Building
our future
  together
     WeSdoMe gold MineS ltd.
      2009 ANNuAL rePort
Wesdome Gold Mines is 100% unhedged and has never hedged. our strengths
are quality gold deposits and an experienced, effi...
Message to Shareholders

2009     exceeded expectations across the board. Record production, gold prices, revenue and earn...
our strength is in the experience
                                      and quality of our people.




2   WeSdoMe gold Mi...
Wawa
                            Val d’Or




•	 Production	totals	96,152	ounces

•	 Earnings	increase	to	$32.2	million	or...
our success in 2009 can be attributed
to strong production, high gold prices and
excellent teamwork.




   4	   WeSdoMe g...
WeSdoMe gold MineS ltd.
2009 ANNuAL rePort        5
Management’s Discussion and Analysis

     FOR THE YEAR ENDED DECEMBER 31, 2009

     This Management’s Discussion and Ana...
Management’s Discussion and Analysis




RESULTS OF OPERATIONS

                                                          ...
Management’s Discussion and Analysis




      Efficiencies and cost controls reduced the overall operating costs per ounc...
Management’s Discussion and Analysis




                                                                                 ...
Management’s Discussion and Analysis




           The Company evaluates the likelihood of using all or a portion of the ...
Management’s Discussion and Analysis




     Receivables – The carrying amounts approximate fair values due to the short ...
Management’s Discussion and Analysis




                The following table shows the timing of cash outflows relating to...
Management’s Discussion and Analysis




cannot be predicted. In the context of environmental permitting, including the ap...
Management’s Discussion and Analysis




       CHANGES IN ACCOUNTING POLICIES

       On January 1, 2009, the Company ado...
Management’s Discussion and Analysis




First Time adoption (IFRS 1)
IFRS 1 provides guidance to entities on the general ...
Management’s Discussion and Analysis




       SUMMARY OF SHARES ISSUED

       As of March 17, 2010, the Company’s share...
Management’s Discussion and Analysis




OUTLOOK

For 2010 we forecast approximately 70,000 ounces of production with abou...
Management’s responsibility for
financial Statements




     The accompanying consolidated financial statements and all o...
Auditors’ report




To the Shareholders of
Wesdome Gold Mines Ltd.


We have audited the consolidated balance sheets of W...
Consolidated Balance Sheets


     December 31                                                                            ...
Consolidated Statements of
Income and Comprehensive Income

Years Ended December 31                                       ...
Consolidated Statements of
     Shareholders’ equity

                                                                    ...
Consolidated Statements of
Cash flows

Years Ended December 31                                                   2009     ...
Notes to the
      Consolidated Financial Statements
      December 31, 2009 and 2008


      1.    DESCRIPTION OF BUSINES...
Wesdome gold Mines ltd. Notes to the Consolidated Financial Statements
December	31,	2009	and	2008


Amortization of mine b...
Wesdome gold Mines ltd. Notes to the Consolidated Financial Statements
December	31,	2009	and	2008


       Flow-Through Sh...
Wesdome 2009 Annual Report
Wesdome 2009 Annual Report
Wesdome 2009 Annual Report
Wesdome 2009 Annual Report
Wesdome 2009 Annual Report
Wesdome 2009 Annual Report
Wesdome 2009 Annual Report
Wesdome 2009 Annual Report
Wesdome 2009 Annual Report
Wesdome 2009 Annual Report
Wesdome 2009 Annual Report
Wesdome 2009 Annual Report
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Wesdome 2009 Annual Report

  1. 1. Building our future together WeSdoMe gold MineS ltd. 2009 ANNuAL rePort
  2. 2. Wesdome Gold Mines is 100% unhedged and has never hedged. our strengths are quality gold deposits and an experienced, efficient operating team. Wesdome gold Mines is a low-overhead, no-nonsense, owner-operated company working for its shareholders. Wesdome gold Mines has the capacity to build and operate underground gold mines, a rare skill in an era driven by contract mining. going forward, the combination of increasing production, record-high gold prices, ambitious exploration plans and a commitment to promotion should result in a significant upward revaluation of the Company’s share price. Contents Message to Shareholders...................1 2009 Highlights ................................3 Management’s Discussion and Analysis ............................................6 5-year Reserve – Production Reconciliation Table .........................17 Management’s Responsibility for Financial Statements .......................18 Auditors’ Report .............................19 Consolidated Balance Sheets ..........20 Consolidated Statements of Income and Comprehensive Income ............21 Consolidated Statements of Shareholders’ Equity .......................22 Consolidated Statements of Cash Flows ......................................23 Notes to the Consolidated Financial Statements .......................24 Corporate Information ....................IBC
  3. 3. Message to Shareholders 2009 exceeded expectations across the board. Record production, gold prices, revenue and earnings were accompanied by successful cost control and exciting drilling results. At Eagle River the 811 Zone opened up at depth. This zone has generated the bulk of favourable surprises over the last two years and it is very encouraging to see it extended an additional 300 metres (1,000 feet) to depth. It remains open. At Kiena, systematic drilling is putting the flesh on the bones of our new Dubuisson discovery. Some higher grade intersections over impressive widths here have encouraged us to commence an underground exploration and development program from the 330 metre level. Cash is piling up in the treasury putting us in an advantageous position to seek growth opportunities. The priority is a step-wise re-evaluation of our known gold assets in light of current gold prices. Work was initiated on the Wesdome project in Val d’Or and the Mishi deposit in Wawa. These offer good potential for organic growth by leveraging existing experienced workers and mining and milling infrastructure capacity in our own backyard. Acquisition opportunities which fit our regional development strategy will continue to be examined diligently and with discipline. Although forecasting more modest production levels for 2010, we are hopeful the 811 and 808 Zones at Eagle River will continue to surprise on the upside. We feel fundamentals have never been more favourable for the gold price and feel our leverage to gold prices has clearly been demonstrated over the last two years. It is with gratitude that the management and directors tip their hats to our miners, geologists and engineers. On behalf of the Board of Directors, Donovan Pollitt, P.Eng. President and CEO March 17, 2010 WeSdoMe gold MineS ltd. 2009 ANNuAL rePort 1
  4. 4. our strength is in the experience and quality of our people. 2 WeSdoMe gold MineS ltd. 2009 ANNuAL rePort
  5. 5. Wawa Val d’Or • Production totals 96,152 ounces • Earnings increase to $32.2 million or $0.32 per share • Revenues increase to $103.5 million • Cash flow from operations increases to $41.3 million or $0.41 per share • Cash flow after capital spending increases to $22.1 million • Cash and bullion at market at year-end increases to $39.9 million • Total reserves increase net of depletion • Bullion inventory grows to 14,032 ounces WeSdoMe gold MineS ltd. 2009 ANNuAL rePort 3
  6. 6. our success in 2009 can be attributed to strong production, high gold prices and excellent teamwork. 4 WeSdoMe gold MineS ltd. 2009 ANNuAL rePort
  7. 7. WeSdoMe gold MineS ltd. 2009 ANNuAL rePort 5
  8. 8. Management’s Discussion and Analysis FOR THE YEAR ENDED DECEMBER 31, 2009 This Management’s Discussion and Analysis dated March 17, 2010 should be read in conjunction with Wesdome Gold Mines Ltd.’s (“Wesdome” or “the Company”) audited consolidated financial statements for the year ended December 31, 2009, and their related notes which have been prepared in accordance with Canadian generally accepted accounting principles (“GAAP”). This Management’s Discussion and Analysis contains “forward-looking statements” that are subject to risk factors set out in the cautionary statement below. All figures are in Canadian dollars unless otherwise stated. Additional information on Wesdome Gold Mines Ltd., including current and previous years’ Annual Information Forms (“AIF”) and other corporate information, can be found at www.wesdome.com or www.sedar.com. Wesdome trades on the Toronto Stock Exchange under the symbol “WDO”. CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS All statements, other than statements of historical fact, constitute “forward-looking statements” and are based on expectations, estimates and projections as at the date of this MD&A. The words “believe”, “expect”, “anticipate”, “plan”, “intend”, “continue”, “estimate”, “may”, “will”, “schedule” and similar expressions identify forward-looking statements. The Company cautions the reader that such forward- looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Wesdome to be materially different from the Company’s estimated future results, performance or achievements expressed or implied by the forward-looking statements and the forward-looking statements are not guarantees of future performance. Factors that could cause results or events to differ materially from current expectations expressed or implied are inherent to the gold mining industry and include, but are not limited to, those discussed in the section entitled “Risks and Uncertainties”. The Company does not intend, and does not assume any obligation to update these forward-looking statements, whether as a result of new information, future events or results or otherwise except as required by applicable laws. OVERALL PERFORMANCE The Company owns and operates the Eagle River gold mining operations in Wawa, Ontario and the Kiena Mine Complex in Val d’Or, Quebec. The Eagle River mine commenced commercial production January 1, 1996 and the Kiena mine August 1, 2006. At December 31, 2009, the Company had working capital of $35.2 million. During the year ended December 31, 2009, revenue exceeded operating costs by $45.3 million and $14.2 million was invested in exploration and development, $0.8 million on the acquisition of exploration properties and $4.2 million in capital equipment. Cash flow from operations totalled $41.3 million before working capital adjustments and net income was $32.2 million or $0.32 per share in 2009. The improved financial performance was driven by three key factors: 1) Increased gold sales (92,700 ounces vs. 86,100 ounces in 2008) 2) Increased gold prices realized ($1,113 per ounce vs. $931 per ounce in 2008), and 3) Stabilization in operating costs ($58 million vs. $57.4 million in 2008) External factors which influenced results were related to general economic conditions (recession) and uncertainty in financial markets. The former served to ease labour, energy and materials costs. The latter served to increase demand for gold as an investment. We believe external factors will continue to support increasing gold prices. SELECTED ANNUAL INFORMATION (in thousands except loss per common share) 2009 2008 2007 Total revenue $ 103,536 $ 80,961 $ 55,210 Net income (loss) 32,165 9,362 (13,145) Income (loss) per common share 0.32 0.09 (0.14) Total assets 143,255 115,384 108,085 Long term financial liabilities 11,997 14,316 13,864 6 WeSdoMe gold MineS ltd. 2009 ANNuAL rePort
  9. 9. Management’s Discussion and Analysis RESULTS OF OPERATIONS Three Months Ended Dec 31 Twelve Months Ended Dec 31 2009 2008 2009 2008 Eagle River Mine Tonnes milled 29,970 32,069 132,004 118,961 Recovered grade (g/t) 13.0 11.0 14.3 13.0 Production (oz) 12,503 11,301 60,754 49,660 Sales (oz) 15,000 11,000 56,300 45,664 Bullion inventory (oz) 12,081 7,627 12,081 7,627 Bullion revenue (thousands) 17,543 11,018 62,649 42,513 Operating costs (thousands) 7,650 8,063 28,273 30,245 Mine operating profit ($m)* 9,893 2,955 34,376 12,268 Gold price realized ($Cdn/oz) 1,168 1,001 1,112 933 Kiena Mine Complex Tonnes milled 89,536 49,906 302,034 241,641 Recovered grade (g/t) 3.0 7.3 3.6 5.2 Production (oz) 8,690 11,788 35,398 40,344 Sales (oz) 9,000 10,700 36,400 40,600 Bullion inventory (oz) 1,951 2,953 1,951 2,953 Bullion revenue (thousands) 10,515 10,457 40,621 37,793 Operating costs (thousands) 7,204 4,597 29,746 27,127 Mine operating profit (($m)* 3,311 5,860 10,875 10,666 Gold price realized ($Cdn/oz) 1,166 976 1,114 929 Total Production (oz) 21,193 23,089 96,152 90,004 Sales (oz) 24,000 21,700 92,700 86,100 Bullion inventory (oz) 14,032 10,580 14,032 10,580 Bullion revenue (thousands) 28,058 21,475 103,270 80,306 Operating costs (thousands) 14,854 12,660 58,019 57,372 Mine operating profit ($m)* 13,204 8,815 45,251 22,934 Gold price realized ($Cdn/oz) 1,167 990 1,113 931 *The Company has included in this report certain non-GAAP performance measures, including mine operating profit and operating costs to applicable sales. These measures are not defined under GAAP and therefore should not be considered in isolation or as an alternative to or more meaningful than, net income (loss) or cash flow from operating activities as determined in accordance with GAAP as an indicator of our financial performance or liquidity. The Company believes that, in addition to conventional measures prepared in accordance with GAAP, certain investors use this information to evaluate the Company’s performance and ability to generate cash flow. In 2009, combined operations produced 96,152 ounces of gold, exceeding initial forecasts of 75,000 ounces by 28%. A total of 92,700 ounces were sold at an average price of $1,113 per ounce and refined bullion inventory at year end grew to 14,032 ounces (2008: 10,580 ounces). Gold sales exceeded operating costs resulting in a mine operating profit of $45.3 million. In addition to these direct costs, other costs including royalty payments, corporate and general costs and interest costs totalled $4.8 million. At the Eagle River mine, production continued from the high grade western portion of the mine. Grades continued to exceed expectations here. Drilling traced the 811 zone a further 300 metres (1,000 feet) to depth where it remains open. Proven and probable reserves contained ounces of gold rose 50%, net of depletion. Eagle River produced 60,754 ounces of gold from 132,004 tonnes milled at an average recovered grade of 14.3 gAu/tonne. The Eagle River mine contributed 76% of the mine operating profits this year. The Kiena mine produced 35,398 ounces of gold from 302,034 tonnes milled at an average recovered grade of 3.6 gAu/tonne. Although mining the lower grade phase of our mining sequence, efforts to gain efficiency by increasing throughput were successful. WeSdoMe gold MineS ltd. 2009 ANNuAL rePort 7
  10. 10. Management’s Discussion and Analysis Efficiencies and cost controls reduced the overall operating costs per ounce sold to $626Cdn per ounce from $666Cdn per ounce in 2008. On the exploration front, drilling more than replaced reserves at Eagle River and follow-up drilling on our recent Dubuisson discovery in Val d’Or generated impressive drill hole intersections, including 26.1 gAu/tonne over 10.3 metres and 16.5 gAu/tonne over 12.3 metres in holes S552 and S551, respectively (Press Release dated September 8, 2009). A stepwise re-evaluation of our known gold assets, in light of current gold prices, was initiated with the purpose of examining organic growth potential. Work was initiated on the Wesdome property in Val d’Or and the Mishi deposit in Wawa. SUMMARY OF QUARTERLY RESULTS 2009 (in thousands except per share data) 4th Quarter 3rd Quarter 2nd Quarter 1st Quarter Total revenue $ 28,218 $ 21,489 $ 30,209 $ 23,620 Net income 13,162 3,610 7,817 7,576 Net income per share – basic and diluted 0.12 0.04 0.08 0.08 2008 4th Quarter 3rd Quarter 2nd Quarter 1st Quarter Total revenue $ 21,830 $ 22,180 $ 20,714 $ 16,237 Net income 6,291 2,151 763 156 Net income per share – basic and diluted 0.06 0.02 0.01 0.00 FOURTH QUARTER The fourth quarter was very strong as both the gold price and sales rose. Wesdome’s production totalled 21,193 ounces. Sales during the quarter totalled $28.2 million with 24,000 ounces sold at an average price of $1,169 per ounce. The cost of sales, or cash cost, was $619Cdn per ounce. The Eagle River mine produced 12,503 ounces of gold from 29,970 tonnes milled at an average recovered grade of 13.0 gAu/tonne. Sales totalled 15,000 ounces at an average realized price of $1,169 per ounce. Cost of sales, or cash cost, averaged $510Cdn per ounce. Mine operating profit for the quarter was $9.9 million. The Kiena mine produced 8,690 ounces from 89,536 tonnes milled at an average recovered grade of 3.0 gAu/tonne. Sales totalled 9,000 ounces at an average realized price of $1,166 per ounce. Cost of sales, or cash cost, averaged $829Cdn per ounce. Despite processing low grade material, the Kiena mine generated a mine operating profit, or gross margin, of $3.3 million. LIQUIDITY AND CAPITAL RESOURCES At December 31, 2009, the Company had working capital of $35.2 million, an increase of $22.1 million from year-end 2008. The Company invested $14.2 million in exploration and development, $0.8 million on the acquisition of exploration properties and $4.2 on capital equipment for a total of $19.2 million, compared to $14.0 million in exploration and development and $2.3 million on capital equipment for a total of $16.3 million in 2008. At December 31, 2009, the Company held 14,032 ounces of gold inventory carried at a cost of $12.1 million. The market value at December 31, 2009 was $16.2 million. The Company believes it has sufficient capital resources to cover its operating and capital cost requirements in 2010. Production planned in 2010 should generate operating cash flow, even at gold prices well below those currently being realized. 8 WeSdoMe gold MineS ltd. 2009 ANNuAL rePort
  11. 11. Management’s Discussion and Analysis Payments Due by Period (in thousands) Contractual Obligations Total Less than1 year 1 – 2 years 3 – 5 years After 5 years Equipment leases $ 2,578 $ 1,400 $ 1,153 $ 25 - Convertible debentures 12,844 765 12,079 - - $ 15,422 $ 2,165 $ 13,232 $ 25 - TRANSACTIONS WITH RELATED PARTIES In fiscal 2009, the Company paid $5,000 (2008: $10,702) to a company whose managing partner is a Director of the Company and $98,500 (2008:Nil) to a company whose president is an Officer and Director of the Company. These transactions were in the normal course of operations and were measured at the exchange amounts. CRITICAL ACCOUNTING ESTIMATES (i) Mining properties, plant and equipment In accordance with the Company’s accounting policies, amortization commences when a property is put into commercial production and is calculated on the units-of-production method over the expected economic life of the mine. Depreciation is calculated once the asset is placed in service, using units-of-production method over its estimated useful life. Mineral reserve and mineral resource estimates are not precise and also depend on statistical inferences drawn from drilling and other data, which may prove to be unreliable. Future production could differ radically from mineral reserve estimates for the following reasons: (a) Mineralization or formation could be different from those predicted by drilling, sampling and similar tests; (b) The grade of mineral reserves may vary significantly from time to time and there can be no assurance that any particular level of gold may be recovered from the mineral reserves; (c) Declines in the market price of gold may render the mining of some or all of the Company’s mineral reserves uneconomic; and (d) Increase in costs may render the mining of some, or all, of the Company’s mineral reserves uneconomic. Any of these factors may require the Company to reduce its mineral reserve and mineral resource estimates, change its production estimates or increase its costs. Changes in reserve quantities would cause corresponding changes in amortization expense in periods subsequent to the reserve revision, and could result in impairment of the carrying amount of property, plant and equipment. Management conducts periodic reviews of its mineral properties to determine if write-downs are required. In 2006, the Company wrote-down the McKenzie Break property to reflect the sale agreement entered into with Britannica Resources Inc. Since 2006, no write-downs were required. (ii) Reclamation and closure costs obligations Environmental laws and regulations relating to the protection of the environment are continually changing and generally becoming more restrictive. Wesdome has made, and intends to make in the future, expenditures to comply with such laws and regulations. The Company has recorded a liability and corresponding asset for the fair value of obligations for reclamation and closure costs. The Company estimates its future closure costs for the Eagle River mine, Mishi mine and the mill to be $0.8 million with an additional $0.7 million for the Kiena complex. (iii) Future income tax assets Future income tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and on unclaimed losses carried forward and are measured using the substantively enacted tax rates that will be in effect when the differences are estimated to reverse or losses are estimated to be utilized. A valuation allowance is recognized to the extent that the recoverability of future income tax assets is not considered more likely than not. The Company has future tax assets associated with its deductible temporary differences and non-capital loss carryforwards, which are available to reduce taxable income in the future. WeSdoMe gold MineS ltd. 2009 ANNuAL rePort 9
  12. 12. Management’s Discussion and Analysis The Company evaluates the likelihood of using all or a portion of the deductible temporary differences and loss carryforwards based on expected future earnings, the utilization of the deductible temporary differences and the expiry of its loss carryforwards. Based on this information, the Company determines the appropriate amount of income tax valuation allowance that is required to reduce the value of its total deductible temporary differences and loss carryforwards to an amount which it estimates it can more likely than not utilize. As of the end of the current year, the Company determined that it could more likely than not utilize a substantial portion of its tax loss carryforwards and deductible temporary differences based on expected future earnings and the expiry date of its loss carryforwards and, therefore, an income tax valuation allowance was not required. Any changes in estimates would affect the income tax expense on the consolidated statement of income and future tax assets on the consolidated balance sheets. If the actual amount differs from the current estimates, the future tax value of these deductible temporary differences and loss carryforwards may change significantly and the Company may incur a non-cash tax expense. (iv) Significant estimates and assumptions, also those related to the recoverability of mining and exploration properties, include estimated useful lives of equipment, valuation assumptions, determination as to whether costs are capitalized or expensed and stock compensation. While management believes that these estimates and assumptions are reasonable, actual results could vary significantly. FINANCIAL INSTRUMENTS – DISCLOSURES AND PRESENTATION Financial instruments disclosures requires the Company to provide information about: a) the significance of financial instruments for the Company’s financial position and performance and b) the nature and extent of risks arising from financial instruments to which the Company is exposed during the period and at the balance sheet date, and how the Company manages those risks. Financial Instruments – Fair Values Following is a table which sets out the fair values of recognized financial instruments using the valuation methods and assumptions described below: (in thousands) 2009 2008 Carrying Fair Carrying Fair Value Value Value Value Financial assets Held-for-trading: Cash and cash equivalents $ 23,702 $ 23,702 $ 8,029 $ 8,029 Restricted funds 2,588 2,588 2,303 2,303 Loans and receivables: Receivables 4,022 4,022 4,205 4,205 Available-for-sale: Marketable securities 211 211 44 44 Financial Liabilities Other financial liabilities Payables and accruals 7,322 7,322 7,865 7,865 Convertible 7% debentures 9,483 11,104 9,413 9,838 Determination of Fair Value The fair value of a financial instrument is the amount of consideration that would be agreed upon in an arm’s length transaction between willing parties. The Company uses the following methods and assumptions to estimate fair value of each class of financial instruments for which carrying amounts are included in the Consolidated Balance Sheet as follows: Cash and cash equivalents and restricted cash – The carrying amounts approximate fair values due to the short maturity of these financial instruments. 10 WeSdoMe gold MineS ltd. 2009 ANNuAL rePort
  13. 13. Management’s Discussion and Analysis Receivables – The carrying amounts approximate fair values due to the short maturity of these financial instruments. Marketable securities – The carrying amounts are measured at fair value with mark-to-market gains and losses excluded from net income and included in other comprehensive income until such gains or losses are realized. At December 31, 2009, marketable securities have been valued using the quoted market price to reflect an unrealized gain of $68,000 (2008 unrealized loss: $157,731). Other financial liabilities – Payables, accruals and the convertible 7% debentures are carried at amortized cost. The carrying amount of payables and accruals approximates fair value due to the short maturity of these financial instruments. The carrying amount of the obligations under capital leases approximates fair value based on an initial fair value of the obligation. The fair value of the convertible 7% debentures is based on the quoted market price. The fair value hierarchy for financial instruments measured at fair value is Level 1 for cash and cash equivalents, restricted cash and marketable securities. The Company does not have Level 2 or Level 3 inputs. Financial Risk Management The Company is exposed to a number of different risks arising from normal course business exposures, as well as the Company’s use of financial instruments. These risk factors include: (1) market risks relating to commodity prices, foreign currency risk and interest rate risk; (2) liquidity risk; and, (3) credit risk. The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework and establishes and monitors risk management policies to: identify and analyze the risks faced by the Company; to set appropriate risk limits and controls; and to monitor risks and adherence to market conditions and the Company’s activities. 1) Market Risk Market risk is the risk or uncertainty arising from possible market price movements and their impact on the future performance of the business. The market price movements that could adversely affect the value of the Company’s financial assets and liabilities include commodity price risk, foreign currency exchange risk and interest rate risk. (a) Commodity price risk The Company’s financial performance is closely linked to the price of gold which is impacted by world economic events that dictate the levels of supply and demand. The Company had no gold price hedge contracts in place as at or during the year ended December 31, 2009. (b) Foreign currency exchange risk The Company’s revenue is exposed to changes in foreign exchange rates as the Company’s primary product, gold, is priced in U.S. dollars. The Company had no forward exchange rate contracts in place as at or during the year ended December 31, 2009. (c) Interest rate risk Interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Financial assets and financial liabilities with variable interest rates expose the Company to cash flow interest rate risk. The Company’s cash and cash equivalents include highly liquid investments that earn interest at market rates. Fluctuations in market rates of interest do not have a significant impact on the Company’s results of operations due to the short term to maturity of the investments held. 2) Liquidity Risk Liquidity risk is the risk that the Company will not be able to meet its obligations as they fall due. The Company manages its liquidity risk by forecasting cash flows from operations and anticipated investing and financing activities. The Company believes it has access to sufficient capital through internally generated cash flows and equity and debt capital markets. Senior management is also actively involved in the review and approval of planned expenditures. WeSdoMe gold MineS ltd. 2009 ANNuAL rePort 11
  14. 14. Management’s Discussion and Analysis The following table shows the timing of cash outflows relating to trade payables and accruals, capital leases and convertible debentures: (in thousands) <1 Year 1-2 Years 3-5 Years Over 5 Years Accounts payable & accrued liabilities $ 7,322 Capital leases $ 1,400 $ 1,153 $ 25 Convertible debentures $ 765 $ 12,079 3) Credit Risk Credit risk is the risk of a financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligation. The Company minimizes its credit risk by selling its gold exclusively to financial institutions with forty-eight hour terms of settlement. The Company’s accounts receivable consist primarily of government refunds and credits. The Company estimates its maximum exposure to be the carrying value of cash and cash equivalents, accounts receivable and funds held against standby letters of credit. The Company manages credit risk by maintaining bank accounts with Schedule 1 Canadian banks and investing only in Guaranteed Investment Certificates. The Company’s cash is not subject to any external restrictions. Comprehensive Income Comprehensive income represents the change in equity of an enterprise during a period from transactions and other events arising from non-owner sources including gains and losses arising on translation of self-sustaining foreign operations, gains and losses from changes in fair value of available for sale financial assets and changes in the fair value of the effective portion of cash flow hedging instruments. RISKS AND UNCERTAINTIES The operations of the Company are speculative due to the high risk nature of its business which is the operation, exploration and development of mineral properties. In addition to risks described elsewhere herein, shareholders should note the following: Nature of Mineral Exploration The exploration for and development of mineral deposits involves significant financial risks which even a combination of careful evaluation, experience and knowledge may not eliminate. While the discovery of an orebody may result in substantial rewards, few properties which are explored are ultimately developed into producing mines. Major expenses may be required to establish ore reserves, to develop metallurgical processes and to construct mining and processing facilities at a site. It is impossible to ensure that the exploration programs planned by the Company will result in a profitable commercial mining operation. Whether a mineral deposit will be commercially viable depends on a number of factors, some of which are the particular attributes of the deposit, such as size, grade and proximity to infrastructure, as well as metal prices which are highly cyclical and government regulations. The exact effect of these factors cannot be accurately predicted, but the combination of these factors may result in the Company not receiving an adequate return on invested capital. Mining Risks and Insurance The business of mining is generally subject to a number of risks and hazards, including environmental hazards, industrial accidents, labour disputes, encountering unusual or unexpected geologic formations, cave-ins, flooding and periodic interruptions due to inclement or hazardous weather conditions. Such risks could result in damage to, or destruction of, mineral properties or producing facilities, personal injury, environmental damage, delays in mining, monetary losses and possible legal liability. Insurance against environmental risks (including potential for pollution or other hazards as a result of disposal of waste products occurring from exploration and production) is not generally available to the Company or to other companies within the industry. Government Regulations and Environmental Matters The Company’s activities are subject to extensive federal, provincial and local laws and regulations controlling not only the mining of and exploration for mineral properties, but also the possible effects of such activities upon the environment. Permits from a variety of regulatory authorities are required for many aspects of mine operation and reclamation. Future legislation and regulations could cause additional expense, capital expenditures, restrictions and delays in the development of the Company’s properties, the extent of which 12 WeSdoMe gold MineS ltd. 2009 ANNuAL rePort
  15. 15. Management’s Discussion and Analysis cannot be predicted. In the context of environmental permitting, including the approval of reclamation plans, the Company must comply with known standards, existing laws and regulations which may entail greater or lesser costs and delays depending on the nature of the activity to be permitted and how stringently the regulations are implemented by the permitting authority. While it is possible that the costs and delays associated with compliance with such laws, regulations and permits could become such that the Company would not proceed with the development or operation of a mine, the Company is not aware of any material environmental constraint affecting its properties that would preclude the economic development or operation of any specific property. In Ontario, the Company has obtained approval for its closure plan for the Eagle River mill, Eagle River mine and the Mishi-Magnacon complex and has provided security of approximately $0.8 million to cover estimated rehabilitation and closure costs. In Quebec, the Company has obtained approval for its closure plan for the Kiena mine and mill and has provided security of approximately $0.7 million to cover estimated rehabilitation and closure costs. In the event of any future expansion or alteration of a mine on the Eagle River property or the Kiena mine, the Company would likely be required to amend its closure plans and could also be required to provide further security. The Company believes it is currently in compliance in all material respects with the legislation described above. Reliance on Management The Company is heavily reliant on the experience and expertise of its executive officers. If any of these individuals should cease to be available to manage the affairs of the Company, its activities and operations could be adversely affected. Economic Conditions General levels of economic activity and recessionary conditions may have an adverse impact on the Company’s business. Mineral Resource and Mineral Reserve Estimates There are numerous uncertainties inherent in estimating mineral resources and mineral reserves, including many factors beyond the Company’s control. Such estimation is a subjective process, and the accuracy of any mineral resources and mineral reserves estimate is a function of the quality of available data and of the assumptions made and judgements used in engineering and geological interpretation. Differences between management’s assumptions, including economic assumptions such as metal prices and market conditions, could have a material effect in the future on the Company’s financial position and results of operations. Competition The mining industry is intensely competitive in all of its phases, and the Company competes with many companies possessing greater financial resources and technical facilities in its search for, and the acquisition of, mineral properties as well as the recruitment and retention of qualified employees with technical skills and experience in the mining industry. There can be no assurance that the Company will be able to compete successfully with others in acquiring mineral properties, obtaining adequate financing and continuing to attract and retain skilled and experienced employees. Conflicts of Interest Certain officers and directors of the Company are, or may be, associated with other companies that acquire interests in mineral properties. Such associations may give rise to conflicts of interest from time to time. The directors are required by law to act honestly and in good faith with a view to the best interests of the Company and to disclose any interest which they may have in any project or opportunity of the Company. Not every officer or director devotes all of their time and attention to the affairs of the Company. Insurance The Company carries insurance to protect against certain risks in such amounts as it considers adequate. Risks not insured against include environmental pollution, mine flooding or other hazards against which such companies cannot insure or against which they may elect not to insure. Additional Funding Requirements Further exploration on, and development of, the Company’s mineral resource properties, will require additional capital. In addition, a positive production decision on any of the Company’s development projects would require significant capital for project engineering and construction. Accordingly, the continuing development of the Company’s properties will depend upon the Company’s ability to either generate sufficient funds internally or to obtain financing through the joint venturing of projects, debt financing, equity financing or other means. Although the Company has been successful in the past in obtaining financing through the sale of equity securities and the issuance of debt instruments, there can be no assurance that it will obtain adequate financing in the future. WeSdoMe gold MineS ltd. 2009 ANNuAL rePort 13
  16. 16. Management’s Discussion and Analysis CHANGES IN ACCOUNTING POLICIES On January 1, 2009, the Company adopted the Canadian Institute of Chartered Accountants (“CICA”) Handbook Section 3064, “Goodwill and Intangible Assets”. The new standard replaces the previous goodwill and intangible asset standard and revises the requirement for recognition, measurement, presentation and disclosure of intangible assets. The adoption of this standard did not have an impact on the Company’s consolidated financial statements. In March 2009, the CICA issued EIC Abstract 174, “Mining, Exploration Costs” (“EIC-174”) which supersedes EIC Abstract 126, “Accounting by Mining Enterprises for Exploration Costs” (“EIC-126”), to provide additional guidance for mining exploration enterprises on the accounting for capitalization of exploration costs and when an impairment test of these costs is required. EIC-174 is applicable for the Company’s interim and annual consolidated financial statements for periods ending on or after March 27, 2009 with retroactive application. The adoption of this policy did not have an impact on the Company’s consolidated financial statements. Future Accounting Changes In January 2009, the CICA issued Handbook Section 1582, “Business Combinations” which requires all assets and liabilities of an acquired business be recorded at fair value at acquisition. Obligations for contingent consideration and contingencies will also be recorded at fair value at the acquisition date. The standard also states that acquisition related costs are expensed as incurred and that restructuring charges will be expensed in the periods after the acquisition date. The standard applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period on or after January 1, 2011. In January 2009, the CICA issued Handbook Section 1601, “Consolidations” and Section 1602, “Non-controlling Interests”. Section 1601 establishes standards for the preparation of consolidated financial statements. Section 1602 establishes standards for accounting for a non-controlling interest in consolidated financial statements subsequent to a business combination. These standards apply to interim and annual consolidated financial statements relating to fiscal years beginning on or after January 1, 2011. International Financial Reporting Standards (“IFRS”) In 2006, the Canadian Accounting Standards Board (“AcSB”) published a new strategic plan that will significantly affect financial reporting requirements for Canadian companies. The AcSB strategic plan outlines the convergence of Canadian GAAP with IFRS over an expected five year transitional period. In February 2008, the AcSB announced that 2011 is the changeover date for publicly-listed companies to use IFRS, replacing Canadian GAAP. The changeover date is for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. The Company’s transition date of January 1, 2011 will require the restatement for comparative purposes of amounts reported by the Company for the fiscal year commencing January 1, 2010. The Company has commenced the process to transition from current Canadian GAAP to IFRS. The transition process consists of three primary phases: scoping and diagnostic phase; impact analysis, evaluation and design phase; and implementation and review phase. • Scoping and diagnostic phase – A preliminary diagnostic review was completed at a high level which determined the financial reporting differences under IFRS and the key areas that may be impacted. The areas with the highest potential impact were identified to include the basis of consolidation, impairment of assets, financial instruments and initial adoption of IFRS under the provisions of IFRS 1. • Analysis, quantification and evaluation phase – In this phase, each area identified from the scoping and diagnostic phase will be addressed in order of descending priority. This phase involves specification of changes required to existing accounting policies, information systems and business processes, together with an analysis of policy alternatives allowed under IFRS and development of draft IFRS financial statement content. The Company anticipates that there will be changes in accounting policies and that these changes may materially impact the financial statements. The full impact on future financial reporting is not reasonably determinable or estimable at this time. • Implementation and review phase – This phase includes execution of any changes to information systems and business processes and completing formal authorization processes to approve recommended accounting policy changes. It will also include the collection of financial information necessary to compile IFRS-compliant financial statements and audit committee approval of IFRS financial statements. Having completed the scoping and diagnostic phase and commenced the analysis phase, the Company expects that the areas that will be significantly affected by the transition to IFRS will be as follows: 14 WeSdoMe gold MineS ltd. 2009 ANNuAL rePort
  17. 17. Management’s Discussion and Analysis First Time adoption (IFRS 1) IFRS 1 provides guidance to entities on the general approach to be taken when first adopting IFRS. The underlying principle of IFRS 1 is retrospective application of IFRS standards in force at the date an entity first reports using IFRS. IFRS 1 acknowledges that full retrospective application may not be practical or appropriate in all situations and prescribes: • Optional exemptions from specific aspects of certain IFRS standards in the preparation of the Company’s opening balance sheet; and • Mandatory exceptions to retrospective application of certain IFRS standards. Additionally, to ensure financial statements contain high-quality information that is transparent to users, IFRS 1 contains disclosure requirements to highlight changes made to financial statement items due to the transition to IFRS. Impairment (IAS36) IFRS requires the use of a one-step impairment test (impairment testing is performed using discounted cash flows) rather than the two- step under Canadian GAAP (using undiscounted cash flow as a trigger to identify potential impairment loss). IFRS requires reversal of impairment losses (excluding goodwill) where previous adverse circumstances have changed; this is prohibited under Canadian GAAP. Impairment testing should be performed at the asset level for long-lived assets and intangible assets. Where the recoverable amount cannot be estimated for individual assets, it should be estimated as part of a Cash Generating Unit (“CGU”). Share-based payments (IFRS 2) Per IFRS, the forfeiture rate, with respect to share options, needs to be estimated by the Company at the grant date instead of recognizing the entire compensation expense and only record actual forfeitures as they occur. For graded-vesting features, IFRS requires each instalment to be treated as a separate share option grant, because each instalment has a different vesting period and hence the fair value of each instalment will differ. Mineral property interest, exploration and evaluation costs (IFRS 6, IAS16, IAS38) Under IFRS, the Company would be required to develop an accounting policy to specifically and consistently identify which expenditures on exploration and evaluation activities will be recorded as assets. Unlike IFRS, Canadian GAAP indicates that exploration costs may initially be capitalized if the Company considers that such costs have the characteristics of property, plant and equipment. Exploration and evaluation assets shall be classified as either tangible or intangible according to the nature of the assets acquired. Information systems No significant challenges are expected at this point to operate the accounting system under IFRS. The Company has yet to establish if historical data will have to be regenerated to comply with some of the choices to be made under IFRS 1. Once the extent of the adjustments needed to convert to IFRS will be established, processes will be put in place to generate the dual accounting needed for 2010. Internal controls Management is responsible for ensuring that processes are in place to provide them with sufficient knowledge to support their certification of the financial statements and MD&A, more specifically assessing that the SEDAR filings are presenting fairly the results of the Company. Management will make sure that once the convergence process is completed, it can still certify its filings. Impact on the business The business processes of the Company are not expected to be effected significantly to operate under IFRS. The Company has no foreign currency transactions, no hedging activities, no debt or capital covenants. The Company doesn’t expect that IFRS will have an impact on the requirements or business processes when it enters into flow-through financing. The Company has no compensation arrangements that will be affected by the IFRS implementation. The Company’s Stock Option Plan is not affected by ratios or financial targets. The International Accounting Standard Board currently has projects underway that are expected to result in new pronouncements and as a result, IFRS as at the transition date is expected to differ from its current form. The final impact of IFRS on the financial statements will only be determined once all applicable standards at the conversion date are known. WeSdoMe gold MineS ltd. 2009 ANNuAL rePort 15
  18. 18. Management’s Discussion and Analysis SUMMARY OF SHARES ISSUED As of March 17, 2010, the Company’s share information is as follows: Common shares issued 100,629,409 Common share purchase options 2,280,250 MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Disclosure Controls and Procedures In accordance with the requirements of National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings.” the Company’s management, including the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), have evaluated the effectiveness of the Company’s disclosure controls and procedures. Based upon the results of that evaluation, the Company’s CEO and CFO have concluded that as at December 31, 2009, the Company’s disclosure controls and procedures to provide reasonable assurance that the information required to be disclosed by the Company in reports it files is recorded, processed, summarized and reported within the appropriate time periods and forms were effective. Internal Control over Financial Reporting Internal control over financial reporting (“ICFR”) is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with applicable Canadian GAAP. Internal control over financial reporting should include those policies and procedures that establish the following: • maintenance of records in reasonable detail, that accurately and fairly reflect the transactions and dispositions of our assets; • reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with applicable Canadian GAAP; • receipts and expenditures are only being made in accordance with authorizations of management and the Board of Directors; • reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial instruments. The Company’s management, with the participation of the CEO and CFO, assessed the effectiveness of the Company’s internal controls over financial reporting and concluded that there has been no change in the Company’s internal control over financial reporting during the year ended December 31, 2009, that has materially affected or is reasonably likely to materially affect the Company’s internal control over financial reporting. In making its assessment, management and the CEO and the CFO have determined that as at December 31, 2009, the Company’s internal control over financial reporting was effective except for the disclosable weakness in the lack of segregation of duties. Segregation of Duties Segregation of duties is a basic, key internal control and one of the most difficult to achieve. It is used to ensure that errors or irregularities are prevented or detected on a timely basis by employees in the normal course of business. Due to the small size of the company and its relatively few accounting staff, segregation of duties within the accounting group was not achieved. The result is that the Company is highly reliant on the performance of mitigating procedures during its financial close processes in order to ensure the financial statements are presented fairly in all material respects. Management will review the current assignment of responsibilities and where possible improve on segregation. Where it is not cost effective to obtain additional accounting resources, management will review existing mitigating controls and, if thought appropriate, implement changes to ICFR whereby more effective mitigating controls will be adopted. Limitations of Controls and Procedures The Company’s management, including the CEO and CFO, believe that any disclosure controls and procedures or internal control over financial reporting, no matter how well conceived and operated can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that any design will not succeed in achieving its stated goals under all potential future conditions. Accordingly, because of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and not be detected. 16 WeSdoMe gold MineS ltd. 2009 ANNuAL rePort
  19. 19. Management’s Discussion and Analysis OUTLOOK For 2010 we forecast approximately 70,000 ounces of production with about 38,000 ounces from Eagle River and about 32,000 ounces from Kiena. Although we expect lower grades from Eagle River, mining in the western portion of the mine has, to date, exceeded grade forecasts. As development and mining progress here we are hopeful that we can again upgrade our forecasts periodically during the year. We will focus on operations and continue the stepwise re-evaluation of our assets for organic growth potential. Chief amongst these are the Mishi deposit, the Dubuisson discovery and the Wesdome property. Acquisition opportunities which fit our regional development strategy will continue to be examined with discipline. Conditions have never been more favourable for Canadian gold mines, nor have fundamentals ever been so supportive of the gold market. We feel that our leverage to gold prices has been clearly demonstrated over the last two years. Our unhedged production, growing bullion inventory and exploration potential serve to maximize leverage to gold prices. WeSdoMe gold MineS ltd. 2009 ANNuAL rePort 17
  20. 20. Management’s responsibility for financial Statements The accompanying consolidated financial statements and all of the data included in this annual report have been prepared by and are the responsibility of the management of the Company. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Canada and reflect management’s best estimate and judgement based on currently available information. Management is also responsible for a system of internal control which is designed to provide reasonable assurance that assets are safeguarded, liabilities are recognized and that the accounting systems provide timely and accurate financial reports. The Board of Directors is responsible for ensuring that management fulfils its responsibilities in respect of financial reporting and internal control. The Audit Committee of the Board of Directors meets periodically with management and the Company’s independent auditors to discuss auditing matters and financial reporting issues. In addition, the Audit Committee reviews the annual consolidated financial statements before they are presented to the Board of Directors for approval. The Company’s independent auditors, Grant Thornton LLP, are appointed by the shareholders to conduct an audit in accordance with generally accepted auditing standards in Canada, and their report follows. Toronto, Canada Donald D. Orr March 17, 2010 Secretary-Treasurer and CFO 18 WeSdoMe gold MineS ltd. 2009 ANNuAL rePort
  21. 21. Auditors’ report To the Shareholders of Wesdome Gold Mines Ltd. We have audited the consolidated balance sheets of Wesdome Gold Mines Ltd. as at December 31, 2009 and 2008 and the consolidated statements of income and comprehensive income, shareholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the company as at December 31, 2009 and 2008 and the results of its operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles. Toronto, Canada Chartered Accountants March 17, 2010 Licensed Public Accountants WeSdoMe gold MineS ltd. 2009 ANNuAL rePort 19
  22. 22. Consolidated Balance Sheets December 31 2009 2008 (in thousands) Assets Current Cash and cash equivalents $ 23,702 $ 8,029 Receivables (Note 3) 4,022 4,205 Inventory (Note 4) 14,624 10,165 Marketable securities (Note 9) 211 44 Future income taxes (Note 15) 1,199 - 43,758 22,443 Restricted funds (Note 5) 2,588 2,303 Future income taxes (Note 15) 2,245 - Capital assets (Note 6) 9 10 Mining properties (Note 7) 64,637 61,294 Exploration properties (Note 8) 30,018 28,956 Property held for sale (Note 9) - 378 $ 143,255 $ 115,384 Liabilities Current Payables and accruals $ 7,322 $ 7,865 Current portion of obligations under capital leases 1,240 1,478 8,562 9,343 Income taxes payable 82 173 Obligations under capital leases (Note 10) 1,108 2,396 Convertible 7% debentures (Note 11) 9,483 9,413 Asset retirement obligation (Note 12) 1,324 1,042 Future income taxes (Note 15) - 1,292 20,559 23,659 Minority interest in Moss Lake Gold Mines Ltd. 857 903 Shareholders’ Equity Capital stock (Note 13) 114,567 113,872 Contributed surplus 3,770 3,648 Accumulated other comprehensive loss (222) (290) Equity component of convertible debentures (Note 11) 1,970 2,062 Retained earnings (Deficit) 1,754 (28,470) 121,839 90,822 $ 143,255 $ 115,384 On behalf of the Board, Donovan Pollitt Marc Blais Director Director See accompanying notes to the consolidated financial statements 20 WeSdoMe gold MineS ltd. 2009 ANNuAL rePort
  23. 23. Consolidated Statements of Income and Comprehensive Income Years Ended December 31 2009 2008 (in thousands, except per share amounts) Revenue Gold and silver bullion $ 103,270 $ 80,306 Interest and other 266 655 103,536 80,961 Costs and expenses Operating costs 58,019 57,372 Amortization of mining properties 12,869 10,767 Production royalties 1,073 774 Corporate and general 2,064 1,991 Stock based compensation expense 495 398 Interest on long term debt 1,596 1,542 Other interest 16 19 Amortization of capital assets 1 3 Accretion of asset retirement obligation 71 66 76,204 72,932 Net income before the following 27,332 8,029 Dilution gain (loss) on Moss Lake Gold Mines Ltd. 9 (140) Net income before income tax and minority interest 27,341 7,889 Income tax (recovery) (Note 15) Current (91) 173 Future (4,676) (1,672) (4,767) (1,499) Net income before minority interest 32,108 9,388 Minority interest 57 (26) Net income 32,165 9,362 Other comprehensive income (loss): Change in fair value of available-for-sale marketable securities 68 (158) Comprehensive income $ 32,233 $ 9,204 Net income per common share (Note 16) Basic and diluted $ 0.32 $ 0.09 See accompanying notes to the consolidated financial statements WeSdoMe gold MineS ltd. 2009 ANNuAL rePort 21
  24. 24. Consolidated Statements of Shareholders’ equity Accumulated Equity Other Component of Total Capital Contributed Comprehensive Convertible Shareholders’ (in thousands) Stock Surplus Loss Debentures Deficit Equity Balance, December 31, 2007 $ 115,277 $ 2,789 $ (132) $ 2,080 $ (37,851) $ 82,163 Net loss for year ended December 31, 2008 - - - - 9,362 9,362 Tax effect of flow-through share renunciation (1,204) - - - - (1,204) Flow-through shares issued, net of costs 1,668 - - - - 1,668 Exercise of options 27 - - - - 27 Value attributed to options exercised 10 (10) - - - - Shares purchased under NCIB (1,906) 471 - - - (1,435) Gain on equity component of early repurchase of convertible debentures - - - (18) 19 1 Stock based compensation - 398 - - - 398 Revaluation to fair value of marketable securities - - (158) - - (158) Balance, December 31, 2008 113,872 3,648 (290) 2,062 (28,470) 90,822 Net income for year ended December 31, 2009 - - - - 32,165 32,165 Tax effect of flow-through share renunciation (526) - - - - (526) Share issuance costs flow-through shares issued (105) - - - - (105) Exercise of options 984 - - - - 984 Value attributed to options exercised 376 (376) - - - - Shares purchased under NCIB (34) 3 - - (7) (38) Gain on equity component of early repurchase of convertible debentures - - - (92) 61 (31) Stock based compensation - 495 - - - 495 Revaluation to fair value of marketable securities - - 68 - - 68 Dividends paid - - - - (1,995) (1,995) Balance, December 31, 2009 $ 114,567 $ 3,770 $ (222) $ 1,970 $ 1,754 $121,839 See accompanying notes to the consolidated financial statements 22 WeSdoMe gold MineS ltd. 2009 ANNuAL rePort
  25. 25. Consolidated Statements of Cash flows Years Ended December 31 2009 2008 (in thousands) Operating activities Net income $ 32,165 $ 9,362 Amortization of mining properties 12,869 10,767 Accretion of discount on convertible debentures 516 463 Gain on sale of Moss Lake shares - (14) Dilution (gain) loss on Moss Lake Gold Mines Ltd. (9) 140 Minority interest (57) 26 Stock based compensation expense 495 398 Amortization of capital assets 1 3 Future income taxes (4,676) (1,672) Gain on sale of equipment (1) (41) Gain on property held for sale (122) - Accretion of asset retirement obligation 71 66 41,252 19,498 Net changes in non-cash working capital (Note 19) (4,745) (4,833) 36,507 14,665 Financing activities Exercise of options 984 27 Funds paid to repurchase common shares under NCIB (38) (1,435) Funds paid to repurchase debentures (477) (87) Share issuance costs (105) 1,668 Dividends paid (1,995) - Shares issued by a subsidiary of the company to third parties 17 (4) Repayment of obligations under capital leases (1,890) (1,740) (3,504) (1,571) Net changes in non-cash working capital (Note 19) - 276 (3,504) (1,295) Investing activities Additions to mining and exploration properties (17,857) (13,867) Proceeds on sale of Moss Lake shares to minority interests - 26 Proceeds on sale of equipment 577 261 Proceeds on property held for sale (Note 9) 400 567 Funds held against standby letters of credit (285) 238 (17,165) (12,775) Net changes in non-cash working capital (Note 19) (165) 25 (17,330) (12,750) Increase in cash and cash equivalents 15,673 620 Cash and cash equivalents, beginning of year 8,029 7,409 Cash and cash equivalents, end of year (Note 19) $ 23,702 $ 8,029 Supplemental disclosure (Note 19) See accompanying notes to the consolidated financial statements WeSdoMe gold MineS ltd. 2009 ANNuAL rePort 23
  26. 26. Notes to the Consolidated Financial Statements December 31, 2009 and 2008 1. DESCRIPTION OF BUSINESS Wesdome Gold Mines Ltd. (“Wesdome Ltd.” or “the Company”) is a gold producer engaged in gold mining and related activities including exploration, extraction, processing and reclamation. The Company is a publicly traded company, continued under Part 1A of the Companies Act (Quebec) and its common shares are listed on the Toronto Stock Exchange (TSX: WDO). The Company’s principal assets include the Eagle River mine, the Mishi mine and the Eagle River mill located near Wawa, Ontario and the Kiena mining and milling complex and exploration properties located in Val D’Or, Quebec. 2. SIGNIFICANT ACCOUNTING POLICIES These consolidated financial statements have been prepared by management in accordance with accounting principles generally accepted in Canada (“GAAP”) using the following significant accounting policies. Basis of Presentation The consolidated financial statements include the accounts of the Company and its 56% (2008: 56%) owned subsidiary, Moss Lake Gold Mines Ltd. (“MLGM”). On December 31, 2009, the Company underwent a reorganization involving its wholly-owned subsidiaries, Wesdome Resources Limited (‘WRL”), Wesdome Gold Mines Inc. (“WGMI”) and Western Québec Mines Inc. (“Western Québec”). WGMI was amalgamated by way of short-form vertical amalgamation with WRL to form “New WGMI”. “New WGMI” was then wound up into Wesdome Ltd. by way of dissolution. Western Québec was subsequently wound up into Wesdome Ltd. by way of dissolution. All of these transactions were under the laws of Québec (The Québec Act). The benefits of the reorganization will include a reduction of the additional costs of record-keeping, administration and tax compliance as well as the possibility of utilizing the tax attributes of the inactive companies in one of the operating entities that would otherwise be inaccessible. Estimates, Risks and Uncertainties The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amount of expenses and other income during the year. Significant estimates and assumptions include those related to the recoverability of mining and exploration properties, estimated useful lives of capital assets and mining properties, asset retirement obligations, determination of future income tax assets and liabilities, the equity component of the convertible debentures and stock based compensation expense. While management believes that these estimates and assumptions are reasonable, actual results could vary significantly. The carrying value of the Company’s principal assets could be subject to material adjustment in the event that the Company is not successful in generating operating cash flow and financing for its development and exploration activities. Cash and Cash Equivalents Cash and cash equivalents include cash on hand, balances with banks and highly liquid investments with maturities of less than three months. Inventory Inventories of gold bullion are recorded at the lower of production costs on a first-in, first-out basis and net realizable value. Production costs include costs related to mining, crushing, and mill processing, as well as applicable overhead, depreciation and amortization. Supplies are valued at the lower of average cost and replacement cost. Capital Assets Capital assets are recorded at cost less accumulated amortization. Amortization of capital assets used for exploration is capitalized to exploration properties. Amortization is provided over the expected useful lives using the following methods and annual rates: Office equipment – 20% straight line Mining Properties Mining properties are carried at cost less accumulated amortization. All costs associated with pre-production and development activities, including the cost of construction or acquisition of mine buildings, power lines and equipment, are capitalized as incurred. Capitalized costs also include costs incurred during the exploration stage transferred from exploration properties. 24 WeSdoMe gold MineS ltd. 2009 ANNuAL rePort
  27. 27. Wesdome gold Mines ltd. Notes to the Consolidated Financial Statements December 31, 2009 and 2008 Amortization of mine buildings and mills, equipment and pre-production and development costs commences when a property is put into commercial production, and is calculated on the unit of production method over the expected economic life of the mine. The amounts capitalized represent costs to be charged to operations in the future and do not necessarily reflect the present or future values of the particular properties. Development costs incurred to expand the capacity of an operating mine, develop new ore bodies or develop mine areas substantially in advance of current production are capitalized and charged to operations calculated on the unit of production method over the expected economic life of the mine. Exploration Properties Each property is accounted for as a separate project. All direct costs related to the acquisition and exploration of a property are capitalized as incurred. If a property proceeds to development, these costs become part of the pre-production and development costs of the mine. If a property is abandoned or continued exploration is not deemed appropriate in the foreseeable future, the related costs and expenditures are written off. Capitalized expenditures are charged to operations as amortization or loss on impairment or gain/loss on disposal when operations commence or impairment is demonstrated or when the properties are disposed of. These capitalized costs do not necessarily reflect the present or future values of particular properties. Impairment of Long-Lived Assets The Company monitors events and changes in circumstances which may require an assessment of the recoverability of its long-lived assets. If required, the Company would assess recoverability using estimated undiscounted future operating cash flows. If the carrying amount of an asset is not recoverable, an impairment loss is recognized in operations, measured by comparing the carrying amount of the asset to its fair value. Asset Retirement Obligation The Company provides for the fair value of liabilities and capitalized costs for asset retirement obligations in the period in which they are incurred. Over time, the liability is accreted to its present value and the capitalized cost is amortized over the useful life of the related asset. Asset retirement obligations are obligations of the Company that arise as a result of an existing law, regulation or contract related to asset retirements. Future costs to retire an asset include dismantling, remediation and ongoing treatment and monitoring of the site. Subsequent to the initial recognition of the asset retirement obligation and associated asset retirement cost, any changes resulting from a revision to either timing or amount of estimated cash flows are prospectively reflected in the year those estimates change. Financial Instruments – Recognition and Measurement The Company designates its financial instruments into one of the following five categories: held-for-trading, available-for-sale, held-to-maturity, loans and receivables, and other financial liabilities. All financial instruments are to be initially measured at fair value. Financial instruments classified as held-for- trading or available-for-sale are subsequently measured at fair value with any change in fair value recorded in net earnings and other comprehensive income, respectively. All other financial instruments are subsequently measured at amortized cost using the effective interest method. As at December 31, 2009 cash and cash equivalents and restricted funds are classified as held-for-trading. Receivables are classified as loans and receivables. Marketable securities are classified as available-for-sale. Payables and accruals and convertible debentures are classified as financial liabilities. All derivative financial instruments, including derivative features embedded in financial instruments or other contracts but which are not considered closely related to the host financial instrument or contract, are generally classified as held-for-trading and, therefore, must be measured at fair value with changes in fair value recorded in net earnings. However, if a derivative financial instrument is designated as a hedging item in a qualifying cash flow hedging relationship, the effective portion of changes in fair value is recorded in other comprehensive income. Any change in fair value relating to the ineffective portion is recorded immediately in net earnings. Embedded derivatives are required to be separated from the host contract and accounted for as a derivative financial instrument if the embedded derivative and host contract are not closely related, and the combined contract is not held for trading or designated at fair value. On the issuance of the related debt, financing costs are reclassified to debt to reflect the adopted policy of capitalizing debt transaction costs within the related debt. The costs capitalized within debt are amortized using the effective interest method. Convertible Debentures Payable Convertible debentures payable were segregated into their debt and equity components at the date of issue. The financial liability component, representing the value allocated to the liability at inception, was included in convertible debentures payable. The remaining component, representing the value ascribed to the holders’ option to convert the principal balance into common shares, was classified in shareholders’ equity as “Equity component of convertible debentures”. The carrying value of the liability component is being accreted to the principal amount as additional interest expense over the term of the debentures. Stock-Based Compensation The Company recognizes compensation expense for grants of stock options to qualifying directors, officers and employees based on the estimated fair value at the grant date. WeSdoMe gold MineS ltd. 2009 ANNuAL rePort 25
  28. 28. Wesdome gold Mines ltd. Notes to the Consolidated Financial Statements December 31, 2009 and 2008 Flow-Through Shares The Company has financed a portion of its exploration activities through the issuance of flow-through shares. Under the terms of flow-through share agreements, the tax attributes of the related expenditures are renounced to subscribers. To recognize the tax benefits foregone by the Company, the carrying value of the shares issued is reduced by the tax effect of the tax benefits renounced to subscribers. The liability relating to the foregone tax benefit is recognized at the time of the renunciation provided there is reasonable assurance that the expenditures will be incurred. Revenue Recognition Revenue comprises the fair value of the consideration received or receivable from the sale of bullion and is recognized when an arrangement exists, risks pass to the buyer, the price is fixed and collection is reasonably assured. Income Taxes Income taxes are calculated using the asset and liability method of tax accounting. Under this method, current income taxes are recognized for the estimated income taxes payable for the current period. Future income tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and on unclaimed losses carried forward and are measured using the substantively enacted tax rates that will be in effect when the differences are expected to reverse or losses are expected to be utilized. A valuation allowance is recognized to the extent that the recoverability of future income tax assets is not considered more likely than not. The valuation of future income tax assets is adjusted, if necessary, by the use of a valuation allowance to reflect the estimated realizable amount. Income per Common Share Basic income per share is computed by dividing the income for the period by the weighted average number of common shares outstanding during the period, including contingently issuable shares which are included when the conditions necessary for issuance have been met. Diluted earnings per share is calculated in a similar manner, except that the weighted average number of common shares outstanding is increased to include potentially issuable common shares from the assumed exercise of options and warrants, if dilutive. The number of additional shares included in the calculation is based on the treasury stock method for options and warrants. Comprehensive Income Comprehensive income is the change in the Company’s net assets arising from transactions, events and circumstances not related to the Company’s shareholders and include items that would not normally be included in net earnings or losses such as unrealized gains or losses on available-for-sale investments. Conversion to International Financial Reporting Standards On February 13, 2008, the Accounting Standards Board confirmed that publicly accountable entities will be required to adopt International Financial Reporting Standards (“IFRS”) for interim and annual financial statements for fiscal years beginning on or after January 1, 2011, with restatement of comparative information presented. The conversion to IFRS will impact the Company’s accounting policies, information technology and data systems, internal controls over financial reporting and disclosure controls and procedures. Changes in Accounting Policies On January 1, 2009, the Company adopted the Canadian Institute of Chartered Accountants (“CICA”) Handbook Section 3064, “Goodwill and Intangible Assets”. The new standard replaces the previous goodwill and intangible asset standard and revises the requirement for recognition, measurement, presentation and disclosure of intangible assets. The adoption of this standard did not have an impact on the Company’s consolidated financial statements. In March 2009, the CICA issued EIC Abstract 174, “Mining, Exploration Costs” (“EIC-174”) which supersedes EIC Abstract 126, “Accounting by Mining Enterprises for Exploration Costs” (“EIC-126”), to provide additional guidance for mining exploration enterprises on the accounting for capitalization of exploration costs and when an impairment test of these costs is required. EIC-174 is applicable for the Company’s interim and annual consolidated financial statements for periods ending on or after March 27, 2009 with retroactive application. The adoption of this policy did not have an impact on the Company’s consolidated financial statements. In July, 2009, the CICA approved amendments to section 3862, “Financial Instruments – Disclosures”. The amendments require additional fair value disclosure for financial instruments and liquidity risk disclosures. These amendments require a three-level hierarchy that reflects the significance of the inputs used in making fair value assessments, as follows: • Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities; • Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly (i.e. as prices) or indirectly (i.e. derived from prices); • Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). The Company adopted the requirements of amendments to Section 3862 in its December 31, 2009 consolidated financial statements (Note 18). 26 WeSdoMe gold MineS ltd. 2009 ANNuAL rePort

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