lithium 3 li mg 2010 annual report - gossan · ongoing testing of silica sand from the manigotagan...

$: lithium 3 Li Mg 2010 annuaL RePoRt - Gossan · Ongoing testing of silica sand from the Manigotagan deposit for use as frac sand in the oil and gas industry has ... lead to a scoping$
2010 annuaL RePoRt

magnesium12

Mg24.305

lithium3

Li6.941

titanium22

Ti47.867

vanadium23

V50.942

tsX Venture exchange Gss | Freiverkehr & Xetra exchanges GsR - WKn 904435 C O M M O D I T Y D I V E R S E E X P L O R A T I O N | GReen eneRGY demand

Gossan Resources Limited is engaged in the exploration and development of a broadly di-versified portfolio of properties hosting gold, platinum group and base metals, as well as the specialty and minor metals - tantalum, lithium, chromium, titanium and vanadium. Gossan also holds a large deposit of magnesium-rich dolomite, the world-wide rights to the Zuliani magnesium production process, and a high-purity silica sand deposit. All of the properties are located in Manitoba and north-western Ontario.

Gossan also holds a 46.7% equity investment in The Claims Network, a web-based service provider to the property & casualty insurance industry. With representatives across Canada and an extensive proprietary database of prod-uct specifications and price information, TCN provides the insurance industry with contents loss valuations and on-site claims reporting of losses.

Gossan trades on the TSX Venture Exchange under the symbol GSS and on the Frankfurt-Freiverkehr & the Xetra Exchanges under the symbol GSR – WKN 904435. As of August 25, 2010, Gossan has 29,117,900 common shares outstanding.

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A B O V E : maGnesium coRe at inWood

1

Gossan ResouRces Limited | 2010 Annual Report

Dear Shareholders,

Over the past year, Gossan has been pursuing the development of its two most advanced projects – the Inwood Magnesium Project and the Manigotagan Silica Sand Project. Both of these projects have defined deposits and are moving through development towards production. The type of process testing work that needs to be undertaken at this time to assess these projects’ economic viability is a lengthy but necessary stage of development. Gossan is continuing to move select projects forward to meet the upcoming demand in the green and alternative energy economies.

During the year, Gossan has made significant progress in the development of the Zuliani Process for the production of magnesium. The second stage of the evaluation process – three phases of bench scale testing – were successfully completed at Process Research Ortech and it was demonstrated that the process could produce magnesium metal at atmospheric conditions with exceptionally high raw material efficiencies and with low carbon emmissions. The third stage of evaluation, involving a material increase in the scale of testing using specialized equipment, is currently being planned and resources are being sourced. When all factors are considered, the direct operating cost of magnesium ingot produced with the Zuliani Process is expected to be about 30% less than the direct cost of Chinese magnesium ingot landed in western markets. Magnesium continues to be an important element in attaining energy efficiency and reducing carbon emissions across the transportation sector due to its qualities of light-weight strength.

Ongoing testing of silica sand from the Manigotagan deposit for use as frac sand in the oil and gas industry has resulted in samples of the 20/40, 30/50 and 70/140 mesh fractions consistently meeting ISO 8K and 9K Proppant ratings. A marketing study is underway to provide product price and market size data along with potential customers and competitors within economically transportable distances for each product type. Results from this study may lead to a scoping report providing an initial economic assessment of the Manigotagan deposit.

Other field programs with our joint venture partners - Marathon PGM at the Bird River Project and the Cross Lake First Nation at the Pipestone Lake Project – have also advanced the Company’s interests. PGMs are the key elements in catalytic converters which reduce auto emissions of greenhouse gasses. Two new green applications for vanadium in electrical storage technology – lithium auto batteries and grid-scale load batteries - could, by some analysts’ forecasts, increase demand for vanadium by over 50% in the next 5 years.

The Company is continuing to actively examine new potential properties to expand its portfolio, primarily in the gold and magnesium-related sectors.

Gossan’s investment in The Claims Network, a service provider to the insurance industry, is in the process of maturing. TCN grew rapidly over the past two years and is now generating significant amounts of sales, profits and cash flow.

It is my pleasure to thank Gossan’s officers, directors, staff and consultants for their efforts and the Company’s shareholders, whom we serve, for their continuing support. Gossan is a unique company well positioned for the development of a green economy emphasizing renewable energy. The outlook for magnesium, platinum and palladium, vanadium, and frac sand will also benefit from the ongoing concern with high energy prices, climate change and the resultant affects upon the transportation industry.

August 25, 2010

Douglas ReesonPresident & Director

L e t t eR t o s h a RehoL deRs

2


in w ood p Ro je c t & Z uL i a ni p Roce s sMagnesium

magnesium metal under atmospheric conditions at exceptionally high raw material efficiencies. At the demonstrated efficiencies, raw material consumption is about 20% lower for dolomite and 30% lower for silicon than for a typical Pidgeon plant operating in China. These findings give further credence to the Zuliani Process ultimately providing the lowest operating cost per pound of magnesium by a material margin.

As the Zuliani Process operates at atmospheric condi-tions, the process avoids the complexities and added costs associated with operating under a vacuum. At-mospheric magnesium production is also expected to facilitate direct production of molten magnesium metal without the added cost, energy and yield losses associated with melting and refining of solid crude magnesium as produced with the Pidgeon Process.

When all factors are considered including pre-vailing dolomite & ferrosilicon costs, labor rates, energy prices and overseas freight, the direct cost of magnesium ingot produced with the Zuliani Process is expected to be about 30% less than the direct cost of Chinese magnesium ingot landed in western markets, subject to confirmation of the process at commercial scale.

speci a Lt y me ta L s

The 1,635-hectare Inwood Magnesium Property is located in south-central Manitoba. In total Gossan’s regional land package covers 6,231 hectares in several claim blocks. The Company’s land position is designed to hold all of the area’s near-surface beds of high-purity dolomite.

The Inwood Magnesium Project is being advanced based on the expectation of higher magnesium prices - currently over US $1.20 per pound - and the development of more energy and cost efficient magnesium extraction process technology which is the current focus of the Company.

On March 15, 2007, Gossan entered into a licensing arrangement for the worldwide rights to a new high ef-ficiency magnesium production process being developed by Douglas J. Zuliani. The new process is based on an efficient adaptation of the Magnetherm process. The Zuliani process is designed to achieve operating cost savings by process efficiency improvements that significantly reduce both en-ergy and key raw material requirements. These enhance-ments to the traditional Magnetherm method materially improve both magnesium recovery and silicon reduction efficiency without the need for a vacuum. Energy use and cost is further reduced by development of a technically straightforward method that will ensure highly efficient condensation of liquid magnesium metal. Low cost hydro electricity is abundantly available in Manitoba.

In order to prove out the technology prior to commercializa-tion, Gossan is undertaking a four stage evaluation process. Initially FactSage thermodynamic modeling was successfully used to verify the process fundamentals. The second stage, which involved bench scale testing at Process Research Ortech (PRO) of Mississauga was successfully completed earlier in 2010 with the results confirming the predictions from the initial thermodynamic modeling. The third stage which will materially increase the scale of testing using special-ized equipment is currently being planned with PRO. Thereafter a fourth stage pilot demonstration plant will be constructed to confirm commercial viability. Gossan may seek a joint venture partner to assist in the pilot plant and subsequent commercialization of the process.

On April 27, 2010, Gossan announced the results of the Phase III bench scale tests at Process Ortech. The series of six tests used a larger sample size in newly designed test equipment and confirmed that the Zuliani Process produces

magnesium12

Mg24.305

m aGne sium is essentiAl

in iMpoRoving eneRgy

efficiency & Reducing

cARbon eMMissions in

the tRAnspoRt sectoR

by lightening vehicle

weight. this MAybe

pARticulARily iMpoRtAnt

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of electRic cARs

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3


The Watts, Griffis and McOuat National Instrument 43-101 Report on the Inwood Dolomite Project provided resource estimates for three zones of high-purity magnesium dolomite in the Fisher Branch Formation as summarized in the table below:

Resource Class

TonnageGrade MgO

(wt%)Grade CaO

(wt%)

Measured 28,819,000 21.15% 30.91%

Indicated 5,057,000 21.40% 30.66%

Inferred 131,236,000 21.64% 30.51%

The high raw material efficiencies coupled with the use of hydro electricity will lower the environmen-tal impact of magnesium production dramatically as compared to existing production technologies. Gossan has contracted Process Ortech to under-take a Carbon Emission Study of the Zuliani Pro-cess. Cap and Trade legislation pertaining to Green House Gas emissions in North America is widely anticipated to be introduced and mandated. This legislation, which supports the development of cleaner production processes, may have a material effect on the project’s economics.

In 2006, Gossan completed a 27-hole drill pro-gram, totaling 496 metres, on the Property. Watts, Griffis McOuat independently calculated a Nation-al Instrument 43-101 compliant resource based on the results from the 2006 drill program and 25 holes previously drilled on the Property. The program targeted 80 hectares of the Fisher Branch Formation which typically outcrops at surface and extends to a depth of about 12-15 metres.

The Measured Resource alone would be capable of sustaining a very substantial production facility of 80,000 tonnes of magnesium per year for about 30 years (subject to a positive feasibility study).

An initial environmental study has been conducted at the Inwood Property. No endangered species were identified in the assessment of the natural environment.

p h a s e i

p h a s e ii

p h a s e iii

4


biRd RiveR pRojectpalladium/platinum/base Metals

The Bird River Project, which covers over 22 kilometres of the Bird River Sill Complex, is comprised of the Western (Ward’s - Coppermine) Extension; four separate blocks of the Sill – the National Ledin, the Chrome and its Extension, the Peterson and the Page Blocks; and the Ore Fault Zone. This complex carries significant concentrations of palladium and platinum along with nickel, copper, zinc and chromite. The Bird River Property is located about 40 km east of Lac Du Bonnet, Manitoba and, along the Sill, approximately 6 km west and northwest of Mustang Minerals’ Maskwa Deposit.

On March 26, 2007 the Company entered into an option and joint venture agreement on the Bird River Property with Marathon PGM Corporation (Marathon). Under the terms of the agreement, Marathon triggered the formation of a joint venture on August 25, 2008, by making $500,000 in cash payments and having expended in excess of $3 million on the Bird River Project. To date, Marathon has expended about $4.6 million on the Project which includes the acquisition of a 100% interest in the Ore Fault Property, subject to a 1% net smelter return royalty. Gossan currently holds an approximate 45% interest in the joint venture.

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

douglAs Reeson At biRd RiveR pRoject

pReciou s me ta L s

copper29

Cu63.546

nickel28

Ni58.693

zinc30

Zn65.39

palladium46

Pd106.42

platinum78

Pt195.08

5


pReciou s me ta L s

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

CategoryTonnes

(x 1,000)Ni (%)

Cu (%)

Zn (%)

Ag (gpt)

Au (gpt)

Pt (gpt)

Pd (gpt)

Ni Cu Zn AgPGM + Au

Indicated 1,498 0.32 0.13 0.01 0.90 0.02 0.07 0.28 10.6 4.3 0.3 41.0 17.8

Inferred 261 0.27 0.09 0.01 0.80 0.02 0.07 0.25 1.6 0.5 0.0 7.1 2.8

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

CategoryTonnes

(x 1,000)Ni (%)

Cu (%)

Zn (%)

Ag (gpt)

Au (gpt)

Pt (gpt)

Pd (gpt)

Ni Cu Zn AgPGM + Au

Ni Zone

Indicated 905 0.37 0.24 0.20 8.20 0.02 0.09 0.37 7.4 4.8 4.0 237.9 13.9

Inferred 2,509 0.35 0.19 0.08 7.10 0.01 0.10 0.40 19.6 10.8 4.6 573.6 41.7

Zn and Cu Zone

Indicated 28 0.04 0.48 1.39 59.10 0.07 0.01 0.06 0.0 0.3 0.9 52.6 0.1

Inferred 341 0.06 0.47 2.02 44.50 0.06 0.01 0.08 0.5 3.5 15.2 487.9 1.66

Marathon undertook a major drill program at the eastern end of the Project during the winter of 2008 with the goal of developing a NI 43-101 resource. The program which totaled 38 holes (6,938m) was comprised of 13 holes (2,047m) at the Page Block; 4 holes (583m) at the Galaxy Zone; and 21 holes (4,308m) at the Ore Fault North Zone.

Based on the results of the Winter 2008 Drill Program and prior drill data, NI 43-101 compliant resource estimates were completed by independent mining consultants and Qualified Persons, F.H. Brown C.P.G., Pr.Sci.Nat., and Antoine Yassa, P.Geo. of P&E Mining Consultants Inc., as follows:

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

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

1. Mineral resources which are not mineral reserves do not have demonstrated economic viability. The estimate of mineral resources may be materially affected by environmental, permitting, legal, title, taxation, sociopolitical, marketing, or other relevant issues.

2. The quantity and grade of reported inferred resources in this estimation are uncertain in nature and there has been insufficient exploration to define these inferred resources as an indicated or measured mineral resource and it is uncertain if further exploration will result in upgrading them to an indicated or measured mineral resource category.

A Winter 2009 Drill Program was completed with a total of 971m drilled in 7 holes designed to enhance the two known resources. Two holes (534m) were drilled at the Ore Fault North Zone and five holes (437m) were drilled at the Page Block. All of these holes are within the current resource pit shell and will add to the existing Ni 43-101 resource base. Highlights of the drill program included a 2.8m intersection of Ni-Cu-PGM mineralization grading 2.66% nickel, 2.10% copper, 15.25 gpt silver and 2.03 gpt PGM + gold in a sulphide lens at the Page Block within hole MP-09-17 and a 2.5m intersection of Cu-Zn-Ag mineralization grading 2.23% zinc, 0.74% copper and 50.47 gpt silver in a sulphide lens at the Ore Fault Zone within hole MF-09-27.

6


shARpe lAKe pRojectgold

Gossan’s Sharpe Lake Properties are located adjacent to Rolling Rock Resources’ Monument Bay Project (formerly held by a Wolfden-Bema Gold Joint-ven-ture) where a NI 43-101 compliant inferred resource of 6.3 million tonnes grading 5.98 gpt gold for a total of 1.2 million ounces of contained gold has been developed. Gossan’s Properties are comprised of three exploration permits or license applications which cover 16,615 hectares (41,055 acres) along a strike length of 40 km, and are located approximately 550 km north-east of Winnipeg.

Gossan has focused its attention on the Bear Show-ing at the west end of Sharpe Lake. The pervasive and intense alteration at the Bear Showing is highly significant and reflective of major hydrothermal fluid migration.

The Sharpe Lake Property and its Bear Showing is the subject of a National Instrument 43-101 Report that has been filed on SEDAR. The Report is a com-pilation of the exploration programs that have been conducted on the property and recommends a drill program to investigate gold mineralization at the Bear Showing. Gossan intends to seek a joint ven-ture partner to undertake the drill program. Work to date has identified co-incident geophysical and geochemical anomalies. With a minimum strike length of six kilometres and bounded by bifurca-tions of the Stull Lake-Wunnummin Fault Zone, a major crustal break, the Bear zone is considered a high priority target for economic gold deposits.

pReciou s me ta L s

A Spring 2009 Drill Program was completed on the Cop-permine Zone located at the western end of the Bird River Project consisting of 6 holes (549m). Lenses of sulphides were intersected in 5 holes along an 800 metre long miner-alized strike length. A single hole at the Coppermine Zone was drilled by Canex Placer Ltd in 1973 which contained a 12.2m intersection grading 0.24 % nickel, 0.42 % copper, 1.02 gpt platinum and 1.19 gpt palladium.

Marathon is continuing prospecting at the Page Block and Ore Fault Zones to follow up on geophysical anomalies. Reinterpretation of the Page and Ore Fault drill databases and re-logging of select Ore Fault and Page holes from as far back as the 1970’s will assist in further refinement of the model of mineralization. Gossan contributed to the Win-ter and Spring 2010 Programs which continues this work. As of March 31, 2010, Gossan held an approximate 45% interest in the project.

During fiscal 2009, Gossan received two $50,000 non-refund-able advance net profits or advance NSR royalty payments from Marathon which are payable each September and March until commercial production is achieved. These amounts are carried on the balance sheet as deferred income.

biRd RiveR pRoject cont.palladium/platinum/base Metals

p L at inum & pa L L a dium

ARe the Key eleMents

in cAtAlytic conveRteRs

which Reduce Auto

eMMissions of gReen

house gAsses

7


speci a Lt y me ta L s

pipestone lAKe pRojectvanadium/titanium/iron

Our 50% joint venture partner in the Pipestone Lake Deposit, Cross Lake Mineral Explorations Inc., is a wholly-owned private corporation of the Cross Lake First Nation. It has been involved in protract-ed negotiations with the Federal and Provincial gov-ernments to settle the Nelson River Flood Agree-ment. Development of the Pipestone Lake Deposit has been stalled pending this settlement. As a result, Gossan decided to offer the 3584-hectare property for sale. Negotiations for the development or sale of this property remain active and are ongoing.

In October of 2009, the Company retained Hayles Geoscience Surveys Ltd. to conduct a survey of all of the 149 historic drill hole site locations and the grid which was originally cut at the Pipestone Lake Property in 1994. The purpose of the survey was to provide the joint venture with an accurate map on which to base a future NI 43-101 resource calcu-lation. Hayles Geoscience used survey quality GPS instrumentation to record the locations of 8 drill holes and a portion of the western end of the grid. It is anticipated that the balance of the program will be completed in September of 2010.

On June 11, 2010, Gossan management met with representatives of the Cross Lake First Nation to discuss and plan an orientation session for the Band Council about mining in general and the Pipestone Lake Property, specifically. The Company intends to

engage in further consultation with its partner, the Cross Lake First Nation, in regard to the development of the Property.

The Pipestone Lake property is located in north central Manitoba, approximately 150 km south of Thompson. At Pipestone Lake’s Areas 1 and 2, drilling to date has out-lined a non-compliant NI 43-101 indicated resource of 156.8 million tonnes grading 5.56% TiO2, 28.11% Fe2O3 and 0.22% vanadium pentoxide (Reedman & Asso-ciates 1998). Additional infill drilling could significantly increase the resource.A preliminary mine plan has been prepared for the Pipe-stone by J. H. Reedman and Associates which classifies vari-ous tonnages according to titanium dioxide cut-off grades, provides proposed open pits, and estimates stripping ratios; however more detailed drilling is required to support a 30,000 tons per day operation. Additional metallurgi-cal and other studies are required in order to assess the economic feasibility of the deposit.

Vanadium is mostly used in the steel industry as a strength-ener. Various nations are mandating stronger rebar in con-struction codes which will likely increase vanadium demand. Vanadium may also play an important new role in electrical storage technology which could substantially increase demand for this metal and outstrip supply. In lithium-based auto batteries, the use of a vanadium phosphate cathode ma-terial can materially increase energy storage and lead to a 20%+ increase in an electric car’s travelling range. Another potential large-scale use of vanadium is in grid–scale electri-cal storage using re-dox batteries. Vanadium re-dox batteries could substantially lower utilities’ capital costs as they allow for electrical power to be generated and transmitted in off-peak hours and then stored for local use the follow-ing day during peak power requirements. Paints, paper and plastics are the main uses of titanium dioxide.

titanium22

Ti47.867

vanadium23

V50.942

a B o V e : pipestone lAKe pRoject AReA

Va n a dium MAy hAve A new

gReen Role in e-cAR & gRid

stoRAge of electRicity

8


speci a Lt y mineR a L s

sepARAtion RApids pRojectlithium/tantalum

The 432-hectare Separation Rapids Specialty Minerals Project is located 58 km north of Kenora, Ontario in the highly prospective English River greenstone belt, which hosts lithium, tantalum and cesium mineralization. The Property is situated immediately adjacent to the east of Avalon Rare Metals Inc.’s Big Whopper property, one of the largest rare metal pegmatite deposits in the world.

During July 2009, the Company undertook a field program at the property that included prospecting, line cutting, local geological mapping of newly-found outcrops, and the col-lection of 173 soil samples, 28 grab samples and 10 channel samples. The program identified a 50m to 100m wide zone with multiple, east-west trending, sub-parallel pegmatite sill-like bodies that range in width from a few centimetres to more than 5 metres.

The soil sampling program utilized Soil Gas Hydrocarbon (SGH) Geochemistry that was analyzed by Activation Laboratories (Actlabs) of Ancaster, Ontario. SGH is a deep penetrating geochemistry that allows for analysis from various types of media. Actlabs’ SGH analysis identified a strong Level 5 lithium anomaly below a beat bog approximately 100m east of, and along strike of, the most eastern exposures of the zone of pegmatites.

The demand for lithium is growing strongly due to the use of lithium carbonate in battery-powered vehicles and other electrical storage devices. The highest and best use for the lithium mineral at Separation Rapids may be as a raw material for the glass industry where it would reduce en-ergy requirements and carbon emissions. The demand for tantalum, the high-tech metal, is growing steadily for use in the manufacture of capacitors that regulate the flow of electricity in cellular phones, pagers, computers and other electrical appliances. Other applications range from artificial hips to super-alloys for the aeronautics industry to corrosion resistant equipment for the chemical and pharmaceutical sectors.

MAnigotAgAn pRopeRtysilica

At Manigotagan, 170 km northeast of Winnipeg, Gossan continued to develop a silica sand deposit on the east shore of Lake Winnipeg. The Property is directly across from Black Island where silica sand was extensively quarried prior to the island becoming a Provincial Park. On June 3, 2010, an additional lease was acquired expanding the property to 306 hectares.

In May of 2008, Gossan conducted a 26-hole sonic drill program which identified significant thicknesses of silica sand near surface on the eastern side of the Property. This initial program of sonic drilling yield-ed near-perfect 10-foot core sections with excellent recoveries. The quality of this sampling will have important economic implications for assessing the Property.

Drilling to date has been successful in outlining substantial zones of silica sand with a thickness ex-ceeding 5 metres and ranging to over 15 metres. These zones, with lengths known to exceed 400m and 600m, are both open on one or more sides.

silicon14

Si28.086

lithium3

Li6.941

a B o V e : MAnigotAgAn pRopeRty

9


speci a Lt y mineR a L s

Manigotagan silica sand has potential uses in foundries and smelters; in the production of float or container glass; and in the oil & gas industry as frac sand. Silica sand from the property has been subjected to a variety of tests that indicate it is of a high purity with few contaminants and that it is similar to the silica sands previously quarried at nearby Black Island. An analysis of 9 washed and scrubbed samples returned a silica content of 99.0% SiO2. Tests to date indicate that a com-ponent of these silica sands meet the requirements for frac sand in oil and gas wells and metallurgical flux.

Test results of various samples of Manigotagan silica sand have exceeded all of the minimum standards for frac sand used by the oil and gas industry. Ongoing testing for use as frac sand, conducted by PropTester Inc., has resulted in samples of the 20/40, 30/50 and 70/140 mesh fractions consistently meeting ISO 8K and 9K Proppant ratings.

Gossan has retained World Industrial Minerals of Arvada, Colorado, to conduct a marketing study for its high-purity Manigotagan silica sand. The study will include a comparison of chemical assay data and physical specifications from the Manigotagan deposit

indu s t Ri a L mineR a L s

to specifications of various end uses including proppant frac-turing sand, glass, construction, metallurgical flux and other markets. The study will provide product price and market size data along with potential customers and competitors within economically transportable distances for each product type. Results from this study may lead to a scoping report provid-ing an initial economic assessment of markets, production and logistics.

10


t he cL a im s ne t w oR kinsurance technology

The Claims Network Inc. is a service provider to the property and casualty insurance industry. As the largest shareholder, Gossan holds a 46.7% equity interest in The Claims Net-work Inc.(TCN). TCN is a web-based enterprise engaged in providing the insurance industry with contents loss valu-ations and on-site claims reporting of losses.

TCN has representatives across Canada that can be dis-patched to loss sites to take immediate inventories of dam-aged contents. In terms of its assessment services, the Com-pany values insurance claims losses using its highly trained staff and its extensive proprietary data library of product specifications and price information. TCN has also initiated marketing to insurance companies in the USA.

Gossan originally invested $455,000 in The Claims Net-work in 2002. Gossan currently accounts for its investment in TCN using the equity method, resulting in a carrying value of $363,862 at March 31, 2010. During the 2010 fiscal year, Gossan established a non-cash mark-up of $139,322 (2009 - $73,620) in its investment to reflect Gossan’s share of TCN’s profits during the year.

in suR a nce t echnoL oGy

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

11


m a n aGe men t ’s Re spon siBiL i t y L e t t eR

Management acknowledges responsibility for the preparation and presentation of the financial statements, including responsibility for significant accounting judgments and estimates and the choice of accounting principles and methods that are appropri-ate to the Company’s circumstances. The financial statements have been prepared in accordance with Canadian generally accepted accounting principles and necessarily include amounts based on estimates and judgments of management.

Meyers Norris Penny LLP, our independent auditors, is engaged to express a pro-fessional opinion on the financial statements. Their examination is conducted in accordance with Canadian generally accepted auditing standards and includes tests and other procedures which allow the auditors to report whether the financial state-ments prepared by management are presented fairly in accordance with Canadian generally accepted accounting principles.

The Board of Directors must ensure that management fulfils its responsibilities for financial reporting. In furtherance of the foregoing, the Board of Directors has appointed an Audit Committee composed of three directors, two of whom are in-dependent. The Audit Committee meets with the independent auditors to discuss the results of their audit report prior to submitting the financial statements to the Board of Directors for its approval. On the recommendation of the Audit Committee, the Board of Directors has approved the Company’s financial statements.

Douglas Reeson Andrew Thomson President and C.E.O. Director

12


audi t oR ’s RepoR t

To the Shareholders of Gossan Resources Limited:

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

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

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

Winnipeg, ManitobaJuly 21 2010 Chartered Accountants

Comments for U.S. Readers

In the United States, reporting standards for auditors require the addition of an explanatory paragraph following the opinion paragraph when there are substantial uncertainties about the Company’s ability to continue as a going concern, as referred to in Note 1 to these financial statements. Our report to the shareholders dated July 21, 2010, is expressed in accordance with Canadian reporting standards, which do not permit a reference to such matters in the auditors’ report when the facts are adequately disclosed in the financial statements.

Winnipeg, Manitoba July 21, 2010 Chartered Accountants

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

13


Assets

liAbilities

shAReholdeRs’ equity

CurrentCashShort term investmentsAccounts receivablePrepaid expenses

Non-Current Mineral properties (Note 5) Investment in The Claims Network (Note 6) Furniture and equipment (Note 7)

Current Accounts payable and accrued liabilities Due to related parties (Note 8)

Deferred income (Note 5)

Nature of Operations and Going Concern (Note 1)Committment (Note 15)

Share capital (Note 9) Contributed surplus (Note 12) Deficit

See accompanying notes to financial statements

Approved on Behalf of the Board:

Douglas Reeson, Director Andrew Thomson, Director

B a L a nce shee t s

2010

496,63920,00413,94432,765

563,352

4,633,552363,862

8,523

5,005,937

5,569,289

66,064105,999

172,063

200,000

372,063

11,322,8641,227,560

(7,353,198)

5,197,226

5,569,289

2009

140,6921,326,653

4,04812,188

1,483,581

4,089,541224,540

8,973

4,323,054

5,806,635

38,981125,952

164,933

100,000

264,933

11,304,7781,204,316

(6,967,392)

5,541,702

5,806,635

$

$

$

$

$

$

$

$

AS AT MARCH 31,

(expressed in canadian dollars)

14


s tat e men t s of L o s s a nd compRehen si V e L o s s

expenses Administrative feesManagement feesConsultingOffice and generalPublic company costs Investor relationsTravel and relatedStock-based compensation expense (Note 10)Amortization

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

loss, befoRe the following

Share of TCN profit (Note 6)Write-down of mineral properties

net loss And coMpRehensive loss foR the yeAR

net loss peR shARe - Basic and diluted (Note 14)

Weighted average number of shares outstanding


2010

27,390115,649

37,76197,247

181,65880,71025,84725,1302,796

594,188

47170,742

(523,029)

139,322(2,099)

(385,806)

(0.01)

29,074,045

2009

31,778119,05631,399

106,306114,15392,31434,80917,080

7,952

554,847

30,963450,000

(73,884)

73,620(11,416)

(11,680)

0.00

29,020,900

$

$

$

$

$

$

FOR THE YEARS ENDED MARCH 31,


15


opeRAting Activities

investing Activities

finAncing Activities

incReAse in cAsh

cAsh, beginning of year

cAsh, end of year

s tat e men t s of ca sh fL o w s

Net Loss for the year

Amortization Write-down of mineral propertiesShare of TCN profit (Note 6)Stock-based compensation (Note 10)Accrued interests

Net change in non-cash working capital:Accounts receivablePrepaid expensesAccounts payable and accrued liabilitiesDue to related parties

Expenditures on mineral propertiesPurchase of short-term investmentsProceeds on redemption of short-term investmentsAcquisition of furniture and equipmentDeferred revenue received

Issuance of share capital

$

$

2009

(11,680)

7,95211,416

(73,620)17,080(4,690)

(53,542)

5,88914,398

(31,494)17,106

(47,643)

(625,626)(305,437)

925,000(778)

100,000

93,159

-

45,516

95,176

140,692

2010

(385,806)

2,7962,099

(139,322)25,130

-

(495,103)

(9,896)(20,577)

27,083(19,953)

(518,446)

(546,110)-

1,306,649(2,346)

100,000

858,193

16,200

355,947

140,692

496,639

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

$

$



s tat e men t s of L o s s a nd compRehen si V e L o s s

16


s tat e men t s of ch a nGe s in sh a RehoL deRs ’ equi t y

shARe cApitAl Balance at beginning of year Exercise of stock options - cash Exercise of stock options - Black-Scholes valuation

bAlAnce At end of yeAR

contRibuted suRplusBalance at beginning of year Fair value of stock options granted Fair value of stock options exercised Fair value of stock options forfeited


deficitBalance at beginning of year Net loss and comprehensive loss for the year


totAl shAReholdeRs’ equity, end of yeAR

2010

11,304,77816,200

1,886

11,322,864

1,204,31625,130(1,886)

-

1,227,560

(6,967,392)(385,806)

(7,353,198)

5,197,226

2009

11,304,778--

11,304,778

1,187,23630,239

-(13,159)

1,204,316

(6,955,712)(11,680)

(6,967,392)

5,541,702

$

$

$

$

$

$

$

$

$

$

$

$

$

FOR THE YEARS ENDED MARCH 31,



17


1. nAtuRe of opeRAtions And going conceRnGossan Resources Limited (the “Company”) is a public corporation that was incorporated federally on June 16, 1980. The Company, directly and through joint ventures is in the business of acquiring and exploring resource properties that it believes contain mineral-ization. To date, the Company has not earned significant revenues and is considered to be in the exploration and development stage. It is an exploration and development enterprise and carries on business in one segment, being the exploration for valuable minerals, exclusively in Canada.

In the opinion of management, all adjustments considered necessary for the fair presentation have been included in these financial statements. All amounts in these financial statements are expressed in Canadian dollars.

These financial statements have been prepared in accordance with Canadian generally accepted accounting principles applicable to a going concern. Accordingly, they do not give effect to adjustments that would be necessary should the Company be unable to continue as a going concern and, therefore, be required to realize its assets and liquidate its liabilities and commitments in other than the normal course of business and at amounts different from those in the accompanying financial statements.

The ability of the Company to continue as a going concern and the recoverability of amounts shown for mineral properties are dependent upon the discovery of economically recoverable reserves; confirmation of the Company’s ownership in the underlying mineral claims; the acquisition of required permits to mine; the ability of the Company to obtain necessary financing to complete exploration and development; and the future profitable production or proceeds from disposition of such properties. These financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern. All of these outcomes are uncertain and taken together cast doubt over the ability of the Company to continue as a going concern.

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

The Company is traded on the TSX Venture Exchange under the symbol “GSS” and on the Frankfurt/Freiverkehr & Xetra Ex-changes under the symbol “GSR”.

2. significAnt Accounting policiesThese financial statements have been prepared in accordance with Canadian generally accepted accounting principles and include the following significant accounting policies:

(a) Mineral PropertiesCosts of acquisition and maintenance of interests of non-producing mineral properties together with direct exploration and development expenditures less related recoveries, partial sales and option payments received are deferred in the accounts. At such time as the Company loses or abandons title or its interest in any property, the accumulated expenditures on such prop-erty are charged to income in that year. If any property reaches commercial production, the applicable deferred expenditures will be amortized against related production revenues on a unit of production basis.

The amounts shown for mineral properties represent costs incurred to date and do not necessarily represent present or future values. Periodically, and at least annually, a determination is made as to the status of each property by completing an impairment test of undiscounted cash flows and assessing the net recoverable amount. When discounted cash flows cannot be determined to assess the impairment, the property will be written down to its estimated fair value. Where a property shows no promise from prior exploration results and is dormant, the claims may be allowed to lapse. Claims will be written off or written down to a nominal value where an interest in the claims remains.

(b) Furniture and EquipmentFurniture and equipment are stated at cost less accumulated amortization. Amortization is recorded on the declining balance basis at rates designed to amortize the cost of the furniture and equipment over their estimated useful lives, based on the fol-lowing annual rates:

Computer equipment 30% Computer software 100% Field equipment 20% Furniture and fixtures 20%

no t e s t o f in a nci a L s tat e men t s(expressed in canadian dollars)

s tat e men t s of ch a nGe s in sh a RehoL deRs ’ equi t y

18


(c) Use of EstimatesThe preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and related notes. Accounts receivable are stated after evaluation as to their collectibility and an appropriate allowance for doubtful accounts is provided where necessary. Amortization is based on the estimated useful lives of the furniture and equipment. Other significant areas requiring the use of estimates include the determination of impairment of mineral properties, and the valuation of stock-based awards. Although these estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future, actual results could differ from the estimates. These estimates are reviewed periodically, and at least annually, and as adjustments become necessary, they are reported in earnings in the period in which they become known.

(d) Investment in The Claims Network Inc. (TCN)The Company accounts for its long-term investment in The Claims Network Inc. using the equity accounting method to the extent that the Company has significant influence over the investee’s strategic operating, financing and investing policies. Under the equity method, the Company’s proportionate share of income or loss is included in the statement of loss and any dividends received are recorded as a reduction to the investment. The carrying value of the investment is periodically reviewed to ensure that there is no permanent impairment.

(e) Stock-based Compensation and Other Stock-based PaymentsAll stock-based awards made to employees and non-employees are measured and recognized using a fair value based method. The Company uses the Black-Scholes method of calculating stock-based compensation. The Company measures stock-based compensation on the date of the grant and recognizes this cost over the vesting period, if any, in the results from operations, with an offsetting credit to contributed surplus. When stock options are exercised the consideration paid together with the amount previously recognized in contributed surplus is recorded as share capital.

(f) Basic and Diluted Loss per ShareBasic loss per share is calculated using the weighted average number of shares outstanding during the respective fiscal years. Diluted earnings per share reflect the potential dilution that could occur if potentially dilutive securities were ex-ercised or converted to common shares. The dilutive effect of options and warrants and their equivalent is computed by application of the treasury stock method. Fully diluted amounts are not presented when the effect of the computations are anti-dilutive due to the losses incurred. Accordingly, in such circumstances, there is no difference in the amounts presented for basic and diluted loss per share.

(g) Income TaxesThe Company accounts for income taxes using the asset and liability method. Under this method, future income tax assets and liabilities are determined based on the differences between the carrying amount of the assets and the liabilities on the balance sheet and their corresponding tax values. Future income tax assets and liabilities are measured using the substantively enacted tax rates expected to be in effect when the temporary differences are likely to reverse. The amount of future income tax assets recognized is limited to the amount that is, in management’s estimation, more likely than not to be realized.

(h) Impairment of Long-lived AssetsThe Company periodically assesses the impairment of long-lived assets, which consist primarily of mineral properties, and furniture and equipment, whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If changes in circumstances indicate that the carrying amount of an asset that an entity expects to hold and use may not be recoverable, future cash flows expected to result from the use of the asset and its disposition must be estimated. If the undiscounted value of the future cash flows is less than the carrying amount of the asset, impairment is recognized. When discounted cash flows can not be determined to assess the impairment, the property will be written down to its estimated fair value.

(i) Asset Retirement ObligationsThe fair value of a liability or an asset retirement obligation is recognized in the period in which it is incurred if a reason-able estimate of fair value can be made. The estimate excludes the residual value of the related assets. The associated retire-ment costs are capitalized as part of the carrying amount of the long lived assets and amortized over the life of the asset. The amount of liability is subject to re-measurement at each reporting period.

At the present time, the Company has concluded that there are no asset retirement obligations associated with any of the properties.


19


(j) Government AssistanceThe Company periodically applies for financial assistance under available government incentive programs. All government assistance received is reflected as a reduction to the related asset category.

(k) Revenue RecognitionThe Company recognizes interest income on its cash and cash equivalents on an accrual basis at the stated rates over the term to maturity. Revenue from investments is recognized when it is sold and it is deemed collectible.

(l) Flow-through SharesThe resource expenditure deductions for income tax purposes related to exploratory and development activities funded by flow-through share arrangements are renounced to investors in accordance with tax legislation. Under the asset and liability method of accounting for income taxes, the future income taxes related to the temporary difference arising from the renunciation are recorded at the time the renunciation documents are filed with the government agency, as a future tax liability and a corresponding reduction to the carrying value of the shares issued.

(m) Joint VenturesThe Company’s exploration and development activities may be conducted jointly with others. Under joint venture ac-counting, the Company is required to proportionately consolidate its percentage ownership of the assets, liabilities, rev-enues, expenses, and cashflows of its joint venture. These financial statements reflect only the Company’s proportionate interest in the Bird River and Pipestone Lake joint ventures.

(n) Financial InstrumentsThe Company has, for accounting purposes, designated its cash and short-term investments as held-for-trading, which are measured at fair value. Accounts receivable are classified as loans and receivables, which are measured at amortized cost. Accounts payable and accrued liabilities and due to related parties are classified as other financial liabilities which are measured at amortized cost.

All derivative instruments, including embedded derivatives, are recorded in the balance sheet and statement of loss at fair value unless exempted from derivative treatment as a normal purchase and sale. All changes in their fair value are recorded in operations.

Transaction costs related to held-for-trading financial assets are expensed as incurred. Transaction costs related to loans and receivables and other financial liabilities are netted against the carrying value of the asset or liability and amortized over the expected life of the instrument using the effective interest rate method.

Comprehensive income (loss) includes unrealized gains and losses, such as: changes in the currency translation adjustment relating to self-sustaining foreign operations; unrealized gains or losses on available-for-sale investments; and the effective portion of gains or losses on derivatives designated as cash flow hedges or hedges of the net investment in self-sustaining foreign operations.

(o) Short-term InvestmentsShort-term investments are comprised of guaranteed investment certificates and term deposits with initial terms to matu-rity of over ninety days but less than one year.

(p) Changes in Accounting PoliciesGoodwill and Intangible AssetsEffective April 1, 2009, the Company adopted CICA Section 3064, “Goodwill and Intangible Assets” which replaces CICA Sections 3062, “Goodwill and Other Intangible Assets” and 3450 “Research and Development Costs”, as well as EIC-27, “Revenues and Expenditures During the Pre-operating Period”, and part of Accounting Guideline 11, “Enterprises in the development stage”. The provisions relating to the definition and initial recognition of intangible assets under these new standards reduce the differences with International Financial Reporting Standards (“IFRS”) in the accounting for intangible assets. The objectives of CICA 3064 are: 1) to reinforce the principle-based approach to the recognition of as-sets; 2) to establish the criteria for asset recognition; and 3) to clarify the application of the concept of matching revenues and expenses such that the current practice of recognizing items that do not meet the recognition criteria is eliminated. The standard also provides guidance for the recognition of internally developed intangible assets (including research and development activities), ensuring consistent treatment of all intangible assets. The portions in the standard relating to goodwill remain unchanged. The adoption of this standard had no impact on the Company’s presentation of its financial position or results of operations as at March 31, 2010.


20


Fair Value Hierarchy and Liquidity Risk DisclosureIn June 2009, the CICA issued an amendment to Handbook Section 3862 to provide improvements to fair value and liquidity risk disclosures. The amendment applies to the Company’s fiscal year ending March 31, 2010. This adoption resulted in additional disclosure as provided below.

The following summarizes the methods and assumptions used in estimating the fair value of the Company’s financial instruments where measurement is required. The fair value of cash and short-term financial instruments approximates their carrying amounts due to the relatively short period to maturity. Fair value amounts represent point-in-time estimates and may not reflect fair value in the future. The measurements are subjective in nature, involve uncertainties and are a matter of significant judgment. The methods and assumptions used to develop fair value measurements, for those financial instruments where fair value is recognized in the balance sheet, have been prioritized into three levels as per the fair value hierarchy included in GAAP.

Level one includes quoted prices (unadjusted) in active markets for identical assets or liabilities. Level two includes inputs that are ob-servable other than quoted prices included in level one. Level three includes inputs that are not based on observable market data.

Level 1 Level 2 Level 3Cash $ 496,639 $ - $ -Short-term Investments $ 20,004 $ - $ -

(q) Future Accounting ChangesInternational Financial Reporting Standards (“IFRS”)In January 2006, AcSB formally adopted the strategy of replacing Canadian GAAP with IFRS for Canadian enterprises with public accountability. The current conversion timetable calls for financial reporting under IFRS for accounting pe-riods commencing on or after January 1, 2011. On February 13, 2008 the AcSB confirmed that the use of IFRS will be required in 2011 for publicly accountable profit-oriented enterprises. For these entities, IFRS will be required for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. The Company is currently assessing the impact of IFRS on its financial statements.

Business Combinations, Consolidated Financial Statements and Non-Controlling InterestsThe CICA issued three new accounting standards in January 2009: Section 1582, “Business Combinations” (“Section 1582”), Section 1601, “Consolidated Financial Statements” (“Section 1601”) and Section 1602, “Non-Controlling inter-ests” (“Section 1602”). These new standards will be effective for fiscal years beginning on or after January 1, 2011. The Company is in the process of evaluating the requirements of the new standards.

Section 1582 replaces section 1581 and establishes standards for the accounting for a business combination. It provides the Canadian equivalent to International Financial Reporting Standards IFRS 3 - “Business Combinations”. The sec-tion applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 1, 2011. Sections 1601 and 1602 together replace section 1600, “Consolidated Financial Statements”. Section 1601, establishes standards for the preparation of consolidated financial statements. Section 1601 applies to interim and annual consolidated financial statements relating to fiscal years beginning on or after January 1, 2011. Section 1602 establishes standards for accounting for a non-controlling interest in a subsidiary in consolidated financial statements subsequent to a business combination. It is equivalent to the corresponding provisions of International Financial Reporting Standard lAS 27 - “Consolidated and Separate Financial Statements” and applies to interim and annual consolidated financial statements relating to fiscal years beginning on or after January 1, 2011.

3. cApitAl MAnAgeMentThe Company considers its capital structure to consist of share capital, stock options and warrants. When managing capital, the Company’s objective is to ensure the entity continues as a going concern as well as to maintain optimal returns to share-holders and benefits for other stakeholders. Management adjusts the capital structure as necessary in order to support the acquisition, exploration and development of mineral properties. The Board of Directors does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company’s management to sustain future develop-ment of the business. As at March 31, 2010, total shareholders’ equity was $5,197,226 (March 31, 2009 - $5,541,702).

The properties in which the Company currently has an interest are in the exploration stage. As such the Company is dependent on external financing to fund its activities. In order to carry out the planned exploration and pay for administrative costs,


21


the Company will spend its existing working capital and raise additional amounts as needed. The Company will continue to assess new properties and seek to acquire an interest in additional properties if it feels there is sufficient geologic or economic potential and if it has adequate financial resources to do so.

Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable.

There were no changes in the Company’s approach to capital management during the year ended March 31, 2010. The Com-pany is not subject to externally imposed capital requirements.

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

The Company’s major mineral properties are listed in Note 5. Unless the Company acquires or develops additional mate-rial mineral properties, the Company will be mainly dependent upon its existing properties. If no additional major min-eral properties are acquired by the Company, any adverse development affecting the Company’s properties would have a materially adverse effect on the Company’s financial condition and results of operations.

(b) Financial RiskThe Company’s activities expose it to a variety of financial risks: credit risk, liquidity risk, market risk (including interest rate, foreign exchange rate and commodity price risk).

Risk management is carried out by the Company’s management team with guidance from the Audit Committee under policies approved by the Board of Directors. The Board of Directors also provides regular guidance for overall risk management.

Credit RiskCredit risk is the risk of loss associated with a counterparty’s inability to fulfill its payment obligations. The Company’s credit risk is primarily attributable to cash, short term investments and accounts receivable. Cash and short term invest-ments consist of cash and term deposits with reputable financial institutions, from which management believes the risk of loss to be minimal.

Financial instruments included in accounts receivable consist of deposits held with service providers. Management believes that credit risk concentration with respect to financial instruments included in accounts receivable is minimal. Other ac-counts receivable consist of sales tax receivable from government authorities in Canada.

Liquidity RiskThe Company’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when due. As at March 31, 2010, the Company had cash of $496,639 (2009 - $140,692) and short-term investments of $20,004 (2009 - $1,326,653) to settle current liabilities of $172,063 (2009 - $164,933). All of the Company’s financial liabilities have contractual maturities of less than 30 days and are subject to normal trade terms.

Market RiskMarket risk is the risk of loss that may arise from changes in market factors such as interest rates, foreign exchange rates, and commodity prices.

Interest Rate RiskThe Company has cash balances and no interest-bearing debt. The Company’s current policy is to invest excess cash in investment-grade short-term deposit certificates issued by its banking institutions. The Company regularly monitors the investments it makes and is satisfied with the credit ratings of its banks.

Foreign Currency RiskThe Company’s functional currency is the Canadian dollar and major purchases are transacted in Canadian dollars. As a result, the Company’s exposure to foreign currency risk is minimal.

Commodity Price RiskThe Company is exposed to price risk with respect to commodity prices. Commodity price risk is defined as the potential adverse impact on earnings and economic value due to commodity price movements and volatilities. The Company closely monitors commodity prices as it relates to valuable minerals to determine the appropriate course of action to be taken by the Company.


22


(c) Sensitivity AnalysisThe Company has, for accounting purposes, designated its cash and short-term investments as held-for-trading, which are measured at fair value. Accounts receivable are classified as loans and receivables, which are measured at amortized cost. Accounts payable and accrued liabilities, and due to related parties are classified as other financial liabilities which are measured at amortized cost.

As at March 31, 2010, the carrying and fair value amounts of the Company’s financial instruments are not materially different.

Based on management’s knowledge and experience of the financial markets, the Company believes the following move-ments are “reasonably possible” over a twelve month period.

Held-for-trading assets include investment certificates totaling $20,004 subject to varying interest rates. Sensitivity to a plus or minus 1% change in rates would affect the reported net income by approximately $200. Similarly, as at March 31, 2010, reported shareholders’ equity would have varied by approximately $200 as a result of the 1% variance in interest rates.

The Company does not hold balances in foreign currencies to give rise to exposure to foreign exchange risk.

Commodity price risk could adversely affect the Company. In particular, the Company’s future profitability and vi-ability from mineral exploration depends upon the world market price of valuable minerals. Commodity prices have fluctuated significantly in recent years. There is no assurance that, even as commercial quantities of minerals may be produced in the future, a profitable market will exist for them.

As of March 31, 2010, the Company is not a producer of valuable minerals. As a result, commodity price risk may affect the completion of future equity transactions such as equity offerings and the exercise of stock options and warrants. This may also affect the Company’s liquidity and its ability to meet its ongoing obligations.

Mineral property risk is significant. In particular, if an economic orebody is not found, the Company cannot enter into commercial production and generate sufficient revenues to fund its continuing operations. There can be no assurance that the Company will generate any revenues or achieve profitability or provide a return on investment in the future from any of the properties it may have an interest in.

5. MineRAl pRopeRties

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

Pipestone Lake (i) $ 1,668,030 $ 21,941 $ - $ - $ 1,689,971

Bird River Joint Venture (ii) 629,251 223,792 (39,732) (2,098) 811,213

Inwood (iii) 563,633 182,703 - 746,336

Separation Rapids 135,667 56,509 - 192,176

Manigotagan Silica (iv) 618,747 100,481 - 719,228

Sharpe Lake (v) 474,210 3,598 (3,182) 474,626

Other 3 - - (1) 2

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

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

Pipestone Lake (i) $ 1,663,030 $ 5,000 $ - $ - $ 1,668,030

Bird River (ii) 477,446 2,164 - (479,610) -

Bird River Joint Venture (ii) - 149,641 - 479,610 629,251

Inwood (iii) 444,048 145,001 (14,000) (11,416) 563,633

Separation Rapids 128,834 6,833 - - 135,667

Manigotagan Silica (iv) 293,849 340,281 (15,383) - 618,747

Sharpe Lake 468,121 6,089 - - 474,210

Other 3 - - - 3

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


i)

ii)

iii)

iv)

23


During the 2010 fiscal year, the Company incurred $589,024 (2009 - $655,009) of exploration expenditures and also received $42,914 (2009 - $29,383) in government grants, which reduced the carrying value of its Mineral Properties by the same amount.

The Pipestone Lake project is a 50% joint venture with Cross Lake Mineral Explorations Inc.

On March 26, 2007, the Company entered into an Option and Joint Venture Agreement on its Bird River Property (“The Property”) with Marathon PGM Corporation (MAR-TSX). The Property, encompassing over 7,000 hectares, covers over 21 kilometres of the Bird River Sill Complex. This complex carries significant concentrations of palladium and platinum along with nickel, copper, zinc and chromite. The Property is located about 40-km east of Lac Du Bonnet, Manitoba and, along the Sill, approximately 6-km west and northwest of Mustang Minerals’ Maskwa Deposit and the historic Dumbar-ton mine.

Under the terms of the Agreement, Marathon PGM Corporation (“Marathon”) earned an undivided 50% interest in the Bird River Project (“Project”) by spending $3.0 million on exploration and acquisition costs and cash payments of $500,000 to the Company. Thereafter, Marathon elected not to earn a further 15% interest by completing a bankable feasibility study and an additional 5% interest, to a total 70% interest, by arranging project financing. Under certain conditions and subject to regulatory approval, Marathon may elect to issue its common shares in lieu of cash payments. Upon formation of a joint venture, Marathon must also make semi-annual, recoverable, advance payments of $50,000 until commercial production is achieved. A $10,000 finders fee was paid in connection with the transaction.

On November 1, 2007, Marathon finalized an Option and Joint Venture Agreement on the adjacent Ore Fault Property held by Bird River Inc. to explore and potentially acquire the property, subject to a 1% NSR. The Ore Fault Property is part and subject to the Company and Marathon Agreement.

On August 25, 2008, Marathon triggered the formation of a joint venture by making the final $400,000 cash payment to the Company (the remaining portion of the $500,000 trigger payment) and having expended in excess of $3 million on the Bird River Project. At the March 31, 2010 year end, the Company owns an approximate 45% interest in the project and it has contributed $262,959 to the joint venture’s work programs. If the Company fails to contribute to three successive work programs, or is diluted to a ten percent equity interest in the Project, the Company’s interest will be reduced to a 3% net smelter return royalty. On each March 30th and September 30th, from August 25, 2008 to the date of Commencement of Commercial Production, Marathon is required to make advance payments of a net profits interest or an NSR royalty to the Company in the amount of $50,000 as long as Marathon remains the manager of the Project.

As a result of the formation of the joint venture, a gain in the amount of $450,000 was recorded in 2009 to reflect cash payments made directly from Marathon to the Company as stated in the joint venture agreement. Additionally, two of the semi-annual $50,000 advance payments received in the 2009 and two of the semi-annual $50,000 advance payments received in 2010 are currently shown as deferred income. Additionally, the percentage ownership of the joint venture is subject to change based on its contributions to the joint venture’s work program.

On March 15, 2007, the Company entered into a licensing arrangement for a new magnesium production process (“the Zuliani Process”), including an option to secure exclusive worldwide rights to the Zuliani Process. A component of the consideration is the conditional payment of up to 150,000 common shares related to specific measurable events. On No-vember 12, 2007, 100,000 common shares were issued with an assigned fair value of $21,000 related to the completion of Phase I of the arrangement. In fiscal 2009, an industrial research grant was received from the Government of Manitoba in the amount of $14,000 for work undertaken on the Zuliani Process.

In fiscal 2009, the Company received a mineral exploration grant from the Government of Manitoba in the amount of $15,383 for prior work undertaken on the Manigotagan Silica Project.

During the current year, the Company received a mineral exploration grant from the Government in the amount of $3,182 (2009 - $nil) for prior work undertaken on the Sharpe Lake Project

6. investMent in the clAiMs netwoRK inc.The Claims Network Inc. (TCN) provides the property and casualty insurance industry with valuation information and software systems to facilitate the settlement of insurance claims. In 2002, the Company invested $455,000 in TCN to hold a 30% equity interest and has appointed two directors. During the 2007 year, TCN redeemed outstanding shares resulting


i)

ii)

iii)

iv)

v)

24


6. investMent in the clAiMs netwoRK inc. continued…in the Company’s interest increasing to 37.04%. During the 2008 year, TCN redeemed additional shares and made a small share issuance resulting in the Company’s interest increasing to 46.71%. As TCN is a private company, there is no liquid market for the shares.

During the current year, management has recorded its investment in TCN using the equity method and accordingly has rec-ognized $139,322 (2009 - $73,620) as income being the Company’s 46.71% proportionate share of TCN’s profit, resulting in the carrying value increasing by $139,322 to $363,862 (2009 - $224,540).

7. fuRnituRe And equipMent

8. RelAted pARty tRAnsActionsDuring the year ended March 31, 2010, a director was paid $43,381 (2009 - $53,578) for geological field work and is owed $2,888 (2009 - $4,882) by the Company as at March 31, 2010. Another director and the President was paid $72,000 (2009 - $82,000) for corporate administration services, and is owed $17,143 (2009 - $24,490) by the Company as at March 31, 2010. Another officer charged $30,000 (2009 - $30,000) for management services, and is owed $10,918 (2009 - $10,000) by the Company as at March 31, 2010. An officer was paid $2,000 (2009 - $3,500) for corporate administration services.

During the year, the Company paid $12,000 (2009 - $2,000) to a company, beneficially owned by the CFO, to act as Chief Financial Officer of the Company. The CFO is also the president of a firm providing accounting services to the Company. During the year, the Company expensed $28,390 (2009 - $29,092) for accounting services rendered by this firm. In addition, as at March 31, 2010, this firm was owed $8,750 (2009 - $10,080) and this amount was included in due to related parties.

During fiscal 2010, fees were paid/accrued to Directors in the amount of $51,000 (2009 – $51,000) for directors’ fees, includ-ing committee fees and other board activities. In the current and prior years, thirty percent of the fees paid to directors were retained by the Company for acquisition of the Company’s common shares on the directors’ behalf. At March 31, 2010, $66,300 (2009 - $76,500) was owed in regard to these fees.

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

The amounts due to related parties, which totals $105,999 (2009 - $125,952) are unsecured, non-interest bearing and have no fixed terms of repayment.

9. shARe cApitAl(a) AUTHORIZED Unlimited number of common shares with no par value

(b) ISSUED

Cost Accumulated Amortization

Total March 31, 2010

Total March 31, 2009

Computer equipment $ 19,599 $ 13,060 $ 6,539 $ 6,493

Computer software 7,435 7,435 - -

Field equipment 1,155 893 262 327

Furniture and fixtures 5,327 3,605 1,722 2,153

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

Shares Amount

Balance, March 31, 2009 and 2008 29,020,900 11,304,778

Exercise of options - cash 97,000 16,200

Exercise of options - Black-Scholes valuation - 1,886

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


25


Number of Stock Options Weighted Average Exercise Price

Balance, March 31, 2008 2,579,000 $ 0.38

Granted (i)(ii) 410,000 $ 0.18

Exercised (61,000) $ 0.44

Expired (407,000) $ 0.34

Balance, March 31, 2009 2,521,000 $ 0.35

Granted (iii)(iv) 526,000 $ 0.15

Exercised (97,000) $ 0.17

Expired (490,000) $ 0.41

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

10. stocK options A summary of changes in stock options as follows:

On July 16, 2008, the Company granted 270,000 stock options to directors and consultants. The options are exercisable at $0.20 and expire on March 28, 2013. The resulting fair value of $24,030 was estimated using the Black-Scholes option pricing model with the following assumptions: expected dividend yield of 0%; expected volatility of 85.0%; a risk-free in-terest rate of 3.0% and an expected average life of 3.0 years. Of the 270,000 options granted, 150,000 are subject to vesting terms ranging from six to twelve months. For the year ended March 31, 2009, the impact on expenses was $22,918.

On February 4, 2009, the Company granted 140,000 stock options to directors and an officer. The options vest immedi-ately, are exercisable at $0.15, and expire on March 28, 2011. The resulting fair value of $6,580 was estimated using the Black-Scholes option pricing model with the following assumptions: expected dividend yield of 0%; expected volatility of 85.0%; a risk-free interest rate of 2.00% and an expected average life of 1.7 years.

On June 12, 2009, the Company granted 86,000 incentive stock options to directors. The options vest immediately, are exercisable at $0.15 per share, and expire on June 28, 2009. The resulting fair value of $258 was estimated using the Black-Scholes option pricing model with the following assumptions: expected dividend yield of 0%; expected volatility of 85%; a risk-free interest rate of 0.50% and an expected average life of 16 days. These options relate to a thirty percent retention of directors fees by the Company for reinvestment purposes which remained payable from the 2008 fiscal year.

On June 12, 2009, the Company granted 440,000 incentive stock options to directors, officers and consultants. The op-tions vest immediately, are exercisable at $0.15 per share, and expire on March 28, 2012. The resulting fair value of $23,760 was estimated using the Black-Scholes option pricing model with the following assumptions: expected dividend yield of 0%; expected volatility of 85%; a riskfree interest rate of 2.00% and an expected average life of 1.9 years.

The following table reflects the stock options outstanding as at March 31, 2010.

Of the options outstanding 2,460,000 (2009 - 2,471,000) are exercisable


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

October 31, 2006 0.30 330,000 April 30, 2010

March 14, 2007 0.32 190,000 September 14, 2010

May 1, 2007 0.40 340,000 May 1, 2011

June 26, 2007 0.50 350,000 June 26, 2011

September 27, 2007 0.34 270,000 September 27, 2011

March 28, 2008 0.30 160,000 March 28, 2012

July 16, 2008 0.20 240,000 March 28, 2013

February 4, 2008 0.15 140,000 March 28, 2011

June 12, 2009 0.15 440,000 March 28, 2012

0.30 2,460,000

i)

ii)

iii)

iv)

26


11. wARRAntsThe following table reflects the continuity of warrants for the year:

Number of Warrants Weighted Average Exercise Price

Balance, March 31, 2008 5,942,900 $ 0.50

Expired (5,942,900) $ 0.50

Balance, March 31, 2009 and 2010 - $ -

12. contRibuted suRplus

Balance - March 31, 2008 $ 1,187,236

Fair value of stock options granted 30,239

Fair value of stock options forfeited (13,159)

Balance - March 31, 2009 $ 1,204,316

Fair value of stock options granted 25,130

Fair value of stock options forfeited (1,886)

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

13. bAsic And diluted loss peR shAReBasic loss per share is computed using the weighted average number of common shares outstanding during the year. Diluted loss per share, which reflects the maximum possible dilution from the potential exercise of warrants and stock options, is the same as basic loss per share for the year ended. The conversion of warrants and stock options to calculate diluted loss per share was not done, because the conversion was anti-dilutive.

14. incoMe tAxesThe following table reconciles the expected income tax recovery at the statutory income tax rate to the amounts recog-nized in the statements of operations.


2010 2009

Loss before income taxes as reflected in the statement of operation $ (385,806) $ (11,680)

Expected income tax recovery at statutory rate (120,082) (3,676)

Permanent difference due to stock-based compensation 7,822 5,375

Non-taxable portion of capital gains 46,005 -

Permanent difference due to equity income (43,364) (23,168)

Other temporary differences not recognized in year 24,232 24,238

Change in valuation allowance (45,114) (278, 672)

Capital gain from expiration of warrants - 55,760

Change in prior year estimate 130,501 220,143

Actual income taxes $ - $ -

27


The valuation allowance reflects the Company’s estimate that the tax assets will likely not be realized and consequently they have not been recorded in these financial statements.

As at March 31, 2010, the following amounts are available to be applied against future years’ income for tax purposes.

Canadian earned depletion base Canadian exploration expenditures Foreign exploration and development expense Share issue costs Non-capital losses (expiring 2014 to 2030) 2014

2015 2026 2027 2028 2030

15. coMMitMentBy agreement dated June 14, 2007, the Company is committed under an operation lease for its office premises with the follow-ing lease payments to the expiration of the lease on September 30, 2012: 2011 12,848 2012 12,848 2013 6,424 $ 32,120

16. coMpARAtive figuResCertain comparative figures have been reclassified to conform with current year presentation.

$ 128,4591,987,105

583,93164,074

390,923383,862491,126511,190625,853443,986

$ 5,610,509


The following table reflects the future income tax assets (liabilities):

2010 2009

Future income tax asset (liability)

Non-capital loss carry-forwards for Canadian purposes $ 768,674 $ 801,912

Excess of undepreciated capital cost over net book value of furniture and equipment 9,617 8,862

Share issue costs 17,300 30,498

Excess of book value of Mineral Properties over tax value (522,195) (522,762)

273,396 318,510

Less: Valuation allowance (273,396) (318,510)

$ - $ -

28


17. diffeRences bet ween cAnAdiAn And u.s. geneRAlly Accepted Accounting pRinciples And pRActicesThe financial statements have been prepared in accordance with accounting principles and practices generally accepted in Canada (Canadian generally accepted accounting principles GAAP) which differ in certain respects from those principles and practices that the Company would have followed had its financial statements been prepared in accordance with principles and practices generally accepted in the United States of America (U.S. generally accepted accounting principles GAAP).

Under U.S. generally accepted accounting principles, the accounting treatment would differ as follows:

Before April 1, 2007, under Canadian GAAP, the Company recorded its investments using the lower of cost or market meth-od. In addition, if there was a loss other than temporary, the investment was written down to recognize the loss. However, under U.S. GAAP, marketable equity securities that are available-for-sale are recognized at market value with any unrealized gains or losses recognized in other comprehensive income, except if there is a loss other than temporary, which is directly recognized as a loss.

Under Canadian income tax legislation, the Company is permitted to issue shares whereby the Company agrees to incur Canadian Exploration Expenditures (as defined in the Canadian Income Tax Act) and renounce the related income tax deduc-tions to the investors. Under Canadian GAAP, the full amount of funds received from flow-through share issuances are re-corded as share capital. Under U.S. GAAP, the premium paid for the flow-through shares in excess of market value is credited to liabilities and included in income when the related tax benefits are renounced by the Company.

Under U.S. GAAP the statements of operations and cash flow would disclose cumulative amounts since inception.

Furthermore, under U.S. GAAP, and notwithstanding that there is not a specific requirement to segregate the funds pursuant to the flow-through agreements, the flow through funds which are unexpended at the balance sheet date are separately clas-sified as restricted cash. As at March 31, 2010 there were no unexpended flow-through funds (2009 - $Nil).

Under U.S. GAAP, exploration costs are expensed as incurred. As a result, under U.S. generally accepted accounting principles, there is a greater expense in earlier periods and fewer write-downs in subsequent periods than under Canadian generally ac-cepted accounting principles.

Under U.S. GAAP, unvested options forfeited, and previously recognised as an expense, can not be reversed.

Had the Company followed U.S. generally accepted accounting principles in accounting for the exploration costs, the effect on the financial statements would have been as follows:


Statements of loss and comprehensive loss 2010 2009

Net loss under Canadian GAAP $ (385,806) $ (11,680)

Fair value of marketable securities under U.S. GAAP - -

Write-down of mineral properties under Canadian GAAP 2,099 11,416

Expensing of acquisition and exploration costs under U.S. GAAP (546,110) (625,626)

Net loss under U.S. GAAP $ (929,817) $ (625,890)

Basic and diluted net loss per common share under U.S. GAAP $ (0.03) $ (0.02)

29


Balance Sheets 2010 2009

(a) Effect on mineral properties

Mineral properties under Canadian GAAP $ 4,633,552 $ 4,089,541

Adjustment for capitalization of exploration costs

Current year differences (544,011) (4,089,541)

Prior year accumulated differences (4,089,541) -

Mineral properties under U.S. GAAP $ - $ -

(b) Effect on marketable securities $ - $ -

Adjustment for fair value - -

Marketable securities under U.S. GAAP $ - $ -

(c) Effect on shareholders‘ equity

Shareholders‘ equity under Canadian GAAP $ 5,197,226 $ 5,541,702

Current year difference (544,011) (4,089,541)

Prior year accumulated differences (4,089,541) -

Shareholders‘ equity under U.S. GAAP $ 563,674 $ 1,452,161

Also, the impact on the statement of cash flows would be as follows:

As a result of the treatment of mining interests under item (a) above, cash expended for the exploration costs would have been classified under U.S. GAAP as an operating activity rather than an investing activity.

Also, U.S. GAAP requires disclosure of combined financial information with regard to the equity investment in The Claims Network Inc. The combined information is as follows:


2010 2009

Cash $ 903,561 $ 390,323

Short term investments 20,004 1,326,653

Marketable securities - -

Prepaid expenses 37,415 17,625

Accounts receivable 436,432 279,769

Mining properties 4,633,552 4,089,541

Future income tax 300 300

Fixed assets 30,949 27,633

Accounts payable (294,435) (263,354)

Share capital (11,703,325) (11,685,239)

$ (5,935,547) $ (5,816,749)

Revenue $ 1,967,897 $ 1,259,121

Expenses (2,194,754) (1,186,810)

Loss $ (226,857) $ 72,311

30


17. diffeRences bet ween cAnAdiAn And u.s. geneRAlly Accepted Accounting pRinciples And pRActicesRecent US GAAP accounting pronouncements:In April 2009, FASB amended accounting standards for Fair Value Measurements and Disclosures. The amended standard, ASC 820, addresses issues related to the determination of fair value when the volume and level of activity for an asset or li-ability has significantly decreased, and identifying transactions that are not orderly. The revisions affirm the objective that fair value is the price that would be received to sell an asset in an orderly transaction (that is not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions, even if the market is inactive. The amendment provides additional guidance for estimating fair value when the volume and level of activity for the asset or liability have decreased significantly. It also provides guidance on identifying circumstances that indicate a transaction is not orderly. If determined that a quoted price is distressed (not orderly), and thereby not representative of fair value, the entity may need to make adjustments to the quoted price or utilize an alternative valuation technique (e.g., income approach or multiple valuation techniques) to determine fair value. Additionally, an entity must incorporate appropriate risk premium adjustments, reflective of an orderly transaction under current market conditions due to uncertainty in cash flows. The revised guidance requires disclosures in interim and annual periods regarding the inputs and valuation techniques used to measure fair value and a discussion of changes in valuation techniques and related inputs, if any, during the period. The changes are effective for interim and annual reporting periods ending after June 15, 2009, and are to be applied prospectively. The adoption of this new standard had no impact on the Company’s financial statements.

In April 2009, FASB revised accounting standards for Financial Instruments. The revised standard, ASC 825, requires fair value disclosures in the notes of an entity’s interim financial statements for all financial instruments, whether or not recognized in the statement of financial position. This revision became effective for the interim reporting periods ending after June 15, 2009. The adoption of this new standard had no impact on the Company’s financial statements.

In May 2009 FASB issued Statement No. 168, The FASB Accounting Standards Codification and the Hierarchy of Gener-ally Accepted Accounting Principles”, (“SFAS No. 168”) “-- a replacement of FASB Statement No. 162. SFAS No. 168 is the new source of authoritative GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. This statement was incorporated into ASC 105, Generally Accepted Accounting Principles under the new FASB codification which became effective on July 1, 2009. The new Codification supersedes all then-existing non-SEC accounting and reporting stan-dards. All other non-grandfathered non-SEC accounting literature not included in the Codification will become non-authori-tative. The adoption of this standard did not have any impact on the Company’s financial position or results of operations.

In May 2009, the FASB issued ASC No. 855, “Subsequent Events,” which established general standards of accounting for and disclosure of events that occur after the balance sheet date but before the financial statements are issued. It sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. ASC 855 was effective for financial statements issued for interim and annual periods ending after June 15, 2009 and did not have any impact on the Company’s financial statements. Management has evaluated subsequent events through the date the financial statements were issued.

In June 2009, the Financial Accounting Standards Board (“FASB”) issued new standards for The Hierarchy of Generally Accepted Accounting Principles. These standards, ASC 105, culminated a multi-year project to replace the previous GAAP hierarchy and established Accounting Standard Codification (the “Codification”). The Codification is not expected to change US GAAP, but combines all authoritative standards into a comprehensive, topically organized online database. Following this guidance, the FASB will not issue new standards in the form of Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts. Instead, it will issue Accounting Standards Updates (“ASU”) to update the Codification. After the launch of the Codification on July 1, 2009, only one level of authoritative US GAAP for non-governmental entities will exist, other than guidance issued by the SEC. This statement is effective for interim and annual reporting periods ending after September 15, 2009. The adoption of this new standard only had the effect of amending references to authoritative accounting guidance in the Company’s financial statements.


31


In June 2009, the ASC guidance for consolidation accounting was updated to require an entity to perform a qualitative analy-sis to determine whether the enterprise’s variable interest gives it a controlling financial interest in a variable interest entity (“VIE”). This analysis identifies a primary beneficiary of a VIE as the entity that has both of the following characteristics: i) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and ii) the obligation to absorb losses or receive benefits from the entity that could potentially be significant to the VIE. The updated guidance also requires ongoing reassessments of the primary beneficiary of a VIE. The provisions of the updated guidance are effective for the Company’s fiscal year beginning April 1, 2010. The Company does not expect the adoption of this guidance to have an impact on the Company’s financial position, results of operations or cash flows.

In August 2009, FASB issued ASU No. 2009-05 Measuring Liabilities at Fair Value. This update amends ASC 820, Fair Value Measurements and Disclosure, in regards to the fair value measurement of liabilities. FASB ASC 820 clarifies that in circum-stances in which a quoted price for an identical liability in an active market is not available, a reporting entity shall utilize one or more of the following techniques: (i) the quoted price of the identical liability when traded as an asset, (ii) the quoted price for a similar liability or for a similar liability when traded as an asset, or (iii) another valuation technique that is consistent with the principles of ASC 820. In all instances a reporting entity shall utilize the approach that maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs. Also, when measuring the fair value of a liability, a reporting entity shall not include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of the liability. The adoption of this new standard had no impact on the Company’s financial statements.

In January 2010, the FASB issued ASU 2010-06, Improving Disclosures about Fair Value Measurements, which is included in the ASC in Topic 820 (Fair Value Measurements and Disclosures). ASU 2010-06 requires new disclosures on the amount and reason for transfers in and out of Level 1 and 2 fair value measurements. ASU 2010- 06 also requires disclosure of activities, including purchases, sales, issuances, and settlements within the Level 3 fair value measurements and clarifies existing disclo-sure requirements on levels of disaggregation and disclosures about inputs and valuation techniques. ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009. The Company is currently assessing the impact of adoption of ASU 2009-14 and does not currently plan to early adopt.

PRESENTATIONThere are different presentations between Canadian and US GAAP which are as follows:

i) Under U.S. GAAP, there is a difference between net income and other comprehensive income. As current operations has no other comprehensive income, there is no effect to the statement of loss and comprehensive loss.

ii) No subtotal is permitted under U.S. GAAP within cash flow from operations on the statement of cash flows

17. diffeRences bet ween cAnAdiAn And u.s. geneRAlly Accepted Accounting pRinciples And pRActices ( continued )


32


Gossan Resources LimitedSuite 404 - 171 Donald StreetWinnipeg Manitoba Canada R3C 1M4 Tel: (204) 943-1990 Fax: (204) 942-3434E-mail: [email protected] Website: www.gossan.ca

GSS on the TSX Venture Exchange GSR on the Frankfurt-Freiverkehr & Xetra Exchanges (WKN 904435)

Outstanding: 29,117,900Fully Diluted: 31,247,900

CIBC Mellon Trust CompanyPO Box 1 - 320 Bay StreetToronto, Ontario M5H 4A6Tel: 1-800-387-0825 Tel: (416) 643-5500

Taylor McCaffrey L.L.B. 9th Floor - 400 St. Mary AvenueWinnipeg, Manitoba R3C 4K5

Meyers Norris Penny LLP2500 - 201 Portage AvenueWinnipeg, Manitoba R3B 3K6

Douglas Reeson, MBA Director & PresidentCarmelo Marrelli, BA, CGA, CA Secretary & CFOG. Ryan Cooke, P.Geo. DirectorWilliam McGuinty, B.Sc., P.Geo. DirectorMaryAnn Mihychuk, M.Sc., P.Geo DirectorAndrew Thomson Director

James W. Campbell, P.Geo., P.Eng. Honourary Chair

heAd office

listing

shARe cApitAl(As At july 25, 2010)

tRAnsfeR Agent

legAl counsel

AuditoR

diRectoRs And officeRs

coRpoR at e diRec t oRy

copper29

Cu63.546

lithium3

Li6.941

magnesium12

Mg24.305

nickel28

Ni58.693

palladium46

Pd106.42

platinum78

Pt195.08

silicon14

Si28.086

titanium22

Ti47.867

vanadium23

V50.942

zinc30

Zn65.39

COMMODI T Y DI V ERSE E X P L OR AT ION | GReen eneRGY demand

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Ontario

U.S.A.

Manitoba

Winnipeg

Gimli

Kenora

Red Lake

Dryden

Fort Frances

International FallsAtikokan

Brandon

The Pas NorwayHouse

BerensRiver

IslandLake

BearskinLake

SandyLake

Flin Flon

LakeWinnipeg

Manitoba

LakeWinnipegosis

RedRiver

Gods Lake

17

11

1

8

5

Cross Lake

Lac duBonnet

ManigotaganPoplarfield

Bissett

N

100 km

55oN

50oN50oN

95oW

Lake

CANADA

PIPESTONE LAKEVanadium/Titanium

SEPARATION RAPIDSLithium

INWOODMagnesium

BIRD RIVERPGMs/Nickel/Copper

SHARPE LAKEGold

MANIGOTAGANSilica

PROPERTY TYPE

PRECIOUS METAL

SPECIALTY METAL

INDUSTRIAL MINERAL

Gossan ResouRces Limited Suite 404 - 171 Donald Street

Winnipeg, MB R3C 1M4 Canada Tel: (204) 943-1990Fax: (204) 942-3434

e-maiL: [email protected] Website: www.gossan.ca

palladium46

Pd106.42

zinc30

Zn65.39

platinum78

Pt195.08

nickel28

Ni58.693

copper29

Cu63.546

silicon14

Si28.086

tsX Venture exchange Gss | Freiverkehr & Xetra exchanges GsR - WKn 904435 C O M M O D I T Y D I V E R S E E X P L O R A T I O N | GReen eneRGY demand

lithium 3 li mg 2010 annual report - gossan · ongoing testing of silica sand from the manigotagan...

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