2006ANNUALREPORT

FORTUNEMINERALS LIMITED

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2006

CORPORATE PROFILE

Fortune Minerals Limited (TSX: FT) is focussed on the assembly and development of high quality mineral resource projects with

the potential to generate strong returns for its shareholders. Fortune currently has interests in three advanced stage projects with

production planned for two of these projects within three years, as well as several exploration projects, all located in Canada.

The Company announced plans to proceed with an Environmental Assessment and mine permitting for its NICO cobalt-gold-bismuth

deposit near Yellowknife, Northwest Territories, following the release of a positive bankable feasibility study.This study concluded

that the project shows attractive economics at base case metal price assumptions and very attractive economics at current prices,

which are substantially higher than base case.

The Company’s world class Mount Klappan anthracite coal project, located near deep-water port facilities in northwest British

Columbia, is being permitted after receipt of a positive bankable feasibility study in 2005.

Fortune’s third key project, its Sue-Dianne copper-silver project, is located only 25 km north of NICO and is a potential future source

of mill feed for the plant planned for NICO.

CONTENTS

3 Fortune Property Interests

4 2006 and Recent Corporate Highlights

6 Report to Shareholders

Operations Review

10 NICO Project

20 Mount Klappan Project

31 Sue-Dianne and Other Projects

32 Management’s Discussion and Analysis of Financial Results

45 Auditor’s Report

46 Consolidated Financial Statements

62 Board of Directors

The Annual and Special Meeting of the Shareholders will be held at the Fairmont Royal York Hotel,York Room

(Mezzanine Level), 100 Front Street West,Toronto, Ontario, M5J 1E3 on the 29th day of May, 2007, at 4:30 pm. For

those persons unable to attend, a second, informal meeting for informational purposes will be held at the London

Club, 177 Queens Avenue, London Ontario, N6A 1J1 on the 30th day of May, 2007, at 4:30 pm.

ANNUAL MEETINGF O R T U N E M I N E R A L S L I M I T E D • PA G E 2

Fortune Minerals is focussed on the assembly and development of high quality mineral resourceprojects with the potential to generate strongreturns for its shareholders.

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2 0 0 6 A N N U A L R E P O R T • PA G E 3

1. MOUNT KLAPPAN ANTHRACITECOAL DEPOSIT British Columbia

2. NICO GOLD-COBALT-BISMUTHDEPOSIT Northwest Territories

3. HEMLO PLANT Ontario

4. SUE-DIANNECOPPER-SILVER-GOLD DEPOSITNorthwest Territories

5. SALKELD LAKE COPPER-ZINCLEAD-GOLD-SILVER DEPOSITNorthwest Territories

6. CAMSELL RIVER SILVER PROJECT Northwest Territories

7. GREAT SLAVE COPPER-GOLD-SILVER DEPOSITNorthwest Territories

8. FORMOSA HIGH CALCIUM LIMESTONE DEPOSIT Ontario

Property Commodity Sought1 Hectares Fortune Interest Joint Venture Partner

Mount Klappan Anthracite Coal 15,866 100%2

NICO Co,Au, Bi 5,140 90% Candou Industries Inc.

Sue-Dianne Cu,Ag,Au 451 100%2 –

Salkeld Lake Cu, Zn, Pb,Au,Ag 116 100%2 –

Camsell River Ag 78 100%2 –

Great Slave Cu,Au 2,069 100% –

Formosa High-Ca Limestone 107 30%3 Federal White Cement

1 Au = gold, Co = cobalt, Bi = bismuth, Cu = copper,Ag = silver, Zn = zinc, Pb = lead, Ca = calcium, Cr = chrome2 Subject to third party royalties.3 Interest held through Formosa Environmental Aggregates Ltd.

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F O R T U N E M I N E R A L S L I M I T E D • PA G E 4

NICO COBALT-GOLD-BISMUTH PROJECT - ACCOMPLISHMENTS:

• Increased the Company’s interest in the project from 81% to 90%.

• Concluded the agreement to purchase the Golden Giant Mine mill, surface facilities and inventory near Hemlo, Ontario from

Newmont Canada Ltd.

• Conducted a $10-million underground bulk sample program to verify grades, assess mining conditions, and collect 250 tonnes

of ore for large-scale pilot plant testing.

• Further drilling extended the high-grade mineralization.

• Received positive full Bankable Feasibility Study led by Micon International Limited and Met-Chem Canada Inc.

• Announced plans to proceed with an Environmental Assessment and permitting for the mine.

• The Federal, Northwest Territories and Tlicho governments, together with private industry, are providing $1 million for

environmental and engineering studies to improve road access to communities and the proposed mine.

• Rising demand and constrained supply helped push metal prices higher, which at April 2007 were: ~US$31/pound for cobalt,

~US$675/ounce of gold and ~US$15/pound of bismuth.

MOUNT KLAPPAN ANTHRACITE COAL PROJECT – ACCOMPLISHMENTS

• Conducted extensive fieldwork, environmental baseline studies, and engineering for the proposed mine site and access

corridors in support of the Environmental Assessment and permitting processes.

• 2006 expenditures of $5.5 million included road engineering and layout, additional environmental field work, helicopter

support and consultation activities with First Nations. Baseline environmental reports are being compiled in support of the

Environmental Assessment.

• A draft Terms of Reference document defining the scope of work required for the Environmental Assessment application was

issued for input from First Nations, the public, and various government agencies.

• Examined enhancements, which could dramatically improve the already robust economic future of the project:

• Marston completed a positive pre-feasibility level engineering and economic assessment for a mine mouth, coal-fired

power plant to be built by a third-party. Such a plant could provide the Company with a ready market for some of

its coal products, reduce operating costs, and allow the Company to defer some infrastructure required for the

proposed export metallurgical coal mine.

• Feasibility study commissioned by the governments of Alaska and Yukon Territory assessing extension of the Dease

Lake rail line through Mount Klappan to Alaska has been completed and is expected to be released shortly. If built,

such a rail line would eliminate most of the costs associated with construction of transportation infrastructure for

the mine and materially reduce haulage rates to the port of Prince Rupert.

• Commenced activities to seek out suitable joint venture partners to develop the project on a larger scale.

• The two largest anthracite exporting nations announced their intensions to reduce exports in favour of domestic

consumption.This will likely lead to constrained supply and higher product prices. Coal prices are generally firming

and are expected to remain at high levels for the foreseeable future.

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2 0 0 6 A N N U A L R E P O R T • PA G E 5

MANAGEMENT APPOINTMENTS:

Added new operational strength to the

management team with the appointment of

Jim Mucklow as Manager of Environment

and Community Relations.

CAPITAL STOCK & FINANCIAL POSITION:

• At year-end, had working capital of $12.5 million, no debt and

total assets of $60.2 million.

• 38,936,407 shares outstanding; 41,215,107 shares fully diluted.

CORPORATE OBJECTIVES FOR 2007

• Assess and execute financing alternatives to develop the

Mount Klappan coal project including partnerships with

companies with the capacity to build a larger project.

• Complete Environmental Assessment and obtain requisite

environmental certificate required to permit the proposed

Lost-Fox mine at Mount Klappan.

• Complete second phase of underground bulk sampling

program for the NICO deposit.

• Complete engineering and preparations for relocating the

Golden Giant mine buildings, milling equipment, surface

facilities and inventory to NICO.

• File applications and conduct Environmental Assessment and

permitting for the proposed NICO mine.

• Enter into participation agreements with First Nations for

NICO and Mount Klappan developments.

• Evaluate and execute financing alternatives to fund

construction of the proposed NICO mine.

• Hire additional management and staff to construct, manage

and operate the mines we propose to develop.

• Expand investor base and improve liquidity of common shares.

TOTAL ASSETS

DO

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RS

60,000,000

50,000,000

40,000,000

30,000,000

20,000,000

10,000,000

02002 2003 2004 2005 2006

SHARE PRICE

6.00

5.00

4.00

3.00

2.00

1.00

0

CD

N$

2004JAN

2004JUL

2005JAN

2005JUL

2006JAN

2006JUL

2007JAN

HISTORY OF EQUITY RAISEDNumber of shares issued to finance operations

Cash raised

25,000,000

20,000,000

15,000,000

10,000,000

5,000,000

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F O R T U N E M I N E R A L S L I M I T E D • PA G E 6

Back in 1989,when Fortune Minerals Limited first became a public company,it arose from our absolute conviction that we would

build a successful minerals producer that would provide strong returns for our small but growing base of investors and other

stakeholders.The intervening years have seen a steady march towards this clear vision, while our shareholders have witnessed

significant challenges to both test and reinforce our Company’s great goals. Now, in 2007, we stand poised to deliver indisputable proof of

Fortune’s vast promise.These latest milestones are marked most clearly by the progress the Company has made towards bringing our two

most advanced and significant assets into commercial production fully coincident with the strengthening of the key resource markets that

we serve. Fortune’s 90%-owned NICO gold-cobalt-bismuth project in the Northwest Territories, an in-house discovery, is targeting

production by the decade’s end, and is coming to fruition at a time when gold prices are forecast to remain strong and both cobalt

and bismuth prices are supported by severely restricted supplies and double digit percentage growth in demand. Similarly, our

wholly-owned Mount Klappan anthracite coal project in Northern British Columbia – one of the largest premium, high rank coal

resources on the planet – is preparing to produce products for a range of global markets caught between increasing consumption and

shrinking availability from traditional suppliers.

This past year has seen many significant advances at our NICO Project, located 160 km northwest of the City of Yellowknife, 85 km north

of Highway 3 to Edmonton,Alberta,and 22 km west of the Snare hydro complex.A significant near-surface deposit with 21.8 million tonnes

of reserves, NICO contains 760,000 ounces of gold, 61 million pounds of cobalt, and 77 million pounds of bismuth within an even larger

total resource. Based on the current gold price of approximately US$ 675 / ounce, this represents a substantial gold asset alone. However,

cobalt is the dominant metal in the deposit and prices for this metal have increased from an average of US$ 11.60 / pound in 2003 to more

than US$ 30 today.NICO is also one of the largest deposits of bismuth in the world and demand and prices for this metal recently reached

new all-time highs of US$ 15 / pound, rising from an average of US$ 3 in 2003. Although few would forecast such prices over the

long-term, it is clear that markets have strengthened significantly since Fortune began developing this asset and they will likely remain

high for the foreseeable future. It is interesting to note that using the two-year trailing average prices for metals in 2005 and 2006,NICO

contains a very significant 3.32 million equivalent ounces of gold, and at current prices it contains 4.8 million equivalent ounces, a

measure of in-ground value that most investors can recognize.

Corporately, we have helped to further increase the value of the NICO project for our investors by increasing Fortune’s interest from 81%

to 90%. During 2006, we also completed the purchase of Newmont’s Golden Giant Mine mill, buildings, equipment and approximately

$2 million in parts inventory situated at Hemlo, Ontario for $3.3 million. Most of this equipment is planned to be relocated to NICO to

materially reduce capital costs for the proposed mine and reduce project risk. In addition,Fortune completed a $10 million phase 1 program

of underground test mining at NICO in order to verify the continuity of grades in the central part of the deposit, assess conditions for future

mining operations, and obtain a sample for larger-scale pilot plant work.A second $10 million phase of test mining is now underway to

deepen the underground workings and crosscut the ore in the lower parts of the deposit. Although the objective of this work is for

exploration purposes, it is important to recognize that after it is has been completed, most of the pre-production development for the

underground part of the mine will have also been completed as an added result. Near year’s end, drill results from NICO were also

released that extended the high-grade mineralization at grades significantly higher than the deposit average. >>

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Subsequent to year-end, Fortune received the long awaited positive results of its full Bankable Feasibility Study (BFS) assessing

the economics for the NICO development. Bankable feasibility studies are comprehensive engineering, economic, social and

environmental evaluations of a project’s viability, typically prepared to +/- 15% precision, and are used by financial institutions to

assess the credit worthiness of a development.The NICO BFS concluded that the project shows attractive economics at “base case”

metal price assumptions and very attractive economics at current prices, which are all substantially higher than their respective

two-year trailing averages used in the base case. Based upon these results and other achievements, the Company announced plans

to proceed with an Environmental Assessment (EA) and permitting for the mine. In addition, shortly after announcing the BFS results,

we were further encouraged by the announcement from the Federal, Northwest Territories and Tlicho governments that they,

together with private industry, are providing approximately $1 million for studies to improve critical road access to isolated communities

and the proposed NICO mine.

The year 2006 has also seen sharp advancements in Fortune’s other key project, the “World Class”Mount Klappan anthracite coal project

in northwest British Columbia.Mount Klappan contains more than 2.8 billion tonnes of high rank,premium anthracite coal in four distinct

deposit areas straddling B.C.Rail’s right-of-way and roadbed,which provides road access from the site to the port of Stewart.Track has also

been installed on this roadbed to within 100 km of the site and provides a potential future rail link to the port of Prince Rupert.Again, as

we continue to advance this project towards commercial production, its future economics are strengthened by positive market forces.

While consumption of anthracite has increased due to a broad range of metallurgical and thermal uses, China and Vietnam, two of the

largest producers of anthracite in the world, have announced they will curtail exports in order to satisfy their domestic requirements,

primarily for power generation.The impact of this is just now affecting consumers in other Asian countries as well as in Europe and North

and South America where anthracite is used to make pellets, sinter, charge carbon and ultra-low volatile pulverized coal injection (PCI)

products for the steel and metals processing industries, and fuels for thermal power plants.

The Lost-Fox deposit, the most advanced of Fortune’s four Mount Klappan

deposits, was assessed in a full BFS in 2005 by Marston Canada Ltd. Results of

this study were positive for a number of development scenarios and Fortune is

proceeding with an EA and mine permitting based on the production of 1.5

million tonnes of PCI coal and truck haulage to Stewart for export to the

overseas steel industry.While this project would produce attractive returns for

our shareholders, the BFS showed even greater returns from a larger mine

development, potentially with rail haulage to Prince Rupert. These larger

development scenarios would be attractive to a number of major mining

companies and Fortune has become involved in discussions with several

companies interested in pursuing some form of joint-partnership to develop

our World Class project. >>

GEORGE M. DOUMET, M.SC., MBA, CHAIRMAN.

2 0 0 6 A N N U A L R E P O R T • PA G E 7

Most of Fortune’s activities in 2006 for Mount Klappan were focused on the EA and permitting processes required to develop the Lost-Fox

mine. The Company conducted extensive environmental baseline studies examining the mine site and access corridors. The current

development plan envisions a new 100 km long access road to be built in order to reduce the distance for truck haulage of coal

products to the port of Stewart. Consequently, 2006 expenditures of $5.5 million were directed primarily to road engineering and layout,

conducting additional environmental field work, helicopter support and consultation activities with First Nations for this route. Fortune’s

key environmental consultant, Rescan, is compiling our baseline study reports for submission in support of the EA.The Government of

British Columbia’s - Environmental Assessment Office has also formally defined the requirements for the Company’s EA and the public

comment period on the draft Terms of Reference document, which included input from First Nations, the public, and various government

agencies.This milestone, completed in early 2007, represents a significant advancement towards the completion of the EA process.The

Company is now working toward finalizing the Terms of Reference document in order to submit its final EA application during 2007.

A number of new possible infrastructure options are also being considered around Mount Klappan,which could dramatically improve the

already robust economic future of the project. For example, the Company engaged Marston to conduct a pre-feasibility level engineering

and economic assessment for a mine mouth, coal-fired power plant at Mount Klappan. Given that B.C. continues to be burdened with an

electrical energy shortage, particularly in the northwest part of the province, and that the government is aggressively seeking options to

correct this deficit, such a power plant was widely seen as beneficial to the province as well as other companies developing mineral

resources in this area. If built, such a plant would provide the Company with a ready market for some of its lower-grade coal products and

reduce power and operating costs for the proposed Lost-Fox mine development. Results of this 2007 pre-feasibility power study, showed

very attractive economics for an open pit mine producing run-of-mine (ROM) coal to supply fuel for a minimum of 25 years to a 300 MW

power plant. In addition, a low ash / high premium charge carbon product would also be produced from selective mining and processing

for export to global metallurgical customers through Stewart.Notably, this study assumes that any power plant considered would use clean

coal technologies to minimize emissions in compliance with the Government of British Columbia's stringent policy on greenhouse gasses.

The study also assumes that such a power plant would be built by a third party power company.

A feasibility study is also being conducted to assess extension of the Dease Lake rail line through Mount Klappan and

resource-rich areas of B.C. and the Yukon to connect with the Alaska Railroad at Fairbanks, and also contemplates a

short-cut to the port of Prince Rupert. This feasibility study was commissioned by the governments of

Alaska and Yukon Territory with financial contributions from the U.S. government, and the governments of

Canada and B.C. acting in an advisory capacity. Fortune also participated in this feasibility study by

contributing its own surveys and engineering studies.We have been informed that this rail feasibility study

has been completed and is expected to be released shortly. If built, such a rail line would eliminate most of

the costs associated with construction of transportation infrastructure for Mount Klappan and materially

reduce haulage rates to the port of Prince Rupert. >>

ROBIN E. GOAD, M.SC., P.GEO., PRESIDENT & CEO.

F O R T U N E M I N E R A L S L I M I T E D • PA G E 8

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2 0 0 6 A N N U A L R E P O R T • PA G E 9

In 2006,Fortune also retained Micon International Limited and P&E Mining Consultants Inc. to prepare a National Instrument 43-101

compliant mineral resource estimate for the Company's 100% owned Sue-Dianne copper-silver deposit. Sue-Dianne contains an

historical (pre-NI 43-101) near-surface resource of 24.5 million tonnes located only 25 km north of our NICO deposit. If developed,

Sue-Dianne would provide a potential future source of incremental mill feed to extend the life of the NICO plant.

This past year also marked the fortifying of Fortune’s Board of Directors and management team. Mahendra Naik, a Chartered Accountant

and one of the founding directors and key executives of Iamgold Corporation, joined the Company's Board earlier in the year. Notably, as

Chief Financial Officer of Iamgold from 1990 to 1999, Mahendra was instrumental in the negotiation of the Sadiola and Yatela mine joint

ventures with Anglo American as well as $400 million in project debt financing. Fortune also filled a critical new position with the hiring

of Jim Mucklow as Manager of Environment and Community Relations.An Environmental Engineer with 25 years of relevant experience,

Jim will lead the Company through the EA and permitting processes for both the NICO and Mount Klappan projects. Fortune is

actively searching for additional expertise to build the requisite team for the Company to navigate the transition from developer to

minerals producer.

During 2006,Fortune completed several financings to raise gross proceeds of $11,732,250 at prices of between $3.25 and $3.45 per share.

The proceeds raised from these financings are being used to fund work at both Mount Klappan and NICO. At year-end the Company had

more than $12 million in working capital and no debt. Fortune is currently considering its financing alternatives to develop its assets in

the most beneficial way to build shareholder value.

With this full slate of successful operational, corporate, financing and personnel developments achieved during the year, and fortified by

sharply increased commodity prices, Fortune has entered the final stages of its development plans stronger than ever before in the

Company’s proud history.

George M. Doumet, Robin E. Goad,

Chairman President and C.E.O.

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PHASE 1 OF AN UNDERGROUND TEST MINING PROGRAM

WAS CONDUCTED AT NICO IN 2006 AND A SECOND

$10 MILLION PHASE IS IN PROGRESS.

F O R T U N E M I N E R A L S L I M I T E D • PA G E 1 0

NICO

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INTRODUCTION

Fortune's 90%-owned NICO project is a near surface

deposit of cobalt, gold and bismuth situated on

Tlicho lands in Canada’s Northwest Territories.The

leased claims containing the deposit are located 85

km north of the community of Behchoko and

160km northwest of the City of Yellowknife, the

regional centre of government and an existing

mining community.The project is only 22 km west

of the Snare hydro complex, which the Northwest

Territories Power Corp. is planning to expand.

Current access to NICO is from the government

winter road, which extends from Behchoko and

Highway 3 to Edmonton, Alberta, north to the

communities of Wha Ti, Gameti and Wekweti. The

governments of Canada and Northwest Territories,

together with the Tlicho government and private

industry, plan to re-align and upgrade this to a

land-based all-weather road for which engineering

and environmental studies are underway.

NICO has reserves containing 760,000 ounces of

gold, 61 million pounds of cobalt, and 77 million

pounds of bismuth within a larger mineral resource.

Using the two-year trailing average prices for metals

in 2005 and 2006, the NICO reserves contain 3.32

million equivalent ounces of gold, and at current

prices (April 2007),4.8 million equivalent ounces of

gold.NICO has been assessed in a positive Bankable

Feasibility Study (BFS) released in January 2007,

which concluded that the project shows attractive

economics at “base case” metal price assumptions

and very attractive economics at current >>

2 0 0 6 A N N U A L R E P O R T • PA G E 1 1

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prices.The BFS contemplates a combination of underground and open pit mining and a process plant to produce gold doré, cobalt

cathode and bismuth concentrate. Fortune has completed a $10-million, Phase 1 of underground test mining program in 2006, which

is being followed by a second $10-million program to deepen the underground workings. The Company completed its agreement to

purchase the Golden Giant Mine mill and surface facilities at Hemlo, Ontario, which it plans to relocate to NICO in order to reduce

capital costs for the project. Fortune has announced its intention to file the requisite applications to commence an Environmental

Assessment (EA) and permitting to develop the mine.

NICO BANKABLE FEASIBILITY STUDY

Fortune commissioned Micon International Limited (Micon) and Met-Chem Canada Inc. (Met-Chem) to lead a Bankable Feasibility Study

(BFS) economic assessment for the NICO project. The study included a number of additional engineering companies that were retained

to work on specific parts of the project. BFS’s are comprehensive engineering, economic, social and environmental evaluations of a

project’s viability, typically prepared to +/- 15% precision, and are used by financial institutions to assess the credit worthiness of a

proposed development. The NICO BFS was based on the assessment of a combined open pit and underground mine processing 4,000

tonnes of ore / day (1,460,000 tonnes / annum) in a plant constructed at the site to produce gold doré, cobalt cathode and a high-grade

bismuth concentrate. The study used the two-year trailing average prices for metals as at January 2007 as base case (US$ 525 / ounce of

gold, US$ 16.50 / pound of cobalt and US$ 4.50 / pound of bismuth) and an exchange rate of US$ 0.84 : C$ 1.00. When the NICO BFS was

released, the prices for these metals were significantly higher (US$ 625 / ounce of gold, US$ 25 / pound of cobalt and US$ 8 / pound of

bismuth). At the time of the preparation of this annual report to shareholders (April 2007), prices had increased even further and are

presently quoted at approximately US$ 675 / ounce of gold, US$ 30 / pound of cobalt and US$ 15 / of bismuth. >>

LEFT: KeTe Whii - PROCON MINERS PREPARE A BLAST IN THE UNDERGROUND RAMP AT NICO.

RIGHT: AERIAL VIEW OF THE 2006 NICO TEST MINING AREA.

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MINE PLAN FOR THE NICO DEVELOPMENT.

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• Already completed significant underground development and pilot plant testing;

• Golden Giant Mine (Hemlo) processing facility purchased and ready for relocation to NICO.

FEASIBILITY STUDY RESULTS

Highlights of the Bankable Feasibility Study

21.8 million tonnesProven and Probable Reserves,

sufficient for a minimum 15-yearmine life at base case.

3.32 millionEquivalent ounces of gold in-situ

reserves at base case prices.

Economic results usingbase case 2005 & 2006, 2-yeartrailing average metal prices:

15.3%Pre-tax Internal Rate of Return (IRR)

C$ 91.8 million8% discounted Net Present

Value (NPV)

US$ 7.05Average production cash costsper pound for cobalt (net of

by-product credits)

US$ 321Average production cash costs per

equivalent gold ounce.

C$ 215.2 millionCapital Costs

69,000 ouncesAverage annual metal production

of GOLD in first two years;24,000 ounces in years 3-15.

3.25 million poundsAnnual metal production of

COBALT as 99.8% cobalt cathode.

3.23 million poundsAnnual metal production of

BISMUTH contained in concentrate,averaging 45% bismuth.

Economic results using January 2007 (feasibility study

completion) metal prices:

41.5%Pre-tax Internal Rate of Return (IRR)

C$ 484.4 million8% discounted Net Present

Value (NPV)

US$ 3.01Average production cash costsper pound for cobalt (net of

by-product credits)

US$ 252Average production cash costs per

equivalent gold ounce.

Economic results using April 2007 (annual reportpreparation) metal prices:

58.9%Pre-tax Internal Rate of Return (IRR)

C$ 769 million8% discounted Net Present

Value (NPV)

ECONOMIC RESULTS

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MINERAL RESERVES:

The Mineral Reserves for the NICO deposit were estimated by Micon and P&E Mining Consultants Inc. (P&E) in 2006 based on net smelter

return (NSR) cut-off values.Terrence Hennessey, P.Geo. and Eugene Puritch, P.Eng. were the Qualified Persons in accordance with National

Instrument 43-101.

OPEN PIT MINERAL RESERVES (Cut-off C$32.21/t NSR)

Classification Tonnes Au (g/t) Bi (%) Co (%)

Proven Mineral Reserve 7,058,000 1.14 0.16 0.11Probable Mineral Reserve 13,555,000 0.70 0.16 0.13

Total Open Pit Reserve 20,613,000 0.85 0.16 0.13

UNDERGROUND MINERAL RESERVES (Cut-off C$77.13/t NSR)

Classification Tonnes Au (g/t) Bi (%) Co (%)

Proven Mineral Reserve 231,000 5.32 0.13 0.13Probable Mineral Reserve 973,000 5.01 0.20 0.15

Total Underground Reserve 1,204,000 5.07 0.19 0.14

TOTAL MINERAL RESERVES

Classification Tonnes Au (g/t) Bi (%) Co (%)

Proven Mineral Reserve 7,289,000 1.27 0.16 0.12Probable Mineral Reserve 14,528,000 0.99 0.16 0.13

Total Mineral Reserve 21,817,000 1.08 0.16 0.13

TOTAL RESERVE IN-SITU METALGold (oz) Bismuth (lbs) Cobalt (lbs)

Total 759,700 76,956,000 60,603,000

The Proven and Probable Mining Reserves for the NICO deposit are sufficient to support a 15-year mine life at the 4,000 tonnes / day

(1,460,000 tonnes / annum) production rate assessed in the study.

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NICO METAL MARKETS

NICO contains significant amounts of gold and cobalt and is one of

the world’s largest bismuth deposits. Cobalt is a high-strength,

magnetic metal in increasing demand for a variety of chemical and

metallurgical applications.The largest growth in the cobalt market

is in the chemicals industry, primarily for the manufacture of

rechargeable batteries and catalysts, but it is also used in food

additives (vitamin B12), pigments and audio recording tape.

Growth in the market for high performance rechargeable batteries

(primarily, nickel metal hydride and lithium ion batteries) is due

to consumer interest in portability for products such as cellular

telephones, computers, power tools, toys and other electronic

devices. Approximately five pounds of cobalt is contained in the

batteries used to power hybrid-electric vehicles (HEV’s).HEV’s and

electric vehicles (which also use these batteries) are growing in

demand because of high fuel costs and concern for the

environment. Significant growth in the use of cobalt catalysts is

also occurring in petroleum refining, liquid natural gas (LNG) and

the manufacture of automobile tires. Metallurgical uses for cobalt

include super-alloys for the aerospace industry, cutting tools,

cemented carbides and industrial magnets. In 2006, the cobalt

market consumed approximately 60,000 tonnes, compared with

53,000 and 49,000 tonnes respectively in 2005 and 2004. This

market growth of more than 20% during the last two years follows

an average rate of growth of between 5% and 6% / year over the

past two decades due to the increasing demand for products

containing cobalt and growth in Asian economies, particularly

China and India.Today, the price for 99.8% cobalt metal is in excess

of US$ 30 / pound, up from US$ 15 / pound a year ago.

COBALT IN YOUR LIFE

27

CoCobalt58.93

BATTERIES - 23%

PIGMENTS - 9%

RECORDING MATERIALS - 2%

ADHESIVES & DRYERS - 8%

SUPERALLOYS - 21%

CATALYSTS - 11%

MAGNETS - 7%

HARDFACING ALLOYS - 8%

CARBIDES - 11%

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F O R T U N E M I N E R A L S L I M I T E D • PA G E 1 6

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Bismuth is a relatively uncommon metal with unique properties,

including very high density, low melting temperature, and like

water, it expands upon solidification (cooling). Bismuth is also

quite inert and scientifically recognized as one of the safest

metals, making it ideally suited for numerous pharmaceuticals

and medicines, including Pepto-bismol, as well as bandage

dressings,cosmetics, and medical devices.Due to its expansion

characteristics,bismuth is also used in a variety of chemicals and

fusible alloys, particularly dimensionally stable alloys. Significant

growth in the bismuth market is accelerating because it has

physical properties similar to lead but is non-toxic. Bismuth is

replacing lead in a number of applications due to increasing

concern for the environment and demands for reducing use of

toxic metals at source. Bismuth is an ideal lead substitute in

solders for plumbing and electronics, brasses, alloys used in

hot-dip galvanizing, paint pigments, ammunition, radiation

shielding and free-cutting steel. Current annual bismuth

consumption is approximately 12,500 tonnes and has been

growing at a rate of between 10% and 15% in each of the past

five years. Growth in the bismuth market is currently

constrained by supply and ironically, most bismuth production

is sourced as a by-product from lead mining, which suggests

that further decreases in lead consumption will also have an

impact on bismuth supply. Early in 2007, numerous reports

noted that global bismuth market demand – particularly in

China – continues to increase but is suffering from a lack of

supply that has driven prices to unprecedented levels.The price

for bismuth at the time of writing is US$ 15 / pound, compared

with just under US$ 5 / pound a year ago.

BISMUTH IN YOUR LIFE

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2 0 0 6 A N N U A L R E P O R T • PA G E 1 7

METALLURGICAL - 26.4%(Steel, Free Cutting,

Greases)

FUSIBLE ALLOYS - 8.8%(LMPA, Solder)

OTHERS - 7.6%

CHEMICALS - 57.2%(Electronics, Lead

Oxide Replacement,Pharma, Pigments,

Misc. Chemicals)

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BISMUTH USESDEMAND - 12,000 - 13,000T/ANNUM

Pigments Solder Cosmetics

GOLDEN GIANT MINE MILL AND EQUIPMENT PURCHASE

In 2006, Fortune completed its purchase of Newmont’s Golden Giant Mine mill,

buildings equipment and approximately $2 million in parts inventory at Hemlo,

Ontario for $3.3 million. This equipment is well suited for use at NICO, is in

excellent condition, and will very materially reduce projected capital costs for the

development.Surplus equipment from Golden Giant that Fortune does not plan to

use at NICO is being sold and will further reduce the cost of purchasing the facility.

The Company has also entered into an agreement to recover gold contained in this

equipment, which and is expected to provide additional revenue. Fortune still has

more than two years to remove these assets from Hemlo, and is not required to

rehabilitate the Golden Giant mine site. Fortune continues to pursue additional

ways to further reduce projected capital costs and improve project economics for

the NICO development.

NICO UNDERGROUND BULK SAMPLE

Fortune conducted a $10-million Phase 1 underground test mining program at NICO

in 2006.This program consisted of excavation of an underground access portal near

the proposed plant site and development of 750 metres of 5 metre by 5 metre

decline ramp at minus 15% gradient. Approximately 100 metres of lateral

development work was driven to cross-cut the ore in the central part of the

NICO deposit at a vertical depth of 150 metres beneath the surface.The purpose of

the program was to verify the continuity of grade, assess conditions for larger

scale mining operations, and obtain a large sample of ore for larger-scale pilot

plant testing. Approximately 2,700 tonnes of mineralized material and 57,000

tonnes of waste rock were mined during the program.Approximately 250 tonnes of

ore collected from the bulk sample has also been trucked over the winter ice road

in 2007 for processing at SGS Lakefield Research Limited later this year. Mining for

this program was undertaken by the KeTe Whii - Procon Joint Venture, which

leverages expertise from Procon Mining and Tunnelling as well as participation

from the Tlicho,Yellowknife and Lutsel K’e Dene First Nations. >>

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F O R T U N E M I N E R A L S L I M I T E D • PA G E 1 8

FORTUNE PURCHASED THE MILL, BUILDINGS,

EQUIPMENT AND PARTS INVENTORY FROM

THE GOLDEN GIANT MINE AT HEMLO, ONTARIO

FOR RELOCATION TO NICO, WHICH WILL

SIGNIFICANTLY REDUCE CAPITAL COSTS

FOR THE MINE AND PROJECT RISK.

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2 0 0 6 A N N U A L R E P O R T • PA G E 1 9

TOP: THE TLICHO GOVERNMENT IS PARTICIPATING

IN THE EXPLORATION WORK AT NICO AND WE

WERE HONOURED TO HOST A TOUR OF THE

2006 PROGRAM FOR A NUMBER OF CHIEFS

AND ELDERS.

BOTTOM: A COMPOSITE SAMPLE OF NICO ORE WAS BAGGED

AND TRUCKED OVER THE WINTER ROAD FOR PILOT

PLANT TESTING AT SGS LAKEFIELD RESEARCH.

Fortune recently launched its second $10 million phase of underground

test mining at NICO. This program will consist of deepening the

existing ramp an additional 325 metres and conduct 300 metres of

lateral development work to cross-cut the ores contained in the lower

parts of the deposit 200 metres beneath the surface. In addition,a 193-

metre raise will be driven to surface to provide ventilation and an

emergency escape access. Approximately 3,600 tonnes of ore and

33,000 tonnes of waste rock will be mined in this second phase of the

program.After completion of the test mining, most of the development

work required for the underground part of the mine will have been

completed as an added result.

ENVIRONMENTAL ASSESSMENT AND PERMITTING

Fortune has been working with Golder Associates Ltd. since 1997

conducting environmental baseline studies at NICO.This work has

included aquatic, vegetation and wildlife biology surveys, hydrology,

hydrogeology, geochemistry, meteorology and archaeology studies.

Fortune has also been working with Rescan Environmental Services

Ltd. to conduct socioeconomic and First Nation traditional use

studies. Significant environmental test work has also been carried out

to characterize the waste products that would be produced from the

NICO process plant at SGS Lakefield Research Limited.

Representatives of the Tlicho First Nation have participated in most

of the collection of environmental baseline data. Fortune expects to

begin the Environmental Assessment (EA) and concurrent mine

permitting processes for the NICO deposit in the second quarter

of 2007. The Company also expects to complete a participation

agreement with the Tlicho government in 2007. Fortune is currently

in discussions with a number of engineering companies interested in

conducting the detailed engineering and engineering procurement

for the NICO project, which is targeting production in 2010.

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RESCAN TAHLTAN ENVIRONMENTAL CONSULTANTS (RTEC) CONDUCTED

HYDROLOGY SURVEYS AT MOUNT KLAPPAN TO ENSURE THERE ARE

NO NEGATIVE IMPACTS FROM OUR PROPOSED DEVELOPMENT.MOUNT KLAPPANF O R T U N E M I N E R A L S L I M I T E D • PA G E 2 0

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2 0 0 6 A N N U A L R E P O R T • PA G E 2 1

INTRODUCTION

Fortune has coal licenses covering more than 150

km2 in Tahltan traditional territory in northwest

British Columbia that hosts the “World Class”Mount

Klappan anthracite coal project. Fortune’s licenses

straddle the B.C. Rail right-of-way, 150 km northeast

of the port of Stewart and 330 km northeast of the

port of Prince Rupert.The railway roadbed provides

road access to Highway 37 and track has also been

installed to within 94 km south of the proposed

mine.

Fortune purchased its Mount Klappan project in

2002 from a Canadian subsidiary of ConocoPhillips

following its takeover of Gulf Canada Resources

Limited who previously owned the project.Today,

Mount Klappan is recognized as one of the largest

undeveloped resources of high rank anthracite coal

in the world. Klappan’s four resource areas – the

Lost Fox, Hobbit-Broatch, Sumitt and Nass deposits

– contain 107.9 million tonnes Measured, 123

million tonnes Indicated, and 2.572 billion tonnes

in the Inferred and Speculative class of resources,

collectively totalling more than 2.8 billion tonnes

of in-situ coal.

In 2005, the Lost Fox deposit was assessed by

Marston Canada Ltd. in a full Bankable Feasibility

Study (BFS), which projected attractive rates of

return for the development under a variety of

production and coal price scenarios. The study

verified in-situ reserves of 102 million tonnes

within a larger global resource that would >>

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F O R T U N E M I N E R A L S L I M I T E D • PA G E 2 2

produce 60 million product tonnes of high quality ultra-low volatile

Pulverized Coal Injection (PCI) product for the overseas steel industry.

Fortune is actively proceeding towards developing an open pit mine and wash

plant at Klappan and a new 100-km long road to reduce the haulage distance

to the port of Stewart. Currently, Fortune’s focus is on an Environmental

Assessment (EA) and permitting for the mine targeting production in 2010.

HISTORY

The initial Mount Klappan coal licenses were acquired by Gulf Canada

Resources Limited in 1981. During the following decade, Gulf spent $62.5

million on exploration and development programs, including geology,

trenching and drilling outlining the significant coal resources on the property.

They also directed comprehensive engineering, marketing, transportation,

environmental and feasibility studies. In 1985 and 1986, Gulf mined 200,000

tonnes of run-of-mine coal from the Lost Fox and Hobbit-Broatch deposits, and

processed 100,000 tonnes of clean coal products in a pilot plant at the site for

trial cargos to customers in North America,Asia and Europe.These efforts led

to a positive feasibility study in 1990 and completion of Stage 2 of the EA.

However, Gulf’s parent company, “Olympia & York Developments”, became

bankrupt after the collapse of its core real estate business, and did not proceed

further with the project before Fortune acquired it from ConocoPhillips

in 2002.

BANKABLE FEASIBILITY STUDY

The Lost Fox deposit at Mount Klappan was assessed in a full Bankable

Feasibility Study by Marston Canada Ltd. in 2005.This study evaluated the

economic viability of an open pit mine producing 1.5 and 3 million tonnes

per year of 10% ash ultra-low volatile PCI coal in a wash plant at the site, and

two transportation alternatives to two port options for export to the overseas

steel industry.These included: construction of a new 100-km short-cut road for

truck haulage of product to the port of Stewart; and extension of the railway

for haulage by unit train to the port of Prince Rupert. Results of the feasibility

study indicate attractive economics for the project over a variety of different

coal price sensitivities. >>

OVERBURDEN STRIPPING AND TEST MINING

OF THE “I” SEAM AT MOUNT KLAPPAN’S

LOST FOX DEPOSIT IN 1985-86.

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THE LOST FOX DEPOSIT WILL BE THE FIRST MINE DEVELOPED AT MOUNT KLAPPAN. THE SITE PLAN

INCLUDES AN OPEN PIT MINE, WASTE DUMPS, PROCESS PLANT AND RELATED INFRASTRUCTURE

ADJACENT TO THE B.C. RAILWAY RIGHT-OF-WAY AND ROADBED.

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MOUNT KLAPPAN RESOURCES

Area Measured Indicated Demonstrated Inferred Speculative

Lost Fox 107.9 109.5 217.4 91.5 749.6

Hobbit-Broatch – 13.5 13.5 258.4 753.0

Summit – – – 9.6 508.9

Nass – – – – 201.5

Total 107.9 123.0 230.9 359.5 2,213.0

LOST FOX METALLURGICAL COAL RESERVES

In Situ Coal Reserves (MT) 10% Ash Product Reserves (MT)

Measured Indicated Total In-Situ Proven Probable Total Product

85.6 16.1 101.7 51.6 9.2 60.8

LOST FOX THERMAL COAL RESERVES

ROM Coal Reserves (MT)

Proven Probable Total Reserves (MT) ROM Coal Strip Ratio (bcm/t)

89.5 16.8 106.3 6.6 (5.9 1st 25 yrs)

Note: ROM = Run-of-Mine

The Mount Klappan resource and reserve estimates were prepared in 2005 and 2006, respectively by Marston Canada Ltd. in compliance

with National Instrument 43-101. Richard Marston, P.E. is the Qualified Person responsible for the estimates.

RESOURCES & RESERVESF O R T U N E M I N E R A L S L I M I T E D • PA G E 2 4

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SUMMARY OF MOUNT KLAPPAN FEASIBILITY STUDY

Production rate 1.5 Mtpa 3 Mtpa 3 Mtpa

Port Option Stewart Stewart Prince Rupert

Strip ratio (Bcm/t) 9.7 11.7 11.7

Cash Cost at Port C$71 C$74 C$75

Mine life 20 years 20 years 20 years

Capital costs C$274 M C$433 M C$414 M

Transportation 40 t trucks 40 t trucks 10,000 t train sets

IRR @ US$100/t 33% 35% 31%

IRR @ US$90/t 24% 27% 22%

NPV (10%) US$100/t C$349 M C$624 C$410 M

NPV (10%) US$90/t C$211 M C$400 C$217 M

Note: the 3 Mtpa (million tonnes per annum) option to the port of Prince Rupert assumes 50% of the cost of upgrading the rail is

provided by others.

The Mount Klappan resource and reserve estimates were prepared in 2005, 2006 and 2007, respectively, by Marston Canada Ltd. in

compliance with National Instrument 43-101. Richard Marston, P.E. is the Qualified Person responsible for the estimates.The metallurgical

coal reserves are sufficient to support a minimum mine-life of 20 years at the 3 mtpa production rate.The thermal coal reserves would

support a minimum 25-year mine life at an annual production rate of 1.1 mtpa of thermal coal and 124,000 tpa of a premium charge

carbon by-product.

ANTHRACITE MARKET

Only about 1% of world coal reserves are anthracite grade, a “hard coal” with the highest rank based on carbon and energy content

combined with the lowest moisture and volatile content of all coals.Anthracite’s unique properties make it suitable for use in a broad range

of premium metallurgical, thermal,water purification and composite materials applications and for fuels used to manufacture cement, and

for power generation.World annual production of anthracite is between 350 and 400 million tonnes, most of which is consumed locally

for the generation of electricity.Notably,China and Vietnam, two of the world’s largest anthracite producers, recently announced that they

have begun curtailing exports in order to satisfy their respective domestic energy requirements.This is restricting supply in traditional

markets in countries in other parts of Asia as well as Europe and North and South America. Prices for anthracite currently range from

US$ 55 to US$ 250 / tonne with metallurgical products selling for between US$ 75 and US$ 130 / tonne, and bagged filter media

commanding a US$ 250 / tonne price. >>

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Anthracite use is growing in a number of metallurgical applications.These include ultra-low volatile pulverized coal injection (PCI) coal

used in the steel industry, which favours its high carbon and energy and very low volatile (gas) content.These properties enable higher

injection rates (up to 30%) in steel industry blast furnaces compared with PCI produced from lower rank bituminous coals.The natural

high carbon content of anthracite also makes it suitable for use as a blend coal to reduce consumption of coke in conventional steel

industry blast furnaces.The global steel industry also uses anthracite for its sintering plants and as a binding agent to make iron ore

pellets. Coarse, low-ash anthracite is used as a reductant in aluminium and titanium processing and as charge carbon used in electric

arc furnace steel manufacturing. Sized, low-ash anthracite is also used to make carbon filters for water purification and carbon composite

materials.

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USES FOR COAL

COAL

Steel Making Carbon Filters Cooking

F O R T U N E M I N E R A L S L I M I T E D • PA G E 2 6

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ENVIRONMENTAL ASSESSMENT

Fortune has entered into the EA process in order to permit the Lost

Fox metallurgical coal mine and a new short-cut road to reduce

the truck haulage distance to the port of Stewart. Fortune’s key

consultant leading the EA and permitting processes is Rescan

Environmental Services Ltd. and Rescan Tahltan Environmental

Consultants Ltd. (collectively Rescan), the latter of which is a joint

venture with the Tahltan First Nation. Rescan has been conducting

significant environmental studies for Fortune since 2004, including

detailed surveys of soils, vegetation and habitat mapping, rock

geochemistry and acid rock drainage assessment, wildlife and bird

inventories, hydrogeology, hydrology, fisheries assessment, wetlands,

meteorology and air quality, archaeology, First Nations traditional

use and socio-economic studies.The information collected is being

added to historical data obtained from the project’s previous

owners, Gulf Canada Resources Limited. >>

WETLANDS ASSESSMENTS WERE CONDUCTED

BY RESCAN ALONG THE PROPOSED 100 KM NEW TRUCK

HAULAGE ROAD TO THE MINE.

Thermal uses for anthracite include smokeless fuels for space heating, the manufacture of heating and cooking briquettes and kiln fuels

used to make cement and lime.Approximately 37% of the world's electricity is generated from coal-fired thermal power plants, many

of which are configured to burn anthracite. Notably, anthracite is a preferred fuel source for new “clean coal” technologies for power

generation that reduce greenhouse gas emissions using technologies such as gasification.The high cost of oil is also making gasification

and coal-to-oil liquefaction technologies economically attractive.This technology has been used for decades to make superior quality syn-

thetic diesel and jet fuels in South Africa.New plants are now being constructed in China and the U.S.A. Notably, a recent study prepared

by the Massachusetts Institute of Technology (MIT) on the future of coal concluded that its use is inevitable and will increase for both

power consumption and as an alternative source of synthetic fuels. It also concluded that carbon capture and geologic sequestration

of greenhouse gasses will likely be necessary in the future, and even with the additional related costs,will be cheaper and represents

a more secure source of energy supply than other fossil fuels including oil and natural gas.

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The 2006 program focused primarily on the proposed 100 km access

road to shorten the distance to Stewart to 250 km. Rescan is now

compiling its reports in support of the EA and First Nation

consultation process. Late in 2006, the Company also achieved a

significant milestone towards completion of the EA process as the B.C.

Environmental Assessment Office formally defined the “Terms of

Reference” following significant consultation and input from First

Nations, the public, and various Government Agencies.The Company is

now finalizing the Terms of Reference document and will submit its

final application in order to obtain its environmental certificate. Upon

receipt of this certificate, detailed engineering will be undertaken to

finalize mine designs and support the applications for mine

permits. Concurrently, Fortune will work towards completing

various agreements, including an Impact and Benefits agreements with

the Tahltan Nation as well as other First Nations that would be

impacted by our proposed development.

ENHANCEMENTS TO ECONOMICS

While Fortune is permitting an export metallurgical coal mine with

truck haulage to the port of Stewart, it is also examining a number of

enhancements that could materially improve the economics of an

already robust project. These include enhancements from power

generation, railway developments and joint venture development of

the project.

DETAILED FISHERIES ASSESSMENTS WERE CONDUCTED BY

RESCAN/RTEC AT MORE THAN 600 WATER CROSSINGS FOR

THE PROPOSED 100 KM NEW TRUCK HAULAGE ROUTE

BETWEEN BELL II, MOUNT KLAPPAN AND

THE AREA AROUND THE MINE.

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POWER GENERATION:

Fortune engaged Marston in 2006 to conduct a pre-feasibility level engineering and economic assessment for a 300-MW, mine mouth

coal-fired power plant at Mount Klappan.This study was commissioned because B.C. is a net importer of 14.5% of its current power

demand and will require an additional 10,000 MW of new power generation over the next decade. B.C. has a goal of energy self

sufficiency, a pro-coal energy policy, and B.C. Hydro has approved the purchase of power from two new proposed coal-fired thermal

projects. A number of new mining projects are also planned in the northwest part of the province, to which the government is

proposing to extend the power grid. Construction of a power plant was therefore widely seen as beneficial to Fortune, the province

as well as other companies developing mineral resources in the Mount Klappan area.

Results of this pre-feasibility power study were released in January 2007 and showed very attractive economics for an open pit mine

producing run-of-mine (ROM) coal to supply fuel for a minimum of 25 years to a 300-MW power plant.The study also contemplated the

production of a low ash / high premium charge carbon product to be exported to global metallurgical customers through Stewart.The

thermal pre-feasibility study indicated Internal Rates of Return (IRR) between 21 and 25.6% and 8% discounted Net Present Values (NPV)

of between C$77 and 103.2 million.The thermal project could also be developed independently or in conjunction with the export

metallurgical project already being permitted. Notably, this study assumes that any power plant considered would use clean coal

technologies to minimize emissions in compliance with the Government of British Columbia’s stringent policy on greenhouse gasses.

The study also assumes that such a power plant would be built by a third party power company. >>

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RAILWAY DEVELOPMENT:

An independent feasibility study is being conducted to assess extension

of the Dease Lake rail line north through Mount Klappan and resource-

rich areas of B.C. and the Yukon and to connect with the Alaska Railroad

at Fairbanks. This study also contemplates constructing a short-cut to

reduce the distance to the port of Prince Rupert and would reduce rail

haulage of products from Mount Klappan to 600 km. The feasibility

study, which was commissioned by the governments of Alaska and

Yukon Territory, included financial contributions from the U.S.

government, and the governments of Canada and B.C. acted in advisory

roles. Fortune also participated in the study by contributing its own

surveys and engineering studies.The objective of this study is to provide

needed transportation infrastructure to help with the development of

resources, support the Alaska pipeline and establish a reliable

land-based transportation link between Alaska and the lower 48

states.This rail feasibility study has reportedly been completed and is

expected to be released shortly. If built, such a rail line would eliminate

most of the costs associated with construction of transportation

infrastructure for Mount Klappan and materially reduce haulage rates

to the port of Prince Rupert.

A COMPREHENSIVE GOVERNMENT FEASIBILITY STUDY

ASSESSING EXTENSION OF THE RAILWAY THROUGH

MOUNT KLAPPAN AND RESOURCE-RICH AREAS OF

NORTHERN B.C. AND THE YUKON AND CONNECT WITH

THE ALASKA RAILROAD AT FAIRBANKS IS EXPECTED

TO BE RELEASED SHORTLY.

JOINT VENTURE DEVELOPMENT:

The 2005 BFS for the Mount Klappan project assessed a number of development scenarios in addition to the 1.5 million tonne mine

with truck haulage to Stewart that the Company is currently permitting. Development scenarios were also assessed with higher

tonnage production rates and developments including a rail link to the port of Prince Rupert. Fortune has also prepared an in-house

assessment of a 5-million tonne / annum mine with the construction of the railway short-cut to Prince Rupert, which shows very

attractive economics.Fortune has also investigated the potential for projects producing multiple products including coal gasification,

coal-to-oil liquefaction, and integration with Shell Canada’s coalbed methane project, which is testing an 8-trillion-cubic-foot gas

target on overlapping and contiguous leases. Most of these projects are much larger in scope than Fortune could manage, but would

produce economic returns that would be very attractive to a larger company. Consequently, Fortune is in discussions with several

companies interested in joint venture development of a larger project, including coal, power, oil and gas, and international trading

companies.

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Fortune owns a 100% interest in the Sue-Dianne copper-silver deposit, which contains 24.5 million tonnes of near surface resources,

amenable to low cost open pit mining 25 km north of NICO.The upper 10 million tonne part of the deposit contains higher grade

material, averaging 1% copper. Metallurgical tests carried out at SGS Lakefield Research Limited indicate high recoveries can be

achieved for copper, silver and gold from this deposit using simple flotation, and that a high value cathode copper product can also

be produced in the same plant that Fortune proposes to construct at NICO.The re-alignment of the road planned by the Government of

the Northwest Territories passes close to the Sue-Dianne property and would enable the Company to truck mineralized material from the

deposit to the NICO plant site. Sue-Dianne therefore presents an excellent opportunity to supply incremental mill feed to extend the life of

the NICO plant. Sue-Dianne is also open for possible expansion of at depth.

SUE DIANNE RESOURCE ESTIMATES

Tonnage (Tonnes) Class Copper (%) Silver (g/tonne)

24,259,200 (@ 0.10% Cu cutoff) Measured & Indicated 0.56 2.217,330,100 (@ 0.25% Cu cutoff) Measured & Indicated 0.72 2.710,569,800 (@ 0.50% Cu cutoff) Measured & Indicated 0.95 3.3

Mineral resources were calculated in 1998 by Hamid Mumin Ph.D., P.Eng. in accordance with the guidelines established by the CIM Ad Hoc

Committee Report, CIM Bulletin, September, 1996.These were the standards used for later development of National Instrument 43-101, but

predate NI 43-101 and are therefore considered historical resource estimates. Historical estimates should not be relied upon. Fortune

retained Micon International Ltd. and P&E Mining Consultants Inc. to prepare new NI 43-101 compliant resource estimates for the NICO

deposit. Both of these consultants have also been working on the NICO BFS and the priority has been to complete this work.The New

resource estimates for Sue-Dianne are expected to be completed later this year.

OTHER PROJECTSFortune has a number of other exploration properties in the Northwest Territories.They include the Great Slave copper-gold project south

of the East Arm of Great Slave Lake, which contains significant copper, gold and silver mineralization up to 50 metres wide along a 4 km

length of the Murky Lake Fault. Limited drilling in the 1960’s included a 27.7 metre intersection averaging 0.7% copper, 1.2 grams/tonne

gold and 152 grams/tonne silver, including narrower intervals up to 153 grams/tonne gold (4.44 ounces/ton) over 0.61 metres.Despite these

grades, there is no evidence of systematic analysis of precious metals and presents a compelling target for further exploration.

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F O R T U N E M I N E R A L S L I M I T E D • PA G E 3 2

This Management’s Discussion and Analysis of Fortune Minerals Limited (“Fortune” or the “Company”) is dated March 2, 2007 and shouldbe read in conjunction with the Company’s Annual Audited Consolidated Financial Statements for the year ended December 31, 2006prepared in accordance with Canadian generally accepted accounting principles.All dollar amounts are presented in Canadian dollars.

SELECTED ANNUAL INFORMATION2006 2005 2004

Total revenues $596,034 $579,688 $112,451Net loss (39,205) (402,718) (1,338,868)Loss per common share – (0.01) (0.05)Total assets 60,236,785 47,851,896 40,450,651Total long term financial liabilities – – –

SUMMARY OF QUARTERLY RESULTS2006 2005

Dec-31 Sep-30 Jun-30 Mar-31 Dec-31 Sep-30 Jun-30 Mar-31

Revenues $71,354 $256,385 $128,793 $139,502 $155,846 $132,275 $177,035 $114,532Net loss 18,856 189,991 (102,386) (145,666) (181,419) 1,103 (188,820) (33,582)Loss per share – – – – – – (0.01) –

DEFFERED EXPLORATION EXPENDITURES - $37,647,706

ACCOUNTS RECEIVABLE - $1,398,971

INVESTMENT IN AND ADVANCES

TO AFFILIATED COMPANY - $331,389

INTERESTS IN MINING PROPERTIES - $3,153,280

SHORT-TERM INVESTMENTS - $267,872

PREPAID EXPENSES - $29,557

CASH AND CASH EQUIVALENTS - $11,942,358

RECLAMATION BOND - $563,785

CAPTIAL ASSETS, NET - $4,901,867

ASSET ALLOCATION

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2 0 0 6 A N N U A L R E P O R T • PA G E 3 3

OVERVIEW

Fortune is a natural resource company with diversified assets, all of which are located in Canada. Fortune is involved in the exploration anddevelopment of coal, specialty metals, base metals, precious metals and industrial mineral properties, primarily in British Columbia,Northwest Territories, and Ontario. Fortune’s most significant properties are the Mount Klappan anthracite coal project and the NICOgold-cobalt-bismuth project.

The Company, over the last two years, has taken steps to bring both of its principal projects into production. During this period,positive feasibility studies identifying reserves for long-life mines and extensive environmental base line studies required to navigatethe environmental assessment process were completed for both projects.A major underground bulk sample program was also carriedout at the NICO project. In addition, the Company has added to its board and management team and maintained a strong financialposition.

Exploration and development expenditures incurred by Fortune on its properties over the last two years total $27,037,086. Most of theseexpenditures were on the Company’s Mount Klappan and NICO projects. Exploration expenditures incurred directly by Fortune in 2006totalled $18,519,185 compared to $8,015,434 in 2005.During 2005,an additional $502,467 was incurred on its projects but was funded byjoint venture partners. Total resource property expenditures reflected on the balance sheet as deferred exploration expenditures were$37,647,706 as at December 31, 2006 as compared to $19,149,212 as at December 31, 2005.

In addition to the Company’s operational accomplishments, numerous infrastructure initiatives are being pursued by third parties orvarious levels of governments in the regions where the NICO and Mount Klappan projects are located. Fortune has contributed to someof these initiatives.Although the ultimate completion of these infrastructure projects is uncertain, Fortune will continue to participatein these activities as they would have a material beneficial impact on the Company’s projects. >>

EXPLORATION EXPENDITURESFortune expenditures

Third party expenditures

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JULIAN B. KEMP, BBA, C.A., VICE PRESIDENT FINANCE AND CFO.

THE MORE SIGNIFICANT INFRASTRUCTURE INITIATIVES INCLUDE:• Fortune and the Federal, Northwest Territories and Tlicho governments have been working together to bring about the development

of an all-weather road to link local communities, the NICO mine site and Yellowknife.This road link would provide reliable economicyear round road access to the local communities and the NICO project site for the movement of people, goods and services in lieu ofthe winter roads and seasonal air access currently available.

• The British Columbia provincial government is evaluating extending the power grid north from its current terminus some 200 kmsouthwest of Mount Klappan. Extension of the power grid north would be beneficial for the project by reducing operating costs andoffers new business opportunities with respect to power generation at or near the project site to enhance project economics.

• The governments of the United States,Alaska and the Yukon have funded and undertaken a feasibility study to assess the extension ofrail from British Columbia north through or near the Mount Klappan site to Alaska.The completed feasibility study has not yet beenreleased.If the Mount Klappan project had rail access as contemplated in this study,the project’s expected transportation cost of it coalproducts to the Port of Prince Rupert would be reduced by as much as 50%.This operating cost reduction together with capital costsavings would have a profound positive impact on the project economics.

The expenditures incurred by the Company to develop its primary assets reflect the Company’s substantial mineral resources and its longterm strategy to become a producer.Until its operations generate earnings and cash flow,the Company will rely on equity financings to fundits activities.The Company has sought to minimize equity dilution while building shareholder value by focusing on managing the primaryrisks inherent in undertaking such mining activities.As such, Fortune has: (i) minimized administrative and other expenditures to focus onproject activities; (ii) purchased assets such as the Golden Giant mill to secure the required steel and equipment ultimately requiredat advantageous prices; (iii) systematically conducted complex studies to test the feasibility of the projects and determine reserves;(iv) planned and executed bulk sampling and environmental programs to complete the detailed engineering and permitting; and(v) carried out extensive consultation activities with First Nations and other local communities.

Prudent management of is financial position is reflected in Fortune’s reduced net loss of $39,205 or $nil per share for the year endedDecember 31, 2006 compared to the net loss of $402,718 or $0.01 per share in the prior year.The improved annual results are principallythe result of the a recognition of a future tax recovery and lower administration expenses, promotion and shareholder relations expensesand write-off of deferred exploration expenditures offset by increased stock compensation expense.The Company, in the fourth quarter of2006, recognized a $680,000 future tax recovery and recorded $550,000 of a total of $798,000 in stock compensation expense. TheCompany’s net income of $18,856 or $nil per share for the three months ended December 31, 2006 reflected the impact of thesetransactions compared to the net loss of $181,419 or $nil per share for the three months ended December 31, 2005.

RESULTS OF OPERATIONS

REVENUESFortune’s primary source of revenue is investment income, which increased to $596,034 in 2006 compared to $579,688 in 2005. Theincreased revenue was the result of higher investment yields offset by lower working capital balances.The Company invests its surplus cashin low risk liquid investments.These types of investments typically have low yields. Given the anticipated expenditures in 2007 related to asecond phase of bulk sampling at NICO, environmental certificate applications and other development activities, management anticipatesdeclining cash balances and reduced revenues for 2007 compared to 2006.

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EXPENSESExpenses increased in 2006 to $1,292,709 compared to $763,384 in 2005.The increase is attributable to higher stock-based compensationexpense recorded during 2006 compared to 2005.Upon the grant of stock options,management estimates the fair value of the options usingthe Black-Scholes model.The estimated fair value of the options is allocated to stock-based compensation expense,capital assets and deferredassets based on an approximation of the allocation of the optionee’s future compensation. In the case of directors who do not receive anycash compensation, the entire fair value of the options granted is recorded to stock-based compensation expense.

SUMMARY ESTIMATED FAIR VALUE OF STOCK OPTIONS GRANTED: 2006 2005

Options granted during the year 900,000 325,000Total estimated fair value $1,158,000 $848,250Average fair value per option $1.29 $2.61Allocated to:

Stock-based compensation expense $798,000 $176,325Deferred exploration expenditures $295,000 $671,925Capital assets $65,000 —

The increase in stock-based compensation expense was offset by marginal declines in administrative and public relations expensesreflecting controlled and restricted growth in these expenditures while the Company is in the development phase with its majorprojects.

The Company’s net loss for 2006 includes its share in losses in Formosa Environmental Aggregates Ltd. (“Formosa”) of $1,838 (followingthe equity method of accounting for investments) and the write-off of $20,692 in deferred exploration expenditures related to certainmineral claims it has chosen not to pursue. In 2005, the Company’s share of losses in its equity investee was $56,264 and $162,758 waswritten off in deferred exploration expenses.

FUTURE TAX RECOVERYThe Company recognized a future income tax recovery of $680,000 due to the reduction of substantively enacted future tax rates and theresulting impact on the recorded future tax liability.The Company’s future tax liability has arisen, principally, due to the increasing differ-ence in the book and of tax values of its assets.This increase in the difference in the book and tax values for Company’s assets is primarilyfrom the renunciation of tax deductions to investors of flow through shares.

CASH FLOWCash used in operating activities declined in 2006 to $84,611 from $434,100 in 2005. Operating activities before changes in non-cashworking capital provided a source of cash of $79,314 compared to $11,136 in 2005.This source of cash is the result of interest incomeearned in 2006 and 2005 being sufficient to fund the Company’s administrative and promotion and shareholder relations costs.The use ofcash from the changes in working capital balances for 2006 were primarily the result of an increase in receivables offset by an increase inaccounts payable and accrued liabilities.These increases reflect the increased levels of activity. >>

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Cash used in investing activities increased significantly to $22,720,088 in 2006 from $8,008,551 in 2005.The 2006 figure primarily includesan increase in deferred exploration expenditures of $17,912,606 and the purchase of capital assets of $4,806,275.The 2005 figureprimarily includes an increase in deferred exploration expenditures of $7,270,061, the purchase of capital assets of $379,325 andthe posting of additional security for reclamation bonds of $252,193.The significant investing activities reflect the Company’s transitionfrom exploration to development stage.

The Company raised net proceeds of $11,547,623 in 2006 from the issuance of 4,065,500 shares or an average of $2.84 per share.Thiscompares to $6,999,311 in 2005 from the issuance of 2,709,334 shares or an average of $2.58 per share. The shares issued in 2005include 1,405,400 shares issued upon the exercise of warrants.

LIQUIDITY AND CAPITAL RESOURCES

As at December 31, 2006, Fortune had cash and cash equivalents of $11,942,358, short-term investments of $267,872 and working capitalof $12,524,245, with no debt. The Company’s principal operational objectives for 2007 are to complete the environmental assessmentprocess and obtain permits for the Lost Fox mine of the Mount Klappan project, complete a second phase of bulk sampling andmetallurgical testing of the sample for the NICO project and commence the engineering and planning to deconstruct and move theGolden Giant buildings, milling equipment, surface facilities and inventory. Budgeted expenditures for 2007 at NICO and MountKlappan total approximately $13 million and $1 million, respectively.The various planned activities at NICO include collecting asecond bulk sample from additional mine levels, completing environmental assessment activities, commencing detailed engineeringand carrying out pilot plant testing of the bulk samples.The various planned activities at Mount Klappan include completing theenvironmental assessment process and related activities.As additional funding is required to carry out these budgeted expenditures,not all of these activities have been committed to by the Company.The Company has sufficient resources to fund its 2007 commitments.Additional financing will be required by the Company in order to pursue further development of its major projects.The Company willevaluate alternatives; including seeking out suitable joint venture partners, and endeavor to execute a financing plan to fund theconstruction to transform the Lost Fox and NICO deposits into producing mines.

OUTLOOK

The Company’s objective is to achieve successful commercial production at its Mount Klappan and NICO projects by 2010.To achieve thisobjective, the Company has defined major milestones for 2007 as follows:

• to negotiate various agreements as necessary with First Nation groups;• to obtain environmental certificates and mine permits;• to complete the pilot plant testing of the NICO bulk samples;• to tender and commence a detailed engineering, procurement, and construction management (“EPCM”) contract for NICO;• to arrange financing for the construction of the mines; and• to commence hiring additional management and staff to construct, manage and operate active mines

Fortune has endeavored to build strong relationships with the First Nations affected by our projects.Through these ongoing efforts theCompany believes it is in a position to successfully negotiate major impacts and benefits agreements with various First Nations.Completionof these agreements requires the participants to take care to ensure appropriate terms and conditions exist to pursue and achieve commongoals of sustainable development.

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Related to the negotiation of agreements with First Nations is the filing of environmental assessment and permit applications to completethe legislated environmental assessment requirements.The Company has completed environmental base line studies for both of itsprincipal projects and has commenced the preparation of the requisite applications.Although the environmental assessment processis evolving, the parameters and requirements have been generally established. Fortune has engaged some of the most respectedenvironmental consulting firms in Canada, Rescan Environmental Services and Golder Associates, to conduct the studies and prepareor assist in the preparation of the applications. Fortune has also engaged James Mucklow as Manger of Environment and CommunityAffairs to strengthen the management team.

The Company will utilize the 2007 winter roads to transport the bulk sample extracted in 2006 to SGS Lakefield Research where a pilotplant test project will process and test the metallurgical characteristics of the bulk sample to further refine the process methods.Thisinformation will be used in further detailed planning and engineering of the process facilities.

Fortune will solicit proposals for the EPCM activities not only to commence the detailed engineering required to plan mine constructionbut also to dismantle and move the Golden Giant mill and related assets acquired in 2006 and facilitate the mine permit applications asrequired. Undertaking the EPCM activities will assist the Company to meet its commitment to dismantle and move the Golden Giant milland related assets prior to August 31,2009.The underground bulk sample planned for 2007 is an important achievement for supplementingthe data used in the feasibility study for final engineering designs and plans.The information received from knowing the actual miningconditions and the metallurgical process from larger samples will improve the facility design and provides for an opportunity to enhanceproject economics by assessing specific alternatives such as producing a final bismuth metal product on site rather than a concentratesfor sale to international smelters.

Based on the completed feasibility studies, the estimated capital costs to construct the NICO mine are $215.2 million and to construct theLost Fox mine at Mount Klappan are $275.0 million.The estimated cost to construct NICO includes costs to dismantle and move the GoldenGiant mill and related assets.The estimated cost to construct the Lost Fox mine includes substantial infrastructure.To finance its projects,the Company will continue to seek out potential joint venture partners, business transactions, equity financing and debt financing. Upondetermining the available sources of funds together with the related constraints of each particular option, Fortune will assess its options toproceed.

The Company, as it moves forward, will require additional staff with management, operational, and strategic skills and talent required tomanage an active mining organization.The Company will strive to balance the hiring of additional people with the opportunities availableto the Company.To this end, Fortune has taken steps to attract and retain highly qualified people.

TRANSACTIONS WITH RELATED PARTIES

During 2006 the Company paid Robin Goad, the President and CEO, $200,000 for geological consulting and administrative consultingservices on behalf of the Company;Kemp Management Services, a sole proprietorship of Julian Kemp, the Vice President Finance and CFO,$162,520 for financial,management and administrative consulting services on behalf of the Company;and Macleod Dixon LLP,a partnershipof which David Knight, the Secretary and a director, is a partner, $94,360 for legal services.

Candou Industries Ltd. (“Candou”), a company controlled by George Doumet, the Chairman of the Company, owns a 9.99% interest in theNICO claims.At December 31, 2005 the Company’s accounts receivable included $525,513 for expenditures incurred on behalf of Candouduring the year. This amount was received by the Company during 2006. >>

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Federal White Cement, Ltd., (“Federal White”), a company controlled by George Doumet, the Chairman of the Company, owns a 70%interest in Formosa.The Company owns a 30% interest and is the managing partner. Fortune accounts for its investment in Formosausing the equity method.At December 31, 2006, in addition to its equity contributions, the Company has advanced, cumulatively, atotal of $240,210 to Formosa to fund its activities. Federal White has advanced $383,089.These advances are unsecured, non-interestbearing and have no fixed terms of repayment.

CRITICAL ACCOUNTING ESTIMATES

INTERESTS IN MINING PROPERTIES AND DEFERRED EXPLORATION EXPENDITURESIn accordance with the Company’s accounting policies, acquisition costs and exploration expenditures relating to mineral properties aredeferred until the properties are brought into commercial production or disposed.Amortization will commence when a property is put intocommercial production. As the Company does not currently have any properties in commercial production, no amortization has beenrecorded.

Mineral reserve and mineral resource estimates are not precise and also depend on statistical inferences drawn from drilling and other data,which may prove to be unreliable. Future production could differ from mineral resource estimates for the following reasons:

• Mineralization or formation could be different from those predicted by drilling, sampling and similar tests;• The grade of mineral resources may vary from time to time and there can be no assurance that any particular level of recovery can be

achieved from the mineral resources; and• Declines in the market prices of contained minerals may render the mining of some or all of the Company’s mineral resources

uneconomic.

Any of these factors may result in impairment of the carrying amount of interests in mining properties or deferred exploration expenditures.

NEW ACCOUNTING STANDARDS

The new standards identified below are effective for the Company’s interim and annual periods beginning January 1, 2007.

FINANCIAL INSTRUMENTS – RECOGNITION AND MEASUREMENTIn January 2005, the CICA released Handbook Section 3855, Financial Instruments – Recognition and Measurement, effective for all annualand interim periods beginning on or after October 1, 2006.All financial instruments must be classified into prescribed categories andreclassification is rarely possible. Classification determines how each instrument is measured and how gains and losses are recognized.We have not yet determined the impact of the adoption of this standard on the consolidated results of operations or financial positionof the Company. Entities are permitted a “fresh start” in applying the new standards for classification of financial assets and liabilities.Any adjustments to carrying amounts are recognized as adjustments to opening retained earnings or, in the case of assets classified asavailable for sale or amounts previously deferred in respect of cash flow hedges which will be re-designated as new cash flow hedges,to other comprehensive income.Adoption will be required in fiscal 2007.

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HEDGESIn April 2005, the CICA issued Section 3865 of the CICA Handbook,Hedges,which effective for years beginning on or after October 1,2006.This section establishes standards for when and how hedge accounting may be applied. Hedging is an activity designed to modify anentity’s exposure to one or more risks. Hedge accounting modifies the normal basis for recognizing the gains, losses, revenues andexpenses associated with a hedged item in an entity’s statement of operations. It ensures that the counterbalancing gains, losses, revenuesand expenses are recognized in the same period. Currently, the Company is not party to any forward foreign exchange or metal pricingcontracts, but may use such instruments in the future.We have not determined the impact of this standard on the consolidated resultsof operations or financial position of the Company.Adoption will be required in fiscal 2007.

COMPREHENSIVE INCOMECICA 1530 Comprehensive Income sets the standards for the reporting and display of comprehensive income. Comprehensive income isdefined as the change in equity (net assets) of an enterprise during a period from transactions and other events and circumstances fromnon-owner sources. It includes all changes in equity during a period,except those resulting from investment by owners and distributions toowners.A statement of comprehensive income would be included in a full set of financial statements for both interim and annual periods.

The new statement would present net income and each component to be recognized in other comprehensive income.These componentswould include, for example,exchange gains and losses arising on translation of the financial statements of self-sustaining foreign operations,which are currently included in a separate component of shareholders’ equity.This standard is effective for years beginning on or afterOctober 1, 2006.We have not determined the impact of this standard on the consolidated results of operations or financial position of theCompany.Adoption will be required in fiscal 2007.

ENVIRONMENT

Fortune is committed to a program of environmental protection at its development projects and exploration sites. Fortune was incompliance with government regulations in 2006. The Company has provided secured letters of credit in the aggregate amount of$518,000 to be held against future environmental obligations with respect to the Mount Klappan and NICO properties.

RISK AND UNCERTAINTIES

The operations of the Company are speculative due to the high-risk nature of its business, which is the acquisition, financing, explorationand development of mining properties.The risks below are not the only ones facing the Company.Additional risks not currently known tothe Company, or that the Company currently deems immaterial, may also impair the Company’s operations. If any of the following risksactually occur, the Company’s business, financial condition and operating results could be adversely affected.

NATURE OF MINERAL EXPLORATION AND MININGAt the present time the Company does not hold any interest in a mining property in production.The Company’s viability and potentialsuccess is based on its ability to develop, exploit and generate revenue from mineral deposits.The exploration and development ofmineral deposits involve significant financial risk over a significant period of time, which even a combination of careful evaluation,experience and knowledge may not eliminate.While discovery of a mine may result in substantial rewards, few properties which areexplored are ultimately developed into producing mines. Major expenses may be required to establish reserves by drilling and toconstruct mining and processing facilities at a site. It is impossible to ensure that the current or proposed exploration and developmentprograms on the properties in which the Company has an interest will result in a profitable commercial mining operation. >>

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The operations of the Company are subject to all of the hazards and risks normally incident to exploration and development of mineralproperties, any of which could result in damage to life and property, the environment and possible legal liability for any and all damage.The activities of the Company may be subject to prolonged disruptions due to weather conditions depending on the location of theoperations in which the Company has interests. Hazards, such as unusual or unexpected geological structures, rock bursts, pressure, cave-ins, flooding or other conditions may be encountered in the drilling and removal of material.While the Company may obtain insuranceagainst certain risks in such amounts as it considers adequate, the nature of these risks are such that liabilities could exceed policy limits orcould be excluded from coverage.There are also risks against which the Company cannot insure or against which it may elect not to insure.The potential costs which could be associated with any liabilities not covered by insurance or in excess of insurance coverage orassociated with compliance with applicable laws and regulations may cause substantial delays and require significant capital outlays,adversely affecting the future earnings and competitive position of the Company and, potentially, its financial position.

Whether a mineral deposit will be commercially viable depends on a number of factors, some of which are the particular attributes of thedeposit, such as size and grade, proximity to infrastructure, financing costs and governmental regulations, including regulations relating toprices, taxes, royalties, infrastructure, land use, importing and exporting and environmental protection.The effect of these factors cannot beaccurately predicted, but the combination of these factors may result in the Company not receiving an adequate return on invested capital.

FLUCTUATING PRICESFactors beyond the control of the Company may affect the marketability of coal, cobalt, bismuth, gold or any other minerals discovered.Commodity prices have fluctuated widely and are affected by numerous factors beyond the Company’s control.The effect of these factorscannot accurately be predicted.

PERMITS AND LICENSESThe operations of the Company require licenses and permits from various governmental authorities.The Company believes that itpresently holds all necessary licenses and permits required to carry out the activities which it is currently conducting under applicable lawsand regulations and the Company believes it is presently complying in all material respects with the terms of such licenses and permits.However, such licenses and permits are subject to change in regulations and in various operating circumstances.There can be no assurancethat the Company will be able to obtain all necessary licenses and permits required to carry out exploration, development and miningoperations at its projects.

COMPETITIONThe mineral exploration and mining business is competitive in all its phases.The Company competes with numerous other companies andindividuals, including competitors with greater financial, technical and other resources than the Company, in the search for and theacquisition of attractive mineral properties, the acquisition of mining equipment and related supplies and the attraction and retentionof qualified personnel.The ability of the Company to acquire properties, purchase required equipment, and hire qualified personnelin the future will depend not only on its ability to develop its present properties, but also on its ability to identify, arrange, negotiate,select or acquire suitable properties or prospects for mineral exploration, source suitable equipment and hire qualified people.Thereis no assurance that the Company will continue to be able to compete successfully with its competitors in acquiring such propertiesor prospects, sourcing equipment or hiring people.

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ENVIRONMENTAL AND CLIMATE CHANGE REGULATIONThe operations of the Company are subject to environmental regulations promulgated by government agencies from time to time.Environmental legislation provides for restrictions and prohibitions on spills, releases or emissions of various substances produced inassociation with certain mining industry operations, such as seepage from tailings disposal areas, which would result in environmentalpollution.A breach of such legislation may result in the imposition of fines and penalties. In addition, certain types of operations requirethe submission and approval of environmental impact assessments. Environmental legislation is evolving in a manner which meansstricter standards, and enforcement, fines and penalties for non compliance are more stringent. Environmental assessments of proposedprojects carry a heightened degree of responsibility for companies and their directors, officers and employees.The cost of compliancewith changes in governmental regulations has the potential to reduce the profitability of future operations.The impacts of the KyotoProtocol or alternative potential climate change legislation are difficult to predict and are not yet fully understood. Such impacts mayhave an adverse effect on the capital and operating cost of the Company’s operations or those of its future customers that maymaterially affect future operations.

ABORIGINAL TITLE AND RIGHTS CLAIMSAboriginal title and rights may be claimed with respect to Crown properties or other types of tenure with respect to which mining rightshave been conferred.The Company is not aware of any aboriginal land claims having been formally asserted or any legal actions relating toaboriginal issues having been instituted with respect to the properties other than certain treaty rights established by the Nisga’a and Tlichofor the Mount Klappan and NICO projects, respectively. In 2005, however, the Company’s Mount Klappan property was the subject of ablockade by a group of individuals, most being aboriginals, which required the Company to obtain a court injunction to remove theblockade.There can be no assurance that similar events will not occur or that title and rights claims will not be asserted in the futurein respect of the Company’s properties.The Company is aware of the mutual benefits afforded by co-operative relationships withindigenous people in conducting exploration and development activity and is supportive of measures established to achieve suchcooperation including preferential hiring practices, local business development activities, involvement in environmental stewardshipand other forms of accommodation. In addition, other parties may dispute the Company’s title to the properties and the propertiesmay be subject to prior unregistered agreements or transfers or land claims by aboriginal peoples, and title may be affected by undetectedencumbrances or defects or government actions.

ESTIMATES OF MINERAL RESERVES AND RESOURCES MAY NOT BE REALIZEDThe mineral reserve and resource estimates published from time to time by the Company with respect to its properties are estimates onlyand no assurance can be given that any particular level of recovery of minerals will in fact be realized or that an identified resource will everqualify as a commercially mineable (or viable) deposit which can be legally and economically exploited. In addition, the grade ofmineralization ultimately mined may differ from that indicated by drilling results and such differences could be material. Productioncan be affected by such factors as permitting regulations and requirements, weather, environmental factors, unforeseen technicaldifficulties, unusual or unexpected geological formations, inaccurate or incorrect geological, metallurgical or engineering work, andwork interruptions, among other things. Short-term factors, such as the need for orderly development of deposits or the processingof new or different grades, may have an adverse effect on mining operations or the results of operations.There can be no assurancethat minerals recovered in small-scale laboratory tests will be duplicated in large scale tests under on-site conditions or in productionscale operations. Material changes in resources, grades, stripping ratios or recovery rates may affect the economic viability of projects.Theestimated resources described herein should not be interpreted as assurances of mine life or of the profitability of future operations. >>

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The Company has engaged expert independent technical consultants to advise it with respect to mineral reserves and resources andproject engineering, among other things.The Company believes that those experts are competent and that they have carried outtheir work in accordance with all internationally recognized industry standards. However, if the work conducted by those experts isultimately found to be incorrect or inadequate in any material respect, the Company may experience delays and increased costs indeveloping its properties.

DEPENDENCE ON KEY PERSONNELFortune is dependent on the services of its senior management, including Robin Goad, its President and Chief Executive Officer, and a smallnumber of skilled and experienced employees and consultants.The loss of any such individuals could have a material adverse effect onFortune’s operations.

LIMITED FINANCIAL RESOURCES The existing financial resources of the Company are not sufficient to bring any of its properties into commercial production.The Companywill need to obtain additional financing from external sources in order to fund the development of the Mount Klappan and NICOproperties.There is no assurance that the Company will be able to obtain such financing on favourable terms, or at all. Failure toobtain financing could result in delay or indefinite postponement of further exploration and development of the Company’s properties.

HEALTH AND SAFETY MATTERS The Company’s development and exploration projects are affected by various laws and regulations, including those which cover health andsafety matters. Existing legislation and regulations are subject to change, the impacts of which are difficult to measure. It is the policy of theCompany to maintain safe working conditions at all its work sites, comply with health and safety legislation, maintain equipment andpremises in safe condition and ensure that all employees are trained and comply with safety procedures.

FINANCIAL INSTRUMENTS

The Company’s financial instruments consist of cash and cash equivalents, short-term investments, accounts receivable, reclamation bonds,accounts payable and accrued liabilities and income taxes payable.The fair values of these financial instruments are not materially differentfrom their carrying values. It is management’s opinion that the Company is not exposed to significant interest or credit risks arising fromthese financial instruments.The Company mitigates its risk by holding its short-term investments with large financial institutions.

ADDITIONAL INFORMATION

Additional information relating to the Company, including its current and previous year’s annual information forms, are available on SEDARat www.sedar.com.

SHARE DATA

As at the date hereof, the Company has 38,936,407 common shares issued and outstanding, as well as options to purchase an aggregate of2,278,700 common shares expiring at various dates between January 24, 2008 and December 22, 2011 and exercisable at various pricesbetween $0.75 and $4.95 per share.

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EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Disclosure controls and procedures are designed to provide reasonable assurance that all relevant information is gathered and reported tosenior management, including the Company’s Chief Executive Officer and Chief Financial Officer, on a timely basis so that appropriatedecisions can be made regarding public disclosure.As at the end of the period covered by this management’s discussion and analysis,management of the Company, with the participation of the Chief Executive Officer and the Chief Financial Officer, evaluated theeffectiveness of the Company’s disclosure controls and procedures as required by Canadian securities laws.Based on that evaluation,the Chief Executive Officer and the Chief Financial Officer have concluded that, as of the end of the period covered by this MD&A,the disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed inthe Company’s annual filings and interim filings (as such terms are defined under Multilateral Instrument 52-109— Certification ofDisclosure in Issuers’Annual and Interim Filings of the Canadian Securities Administrators) and other reports filed or submitted underCanadian securities laws is recorded, processed, summarized and reported within the time periods specified by those laws and thatmaterial information is accumulated and communicated to management of the Company, including the Chief Executive Officer andthe Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

INTERNAL CONTROLS OVER FINANCIAL REPORTINGInternal controls over financial reporting are designed to provide reasonable assurance regarding the reliability of the Company’s financialreporting and the preparation of financial statements in compliance with Canadian generally accepted accounting principles.

There were no changes to the Company’s internal controls over financial reporting during the year ended December 31, 2006 that havematerially affected, or are reasonably likely to materially affect, its internal controls over financial reporting.

This discussion contains certain forward-looking information.This forward-looking information includes, or may be based upon, estimates,forecasts, and statements as to management’s expectations with respect to, among other things, the size and quality of the Company’smineral resources, progress in development of mineral properties, demand and market outlook for metals and future metal prices.Forward-looking information is based on the opinions and estimates of management at the date the information is given, and is subjectto a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projectedin the forward-looking information. These factors include the inherent risks involved in the exploration and development of mineralproperties, the uncertainties involved in interpreting drilling results and other geological data, fluctuating metal prices, delays in thedevelopment of the Company’s projects caused by unavailability of equipment, labour or supplies, climatic conditions or otherwise, thepossibility of project cost overruns or unanticipated costs and expenses, uncertainties relating to the availability and costs of financingneeded in the future and other factors. Readers are cautioned to not place undue reliance on forward-looking information because it ispossible that predictions, forecasts, projections and other forms of forward-looking information will not be achieved by the Company.These forward-looking statements are made as of the date hereof and the Company assumes no responsibility to update them or revisethem to reflect new events or circumstances, except as required by law.

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F O R T U N E M I N E R A L S L I M I T E D • PA G E 3 0

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The consolidated financial statements, the Management Discussion and Analysis, and all other information in this annual report are the

responsibility of management and have been approved by the Board of Directors. The consolidated financial statements have been

prepared by management in accordance with accounting principals generally accepted in Canada. When alternative accounting

methods exist,management has chosen those it deems most appropriate in the circumstances.Financial statements are not precise since

they include certain amounts based on estimates and judgments.Management has determined such amounts on a reasonable basis given

currently available information in order to ensure that the financial statements are presented fairly, in all material respects. Management

has prepared the financial information presented elsewhere in the annual report and has ensured that it is consistent with that in the

consolidated financial statements.

The Company maintains systems of internal accounting and administrative controls in order to provide, on a reasonable basis, assurance

that the financial information is relevant, reliable and accurate and that the Company’s assets are appropriately accounted for and

adequately safeguarded.

The Board of Directors is responsible for ensuring that management fulfills its responsibility for financial reporting and is ultimately

responsible for reviewing and approving the consolidated financial statements. The Board carries out this responsibility principally

through its Audit Committee.

The Audit Committee is appointed by the Board, and a majority of its members are outside directors.The Committee meets with

management as well as the external auditors to discuss auditing matters and financial reporting issues and to review the annual report,

the consolidated financial statements and the external auditors’ report.The Committee reports its findings to the Board for consideration

when approving the consolidated financial statements for issuance to the shareholders.The Committee also considers, for review by the

Board and approval by the shareholders, the engagement or reappointment of the external auditors.

The consolidated financial statements have been audited by Ernst & Young LLP, the external auditors, in accordance with generally

accepted auditing standards on behalf of shareholders.The external auditors have free access to the Audit Committee.

Robin Goad Julian Kemp

President and Vice President Finance and

Chief Executive Officer Chief Financial Officer

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To the Shareholders of

Fortune Minerals Limited

We have audited the consolidated balance sheets of Fortune Minerals Limited as at December 31, 2006 and 2005 and the consolidated

statements of loss and deficit and cash flows for the years then ended.These financial statements are the responsibility of the Company's

management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing standards.Those standards require that we plan

and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement.An audit

includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also

includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall

financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company

as at December 31, 2006 and 2005 and the results of its operations and its cash flows for the years then ended in accordance with

Canadian generally accepted accounting principles.

London, Canada,

February 7, 2007. Chartered Accountants

As at December 31 2006 2005$ $

ASSETSCurrent assetsCash and cash equivalents [note 9[a]] 11,942,358 23,199,434 Short-term investments [note 3] 267,872 267,872Accounts receivable [note 10[e]] 1,398,971 844,463Prepaid expenses 29,557 21,669

Total current assets 13,638,758 24,333,438

Reclamation bond [note 6[a] and 6[b]] 563,785 478,093Other deferred or prepaid expenses [note 5] – 99,686Investment in and advances to affiliated company [note 4] 331,389 331,462 Capital assets, net [note 5] 4,901,867 306,725 Interests in mining properties [note 6[a]] 3,153,280 3,153,280Deferred exploration expenditures [note 6[b]] 37,647,706 19,149,212

60,236,785 47,851,896

LIABILITIES AND SHAREHOLDERS’ EQUITYCurrent liabilitiesAccounts payable and accrued liabilities 1,090,180 691,709Income taxes payable 24,333 24,333

Total current liabilities 1,114,513 716,042

Future income taxes [note 8] 7,230,000 4,880,000

Total liabilities 8,344,513 5,596,042

SHAREHOLDERS’ EQUITYShare capital [note 7] 50,753,793 42,549,139Contributed surplus [note 7[d]] 3,418,059 1,947,090Deficit (2,279,580) (2,240,375)

51,892,272 42,255,854

60,236,785 47,851,896

See accompanying notes

On behalf of the Board:

Robin Goad Mahendra NaikDirector Director

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Years ended December 31 2006 2005$ $

REVENUEInterest and other income 596,034 579,688

EXPENSESAdministrative expenses 361,228 406,868Public relations 123,863 161,684Stock-based compensation expense [note 7[d]] 798,000 176,325 Amortization 9,618 18,507

1,292,709 763,384

Loss before other items (696,675) (183,696)Share in loss of equity investee 1,838 56,264Write-off of deferred exploration expenditures [note 6[b]] 20,692 162,758

Loss before income taxes (719,205) (402,718)

Recovery of income taxes [note 8] 680,000 –

Net loss for the year (39,205) (402,718)

Deficit, beginning of year (2,240,375) (1,837,657)

Deficit, end of year (2,279,580) (2,240,375)

Basic and diluted loss per share [note 7[f]] – (0.01)

See accompanying notes

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Years ended December 31 2006 2005$ $

OPERATING ACTIVITIESNet loss for the year (39,205) (402,718)Add items not involving cash

Stock-based compensation expense 798,000 176,325Write-off of deferred exploration expenditures 20,692 162,758Amortization 9,618 18,507Share in loss in equity investee 1,838 56,264Gain on disposal of capital assets (31,629) –Future income taxes (680,000) –

79,314 11,136

Changes in non-cash working capital balances related to operationsAccounts receivable (554,508) (397,834)Prepaid expenses (7,888) (3,804)Accounts payable and accrued liabilities 398,471 15,304Income taxes payable – (58,902)

Cash used in operating activities (84,611) (434,100)

INVESTING ACTIVITIESAdvances to affiliated company (1,765) (8,286)Net (increase) decrease in short-term investments – 1,000Other deferred or prepaid expenses – (99,686)Proceeds on disposal of capital assets 86,250 –Purchase of capital assets (4,806,275) (379,325)Posting of security for reclamation bonds (85,692) (252,193)Increase in deferred exploration expenditures (17,912,606) (7,270,061)

Cash used in investing activities (22,720,088) (8,008,551)

FINANCING ACTIVITYProceeds on issuance of shares and warrants, net 11,547,623 6,999,311

Net decrease in cash and cash equivalents (11,257,076) (1,443,340)Cash and cash equivalents, beginning of year 23,199,434 24,642,774

Cash and cash equivalents, end of year 11,942,358 23,199,434

See accompanying notes

F O R T U N E M I N E R A L S L I M I T E D • PA G E 4 8

1. NATURE OF OPERATIONS

Fortune Minerals Limited [the “Company”] is a natural resource company with mineral deposits and exploration projectsin Canada. The Company is focused on the exploration and the assembly and development of natural resource projects.The recoverability of amounts shown for mineral properties and related deferred exploration expenditures is dependent uponthe economic viability of recoverable reserves, the ability of the Company to obtain the necessary financing to complete thedevelopment, and future profitable production or proceeds from the disposition thereof.

The Company currently operates in one geographic region, Canada, and in one industry segment, mining.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

These consolidated financial statements have been prepared by management in accordance with Canadian generally acceptedaccounting principles and are within the framework of the significant accounting policies summarized below.The preparationof financial statements requires management to make estimates and assumptions that affect the reported amounts of assets andliabilities and the disclosure of contingent assets and liabilities.The reported amounts and note disclosure are determined usingmanagement’s best estimates based on assumptions that reflect the most probable set of economic conditions and plannedcourses of action.Actual results, however, may differ from the estimates used in the consolidated financial statements.

[a] Principles of consolidation

The consolidated financial statements have been prepared in accordance with Canadian generally accepted accountingprinciples and reflect the financial position and results of operations of the Company and its wholly-owned subsidiariesFortune Minerals NWT Inc. and Fortune Coal Limited [“Fortune Coal”].All intercompany transactions and balances havebeen eliminated.

The Company owns a 30% interest in Formosa Environmental Aggregates Ltd. [“Formosa”] and is the managing partner.As such, its investment in Formosa is recorded using the equity method of accounting. Advances to Formosa and other affiliated companies are recorded at cost.

[b] Cash and cash equivalents

Cash and cash equivalents consist of cash on hand, balances with banks, and short-term fixed income deposits with maturitydates shorter than three months.

[c] Short-term investments

Short-term investments consist of marketable securities and guaranteed deposits and are recorded at the lower of cost andmarket value. N

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[d] Capital assets

Capital assets are stated at cost less accumulated amortization.Amortization of capital assets is recorded using the decliningbalance method at the following rates:

Asset class Rate of amortization %

Surface facilities 20Camp structures 30Mobile equipment 30Computer equipment 30Site furniture and equipment 30Furniture and fixtures 20 to 30Leasehold improvements 50Software 35

[e] Mineral properties and deferred exploration expenditures

The Company defers acquisition costs and exploration expenditures relating to mineral properties until the properties arebrought into commercial production,disposed,or the mineral property is no longer economically viable or there is a permanentimpairment in value, at which time the deferred costs will be written off. Payments received for exploration rights on theCompany’s mineral properties are treated as cost recoveries and reduce the cost of deferred exploration expenditures related tothe mineral claims.

[f] Income taxes

The Company follows the liability method of tax allocation in accounting for income taxes. Under this method, future tax assetsand liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities, andmeasured using the substantively enacted tax rates and laws that will be in effect when the differences are expected to reverse.

[g] Administrative expenses

Included in deferred exploration expenses and certain capital assets is a partial allocation of administrative and generalexpenses.The allocation is distributed among each project based on its pro rata share of direct expenditures.

[h] Stock-based compensation plans

The Company has a fixed stock-based compensation plan approved by the shareholders at the Company’s annual meetingheld on June 22, 2005. Under the plan, the Company may grant options to eligible individuals for up to 10% of the issuedand outstanding common shares subject to certain conditions.As at December 31,2006,3,400,000 [2005 - 3,400,000] sharesof common stock have been reserved for issuance.The exercise price of each option is equal or higher than the market price ofthe Company’s stock on the date of grant.The plan does not provide for a maximum term. Options are granted and their termsdetermined at the discretion of the Board of Directors.

The Company recognizes an expense for option awards using the fair value method of accounting.The expense is capitalizedor deferred to a similar extent the optionee’s salary or wages or fees are capitalized or deferred.

[i] Financial instruments

The Company’s financial instruments consist of cash equivalents, short-term investments, accounts receivable, reclamationbonds, accounts payable and accrued liabilities and income taxes payable.The fair values of these financial instruments arenot materially different from their carrying values unless otherwise noted. It is management’s opinion that the Company isnot exposed to significant interest or credit risks arising from these financial instruments.The Company mitigates its riskby holding its short?term investments with large financial institutions.

[j] Loss per common share

Basic loss per share is calculated by dividing net loss for the year by the weighted average number of common sharesoutstanding in each respective period. Diluted loss per share reflects the potential dilution of securities by adding othercommon stock equivalents in the weighted average number of common shares outstanding during the year, if dilutive, andis calculated using the treasury stock method.

3. SHORT-TERM INVESTMENTS

Short-term investments consist of the following:

2006 2005Cost Market value Cost Market value

$ $ $ $

Marketable securities 267,872 268,325 267,872 268,768

At December 31, 2006, marketable securities consist of a variable rate bond which had a coupon rate of 3.9% and matures June21, 2007.

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4. INVESTMENT IN AND ADVANCES TO AFFILIATED COMPANY

Investment in and advances to affiliated company consist of the following:

2006 2005$ $

Formosa Environmental Aggregates Ltd.Equity investment [30% interest] 91,179 93,017Advances [unsecured, non-interest bearing with no fixed terms of repayment] 240,210 238,445

331,389 331,462

The remaining 70% ownership interest in Formosa is owned by a company controlled by a director.

5. CAPITAL ASSETS

Capital assets consist of the following:2006 2005

Accumulated AccumulatedCost amortization Cost amortization

$ $ $ $

Surface facilities under construction 3,555,538 – – –Surface facilities 735,976 141,760 – –Camp structures 632,898 99,142 112,775 16,097Mobile equipment 291,001 119,590 225,524 63,769Computer equipment 27,145 16,140 24,071 6,157Site furniture and equipment 25,764 6,946 – –Furniture and fixtures 21,457 11,108 28,572 10,259Leasehold improvements 9,282 4,488 9,351 1,246Software 4,752 2,772 4,752 792

5,303,813 401,946 405,045 98,320Less accumulated amortization 401,946 98,320

Net book value 4,901,867 306,725

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5. CAPITAL ASSETS (continued)

On December 2, 2005, the Company entered into an agreement with a third party to acquire certain mill, related surface facilitiesand processing equipment for future use at the NICO project.Payments of $100,000 upon signing of the agreement,$990,000 uponcompleting due diligence and $2,210,000 upon closing of the transaction were required under the agreement. Closing occurredon August 31, 2006.As the purchase of these assets relates to the NICO project which is subject to a joint venture agreement, theCompany treats these expenditures as part of the cash obligations of the joint venture. Prior to December 31, 2005, the Companymade the initial payment and incurred other costs related to the acquisition of the assets totalling $122,933.The Company’s 81%share of these costs totalling $99,686 was deferred.The Company’s joint venture partner was responsible for its share of the costs.As a result, $23,247 was included in receivables. Subsequent to December 31, 2005, the joint venture partner ceased to participatein the funding of NICO.Therefore, future expenditures on these assets will be used in the dilution calculation under the jointventure agreement.The Company made the second payment of $990,000 on January 18, 2006 and the final payment on closingthe transaction on August 31, 2006.All costs of purchase, including previously deferred amounts and ongoing maintenance, securityand other related costs, have been capitalized. No amortization has been charged against these assets as they are recorded as surfacefacilities under construction and are not available for use.

Pursuant to this agreement, the Company has an obligation to the vendor to dismantle and remove the assets from the site byAugust 31,2009.The Company recently received a third party feasibility study and will commence detailed engineering and planningrelated to the use of these assets at NICO but a construction decision has not been taken.As a result, the course of action withreference to using the assets is still not known.

In addition, the Company is required to post a maximum of $1 million in financial assurance or a performance bond in favour ofthe vendor.The posting of this financial assurance is required upon removal of assets in amounts equal to the appraised marketvalue of assets being removed.Assets not required at the NICO site will be sold or disposed of to fulfill the Company’s obligation.Upon completion of the Company’s obligation to remove the assets from the site, the financial assurance will be released to theCompany.

The net cost of the deconstruction, removal, and reconstruction of the assets will be accumulated as surface facilities under constructions until such time as the physical assets are completed and available for use at which time they will be classified asappropriate.

6. MINING PROPERTIES

[a] Interests in mining properties

Interests in mining properties consist of the following:2006 2005

$ $

Mazenod Lake Area, Northwest Territories [i] 9,164 9,164Mount Klappan Property, British Columbia [ii] 3,144,116 3,144,116

3,153,280 3,153,280

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[i] Mazenod Lake Area, Northwest Territories

Property Percentage ownership (%)

Sue-Dianne 100.00NICO 90.01

A net smelter return of 1.5% and a net profit interest of 15% is payable to third parties from the Sue-Dianne property.

The NICO project and the related claims in the Mazenod Lake Area, Northwest Territories are subject to a joint ventureagreement.A company controlled by a director owns a joint venture interest in the NICO project.At December 31,2005,the joint venture partner owned an 18.91% interest in the project and accounts receivable included $525,513 forexpenditures incurred on behalf of the partner. Subsequent to December 31, 2005, the joint venture partner paid thisamount and advised the Company they would not participate in the planned expenditures during 2006.As a result,their interest was diluted in accordance with the joint venture agreement.Based on the expenditures to December 31,2006, the Company has calculated that the joint venture partner has been diluted to 9.99%.

The Company records its proportionate share of costs relating to the joint venture under the NICO deferred explorationsexpenditures.The Company arranges the reclamation bond for NICO and provides the security required for the bond.Assuch,during 2006, the Company increased its reclamation bond by $70,000 to a total of $211,000 [2005 - $141,000] withthe Wek’èezhì› Land and Water Board (the project was previously under the jurisdiction of the Mackenzie Valley Land andWater Board) with respect to the bulk sample carried out in 2006.The bond is in the form of a letter of credit in favourof the Receiver General for Canada.The Company has $226,909 [2005 - $150,460], recorded at cost, held in variousinvestments as security for the letter of credit.

[ii] Mount Klappan Property, British Columbia

Fortune Coal acquired the Mount Klappan coal holding lease and a technical database from a third party for approximately$3,100,000 and replacement of a $211,000 reclamation bond for roads constructed at the site.At December 31, 2006, thereclamation bond was $307,000 [2005 - $307,000] with respect to this property.The bond is in the form of a letter ofcredit in favour of the Government of British Columbia. Fortune Coal has $336,876 [2005 - $327,633], recorded at cost,held in various investments as security for the letter of credit.

The previous owner is entitled to receive from the Company a royalty of $1 per tonne of coal produced and sold fromthe property.

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[b] Deferred exploration expenditures

Deferred exploration expenditures for the above interests are as follows:

2006December 31,2005 Expenditures Write-offs December 31,

$ $ $ $

Mount Klappan 6,709,639 5,955,044 – 12,664,683NICO 10,401,079 12,493,481 – 22,894,560Sue-Dianne 1,965,513 15,553 – 1,981,066Other 72,981 55,108 (20,692) 107,397

19,149,212 18,519,186 (20,692) 37,647,706

2005December 31, 2004 Expenditures Write-offs December 31,

$ $ $ $

Mount Klappan 1,200,008 5,509,631 – 6,709,639NICO 7,911,293 2,489,786 – 10,401,079Sue-Dianne 1,962,743 2,770 – 1,965,513Olym-Pic-Dam 161,922 – (161,922) –Other 60,570 13,247 (836) 72,981

11,296,536 8,015,434 (162,758) 19,149,212

During 2005, the Company decided not to continue exploring the Olym-Pic-Dam claims. These claims were allowed to lapseduring 2006. As a result, the related expenditures have been written-off.

During 2006, $331,032 [2005 - $227,732] of administrative and general expenses, $311,580 [2005 - $73,448] of amortizationand $295,000 [2005 - $671,925] of stock compensation were charged to deferred exploration expenditures.

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7. SHARE CAPITAL

[a] Authorized: Unlimited number of common shares

[b] Issued and outstanding common shares:

2006 2005# $ # $

Common sharesBeginning of year 34,870,907 41,932,787 32,161,573 35,153,507Issued as a result of:

Public offering of shares 1 – – 470,600 2,000,050Private placement of shares 2 3,481,000 11,732,250 833,334 3,000,002Exercise of warrants 30,800 121,660 1,405,400 2,599,091Exercise of options 553,700 561,376 – –

Share issuance costs, net of tax – (674,280) – (189,863)Future tax impact of renunciation

of development costs expended – (2,920,000) – (630,000)

End of year [e] 38,936,407 50,753,793 34,870,907 41,932,787

WarrantsBeginning of year 341,396 616,352 1,718,560 1,026,321Issued in lieu of fees – – 28,236 54,072Exercised (30,800) (21,560) (1,405,400) (464,041)Expired (310,596) (594,792) – –

End of year – – 341,396 616,352

50,753,793 42,549,139

1 On December 23, 2004, the Company completed a public offering pursuant to a short form prospectus that resulted inthe issuance of 4,706,000 common shares at a price of $4.25 per share. Included with the offering was a 30-day optionwhereby the agent, at its discretion, could purchase an additional 470,600 common shares at a price of $4.25 per share.The agent exercised this option in full in January 2005.

2 On November 17, 2006, the Company completed a private placement that resulted in the issuance of 1,386,000 flow-through common shares at a price of $3.25 per share.

On June 28, 2006, the Company completed a private placement that resulted in the issuance of 2,095,000 flow-throughcommon shares at a price of $3.45 per share.

On November 10, 2005, the Company completed a private placement that resulted in the issuance of 833,334 flow-through common shares at a price of $3.60 per share.

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[c] During January 2006, 30,800 warrants were exercised for gross proceeds of $100,100. Each warrant to purchase a commonshare was exercisable at a price of $3.25.All remaining warrants expired on maturity.

[d] Stock-based compensation expense of $798,000 [2005 - $176,325] has been recorded and $360,000 [2005 - $671,925] hasbeen capitalized to deferred exploration expenditures and capital assets for the estimated fair value of 900,000 [2005 -325,000] options granted during the year and vested immediately. Share capital was increased and contributed surplusdecreased by $171,823 [2005 - nil], representing the fair value compensation recorded for options exercised during the year,and contributed surplus was increased by $1,093,000 [2005 - $848,250], representing the fair value compensation recordedless $110,000 [2005 - $250,000] related to the tax effect of amount capitalized.

The fair values of three sets of options granted were estimated at the date of grant using the Black-Scholes option pricingmodel with the following assumptions:

Assumptions

Number Expected Expected Estimatedof options Risk free dividend Expected option fair valuegranted interest rate yield volatility life per option

100,000 3.75 0% .63 5 $1.60100,000 4.25 0% .49 2 $0.88700,000 4.25 0% .64 5 $1.30

900,000

The Black-Scholes model,used by the Company to calculate option values, as well as other accepted option valuation models,was developed to estimate fair value of freely tradable, fully transferable options,which significantly differ from the Company’sstock option awards.These models also require four highly subjective assumptions, including future stock price volatility andexpected time until exercise, which greatly affect the calculated values.Accordingly, management believes that these modelsdo not necessarily provide a reliable single measure of the fair value of the Company’s stock option awards.

A summary of the status of the Company’s stock option plan as at December 31,2006 and 2005,and changes during the yearsending on those dates are presented below:

2006 2005Weighted- Weighted-

average averageNumber exercise Number exerciseof shares price of shares price

Options outstanding, beginning of year 1,932,400 2.07 1,607,400 1.55Granted 900,000 2.42 325,000 4.62Exercised 553,700 0.70 – –

Options outstanding, end of year 2,278,700 2.54 1,932,400 2.07

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The following summarizes information about the options outstanding at December 31, 2006:

Options outstanding and exercisable

Number Weighted averageoutstanding at remainingDecember 31, contractual life

Exercise prices 2006 [years]$ # #

0.75 553,700 1.12.30 700,000 5.02.84 100,000 4.22.90 100,000 1.33.30 200,000 2.83.45 300,000 2.23.86 100,000 3.74.95 225,000 3.3

2,278,700

[e] At December 31, 2006, 900,000 [2005 - 900,000] issued common shares are being held in escrow, subject to certainproduction thresholds for the NICO property.

[f] The weighted average number of common shares outstanding was 36,554,783 [2005 - 33,590,588].During the year,optionsand warrants to purchase 1,025,000 [2005 - 1,166,396] common shares were not included in the computation of diluted lossper share because the exercise prices of these options and warrants were greater than the average market price of the commonshares.Also, options to purchase 1,253,700 [2005 - 1,107,400] common shares were not included in the computation ofdiluted loss per share because including them in the calculation would have been anti-dilutive.

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8. INCOME TAXES

The Company has non-capital loss carryforwards totalling $2,500,000 which expire beginning in 2007 and un-deducted shareissuance costs of $1,660,000. In addition, the Company has Ontario corporate minimum tax credits of $34,000 which expire in2009.The benefit of these amounts has not been recorded in the consolidated financial statements.

Significant components of the Company’s future income tax assets and liabilities are as follows:

2006 2005$ $

Future tax assetsNet operating loss carryforwards 770,000 700,000Undeducted share issuance costs 510,000 630,000Ontario corporate minimum tax 34,000 34,000

1,314,000 1,364,000

Less valuation allowance related to operating losses,share issuance costs and corporate minimum tax (1,314,000) (1,364,000)

Net future tax assets – –

Future tax liabilitiesBook value of deferred exploration expenditures and

capital assets in excess of tax value (7,230,000) (4,880,000)

Net future tax liabilities (7,230,000) (4,880,000)

The reconciliation of income taxes computed at the statutory income tax rates to the provision for income taxes is as follows:

2006 2005$ $

Combined federal and provincial income tax rate 36.12% 40.12%

Corporate income tax at statutory rate (259,800) (161,600)Increase (decrease) in income taxes resulting from:

Non-deductible stock compensation expenses 288,200 70,600Resource allowance 26,400 37,000Other (54,800) 54,000Benefit of reduction of substantively enacted tax rates (680,000) –

(680,000) –

9. CONSOLIDATATED STATEMENT OF CASH FLOWS

Cash and cash equivalents consist of the following :

2006 2005$ $

Cash on hand and balances with banks 4,302,904 2,254,516Short-term fixed income deposits 7,639,454 20,944,918

11,942,358 23,199,434

Supplemental cash flow information:

2006 2005$ $

Income taxes received – 16,097Interest and investment income received 403,465 521,593

10. RELATED PARTY TRANSACTIONS

In addition to any related party transactions noted elsewhere, the following related party transactions have been recorded attheir exchange amount:

[a] During the year, the Company paid an officer and director $200,000 [2005 - $200,000] for third-party geological consultingand for administrative consulting services on behalf of the Company.

[b] During the year, the Company paid an officer $162,520 [2005 - $158,000] for financial, management and administrativeconsulting services on behalf of the Company.

[c] During the year, $94,360 [2005 - $198,500] was paid to the Company’s law firm for various legal services.An officer anddirector of the Company is a partner of that firm.

[d] During 2005, the Company paid a director $187,000 for third-party engineering and project related consulting on behalf ofthe Company. Commencing in 2006, this director ceased to provide consulting services to the Company.

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11. COMMITMENTS

The Company has the following commitments, in addition to any commitments identified elsewhere in these consolidated financialstatements:

The Company has entered into a lease for office space. The lease term commenced in September 2005, ends in October 2010and has a five-year renewal option. The initial term requires minimum lease payments and additional rent for operating costsand taxes of approximately $70,000 per year.

The Company has certain annual payments due to maintain its interests in its mineral property leases and licenses. For its MountKlappan licenses, its NICO leases and other property leases the Company is required to make annual payments of $132,300.These payments are subject to government regulation and are required each year to maintain the mineral properties in goodstanding.

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WILLIAM A. BREUKELMAN, M.B.A., B.A.SC., P.ENG., MISSISSAUGA, ONTARIO.

Bill Breukelman has had an extensive business career in Canada and internationally. He has established

businesses,mainly with a technology focus,that have significantly advanced imaging,analytical geochemistry

and geophysics. Among his other achievements, Bill co-owned and later chaired IMAX Corporation from

1970 to 1995, when IMAX was developed into a multinational entertainment company with production,

distribution and theatre operations in 18 countries. Bill is the Chairman and Principal of Business Arts Inc.,

which creates transforming business opportunities, such as MDS SCIEX,Arius 3D and GEDEX. He received a

special achievement award in 2005 from the Prospectors and Developers Association of Canada.

THE HONORABLE CARL L. CLOUTER, GANDER, NEWFOUNDLAND.

Carl Clouter is a commercial pilot who owned a charter airline service in the Northwest Territories.

Carl has been active in mineral exploration and prospecting carried out in conjunction with more

than 35 years of flying throughout remote areas of Canada. Carl also served as a Sentencing Justice

of the Peace and a member of the board for the mineral development assistance program for the

Government of the Northwest Territories.

GEORGE M. DOUMET, M.SC., M.B.A., VANCOUVER, B.C.

George Doumet is a chemical and nuclear engineer who has founded and owns a number of industrial

companies in Canada and internationally.He is President of Federal White Cement Ltd.,a specialty cement

manufacturer, and Candou Industries Ltd., an investment holding company. George is also a Principal in

other businesses involved in the production, marketing and distribution of specialty building products,

chemicals and industrial minerals.

JAMES D. EXCELL, B.A.SC., KELOWNA, B.C.

Jim Excell is President and C.E.O. of North American Palladium Inc., a mining company involved in the

production of platinum group metals, nickel and copper. During a career spanning more than three

decades with BHP Billiton, Jim served as a senior executive and managed and developed some of the

world’s premier mining projects. They included metallurgical and thermal coal mines in Australia and the

United States and the Ekati Diamond Mine and Island Cooper Mine in Canada. Jim is also a director of

Diamondex Resources Ltd. and the Prospectors and Developers Association of Canada.

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ROBIN E. GOAD, M.SC., P.GEO., ARVA, ONTARIO.

Robin Goad is the president and C.E.O. of Fortune Minerals Limited. He is a geologist with more than

25 years of experience in the mining and exploration industries. Robin previously worked for major

mining companies including Noranda and Teck, and as a consultant for junior resource companies

and government in Canada and internationally. He co-founded Fortune Minerals in 1988. Robin also

serves as a director of Ursa Major Minerals Incorporated and previously served as President and/or

Director of other TSX listed mineral exploration companies.

DAVID A. KNIGHT, B.A., LL.B., OAKVILLE, ONTARIO.

David Knight is a partner with Macleod Dixon LLP, Barristers & Solicitors, a major Canadian law

firm, with extensive experience in the resource sector. David specializes in all areas of securities

law, including public and private financings, take-overs, stock exchange listings, mergers and

acquisitions and regulatory compliance. He acts for a number of large and mid-tier investment

dealers and resource companies. David is a member of the Law Society of Upper Canada and the

Canadian Bar Association.

MAHENDRA NAIK, B.COMM., C.A., UNIONVILLE, ONTARIO.

Mahendra Naik is a Chartered Accountant and was one the founding directors in IAMGOLD

Corporation a TSX and NYSE listed gold mining company. As Chief Financial Officer from 1990 to 1999,

he was involved in the negotiations of the Sadiola and Yatela mine joint ventures with Anglo American

and more than US$ 400 million in project debt financings for development of the mines. In addition, he

was involved in more than C$150 million in equity financings including the IPO for IAMGOLD.Mahendra

is currently a Director and member of the Audit committee for IAMGOLD, the Chief Financial Officer of

Fundeco Inc., a private investment company and Director of several private companies.

OFFICERS • GEORGE M. DOUMET, M.Sc. M.B.A., Chairman of the Board

• ROBIN E. GOAD, M.Sc., P.Geo., President and C.E.O.

• JULIAN B. KEMP, BBA, C.A.,Vice President Finance and C.F.O.

• DAVID A. KNIGHT, B.A., LL.B., Secretary

MANAGERS • KATHERINE NEALE, Ph.D., Exploration Manager

• JAMES MUCKLOW, M.E.Sc.. P.Eng., Manager Environment and Community Relations

AUDITORSErnst & Young LLP

London, Ontario

TRANSFER AGENTComputershare Trust Company of Canada

Toronto, Ontario

BANKCanadian Imperial Bank of Commerce

London, Ontario.

CAPITALIZATIONAuthorized: Unlimited

Issued (April 10, 2007): 38,936,407

STOCK EXCHANGE LISTINGThe Toronto Stock Exchange,

Trading Symbol:“FT”

LEGAL COUNSELMacleod Dixon LLP, Barristers & Solicitors

Toronto, Ontario.

FORTUNEMINERALS LIMITED140 Fullarton Street, Suite 1902, London, Ontario N6A 5P2 Tel: (519) 858-8188 Fax: (519) 858-8155

Website: www.fortuneminerals.com E-mail: info@fortuneminerals.com