Document:

Exhibit
4.1

 

RUSORO
MINING LTD.

 

Suite 2164 – 1055
Dunsmuir Street

Vancouver, British Columbia  V7X 1B1

 

ANNUAL INFORMATION FORM

 

FOR THE YEAR ENDED DECEMBER
31, 2007

 

Dated:  December 12, 2008

 

 

TABLE OF
CONTENTS

 

	
  GLOSSARY OF TERMS; PRELIMINARY NOTES

  	
  i

  
	
   

  	
   

  
	
  ITEM 1.

  	
  CORPORATE STRUCTURE

  	
  1

  
	
  1.1

  	
  Name,
  Address and Incorporation

  	
  1

  
	
  1.2

  	
  Intercorporate
  Relationships

  	
  1

  
	
   

  	
   

  	
   

  
	
  ITEM 2.

  	
  GENERAL DEVELOPMENT OF THE BUSINESS OF THE
  CORPORATION

  	
  4

  
	
  2.1

  	
  Three
  Year History

  	
  4

  
	
  2.2

  	
  Significant
  Acquisitions

  	
  5

  
	
   

  	
   

  	
   

  
	
  ITEM 3.

  	
  BUSINESS OF THE CORPORATION

  	
  8

  
	
  3.1

  	
  General

  	
  8

  
	
  3.2

  	
  Risk
  Factors

  	
  14

  
	
  3.3

  	
  Mineral
  Projects

  	
  24

  
	
   

  	
   

  	
   

  
	
  ITEM 4.

  	
  DIVIDENDS

  	
  49

  
	
   

  	
   

  	
   

  
	
  ITEM 5.

  	
  DESCRIPTION OF CAPITAL STRUCTURE

  	
  49

  
	
   

  	
   

  	
   

  
	
  ITEM 6.

  	
  MARKET FOR SECURITIES

  	
  50

  
	
  6.1

  	
  Trading
  Price and Volume

  	
  50

  
	
  6.2

  	
  Prior
  Sales

  	
  51

  
	
   

  	
   

  	
   

  
	
  ITEM 7.

  	
  ESCROWED SECURITIES

  	
  52

  
	
   

  	
   

  	
   

  
	
  ITEM 8.

  	
  DIRECTORS AND OFFICERS

  	
  52

  
	
  8.1

  	
  Name,
  Address, Occupation and Security Holdings

  	
  52

  
	
  8.2

  	
  Corporate
  Cease Trade Orders, Bankruptcies, Penalties or Sanctions

  	
  55

  
	
  8.3

  	
  Conflicts
  of Interest

  	
  57

  
	
   

  	
   

  	
   

  
	
  ITEM 9.

  	
  LEGAL AND REGULATORY PROCEEDINGS

  	
  57

  
	
   

  	
   

  	
   

  
	
  ITEM 10.

  	
  INTEREST OF MANAGEMENT AND OTHERS IN
  MATERIAL TRANSACTIONS

  	
  58

  
	
   

  	
   

  	
   

  
	
  ITEM 11.

  	
  TRANSFER AGENT AND REGISTRAR

  	
  59

  
	
   

  	
   

  	
   

  
	
  ITEM 12.

  	
  MATERIAL CONTRACTS

  	
  59

  
	
   

  	
   

  	
   

  
	
  ITEM 13.

  	
  INTERESTS OF EXPERTS

  	
  60

  
	
   

  	
   

  	
   

  
	
  ITEM 14.

  	
  ADDITIONAL INFORMATION

  	
  60

  

 

 

GLOSSARY OF TERMS

 

The following is a glossary of certain terms
used in this Annual Information Form.

 

“BCBCA”
means the Business Corporations Act (British
Columbia);

 

“CIM”
means the Canadian Institute of Mining, Metallurgy and Petroleum;

 

“Common
Shares” means common shares of the capital of the Corporation;

 

“Corporation” or “Rusoro” means Rusoro Mining Ltd., a British
Columbia corporation;

 

“CVG” means Corporación Venezolana de
Guayana, a decentralized Venezuelan autonomous entity responsible for the
development and administration of the Guayana Region of Venezuela;

 

“MEM” means the Venezuelan Ministry of Energy and Mines;

 

“MIBAM” means the Venezuelan Ministry of
Basic Industries and Mining (formerly the MEM);

 

“Micon” means
Micon International Limited, mineral industry consultants;

 

“NI 43-101” means National Instrument 43-101 – Standards of Disclosure for Mineral Projects;

 

“NI 51-102”
means National Instrument 51-102 – Continuous Disclosure
Obligations;

 

“Scott Wilson RPA”
means Scott Wilson Roscoe Postle Associates Inc.;

 

“SEC” means the United States Securities
and Exchange Commission;

 

“TSXV” means the TSX Venture Exchange.

 

i

 

PRELIMINARY
NOTES

 

Financial Statements and MD&A

 

The Corporation’s audited
financial statements and management’s discussion and analysis have been filed
with Canadian securities regulatory authorities and are available
electronically on the SEDAR website at www.sedar.com.  All financial information in this Annual
Information Form is prepared in accordance with Canadian generally
accepted accounting principals (“GAAP”). 
The Corporation’s fiscal year end is December 31.

 

Effective Date of Information

 

All information in this
Annual Information Form is as of December 31, 2007 unless otherwise
indicated.

 

Forward Looking Statements

 

This Annual Information Form contains
or incorporates by reference “forward-looking information” which means
disclosure regarding possible events, conditions, acquisitions, or results of
operations that is based on assumptions about future conditions and courses of
action and includes future oriented financial information with respect to
prospective results of operations, financial position or cash flows that is
presented either as a forecast or a projection, and also includes, but is not
limited to, statements with respect to the future financial and operating
performance of the Corporation and its subsidiaries and their proposed mineral
projects, the future price of precious and base metals, the estimation of
mineral reserves and resources, the realization of mineral reserve estimates,
the timing and amount of estimated future production, costs of production,
working capital requirements, capital and exploration expenditures, costs and
timing of mine development, processing facility construction and the
development of new deposits, costs and timing of future exploration,
requirements for additional capital, government regulation of mining
operations, environmental risks, reclamation expenses, title disputes or
claims, limitations of insurance coverage and the timing and possible outcome
of pending litigation and regulatory matters. 
Often, but not always, forward-looking statements can be identified by
the use of words such as “plans”, “proposes”, “expects”, “is expected”, “budget”,
“scheduled”, “estimates”, “forecasts”, “intends”, “anticipates”, or “believes”
or variations (including negative variations) of such words or phrases, or
state that certain actions, events or results “may”, “could”, “would”, “might”
or “will” be taken, occur or be achieved. 
Forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Corporation and its subsidiaries to be materially
different from any future results, performance or achievements expressed or
implied by the forward-looking statements. 
Such factors include, among others, general business, economic,
competitive, political and social uncertainties; the actual results of current
exploration activities; actual results of reclamation activities; the outcome
of negotiations; conclusion of economic evaluations and studies; changes in
project parameters and returns as plans continue to be refined; future prices
of precious and base metals; possible variations of ore grade or recovery
rates; failure of plant, equipment or processes to operate as anticipated;
accidents, labour disputes and other risks of the mining industry; political
instability; insurrection or war; political uncertainty; arbitrary changes in
law; delays in obtaining governmental approvals or financing or in the
completion of development or construction activities.  As a result, actual actions, events or
results may differ materially from those described in forward-looking
statements, and there may be other factors that cause actions, events or
results to differ from those anticipated, estimated or intended including,
without limitation, those referred to in this Annual Information Form under
the heading “Risk Factors” and elsewhere. 
Forward-looking statements contained herein are made as of the date of
the Annual Information Form and the Corporation disclaims any obligation
to update any forward-looking statements, whether as a result of new information,
future events or results or otherwise. 
There can be no assurance that forward-looking statements will prove to

 

ii

 

be accurate, as actual
results and future events could differ materially from those anticipated in
such statements.  Accordingly, readers
should not place undue reliance on forward-looking statements due to the
inherent uncertainty therein.

 

Currency

 

All dollar amounts in this
Annual Information Form are expressed in Canadian dollars, unless otherwise
indicated.

 

Information for United States Investors

 

The
financial statements of the Corporation have been prepared in accordance with
Canadian GAAP and are subject to Canadian auditing and auditor independence
standards and, therefore, are not comparable in all respects to financial
statements prepared in accordance with United States generally accepted
accounting principles. Likewise, information concerning the properties and
operations of the Corporation included in or incorporated by reference into
this Annual Information Form has been prepared in accordance with Canadian
standards under applicable Canadian securities laws, and may not be comparable
to similar information prepared under applicable United States securities laws.

 

Without
limiting the foregoing, the term “mineral resource” and the terms that result
when it is preceded by “inferred”, “indicated” or “measured” (to indicate
increasing geological confidence) as used in this Annual Information Form or
in documents incorporated herein by reference are Canadian mining terms defined
in accordance with NI 43-101, which incorporates by reference the definitions
set out in the CIM Definition Standards on Mineral Resources and Mineral
Reserves. While these terms are recognized and required by Canadian
regulations, they are not defined terms recognized by the SEC. The term “inferred
mineral resource” has a great amount of uncertainty as to its existence and as
to its economic and legal feasibility. It cannot be assumed that all or any
part of an “inferred mineral resource” will ever be upgraded to a higher
category. Under Canadian rules, estimates of inferred mineral resources may not
form the basis of feasibility or other economic studies. Investors are
cautioned not to assume that all or any part of measured or indicated resources
will ever be converted into mineral reserves. Investors are also cautioned not
to assume that all or any part of an inferred mineral resource exists, or is
economically or legally mineable. In addition, the definitions of “proven
mineral reserves”‘ and “probable mineral reserves” under CIM standards differ
in certain respects from the SEC standards. While disclosure of “contained
ounces” is permitted disclosure under Canadian regulations, the SEC normally
only permits issuers to report resources as in place tonnage and grade without
reference to the unit of measure. Accordingly, certain information contained in
this Annual Information Form or in documents incorporated herein by
reference concerning descriptions of mineralization and resources may not be
comparable to similar information made public by U.S. companies subject to the
reporting and disclosure requirements of the SEC.

 

The
enforcement by investors of civil liabilities under the United States
securities laws may be affected adversely by the fact: (i) that the
Corporation exists under the laws of British Columbia; (ii) that certain
officers and the directors of the Corporation are residents of countries other
than the United States; (iii) that the experts named in this Annual
Information Form are residents of countries other than the United States;
and (iv) that all or a substantial portion of the assets of the
Corporation and the persons described above are located outside the United
States.

 

iii

 

ITEM 1.                                           CORPORATE
STRUCTURE

 

1.1                                                                               Name,
Address and Incorporation

 

The
full corporate name of the Corporation is Rusoro Mining Ltd. (“Rusoro” or the “Corporation”).  The head office of the Corporation is located
at Suite 2164, 1055 Dunsmuir Street, Vancouver, British Columbia, V7X
1B1.  The registered and records office
of the Corporation is located at Suite 1600, 609
Granville Street, PO Box 10068, Pacific Centre, Vancouver, British Columbia,
V7Y 1C3.

 

The Corporation was incorporated
under the laws of the Province of British Columbia on March 1, 2000 under
the name “Hollingfield Capital Corporation”. 
The Corporation changed its name to “PKI Innovations (Canada) Inc.” on August 10,
2001.  On June 6, 2005, the
Corporation changed its name to “Newton Ventures Inc.” and consolidated its
issued and outstanding Common Shares on the basis of one new share for seven
existing shares.  On November 6,
2006, the Corporation changed its name to “Rusoro Mining Ltd.” and consolidated
its issued and outstanding Common Shares on the basis of 0.6 of a new share for
1 existing share.

 

1.2                                                                               Intercorporate
Relationships

 

The structure of the
Corporation and its subsidiaries is set out below.  All of the subsidiaries of the Corporation
are incorporated in Venezuela unless otherwise noted.

 

[Rest of page intentionally
left blank]

 

1

 

 

2

 

 

3

 

 

ITEM 2.                                                GENERAL
DEVELOPMENT OF THE BUSINESS OF THE CORPORATION

 

2.1                                                                               Three
Year History

 

2005 —
2006

 

Prior to the Grupo Agapov
Merger (described below) the Corporation had no active business and was
pursuing potential acquisitions.

 

Grupo
Agapov Merger

 

In November of 2006,
Newton Ventures (Panama) Inc., a wholly owned subsidiary of the Corporation,
merged (the “Grupo Agapov Merger”) with Grupo
Agapov Corp. (“Grupo Agapov”) to form a new
corporation, Rusoro Mining (Panama) Inc. (“Rusoro Panama”),
a wholly owned subsidiary of the Corporation.

 

Pursuant to the Grupo Agapov
Merger which was completed on November 7, 2006, Rusoro acquired all of the
issued and outstanding and shares of Grupo Agapov in consideration for the
issuance of 108,333,334 Common Shares to the shareholders of Grupo Agapov.

 

Oro
88

 

In December 2006,
Rusoro acquired a group of CVG contracts and concessions granted by the MEM
known as Oro 88.  The contracts and
concessions are held by corporations which were owned beneficially by Mr. Vladimir
Agapov, the Chairman of the Board of Rusoro. 
The purchase price was U.S.$5,000,000 of which U.S.$2,500,000 was paid
on signing of the acquisition agreement and the balance of which was paid in
two further instalments.

 

4

 

Recent Acquisitions

 

For
information on acquisitions completed by the Corporation since January 1,
2007 refer to Item 2.2 “Significant Acquisitions”.

 

2.2                                                                               Significant
Acquisitions

 

Mena
Arrangement

 

Pursuant to an agreement
dated January 22, 2007 between the Corporation and Mena Resources Inc.
(the “Mena Arrangement Agreement”) Rusoro
Acquisition Corp., a wholly owned subsidiary of the Corporation, amalgamated
with Mena Resources Inc., by way of a Plan of Arrangement (the “Mena Arrangement”)
under the BCBCA and continued as one company named Mena Resources Inc. (“Mena”), a wholly owned subsidiary of the
Corporation.

 

Pursuant to the Mena
Arrangement which was completed on March 5, 2007, Rusoro acquired all of
the issued and outstanding shares of Mena in consideration for the issuance of
31,424,255 Common Shares to the shareholders of Mena.

 

Pursuant to an agreement
dated February 23, 2007 (the “Agency Agreement”)
between Canaccord Adams Limited, Haywood Securities Inc. and Pacific
International Securities Inc.  Mena
Resources Inc. completed a private placement for gross proceeds of
$72,075,330.  The securities issued by
Mena Resources Inc. under the private placement were exchanged for 18,433,588
Common Shares and 9,216,794 Common Share purchase warrants pursuant to the Mena
Arrangement.  The proceeds from the private
placement were used for exploration of the Corporation’s mineral properties in
Venezuela and for general working capital.

 

Mena has been in the
business of mineral exploration and development since 1991, with its primary
focus in Latin America for the past several years.  Mena currently holds property interests in
Venezuela, (through its 24% interest in Balandria Limited) and Honduras.

 

GFN
Business Combination

 

Pursuant to an agreement
dated October 11, 2007 between the Corporation and Gold Fields Netherlands
Services B.V. (“GF Netherlands”), as amended by a
joinder and amending agreement dated November 28, 2007 between the
Corporation, GF Netherlands, Rusoro Mining (BVI) Ltd. (“Rusoro BVI”)
and Venezuela Holdings (BVI) Ltd. (“VHL”) (such agreement and joinder agreement collectively the
“Combination Agreement”), the
Corporation indirectly acquired (the “GFN Business Combination”)
from GF Netherlands a 100% interest in VHL and certain other subsidiary
companies of GF Netherlands (VHL and such other subsidiary companies
collectively, the “Acquired Companies”),
which collectively held all of the Venezuelan mining assets of GF Netherlands,
including a 95% interest in the Choco 10 mine. 
The total consideration consisted of U.S.$180,000,000 in cash and the issuance
of 140,000,001 Common Shares.  Pursuant
to the Combination Agreement, in connection with the closing of the GFN
Business Combination, among other things:

 

(a)                                  Rusoro
BVI, which was a wholly-owned subsidiary of the Corporation, merged into VHL,
which was a wholly-owned subsidiary of GF Netherlands, under the provisions of
the Business Companies Act, (2004) of the
British Virgin Islands and VHL became a wholly-owned subsidiary of the
Corporation and owns, directly or indirectly, a 100% interest in the other
Acquired Companies;

 

(b)                                 In
connection with the merger of Rusoro BVI into VHL, the Corporation issued an
aggregate of 93,750,000 Common Shares and 93,750,000 Common Share purchase
warrants to subscribers under a private placement completed by Rusoro BVI; and

 

5

 

(c)                                  GF
Netherlands (i) subscribed for and was issued 140,000,001 Common Shares of
the Corporation for an aggregate subscription price of U.S.$330,400,000 and (ii) was,
in effect, paid the sum of U.S.$180,000,000 in cash.

 

The U.S.$180,000,000 cash
portion of the transaction consideration was not paid to GF Netherlands
directly by the Corporation or any subsidiary. 
Instead, the closing steps contemplated by the Combination Agreement
involved certain short term loans being made by a financial institution to each
of the Corporation and VHL and certain other transactions and payments between
the parties, which in effect resulted in GF Netherlands receiving, upon
closing, the U.S.$180,000,000 amount. 
Both short term loans were repaid in their entirety as part of the
closing.

 

Upon the closing, the
Corporation and GF Netherlands entered into a shareholder agreement dated November 30,
2007 (the “Shareholder Agreement”).  Pursuant to the Shareholder Agreement, GF
Netherlands is entitled to nominate two persons to the board of directors of
the Corporation for so long as it beneficially owns or exercises control or
direction over 15% of more of the issued and outstanding Common Shares of the
Corporation and will be entitled to nominate one person to the board of directors
so long as it beneficially owns or exercises control or direction over less
than 15% but not less than 10% of the issued and outstanding Common Shares of
the Corporation.  To date, GF Netherlands
has not nominated any directors of the Corporation.

 

So long as GF Netherlands
beneficially owns 10% or more of the issued and outstanding Common Shares of
the Corporation, if it proposes to sell any of such shares to any party other
than an affiliate of Gold Fields, GF Netherlands must first provide notice to
the Corporation of such intended sale and a minimum sale price and the
Corporation will have the right to identify one or more purchasers for such
shares at not less than such price; provided that this provision will not apply
to any private sale aggregating 5% or less of the issued and outstanding Common
Shares of the Corporation or sales in the market in amounts not exceeding
100,000 Common Shares per calendar week.

 

The Common Shares issuable
to GF Netherlands pursuant to the Combination Agreement are also subject to
resale restrictions applicable to control persons under applicable securities
laws in Canada.

 

Pursuant to the Shareholder
Agreement, GF Netherlands was also granted certain registration rights to
require the Corporation to qualify a “bought deal” distribution of Common
Shares held by GF Netherlands.  The
Shareholder Agreement also grants GF Netherlands a piggy back qualification
right to require the Corporation to qualify Common Shares held by GF
Netherlands for distribution under certain circumstances where the Corporation
proposes to file a preliminary prospectus in connection with an offering by the
Corporation.

 

The only material mineral
project acquired pursuant to the GFN Business Combination is the Choco 10 gold
mine located in the southeastern part of Venezuela in the Bolivar state,
approximately 15 kilometres west of the town of El Callao.  Refer to Item 3.3 “Mineral Projects” for
further information.

 

Pursuant to an agreement
dated October 31, 2007 (the “Underwriting Agreement”)
between the Corporation, Rusoro BVI, Canaccord Adams Limited, GMP Securities
LP,  and PI Financial Corp., Rusoro BVI
completed a private placement for gross proceeds of $225,000,000.  The securities issued by Rusoro BVI under the
private placement were exchanged for 93,750,000 Common Shares and 93,750,000
Common Share purchase warrants pursuant to the GFN Business Combination.  The proceeds from the private placement were
used to fund the GFN Business Combination and for working capital.

 

The Corporation filed a Form 51-102F4
Business Acquisition Report (amended and restated) dated February 13, 2008
(the “BAR”) in respect of the GFN Business
Combination, which is specifically 

 

6

 

incorporated by reference
into, and forms an integral part of, this Annual Information Form.  The BAR is available on the SEDAR website at www.sedar.com.

 

Hecla-Venezuela
Acquisition

 

Pursuant to an agreement
(the “Hecla-Venezuela Agreement”) dated June 19,
2008 between the Corporation, the Corporation’s wholly-owned subsidiary Rusoro
MH Acquisition Ltd. (“Rusoro MH”) and
Hecla Limited (“Hecla”), a wholly-owned subsidiary
of Hecla Mining Company, Rusoro MH acquired all of the issued and outstanding
shares of both El Callao Gold Mining Company and Drake-Bering Holdings BV,
thereby acquiring (the “Hecla-Venezuela
Acquisition”) an indirect 100% interest in both Minera Rusoro
Venezolana C.A. (“MRV”) and El
Callao Gold Mining Co. de Venezuela SC (“El Callao”).  The principal assets of El Callao are the
Block B-Isidora mining leases and La Camorra mill facility located in Bolivar
State, Venezuela and more particularly described in Item 3.3 “Mineral Projects”.  As consideration, the Corporation paid Hecla
the sum of U.S.$25,000,000, of which U.S.$20,000,000 was paid in cash and the
balance of U.S.$5,000,000 was paid through the issuance of 4,273,504 Common
Shares at a deemed price of U.S.$1.17 per share, of which 677,723 Common Shares
were subsequently returned to the Corporation’s treasury as a result of a
working capital adjustment under the Hecla-Venezuela Agreement.

 

The Corporation and VHL
entered into a loan agreement dated June 10, 2008 (the “Loan Agreement”) with a syndicate of private lenders
pursuant to which the lenders loaned VHL U.S.$80,000,000 (the “Loan”) to fund the Hecla-Venezuela Acquisition and for
general corporate purposes.  The Loan has
a two-year term, bears interest at 10% per annum, and is payable
semi-annually.  The Corporation and
certain of its subsidiaries have guaranteed the Loan pursuant to a guarantee
dated June 10, 2008 (the “Guarantee”).  The Loan is also secured by share pledges of
the subsidiaries which hold the Corporation’s principal assets including the
Choco 10 mine.  The U.S.$80,000,000
principal portion of the Loan is due in June 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 Corporation at a conversion price of $1.25
per Common Share (subject to adjustment depending on future equity financings
and other transactions entered into by the Corporation).  In addition, the Corporation has granted to
the lenders pro-rata participation in any future equity offerings for the term
of the Loan pursuant to a warrant instrument (the “Warrant
Instrument”) dated June 10, 2008.  The Loan may be repaid by the Corporation at
any time subject to the Corporation 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.

 

Pursuant to an agreement
authenticated on July 4, 2008 (the “MIBAM Agreement”)
the Corporation and MIBAM agreed to create a joint venture (the “Mixed Enterprise”) on or before January 4, 2009.  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. 
The Mixed Enterprise will be 50% owned by Rusoro Mining de Venezuela
C.A., a subsidiary of the Corporation, and 50% owned by Empresa Minera Nacional
(“EMN”), which is a company owned
indirectly by MIBAM.  As part of the agreement
with MIBAM the Corporation paid U.S.$5,000,000 to CVG Minerven, C.A. (a
wholly-owned subsidiary of CVG).

 

Under the provisions of NI
51-102, the Corporation was not required to file a Form 51-102F4 Business
Acquisition Report in respect of the Hecla-Venezuela Acquisition.

 

7

 

ITEM 3.                           BUSINESS
OF THE CORPORATION

 

3.1                                                       General

 

Business

 

The principal business of
the Corporation, through its subsidiaries, is the acquisition, exploration,
development and operation of gold mining properties in Venezuela.  The Corporation, through its subsidiaries,
currently has interests in the mineral properties referred to in Item 3.3 “Mineral
Projects” below.  The Corporation’s
principal business goal is to continue to increase the quantity and quality of
the gold resources on its properties in order to allow for the further
development and expansion of its gold mining and producing operations.

 

Stage of Development

 

The Corporation acquires,
explores, develops and operates gold mining properties in Venezuela.  The progress on, and results of, exploration
and development programs on the Corporation’s material mineral properties are
set out below under the heading “Mineral Projects”.

 

Production and Services

 

Refer to Item 3.3 “Mineral
Projects” for information on the Corporation’s sales, production and processing
of gold.

 

Specialized Skill and
Knowledge

 

All aspects of the
Corporation’s business will require specialized skills and knowledge.  Such skills and knowledge include the areas
of geology, drilling, logistical planning and implementation of exploration
programs, mining, metallurgy and accounting. 
While recent increased activity in the mining industry has made it more
difficult to locate competent employees and consultants, the Corporation has
found that it has been able to locate and retain such employees and consultants
and believes that it will continue to be able to do so.

 

Competitive Conditions

 

Competition is the mineral
exploration industry in Venezuela and elsewhere is intense.  The Corporation competes with other mining
companies, many of which have greater financial resources and technical
facilities for the acquisition and development of, and production from, mineral
concessions, claims, leases and other interests, as well as for the recruitment
and retention of qualified employees and consultants.

 

Components

 

All of the raw materials the
Corporation requires to carry on business are readily available through normal
supply or business contracting channels in Canada, Venezuela and elsewhere in
the world.  The Corporation has secured
personnel to conduct its contemplated programs. 
Over the past two years the increased mineral exploration activity on a
global scale has made some services difficult to procure, particularly skilled
and experienced contract drilling personnel. 
It is possible that delays or increased costs may be experienced in
order to proceed with any future planned drilling activities.

 

Cycles

 

The mining business is
subject to mineral price cycles.  The
marketability of minerals and mineral concentrates is also affected by
worldwide economic cycles.

 

8

 

Economic Dependence

 

The Corporation’s business
is not substantially dependent on any contract such as a contract to sell the
major part of its products or services or to purchase the major part of its
requirements for goods, services or raw materials, or on any franchise or
licence or other agreement to use a patent, formula, trade secret, process or
trade name upon which its business depends.

 

Changes to Contracts

 

It is not expected that the
Corporation’s business will be affected in the current financial year by the
renegotiation or termination of contracts or sub-contracts.

 

Employees

 

As of December 31,
2007, the Corporation had 759 full-time employees and no part-time
employees.  The Corporation primarily
relies upon consultants to carry on many of its activities and, in particular,
to supervise work programs on any mineral properties it may acquire in the
future.

 

Reorganizations

 

Other than the Grupo Agapov
Merger and the Mena Arrangement referred to under Item 2.1 and the GFN Business
Combination and the Hecla-Venezuela Acquisition referred to under Item 2.2,
there were no material reorganizations of the Corporation or its subsidiaries
for the three years ended December 31, 2007, or thereafter.  The Corporation is investigating acquisition
opportunities on an ongoing basis.

 

Social or Environmental
Policies

 

The Corporation has not
implemented any social or environmental policies that are fundamental to its
operations.

 

Foreign Operations

 

The Corporation’s
exploration and development activities are primarily in Venezuela.

 

Venezuela

 

Venezuela is a democratic federal republic
comprised of 23 states, one Capital District and 72 federal dependencies. The
Republic is governed by a National Executive, comprising an elected President,
a Vice-President and Council of Ministers (both appointed by the President),
and an elected 165 member unicameral National Assembly.

 

The President is elected for a (one-time)
renewable six-year term. The current President is Hugo Chávez Frías, the leader
of the Partido Socialista Unido de Venezuela (“PSUV”).
Mr. Chávez was elected to his first six-year term as President in 2000,
according to the new Constitution, but he has been ruling since 1999.  He defeated a recall referendum organized by
opposition political parties in 2004 and in December 2006 was re-elected
for a six year term.

 

Venezuela’s natural resources sector is
dominated by the hydrocarbon sector. In 2005, oil and natural gas production
represented approximately 33% of Venezuela’s gross domestic product and
approximately 80% of its exports. Mineral production, primarily bauxite,
alumina and primary aluminum, iron ore and steel, gold and diamonds,
represented less than 1% of Venezuela’s gross domestic product.

 

9

 

The Guayana Region of south-eastern
Venezuela, an area that is rich in minerals and covers approximately a quarter
of Venezuela territory, is the focus of Venezuela’s efforts to diversify its
economy away from petroleum and natural gas. The CVG is a decentralized
autonomous public administrative institution created in 1960 pursuant to the
Law for the Development of Guayana and is responsible for the development and
administration of the Guayana Region. The CVG, directly and through its
subsidiary companies, is involved in the mining and production of bauxite,
alumina and primary aluminum, iron ore and steel and gold as well as
electricity and cement. The CVG is Venezuela’s second largest industrial group
after Petróleos de Venezuela, S.A., the state owned petroleum and natural gas
company.

 

The Guayana Region is the primary source of
Venezuela’s hydroelectric capacity, including the Guri Dam that supplies over
67% of Venezuela’s electricity requirements. Electricity costs in Venezuela are
low by world standards.

 

Venezuela has entered into bilateral
investment protection treaties with a number of countries, including Canada.

 

Mining In Venezuela

 

In Venezuela, mineral deposits have
historically been owned by the State. As early as 1829, the President of
Venezuela, Simón Bolívar, issued a Decree which stipulated that any class of
mines belonged to the Republic. This general principle has been kept until now,
even though the laws have changed the nature of the legal means through which
companies and individuals are permitted to make use of natural resources.
During a first stage, the State used to grant property rights over delimited
mining areas. This policy was changed later to establish that only time-limited
concessions to explore and exploit an area would constitute a legal title on a
mine. In general, this is the current mining legal regime existing in Venezuela.
Pursuant to the last two Mining Laws, the maximum term for a concession is 40
years. At the end of the concession term, all goods acquired or built for
mining activities (facilities, fixtures, machinery, equipment, buildings and
land, if purchased by the concessionaire from a prior private owner) become the
property of the Republic, with no compensation whatsoever.

 

The mining rights held by Rusoro can be
classified under several types, depending on the kind of legal title used by
the government during its granting procedure.

 

I.                                         The first class of title is the concession, being unilaterally
granted by the government according to a prior request made by an individual or
corporation.

 

In this request, the applicant selects the
type of mineral to be extracted and the land to be delimited, offering, to the
Republic, some special conditions such as social contributions, royalties,
education or health services and infrastructure. After a legal process, if the
application is approved, the government issues a mining title, which has to be
published in the Official Gazette (the official journal of the Venezuelan State
which is published daily) and recorded before a real estate registry, in order
to comply with the formalities prescribed by the law.

 

The mining rights acquired under concession
are real estate rights and, therefore, can be assigned, encumbered, leased or
subleased. A concession does not grant to the holder proprietary rights over
the land or the mineral deposits, but an exclusive right to use the land
(vacant lots) for carrying out mining activities inside the delimited area,
under the terms defined by the title granted and the law.

 

All concessions held by Rusoro were granted
under the Mining Law enacted in 1945 (the “1945 Mining Law”).
This law was repealed by Decree No 295 (the “1999 Mining
Law”), issued by the President of the Republic on September 5th,
1999.

 

10

 

The 1999 Mining Law abolished the system of
free exploration and exploitation and the possibility of concessions resulting
from the registration of claims or staking. According to the 1999 Mining Law,
mineral deposits can be exploited only directly by the National Executive or by
individuals, associations or companies holding a legal title, discretionarily
granted by the State. The law establishes that, in addition to the limited
authorizations granted to small and artisan miners, the sole legal title for
performing mining activities is a concession granted for exploration and
subsequent exploitation by the MIBAM (formerly the MEM). The 1999 Mining Law
eliminated the granting of concessions for exploitation (only), as was the case
with the 1945 Mining Law.

 

The 1999 Mining Law respected the vested
rights and concessions granted prior to its enactment, providing that
concessionaires could continue holding the exploitation rights over minerals
under the manner and conditions originally granted.

 

The 1999 Mining Law also changed the
regulations regarding the assignment of mining rights. While the 1945 Mining
Law prescribed that a notice of assignment to the competent authority was
enough, the 1999 Mining Law requires a previous governmental authorization for
purposes of assigning, encumbering, leasing or subleasing mining rights, or
entering into an agreement for exploiting the area.

 

II.                                     CVG Contracts are the second class of mining titles held by Rusoro.

 

During the early 1990’s, the National
Executive decided to decentralize the public mining sector into the CVG, a
state-owned corporation attached to the MIBAM (formerly the MEM). In January 1991,
Presidential Decree N° 1.409 and the MEM Resolution N° 2 (Official Gazette N°
34.632 dated January 10th, 1991) were issued.  Through these, gold and diamond mining rights
in the Guayana region were assigned to CVG. 
CVG was authorized to develop mining activities both on its own and by
entering into contracts with individuals and corporations.

 

Decree No 1.409 and the MEM Resolution No 2
constitute the legal grounds for the CVG Contracts currently held by
Rusoro.  These contracts exist for
exploration and exploitation purposes, or just for exploitation.

 

Although their nature is bilateral, CVG
Contracts are administrative contracts and pursuant to the laws of Venezuela
and case law, are subject to the unilateral amendment, interpretation and
termination by the State.

 

Mining rights acquired through CVG Contracts
are not real estate rights. Therefore, they are not subject to charges,
mortgages or other encumbrances.  These
contracts can be assigned only by the holder upon the prior written
authorization from CVG (currently, MIBAM).

 

Under Venezuelan law, the only requirement
for the legal validity of a CVG Contract is execution by the CVG and the
representatives of the private contractor. 
However, in order to make the contract enforceable against third
parties, it is necessary to authenticate it before a public notary.

 

On July 15th, 1996, the President of the
Republic issued Decree No 1.384 which revoked CVG’s authority to grant mining
contracts, but kept as valid, enforceable and binding all contracts granted up
to that date under the same terms.

 

The 1999 Mining Law also provided that CVG
Contracts could be converted into concessions by the MEM (currently MIBAM) and
established a procedure for making such conversion.  However, CVG Contracts which were never
converted into concessions remain valid and enforceable.

 

All CVG Contracts are currently administrated
and controlled by MIBAM, pursuant to Presidential Decree No 2.616, issued on September 19th,
2003.

 

11

 

III.                                 Rusoro also holds some mining rights under concession leases (mainly
the Increible 6 Concession and Choco 4 and 10 Concession Leases).

 

In these cases, the CVG was granted certain
concessions for exploration and subsequent exploitation by the MEM (now
MIBAM).  Those concessions were leased to
Venezuelan subsidiaries of Rusoro.  Those
concession leases are not based upon, or governed by, the Presidential Decrees
mentioned above nor were they granted under the assignment made by the central
government to CVG; they were executed on the grounds of the 1945 Mining Law,
which allowed the concession holder to lease its rights.  Consequently, they are not subject to conversion
into a concession under the 1999 Mining Law.

 

Just as CVG Contracts, the concession leases
are administrative contracts.  Such
contracts do not grant their holders real estate rights and, therefore, are not
subject to charges, mortgages or other encumbrances.  They can be assigned only if the lease holder
obtains a previous written authorization from the CVG.

 

IV.                               Finally, Rusoro holds mining rights over the Block B (Isidora) area
by means of a concession lease granted by CVG Minerven (a subsidiary of the
CVG) under some particular terms, different to the standard conditions of all
the mining concession leases.

 

Environmental Laws In Venezuela

 

General

 

Venezuela has a comprehensive set of
environmental laws and regulations administered by the Ministry of the
Environment and Natural Resources (“MARN”).

 

Venezuela is also party to a number of
important international conventions and treaties concerned with environmental
protection and nature conservation.

 

Environmental Impact Assessment

 

All mining projects require a land use permit
and an authorization to impact the natural resources, both of which are issued
mainly by the MARN. The granting of the permit to impact natural resources is
dependent on approval of an environmental impact assessment (“EIA”) by the MARN. The EIA process includes the filing of a
comprehensive environmental, socio-economic and cultural impact study by the
developer of the mining project. In addition, informal approval of the
feasibility study by MIBAM is required before MARN will issue the environmental
authorization.

 

Mine Closure and Remediation

 

All developers of mining projects have a
general obligation to reclaim the environment to a productive condition when
the project is completed. Specific laws regarding mine closure and remediation
are limited. Such matters are normally covered in authorizations to affect the
natural environment issued by the MARN.

 

Taxation in Venezuela

 

Corporate Income Tax

 

Venezuelan corporations and non-Venezuelan
corporations carrying on business in Venezuela through a permanent establishment
(i.e., Venezuelan branches) are subject to corporate income tax on their
worldwide income (in the case of a Venezuelan corporation) or their income
attributable to the permanent establishment (in the case of a Venezuelan
branch) at a maximum rate of 34%. They are also subject to 

 

12

 

municipal tax of between 0.5% and 10% of
their gross revenues depending on the municipality where they carry on business
and the nature of their business.

 

Venezuelan corporations and branches are
subject to a system of inflation adjustments. If it owns a mining project, at
the time the project is completed, a Venezuelan corporation or branch must
revalue its non-monetary assets, liabilities and equity in line with inflation
since acquisition and pay a one-time tax of 3% of the amount of the revaluation
increase. At the end of each taxation year thereafter, the corporation or
branch must revalue its non-monetary assets, liabilities and equity in
accordance with the inflation rate. The corporation’s or branch’s taxable
income for the taxation year may increase or decrease as a result of the
adjustment.

 

Venezuelan corporations and branches are
entitled to amortize their capital assets on a straight-line basis over the
useful life of the assets. Foreign exchange gains and losses are included in
calculating income. Losses may be carried forward for three years in the case
of operating losses and one year in the case of inflation adjustment losses
from the year in which they are incurred.

 

Dividends and Branch Profits Tax

 

Dividends paid by Venezuelan corporations are
subject to withholding tax at the rate of 34%. This withholding may be reduced
under applicable tax treaties.

 

Net earnings repatriated by Venezuelan
branches are subject to a branch profits tax of 34%. This rate may be reduced
under applicable tax treaties. The tax does not apply to net earnings
reinvested in Venezuela for a minimum period of five years.

 

Only those dividends and repatriations that
originate from income that has not been subject to corporate income tax at the
corporation or branch level are subject to the withholding or branch profits
tax.

 

VAT and Import Duties

 

Venezuelan corporations and branches are
required to pay value added tax (“VAT”) of 9% on
goods and services purchased by them, including imported goods and services.
They may recover the VAT paid by them from the VAT charged and collected by
them on goods and services sold by them in Venezuela. Export sales are subject
to VAT of 0%. Exporters recover VAT previously paid by them through
certificates issued to them by the Ministry of Finance. The certificates may be
used as a credit against future VAT and income taxes or may be transferred to
third parties for value and thereby monetized. 
Import duties of various rates are also payable on goods imported into
Venezuela.

 

A Venezuelan corporation or branch that is
proposing to carry out a mining project that is in the national interest may
apply for an exemption from import duties applicable to machinery and equipment
imported by it into Venezuela for the project.

 

Tax Treaties

 

Venezuela has entered into tax treaties with
a number of countries including Canada.

 

Exchange Controls

 

Venezuela reintroduced exchange controls in February 2003.  All foreign currencies brought into Venezuela
must be converted into Bolivars at the prevailing official exchange rate. Also,
the net proceeds of all exports of goods and services must be repatriated and
converted into Bolivars at the prevailing official exchange rate. Venezuelan
corporations and branches have access to foreign currencies at the prevailing
official exchange rate to pay principal and interest on registered prescribed
debt and to 

 

13

 

purchase prescribed imported goods and
services under registered agreements. They must apply to the Venezuelan Foreign
Exchange Administration Commission to obtain foreign currencies at the
prevailing official exchange rate for other purposes, including paying
dividends and repatriating net earnings.

 

Mineral Concession Taxes

 

Holders of gold mineral concessions are
required, from the fourth year of the concession, to pay a surface tax
according to a sliding scale, from a minimum of 0.14 tax units per hectare (one
tax unit equals approximately US$21.39) for the fourth year to the sixth year
and for concessions of up to 513 ha, to a maximum of 0.38 tax units for the
seventeenth and later years and for concessions over 12,312 ha. Once production
begins, concessions holders are required to pay exploitation tax of, in the
case of gold, 3% of the Caracas commercial value of the refined metal produced.
Surface tax is reduced by the amount of exploitation tax paid, and is therefore
nil once the exploitation tax paid equals the surface tax due.

 

Ownership of Concessions

 

There are no restrictions on who (whether
domestic or foreign persons) may hold mineral concessions or contracts other
than a restriction on foreign governments and their associated entities as well
as on Venezuelan public officials and their relatives. Mineral concessions and
contracts may not be transferred without the consent of the government.

 

Sale of Production

 

Except for gold, there are no restrictions on
the right to sell mineral production in world markets. The export of gold is
allowed upon fulfilment of the following conditions: (1) Registration in
the Venezuelan Central Bank; (2) Authorization from the Central Bank to
export gold; and (3) At least 15% of the gold has to be placed for sale in
the internal market.

 

3.2                                                       Risk
Factors

 

AN
INVESTMENT IN SECURITIES OF THE CORPORATION IS HIGHLY SPECULATIVE AND INVOLVES
A HIGH DEGREE OF RISK AND SHOULD ONLY BE MADE BY INVESTORS WHO CAN AFFORD TO
LOSE THEIR ENTIRE INVESTMENT.

 

Prior to
making an investment decision investors should consider the investment risks
set out below and those described elsewhere in this document, which are in
addition to the usual risks associated with an investment in a business at an
early stage of development.  The
directors of the Corporation consider the risks set out below to be the most
significant to potential investors in the Corporation, but not all of the risks
associated with an investment in securities of the Corporation.  If any of these risks materialize into actual
events or circumstances or other possible additional risks and uncertainties of
which the Directors are currently unaware or which they consider not to be
material in relation to the Corporation’s business, actually occur, the
Corporation’s assets, liabilities, financial conditions, results of operations
(including future results of operations), business and business prospects, are
likely to be materially and adversely affected. 
In such circumstances, the price of the Corporations’ securities could
decline and investors may lose all or part of their investment.

 

14

 

Risk Factors

 

RISKS RELATED TO THE
MINING INDUSTRY

 

Mining Industry
Competition Is Significant

 

The
international mining industry is highly competitive.  Rusoro will be competing against competitors
that may be larger and better capitalized, have state support, have access to
more efficient technology, and have access to reserves of gold, other precious
metals and base metals that are cheaper to extract and process. As such, no
assurance can be given that Rusoro will be able to compete successfully with
its industry competitors.

 

RISKS RELATED TO RUSORO’S
BUSINESS

 

Rusoro’s Financial
Condition And Results Of Operations May Be Adversely Affected by Changes
In The Market Price Of Gold

 

The
price of gold fluctuates widely and is affected by numerous factors beyond
Rusoro’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.

 

Rusoro’s
revenues, cash flow and profitability will be affected by changes in the gold
price.  If for a significant period the
gold price declines below the cost of production with respect to any of Rusoro’s
properties now in production or to be placed in production, Rusoro may be
required to suspend or terminate production at the affected operations.  In addition, Rusoro 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 Rusoro’s profitability, cash flows and financial
position.  Accordingly, even if Rusoro
discovers and produces gold, there can be no assurance that the gold price will
be high enough to enable Rusoro to sell the gold produced by it profitably.

 

The Market Price Of The Rusoro Common Shares Is Also Affected
By Fluctuations In The Price Of Gold

 

Currency
fluctuations may affect costs at Rusoro’s operations.  Gold is sold throughout the world based
principally on a U.S. dollar price, but a portion of Rusoro’s operating
expenses will be in non-U.S. dollar currencies. 
Any appreciation of these non-U.S. dollar currencies against the U.S.
dollar could negatively affect Rusoro’s profitability, cash flows and financial
position.

 

Rusoro Will Require Significant Amounts Of Additional Capital
In The Future

 

Rusoro
will have limited financial resources, and limited sources of operating cash
flow. Rusoro will continue to make substantial capital expenditures related to
exploration and expansion of existing operating facilities. In particular
Rusoro will have further capital requirements as it proceeds to expand its
operational and exploration activities and to place its properties into
production or to take advantage of opportunities for acquisitions, joint
ventures or other business opportunities that may be presented to it.  In addition, Rusoro may incur major
unanticipated liabilities or expenses. 
There is no assurance that Rusoro will be able to obtain necessary
financing in a timely manner on commercially acceptable terms in the future.

 

15

 

Volatile
demand for gold may make it difficult or impossible for Rusoro to obtain debt
financing or equity financing on commercially acceptable terms or at all.  Failure to obtain such additional financing
could result in delay or indefinite postponement of further exploration and
development of Rusoro’s mineral properties with the possible loss of the rights
to such properties. If exploration or the development of any mine is delayed,
such delay would have a material and adverse effect on Rusoro’s business,
financial condition and results of operations.

 

Title To Rusoro’s Mineral Properties Cannot Be Assured

 

If
Rusoro were to breach any of the contracts or the terms of any concession
granted by Venezuelan governmental agencies, Rusoro’s exploration rights in
Venezuela could be impeded or its title interests could be revoked.

 

Minor
defects exist in some concessions and CVG contracts held by Rusoro.  Although management does not consider these
to be material, there can be no assurance that the governmental agencies would
not attempt to revoke or cancel these concessions or contracts based on the
defects.

 

Rusoro Has A Limited History of Operations And No History Of
Profitability

 

Rusoro
has a limited history of operations and is not currently profitable.  The future financial success of Rusoro will
depend on its ability to generate cash flow from active mining operations in
the future, as well as its ability to access capital needed for expansion.  There is no assurance that Rusoro will ever
be profitable.

 

Rusoro May Have Conflicts With Others Over Property Rights

 

There
can be no guarantee that in the future the rights of other land users will not
conflict with Rusoro’s rights under its contracts with the CVG or the
concessions granted by the MEM (now the MIBAM), which could restrict Rusoro’s
ability to carry out its operations and could materially adversely affect its
business and results of operations.

 

Rusoro’s Operations Are Subject To Operational Risks And Hazards
Inherent In The Mining Industry

 

Rusoro’s
business will be subject to a number of inherent risks and hazards, including
environmental pollution, accidents or spills; industrial and transportation
accidents, which may involve hazardous materials; labour disputes; power
disruptions, catastrophic accidents; failure of plant and equipment to function
correctly, the inability to obtain suitable or adequate equipment, fires;
blockades or other acts of social activism; changes in the regulatory
environment; impact of non-compliance with laws and regulations; natural
phenomena, such as inclement weather conditions, underground floods,
earthquakes, pit wall failures, ground movements, tailings, pipeline and dam
failures and cave-ins; and encountering unusual or unexpected geological
conditions and technical failure of mining methods.

 

There
is no assurance that the foregoing risks and hazards will not result in damage
to, or destruction of, Rusoro’s properties, personal injury or death,
environmental damage, delays in or interruption of or cessation of Rusoro’s
exploration or development activities, costs, monetary losses and potential
legal liability and adverse governmental action, all of which could have a
material and adverse effect on Rusoro’s future cash flows, earnings, results of
operations and financial condition.

 

Rusoro’s
operations may also be affected by the presence of illegal miners, something
that is not uncommon in the gold mining areas of the Guayana Shield area of
Venezuela.  Although Rusoro, in
conjunction with the local authorities, employs strategies to control the
presence of illegal miners, there 

 

16

 

can
be no assurance that these strategies will be successful or that Rusoro’s
operations will not be adversely affected by the presence of illegal miners.

 

Rusoro’s Insurance Coverage May Not Be Adequate To Cover All
Possible Risks

 

Although
Rusoro may acquire insurance to cover some of the risks and hazards inherent in
mineral exploration and development in an amount management believes to be
reasonable, subject to deductibles, this insurance may not provide adequate
coverage in all circumstances.  No
assurance can be given that Rusoro’s insurance will be available at
economically feasible premiums, or that it will provide sufficient coverage for
losses related to the risks and hazards inherent in mineral exploration and
development.  Also, Rusoro may be subject
to liability or sustain losses for certain risks and hazards against which
Rusoro cannot insure or which Rusoro may elect not to insure because of the
cost. This lack of insurance coverage could have a material and adverse impact
on Rusoro’s future cash flows, earnings, results of operations and financial
condition.

 

An Increase In Rusoro’s Production Costs Could Reduce Profitability

 

Changes
in Rusoro’s production costs could have a material and adverse impact on its
profitability.  Changes in costs of
Rusoro’s mining and processing operations can occur as a result of unforeseen
events, and could result in changes in operating results. Many of these changes
are beyond Rusoro’s control.

 

Mineral Reserve And Resource Estimates Are Only Estimates And May Not
Reflect The Actual Deposits Or The Economic Viability Of Extraction of Gold

 

Reserve
and resource figures included for gold are estimates only and no assurances can
be given that the estimated levels of gold will actually be produced or that
Rusoro will receive the gold price assumed in determining its reserves. Such
estimates are expressions of judgment based on knowledge, mining experience,
analysis of drilling and exploration results and industry practices. Estimates
made at any given time may significantly change when new information becomes
available or when parameters that were used for such estimates change. While
Rusoro believes that the reserve and resource estimates included are well
established and reflect management’s best estimates, by their nature reserve
and resource estimates are imprecise and depend, to a certain extent, upon
statistical inferences which may ultimately prove unreliable.  Furthermore, market price fluctuations in
gold, as well as increased capital or production costs or reduced recovery
rates, may render ore reserves containing lower grades of mineralization uneconomic
and may ultimately result in a restatement of reserves.  The extent to which resources may ultimately
be reclassified as proven or probable reserves is dependent upon the
demonstration of their profitable recovery. 
The evaluation of reserves or resources is always influenced by economic
and technological factors, which may change over time.

 

Resource
figures included herein have not been adjusted in consideration of these risks
and, therefore, no assurances can be given that any measured, indicated or
inferred mineral resource will ultimately be reclassified as a proven or
probable reserve.

 

If
Rusoro’s reserve or resource estimates for its mineral properties are
inaccurate or are reduced in the future, this would have an adverse impact on
Rusoro’s future cash flows, earnings, results of operations and financial
condition.

 

Exploration And Development Activities May Not Be Successful

 

Exploration
for and development of mineral properties involves significant exploration and
financial risk which even a combination of careful evaluation, experience and
knowledge will not eliminate.  While the
discovery of an ore body may result in substantial rewards, few properties
which are explored are ultimately developed into producing mines.  Major expenses may be required to establish
reserves by 

 

17

 

drilling,
constructing mining and processing facilities at a site, developing
metallurgical processes and extracting gold from ore.  Also, substantial expenses may be incurred on
exploration projects which are subsequently abandoned due to poor exploration
results or the inability to define reserves which can be mined economically.

 

Even
if an exploration program is successful and economically recoverable gold is
found, it can take a number of years from the initial phases of drilling and
identification of the mineralization until production is possible, during which
time the economic feasibility of extraction may change and gold that was
economically recoverable at the time of discovery, ceases to be.  There can be no assurance that gold recovered
in small scale tests will be duplicated in large scale tests under on-site
conditions or in production scale operations, and material changes in
geological resources or recovery rates may affect the economic viability of
mineral properties.

 

Rusoro
cannot assure that exploration and development programs will result in
profitable commercial mining operations. The economics of developing mineral
properties are affected by many factors including the cost of operations, fluctuations
in the price of gold, other precious metals and base metals, costs of
processing equipment and such other factors as government regulations.  In addition, the quantity of metals
ultimately extracted may differ from that indicated by drilling results and
such differences could be material.

 

Exploration Programs May Be Hindered By Lack of Equipment

 

The
significant expansion of oil and gas and mineral exploration in recent years
has significantly increased demand for drilling operators and drill rigs.  No assurance can be given that Rusoro will be
able to secure drill rigs and their operators in a timely manner in order to
meet current exploration program schedules. As well, the cost of securing
drilling services may be materially higher than currently anticipated by
Rusoro. If exploration programs are delayed or cancelled as a result, or cost
more than originally budgeted, it may have a material and adverse impact on
Rusoro’s exploration activities, results of operations and cash flows.

 

Rusoro Is Subject To Environmental, Health And Safety Risks

 

Rusoro
will expend significant financial and managerial resources to comply with a
complex set of environmental, health and safety laws, regulations, guidelines
and permitting requirements (for the purpose of this paragraph, “laws”) in
Venezuela.  The historical trend toward
stricter laws is likely to continue.  The
mining industry is subject to not only worker health, safety and environmental
risks associated with all mining businesses, including potential liabilities to
third parties for environmental damage, but also to additional risks uniquely
associated with mining and processing of minerals.  The possibility of more stringent laws or
more rigorous enforcement of existing laws in Venezuela exists in the areas of
worker health and safety, the disposition of wastes, the decommissioning and
reclamation of mining, milling, refining and conversion sites and other
environmental matters, each of which could have a material adverse effect on
Rusoro’s operations or the cost or the viability of a particular project.

 

Rusoro’s
facilities operate under various operating and environmental permits, licences
and approvals that contain conditions that must be met and Rusoro’s right to
continue operating its facilities is, in a number of instances, dependent upon
compliance with these conditions. 
Failure to meet certain of these conditions could result in interruption
or closure of Rusoro’s facilities, termination of contracts or concessions
granted by governmental entities or material fines or penalties, all of which
could have an adverse impact on Rusoro’s business, future cash flows, earnings,
results of operations and financial condition.

 

18

 

Rusoro May Be Adversely Affected By Governmental Regulation and
Policy

 

Mining
operations and exploration activities in Venezuela are subject to extensive
laws and regulations.  Such regulations
relate to production, development, exploration, exports, imports, taxes and
royalties, labour standards, occupational health, waste disposal, protection
and remediation of the environment, mine decommissioning and reclamation, mine
safety, toxic substances, transportation safety and emergency response, and
other matters.  Compliance with such laws
and regulations increases the costs of exploring, drilling, developing,
constructing, operating and closing mines and refining and other
facilities.  It is possible that, in the
future, the costs, delays and other effects associated with such laws and regulations
may impact Rusoro’s decision as to whether to operate a potential mine and
other facilities or, with respect to exploration and development properties,
whether to proceed with exploration or development.  Rusoro will expend significant financial and
managerial resources to comply with such laws and regulations.  Since these could change frequently, are
subject to interpretation and may be enforced in varying degrees in practice,
Rusoro is unable to predict the ultimate cost of compliance with these
requirements or their effect on operations. 
Furthermore, future changes in governments, regulations, policies and
practices relating to mining operations in Venezuela could materially and
adversely effect Rusoro’s results of operations and financial condition in a
particular period or its business prospects.

 

The
development of mines and related facilities in Venezuela is contingent upon
governmental approvals, licences and permits which are complex and time
consuming to obtain and which, depending upon the location of the project,
involve multiple governmental agencies. 
The receipt, duration and renewal of such approvals, licenses and
permits are subject to many variables outside Rusoro’s control, including
potential legal challenges from various stakeholders such as environmental
groups and non-government organizations. 
Any significant delays in obtaining or renewing such approvals, licences
or permits could have a material adverse effect on the business and business
prospects of Rusoro.

 

Rusoro May Be Unable To Hire And Retain Qualified Personnel

 

Rusoro’s
success will depend to a significant degree upon the contributions of qualified
technical personnel.  Its future success
will depend in a large part upon its ability to attract and retain highly skilled
personnel. Competition for such personnel in the mining industry is intense,
and Rusoro may not be successful in attracting and retaining qualified
personnel locally or in obtaining the necessary work permits to hire qualified
expatriates.  Its inability to do so in
the future may materially and adversely affect its business, business
prospects, financial condition and results of operations.

 

Additionally,
Rusoro will depend on its key management for the operation of its day-to-day
activities and implementation of its growth strategy.  In addition, personal connections and
relationships of its key management are important to the conduct of its
business.  If Rusoro was to lose a member
of its key management, its business, business prospects and results of
operations might be adversely affected.

 

Rusoro Depends On Relations With Third Party Service Providers

 

Rusoro’s
operations depend on products and services provided by third parties including
contractors, surveyors and consultants. 
If there is any interruption to the products or services provided by
third parties Rusoro’s business may be adversely affected, and Rusoro may be
unable to find adequate replacement products or services on a timely basis or
at all.

 

Managing Growth And Expansion May Be Difficult

 

Rusoro
may experience rapid growth and development in a relatively short period of
time.  Rusoro’s management of that growth
will require, among other things, stringent control of financial systems and 

 

19

 

operations,
the development of management controls and the training of new personnel.  Failure to manage Rusoro’s rapid growth and
development successfully could have a material adverse effect on Rusoro’s
financial condition and results of operations.

 

Rusoro May Not Be Able To Further Acquire Mineral Properties

 

Rusoro’s
strategy depends to a certain extent on its ability to make additional
acquisitions of mining rights. Rusoro cannot guarantee that it will be able to
identify appropriate properties or negotiate acquisitions on favourable terms
or that it will be able to obtain the financing necessary to complete such
future acquisitions.  If Rusoro is unable
to acquire additional mining rights it cannot be certain that it will be able
to expand its exploration and development activities.

 

The Security Of Rusoro’s Proprietary Information Cannot Be Assured

 

In
the course of its business, Rusoro will acquire and/or develop propriety
information regarding its mines, their operations, and explorations results,
among others. While Rusoro believes that adequate steps have been taken to
secure such proprietary information, there can be no assurance that such
information will not be the subject of theft, whether physically or
electronically. The loss of such proprietary information may have a material
and adverse effect on Rusoro’s business and business prospects.

 

Forecasts Of Costs May Differ From Estimates

 

Cost
figures included in this Annual Information Form are in many instances
estimates only and no assurance can be given that such estimates are
accurate.  Such estimates are expressions
of judgment based on knowledge and experience. 
Estimates made at any given time may significantly change when new
information becomes available or when parameters that were used for such
estimates change.  While the cost
estimates disclosed by the Corporation from time to time are thought to be
reliable, no assurance can be given that such costs will not be greater than
those anticipated.

 

Because Rusoro Does Not
Currently Use Commodity Or Derivative Instruments To Protect Against Low Gold
Prices With Respect To Production, Rusoro Will Be Exposed To The Impact Of Any
Significant Drop In The Gold Price

 

Rusoro has not entered into
forward sales, derivatives or other hedging arrangement to establish a price in
advance for the sale of its future gold production.  In general, hedging reduces the risk of
exposure to volatility in the gold price. 
Hedging also enables a gold producer to fix a future price for hedged
gold that generally is higher than the then current spot price.  To the extent that it does not generally use
commodity or derivative instruments, Rusoro will not be protected against
decreases in the gold price, and if the gold price decreases significantly,
Rusoro runs the risk of reduced revenues in respect of gold production that is
not hedged.

 

Actual And Potential
Shortages Of Production Imports May Have An Adverse Effect On Rusoro’s
Operations And Profits

 

Rusoro’s results of
operations may be affected by the availability and pricing of raw materials and
other essential production inputs, including fuel, steel and cyanide and other
reagents.  The price of raw materials may
be substantially affected by changes in global supply and demand, along with
weather conditions, governmental controls and other factors.  A sustained interruption in the supply of any
of these materials would require Rusoro to find substitute suppliers acceptable
to Rusoro and could require it to pay higher prices for such materials.  Any significant increase in the prices of
these materials will increase Rusoro’s operating costs and affect production
considerations.

 

20

 

Giant tires, of the type
used for large earthmoving equipment and trucks, are in increasingly short
supply, and prices have risen recently and may continue to rise in the
future.  This shortage of tires for
earthmoving vehicles is causing mining companies to review operating practices,
to seek additional methods of preserving tire life and to examine alternative
sources of tire supply.  To the extent
that Rusoro is unable to procure an adequate supply of these tires, it may have
to alter its mining plans, especially at its open pit operations, which could
reduce its gold production and have a material adverse effect on Rusoro’s
business, operating results and financial condition.

 

RISKS RELATING TO OVERSEAS OPERATIONS

 

Rusoro’s Mineral Projects Are Subject To Political Risks Associated
With Operating In Foreign Jurisdictions

 

Rusoro’s
mineral properties are located in Venezuela. 
Venezuela is a developing country that has experienced political and
economic difficulties in recent years. 
Rusoro’s mining operations and exploration activities are affected in
varying degrees by political stability and government regulations relating to
foreign investment and the mining business in Venezuela.  Operations may also be affected in varying
degrees by terrorism, military conflict or repression, crime, corruption,
extreme fluctuations in currency rates and high inflation in South America and
Venezuela generally.

 

Certain
Venezuelan governmental entities have entered into contracts with, or granted
concessions and permits to, Rusoro that enable Rusoro to conduct operations or
development and exploration activities. 
Notwithstanding these arrangements, the ability to conduct operations or
exploration and development activities is subject to changes in government
regulations or shifts in political attitudes over which Rusoro has no control.

 

There
can be no assurance that industries deemed of national or strategic importance
like mineral production will not be nationalized.  Government policy may change to discourage
foreign investment, renationalization of mining industries may occur, or other
government limitations, restrictions or requirements not currently foreseen may
be implemented.  There can be no
assurance that Rusoro’s assets in Venezuela will not be subject to
nationalization, requisition or confiscation, whether legitimate or not, by any
authority or body.  While there may be
provisions for compensation and reimbursement of losses to investors under such
circumstances, there is no assurance that such provisions would be effective to
restore the value of Rusoro’s original investment.  Similarly, Rusoro’s operations may be
affected in varying degrees by governmental regulations and inconsistent
interpretations of such regulations with respect to restrictions on production,
price controls, export controls, income and other taxes, royalties, expropriation
of property, mine safety, annual fees to maintain mineral properties in good
standing and legislation relating to mining, the environment and commercial
activities.  There can be no assurance
that the laws in Venezuela protecting foreign investments will not be amended
or abolished or that these existing laws will be enforced or interpreted to
provide adequate protection against any or all of the risks described
above.  Furthermore, there can be no
assurance that the agreements Rusoro has will prove to be enforceable or
provide adequate protection against any or all of the risks described above.

 

Changes In The Political Environment In Venezuela May Adversely
Affect Rusoro

 

There
is significant potential for social, political, economic, legal and fiscal
instability in Venezuela.  These risks
include, among other things:

 

·                  local currency devaluation;

 

·                  civil disturbances;

 

21

 

·                  exchange controls or restricted
availability of hard currency;

 

·                  changes in laws or regulations or their
respective interpretations relating to mineral exploration and development;

 

·                  changes in relation to the foreign control
of mining assets;

 

·                  changes with respect to taxes, royalty
rates, import and export tariffs, and withholding taxes on distributions to
foreign investors;

 

·                  changes in anti-monopoly legislation or
its enforcement;

 

·                  nationalization or expropriation of
property; and

 

·                  interruption or blockage of the export of
natural resources.

 

Rusoro
cannot predict the possibility of any future changes in the political
environment in Venezuela having an impact on its laws and regulations or the
interpretation of those laws, or the effect of any such changes, on Rusoro’s
business, results of operations and financial condition.

 

Legislation
in respect of some or all of these areas could be passed.  Currently, the regulatory system contains
many inconsistencies and contradictions. 
Many of the laws are structured to provide substantial administrative
discretion in their application and enforcement. In addition, the laws are
subject to changing and different interpretations.  These factors mean that even Rusoro’s best
efforts to comply with applicable laws may not always result in compliance.
Non-compliance may have consequences disproportionate to the violation. The
uncertainties, inconsistencies and contradictions in the laws of Venezuela and
their interpretation and application could have a material adverse effect on
Rusoro’s business, business prospects, and results of operations.

 

Rusoro’s
contracts and licences in Venezuela and other agreements may be susceptible to
arbitrary revision, differing or inconsistent interpretations and
termination.  Legal redress for such
actions may be uncertain, delayed or unavailable.

 

In
addition, it is often difficult to determine from governmental records whether
statutory and corporate actions have been properly completed by the parties or
applicable regulatory agencies.  In some
cases, failure to follow the actions may call into question the validity of the
entity or the action taken.  Examples
include corporate registration or amendments, capital contributions, transfers
of assets or issuances or transfers of capital stock.

 

Ensuring
Rusoro’s ongoing rights to mineral properties will require a careful monitoring
of performance of its contracts with the CVG and the terms of the concessions
granted by the MEM (now the MIBAM) and other licences and monitoring the
evolution of the laws and practices of Venezuela.

 

Rusoro May Not Be Able To Enforce Its Legal Rights

 

In the
event of a dispute arising at Rusoro’s foreign operations, Rusoro may be
subject to the exclusive jurisdiction of foreign courts, whether in Venezuela,
Panama, the British Virgin Islands, the Netherlands, or elsewhere, or may not
be successful in subjecting foreign persons to the jurisdiction of the courts
in Canada.  Rusoro may also be hindered
or prevented from enforcing its rights with respect to a government entity or
instrumentality because of the doctrine of sovereign immunity. Any adverse or
arbitrary decision of a foreign court may have a material and adverse impact on
Rusoro’s business, business prospects, financial condition and results of
operations.

 

22

 

Fluctuations In Foreign Exchange Rates May Negatively Affect
Financial Results

 

The majority of Rusoro’s
expenditures are denominated in Venezuelan currency (bolivars), while the
majority of Rusoro’s revenues are in U.S. dollars.  Rusoro will be subject to foreign exchange
risk because it may hold positions in bolivars and is or will be a party to
transactions and loans denominated in currencies other than the bolivar.  Rusoro does not currently engage in any
hedging transactions to mitigate this risk. 
The bolivar has depreciated significantly against the U.S. dollar.  No assurance can be given that the bolivar
will not experience further depreciation against the U.S. dollar.  The bolivar is not freely exchangeable into
U.S. dollars or other currencies and there is no assurance that Rusoro will be
able to exchange sufficient amounts of bolivars into U.S. dollars to meet
Rusoro’s foreign currency obligations. 
Rusoro will also be subject to risks from the fluctuation of the
Canadian dollar against the U.S. dollar.

 

Foreign Exchange Controls May Affect Rusoro’s Business

 

Venezuela
currently has exchange controls that affect the ability of companies doing
business in Venezuela to convert Venezuelan source income into foreign
currency.  The Bolivar is not a freely
convertible currency and foreign exchange controls imposed by the government of
Venezuela may make it difficult for the Corporation to distribute any funds to
its participants outside of Venezuela and could limit its ability to carry on
business.

 

Proposed Amendments to Existing Laws May Adversely Affect Mineral
Rights

 

A new mining law project is
currently under consideration which would change the legal regime for
exploration, exploitation and use of mineral resources in Venezuela.  The project foresees the abolition of the
mining concessions system and establishment of an exclusive right in favour of
the government to explore and exploit the mineral resources through a national
state owned mining company. According to the project, the only way for private
parties to participate in mining activities in Venezuela would be through the
acquisition of a participation in a company created by the MIBAM or the
national mining company in which the government must have a participation of
greater than 50%.

 

The law project provides
that the concessions and contracts currently existing will be reviewed to
determine the compliance by the title holders with their legal
obligations.  Those that are not in
compliance would be revoked.  The
concessions and contracts found to be in good standing would continue to be
valid and enforceable for the period and under the conditions set forth in the
respective mining titles unless the title holders voluntarily decide to
associate themselves with the government according to the new regime.

 

The law project is currently
under discussion, but has not yet been formally enacted, may never be enacted,
or may ultimately be enacted in a version other than as described herein.

 

A proposed amendment to the
Constitution includes changes in the mechanisms for the exploitation of natural
resources.  If natural resources are considered
strategic, the state could incorporate “director social property companies”, “mixed-capital
companies” or “socialist production units” for their exploitation.  If not strategic, concessions can be granted
for considerations adequate for the public interest and with social benefits.

 

RISKS RELATED TO THE RUSORO COMMON SHARES

 

The Market Price of the Common Shares May Be Subject to Wide Price
Fluctuations

 

The market
price of the Common Shares may be subject to wide fluctuations in response to
many factors, including variations in the operating results of Rusoro,
divergence in financial results from analysts’ 

 

23

 

expectations,
changes in earnings estimates by stock market analysts, changes in the business
prospects for Rusoro, general economic conditions, changes in mineral reserve
or resource estimates, results of exploration, changes in results of mining
operations, legislative changes, and other events and factors outside of Rusoro’s
control.

 

In addition,
stock markets have from time to time experienced extreme price and volume
fluctuations, which, as well as general economic and political conditions,
could adversely affect the market price for the Common Shares.

 

Rusoro is
unable to predict whether substantial amounts of Common Shares will be sold in
the open market.  Any sales of
substantial amounts of Common Shares in the public market, or the perception
that such sales might occur, could materially and adversely affect the market
price of the Common Shares.

 

Shareholder Control

 

Some of the Corporation’s
existing shareholders can exert control over it, and may not make decisions
that are in the best interests of all shareholders.  If certain shareholders act together, they
may be able to exert a significant degree of influence over the Corporation’s
management and affairs and over matters requiring shareholder approval,
including the election of directors and approval of significant corporate
transactions.  In addition, this
concentration of ownership may facilitate or delay or prevent a change in
control of the Corporation and might affect the market price of the Common
Shares, even when a change of ownership may not always coincide with the
Corporation’s interests or the interests of other shareholders and accordingly,
they could cause the Corporation to enter into transactions or agreements which
it would not otherwise consider.

 

Legal Proceedings

 

Rusoro’s indirect ownership
of Cabello Gálvez, C.A. through Inversiones Mineras El Dorado, S.A. was  the subject of two disputes before the
Venezuelan courts.  These disputes have
been recently settled.  Refer to Item 9 “Legal
Proceedings”.

 

3.3                                                       Mineral
Projects

 

Rusoro is a mineral
production, development and exploration company concentrated on activities in
Bolivar State, southern Venezuela.  The
Corporation has two producing gold mines (Choco and Isidora) both located in
the El Callao Mining District.  Two
projects are in the development stage. 
The first, Increible 6, is located in the El Callao Mining District and
the second, SREP, is located in the El Dorado Mining District approximately 100
kilometres to the south.

 

The Corporation holds the
mineral rights for 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: the El Callao, El Dorado, Cuyuni,
and Km88 mining districts.

 

Mr. Gregory Smith,
P.Geo, the Vice-President Exploration of Rusoro, is a “Qualified Person” as
defined by NI 43-101, and is responsible for the accuracy of the scientific and
technical information contained within this AIF.

 

Project Description and
Location:  All of the
Corporation’s material mineral projects are located in Bolivar State, southern
Venezuela.  The mineral titles cover an
area of approximately 120,000 hectares. 
Rusoro holds 100% of the mineral titles with the exception of the Choco
4 and Choco 10 mineral titles where ownership is 95%.  The mineral titles range in duration between
20 to 25 years with additional extensions possible.  The projects are subject to standard
royalties on gold production.  There are 

 

24

 

currently no environmental
liabilities on the projects.  Numerous
mineralized zones and in some cases resources and reserves have been identified
on the projects and are detailed in the following individual project
descriptions.  All permits are in place
for the current activities on the projects and further permits are anticipated
in the future.  Additional details are
provided for each of the Corporation’s projects in the technical reports
referenced below.

 

Accessibility, Climate,
Local Resources, Infrastructure and Physiography:  All of the Corporation’s projects have road
access.  The main paved highway for
Bolivar State runs through the central portion of the area and connects the
various local communities with the city of Puerto Ordaz located three hours to
the north.  The climate is tropical and
allows for all exploration, development and mining activities to continue
throughout the year.  In all cases the
potential exits for sufficient surface rights for mining operations.  Sources of power and water, as well as mining
personnel, are readily available.  Sufficient
lands exist for potential tailings storage areas, potential waste disposal
areas, and potential processing plant sites. 
The topography is generally flat to hilly with elevations ranging
between 100 and 400 metres above sea level. 
Vegetation ranges from grassy planes to mature forests.  Additional details for each of the
Corporation’s projects are provided in the technical reports referenced below.

 

History:  The area which hosts the Corporation’s
projects has a long history of exploration, development, and mining of gold
deposits.  Work completed by previous
owners included geochemistry, geophysics, geological mapping, trenching and
drilling.  Two of the Corporation’s
projects, the Choco 10 Mine and the Isidora Mine (Block B) had previous mining
and gold production which is detailed in the respective technical reports
referenced below.  Additional details for
each of the Corporation’s projects are provided in the technical reports
referenced below.

 

Geological Setting:  The Corporation’s
projects are located in the Guyana Shield that is part of the Amazon
Craton.  Rocks within the project areas
lie within an early Proterozoic greenstone belt.   Several principal gold mining districts
occur in southern Venezuela including (from north to south); El Callao, El
Dorado, Cuyuni, and Km88.  It is
estimated that since 1829 at least 250 tonnes of gold have been produced from
these districts.  The geology of the
individual projects is moderately variable on a detailed scale.  In general all of the projects are underlain
by a series of volcanic flows and extrusive rocks (dominantly intermediate) and
associated minor sedimentary units, intruded by a range of igneous bodies.  All of these rocks are cut by younger dykes,
most often unaltered diabase.  Gold
mineralization is structurally controlled. 
Commonly, the different characteristics of the host rocks have some
influence on gold distribution.  The gold
zones are contained within kilometre-scale sheared and fractured corridors
which cut the volcano-sedimentary stratigraphy and intrusive rocks.  Additional details for each of the
Corporation’s projects are provided in the technical reports referenced below.

 

Exploration:  Exploration has been completed on all of the
Corporation’s Bolivar State Projects. 
The work ranges from regional data compilation and remote sensing to
detailed studies including geochemistry, geophysics, mapping, trenching, and
drilling.  The results of this work have
outlined a series of gold mineralized zones on all of the Corporation’s projects.  The most advanced projects are the Choco 10
Mine, the Isidora Mine, Increible 6, San Rafael-El Placer (SREP), Ceiba and
Valle Hondo where exploration and drilling has resulted in the definition of
gold resources.

 

Work has been completed by
Corporation personnel under the direction of qualified technical persons.  All exploration completed by the Corporation
has been directed by Gregory Smith, P.Geo, the Vice President Exploration of
the Corporation.  The exploration work
has included independent contractors using industry standard procedures for
drilling (CoreBiel Drilling, Major Drilling, Perforaciones Caroni, Tecnodrill)
and sample analyses (ACME, Actlabs, SGS Labs, and Triad Lab).  Numerous independent checks have been
completed, most significantly those related to the independent technical
reports referenced here, and the results of the exploration completed to date
on all projects is considered highly 

 

25

 

reliable.  Additional details for each of the
Corporation’s projects are provided in the technical reports referenced below.

 

Mineralization:  The gold
mineralization encountered on the Corporation’s projects is best described as
belonging to the class of ‘orogenic gold deposits’.  Drew (2003) of the United States Geological
Survey (USGS) listed the following characteristics for this class of deposit:

 

·                  Gold-only deposits are
hosted in granite-greenstone terranes (GGT) associated with major transcurrent
strike-slip faults.

 

·                  Mineralization is sporadic
along these faults, yet often continuous to great depth where it does occur.

 

·                  Ore shoots can have many
forms that are related to the wide variety of second- and third-order
structures that can develop in (or be used by) strike-slip fault systems.

 

·                  The hydrothermal fluid is
near neutral, rich in CO2, and produced by
metamorphic reactions.

 

·                  Intense carbonate alteration
is always present.

 

·                  Mineralization is often
contemporaneous with spatially associated granitic intrusions, but not
genetically related to them.

 

·                  Mineralogy of deposits is
limited, in descending order, to quartz, carbonates, alkali feldspar (usually
albite), sericite, pyrite, and minor amounts of tourmaline, arsenopyrite,
scheelite, molybdenite. No significant base metals (copper, lead, zinc, etc.)
occur.”

 

The individual mineralized
zones range from narrow and high grade (1-2m width and 10-30 g/t Au) to broad
bulk tonnage (10-50m wide and 1.0 to 4.0 g/t Au) targets.  The zones are most often structurally
controlled and dominated by quartz, carbonate, and sericite with variable
amounts of pyrite.  The surrounding hosts
rock can have an influence on the geometry and/or general characteristics of
the individual zones.  Additional details
for each of the Corporation’s projects are provided in the technical reports
referenced below.

 

Drilling:  Drilling has
occurred on several of the projects including; the Choco 10 Mine, the Isidora
Mine, Increible 6, San Rafael-El Placer (SREP), Ceiba and Valle Hondo.  Additional projects which have received
preliminary drilling are the Yuruan Project (Km88 area) and the Trinidad
Project – results are pending.  There was
a total of approximately 290,000 metre of drilling completed during 2007 and
155,000 metres of drilling during the first nine months of 2008.

 

Drilling has included
reverse circulation (“RC”), aircore
and diamond drilling.  All drilling
programs are planned by qualified person and all drilling activities are
supervised (24 hour per day) by Corporation technical personnel.  In general the RC is used for testing of near
surface and bulk-tonnage targets while the diamond drilling is used for all
high grade zones.  Drill spacing is
variable but most often 25 meters by 25 metres. 
The majority of the principal mineralized zones have been tested down to
a depth of approximately 150 to 200 metres with selected zones (largely the high
grade vein deposits) tested as deep as 400-500 metres.   Continuous samples are collected for all
types of drilling.  Those portions of the
drill samples not used for analyses are stored in secure facilities for
additional testing and/or inspection. 
Results have been interpreted and resource estimates have been prepared
for all projects.  Additional details for
each of the Corporation’s projects are provided in the technical reports
referenced below.

 

26

 

Sampling and Analysis:  Exploration on the Corporation’s projects has
followed industry standard methods for sampling and analysis.  The level of sampling ranges widely within
the Projects.  Several areas have
detailed sampling, on surface and to depth through drilling, while other areas
have been covered with only broad first pass sampling.  All sampling is of good to excellent quality
and the samples are considered to be representative and without sample biases.  The sample method and approach for the current
exploration and drilling programs on the Corporation’s projects is of good to
excellent quality.  There are no known
factors that would impact the accuracy and reliability of the data and all
sampling is considered to be representative and without sample biases.  The recent and current exploration on the
Corporation’s projects is almost exclusively drilling.  Drilling has included RC and diamond
drilling.

 

For the RC drilling, samples
are collected (and in most case analysed) for the entire length of the drill
hole.  In general, the RC drilling is
used to evaluate broad surface anomalies (with anomalous results then
followed-up on by diamond drilling) or as in-fill drilling for near surface
deposits.  Material from the rig is
passed through a vertical splitter (for dry samples) and a rotating cyclone
splitter for wet samples in order to obtain a representative sample of each
metre consisting of approximately 3.0 kilograms in weight.  All drilling on the high grade veins has been
diamond drilling.  For the diamond
drilling, samples are collected for those intervals selected by the project
geologist based on the presence of alteration, anomalous geology, and/ or the
identification of quartz veining which in many cases contains visible gold.   Sampling for the diamond drill core is
completed by cutting the core into two equal halves by rock saw.  One half is assigned a unique sample number
and sent to a commercial lab for analyses. 
The second half of the drill core is stored at the secure core facility
located at the Emilia camp.

 

Continuous samples are
collected of all altered and/or mineralized material.  Geological controls where they exist,
including the existence of veins and major lithological contacts, are used to
define the limits of samples.  Sample
length generally ranges from 0.25 metres to a maximum of 1.5 metres averaging
approximately 0.75 metres.  Industry
standard QA/QC controls are maintained for both RC and diamond drill samples
including the insertion of blanks and certified standards, the collection of
duplicate samples, as well as regular check assays on sample pulps and/or
rejects.  Additional details for each of
the Corporation’s projects are provided in the technical reports referenced
below.

 

Security of Samples:  Technical personnel employed by the
Corporation are present at every step of the sampling process and are
responsible for the validity and integrity of all samples taken.    Sampling is completed by trained personnel
following established procedures.  All of
the sampling is completed within the Corporation’s secure facilities and access
is restricted to authorized personnel. 
Senior technical staff is present at all times to oversee the sampling
process and regular inspections are completed by the quality control supervisor.  Samples are delivered to independent
analytical facilities for analyses.  All
sample results are considered to be representative and without biases.  Additional details for each of the
Corporation’s projects are provided in the technical reports referenced below.

 

Mineral Resource and
Mineral Reserve Estimates:  The
existing mineral resources and mineral reserves on the Corporation’s projects
are detailed in the following Table:

 

Reserves

 

	
  Project

  	
   

  	
  Tonnes (t)

  	
   

  	
  Grade (g/t)

  	
   

  	
  Gold (oz)

  	
   

  
	
  Proven

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Choco 10(4)

  	
   

  	
  2,700,000

  	
   

  	
  2.70

  	
   

  	
  234,000

  	
   

  
	
  Isidora

  	
   

  	
  70,300

  	
   

  	
  37.20

  	
   

  	
  84,000

  	
   

  
	
  Probable

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Choco 10(4)

  	
   

  	
  15,000,000

  	
   

  	
  3.32

  	
   

  	
  1,596,000

  	
   

  
	
  Isidora

  	
   

  	
  109,100

  	
   

  	
  28.80

  	
   

  	
  101,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total P & P

  	
   

  	
  17,879,400

  	
   

  	
  3.52

  	
   

  	
  2,015,000

  	
   

  

 

27

 

Resources

Measured & Indicated
Resources (inclusive of Reserves)

 

	
  Project

  	
   

  	
  Tonnes (t)

  	
   

  	
  Grade (g/t)

  	
   

  	
  Gold (oz)

  	
   

  
	
  Measured

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Choco 10(4)

  	
   

  	
  2,600,000

  	
   

  	
  2.86

  	
   

  	
  243,000

  	
   

  
	
  Isidora

  	
   

  	
  107,500

  	
   

  	
  29.06

  	
   

  	
  100,500

  	
   

  
	
  Indicated

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Choco 10(4)

  	
   

  	
  56,300,000

  	
   

  	
  2.45

  	
   

  	
  4,432,000

  	
   

  
	
  Increible 6

  	
   

  	
  23,450,000

  	
   

  	
  2.11

  	
   

  	
  1,590,000

  	
   

  
	
  Isidora

  	
   

  	
  363,000

  	
   

  	
  19.75

  	
   

  	
  230,500

  	
   

  
	
  Days

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  San Rafael / El Placer

  	
   

  	
  639,000

  	
   

  	
  19.41

  	
   

  	
  399,000

  	
   

  
	
  Valle Hondo

  	
   

  	
  3,500,000

  	
   

  	
  0.90

  	
   

  	
  101,000

  	
   

  
	
  Ceiba

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Total M&I

  	
   

  	
  86,959,500

  	
   

  	
  2.54

  	
   

  	
  7,096,000

  	
   

  

 

Inferred Resources

 

	
  Project

  	
   

  	
  Tonnes (t)

  	
   

  	
  Grade (g/t)

  	
   

  	
  Gold (oz)

  	
   

  
	
  Choco 10(4)

  	
   

  	
  42,900,000

  	
   

  	
  2.19

  	
   

  	
  3,017,000

  	
   

  
	
  Increible 6

  	
   

  	
  17,530,000

  	
   

  	
  1.95

  	
   

  	
  1,100,000

  	
   

  
	
  Isidora

  	
   

  	
  99,000

  	
   

  	
  14.13

  	
   

  	
  45,000

  	
   

  
	
  Twin Shear

  	
   

  	
  1,200,000

  	
   

  	
  12.50

  	
   

  	
  482,000

  	
   

  
	
  Days

  	
   

  	
  209,000

  	
   

  	
  5.52

  	
   

  	
  37,000

  	
   

  
	
  San Rafael / El Placer

  	
   

  	
  703,000

  	
   

  	
  23.16

  	
   

  	
  523,500

  	
   

  
	
  Valle Hondo

  	
   

  	
  47,000,000

  	
   

  	
  0.90

  	
   

  	
  1,360,000

  	
   

  
	
  Ceiba

  	
   

  	
  1,550,000

  	
   

  	
  9.20

  	
   

  	
  458,500

  	
   

  
	
  Total Inf

  	
   

  	
  111,191,000

  	
   

  	
  1.96

  	
   

  	
  7,023,000

  	
   

  

 

Combined Summary - All Projects

 

	
  Category

  	
   

  	
  Tonnes (t)

  	
   

  	
  Grade (g/t)

  	
   

  	
  Gold (oz)

  	
   

  
	
  Reserves P&P

  	
   

  	
  17,880,000

  	
   

  	
  3.52

  	
   

  	
  2,020,000

  	
   

  
	
  Resources M&I

  	
   

  	
  89,959,500

  	
   

  	
  2.54

  	
   

  	
  7,096,000

  	
   

  
	
  Resources Inf.

  	
   

  	
  111,191,000

  	
   

  	
  1.96

  	
   

  	
  7,023,000

  	
   

  

 

Notes for all Resources and
Reserves:

 

(1)                                 Reserves
and resources are NI 43-101 compliant and follow the definitions for proven and
probable reserves and measured, indicated and inferred resource established by
the CIM.

 

(2)                                 Mineral
resource estimates which are not mineral reserves do not have demonstrated
economic viability. The estimate of mineral resources may be materially
affected by environmental, permitting, legal, title, taxation, socio-political,
marketing, or other relevant issues.

 

(3)                                 The
quantity and grade of reported inferred resources in these estimates is
uncertain in nature and there has been insufficient exploration to define these
inferred resources as an indicated or measured mineral resource and it is
uncertain if further exploration will result in upgrading them to an indicated
or measured category.

 

(4)                                 Choco
10 reserves are reported as 100%; 95% are attributable to Rusoro.   Isidora reserves are 100% attributable to
Rusoro until the Mixed Enterprise with MIBAM is established.  All resources reported include reserves.

 

The key assumptions,
parameters and methods used for each of the resource and reserve estimates are
summarized in the following table:

 

28

 

	
  Project

  	
   

  	
  Independent

  Consultant

  	
   

  	
  Date

  	
   

  	
  Method

  	
   

  	
  Cut

  Off

  	
   

  	
  Grade

  Cap

  	
   

  	
  Density

   (g/cm3)

  	
   

  	
  Gold Price

  for

  Reserves

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Choco 10

  	
   

  	
  Micon

  	
   

  	
  November 

  2007

  	
   

  	
  3D
  computer models, uniform conditioning and kriged estimated grades

  	
   

  	
  0.5
  g/t

  	
   

  	
  50.0
  g/t

  	
   

  	
  1.7 -
  2.8

  	
   

  	
  $500 -
  $550

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Isidora

  	
   

  	
  Micon

  	
   

  	
  August

   2008

  	
   

  	
  Seam
  Model with inverse distance cubed method using Vulcan Software

  	
   

  	
  8.0
  g/t

  	
   

  	
  200.0
  g/t

  	
   

  	
  2.67 -
  2.80

  	
   

  	
  $570

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Twin Shear

  	
   

  	
  SW-RPA

  	
   

  	
  August

  2008

  	
   

  	
  3D
  geological model using inverse distance squared

  	
   

  	
  8.0
  g/t

  	
   

  	
  50.0
  g/t

  	
   

  	
  2.7

  	
   

  	
  n/a

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Increible 6

  	
   

  	
  Micon

  	
   

  	
  February

  2008

  	
   

  	
  Partial
  Block model using Gemcom software and inverse distance squared

  	
   

  	
  0.5
  g/t

  	
   

  	
  20-40
  g/t

  	
   

  	
  2.0 -
  2.7

  	
   

  	
  n/a

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SREP

  	
   

  	
  Micon

  	
   

  	
  October

  2008

  	
   

  	
  3D
  geological model using Gemcom software and inverse distance squared

  	
   

  	
  8.0
  g/t

  	
   

  	
  80.0
  g/t

  	
   

  	
  2.8

  	
   

  	
  n/a

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Days

  	
   

  	
  Micon

  	
   

  	
  October

  2008

  	
   

  	
  3D
  geological model using Gemcom software and inverse distance squared

  	
   

  	
  2.0 &
  8.0 g/t

  	
   

  	
  30.0
  g/t

  	
   

  	
  2.0 -
  2.8

  	
   

  	
  n/a

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Ceiba

  	
   

  	
  SW-RPA

  	
   

  	
  April

  2007

  	
   

  	
  Polygonal
  using Gemcom Software

  	
   

  	
  0.5
  g/t

  	
   

  	
  36.0
  g/t

  	
   

  	
  2.8

  	
   

  	
  n/a

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Valle Hondo

  	
   

  	
  SW-RPA

  	
   

  	
  April

  2007

  	
   

  	
  Block
  Model using ordinary kriging

  	
   

  	
  0.5
  g/t

  	
   

  	
  20.0
  g/t

  	
   

  	
  2.00 -
  2.65

  	
   

  	
  n/a

  	
   

  

 

Additional details for each
of the Corporation’s projects are provided in the technical reports referenced
below.

 

Mining Operations:  Mining operations
exist on two of the Corporation’s projects; the Choco mine (Choco 4 and Choco
10 mineral titles) and the Isidora mine (within the Block B Project).  The Choco mine is an open pit operation. The
ore from all pits is treated at an average rate of 5,400 t/d in a central
processing plant employing grinding and cyanide leaching using carbon-in-pulp
(CIP) technology.  The Isidora mine is a
high grade underground operation.  Ore is
trucked eight kilometres to the Choco mill for processing.  Additional details for each of the
Corporation’s projects are provided in the technical reports referenced below.

 

Exploration and
Development: 
Exploration continues on all of the Corporation’s material mineral
projects.   Drilling continues directed
at expanding the known mineralized zones and further defining the existing gold
resources.  Additional studies including
metallurgical testing are also on-going focused on Choco, Increible 6 and
SREP.  A scoping study is underway
evaluating the options for the development of the gold resources at Choco and
Increible 6.  Updated resource estimate
which will include additional drilling completed in 2007 and 2008 will be
complete in 2009 on several Projects including; Choco, Increible 6, Isidora,
and Valle Hondo.

 

Development work continues
at Choco and Increible 6 designed to ensure a continued supply of mineralized
material to the Choco mill.  Additional
underground development is on-going at the Isidora mine providing new access to
portions of the deposit.  At SREP an
exploration/development ramp is underway which will provide access to the main
portion of the SREP deposits.  Additional
details for each of the Corporation’s projects are provided in the technical
reports referenced below.

 

The following information on
the individual projects is reproduced from the summaries contained in the
corresponding independent NI 43-101 technical report on the material property
referenced.

 

29

 

Choco mine:  The technical
information on the Choco mine, mill and surrounding exploration area is
detailed in a 43-101 compliant independent technical report titled; Technical
Report on the PMG (Gold Fields) Choco 10 Concession and Mine, Estado Bolivar,
Venezuela by Robert J. Leader, P.Eng., John Perry, P.Geo., Ian Ward, P.Eng.,
Christopher Jacobs, C.Eng. and Christopher Lattanzi, P.Eng., of Micon
International Limited (“Micon”) and
dated November 21, 2007.

 

The Choco 10 gold mine is
located on the Choco 4 and 10 concession, close to the historic gold mining
town of El Callao in Bolivar state, Venezuela. 
The property includes a number of relatively low grade gold deposits
which are currently being mined as open pits. 
The ore from all pits is treated at an average rate of 5,400 t/d in a
central processing plant employing grinding and cyanide leaching using
carbon-in-pulp (CIP) technology.  Micon
conducted a site visit to the Choco 10 operation in Venezuela from August 14
to 16, 2007.  Micon’s review team
included James Leader, Senior Mining Engineer and Dave Laudrum, Senior
Geologist .  John Perry, P.Geo., then
visited the site during the week of October 22, 2007.  At the time of the August visit, the
mine and plant were not operating due to a blockade by artisanal miners, who
occupied the project area prior to current mining operations.  This report is based upon extensive project
information, plus past reports, supplemented by Micon’s direct field
observations and discussions with a prior operator.

 

Micon reviewed the forecasts
prepared by a prior operator and was of the opinion that these had been
prepared to the standard normally expected of a feasibility study.  The Choco 4 and Choco 10 concessions are
located approximately 15 km west of the mining town of El Callao in Bolivar
State, Venezuela.  They cover a total
area of 7,214.51 ha.  The mining
concessions were granted by MEM to CVG in 1993, after which CVG transferred the
rights to Promiven’s 70% subsidiary Promotora Minera de Guayana C.A. (PMG),
subject to conditions.  The property is
subject to royalties according to the rights granted in 1993 by MEM to
CVG.  Mining rights were granted
effective for 20 years and may be renewed, after 20 years, for a further 20
years.  The Venezuela Ministry of Basic
Industries and Mining published the resolutions giving final approval to the
issuance of the exploitation certificates for the Choco 4 and 10 concessions on
December 5, 2005.  All other
operational and on-going exploration permits are in place.  Operation of the Choco 10 mine was initiated
by Bolivar Gold Inc. through its Venezuelan subsidiary PMG in 2005 and sold to
Gold Fields in March, 2006.  Open pit
mining has, to date, focused on weathered or oxidized material in the Pisolita,
Coacia and Rosika deposits. Mining of the VBK deposit is scheduled to commence
in 2008.

 

The Choco 10 operation
experienced numerous challenges in the first half of 2007 including water
availability, grade control issues, availability of spare parts, small miner
disputes, and labour collective agreement negotiations. As a result, production
was less than projected.  The mine has
been working extensively to rectify these issues and has recently resumed its
target production rates.  The Choco
mineral concessions cover oxide and sulphide gold mineralization that occurs in
the western portion of the Pastora greenstone belt, which in turn forms part of
the Proterozoic to Archaean Guyana Shield. Primary gold deposits comprise
irregular lenses and pods of quartz-sericite altered metavolcanic rock.
Shearing has facilitated the deep tropical weathering observed in the region
and the development of saprolite to depths of 30 to 70 m.  Quartz and sericite enriched gold
mineralization is hosted by clay and sericite altered metavolcanic rocks.  Drilling has been extensive on the property
by previous and current owners including Promiven, Bolivar Gold and Gold Fields
for a total of 157,043 m of diamond drilling, 23,782 m of reverse circulation
drilling, and 42,483 m of aircore drilling. Resource estimations have been
verified extensively.

 

In order to endorse the
existing resources of Choco 10, a detailed review of the available technical
documentation and mineral resource and reserve estimation procedures was
undertaken by Micon.  Lastly,
cross-sections were generated showing exploration drill hole composites against
the actual block model grade estimates and modelled geology for each of the
mineral deposits that make up the Choco 10 area.  These cross-sections have been used to
examine the composites against the actual estimated values 

 

30

 

within selected blocks.  A comprehensive review of the available
mineral resource and reserve estimates documentation and procedures for Choco
10 was completed during October, 2007. 
The major source used in this review was a competent persons report (“CPR”)
prepared by a prior operator.  In Micon’s
opinion the resource estimation methodology and procedures developed by the
prior operator are very thorough and provide an excellent basis for the
resource and reserve estimates.  The
following Table presents the Mineral Resource statement for the Choco 10
deposits as of September 30, 2007. 
The Mineral Resources are reported in-situ, and include the Mineral
Reserves given in the following Table. 
They are un-constrained (in that no economic mining limits were applied)
and include breakdowns by measured, indicated and inferred.  They are also broken down by individual
deposits and material types.

 

Table - Choco 10
Unconstrained Mineral Resource as of September 30, 2007

 

	
   

  	
   

  	
   

  	
   

  	
  Measured

  	
   

  	
  Indicated

  	
   

  	
  Total M + I

  	
   

  	
  Inferred

  	
   

  
	
   

  	
   

  	
  Cut- Off

  	
   

  	
  Tonnes

  	
   

  	
  Grade

  	
   

  	
  Au oz

  	
   

  	
  Tonnes

  	
   

  	
  Grade

  	
   

  	
  Au oz

  	
   

  	
  Tonnes

  	
   

  	
  Grade

  	
   

  	
  Au oz

  	
   

  	
  Tonnes

  	
   

  	
  Grade

  	
   

  	
  Au oz

  	
   

  
	
   

  	
   

  	
  (g/t)

  	
   

  	
  (millions)

  	
   

  	
  (g/t)

  	
   

  	
  (000)

  	
   

  	
  (millions)

  	
   

  	
  (g/t)

  	
   

  	
  (000)

  	
   

  	
  (millions)

  	
   

  	
  (g/t)

  	
   

  	
  (000)

  	
   

  	
  (millions)

  	
   

  	
  (g/t)

  	
   

  	
  (000)

  	
   

  
	
  Pit
  Material

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Rosika
  Oxide

  	
   

  	
  0.5

  	
   

  	
  0.1

  	
   

  	
  2.74

  	
   

  	
  13

  	
   

  	
  0.5

  	
   

  	
  1.49

  	
   

  	
  22

  	
   

  	
  0.6

  	
   

  	
  1.79

  	
   

  	
  35

  	
   

  	
  0.1

  	
   

  	
  1.95

  	
   

  	
  5

  	
   

  
	
  Trans

  	
   

  	
  0.5

  	
   

  	
  0.2

  	
   

  	
  3.02

  	
   

  	
  15

  	
   

  	
  0.2

  	
   

  	
  1.50

  	
   

  	
  12

  	
   

  	
  0.4

  	
   

  	
  2.09

  	
   

  	
  26

  	
   

  	
  0.1

  	
   

  	
  2.08

  	
   

  	
  5

  	
   

  
	
  Fresh

  	
   

  	
  0.5

  	
   

  	
  1.6

  	
   

  	
  3.21

  	
   

  	
  165

  	
   

  	
  11.1

  	
   

  	
  2.23

  	
   

  	
  796

  	
   

  	
  12.7

  	
   

  	
  2.35

  	
   

  	
  961

  	
   

  	
  5.9

  	
   

  	
  2.12

  	
   

  	
  400

  	
   

  
	
  Coacia
  Oxide

  	
   

  	
  0.5

  	
   

  	
  0.1

  	
   

  	
  1.18

  	
   

  	
  3

  	
   

  	
  2.0

  	
   

  	
  1.86

  	
   

  	
  120

  	
   

  	
  2.1

  	
   

  	
  1.83

  	
   

  	
  123

  	
   

  	
  0.5

  	
   

  	
  1.75

  	
   

  	
  27

  	
   

  
	
  Trans

  	
   

  	
  0.5

  	
   

  	
  0.0

  	
   

  	
  0.00

  	
   

  	
  0

  	
   

  	
  0.4

  	
   

  	
  1.65

  	
   

  	
  23

  	
   

  	
  0.4

  	
   

  	
  1.65

  	
   

  	
  23

  	
   

  	
  0.2

  	
   

  	
  1.80

  	
   

  	
  12

  	
   

  
	
  Fresh

  	
   

  	
  0.5

  	
   

  	
  0.0

  	
   

  	
  0.00

  	
   

  	
  0

  	
   

  	
  3.9

  	
   

  	
  2.29

  	
   

  	
  287

  	
   

  	
  3.9

  	
   

  	
  2.29

  	
   

  	
  287

  	
   

  	
  3.1

  	
   

  	
  1.71

  	
   

  	
  171

  	
   

  
	
  Pisolita
  Oxide

  	
   

  	
  0.5

  	
   

  	
  0.3

  	
   

  	
  2.25

  	
   

  	
  24

  	
   

  	
  2.0

  	
   

  	
  1.45

  	
   

  	
  95

  	
   

  	
  2.4

  	
   

  	
  1.57

  	
   

  	
  119

  	
   

  	
  1.3

  	
   

  	
  1.09

  	
   

  	
  45

  	
   

  
	
  Trans

  	
   

  	
  0.5

  	
   

  	
  0.2

  	
   

  	
  2.31

  	
   

  	
  18

  	
   

  	
  0.3

  	
   

  	
  1.90

  	
   

  	
  18

  	
   

  	
  0.5

  	
   

  	
  2.09

  	
   

  	
  36

  	
   

  	
  0.3

  	
   

  	
  1.35

  	
   

  	
  14

  	
   

  
	
  Fresh

  	
   

  	
  0.5

  	
   

  	
  0.1

  	
   

  	
  1.96

  	
   

  	
  5

  	
   

  	
  0.2

  	
   

  	
  1.60

  	
   

  	
  8

  	
   

  	
  0.2

  	
   

  	
  1.72

  	
   

  	
  13

  	
   

  	
  5.5

  	
   

  	
  2.66

  	
   

  	
  470

  	
   

  
	
  VBK
  Oxide

  	
   

  	
  0.5

  	
   

  	
  0.0

  	
   

  	
  0.00

  	
   

  	
  0

  	
   

  	
  0.3

  	
   

  	
  2.03

  	
   

  	
  22

  	
   

  	
  0.3

  	
   

  	
  2.03

  	
   

  	
  22

  	
   

  	
  0.4

  	
   

  	
  1.21

  	
   

  	
  15

  	
   

  
	
  Trans

  	
   

  	
  0.5

  	
   

  	
  0.0

  	
   

  	
  0.00

  	
   

  	
  0

  	
   

  	
  0.2

  	
   

  	
  2.21

  	
   

  	
  13

  	
   

  	
  0.2

  	
   

  	
  2.21

  	
   

  	
  13

  	
   

  	
  0.2

  	
   

  	
  1.17

  	
   

  	
  9

  	
   

  
	
  Fresh

  	
   

  	
  0.5

  	
   

  	
  0.0

  	
   

  	
  0.00

  	
   

  	
  0

  	
   

  	
  35.1

  	
   

  	
  2.67

  	
   

  	
  3,017

  	
   

  	
  35.1

  	
   

  	
  2.67

  	
   

  	
  3,017

  	
   

  	
  25.3

  	
   

  	
  2.26

  	
   

  	
  1,844

  	
   

  
	
  Sub
  Total Oxide

  	
   

  	
  0.5

  	
   

  	
  0.6

  	
   

  	
  2.22

  	
   

  	
  41

  	
   

  	
  4.8

  	
   

  	
  1.67

  	
   

  	
  259

  	
   

  	
  5.4

  	
   

  	
  1.72

  	
   

  	
  300

  	
   

  	
  2.2

  	
   

  	
  1.28

  	
   

  	
  93

  	
   

  
	
  Trans

  	
   

  	
  0.5

  	
   

  	
  0.4

  	
   

  	
  2.58

  	
   

  	
  33

  	
   

  	
  1.1

  	
   

  	
  1.77

  	
   

  	
  65

  	
   

  	
  1.5

  	
   

  	
  1.98

  	
   

  	
  98

  	
   

  	
  0.8

  	
   

  	
  1.48

  	
   

  	
  40

  	
   

  
	
  Fresh

  	
   

  	
  0.5

  	
   

  	
  1.7

  	
   

  	
  3.15

  	
   

  	
  170

  	
   

  	
  50.3

  	
   

  	
  2.54

  	
   

  	
  4,107

  	
   

  	
  52.0

  	
   

  	
  2.56

  	
   

  	
  4,277

  	
   

  	
  39.8

  	
   

  	
  2.26

  	
   

  	
  2,885

  	
   

  
	
  Grand
  Total

  	
   

  	
   

  	
   

  	
  2.6

  	
   

  	
  2.86

  	
   

  	
  243

  	
   

  	
  56.3

  	
   

  	
  2.45

  	
   

  	
  4,432

  	
   

  	
  58.9

  	
   

  	
  2.47

  	
   

  	
  4,675

  	
   

  	
  42.9

  	
   

  	
  2.19

  	
   

  	
  3,017

  	
   

  

 

Micon’s review of the Choco
10 mineral resource also included a review of the mineral reserve estimates. A
prior operator, using the mineral resource model described above, developed a
reserve estimate using Whittle 4X pit optimization software at a US$500 per
ounce gold price and cut-off of 0.5 g/t. 
The results of this optimization were used to develop an ultimate pit
design which was then scheduled for the remainder of the mine life.  Reserves from this work were estimated as of December 31,
2006 and reported in the CPR.  The
reserves were updated to a mining surface dated September 30, 2007 by a
prior operator using the US$500/ounce pit shell described in the CPR.  Within this pit shell, reserves were
determined using a gold price of US$550/ounce and are based on industry
standard design practice and represent an economic, mineable design for the
proven and probable reserves.  These are
tabulated in the following Table.

 

Table - Choco 10 Mineral
Reserve as of September 30, 2007

 

	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Proven

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Probable

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Total P + P

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  CutOff

  	
   

  	
  Tonnes

  	
   

  	
  Grade

  	
   

  	
  Au oz

  	
   

  	
  Tonnes

  	
   

  	
  Grade

  	
   

  	
  Au oz

  	
   

  	
  Tonnes

  	
   

  	
  Grade

  	
   

  	
  Au oz

  	
   

  
	
  Pit

  	
   

  	
  (g/t)

  	
   

  	
  (millions)

  	
   

  	
  (g/t)

  	
   

  	
  (000)

  	
   

  	
  (millions)

  	
   

  	
  (g/t)

  	
   

  	
  (000)

  	
   

  	
  (millions)

  	
   

  	
  (g/t)

  	
   

  	
  (000)

  	
   

  
	
  Rosika/Coacia

  	
   

  	
  0.5

  	
   

  	
  1.9

  	
   

  	
  3.05

  	
   

  	
  185

  	
   

  	
  9.4

  	
   

  	
  2.80

  	
   

  	
  841

  	
   

  	
  11.2

  	
   

  	
  2.84

  	
   

  	
  1,026

  	
   

  
	
  Pisolita

  	
   

  	
  0.5

  	
   

  	
  0.4

  	
   

  	
  2.59

  	
   

  	
  36

  	
   

  	
  0.7

  	
   

  	
  2.41

  	
   

  	
  52

  	
   

  	
  1.1

  	
   

  	
  2.48

  	
   

  	
  88

  	
   

  
	
  VBK

  	
   

  	
  0.5

  	
   

  	
  0.0

  	
   

  	
  0.00

  	
   

  	
  0

  	
   

  	
  4.9

  	
   

  	
  4.42

  	
   

  	
  703

  	
   

  	
  4.9

  	
   

  	
  4.42

  	
   

  	
  703

  	
   

  
	
  Sub Total Pits

  	
   

  	
  0.5

  	
   

  	
  2.3

  	
   

  	
  2.97

  	
   

  	
  221

  	
   

  	
  15.0

  	
   

  	
  3.32

  	
   

  	
  1,596

  	
   

  	
  17.3

  	
   

  	
  3.27

  	
   

  	
  1,817

  	
   

  
	
  Stockpiles

  	
   

  	
  0.5

  	
   

  	
  0.4

  	
   

  	
  1.08

  	
   

  	
  14

  	
   

  	
  0.0

  	
   

  	
  0.00

  	
   

  	
  0

  	
   

  	
  0.4

  	
   

  	
  1.08

  	
   

  	
  14

  	
   

  
	
  Grand Total

  	
   

  	
   

  	
   

  	
  2.7

  	
   

  	
  2.70

  	
   

  	
  234

  	
   

  	
  15.0

  	
   

  	
  3.32

  	
   

  	
  1,596

  	
   

  	
  17.7

  	
   

  	
  3.22

  	
   

  	
  1,830

  	
   

  

 

The Mineral Resource set out
in preceding table and the Mineral Reserve set out in the above Table were
estimated in accordance with the SAMREC code. 
In Micon’s opinion, however, they comply fully with 

 

31

 

the Canadian Institute of
Mining, Metallurgy and Petroleum (CIM) standards on Mineral Resources and
Reserves – Definitions and Guidelines, developed by the CIM standing committee
on reserve definitions, as adopted by the CIM Council on December 11,
2005.  Micon considers that the Measured,
Indicated and Inferred Resources quoted in this report are equivalent to
Measured, Indicated and Inferred Mineral Resources under the CIM definitions,
and that the Proved and Probable (Ore) Reserves quoted herein are equivalent to
Proven and Probable Mineral Reserves, as defined by the CIM.  Production statistics for the Choco 10 mine
from July, 2006 to September, 2007, are shown in Table below.  Planned future production levels are
summarized in the following Table.  The
reserves, as currently known, are sufficient for a remaining life of ten years.

 

Table - Production
Statistics from July, 2006 to September, 2007 by Quarter

 

	
   

  	
   

  	
   

  	
   

  	
  Q3- 2006

  	
   

  	
  Q4-2006

  	
   

  	
  Q1-2007

  	
   

  	
  Q2-2007

  	
   

  	
  Q3-2007

  	
   

  
	
  Ore tones

  	
   

  	
  t

  	
   

  	
  362,120

  	
   

  	
  346,692

  	
   

  	
  194,253

  	
   

  	
  199,263

  	
   

  	
  267,712

  	
   

  
	
  Head grade

  	
   

  	
  g/t

  	
   

  	
  1.87

  	
   

  	
  1.90

  	
   

  	
  1.58

  	
   

  	
  1.49

  	
   

  	
  2.13

  	
   

  
	
  Contained gold

  	
   

  	
  oz

  	
   

  	
  21,767

  	
   

  	
  21,137

  	
   

  	
  9,893

  	
   

  	
  9,517

  	
   

  	
  18,347

  	
   

  
	
  Tonnes processed

  	
   

  	
  t

  	
   

  	
  305,757

  	
   

  	
  356,785

  	
   

  	
  191,395

  	
   

  	
  147,304

  	
   

  	
  401,100

  	
   

  
	
  Head grade

  	
   

  	
  g/t

  	
   

  	
  1.98

  	
   

  	
  2.23

  	
   

  	
  1.61

  	
   

  	
  1.65

  	
   

  	
  1.80

  	
   

  
	
  Gold to process

  	
   

  	
  oz

  	
   

  	
  19,457

  	
   

  	
  25,612

  	
   

  	
  9,891

  	
   

  	
  7,809

  	
   

  	
  23,268

  	
   

  
	
  Gold recovered

  	
   

  	
  oz

  	
   

  	
  17,354

  	
   

  	
  23,031

  	
   

  	
  8,392

  	
   

  	
  6,859

  	
   

  	
  19,854

  	
   

  
	
  Gold sold

  	
   

  	
  oz

  	
   

  	
  17,227

  	
   

  	
  22,801

  	
   

  	
  8,224

  	
   

  	
  7,409

  	
   

  	
  14,004

  	
   

  

 

Table - Choco 10 Forecast Mining Statistics

 

	
  Statistic

  	
   

  	
  Units

  	
   

  	
  LoM*

  	
   

  	
  F2007**

  	
   

  	
  F2008

  	
   

  	
  F2009

  	
   

  	
  F2010

  	
   

  	
  F2011

  	
   

  	
  F2012

  	
   

  	
  F2013-

  F2017

  	
   

  
	
  Material Mined

  	
   

  	
  (Mt)

  	
   

  	
  141.474

  	
   

  	
  6.566

  	
   

  	
  10.923

  	
   

  	
  17.087

  	
   

  	
  18.020

  	
   

  	
  18.014

  	
   

  	
  17.996

  	
   

  	
  55.505

  	
   

  
	
  Ore

  	
   

  	
  (Mt)

  	
   

  	
  16.875

  	
   

  	
  1.263

  	
   

  	
  1.869

  	
   

  	
  1.834

  	
   

  	
  1.823

  	
   

  	
  1.689

  	
   

  	
  1.828

  	
   

  	
  7.274

  	
   

  
	
  Waste

  	
   

  	
  (Mt)

  	
   

  	
  124.599

  	
   

  	
  5.303

  	
   

  	
  9.054

  	
   

  	
  15.253

  	
   

  	
  16.197

  	
   

  	
  16.324

  	
   

  	
  16.168

  	
   

  	
  48.230

  	
   

  
	
  Stripping Ratio

  	
   

  	
  (t 

  waste:ore)

  	
   

  	
  7.38

  	
   

  	
  4.20

  	
   

  	
  4.85

  	
   

  	
  8.31

  	
   

  	
  8.88

  	
   

  	
  9.66

  	
   

  	
  8.84

  	
   

  	
  7.63

  	
   

  
	
  Ore Grade

  	
   

  	
  (g/t)

  	
   

  	
  3.36

  	
   

  	
  1.85

  	
   

  	
  2.39

  	
   

  	
  2.53

  	
   

  	
  3.00

  	
   

  	
  3.01

  	
   

  	
  3.02

  	
   

  	
  4.19

  	
   

  
	
  Mining Costs

  	
   

  	
  (US$/t ore)

  	
   

  	
  16.34

  	
   

  	
  7.21

  	
   

  	
  9.09

  	
   

  	
  15.45

  	
   

  	
  18.21

  	
   

  	
  17.87

  	
   

  	
  19.33

  	
   

  	
  17.45

  	
   

  
	
   

  	
   

  	
  (US$/t 

  ore&waste)

  	
   

  	
  1.95

  	
   

  	
  1.39

  	
   

  	
  1.56

  	
   

  	
  1.66

  	
   

  	
  1.84

  	
   

  	
  1.68

  	
   

  	
  1.96

  	
   

  	
  2.29

  	
   

  

 

Note:  Does not include July-December, 2006 actual
production.

 

Micon has reviewed the
life-of-mine production and cost estimates prepared by the prior operator for
the Choco operation. Micon regards these estimates as reasonable.  The life-of-mine cash flow projection
compiled by Micon from these estimates, using a constant gold price of
US$550/oz, is summarized in the following Table.

 

	
   

  	
   

  	
  2008

  	
   

  	
  2009

  	
   

  	
  2010

  	
   

  	
  2011

  	
   

  	
  2012

  	
   

  	
  2013

  	
   

  	
  2014

  	
   

  	
  2015

  	
   

  	
  2016

  	
   

  	
  2017

  	
   

  	
  LOM Total

  	
   

  
	
  Revenue

  	
   

  	
  65.7

  	
   

  	
  70.5

  	
   

  	
  73.5

  	
   

  	
  79.2

  	
   

  	
  81.8

  	
   

  	
  85.0

  	
   

  	
  91.4

  	
   

  	
  97.2

  	
   

  	
  165.9

  	
   

  	
  103.9

  	
   

  	
  914.0

  	
   

  
	
  Mining Costs

  	
   

  	
  16.7

  	
   

  	
  28.6

  	
   

  	
  23.4

  	
   

  	
  22.2

  	
   

  	
  18.1

  	
   

  	
  12.0

  	
   

  	
  7.7

  	
   

  	
  5.7

  	
   

  	
  6.0

  	
   

  	
  0.9

  	
   

  	
  141.4

  	
   

  
	
  Processing Costs

  	
   

  	
  10.6

  	
   

  	
  10.9

  	
   

  	
  10.7

  	
   

  	
  10.7

  	
   

  	
  10.6

  	
   

  	
  10.7

  	
   

  	
  10.6

  	
   

  	
  10.7

  	
   

  	
  10.6

  	
   

  	
  10.8

  	
   

  	
  106.9

  	
   

  
	
  G&A on-site costs

  	
   

  	
  5.4

  	
   

  	
  5.4

  	
   

  	
  5.4

  	
   

  	
  5.4

  	
   

  	
  5.4

  	
   

  	
  5.4

  	
   

  	
  5.4

  	
   

  	
  5.4

  	
   

  	
  5.4

  	
   

  	
  5.4

  	
   

  	
  54.2

  	
   

  
	
  G&A off-site costs

  	
   

  	
  4.7

  	
   

  	
  4.7

  	
   

  	
  4.7

  	
   

  	
  4.7

  	
   

  	
  4.7

  	
   

  	
  4.7

  	
   

  	
  4.7

  	
   

  	
  4.7

  	
   

  	
  4.7

  	
   

  	
  4.7

  	
   

  	
  47.3

  	
   

  
	
  Royalties and fees

  	
   

  	
  2.8

  	
   

  	
  3.0

  	
   

  	
  3.1

  	
   

  	
  3.3

  	
   

  	
  4.9

  	
   

  	
  5.7

  	
   

  	
  6.2

  	
   

  	
  6.6

  	
   

  	
  11.2

  	
   

  	
  7.0

  	
   

  	
  53.7

  	
   

  
	
  Closure, etc.

  	
   

  	
  0.3

  	
   

  	
  0.3

  	
   

  	
  0.3

  	
   

  	
  0.3

  	
   

  	
  0.3

  	
   

  	
  0.3

  	
   

  	
  0.3

  	
   

  	
  0.3

  	
   

  	
  0.3

  	
   

  	
  8.0

  	
   

  	
  10.2

  	
   

  
	
  Capital Expenditure

  	
   

  	
  33.7

  	
   

  	
  13.0

  	
   

  	
  5.2

  	
   

  	
  4.0

  	
   

  	
  3.0

  	
   

  	
  2.2

  	
   

  	
  1.2

  	
   

  	
  0.9

  	
   

  	
  0.9

  	
   

  	
  64.0

  	
   

  	
   

  	
   

  
	
  Cap.development

  	
   

  	
  —

  	
   

  	
  0.1

  	
   

  	
  6.5

  	
   

  	
  7.8

  	
   

  	
  16.8

  	
   

  	
  23.3

  	
   

  	
  29.2

  	
   

  	
  34.8

  	
   

  	
  16.5

  	
   

  	
  135.0

  	
   

  	
   

  	
   

  
	
  Taxation

  	
   

  	
  6.7

  	
   

  	
  4.3

  	
   

  	
  5.9

  	
   

  	
  7.6

  	
   

  	
  8.1

  	
   

  	
  8.4

  	
   

  	
  9.2

  	
   

  	
  10.7

  	
   

  	
  15.1

  	
   

  	
  17.6

  	
   

  	
  93.6

  	
   

  
	
  Free cash flow

  	
   

  	
  -15.2

  	
   

  	
  0.3

  	
   

  	
  8.4

  	
   

  	
  13.2

  	
   

  	
  9.8

  	
   

  	
  12.2

  	
   

  	
  16.9

  	
   

  	
  17.4

  	
   

  	
  95.1

  	
   

  	
  49.5

  	
   

  	
  207.6

  	
   

  
	
  Cumulative c/flow

  	
   

  	
   

  	
   

  	
  -15.2

  	
   

  	
  -14.9

  	
   

  	
  -6.5

  	
   

  	
  6.7

  	
   

  	
  16.5

  	
   

  	
  28.7

  	
   

  	
  45.6

  	
   

  	
  63.0

  	
   

  	
  158.1

  	
   

  	
  207.6

  	
   

  
	
  Average Revenue US$/oz

  	
   

  	
  550.0

  	
   

  	
  550.0

  	
   

  	
  550.0

  	
   

  	
  550.0

  	
   

  	
  550.0

  	
   

  	
  550.0

  	
   

  	
  550.0

  	
   

  	
  550.0

  	
   

  	
  550.0

  	
   

  	
  550.0

  	
   

  	
  550.0

  	
   

  
	
  Opcosts US$/oz

  	
   

  	
  339.2

  	
   

  	
  412.6

  	
   

  	
  356.2

  	
   

  	
  323.8

  	
   

  	
  296.1

  	
   

  	
  251.3

  	
   

  	
  210.1

  	
   

  	
  188.6

  	
   

  	
  126.8

  	
   

  	
  194.7

  	
   

  	
  249.0

  	
   

  
	
  Capital US$/oz

  	
   

  	
  282.0

  	
   

  	
  101.7

  	
   

  	
  87.3

  	
   

  	
  82.1

  	
   

  	
  133.4

  	
   

  	
  165.0

  	
   

  	
  183.0

  	
   

  	
  202.1

  	
   

  	
  57.7

  	
   

  	
  —

  	
   

  	
  119.8

  	
   

  
	
  Taxes US$/oz

  	
   

  	
  56.2

  	
   

  	
  33.2

  	
   

  	
  43.8

  	
   

  	
  52.7

  	
   

  	
  54.4

  	
   

  	
  54.6

  	
   

  	
  55.4

  	
   

  	
  60.7

  	
   

  	
  50.1

  	
   

  	
  93.3

  	
   

  	
  56.3

  	
   

  
	
  Free Cash Flow US$/oz

  	
   

  	
  (127.4

  	
  )

  	
  2.5

  	
   

  	
  62.7

  	
   

  	
  91.4

  	
   

  	
  66.1

  	
   

  	
  79.0

  	
   

  	
  101.6

  	
   

  	
  98.6

  	
   

  	
  315.4

  	
   

  	
  262.0

  	
   

  	
  124.9

  	
   

  

 

32

 

As shown in the above table,
the projected cash operating cost of Choco 10 averages US$249/oz gold produced
over the life of the mine.  Life-of-mine
capital expenditures add a further US$120/oz. 
The total free cash flow over the life of the mine is estimated at
US$208 million (US$124.9/oz), with a net present value of US$91 million at a
discount rate of 10% per year.  These
projections suggest that the Choco 10 project is economically robust.

 

Increible 6 Project; The
technical information on the Increible 6 Project is detailed in a 43-101
compliant independent technical report titled; Technical Report on the
Increible 6 Property, Bolivar State, Venezuela, by David Laudrum, P.Geo. and
John Zbeetnoff, P.Geo. of Micon and dated November 14, 2007, as revised February 14,
2008.

 

The current report is based
on data provided to Micon by Rusoro and on other relevant, publicly available
information.  The report incorporates the
exploration results obtained from the Increible 6 project as of June 21,
2007.  The Increible 6 gold project is
100% owned by Rusoro through a wholly owned subsidiary, General Mining de
Guayana, C.A. (General Mining).  The
concession, totalling 2,472.5 hectares (ha), is located in Roscio Municipality,
Bolivar State, Republic of Venezuela. The concession is located a few
kilometres west of the town of El Callao at UTM coordinates 624000E and
815000N.  El Callao has been a mining
centre for more than one hundred years. 
Both underground and open pit mining operations have occurred, or are
occurring, around the city.  The town has
a population of about 20,000 and there are considered to be adequate supplies
of personnel, water, waste disposal facilities and power to support mining
production, if required.  The Increible 6
concession lies within a northeast trending greenstone belt of early
Proterozoic age.  The concession is underlain
by, from oldest to youngest; metabasalt and andesite, carbonaceous siltstones
with conglomerate, felsic volcanics, greywackes and siltstones, and
quartz-porphyry.  As with most of the
area of Bolivar State, deep weathering is present, typically up to 50 metres (m) thick
in the Increible 6 area.  Currently
identified areas of significant gold mineralization on the Increible 6
concession are restricted to a deformation zone through the central part of the
property which hosts numerous, discontinuous low sulphide, sericitic shear
zones.  Mineralization is hosted within
volcanoclastic rocks and porphyritic intrusives.  Host rocks in and near the deformation zone
are variably altered by an assemblage of chlorite, sericite, quartz, carbonate,
iron-carbonate, albite, pyrite, and ‘bleaching’. Visible gold is rare.  There is a clear positive relationship
between high gold assays and abundance of quartz veining in drill core.

 

The current NI 43-101
compliant Mineral Resource Estimate for the Increible 6 concession includes all
assay data which had been received, and passed through Rusoro’s quality
assurance/quality control (QA/QC) procedures, as of June 21, 2007. The
resource incorporates four main deposit areas on the Increible 6 concession:
Culebra, Cristina, Elisa-Ingrid, and Olga-Enoc. 
All deposit areas were modelled into a single block model.  A geological interpretation of the deposit
was carried out by Rusoro geological staff which included identifying
mineralized lenses as well as the depth to which oxidation has occurred. These
features were then digitized and used to construct wire frame shapes (Gems
solids) of each mineralized lens or domain which were used as hard boundaries
in the estimation process.  Grade was
interpolated using an inverse distance squared (ID-2) computational method.
Interpolation was based on 2-m composites of assays capped to reduce the
influence of any erratic high-grade values. 
Based on the parameters described in this report Micon estimated that
the Increible 6 deposit contains an Indicated mineral resource of 23.45 million
tonnes grading 2.11 grams per tonne gold (g/t Au), as well as an Inferred
mineral resource of 17.53 million tonnes grading 1.95 g/t Au, at a 0.5 g/t Au
cut-off grade.  The oxide and sulphide
resource for the four main deposit areas on the Increible 6 project are
detailed in the following Table.

 

33

 

Table -
Increible 6 Mineral Resource Estimate

 

	
  Zone

  	
   

  	
  Resource

  Category

  	
   

  	
  Cut-off Grade

  (g/t Au)

  	
   

  	
  Millions of

  Tonnes

  	
   

  	
  Grade

  (g/t Au)

  	
   

  	
  Product Gold

  (millions of

  ounces)

  
	
  Cristina Oxide

  	
   

  	
  Indicated

  	
   

  	
  0.5

  	
   

  	
  0.79

  	
   

  	
  2.39

  	
   

  	
  0.06

  
	
   

  	
   

  	
  Inferred

  	
   

  	
  0.5

  	
   

  	
  0.58

  	
   

  	
  1.77

  	
   

  	
  0.03

  
	
  Cristina Sulphide

  	
   

  	
  Indicated

  	
   

  	
  0.5

  	
   

  	
  1.79

  	
   

  	
  1.98

  	
   

  	
  0.11

  
	
   

  	
   

  	
  Inferred

  	
   

  	
  0.5

  	
   

  	
  1.35

  	
   

  	
  1.54

  	
   

  	
  0.07

  
	
  Culebra Oxide

  	
   

  	
  Indicated

  	
   

  	
  0.5

  	
   

  	
  1.77

  	
   

  	
  2.10

  	
   

  	
  0.12

  
	
   

  	
   

  	
  Inferred

  	
   

  	
  0.5

  	
   

  	
  0.54

  	
   

  	
  2.20

  	
   

  	
  0.04

  
	
  Culebra Sulphide

  	
   

  	
  Indicated

  	
   

  	
  0.5

  	
   

  	
  3.78

  	
   

  	
  1.84

  	
   

  	
  0.22

  
	
   

  	
   

  	
  Inferred

  	
   

  	
  0.5

  	
   

  	
  1.91

  	
   

  	
  1.39

  	
   

  	
  0.09

  
	
  Elisa-Ingrid Oxide

  	
   

  	
  Indicated

  	
   

  	
  0.5

  	
   

  	
  1.19

  	
   

  	
  2.04

  	
   

  	
  0.08

  
	
   

  	
   

  	
  Inferred

  	
   

  	
  0.5

  	
   

  	
  0.73

  	
   

  	
  1.71

  	
   

  	
  0.04

  
	
  Elisa-Ingrid Sulphide

  	
   

  	
  Indicated

  	
   

  	
  0.5

  	
   

  	
  13.89

  	
   

  	
  2.19

  	
   

  	
  0.98

  
	
   

  	
   

  	
  Inferred

  	
   

  	
  0.5

  	
   

  	
  11.11

  	
   

  	
  2.14

  	
   

  	
  0.76

  
	
  Olga-Enoc Oxide

  	
   

  	
  Indicated

  	
   

  	
  0.5

  	
   

  	
  0.00

  	
   

  	
  1.41

  	
   

  	
  0.00

  
	
   

  	
   

  	
  Inferred

  	
   

  	
  0.5

  	
   

  	
  0.29

  	
   

  	
  1.88

  	
   

  	
  0.02

  
	
  Olga-Enoc Sulphide

  	
   

  	
  Indicated

  	
   

  	
  0.5

  	
   

  	
  0.24

  	
   

  	
  1.91

  	
   

  	
  0.01

  
	
   

  	
   

  	
  Inferred

  	
   

  	
  0.5

  	
   

  	
  1.03

  	
   

  	
  1.71

  	
   

  	
  0.06

  
	
  Total Oxide

  	
   

  	
  Indicated

  	
   

  	
  0.5

  	
   

  	
  3.74

  	
   

  	
  2.14

  	
   

  	
  0.26

  
	
   

  	
   

  	
  Inferred

  	
   

  	
  0.5

  	
   

  	
  2.13

  	
   

  	
  1.87

  	
   

  	
  0.13

  
	
  Total Sulphide

  	
   

  	
  Indicated

  	
   

  	
  0.5

  	
   

  	
  19.71

  	
   

  	
  2.10

  	
   

  	
  1.33

  
	
   

  	
   

  	
  Inferred

  	
   

  	
  0.5

  	
   

  	
  15.40

  	
   

  	
  1.96

  	
   

  	
  0.97

  
	
  Overall
  Total

  	
   

  	
  Indicated

  	
   

  	
  0.5

  	
   

  	
  23.45

  	
   

  	
  2.11

  	
   

  	
  1.59

  
	
   

  	
   

  	
  Inferred

  	
   

  	
  0.5

  	
   

  	
  17.53

  	
   

  	
  1.95

  	
   

  	
  1.10

  

 

Block B (Isidora):  The technical information on the Block B
(including the Isidora mine) Project is detailed in a 43-101 compliant
independent technical report titled; Technical Report on the Mining and
Processing Operations of Hecla Mining Company, Estado Bolivar, Venezuela by
Robert J. Leader, P.Eng., Dave Laudrum, P.Geo., Ian R. Ward, P.Eng., and Luke
Evans, P.Eng. of Micon and dated August 1, 2008.

 

The Isidora Mine is situated
within the Minerven M-2 concession on the Block B concessions located just to
the southwest of the town of El Callao. 
The closed La Camorra mine and active La Camorra processing plant are located
on the La Camorra concession in the El Dorado block and are located
approximately 20 km northeast of the town of El Dorado.  The La Camorra plant is approximately 120 km
distant from the Isidora Mine.  Block B is
an area of 1,787 ha that encompasses several past-producing gold mines and the
El Dorado block is an area of 8,635 ha that encompasses 11 contiguous
properties.  Mineralized veins in the
Block B area are typical, shear-hosted mesothermal quartz veins that formed
under greenschist-grade metamorphic conditions. 
The veins contain free gold and gold and bismuth tellurides in quartz
with pyrite and minor chalcopyrite.  Vein
contacts with the wallrocks are generally sharp but contain some local
complexities such as splays and stockworks at their margins.  Dave Laudrum, P. Geo., Senior Associate of
Micon, completed a detailed review of the Isidora Mine Mineral Resource
Estimate which included re-running the resource model using the database,
deposit wireframes, and estimation parameters as supplied by Hecla.  Luke Evans P. Geo., of Scott Wilson Roscoe
Postle Associates Inc. (Scott Wilson RPA) completed a Mineral Resource Estimate
of the Twin Shear Zone.  The Mineral
Resource Estimate at Isidora Mine, estimated by Hecla as of March 31, 2008
is summarized in the following Table.

 

Table -Isidora Mine Mineral
Resource Estimate at March 31, 2008 (8 g/t Au cut-off grade)1, 2.

 

	
  Category

  	
   

  	
  Tonnes

  	
   

  	
  Grade (g/t Au)

  	
   

  	
  Ounces Gold

  	
   

  
	
  Measured

  	
   

  	
  107,534

  	
   

  	
  29.06

  	
   

  	
  100,495

  	
   

  
	
  Indicated

  	
   

  	
  362,738

  	
   

  	
  19.75

  	
   

  	
  230,376

  	
   

  
	
  Total Measured and Indicated

  	
   

  	
  470,272

  	
   

  	
  21.88

  	
   

  	
  330,871

  	
   

  
	
  Inferred

  	
   

  	
  99,038

  	
   

  	
  14.13

  	
   

  	
  45,006

  	
   

  

 

34

 

The mineral Resource
Estimate shown in the above Table is inclusive of the mineral reserves shown in
the following table. The mineral Resource Estimate set out in Table 1.1 are
reduced from the December 31, 2007 Resource Estimate and were discounted
for past production up to March 31, 2008. The Mineral Resource Estimate at
the Twin Shear Zone, as estimated by Luke Evans of Scott Wilson RPA is
summarized in the following Table. The cut-off date for drill hole data
utilized in the mineral resource estimate is September, 2007. The effective
date of the mineral resource estimate is June, 2008. There are currently no
defined Mineral Reserves at the Twin Shear Zone.

 

Table - Inferred Mineral
Resource Estimate at Twin Shear Zone (June, 2008) (8 g/t Au cut-off grade)

 

	
  Category

  	
   

  	
  Tonnes

  	
   

  	
  Grade (g/t Au)

  	
   

  	
  Grade Cap 50 g/t Au

  	
   

  	
  Ounces Gold

  	
   

  
	
  Inferred

  	
   

  	
  1,195,000

  	
   

  	
  14.9

  	
   

  	
  12.5

  	
   

  	
  481,900

  	
   

  

 

1.                                       Mineral
resource estimates which are not mineral reserves do not have demonstrated
economic viability.  The estimate of
mineral resources may be materially affected by environmental, permitting,
legal, title, taxation, socio-political, marketing, or other relevant issues.

 

2.                                       The
quantity and grade of reported inferred resources in these estimates are
uncertain in nature and there has been insufficient exploration to define these
inferred resources as an indicated or measured mineral resource and it is
uncertain if further exploration will result in upgrading them to an indicated
or measured category.

 

Proven and Probable reserves
reported by Hecla for the Isidora Mine are summarized by category in the
following Table;

 

Table -Mineral Reserves at
Isidora Mine, December 31, 2007 (17 g/t Au cut-off grade)

 

	
  Category

  	
   

  	
  Tonnes

  	
   

  	
  Grade (g/t Au)

  	
   

  	
  Ounces Gold

  	
   

  
	
  Proven

  	
   

  	
  70,298

  	
   

  	
  37.20

  	
   

  	
  84,029

  	
   

  
	
  Probable

  	
   

  	
  109,149

  	
   

  	
  28.80

  	
   

  	
  101,056

  	
   

  
	
  Total Proven and Probable Reserves

  	
   

  	
  179,447

  	
   

  	
  32.10

  	
   

  	
  185,085

  	
   

  

 

In the following table,
Hecla’s March 31, 2008 estimate is fully discounted for all mine
production which had taken place prior to the update, as shown in the above
Table.  Mine production in the first
quarter was subtracted from the December 31, 2007 reserves.  There are no reportable reserves for the La
Camorra mine as it has been permanently closed owing to excessively high costs
and problematic ground conditions at depth.

 

Table  - 
Summary of Reserves at Isidora Mine as of March 31, 2008

 

	
   

  	
   

  	
  Tonnes

  	
   

  	
  Grade (g/t Au)

  	
   

  	
  Grams Gold

  	
   

  	
  Ounces Gold

  	
   

  
	
  Reserves - Dec 31, 2007

  	
   

  	
  179,447

  	
   

  	
  32.1

  	
   

  	
  5,760,249

  	
   

  	
  185,085

  	
   

  
	
  Less Production, Jan - Mar, 2008

  	
   

  	
  17,558

  	
   

  	
  30.21

  	
   

  	
  530,427

  	
   

  	
  17,054

  	
   

  
	
  Remaining Reserves - Mar 31, 2008

  	
   

  	
  161,889

  	
   

  	
  32.30

  	
   

  	
  5,229,822

  	
   

  	
  168,031

  	
   

  

 

35

 

 

The most advanced of Hecla’s
other exploration targets are the Chile East target on Block B, and the Canaíma
target in the La Camorra area on the El Dorado concessions.  The following are a series of conclusions and
risk factors based on the site visits and review of the data provided to
date.  In Micon’s view, Hecla has used an
appropriate methodology in producing its March 31, 2008 Isidora Mine
Mineral Resource Estimate and has incorporated appropriate Quality
Assurance/Quality Control (QA/QC) measures in the production of that
estimate.  When actively mining, prior to
April, 2008, the Isidora Mine produced approximately 250 to 300 t/d of high
grade gold ore.  Micon concludes that
production rates are constrained by the lack of working faces and experienced
miners.  There is also reported to be a
shortage of underground haulage trucks. 
Production has also been affected by work stoppages and road
blockades the most recent being in June, 2008. 
Production has now restarted at the mine.  The up-dip panel stoping method being used at
Isidora mine is a method appropriate for the ore body configuration, ground
conditions and level of technical experience of the work force.  Ground conditions observed in the mine were
generally good, with only local support required in stopes.  As of December, 2007 Hecla had defined
approximately 18 months of mineral reserves for the Isidora Mine using a
cut-off grade of 17 g/t Au.  Hecla had
also developed a conceptual life-of-mine plan based on a lower cut-off grade of
10 g/t Au that would extend the mine life to between 24 to 26 months by
incorporating additional developed reserves that are above the lower cut-off
grade. Micon does not consider that it has been clearly demonstrated that
profitable mining at a 10 g/t cut-off grade is achievable.

 

The mine is a high cost
producer owing to the low production levels and manual methods of mining.  The potential to reduce mining costs over the
short term is considered limited since the present lack of experienced miners
and supervisory staff poses a restriction on the number of new working areas
that may be developed. 
Non-mining/processing costs form a significant portion of overall
operating cost, specifically the cost of re-handling and transport of ore to
the La Camorra mill is 9% of total unit costs and site services cost is 20% of
unit costs.  There may be possible
savings in operating costs if haulage distances to a processing plant are
reduced and overhead and head office costs streamlined.  Micon considers that given current levels of
gold spot prices, the use of a higher price than $570/oz for calculation of
mineral reserves can be justified in the short term.  The price of $750/oz used by Hecla for its
life-of-mine plan appears to be reasonable. 
By using higher gold prices and savings in some operating costs it is
Micon’s opinion that a reduction of the cut-off grade to around 12-14 g/t Au
might be achieved.  Theft of ore and
supplies from the mine property appears to be an ongoing problem, especially
where there is a significant amount of visible gold in the stoping areas.

 

La Camorra mine is now
closed and there is no likelihood that it can be economically reopened. Most
static equipment has been withdrawn from the mine and the pumps turned
off.  The mine is flooding at an
estimated rate of 1.0 vertical metres per day. 
Consequently there are no remaining economically extractable reserves at
La Camorra.  The mine surface
infrastructure is still in place but is not being well-maintained.  Most mobile equipment observed on surface is
in poor condition.  Venezuelan
regulations require the equipment to remain on the concession and, therefore,
little of it can be transferred to the Isidora Mine.  In Micon’s opinion the La Camorra processing
plant is well operated, is in reasonable mechanical condition, employs
conventional gold extraction technology, and achieves good recoveries with the
high grade ore from the Isidora Mine. Ore mined from Isidora mine is trucked
120 km to the La Camorra process plant. 
There is insufficient production from the Isidora Mine and other ore
sources to enable the 700 t/d capacity plant to operate continuously over a 24
hour, seven day per week period. Work is underway to supplement the feed by
reprocessing tailings and, thereby, to achieve continuous operation.  This will improve operational efficiency and
also reduce high wear and potential damage to the existing equipment.  Plant operations would benefit from the
following:

 

36

 

·                  Reduction in double handling
of Isidora ore. This will be difficult as long as ore needs to be transported
in truck convoys.

 

·                  Improvements to carbon
column operation by standardizing equipment sizes.

 

·                  Improvements in processing
operations to reduce losses of carbon fines.

 

Hecla has conducted a
systematic surface exploration program on its Block B and El Dorado Concessions
that has included geophysics, airphoto structural interpretation, topographic
surveys, rock and soil sampling and drilling. 
Hecla’s exploration efforts have successfully defined several
significant mineralized zones on exploration targets outside of the Isidora
Mine area.  Micon has not examined these
exploration targets beyond a superficial review of the data.  Scott Wilson RPA believes there is excellent
potential to expand the Twin Shear resource, particularly in the vicinity of
Zone 1, Lenses 2 and 3 (see Figure 17.5). 
Scott Wilson RPA’s view is that Twin Shear is still at an early
exploration stage and that more drilling is needed to better define the various
styles of mineralization and to develop appropriate models to guide future
interpretation and resource estimation work. 
There are clearly some parts of the shear zones that are more prospective
than others.  When more drilling data
become available, Scott Wilson RPA recommends developing a predictive
structural model that identifies favourable dilation zones and plunge
directions that are likely associated with specific types of shear zone
flexures, kinks and cross-structures. 
This would help future targeting and modeling work.  Hecla’s in-house evaluations of other
exploration targets (i.e., Chile East and Canaíma) indicated that the
mineralization did not have reasonable prospects for economic extraction, given
the parameters used at the time of the evaluations. Most of the currently
defined exploration targets are partially open at depth and, in some cases,
also along strike.  Significantly
expanding these zones, or justifying more optimistic evaluation criteria such
as a higher gold price, might change the economic picture.  Further study will be required to determine
if these exploration targets stand any potential of becoming economic
resources.

 

At the time of Micon’s site
visit the Hecla operations had lost a significant number of senior management
and senior technical staff.  Sourcing,
training and retaining replacement staff will be challenging in the current
mining boom and given the unique challenges and risks involved in working at
Venezuelan operations. There were no social or environmental fatal flaws
identified. However, community relations, security, and labour relations need
to be extensively managed and resources need to be committed to these areas to
manage the risks from these factors. During Micon’s review, a number of items
were identified as areas for consideration and improvement. The main points are
summarized below:

 

·                  The alternate transportation
route from the Isidora Mine to the plant at La Camorra that avoids the main
communities should be developed as early as possible or if ore haulage
continues along the current route, the Corporation should look at options to
assist with funding highway maintenance and safety upgrades.

 

·                  The community relations
coordinator is a key position, Should the present incumbent leave, the position
needs to be filled with an equally competent person or the risk of mine closure
from community blockades will once again increase.

 

·                  Mine site and general
security needs to be extensively and carefully managed with a commitment of
human and financial resources.

 

·                  Soil contamination by
hydrocarbons at La Camorra should be cleaned up in the near future.

 

Various risks to the Hecla
operations in Venezuela have been identified during Micon’s review. These are
summarized as follows:

 

37

 

·                  The potential inability to
replace the mined-out reserves within the Isidora Mine. The current reserve
base remaining as of March 31, 2008 at the Isidora Mine provides for
between 15 to 23 months of operation at current production rates.

 

·                  The potential inability to
convert other areas of mineralization into resources and, further, into
mineable reserves in time to allow for mine development and continuation of
mining prior to exhaustion of current Isidora Mine reserves.

 

·                  The possibility of a
reduction in mined grade owing to an increase in hanging wall dilution caused
by inexperienced mining operators, with a direct effect on cash flow.

 

·                  Accelerated reduction in the
current reserve base owing to lower than anticipated recovery from the sill
pillars due to poor ground conditions and/or loss of access thus shortening
mine life.

 

·                  Loss of the remaining
experienced ex-patriate management and engineering staff, resulting in a loss
of direction and control of the operation.

 

·                  Potential for lengthy
interruptions in operations by strikes or road blockades in the surrounding
communities affecting ability to produce.

 

Notwithstanding the above
identified risks, it is Micon’s opinion that based on the information provided
to date, there are no significant technical risks that might adversely affect
the economic viability of the current operations at the Isidora Mine and the
facilities at La Camorra.  However, if
any of the above risks factors were to materialize, they will likely have a
detrimental impact on cash flow.

 

Several opportunities exist
to improve the operational organization and efficiencies now that Rusoro has
acquired the Block B and El Dorado Block Concessions from Hecla.  The potential opportunities resulting from
the acquisition by Rusoro include:

 

·                  A possible savings in
operating costs (compared to 2007) if haulage distances to a processing plant
are reduced and overhead and head office costs streamlined.

 

·                  Opportunity to utilize the
present excess capacity at the 700 t/d La Camorra mill by treating ores from
other Rusoro projects nearby, for example the San Rafael/El Placer (SREP)
property of Rusoro. Where, if further work demonstrates that a mineral resource
with reasonable prospect of economic extraction is present, the proximity of
the mill at La Camorra will be a positive factor in project viability.

 

·                  Opportunity to resolve
on-going conflicts with neighbouring villages and reduce the cost of double
handling of the ore at the transfer station by constructing a bypass in the
transportation route to avoid the village of Perú-Chile or alternatively processing
ore from Isidora at the Choco 10 operation of Rusoro that is located
approximately 10 km west of the Isidora Mine.

 

Further study is needed to
evaluate these options.

 

Work is recommended to
optimize the existing operation at the Isidora Mine in terms of cutoff grade,
reducing double handling of material, and solving equipment and labour issues
to maximize income for the remainder of the mine life.  Further study will be required to determine
if exploration targets within at Chile East and Canaíma stand any potential of
becoming economic resources.  Micon
recommends that options and opportunities be investigated to coordinate Rusoro’s
various reserves and processing operations at Isidora, La Camorra, San
Rafael/El Placer, Choco 10, and Increible 6. 
In connection with the potential opportunities to be gained as a result
of the coordination of operations of the former Hecla 

 

38

 

assets with those of Rusoro,
it is recommended that alternate ore transportation routes are assessed in
order to resolve on-going conflicts in affected communities.

 

It is Micon’s opinion that
the exploration budget proposed by Rusoro for the Isidora Mine, shown in the
following Table, is warranted and that the budget of $1.5 million is
reasonable.

 

Table  - Isidora Mine Exploration Budget

 

	
  Description

  	
   

  	
  Amount ($)

  	
   

  
	
  Diamond drilling

  	
   

  	
  1,100,000

  	
   

  
	
  Assaying

  	
   

  	
  50,000

  	
   

  
	
  Geology and support

  	
   

  	
  125,000

  	
   

  
	
  Metallurgical testwork

  	
   

  	
  30,000

  	
   

  
	
  Environmental and permitting work

  	
   

  	
  25,000

  	
   

  
	
  Updated Resource Model

  	
   

  	
  25,000

  	
   

  
	
  Subtotal

  	
   

  	
  1,355,000

  	
   

  
	
  Plus contingency

  	
   

  	
  145,000

  	
   

  
	
  Grand Total

  	
   

  	
  1,500,000

  	
   

  

 

It is Scott Wilson RPA’s
opinion that the exploration work proposed by Rusoro is warranted and that the
proposed budget of approximately $1.6 million is reasonable.  The main work items are listed in the
following Table.

 

Table - Twin Shear Zone
Exploration Budget

 

	
  Description

  	
   

  	
  Amount ($)

  	
   

  
	
  Diamond drilling

  	
   

  	
  1,100,000

  	
   

  
	
  Assaying

  	
   

  	
  50,000

  	
   

  
	
  Geology and support

  	
   

  	
  125,000

  	
   

  
	
  Metallurgical testwork

  	
   

  	
  30,000

  	
   

  
	
  Environmental and permitting work

  	
   

  	
  50,000

  	
   

  
	
  Preliminary economic assessment

  	
   

  	
  100,000

  	
   

  
	
  Subtotal

  	
   

  	
  1,455,000

  	
   

  
	
  Plus 10% contingency

  	
   

  	
  145,000

  	
   

  
	
  Grand Total

  	
   

  	
  1,600,000

  	
   

  

 

39

 

It is recommended that the
proposed program be implemented by Rusoro.

 

San Rafael-El Placer
(SREP)and Days:  The technical information on the SREP Project
and the updated Days Resource Estimate is detailed in a 43-101 compliant
independent technical report titled; Technical Report on the San Rafael-El
Placer and Days Vein Deposits, Bolivar State, Venezuela, by Dave Laudrum,
P.Geo. of Micon and dated October 2, 2008.

 

Updated mineral resource
estimates were carried out for the SREP deposits, located on the SREP
concessions, and for the Days Vein deposit which is located on the Emilia
concession, 4 km north of the SREP deposits. 
A large structure, the Camorra Trend, crosses through the SREP
concessions and hosts most of the mineralization on these concessions, as well
as the past producing La Camorra mine, located 4 km southeast of SREP.

 

Mineralization on the Days
Vein is considered likely to be controlled by offshoots of the Camorra Trend.
Gold mineralization is restricted to narrow shear-hosted quartz (+/- carbonate)
veins. Occurrences of visible gold within the quartz veins are common.  There has been a significant amount of
shallow artisanal gold mining activity in the SREP area for many years.  Newton Ventures Inc. (Newton Ventures), the
predecessor company to Rusoro, initially held the SREP and Emilia
concessions.  The early history of Newton
Ventures is not well documented. 
However, Smith (2004) reported that the mill on the present Emilia
concession (adjacent to the El Placer concession) was in operation in the
1980s. Smith (2004) also reported that programs of line cutting, road building,
soil sampling, ground and airborne geophysics, trenching and diamond drilling
of the Camorra Trend were completed in the period 1992 to 1997.

 

For the current mineral
resource estimate on the SREP deposits the boundaries of 11 mineralized zones
have been modeled, based on assay composite grades >4.0 grams per tonne of
gold (g/t Au) and on the presence of quartz veining.  The sub-parallel zones strike northwest (300o Azimuth)
and dip -75o to the southwest.  The
modeled zones which were incorporated into the resource estimate extend
approximately 2,000 m along strike length and for approximately 700 m down
dip.  Additional along strike and down
dip extensions might be defined by further diamond drilling.  For the current mineral resource estimate on
the Days Vein the boundaries of two mineralized zones have been modeled, based
on assay composite grades >0.5 g/t Au and on the presence of quartz veining.  The sub-parallel zones strike north-south and
dip approximately -35o to the west.  The
modeled zones which were incorporated into the resource estimate extend
approximately 500 m along strike and for approximately 275 m down dip.  Additional along strike and down dip
extensions might be defined by further diamond drilling.  Near-surface portions of the Days Vein were
previously been mined by Newton Ventures in a small open pit operation.

 

Based on the parameters
described in this report, Micon has estimated an Indicated Mineral Resource for
the SREP deposits of 639,000 t at an average grade of 19.41 g/t Au, and an
Inferred Mineral Resource for the SREP deposits of 703,000 t at an average
grade of 23.16 g/t Au, using a cut-off grade of 8.0 g/t Au, a minimum width of
1 m, a density (specific gravity) of 2.80 grams per cubic centimetre (g/cm3)
and capping of high grade gold assays at 80 g/t Au. The estimate is summarized
in the following Table.

 

Table  - SREP Indicated and Inferred Mineral
Resource Estimate at September 2008(1), (2), (3), (4)

 

40

 

	
  Cut-off

  Grade (g/t Au)

  	
   

  	
  Resource

  Category

  	
   

  	
  Tonnes

  	
   

  	
  Grade

  (g/tAu)

  	
   

  	
  Gold

  Ounces

  	
   

  
	
  8.0

  	
   

  	
  Indicated

  	
   

  	
  639,000

  	
   

  	
  19.41

  	
   

  	
  399,000

  	
   

  
	
  8.0

  	
   

  	
  Inferred

  	
   

  	
  703,000

  	
   

  	
  23.16

  	
   

  	
  523,000

  	
   

  

 

(1)          It
cannot be assumed that all or any part of an Inferred Mineral Resource will be
upgraded to an Indicated or Measured Mineral Resource as a result of continued
exploration.

(2)          Mineral
resources which are not mineral reserves do not have demonstrated economic
viability.

(3)          Numbers
may not add due to rounding.

(4)          Indicated
Resources are confined to the better defined portions of the main D and E3
zones.

 

Based on the parameters
described in this report, Micon has estimated an Inferred Mineral Resource for
the Days Vein of 209,000 t at an average grade of 5.52 g/t Au, using a cut-off
grade of 2.0 g/t Au for material down to 50 m below the present topographic
surface and a cut-off grade of 8.0 g/t Au for material below 50 m, a minimum
width of 1.0 m and a density of 2.80 g/cm3.  This estimate is summarized in the following
Table.

 

Table - Days Vein Inferred Mineral Resource Estimate at September 2008(1),
(2), (3)

 

	
  Cut-off

  Grade

  (g/t Au)

  	
   

  	
  Resource

  Category

  	
   

  	
  Depth

  Limits

  (m)

  	
   

  	
  Tonnes

  	
   

  	
  Grade

  (g/t Au)

  	
   

  	
  Gold

  Ounces

  	
   

  
	
  2.0

  	
   

  	
  Inferred

  	
   

  	
  0 to 50m

  	
   

  	
  172,000

  	
   

  	
  4.15

  	
   

  	
  23,000

  	
   

  
	
  8.0

  	
   

  	
  Inferred

  	
   

  	
  below 50m

  	
   

  	
  37,000

  	
   

  	
  11.78

  	
   

  	
  14,000

  	
   

  
	
  —

  	
   

  	
  Inferred

  	
   

  	
  TOTAL

  	
   

  	
  209,000

  	
   

  	
  5.52

  	
   

  	
  37,000

  	
   

  

 

(1)          It
cannot be assumed that all or any part of an Inferred Mineral Resource will be
upgraded to an Indicated or Measured Mineral Resource as a result of continued
exploration.

(2)          Mineral
resources which are not mineral reserves do not have demonstrated economic
viability.

(3)          Numbers
may not add due to rounding.

 

Rusoro’s ongoing exploration
program on the SREP and Emilia concessions has successfully defined significant
gold resources hosted in narrow, steeply dipping quartz veins.  Rusoro has noted, and Micon concurs, that the
next major step in the development of the SREP project, including the Days
Vein, should be a preliminary economic assessment (PEA) to further examine the
economic viability of the deposits.

 

Micon recommends the
following two phases of additional work on the SREP and Days Vein deposits:

 

Phase 1

 

1)                                       Carry
out a preliminary economic assessment of the SREP gold deposits to investigate
the potential of SREP, in combination with deposits on other Rusoro concessions
in the area, including the Days Vein, to provide sufficient mineral resources
to support operation of either the Emilia or La Camorra mill.

 

2)                                       Complete
additional metallurgical testwork to follow-up on initial findings which
suggest that a portion of the higher grade gold mineralization at SREP may be
refractory. Rusoro has informed Micon that it has sent additional samples to a
metallurgical laboratory for metallurgical testing and is awaiting those
results.

 

41

 

3)                                       Continue
the practice of having cross-sections showing the current domains and
interpretation on hand for geologists in the coreshack. Loggers plot their data
on these sections each day and should interpret lithologic, alteration,
mineralization and oxidation boundaries. Additional details, such as structural
measurements and sulphide abundances, should be routinely recorded in drill
logs. Consideration should be given to having geologists log direct-to computer
in the coreshack.

 

4)                                       Consideration
should be given to implementation of a more sophisticated computerized database
management system for dealing with the large volume of exploration data being
generated by the project. The “DataShed” system being used at Rusoro’s Choco 10
deposit is a good example.

 

5)                                       Continue
to regularly review of results of QA/QC sampling, including periodic reviews by
independent auditors.

 

The proposed
budget for the Phase 1 program is summarized in the following Table.

 

Table - Proposed
Phase 1 Exploration Budget for the SREP Project

 

	
  Item

  	
   

  	
  Amount

  (Thousand US$)

  	
   

  
	
  Preliminary Economic Assessment

  	
   

  	
  100

  	
   

  
	
  Phase 2 of metallurgical testing

  	
   

  	
  25

  	
   

  
	
  Environmental baseline study

  	
   

  	
  25

  	
   

  
	
  Government Permitting/negotiations

  	
   

  	
  50

  	
   

  
	
  10% Contingency

  	
   

  	
  20

  	
   

  
	
  Total

  	
   

  	
  220

  	
   

  

 

Phase 2 will be contingent
on the results of the PEA in Phase 1 and it is, therefore, not practical to
estimate costs at this stage. In the event of a positive PEA, additional work
required to advance the project toward a full feasibility assessment would
likely include such items as:

 

·                  Additional definition and/or
geotechnical drilling at SREP and Days Vein.

 

·                  Construction of
roads/infrastructure.

 

·                  Completion of the SREP ramp.

 

·                  Underground development
including establishing drill stations, drifting on zones, bulk sampling.

 

·                  Collection and processing of
bulk samples.

 

Valle
Hondo Project:  The
technical information on the Valle Hondo Project is detailed in a 43-101
compliant independent technical report titled; Technical Report and Mineral
Resource Estimate, Valle Hondo Project, Bolivar State, Venezuela authored by
Neil G. Gow, B.Sc. (Hons.), P.Geo. and William E. Roscoe, Ph.D., P.Eng. of
Scott Wilson RPA and dated April 9, 2007.

 

The Valle Hondo
Project is owned by a Venezuelan company Balandria Limited, a subsidiary of
Rusoro.  The Project comprises seven
concessions with an aggregate area of 25,066 hectares in the eastern part of 

 

42

 

Bolivar
State.  Within the concessions, there is
a large zone of disseminated gold mineralization hosted in altered diorite –
the Apanao deposit.

 

This deposit has
been tested by 114 diamond drill holes with an aggregate length of 13,132.5 m
and by 12 trenches with an aggregate length of 6,000 m. Scott Wilson RPA has
completed a mineral resource estimate for the Valle Hondo Project.  The estimate was prepared using a cut-off
grade of 0.5 g/t Au. High grade assays were cut to 20 g/t Au.  Scott Wilson RPA constructed a block model
for the deposit. Dimensions of the blocks were 25 m (along strike) by 10 m
(down dip) by 6 m. Grades were interpolated into the blocks using ordinary
kriging.  The mineral resources for the
Project are summarized in the following Table:

 

TABLE
- SUMMARY OF MINERAL RESOURCE ESTIMATE

Rusoro Mining Ltd. – Valle Hondo
Project

 

	
  Resource Class

  	
   

  	
  Tonnes (Mt)

  	
   

  	
  Cut Grade

  (g/t Au)

  	
   

  	
  Contained Ounces Gold

  (000’s)

  	
   

  
	
  Indicated-oxidized

  	
   

  	
  3.49

  	
   

  	
  0.92

  	
   

  	
  103

  	
   

  
	
  Inferred-oxidized

  	
   

  	
  16.40

  	
   

  	
  0.86

  	
   

  	
  454

  	
   

  
	
  Inferred-fresh rock

  	
   

  	
  30.57

  	
   

  	
  0.91

  	
   

  	
  894

  	
   

  
	
  Inferred-total

  	
   

  	
  46.97

  	
   

  	
  0.89

  	
   

  	
  1,348

  	
   

  

 

Scott Wilson RPA’s
mineral resource estimate was classified on the basis of drill hole
spacing.  All of the mineral resource in
fresh rock is classified as inferred while part of the mineral resource in the
saprolite zone, where drilling is more closely spaced, is classified as
indicated.  Rusoro has recommended a
program comprising both diamond and reverse circulation drilling.  This work is designed to extend the existing
mineralization and to fill in within the existing drilling.  In addition, some work has been recommended
to complete initial tests on other targets on the property.  The program has a cost estimate of
approximately US$1.8 million and will consist of a single stage.  Further work will depend on an assessment of
the results of the program once it is completed.  A breakdown of the total cost is set out in
the following table.  Scott Wilson RPA
concurs with the program recommended by the joint venture.

 

TABLE
- RECOMMENDED EXPLORATION PROGRAM

Rusoro Mining Ltd. – Valle Hondo
Project

 

	
   

  	
   

  	
  Item

  	
   

  	
  US$

  	
   

  
	
  1.

  	
   

  	
  Drilling
  20,000m at $60/m

  	
   

  	
  1,200,000

  	
   

  
	
  2.

  	
   

  	
  Sample Analyses

  	
   

  	
  300,000

  	
   

  
	
  3.

  	
   

  	
  Geological

  	
   

  	
  15,000

  	
   

  
	
  4.

  	
   

  	
  Geophysics

  	
   

  	
  6,000

  	
   

  
	
  5.

  	
   

  	
  Local Labour

  	
   

  	
  9,000

  	
   

  
	
  6.

  	
   

  	
  Vehicle/gas

  	
   

  	
  5,000

  	
   

  
	
  7.

  	
   

  	
  Materials and
  supplies

  	
   

  	
  5,000

  	
   

  
	
  8.

  	
   

  	
  Travel

  	
   

  	
  5,000

  	
   

  
	
  9.

  	
   

  	
  Shipping and communications

  	
   

  	
  5,000

  	
   

  
	
  10.

  	
   

  	
  Equipment and
  site preparation

  	
   

  	
  15,000

  	
   

  
	
  11.

  	
   

  	
  Subtotal

  	
   

  	
  1,565,000

  	
   

  
	
   

  	
   

  	
  Contingency
  (15%)

  	
   

  	
  235,000

  	
   

  
	
   

  	
   

  	
  Total (rounded)

  	
   

  	
  $

  	
  1,800,000

  	
   

  
	
   

  	
   

  	
  Subtotal

  	
   

  	
  1,565,000

  	
   

  
							

 

43

 

The Valle Hondo
Project comprises seven concessions with an aggregate area of 25,066 ha in
eastern Bolivar State in Venezuela.  The
concessions are wholly owned by a Venezuelan company, Balandria Limited
(Balandria), which is controlled by Rusoro. 
There are no environmental issues known to be associated with the Valle
Hondo concessions.  The main area of
interest in the Valle Hondo concessions at the present time is the Apanao gold
deposit.  The Apanao deposit may be
reached along a poorly maintained road that leads from Highway 10.  There are a number of difficult stream
crossings at present. The climate is tropical, with the wettest months being June to
August.  Unskilled labour is available on
the property, whereas all other labour and supplies would have to be sourced
from other cities in Bolivar State.  It
is noted that Bolivar State has a long history of mining and skilled labour
would be available within one hour’s drive of the property.  The property is generally flat and
forested.  There is little exposed rock
on the property because of the deep weathering that extends to an average depth
of approximately 40 m.  Initial
exploration in the Valle Hondo area was carried out by Golden Star Resources
Ltd. (Golden Star) in 1994 and 1995. Golden Star completed 30 diamond drill
holes.  Rusoro completed significant work
programs in the period 1995 to 1998.  In
the period 1994 and 1998, exploration work included 6,000 m of trenching in 12
trenches, and more than 13,000 m of diamond drilling.  Geophysical and geochemical surveys were also
completed.  The work to date has outlined
a large, low-grade gold deposit - the Apanao deposit - hosted mainly in altered
diorite, with dimensions of approximately 4.5 km by 500 m by 600 m.  The Valle Hondo Project lies within the
Guyana Shield, in the northern part of the Amazon Craton. Archean rocks of the
Imataca Complex crop out in the Guyana Shield. 
The Complex is unconformably overlain by Proterozoic greenstone-granitic
terrane.  In the Valle Hondo area, the
Caballape Formation is intruded by units of the Supamo Complex.  The host of mineralization, the Apanao
Intrusion, has approximate dimensions of 3,000 m by 1,500 m.  The intrusion has been sheared and has undergone
extensive siliceous alteration. More recently, there has been extensive deep
weathering.

 

The Apanao
deposit is categorized as an ‘orogenic gold deposit’.  The primary deposit has undergone extensive
tropical weathering.  The Apanao deposit
comprises a large, low to medium-grade gold deposit hosted in an altered
tonalite intrusion.  Mineralization is
hosted in northeast-trending shear zones that cross the intrusion and the wall
rocks.  Recent testing has demonstrated
the presence of mineralization in two areas; the larger area is approximately
1,000 m by 500 m and the smaller area is approximately 500 m by 400 m.  Further testing is considered likely to
demonstrate that the mineralization is continuous between the two areas.  The most recent exploration was carried out
in the period 1994 to 1998. Comprehensive exploration programs were completed,
including 6,000 m of trenching and 13,132.5 m of diamond drilling in 114
diamond drill holes.  Logging was carried
out in-house and core was split using a mechanical splitter on site. Samples
were analyzed in three laboratories located in Venezuela.  Rusoro carried out extensive quality
control/quality assurance (QA/QC) programs to confirm the company’s own work
and to demonstrate the reliability of the work completed prior to Rusoro’s
involvement.  The protocol followed for
all of the Rusoro samples involved fire assay of a 50 g sample with an atomic 

 

44

 

absorption (AA)
finish.  Samples that assayed greater
than 1 g/t Au were reassayed by fire assay with a gravimetric finish and, if a
value greater than 1 g/t Au was again obtained, a metallics assay on a 300 g
sample was completed.  In 1997, Pincock
Allan & Holt (PAH) carried out check sampling as part of a due
diligence. No problems were noted at that time. 
Rusoro’s QA/QC programs included extensive use of standard samples,
duplicates, and blank samples.  The
results of this work have been tabulated by Rusoro and show that assay
reliability was maintained during the various sampling programs. Initial metallurgical
testing was carried out by Homestake Mining Company (Homestake).  Testing was completed on two oxide samples
and one sample of fresh material. Crushing to -1⁄4 in. yielded high recoveries in
the oxide material and poor recoveries in the fresh rock.  Further testing will be required to determine
appropriate treatment for the deposit.

 

Scott Wilson RPA
constructed a block model for the Apanao deposit.  A cut-off grade of 0.5 g/t Au and a cutting
level of 20 g/t Au were utilized. 
Samples were composited into three-metre lengths and composites less
than one metre in length were not included in the interpolation of block
grades.  A minimum of two and a maximum
of twelve composites were required, with a maximum limit of four composites per
hole.  The block model was validated by
visual inspection, statistical comparison of composite and block grades, and by
checking of average grades using inverse distance squared interpolation.  Most of the mineral resource is classified as
inferred because of the relatively wide drill spacing at present.  A small portion of the mineral resource
within the oxidized zone, where the drilling is closer spaced on 50 m sections,
is classified as indicated.  The mineral
resources of the Apanao deposit at Valle Hondo are summarized in the following
Table at a number of cut-off grades. In Scott Wilson RPA’s view, the resource
should be reported at the 0.5 g/t Au cut-off.

 

TABLE -
MINERAL RESOURCES OF THE APANAO DEPOSIT

Rusoro Mining Ltd. – Valle Hondo Project

 

	
  Resource Category

  	
   

  	
  Cut-off Grade g/t Au

  	
   

  	
  tonnes X 106

  	
   

  	
  Cut Grade g/tAu

  	
   

  	
  Uncut Grade g/t Au

  	
   

  
	
  Saprolite

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Indicated

  	
   

  	
  1.0

  	
   

  	
  0.88

  	
   

  	
  1.57

  	
   

  	
  3.19

  	
   

  
	
   

  	
   

  	
  0.9

  	
   

  	
  1.27

  	
   

  	
  1.37

  	
   

  	
  2.53

  	
   

  
	
   

  	
   

  	
  0.8

  	
   

  	
  1.62

  	
   

  	
  1.26

  	
   

  	
  2.19

  	
   

  
	
   

  	
   

  	
  0.7

  	
   

  	
  2.02

  	
   

  	
  1.16

  	
   

  	
  1.91

  	
   

  
	
   

  	
   

  	
  0.6

  	
   

  	
  2.62

  	
   

  	
  1.04

  	
   

  	
  1.63

  	
   

  
	
   

  	
   

  	
  0.5

  	
   

  	
  3.49

  	
   

  	
  0.92

  	
   

  	
  1.36

  	
   

  
	
   

  	
   

  	
  0.4

  	
   

  	
  5.54

  	
   

  	
  0.75

  	
   

  	
  1.02

  	
   

  
	
  Inferred

  	
   

  	
  1.0

  	
   

  	
  3.48

  	
   

  	
  1.59

  	
   

  	
  2.36

  	
   

  
	
   

  	
   

  	
  0.9

  	
   

  	
  4.65

  	
   

  	
  1.43

  	
   

  	
  2.01

  	
   

  
	
   

  	
   

  	
  0.8

  	
   

  	
  5.98

  	
   

  	
  1.30

  	
   

  	
  1.76

  	
   

  
	
   

  	
   

  	
  0.7

  	
   

  	
  7.93

  	
   

  	
  1.16

  	
   

  	
  1.51

  	
   

  
	
   

  	
   

  	
  0.6

  	
   

  	
  10.94

  	
   

  	
  1.02

  	
   

  	
  1.27

  	
   

  

 

45

 

	
  Resource Category

  	
   

  	
  Cut-off Grade g/t Au

  	
   

  	
  tonnes X 106

  	
   

  	
  Cut Grade g/tAu

  	
   

  	
  Uncut Grade g/t Au

  	
   

  
	
   

  	
   

  	
  0.5

  	
   

  	
  16.40

  	
   

  	
  0.86

  	
   

  	
  1.03

  	
   

  
	
   

  	
   

  	
  0.4

  	
   

  	
  23.94

  	
   

  	
  0.73

  	
   

  	
  0.85

  	
   

  
	
  Rock

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Inferred

  	
   

  	
  1.0

  	
   

  	
  7.66

  	
   

  	
  1.60

  	
   

  	
  2.50

  	
   

  
	
   

  	
   

  	
  0.9

  	
   

  	
  9.79

  	
   

  	
  1.46

  	
   

  	
  2.25

  	
   

  
	
   

  	
   

  	
  0.8

  	
   

  	
  12.24

  	
   

  	
  1.33

  	
   

  	
  2.06

  	
   

  
	
   

  	
   

  	
  0.7

  	
   

  	
  16.30

  	
   

  	
  1.19

  	
   

  	
  1.80

  	
   

  
	
   

  	
   

  	
  0.6

  	
   

  	
  22.32

  	
   

  	
  1.04

  	
   

  	
  1.52

  	
   

  
	
   

  	
   

  	
  0.5

  	
   

  	
  30.57

  	
   

  	
  0.91

  	
   

  	
  1.28

  	
   

  
	
   

  	
   

  	
  0.4

  	
   

  	
  43.30

  	
   

  	
  0.77

  	
   

  	
  1.04

  	
   

  
	
  Total Indicated at 0.5 g/t Au Cut-off

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  0.5

  	
   

  	
  3.49

  	
   

  	
  0.92

  	
   

  	
  1.36

  	
   

  
	
  Total Inferred at 0.5 g/t Au Cut-off

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  0.5

  	
   

  	
  46.97

  	
   

  	
  0.89

  	
   

  	
  1.19

  	
   

  

 

Note: Numbers in
the table are rounded.

 

Ceiba:  The technical
information on the Ceiba Project is detailed in a 43-101 compliant independent
technical report titled; Technical Report and Mineral Resource Estimate, Ceiba
II Project, Bolivar State, Venezuela by Neil G. Gow, B.Sc. (Hons.), P.Geo. of
Scott Wilson RPA and dated April 9, 2007.

 

The San Antonio
deposit within the Ceiba II Project is being exploited and has produced about
100,000 tonnes grading approximately 6 g/t Au from an open pit to date.  Essentially, all of the exploited material
mined to date has been recovered from the oxidized zone.  Diamond drilling has demonstrated that the
mineralized zones exploited to date extend to depth under the pit and also
along strike from the pit.  Scott Wilson
RPA has prepared an estimate of the mineral resources for the deposits adjacent
to the San Antonio pit.  Drill
intersections are still widely spaced and further drilling will be required for
effective mine planning.  Estimated mineral
resources for the Ceiba II deposit are 1.55 million tonnes grading 9.2 g/t
Au.  All of these mineral resources are
in the inferred category.  The mineral
resources outlined in the Ceiba II deposit are considered likely to be amenable
to mining by underground methods.  A
scoping study should be initiated to determine what steps are necessary for
development to occur.  It is considered
that further diamond drilling will be required to improve the understanding of
the deposit and to raise the quality of the mineral resources.  Scott Wilson RPA recommends that Rusoro
complete a scoping study. Based on that work, a further campaign of drilling
should be carried out.

 

Rusoro has an
exploitation agreement with the Cooperativa Mixta Chicanán (Chicanán) in regard
to the Ceiba II concession located in Bolivar State, Venezuela.  Under the terms of the agreement, Rusoro
provides technical expertise, equipment, machinery, and qualified labour to
develop the property. Rusoro 

 

46

 

receives 70% of
the primary gold material produced from subterranean mines.  The Ceiba II concession has an areal extent
of 500 ha.  Within the concession, there
is a 50 ha mining lease.  There is no
site infrastructure.  Ore from previous
mining was trucked to the Rusoro mill at the Emilia concession, approximately
58 km to the north. Rusoro acquired the concession in 2002.  Programs of diamond drilling were
completed.  Mining from an open pit
commenced in December 2002 and about 100,000 tonnes grading approximately
6 g/t Au were produced from an open pit. Essentially, all of the material mined
was from the saprolitic zone.  A further
small diamond drilling program was completed in 2005. The Ceiba II concession
lies within the Guyana Shield.  Proterozoic
greenstone rocks of about 2.25 Ga to 2.1 Ga occur, intruded by granitic rocks
of the Supamo Complex.  This intrusive
event is dated between 2.23 Ga and 2.05 Ga. 
These units were subsequently deformed by the Trans-Amazonian Orogeny
dated between 2.15 Ga and 196 Ga.  The
Ceiba II concession covers rocks of the Proterozoic Caballape Formation.  Rocks in the pit area are mafic volcanic
rocks that have been altered by greenschist metamorphism.  A northeasterly-trending shear zone that dips
65o to 75o northwest cuts the greenstone rocks. 
Tropical weathering has affected the mafic rocks to a depth of
approximately 40 m.

 

The deposits have
been tested by diamond drilling to a depth of approximately 300 m.  To date, 92 diamond drill holes with an
aggregate depth of 17,084 m have been completed.  Scott Wilson RPA has estimated mineral
resources by polygonal methods utilizing Gemcom software.  An inferred mineral resource of 1.53 million
tonnes with a cut grade of 9.2 g/t Au was estimated.  A cutting level of 36 g/t Au was used.  Production from previous mining was treated
at the Rusoro milling complex on the Emilia concession about 58 km north of the
open pit.  Previous production included
material from the weathered zone and explosives were not used.  While the previous production was not milled
separately, the Rusoro mill has achieved high recovery rates.  The material outlined in the mineral resource
statement is likely to be amenable to standard gold metallurgy. Scott Wilson
RPA knows of no potential environmental problems associated with the Ceiba II
concession.

 

Other
Bolivar State Projects

 

The Increible 14
project is located 15 kilometres northwest of the Corporation’s Choco 10
mine.  A total of 9,000 meters of diamond
drilling was completed during 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.  Future drilling will be
evaluated in conjunction with a series of regional exploration targets within
the El Callao district.

 

Minoro

 

In Honduras, the
Corporation holds the mineral rights to the 10,000 hectare Minoro project.  No field work was completed in Q3, 2008.

 

[rest
of page intentionally left blank]

 

47

 

 

48

 

ITEM 4.                                                     DIVIDENDS

 

No dividends on
the Common Shares have been paid by the Corporation.  Management anticipates that the Corporation
will retain all future earnings and other cash resources for the future
operation and development of its business. 
The Corporation does not intend to declare or pay any cash dividends in
the foreseeable future.  Payment of any
future dividends will be at the discretion of the Corporation’s board of
directors after taking into account many factors including the Corporation’s
operating results, financial condition and current and anticipated cash
needs.  The Corporation has no
restrictions on paying dividends.

 

ITEM 5.                                                     DESCRIPTION
OF CAPITAL STRUCTURE

 

Share
Capital

 

The Corporation’s
authorized capital consists of an unlimited number of Common Shares of which
390,777,946 Common Shares are issued and outstanding as of December 12,
2008.  The holders of Common Shares are
entitled to one vote for each Common Share held, and shall be entitled to
dividends if as and when declared by the board of directors.  Holders of Common Shares are entitled, on
liquidation, dissolution or winding up to receive such assets of the
Corporation as are distributable to the holders of the Common Shares.  All of the Common Shares are fully paid and
non-assessable.

 

Options
and Warrants

 

As of December 12,
2008 , the following stock options are outstanding:

 

	
  Number of Common

  Shares Issuable Under

  Options

  	
   

  	
  Exercise Price

  	
   

  	
  Date of Grant

  	
   

  	
  Expiry Date

  	
   

  
	
  17,647

  	
   

  	
  $0.85

  	
   

  	
  March 5, 2007

  	
   

  	
  October 13, 2009

  	
   

  
	
  350,000

  	
   

  	
  $1.31(1)

  	
   

  	
  October 29, 2007

  	
   

  	
  October 28, 2009

  	
   

  
	
  334,117

  	
   

  	
  $1.05

  	
   

  	
  March 5, 2007

  	
   

  	
  December 7, 2009

  	
   

  
	
  47,060

  	
   

  	
  $1.11

  	
   

  	
  March 5, 2007

  	
   

  	
  March 7, 2011

  	
   

  
	
  94,118

  	
   

  	
  $1.70

  	
   

  	
  March 5, 2007

  	
   

  	
  April 5, 2011

  	
   

  
	
  600,000

  	
   

  	
  $1.31(2)

  	
   

  	
  November 7, 2006

  	
   

  	
  November 6, 2016

  	
   

  
	
  6,505,000

  	
   

  	
  U.S.$ 3.00

  	
   

  	
  November 7, 2006

  	
   

  	
  November 6, 2016

  	
   

  
	
  720,000

  	
   

  	
  $1.31(3)

  	
   

  	
  September 11, 2007

  	
   

  	
  September 10, 2017

  	
   

  
	
  6,050,000

  	
   

  	
  $2.12

  	
   

  	
  September 11, 2007

  	
   

  	
  September 10, 2017

  	
   

  
	
  810,000

  	
   

  	
  $1.31(4)

  	
   

  	
  October 29, 2007

  	
   

  	
  October 28, 2017

  	
   

  
	
  2,975,000

  	
   

  	
  $2.30

  	
   

  	
  October 29, 2007

  	
   

  	
  October 28, 2017

  	
   

  
	
  50,000

  	
   

  	
  $1.31(5)

  	
   

  	
  January 1, 2008

  	
   

  	
  January 1, 2018

  	
   

  
	
  50,000

  	
   

  	
  $1.60

  	
   

  	
  January 1, 2008

  	
   

  	
  January 1, 2018

  	
   

  
	
  300,000

  	
   

  	
  $1.65

  	
   

  	
  January 15, 2008

  	
   

  	
  January 15, 2018

  	
   

  
	
  100,000

  	
   

  	
  $1.55

  	
   

  	
  January 24, 2008

  	
   

  	
  January 24, 2018

  	
   

  
	
  16,235,000

  	
   

  	
  $1.31

  	
   

  	
  June 27, 2008

  	
   

  	
  June 26, 2018

  	
   

  
	
  100,000

  	
   

  	
  $1.31

  	
   

  	
  July 21, 2008

  	
   

  	
  July 20, 2018

  	
   

  

 

49

 

(1)                                  The
Corporation received approval from the TSXV for the price amendment from $2.30
to $1.31 in respect of 350,000 options originally granted on October 29,
2007.

(2)                                  The
Corporation received approval from the TSXV for the price amendment from U.S.$3.00
to $1.31 in respect of 600,000 options originally granted on November 7,
2006 to certain employees and consultants.

(3)                                  The
Corporation received approval from the TSXV for the price amendment from $2.12
to $1.31 in respect of 720,000 options originally granted on September 11,
2007 to employees.

(4)                                  The
Corporation received approval from the TSXV for the price amendment from $2.30
to $1.31 in respect of 810,000 options originally granted on October 29,
2007 to employees.

(5)                                  The
Corporation received approval from the TSXV for the price amendment from $1.60
to $1.31 in respect of 50,000 options originally granted on January 1,
2008 to one of its employees.

 

As of the date of
this Annual Information Form, the following share purchase warrants are outstanding:

 

	
  Number of Common

  Shares Issuable Under

  Warrants

  	
   

  	
  Exercise Price

  	
   

  	
  Date of Grant

  	
   

  	
  Expiry Date

  	
   

  
	
  5,833,336

  	
   

  	
  U.S.$ 3.35

  	
   

  	
  November 6, 2006

  	
   

  	
  November 7, 2011

  	
   

  
	
  9,216,793

  	
   

  	
  $5.25

  	
   

  	
  March 5, 2007

  	
   

  	
  March 4, 2012

  	
   

  
	
  93,750,000

  	
   

  	
  $4.00

  	
   

  	
  November 30, 2007

  	
   

  	
  November 29, 2012

  	
   

  

 

Long
Term Debt

 

Refer to Item 2.2
“Significant Acquisitions”, “Hecla-Venezuela Acquisition” for details of the
Corporation’s long term debt.

 

ITEM 6.                                           MARKET
FOR SECURITIES

 

6.1                          Trading
Price and Volume

 

The Common Shares
are listed on the TSXV under the symbol “RML”. 
The following table sets out the monthly high and low prices and the
volumes of trading of the Corporation’s Common Shares on the TSXV for the
periods indicated, as reported by the TSXV.

 

	
   

  	
   

  	
  Price Range

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  High ($)

  	
   

  	
  Low ($)

  	
   

  	
  Trading Volume

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  December 2007

  	
   

  	
  1.75

  	
   

  	
  1.35

  	
   

  	
  2,912,949

  	
   

  
	
  November 2007

  	
   

  	
  2.30

  	
   

  	
  1.61

  	
   

  	
  3,628,185

  	
   

  
	
  October 2007

  	
   

  	
  2.72

  	
   

  	
  2.00

  	
   

  	
  6,158,116

  	
   

  
	
  September 2007

  	
   

  	
  2.64

  	
   

  	
  2.61

  	
   

  	
  1,722,505

  	
   

  
	
  August 2007

  	
   

  	
  2.66

  	
   

  	
  1.58

  	
   

  	
  4,261,353

  	
   

  
	
  July 2007

  	
   

  	
  3.07

  	
   

  	
  2.57

  	
   

  	
  3,347,152

  	
   

  

 

50

 

	
   

  	
   

  	
  Price Range

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  High ($)

  	
   

  	
  Low ($)

  	
   

  	
  Trading Volume

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  June 2007

  	
   

  	
  3.00

  	
   

  	
  2.56

  	
   

  	
  1,158,041

  	
   

  
	
  May 2007

  	
   

  	
  3.25

  	
   

  	
  2.65

  	
   

  	
  3,618,994

  	
   

  
	
  April 2007

  	
   

  	
  3.44

  	
   

  	
  2.85

  	
   

  	
  2,849,312

  	
   

  
	
  March 2007

  	
   

  	
  3.75

  	
   

  	
  2.90

  	
   

  	
  3,688,252

  	
   

  
	
  February 2007

  	
   

  	
  4.05

  	
   

  	
  3.47

  	
   

  	
  494,961

  	
   

  
	
  January 2007

  	
   

  	
  3.99

  	
   

  	
  3.50

  	
   

  	
  857,270

  	
   

  

 

6.2                                                                               Prior
Sales

 

Other than Common
Shares, the only classes of securities of the Corporation that are currently
outstanding are stock options and warrants. 
The following options and warrants were issued by the Corporation during
the year ended December 31, 2007:

 

	
  Class of Securities

  	
   

  	
  Date Issued

  	
   

  	
  Number Issued

  	
   

  	
  Price Per Security

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Options

  	
   

  	
  March 5, 2007

  	
   

  	
  744,118

  	
   

  	
  Nil(1)

  	
   

  
	
  Options

  	
   

  	
  September 11, 2007

  	
   

  	
  6,770,000

  	
   

  	
  Nil(2)

  	
   

  
	
  Options

  	
   

  	
  October 29, 2007

  	
   

  	
  4,135,000

  	
   

  	
  Nil(3)

  	
   

  
	
  Warrants

  	
   

  	
  March 5, 2007

  	
   

  	
  364,119

  	
   

  	
  Nil(4)

  	
   

  
	
  Warrants

  	
   

  	
  March 5, 2007

  	
   

  	
  9,216,793

  	
   

  	
  Nil(5)

  	
   

  
	
  Warrants

  	
   

  	
  November 30, 2007

  	
   

  	
  93,750,000

  	
   

  	
  Nil(6)

  	
   

  

 

(1)                                  These
are stock options issued pursuant to the Corporation’s stock option plan and
entitle the holders to purchase an aggregate of 744,118 Common Shares at prices
ranging from $0.85 per share to $2.18 per share with various expiry dates
ranging from June 3, 2007 to April 5,
2011.  See Item 5 – “Description of
Capital Structure” for price amendments to options granted on March 5,
2007

(2)                                  These are stock options issued pursuant to the
Corporation’s stock option plan and entitle the holders to purchase an
aggregate of 6,770,000 Common Shares at a price of $2.12 per share and expiring
on September 10, 2017. See Item 5 – “Description of Capital Structure” for
price amendments to options granted on September 11, 2007.

(3)                                  These are stock options issued pursuant to the
Corporation’s stock option plan and entitle the holders to purchase an
aggregate of 4,135,000 Common Shares at a price of $2.30 per share with 350,000
options expiring on October 28, 2009 and the remaining 3,785,000 options
expiring on October 28, 2017. See Item 5 – “Description of Capital
Structure” for price amendments to options granted on October 29, 2007.

(4)                                  These
warrants were issued pursuant to a
private placement completed by Mena Resources Inc. and converted to warrants of
the Corporation pursuant to the Mena Arrangement.  These warrants entitled the holders to
purchase up to 364,119 Common Shares at a price of $1.02 per share and expired
on February 12, 2008.

(5)                                  These
warrants were issued pursuant to a private placement completed by Mena
Resources Inc. and converted to warrants of the Corporation pursuant to the
Mena Arrangement.  These warrants entitle
the holders to purchase up to 9,216,793 Common Shares at a price of $5.25 per
share on or before March 4, 2012.

 

51

 

(6)                                  These
warrants were issued pursuant to a private placement completed in connection
with the GFN Business Combination and entitle the holders to purchase up to
93,750,000 Common Shares at a price of $4.00 per share on or before November 29,
2012.

 

ITEM 7.                                                ESCROWED
SECURITIES

 

Escrowed Securities

 

No Common Shares are held
in escrow.

 

The following
table sets forth details of Common Shares of the Corporation that are subject
to contractual restrictions on transfer:

 

	
  Designation of Class

  	
   

  	
  Number of Securities

  	
   

  	
  Percentage of Class

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Common Shares

  	
   

  	
  51,902,333

  	
  (1)

  	
  13.3

  	
  %

  

 

(1)           These common shares may be sold as to
25% of the Common Shares on each of March 1, 2009, June 1, 2009, September 1,
2009 and December 1, 2009.

 

Additionally, pursuant
to the Shareholder Agreement, GF Netherlands has agreed to certain restrictions
on the resale of its Common Shares. 
Refer to Item 2.2 “Significant Acquisitions”, “GFN Business Combination”.

 

ITEM 8.                                                DIRECTORS
AND OFFICERS

 

8.1                                                                               Name,
Address, Occupation and Security Holdings

 

The following are
the names and municipalities of residence of the directors and officers of the
Corporation and the positions and offices they hold with the Corporation.  Each director will hold office until the next
annual general meeting of the Corporation unless his office is earlier vacated.

 

	
  Name and Municipality of Residence

  	
   

  	
  Position Held

  	
   

  	
  Date First Became

  a Director or Officer

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Vladimir Agapov

  Moscow, Russia

  	
   

  	
  Non-Executive Chairman and Director

  	
   

  	
  November 7, 2006

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Andre Agapov(4)

  London, England

  	
   

  	
  Chief Executive Officer and Director

  	
   

  	
  May 10, 2007

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  George Salamis(5)

  North Vancouver, BC, Canada

  	
   

  	
  President and Director

  	
   

  	
  September 10, 2007

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Gary Warnecke(5)

  Orlando, Florida, USA

  	
   

  	
  Chief Financial Officer

  	
   

  	
  May 15, 2008

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Jay M. Kaplowitz(1)(3)(4)

  New York City, New York, USA

  	
   

  	
  Director

  	
   

  	
  November 7, 2006

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Gordon Keep(1)(2)(4)(5)

  Vancouver, BC, Canada

  	
   

  	
  Director

  	
   

  	
  November 7, 2006

  	
   

  

 

52

 

	
  Name and Municipality of Residence

  	
   

  	
  Position Held

  	
   

  	
  Date First Became

  a Director or Officer

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Abraham Stein(1)(2)(3)

  New York City, New York, USA

  	
   

  	
  Director

  	
   

  	
  November 7, 2006

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Dmitry Ushakov

  Moscow, Russia

  	
   

  	
  Director

  	
   

  	
  November 7, 2006

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Hon. John D. Reynolds, P.C.(3)

  Gibsons, BC, Canada

  	
   

  	
  Director

  	
   

  	
  November 7, 2006

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Peter Hediger

  Zurich, Switzerland

  	
   

  	
  Director

  	
   

  	
  November 7, 2006

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Matias Herrero

  Vancouver, BC, Canada

  	
   

  	
  Vice President, Finance

  	
   

  	
  May 15, 2008

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Gregory Smith(5)

  North Vancouver, BC, Canada

  	
   

  	
  Vice President, Exploration

  	
   

  	
  November 7, 2006

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Judith Bird

  Vancouver, BC,
  Canada

  	
   

  	
  Corporate Secretary

  	
   

  	
  December 19, 2007

  	
   

  

 

Notes:

(1)   Member of the Audit
Committee.

(2)   Member of the Compensation
Committee.

(3)   Member of the Corporate
Governance and Nominating Committee.

(4)   Member of the Executive
Committee.

(5)   Member of the Disclosure
Committee.

 

As of the date of
this Annual Information Form, the directors and officers of the Corporation, as
a group, beneficially own, directly or indirectly, 71,477,216 Common Shares of
the Corporation, representing approximately 18.3% of the total issued and
outstanding Common Shares of the Corporation.

 

Directors
and Officers

 

The following
sets forth particulars of the principal occupations of the directors and
officers of the Corporation.

 

Andre
Agapov, Chief Executive Officer and Director

 

In
2002 Mr. Agapov founded Grupo Agapov in Venezuela and over the next four
years embarked on an aggressive exploratory drilling program while developing
strong political ties in Venezuela.  In November 2006,
Mr. Agapov negotiated the Grupo Agapov Merger and a year later the GFN
Business Combination.  From September 2002
until October 2006,  Mr. A.
Agapov served as CEO and Director of both Mineria MS, a small scale Venezuelan
gold mining company, and Ruscaolin, an emerging caolinite (china clay)
producing company located in Caracas, Venezuela.

 

53

 

George
Salamis, President and Director

 

For more than the
past five years, Mr. George Salamis has been the President of Sierra
Mining Consulting, a mining consulting firm, and he has held senior management
positions with well-established mining companies, including Placer Dome Inc.
and Cameco Corporation.

 

Gary Warnecke, Chief Financial Officer

 

Mr. Gary Warnecke is a
U.S. Certified Public Accountant who moved to Venezuela in 2006 to work with
Grupo Agapov and was an essential part of the Grupo Agapov team in the Grupo
Agapov Merger.  More recently Mr. Warnecke has been working as Rusoro’s
internal auditor and leads the transition team which was put in place to merge
the Corporation’s Venezuelan operations with the operations acquired in the GFN
Business Combination.  Mr. Warnecke
became the Chief Financial Officer of the Corporation in May 2008. 
 Prior to joining the Corporation, Mr. Warnecke was the Chief
Financial Officer of GRIF Management Inc., in New York, from July 2003
until January 2006.

 

Vladimir Agapov, Non-Executive Chairman and Director

 

Mr. Vladimir Agapov has been actively
involved in the business of Rusoro since the Grupo Agapov Merger.  Prior to that he was actively involved in
Grupo Agapov’s business.  In particular, Mr. Agapov
leads the coordination of relations with the Venezuelan government and its
various ministries.  Since 2002 Mr. Agapov
has been serving as a director of Worldwide Charter Inc. in Moscow, Russia,
which charters both Western and Russian airlines for passenger and cargo transportation
worldwide.  From January 2004 until October 2006,
Mr. Agapov was the President of Ruscaolin.

 

Jay M. Kaplowitz, Director

 

Mr. Jay M. Kaplowitz is  a founding partner of Gersten Savage LLP,
a law firm specializing in corporate, banking and securities law. He received
his JD from Boston University, where he was an editor of the Boston University
Law Review, and his BA from the Brooklyn College, City University of New York.

 

Abraham
Stein, Director

 

Mr. Abraham Stein has
been one of the Managing Directors for East Wind Advisors, LLC, which provides
emerging growth companies with advice on strategic business issues in the
private capital markets, since January 2006 and the Managing Member of
Protean Properties & Development LLC since July2003.  Prior to
his current positions, Mr. Stein was an investment banker at Bear, Stearns &
Co., Inc. from  May 1992 to December 2005.

 

Dmitry
Ushakov, Director

 

Mr. Dmitry
Ushakov has been serving as Counsel to the President of Rosbank in Russia since
June 2008.  Prior to this time Mr. Ushakov was General Counsel
to the President with the Coordination Counsel of Russian Employers from February 2004
until June 2008.  From January 1998 to May 2007, Mr. Ushakov
served on the Board of Directors of Interros Holding Company, a company which
owns Norilsk Nickel and Polyus Gold and from September 2001 until February 2004,
Mr. Ushakov was the General Director and a Board Member for Argos, an
investment company in Moscow, Russia.

 

Hon. John
D. Reynolds, P.C., Director

 

Mr. John Reynolds has
served as both an MLA in British Columbia from 1983 to 1991 and as a Member of
Parliament in Ottawa, Ontario in 1972 to 1977 and then from 1997 to 2006.  Prior to his recent retirement from Federal
politics he was the Official Opposition House Leader for the Conservative 

 

54

 

Caucus.  Previously he had been Leader of the
Opposition in the House of Commons for the Canadian Alliance Caucus.  He is currently a Member of the Queen’s Privy
Council for Canada and has been a Senior Strategic Advisor for the law firm
Lang Michener LLC since March 2006. 
Mr. Reynolds is also currently a director of three mineral
exploration companies listed on the Exchange, Calibre Mining Corp., Svit Gold
Corp. and Terrane Metals Corp. as well as President of Gainey Consultants Inc.
since January 2006.

 

Peter Hediger, Director

 

Mr. Peter Hediger has been employed by MFC Merchant Bank S.A. of
Switzerland since its integration with MFC Securities (Schweiz) AG in 1998, at
which time Mr. Hediger was a Vice President.  Mr. Hediger held
the position of General Manager of MFC Merchant Bank S.A. from January, 2004
until his departure in February 2008.  Prior to that he held the
positions of Deputy General Manager, First Vice-President and Vice-President
with MFC Merchant Bank S.A.  Since February 2008, Mr. Hediger
has been a self-employed consultant working in Switzerland advising 
Banks and Corporations in the finance sector.

 

Gordon Keep, Director

 

Mr. Keep has wide
business experience as an investment banker and has held several senior
positions.  From April 1987 until October 1997
he was the vice president of corporate finance in the natural resource group of
Yorkton Securities Inc. and from September 1997 until March 2004 he
was senior vice president and director of Lions Gate Entertainment Corp.  Mr. Keep was Managing Director of
Corporate Finance at Endeavour Financial, an investment banking firm that
specializes in the mining and mineral industries, from January 2001 to July 2007.  Mr. Keep is currently Executive
Vice-President of Fiore Financial Corporation.

 

Matias Herrero, Vice
President Finance

 

Mr. Herrero is a U.S.
Certified Public Accountant and a former audit manager with
PricewaterhouseCoopers (PwC). At PwC he worked in the mining division working
with Canadian mining companies operating in Latin America. Mr. Herrero is
fluent in Spanish and with his extensive compliance and financial reporting
background he plays a leading role in coordinating Rusoro’s Venezuelan and
Canadian financial departments.

 

Gregory Smith, Vice-President Exploration

 

Mr. Gregory Smith is a geologist and has
been the Vice-President Exploration of the Corporation since November 2006.  He was the Exploration Manager for Mena
Resources Inc. prior to its amalgamation with Rusoro Acquisition Corp.

 

Judith
Bird, Corporate Secretary

 

Ms. Judith Bird is a
paralegal who has been with the Corporation as Corporate Secretary since December 2007.  Ms. Bird has been working with corporate
and securities law firms and public companies in Vancouver for the past 12
years.

 

8.2                  Corporate
Cease Trade Orders, Bankruptcies, Penalties or Sanctions

 

Mr. John Reynolds is a
director of CT Oriental Holdings Ltd. (“CT”). 
The Alberta Securities Commission issued a cease trade order against CT
on October 3, 2008 for failure to file certain financial statements,
related management discussion and analysis and certifications.  The cease trade order remains in effect.

 

55

 

Other than as set forth
above, no director or executive officer of the Corporation is, as at the date
of this Annual Information Form, or was within 10 years before the date of this
Annual Information Form, a director, chief executive officer or chief financial
officer of any company (including the Corporation), that:

 

(a)           was subject to an order that was issued while the director
or executive officer was acting in the capacity as director, chief executive
officer or chief financial officer; or

 

(b)           was subject to an order that was issued after the director
or executive officer ceased to be a director, chief executive officer or chief
financial officer and which resulted from an event that occurred while that
person was acting in the capacity as director, chief executive officer or chief
financial officer.

 

For the purposes of this
Item 8.2, “order” means

 

(a)           a cease trade order;

 

(b)           an order similar to a cease trade order; or

 

(c)           an order that denied the relevant company access to any
exemption under securities legislation,

 

that was in effect for a
period of more than 30 consecutive days.

 

No director or executive
officer of the Corporation, or, to the knowledge of the Corporation, a
shareholder holding a sufficient number of securities of the Corporation to affect
materially the control of the Corporation:

 

(a)           is, as at the date of this Annual Information Form or
has been within the 10 years before the date of this Annual Information Form, a
director or executive officer of any company (including the Corporation) that,
while that person was acting in that capacity, or within a year of that person
ceasing to act in that capacity, became bankrupt, made a proposal under any
legislation relating to bankruptcy or insolvency or was subject to or
instituted any proceedings, arrangement or compromise with creditors or had a
receiver, receiver manager or trustee appointed to hold its assets; or

 

(b)           has, within the 10 years before the date of this Annual
Information Form, become bankrupt, made a proposal under any legislation
relating to bankruptcy or insolvency, or become subject to or instituted any
proceedings, arrangement or compromise with creditors, or had a receiver,
receiver manager or trustee appointed to hold the assets of the director,
executive officer or shareholder.

 

No director or executive
officer of the Corporation, or, to the knowledge of the Corporation, a
shareholder holding a sufficient number of securities of the Corporation to
affect materially the control of the Corporation has been subject to:

 

(a)           any penalties or sanctions imposed by a court relating to
securities legislation or by a securities regulatory authority or has entered
into a settlement agreement with a securities regulatory authority; or

 

(b)           any other penalties or sanctions imposed by a court or
regulatory body that would likely be considered important to a reasonable
investor in making an investment decision.

 

56

 

8.3                          Conflicts
of Interest

 

Certain of the Corporation’s
directors and officers are also directors and officers of other natural
resource companies.  Consequently, there
exists the possibility for such directors and officers to be in a position of
conflict.  Any decision made by any of
such directors and officers relating to the Corporation will be made in
accordance with their duties and obligations to deal fairly and in good faith
with the Corporation and such other companies.

 

ITEM 9.                                           LEGAL
AND REGULATORY PROCEEDINGS

 

Rusoro’s indirect ownership
of Cabello Gálvez, C.A. through Inversiones Mineras El Dorado, S.A. is
currently the subject of two disputes before the Venezuelan courts.

 

The first lawsuit (the “First Lawsuit”), currently pending before the Eighth Court
of First Instance of the Jurisdiction of the Capital Region and Metropolitan
Area of Caracas with Civil, Mercantile and Transit Competence, was brought by
the previous owner of Corporación Cabello Gálvez, C.A. (plaintiff: Mr. Carlos
Moya Palacios) against a third party (defendant: Héctor Lusinchi).  The plaintiff seeks a declarative judgment
asserting his ownership rights over the shares of Cabello Gálvez, C.A. based on
an authenticated deed of acquisition, while the defendant asserts a superior
right over the shares based on a judicial adjudication.  Since Inversiones Mineras El Dorado, S.A. is
the successor in interest of the plaintiff, the validity of its ownership of
the shares of Cabello Gálvez, C.A. is uncertain until the legal proceedings are
finalized.

 

The second lawsuit (the “Second Lawsuit”), currently pending before Twelfth Court of
First Instance of the Jurisdiction of the Capital Region and Metropolitan Area
of Caracas with Civil, Mercantile and Transit Competence, was brought by a
third party (Héctor Lusinchi) against Corporación Cabello Gálvez, C.A. (defendant).  The plaintiff seeks a judgment asserting the
voidance of a General Shareholders Meeting of Corporación Cabello Gálvez, C.A.
in which it was resolved to increase the capital of the Corporation and to
issue new shares in the name of Mr. Carlos Moya Palacios.  Since Inversiones Mineras El Dorado, S.A. is
the successor in interest of Mr. Moya Palacios in respect of those shares,
the validity of its ownership of the shares of Cabello Gálvez, C.A. is
uncertain until the legal proceedings are finalized.

 

Pursuant to a settlement
reached on November 4, 2008, Rusoro Mining (Panama) Inc., a wholly-owned
subsidiary of the Corporation, transferred 50% of the issued and outstanding
shares of its wholly-owned subsidiary Inversiones Mineras El Dorado, S.A. to
Hector Lusinchi, in settlement of the First Lawsuit and his agreement to
abandon the Second Lawsuit.  The
settlement of the First Lawsuit and the abandonment of the Second Lawsuit are
subject to homologation by the Venezuelan courts.

 

On October 13, 2004 the
Company’s wholly-owned subsidiary Promotora Minera de Guayana P.M.G., SA (“PMG”) commenced an action in the Venezuelan courts against
several small miners to enjoin them from carrying out mining operations in the
Choco 10 area and seeking restitution. 
The Venezuelan courts have granted a temporary injunction in favour of
PMG which allowed PMG to vacate the small miners from the Choco 10 area.  PMG’s claim is in the amount of approximately
U.S.$4,600,000 and the action remains before the Venezuelan courts.

 

On June 26, 2007 an
action was commenced 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 for eviction from the Choco 10 minesite.  PMG is defending the action and proceedings
have been suspended pending notification of the Attorney General for Venezuela.

 

57

 

On December 5, 2007 an
action was commenced in the Venezuelan courts by four individuals against PMG
and Luis Salvatore claiming damages of approximately U.S.$1,800,000 for alleged
illegal actions taken against them by PMG. 
PMG is defending the action and the action is pending before the
Venezuelan courts.

 

On April 21, 2008 an
action was commenced in the Venezuelan courts by Ramona de Herrera and others
against PMG claiming damages in the amount of approximately U.S.$2,200,000 for
eviction from the Choco 10 minesite.  PMG
is defending the action and the action is pending before the Venezuelan courts.

 

Management
knows of no other legal or regulatory proceedings, contemplated or actual,
involving Rusoro or its subsidiaries which could materially affect Rusoro or
its subsidiaries.

 

On December 1, 2004,
Ferrominera del Orinoco (“FMO”), a
Venezuelan state-owned company, instigated legal proceedings against the
Corporation’s wholly-owned subsidiary, Promotora Minera de Venezuela S.A. for
the annulment of a shareholders meeting whereby FMO’s equity stake in PMG was
diluted from 30% to 0.02%.  Pursuant to a
settlement agreement dated July 15, 2005, FMO formally abandoned the
action on July 6, 2008 and on August 6, 2008 the Corporation paid
$1,000,000 to FMO and transferred a 5% undilutable interest in PMG to FMO to
settle the dispute.  The legal proceeding
was terminated on September 24, 2008 with the homologation of the
abandonment of the action by the Venezuelan courts.

 

ITEM 10.               INTEREST OF
MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS

 

Vladimir Agapov,
Non-Executive Chairman and a director of Rusoro, and Jay Kaplowitz and Gordon
Keep, directors of Rusoro, were shareholders of Grupo Agapov at the time of the
Grupo Agapov Merger.  In connection with
the Grupo Agapov Merger, Gordon Keep was also issued 500,000 performance
warrants which entitled him to purchase up to 500,000 Common Shares of the
Corporation at a price of U.S.$0.05 per share which have been exercised.

 

In December 2006,
Rusoro acquired a group of CVG contracts and concessions granted by the MEM
known as Oro 88.  The contracts and
concessions are held by corporations which were owned beneficially by Mr. Vladimir
Agapov.  The purchase price is
U.S.$5,000,000 of which U.S.$2,500,000 was paid on signing of the acquisition
agreement, and the balance of which was paid in two further instalments.

 

In November of 2008,
the Corporation advanced U.S.$1,500,000 to a corporation beneficially owned by Mr. Andre
Agapov as an advance on the purchase price of a diamond processing plant and
related equipment (collectively, the “Plant”).  The Corporation agreed to arrange for the
transfer of the Plant to MIBAM pursuant to the MIBAM Agreement.  MIBAM has taken possession of the Plant and
the transfer is pending.  The Corporation
agreed to reimburse Mr. Agapov for the fair market value of the Plant and
an independent valuation of the Plant is currently being prepared.  GF Netherlands holds 140,000,001 Common
Shares representing 35.8% of the issued and outstanding Common Shares of the
Corporation.  During the year ended December 31,
2007, the Corporation acquired VHL and certain other subsidiaries from GN
Netherlands, details of which are disclosed under item 2.2 “Significant
Acquisitions”, “GFN Business Combination”.

 

Gordon Keep is the Executive
Vice President of Fiore Financial Corporation (“Fiore”)
which is an exclusive financial advisor to Endeavour Financial International
Corporation (“Endeavour Financial”).  Endeavour Financial has entered into a
financial advisory services agreement with the Corporation, details of which
are set out in Item 12 “Material Contracts”. 
Fiore is entitled to participate in Endeavour Financial’s bonus pool and
therefore has a contingent economic interest in the financial advisory services
agreement between the Corporation and Endeavour Financial.

 

58

 

Except as disclosed herein:

 

(a)           no director or executive officer of the Corporation;

 

(b)           no person or company that beneficially owns, or controls or
directs, directly or indirectly, more than 10% of the issued and outstanding
Common Shares of the Corporation; and

 

(c)           no associates or affiliate of any of the foregoing;

 

has any material interest,
direct or indirect, in any transaction within the Corporation’s three most
recently completed financial years or during the current financial year that
has materially affected or will materially affect the Corporation or any of its
subsidiaries.

 

ITEM 11.               TRANSFER
AGENT AND REGISTRAR

 

The Registrar and Transfer
Agent for the Common Shares is Computershare Trust Company of Canada, 2nd
Floor, 510 Burrard Street, Vancouver, British Columbia  V6C 3B9.

 

ITEM 12.               MATERIAL
CONTRACTS

 

Other than contracts entered
into in the ordinary course of business, the only contracts the Corporation has
entered into since the beginning of its most recently completed financial year,
or before that financial year but that are still in effect, and which can
reasonably be regarded as material to the Corporation, are as follows:

 

(a)           The Mena Arrangement Agreement referred to in Item 2.2 “Significant
Acquisitions – Mena Arrangement”.

 

(b)           The Agency Agreement referred to in Item 2.2  “Significant Acquisitions – Mena Arrangement”.

 

(c)           The Combination Agreement referred to in Item 2.2 “Significant
Acquisitions – GFN Business Combination”.

 

(d)           The Shareholder Agreement referred to in Item 2.2 “Significant
Acquisitions – GFN Business Combination”.

 

(e)           The Underwriting Agreement referred to in Item 2.2 “Significant
Acquisitions – GFN Business Combination”.

 

(f)            The Hecla-Venezuela Agreement referred to in Item 2.2 “Significant
Acquisitions – Hecla-Venezuela Acquisition”.

 

(g)           The Loan Agreement referred to in Item 2.2 “Significant
Acquisitions – Hecla-Venezuela Acquisition”.

 

(h)           The MIBAM Agreement referred to in Item 2.2 “Significant
Acquisitions – Hecla-Venezuela Acquisition”.

 

(i)            Financial Advisory Services Agreement dated April 3,
2007 (the “Endeavour Mandate Agreement”)
between the Corporation and Endeavour Financial.  Pursuant to the Endeavour Mandate Agreement
the Corporation has retained Endeavour Financial to provide financial advisory
services.  In consideration for those
services Endeavour Financial is entitled to be paid a fee of U.S.$10,000 per
month.  Endeavour Financial is also
entitled to certain milestone 

 

59

 

payments,
a success fee of 1.75% of the value of the transaction on completion of certain
transactions including mergers, business combinations and acquisitions and
divestitures of assets and a success fee of 2% on debt financings.

 

(j)            The Guarantee referred to in Item 2.2 “Significant
Acquisitions – Hecla-Venezuela Acquisition”.

 

(k)           The Warrant Instrument referred to in Item 2.2 “Significant
Acquisitions – Hecla-Venezuela Acquisition”.

 

ITEM 13.               INTERESTS OF
EXPERTS

 

Mr. Gregory Smith, P.
Geo., the Vice-President Exploration of the Corporation is a “Qualified Person”
as defined in NI 43-101 and is responsible for the accuracy of the scientific
and technical information contained within this AIF.  Mr. Smith beneficially owns, directly or
indirectly, less than 1% of the Corporation’s Common Shares.

 

Other than the foregoing, no
person or company whose profession or business gives authority to a statement
made by the person or company and who is named as having prepared or certified
a part of this Annual Information Form or as having prepared or certified
a report or valuation described or included in this Annual Information Form holds
any beneficial interest, direct or indirect, in any property of the Corporation
or of an associate or affiliate of the Corporation and no such person is
expected to be elected, appointed or employed as a director, senior officer or
employee of the Corporation or of an associate or affiliate of the Corporation
and no such person is a promoter of the Corporation or an associate or
affiliate of the Corporation.

 

Grant Thornton LLP, the
Corporation’s external auditor, has prepared an opinion with respect to the
Corporation’s audited consolidated financial statements for the years ended December 31,
2007 and 2006.  In connection with the
audit of the Corporation’s annual financial statements for the years ended December 31,
2007 and 2006, Grant Thornton LLP have confirmed that they are independent
within the meaning of the Rules of Professional Conduct of the Institute
of Chartered Accountants of British Columbia.

 

ITEM 14.               ADDITIONAL
INFORMATION

 

Additional information
concerning the Corporation is available through the Internet on the Canadian
System for Electronic Document Analysis and Retrieval which may be accessed on
the SEDAR website at www.sedar.com. 
Copies of such information may also be obtained on request without
charge from the Secretary of the Corporation, at Suite 1600, 609 Granville
Street, PO Box 10068, Pacific Centre, Vancouver, British Columbia, V7Y 1C3.

 

Additional information,
including information as to directors and officers remuneration and
indebtedness, principal holders of the Corporation’s securities and securities
authorized for issuance under equity compensation plans is contained in the
Management Information Circular of the Corporation provided for the Annual
General Meeting of the shareholders of the Corporation held on September 12,
2008.  Additional information is provided
in the Corporation’s Financial Statements and the Management’s Discussion and
Analysis for the year ended December 31, 2007.  Copies of such documents may be obtained in
the manner set forth above.

 

60Exhibit 4.2

 

 

RUSORO MINING LTD.

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

(Expressed
in U.S. Dollars)

 

 

 

	
   

  	
  Grant Thornton LLP
 Suite 1600, Grant Thornton Place

  333 Seymour Street

  Vancouver, BC

  V6B 0A4

   

  T (604) 687-2711

  F (604) 685-6569

  www.GrantThornton.ca

  

 

Report of Independent Registered

Chartered Accounting Firm

 

To the Directors of Rusoro Mining Ltd.:

 

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

 

We conducted our audits in accordance with the
standards of the Public Accounting Oversight Board (United States) and Canadian
generally accepted auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. 
The Company is not required to have, nor were we engaged to perform, an
audit of its internal controls over financial reporting.  Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion of the effectiveness of the Company’s internal control over financial
reporting.  Accordingly, we express no
such opinion.  An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.  We believe that our audits provide a
reasonable basis for our opinion.

 

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

 

	
  Audit · Tax · Advisory

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

  

 

 

 

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

 

	
   

  	
   

  	
  /s/ Grant
  Thornton LLP

  
	
  Vancouver,
  Canada

  	
   

  	
  Independent
  Registered

  
	
  May 6,
  2008 except as to Notes 19 and 21

  	
   

  	
  Chartered
  Accounting Firm

  
	
  which are as
  of December 12, 2008

  	
   

  	
   

  

 

	
  Audit · Tax · Advisory

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

  

 

 

	
  RUSORO MINING LTD. 

  CONSOLIDATED BALANCE SHEETS 

  AS AT DECEMBER 31, 2007 AND 2006 

  (Expressed in U.S. Dollars)

  	
   

  	
  

  

 

	
   

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
  CURRENT ASSETS

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cash

  	
   

  	
  31,352,166

  	
   

  	
  11,121,109

  	
   

  
	
  Loans and receivables (Note 4)

  	
   

  	
  5,300,231

  	
   

  	
  411,445

  	
   

  
	
  Prepaid expenses and deposits (Notes 5 and
  13)

  	
   

  	
  8,187,746

  	
   

  	
  378,446

  	
   

  
	
  Inventories – gold (Note 6)

  	
   

  	
  7,634,989

  	
   

  	
  96,515

  	
   

  
	
  Inventories – materials

  	
   

  	
  3,089,999

  	
   

  	
  —

  	
   

  
	
  Assets held for sale (Note 22)

  	
   

  	
  855,000

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
  56,420,131

  	
   

  	
  12,007,515

  	
   

  
	
  Property, plant and equipment (Notes 7 and
  13)

  	
   

  	
  758,680,742

  	
   

  	
  3,696,951

  	
   

  
	
  Mineral properties (Notes 8 and 13)

  	
   

  	
  190,287,252

  	
   

  	
  26,822,013

  	
   

  
	
  Loans and receivables - non-current (Note
  4)

  	
   

  	
  1,136,092

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
  1,006,524,217

  	
   

  	
  42,526,479

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  CURRENT LIABILITIES

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Accounts payable and accrued liabilities
  (Note 9)

  	
   

  	
  21,422,340

  	
   

  	
  4,309,023

  	
   

  
	
  Short-term debt (Note 10)

  	
   

  	
  522,375

  	
   

  	
  —

  	
   

  
	
  Loan payable on acquisition (Note 14)

  	
   

  	
  2,500,000

  	
   

  	
  2,500,000

  	
   

  
	
   

  	
   

  	
  24,444,715

  	
   

  	
  6,809,023

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Asset retirement obligation (Note 12)

  	
   

  	
  2,284,178

  	
   

  	
  462,609

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Future income tax liability (Note 16)

  	
   

  	
  276,752,282

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Non-controlling interest (Note 3(b))

  	
   

  	
  —

  	
   

  	
  1,933,583

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SHAREHOLDERS’ EQUITY

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SHARE CAPITAL (Note 11(a))

  	
   

  	
  669,251,552

  	
   

  	
  89,161,949

  	
   

  
	
  CONTRIBUTED SURPLUS (Note 11(g))

  	
   

  	
  91,823,658

  	
   

  	
  7,198,983

  	
   

  
	
  ACCUMULATED OTHER COMPREHENSIVE INCOME

  	
   

  	
  37,251,489

  	
   

  	
  —

  	
   

  
	
  DEFICIT

  	
   

  	
  (95,283,657

  	
  )

  	
  (63,039,668

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  703,043,042

  	
   

  	
  33,321,264

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  1,006,524,217

  	
   

  	
  42,526,479

  	
   

  

 

Nature
of operations - Note 1

Commitments
and contingencies - Note 19

 

	
   

  	
  (See Accompanying Notes)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  APPROVED BY THE DIRECTORS:

  	
   

  	
   

  	
   

  	
   

  
	
  “George Salamis”

  	
  ,  

  	
  Director

  	
   

  	
  “Gordon Keep”

  	
  ,  

  	
  Director

  
	
  George Salamis 

  	
   

  	
   

  	
   

  	
  Gordon Keep

  	
   

  
							

 

1

 

	
  RUSORO MINING LTD. 

  CONSOLIDATED STATEMENTS OF OPERATIONS AND 

  DEFICIT 

  FOR THE YEARS ENDED DECEMBER 31, 

  (Expressed in U.S. Dollars)

  	
   

  	
  

  

 

	
   

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  REVENUE

  	
   

  	
  3,494,613

  	
   

  	
  —

  	
   

  
	
  Cost of goods sold

  	
   

  	
  (7,282,856

  	
  )

  	
  —

  	
   

  
	
  GROSS LOSS

  	
   

  	
  (3,788,243

  	
  )

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  EXPENSES

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Administration expenses (Notes
  11(h) and 13)

  	
   

  	
  16,465,634

  	
   

  	
  3,731,467

  	
   

  
	
  Amortization

  	
   

  	
  31,823

  	
   

  	
  —

  	
   

  
	
  Asset retirement costs (Note 12)

  	
   

  	
  —

  	
   

  	
  37,462

  	
   

  
	
  Consulting (Notes 11(h) and 13)

  	
   

  	
  7,040,938

  	
   

  	
  155,494

  	
   

  
	
  Foreign exchange loss

  	
   

  	
  525,836

  	
   

  	
  4,032,987

  	
   

  
	
  Interest expense (income) (Note 13)

  	
   

  	
  (2,509,613

  	
  )

  	
  8,236,982

  	
   

  
	
  Professional fees (Note 13)

  	
   

  	
  1,682,806

  	
   

  	
  1,030,858

  	
   

  
	
  Salaries (Notes 11(h) and 13)

  	
   

  	
  1,915,948

  	
   

  	
  182,791

  	
   

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

  	
   

  	
  —

  	
   

  	
  7,825,924

  	
   

  
	
  Donations

  	
   

  	
  1,149,484

  	
   

  	
  —

  	
   

  
	
  Transfer agent and filing fees

  	
   

  	
  118,009

  	
   

  	
  41,954

  	
   

  
	
  Travel and entertainment expenses (Note 13)

  	
   

  	
  3,706,515

  	
   

  	
  823,570

  	
   

  
	
   

  	
   

  	
  30,127,380

  	
   

  	
  26,099,489

  	
   

  
	
  Loss before undernoted

  	
   

  	
  (33,915,623

  	
  )

  	
  (26,099,489

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  OTHER EXPENSES (INCOME)

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Impairment of mineral properties (Note 8)

  	
   

  	
  289,743

  	
   

  	
  10,293,409

  	
   

  
	
  Other expense (income)

  	
   

  	
  127,091

  	
   

  	
  (407,085

  	
  )

  
	
  Loss on disposal of marketable securities
  and investments

  	
   

  	
  113,496

  	
   

  	
  3,695

  	
   

  
	
   

  	
   

  	
  530,330

  	
   

  	
  9,890,019

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  LOSS BEFORE INCOME TAXES AND
  DISCONTINUED OPERATIONS

  	
   

  	
  (34,445,953

  	
  )

  	
  (35,989,508

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Income tax recovery (Note 16)

  	
   

  	
  2,201,964

  	
   

  	
  —

  	
   

  
	
  Loss on discontinued operations (Note 18)

  	
   

  	
  —

  	
   

  	
  (1,507,426

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  NET LOSS

  	
   

  	
  (32,243,989

  	
  )

  	
  (37,496,934

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  DEFICIT

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Beginning of year

  	
   

  	
  (63,039,668

  	
  )

  	
  (25,542,734

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  End of year

  	
   

  	
  (95,283,657

  	
  )

  	
  (63,039,668

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  BASIC AND DILUTED LOSS PER
  SHARE

  	
   

  	
  (0.20

  	
  )

  	
  (2.01

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  WEIGHTED AVERAGE NUMBER OF
  SHARES OUTSTANDING

  	
   

  	
  161,105,435

  	
   

  	
  18,609,760

  	
   

  

 

2

 

	
  RUSORO MINING LTD.

  FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006

  (Expressed in U.S. Dollars)

  	
  

  

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME

 

	
   

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  NET LOSS

  	
   

  	
  (32,243,989

  	
  )

  	
  (37,496,934

  	
  )

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

  	
   

  	
  37,251,489 

  	
   

  	
  — 

  	
   

  
	
  COMPREHENSIVE INCOME

  	
   

  	
  5,007,500

  	
   

  	
  (37,496,934

  	
  )

  

 

CONSOLIDATED STATEMENTS OF ACCUMULATED OTHER
COMPREHENSIVE INCOME

 

	
   

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  BALANCE – BEGINNING OF YEAR

  	
   

  	
  —

  	
   

  	
  —

  	
   

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

  	
   

  	
  37,251,489 

  	
   

  	
  — 

  	
   

  
	
  BALANCE – END OF YEAR

  	
   

  	
  37,251,489

  	
   

  	
  —

  	
   

  

 

3

 

	
  RUSORO
  MINING LTD. 

  CONSOLIDATED STATEMENTS OF CASH FLOWS 

  FOR THE YEARS ENDED DECEMBER 31, 

  (Expressed in U.S. Dollars)

  	
   

  	
  

  

 

	
   

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
  OPERATING
  ACTIVITIES

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Net loss for the year

  	
   

  	
  (32,243,989

  	
  )

  	
  (35,989,508

  	
  )

  
	
  Item not involving cash

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Amortization

  	
   

  	
  31,283

  	
   

  	
  —

  	
   

  
	
  Asset retirement costs

  	
   

  	
  —

  	
   

  	
  37,462

  	
   

  
	
  Stock based compensation
  (Note 11(h))

  	
   

  	
  16,826,115

  	
   

  	
  7,825,924

  	
   

  
	
  Impairment of mineral
  properties (Note 8)

  	
   

  	
  289,743

  	
   

  	
  10,293,409

  	
   

  
	
  Loss on disposal of assets

  	
   

  	
  113,496

  	
   

  	
  3,695

  	
   

  
	
  Future Income Taxes

  	
   

  	
  (2,201,964

  	
  )

  	
  —

  	
   

  
	
   

  	
   

  	
  (17,185,316

  	
  )

  	
  (17,829,018

  	
  )

  
	
  Changes in non-cash working
  capital items

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Inventories

  	
   

  	
  (691,889

  	
  )

  	
  3,987

  	
   

  
	
  Receivables

  	
   

  	
  (709,245

  	
  )

  	
  290,593

  	
   

  
	
  Prepaids

  	
   

  	
  (4,291,567

  	
  )

  	
  57,598

  	
   

  
	
  Assets held for sale

  	
   

  	
  (855,000

  	
  )

  	
  —

  	
   

  
	
  Accounts payables

  	
   

  	
  348,094

  	
   

  	
  3,039,786

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cash used in continuing
  operations

  	
   

  	
  (23,384,923

  	
  )

  	
  (14,437,054

  	
  )

  
	
  Cash used in discontinued
  operations

  	
   

  	
  —

  	
   

  	
  (1,193,964

  	
  )

  
	
   

  	
   

  	
  (23,384,923

  	
  )

  	
  (15,631,018

  	
  )

  
	
  FINANCING
  ACTIVITIES

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Proceeds from private placement

  	
   

  	
  225,000,000

  	
   

  	
  35,000,000

  	
   

  
	
  Cash acquired in Mena and
  Goldfields transactions

  	
   

  	
  60,418,601

  	
   

  	
  —

  	
   

  
	
  Share issue costs

  	
   

  	
  (13,799,022

  	
  )

  	
  (2,475,427

  	
  )

  
	
  Repayment of short-term
  borrowings

  	
   

  	
  (2,352,857

  	
  )

  	
  —

  	
   

  
	
  Cash received upon the
  exercising of share warrants

  	
   

  	
  514,940

  	
   

  	
  —

  	
   

  
	
  Cash received upon the
  exercising of stock options

  	
   

  	
  248,584

  	
   

  	
  —

  	
   

  
	
  Advances from related parties

  	
   

  	
  973,333

  	
   

  	
  71,568

  	
   

  
	
  Advances from shareholders

  	
   

  	
  —

  	
   

  	
  12,744,539

  	
   

  
	
  Cancellation of shares

  	
   

  	
  —

  	
   

  	
  (10,000,000

  	
  )

  
	
  Loan payment (Note 14)

  	
   

  	
  —

  	
   

  	
  (2,500,000

  	
  )

  
	
   

  	
   

  	
  271,003,579

  	
   

  	
  32,840,680

  	
   

  
	
  INVESTING
  ACTIVITIES

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cash paid to acquire
  Goldfields

  	
   

  	
  (205,523,442

  	
  )

  	
  —

  	
   

  
	
  Mineral property costs

  	
   

  	
  (11,456,746

  	
  )

  	
  (6,112,954

  	
  )

  
	
  Purchase of property, plant
  and equipment

  	
   

  	
  (10,963,761

  	
  )

  	
  (148,872

  	
  )

  
	
  Advances from related
  companies

  	
   

  	
  20,526

  	
   

  	
  97,613

  	
   

  
	
  Proceeds from sale of
  marketable securities and long term investments

  	
   

  	
  306,023

  	
   

  	
  —

  	
   

  
	
  Collection of collateral loan

  	
   

  	
  300,000

  	
   

  	
  —

  	
   

  
	
  Acquisition costs for Mena

  	
   

  	
  (70,199

  	
  )

  	
  —

  	
   

  
	
   

  	
   

  	
  (227,387,599

  	
  )

  	
  (6,164,213

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  INCREASE
  IN CASH

  	
   

  	
  20,231,057

  	
   

  	
  11,045,449

  	
   

  
	
  Cash - beginning of year

  	
   

  	
  11,121,109

  	
   

  	
  75,660

  	
   

  
	
  CASH
  – END OF YEAR

  	
   

  	
  31,352,166

  	
   

  	
  11,121,109

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Supplemental
  cash flow information

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Interest paid

  	
   

  	
  —

  	
   

  	
  8,236,982

  	
   

  
	
  Taxes paid

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Non-cash
  investing and financing transactions (Note 15)

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

4

 

 

	
  RUSORO MINING LTD.

  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  For the Years Ended December 31, 2007 and 2006 

  (Expressed in U.S. Dollars)

  	
  

  

 

1.             NATURE OF OPERATIONS

 

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

 

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

 

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

 

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

 

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

 

2.             SIGNIFICANT ACCOUNTING
POLICIES

 

Basis
of Accounting and Consolidation

 

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

 

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

 

Use
of Estimates

 

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

 

5

 

	
  RUSORO MINING
  LTD.

  Notes to Consolidated Financial Statements

  For the Years Ended December 31, 2007 and 2006

  Expressed in U.S. Dollars

  	
  

  

 

Translation
of Foreign Subsidiaries

 

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

 

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

 

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

 

Translation
of Foreign Currency Transactions and Balances

 

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

 

Cash
and Cash Equivalents

 

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

 

Property,
Plant and Equipment

 

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

 

	
  Facilities

  	
   

  	
  20-25 years

  	
   

  
	
  Machinery

  	
   

  	
  5 years

  	
   

  
	
  Furniture and equipment

  	
   

  	
  5 years

  	
   

  
	
  Vehicles

  	
   

  	
  4-5 years

  	
   

  
	
  Leasehold improvements

  	
   

  	
  Term of the lease

  	
   

  

 

Mineral
Properties

 

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

 

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

 

6

 

	
  RUSORO MINING LTD.

  Notes to Consolidated Financial Statements

  For the Years Ended December 31, 2007 and 2006 

  Expressed in U.S. Dollars

  	
  

  

 

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

 

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

 

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

 

Stripping
Costs

 

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

 

Inventories

 

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

 

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

 

Accrual
for Termination Benefits

 

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

 

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

 

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

 

Future
Income Taxes

 

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

 

7

 

	
  RUSORO MINING LTD.

  Notes to Consolidated Financial Statements

  For the Years Ended December 31, 2007 and 2006 

  Expressed in U.S. Dollars

  	
  

  

 

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

 

Revenue
Recognition

 

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

 

Asset
Retirement Obligation

 

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

 

Impairment
of Long-lived Assets

 

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

 

Share
Capital

 

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

 

Stock-based
Compensation

 

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

 

Loss
per Share

 

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

 

Change
in Accounting Policies

 

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

 

8

 

	
  RUSORO MINING LTD.

  Notes to Consolidated Financial Statements

  For the Years Ended December 31, 2007 and 2006 

  Expressed in U.S. Dollars

  	
  

  

 

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

 

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

 

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

 

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

 

The Company has
implemented the following classifications:

 

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

 

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

 

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

 

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

 

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

 

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

 

Recent
Pronouncements in Accounting Standards

 

	
  a)

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

  
	
   

  	
   

  
	
   

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

  
	
   

  	
   

  
	
  b)

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

  
	
   

  	
   

  
	
   

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

  
	
   

  	
   

  
	
   

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

  

 

9

 

	
  RUSORO MINING LTD.

  Notes to Consolidated Financial Statements

  For the Years Ended December 31, 2007 and 2006 

  Expressed in U.S. Dollars

  	
  

  

 

	
   

  	
  fiscal 2008. 

  
	
   

  	
   

  
	
   

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

  
	
   

  	
   

  
	
  c)

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

  
	
   

  	
   

  
	
   

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

  
	
   

  	
   

  
	
   

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

  
	
   

  	
   

  
	
   

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

  
	
   

  	
   

  
	
  d)

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

  
	
   

  	
   

  
	
   

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

  
	
   

  	
   

  
	
   

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

  
	
   

  	
   

  
	
   

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

  
	
   

  	
   

  
	
  e)

  	
  Handbook Section 3862, Financial
  Instruments – Disclosures

  
	
   

  	
   

  
	
   

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

  
	
   

  	
   

  
	
   

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

  

 

10

 

	
  RUSORO MINING LTD.

  Notes to Consolidated Financial Statements

  For the Years Ended December 31, 2007 and 2006 

  Expressed in U.S. Dollars

  	
  

  

 

	
  f)

  	
  Handbook Section 3863, Financial
  Instruments – Presentation

  
	
   

  	
   

  
	
   

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

  
	
   

  	
   

  
	
   

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

  

 

3.             ACQUISITIONS

 

(a)           Grupo Agapov Corp.

 

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

 

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

 

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

 

	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Cash

  	
   

  	
  151,138

  	
   

  
	
  Other current assets

  	
   

  	
  5,843

  	
   

  
	
  Liabilities

  	
   

  	
  (56,001

  	
  )

  
	
   

  	
   

  	
  100,980

  	
   

  

 

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

 

11

 

	
  RUSORO MINING LTD.

  Notes to Consolidated Financial Statements

  For the Years Ended December 31, 2007 and 2006 

  Expressed in U.S. Dollars

  	
  

  

 

(b)           Mena Resources Inc.

 

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

 

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

 

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

 

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

 

The allocation of the
purchase price is summarized below:

 

	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Cash

  	
   

  	
  57,706,229

  	
   

  
	
  Other current assets

  	
   

  	
  143,042

  	
   

  
	
  Mineral properties

  	
   

  	
  76,905,021

  	
   

  
	
  Plant and equipment

  	
   

  	
  15,788

  	
   

  
	
  Marketable securities

  	
   

  	
  106,712

  	
   

  
	
  Long-term investments

  	
   

  	
  112,323

  	
   

  
	
  Liabilities

  	
   

  	
  (157,717

  	
  )

  
	
  Future income tax liabilities

  	
   

  	
  (23,313,595

  	
  )

  
	
   

  	
   

  	
  111,517,803

  	
   

  

 

	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Consideration 31,424,255 shares issued @
  $3.05

  	
   

  	
  95,781,321

  	
   

  
	
  Fair value of options and warrants

  	
   

  	
  15,666,283

  	
   

  
	
  Acquisition costs

  	
   

  	
  70,199

  	
   

  
	
   

  	
   

  	
  111,517,803

  	
   

  

 

(c)           Gold Fields Netherlands Services BV

 

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

 

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

 

12

 

	
  RUSORO MINING LTD.

  Notes to Consolidated Financial Statements

  For the Years Ended December 31, 2007 and 2006 

  Expressed in U.S. Dollars

  	
  

  

 

The allocation of the
purchase price is summarized below:

 

	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Cash

  	
   

  	
  2,712,372

  	
   

  
	
  Inventories - gold

  	
   

  	
  1,390,462

  	
   

  
	
  Inventories - gold in process

  	
   

  	
  3,101,227

  	
   

  
	
  Inventories – stockpile

  	
   

  	
  5,165,080

  	
   

  
	
  Other current assets

  	
   

  	
  10,034,586

  	
   

  
	
  Mineral properties

  	
   

  	
  68,408,016

  	
   

  
	
  Property, plant and equipment

  	
   

  	
  702,834,974

  	
   

  
	
  Other long-term assets

  	
   

  	
  47,787

  	
   

  
	
  Current liabilities

  	
   

  	
  (17,885,421

  	
  )

  
	
  Other long-term liabilities

  	
   

  	
  (2,134,397

  	
  )

  
	
  Future income tax liabilities

  	
   

  	
  (244,475,368

  	
  )

  
	
   

  	
   

  	
  529,199,318

  	
   

  

 

	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Cash

  	
   

  	
  180,000,000

  	
   

  
	
  Consideration 140,000,000 shares issued @
  $2.31

  	
   

  	
  323,400,000

  	
   

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

  	
   

  	
  25,799,318

  	
   

  
	
   

  	
   

  	
  529,199,318

  	
   

  

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

13

 

	
  RUSORO MINING LTD.

  Notes to Consolidated Financial Statements

  For the Years Ended December 31, 2007 and 2006 

  Expressed in U.S. Dollars

  	
  

  

 

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

 

4.             LOANS AND RECEIVABLES

 

	
   

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (a) VAT receivable

  	
   

  	
  5,370,621

  	
   

  	
  —

  	
   

  
	
  (b) Other receivables

  	
   

  	
  1,014,456

  	
   

  	
  39,673

  	
   

  
	
  (c) Advances to related companies

  	
   

  	
  51,246

  	
   

  	
  71,772

  	
   

  
	
  (d) Loans

  	
   

  	
  —

  	
   

  	
  300,000

  	
   

  
	
   

  	
   

  	
  6,436,323

  	
   

  	
  411,445

  	
   

  
	
  (e) Non-current VAT receivable

  	
   

  	
  (1,136,092

  	
  )

  	
  —

  	
   

  
	
  Current loans and receivables

  	
   

  	
  5,300,231

  	
   

  	
  411,445

  	
   

  

 

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

 

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

 

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

 

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

 

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

 

5.             PREPAIDS AND DEPOSITS

 

	
   

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (a) Prepaid expenses

  	
   

  	
  6,916,406

  	
   

  	
  378,446

  	
   

  
	
  (b) Deposits

  	
   

  	
  1,271,340

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
  8,187,746

  	
   

  	
  378,446

  	
   

  

 

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

 

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

 

14

 

	
  RUSORO MINING LTD.

  	
  

  
	
  Notes to Consolidated Financial Statements

  
	
  For the Years Ended December 31, 2007 and 2006

  
	
  Expressed in U.S. Dollars

  

 

6.             INVENTORIES - GOLD

 

	
   

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Gold bars

  	
   

  	
  4,288,801

  	
   

  	
  56,129

  	
   

  
	
  Gold in
  process

  	
   

  	
  1,944,753

  	
   

  	
  40,386

  	
   

  
	
  Gold -
  stockpile

  	
   

  	
  1,401,435

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
  7,634,989

  	
   

  	
  96,515

  	
   

  

 

7.             PROPERTY, PLANT AND EQUIPMENT

 

	
   

  	
   

  	
  2007

  $

  	
   

  
	
   

  	
   

  	
  Cost

  	
   

  	
  Accumulated

  Amortization

  and Depletion

  	
   

  	
  Net Book Value

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Facilities

  	
   

  	
  694,392,653

  	
   

  	
  (4,014,961

  	
  )

  	
  690,377,692

  	
   

  
	
  Machinery

  	
   

  	
  61,211,025

  	
   

  	
  (3,081,238

  	
  )

  	
  58,129,787

  	
   

  
	
  Furniture and equipment

  	
   

  	
  6,991,869

  	
   

  	
  (1,229,498

  	
  )

  	
  5,762,371

  	
   

  
	
  Vehicles

  	
   

  	
  1,973,257

  	
   

  	
  (445,473

  	
  )

  	
  1,527,784

  	
   

  
	
  Leasehold improvements

  	
   

  	
  78,263

  	
   

  	
  (7,684

  	
  )

  	
  70,579

  	
   

  
	
  Construction in progress

  	
   

  	
  2,812,530

  	
   

  	
  —

  	
   

  	
  2,812,530

  	
   

  
	
   

  	
   

  	
  767,459,597

  	
   

  	
  (8,778,854

  	
  )

  	
  758,680,743

  	
   

  

 

	
   

  	
   

  	
  2006

  $

  	
   

  
	
   

  	
   

  	
  Cost

  	
   

  	
  Accumulated

  Amortization

  and Depletion

  	
   

  	
  Net Book Value

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Facilities

  	
   

  	
  4,057,659

  	
   

  	
  (1,165,621

  	
  )

  	
  2,892,038

  	
   

  
	
  Machinery

  	
   

  	
  914,139

  	
   

  	
  (680,093

  	
  )

  	
  234,046

  	
   

  
	
  Furniture and equipment

  	
   

  	
  36,612

  	
   

  	
  (31,253

  	
  )

  	
  5,359

  	
   

  
	
  Vehicles

  	
   

  	
  207,289

  	
   

  	
  (145,823

  	
  )

  	
  61,466

  	
   

  
	
  Construction in progress

  	
   

  	
  504,042

  	
   

  	
  —

  	
   

  	
  504,042

  	
   

  
	
   

  	
   

  	
  5,719,741

  	
   

  	
  (2,022,790

  	
  )

  	
  3,696,951

  	
   

  

 

Construction
in Progress

 

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

 

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

 

	
   

  	
   

  	
   

  	
   

  	
  Mineral Interests

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Depletable

  	
   

  	
  Non-Depletable

  	
   

  	
  Total

  	
   

  	
  Facilities

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Choco 10

  	
   

  	
  24,737,653

  	
   

  	
  640,859,204

  	
   

  	
  665,596,857

  	
   

  	
  24,780,835

  	
   

  	
  690,377,692

  	
   

  	
  —

  	
   

  

 

 

15

 

	
  RUSORO MINING LTD.

  	
  

  
	
  Notes to Consolidated Financial Statements

  
	
  For the Years Ended December 31, 2007 and 2006

  
	
  Expressed in U.S. Dollars

  

 

8.             MINERAL PROPERTIES

 

	
   

  	
   

  	
  El Dorado

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  San Rafael

  El Placer

  	
   

  	
  Emilia

  	
   

  	
  CEIBA II

  	
   

  	
  Valle

  Hondo

  	
   

  	
  Increible 6

  	
   

  	
  Atlantida

  	
   

  	
  Minoro

  	
   

  	
  El Callao

  	
   

  	
  Other

  Properties

  	
   

  	
  Total

  	
   

  
	
   

  	
   

  	
  $000’s

  	
   

  	
  $000’s

  	
   

  	
  $000’s

  	
   

  	
  $000’s

  	
   

  	
  $000’s

  	
   

  	
  $000’s

  	
   

  	
  $000’s

  	
   

  	
  $000’s

  	
   

  	
  $000’s

  	
   

  	
  $000’s

  	
   

  
	
  Balance,
  Dec 31, 2005

  	
   

  	
  11,138

  	
   

  	
  1,006

  	
   

  	
  1,160

  	
   

  	
  828

  	
   

  	
  2,579

  	
   

  	
  10,169

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  2,805

  	
   

  	
  29,685

  	
   

  
	
  Acquisition
  and holding costs

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  233

  	
   

  	
  233

  	
   

  
	
  Exploration
  costs

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Camp,
  equipment and geological fees

  	
   

  	
  —

  	
   

  	
  933

  	
   

  	
  —

  	
   

  	
  146

  	
   

  	
  978

  	
   

  	
  8

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  158

  	
   

  	
  2,223

  	
   

  
	
  Drilling
  and assays

  	
   

  	
  1,178

  	
   

  	
  1,168

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  2,629

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  4,975

  	
   

  
	
   

  	
   

  	
  1,178

  	
   

  	
  2,101

  	
   

  	
  —

  	
   

  	
  146

  	
   

  	
  3,607

  	
   

  	
  8

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  158

  	
   

  	
  7,198

  	
   

  
	
  Writedown
  of mineral properties

  	
   

  	
  —

  	
   

  	
  (11

  	
  )

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  (10,177

  	
  )

  	
  —

  	
   

  	
  —

  	
   

  	
  (106

  	
  )

  	
  (10,294

  	
  )

  
	
  Balance,
  Dec 31, 2006

  	
   

  	
  12,316

  	
   

  	
  3,096

  	
   

  	
  1,160

  	
   

  	
  974

  	
   

  	
  6,186

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  3,090

  	
   

  	
  26,822

  	
   

  
	
  Acquisition
  of Mena properties

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  18,807

  	
   

  	
  39,319

  	
   

  	
  —

  	
   

  	
  15,215

  	
   

  	
  —

  	
   

  	
  3,564

  	
   

  	
  76,905

  	
   

  
	
  Acquisition
  of Goldfields properties

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  68,408

  	
   

  	
  —

  	
   

  	
  68,408

  	
   

  
	
  Foreign
  exchange gain

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  4,629

  	
   

  	
   

  	
   

  	
  4,629

  	
   

  
	
  Exploration
  costs

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Camp,
  equipment and geological fees

  	
   

  	
  2,520

  	
   

  	
  334

  	
   

  	
  —

  	
   

  	
  506

  	
   

  	
  3,667

  	
   

  	
  —

  	
   

  	
  44

  	
   

  	
  253

  	
   

  	
  236

  	
   

  	
  7,560

  	
   

  
	
  Drilling
  and assays

  	
   

  	
  2,134

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  65

  	
   

  	
  4,748

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  111

  	
   

  	
  7,058

  	
   

  
	
   

  	
   

  	
  4,654

  	
   

  	
  334

  	
   

  	
  0

  	
   

  	
  571

  	
   

  	
  8,415

  	
   

  	
  —

  	
   

  	
  44

  	
   

  	
  253

  	
   

  	
  347

  	
   

  	
  14,618

  	
   

  
	
  Reclassified
  to assets held for sale

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  (805

  	
  )

  	
  (805

  	
  )

  
	
  Write-down
  of mineral properties

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  (290

  	
  )

  	
  (290

  	
  )

  
	
  Balance,
  Dec 31, 2007

  	
   

  	
  16,970

  	
   

  	
  3,430

  	
   

  	
  1,160

  	
   

  	
  20,352

  	
   

  	
  53,920

  	
   

  	
  —

  	
   

  	
  15,259

  	
   

  	
  73,290

  	
   

  	
  5,906

  	
   

  	
  190,287

  	
   

  

 

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

 

El Dorado

 

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

 

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

 

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

 

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

 

Valle Hondo

 

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

 

Significant upgrades
were completed to 45 km of access roads.

 

16

 

	
  RUSORO MINING LTD.

  	
  

  
	
  Notes to Consolidated Financial Statements

  
	
  For the Years Ended December 31, 2007 and 2006

  
	
  Expressed in U.S. Dollars

  

 

Increíble 6

 

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

 

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

 

Minoro

 

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

 

El Callao

 

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

 

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

 

Atlantida

 

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

 

Km88

 

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

 

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

 

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

 

Other Bolivar State Projects

 

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

 

Honduras

 

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

 

17

 

	
  RUSORO MINING LTD.

  	
  

  
	
  Notes to Consolidated Financial Statements

  
	
  For the Years Ended December 31, 2007 and 2006

  
	
  Expressed in U.S. Dollars

  

 

9.             ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

 

	
   

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Accounts payable

  	
   

  	
  16,306,773

  	
   

  	
  1,972,104

  	
   

  
	
  Accrued liabilities

  	
   

  	
  3,557,558

  	
   

  	
  1,692,617

  	
   

  
	
  Due to related parties

  	
   

  	
  1,044,901

  	
   

  	
  71,568

  	
   

  
	
  Accual for termination benefits

  	
   

  	
  513,108

  	
   

  	
  572,734

  	
   

  
	
   

  	
   

  	
  21,422,340

  	
   

  	
  4,309,023

  	
   

  

 

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

 

10.          SHORT TERM DEBT

 

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

 

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

 

18

 

	
  RUSORO MINING LTD.

  	
  

  
	
  Notes to Consolidated Financial Statements

  
	
  For the Years Ended December 31, 2007 and 2006

  
	
  Expressed in U.S. Dollars

  

 

11.          SHARE CAPITAL

 

Authorized Share Capital of Rusoro

 

Unlimited number of
common shares.

 

(a)           Issued Capital

 

	
   

  	
   

  	
  Number of

  Shares

  	
   

  	
  Amount

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Balance, December 31,
  2005 – Rusoro

  	
   

  	
  2,112,529

  	
   

  	
  2,036,844

  	
   

  
	
  Warrant exercise

  	
   

  	
  420,000

  	
   

  	
  154,000

  	
   

  
	
  Consolidation 0.6 for 1

  	
   

  	
  (845,012

  	
  )

  	
  —

  	
   

  
	
  Balance immediately prior to
  acquisition by Grupo Agopov

  	
   

  	
  1,687,517

  	
   

  	
  2,190,844

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Balance, December 31,
  2005 – Grupo Agapov

  	
   

  	
  105

  	
   

  	
  10,500

  	
   

  
	
  Share split (Note 11(b))

  	
   

  	
  104,895

  	
   

  	
  —

  	
   

  
	
  Debt settlement (Note 11(b))

  	
   

  	
  99,895,000

  	
   

  	
  66,114,065

  	
   

  
	
  Private placement

  	
   

  	
  11,666,667

  	
   

  	
  35,000,000

  	
   

  
	
  Shares repurchased

  	
   

  	
  (3,333,333

  	
  )

  	
  (10,000,000

  	
  )

  
	
  Share issue costs

  	
   

  	
  —

  	
   

  	
  (2,324,289

  	
  )

  
	
  Balance immediately prior to
  acquisition of Rusoro Mining Ltd.

  	
   

  	
  108,333,334

  	
   

  	
  88,800,276

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Rusoro Mining Ltd.

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Opening balance, per above

  	
   

  	
  1,687,517

  	
   

  	
  88,800,276

  	
   

  
	
  Finders fee (Note 11(c))

  	
   

  	
  1,200,000

  	
   

  	
  —

  	
   

  
	
  For debt

  	
   

  	
  210,000

  	
   

  	
  512,811

  	
   

  
	
  For acquisition

  	
   

  	
  108,333,334

  	
   

  	
  —

  	
   

  
	
  Share issue costs post acquisition

  	
   

  	
  —

  	
   

  	
  (151,138

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Balance, December 31,
  2006

  	
   

  	
  111,430,851

  	
   

  	
  89,161,949

  	
   

  
	
  Mena acquisition (Note 3(b))

  	
   

  	
  31,424,255

  	
   

  	
  95,781,321

  	
   

  
	
  Issued pursuant to exercise of stock
  options

  	
   

  	
  212,940

  	
   

  	
  248,584

  	
   

  
	
  Issued pursuant to exercise of warrants

  	
   

  	
  10,017,060

  	
   

  	
  514,940

  	
   

  
	
  Fair value of options exercised

  	
   

  	
  —

  	
   

  	
  450,875

  	
   

  
	
  Fair value of warrants exercised

  	
   

  	
  —

  	
   

  	
  37,886

  	
   

  
	
  Private placement (Note 11(e))

  	
   

  	
  93,750,000

  	
   

  	
  173,455,019

  	
   

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

  	
   

  	
  140,000,000

  	
   

  	
  323,400,000

  	
   

  
	
  Share issue costs

  	
   

  	
  —

  	
   

  	
  (13,799,022

  	
  )

  
	
  Balance, December 31,
  2007

  	
   

  	
  386,835,106

  	
   

  	
  669,251,552

  	
   

  

 

(b)           Stock Split and Settlement of Debt

 

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

 

(c)           Acquisition by Grupo Agopov

 

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

 

19

 

	
  RUSORO MINING LTD.

  	
  

  
	
  Notes to Consolidated Financial Statements

  
	
  For the Years Ended December 31, 2007 and 2006

  
	
  Expressed in U.S. Dollars

  

 

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

 

(d)           Acquisition of Mena Resources Inc.

 

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

 

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

 

	
   

  	
   

  	
  Warrants

  	
   

  	
  Options

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total fair value

  	
   

  	
  $14,000,722

  	
   

  	
  $1,665,561

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Assumptions

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Dividend yield

  	
   

  	
  0%

  	
   

  	
  0%

  	
   

  
	
  Annualized volatility

  	
   

  	
  62%-69%

  	
   

  	
  62%

  	
   

  
	
  Risk-free interest rate

  	
   

  	
  3.88%-4.23%

  	
   

  	
  3.88%

  	
   

  
	
  Expected life (years)

  	
   

  	
  1-5

  	
   

  	
  1-4

  	
   

  
	
  Grant Date Fair Value

  	
   

  	
  $1.02-$5.25

  	
   

  	
  $1.23-$2.48

  	
   

  

 

(e)           Private Placement

 

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

 

(f)            Gold Fields Acquisition

 

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

 

20

 

	
  RUSORO MINING LTD.

  	
  

  
	
  Notes to Consolidated Financial Statements

  
	
  For the Years Ended December 31, 2007 and 2006

  
	
  Expressed in U.S. Dollars

  

 

(g)           Contributed Surplus

 

	
   

  	
   

  	
  Amount

  	
   

  
	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Balance, December 31,
  2005

  	
   

  	
  4,449,500

  	
   

  
	
  Elimination of equity on acquisition

  	
   

  	
  (309,094

  	
  )

  
	
  Oro88 acquisition (Note 8)

  	
   

  	
  (4,767,347

  	
  )

  
	
  Stock based compensation

  	
   

  	
  7,825,924

  	
   

  
	
  Balance, December 31,
  2006

  	
   

  	
  7,198,983

  	
   

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

  	
   

  	
  15,666,283

  	
   

  
	
  Reclassification to common shares on
  conversion of stock options

  	
   

  	
  (450,875

  	
  )

  
	
  Reclassification to common shares on
  conversion of warrants

  	
   

  	
  (37,886

  	
  )

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

  	
   

  	
  51,544,980

  	
   

  
	
  Stock based compensation

  	
   

  	
  17,902,173

  	
   

  
	
  Balance, December 31,
  2007

  	
   

  	
  91,823,658

  	
   

  

 

(h)           Stock Options

 

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

 

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

 

	
  Number of

  Options

  Outstanding

  	
   

  	
  Exercise Price 

  	
   

  	
   

  	
   

  	
  Expiry

  Date

  	
   

  	
  Number of

  Options

  Exercisable

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  38,236

  	
   

  	
  1.02

  	
   

  	
  CDN

  	
   

  	
  Nov 26, 2008

  	
   

  	
  38,236

  	
   

  
	
  17,647

  	
   

  	
  0.85

  	
   

  	
  CDN

  	
   

  	
  Oct 13, 2009

  	
   

  	
  17,647

  	
   

  
	
  350,000

  	
   

  	
  2.30

  	
   

  	
  CDN

  	
   

  	
  Oct 28, 2009

  	
   

  	
  —

  	
   

  
	
  334,117

  	
   

  	
  1.05

  	
   

  	
  CDN

  	
   

  	
  Dec 7, 2009

  	
   

  	
  334,117

  	
   

  
	
  47,060

  	
   

  	
  1.11

  	
   

  	
  CDN

  	
   

  	
  Mar 7, 2011

  	
   

  	
  47,060

  	
   

  
	
  94,118

  	
   

  	
  1.70

  	
   

  	
  CDN

  	
   

  	
  Apr 5, 2011

  	
   

  	
  94,118

  	
   

  
	
  7,105,000

  	
   

  	
  3.00

  	
   

  	
  USD

  	
   

  	
  Nov 6, 2016

  	
   

  	
  5,113,333

  	
   

  
	
  6,770,000

  	
   

  	
  2.12

  	
   

  	
  CDN

  	
   

  	
  Sept 10, 2017

  	
   

  	
  2,625,000

  	
   

  
	
  3,785,000

  	
   

  	
  2.30

  	
   

  	
  CDN

  	
   

  	
  Oct 28, 2017

  	
   

  	
  3,045,000

  	
   

  
	
  18,541,178

  	
   

  	
  2.62

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  11,314,511

  	
   

  

 

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

 

21

 

	
  RUSORO MINING LTD.

  	
  

  
	
  Notes to Consolidated Financial Statements

  
	
  For the Years Ended December 31, 2007 and 2006

  
	
  Expressed in U.S. Dollars

  

 

Stock option transactions are summarized as follows:

 

	
   

  	
   

  	
  Number of

  Options

  	
   

  	
  Weighted Average

  Exercise Price

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Outstanding,
  December 31, 2005

  	
   

  	
  22,372

  	
   

  	
  0.75

  	
   

  
	
  Issued

  	
   

  	
  7,455,000

  	
   

  	
  3.39

  	
   

  
	
  Forfeited

  	
   

  	
  (22,372

  	
  )

  	
  0.75

  	
   

  
	
  Outstanding,
  December 31, 2006

  	
   

  	
  7,455,000

  	
   

  	
  3.39

  	
   

  
	
  Exercised

  	
   

  	
  (212,940

  	
  )

  	
  1.29

  	
   

  
	
  Issued

  	
   

  	
  11,299,118

  	
   

  	
  2.08

  	
   

  
	
  Outstanding,
  December 31, 2007

  	
   

  	
  18,541,178

  	
   

  	
  2.62

  	
   

  

 

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

 

	
   

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total fair value of options granted during
  the year

  	
   

  	
  $19,004,061

  	
   

  	
  $17,739,393

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Assumptions

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Dividend yield

  	
   

  	
  0%

  	
   

  	
  0%

  	
   

  
	
  Annualized volatility

  	
   

  	
  56%-62%

  	
   

  	
  61%

  	
   

  
	
  Risk-free interest rate

  	
   

  	
  3.88%-4.33%

  	
   

  	
  3.97%-4.05%

  	
   

  
	
  Expected life (years)

  	
   

  	
  0.25-10

  	
   

  	
  2-10

  	
   

  
	
  Grant Date Fair Value

  	
   

  	
  $1.23-$2.48

  	
   

  	
  $1.15-$2.44

  	
   

  

 

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

 

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

 

(i)            Warrants

 

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

 

	
   

  	
   

  	
  Number of

  Warrants

  	
   

  	
  Weighted Average

  Exercise Price

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Outstanding,
  December 31, 2005

  	
   

  	
  700,000

  	
   

  	
  0.22

  	
   

  
	
  Expired

  	
   

  	
  (700,000

  	
  )

  	
  0.22

  	
   

  
	
  Issued

  	
   

  	
  420,000

  	
   

  	
  0.59

  	
   

  
	
  Issued

  	
   

  	
  10,000,000

  	
   

  	
  0.05

  	
   

  
	
  Issued

  	
   

  	
  5,833,336

  	
   

  	
  3.35

  	
   

  
	
  Exercised

  	
   

  	
  (420,000

  	
  )

  	
  0.59

  	
   

  
	
  Outstanding,
  December 31, 2006

  	
   

  	
  15,833,336

  	
   

  	
  1.28

  	
   

  
	
  Issued

  	
   

  	
  103,330,912

  	
   

  	
  4.03

  	
   

  
	
  Exercised

  	
   

  	
  (10,017,060

  	
  )

  	
  0.05

  	
   

  
	
  Outstanding,
  December 31, 2007

  	
   

  	
  109,147,188

  	
   

  	
  4.00

  	
   

  

 

22

 

	
  RUSORO MINING LTD.

  	
  

  
	
  Notes to Consolidated Financial Statements

  
	
  For the Years Ended December 31, 2007 and 2006

  
	
  Expressed in U.S. Dollars

  

 

12.          ASSET RETIREMENT
OBLIGATION

 

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

 

	
   

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
  Balance, beginning of the year

  	
   

  	
  462,609

  	
   

  	
  425,147

  	
   

  
	
  Change in estimate of future costs

  	
   

  	
  (462,609

  	
  )

  	
  —

  	
   

  
	
  Acquisition of Gold Fields (Note 3(c))

  	
   

  	
  2,134,397

  	
   

  	
  —

  	
   

  
	
  Accretion

  	
   

  	
  149,781

  	
   

  	
  37,462

  	
   

  
	
  Balance, end of the year

  	
   

  	
  2,284,178

  	
   

  	
  462,609

  	
   

  

 

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

 

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

 

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

 

23

 

	
  RUSORO MINING LTD.

  	
  

  
	
  Notes to Consolidated Financial Statements

  
	
  For the Years Ended December 31, 2007 and 2006

  
	
  Expressed in U.S. Dollars

  

 

13.          RELATED PARTY
TRANSACTIONS

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

14.          LOAN PAYABLE ON
ACQUISITION

 

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

 

The loan is unsecured
and does not attract interest.

 

24

 

	
  RUSORO MINING LTD.

  	
  

  
	
  Notes to Consolidated Financial Statements

  
	
  For the Years Ended December 31, 2007 and 2006

  
	
  Expressed in U.S. Dollars

  

 

15.          SUPPLEMENTARY
DISCLOSURE OF NON-CASH TRANSACTIONS

 

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

 

	
   

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Accounts Payable - Mineral property
  expenditures

  	
   

  	
  2,056,962

  	
   

  	
  1,063,343

  	
   

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

  	
   

  	
  1,076,058

  	
   

  	
  —

  	
   

  
	
  Accounts Payable - Property, plant and
  equipment expenditures

  	
   

  	
  26,112

  	
   

  	
  —

  	
   

  
	
  Shares Issued for settlement of debt due to
  Shareholder

  	
   

  	
  —

  	
   

  	
  66,114,066

  	
   

  
	
  Shares Issued for settlement of debt to New
  Dawn

  	
   

  	
  —

  	
   

  	
  512,811

  	
   

  

 

16.          INCOME TAXES

 

a)             Provision for income taxes

 

	
   

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Loss before taxes

  	
   

  	
  (34,445,953

  	
  )

  	
  (35,989,204

  	
  )

  
	
  Statutory rax rate

  	
   

  	
  34.12

  	
  %

  	
  34.00

  	
  %

  
	
  Expected income tax recovery

  	
   

  	
  (11,752,959

  	
  )

  	
  (12,236,329

  	
  )

  
	
  Rate difference in foreign jurisdictions

  	
   

  	
  36,034

  	
   

  	
  —

  	
   

  
	
  Foreign exchange and other permanent
  differences

  	
   

  	
  (2,706,149

  	
  )

  	
  10,649,692

  	
   

  
	
  Impact of reduction in enacted rates

  	
   

  	
  2,057,344

  	
   

  	
  —

  	
   

  
	
  Prior year over (under) accruals

  	
   

  	
  94,947

  	
   

  	
  (37,789

  	
  )

  
	
  Change in commodity tax credits

  	
   

  	
  —

  	
   

  	
  900,755

  	
   

  
	
  Discountinued operations

  	
   

  	
  —

  	
   

  	
  (512,629

  	
  )

  
	
  Change in valuation allowance

  	
   

  	
  10,068,819

  	
   

  	
  1,236,300

  	
   

  
	
  Income tax recovery

  	
   

  	
  (2,201,964

  	
  )

  	
  —

  	
   

  

 

b)             Future tax balances

 

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

 

	
   

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
  Future income tax assets (liabilities):

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Non capital loss carried forward

  	
   

  	
  6,487,426

  	
   

  	
  1,771,198

  	
   

  
	
  Property, plant and equipment

  	
   

  	
  3,999,845

  	
   

  	
  —

  	
   

  
	
  Mineral properties

  	
   

  	
  4,347,998

  	
   

  	
  —

  	
   

  
	
  Other

  	
   

  	
  6,473,353

  	
   

  	
  1,518,009

  	
   

  
	
  Valuation allowance

  	
   

  	
  (13,232,490

  	
  )

  	
  (3,289,207

  	
  )

  
	
   

  	
   

  	
  8,076,132

  	
   

  	
  —

  	
   

  
	
  Property, plant and equipment

  	
   

  	
  (284,828,414

  	
  )

  	
  —

  	
   

  
	
   

  	
   

  	
  (276,752,282

  	
  )

  	
  —

  	
   

  

 

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

 

25

 

	
  RUSORO MINING LTD.

  	
  

  
	
  Notes to Consolidated Financial Statements

  
	
  For the Years Ended December 31, 2007 and 2006

  
	
  Expressed in U.S. Dollars

  

 

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

 

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

 

17.          SEGMENTED DISCLOSURE

 

For 2007, the Company
has two distinct business segments;

 

a)     The exploration of mineral properties.

 

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

 

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

 

	
   

  	
   

  	
  Mineral

  Exploration

  2007

  	
   

  	
  Extraction

  and

  Processing

  2007

  	
   

  	
  Total

  2007

  	
   

  	
  Total

  2006

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
  Canada

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Current assets

  	
   

  	
  31,737,526

  	
   

  	
  —

  	
   

  	
  31,737,526

  	
   

  	
  7,977,072

  	
   

  
	
  Property, plant and equipment

  	
   

  	
  179,984

  	
   

  	
  —

  	
   

  	
  179,984

  	
   

  	
  2,760

  	
   

  
	
   

  	
   

  	
  31,917,510

  	
   

  	
  —

  	
   

  	
  31,917,510

  	
   

  	
  7,979,832

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Venezuela

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Current assets

  	
   

  	
  2,603,309

  	
   

  	
  20,355,268

  	
   

  	
  22,958,577

  	
   

  	
  2,377,406

  	
   

  
	
  Property, plant and equipment

  	
   

  	
  6,422,039

  	
   

  	
  752,078,719

  	
   

  	
  758,500,758

  	
   

  	
  3,694,191

  	
   

  
	
  Mineral properties

  	
   

  	
  114,848,896

  	
   

  	
  73,290,104

  	
   

  	
  188,139,000

  	
   

  	
   

  	
   

  
	
  Other long-term assets

  	
   

  	
  1,085,975

  	
   

  	
  50,117

  	
   

  	
  1,136,092

  	
   

  	
  26,822,013

  	
   

  
	
   

  	
   

  	
  124,960,219

  	
   

  	
  845,774,208

  	
   

  	
  970,734,427

  	
   

  	
  32,893,610

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Panama

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Current assets

  	
   

  	
  835,350

  	
   

  	
  —

  	
   

  	
  835,350

  	
   

  	
  1,653,037

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Chile

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Current assets

  	
   

  	
  855,000

  	
   

  	
  —

  	
   

  	
  855,000

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
  855,000

  	
   

  	
  —

  	
   

  	
  855,000

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Honduras

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Current assets

  	
   

  	
  33,678

  	
   

  	
  —

  	
   

  	
  33,678

  	
   

  	
  —

  	
   

  
	
  Mineral properties

  	
   

  	
  2,148,252

  	
   

  	
  —

  	
   

  	
  2,148,252

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
  2,181,930

  	
   

  	
  —

  	
   

  	
  2,181,930

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total assets

  	
   

  	
  160,750,009

  	
   

  	
  845,302,174

  	
   

  	
  1,006,524,217

  	
   

  	
  42,526,479

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Capital expenditures

  	
   

  	
  93,797,735

  	
   

  	
  832,502,171

  	
   

  	
  926,299,906

  	
   

  	
  148,872

  	
   

  

 

26

 

	
  RUSORO MINING LTD.

  Notes to Consolidated Financial Statements

  For the Years Ended December 31, 2007 and 2006

  Expressed in U.S. Dollars

  	
   

  	
  

  

 

	
   

  	
   

  	
  Mineral

  Exploration

  	
   

  	
  Extraction

  and

  Processing

  	
   

  	
  Total

  	
   

  	
  Total

  	
   

  
	
   

  	
   

  	
  2007

  	
   

  	
  2007

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Revenue

  	
   

  	
  —

  	
   

  	
  3,494,613

  	
   

  	
  3,494,613

  	
   

  	
  —

  	
   

  
	
  Cost of goods sold

  	
   

  	
  —

  	
   

  	
  (7,282,856

  	
  )

  	
  (7,282,856

  	
  )

  	
  —

  	
   

  
	
  Gross profit

  	
   

  	
  —

  	
   

  	
  (3,788,243

  	
  )

  	
  (3,788,243

  	
  )

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Administrative and other
  expenses

  	
   

  	
  (31,526,221

  	
  )

  	
  (584,938

  	
  )

  	
  (32,111,159

  	
  )

  	
  (6,007,291

  	
  )

  
	
  Impairment of mineral
  properties

  	
   

  	
  (289,743

  	
  )

  	
  —

  	
   

  	
  (289,743

  	
  )

  	
  (10,293,409

  	
  )

  
	
  Foreign exchange gain (loss)

  	
   

  	
  834,788

  	
   

  	
  (1,360,624

  	
  )

  	
  (525,836

  	
  )

  	
  (4,032,987

  	
  )

  
	
  Stock based compensation on

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  acquisition transaction

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  (7,825,924

  	
  )

  
	
  Interest income (expense)

  	
   

  	
  1,885,945

  	
   

  	
  623,667

  	
   

  	
  2,509,612

  	
   

  	
  (8,236,982

  	
  )

  
	
  Other income (expense)

  	
   

  	
  (18,978

  	
  )

  	
  (221,609

  	
  )

  	
  (240,587

  	
  )

  	
  407,085

  	
   

  
	
  Income tax recovery

  	
   

  	
  —

  	
   

  	
  2,201,964

  	
   

  	
  2,201,964

  	
   

  	
  —

  	
   

  
	
  Loss from discontinued
  operations

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  (1,507,426

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Net loss

  	
   

  	
  (29,114,209

  	
  )

  	
  (3,129,783

  	
  )

  	
  (32,243,992

  	
  )

  	
  (37,496,934

  	
  )

  

 

18.          DISCONTINUED
OPERATIONS

 

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

 

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

 

	
   

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Net sales

  	
   

  	
  —

  	
   

  	
  2,228,721

  	
   

  
	
  Cost of sales

  	
   

  	
  —

  	
   

  	
  (3,380,908

  	
  )

  
	
  Gross loss

  	
   

  	
  —

  	
   

  	
  (1,152,187

  	
  )

  
	
   

  	
   

  	
  —

  	
   

  	
   

  	
   

  
	
  Operating and other expenses

  	
   

  	
  —

  	
   

  	
  (355,239

  	
  )

  
	
  Loss before taxes

  	
   

  	
  —

  	
   

  	
  (1,507,426

  	
  )

  
	
  Income tax expense

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Loss from discontinued operations

  	
   

  	
  —

  	
   

  	
  (1,507,426

  	
  )

  

 

27

 

	
  RUSORO MINING LTD.

  Notes to Consolidated Financial Statements

  For the Years Ended December 31, 2007 and 2006

  Expressed in U.S. Dollars

  	
   

  	
  

  

 

19.          COMMITMENTS AND
CONTINGENCIES

 

(a)           Operating Leases

 

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

 

	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  2008

  	
   

  	
  243,879

  	
   

  
	
  2009

  	
   

  	
  243,879

  	
   

  
	
  2010

  	
   

  	
  243,879

  	
   

  
	
  2011

  	
   

  	
  243,879

  	
   

  
	
  Beyond 2012

  	
   

  	
  324,432

  	
   

  
	
   

  	
   

  	
  1,299,948

  	
   

  

 

(b)           Legal
Contingencies

 

Corporación
Cabello Galvez

 

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

 

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

 

Ferrominera
del Orinoco

 

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

 

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

 

Other
Matters

 

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

 

28

 

	
  RUSORO MINING LTD.

  Notes to Consolidated Financial Statements

  For the Years Ended December 31, 2007 and 2006

  Expressed in U.S. Dollars

  	
   

  	
  

  

 

20.          RISKS

 

Financial
Instruments and Risks

 

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

 

Title
Risk

 

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

 

Country
Risk

 

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

 

Currency
Risk

 

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

 

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

 

29

 

	
  RUSORO MINING LTD.

  Notes to Consolidated Financial Statements

  For the Years Ended December 31, 2007 and 2006

  Expressed in U.S. Dollars

  	
   

  	
  

  

 

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

 

	
  21.

  	
  DIFFERENCES BETWEEN CANADIAN AND UNITED STATES
  GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

  

 

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

 

December 31, 2007

 

	
   

  	
   

  	
  Canadian

  	
   

  	
  US GAAP

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  GAAP

  	
   

  	
  adjustments

  	
   

  	
  US GAAP

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
  Assets

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Current assets

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cash and cash equivalents

  	
   

  	
  31,352

  	
   

  	
  —

  	
   

  	
  31,352

  	
   

  
	
  Loans and receivables

  	
   

  	
  5,300

  	
   

  	
  —

  	
   

  	
  5,300

  	
   

  
	
  Inventories

  	
   

  	
  10,725

  	
   

  	
  —

  	
   

  	
  10,725

  	
   

  
	
  Assets held for sale

  	
   

  	
  855

  	
   

  	
  —

  	
   

  	
  855

  	
   

  
	
  Prepaid expenses and deposits

  	
   

  	
  8,188

  	
   

  	
  —

  	
   

  	
  8,188

  	
   

  
	
  Total current assets

  	
   

  	
  56,420

  	
   

  	
  —

  	
   

  	
  56,420

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Plant and equipment

  	
   

  	
  758,681

  	
   

  	
  —

  	
   

  	
  758,681

  	
   

  
	
  Mineral properties

  	
   

  	
  190,287

  	
  (a)

  	
  (41,150

  	
  )

  	
  149,137

  	
   

  
	
  Other non-current assets

  	
   

  	
  1,136

  	
   

  	
  —

  	
   

  	
  1,136

  	
   

  
	
  Total assets

  	
   

  	
  1,006,524

  	
   

  	
  (41,150

  	
  )

  	
  965,374

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Liabilities

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Current liabilities

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Accounts payable and accrued
  liabilities

  	
   

  	
  21,422

  	
   

  	
  —

  	
   

  	
  21,422

  	
   

  
	
  Loan payable

  	
   

  	
  2,500

  	
   

  	
  —

  	
   

  	
  2,500

  	
   

  
	
  Other liabilities

  	
   

  	
  522

  	
   

  	
  —

  	
   

  	
  522

  	
   

  
	
  Total current liabilities

  	
   

  	
  24,444

  	
   

  	
  —

  	
   

  	
  24,444

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Asset retirement obligations
  and other liabilities

  	
   

  	
  2,284

  	
   

  	
  —

  	
   

  	
  2,284

  	
   

  
	
  Future income taxes

  	
   

  	
  276,752

  	
   

  	
  —

  	
   

  	
  276,752

  	
   

  
	
  Total liabilities

  	
   

  	
  303,480

  	
   

  	
  —

  	
   

  	
  303,480

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Shareholders’ equity

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Share capital

  	
   

  	
  669,252

  	
   

  	
  —

  	
   

  	
  669,252

  	
   

  
	
  Contributed surplus

  	
   

  	
  91,824

  	
   

  	
  —

  	
   

  	
  91,824

  	
   

  
	
  Deficit

  	
   

  	
  (95,284

  	
  )(a)

  	
  (41,150

  	
  )

  	
  (136,434

  	
  )

  
	
  Accumulated other
  comprehensive income

  	
   

  	
  37,252

  	
   

  	
  —

  	
   

  	
  37,252

  	
   

  
	
  Total shareholders’ equity

  	
   

  	
  703,044

  	
   

  	
  (41,150

  	
  )

  	
  661,894

  	
   

  
	
  Total liabilities and
  shareholders’ equity

  	
   

  	
  1,006,524

  	
   

  	
  (41,150

  	
  )

  	
  965,374

  	
   

  

 

30

 

	
  RUSORO MINING LTD.

  Notes to Consolidated Financial Statements

  For the Years Ended December 31, 2007 and 2006

  Expressed in U.S. Dollars

  	
   

  	
  

  

 

December 31, 2006

 

	
   

  	
   

  	
  Canadian

  	
   

  	
  US GAAP

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  GAAP

  	
   

  	
  adjustments

  	
   

  	
  US GAAP

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
  Assets

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Current assets

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cash and cash equivalents

  	
   

  	
  11,121

  	
   

  	
  —

  	
   

  	
  11,121

  	
   

  
	
  Loans and other receivables

  	
   

  	
  411

  	
   

  	
  —

  	
   

  	
  411

  	
   

  
	
  Inventories

  	
   

  	
  97

  	
   

  	
  —

  	
   

  	
  97

  	
   

  
	
  Prepaid expenses and deposits

  	
   

  	
  378

  	
   

  	
  —

  	
   

  	
  378

  	
   

  
	
  Total current assets

  	
   

  	
  12,007

  	
   

  	
  —

  	
   

  	
  12,007

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Plant and equipment

  	
   

  	
  3,697

  	
   

  	
  —

  	
   

  	
  3,697

  	
   

  
	
  Mineral properties

  	
   

  	
  26,822

  	
  (a)

  	
  (26,822

  	
  )

  	
  —

  	
   

  
	
  Total assets

  	
   

  	
  42,526

  	
   

  	
  (26,822

  	
  )

  	
  15,704

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Liabilities

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Current liabilities

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Accounts payable and accrued
  liabilities

  	
   

  	
  4,309

  	
   

  	
  —

  	
   

  	
  4,309

  	
   

  
	
  Loan payable

  	
   

  	
  2,500

  	
   

  	
  —

  	
   

  	
  2,500

  	
   

  
	
  Other liabilities

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Total current liabilities

  	
   

  	
  6,809

  	
   

  	
  —

  	
   

  	
  6,809

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Asset retirement obligations
  and other liabilities

  	
   

  	
  463

  	
   

  	
  —

  	
   

  	
  463

  	
   

  
	
  Total liabilities

  	
   

  	
  7,272

  	
   

  	
  —

  	
   

  	
  7,272

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Minority interest

  	
   

  	
  1,933

  	
   

  	
  —

  	
   

  	
  1,933

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Shareholders’ equity

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Share capital

  	
   

  	
  89,162

  	
   

  	
  —

  	
   

  	
  89,162

  	
   

  
	
  Contributed surplus

  	
   

  	
  7,199

  	
   

  	
  —

  	
   

  	
  7,199

  	
   

  
	
  Deficit

  	
   

  	
  (63,040

  	
  )(a)

  	
  (26,822

  	
  )

  	
  (89,862

  	
  )

  
	
  Accumulated other
  comprehensive income

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Total shareholders’ equity

  	
   

  	
  33,321

  	
   

  	
  (26,822

  	
  )

  	
  6,499

  	
   

  
	
  Total liabilities, shareholders’
  equity and minority interest

  	
   

  	
  42,526

  	
   

  	
  (26,822

  	
  )

  	
  15,704

  	
   

  

 

31

 

	
  RUSORO MINING LTD.

  Notes to Consolidated Financial Statements

  For the Years Ended December 31, 2007 and 2006

  Expressed in U.S. Dollars

  	
   

  	
  

  

 

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

 

Consolidated summarized statements of operations

 

	
   

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Net loss under Canadian GAAP

  	
   

  	
  (32,244

  	
  )

  	
  (37,497

  	
  )

  
	
  Deferred exploration expense (a)

  	
   

  	
  (14,328

  	
  )

  	
  2,863

  	
   

  
	
  Net loss under US GAAP

  	
   

  	
  (46,572

  	
  )

  	
  (34,634

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Basic and diluted net loss
  per share under US GAAP

  	
   

  	
  (0.29

  	
  )

  	
  (1.86

  	
  )

  

 

Consolidated summarized statements of comprehensive loss

 

	
   

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Net loss under US GAAP

  	
   

  	
  (46,572

  	
  )

  	
  (34,634

  	
  )

  
	
  Other comprehensive income

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Unrealized foreign exchange
  gains on translating self-sustaining foreign operations

  	
   

  	
  37,251

  	
   

  	
  —

  	
   

  
	
  Total comprehensive loss
  under US GAAP

  	
   

  	
  (9,321

  	
  )

  	
  (34,634

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Basic and diluted
  comprehensive loss per share under US GAAP

  	
   

  	
  (0.06

  	
  )

  	
  (1.86

  	
  )

  

 

Consolidated summarized
statements of cash flows

 

	
   

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cash flows used by operating
  activities under Canadian GAAP

  	
   

  	
  (23,385

  	
  )

  	
  (15,631

  	
  )

  
	
  Deferred exploration expense (a)

  	
   

  	
  (14,618

  	
  )

  	
  (7,430

  	
  )

  
	
  Cash flows used by operating
  activities under US GAAP

  	
   

  	
  (38,003

  	
  )

  	
  (23,061

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cash flows used by investing
  activities under Canadian GAAP

  	
   

  	
  (227,388

  	
  )

  	
  (6,164

  	
  )

  
	
  Deferred exploration expense (a)

  	
   

  	
  14,618

  	
   

  	
  7,430

  	
   

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

  	
   

  	
  (212,770

  	
  )

  	
  1,266

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cash flows provided by
  financing activities under Canadian and US GAAP

  	
   

  	
  271,004

  	
   

  	
  32,841

  	
   

  

 

32

 

	
  RUSORO MINING LTD.

  Notes to Consolidated Financial Statements

  For the Years Ended December 31, 2007 and 2006

  Expressed in U.S. Dollars

  	
   

  	
  

  

 

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

 

(a)           Development
expenditures applicable to mineral properties

 

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

 

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

 

(b)           Stock-based compensation

 

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

 

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

 

(c)           Accounting for uncertainty in income taxes

 

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

 

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

 

33

 

	
  RUSORO MINING LTD.

  Notes to Consolidated Financial Statements

  For the Years Ended December 31, 2007 and 2006

  Expressed in U.S. Dollars

  	
   

  	
  

  

 

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

 

	
   

  	
   

  	
  $

  	
   

  
	
  Unrecognized tax benefit,
  opening balance

  	
   

  	
  —

  	
   

  
	
  Gross increases – tax
  positions in prior period

  	
   

  	
  —

  	
   

  
	
  Gross decreases – tax
  positions in prior period

  	
   

  	
  —

  	
   

  
	
  Gross increases – tax
  positions in current period

  	
   

  	
  2,069,000

  	
   

  
	
  Settlements

  	
   

  	
  —

  	
   

  
	
  Lapse of statute of limitations

  	
   

  	
  —

  	
   

  
	
  Unrecognized tax benefit, ending balance

  	
   

  	
  2,069,000

  	
   

  

 

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

 

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

 

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

 

(d)           Additional disclosure required by US GAAP

 

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

 

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

 

	
   

  	
   

  	
   

  	
   

  	
  Years

  ended

  December

  31,

  	
   

  
	
   

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total revenues

  	
   

  	
  20,151

  	
   

  	
  36,826

  	
   

  
	
  Net loss

  	
   

  	
  (77,987

  	
  )

  	
  (95,897

  	
  )

  
	
  Loss from continuing
  operations per share - basic and diluted

  	
   

  	
  (0.27

  	
  )

  	
  (0.50

  	
  )

  

 

34

 

	
  RUSORO MINING LTD.

  Notes to Consolidated Financial Statements

  For the Years Ended December 31, 2007 and 2006

  Expressed in U.S. Dollars

  	
   

  	
  

  

 

(ii)           Impairment
of mineral properties

 

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

 

(iii)          Recently
issued accounting pronouncements

 

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

 

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

 

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

 

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

 

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

 

35

 

	
  RUSORO MINING LTD.

  Notes to Consolidated Financial Statements

  For the Years Ended December 31, 2007 and 2006

  Expressed in U.S. Dollars

  	
   

  	
  

  

 

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

 

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

 

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

 

22.          SUBSEQUENT EVENTS

 

Disposition
of Mena Chile

 

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

 

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

 

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

 

	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Cash

  	
   

  	
  37,857

  	
   

  
	
  Prepaids

  	
   

  	
  12,075

  	
   

  
	
  Mineral properties

  	
   

  	
  805,068

  	
   

  
	
   

  	
   

  	
  855,000

  	
   

  

 

23.          COMPARATIVE
FIGURES

 

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

 

36

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"}]]