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Renewal2016 Annual Report

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Energold Drilling Corp. is recognized internationally for our industry-leading, productive, and environmentally-conscious drilling solutions. With 272 drilling rigs in more than 25 countries, we serve a global marketplace and a broad range of market sectors. As we renew our business with diversification into the growing sectors of geothermal energy, water, and infrastructure, we continue to serve our traditional markets in mining and energy.

Our top priority is the health and safety of our clients and staff. As a vertically integrated business, with our own in-house design and drill rig manufacturer, we invest in ongoing research and development for continued improvement in our equipment’s safety, efficiency and adaptability.

Our mission is to help the world find more sources of minerals, energy, water—and in recent years, geoscience data for infrastructures. We also recognize the importance of social and environmental issues surrounding traditional extractive practices.

In our traditional markets, we are seeing the results of a continued decline in worldwide exploration budgets. In 2016, budgets fell to $6.9 billion, less than one-third of their 2012 peak, and in the mining and energy sectors the years of under-expenditure in exploration and development drilling are now showing as shortages in their project pipelines. According to KPMG, the ability to replace reserves and access new projects was the top risk in 2016. We expect this macro trend to bring about a renewal in the drilling sector in 2017 and beyond.

Thanks to our diversification strategy, Energold has survived the years of low commodity prices. We have held onto our talented people while our competitors downsized. Now that capital markets are again receptive to commodity developers and explorers, we see a renewal of optimism for mining and energy, and a renewed level of capital investment, which should translate into increased levels of drilling and profits.

The Annual General Meeting will take place on May 24, 2017 at 1pm at our head office: 543 Granville Street, Suite 1100, Vancouver, BC Canada


Diversified Drilling for Established and Growing MarketsSupporting mineral explorationWe are a world leader in socially and environmentally responsible drilling with a global fleet of rigs—both conventional drill rigs and unique modular rigs. We help our clients save time and money with rigs that have a smaller footprint and greater portability, and do not require the construction of access roads, therefore reducing mobilization costs.

Bringing water to communitiesEnergold serves the growing need for fresh water in communities worldwide.

Delivering sustainable geothermal energy We have the technical rigs and specialized expertise to serve the expanding markets of renewable and geothermal energy.

Providing geotechnical expertiseWe are experienced in drilling for advanced engineering and construction projects including bridges, pipelines, and infrastructure.

Serving the oil and gas industriesOil and gas is our largest sector in North America. We provide a comprehensive suite of energy services for the oil sands and natural gas producers.

Horizontal drilling for telecom and infrastructureWe specialize in horizontal directional drilling that is valuable in drilling for telecommunications, water, sewage, hydro and pipelines.

Drill design and manufacturing We design and manufacture customized drill rigs and components for our own use and to serve global clients in industrial and field drilling.

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Our offices and facilitiesThe Energold Group operates in over 25 countries,

spanning North America, South America, Africa and

Europe. We continue to explore new opportunities and

new market sectors to bring value to shareholders and

opportunities to communities.

Minerals57%

Energy28%

Manufacturing15%

Revenue by Division

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2 ENERGOLD DRILLING CORP. | ANNUAL REPORT 2016


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Head Office1 British Columbia, Canada2 Northwest Territories, Canada3 Alberta, Canada4 Manitoba, Canada5 Ontario, Canada6 United States of America

7 Chihuahua, Mexico

8 Mexico, DF

9 Nicaragua

10 Jamaica

11 Dominican Republic

12 Colombia

13 Peru

14 Belo Horizonte, Brazil

15 Argentina

16 Chile

17 Warwickshire, United Kingdom

18 Littlehampton, United Kingdom

19 Germany20 Finland21 Kosovo22 Portugal23 Senegal24 Guinea25 Sierra Leone26 Liberia27 Ivory Coast28 Gabon29 Democratic Republic of the Congo

30 Ethiopia31 Djibouti32 Madagascar

Recent Drilling OperationsOffices + Regional Facilities

Map legend


For 2017, our focus is on our growth markets—geothermal, fresh water and infrastructure drilling—while maintaining our position in our traditional markets and regions in anticipation of the upswing in minerals and energy-related drilling.

2016 was the fourth consecutive year of decline in mineral exploration. Global exploration budgets fell to $6.9 billion, barely one-third of their historic peak in 2012. On a positive note, the mineral and energy sector equities market recovered through 2016, which brought new capital and investment that should translate to new demand for exploration and drilling. After years of under-exploration, quality assets are starting to be acquired by larger companies. Demand should soon begin to outpace the supply of these assets, which will inevitably lead to additional exploration. We believe that specialized drilling, which we are well known for, is more necessary than ever as future projects become more remote and challenging to access.

This past year, our strategy of diversification allowed us to adapt

and even thrive. By focusing on our stronger markets, we have maintained the highly-skilled staff who are at the core of our success. We have been able to exploit the strength of our mineral drilling teams and infrastructure, by applying them to the growing markets in geotechnical and energy drilling. In some geographical regions where we feel that recovery may be slower, we have put our equipment in storage, but have nonetheless held onto our senior staff. We have retained their valued skills and maintained our ability to respond when the markets return.

Our approach to diversification is fine-tuned to the specifics of each market and region. In Canada, where drilling for oil, gas and energy is done in the winter, we have nurtured a summer market of geotechnical and geothermal drilling, to maximize the utilization of our equipment and personnel. We are encouraged to see oil sands development recovering: by the end of 2016, we had double the number of drills in operation that we had at the start of the year. In the US, geothermal and water drilling

are increasing in importance. In California, drilling for fresh water is growing, and across the US, drilling for “green” geothermal saw 50% growth last year. Geothermal drilling alone may account for as much as 15% of Energold’s revenue in 2017. In the US and Europe, infrastructure projects are building momentum and we are targeting this growth industry with specialized technologies such as underground horizontal drilling.

Many clients choose Energold for our policy of minimizing environmental impacts while maximizing social benefits. Our portable drilling rigs require approximately 20 square metres of land and can be operated by locally-hired crews under the guidance of Energold experts. I am pleased to report that for the third year in a row, we were awarded the prestigious Empresa Socialmente Responsable (Socially Responsible Company) designation from the Mexican Centre for Philanthropy (CEMEFI).

After 17 years, Energold is in a phase of renewal. From a small team with a single drilling rig we

RenewalThis year’s theme of Renewal speaks to Energold’s strength and resilience in the face of a challenging business climate in our primary sectors. We provide drilling solutions to the global mining and energy industries, as well as to clients in geotechnical, geothermal and water drilling. Our performance in 2016 proved the value of diversification: our growth in newer markets helped sustain the company while our traditional markets began to recover. I am pleased to report that our success gained the attention of the TSX Venture Exchange: we were named one of the 2017 TSX Venture 50, their list of top performers in market capitalization growth, share price appreciation, and trading volume.



Our success gained the attention of the TSX Venture Exchange: we were named one of the 2017 TSX Venture 50, their list of top performers.

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have grown to a global enterprise of 272 rigs, serving industries, NGOs, non-profits, and governments all over the world. While drilling for commodities will remain our principal business, we anticipate the balance will continue to shift toward urban infrastructure drilling and drilling for geothermal energy and fresh water.

I am grateful for the energy and dedication of our staff, our Board of Directors and the Energold teams who represent us on projects across the globe and I look forward to a strong, renewed Energold in 2017 and beyond.

Frederick W. Davidson President & CEO



At Energold, we serve the traditional drilling markets: mining and oil and gas, as well as growing markets in water, geothermal, geotechnical and telecom/infrastructure sectors. Our rigs are used in some of the world’s most remote and challenging locations and in crowded urban centres.

Renewal through diversification: serving traditional and growing markets

Mineral drilling with a smaller footprintWe are an industry leader in socially and environmentally responsible mineral drilling. Our fleet of 139 mineral drilling rigs, including rigs that are adapted for difficult and frontier terrain, operate in over 25 countries, serving a clientele that ranges from early-stage junior explorers to many of the world’s largest resource companies. For the mineral market, we offer portable diamond-drilling rigs, deep hole rigs, mobile underground drilling rigs, portable reverse-circulation (RC) rigs, and conventional RC and reverse-air-blast (RAB) rigs.

Complete, comprehensive energy drilling Our experience in the energy market spans over 50 years. Our fleet includes oil sands coring rigs, shot-hole seismic rigs and other specialty rigs.

In the Alberta oil sands, we specialize in oil sands coring, and in the United States and Western Canada, we provide drilling rigs and teams for seismic, water, geotechnical and geothermal exploration.

In the developing world, we support early-stage energy exploration with highly portable and simplified equipment which is easy to use and can be operated by local crews with Energold’s guidance.

Bringing clean water to communities and industryWe have a worldwide reputation in rural and urban water well drilling (our Dando subsidiary has 150 years of experience in the water industry), and our teams are experienced in bringing fresh water to communities and industries as well as removing water from mines.

Geotechnical drilling for infrastructure, construction and specialized projects Geotechnical drilling is a growth sector. Our teams use specialized drilling rigs to discover the nature of underground soils, foundation and rock, prior to the construction or repair of foundations for buildings, pipelines and bridges.

Geotechnical drilling is also essential for soil and rock mechanic studies for mining and natural resources, and for testing the characteristics of underground soil before laying underground transmission lines, oil and gas lines, and solar and thermal storage facilities.

Innovation for sustainabilityWe have a manufacturing plant based in the UK. We design and build drilling rigs and equipment for the full scope of industrial drilling. Our manufactured equipment is used by Energold’s teams and is sold to the global drilling market. We make specialized equipment for oil and gas, mineral, water, geotechnical and geothermal drilling, including multipurpose mineral exploration rigs that are capable of a wide range of drilling techniques, and lightweight rigs for the delicate tundra of the oil sands.

Trenchless underground drillingWe have specialized expertise and technology in horizontal directional drilling. Our trenchless method is proven in the telecommunications, water, sewage, hydro and oil and gas markets. We see this type of drilling as key to expanding our presence in the infrastructure sector, which is a significant and growing market in North America and Europe. Horizontal drilling techniques complement the skill sets of many of our other drilling teams.



We have a worldwide reputation in rural and urban water well drilling, and our teams are experienced in bringing fresh water to communities and industries, and removing water from mines.

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Working for sustainability In all our practices, we strive to lessen the environmental impacts of our work and align ourselves with community goals. We believe that industries should be accountable for ensuring their operations are sustainable while generating minimal environmental impact. It is also our responsibility to treat communities and individuals with respect and work to improve lives and communities wherever possible.

Our work in the resource sector is essential: the modern world cannot exist without minerals and fuels. However, as our business models evolve, we are focusing on growing the ‘green’ aspects of our business. Water drilling, for example, provides safe and clean water, often in developing parts of the world, and allows business to continue in areas affected by water shortages. Drilling for geothermal energy provides clean and sustainable heat and cooling.

As markets and technologies change, we will continue to adapt and invest in research and development for the next generation of drilling and rig technology to meet the needs of tomorrow’s sustainable markets.



Financials

Management’s Discussion and Analysis 09

Management’s Responsibility for Financial Reporting 29

Independent Auditor’s Report 30

Consolidated Financial Statements 31

Notes to the Consolidated Financial Statements 36


INTRODUCTION

This Management’s Discussion and Analysis (“MD&A”) is for the year ended December 31, 2016 of Energold Drilling Corp. (“Energold” or the “Company”) prepared as at April 3, 2017 and should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2016 and 2015 and the related notes contained therein. All amounts referred to herein are in Canadian dollars unless otherwise specified. Additional information relating to the Company including material change notices, certifications of annual and interim filings, and press releases are available on the Canadian System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com.

This document contains forward-looking statements. Please refer to “NOTE REGARDING FORWARD-LOOKING STATEMENTS.”

CORPORATE OVERVIEW

Energold is proud to have been named to the 2017 TSX Venture 50, a ranking of the top performers on the TSX Venture exchange over the last year. The Company’s share price closed the year at $0.75, a 121% increase over 2015’s closing price of $0.34. In May 2016, the share price reached its highest level in two years at $1.46.

Recognized internationally for its sustainable, community-based drilling and manufacturing practices, Energold serves a broad market base in the Americas, Africa and Europe. Energold’s unique approach to drilling is focused on social and environmental awareness while adhering to the highest standards for health and safety. By broadening the base of the Company’s activities, Energold is positioning itself to become a larger drilling company for various industries. Management is continuing to investigate ways to adapt its drills to alternative methods of drilling in order to mitigate the effects created from the downturn of the mining and oil and gas industries. Energold has over 270 drill rigs in over 25 countries and provides a comprehensive range of drilling services. As a diversified global drilling provider, the Company serves a number of sectors and its services include the following:

Mineral drilling: Servicing mining and mineral exploration companies, the Company provides easily portable diamond drilling rigs, deep hole rigs, mobile underground drilling rigs, highly portable reverse-circulation (“RC”) rigs, and conventional RC and reverse-air-blast rigs (“RAB”). The type of rig provided for drilling is dependent on the clients’ needs as each is unique and applied in specific situations.

Water well drilling: The Company’s wide range of water well drilling services includes fresh water drilling, mine pit dewatering, mine water supplies and mine hydrological characterization and well monitoring.

Ground loop geothermal drilling: Ground loop geothermal energy is becoming an integral element of many development projects by extracting energy from the earth’s latent ground temperature, either through gradient heat exchange or a full passive system through convection. Energold’s access to energy drilling technologies and expertise, combined with larger drill rigs, are used to service the geothermal drilling market.

Geotechnical drilling: The Company’s geotechnical teams work with geotechnical, civil or geological engineers to retrieve information on physical properties of soil, foundation and rock. We build specialized rigs and provide drilling services in preparation for building engineering, footings for wind farms, bridges and other foundation construction. In mining and natural resources, geotechnical drilling is carried out as part of soil and rock mechanical studies. Energold also conducts geotechnical drilling to measure thermal resistivity of soil for underground transmission lines, oil and gas lines, solar and thermal storage facilities, etc.

Energy drilling: Energold serves the industry with oil sands coring rigs, shot-hole seismic rigs and other specialty rigs.

Horizontal directional drilling: Using highly specialized equipment, we have developed a trenchless method of installing cables and piping systems underground in a shallow arc along a predetermined path.

Manufacturing: The Company manufactures drilling rigs and equipment for water well, mineral exploration, geotechnical and geothermal applications. It’s multipurpose mineral exploration rigs are capable of a wide range of drilling techniques including wireline coring, RAB and RC.

ENERGOLD DRILLING CORP.Management’s Discussion and Analysis(For the Year Ended December 31, 2016)


OVERALL PERFORMANCE

In 2016, the Company faced challenges in all of its divisions. While activity levels increased slightly in the minerals division as evident by its increase in meters drilled and revenues earned, the energy division faced continued challenges due to depressed oil and gas prices and activities. However, there was some recovery through year-end leading into 2017 in Western Canada. It was also a difficult year for the manufacturing division as it continued to suffer from exploration budget cuts across the mineral, oil and gas and water industries. The Company is implementing changes to its operations to reduce its costs and to ensure its projects are profitable.

• The Company’s overall 2016 revenues decreased by 20% to $65.4 million from $82.0 million in 2015 as a result of challenges facing the energy and manufacturing divisions.

• The Company’s overall 2016 gross margin decreased slightly to 14% from 16% in 2015 due to declines in margins from the energy division as a result of economic challenges in the oil and gas sector and decline in activity in the manufacturing division both of which have fixed costs regardless of revenue activities.

• Net loss for 2016 was $18.6 million compared to $23.7 million in 2015. Loss before interest, taxes, depreciation and amortization1 was $5.4 million in 2016 compared to $8.5 million in 2015.

• During 2016, Energold’s mineral division drilled 232,600 meters compared to 202,800 meters in 2015. As a result, revenues increased to $37.1 million in 2016 from $32.5 million in 2015.

• The Company’s oil sands and seismic operations generated revenues of $5.5 million in 2016 compared to $10.6 million 2015. The decline in activity in the oil and gas sectors and the wild fires in Northern Alberta during the period has continued to affect the Company’s financial performance.

• The Company’s green drilling operations revenues included within the energy division were $9.6 million in 2016 compared to $16.6 million in 2015. The Company is continuing to explore opportunities in this growing industry.

• The Company’s manufacturing operations generated revenues of $10.1 million in 2016 compared to $20.9 million in 2015.

• On March 4, 2016, the Company acquired all of the issued and outstanding shares of Cros-Man Direct Underground Ltd. (“Cros-Man”). Founded in 2005, Cros-Man expands Energold’s services in more diverse drilling sectors. Cros-Man’s primary service is horizontal directional drilling for telecommunications, water, sewage, hydro and oil and gas markets in central Canada. Since its acquisition, this division generated revenues of $3.1 million.

• The Company had cash of $13.7 million at December 31, 2016 (December 31, 2015 – $13.6 million) and net working capital of $46.9 million (December 31, 2015 - $72.6 million). The majority of the reduction in working capital is related to the reclassification of the convertible debenture from long-term to short-term liabilities and a decrease of trade and other receivables and inventories.

• On July 6, 2016, the Company completed a public offering in which the Company issued 5,750,000 units at a price of $1.00 per unit for aggregate gross proceeds of $5.8 million.

• On July 25, 2016, the Company completed a non-brokered private placement of 716,192 units at a price of $1.00 per unit for aggregate gross proceeds of $0.7 million.

1 Loss before interest, taxes, depreciation and amortization is a non-IFRS measure which the Company believes provides meaningful information about the Company’s financial performance.



SELECT OPERATING INFORMATION

Dec2016

Sept2016

June 2016

March 2016

Dec 2015

Sept 2015

June 2015

March 2015

Mineral

Drill rig fleet 139 139 138 137 137 138 138 139

Meters drilled 59,400 66,300 61,000 45,900* 57,400 65,000 50,500 29,900

Energy

Drill rig fleet 133 133 133 133 128 128 128 128

Meters drilled 34,200* 41,400* 42,000* 43,600* 35,700 66,200 91,300 165,100

*Water, geothermal, geotechnical and horizontal drilling meters are included in these figures

MINERAL DRILLING

Demand for Energold’s services in the mineral sector has been derived traditionally from three groups of customers: precious metal mining companies, base metal mining companies and junior exploration companies. Each of these groups is impacted by distinct market forces from the industry level and also by capital market demand for its equity and debt. Exploration for precious metals continues to represent the largest demand with respect to mineral drilling activity.

The business mix of the Company’s mineral drilling activity has favoured well-funded, intermediate and senior miners as a result of miners shifting their focus from grassroots exploration to capital expenditures on advanced assets and mine development. There has been a significant uptick in activity in this sector as a result of new funding for the junior and intermediate mining sector, which should translate into better financial performance in 2017. There have been an increasing number of financings completed in the industry as a result of strengthening precious metal prices. While the tender opportunities have increased in some regions, cost control remains the top priority at most mining companies. However, management is beginning to see a return to exploration activities in some of the Company’s key markets. New opportunities are presenting themselves as commodity prices recover from multi-year lows. The Company is also actively pursuing opportunities in Europe and increasing its presence in Africa. Some programs the Company is taking on are smaller in nature with an opportunity to become larger contracts over the coming year. Management expects an ongoing recovery from the negative effects experienced in the last few years due to the uptick in market activity.

Pricing remains competitive but improvements in certain regions are likely to continue through 2017.

Over the long term, management continues to believe that the vast majority of new exploration and development opportunities lie in underdeveloped regions in Latin America, Africa, the Middle East and parts of South East Asia. There is also growing opportunity in the green drilling industry including geothermal and water as well as infrastructure-related drilling.

Outlook and Business StrategyThe Company continues to see demand for its services despite current market conditions but the Company cautions that actual results may vary substantially from all forward-looking information in this MD&A.

While the environment for mineral drilling remains impacted by the downturn of previous years, it appears that there is more positivity in the industry and there is an improvement in exploration spending worldwide. Revenue per meter has been steady with the previous year and management expects margins to continue to expand due to its efforts to improve productivity and monitor costs. Continued investment in new equipment is being considered to address market shortages in regions where few drilling companies are present. As well, management has been moving rigs to stronger markets in Central America and the Caribbean where the strongest areas of recovery are occurring. There has been a demand for complementary drill rigs from existing clients including underground drill rigs, more conventional diamond drill and reverse circulation rigs. The Company is focused on reducing inventory levels by consolidating its inventory from various sites and by minimizing its purchases.



Energold continues to maintain a well-capitalized balance sheet and remains committed to investing in areas where economic and relationship benefits exist. This advantage has provided management with the ability to manage the downturn and leverage the earliest stages of the ongoing recovery.

Mexico, the Caribbean and Central AmericaThis continues to be one of the most important markets for the Company with 53 rigs located in the region. Originally pioneered with its “S” style rigs, which still constitute the majority of the fleet, the Company has introduced underground rigs and larger conventional rigs to meet our clients’ demands.

The regional fleet remains active, particularly in Mexico where the Company has long held a leading market share position, especially for its frontier style, man-portable drilling rigs. In Q4-2016, the Company transferred one additional rig into the country to meet growing demand. While pricing pressure persists in the region, activity levels are improving with new contract generation and aggressive marketing activity and the Company remains competitive in the bidding processes. Approximately 83% of global meters drilled by the Company in the fourth quarter of 2016 were in this region, compared to 70% in the fourth quarter of 2015. This region accounted for 79% of year-to-date 2016 global meters drilled compared to 65% in 2015.

South AmericaThe Company has 37 drill rigs in the region. No meters were drilled in this region in the fourth quarter of 2016, compared to 16% in the fourth quarter of 2015. This region accounted for 3% of year-to-date 2016 global meters drilled compared to 23% in 2015.

Social and political issues play a major role in this region. Following a period of uncertainty in Argentina over the last several years, activity rebounded in the first half of the year of 2016. However, the latter half of the year was inactive. The weather in Q3 also negatively affected drilling activity in Argentina. Peru has suffered from local, political and social issues that resulted in the suspension of several potential drilling opportunities. However, management is expecting a slight recovery in this country in 2017. In Brazil, the Company has reduced exposure in the country by storing certain drill rigs, reducing overheads and laying off a significant number of field personnel until the market recovers. The Company is exploring opportunities to lease its rigs in certain regions.

The Company remains the driller of choice for several key clients, especially in frontier regions where the vast majority of future exploration will take place. In each of these markets, our primary rig is the “S” style rig servicing more difficult and remote programs.

Europe, Middle East, Africa (EMEA) & CanadaThe Company has 29 rigs in Africa, 14 rigs in the United Kingdom and Europe and 6 rigs in Canada. Meters drilled in EMEA was approximately 17% of global meters drilled for the fourth quarter of 2016, compared to 14% in the fourth quarter of 2015. This region accounted for 18% of year-to-date 2016 global meters drilled compared to 12% in 2015.

Almost two thirds of meters drilled in the EMEA group were in Africa with the remaining meters being drilled in Europe. Management continues to seek opportunities to drill in European markets and also expects more drilling work to be done in Europe and a slight recovery in some of its African markets. West Africa which is where the Company mainly operates remains heavily exposed to junior miners. The financial environment surrounding that market has impacted activity levels but there are indications that exploration activity is in the recovery phase. The Company continues to see a stable flow of opportunities in other parts of the continent where its frontier rigs are ideal given challenging infrastructure and social issues. The Company’s fully developed logistical network in Africa allows management to move equipment and personnel quickly to new markets on the continent as dictated by demand.

Drill FleetAt December 31, 2016, the Company had 139 rigs in its mineral drilling fleet. The Company intends to add new equipment on an as-needed basis and can do so on a cost-advantaged basis through Dando. The Company will continue to work with certain clients who require specific equipment to meet challenging conditions at various projects. Typically, the cost of the Company retrofitting existing or building new equipment is more than offset by the value of the particular contract. The Company is continuing a modification program to increase the operational and depth capabilities of its standard S-2 and S-3 rigs. Recently, the Company has developed a conversion kit for its S rigs allowing them to conduct limited reverse circulation and open hole drilling.



The Company is developing additional technical ability in complementary activities including underground drilling. Included in the total rig count are 9 underground rigs. The expansion into underground drilling was in response to certain clients’ requests that we provide full service to their operations. The majority of the underground rigs are similar to our existing surface rigs, using substantially the same equipment and supplies. This significantly reduces crew training time and inventory requirements.

SeasonalityThere is a reduction in drilling for most of the Company’s operations in Africa during the months of June/July through to September/October due to rain. In South America, a seasonal slowdown in activity occurs around year-end due to the onset of the holiday season and weather conditions in some locations. Traditionally, lower-margin brownfield work continues throughout the year with the exception of the seasonal shutdowns in the last month of the year. Frontier exploration is generally based on exploration campaigns. The highest activity levels in the mining category tend to occur in the second and the third quarters of the year, whereas the first and especially the last quarter of the year are typically the slowest.

ENERGY DRILLING

Oil and Gas DrillingOil SandsThe Canadian government seeks to reduce and ultimately eliminate the discount applied to Canadian crude as pipeline projects that head south, west and east are negotiated. The Canadian government has identified the oil sands as a strategic asset supporting long-term economic growth for all of Canada and has approved several energy pipeline projects. Recent political developments in the United States indicate a greater willingness to promote new pipelines from Canada although the effects of that potential policy change will take some time.

Natural GasWhile gas inventories have remained larger over recent years than in the previous decade, the technical developments related to shale gas have opened up a new market for further seismic exploration, especially in the United States (“U.S.”). and in Latin America. There is growing demand for the resource as power generating companies are now able to plan and build facilities reliant on this cleaner burning, abundant and cheap energy source that supports ongoing exploration

activity throughout North America. In Canada, liquefied natural gas export terminals are being planned and considered by foreign corporations to meet energy requirements overseas. These developments should have a positive impact on exploration and seismic activity in Western Canada where Bertram Drilling Corp. (“Bertram”) can deploy its fleet of seismic equipment. The environment for conventional seismic equipment is competitive in North America, although Bertram has an advantage where it can offer heli-portable services that are in short supply to access environmental and societal concerns in certain areas.

Outlook and business strategyOverall, lower oil and gas prices have significantly impacted the Company’s activity levels and financial performance and recovery remains uncertain. Larger companies operating in the oil sands region have reduced development budgets in accordance with lower profit forecasts over the near to medium term. Some recovery started to take hold in late 2017 as major oil and gas companies began to increase spending compared to previous years in order to meet spending commitments as well as having somewhat adapted exploration costs in accordance with new global oil price levels. Management is engaged with its long-term customers in the region who have indicated work programs are expected to increase in 2017 as long as oil prices stabilize.

Prior to the downturn in the oil industry in 2015, the performance of the energy division since its acquisition in July 2011 had shown its value in terms of diversifying revenues and offsetting seasonality of Energold’s mineral division while providing a platform for continued growth using the Company’s strong balance sheet. Energold’s management continues to work aggressively to capitalize on the potential synergies between the various divisions. The sharing of equipment, expertise, contacts, crews and logistical infrastructure helps drive revenues, operating margins and overall long term shareholder value. Furthermore, management feels it can increase revenue using the current fleet of equipment by growing market share in current businesses while penetrating new markets outside North America with the Company’s know-how when operating in remote regions. Management endeavours to keep costs under control in the Energy business although a particular level of fixed costs are required to meet day-to-day needs of the business on a year-round basis. Significant cost reductions have been implemented since Q2-2016 and better financial performance is expected to resume in 2017.



Seasonality The ability to move heavy equipment into Canadian oil and natural gas fields is dependent on weather conditions. As warm weather returns in the spring, the winter’s frost comes out of the ground rendering many secondary roads incapable of supporting the weight of heavy equipment until they have thoroughly dried out. The duration of this “spring break-up” and associated road bans has a direct impact on activity levels. Many exploration and production areas in northern Canada are accessible only in winter months when the ground is frozen hard enough to support equipment. As a result, most of the drilling occurs in the first quarter of the calendar year with April through May traditionally being the slowest time in this region. There is a current trend for increased activity in the summer and fall months, although management must consider this strategy on a case-by-case basis with the customer, as logistical costs to operate could be higher than in the winter season.

The first quarter tends to be the strongest period in terms of activity for energy drilling. Cold temperatures create ideal working conditions as the frozen ground allows for near full deployment of the Company’s oil sands coring fleet. The fourth quarter tends to be much quieter although the post-winter business is usually available to help offset costs of demobilizing equipment from the winter period.

Green Drilling - Water, Ground Loop Geothermal (“geothermal”) and GeotechnicalRecently, management has focused on growing other areas including commercial green drilling. Worldwide, demand for geothermal and water drilling continues to grow in regions where the Company currently operates and excess rig capacity from those regions can be utilized. Historically, Bertram has been able to generate consistent operating margins on its geothermal programs.

The water market in particular can provide the Company with new revenue sources with tender opportunities across some of its traditional markets in Africa, as well as in North America. In doing so, management can effectively redeploy idle drilling rigs to take advantage of growth in new markets elsewhere while more traditional commodity markets recover.

In the longer term, as society looks for alternative sources of energy, geothermal programs reduce energy demands and are becoming an integral part of a number of development projects and are regarded as “clean” from an environmental point of view. The opportunity to submit bids on new projects in the U.S. is substantial. The Company is in a strong position to participate in multi-year programs that may potentially help offset seasonality effects that take place in the oil sands coring business during the winter months.

Energy and Infrastructure Meters DrilledIn 2016, Bertram drilled 18,000 meters in Canada and approximately 112,700 in the U.S. compared to 94,900 meters in Canada and approximately 263,400 in the U.S. in 2015. The decline is primarily due to depressed hydrocarbon prices and the forest fires impacting Northern Alberta in Q2-2016. Activity levels are not always reflective of revenues due to the type of drilling the division offers. Oil sands and geothermal drilling are more technical and require specialized equipment and skilled labour. For those reasons, pricing per meter is much higher than other types of drilling. Seismic drilling is not a highly technical process; therefore, drilling rates are priced much lower due to the speed of drilling and type of labour skills required to perform the work. Since its acquisition on March 4, 2016, Cros-Man, which does infrastructure drilling in Central Canada, drilled 30,500 meters year to date and 11,700 meters in Q4-2016.

Meters were drilled in the following areas:

For the three months ended December 31

For the year ended

December 31

2016 2015 2016 2015

Infrastructure 11,700 - 30,500 -

Oil sands 700 - 5,600 17,900

Seismic (Track and Heli-portable) - 2,800 - 69,100

Water wells 600 - 1,700 -

Geothermal, Geotechnical and other 21,200 32,900 123,400 271,300

34,200 35,700 161,200 358,300



MANUFACTURING DIVISION

Outlook and business strategy The principal activity of Dando remains the design, manufacture and sale of mobile drilling rigs and associated equipment for water wells, mineral exploration, geotechnical investigation and environmental monitoring.

Dando has an excellent reputation in Africa, South East Asia and Australia. The utilization of the Company’s contacts and expertise in Latin and North America has led to significant interest from previously untapped geographical markets.

Dando continues to receive growing interest for its products but revenue growth has been affected by a number of factors. Dando has been adversely affected by worldwide complex geo-political issues, a general nervousness in the market and lack of client funding or availability of foreign currency, especially for some of the large projects in the water sector. The fluctuation of commodity prices has resulted in a volatile mineral market. The drop in oil prices has also affected Dando’s ability to generate revenue in the geotechnical and seismic industry space. However, Dando continues to build relationships with clients in this sector in the pursuit of securing new and long term contracts in Western Canada. The water markets are also changing and growing as shallow aquifers have been exhausted, or have become harder to find. As a result, demand is increasing for more powerful and higher priced machinery to access deeper water reserves which is a further strain on the potential customers who already find it difficult to finance their purchases.

Management is focused on continuing to develop relationships across the financial community to enable competitive financing programs to help grow market share in the current weak environment. Along with other Energold subsidiaries, Dando has been using various financial instruments from Export Development Canada to assist new customers and generate contracts.

Seasonal trends affect the performance of the manufacturing business in each quarter. The beginning of the year is typically reserved for participating in the annual tendering process with non-government organizations and various layers of governments worldwide. Contracts are awarded in the second and fourth quarters and revenue recognition is usually loaded in the latter portion of the year. Towards the end of the year, sales are reduced due to the holiday season. The majority of the division’s tenders are in the water well manufacturing segment of the market where Dando enjoys brand name recognition for quality and longevity of equipment.



RESULTS OF OPERATIONS

For the year ended December 31, 2016 compared to the year ended December 31, 2015

For the year ended December 31

(in thousands) 2016 2015 2014

Revenue

Mineral $ 37,075 $ 32,548 $ 34,532

Energy 18,229 28,537 54,702

Manufacturing 10,096 20,891 12,067

$ 65,400 $ 81,976 $ 101,301

Loss

Mineral $ (2,273) $ (7,505) $ (5,007)

Energy (7,457) (9,076) (2,163)

Manufacturing (5,023) (2,425) (5,116)

Corporate (3,808) (4,727) (1,767)

$ (18,561) $ (23,733) $ (14,053)

Loss per share – basic and diluted2 $ (0.36) $ (0.49) $ (0.28)

Total assets $ 108,981 130,313 150,857

Non-current financial liabilities $ 3,123 14,596 15,002

Net loss for the year ended 2016 was impacted by the following factors:

• Mineral

– Revenues increased to $37.1 million in 2016 from $32.5 million in 2015 as a result of a 15% increase in meters drilled. Average revenue per meter in 2016 was $159 compared to $160 in 2015. Although the market is recovering slightly, there is still excess rig capacity in the industry. As capacity utilization rises, pricing and margins are expected to expand as the mineral division strives to maintain low operating costs. The margin for this division improved as a result of increased productivity and monitoring costs. The margin for the year ended December 31, 2016 was $4.9 million or 13%, an improvement over the comparable period of $2.2 million or 7%. Management continues to try and improve its margin by evaluating a number of ways to increase productivity and control its costs without sacrificing the quality of its drilling.

• Energy & Infrastructure

– Revenues for the year ended December 31, 2016 were $18.2 million compared to $28.5 million in 2015. The majority of the decrease is due to major operators delaying projects due to the continued low price of oil which affected performance in Q1-2016, when the majority of drilling activity in western Canada takes place. The wild fires in Northern Alberta in Q2-2016 also impacted revenues. Gross margin was $3.3 million or 18% in 2016 compared to a $7.7 million or 27% in 2015. The decrease in revenue from the oil sands resulted in a lower gross margin as Bertram still has certain fixed costs in its operations although significant measures have been taken over the last two quarters to materially lower costs associated with the ongoing functioning of the business.

2 Loss per share is calculated based on losses attributable to equity shareholders of Energold Drilling Corp.



– On March 4, 2016, the Company acquired all the outstanding shares of Cros-Man. Cros-Man has been fully consolidated in the group’s results from March 4, 2016. The net assets acquired and recorded at estimated fair values totalled $4.1 million including intangible assets of $2.3 million. Consideration for this acquisition was $5.7 million in which $3.5 million was paid in cash and the balance to be paid over a period of three years ($0.6 million included in current trade and other payables and $1.6 million included in non-current trade and other payables). Since its acquisition, Cros-Man earned revenues of $3.1 million which is included in the Energy revenue segment.

• Manufacturing

– Revenues for Dando for the year ended December 31, 2016 were $10.1 million with a margin of 11% compared to revenues of $20.9 million with a gross margin of 17% in the comparable period in 2015. The combination of depressed minerals and oil and gas industry in addition to inability for Dando’s clients to finance its projects impacted Dando’s revenues.

• Indirect and administrative expenses in 2016 were $26.5 million compared to $28.0 million in

2015. Overall, the Company has been working towards reducing its expenses. The Company has managed to reduce expenses while taking on $1.4 million of costs due to the acquisition of Cros-Man in 2016.

• The Company recorded finance costs related to interest payments on the convertible debentures, loans and leases of $3.1 million in 2016 compared to $2.8 million in 2015.

• In 2016, current and deferred income tax expenses were $1.0 million compared to $3.1 million in 2015.

• Other comprehensive loss totaled $9.4 million in 2016 compared to a $7.7 million income in 2015. Other comprehensive loss/income is related to unrealized gains or losses on short-term investments held net of taxes and cumulative translation adjustments on foreign currency translation. The Company’s subsidiaries hold balances in their functional currency; therefore upon translation to presentation currency, which is the Canadian dollar, balances on the balance sheet may increase or decrease depending on the foreign exchange rate at that time.

For the three months ended December 31, 2016 compared to the three months ended December 31, 2015

For the three months ended December 31

(in thousands) 2016 2015 2014

Revenue

Mineral $ 8,857 $ 9,986 $ 9,876

Energy 4,034 4,586 11,465

Manufacturing 1,448 4,728 1,922

$ 14,339 $ 19,300 $ 23,263

Income /(Loss)

Mineral $ 1,043 $ (2,423) $ (1,695)

Energy (865) (4,800) (2,038)

Manufacturing (1,655) (1,079) (2,399)

Corporate (2,434) (3,389) (365)

$ (3,911) $ (11,691) $ (5,767)

Loss per share – basic and diluted3 $ (0.07) $ (0.24) $ (0.12)

3 Loss per share is calculated based on losses attributable to equity shareholders of Energold Drilling Corp.



• Mineral

- Revenues increased to $8.9 million in Q4-2016 from $10.0 million in the comparable period of 2015. Average revenue per meter for Q4-2016 was $149 compared to $174 in Q4-2015. The difference in revenue per meter is due to the different mixture of diamond drilling and RC drilling. Pricing still remains competitive and there is still excess rig capacity in the industry. As capacity utilization rises, pricing will continue to strengthen and margins will expand as the mineral division strives to maintain low operating costs. The margin for the three months ended December 31, 2016 in this division was $1.3 million or 14% compared to $1.0 million or 10% in the comparable period in 2015. Drilling programs have started to grow in size as the recovery continues and margin expansion is expected to continue as costs remain low and pricing becomes more firm in several key markets. Management continues to try and improve its margin by evaluating a number of ways to control its costs without sacrificing the quality of its drilling. The Company maintains a strong infrastructure network in all regions where it operates, which allows for relatively lean operations and enables the Company to respond quickly to new opportunities.

• Energy & Infrastructure

- Revenues for the three months ended December 31, 2016 were $4.0 million compared to $4.6 million in same period for 2015. Activity levels are still lower than what the Company has experienced in previous years due to continued challenging times for the industry. Gross margin was $0.9 million or 23% in 2016 compared to a break-even in the comparable period of 2015. The division still has certain fixed costs in its operations, although significant efforts have been made to reduce costs over the past year.

• Manufacturing

- Revenues for Dando in Q4-2016 were $1.4 million with a margin of 11% compared to revenues of $4.7 million with a gross margin of 16% in Q4-2015. Several orders that management had expected did not materialize; therefore performance in this division has not met expectations.

• Indirect and administrative expenses were reduced in Q4-2016 to $6.3 million compared to $7.7 million in Q4-2015 due to the Company’s efforts in monitoring and reducing its expenses. $0.3 million related to expenses from the Cros-Man acquisition.

• The Company recorded finance costs related to interest payments on the convertible debentures, loans and leases were comparable at $0.7 million in Q4-2016 and Q4-2015.

• Current and deferred income tax expenses were $0.2 million in Q4-2016 and $1.8 million in Q4-2015.

• Other comprehensive loss totaled $2.4 million in 2016 compared to $0.9 million income in the comparable period of 2015. Other comprehensive loss/income is related to unrealized gains or losses on short-term investments held net of taxes and cumulative translation adjustments on foreign currency translation. The Company’s subsidiaries hold balances in their functional currency; therefore upon translation to presentation currency, which is the Canadian dollar, balances on the balance sheet may increase or decrease depending on the foreign exchange rate at that time.



OTHER FINANCIAL INFORMATION

Summary of Quarterly ResultsThe following table represents our unaudited quarterly results of operations for each of the last eight quarters. All figures are in thousands of Canadian dollars except loss per share:

Dec 31 2016

Sept 30 2016

June 30 2016

Mar 31 2016

Dec 312015

Sept 302015

June 302015

Mar 31 2015

Revenue 14,339 18,888 15,561 16,612 19,300 22,814 20,249 19,613

Net loss (3,911) (3,336) (4,979) (6,335) (11,691) (3,877) (4,757) (3,408)

Loss per share – Basic and Diluted* (0.07) (0.06) (0.10) (0.13) (0.24) (0.08) (0.10) (0.07)

* Per share numbers have been rounded to two decimal places

FINANCING

On July 6, 2016, the Company completed a public offering in which the Company issued 5,750,000 units at a price of $1.00 per unit for an aggregate gross proceeds of $5.8 million, including the full exercise of the agents’ option to increase the offering in the amount of $0.8 million. Each unit consists of one common share and one share purchase warrant. Each warrant entitles the holder to purchase one common share at a price of $1.75 per share for a period of 18 months from the date of issuance. The Offering was conducted through a syndicate of agents led by Clarus Securities Inc. and including M Partners Inc. (together, the “Agents”).

In consideration for their services in connection with the offering, the agents received a cash commission of 6% of the gross proceeds raised under the offering as well as compensation warrants equal to 6% of the number of units sold under the offering. Each compensation warrant is exercisable by the agents to acquire one share at a price of $1.00 per share for a period of 18 months following the closing of the offering.

On July 22, 2016, the Company completed a non-brokered private placement of 716,192 units at a price of $1.00 per unit for aggregate gross proceeds of $0.7 million. Each unit comprises one common share and one common share purchase warrant. Each warrant is exercisable for one common share at a price of $1.75 per share for a period of 18 months from the date of issuance.

The net proceeds of the offering was intended to be used by the Company to fund a portion of the Company’s capital program, which includes the purchase of drilling rigs and ancillary supplies, and for working capital purposes. The objective is to extend

the Company’s capability in technical mineral and water drilling programs in Africa.

In March 2016, one of the Company’s subsidiaries entered into a credit facility with Royal Bank of Canada in the amount of $2.5 million. The purpose of the loan was to acquire Cros-Man Direct Underground Ltd. The loan bears interest at the bank’s prime lending rate plus 1.75% per annum. A general security agreement and a floating charge on all present and after-acquired real property have been pledged as security for the above borrowings. Bertram Drilling Corp. has provided a guarantee and postponements of claim. As of December 31, 2016, the amount outstanding on this credit facility was $2.0 million. In October 2016, one of the Company’s subsidiaries renegotiated its credit facility with the Royal Bank of Canada for the amount of $1.5 million. As of December 31, 2016, the amount outstanding on this facility was $1.1 million. As of December 31, 2016, the Company was not in compliance with one of its financial covenants on both of the above credit facilities and has received a waiver from the bank stating it will not recall the loan. The Company has classified the full amount of the loans as current. The balance is to be repaid upon receipt of proceeds from the convertible debenture refinancing (see subsequent event below related to new financing).

On July 21, 2014, the Company completed a $13.5 million secured convertible debenture issue which bears interest at 12.85% calculated annually, payable quarterly, with a maximum term of three years (Energold holds a call provision). The debentures are convertible into common shares of the Company at a conversion price of $3.00 per share subject to a minimum conversion of $50,000 (if converted in part). The Company fair valued the debt component using a discounted cash flow model at a current interest rate of 14% on July 21, 2014,



the closing date of the convertible debenture. The value of the debt component was $13.1 million and the equity component was assigned the residual amount of $0.4 million. At December 31, 2016, the current liability of the convertible debenture was $13.4 million.

Subsequent to December 31, 2016, on February 14, 2017, the Company announced that it had entered into a binding term sheet with Extract Advisors LLC (“Extract”), a New York and Toronto-based natural resources investment fund manager, for a $20 million, secured convertible loan (“Convertible Loan”). Extract, through funds it manages, has agreed to finance $15 million principal amount of the Convertible Loan and the balance will be provided by a syndicate of lenders to include existing debenture holders, new investors and insiders of the Company.

Energold intends to use the proceeds to repay its certain current loans including $13.5 million of secured convertible debenture due July 2017, as well as certain credit facilities with Royal Bank of Canada and EDC. The deal is anticipated close in Q2-2017.

In conjunction with operational performance and financings done over the past three years, management believes it has a strong balance sheet that will allow for continued growth amidst a more challenging environment. Management continues to make a conscious effort to use financial leverage where possible while keeping the Company’s financial structure on a balanced basis in accordance with its near and long term industry outlooks.

LIQUIDITY, FINANCIAL POSITION AND CAPITAL RESOURCES

Cash flows from operations were $1.6 million in Q4-2016 compared to using cash flows from operations of $2.9 million in Q4-2015. Cash flows used in operations for year-to-date 2016 were $2.8 million compared to cash flows from operations of $4.2 million in 2015.

In Q4-2016, the Company invested cash of $0.1 million compared to $0.6 million in the same period in Q4-2015. In Q4-2016, the Company invested $0.5 million in property, plant and equipment (net of proceeds and capitalized development cost) compared to $0.5 million in the comparable period of 2015. In Q4-2016, the Company received restricted cash of $0.3 million compared to using cash of $0.1 million in a comparable period.

In 2016, the Company used $3.1 million for investing activities compared to $1.8 million in the same period of 2015. $3.0 million (net of cash acquired) was invested to purchase Cros-Man. The Company received proceeds from sale of available for sale investments (net of purchases) $0.9 million, mainly from the sale of its 1 million shares in IMPACT Silver Corp. compared to $0.1 million in the comparable period of 2015. In 2016, the Company purchased $1.0 million in property, plant and equipment (net of proceeds) compared to $1.4 million in the comparable period of 2015.

The Company used cash from financing activities of $0.1 million in Q4-2016 compared to receiving cash of $1.5 million in Q4-2015. It repaid $0.8 million of its bank and credit facilities in Q4-2016 compared to receiving bank loan proceeds of $1.9 million in Q4-2015. It received a loan by way of promissory note for $0.7 million from a related party. The Company made capital lease payments (net of proceeds) of $0.01 million in Q4-2016 and $0.4 million in Q4-2015.

During 2016, the Company received proceeds of $6.0 million for financing activities compared to using $3.9 million in the comparable period of 2015. The increase in proceeds is mainly due to proceeds received from its private placements of $5.8 million in Q3-2016. In 2016, the Company received cash of $0.4 million from its credit facilities (net of repayment of credit / bank facilities) compared to repaying $2.2 million of its bank / credit facility (net of proceeds of credit facility) in the comparable period of 2015. The Company made capital lease payments (net of proceeds) of $1.1 million in 2016 compared to $1.8 million in the comparable period of 2015.



The Company has the following financial liabilities and commitments as of December 31, 2016:

(in millions $) Less than one year 1-5 years Total

Finance lease obligation 0.7 0.6 1.3

Debt 6.3 0.1 6.4

Convertible debenture 13.4 - 13.4

20.4 0.7 21.1

GOING CONCERN

The Company’s consolidated financial statements have been prepared on a going concern basis, which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business as they come due into the foreseeable future.

During 2016, the Company incurred a net loss of $18.6 million and had cash outflows from operating activities of $2.8 million. At December 31, 2016, the Company had unrestricted cash of $13.7 million, current assets of $80.2 million and working capital of $46.9 million. The Company is due to repay its existing convertible debenture of $13.5 million in July 2017. Based on existing unrestricted cash balances and expected cash flows from operations, the Company will need to generate funds from other sources in order to repay the entire obligation. On February 14, 2017, the Company announced a $20 million convertible debt financing (see Financing section) to replace the existing facility and various other bank loans. As of the date of this document, the financing had not closed.

The Company`s ability to continue as a going concern is dependent upon its ability to generate cash flow from operations and, to the extent that this is not sufficient, to obtain additional funding from loans, equity financings or through other arrangements. While the Company has been successful in arranging financing in the past, the success of such initiatives cannot be assured. These conditions cast significant doubt on the validity of the going concern assumption.

OUTSTANDING SHARE DATA

The following common shares, warrants and stock options of the Company were issued and outstanding at April 3, 2017:

# of Shares Exercise Price Expiry Date

Issued and outstanding common shares 54,659,939

Stock options outstanding 1,750,000 0.45 December 23, 2020

Stock options outstanding 500,000 2.01 October 1, 2019

Compensation warrants outstanding 345,000 1.00 January 6, 2018

Warrants outstanding 5,000,000 1.75 January 6, 2018

Agent warrants outstanding 750,000 1.75 January 6, 2018

Warrants outstanding 716,192 1.75 January 22, 2018

Fully diluted 63,721,131

1,806,875 stock options outstanding have vested at April 3, 2017.



EQUITY HOLDINGS

IMPACT Silver Corp. (IPT: TSX.V) (“IMPACT”)

Prior to May 27, 2016, Energold held a significant interest in IMPACT Silver Corp. (“IMPACT”), a Canadian public company, which is an operating silver mine and has mineral exploration properties in Mexico. The Company owned 7,980,001 common shares, representing approximately 10.39% of the issued and outstanding common shares in the capital of IMPACT at that time. The Company was considered to have significant influence over IMPACT and so the investment was accounted for using the equity method due to mutual management at the executive level and its shareholding and directorships in IMPACT. Subsequent to May 27, 2016, IMPACT completed a $5.0 million private placement which diluted Energold’s ownership position below 10%. As a result, the Company now accounts for IMPACT as available-for-sale investment.

SAFETY, SOCIAL AND ENVIRONMENTAL POLICY

The Company is committed to ongoing research programs on equipment safety on all of its rigs. The Company has developed and maintains an active safety audit program.

Exploration and drilling create a physical change within the area of work. The Company believes in its responsibility to ensure that it minimizes the environmental impact of its efforts. The development of our drills is a direct successful offshoot of the need to explore with a light footprint using a drill pad of very limited size, which does not require the construction of roads and complex access. Additives used are non-toxic, and contaminants from petroleum based products are contained with a dual retention system.

Our employees and contract personnel are aware and continually reminded that environmental issues and safety cannot be compromised. The Company has published safety, social, and environmental policies related to its operations and is currently implementing an ISO 14001 program throughout the Company.

The Company works as part of the community whose members must be kept informed of our activities and their concerns addressed. Wherever possible the local community participates in the benefits that may flow from the Company’s activities. The use of local personnel

as drillers, driller’s helpers and workers fosters direct involvement in the programs conducted by the Company. For instance, in previous years, as part of its overall community programs in Mexico, the Company drilled and equipped three water wells for remote communities without adequate clean water. In Haiti, the Company participated in the construction of the almost 50-meter long Elizabeth foot bridge in the Limbe Municipality. In Peru and the Dominican Republic, the Company provided school supplies to children and in West Africa, the Company assisted in financing and equipping an elementary school.

The Company has published specific policies and regulations to address the above, as well as our ongoing concern for safety. Work being conducted by or on behalf of the Company must be well planned, safe and with a concern for the environment and communities surrounding us.

CONTRACT DRILLING RISK FACTORS

The Company is faced with a number of risks with respect to its contract drilling operations. Contract drilling is a highly competitive industry, where numerous competitors may tender bids for contracts. The Company’s ability to continue to secure profitable contracts on an ongoing basis is not assured. Like every business operating internationally, the Company faces numerous risks in its day-to-day business operations which are highlighted in the headings below and briefly summarized.

Cyclical Industry RisksThe mineral contract drilling industry is reliant on demand from two primary categories of commodities, precious and base metals, while certain industrial minerals may also be tested. Under favourable market conditions, rising commodity prices normally spur an increased demand for drilling services. However, cyclical downturns in commodity prices can have the opposite effect and the Company could be exposed to an investment in drilling equipment and supplies which might not be able to be utilized to their full capacity.

The oil and gas drilling industry is reliant on the level of activity by oil and gas companies. This level of activity has traditionally been volatile as a result of fluctuations in oil and gas prices and their uncertainty in the future. The purchase of the services the Company provides are, to a substantial extent, deferrable in the event oil and gas companies reduce capital expenditures.



Therefore, the willingness of the Company’s customers to make expenditures is critical to our operations. The levels of such capital expenditures are influenced by, among other things: 1) oil and gas prices and industry perceptions of future prices; 2) the cost of exploring for, producing and delivering oil and gas; 3) the ability of oil and gas companies to generate capital; 4) the discovery rate of new oil and gas reserves in offshore areas; and 5) local, federal and international political and economic conditions. Producers generally react to declining oil and gas prices by reducing expenditures and this has in the past and may in the future adversely affect our business. We are unable to predict future oil and gas prices or the level of oil and gas industry activity. A prolonged low level of activity in the oil and gas industry may adversely affect the demand for services and may impact the financial condition and results of operations of the Company.

Reliance on Key AccountsFrom time to time, the Company may be dependent on a small number of customers for a significant portion of its overall drilling revenues and net earnings.

Workforce AvailabilityDrilling is as much an art as a science and it takes considerable time and experience for an individual to become a well-qualified driller. In certain countries, it is developing and training a local work force. It is also hiring overseas and developing incentive programs to retain drillers. If the Company cannot hire or train a sufficient quantity of drillers, it may result in lower rig utilization and revenues.

Extreme Weather ConditionsThe Company operates in a variety of locations and areas in the world, some of which are subject to extreme weather conditions which can have a significant impact on operations.

Foreign Countries and Regulatory RequirementsContract drilling, mineral exploration and mining activities may be affected in varying degrees by political instability and government regulations relating to the mining industry and foreign investors therein. Any changes in regulations or shifts in political conditions are beyond the control of the Company and may adversely affect its own, or its clients’ business outlook. Operations may be affected in varying degrees by government regulations with respect to restrictions on production, price controls, export controls, income taxes, mine safety, environmental legislation, and expropriation of property.

Environmental and Other Regulatory RequirementsThe current or future operations of the Company and its clients involving contract drilling, exploration, development activities, production and mining on their properties require permits from various federal, state, and local governmental authorities. Such operations are and will be governed by laws and regulations governing prospecting, development, mining, production, exports, taxes, labour standards, occupational health, waste disposal, toxic substances, land use, environmental protection, mine safety and other matters. Regulatory requirements and environmental standards are subject to constant evaluation and may change significantly, which could have adverse effects on the business of the Company and its clients in any jurisdiction in which the Company operates.

Permits and LicensesThe operations of the Company and its clients may require licenses and permits from various governmental authorities. There can be no assurance that the Company or its clients will be able to obtain all necessary licenses and permits that they may require to carry out contract drilling or exploration, development and mining operations on their mineral properties.

Political, Regulatory & Security IssuesThe Company’s operations are subject to control and scrutiny by several levels of government, various departments within each level, and corporate, environmental and mining regulations. Permission must also sometimes be secured from local people for exploration and drilling permits, water and land surface use rights. Risk exists that the Company might fail to be fully compliant in all respects in this political and regulatory environment or that permits might not be issued on a timely basis to facilitate the Company’s planned development activities. In addition, social and political unrest may exist within a region covered by the Company’s operations and such events may affect the feeling of safety and security of the local people and may affect the operating activities of the Company. From time-to-time, government regulatory agencies may review the books and records of the Company, which may result in changes in the Company’s operating results. There is also potential risk of tax policy changes by the government in the various countries the Company operates in which may impact the Company’s operating results.



FINANCIAL INSTRUMENTS AND MANAGEMENT OF FINANCIAL RISK

Financial assets and liabilities

The Company’s financial instruments consist of cash and cash equivalents, restricted cash, trade receivable, available for sale financial instruments, trade and other payables, bank indebtedness, and convertible debenture. The Company has designated cash and cash equivalents, restricted cash and trade receivables as loans and receivables, which are measured at amortized cost. Available for sale financial assets are designated as available for sale and measured at fair value as determined by reference to quoted market prices. At December 31, 2016 the carrying value of the Company’s cash and cash equivalents, restricted cash, trade and other receivables, available for sale investments trade and other payables, bank indebtedness, and convertible debenture approximate fair values.

Financial instrument risk exposure

The Company’s financial instruments are exposed to a number of financial and market risks including credit, liquidity, currency and interest rate risks. The Company may, or may not, establish from time to time active policies to manage these risks. The Company does not currently have in place any active hedging or derivative trading policies to manage these risks, since the Company’s management does not believe that the current size, scale and pattern of cash flow of its operations would warrant such hedging activities.

Credit riskCredit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. Financial instruments that potentially subject the Company to credit risk include cash and cash equivalents, restricted cash and trade receivable. The Company deposits its cash with high credit quality financial institutions as determined by ratings agencies, with the majority deposited with a Canadian Tier 1 Bank with ratings above A+. The Company provides credit to its customers in the normal course of its operations. The Company diversifies its credit risk by dealing with a large number of companies in various countries. The Company carries its receivables net of allowance for doubtful accounts. The Company’s maximum exposure to credit risk at the reporting date is the carrying value of its cash and cash equivalents and accounts receivable.

Liquidity riskLiquidity risk is the risk that the Company will not be able to meet its obligations as they fall due. The Company manages liquidity by maintaining cash and cash equivalent balances available to meet its anticipated operational needs. Liquidity requirements are managed based on expected cash flow to ensure that there is adequate capital to meet short-term and long-term obligations. The Company has in place a planning and budgeting process to help determine the funds required to support the Company’s normal operating requirements on an ongoing basis and its growth plans. At December 31, 2016, the Company’s total liabilities were $39.9 million, of which $31.3 million is current. The Company has debt of $6.4 million, finance lease obligations of $1.3 million and convertible debt of $13.4 million.

Currency riskThe Company operates on an international basis, therefore currency risk exposures arise from transactions denominated in currencies other than the entity’s functional currency. The majority of its international sales contracts are denominated in U.S. dollars. Thus its currency risk arises primarily with respect to the U.S. dollar. At December 31, 2016, the Company is exposed to currency risk through cash and cash equivalents, trade receivable, and trade payable and accrued liabilities held in a variety of currencies, the most significant being the U.S. dollar. Based on these foreign currency exposures at December 31, 2016, a 5% depreciation or appreciation of all the above currencies against the Canadian dollar would result in a decrease or increase of the Company’s net loss and equity of approximately $0.2 million.

Interest rate riskInterest rate risk is the risk that the fair values and future cash flows of the Company will fluctuate because of changes in market interest rates. The Company is exposed to interest rate risk on its cash and its revolving demand and credit line facility. Cash and cash equivalents and restricted cash have limited interest rate risk due to their short-term nature. The Company’s debt borrowings are exposed to interest rate risk as it is subject to floating interest rates. Assuming that all other variables remain constant, a 1% increase or decrease in the bank’s prime lending rate does not have a significant impact on net earnings. Convertible debt and finance leases are not subject to interest rate risk because they are at fixed rates.



RELATED PARTY DISCLOSURE

Related party transactions not disclosed elsewhere are as follows:

In 2014, five directors of the Company, the chief executive officer, the chairman of the board, the audit committee chair, the former audit committee chair (retired from the position in 2014), and a general director, purchased a total of $1.9 million of the CD. In addition, a person related to the chief executive officer purchased $0.1 million CD. A trust related to officers of Bertram Drilling Corp., purchased $1.0 million of the CD. As of December 31, 2016, the outstanding payable to related parties on the CD was $3.0 million (December 31, 2015 - $3.0 million).

During the year ended December 31, 2016, net fees in the amount of $0.4 million were incurred (December 31, 2015 - $0.2 million) from a company related to an officer of Bertram for helicopter services performed in Canada and the U.S. As of December 31, 2016, there was a net payable balance of $0.5 million (December 31, 2015 – $0.1 million).

In November 2016, the Company entered into a loan facility with a company related to an officer of Bertram. The loan bears interest at 4.7% per annum, and expires on March 15, 2018. As of December 31, 2016, the amount outstanding on this loan facility is $0.8 million.

As part of the acquisition of Cros-Man, the Company has a deferred payment outstanding of $2.2 million as of December 31, 2016 to the vendor of Cros-Man who remains a director of Cros-Man.

APPROVAL

The Board of Directors oversees management’s responsibility for financial reporting and internal control systems through an Audit Committee. This Committee meets periodically with management and the independent auditors to review the scope and results of the annual audit and to review the financial statements and related financial reporting and internal control matters before the financial statements are approved by the Board of Directors and submitted to the shareholders of the Company. The Board of Directors of Energold have approved the financial statements and the disclosure contained in this MD&A. A copy of this MD&A will be provided to anyone who requests it.



NON-IFRS MEASURES

The non-IFRS measures presented do not have any standardized meaning prescribed by IFRS and are therefore unlikely to be directly comparable to similar measures presented by other issuers. The data presented is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. The Company uses both IFRS and non-IFRS measures to assess performance and believes the non-IFRS measures provide useful information to investors to help in evaluating the Company’s performance. Following are the non-IFRS measures the Company uses in assessing performance:

EBITDA is a measure that the Company believes is a useful indicator of its operating (loss)/income and considers it to be a meaningful supplement to net loss as a performance measurement. The Company believes that, in additional to conventional measures prepared in accordance with IFRS, the Company and certain investors use this information to evaluate the Company’s performance. As the Company incurs significant depreciation and amortization, EBITDA eliminates the non-cash impact and allows the Company and investors to evaluate the operating results of the underlying core operations.


2016 2015

Net loss $ (18,379) $ (23,623)

Add (deduct):

Finance income (128) (77)

Finance cost 3,085 2,830

Amortization 9,205 9,376

Deferred income taxes recovery (249) 2,302

Current income and other taxes expense 1,216 812

EBITDA $ (5,250) $ (8,380)



Gross margin and gross margin percentage are measures which the Company believes provides a useful indicator of how the Company’s operations are performing. These measures are calculated as follows:

• Gross margin: Calculated as revenue less direct costs, excluding amortization.• Gross margin percentage: Calculated as (gross margin divided by revenue) x 100.

In thousands Mineral Energy ManufacturingYTD2016

Revenue $ 37,075 $ 18,229 $ 10,096 $ 65,400

Direct Costs 32,211 14,968 9,024 56,203

Gross Margin $ 4,864 $ 3,261 $ 1,072 $ 9,197

Gross Margin % 13.1% 17.9% 10.6% 14.1%

In thousands Mineral Energy ManufacturingYTD2015

Revenue $ 32,548 $ 28,537 $ 20,891 $ 81,976

Direct Costs 30,366 20,807 17,378 68,551

Gross Margin $ 2,182 $ 7,730 $ 3,513 $ 13,425

Gross Margin % 6.7% 27.1% 16.8% 16.4%

In thousands Mineral Energy ManufacturingQ4

2016

Revenue $ 8,857 $ 4,034 $ 1,448 $ 14,339

Direct Costs 7,604 3,098 1,291 11,993

Gross Margin $ 1,253 $ 936 $ 157 $ 2,346

Gross Margin % 14.1% 23.2% 10.8% 16.4%

In thousands Mineral Energy ManufacturingQ4

2015

Revenue $ 9,876 $ 4,586 $ 4,728 $ 19,300

Direct Costs 9,011 4,514 3,990 17,515

Gross Margin $ 975 $ 72 $ 738 $ 1,785

Gross Margin % 9.8% 1.6% 15.6% 9.2%



NOTE REGARDING FORWARD-LOOKING STATEMENTS

Except for historical information, this MD&A may contain forward-looking statements. These statements involve known and unknown risks, uncertainties, and other factors that may cause the Company’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievement expressed or implied by these forward-looking statements. In certain cases, forward-looking statements can be identified by the use of words such as “may”, “will”, “would”, “could”, “should”, “believes”, “estimates”, “projects”, “potential”, “expects”, “estimates”, “plans”, “intends”, “anticipates”, or the negative of those words or other similar or comparable words. Forward-looking statements may relate to future financial conditions, results of operations, plans, objectives, performance or business developments.

The factors that could cause actual results to differ materially include, but are not limited to, the following: general economic conditions; changes in financial markets; the impact of exchange rates; political conditions and developments in countries in which the Company operates; changes in regulatory requirements impacting the Company’s operations; the ability to properly and efficiently staff the Company’s operations; the sufficiency of current working capital; and demand for the Company’s drill rigs.

The estimates and assumptions of the Company contained or incorporated by reference in this MD&A, which may prove to be incorrect, include but are not limited to, the various assumptions set forth herein and in the MD&A, or as otherwise expressly incorporated herein by reference as well as (1) there being no significant disruptions or adverse conditions; (2) fluctuations in the price and demand for commodities; (3) fluctuations in the level of mineral and oil and gas exploration and development activities; (4) fluctuations in the demand for contract drilling; (5) the exchange rate between the Canadian Dollar, U.S. Dollar, Mexican Peso and various currencies that the Company operates in being approximately consistent with current levels; (6) capital market liquidity available to fund customer drilling programs; (7) prices for and availability of equipment, labour, fuel, oil, electricity and other key supplies remaining consistent with current levels; (8) labour and materials costs increasing on a basis consistent with the Company’s current expectations; (9) tax policy changes by the government in the various countries the Company operates; and (10) other unforeseen conditions which could impact the use of services supplied by the Company.

This list is not exhaustive and these and other factors should be considered carefully, and readers should not place undue reliance on the Company’s forward-looking statements. As a result of the foregoing and other factors, no assurance can be given as to any such future results, levels of activity or achievements and neither the Company nor any other person assumes responsibility for the accuracy and completeness of these forward-looking statements. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, or to explain any material difference between subsequent actual events and such forward-looking statements, except to the extent required by applicable law. The forward looking statements contained herein are based on information available as of April 3, 2017.

Additional InformationAdditional information relating to Energold is on SEDAR at www.sedar.com.

On behalf of the Board of Directors,

“Frederick W. Davidson”, President and Chief Executive Officer

April 3, 2017



The accompanying financial statements of Energold Drilling Corp. (“the Company”) have been prepared by management in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and within the framework of the summary of significant accounting policies in these consolidated financial statements, and reflect management’s best estimate and judgment based on currently available information.

Management has developed and maintains a system of internal controls to provide reasonable assurance that the Company’s assets are safeguarded, transactions are authorized and financial information is accurate and reliable.

The Audit Committee of the Board of Directors meets periodically with management and with the Company’s independent auditors to review the scope and results of their annual audit and to review the consolidated financial statements and related financial reporting matters prior to submitting the consolidated financial statements to the Board of Directors for approval.

The consolidated financial statements have been audited by PricewaterhouseCoopers LLP on behalf of the shareholders and their report follows.

“F.W. Davidson” President and Chief Executive Officer “Steven Gold” Chief Financial Officer

April 3, 2017


ENERGOLD DRILLING CORP.Management’s Responsibility For Financial Reporting

To the Shareholders of Energold Drilling Corp. We have audited the accompanying consolidated financial statements of Energold Drilling Corp., which comprise the consolidated statements of financial position as at December 31, 2016 and December 31, 2015 and the consolidated statements of loss, comprehensive loss, changes in equity and cash flows for the years then ended, and the related notes, which comprise a summary of significant accounting policies and other explanatory information.

Management’s responsibility for the consolidated financial statementsManagement is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s responsibilityOur responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.

OpinionIn our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Energold Drilling Corp. as at December 31, 2016 and December 31, 2015 and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards.

Emphasis of matterWithout qualifying our opinion, we draw attention to Note 1 in the financial statements which discloses conditions and matters that indicate the existence of a material uncertainty that may cast significant doubt about the ability of Energold Drilling Corp. to continue as a going concern.

PricewaterhouseCoopers LLPCHARTERED PROFESSIONAL ACCOUNTANTS

April 3, 2017

PricewaterhouseCoopers Place, 250 Howe Street, Suite 1400, Vancouver, British Columbia V6C 3S7

T: +1 604 806 7000, F: +1 604 806 7806


ENERGOLD DRILLING CORP.Independent Auditor’s Report

2016 2015

ASSETSCurrent assets Cash and cash equivalents $ 13,715 13,561 Restricted cash 116 297 Trade and other receivables (Note 5) 11,530 22,462 Income taxes receivable 2,124 2,628 Available-for-sale investments (Note 7b) 4,751 167 Inventories (Note 6) 47,934 54,469

80,170 93,584Non-current assets Investment in IMPACT Silver Corp. (Note 7a) - 3,326 Property, plant and equipment (Note 8) 23,057 29,903 Goodwill and intangible assets (Note 9) 5,707 2,900 Deferred income tax assets (Note 14) 47 600

28,811 36,729$ 108,981 130,313

LIABILITIESCurrent liabilities Bank indebtedness (Note 10) $ 6,260 5,442 Trade and other payables (Note 11) 10,953 13,590 Convertible debenture (Note 12) 13,419 - Current income tax payable 1,742 1,474 Deferred revenue 937 510

33,311 21,016Non-current liabilities Bank indebtedness (Note 10) 119 492 Due to related party (Note 17) 2,344 - Finance leases (Note 15) 660 817 Convertible debenture (Note 12) - 13,287 Deferred income tax liabilities (Note 14) 3,421 3,652

6,544 18,24839,855 39,264

SHAREHOLDERS’ EQUITY Share capital 95,368 91,454 Contributed surplus 8,664 8,291 Warrants (Note 16b) 1,747 - Equity component of convertible debenture (Note 12) 375 375 Accumulated other comprehensive income 674 10,070 Accumulated deficit (37,280) (18,901)Total equity attributable to Energold Drilling Corp. shareholders 69,548 91,289 Non-controlling interest (422) (240)

69,126 91,049$ 108,981 130,313

Nature of operations and going concern (Note 1)

ON BEHALF OF THE BOARD:

“F.W. Davidson”, Director “M.A. Corra” , Director

The accompanying notes form an integral part of these consolidated financial statements


ENERGOLD DRILLING CORP.Consolidated Statements of Financial PositionAs at December 31 Canadian dollars in thousands except for shares and per share data

2016 2015

Revenue $ 65,400 $ 81,976

Direct costs 56,203 68,551

Gross profit (excluding amortization) 9,197 13,425

Indirect and administrative expenses

Accounting, audit and legal 1,097 1,146

Amortization 9,205 9,376

Bad debt expense 416 227

Investor relations, marketing and travel 1,688 1,769

Management fees and consulting 1,490 1,010

Office, rent, insurance and sundry 3,515 3,755

Office salaries and services 8,852 10,621

Share-based payments 197 78

26,460 27,982

Operating loss (17,263) (14,557)

Other income (expenses)

Gain on derecognition of equity investment (Note 7a) 640 -

Equity loss from IMPACT Silver Corp. (Note 7a) (47) (146)

Foreign exchange gain 2,176 571

Finance income 128 77

Finance cost (Note 13) (3,085) (2,830)

Other (expenses) income (120) 264

Write-down on investment in IMPACT Silver Corp. (Note 7a) - (2,300)

Write-down on exploration properties (Note 8) - (908)

Write-down on AFS investments (Note 7b) - (263)

Gain on disposal of AFS investments 234 -

Impairment of intangible assets (169) -

Loss on disposal of assets (88) (527)

(331) (6,062)

Loss before taxes (17,594) (20,619)

Deferred income taxes (recovery) expense (Note 14) (249) 2,302

Current income and other taxes expense (Note 14) 1,216 812

Net loss $ (18,561) $ (23,733)

Attributable to:

Equity holders of Energold Drilling Corp. $ (18,379) $ (23,623)

Non-controlling interest $ (182) $ (110)

Loss per share attributable to equity shareholders of Energold Drilling Corp.

Loss per share – Basic and diluted (Note 16c) $ (0.36) $ (0.49)

Weighted average number of shares outstanding – Basic and diluted (Note 16c) 51,304,389 48,181,247



ENERGOLD DRILLING CORP.Consolidated Statements of LossFor the years ended December 31Canadian dollars in thousands except for shares and per share data

2016 2015

Net loss $ (18,561) $ (23,733)

Items that may be reclassified to net loss

Other comprehensive income

Unrealized gain on AFS short term investments 1,304 235

Cumulative translation adjustment (10,700) 7,450

Total comprehensive loss $ (27,957) $ (16,048)

Attributable to:

Equity holders of Energold Drilling Corp. $ (27,775) $ (15,939)

Non-controlling interest (182) (109)

$ (27,957) $ (16,048)



ENERGOLD DRILLING CORP.Consolidated Statements of Comprehensive LossFor the years ended December 31 Canadian dollars in thousands except for shares and per share data

Shares Outstanding

ShareCapital

($)

Contributed Surplus

($)Warrants

($)

Equity component

of convertible debenture

($)

Accumulated other

comprehensive income

($)

Non-controlling

interest($)

Retained Earnings /

Accumulated Deficit

($)

Total Shareholders’

Equity($)

Balance at January 1, 2015 48,181,247 91,454 8,213 - 375 2,386 (131) 4,722 107,019

Net loss for the year - - - - - - (110) (23,623) (23,733)

Share-based payments - - 78 - - - - - 78

Unrealized loss on investments classified as AFS - - - - - 235 - - 235

Cumulative translation adjustment - - - - - 7,449 1 - 7,450

Balance at December 31, 2015 48,181,247 91,454 8,291 - 375 10,070 (240) (18,901) 91,049

Net loss for the year - - - - - - (182) (18,379) (18,561)

Share-based payments - - 197 - - - - - 197

Shares issued in relation to public offering 5,750,000 5,750 - - - - - - 5,750

Shares issued in relation to private placement 716,192 716 - - - - - - 716

Share issue costs - (635) - - - - - - (635)

Compensation warrants issued in relation to public offering - (179) 179 - - - - - -

Stock options exercised 12,500 6 - - - - - - 6

Fair value assigned to stock options exercised - 3 (3) - - - - - -

Warrants issued in relation to private placement - (1,747) - 1,747 - - - - -

Unrealized gain on investments classified as AFS - - - - - 1,304 - - 1,304

Cumulative translation adjustment - - - - - (10,700) - - (10,700)

Balance at December 31, 2016

54,659,939 95,368 8,664 1,747 375 674 (422) (37,280) 69,126



ENERGOLD DRILLING CORP.Consolidated Statement of Changes in EquityCanadian dollars in thousands except for shares and per share data

Cash provided by (used in) 2016 2015

Operating activities Net loss $ (18,561) $ (23,733) Items not affecting cash: Amortization 9,205 9,376 Finance costs 250 356 Share-based payments 197 78 Gain on derecognition of equity investment (Note 7a) (640) - Deferred income taxes expense (recovery) (249) 2,302 Equity loss from IMPACT Silver Corp. 47 146 (Gain) loss on disposal of assets and AFS investments (146) 527 Write-down on investment in IMPACT Silver Corp. (Note 7a) - 2,300 Write-down on AFS investments (Note 7b) - 263 Write-down on exploration properties - 908 Impairment of intangible assets 169 - Bad debt expense 416 227 Accretion related to convertible debenture (Note 12) 132 115 Unrealized (gain) loss on foreign exchange (1,917) 948 Change in non-cash working capital (Note 21) 8,281 10,387

(2,816) 4,200

Investing activities Acquisition of Cros-Man, net of cash acquired (3,008) - Purchase of AFS investment (310) - Proceeds on sale of property, plant and equipment 134 151 Proceeds on sale of AFS investments 1,165 115 Purchase of property, plant and equipment (1,089) (1,515) Capitalized development costs (62) (390) Restricted cash 120 (122)

(3,050) (1,761)

Financing activities Repayment of bank facility (2,936) (5,029) Proceeds from credit facility 5,197 3,044 Repayment of credit facility (1,824) (178) Proceeds from finance leases 355 543 Repayment of finance leases (1,401) (2,321) Proceeds from shares issued 5,837 - Proceeds on loan from related party (Note 17c) 792 -

6,020 (3,941)

Net increase (decrease) in cash 154 (1,502)

Cash at the beginning of the year 13,561 15,063Cash at the end of the year $ 13,715 $ 13,561



ENERGOLD DRILLING CORP.Consolidated Statement of Cash FlowsFor the years ended December 31 Canadian dollars in thousands except for shares and per share data

1. NATURE OF OPERATIONS AND GOING CONCERN

Energold Drilling Corp. (the “Company”) provides, directly and through its subsidiaries, drilling services for parties principally in North America, Mexico, the Caribbean, Central America, South America, Europe and Africa. The Company, through its subsidiary, also designs and manufactures specialty/customized drilling rigs and associated equipment for water well, mineral exploration and geotechnical drilling companies. Additionally, the Company, through its subsidiaries, provides drilling and other services to the energy sector in Canada and the United States (“U.S.”). The Company is located at 1100-543 Granville Street, Vancouver, British Columbia, Canada, V6C 1X8.

Going concernThese consolidated financial statements have been prepared on a going concern basis, which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business as they come due into the foreseeable future.

During 2016, the Company incurred a net loss of $18.6 million and had cash outflows from operating activities of $2.8 million. At December 31, 2016, the Company had unrestricted cash of $13.7 million, current assets of $80.2 million and working capital of $46.9 million. The Company is due to repay its existing convertible debenture of $13.5 million in July 2017. Based on existing unrestricted cash balances and expected cash flows from operations, the Company will need to generate funds from other sources in order to repay the entire obligation. On February 14, 2017, the Company announced a $20 million convertible debt financing (note 24) to replace the existing facility and various other bank loans. As of the date of these consolidated financial statements, the financing had not closed.

The Company`s ability to continue as a going concern is dependent upon its ability to generate cash flow from operations and, to the extent that this is not sufficient, to obtain additional funding from loans, equity financings or through other arrangements. While the Company has been successful in arranging financing in the past, the success of such initiatives cannot be assured. These conditions cast significant doubt on the validity of the going concern assumption.

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

2. BASIS OF PRESENTATION

Statement of complianceThese consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”) and Interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”) applicable to the preparation of these consolidated financial statements. The consolidated financial statements have been prepared on a historical basis, except where otherwise indicated, and are presented in Canadian dollars and all values are rounded to the nearest thousands, except where otherwise indicated. The consolidated financial statements were authorised for issue by the Board of Directors on April 3, 2017.

Significant accounting judgments and estimatesThe preparation of consolidated financial statements in conformity with IFRS requires management to make estimates and form assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its judgments and estimates in relation to assets, liabilities, revenue and expenses. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and further periods, if the review affects both current and future periods. Management uses historical experience and various other factors it believes to be reasonable under the given circumstances as the basis for its judgments and estimates. Actual outcomes may differ from these estimates under different assumptions and conditions. The main judgments and estimates made by management in applying accounting policies primarily relate to the following, as applicable, further details of assumptions made are disclosed in individual notes throughout the consolidated financial statements.


ENERGOLD DRILLING CORP.Notes to the Consolidated Financial StatementsDecember 31, 2016Canadian dollars in thousands except for shares and per share data

Income taxes: The Company is subject to income taxes in numerous jurisdictions and significant judgment is required in determining the worldwide provision for income taxes. There are transactions and calculations for which the ultimate tax determination is uncertain and in these cases management interprets tax legislation in forming a judgment. The Company recognizes liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made. A deferred tax asset is recognized to the extent that it is probable that future taxable earnings will be available to use against the asset. To the extent that the Company does not consider it probable that a deferred tax asset will be recovered, it does not recognize an asset. See Note 14 for additional information.

Review of asset carrying values and impairment:Each cash generating unit (“CGU”) is evaluated every reporting period to determine whether there are any indications of impairment. If any such indication exists, which is often judgmental, a formal estimate of recoverable amount is performed and an impairment loss is recognized to the extent that the carrying amount exceeds the recoverable amount. The recoverable amount of a CGU of assets is measured at the higher of fair value less cost of disposal (“FVLCD”) or value in use (“VIU”).

The evaluation of asset carrying values for indications of impairment includes consideration of both external and internal sources of information including such factors as market and economic conditions and internal forecasts. The determination of FVLCD and VIU requires management to make estimates and assumptions about expected revenue, estimated operating costs, estimated meters drilled, taxes, discount rates and future sustainable capital expenditures. The estimates and assumptions are subject to risk and uncertainty; hence there is the possibility that changes in circumstances will alter these forecasts which may impact the recoverable amount of the assets. In such circumstances, some or all of the carrying value of the assets may be further impaired or the impairment charge reversed with the impact recorded in the consolidated statement of loss.

Functional currency:The functional currency for each of the Company’s subsidiaries is the currency of the primary economic environment in which the entity operates. Determination of functional currency may involve certain judgments to determine the primary economic environment and the Company reconsiders the functional currency of its entities if there is a change in events and conditions which determined the primary economic environment.

Trade and other receivables:The Company reviews collectability of trade receivables on an ongoing basis and makes judgments as to its ability to collect outstanding trade receivables and provides an allowance for credit losses when there is objective evidence that the Company will not be able to collect the debt.

Impairment of available-for-sale equity investments:The group follows the guidance of IAS 39 to determine when an available-for-sale equity is impaired. This determination requires significant judgment. In making this judgment, the Company evaluates, among other factors, the duration and extent to which the fair value of an investment is less than its cost; and the financial health of and short-term business outlook for the investee.

Inventory valuation: The Company reviews the expected remaining field service life of the equipment parts and supplies and provides an allowance for normal wear and tear.

Business combinations: The Company uses estimates and assumptions for the fair value of assets and liabilities acquired in business combinations. Refer to Note 4 for additional information.


ENERGOLD DRILLING CORP.Notes to the Consolidated Financial StatementsDecember 31, 2016 Canadian dollars in thousands except for shares and per share data

3. SIGNIFICANT ACCOUNTING POLICIES

a) Basis of consolidationThe consolidated financial statements include the financial statements of the Company and its controlled subsidiaries, the most significant of which are presented in the table below. Subsidiaries are all entities over which the Company has control. The Company controls an entity when the Company is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. This control is generally evidenced through owning more than 50% of the voting rights or currently exercisable potential voting rights of a company’s share capital. Subsidiaries are fully consolidated from the date on which control is transferred to the Company. They are deconsolidated from the date that control ceases. When the Company ceases to have control, any retained interest in the entity is re-measured to its fair value at the date when control is lost, with the change in carrying amount recognized in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. All intercompany transactions and balances are eliminated on consolidation. For subsidiaries that the Company controls, but does not own 100% of, the net assets and net profit attributable to outside shareholders are presented as amounts attributable to non-controlling interests in the consolidated balance sheet and consolidated statement of loss and comprehensive loss. The Company holds 60% interest in E&E International Services Ltd. The total non-controlling interest for the year was $0.2 million (2015 - $0.1 million).

Subsidiary Incorporation Location Nature of operations Functional currency

Energold de Mexico S.A. de C.V. (“EDM”) Mexico Mineral drilling Mexican Peso (MXN)

Energold Drilling Dominicana, S.R.L. (“EDD”) Dominican Republic Mineral drilling Dominican Peso

Energold Drilling Peru, S.A.C. (“EDP”) Peru Mineral drilling U.S. Dollar (“USD”)

Energold Perfuracoes Ltda. (“EPB”) Brazil Mineral drilling Brazilian Reias

OroEnergy Chile Mineral drilling Chilean Peso

Energold de Colombia S.A.S. (“EDCOL”) Colombia Mineral drilling Colombian Peso

Energold Argentina S.A. (“EDA”) Argentina Mineral drilling Argentinean Peso

Energold Drilling (EMEA) Ltd. (“EMEA”) United Kingdom Mineral drilling Sterling Pound (“GBP”)

Dando Drilling International Ltd. (“Dando” or “DDI”) United Kingdom Manufacturing Sterling Pound (“GBP”)

Bertram Drilling Corp. (“Bertram”) Canada Energy drilling Canadian Dollar (“CDN”)

E Drilling de Nicaragua S.A. (“EDDN”) Nicaragua Mineral drilling Nicaraguan Cordoba

E&E International Services Ltd. (“E&E”) Canada Energy drilling CDN

Cros-Man Direct Underground Ltd. (“Cros-Man)” Canada Energy drilling CDN

Significant restrictionsThe Company has subsidiaries in certain countries such as Brazil and Argentina which are subject to local exchange control regulations that may restrict exportation of capital from the country.

b) Business combinationsAcquisitions of subsidiaries and businesses are accounted for using the acquisition method. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS-3 Business Combinations are recognized at their fair values at the acquisition date, except for non-current assets (or disposal groups) that are classified as held-for-sale in accordance with IFRS-5 Non-current Assets Held for Sale and Discontinued Operations, which are recognized and measured at fair value less costs to sell. The cost of the business combination is measured as the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the Company in exchange for control of the acquiree being the date on which the Company gains control. The excess of the cost over the fair value of the Company’s share of identifiable net assets acquired is recorded as goodwill. If, after reassessment, the consideration is less than the fair value of net assets acquired, the excess is recognized immediately in the statement of comprehensive income as a bargain purchase gain. When the initial accounting for a business combination is determined provisionally, any adjustments to the provisional values allocated are made within twelve months of the acquisition date and are



effected prospectively from the date of acquisition. Where a business combination agreement provides for an adjustment to the cost of a business acquired contingent on future events, the Company accrues the fair value of the amount of any additional consideration payable in the cost of the acquisition as a liability at the acquisition date where this can be measured reliably. This amount is reassessed at each subsequent balance sheet date with any adjustments to the liability recognized in the statement of comprehensive income. To the extent that consideration is contingent upon continuing employment, the consideration is treated as post-combination consideration and recognized in the statement of comprehensive income in the period that the payment is accrued or paid.

c) Foreign currency translationThe functional currency for each of our subsidiaries and associates is the currency of the primary economic environment in which the entity operates. Transactions in foreign currencies are translated to the functional currency of the entity at the exchange rate in existence at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are retranslated at the period end date exchange rates. Non-monetary items which are measured using historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Resulting foreign exchange gains or losses are recognized in income.

The functional currency of Energold Drilling Corp., the parent entity, is the Canadian dollar, which is also the presentation currency of our consolidated financial statements.

Foreign operations are translated from their functional currencies into Canadian dollars on consolidation as follows:

(i) Assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of the statement of financial position;

(ii) Income and expenses for each statement of loss are translated at a quarterly average exchange rate (unless this rate is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction

dates, in which case income and expenses are translated at the dates of the transactions);

(iii) Share capital for each statement of financial position presented are translated at historical rate; and

(iv) All resulting exchange differences are recognized in other comprehensive income as cumulative translation adjustments.

Exchange differences that arise relating to long-term intercompany balances that form part of the net investment in a foreign operation are also recognized in this separate component of equity through other comprehensive income.

On disposition or partial disposition of a foreign operation, the cumulative amount of related exchange differences recorded in a separate component of equity is recognized in the statement of loss.

d) Investments in associatesAssociates are all entities over which the Company has significant influence, but not control. Investments in associates are accounted for by the equity method of accounting and are initially recognized at cost. Subsequent to the acquisition date, the Company’s share of profits or losses of associates is recognized in the statement of loss.

Unrealized gains on transactions between the Company and its associates are eliminated to the extent of the Company’s interest in the associates. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Dilution gains and losses arising from changes in interest in investments in associates are recognized in the statement of loss.

The Company assesses at each year-end whether there is any objective evidence that its interest in associates are impaired. If impaired, the carrying value of the Company’s share of the underlying assets of associates is written down to its estimated recoverable amount (being the higher of fair value less cost to sell and value in use) and recognized in the statement of loss.



e) InventoriesThe Company maintains an inventory of operating supplies and drill consumables such as drill rods, tubes, bits, casings, consumable supplies and lubricants as well as pumps, motors and other drilling equipment and parts. Procurement, transportation and import duties are included in inventory cost. Inventories are valued at the lower of cost and net realizable value. Cost is determined on a weighted average cost method. The Company applies the following policies with respect to inventory accounting and valuation:

(i) Higher value drilling equipment parts and supplies, as well as consumable inventories are valued at landed cost, based upon country of use, less an allowance for normal wear and tear based upon management’s judgment of the expected remaining field service life of the equipment parts and supplies.

(ii) Each drill has a base inventory of smaller value equipment parts and supply items which are valued at landed cost.

f) Property, plant and equipment Property, plant and equipment are recorded at cost less accumulated amortization and applicable impairment losses. Cost includes the purchase price and directly attributable costs to bring the assets to the location and condition necessary for it to be capable of operating in the manner intended by management. When an item of property, plant and equipment comprises of major components with different useful lives, the components are accounted for as separate items of property, plant and equipment.

The costs of day-to-day servicing, commonly referred to as “repairs and maintenance”, are recognized in the statement of loss as an expense, as incurred.

Subsequent costs are recognized in the carrying amount of an item of property, plant and equipment when the cost is incurred, if it is probable that the future economic benefits embodied within the item will flow to the consolidated entity and the cost of the item can be measured reliably. All other costs are recognized in the statement of loss as an expense, as incurred.

Amortization commences when property, plant and equipment are considered available for use.

Amortization is recognized in earnings or loss over the estimated useful lives of each part of an item of property, plant and equipment and is in line with the pattern of use of the future economic benefits. The declining balance method is used except for otherwise indicated below.

The following rates are used in the calculation of amortization:

Building 7 years straight line

Operating equipment

20% per annum (Minerals and Manufacturing); 7 years straight line (Energy)

Vehicles 20% per annum

Office equipment 20% per annum

Computer equipment 30% per annum

An item of property, plant and equipment and any significant parts initially recognized is derecognized upon disposal or when no future economic benefits are expected from its 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 loss.

Amortization methods, useful lives and residual values are reassessed each reporting date and any changes arising from the assessment are applied prospectively.

h) LeasesLeases in which the Company assumes substantially all risks and rewards of ownership are classified as finance leases. Assets held under finance leases are recognized as assets of the Company at the lower of the fair value at the inception date of the lease or the present value of the minimum lease payments. The corresponding liability is recognized as a finance lease obligation. Lease payments are accounted for using the effective interest rate method. Finance charges are charged to profit or loss, unless they are directly attributable to qualifying assets, in which case they are capitalized. In a finance leaseback transaction, any profit or loss from the transaction will be deferred and amortized over the lease term.

i) Exploration propertiesExploration and evaluation costs are capitalized on an individual prospect basis until such time as an economic ore body is defined or the prospect is abandoned. Management reviews and evaluates the carrying values of its resource properties for impairment

3. SIGNIFICANT ACCOUNTING POLICIES – CONTINUED



on an annual basis or when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Indications include but are not limited to expiration of the right to explore, substantive expenditure in the specific area is neither budgeted nor planned, and if the entity has decided to discontinue exploration activity in the specific area. The recoverability of the amounts capitalized for the undeveloped exploration properties is dependent upon the determination of economically recoverable ore reserves, confirmation of the Company’s interest in the underlying mineral claims, the ability to obtain the necessary financing to complete their development, and future profitable production or proceeds from the disposition thereof.

From time to time, the Company may acquire or dispose of properties pursuant to the terms of option agreements. Due to the fact that options are exercisable entirely at the discretion of the optionee, the amounts payable or receivable are not recorded. Option payments are recorded as exploration properties or recoveries when the payments are made or received. The Company does not accrue the estimated costs of maintaining its mineral interests in good standing. The Company wrote off all exploration properties in 2015.

j) Intangible assetsIntangible assets include goodwill, customer relationships, brand, and business development costs.

GoodwillBusiness acquisitions are accounted for using the purchase method, whereby assets and liabilities acquired are recorded at their fair values as of the date of acquisition and any excess of the purchase price over such fair value is recorded as goodwill. Goodwill is identified and allocated to reporting units by preparing estimates of the fair value of each reporting unit and comparing this amount to the fair value of assets and liabilities in the reporting unit. Goodwill is not amortized.

The Company assesses goodwill impairment on at least an annual basis, or more frequently if events or circumstances indicate there may be impairment. To accomplish this assessment, the Company estimates the value in use of its reporting units that include goodwill and compares those fair values to the reporting units’ carrying amounts. If the carrying value of a reporting unit exceeds its fair value, the Company compares the implied fair value of the reporting unit’s goodwill to its carrying amount, and any excess of the carrying

amount over the fair value is charged to operations. Assumptions underlying the fair value estimates are subject to significant risks and uncertainties.

Other intangible assetsIntangible assets acquired separately are measured on initial recognition as cost. The cost of intangible assets acquired in a business combination is their fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less accumulated amortization and accumulated impairment losses, if any. Intangible assets with finite lives are amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible assets may be impaired. The amortization expense on intangible assets with finite lives is recognized in profit or loss in the expense category, consistent with the nature of the intangible assets.

The following useful lives are used in the calculation of amortization.

Energy – Cros-Man

Energy – Bertram Manufacturing

Customerrelationships 7 years 5 years N/A

Brand N/A 5 years N/A

Other intangibleassets 4 years 3 years 10 % per annum

k) Impairment of non-financial assetsAt each reporting date, the Company reviews the carrying amounts of its tangible and intangible assets to determine whether there is an indication that those assets might be impaired. If any such indication exists, which is often judgmental, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. The evaluation of asset carrying values for indications of impairment includes consideration of both external and internal sources of information including factors such as market and economic conditions, sales forecast and the physical condition and usability of the drills. 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 (“CGU”) to which the asset belongs. A CGU is the smallest identifiable group of asset that generates cash inflows from other assets or groups of assets.



An impairment loss is recognized when the carrying amount of an asset, or its CGU, exceeds its recoverable amount. Recoverable amount is the higher of an asset’s or CGU’s fair value less costs of disposal (“FVLCD”) and its value in use (“VIU”). In assessing VIU, 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 or CGU for which future cash flows have not been adjusted. The FVLCD is based on an estimate of the amount that the Company may obtain in a sale transaction on an arm’s length basis between knowledgeable, willing parties, less costs of disposal. FVLCD is primarily derived using discounted cash flow techniques, which incorporates market participant assumptions.

If the recoverable amount of an asset or CGU is estimated to be less than its carrying amount, the carrying amount of the asset or CGU is reduced to its recoverable amount. An impairment loss is recognized immediately in the consolidated statement of loss. Impairment losses recognized in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to CGUs and then to reduce the carrying amount of the other assets in the unit on a pro-rata basis.

An impairment loss recognized in prior years for long-lived assets shall be reversed only if there has been a significant change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognized. This reversal is recognized in the statement of loss and is limited to the carrying amount that would have been determined, net of amortization, had no impairment loss been recognized for the asset in prior years. After such a reversal, any amortization charge is adjusted prospectively.

m) Revenue recognitionRevenue from services rendered is measured at the fair value of the consideration received or receivable. Revenue from services rendered is recognized when the amount can be reliably measured, it is probable that future economic benefits will flow to the entity, when collection is reasonably assured and when specific criteria have been met for each of the Company’s activities, as described below.

Revenue from the Company’s mineral drilling contracts is recognized on the basis of actual meters drilled for each contract. Revenue from the Company’s energy contracts is recognized based on actual meters drilled or number of wells completed depending on the type of contract. Revenue from ancillary services is recorded when the services are rendered. Contract prepayments are recorded as deferred revenue until performance is achieved and are credited against contract billings in accordance with the contract terms.

Revenue from the manufacturing division is recorded using the percentage of completion method in accordance with IAS 11, Construction Contracts. Standard accounting practices to recognize revenue with regard to construction contracts falls under IAS 11, which recommends the percentage of completion method. As the Company constructs and assembles the drills it sells to its customers, management considers it appropriate to recognize revenue under this basis.

n) Share-based paymentsThe Company grants stock options to buy common shares of the Company to directors, officers, employees and consultants. Options granted must be exercised no later than five years from date of grant or such lesser period as determined by the Company’s board of directors. The exercise price of an option is not less than the closing price on the Exchange on the last trading day preceding the grant. The directors, subject to the policies of the TSX Venture Exchange, may determine and impose terms upon how each grant of options shall become vested.

The fair value of the options is measured at grant date using the Black-Scholes option pricing model, and is recognized over the period that the employees earn the options. When options vest in installments over the vesting period, each installment is accounted for as a separate arrangement. The fair value is recognized as expense with a corresponding increase in equity. At each reporting date, the Company revises its estimates of the number of options that are expected to vest. It recognizes the impact of the revision of original estimates, if any, in income, with a corresponding adjustment to equity.


l) Impairment of non-financial assets – continued



o) Income taxesIncome tax expense consists of current and deferred tax expense. Income tax expense is recognized in the statement of loss. Current tax expense is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at period end, adjusted for tax payable with regard to previous periods.

Deferred taxes are recorded using the statement of financial position liability method. Under the statement of financial position liability method, deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted or substantively enacted tax rates expected to apply when the asset is realized or the liability settled.

A deferred tax asset is recognized to the extent that it is probable that future taxable earnings will be available to use against the asset. To the extent that the Company does not consider it probable that a deferred tax asset will be recovered, it does not recognize an asset.

Deferred tax liabilities are recognized for taxable temporary differences arising on investments in subsidiaries, joint ventures and associates. However, the Company does not recognize such deferred tax liabilities 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.

Deferred tax assets and liabilities are not recognized if the temporary differences arise from the initial recognition of goodwill or an asset or liability in a transaction (other than in a business combination) that affects neither accounting profit nor taxable profit.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities, and when they 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 its current tax assets and liabilities 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.

p) Loss per shareBasic loss per share is computed by dividing the net loss available to common shareholders by the weighted average number of shares outstanding during the reporting period. Diluted loss per share is computed by dividing the net loss available to common shareholders by the weighted average number of shares outstanding on a diluted basis. The weighted average number of shares outstanding on a diluted basis takes into account the additional shares for the assumed exercise of stock options and warrants, if dilutive. The number of additional shares is calculated by assuming that outstanding stock options were exercised and that the proceeds from such exercises were used to acquire common stock at the average market price during the reporting period. When the effects of potential issuance of shares under options would be anti-dilutive basic and diluted loss per share are the same.

q) Financial assetsWhen financial assets are initially recognized, they are measured at fair value on the date of acquisition plus directly attributable transaction costs except financial instruments carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognized at fair value and transaction costs are recognized in profit or loss. The measurement of financial instruments after initial recognition depends on their initial classification. All financial assets are measured at fair value except for loans and receivables, held-to-maturity assets and in rare circumstances, unquoted equity instruments whose fair values cannot be measured reliably.

Investment in equity instruments that are traded in an active market are carried at fair value based on quoted market prices at the balance sheet date. Investments in equity instruments that are not quoted in an active market are measured at fair value unless fair value cannot be reliably measured. In such cases the investments are measured at cost.

At initial recognition, the Company classifies its financial instruments in the following categories depending on the purpose for which the instruments were acquired:

Financial assets and liabilities at fair value through profit or loss (“FVTPL”): A financial asset or liability is classified in this category if acquired principally for the purpose of selling or repurchasing in the short-term and is measured at fair value with unrealized gains and losses recorded through earnings.



Loans and receivables: Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are measured at amortized cost using the effective interest method.

Available-for-sale investments: Available-for-sale (“AFS”) investments are non-derivatives that are either designated in this category or not classified in any of the other categories and 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.

Held-to-maturity: Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held-to-maturity when the Company has the ability to hold to maturity. This classification applies except where financial assets are derivative financial instruments, and where the Company has designated them as either fair value through profit or loss or AFS, or where the assets meet the definition of loans and receivables. Investments to be held for an undefined period are not included in this classification. Held-to-maturity investments are measured at amortized cost using the effective interest rate method.

Effective interest method is a method of calculating the amortized cost of a financial instrument and of allocating interest income or expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition. The effective interest rate method amortization is included in finance costs in the statement of loss.

Financial assets and liabilities are offset when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or realize the asset and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the company or the counterparty. The net amount is reported in the balance sheet.

r) Impairment of financial assets

(a) Assets carried at amortized costFinancial assets, other than those at FVTPL, are assessed for indicators of impairment at each period end. Financial assets are impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted.

Objective evidence of impairment could include the following:

• significant financial difficulty of the issuer or counterparty;

• default or delinquency in interest or principal payments; or

• it has become probable that the borrower will enter bankruptcy or financial reorganization.

The carrying amount of all financial assets, excluding trade receivables, is directly reduced by the impairment loss.

(b) Assets classified as available–for-saleFor equity investments, a significant or prolonged decline in the fair value of the security below its cost is also evidence that the assets are impaired. If any such evidence exists the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss – is removed from equity and recognized in profit or loss. Impairment losses recognized in the consolidated income statement on equity instruments are not reversed through the consolidated income statement.

With the exception of AFS equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease relates to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss. On the date of impairment reversal, the carrying amount of the financial asset cannot exceed its amortized cost had impairment not been recognized.

A financial asset is derecognized when the contractual right to the asset’s cash flows expires or if the Company transfers the financial asset and all risks and rewards of ownership to another entity.


q) Financial assets – continued



s) Financial liabilitiesAll 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.

Fair value changes on financial liabilities classified as FVTPL are recognized through the statement of loss. At the end of each reporting period subsequent to initial recognition, financial liabilities at FVTPL are measured at fair value, with changes in fair value recognized directly in profit or loss in the period in which they arise. The net gain or loss recognized in profit or loss excludes any interest paid on the financial liabilities.

t) Compound instrumentsThe component parts of compound instruments (convertible notes) issued by the Company are classified separately as financial liabilities and equity, in accordance with the substance of the contractual arrangements and the definitions of a financial liability and equity instrument. The conversion option that will be settled by the exchange of a fixed amount of cash or another financial asset for a fixed number of the Company’s own equity instruments is an equity instrument. At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for similar non-convertible instruments. This amount is recorded as a liability on an amortized cost basis using the effective interest method until extinguished upon conversion, or at the instrument’s maturity date. The conversion option classified as equity is determined by deducting the amount of liability component from the fair value of the compound instrument as a whole. This is recognized and included in equity and is not subsequently remeasured. In addition, the conversion option classified as equity will remain in equity until the conversion option is exercised, in which case, the balance recognized as equity will be transferred to share capital.

When the conversion option remains unexercised at the maturity date of the convertible note, the balance recognized in equity will be transferred to contributed surplus. No gain or loss is recognized in profit or loss upon conversion or expiration of the conversion option. Transaction costs that relate to the issue of the convertible notes are allocated to the liability and equity components in proportion to the allocation of

the gross proceeds. Transaction costs relating to the equity component are recognized directly in equity. Transaction costs relating to the liability are included in the carrying amount of the liability component and are amortized over the lives of the convertible notes using the effective interest method.

u) Segment reportingOperating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allowing resources and assessing performance of the operating segments, has been identified as the person who makes strategic decisions. Performance from both an industry and geographic perspective is examined and three reportable segments have been identified:

(i) Minerals – This part of the business provides drilling services in the minerals industry for parties principally in North America, Mexico, the Caribbean, Central America, South America, Africa and Europe.

(ii) Energy – This part of the business provides drilling and other services to the energy sector in Canada, the U.S. and South America.

(iii) Manufacturing – This part of the business designs and manufactures specialty / customized drilling rigs and associated equipment for water well, mineral exploration and geotechnical drilling companies.

v) Recent accounting pronouncements issued but not yet implemented

The following new standards, amendments to standards and interpretations have been issued but are not effective during the year ended December 31, 2016:

IFRS 9 – Financial Instruments – classification and measurementIFRS 9, ‘Financial instruments’, addresses the classification, measurement and recognition and derecognition of financial assets and financial liabilities and introduces new rules for hedge accounting. In July 2014, the IASB made further changes to the classification and measurement rules and also introduced a new impairment model. These latest amendments now complete the new financial instruments standard. The standard is effective for accounting periods beginning on or after January 1,



2018. Early adoption is permitted. The company is yet to assess the full impact of this standard.

IFRS 15, ‘Revenue from contracts with customers’The IASB has issued a new standard for the recognition of revenue. This will replace IAS 18 which covers contracts for goods and services and IAS 11 which covers construction contracts. The new standard is based on the principle that revenue is recognised when control of a good or service transfers to a customer – so the notion of control replaces the existing notion of risks and rewards. The standard permits a modified retrospective approach for the adoption. Under this approach entities will recognize transitional adjustments in retained earnings on the date of initial application (e.g. January 1, 2017), i.e. without restating the comparative period. They will only need to apply the new rules to contracts that are not completed as of the date of initial application. The Company plans to review its contracts to assess the impact of adoption of the standard.

IFRS 16 – LeasesIn January 2016, the IASB issued a new standard which replaces IAS 17 – Leases and its associated interpretative guidance. IFRS 16 applies a control model to the identification of leases, distinguishing between a lease and a service contract on the basis of whether the customer controls the asset being leased. For those assets determined to meet the definition of a lease, IFRS 16 introduces significant changes to the accounting by lessees, introducing a single, on-balance sheet accounting model that is similar to current finance lease accounting, with limited exceptions for short-term leases or leases of low value assets. Lessor accounting remains similar to current accounting practice. The standard is effective for annual periods beginning on or after January 1, 2019, with early application permitted for entities that apply IFRS 15. The Company has begun preliminary discussions; however, the extent of the impact of adoption of the standard has not yet been determined.

4. BUSINESS COMBINATION

On March 4, 2016, the Company acquired all the outstanding shares of Cros-Man Direct Underground Ltd. (“Cros-Man”) and accounted for the transaction as a business combination. Based in Manitoba, Canada, Cros-Man is a horizontal directional drilling company, servicing the telecommunications, water, sewage, hydro and energy sectors in Canada. The results of operations of Cros-Man from March 4, 2016 forward are included in these financial statements. Under the purchase agreement, the Company agreed to pay the vendors any excess working capital above $0.4 million. As of December 31, 2016, the amount payable for excess working capital was nil. The Company has finalized the purchase price allocation of the business combination, and some changes were made to the preliminary balances previously disclosed. These changes are measurement period adjustments that reflect the circumstances known at the time of the acquisition. The assets acquired and liabilities assumed were recorded at their estimated fair values.

Fair value of assets and liabilities acquired

Cash $ 492

Trade and other receivables 706

Income taxes receivable 145

Trade and other payables (83)

Due to vendors (910)

Net working capital acquired 350

Other receivables 106

Property, plant and equipment 2,327

Intangible assets 2,330

Deferred income tax liability (994)

Net assets acquired $ 4,119

Consideration

Cash payment $ 3,500

Deferred payment $ 2,200

Total consideration $ 5,700

Goodwill $ 1,581

The excess of the acquisition cost of the business over the estimated fair values of the identifiable net assets acquired is recognized as goodwill. The goodwill balance arises primarily as a result of the synergies existing within the acquired business. The total consideration for the acquisition was $5.7 million of which $3.5 million was paid on closing date in cash and $2.2 million is payable to the vendors over a three year period. The deferred payment to the vendors is recorded at fair value and includes fixed


v) Recent accounting pronouncements issued but not yet implemented – continued



payments of $0.7 million due in 2017 and $0.8 million due in each of 2018 and 2019. As well, the vendors have the opportunity to earn a performance incentive of up to $0.5 million per year for the next three years following the closing date as it targets certain growth metrics. As of December 31, 2016, the deferred payment amount was $2.2 million of which $0.6 million is included in current trade and other payables and $1.6 million is included in non-current other payables. The 2017 payable was reduced by $0.1 million receivable from the vendor.

The Company has determined that the difference to the result for the period had Cros-Man been consolidated as of January 1, 2016 is insignificant. Since the acquisition, Cros-Man has earned revenues of $3.1 million and incurred a net loss of $0.3 million.

5. TRADE AND OTHER RECEIVABLES

December 31, 2016 December 31, 2015

Trade receivables $ 9,187 $ 19,595

Prepaid expenses 883 1,505

Government receivables 1,348 1,226

Other 112 136

$ 11,530 $ 22,462

As of December 31, 2016, the allowance for trade receivables was $2.6 million (December 31, 2015 – $2.3 million).

6. INVENTORIES

December 31, 2016

December 31, 2015

Supplies and raw materials $ 46,884 53,577

Work in progress 1,050 892

$ 47,934 54,469

The cost of inventories recognized as an expense and included in direct costs for the year ended December 31, 2016 was $17.8 million (December 31, 2015 – $23.8 million).

7. INVESTMENTS

a) Investment in IMPACT Silver Corp. (“IMPACT”)Prior to May 27, 2016, Energold held a significant interest in IMPACT Silver Corp. (“IMPACT”), a Canadian public company, which is an operating silver mine and has mineral exploration properties in Mexico. The Company owned 7,980,001 common shares, representing approximately 10.39% of the issued and outstanding common shares in the capital of IMPACT at that time. The Company was considered to have significant influence over IMPACT and so the investment was accounted for using the equity method due to mutual management at the executive level and its shareholding and directorships in IMPACT. Subsequent to May 27, 2016, IMPACT completed a $5.0 million private placement which diluted Energold’s ownership position below 10%. As a result, the Company now accounts for IMPACT as an available-for-sale investment. Details of the investment in IMPACT are as follows:

Balance – January 1, 2015 $ 5,772

Equity loss (146)

Impairment (2,300)

Balance – December 31, 2015 $ 3,326

Purchase of shares 310

Equity loss to May 27, 2016 (47)

Adjustment for reclassification of investment to AFS (3,589)

Balance – December 31, 2016 $ –

Prior to the dilution of Energold’s ownership position on May 27, 2016, Energold participated in IMPACT’s April 19, 2016 private placement. Energold purchased 1,000,000 shares in IMPACT at a cost of $310,000 or $0.31 per share.

b) AFS investments In 2015, the Company recognized an impairment loss of $0.3 million on statement of loss as the declines in fair value were considered significant or prolonged. No impairment loss was recognized in 2016.

The December 31, 2016 balance of AFS investments includes the Company’s investment in IMPACT, which is no longer accounted for using the equity method.



8. PROPERTY, PLANT AND EQUIPMENT

a) Details are as follows:

Buildings($)

Operating equipment

($)Vehicles

($)

Office and Computer

Equipment($)

Total($)

Cost

Balance at January 1, 2015 747 60,376 8,730 1,452 71,305

Additions - 1,323 329 59 1,711

Disposals - (274) (288) (29) (591)

Foreign exchange movement 22 2,123 1,070 67 3,282

Balance at December 31, 2015 769 63,548 9,841 1,549 75,707

Additions 2 605 332 112 1,051

Disposals - (532) (408) (171) (1,111)

Acquisition through business combination - 1,418 909 - 2,327

Foreign exchange movement (37) (6,100) (2,165) (101) (8,403)

Balance at December 31, 2016 734 58,939 8,509 1,389 69,571

Accumulated amortization

Balance at January 1, 2015 (319) (30,735) (3,782) (1,024) (35,860)

Amortization for the year (100) (6,814) (1,258) (137) (8,309)

Finance costs1 - (355) - - (355)

Disposals - 152 185 5 342

Foreign exchange movement (19) (1,094) (461) (48) (1,622)

Balance at December 31, 2015 (438) (38,846) (5,316) (1,204) (45,804)

Amortization for the year (118) (6,873) (1,137) (159) (8,287)

Finance costs1 - (159) - - (159)

Disposals - 398 221 135 754

Foreign exchange movement 32 5,094 1,731 125 6,982

Balance at December 31, 2016 (524) (40,386) (4,501) (1,103) (46,514)

Net book value

At December 31, 2015 331 24,702 4,525 345 29,903

At December 31, 2016 210 18,553 4,008 286 23,0571 Related to finance leaseback transactions – the difference between the sales transaction and the net book value is deferred and amortized over the

lease term and recognized as finance costs.

b) Liabilities under capitalized finance lease related to Bertram (Note 15b)

Liabilities secured Net book value of assets

2016 2015 2016 2015

$ 1,210 $ 2,204 $ 2,496 $ 4,089



c) Impairment testAt December 31, 2016, the Company reviewed impairment indicators regarding each of its CGU’s (mineral division, energy division and manufacturing division) and identified there were indicators of impairment on its mineral and energy CGUs. The Company did not identify any impairment losses.

Mineral Division The recoverable amount for the property, plant and equipment impairment testing was determined using a VIU discounted cash flow methodology. The cash flows cover a period of five years, after which a terminal value is determined. The key assumptions used to determine VIU are as follows:

Revenue, Operating Costs and Capital Expenditures – Revenue, operating costs and capital expenditures are based on internal management forecasts. Revenue and cost assumptions incorporate management experience and expertise, current revenue and operating costs, the nature and location of each operation and the risks associated with each operation. Future capital expenditure is based on management’s best estimate of required future sustaining capital requirements. All committed and anticipated capital expenditures adjusted for future cost estimates have been included in the projected cash flows.

Discount Rate – An after-tax discount rate of 11% was used for the impairment test. Adjustments to the rate are made for any risks that are not reflected in the underlying cash flows. This rate is based on the weighted average cost of capital for a mining industry group and was calculated based on management’s estimates.

Sensitivity Analysis – Reasonably possible movements in any one of the key assumptions of revenue and operating cost estimates and the discount rates could result in impairment.

Energy Division The recoverable amount for the property, plant and equipment impairment testing in the energy division was determined using a fair value less costs of disposal (FVLCD) methodology. The FVLCD was based on a valuation report prepared by an independent third party expert.



9. GOODWILL AND INTANGIBLE ASSETS

GoodwillCustomer

Relationships Brand

Non-Compete Covenant Other Total

Cost

Balance at January 1, 2015 $ 1,710 $ 3,840 $ 700 $ 220 $ 589 $ 7,059

Additions - - - - 359 395

Disposals - - - - (213) (213)

Foreign exchange - - - - 98 98

Balance at December 31, 2015 $ 1,710 $ 3,840 $ 700 $ 220 $ 869 7,339

Additions 1,581 1,950 - 380 54 3,965

Disposals - - - - (190) (190)

Foreign exchange - - - - (157) (157)

At December 31, 2016 $ 3,291 $ 5,790 $ 700 $ 600 $ 576 10,957

Accumulated amortization

Balance at January 1, 2015 $ - $ (2,770) $ (478) $ (220) $ (220) (3,688)

Amortization for the year - (676) (140) - (99) (915)

Disposals - - - - 213 213

Foreign exchange - - - - (49) (49)

Balance at December 31, 2015 $ - $ (3,446) $ (618) $ (220) $ (155) (4,439)

Amortization for the year - (626) (82) (79) (68) (855)

Disposals - - - - 22 22

Foreign exchange - - - - 22 22

At December 31, 2016 $ - $ (4,072) $ (700) $ (299) $ (179) (5,250)

Net Book Value

December 31, 2015 $ 1,710 $ 394 $ 82 $ - $ 714 $ 2,900

At December 31, 2016 $ 3,291 $ 1,718 $ - $ 301 $ 397 $ 5,707

Goodwill - The Company has performed its annual goodwill impairment testing and did not identify any impairment losses. The assumptions used in the goodwill impairment test for the mineral CGU were consistent with those in the impairment test on property, plant and equipment (note 8(c)).



10. BANK INDEBTEDNESS

2016 2015

Group bank indebtedness – current $ 6,260 $ 5,442

Group bank indebtedness – non-current 119 492

$ 6,379 $ 5,934

In April 2015, one of the Company’s subsidiaries entered into a credit facility from Export Development Canada in the amount of $0.8 million USD. The purpose of the loan was to assist in financing the acquisition of capital assets. Interest on the outstanding principal amount is calculated at the rate of interest equal to the sum of the U.S. Prime Rate plus 5% per annum. The loan is payable over a term of three years. The loan is guaranteed by Bertram Drilling Corp. and Energold Drilling Corp. As of December 31, 2016, the amount outstanding on this credit facility is $0.4 million USD.

In July 2015, the Company entered into a credit facility from Export Development Canada in the amount of up to $2.0 million USD. The purpose of the loan was to assist in financing the general working capital of the Company’s subsidiaries. Interest on the outstanding principal amount is calculated at the rate of interest equal to the sum of the U.S. Prime Rate plus 5.5% per annum. The loan is guaranteed by Bertram Drilling Corp. and Energold de Mexico. As of December 31, 2016, the amount outstanding on this credit facility is $2.0 million USD.

Bertram Drilling Corp. has a revolving credit facility authorized to a maximum of $3.5 million. Borrowings cannot exceed the aggregate of 75% of Canadian accounts receivable balance less than 90 days old and not from a related party. The loan bears interest at the bank’s prime lending rate plus 1.0% per annum. No amount is outstanding on this credit facility at December 31, 2016. Bertram also has a term loan of $1.5 million that bears an interest rate at the bank’s prime rate plus 1.75%. As of December 31, 2016, the amount outstanding on this credit facility is $1.1 million. A reducing facility was authorized to a maximum of $1.4 million by way of leases. The finance leases bear interest between 3.86% and 4.15% (see note 15). A general security agreement and a floating charge on all present and after-acquired real property have been pledged as security for the above borrowings. Energold Drilling Corp., as Bertram’s parent company, has provided a guarantee and postponements of claim and general security agreements to a maximum of $9.0 million.

In March 2016, one of the Company’s subsidiaries entered into a credit facility with Royal Bank of Canada in the amount of $2.5 million. The purpose of the loan was to partially finance the acquisition of Cros-Man. The loan bears interest at the bank’s prime lending rate plus 1.75% per annum. A general security agreement and a floating charge on all present and after-acquired real property have been pledged as security for the above borrowings. Bertram Drilling Corp. has provided a guarantee and postponements of claim. As of December 31, 2016, the amount outstanding on this credit facility is $2.0 million.

As of December 31, 2016, the Company was not in compliance with financial covenants on the Bertram Drilling Corp. term loan ($1.1 million outstanding at December 31, 2016), and the Cros-Man loan ($2.0 million outstanding at December 31, 2016). The Company has classified the full amount of the loans as current, and has obtained a waiver from the bank stating that it will not recall the loan.

A revolving line of credit for Bertram Drilling Inc., the U.S. subsidiary of the Company, is authorized to a maximum of $1 million USD, which bears interest at 3.9% per annum. Equipment, inventories, and trade accounts receivable have been pledged as security. No amount is outstanding on this line of credit at December 31, 2016.



11. TRADE AND OTHER PAYABLES


Trade payables $ 7,649 $ 9,391

Government payables 845 1,374

Payroll accrual 660 1,153

Finance lease payables 675 1,529

Due to related parties and other 1,124 143

Current trade and other payables $ 10,953 $ 13,590

12. CONVERTIBLE DEBENTURE (“CD”)

On July 21, 2014, the Company completed a $13.5 million secured convertible debenture issue which bears interest at 12.85% calculated annually, payable quarterly, with a maximum term of three years (Energold holds a call provision). The CDs are convertible into common shares of the Company at a conversion price of $3.00 per share subject to a minimum conversion of $50,000 (if converted in part). Related parties of the Company purchased convertible debentures having a principal face value of $3.0 million, representing 22.0% of the offering. The convertible debentures are generally secured against all the assets of the Company and specifically secured by a pledge of 6,980,001 common shares of IMPACT Silver Corp. owned by the Company and 1,000 ordinary shares of Dando Drilling Corp. owned by the Company.

On initial recognition, the Company fair valued the debt component using a cash flow model discounted at current interest rate of 14%. The value of the debt component was $13.1 million and the equity component was assigned the residual amount of $0.4 million. Using the effective interest rate method and the 14% rate implicit in the calculation, the difference of $0.4 million, characterized as the debt discount is accreted to income over the term of the CD.

Convertible debenture as of January 1, 2015 $ 13,172

Accretion of debt discount for 2015 115

Convertible debenture as of December 31, 2015 $ 13,287

Accretion of debt discount for 2016 132

Convertible debenture as of December 31, 2016 $ 13,419

The convertible debenture contains financial and non-financial covenants customary for a facility of this size and nature. As at December 31, 2016, the Company was in compliance with all covenants.

Subsequent to year end, the Company entered into a binding term sheet for a $20 million secured convertible debenture. See further detail in note 24.

13. FINANCE COST

2016 2015

Bank fees and interest expense $ 983 $ 473

Finance lease expense 235 507

Interest expense and accretion of convertible debt 1,867 1,850

Finance cost $ 3,085 $ 2,830



14. INCOME TAXES AND DEFERRED INCOME TAXES

Total income tax expense consists of:

2016 2015

Current income tax expense $ 1,216 $ 812

Deferred income tax (recovery) expense (249) 2,302

$ 967 $ 3,114

Total income tax (recovery) expense attributed to geographical jurisdiction:

2016 2015

Canada $ 793 $ 2,560

Chile 1 2

Argentina - 343

Peru (109) (120)

Senegal 2 -

Colombia 1 19

Dominican Republic 32 124

Mexico 1,756 700

Nicaragua (71) 89

Brazil 9 53

Barbados - -

Great Britain 39 (6)

United States of America (1,486) (650)

$ 967 $ 3,114

Factors affecting income tax expense for the year:

2016 2015

Loss before income taxes $ (17,594) $ (20,619)

Canadian federal and provincial income tax rates 26% 26%

Income tax recovery based on the above rates (4,574) (5,361)

Items that cause an increase (decrease) in income tax expense:

Non-deductible expenses 139 15

Foreign exchange and other translation adjustments (836) 830

Operating losses for which no tax benefit has been recognized 4,927 3,386

Change in management estimate regarding an uncertain tax position 94 217

Withholding taxes (98) 183

Current tax benefit of previously unrecognized deferred tax assets - (75)

Derecognition of deferred tax assets 600 2,566

Changes in future income tax rates - (103)

Foreign income subject to different income tax rates than Canada 715 1,456

Income tax expense $ 967 $ 3,114



The change for the year in the Company’s net deferred tax position was as follows:

2016 2015

Deferred income tax liability

Balance at January 1 $ (3,052) $ (475)

Deferred income tax recovery (expense) in the income statement 249 (2,302)

Acquisitions (994) -

Changes to foreign currency translation 423 (275)

Balance at December 31 $ (3,374) $ (3,052)

The composition of the Company’s net deferred income tax asset and liability and deferred tax expense (recovery) is as follows:

Unrecognized deferred tax assets

2016 2015

Non-capital losses $ 12,482 $ 7,971

Property, plant and equipment 1,718 844

Other items 483 619

Total unrecognized deferred tax assets $ 14,683 $ 9,434

Unrecognized tax losses

As at December 31, 2016, the Company has tax losses for income tax purposes which may be used to reduce future taxable income. The income tax benefit, if any, of these losses have not been recorded in these consolidated financial statements because of the uncertainty of their recovery. The future expiration taxes and potential tax benefit are as follows:

Expiry Date Canada Argentina Chile MexicoUnited

Kingdom Other Total

Before 2031 1,522 1,055 - 243 - 2,188 5,008

2032 3,840 - - - - - 3,840

2033 6,144 - - - - - 6,144

2034 5,225 - - - - - 5,225

2035 8,461 - - - - - 8,461

2036 5,190 - - - - - 5,190

No expiry - - 3,724 - 13,854 - 17,578

$ 30,382 $ 1,055 $ 3,724 $ 243 $ 13,854 $ 2,188 $ 51,446

14. INCOME TAXES AND DEFERRED INCOME TAXES – CONTINUED



Temporary differences associated with investments in subsidiaries

The Company has not recognized deferred tax liabilities in respect of unremitted earnings that are considered indefinitely reinvested in foreign subsidiaries. At December 31, 2016, these earnings amount to $20.2 million (2015 – $23.4 million). Substantially, all of these earnings would be subject to withholding taxes if they were remitted by the foreign subsidiary.

Type of temporary differences:

Deferred assets (liability) taxExpense (recovery)

on the statement of loss

2016 2015 2016 2015

Non-capital losses $ 4,452 $ 6,348 $ 1,897 $ 1,667

Property, plant and equipment 1,441 763 (678) 14

Capital leases and long term debt 127 418 291 472

Accruals and other items 490 1,230 739 (84)

Investments (258) (98) 161 (357)

Property, plant and equipment and intangible assets (5,382) (6,038 (1,228) (809)

Inventory (3,301) (4,143) (842) 441

Other items (943) (1,532) (589) 958

$ (3,374) $ (3,052) $ (249) $ 2,302

Represented on the balance sheet as:

2016 2015

Deferred income tax assets $ 47 $ 600

Deferred income tax liabilities (3,421) (3,652)

$ (3,374) $ (3,052)



15. COMMITMENTS

a) The Company signed two three-year leases for office premises in Vancouver, British Columbia from June 1, 2016 to May 31, 2019. Lease obligations, net of operating costs, are $0.2 million for 2017.

b) Finance leasing arrangements:

Bertram entered into two leases during 2016. The terms are as follows: a four-year term equipment lease signed on February 1, 2016 and with an interest rate of 2.39%; a five year term equipment lease signed on November 30, 2016 and with an interest rate of 4.90%. At December 31, 2016, Bertram’s finance lease obligations were $1.2 million, of which $0.7 million is current and is included within trade and other payables and $0.5 million is long term. The remaining leases belong to the Company’s subsidiary, Cros-Man.

Finance lease liabilities are as follows:

Minimum lease paymentsPresent value of

minimum lease payments

December 31, 2016 December 31, 2015 December 31, 2016 December 31, 2015

Not more than one year $ 704 $ 1,617 $ 675 $ 1,529

Later than one year and not later than five years 670 831 660 817

$ 1,374 $ 2,448 $ 1,335 $ 2,346

Less: future finance charges (39) (102) - -

Present value of minimum lease payments $ 1,335 $ 2,346 $ 1,335 $ 2,346

c) Litigation

The Company is subject to litigation in the normal course of business, the ultimate results of which cannot be determined at this time.



16. EQUITY

The Company is authorized to issue an unlimited number of common shares. The Company’s shares have no par value.

a) Stock Options

The Company has established a stock option plan whereby the board of directors may, from time to time, grant options to directors, officers, employees or consultants. Under the stock option plan 5,465,994 options have been authorized for issuance, of which 2,280,000 have been allocated at December 31, 2016. Options granted must be exercised no later than five years from date of grant or such lesser period as determined by the Company’s board of directors and are settled in cash. The exercise price of an option is not less than the closing price on the Exchange on the last trading day preceding the grant. The directors, subject to the policies of the TSX Venture Exchange, may determine and impose terms upon how each grant of options shall become vested. Options vest 25% on the date granted and 25% every six months thereafter.

A summary of the Company’s stock option plan at December 31, 2016 and the changes for the year ended on these dates is as follows:

Number Weighted Average Exercise Price

At January 1, 2015 2,818,950 3.34

Granted 1,772,500 0.45

Expired (876,800) 3.44

Forfeited (246,525) 3.21

At December 31, 2015 3,468,125 1.85

Exercised (12,500) 0.45

Expired (1,165,625) 3.84

Forfeited (10,000) 0.45

At December 31, 2016 2,280,000 0.84

The following table summarizes information about the stock options outstanding at December 31, 2016:

Exercise PricePer Share

Number of OptionsOutstanding

Weighted Average Remaining Life (Years)

Number of OptionsExercisable

$0.45 1,750,000 3.98 1,306,875

$2.01 500,000 2.75 500,000

$5.13 30,000 0.12 30,000

2,280,000 3.66 1,836,875

The fair value of the services provided cannot be reliably measured; therefore, the fair value of each option granted is estimated at the time of grant using the Black-Scholes option pricing model.

Option pricing models require the input of highly subjective assumptions including the expected share price volatility. Changes in the subjective input assumptions can materially affect the fair value estimate.

The total fair value of share-based payment expense on stock options granted to employees and consultants of the Company for the year ended December 31, 2016 is $0.2 million.



b) Warrants

On July 6, 2016, the Company completed a public offering in which the Company issued 5,750,000 units at a price of $1.00 per unit for aggregate gross proceeds of $5.8 million, including the full exercise of the agents’ option to increase the public offering in the amount of $0.8 million. Each unit comprises one common share and one common share purchase warrant. Each warrant is exercisable for one common share at a price of $1.75 per share expiring following January 6, 2018. In consideration for the services of the underwriters, they were paid a cash commission of 6% of the gross proceeds of the offering and non-transferable common share purchase warrants (“compensation warrant”) equal to 6% of the shares issued pursuant to the offering. Each compensation warrant entitles the holder to acquire one common share of the Company at an exercise price of $1.00 expiring following January 6, 2018.

On July 22, 2016, the Company completed a non-brokered private placement of 716,192 units at a price of $1.00 per unit for aggregate gross proceeds of $0.7 million. Each unit comprises one common share and one common share purchase warrant. Each warrant is exercisable for one common share at a price of $1.75 per share expiring following January 22, 2018.

Number Weighted Average Exercise Price

At January 1, 2015 - -

At December 31, 2015 - -

Issued 6,811,192 1.71

At December 31, 2016 6,811,192 1.71

The fair value of the services provided cannot be reliably measured; therefore, the fair value of each warrant granted is estimated at the time of grant using the Black-Scholes option pricing model with assumptions as follows:

July 6, 20165,750,000

July 6, 2016345,000

July 22, 2016716,192

Risk-free interest rate 0.48% 0.48% 0.55%

Expected dividend yield Nil Nil Nil

Expected share price volatility 120% 111% 120%

Expected warrant life in years 1 1.5 1

Pricing models require the input of highly subjective assumptions including the expected share price volatility. Changes in the subjective input assumptions can materially affect the fair value estimate, and therefore the existing models do not necessarily provide a reliable single measure of the fair value of the Company’s warrants.

c) Loss Per Share

Details of the calculation of loss per share are set out below:

2016 2015

Net loss: $ (18,561) $ (23,733)

Attributable to non-controlling interest 182 110

Attributable to shareholders of EGD $ (18,379) (23,623)

Weighted average number of shares outstanding– Basic and diluted 51,304,389 48,181,247

Loss per share – Basic and diluted $ (0.36) (0.49)

16. EQUITY – CONTINUED



17. RELATED PARTY TRANSACTIONS

Related party transactions are recorded at arms-length which is the amount of consideration paid or received as agreed by the parties. Related party transactions not disclosed elsewhere are as follows:

a) In 2014, five directors of the Company, the chief executive officer, the chairman of the board, the audit committee chair, the former audit committee chair (retired from the position in 2014), and a general director, purchased a total of $1.9 million CD. In addition, a person related to the chief executive officer purchased $0.1 million CD. A trust related to officers of Bertram Drilling Corp., purchased $1.0 million CD. As of December 31, 2016, the outstanding payable to related parties on the CD was $3.0 million (December 31, 2015 – $3.0 million).

b) During the year ended December 31, 2016, net fees in the amount of $0.4 million were incurred (December 31, 2015 – $0.2 million) from a company related to an officer of Bertram for helicopter services performed in Canada and the U.S. As of December 31, 2016, there was a net payable balance of $0.5 million (December 31, 2015 – $0.1 million).

c) In November 2016, the Company entered into a loan facility with a company related to an officer of Bertram. The loan bears interest at 4.7% per annum, and expires on March 15, 2018. As of December 31, 2016, the amount outstanding on this loan facility is $0.8 million.

d) As at December 31, 2016, a deferred payment of $2.2 million is due to the vendor of Cros-Man who remains a director of the newly acquired subsidiary (see note 4).

18. KEY MANAGEMENT PERSONNEL COMPENSATION

Key management includes directors and senior executives. The remuneration of directors and other members of key management personnel are as follows:

December 31,2016

December 31,2015

Salaries and fees $ 1,503 $ 1,954

Share based compensation 109 45

$ 1,612 $ 1,999

Amounts payable to related parties $ 42 $ 159

19. CAPITAL MANAGEMENT

The Company’s objectives when managing capital are to safeguard its ability to continue as a going concern, to continue to explore financing opportunities, to provide an adequate return to shareholders and to support any growth plans.

The Company considers its capital to be share capital, bank indebtedness, convertible debentures and cash and cash equivalents. In order to facilitate the management of capital requirements, the Company’s board of directors approves management’s annual capital expenditures plans and reviews and approves any material debt borrowing plans proposed by the Company’s management. To maintain or adjust the capital structure, the Company may, from time to time, issue new shares, issue new debt, repay debt or dispose of non-core assets.

To effectively manage the entity’s capital requirements, the Company has in place a planning and budgeting process to help determine the funds required to ensure the Company has the appropriate liquidity to meet its operating and growth objectives. The Company ensures that there is sufficient cash to meet its short-term business requirements, taking into account its anticipated cash flows from operations and its holdings of cash. The Company expects its current capital resources will be sufficient to support operations through the current operating period.



20. FINANCIAL INSTRUMENTS

Financial assets and liabilitiesThe Company’s financial instruments consist of cash and cash equivalents, restricted cash, trade receivable, AFS financial instruments, trade and other payables, bank indebtedness, and convertible debenture. The Company has designated cash and cash equivalents, restricted cash and trade receivables as loans and receivables, which are measured at amortized cost. AFS financial assets are designated as AFS and measured at fair value as determined by reference to quoted market prices. Trade and other payables, bank indebtedness and convertible debenture are designated as other liabilities which are measured at amortized cost. At December 31, 2016 and 2015, all cash and short-term investments held were classified as Level 2 and convertible debenture was classified as Level 3 on the fair value hierarchy of IFRS 13 – Fair value measurement. As of December 31, 2016 and 2015, the carrying value of the Company’s cash and cash equivalents, restricted cash, trade and other receivables, AFS investments trade and other payables, bank indebtedness, and convertible debenture approximate fair values.

Financial instrument risk exposureThe Company’s financial instruments are exposed to a number of financial and market risks including credit, liquidity, currency and interest rate risks. The Company may, or may not, establish from time to time active policies to manage these risks. The Company does not currently have in place any active hedging or derivative trading policies to manage these risks, since the Company’s management does not believe that the current size, scale and pattern of cash flow of its operations would warrant such hedging activities.

Credit riskCredit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. Financial instruments that potentially subject the Company to credit risk include cash and cash equivalents, restricted cash and trade receivable. The Company deposits its cash with high credit quality financial institutions as determined by ratings agencies, with the majority deposited with a Canadian Tier 1 Bank with ratings above A+. The Company provides credit to its customers in the normal course of its operations. The Company diversifies its credit risk by dealing with a large number of companies in various countries. The Company carries its receivables net of allowance for doubtful accounts. The Company’s maximum exposure

to credit risk at the reporting date is the carrying value of its cash and cash equivalents, restricted cash, and trade receivable.

Liquidity riskLiquidity risk is the risk that the Company will not be able to meet its obligations as they fall due (note 1). The Company manages liquidity by maintaining cash and cash equivalent balances available to meet its anticipated operational needs. Liquidity requirements are managed based on expected cash flow to ensure that there is adequate capital to meet short-term and long-term obligations. The Company has in place a planning and budgeting process to help determine the funds required to support the Company’s normal operating requirements on an ongoing basis and its growth plans. At December 31, 2016, the Company’s total liabilities were $39.9 million, of which $33.3 million is current of the balance sheet date. The Company has debt of $6.4 million, finance lease obligations of $1.3 million and convertible debt of $13.4 million.

Currency riskThe Company operates on an international basis; therefore, currency risk exposures arise from transactions denominated in currencies other than the entity’s functional currency. The majority of its international sales contracts are denominated in U.S. dollars. Thus its currency risk arises primarily with respect to the U.S. dollar. However, the Company also incurs operating costs in local currencies in various countries in which it carries on active business operations. At December 31, 2016, the Company is exposed to currency risk through cash and cash equivalents, trade receivable, and trade payable and accrued liabilities held in a variety of currencies, the most significant being the U.S. dollar. Based on these foreign currency exposures at December 31, 2016, a 5% depreciation or appreciation of all the above currencies against the Canadian dollar would result in a decrease or increase of the Company’s net loss and equity of approximately $0.2 million.

Interest rate riskInterest rate risk is the risk that the fair values and future cash flows of the Company will fluctuate because of changes in market interest rates. The Company is exposed to interest rate risk on its cash and its revolving demand and credit line facility. Cash and cash equivalents and restricted cash have limited interest rate risk due to their short-term nature. The Company’s debt borrowings are exposed to interest rate risk as it is subject to floating interest rates. Assuming that all other



variables remain constant, a 1% increase or decrease in the bank’s prime lending rate does not have a significant impact on net earnings. Convertible debt and finance leases are not subject to interest rate risk because they are at fixed rates.

21. ADDITIONAL INFORMATION TO THE CONSOLIDATED STATEMENTS OF CASH FLOWS

Changes in non-cash working capital:

For the Year Ended December 31,

2016 2015

Trade and other receivables $ 8,877 $ 10,002

Income taxes receivable 477 (534)

Inventories 170 4,214

Trade and other payables (2,891) (1,504)

Current income tax payable 404 (946)

Due to (from) related party 707 76

Deferred revenue 537 (921)

$ 8,281 $ 10,387

2016 2015

Interest paid $ 2,150 $ 1,976

Income taxes paid $ 714 $ 2,756



22. SEGMENTED INFORMATION

The Company has three operating segments: Minerals, Manufacturing, and Energy. The segments are determined based on the reports reviewed by the Chief Executive Officer (who is considered the chief operating decision maker) to make decisions about resources to be allocated to the segment and assess its performance and for which discrete financial information is available.

Details are as follows:

For the Year Ended December 31,

2016 2015

Revenue

Minerals $ 37,075 $ 32,548

Energy 18,229 28,537

Manufacturing 10,096 20,891

$ 65,400 $ 81,976

Loss

Minerals $ (2,273) $ (7,505)

Energy (7,457) (9,076)

Manufacturing (5,023) (2,425)

Corporate – Canada (3,808) (4,727)

$ (18,561) $ (23,733)

Amortization

Minerals $ 1,694 $ 1,830

Energy 7,083 6,973

Manufacturing 320 422

Corporate – Canada 108 151

$ 9,205 $ 9,376



As at December 31, 2016 December 31, 2015

Assets

Minerals $ 64,344 $ 75,483

Energy 27,611 30,339

Manufacturing 5,582 13,347

Corporate – Canada 11,444 11,144

$ 108,981 $ 130,313

Property, plant and equipment

Minerals $ 7,425 $ 9,376

Energy 15,189 18,892

Manufacturing 286 1,117

Corporate – Canada 157 518

$ 23,057 $ 29,903

Intangibles

Minerals $ 1,710 $ 1,710

Manufacturing 397 714

Energy 3,600 476

$ 5,707 $ 2,900

Geographic information


As at Revenue

Property, plant and

equipmentIntangible

assets Revenue

Property, plant and

equipmentIntangible

assets

Mexico and the Caribbean $ 27,298 $ 1,765 $ - $ 18,923 $ 2,052 $ -

South America 2,276 1,588 1,710 9,915 2,105 1,710

Africa, Asia and Other 11,967 2,853 - 19,450 5,404 -

Canada 10,322 11,027 3,600 15,214 15,876 476

United States of America 7,906 4,001 - 13,057 3,241 -

United Kingdom and Europe 5,631 1,823 397 5,417 1,225 714

$ 65,400 $ 23,057 $ 5,707 $ 81,976 $ 29,903 $ 2,900



23. ECONOMIC DEPENDENCE

Significant customers

The Company received revenues from the following customer in the minerals segment that amounted to greater than 10% of total Company revenues.


2016 2015

Customer A $9,124 14% $5,476 7%

24. SUBSEQUENT EVENT

Subsequent to December 31, 2016, on February 14, 2017, the Company announced that it had entered into a binding term sheet with Extract Advisors LLC (“Extract”), a New York and Toronto-based natural resources investment fund manager, for a $20 million, secured convertible loan (“Convertible Loan”). Extract, through funds it manages, has agreed to finance $15 million principal amount of the Convertible Loan and the balance will be provided by a syndicate of lenders to include existing debenture holders, new investors and insiders of the Company.

Energold intends to use the proceeds to repay its current loans including $13.5 million of secured convertible debenture due July 2017, as well as certain credit facilities with Royal Bank of Canada and the Export Development Bank of Canada. The deal is anticipated to close in Q2 2017.



Frederick W. DavidsonPresident, CEO and Director Steven B. GoldChief Financial Officer James H. ColemanChairman and Director Wolfram K.H. Raymer DirectorChairman, Dando Drilling International Ltd.

Michael J. BeleyDirector

Wayne D. LentonDirector Mark CorraDirector

Richard Thomas Managing Director, Energold Drilling (EMEA) Ltd.

Brian BertramPresident,Bertram Drilling Corp.

Darrell BertramVice President of Operations, Bertram Drilling Corp.

Ken BrewPresident,Bertram Drilling Inc.

Ken Hamel President,Cros-Man Direct Underground Ltd.

Management

Head Office Solicitors

AuditorsTransfer Agent

1100 – 543 Granville StreetVancouver, BC V6C 1X8Canada

Telephone: 604.681.9501Fax: 604.681.6813Email: [email protected] Website: www.energold.com

Norton Rose Fulbright Canada LLP1800 – 510 West Georgia StreetVancouver, BC V6B 0M3Canada

PricewaterhouseCoopers LLPSuite 1400, 250 Howe Street Vancouver, BC, Canada V6C 3S7

Computershare Investor Services100 University Ave, 8th FloorToronto, ON M5J 2Y1Canada www.investorcentre.comShares TradedTSX.V: Symbol EGDFrankfurt: Symbol X9X


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Renewal - Energold Drilling Corp. - Home Page · Energold Drilling Corp. is recognized internationally for our industry-leading, productive, and environmentally-conscious drilling