Focusing On Green & Alternative Energy Economies | Gossan also holds a 46.7% equity investment in The Claims Network

8/6/2019 Focusing On Green & Alternative Energy Economies | Gossan also holds a 46.7% equity investment in The Claims

1/36

2010 annuaL RePoRt

magnesium12

Mg24.305

lithium

3

Li6.941

titanium22

Ti47.867

vanadium23

V50.942

C O M M O D I T Y D I V E R S E E X P L O R AT I O N | GReen eneRGY demand


2/36

Gossan Resources Limited is engaged in theexploration and development o a broadly di-versifed port olio o properties hosting gold,platinum group and base metals, as well as the

specialty and minor metals - tantalum, lithium,chromium, titanium and vanadium. Gossan alsoholds a large deposit o magnesium-rich dolomite,the world-wide rights to the Zuliani magnesiumproduction process, and a high-purity silica sanddeposit. All o the properties are located inManitoba and north-western Ontario.

Gossan also holds a 46.7% equity investmentin e Claims Network, a web-based serviceprovider to the property & casualty insuranceindustry. With representatives across Canadaand an extensive proprietary database o prod-uct specifcations and price in ormation, TCNprovides the insurance industry with contents lossvaluations and on-site claims reporting o losses.

Gossan trades on theTSX Venture Exchangeunderthe symbolGSSand on the Frankfurt-Freiverkehr& the Xetra Exchanges under the symbol GSR WKN 904435. As o August 25, 2010, Gossan has

29,117,900 common shares outstanding.

g O S S A N R E S O u R C E S

is enGaGed in the

eXPLoRation &

deVeLoPment oF a

bRoadLY diV eRsiFied

PoRtFoLio oF PRoPeRties,

Focused on the

GReen & aLteRnatiVe

eneRGY economies

A B O V E : maGnesium coRe at inWood


3/36

Gossan ResouRces Limited | 2010 A a R r

Dear hareholders,

ver the past year, ossan has been pursuing the development o its two most advanced projects the nwooagnesium roject and the anigotagan ilica and roject. oth o these projects have de ned deposits and ar

moving through development towards production. e type o process testing work that needs to be undertakenat this time to assess these projects economic viability is a lengthy but necessary stage o development. ossis continuing to move select projects orward to meet the upcoming demand in the green and alternative energyeconomies.

During the year, ossan has made signi cant progress in the development o the Zuliani rocess or the productioo magnesium. e second stage o the evaluation process three phases o bench scale testing were successcompleted at rocess esearch rtech and it was demonstrated that the process could produce magnesium metalat atmospheric conditions with exceptionally high raw material e ciencies and with low carbon emmissions

e third stage o evaluation, involving a material increase in the scale o testing using specialized equipmen

is currently being planned and resources are being sourced. hen all actors are considered, the direct operatincost o magnesium ingot produced with the Zuliani rocess is expected to be about 3 % less than the direct cost

hinese magnesium ingot landed in western markets. agnesium continues to be an important element in attainingenergy e ciency and reducing carbon emissions across the transportation sector due to its qualities o light weigstrength.

ngoing testing o silica sand rom the anigotagan deposit or use as rac sand in the oil and gas industry hresulted in samples o the 2 /4 , 3 / and 7 / 4 mesh ractions consistently meeting 8K and 9K roppratings. marketing study is underway to provide product price and market size data along with potential customersand competitors within economically transportable distances or each product type. esults rom this study malead to a scoping report providing an initial economic assessment o the anigotagan deposit.

ther eld programs with our joint venture partners arathon at the ird iver roject and the ross akeirst ation at the ipestone ake roject have also advanced the ompanys interests. s are the key elements

in catalytic converters which reduce auto emissions o greenhouse gasses. wo new green applications or vanadin electrical storage technology lithium auto batteries and grid scale load batteries could, by some analysts oreincrease demand or vanadium by over % in the next years.

e ompany is continuing to actively examine new potential properties to expand its port olio, primarily in thegold and magnesium related sectors.

ossans investment in e laims etwork, a service provider to the insurance industry, is in the process o maturing grew rapidly over the past two years and is now generating signi cant amounts o sales, pro ts and cash ow.

t is my pleasure to thank ossans o cers, directors, staf and consultants or their eforts and the ompanysshareholders, whom we serve, or their continuing support. ossan is a unique company well positioned or th

development o a green economy emphasizing renewable energy. e outlook or magnesium, platinum anpalladium, vanadium, and rac sand will also bene t rom the ongoing concern with high energy prices, climachange and the resultant afects upon the transportation industry.

ugust 2 , 2

Douglas eesonresident & Director

L e t t e R t o s h a R e h oL d e R s


4/36


i n w o o d p R o j e c t & Z u L i a n i p R o c e s s

Ma m

magnesium metal under atmospheric conditions atexceptionally high raw material e ciencies. t thedemonstrated e ciencies, raw material consumptionis about 2 % lower or dolomite and 3 % lower orsilicon than or a typical idgeon plant operatingin hina. ese ndings give urther credence tothe Zuliani rocess ultimately providing the lowestoperating cost per pound o magnesium by a materialmargin.

s the Zuliani rocess operates at atmospheric conditions, the process avoids the complexities and addedcosts associated with operating under a vacuum. tmospheric magnesium production is also expectedto acilitate direct production o molten magnesiummetal without the added cost, energy and yield lossesassociated with melting and re ning o solid crude

magnesium as produced with the idgeon rocess. hen all actors are considered including prevailing dolomite & errosilicon costs, labor rates,energy prices and overseas reight, the direct costo magnesium ingot produced with the Zuliani

rocess is expected to be about 3 % less than thedirect cost o hinese magnesium ingot landed in western markets, subject to con rmation o theprocess at commercial scale.

s p e c i a L t y m e t a L s

e , 3 hectare nwood agnesium roperty is locatedin south central anitoba. n total ossans regional landpackage covers ,23 hectares in several claim blocks. e

ompanys land position is designed to hold all o the areasnear sur ace beds o high purity dolomite.

e nwood agnesium roject is being advanced basedon the expectation o higher magnesium prices currently over U .2 per pound and the development o moreenergy and cost e cient magnesium extraction processtechnology which is the current ocus o the ompany.

n arch , 2 7, ossan entered into a licensingarrangement or the worldwide rights to a new high e

ciency magnesium production process being developed by Douglas J. Zuliani. e new process is based on an e cientadaptation o the agnetherm process. e Zuliani processis designed to achieve operating cost savings by processe ciency improvements that signi cantly reduce both energy and key raw material requirements. ese enhancements to the traditional agnetherm method materially improve both magnesium recovery and silicon reductione ciency without the need or a vacuum. nergy use andcost is urther reduced by development o a technically straight orward method that will ensure highly e cientcondensation o liquid magnesium metal. ow cost hydroelectricity is abundantly available in anitoba.

n order to prove out the technology prior to commercialization, ossan is undertaking a our stage evaluation process.

nitially act age thermodynamic modeling was success ully used to veri y the process undamentals. e second stage, which involved bench scale testing at rocess esearch rtech

o ississauga was success ully completed earlier in2 with the results con rming the predictions rom theinitial thermodynamic modeling. e third stage which

will materially increase the scale o testing using specialized equipment is currently being planned with .

erea ter a ourth stage pilot demonstration plant will beconstructed to con rm commercial viability. ossan may seek a joint venture partner to assist in the pilot plant andsubsequent commercialization o the process.

n pril 27, 2 , ossan announced the results o thehase bench scale tests at rocess rtech. e series o

six tests used a larger sample size in newly designed testequipment and con rmed that the Zuliani rocess produces

esium2

Mg305

m a G n e s i u m is essentiAlin iMpoRoving eneRgy

efficiency & Reducing

cARbon eMMissions in

the tRAnspoRt sectoR

by lightening vehicle

weight. this MAybe

pARticulARily iMpoRtAnt

in ex tending the RAnge

of electRic cARs


5/36


e atts, ri s and c uat ational nstrument43 eport on the nwood Dolomite rojectprovided resource estimates or three zones o highpurity magnesium dolomite in the isher ranch

ormation as summarized in the table below:

esourcelass

onnagerade g

wt%rade a

wt%

easured 28,8 9, 2 . % 3 .9 %

ndicated , 7, 2 .4 % 3 . %n erred 3 ,23 , 2 . 4% 3 . %

e high raw material e ciencies coupled with theuse o hydro electricity will lower the environmental impact o magnesium production dramatically as compared to existing production technologies.

ossan has contracted rocess rtech to undertake a arbon mission tudy o the Zuliani rocess. ap and rade legislation pertaining to reenHouse as emissions in orth merica is widely anticipated to be introduced and mandated. islegislation, which supports the development o cleaner production processes, may have a materialefect on the projects economics.

n 2 , ossan completed a 27 hole drill pro

gram, totaling 49 metres, on the roperty. atts,ri s c uat independently calculated a ation

al nstrument 43 compliant resource basedon the results rom the 2 drill program and2 holes previously drilled on the roperty. eprogram targeted 8 hectares o the isher ranch

ormation which typically outcrops at sur ace andextends to a depth o about 2 metres.

e easured esource alone would be capable o

sustaining a very substantial production acility o 8 , tonnes o magnesium per year or about 3years subject to a positive easibility study .

n initial environmental study has been conductedat the nwood roperty. o endangered species were identi ed in the assessment o the naturalenvironment.

p h a s e i

p h a s e i i

p h a s e i i i


6/36


biRd RiveR pRojectpa a m/ p a m/ ba M a

e ird iver roject, which covers over 22 kilometres o the ird iver ill omplex, is comprised o the estern

ards oppermine xtension; our separate blocks o the ill the ational edin, the hrome and its xtension,the eterson and the age locks; and the re ault Zone.

is complex carries signi cant concentrations o palladiumand platinum along with nickel, copper, zinc and chromite.

e ird iver roperty is located about 4 km east o acDu onnet, anitoba and, along the ill, approximately

km west and northwest o ustang inerals askwaDeposit.

n arch 2 , 2 7 the ompany entered into an optionand joint venture agreement on the ird iver roperty with

arathon orporation arathon . Under the termso the agreement, arathon triggered the ormation o a joint venture on ugust 2 , 2 8, by making ,in cash payments and having expended in excess o 3million on the ird iver roject. o date, arathonhas expended about 4. million on the roject whichincludes the acquisition o a % interest in the re

ault roperty, subject to a % net smelter return royalty.ossan currently holds an approximate 4 % interest in

the joint venture.

B e L o w : cARoline MeAlin, williAM Mcguinty And

douglAs Reeson At biRd RiveR pRoject

p R e c io u s m e t a L s

pper29

u546

kel

8

Ni693

nc

0

n39

dium46

d6.42

inum78

t5.08


7/36



Contained MetalsBase Metals lbs x 1,000,000Precious Metals ozs x 1,000

Category onnes

x 1,000

Ni

%

Cu

%

Zn

%

Ag

gpt

Au

gpt

Pt

gpt

Pd

gptNi Cu Zn Ag PGM

+ Aundicated ,498 .32 . 3 . .9 . 2 . 7 .28 . 4.3 .3 4 . 7.8n erred 2 .27 . 9 . .8 . 2 . 7 .2 . . . 7. 2.8

Contained MetalsBase Metals lbs x 1,000,000Precious Metals ozs x 1,000

Category onnesx 1,000Ni%

Cu%

Zn%

Aggpt

Augpt

Ptgpt

Pdgpt Ni Cu Zn Ag

PGM+ Au

Ni Zonendicated 9 .37 .24 .2 8.2 . 2 . 9 .37 7.4 4.8 4. 237.9 3.9n erred 2, 9 .3 . 9 . 8 7. . . .4 9. .8 4. 73. 4

Zn and Cu Zone

ndicated 28 . 4 .48 .39 9. . 7 . . . .3 .9 2. .n erred 34 . .47 2. 2 44. . . . 8 . 3. .2 487.9 .

arathon undertook a major drill program at the eastern end o the roject during the winter o 2 8 with the goal odeveloping a 43 resource. e program which totaled 38 holes ,938m was comprised o 3 holes 2,at the age lock; 4 holes 83m at the alaxy Zone; and 2 holes 4,3 8m at the re ault orth Zone.

ased on the results o the inter 2 8 Drill rogram and prior drill data, 43 compliant resource estimat were completed by independent mining consultants and Quali ed ersons, .H. rown . . ., r. ci. at., and ntoine Yassa, . eo. o & ining onsultants nc., as ollows:

Page Block Mineral Resource at US$12.00/tonne NSR Cut-Of

Ore Fault North Zone Mineral Resource at US$12.00/tonne NSR Cut-Of

. ineral resources which are not mineral reserves do not have demonstrated economic viability. e estimate o mineralresources may be materially afected by environmental, permitting, legal, title, taxation, sociopolitical, marketing, or otherrelevant issues.

2. e quantity and grade o reported in erred resources in this estimation are uncertain in nature and there has been insu cientexploration to de ne these in erred resources as an indicated or measured mineral resource and it is uncertain i urther explora

will result in upgrading them to an indicated or measured mineral resource category.

inter 2 9 Drill rogram was completed with a total o 97 m drilled in 7 holes designed to enhance the twoknown resources. wo holes 34m were drilled at the re ault orth Zone and ve holes 437m were drillat the age lock. ll o these holes are within the current resource pit shell and will add to the existing i 43resource base. Highlights o the drill program included a 2.8m intersection o i u mineralization gradin2. % nickel, 2. % copper, .2 gpt silver and 2. 3 gpt + gold in a sulphide lens at the age lock withihole 9 7 and a 2. m intersection o u Zn g mineralization grading 2.23% zinc, .74% copper and gpt silver in a sulphide lens at the re ault Zone within hole 9 27.


8/36


shARpe lAKe pRojectg

ossans harpe ake roperties are located adjacentto olling ock esources onument ay roject

ormerly held by a ol den ema old Joint venture where a 43 compliant in erred resourceo .3 million tonnes grading .98 gpt gold or atotal o .2 million ounces o contained gold hasbeen developed. ossans roperties are comprisedo three exploration permits or license applications which cover , hectares 4 , acres along astrike length o 4 km, and are located approximately

km north east o innipeg.

ossan has ocused its attention on the ear howing at the west end o harpe ake. e pervasiveand intense alteration at the ear howing is highly signi cant and re ective o major hydrothermal

uid migration.

e harpe ake roperty and its ear howing isthe subject o a ational nstrument 43 eportthat has been led on D . e eport is a compilation o the exploration programs that have beenconducted on the property and recommends a drillprogram to investigate gold mineralization at the

ear howing. ossan intends to seek a joint venture partner to undertake the drill program. ork to date has identi ed co incident geophysical andgeochemical anomalies. ith a minimum strikelength o six kilometres and bounded by bi urcations o the tull ake unnummin ault Zone, amajor crustal break, the ear zone is considered ahigh priority target or economic gold deposits.


pring 2 9 Drill rogram was completed on the oppermine Zone located at the western end o the ird iver

roject consisting o holes 49m . enses o sulphides were intersected in holes along an 8 metre long mineralized strike length. single hole at the oppermine Zone was drilled by anex lacer td in 973 which contained a

2.2m intersection grading .24 % nickel, .42 % copper,. 2 gpt platinum and . 9 gpt palladium.

arathon is continuing prospecting at the age lock andre ault Zones to ollow up on geophysical anomalies.einterpretation o the age and re ault drill databases

and re logging o select re ault and age holes rom asar back as the 97 s will assist in urther re nement o the

model o mineralization. ossan contributed to the inter and pring 2 rograms which continues this work. s o arch 3 , 2 , ossan held an approximate 4 %interest in the project.

During scal 2 9, ossan received two , non re undable advance net pro ts or advance royalty payments

rom arathon which are payable each eptember and archuntil commercial production is achieved. ese amounts arecarried on the balance sheet as de erred income.

biRd RiveR pRoject c ont.pa a m/ p a m/ba M a

p L a t i n u m & pa L L a d i u m

ARe the Key eleMents

in cAtAly tic c onveRteRs

which Reduce Auto

eMMissions of gReen

house gAsses


9/36


s p e c i a L t y m e t a L s

pipestone lAKe pRojectva a m/t a m/ir

ur % joint venture partner in the ipestone akeDeposit, ross ake ineral xplorations nc., is a wholly owned private corporation o the ross

ake irst ation. t has been involved in protracted negotiations with the ederal and rovincial governments to settle the elson iver lood greement. Development o the ipestone ake Deposithas been stalled pending this settlement. s a result,

ossan decided to ofer the 3 84 hectare property or sale. egotiations or the development or sale

o this property remain active and are ongoing.

n ctober o 2 9, the ompany retained Hayleseoscience urveys td. to conduct a survey o all

o the 49 historic drill hole site locations and thegrid which was originally cut at the ipestone ake

roperty in 994. e purpose o the survey wasto provide the joint venture with an accurate mapon which to base a uture 43 resource calculation. Hayles eoscience used survey quality instrumentation to record the locations o 8 drillholes and a portion o the western end o the grid.

t is anticipated that the balance o the program

will be completed in eptember o 2 .n June , 2 , ossan management met with

representatives o the ross ake irst ation todiscuss and plan an orientation session or the and

ouncil about mining in general and the ipestoneake roperty, speci cally. e ompany intends to

engage in urther consultation with its partner, the ross akeirst ation, in regard to the development o the roperty.

e ipestone ake property is located in north centralanitoba, approximately km south o ompson. tipestone akes reas and 2, drilling to date has out

lined a non compliant 43 indicated resourceo .8 million tonnes grading . % i2, 28. %

e2 3 and .22% vanadium pentoxide eedman & ssociates 998 . dditional in ll drilling could signi cantly increase the resource. preliminary mine plan has been prepared or the ipestone by J. H. eedman and ssociates which classi es various tonnages according to titanium dioxide cut of grades,

provides proposed open pits, and estimates stripping ratios;however more detailed drilling is required to support a3 , tons per day operation. dditional metallurgical and other studies are required in order to assess theeconomic easibil ity o the deposit.

Vanadium is mostly used in the steel industry as a strengthener. Various nations are mandating stronger rebar in construction codes which will likely increase vanadium demand.Vanadium may also play an important new role in electricalstorage technology which could substantially increase demand

or this metal and outstrip supply. n lithium based auto

batteries, the use o a vanadium phosphate cathode material can materially increase energy storage and lead to a2 %+ increase in an electric cars travelling range. notherpotential large scale use o vanadium is in gridscale electrical storage using re dox batteries. Vanadium re dox batteriescould substantially lower utilities capital costs as they allow or electrical power to be generated and transmittedin of peak hours and then stored or local use the ollowing day during peak power requirements. aints, paper andplastics are the main uses o titanium dioxide.

titanium

22

Ti47.867

vanadium

23

V50.942

a B o Ve : pipestone lAKe pRoject AReA

Va n a d i u m MAy hAve A new

gReen Role in e-cAR & gRid

stoRAge of electRicity


10/36


s p e c i a L t y m i n e R a L s

sepARAtion RApids pRojectl m/ta a m

e 432 hectare eparation apids pecialty ineralsroject is located 8 km north o Kenora, ntario in the

highly prospective nglish iver greenstone belt, whichhosts lithium, tantalum and cesium mineralization. e

roperty is situated immediately adjacent to the east o valonare etals nc.s ig hopper property, one o the largest

rare metal pegmatite deposits in the world.

During July 2 9, the ompany undertook a eld programat the property that included prospecting, line cutting, localgeological mapping o newly ound outcrops, and the collection o 73 soil samples, 28 grab samples and channelsamples. e program identi ed a m to m wide zone with multiple, east west trending, sub parallel pegmatitesill like bodies that range in width rom a ew centimetresto more than metres.

e soil sampling program utilized oil as HydrocarbonH eochemistry that was analyzed by ctivation

aboratories ctlabs o ncaster, ntario. H is adeep penetrating geochemistry that allows or analysis

rom various types o media. ctlabs H analysis identi ed astrong evel lithium anomaly below a beat bog approximately

m east o , and along strike o , the most eastern exposures o the zone o pegmatites.

e demand or lithium is growing strongly due to the use o lithium carbonate in battery powered vehicles and otherelectrical storage devices. e highest and best use orthe lithium mineral at eparation apids may be as a raw material or the glass industry where it would reduce energy requirements and carbon emissions. e demand ortantalum, the high tech metal, is growing steadily or usein the manu acture o capacitors that regulate the ow o electricity in cellular phones, pagers, computers and otherelectrical appliances. ther applications range rom arti cial

hips to super alloys or the aeronautics industry to corrosionresistant equipment or the chemical and pharmaceuticalsectors.

MAnigotAgAn pRopeRtys a

t anigotagan, 7 km northeast o innipeg,ossan continued to develop a silica sand depositon the east shore o ake innipeg. e roperty is directly across rom lack sland where silica sand was extensively quarried prior to the island becominga rovincial ark. n June 3, 2 , an additional lease was acquired expanding the property to 3 hectares.

n ay o 2 8, ossan conducted a 2 hole sonicdrill program which identi ed signi cant thicknesseso silica sand near sur ace on the eastern side o the

roperty. is initial program o sonic drilling yielded near per ect oot core sections with excellentrecoveries. e quality o this sampling will haveimportant economic implications or assessing the

roperty.

Drilling to date has been success ul in outliningsubstantial zones o silica sand with a thickness exceeding metres and ranging to over metres.

ese zones, with lengths known to exceed 4 mand m, are both open on one or more sides.

silicon

14

Si28.086

ium

3

Li41

a B o Ve : MAnigotAgAn pRopeRty


11/36


anigotagan silica sand has potential uses inoundries and smelters; in the production o oat

or container glass; and in the oil & gas industry asrac sand. ilica sand rom the property has been

subjected to a variety o tests that indicate it is o a high purity with ew contaminants and that itis similar to the silica sands previously quarriedat nearby lack sland. n analysis o 9 washedand scrubbed samples returned a silica contento 99. % i 2. ests to date indicate that a component o these silica sands meet the requirements

or rac sand in oil and gas wells and metallurgicalux.

est results o various samples o anigotagan silicasand have exceeded all o the minimum standards or

rac sand used by the oil and gas industry. ngoingtesting or use as rac sand, conducted by rop ester

nc., has resulted in samples o the 2 /4 , 3 /and 7 / 4 mesh ractions consistently meeting

8K and 9K roppant ratings.

ossan has retained orld ndustrial inerals o rvada, olorado, to conduct a marketing study orits high purity anigotagan silica sand. e study will include a comparison o chemical assay data and

physical speci cations rom the anigotagan deposit

i n d u s t R i a L m i n e R a L s

to speci cations o various end uses including proppant racturing sand, glass, construction, metallurgical ux and othermarkets. e study will provide product price and market sizedata along with potential customers and competitors withineconomically transportable distances or each product type.

esults rom this study may lead to a scoping report providing an initial economic assessment o markets, productionand logistics.


12/36


t h e c L a i m s n e t w o R k

i ra t

e laims etwork nc. is a service provider to the property and casualty insurance industry. s the largest shareholder,

ossan holds a 4 .7% equity interest in e laims et work nc. . is a web based enterprise engagedin providing the insurance industry with contents loss valuations and on site claims reporting o losses.

has representatives across anada that can be dispatched to loss sites to take immediate inventories o damaged contents. n terms o its assessment services, the om

pany values insurance claims losses using its highly trainedstaf and its extensive proprietary data library o productspeci cations and price in ormation. has also initiatedmarketing to insurance companies in the U .

ossan originally invested 4 , in e laims et work in 2 2. ossan currently accounts or its investmentin using the equity method, resulting in a carryingvalue o 3 3,8 2 at arch 3 , 2 . During the 2

scal year, ossan established a non cash mark up o 39,322 2 9 73, 2 in its investment to re ect

ossans share o s pro ts during the year.

i n s u R a n c e t e c h n o L o Gy

a B o Ve : T H E C L A I M S N E T W O R K H E A D O F F I C E I N W I N N I P E G


13/36


m a n a G e m e n t s R e s p o n s iB iL i t y L e t t e R

anagement acknowledges responsibility or the preparation and presentation o thenancial statements, including responsibility or signi cant accounting judgments

and estimates and the choice o accounting principles and methods that are appropriate to the ompanys circumstances. e nancial statements have been prepared inaccordance with anadian generally accepted accounting principles and necessarilyinclude amounts based on estimates and judgments o management.

eyers orris enny , our independent auditors, is engaged to express a proessional opinion on the nancial statements. eir examination is conducted in

accordance with anadian generally accepted auditing standards and includes testsand other procedures which allow the auditors to report whether the nancial statements prepared by management are presented airly in accordance with anadiangenerally accepted accounting principles.

e oard o Directors must ensure that management ul ls its responsibilities ornancial reporting. n urtherance o the oregoing, the oard o Directors h

appointed an udit ommittee composed o three directors, two o whom are independent. e udit ommittee meets with the independent auditors to discussthe results o their audit report prior to submitting the nancial statements to the

oard o Directors or its approval. n the recommendation o the udit ommittee,the oard o Directors has approved the ompanys nancial statements.

Douglas Reeson Andrew Tomson

resident and . . . Director


14/36


a u d i t o R s R e p o R t

To the Shareholders of Gossan Resources Limited:

We have audited the balance sheets of Gossan Resources Limited as at March 31, 2010 and 2009 and thestatements of loss and comprehensive loss, statements of changes in shareholders equity, and cash ows for the years then ended. These nancial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these nancial statements based on our audits.

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

In our opinion, these nancial statements present fairly, in all material respects, the nancial position of theCompany as at March 31, 2010 and 2009 and the results of its operations for the years then ended in accor -dance with Canadian generally accepted accounting principles.

Winnipeg, ManitobaJuly 21 2010 Chartered Accountants

Comments for U.S. Readers

In the United States, reporting standards for auditors require the addition of an explanatory paragraph followingthe opinion paragraph when there are substantial uncertainties about the Companys ability to continue as agoing concern, as referred to in Note 1 to these nancial statements. Our report to the shareholders dated July21, 2010, is expressed in accordance with Canadian reporting standards, which do not permit a reference tosuch matters in the auditors report when the facts are adequately disclosed in the nancial statements.

Winnipeg, ManitobaJuly 21, 2010 Chartered Accountants

2500 - 201 Portage Ave., Winnipeg, Manitoba, R3B 3K6, Phone: (204) 775-4531, 1 (877) 500-0795


15/36


Assets

l iAbilit ies

shAReholdeRs equity

Current ashhort term investments

ccounts receivablerepaid expenses

Non-Current ineral properties ote nvestment in e laims etwork ote urniture and equipment ote 7

Current ccounts payable and accrued liabilities

Due to related parties ote 8

De erred income ote

Nature o Operations and Going Concern ote Committment ote

hare capital ote 9ontributed surplus ote 2

De cit

ee accompanying notes to nancial statements

Approved on Behal o the Board:

Douglas eeson, Director ndrew omson, Director

B a L a n c e s h e e t s

2010

496,63920,00413,94432,765

563,352

4,633,552363,862

8,523

5,005,937

5,569,289

66,064105,999

172,063

200,000

372,063

11,322,8641,227,5607,353,198

5,197,226

5,569,289

2009

140,6921,326,653

4,04812,188

1,483,581

4,089,541224,540

8,973

4,323,054

5,806,635

38,981125,952

164,933

100,000

264,933

11,304,7781,204,3166,967,392

5,541,702

5,806,635

$

$

$

$

$

$

$

$

AS A MARCH 31,

(e r ca a a d ar )


16/36

4


s t a t e m e n t s o f L o s s a n d c o m p R e h e n s i Ve L o s s

expenses Administrative eesManagement eesConsultingO ce and generalPublic company costsInvestor relationsTravel and relatedStock-based compensation expense (Note 10) Amortization

otheR incoMeInterest and other incomeGain on joint venture (Note 5)

loss, befoRe the following

hare o pro t ote rite down o mineral properties

net loss And coMpRehensive loss foR the ye AR

net loss peR shARe - asic and diluted ote 4

eighted average number o shares outstanding


2010

27,390115,649

37,76197,247

181,65880,71025,84725,1302,796

594,188

47170,742

523,029

139,3222,099

385,806

0.01

29,074,045

2009

31,778119,05631,399

106,306114,15392,31434,80917,080

7,952

554,847

30,963450,000

73,884

73,62011,416

11,680

0.00

29,020,900

$

$

$

$

$

$

FOR HE YEARS ENDED MARCH 31,

(e r ca a a d ar )


17/36


opeRAting Activities

investing Activities

finAncing Activities

incReAse in cAsh

cAsh, ar

cAsh, ar

s t a t e m e n t s o f c a s h f L o w s

et oss or the year

Amortization Write-down o mineral propertiesShare o TCN pro t (Note 6)Stock-based compensation (Note 10) Accrued interests

et change in non cash working capital: ccounts receivable

repaid expenses ccounts payable and accrued liabilitiesDue to related parties

xpenditures on mineral propertiesurchase o short term investmentsroceeds on redemption o short term investments

cquisition o urniture and equipmentDe erred revenue received

ssuance o share capital

$

$

2009

11,680

7,95211,41673,62017,0804,690

53,542

5,88914,39831,49417,106

47,643

625,626305,437

925,000778100,000

93,159

-

45,516

95,176

140,692

2010

385,806

2,7962,099

139,32225,130

-

495,103

9,89620,57727,08319,953

518,446

546,110-

1,306,6492,346100,000

858,193

16,200

355,947

140,692

496,639

FOR HE YEARS ENDED MARCH 31, cAsh (used in) pRovided by:

$

$

(e r ca a a d ar )



18/36


s t a t e m e n t s o f c h a n G e s i n s h a R e h o L d e R s e q u i t y

shARe cApitAlBalance at beginning o yearExercise o stock options - cashExercise o stock options - Black-Scholes valuation

bAlAnce At end of yeAR

contRibuted suRplusBalance at beginning o yearFair value o stock options grantedFair value o stock options exercisedFair value o stock options or eited


deficitBalance at beginning o yearNet loss and comprehensive loss or the year


totAl shAReholdeRs equity, end of yeAR

2010

11,304,77816,200

1,886

11,322,864

1,204,31625,1301,886

-

1,227,560

6,967,392385,806

7,353,198

5,197,226

2009

11,304,778--

11,304,778

1,187,23630,239

-13,159

1,204,316

6,955,71211,680

6,967,392

5,541,702

$

$

$

$

$

$

$

$

$

$

$

$

$

FOR HE YEARS ENDED MARCH 31,


(e r ca a a d ar )


19/36


1. nAtuRe of opeRAtions And going conceRnGossan Resources Limited (the Company) is a public corporation that was incorporated ederally on une 16 1 0 e Compdirectly and through joint ventures is in the business o acquiring and exploring resource properties that it believes contain minerization To date the Company has not earned signi cant revenues and is considered to be in the exploration and development staIt is an exploration and development enterprise and carries on business in one segment being the exploration or valuable mineexclusively in Canada

In the opinion o management all adjustments considered necessary or the air presentation have been included in these nastatements All amounts in these nancial statements are expressed in Canadian dollars

ese nancial statements have been prepared in accordance with Canadian generally accepted accounting principles applicablto a going concern Accordingly they do not give efect to adjustments that would be necessary should the Company be unablecontinue as a going concern and there ore be required to realize its assets and liquidate its liabilities and commitments in otherthe normal course o business and at amounts diferent rom those in the accompanying nancial statements

e ability o the Company to continue as a going concern and the recoverability o amounts shown or mineral properties adependent upon the discovery o economically recoverable reserves con rmation o the Company s ownership in the undermineral claims the acquisition o required permits to mine the ability o the Company to obtain necessary nancing to compexploration and development and the uture pro table production or proceeds rom disposition o such properties ese nanstatements do not give efect to adjustments that would be necessary to the carrying values and classi cation o assets and liabilishould the Company be unable to continue as a going concern All o these outcomes are uncertain and taken together cast douover the ability o the Company to continue as a going concern

As the Company has no revenue producing mines the Company s ability to continue as a going concern is dependent upon its abito raise unds in the capital markets

e Company is traded on the TS enture Exchange under the symbol GSS and on the Frank urt Freiverkehr etra Ex-changes under the symbol GSR

2. significAnt Accounting policiesese nancial statements have been prepared in accordance with Canadian generally accepted accounting principles and

include the ollowing signi cant accounting policies

(a) Mineral PropertiesCosts o acquisition and maintenance o interests o non-producing mineral properties together with direct exploration adevelopment expenditures less related recoveries par tial sales and option payments received are de erred in the accountsuch time as the Company loses or abandons title or its interest in any property the accumulated expenditures on such proerty are charged to income in that year I any property reaches commercial production the applicable de erred expendi will be amortized against related production revenues on a unit o production basis

e amounts shown or mineral properties represent costs incurred to date and do not necessarily represent present oruture values Periodically and at least annually a determination is made as to the status o each property by compl

an impairment test o undiscounted cash ows and assessing the net recoverable amount When discounted cash ocannot be determined to assess the impairment the property will be written down to its estimated air value Wherproperty shows no promise rom prior exploration results and is dormant the claims may be allowed to lapse Claims wbe written of or written down to a nominal value where an interest in the claims remains

(b) Furniture and Equipment Furniture and equipment are stated at cost less accumulated amortization Amortization is recorded on the declining balanbasis at rates designed to amortize the cost o the urniture and equipment over their estimated use ul lives based on thlowing annual rates

Computer equipment 0Computer so tware 100Field equipment 0Furniture and xtures 0

n o t e s t o f i n a n c i a L s t at e m e n t s(e r ca a a d ar )


20/36


(c) Use o Estimatese preparation o nancial statements in con ormity with generally accepted accounting principles requires management

to make estimates and assumptions that afect the amounts reported in the nancial statements and related notes Accountsreceivable are stated a ter evaluation as to their collectibility and an appropriate allowance or doubt ul accounts is provided where necessary Amortization is based on the estimated use ul lives o the urniture and equipment Other signi cant areasrequiring the use o estimates include the determination o impairment o mineral properties and the valuation o stock-based awards Although these estimates are based on management s best knowledge o current events and actions thatthe Company may undertake in the uture actual results could difer rom the estimates ese estimates are reviewedperiodically and at least annually and as adjustments become necessary they are reported in earnings in the period in which they become known

(d) Investment in Te Claims Network Inc. ( CN)e Company accounts or its long-term investment in e Claims Network Inc using the equity accounting method to the

extent that the Company has signi cant in uence over the investee s strategic operating nancing and investing policiesnder the equity method the Company s proportionate share o income or loss is included in the statement o loss and any

dividends received are recorded as a reduction to the investment e carrying value o the investment is periodically reviewedto ensure that there is no permanent impairment

(e) Stock-based Compensation and Other Stock-based Payments All stock-based awards made to employees and non-employees are measured and recognized using a a ir value based method

e Company uses the Black-Scholes method o calculating stock-based compensation e Company measures stock-basedcompensation on the date o the grant and recognizes this cost over the vesting period i any in the results rom operations with an ofsetting credit to contributed surplus When stock options are exercised the consideration paid together with theamount previously recognized in contributed surplus is recorded as share capital

( ) Basic and Diluted Loss per ShareBasic loss per share is calculated using the weighted average number o shares outstanding during the respective scalyears iluted earnings per share re ect the potential dilution that could occur i potentially dilutive securities were ex-ercised or converted to common shares e dilutive efect o options and warrants and their equivalent is computed by application o the t reasury stock method Fully diluted amounts are not presented when the efect o the computations are

anti-dilutive due to the losses incurred Accordingly in such circumstances there is no diference in the amounts presentedor basic and diluted loss per share

(g) Income axese Company accounts or income taxes using the asset and liability method nder this method uture income tax assets and

liabilities are determined based on the diferences between the carrying amount o the assets and the liabilities on the balancesheet and their corresponding tax values Future income tax assets and liabilities are measured using the substantively enactedtax rates expected to be in efect when the temporary diferences are likely to reverse e amount o uture income tax assetsrecognized is limited to the amount that is in management s estimation more likely than not to be realized

(h) Impairment o Long-lived Assetse Company periodically assesses the impairment o long-lived assets which consist primarily o mineral properties andurniture and equipment whenever events or changes in circumstances indicate that the carrying value o an asset may

not be recoverable I changes in circumstances indicate that the carrying amount o an asset that an entity expects to hold

and use may not be recoverable uture cash ows expected to result rom the use o the asset and its disposition must beestimated I the undiscounted value o the uture cash ows is less than the carrying amount o the asset impairmentis recognized When discounted cash ows can not be determined to assess the impairment the property will be writtendown to its estimated air value

(i) Asset Retirement Obligationse air value o a liability or an asset reti rement obligation is recognized in the period in which it is incurred i a reason-

able estimate o air value can be made e estimate excludes the residual value o the related assets e associated retire-ment costs are capitalized as part o the carrying amount o the long lived assets and amortized over the li e o the asset

e amount o liability is subject to re-measurement at each reporting period

At the present time the Company has concluded that there are no asset retirement obligations associated with any o theproperties



21/36


(j) Government Assistancee Company periodically applies or nancial assistance under available government incentive programs All governm

assistance received is re ected as a reduction to the related asset category(k) Revenue Recognition

e Company recognizes interest income on its cash and cash equivalents on an accrual basis at the stated rates over theterm to maturity Revenue rom investments is recognized when it is sold and it is deemed collectible

(l) Flow-through Sharese resource expenditure deductions or income tax purposes related to exploratory and development activities unde

by ow-through share arrangements are renounced to investors in accordance with tax legislation nder the asset aliability method o accounting or income taxes the uture income taxes related to the temporary diference arising the renunciation are recorded at the time the renunciation documents are led with the government agency as a uture tliability and a corresponding reduction to the carrying value o the shares issued

(m) Joint Venturese Company s exploration and development activities may be conducted jointly with others nder joint venture ac

counting the Company is required to proportionately consolidate its percentage ownership o the assets liabilitiesenues expenses and cash ows o its joint venture ese nancial statements re ect only the Company s proportiointerest in the Bird River and Pipestone Lake joint ventures

(n) Financial Instrumentse Company has or accounting purposes designated its cash and short-term investments as held- or-trading wh

are measured at air value Accounts receivable are classi ed as loans and receivables which are measured at amocost Accounts payable and accrued liabilities and due to related part ies are classi ed as other nancial liabilities whichmeasured at amortized cost

All derivative instruments including embedded derivatives are recorded in the balance sheet and statement o loss atvalue unless exempted rom derivative treatment as a normal purchase and sale All changes in their air value are recoin operations

Transaction costs related to held- or-trading nancial assets are expensed as incurred Transaction costs related to loand receivables and other nancial liabilities are netted against the carrying value o the asset or liability and amortiover the expected li e o the instrument using the efective interest rate method

Comprehensive income (loss) includes unrealized gains and losses such as changes in the currency translation adjustmrelating to sel -sustaining oreign operations unrealized gains or losses on available- or-sale investments and the efportion o gains or losses on derivatives designated as cash ow hedges or hedges o the net investment in sel -susta

oreign operations

(o) Short-term InvestmentsShort-term investments are comprised o guaranteed investment certi cates and term deposits with initial terms to matrity o over ninety days but less than one year

(p) Changes in Accounting PoliciesGoodwill and Intangible Assets

Efective April 1 00 the Company adopted CICA Section 06 Goodwill and Intangible Assets which replCICA Sections 06 Goodwill and Other Intangible Assets and 50 Research and evelopment Costs as welEIC- Revenues and Expenditures uring the Pre-operating Period and part o Accounting Guideline 11 Enterpin the development stage e provisions relating to the de nition and initial recognition o intangible assets under thesnew standards reduce the diferences with International Financial Reporting Standards (IFRS) in the accounting ointangible assets e objectives o CICA 06 are 1) to rein orce the principle-based approach to the recognition osets ) to establish the criteria or asset recognition and ) to clari y the application o the concept o matching revand expenses such that the current practice o recognizing items that do not meet the recognition criteria is eliminate

e standard also provides guidance or the recognition o internally developed intangible assets (including research adevelopment activities) ensuring consistent treatment o all intangible assets e portions in the standard relating goodwill remain unchanged e adoption o this standard had no impact on the Company s presentation o its nanciposition or results o operations as at March 1 010



22/36


23/36


the Company will spend its existing working capital and raise additional amounts as needed e Company will continue tassess new properties and seek to acquire an interest in additional properties i it eels there is su cient geologic or econo

potential and i it has adequate nancial resources to do soManagement reviews its capital management approach on an ongoing basis and believes that this approach given the relatsize o the Company is reasonable

ere were no changes in the Company s approach to capital management during the year ended March 1 010 e Company is not subject to externally imposed capital requirements

4. MineRAl pRopeRty And finAnciAl RisK fActoRs(a) Mineral Property Risk

e Company s major mineral properties are listed in Note 5 nless the Company acquires or develops additional material mineral properties the Company will be mainly dependent upon its existing properties I no additional major meral properties are acquired by the Company any adverse development afecting the Company s properties would havmaterially adverse efect on the Company s nancial condition and results o operations

(b) Financial Risk e Company s activities expose it to a variety o nancial risks credit risk liquidity risk market risk (including in

rate oreign exchange rate and commodity price risk)

Risk management is carried out by the Company s management team with guidance rom the Audit Committee under policapproved by the Board o irectors e Board o irectors also provides regular guidance or overall risk management

Credit Risk Credit risk is the risk o loss associated with a counterparty s inability to ul ll its payment obligations e Compacredit risk is primarily attributable to cash short term investments and accounts receivable Cash and short term invements consist o cash and term deposits with reputable nancial institutions rom which management believes the riskloss to be minimal

Financial instruments included in accounts receivable consist o deposits held with service providers Management beliethat credit risk concentration with respect to nancial instruments included in accounts receivable is minimal Other acounts receivable consist o sales tax receivable rom government authorities in Canada

Liquidity Risk e Company s approach to managing liquidity risk is to ensure that it will have su cient liquidity to meet liabilities when

due As at March 1 010 the Company had cash o $ 6 6 ( 00 - $1 0 6 ) and short-term investments o ( 00 - $1 6 65 ) to settle current liabilities o $1 06 ( 00 - $16 ) All o the Company s nanciahave contractual maturities o less than 0 days and are subject to normal trade terms

Market Risk Market risk is the risk o loss that may arise rom changes in market actors such as interest rates oreign exchange ratecommodity prices

Interest Rate Risk e Company has cash balances and no interest-bearing debt e Company s current policy is to invest excess cash in

investment-grade short-term deposit certi cates issued by its banking institutions e Company regularly monitors theinvestments it makes and is satis ed with the credit ratings o its banks

Foreign Currency Risk e Company s unctional currency is the Canadian dollar and major purchases are t ransacted in Canadian dollars A

result the Company s exposure to oreign currency risk is minimal

Commodity Price Risk e Company is exposed to price risk with respect to commodity prices Commodity price risk is de ned as the potentia

adverse impact on earnings and economic value due to commodity price movements and volatilities e Company closelmonitors commodity prices as it relates to valuable minerals to determine the appropriate course o action to be taken bthe Company



24/36


(c) Sensitivity Analysise Company has or accounting purposes designated its cash and short-term investments as held- or-trading which are

measured at air value Accounts receivable are classi ed as loans and receivables which are measured at amortized cost Accounts payable and accrued liabilities and due to related parties are classi ed as other nancial liabilities which aremeasured at amortized cost

As at March 1 010 the carrying and air value amounts o the Company s nancial instruments are not materially diferent

Based on management s knowledge and experience o the nancial markets the Company believes the ollowing move-ments are reasonably possible over a twelve month period

eld- or-trading assets include investment certi cates totaling $ 0 00 subject to varying interest rates Sensitivity to a plusor minus 1 change in rates would afect the reported net income by approximately $ 00 Similarly as at March 1 010reported shareholders equity would have varied by approximately $ 00 as a result o the 1 variance in interest rates

e Company does not hold balances in oreign currencies to give rise to exposure to oreign exchange risk

Commodity price risk could adversely afect the Company In particular the Company s uture pro tability and vi-ability rom mineral exploration depends upon the world market price o valuable minerals Commodity prices have

uctuated signi cantly in recent years ere is no assurance that even as commercial quantities o minerals may beproduced in the uture a pro table market will exist or them

As o March 1 010 the Company is not a producer o valuable minerals As a result commodity price risk may afectthe completion o uture equity transactions such as equity oferings and the exercise o stock options and warrants

is may also afect the Company s liquidity and its ability to meet its ongoing obligations

Mineral property risk is signi cant In particular i an economic orebody is not ound the Company cannot enter intocommercial production and generate su cient revenues to und its continuing operations ere can be no assurancethat the Company will generate any revenues or achieve pro tability or provide a return on investment in the uture

rom any o the properties it may have an interest in

5. MineRAl pRopeRties

March 31, 2009 Expenditures Option & Grant Payments Write Downs March 31, 2010

ipestone ake i , 8, 3 2 ,94 , 89,97

ird iver Joint Venture ii 29,2 223,792 39,732 2, 98 8 ,2 3

nwood iii 3, 33 82,7 3 74 ,33

eparation apids 3 , 7 , 9 92, 7

anigotagan ilica iv 8,747 ,48 7 9,228

harpe ake v 474,2 3, 98 3, 82 474, 2

ther 3 2

$ 4,089,541 $ 589,024 $ (42,914) $ (2,099) $ 4,633,552

March 31, 2008 Expenditures Option & Grant Payments Write Downs March 31, 2009

ipestone ake i , 3, 3 , , 8, 3

ird iver ii 477,44 2, 4 479,

ird iver Joint Venture ii 49, 4 479, 29,2

nwood iii 444, 48 4 , 4, ,4 3,

eparation apids 28,834 ,833 3 , 7

anigotagan ilica iv 293,849 34 ,28 ,383 8,747

harpe ake 4 8, 2 , 89 474,2

ther 3 3

$ 3,475,331 $ 655,009 $ (29,383) $ (11,416) $ 4,089,541


i

ii

iii

iv


25/36


uring the 010 scal year the Company incurred $5 0 ( 00 - $655 00 ) o exploration expenditures and also rec$ 1 ( 00 - $ ) in government grants which reduced the carrying value o its Mineral Properties by th

amounte Pipestone Lake project is a 50 joint venture with Cross Lake Mineral Explorations Inc

On March 6 00 the Company entered into an Option and oint enture Agreement on its Bird River Property (Property) with Marathon PGM Corporation (MAR-TS ) e Property encompassing over 000 hectares covers o

1 kilometres o the Bird River Sill Complex is complex carries signi cant concentrations o palladium and platinalong with nickel copper zinc and chromite e Property is located about 0-km east o Lac u Bonnet Manitoba aalong the Sill approximately 6-km west and northwest o Mustang Minerals Maskwa eposit and the historic umbton mine

nder the terms o the Agreement Marathon PGM Corporation (Marathon) earned an undivided 50 interest inthe Bird River Project (Project) by spending $ 0 million on exploration and acquisition costs and cash payments $500 000 to the Company erea ter Marathon elected not to earn a urther 15 interest by completing a bankab

easibility study and an additional 5 interest to a total 0 interest by arranging project nancing nder certaconditions and subject to regulatory approval Marathon may elect to issue its common shares in lieu o cash paymen

pon ormation o a joint venture Marathon must also make semi-annual recoverable advance payments o $50until commercial production is achieved A $10 000 nders ee was paid in connection with the transaction

On November 1 00 Marathon nalized an Option and oint enture Agreement on the adjacent Ore Fault Propertheld by Bird River Inc to explore and potentially acquire the property subject to a 1 NSR e Ore Fault Property ipart and subject to the Company and Marathon Agreement

On August 5 00 Marathon triggered the ormation o a joint venture by making the nal $ 00 000 cash paymethe Company (the remaining portion o the $500 000 trigger payment) and having expended in excess o $ million on Bird River Project At the March 1 010 year end the Company owns an approximate 5 interest in the project andhas contributed $ 6 5 to the joint venture s work programs I the Company ails to contribute to three successiveprograms or is diluted to a ten percent equity interest in the Project the Company s interest will be reduced to a nsmelter return royalty On each March 0th and September 0th rom August 5 00 to the date o Commencem

o Commercial Production Marathon is required to make advance payments o a net pro ts interest or an NSR royaltythe Company in the amount o $50 000 as long as Marathon remains the manager o the Project

As a result o the ormation o the joint venture a gain in the amount o $ 50 000 was recorded in 00 to re ecpayments made directly rom Marathon to the Company as stated in the joint venture agreement Additionally two the semi-annual $50 000 advance payments received in the 00 and two o the semi-annual $50 000 advance paymereceived in 010 are currently shown as de erred income Additionally the percentage ownership o the joint ventusubject to change based on its contributions to the joint venture s work program

On March 15 00 the Company entered into a licensing arrangement or a new magnesium production process (tuliani Process) including an option to secure exclusive worldwide rights to the uliani Process A component o

consideration is the conditional payment o up to 150 000 common shares related to speci c measurable events On Nvember 1 00 100 000 common shares were issued with an assigned air value o $ 1 000 related to the complePhase I o the arrangement In scal 00 an industrial research grant was received rom the Government o Manito

the amount o $1 000 or work undertaken on the uliani ProcessIn scal 00 the Company received a mineral exploration grant rom the Government o Manitoba in the amount $15 or prior work undertaken on the Manigotagan Silica Project

uring the current year the Company received a mineral exploration grant rom the Government in the amount o $ 1( 00 - $nil) or prior work undertaken on the Sharpe Lake Project

6. investMent in the clAiMs netwoRK inc.e Claims Network Inc (TCN) provides the property and casualty insurance industry with valuation in ormation and

so tware systems to acilitate the settlement o insurance claims In 00 the Company invested $ 55 000 in TCN toa 0 equity interest and has appointed two directors uring the 00 year TCN redeemed outstanding shares resultin


i

ii

iii

iv

v)


26/36

4


6. investMent in the clAiMs netwoRK inc. continuedin the Company s interest increasing to 0 uring the 00 year TCN redeemed additional shares and made a smallshare issuance resulting in the Company s interest increasing to 6 1 As TCN is a private company there is no liquidmarket or the shares

uring the current year management has recorded its investment in TCN using the equity method and accordingly has rec-ognized $1 ( 00 - $ 6 0) as income being the Company s 6 1 proportionate share o TCN s pro t resulting inthe carrying value increasing by $1 to $ 6 6 ( 00 - $ 5 0)

7. fuRnituRe And equipMent

8. RelAted pARty tRAnsActionsuring the year ended March 1 010 a director was paid $ 1 ( 00 - $5 5 ) or geological eld work and is owed

$ ( 00 - $ ) by the Company as at March 1 010 Another director and the President was paid $ 000 ( 00 -$ 000) or corporate administration services and is owed $1 1 ( 00 - $ 0) by the Company as at March 1 010 Another o cer charged $ 0 000 ( 00 - $ 0 000) or management services and is owed $10 1 ( 00 - $10 000) by theCompany as at March 1 010 An o cer was paid $ 000 ( 00 - $ 500) or corporate administration services

uring the year the Company paid $1 000 ( 00 - $ 000) to a company bene cially owned by the CFO to act as Chie

Financial O cer o the Company e CFO is also the president o a rm providing accounting services to the Companyuring the year the Company expensed $ 0 ( 00 - $ 0 ) or accounting services rendered by this rm In additionas at March 1 010 this rm was owed $ 50 ( 00 - $10 0 0) and this amount was included in due to related parties

uring scal 010 ees were paid accrued to irectors in the amount o $51 000 ( 00 $51 000) or directors ees includ-ing committee ees and other board activities In the current and prior years thirty percent o the ees paid to directors wereretained by the Company or acquisition o the Company s common shares on the directors behal At March 1 010 $66 00( 00 - $ 6 500) was owed in regard to these ees

ese transactions are in the normal course o business and are measured at the exchange amount which is the amount estab-lished and agreed to by the parties

e amounts due to related parties which totals $105 ( 00 - $1 5 5 ) are unsecured non-interest bearing and have noxed terms o repayment

9. shARe cApitAl(a) A T ORI E nlimited number o common shares with no par value

(b) ISS E

Cost Accumulated Amortizationotal March 31,

2010otal March 31,

2009

Computer equipment $ 1 5 $ 1 060 $ 6 5 $ 6Computer so tware 5 5 - -Field equipment 1 155 6Furniture and xtures 5 605 1 15

$ 33,516 $ 24,993 $ 8,523 $ 8,973

Shares Amount

Balance, March 31, 2009 and 2008 29, 2 ,9 ,3 4,778

xercise o options cash 97, ,2

xercise o options lack choles valuation ,88

Balance, March 31, 2010 29,117,900 $ 11,322,864

n o t e s t o f i n a n c i a L s t a t e m e n t s(e r ca a a d ar )


27/36


Number o Stock Options Weighted Average Exercise Price

alance, arch 3 , 2 8 2, 79, .38ranted i ii 4 , . 8xercised , .44xpired 4 7, .34

Balance, March 31, 2009 2,521,000 $ 0.35ranted iii iv 2 , .xercised 97, . 7xpired 49 , .4

Balance, March 31, 2010 2,460,000 $ 0.30

10. stocK options A summary o changes in stock options as ollows

On uly 16 00 the Company granted 0 000 stock options to directors and consultants e options are exercisat $0 0 and expire on March 01 e resulting air value o $ 0 0 was estimated using the Black-Scholes pricing model with the ollowing assumptions expected dividend yield o 0 expected volatility o 5 0 a risk-terest rate o 0 and an expected average li e o 0 years O the 0 000 options granted 150 000 are subject terms ranging rom six to twelve months For the year ended March 1 00 the impact on expenses was $ 1

On February 00 the Company granted 1 0 000 stock options to directors and an o cer e options vest immedately are exercisable at $0 15 and expire on March 011 e resulting air value o $6 5 0 was estimated uBlack-Scholes option pricing model with the ollowing assumptions expected dividend yield o 0 expected volatili

5 0 a risk- ree interest rate o 00 and an expected average li e o 1 years

On une 1 00 the Company granted 6 000 incentive stock options to directors e options vest immediatelyexercisable at $0 15 per share and expire on une 00 e resulting air value o $ 5 was estimated using the

Scholes option pricing model with the ollowing assumptions expected dividend yield o 0 expected volatility o 5risk- ree interest rate o 0 50 and an expected average li e o 16 days ese options relate to a thirty percent retentiodirectors ees by the Company or reinvestment purposes which remained payable rom the 00 scal year

On une 1 00 the Company granted 0 000 incentive stock options to directors o cers and consultants e tions vest immediately are exercisable at $0 15 per share and expire on March 01 e resulting air value o $ was estimated using the Black-Scholes option pricing model with the ollowing assumptions expected dividend yiel0 expected volatility o 5 a risk ree interest rate o 00 and an expected average li e o 1 years

e ollowing table re ects the stock options outstanding as at March 1 010

O the options outstanding 60 000 ( 00 - 1 000) are exercisable


Date o Grant Exercise Price ($) Options Outstanding Expiry Date

ctober 3 , 2 .3 33 , pril 3 , 2arch 4, 2 7 .32 9 , eptember 4, 2

ay , 2 7 .4 34 , ay , 2 June 2 , 2 7 . 3 , June 2 , 2

eptember 27, 2 7 .34 27 , eptember 27, 2arch 28, 2 8 .3 , arch 28, 2 2

July , 2 8 .2 24 , arch 28, 2 3ebruary 4, 2 8 . 4 , arch 28, 2

June 2, 2 9 . 44 , arch 28, 2 2

0.30 2,460,000

i

ii

iii

iv


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11. wARRAnt se ollowing table re ects the continuity o warrants or the year

Number o Warrants Weighted Average Exercise PriceBalance, March 31, 2008 ,942,9 .

xpired ,942,9 .

Balance, March 31, 2009 and 2010 - $ -

12. contRibuted suRplus

alance arch 3 , 2 8 , 87,23air value o stock options granted 3 ,239air value o stock options or eited 3, 9

alance arch 3 , 2 9 ,2 4,3

air value o stock options granted 2 , 3air value o stock options or eited ,88

Balance - March 31, 2010 $ 1,227,560

13. bAsic And diluted loss peR shAReBasic loss per share is computed using the weighted average number o common shares outstanding during the year iluted lossper share which re ects the maximum possible dilution rom the potential exercise o warrants and stock options is the same asbasic loss per share or the year ended e conversion o warrants and stock options to calculate diluted loss per share was not donebecause the conversion was anti-dilutive

14. incoMe tAxese ollowing table reconciles the expected income tax recovery at the statutory income tax rate to the amounts recog-

nized in the statements o operations


2010 2009

oss be ore income taxes as re ected in the statement o operation 38 ,8 , 8

xpected income tax recovery at statutory rate 2 , 82 3, 7

ermanent diference due to stock based compensation 7,822 ,37

on taxable portion o capital gains 4 ,

ermanent diference due to equity income 43,3 4 23, 8

ther temporary diferences not recognized in year 24,232 24,238

hange in valuation allowance 4 , 4 278, 72apital gain rom expiration o warrants ,7

hange in prior year estimate 3 , 22 , 43

Actual income taxes $ - $ -


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e valuation allowance re ects the Company s estimate that the tax assets will likely not be realized and consequently thhave not been recorded in these nancial statements

As at March 1 010 the ollowing amounts are available to be applied against uture years income or tax purposes

Canadian earned depletion baseCanadian exploration expendituresForeign exploration and development expenseShare issue costsNon-capital losses (expiring 01 to 0 0) 01

0150 6000 0

15. coMMitMentBy agreement dated une 1 00 the Company is committed under an operation lease or its o ce premises with the oing lease payments to the expiration o the lease on September 0 01

011 101 101 6

$ 32,120

16. coMpARAtive figuResCertain comparative gures have been reclassi ed to con orm with current year presentation

$ 1 51 105

5 16 0

06

1 1 6511 1 06 5 5

6$ 5,610,509


e ollowing table re ects the uture income tax assets liabilities :

2010 2009

uture income tax asset liability

on capital loss carry orwards or anadian purposes 7 8, 74 8 ,9 2

xcess o undepreciated capital cost over net book value o urnitureand equipment 9, 7 8,8 2

hare issue costs 7,3 3 ,498

xcess o book value o ineral roperties over tax value 22, 9 22,7 2

273,39 3 8,

ess: Valuation allowance 273,39 3 8,

$ - $ -


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17 . d i ffeRences be tween cAnAdiAn And u . s . geneRAl ly Accep tedA c c o u n t i n g p Ri n c i p l e s A n d p R A c t i c e s

e nancial statements have been prepared in accordance with accounting principles and practices generally accepted inCanada (Canadian generally accepted accounting principles GAAP) which difer in certain respects rom those principles andpractices that the Company would have ollowed had its nancial statements been prepared in accordance with principles andpractices generally accepted in the nited States o America ( S generally accepted accounting principles GAAP)

nder S generally accepted accounting principles the accounting treatment would difer as ollows

Be ore April 1 00 under Canadian GAAP the Company recorded its investments using the lower o cost or market meth-od In addition i there was a loss other than temporary the investment was written down to recognize the loss oweverunder S GAAP marketable equity securities that are available- or-sale are recognized at market value with any unrealizedgains or losses recognized in other comprehensive income except i there is a loss other than temporary which is directly recognized as a loss

nder Canadian income tax legislation the Company is permitted to issue shares whereby the Company agrees to incurCanadian Exploration Expenditures (as de ned in the Canadian Income Tax Act) and renounce the related income tax deduc-tions to the investors nder Canadian GA AP the ull amount o unds received rom ow-through share issuances are re-corded as share capital nder S GAAP the premium paid or the ow-through shares in excess o market value is creditedto liabilities and included in income when the related tax bene ts are renounced by the Company

nder S GAAP the statements o operations and cash ow would disclose cumulative amounts since inception

Furthermore under S GAAP and notwithstanding that there is not a speci c requirement to segregate the unds pursuantto the ow-through agreements the ow through unds which are unexpended at the balance sheet date are separately clas-si ed as restricted cash As at March 1 010 there were no unexpended ow-through unds ( 00 - $Nil)

nder S GAAP exploration costs are expensed as incurred As a result under S generally accepted accounting principlesthere is a greater expense in earlier periods and ewer write-downs in subsequent periods than under Canadian generally ac-cepted accounting principles

nder S GAAP unvested options or eited and previously recognised as an expense can not be reversedad the Company ollowed S generally accepted accounting principles in accounting or the exploration costs the efect

on the nancial statements would have been as ollows


Statements o loss and comprehensive loss 2010 2009

et loss under anadian $ 385,806 $ 11,680air value o marketable securities under U. . - -

rite down o mineral properties under anadian 2,099 11,416

xpensing o acquisition and exploration costs under U. . 546,110 625,626

et loss under U. . $ 929,817 $ 625,890

asic and diluted net loss per common share under U. . $ 0.03 $ 0.02


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Balance Sheets 2010 2009

a fect on mineral propertiesineral properties under anadian $ 4,633,552 $ 4,089,541

djustment or capitalization o exploration costs

urrent year diferences 544,011 4,089,541

rior year accumulated diferences 4,089,541 -

ineral properties under U. . $ - $ -

b fect on marketable securities $ - $ -

djustment or air value - -

arketable securities under U. . $ - $ -

c fect on shareholders equity

hareholders equity under anadian $ 5,197,226 $ 5,541,702

urrent year diference 544,011 4,089,541

rior year accumulated diferences 4,089,541 -

hareholders equity under U. . $ 563,674 $ 1,452,161

Also the impact on the statement o cash ows would be as ollows

As a result o the treatment o mining interests under item (a) above cash expended or the exploration costs would have classi ed under S GAAP as an operating activity rather than an investing activity

Also S GAAP requires disclosure o combined nancial in ormation with regard to the equity investment in e ClaNetwork Inc e combined in ormation is as ollows


2010 2009

ash $ 903,561 $ 390,323hort term investments 20,004 1,326,653

arketable securities - -

repaid expenses 37,415 17,625

ccounts receivable 436,432 279,769

ining properties 4,633,552 4,089,541

uture income tax 300 300

ixed assets 30,949 27,633

ccounts payable 294,435 263,354

hare capital 11,703,325 11,685,239

$ 5,935,547 $ 5,816,749

evenue $ 1,967,897 $ 1,259,121

xpenses 2,194,754 1,186,810

oss $ 226,857 $ 72,311


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17 . d i ffeRences be tween cAnAdiAn And u . s . geneRAl ly Accep tedA c c o u n t i n g p Ri n c i p l e s A n d p R A c t i c e s

Recent US GAAP accounting pronouncements:In April 00 FASB amended accounting standards or Fair alue Measurements and isclosures e amended standard ASC 0 addresses issues related to the determination o air value when the volume and level o activity or an asset or li-ability has signi cantly decreased and identi ying t ransactions that are not orderly e revisions a rm the objective that airvalue is the price that would be received to sell an asset in an orderly transaction (that is not a orced liquidation or distressedsale) between market participants at the measurement date under current market conditions even i the market is inactive

e amendment provides additional guidance or estimating air value when the volume and level o activity or the asset orliability have decreased signi cantly It also provides guidance on identi ying circumstances that indicate a transaction is notorderly I determined that a quoted price is distressed (not orderly) and thereby not representative o air value the entity may need to make adjustments to the quoted price or utilize an alternative valuation technique (e g income approach or multiplevaluation techniques) to determine air value Additionally an entity must incorporate appropriate risk premium adjustmentsre ective o an orderly transaction under current market conditions due to uncertainty in cash ows e revised guidancerequires disclosures in interim and annual periods regarding the inputs and valuation techniques used to measure air value

and a discussion o changes in valuation techniques and related inputs i any during the period e changes are efective orinterim and annual reporting periods ending a ter une 15 00 and are to be applied prospectively e adoption o this new standard had no impact on the Company s nancial statements

In April 00 FASB revised accounting standards or Financial Instruments e revised standard ASC 5 requires airvalue disclosures in the notes o an entity s interim nancial statements or all nancial instruments whether or not recognizedin the statement o nancial position is revision became efective or the interim reporting periods ending a ter une 15

00 e adoption o this new standard had no impact on the Company s nancial statements

In May 00 FASB issued Statement No 16 e FASB Accounting Standards Codi cation and the ierarchy o Gener-ally Accepted Accounting Principles (SFAS No 16 ) -- a replacement o FASB Statement No 16 SFAS No 16 is thenew source o authoritative GAAP recognized by the FASB to be applied by nongovernmental entities Rules and interpretivereleases o the SEC under authority o ederal securities laws are also sources o authoritative GAAP or SEC registrants isstatement was incorporated into ASC 105 Generally Accepted Accounting Principles under the new FASB codi cation which

became efective on uly 1 00 e new Codi cation supersedes all then-existing non-SEC accounting and reporting stan-dards All other non-grand athered non-SEC accounting literature not included in the Codi cation will become non-authori-tative e adoption o this standard did not have any impact on the Company s nancial position or results o operations

In May 00 the FASB issued ASC No 55 Subsequent Events which established general standards o accounting or anddisclosure o events that occur a ter the balance sheet date but be ore the nancial statements are issued It sets orth the perioda ter the balance sheet date during which management o a reporting entity should evaluate events or transactions that occur

or potential recognition or disclosure in the nancial statements the circumstances under which an entity should recognizeevents or transactions occurring a ter the balance sheet date in its nancial statements and the disclosures that an entity shouldmake about events or transactions that occurred a ter the balance sheet date ASC 55 was efective or nancial statementsissued or interim and annual periods ending a ter une 15 00 and did not have any impact on the Company s nancialstatements Management has evaluated subsequent events through the date the nancial statements were issued

In une 00 the Financial Accounting Standards Board (FASB) issued new standards or e ierarchy o Generally Accepted Accounting Principles ese standards ASC 105 culminated a multi-year project to replace the previous GAAPhierarchy and established Accounting Standard Codi cation (the Codi cation) e Codi cation is not expected to change

S GAAP but combines all authoritative standards into a comprehensive topically organized online database Following thisguidance the FASB will not issue new standards in the orm o Statements FASB Staf Positions or Emerging Issues Task Force Abstracts Instead it will issue Accounting Standards pdates (AS ) to update the Codi cation A ter the launch o the Codi cation on uly 1 00 only one level o authoritative S GAAP or non-governmental entities will exist other thanguidance issued by the SEC is statement is efective or interim and annual reporting periods ending a ter September 15

00 e adoption o this new standard only had the efect o amending re erences to authoritative accounting guidance inthe Company s nancial statements



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In une 00 the ASC guidance or consolidation accounting was updated to require an entity to per orm a qualitative ansis to determine whether the enterprise s variable interest gives it a controlling nancial interest in a variable interest en( IE) is analysis identi es a primary bene ciary o a IE as the entity that has both o the ollowing characteristicspower to direct the activities o a IE that most signi cantly impact the entity s economic per ormance and ii) the obligato absorb losses or receive bene ts rom the entity that could potentially be signi cant to the IE e updated guidance alrequires ongoing reassessments o the primary bene ciary o a IE e provisions o the updated guidance are efectivethe Company s scal year beginning April 1 010 e

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