Document:

ex10_1.htm

Exhibit 10.1

 

Amendment

Dated as of September 9, 2011

to

Receivables Sale Agreement

Dated as of July 1, 2005

 

This Amendment (the “Amendment”), dated as of September 9, 2011, is entered into among Kansas City Power & Light Receivables Company (the “Seller”), Kansas City Power & Light Company (the “Initial Collection Agent”), Victory Receivables Corporation (the “Purchaser”), and The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch (formerly known as The Bank of
Tokyo-Mitsubishi, Ltd., New York Branch), as agent for the Purchaser (the “Agent”).

 

Reference is hereby made to that certain Receivables Sale Agreement, dated as of July 1, 2005 (as amended, supplemented, assigned or otherwise modified through the date hereof, the “Sale Agreement”), among the Seller, the Initial Collection Agent, the Purchaser and the Agent.  Terms used herein and not otherwise defined herein which are defined in the Sale Agreement or the other Transaction Documents (as defined in the Sale Agreement) shall have the same meaning herein as defined therein.

 

For good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows:

 

Section 1.   Upon execution by the parties hereto in the space provided for that purpose below, the Sale Agreement shall be, and it hereby is, amended as follows:

 

(a)The defined term “Purchase Limit” appearing in Schedule I of the Sale Agreement is hereby amended in its entirety and as so amended shall read as follows:

 

“Purchase Limit” means $110,000,000.

 

 (b)Clause (d) of the defined term “Termination Date” appearing in Schedule I of the Sale Agreement is hereby amended in its entirety and as so amended shall read as follows:

 

(d)September 9, 2014.

 

    Section 2.   The Sale Agreement, as amended and supplemented hereby or as contemplated herein, and all rights and powers created thereby and thereunder or under the other Transaction Documents and all other documents executed in connection therewith, are in all respects ratified and confirmed.  From and after the date hereof, the Sale Agreement shall be amended and supplemented as herein provided, and, except as so amended and supplemented, the Sale Agreement, each of the other Transaction
Documents and all other documents executed in connection therewith shall remain in full force and effect.  The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a 

 

 

 

waiver of any right, power or remedy of the Agent or the Purchaser under, nor constitute a waiver of any provision of, the Sale Agreement.

 

Section 3.   This Amendment shall be effective as of the date first above written upon satisfaction of the following conditions precedent:

 

(a)The Agent shall have received counterparts of this Amendment duly executed by the parties hereto.

 

(b)The Agent shall have received executed counterparts to the Third Amendment to Amended and Restated Fee Letter and the renewal fee described therein.

 

(c)The Seller shall have delivered to the Agent a certificate of its Secretary certifying the resolutions of the Seller’s board of directors approving this Amendment and the increase in the Purchase Limit.

 

(d)No Events of Default shall have occurred and be continuing either before or immediately after giving effect to this Amendment.

 

(e)The representations and warranties contained in the Sale Agreement shall be true and correct both as of the date hereof and immediately after giving effect to this Amendment.

 

    Section 4.  This Amendment may be executed in two or more counterparts, each of which shall constitute an original but both or all of which, when taken together, shall constitute but one instrument.  Delivery of an executed counterpart hereof by facsimile or other electronic means shall be deemed to be an original.

 

    Section 5.    This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.

 

    Section 6.  This Amendment shall be governed by and construed in accordance with the internal laws of the State of New York (including Section 5-1401-1 of the General Obligations Law), but without regard to any other conflict of laws provisions thereof.

 

 

[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

 

 

 

 

 

In Witness Whereof, the parties have caused this Amendment to be executed and delivered by their duly authorized officers as of the date first above written.

 

	
  

	
The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch, as the Agent

 

	
  

	
By: /s/ Aditya Reddy

	
  

	
Title: Managing Director

 

	
  

	
Victory Receivables Corporation

 

	
  

	
By: /s/ David V. DeAngelis

	
  

	
Title: Vice President

 

	
  

	
Kansas City Power & Light Receivables Company

 

	
  

	
By: /s/ James P. Gilligan

	
  

	
Title: President

 

	
  

	
Kansas City Power & light Company

 

	
  

	
By: /s/ Kevin E. Bryant

	
  

	
Title: Vice President - Investor Relations and TreasurerTrelawney Mining and Exploration Inc.

Unaudited Interim Consolidated

Financial Statements

For the three and six month periods ended

June 30, 2011 and 2010

  

 

  

 

Trelawney Mining and Exploration Inc.

Unaudited Interim Consolidated Statement of Financial Position

(Expressed in Canadian Dollars)

	
As at

	 	
June 30,

2011

	 	 	
December 31,

2010

	 	 	
January 1,

2010

	 
	  	 	 	 	 	
(Note 2)

	 	 	
(Note 2)

	 
	 	 	 	 	 	 	 	 	 	 
	
Assets

	 	 	 	 	 	 	 	 	 
	
Current Assets

	 	 	 	 	 	 	 	 	 
	
Cash and cash equivalents (Note 14)

	 	$	86,289,853	 	 	$	54,219,416	 	 	$	10,593,347	 
	
Other financial assets (Note 6)

	 	 	1,032,970	 	 	 	87,375	 	 	 	32,500	 
	
HST and other receivables (Note 18)

	 	 	1,082,876	 	 	 	772,525	 	 	 	76,854	 
	
Prepaid expenses and advances (Note 16 & 9)

	 	 	249,612	 	 	 	211,817	 	 	 	8,937	 
	  	 	 	88,655,311	 	 	 	55,291,133	 	 	 	10,711,638	 
	
Restricted Cash (Note 14)

	 	 	637,771	 	 	 	586,198	 	 	 	47,350	 
	
Deposits (Note 16)

	 	 	169,500	 	 	 	539,000	 	 	 	-	 
	
Property, plant and equipment (Note 4)

	 	 	8,268,337	 	 	 	5,663,559	 	 	 	-	 
	
Deferred acquisition costs (Note 5)

	 	 	27,505,889	 	 	 	10,085,494	 	 	 	5,639,494	 
	  	 	$	125,236,808	 	 	$	72,165,384	 	 	$	16,398,482	 
	  	 	 	 	 	 	 	 	 	 	 	 	 
	
Liabilities

	 	 	 	 	 	 	 	 	 	 	 	 
	
Current Liabilities

	 	 	 	 	 	 	 	 	 	 	 	 
	
Trade and other payables (Note 19 & 9)

	 	$	2,675,428	 	 	$	2,791,245	 	 	$	794,941	 
	
Current portion of capital lease obligations  (Note 15)

	 	 	358,174	 	 	 	318,193	 	 	 	-	 
	  	 	 	3,033,602	 	 	 	3,109,438	 	 	 	794,941	 
	
Property option payable (Note 5(d))

	 	 	-	 	 	 	-	 	 	 	1,000,000	 
	
Capital lease obligations (Note 15)

	 	 	237,325	 	 	 	660,648	 	 	 	-	 
	
Asset retirement obligation  (Note 7)

	 	 	457,857	 	 	 	443,114	 	 	 	-	 
	  	 	 	3,728,784	 	 	 	4,213,200	 	 	 	1,794,941	 
	
Shareholders’ equity

	 	 	 	 	 	 	 	 	 	 	 	 
	
Capital stock (Note 10)

	 	 	174,122,843	 	 	 	97,953,082	 	 	 	19,222,646	 
	
Share based payment reserve (Note 12)

	 	 	32,006,191	 	 	 	5,167,351	 	 	 	2,169,119	 
	
Warrants reserve (Note 11)

	 	 	1,570,800	 	 	 	2,192,200	 	 	 	3,831,000	 
	
Accumulated deficit

	 	 	(86,191,810	)	 	 	(37,360,449	)	 	 	(10,619,224	)
	  	 	 	121,508,024	 	 	 	67,952,184	 	 	 	14,603,541	 
	  	 	$	125,236,808	 	 	$	72,165,384	 	 	$	16,398,482	 

The accompanying notes are an integral part of these unaudited interim consolidated financial statements

  

 

  

 

Trelawney Mining and Exploration Inc.

Unaudited Interim Consolidated Statements of Loss, Comprehensive Loss

(Expressed in Canadian Dollars)

	  	 	
Three

months

ended June

30, 2011

	 	 	
Three

months

ended June

30, 2010

	 	 	
Six

months

ended June

30, 2011

	 	 	
Six

months

ended June

30, 2010

	 
	  	 	 	 	 	
(Note 2)

	 	 	 	 	 	
(Note 2)

	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	
Administrative Expenses

	 	 	 	 	 	 	 	 	 	 	 	 
	
Management and consulting fees (Note 9)

	 	$	90,856	 	 	$	282,949	 	 	$	180,656	 	 	$	339,148	 
	
Promotion and travel

	 	 	205,763	 	 	 	148,975	 	 	 	651,867	 	 	 	210,591	 
	
Office and general

	 	 	377,946	 	 	 	130,811	 	 	 	628,013	 	 	 	309,591	 
	
Professional fees (Note 9)

	 	 	134,610	 	 	 	52,700	 	 	 	181,786	 	 	 	170,358	 
	
Share-based payments (Note 10)

	 	 	27,215,300	 	 	 	1,389,300	 	 	 	27,232,240	 	 	 	3,119,000	 
	
Exploration & evaluation expenditures (Note 17 & 9)

	 	 	7,122,212	 	 	 	3,405,754	 	 	 	17,107,919	 	 	 	5,685,759	 
	
Shareholders’ information

	 	 	168,301	 	 	 	(2,283	)	 	 	279,413	 	 	 	185,936	 
	
Salaries and benefits (Note 9)

	 	 	801,727	 	 	 	183,551	 	 	 	1,545,267	 	 	 	183,551	 
	  	 	 	36,116,715	 	 	 	5,591,757	 	 	 	47,807,161	 	 	 	10,023,934	 
	
Other Expenses

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
Realized loss on other financial assets

	 	 	55	 	 	 	-	 	 	 	73,477	 	 	 	-	 
	
Unrealized loss on other financial assets (Note 6)

	 	 	262,230	 	 	 	7,750	 	 	 	950,723	 	 	 	7,750	 
	
Net loss and comprehensive loss

	 	 	36,379,000	 	 	 	5,599,507	 	 	 	48,831,361	 	 	 	10,031,684	 
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
Net loss per share – basic and diluted

	 	 	28.4	¢	 	 	4.6	¢	 	 	39.2	¢	 	 	14.8	¢
	
Weighted average # of shares outstanding - basic

	 	 	128,262,380	 	 	 	121,151,269	 	 	 	124,726,468	 	 	 	67,767,953	 
	
Weighted average # of shares outstanding –diluted

	 	 	128,262,380	 	 	 	121,151,269	 	 	 	124,726,468	 	 	 	67,767,953	 

The accompanying notes are an integral part of these unaudited interim consolidated financial statements

  

 

  

 

Trelawney Mining and Exploration Inc.

Unaudited Interim Consolidated Statements of Changes in Equity

 

(Expressed in Canadian Dollars)

	  	 	
Share Capital

	 	 	
Reserves

	 	 	 	 	 	 	 
	  	 	
Number of

Shares

	 	 	
Amount

	 	 	
Share based

payments

	 	 	
Warrants

	 	 	
Accumulated

Deficit

	 	 	
Total

	 
	
Balance at January 1, 2010

	 	 	64,549,191	 	 	$	19,222,646	 	 	$	2,169,119	 	 	$	3,831,000	 	 	$	(10,619,224	)	 	$	14,603,541	 
	
Private placement shares - $1.05/share

	 	 	14,238,095	 	 	 	14,950,000	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	14,950,000	 
	
Exercise of stock options

	 	 	245,000	 	 	 	131,750	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	131,750	 
	
Reserve transferred on exercise of options

	 	 	 	 	 	 	100,400	 	 	 	(100,400	)	 	 	-	 	 	 	-	 	 	 	-	 
	
Exercise of purchase warrants

	 	 	2,562,000	 	 	 	894,600	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	894,600	 
	
Reserve transferred on exercise of warrants

	 	 	 	 	 	 	409,000	 	 	 	-	 	 	 	(409,000	)	 	 	-	 	 	 	-	 
	
Shares issued for property

	 	 	3,500,000	 	 	 	1,798,000	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	1,798,000	 
	
Share issue costs – cash

	 	 	 	 	 	 	(1,023,887	)	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(1,023,887	)
	
Share issue costs – broker warrants

	 	 	 	 	 	 	(594,000	)	 	 	-	 	 	 	594,000	 	 	 	-	 	 	 	-	 
	
Share based compensation

	 	 	 	 	 	 	-	 	 	 	3,119,000	 	 	 	-	 	 	 	-	 	 	 	3,119,000	 
	
Total comprehensive loss for the period

	 	 	 	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(10,211,684	)	 	 	(10,211,684	)
	
Balance at June 30, 2010

	 	 	85,094,286	 	 	$	35,888,509	 	 	$	5,187,719	 	 	$	4,016,000	 	 	$	(20,830,908	)	 	$	24,261,320	 
	
Private placement shares - $2.20/share

	 	 	18,652,000	 	 	 	41,034,400	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	41,034,400	 
	
Private placement FT shares - $2.50/share

	 	 	6,440,000	 	 	 	16,100,000	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	16,100,000	 
	
Exercise of stock options

	 	 	336,000	 	 	 	183,400	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	183,400	 
	
Reserve transferred on exercise of options

	 	 	 	 	 	 	122,828	 	 	 	(122,828	)	 	 	-	 	 	 	-	 	 	 	-	 
	
Exercise of purchase warrants

	 	 	9,166,591	 	 	 	4,076,218	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	4,076,218	 
	
Reserve transferred on exercise of warrants

	 	 	 	 	 	 	1,823,800	 	 	 	-	 	 	 	(1,823,800	)	 	 	-	 	 	 	-	 
	
Shares issued for property

	 	 	800,000	 	 	 	2,384,000	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	2,384,000	 
	
Share based compensation

	 	 	 	 	 	 	-	 	 	 	102,460	 	 	 	-	 	 	 	-	 	 	 	102,460	 
	
Share issue costs – cash

	 	 	 	 	 	 	(3,660,073	)	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(3,660,073	)
	
Total comprehensive loss for the period

	 	 	 	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(16,529,541	)	 	 	(16,529,541	)
	
Balance at December 31, 2010

	 	 	120,488,877	 	 	$	97,953,082	 	 	$	5,167,351	 	 	$	2,192,200	 	 	$	(37,360,449	)	 	$	67,952,184	 
	
Private placement shares - $4.00/share

	 	 	14,375,000	 	 	 	57,500,000	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	57,500,000	 
	
Exercise of stock options

	 	 	774,000	 	 	 	507,150	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	507,150	 
	
Reserve transferred  on exercise of options

	 	 	 	 	 	 	393,400	 	 	 	(393,400	)	 	 	-	 	 	 	-	 	 	 	-	 
	
Exercise of purchase warrants

	 	 	1,281,167	 	 	 	1,031,944	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	1,031,944	 
	
Reserve transferred on exercise of warrants

	 	 	 	 	 	 	621,400	 	 	 	-	 	 	 	(621,400	)	 	 	-	 	 	 	-	 
	
Share based compensation

	 	 	 	 	 	 	-	 	 	 	27,232,240	 	 	 	-	 	 	 	-	 	 	 	27,232,240	 
	
Shares issue costs – cash

	 	 	 	 	 	 	(3,252,633	)	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(3,252,633	)
	
Shares issued for property

	 	 	4,550,000	 	 	 	19,368,500	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	19,368,500	 
	
Total comprehensive loss for the period

	 	 	 	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(48,831,361	)	 	 	(48,831,361	)
	
Balance at June 30, 2011

	 	 	141,469,044	 	 	$	174,122,843	 	 	$	32,006,191	 	 	$	1,570,800	 	 	$	(86,191,810	)	 	$	121,508,024	 

The accompanying notes are an integral part of these unaudited interim consolidated financial statements

  

 

  

 

Trelawney Mining and Exploration Inc.

Unaudited Interim Consolidated Statements of Cash Flow

(Expressed in Canadian Dollars)

 

	
Six month period ended June 30,

	 	
2011

	 	 	
2010

	 
	  	 	 	 	 	
(Note 2)

	 
	
Operations

	 	 	 	 	 	 
	
Net loss

	 	$	(48,831,361	)	 	$	(10,211,684	)
	
Adjustments to reconcile net loss to cash flow from operating activities:

	 	 	 	 	 	 	 	 
	
Share based payments

	 	 	27,232,240	 	 	 	3,119,000	 
	
Unrealized loss on other financial assets

	 	 	950,723	 	 	 	7,750	 
	
Realized loss on other financial assets

	 	 	73,477	 	 	 	-	 
	
Loss on disposal of property, plant and equipment

	 	 	34,406	 	 	 	-	 
	
Shares issued for geological data

	 	 	2,335,000	 	 	 	-	 
	
Accretion expense

	 	 	14,743	 	 	 	-	 
	
Amortization

	 	 	502,004	 	 	 	288,790	 
	
Net change in non-cash operating working capital items:

	 	 	 	 	 	 	 	 
	
Prepaid expenses

	 	 	(37,795	)	 	 	(93,733	)
	
HST and other receivables

	 	 	(310,351	)	 	 	(241,088	)
	
Trade and other payables

	 	 	(215,817	)	 	 	(150,629	)
	  	 	 	(18,252,731	)	 	 	(7,281,594	)
	
Financing

	 	 	 	 	 	 	 	 
	
Issuance of share capital, net of issue costs

	 	 	55,886,461	 	 	 	14,952,463	 
	  	 	 	55,886,461	 	 	 	14,952,463	 
	
Investing

	 	 	 	 	 	 	 	 
	
Additions to property, plant and equipment

	 	 	(3,037,373	)	 	 	(4,079,381	)
	
Proceeds from sale of property, plant and equipment

	 	 	225,000	 	 	 	-	 
	
Purchase of other financial assets

	 	 	(2,192,985	)	 	 	-	 
	
Proceeds from disposals of other financial assets

	 	 	223,190	 	 	 	-	 
	
Payment of capital lease obligation

	 	 	(412,157	)	 	 	-	 
	
Additions to deferred acquisition costs

	 	 	(386,895	)	 	 	(1,267,804	)
	
Deposits

	 	 	69,500	 	 	 	-	 
	
Restricted cash

	 	 	(51,573	)	 	 	-	 
	  	 	 	(5,563,293	)	 	 	(5,347,185	)
	
Net increase in cash and cash equivalents

	 	 	32,070,437	 	 	 	2,323,684	 
	
Cash and cash equivalents, beginning of period

	 	 	54,219,416	 	 	 	10,640,697	 
	
Cash and cash equivalents, end of period

	 	$	86,289,853	 	 	$	12,964,381	 

 

The accompanying notes are an integral part of these unaudited interim consolidated financial statements

  

 

  

Trelawney Mining and Exploration Inc.

 

Notes to Unaudited Consolidated Financial Statements

For the Three and Six Month Periods Ended June 30, 2011 and 2010

 

 

General

Trelawney Mining and Exploration Inc. (Trelawney or the Company) was incorporated under the laws of the Province of Ontario, Canada.  Its principal business activities are that of mineral exploration Company in Ontario.  On April 16, 2009 the Company filed Articles of Amendment to change its name from Trelawney Resources Inc. to Trelawney Mining and Exploration Inc. These articles also authorized a five for one share consolidation of the Company’s issued and outstanding shares.

Trelawney is in the process of exploring its mineral properties and has not yet determined whether the properties contain economically recoverable reserves.  The recovery of expenditures capitalized to mineral properties consisting of deferred acquisition costs is dependent upon the existence of economically recoverable mineralization, the ability of Trelawney to obtain financing necessary to complete the exploration and the development of the mineral properties, and upon future profitable production or alternatively, on the sufficiency of proceeds from disposition.

1.   Basis of Preparation

1.1 Statement of compliance

These consolidated interim financial statements are unaudited and have been prepared in accordance with IAS 34 ‘Interim Financial Reporting’ (“IAS 34”) using accounting policies consistent with the International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”) and Interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”).

The policies applied in these interim financial statements are based on IFRS issued and outstanding as of August 11, 2011, the date the Board of Directors approved the financial statements. Any subsequent changes to IFRS that are given effect in the annual consolidated financial statements for the year ending December 31, 2011 could result in restatement of these interim financial statements, including the transition adjustments recognized on change-over to IFRS.

These are the Company’s second IFRS consolidated interim financial statements for part of the period covered by the Company’s first IFRS consolidated annual financial statements for the year ending December 31, 2011.  Previously, the Company prepared its consolidated annual and consolidated interim financial statements in accordance with Canadian Generally Accepted Accounting Principles (“GAAP”).

As these are the Company’s second set of interim consolidated financial statements in accordance with IFRS, the Company’s disclosures exceed the minimum requirements under IAS 34. The Company has elected to exceed the minimum requirements in order to present the Company’s accounting policies in accordance with IFRS and the additional disclosures required under IFRS, which also highlight the changes from the Company’s 2010 annual consolidated financial statements prepared in accordance with Canadian GAAP. In 2011 and beyond, the Company may not provide the same amount of disclosure in the Company’s interim consolidated financial statements under IFRS as the reader will be able rely on these and the annual consolidated financial statements which will be prepared in accordance with IFRS.

1.2 Basis of presentation

The financial statements have been prepared on the historical cost basis except for certain non-current assets and financial instruments, which are measured at fair value, as explained in the accounting policies set out in Note 3. The comparative figures presented in these interim consolidated financial statements are in accordance with IFRS.

  

 

  

Trelawney Mining and Exploration Inc.

 

Notes to Unaudited Consolidated Financial Statements

For the Three and Six Month Periods Ended June 30, 2011 and 2010

 

1.    Basis of Preparation (continued)

1.3 Adoption of new and revised standards and interpretations

The IASB issued a number of new and revised International Accounting Standards, International Financial Reporting Standards, amendments and related interpretations which are effective for the Company’s financial year beginning on or after January 1, 2011.  For the purpose of preparing and presenting the Financial Information for the relevant periods, the Company has consistently adopted all these new standards for the relevant reporting periods.

At the date of authorization of these Financial Statements, the IASB and IFRIC has issued the following new and revised Standards and Interpretations which are not yet effective for the relevant reporting periods.

	
  

	
•

	
IFRS 9 ‘Financial Instruments: Classification and Measurement’ – effective for annual periods beginning on or after January 1, 2013, with early adoption permitted, introduces new requirements for the classification and measurement of financial instruments.

	
  

	
•

	
IFRS 10 ‘Consolidated Financial Statements’ – effective for annual periods beginning on or after January 1, 2013, with early adoption permitted, establishes principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities.

	
  

	
•

	
IFRS 11 ‘Joint Arrangements’ - effective for annual periods beginning on or after January 1, 2013, with early adoption permitted, provides for a more realistic reflection of joint arrangements by focusing on the rights and obligations of the arrangement, rather than its legal form.

	
  

	
•

	
IFRS 12 ‘Disclosure of Interests in Other Entities’ - effective for annual periods beginning on or after January 1, 2013, with early adoption permitted, requires the disclosure of information that enables users of financial statements to evaluate the nature of, and risks associated with its interests in other entities and the effects of those interests on its financial position, financial performance and cash flows.

	
  

	
•

	
IFRS 13 ‘Fair Value Measurement’ - effective for annual periods beginning on or after January 1, 2013, with early adoption permitted, provides the guidance on the measurement of fair value and related disclosures through a fair value hierarchy.

The Company has not early adopted these standards, amendments and interpretations.  The Company is currently assessing what impact the application of these standards or amendments will have on the consolidated financial statements of the Company.

2.     Adoption of IFRS

The Company has adopted IFRS on January 1, 2011 with a transition date of January 1, 2010. Under IFRS 1 ‘First time Adoption of International Financial Reporting Standards’, the IFRS are applied retrospectively at the transition date with all adjustments to assets and liabilities as stated under GAAP taken to deficit unless certain exemptions are applied.

The Company elected to take the following IFRS 1 optional exemptions:

	
  

	
•

	
to apply the requirements of IFRS 3, Business Combinations, prospectively from the Transition Date;

	
  

	
•

	
to apply the requirements of IFRS 2, Share-based payments, only to equity instruments granted after November 7, 2002 which had not vested as of the Transition Date.

  

 

  

Trelawney Mining and Exploration Inc.

 

Notes to Unaudited Consolidated Financial Statements

For the Three and Six Month Periods Ended June 30, 2011 and 2010

 

2.    Adoption of IFRS (continued)

Below is the Company’s Consolidated Statement of Financial Position as at the transition date of January 1, 2010 under IFRS.

	  	 	
As at January 1, 2010

	 	  
	  	 	
GAAP

	 	 	
Effect of 

transition to

IFRS

	 	 	
IFRS

	 	
Notes

	  	 	 	 	 	 	 	 	 	 	  
	
Assets

	 	 	 	 	 	 	 	 	 	  
	
Current Assets

	 	 	 	 	 	 	 	 	 	  
	
Cash and cash equivalents

	 	$	10,593,347	 	 	 	-	 	 	$	10,593,347	 	  
	
Other financial assets

	 	 	32,500	 	 	 	-	 	 	 	32,500	 	  
	
HST and other receivables

	 	 	76,854	 	 	 	-	 	 	 	76,854	 	  
	
Prepaid expenses

	 	 	8,937	 	 	 	-	 	 	 	8,937	 	  
	  	 	 	10,711,638	 	 	 	-	 	 	 	10,711,638	 	  
	
Restricted cash

	 	 	47,350	 	 	 	-	 	 	 	47,350	 	  
	
Deferred acquisition costs

	 	 	10,821,403	 	 	 	(5,181,909	)	 	 	5,639,494	 	
(a)

	  	 	$	21,580,391	 	 	 	(5,181,909	)	 	$	16,398,482	 	  
	  	 	 	 	 	 	 	 	 	 	 	 	 	  
	
Liabilities

	 	 	 	 	 	 	 	 	 	 	 	 	  
	
Current Liabilities

	 	 	 	 	 	 	 	 	 	 	 	 	  
	
Trade and other payables

	 	$	794,941	 	 	 	-	 	 	$	794,941	 	  
	  	 	 	794,941	 	 	 	-	 	 	 	794,941	 	  
	
Deferred property option payable

	 	 	1,000,000	 	 	 	-	 	 	 	1,000,000	 	  
	  	 	 	1,794,941	 	 	 	-	 	 	 	1,794,941	 	  
	
Shareholders’ equity

	 	 	 	 	 	 	 	 	 	 	 	 	  
	
Capital stock

	 	 	19,222,646	 	 	 	-	 	 	 	19,222,646	 	  
	
Contributed surplus

	 	 	5,983,119	 	 	 	(5,983,119	)	 	 	-	 	
(c)

	
Share based payment reserve

	 	 	-	 	 	 	2,169,119	 	 	 	2,169,119	 	
(c)

	
Warrants reserve

	 	 	-	 	 	 	3,831,000	 	 	 	3,831,000	 	
(b), (c)

	
Accumulated deficit

	 	 	(5,420,315	)	 	 	(5,198,909	)	 	 	(10,619,224	)	
(a), (b)

	  	 	 	19,785,450	 	 	 	(5,181,909	)	 	 	14,603,541	 	  
	  	 	$	21,580,391	 	 	 	(5,181,909	)	 	$	16,398,482	 	  

  

 

  

Trelawney Mining and Exploration Inc.

 

Notes to Unaudited Consolidated Financial Statements

For the Three and Six Month Periods Ended June 30, 2011 and 2010

 

2.    Adoption of IFRS (continued)

IFRS employs a conceptual framework that is similar to Canadian GAAP. The adoption has resulted in significant changes to the reported financial position, results of operations, and cash flows of the Company. Presented below are reconciliations prepared by the Company to reconcile to IFRS the assets, liabilities, equity, net loss and cash flows of the Company from those reported under Canadian GAAP:

Reconciliation of assets, liabilities and shareholder’s equity

	  	 	
As at June 30, 2010

	 	  
	  	 	
GAAP

	 	 	
Effect of

transition to

IFRS

	 	 	
IFRS

	 	
Notes

	  	 	 	 	 	 	 	 	 	 	  
	
Assets

	 	 	 	 	 	 	 	 	 	  
	
Current Assets

	 	 	 	 	 	 	 	 	 	  
	
Cash and cash equivalents

	 	$	12,964,381	 	 	 	-	 	 	$	12,964,381	 	  
	
Other financial assets

	 	 	58,750	 	 	 	-	 	 	 	58,750	 	  
	
HST and other receivables

	 	 	317,942	 	 	 	-	 	 	 	317,942	 	  
	
Prepaid expenses

	 	 	102,670	 	 	 	-	 	 	 	102,670	 	  
	  	 	 	13,443,743	 	 	 	-	 	 	 	13,443,743	 	  
	
Property, plant and equipment

	 	 	4,241,633	 	 	 	-	 	 	 	4,241,633	 	  
	
Deferred acquisition costs

	 	 	19,538,966	 	 	 	(10,867,668	)	 	 	8,671,298	 	
(a)

	  	 	$	37,224,342	 	 	 	(10,867,668	)	 	$	26,356,674	 	  
	  	 	 	 	 	 	 	 	 	 	 	 	 	  
	
Liabilities

	 	 	 	 	 	 	 	 	 	 	 	 	  
	
Current Liabilities

	 	 	 	 	 	 	 	 	 	 	 	 	  
	
Trade and other payables

	 	$	1,051,582	 	 	 	-	 	 	$	1,051,582	 	  
	
Property option payable

	 	 	1,000,000	 	 	 	-	 	 	 	1,000,000	 	  
	  	 	 	2,051,582	 	 	 	-	 	 	 	2,051,582	 	  
	
Capital lease obligations

	 	 	43,772	 	 	 	-	 	 	 	43,772	 	  
	  	 	 	2,095,354	 	 	 	-	 	 	 	2,095,354	 	  
	
Shareholders’ equity

	 	 	 	 	 	 	 	 	 	 	 	 	  
	
Capital stock

	 	 	34,900,509	 	 	 	988,000	 	 	 	35,888,509	 	
(d)

	
Contributed surplus

	 	 	9,186,719	 	 	 	(9,186,719	)	 	 	-	 	
(c)

	
Share based payment reserve

	 	 	-	 	 	 	5,187,719	 	 	 	5,187,719	 	
(c)

	
Warrants reserve

	 	 	-	 	 	 	4,016,000	 	 	 	4,016,000	 	
(b), (c)

	
Accumulated Deficit

	 	 	(8,958,240	)	 	 	(11,872,668	)	 	 	(20,830,908	)	
(a), (b), (d)

	  	 	 	35,128,988	 	 	 	(10,867,668	)	 	 	24,261,320	 	  
	  	 	$	37,224,342	 	 	 	(10,867,668	)	 	$	26,356,674	 	  

  

 

  

Trelawney Mining and Exploration Inc.

 

Notes to Unaudited Consolidated Financial Statements

For the Three and Six Month Periods Ended June 30, 2011 and 2010

 

2.    Adoption of IFRS (continued)

Reconciliation of assets, liabilities and shareholder’s equity

 

	  	 	
As at December 31, 2010

	 	  
	  	 	
GAAP

	 	 	
Effect of

transition to

IFRS

	 	 	
IFRS

	 	
Notes

	  	 	 	 	 	 	 	 	 	 	  
	
Assets

	 	 	 	 	 	 	 	 	 	  
	
Current Assets

	 	 	 	 	 	 	 	 	 	  
	
Cash and cash equivalents

	 	$	54,219,416	 	 	 	-	 	 	$	54,219,416	 	  
	
Other financial assets

	 	 	87,375	 	 	 	-	 	 	 	87,375	 	  
	
HST and other receivables

	 	 	772,525	 	 	 	-	 	 	 	772,525	 	  
	
Prepaid expenses

	 	 	211,817	 	 	 	-	 	 	 	211,817	 	  
	  	 	 	55,291,133	 	 	 	-	 	 	 	55,291,133	 	  
	
Restricted Cash

	 	 	586,198	 	 	 	-	 	 	 	586,198	 	  
	
Deposits

	 	 	539,000	 	 	 	-	 	 	 	539,000	 	  
	
Property, plant and equipment

	 	 	5,663,559	 	 	 	-	 	 	 	5,663,559	 	  
	
Deferred acquisition costs

	 	 	30,300,790	 	 	 	(20,215,296	)	 	 	10,085,494	 	
(a)

	  	 	$	92,380,680	 	 	 	(20,215,296	)	 	$	72,165,384	 	  
	  	 	 	 	 	 	 	 	 	 	 	 	 	  
	
Liabilities

	 	 	 	 	 	 	 	 	 	 	 	 	  
	
Current Liabilities

	 	 	 	 	 	 	 	 	 	 	 	 	  
	
Trade and other payables

	 	$	2,791,245	 	 	 	-	 	 	$	2,791,245	 	  
	
Short term portion of capital lease

	 	 	318,193	 	 	 	-	 	 	 	318,193	 	  
	  	 	 	3,109,438	 	 	 	-	 	 	 	3,109,438	 	  
	
Capital lease obligations

	 	 	660,648	 	 	 	-	 	 	 	660,648	 	  
	
Asset retirement obligation

	 	 	443,114	 	 	 	-	 	 	 	443,114	 	  
	  	 	 	4,213,200	 	 	 	-	 	 	 	4,213,200	 	  
	
Shareholders’ equity

	 	 	 	 	 	 	 	 	 	 	 	 	  
	
Capital stock

	 	 	97,953,082	 	 	 	-	 	 	 	97,953,082	 	  
	
Contributed surplus

	 	 	7,359,551	 	 	 	(7,359,551	)	 	 	-	 	
(c)

	
Share based payment reserve

	 	 	-	 	 	 	5,167,351	 	 	 	5,167,351	 	
(c)

	
Warrants reserve

	 	 	-	 	 	 	2,192,200	 	 	 	2,192,200	 	
(c)

	
Accumulated Deficit

	 	 	(17,145,153	)	 	 	(20,215,296	)	 	 	(37,360,449	)	
(a), (b)

	  	 	 	88,167,480	 	 	 	(20,215,296	)	 	 	67,952,184	 	  
	  	 	$	92,380,680	 	 	 	(20,215,296	)	 	$	72,165,384	 	  

  

 

  

Trelawney Mining and Exploration Inc.

 

Notes to Unaudited Consolidated Financial Statements

For the Three and Six Month Periods Ended June 30, 2011 and 2010

 

2.    Adoption of IFRS (continued)

Reconciliation of loss and comprehensive loss

	  	 	
Six months ended June 30, 2010

	 	  
	  	 	
GAAP

	 	 	
Effect of 

transition to 

IFRS

	 	 	
IFRS

	 	
Notes

	  	 	 	 	 	 	 	 	 	 	  
	
Administrative Expenses

	 	 	 	 	 	 	 	 	 	  
	
Management and consulting fees

	 	 	339,148	 	 	 	-	 	 	 	339,148	 	  
	
Promotion and travel

	 	 	210,591	 	 	 	-	 	 	 	210,591	 	  
	
Office and general

	 	 	309,591	 	 	 	-	 	 	 	309,591	 	  
	
Salaries

	 	 	183,551	 	 	 	-	 	 	 	183,551	 	  
	
Professional fees

	 	 	170,358	 	 	 	-	 	 	 	170,358	 	  
	
Share based payments

	 	 	3,119,000	 	 	 	-	 	 	 	3,119,000	 	
(b)

	
Exploration and evaluation expenditures

	 	 	-	 	 	 	5,685,759	 	 	 	5,685,759	 	
(a)

	
Shareholders’ information

	 	 	185,936	 	 	 	-	 	 	 	185,936	 	  
	  	 	 	4,518,175	 	 	 	5,685,759	 	 	 	10,203,934	 	  
	
Unrealized loss on other financial assets

	 	 	7,750	 	 	 	-	 	 	 	7,750	 	  
	
Net Loss before income taxes

	 	 	4,525,925	 	 	 	5,685,759	 	 	 	10,211,684	 	  
	
Deferred income tax recovery

	 	 	(988,000	)	 	 	988,000	 	 	 	-	 	
(d)

	
Net loss and Comprehensive loss

	 	 	3,537,925	 	 	 	6,673,759	 	 	 	10,211,684	 	  

  

 

  

Trelawney Mining and Exploration Inc.

 

Notes to Unaudited Consolidated Financial Statements

For the Three and Six Month Periods Ended June 30, 2011 and 2010

 

2.    Adoption of IFRS (continued)

Reconciliation of loss and comprehensive loss

 

	  	 	
Three months ended June 30, 2010

	 	  
	  	 	
GAAP

	 	 	
Effect of

transition to

IFRS

	 	 	
IFRS

	 	
Notes

	  	 	 	 	 	 	 	 	 	 	  
	
Administrative Expenses

	 	 	 	 	 	 	 	 	 	  
	
Management and consulting fees

	 	 	282,949	 	 	 	-	 	 	 	282,949	 	  
	
Promotion and travel

	 	 	148,975	 	 	 	-	 	 	 	148,975	 	  
	
Office and general

	 	 	130,811	 	 	 	-	 	 	 	130,811	 	  
	
Salaries

	 	 	183,551	 	 	 	-	 	 	 	183,551	 	  
	
Professional fees

	 	 	52,700	 	 	 	-	 	 	 	52,700	 	  
	
Share based payments

	 	 	1,377,000	 	 	 	12,300	 	 	 	1,389,300	 	
(b)

	
Exploration and evaluation expenditures

	 	 	-	 	 	 	3,405,754	 	 	 	3,405,754	 	
(a)

	
Shareholders’ information

	 	 	(2,283	)	 	 	-	 	 	 	(2,283	)	  
	  	 	 	2,173,703	 	 	 	3,418,054	 	 	 	5,591,757	 	  
	
Unrealized loss on other financial assets

	 	 	7,750	 	 	 	-	 	 	 	7,750	 	  
	
Net Loss before income taxes

	 	 	2,181,453	 	 	 	3,418,054	 	 	 	5,599,507	 	  
	
Deferred income tax recovery

	 	 	(327,000	)	 	 	327,000	 	 	 	-	 	
(d)

	
Net loss and Comprehensive loss

	 	 	1,854,453	 	 	 	3,745,054	 	 	 	5,599,507	 	  

 

  

 

  

Trelawney Mining and Exploration Inc.

 

Notes to Unaudited Consolidated Financial Statements

For the Three and Six Month Periods Ended June 30, 2011 and 2010

 

2.    Adoption of IFRS (continued)

Reconciliation of loss and comprehensive loss

	  	 	
Year ended December 31, 2010

	 	  
	  	 	
GAAP

	 	 	
Effect of

transition to

IFRS

	 	 	
IFRS

	 	
Notes

	  	 	 	 	 	 	 	 	 	 	  
	
Administrative Expenses

	 	 	 	 	 	 	 	 	 	  
	
Management and consulting fees

	 	 	470,244	 	 	 	-	 	 	 	470,244	 	  
	
Promotion and travel

	 	 	559,666	 	 	 	-	 	 	 	559,666	 	  
	
Office and general

	 	 	891,268	 	 	 	-	 	 	 	891,268	 	  
	
Professional fees

	 	 	357,368	 	 	 	-	 	 	 	357,368	 	  
	
Share based payments

	 	 	3,238,460	 	 	 	(17,000	)	 	 	3,221,460	 	
(b)

	
Exploration and evaluation costs

	 	 	-	 	 	 	17,843,499	 	 	 	17,843,499	 	
(a)

	
Shareholders’ information

	 	 	554,805	 	 	 	-	 	 	 	554,805	 	  
	
Salaries and benefits

	 	 	2,847,789	 	 	 	-	 	 	 	2,847,789	 	  
	  	 	 	8,919,600	 	 	 	17,826,499	 	 	 	26,746,099	 	  
	
Write-down of mineral properties

	 	 	2,923,113	 	 	 	(2,810,113	)	 	 	113,000	 	
(a)

	
Unrealized gain on marketable securities

	 	 	(20,875	)	 	 	-	 	 	 	(20,875	)	  
	
Net Loss and comprehensive loss before income taxes

	 	 	11,821,838	 	 	 	15,016,386	 	 	 	26,838,224	 	  
	
Deferred income tax recovery

	 	 	(97,000	)	 	 	-	 	 	 	(97,000	)	  
	
Net loss and Comprehensive loss

	 	 	11,724,838	 	 	 	15,016,386	 	 	 	26,741,224	 	  

 

  

 

  

Trelawney Mining and Exploration Inc.

 

Notes to Unaudited Consolidated Financial Statements

For the Three and Six Month Periods Ended June 30, 2011 and 2010

 

2.    Adoption of IFRS (continued)

Reconciliation of Cash Flows

	  	 	
Six months ended June 30, 2010

	 	  
	  	 	
GAAP

	 	 	
Effect of

transition

to IFRS

	 	 	
IFRS

	 	
Notes

	  	 	 	 	 	 	 	 	 	 	  
	
Operations

	 	 	 	 	 	 	 	 	 	  
	
Net loss

	 	 	(3,537,925	)	 	 	(6,673,759	)	 	 	(10,211,684	)	
(a)

	
Adjustments to reconcile net loss to cash flow from operating activities:

	 	 	 	 	 	 	 	 	 	 	 	 	  
	
Stock-based compensation

	 	 	3,119,000	 	 	 	-	 	 	 	3,119,000	 	  
	
Unrealized loss on other financial assets

	 	 	7,750	 	 	 	-	 	 	 	7,750	 	  
	
Deferred income tax recovery

	 	 	(988,000	)	 	 	988,000	 	 	 	-	 	
(d)

	
Amortization

	 	 	-	 	 	 	288,790	 	 	 	288,790	 	
(a)

	
Net change in non-cash operating working capital items:

	 	 	 	 	 	 	 	 	 	 	 	 	  
	
Prepaid expenses

	 	 	(93,733	)	 	 	-	 	 	 	(93,733	)	  
	
GST recoverable

	 	 	(241,088	)	 	 	-	 	 	 	(241,088	)	  
	
Accounts payable and accruals

	 	 	42,008	 	 	 	(192,637	)	 	 	(150,629	)	
(a)

	  	 	 	(1,691,988	)	 	 	(5,589,606	)	 	 	(7,281,594	)	  
	
Financing

	 	 	 	 	 	 	 	 	 	 	 	 	  
	
Issuance of share capital

	 	 	14,952,463	 	 	 	-	 	 	 	14,952,463	 	  
	  	 	 	14,952,463	 	 	 	-	 	 	 	14,952,463	 	  
	
Investing

	 	 	 	 	 	 	 	 	 	 	 	 	  
	
Additions to capital assets

	 	 	(4,079,381	)	 	 	-	 	 	 	(4,079,381	)	  
	
Additions to mineral properties

	 	 	(6,857,410	)	 	 	5,589,606	 	 	 	(1,267,804	)	
(a)

	  	 	 	(10,936,791	)	 	 	5,589,606	 	 	 	(5,347,185	)	  
	
Net increase in cash and cash equivalents

	 	 	2,323,684	 	 	 	-	 	 	 	2,323,684	 	  
	
Cash and cash equivalents, beginning of period

	 	 	10,640,697	 	 	 	-	 	 	 	10,640,697	 	  
	
Cash and cash equivalents, end of period

	 	$	12,964,381	 	 	 	-	 	 	$	12,964,381	 	  

  

 

  

Trelawney Mining and Exploration Inc.

 

Notes to Unaudited Consolidated Financial Statements

For the Three and Six Month Periods Ended June 30, 2011 and 2010

 

2.    Adoption of IFRS (continued)

Reconciliation of Cash Flows

	  	 	
Year ended December 31, 2010

	 	  
	  	 	
GAAP

	 	 	
Effect of

transition to

IFRS

	 	 	
IFRS

	 	
Notes

	
Operations

	 	 	 	 	 	 	 	 	 	  
	
Net loss

	 	 	(11,724,838	)	 	 	(15,016,386	)	 	 	(26,741,224	)	  
	
Adjustments to reconcile net loss to cash flow from operating activities:

	 	 	 	 	 	 	 	 	 	 	 	 	  
	
Stock-based compensation

	 	 	3,238,460	 	 	 	(17,000	)	 	 	3,221,460	 	
(b)

	
Write-down of mineral properties

	 	 	2,923,113	 	 	 	(2,810,113	)	 	 	113,000	 	
(a)

	
Amortization

	 	 	21,363	 	 	 	480,831	 	 	 	502,194	 	
(a)

	
Gain on marketable securities

	 	 	(20,875	)	 	 	-	 	 	 	(20,875	)	  
	
Gain on sale of capital asset

	 	 	(22,800	)	 	 	-	 	 	 	(22,800	)	  
	
Accretion expense

	 	 	7,193	 	 	 	-	 	 	 	7,193	 	  
	
Asset retirement obligation

	 	 	-	 	 	 	435,921	 	 	 	435,921	 	
(a)

	
Deferred income tax recovery

	 	 	(97,000	)	 	 	-	 	 	 	(97,000	)	  
	
Net change in non-cash operating working capital items:

	 	 	 	 	 	 	 	 	 	 	 	 	  
	
Prepaid expenses

	 	 	(202,880	)	 	 	-	 	 	 	(202,880	)	  
	
GST recoverable

	 	 	(695,671	)	 	 	-	 	 	 	(695,671	)	  
	
Accounts payable and accruals

	 	 	1,527,249	 	 	 	471,371	 	 	 	1,998,620	 	
(a)

	  	 	 	(5,046,686	)	 	 	(16,455,376	)	 	 	(21,502,062	)	  
	
Financing

	 	 	 	 	 	 	 	 	 	 	 	 	  
	
Issuance of share capital

	 	 	72,783,408	 	 	 	-	 	 	 	72,783,408	 	  
	  	 	 	72,783,408	 	 	 	-	 	 	 	72,783,408	 	  
	
Investing

	 	 	 	 	 	 	 	 	 	 	 	 	  
	
Additions to capital assets

	 	 	(5,098,787	)	 	 	-	 	 	 	(5,098,787	)	  
	
Additions to mineral properties

	 	 	(16,866,376	)	 	 	16,455,376	 	 	 	(411,000	)	
(a)

	
Payment of property option payable

	 	 	(1,000,000	)	 	 	-	 	 	 	(1,000,000	)	  
	
Payment of capital lease obligation

	 	 	(67,642	)	 	 	-	 	 	 	(67,642	)	  
	
Deposits

	 	 	(539,000	)	 	 	-	 	 	 	(539,000	)	  
	
Restricted cash

	 	 	(538,848	)	 	 	-	 	 	 	(538,848	)	  
	  	 	 	(24,110,653	)	 	 	16,455,376	 	 	 	(7,655,277	)	  
	
Net increase in cash and cash equivalents

	 	 	43,626,069	 	 	 	-	 	 	 	43,626,069	 	  
	
Cash and cash equivalents, beginning of year

	 	 	10,593,347	 	 	 	-	 	 	 	10,593,347	 	  
	
Cash and cash equivalents, end of year

	 	$	54,219,416	 	 	 	-	 	 	$	54,219,416	 	  

  

 

  

Trelawney Mining and Exploration Inc.

 

Notes to Unaudited Consolidated Financial Statements

For the Three and Six Month Periods Ended June 30, 2011 and 2010

 

2.    Adoption of IFRS (continued)

Notes to Reconciliations

a) Acquisition, exploration and evaluation expenditures

Under Canadian GAAP –The Company used the policy to defer the cost of mineral properties and their related exploration and development expenditures until the properties are placed into production, sold or abandoned. These costs would be amortized over the estimated useful life of the properties following the commencement of production. Cost includes both the cash consideration as well as the fair market value of any securities issued on the acquisition of mineral properties. Properties acquired under option agreements or joint ventures, whereby payments were made at the sole discretion of the Company, were recorded in the accounts at such time as the payments are made. The proceeds from property options granted reduced the cost of the related property and any excess over cost is applied to income.

Under IFRS – All direct costs related to the acquisition of mineral property interests are capitalized into intangible assets on a property by property basis. Exploration costs, net of incidental revenues, are charged to operations in the period incurred until such time as it has been determined that a property has economically recoverable reserves, in which case subsequent exploration costs and the costs incurred to develop a property are capitalized into PPE. On the commencement of commercial production, depletion of each mining property will be provided on a unit-of-production basis using estimated resources as the depletion base.

b) Share-based Payment

Under Canadian GAAP – The fair value of stock-based awards with graded vesting were calculated as one grant and the resulting fair value was recognized on a straight-line basis over the vesting period. Forfeitures of awards were recognized as they occurred.

Under IFRS – Each tranche of an award with different vesting dates is considered a separate grant for the calculation of fair value, and the resulting fair value is amortized over the vesting period of each of the respective tranches. Forfeiture estimates are recognized on the grant date and revised for actual experiences in subsequent periods.

c) Equity Reserves

Under Canadian GAAP –The Company recorded the value of share based payments and warrants issued to contributed surplus.

Under IFRS – IFRS requires an entity to present for each component of equity, a reconciliation between the carrying amount at the beginning and end of the period, separately disclosing each change. IFRS requires a separate disclosure of the value that relates to "Reserves for warrants", "Reserves for share based payments" and any other component of equity.

d) Flow through Shares

Under Canadian GAAP –

The resource expenditure deductions for income tax purposes related to exploratory and development activities funded by flow-through shares arrangements are renounced to investors in accordance with tax legislation.  The deferred income taxes relating to the temporary difference that arise when the qualifying expenditures are incurred were recorded at the time of filing the renunciation with the tax authorities.  The recognition of the deferred income tax liability results in a corresponding reduction to the carrying value of the shares issued.

  

 

  

Trelawney Mining and Exploration Inc.

 

Notes to Unaudited Consolidated Financial Statements

For the Three and Six Month Periods Ended June 30, 2011 and 2010

 

2.    Adoption of IFRS (continued)

Under IFRS –

	
•

	
The obligation to renounce tax deductions at the time of issuance of flow- through shares is recorded as a liability in accordance with IAS 37, “Provisions, Contingent Liabilities and Contingent Assets” measured using a residual or a relative fair value method. This obligation is released into the statement of comprehensive income as a gain as and when the Company incurs qualifying expenditures (i.e. fulfilling its obligation to renounce tax attributes).

	
•

	
A deferred tax liability is recognized (with the debit to statement of comprehensive income), in accordance with IAS 12, Income Taxes, in respect of the taxable temporary difference that arises from the difference between the carrying amount of eligible expenditures capitalized as an asset in the statement of financial position and its tax base.

3.    Summary of Significant Accounting Policies

3.1 Basis of consolidation

The consolidated financial statements include the financial statements of the Company and its wholly controlled subsidiary: Terex Resources Inc. (“TRL”). Control is achieved when the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the effective date of acquisition or up to the effective date of disposal, as appropriate.

All intra-Company transactions, balances, income and expenses are eliminated in full on consolidation.

Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Company’s equity therein. Non-controlling interests consist of the amount of those interests at the date of the original business combination and the non-controlling interests’ share of changes in equity since the date of the combination. Losses applicable to the non-controlling interests in excess of their interest in the subsidiary’s equity are allocated against the interests of the Company except to the extent that the non-controlling interests have a binding obligation and are able to make an additional investment to cover the losses.

3.2 Property, plant and equipment (“PPE”)

Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. The cost of an item of PPE consists of the purchase price, any costs directly attributable to bringing the asset to the location and condition necessary for its intended use and an initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located.

Depreciation is provided at rates calculated to write off the cost of PPE, less their estimated residual value, using the straight line method or unit-of-production method over the following expected useful lives:

	
• Buildings

	
10 years

	
• Computer equipment

	
3 years

	
• Furniture and fixtures

	
4 - 5 years

	
• Mining equipment

	
8 - 10 years

	
• Various equipment

	
3 years

	
• Vehicles

	
4 years

  

 

  

Trelawney Mining and Exploration Inc.

 

Notes to Unaudited Consolidated Financial Statements

For the Three and Six Month Periods Ended June 30, 2011 and 2010

 

 

3.    Summary of Significant Accounting Policies (continued)

An item of PPE is derecognized upon disposal, when held for sale or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on disposal of the asset, determined as the difference between the net disposal proceeds and the carrying amount of the asset, is recognized in the consolidated statement of comprehensive loss.

3.3 Mineral properties

All direct costs related to the acquisition of mineral property interests are capitalized into intangible assets on a property by property basis. Exploration costs, net of incidental revenues, are charged to operations in the period incurred until such time as it has been determined that a property has economically recoverable reserves, in which case subsequent exploration and evaluation costs and the costs incurred to develop a property are capitalized into PPE. On the commencement of commercial production, depletion of each mining property will be provided on a unit-of-production basis using estimated resources as the depletion base.

The Company conducts an annual assessment of the residual balances, useful lives and depreciation methods being used for PPE and any changes arising from the assessment are applied by the Company prospectively.

Where an item of plant and equipment comprises major components with different useful lives, the components are accounted for as separate items of plant and equipment. Expenditures incurred to replace a component of an item of property, plant and equipment that is accounted for separately, including major inspection and overhaul expenditures are capitalized.

3.4 Decommissioning, restoration and similar liabilities (“Asset retirement obligation” or “ARO”)

The Company recognizes liabilities for statutory, contractual, constructive or legal obligations, including those associated with the reclamation of mineral properties and PPE, when those obligations result from the acquisition, construction, development or normal operation of the assets. Initially, a liability for an asset retirement obligation is recognized as its fair value in the period in which it is incurred. Upon initial recognition of the liability, the corresponding asset retirement obligation is added to the carrying amount of the related mineral property asset in the case where technical feasibility has been established, and expensed if technical feasibility is yet to be established.  Once capitalized, the cost is amortized as an expense over the economic life of the asset using either the unit-of-production method or the straight-line method, as appropriate.  Following the initial recognition of the asset retirement obligation, the carrying amount of the liability is increased for the passage of time and adjusted for changes to the current market-based discount rate, amount or timing of the underlying cash flows needed to settle the obligation.

3.5 Share based payments

Share based payment transactions

Employees (including directors and senior executives) of the Company receive a portion of their remuneration in the form of share-based payment transactions, whereby they render services as consideration for equity instruments (“equity-settled transactions”).

In situations where equity instruments are issued to non-employees and some or all of the goods or services received by the entity as consideration cannot be specifically identified, they are measured at fair value of the share-based payment.

Equity settled transactions

The costs of equity-settled transactions with employees are measured by reference to the fair value at the date on which they are granted.

  

 

  

Trelawney Mining and Exploration Inc.

 

Notes to Unaudited Consolidated Financial Statements

For the Three and Six Month Periods Ended June 30, 2011 and 2010

 

 

3.    Summary of Significant Accounting Policies (continued)

The costs of equity-settled transactions are recognized, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (“the vesting date”). The cumulative cost is recognized for equity-settled transactions at each reporting date until the vesting date reflects the Company’s best estimate of the number of equity instruments that will ultimately vest. The profit or loss charge or credit for a period represents the movement in cumulative expense recognized as at the beginning and end of that period and the corresponding amount is represented in share option reserve.

No expense is recognized for awards that do not ultimately vest.

Where the terms of an equity-settled award are modified, the minimum expense recognized is the expense as if the terms had not been modified. An additional expense is recognized for any modification which increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee as measured at the date of modification.

The dilutive effect of outstanding options is reflected as additional dilution in the computation of earnings per share.

3.6 Taxation

Income tax expense represents the sum of tax currently payable and deferred tax.

Current income tax

Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the date of the statement of financial position.

Deferred income tax

Deferred income tax is provided using the liability method on temporary differences at the date of the statement of financial position between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred income tax liabilities are recognized for all taxable temporary differences, except:

• where the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

• in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

  

 

  

Trelawney Mining and Exploration Inc.

 

Notes to Unaudited Consolidated Financial Statements

For the Three and Six Month Periods Ended June 30, 2011 and 2010

 

3.    Summary of Significant Accounting Policies (continued)

Deferred income tax assets are recognized for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry forward of unused tax credits and unused tax losses can be utilized except:

• where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

• in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred income tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized.

The carrying amount of deferred income tax assets is reviewed at each date of the statement of financial position and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. Unrecognized deferred income tax assets are reassessed at each date of the statement of financial position and are recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the date of the statement of financial position.

Deferred income tax relating to items recognized directly in equity is recognized in equity and not in the statement of comprehensive income.

Deferred income tax assets and deferred income tax liabilities are offset if, and only if, a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities which intend to either settle current tax liabilities and assets on a net basis, or to realize the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax assets or liabilities are expected to be settled or recovered.

3.7 Loss per share

The basic loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. The diluted loss per share reflects the potential dilution of common share equivalents, such as outstanding stock options and share purchase warrants, in the weighted average number of common shares outstanding during the year, if dilutive. The “treasury stock method” is used for the assumed proceeds upon the exercise of the options and warrants that are used to purchase common shares at the average market price during the year. During the three and six months ended June 30, 2011 and 2010 all the outstanding stock options and warrants were antidilutive.

3.8 Financial assets

All financial assets are initially recorded at fair value and designated upon inception into one of the following four categories: held-to-maturity, available-for-sale, loans-and-receivables or at fair value through profit or loss (“FVTPL”).

Financial assets classified as FVTPL are measured at fair value with unrealized gains and losses recognized through earnings. The Company’s cash and short-term money market investments are classified as FVTPL.

  

 

  

Trelawney Mining and Exploration Inc.

 

Notes to Unaudited Consolidated Financial Statements

For the Three and Six Month Periods Ended June 30, 2011 and 2010

 

 

3.    Summary of Significant Accounting Policies (continued)

Financial assets classified as loans-and-receivables and held-to-maturity are measured at amortized cost. The Company’s trade and other receivables are classified as loans-and-receivables.

Financial assets classified as available-for-sale are measured at fair value with unrealized gains and losses recognized in other comprehensive income (loss) except for losses in value that are considered other than temporary. At June 30, 2011 the Company has not classified any financial assets as available-for-sale.

Transactions costs associated with FVTPL financial assets are expensed as incurred, while transaction costs associated with all other financial assets are included in the initial carrying amount of the asset.

3.9 Financial liabilities

All financial liabilities are initially recorded at fair value and designated upon inception as FVTPL or other-financial-liabilities.

Financial liabilities classified as other-financial-liabilities are initially recognized at fair value less directly attributable transaction costs. After initial recognition, other-financial-liabilities are subsequently measured at amortized cost using the effective interest method.  The effective interest method is a method of calculating the amortized cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period. The Company’s trade and other payables are classified as other-financial-liabilities.

Financial liabilities classified as FVTPL include financial liabilities held for trading and financial liabilities designated upon initial recognition as FVTPL. Derivatives, including separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Fair value changes on financial liabilities classified as FVTPL are recognized through the statement of comprehensive income. At June 30, 2011 the Company has not classified any financial liabilities as FVTPL.

3.10 Impairment of financial assets

The Company assesses at each date of the statement of financial position whether a financial asset is impaired.

Assets carried at amortized cost

If there is objective evidence that an impairment loss on assets carried at amortized cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is then reduced by the amount of the impairment. The amount of the loss is recognized in profit or loss.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed to the extent that the carrying value of the asset does not exceed what the amortized cost would have been had the impairment not been recognized. Any subsequent reversal of an impairment loss is recognized in profit or loss.

In relation to trade receivables, a provision for impairment is made and an impairment loss is recognized in profit and loss when there is objective evidence (such as the probability of insolvency or significant financial difficulties of the debtor) that the Company will not be able to collect all of the amounts due under the original terms of the invoice. The carrying amount of the receivable is reduced through use of an allowance account. Impaired debts are written off against the allowance account when they are assessed as uncollectible.

  

 

  

Trelawney Mining and Exploration Inc.

 

Notes to Unaudited Consolidated Financial Statements

For the Three and Six Month Periods Ended June 30, 2011 and 2010

 

 

3.    Summary of Significant Accounting Policies (continued)

Available-for-sale

If an available-for-sale asset is impaired, an amount comprising the difference between its cost and its current fair value, less any impairment loss previously recognized in profit or loss, is transferred from equity to profit or loss. Reversals in respect of equity instruments classified as available-for-sale are not recognized in profit or loss.

3.11 Impairment of nonfinancial assets

At each date of the statement of financial position, the Company reviews the carrying amounts of its tangible and intangible assets to determine whether there is an indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the assets belong.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognized immediately in the statement of comprehensive loss.

For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Company estimates the asset’s or cash-generating unit’s recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in profit or loss and the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount.

3.12 Cash and cash equivalents

Cash and cash equivalents in the statement of financial position comprise cash at banks and on hand, and short term deposits with a remaining maturity on the date of purchase of three months or less, which are readily convertible into a known amount of cash.

3.13 Provisions

Provisions are recognized when the Company has a present obligation (legal or constructive) that has arisen as a result of a past event and it is probable that a future outflow of resources will be required to settle the obligation, provided that a reliable estimate can be made of the amount of the obligation.

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 risk specific to the obligation. The increase in the provision due to passage of time is recognized as interest expense.

  

 

  

Trelawney Mining and Exploration Inc.

Notes to Unaudited Consolidated Financial Statements

For the Three and Six Month Periods Ended June 30, 2011 and 2010

 

	
3.

	
Summary of Significant Accounting Policies (continued)

3.14 Related party transactions

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence, related parties may be individuals or corporate entities. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties. Related party transactions that are in the normal course of business and have commercial substance are measured at the exchange amount.

3.15 Significant accounting judgments and estimates

The preparation of these financial statements requires management to make judgements and estimates and form assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its judgements and estimates in relation to assets, liabilities, revenue and expenses.  Management uses historical experience and various other factors it believes to be reasonable under the given circumstances as the basis for its judgements and estimates.  Actual outcomes may differ from these estimates under different assumptions and conditions. The most significant estimates relate to asset retirement obligations; capital assets, including gold reserves and resources, depreciation and depletion; recoverability of accounts receivable, valuation of deferred income tax amounts, impairment testing and the calculation of share-based payments. The most significant judgements relate to recoverability of capitalized amounts, recognition of deferred tax assets and liabilities, determination of the commencement of commercial production and the determination of the economic viability of a project.

  

  

  

 

Trelawney Mining and Exploration Inc.

Notes to Unaudited Consolidated Financial Statements

For the Three and Six Month Periods Ended June 30, 2011 and 2010

 

  

	
4.

	
Property, Plant and Equipment

 

	  	 	
Buildings

	 	 	
Mining

Equipment

	 	 	
Vehicles

	 	 	
Furniture and

fixtures

	 	 	
Various

Equipment

	 	 	
Computer

Equipment

	 	 	
Total

	 
	
Cost

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
As at January 1, 2010

	 	$	-	 	 	$	-	 	 	$	-	 	 	$	-	 	 	$	-	 	 	$	-	 	 	$	-	 
	
Additions

	 	 	1,939,809	 	 	 	3,059,555	 	 	 	505,685	 	 	 	146,308	 	 	 	317,900	 	 	 	205,496	 	 	 	6,174,753	 
	
Disposals

	 	 	-	 	 	 	(9,000	)	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(9,000	)
	
As at December 31, 2010

	 	 	1,939,809	 	 	 	3,050,555	 	 	 	505,685	 	 	 	146,308	 	 	 	317,900	 	 	 	205,496	 	 	 	6,165,753	 
	
Additions

	 	 	742,850	 	 	 	2,294,922	 	 	 	283,529	 	 	 	14,280	 	 	 	14,650	 	 	 	34,198	 	 	 	3,384,429	 
	
Disposals

	 	 	-	 	 	 	(278,000	)	 	 	(30,474	)	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(308,474	)
	
As at June 30, 2011

	 	$	2,682,659	 	 	$	5,067,477	 	 	$	758,740	 	 	$	160,588	 	 	$	332,550	 	 	$	239,694	 	 	$	9,241,708	 
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
Accumulated depreciation

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
As at January 1, 2010

	 	$	-	 	 	$	-	 	 	$	-	 	 	$	-	 	 	$	-	 	 	$	-	 	 	$	-	 
	
Expense for the year

	 	 	149,045	 	 	 	168,572	 	 	 	97,917	 	 	 	21,120	 	 	 	30,681	 	 	 	35,514	 	 	 	502,849	 
	
Eliminated on disposals

	 	 	-	 	 	 	(655	)	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(655	)
	
As at December 31, 2010

	 	 	149,045	 	 	 	167,917	 	 	 	97,917	 	 	 	21,120	 	 	 	30,681	 	 	 	35,514	 	 	 	502,194	 
	
Expense for the period

	 	 	112,587	 	 	 	242,907	 	 	 	72,584	 	 	 	16,677	 	 	 	18,969	 	 	 	38,280	 	 	 	502,004	 
	
Eliminated on disposal

	 	 	-	 	 	 	(23,167	)	 	 	(7,660	)	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(30,827	)
	
As at June 30, 2011

	 	$	261,632	 	 	$	387,657	 	 	$	162,841	 	 	$	37,797	 	 	$	49,650	 	 	$	73,794	 	 	$	973,371	 
	
Net book value

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
As at December 31, 2010

	 	 	1,790,764	 	 	 	2,882,638	 	 	 	407,768	 	 	 	125,188	 	 	 	287,219	 	 	 	169,982	 	 	 	5,663,559	 
	
As at June 30, 2011

	 	 	2,421,027	 	 	 	4,679,820	 	 	 	595,899	 	 	 	122,791	 	 	 	282,900	 	 	 	165,900	 	 	 	8,268,337	 

Capital assets include assets (primarily vehicles and mining equipment) held under capital leases of $739,009 (December 31, 2010 – $1,046,483).  Related amortization of assets held under capital leases included in accumulated amortization was $74,065 (December 31, 2010 - $37,050).

Included in exploration and evaluation expenditures is $407,086 of amortization expense relating to the period.

  

  

  

 

Trelawney Mining and Exploration Inc.

   

Notes to Unaudited Consolidated Financial Statements

For the Three and Six Month Periods Ended June 30, 2011 and 2010

 

    

	
5. 

	
Deferred Acquisition Costs

The following table summarizes the Company’s mineral properties:

	  	 	
Six  month period ended June 30, 2011

	 
	  	 	
Opening Balance

	 	 	
Additions

	 	 	
Disposals

	 	 	
Net

	 
	  	 	
($)

	 	 	
($)

	 	 	
($)

	 	 	
($)

	 
	  	 	 	 	 	 	 	 	 	 	 	 	 
	
Chester 1

	 	 	2,998,008	 	 	 	-	 	 	 	-	 	 	 	2,998,008	 
	
Chester 2 - Young Shannon

	 	 	2,550,000	 	 	 	-	 	 	 	-	 	 	 	2,550,000	 
	
Chester 3 - Jack Rabbit (Cote Lake)

	 	 	3,651,000	 	 	 	17,420,395	 	 	 	-	 	 	 	21,071,395	 
	
Mishi

	 	 	32,450	 	 	 	-	 	 	 	-	 	 	 	32,450	 
	
Massey

	 	 	418,036	 	 	 	-	 	 	 	-	 	 	 	418,036	 
	
Hiawatha

	 	 	306,000	 	 	 	-	 	 	 	-	 	 	 	306,000	 
	
Sotham

	 	 	10,000	 	 	 	-	 	 	 	-	 	 	 	10,000	 
	
Chester/Yeo

	 	 	120,000	 	 	 	-	 	 	 	-	 	 	 	120,000	 
	  	 	 	10,085,494	 	 	 	17,420,395	 	 	 	-	 	 	 	27,505,889	 

	  	 	Year ended December 31, 2010	 
	  	 	
Opening Balance

	 	 	
Additions

	 	 	
Disposals

	 	 	
Net

	 
	  	 	
($)

	 	 	
($)

	 	 	
($)

	 	 	
($)

	 
	  	 	 	 	 	 	 	 	 	 	 	 	 
	
Chester 1

	 	 	1,508,008	 	 	 	1,490,000	 	 	 	-	 	 	 	2,998,008	 
	Chester 2 - Young Shannon	 	 	2,550,000	 	 	 	-	 	 	 	-	 	 	 	2,550,000	 
	
Chester 3 - Jack Rabbit (Cote Lake)

	 	 	1,000,000	 	 	 	2,651,000	 	 	 	-	 	 	 	3,651,000	 
	
Dorset Au

	 	 	113,000	 	 	 	-	 	 	 	(113,000	)	 	 	-	 
	
Mishi

	 	 	32,450	 	 	 	-	 	 	 	-	 	 	 	32,450	 
	
Massey

	 	 	418,036	 	 	 	-	 	 	 	-	 	 	 	418,036	 
	
Hiawatha

	 	 	18,000	 	 	 	288,000	 	 	 	-	 	 	 	306,000	 
	
Sotham

	 	 	 	 	 	 	10,000	 	 	 	-	 	 	 	10,000	 
	
Chester/Yeo

	 	 	 	 	 	 	120,000	 	 	 	-	 	 	 	120,000	 
	  	 	 	5,639,494	 	 	 	4,559,000	 	 	 	(113,000	)	 	 	10,085,494	 

5.a - Chester 1 Property

On June 26, 2009, Trelawney signed a letter of agreement with Treelawn Investment Corp. (“Treelawn”) to acquire up to a 70% interest in two leased mining claims (151 hectares), which hosts the Chester Gold Mine in Chester Township, northern Ontario.

Pursuant to the terms of the Letter Agreement the Company can acquire an initial 50% interest in the Property (the “First Option”), in exchange for:

	
- 

	
$35,000 (paid) in cash;

	
- 

	
4,000,000 (issued) common shares of the Company;

	
-

	
1,000,000 (issued) common purchase warrants of the Company exercisable into common shares of the Company for five years from the date of issuance at an exercise price of $0.17;

	
-

	
Within 12 months following the signing of the Option Agreement, the Company shall obtain the necessary work permits and commence a work program on the Property (completed);

	
-

	
On or before the 18th month anniversary of obtaining the work permits, the Company shall have brought the Property into commercial production; and

	
-

	
On or before the sixth month anniversary of achieving commercial production, the Company shall issue an additional 1,000,000 Common Shares to Treelawn.

  

  

  

Trelawney Mining and Exploration Inc.

Notes to Unaudited Consolidated Financial Statements

For the Three and Six Month Periods Ended June 30, 2011 and 2010

 

    

	
5.

	
Deferred Acquisition Costs (continued)

5.a - Chester 1 Property (continued)

After exercising the First Option, the Company can acquire an additional 10% interest in the Property (the “Second Option”) by issuing an additional 1,000,000 Common Shares to Treelawn on the date which is the later of: Treelawn receiving $2.5 million from its share of the net profits from commercial production from the Property and the Property achieving 12 months of continuous commercial production.

The Company can acquire an additional 10% interest in the Property on the date that is 12 months from the exercise of the Second Option by issuing an additional 1,000,000 Common Shares to Treelawn.

As of June 30, 2011 the Company is in the process of exercising the first option, with remaining commitments to fully exercise the first option of bringing the property into production on or before the 18th month anniversary and issuing 1,000,000 common shares six months after achieving commercial production.

5.b  - Dorset Au Property

The Company earned a 50% interest in the Dorset property (5 claims totaling 18 units) located about 60 km west of Wawa, Ontario.  Trelawney can earn an additional 20% by completing a feasibility study, making cash payment of $100,000, and issuing 500,000 common shares.

During the year ended December 31, 2010, the Company wrote off costs associated with the property as management does not intend to continue exploring this property and it does not hold title to the land.

5.c - Chester 2 Property - Young Shannon Property

On August 20, 2009, the Company signed an acquisition agreement with Metallum Resources Inc. (“Metallum”) to acquire 100% of Metallum’s 92.5% interest in the Young-Shannon Property adjacent to the Chester Property in exchange for 5,000,000 common shares of Trelawney and a 1% net smelter return royalty payable when the monthly average gold price exceeds US$1,000 per ounce.  An additional 3%, for a total of 4%, is payable to the proprietary owners on the 11 patented and 2 unpatented mining claims.  The Young-Shannon Property consists of 11 patented and 18 unpatented mining claims.

As of June 30, 2011 the Company has met all commitments to exercise this option agreement.

5.d - Chester 3 Property - Jack Rabbit Property (“Cote Lake”)

On December 21, 2009, Trelawney and Treelawn entered into a term sheet (the “Letter Agreement”), pursuant to which Treelawn has granted the Company the right to acquire up to a 92.5% interest in certain mining claims located in Chester Township, Ontario.

Pursuant to the terms of the Letter Agreement the Company can acquire an initial 50% interest in the Property (the “First Option”), in exchange for:

	
- 

	
3,000,000 common shares (“Common Shares”) of the Company;

	
-

	
on or before the end of every three month period following the signing of a definitive option agreement (the “Effective Date”), the Company shall pay Treelawn the amount of $18,000 for a period of three years, for a total consideration of $216,000;

	
- 

	
on or before the Effective Date the Company shall pay Treelawn the amount of $1,000,000;

	
-

	
on or before the first anniversary of the Effective Date the Company shall pay Treelawn the amount of $1,000,000; and

	
-

	
on or before the end of the 18th month anniversary following the Effective Date, the Company shall have made $500,000 (incurred) in expenditures on the Property;

	
-

	
on or before the end of the 18th month anniversary following the Effective Date, the Company shall issue an additional 4,000,000 (issued) Common Shares to Treelawn; and

  

  

  

Trelawney Mining and Exploration Inc.

Notes to Unaudited Consolidated Financial Statements

For the Three and Six Month Periods Ended June 30, 2011 and 2010

 

   

	
5.

	
Deferred Acquisition Costs (continued)

5.d - Chester 3 Property - Jack Rabbit Property (“Cote Lake”) (continued)

	
-

	
in the event the Company fails to exercise the First Option, the Company shall pay Treelawn the amount of $1,000,000.  As of December 31, 2009 the Company accrued the $1,000,000 and classified it as a long term payable as the payment is not required until 30 days after the first anniversary of the effective date, which would be due fiscal 2011, in the event that the Company does not exercise it’s First Option.  The Company has since paid the $1,000,000 thus eliminating the liability.

After exercising the First Option the Company shall grant to Treelawn a 1.5% net smelter return royalty (the “Royalty”) on the Property.  During the 48 months following the grant of the Royalty the Company shall have the right to purchase 0.5% of the Royalty from Treelawn for sum of $1,000,000.

Twelve months following the exercise of the First Option and provided the Company has expended $500,000 on the Property, the Company can earn an additional 25% interest in the Property (the “Second Option”) by issuing an additional 4,000,000 Common Shares to Treelawn.

The Company can acquire a final 17.5% interest in the Property on the date that is 12 months from the exercise of the Second Option and provided the Company has expended an additional $500,000 on the Property by issuing an additional 4,000,000 Common Shares to Treelawn.

As of June 30, 2011 the Company is in the process of exercising the first option, with remaining commitments to fully exercise the first option of seven payments of $18,000 for a total of $126,000.

5. e - Hiawatha Property

The Company acquired 70% right in the Hiawatha Property on December 30, 2009.  The property is located in Lizar Township, Ontario.  The Company must pay $40,000 and issue 400,000 common shares.

As of June 30, 2011 the Company has met all commitments to exercise this option agreement.

5. f - Mishi Property

Trelawney has 100% interest in 4 claim blocks totaling 328 claim units in the Mishibishu Lake area, 65 kilometers northeast of Wawa, Ontario.

5. g - Massey Property

Trelawney has 100% interest in 37 claim units located in the Salter Township, 80 kilometers west of Sudbury, Ontario.

In January 2007, Trelawney signed an option agreement whereby a company can earn up to 75% interest in the Massey property by spending $1.2 million on exploration, making cash payments totaling $260,000 over five years, issuing 1,150,000 common shares of the company over five years, and obtaining a feasibility study on the property.

  

  

  

Trelawney Mining and Exploration Inc.

Notes to Unaudited Consolidated Financial Statements

For the Three and Six Month Periods Ended June 30, 2011 and 2010

 

   

	
5.

	
Deferred Acquisition Costs (continued)

The following is a summary of the Company’s cumulative outstanding mineral property commitments by property to acquire the maximum potential interests under its current property agreements:

	  	 	
Chester 1

	 	 	
Chester 2

	 	 	
Chester 3

	 
	
Maximum interest

	 	 	70	%	 	 	92.5	%	 	 	92.5	%
	
Cash payments

	 	$	-	 	 	$	-	 	 	$	126,000	 
	
Shares to be issued

	 	 	3,000,000	 	 	 	-	 	 	 	8,000,000	 
	
Exploration obligations

	 	
- obtain necessary work permits

	 	 	 	-	 	 	 	-	 
	  	 	
- achieve commercial production for 12 continuous months

	 	 	 	-	 	 	 	-	 
	
Royalties

	 	 	-	 	 	
4% NSR

	 	 	
1.5% NSR

	 

	
6.

	
Other financial assets – FVTPL securities

Other financial assets are comprised of shares of various public companies.  As at June 30, 2011, these fair value through profit and loss investments have been measured at their fair value of $1,032,970 (December 31, 2010 – $87,375). The impact to the consolidated financial statements of the revaluation to market value for the six month period ended June 30, 2011 resulted in an unrealized loss of $950,723 (June 30, 2010 – $7,750) as market values of these securities decreased during the period.

	
7.

	
Asset Retirement Obligation

Reclamation and closure costs have been estimated based on the Company’s interpretation of current regulatory requirements and have been measured at fair value. Fair value is determined based on the net present value of future cash expenditures upon reclamation and closure.  Reclamation and closure costs are capitalized into PPE dependant on the nature of the asset related to the obligation and amortized over the life of the related asset.

Management has estimated that the total amount of the estimated cash flows required to settle the Company’s assets retirement obligation for the Chester 1 property is $477,091. It is expected that this amount will be incurred through to 2013. The risk free interest rates used to discount estimated cash flows for liabilities incurred was 1.85%.

	
Balance at January 1, 2010

	 	$	-	 
	
Additions

	 	 	435,921	 
	
Accretion

	 	 	7,193	 
	
Balance at December 31, 2010

	 	$	443,114	 
	
Additions

	 	 	-	 
	
Accretion

	 	 	14,743	 
	
Balance at June 30, 2011

	 	$	457,857	 

 

  

  

  

Trelawney Mining and Exploration Inc.

Notes to Unaudited Consolidated Financial Statements

For the Three and Six Month Periods Ended June 30, 2011 and 2010

 

    

	
8.

	
Financial Risk Factors

Fair Value of Financial Instruments

The Company has designated its cash and cash equivalents and marketable securities as FVTPL, which are measured at fair value.  Fair value of marketable securities is determined based on transaction value and is categorized as Level 1 measurement. HST recoverable and other receivables is classified for accounting purposes as loans and receivables, which are measured at amortized cost which approximates fair value.  Accounts payable and accrued liabilities are classified for accounting purposes as other financial liabilities, which are measured at amortized cost which also approximates fair value.  Fair value of accounts payable and accrued liabilities are determined from transaction values which were derived from observable market inputs. Fair values of accounts payable and accrued liabilities are based on Level 2 measurements.

The Company has determined the fair value of its financial instruments as follows:

(i) The carrying values of cash and cash equivalents, other receivables, accounts payable and accrued liabilities, approximate their fair values due to the short-term nature of these instruments.

(ii) Investments and capital assets are carried at amounts in accordance with the Company’s accounting policies.

 

Fair value estimates are made at a specific point in time, based on relevant market information and information about financial instruments.  These estimates are subject in and involve uncertainties and matters of significant judgment, therefore cannot be determined with precision.  Changes in assumptions could significantly affect the estimates.

A summary of the Company's risk exposures as it relates to financial instruments are reflected below:

	
A)

	
Credit Risk

The Company is not exposed to major credit risk attributable to customers. Additionally, the majority of the Company's cash and cash equivalents are held with a high rated Canadian financial institution in Canada.

B) Market Risk

	
i.) 

	
Interest Rate Risk

The Company does not have any interest bearing debt. The Company invest cash surplus to its operational needs in investment-grade short term deposits certificates issued by the bank where it keeps its Canadian Bank accounts. The Company periodically assesses the quality of its investments with this bank and is satisfied with the credit rating of the bank and the investment grade of its short term deposits certificates.

	
ii.) 

	
Foreign Currency Risk

The Company's exploration and evaluation activities are substantially denominated in Canadian dollars.  The Company's funds are predominantly kept in Canadian dollars, with a major Canadian financial Institution.

	
iii.) 

	
Equity Price Risk

Market risk arises from the possibility that changes in market prices will affect the value of the financial instruments of the Company. The Company is exposed to fair value fluctuations on its investments. The Company's other financial instruments (cash, accounts receivable, accounts payable and accrued liabilities) are not subject to price risk.

  

  

  

Trelawney Mining and Exploration Inc.

Notes to Unaudited Consolidated Financial Statements

For the Three and Six Month Periods Ended June 30, 2011 and 2010

 

  

	
8.

	
Financial Risk Factors (continued)

	
iv.) 

	
Liquidity risk

The Company’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when due.  As at June 30, 2011, the Company had current assets of $88,655,311 (December 31, 2010 - $55,291,133) and current liabilities of $3,033,602 (December 31, 2010 - $3,109,437).  All of the Company’s financial liabilities and receivables have contractual maturities of less than 90 days and are subject to normal trade terms.  Current working capital of the Company is $85,621,709 (December 31, 2010 - $52,181,695).

	
v.) 

	
Commodity Price Risk

 

The price of the common shares in the capital the Company ("Common Shares"), its financial results, exploration and development activities have been, or may in the future be, adversely affected by declines in the price of gold and/or other metals.  Gold prices fluctuate widely and are affected by numerous factors beyond the Company's control such as the sale or purchase of commodities by various central banks, financial institutions, expectations of inflation or deflation, currency exchange fluctuations, interest rates, global or regional consumptive patterns, international supply and demand, speculative activities and increased production due to new mine developments, improved mining and production methods and international economic and political trends.  The Company's revenues, if any, are expected to be in large part derived from mining and sale of precious and base metals or interests related thereto.  The effect of these factors on the price of precious and base metals, and therefore the economic viability of any of the Company's exploration projects, cannot accurately be predicted.

	
Sensitivity Analysis

The sensitivity analysis shown in the notes below may differ materially from actual results. Interest rate risk on cash equivalents is minimal as these have fixed interest rates.

Based on management’s knowledge and experience of the financial markets, the Company believes the following movements are reasonably possible over a one year period:

	
(i)

	
Cash and cash equivalents include short-term money market mutual fund units that are subject to floating interest rates. As at June 30, 2011, if interest rates had fluctuate by 1% with all other variables held constant, the loss for the six month period ended June 30, 2011 would be changed by $860,000, as a result of a change in interest income from cash and cash equivalents.

	
(ii)

	
The Company's investments are subject to fair value fluctuations. As at June 30, 2011, if the fair value of investments had fluctuated by 10% with all other variables held constant, net loss for the six month period ended June 30, 2011 would have changed by $103,000.

  

  

  

Trelawney Mining and Exploration Inc.

Notes to Unaudited Consolidated Financial Statements

For the Three and Six Month Periods Ended June 30, 2011 and 2010

 

   

	
9.

	
Related Party Transactions

Certain corporate entities that are related to the Company’s officers and directors provide consulting services     to Trelawney. Transactions were conducted in the normal course of operations and are measured at the exchange amounts.

These expenditures are summarized as follows:

	  	 	
Six month

period ended

June 30, 2011

	 	 	
Six month

period ended

June 30, 2010

	 	 	
Three month

period ended

June 30, 2011

	 	 	
Three month

period ended

June 30, 2010

	 
	
Management and consulting fees

	 	$	100,000	 	 	$	300,209	 	 	$	60,000	 	 	$	245,209	 
	
Professional fees

	 	 	36,000	 	 	 	85,731	 	 	 	36,000	 	 	 	17,411	 
	
Exploration & evaluation expenditures

	 	 	111,500	 	 	 	153,584	 	 	 	53,000	 	 	 	81,709	 

Included in accounts payable and accrued liabilities is $20,000 (December 31, 2010 - $473,000) in amounts due to related parties.

 

During the six months ended June 30, 2011, the Company charged $46,725 to Crown Gold Corp, a Company for which a director is also a director of Trelawney.

During the six months ended June 30, 2011, the Company advanced $40,000 to an officer of the Company.

  

  

  

Trelawney Mining and Exploration Inc.

Notes to Unaudited Consolidated Financial Statements

For the Three and Six Month Periods Ended June 30, 2011 and 2010

 

   

	
10.

	
Capital Stock

Share Capital

The Company is authorized to issue an unlimited number of common shares without par value.  The issued and outstanding common shares consist of the following:

 

	  	 	
No. of Shares

	 	 	 	 
	
Balance at January 1, 2010

	 	 	64,549,191	 	 	$	19,222,646	 
	
Issuance of common shares for cash:

	 	 	 	 	 	 	 	 
	
Private placement shares - $1.05/share

	 	 	14,238,095	 	 	 	14,950,000	 
	
Private placement shares - $2.20/share

	 	 	18,652,000	 	 	 	41,034,400	 
	
Private placement flow-through shares - $2.50/share

	 	 	6,440,000	 	 	 	16,100,000	 
	
Exercise of stock options

	 	 	581,000	 	 	 	315,150	 
	
Exercise of purchase warrants

	 	 	11,728,591	 	 	 	4,970,818	 
	
Issuance of shares for property

	 	 	4,300,000	 	 	 	4,182,000	 
	
Reserves transferred on exercise of options and warrants exercised

	 	 	-	 	 	 	2,456,028	 
	
Deferred tax liability pursuant to flow through shares renunciation

	 	 	-	 	 	 	(1,244,000	)
	
Cost of issuance

	 	 	 	 	 	 	 	 
	
Cash commissions paid

	 	 	-	 	 	 	(4,586,960	)
	
Fair market value assigned to broker warrants

	 	 	-	 	 	 	(594,000	)
	
Deferred tax benefit on cost of issuance

	 	 	-	 	 	 	1,147,000	 
	
Balance at December 31, 2010

	 	 	120,488,877	 	 	 	97,953,082	 
	
Issuance of common shares for cash:

	 	 	 	 	 	 	 	 
	
Private placement shares - $4.00/share

	 	 	14,375,000	 	 	 	57,500,000	 
	
Exercise of stock options

	 	 	774,000	 	 	 	507,150	 
	
Exercise of purchase warrants

	 	 	1,281,167	 	 	 	1,031,944	 
	
Issuance of shares for property

	 	 	4,550,000	 	 	 	19,368,500	 
	
Reserves transferred on exercise of options and warrants exercised

	 	 	 	 	 	 	1,014,800	 
	
Cost of issuance

	 	 	 	 	 	 	 	 
	
Cash commissions paid

	 	 	-	 	 	 	(3,252,633	)
	
Balance at June 30, 2011

	 	 	141,469,044	 	 	 	174,122,843	 

 

Private Placements

 

Details of private placements completed during the period ended June 30, 2011, were as follows:

 

	
Date of issuance

	 	
May 31,

2011

	 	 	
Total

	 
	
Number of shares issued

	 	 	14,375,000	 	 	 	14,375,000	 
	
Price of issue

	 	$	4.00	 	 	 	 	 
	
Gross proceeds

	 	$	57,500,000	 	 	$	57,500,000	 

 

  

  

  

Trelawney Mining and Exploration Inc.

Notes to Unaudited Consolidated Financial Statements

For the Three and Six Month Periods Ended June 30, 2011 and 2010

 

   

	
10.

	
Capital Stock (continued)

 

Details of private placements completed during the period ended June 30, 2010, were as follows:

 

	
Date of issuance

	 	
March 30,

2010

	 	 	
Total

	 
	
Number of shares issued

	 	 	14,238,095	 	 	 	14,238,095	 
	
Price of issue

	 	$	1.05	 	 	 	 	 
	
Gross proceeds

	 	$	14,950,000	 	 	$	14,950,000	 
	
Number of common share broker warrants

	 	 	854,286	 	 	 	-	 
	
Exercise price per purchase warrant and broker warrant

	 	$	1.05	 	 	 	 	 
	
Expiry date of warrants

	 	
March 30, 2012

	 	 	 	 	 

 

Share based payments

Trelawney established a stock option plan to provide additional incentive to its officers, directors, employees and consultants in their effort on behalf of the Company in the conduct of its affairs.  The stock option plan provides that the total number of shares which may be issued thereunder is limited to 10% of the aggregate number of shares outstanding.  Under the terms of the plan, options vest immediately and expire on the fifth anniversary from the date of issue unless otherwise specified.  As at June 30, 2011 the Company had 411,904 (December 31, 2010 – 4,994,888) options available for issuance.

A summary of stock options issued and outstanding is as follows:

	  	 	
June 30, 2011

	 	 	
December 31, 2010

	 
	  	 	
Weighted

	 	 	 	 	 	
Weighted

	 	 	 	 
	  	 	
Average

	 	 	 	 	 	
Average

	 	 	 	 
	  	 	
Exercise

	 	 	
Number of

	 	 	
Exercise

	 	 	
Number of

	 
	  	 	
Price

	 	 	
Options

	 	 	
Price

	 	 	
Options

	 
	
Outstanding at beginning of period/year

	 	$	0.72	 	 	 	7,054,000	 	 	$	0.39	 	 	 	3,300,000	 
	
Transaction during the period/year:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
Granted

	 	 	4.63	 	 	 	7,620,000	 	 	 	0.92	 	 	 	4,605,000	 
	
Exercised

	 	 	0.66	 	 	 	(774,000	)	 	 	0.54	 	 	 	(581,000	)
	
Forfeited

	 	 	0.45	 	 	 	(165,000	)	 	 	0.52	 	 	 	(270,000	)
	
Outstanding at end of period/year

	 	 	2.89	 	 	 	13,735,000	 	 	 	0.72	 	 	 	7,054,000	 
	
Exercisable at end of period/year

	 	$	2.89	 	 	 	13,735,000	 	 	$	0.72	 	 	 	6,904,000	 

 

  

  

  

Trelawney Mining and Exploration Inc.

Notes to Unaudited Consolidated Financial Statements

For the Three and Six Month Periods Ended June 30, 2011 and 2010

 

   

	
10.

	
Capital Stock (continued)

The following table provides additional information about outstanding stock options at June 30, 2011:

	  	 	
No.

of

Options

Outstanding

	 	 	
Weighted

Average

Remaining

Life

(Years)

	 	 	
Weighted

Average

Exercise

Price

	 	 	
No. of

Options

Currently

Exercisable

	 	 	
Weighted

Average

Exercise Price –

Exercisable

Options

	 
	
$ 0.26 - $0.55

	 	 	2,137,000	 	 	 	3.21	 	 	$	0.34	 	 	 	2,137,000	 	 	$	0.34	 
	
$ 0.75 - $1.92

	 	 	3,978,000	 	 	 	3.57	 	 	$	0.95	 	 	 	3,844,667	 	 	$	0.95	 
	
$ 4.50  - $4.74

	 	 	7,620,000	 	 	 	4.40	 	 	$	4.63	 	 	 	7,620,000	 	 	$	4.63	 
	
$ 0.26 - $4.74

	 	 	13,735,000	 	 	 	3.98	 	 	$	2.89	 	 	 	13,601,667	 	 	$	2.89	 

Share based payments

The following table summarizes the assumptions used with the Black-Scholes valuation model for the determination of the stock-based compensation costs for the stock options issued during the six month period ended June 30, 2011:

	
Grant date

	 	
Vesting of

prior year

Options

	 	 	
Apr. 4,

2011

	 	 	
Apr. 27,

2011

	 	 	
Jun. 30,

2011

	 	 	
Total

	 
	
No. of options

	 	 	-	 	 	 	4,015,000	 	 	 	5,000	 	 	 	3,600,000	 	 	 	7,620,000	 
	
Exercise price

	 	 	-	 	 	$	4.74	 	 	$	4.74	 	 	$	4.50	 	 	 	 	 
	
Expected life in years

	 	 	-	 	 	 	5	 	 	 	5	 	 	 	5	 	 	 	 	 
	
Volatility

	 	 	-	 	 	 	105	%	 	 	110	%	 	 	104	%	 	 	 	 
	
Risk-free interest rate

	 	 	-	 	 	 	2.76	 	 	 	2.65	 	 	 	2.33	 	 	 	 	 
	
Dividend yield

	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	 	 
	
Vesting

	 	 	 	 	 	 	100	%	 	 	100	%	 	 	100	%	 	 	 	 
	
Fair value of options granted

	 	 	-	 	 	$	14,765,000	 	 	$	18,000	 	 	$	12,363,000	 	 	$	27,146,000	 
	
Stock-based compensation expense

	 	$	86,240	 	 	$	14,765,000	 	 	$	18,000	 	 	$	12,363,000	 	 	$	27,232,240	 

 

  

  

  

Trelawney Mining and Exploration Inc.

Notes to Unaudited Consolidated Financial Statements

For the Three and Six Month Periods Ended June 30, 2011 and 2010

 

   

	
10.

	
Capital Stock (continued)

The following table summarizes the assumptions used with the Black-Scholes valuation model for the determination of the stock-based compensation costs for the stock options issued during the three month period ended June 30, 2011:

	
Grant date

	 	
Vesting of

prior year

Options

	 	 	
Apr. 4,

2011

	 	 	
Apr. 27,

2011

	 	 	
Jun. 30,

2011

	 	 	
Total

	 
	
No. of options

	 	 	-	 	 	 	4,015,000	 	 	 	5,000	 	 	 	3,600,000	 	 	 	7,620,000	 
	
Exercise price

	 	 	-	 	 	$	4.74	 	 	$	4.74	 	 	$	4.50	 	 	 	 	 
	
Expected life in years

	 	 	-	 	 	 	5	 	 	 	5	 	 	 	5	 	 	 	 	 
	
Volatility

	 	 	-	 	 	 	105	%	 	 	110	%	 	 	104	%	 	 	 	 
	
Risk-free interest rate

	 	 	-	 	 	 	2.76	 	 	 	2.65	 	 	 	2.33	 	 	 	 	 
	
Dividend yield

	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	 	 
	
Vesting

	 	 	 	 	 	 	100	%	 	 	100	%	 	 	100	%	 	 	 	 
	
Fair value of options granted

	 	 	-	 	 	$	14,765,000	 	 	$	18,000	 	 	$	12,363,000	 	 	$	27,146,000	 
	
Stock-based compensation expense

	 	$	69,300	 	 	$	14,765,000	 	 	$	18,000	 	 	$	12,363,000	 	 	$	27,215,300	 

 

The following table summarizes the assumptions used with the Black-Scholes valuation model for the determination of the stock-based compensation costs for the stock options issued during the year ended December 31, 2010:

 

	
Grant date

	 	
Vesting of

prior year

Options

	 	 	
Jan. 19,

2010

	 	 	
March 2,

2010

	 	 	
April 12,

2010

	 	 	
April 30,

2010

	 	 	
Sept. 24,

2010

	 	 	
Nov. 5,

2010

	 	 	
Total

	 
	
No. of options

	 	 	-	 	 	 	2,525,000	 	 	 	275,000	 	 	 	1,530,000	 	 	 	50,000	 	 	 	200,000	 	 	 	25,000	 	 	 	4,605,000	 
	
Exercise price

	 	 	-	 	 	$	0.75	 	 	$	0.53	 	 	$	1.25	 	 	$	1.10	 	 	$	1.00	 	 	$	1.92	 	 	 	 	 
	
Expected life in years

	 	 	-	 	 	 	5	 	 	 	5	 	 	 	5	 	 	 	5	 	 	 	5	 	 	 	5	 	 	 	 	 
	
Volatility

	 	 	-	 	 	 	105	%	 	 	104	%	 	 	110	%	 	 	109	%	 	 	109	%	 	 	108	%	 	 	 	 
	
Risk-free interest rate

	 	 	-	 	 	 	2.60	 	 	 	2.53	 	 	 	3.06	 	 	 	2.99	 	 	 	2.11	 	 	 	2.05	 	 	 	 	 
	
Dividend yield

	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	 	 
	
Vesting

	 	
25% per quarter

	 	 	 	100	%	 	 	100	%	 	 	100	%	 	 	100	%	 	
1/3 per year

	 	 	 	100	%	 	 	 	 
	
Fair value of options granted

	 	 	-	 	 	$	1,466,000	 	 	$	112,000	 	 	$	1,469,000	 	 	$	43,000	 	 	$	154,000	 	 	$	38,000	 	 	$	3,282,000	 
	
Stock-based compensation expense

	 	$	25,700	 	 	$	1,466,000	 	 	$	112,000	 	 	$	1,469,000	 	 	$	43,000	 	 	$	67,760	 	 	$	38,000	 	 	$	3,221,460	 

 

  

  

  

Trelawney Mining and Exploration Inc.

Notes to Unaudited Consolidated Financial Statements

For the Three and Six Month Periods Ended June 30, 2011 and 2010

 

 

	
10.

	
Capital Stock (continued)

Warrants

	
Month of Expiry

	 	
No. of Warrants

	 	 	
Exercise Price

	 
	  	 	 	 	 	
($)

	 
	
December 2011

	 	 	4,339,200	 	 	 	0.70	 
	
March 2012

	 	 	190,857	 	 	 	1.05	 
	
August 2014

	 	 	1,000,000	 	 	 	0.17	 
	  	 	 	5,530,057	 	 	 	 	 

The following table summarizes the assumptions used with the Black-Scholes valuation model during the year ended December 31, 2010:

	
Grant date

	 	
March 30, 2010

	 	 	
Totals

	 
	
No. of warrants

	 	 	854,286	 	 	 	854,286	 
	
Exercise price

	 	$	1.05	 	 	 	 	 
	
Expected life in years

	 	 	2	 	 	 	 	 
	
Volatility

	 	 	129.67	%	 	 	 	 
	
Risk-free interest rate

	 	 	1.73	%	 	 	 	 
	
Dividend yield

	 	 	-	 	 	 	 	 
	
Fair value of warrants

	 	$	594,000	 	 	$	594,000	 

	
11.

	
Warrants Reserve

	
Period/year ended

	 	
June 30,

 2011

	 	 	
December 31,

2010

	 
	
Balance at beginning of period/year

	 	$	2,192,200	 	 	$	3,831,000	 
	
Warrants issued

	 	 	-	 	 	 	594,000	 
	
Reserves transferred to share capital on exercise of warrants

	 	 	(621,400	)	 	 	(2,232,800	)
	
Balance at end of period/year

	 	$	1,570,800	 	 	$	2,192,200	 

	
12.

	
Share Based Payments Reserve

	
Period/year ended

	 	
June 30,

 2011

	 	 	
December 31,

2010

	 
	
Balance at beginning of period/year

	 	$	5,167,351	 	 	$	2,169,119	 
	
Share based payments

	 	 	27,232,240	 	 	 	3,221,460	 
	
Reserve transferred to share capital on exercise of options

	 	 	(393,400	)	 	 	(223,228	)
	
Balance at end of period/year

	 	$	32,006,191	 	 	$	5,167,351	 

 

  

  

  

Trelawney Mining and Exploration Inc.

Notes to Unaudited Consolidated Financial Statements

For the Three and Six Month Periods Ended June 30, 2011 and 2010

 

   

	
13.

	
Capital Management

 

The Company manages its capital structure and makes adjustments to it, based on the funds available to the Company, in order to support the acquisition, exploration and development of mineral properties. The Board of Directors does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company's management to sustain future development of the business. The Company defines capital to include its shareholders’ equity. In order to carry out the planned exploration and pay for administrative costs, the Company will spend its existing working capital and raise additional amounts as needed. The Company will continue to assess new properties and seek to acquire an interest in additional properties if it feels there is sufficient geologic or economic potential and if it has adequate financial resources to do so. Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable. There were no changes in the Company's approach to capital management during the six month period June 30, 2011. The Company is not subject to externally imposed capital requirements.

The Company considers its capital to be shareholders’ equity, which is comprised of capital stock, contributed surplus, and deficit, which as at June 30, 2011 totaled $121,508,024 (December 31, 2010 - $67,952,184).

The Company's objective when managing capital is to obtain adequate levels of funding to support its exploration activities, to obtain corporate and administrative functions necessary to support organizational functioning and obtain sufficient funding to further the identification and development of precious metals deposits.

The Company raises capital, as necessary, to meet its needs and take advantage of perceived opportunities and, therefore, does not have a numeric target for its capital structure.  Funds are primarily secured through equity capital raised by way of private placements.  There can be no assurance that the Company will be able to continue raising equity capital in this manner.

Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable.

The Company invests all capital that is surplus to its immediate operational needs in short term, liquid and highly rated financial instruments, such as cash, and short term guarantee deposits, all held with major Canadian financial institutions.

	
14.

	
Cash and Cash Equivalents

Cash and cash equivalents consist of cash on deposit with the banks in general non-interest bearing accounts totalling $85,341,703 (December 31, 2010 - $50,780,221) and interest-generating money-market accounts with no stipulated terms of maturity, of $948,150 (December 31, 2010- $3,439,195).

Restricted cash balances consist of short-term cash on deposit with banks in interest-generating money-market accounts, of $637,771 (2010 - $586,198).

  

  

  

 

Trelawney Mining and Exploration Inc.

Notes to Unaudited Consolidated Financial Statements

For the Three and Six Month Periods Ended June 30, 2011 and 2010

  

 

	
14.

	
Cash and Cash Equivalents (continued)

The following chart discloses the Company’s cash and cash equivalents as well as cash balances that are restricted as a result of cash held by its Canadian bank in interest bearing deposits securing letters of credit issued regarding the Chester project:

	  	 	
June 30, 2011

	 	 	
December 31, 2010

	 
	  	 	$	 	 	$	 
	
General purpose

	 	 	 	 	 	 	 	 
	
Cash

	 	 	85,341,703	 	 	 	50,780,221	 
	
Cash equivalents

	 	 	948,150	 	 	 	3,439,195	 
	
Total cash and cash equivalents

	 	$	86,289,853	 	 	$	54,219,416	 
	  	 	 	 	 	 	 	 	 
	
Restricted

	 	 	 	 	 	 	 	 
	
Cash equivalents (1)

	 	 	637,771	 	 	 	586,198	 
	
Total restricted cash

	 	$	637,771	 	 	$	586,198	 

	
(1) 

	
This cash is made up of $505,500 restricted in connection with the Company’s ARO obligations. The Company has issued a letter of credit in the amount of $505,500 to the Ministry of Northern Development, Mines and Forestry in satisfaction of its requirements under the approved site development. This cash equivalent is restricted by a non-revocable letter of credit that can only be lifted by the Ministry of Northern Development, Mines and Forestry.  The remaining $132,271 is restricted in connection with the Company’s credit cards.

	
15.

	
Capital Lease Obligations

	  	 	
June 30, 2011

	 	 	
December 31, 2010

	 
	
Total minimum lease payments

	 	$	659,112	 	 	$	1,078,330	 
	
Less: amount representing interest

	 	 	63,613	 	 	 	99,489	 
	
Capital lease obligation

	 	 	595,499	 	 	 	978,841	 
	
Less: current portion

	 	 	358,174	 	 	 	318,193	 
	  	 	$	237,325	 	 	$	660,648	 

 

As at June 30, 2011, future minimum lease payments by year, and in the aggregate, are as follows:

	
2011

	 	 	136,018	 
	
2012

	 	 	272,037	 
	
2013

	 	 	234,753	 
	
2014

	 	 	16,304	 
	
Totals

	 	$	659,112	 

Equipment under capital lease includes vehicles and mining equipment.  The capital leases are issued at a rate of interest of between 3.84% and 6.6% and mature before June 2014.  During the six month period ended June 30, 2011 $32,009 (December 31, 2010 - $13,789) of interest from capital leases was charged to operations.

  

  

  

Trelawney Mining and Exploration Inc.

Notes to Unaudited Consolidated Financial Statements

For the Three and Six Month Periods Ended June 30, 2011 and 2010

 

   

	
16.

	
Prepaid Expenses, Advances and Deposits

Prepaid Expenses:

	  	 	
As at,

	 
	  	 	
June 30, 2011

	 	 	
December 31, 2010

	 
	  	 	
$

	 	 	
$

	 
	  	 	 	 	 	 	 
	
Security deposit

	 	 	157,490	 	 	 	126,435	 
	
Insurance

	 	 	13,277	 	 	 	46,648	 
	
Last month rent deposit

	 	 	36,345	 	 	 	34,046	 
	
Advances

	 	 	42,500	 	 	 	4,688	 
	
Total prepaid expenses

	 	$	249,612	 	 	$	211,817	 

Deposits:

As at June 30, 2011 the Company had long term deposits of $169,500 (December 31, 2010 - $539,000) comprised of $169,500 in deposits relating to certain leased equipment. At December 31, 2010, deposits were comprised of a $300,000 deposit in connection with the purchase of the mill from Canada Lithium (Note 4) in addition to $239,000 in deposits related to certain leased equipment still outstanding.

	
17.

	
Exploration and Evaluation Expenditures/(Recoveries)

The evaluation and exploration expenses for the Company are broken down as follows:

	  	 	
Six months ended

	 	 	
Three months ended

	 	 	 	 
	  	 	
June 30,

2011

	 	 	
June 30,

2010

	 	 	
June 30,

2011

	 	 	
June 30,

2010

	 	 	
Cumulative

	 
	  	 	
$

	 	 	
$

	 	 	
$

	 	 	
$

	 	 	 	 
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
Chester 1

	 	 	8,591,311	 	 	 	3,671,152	 	 	 	4,215,124	 	 	 	2,131,197	 	 	 	21,661,974	 
	
Chester 2

	 	 	2,788,364	 	 	 	750,549	 	 	 	1,532,034	 	 	 	408,653	 	 	 	7,905,112	 
	
Chester 3

	 	 	5,630,483	 	 	 	1,237,129	 	 	 	1,241,384	 	 	 	912,205	 	 	 	8,419,219	 
	
Chester/Yeo

	 	 	(39,475	)	 	 	-	 	 	 	2,473	 	 	 	-	 	 	 	10,964	 
	
Mishi

	 	 	6,835	 	 	 	27	 	 	 	6,835	 	 	 	(57,398	)	 	 	455,583	 
	
Massey

	 	 	10,306	 	 	 	26,140	 	 	 	4,267	 	 	 	11,097	 	 	 	232,523	 
	
Dorset Au

	 	 	-	 	 	 	762	 	 	 	-	 	 	 	-	 	 	 	2,810,113	 
	
Other

	 	 	120,095	 	 	 	-	 	 	 	120,095	 	 	 	-	 	 	 	207,223	 
	
Evaluation and exploration expenses

	 	$	17,107,919	 	 	$	5,685,759	 	 	$	7,122,212	 	 	$	3,405,754	 	 	$	41,702,711	 

 

  

  

  

Trelawney Mining and Exploration Inc.

Notes to Unaudited Consolidated Financial Statements

For the Three and Six Month Periods Ended June 30, 2011 and 2010

 

  

	
18.

	
HST and Other Receivables

The Company’s HST and other receivables arise from two main sources: trade receivables due from customers for services and sales and harmonized services tax (“HST”) receivable due from government taxation authorities. These are broken down as follows:

	  	 	
As at,

	 
	  	 	
June 30, 2011

	 	 	
December 31, 2010

	 
	  	 	
$

	 	 	
$

	 
	  	 	 	 	 	 	 
	
Trade Receivables

	 	 	259,174	 	 	 	35,934	 
	
HST Receivable

	 	 	823,702	 	 	 	736,591	 
	
Total HST and Other Receivables

	 	$	1,082,876	 	 	$	772,525	 

Below is an aged analysis of the Company’s trade and other receivables:

	  	 	
As at,

	 
	  	 	
June 30, 2011

	 	 	
December 31, 2010

	 
	  	 	
$

	 	 	
$

	 
	  	 	 	 	 	 	 
	
Less than 1 month

	 	 	1,082,876	 	 	 	736,591	 
	
1 to 3 months

	 	 	-	 	 	 	35,934	 
	
Total HST and Other Receivables

	 	$	1,082,876	 	 	$	772,525	 

At June 30, 2011, 76% of the trade and other receivables that were outstanding are HST receivable. The Company anticipates full recovery of these amounts and therefore no impairment has been recorded against these receivables. The credit risk on the HST receivable has been further discussed in Note 8.

The Company holds no collateral for any receivable amounts outstanding as at June 30, 2011.

	
19.

	
Trade and Other Payables

Trade and other payables of the Company are principally comprised of amounts outstanding for trade purchases relating to exploration activities, amounts payable for financing activities and payroll liabilities.  The usual credit period taken for trade purchases is between 30 to 90 days.

The following is an aged analysis of the trade and other payables:

	  	 	
As at,

	 
	  	 	
June 30, 2011

	 	 	
December 31, 2010

	 
	  	 	
$

	 	 	
$

	 
	  	 	 	 	 	 	 
	
Less than 1 month

	 	 	1,944,224	 	 	 	2,759,181	 
	
1 to 3 months

	 	 	550,549	 	 	 	21,989	 
	
Over 3 months

	 	 	180,655	 	 	 	10,075	 
	
Total Trade and Other Payables

	 	$	2,675,428	 	 	$	2,791,245	 

 

  

  

  

Trelawney Mining and Exploration Inc.

Notes to Unaudited Consolidated Financial Statements

For the Three and Six Month Periods Ended June 30, 2011 and 2010

 

     

	
20.

	
Commitments and Contractual Obligations

As part of its mineral property option agreements the Company is committed to make certain payments of cash and shares in order to exercise its options on the various properties (Note 5).

The Company’s activities are subject to environmental regulation (including regular environmental impact assessments and permitting) in each of the jurisdictions in which its mineral properties are located.  Such regulations cover a wide variety of matters including, without limitation, prevention of waste, pollution and protection of the environment, labour relations and worker safety.  The Company may also be subject under such regulations to clean-up costs and liability for toxic or hazardous substances which may exist on or under any of its properties or which may be produced as a result of its operations.  It is likely that environmental legislation and permitting will evolve in a manner which will require stricter standards and enforcement.  This may include increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a higher degree of responsibility for companies, their directors and employees.

The Company has not determined and is not aware whether any provision for such costs is required and is unable to determine the impact on its financial position, if any, of environmental laws and regulations that may be enacted in the future due to the uncertainty surrounding the form that these laws and regulations may take.

As part of its 2010 flow-through funding agreements, the Company is committed to spending approximately $3,000,000 on Canadian exploration costs by December 31, 2011.  As at June 30, 2011, the Company has spent $13,100,000 of the $16,100,000 of flow-through funds it raised in December 2010.

21. Subsequent Event

The Company announced that it has formally commenced a share exchange take-over bid to acquire all of the outstanding common shares of Augen Gold Corp., not including common shares of Augen currently held by Trelawney.

The Offer will remain open until 5:00 p.m. (Toronto Time) on September 1, 2011, unless withdrawn or extended. The Offer is to acquire all of the outstanding common shares of Augen at an implied offer price of $0.32 per common share.  Under the terms of the Offer, Augen shareholders will be entitled to receive 0.066 common shares of Trelawney for each common share of Augen held. The implied offer price represents a premium of approximately 40% relative to the volume-weighted average price of Augen Shares on the TSXV over the last 20 trading day period ended on July 8, 2011, unless withdrawn or extended.

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