Document:

Exhibit 4.5

 

 

RUSORO MINING LTD.

Interim Consolidated Financial Statements
(unaudited)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,
2008 AND 2007

(Expressed in U.S. Dollars)

 

 

	
  RUSORO MINING LTD.

  INTERIM CONSOLIDATED BALANCE SHEETS

  AS AT SEPTEMBER 30, 2008

  (Expressed in U.S. Dollars) - unaudited

  	
  

  

 

	
   

  	
   

  	
  September 30, 2008

  	
   

  	
  December 31, 2007

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
  ASSETS

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  CURRENT

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cash

  	
   

  	
  19,968,965

  	
   

  	
  31,352,166

  	
   

  
	
  Cash held as collateral (Note 3)

  	
   

  	
  1,400,000

  	
   

  	
  —

  	
   

  
	
  Receivables (Note 4)

  	
   

  	
  11,756,092

  	
   

  	
  5,300,231

  	
   

  
	
  Prepaid expenses and deposits (Notes 5 and
  14)

  	
   

  	
  7,414,046

  	
   

  	
  8,187,746

  	
   

  
	
  Inventories – gold (Notes 6 and 7)

  	
   

  	
  6,264,672

  	
   

  	
  7,634,989

  	
   

  
	
  Inventories – materials

  	
   

  	
  5,070,726

  	
   

  	
  3,089,999

  	
   

  
	
  Assets held for sale (Note 22)

  	
   

  	
  —

  	
   

  	
  855,000

  	
   

  
	
   

  	
   

  	
  51,874,501

  	
   

  	
  56,420,131

  	
   

  
	
  Property, plant and equipment (Note 8)

  	
   

  	
  956,074,839

  	
   

  	
  758,680,742

  	
   

  
	
  Mineral properties (Notes 10 and 14)

  	
   

  	
  229,503,911

  	
   

  	
  190,287,252

  	
   

  
	
  Receivables - non-current (Note 4)

  	
   

  	
  6,274,753

  	
   

  	
  1,136,092

  	
   

  
	
  Other assets (Note 9)

  	
   

  	
  32,068,953

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
  1,275,796,957

  	
   

  	
  1,006,524,217

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  LIABILITIES

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  CURRENT

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Accounts payable and accrued liabilities
  (Note 11)

  	
   

  	
  38,606,317

  	
   

  	
  21,078,543

  	
   

  
	
  Income taxes payable

  	
   

  	
  6,219,306

  	
   

  	
  343,797

  	
   

  
	
  Short-term debt (Note 12)

  	
   

  	
  —

  	
   

  	
  522,375

  	
   

  
	
  Loan payable on acquisition (Note 15)

  	
   

  	
  1,500,000

  	
   

  	
  2,500,000

  	
   

  
	
   

  	
   

  	
  46,325,623

  	
   

  	
  24,444,715

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Asset retirement obligation

  	
   

  	
  3,283,880

  	
   

  	
  2,284,178

  	
   

  
	
  Long-term debt (Notes 14 and 16)

  	
   

  	
  70,506,325

  	
   

  	
  —

  	
   

  
	
  Future income tax liability

  	
   

  	
  336,787,420

  	
   

  	
  276,752,282

  	
   

  
	
   

  	
   

  	
  456,903,248

  	
   

  	
  303,481,175

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SHAREHOLDERS’ EQUITY

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SHARE CAPITAL (Note 13 (a))

  	
   

  	
  675,336,196

  	
   

  	
  669,251,552

  	
   

  
	
  EQUITY COMPONENT OF CONVERTIBLE LOAN (Note
  16)

  	
   

  	
  6,309,749

  	
   

  	
  —

  	
   

  
	
  CONTRIBUTED SURPLUS (Note 13 (b))

  	
   

  	
  113,983,840

  	
   

  	
  91,823,658

  	
   

  
	
  ACCUMULATED OTHER COMPREHENSIVE INCOME

  	
   

  	
  185,118,734

  	
   

  	
  37,251,489

  	
   

  
	
  DEFICIT

  	
   

  	
  (161,854,810

  	
  )

  	
  (95,283,657

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  818,893,709

  	
   

  	
  703,043,042

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  1,275,796,957

  	
   

  	
  1,006,524,217

  	
   

  

 

Nature of
operations - Note 1

Commitments
and contingencies - Note 20

Risks – Note
21

Subsequent
events - Note 24

 

	
  (See Accompanying Notes)

  
	
   

  
	
  APPROVED BY THE DIRECTORS:

  
	
  “George Salamis”

  	
  ,

  	
   Director

  	
  “Gordon Keep”

  	
  ,

  	
   Director

  
	
  George Salamis

  	
   

  	
   

  	
  Gordon Keep

  	
   

  	
   

  

 

1

 

	
  RUSORO MINING LTD.

  INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS AND

  DEFICIT FOR THE THREE AND NINE MONTHS ENDED

  SEPTEMBER 30, 2008 and 2007

  (Expressed in U.S. Dollars) - unaudited

  	
  

  

 

	
   

  	
   

  	
  Three Months Ended

  	
   

  	
  Nine Months Ended

  	
   

  
	
   

  	
   

  	
  September 30,

  	
   

  	
  September 30,

  	
   

  
	
   

  	
   

  	
  2008

  	
   

  	
  2007

  	
   

  	
  2008

  	
   

  	
  2007

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  REVENUE

  	
   

  	
  14,716,982

  	
   

  	
  —

  	
   

  	
  49,557,148

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  COSTS AND EXPENSES

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cost of sales (Note 7) (1)

  	
   

  	
  18,384,456

  	
   

  	
  —

  	
   

  	
  48,342,438

  	
   

  	
  —

  	
   

  
	
  Amortization (Note 7)

  	
   

  	
  7,562,389

  	
   

  	
  63,019

  	
   

  	
  25,203,590

  	
   

  	
  88,765

  	
   

  
	
  Administration (Notes 13 (c) and 14)

  	
   

  	
  4,089,575

  	
   

  	
  3,197,309

  	
   

  	
  26,735,478

  	
   

  	
  8,392,226

  	
   

  
	
  Consulting (Notes 13 (c) and 14)

  	
   

  	
  1,595,375

  	
   

  	
  3,031,184

  	
   

  	
  8,417,284

  	
   

  	
  5,090,198

  	
   

  
	
  Foreign exchange loss (gain)

  	
   

  	
  (6,839,363

  	
  )

  	
  4,145,493

  	
   

  	
  4,132,337

  	
   

  	
  4,382,648

  	
   

  
	
  Interest income

  	
   

  	
  (138,048

  	
  )

  	
  (639,156

  	
  )

  	
  (484,018

  	
  )

  	
  (1,655,475

  	
  )

  
	
  Interest on long term debt

  	
   

  	
  3,210,729

  	
   

  	
  —

  	
   

  	
  3,908,714

  	
   

  	
  —

  	
   

  
	
  Professional fees (Note 14)

  	
   

  	
  290,197

  	
   

  	
  170,380

  	
   

  	
  1,309,435

  	
   

  	
  789,460

  	
   

  
	
  Salaries (Note 13 (c))

  	
   

  	
  782,787

  	
   

  	
  621,786

  	
   

  	
  3,305,607

  	
   

  	
  1,194,557

  	
   

  
	
  Transfer agent and filing fees

  	
   

  	
  2,722

  	
   

  	
  3,774

  	
   

  	
  143,831

  	
   

  	
  91,560

  	
   

  
	
  Travel and entertainment (Note 14)

  	
   

  	
  623,930

  	
   

  	
  592,782

  	
   

  	
  2,555,022

  	
   

  	
  889,149

  	
   

  
	
   

  	
   

  	
  29,564,749

  	
   

  	
  11,186,571

  	
   

  	
  123,569,718

  	
   

  	
  19,263,088

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Loss before undernoted

  	
   

  	
  (14,847,767

  	
  )

  	
  (11,186,571

  	
  )

  	
  (74,012,570

  	
  )

  	
  (19,263,088

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  OTHER (EXPENSES) INCOME

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Gain on sale of investments

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  160,974

  	
   

  	
  —

  	
   

  
	
  Impairment of mineral properties (Note 10)

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  (238,320

  	
  )

  	
  —

  	
   

  
	
   

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  (77,346

  	
  )

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  LOSS BEFORE INCOME TAXES

  	
   

  	
  (14,847,767

  	
  )

  	
  (11,186,571

  	
  )

  	
  (74,089,916

  	
  )

  	
  (19,263,088

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Current income tax

  	
   

  	
  3,092,035

  	
   

  	
  —

  	
   

  	
  6,242,384

  	
   

  	
  —

  	
   

  
	
  Future income tax recovery

  	
   

  	
  (5,449,517

  	
  )

  	
  —

  	
   

  	
  (13,761,147

  	
  )

  	
  —

  	
   

  
	
   

  	
   

  	
  (2,357,482

  	
  )

  	
  —

  	
   

  	
  (7,518,763

  	
  )

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  NET LOSS

  	
   

  	
  (12,490,285

  	
  )

  	
  (11,186,571

  	
  )

  	
  (66,571,153

  	
  )

  	
  (19,263,088

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  DEFICIT

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Beginning of period

  	
   

  	
  (149,364,525

  	
  )

  	
  (71,116,185

  	
  )

  	
  (95,283,657

  	
  )

  	
  (63,039,668

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  End of period

  	
   

  	
  (161,854,810

  	
  )

  	
  (82,302,756

  	
  )

  	
  (161,854,810

  	
  )

  	
  (82,302,756

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  BASIC AND DILUTED LOSS PER
  SHARE

  	
   

  	
  (0.03

  	
  )

  	
  (0.08

  	
  )

  	
  (0.17

  	
  )

  	
  (0.14

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  WEIGHTED AVERAGE NUMBER OF
  SHARES OUTSTANDING, BASIC AND DILUTED

  	
   

  	
  391,130,511

  	
   

  	
  147,991,360

  	
   

  	
  388,464,327

  	
   

  	
  134,361,723

  	
   

  

 

(1) Exclusive of amortization (Note 7)

 

2

 

	
  RUSORO MINING LTD.

  FOR THE THREE AND NINE MONTHS ENDED

  SEPTEMBER 30, 2008 and 2007

  (Expressed
  in U.S. Dollars) - unaudited

  	
  

  

 

INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

	
   

  	
   

  	
  Three Months Ended

  	
   

  	
  Nine Months Ended

  	
   

  
	
   

  	
   

  	
  September 30,

  	
   

  	
  September 30,

  	
   

  
	
   

  	
   

  	
  2008

  	
   

  	
  2007

  	
   

  	
  2008

  	
   

  	
  2007

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  NET LOSS

  	
   

  	
  (12,490,285

  	
  )

  	
  (11,186,571

  	
  )

  	
  (66,571,153

  	
  )

  	
  (19,263,088

  	
  )

  
	
  Unrealized gain (loss) on available for
  sale marketable securities

  	
   

  	
  —

  	
   

  	
  (95,545

  	
  )

  	
  —

  	
   

  	
  122,829

  	
   

  
	
  Unrealized loss on available for sale long
  term investments

  	
   

  	
  —

  	
   

  	
  (43,140

  	
  )

  	
  —

  	
   

  	
  (8,300

  	
  )

  
	
  Unrealized foreign exchange gain (loss) on
  translation of self-sustaining foreign operations

  	
   

  	
  (219,049,627

  	
  )

  	
  —

  	
   

  	
  147,867,245

  	
   

  	
  —

  	
   

  
	
  COMPREHENSIVE INCOME (LOSS)

  	
   

  	
  (231,539,912

  	
  )

  	
  (11,325,256

  	
  )

  	
  81,296,092

  	
   

  	
  (19,148,559

  	
  )

  

 

INTERIM
CONSOLIDATED STATEMENTS OF ACCUMULATED OTHER COMPREHENSIVE INCOME

 

	
   

  	
   

  	
  Three Months Ended

  	
   

  	
  Nine Months Ended

  	
   

  
	
   

  	
   

  	
  September 30,

  	
   

  	
  September 30,

  	
   

  
	
   

  	
   

  	
  2008

  	
   

  	
  2007

  	
   

  	
  2008

  	
   

  	
  2007

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  BALANCE – BEGINNING OF PERIOD

  	
   

  	
  404,168,361

  	
   

  	
  249,330

  	
   

  	
  37,251,489

  	
   

  	
  (3,884

  	
  )

  
	
  Unrealized gain (loss) on available for
  sale marketable securities

  	
   

  	
  —

  	
   

  	
  (95,545

  	
  )

  	
  —

  	
   

  	
  122,829

  	
   

  
	
  Unrealized loss on available for sale long
  term investments

  	
   

  	
  —

  	
   

  	
  (43,140

  	
  )

  	
  —

  	
   

  	
  (8,300

  	
  )

  
	
  Unrealized foreign exchange gain (loss) on
  translation of self-sustaining foreign operations

  	
   

  	
  (219,049,627

  	
  )

  	
  —

  	
   

  	
  147,867,245

  	
   

  	
  —

  	
   

  
	
  BALANCE – END OF PERIOD

  	
   

  	
  185,118,734

  	
   

  	
  110,645

  	
   

  	
  185,118,734

  	
   

  	
  110,645

  	
   

  

 

3

 

	
  RUSORO
  MINING LTD.

  INTERIM
  CONSOLIDATED STATEMENTS OF CASH FLOWS

  FOR THE
  THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008

  and 2007

  (Expressed in U.S. Dollars) - unaudited

  	
  

  

 

	
   

  	
   

  	
  Three Months Ended

  	
   

  	
  Nine Months Ended

  	
   

  
	
   

  	
   

  	
  September 30,

  	
   

  	
  September 30,

  	
   

  
	
   

  	
   

  	
  2008

  	
   

  	
  2007

  	
   

  	
  2008

  	
   

  	
  2007

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
  OPERATING ACTIVITIES

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Net loss for the period

  	
   

  	
  (12,490,285

  	
  )

  	
  (11,186,571

  	
  )

  	
  (66,571,153

  	
  )

  	
  (19,263,088

  	
  )

  
	
  Item not involving cash

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Amortization

  	
   

  	
  7,562,389

  	
   

  	
  63,019

  	
   

  	
  25,203,590

  	
   

  	
  88,765

  	
   

  
	
  Impairment of inventory (Note 7)

  	
   

  	
  1,911,444

  	
   

  	
  —

  	
   

  	
  3,551,167

  	
   

  	
  —

  	
   

  
	
  Stock based compensation (Note 13 (c))

  	
   

  	
  1,699,049

  	
   

  	
  5,427,389

  	
   

  	
  22,048,261

  	
   

  	
  9,153,504

  	
   

  
	
  Impairment of mineral properties (Note 10)

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  238,320

  	
   

  	
  —

  	
   

  
	
  Unrealized foreign exchange (gain) loss

  	
   

  	
  (5,604,031

  	
  )

  	
  —

  	
   

  	
  3,875,944

  	
   

  	
  —

  	
   

  
	
  Accretion of asset retirement obligation

  	
   

  	
  291,988

  	
   

  	
  —

  	
   

  	
  430,170

  	
   

  	
  —

  	
   

  
	
  Gain on sale of investments

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  (160,974

  	
  )

  	
  —

  	
   

  
	
  Accretion of long-term debt

  	
   

  	
  1,199,801

  	
   

  	
  —

  	
   

  	
  1,460,628

  	
   

  	
  —

  	
   

  
	
  Future income tax recovery

  	
   

  	
  (5,449,517

  	
  )

  	
  —

  	
   

  	
  (13,761,147

  	
  )

  	
  —

  	
   

  
	
   

  	
   

  	
  (10,879,162

  	
  )

  	
  (5,696,163

  	
  )

  	
  (23,685,194

  	
  )

  	
  (10,020,819

  	
  )

  
	
  Changes in non-cash working capital items

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Inventories

  	
   

  	
  1,178,957

  	
   

  	
  —

  	
   

  	
  (3,394,592

  	
  )

  	
  —

  	
   

  
	
  Receivables

  	
   

  	
  279,375

  	
   

  	
  (82,879

  	
  )

  	
  (4,819,697

  	
  )

  	
  (396,735

  	
  )

  
	
  Prepaid expenses and deposits

  	
   

  	
  5,678,665

  	
   

  	
  (22,975

  	
  )

  	
  1,563,269

  	
   

  	
  (740,166

  	
  )

  
	
  Income taxes payable

  	
   

  	
  3,092,035

  	
   

  	
  —

  	
   

  	
  6,242,384

  	
   

  	
  —

  	
   

  
	
  Accounts payables and accrued liabilities

  	
   

  	
  3,715,697

  	
   

  	
  (1,046,590

  	
  )

  	
  10,300,400

  	
   

  	
  (2,719,410

  	
  )

  
	
   

  	
   

  	
  3,065,567

  	
   

  	
  (6,848,607

  	
  )

  	
  (13,793,430

  	
  )

  	
  (13,877,130

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  FINANCING ACTIVITIES

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Repayment of short-term borrowings

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  (522,375

  	
  )

  	
  —

  	
   

  
	
  Repayment of loan payable on acquisition
  (Note 15)

  	
   

  	
  (1,000,000

  	
  )

  	
  —

  	
   

  	
  (1,000,000

  	
  )

  	
  —

  	
   

  
	
  Advances from related parties

  	
   

  	
  (379,957

  	
  )

  	
  227,069

  	
   

  	
  (366,157

  	
  )

  	
  168,675

  	
   

  
	
  Proceeds on issuance of long-term debt
  (Note 16)

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  75,355,446

  	
   

  	
  —

  	
   

  
	
  Cash received upon the exercising of share
  warrants

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  353,826

  	
   

  	
  270,779

  	
   

  
	
  Cash acquired on acquisition of Mena

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  57,709,754

  	
   

  
	
  Cash received upon the exercising of stock
  options

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  224,557

  	
   

  
	
  Share issue costs

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  (137,479

  	
  )

  
	
   

  	
   

  	
  (1,379,957

  	
  )

  	
  227,069

  	
   

  	
  73,820,740

  	
   

  	
  58,236,286

  	
   

  
	
  INVESTING ACTIVITIES

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Mineral property costs

  	
   

  	
  (5,294,583

  	
  )

  	
  (1,408,273

  	
  )

  	
  (16,520,526

  	
  )

  	
  (8,147,453

  	
  )

  
	
  Purchase of property, plant and equipment

  	
   

  	
  (16,637,639

  	
  )

  	
  (1,649,026

  	
  )

  	
  (21,679,973

  	
  )

  	
  (1,884,164

  	
  )

  
	
  Advances to related parties

  	
   

  	
  22,807

  	
   

  	
  (150,645

  	
  )

  	
  (13,666

  	
  )

  	
  (71,568

  	
  )

  
	
  Proceeds on sale of subsidiary (Note 22)

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  325,000

  	
   

  	
  —

  	
   

  
	
  Proceeds on sale of short-term investments

  	
   

  	
  1,869,565

  	
   

  	
  —

  	
   

  	
  2,560,539

  	
   

  	
  —

  	
   

  
	
  Purchase of short-term investment

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  (1,869,565

  	
  )

  	
  —

  	
   

  
	
  Sale (Purchase) of marketable securities
  and long term investments

  	
   

  	
  —

  	
   

  	
  3,884

  	
   

  	
  —

  	
   

  	
  (205,676

  	
  )

  
	
  Receivables - non-current

  	
   

  	
  (4,496,809

  	
  )

  	
  —

  	
   

  	
  (4,754,463

  	
  )

  	
  —

  	
   

  
	
  Increase in other assets (Note 9)

  	
   

  	
  (17,504,795

  	
  )

  	
  —

  	
   

  	
  (27,888,804

  	
  )

  	
  —

  	
   

  
	
  Collection of collateral loan

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  300,000

  	
   

  
	
  Cash provided as collateral for loan (Note
  3)

  	
   

  	
  (1,400,000

  	
  )

  	
  —

  	
   

  	
  (1,400,000

  	
  )

  	
  —

  	
   

  
	
   

  	
   

  	
  (43,441,454

  	
  )

  	
  (3,204,060

  	
  )

  	
  (71,241,458

  	
  )

  	
  (10,008,861

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Impact of foreign exchange on cash

  	
   

  	
  (782,480

  	
  )

  	
  —

  	
   

  	
  (169,053

  	
  )

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (DECREASE) INCREASE IN CASH

  	
   

  	
  (42,538,324

  	
  )

  	
  (9,825,598

  	
  )

  	
  (11,383,201

  	
  )

  	
  34,350,295

  	
   

  
	
  Cash - beginning of period

  	
   

  	
  62,507,289

  	
   

  	
  55,297,002

  	
   

  	
  31,352,166

  	
   

  	
  11,121,109

  	
   

  
	
  CASH – END OF PERIOD

  	
   

  	
  19,968,965

  	
   

  	
  45,471,404

  	
   

  	
  19,968,965

  	
   

  	
  45,471,404

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Supplemental cash flow
  information

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Interest paid

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Taxes paid

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Non-cash investing and
  financing transactions (Note 18)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

4

 

	
  RUSORO
  MINING LTD.

  Notes
  to the Interim Consolidated Financial Statements

  For
  the Three and Nine Months Ended September 30, 2008 and 2007

  (Expressed
  in U.S. Dollars) - unaudited

  	
  

  

 

1.                                     NATURE OF OPERATIONS AND BASIS OF PRESENTATION

 

These interim
unaudited consolidated financial statements have been prepared in accordance
with Canadian generally accepted accounting principles for interim financial
information and they follow the same accounting policies and methods of
application as the audited consolidated financial statements of the Company for
the year ended December 31, 2007, except as discussed in Note 2.  These interim unaudited consolidated
financial statements have been reconciled to accounting principles generally
accepted in the United States of America (Note 24). These interim unaudited
consolidated financial statements do not include all the information and note
disclosure required by the generally accepted accounting principles for annual
financial statements and therefore should be read in conjunction with the most
recent annual audited consolidated financial statements.

 

In the opinion
of management, all adjustments (including normal recurring adjustments)
necessary to present fairly the financial position at September 30, 2008
and the results of operations and cash flows for all periods presented have
been made.  The interim results are not
necessarily indicative of results for a full year.

 

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

 

Promotora Minera de Guayana (“PMG”) owns an
operating mine with proven reserves. Rusoro indirectly owns 95% of PMG with the
remaining 5% owned by CVG Minerven, C.A. (“CVG Minerven”).

 

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

 

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

 

2.                                     CHANGE IN ACCOUNTING POLICIES

 

Capital Disclosures and Financial Instruments – Disclosures and Presentation

 

At January 1,
2008, the Company adopted three new presentation and disclosure standards that
were issued by the Canadian Institute of Chartered Accountants: Handbook Section 1535,
Capital Disclosures (“Section 1535”), Handbook Section 3862, Financial
Instruments – Disclosures (“Section 3862”) and Handbook Section 3863,
Financial Instruments – Presentation (“Section 3863”).

 

Section 1535
requires the disclosure of both qualitative and quantitative information that
enables users of financial statements to evaluate (i) an entity’s
objectives, policies and processes for managing capital; (ii) quantitative
data about what the entity regards as capital; (iii) whether the entity
has complied with any capital requirements; and (iv) if it has not
complied, the consequences of such non-compliance. The Company has provided the
required disclosures under Section 1535 in Note 17 to these interim
financial statements.

 

5

 

	
  RUSORO
  MINING LTD.

  Notes
  to the Interim Consolidated Financial Statements

  For
  the Three and Nine Months Ended September 30, 2008 and 2007

  Expressed
  in U.S. Dollars - unaudited

  	
  

  

 

Sections 3862
and 3863 replace Handbook Section 3861, Financial Instruments – Disclosure
and Presentation, revising and enhancing its disclosure requirements and
carrying forward unchanged its presentation requirements for financial
instruments.  Sections 3862 and 3863
place increased emphasis on disclosures about the nature and extent of risks
arising from financial instruments and how the entity manages those risks. Note
21 provides these disclosures.

 

Inventories

 

Section 3031,
Inventories (“Section 3031”), which replaces Section 3030,
establishes standards for the measurement and disclosure of inventories. The
new standard provides more extensive guidance on the determination of cost,
including allocation of overhead and requires impairment testing. The adoption
of Section 3031 did not result in a material impact on the Company’s
consolidated financial position and results of operations. The disclosure
requirements in Section 3031 have been expanded to include disclosure of
the amount of inventories recognized as an expense during the period, which is
included in the “cost of sales” and “amortization” lines on the Consolidated
Statement of Operations and Deficit. (See Note 7).

 

Goodwill and intangible assets

 

In January 2008,
the CICA issued Section 3064, Goodwill
and Intangible Assets, which will replace Section 3062, Goodwill and Other Intangible Assets. The
standard provides guidance on the recognition of intangible assets in
accordance with the definition of an asset and the criteria for asset
recognition as well as clarifying the application of the concept of matching
revenues and expenses, whether these assets are separately acquired or
internally developed. Section 1000 – Financial Statement Concepts was also
amended to provide consistency with this new standard.  This standard will apply to the Company’s
interim and annual financial statements beginning on January 1, 2009. The
Company has not yet determined what the impact of adopting this standard will
have on the financial statements.

 

International Financial Reporting Standards

 

The Accounting
Standards Board of the CICA announced that Canadian Generally Accepted Accounting
Principles (“GAAP”) for publicly accountable enterprises will be replaced with
International Financial Reporting Standards (IFRS) for fiscal years beginning
on or after January 1, 2011. Early conversion to IFRS for fiscal years
beginning on or after January 1, 2009 may also be permitted.

 

Implementing
IFRS will have an impact on accounting, financial reporting and supporting IT
systems and processes. It may also have an impact on taxes, contractual
commitments involving GAAP based clauses, long-term employee compensation plans
and performance metrics. Accordingly, when the Company develops its IFRS
implementation plan, it will have to include measures to provide extensive
training to key finance personnel, to review contracts and agreements and to
increase the level of awareness and knowledge amongst management, the Board of
Directors and Audit Committee. Additional resources may be engaged to ensure
the timely conversion to IFRS.

 

6

 

	
  RUSORO
  MINING LTD.

  Notes
  to the Interim Consolidated Financial Statements

  For
  the Three and Nine Months Ended September 30, 2008 and 2007

  Expressed
  in U.S. Dollars - unaudited

  	
  

  

 

3.                                     CASH HELD AS COLLATERAL

 

The Company provided $1.4 million cash as collateral for a loan held by
Minera Hecla Venezolana, C.A. (“Minera Hecla”) (Note 9). This loan was for a
term of 70 days and had a maturity date of October 23, 2008. Subsequent to
September 30, 2008 this collateral was returned to the Company (Note 24).

 

4.                                     RECEIVABLES

 

	
   

  	
   

  	
  September 30,

  	
   

  	
  December 31,

  	
   

  
	
   

  	
   

  	
  2008

  	
   

  	
  2007

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (a) VAT receivable

  	
   

  	
  9,385,315

  	
   

  	
  5,370,621

  	
   

  
	
  (b) Trade receivables

  	
   

  	
  2,313,256

  	
   

  	
  —

  	
   

  
	
  (c) Other receivables

  	
   

  	
  6,267,362

  	
   

  	
  1,014,456

  	
   

  
	
  (d) Advances to related companies

  	
   

  	
  64,912

  	
   

  	
  51,246

  	
   

  
	
   

  	
   

  	
  18,030,845

  	
   

  	
  6,436,323

  	
   

  
	
  (e) Non-current VAT receivable

  	
   

  	
  (6,274,753

  	
  )

  	
  (1,136,092

  	
  )

  
	
  Current receivables

  	
   

  	
  11,756,092

  	
   

  	
  5,300,231

  	
   

  

 

(a)         VAT
receivable relates to value added taxes paid in Venezuela that are recoverable
from the requisite authorities.

 

(b)        Trade
receivables relate to the sale of gold.

 

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

 

(d)        Advances
to related companies represents amounts owed to the Company by companies which
are controlled by senior management. The amounts are unsecured and non-interest
bearing.

 

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

 

5.                                     PREPAIDS AND DEPOSITS

 

	
   

  	
   

  	
  September 30,

  	
   

  	
  December 31,

  	
   

  
	
   

  	
   

  	
  2008

  	
   

  	
  2007

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (a) Prepaid expenses

  	
   

  	
  7,310,702

  	
   

  	
  6,916,406

  	
   

  
	
  (b) Deposits

  	
   

  	
  103,344

  	
   

  	
  1,271,340

  	
   

  
	
   

  	
   

  	
  7,414,046

  	
   

  	
  8,187,746

  	
   

  

 

(a)         Included
in prepaids at September 30, 2008 is $5,933,273 (December 31, 2007: $3,739,427)
related to advances to suppliers for goods and services to be provided at a
later date.

 

(b)        Deposits
includes amounts paid in advance for equipment destined for the companies
operating in Venezuela.

 

7

 

	
  RUSORO
  MINING LTD.

  Notes
  to the Interim Consolidated Financial Statements

  For
  the Three and Nine Months Ended September 30, 2008 and 2007

  Expressed
  in U.S. Dollars - unaudited

  	
  

  

 

6.                                     INVENTORIES – GOLD

 

	
   

  	
   

  	
  September 30,

  	
   

  	
  December 31,

  	
   

  
	
   

  	
   

  	
  2008

  	
   

  	
  2007

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Gold bars

  	
   

  	
  2,553,340

  	
   

  	
  4,288,801

  	
   

  
	
  Gold in
  process

  	
   

  	
  3,711,332

  	
   

  	
  1,944,753

  	
   

  
	
  Gold –
  stockpile

  	
   

  	
  —

  	
   

  	
  1,401,435

  	
   

  
	
   

  	
   

  	
  6,264,672

  	
   

  	
  7,634,989

  	
   

  

 

7.                                     COST OF SALES

 

The cost of sales in the period reflects all components capitalized to
inventory except for the component of inventory cost relating to amortization
of property, plant and equipment, which is classified in the statement of
operations under “amortization”. The amount presented in amortization includes
cost of inventory sold of $7,464,804 for the three months ended September 30,
2008 (2007: $Nil) and $24,989,634 for the nine months ended September 30,
2008 (2007: $Nil). Included in cost of sales for the three months ended September 30,
2008 is an impairment of inventory in the amount of $1,911,444 (2007: $Nil) and
included in cost of sales for the nine months ended September 30, 2008 is
an impairment of inventory in the amount of $3,551,167.

 

8.                                     PROPERTY, PLANT AND EQUIPMENT

 

	
   

  	
   

  	
  September 30, 2008

  $

  	
   

  
	
   

  	
   

  	
  Cost

  	
   

  	
  Accumulated

  Amortization

  and Depletion

  	
   

  	
  Net Book Value

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Facilities

  	
   

  	
  883,397,147

  	
   

  	
  (9,112,928

  	
  )

  	
  874,284,219

  	
   

  
	
  Machinery

  	
   

  	
  78,930,135

  	
   

  	
  (24,169,110

  	
  )

  	
  54,761,025

  	
   

  
	
  Furniture and equipment

  	
   

  	
  8,282,121

  	
   

  	
  (2,010,453

  	
  )

  	
  6,271,668

  	
   

  
	
  Vehicles

  	
   

  	
  2,386,266

  	
   

  	
  (929,844

  	
  )

  	
  1,456,422

  	
   

  
	
  Leasehold improvements

  	
   

  	
  100,085

  	
   

  	
  (5,504

  	
  )

  	
  94,581

  	
   

  
	
  Construction in progress

  	
   

  	
  19,206,924

  	
   

  	
  —

  	
   

  	
  19,206,924

  	
   

  
	
   

  	
   

  	
  992,302,678

  	
   

  	
  (36,227,839

  	
  )

  	
  956,074,839

  	
   

  

 

	
   

  	
   

  	
  December 31, 2007

  $

  	
   

  
	
   

  	
   

  	
  Cost

  	
   

  	
  Accumulated

  Amortization

  and Depletion

  	
   

  	
  Net Book Value

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Facilities

  	
   

  	
  694,392,653

  	
   

  	
  (4,014,961

  	
  )

  	
  690,377,692

  	
   

  
	
  Machinery

  	
   

  	
  61,211,025

  	
   

  	
  (3,081,238

  	
  )

  	
  58,129,787

  	
   

  
	
  Furniture and equipment

  	
   

  	
  6,991,869

  	
   

  	
  (1,229,498

  	
  )

  	
  5,762,371

  	
   

  
	
  Vehicles

  	
   

  	
  1,973,257

  	
   

  	
  (445,473

  	
  )

  	
  1,527,784

  	
   

  
	
  Leasehold improvements

  	
   

  	
  78,263

  	
   

  	
  (7,685

  	
  )

  	
  70,578

  	
   

  
	
  Construction in progress

  	
   

  	
  2,812,530

  	
   

  	
  —

  	
   

  	
  2,812,530

  	
   

  
	
   

  	
   

  	
  767,459,597

  	
   

  	
  (8,778,855

  	
  )

  	
  758,680,742

  	
   

  

 

8

 

	
  RUSORO
  MINING LTD.

  Notes
  to the Interim Consolidated Financial Statements

  For
  the Three and Nine Months Ended September 30, 2008 and 2007

  Expressed
  in U.S. Dollars - unaudited

  	
  

  

 

On November 30,
2007, the Company acquired all the assets and liabilities of Gold Fields
Netherlands Services BV, a wholly owned subsidiary of Gold Fields Limited (“Gold
Fields”) (the “Gold Fields Venezeuala Acquisition”) for aggregate consideration
of $529.2 million consisting of $180 million in cash, issuance of a total of
140 million common shares at a price of $2.31 per share and other acquisition
costs of $25.8 million.  The main asset acquired was the Choco 10 mine,
located in the El Callao district, in which the Company acquired a 95%
interest.

 

The net book
values associated with the Company’s operating gold mine are as follows:

 

	
   

  	
   

  	
  Depletable

  	
   

  	
  Mineral Interests

  Non-Depletable

  	
   

  	
  September 30, 2008

  	
   

  	
  December 31, 2007

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Choco 10

  	
   

  	
  78,074,635

  	
   

  	
  771,578,231

  	
   

  	
  849,652,866

  	
   

  	
  690,377,692

  	
   

  

 

Construction in Progress

 

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

 

9.                                     OTHER ASSETS

 

	
   

  	
   

  	
  September 30,

  	
   

  	
  December 31,

  	
   

  
	
   

  	
   

  	
  2008

  	
   

  	
  2007

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Hecla-Venezuela Acquisition (i)

  	
   

  	
  27,068,953

  	
   

  	
  —

  	
   

  
	
  Costs related to Mixed Enterprise (ii)

  	
   

  	
  5,000,000

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
  32,068,953

  	
   

  	
  —

  	
   

  

 

(i)            On July 8, 2008, the Company closed the
transaction to acquire from Hecla Mining Company (“Hecla”) 100% of the
outstanding shares of El Callao Gold Mining Ltd. and Drake-Bering Holdings B.V.
(the “Hecla-Venezuela Acquisition”) including their wholly-owned subsidiaries
Minera Hecla and El Callao Gold Mining Company de Venezuela, SCS (“El Callao
Gold Mining”) in consideration for $20 million paid in cash, $5 million by the issuance
of 4,273,504 common shares of the Company and acquisition costs of $1.2
million. In addition the Company paid $0.9 million for
the working capital of the companies acquired in the Hecla-Venezuela
acquisition.

 

(ii)         On July 4, 2008 the Company entered into an
agreement with MIBAM to create a joint venture (the “Mixed Enterprise”) within
six months of the date of this agreement. The intention of the Mixed Enterprise
is to carry on with gold exploration, development and mining of the main assets acquired in the
Hecla-Venezuela Acquisition which are the Block B – Isidora mining leases and the La
Camorra mill facility in Bolivar State, Venezuela. The Mixed Enterprise will be
50% owned by the Company and 50% owned by Empresa Minera Nacional (“EMN”),
which is a company owned indirectly by MIBAM. 
As part of the agreement with MIBAM the Company paid $5 million to CVG
Minerven which owns 100% of EMN. This payment was made on August 6, 2008.
Additionally the Company is to provide a pledge in favour of EMN on 50% of the
Company’s interest in Minera Hecla and El Callao Gold Mining until the Mixed
Enterprise is created.

 

9

 

	
  RUSORO
  MINING LTD.

  Notes
  to the Interim Consolidated Financial Statements

  For
  the Three and Nine Months Ended September 30, 2008 and 2007

  Expressed
  in U.S. Dollars - unaudited

  	
  

  

 

For the period ended September 30, 2008, the Company has not
consolidated the companies acquired in the Hecla-Venezuela Acquisition. For
accounting purposes, the Company’s management has concluded that the Company
does not currently have a continuing power to determine the strategic,
operating, investing and financing polices of the companies acquired in the
Hecla-Venezuela Acquisition until such time that the Mixed Enterprise is
formed. Management has made this determination as the approval granted by CVG
Minerven and MIBAM to transfer the mining leases, as a result of the change in
control of the companies acquired in the Hecla-Venezuela Acquisition, together
with ownership of the  mining rights,
contracts and assets directly affected by the mining leases are both subject to
the creation of the Mixed Enterprise in the period required in the agreement
entered with MIBAM in (ii) above. Therefore until such time that the Mixed
Enterprise has been established the Company has determined that it is not
appropriate to consolidate the companies acquired in the Hecla-Venezuela
Acquisition.

 

10.                              MINERAL PROPERTIES

 

	
   

  	
   

  	
  El Dorado

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  San Rafael

  El Placer

  	
   

  	
  Emilia

  	
   

  	
  Ceiba II

  	
   

  	
  Valle

  Hondo

  	
   

  	
  Increible 6

  	
   

  	
  Yuruan

  	
   

  	
  Minoro

  	
   

  	
  El Callao

  	
   

  	
  Other

  Properties

  	
   

  	
  Total

  	
   

  
	
   

  	
   

  	
  $000’s

  	
   

  	
  $000’s

  	
   

  	
  $000’s

  	
   

  	
  $000’s

  	
   

  	
  $000’s

  	
   

  	
  $000’s

  	
   

  	
  $000’s

  	
   

  	
  $000’s

  	
   

  	
  $000’s

  	
   

  	
  $000’s

  	
   

  
	
  Balance,
  December  31, 2006

  	
   

  	
  12,316

  	
   

  	
  3,096

  	
   

  	
  1,160

  	
   

  	
  974

  	
   

  	
  6,186

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  3,090

  	
   

  	
  26,822

  	
   

  
	
  Acquisition
  of Mena properties

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  18,807

  	
   

  	
  39,319

  	
   

  	
  —

  	
   

  	
  15,215

  	
   

  	
  —

  	
   

  	
  3,564

  	
   

  	
  76,905

  	
   

  
	
  Acquisition
  of Gold Fields properties

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  68,408

  	
   

  	
  —

  	
   

  	
  68,408

  	
   

  
	
  Foreign
  exchange gain

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  4,629

  	
   

  	
  —

  	
   

  	
  4,629

  	
   

  
	
  Exploration
  costs

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Camp,
  equipment and geological fees

  	
   

  	
  2,520

  	
   

  	
  335

  	
   

  	
  —

  	
   

  	
  506

  	
   

  	
  3,667

  	
   

  	
  —

  	
   

  	
  44

  	
   

  	
  253

  	
   

  	
  235

  	
   

  	
  7,560

  	
   

  
	
  Drilling
  and assays

  	
   

  	
  2,134

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  65

  	
   

  	
  4,341

  	
   

  	
  407

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  111

  	
   

  	
  7,058

  	
   

  
	
   

  	
   

  	
  4,654

  	
   

  	
  335

  	
   

  	
  —

  	
   

  	
  571

  	
   

  	
  8,008

  	
   

  	
  407

  	
   

  	
  44

  	
   

  	
  253

  	
   

  	
  346

  	
   

  	
  14,618

  	
   

  
	
  Reclassified
  to assets held for sale (Note 22)

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  (805

  	
  )

  	
  (805

  	
  )

  
	
  Write-down
  of mineral properties

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  (290

  	
  )

  	
  (290

  	
  )

  
	
  Balance,
  December 31, 2007

  	
   

  	
  16,970

  	
   

  	
  3,431

  	
   

  	
  1,160

  	
   

  	
  20,352

  	
   

  	
  53,513

  	
   

  	
  407

  	
   

  	
  15,259

  	
   

  	
  73,290

  	
   

  	
  5,905

  	
   

  	
  190,287

  	
   

  
	
  Foreign
  exchange gain

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  19,500

  	
   

  	
  —

  	
   

  	
  19,500

  	
   

  
	
  Exploration
  costs

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Camp,
  equipment and geological fees

  	
   

  	
  6,786

  	
   

  	
  195

  	
   

  	
  —

  	
   

  	
  1,850

  	
   

  	
  3,896

  	
   

  	
  1,322

  	
   

  	
  29

  	
   

  	
  —

  	
   

  	
  699

  	
   

  	
  14,777

  	
   

  
	
  Drilling
  and assays

  	
   

  	
  563

  	
   

  	
  743

  	
   

  	
  —

  	
   

  	
  432

  	
   

  	
  1,752

  	
   

  	
  1,641

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  47

  	
   

  	
  5,178

  	
   

  
	
   

  	
   

  	
  7,349

  	
   

  	
  938

  	
   

  	
  —

  	
   

  	
  2,282

  	
   

  	
  5,648

  	
   

  	
  2,963

  	
   

  	
  29

  	
   

  	
  —

  	
   

  	
  746

  	
   

  	
  19,955

  	
   

  
	
  Write-down
  of mineral properties

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  (238

  	
  )

  	
  (238

  	
  )

  
	
  Balance,
  September 30, 2008

  	
   

  	
  24,319

  	
   

  	
  4,369

  	
   

  	
  1,160

  	
   

  	
  22,634

  	
   

  	
  59,161

  	
   

  	
  3,370

  	
   

  	
  15,288

  	
   

  	
  92,790

  	
   

  	
  6,413

  	
   

  	
  229,504

  	
   

  

 

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

 

10

 

	
  RUSORO
  MINING LTD.

  Notes
  to the Interim Consolidated Financial Statements

  For
  the Three and Nine Months Ended September 30, 2008 and 2007

  Expressed
  in U.S. Dollars - unaudited

  	
  

  

 

El Dorado

 

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

 

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

 

Valle Hondo

 

The 13,000 hectare
Valle Hondo Project is located 40 km east of the Company’s Emilia mill.

 

Increíble 6

 

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

 

Yuruan

 

The Yuruan project is
located 45 kilometres south of El Dorado. Drilling has been completed designed
to evaluate the possibility of outlining additional gold resources for the
Emilia Mill and/or the possibility of a “stand alone” project.

 

Minoro

 

In Honduras, the
Company holds the mineral rights to the 10,000 hectare Minoro project.

 

El Callao

 

The El Callao mineral properties were acquired from
Gold Fields on November 30, 2007 and consist of ten titles covering 41,544
hectares, seven of these titles; Choco 1, 2, 6, 9, 12, 13 and Increible 16 are
located within the central portion of the El Callao district with the remaining
three titles; Bochinche Zero, 1 and 2 located 40 km to the north-east.

 

Other Bolivar
State Projects

 

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

 

At September 30,
2008, $1,500,000 (December 31, 2007: $2,500,000) of this $5,000,000
remained unpaid (Note 15). Subsequent to September 30, 2008 the remaining
outstanding balance of $1,500,000 was repaid (Note 24).

 

The Increible 14 Project
is located 15 kilometres northwest of the Choco Mine.

 

11

 

	
  RUSORO
  MINING LTD.

  Notes
  to the Interim Consolidated Financial Statements

  For
  the Three and Nine Months Ended September 30, 2008 and 2007

  Expressed
  in U.S. Dollars - unaudited

  	
  

  

 

11.                              ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

 

	
   

  	
   

  	
  September 30,

  2008

  	
   

  	
  December 31

  2007

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Accounts payable

  	
   

  	
  18,851,953

  	
   

  	
  16,306,773

  	
   

  
	
  Accrued liabilities

  	
   

  	
  17,672,039

  	
   

  	
  3,213,761

  	
   

  
	
  Due to related parties

  	
   

  	
  678,744

  	
   

  	
  1,044,901

  	
   

  
	
  Accrual for termination benefits

  	
   

  	
  1,403,581

  	
   

  	
  513,108

  	
   

  
	
   

  	
   

  	
  38,606,317

  	
   

  	
  21,078,543

  	
   

  

 

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

 

12.                              SHORT TERM DEBT

 

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

 

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

 

13.                              SHARE CAPITAL

 

Authorized Share Capital

 

Unlimited number of
common shares.

 

(a)                     Issued Capital

 

	
   

  	
   

  	
  Number of

  Shares

  	
   

  	
  Amount

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Balance, December 31,
  2006

  	
   

  	
  111,430,851

  	
   

  	
  89,161,949

  	
   

  
	
  Mena acquisition

  	
   

  	
  31,424,255

  	
   

  	
  95,781,321

  	
   

  
	
  Issued pursuant to exercise of stock
  options

  	
   

  	
  212,940

  	
   

  	
  248,584

  	
   

  
	
  Issued pursuant to exercise of warrants

  	
   

  	
  10,017,060

  	
   

  	
  514,940

  	
   

  
	
  Fair value of options exercised

  	
   

  	
  —

  	
   

  	
  450,875

  	
   

  
	
  Fair value of warrants exercised

  	
   

  	
  —

  	
   

  	
  37,886

  	
   

  
	
  Private placement

  	
   

  	
  93,750,000

  	
   

  	
  173,455,019

  	
   

  
	
  Gold Fields Venezuela Acquisition

  	
   

  	
  140,000,000

  	
   

  	
  323,400,000

  	
   

  
	
  Share issue costs

  	
   

  	
  —

  	
   

  	
  (13,799,022

  	
  )

  
	
  Balance, December 31,
  2007

  	
   

  	
  386,835,106

  	
   

  	
  669,251,552

  	
   

  
	
  Issued pursuant to exercise of warrants

  	
   

  	
  347,059

  	
   

  	
  353,826

  	
   

  
	
  Fair value of warrants exercised

  	
   

  	
  —

  	
   

  	
  770,470

  	
   

  
	
  Hecla-Venezuela Acquisition (Note 9)

  	
   

  	
  4,273,504

  	
   

  	
  4,960,348

  	
   

  
	
  Balance, September 30,
  2008

  	
   

  	
  391,455,669

  	
   

  	
  675,336,196

  	
   

  

 

12

 

	
  RUSORO
  MINING LTD.

  Notes
  to the Interim Consolidated Financial Statements

  For
  the Three and Nine Months Ended September 30, 2008 and 2007

  Expressed
  in U.S. Dollars - unaudited

  	
  

  

 

(b)                     Contributed Surplus

 

	
   

  	
   

  	
  Amount

  	
   

  
	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Balance, December 31,
  2006

  	
   

  	
  7,198,983

  	
   

  
	
  Fair value of the stock options and
  warrants issued in conjunction with the Mena acquisition

  	
   

  	
  15,666,283

  	
   

  
	
  Reclassification to common shares on
  conversion of stock options

  	
   

  	
  (450,875

  	
  )

  
	
  Reclassification to common shares on
  conversion of warrants

  	
   

  	
  (37,886

  	
  )

  
	
  Fair value of the warrants issued in
  conjunction with a private placement

  	
   

  	
  51,544,980

  	
   

  
	
  Stock-based compensation

  	
   

  	
  17,902,173

  	
   

  
	
  Balance, December 31,
  2007

  	
   

  	
  91,823,658

  	
   

  
	
  Reclassification to common shares on
  exercise of warrants

  	
   

  	
  (770,470

  	
  )

  
	
  Stock-based compensation

  	
   

  	
  22,930,652

  	
   

  
	
  Balance, September 30,
  2008

  	
   

  	
  113,983,840

  	
   

  

 

(c)                     Stock Options

 

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

 

The following stock
options were outstanding as at September 30, 2008:

 

	
  Number of

  Options

  Outstanding

  	
   

  	
  Number of

  Options

  Exercisable

  	
   

  	
  Exercise Price

  	
   

  	
   

  	
   

  	
  Expiry

  Date

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  38,236

  	
   

  	
  38,236

  	
   

  	
  1.02

  	
   

  	
  CDN

  	
   

  	
  Nov 26, 2008

  	
   

  
	
  17,647

  	
   

  	
  17,647

  	
   

  	
  0.85

  	
   

  	
  CDN

  	
   

  	
  Oct 13, 2009

  	
   

  
	
  350,000

  	
   

  	
  192,500

  	
   

  	
  1.31

  	
   

  	
  CDN

  	
   

  	
  Oct 28, 2009

  	
   

  
	
  334,117

  	
   

  	
  334,117

  	
   

  	
  1.05

  	
   

  	
  CDN

  	
   

  	
  Dec 7, 2009

  	
   

  
	
  47,060

  	
   

  	
  47,060

  	
   

  	
  1.11

  	
   

  	
  CDN

  	
   

  	
  Mar 7, 2011

  	
   

  
	
  94,118

  	
   

  	
  94,118

  	
   

  	
  1.70

  	
   

  	
  CDN

  	
   

  	
  Apr 5, 2011

  	
   

  
	
  600,000

  	
   

  	
  600,000

  	
   

  	
  1.31

  	
   

  	
  CDN

  	
   

  	
  Nov 6, 2016

  	
   

  
	
  6,505,000

  	
   

  	
  4,513,333

  	
   

  	
  3.00

  	
   

  	
  USD

  	
   

  	
  Nov 6, 2016

  	
   

  
	
  720,000

  	
   

  	
  360,000

  	
   

  	
  1.31

  	
   

  	
  CDN

  	
   

  	
  Sept 10, 2017

  	
   

  
	
  6,050,000

  	
   

  	
  3,925,000

  	
   

  	
  2.12

  	
   

  	
  CDN

  	
   

  	
  Sept 10, 2017

  	
   

  
	
  810,000

  	
   

  	
  255,000

  	
   

  	
  1.31

  	
   

  	
  CDN

  	
   

  	
  Oct 28, 2017

  	
   

  
	
  2,975,000

  	
   

  	
  2,975,000

  	
   

  	
  2.30

  	
   

  	
  CDN

  	
   

  	
  Oct 28, 2017

  	
   

  
	
  50,000

  	
   

  	
  —

  	
   

  	
  1.31

  	
   

  	
  CDN

  	
   

  	
  Jan 1, 2018

  	
   

  
	
  50,000

  	
   

  	
  —

  	
   

  	
  1.60

  	
   

  	
  CDN

  	
   

  	
  Jan 1, 2018

  	
   

  
	
  300,000

  	
   

  	
  —

  	
   

  	
  1.65

  	
   

  	
  CDN

  	
   

  	
  Jan 15, 2018

  	
   

  
	
  100,000

  	
   

  	
  100,000

  	
   

  	
  1.55

  	
   

  	
  CDN

  	
   

  	
  Jan 24, 2018

  	
   

  
	
  16,235,000

  	
   

  	
  16,235,000

  	
   

  	
  1.31

  	
   

  	
  CDN

  	
   

  	
  Jun 26, 2018

  	
   

  
	
  100,000

  	
   

  	
  100,000

  	
   

  	
  1.31

  	
   

  	
  CDN

  	
   

  	
  Jul 20, 2018

  	
   

  
	
  35,376,178

  	
   

  	
  29,787,011

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

13

 

	
  RUSORO
  MINING LTD.

  Notes
  to the Interim Consolidated Financial Statements

  For
  the Three and Nine Months Ended September 30, 2008 and 2007

  Expressed
  in U.S. Dollars - unaudited

  	
  

  

 

Stock option transactions are summarized as follows:

 

	
   

  	
   

  	
  Number of

  Options

  	
   

  	
  Weighted Average

  Exercise Price

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Outstanding,
  December 31, 2006

  	
   

  	
  7,455,000

  	
   

  	
  3.39

  	
   

  
	
  Exercised

  	
   

  	
  (212,940

  	
  )

  	
  1.29

  	
   

  
	
  Issued

  	
   

  	
  11,299,118

  	
   

  	
  2.08

  	
   

  
	
  Outstanding,
  December 31, 2007

  	
   

  	
  18,541,178

  	
   

  	
  2.62

  	
   

  
	
  Issued

  	
   

  	
  16,835,000

  	
   

  	
  1.30

  	
   

  
	
  Outstanding, September 30,
  2008

  	
   

  	
  35,376,178

  	
   

  	
  1.77

  	
   

  

 

The total fair value of the options granted for the periods ended September 30,
2008 and 2007 was estimated using the Black-Scholes option pricing model and
resulted in the following amounts:

 

	
   

  	
   

  	
  2008

  	
   

  	
  2007

  	
   

  
	
  Assumptions

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Dividend yield

  	
   

  	
  0%

  	
   

  	
  0%

  	
   

  
	
  Annualized volatility

  	
   

  	
  59%-77%

  	
   

  	
  61%-125%

  	
   

  
	
  Risk-free interest rate

  	
   

  	
  3.81%-4.09%

  	
   

  	
  2.97%-4.23%

  	
   

  
	
  Expected life (years)

  	
   

  	
  10

  	
   

  	
  2-10

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Weighted average grant date
  fair value per option

  	
   

  	
  $1.05

  	
   

  	
  $1.52

  	
   

  

 

The stock-based compensation included in the
statement of operations during the three-month period ended September 30,
2008 was $1,699,049 (2007: $5,427,389) and for the nine-month period ended September 30,
2008 was $22,048,261 (2007: $9,153,504), of the total stock-based compensation
$882,391 (2007: $834,557) was capitalised as mineral property expenditures.

 

The $1,699,049 (2007: $5,427,389) stock-based
compensation expensed directly to the statement of operations during the
three-month period ended September 30, 2008 has been allocated to the
following expense categories; administration $454,278 (2007: $2,960,373),
consulting $1,081,705 (2007: $2,190,676) and salaries $163,066 (2007:
$276,340).

 

The $22,048,261 (2007: $9,153,504) stock-based
compensation expensed directly to the statement of operations during the
nine-month period ended September 30, 2008 has been allocated to the
following expense categories; administration $14,494,143 (2007: $4,985,435),
consulting $6,162,706 (2007: $3,689,223) and salaries $1,391,412 (2007: $478,846).

 

During the three-month period ended September 30,
2008 the Company amended the exercise price of 875,000 stock options with
original exercise prices ranging from $2.30 CDN - $3.00 USD to $1.31 CDN.
During the nine-month period ended September 30, 2008 the Company amended
the exercise price of 2,530,000 stock options with original exercise prices
ranging from $1.60 CDN - $3.00 USD to $1.31 CDN.

 

14

 

	
  RUSORO
  MINING LTD.

  Notes
  to the Interim Consolidated Financial Statements

  For
  the Three and Nine Months Ended September 30, 2008 and 2007

  Expressed
  in U.S. Dollars - unaudited

  	
  

  

 

(d)                     Warrants

 

Share purchase warrant transactions for the year ended December 31,
2007 and the period ended September, 30, 2008, were as follows:

 

	
   

  	
   

  	
  Number of

  Warrants

  	
   

  	
  Weighted Average

  Exercise Price

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Outstanding,
  December 31, 2006

  	
   

  	
  15,833,336

  	
   

  	
  1.28

  	
   

  
	
  Issued

  	
   

  	
  103,330,912

  	
   

  	
  4.03

  	
   

  
	
  Exercised

  	
   

  	
  (10,017,060

  	
  )

  	
  0.05

  	
   

  
	
  Outstanding,
  December 31, 2007

  	
   

  	
  109,147,188

  	
   

  	
  4.00

  	
   

  
	
  Exercised

  	
   

  	
  (347,059

  	
  )

  	
  1.02

  	
   

  
	
  Outstanding,
  September 30, 2008

  	
   

  	
  108,800,129

  	
   

  	
  3.84

  	
   

  

 

14.                              RELATED PARTY TRANSACTIONS

 

In addition to related party transactions and balances disclosed
elsewhere (Notes 4, 10, 11 and 15) are the following related party transactions
and balances:

 

·                 Included in prepaid expenses and deposits is $41,373 (December 31,
2007: $41,373) related to a security deposit for a lease entered into with a
company controlled by certain directors.

 

·                 Included in amounts capitalized as mineral properties is $2,188,312
(December 31, 2007: $1,227,967) related to the provision of technical
services and personnel from companies which are controlled by certain directors
and/or senior management of the Company.

 

·                 Included in long-term debt is financing costs of $96,570 (December 31,
2007: $Nil) and included in other assets is acquisition costs of $115,263 (December 31,
2007: $Nil) related to the provision of legal services which were paid to a
company controlled by certain directors.

 

·                 Included in administrative expenses is $441,461 (2007: $184,588) for
the three-month period and $857,551 (2007: $184,588) for the nine-month period
ended September 30, 2008 related to the cost of running the Company’s
Moscow office, these expenses were paid to a company controlled by certain directors.

 

·                 Included in consulting expenses is $448,013 (2007: $125,510) for the
three-month period and $1,062,057 (2007: $265,093) for the nine-month period
ended September 30, 2008 related to consulting fees charged by certain
directors and/or a company controlled by certain directors in accordance with
the terms of  consulting contracts that
they have with the Company.

 

·                 Included in professional fees is $42,726 (2007: $26,501) for the
three-month period and $266,765 (2007: $41,878) for the nine-month period ended
September 30, 2008 related to the provision of legal services which were
paid to a company controlled by certain directors.

 

·                 Included in travel and entertainment expenses is $Nil (2007:
$134,743) for the three-month period and $364,781 (2007: $134,743) for the
nine-month period ended September 30, 2008 related to the provision of
travel services which have been supplied by a company which is owned by a
director.

 

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

 

15

 

	
  RUSORO
  MINING LTD.

  Notes
  to the Interim Consolidated Financial Statements

  For
  the Three and Nine Months Ended September 30, 2008 and 2007

  Expressed
  in U.S. Dollars - unaudited

  	
  

  

 

15.      LOAN PAYABLE ON ACQUISITION

 

In December 2006, the Company acquired a group of Corporación
Venezolana de Guayana contracts and concessions granted by the Venezuelan
Ministry of Energy and Mines known as Oro88. 
The contracts and concessions are held by corporations which were owned
beneficially by a director.  The purchase
price was $5,000,000 of which $2,500,000 was paid on signing of the acquisition
agreement, and a further $1,000,000 paid during the three months ended September 30,
2008. The balance owing of $1,500,000 is owed to companies owned by a director
and was repaid subsequent to September 30, 2008 (Note 25).

 

The loan is unsecured and does not bear interest.

 

16.      LONG TERM DEBT

 

On June 10, 2008 the Company entered into a loan agreement with a
syndicate of private lenders to borrow $80,000,000 (“the Loan”) to fund the
Hecla-Venezuela Acquisition (Note 9) and for general corporate purposes.  The Loan has a two-year term, bears interest
at 10% per annum, payable semi-annually and is secured by share pledges over
the Company’s principal assets including the Choco 10 mine.  The $80,000,000 principal portion of the loan
is due in June of 2010. The lenders have the option, at any time and at
their sole discretion, to convert all or part of the outstanding principle of
the Loan to common shares of the Company at a conversion price of CAD$1.25 per
common share (subject to adjustment depending on future equity financings and
other transactions entered into by the Company).  In addition, the Company has granted to the
lenders pro-rata participation in any future equity offerings for the term of
the Loan.  The Loan may be repaid by the
Company at any time subject to the Company providing the lenders with 30 days
notice and repaying the outstanding principle in full plus an amount equal to
the interest that would have been accrued if the loan was held for the original
two-year term.

 

For accounting purposes, the Loan contains both a liability component
and an equity component, being the lender’s conversion option, which have been
separately presented on the consolidated balance sheet. The Corporation has
allocated the $80.0 million principle to the individual liability and equity
components by establishing the fair value of the liability component and then
allocating the balance remaining after subtracting the fair value of the liability
from the issue price, to the equity component. The fair value of the liability
component was determined by discounting the stream of future payments of
interest and principal amounts at the estimated prevailing market rate of 15.0%
for a debt instrument of comparable maturity and credit quality but excluding
any conversion option for the lenders. 
Including the impact of the costs of issuance, applying the effective
interest rate method, the Loan bears an effective annual interest rate of
18.5%.  As at September 30, 2008,
the carrying value of the Loan approximates its fair value.

 

Convertible Loan

 

	
  Principle of the loan

  	
   

  	
  80,000,000

  	
   

  
	
  Cost of issuance including financial
  advisory fees

  	
   

  	
  (4,644,554

  	
  )

  
	
   

  	
   

  	
   

  	
   

  
	
  Net Proceeds

  	
   

  	
  75,355,446

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Equity Component of
  Convertible Loan

  	
   

  	
  6,309,749

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  The liability as at September 30, 2008
  is made up as follows:

  	
   

  	
   

  	
   

  
	
  Liability component at date of issue

  	
   

  	
  69,045,697

  	
   

  
	
  Accretion of interest

  	
   

  	
  1,460,628

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Liability as at
  September 30, 2008

  	
   

  	
  70,506,325

  	
   

  

 

16

 

	
  RUSORO
  MINING LTD.

  Notes
  to the Interim Consolidated Financial Statements

  For
  the Three and Nine Months Ended September 30, 2008 and 2007

  Expressed
  in U.S. Dollars - unaudited

  	
  

  

 

17.          CAPITAL DISCLOSURES

 

The Company’s objectives when managing capital are to

 

a)     Continue the development and exploration of its
mineral properties;

 

b)    Support any expansion plans; and

 

c)     Maintain a capital structure which optimises the cost
of capital at acceptable risk.

 

In the management of capital, the Company includes shareholders’ equity,
short-term bank borrowings, long-term debt and loan payable on acquisition.

 

As at September 30,
2008, the Company had no bank indebtedness.

 

The Company is not
subject to any externally imposed capital requirements and there has been no
change with respect to the overall capital risk management strategy during the
period ended September 30, 2008.

 

There are
restrictions on the movement of capital into and out of Venezuela which could
impact the Company’s ability to repatriate funds and therefore, pay dividends.

 

18.          SUPPLEMENTARY DISCLOSURE OF
NON-CASH TRANSACTIONS

 

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

 

	
   

  	
   

  	
  Three Months Ended

  	
   

  	
  Nine months Ended

  	
   

  
	
   

  	
   

  	
  September 30,

  	
   

  	
  September 30,

  	
   

  
	
   

  	
   

  	
  2008

  	
   

  	
  2007

  	
   

  	
  2008

  	
   

  	
  2007

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Accounts Payable - Mineral property
  expenditures

  	
   

  	
  (1,389,582

  	
  )

  	
  (1,016,452

  	
  )

  	
  1,574,923

  	
   

  	
  (1,957,815

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Accounts Payable – Property , plant and
  equipment

  	
   

  	
  (2,313,863

  	
  )

  	
  —

  	
   

  	
  2,402,702

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Amortization - Mineral properties

  	
   

  	
  318,538

  	
   

  	
  208,349

  	
   

  	
  969,944

  	
   

  	
  722,522

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Stock-based compensation capitalized to
  mineral properties (Note 13(c))

  	
   

  	
  118,219

  	
   

  	
  489,955

  	
   

  	
  882,391

  	
   

  	
  834,557

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Shares received on sale of subsidiary (Note
  22)

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  (530,000

  	
  )

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Shares issued for the acquisition of Mena

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  108,286,104

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Receivables – Other assets

  	
   

  	
  (780,199

  	
  )

  	
  —

  	
   

  	
  (780,199

  	
  )

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Shares issued for the Hecla-Venezuela
  Acquisition (Note 9)

  	
   

  	
  4,960,348

  	
   

  	
  —

  	
   

  	
  4,960,348

  	
   

  	
  —

  	
   

  

 

17

 

	
  RUSORO
  MINING LTD.

  Notes
  to the Interim Consolidated Financial Statements

  For
  the Three and Nine Months Ended September 30, 2008 and 2007

  Expressed
  in U.S. Dollars - unaudited

  	
  

  

 

19.          SEGMENTED DISCLOSURE

 

The Goldfields
Venezuela Acquisition completed on November 30, 2007 created a second
business segment for the Company. The Company’s defined business segments after
the Goldfields acquisition are;

 

a)     The exploration of mineral properties.

 

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

 

In the three and nine
months ended September 30, 2008, all revenue was generated in Venezuela
and the Company had 10 principal customers. 
There was no revenue in the three and nine months ended September 30,
2007.

 

	
  As at September 30, 2008

  	
   

  	
  Mineral

  Exploration

  	
   

  	
  Extraction

  and

  Processing

  	
   

  	
  Total

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
  Canada

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Current assets

  	
   

  	
  566,921

  	
   

  	
  2,267,686

  	
   

  	
  2,834,607

  	
   

  
	
  Property, plant and equipment

  	
   

  	
  69,482

  	
   

  	
  277,929

  	
   

  	
  347,411

  	
   

  
	
   

  	
   

  	
  636,403

  	
   

  	
  2,545,615

  	
   

  	
  3,182,018

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  United States of America

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Current assets

  	
   

  	
  1,500,000

  	
   

  	
  10,449,482

  	
   

  	
  11,949,482

  	
   

  
	
   

  	
   

  	
  1,500,000

  	
   

  	
  10,449,482

  	
   

  	
  11,949,482

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Venezuela

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Current assets

  	
   

  	
  3,386,523

  	
   

  	
  33,149,669

  	
   

  	
  36,536,192

  	
   

  
	
  Property, plant and equipment

  	
   

  	
  5,917,083

  	
   

  	
  949,810,345

  	
   

  	
  955,727,428

  	
   

  
	
  Mineral properties

  	
   

  	
  227,327,066

  	
   

  	
  —

  	
   

  	
  227,327,066

  	
   

  
	
  Receiveables non-current

  	
   

  	
  2,465,298

  	
   

  	
  3,809,455

  	
   

  	
  6,274,753

  	
   

  
	
  Other assets

  	
   

  	
  —

  	
   

  	
  32,068,953

  	
   

  	
  32,068,953

  	
   

  
	
   

  	
   

  	
  239,095,970

  	
   

  	
  1,018,838,422

  	
   

  	
  1,257,934,392

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Panama

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Current assets

  	
   

  	
  520,149

  	
   

  	
  —

  	
   

  	
  520,149

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Honduras

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Current assets

  	
   

  	
  34,071

  	
   

  	
  —

  	
   

  	
  34,071

  	
   

  
	
  Mineral properties

  	
   

  	
  2,176,845

  	
   

  	
  —

  	
   

  	
  2,176,845

  	
   

  
	
   

  	
   

  	
  2,210,916

  	
   

  	
  —

  	
   

  	
  2,210,916

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total Assets

  	
   

  	
  243,963,438

  	
   

  	
  1,031,833,519

  	
   

  	
  1,275,796,957

  	
   

  

 

18

 

	
  RUSORO
  MINING LTD.

  Notes
  to the Interim Consolidated Financial Statements

  For
  the Three and Nine Months Ended September 30, 2008 and 2007

  Expressed
  in U.S. Dollars - unaudited

  	
  

  

 

	
  As at December 31, 2007

  	
   

  	
  Mineral

  Exploration

  	
   

  	
  Extraction

  and

  Processing

  	
   

  	
  Total

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
  Canada

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Current assets

  	
   

  	
  31,737,526

  	
   

  	
  —

  	
   

  	
  31,737,526

  	
   

  
	
  Property, plant and equipment

  	
   

  	
  179,984

  	
   

  	
  —

  	
   

  	
  179,984

  	
   

  
	
   

  	
   

  	
  31,917,510

  	
   

  	
  —

  	
   

  	
  31,917,510

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Venezuela

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Current assets

  	
   

  	
  2,603,309

  	
   

  	
  20,355,268

  	
   

  	
  22,958,577

  	
   

  
	
  Property, plant and equipment

  	
   

  	
  6,422,039

  	
   

  	
  752,078,719

  	
   

  	
  758,500,758

  	
   

  
	
  Mineral properties

  	
   

  	
  114,848,896

  	
   

  	
  73,290,104

  	
   

  	
  188,139,000

  	
   

  
	
  Other long-term assets

  	
   

  	
  1,085,975

  	
   

  	
  50,117

  	
   

  	
  1,136,092

  	
   

  
	
   

  	
   

  	
  124,960,219

  	
   

  	
  845,774,208

  	
   

  	
  970,734,427

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Panama

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Current assets

  	
   

  	
  835,350

  	
   

  	
  —

  	
   

  	
  835,350

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Chile

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Current assets

  	
   

  	
  855,000

  	
   

  	
  —

  	
   

  	
  855,000

  	
   

  
	
   

  	
   

  	
  855,000

  	
   

  	
  —

  	
   

  	
  855,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Honduras

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Current assets

  	
   

  	
  33,678

  	
   

  	
  —

  	
   

  	
  33,678

  	
   

  
	
  Mineral properties

  	
   

  	
  2,148,252

  	
   

  	
  —

  	
   

  	
  2,148,252

  	
   

  
	
   

  	
   

  	
  2,181,930

  	
   

  	
  —

  	
   

  	
  2,181,930

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total Assets

  	
   

  	
  160,750,009

  	
   

  	
  845,774,208

  	
   

  	
  1,006,524,217

  	
   

  

 

19

 

	
  RUSORO
  MINING LTD.

  Notes
  to the Interim Consolidated Financial Statements

  For
  the Three and Nine Months Ended September 30, 2008 and 2007

  Expressed
  in U.S. Dollars - unaudited

  	
  

  

 

	
   

  	
   

  	
  Three Months Ended

  	
   

  	
  Three Months Ended

  	
   

  
	
   

  	
   

  	
  September 30, 2008

  	
   

  	
  September 30, 2007

  	
   

  
	
   

  	
   

  	
  Mineral

  Exploration

  	
   

  	
  Extraction

  and

  Processing

  	
   

  	
  Total

  	
   

  	
  Mineral

  Exploration

  	
   

  	
  Extraction

  and

  Processing

  	
   

  	
  Total

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Revenue

  	
   

  	
  —

  	
   

  	
  14,716,982

  	
   

  	
  14,716,982

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Cost of sales

  	
   

  	
  —

  	
   

  	
  (18,384,456

  	
  )

  	
  (18,384,456

  	
  )

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Amortization

  	
   

  	
  (7,837

  	
  )

  	
  (7,554,552

  	
  )

  	
  (7,562,389

  	
  )

  	
  (63,019

  	
  )

  	
  —

  	
   

  	
  (63,019

  	
  )

  
	
  Administrative and other

  	
   

  	
  (2,696,786

  	
  )

  	
  (4,687,800

  	
  )

  	
  (7,384,586

  	
  )

  	
  (7,617,215

  	
  )

  	
  —

  	
   

  	
  (7,617,215

  	
  )

  
	
  Foreign exchange gain (loss)

  	
   

  	
  6,863,006

  	
   

  	
  (23,643

  	
  )

  	
  6,839,363

  	
   

  	
  (4,145,493

  	
  )

  	
  —

  	
   

  	
  (4,145,493

  	
  )

  
	
  Interest income

  	
   

  	
  (211,351

  	
  )

  	
  349,399

  	
   

  	
  138,048

  	
   

  	
  639,156

  	
   

  	
  —

  	
   

  	
  639,156

  	
   

  
	
  Interest expense on long term debt

  	
   

  	
  —

  	
   

  	
  (3,210,729

  	
  )

  	
  (3,210,729

  	
  )

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Income tax expense

  	
   

  	
  —

  	
   

  	
  2,357,482

  	
   

  	
  2,357,482

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Net loss

  	
   

  	
  3,947,032

  	
   

  	
  (16,437,317

  	
  )

  	
  (12,490,285

  	
  )

  	
  (11,186,571

  	
  )

  	
  —

  	
   

  	
  (11,186,571

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Capital expenditures

  	
   

  	
  5,511,445

  	
   

  	
  16,420,777

  	
   

  	
  21,932,222

  	
   

  	
  3,057,299

  	
   

  	
  —

  	
   

  	
  3,057,299

  	
   

  

 

	
   

  	
   

  	
  Nine Months Ended

  	
   

  	
  Nine Months Ended

  	
   

  
	
   

  	
   

  	
  September 30, 2008

  	
   

  	
  September 30, 2007

  	
   

  
	
   

  	
   

  	
  Mineral

  Exploration

  	
   

  	
  Extraction

  and

  Processing

  	
   

  	
  Total

  	
   

  	
  Mineral

  Exploration

  	
   

  	
  Extraction

  and

  Processing

  	
   

  	
  Total

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Revenue

  	
   

  	
  —

  	
   

  	
  49,557,148

  	
   

  	
  49,557,148

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Cost of sales

  	
   

  	
  —

  	
   

  	
  (48,342,438

  	
  )

  	
  (48,342,438

  	
  )

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Amortization

  	
   

  	
  (18,823

  	
  )

  	
  (25,184,767

  	
  )

  	
  (25,203,590

  	
  )

  	
  (88,765

  	
  )

  	
  —

  	
   

  	
  (88,765

  	
  )

  
	
  Administrative and other

  	
   

  	
  (11,915,772

  	
  )

  	
  (30,550,885

  	
  )

  	
  (42,466,657

  	
  )

  	
  (16,447,150

  	
  )

  	
  —

  	
   

  	
  (16,447,150

  	
  )

  
	
  Impairment of mineral properties

  	
   

  	
  (238,320

  	
  )

  	
  —

  	
   

  	
  (238,320

  	
  )

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Foreign exchange loss

  	
   

  	
  (4,108,694

  	
  )

  	
  (23,643

  	
  )

  	
  (4,132,337

  	
  )

  	
  (4,382,648

  	
  )

  	
  —

  	
   

  	
  (4,382,648

  	
  )

  
	
  Interest income

  	
   

  	
  112,029

  	
   

  	
  371,989

  	
   

  	
  484,018

  	
   

  	
  1,655,475

  	
   

  	
  —

  	
   

  	
  1,655,475

  	
   

  
	
  Interest expense on long term debt

  	
   

  	
  —

  	
   

  	
  (3,908,714

  	
  )

  	
  (3,908,714

  	
  )

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Other income

  	
   

  	
  160,974

  	
   

  	
  —

  	
   

  	
  160,974

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Income tax recovery

  	
   

  	
  —

  	
   

  	
  7,518,763

  	
   

  	
  7,518,763

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Net loss

  	
   

  	
  (16,008,606

  	
  )

  	
  (50,562,547

  	
  )

  	
  (66,571,153

  	
  )

  	
  (19,263,088

  	
  )

  	
  —

  	
   

  	
  (19,263,088

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Capital expenditures

  	
   

  	
  16,943,700

  	
   

  	
  21,256,799

  	
   

  	
  38,200,499

  	
   

  	
  10,031,617

  	
   

  	
  —

  	
   

  	
  10,031,617

  	
   

  

 

20

 

	
  RUSORO
  MINING LTD.

  Notes
  to the Interim Consolidated Financial Statements

  For
  the Three and Nine Months Ended September 30, 2008 and 2007

  Expressed
  in U.S. Dollars - unaudited

  	
  

  

 

20.          COMMITMENTS AND CONTINGENCIES

 

(a)   Operating Leases

 

At September 30,
2008, the Company is committed to payments under operating leases for premises,
vehicles and machinery and to payments under contracts for community relations,
security, computer maintenance, consulting and other services as follows:

 

	
   

  	
   

  	
  Related Party

  	
   

  	
  Non-Related Party

  	
   

  	
  Total

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
  2008

  	
   

  	
  38,878

  	
   

  	
  296,313

  	
   

  	
  335,191

  	
   

  
	
  2009

  	
   

  	
  155,511

  	
   

  	
  103,704

  	
   

  	
  259,215

  	
   

  
	
  2010

  	
   

  	
  155,511

  	
   

  	
  73,655

  	
   

  	
  229,166

  	
   

  
	
  2011

  	
   

  	
  155,511

  	
   

  	
  73,655

  	
   

  	
  229,166

  	
   

  
	
  2012

  	
   

  	
  77,756

  	
   

  	
  73,655

  	
   

  	
  151,411

  	
   

  
	
  2013 and thereafter

  	
   

  	
  —

  	
   

  	
  153,449

  	
   

  	
  153,449

  	
   

  
	
   

  	
   

  	
  583,167

  	
   

  	
  774,431

  	
   

  	
  1,357,598

  	
   

  

 

The Company had the following commitments related to the creation of the
Mixed Enterprise (Note 9):

 

1.     To transfer to EMN certain
mining rights owned by the Company, located in El Dorado District, named:
Belkis 1, Urupagua, Virginia 1, Virginia 2 and Guaicamacuare. These mining
rights have not been transferred as of September 30, 2008.

 

2.     To transfer to a
governmental entity to be determined by MIBAM a plant for the treatment of
diamonds which is currently owned by an officer, director and major shareholder
of the Company. The plant will need to be purchased by the Company prior to the
transfer. An independent valuation of the plant is underway.

 

3.     During a period of 18 months
from entering the agreement, the Company has committed to incur various social
costs in the benefit of the communities around the Hecla-Venezuela assets.  The total cost to be incurred has not yet
been determined by the Company.

 

(b)   Contingencies

 

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

 

21.          RISKS

 

Financial Instruments

 

The Company thoroughly examines the various financial instrument risks
to which it is exposed and assesses the impact and likelihood of those
risks.  These risks may include credit
risk, interest rate risk, liquidity risk, currency risk, market risk and other
price risks.  Where material, these risks
are reviewed and monitored by the Board of Directors.

 

Financial Instrument Classification and
Measurement

 

The Company classifies its cash and cash held as collateral as
held-for-trading. Receivable are classified as loans and receivables. Accounts
payable and accrued liabilities, 
short-term debt, long-term debt and loan payable on acquisition are
classified as other liabilities, all of which are measured at amortized costs.
Management reviewed all significant financial instruments held by the Company
and determined that no material differences between fair value and carrying
value existed as at the reporting date.

 

21

 

	
  RUSORO
  MINING LTD.

  Notes
  to the Interim Consolidated Financial Statements

  For
  the Three and Nine Months Ended September 30, 2008 and 2007

  Expressed
  in U.S. Dollars - unaudited

  	
  

  

 

Credit Risk

 

The Company’s credit
risks are limited to trade receivables in the ordinary course of business.  The Company sells to a small number of
customers with exemplary credit histories and the balance of other receivables
owed to the Company in the ordinary course of business is not significant.  Therefore, the Company is not exposed to
significant credit risk. The Company’s credit risk has increased since last
year as it is now a producer and seller of gold.

 

Pursuant to their respective terms, trade receivables (Note 4) are aged
as follows at September 30, 2008:

 

	
   

  	
   

  	
  $

  	
   

  
	
  0-30 days

  	
   

  	
  735,904

  	
   

  
	
  31-60 days

  	
   

  	
  343,207

  	
   

  
	
  61-90 days

  	
   

  	
  667,564

  	
   

  
	
  Over 90 days due

  	
   

  	
  566,581

  	
   

  
	
   

  	
   

  	
  2,313,256

  	
   

  

 

Liquidity Risk

 

Liquidity risk is the risk that the Company will be unable to
meet its financial obligations. The Company manages liquidity risk by ensuring
that it has sufficient cash, credit facilities and other financial resources
available to meet its obligations.

 

The Company forecasts cash flows for a period of 12 months to
identify financial requirements. These requirements are met through a combination
of cash flows from operations, credit facilities, disposition of assets, and
accessing capital markets.

 

	
   

  	
   

  	
  2008

  	
   

  	
  2009-2010

  	
   

  	
  Total

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  Accounts payable and accrued liabilities

  	
   

  	
  8,107,772

  	
   

  	
  28,050,458

  	
   

  	
  36,158,230

  	
   

  
	
  Income taxes payable

  	
   

  	
  —

  	
   

  	
  6,219,306

  	
   

  	
  6,219,306

  	
   

  
	
  Loan payable on acquisition

  	
   

  	
  1,500,000

  	
   

  	
  —

  	
   

  	
  1,500,000

  	
   

  
	
  Interest on long-term debt

  	
   

  	
  4,000,000

  	
   

  	
  12,000,000

  	
   

  	
  16,000,000

  	
   

  
	
  Long-term debt

  	
   

  	
  —

  	
   

  	
  80,000,000

  	
   

  	
  80,000,000

  	
   

  
	
   

  	
   

  	
  13,607,772

  	
   

  	
  126,269,764

  	
   

  	
  139,877,536

  	
   

  

 

Currency Risk

 

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

 

The Company has
adopted the “Current Rate” methodology for accounting for its self-sustaining
operations. Under this approach the assets and liabilities acquired are
restated according to the prevailing market exchange rate at the balance sheet
date with all foreign exchange gains (and losses, when applicable) being
recorded as Other Comprehensive Income in the consolidated balance sheets.

 

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

 

As at September 30,
2008, the Company holds cash of $604,632 (December 31, 2007:  $516,268) in Venezuelan Bolivars.

 

22

 

	
  RUSORO
  MINING LTD.

  Notes
  to the Interim Consolidated Financial Statements

  For
  the Three and Nine Months Ended September 30, 2008 and 2007

  Expressed
  in U.S. Dollars - unaudited

  	
  

  

 

Financial instruments that impact the
Company’s net earnings or other comprehensive income due to currency
fluctuations include: Venezuelan Bolivar and Canadian dollar denominated cash,
short term investment, receivables, accounts payable and accrued liabilities
and income tax payable. The sensitivity of the Company’s net earnings and other
comprehensive income from these financial instruments due to changes in the exchange
rate between the Venezuelan Bolivar, Canadian dollar and the United States
dollar are summarized in the below:

 

	
   

  	
   

  	
  As at September 30, 2008

  	
   

  
	
   

  	
   

  	
  10% Increase in the

  Venezuelan Bolivar

  	
   

  	
  10% Decrease in the

  Venezuelan Bolivar

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
  Net earnings

  	
   

  	
  (13,977

  	
  )

  	
  12,706

  	
   

  
	
  Other comprehensive income

  	
   

  	
  72,384,413

  	
   

  	
  (65,804,011

  	
  )

  
	
  Comprehensive income

  	
   

  	
  72,370,436

  	
   

  	
  (65,791,305

  	
  )

  

 

	
   

  	
   

  	
  As at September 30, 2008

  	
   

  
	
   

  	
   

  	
  10% Increase in the

  Canadian Dollar

  	
   

  	
  10% Decrease in the

  Canadian Dollar

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
  Net earnings

  	
   

  	
  (130,990

  	
  )

  	
  119,081

  	
   

  
	
  Other comprehensive income

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Comprehensive income

  	
   

  	
  (130,990

  	
  )

  	
  119,081

  	
   

  

 

Title Risk

 

Title to mineral properties and mining rights involves certain inherent
risks due to the difficulties of determining the validity of certain claims as
well as the potential for problems arising from the frequently ambiguous
conveyancing history characteristic of many mining properties.  Although the Company has investigated title
to all of its mineral properties for which it holds concessions or other mineral
leases or licenses, the Company cannot give any assurance that title to such
properties will not be challenged or impugned and cannot be certain that it
will have valid title to its mining properties. 
The Company relies on title opinions by legal counsel who base such
opinions on the laws of countries in which the Company operates.

 

The Company’s principal mineral properties and mining rights are located
in Venezuela.  In 2005, the Government of
Venezuela announced that it would be changing the mining title regime from a
system where title was granted in the form of either concessions or operating
contracts to a system where all new titles would be granted in the form of
operating contracts.  In order to effect
this change, the Government advised that it would need to create a national
mining company which would be the nation’s contracting party covering the
entire country of Venezuela.  The
Government also indicated that, given this change in title regime, it would
also be appropriate to review all existing mining companies in a single
comprehensive exercise to ensure that only companies found to be in compliance
with their existing title terms and conditions would qualify for the new title.

 

Any successful challenge to the Company’s mineral property title rights
would have a seriously detrimental impact on the Company’s operations.

 

Country Risk

 

The Company’s mineral exploration and exploitation activities may be
adversely affected by political instability and legal and economic uncertainty
in the countries where the Company has operations.  The risks associated with the Company’s
foreign operations may include political unrest, labour disputes, invalidation
of governmental orders and permits, corruption, war, civil disturbances and
terrorist actions, arbitrary changes in laws, regulation and policies,
taxation, price controls, exchange controls, delays in obtaining or the
inability to obtain necessary permits, opposition to mining from environmental
or other

 

23

 

	
  RUSORO
  MINING LTD.

  Notes
  to the Interim Consolidated Financial Statements

  For
  the Three and Nine Months Ended September 30, 2008 and 2007

  Expressed
  in U.S. Dollars - unaudited

  	
  

  

 

nongovernmental organizations, limitations on foreign ownership,
limitations on the repatriation of earnings, limitations on mineral exports and
increased financing costs. These risks may limit or disrupt the Company’s
projects or operations, restrict the movement of funds or result in the
deprivation of contractual rights or the taking of property by nationalization,
expropriation or other means without fair compensation.  The Company’s mineral properties and mining
rights are located in Venezuela and Honduras and as such, the Company may be
affected by political or economic instabilities.

 

22.          DISPOSITION OF MENA CHILE

 

During the period ended September 30, 2008 the Company completed
the sale of its 100% owned subsidiary, Compania Minera Mena Resources (Chile)
Limitada (“Mena Chile”) to Iron Creek Capital Corp (“Iron Creek”), an unrelated
company listed on the TSX Venture Exchange.

 

The consideration consisted of 2 million common shares in Iron Creek at
a deemed price of $0.265 per common share and $325,000 in cash representing the
repayment of a loan advanced by the Company to Mena Chile. In addition and
pursuant to the terms of a royalty agreement, Mena Chile has granted a net
smelter returns royalty ranging from 1% to 2% on certain properties to the
Company.

 

At December 31, 2007 the Company had reclassified the Mena Chile
assets to assets held for sale at their net realizable value of $855,000 as
follows:

 

	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Cash

  	
   

  	
  37,857

  	
   

  
	
  Prepaid expenses

  	
   

  	
  12,075

  	
   

  
	
  Mineral properties

  	
   

  	
  805,068

  	
   

  
	
   

  	
   

  	
  855,000

  	
   

  

 

23.          COMPARATIVE FIGURES

 

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

 

24

 

	
  RUSORO
  MINING LTD.

  Notes
  to the Interim Consolidated Financial Statements

  For
  the Three and Nine Months Ended September 30, 2008 and 2007

  Expressed
  in U.S. Dollars - unaudited

  	
  

  

 

	
  24.

  	
   

  	
  DIFFERENCES BETWEEN CANADIAN AND UNITED STATES
  GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

  

 

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

 

September 30, 2008

 

	
   

  	
   

  	
  Canadian

  	
   

  	
  US GAAP

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  GAAP

  	
   

  	
  adjustments

  	
   

  	
  US GAAP

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
  Assets

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Current assets

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cash and cash equivalents

  	
   

  	
  19,969

  	
   

  	
  —

  	
   

  	
  19,969

  	
   

  
	
  Accounts receivable and other

  	
   

  	
  13,156

  	
   

  	
  —

  	
   

  	
  13,156

  	
   

  
	
  Inventories

  	
   

  	
  11,336

  	
   

  	
  —

  	
   

  	
  11,336

  	
   

  
	
  Prepaid expenses and deposits

  	
   

  	
  7,414

  	
   

  	
  —

  	
   

  	
  7,414

  	
   

  
	
  Total current assets

  	
   

  	
  51,875

  	
   

  	
  —

  	
   

  	
  51,875

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Plant and equipment

  	
   

  	
  956,075

  	
   

  	
  —

  	
   

  	
  956,075

  	
   

  
	
  Mineral properties

  	
   

  	
  229,504

  	
  (a)

  	
  (60,867

  	
  )

  	
  168,637

  	
   

  
	
  Other non-current assets

  	
   

  	
  38,343

  	
   

  	
  —

  	
   

  	
  38,343

  	
   

  
	
  Total assets

  	
   

  	
  1,275,797

  	
   

  	
  (60,867

  	
  )

  	
  1,214,930

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Liabilities

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Current liabilities

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Accounts payable and accrued
  liabilities

  	
   

  	
  38,607

  	
   

  	
  —

  	
   

  	
  38,607

  	
   

  
	
  Loan payable

  	
   

  	
  1,500

  	
   

  	
  —

  	
   

  	
  1,500

  	
   

  
	
  Income taxes payable

  	
   

  	
  6,219

  	
   

  	
  —

  	
   

  	
  6,219

  	
   

  
	
  Total current liabilities

  	
   

  	
  46,326

  	
   

  	
  —

  	
   

  	
  46,326

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Convertible loan

  	
   

  	
  70,506

  	
  (c)

  	
  6,310

  	
   

  	
  76,816

  	
   

  
	
  Asset retirement obligations
  and other liabilities

  	
   

  	
  3,284

  	
   

  	
  —

  	
   

  	
  3,284

  	
   

  
	
  Future income taxes

  	
   

  	
  336,787

  	
   

  	
  —

  	
   

  	
  336,787

  	
   

  
	
  Total liabilities

  	
   

  	
  456,903

  	
   

  	
  6,310

  	
   

  	
  463,213

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Shareholders’ equity

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Share capital

  	
   

  	
  675,336

  	
   

  	
  —

  	
   

  	
  675,336

  	
   

  
	
  Equity component of
  convertible loan

  	
   

  	
  6,310

  	
  (c)

  	
  (6,310

  	
  )

  	
  —

  	
   

  
	
  Contributed surplus

  	
   

  	
  113,984

  	
   

  	
  —

  	
   

  	
  113,984

  	
   

  
	
  Deficit

  	
   

  	
  (161,855

  	
  )(a)

  	
  (60,867

  	
  )

  	
  (222,722

  	
  )

  
	
  Accumulated other
  comprehensive income

  	
   

  	
  185,119

  	
   

  	
  —

  	
   

  	
  185,119

  	
   

  
	
  Total shareholders’ equity

  	
   

  	
  818,894

  	
   

  	
  (67,177

  	
  )

  	
  751,717

  	
   

  
	
  Total liabilities and
  shareholders’ equity

  	
   

  	
  1,275,797

  	
   

  	
  (60,867

  	
  )

  	
  1,214,930

  	
   

  

 

25

 

	
  RUSORO
  MINING LTD.

  Notes
  to the Interim Consolidated Financial Statements

  For
  the Three and Nine Months Ended September 30, 2008 and 2007

  Expressed
  in U.S. Dollars - unaudited

  	
  

  

 

December 31, 2007

 

	
   

  	
   

  	
  Canadian

  	
   

  	
  US GAAP

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  GAAP

  	
   

  	
  adjustments

  	
   

  	
  US GAAP

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
  Assets

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Current assets

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cash and cash equivalents

  	
   

  	
  31,352

  	
   

  	
  —

  	
   

  	
  31,352

  	
   

  
	
  Loans and receivables

  	
   

  	
  5,300

  	
   

  	
  —

  	
   

  	
  5,300

  	
   

  
	
  Inventories

  	
   

  	
  10,725

  	
   

  	
  —

  	
   

  	
  10,725

  	
   

  
	
  Assets held for sale

  	
   

  	
  855

  	
   

  	
  —

  	
   

  	
  855

  	
   

  
	
  Prepaid expenses and deposits

  	
   

  	
  8,188

  	
   

  	
  —

  	
   

  	
  8,188

  	
   

  
	
  Total current assets

  	
   

  	
  56,420

  	
   

  	
  —

  	
   

  	
  56,420

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Plant and equipment

  	
   

  	
  758,681

  	
   

  	
  —

  	
   

  	
  758,681

  	
   

  
	
  Mineral properties

  	
   

  	
  190,287

  	
  (a)

  	
  (41,150

  	
  )

  	
  149,137

  	
   

  
	
  Other non-current assets

  	
   

  	
  1,136

  	
   

  	
  —

  	
   

  	
  1,136

  	
   

  
	
  Total assets

  	
   

  	
  1,006,524

  	
   

  	
  (41,150

  	
  )

  	
  965,374

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Liabilities

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Current liabilities

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Accounts payable and accrued
  liabilities

  	
   

  	
  21,422

  	
   

  	
  —

  	
   

  	
  21,422

  	
   

  
	
  Loan payable

  	
   

  	
  2,500

  	
   

  	
  —

  	
   

  	
  2,500

  	
   

  
	
  Other liabilities

  	
   

  	
  522

  	
   

  	
  —

  	
   

  	
  522

  	
   

  
	
  Total current liabilities

  	
   

  	
  24,444

  	
   

  	
  —

  	
   

  	
  24,444

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Asset retirement obligations
  and other liabilities

  	
   

  	
  2,284

  	
   

  	
  —

  	
   

  	
  2,284

  	
   

  
	
  Future income taxes

  	
   

  	
  276,752

  	
   

  	
  —

  	
   

  	
  276,752

  	
   

  
	
  Total liabilities

  	
   

  	
  303,480

  	
   

  	
  —

  	
   

  	
  303,480

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Shareholders’ equity

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Share capital

  	
   

  	
  669,252

  	
   

  	
  —

  	
   

  	
  669,252

  	
   

  
	
  Contributed surplus

  	
   

  	
  91,824

  	
   

  	
  —

  	
   

  	
  91,824

  	
   

  
	
  Deficit

  	
   

  	
  (95,284

  	
  )(a)

  	
  (41,150

  	
  )

  	
  (136,434

  	
  )

  
	
  Accumulated other
  comprehensive income

  	
   

  	
  37,252

  	
   

  	
  —

  	
   

  	
  37,252

  	
   

  
	
  Total shareholders’ equity

  	
   

  	
  703,044

  	
   

  	
  (41,150

  	
  )

  	
  661,894

  	
   

  
	
  Total liabilities and
  shareholders’ equity

  	
   

  	
  1,006,524

  	
   

  	
  (41,150

  	
  )

  	
  965,374

  	
   

  

 

26

 

	
  RUSORO
  MINING LTD.

  Notes
  to the Interim Consolidated Financial Statements

  For
  the Three and Nine Months Ended September 30, 2008 and 2007

  Expressed
  in U.S. Dollars - unaudited

  	
  

  

 

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

 

Consolidated summarized statements of operations

 

	
   

  	
   

  	
  9 month period

  ending

  	
   

  
	
   

  	
   

  	
  September 30, (Unaudited)

  	
   

  
	
   

  	
   

  	
  2008

  	
   

  	
  2007

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Net loss under Canadian GAAP

  	
   

  	
  (66,571

  	
  )

  	
  (19,263

  	
  )

  
	
  Deferred exploration expense
  (a)

  	
   

  	
  (19,717

  	
  )

  	
  (9,176

  	
  )

  
	
  Net loss under US GAAP

  	
   

  	
  (86,288

  	
  )

  	
  (28,439

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Basic and diluted net loss
  per share under US GAAP

  	
   

  	
  (0.22

  	
  )

  	
  (0.21

  	
  )

  

 

	
   

  	
   

  	
  3 month period

  ending

  	
   

  
	
   

  	
   

  	
  September 30, (Unaudited)

  	
   

  
	
   

  	
   

  	
  2008

  	
   

  	
  2007

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Net loss under Canadian GAAP

  	
   

  	
  (12,490

  	
  )

  	
  (11,186

  	
  )

  
	
  Deferred exploration expense
  (a)

  	
   

  	
  (4,349

  	
  )

  	
  (3,905

  	
  )

  
	
  Net loss under US GAAP

  	
   

  	
  (16,839

  	
  )

  	
  (15,091

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Basic and diluted net loss
  per share under US GAAP

  	
   

  	
  (0.04

  	
  )

  	
  (0.11

  	
  )

  

 

Consolidated summarized statements of comprehensive
income (loss)

 

	
   

  	
   

  	
  9 month period

  ending

  	
   

  
	
   

  	
   

  	
  September 30, (Unaudited)

  	
   

  
	
   

  	
   

  	
  2008

  	
   

  	
  2007

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Net loss under US GAAP

  	
   

  	
  (86,288

  	
  )

  	
  (28,439

  	
  )

  
	
  Other comprehensive income

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Unrealized foreign exchange
  gains on translating self-sustaining foreign operations

  	
   

  	
  147,867

  	
   

  	
  —

  	
   

  
	
  Unrealized gains on
  available-for-sale long-term investments

  	
   

  	
  —

  	
   

  	
  115

  	
   

  
	
  Total comprehensive income
  (loss) under US GAAP

  	
   

  	
  61,579

  	
   

  	
  (28,324

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Basic and diluted
  comprehensive income (loss) per share under US GAAP

  	
   

  	
  0.16

  	
   

  	
  (0.21

  	
  )

  

 

27

 

	
  RUSORO
  MINING LTD.

  Notes
  to the Interim Consolidated Financial Statements

  For
  the Three and Nine Months Ended September 30, 2008 and 2007

  Expressed
  in U.S. Dollars - unaudited

  	
  

  

 

Consolidated summarized statements of comprehensive
income (loss), (continued)

 

	
   

  	
   

  	
  3 month period

  ending

  	
   

  
	
   

  	
   

  	
  September 30, (Unaudited)

  	
   

  
	
   

  	
   

  	
  2008

  	
   

  	
  2007

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Net loss under US GAAP

  	
   

  	
  (16,839

  	
  )

  	
  (15,691

  	
  )

  
	
  Other comprehensive (loss)
  income

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Unrealized foreign exchange
  gains on translating self-sustaining foreign operations

  	
   

  	
  (219,049

  	
  )

  	
  —

  	
   

  
	
  Unrealized gains on
  available-for-sale long-term investments

  	
   

  	
  —

  	
   

  	
  (139

  	
  )

  
	
  Total comprehensive loss
  under US GAAP

  	
   

  	
  (235,888

  	
  )

  	
  (15,830

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Basic and diluted
  comprehensive loss per share under US GAAP

  	
   

  	
  (0.60

  	
  )

  	
  (0.11

  	
  )

  

 

Consolidated summarized
statements of cash flows

 

	
   

  	
   

  	
  9 month period

  ending

  	
   

  
	
   

  	
   

  	
  September 30, (Unaudited)

  	
   

  
	
   

  	
   

  	
  2008

  	
   

  	
  2007

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cash flows used by operating
  activities under Canadian GAAP

  	
   

  	
  (13,793

  	
  )

  	
  (13,877

  	
  )

  
	
  Deferred exploration expense
  (a)

  	
   

  	
  (19,955

  	
  )

  	
  (9,176

  	
  )

  
	
  Cash flows used by operating
  activities under US GAAP

  	
   

  	
  (33,748

  	
  )

  	
  (23,053

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cash flows used by investing
  activities under Canadian GAAP

  	
   

  	
  (71,241

  	
  )

  	
  (10,009

  	
  )

  
	
  Deferred exploration expense
  (a)

  	
   

  	
  19,955

  	
   

  	
  9,176

  	
   

  
	
  Cash flows used by investing
  activities under US GAAP

  	
   

  	
  (51,286

  	
  )

  	
  (833

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cash flows provided by
  financing activities under Canadian and US GAAP

  	
   

  	
  73,821

  	
   

  	
  58,236

  	
   

  

 

28

 

	
  RUSORO
  MINING LTD.

  Notes
  to the Interim Consolidated Financial Statements

  For
  the Three and Nine Months Ended September 30, 2008 and 2007

  Expressed
  in U.S. Dollars - unaudited

  	
  

  

 

Consolidated summarized
statements of cash flows (continued)

 

	
   

  	
   

  	
  3 month period

  ending

  	
   

  
	
   

  	
   

  	
  September 30, (Unaudited)

  	
   

  
	
   

  	
   

  	
  2008

  	
   

  	
  2007

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
  Cash flows provided (used) by
  operating activities under

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Canadian GAAP

  	
   

  	
  3,066

  	
   

  	
  (6,849

  	
  )

  
	
  Deferred exploration expense
  (a)

  	
   

  	
  (4,349

  	
  )

  	
  (3,905

  	
  )

  
	
  Cash flows used by operating
  activities under US GAAP

  	
   

  	
  (1,283

  	
  )

  	
  (10,754

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cash flows used by investing
  activities under Canadian GAAP

  	
   

  	
  (43,441

  	
  )

  	
  (3,204

  	
  )

  
	
  Deferred exploration expense
  (a)

  	
   

  	
  4,349

  	
   

  	
  3,905

  	
   

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

  	
   

  	
  (39,092

  	
  )

  	
  701

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cash flows (used) provided by
  financing activities under Canadian and US GAAP

  	
   

  	
  (1,380

  	
  )

  	
  227

  	
   

  

 

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

 

(a)           Development expenditures applicable to mineral
properties

 

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

 

As at September 30, 2008, $60,867 (December 31, 2007 -
$41,150) of exploration costs were included in mineral properties for Canadian
GAAP. This has been charged to retained earnings under US GAAP as at September 30,
2008 and December 31, 2007, respectively. For the nine month periods ended
September 30, 2008 and 2007, $19,717 and $9,176, of exploration costs were
capitalized, respectively; for US GAAP, these have been charged to the
respective consolidated statements of operations.

 

(b)           Stock-based compensation

 

The Company has a stock-based employee compensation plan (Note 13 (c)).
Under US GAAP, the Company should adopt the fair value recognition provisions
of SFAS 123, Accounting for Stock-Based Compensation, prospectively to all
employee awards granted, modified, or settled after January 1, 2003. On January 1,
2007, the Company adopted SFAS 123R, Accounting for Stock-Based Compensation,
on a modified prospective basis, and, as a result, prior periods were not
restated. The application of SFAS 123R to stock purchase options did not result
in any significant change in the method of accounting for these options.

 

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

 

29

 

	
  RUSORO
  MINING LTD.

  Notes
  to the Interim Consolidated Financial Statements

  For
  the Three and Nine Months Ended September 30, 2008 and 2007

  Expressed
  in U.S. Dollars - unaudited

  	
  

  

 

(c)           Convertible notes

 

Under Canadian GAAP, convertible notes are allocated between their
equity and debt component parts. The debt component is accreted to face value
of the notes over their term.

 

Under US GAAP, the notes are classified as a liability, net of issuance
costs, and accreted to the face value over the term of the notes.

 

(d)           Accounting for uncertainty in income taxes

 

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

 

The Company adopted the provisions of FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes (“FIN 48”), on January 1, 2007.
There was no effect on the Company’s cumulative retained earnings as of January 1,
2007, as a result of the adoption of FIN 48. As of the date of adoption, there
were no unrecognized tax benefits. FIN 48 prescribes a recognition threshold
and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return.
FIN 48 requires that the Company recognize in its consolidated financial
statements, only those tax positions that are “more-likely-than-not” of being
sustained as of the adoption date, based on the technical merits of the
position. As a result of the implementation of FIN 48, the Company performed a
comprehensive review of its material tax positions. Based on this review the
provisions of FIN 48 had no effect on the Company’s financial position, cash
flows or results of operations at either January 1, 2008 or September 30,
2008.

 

The Company recognizes interest and penalties related to unrecognized
tax benefits within the income tax expense line in the accompanying
consolidated statement of operations. Accrued interest and penalties are
included within the related tax liability line in the consolidated balance
sheet. There were no interest or penalties recognized in the statement of
operations or included in the consolidated balance sheet for the nine months
ended September 30, 2008 and 2007.

 

The balance of unrecognized tax benefits at September 30, 2008 is
equal to $2,069,000 that, if recognized, would affect the effective tax rate.

 

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

 

(e)           Additional disclosure required by US GAAP

 

(i)           Impairment of mineral properties

 

Under US GAAP, impairment of mineral properties would be presented
within “costs and expenses” in the statement of operations and not within “other
(expenses) income”. For the nine months ended September 30, 2008, total “costs
and expenses” are $123,808 under US GAAP.

 

(ii)          Recently issued accounting
pronouncements

 

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

 

30

 

	
  RUSORO
  MINING LTD.

  Notes
  to the Interim Consolidated Financial Statements

  For
  the Three and Nine Months Ended September 30, 2008 and 2007

  Expressed
  in U.S. Dollars - unaudited

  	
  

  

 

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

 

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

 

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

 

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

 

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

 

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

 

25.          SUBSEQUENT EVENTS

 

1.     On October 7, 2008 the Company repaid the
remaining $1.5 million of the loan payable on acquisition (Note 15).

 

2.     On October 9, 2008 the $1.4 million cash
held in collateral at September 30, 2008 (Note 3) was released to the
Company.

 

3.     On November 14, 2008 the Company advanced
$1.5 million to a company owned by an officer, director and major shareholder
for the purchase of a plant for the treatment of diamonds (Note 20).

 

31Exhibit 4.6

 

	
  RUSORO MINING LTD.

  Management’s Discussion and Analysis

  For the Three and
  Nine Months Period ended September 30, 2008

  December 1,
  2008

  	
   

  	
  

  

 

General

 

This Management’s
Discussion and Analysis (“MD&A”) supplements but does not form part of the
unaudited interim consolidated financial statements of the Company for the
three and nine months ended September 30, 2008.  The following information should be read in
conjunction with the September 30, 2008 unaudited interim consolidated
financial statements as well as the annual audited consolidated financial
statements of the Company and the related annual MD&A for the year ended December 31,
2007.  The preparation of financial data
is in accordance with Canadian generally accepted accounting principles (“GAAP”)
and all figures are reported in United States dollars except as otherwise
stated.  The Company’s public filings are
available on SEDAR at www.sedar.com.

 

Special
Note Regarding Forward Looking Statements

 

Certain statements
included or incorporated by reference in this Management Discussion and
Analysis, including information as to the future financial or operating
performance of the Company, its subsidiaries and its projects, constitute
forward-looking statements.  The words “believe,”
“expect,” “anticipate,” “contemplate,” “target,” “plan,” “intends,” “continue,”
“budget,” “estimate,” “may,” “schedule,” and similar expressions identify
forward-looking statements. 
Forward-looking statements include, among other things, statements
regarding targets, estimates and assumptions in respect of gold production and
prices, operating costs, results and capital expenditures, mineral reserves and
mineral resources and anticipated grades and recovery rates.  Forward-looking statements are necessarily
based upon a number of estimates and assumptions that, while considered
reasonable by the Company, are inherently subject to significant business,
economic, competitive, political and social uncertainties and contingencies.
Many factors could cause the Company’s actual results to differ materially from
those expressed or implied in any forward-looking statements made by, or on
behalf of, the Company.  Such factors
include, among others, risks relating to additional funding requirements,
reserve and resource estimates, gold prices, exploration, development and
operating risks, illegal miners, political and foreign risk, uninsurable risks,
competition, limited mining operations, production risks, environmental
regulation and liability, government regulation, currency fluctuations, recent
losses and write-downs and dependence on key employees.  See “Risk and Uncertainties” section of this
Management Discussion and Analysis. Due to risks and uncertainties, including
the risks and uncertainties identified above, actual events may differ
materially from current expectations. 
Investors are cautioned that forward-looking statements are not
guarantees of future performance and, accordingly, investors are cautioned not
to put undue reliance on forward-looking statements due to the inherent
uncertainty therein.  Forward-looking
statements are made as of the date of this Management Discussion and Analysis
and the Company disclaims any intent or obligation to update publicly such
forward-looking statements, whether as a result of new information, future
events or results or otherwise.

 

Business
of the Company

 

The Company has two
business segments: i) exploration and development of gold mineral properties
and ii) the extraction, processing and sale of gold ore.  The Company’s business operations are in
Venezuela.

 

1055 Dunsmuir Street, Suite
2164, Four Bentall Centre, PO Box 49132

Vancouver, BC   V7X 1B1 - Tel:  604-632-4044 ·
Fax:  604-632-4045

www.rusoro.com

 

 

	
  RUSORO MINING LTD.

  Management’s Discussion and Analysis

  For the Three and
  Nine Months Period ended September 30, 2008

  December 1,
  2008

  	
   

  	
  

  

 

Corporate
Development Highlights during 2008

 

·      On
June 10, 2008, the Company closed an $80 million syndicate financing led
by Peter Hambro Mining Plc. (the “Hambro Financing”). The proceeds were raised
for asset acquisitions and for corporate development projects.

 

·      On
July 4, 2008 the Company entered into an agreement with the Venezuelan
Ministry of Mines and Basic Industries (“MIBAM”) to establish a joint venture
(the “Mixed Enterprise”) to carry on with gold exploration, development and
mining of the Hecla-Venezuela assets. 
The Mixed Enterprise will be owned 50% by the Company and 50% by Empresa
Basica Minera Nacional (“EMN”), a company owned by MIBAM.  The Mixed Enterprise is expected to be
created within 6 months of the date of the agreement with MIBAM.  None of the Company’s existing assets, such
as the Choco 10 mine, are to be contributed to the Mixed Enterprise.

 

·      On
July 8, 2008, the Company closed the acquisition of 100% of the
outstanding shares of El Callao Gold Mining Ltd. and Drake-Bering Holdings B.V.
including their wholly-owned subsidiaries Minera Hecla Venezolana, C.A. (“Minera
Hecla”) and El Callao Gold Mining Company de Venezuela, SCS (“El Callao Gold
Mining”) (the “Hecla-Venezuela Acquisition”).

 

·      On
August 11, 2008 the Company re-initiated production from underground at
Isidora mine, with a production of high-grade ore grading in excess of 30 g/t.

 

·      On
September 5, 2008, the Company announced that it had formally completed
agreements with MIBAM to custom mill ore from various CVG Minerven, C.A. (“CVG
Minerven”) operations in Venezuela.

 

·      On
November 3, 2008, the Company announced that it had received an updated
resource estimate for the San Rafael/El Placer Project (SREP) and the Days
Vein, located in the El Dorado District, Venezuela. The updated SREP indicated resource (639,000t
@ 19.41g/t Au) contained ounces decreased by 21% while
the updated inferred resource ounces (703,000t @ 23.16g/t Au) increased by 42%
(+156,000 ounces (“oz”)). A significant increase in grade for both categories
(17% for the Indicated and 47% for the Inferred) was also documented in the
updated resource estimate. For the Days Vein the updated inferred ounces
(209,000t @ 5.50g/t Au) increased by 2% with a 143% increase in grade.

 

2

 

	
  RUSORO MINING LTD.

  Management’s Discussion and Analysis

  For the Three and
  Nine Months Period ended September 30, 2008

  December 1,
  2008

  	
   

  	
  

  

 

Summary of Mining Operations

 

Choco 10 Mine

 

The Company purchased
the operating Choco 10 gold mine in November 2007.  The mine is located in the El Callao
district, which is within 10 km of the Company’s Increíble 6 project.  None of the Company’s gold production is
hedged.  Key mine-operating statistics
are as follows:

 

	
   

  	
   

  	
  Q3 2008

  9 months

  	
   

  	
  Q3 2007

  9 months

  	
   

  	
  Q3 2008

  3 months

  	
   

  	
  Q3 2007

  3 months

  	
   

  
	
  Gold production (ounces)

  	
   

  	
  72,184

  	
   

  	
  —

  	
   

  	
  22,082

  	
   

  	
  —

  	
   

  
	
  Monthly average gold
  production (ounces)

  	
   

  	
  8,020

  	
   

  	
  —

  	
   

  	
  7,361

  	
   

  	
  —

  	
   

  
	
  Gold sold (ounces)

  	
   

  	
  74,757

  	
   

  	
  —

  	
   

  	
  21,755

  	
   

  	
  —

  	
   

  
	
  Total cash costs per ounce
  (1)

  	
   

  	
  658

  	
   

  	
  —

  	
   

  	
  713

  	
   

  	
  —

  	
   

  
	
  Total cash cost per ounce in
  Venezuelan Bolivars(2)

  	
   

  	
  2,556

  	
   

  	
  —

  	
   

  	
  2,617

  	
   

  	
  —

  	
   

  
	
  Avg. official foreign
  exchange rate (bolivars to U.S. dollars)

  	
   

  	
  2.15

  	
   

  	
  —

  	
   

  	
  2.15

  	
   

  	
  —

  	
   

  
	
  Avg. parallel foreign
  exchange rate (bolivars to U.S. dollars)

  	
   

  	
  4.09

  	
   

  	
  —

  	
   

  	
  3.75

  	
   

  	
  —

  	
   

  
	
  Avg. realized gold price (3)

  	
   

  	
  663

  	
   

  	
  —

  	
   

  	
  676

  	
   

  	
  —

  	
   

  
	
  Avg. spot gold price

  	
   

  	
  897

  	
   

  	
  —

  	
   

  	
  825

  	
   

  	
  —

  	
   

  
	
  Monthly avg. ore mined
  (tonnes)

  	
   

  	
  184,015

  	
   

  	
  —

  	
   

  	
  189,824

  	
   

  	
  —

  	
   

  
	
  Monthly avg. waste mined
  (tonnes)

  	
   

  	
  539,506

  	
   

  	
  —

  	
   

  	
  504,356

  	
   

  	
  —

  	
   

  
	
  Strip ratio (waste: ore)

  	
   

  	
  2.93

  	
   

  	
  —

  	
   

  	
  2.65

  	
   

  	
  —

  	
   

  
	
  Monthly avg. ore processed
  (tonnes)

  	
   

  	
  201,332

  	
   

  	
  —

  	
   

  	
  189,028

  	
   

  	
  —

  	
   

  
	
  Monthly avg. grade of ore
  processed (g/t)

  	
   

  	
  1.56

  	
   

  	
  —

  	
   

  	
  1.92

  	
   

  	
  —

  	
   

  
	
  Monthly avg. recovery rate (%)

  	
   

  	
  87

  	
   

  	
  —

  	
   

  	
  87

  	
   

  	
  —

  	
   

  
	
  Monthly avg. gold recovered
  (ounces)

  	
   

  	
  8,785

  	
   

  	
  —

  	
   

  	
  10,152

  	
   

  	
  —

  	
   

  

 

(1)   Cash costs
increased from $499/oz in Q1 2008 to $769/oz in Q2 2008 and decreased to
$713/oz in Q3 2008. The main reason for the increase in the cash cost per ounce
in Q2 and Q3 2008 as compared to Q1 2008 is due to the effect of the
appreciation of the Venezuela Bolivar (“Bs”) against the U.S. dollar, from an
average of 4.98 Bs to 1 U.S. dollar in Q1 2008 to an average of 3.51 Bs to
1 U.S. dollar in Q2 2008 and an average of 3.75 Bs to 1 U.S. dollar in Q3 2008.
The parallel market exchange rate is used to convert the Bs cash cost per ounce
to U.S. dollar instead of the official exchange rate.

 

(2)   Cash cost per
ounce in Bs remained at similar level between Q3, Q2 and Q1 2008 at Bs 2,617,
Bs 2,649 and Bs 2,461 per ounce respectively. 
A reasonably steady Bs cash cost per ounce versus an increasing U.S.
dollar cash cost per ounce during the 9 months period ended September 30
2008 is due to the effect of the appreciation of the Bs against the U.S.
dollar.

 

(3)   Average realized
gold price is impacted by the discount as indicated in “Venezuelan Exchange
Controls and Revenue” and the timing of gold sales.

 

Hecla
Venezuela Acquisition

 

On July 8, 2008, the
Company closed the Hecla-Venezuela Acquisition for consideration of $20 million
paid in cash and $5 million by the issuance of 4,273,504 common shares of the
Company.  Acquisition costs amounted to
$1.2 million. In addition the Company paid $0.9 million for the working capital
of the Companies acquired in the Hecla-Venezuela Acquisition.

 

3

 

	
  RUSORO MINING LTD.

  Management’s Discussion and Analysis

  For the Three and
  Nine Months Period ended September 30, 2008

  December 1,
  2008

  	
   

  	
  

  

 

On July 4, 2008,
concurrently with the Hecla-Venezuela Acquisition, the Company entered into an
agreement with MIBAM to create the Mixed Enterprise within six months of the
date of this agreement, to carry on with gold exploration, development and
mining of the main assets acquired in the Hecla-Venezuela Acquisition which are
the Block B — Isidora mining leases, which includes the Isidora mine, and the
La Camorra mill facility in Bolivar State, Venezuela. Once formed, the Mixed
Enterprise will be 50% owned by the Company and 50% owned by Empresa Basica
Minera Nacional (“EMN”), which is a company owned indirectly by MIBAM.  As part of the agreement with MIBAM, on August 6,
2008, the Company paid $5 million to CVG Minerven which owns 100% of EMN.

 

Additionally, the
Company is to provide a pledge in favour of EMN on 50% of the Company’s
interest in Minera Hecla and El Callao Gold Mining until the Mixed Enterprise
is created.  For the period ended September 30,
2008, the Company has not consolidated the companies acquired in the
Hecla-Venezuela Acquisition. For accounting purposes, the Company’s management
has concluded that the Company does not currently have a continuing power to
determine the strategic, operating, investing and financing polices of the
companies acquired in the Hecla-Venezuela Acquisition until such time that the
Mixed Enterprise is formed. Management has made this determination as the
approval granted by CVG Minerven and MIBAM to transfer the mining leases, as a
result of the change in control of the companies acquired in the
Hecla-Venezuela Acquisition, together with ownership of the  mining rights, contracts and assets directly
affected by the mining leases are both subject to the creation of the Mixed
Enterprise in the period required in the agreement entered with MIBAM.
Therefore until such time that the Mixed Enterprise has been established the
Company has determined that it is not appropriate to consolidate the companies
acquired in the Hecla-Venezuela Acquisition. The agreement to create the Mixed
Enterprise is in the final stages of being completed and management expects
this agreement will be completed in December of 2008.

 

Minera Hecla resumed its
mining operations on August 11, 2008. Key operating statistics from that
date until September 30, 2008 based on a 100% interest are as follows:

 

	
  Gold production (ounces)

  	
   

  	
  4,722

  	
   

  
	
  Gold sold (ounces)

  	
   

  	
  2,602

  	
   

  
	
  Avg. realized gold price

  	
   

  	
  666

  	
   

  
	
  Total cash costs per ounce

  	
   

  	
  247

  	
   

  
	
  Total ore mined (tonnes)

  	
   

  	
  13,948

  	
   

  
	
  Total waste mined (tonnes)

  	
   

  	
  3,980

  	
   

  
	
  Monthly avg. grade of ore
  processed (g/t)

  	
   

  	
  33.41

  	
   

  
	
  Total ore processed (tonnes)

  	
   

  	
  4,396

  	
   

  
	
  Monthly avg. recovery rate (%)

  	
   

  	
  90

  	
   

  

 

For the period ended September 30, 2008 the
Company has not consolidated the companies acquired in the Hecla-Venezuela
Acquisition, including the operations of the Isidora mine. The combined cash
cost per ounce of the Isidora and Choco 10 mines for the three months period
ended September 30 2008 would have resulted in a weighted average cash
cost per ounce of $631.

 

4

 

	
  RUSORO MINING LTD.

  Management’s Discussion and Analysis

  For the Three and
  Nine Months Period ended September 30, 2008

  December 1,
  2008

  	
   

  	
  

  

 

Exploration and Development Properties

 

El Callao District

 

Choco
Project

 

Drilling completed on
the Choco project included grade control, resource definition and oxide
expansion drilling for a total of 68,311 metres in the nine months ended September 30,
2008 and 12,078 metres in the three months ended September 30, 2008.  The focus of drilling this period was on the
existing mine concession area where resource-to-reserve conversion was required
in saprolite ore.

 

A series of updated
internal resource and reserve estimates continue to be completed during 2008
and are being included in technical/economic reports ranging from scoping to
feasibility studies designed to determine the preferred path for expanding
and/or extending the existing production and/or developing additional
stand-alone mining operations.

 

In May 2008, the
Company started a scoping study for the Choco 10 mine and surrounding deposits
in the El Callao district.  Information
derived from this study will be used to establish various working parameters
and assumptions to be used in a definitive feasibility study.  The scoping study advanced during Q3 2008 and
is now expected to be completed during Q4 2008. 
The data and conclusions of the scoping study will form the basis for a
feasibility study, which is expected to be completed during 2009.  The studies will focus on establishing the
viability of a planned significant gold production expansion at the Choco 10
mill and mine, including the adjacent Increible 6 property.

 

The current 43-101
compliant gold ounces at the Choco project are 1.66 Moz Au proven and
probable reserves (15.4 Mt grading 3.4 g/t), 4.45 Moz Au measured and
indicated (56.1 Mt @ 2.46 g/t)) and 2.87 Moz Au (40.8 Mt @ 2.20
g/t) inferred.

 

Two main goals exist for
this resource and reserve process:  a)
resource and reserve conversion at Choco project to support the oxide strategy
(mining and processing of oxide ore) for 2-3 years, b) resource and reserve
conversion to support expanded production capacity (3-4 years out) and a
Bankable Feasibility Study.

 

Increible
6 Project

 

The Increible 6 project
is located in the El Callao district, 10 km northeast of the Choco mill.  Previous work at Increible 6, including
geochemistry, geophysics trenching, and drilling has outlined a series of gold
targets.  The main gold zones (Culebra,
Cristina, Elisa, and Olga) are contained within a 4.5 km long and 1.0 km wide
east-west trending shear zone, which crosses the central portion of the project
and contains 1.59 Moz Au indicated (23.45 Mt grading 2.11 g/t)
and 1.1 Moz Au inferred (17.5 Mt grading 1.95 g/t).

 

Exploration drilling
during the nine months ended September 30, 2008 totalled 27,881 metres and
for the three months ended September 30, 2008 totalled zero metres.  Drilling during the nine months ending September 30,
2008 included 15,600 metres of RC drilling (102 holes) and 12,281 metres of
diamond drilling (73 holes).  The drop in
drilling metres during Q3 2008 reflects a pause in drilling as the updated
resource estimate is completed.

 

The 2008 drilling
targeted four main objectives:

 

1)     detailed drilling of saprolite portions of main zones
for final resource estimations 

(Elisa and Ingrid zones);

 

2)     follow-up drilling on positive results
(Olga/Cristina/El Buzo);

 

3)     first pass drilling on new areas (Payara);

 

5

 

	
  RUSORO MINING LTD.

  Management’s Discussion and Analysis

  For the Three and
  Nine Months Period ended September 30, 2008

  December 1,
  2008

  	
   

  	
  

  

 

4)     condemnation drilling of proposed waste dump.

 

Exploration
and Development Properties

 

The infill program on
the near surface material for the main Elisa and Ingrid structures was designed
to provide additional information for the detailed geological model for the
development and production scheduled for Q1 2009.  All zones remain open.  The oxide portion of Increible 6 is included
into the Choco 10 mine oxide strategy for near term exploitation.

 

El Dorado District

 

The Company’s mineral
titles in the El Dorado district are comprised of Emilia, Emilia II, El Placer,
San Rafael, Ceiba, and others.  This
block of claims has a history of past gold production and contains the company’s
Emilia mill, which has been in the process of being upgraded since September 2006.

 

Updated 43-101 compliant
resource estimates for the SREP project consists of an indicated resource of
399,000 oz Au (0.64 Mt grading 19.4 g/t) and an additional 523,000 oz Au
in inferred resources (0.7 Mt grading 23.1 g/t).  Updated 43-101 compliant resource estimates
for Days Vein on the Emilia concession consist of 37,000 oz of inferred
resources (209,000 t at 5.5 g/t Au). The total Emilia project, which includes
Days, contains in total 83,000 oz Au in inferred resources (0.37 Mt
grading 7 g/t).

 

During Q1 2008, a total
of 7,574 metres in 24 drill holes was completed on the main trend of SREP
project and 4,533 metres in 39 drill holes at the Days Zone on the Emilia
concession.  Drilling on the SREP and
Days Zone during Q2 2008 totalled 2,598 metres. 
No drilling was completed during Q3 2008 as all previous exploration and
drilling data was compiled and an updated resource estimate initiated.

 

Development activities
continue at Emilia related to the expansion and upgrading of the Emilia mill
and completion of the Alvarez ramp at SREP in order to start the exploitation
of the mine in 2009.  The overall
objective continues to be the expansion and upgrading the El Dorado resource in
order to complete the studies required to evaluate the various development
possibilities in the district.

 

Cuyuni District

 

Valle
Hondo

 

The 13,000 ha Valle
Hondo project is located 40 km east of the Company’s Emilia mill.  Drilling on the Valle Hondo project in the
nine months ending September 30, 2008, totalled 16,316 metres all
completed on the Arenales anomaly.  The
drilling was highly successful in intersecting numerous high grade gold
mineralized structures.  Drilling during
the three months ended September 30, 2008, consisted of 3,229 metres
(1,822 metres of RC drilling on the Arenales Anomaly and 1,407 metres of
diamond drilling on the Apanao Zone).

 

Previous drilling
(13,000 metres in 114 diamond drill holes) dated from 1996 and 1997 was
completed on the Apanao deposit, located 8 km east of Arenales.  Work during the period at Apanao also
included further road access and camp upgrades.

 

The current 43-101
resource estimation for the Apanao deposit currently stands at 103,000 oz Au
(3.5 Mt @ 0.92 g/t) indicated and 1.34 Moz Au (47 Mt @
0.89 g/t) inferred.

 

The overall objective
continues to be the expansion and upgrading the Apanao gold resource and the
definition of additional resources (primary target at Arenales) from within the
project.  A scoping study designed to
model the development alternatives at the Valle Hondo project is scheduled to
commence in Q1 2009.  The goal is to
outline sufficient resources to allow the modelling of potential gold
production at Valle Hondo for a range of operations of differing sizes.

 

6

 

	
  RUSORO MINING LTD.

  Management’s Discussion and Analysis

  For the Three and
  Nine Months Period ended September 30, 2008

  December 1,
  2008

  	
   

  	
  

  

 

Km88 District

 

Yuruan

 

The Yuruan Concession is
contiguous with several other mineral titles, all 100% controlled by the
Company, which total more than 11,000 ha. 
Drilling during the nine months ended September 30, 2008, the
metres totalled 15,711 and for the three months ended September 30, 2008,
1,035 metres.

 

Drilling to date has
outlined a series of gold mineralized zones contained within a large
regional-scale structural trend, which cross the Yuruan concession and extend
on the adjacent mineral titles controlled by the Company.  The drilling in Q3 2008 was primarily follow
up drilling on previously defined high-grade intercepts.  No additional drilling is planned for Q4
2008.  Once all results are received, an
updated interpretation of the mineralized structures outlined to date will be
completed.  The objective of the drilling
program in the area is to evaluate the possibility of outlining additional gold
resources for the Emilia mill and/or the possibility of a “stand alone”
project.

 

Other
Bolivar State Projects

 

The Increible 14 project
is located 15 km northwest of the Company’s Choco 10 mine.  A total of 8,072 meters of diamond
drilling was completed during the nine months ended September 30, 2008 and
zero metres of drilling was completed during the three months ended September 30,
2008. This work tested all of the principal targets within the project.  Some results are pending and once received a
detailed interpretation of the mineralized structure intersected to date will
be completed. No drilling is planned for Q4 2008.  Future drilling will be evaluated in
conjunction with a series of regional exploration targets within the El Callao
district.

 

Minoro

 

In Honduras, the Company
holds the mineral rights to the 10,000 ha Minoro project.  No fieldwork was completed in Q3 2008.

 

Selected
Quarterly Information

 

	
   

  	
   

  	
  Q3 2008

  	
   

  	
  Q2 2008

  	
   

  	
  Q1 2008

  	
   

  	
  Q4 2007

  	
   

  	
  Q3 2007

  	
   

  	
  Q2 2007

  	
   

  	
  Q1 2007

  	
   

  	
  Q4 2006

  	
   

  
	
  Revenue

  	
   

  	
  14,717

  	
   

  	
  23,152

  	
   

  	
  11,688

  	
   

  	
  3,495

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Net Loss

  	
   

  	
  (12,490

  	
  )

  	
  (36,818

  	
  )

  	
  (17,263

  	
  )

  	
  (12,980

  	
  )

  	
  (11,187

  	
  )

  	
  (4,167

  	
  )

  	
  (3,910

  	
  )

  	
  (25,362

  	
  )

  
	
  Loss per Share

  	
   

  	
  (0.03

  	
  )

  	
  (0.10

  	
  )

  	
  (0.04

  	
  )

  	
  (0.06

  	
  )

  	
  (0.08

  	
  )

  	
  (0.03

  	
  )

  	
  (0.03

  	
  )

  	
  (0.85

  	
  )

  

 

Note:  in thousands of $
except per share data

 

The following discussion
highlights some of the significant factors that had impact on the results in
the eight most recently completed quarters ended September 30, 2008.

 

7

 

	
  RUSORO MINING LTD.

  Management’s Discussion and Analysis

  For the Three and Nine Months Period ended September 30, 2008

  December 1, 2008 

  	
   

  

 

During the
third quarter of 2008, revenue decreased by $8.4 million. This is due to an
increase in gold inventories between quarters, the fact that Q2 revenue was
impacted positively by a reduction in gold inventories from the end of Q1 to
the end of Q2, and a Q3 production shortfall of 2,980 ounces versus Q2, from
25,062 ounces produced in Q2 to 22,082 in Q3 2008. Net loss decreased by
approximately $24.3 million over the previous quarter. This was partially due
to a decrease in stock-based compensation expense of $16.7 million versus the
previous quarter, as Q2 was impacted by the issuance of fully vested stock options
and re-pricing of certain stock options. 
In addition, the Company had a foreign exchange gain of
$6.8 million in Q3 compare to a foreign exchange loss of $3.5 million in
Q2, which was mainly due to the impact of the depreciation of the Bolivar in Q3
2008 on the future income tax liability of the Company’s integrated foreign
operations in Venezuela. Interest expense on long-term debt increased $2.5
million as the debt was outstanding for the entire Q3 as it was issued in June 2008.  Other reason for the decrease in net loss
during Q3 was a decrease in amortization expense of $3.3 million and a decrease
of $5.3 million in cost of sales.

 

During the
second quarter of 2008, revenue increased by $11.5 million over the previous
quarter due to a reduction of gold inventories between quarters.  Net loss increased by $19.6 million from the
previous quarter principally due to an increase of stock-based compensation
expense of $16.5 million for the issuance and re-pricing of stock options
during the second quarter of 2008, and due to a lower foreign exchange loss
recorded during the second quarter versus previous quarter.  The foreign exchange loss arose on the
appreciation of the future income tax liability of the Company’s integrated
foreign operation in Venezuela as a result of the appreciation of the Bolivar
versus the U.S. dollar.  During the
second quarter the appreciation of the Bolivar was not as strong as in the
first quarter of 2008.

 

During the
first quarter of 2008, revenue increased by $8.2 million over the previous
quarter as in the fourth quarter of 2007 only one month of revenue was recorded
as Choco 10 mine had been recently acquired. 
Net loss increased by $4.3 million from the prior quarter due
principally to foreign exchange losses from the Company’s integrated foreign
operations as a result of the appreciation of the Venezuela Bolivar against the
U.S. dollar during the quarter.

 

During the
fourth quarter of 2007, revenue increased by $3.5 million over the previous
quarter due to the acquisition of Choco 10 mine on December 3, 2007.  Before this time, the Company had no revenue
as it did not have a gold producing mine. 
Net loss increased $1.8 million over the previous quarter.

 

During the
third quarter of 2007, net loss increased by $7 million from the prior quarter
as a result of $4 million increase in foreign exchange loss and the
remaining $3 million mainly due to stock based compensation expense from the
issuance of 6.8 million stock options in September 2007.

 

There are no
major variances between the results of the second and first quarter of
2007.  Net loss increased by $0.3 million
in the second quarter of 2007 when compared to its previous quarter.

 

During the
first quarter of 2007, net loss decreased by $21.5 million when compared to the
fourth quarter of 2006, as in the latter the Company recorded stock-based
compensation expense for the amount of $7.8 million and a loss for
impairment of mineral properties of $13.9 million recorded in the fourth
quarter of 2006.

 

During the
fourth quarter of 2006, the Company completed a reverse take-over transaction
with Grupo Agapov Corp. and net loss increased by $22.4 million from the
previous quarter mainly as a result of recorded stock based compensation
expense of $7.8 million and impairment of mineral properties of $13.9
million.  The loss per share figures
reflect the share recapitalization upon the reverse take-over with Grupo Agapov
Corp.

 

8

 

	
  RUSORO MINING LTD.

  Management’s Discussion and Analysis

  For the Three and Nine Months Period ended September 30, 2008

  December 1, 2008 

  	
   

  

 

Results of Operations for the Three and
Nine Months Ended September 30, 2008 Compared to the Three and Nine Months
Ended September 30, 2007

 

Revenue

 

Revenue from
gold sales during Q3 2008 totalled $14.7 million (2007 - $Nil) or 21,755 oz Au
(2007 – Nil) at an average gold price of $676/oz. Revenue for the nine months
ending September 30, 2008 was $49.6 million (2007 – $Nil) or 74,757 oz Au
(2007 – Nil) at an average gold price of $663/oz.

 

All of the
Company’s gold sales are recorded in Venezuela in Bs and translated to U.S.
dollars for financial reporting purposes using the average parallel exchange
rate for the reporting period.  In order
to maximize the bolivars received from gold sales, the Company is selling its
gold production to registered local purchasers in Venezuela at prices based on
the U.S. dollar spot price of gold, minus an average 19% discount, with
settlement in bolivars pegged to the parallel rate (as defined in Venezuelan
Exchange Controls and Revenue).  This is
more beneficial than exporting the gold at the spot price of gold and
collecting through the Central Bank of Venezuela (“CBV”) in bolivars at the
official rate of exchange.  As a result,
the Company’s reportable revenue and realized prices per ounce are below the
average U.S. dollar spot price of gold.

 

Cost of sales
during the nine months ended September 30, 2008, totalled $48.3 million
(2007 – $Nil).  The cost of sales in the
period reflects all components capitalized to inventory except for the
component of inventory cost relating to the amortization of property, plant and
equipment (“PP&E”), which is classified in the statement of operations
under “amortization”.  The amount
presented during the nine months ended September 30, 2008 in amortization
includes cost of inventory sold of $25.0 million (2007 – $Nil) related to the
amortization of PP&E used in the production process.

 

Cost of sales
includes an inventory impairment of $3.6 million during the nine months ended September 30,
2008 (2007 – $Nil) to adjust the carrying value of gold and gold in process
inventory to its net realizable value. 
The carrying value of gold and gold in process inventory includes the
amortization of PP&E. PP&E acquired with the Choco 10 mine on Q4 2007,
was measured and incorporated into the Company’s books at fair value.  Since then, the balance of PP&E has
increased significantly over the nine months ending September 30, 2008, as
a result of the appreciation of the Bolivar against the U.S. dollar with a
resulting significant impact on amortization and inventories.  During Q3 2008, cost of sales was
$18.4 million (2007 – $Nil) and amortization included $7.5 million (2007 –
$Nil) related to the amortization of PP&E related to production of
inventory.

 

Administration
expense for Q3 2008 was $4.1 million (2007 – $3.2 million). Stock-based
compensation expense decreased by $2.5 million which was offset by $1.3 million
of administrative expenses at the Choco 10 mine operation (which is not
included in the same period of the previous year as the Company did not receive
ownership of the Choco 10 mine until Q4 2007) and due to increased other
administrative costs as the Company transitioned from an exploration company to
an operating company. Administration expense for the nine months ended September 30,
2008 was $26.7 million (2007 - $8.4 million). Stock-based compensation expense
increased by $9.5 million, administrative expenses at the Choco 10 mine
operation were $4.0 million (which is not included in the same period of the
previous year as the Company did not receive ownership of the Choco 10 mine
until Q4 2007) and due to increased other administrative costs as the Company
transitioned from an exploration company to an operating company.

 

Consulting
expense for Q3 2008 was $1.6 million (2007 - $3.0 million). Stock-based
compensation expense decreased by $1.1 million which was the significant factor
in the decrease. Consulting expense for the nine months ended September 30,
2008 was $8.4 million (2007 - $5.1 million). Stock-based compensation increased
by $2.5 million which was the significant factor in the increase.

 

9

 

	
  RUSORO MINING LTD.

  Management’s Discussion and Analysis

  For the Three and Nine Months Period ended September 30, 2008

  December 1, 2008 

  	
   

  

 

Foreign
exchange gain (loss) for Q3 2008 was $6.8 million (2007 – ($4.1 million)) The
gain in Q3 2008 is mainly due to the depreciation of the Bolivar in the quarter
which decreased the Bolivar-denominated future income tax liability of the
Company’s integrated foreign operations in Venezuela.  The foreign exchange loss for the nine months
ended September 30, 2008 of $4.1 million (2007 – $4.4 million) is mainly
due to the appreciation of the Bolivar in the nine months ended September 30,
2008 which increased the Bolivar-denominated future income tax liability of the
Company’s integrated foreign operations in Venezuela.

 

Interest
income during the periods reflects the interest earned on cash balances held
during the period.

 

Interest on
long-term debt for Q3 2008 was $3.2 million (2007 - $Nil) and for the nine
months ended September 30, 2008 was $3.9 million (2007 – $Nil). This is
the interest accrued on the Hambro Financing, which has a coupon of 10% per
annum and an effective annual interest rate of 18.5%.

 

Professional
fees during Q3 2008 was $0.3 million (2007 - $0.2 million) and for the nine
months ended September 30, 2008 was $1.3 million (2007 - $0.8 million) and
are mainly related to legal, tax, audit and accounting services provided in
relation to the Company being publicly traded and the Choco 10 and Isidora  mines.

 

Salaries
during Q3 2008 was $0.8 million (2007 – $0.6 million). Stock-based compensation
expense decreased by $0.1 million however this was offset by an increase in the
number of staff in the corporate office as a result of the growth of
operations. Salaries for the nine months ended September 30, 2008 was $3.3
million (2007 - $1.2 million). Stock-based compensation expense increased by
$0.9 million and the remaining increase is due to an increase in the number of
staff in the corporate head office as a result of the growth of operations.

 

Travel and
entertainment during Q3 2008 was $0.6 million (2007 – $0.6 million) and for the
nine months ended September 30, 2008 was $2.6 million (2007 – $0.9
million) due to the increase in travel between offices in Canada, Venezuela and
Russia as a result of the Company’s growth of operations in Venezuela.

 

Financial Position

 

Total assets
totalled $1.28 billion as at September 30, 2008 (December 31, 2007 –
$1.00 billion). Total assets primarily consisted of $956 million in PP&E (December 31,
2007 – $759 million), $230 million in mineral properties (December 31,
2007 – $190 million) and $20 million in cash (2007 – $31 million).   Most of the cash balance as at September 30,
2008, is held in U.S. dollars.  The
increase in total assets, PP&E and mineral properties is primarily the
result of the appreciation of the Venezuela Bolivar versus the U.S. dollar from
5.70 Bs to 1 U.S. dollar at December 31, 2007 to 4.50 Bs to 1 U.S. dollar
at September 30, 2008.  A large
majority of the assets are denominated in bolivars from the Company’s
self-sustaining foreign operations, Choco 10 mine, which according to the
Company’s accounting policy are translated from bolivars to U.S. dollars at the
prevailing market exchange rate at the balance sheet date.  The same applied to liabilities, such as
accounts payable and accrued liabilities of $39 million as at September 30,
2008 (December 31, 2007 – $21 million) and future income tax liability of
$337 million as at September 30, 2008 (December 31, 2007 – $277
million), as a majority of their increase is due to the appreciation of the
Bolivar versus the U.S. dollar.

 

Long-term
debt of $70.5 million (December 31, 2007 – $Nil) represents the balance of
the Hambro Financing reduced by financing costs and after segregating its
equity component attributable to the convertible option of the loan.  The debt is held in U.S. dollars and
repayable as indicated under the “Liquidity and Capital Resources” section of
this MD&A.

 

10

 

	
  RUSORO MINING LTD.

  Management’s Discussion and Analysis

  For the Three and Nine Months Period ended September 30, 2008

  December 1, 2008 

  	
   

  

 

Liquidity and Capital Resources

 

The Company’s
cash position decreased from $31 million at December 31, 2007 to $20
million at September 30, 2008. This was due to a cash outflow from
operating activities of $14 million, a cash inflow from financing activities of
$74 million and a cash outflow from investing activities of $71 million.   The Company’s current assets excluding cash
less current liabilities decreased by $15.0 million, from $0.6 million as
at December 31, 2007 to negative $14.4 million as at September 30,
2008, due to increases in accounts payable and accrued liabilities and income
tax payable more than offsetting the increase in cash held as collateral,
receivables and inventories – materials. 
Financing activities included $75.3 million received from the
Hambro Financing. The Hambro financing principal of $80 million is repayable in
full in June 2010 and bears interest at 10% per annum with semi-annual
payments. Investing activities included $28 million related to the
Hecla-Venezuela Acquisition and payment under the commitment agreement to
create the Mixed Enterprise, $16.5 million of exploration expenditures and
$21.7 million of PP&E expenditures.

 

Venezuelan Exchange Controls and Revenue

 

In accordance
with the exchange control regulations in Venezuela, the CBV centralizes the
purchase and sale of foreign currency in the Country.  The current rate of exchange is currently
fixed at 2.15 per U.S. dollar.  The
Venezuelan government enacted the Criminal Exchange law that imposes strict
sanctions for the exchange of Venezuelan currency with other foreign currencies
through other than designated methods.

 

The exchange
regulations do not apply to certain securities, which are traded within
Venezuela and on recognized exchanges outside Venezuela.  Therefore, the purchase in one market and
sale in the other market of these dual listed securities provides an effective
parallel market for the Venezuelan currency. 
The Venezuelan government issues the majority of the securities that are
so traded. The parallel or market rate is volatile and the trend has been
consistently higher than the official rate.

 

Exports of
gold are subject to the exchange control regulations and although sales are
based on the U.S. dollar spot gold price at the time of delivery, payment is
received in Bs, with the U.S. dollar revenues converted to Bs by the CBV at the
official rate of 2.15 Bs to 1 U.S. dollar. 
With the parallel rate materially above the official rate, the Company
decided not to export its gold but rather to sell it domestically in Bs based
on the USD spot gold price minus an average 19% discount at the time of
delivery and payment is received in Bs at the parallel rate.  For financial reporting purposes, revenue for
the quarter is translated from Bs to U.S. dollars at the average parallel
exchange rate for the period.  The
Company does not convert the Bs revenue to U.S. dollars, rather the Bs are used
to fund ongoing operations and exploration in Venezuela.

 

Commitments and Contingencies

 

As part of
the Company’s normal course of business, the Company entered into arrangements
that will influence the Company’s future operations and liquidity, some of
which are already reflected as liabilities in the interim consolidated financial
statements at September 30, 2008. 
The principal commitments of the Company are debt repayments, asset
retirement obligations, service contracts with suppliers in relation to the
exploration and operation of its mineral properties and construction contracts,
among others.

 

11

 

	
  RUSORO MINING LTD.

  Management’s Discussion and Analysis

  For the Three and Nine Months Period ended September 30, 2008

  December 1, 2008 

  	
   

  

 

Operating
Commitments are as follows:

 

At September 30,
2008, the Company is committed to payments under operating leases for premises,
vehicles and machinery and to payments under contracts for community relations,
security, computer maintenance, consulting and other services as follows:

 

	
   

  	
   

  	
  Related Party

  	
   

  	
  Non-Related Party

  	
   

  	
  Total

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
  2008

  	
   

  	
  38,878

  	
   

  	
  296,313

  	
   

  	
  335,191

  	
   

  
	
  2009

  	
   

  	
  155,511

  	
   

  	
  103,704

  	
   

  	
  259,215

  	
   

  
	
  2010

  	
   

  	
  155,511

  	
   

  	
  73,655

  	
   

  	
  229,166

  	
   

  
	
  2011

  	
   

  	
  155,511

  	
   

  	
  73,655

  	
   

  	
  229,166

  	
   

  
	
  2012

  	
   

  	
  77,756

  	
   

  	
  73,655

  	
   

  	
  151,411

  	
   

  
	
  2013 and thereafter

  	
   

  	
  —

  	
   

  	
  153,449

  	
   

  	
  153,449

  	
   

  
	
   

  	
   

  	
  583,167

  	
   

  	
  774,431

  	
   

  	
  1,357,598

  	
   

  

 

The Company had the following commitments related to the creation of
the Mixed Enterprise:

 

1.               To
transfer to EMN certain mining rights owned by the Company, located in El
Dorado District, named: Belkis 1, Urupagua, Virginia 1, Virginia 2 and
Guaicamacuare.  These mining rights have
not been transferred as of September 30, 2008.

 

2.               To
transfer to a governmental entity to be determined by MIBAM a plant for the
treatment of diamonds which is currently owned by an officer, director and
major shareholder of the Company. The plant will need to be purchased by the
Company prior to the transfer. An independent valuation of the plant is
underway.

 

3.               During
a period of 18 months from entering the agreement, the Company has committed to
incur various social costs in the benefit of the communities around the
Hecla-Venezuela assets.  The total cost
to be incurred has not yet been determined by the Company.

 

Legal Contingencies

 

The Company
is involved in various claims and litigation arising in the normal course of
business.  While the outcome of these
matters is uncertain and there can be no assurance that such matters will be
resolved in the Company’s favor, the Company does not currently believe that
the outcome of adverse decisions in any pending or threatened proceedings
related to these and other matters or any amount which it may be required to
pay by reason thereof would have a material impact on its financial position,
results of operations or cash flows.

 

Off-Balance Sheet Arrangements

 

The Company
does not have any off-balance sheet arrangements.

 

Critical Accounting Estimates

 

Critical
accounting estimates are those estimates that have a high degree of uncertainty
and for which changes in those estimates could materially influence the Company’s
results.  Specific areas requiring the
use of estimates include the determination of depletion of reserves,
amortization provisions for plant and equipment, the estimated asset retirement
obligations and the input variables used to calculate stock-based compensation,
future tax asset valuation allowance, termination benefits, the estimation of
the fair value of liability and equity components of the Hambro Financing.  Actual results could differ from these estimates.

 

12

 

	
  RUSORO MINING LTD.

  Management’s Discussion and Analysis

  For the Three and Nine Months Period ended September 30, 2008

  December 1, 2008 

  	
   

  

 

Related Party Transactions

 

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

 

·                  Included
in prepaid expenses and deposits is $41,373 (December 31, 2007: $41,373)
related to a security deposit for a lease entered into with a company
controlled by certain directors.

 

·                  Included
in amounts capitalized as mineral properties is $2,188,312 (December 31,
2007: $1,227,967) related to the provision of technical services and personnel
from companies which are controlled by certain directors and/or senior
management of the Company.

 

·                  Included
in long-term debt is financing costs of $96,570 (December 31, 2007: $Nil)
and included in other assets is acquisition costs of $115,263 (December 31,
2007: $Nil) related to the provision of legal services which were paid to a
company controlled by certain directors.

 

·                  Included
in administrative expenses is $441,461 (2007: $184,588) for the three-month
period and $857,551 (2007: $184,588) for the nine-month period ended September 30,
2008 related to the cost of running the Company’s Moscow office, these expenses
were paid to a company controlled by certain directors.

 

·                  Included
in consulting expenses is $448,013 (2007: $125,510) for the three-month period
and $1,062,057 (2007: $265,093) for the nine-month period ended September 30,
2008 related to consulting fees charged by certain directors and/or a company
controlled by certain directors in accordance with the terms of  consulting contracts that they have with the
Company.

 

·                  Included
in professional fees is $42,726 (2007: $26,501) for the three-month period and
$266,765 (2007: $41,878) for the nine-month period ended September 30,
2008 related to the provision of legal services which were paid to a company
controlled by certain directors.

 

·                  Included
in travel and entertainment expenses is $Nil (2007: $134,743) for the
three-month period and $364,781 (2007: $134,743) for the nine-month period
ended September 30, 2008 related to the provision of travel services which
have been supplied by a company which is owned by a director.

 

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

 

Disclosure of Outstanding Share Data

 

Authorized

 

·                  As
at December 1, 2008, September 30, 2008 and December 31, 2007,
there was an unlimited number of common shares outstanding without par value.

 

Issued and
Fully Paid Common Shares

 

·                  As
at December 1, 2008, 390,777,946 common shares were issued and outstanding,
(391,455,669 – September 30, 2008 and 386,835,106 – December 31,
2007).  The Company does not have shares
subject to escrow restrictions or pooling agreements.

 

13

 

	
  RUSORO MINING LTD.

  Management’s Discussion and Analysis

  For the Three and Nine Months Period ended September 30, 2008

  December 1, 2008 

  	
   

  

 

Stock Options
and Warrants

 

·                  As
at December 1, 2008, 108,800,129 warrants to acquire an equal number of
common shares were outstanding and exercisable (108,800,129 – September 30,
2008 and 109,147,188 – December 31, 2007) and 35,376,178 stock options
were outstanding (35,376,178 – September 30, 2008 and 18,541,178 – December 31,
2007) of which 31,951,178 were exercisable (29,787,011 – September 30,
2008 and 11,314,511 – December 31, 2007).

 

Change in Accounting Policies

 

Capital
Disclosures and Financial Instruments – Disclosures and Presentation

 

At January 1, 2008, the Company adopted
three new presentation and disclosure standards that were issued by the
Canadian Institute of Chartered Accountants: Handbook Section 1535,
Capital Disclosures (“Section 1535”), Handbook Section 3862, Financial
Instruments – Disclosures (“Section 3862”) and Handbook Section 3863,
Financial Instruments – Presentation (“Section 3863”).

 

Section 1535 requires the disclosure of
both qualitative and quantitative information that enables users of financial
statements to evaluate (i) an entity’s objectives, policies and processes
for managing capital; (ii) quantitative data about what the entity regards
as capital; (iii) whether the entity has complied with any capital
requirements; and (iv) if it has not complied, the consequences of such
non-compliance.

 

Sections 3862 and 3863 replace Handbook Section 3861,
Financial Instruments – Disclosure and Presentation, revising and enhancing its
disclosure requirements and carrying forward unchanged its presentation requirements
for financial instruments.  Sections 3862
and 3863 place increased emphasis on disclosures about the nature and extent of
risks arising from financial instruments and how the entity manages those
risks.

 

Inventories

 

Section 3031,
Inventories (“Section 3031”), which replaces Section 3030,
establishes standards for the measurement and disclosure of inventories. The
new standard provides more extensive guidance on the determination of cost,
including allocation of overhead and requires impairment testing. The adoption
of Section 3031 did not result in a material impact on the Company’s
consolidated financial position and results of operations. The disclosure
requirements in Section 3031 have been expanded to include disclosure of
the amount of inventories recognized as an expense during the period, which is
included in the “cost of sales” and “amortization” lines on the Consolidated
Statement of Operations and Deficit.

 

Goodwill and
intangible assets

 

In January 2008,
the CICA issued Section 3064, Goodwill
and Intangible Assets, which will replace Section 3062, Goodwill and Other Intangible Assets. The
standard provides guidance on the recognition of intangible assets in
accordance with the definition of an asset and the criteria for asset
recognition as well as clarifying the application of the concept of matching
revenues and expenses, whether these assets are separately acquired or
internally developed. Section 1000 – Financial Statement Concepts was also
amended to provide consistency with this new standard.  This standard will apply to the Company’s
interim and annual financial statements beginning on January 1, 2009. The
Company has not yet determined what the impact of adopting this standard will
have on the financial statements.

 

14

 

	
  RUSORO MINING LTD.

  Management’s Discussion and Analysis

  For the Three and Nine Months Period ended September 30, 2008

  December 1, 2008 

  	
   

  

 

International
Financial Reporting Standards

 

The
Accounting Standards Board of the CICA announced that Canadian Generally
Accepted Accounting Principles (“GAAP”) for publicly accountable enterprises
will be replaced with International Financial Reporting Standards (IFRS) for
fiscal years beginning on or after January 1, 2011. Early conversion to
IFRS for fiscal years beginning on or after January 1, 2009 may also be
permitted.

 

Implementing
IFRS will have an impact on accounting, financial reporting and supporting IT
systems and processes. It may also have an impact on taxes, contractual
commitments involving GAAP based clauses, long-term employee compensation plans
and performance metrics. Accordingly, when the Company develops its IFRS
implementation plan, it will have to include measures to provide extensive
training to key finance personnel, to review contracts and agreements and to
increase the level of awareness and knowledge amongst management, the Board of
Directors and Audit Committee. Additional resources may be engaged to ensure
the timely conversion to IFRS.

 

Risk and Uncertainties

 

Country Risk

 

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

 

Title to Mineral Properties

 

Title to, and
the area of, mineral properties may be disputed or impugned.  Although the Company has investigated its
title to the mineral properties for which it holds concessions or mineral
leases or licenses, there can be no assurance that the Company has valid title to
such mineral properties or that its title thereto will not be challenged or
impugned.  For example, mineral
properties sometimes contain claims or transfer histories that examiners cannot
verify; and transfers under foreign law often are complex.  The Company does not carry title insurance
with respect to its mineral properties. 
A successful claim that the Company does not have title to a mineral
property could cause the Company to lose its rights to mine that property,
perhaps without compensation for its prior expenditures relating to the
property.  Furthermore, the Mining
Operation Contract does not transfer any property ownership rights to the
Company.

 

15

 

	
  RUSORO MINING LTD.

  Management’s Discussion and Analysis

  For the Three and Nine Months Period ended September 30, 2008

  December 1, 2008 

  	
   

  

 

Environmental Regulation and Liability

 

The Company’s
activities are subject to laws and regulations controlling not only mineral
exploration and exploitation activities themselves but also the possible
effects of such activities upon the environment. Environmental legislation may
change and make the mining and processing of ore uneconomic or result in
significant environmental or reclamation costs. 
Environmental legislation provides for restrictions and prohibitions on
spills, releases or emissions of various substances produced in association
with certain mineral exploitation activities, such as seepage from
tailings disposal areas that could result in environmental pollution.  A breach of environmental legislation may
result in the imposition of fines and penalties or the suspension or closure of
operations.  In addition, certain types
of operations require the submission of environmental impact statements and approval
thereof by government authorities. 
Environmental legislation is evolving, with stricter standards and
enforcement, increased fines and penalties for non-compliance, more stringent
environmental assessments of proposed projects and a heightened degree of
responsibility for companies and their directors, officers and employees.  Permits from a variety of regulatory
authorities are required for many aspects of mineral exploitation activities,
including closure and reclamation. 
Future environmental legislation could cause additional expense, capital
expenditures, restrictions, liabilities and delays in the development of the
Company’s properties, the extent of which cannot be predicted.

 

In the
context of environmental permits, in particular the approval of closure and
reclamation plans, the Company must comply with standards and laws and
regulations, which may entail costs and delays depending on the nature of the
activity to be permitted and how stringently the regulations are implemented by
the permitting authority. In accordance with applicable laws, the Company has
provided various forms of financial assurances to cover the cost of reclamation
activities.  However, there can be no
assurance that the Company will not incur reclamation costs that are in excess
of such financial assurances.  While the
Company established a reserve for reclamation activities, there can be no
assurance that the combination of the reserve and financial assurances will be
sufficient to meet future reclamation standards, if such standards are
materially more stringent than existing standards.  The Corporation does not maintain
environmental liability insurance.  The
Corporation has adopted high standards of environmental compliance; however,
failure with or unanticipated changes in Venezuela’s laws and regulations
pertaining to the protection of the environment in the future could adversely
affect the Company.

 

Reserve and Resource Estimates

 

The Company’s
reported mineral reserves and resources are estimates only. As a result, there
can be no assurance that they will be recovered at the rates estimated or at
all.  Mineral reserve and resource
estimates are based on limited sampling and are uncertain because the samples
may not be representative.  Mineral
reserve and resource estimates may require revision (either up or down) based
on actual production experience.  Market
fluctuations in the price of metals, increased production costs or reduced
recovery rates may render estimated mineral reserves and resources uneconomic
and may ultimately result in a restatement of mineral reserves and
resources.  In addition, short-term
operating factors, such as the need for sequential development of mineral
deposits and the processing of new or different ore grades, may adversely
affect the Company’s profitability in any particular accounting period. If its
mineral reserve and resource estimates are incorrect, the Company will not
correctly allocate its financial resources, causing it either to spend too much
on what could be a less than economic deposit or to fail to mine what could be
a significant deposit.

 

16

 

	
  RUSORO MINING LTD.

  Management’s Discussion and Analysis

  For the Three and Nine Months Period ended September 30, 2008

  December 1, 2008 

  	
   

  

 

Mineral Exploration and Exploitation

 

Mineral
exploration and exploitation involves a high degree of risk. Few properties
that are explored are ultimately developed into producing mines.  Unusual or unexpected formations, formation
pressures, fires, power outages, labour disruptions, flooding, explosions,
tailings impoundment failures, cave-ins, landslides and the inability to obtain
adequate machinery, equipment or labour are some of the risks involved in
mineral exploration and exploitation activities.  The Corporation has relied on and may
continue to rely on consultants and others for mineral exploration and
exploitation expertise.  Substantial
expenditures are required to establish mineral reserves and resources through
drilling, to develop metallurgical processes to extract the metal from the
material processed and, in the case of new properties, to develop the mining
and processing facilities and infrastructure at any site chosen for
mining.  There can be no assurance that
the Company will discover mineral reserves and resources in sufficient
quantities to justify exploitation or that the funds required to exploit any
mineral reserves and resources discovered by the Company will be obtained on a
timely basis or at all.  The economics of
exploiting mineral reserves and resources discovered by the Company are
affected by many factors, many outside the control of the Company, including
the cost of operations, variations in the grade of material mined and metals
recovered, price fluctuations in the metal markets, costs of processing
equipment, continuing access to smelter facilities on acceptable terms and
other factors such as government regulations, including regulations relating to
royalties, allowable production, importing and exporting of minerals and environmental protection.  There can be no assurance that the Company’s
mineral exploration and exploitation activities will be successful.

 

Uninsurable Risks

 

Mineral
exploration and exploitation activities involve numerous risks, including unexpected
or unusual geological operating conditions, rock bursts, cave-ins, fires,
floods, earthquakes and other environmental occurrences and political and
social instability.  It is not always
possible to obtain insurance against all such risks and the Company may decide
not to insure against certain risks as a result of high premiums or other
reasons.  Should such liabilities arise,
they could negatively affect the Company’s profitability and financial position
and the value of the common shares of the Company.  The Company does not maintain insurance
against environmental risks.

 

Production Risks

 

The Company
prepares estimates of future production at its operations. Failure to meet
these estimates could adversely affect the corporation’s profitability, cash
flows and financial position.  There can
be no assurance that the Company will achieve its production estimates.

 

The Company’s
actual production may vary from its estimates for a variety of reasons,
including actual ore mined varying from estimates of grade, tonnage, dilution
and metallurgical and other characteristics; short-term operating factors such
as the need for sequential development of ore bodies and the processing of new
or different ore grades from those planned; mine failures, slope failures or
equipment failures; industrial accidents; natural phenomena such as inclement
weather conditions, floods, droughts, rock slides and earthquakes; encountering
unusual or unexpected geological conditions; changes in power costs and
potential power shortages; shortages of principal supplies needed for
operation, including explosives, fuels, chemical reagents, water, equipment
parts and lubricants; labour shortages or strikes; civil disobedience and
protests; and restrictions or regulations imposed by governmental or regulatory
authorities or other changes in the regulatory environments. Such occurrences
could result in damage to mineral properties, interruptions in production,
injury or death to persons, damage to property of the Company or others, monetary
losses and legal liabilities.  These
factors may cause a mineral deposit that has been mined profitably in the past
to become unprofitable forcing the Company to cease production. These factors
also apply to the Company’s future operations.

 

17

 

	
  RUSORO MINING LTD.

  Management’s Discussion and Analysis

  For the Three and Nine Months Period ended September 30, 2008
 December 1, 2008

  	
  

  

 

Regulations and Permits

 

The Company’s activities
are subject to wide variety of laws and regulations governing health and worker
safety, employment standards, waste disposal, protection of the environment,
protection of historic and archaeological sites, mine development and
protection of endangered and protected species and other matters.  The Company is required to have a wide
variety of permits from governmental and regulatory authorities to carry out
its activities.  These permits relate to
virtually every aspect of the Company’s exploration and exploitation
activities.  Changes in these laws and
regulations or changes in their enforcement or interpretation could result in
changes in legal requirements or in the terms of the Company’s permits that
could have a significant adverse impact on the Company’s existing or future
operations or projects.  Obtaining
permits can be a complex, time-consuming process.  There can be no assurance that the Company
will be able to obtain the necessary permits including any renewals thereof on
acceptable terms, in a timely manner or at all. 
The costs and delays associated with obtaining permits and complying
with these permits and applicable laws and regulations could stop or materially
delay or restrict the Company from continuing or proceeding with existing or
future operations or projects.  Any
failure to comply with permits and applicable laws and regulations, even if
inadvertent, could result in the interruption or closure of operations or
material fines, penalties or other liabilities.

 

Gold Price Volatility

 

The gold price can
fluctuate widely and is affected by numerous factors beyond the Company’s
control, including industrial and jewellery demand, inflation and expectations
with respect to the rate of inflation, the strength of the U.S. dollar and
other currencies, interest rates, gold sales by central banks, forward sales by
producers, global or regional political or financial events, and production and
cost levels in major gold-producing regions. 
The gold price is also subject to rapid short-term changes due to
speculative activities.  The Company’s
revenues, cash flow, profitability and the market price of the common shares of
the Company are significantly affected by changes in the gold price.  If the realized gold price is below the cost
of production at the Company’s operations for a significant period, the Company
may be required to suspend or terminate production at the affected
operation.  In addition, the Company may
be required to restate its mineral reserves and resources, write down its
investment and increase or accelerate reclamation and closure charges at the
affected operation.  Any of these
developments could negatively affect the Company’s profitability, cash flows
and financial position.  Accordingly,
even if the Company discovers and produces gold, there can be no assurance that
the gold price will be high enough to enable the Company to sell the gold
produced by it profitably.

 

Financial
Instruments

 

The Company thoroughly
examines the various financial instrument risks to which it is exposed and
assesses the impact and likelihood of those risks.  These risks may include credit risk, interest
rate risk, liquidity risk, currency risk, market risk and other price
risks.  Where material, these risks are
reviewed and monitored by the Board of Directors.

 

Financial
Instrument Classification and Measurement

 

The Company classifies
its cash and cash held as collateral as held-for-trading. Receivable are
classified as loans and receivables. Accounts payable and accrued
liabilities,  short-term debt, long-term
debt and loan payable on acquisition are classified as other liabilities, all
of which are measured at amortized costs. Management reviewed all significant
financial instruments held by the Company and determined that no material
differences between fair value and carrying value existed as at the reporting
date.

 

18

 

	
  RUSORO MINING LTD.

  Management’s Discussion and Analysis

  For the Three and Nine Months Period ended September 30, 2008
 December 1, 2008

  	
  

  

 

Credit
Risk

 

The Company’s credit risks are limited to
trade receivables in the ordinary course of business.  The Company sells to a small number of
customers with exemplary credit histories and the balance of other receivables
owed to the Company in the ordinary course of business is not significant.  Therefore, the Company is not exposed to
significant credit risk. The Company’s credit risk has increased since last
year as it is now a producer and seller of gold.

 

Pursuant to their respective terms, trade
receivables are aged as follows at September 30, 2008:

 

	
  0-30 days

  	
   

  	
  $

  	
  735,904

  	
   

  
	
  31-60 days

  	
   

  	
  343,207

  	
   

  
	
  61-90 days

  	
   

  	
  667,564

  	
   

  
	
  Over 90 days due

  	
   

  	
  566,581

  	
   

  
	
   

  	
   

  	
  $

  	
  2,313,256

  	
   

  

 

Liquidity
Risk

 

Liquidity risk is the risk that the Company
will be unable to meet its financial obligations. The Company manages liquidity
risk by ensuring that it has sufficient cash, credit facilities and other
financial resources available to meet its obligations.

 

The Company forecasts cash flows for a
period of 12 months to identify financial requirements. These requirements are
met through a combination of cash flows from operations, credit facilities,
disposition of assets, and accessing capital markets.

 

	
   

  	
   

  	
  2008

  	
   

  	
  2009-2010

  	
   

  	
  Total

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
  Accounts payable and accrued liabilities

  	
   

  	
  8,107,772

  	
   

  	
  28,050,458

  	
   

  	
  36,158,230

  	
   

  
	
  Income taxes payable

  	
   

  	
  —

  	
   

  	
  6,219,306

  	
   

  	
  6,219,306

  	
   

  
	
  Loan payable on acquisition

  	
   

  	
  1,500,000

  	
   

  	
  —

  	
   

  	
  1,500,000

  	
   

  
	
  Interest on long-term debt

  	
   

  	
  4,000,000

  	
   

  	
  12,000,000

  	
   

  	
  16,000,000

  	
   

  
	
  Long-term debt

  	
   

  	
  —

  	
   

  	
  80,000,000

  	
   

  	
  80,000,000

  	
   

  
	
   

  	
   

  	
  13,607,772

  	
   

  	
  126,269,764

  	
   

  	
  139,877,536

  	
   

  

 

Currency Risk

 

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

 

The Company has adopted the “Current Rate”
methodology for accounting for its self-sustaining operations. Under this
approach the assets and liabilities acquired are restated according to the
prevailing market exchange rate at the balance sheet date with all foreign
exchange gains (and losses, when applicable) being recorded as Other
Comprehensive Income in the consolidated balance sheets.

 

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

 

19

 

	
  RUSORO MINING LTD.

  Management’s Discussion and Analysis

  For the Three and Nine Months Period ended September 30, 2008
 December 1, 2008

  	
  

  

 

As at September 30, 2008, the Company
holds cash of $604,632 (December 31, 2007: 
$516,268) in Venezuelan Bolivars.

 

Financial instruments that impact the Company’s net earnings or other
comprehensive income due to currency fluctuations include: Venezuelan Bolivar
and Canadian dollar denominated cash, short term investment, receivables,
accounts payable and accrued liabilities and income tax payable. The
sensitivity of the Company’s net earnings and other comprehensive income from
these financial instruments due to changes in the exchange rate between the
Venezuelan Bolivar, Canadian dollar and the United States dollar are summarized
in the below:

 

	
   

  	
   

  	
  As at September 30, 2008

  	
   

  
	
   

  	
   

  	
  10% Increase in the

  Venezuelan Bolivar

  	
   

  	
  10% Decrease in the

  Venezuelan Bolivar

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
  Net earnings

  	
   

  	
  (13,977

  	
  )

  	
  12,706

  	
   

  
	
  Other comprehensive income

  	
   

  	
  72,384,413

  	
   

  	
  (65,804,011

  	
  )

  
	
  Comprehensive income

  	
   

  	
  72,370,436

  	
   

  	
  (65,791,305

  	
  )

  

 

	
   

  	
   

  	
  As at September 30, 2008

  	
   

  
	
   

  	
   

  	
  10% Increase in the

  Canadian Dollar

  	
   

  	
  10% Decrease in the

  Canadian Dollar

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
  Net earnings

  	
   

  	
  (130,990

  	
  )

  	
  119,081

  	
   

  
	
  Other comprehensive income

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Comprehensive income

  	
   

  	
  (130,990

  	
  )

  	
  119,081

  	
   

  

 

Dependence on Key Employees

 

The Company’s business
and operations are dependent on retaining the services of a small number of key
management personnel.  The success of the
Company is, and will continue to be, to a significant extent, dependent on the
expertise and experience of the directors and senior management.  The loss of one or more key employees could
have a materially adverse effect on the Company.

 

Common Share Price Volatility

 

The market price of the
common shares of the Company could fluctuate significantly based on a number of
factors in addition to those listed in this document, including the Company’s
operating performance and the performance of competitors and other similar
companies; the public’s reaction to the Company’s press releases, other public
announcements and the Company’s filings with the various securities regulatory
authorities; changes in earnings estimates or recommendations by research
analysts who track the common shares or the shares of other companies in the
resource sector; changes in general economic conditions; the arrival or
departure of key personnel; acquisitions, strategic alliances or joint ventures
involving the Company or its competitors; and gold price volatility.

 

In addition, the market
price of the common shares of the Company are affected by many variables not
directly related to the Company’s success and are, therefore, not within the
Company’s control.

 

Non-GAAP Measures

 

Total cash cost per
ounce is calculated in accordance with the Gold Institute Production Cost
Standard. The total cash cost per ounce data, are presented to provide
additional information and are not prepared in accordance with GAAP.  The data should not be considered in
isolation or as a substitute for measures of performance prepared in accordance
with GAAP.

 

20

 

	
  RUSORO MINING LTD.

  Management’s Discussion and Analysis

  For the Three and Nine Months Period ended September 30, 2008
 December 1, 2008

  	
  

  

 

Data used in the
calculation of total cash costs per ounce may not conform to other similarly
titled measures provided by other precious metals companies. Management uses
the cash cost per ounce data to access profitability and cash flow from the
Company’s operations and to compare it with other precious metals
producers.  Total cash costs per ounce
are derived from amounts included in the Statement of Operations and include
mine site operating costs such as mining, processing, administration, royalties
and production taxes but exclude amortization, reclamation, capital
expenditures and exploration costs.

 

Outlook

 

At the time the Mixed Enterprise is created and the Company begins to
consolidate its 50% share of the Isidora Mine the cash cost per ounce of the
Company’s operations is expected to decrease signficantly. Also, the Venezuela
Bolivar has continued to depreciate subsequent to September 30, 2008 which
is expected to have a positive impact on cash cost per ounce of the Company in
U.S. dollars.

 

During August the Company signed a contract to outsource haulage,
loading and dumping activities at the Choco 10 mine. During September the
Choco 10 mine showed a reduction in mining costs per tonne moved due to the
effect of this contract, and the Company expects these positive benefits to
continue in the future.

 

In light of the recent down-turn in the financial markets and related
budgetary constraints encountered, the Company has initiated a number of
measures to cut operating costs, expenses and overheads where applicable. As a
starting measure, senior executive fees, in-country senior management fees and
board fees have been reduced, in some cases by up to 50%. Employee
rationalization and expatriate work-force reduction initiatives have also
commenced at all operating and administrative sites. Active exploration,
including drilling activities, has also been significantly reduced. These
measures should serve to have a positive impact on the Company’s future
financial performance.

 

21

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00150-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00150-of-00352.parquet"}]]