-----------|--------------------|

|  | (g)  | Entire      Agreement |
|--|-----------|-----------------------|

|  | (h)  | Amendments |
|--|-----------|------------|

|  | (i)  | Independent      Advice |
|--|-----------|-------------------------|

|  | (j)  | Release of      Claims |
|--|-----------|------------------------|

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|  | (k)  | Plural and Gender: |
|--|-----------|--------------------|

|  | (l)  | Notices |
|--|-----------|---------|

|  | (i)  | the      Corporation, addressed as follows: |
|--|-----------|---------------------------------------------|

|  | Telephone: | (416)      324-6000 |
|--|------------|---------------------|

|  | Telecopier: | (416)      324-9494 |
|--|-------------|---------------------|

|  | (ii)  | the      Executive (by delivery only), addressed as  follows: |
|--|------------|---------------------------------------------------------------|

|  | Telephone: | (416)      324-6002 (b) |
|--|------------|-------------------------|

|  |   | (416)      471-8797 (h) |
|--|--------|-------------------------|

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|  | (j)  | Counterparts |
|--|-----------|--------------|

|                              |   | WESTERN      GOLDFIELDS (CANADA) INC. |
|-----------------------------------|--------|---------------------------------------|
|                              |   |                                  |   |
|                              |   |                                  |   |
|                              |   | Per:                             | /s/      Raymond Threlkeld |
|                              |   |                                  |   |
| SIGNED,      SEALED AND DELIVERED |   | )                                     |   |
| in      the presence of           |   | )                                     |   |
|                              |   | )                                     |   |
| /s/      Masha Katz               |   | )))                                   | /s/ Brian      Penny |
| Witness                           |   | )                                     | BRIAN      PENNY |

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| WITNESS:     |   | )      |             |
|--------------|--------|--------|------------------|
|         |   | )      |             |
|         |   | )      |             |
|    |   | )      |        |
|         |   |   | BRIAN      PENNY |

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