Wesdome 2011 Annual Report
Upcoming SlideShare
Loading in...5
×
 

Like this? Share it with your network

Share

Wesdome 2011 Annual Report

on

  • 485 views

 

Statistics

Views

Total Views
485
Views on SlideShare
484
Embed Views
1

Actions

Likes
0
Downloads
4
Comments
0

1 Embed 1

http://www.linkedin.com 1

Accessibility

Categories

Upload Details

Uploaded via as Adobe PDF

Usage Rights

© All Rights Reserved

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Processing…
Post Comment
Edit your comment

Wesdome 2011 Annual Report Document Transcript

  • 1. WESDOME GOLD MINES LTD. 2011 ANNUAL REPORT
  • 2. message to shareholdersContents 2011 was a challenging year for Wesdome. In spite of these challenges, your Company made significant progress “2012 marks the Wesdome group’s in delivering on its long-term strategy of building shareholderMessage to Shareholders..................................... 1 25th consecutive value through its mining operations. Strength in the goldTributes. ................................................................ 2 market was accompanied by a very tight labour market and year of miningManagement’s Discussion and Analysis.............. 3 its related pressures on operating costs and development operations andManagement’s Responsibility for productivity. Despite these challenges we maintainedFinancial Statements........................................... 16 . we see steady operating costs to only a 3% increase over last year, rectifiedIndependent Auditors’ Report............................. 17 development advance issues, permitted and commenced improvementConsolidated Statements of Financial Position. 18 ... mining operations at our third mine (Mishi) and increased going forward.”Consolidated Statements of reserves to record levels. 2012 marks the Wesdome group’sIncome and Comprehensive Income.................. 19 25th consecutive year of mining operations and we see ~ Donovan PollittConsolidated Statements of steady improvement going forward.Total Equity......................................................... 20Consolidated Statements of Cash Flows. ........... 21 . In the fourth quarter of 2011, production demonstrated steady gains from previous quarters. This gives us greaterNotes to theConsolidated Financial Statements.................... 22 . confidence in our 2012 production forecasts, which we expect to be around 60,000 ounces Company-wide.Corporate Information........................................ 40 The Eagle River mine is now into higher grades and 2012 should be a good year. The veins are being mined tightly and development is being kept small in the high-grade 811 Zone. The development of recently-found extensions of the 808 will add operating flexibility into 2013, and exploration of the No-Name Lake parallel structure is exciting to our geologists. Labour turnover is still an issue, but we see less frenzy than we did at the beginning of 2011. As more producers get focused on generating operating cash-flow, we hope to see less turnover of miners and technical staff. The Mishi mine is now in production. Re-permitting this mine on a larger scale was a major body of work that took place in 2011 and we plan to see it bear fruit in 2012. From commencing the independent NI43-101 compliant resource estimation in January of 2010, to publishing the Preliminary Feasibility Study in November of 2010 to the final permits being received in July of 2011, this represents the first growth project Wesdome has pursued since Kiena in 2006. We believe there is room to increase production at Mishi going forward, and on its own, it represents a large body of ounces at about 2gAu/tonne only two kilometres from our fully-permitting mill. Stay tuned. The Kiena mine faced significant challenges in 2011. High regional turnover coupled with challenging ground conditions led to large production shortfalls. We see turnover and labour costs easing as investors sour to funding new projects in the area, and we are encouraged by the significant improvement posted in the last quarter of 2011. The path forward at Kiena is clear as we are developing more zones away from previously-mined areas, with greater focus on grade rather than tonnes. Currently the 388, Martin, South, Dubuisson and S-50 Deep Zones are being developed for 2013 and onwards, and recent drilling showed an encouraging, large mineralized block at the Northwest Zone. 2012 will be a year to show you how quickly we can come out of a challenging year. We thank you for your continued support and aim to show you a much stronger year this year. On behalf of the Board of Directors,Wesdome has been mining gold in Canada for 25 years. Its philosophy has been to build uplongterm, sustainable operations with only modest initial capital costs. This longterm viewhas enabled the Company to acquire significant property and infrastructure assets in two Donovan Pollitt, P.Eng., CFAproven gold mining districts. With three gold mines now operating, the Company is focused President and CEOon optimizing its assets and securing its future by increasing its reserves and resources on March 14, 2012its wholly-owned properties. We see very good, low risk potential for growth through astuteinvestments in exploration, development and infrastructure. WESDOME GOLD MINES LTD. 2011 ANNUAL REPORT 1
  • 3. TRIBUTES MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2011 This Management’s Discussion and Analysis (“MD & A”) dated March Retirement 14, 2012 should be read in conjunction with Wesdome Gold Mines Donald D. Orr Ltd.’s (“Wesdome” or “the Company”) audited consolidated financial On December 31, 2011, Donald Orr retired from Wesdome. Don was an officer and director of Wesdome and its statements for the year ended December 31, 2011, and their related notes which have been prepared in accordance with International predecessor companies since 1979. His career with Financial Reporting Standards (“IFRS”) as issued by the International Wesdome and its predecessor companies was highlighted Accounting Standards Board (“IASB”). The December 31, 2011, by the development and financing of five gold mines, greater consolidated financial statements are the Company’s first annual than 1.2 million ounces of production and a swing in gold consolidated financial statements prepared under IFRS. Consequently, prices of greater than $1,500 per ounce. Don maintained the comparative figures for 2010 have been restated from generally unflappable good humour throughout several complex accepted accounting principles in Canada (“Canadian GAAP”) to acquisitions and mergers during an era when the regulatory, comply with IFRS. The reconciliations of the statements of total equity legal and financial reporting environment grew increasingly and the statement of income and comprehensive income from the complicated. previously published Canadian GAAP are summarized in Note 27 to the December 31, 2011 consolidated financial statements. Don worked extensively with Murray Pollitt on developing a family of private and publically-listed enterprises, which This MD & A contains “forward-looking statements” that are subject to eventually merged into Wesdome Gold Mines Ltd. From a risk factors set out in the cautionary statement below. All figures are shared office above a pawn shop on Church Street to a Bay in Canadian dollars unless otherwise stated. Additional information on Wesdome, including current and previous years’ Annual Information Street presence, Don enjoyed working with gold miners. We Forms (“AIF”) and other corporate information, can be found at www. wish him well in his retirement. wesdome.com or www.sedar.com. Wesdome trades on the Toronto Stock Exchange under the symbol “WDO”. The Company’s head office is at 8 King Street East, Suite 1305, Toronto, Ontario, Canada. CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS All statements, other than statements of historical fact, constitute “forward-looking statements” and are based on In Memorandum expectations, estimates and projections as at the date of this MD&A. The words ”believe”, “expect”, “anticipate”, Murray H. Pollitt “plan”, “intend”, “continue”, “estimate”, “may”, ”will”, “schedule” and similar expressions identify forward-looking Murray Pollitt, Company founder, former Chairman and statements. The Company cautions the reader that such forward-looking statements involve known and unknown risks, 1941-2012 President, will be missed. His involvement with the Wesdome uncertainties and other factors which may cause the actual results, performance or achievements of Wesdome to be Group dates back to the mid-1970s in Val d’Or when a group materially different from the Company’s estimated future results, performance or achievements expressed or implied of mining properties were merged into Western Québec by the forward-looking statements and the forward-looking statements are not guarantees of future performance. Mines Inc. After initial production commenced at the Joubi Factors that could cause results or events to differ materially from current expectations expressed or implied are Mine in the late 1980s, Murray helped to create River Gold inherent to the gold mining industry and include, but are not limited to, those discussed in the section entitled “Risks Mines Ltd. and Wesdome Gold Mines Inc. in the 1990s, which and Uncertainties”. The Company does not intend, and does not assume any obligation to update these forward- today are known as Wesdome Gold Mines Ltd. looking statements, whether as a result of new information, future events or results or otherwise except as required by applicable laws. Murray was key in financing the Company’s mining ventures and instrumental in closing key acquisitions. His skills in persuasion and influence were critical to negotiating and OVERALL PERFORMANCE closing many win-win deals that ultimately made a productive The Company owns and operates the Eagle River gold mining operations in Wawa, Ontario and the Kiena mine contribution to society. complex in Val-d’Or, Quebec. It is developing the Mishi Mine in Wawa and the Dubuisson project in Val-d’Or. The Eagle A tenacious and vindicated gold bug, Murray predicted River mine commenced commercial production January 1, 1996 and the Kiena mine on August 1, 2006. gold’s recent rise (the dollars becoming worth less) and was At December 31, 2011, the Company had $7.2 million in working capital and 8,652 ounces of refined gold bullion in pleased to see his bullish views being realized. Murray always inventory. In 2011 revenue exceeded mining and processing costs by $14.6 million and $19.3 million in capital costs were believed in mining and manufacturing as the backbones incurred. Cash flow from operations totalled $4.9 million and net earnings were $0.2 million, or $0.00 per share. of the Canadian economy and was always proud of his involvement and the achievements of Wesdome. Both mining operations are producing from lower grade areas and are pushing development of higher grade new production areas, which will progressively come onstream starting in 2012. In addition, a third mine, Mishi, is in the pre- production development phase. More ounces of gold were sold than produced. Favourable gold prices have allowed us to secure development for future years, develop a new mine and invest in drilling to replace and increase reserves – all at reasonable costs during a transitional period of lower grade production and elevated investment. External factors which favoured results include low interest rates and rising gold prices. We hope this continues. Also,2 3 energy prices stabilized and commodity-based input costs and consumables have stabilized or decreased. WESDOME GOLD MINES LTD. 2011 ANNUAL REPORT WESDOME GOLD MINES LTD. 2011 ANNUAL REPORT
  • 4. MANAGEMENT’S DISCUSSION AND ANALYSIS MANAGEMENT’S DISCUSSION AND ANALYSIS Negative external conditions were dominated by extreme competition for the skilled and professional labour pool which Bullion sales exceeded mining and processing costs resulting in a mine operating profit, or gross margin, of $14.6 is of insufficient size to support the booming resource development cycle. In this environment we are finding it more million. In addition to these direct operating costs, additional cash costs, including royalty payments, corporate and challenging to attain the rate of development advance we are accustomed to and believe, industry-wide, that costs will general costs and interest costs totalled $6.3 million. We pride ourselves in running a tight ship with low corporate and inflate further and that many projects likely will be delayed. On a more positive note, the tightening of risk capital and general costs. The regulated implementation of IFRS accounting standards increased these costs significantly in 2010 credit markets since the summer indicates that some of these competing projects may not get financed. and 2011. This is now behind us. In light of these pressures, and very strict control of costs, operating costs increased only 3% to $65.0 million for the At the Eagle River Mine, a large volume of low grade ore from development headings, salvage stopes in the old year ended December 31, 2011, compared to $63.3 million last year. Fortunately, realized gold prices increased 20%, mine areas and surface stockpiles was processed. Combined with greater than expected dilution in main production or $254 Cdn per ounce, over this corresponding period. stopes, the results represented the lowest grades of annual production to date. The Eagle River Mine produced 28,231 ounces of gold from 182,449 tonnes milled at a recovered grade of 4.8 gAu/tonne. We have made considerable progress in developing deeper levels of the high grade 811 Zone and as previously disclosed, expect to see significant SELECTED ANNUAL INFORMATION improvements in grade and production starting in 2012 and moving forward. (in thousands except income per common share) 2011 2010 At the Kiena Mine, production suffered from severe dilution and lost ore caused by caving in two salvage stopes during Total revenue $ 79,643 $ 89,383 the first and second quarters. The mine schedule had been relying on these stopes in the transitional period while larger Net income 240 5,271 future production areas were being prepared. These unfavourable circumstances were further exacerbated by delayed Income per common share 0.00 0.05 development of the new production areas due to tight labour markets, lack of advance and financial stress on a key contractor. We have largely addressed these issues and are rapidly catching up on development. This catching up will Total assets 151,823 156,974 extend through the first quarter, 2012 with production from higher grade areas scheduled for the second half of 2012. Long term financial liabilities 2,433 13,439 In 2011, the Kiena Mine produced 19,516 ounces of gold from 255,311 tonnes milled at an average recovered grade of 2.4 gAu/tonne. RESULTS OF OPERATIONS At the Mishi Mine work commenced in August, 2011, and involves an 8-month pre-production period. This will be Three Months Ended Dec 31 Twelve Months Ended Dec 31 an open pit mining operation located just 2 kilometres west of the Eagle River Mill. We are proceeding with an initial 2011 2010 2011 2010 5-year mine plan. At year end 2011, approximately 21,000 tonnes of ore were stockpiled at the mill and scheduled for processing commencing in January, 2012. Eagle River Mine Tonnes milled 48,639 39,281 182,449 155,554 In summary, 2011 was a disappointing year in terms of production. However, a committed investment in development Recovered grade (g/t) 5.2 7.9 4.8 7.3 and drilling has increased our reserves, built a third mine (Mishi) and put us in an advantageous position moving Production (oz) 8,104 10,004 28,231 36,712 forwards. We expect a return to life-of-mine type grades over time at Eagle River, hope to get ahead on development at Sales (oz) 5,000 10,000 29,000 40,000 Kiena and look forward to the contribution of new production from Mishi. Bullion inventory (oz) 8,024 8,793 8,024 8,793 Bullion revenue ($000) 8,598 14,013 44,613 50,690 SUMMARY OF QUARTERLY RESULTS Mining and processing costs ($000) 5,604 11,222 29,448 35,163 2011 Mine operating profit ($000)* 2,994 2,791 15,165 15,527 (in thousands except per share data) 4th Quarter 3rd Quarter 2nd Quarter 1st Quarter Gold price realized ($Cdn/oz) 1,717 1,399 1,536 1,266 Total revenue $ 17,206 $ 19,623 $ 19,220 $ 23,594 Kiena Mine Complex Net income (loss) 496 (1,616) (1,094) 2,454 Tonnes milled 56,414 84,751 255,311 285,527 Earnings (loss) per share – basic and diluted 0.00 (0.01) (0.01) 0.02 Recovered grade (g/t) 2.5 4.2 2.4 3.5 Production (oz) 4,618 11,508 19,516 32,162 2010 Sales (oz) 5,000 9,000 23,000 30,000 4th Quarter 3rd Quarter 2nd Quarter 1st Quarter Bullion inventory (oz) 628 4,113 628 4,113 Total revenue $ 26,634 $ 20,756 $ 22,416 $ 19,577 Net income (loss) 3,380 (118) 291 1,718 Bullion revenue ($000) 8,608 12,621 35,030 38,693 Earnings (loss) per share – basic and diluted 0.03 (0.00) 0.00 0.02 Mining and processing costs ($000) 8,676 6,276 35,568 28,134 Mine operating profit (loss) ($000)* (68) 6,345 (538) 10,559 Gold price realized ($Cdn/oz) 1,717 1,398 1,519 1,286 FOURTH QUARTER Total In the fourth quarter, 2011, Wesdome’s production totalled 12,722 ounces of gold of which 10,000 ounces were sold at Production (oz) 12,722 21,512 47,747 68,874 an average price of $1,717 per ounce. This performance showed improvement of 23% and 22% compared to production Sales (oz) 10,000 19,000 52,000 70,000 levels in the third and second quarters respectively. Bullion inventory (oz) 8,652 12,906 8,652 12,906 Bullion revenue ($000) 17,206 26,634 79,643 89,383 At Eagle River production increased 18% and grade increased 13% compared to the third quarter, 2011 results. The Mining and processing costs ($000) 14,280 17,498 65,016 63,297 Eagle River Mine produced 8,104 ounces of gold from 48,639 tonnes of ore milled at an average recovered grade of 5.2 gAu/tonne. Both grade and throughput were up. Mine operating profit ($000)* 2,926 9,136 14,627 26,086 Gold price realized ($Cdn/oz) 1,717 1,398 1,529 1,275 At Kiena, production increased 33% and grade increased 32% compared to the third quarter, 2011 results. The Kiena Mine produced 4,618 ounces of gold from 56,414 tonnes of ore milled at an average recovered grade of 2.5 gAu/tonne. *The Company has included in this report certain non-IFRS performance measures, including mine operating profit and mining and Work focused on development of new stopes. Once development catches up a steady production rhythm will result in processing costs to applicable sales. These measures are not defined under IFRS and therefore should not be considered in isolation or higher levels of production. We expect this development catch up to continue in the first quarter, 2012 and scheduled as an alternative to or more meaningful than, net income (loss) or cash flow from operating activities as determined in accordance with IFRS as an indicator of our financial performance or liquidity. The Company believes that, in addition to conventional measures prepared production grades to pick up in the second half of 2012. in accordance with IFRS, certain investors use this information to evaluate the Company’s performance and ability to generate cash flow. Mine operating profit excludes the following specific items included as operating expenses on the Consolidated Statements of Income: Depletion, Production royalties, Corporate and general, Share based compensation and Amortization of capital assets.4 WESDOME GOLD MINES LTD. 2011 ANNUAL REPORT WESDOME GOLD MINES LTD. 2011 ANNUAL REPORT 5
  • 5. MANAGEMENT’S DISCUSSION AND ANALYSIS MANAGEMENT’S DISCUSSION AND ANALYSIS The new Mishi operation stockpiled 21,000 tonnes of development ore at the mill. The fourth quarter results of The areas which require management to make significant judgments, estimates and assumptions in determining operations showed a marked improvement over disappointing second and third quarters. After an extended carrying values include, but are not limited to: development cycle, our new generation of production areas and a new mine (Mishi) are coming onstream. (i) Reserves Proven and probable reserves are the economically mineable parts of the Company’s measured and indicated LIQUIDITY AND CAPITAL RESOURCES mineral resources demonstrated by at least a preliminary feasibility study. The Company estimates its proven and probable reserves and measured and indicated and inferred mineral resources based on information compiled by At December 31, 2011, the Company had working capital of $7.2 million compared to $28.8 million at December 31, appropriately qualified persons. The information relating to the geological data on the size, depth and shape of the 2010. The Company invested $19.1 million in exploration and development, $0.1 million on exploration properties, and ore body requires complex geological judgments to interpret the data. The estimation of future cash flows related $0.1 on capital equipment for a total of $19.3 million, compared to $19.4 million on exploration and development, to proven and probable reserves is based upon factors such as estimates of foreign exchange rates, commodity $0.7 million on exploration properties, and $2.2 million on capital equipment for a total of $22.3 million in 2010. prices, future capital requirements and production costs along with geological assumptions and judgments made in estimating the size and grade of the ore body. The Company traditionally maintains an inventory of refined gold bullion. At December 31, 2011, the Company held 8,652 ounces of gold at a market value of $13.9 million. This practice increases the Company’s leverage to gold prices and Changes in the proven and probable reserves or measured, indicated and inferred mineral resources estimates has proved rewarding during the bull market. may impact the carrying value of mining properties and equipment, depletion, impairment assessments and the timing of decommissioning and remediation obligations. During the second quarter, long term debt, consisting of convertible 7% debentures due May 31, 2012, in the amount of $10.6 million, became a current liability. The Company believes the debentures will either be repaid or refinanced (ii) Depletion at a favourable rate of interest. The Company is confident it has sufficient flexibility to fund these obligations given the Mining properties are depleted using the unit-of-production method (“UOP”) over a period not to exceed the current strong gold market and recent improvements in production. estimated life of the ore body based on recoverable ounces to be mined from proven and probable reserves and measured and indicated resources. The following table shows the timing of cash outflows relating to contractual obligations going forward. Mobile and other equipment is depreciated, net of residual value over the useful life of the equipment but does not Payments Due by Period (in thousands) exceed the related estimated life of the mine based on proven and probable reserves and measured and indicated Contractual Obligations Total < 1 year 1 – 2 years 3 – 5 years After 5 years resources. Equipment leases $ 1,851 $ 997 $ 854 - - Convertible debentures 11,377 11,377 - - - The calculation of the UOP rate, and therefore the annual depletion expense, could be materially affected by changes in the underlying estimates. Changes in estimates can be the result of actual future production differing $ 13,228 $ 12,374 $ 854 - - from current forecasts of future production, expansion of mineral reserves through exploration activities, differences between estimated and actual costs of mining and differences in the gold price used in the estimation of mineral reserves. OFF-BALANCE SHEET ARRANGEMENTS Significant judgment is involved in the determination of useful life and residual values for the computation of There are no off-balance sheet arrangements. depletion and no assurance can be given that actual useful lives and residual values will not differ significantly from current assumptions. TRANSACTIONS WITH RELATED PARTIES (iii) Provision for decommissioning obligations The Company assesses its provision for decommissioning on an annual basis or when new material information Key management personnel and director compensation comprised of the following: becomes available. Mining and exploration activities are subject to various laws and regulations governing the protection of the environment. In general, these laws and regulations are continually changing and the Company Three months ended Dec 31 Twelve months ended Dec 31 has made, and intends to make in the future, expenditures to comply with such laws and regulations. Accounting 2011 2010 2011 2010 for decommissioning obligations requires management to make estimates of the future costs the Company Salaries and short-term employee benefits $ 355 $ 307 $ 1,266 $ 1,130 will incur to complete the decommissioning work required to comply with existing laws and regulations at each Post employment benefits 15 8 44 36 mining operation. Also, future changes to environmental laws and regulations could increase the extent of Fair value of share-based compensation 60 17 493 256 decommissioning work required to be performed by the Company. Increases in future costs could materially $ 430 $ 332 $ 1,803 $ 1,422 impact the amounts charged to operations for decommissioning. The provision represents management’s best estimate of the present value of the future decommissioning obligation. The actual future expenditures may differ from the amounts currently provided. In fiscal 2011, the Company paid $23,900 in director’s fees (2010: $13,500) to a company whose managing partner is a (iv) Share-based payments director of the Company, $Nil in consulting fees (2010: $36,440) to a company whose president is a former director of The determination of the fair value of share-based compensation is not based on historical cost, but is derived the Company. based on subjective assumptions input into an option pricing model. The model requires that management make forecasts as to future events, including estimates of the average future hold period of issued stock options before exercise, expiry or cancellation; future volatility of the Company’s share price in the expected hold period (using SIGNIFICANT JUDGMENTS, ESTIMATES AND ASSUMPTIONS historical volatility as a reference); and the appropriate risk-free rate of interest. Stock-based compensation incorporates an expected forfeiture rate. The expected forfeiture rate is estimated based on historical forfeiture The preparation of the Company’s consolidated financial statements in conformity with IFRS requires management to rates and expectations of future forfeiture rates, and is adjusted if the actual forfeiture rate differs from the make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures expected rate. at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates and assumptions are continually evaluated and are based on management’s experience The resulting value calculated is not necessarily the value that the holder of the option could receive in an arm’s and other factors, including expectations of future events that are believed to be reasonable under the circumstances. length transaction, given that there is no market for the options and they are not transferable. It is management’s Actual results could differ from these estimates. view that the value derived is highly subjective and dependent entirely upon the input assumptions made.6 WESDOME GOLD MINES LTD. 2011 ANNUAL REPORT WESDOME GOLD MINES LTD. 2011 ANNUAL REPORT 7
  • 6. MANAGEMENT’S DISCUSSION AND ANALYSIS MANAGEMENT’S DISCUSSION AND ANALYSIS (v) Deferred taxes Determination of Fair Value Preparation of the consolidated financial statements requires an estimate of income taxes in each of the The fair value of a financial instrument is the amount of consideration that would be agreed upon in an arm’s length jurisdictions in which the Company operates. The process involves an estimate of the Company’s current tax transaction between willing parties. The Company uses the following methods and assumptions to estimate fair value exposure and an assessment of temporary differences resulting from differing treatment of items, such as of each class of financial instruments for which carrying amounts are included in the consolidated balance sheets as depreciation and depletion, for tax and accounting purposes. These differences result in deferred tax assets and follows: liabilities that are included in the Company’s consolidated statements of financial position. Cash and cash equivalents and restricted funds – The carrying amounts approximate fair values due to the short An assessment is also made to determine the likelihood that the Company’s deferred tax assets will be recovered maturity of these financial instruments. from future taxable income. Receivables – The carrying amounts approximate fair values due to the short maturity of these financial Judgment is required to continually assess changing tax interpretations, regulations and legislation, to ensure instruments. liabilities are complete and to ensure assets are realizable. The impact of different interpretations and applications could be material. Other financial liabilities – Payables and 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 (vi) Recoverability of mining properties instruments. The fair value of the convertible 7% debentures is based on the quoted market price. The Company’s management reviews the carrying values of its mining properties on a regular basis to determine whether any write-downs are necessary. The recovery of amounts recorded for mining properties depends on The fair value hierarchy for financial instruments measured at fair value is Level 1 for marketable securities. The confirmation of the Company’s interest in the underlying mineral claims, the ability of the Company to obtain Company does not have Level 2 or Level 3 inputs. the necessary financing to complete the development, and future profitable production or proceeds from the disposition thereof. Management relies on the life-of-mine plans in its assessments of economic recoverability and Financial Risk Management probability of future economic benefit. Life-of-mine plans provide an economic model to support the economic The Company is exposed to a number of different risks arising from normal course business exposures, as well as extraction of reserves and resources. A long-term life-of-mine plan and supporting geological model identifies the the Company’s use of financial instruments. These risk factors include: (1) market risks relating to commodity prices, drilling and related development work required to expand or further define the existing ore body. 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 (vii) Exploration and evaluation expenditures limits and controls; and to monitor risks and adherence to market conditions and the Company’s activities. Judgment is required in determining whether the respective costs are eligible for capitalization where applicable, and whether they are likely to be recoverable by future exploration, which may be based on assumptions about 1) Market Risk future events and circumstances. Estimates and assumptions made may change if new information becomes Market risk is the risk or uncertainty arising from possible market price movements and their impact on the available. 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. (viii) Equity component of convertible debentures The convertible debentures are classified as liabilities, with the exception of the portion relating to the conversion (a) Commodity price risk feature, resulting in the carrying value of the liability being less than its face value. The discount is being accreted The Company’s financial performance is closely linked to the price of gold which is impacted by world over the term of the debentures, utilizing the effective interest method which approximates the market rate at the economic events that dictate the levels of supply and demand. The Company had no gold price hedge date the debentures were issued. Management uses its judgment to determine an interest rate that would have contracts in place as at or during the year ended December 31, 2011 and 2010. been applicable to non-convertible debt at the time the debentures were issued. (b) Foreign currency exchange risk The Company’s revenue is exposed to changes in foreign exchange rates as the Company’s primary FINANCIAL INSTRUMENTS – DISCLOSURES AND PRESENTATION product, gold, is priced in U.S. dollars. The Company had no forward exchange rate contracts in place and no foreign currency holdings as at or during the years ended December 31, 2011 and 2010. 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 (c) Interest rate risk financial instruments to which the Company is exposed during the period and at the statement of financial position Interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of date, and how the Company manages those risks. changes in market interest rates. Financial Instruments – Fair Values Financial assets and financial liabilities with variable interest rates expose the Company to cash flow interest Following is a table which sets out the fair values of recognized financial instruments using the valuation methods and rate risk. The Company’s cash and cash equivalents include highly liquid investments that earn interest at assumptions described below: market rates and interest paid on the Company’s convertible debentures is based on a fixed interest rate. Fluctuations in market rates of interest do not have a significant impact on the Company’s results of operations December 31, 2011 December 31, 2010 January 1, 2010 due to the short term to maturity of the investments held. Carrying Fair Carrying Fair Carrying Fair Value Value Value Value Value Value 2) Liquidity Risk Financial Assets 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 Available-for-sale: activities. The Company believes it has access to sufficient capital through internally generated cash flows and Marketable securities $ - $ - $ - $ - $ 211 $ 211 equity and debt capital markets. Senior management is also actively involved in the review and approval of planned expenditures. Financial Liabilities Other financial liabilities Convertible 7% debentures $ 0,726 1 $ 1,040 1 $ 0,072 1 $ 1,696 1 $ 9,483 $ 11,1228 WESDOME GOLD MINES LTD. 2011 ANNUAL REPORT WESDOME GOLD MINES LTD. 2011 ANNUAL REPORT 9
  • 7. MANAGEMENT’S DISCUSSION AND ANALYSIS MANAGEMENT’S DISCUSSION AND ANALYSIS The following table shows the timing of cash outflows relating to payables and accruals, mining taxes, capital While it is possible that the costs and delays associated with compliance with such laws, regulations and permits could leases and convertible debentures: 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 December 31, 2011 <1 Year 1-2 Years 3-5 Years Over 5 Years or operation of any specific property. Payables & accruals $ 8,944 - - - Finance leases $ 997 $ 854 - - In Ontario, the Company has obtained approval for its closure plan for the Eagle River mill, Eagle River mine and the Convertible debentures $ 11,377 - - - Mishi-Magnacon complex and has provided security of approximately $0.9 million to cover estimated rehabilitation and closure costs. In Quebec, the Company has obtained approval for its closure plan for the Kiena mine and milling complex and has provided security of approximately $0.7 million to cover estimated rehabilitation and closure costs. In December 31, 2010 <1 Year 1-2 Years 3-5 Years Over 5 Years the event of any future expansion or alteration of a mine on the Eagle River property or the Kiena mine, the Company Payables & accruals $ 12,938 - - - would likely be required to amend its closure plans and could also be required to provide further security. The Company Finance leases $ 1,422 $ 1,653 $ 198 - believes it is currently in compliance in all material respects with the legislation described above. Convertible debentures $ 765 $ 11,377 - - Reliance on Management 3) Credit Risk The Company is heavily reliant on the experience and expertise of its executive officers. If any of these individuals Credit risk is the risk of a financial loss to the Company if a customer or counterparty to a financial instrument should cease to be available to manage the affairs of the Company, its activities and operations could be adversely fails to meet its contractual obligation. The Company minimizes its credit risk by selling its gold exclusively to affected. 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 Economic Conditions value of cash and cash equivalents, accounts receivable and funds held against standby letters of credit. General levels of economic activity and recessionary conditions may have an adverse impact on the Company’s business. 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 Mineral Resource and Mineral Reserve Estimates limitations. 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 RISKS AND UNCERTAINTIES 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 The operations of the Company are speculative due to the high risk nature of its business which is the operation, on the Company’s financial position and results of operations. exploration and development of mineral properties. In addition to risks described elsewhere herein, shareholders should note the following: Competition The mining industry is intensely competitive in all of its phases, and the Company competes with many companies Nature of Mineral Exploration possessing greater financial resources and technical facilities in its search for, and the acquisition of, mineral The exploration for and development of mineral deposits involves significant financial risks which even a combination properties as well as the recruitment and retention of qualified employees with technical skills and experience in the of careful evaluation, experience and knowledge may not eliminate. While the discovery of an orebody may result in mining industry. There can be no assurance that the Company will be able to compete successfully with others in substantial rewards, few properties which are explored are ultimately developed into producing mines. Major expenses acquiring mineral properties, obtaining adequate financing and continuing to attract and retain skilled and experienced may be required to establish ore reserves, to develop metallurgical processes and to construct mining and processing employees. 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. Conflicts of Interest Certain officers and directors of the Company are, or may be, associated with other companies that acquire interests in Whether a mineral deposit will be commercially viable depends on a number of factors, some of which are the mineral properties. Such associations may give rise to conflicts of interest from time to time. The directors are required particular attributes of the deposit, such as size, grade and proximity to infrastructure, as well as metal prices which are by law to act honestly and in good faith with a view to the best interests of the Company and to disclose any interest highly cyclical and government regulations. The exact effect of these factors cannot be accurately predicted, but the which they may have in any project or opportunity of the Company. Not every officer or director devotes all of their time combination of these factors may result in the Company not receiving an adequate return on invested capital. and attention to the affairs of the Company. Mining Risks and Insurance Insurance The business of mining is generally subject to a number of risks and hazards, including environmental hazards, The Company carries insurance to protect against certain risks in such amounts as it considers adequate. Risks not industrial accidents, labour disputes, encountering unusual or unexpected geologic formations, cave-ins, flooding insured against include environmental pollution, mine flooding or other hazards against which such companies cannot and periodic interruptions due to inclement or hazardous weather conditions. Such risks could result in damage to, insure or against which they may elect not to insure. 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 Additional Funding Requirements other hazards as a result of disposal of waste products occurring from exploration and production) is not generally Further exploration on, and development of, the Company’s mineral resource properties, will require additional capital. available to the Company or to other companies within the industry. 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 Government Regulations and Environmental Matters will depend upon the Company’s ability to either generate sufficient funds internally or to obtain financing through the The Company’s activities are subject to extensive federal, provincial and local laws and regulations controlling not joint venturing of projects, debt financing, equity financing or other means. Although the Company has been successful only the mining of and exploration for mineral properties, but also the possible effects of such activities upon the in the past in obtaining financing through the sale of equity securities and the issuance of debt instruments, there can environment. Permits from a variety of regulatory authorities are required for many aspects of mine operation and be no assurance that it will obtain adequate financing in the future. 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 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.10 WESDOME GOLD MINES LTD. 2011 ANNUAL REPORT WESDOME GOLD MINES LTD. 2011 ANNUAL REPORT 11
  • 8. MANAGEMENT’S DISCUSSION AND ANALYSIS MANAGEMENT’S DISCUSSION AND ANALYSIS CHANGES TO ACCOUNTING POLICIES application of IAS 32 involves separating two portions of equity, the first portion is in retained earnings and represents the cumulative interest accreted on the liability components, while the other portion represents the Transition to International Financial Reporting Standards (“IFRS”) original equity component. The Company has utilized this IFRS 1 exemption to not require separation of these two The Company has adopted IFRS for its 2011 fiscal year as required by the Accounting Standards Board of the Canadian portions if the liability component is no longer outstanding at the transition date. Institute of Chartered Accountants. The Company provided information on its transition to IFRS in its March 31, 2011, Interim Management’s Discussion and Analysis. The consolidated financial statements for the year ended December 31, (d) Mineral property, plant and equipment – deemed cost 2011, are the first annual financial statements prepared under IFRS. IFRS 1 includes an election to use fair value or revaluation as deemed cost for property, plant and equipment, and is available on an asset-by-asset basis. The IFRS 1 election is separate from the policy choice available to measure Also, Note 27 of our audited consolidated financial statements for the year ended December 31, 2011, contains a long-lived assets at cost or under the revaluation model. The Company has elected to apply the IFRS 1 exemption detailed description of our conversion to IFRS, including a line-by-line reconciliation of financial statements previously to certain mobile equipment, which has resulted in an increase in mineral properties and equipment of $6.3 million prepared under Canadian GAAP to those under IFRS. as at January 1, 2010, with a corresponding increase in retained earnings. Below please find a summary of the important elements regarding the transition: (e) Gain or loss on disposal of mining equipment As a result of the Company’s revaluing its mining equipment as at January 1, 2010, disposals of equipment in 2010 IFRS 1 – “First-time Adoption of International Financial Reporting Standards” (“IFRS 1”) governs the first-time adoption resulted in a reduction in the gain on disposals of $0.2 million. of IFRS. IFRS 1, in general, requires accounting policies under IFRS to be applied retrospectively to determine the statement of financial position of the Company as of the transition date of January 1, 2010, and allows certain (f) Decommissioning liability exemptions which the Company has elected to apply. Under IFRS 1, an entity can elect not to retrospectively calculate the effect of each change in estimate that occurred prior to the transition date on the decommissioning asset and related depletion. Instead, it can elect to The Company’s financial statements for the year ending December 31, 2011 are the first annual consolidated financial measure the liability at the transition date in accordance with IAS 37. The Company has elected to use the IFRS statements to comply with IFRS. The adoption of IFRS has not materially changed the Company’s overall cash flows or 1 exemption and has measured the decommissioning asset and liability accordingly. The effect was to increase operations, however, it has resulted in certain differences in recognition, measurement and disclosure as compared to mineral property and equipment and decommissioning liability by $0.2 million as at January 1, 2010. Canadian generally accepted accounting principles (“Canadian GAAP”). Required Changes In preparing the financial statements for the years ended December 31, 2011 and 2010, and the disclosures included (g) Dilution reclassification in these financial statements, all comparative amounts have been restated to comply with IFRS, except where the Under IFRS, dilution gains or losses as a result of a change in percentage ownership of subsidiary companies Company has applied the optional exemptions and mandatory exceptions under IFRS 1. The Company’s transition date are recorded in contributed surplus. The Company transferred $0.4 million from retained earnings to contributed is January 1, 2010 (“the transition date”) and the Company prepared its opening IFRS statement of financial position surplus as at January 1, 2010. at that date. These financial statements have been prepared in accordance with the accounting policies described in Note 3. The Company has reconciled the following financial statements as prepared under Canadian GAAP to those (h) Reclassification of flow-through shares prepared under IFRS for the following periods: The Company has issued flow-through shares in the past. IFRS requires the difference between quoted market price • Consolidated statements of financial position as at January 1, 2010 and December 31, 2010 of the same class of share without the flow-through feature and the amount the investor pays for the shares, or • Consolidated statement of total equity as at December 31, 2010 premium, be recorded as a liability. The premium previously recorded in share capital in the amount of $1.1 million was • Consolidated statement of income and comprehensive income for the year ended December 31, 2010 transferred to retained earnings. IFRS 1 - “First-time Adoption of International Financial Reporting Standards” sets forth guidance for the initial adoption of Under the terms of flow-through share agreements, the tax attributes of the related expenditures are renounced IFRS. Under IFRS 1, the standards are applied retrospectively at the transitional statement of financial position date with to subscribers. Under IFRS the tax effect of the flow- through share renunciations are recorded in tax expense. The all adjustments to assets and liabilities charged or credited to retained earnings unless certain exemptions are applied. renunciations previously charged to share capital were transferred to retained earnings in the amount of $5.1 million. The Company has applied the following exceptions, exemptions, and changes to its opening statement of financial position dated January 1, 2010: The net effect was a decrease in retained earnings of $4.1 million. Exceptions (i) Reclassification of share issuance costs (i) Financial instruments IFRS requires that current and deferred taxes be recognized in equity or in other comprehensive income when Financial assets and liabilities that had been de-recognized before January 1, 2004 under Canadian GAAP have not they relate to transactions or events recognized in equity or other comprehensive income in either the current or been recognized under IFRS. a prior period. This concept impacts the balance of the Company’s unclaimed financing fees as at January 1, 2010. IFRS requires the balance to be transferred from retained earnings to share capital. The balance of deferred taxes (ii) Estimates relating to unclaimed financing fees as at January 1, 2010 was $0.1 million. The Company has used estimates under IFRS that are consistent with those applied under Canadian GAAP unless there is objective evidence those estimates were in error. (j) Reclassification and revision of deferred taxes Under IFRS current future income taxes in the amount of $1.2 million were reclassified to deferred income taxes. On transition, a revision in deferred taxes in the amount of $0.1 million was recorded as a result of the tax impact of Exemptions the following IFRS transitional adjustments: (a) Business combinations • revaluation of mobile equipment at deemed cost IFRS 1 indicates that a first-time adopter may elect not to apply IFRS 3 – “Business Combinations” retrospectively to • re-measurement of the decommissioning liability at the transition date business combinations that occurred before the date of transition to IFRS. The Company has utilized this election • revision of depletion due to the change in measurement of depletion, and the subsequent impact on the and has therefore applied IFRS 3 only to business combinations that occurred on or after January 1, 2010. valuation of the bullion inventory (b) Share-based payment transactions Policy Changes The Company has elected not to apply IFRS 2 to awards that vested prior to January 1, 2010, which have been (k) Depletion – Units-of-production accounted for in accordance with Canadian GAAP. There was no material impact on the financial statements of The transition from tonnes to ounces as the Company’s UOP resulted in an increase in the estimated accumulated applying IFRS 2 to unvested options at the transition date. The rate of forfeiture of unvested options was minimal. depletion of $6.0 million as at January 1, 2010. Depletion for 2010 also decreased by $3.0 million, of which $0.2 million was applied to bullion inventory. (c) Compound financial instruments IAS 32 Financial Instruments: Presentation requires an entity to split a compound financial instrument at inception into separate liability and equity components. If the liability component is no longer outstanding, retrospective12 WESDOME GOLD MINES LTD. 2011 ANNUAL REPORT WESDOME GOLD MINES LTD. 2011 ANNUAL REPORT 13
  • 9. MANAGEMENT’S DISCUSSION AND ANALYSIS MANAGEMENT’S DISCUSSION AND ANALYSIS (l) Contributed surplus – Expired warrants and options MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING During the current fiscal year, after the issuance of the Company’s first interim IFRS financial report, the Company changed its policy of accounting for contributed surplus. Under the new policy, the value of any expired warrants Disclosure Controls and Procedures and options recorded to contributed surplus is reclassified to retained earnings at the time of expiry. This change In accordance with the requirements of National Instrument 52-109 “Certification of Disclosure in Issuers’ Annual and resulted in an increase in retained earnings of $2.2 million as at January 1, 2010, and $0.1 million as at December Interim Filings.” The Company’s management, including the Chief Executive Officer (“CEO”) and the Chief Financial 31, 2010. 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, 2011, the (m) Contributed surplus – Share repurchases Company’s disclosure controls and procedures to provide reasonable assurance that the information required to be During the current fiscal year, after the issuance of the Company’s first interim IFRS financial report, the Company disclosed by the Company in reports it files is recorded, processed, summarized and reported within the appropriate changed its policy of accounting for share repurchases. Under the new policy, premiums are first recorded to time periods and forms were effective. contributed surplus to the extent that there are discounts remaining, before being charged to retained earnings. This change resulted in an increase in retained earnings of $0.0 million as at January 1, 2010, and no change as at Internal Control over Financial Reporting December 31, 2010. 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 Presentation Differences applicable Canadian GAAP. Internal control over financial reporting should include those policies and procedures that Certain presentation differences between previous Canadian GAAP and IFRS have no impact on reported income or establish the following: total equity. • maintenance of records in reasonable detail, that accurately and fairly reflect the transactions and dispositions of our assets Some assets and liabilities have been reclassified under IFRS at the transition date. A reclassification has been • reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements recorded for “non-controlling interest”. “Deferred income taxes”, “Dilution loss on Moss Lake Gold Mines Ltd.” and in accordance with applicable Canadian GAAP “Loss on marketable securities” have also been reclassified on the December 31, 2010 financial statements. • receipts and expenditures are only being made in accordance with authorizations of management and the Board of Directors Some line items are described differently (renamed) under IFRS compared to previous Canadian GAAP, although the • reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets and liabilities included in these line items are unaffected. These line items are as follows (with previous Canadian our assets that could have a material effect on the financial instruments GAAP description in brackets): Deferred taxes (Future taxes) The Company’s management, with the participation of the CEO and CFO, assessed the effectiveness of the Company’s Equity attributable to owners of the parent (Shareholders’ Equity) internal controls over financial reporting and concluded that as at December 31, 2011, the Company’s internal control Finance leases (Capital leases) over financial reporting was effective. Provisions (Decommissioning liability) Limitations of Controls and Procedures Cash Flow Statement The Company’s management, including the CEO and CFO, believe that any disclosure controls and procedures or The presentation of the cash flow statement in accordance with IFRS differs from the presentation of the cash internal control over financial reporting, no matter how well conceived and operated can provide only reasonable, not flow statement in accordance with Canadian GAAP. The changes made to the statements of financial position and absolute, assurance that the objectives of the control system are met. Further, the design of a control system must statements of income and comprehensive income have resulted in reclassifications of various amounts on the reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their statement of cash flows. 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 Information Systems limitations in a cost effective control system, misstatements due to error or fraud may occur and not be detected. IT implications were assessed with respect to additional information required under IFRS. No significant changes were required to operate the accounting system under IFRS. OUTLOOK Internal Controls Management is responsible for ensuring that processes are in place to provide them with sufficient knowledge to In 2012 we expect higher output levels from each mine and a full year’s contribution from the Mishi Mine. Overall support their certification of the financial statements and MD&A, more specifically assessing that the SEDAR filings are production should exceed 60,000 ounces in 2012. We expect the Eagle River Mine to produce about 28,000 ounces presenting fairly the results of the Company. Management is confident it can still certify its filings following the transition from 160,000 tonnes at a recovered grade of 5.4 gAu/tonne, the Kiena Mine to produce about 23,000 ounces from to IFRS. 300,000 tonnes at a recovered grade of 2.4 gAu/tonne and the Mishi Mine to produce about 9,000 ounces from 150,000 tonnes at a recovered grade of 1.9 gAu/tonne. We believe these estimates are conservative with upside Impact on the Business potential as progressive improvements in grade are realized. The business processes of the Company were not affected significantly by IFRS. The Company has no foreign currency transactions, no defined benefit pension plan, no hedging activities, no debt or capital covenants. The Company We expect a slow first quarter at the Kiena Mine as we catch up on development and forecast stronger grades in the doesn’t expect to enter into flow-through financing arrangements. The Company has no compensation arrangements second half of the year when the upper portions of the 388 Zone come onstream. This low-grade, high cost operation that were affected by the IFRS implementation. The Company’s Stock Option Plan is not affected by ratios or financial is extremely leveraged to the gold price. targets. We are confident in Eagle River’s potential to exceed forecasts. The Mishi Mine is just starting and requires a track Training and Communication record to be established to more confidently forecast production levels. Over Mishi’s 5-year mine plan, each year will Key finance staff has attended and continue to attend various IFRS update and training courses. IFRS standard improve in sequence as the stripping ratio declines. requirements have been communicated to other finance staff. Nonetheless, our conservative forecast of 60,000 ounces in 2012 would represent a 25% improvement over 2011 production. We remain very optimistic regarding the gold market and continue to believe our assets demonstrate SUMMARY OF SHARES ISSUED exceptional leverage to gold prices and the capacity to grow production over the short to medium term. As of March 14, 2012, the Company’s share information is as follows: Common shares issued 101,908,159 Common share purchase options 1,828,00014 WESDOME GOLD MINES LTD. 2011 ANNUAL REPORT WESDOME GOLD MINES LTD. 2011 ANNUAL REPORT 15
  • 10. Management’s Responsibility IndependentFOR Financial Statements auditor’s report To the Shareholders of Wesdome Gold Mines Ltd. The accompanying consolidated financial statements and all of We have audited the accompanying consolidated financial the data included in this annual report have been prepared by statements of Wesdome Gold Mines Ltd., which comprise the and are the responsibility of the management of the Company. consolidated statements of financial position as at December The consolidated financial statements have been prepared in 31, 2011, December 31, 2010 and January 1, 2010, and the accordance with International Financial Reporting Standards, consolidated statements of income and comprehensive as issued by the International Accounting Standards Board income, consolidated statements of total equity and and reflect management’s best estimate and judgement consolidated statements of cash flows for the years ended based on currently available information. December 31, 2011 and December 31, 2010, and a summary of significant accounting policies and other explanatory Management is also responsible for a system of internal information. control which is designed to provide reasonable assurance that assets are safeguarded, liabilities are recognized and that Management’s responsibility for the financial the accounting systems provide timely and accurate financial statements reports. Management is responsible for the preparation and fair The Board of Directors is responsible for ensuring that presentation of these consolidated financial statements in management fulfils its responsibilities in respect of financial accordance with International Financial Reporting Standards, reporting and internal control. The Audit Committee of the as issued by the International Accounting Standards Board, Board of Directors meets periodically with management and and for such internal control as management determines is the Company’s independent auditors to discuss auditing necessary to enable the preparation of consolidated financial matters and financial reporting issues. In addition, the Audit statements that are free from material misstatement, whether Committee reviews the annual consolidated financial statements before they are presented to the Board due to fraud or error. of Directors for approval. Auditor’s responsibility 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. Our 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. Toronto, Canada Brian Ma An audit involves performing procedures to obtain audit evidence about the amounts and disclosures March 14, 2012 Chief Financial Officer 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. Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Wesdome Gold Mines Ltd. as at December 31, 2011, December 31, 2010 and January 1, 2010, and its financial performance and its cash flows for the years ended December 31, 2011 and December 31, 2010, in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board. Toronto, Ontario Grant Thornton LLP March 14, 2012 Chartered Accountants16 WESDOME GOLD MINES LTD. 2011 ANNUAL REPORT WESDOME GOLD MINES LTD. 2011 ANNUAL REPORT 17
  • 11. Consolidated Statements of Consolidated Statements ofFinancial Position Income and Comprehensive Income(Expressed in thousands of Canadian dollars) (Expressed in thousands of Canadian dollars) December 31 December 31 January 1 Years Ended December 31 2011 2010 2011 2010 2010 (Note 27) Revenue Gold and silver bullion $ 79,643 $ 89,383 Assets Current Operating expenses Cash and cash equivalents (Note 6) $ 5,215 $ 22,806 $ 23,702 Mining and processing 65,016 63,296 Receivables (Note 7) 7,337 7,442 4,022 Depletion of mining properties 6,540 11,120 Inventory (Note 8) 15,271 14,077 14,638 Production royalties 822 917 Marketable securities (Note 12) - - 211 Corporate and general 2,604 2,489 27,823 44,325 42,573 Share based compensation 935 516 Restricted funds (Note 9) 2,385 2,420 2,588 Depreciation of capital assets - 9 Deferred income taxes (Note 18) 615 1,780 3,356 75,917 78,347 Capital assets - - 9 Mining properties and equipment (Note 10) 90,114 77,687 65,115 Income from operations 3,726 11,036 Exploration properties (Note 11) 30,886 30,762 30,018 $ 151,823 $ 156,974 $ 143,659 Interest and other income 549 239 Interest on long term debt (1,575) (1,598) Liabilities Other interest (Note 25) (1,301) - Current Loss on sale of marketable securities - (362) Payables and accruals $ 8,944 $ 12,938 $ 7,322 Accretion of decommissioning liability (66) (59) Mining taxes - 1,317 - Income before income tax 1,333 9,256 Current portion of obligations under finance leases 913 1,262 1,240 Income tax expense (recovery) (Note 18) Convertible 7% debentures (Note 14) 10,726 - - Current (72) 1,293 20,583 15,517 8,562 Deferred 1,165 2,692 Income taxes payable 22 58 82 1,093 3,985 Obligations under finance leases (Note 13) 818 1,735 1,108 Convertible 7% debentures (Note 14) - 10,072 9,483 Net income 240 5,271 Provisions (Note 15) 1,593 1,574 1,517 Total comprehensive income $ 240 $ 5,271 23,016 28,956 20,752 Net income (loss) attributable to: Equity Non-controlling interest $ (208) $ (112) Equity attributable to owners of the Company Owners of the Company 448 5,383 Capital stock (Note 16) 122,685 120,496 118,846 $ 240 $ 5,271 Contributed surplus 1,960 1,867 2,008 Accumulated other comprehensive loss - - (222) Total comprehensive income (loss) attributable to: Equity component of convertible debentures (Note 14) 1,970 1,970 1,970 Non-controlling interest $ (208) $ (112) Retained earnings (accumulated deficit) 1,585 2,945 (552) Owners of the Company 448 5,383 128,200 127,278 122,050 $ 240 $ 5,271 Non-controlling interest 607 740 857 Total equity 128,807 128,018 122,907 Earnings and comprehensive earnings per share $ 151,823 $ 156,974 $ 143,659 Basic (Note 19) $ 0.00 $ 0.05 Diluted (Note 19) $ 0.00 $ 0.05 On behalf of the Board, Donovan Pollitt Marc Blais Director Director See accompanying notes to the consolidated financial statements See accompanying notes to the consolidated financial statements18 WESDOME GOLD MINES LTD. 2011 ANNUAL REPORT WESDOME GOLD MINES LTD. 2011 ANNUAL REPORT 19
  • 12. Consolidated Statements of Consolidated Statements ofTotal Equity Cash Flows(Expressed in thousands of Canadian dollars) (Expressed in thousands of Canadian dollars) ontributed Surplus C Accumulated Equity Total Years Ended December 31 2011 2010 Share Other Component Retained Attributable Capital Based Share Dilution Comprehensive Convertible Earnings to Owners Non-Controlling Total Stock Payments Repurchases Gains Income (loss) Debentures (Deficit) f the Company o Interest Equity Operating activities Balance, January 1, 2010 $ 18,846 1 $ 1,106 $ 467 $ 435 $ (222) $ 1,970 $ (552) $ 22,050 1 $ 857 $ 22,907 1 Net income $ 240 $ 5,271 Depletion of mining properties 6,540 11,020 Net income (loss) for the year ended December 31, 2010 - - - - - - 5,383 5,383 (112) 5,271 Accretion of discount on convertible debentures 654 589 Gain on sale of equipment (19) - Share issuance costs (27) - - - - - - (27) - (27) Share based compensation 935 516 Exercise of options 1,232 - - - - - - 1,232 - 1,232 Depreciation of capital assets - 9 Value attributed to options Deferred income taxes 1,165 2,692 exercised 479 (479) - - - - - - - - Loss on sale of marketable securities - 362 Value attributed to options Interest paid 920 1,009 expired - (127) - - - - 127 - - - Accretion of decommissioning liability 66 59 Share based payments - 516 - - - - - 516 - 516 10,501 21,527 Realized loss on sale of Net changes in non-cash working capital (Note 23) (5,532) 3,387 marketable securities - - - - 262 - - 262 - 262 4,969 24,914 Revaluation to fair value of marketable securites - - - - (40) - - (40) - (40) Financing activities Dividends paid - - - - - - (2,013) (2,013) - (2,013) Exercise of options 1,600 1,232 Shares purchased under Shares issued by a subsidiary of the Company to third parties 160 - normal course issuer bid (34) - (44) - - - - (78) - (78) Funds paid to repurchase common shares under NCIB (118) (78) Dilution of non-controlling Share issuance costs - (40) interest - - - (7) - - - (7) (5) (12) Repayment of obligations under finance leases (1,266) (1,589) Balance, December 31, 2010 120,496 1,016 423 428 - 1,970 2,945 127,278 740 128,018 Interest paid (920) (1,009) Net income (loss) for the year Dividends paid (2,028) (2,013) ended December 31, 2011 - - - - - - 448 448 (208) 240 (2,572) (3,497) Exercise of options 1,600 - - - - - - 1,600 160 1,760 Value attributed to options Investing activities exercised 667 (667) - - - - - - - - Additions to mining and exploration properties (19,280) (23,449) Value attributed to options Proceeds on sale of equipment 161 234 expired - (220) - - - - 220 - - - Proceeds on sale of marketable securites - 71 Share based payments - 935 - - - - - 935 - 935 Funds held against standby letters of credit 35 168 Shares purchased under (19,084) (22,976) normal course issuer bid (78) - (40) - - - - (118) - (118) Net changes in non-cash working capital (Note 23) (904) 663 Dilution of non-controlling (19,988) (22,313) interest - - - 85 - - - 85 (89) (4) Subsidiary capital transactions - - - - - - - - 4 4 Decrease in cash and cash equivalents (17,591) (896) Dividends (Note 19) - - - - - - (2,028) (2,028) - (2,028) Cash and cash equivalents, beginning of year 22,806 23,702 Balance, December 31, 2011 $ 22,685 1 $ 1,064 $ 383 $ 513 $ - $ 1,970 $ 1,585 $ 28,200 1 $ 607 $ 28,807 1 Cash and cash equivalents, end of year $ 5,215 $ 22,806 Supplemental disclosure (Note 23) See accompanying notes to the consolidated financial statements See accompanying notes to the consolidated financial statements20 WESDOME GOLD MINES LTD. 2011 ANNUAL REPORT WESDOME GOLD MINES LTD. 2011 ANNUAL REPORT 21
  • 13. NOTES TO THE Consolidated Notes to the Consolidated Financial Statements Years ended December 31, 2011 and 2010 (Expressed in thousands of Canadian dollars)Financial Statements (iii) Depletion Mine development costs, property, plant and equipment and other mining assets whose estimated useful life is the same as the remaining life of the mine are depleted over a mine’s estimated life using the unit-of-production method (“UOP”) calculated based on proven and probable reserves and measured and indicated resources. Years ended December 31, 2011 and 2010 (Expressed in thousands of Canadian dollars) Where components of an asset have a different useful life and cost that is significant to the total cost of the asset, depreciation and depletion is calculated on each separate component. 1. DESCRIPTION OF BUSINESS Depreciation and depletion methods, useful lives and residual values are reviewed at a minimum at the end of each year. Wesdome Gold Mines Ltd. (“Wesdome Ltd.” or “the Company”) is a gold producer engaged in gold mining and related activities (iv) Subsequent costs including exploration, extraction, processing and reclamation. The Company’s principal assets include the Eagle River mine, the Mishi Repairs and maintenance costs are expensed as incurred. However, expenditures on major maintenance rebuilds or overhauls mine and the Eagle River mill located near Wawa, Ontario and the Kiena mining and milling complex and exploration properties located in are capitalized when it is probable that the expenditures will extend the productive capacity or useful life of an asset. Any Val D’Or, Quebec. The Company is a publicly traded company, continued under Part 1A of the Companies Act (Quebec) and its common remaining costs of previous overhauls relating to the same asset are derecognized. All other expenditures are expensed as shares are listed on the Toronto Stock Exchange (TSX : WDO). Wesdome’s head office is located at 8 King Street, Suite 1305, Toronto, incurred. ON, M5C 1B5. (v) Deferred stripping costs Stripping costs incurred to prepare the ore body for extraction are capitalized as mine development costs (pre-stripping). 2. BASIS OF PRESENTATION AND FIRST-TIME ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS Stripping costs incurred during the production phase of a mine are considered production costs and are included in the cost of inventory produced during the period in which stripping costs are incurred. Capitalized stripping costs are amortized on a UOP These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) basis over the economically recoverable proven and probable reserves and measured and indicated resources to which they as issued by the International Accounting Standards Board (“IASB”). These are the Company’s first IFRS annual consolidated financial relate. statements. (f) Leased Assets These consolidated financial statements are presented in Canadian dollars (“Cdn $”), which is also the functional currency of the When the economic ownership of a leased asset is transferred to the lessee, the lessee bears substantially all the risks and Company. rewards related to the ownership of the leased asset. The related asset is then recognized at the inception of the lease at the lower of the present value of minimum lease payments and the fair value of the leased asset and a corresponding amount is recognized These consolidated financial statements were authorized for issuance by the Board of Directors of the Company on as a finance lease liability. March 14, 2012. Depreciation methods and useful lives for assets held under finance lease agreements correspond to those applied to comparable assets which are legally owned by the Company. The corresponding finance lease liability is reduced by lease payments less 3. SIGNIFICANT ACCOUNTING POLICIES finance charges, which are expensed as part of finance costs. (a) Basis of Consolidation The interest portion of lease payments is charged to profit or loss over the period of the lease. Associated costs, such as These consolidated financial statements include the financial statements of the parent company and its 56.8% (2010: 57.6%) owned maintenance and insurance, are expensed as incurred. subsidiary, Moss Lake Gold Mines Ltd. (“MLGM”). (g) Exploration and Evaluation Costs All transactions and balances between the parent company and its subsidiary are eliminated on consolidation. Exploration expenditures reflect the costs related to the initial search for mineral deposits with economic potential or obtaining more information about existing mineral deposits. Exploration expenditures typically include costs associated with sampling, mapping, Non-controlling interests in the Company’s less than wholly-owned subsidiary are classified as a separate component of equity. On diamond drilling and other work involved in searching for ore. All expenditures relating to exploration activities are capitalized as initial recognition, non-controlling interests are measured at their proportionate share of the acquisition-date fair value of identifiable incurred from the point at which the Company receives the legal right to explore. net assets of the related subsidiary acquired by the Company. Subsequent to the acquisition date, adjustments are made to the carrying amount of non-controlling interests for the non-controlling interests’ share of changes to the subsidiary’s equity. Evaluation expenditures reflect costs incurred at exploration projects related to establishing the technical and commercial viability of Adjustments to recognize the non-controlling interests’ share of changes to the subsidiary’s equity are made even if this results in developing mineral deposits identified through exploration or acquired through a business combination or asset acquisition. the non-controlling interests having a deficit balance. Evaluation expenditures include the cost of: Changes in the Company’s ownership interest in a subsidiary that do not result in a loss of control are recorded as equity transactions. The carrying amount of non-controlling interests is adjusted to reflect the change in the non-controlling interests’ (i) establishing the volume and grade of deposits through drilling of core samples, trenching and sampling activities in an ore relative interest in the subsidiary and the difference between the adjustment to the carrying amount of non-controlling interests and body that is classified as either a mineral resource or a proven and probable reserve, the Company’s share of proceeds received and/or consideration paid is recognized directly in equity and attributed to shareholders of the Company. (ii) determining the optimal methods of extraction and metallurgical and treatment processes, (b) Revenue Recognition (iii) studies related to surveying, transportation and infrastructure requirements, 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, it is probable that the economic benefits will be realized, and (iv) permitting activities, and collection is reasonably assured. (v) economic evaluations to determine whether development of the mineralized material is commercially justified, including Interest and other revenue are reported on an accrual basis using the effective interest method. scoping, prefeasibility and final feasibility studies. (c) Cash and Cash Equivalents Costs in relation to these activities are capitalized as incurred under exploration properties until such time as the Company expects Cash and cash equivalents include cash on hand, balances with banks and highly liquid investments with maturities of less than that mineral resources will be converted to mineral reserves within a reasonable period and mine development commences. three months. Thereafter, accumulated exploration and evaluation costs for the project are reclassified to mining properties. Exploration and evaluation costs of abandoned properties are expensed in the period in which the project is abandoned. (d) Inventory Inventories of gold bullion are recorded at the lower of production costs on a first-in, first-out basis and net realizable value. (h) Impairment of Non-Financial Assets Production costs include costs related to mining, crushing, and mill processing, as well as applicable overhead, and depletion. For impairment assessment purposes, assets are grouped at the lowest levels for which there are largely independent cash inflows (cash generating units (“CGUs”)). The Company’s CGUs are its individual operating mine sites. At the end of each reporting period, Supplies are valued at the lower of average cost and replacement cost, which approximates net realizable value. the Company reviews and evaluates its mining properties and equipment at the cash-generating unit (“CGU”) level to determine whether there is any indication that these assets are impaired. If any such indication exists, the recoverable amount of the relevant (e) Mining Properties and Equipment CGU is estimated in order to determine the extent of impairment. (i) Cost and valuation Mining properties, plant and equipment are carried at cost less accumulated depletion and any impairment in value. When an The recoverable amount of a mine site is the greater of its fair value less costs to sell and its value-in-use. The value-in-use is asset is disposed of, it is derecognized and the difference between its carrying value and net sales proceeds is recognized as estimated as the discounted future after-tax cash flows expected to be derived from a mine site. If the recoverable amount of a a gain or loss in profit or loss. mine site is estimated to be less than its carrying amount, the carrying amount is reduced to its recoverable amount. Impairment losses are recognized as operating expenses in the period they are incurred. When an impairment loss reverses in a subsequent (ii) Mining properties and equipment period, the carrying amount of the related asset is increased to the revised estimate of recoverable amount to the extent that the Mining properties and equipment include expenditures incurred on properties under development, payments related to the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been acquisition of land and mineral rights and property, plant and equipment which are recorded at cost on initial acquisition. Cost recognized for the asset previously. Reversals of impairment losses are recognized in profit or loss in the period the reversals includes the purchase price and the directly attributable costs of acquisition or construction required to bring an asset to the occur. location and condition necessary for the asset to be capable of operating in the manner intended by management. (i) Income Taxes Property acquisition and mine development costs are recorded at cost. Pre-production expenditures are capitalized until Income taxes are calculated using the liability method where current income taxes are recognized as an expense for the estimated the commencement of production. Mine development costs incurred to expand operating capacity, develop new ore bodies income taxes payable for the current period. or develop mine areas in advance of current production are capitalized. Mine development costs related to current period production are charged to operations as incurred.22 WESDOME GOLD MINES LTD. 2011 ANNUAL REPORT WESDOME GOLD MINES LTD. 2011 ANNUAL REPORT 23
  • 14. Notes to the Consolidated Financial Statements Notes to the Consolidated Financial StatementsYears ended December 31, 2011 and 2010 (Expressed in thousands of Canadian dollars) Years ended December 31, 2011 and 2010 (Expressed in thousands of Canadian dollars) Deferred income tax assets and liabilities are determined based on differences between the financial reporting and tax bases of (n) Convertible Notes assets and liabilities and on unclaimed losses carried forward, to the extent that it is probable that deductions, credits and tax The holder has the right to demand that the Company pay all or part of the liability associated with the Company’s outstanding losses can be utilized, and are measured using the enacted or substantively enacted tax rates that will be in effect when the convertible notes in cash on the conversion date. Accordingly the Company classifies the convertible notes as a financial liability differences are expected to reverse or losses are expected to be utilized. Deferred income taxes relating to the initial recognition with a conversion feature. The conversion feature is recognized initially at its fair value, as a separate component of equity. The of an asset or liability in a transaction that, at the time of the transaction, neither affects accounting nor taxable income, are not liability component is recognized initially as the difference between the fair value of the convertible notes as a whole and the value recognized. The deferred tax relating to items recorded in other comprehensive income is linked to these items for reporting of conversion feature. The liability component is recognized at amortized cost using the effective interest method. purposes. Interest, gains and losses related to the liability component are recognized in profit or loss. On a consolidated basis the Company does not offset asset and liability amounts with those of the subsidiary and with amounts owing to different taxation authorities. Deferred tax assets and liabilities are offset only when the Company has a right and intention (o) Flow-through Shares to set off current tax assets and liabilities from the same taxation authority. 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. The Company (j) Equity, Reserves and Dividend Payments allocates the proceeds from the issuance of these shares between the offering of shares and the tax benefits to be renounced Share capital represents the consideration received for shares that have been issued, net of related issuance costs. to subscribers. The allocation is made based on the difference between the quoted price of the same class of share without the flow-through feature and the amount the investor pays for the flow-through shares. A deferred flow-through premium liability is Contributed surplus includes the value of share based payments net of the value of expired grants; discounts, net of premiums, on recognized for the difference. The liability is reversed after the expenditures are made and the Company expresses its intention shares repurchased; and dilution gains and losses relating to non-controlling interest. to renounce the expenditures and is recorded in other income. The renunciation also gives rise to a taxable temporary difference between the accounting and tax bases of the qualifying expenditure. Retained earnings include all current and prior period retained profits. (p) Share-based Payments Dividend distributions payable to equity shareholders are included in “current liabilities” when the dividends have been approved in a The Company’s share-based stock option plan is designed to advance the interests of the Company by encouraging employees, directors’ meeting prior to the reporting date. officers and directors to have equity participation in the Company through the acquisition of common shares. Stock options granted vest either immediately or over the term of the option. Stock options have an exercise price of no less than the closing price of (k) Employee Benefits the common shares on the Toronto Stock Exchange on the trading day immediately preceding the date on which the options are Salaries and short-term employee benefits granted and are exercisable for a period not to exceed five years. The cost of these stock options is measured using the estimated Salaries and short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related fair value at the date of the grant determined using the Black-Scholes option pricing model. service is provided. The Black-Scholes option pricing model requires the input of subjective assumptions, including the expected term of the option Post-employment benefits and stock price volatility. The expected term of options granted is determined based on historical data on the average hold period Post-employment benefits include a defined contribution plan under which the Company pays fixed contributions through a before exercise, expiry or cancellation. Annually, the estimated forfeiture rate is adjusted for actual forfeitures in the period. separate entity. Under this plan, the Company will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution plans are recognized as an employee benefit expense when due. Expected volatility is estimated with reference to the historical volatility of the share price of the Company. The costs are recognized over the vesting period of the option. The total amount recognized as an expense is adjusted to reflect the number of options (l) Provisions expected to vest at each reporting date. The corresponding credit for these costs is recognized in the share-based payment (i) General reserve in equity. Provisions are recognized when present obligations, as a result of a past event, will probably lead to an outflow of economic resources from the Company and amounts can be estimated reliably. The timing or amount of the outflow may still be (q) Comprehensive Income uncertain. A present obligation arises from the presence of a legal or constructive commitment that has resulted from past Comprehensive income is the change in the Company’s net assets arising from transactions, events and circumstances not related events. Provisions are not recognized for future operating losses. to the Company’s shareholders and include items that would not normally be included in profit or loss such as unrealized gains or losses on available-for-sale investments. Provisions are based on the most reliable information available at the reporting date, including the risks and uncertainties associated with the current best estimate. (r) Operating Segments The Company operates in one industry segment, the gold mining and related activities industry including exploration, extraction, (ii) Decommissioning Liability processing and decommissioning. All of the Company’s operations are located within one geographical area. The Company’s mining and exploration activities are subject to various government laws and regulations relating to the protection of the environment. These laws and regulations are continually changing and are generally becoming more restrictive. The Company has made, and will continue to make expenditures to comply with such laws and regulations. 4. SIGNIFICANT JUDGMENTS, ESTIMATES AND ASSUMPTIONS Decommissioning and closure costs expected to be incurred in the future are estimated by the Company’s management based on the information available to them. The preparation of the Company’s consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures at the date of the consolidated Actual decommissioning and closure costs could be materially different from the current estimates. Any change in cost financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates and assumptions are estimates, discount rates, or other assumptions should additional information become available would be accounted for on a continually evaluated and are based on management’s experience and other factors, including expectations of future events that are prospective basis. The Company’s estimates are reviewed annually for changes in regulatory requirements, discount rates, believed to be reasonable under the circumstances. Actual results could differ from these estimates. and changes in estimates. Management considers the Bank of Canada bond rate related to the life of mine when determining the discount rate. The rate is subsequently adjusted for risk to allow for the indeterminate nature of the mine life. The areas which require management to make significant judgments, estimates and assumptions in determining carrying values include, but are not limited to: The net present value of the future rehabilitation cost estimates arising from decommissioning of property, plant and equipment is recognized in the period in which it is incurred with an offsetting amount being recognized as an increase in the (i) Reserves carrying amount of the corresponding mining asset. This asset is amortized on a UOP basis over the estimated life of the mine Proven and probable reserves are the economically mineable parts of the Company’s measured and indicated mineral resources while the corresponding liability accretes to its undiscounted value by the end of the mine’s life. demonstrated by at least a preliminary feasibility study. The Company estimates its proven and probable reserves and measured and indicated and inferred mineral resources based on information compiled by appropriately qualified persons. The information (m) Financial Instrument Classification and Measurement relating to the geological data on the size, depth and shape of the ore body requires complex geological judgments to interpret Financial instruments are measured on initial recognition at fair value, and, in the case of financial instruments other than those the data. The estimation of future cash flows related to proven and probable reserves is based upon factors such as estimates of classified as ‘‘fair value through profit and loss’’, directly attributable transaction costs. Measurement of financial assets in foreign exchange rates, commodity prices, future capital requirements and production costs along with geological assumptions and subsequent periods depends on whether the financial instrument has been classified as ‘‘fair value through profit and loss’’, judgments made in estimating the size and grade of the ore body. ‘‘available-for-sale’’, ‘‘held-to-maturity’’, or ‘‘loans and receivables’’ as defined by IAS 39 – ‘‘Financial Instruments”: Changes in the proven and probable reserves or measured, indicated and inferred mineral resources estimates may impact the Recognition and Measurement carrying value of mining properties and equipment, depletion, impairment assessments and the timing of decommissioning and Measurement of financial liabilities subsequent to initial recognition depends on whether they are classified as fair value through remediation obligations profit and loss or ‘‘other financial liabilities’’. (ii) Depletion Financial assets and financial liabilities at fair value through profit and loss include financial assets and financial liabilities that are held Mining properties are depleted using the unit-of-production method (“UOP”) over a period not to exceed the estimated life of the for trading or designated upon initial recognition as at fair value through profit and loss. These financial instruments are measured at ore body based on recoverable ounces to be mined from proven and probable reserves and measured and indicated resources. fair value with changes in fair values recognized in profit or loss. Mobile and other equipment is depreciated, net of residual value over the useful life of the equipment but does not exceed the Financial assets designated as available-for-sale are measured at fair value, with changes in fair values recognized in other related estimated life of the mine based on proven and probable reserves and measured and indicated resources. comprehensive income (“OCI”), except when there is objective evidence that the asset is impaired, at which point the cumulative loss that had been previously recognized in OCI is recognized in profit or loss. Financial assets classified as held-to-maturity The calculation of the UOP rate, and therefore the annual depletion expense, could be materially affected by changes in the and loans and receivables are measured subsequent to initial recognition at amortized cost using the effective interest method. underlying estimates. Changes in estimates can be the result of actual future production differing from current forecasts of future Financial liabilities, other than financial liabilities classified as fair value through profit and loss, are measured in subsequent periods production, expansion of mineral reserves through exploration activities, differences between estimated and actual costs of mining at amortized cost using the effective interest method. and differences in the gold price used in the estimation of mineral reserves. Cash and cash equivalents, restricted funds and receivables, are classified as loans and receivables. Long-term investments Significant judgment is involved in the determination of useful life and residual values for the computation of depletion and no in equity securities, where the Company cannot exert significant influence, are designated as available-for-sale. Payables and assurance can be given that actual useful lives and residual values will not differ significantly from current assumptions. accruals are classified as other financial liabilities.24 WESDOME GOLD MINES LTD. 2011 ANNUAL REPORT WESDOME GOLD MINES LTD. 2011 ANNUAL REPORT 25
  • 15. Notes to the Consolidated Financial Statements Notes to the Consolidated Financial StatementsYears ended December 31, 2011 and 2010 (Expressed in thousands of Canadian dollars) Years ended December 31, 2011 and 2010 (Expressed in thousands of Canadian dollars) (iii) Provision for decommissioning obligations IFRS 12 – Disclosure of Interests in Other Entities The Company assesses its provision for decommissioning on an annual basis or when new material information becomes available. IFRS 12 establishes disclosure requirements for interests in other entities, such as joint arrangements, associates, special purpose Mining and exploration activities are subject to various laws and regulations governing the protection of the environment. In general, vehicles and off balance sheet vehicles. The standard carries forward existing disclosures and also introduces significant additional these laws and regulations are continually changing and the Company has made, and intends to make in the future, expenditures disclosure requirements that address the nature of, and risks associated with, an entity’s interests in other entities. IFRS 12 is required to to comply with such laws and regulations. Accounting for decommissioning obligations requires management to make estimates be applied for annual periods beginning January 1, 2013. of the future costs the Company will incur to complete the decommissioning work required to comply with existing laws and regulations at each mining operation. Also, future changes to environmental laws and regulations could increase the extent of IFRS 13 – Fair Value Measurement decommissioning work required to be performed by the Company. Increases in future costs could materially impact the amounts IFRS 13 is a comprehensive standard for fair value measurement and disclosure requirements for use across all IFRS standards. The new charged to operations for decommissioning. The provision represents management’s best estimate of the present value of the standard clarifies that fair value is the price that would be received to sell an asset, or paid to transfer a liability in an orderly transaction future decommissioning obligation. The actual future expenditures may differ from the amounts currently provided. between market participants, at the measurement date. It also establishes disclosures about fair value measurement. Under existing IFRS, guidance on measuring and disclosing fair value is dispersed among the specific standards requiring fair value measurements and (iv) Share-based payments in many cases does not reflect a clear measurement basis or consistent disclosures. IFRS 13 is required to be applied for annual periods The determination of the fair value of share-based compensation is not based on historical cost, but is derived based on subjective beginning January 1, 2013. assumptions input into an option pricing model. The model requires that management make forecasts as to future events, including estimates of the average future hold period of issued stock options before exercise, expiry or cancellation; future volatility of the Management has yet to assess the impact that IFRS 10, IFRS 11, IFRS 12 and IFRS 13 would have on the financial statements of the Company’s share price in the expected hold period (using historical volatility as a reference); and the appropriate risk-free rate Company. of interest. Stock-based compensation incorporates an expected forfeiture rate. The expected forfeiture rate is estimated based on historical forfeiture rates and expectations of future forfeiture rates, and is adjusted if the actual forfeiture rate differs from the Amendments to Other Standards expected rate. In addition, there have been amendments to existing standards, including IAS 27, Separate Financial Statements (IAS 27), and IAS 28, Investments in Associates and Joint Ventures (IAS 28). IAS 27 addresses accounting for subsidiaries, jointly controlled entities and The resulting value calculated is not necessarily the value that the holder of the option could receive in an arm’s length transaction, associates in non-consolidated financial statements. IAS 28 has been amended to include joint ventures in its scope and to address the given that there is no market for the options and they are not transferable. It is management’s view that the value derived is highly changes in IFRS 10 to 13. The Company is currently in the process of analyzing the impact of these amendments on the consolidated subjective and dependent entirely upon the input assumptions made. financial statements. (v) Deferred taxes The IASB is expected to publish new IFRSs on the following topics during the first half of 2012. The Company will assess the impact of Preparation of the consolidated financial statements requires an estimate of income taxes in each of the jurisdictions in which the these new standards on the Company’s operations as they are published: Company operates. The process involves an estimate of the Company’s current tax exposure and an assessment of temporary • IAS 17 Leases differences resulting from differing treatment of items, such as depreciation and depletion, for tax and accounting purposes. These • IAS 18 Revenue Recognition differences result in deferred tax assets and liabilities that are included in the Company’s consolidated statements of financial position. 6. CASH AND CASH EQUIVALENTS An assessment is also made to determine the likelihood that the Company’s deferred tax assets will be recovered from future December 31 December 31 January 1 taxable income. 2011 2010 2010 Cash $ 5,215 $ 17,777 $ 23,702 Judgment is required to continually assess changing tax interpretations, regulations and legislation, to ensure liabilities are complete Term deposit (2010: 0.73%) - 5,029 - and to ensure assets are realizable. The impact of different interpretations and applications could be material. $ 5,215 $ 22,806 $ 23,702 (vi) Recoverability of mining properties The Company’s management reviews the carrying values of its mining properties on a regular basis to determine whether any write-downs are necessary. The recovery of amounts recorded for mining properties depends on confirmation of the Company’s 7. RECEIVABLES interest in the underlying mineral claims, the ability of the Company to obtain the necessary financing to complete the development, December 31 December 31 January 1 and future profitable production or proceeds from the disposition thereof. Management relies on the life-of-mine plans in its 2011 2010 2010 assessments of economic recoverability and probability of future economic benefit. Life-of-mine plans provide an economic model Mining duties refunds and tax credits $ 1,012 $ 1,012 $ 1,012 to support the economic extraction of reserves and resources. A long-term life-of-mine plan and supporting geological model Proceeds from bullion sales - 1,410 - identifies the drilling and related development work required to expand or further define the existing ore body. Goods and services tax 4,365 2,624 1,340 Prepaids 550 587 433 (vii) Exploration and evaluation expenditures Refund due from Commission de la sante et de la securitie du travail 794 944 831 Judgment is required in determining whether the respective costs are eligible for capitalization where applicable, and whether they are likely to be recoverable by future exploration, which may be based on assumptions about future events and circumstances. Deposits 158 343 263 Estimates and assumptions made may change if new information becomes available. Insurance claim - 363 - Other 458 159 143 (viii) Equity component of convertible debentures $ 7,337 $ 7,442 4,022 The convertible debentures are classified as liabilities, with the exception of the portion relating to the conversion feature, resulting in the carrying value of the liability being less than its face value. The discount is being accreted over the term of the debentures, utilizing the effective interest rate method which approximates the market rate at the date the debentures were issued. 8. INVENTORY Management uses its judgment to determine an interest rate that would have been applicable to non-convertible debt at the time December 31 December 31 January 1 the debentures were issued. 2011 2010 2010 Gold bullion $ 12,469 $ 10,986 $ 12,163 Supplies 2,802 3,091 2,475 5. UPCOMING CHANGES IN ACCOUNTING STANDARDS $ 15,271 $ 14,077 14,638 The IASB has issued IFRS 9 – ‘‘Financial Instruments: Classification and Measurement’’ which proposes to replace IAS 39. The replacement standard has the following significant components: establishes two primary measurement categories for financial assets – amortized cost and fair value; establishes criteria for classification of financial assets within the measurement category based on 9. RESTRICTED FUNDS business model and cash flow characteristics; and eliminates existing held to maturity, available for sale and loans and receivable December 31 December 31 January 1 categories. 2011 2010 2010 Relating to mine closure plans (Note 15) $ 1,635 $ 1,494 $ 1,537 This standard is effective for the Company’s annual year end beginning January 1, 2015. The Company will evaluate the impact of the Relating to hydro deposit 415 415 370 change to its consolidated financial statements based on the characteristics of its financial instruments at the time of adoption. Relating to finance leases 335 511 681 $ 2,385 $ 2,420 $ 2,588 IFRS 10 – Consolidation IFRS 10 requires an entity to consolidate an investee when it is exposed, or has rights, to variable returns from its involvement with the Funds are being held in Guaranteed Investment Certificates at interest rates ranging from 0.89% to 0.95% (December 31, 2010: 0.44% to investee and has the ability to affect those returns through its power over the investee. Under existing IFRS, consolidation is required 0.80%, January 1, 2010: 0.33% to 1.40%) maturing to November 2012 and promissory notes at an interest rate of 6.50% maturing when an entity has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. IFRS 10 March, 2012. replaces SIC-12 Consolidation – Special Purpose Entities and parts of IAS 27 Consolidated and Separate Financial Statements. IFRS 10 is required to be applied for annual periods beginning January 1, 2013. IFRS 11 – Joint Arrangements IFRS 11 requires a venturer to classify its interest in a joint arrangement as a joint venture or joint operation. Joint ventures will be accounted for using the equity method of accounting whereas for a joint operation the venturer will recognize its share of the assets, liabilities, revenue and expenses of the joint operation. Under existing IFRS, entities have the choice to proportionately consolidate or equity account for interests in joint ventures. IFRS 11 supersedes IAS 31, Interests in Joint Ventures, and SIC-13, Jointly Controlled Entities – Non-monetary Contributions by Venturers. IFRS 11 is required to be applied for annual periods beginning January 1, 2013.26 WESDOME GOLD MINES LTD. 2011 ANNUAL REPORT WESDOME GOLD MINES LTD. 2011 ANNUAL REPORT 27
  • 16. Notes to the Consolidated Financial Statements Notes to the Consolidated Financial StatementsYears ended December 31, 2011 and 2010 (Expressed in thousands of Canadian dollars) Years ended December 31, 2011 and 2010 (Expressed in thousands of Canadian dollars) 10. MINING PROPERTIES AND EQUIPMENT Moss Lake Properties Eagle Kiena Mine The Moss Lake property is owned by Moss Lake Gold Mines Ltd. (“MLGM”) which is obligated to pay underlying advance royalties Gross Carrying Amount River Complex Total of $5,469 per quarter to the vendors of the Moss Lake property until commercial production is achieved. Upon commencement of Balance, January 1, 2010 $ 25,654 $ 65,535 $ 91,189 commercial production, the property is subject to an 8.75% net profits royalty, as defined, to these underlying vendors in lieu of the underlying advance royalty. Additions 9,767 14,160 23,927 Disposals (215) (20) (235) MLGM owns a 100% interest in the Fountain Lake property which consists of 149 mining claims contiguous to the Moss Lake property to Balance, December 31, 2010 35,206 79,675 114,881 the east, west and south. This property is subject to a 2.5% net smelter return royalty payable to certain original vendors of the property. Additions 10,288 9,326 19,614 This royalty is subject to a buyback clause whereby the royalty may be reduced to a 1.5% net smelter return for consideration of $1.0 Disposals (575) (110) (685) million. Change in decommissioning provision 22 (69) (47) Balance, December 31, 2011 $ 44,941 $ 88,822 $ 133,763 Magnacon Properties In 2000, the Company acquired a 75% joint venture interest in the Magnacon properties located adjacent to the Eagle River mill and entered into a joint venture agreement with the two companies holding the remaining 25% interest. Subsequently, the joint venture Accumulated Depletion partners’ interest was reduced to approximately 22.72%. In June 2009, the Company purchased the joint venture partners’ interest Balance, January 1, 2010 $ (8,679) $ (17,395) $ (26,074) for $750,000 and an additional 1% net smelter royalty. The Company owns 100% of the Magnacon properties which are subject to net Depletion (4,590) (6,530) (11,120) smelter royalties of 1.5% on the Magnacon property and 2% on the adjacent property. Balance, December 31, 2010 (13,269) (23,925) (37,194) Depletion (2,657) (3,798) (6,455) Other Properties Balance, December 31, 2011 $ (15,926) $ (27,723) $ (43,649) In June 2009, the Company entered into an exploration and option agreement to earn up to a 60% interest in the Pukaskwa claims. By spending or causing to be spent $1.5 million before June 30, 2012, the Company shall have earned a 30% undivided working interest in Carrying Amount, January 1, 2010 $ 16,975 $ 48,140 $ 65,115 the claims. By spending or causing to be spent another $1.5 million before June 30, 2014, the Company shall have earned a further 30% undivided working interest in the claims. The Company paid $25,000 to the owner upon closing. The Pukaskwa property is located 15 Carrying Amount, December 31, 2010 $ 21,937 $ 55,750 $ 77,627 kilometres west of the Eagle River Mill. Carrying Amount, December 31, 2011 $ 29,015 $ 61,099 $ 90,114 The Eagle River Properties 12. MARKETABLE SECURITIES The Eagle River mining properties consist of the Eagle River mine, the Mishi mine and the Eagle River mill and all related infrastructure and equipment. During 2010, the Company disposed of marketable securities received upon the sale of the McKenzie Break property for a cumulative loss of $362,000 of which $222,000 had been previously recorded as an unrealized loss in accumulated other comprehensive loss. The The Eagle River mine is subject to a 2% net smelter return royalty payable to the original vendors of the property. Company retains a royalty of 1,000 ounces of gold payable annually from the McKenzie Break property after the property has produced an initial production of 250,000 ounces of gold. The Mishi mine is subject to royalty payments of $1 per tonne for open pit mining and $2 per tonne for underground mining in respect of ore mined and milled from the underlying claims in excess of 700,000 tonnes. 13. OBLIGATIONS UNDER FINANCE LEASES Kiena Mine Complex – Wesdome Group The Kiena mine complex consists of the Kiena mine concession, Kiena mill, related infrastructure and equipment and 165 mining claims in The Company leases, with options to purchase, certain mining equipment. Future minimum payments under finance leases, together the Township of Dubuisson, Quebec. with the balance of the obligations under finance leases are as follows: December 31 December 31 January 1 11. EXPLORATION PROPERTIES 2011 2010 2010 Not later than one year $ 997 $ 1,422 $ 1,400 Wesdome Group Moss Lake Magnacon Other Total Later than one year and not later than five years 854 1,851 1,178 Balance, January 1, 2010 $ 24,774 $ 2,930 $ 1,780 $ 534 $ 30,018 Total minimum lease payments $ 1,851 $ 3,273 $ 2,578 Exploration expenditures 16 59 253 416 744 Less: Interest portion at the weighted average of 6.68% Balance, December 31, 2010 24,790 2,989 2,033 950 30,762 (Dec 31, 2010: 6.88%, Jan 1, 2010: 6.85%) 120 276 230 Exploration expenditures 3 120 1 - 124 Total obligations under finance leases, secured by equipment 1,731 2,997 2,348 Balance, December 31, 2011 $ 24,793 $ 3,109 $ 2,034 $ 950 $ 30,886 Less: Current portion 913 1,262 1,240 Long term portion $ 818 $ 1,735 $ 1,108 The Wesdome Group Properties The cost of equipment under finance leases at December 31, 2011, is $3,871,000 (December 31, 2010: $4,808,000, January 1, 2010: The Wesdome Group Properties include the Wesdome, Shawkey, Siscoe and Siscoe-Extension, Mine École, Lamothe, Lamothe- $3,185,000) with related accumulated depreciation of $1,021,000 (December 31, 2010: $816,000, January 1, 2010: $nil). These assets are Extension, Yankee Clipper and Callahan properties. These properties, in conjunction with the mining property Kiena mine complex, included in mining properties. are contiguous and are integrated into the Company’s long term strategy of progressive exploration and development from a central infrastructure. 14. CONVERTIBLE 7% DEBENTURES Wesdome property The Company has a 100% interest in this property which consists of 51 claims totalling 2,003 acres and is located under de Montigny The following table summarizes the changes in the liability and equity components of the convertible debentures during the years ended Lake in Vassan and Dubuisson Townships, Quebec and is contiguous to the Kiena mine complex. The property is subject to a 1% net December 31, 2011 and 2010. smelter royalty. December 31 December 31 Shawkey properties Liability component 2011 2010 The Company has a 100% interest in the Shawkey and the Shawkey South properties, which are contiguous to the Kiena mine complex Balance, beginning of year $ 10,072 $ 9,483 and consist of four mining concessions and three mining claims, respectively, in Dubuisson Township, Quebec. Accretion 654 589 Balance, end of year $ 10,726 $ 10,072 Siscoe and Siscoe-Extension properties The Siscoe property is located in Dubuisson and Vassan Townships, Quebec and consists of two mining concessions. The Siscoe- Extension property consists of 13 contiguous claims. These properties are contiguous to the Kiena mine complex. December 31 December 31 Equity component 2011 2010 The Company owns a 100% interest in the Siscoe property and a 75% interest in the Siscoe-Extension property. The original vendor of Balance, beginning of year $ 1,970 $ 1,970 these properties retains a 3% net smelter return royalty of which 1% can be purchased for $500,000. Balance, end of year $ 1,970 $ 1,970 Mine École property The Mine École property is located in Dubuisson Township and consists of 23 claims located southeast and contiguous to the On May 30, 2007, the Company completed a private placement of senior unsubordinated convertible debentures in the amount of Shawkey property. $11,539,000. The debentures are convertible into common shares of the Company at $3.25 per common share until the maturity date of May 31, 2012. Other properties Other properties consist of interests in the Lamothe, Lamothe-Extension, Yankee Clipper and Callahan properties which are contiguous The liability component of the debentures was calculated, at the date of issuance, as the present value of the principal and interest, to the Wesdome property. discounted at 12%, a rate approximating the interest rate that would have been applicable to non-convertible debt at the time the loan was issued. The liability component is recorded at amortized cost and accreted to the principal amount over the term of the convertible The Lamothe and Callahan properties are subject to a 1% net smelter royalty and 8 of the 10 claims comprising the Yankee Clipper debentures by charges to interest expenses using an effective interest rate of 13.92%. property are subject to a 2% net profits royalty. At December 31, 2011, December 31, 2010, and January 1, 2010, the face value of debentures available for conversion at $3.25 totalled $10,931,000.28 WESDOME GOLD MINES LTD. 2011 ANNUAL REPORT WESDOME GOLD MINES LTD. 2011 ANNUAL REPORT 29
  • 17. Notes to the Consolidated Financial Statements Notes to the Consolidated Financial StatementsYears ended December 31, 2011 and 2010 (Expressed in thousands of Canadian dollars) Years ended December 31, 2011 and 2010 (Expressed in thousands of Canadian dollars) 15. PROVISIONS Outstanding Options xercisable Options E Range of Number Weighted average Weighted average Number Weighted average The Company is committed to a program of environmental protection at its operating mines, development projects and exploration sites. exercise prices outstanding remaining life exercise price exercisable exercise price Management believes that it was in compliance with government regulations in 2011 and 2010. The Eagle River ore and waste rocks (years) $ $ are not acid generating which minimizes the environmental risks of mining. Although the ultimate amount of decommissioning costs is uncertain, the Company estimates its future decommissioning costs for the Eagle River mine, Mishi mine and the mill to be about $0.9 less than $1.00 18,000 1.93 0.75 10,000 0.75 million and the Kiena mining and milling complex to be about $1.0 million. The Company has provided $1.6 million standby letters of credit $1.00 - $1.50 60,000 1.26 1.26 40,000 1.35 to be held against these future environmental obligations. $1.51 - $2.00 580,000 1.36 1.60 540,000 1.58 $2.01 - $2.50 307,500 3.44 2.39 209,500 2.39 The following table presents the reconciliation of the beginning and ending aggregate carrying amount of the obligation associated with $2.51 - $3.00 765,000 4.21 2.79 270,000 2.74 the retirement of mining properties: 1,730,500 2.99 2.25 1,069,500 2.02 Balance, January 1, 2010 $ 1,517 The fair value of the options granted was estimated on the date of grant using the Black-Scholes option pricing model. For the years Accretion expense 57 ended December 31, 2011 and 2010, grant date fair value indicated was based on the following factors: Balance, December 31, 2010 1,574 2011 2010 Accretion expense 66 Weighted average fair value, per option ($) 1.51 1.54 Change in decommissioning provision (47) Weighted average risk-free interest rate (%) 2.83 2.2 Balance, December 31, 2011 $ 1,593 Weighted average volatility (%) 66.86 71.0 Expected life (years) 5.0 5.0 As a result of increased activity at the Eagle River Mishi mine, the Company was required to increase its decommissioning provision. Dividend yield (%) 0.7 0.8 The decommissioning provision is based on current reserve estimates, forecasted production and estimated future cash flows underlying the obligation. The risk adjusted interest rate employed was 3.36% (December 31, 2010: 3.88%, January 1, 2010: 3.88%). The estimated fair value of the options granted is expensed over the vesting period. The fair value compensation and contributed The obligation will be accreted to $1.9 million (December 31, 2010: $1.8 million, January 1, 2010: $1.8 million) over the next 5 to 6 years. surplus relating to stock options was $934,950 (2010: $515,833). The average fair value of the common shares during the years ended December 31, 2011 and 2010 was $2.54 and $2.47. 16. CAPITAL STOCK 18. INCOME TAXES Authorized: The authorized capital of the Company consists of an unlimited number of common shares without par value. Deferred tax arising from temporary differences and unused tax losses are summarized as follows: Shares Amount Deferred tax assets (liabilities) January 1 Recognized in December 31 Issued: 2011 profit and loss 2011 Balance, January 1, 2010 1 00,431,159 $ 118,846 Unclaimed non-capital losses $ 1,373 $ (597) $ 776 Share issuance costs - (27) ITC credit 70 1 71 Exercise of options 775,000 1,232 Unclaimed SR&ED expense 128 (3) 125 Value attributed to options exercised - 479 Eligible capital property 127 (12) 115 Shares purchased under NCIB (30,000) (34) Deductible reclamation costs 411 6 417 Balance, December 31, 2010 1 01,176,159 120,496 Unclaimed financing costs 65 (62) 3 Exercise of options 797,000 1,600 Ontario resource profit tax credit 658 57 715 Value attributed to options exercised - 667 Resource tax credit 1,116 - 1,116 Shares purchased under NCIB (65,000) (78) 3,948 (610) 3,338 Balance, December 31, 2011 1 01,908,159 $ 122,685 Excess of carrying value of mining and exploration properties over On July 12, 2010, the Company received approval from the TSX for a Normal Course Issuer Bid (“NCIB”). The bid allowed the Company unclaimed resource pools and undepreciated capital cost (including inventory) (2,168) (555) (2,723) to purchase on the open market up to 6,681,620 of its common shares for cancellation over a period of one year to end on July 13, 2011. Net deferred tax asset $ 1,780 $ (1,165) $ 615 During the period July 12, 2010 to July 13, 2011, the Company repurchased for cancellation a total of 37,800 common shares with a carrying value of $43,000 for total cash consideration of $96,100. When the cash cost is less than the carrying amount the difference is charged to Deferred tax assets (liabilities) January 1 Recognized in December 31 contributed surplus; when it is greater it is charged to contributed surplus to the extent there is a balance related to share repurchases, with 2010 profit and loss 2010 any remainder charged to retained earnings. Unclaimed non-capital losses $ 2,567 $ (1,194) $ 1,373 ITC credit - 70 70 On August 5, 2011, the Company received approval from the TSX for another NCIB. The bid allows the Company to purchase, on the open Unclaimed SR&ED expense - 128 128 market, up to 9,999,409 of its common shares for cancellation over a period of one year to end on August 7, 2012. Purchases will be subject Eligible capital property 96 31 127 to a daily maximum of 28,997 shares. To date the Company has purchased for cancellation a total of 57,200 common shares with a carrying Deductible reclamation costs 407 4 411 value of $69,000 for total cash consideration of $99,000. Unclaimed financing costs 230 (165) 65 Ontario resource profit tax credit 616 42 658 17. COMMON SHARE PURCHASE PLAN 3,916 (1,084) 3,948 Excess of carrying value of mining and exploration properties The Company has an equity settled common share purchase plan under which the Board of Directors may grant options to purchase over unclaimed resource pools and undepreciated capital cost (including inventory) (560) (1,608) (2,168) common shares to qualified directors, officers, employees and consultants providing on-going services to the Company or any 3,356 (2,692) 664 subsidiary of the Company. All options granted have a five year life with vesting periods based on the size of the option grant and at Recognized as reduction of mining properties and equipment - 1,116 1,116 prices equal to the closing price for the day immediately preceding the date the options were granted. The maximum aggregate number of common shares under option at any time pursuant to the Plan is set at 5,000,000 of which 3,269,500 are available to be issued. Net deferred tax asset $ 3,356 $ (1,576) $ 1,780 The following table reflects the continuity for the years ended December 31, 2011 and 2010 of options granted under the plan. The following table reconciles the expected income tax expense/recovery at the combined Federal and Ontario statutory income tax rate 28.3% (2010: 30.5%) to the amounts recognized in the consolidated statements of income. Weighted Average 2011 2010 Options Exercise Price Net income (loss) reflected in consolidated statement of income $ 1,333 $ 9,256 2011 2010 2011 2010 Expected income tax expense $ 377 $ 2,823 $ $ Non-deductible expense 379 63 Outstanding, beginning of year 1,772,000 2,535,500 1.91 1.76 Change in statutory rates (25) (109) Granted 940,000 215,000 2.67 2.60 Dilution gain - 2 Exercised (797,000) (775,000) 2.01 1.59 Capital loss - 110 Expired (184,500) (203,500) 2.23 1.89 Stock compensation expense 265 155 Outstanding, end of year 1,730,500 1,772,000 2.25 1.91 Accretion of discount on convertible promissory note 185 179 Ontario resource profits allowance (83) (141) Ontario income tax harmonization (36) (24) Mining tax expense (36) 915 Change in tax benefit not recognized 67 12 Tax expense $ 1,093 $ 3,98530 31 The decrease in the statutory income tax rate is due to the enacted reduction in the Federal and Provincial corporation tax rates. WESDOME GOLD MINES LTD. 2011 ANNUAL REPORT WESDOME GOLD MINES LTD. 2011 ANNUAL REPORT
  • 18. Notes to the Consolidated Financial Statements Notes to the Consolidated Financial StatementsYears ended December 31, 2011 and 2010 (Expressed in thousands of Canadian dollars) Years ended December 31, 2011 and 2010 (Expressed in thousands of Canadian dollars) 22. FINANCIAL INSTRUMENTS – DISCLOSURES AND PRESENTATION Non-capital losses available for carry forward to reduce taxable income in future years expire in 2028 and 2029. Financial instruments disclosures requires the Company to provide information about: a) the significance of financial instruments for No tax benefit has been recorded for the federal and provincial non-capital losses of MLGM. These losses of $1,083,000 will expire the Company’s financial position and performance and, b) the nature and extent of risks arising from financial instruments to which the between 2013 and 2031. Company is exposed during the period and at the statement of financial position date, and how the Company manages those risks. The Company is subject to income tax laws in various jurisdictions. Tax laws are complex and potentially subject to different Financial Instruments – Fair Values interpretations by the taxpayer and the relevant tax authority. The provision for income taxes and deferred tax represents management’s Following is a table which sets out the fair values of recognized financial instruments using the valuation methods and assumptions interpretation of the relevant tax laws and its estimate of current and future income tax implications of the transactions and events described below: during the period. The Company may be required to change its provision for income taxes or deferred tax balances when the ultimate deductibility of certain items is successfully challenged by taxing authorities or if estimates used in determining the amount of deferred December 31, 2011 December 31, 2010 January 1, 2010 tax asset to recognized change significantly, or when receipt of new information indicates the need for adjustment in the amount of Carrying Fair Carrying Fair Carrying Fair deferred tax to be recognized. Additionally, future events, such as changes in tax laws, tax regulations, or interpretations of such laws or Value Value Value Value Value Value regulations, could have an impact on the provision for income tax, deferred tax balances and the effective tax rate. Any such changes could materially affect the amounts reported in the consolidated financial statements in the year these changes occur. Financial Assets Available-for-sale: Marketable securities $ - $ - $ - $ - $ 211 $ 211 19. EARNINGS PER SHARE AND DIVIDENDS Financial Liabilities Basic earnings per share (“EPS”) is calculated by dividing the net earnings available to common shareholders by the weighted Other financial liabilities average number of common shares outstanding during the period. Diluted earnings per share is calculated using the treasury method Convertible 7% debentures $ 10,726 $ 11,040 $ 10,072 $ 11,696 $ 9,483 $ 11,122 of calculating the weighted average number of common shares outstanding, except the if-converted method is used in assessing the dilution impact of convertible notes. The treasury method, which assumes that outstanding stock options with an average Determination of Fair Value exercise price below the market price of the underlying shares, are exercised and the assumed proceeds are used to repurchase The fair value of a financial instrument is the amount of consideration that would be agreed upon in an arm’s length transaction between common shares of the Company at the average price of the common shares for the period. The if-converted method assumes that all willing parties. The Company uses the following methods and assumptions to estimate fair value of each class of financial instruments convertible notes have been converted in determining diluted EPS if they are in-the-money except where such conversion would be for which carrying amounts are included in the consolidated statements of financial position as follows: anti-dilutive. Cash and cash equivalents and restricted funds – The carrying amounts approximate fair values due to the short maturity of these 2011 2010 financial instruments. Income available to common shareholders $ 448 $ 5,383 Weighted average number of shares, basic 101,707,396 101,808,766 Receivables – The carrying amounts approximate fair values due to the short maturity of these financial instruments. Dilutive securities Options 273,058 409,959 Other financial liabilities – Payables and accruals and the convertible 7% debentures are carried at amortized cost. The carrying Convertible debentures - - amount of payables and accruals approximates fair value due to the short maturity of these financial instruments. The fair value of the convertible 7% debentures is based on the quoted market price. Weighted average number of shares, diluted 101,980,454 101,218,725 The fair value hierarchy for financial instruments measured at fair value is Level 1 for marketable securities. The Company does not have Basic earnings per share $ 0.00 $ 0.05 Level 2 or Level 3 inputs. Diluted earnings per share $ 0.00 $ 0.05 Financial Risk Management Number of shares excluded from diluted earnings per share The Company is exposed to a number of different risks arising from normal course business exposures, as well as the Company’s calculation due to anti-dilutive effect: use of financial instruments. These risk factors include: (1) market risks relating to commodity prices, foreign currency risk and interest Options 765,000 130,000 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 Convertible debentures 3,363,385 3 ,363,385 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. Dividends On April 29, 2011, Wesdome’s Board of Directors paid a dividend of $0.02 per share on the Company’s outstanding common shares 1) Market Risk to shareholders of record on the close of business on April 15, 2011 in the amount of $2,028,000. 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. 20. EMPLOYEE BENEFITS (a) Commodity price risk 2011 2010 The Company’s financial performance is closely linked to the price of gold which is impacted by world economic events that Salaries and short-term employee benefits $ 40,162 $ 32,561 dictate the levels of supply and demand. The Company had no gold price hedge contracts in place as at or during the years ended Post employment benefits 727 721 December 31, 2011 and 2010. 40,889 32,282 Share-based compensation 766 516 (b) Foreign currency exchange risk $ 41,655 $ 33,798 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 and no foreign currency holdings as at or during the years ended December 31, 2011 and 2010. 2011 2010 Salaries and employee benefits expensed to mining and processing costs $ 36,826 $ 29,756 (c) Interest rate risk Salaries and employee benefits capitalized 4,829 4,042 Interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest $ 41,655 $ 33,798 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 and interest paid on 21. RELATED PARTY INFORMATION the Company’s convertible debentures is based on a fixed interest rate. 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. Key management of the Company are its Board of Directors and members of executive management. Key management personnel remuneration includes the following expenses: 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 2011 2010 risk by forecasting cash flows from operations and anticipated investing and financing activities. The Company believes it has Salaries and short-term employee benefits $ 1,266 $ 1,130 access to sufficient capital through internally generated cash flows and equity and debt capital markets. Senior management is also Post employment benefits 44 36 actively involved in the review and approval of planned expenditures. Fair value of share-based compensation 493 256 $ 1,803 $ 1,422 In fiscal 2011, the Company paid $23,900 in director’s fees (2010: $13,500) to a company whose managing partner is a director of the Company and $Nil in consulting fees for the Kiena mine (2010: $36,440) to a company whose president is a former director of the Company.32 WESDOME GOLD MINES LTD. 2011 ANNUAL REPORT WESDOME GOLD MINES LTD. 2011 ANNUAL REPORT 33
  • 19. Notes to the Consolidated Financial Statements Notes to the Consolidated Financial StatementsYears ended December 31, 2011 and 2010 (Expressed in thousands of Canadian dollars) Years ended December 31, 2011 and 2010 (Expressed in thousands of Canadian dollars) The following table shows the timing of cash outflows relating to payables and accruals, finance leases and convertible debentures: The Company manages the capital structure and makes adjustments in light of changes in economic conditions and the risk characteristics of the Company’s assets. In order to maintain or adjust its capital structure, the Company may issue new shares, issue (in thousands) new debt or issue new debt to replace existing debt with different characteristics. December 31, 2011 <1 Year 1-2 Years 3-5 Years Over 5 Years Payables & accruals $ 8,944 - - - There is no restriction on the ability of the Company to pay dividends other than cash flow considerations. The Company paid dividends of $0.02 per share on April 29, 2011 and April 30, 2010. Dividend payments in the future will depend on the Company’s ability to generate Finance leases $ 997 $ 854 - - earnings. Convertible debentures $ 11,377 - - - To effectively manage its capital investments, the Company has in place a planning and budgeting process to help determine the funds December 31, 2010 <1 Year 1-2 Years 3-5 Years Over 5 Years required to ensure the Company has sufficient liquidity to meet its operating and growth objectives. Payables & accruals $ 12,938 - - - Finance leases $ 1,422 $ 1,653 $ 198 - The Company expects its current capital resources and projected cash flow from continuing operations to support further exploration Convertible debentures $ 765 $ 11,377 - - and development of its mineral properties Neither the Company nor its subsidiaries are subject to any externally imposed capital requirements such as loan covenants or capital ratios. January 1, 2010 <1 Year 1-2 Years 3-5 Years Over 5 Years Payables & accruals $ 7,322 - - - There were no changes to the Company’s approach to capital management during the current period. Finance leases $ 1,400 $ 1,153 $ 25 - Convertible debentures $ 765 $ 12,079 - - 27. EXPLANATION OF TRANSITION TO IFRS 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 IFRS 1 – “First-time Adoption of International Financial Reporting Standards” (“IFRS 1”) governs the first-time adoption of IFRS. IFRS 1, contractual obligation. The Company minimizes its credit risk by selling its gold exclusively to financial institutions with forty-eight in general, requires accounting policies under IFRS to be applied retrospectively to determine the statement of financial position of the hour terms of settlement. The Company’s receivables consist primarily of government refunds and credits. The Company estimates Company as of the transition date of January 1, 2010, and allows certain exemptions which the Company has elected to apply. its maximum exposure to be the carrying value of cash and cash equivalents, receivables and funds held against standby letters of credit. The Company’s financial statements for the year ending December 31, 2011 are the first annual consolidated financial statements to comply with IFRS. The adoption of IFRS has not materially changed the Company’s overall cash flows or operations, however, it has The Company manages credit risk by maintaining bank accounts with Schedule 1 Canadian banks and investing only in Guaranteed resulted in certain differences in recognition, measurement and disclosure as compared to Canadian generally accepted accounting Investment Certificates. The Company’s cash is not subject to any external limitations. principles (“Canadian GAAP”). In preparing the financial statements for the years ended December 31, 2011 and 2010, and the disclosures included in these financial 23. SUPPLEMENTAL CASH FLOW INFORMATION statements, all comparative amounts have been restated to comply with IFRS, except where the Company has applied the optional and mandatory exceptions under IFRS 1. The Company’s transition date is January 1, 2010 (“the transition date”) and the Company prepared 2011 2010 its opening IFRS statement of financial position at that date. These financial statements have been prepared in accordance with the accounting policies described in Note 3. The Company has reconciled the following financial statements as prepared under Canadian Net changes in non-cash working capital GAAP to those prepared under IFRS for the following periods: Operating activities • Consolidated statements of financial position as at January 1, 2010 and December 31, 2010 Receivables $ 268 $ (3,083) • Consolidated statement of total equity as at December 31, 2010 Payables and accruals (3,195) 4,493 • Consolidated statement of income and comprehensive income for the year ended December 31, 2010 Income taxes payable (36) (24) IFRS 1 – “First-time Adoption of International Financial Reporting Standards” sets forth guidance for the initial adoption of IFRS. Under Mining taxes (1,317) 1,317 IFRS 1, the standards are applied retrospectively at the transitional statement of financial position date with all adjustments to assets Gold inventory (1,483) 1,178 and liabilities charged or credited to retained earnings unless certain exemptions are applied. The Company has applied the following Supplies and other 231 (494) exceptions, exemptions, and changes to its opening statement of financial position dated January 1, 2010: $ (5,532) $ 3,387 Investing activities Exceptions Receivables $ (163) $ (337) (i) Financial instruments Payables and accruals (799) 1,123 Financial assets and liabilities that had been de-recognized before January 1, 2004 under Canadian GAAP have not been Supplies and other 58 (123) recognized nder IFRS. u $ (904) $ 663 (ii) Estimates The Company has used estimates under IFRS that are consistent with those applied under Canadian GAAP unless there is objective Non-cash transactions: evidence those estimates were in error. Recognition of fair value of stock options and warrants exercised transferred to share capital (Note 16) $ 667 $ 479 Revision to asset retirement obligation (Note 15) $ 47 $ - Exemptions Mining properties acquired under finance leases $ - $ 2,238 (a) Business combinations IFRS 1 indicates that a first-time adopter may elect not to apply IFRS 3 – “Business Combinations” retrospectively to business combinations that occurred before the date of transition to IFRS. The Company has utilized this election and has therefore applied 24. INDEMNITIES IFRS 3 only to business combinations that occurred on or after January 1, 2010. The Company has agreed to indemnify its directors and officers, and certain of its employees in accordance with the Company’s by- (b) Share-based payment transactions laws. The Company maintains insurance policies that may provide coverage against certain claims. The Company has elected not to apply IFRS 2 to awards that vested prior to January 1, 2010, which have been accounted for in accordance with Canadian GAAP. There was no material impact on the financial statements of applying IFRS 2 to unvested options at the transition date. The rate of forfeiture of unvested options was minimal. 25. OTHER INTEREST (c) Compound financial instruments During 2011, the Company received reassessments relating to previous periods which resulted in a partial repayment of resource tax IAS 32 Financial Instruments: Presentation requires an entity to split a compound financial instrument at inception into separate credits, including an assessment of interest relating to amounts reassessed. The Company is appealing these reassessments and liability and equity components. If the liability component is no longer outstanding, retrospective application of IAS 32 involves pursuing a full refund of the amount paid, with respect to both tax credits and interest paid. separating two portions of equity, the first portion is in retained earnings and represents the cumulative interest accreted on the liability components, while the other portion represents the original equity component. The Company has utilized this IFRS 1 exemption to not require separation of these two portions if the liability component is no longer outstanding at the transition date. 26. CAPITAL RISK MANAGEMENT (d) Mineral property, plant and equipment – deemed cost The Company’s objectives of capital management are intended to safeguard its ability to support the Company’s normal operating IFRS 1 includes an election to use fair value or revaluation as deemed cost for property, plant and equipment, and is available on an requirements on an ongoing basis, continue the development and exploration of its mineral properties and support any expansionary plans. asset-by-asset basis. The IFRS 1 election is separate from the policy choice available to measure long-lived assets at cost or under the revaluation model. The Company has elected to apply the IFRS 1 exemption to certain mobile equipment, which has resulted in an The capital of the Company consists of items included in equity net of cash and cash equivalents: increase in mineral properties and equipment of $6.3 million as at January 1, 2010, with a corresponding increase in retained earnings. December 31 December 31 January 1 (e) Gain or loss on disposal of mining equipment 2011 2010 2010 As a result of the Company’s revaluing its mining equipment as at January 1, 2010, disposals of equipment in 2010 resulted in a reduction in the gain on disposals of $0.2 million. Total equity $ 128,807 $ 128,018 $ 122,907 Cash and cash equivalents (5,215) (22,806) (23,702) Capital $ 123,592 $ 105,212 $ 99,20534 WESDOME GOLD MINES LTD. 2011 ANNUAL REPORT WESDOME GOLD MINES LTD. 2011 ANNUAL REPORT 35
  • 20. Notes to the Consolidated Financial Statements Notes to the Consolidated Financial StatementsYears ended December 31, 2011 and 2010 (Expressed in thousands of Canadian dollars) Years ended December 31, 2011 and 2010 (Expressed in thousands of Canadian dollars) Reconciliation of Assets, Liabilities and Equity (f) Decommissioning liability As at December 31, 2010 As at January 1, 2010 Under IFRS 1, an entity can elect not to retrospectively calculate the effect of each change in estimate that occurred prior to the Effect of Effect of transition date on the decommissioning asset and related depletion. Instead, it can elect to measure the liability at the transition Transition to Transition to date in accordance with IAS 37. The Company has elected to use the IFRS 1 exemption and has measured the decommissioning asset and liability accordingly. The effect was to increase mineral property and equipment and decommissioning liability by Note C-GAAP IFRS IFRS C-GAAP IFRS IFRS $0.2 million as at January 1, 2010. Assets Current Required Changes Cash and cash equivalents $ 22,806 $ - $ 22,806 $ 23,702 $ - $ 23,702 (g) Dilution reclassification Receivables 7,442 - 7,442 4,022 - 4,022 Under IFRS, dilution gains or losses as a result of a change in percentage ownership of subsidiary companies are recorded in Inventory k 14,490 (413) 14,077 14,624 14 14,638 contributed surplus. The Company transferred $0.4 million from retained earnings to contributed surplus as at January 1, 2010. Marketable securities - - - 211 - 211 Deferred income taxes j 1,514 (1,514) - 1,199 (1,199) - (h) Reclassification of flow-through shares The Company has issued flow-through shares in the past. IFRS requires the difference between quoted market price of the same 46,252 (1,927) 44,325 43,758 (1,185) 42,573 class of share without the flow-through feature and the amount the investor pays for the shares, or premium, be recorded as a Restricted funds 2,420 - 2,420 2,588 - 2,588 liability. The premium previously recorded in share capital in the amount of $1.1 million was transferred to retained earnings. Deferred income taxes j 940 840 1,780 2,245 1,111 3,356 Capital assets - - - 9 - 9 Under the terms of flow-through share agreements, the tax attributes of the related expenditures are renounced to subscribers. Mining properties d,f,k 74,771 2,916 77,687 64,637 478 65,115 Under IFRS the tax effect of the flow-through share renunciations are recorded in tax expense. The renunciations previously Exploration properties and equipment 30,762 - 30,762 30,018 - 30,018 charged to share capital were transferred to retained earnings in the amount of $5.1 million. Total Assets $ 155,145 $ 1,829 $ 156,974 $ 143,255 $ 404 $ 143,659 The net effect was an increase in retained earnings of $4.1 million. (i) Reclassification of financing fees IFRS requires that current and deferred taxes be recognized in equity or in other comprehensive income when they relate to Liabilities transactions or events recognized in equity or other comprehensive income in either the same or a prior period. This concept Current impacts the balance of the Company’s unclaimed financing fees as at January 1, 2010. IFRS requires the balance to be transferred Payables and accruals $ 12,938 $ - $ 12,938 $ 7,322 $ - $ 7,322 from retained earnings to share capital. The balance of deferred taxes relating to unclaimed financing fees as at January 1, 2010 Mining taxes 1,317 - 1,317 - - - was $0.1 million. Current portion of obligations under finance leases 1,262 - 1,262 1,240 - 1,240 15,517 - 15,517 8,562 - 8,562 (j) Reclassification and revision of deferred taxes Income taxes payable 58 - 58 82 - 82 Under IFRS current future income taxes in the amount of $1.2 million were reclassified to deferred income taxes. On transition, a Obligations under finance leases 1,735 - 1,735 1,108 - 1,108 revision in deferred taxes in the amount of $0.1 million was recorded as a result of the tax impact of the following IFRS transitional adjustments: Convertible 7% debentures 10,072 - 10,072 9,483 - 9,483 • revaluation of mobile equipment at redeemed cost Provisions f 1,597 (23) 1,574 1,324 193 1,517 • re-measurement of the decommissioning liability at the transition date 28,979 (23) 28,956 20,559 193 20,752 • revision of depletion due to the change in measurement of depletion, and the subsequent impact on the valuation of the Equity bullion inventory Capital stock h,i 116,217 4,279 120,496 114,567 4,279 118,846 Contributed surplus g,l,m 3,807 (1,940) 1,867 3,770 (1,762) 2,008 Policy Changes Accumulated other comprehensive loss - - - (222) - (222) (k) Depletion – Units-of-production Equity component of convertible debentures 1,970 - 1,970 1,970 - 1,970 The transition from tonnes to ounces as the Company’s UOP resulted in an increase in the estimated accumulated depletion of Retained earnings (deficit) d ,f,g,h,i,j,k,l,m 3,432 (487) 2,945 1,754 (2,306) (552) $6.0 million as at January 1, 2010. Depletion for 2010 also decreased by $3.0 million, of which $0.2 million was applied to bullion inventory. 125,426 1,852 127,278 121,839 211 122,050 Non-controlling interest 740 - 740 857 - 857 (l) Contributed surplus – Expired warrants and options 126,166 1,852 128,018 122,696 211 122,907 During the current fiscal year, after the issuance of the Company’s first interim IFRS financial report, the Company changed its policy of accounting for contributed surplus. Under the new policy, the value of any expired warrants and options recorded to Total Equity and Liabilities $ 155,145 $ 1,829 $ 156,974 $ 143,255 $ 404 $ 143,659 contributed surplus is reclassified to retained earnings at the time of expiry. This change resulted in an increase in retained earnings of $2.2 million as at January 1, 2010, and $0.1 million as at December 31, 2010. Transition adjustment recorded to: (m) Contributed surplus – Share repurchases December 31 January 1 During the current fiscal year, after the issuance of the Company’s first interim IFRS financial report, the Company changed its Note 2010 2010 policy of accounting for share repurchases. Under the new policy, premiums are first recorded to contributed surplus to the extent Contributed surplus that there are discounts remaining, before being charged to retained earnings. This change resulted in an increase in retained earnings of $0.0 million as at January 1, 2010, and no change as at December 31, 2010. Dilution gain reclassificatiion g $ 428 $ 435 Expired warrants and options reclassification l (2,317) (2,190) Presentation Differences Share repurchase reclassification m (51) (7) Certain presentation differences between previous Canadian GAAP and IFRS have no impact on reported income or total equity. $ (1,940) $ (1,762) Some assets and liabilities have been reclassified under IFRS at the transition date. A reclassification has been recorded for “non- Retained earnings controlling interest”. “Deferred income taxes”, “Dilution loss on Moss Lake Gold Mines Ltd.” and “Loss on marketable securities” have Net adjustment to property, plant and equipment d,k $ 2,509 $ 282 also been reclassified on the December 31, 2010 financial statements. Reclassification of flow-through shares h (4,141) (4,141) Some line items are described differently (renamed) under IFRS compared to previous Canadian GAAP, although the assets and Reclassification of financing fees i (138) (138) liabilities included in these line items are unaffected. These line items are as follows (with previous Canadian GAAP description in Decommissioning revaluation f 17 17 brackets): Dilution reclassification g (428) (435) Deferred taxes (Future taxes) Revision of deferred tax j (674) (88) Equity attributable to owners of the parent (Shareholders’ Equity) Expired warrants and options reclassification l 2,317 2,190 Finance leases (Capital leases) Share repurchase reclassification m 51 7 Provisions (Decommissioning liability) $ (487) $ (2,306) Cash Flow Statement The presentation of the cash flow statement in accordance with IFRS differs from the presentation of the cash flow statement in accordance with Canadian GAAP. The changes made to the statements of financial position and statements of income and comprehensive income have resulted in reclassifications of various amounts on the statement of cash flows. Interest paid Under IFRS, interest paid is classified as a financing activity. Therefore, accordingly, the Company has reclassified $1.0 million from operating activities to financing activities.36 WESDOME GOLD MINES LTD. 2011 ANNUAL REPORT WESDOME GOLD MINES LTD. 2011 ANNUAL REPORT 37
  • 21. Notes to the Consolidated Financial StatementsYears ended December 31, 2011 and 2010 (Expressed in thousands of Canadian dollars) RESERVES AND Reconciliation of Income and Comprehensive Income As at December 31, 2010 RESOURCES Effect of Transition to Note C-GAAP IFRS IFRS Operating revenues Gold and silver bullion $ 89,383 $ - $ 89,383 Operating expenses Mining and processing d 62,784 512 63,296 RESERVES ESTIMATES* December 31, 2011 Depletion of mining properties k 14,040 (2,920) 11,120 Production royalties 917 - 917 Category Tonnes Grade Contained Gold Corporate and general 2,489 - 2,489 (gAu/tonne) (ounces) Share based compensation 516 - 516 Depreciation of capital assets 9 - 9 Eagle River 80,755 (2,408) 78,347 Proven 75,000 12.0 29,000 Income from operations 8,628 2,408 11,036 Probable 429,000 10.6 147,000 Proven + Probable 504,000 10.9 176,000 Interest and other income e 78 161 239 Interest on long term debt (1,598) - (1,598) Kiena Loss on sale of marketable securities - (362) (362) Proven 584,000 3.0 56,000 Accretion of decommissioning liability f (79) 20 (59) Probable 651,000 2.9 60,000 Dilution (loss) gain on Moss Lake Gold Mines Ltd. g (7) 7 - Proven + Probable 1,235,000 2.9 116,000 Income before income tax 7,022 2,234 9,256 Income tax Mishi Current 1,293 - 1,293 Proven 174,000 2.7 15,000 Deferred h 2,106 586 2,692 Probable 535,000 2.5 43,000 3,399 586 3,985 Proven + Probable 709,000 2.6 58,000 Net income 3,623 1,648 5,271 Total comprehensive income $ 3,623 $ 1,648 $ 5,271 Total 350,000 Profit for the year attributable to: RESOURCES ESTIMATES* December 31, 2011 Non-controlling interest $ (112) $ - $ (112) Owners of the Company 3,735 1,648 5,383 Category Tonnes Grade Contained Gold $ 3,623 $ 1,648 $ 5,271 (gAu/tonne) (ounces) PROVEN + PROBABLE Total comprehensive income attributable to: Eagle River RESERVE GROWTH Non-controlling interest $ (112) $ - $ (112) Inferred 204,000 7.1 46,000 Owners of the Company 3,735 1,648 5,383 $ 3,623 $ 1,648 $ 5,271 Kiena Measured 197,000 3.7 23,000 Earnings per share Indicated 1,264,000 3.0 122,000 Basic $ 0.04 $ 0.01 $ 0.05 Measured + Indicated 1,461,000 3.0 145,000 Diluted $ 0.04 $ 0.01 $ 0.05 Mishi Comprehensive earnings per share Measured 281,000 2.5 22,000 Basic $ 0.04 $ 0.01 $ 0.05 Indicated 5,455,000 2.4 416,000 Diluted $ 0.04 $ 0.01 $ 0.05 Measured + Indicated 5,736,000 2.4 438,000 Inferred 1,202,000 3.6 140,000 Weighted average number of shares outstanding Basic 100,808,766 - 100,808,766 Total Measured + Indicated 583,000 Diluted 101,335,255 - 101,335,255 INFERRED 186,000 * All Mineral Reserves and Mineral Resources estimates have been made in accordance with the Standards of the Canadian Institute of Mining, Metallurgy and Petroleum and National Instrument 43-101. All Mineral Resources are in addition to Mineral Reserves except for the Mishi mine where Mineral Reserves are a subset of Mineral Resources. Mineral Resources are not in the current mine plan and therefore do not have demonstrated economic viability. As per section 4.2 (b)(ii) of National Instrument 43-101, the change in mineral reserves and resources for the Eagle River and Kiena mines does not constitute a material change in the affairs of the Company. For the Eagle River mine refer to the Technical Report filed on SEDAR, dated December, 2005, by Strathcona Mineral Services Ltd. For the Kiena mine refer to the Technical Report dated April 15, 2005, by Geologica Groupe Conseil, also filed on SEDAR. The Mishi mine Mineral Resource estimates were completed by InnovExplo Inc. in a 43-101 Technical Report dated August 25, 2010, and filed on SEDAR. The Mishi Mineral Reserves estimates were compiled in a 43-101 Report by InnovExplo Inc. dated January 12, 2011, and also filed on SEDAR. Qualified Persons for the Mineral Reserves and Mineral Resources estimates as per 43-101 are as follows: Eagle River: George N. Mannard, P.Geo., Vice President Exploration, Wesdome Gold Mines Ltd. Kiena: Marc Ducharme, P.Geo., Chief Exploration Geologist, Kiena Mine, Wesdome Gold Mines Ltd. Mishi: Carl Pelletier, P.Geo., InnovExplo Inc., independent, Karine Brosseau, P.Eng., InnovExplo Inc., independent, Nathalie Gauthier, P.Eng., InnovExplo Inc., independent The Company is a Producing Issuer as per national Instrument 43-101 section 5.3.38 WESDOME GOLD MINES LTD. 2011 ANNUAL REPORT WESDOME GOLD MINES LTD. 2011 ANNUAL REPORT 39
  • 22. CORPORATEINFORMATION Board of Directors Senior Staff Will F. Bawden, P.Eng.2 CEO, Mine Design Technologies Inc. Toronto, Ontario Kiena Complex Annual Dr. Bawden, the CEO of Mine Design Technologies Inc., previously served as the Director of the Lassonde Mineral Engineering Carolle Audy Program at the University of Toronto and was formerly the Department Head for Geomechanical mine design at Noranda Chief Accountant Technology, Montreal. Dr. Bawden holds a PhD from the University of Toronto an MSc from the University of Illinois and a B.Sc. Bernard Belley from Queens University. Meeting Mill Superintendent Eldon Bennett 2 Managing Partner, Aird & Berlis LLP Toronto, Ontario Pierre Deschamps Eldon Bennett holds a Ph.D. from Duke University and a law degree from the University of Toronto. He has taught both political Mine Superintendent science and law at York University and practices law in the areas of civil litigation and labour relations. Marc Ducharme, P.Geo. Marc Blais, CGA 1 Chief Operating Officer, Sunset Cove Mining Saint-Lambert, Quebec Chief Exploration Geologist The Annual Meeting Marc Blais is a certified general accountant and has been with Sunset Cove Mining, a publicly traded mining firm since 2008. Previously he was President of Dynacor Mines from 1993 to 2007. From 1988 to 1993 he worked as senior CGA and as a Pierre Jeansonne of Shareholders financial planner and consultant. Earlier on in his career he worked as an accountant in various assignments. Chief – Geology Department will be held at: Brian Northgrave 2,3 Consultant, Trade Facilitation Office of Canada Ottawa, Ontario Michel Lafleur, Eng. Brian Northgrave has been a director of Wesdome since 2007, having been a director of Western Quebec Mines since 2004. Mine Manager Brian is a retired former Ambassador to the Eastern Republic of Uruguay for the Canadian government and has held various TSX Gallery Daniel Petitclerc foreign assignments while employed by the Department of Foreign Affairs from 1966 to his retirement in 2002. Brian holds an Maintenance Superintendent 130 King Street West, M.B.A. from the University of Toronto, a Diploma of Business Administration from the London School of Economics and a B.A. (Economics & Political Science) from the University of Toronto. Toronto, Ontario Eagle River Mine Donald D. Orr, CA Consultant, Wesdome Gold Mines Ltd. Toronto, Ontario David Boulay on Wednesday, May 16, 2012 Don Orr is a Chartered Accountant with a B.Comm from the University of Toronto. Don has been involved in the mining industry since 1977. He has been the Secretary-Treasurer and a Director of Wesdome Gold Mines since 1994. Maintenance Superintendent at 4:00 p.m. Donovan Pollitt, P.Eng., CFA 3 President and CEO, Wesdome Gold Mines Ltd. Toronto, Ontario Don Bridges Donovan Pollitt is a Professional Engineer in Ontario and holds a BASc. in Mining Engineering from the University of Toronto. Mill Superintendent Previously as VP Corporate Development, Donovan worked on mergers, financings and long-term planning at Wesdome. Jeff Hutchings Donovan is also a holder of the Chartered Financial Analyst designation. Mine Manager Hemdat Sawh, CA 1,3 CFO, Scorpio Mining Corporation Oakville, Ontario Hemdat Sawh is a Chartered Accountant, and holds an MBA degree in accounting from York University, a bachelor of science Daniel Lapointe, P.Geo., MSc. Mishi Superintendent Transfer Agent degree in geology from Concordia University and a graduate diploma in geology from McGill University. Hemdat has over 16 years of accounting and auditing experience at Grant Thornton LLP, culminating in the position of principal, where he acted as Allan MacDonald and Registrar Office Manager Computershare Investor Services Inc. lead supervisor for auditing teams of businesses with a concentration in publicly listed mining companies. Hemdat also served as Chief Financial Officer of Crystallex International Corporation and Goldbelt Resources Ltd. prior to joining Scorpio. Don MacFarlane Toronto, Ontario Chief Assayer Tel: 1.800.564.6253 or 514.982.7555 A. William (Bill) Stein 1 CFO & CIO, Digital Realty Trust San Francisco, California, USA www.computershare.com Since 2004, Bill Stein has been the Chief Financial and Investment Officer of Digital Realty Trust, an NYSE listed real estate John Plecash investment trust that owns, develops and manages data centers and internet gateways throughout North America and Chief – Geology Department Europe. Bill has more than 30 years of investment, financial and operating management experience in both large company environments and small, rapidly growing companies. Prior to joining Digital Realty, Bill provided turnaround management advice Gilbert Wahl Auditors Safety/Security Director Grant Thornton LLP to both public and private companies. Bill received a B.A. degree from Princeton University, a J.D. degree from the University of Pittsburgh and an M.S. degree with distinction from the Graduate School of Industrial Administration at Carnegie Mellon Dave Whiteway Toronto, Ontario University. Mine Superintendent www.grantthornton.ca 1 Audit committee member 2 3 Compensation committee member Governance committee member Legal Counsel Heenan Blaikie LLP Toronto, Ontario www.heenan.ca officers Stock Exchange Brian Northgrave Chairman of the Board Donovan Pollitt, P.Eng., CFA President and CEO Listing Toronto Stock Exchange Brian Ma, MAcc., CA CFO Symbol: WDO André Roy, P.Eng., MBA, MScA Vice President – Operations www.tsx.com George N. Mannard, P.Geo, MScA Vice President – Exploration40 WESDOME GOLD MINES LTD. 2011 ANNUAL REPORT WESDOME GOLD MINES LTD. 2011 ANNUAL REPORT 41
  • 23. WESDOme.COMHead Office8 King Street East, Suite 1305Toronto, ON M5C 1B5Tel: 416.360.3743 Fax: 416.360.7620email: info@wesdome.comKiena Mine950 chemin Kienawisik, C.P. 268Val d’Or, QC J9P 4P3Tel: 819.738.4031 Fax: 819.738.5452Eagle River Mine93 Mission Road, P.O. Box 1520Wawa, ON P0S 1K0Wawa OfficeTel: 705.856.2718 Fax: 705.856.7173Mine SiteTel: 705.856.2721 Fax: 705.856.2986