Document:

Exhibit
4.15

 

Form 51-102F4 – Business
Acquisition Report

 

Item 1              Identity
of Company

 

1.1                               Name
and Address of Company

 

Rusoro Mining Ltd. (the “Company”)

2164, 1055 Dunsmuir Street

Four Bentall Centre

Vancouver, BC  V7X 1B1

 

Tel:  (604) 632-4044

 

1.2                               Executive
Officer

 

Omar Salas, Chief Financial Officer (telephone: (604) 632-4044)  is knowledgeable about the significant acquisition and this
Report.

 

Item 2              Details
of Acquisition

 

2.1                             Nature
of Business Acquired

 

Business Combination

 

Pursuant to an
agreement dated October 11, 2007 between the Company and Gold Fields
Netherlands Services B.V. (“GF Netherlands”), as amended by a joinder and
amending agreement dated November 28, 2007 between the Company, GF
Netherlands, Rusoro Mining (BVI) Ltd. (“Rusoro BVI”) and (“Venezuela Holdings
(BVI) Ltd. (“VHL”) (such agreement and joinder agreement collectively the “Combination
Agreement”), the Company indirectly acquired (the “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 140,000,000 Common Shares.  Pursuant to the Combination Agreement, in
connection with the closing of the Business Combination, among other things:

 

(a)                                  Rusoro BVI, which was a wholly-owned subsidiary of the Company,
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 Company and owns, directly or indirectly, a 100% interest in the other
Acquired Companies;

 

(b)                                 In connection with the merger, the Company issued an aggregate of
93,750,000 Common Shares and 93,750,000 common share purchase warrants to the
former holders of ordinary shares and ordinary share purchase warrants of
Rusoro BVI; and

 

(c)                                  GF Netherlands (i) subscribed for and was issued 140,000,000
Common Shares of the Company 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 Company 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 Company 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 Company 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 Company 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
Company 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 Company.  To date, GF Netherlands has
not nominated any directors of the Company. 
The Shareholder Agreement also provides that GF Netherlands will not
sell any of the Common Shares issued to it pursuant to the Business Combination
prior to July 30, 2008 (the “First Release Date”) and, during the period
between July 30, 2008 to November 29, 2008 (the “Second Release Date”),
GF Netherlands will not transfer more than 50% of its Common Shares without the
consent of the Company, in each case except in the following circumstances:

 

(a)                                  to an affiliate of Gold Fields Limited (“Gold Fields”) provided that
such transferee agrees to become a party to the Shareholder Agreement;

 

(b)                                 pursuant to or at any time following a transaction involving a
change of control of the Company including a take-over bid, merger,
arrangement, amalgamation, reverse take-over or other business combination;

 

(c)                                  following the occurrence or an event that results in any person
other than the Company or an affiliate of the Company obtaining at least a 50%
interest in the assets of GF Netherlands which were transferred pursuant to the
Combination Agreement;

 

(d)                                 following a proposal or announcement of a change of law that would
have a material adverse affect on GF Netherlands ability to own the Common
Shares of the Company;

 

(e)                                  at any time after any announcement that the securities of the
Company which are then listed on a stock exchange will be delisted from any and
all stock exchanges or are subject to a cease trade order lasting more than 30
days;

 

(f)                                    at any time after the Company ceases, either directly or indirectly
through its subsidiaries, to carry on the business conducted by the Company,
directly or indirectly through its subsidiaries, as at the date of the
Shareholder Agreement; or

 

(g)                                 following the occurrence of a bankruptcy event or following the
occurrence of any event of default in the terms of bank indebtedness of the
Company or of any of its subsidiaries where such indebtedness exceeds $25
million.

 

Following the
expiration of the First Release Date and the Second Release Date, so long as GF
Netherlands beneficially owns 10% or more of the issued and outstanding Common
Shares of the Company, 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 Company of such intended sale and a minimum sale price and the
Company 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

 

2

 

and
outstanding Common Shares of the Company 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 Company 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 Company to qualify Common Shares held by GF Netherlands
for distribution under certain circumstances where the Company proposes to file
a preliminary prospectus in connection with an offering by the Company.

 

The Choco 10 Mine

 

The only
material mineral project acquired pursuant to the 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.  The mine is located on an exploitation
project, which amalgamates the Choco 10 and Choco 4 Concessions.  Choco 10 operates under a mining lease, which
is approximately 2,124 hectares.  The
major industrial city of Puerto Ordaz is located 190 kilometres northwest of El
Callao and is linked to the mine by paved road. 
Venezuela has a good road infrastructure, although road conditions have
been deteriorating during the last 15 years near the mine.  Under the terms of its exploitation
certificate the Company is obligated to maintain a portion of the access road
for the Choco 10 mine.

 

The Choco 10
mine commenced production in August, 2005. 
Current operations consist of open pit mining and a processing plant
comprising conventional comminution and carbon-in-pulp processing.  The Choco 10 mine uses typical open pit
mining methods of drilling, blasting, loading and hauling.  Three pits are currently being operated
within the Choco 10 concession, Pisolita, Rosika and Coacia.  The pits are located two to three kilometres
from the main plant.

 

The Choco 10
mine is the subject of a technical report entitled “Technical Report on the PMG
(Gold Fields) Choco 10 Concession And Mine, Estado Bolivar, Venezuela” dated November 21,
2007 prepared by Micon International Limited. 
The technical report is available on the SEDAR website at www.sedar.com.

 

2.2                               Date of Acquisition

 

For accounting purposes the Business Combination was completed on November 30,
2007.

 

2.3                               Consideration

 

Details of the
consideration paid to GF Netherlands in consideration for the Business
Combination are disclosed in item 2.1. 
Pursuant to an agreement dated October 31, 2007 (the “Underwriting
Agreement”) between the Company, Rusoro BVI, Canaccord Adams Limited (“Canaccord
Adams”), GMP Securities LP (“GMP”) and PI Financial Corp. (“PI”) (Canaccord
Adams, GMP and PI collectively the “Underwriters”) Rusoro BVI sold, by private
placement, 93,750,000 subscription receipts at a price of $2.40 per
subscription receipt for gross proceeds of $225,000,000.  Pursuant to the Underwriting Agreement, the
Company paid the Underwriters a commission of $13,500,000 (6% of the gross
proceeds raised) in consideration for their services under the private
placement.  The private placement closed
on October 31, 2007 and the gross proceeds of the private placement were
placed into escrow and were released from escrow on November 30, 2007, at
which time the subscription receipts were automatically exchanged for units of
Rusoro BVI, each unit consisting of one ordinary share of Rusoro BVI and one
ordinary share purchase warrant of Rusoro BVI. 
The ordinary shares and share purchase warrants of

 

3

 

Rusoro BVI
were then exchanged for common shares and common share purchase warrants of the
Company on a one for one basis as described in item 2.1.

 

2.4                               Effect on Financial Position

 

The Company continues to review further opportunities for future growth
through acquisitions.  However, the
Company has no plans or proposals for material changes in its business or
affairs or those of the Acquired Companies which may have a significant effect
on the results of the operations and financial position of the Company on a
consolidated basis.

 

2.5                               Prior
Valuations

 

Not applicable

 

2.6                               Parties
to Transaction

 

The transactions between the Company and GF Netherlands were at an arm’s
length. The transactions described herein are not with an informed person,
associate or affiliate of the Company.

 

2.7                               Date of
Report

 

February 13, 2008

 

Item 3              Financial
Statements

 

The following financial statements attached as Schedule “A” hereto are
included in this Business Acquisition Report:

 

a.                                       Unaudited pro forma condensed consolidated financial statements of
Rusoro Mining Ltd. as at September 30, 2007;

 

b.                                      Unaudited combined financial statements of Promotora Minera de Guayana P.M.G.,
S.A and its related companies (which includes all of the Acquired Companies)
for the nine month period ended September 30, 2007; and

 

c.                                       Audited combined financial statements of Promotora Minera de Guayana P.M.G.,
S.A and its related companies (which includes all of the Acquired Companies)
for the year ended December 31, 2006.

 

The auditors have not given their consent to
the inclusion of their audit in this Report

 

4

 

Schedule A

 

 

Unaudited pro forma condensed consolidated
financial statements of

 

Rusoro Mining Ltd.

(a development stage company)

 

 

Rusoro Mining Ltd.

(a development stage company)

Pro forma condensed consolidated balance sheet

as at September 30, 2007

(Unaudited)

(Expressed in thousands of United States dollars)

 

	
   

  	
   

  	
   

  	
   

  	
  Promotora

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Minera

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  de Guayana

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Rusoro

  	
   

  	
  and related

  	
   

  	
  Note

  	
   

  	
  Pro forma

  	
   

  	
  Pro forma

  	
   

  
	
   

  	
   

  	
  Mining Ltd.

  	
   

  	
  companies

  	
   

  	
  6

  	
   

  	
  adjustments

  	
   

  	
  consolidated

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
  Assets

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Current assets

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cash and cash equivalents

  	
   

  	
  45,471

  	
   

  	
  808

  	
   

  	
  (a

  	
  )

  	
  (180,000

  	
  )

  	
  77,779

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  (b

  	
  )

  	
  211,500

  	
   

  	
   

  	
   

  
	
  Marketable securities

  	
   

  	
  246

  	
   

  	
  —

  	
   

  	
   

  	
   

  	
  —

  	
   

  	
  246

  	
   

  
	
  Inventories

  	
   

  	
  97

  	
   

  	
  6,480

  	
   

  	
   

  	
   

  	
  —

  	
   

  	
  6,577

  	
   

  
	
  Accounts receivable and other

  	
   

  	
  278

  	
   

  	
  5,757

  	
   

  	
   

  	
   

  	
  —

  	
   

  	
  6,035

  	
   

  
	
  Loans and other receivables

  	
   

  	
  607

  	
   

  	
  —

  	
   

  	
   

  	
   

  	
  —

  	
   

  	
  607

  	
   

  
	
  Prepaid expenses and deposits

  	
   

  	
  806

  	
   

  	
  1,781

  	
   

  	
   

  	
   

  	
  —

  	
   

  	
  2,587

  	
   

  
	
   

  	
   

  	
  47,505

  	
   

  	
  14,826

  	
   

  	
   

  	
   

  	
  31,500

  	
   

  	
  93,831

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Plant and equipment

  	
   

  	
  4,787

  	
   

  	
  19,315

  	
   

  	
   

  	
   

  	
  —

  	
   

  	
  24,102

  	
   

  
	
  Long-term investments

  	
   

  	
  73

  	
   

  	
  —

  	
   

  	
   

  	
   

  	
  —

  	
   

  	
  73

  	
   

  
	
  Mineral properties

  	
   

  	
  102,443

  	
   

  	
  24,966

  	
   

  	
  (a

  	
  )

  	
  894,342

  	
   

  	
  1,021,751

  	
   

  
	
  Future income taxes

  	
   

  	
  —

  	
   

  	
  6,206

  	
   

  	
   

  	
   

  	
  —

  	
   

  	
  6,206

  	
   

  
	
  Other non-current assets

  	
   

  	
  —

  	
   

  	
  44

  	
   

  	
   

  	
   

  	
  —

  	
   

  	
  44

  	
   

  
	
   

  	
   

  	
  154,808

  	
   

  	
  65,357

  	
   

  	
   

  	
   

  	
  925,842

  	
   

  	
  1,146,007

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Liabilities

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Current liabilities

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Accounts payable and accrued liabilities

  	
   

  	
  3,390

  	
   

  	
  9,879

  	
   

  	
  (a

  	
  )

  	
  13,000

  	
   

  	
  26,269

  	
   

  
	
  Loan payable

  	
   

  	
  2,500

  	
   

  	
  699

  	
   

  	
   

  	
   

  	
  —

  	
   

  	
  3,199

  	
   

  
	
  Accounts payable to shareholders and
  related companies

  	
   

  	
  —

  	
   

  	
  113,576

  	
   

  	
   

  	
   

  	
  —

  	
   

  	
  113,576

  	
   

  
	
  Other liabilities

  	
   

  	
  117

  	
   

  	
  9,784

  	
   

  	
   

  	
   

  	
  —

  	
   

  	
  9,901

  	
   

  
	
   

  	
   

  	
  6,007

  	
   

  	
  133,938

  	
   

  	
   

  	
   

  	
  13,000

  	
   

  	
  152,945

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Asset retirement obligations and other
  liabilities

  	
   

  	
  334

  	
   

  	
  5,285

  	
   

  	
   

  	
   

  	
  —

  	
   

  	
  5,619

  	
   

  
	
  Future income taxes

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  (a

  	
  )

  	
  304,076

  	
   

  	
  304,076

  	
   

  
	
   

  	
   

  	
  6,341

  	
   

  	
  139,223

  	
   

  	
   

  	
   

  	
  317,076

  	
   

  	
  462,640

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Shareholders’ equity

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Share capital

  	
   

  	
  198,238

  	
   

  	
  27

  	
   

  	
  (a

  	
  )

  	
  323,400

  	
   

  	
  733,138

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  (a

  	
  ) 

  	
  (27

  	
  )

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  (b

  	
  ) 

  	
  211,500

  	
   

  	
   

  	
   

  
	
  Contributed surplus

  	
   

  	
  32,421

  	
   

  	
  8,697

  	
   

  	
  (a

  	
  )

  	
  (8,697

  	
  )

  	
  32,421

  	
   

  
	
  Deficit

  	
   

  	
  (82,303

  	
  )

  	
  (131,067

  	
  )

  	
  (a

  	
  )

  	
  131,067

  	
   

  	
  (82,303

  	
  )

  
	
  Comprehensive income

  	
   

  	
  111

  	
   

  	
  48,477

  	
   

  	
  (a

  	
  )

  	
  (48,477

  	
  )

  	
  111

  	
   

  
	
   

  	
   

  	
  148,467

  	
   

  	
  (73,866

  	
  )

  	
   

  	
   

  	
  608,766

  	
   

  	
  683,367

  	
   

  
	
   

  	
   

  	
  154,808

  	
   

  	
  65,357

  	
   

  	
   

  	
   

  	
  925,842

  	
   

  	
  1,146,007

  	
   

  

 

See accompanying notes to the unaudited pro
forma condensed consolidated financial statements.

 

1

 

Rusoro Mining Ltd.

(a development stage company)

Pro forma condensed consolidated statement of operations

nine months ended September 30, 2007

(Unaudited)

(Expressed in thousands of United States dollars, except per share
amounts)

 

	
   

  	
   

  	
   

  	
   

  	
  Promotora

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Minera

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  de Guayana

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Rusoro

  	
   

  	
  and related

  	
   

  	
  Mena

  	
   

  	
  Note

  	
   

  	
  Pro forma

  	
   

  	
  Pro forma

  	
   

  
	
   

  	
   

  	
  Mining Ltd.

  	
   

  	
  companies

  	
   

  	
  Resources Inc.

  	
   

  	
  6

  	
   

  	
  adjustments

  	
   

  	
  consolidated

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  (Period from

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  January 1, 2007

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  to March 5, 2007)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  (Schedule 1)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Revenue

  	
   

  	
  —

  	
   

  	
  13,628

  	
   

  	
  —

  	
   

  	
   

  	
   

  	
  —

  	
   

  	
  13,628

  	
   

  
	
  Cost of sales

  	
   

  	
  —

  	
   

  	
  (11,579

  	
  )

  	
  —

  	
   

  	
  (c

  	
  )

  	
  (20,086

  	
  )

  	
  (31,665

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Earnings (loss) from mine operations

  	
   

  	
  —

  	
   

  	
  2,049

  	
   

  	
  —

  	
   

  	
   

  	
   

  	
  (20,086

  	
  )

  	
  (18,037

  	
  )

  
	
  General and administration

  	
   

  	
  16,536

  	
   

  	
  7,643

  	
   

  	
  93

  	
   

  	
   

  	
   

  	
  —

  	
   

  	
  24,272

  	
   

  
	
  Exploration

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  45

  	
   

  	
   

  	
   

  	
  —

  	
   

  	
  45

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Loss from operations

  	
   

  	
  (16,536

  	
  )

  	
  (5,594

  	
  )

  	
  (138

  	
  )

  	
   

  	
   

  	
  (20,086

  	
  )

  	
  (42,354

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Other income (expense)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Interest (expense) income

  	
   

  	
  —

  	
   

  	
  (889

  	
  )

  	
  1

  	
   

  	
   

  	
   

  	
  —

  	
   

  	
  (888

  	
  )

  
	
  Other income (expense)

  	
   

  	
  1,655

  	
   

  	
  (186

  	
  )

  	
  —

  	
   

  	
   

  	
   

  	
  —

  	
   

  	
  1,469

  	
   

  
	
  Foreign exchange (loss) gain

  	
   

  	
  (4,383

  	
  )

  	
  (56,366

  	
  )

  	
  3

  	
   

  	
   

  	
   

  	
  —

  	
   

  	
  (60,746

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Loss before income taxes

  	
   

  	
  (19,264

  	
  )

  	
  (63,035

  	
  )

  	
  (134

  	
  )

  	
   

  	
   

  	
  (20,086

  	
  )

  	
  (102,519

  	
  )

  
	
  Income tax recovery

  	
   

  	
  —

  	
   

  	
  2,212

  	
   

  	
  —

  	
   

  	
  (c

  	
  )

  	
  6,829

  	
   

  	
  9,041

  	
   

  
	
  Net loss

  	
   

  	
  (19,264

  	
  )

  	
  (60,823

  	
  )

  	
  (134

  	
  )

  	
   

  	
   

  	
  (13,257

  	
  )

  	
  (93,478

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Net loss per share (Note 7)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Basic and diluted

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  (0.32

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Weighted
  average number of common shares outstanding (000’s) (Note 7)

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Basic and diluted

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  293,501

  	
   

  

 

See accompanying notes to the unaudited pro
forma condensed consolidated financial statements.

 

2

 

Rusoro Mining Ltd.

(a development stage company)

Pro forma condensed consolidated statement of operations

year ended December 31, 2006

(Unaudited)

(Expressed in thousands of United States dollars, except per share
amounts)

 

	
   

  	
   

  	
   

  	
   

  	
  Promotora

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Minera

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  de Guayana

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Rusoro

  	
   

  	
  and related

  	
   

  	
  Mena

  	
   

  	
  Note

  	
   

  	
  Pro forma

  	
   

  	
  Pro forma

  	
   

  
	
   

  	
   

  	
  Mining Ltd.

  	
   

  	
  companies

  	
   

  	
  Resources Inc.

  	
   

  	
  6

  	
   

  	
  adjustments

  	
   

  	
  consolidated

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  (Schedule 2)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Revenue

  	
   

  	
  —

  	
   

  	
  36,826

  	
   

  	
  —

  	
   

  	
   

  	
   

  	
  —

  	
   

  	
  36,826

  	
   

  
	
  Cost of sales

  	
   

  	
  —

  	
   

  	
  (20,279

  	
  )

  	
  —

  	
   

  	
  (c

  	
  )

  	
  (41,400

  	
  )

  	
  (61,679

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Earnings (loss) from mine operations

  	
   

  	
  —

  	
   

  	
  16,547

  	
   

  	
  —

  	
   

  	
   

  	
   

  	
  (41,400

  	
  )

  	
  (24,853

  	
  )

  
	
  General and administration

  	
   

  	
  13,834

  	
   

  	
  13,593

  	
   

  	
  833

  	
   

  	
   

  	
   

  	
  —

  	
   

  	
  28,260

  	
   

  
	
  Exploration

  	
   

  	
  10,293

  	
   

  	
  678

  	
   

  	
  2,291

  	
   

  	
  (d

  	
  )

  	
  (1,986

  	
  )

  	
  10,598

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  (e

  	
  ) 

  	
  (678

  	
  )

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (Loss) earnings from operations

  	
   

  	
  (24,127

  	
  )

  	
  2,276

  	
   

  	
  (3,124

  	
  )

  	
   

  	
   

  	
  (38,736

  	
  )

  	
  (63,711

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Other income (expense)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Interest (expense) income

  	
   

  	
  (8,237

  	
  )

  	
  —

  	
   

  	
  10

  	
   

  	
   

  	
   

  	
  —

  	
   

  	
  (8,227

  	
  )

  
	
  Other income

  	
   

  	
  407

  	
   

  	
  (3,450

  	
  )

  	
  221

  	
   

  	
  (f

  	
  )

  	
  4,758

  	
   

  	
  1,936

  	
   

  
	
  Foreign exchange (loss) gain

  	
   

  	
  (4,033

  	
  )

  	
  (34,715

  	
  )

  	
  26

  	
   

  	
   

  	
   

  	
  —

  	
   

  	
  (38,722

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Loss before income taxes

  	
   

  	
  (35,990

  	
  )

  	
  (35,889

  	
  )

  	
  (2,867

  	
  )

  	
   

  	
   

  	
  (33,978

  	
  )

  	
  (108,724

  	
  )

  
	
  Income tax expense (recovery)

  	
   

  	
  —

  	
   

  	
  2,503

  	
   

  	
  —

  	
   

  	
  (c

  	
  )

  	
  (13,974

  	
  )

  	
  (11,471

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Net loss from continuing operations

  	
   

  	
  (35,990

  	
  )

  	
  (38,392

  	
  )

  	
  (2,867

  	
  )

  	
   

  	
   

  	
  (20,004

  	
  )

  	
  (97,253

  	
  )

  
	
  Net loss from discontinued operations

  	
   

  	
  (1,507

  	
  )

  	
  —

  	
   

  	
  —

  	
   

  	
   

  	
   

  	
  —

  	
   

  	
  (1,507

  	
  )

  
	
  Net loss

  	
   

  	
  (37,497

  	
  )

  	
  (38,392

  	
  )

  	
  (2,867

  	
  )

  	
   

  	
   

  	
  (20,004

  	
  )

  	
  (98,760

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Net loss per share (Note 7)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Basic and diluted

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  (0.52

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Weighted
  average number of common shares outstanding (000’s) (Note 7)

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Basic and diluted

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  190,034

  	
   

  

 

See accompanying notes to the unaudited pro
forma condensed consolidated financial statements.

 

3

 

Rusoro Mining Ltd.

(a development stage company)

Notes to the pro forma condensed consolidated financial statements

(Unaudited)

(Expressed in thousands of United States
dollars, except as noted and share and per share amounts)

 

	
  1.

  	
  Basis of presentation

  
	
   

  	
   

  
	
   

  	
  These unaudited pro forma
  condensed consolidated financial statements have been prepared in connection
  with the acquisition of the Venezuelan assets of Gold Fields Limited by
  Rusoro Mining Ltd. (the “Company” or “Rusoro”) under a combination agreement
  between Rusoro and Gold Fields Netherlands Services BV (“Gold Fields”). The
  entity has continued operations under the name “Rusoro Mining Ltd.”

  
	
   

  	
   

  
	
   

  	
  The unaudited pro forma
  condensed consolidated balance sheet of Rusoro Mining Ltd. as at
  September 30, 2007 and unaudited pro forma condensed consolidated
  statements of operations for the nine month period ended September 30,
  2007 and for the year ended December 31, 2006 have been prepared by
  management, in accordance with Canadian generally accepted accounting principles
  (“Canadian GAAP”), for illustrative purposes only, to give effect to the
  business combination between Rusoro and Gold Fields. These pro forma
  condensed consolidated financial statements include and have been compiled
  from:

  
	
   

  	
   

  
	
   

  	
  (a)

  	
  A pro forma condensed consolidated balance sheet combining:

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (i)

  	
  the unaudited interim
  consolidated balance sheet of Rusoro as at September 30, 2007; and

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (ii)

  	
  the unaudited interim
  combined balance sheet of Promotora Minera de Guayana P.M.G., S.A. and
  its related companies (“PMG”) as at September 30, 2007.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (b)

  	
  A pro forma condensed consolidated statement of operations for the
  nine months ended September 30, 2007 combining:

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (i)

  	
  the unaudited interim
  consolidated statement of operations of Rusoro for the nine months ended
  September 30, 2007;

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (ii)

  	
  the unaudited interim
  combined statement of operations of PMG for the nine months ended
  September 30, 2007; and

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (iii)

  	
  the unaudited consolidated
  statement of operations of Mena Resources Inc. (“Mena”) for the period from
  January 1, 2007 to March 5, 2007, the date of acquisition by Rusoro
  (Schedule 1).

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (c)

  	
  A pro forma condensed consolidated statement of operations for the
  year ended December 31, 2006 combining:

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (i)

  	
  the audited consolidated
  statement of operations of Rusoro for the year ended December 31, 2006;

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (ii)

  	
  the audited combined
  statement of operations of PMG for the year ended December 31, 2006; and

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (iii)

  	
  the unaudited consolidated
  statement of operations of Mena for the nine month period ended
  December 31, 2006 plus the audited consolidated statement of operations
  of Mena for the year ended March 31, 2006 less the unaudited
  consolidated statement of operations of Mena for the nine month period ended December 31,
  2005 (Schedule 2).

  

 

4

 

Rusoro Mining Ltd.

(a development stage company)

Notes to the pro forma condensed consolidated financial statements

(Unaudited)

(Expressed in thousands of United States
dollars, except as noted and share and per share amounts)

 

	
  1.

  	
  Basis
  of presentation (continued)

  
	
   

  	
   

  
	
   

  	
  The pro forma condensed
  consolidated balance sheet as at September 30, 2007 has been prepared as
  if the transaction described in Note 4 had occurred on September 30,
  2007. The pro forma condensed consolidated statements of operations for the
  nine months ended September 30, 2007 and for the year ended December 31,
  2006 have been prepared as if the transactions described in Notes 4 and 5 had
  occurred on January 1, 2006.

  
	
   

  	
   

  
	
   

  	
  It is management’s opinion
  that these pro forma condensed consolidated financial statements present in
  all material respects, the transactions described in Notes 4 and 5, in
  accordance with Canadian GAAP. The accounting policies used in the
  preparation of these statements are consistent with Rusoro’s accounting
  policies for the year ended December 31, 2006, with the exception of the
  adoption of CICA Section 1530, Comprehensive Income,
  CICA Section 3855, Financial Instruments -
  Recognition and Measurement, CICA Section 3861, Financial Instruments — Disclosure and Presentation and
  CICA Section 3865, Hedges, which
  were adopted by Rusoro retroactively without restatement effective January 1,
  2007 as described in Note 3 to the Company’s unaudited interim
  consolidated financial statements for the three and nine months ended September 30,
  2007.

  
	
   

  	
   

  
	
   

  	
  The pro forma condensed
  consolidated financial statements are not intended to reflect the results of
  operations or the financial position of Rusoro which would have actually
  resulted had the transactions been effected on the dates indicated. Actual amounts recorded upon consummation of the agreements will
  likely differ from those recorded in the unaudited pro forma condensed
  consolidated financial statement information. Any potential synergies that may be
  realized and integration costs that may be incurred upon consummation of the
  transactions have been excluded from the unaudited pro forma financial
  statement information. Further, the pro forma financial information is not
  necessarily indicative of the results of operations that may be obtained in
  the future.

  
	
   

  	
   

  
	
   

  	
  Certain elements of the
  Rusoro, PMG and Mena consolidated financial statements have been reclassified
  to provide a consistent format. The unaudited pro forma condensed
  consolidated financial statements should be read in conjunction with the
  respective historical financial statements, and notes thereto, of Rusoro, PMG
  and Mena.

  
	
   

  	
   

  
	
  2.

  	
  Conversion
  of historical financial statements to U.S. dollars

  
	
   

  	
   

  
	
   

  	
  Conversion
  of the financial statements of Mena

  
	
   

  	
   

  
	
   

  	
  The
  unaudited pro forma condensed consolidated financial statements are presented
  in U.S. dollars and, accordingly, Mena’s consolidated statements of
  operations were converted from Canadian dollars to U.S. dollars at the
  respective average exchange rates.

  
	
   

  	
   

  
	
   

  	
  The exchange
  rates used for conversion from Canadian dollars to U.S. dollars are as
  follows:

  
	
   

  	
   

  
	
   

  	
   

  	
   

  	
  $

  	
   

  
	
   

  	
  Average for
  the period from January 1, 2007 to March 5, 2007

  	
   

  	
  0.8528

  	
   

  
	
   

  	
  Average for
  the year ended December 31, 2006

  	
   

  	
  0.8821

  	
   

  

 

5

 

Rusoro Mining Ltd.

(a development stage company)

Notes to the pro forma condensed consolidated financial statements

(Unaudited)

(Expressed in thousands of United States
dollars, except as noted and share and per share amounts)

 

	
  3.

  	
  Significant accounting policies

  
	
   

  	
   

  
	
   

  	
  The accounting policies used in the
  preparation of these unaudited pro forma condensed consolidated financial
  statements are those set out in Rusoro’s audited consolidated financial
  statements for the period ended December 31, 2006, with the exception of
  the adoption of CICA Section 1530, Comprehensive Income,
  CICA Section 3855, Financial Instruments -
  Recognition and Measurement, CICA Section 3861, Financial Instruments – Disclosure and Presentation and CICA Section 3865, Hedges, which
  were adopted by Rusoro without restatement effective January 1, 2007 as
  described in Note 3 to the Company’s unaudited interim consolidated
  financial statements for the three and nine months ended September 30, 2007. In preparing the unaudited pro forma condensed
  consolidated financial statements, a review was undertaken to identify
  accounting policy differences where the impact was material and could be
  reasonably estimated. The significant accounting policies of PMG and
  Mena conform in all material respects to those of Rusoro with the exception
  that PMG expenses to the statement of operations exploration and evaluation
  costs related to mineral properties where the existence of a commercially
  viable mineral deposit has not been established whereas Rusoro capitalizes
  all exploration and evaluation costs until such time as the properties are
  placed into production, abandoned, sold or considered to be impaired in
  value. The impact of this difference in accounting policy was $Nil for the
  nine months ended September 30, 2007 and the year ended
  December 31, 2006.

  
	
   

  	
   

  
	
  4.

  	
  Acquisition of the Venezuelan assets of
  Gold Fields Limited

  
	
   

  	
   

  
	
   

  	
  On October 11, 2007, Rusoro and Gold
  Fields announced they had entered into a definitive agreement whereby Rusoro
  would acquire the Venezuelan assets of Gold Fields Limited consisting
  primarily of Promotora Minera de Guayana P.M.G., S.A.,
  which owns the Choco 10 Gold Mine in Bolivar State, Venezuela, and a number
  of mineral exploration properties. The transaction closed on
  November 30, 2007.

  
	
   

  	
   

  
	
   

  	
  The cost of the acquisition includes the
  fair value of the issuance of 140,000,000 Rusoro common shares with a fair
  value of $2.31 (Cdn$2.31) per share, $180,000 in cash plus Rusoro’s estimated
  transaction costs of $13,000 for a total cost of $516,400.

  
	
   

  	
   

  
	
   

  	
  The value of the Rusoro common shares
  issued was calculated using the average share price of Rusoro’s shares three
  days before, the day of, and three days after the date of the announcement of
  the arrangement.

  
	
   

  	
   

  
	
   

  	
  In the
  preparation of these pro forma condensed consolidated financial statements,
  the purchase consideration has been allocated on a preliminary basis to the
  fair value of the assets acquired and liabilities assumed based on
  management’s best estimates and taking into account all available information
  at the time the statements were prepared. Rusoro will continue to review
  information and perform further analysis with respect to these assets,
  including an independent valuation, prior to finalizing the allocation of the
  purchase price. This process will be performed in accordance with the
  accounting pronouncement relating to Mining
  Assets - Impairment and Business Combination (Emerging Issue
  Committee Abstract 152). On completion of valuations,
  with a corresponding adjustment to the historic carrying amounts of mining
  properties and plant and equipment, or on recording of any finite life
  intangible assets on acquisition, these adjustments will impact the measurement
  of amortization recorded in the consolidated statements of operations of
  Rusoro for periods after the date of acquisition. Therefore, it is likely
  that the fair values of assets and liabilities acquired and the associated
  amortization will vary from those shown and the differences may be material.

  

 

6

 

Rusoro Mining Ltd.

(a development stage company)

Notes to the pro forma condensed consolidated financial statements

(Unaudited)

(Expressed in thousands of United States
dollars, except as noted and share and per share amounts)

 

	
  4.

  	
  Acquisition
  of the Venezuelan assets of Gold Fields Limited (continued)

  
	
   

  	
   

  
	
   

  	
  Future
  income tax liability resulting from the preliminary allocation of the
  purchase consideration has been calculated using the statutory corporate tax
  rate in Venezuela of approximately 34 percent. Tax rates for mining companies
  vary according to profitability and tax treatment election; as a result, the
  effective tax rate over the life-of-mine may vary substantially from the
  statutory rate upon completion of the final allocation.

  
	
   

  	
   

  
	
   

  	
  The
  preliminary allocation of purchase price, summarized in the table below, is
  subject to change:

  

 

	
   

  	
   

  	
  $

  	
   

  
	
  Cost of purchase

  	
   

  	
   

  	
   

  
	
  140 million common shares of Rusoro

  	
   

  	
  323,400

  	
   

  
	
  Cash

  	
   

  	
  180,000

  	
   

  
	
  Acquisition costs

  	
   

  	
  13,000

  	
   

  
	
   

  	
   

  	
  516,400

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Allocation of purchase price to assets:

  	
   

  	
   

  	
   

  
	
  Cash and cash equivalents

  	
   

  	
  808

  	
   

  
	
  Inventories

  	
   

  	
  6,480

  	
   

  
	
  Accounts receivable and other

  	
   

  	
  5,757

  	
   

  
	
  Prepaid expenses

  	
   

  	
  1,781

  	
   

  
	
  Plant and equipment

  	
   

  	
  19,315

  	
   

  
	
  Mineral properties

  	
   

  	
  919,308

  	
   

  
	
  Future income tax assets

  	
   

  	
  6,206

  	
   

  
	
  Other non-current assets

  	
   

  	
  44

  	
   

  
	
  Accounts payable and accrued liabilities

  	
   

  	
  (9,879

  	
  )

  
	
  Accounts payable to shareholders and
  related companies

  	
   

  	
  (113,576

  	
  )

  
	
  Other current liabilities

  	
   

  	
  (10,483

  	
  )

  
	
  Asset retirement obligations and other
  liabilities

  	
   

  	
  (5,285

  	
  )

  
	
  Future income tax liabilities

  	
   

  	
  (304,076

  	
  )

  
	
   

  	
   

  	
  516,400

  	
   

  

 

	
  5.

  	
  Acquisition of Mena

  
	
   

  	
   

  
	
   

  	
  On March 5, 2007, the Company acquired
  all of the issued and outstanding securities of Mena by issuing 1 common
  share for every 1.7 issued and outstanding common share of Mena. Mena owns
  mineral exploration projects in Venezuela, Honduras and Chile. As a result of
  the transaction, Mena became a wholly-owned subsidiary of the Company.

  
	
   

  	
   

  
	
   

  	
  The cost of this acquisition includes the
  fair value of the issuance of 31,424,255 Rusoro common shares with a fair
  value of $3.45 per share. In addition, share purchase warrants and incentive
  stock options which were outstanding in Mena were converted into 9,580,912
  warrants and 744,118 options in the Company with a fair value of $15,666 for
  total cost of $123,952.

  

 

7

 

Rusoro Mining Ltd.

(a development stage company)

Notes to the pro forma condensed consolidated financial statements

(Unaudited)

(Expressed in thousands of United States
dollars, except as noted and share and per share amounts)

 

	
  5.

  	
  Acquisition of Mena (continued)

  
	
   

  	
   

  
	
   

  	
  The value of the issuance of Rusoro shares
  was calculated using the average share price of Rusoro shares three days
  before, the day of, and three days after the date of the announcement of the
  acquisition. The following assumptions were used for the Black-Scholes option
  pricing model for the fair valuation of the stock options and warrants:

  

 

	
  Risk-free interest rate

  	
   

  	
  3.88

  	
  %

  
	
  Expected volatility

  	
   

  	
  62

  	
  %

  
	
  Expected life

  	
   

  	
  2 - 5 years

  	
   

  
	
  Dividend rate

  	
   

  	
  Nil

  	
   

  
	
   

  	
   

  	
   

  	
   

  

 

	
   

  	
  The preliminary allocation of purchase
  price, summarized in the table below, is subject to change:

  

 

	
   

  	
   

  	
  $

  	
   

  
	
  Cost of purchase

  	
   

  	
   

  	
   

  
	
  31.4 million common shares of Rusoro

  	
   

  	
  108,286

  	
   

  
	
  Options and warrants of Rusoro

  	
   

  	
  15,666

  	
   

  
	
   

  	
   

  	
  123,952

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Allocation of purchase price to assets

  	
   

  	
   

  	
   

  
	
  Cash

  	
   

  	
  57,710

  	
   

  
	
  Other assets

  	
   

  	
  249

  	
   

  
	
  Mineral properties

  	
   

  	
  66,025

  	
   

  
	
  Liabilities

  	
   

  	
  (32

  	
  )

  
	
   

  	
   

  	
  123,952

  	
   

  

 

	
  6.

  	
  Pro
  forma assumptions and adjustments

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Pro
  forma adjustments to consolidated balance sheet

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  The
  unaudited pro forma condensed consolidated balance sheet reflects the
  following adjustments as if the business combination between Rusoro and Gold
  Fields had occurred on September 30,
  2007:

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (a)

  	
  To record
  the acquisition of PMG at a purchase price of $516,400 and the
  elimination of the shareholders’ equity of PMG.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (b)

  	
  To record
  the issuance of 93,750,000 subscription receipts at Cdn$2.40 per receipt for
  gross proceeds of Cdn$225,000 less commission of Cdn$13,500 for net proceeds
  of Cdn$211,500 ($211,500).  Each
  subscription receipt is exchangeable for one Rusoro common share and one
  Rusoro share purchase warrant. For the purposes of these pro forma condensed
  consolidated financial statements the entire proceeds of the subscription
  receipts has been allocated to share capital.

  

 

8

 

Rusoro Mining Ltd.

(a development stage company)

Notes to the pro forma condensed consolidated financial statements

(Unaudited)

(Expressed in
thousands of United States dollars, except as noted and share and per share
amounts)

 

	
  6.

  	
  Pro
  forma assumptions and adjustments (continued)

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Pro
  forma adjustments to consolidated statements of operations

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  The
  unaudited pro forma condensed consolidated statements of operations for the
  nine month period ended September 30, 2007 and the year ended December 31,
  2006 reflect the following adjustments as if the transactions between Rusoro,
  Gold Fields and Mena had occurred on January 1, 2006:

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (c)

  	
  To record
  additional amortization expense resulting from the adjustments to asset
  carrying values in the preliminary purchase allocation relating to the PMG
  assets.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (d)

  	
  To reverse
  the write-down of Chilean and Honduran mineral properties of Mena as these
  items would have been recorded at fair value on acquisition by Rusoro.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (e)

  	
  To reverse
  the write-down of capitalized feasibility and development costs by PMG as
  these items would have been recorded at fair value on acquisition by Rusoro.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (f)

  	
  To reverse
  the write-down of related company amounts by PMG as these items would have
  been recorded at fair value on acquisition by Rusoro.

  
	
   

  	
   

  	
   

  
	
  7.

  	
  Pro
  forma weighted average number of shares

  
	
   

  	
   

  	
   

  
	
   

  	
  The weighted
  average shares outstanding have been adjusted to reflect the additional
  shares resulting from transactions described in Notes 4 and 5 effective January 1,
  2006.

  

 

	
   

  	
   

  	
  Nine months

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ended

  	
   

  	
  Year ended

  	
   

  
	
   

  	
   

  	
  September 30

  	
   

  	
  December 31,

  	
   

  
	
   

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Weighted average number of Rusoro shares outstanding

  	
   

  	
  147,991,360

  	
   

  	
  18,609,760

  	
   

  
	
  Adjustment to reflect the acquisition of
  the Venezuelan assets of Gold Fields

  	
   

  	
  140,000,000

  	
   

  	
  140,000,000

  	
   

  
	
  Adjustment to reflect the acquisition of
  Mena

  	
   

  	
  5,510,006

  	
   

  	
  31,424,255

  	
   

  
	
  Weighted average number of shares
  outstanding after acquisitions (basic and diluted)

  	
   

  	
  293,501,366

  	
   

  	
  190,034,015

  	
   

  

 

9

 

Rusoro Mining Ltd.

(a development stage company)

Notes to the pro forma condensed consolidated
financial statements

(Unaudited)

(Expressed in thousands of United States
dollars, except as noted and share and per share amounts)

 

8.             Differences in
generally accepted accounting principles between Canada and the United States
of America

 

A reconciliation of the pro forma condensed
consolidated balance sheet determined in accordance with Canadian GAAP to that
determined under US GAAP is as follows:

 

September 30, 2007

 

	
   

  	
   

  	
   

  	
  Pro forma

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  consolidated

  	
   

  	
   

  	
   

  	
  Pro forma

  	
   

  
	
   

  	
   

  	
   

  	
  Canadian

  	
   

  	
  US GAAP

  	
   

  	
  consolidated

  	
   

  
	
   

  	
   

  	
   

  	
  GAAP

  	
   

  	
  adjustments

  	
   

  	
  US GAAP

  	
   

  
	
   

  	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
  Assets

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Current assets

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Cash and cash equivalents

  	
   

  	
  77,779

  	
   

  	
  —

  	
   

  	
  77,779

  	
   

  
	
   

  	
  Marketable securities

  	
   

  	
  246

  	
   

  	
  —

  	
   

  	
  246

  	
   

  
	
   

  	
  Inventories

  	
   

  	
  6,577

  	
   

  	
  —

  	
   

  	
  6,577

  	
   

  
	
   

  	
  Accounts receivable and other

  	
   

  	
  6,035

  	
   

  	
  —

  	
   

  	
  6,035

  	
   

  
	
   

  	
  Loans and other receivables

  	
   

  	
  607

  	
   

  	
  —

  	
   

  	
  607

  	
   

  
	
   

  	
  Prepaid expenses and deposits

  	
   

  	
  2,587

  	
   

  	
  —

  	
   

  	
  2,587

  	
   

  
	
   

  	
  Total current assets

  	
   

  	
  93,831

  	
   

  	
  —

  	
   

  	
  93,831

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Plant and equipment

  	
   

  	
  24,102

  	
   

  	
  —

  	
   

  	
  24,102

  	
   

  
	
   

  	
  Long-term investments

  	
   

  	
  73

  	
   

  	
  —

  	
   

  	
  73

  	
   

  
	
   

  	
  Mineral properties

  	
   

  	
  1,021,751

  	
  (a)

  	
  (35,998

  	
  )

  	
  985,753

  	
   

  
	
   

  	
  Future income taxes

  	
   

  	
  6,206

  	
   

  	
  —

  	
   

  	
  6,206

  	
   

  
	
   

  	
  Other non-current assets

  	
   

  	
  44

  	
   

  	
  —

  	
   

  	
  44

  	
   

  
	
   

  	
  Total assets

  	
   

  	
  1,146,007

  	
   

  	
  (35,998

  	
  )

  	
  1,110,009

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Liabilities

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Current liabilities

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Accounts payable and accrued liabilities

  	
   

  	
  26,269

  	
   

  	
  —

  	
   

  	
  26,269

  	
   

  
	
   

  	
  Loan payable

  	
   

  	
  3,199

  	
   

  	
  —

  	
   

  	
  3,199

  	
   

  
	
   

  	
  Accounts payable to shareholders and
  related companies

  	
   

  	
  113,576

  	
   

  	
  —

  	
   

  	
  113,576

  	
   

  
	
   

  	
  Other liabilities

  	
   

  	
  9,901

  	
   

  	
  —

  	
   

  	
  9,901

  	
   

  
	
   

  	
  Total current liabilities

  	
   

  	
  152,945

  	
   

  	
  —

  	
   

  	
  152,945

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Asset retirement obligations and other
  liabilities

  	
   

  	
  5,619

  	
   

  	
  —

  	
   

  	
  5,619

  	
   

  
	
   

  	
  Future income taxes

  	
   

  	
  304,076

  	
   

  	
  —

  	
   

  	
  304,076

  	
   

  
	
   

  	
  Total liabilities

  	
   

  	
  462,640

  	
   

  	
  —

  	
   

  	
  462,640

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Shareholders’ equity

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Share capital

  	
   

  	
  733,138

  	
   

  	
  —

  	
   

  	
  733,138

  	
   

  
	
   

  	
  Contributed surplus

  	
   

  	
  32,421

  	
   

  	
  —

  	
   

  	
  32,421

  	
   

  
	
   

  	
  Accumulated deficit

  	
   

  	
  (82,303

  	
  )(a)

  	
  (35,998

  	
  )

  	
  (118,301

  	
  )

  
	
   

  	
  Comprehensive income

  	
   

  	
  111

  	
   

  	
  —

  	
   

  	
  111

  	
   

  
	
   

  	
  Total shareholders’ equity

  	
   

  	
  683,367

  	
   

  	
  (35,998

  	
  )

  	
  647,369

  	
   

  
	
   

  	
  Total shareholders’ equity and liabilities

  	
   

  	
  1,146,007

  	
   

  	
  (35,998

  	
  )

  	
  1,110,009

  	
   

  

 

10

 

Rusoro Mining Ltd.

(a development stage company)

Notes to the pro forma condensed consolidated
financial statements

(Unaudited)

(Expressed in thousands of United States
dollars, except as noted and share and per share amounts)

 

8.                                      Differences in generally accepted accounting
principles between Canada and the United States of America (continued)

 

A reconciliation of the pro forma
condensed consolidated statements of operations determined in accordance with
Canadian GAAP to that determined under US GAAP is as follows:

 

Pro forma
condensed statements of operations

 

	
   

  	
   

  	
   

  	
  Pro forma

  	
   

  	
  Pro forma

  	
   

  
	
   

  	
   

  	
   

  	
  consolidated

  	
   

  	
  consolidated

  	
   

  
	
   

  	
   

  	
   

  	
  9 months ended

  	
   

  	
  Year ended

  	
   

  
	
   

  	
   

  	
   

  	
  September 30, 2007

  	
   

  	
  December 31, 2006

  	
   

  
	
   

  	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
  (Unaudited)

  	
   

  	
  (Unaudited)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Net loss under Canadian GAAP

  	
   

  	
  (93,478

  	
  )

  	
  (98,760

  	
  )

  
	
   

  	
  Deferred exploration and stripping expense
  (a),(b)

  	
   

  	
  (13,091

  	
  )

  	
  (3,022

  	
  )

  
	
   

  	
  Net loss under US GAAP

  	
   

  	
  (106,569

  	
  )

  	
  (101,782

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Basic and diluted net loss
  per share under US GAAP

  	
   

  	
  (0.36

  	
  )

  	
  (0.54

  	
  )

  

 

Differences between Canadian and US GAAP as
they affect the pro forma financial statements are as follows:

 

(a)           Development
expenditures applicable to mineral properties

 

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

 

As at September 30, 2007, $35,998 of
exploration costs were included in mineral properties for Canadian GAAP. This
has been charged to accumulated deficit under US GAAP. For the nine month
period ended September 30, 2007, $12,958 of pre-feasibility exploration
costs were capitalized and for the year ended December 31, 2006, $19,209
of exploration costs were capitalized and $10,293 was written off. For US GAAP,
the exploration costs have been charged to the statements of operations and the
write-offs against previously capitalized exploration costs were reversed, net
of tax.

 

(b)           Deferred
stripping costs

 

Under US GAAP, Emerging Issue Task Force (“EITF”)
04-06, Accounting for Stripping Costs Incurred during
Production in the Mining Industry, all stripping costs must be
charged to the statement of operations in the period in which they are
incurred. Under Canadian GAAP, Emerging Issues Committee (“EIC”) EIC-160, Stripping Costs Incurred in the Production Phase of a Mining Operation,
stripping costs are capitalized.

 

As at September 30, 2007 and for the
nine month period ended then ended, $2,151 of deferred stripping costs had been
capitalized under Canadian GAAP. For US GAAP, they have been charged to the
statement of operations.

 

11

 

Rusoro Mining Ltd.

(a development stage company)

Notes to the pro forma condensed consolidated
financial statements

(Unaudited)

(Expressed in thousands of United States
dollars, except as noted and share and per share amounts)

 

8.                                      Differences in generally accepted accounting
principles between Canada and the United States of America (continued)

 

(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 companies included in the pro forma
financial statements (“Companies”) 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 Companies’ 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 Companies recognize in their combined 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 Companies performed
a comprehensive review of their material tax positions. Based on this review
the provisions of FIN 48 had no effect on the Companies’ financial position,
cash flows or results of operations at either January 1, 2007 or September 30,
2007.

 

The Companies recognize interest and
penalties related to unrecognized tax benefits within the income tax expense
line in the accompanying combined statement of loss. Accrued interest and
penalties are included within the related tax liability line in the combined
balance sheet. There were no interest or penalties recognized in the statement
of loss or included in the statement of financial position for the nine months
ended September 30, 2007.

 

There is no balance of unrecognized tax
benefits at September 30, 2007 that, if recognized, would affect the
effective tax rate. Also, there is no balance of unrecognized tax benefits at September 30,
2007 that, if recognized, would result in an adjustment to goodwill recorded in
purchase business combinations, and if recognized, would result in adjustments
to other tax accounts, primarily deferred taxes.

 

The Companies are subject to taxation in
Venezuela and Canada. The Companies’ tax years 2001 through 2007 are subject to
examination by the Canadian tax authorities. The Companies’ tax years 2004
through 2007 are subject to examination by the Venezuelan tax authorities.

 

(d)          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 Companies expect that adoption of SFAS 157 will not have a material effect
on their financial condition or results of operation.

 

12

 

Rusoro Mining Ltd.

(a development stage company)

Notes to the pro forma condensed consolidated
financial statements

(Unaudited)

(Expressed in thousands of United States
dollars, except as noted and share and per share amounts)

 

8.                                      Differences in generally accepted accounting
principles between Canada and the United States of America (continued)

 

(d)          Recently
issued accounting pronouncements (continued)

 

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
Companies are required to adopt SFAS 159 in the first quarter of 2008. The
Companies are currently evaluating the impact, if any, that the implementation
SFAS 159 will have on the Companies’ 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 Companies are currently
evaluating the potential impact, if any, of the adoption of SFAS 141(R) on
their combined 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 Companies are currently evaluating the
potential impact, if any, of the adoption of SFAS 160 on their combined
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 Companies are assessing the impact of the new
standard.

 

13

 

Rusoro Mining Ltd.

(a development stage company)

Notes to the pro forma condensed consolidated
financial statements

(Unaudited)

(Expressed in thousands of United States
dollars, except as noted and share and per share amounts)

 

8.                                      Differences in generally accepted accounting
principles between Canada and the United States of America (continued)

 

(d)          Recently
issued accounting pronouncements (continued)

 

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 Companies’ 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.

 

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 Companies are assessing the impact
of the new standard.

 

14

 

	
  Rusoro Mining Ltd.

  	
  Schedule 1

  
	
  (a development stage company)

  	
   

  
	
  Pro forma condensed consolidated financial statements

  	
   

  
	
  Statement of operations of Mena Resources Inc.

  	
   

  
	
  period from January 1, 2007 to March 5, 2007

  	
   

  
	
  (Unaudited)

  	
   

  
	
  (expressed in thousands of dollars)

  	
   

  

 

	
   

  	
   

  	
  Period from

  	
   

  	
   

  	
   

  	
  Period from

  	
   

  
	
   

  	
   

  	
  January 1,

  	
   

  	
   

  	
   

  	
  January 1,

  	
   

  
	
   

  	
   

  	
  2007 to

  	
   

  	
   

  	
   

  	
  2007 to

  	
   

  
	
   

  	
   

  	
  to March 5,

  	
   

  	
  Exchange

  	
   

  	
  to March 5,

  	
   

  
	
   

  	
   

  	
  2007

  	
   

  	
  rate

  	
   

  	
  2007

  	
   

  
	
   

  	
   

  	
  Cdn$

  	
   

  	
  US$

  	
   

  	
  US$

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  (Note 2)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Revenue

  	
   

  	
  —

  	
   

  	
  0.8528

  	
   

  	
  —

  	
   

  
	
  Cost of sales

  	
   

  	
  —

  	
   

  	
  0.8528

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Earnings from mine operations

  	
   

  	
  —

  	
   

  	
   

  	
   

  	
  —

  	
   

  
	
  General and administration

  	
   

  	
  109

  	
   

  	
  0.8528

  	
   

  	
  93

  	
   

  
	
  Exploration

  	
   

  	
  53

  	
   

  	
  0.8528

  	
   

  	
  45

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Loss from operations

  	
   

  	
  (162

  	
  )

  	
   

  	
   

  	
  (138

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Other income

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Interest income

  	
   

  	
  1

  	
   

  	
  0.8528

  	
   

  	
  1

  	
   

  
	
  Foreign exchange gain

  	
   

  	
  3

  	
   

  	
  0.8528

  	
   

  	
  3

  	
   

  
	
  Net loss

  	
   

  	
  (158

  	
  )

  	
   

  	
   

  	
  (134

  	
  )

  

 

See accompanying notes to the
unaudited pro forma condensed consolidated financial statements.

 

15

 

	
  Rusoro Mining Ltd.

  	
  Schedule 2

  
	
  (a development stage company)

  	
   

  
	
  Pro forma condensed consolidated financial statements

  	
   

  
	
  Statement of operations of Mena Resources Inc.

  	
   

  
	
  12 months ended December 31, 2006

  	
   

  
	
  (Unaudited)

  	
   

  
	
  (expressed in thousands of dollars)

  	
   

  

 

	
   

  	
   

  	
  Nine months

  	
   

  	
   

  	
   

  	
  Nine months

  	
   

  	
  12 months

  	
   

  	
   

  	
   

  	
  12 months

  	
   

  
	
   

  	
   

  	
  ended

  	
   

  	
  Year ended

  	
   

  	
  ended

  	
   

  	
  ended

  	
   

  	
   

  	
   

  	
  ended

  	
   

  
	
   

  	
   

  	
  December 31,

  	
   

  	
  March 31,

  	
   

  	
  December 31,

  	
   

  	
  December 31,

  	
   

  	
  Exchange

  	
   

  	
  December 31,

  	
   

  
	
   

  	
   

  	
  2005

  	
   

  	
  2006

  	
   

  	
  2006

  	
   

  	
  2006

  	
   

  	
  rate

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
  Cdn$

  	
   

  	
  Cdn$

  	
   

  	
  Cdn$ 

  	
   

  	
  Cdn$

  	
   

  	
  (Note 2)

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
  A

  	
   

  	
  B

  	
   

  	
  C

  	
   

  	
  D=B+C-A

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Revenue

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  0.8821

  	
   

  	
  —

  	
   

  
	
  Cost of sales

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  0.8821

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Earnings from mine operations

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
   

  	
   

  	
  —

  	
   

  
	
  General and administration

  	
   

  	
  381

  	
   

  	
  627

  	
   

  	
  698

  	
   

  	
  944

  	
   

  	
  0.8821

  	
   

  	
  833

  	
   

  
	
  Exploration

  	
   

  	
  261

  	
   

  	
  327

  	
   

  	
  2,531

  	
   

  	
  2,597

  	
   

  	
  0.8821

  	
   

  	
  2,291

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Loss from operations

  	
   

  	
  (642

  	
  )

  	
  (954

  	
  )

  	
  (3,229

  	
  )

  	
  (3,541

  	
  )

  	
   

  	
   

  	
  (3,124

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Other income (expense)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Interest income

  	
   

  	
  —

  	
   

  	
  1

  	
   

  	
  10

  	
   

  	
  11

  	
   

  	
  0.8821

  	
   

  	
  10

  	
   

  
	
  Other income

  	
   

  	
  191

  	
   

  	
  191

  	
   

  	
  250

  	
   

  	
  250

  	
   

  	
  0.8821

  	
   

  	
  221

  	
   

  
	
  Foreign exchange (loss) gain

  	
   

  	
  (2

  	
  )

  	
  (14

  	
  )

  	
  42

  	
   

  	
  30

  	
   

  	
  0.8821

  	
   

  	
  26

  	
   

  
	
  Net loss

  	
   

  	
  (453

  	
  )

  	
  (776

  	
  )

  	
  (2,927

  	
  )

  	
  (3,250

  	
  )

  	
   

  	
   

  	
  (2,867

  	
  )

  

 

See accompanying notes to the
unaudited pro forma condensed consolidated financial statements.

 

16

 

Promotora Minera de Guayana

P.M.G., S.A. and its Related 

Companies

Report of Independent Accountants and

Combined Financial Statements in U.S.

Dollars, Prepared in Accordance with 

Generally Accepted Accounting Principles 

in Canada

September 30, 2007

 

 

Promotora Minera de Guayana P.M.G., S.A.

and its related companies

Combined Interim Balance Sheet

September 30, 2007 and December 31,
2006

Unaudited

 

	
  (Thousands of U.S. dollars)

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Assets

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Current assets

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cash and cash equivalents

  	
   

  	
  808

  	
   

  	
  6,490

  	
   

  
	
  Trade and other receivables
  (Note 3)

  	
   

  	
  5,757

  	
   

  	
  6,663

  	
   

  
	
  Inventories (Note 4)

  	
   

  	
  6,480

  	
   

  	
  5,464

  	
   

  
	
  Prepaid expenses (Note 5)

  	
   

  	
  1,781

  	
   

  	
  397

  	
   

  
	
  Total current assets

  	
   

  	
  14,826

  	
   

  	
  19,014

  	
   

  
	
  Non-current assets

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Property, plant and equipment,
  net (Note 6)

  	
   

  	
  44,281

  	
   

  	
  56,255

  	
   

  
	
  Future income tax assets (Note
  10)

  	
   

  	
  6,206

  	
   

  	
  5,986

  	
   

  
	
  Other

  	
   

  	
  44

  	
   

  	
  167

  	
   

  
	
  Total assets

  	
   

  	
  65,357

  	
   

  	
  81,422

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Liabilities

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Current liabilities

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Bank loans (Note 9)

  	
   

  	
  699

  	
   

  	
  —

  	
   

  
	
  Trade and other payables (Note
  7)

  	
   

  	
  117,362

  	
   

  	
  109,423

  	
   

  
	
  Provisions for other
  liabilities and charges (Note 8)

  	
   

  	
  6,093

  	
   

  	
  3,869

  	
   

  
	
  Other liabilities

  	
   

  	
  9,526

  	
   

  	
  2,434

  	
   

  
	
  Current income tax liabilities
  (Notes 10)

  	
   

  	
  258

  	
   

  	
  944

  	
   

  
	
  Total-current liabilities

  	
   

  	
  133,938

  	
   

  	
  116,670

  	
   

  
	
  Non-current liabilities

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Accrual for employee termination
  benefits, (Note 2-r)

  	
   

  	
  467

  	
   

  	
  249

  	
   

  
	
  Provision for restoration and
  rehabilitation liabilities (Notes 18 and 2-t)

  	
   

  	
  4,818

  	
   

  	
  3,793

  	
   

  
	
  Total liabilities

  	
   

  	
  139,223

  	
   

  	
  120,712

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Shareholder’s Deficit

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Share capital (Note 12)

  	
   

  	
  27

  	
   

  	
  27

  	
   

  
	
  Contributed Surplus - Share
  premiums

  	
   

  	
  8,697

  	
   

  	
  8,841

  	
   

  
	
  Cumulative translation
  adjustment (Note 2-c)

  	
   

  	
  48,477

  	
   

  	
  22,086

  	
   

  
	
  Legal reserve

  	
   

  	
  160

  	
   

  	
  160

  	
   

  
	
  Accumulated loss

  	
   

  	
  (131,227

  	
  )

  	
  (70,404

  	
  )

  
	
  Total shareholder’s deficit

  	
   

  	
  (73,866

  	
  )

  	
  (39,290

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total shareholder’s deficit
  and liabilities

  	
   

  	
  65,357

  	
   

  	
  81,422

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Going Concern (Note 2-a)

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Contingent Liability (Note 15)

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

The accompanying
notes are an integral part of the financial statements

 

1

 

Promotora Minera de Guayana P.M.G., S.A.

and its related companies

Combined interim Statement of Loss and
Comprehensive Loss

For the nine month period ended September 30,
2007 and 2006

Unaudited

 

	
  (Thousands of U.S. dollars)

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Revenue, net (Note 2-u)

  	
   

  	
  13,628

  	
   

  	
  27,729

  	
   

  
	
  Cost of goods sold (Note 11)

  	
   

  	
  (11,579

  	
  )

  	
  (21,370

  	
  )

  
	
  Gross profit

  	
   

  	
  2,049

  	
   

  	
  6,359

  	
   

  
	
  Administrative expenses (Note
  11)

  	
   

  	
  (7,643

  	
  )

  	
  (5,483

  	
  )

  
	
  Feasibility and development
  costs (Note 11)

  	
   

  	
  —

  	
   

  	
  (715

  	
  )

  
	
  Allowance for intercompany
  receivables (Note 11)

  	
   

  	
  —

  	
   

  	
  (11,979

  	
  )

  
	
  Other gains/(losses), net
  (Note 11)

  	
   

  	
  (186

  	
  )

  	
  317

  	
   

  
	
  Loss before de undernoted

  	
   

  	
  (5,780

  	
  )

  	
  (11,501

  	
  )

  
	
  Interest income (expense)

  	
   

  	
  (889

  	
  )

  	
  426

  	
   

  
	
  Foreign exchange loss, net
  (Note 14)

  	
   

  	
  (56,366

  	
  )

  	
  (11,349

  	
  )

  
	
   

  	
   

  	
  (57,255

  	
  )

  	
  (10,923

  	
  )

  
	
  Loss before income tax

  	
   

  	
  (63,035

  	
  )

  	
  (22,424

  	
  )

  
	
  Income tax recovery (expense)
  (Note 10)

  	
   

  	
  2,212

  	
   

  	
  (3,726

  	
  )

  
	
  Net loss and Comprehensive
  loss for the year

  	
   

  	
  (60,823

  	
  )

  	
  (26,150

  	
  )

  

 

The accompanying
notes are an integral part of the financial statements

 

2

 

Promotora Minera de Guayana P.M.G., S.A.

and its related companies

Combined Interim Statement of changes in
Shareholder’s Deficit

For the nine month period ended September 30,
2007 and 2006

Unaudited

 

	
   

  	
   

  	
   

  	
   

  	
  Contributed

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Surplus

  	
   

  	
  Cumulative

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Share

  	
   

  	
  Share

  	
   

  	
  translation

  	
   

  	
  Legal

  	
   

  	
  Accumulated

  	
   

  	
   

  	
   

  
	
  (Thousands of U.S. dollars)

  	
   

  	
  capital

  	
   

  	
  Premiun

  	
   

  	
  adjustment

  	
   

  	
  reserve

  	
   

  	
  loss

  	
   

  	
  Total

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Balances at December 31,
  2005 (unaudited)

  	
   

  	
  27

  	
   

  	
  7,711

  	
   

  	
  9,547

  	
   

  	
  —

  	
   

  	
  (31,852

  	
  )

  	
  (14,567

  	
  )

  
	
  Share premium capital

  	
   

  	
  —

  	
   

  	
  1,318

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  1.318

  	
   

  
	
  Currency translation
  adjustments

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  3,296

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  3,296

  	
   

  
	
  Net loss for 2006

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  (26,150

  	
  )

  	
  (26,150

  	
  )

  
	
  Balances at
  September 30, 2006

  	
   

  	
  27

  	
   

  	
  9,029

  	
   

  	
  12,843

  	
   

  	
  —

  	
   

  	
  (58,002

  	
  )

  	
  (36,103

  	
  )

  
	
  Balances at December 31,
  2006

  	
   

  	
  27

  	
   

  	
  8,841

  	
   

  	
  22,086

  	
   

  	
  160

  	
   

  	
  (70,404

  	
  )

  	
  (39,290

  	
  )

  
	
  Share premium capita

  	
   

  	
  —

  	
   

  	
  (144

  	
  )

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  (144

  	
  )

  
	
  Currency translation
  adjustments

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  26,391

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  26,391

  	
   

  
	
  Net loss for 2007

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  (60,823

  	
  )

  	
  (60,823

  	
  )

  
	
  Balances at
  September 30, 2007

  	
   

  	
  27

  	
   

  	
  8,697

  	
   

  	
  48,477

  	
   

  	
  160

  	
   

  	
  (131,227

  	
  )

  	
  (73,866

  	
  )

  

 

The accompanying notes are an integral part
of the financial statements

 

3

 

Promotora Minera de Guayana P.M.G., S.A.

and its related companies

Combined Interim Statement of Cash Flows

For the nine month period ended September 30,
2007 and 2006

Unaudited

 

	
  (Thousands of U.S. dollars)

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cash flows from operating
  activities

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Net loss

  	
   

  	
  (60,823

  	
  )

  	
  (26,150

  	
  )

  
	
  Adjustments to reconcile net
  loss to net cash provided by (used in) operating activities 

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Provision for restoration and
  rehabilitation liabilities

  	
   

  	
  (1,091

  	
  )

  	
  2,202

  	
   

  
	
  Future income tax

  	
   

  	
  (2,144

  	
  )

  	
  2,345

  	
   

  
	
  Amortization and Depreciation

  	
   

  	
  1,349

  	
   

  	
  2,303

  	
   

  
	
  Foreign exchange losses

  	
   

  	
  56,366

  	
   

  	
  11,349

  	
   

  
	
  Net changes in operating
  assets and liabilities

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Accounts receivable

  	
   

  	
  (546

  	
  )

  	
  5,140

  	
   

  
	
  Inventories

  	
   

  	
  (2,772

  	
  )

  	
  (1,907

  	
  )

  
	
  Prepaid expenses, advances to
  suppliers and other assets

  	
   

  	
  (1,512

  	
  )

  	
  (220

  	
  )

  
	
  Trade accounts payable

  	
   

  	
  2,059

  	
   

  	
  18,051

  	
   

  
	
  Current income tax liabilities

  	
   

  	
  (383

  	
  )

  	
  1,073

  	
   

  
	
  Employee termination benefits,
  net

  	
   

  	
  298

  	
   

  	
  89

  	
   

  
	
  Other assets

  	
   

  	
  69

  	
   

  	
  (61

  	
  )

  
	
  Accrued liabilities, other
  liabilities and personnel benefits and other

  	
   

  	
  12,825

  	
   

  	
  7,280

  	
   

  
	
  Net cash provided by operating
  activities

  	
   

  	
  3,695

  	
   

  	
  21,494

  	
   

  
	
  Net cash used in investing
  activities

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Additions to property, plant
  and equipment, net

  	
   

  	
  (7,404

  	
  )

  	
  (12.281

  	
  )

  
	
  Net cash used in financial
  activities

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Bank loans

  	
   

  	
  699

  	
   

  	
  —

  	
   

  
	
  Contributions for future capital increases

  	
   

  	
  (144

  	
  )

  	
  1,318

  	
   

  
	
  Net cash provided by financial activities

  	
   

  	
  555

  	
   

  	
  1,318

  	
   

  
	
  Effect of exchange rate
  changes on cash and cash equivalents

  	
   

  	
  (2,086

  	
  )

  	
  (71

  	
  )

  
	
  Currency translation
  adjustment in cash

  	
   

  	
  (442

  	
  )

  	
  218

  	
   

  
	
  Cash and cash equivalents

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Increase (decrease) for the
  year

  	
   

  	
  (5,682

  	
  )

  	
  10,678

  	
   

  
	
  Balance at the beginning of
  the year

  	
   

  	
  6,490

  	
   

  	
  1,024

  	
   

  
	
  Balance at the end of the year

  	
   

  	
  808

  	
   

  	
  11,702

  	
   

  
	
  Supplementary information

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Income taxes paid

  	
   

  	
  1,671

  	
   

  	
  —

  	
   

  

 

The
accompanying notes are an integral part of the financial statements

 

4

 

Promotora Minera de Guayana, S.A.

and its related Companies

Notes to the Condensed Combined Financial
Statements

September 30, 2007 and December 31,
2006

Unaudited

 

1.                            Incorporation
and Activities

 

These combined financial statements have been
prepared in connection with the acquisition by Rusoro Mining (BVI) Ltd of 100%
interest in the following entities:

 

Carisma Corporation A.V.V.,
which owns Asterville International A.V.V., Promotora Minera de Venezuela, S.A.
(PROMIVEN), Promotora Minera de Guayana P.M.G., S.A. (PMG), Inversiones
Anseg, C.A.

 

Vicenza Corporation A.V.V.,

 

Right Angle Corporation
A.V.V., which owns Corporación Minera ECH 1, C.A., Corporación Minera ECH 2,
C.A., Corporación Minera ECH 3, C.A., Corporación Minera ECH 4, C.A.,
Corporación Minera ECH 5, C.A.,

 

International Gold and Silver B.V (“IGS”),

 

El Callao Holdings A.V.V., which owns Triway
Corporation A.V.V., Helvetia Corporation A.V.V., Valet Corporation A.V.V.; and
operates in Venezuela through the following subsidiaries: Corporación Aurífera
de El Callao, C. A. (CORALCA), Corporación Minera Choco 9, C. A., Proyectos
Mineros del Sur, PROMINSUR, C.A. and El Callao Holdings, C.A.

 

The combined entities will be referred to as
the “Group” in these financial statements.

 

Carisma Corporation A.V.V.  (“CARISMA”), was incorporated in Aruba as an
Aruban exempt corporation on June 13, 2002 and has its statutory seat in
Aruba.  CARISMA was also registered with
the Dutch Chamber of Commerce in Leiden on February 28, 2006.

 

Asterville International A.V.V.  (“Asterville”) is a subsidiary of CARISMA and
was incorporated in Aruba as an Aruban exempt corporation on May 19, 1993
and has its statutory seat in Aruba. 
Asterville was also registered with the Dutch Chamber of Commerce in
Leiden on February 28, 2006.

 

Inversiones Anseg, C.A. is a subsidiary of
Asterville and was incorporated in Venezuela on May 10th 1993.  Its main purpose is to deal with real state;
its main asset is the corporate office where the Group maintains its head
quarters in Venezuela.

 

Promotora Minera de
Venezuela, S.A. (“PROMIVEN”), is a subsidiary of CARISMA.  PROMIVEN was incorporated in Venezuela on January 13,
1987.  PROMIVEN business objectives are
to explore and develop, economically exploitable mineral deposits; to negotiate
mining rights from Venezuelan government or third parties, in any of the legal
forms in force, to provide the necessary information to allow promoting or
directly exploring, exploiting, treating, processing, industrializing and
trading mineral raw material and its byproducts; to contract and supply
engineering, administrative, general and financing consulting service; and to
acquire, subscribe, sell and trade any class of shares, any type of
participation in companies dedicated to the business of producing mineral raw
material and its byproducts.

 

5

 

Promotora Minera de Guayana, S.A.

and its related Companies

Notes to the Condensed Combined Financial
Statements

September 30, 2007 and December 31,
2006

Unaudited

 

Promotora Minera de Guayana P.M.G., S.A. (“PMG”),
is a subsidiary of PROMIVEN and was incorporated in Venezuela on May 10,
1988.  PMG business objectives are to
carry out mining activities including exploration, evaluation, development,
production, transportation and to sell ore resources, mainly gold.  PMG entered into a two lease agreements with
Corporacion Venezolana de Guayana (CVG), in respect to the concessions named
Chocó 4 and Chocó 10, located in the town of El Callao, Bolivar State, Bolivarian
Republic of Venezuela; these agreements provided PMG with the rights to explore
and exploit multiples ore in these areas. 
These agreements also granted PMG the right to carry out exploration
activities and subsequent exploitation of multiple ore targets, including
alluvium and vein Gold in the Bochinche 1 and Bochinche 2 Concessions, located
within the Sifontes Municipality in the Bolivar State.

 

In addition PMG holds a mining contract granted
by CVG over the area of Bochinche Zero; also located within the Sifontes
municipality in the Bolivar State.

 

PMG is a 95% owned subsidiary by PROMIVEN and,
5% owned by C.V.G. Ferrominera Orinoco, C.A. (FMO), which is owned by CVG (Note
12).

 

In November 2005, as per Resolutions No. 047-2005
and DM-046-2005 published in the Official Gazette No.  38,304, the
Ministry of Basic Industries and Mining (MIBAM) (formerly know as Ministry of
Energy and Mines) approved, the feasibility study for the exploitation of
two-thousand one-hundred twenty-four hectares and five-thousand three hundred
square meters (2,124.5300 ha.) of the Chocó 10 Concession, and one-thousand
four-hundred fifty-eight hectares with one-thousand two-hundred square meters
(1,458,1200 ha.) of the Chocó 4 Concession. 
The Company received from MIBAM the permits to exploit and develop the
areas under these concessions.

 

PMG started operations in August 2005.  PMG has a mill crusher plant and gold ore
dilution facility, as well as other structures required for the exploitation
and purification of mined gold.

 

Vicenza Corporation A.V.V.  was incorporated in Aruba as an Aruban exempt
corporation on March 6, 2003 and has its statutory seat in Aruba.  The Company was also registered with the
Dutch Chamber of Commerce in Leiden on February 28, 2006.

 

Right Angle Corporation A.V.V. was incorporated
in Aruba as an Aruban exempt corporation on August 4, 1988 and has its
statutory seat in Aruba.  The Company was
also registered with the Dutch Chamber of Commerce in Leiden on February 28,
2006.

 

Right Angle Corporation A.V.V., wholly owns
Corporación Minera ECH 1, C.A., Corporación Minera ECH 2, C.A., Corporación
Minera ECH 3, C.A., Corporación Minera ECH 4, C.A., which were incorporated in
the Bolivarian Republic of Venezuela on May 24, 2004 and Corporación
Minera ECH 5, C.A., incorporated in the Bolivarian Republic of Venezuela on September de
2004.  The main purpose these companies
are to of explore and identify economically exploitable mineral deposits for
further development.

 

6

 

Promotora Minera de Guayana, S.A.

and its related Companies

Notes to the Condensed Combined Financial
Statements

September 30, 2007 and December 31,
2006

Unaudited

 

Corporación Minera ECH 1, C.A., and Corporación
Minera ECH 2, C.A., are awaiting the necessary permissions for exploitation of
mines, according to the request sent to the MIBAM on August 19, 2004.

 

Corporación Minera ECH 3, C.A., requested the
necessary permissions for exploitation of mines according to the request sent
to MIBAM on July 14, 2004.  These
permissions were denied, according an official communication dated August 11,
2004.

 

Corporación Minera ECH4, C.A., is awaiting  necessary permissions for exploitation of
mines according to the request sent to the MIBAM June 18, 2004.

 

International Gold and Silver B.V. was
incorporated in the British Virgin Island on September 24, 2004.  The IGS’s Articles of Association were
amended on June 22, 2005.  At that
time, the name of the Company was changed from Bolivar Gold B.V. into
International Gold and Silver B.V., and the fiscal year-end was changed from December 31
to June 30 and the statutory seat was changed from Stein to Rotterdam.

 

El Callao Holdings A.V.V. was incorporated in
Aruba as an Aruban exempt corporation on August 15, 2003 and has its
statutory seat in Aruba.  The Company was
also registered with the Dutch Chamber of Commerce in Leiden on February 28,
2006.

 

Triway Corporation A.V.V. was incorporated in
Aruba as an Aruban exempt corporation on November 12, 2003 and has its statutory
seat in Aruba.  The Company was also
registered with the Dutch Chamber of Commerce in Leiden on February 28,
2006.

 

Triway Corporation A.V.V. wholly owns
Corporación Aurífera de El Callao, C. A. (“CORALCA”).  CORALCA was incorporated in the Bolivarian
Republic of Venezuela on October 24, 1988. 
CORALCA main business objective is to undertake activities linked to the
exploration, administration and leasing of concessions according to the
Venezuelan Law of Mines; as well as the processing, transportation, storage,
refining and trade of gold and other associated minerals.

 

CORALCA, entered into a leasing agreement with
CVG, becoming the leaseholder of the concessions called Choco 1, Choco 2, Choco
12 and Choco 13, located in the municipality of El Callao, Bolívar State.

 

Helvetia Corporation A.V.V. was incorporated in
Aruba as an Aruban exempt corporation on June 10, 2003 and has its
statutory seat in Aruba.  The Company was
also registered with the Dutch Chamber of Commerce in Leiden on February 28,
2006.

 

The subsidiary Helvetia Corporation A.V.V.,
wholly owns Corporación Minera Choco 9, C. A., which was incorporated in the
Bolivarian Republic of Venezuela on October 5, 1989, to carry out mining
activities linked to the exploration, exploitation, feasibility study and
extraction of mineral resources, as wells as their processing, transportation
and trade of gold.

 

7

 

Promotora Minera de Guayana, S.A.

and its related Companies

Notes to the Condensed Combined Financial
Statements

September 30, 2007 and December 31,
2006

Unaudited

 

Corporación Minera Choco 9, C. A., entered into
with CVG a leasing agreement, becoming the leaseholder of the concession called
Choco 9, located in the Municipality of El Callao, Bolívar State.

 

Valet Corporation A.V.V. was incorporated in
Aruba as an Aruban exempt corporation on August 15, 2003 and has its
statutory seat in Aruba.  The Company was
also registered with the Dutch Chamber of Commerce in Leiden on February 28,
2006.

 

On Mach 31, 2006 the subsidiary Valet
Corporation A.V.V., acquired PROMINSUR which was incorporated in the Bolivarian
Republic of Venezuela on April 12. 1989 to explore, identify, develop and
exploit economically exploitable mineral deposits.

 

PROMISUR entered into a leasing contract with
CVG, becoming the leaseholder of the concession named Choco 6, located in the
municipality of El Callao, Bolívar State.

 

During the year ended December 31, 2006,
Promotora Minera de Guayana, C.A. and El Callao Holding A.V.V. wrote off
capitalized feasibility and development costs of US$46,915,000, to expense
expenditures incurred during the development period that did not meet the
criteria for capitalization.

 

The Group’s assets are mainly located in
Bolivarian Republic of Venezuela.  At September 30,
2007, the Group has 532 employees (402 employees in 2006).

 

2.                            Summary
of Significant Accounting Principles

 

The main accounting policies applied in the
preparation of these financial statements are described below.  These policies have been consistently applied
to all period presented.

 

a)         Basis of
preparation

 

The combined financial statements of the Group
have been prepared in accordance with Generally Accepted Accounting Principles
in Canada (CANGAAP).

 

The Group is in a net deficit position as at 31
December 2006 and has had losses for the past several years. These
circumstances lend significant doubt as to the appropriateness of the use of
accounting principles applicable to a going concern.  Management of the Group has received
confirmation from the parent company that the parent company intends to
financially support the Group to enable it to meet its liabilities as they fall
due and carry on its business without curtailment of its operations. As a
result, Group’s management considers the going concern basis of preparation to
be appropriate.

 

These financial statements do not reflect the
adjustments to the carrying values of assets and liabilities and the reported
expenses and balance sheet classifications that would be necessary were the
going concern assumption to be inappropriate.

 

8

 

Promotora Minera de Guayana, S.A.

and its related Companies

Notes to the Condensed Combined Financial
Statements

September 30, 2007 and December 31,
2006

Unaudited

 

Change in accounting policies

 

On January 1,
2007, the Company adopted the provisions of CICA Sections 1530 “Comprehensive
Income”,3251 “Equity”, 3855 “Financial Instruments - Recognition and
Measurement”, 3861 “Financial Instruments - Presentation and Disclosure”, and
3865 “Hedges” which were effective for the fiscal years beginning on or after October 1,
2006.  These sections address the
classification, recognition and measurement of financial instruments and hedges
in the financial statements and inclusion of other comprehensive income.  The Company has made the following
classifications: The long-term investments and marketable securities have been
classified as “available-for-sale”.  They
are initially recorded at fair value which is equal to their cost.  Subsequent changes to the gain value of the
investments recognized in other comprehensive income.

 

b)         Combination

 

The combined financial statements of the
Venezuelan Assets Acquired by Russoro Mining (BVI) Ltd comprise the financial statements
of the following companies:

 

	
  Name

  	
   

  	
  % ownership

  	
   

  	
  Country of Incorporation

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Carisma
  Corporation A.V.V.

  	
   

  	
  100

  	
  %

  	
  Aruba

  
	
  Promotora
  Minera de Venezuela S.A. (PROMIVEN)

  	
   

  	
  100

  	
  %

  	
  Bolivarian Republic of Venezuela

  
	
  Promotora
  Minera de Guayana P.M.G., S.A. (PMG)

  	
   

  	
  95

  	
  %

  	
  Bolivarian Republic of Venezuela

  
	
  Asterville
  Internacional A.V.V.

  	
   

  	
  100

  	
  %

  	
  Aruba

  
	
  Inversiones
  Anseg C.A.

  	
   

  	
  100

  	
  %

  	
  Bolivarian Republic of Venezuela

  
	
  Vicenza
  Corporation AVV

  	
   

  	
  100

  	
  %

  	
  Aruba

  
	
  Right
  Angle Corporation AVV

  	
   

  	
  100

  	
  %

  	
  Aruba

  
	
  CorporacionMinera
  ECH1, C.A.

  	
   

  	
  100

  	
  %

  	
  Bolivarian Republic of Venezuela

  
	
  CorporacionMinera
  ECH2, C.A.

  	
   

  	
  100

  	
  %

  	
  Bolivarian Republic of Venezuela

  
	
  CorporacionMinera
  ECH3, C.A.

  	
   

  	
  100

  	
  %

  	
  Bolivarian Republic of Venezuela

  
	
  CorporacionMinera
  ECH4, C.A.

  	
   

  	
  100

  	
  %

  	
  Bolivarian Republic of Venezuela

  
	
  CorporacionMinera
  ECH5, C.A.

  	
   

  	
  100

  	
  %

  	
  Bolivarian Republic of Venezuela

  
	
  Internacional
  Gold and Silver, B.V.

  	
   

  	
  100

  	
  %

  	
  Netherlands

  
	
  El
  Callao Holding AVV

  	
   

  	
  100

  	
  %

  	
  Aruba

  
	
  Triway
  Corporation AVV

  	
   

  	
  100

  	
  %

  	
  Aruba

  
	
  Corporación
  Aurífera El Callao, C.A.

  	
   

  	
  100

  	
  %

  	
  Bolivarian Republic of Venezuela

  
	
  Helvetia
  Corporation AVV

  	
   

  	
  100

  	
  %

  	
  Aruba

  
	
  Corporación
  Minera Choco 9, C.A.

  	
   

  	
  100

  	
  %

  	
  Bolivarian Republic of Venezuela

  
	
  Valet
  Corporation AVV

  	
   

  	
  100

  	
  %

  	
  Aruba

  
	
  Proyectos
  Mineros del Sur PROMINSUR, C.A.

  	
   

  	
  100

  	
  %

  	
  Bolivarian Republic of Venezuela

  
	
  El Callao
  Holding, C.A.

  	
   

  	
  100

  	
  %

  	
  Bolivarian Republic of Venezuela

  

 

Subsidiaries

 

Subsidiaries are all entities (including
variable interest entities) over which the group has the power to govern the
financial and operating policies generally having a shareholder of more than
one half of the voting rights.  The
existence and effect of potential voting rights that are currently exercisable
or convertible are considered when assessing whether the group controls another
entity.  Subsidiaries are consolidated
from the date on which control is transferred to the group.

 

9

 

Promotora Minera de Guayana, S.A.

and its related Companies

Notes to the Condensed Combined Financial
Statements

September 30, 2007 and December 31,
2006

Unaudited

 

The purchase method of accounting is used to
account for the acquisition of subsidiaries by the group from the date that
control commences.  The cost of an
acquisition is measured at fair value of the assets given, equity instruments
issued and liabilities incurred or assumed at the date of exchange, plus costs
directly attributable to the acquisition. 
The excess of the cost of acquisition over the fair value of net assets
acquired is recorded as goodwill.  If the
cost of acquisition is less than the fair value of the net assets, the
difference is recognized directly in the income statement.

 

Inter-Group transactions, balances and
unrealized gains on transactions between group companies are eliminated.

 

Transactions with minority interests

 

The Group applies a policy of treating
transactions with minority interests as transactions with parties external to
the group.

 

The minority interests for profitable
subsidiaries are shown as an allocation of total group profit. However, where
losses applicable to the minority exceed the minority’s interest in any
subsidiary’s equity, such losses are allocated against the majority
interest.  Where a subsidiary then
reports profits, they are allocated to the majority interest, until the
minority’s share of losses that were previously absorbed by the majority have
been eliminated.

 

c)         Translation
into U.S. dollars

 

Functional and presentation
currency

 

The Group’s 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.  The Group has elected to
present financial statements in U.S. dollars, its presentation currency solely
for information purposes of the shareholders.

 

Transactions and balances

 

Foreign currency transactions are translated
into functional currency using the exchange rate prevailing at the dates of the
transactions.  Foreign exchange gains and
losses resulting from the settlement of such transactions and from the
translation at year-end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognized in the income statement.  Exchange gains or losses are included in the
income statement.  The Group does not
engage in hedging activities in connection with its foreign currency balances
and transactions (Note 14).

 

Translation of financial statements into the presentation currency

 

The
results and financial position of all the Group entities (none of which has the
currency of a hyper-inflationary economy) that have a functional currency
different from the presentation currency are translated into the presentation
currency as follows:

 

·                  Assets and
liabilities for each balance sheet presented are translated at the closing rate
at the date of the balance sheet

 

10

 

Promotora Minera de Guayana, S.A.

and its related Companies

Notes to the Condensed Combined Financial
Statements

September 30, 2007 and December 31,
2006

Unaudited

 

·                  Income and expenses
for each income statement are translated at average exchange rates (unless this
average is not a reasonable approximation of the cumulative effect of the rates
prevailing on the transaction date, in which case income and expenses are
translated at the rate on the dates of the transactions), and

 

·                  All resulting
exchange differences are recognized as a separate component of shareholder’s
deficit.

 

The
exchange rates relative to the US dollars for the nine month period ended September 30,
2007 and 2006 was Bs 5,010/US$1 and Bs 2,900/US$1 (Sorce:
VenezuelaFX.com).  No representation is made that the Bs amounts
could have been, or  could be,
converted to U.S. dollars at that rate on September 30, 2007 or 2006 or at
any other rate.

 

At September 30, 2007 and December 31,
2006 the Group has the following monetary assets and liabilities denominated in
currencies other than the Venezuelan Bolivar (mainly U.S. Dollars and Euro),
shown at their equivalent to U.S. dollars:

 

	
  (Thousands of U.S. dollars)

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Monetary assets

  	
   

  	
  7,305

  	
   

  	
  8,015

  	
   

  
	
  Monetary liabilities

  	
   

  	
  (22,945

  	
  )

  	
  (19.526

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total net monetary liabilities
  (equivalent in U.S. dollars)

  	
   

  	
  (15,640

  	
  )

  	
  (11,511

  	
  )

  

 

d)         Segment
reporting

 

A business segment is a group of assets and
operations engaged in providing products or services that are subject to risks
and returns that are different from those of other business segments.  A geographical segment is engaged in
providing products or services within a particular economic environment that
are subject to risks and return that are different from those of segments
operating in other economic environments. 
The Group operates in a single business segment (mining) in one
geographical location.

 

e)         Property,
plant and equipment

 

Property, plant and equipment are recorded at
cost less accumulated depreciation and impairment charges (Note 2-h).  Cost is the fair value of the consideration
given to acquire the asset at the time of acquisition or construction and
includes the direct costs of bringing the asset to the location and condition
necessary for operation.

 

Subsequent costs are included in the asset’s
carrying amount or recognized as a separate asset, as appropriate, only when it
is probable that future economic benefits associated with the item will flow to
the Group and the cost of the item can be measured reliably.  All other repairs and maintenance are charged
to the statement of operations during the fiscal period in which they are
incurred.

 

The carrying amounts of property, plant and
equipment (including initial and any subsequent capital expenditure) are
depreciated to their estimated residual value over the estimated useful lives
of the specific assets concerned, or the estimated life of the associated mine
or mineral lease, if shorter.

 

11

 

Promotora Minera de Guayana, S.A.

and its related Companies

Notes to the Condensed Combined Financial Statements

September 30, 2007 and December 31,
2006

Unaudited

 

Estimates of residual values and useful lives
are reassessed annually and any change in estimate is taken into account in the
determination of remaining depreciation charges.  The major categories of property, plant and
equipment are depreciated on a unit of production and/or straight line basis
using estimated lives indicated below, except that where assets are dedicated
to a mine lease the below useful lives are subject to the lesser of the asset
category’s useful life and the life of the mine or lease.

 

	
  Plant

  	
   

  	
  Based on reserves on a unit of production
  basis

  
	
  Mineral rights

  	
   

  	
  Based on reserves on a unit of production
  basis

  
	
  Exploration, evaluation and development expenditure on mineral assets
  and other  mining
  assets

  	
   

  	
  Based on reserves on a unit of production
  basis

  
	
  Buildings

  	
   

  	
  10
  years

  
	
  Machinery and equipment

  	
   

  	
  5
  years

  
	
  Vehicles

  	
   

  	
  4
  years

  
	
  Furniture and equipment

  	
   

  	
  2
  years

  
	
  Facilities and improvements

  	
   

  	
  2
  years

  

 

An asset’s carrying amount is written down
immediately to its fair value if the asset’s carrying amount is not recoverable
and exceeds carrying value (Note 2-h).

 

Gains and losses on disposals are determined by
comparing proceeds with the carrying amounts and are recognized within “Other
(losses)/gains - net” in the statement of loss.

 

f)           Exploration,
evaluation and development expenditure

 

Exploration and evaluation

 

Exploration and evaluation activity involves
the search for mineral resources, the determination of technical feasibility
and the assessment of commercial viability of an identified resource.  Exploration and evaluation activity
includes:  (i) researching and
analyzing historical exploration data, (ii) gathering exploration data
through topographical, geochemical and geophysical studies, (iii) exploratory
drilling, (iv) assessing transportation and infrastructure requirements
and  (v) Feasibility studies.

 

Administration costs that are not directly
attributable to a specific exploration area are charged to the income
statement.  License costs paid in
connection with a right to explore in an existing exploration area are
capitalized and amortized over the term of the permit.

 

Exploration and evaluation expenditure
(including amortization of capitalized license costs) is charged to the income
statement as incurred except when the exploration and evaluation activity is
within an area of interest which was previously acquired in a business
combination and measured at fair value on acquisition, or where the existence
of a commercially viable mineral deposit has been established, in which case
the expenditure may be capitalized.

 

Capitalized exploration and evaluation
expenditure considered to be tangible are recorded as a component of property,
plant and equipment at cost less impairment charges.  As the asset is not available for use, it is
not depreciated.  All capitalized
exploration and evaluation expenditure are monitored for indications of
impairment.  Where a potential impairment
is indicated, an assessment is

 

12

 

Promotora Minera de Guayana, S.A.

and its related Companies

Notes to the Condensed Combined Financial
Statements

September 30, 2007 and December 31,
2006

Unaudited

 

performed for each area of interest in
conjunction with the group of operating assets (representing a cash generating
unit) to which the exploration is attributed. 
Exploration areas at which reserves have been discovered but that
require major capital expenditure before production can begin are continually
evaluated to ensure that commercial quantities of reserves exist or to ensure
that additional exploration work is under way or planned.  To the extent that capitalized expenditure is
not expected to be recovered it is charged to the income statement.

 

Cash flows associated with exploration
expenditures (comprising both amounts expensed and amounts capitalized) are
classified as operating activities in the cash flow statement.

 

Development expenditure

 

When proven reserves are determined and
development is sanctioned, capitalized exploration and evaluation expenditure
is reclassified as “Assets under construction”, and is disclosed as a component
of property, plant and equipment.  
Development expenditures are capitalized and classified as “Assets under
construction”.  As the asset is not
available for use, it is not depreciated. 
On completion of development, any capitalized exploration and evaluation
expenditure, together with the subsequent development expenditure, is
classified as either “Plant and equipment” or “Other mineral assets”.

 

g)        Waste
Removal-Open Pits

 

Pit waste removal cost are expenses to
operating cost on the basis of ounces mined in each period pro rata to total
proved and probable reserves ounces in that pit.  The resultant assets created by the timing
difference between cost incurred and cost brought to account (expensed) is held
in the balance sheet as an asset.  The
intention of that for every ounce mined it bears equal pro rata share of the
total pit waste removal cost expected to be incurred on that pit.  At 30 of September 2007 the company had
recognized US$1,800,550.

 

h)        Impairment
of non-financial assets

 

Assets that have an indefinite useful life are
not subject to amortization, for example land, and are tested annually for
impairment.  Assets that are subject to
depreciation and amortization are reviewed for impairment whenever events or
changes in circumstances indicate that their carrying amount may not be
recoverable.  An impairment loss is
recognized for the amount by which the asset’s carrying amount exceeds its fair
value.  For the purposes of assessing
impairment, assets are grouped at the lowest levels for which there are
separately identifiable cash flows (cash-generating units).

 

i)           Financial
assets

 

The Group classifies its financial assets in
the following categories:  at fair value
through income or loss, loans and receivables, and available for sale.  The classification depends on the purpose for
which the financial assets were acquired. 
Management determines the classification of its financial assets at
initial recognition date.

 

Financial assets at fair value
through profit or loss

 

Financial assets at fair value through profit
or loss are financial assets held for trading. 
A financial asset is classified in this category if acquired principally
for the purpose of selling in the short-term.  
Derivatives are also categorized as held for trading unless they are
designated as hedges.  Assets in this
category are classified as current assets.

 

13

 

Promotora Minera de Guayana, S.A.

and its related Companies

Notes to the Condensed Combined Financial
Statements

September 30, 2007 and December 31,
2006

Unaudited

 

Loans and receivables

 

Loans and receivables are non-derivative
financial assets with fixed or determinable payments that are not quoted in an
active market.  They are included in
current assets, except for maturities greater than 12 months after the balance
sheet date.  The Group’s loans and
receivable comprises “trade and other receivables” in the balance sheet (Note
1).

 

Available-for-sale financial
assets

 

Available-for-sale financial assets are
non-derivative that are either designated in this category or not classified in
any of the other categories.  They are
included in non-current assets unless management intends to dispose of the
investment within 12 months of the balance sheet date.

 

Regular purchases and sales of investments are
recognized on trade date on which the Group commits to purchase or sell the
asset.  Investments are initially
recognized at fair value plus transaction costs for all financial assets not
carried at fair value through income or loss. 
Financial assets carried at fair value through income or loss are
initially recognized at fair value and transaction costs are expensed in the
statement of income.  Financial assets
are derecognized when the rights to receive cash flows from the investments
have expired or have been transferred and the Group has transferred substantially
all risks and rewards of ownership. 
Available-for-sale financial assets and financial assets at fair value
through income or loss are subsequently carried at fair value.  Loans and receivables and held-to-maturity
investments are carried at amortized cost using the effective interest method.

 

Gains or losses arising from changes in the
fair value of the financial assets at fair value through income or loss
category, including interest and dividend income, are shown in the statement of
income under Other expenses, net in the period in which they arise.

 

Changes in the fair value of monetary
securities denominated in a foreign currency and classified as available for
sale are analyzed between translation differences resulting from changes in
amortized cost of the security and other changes in the carrying amount of the
security.  The translation differences on
monetary securities are recognized in income or loss, while translation
differences on non monetary securities are recognized in equity.  Changes in the fair value of monetary and non
monetary securities classified as available for sale are recognized in equity.

 

When securities classified as
available-for-sale are sold or impaired, the accumulated fair value adjustments
recognized in equity are included in the statement of income as gains and
losses from investment securities. 
Interest on available-for-sale securities calculated using the effective
interest method is recognized in the statement of income.

 

The fair values of quoted investments are based
on current bid prices.  If the market for
a financial asset is not active (and for unlisted securities), the Group
establishes fair value by using valuation techniques.  These include the use of recent arm’s length
transactions, reference to other instruments that are substantially the same,
discounted cash flow analysis, and option pricing models, making maximum use of
market inputs and relying as little as possible on entity-specific inputs.

 

14

 

Promotora Minera de Guayana, S.A.

and its related Companies

Notes to the Condensed Combined Financial
Statements

September 30, 2007 and December 31,
2006

Unaudited

 

The Group assesses at each
balance sheet date whether there is objective evidence that a financial asset
or a group of financial assets is impaired. 
In the case of equity securities classified as available for sale, a
significant or prolonged decline in the fair value of the security below its
cost is considered an indicator that the securities are impaired.  If any such evidence exists for
available-for-sale financial assets, the cumulative loss - measured as the
difference between the acquisition cost and the current fair value, less any
impartment loss on that financial asset previously recognized in income or loss
- is removed from equity and recognized in the statement of income.  Impairment losses recognized in the statement
of income on equity instruments are not reversed through the statement of
income.  Impairment testing of trade
receivables is described under Trade and other receivables.

 

j)           Derivative
financial instruments and hedging activities

 

Derivatives are initially recognized at fair
value on the date a derivative contract is entered into and are subsequently
remeasured at their fair value.  The
method of recognizing the resulting gain or loss depends on whether the
derivative is designated as a hedging instrument, and if so, the nature of the
item being hedged.  At September 30,
2007 and December 31, 2006, the Group has identified no derivative
financial instruments neither has entered in hedging transactions.

 

k)       Inventories

 

Inventories are stated at the lower of cost,
which does not include interest, and net realizable value.  Cost is determined using the average cost
method.  Net realizable value is the
estimated selling price in the ordinary course of business, less applicable
variable selling expenses.  The cost is
determined using the average cost method, based on the following:

 

·                  The cost of gold in
process comprises costs incurred during each stage of the production process,
which includes all direct payroll costs, depreciation and amortization and
other production costs.

 

·                  The gold sands
corresponds to the material extracted from the mine and is recorded according
to the gold content by tons of material stacked and are reported at average
cost.

 

·                  Cost of gold ingots
production is determined considering the content equivalent to each Kg of gold
produced.

 

·                  The cost of materials,
spare parts and supplies is determined using the average cost method, which
does not exceed the market value due to its quick turnaround.

 

The provision for shortfalls in store
inventories, determined on the basis of previous losses in this connection, which
are probable to occur in the future, is expensed.

 

l)           Trade and
other receivables

 

Trade and other receivables are recognized
initially at fair value and subsequently measured at amortized cost using the
effective interest method, less provision for impairment.  A provision for impairment of trade
receivables is established when there is objective evidence that the Group will
not be able to collect all amounts due according to the original terms of
receivables.  Significant financial
difficulties of the debtor, probability that the debtor will enter bankruptcy
or financial reorganization, and default or delinquency in payments are
considered indicators that trade and other receivables are impaired.

 

15

 

Promotora Minera de Guayana, S.A.

and its related Companies

Notes to the Condensed Combined Financial Statements

September 30, 2007 and December 31, 2006

Unaudited

 

The amount of the provision is the difference
between the asset’s carrying amount and the present value of estimated future
cash flows, discounted at the original effective interest rate.  The amount of the provision is recognized in
the statement of income under Selling and marketing expenses.  When a trade receivable is uncollectible, it
is written off against the allowance account for trade receivables.  Subsequent recoveries of amount previously
written off are credited against selling and marketing costs in the statement
of loss.

 

m)     Cash and
cash equivalents

 

Cash and cash equivalents include cash on hand and at
bank and highly liquid short-term deposits maturing within three months or
less, and bank overdrafts.  Bank
overdrafts are shown within borrowings in current liabilities on the balance
sheet.

 

n)        Other
assets

 

Comprise the costs associated
with a gold ore processing pilot plant, which is currently under process of
obtaining its permit.  Once the permit is
obtained, the plant will be sold to small miners.

 

o)         Share
capital

 

Common shares are classified as equity.

 

Incremental costs directly attributable to the issue
of new shares or options are shown in shareholder’s equity as a deduction, net
of taxes, from the proceeds.

 

p)         Trade
payables

 

Trade payables are recognized initially at fair value
and subsequently measured at amortized cost using the effective interest
method.

 

q)         Current
and future income tax

 

The current income tax charge is calculated on the
basis of the tax laws enacted or substantively enacted at the balance sheet
date in the countries where the Group’s subsidiaries and associates operate and
generate taxable income.  Management
periodically evaluates positions taken in tax returns with respect to
situations in which applicable tax regulations is subject to interpretation and
establishes provisions where appropriate on the basis of amounts expected to be
paid to the tax authorities.

 

Future income tax is provided in full, using the
liability method, on temporary differences arising between the tax bases of
assets and liabilities and their carrying amounts in the combined financial
statements.  However, future income tax
is not accounted for if it arises from initial recognition of an asset or
liability in a transaction other than a business combination that at the time
of the transaction affects neither accounting nor taxable income or loss.  Future income tax is determined using the tax
rate (and law) that has been enacted or substantially enacted by the balance
sheet date and is expected to apply when the related future income tax asset is
realized or the future income tax liability is settled.

 

Future income tax assets are recognized to the extent
that it is probable that future taxable income will be available against which
the temporary differences can be utilized.

 

16

 

Promotora Minera de Guayana, S.A.

and its related Companies

Notes to the Condensed Combined Financial Statements

September 30, 2007 and December 31, 2006

Unaudited

 

Future income tax is provided on temporary differences
arising on property, plant and equipment, provision for restoration and
rehabilitation and other, which are deductible for tax purposes when payments
are made and amortized in the financial statements for subsequent periods,
except where the timing of the reversal of the temporary difference is
controlled by the Group and it is probable that the temporary difference will
not be reversed in the foreseeable future.

 

r)         Accrual
for employee benefits

 

Employee termination benefits

 

The Group accrues for its
liability in respect of employee termination benefits based on the provisions
of the Venezuelan Labor Law.

 

According
to the Venezuelan Labor Law, employees are entitled to 5 days of salary per
month (a maximum of 60 days per year of service), without retroactive
adjustment.  Employee termination
benefits are a vested right of employees after 3 months of uninterrupted
service and accrue as incurred. After the second year of service, employees are
entitled to 2 additional days of salary per year of service (or portion thereof
over 6 months) up to 30 days of salary. 
Employee termination benefits are accrued and deposited monthly in a
trust fund on behalf of each employee, an employee termination benefits fund or
recorded in the Group’s books, as requested in writing by each employee.

 

The Law provides for an additional indemnity for
unjustified dismissals or involuntary termination of 30 days of 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 up to 90 days of current salary
based on length of service.  The Group
has not set aside an additional provision to cover this contingent liability.

 

Profit sharing and bonuses

 

Venezuelan Labor Law also requires a mandatory
distribution to employees (profit-sharing bonus) of up to 15% of a Group’s
pre-tax income.  The established minimum
and maximum amounts for distribution are 15 and 120 days of salary,
respectively.  The Group accrued and paid
a profit-sharing bonus to its employees of 90 days of salary for the nine month
period ended September 30, 2007 (60 days in 2006).  In addition, the Group recognizes a provision
where contractually obliged or where there is a past practice that has created
a constructive obligation, particularly for bonuses.

 

Pension plans and other
post-employment benefits

 

The Group does not have a pension plan or other
post-retirement benefit programs for its employees; it does not grant stock
purchase options.

 

s)         Provisions

 

Provisions are recognized when the Group has a present
legal or constructive obligation as a result of past events; it is more likely
than not than an outflow of resources will be required to settle the
obligation, and the amount has been reliably estimated.  Provisions are not recognized for future
operating losses.

 

17

 

Promotora Minera de Guayana, S.A.

and its related Companies

Notes to the Condensed Combined Financial Statements

September 30, 2007 and December 31, 2006

Unaudited

 

Where there are a number of similar obligations, the
likelihood that an outflow will be required in settlement is determined by
considering the class of obligations as a whole.  A provision is recognized even if the
likelihood of an outflow with respect to any one item included in the same
class of obligations may be small.

 

Provisions are measured at the present value of the
expenditures expected to be required to settle the obligation using a pre-tax
rate that reflects current market assessments of the time value of money and
the risks specific to the obligation. 
The increase in the provision due to passage of time is recognized as
interest expense.

 

t)           Provision for restoration and
rehabilitation liability

 

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 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 ARO 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.

 

u)        Recognition
of revenue

 

Revenue comprises the fair
value of the consideration received or receivable for the sales of gold in the
ordinary course of the Group’s activities. 
The Group recognizes revenue when
persuasive evidence, usually in the form of an executed sales agreement, of an
arrangement exists, indicating there has been a transfer of risks and rewards
to the customer, no further work or processing is required by the Group, the
quantity and quality of the gold has been determined with reasonable accuracy,
the price is fixed or determinable, and collectability is reasonably
assured.  This is generally when title
passes to the customer.

 

v)          Dividend
distribution

 

Dividend distribution to the Group’s shareholder is
recognized as a liability in the financial statements in the period in which
the dividends are approved by the Group’s shareholder.

 

w)       Financial
risk management

 

Financial risk factors

 

The
Group is exposed to a variety of financial risks:  market risk (including currency risk, fair
value interest risk and price risk), credit risk, liquidity risk and cash flow
interest rate risk.  Financial instruments
exposed to concentration of credit risk consist primarily of cash and cash
equivalents and trade and other receivables.

 

The Group’s cash is placed with a diversified group of
financial institutions and trade and other receivables are spread over a broad
customer base.  The Group regularly
assesses the financial condition and creditworthiness of its clients.  On certain occasions, credit risk has been
concentrated on accounts receivable from related parties (Note 16).

 

18

 

Promotora Minera de Guayana, S.A.

and its related Companies

Notes to the Condensed Combined Financial Statements

September 30, 2007 and December 31, 2006

Unaudited

 

Risk management is carried out under policies approved
by the Board of Directors.  The Board
provides written principles for overall risk management, as well as written
policies covering specific areas, such as foreign exchange risk, interest rate
risk, credit risk, and the investment of excess liquidity.

 

Credit risk

 

The Group has no significant concentrations of credit
risk.  It has policies in place to ensure
that sales of gold are made to customers with an appropriate credit
history.  The Group has policies that
limit the amount of credit exposure to any financial institution.

 

Liquidity risk

 

Prudent liquidity risk management implies maintaining
sufficient cash and marketable securities, the availability of funding through
an adequate amount of committed credit facilities and the ability to close out
market positions

 

Cash flows and fair value
interest rate risk

 

As the Group has no significant interest-bearing
assets, the Group’s income and operating cash flows are substantially
independent of changes in market interest rates.

 

The Group’s interest rate risk arises from some bank
loans.  Bank loans issued at variable
rates expose the Group to cash flow interest rate risk.  Bank loans issued at fixed rates expose the
Group to fair value interest rate risk. 
It is Group policy to maintain bank loans at fixed and variable rates.

 

Foreign exchange risk

 

The Group operates internationally and is exposed to
foreign exchange risk arising from various currency exposures, primarily with
respect to the US dollar and Euros. 
Foreign exchange risk arises from future commercial transactions,
recognized assets and liabilities and net investments in foreign operations.

 

Management has set up a policy to require group
companies to manage their foreign exchange risk against their functional
currency.  Foreign exchange risk arises
when future commercial transactions or recognized assets or liabilities are
denominated in a currency that is not the entity’s functional currency.

 

x)         Capital risk
management

 

The
Group’s objectives when managing capital are to safeguard the Group’s ability
to continue as a going concern in order to provide returns for shareholder and
to maintain an optimal capital structure to reduce the cost of capital.  In order to maintain or adjust the capital
structure, the Group may adjust the amount of dividends paid to shareholder,
return capital to shareholder, issue new shares or sell assets to reduce debt.

 

19

 

Promotora Minera de Guayana, S.A.

and its related Companies

Notes to the Condensed Combined Financial Statements

September 30, 2007 and December 31, 2006

Unaudited

 

Consistent
with others in the industry, the Group monitors capital on the basis of the
gearing ratio.  This ratio is calculated
as net debt divided by total capital. 
Net debt is calculated as total borrowings (including bank loans,
commercial paper and trade and other payables, as shown in the balance sheet)
less cash and cash equivalents.  Total
capital is calculated as equity, as shown in the balance sheet, plus net debt.

 

y)         Fair
value of financial instruments

 

The fair value of financial instruments traded in
active markets (such as trading and available-for-sale securities) is based on
quoted market prices at the balance sheet date. 
The quoted market price used for financial assets held by the Group is
the current bid price.  The fair value of
financial instruments that are not traded in an active market is determined by
using valuation techniques.

 

The carrying value of cash and cash equivalents and
trade and other receivables and payables approximates their fair value due to
the short-term maturities of these instruments. 
Since most of the Group’s loans, commercial paper and other financial
liabilities bear interest at variable market rates, management considers their
carrying amounts to approximate fair value.  The Group recognizes transactions with
financial instruments at their transaction date and adjusts them to their
respective fair value.

 

z)         Bank
loans

 

Bank loans are recognized initially at fair value, net
of transaction costs incurred.  Bank
loans are subsequently stated at amortized cost; any difference between the
proceeds (net of transaction costs) and the redemption value is recognized in
the statement of income over the period of the bank loans and commercial paper
using the effective interest method.

 

Bank loans are classified as current liabilities
unless the Group has an unconditional right to defer settlement of the
liability for at least 12 months after the balance sheet date.

 

aa)   Use of
Estimates

 

The preparation of financial statements in conformity
with Canadian generally accepted accounting principles requires the Group’s
management to make estimates and assumptions that affect the amounts reported
in these combined financial statements and accompanying notes. Significant
areas of estimate relate to the reserve estimates, recoverability of mineral
properties and related deferred exploration and evaluation costs,
determinations as to whether costs are expensed or deferred, future site
restoration costs, and provision for income tax.  Actual results could differ from those
estimates.  By their nature, these
estimates are subject to measurement uncertainty, and the impact on the financial
statements of future changes in such estimates could be material.

 

20

 

Promotora
Minera de Guayana, S.A.  

and its related Companies

Notes to the Condensed Combined Financial Statements 

September 30, 2007 and December 31, 2006

Unaudited

 

3.                                      Trade and Other Receivables

 

Trade and other receivables at September 30, 2007
and December 31, 2006 comprise the following:

 

	
  (Thousands of U.S. dollars)

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Value added tax (VAT) (Note
  10)

  	
   

  	
  3,717

  	
   

  	
  5,264

  	
   

  
	
  Advance to Suppliers

  	
   

  	
  1,955

  	
   

  	
  1,306

  	
   

  
	
  Trade receivables

  	
   

  	
  —

  	
   

  	
  13

  	
   

  
	
  Executives and employees

  	
   

  	
  —

  	
   

  	
  4

  	
   

  
	
  Other

  	
   

  	
  85

  	
   

  	
  76

  	
   

  
	
   

  	
   

  	
  5,757

  	
   

  	
  6,663

  	
   

  

 

At September 30, 2007 and December 31, 2006,
there are no differences between the carrying amounts of trade and other
receivables and their fair values.

 

4.                                      Inventories

 

Inventories at September 30,
2007 and December 31, 2006 comprise
the following:

 

	
  (Thousands of U.S. dollars)

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Gold ingots

  	
   

  	
  467

  	
   

  	
  —

  	
   

  
	
  Gold in process

  	
   

  	
  1,824

  	
   

  	
  1,054

  	
   

  
	
  Gold sand

  	
   

  	
  1,890

  	
   

  	
  1,630

  	
   

  
	
  Materials in transit

  	
   

  	
  —

  	
   

  	
  79

  	
   

  
	
  Materials, spare parts and
  supplies

  	
   

  	
  2,395

  	
   

  	
  2,754

  	
   

  
	
   

  	
   

  	
  6,576

  	
   

  	
  5,517

  	
   

  
	
  Provision for shortfalls in
  store inventories

  	
   

  	
  (96

  	
  )

  	
  (53

  	
  )

  
	
   

  	
   

  	
  6,480

  	
   

  	
  5,464

  	
   

  

 

5.                                      Prepaid Expenses

 

Prepaid expenses at September 30, 2007
and December 31, 2006 comprise the following:

 

	
  (Thousands of U.S. dollars)

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Prepaid income tax (Note 10)

  	
   

  	
  727

  	
   

  	
  —

  	
   

  
	
  Prepaid insure

  	
   

  	
  1,054

  	
   

  	
  397

  	
   

  
	
   

  	
   

  	
  1,781

  	
   

  	
  397

  	
   

  

 

21

 

Promotora
Minera de Guayana, S.A.  

and its related Companies

Notes to the Condensed Combined Financial Statements 

September 30, 2007 and December 31, 2006

Unaudited

 

6.                                      Property, Plant and Equipment

 

Property, plant and equipment at September 30,
2007, and December 31, 2006 comprise the following:

 

	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Other

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Land and

  	
   

  	
  Plant and

  	
   

  	
  Environmental

  	
   

  	
   

  	
   

  	
  Assets under

  	
   

  	
  Exploration and

  	
   

  	
  mineral

  	
   

  	
   

  	
   

  
	
  (Thousands of U.S. dollars)

  	
   

  	
  buildings

  	
   

  	
  equipment

  	
   

  	
  rehabilitation

  	
   

  	
  Vehicles

  	
   

  	
  construction

  	
   

  	
  evaluation

  	
   

  	
  Assets

  	
   

  	
  Total

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2007

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cost

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  At the beginning of the financial year

  	
   

  	
  485

  	
   

  	
  20,880

  	
   

  	
  1,324

  	
   

  	
  469

  	
   

  	
  1,280

  	
   

  	
  16,745

  	
   

  	
  3,009

  	
   

  	
  44,192

  	
   

  
	
  Additions

  	
   

  	
  (14

  	
  )

  	
  1,333

  	
   

  	
  279

  	
   

  	
  145

  	
   

  	
  663

  	
   

  	
  4,998

  	
   

  	
  —

  	
   

  	
  7,404

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Retired

  	
   

  	
  —

  	
   

  	
  (35

  	
  )

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  (35

  	
  )

  
	
  At the end of the financial year

  	
   

  	
  471

  	
   

  	
  22,178

  	
   

  	
  1,603

  	
   

  	
  614

  	
   

  	
  1,943

  	
   

  	
  21,743

  	
   

  	
  3,009

  	
   

  	
  51,561

  	
   

  
	
  Accumulated depreciation

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  At the beginning of the financial year

  	
   

  	
  (57

  	
  )

  	
  (4,294

  	
  )

  	
  (76

  	
  )

  	
  (210

  	
  )

  	
  —

  	
   

  	
  (1,294

  	
  )

  	
  —

  	
   

  	
  (5,931

  	
  )

  
	
  Depreciation expense

  	
   

  	
  (27

  	
  )

  	
  (1,201

  	
  )

  	
  (23

  	
  )

  	
  (102

  	
  )

  	
  —

  	
   

  	
  4

  	
   

  	
  —

  	
   

  	
  (1,349

  	
  )

  
	
  At the end of the financial year

  	
   

  	
  (84

  	
  )

  	
  (5,495

  	
  )

  	
  (99

  	
  )

  	
  (312

  	
  )

  	
  —

  	
   

  	
  (1,290

  	
  )

  	
  —

  	
   

  	
  (7,280

  	
  )

  
	
  Net book value at September30,
  2007

  	
   

  	
  387

  	
   

  	
  16,683

  	
   

  	
  1,504

  	
   

  	
  302

  	
   

  	
  1,943

  	
   

  	
  20,453

  	
   

  	
  3,009

  	
   

  	
  44,281

  	
   

  
	
  2006

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cost

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  At the beginning of the financial year

  	
   

  	
  486

  	
   

  	
  26,877

  	
   

  	
  —

  	
   

  	
  421

  	
   

  	
  54

  	
   

  	
  17,162

  	
   

  	
  4,513

  	
   

  	
  49,513

  	
   

  
	
  Additions

  	
   

  	
  37

  	
   

  	
  1,571

  	
   

  	
  1,910

  	
   

  	
  166

  	
   

  	
  1,832

  	
   

  	
  7,185

  	
   

  	
  —

  	
   

  	
  12,701

  	
   

  
	
  At the end of the financial year

  	
   

  	
  523

  	
   

  	
  28,448

  	
   

  	
  1,910

  	
   

  	
  587

  	
   

  	
  1,886

  	
   

  	
  24,347

  	
   

  	
  4,513

  	
   

  	
  62,214

  	
   

  
	
  Accumulated depreciation

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  At the beginning of the financial year

  	
   

  	
  (16

  	
  )

  	
  (1,463

  	
  )

  	
  —

  	
   

  	
  (100

  	
  )

  	
  —

  	
   

  	
  (1,119

  	
  )

  	
  —

  	
   

  	
  (2,698

  	
  )

  
	
  Depreciation expense

  	
   

  	
  (41

  	
  )

  	
  (2,843

  	
  )

  	
  (76

  	
  )

  	
  (126

  	
  )

  	
  —

  	
   

  	
  (175

  	
  )

  	
  —

  	
   

  	
  (3,261

  	
  )

  
	
  At the end of the financial year

  	
   

  	
  (57

  	
  )

  	
  (4,306

  	
  )

  	
  (76

  	
  )

  	
  (226

  	
  )

  	
  —

  	
   

  	
  (1,294

  	
  )

  	
  —

  	
   

  	
  (5,959

  	
  )

  
	
  Net book value at
  December 30, 2006

  	
   

  	
  466

  	
   

  	
  24,142

  	
   

  	
  1,834

  	
   

  	
  361

  	
   

  	
  1,886

  	
   

  	
  23,053

  	
   

  	
  4,513

  	
   

  	
  56,255

  	
   

  

 

22

 

Promotora
Minera de Guayana, S.A.  

and its related Companies

Notes to the Condensed Combined Financial Statements 

September 30, 2007 and December 31, 2006

Unaudited

 

7.                                      Trade and
Other Payables

 

Trade and other payables at September 30,
2007 and December 31, 2006 comprise the following:

 

	
  (Thousands of U.S. dollars)

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Trade payables

  	
   

  	
  2,946

  	
   

  	
  2,039

  	
   

  
	
  Advance from customer

  	
   

  	
  840

  	
   

  	
  —

  	
   

  
	
  Payable to related parties
  (Note 13)

  	
   

  	
  113,576

  	
   

  	
  107,384

  	
   

  
	
   

  	
   

  	
  117,362

  	
   

  	
  109,423

  	
   

  

 

8.                                      Provisions
for other liabilities and charges

 

Provisions for other liabilities and charges
at September 30, 2007 and December 31, 2006 comprise the following:

 

	
  (Thousands of U.S. dollars)

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Current

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Services (Public and
  contracted)

  	
   

  	
  2,537

  	
   

  	
  1,619

  	
   

  
	
  Accrual for employee benefits

  	
   

  	
  1,082

  	
   

  	
  630

  	
   

  
	
  Other

  	
   

  	
  2,474

  	
   

  	
  1,620

  	
   

  
	
   

  	
   

  	
  6,093

  	
   

  	
  3,869

  	
   

  

 

9.                                      Bank
loans

 

Borrowings at September 30, 2007
comprise the following:

 

	
  (Thousands of U.S. dollars)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Current

  	
   

  	
   

  	
   

  
	
  Venezuela Bank

  	
   

  	
  699

  	
   

  
	
  Total borrowings

  	
   

  	
  699

  	
   

  

 

Bank borrowings mature
until October and bear average coupons of 14% annually.

 

Interest expense for the year of US$45 is shown in the
statement of income under Interest expense.

 

23

 

Promotora
Minera de Guayana, S.A.  

and its related Companies

Notes to the Condensed Combined Financial Statements 

September 30, 2007 and December 31, 2006

Unaudited

 

10.                               Income
Tax and Future Income Tax

 

Income tax expense comprises the following:

 

	
   

  	
   

  	
  For the nine month

  period ended,

  
	
   

  	
   

  	
  September 30,

  	
   

  
	
  (Thousands of U.S. dollars)

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Combined

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Current income tax expense

  	
   

  	
  (303

  	
  )

  	
  (1,170

  	
  )

  
	
  Future income tax expense

  	
   

  	
  2,515

  	
   

  	
  (2,556

  	
  )

  
	
   

  	
   

  	
  2,212

  	
   

  	
  (3,726

  	
  )

  

 

a) Income tax

 

The Group’s tax year ends on December 31.  The applicable statutory tax rate is 34% in
Venezuela.

 

Income tax expense is
recognized based on Group’s best estimate of the weighted average annual income
tax rate expected for the full financial year. The Group estimated a tax
expense, based on the 2007 profit of US$404,000. The estimated average annual
tax rate for 2007 applied to the Group ́s loss before tax at September 30,
2007, obtained a tax benefits. The tax benefit does not reflect the tax expense
estimated at December 31, 2007, and the management decided to allocate the
tax expense estimated at December 31, 2007 on a prorrata basis over the
nine months at September 30, 2007 of US$303,000. For the nine month period
ended September 30, 2006, the estimated average annual tax rate used was
0,1% and the Group recognize a tax expense of 
US$1,170,000.

 

At September 30, 2007, the Group has
prepaid taxes of US$727,000 which have been reduced from income tax payable at
that date.

 

The future income tax is mainly originated by P.M.G.,
all other related companies are not producing enough income which could allow
the recognition of any future tax asset.

 

The following details the composition of the
Group’s net future tax asset and liability recognized in the balance sheet and
the future tax expense charges/(credited) to the income statement:

 

	
   

  	
   

  	
  Future tax assets

  	
   

  
	
  (Thousands of U.S. dollars)

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Difference on tax based of
  property, plant and equipment

  	
   

  	
  4,450

  	
   

  	
  4,526

  	
   

  
	
  Provision restoration and
  rehabilitation

  	
   

  	
  219

  	
   

  	
  171

  	
   

  
	
  Other provisions

  	
   

  	
  291

  	
   

  	
  580

  	
   

  
	
  Deduction of interests based
  on payment made

  	
   

  	
  1,246

  	
   

  	
  709

  	
   

  
	
  Total Group

  	
   

  	
  6,206

  	
   

  	
  5,896

  	
   

  

 

24

 

Promotora
Minera de Guayana, S.A.  

and its related Companies

Notes to the Condensed Combined Financial Statements 

September 30, 2007 and December 31, 2006

Unaudited

 

b) Bank debit tax

 

During 2005 the Bank Debit Tax Law was in effect.  This tax was levied upon debits or
withdrawals made from current and savings accounts, custody deposits, or any
other type of demand deposit, liquid asset funds, trust funds and other
financial market funds or financial instruments transacted by individuals or
corporations with Venezuelan banks and other financial institutions.  The applicable tax rate is 0.50%.  At September 30, 2006, the Group
incurred bank debit tax expense of US$16,169,37, included in the statement of
income under Administrative expenses.

 

A law repealing the
Bank Debit Tax Law, enacted on December 1, 2005, was published in the
Official Gazette on February 8, 2006.

 

c) Value added tax

 

In May 1999 the Venezuelan government enacted the
Value Added Tax (VAT) Law.  This tax is
based on a tax credit system; it is payable based on the value added at each
stage of production or sales.  During the
year ended December 31, 2005, the applicable tax rate was 15%.  In September 2005 the applicable tax
rate was further reduced to 14%, effective October 1, 2005.  In March 1st 2007 the
applicable charged was reduce once again to 11% and July 1st,
2007 the rate was reduced again to 9%. Since then the rate has remained
unchanged.

 

As of January 2003, in accordance with an
Administrative Resolution issued by the Tax Authorities, the Group is required
to withhold a portion of the value added tax resulting from Group purchases for
payment to the Tax Authorities bimonthly. 
At September 30, 2007 and December 31, 2006, the Company has
recognized a net VAT debits and credits for sales and purchases for US$3,717
million (US$5,264 million at December 31, 2006).  The law provides for a special tax rate (0%)
for exporters, granting them the right to recover tax credits from the purchase
or import of goods and services based on the ratio of export sales to total
sales.  The Company is in the process of
recovering VAT through this special rate for exporters based on export sales
made during the preoperation phase, as well as exports sales made after the
start of operations.

 

d) Transfer pricing

 

The
Income Tax Reform Law published in October 1999 introduced substantial
amendments to the Venezuelan income tax system, such as the replacement of
territorial income taxation by worldwide taxation, the introduction of transfer
pricing and international fiscal transparency regulations, and a proportional
tax on dividends.  This reform took effect upon publication for
fiscal years beginning as from that date, including transfer pricing.  Worldwide taxation, international fiscal
transparency regulations and the proportional tax on dividends took effect as
from January 2001.

 

According to transfer-pricing regulations, taxpayers
that conduct transactions with related parties abroad are required to calculate
income, costs and deductions applying the methodology set out in the Law.  The
Group conducts transactions with related parties abroad.  At September 30, 2007, Group management considers
that transactions with related parties abroad had no significant effect on
taxable income for the nine month period ended September 30, 2007 and
2006.

 

25

 

Promotora
Minera de Guayana, S.A.  

and its related Companies

Notes to the Condensed Combined Financial Statements 

September 30, 2007 and December 31, 2006

Unaudited

 

11.                     Expenses
by Category

 

Expenses by category comprises of the
following:

 

	
   

  	
   

  	
   

  	
  For the nine month

  period ended

  	
   

  
	
   

  	
   

  	
   

  	
  September 30,

  	
   

  
	
   

  	
  (Thousands of U.S. dollars)

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Reactive and energetic

  	
   

  	
  (865

  	
  )

  	
  (2,185

  	
  )

  
	
   

  	
  Maintenance

  	
   

  	
  (1,285

  	
  )

  	
  (1,614

  	
  )

  
	
   

  	
  Employed

  	
   

  	
  (5,699

  	
  )

  	
  (5,263

  	
  )

  
	
   

  	
  Drilling

  	
   

  	
  (894

  	
  )

  	
  (924

  	
  )

  
	
   

  	
  Depreciation and amortization

  	
   

  	
  (1,598

  	
  )

  	
  (10,489

  	
  )

  
	
   

  	
  Product Supply

  	
   

  	
  (871

  	
  )

  	
  (426

  	
  )

  
	
   

  	
  Power Electric

  	
   

  	
  (317

  	
  )

  	
  (461

  	
  )

  
	
   

  	
  Rent

  	
   

  	
  (2,188

  	
  )

  	
  (651

  	
  )

  
	
   

  	
  Contract Service

  	
   

  	
  (1,709

  	
  )

  	
  (1,460

  	
  )

  
	
   

  	
  Inventory change

  	
   

  	
  3,127

  	
   

  	
  1,314

  	
   

  
	
   

  	
  Professional Fees

  	
   

  	
  (3,446

  	
  )

  	
  (1,711

  	
  )

  
	
   

  	
  Environment rehabilitation

  	
   

  	
  (207

  	
  )

  	
  (166

  	
  )

  
	
   

  	
  Insurance

  	
   

  	
  (145

  	
  )

  	
  (130

  	
  )

  
	
   

  	
  Social Investment

  	
   

  	
  (329

  	
  )

  	
  (377

  	
  )

  
	
   

  	
  Feasibility and development
  cost

  	
   

  	
  —

  	
   

  	
  (715

  	
  )

  
	
   

  	
  Allowance for intercompany
  receivables

  	
   

  	
  —

  	
   

  	
  (11,979

  	
  )

  
	
   

  	
  Other expenses

  	
   

  	
  (4,434

  	
  )

  	
  (1,993

  	
  )

  
	
   

  	
  Total expenses

  	
   

  	
  (20,860

  	
  )

  	
  (39,230

  	
  )

  

 

12.                     Share
Capital

 

At September 30, 2007 and December 31, 2006,
the Group’s share capital of US$26,532 fully paid.

 

Share capital comprises the following:

 

	
   

  	
   

  	
   

  	
  Common

  	
   

  	
   

  	
   

  
	
   

  	
  (Thousands of U.S. dollars)

  	
   

  	
  Shares

  	
   

  	
  Number of shares

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  (In thousands)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  At December 31, 2006

  	
   

  	
  27

  	
   

  	
  4

  	
   

  
	
   

  	
  At December 31, 2006

  	
   

  	
  27

  	
   

  	
  4

  	
   

  

 

The share capital as of September 30th 2007 and December 31st
2006 is described as follows:

 

26

 

Promotora
Minera de Guayana, S.A.  

and its related Companies

Notes to the Condensed Combined Financial Statements 

September 30, 2007 and December 31, 2006

Unaudited

 

	
   

  	
  Company

  	
   

  	
  N°

  shares

  	
   

  	
  Value per

  share

  	
   

  	
  Total

  capital

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  (in dollars)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Carisma
  Corporación A.V.V.

  	
   

  	
  1,000

  	
   

  	
  1

  	
   

  	
  1

  	
   

  
	
   

  	
  Vincenza
  Corporation A.V.V.

  	
   

  	
  1,000

  	
   

  	
  1

  	
   

  	
  1

  	
   

  
	
   

  	
  Right Angle Corporation A.V.V.

  	
   

  	
  1,000

  	
   

  	
  1

  	
   

  	
  1

  	
   

  
	
   

  	
  El Callao Holding A.V.V.

  	
   

  	
  1,000

  	
   

  	
  1

  	
   

  	
  1

  	
   

  
	
   

  	
  Internacional Gold and Silver
  B.V.

  	
   

  	
  180

  	
   

  	
  125,18

  	
   

  	
  23

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  27

  	
   

  

 

In an extraordinary
Shareholder’s Meeting of PMG dated January 15, 1991, PMG’s capital stock
was increased in 6,200 nominal common shares, with par value of Bs 1.000, each,
partially subscribed and paid, as follows:

 

·                  C.V.G.  Ferrominera Orinoco, C.A. (“FMO”) subscribed 2,010
nominal common shares, which were paid by contributing existing geological
surveys on the mining concessions of Bochinche 1 and Bochinche 2, valued in Bs
2,010,000 (in nominal bolivars).

 

·                  PROMIVEN subscribed
4,190 nominal shares, for which it paid Bs 838,000 in cash and committed to pay
the remaining Bs 3,352,000 (in nominal bolivars.)

 

A extraordinary Shareholder’s
Meeting of PMG was held on November 18, 2004, whereby the PMG’s capital
stock was increased in 1,000,000 shares with a par value of Bs 1,000 each.  This capital stock increase was fully
subscribed and paid up by PROMIVEN, by the capitalization of debts.  In addition, PROMIVEN, in its capacity as
shareholder, paid Bs 3,352,000 of the unpaid capital stock.

 

FMO acting as the minority interest of PMG filed a
request of annulment of the Shareholders’ meeting previously mentioned.  During this meeting FMO’s interest was
diluted from 30% to 0.2%.  In November 2005
PROMIVEN and FMO reached a preliminary agreement to increase FMO’s interest
from 0.2% to 5%; due to this preliminary agreement PROMIVEN agreed to pay US$6
million, to date PROMIVEN has paid to Ferrominera US$5 million and the
remaining balance is presented under accounts payable.  As per Group’s management and its external
legal counsel, the parties have made an arrangement to resolve this situation
and currently are in the final stage of the negotiation process

 

27

 

Promotora
Minera de Guayana, S.A.  

and its related Companies

Notes to the Condensed Combined Financial Statements 

September 30, 2007 and December 31, 2006

Unaudited

 

13.                     Balances
and Transactions with the Shareholder and Related Companies

 

Balances at September 30,
2007 and December 31, 2006 with related companies comprised the following:

 

	
   

  	
  (In thousands of US dollars)

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Accounts payable to related
  companies

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Shareholders

  	
   

  	
  112,387

  	
   

  	
  106,384

  	
   

  
	
   

  	
  C.V.G.
  Ferrominera del Orinoco, C.A.

  	
   

  	
  1,000

  	
   

  	
  1,000

  	
   

  
	
   

  	
  Other

  	
   

  	
  189

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
  113,576

  	
   

  	
  107,384

  	
   

  

 

Accounts Payable to
Shareholder relates to payment to finance the construction of the plant;
investment on machinery, equipment and vehicles; capital projects, working
capital, as well as other costs incurred during the pre-operation stage of the
Group. The balances with related companies do not have fixed maturity dates and
do not earn interest.

 

In August 2003, Bolívar
Gold Corp. and PMG entered into a technical assistance agreement whereby
Bolívar Gold Corp will provide financial services, legal services, consulting
regarding exploration opportunities in Venezuela and Latin America, recruiting,
tax planning, environmental consulting among other services.  As part of the agreement PMG will compensate
Bolívar Gold Corp for the services received based on a fixed rated per hour in
US$ as the services are rendered.  In
addition the Company will reimburse Bolívar Gold Corp for the travel expenses,
accommodation and other expenses incurred by the personnel venders and
contractors in connection with the technical assistance provided to the
Company.  During 2005, the Company
recorded transactions for Bs 10,763 (US$5,006,000) associated with this
agreement which were capitalized as part of feasibility and development costs.

 

GoldFields Mining Services,
the parent of the Group, charged fees relating to software licenses, corporate
insurance, administrative expenses, travel expenses incurred by corporate
personnel assigned to the Company, and other overhead costs paid by Goldfields
mining services on behalf of the Group.

 

Bolivar Gold Corp., charged
fees relating to the acquisition of the plant, as well as other costs incurred
to transport and install the plant that was paid by Bolivar Gold Corp on behalf
of the Group.

 

Details are as follows:

 

	
   

  	
  (In thousands of US dollars)

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Operating Costs and Expenses

  	
   

  	
  1,813

  	
   

  	
  566

  	
   

  

 

28

 

Promotora
Minera de Guayana, S.A.  

and its related Companies

Notes to the Condensed Combined Financial Statements 

September 30, 2007 and December 31, 2006

Unaudited

 

14.                     Exchange
Control Regime

 

On January 21, 2003, the Venezuelan government announced the
closure of the foreign exchange market in Venezuela and, on February 5,
2003, the Ministry of Finance and the Central Bank of Venezuela (BCV) began to
publish the legal instruments regulating the exchange control regime, one of
which established initial official exchange rates of Bs 1,596/US$1 (purchase)
and Bs 1,600/US$1 (sale).  On that same
date, the government created the Commission for the Administration of Foreign
Currency (CADIVI) with the task of establishing the detailed rules and
regulations and generally administering the exchange control regime.

 

Among other things, one of these legal instruments requires the sale of
all incoming currency to BCV and temporarily suspends all purchases and sales
in local currency of securities issued by the Venezuelan government in foreign
currency.  BCV now centralizes all
currency purchases and sales in the country.

 

CADIVI has subsequently issued resolutions on
a number of requirements in connection with the administration of the exchange
control regime, such as user registration, guidelines for importers and
exporters, and the registration of private-sector foreign debt at January 22,
2003.

 

On February 9, 2004, the Ministry of
Finance and BCV established new official exchange rates, as from that date, of
Bs 1,915.20/US$1 (purchase) and Bs 1,920/US$1 (sale).  On March 2, 2005, the Ministry of Finance and BCV further
modified the exchange rates, as from that date, to Bs 2,144.60/US$1 (purchase) and
Bs 2,150/US$1 (sale).

 

As from the effective date of the exchange control
regime to date, the Group has filed applications with CADIVI to obtain currency
at the official exchange rate to pay for purchases of imported
inventories.  These applications have
been approved.

 

In October 2005 the Venezuelan
government enacted the Currency Exchange Offenses Law.   Accordingly, any demand, offer, purchase or
sale of U.S. dollars failing to comply with CADIVI requirements is considered
illegal.  Similarly, transactions
exceeding US$10,000 should be declared to CADIVI.  In addition, exporters of goods and services
are required to sell their income from business transactions in foreign
currency to BCV.  Transactions with
securities, as well as Government Bonds denominated in U.S. dollars and issued
in local currency are exempt.  Therefore, all individuals failing to comply
with the aforementioned Law will be subject to fines of two to three times the
amount of the transaction, reimbursement of foreign currency and imprisonment
terms from two to seven years.

 

29

 

Promotora
Minera de Guayana, S.A.  

and its related Companies

Notes to the Condensed Combined Financial Statements 

September 30, 2007 and December 31, 2006

Unaudited

 

15.                     Contingencies

 

Except contingencies as
disclosed elsewhere in these financial statements:

 

In the normal course of business, the Group is a party
to various legal proceedings, mainly labor-related, whose final outcome cannot
be quantified to date.  Group management
is of the opinion that these claims are not well grounded in law and that the
outcome of appeals filed or to be filed will be favorable to the Group.  At September 30, 2007 and December 31,
2006 management considers not necessary creating a provision to cover possible
risks or losses.

 

In July 2005 the PMG
and IGS entered into a Gold Supply Agreement whereby the Company commits to
sell all of the annual gold produced in the Plant.  In return, IGS will either compensate the
Company for the gold delivered in bolivars or U.S. dollars, or will decrease
the account receivable from the PMG as in payment in kind.  Both the PMG and IGS agreed that the PMG’s
obligation to sell all of the annual production will be subject to any rule or
legislation applicable in Bolivarian Republic of Venezuela that restricts the
sell of gold.  Annual Gold production
from the Callao Plant is estimated at 200,000 ounces.  In this regard, PMG submitted a request of
Information Letter to CADIVI” to obtain approval over validity of this
agreement (Note 14).

 

16.                     Commitments

 

At September 30, 2007 the Group has identified no
significant commitments.

 

17.                     New
Regulations

 

The
Housing Loan Law, effective May 2005, modified the calculation of
contributions to be made by employees and employers to the Mandatory Housing
Savings Fund from 3% of the employee’s monthly base salary to 3% of the
employee’s total monthly remuneration.

 

The
Occupational Hazard and Injury Prevention and Employment and Workplace Safety
and Health Law became effective in December 2005.  This Law establishes new employer
contribution percentages at between 0.75% and 10% of each employee’s
salary.  This percentage is determined by
the type and degree of risk classification for each Group.  The type and degree of risk will be based on
a Regulation which classifies activities according to the degree of danger to
which they expose employees.  However, at
the issue date of this report, this Regulation has not been issued.  The Law for the
Advancement of Science, Technology and Innovation was enacted in August 2005.
This Law establishes that, beginning January 1, 2006, the country’s large
companies will annually earmark 0.5% of gross income generated in Venezuela
from activities which, according to this Law, relate to investments in science,
technology and innovation.  This Law
defines large companies as those companies with annual gross income over
100,000 tax units (T.U.).  Regulations
for this Law were issued in October 2006.

 

The Employee Benefit Law became effective on September 27,
2005.  This Law modified the amount of
the calculation base for employer and employee contributions to a maximum of 10
minimum urban salaries, representing a 100% increase of the former limit.

 

30

 

Promotora
Minera de Guayana, S.A.  

and its related Companies

Notes to the Condensed Combined Financial Statements 

September 30, 2007 and December 31, 2006

Unaudited

 

The
Law on Narcotic and Psychotropic Substances was published in Official Gazette No. 
38,287 on December 16, 2005.  This
Law repeals the previous law of September 30, 1993 and requires all
companies, public or private, with 50 or more employees to earmark 1% of their
annual net income for social programs for the prevention of illegal drug
consumption and traffic, 0.5% of which will be set aside for child welfare
protection programs.  However, at the
issue date of the financial statements at September 30, 2007, the
collection agency for this contribution has not been created.

 

A
partial reform of the Venezuelan Labor Law was published in Official Gazette No. 38,426
on April 28, 2006.  According to
this reform, payment of vacation leave and vacation bonus must be calculated
using the base salary earned by employees for the month preceding the actual
leave.  Moreover, when an employee is
voluntarily or involuntarily terminated, without having taken vacation, payments
must be made based on the employee’s last salary.  This reform also requires employers to
provide day care services for employees whose monthly salary does not exceed
five minimum wages until their children reach the age of five.  If the employer does not provide this
benefit, payment of day care expenses must be provided plus interest accrued at
the lending rate agreed upon by the six
main commercial and universal banks in the country, published by the
Central Bank of Venezuela (BCV).  Only
employers with labor solvency certification are entitled to enter into
agreements and contracts with government entities and companies.

 

At September 30,
2007, Group management is assessing the effects, if any, of the aforementioned
laws on the financial statements and is awaiting issuance of related
Regulations and the creation of the collection agency to conclude its
assessment.  However, at December 31,
2006, the Group has set aside certain provisions to cover payments arising from
any of these laws.

 

18.                     Compliance
with Environmental Regulations

 

The Company is subject to
environmental laws and regulations, which requires disbursements to improve its
facilities and avoid or correct environmental impacts that result from
exploitation and exploration activities conducted in the concessions, which
comprise Chocó 4 and Chocó 10.

 

In 1995, the Company started
the process to obtain environmental permits, including the Authorizations to
Occupy Territory for the aforementioned parcels.  The Company obtained these permits for a 20
years period from the Issue date of the “Exploitation Certificate” in 2005 for
both concessions.

 

Subsequent to obtaining the
permit discussed above, the Company requested the Authorization to Affect
Natural Resources (AARN) in exploration stage, from 1999, and for the
exploitation stage from 2004.  Both types
of permits were obtained in the years referred to and have been renewed on an
annual basis, as required by environmental statutory regulations.

 

In connection with its
commitment to restore and rehabilitate the areas impacted by mining activities,
the Company submitted during 2006 the Reforestation Plan as a “Compensatory
Measure to the Affectation of Resources” due to Exploration, Construction of
facilities and Exploitation of Chocó 4

 

31

 

Promotora
Minera de Guayana, S.A.  

and its related Companies

Notes to the Condensed Combined Financial Statements 

September 30, 2007 and December 31, 2006

Unaudited

 

and Chocó 10 Mining
Projects.  This reforestation plan
contemplates the restoration and rehabilitation of 34 hectares during the first
4 years of Company’s operations, at an estimated cost of US$4,7 million.  The plan will be updated with the progress of
the Project and will incorporate new areas to be restored and
rehabilitated.  A provision of US$4,8
million was recognized as of September 30, 2007 (US$3,9 million as of December 31,
2006) associated with the restoration process of the areas affected by mining
activities.  This provision is measured
at the net present value of the future estimated cash flows associated with the
restoration process (Note 2-t).

 

Other legal commitments such
as “Effluent Monitoring Programs”, “Air Quality and Emissions” the “Environmental
Supervision Program”, and compliance with special conditions and limitations of
the environmental permits so obtained are performed in accordance with previous
plans designed in agreement with the Environmental Statutory Regulations.

 

As per the current Mining
Law and its Regulations, all the equipment and facilities related to the
exploitation are to be transferred to the Republic of Venezuela upon
termination of these concessions management deems the obligation to dismantle
the plant on this basis.

 

19.                     Regulations
related to Concessions and Mining Contracts

 

The
objective of the mining Law as indicated in Article No 1, is to regulate
matters regarding mines and existing ores within national territory, regardless
of its source or presentation, including exploration and exploitation activities
as well as the benefit, storage, maintenance, circulation, transportation and
trading, internal or external, of the resources extracted, without prejudice to
that which is established in the rest of the laws in effect in the country.  Article No. 90 indicate that owners
of mining concessions must pay a superficial tax per hectare of area granted,
starting on the fourth year of the concession right; it also establishes
payment of the exploitation tax that will accrue as of ore is extracted.  Once the exploitation of the concession
begins, the exploitation tax is to be reduced from the superficial tax, for the
same period, until it meets the first. 
During the nine month period ended 31 September 30, 2007 and 2006,
the Group recognized and paid exploitation tax of US$333,000 million and
US$813,936 million, respectively.  On March 2001,
the Venezuelan Mining Law Regulations were enacted.

 

The
Mining Law, published in the official gazette No. 36,687, and that
currently regulates exploration and exploitation activities of ore resources in
the country, is in process of review and amendment by the National Assembly’s
Permanent Committee for matters Related to Mines and Energy.  The outcome of this review cannot be
determined as of this date.

 

20.                     Regulations
related to Exports of Gold and its Alloys

 

The BCV published in the
Official Gazette N°36.124 dated January 13, 1997, the rules to
regulate Gold exports and its alloy, both in coins or in bars, melted or
refined, manufactured or otherwise. 
These rules set forth that such parties interested in carrying out
exports operations are to be registered with the National Gold Exporters
Registration; these exports must be authorized by the BCV and 15% of Gold
production is to be destined to sales within the local market.

 

32

 

Promotora
Minera de Guayana, S.A.  

and its related Companies

Notes to the Condensed Combined Financial Statements 

September 30, 2007 and December 31, 2006

Unaudited

 

21.                     Subsequent
Events

 

·               In March 2007,
the Venezuelan government established that, as from January 1, 2008, the
unit of the Venezuelan monetary system (Venezuelan bolivar) will be
redenominated at a conversion rate of one-thousand current bolivars to one new
bolivar (“bolivar fuerte” or BsF). 
Therefore, any amount expressed in local currency before January 1,
2008 will be converted to the new unit (“bolivar fuerte”) on that date by
dividing it by one-thousand and rounding it to the nearest cent.   The Central Bank of Venezuela (BCV) drew up
an activity schedule to be complied with by financial institutions and
companies in general.  In addition, by January 1,
2008, banks and companies in general, both public and private, shall have
adapted their information systems to accommodate to the new monetary unit.

 

·               On October 3,
2007, the Venezuelan government enacted the Tax on Financial Transactions for
Corporations and Entities without Juridical Status.  This tax is levied upon debit or withdrawals
made from current and savings accounts, custody deposits or any other type of
demand deposits, liquid asset funds, trust funds and other financial market
funds or financial instruments transacted by corporations and entities without
juridical status with Venezuelan banks and other financial institutions.  Entities qualified as special obligors and
debt payments made without the mediation of the financial system are also
subject to this tax.  The tax rate was
set at 1.5% as from November 1, 2007.

 

·               On October 8,
2007, a lawsuit was filed by “Cooperativa de Molineros El Callao II R.L.” and
the “Asociación de Molinos Auríferos de El Callao (A.M.A.C.)” against PMG
claiming the payment of damages for eviction from the mine site in 2004, for
US$ 10,523,000.  The Court decreed a
preventive seizure for US$ 24,204,651 which was suspended until the Attorney
General has been duly notified. On October 15, 2007 the motion of
opposition to the seizure was filed, arguing that the requisites provided in
the law for a seizure have not been fulfilled. 
In our Lawyer’s opinion, it is more likely than not that the seizure
decreed against PMG will not be executed based on the arguments alleged in the
motion of opposition to the seizure.  In
any case, it is will be possible to post a bond to guarantee the results of the
lawsuit, should the motion to suspend go against the Group. However, our legal
team believes that this lawsuit will not succeed based on the lack of legal
fundamentals.

 

·               The “Association of
Displaced Miners of Coacia” has been requesting the payment of damages due to
the eviction from the mine site.  The
Group agreed with the Ministry of Basic Industries and Mining (MIBAM), to make
a unique payment for the amount of Bs 50.000.000 (US$10,000) to each member of
the association (a total of 111 people and a total of US$1,110,000).  The present agreement resulted in the
cancellation of all the agreements and pre-agreements that had been subscribed
between PMG and this Association.

 

·               On November 29,
2007 Rusoro Mining (BVI) Ltd. became the owner of the Group described
herewith.  Until that day the group was
part of Gold Fields Netherlands a subsidiary of Gold Fields Mining Ltd of South
Africa.

 

33

 

Promotora
Minera de Guayana, S.A.  

and its related Companies

Notes to the Condensed Combined Financial Statements 

September 30, 2007 and December 31, 2006

Unaudited

 

·               On July 6, 2008,
FMO formally abandoned, before the Venezuelan Courts, the nullity action
against the PMG shareholders meeting which diluted FMO’s equity stake in PMG
from 30% to 0.2%. On August 6, 2008 the Company paid US$1 million to FMO
to settle the dispute over FMO’s interest in PMG and to transfer, with the
acquiescence of FMO, a 5% indilutable share in PMG to CVG Minerven, C.A.

 

·               On December 9,
2008, PMG issued 8,600,000 class A common shares and 163,400,000 class B common
shares.  The percentages of equity stake remained unchanged, with CVG
Minerven, C.A. 5% and Promotora Minera de Venezuela C.A 95% common shares of
PMG.

 

·               On July 12,
2008, the Venezuelan Government eliminated the bank debit tax which was in
effect since October 3, 2007.   This tax was levied upon debits
or withdrawals made from current and savings accounts, custody deposits, or any
other type of demand deposit, liquid asset funds, trust funds and other
financial market funds or financial instruments transacted by individuals or
corporations with Venezuelan banks and other financial institutions.  The
applicable tax rate was 1.5%.

 

·               On July 6, 2008, FMO formally abandoned,
before the Venezuelan Courts, the nullity action against the PMG shareholders
meeting which diluted FMO’s equity stake in PMG from 30% to 0.2%. On August 6,
2008 the Company paid $1 million to FMO to settle the dispute over FMO’s
interest in PMG and to transfer, with the acquiescence of FMO, a 5% indilutable
share in PMG to CVG Minerven, C.A.

 

·               On December 9, 2008, PMG issued 8,600,000
class A common shares and 163,400,000 class B common shares.  The percentages of equity stake remained
unchanged, with CVG Minerven, C.A. 5% and Promotora Minera de Venezuela C.A 95%
common shares of PMG.

 

·               On July 12,
2008, the Venezuelan Government eliminated the bank debit tax which was in
effect since October 3, 2007.

 

34

 

Promotora Minera de Guayana, S.A. 

and its related Companies

Notes to the Condensed Combined Financial Statements 

September 30, 2007 and December 31, 2006

Unaudited

 

22.           Differences in generally accepted
accounting principles between Canada and the United States of America

 

A
reconciliation of the Company’s balance sheet determined in accordance with
Canadian GAAP to that determined under US GAAP is as follows:

 

September 30,
2007

(Thousands of US
dollars)

 

	
   

  	
   

  	
   

  	
  Canadian

  	
   

  	
  US GAAP

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  GAAP

  	
   

  	
  adjustments

  	
   

  	
  US GAAP

  	
   

  
	
   

  	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
  Assets

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Current assets

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Cash and cash equivalents

  	
   

  	
  808

  	
   

  	
  —

  	
   

  	
  808

  	
   

  
	
   

  	
  Trade and other receivables

  	
   

  	
  5,757

  	
   

  	
  —

  	
   

  	
  5,757

  	
   

  
	
   

  	
  Inventories

  	
   

  	
  6,480

  	
   

  	
  —

  	
   

  	
  6,480

  	
   

  
	
   

  	
  Prepaid expenses

  	
   

  	
  1,781

  	
   

  	
  —

  	
   

  	
  1,781

  	
   

  
	
   

  	
  Total current assets

  	
   

  	
  14,826

  	
   

  	
  —

  	
   

  	
  14,826

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Plant and equipment

  	
   

  	
  44,281

  	
  (a)

  	
  (10,765

  	
  )

  	
  31,715

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  (b)

  	
  (1,801

  	
  )

  	
   

  	
   

  
	
   

  	
  Future income tax assets

  	
   

  	
  6,206

  	
  (a),(b)

  	
  4,271

  	
   

  	
  10,477

  	
   

  
	
   

  	
  Other non-current assets

  	
   

  	
  44

  	
   

  	
  —

  	
   

  	
  44

  	
   

  
	
   

  	
  Total assets

  	
   

  	
  65,357

  	
   

  	
  (8,295

  	
  )

  	
  57,062

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Liabilities

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Current liabilities

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Trade payable and other
  payables

  	
   

  	
  117,362

  	
   

  	
  —

  	
   

  	
  117,362

  	
   

  
	
   

  	
  Provisions for other
  liabilities and charges

  	
   

  	
  6,093

  	
   

  	
  —

  	
   

  	
  6,093

  	
   

  
	
   

  	
  Bank loans

  	
   

  	
  699

  	
   

  	
  —

  	
   

  	
  699

  	
   

  
	
   

  	
  Current income tax liabilities

  	
   

  	
  258

  	
   

  	
  —

  	
   

  	
  258

  	
   

  
	
   

  	
  Other liabilities

  	
   

  	
  9,526

  	
   

  	
  —

  	
   

  	
  9,526

  	
   

  
	
   

  	
  Total current liabilities

  	
   

  	
  133,938

  	
   

  	
  —

  	
   

  	
  133,938

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Accrual for employee
  termination benefits

  	
   

  	
  467

  	
   

  	
  —

  	
   

  	
  467

  	
   

  
	
   

  	
  Provision for restoration and
  rehabilitation liabilities 

  	
   

  	
  4,818 

  	
   

  	
  — 

  	
   

  	
  4,818 

  	
   

  
	
   

  	
  Total liabilities

  	
   

  	
  139,223

  	
   

  	
  —

  	
   

  	
  139,223

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Shareholders’ equity

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Share capital

  	
   

  	
  27

  	
   

  	
  —

  	
   

  	
  27

  	
   

  
	
   

  	
  Contributed surplus

  	
   

  	
  8,697

  	
   

  	
  —

  	
   

  	
  8,697

  	
   

  
	
   

  	
  Cumulative translation
  adjustment

  	
   

  	
  48,477

  	
  (c)

  	
  (48,477

  	
  )

  	
  —

  	
   

  
	
   

  	
  Legal reserve

  	
   

  	
  160

  	
   

  	
  —

  	
   

  	
  160

  	
   

  
	
   

  	
  Accumulated other
  comprehensive income

  	
   

  	
  —

  	
  (a),(b),(c)

  	
  53,956

  	
   

  	
  53,956

  	
   

  
	
   

  	
  Accumulated loss

  	
   

  	
  (131,227

  	
  )(a)

  	
  (11,623

  	
  )

  	
  (145,001

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
  (b)

  	
  (2,151

  	
  )

  	
   

  	
   

  
	
   

  	
  Total shareholders’ equity

  	
   

  	
  (73,866

  	
  )

  	
  (8,295

  	
  )

  	
  (82,161

  	
  )

  
	
   

  	
  Total liabilities and
  shareholders’ equity

  	
   

  	
  65,357

  	
   

  	
  (8,295

  	
  )

  	
  57,062

  	
   

  

 

35

 

Promotora Minera de Guayana, S.A. 

and its related Companies

Notes to the Condensed Combined Financial Statements 

September 30, 2007 and December 31, 2006

Unaudited

 

A
reconciliation of the Company’s combined statement of loss and comprehensive
loss determined in accordance with Canadian GAAP to that determined under US
GAAP is as follows:

 

Combined
summarized statement of loss and comprehensive loss

(Thousands of US dollars)

 

	
   

  	
   

  	
   

  	
  9 month

  	
   

  
	
   

  	
   

  	
   

  	
  period ending

  	
   

  
	
   

  	
   

  	
   

  	
  September 30,

  	
   

  
	
   

  	
   

  	
   

  	
  2007

  	
   

  
	
   

  	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Net loss under Canadian GAAP

  	
   

  	
  (60,823

  	
  )

  
	
   

  	
  Deferred exploration and
  stripping expense, net of tax (a),(b)

  	
   

  	
  (3,870

  	
  )

  
	
   

  	
  Net loss under US GAAP

  	
   

  	
  (64,693

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Other comprehensive (loss)
  income

  	
   

  	
   

  	
   

  
	
   

  	
  Unrealized foreign exchange
  gains on translating self-sustaining foreign operations, net of tax (c) 

  	
   

  	
  29,534 

  	
   

  
	
   

  	
  Total comprehensive loss
  under US GAAP

  	
   

  	
  (35,159

  	
  )

  

 

Combined summarized statements of cash flows

(Thousands of US dollars)

 

	
   

  	
   

  	
   

  	
  9 month

  	
   

  
	
   

  	
   

  	
   

  	
  period ending

  	
   

  
	
   

  	
   

  	
   

  	
  September 30,

  	
   

  
	
   

  	
   

  	
   

  	
  2007

  	
   

  
	
   

  	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Cash flows provided by
  operating activities under Canadian GAAP

  	
   

  	
  3,695

  	
   

  
	
   

  	
  Deferred exploration and
  stripping expense

  	
   

  	
  (5,863

  	
  )

  
	
   

  	
  Cash flows provided by
  operating activities under US GAAP

  	
   

  	
  (2,168

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Cash flows used by investing
  activities under Canadian GAAP

  	
   

  	
  (7,404

  	
  )

  
	
   

  	
  Deferred exploration and
  stripping expense

  	
   

  	
  5,863

  	
   

  
	
   

  	
  Cash flows used by investing
  activities under US GAAP

  	
   

  	
  (1,541

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Cash flows provided by
  financing activities under Canadian and US GAAP

  	
   

  	
  555

  	
   

  

 

36

 

Promotora Minera de Guayana, S.A. 

and its related Companies

Notes to the Condensed Combined Financial Statements 

September 30, 2007 and December 31, 2006

Unaudited

 

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

 

a)                  Mineral Properties
and Exploration and Development Costs.

 

Under Canadian GAAP, mineral properties,
including exploration, development and acquisition costs, are carried at cost
until the properties to which they relate are placed into production, sold or
where management has determined there to be a permanent impairment in value.

 

Under U.S. GAAP, mineral property
expenditures are expensed as incurred. Once a final  feasibility study has been completed,
additional costs incurred to bring the mine into production are capitalized as
development costs.

 

As at January 1, 2007, US$11.4 million
of pre-feasibility exploration costs were included in mineral properties for
Canadian GAAP.  This has been charged to
accumulated deficit under US GAAP net of tax, at the average rate for the
respective years. For the nine month period ended September 30, 2007, US$3.8
million of pre-feasibility exploration costs were capitalized.  For US GAAP, these have been charged to
the income statement net of tax, at the average rate for the respective nine
month period.

 

b)                 Deferred
stripping costs

 

Under US GAAP, Emerging Issue Task Force (“EITF”)
04-06, Accounting for Stripping Costs Incurred during
Production in the Mining Industry, all stripping costs must be
charged to the statement of operations in the period in which they are
incurred. Under Canadian GAAP, Emerging Issues Committee (“EIC”) EIC-160, Stripping Costs Incurred in the Production Phase of a Mining Operation,
stripping costs are capitalized.

 

For the nine month period ended September 30,
2007, US$2.1 million of stripping costs were capitalized under Canadian GAAP
(as at January 1, 2007, US$Nil of deferred stripping costs had been
capitalized).  For US GAAP, they have
been charged to the income statement net of tax, at the average rate for the
respective nine month period.

 

c)                  Other Comprehensive income

 

Under US GAAP, SFAS 130, Reporting
Comprehensive Income, establishes rules for the reporting and
display of comprehensive income and its components.  Comprehensive income is net income, plus
certain other items that are recorded directly to shareholders’ equity such as
foreign currency translation adjustments and unrealized gains (losses) on
available-for-sale securities.  A US and
Canadian GAAP difference existed prior to the adoption of the new Canadian
accounting standard for comprehensive income on January 1, 2007.

 

37

 

Promotora Minera de Guayana, S.A. 

and its related Companies

Notes to the Condensed Combined Financial Statements 

September 30, 2007 and December 31, 2006

Unaudited

 

As at January 1, 2007, US$22 million
cumulative translation adjustment was recorded for Canadian GAAP.  This has been charged to accumulated
comprehensive income under US GAAP.  For
the nine month period ended September 30, 2007, US$26.4 million relating
to the translation of the self-sustaining subsidiary was recorded to cumulative
transaction adjustment; for US GAAP, these have amounts been charged to other
comprehensive loss.

 

d)                 Accounting for uncertainty in income taxes

 

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

 

The Company adopted the provisions of FASB
Interpretation No. 48, Accounting for Uncertainty
in Income Taxes (“FIN 48”), on January 1, 2007.  There was no effect on the Company’s
cumulative retained earnings as of January 1, 2007, as a result of the
adoption of FIN 48.  As of the date of
adoption, there were no unrecognized tax benefits.  FIN 48 prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement
of a tax position taken or expected to be taken in a tax return.  FIN 48 requires that the Company recognize in
its combined 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
September 30, 2007.

 

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

 

There is no balance of unrecognized tax
benefits at September 30, 2007 that, if recognized, would affect the
effective tax rate.  Also, there is no
balance of unrecognized tax benefits at September 30, 2007 that, if
recognized, would result in an adjustment to goodwill recorded in purchase
business combinations, and if recognized, would result in adjustments to other
tax accounts, primarily deferred taxes.

 

38

 

Promotora Minera de Guayana, S.A. 

and its related Companies

Notes to the Condensed Combined Financial Statements 

September 30, 2007 and December 31, 2006

Unaudited

 

The Company is subject to taxation in
Venezuela.  The Company’s tax years 2004
through 2007 are subject to examination by the Venezuelan tax authorities.

 

e)                  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 combined 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 combined financial
statements.

 

39

 

Promotora Minera de Guayana, S.A. 

and its related Companies

Notes to the Condensed Combined Financial Statements 

September 30, 2007 and December 31, 2006

Unaudited

 

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 currently evaluating the potential impact, if any, of the adoption
of SFAS 161 on its consolidated financial statements.

 

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.

 

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.  The Company is currently evaluating the
potential impact, if any, of the adoption of EITF 00-19 on its consolidated
financial statements.

 

40

 

Promotora Minera de Guayana

P.M.G., S.A. and its Related

Companies

Report of Independent Accountants and

Combined Financial Statements in U.S.

Dollars, Prepared in Accordance with

Generally Accepted Accounting Principles

in Canada

December 31, 2006

 

 

	
   

  	
  Firma miembro de

  
	
   

  	
   

  
	
  

  	
  

  

 

	
  Oficina Principal

  	
   

  	
  Espiñeira, Sheldon y Asociados

  
	
  Avenida Principal de Chuao

  	
   

  	
  Av. Guayana, Sector Alta Vista

  
	
  Edificio Del Río

  	
   

  	
  Torre Cristal, piso 3 Oficina 311

  
	
  Apartado 1789

  	
   

  	
  Apartado 291

  
	
  Caracas 1010-A Venezuela

  	
   

  	
  Puerto Ordaz - Venezuela

  
	
  Teléfono: (0212) 700 6666

  	
   

  	
  Teléfono: (0286) 962 6451

  
	
  Fax: (0212) 991 5210

  	
   

  	
  962 4995 - 962 5495

  
	
  www.pwc.com

  	
   

  	
  Fax: (0286) 962 6875

  

 

Auditors’
Report

 

To the Directors of

Promotora Minera de Guayana P.M.G., S.A.

and Related Companies

 

Report on the combined financial
statements

 

We have audited the accompanying combined financial
statements of Promotora Minera de Guayana P.M.G., S.A. (“PMG”) and its
related companies (as defined in Note 1, together “The Group”), which comprise
the combined balance sheet as of December 31, 2006, and the combined
statements of loss, of changes in shareholders’ deficit and of cash flows
statement for the year then ended. These combined financial statements arte the
responsibility of the Group’s management. Our responsibility is to express an
opinion on these financial statements based on our audit.

 

We conducted our audit in accordance with Canadian
generally accepted auditing standards. Those standards require that we plan and
perform an audit to obtain reasonable assurance whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation.

 

In our opinion, the accompanying combined financial
statements present fairly, in all material respects, the combined financial position
of The Group as at December 31, 2006, and the results of its operations
and its cash flows for the year then ended, in accordance with Canadian
generally accepted accounting principles.

 

The comparative figures have not been audited.

 

Espiñeira, Sheldon y Asociados

 

 

Victor J. Morales F.

CPC 17357

 

Caracas - Venezuela

January 31, 2008 (except as to Notes 22 and 23
which is as of December 15, 2008).

 

1

 

Promotora Minera de Guayana P.M.G., S.A.

and its related companies

Combined
Balance Sheet

December 31,
2006

 

	
  (Thousands of U.S. dollars)

  	
   

  	
  2006

  	
   

  	
  2005

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  (unaudited)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Assets

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Current assets

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cash and cash equivalents
  (Note 3)

  	
   

  	
  6,490

  	
   

  	
  1,024

  	
   

  
	
  Trade and other receivables
  (Note 4)

  	
   

  	
  6,663

  	
   

  	
  12,580

  	
   

  
	
  Inventories (Note 5)

  	
   

  	
  5,464

  	
   

  	
  3,930

  	
   

  
	
  Prepaid expenses (Note 6)

  	
   

  	
  397

  	
   

  	
  367

  	
   

  
	
  Total current assets

  	
   

  	
  19,014

  	
   

  	
  17,901

  	
   

  
	
  Non-current assets

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Property, plant and equipment,
  net (Note 7)

  	
   

  	
  56,255

  	
   

  	
  57,995

  	
   

  
	
  Future deferred income tax
  assets (Note 10)

  	
   

  	
  5,986

  	
   

  	
  8,952

  	
   

  
	
  Other

  	
   

  	
  167

  	
   

  	
  95

  	
   

  
	
  Total assets

  	
   

  	
  81,422

  	
   

  	
  84,943

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Liabilities

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Current liabilities

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Trade and other payables (Note
  8)

  	
   

  	
  109,423

  	
   

  	
  97,990

  	
   

  
	
  Provisions for other
  liabilities and charges (Note 9)

  	
   

  	
  3,869

  	
   

  	
  945

  	
   

  
	
  Current income tax liabilities
  (Note 10)

  	
   

  	
  944

  	
   

  	
  —

  	
   

  
	
  Other liabilities

  	
   

  	
  2,434

  	
   

  	
  —

  	
   

  
	
  Total non-current liabilities

  	
   

  	
  116,670

  	
   

  	
  98,935

  	
   

  
	
  Non-current liabilities

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Accrual for employee
  termination benefits, (Note 2-p)

  	
   

  	
  249

  	
   

  	
  135

  	
   

  
	
  Provision for restoration and
  rehabilitation liability (Notes 19 and 2-r)

  	
   

  	
  3,793

  	
   

  	
  440

  	
   

  
	
  Total liabilities

  	
   

  	
  120,712

  	
   

  	
  99,510

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Shareholder’s Deficit

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Share capital (Note 13)

  	
   

  	
  27

  	
   

  	
  27

  	
   

  
	
  Contributed Surplus - Share
  premiums

  	
   

  	
  8,841

  	
   

  	
  7,711

  	
   

  
	
  Cumulative Translation
  adjustment (Note 2-c)

  	
   

  	
  22,086

  	
   

  	
  9,547

  	
   

  
	
  Legal reserve

  	
   

  	
  160

  	
   

  	
  —

  	
   

  
	
  Accumulated loss

  	
   

  	
  (70,404

  	
  )

  	
  (31,852

  	
  )

  
	
  Total shareholder’s deficit

  	
   

  	
  (39,290

  	
  )

  	
  (14,567

  	
  )

  
	
  Total shareholder’s deficit
  and liabilities

  	
   

  	
  81,422

  	
   

  	
  84,943

  	
   

  
	
  Going Concern (Note 2-a)

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Contingencies (Note 16)

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

The accompanying
notes are an integral part of the financial statements

 

1

 

Promotora Minera de Guayana P.M.G., S.A.

and its related companies

Combined Statement of Loss

Years ended December 31, 2006 and 2005

 

	
  (Thousands of U.S. dollars)

  	
   

  	
  2006

  	
   

  	
  2005

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  (unaudited)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Revenue, net (Note 2-s)

  	
   

  	
  36,826

  	
   

  	
  10,580

  	
   

  
	
  Cost of goods sold (Notes 11
  and 12)

  	
   

  	
  (20,279

  	
  )

  	
  (6,468

  	
  )

  
	
  Gross profit (loss)

  	
   

  	
  16,547

  	
   

  	
  4,112

  	
   

  
	
  Administrative expenses (Notes
  11 and 12)

  	
   

  	
  (13,593

  	
  )

  	
  (1,188

  	
  )

  
	
  Feasibility and development
  costs (Note 11)

  	
   

  	
  (678

  	
  )

  	
  (6,499

  	
  )

  
	
  Allowance for intercompany
  receivables (Note 11)

  	
   

  	
  (4,758

  	
  )

  	
  (415

  	
  )

  
	
  Other gains, net (Note 11)

  	
   

  	
  1,308

  	
   

  	
  4,992

  	
   

  
	
  (Loss) Income before the
  undernoted

  	
   

  	
  (1,174

  	
  )

  	
  1,002

  	
   

  
	
  Foreign exchange loss, net
  (Note 15)

  	
   

  	
  (34,715

  	
  )

  	
  (24,790

  	
  )

  
	
  Loss before income tax

  	
   

  	
  (35,889

  	
  )

  	
  (23,788

  	
  )

  
	
  Income tax recovery (expense)
  (Note 10)

  	
   

  	
  (2,503

  	
  )

  	
  9,100

  	
   

  
	
  Net loss for the year

  	
   

  	
  (38,392

  	
  )

  	
  (14,688

  	
  )

  

 

The accompanying
notes are an integral part of the financial statements

 

2

 

Promotora Minera de Guayana P.M.G., S.A.

and its related companies

Combined Statement of changes in Shareholder’s
Deficit

Years ended December 31, 2006

 

	
   

  	
   

  	
   

  	
   

  	
  Contributed

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Surplus

  	
   

  	
  Cumulative

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Share

  	
   

  	
  Share

  	
   

  	
  translation

  	
   

  	
  Legal

  	
   

  	
  Accumulated

  	
   

  	
   

  	
   

  
	
  (Thousands of U.S. dollars)

  	
   

  	
  capital

  	
   

  	
  premiums

  	
   

  	
  adjustment

  	
   

  	
  reserve

  	
   

  	
  Loss

  	
   

  	
  Total

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Balances at December 31,
  2004 (unaudited)

  	
   

  	
  27

  	
   

  	
  7,711

  	
   

  	
  7,266

  	
   

  	
  —

  	
   

  	
  (17,164

  	
  )

  	
  (2,160

  	
  )

  
	
  Currency translation adjustments

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  2,281

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  2,281

  	
   

  
	
  Net loss for the year 2005

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  (14,688

  	
  )

  	
  (14,688

  	
  )

  
	
  Balances at December 31,
  2005 (unaudited)

  	
   

  	
  27

  	
   

  	
  7,711

  	
   

  	
  9,547

  	
   

  	
  —

  	
   

  	
  (31,852

  	
  )

  	
  (14,567

  	
  )

  
	
  Share premium capital

  	
   

  	
  —

  	
   

  	
  1,130

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  1,130

  	
   

  
	
  Currency translation
  adjustments

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  12,539

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  12,539

  	
   

  
	
  Net loss for the year 2006

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  (38,392

  	
  )

  	
  (38,392

  	
  )

  
	
  Legal reserve

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  160

  	
   

  	
  (160

  	
  )

  	
  —

  	
   

  
	
  Balances at December 31,
  2006

  	
   

  	
  27

  	
   

  	
  8,841

  	
   

  	
  22,086

  	
   

  	
  160

  	
   

  	
  (70,404

  	
  )

  	
  (39,290

  	
  )

  

 

The accompanying
notes are an integral part of the financial statements

 

3

 

Promotora Minera de Guayana P.M.G., S.A.

and its related companies

Combined Statement of Cash Flow

Years ended December 31, 2006

 

	
  (Thousands of U.S. dollars)

  	
   

  	
  2006

  	
   

  	
  2005

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  (unaudited)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cash flows from operating
  activities

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Net loss

  	
   

  	
  (38,392

  	
  )

  	
  (14,688

  	
  )

  
	
  Adjustments to reconcile net
  loss to net cash provided by operating activities

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Provision for obsolescence of
  inventories

  	
   

  	
  65

  	
   

  	
  —

  	
   

  
	
  Provision for restoration and
  rehabilitation liabilities

  	
   

  	
  1,665

  	
   

  	
  440

  	
   

  
	
  Future income tax

  	
   

  	
  1,360

  	
   

  	
  (8,952

  	
  )

  
	
  Amortization and depreciation

  	
   

  	
  3,261

  	
   

  	
  2,624

  	
   

  
	
  Foreign exchange losses

  	
   

  	
  34,715

  	
   

  	
  24,790

  	
   

  
	
  Net changes in operating
  assets and liabilities

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Accounts receivable

  	
   

  	
  3,747

  	
   

  	
  87,000

  	
   

  
	
  Inventories

  	
   

  	
  (2,408

  	
  )

  	
  (3,927

  	
  )

  
	
  Prepaid expenses, advances to
  suppliers and other assets

  	
   

  	
  (106

  	
  )

  	
  917

  	
   

  
	
  Trade accounts payable

  	
   

  	
  5,035

  	
   

  	
  (55,650

  	
  )

  
	
  Current income tax liabilities

  	
   

  	
  944

  	
   

  	
  —

  	
   

  
	
  Employee termination benefits,
  net

  	
   

  	
  114

  	
   

  	
  (196

  	
  )

  
	
  Other assets

  	
   

  	
  (72

  	
  )

  	
  (85

  	
  )

  
	
  Accrued liabilities, other
  liabilities and personnel benefits and other

  	
   

  	
  6,167

  	
   

  	
  (3,414

  	
  )

  
	
  Net cash provided by operating
  activities

  	
   

  	
  16,095

  	
   

  	
  28,859

  	
   

  
	
  Net cash used in investing
  activities

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Additions to property, plant
  and equipment, net

  	
   

  	
  (12,135

  	
  )

  	
  (28,996

  	
  )

  
	
  Net cash provided in
  financial activities

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Contributions for future capital increases

  	
   

  	
  1,130

  	
   

  	
  —

  	
   

  
	
  Translation adjustment in cash

  	
   

  	
  (211

  	
  )

  	
  (472

  	
  )

  
	
  Exchange in cash

  	
   

  	
  587

  	
   

  	
  —

  	
   

  
	
  Cash and cash equivalents

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Increase (decrease) for the
  year

  	
   

  	
  5,466

  	
   

  	
  (609

  	
  )

  
	
  Balance at the beginning of
  the year

  	
   

  	
  1,024

  	
   

  	
  1,633

  	
   

  
	
  Balance at the end of the year

  	
   

  	
  6,490

  	
   

  	
  1,024

  	
   

  

 

The accompanying
notes are an integral part of the financial statements

 

4

 

Promotora Minera de Guayana, S.A.

and its related Companies

Notes to the Combined Financial Statements

December 31, 2006

 

1.                            Incorporation
and Activities

 

These combined financial statements have been prepared
in connection with the acquisition by Rusoro Mining (BVI) Ltd of 100% interest
in the following entities:

 

Carisma Corporation A.V.V., which owns
Asterville International A.V.V., Promotora Minera de Venezuela, S.A.
(PROMIVEN), Promotora Minera de Guayana P.M.G., S.A. (PMG), Inversiones
Anseg, C.A.

 

Vicenza Corporation A.V.V.,

 

Right Angle Corporation A.V.V., which owns
Corporación Minera ECH 1, C.A., Corporación Minera ECH 2, C.A., Corporación
Minera ECH 3, C.A., Corporación Minera ECH 4, C.A., Corporación Minera ECH 5,
C.A.,

 

International Gold and Silver B.V (“IGS”),

 

El Callao Holdings A.V.V., which owns Triway
Corporation A.V.V., Helvetia Corporation A.V.V., Valet Corporation A.V.V.; and
operates in Venezuela through the following subsidiaries: Corporación Aurífera
de El Callao, C. A. (CORALCA), Corporación Minera Choco 9, C. A., Proyectos
Mineros del Sur, PROMINSUR, C.A. (“PROMINSUR”) and El Callao Holdings, C.A.

 

The combined entities will be referred to as the “Group”
in these financial statements.

 

Carisma Corporation A.V.V. (“CARISMA”), was incorporated
in Aruba as an Aruban exempt corporation on June 13, 2002 and has its
statutory seat in Aruba. CARISMA was also registered with the Dutch Chamber of
Commerce in Leiden on February 28, 2006.

 

Asterville International A.V.V. (“Asterville”) is a
subsidiary of CARISMA and was incorporated in Aruba as an Aruban exempt
corporation on May 19, 1993 and has its statutory seat in Aruba.
Asterville was also registered with the Dutch Chamber of Commerce in Leiden on February 28,
2006.

 

Inversiones Anseg, C.A. is a subsidiary of Asterville
and was incorporated in Venezuela on May 10th 1993.  Its main purpose is to deal with real estate;
its main asset is the corporate office where the group maintains its head
quarters in Venezuela.

 

Promotora Minera de Venezuela, S.A. (“PROMIVEN”),
is a subsidiary of CARISMA.  PROMIVEN was
incorporated in Venezuela on January 13, 1987.  PROMIVEN business objectives are to explore
and develop, economically exploitable mineral deposits; to negotiate mining
rights from Venezuelan government or third parties, in any of the legal forms
in force, to provide the necessary information to allow promoting or directly
exploring, exploiting, treating, processing, industrializing and trading
mineral raw material and its byproducts; to contract and supply engineering,
administrative, general and financing consulting service; and to acquire,
subscribe, sell and trade any class of shares, any type of participation in
companies dedicated to the business of producing mineral raw material and its byproducts.

 

5

 

Promotora Minera de Guayana, S.A.

and its related Companies

Notes to the Combined Financial Statements

December 31, 2006

 

Promotora Minera de Guayana P.M.G., S.A. (“PMG”),
is a subsidiary of PROMIVEN and was incorporated in Venezuela on May 10,
1988. PMG business objectives are to carry out mining activities including
exploration, evaluation, development, production, transportation and to sell
ore resources, mainly gold.  PMG entered
into a two lease agreements with Corporacion Venezolana de Guayana (“CVG”), in
respect to the concessions named Chocó 4 and Chocó 10, located in the town of
El Callao, Bolivar State, Bolivarian Republic of Venezuela; these agreements
provided PMG with the rights to explore and exploit multiples ore in these
areas.  These agreements also granted PMG
the right to carry out exploration activities and subsequent exploitation of
multiple ore targets, including alluvium and vein Gold in the Bochinche 1 and
Bochinche 2 Concessions, located within the Sifontes Municipality in the
Bolivar State.

 

In addition PMG holds a mining contract granted by CVG
over the area of Bochinche Zero; also located within the Sifontes municipality
in the Bolivar State.

 

PMG is a 95% owned subsidiary by PROMIVEN and, 5%
owned by C.V.G. Ferrominera Orinoco, C.A. (FMO), which is owned by CVG (Note
13).

 

In November 2005, as per Resolutions No. 047-2005
and DM-046-2005 published in the Official Gazette No. 38,304, the Ministry
of Basic Industries and Mining (MIBAM) (formerly know as Ministry of Energy and
Mines) approved, the feasibility study for the exploitation of two-thousand
one-hundred twenty-four hectares and five-thousand three hundred square meters
(2,124.5300 ha.) of the Chocó 10 Concession, and one-thousand four-hundred
fifty-eight hectares with one-thousand two-hundred square meters (1,458,1200
ha.) of the Chocó 4 Concession.  The
Company received from MIBAM the permits to exploit and develop the areas under
these concessions.

 

PMG started operations in August 2005.  PMG has a mill crusher plant and gold ore
dilution facility, as well as other structures required for the exploitation
and purification of mined gold.

 

Vicenza Corporation A.V.V. was incorporated in Aruba
as an Aruban exempt corporation on March 6, 2003 and has its statutory
seat in Aruba.  The Company was also
registered with the Dutch Chamber of Commerce in Leiden on February 28,
2006.

 

Right Angle Corporation A.V.V. was incorporated in
Aruba as an Aruban exempt corporation on August 4, 1988 and has its
statutory seat in Aruba.  The Company was
also registered with the Dutch Chamber of Commerce in Leiden on February 28,
2006.

 

Right Angle Corporation A.V.V., wholly owns
Corporación Minera ECH 1, C.A., Corporación Minera ECH 2, C.A., Corporación
Minera ECH 3, C.A., Corporación Minera ECH 4, C.A., which were incorporated in
the Bolivarian Republic of Venezuela on May 24, 2004 and Corporación
Minera ECH 5, C.A., incorporated in the Bolivarian Republic of Venezuela on September de
2004.  The main purpose these companies
are to explore and identify economically exploitable mineral deposits for
further development.

 

6

 

Promotora Minera de Guayana, S.A.

and its related Companies

Notes to the Combined Financial Statements

December 31, 2006

 

Corporación Minera ECH 1, C.A., and Corporación Minera
ECH 2, C.A., are awaiting the necessary permissions for exploitation of mines,
according to the request sent to the MIBAM on August 19, 2004.

 

Corporación Minera ECH 3, C.A., requested the
necessary permissions for exploitation of mines according to the request sent
to MIBAM on July 14, 2004.  These
permissions were denied, according an official communication dated August 11,
2004.

 

Corporación Minera ECH4, C.A., is awaiting the
necessary permissions for exploitation of mines according to the request sent
to the MIBAM June 18, 2004.

 

International Gold and Silver B.V. was incorporated in
the British Virgin Island on September 24, 2004. The IGS’s Articles of
Association were amended on June 22, 2005. 
At that time, the name of the Company was changed from Bolivar Gold B.V.
into International Gold and Silver B.V., and the fiscal year-end was changed
from December 31 to June 30 and the statutory seat was changed from
Stein to Rotterdam.

 

El Callao Holdings A.V.V. was incorporated in Aruba as
an Aruban exempt corporation on August 15, 2003 and has its statutory seat
in Aruba.  The Company was also
registered with the Dutch Chamber of Commerce in Leiden on February 28,
2006.

 

Triway Corporation A.V.V. was incorporated in Aruba as
an Aruban exempt corporation on November 12, 2003 and has its statutory
seat in Aruba.  The Company was also
registered with the Dutch Chamber of Commerce in Leiden on February 28,
2006.

 

Triway Corporation A.V.V. wholly owns Corporación
Aurífera de El Callao, C. A. (“CORALCA”). CORALCA was incorporated in the
Bolivarian Republic of Venezuela on October 24, 1988. CORALCA main
business objective is to undertake activities linked to the exploration,
administration and leasing of concessions according to the Venezuelan Law of
Mines; as well as the processing, transportation, storage, refining and trade
of gold and other associated minerals.

 

CORALCA, entered into a leasing agreement with CVG,
becoming the leaseholder of the concessions called Choco 1, Choco 2, Choco 12
and Choco 13, located in the municipality of El Callao, Bolívar State.

 

Helvetia Corporation A.V.V. was incorporated in Aruba
as an Aruban exempt corporation on June 10, 2003 and has its statutory
seat in Aruba. The Company was also registered with the Dutch Chamber of
Commerce in Leiden on February 28, 2006.

 

The subsidiary Helvetia Corporation A.V.V., wholly
owns Corporación Minera Choco 9, C. A., which was incorporated in the
Bolivarian Republic of Venezuela on October 5, 1989, to carry out mining
activities linked to the exploration, exploitation, feasibility study and
extraction of mineral resources, as wells as their processing, transportation
and trade of gold.

 

7

 

Promotora Minera de Guayana, S.A.

and its related Companies

Notes to the Combined Financial Statements

December 31, 2006

 

Corporación Minera Choco 9, C. A., entered into with
CVG a leasing agreement, becoming the leaseholder of the concession called
Choco 9, located in the Municipality of El Callao, Bolívar State.

 

Valet Corporation A.V.V. was incorporated in Aruba as
an Aruban exempt corporation on August 15, 2003 and has its statutory seat
in Aruba.  The Company was also
registered with the Dutch Chamber of Commerce in Leiden on February 28,
2006.

 

On Mach 31, 2006 the subsidiary Valet Corporation
A.V.V., acquired PROMISUR which was incorporated in the Bolivarian Republic of
Venezuela on April 12. 1989 to explore, identify, develop and exploit
economically exploitable mineral deposits.

 

PROMISUR entered into a leasing contract with CVG,
becoming the leaseholder of the concession named Choco 6, located in the
municipality of El Callao, Bolívar State.

 

During the year ended December 31, 2006,
Promotora Minera de Guayana, C.A. and El Callao Holding A.V.V. wrote off
feasibility and other costs of US$46,915,000, that did not meet the criteria
for capitalization.

 

The Group’s assets are mainly located in
Bolivarian Republic of Venezuela.  At December 31,
2006, the Group has 532 employees (402 employees in 2005).

 

2.                            Summary
of Significant Accounting Principles

 

The main accounting policies applied in the
preparation of these combined financial statements are described below.  These policies have been consistently applied
to all years presented, unless otherwise stated.

 

a)          Basis of
preparation

 

The
combined financial statements of the Group have been prepared in accordance
with Generally Accepted Accounting Principles in Canada (CANGAAP).

 

The Group is in a net
deficit position as at 31 December 2006 and has had losses for the past
several years. These circumstances lend significant doubt as to the
appropriateness of the use of accounting principles applicable to a going concern.  Management of the Group has received
confirmation from the parent company that the parent company intends to
financially support the Group to enable it to meet its liabilities as they fall
due and carry on its business without curtailment of its operations. As a
result, Group’s management considers the going concern basis of preparation to
be appropriate.

 

These
financial statements do not reflect the adjustments to the carrying values of
assets and liabilities and the reported expenses and balance sheet
classifications that would be necessary were the going concern assumption to be
inappropriate.

 

8

 

Promotora Minera de Guayana, S.A.

and its related Companies

Notes to the Combined Financial Statements

December 31, 2006

 

b)          Combination

 

The combined financial statements of the
Venezuelan Assets Acquired by Rusoro Mining (BVI) Ltd comprise the financial
statements of the following companies:

 

	
   

  	
  Name

  	
   

  	
  % ownership

  	
   

  	
  Country of Incorporation

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Carisma Corporation A.V.V.

  	
   

  	
  100

  	
  %

  	
  Aruba

  	
   

  
	
   

  	
  Promotora Minera de Venezuela
  S.A. (PROMIVEN)

  	
   

  	
  100

  	
  %

  	
  Bolivarian Republic of Venezuela

  	
   

  
	
   

  	
  Promotora Minera de
  Guayana P.M.G. SA. (PMG)

  	
   

  	
  95

  	
  %

  	
  Bolivarian Republic of Venezuela

  	
   

  
	
   

  	
  Asterville Internacional
  A.V.V.

  	
   

  	
  100

  	
  %

  	
  Aruba

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Inversiones Anseg C.A.

  	
   

  	
  100

  	
  %

  	
  Bolivarian Republic of Venezuela

  	
   

  
	
   

  	
  Vicenza Corporation AVV

  	
   

  	
  100

  	
  %

  	
  Aruba

  	
   

  
	
   

  	
  Right Angle Corporation AVV

  	
   

  	
  100

  	
  %

  	
  Aruba

  	
   

  
	
   

  	
  CorporacionMinera ECH1, C.A.

  	
   

  	
  100

  	
  %

  	
  Bolivarian Republic of Venezuela

  	
   

  
	
   

  	
  CorporacionMinera ECH2, C.A.

  	
   

  	
  100

  	
  %

  	
  Bolivarian Republic of Venezuela

  	
   

  
	
   

  	
  CorporacionMinera ECH3, C.A.

  	
   

  	
  100

  	
  %

  	
  Bolivarian Republic of Venezuela

  	
   

  
	
   

  	
  CorporacionMinera ECH4, C.A.

  	
   

  	
  100

  	
  %

  	
  Bolivarian Republic of Venezuela

  	
   

  
	
   

  	
  CorporacionMinera ECH5, C.A.

  	
   

  	
  100

  	
  %

  	
  Bolivarian Republic of Venezuela

  	
   

  
	
   

  	
  International Gold and Silver, B.V.

  	
   

  	
  100

  	
  %

  	
  Netherlands

  	
   

  
	
   

  	
  El Callao Holding AVV

  	
   

  	
  100

  	
  %

  	
  Aruba

  	
   

  
	
   

  	
  Triway Corporation AVV

  	
   

  	
  100

  	
  %

  	
  Aruba

  	
   

  
	
   

  	
  Corporación Aurífera El
  Callao, C.A.

  	
   

  	
  100

  	
  %

  	
  Bolivarian Republic of Venezuela

  	
   

  
	
   

  	
  Helvetia Corporation AVV

  	
   

  	
  100

  	
  %

  	
  Aruba

  	
   

  
	
   

  	
  Corporación Minera Choco 9,
  C.A.

  	
   

  	
  100

  	
  %

  	
  Bolivarian Republic of Venezuela

  	
   

  
	
   

  	
  Valet Corporation AVV

  	
   

  	
  100

  	
  %

  	
  Aruba

  	
   

  
	
   

  	
  Proyectos Mineros del Sur
  (PROMINSUR), C.A.

  	
   

  	
  100

  	
  %

  	
  Bolivarian Republic of Venezuela

  	
   

  
	
   

  	
  El Callao Holding, C.A.

  	
   

  	
  100

  	
  %

  	
  Bolivarian Republic of Venezuela

  	
   

  

 

Subsidiaries

 

Subsidiaries are all entities (including variable
interest entities) over which the group has the power to govern the financial
and operating policies generally having a shareholder of more than one half of
the voting rights.  The existence and
effect of potential voting rights that are currently exercisable or convertible
are considered when assessing whether the group controls another entity.  Subsidiaries are consolidated fully from the
date on which control is transferred to the group.

 

The purchase method of accounting is used to account
for the acquisition of subsidiaries by the group from the date that control
commences.  The cost of an acquisition is
measured at fair value of the assets given, equity instruments issued and
liabilities incurred or assumed at the date of exchange, plus costs directly
attributable to the acquisition.  The
excess of the cost of acquisition over the fair value of net assets acquired is
recorded as goodwill.  If the cost of
acquisition is less than the fair value of the net assets, the difference is
recognized directly in the income statement.

 

Inter-Group transactions, balances and unrealized
gains on transactions between group companies are eliminated.

 

9

 

Promotora Minera de Guayana, S.A.

and its related Companies

Notes to the Combined Financial Statements

December 31, 2006

 

Transactions with minority
interests

 

The Group applies a policy of treating transactions
with minority interests as transactions with parties external to the group.

 

The minority interests for profitable subsidiaries are
shown as an allocation of total group profit. However, where losses applicable
to the minority exceed the minority’s interest in any subsidiary’s equity, such
losses are allocated against the majority interest.  Where a subsidiary then reports profits, they
are allocated to the majority interest, until the minority’s share of losses
that were previously absorbed by the majority have been eliminated.

 

c)          Translation
into U.S. dollars

 

Functional and presentation
currency

 

The Group’s 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.  The Group has elected to present financial
statements in U.S. dollars, its presentation currency solely for information
purposes of the shareholders.

 

Transactions and balances

 

Foreign currency transactions are translated
into functional currency using the exchange rate prevailing at the dates of the
transactions.  Foreign exchange gains and
losses resulting from the settlement of such transactions and from the translation
at year-end exchange rates of monetary assets and liabilities denominated in
foreign currencies are recognized in the income statement.  Exchange gains or losses are included in the
income statement.  The Group does not
engage in hedging activities in connection with its foreign currency balances
and transactions, (Note 15).

 

Translation of financial
statements into the presentation currency

 

The results and financial position of all the
Group entities (none of which has the currency of a hyper-inflationary economy)
that have a functional currency different from the presentation currency are
translated into the presentation currency as follows:

 

·                  Assets and
liabilities for each balance sheet presented are translated at the closing rate
at the date of the balance sheet

·                  Income and expenses
for each income statement are translated at average exchange rates (unless this
average is not a reasonable approximation of the cumulative effect of the rates
prevailing on the transaction date, in which case income and expenses are
translated at the rate on the dates of the transactions), and

·                  All resulting
exchange differences are recognized as a separate component of shareholder’s
equity.

 

The
exchange rates relative to the US dollars for the year ended December 31,
2006 and 2005 were Bs 3,400/US$1 and Bs 2,700/US$1 (Source:
VenezuelaFX.com).  No representation is made that the Bs amounts
could have been, or could be, converted to U.S. dollars at that rate on December 31,
2006 or 2005 or at any other rate.

 

10

 

Promotora Minera de Guayana, S.A.

and its related Companies

Notes to the Combined Financial Statements

December 31, 2006

 

At December 31 the Group has the following
monetary assets and liabilities denominated in currencies other than the
Venezuelan Bolivar (mainly U.S. Dollars and Euro), shown at their equivalent to
U.S. dollars:

 

	
  (Thousands of U.S. dollars)

  	
   

  	
  2006

  	
   

  	
  2005

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  (Unaudited)

  	
   

  
	
  Monetary assets

  	
   

  	
  8,299

  	
   

  	
  6,075

  	
   

  
	
  Monetary liabilities

  	
   

  	
  (13,516

  	
  )

  	
  (10,868

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total net monetary liabilities
  (equivalent in U.S. dollars)

  	
   

  	
  (5,217

  	
  )

  	
  (4,793

  	
  )

  

 

d)          Segment
reporting

 

A business segment is a group of assets and operations
engaged in providing products or services that are subject to risks and returns
that are different from those of other business segments.  A geographical segment is engaged in
providing products or services within a particular economic environment that
are subject to risks and return that are different from those of segments
operating in other economic environments. 
The Group operates in a single business segment (mining) in one
geographical location.

 

e)          Property,
plant and equipment

 

Property, plant and equipment are recorded at cost
less accumulated depreciation and impairment charges (Note 2-g).  Cost is the fair value of the consideration
given to acquire the asset at the time of acquisition or construction and
includes the direct costs of bringing the asset to the location and condition
necessary for operation.

 

Subsequent costs are included in the asset’s carrying
amount or recognized as a separate asset, as appropriate, only when it is
probable that future economic benefits associated with the item will flow to
the Group and the cost of the item can be measured reliably.  All other repairs and maintenance are charged
to the statement of operations during the fiscal period in which they are incurred.

 

Mineral rights are capitalized and classified as “Exploration
and Evaluation” and depreciated from commencement of production.

 

The carrying amounts of property, plant and equipment
(including initial and any subsequent capital expenditure) are depreciated to
their estimated residual value over the estimated useful lives of the specific
assets concerned, or the estimated life of the associated mine or mineral
lease, if shorter.  Estimates of residual
values and useful lives are reassessed annually and any change in estimate is
taken into account in the determination of remaining depreciation charges.  The major categories of property, plant and
equipment are depreciated on a unit of production and/or straight line basis
using estimated lives indicated below, except that were assets are dedicated to
a mine lease the below useful lives are subject to the lesser of the asset
category’s useful life and the life of the mine or lease.

 

11

 

Promotora Minera de Guayana, S.A.

and its related Companies

Notes to the Combined Financial Statements

December 31, 2006

 

	
  Plant

  	
   

  	
  Based on reserves on a unit of production
  basis

  
	
  Mineral rights

  	
   

  	
  Based on reserves on a unit of production
  basis

  
	
  Exploration, evaluation and development expenditure on mineral assets
  and other  mining
  assets

  	
   

  	
  Based on reserves on a unit of production
  basis

  
	
  Buildings

  	
   

  	
  10
  years

  
	
  Machinery and equipment

  	
   

  	
  5
  years

  
	
  Vehicles

  	
   

  	
  4
  years

  
	
  Furniture and equipment

  	
   

  	
  2
  years

  
	
  Facilities and improvements

  	
   

  	
  2
  years

  

 

An asset’s carrying amount is written down immediately
to its fair value: if the asset’s carrying amount is not recoverable and
exceeds carrying value. (Note 2-g).

 

Gains and losses on disposals are determined by
comparing proceeds with the carrying amounts and are recognized within “Other (losses)/gains
- net” in the statement of loss.

 

f)            Exploration,
evaluation and development expenditure

 

Exploration and evaluation

 

Exploration and evaluation activity involves the
search for mineral resources, the determination of technical feasibility and
the assessment of commercial viability of an identified resource.  Exploration and evaluation activity
includes:  (i) researching and
analyzing historical exploration data, (ii) gathering exploration data
through topographical, geochemical and geophysical studies, (iii) exploratory
drilling, (iv) assessing transportation and infrastructure requirements
and (v) Feasibility studies.

 

Administration costs that are not directly
attributable to a specific exploration area are charged to the income
statement.  License costs paid in
connection with a right to explore in an existing exploration area are
capitalized and amortized over the term of the permit.

 

Exploration and evaluation expenditure (including
amortization of capitalized license costs) is charged to the income statement
as incurred except when the exploration and evaluation activity is within an
area of interest which was previously acquired in a business combination and
measured at fair value on acquisition, or where the existence of a commercially
viable mineral deposit has been established, in which case the expenditure may
be capitalized.

 

Capitalized exploration and evaluation expenditures
considered to be tangible are recorded as a component of property, plant and
equipment at cost less impairment charges. 
As the asset is not available for use, it is not depreciated.  All capitalized exploration and evaluation
expenditure are monitored for indications of impairment.  Where a potential impairment is indicated, an
assessment is performed for each area of interest in conjunction with the group
of operating assets (representing a cash generating unit) to which the
exploration is attributed.  Exploration
areas at which reserves have been discovered but that require major capital
expenditure before production can begin are continually evaluated to ensure
that commercial quantities of reserves exist or to ensure that additional exploration
work is under way or planned.  To the
extent that capitalized expenditure is not expected to be recovered it is charged
to the income statement.

 

12

 

Promotora Minera de Guayana, S.A.

and its related Companies

Notes to the Combined Financial Statements

December 31, 2006

 

Cash flows associated with exploration expenditures (comprising
amounts capitalized) are classified as investing activities in the cash flow
statement.

 

Development expenditure

 

When proven reserves are determined and development is
sanctioned, capitalized exploration and evaluation expenditure is reclassified
as “Assets under construction”, and is disclosed as a component of property,
plant and equipment.  Development
expenditure are capitalized and classified as “Assets under construction”.  As the asset is not available for use, it is
not depreciated.  On completion of
development, any capitalized exploration and evaluation expenditure, together
with the subsequent development expenditure, is classified as “Plant and
equipment”.

 

g)         Impairment
of non-financial assets

 

Assets that have an indefinite useful life are not
subject to amortization, for example land, and are tested annually for
impairment.  Assets that are subject to
depreciation and amortization are reviewed for impairment whenever events or
changes in circumstances indicate that their carrying amount may not be
recoverable.  An impairment loss is
recognized for the amount by which the asset’s carrying amount exceeds its fair
value.  For the purposes of assessing
impairment, assets are grouped at the lowest levels for which there are
separately identifiable cash flows (cash-generating units).

 

h)         Derivative
financial instruments and hedging activities

 

Derivatives are initially recognized at fair value on
the date a derivative contract is entered into and are subsequently remeasured
at their fair value.  The method of
recognizing the resulting gain or loss depends on whether the derivative is
designated as a hedging instrument, and if so, the nature of the item being
hedged.  At December 31, 2006 and
2005, the Group has identified no derivative financial instruments neither has
entered in hedging transactions.

 

i)            Inventories

 

Inventories are stated at the lower of cost, which
does not include interest, and net realizable value.  Cost is determined using the average cost
method.  Net realizable value is the
estimated selling price in the ordinary course of business, less applicable
variable selling expenses.  The cost is
determined using the average cost method, based on the following:

 

·                  The cost of gold in
process comprises costs incurred during each stage of the production process,
which includes all direct payroll costs, depreciation and amortization and
other production costs.

 

·                  The gold sands
corresponds to the material extracted from the mine and is recorded according
to the gold content by tons of material stacked and are reported at average
cost.

 

·                  Cost of gold ingots
production is determined considering the content equivalent to each Kg of gold
produced.

 

·                  The cost of
materials, spare parts and supplies is determined using the average cost method,
which does not exceed the market value due to its quick turnaround.

 

The provision for shortfalls in store inventories,
determined on the basis of previous losses in this connection, which are
probable to occur in the future, is expensed.

 

13

 

Promotora Minera de Guayana, S.A.

and its related Companies

Notes to the Combined Financial Statements

December 31, 2006

 

j)            Trade and
other receivables

 

Trade and other receivables are recognized initially
at fair value and subsequently measured at amortized cost using the effective
interest method, less provision for impairment. 
A provision for impairment of trade receivables is established when
there is objective evidence that the Group will not be able to collect all
amounts due according to the original terms of receivables.  Significant financial difficulties of the
debtor, probability that the debtor will enter bankruptcy or financial
reorganization, and default or delinquency in payments are considered indicators
that trade and other receivables are impaired.

 

The amount of the provision is the difference between
the asset’s carrying amount and the present value of estimated future cash
flows, discounted at the original effective interest rate.  The amount of the provision is recognized in
the statement of income under Selling and marketing expenses.  When a trade receivable is uncollectible, it
is written off against the allowance account for trade receivables.

 

Subsequent recoveries of amount previously written off
are credited against selling and marketing costs in the statement of loss.

 

k)     Cash and
cash equivalents

 

Cash and cash equivalents include cash on hand
and at bank and highly liquid short-term deposits maturing within three months
or less, and bank overdrafts.  Bank
overdrafts are shown within borrowings in current liabilities on the balance
sheet.

 

l)            Other
assets

 

Comprise the costs
associated with a gold ore processing pilot plant, which is currently under
process of obtaining its permit.  Once
the permit is obtained, the plant will be sold to small miners.

 

m)      Share
capital

 

Common shares are classified as equity.

 

Incremental costs directly attributable to the issue
of new shares or options are shown in shareholder’s equity as a deduction, net
of taxes, from the proceeds.

 

Where anyone purchases the Group’s equity share
capital (treasury shares), the consideration paid, including any directly
attributable incremental costs (net of income taxes), is deducted from equity
attributable to the Group’s equity holders until the shares are cancelled or
reissued.  Where such shares are
subsequently reissued, any consideration received (net of any directly
attributable incremental transaction costs and the related income tax effects)
is included in equity attributable to the Group’s equity holders.

 

n)         Trade
payables

 

Trade
payables are recognized initially at fair value and subsequently measured at
amortized cost using the effective interest method.

 

14

 

Promotora Minera de Guayana, S.A. 

and its related Companies

Notes to the Combined Financial Statements

December 31, 2006

 

o)         Current and future income tax

 

The current income tax charge is calculated on the
basis of the tax laws enacted or substantively enacted at the balance sheet
date in the countries where the Group’s subsidiaries and associates operate and
generate taxable income.  Management
periodically evaluates positions taken in tax returns with respect to
situations in which applicable tax regulations is subject to interpretation and
establishes provisions where appropriate on the basis of amounts expected to be
paid to the tax authorities.

 

Future income tax is provided in full, using the
liability method, on temporary differences arising between the tax bases of
assets and liabilities and their carrying amounts in the combined financial
statements.  However, future income tax
is not accounted for if it arises from initial recognition of an asset or
liability in a transaction other than a business combination that at the time
of the transaction affects neither accounting nor taxable income or loss.
Future income tax is determined using the tax rate (and law) that has been
enacted or substantially enacted by the balance sheet date and is expected to
apply when the related future income tax asset is realized or the future income
tax liability is settled.

 

Future income tax assets are recognized to the extent
that it is probable that future taxable income will be available against which
the temporary differences can be utilized.

 

Future income tax is provided on temporary differences
arising on property, plant and equipment, provision for restoration and
rehabilitation and other, which are deductible for tax purposes when payments
are made and amortized in the financial statements for subsequent periods,
except where the timing of the reversal of the temporary difference is
controlled by the Group and it is probable that the temporary difference will
not be reversed in the foreseeable future.

 

p)         Accrual for employee benefits

 

Employee termination benefits

 

The Group accrues for its
liability in respect of employee termination benefits based on the provisions
of the Venezuelan Labor Law.

 

According
to the Venezuelan Labor Law, employees are entitled to 5 days of salary per
month (a maximum of 60 days per year of service), without retroactive
adjustment.  Employee termination
benefits are a vested right of employees after 3 months of uninterrupted
service and accrue as incurred. After the second year of service, employees are
entitled to 2 additional days of salary per year of service (or portion thereof
over 6 months) up to 30 days of salary. 
Employee termination benefits are accrued and deposited monthly in a
trust fund on behalf of each employee, an employee termination benefits fund or
recorded in the Group’s books, as requested in writing by each employee.

 

The Law provides for an additional indemnity for
unjustified dismissals or involuntary termination of 30 days of 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 up to 90 days of current salary
based on length of service.  The Group
has not set aside an additional provision to cover this contingent liability.

 

15

 

Promotora Minera de Guayana, S.A. 

and its related Companies

Notes to the Combined Financial Statements

December 31, 2006

 

Profit sharing and bonuses

 

Venezuelan Labor Law also requires a mandatory
distribution to employees (profit-sharing bonus) of up to 15% of a Group’s
pre-tax income.  The established minimum
and maximum amounts for distribution are 15 and 120 days of salary,
respectively.  The Group accrued and paid
a profit-sharing bonus to its employees of 90 days of salary for the year ended
December 31, 2006 (60 days in 2005). 
In addition, the Group recognizes a provision where contractually
obliged or where there is a past practice that has created a constructive obligation,
particularly for bonuses.

 

Pension plans and other
post-employment benefits

 

The Group does not have a pension plan or other
post-retirement benefit programs for its employees; it does not grant stock
purchase options.

 

q)         Provisions

 

Provisions are recognized when the Group has a present
legal or constructive obligation as a result of past events; it is more likely
than not than an outflow of resources will be required to settle the
obligation, and the amount has been reliably estimated.  Provisions are not recognized for future
operating losses.

 

Where there are a number of similar obligations, the
likelihood that an outflow will be required in settlement is determined by
considering the class of obligations as a whole.  A provision is recognized even if the
likelihood of an outflow with respect to any one item included in the same
class of obligations may be small.

 

Provisions are measured at the present value of the
expenditures expected to be required to settle the obligation using a pre-tax
rate that reflects current market assessments of the time value of money and
the risks specific to the obligation. 
The increase in the provision due to passage of time is recognized as
interest expense.

 

r)         Provision for
restoration and rehabilitation liability

 

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 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 ARO 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.

 

s)         Recognition of revenue

 

Revenue comprises the fair
value of the consideration received or receivable for the sales of gold in the
ordinary course of the Group’s activities. 
The Group recognizes revenue when
persuasive evidence, usually in the form of an executed sales agreement, of an
arrangement exists, indicating there has been a transfer of risks and rewards
to the customer, no further work or processing is required by the Group, the
quantity and quality of the gold has been determined with reasonable accuracy,
the price is fixed or determinable, and collectability is reasonably
assured.  This is generally when title
passes to the customer.

 

16

 

Promotora Minera de Guayana, S.A. 

and its related Companies

Notes to the Combined Financial Statements

December 31, 2006

 

t)           Dividend distribution

 

Dividend distribution to the
Group’s shareholder is recognized as a liability in the financial statements in
the period in which the dividends are approved by the Group’s shareholder.

 

u)        Financial risk management

 

Financial risk factors

 

The
Group is exposed to a variety of financial risks:  market risk (including currency risk, fair
value interest risk and price risk), credit risk, liquidity risk and cash flow
interest rate risk.  Financial instruments exposed to concentration of credit risk consist
primarily of cash and cash equivalents and trade and other receivables.

 

The Group’s cash is placed with a diversified group of
financial institutions and trade and other receivables are spread over a broad
customer base.  The Group regularly
assesses the financial condition and creditworthiness of its clients.  On certain occasions, credit risk has been
concentrated on accounts receivable from related parties (Note 14).

 

Risk management is carried out under policies approved
by the Board of Directors.  The Board
provides written principles for overall risk management, as well as written
policies covering specific areas, such as foreign exchange risk, interest rate
risk, credit risk, and the investment of excess liquidity.

 

Credit risk

 

The Group has no significant concentrations of credit
risk.  It has policies in place to ensure
that sales of gold are made to customers with an appropriate credit
history.  The Group has policies that
limit the amount of credit exposure to any financial institution.

 

Liquidity risk

 

Prudent liquidity risk management implies maintaining
sufficient cash and marketable securities, the availability of funding through
an adequate amount of committed credit facilities and the ability to close out
market positions

 

Cash flows and fair value
interest rate risk

 

As the Group has no significant interest-bearing
assets, the Group’s income and operating cash flows are substantially
independent of changes in market interest rates.

 

The Group’s interest rate risk arises from some bank
loans.  Bank loans issued at variable
rates expose the Group to cash flow interest rate risk.  Bank loans issued at fixed rates expose the
Group to fair value interest rate risk. 
It is Group policy to maintain bank loans at fixed and variable rates.

 

Foreign exchange risk

 

The Group operates internationally and is exposed to
foreign exchange risk arising from various currency exposures, primarily with
respect to the US dollar and Euros. 
Foreign exchange risk arises from future commercial transactions,
recognized assets and liabilities and net investments in foreign operations.

 

17

 

Promotora Minera de Guayana, S.A. 

and its related Companies

Notes to the Combined Financial Statements

December 31, 2006

 

Management has set up a policy to require group
companies to manage their foreign exchange risk against their functional currency.  Foreign exchange risk arises when future
commercial transactions or recognized assets or liabilities are denominated in
a currency that is not the entity’s functional currency.

 

v)          Capital risk management

 

The
Group’s objectives when managing capital are to safeguard the Group’s ability
to continue as a going concern in order to provide returns for shareholder and
to maintain an optimal capital structure to reduce the cost of capital.  In order to maintain or adjust the capital
structure, the Group may adjust the amount of dividends paid to shareholder,
return capital to shareholder, issue new shares or sell assets to reduce debt.

 

Consistent
with others in the industry, the Group monitors capital on the basis of the
gearing ratio.  This ratio is calculated
as net debt divided by total capital. 
Net debt is calculated as total borrowings (including bank loans,
commercial paper and trade and other payables, as shown in the balance sheet)
less cash and cash equivalents.  Total
capital is calculated as equity, as shown in the balance sheet, plus net debt.

 

w)       Fair value of financial instruments

 

The fair value of financial instruments traded in
active markets (such as trading and available-for-sale securities) is based on
quoted market prices at the balance sheet date. 
The quoted market price used for financial assets held by the Group is
the current bid price.  The fair value of
financial instruments that are not traded in an active market is determined by
using valuation techniques.

 

The carrying value of cash and cash equivalents and
trade and other receivables and payables approximates their fair value due to
the short-term maturities of these instruments. 
Since most of the Group’s loans, commercial paper and other financial
liabilities bear interest at variable market rates, management considers their
carrying amounts to approximate fair value.  The Group recognizes transactions with
financial instruments at their transaction date and adjusts them to their
respective fair value.

 

x)         Use of estimates

 

The preparation of financial statements in conformity
with Canadian generally accepted accounting principles requires the Group’s
management to make estimates and assumptions that affect the amounts reported
in these combined financial statements and accompanying notes. Significant
areas of estimate relate to the reserve estimates, recoverability of mineral
properties and related deferred exploration and evaluation costs,
determinations as to whether costs are expensed or deferred, future site
restoration costs, and provision for income tax.  Actual results could differ from those
estimates.  By their nature, these
estimates are subject to measurement uncertainty, and the impact on the
financial statements of future changes in such estimates could be material.

 

18

 

Promotora Minera de Guayana, S.A. 

and its related Companies

Notes to the Combined Financial Statements

December 31, 2006

 

3.                           Cash and Cash Equivalents

 

Cash and cash equivalents at December 31 comprise
the following:

 

	
  (Thousands of U.S. dollars)

  	
   

  	
  2006

  	
   

  	
  2005

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  (Unaudited)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cash at bank

  	
   

  	
  6,338

  	
   

  	
  1,024

  	
   

  
	
  Investment

  	
   

  	
  152

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
  6,490

  	
   

  	
  1,024

  	
   

  

 

Cash, cash equivalents and bank overdrafts
include the following for the purposes of the cash flow statement:

 

	
  (Thousands of U.S. dollars)

  	
   

  	
  2006

  	
   

  	
  2005

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  (Unaudited)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cash

  	
   

  	
  6,338

  	
   

  	
  1,024

  	
   

  

 

4.                           Trade and Other Receivables

 

Trade and other receivables at December 31
comprise the following:

 

	
  (Thousands of U.S. dollars)

  	
   

  	
  2006

  	
   

  	
  2005

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  (Unaudited)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Value added tax (VAT) (Note 10)

  	
   

  	
  5,264

  	
   

  	
  4,604

  	
   

  
	
  Advance to Suppliers

  	
   

  	
  1,306

  	
   

  	
  981

  	
   

  
	
  Trade receivables

  	
   

  	
  13

  	
   

  	
  212

  	
   

  
	
  Executives and employees

  	
   

  	
  4

  	
   

  	
  134

  	
   

  
	
  Receivable from related parties (Note 14)

  	
   

  	
  —

  	
   

  	
  6,546

  	
   

  
	
  Other

  	
   

  	
  76

  	
   

  	
  103

  	
   

  
	
   

  	
   

  	
  6,663

  	
   

  	
  12,580

  	
   

  

 

At December 31, 2006 and 2005, there are no
differences between the carrying amounts of trade and other receivables and
their fair values.

 

19

 

Promotora Minera de Guayana, S.A. 

and its related Companies

Notes to the Combined Financial Statements

December 31, 2006

 

5.                           Inventories

 

Inventories at December 31 comprise the
following:

 

	
  (Thousands of U.S. dollars)

  	
   

  	
  2006

  	
   

  	
  2005

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  (Unaudited)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Gold ingots

  	
   

  	
  —

  	
   

  	
  6

  	
   

  
	
  Gold in process

  	
   

  	
  1,054

  	
   

  	
  365

  	
   

  
	
  Gold sand

  	
   

  	
  1,630

  	
   

  	
  1,947

  	
   

  
	
  Materials in transit

  	
   

  	
  79

  	
   

  	
  —

  	
   

  
	
  Materials, spare parts and supplies

  	
   

  	
  2,754

  	
   

  	
  1,612

  	
   

  
	
   

  	
   

  	
  5,517

  	
   

  	
  3,930

  	
   

  
	
  Provision for shortfalls in store inventories

  	
   

  	
  (53

  	
  )

  	
  —

  	
   

  
	
   

  	
   

  	
  5,464

  	
   

  	
  3,930

  	
   

  

 

6.                           Prepaid Expenses

 

Prepaid expenses at December 31 comprise the
following:

 

	
  (Thousands of U.S. dollars)

  	
   

  	
  2006

  	
   

  	
  2005

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  (Unaudited)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Prepaid insurance

  	
   

  	
  397

  	
   

  	
  367

  	
   

  
	
   

  	
   

  	
  397

  	
   

  	
  367

  	
   

  

 

20

 

Promotora Minera de Guayana, S.A. 

and its related Companies

Notes to the Combined Financial Statements

December 31, 2006

 

7.                            Property, Plant and Equipment

 

Property, plant and equipment at December 31,
comprises the following:

 

	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Other

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Land and

  	
   

  	
  Plant and

  	
   

  	
  Environmental

  	
   

  	
   

  	
   

  	
  Assets under

  	
   

  	
  Exploration

  	
   

  	
  mineral

  	
   

  	
   

  	
   

  
	
  (Thousands of U.S. dollars)

  	
   

  	
  buildings

  	
   

  	
  equipment

  	
   

  	
  rehabilitation

  	
   

  	
  Vehicles

  	
   

  	
  construction

  	
   

  	
  and evaluation

  	
   

  	
  Assets

  	
   

  	
  Total

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2006

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cost

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  At the beginning of the financial year

  	
   

  	
  486

  	
   

  	
  26,877

  	
   

  	
  —

  	
   

  	
  421

  	
   

  	
  54

  	
   

  	
  17,162

  	
   

  	
  4,513

  	
   

  	
  49,513

  	
   

  
	
  Additions

  	
   

  	
  37

  	
   

  	
  1,571

  	
   

  	
  1,910

  	
   

  	
  166

  	
   

  	
  1,832

  	
   

  	
  7,185

  	
   

  	
  —

  	
   

  	
  12,701

  	
   

  
	
  At the end of the financial year

  	
   

  	
  523

  	
   

  	
  28,448

  	
   

  	
  1,910

  	
   

  	
  587

  	
   

  	
  1,886

  	
   

  	
  24,347

  	
   

  	
  4,513

  	
   

  	
  62,214

  	
   

  
	
  Accumulated depreciation

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  At the beginning of the financial year

  	
   

  	
  (16

  	
  )

  	
  (1,463

  	
  )

  	
  —

  	
   

  	
  (100

  	
  )

  	
  —

  	
   

  	
  (1,119

  	
  )

  	
  —

  	
   

  	
  (2,698

  	
  )

  
	
  Depreciation expense

  	
   

  	
  (41

  	
  )

  	
  (2,843

  	
  )

  	
  (76

  	
  )

  	
  (126

  	
  )

  	
  —

  	
   

  	
  (175

  	
  )

  	
  —

  	
   

  	
  (3,261

  	
  )

  
	
  At the end of the financial year

  	
   

  	
  (57

  	
  )

  	
  (4,306

  	
  )

  	
  (76

  	
  )

  	
  (226

  	
  )

  	
  —

  	
   

  	
  (1,294

  	
  )

  	
  —

  	
   

  	
  (5,959

  	
  )

  
	
  Net book value at
  December 31, 2006

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  466

  	
   

  	
  24,142

  	
   

  	
  1,834

  	
   

  	
  361

  	
   

  	
  1,886

  	
   

  	
  23,053

  	
   

  	
  4,513

  	
   

  	
  56,255

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2005

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cost (unaudited)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  At the beginning of the financial year

  	
   

  	
  406

  	
   

  	
  20,537

  	
   

  	
  —

  	
   

  	
  358

  	
   

  	
  —

  	
   

  	
  9,662

  	
   

  	
  —

  	
   

  	
  30,963

  	
   

  
	
  Additions

  	
   

  	
  105

  	
   

  	
  12,327

  	
   

  	
  —

  	
   

  	
  130

  	
   

  	
  68

  	
   

  	
  11.396

  	
   

  	
  5,725

  	
   

  	
  29,751

  	
   

  
	
  At the end of the financial year

  	
   

  	
  511

  	
   

  	
  32,864

  	
   

  	
  —

  	
   

  	
  488

  	
   

  	
  68

  	
   

  	
  21,058

  	
   

  	
  5,725

  	
   

  	
  60,714

  	
   

  
	
  Accumulated depreciation
  (unaudited) 

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  At the beginning of the financial year

  	
   

  	
  —

  	
   

  	
  (77

  	
  )

  	
  —

  	
   

  	
  (18

  	
  )

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  (95

  	
  )

  
	
  Depreciation expense

  	
   

  	
  (16

  	
  )

  	
  (1,395

  	
  )

  	
  —

  	
   

  	
  (94

  	
  )

  	
  —

  	
   

  	
  (1,119

  	
  )

  	
  —

  	
   

  	
  (2,624

  	
  )

  
	
  At the end of the financial year

  	
   

  	
  (16

  	
  )

  	
  (1,472

  	
  )

  	
  —

  	
   

  	
  (112

  	
  )

  	
  —

  	
   

  	
  (1,119

  	
  )

  	
  —

  	
   

  	
  (2,719

  	
  )

  
	
  Net book value at
  December 31, 2005 (unaudited) 

  	
   

  	
  495 

  	
   

  	
  31,392 

  	
   

  	
  — 

  	
   

  	
  376 

  	
   

  	
  68 

  	
   

  	
  19,939 

  	
   

  	
  5,725 

  	
   

  	
  57,995 

  	
   

  

 

Assets under construction mainly comprises water
projects.

 

8.                            Trade and Other Payables

 

Trade and other payables at December 31 comprise
the following:

 

	
  (Thousands of U.S. dollars)

  	
   

  	
  2006

  	
   

  	
  2005

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  (Unaudited)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Trade payables

  	
   

  	
  2,039

  	
   

  	
  3,130

  	
   

  
	
  Payable to related parties (Note 14)

  	
   

  	
  107,384

  	
   

  	
  94,860

  	
   

  
	
   

  	
   

  	
  109,423

  	
   

  	
  97,990

  	
   

  

 

21

 

Promotora Minera de Guayana, S.A. 

and its related Companies

Notes to the Combined Financial Statements

December 31, 2006

 

9.                            Provisions for other liabilities and charges

 

Provisions for other liabilities and charges at December 31
comprise the following:

 

	
  (Thousands of U.S. dollars)

  	
   

  	
  2006

  	
   

  	
  2005

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  (Unaudited)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Current

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Services (Public and contracted)

  	
   

  	
  1,619

  	
   

  	
  —

  	
   

  
	
  Accrual for employee benefits

  	
   

  	
  630

  	
   

  	
  —

  	
   

  
	
  Other

  	
   

  	
  1,620

  	
   

  	
  945

  	
   

  
	
   

  	
   

  	
  3,869

  	
   

  	
  945

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Accrual for

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Services

  	
   

  	
  employee benefits

  	
   

  	
  Other

  	
   

  	
  Total

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  At January 1, 2006
  (unaudited)

  	
   

  	
  61

  	
   

  	
  32

  	
   

  	
  852

  	
   

  	
  945

  	
   

  
	
  Charged/(Credited) to the income statement:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Additional provisions

  	
   

  	
  11,069

  	
   

  	
  2,039

  	
   

  	
  5,226

  	
   

  	
  18,334

  	
   

  
	
  Used during the year

  	
   

  	
  (9,167

  	
  )

  	
  (1,307

  	
  )

  	
  (4,127

  	
  )

  	
  (14,601

  	
  )

  
	
  Exchange difference

  	
   

  	
  (344

  	
  )

  	
  (134

  	
  )

  	
  (331

  	
  )

  	
  (809

  	
  )

  
	
  At December 31, 2006

  	
   

  	
  1,619

  	
   

  	
  630

  	
   

  	
  1,620

  	
   

  	
  3,869

  	
   

  
											

 

10.                     Income Tax and Future Income Tax

 

Income tax expense comprises the following:

 

	
   

  	
   

  	
  Years ended

  December 31,

  	
   

  
	
  (Thousands of U.S. dollars)

  	
   

  	
  2006

  	
   

  	
  2005

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  (Unaudited)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Combined

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Current income tax expense

  	
   

  	
  (1,143

  	
  )

  	
  —

  	
   

  
	
  Future income tax expense

  	
   

  	
  (1,360

  	
  )

  	
  9,100

  	
   

  
	
   

  	
   

  	
  (2,503

  	
  )

  	
  9,100

  	
   

  

 

The future income tax is mainly originated by
Promotora Minera de Guayana, P.M.G., S.A. all other related companies are
not producing enough income which could allow the recognition of any Deferred
tax asset.

 

22

 

Promotora Minera de Guayana, S.A. 

and its related Companies

Notes to the Combined Financial Statements

December 31, 2006

 

Factors affecting tax charge for the period are as
follows (reconciliation of the effective tax rate):

 

	
   

  	
   

  	
  2006

  	
   

  	
  2005

  	
   

  
	
   

  	
   

  	
  %

  	
   

  	
  US$M

  	
   

  	
  %

  	
   

  	
  US$M

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  (Unaudited)

  	
   

  
	
  The tax expense is different than the
  standard rate of corporation tax 34%. The differences are explained below: 

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Loss before tax

  	
   

  	
  —

  	
   

  	
  (35,889

  	
  )

  	
  —

  	
   

  	
  (23,788

  	
  )

  
	
  Tax on profit at the standard rate of 34%

  	
   

  	
  34.00

  	
   

  	
  12,202

  	
   

  	
  34.00

  	
   

  	
  8,088

  	
   

  
	
  Investment and development allowance

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  15.38

  	
   

  	
  3,659

  	
   

  
	
  Effect
  for variation in tax base cost and property, plant and Equipment 

  	
   

  	
  (3.06 

  	
  ) 

  	
  (1,097 

  	
  ) 

  	
  13.56 

  	
   

  	
  3,225 

  	
   

  
	
  Non deductible provision

  	
   

  	
  (3.11

  	
  )

  	
  (1,115

  	
  )

  	
  (0.75

  	
  )

  	
  (179

  	
  )

  
	
  Foreign exchange loss

  	
   

  	
  (32.89

  	
  )

  	
  (11,803

  	
  )

  	
  (35.43

  	
  )

  	
  (8,428

  	
  )

  
	
  Other net mainly effect of declaring taxes
  base

  	
   

  	
  (1.92

  	
  )

  	
  (690

  	
  )

  	
  11.50

  	
   

  	
  2,735

  	
   

  
	
  Total taxation expense

  	
   

  	
  (6.97

  	
  )

  	
  (2,503

  	
  )

  	
  38.26

  	
   

  	
  9,100

  	
   

  

 

The net movement on the deferred income tax account at
December 31 is as follows:

 

	
  (Thousands of U.S. dollars)

  	
   

  	
  2006

  	
   

  	
  2005

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  (Unaudited)

  	
   

  
	
  At the beginning of the year

  	
   

  	
  8,952

  	
   

  	
  —

  	
   

  
	
  Charge (credit) to income

  	
   

  	
  (1,360

  	
  )

  	
  9,100

  	
   

  
	
  Effect of change in tax rates

  	
   

  	
  (1,606

  	
  )

  	
  (148

  	
  )

  
	
  At the end of the year

  	
   

  	
  5,986

  	
   

  	
  8,952

  	
   

  

 

The following details the composition of the Group’s
net future tax asset and liability recognized in the balance sheet and the
future tax expense charges/(credited) to the income statement:

 

	
   

  	
   

  	
  Deferred tax assets

  	
   

  	
  Charged/(credited) to

  the income statement

  	
   

  
	
   

  	
   

  	
  2006

  	
   

  	
  2005

  	
   

  	
  2006

  	
   

  	
  2005

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  (Unaudited)

  	
   

  	
   

  	
   

  	
  (Unaudited)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Difference on tax based of property, plant
  and equipment 

  	
   

  	
  4,526 

  	
   

  	
  3,173 

  	
   

  	
  1,353 

  	
   

  	
  3,173 

  	
   

  
	
  Provision restoration and rehabilitation

  	
   

  	
  171

  	
   

  	
  —

  	
   

  	
  171

  	
   

  	
  —

  	
   

  
	
  Other provisions

  	
   

  	
  580

  	
   

  	
  33

  	
   

  	
  547

  	
   

  	
  33

  	
   

  
	
  Investments tax credits

  	
   

  	
  —

  	
   

  	
  3,600

  	
   

  	
  (3,600

  	
  )

  	
  3,600

  	
   

  
	
  Tax losses carry-forward

  	
   

  	
  —

  	
   

  	
  2,146

  	
   

  	
  (2,146

  	
  )

  	
  2,146

  	
   

  
	
  Deduction of interests based on payment made

  	
   

  	
  709

  	
   

  	
  —

  	
   

  	
  709

  	
   

  	
  —

  	
   

  
	
  Foreign exchange losses

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  1,606

  	
   

  	
  148

  	
   

  
	
  Total Group

  	
   

  	
  5,986

  	
   

  	
  8,952

  	
   

  	
  (1,360

  	
  )

  	
  9,100

  	
   

  

 

a)  Income tax

 

The
Venezuelan Income Tax Law allows tax losses and investment tax credits to be
carried forward for up to three years to off-set taxable income.  The use of operating loses and tax credits
depends on whether or not the Company’s generates taxable income.  For the year ended December 31, 2006,
the Company computed taxable income of approximately US$20.2 million, partially
off-set by tax losses carry-forwards of US$6 million the resulting income tax
of US$4.8 million was partially off-set by 

 

23

 

Promotora Minera de Guayana, S.A. 

and its related Companies

Notes to the Combined Financial Statements

December
31, 2006

 

investment
tax credits of US$3.7 million, resulting in a current income tax expense of
US$1.14 million.  During the year ended December 31,
2005, the Company generated tax losses carry-forwards.

 

b)  Business assets tax

 

Business assets tax was a
minimum tax, complementary to income tax. 
It was calculated as 1% of the simple average of inflation-adjusted
nonmonetary and monetary assets based on amounts at the beginning and end of
the year, with the exception of investments in shares.  Under applicable regulations, business assets
tax was computed together with income tax, the greater of the two amounts being
the tax expense.  Accordingly, at December 31,
2005, the Group computed income tax expense since it was the greater of the two
amounts.

 

A law repealing the Business Assets Tax Law of November 26,
1993 was published in August 2004, effective September 1, 2004.  For business assets tax purposes, final tax
periods ended on August 31, 2004.

 

c)  Bank debit tax

 

During 2005 the Bank Debit Tax Law was in effect.  This
tax was levied upon debits or withdrawals made from current and savings
accounts, custody deposits, or any other type of demand deposit, liquid asset
funds, trust funds and other financial market funds or financial instruments
transacted by individuals or corporations with Venezuelan banks and other
financial institutions.  The applicable
tax rate is 0.50%.  At December 31,
2006, the Group incurred bank debit tax expense of US$16.279,08 (US$51,329.75
in 2005), included in the statement of income under Administrative expenses.

 

A law repealing the
Bank Debit Tax Law, enacted on December 1, 2005, was published in the
Official Gazette on February 8, 2006.

 

d)  Value added tax

 

In May 1999 the Venezuelan government enacted the
Value Added Tax (VAT) Law.  This tax is
based on a tax credit system; it is payable based on the value added at each
stage of production or sales.  During the
year ended December 31, 2005, the applicable tax rate was 15%.  In September 2005 the applicable tax
rate was further reduced to 14%, effective October 1, 2005.  This rate has remained unchanged.

 

As
of January 2003, in accordance with an Administrative Resolution issued by
the Tax Authorities, the Group is required to withhold a portion of the value
added tax resulting from Group purchases for payment to the Tax Authorities
bimonthly.  As of December 31, 2006,
the Company has recognized a net VAT debits and credits for sales and purchases
for US$5,264 million (US$4,604 million at December 31, 2005).  The law provides for a special tax rate (0%)
for exporters, granting them the right to recover tax credits from the purchase
or import of goods and services based on the ratio of export sales to total
sales.  The Company is in the process of
recovering VAT through this special rate for exporters based on export sales
made during the pre-operation phase, as well as exports sales made after the
start of operations.

 

24

 

Promotora Minera de Guayana, S.A. 

and its related Companies

Notes to the Combined Financial Statements

December 31, 2006

 

e)  Transfer pricing

 

The
Income Tax Reform Law published in October 1999 introduced substantial
amendments to the Venezuelan income tax system, such as the replacement of
territorial income taxation by worldwide taxation, the introduction of transfer
pricing and international fiscal transparency regulations, and a proportional
tax on dividends.  This reform took effect upon publication for fiscal years beginning as
from that date, including transfer pricing.  Worldwide taxation, international fiscal
transparency regulations and the proportional tax on dividends took effect as
from January 2001.

 

According to transfer-pricing regulations, taxpayers
that conduct transactions with related parties abroad are required to calculate
income, costs and deductions applying the methodology set out in the Law.  The Group conducts transactions with related
parties abroad.  At December 31, 2006, Group management considers that transactions
with related parties abroad had no significant effect on taxable income for the
years ended December 31, 2006 and 2005.

 

11.                     Expenses by category

 

Expenses by category comprise the following:

 

	
   

  	
   

  	
  Years ended

  December 31,

  	
   

  
	
  (Thousands of U.S. dollars)

  	
   

  	
  2006

  	
   

  	
  2005

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  (Unaudited)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Reactive
  and energetic

  	
   

  	
  (2,844

  	
  )

  	
  (1,567

  	
  )

  
	
  Maintenance

  	
   

  	
  (2,128

  	
  )

  	
  (1,116

  	
  )

  
	
  Employed (Note 12)

  	
   

  	
  (7,087

  	
  )

  	
  (1,359

  	
  )

  
	
  Drilling

  	
   

  	
  (1,287

  	
  )

  	
  —

  	
   

  
	
  Depreciation and amortization

  	
   

  	
  (7,810

  	
  )

  	
  (2,444

  	
  )

  
	
  Product Supply

  	
   

  	
  (574

  	
  )

  	
  (168

  	
  )

  
	
  Power Electric

  	
   

  	
  (594

  	
  )

  	
  (327

  	
  )

  
	
  Rent

  	
   

  	
  (1,132

  	
  )

  	
  (187

  	
  )

  
	
  Contract Service

  	
   

  	
  (1,641

  	
  )

  	
  (642

  	
  )

  
	
  Inventory adjustment

  	
   

  	
  (363

  	
  )

  	
  (96

  	
  )

  
	
  Inventory change

  	
   

  	
  1,521

  	
   

  	
  2,350

  	
   

  
	
  Professional Fees

  	
   

  	
  (2,496

  	
  )

  	
  (333

  	
  )

  
	
  Environment rehabilitation

  	
   

  	
  (299

  	
  )

  	
  (82

  	
  )

  
	
  Insurance

  	
   

  	
  (191

  	
  )

  	
  (108

  	
  )

  
	
  Social Investment

  	
   

  	
  (541

  	
  )

  	
  (20

  	
  )

  
	
  Others (losses) gains, net

  	
   

  	
  (5,098

  	
  )

  	
  3,435

  	
   

  
	
  Feasibility and development cost

  	
   

  	
  (678

  	
  )

  	
  (6,499

  	
  )

  
	
  Allowance for intercompany receivables

  	
   

  	
  (4,758

  	
  )

  	
  (415

  	
  )

  
	
  Total expenses

  	
   

  	
  (38,000

  	
  )

  	
  (9,578

  	
  )

  

 

25

 

Promotora Minera de Guayana, S.A. 

and its related Companies

Notes to the Combined Financial Statements

December 31, 2006

 

12.                     Employee Benefit Expenses

 

Employee benefit expenses comprise the following:

 

	
   

  	
   

  	
  Years ended 

  December 31,

  	
   

  
	
  (Thousands of U.S. dollars)

  	
   

  	
  2006

  	
   

  	
  2005

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  (Unaudited)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Wages and salaries

  	
   

  	
  (2,503

  	
  )

  	
  (583

  	
  )

  
	
  Employee termination benefits

  	
   

  	
  (27

  	
  )

  	
  (1

  	
  )

  
	
  Profit sharing

  	
   

  	
  (748

  	
  )

  	
  (76

  	
  )

  
	
  Bonuses

  	
   

  	
  (746

  	
  )

  	
  (21

  	
  )

  
	
  Vacation bonus

  	
   

  	
  (57

  	
  )

  	
  (10

  	
  )

  
	
  Social security costs

  	
   

  	
  (265

  	
  )

  	
  (75

  	
  )

  
	
  Other

  	
   

  	
  (2,741

  	
  )

  	
  (593

  	
  )

  
	
   

  	
   

  	
  (7,087

  	
  )

  	
  (1,359

  	
  )

  

 

13.                     Share Capital

 

At December 31, 2006 and 2005, the Group’s share
capital of US$26,532 fully paid.

 

Share capital comprises the following:

 

	
   

  	
   

  	
  Common

  	
   

  	
   

  	
   

  
	
  (Thousands of U.S. dollars)

  	
   

  	
  Shares

  	
   

  	
  Number of shares

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  (In thousands)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  At December 31,
  2005(Unaudited)

  	
   

  	
  27

  	
   

  	
  4

  	
   

  
	
  At December 31, 2006

  	
   

  	
  27

  	
   

  	
  4

  	
   

  

 

The share capital as of December 31st 2006 and
2005 is described as follows:

 

	
  Company

  (Thousands of U.S. dollars)

  	
   

  	
  N° shares

  	
   

  	
  Value per share

  	
   

  	
  Total

  capital

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  (in dollars

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Carisma Corporación A.V.V.

  	
   

  	
  1,000

  	
   

  	
  1

  	
   

  	
  1

  	
   

  
	
  Vincenza Corporation A.V.V.

  	
   

  	
  1,000

  	
   

  	
  1

  	
   

  	
  1

  	
   

  
	
  Right Angle Corporation A.V.V.

  	
   

  	
  1,000

  	
   

  	
  1

  	
   

  	
  1

  	
   

  
	
  El Callao Holding A.V.V.

  	
   

  	
  1,000

  	
   

  	
  1

  	
   

  	
  1

  	
   

  
	
  International Gold and Silver B.V. (IGS)

  	
   

  	
  180

  	
   

  	
  125,18

  	
   

  	
  23

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  27

  	
   

  

 

26

 

Promotora Minera de Guayana, S.A.

and its related Companies

Notes to the Combined Financial Statements

December 31, 2006

 

In an extraordinary
Shareholder’s Meeting of PMG dated January 15, 1991, the Company’s capital
stock was increased in 6,200 nominal common shares, with par value of Bs 1.000,
each, partially subscribed and paid, as follows:

 

·                       FMO subscribed 2,010
nominal common shares, which were paid by contributing existing geological
surveys on the mining concessions of Bochinche 1 and Bochinche 2, valued in
Bs 2,010,000 (in nominal bolivars).

 

·                       PROMIVEN subscribed
4,190 nominal shares, for which it paid Bs 838,000 in cash and committed to pay
the remaining Bs 3,352,000 (in nominal bolivars.)

 

An extraordinary Shareholder’s
Meeting of PMG was held on November 18, 2004, whereby the PMG’s capital
stock was increased in 1,000,000 shares with a par value of Bs 1,000 each.  This capital stock increase was fully
subscribed and paid up by PROMIVEN, by the capitalization of debts.  In addition, PROMIVEN, in its capacity as
shareholder, paid Bs 3,352,000 of the unpaid capital stock.

 

FMO acting as the minority interest of PMG filed a
request of annulment of the Shareholders’ meeting previously mentioned.  During this meeting FMO’s interest was
diluted from 30% to 0.2%.  In November 2005
PROMIVEN and FMO reached a preliminary agreement to increase FMO’s interest
from 0.2% to 5%; due to this preliminary agreement PROMIVEN agreed to pay US$6
million, to date PROMIVEN has paid to Ferrominera US$5 million and the
remaining balance is presented under accounts payable.  As per Group’s management and its external
legal counsel, the parties have made an arrangement to resolve this situation
and currently are in the final stage of the negotiation process.

 

14.                     Balances
and Transactions with the Shareholder and Related Companies

 

Balances at December 31, with related
companies comprised the following:

 

	
   

  	
  (In thousands of US dollars)

  	
   

  	
  2006

  	
   

  	
  2005

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  (Unaudited)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Accounts receivable from
  related companies

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Sardinia Energy

  	
   

  	
  —

  	
   

  	
  138

  	
   

  
	
   

  	
  Other

  	
   

  	
  —

  	
   

  	
  6,408

  	
   

  
	
   

  	
   

  	
   

  	
  —

  	
   

  	
  6,546

  	
   

  
	
   

  	
  Accounts payable to related
  companies

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Shareholders

  	
   

  	
  106,384

  	
   

  	
  90,860

  	
   

  
	
   

  	
  C.V.G.
  Ferrominera del Orinoco, C.A.

  	
   

  	
  1,000

  	
   

  	
  4,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Other

  	
   

  	
  107,384

  	
   

  	
  94,860

  	
   

  

 

27

 

Promotora Minera de Guayana, S.A.

and its related Companies

Notes to the Combined Financial Statements

December 31, 2006

 

Accounts
Payable to Shareholder relates to payment to finance the construction of the
plant; investment on machinery, equipment and vehicles; capital projects,
working capital, as well as other costs incurred during the pre-operation stage
of the Group.  The balances with related
parties do not have fixed maturity dates and do not earn interest.

 

In August 2003, Bolívar
Gold Corp. and PMG entered into a technical assistance agreement whereby
Bolívar Gold Corp will provide financial services, legal services, consulting
regarding exploration opportunities in Venezuela and Latin America, recruiting,
tax planning, environmental consulting among other services.  As part of the agreement PMG will compensate
Bolívar Gold Corp for the services received based on a fixed rated per hour in
US$ as the services are rendered.  In
addition the Company will reimburse Bolívar Gold Corp for the travel expenses,
accommodation and other expenses incurred by the personnel venders and
contractors in connection with the technical assistance provided to the
Company.  During 2005, the Company
recorded transactions for Bs 10,763 (US$5,006,000) associated with this
agreement which were capitalized as part of feasibility and development costs.

 

GoldFields Mining Services,
the parent of the Group charged fees relating to software licenses, corporate
insurance, administrative expenses, travel expenses incurred by corporate
personnel assigned to the Company, and other overhead costs paid by Goldfields
mining services on behalf of the Group.

 

Bolivar Gold Corp. (a
subsidiary of the parent of the group) charged fees relating  to the acquisition of the plant, as well as
other costs incurred to transport and install the plant that was paid by
Bolivar Gold Corp on behalf of the Group.

 

Details are as follows:

 

	
   

  	
  (In thousands of US dollars)

  	
   

  	
  2006

  	
   

  	
  2005

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  (Unaudited)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Technical assistance

  	
   

  	
  —

  	
   

  	
  1,123

  	
   

  
	
   

  	
  Operating Costs and Expenses

  	
   

  	
  6,249

  	
   

  	
  10,782

  	
   

  

 

15.                     Exchange
Control Regime

 

On January 21, 2003, the Venezuelan government announced the
closure of the foreign exchange market in Venezuela and, on February 5,
2003, the Ministry of Finance and the Central Bank of Venezuela (BCV) began to
publish the legal instruments regulating the exchange control regime, one of
which established initial official exchange rates of Bs 1,596/US$1 (purchase)
and Bs 1,600/US$1 (sale).  On that same
date, the government created the Commission for the Administration of Foreign
Currency (CADIVI) with the task of establishing the detailed rules and
regulations and generally administering the exchange control regime.

 

28

 

Promotora Minera de Guayana, S.A.

and its related Companies

Notes to the Combined Financial Statements

December 31, 2006

 

Among other things, one of these legal instruments requires the sale of
all incoming currency to BCV and temporarily suspends all purchases and sales
in local currency of securities issued by the Venezuelan government in foreign
currency.  BCV now centralizes all
currency purchases and sales in the country.

 

CADIVI has subsequently issued resolutions on
a number of requirements in connection with the administration of the exchange
control regime, such as user registration, guidelines for importers and
exporters, and the registration of private-sector foreign debt at January 22,
2003.

 

On February 9, 2004, the Ministry of
Finance and BCV established new official exchange rates, as from that date, of
Bs 1,915.20/US$1 (purchase) and Bs 1,920/US$1 (sale).  On March 2, 2005, the Ministry of Finance and BCV further
modified the exchange rates, as from that date, to Bs 2,144.60/US$1 (purchase) and
Bs 2,150/US$1 (sale).

 

As from the effective date of the exchange control
regime to date, the Group has filed applications with CADIVI to obtain currency
at the official exchange rate to pay for purchases of imported
inventories.  These applications have
been approved.

 

In October 2005 the Venezuelan
government enacted the Currency Exchange Offenses Law.  Accordingly, any demand, offer, purchase or
sale of U.S. dollars failing to comply with CADIVI requirements is considered
illegal.  Similarly, transactions
exceeding US$10,000 should be declared to CADIVI.  In addition, exporters of goods and services
are required to sell their income from business transactions in foreign
currency to BCV.  Transactions with
securities, as well as Government Bonds denominated in U.S. dollars and issued in
local currency are exempt.  Therefore, all individuals failing to comply
with the aforementioned Law will be subject to fines of two to three times the
amount of the transaction, reimbursement of foreign currency and imprisonment
terms from two to seven years.

 

16.                     Contingencies

 

Except contingencies as disclosed elsewhere in these
financial statements:

 

In the normal course of business, the Group is a party
to various legal proceedings, mainly labor-related, whose final outcome cannot
be quantified to date. Group management is of the opinion that these claims are
not well grounded in law and that the outcome of appeals filed or to be filed
will be favorable to the Group.  At December 31,
2006 and 2005, management considers not necessary to create a provision to
cover possible risks or losses.

 

In July 2005 the PMG
and IGS entered into a Gold Supply Agreement whereby the Company commits to
sell all of the annual gold produced in the Plant.  In return, IGS will either compensate the
Company for the gold delivered in bolivars or U.S. dollars, or will decrease
the account receivable from the PMG as in payment in kind.  Both the PMG and IGS agreed that the PMG’s
obligation to sell all of the annual production will be subject to any rule or
legislation applicable in Bolivarian Republic of Venezuela that restricts the
sell of gold.  Annual Gold production
from the Callao Plant is estimated at 200,000 ounces. In this regard, PMG
submitted a request of Information Letter to CADIVI” to obtain approval over
validity of this agreement (Note 15).

 

29

 

Promotora Minera de Guayana, S.A.

and its related Companies

Notes to the Combined Financial Statements

December 31, 2006

 

17.                     Commitments

 

At December 31, 2006, the Group has identified no
significant commitments.

 

18.                     New
Regulations

 

The
Housing Loan Law, effective May 2005, modified the calculation of
contributions to be made by employees and employers to the Mandatory Housing
Savings Fund from 3% of the employee’s monthly base salary to 3% of the
employee’s total monthly remuneration.

 

The
Occupational Hazard and Injury Prevention and Employment and Workplace Safety
and Health Law became effective in December 2005.  This Law establishes new employer
contribution percentages at between 0.75% and 10% of each employee’s
salary.  This percentage is determined by
the type and degree of risk classification for each Group.  The type and degree of risk will be based on
a Regulation which classifies activities according to the degree of danger to
which they expose employees.  However, at
the issue date of this report, this Regulation has not been issued.

 

The
Law for the Advancement of Science, Technology and Innovation was enacted in August 2005.  This Law establishes that, beginning January 1,
2006, the country’s large companies will annually earmark 0.5% of gross income
generated in Venezuela from activities which, according to this Law, relate to
investments in science, technology and innovation.  This Law defines large companies as those
companies with annual gross income over 100,000 tax units (T.U.).  Regulations for this Law were issued in October 2006.

 

The Employee Benefit Law became effective on September 27,
2005.  This Law modified the amount of
the calculation base for employer and employee contributions to a maximum of 10
minimum urban salaries, representing a 100% increase of the former limit.

 

The
Law on Narcotic and Psychotropic Substances was published in Official Gazette No. 38,287
on December 16, 2005.  This Law
repeals the previous law of September 30, 1993 and requires all companies,
public or private, with 50 or more employees to earmark 1% of their annual net
income for social programs for the prevention of illegal drug consumption and
traffic, 0.5% of which will be set aside for child welfare protection
programs.  However, at the issue date of
the financial statements at December 31, 2006, the collection agency for
this contribution has not been created.

 

A
partial reform of the Venezuelan Labor Law was published in Official Gazette No. 38,426
on April 28, 2006.  According to
this reform, payment of vacation leave and vacation bonus must be calculated
using the base salary earned by employees for the month preceding the actual
leave.  Moreover, when an employee is
voluntarily or involuntarily terminated, without having taken vacation,
payments must be made based on the employee’s last salary.  This reform also requires employers to
provide day care services for employees whose monthly salary does not exceed
five minimum wages until their children reach the age of five.  If the employer does not provide this
benefit, payment of day care expenses must be provided plus interest accrued at
the lending rate agreed upon by the six
main commercial and universal banks in the country, published by the
Central Bank of Venezuela (BCV).  Only
employers with labor solvency certification are entitled to enter into
agreements and contracts with government entities and companies.

 

30

 

Promotora Minera de Guayana, S.A.

and its related Companies

Notes to the Combined Financial Statements

December 31, 2006

 

At December 31,
2006, Group management is assessing the effects, if any, of the aforementioned
laws on the financial statements and is awaiting issuance of related
Regulations and the creation of the collection agency to conclude its
assessment.  However, at December 31,
2006, the Group has set aside certain provisions to cover payments arising from
any of these laws.

 

19.                     Compliance
with Environmental Regulations

 

The Company is subject to
environmental laws and regulations, which requires disbursements to improve its
facilities and avoid or correct environmental impacts that result from
exploitation and exploration activities conducted in the concessions, which
comprise Chocó 4 and Chocó 10.

 

In 1995, the Company started
the process to obtain environmental permits, including the Authorizations to
Occupy Territory for the aforementioned parcels.  The Company obtained these permits for a 20
years period from the Issue date of the “Exploitation Certificate” in 2005 for
both concessions.

 

Subsequent to obtaining the
permit discussed above, the Company requested the Authorization to Affect
Natural Resources (AARN) in exploration stage, from 1999, and for the
exploitation stage from 2004.  Both types
of permits were obtained in the years referred to and have been renewed on an
annual basis, as required by environmental statutory regulations.

 

In connection with its
commitment to restore and rehabilitate the areas impacted by mining activities,
the Company submitted during 2006 the Reforestation Plan as a “Compensatory
Measure to the Affectation of Resources” due to Exploration, Construction of
facilities and Exploitation of Chocó 4 and Chocó 10 Mining Projects.  This reforestation plan contemplates the
restoration and rehabilitation of 34 hectares during the first 4 years of
Company’s operations, at an estimated cost of US$4,700,000. The plan will be
updated with the progress of the Project and will incorporate new areas to be
restored and rehabilitated.  A provision
of US$3.793,000 was recognized as of December 31, 2006 (US$440,000 as of December 31,
2005) associated with the restoration process of the areas affected by mining
activities. This provision is measured at the net present value of the future
estimated cash flows associated with the restoration process. (Note 2-s).

 

Other legal commitments such
as “Effluent Monitoring Programs”, “Air Quality and Emissions” the “Environmental
Supervision Program”, and compliance with special conditions and limitations of
the environmental permits so obtained are performed in accordance with previous
plans designed in agreement with the Environmental Statutory Regulations.

 

As per the current Mining
Law and its Regulations, all the equipment and facilities related to the
exploitation are to be transferred to the Republic of Venezuela upon
termination of these concessions management deems the obligation to dismantle
the plant on this basis.

 

31

 

Promotora Minera de Guayana, S.A.

and its related Companies

Notes to the Combined Financial Statements

December 31, 2006

 

20.                     Regulations
related to Exports of Gold and its Alloys

 

The BCV published in the
Official Gazette N°36.124 dated January 13, 1997, the rules to
regulate Gold exports and its alloy, both in coins or in bars, melted or
refined, manufactured or otherwise. These rules set forth that such
parties interested in carrying out exports operations are to be registered with
the National Gold Exporters Registration; these exports must be authorized by
the BCV and 15% of Gold production is to be destined to sales within the local
market.

 

21.                     Regulations
related to Concessions and Mining Contracts

 

The
objective of the mining Law as indicated in Article No 1, is to regulate
matters regarding mines and existing ores within national territory, regardless
of its source or presentation, including exploration and exploitation
activities as well as the benefit, storage, maintenance, circulation,
transportation and trading, internal or external, of the resources extracted,
without prejudice to that which is established in the rest of the laws in
effect in the country.  Article No. 90
indicate that owners of mining concessions must pay a superficial tax per
hectare of area granted, starting on the fourth year of the concession right;
it also establishes payment of the exploitation tax that will accrue as of ore
is extracted.  Once the exploitation of
the concession begins, the exploitation tax is to be reduced from the
superficial tax, for the same period, until it meets the first.  During the years ended 31 December 2006
and 2005, the Company recognized and paid exploitation tax of US$64,744 million
and US$48,765 million, respectively.  On March 2001,
the Venezuelan Mining Law Regulations were enacted.

 

The
Mining Law, published in the official gazette No. 36,687, and that
currently regulates exploration and exploitation activities of ore resources in
the country, is in process of review and amendment by the National Assembly’s
Permanent Committee for matters Related to Mines and Energy.  The outcome of this review cannot be
determined as of this date.

 

22.                     Subsequent
Events

 

·                       On January 1,
2007, the Venezuelan Government decreed a Partial Reform to the Law which sets
forth the Value Added Tax (VAT), which modified the rate from 14% to 11%; this
modification was effective on March 1, 2007, and was published in Official
Gazette No. 38,625 dated February 13, 2007.  Subsequently, the amendment of the Value
Added Tax Law was published in Official Gazette No. 38,632 dated February 26,
2007, establishing the current rate for the period from March 1 until June 30
2007 under 11%, with a reduction to subsequent to 9% from July 1, 2007
onwards.

 

·                       In March 2007,
the Venezuelan government established that, as from January 1, 2008, the
unit of the Venezuelan monetary system (Venezuelan bolivar) will be
redenominated at a conversion rate of one-thousand current bolivars to one new
bolivar (“bolivar fuerte” or BsF). 
Therefore, any amount expressed in local currency before January 1,
2008 will be converted to the new unit (“bolivar fuerte”) on that date by
dividing it by one-thousand and rounding it to the nearest cent.  The Central Bank of Venezuela (BCV) drew up
an activity schedule to be complied with by

 

32

 

Promotora Minera de Guayana, S.A.

and its related Companies

Notes to the Combined Financial Statements

December 31, 2006

 

financial institutions and
companies in general.  In addition, by January 1,
2008, banks and companies in general, both public and private, shall have
adapted their information systems to accommodate to the new monetary unit.

 

·                       On October 3,
2007, the Venezuelan government enacted the Tax on Financial Transactions for
Corporations and Entities without Juridical Status.  This tax is levied upon debit or withdrawals
made from current and savings accounts, custody deposits or any other type of
demand deposits, liquid asset funds, trust funds and other financial market
funds or financial instruments transacted by corporations and entities without
juridical status with Venezuelan banks and other financial institutions.  Entities qualified as special obligors and
debt payments made without the mediation of the financial system are also
subject to this tax.  The tax rate was
set at 1.5% as from November 1, 2007.

 

·                       On October 8,
2007, a lawsuit was filed by “Cooperativa de Molineros El Callao II R.L.” and
the “Asociación de Molinos Auríferos de El Callao (A.M.A.C.)” against PMG
claming the payment of damages for eviction from the mine site in 2.004, for
US$10,523,000.  The Court decreed a
preventive seizure for US$24,204,651 which was suspended until the Attorney
General has been duly notified.  On October 15,
2007 he motion of opposition to the seizure was filed, arguing that the
requisites provided in the law for a seizure have not been fulfilled.  In our Lawyer’s opinion, it is more likely
than not that the seizure decreed against PMG will not be executed, based on
the arguments alleged in the motion of opposition to the seizure.  In any case, it will be possible to post a
bond to guarantee the results of the lawsuit, should the motion to suspend go
against the Group. However, our legal team believes that this lawsuit will not
succeed based on the lack of legal fundamental.

 

·                       The “Association of Displaced Miners of Coacia” has been requesting the
payment of damages due to the eviction from the mine site.  The Group agreed with the Ministry of Basic
Industries and Mining (MIBAM), to make a unique payment for the amount of Bs 50.000.000
(US$ 10,000) to each member of the association (a total of 111 people and a
total of US$1,110,000).  The present
agreement resulted in the cancellation of all the agreements and pre-agreements
that had been subscribed between PMG and this Association.

 

·                       On November 29, 2007 Rusoro Mining
(BVI)Ltd. became the owner of the group of companies described herewith.  Until that day the group was part of Gold
Fields Netherlands a subsidiary of Gold Fields Mining Ltd of South Africa.

 

·                       On July 6, 2008, FMO formally abandoned, before the Venezuelan
Courts, the nullity action against the PMG shareholders meeting which diluted
FMO’s equity stake in PMG from 30% to 0.2%. On August 6, 2008 the Company
paid $1 million to FMO to settle the dispute over FMO’s interest in PMG and to
transfer, with the acquiescence of FMO, a 5% indilutable share in PMG to CVG
Minerven, C.A.

 

33

 

Promotora Minera de Guayana, S.A.

and its related Companies

Notes to the Combined Financial Statements

December 31, 2006

 

·                       On December 9, 2008, PMG issued 8,600,000 class A common shares and
163,400,000 class B common shares.  The percentages of equity stake
remained unchanged, with CVG Minerven, C.A. 5% and Promotora Minera de
Venezuela C.A 95% common shares of PMG.

 

·                       On July 12,
2008, the Venezuelan Government eliminated the bank debit tax which was in
effect since October 3, 2007.

 

34

 

Promotora Minera de Guayana, S.A.

and its related Companies

Notes to the Combined Financial Statements

December 31, 2006

 

23.          Differences in generally accepted accounting principles between Canada
and the United States of America

 

A reconciliation of the Company’s balance
sheet determined in accordance with Canadian GAAP to that determined under US
GAAP is as follows:

 

December 31, 2006

(Thousands of US dollars

 

	
   

  	
   

  	
   

  	
  Canadian

  	
   

  	
  US GAAP

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  GAAP

  	
   

  	
  adjustments

  	
   

  	
  US GAAP

  	
   

  
	
   

  	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
  Assets

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Current assets

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Cash and cash equivalents

  	
   

  	
  6,490

  	
   

  	
  —

  	
   

  	
  6,490

  	
   

  
	
   

  	
  Trade and other receivables

  	
   

  	
  6,663

  	
   

  	
  —

  	
   

  	
  6,663

  	
   

  
	
   

  	
  Inventories

  	
   

  	
  5,464

  	
   

  	
  —

  	
   

  	
  5,464

  	
   

  
	
   

  	
  Prepaid expenses

  	
   

  	
  397

  	
   

  	
  —

  	
   

  	
  397

  	
   

  
	
   

  	
  Total current assets

  	
   

  	
  19,014

  	
   

  	
  —

  	
   

  	
  19,014

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Plant and equipment

  	
   

  	
  56,255

  	
  (a)

  	
  (11,397

  	
  )

  	
  44,858

  	
   

  
	
   

  	
  Future income tax assets

  	
   

  	
  5,986

  	
  (a)

  	
  3,875

  	
   

  	
  9,861

  	
   

  
	
   

  	
  Other non-current assets

  	
   

  	
  167

  	
   

  	
  —

  	
   

  	
  167

  	
   

  
	
   

  	
  Total assets

  	
   

  	
  81,422

  	
   

  	
  (7,522

  	
  )

  	
  73,900

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Liabilities

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Current liabilities

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Trade payable and other payables

  	
   

  	
  109,423

  	
   

  	
  —

  	
   

  	
  109,423

  	
   

  
	
   

  	
  Provisions for other liabilities and
  charges

  	
   

  	
  3,869

  	
   

  	
  —

  	
   

  	
  3,869

  	
   

  
	
   

  	
  Current income tax liabilities

  	
   

  	
  944

  	
   

  	
  —

  	
   

  	
  944

  	
   

  
	
   

  	
  Other liabilities

  	
   

  	
  2,434

  	
   

  	
  —

  	
   

  	
  2,434

  	
   

  
	
   

  	
  Total current liabilities

  	
   

  	
  116,670

  	
   

  	
  —

  	
   

  	
  116,670

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Accrual for employee termination benefits

  	
   

  	
  249

  	
   

  	
  —

  	
   

  	
  249

  	
   

  
	
   

  	
  Provision for restoration and
  rehabilitation liabilities

  	
   

  	
  3,793

  	
   

  	
  —

  	
   

  	
  3,793

  	
   

  
	
   

  	
  Total liabilities

  	
   

  	
  120,712

  	
   

  	
  —

  	
   

  	
  120,712

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Shareholders’ equity

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Share capital

  	
   

  	
  27

  	
   

  	
  —

  	
   

  	
  27

  	
   

  
	
   

  	
  Contributed surplus

  	
   

  	
  8,841

  	
   

  	
  —

  	
   

  	
  8,841

  	
   

  
	
   

  	
  Cumulative translation adjustment

  	
   

  	
  22,086

  	
  (b)

  	
  (22,086

  	
  )

  	
  —

  	
   

  
	
   

  	
  Legal reserve

  	
   

  	
  160

  	
   

  	
  —

  	
   

  	
  160

  	
   

  
	
   

  	
  Accumulated other comprehensive income

  	
   

  	
  —

  	
  (a),(b)

  	
  24,422

  	
   

  	
  24,422

  	
   

  
	
   

  	
  Accumulated loss

  	
   

  	
  (70,404

  	
  )(a)

  	
  (9,858

  	
  )

  	
  (80,262

  	
  )

  
	
   

  	
  Total shareholders’ equity

  	
   

  	
  (39,290

  	
  )

  	
  (7,522

  	
  )

  	
  (46,812

  	
  )

  
	
   

  	
  Total liabilities and shareholders’ equity

  	
   

  	
  81,422

  	
   

  	
  (7,522

  	
  )

  	
  73,900

  	
   

  

 

35

 

Promotora Minera de Guayana, S.A.

and its related Companies

Notes to the Combined Financial Statements

December 31, 2006

 

A reconciliation of the Company’s balance
sheet determined in accordance with Canadian GAAP to that determined under US
GAAP is as follows:

 

December 31, 2005
(unaudited)

(Thousands of US dollars)

 

	
   

  	
   

  	
   

  	
  Canadian

  	
   

  	
  US GAAP

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  GAAP

  	
   

  	
  adjustments

  	
   

  	
  US GAAP

  	
   

  
	
   

  	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
  Assets

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Current assets

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Cash and cash equivalents

  	
   

  	
  1,024

  	
   

  	
  —

  	
   

  	
  1,024

  	
   

  
	
   

  	
  Trade and other receivables

  	
   

  	
  12,580

  	
   

  	
  —

  	
   

  	
  12,580

  	
   

  
	
   

  	
  Inventories

  	
   

  	
  3,930

  	
   

  	
  —

  	
   

  	
  3,930

  	
   

  
	
   

  	
  Prepaid expenses

  	
   

  	
  367

  	
   

  	
  —

  	
   

  	
  367

  	
   

  
	
   

  	
  Total current assets

  	
   

  	
  17,901

  	
   

  	
  —

  	
   

  	
  17,901

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Plant and equipment

  	
   

  	
  57,995

  	
  (a)

  	
  (5,079

  	
  )

  	
  52,916

  	
   

  
	
   

  	
  Future income tax assets

  	
   

  	
  8,952

  	
  (a)

  	
  1,728

  	
   

  	
  10,680

  	
   

  
	
   

  	
  Other non-current assets

  	
   

  	
  95

  	
   

  	
  —

  	
   

  	
  95

  	
   

  
	
   

  	
  Total assets

  	
   

  	
  84,943

  	
   

  	
  (3,351

  	
  )

  	
  81,592

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Liabilities

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Current liabilities

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Trade payable and other payables

  	
   

  	
  97,990

  	
   

  	
  —

  	
   

  	
  97,990

  	
   

  
	
   

  	
  Provisions for other liabilities and
  charges

  	
   

  	
  945

  	
   

  	
  —

  	
   

  	
  945

  	
   

  
	
   

  	
  Total current liabilities

  	
   

  	
  98,935

  	
   

  	
  —

  	
   

  	
  98,935

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Accrual for employee termination benefits

  	
   

  	
  135

  	
   

  	
  —

  	
   

  	
  135

  	
   

  
	
   

  	
  Provision for restoration and
  rehabilitation liabilities

  	
   

  	
  440

  	
   

  	
  —

  	
   

  	
  440

  	
   

  
	
   

  	
  Total liabilities

  	
   

  	
  99,510

  	
   

  	
  —

  	
   

  	
  99,510

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Shareholders’ equity

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Share capital

  	
   

  	
  27

  	
   

  	
  —

  	
   

  	
  27

  	
   

  
	
   

  	
  Contributed surplus

  	
   

  	
  7,711

  	
   

  	
  —

  	
   

  	
  7,711

  	
   

  
	
   

  	
  Cumulative translation adjustment

  	
   

  	
  9,547

  	
  (b)

  	
  (9,547

  	
  )

  	
  —

  	
   

  
	
   

  	
  Accumulated other comprehensive income

  	
   

  	
  —

  	
  (a),(b)

  	
  10,169

  	
   

  	
  10,169

  	
   

  
	
   

  	
  Accumulated loss

  	
   

  	
  (31,852

  	
  )(a)

  	
  (3,973

  	
  )

  	
  (35,825

  	
  )

  
	
   

  	
  Total shareholders’ equity

  	
   

  	
  (14,567

  	
  )

  	
  (3,351

  	
  )

  	
  (17,918

  	
  )

  
	
   

  	
  Total liabilities and shareholders’ equity

  	
   

  	
  84,943

  	
   

  	
  (3,351

  	
  )

  	
  81,592

  	
   

  

 

36

 

Promotora Minera de Guayana, S.A.

and its related Companies

Notes to the Combined Financial Statements

December 31, 2006

 

A reconciliation of the Company’s combined
statement of loss and comprehensive loss determined in accordance with Canadian
GAAP to that determined under US GAAP is as follows:

 

Combined
summarized statement of loss and comprehensive loss

(Thousands of US dollars)

 

	
   

  	
   

  	
   

  	
  Year ending December 31,

  	
   

  
	
   

  	
   

  	
   

  	
  2006

  	
   

  	
  2005

  	
   

  
	
   

  	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  (Unaudited)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Net loss under Canadian GAAP

  	
   

  	
  (38,392

  	
  )

  	
  (14,688

  	
  )

  
	
   

  	
  Deferred exploration expense, net of tax
  (a)

  	
   

  	
  (5,885

  	
  )

  	
  (2,521

  	
  )

  
	
   

  	
  Net loss under US GAAP

  	
   

  	
  (44,277

  	
  )

  	
  (17,209

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Other comprehensive (loss) income

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Unrealized foreign exchange gains on
  translating self-sustaining foreign operations (b)

  	
   

  	
  14,253

  	
   

  	
  3,275

  	
   

  
	
   

  	
  Total comprehensive loss
  under US GAAP

  	
   

  	
  (30,024

  	
  )

  	
  (13,934

  	
  )

  

 

Combined summarized statements of cash flows

(Thousands of US dollars)

 

	
   

  	
   

  	
   

  	
  Year ending December 31,

  	
   

  
	
   

  	
   

  	
   

  	
  2006

  	
   

  	
  2005

  	
   

  
	
   

  	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  (Unaudited)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Cash flows provided by operating activities
  under Canadian GAAP

  	
   

  	
  16,095

  	
   

  	
  28,859

  	
   

  
	
   

  	
  Deferred exploration expense

  	
   

  	
  (8,916

  	
  )

  	
  (3,820

  	
  )

  
	
   

  	
  Cash flows provided by
  operating activities under US GAAP

  	
   

  	
  7,179

  	
   

  	
  25,039

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Cash flows used by investing activities
  under Canadian GAAP

  	
   

  	
  (12,135

  	
  )

  	
  (28,996

  	
  )

  
	
   

  	
  Deferred exploration expense

  	
   

  	
  8,916

  	
   

  	
  3,820

  	
   

  
	
   

  	
  Cash flows used by investing
  activities under US GAAP

  	
   

  	
  (3,219

  	
  )

  	
  (25,176

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Cash flows provided by
  financing activities under Canadian and US GAAP

  	
   

  	
  1,130

  	
   

  	
  —

  	
   

  

 

37

 

Promotora Minera de Guayana, S.A.

and its related Companies

Notes to the Combined Financial Statements

December 31, 2006

 

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

 

a)                  Mineral Properties
and Exploration and Development Costs.

 

Under Canadian GAAP, mineral properties,
including exploration, development and acquisition costs, are carried at cost
until the properties to which they relate are placed into production, sold or
where management has determined there to be a permanent impairment in value.

 

Under U.S. GAAP, mineral property
expenditures are expensed as incurred. Once a final feasibility study has been
completed, additional costs incurred to bring the mine into production are
capitalized as development costs.

 

As at January 1, 2005, US$2.8 million thousand
of pre-feasibility exploration costs were included in mineral properties for
Canadian GAAP. For the years ended December 31, 2006 and 2005, US$8.9
million and US$3.8 million of pre-feasibility exploration costs were
capitalized, respectively; for US GAAP, these have been charged to the income
statement net of taxes, at the average rate for the respective years.

 

b)                 Other
Comprehensive Income

 

Under US GAAP, SFAS 130, Reporting
Comprehensive Income, establishes rules for the reporting and
display of comprehensive income and its components. Comprehensive income is net
income, plus certain other items that are recorded directly to shareholders’
equity such as foreign currency translation adjustments and unrealized gains
(losses) on available-for-sale securities. A US and Canadian GAAP difference
existed prior to the adoption of the new Canadian accounting standard for
comprehensive income on January 1, 2007.

 

As at January 1, 2005, US$7.3 million
cumulative translation adjustment was recorded for Canadian GAAP. This has been
charged to accumulated comprehensive income under US GAAP. For the years
ended December 31, 2006 and 2005, US$12.5 million and US$2.3 million
relating to the translation of the self-sustaining subsidiary was recorded to
cumulative transaction adjustment respectively; for US GAAP, these have amounts
been charged to other comprehensive loss in the respective years.

 

c)                  Recently issued accounting pronouncements

 

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 

 

38

 

Promotora Minera de Guayana, S.A.

and its related Companies

Notes to the Combined Financial Statements

December 31, 2006

 

and penalties, accounting in interim periods,
disclosures, and transition. The adoption of FIN 48 did not have any effect on
the Company’s financial position, cash flows or results from operations.

 

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.

 

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. The
Company is currently evaluating the impact, if any, that the implementation
SFAS 157 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
acquire 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.

 

39

 

Promotora Minera de Guayana, S.A.

and its related Companies

Notes to the Combined Financial Statements

December 31, 2006

 

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 currently evaluating the potential
impact, if any, of the adoption of SFAS 161 on its consolidated financial
statements.

 

The recent SEC and FASB interpretations
relate to FASB Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities, and 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.

 

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 currently
evaluating the potential impact, if any, of the adoption of EITF 00-19 on its
consolidated financial statements.

 

40QuickLinks
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  Exhibit 10.19    
    

 
 

  BASE SALARIES OF EXECUTIVE OFFICERS OF THE COMPANY    
    

        As of October 1, 2008, the following are the base salaries (on an annual basis) of the executive officers of Network
Engines, Inc.: 

					
	Name and Title

 
	 	Base Salary 	 
	Gregory A. Shortell
 President, Chief Executive Officer and Director	 	$	375,000	 
	
Douglas G. Bryant
 Chief Financial Officer, Treasurer and Secretary	
 	
$	

240,000	
 
	
Charles N. Cone, III
 Senior Vice President of Sales and Marketing	
 	
$	

255,000	
 
	
Richard P. Graber
 Senior Vice President of Engineering and Operations	
 	
$	

205,000	
 

QuickLinks

Exhibit 10.19

BASE SALARIES OF EXECUTIVE OFFICERS OF THE COMPANY

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