Guyana Goldfields Inc.
Annual Report 2016

Plain-text annual report

2016 REVIEW A GOLD MINE IN PRODUCTION TSX : GUY 2016 REVIEW Chief Executive Officer’s Message Marked by the achievements of several important milestones, 2016 was a successful year for Guyana Goldfields as we started the year by declaring commercial production on January 1, 2016 at our flagship asset, the Aurora Gold Mine (“Aurora”) in Guyana, South America. Guyana Goldfields remains committed to the highest health, safety, environmental and corporate social responsibility standards and achieved zero lost time injuries during operations in 2016. We continue to work closely with the Guyanese Government and local communities in those regards throughout all aspects of the Company. Aurora performed strongly in 2016 delivering total production of 151,600 ounces of gold in its first full year of production, meeting our upwardly revised guidance of 140,000 to 160,000 ounces. With a successful year of operations behind us, and a number of operating efficiencies and production growth initiatives forecasted for 2017, the Company is in a great position to achieve strong operational momentum while being supported by a strong balance sheet and cash flow generation. We are excited about ramping up our exploration efforts in 2017 and prospective target areas are being pursued with the goal of increasing open pit resources for additional feed to the Aurora mill. The Company’s annual exploration budget has been significantly increased in order to support these efforts and the program will be success driven. We look forward to the year ahead as we execute on our milestones and continue to operate as Guyana’s premier gold producer with forecasted gold production for 2017 of 160,000 – 180,000 ounces. A key component of our success is our commitment to the communities in which we operate, achieving the highest standards of environmental sustainability and ensuring health and safety for our employees and the community. On behalf of the Board of Directors, management and employees of Guyana Goldfields, we would like to thank our shareholders and stakeholders for their continued support. Sincerely, Scott A. Caldwell President, Chief Executive Officer and Director Guyana Goldfields Inc. Table of Contents CEO'S MESSAGE MANAGEMENT’S DISCUSSION AND ANALYSIS Company Business 2016 Year In Review 2016 Highlights Fourth Quarter 2016 Highlights Outlook Key Performance Drivers & Trends Mine Operating Results Full Year and Fourth Quarter 2016 Financial Results Exploration Activities Equity Financial - July 2016 Financial Condition Liquidity & Capital Resources Commitments & Contingencies Summary of Quarterly Financial Results Outstanding Share Data Non-IFRS Performance Measures Additional GAAP Financial Performance Measures Risk Factors Forward-Looking Statements Technical Information Accounting Disclosure FINANCIAL STATEMENTS Consolidated Balance Sheet Consolidated Statements of Comprehensive Income Consolidated Statements of Changes in Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements DIRECTORY 1 3 4 5 5 6 8 9 11 13 13 14 15 16 18 18 18 21 21 35 37 39 46 50 51 52 53 54 81  GUYANA GOLDFIELDS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2016 -1- Table of Contents Company Business ............................................................................................................................................................. 3 2016 Year In Review ............................................................................................................................................................ 4 2016 Highlights .................................................................................................................................................................... 5 Fourth Quarter 2016 Highlights ........................................................................................................................................ 5 Outlook ................................................................................................................................................................................. 6 Key Performance Drivers & Trends ................................................................................................................................. 8 Mine Operating Results ...................................................................................................................................................... 9 Full Year & Fourth Quarter 2016 Financial Results ...................................................................................................... 11 Exploration Activities ........................................................................................................................................................ 13 Equity Financing – July 2016 ........................................................................................................................................... 13 Financial Condition ............................................................................................................................................................ 14 Liquidity & Capital Resources ......................................................................................................................................... 15 Commitments & Contingencies ....................................................................................................................................... 16 Summary of Quarterly Financial Results ....................................................................................................................... 18 Outstanding Share Data .................................................................................................................................................... 18 Non-IFRS Performance Measures ................................................................................................................................... 18 Additional Gaap Financial Performance Measures ...................................................................................................... 21 Risk Factors ........................................................................................................................................................................ 21 Forward-Looking Statements ........................................................................................................................................... 35 Technical Information........................................................................................................................................................ 37 Accounting Discloure ........................................................................................................................................................ 39 -2- GUYANA GOLDFIELDS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS The following management’s discussion and analysis (“MD&A”) of the financial condition and results of operations of Guyana Goldfields Inc. (“Guyana Goldfields” or the “Company”) constitutes management’s review of the factors that affected the Company’s financial and operating performance for the three and twelve months ended December 31, 2016. References to “Guyana Goldfields” in this MD&A refer to the Company and its subsidiaries taken as a whole. This MD&A should be read in conjunction with the audited consolidated annual financial statements and the related notes for the year ended December 31, 2016, which have been prepared in condensed format in accordance with International Financial Reporting Standards (“IFRS”) as applicable to the preparation of annual financial statements, including International Accounting Standard IAS (“IAS”) 34 Interim Reporting. The condensed consolidated annual financial statements should also be read in conjunction with the audited consolidated financial statements and the related notes for the twelve months ended December 31, 2015, together with the notes thereto which have also been prepared in accordance with IFRS. Results are reported in United States dollars, unless otherwise noted. Due to rounding, the sum of all the quarters may not add to the annual total and per ounce figures may not calculate based on the amounts presented. In the opinion of management, all adjustments (which consist only of normal recurring adjustments) considered necessary for a fair presentation have been included. Information contained herein is presented as at February 23, 2017 unless otherwise indicated. For the purposes of preparing this MD&A, management, in conjunction with the Board of Directors, considers the materiality of information. Information is considered material if: (i) such information results in, or would reasonably be expected to result in, a significant change in the market price or value of the Company’s common shares (“Common Shares”); or (ii) there is a substantial likelihood that a reasonable investor would consider it important in making an investment decision; or (iii) it would significantly alter the total mix of information available to investors. Additional information relating to the Company, including its Annual Information Form for the most recently completed fiscal year, is available on SEDAR at www.sedar.com. The Company is a reporting issuer under applicable securities legislation in each of the provinces of Canada and its outstanding Common Shares are listed on the Toronto Stock Exchange under the symbol “GUY”. COMPANY BUSINESS Guyana Goldfields is a Canadian-based company engaged in the investment, acquisition, exploration, development and operation of mineral property interests, principally gold resource properties in Guyana, South America. The Company’s primary focus is the production of gold from its 100% owned Aurora Gold Mine (or “Aurora”), which commenced commercial production on January 1, 2016. The Company also holds a contiguous 216,995 acre land package located in the Aranka district of Guyana approximately thirty kilometres northeast of the Aurora Gold Mine, known as the “Aranka Properties” which consist of a number of separate properties including Sulphur Rose. The Company has a 100% interest in the Aranka Properties, subject to a net smelter royalty (“NSR”) that varies from 1.5% to 2% or fixed payments in lieu thereof at the option of the Company. In addition, within an area located northeast from the Aurora Gold Mine, the Company also holds a 100% interest in certain additional properties known as the “Other Properties”, subject to a 1.5% NSR or a fixed payment in lieu thereof at the option of the Company. -3- 2016 YEAR IN REVIEW 2016 was a transformational year for Guyana Goldfields with the Company making the significant leap from developer to producer. In an industry where many of our peers stumble during this transition, the Company negotiated this progression smoothly building the Aurora mine on time and on budget with commercial production being declared on January 1, 2016. In its first year of operation, the mine performed strongly delivering total production of 151,600 ounces, meeting its upwardly revised guidance of 140,000 to 160,000 ounces. Operating cash costs (before royalties) of $496 per ounce sold were also in-line with guidance and confirmed the Company’s status as a lowest quartile cost producer. Behind the annual results though are more encouraging trends. An ongoing focus on and investment in operational improvements through the course of the year resulted in the fourth quarter for the Company being our best quarter in 2016 across all key operating and cost metrics. Mining throughput rates, mill throughput rates and operating costs on a per tonne and per ounce basis for the fourth quarter were all new records. Importantly, the solid results in 2016 were achieved without any lost time injuries. The Company has also demonstrated an excellent environmental track record to date and continues to benefit from strong relationships with the local government and communities. Combined with an uptick in the gold price in 2016, the Company’s strong operational results for the year delivered meaningful free cash flow to the balance sheet. This cash in conjunction with an equity raise in July of 2016 has not only significantly reduced the Company’s liquidity risk but also afforded the Company a strong platform from which to grow. At the end of 2015, the Company had a working capital deficit of $19.4 million and total debt outstanding of $144.8 million. At the end of 2016 the Company had a positive working capital balance of $111.4 million and a net debt balance of $78.4 million following the successful debt restructuring in the fourth quarter (see “Financial Condition”). Importantly, this restructuring lowered the cost of our debt, freed up a significant amount of restricted cash and removed various covenants and restrictions. Looking forward, and backed by strong operational momentum and a solid balance sheet, the Company will focus on three key areas: (i) Operational efficiencies - looking to 2017, there are still obvious opportunities to drive further cost efficiencies. The transition from rental equipment to Company owned equipment and the move to bulk emulsion explosives, both of which should be completed in the second quarter of this year, should deliver significant savings on our mining costs. Additionally, there should also be meaningful cost savings from the shift from contractor to owner operator for our logistics fleet. (ii) Production growth - on February 2, 2017, the Company released an updated feasibility study (the “2017 Feasibility Study” as defined below) that reflected an expansion of the mill from 5,600 tonnes per day to 8,000 tonnes per day. The proposed expansion of the mill is expected to be completed in two phases and increase annual production to above 200,000 ounces beginning in 2018 for the life of the mine with gold production expected to peak at 303,000 ounces in 2021. See “Technical Information”. (iii) Exploration - After a lengthy hiatus during the financing and development period of the Aurora Gold Mine, exploration activity is expected to ramp up significantly in 2017 with a focus on both brownfield and greenfield targets. Drilling is expected to begin on brownfield targets in the first quarter of the year and greenfield targets in the second half of the year. Exploration success in finding saprolitic ore on these targets has the potential to extend open pit production and defer the second phase of the mill expansion. 1 This is a non-IFRS measure. Refer to “Non-IFRS Performance Measures” section in this MD&A -4- In its first year of operation, it is the Company’s view that the Aurora mine has confirmed its status as a scarce, high quality asset. Current reserves at Aurora stand at 3.5Moz at an average grade of 3.0 g/t Au which equates, according to the 2017 Feasibility Study, to a 15-year mine life with average annual production of 220,000 ounces at an average operating cash cost of $612 per ounce (including royalties). With a long mine life ahead, a growth plan in place and with exploration activities ramping up, the Company is excited about its future prospects. 2016 HIGHLIGHTS  In its inaugural year of production, the Aurora Gold Mine performed solidly delivering 151,600 ounces of gold production, in-line with the Company’s guidance.  Revenues totaled $194.2 million, earnings from mine operations came in at $71.1 million and cash flow from operations totaled $76.5 million or $0.47 per diluted share.  Cost of sales (including royalty and depreciation) for the year averaged $789 per ounce of gold sold. Cash costs (before royalty)1 trended down through 2016 and averaged $496 per ounce for the year. All-in sustaining costs1 for the year were $738 per ounce, slightly below the Company’s revised guidance range $740 to $760 per ounce.  The Company completed an equity financing and debt restructuring during the year resulting in a much strengthened balance sheet with $73.2 million of cash and a debt balance of $78.4 million at year end.  The Company reported an unrealized gain of $20.7 million for the year on its 7.2% interest in SolGold Plc (“SolGold”) which owns an 85% interest in the Cascabel Copper Gold Porphyry project located in Ecuador. The unrealized gain as at the date of this MD&A is $48.5 million. FOURTH QUARTER 2016 HIGHLIGHTS  The Aurora Gold Mine had a particularly strong fourth quarter producing 43,800 ounces of gold, an increase of 27% from 34,400 ounces in the prior quarter driven by higher grades and mill throughput.  The Company generated $23.5 million of operating cash flow during the fourth quarter, making it the strongest quarter for cash flow generation to date and demonstrating a significant increase on the $13.8 million of operating cash flow in the prior quarter.  Cost of sales (including royalty and depreciation) improved for the fourth quarter to $750 per ounce (compared to $811 per ounce in the prior quarter). Cash costs (before royalty)1 of $446 per ounce and All-in sustaining costs1 of $678 per ounce in the fourth quarter were both new records for the Company.  Net earnings of $3.4 million ($0.02 cents per diluted share). Fourth quarter earnings were negatively impacted by a non-recurring non-cash charge of $7.3 million ($0.04 cents per diluted share) that relates to the debt restructuring which was completed during the period.  The Company successfully refinanced its $160 million debt facility to a new $80 million debt facility at a lower interest rate, no cash sweeps and the release of $23 million of restricted cash. 1 This is a non-IFRS measure. Refer to “Non-IFRS Performance Measures” section in this MD&A -5- 2016 & FOURTH QUARTER 2016 HIGHLIGHTS (in thousands of dollars, except ounces, per ounce and per share figures) Ounces produced Ounces sold Revenues Earnings from mine operations Earnings (loss) before tax Net earnings Net earnings per diluted share Comprehensive income Cash flow from operating activities Cash and cash equivalents Restricted cash Debt Total Assets 2016 151,600 156,000 $ 194,153 $ $ $ $ $ $ $ $ $ 71,099 44,462 26,985 0.16 47,683 76,534 73,151 1,184 78,413 $ 438,835 Realized gold price per ounce $ 1,245 $ Cost of sales per ounce Cash costs per ounce before royalty1 $ All-in sustaining costs per ounce 1 $ 789 496 738 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Year ended December 31 2015 Three months ended December 31 2016 2015 - $ 54,809 $ - - - $ - $ (8,873) $ 20,063 $ 0.13 $ 20,063 $ (4,927) $ 12,899 $ 27,272 $ 144,760 $ 367,391 $ 2014 - - - $ (12,807) $ (12,807) $ (0.09) $ (12,807) $ (12,110) $ 17,211 $ 33,311 $ 62,417 $ 253,925 $ 43,800 45,500 20,673 $ 9,379 $ 3,405 $ 0.02 $ 14,215 $ 23,267 $ 73,151 $ 1,184 $ - - - - (3,663) 25,273 0.16 25,273 (4,785) 12,899 27,272 78,413 $ 438,835 $ 144,760 367,391 - - - - - $ - $ - $ - $ 1,204 $ 750 $ 446 $ 678 $ - - - - OUTLOOK 2017 Guidance Gold production (000’s ounces) 160-180 Cost of sales (production costs, royalty & depreciation) ($ per ounce) $800-$850 Cash cost1, excluding royalty ($ per ounce) All-in sustaining1 (“AISC”) ($ per ounce) $500-$550 $775-$825 The Company's production and cost guidance for 2017 is provided above. Due to mine sequencing gold production is expected to be slightly higher in the second half of the year relative to the first half. Similarly, due to the timing of sustaining capital expenditures, all-in sustaining costs are expected to be higher in the first half of the year relative to the second half. The royalty cost is based on an assumed gold price of $1,200 per ounce. 1 This is a non-IFRS measure. Refer to “Non-IFRS Performance Measures” section in this MD&A -6- The Company is well positioned financially to grow near-term production and ramp up exploration with a cash balance of $73.2 million at year end versus a total debt balance of $78.4 million. The Company issued the 2017 Feasibility Study (entitled “Independent Technical Report Updated Feasibility Study, Aurora Gold Mine Project” with an effective date of December 31, 2016) on February 2, 2017, that reflected an expansion of the current processing facility from 5,600 tonnes per day (“tpd”) to 8,000 tpd based on a two phased approach. The first phase will increase the throughput rate from 5,600 tpd to 8,000 tpd incorporating a saprolite portion of the mill feed of between 25% and 50%. The first phase of the expansion is expected to commence later this quarter and be completed by the end of the first quarter of 2018 at a capital cost of approximately $21.4 million. The second phase of the expansion will allow the processing of 8,000 tpd hard rock and is expected to commence in mid-2018 and be completed by mid-2019 when the majority of saprolitic ore has been exhausted. The expected capital cost of the second phase is approximately $26.9 million. The key results of the 2017 Feasibility Study are summarized below. Exploration efforts are expected to ramp up significantly in 2017 with drilling activity to commence at both near mine targets in the first quarter of the year and greenfield targets in the second half of the year. 2017 Feasibility Study The 2017 Feasibility Study assumed a gold price of $1,200 per ounce and reflected an expansion of the processing facility from 5,600 tpd to 8,000 tpd. Key highlights from the study include:  Mineral Reserves increased to 3.5 Moz, up 15% from the previous reserve estimate with a higher assumed gold price more than offsetting depletion from 15 months of operations  Average annual production of 220,000 ounces over a 15-year mine life at an average cash cost of $612 per ounce (including royalties)  Average head grade of 2.99 g/t Au over the life of the mine  Net present value (“NPV”) of $850 million at a discount rate of 5%  Open pit mining ongoing through to 2024. Development of the underground operation is scheduled to commence in 2022 with first production expected in 2024.  Mill Expansion Phase 1:  Debottlenecking of the back end of the circuit  Expected to increase throughput from 5,600 tpd to 8,000 tpd based on a saprolite/hard rock blend with a concurrent improvement in recoveries of ~1%  Expected completion by end of the first quarter of 2018 at a capital cost of $21.4 million  Mill Expansion Phase 2:  Addition of a ball mill resulting in increased recoveries of a further 1% to 2%  Expected to allow the processing of 8,000 tpd of hard rock  Expected completion by mid-2019 at a capital cost of $26.9 million  Both phases are fully permitted and are expected to be funded internally Reserves & Resources The Company has updated its Mineral Reserves for its Aurora Gold Mine utilizing a gold price of $1,200 per ounce and an effective date of December 31, 2016. Overall reserves increased by 15% to 3.5 Moz -7- compared to the most recent reserve estimate which had an effective date of September 30, 2015 and utilized a gold price of $1,000 per ounce. Aurora Gold Mine Mineral Reserves Effective December 31, 2016 ($1,200/oz Au) Quantity (‘000 t) Grade (g/t Au) Contained Metal (‘000 oz) 336 4,864 5,200 2,934 12,128 16,519 31,580 36,781 1.60 2.99 2.90 1.91 3.02 3.19 3.01 2.99 17 468 485 180 1,178 1,694 3,052 3,537 Category Proven OP Saprolite OP Rock Total Proven Probable OP Saprolite OP Rock UG Rock Total Probable Total P&P Notes: 1. Mineral Reserves are based on a gold price of US$1,200 per ounce, 8% royalty and an average metallurgical recovery of 96.0% for saprolite and 94.0% for fresh rock material. 2. Open pit saprolite and rock reserves are reported at a cut-off grade of 0.44 g/t Au and 0.42 g/t Au for vein and upper saprolite material respectively. Open pit rock reserves are reported at a cut-off grade of 0.76 g/t Au and 0.64 g/t Au for vein and Rory’s Knoll rock material respectively. 3. Underground fresh rock reserves are reported at a cut-off grade of 1.5 g/t Au. 4. Mineral Reserves are contained within Mineral Resources. 5. SRK Consulting (Canada) Inc. is not aware of mining, metallurgical, infrastructure, permitting, or other factors that could materially affect the mineral reserve estimates. KEY PERFORMANCE DRIVERS & TRENDS The price of gold is the largest single factor in determining the Company’s profitability and cash flow from operations. Historically, the price of gold has been subject to volatile price movements over short periods of time and is affected by numerous macroeconomic and industry factors that are beyond the Company’s control. Major influences on the gold price include currency exchange rate fluctuations and the relative strength of the U.S. dollar, the supply of and demand for gold and macroeconomic factors such as the level of interest rates and inflation expectations. The price of gold in 2016 based on the London Bullion Market Association PM Fix is summarized in the chart below. The gold price averaged $1,251 per ounce for the year with prices peaking in the third quarter before pulling back in the fourth quarter to an average price of $1,218 per ounce. Subsequent to December 31, 2016, the price of gold has mostly been in a trading range between $1,200 per ounce and $1,250 per ounce. The Company has not entered into any gold hedging programs. -8- Other key performance drivers include production volumes and costs which are further discussed below. MINE OPERATING RESULTS KEY OPERATING STATISTICS Ore mined Waste mined Total Mined Strip ratio Tonnes mined per day tonnes tonnes tonnes waste:ore tpd 2016 2,507,200 5,700,900 8,208,000 2.3 22,400 Q4 2016 688,000 1,899,800 2,587,800 2.8 28,100 Q3 2016 642,200 1,315,100 1,957,300 2.0 21,300 Q2 2016 623,400 1,076,700 1,700,100 1.7 18,700 Q1 2016 553,600 1,409,300 1,962,900 2.5 21,600 Ore processed Tonnes processed per day Head grade Recovery Mill utilization Gold Produced Gold Sold Average Realized Gold Price tonnes tpd g/t Au % % ounces ounces $/ounce 1,889,000 5,200 507,500 5,500 491,200 5,300 427,700 4,700 462,600 5,100 2.74 90.2 89.1 151,600 156,000 1,245 2.94 90.6 87.3 43,800 45,500 1,204 2.42 88.7 89.9 34,400 33,300 1,334 2.61 91.1 90.2 32,000 36,600 1,269 3.07 89.2 89.0 41,300 40,500 1,196 Gold Production The Company had a strong fourth quarter, producing 43,800 ounces, its best quarter for the year. Throughput levels continue to improve, averaging 5,500 tpd in the quarter, and, due to mine sequencing, there was also an uptick in the average head grade relative to the prior quarters. Gold produced for the year totalled 151,600 ounces, which was in line with the Company’s upwardly revised guidance of 140,000 to 160,000 ounces. -9- 1,0001,0501,1001,1501,2001,2501,3001,3501,400Jan-16Feb-16Mar-16Apr-16May-16Jun-16Jul-16Aug-16Sep-16Oct-16Nov-16Dec-16Gold PriceAverage quarterly realized price - 10 20 30 40 501Q 20162Q 20163Q 20164Q 2016Gold Production (koz) Mining Activities Rory’s Knoll contributed approximately 80% of the mined ore during the fourth quarter with the remainder being sourced from Aleck Hill, all of which was saprolite. The daily mining rate, which averaged 28,100 tpd during the period, showed steady increases relative to the prior two quarters. Heavy rains, particularly in December, were mitigated effectively through pit dewatering efforts and did not impact overall mine production. Pre- development and stripping activities of the saprolite for the second phase of Rory’s Knoll and at Aleck Hill was ongoing during the quarter. The stripping ratio of 2.8:1 during the period was roughly in line with budgeted levels. For the year, the average mining rate was 22,400 tpd at a strip ratio of 2.3. The delivery of the bulk emulsion explosives truck is expected by the end of the first quarter of 2017 and should deliver meaningful cost savings from the second quarter of 2017 onwards. The Company is also expanding its mining fleet in the first half of the year with the addition of new trucks, drills and excavators to accommodate higher mining rates related to an increase in the strip ratio in 2017. The expanded fleet will also eliminate the current reliance on rental equipment which should translate to lower mining costs on a per tonne basis. Processing Activities The mill processed a record 507,500 tonnes or 5,500 tpd in the fourth quarter. This was achieved despite a lower mill utilization rate in the quarter of 87.3% related to three days of downtime to replace SAG mill liners and repair work on the trash and trommel screens in November. Gold recoveries increased from 88.7% in the third quarter to 90.6% in the fourth quarter. This was largely attributable to an improvement in grind size related to a higher proportion of saprolite ore being fed to the mill in the quarter (~22% versus 15% in the prior quarter). The mill performed strongly in its first full year of operation with throughput averaging 5,200 tpd in 2016 at an average recovery of 90.2%. Mill performance at the start of 2017 has been especially strong with an average throughput rate of 6,100 tpd achieved in January, a monthly record for the Company. As of December 31, 2016, there were approximately 3,210 contained ounces of gold in circuit with an additional 2,718 ounces in doré inventory ready to be refined. -10- - 5,000 10,000 15,000 20,000 25,000 30,0001Q 20162Q 20163Q 20164Q 2016Mining Rate (tpd) - 0.50 1.00 1.50 2.00 2.50 3.00 3.50 - 1,000 2,000 3,000 4,000 5,000 6,0001Q 20162Q 20163Q 20164Q 2016(Au g/t)(tpd)Mill ThroughputRock OreSaprolite OreMill Head Grade Cash Costs & AISC for Cost of sales (including depreciation & royalties) were $750 per ounce in the fourth quarter and $789 per ounce the year. Production costs (mining, processing and site G&A costs) in 2016 were $77.4 million for the year. This equates to an operating cash cost of $496 per ounce of gold sold1, which is in line with the Company’s guidance of $487 to $537 per ounce of gold sold. Fourth quarter production costs were $20.3 million or $446 per ounce of gold sold. This cost performance continued the downward trend on a cost per ounce of gold sold basis through the course of the year. The main drivers behind this trend were lower general and administrative expenses at the mine site, as the operation reached steady state levels, and lower mining costs, due to improved availability and utilisation of mining equipment as well as a lower reliance on more expensive rental equipment. Total cash costs1 for 2016 including the royalty expense of $15.5 million were $595 per ounce of gold sold. Total cash costs for the fourth quarter including the royalty expense of $4.4 million were $542 per ounce of gold sold, significantly below the average for the nine months ending September 30, 2016, of $617 per ounce of gold sold, driven primarily by lower production costs as discussed above. All-in sustaining costs1 were $678 per ounce in the fourth quarter, a significant drop from the previous quarter of $796 per ounce. Total sustaining capex in the quarter was $3.9 million with $3.6 million of this related to deferred stripping at Rory’s Knoll and Aleck Hill. All-in sustaining costs1 for the year were $738 per ounce, slightly below revised guidance of $740 to $760 per ounce. FULL YEAR & FOURTH QUARTER 2016 FINANCIAL RESULTS Commercial production at the Aurora Gold Mine commenced on January 1, 2016, and hence there are no comparable 2015 financial results for revenue – metal sales, cost of sales and net finance expense. Revenue – metal sales The Company generated revenue of $194.2 million in 2016 based on 156,000 ounces of gold sold at an average realized price of $1,245 per ounce. Fourth quarter revenues of $54.8 million were particularly strong due to a record quarter of 45,500 ounces of gold sold at an average realized price of $1,204 per ounce. 1 This is a non-IFRS measure. Refer to “Non-IFRS Performance Measures” section in this MD&A. -11- 4006008001,0001,2001,4001Q 20162Q 20163Q 20164Q 2016($/oz)Costs per Ounce vs Gold PriceAISCOperating Cash CostRealized Au PriceGAAP Cost of Sales Cost of sales Cost of sales for 2016 totaled $34.0 million for the fourth quarter and $123.0 million for the year. Cost of sales are comprised of royalties, depreciation and production costs (which have been previously discussed), and on a per ounce of gold sold basis were $750 for the fourth quarter and $789 for the year. Depreciation expense associated with fourth quarter mining activities was $9.4 million compared to $6.8 million in the third quarter of 2016. This increase in depreciation expense was attributable to the higher amount of gold ounces sold in the fourth quarter. Depreciation expense for 2016 was $30.2 million. Corporate general & administrative expenses Corporate general and administrative expenses were $5.7 million in 2016 compared to $4.3 million in the prior year. Included in these costs are salaries and benefits, professional fees, shareholder relations and filing fees, as well as other expenditures associated with operating the Canadian corporate office. The increase in expense is primarily attributable to the capitalization in the prior year of salaries and benefits of management associated with development activities at the Aurora Gold Mine, prior to commercial production. For the fourth quarter of 2016 corporate general and administrative expenses were $1.1 million, roughly in line with corporate general and administrative expenses of $1.0 million in the comparable quarter last year. Exploration and Evaluation Expenses Exploration and evaluation expense for the year ended December 31, 2016 was $1.4 million, roughly in line with exploration expenses of $1.6 million in 2015. There was a slight uptick in exploration expenditures in the fourth quarter to $0.5 million (compared to $0.2 million in the fourth quarter of 2015) as compilation and mapping activity proceeded up ahead of planned drill programs in 2017. Net Finance (Expense) Income The net finance expense in 2016 was $9.2 million for the fourth quarter and $17.7 million for the year. The large increase in the fourth quarter relates to a non-recurring, non-cash charge of $7.3 million resulting from the previously capitalized financing fees remaining on the balance sheet being charged to net earnings as part of the debt restructuring. Net earnings (loss) Net earnings for the fourth quarter of 2016 amounted to $3.4 million ($0.02 cents per diluted share), compared to net earnings of $25.3 million ($0.16 per diluted share) for the comparable quarter last year. Fourth quarter earnings were negatively impacted by the non-recurring non-cash charge of $7.3 million ($0.04 cents per diluted share) as previously discussed. Net earnings for 2016 totaled $27.0 million, compared to 2015 net earnings of $20.1 million ($0.13 per diluted share). The 2015 net earnings were boosted by a non-cash recognition of a deferred tax asset of $28.9 million ($0.19 per diluted share). Comprehensive Income The Company reported a comprehensive income of $14.2 million in the quarter and $47.7 million for the year, versus a comprehensive income of $25.3 million and $20.1 million for the comparable quarter and year in 2015, respectively. The difference between Net Earnings and Comprehensive Income for the fourth -12- quarter and year in 2016 is attributable to a $10.8 million unrealized gain in the fourth quarter and $20.7 million unrealized gain for the year on available for sale securities (see “Liquidity and Capital Resources” for more details). In 2015, Net Earnings and Comprehensive Income were equal. EXPLORATION ACTIVITIES Exploration activities during the fourth quarter consisted of mapping and assessment work at brownfield targets proximal to the Aurora Gold Mine as well as at the Company’s Sulphur Rose deposit, located approximately 20km to the northeast of the Aurora Gold Mine. Drilling is expected to commence on brownfield targets by the end of the first quarter. Initial drilling will be focused on the North West Aleck Hill target. Mapping and assessment work will also be ongoing through 2017 on other brownfield targets on the Aurora Gold Mine concession. The Company completed a ground IP and magnetics survey during the fourth quarter at Sulphur Rose. Field work to follow-up on anomalies generated by the survey will be conducted in the first quarter with a goal of defining drill targets. Geochemical soil sampling and additional assessment work is also being completed at Wynamu, located approximately 30 km to the north of Sulphur Rose, ahead of a planned drill program ramping up later this year. EQUITY FINANCING – JULY 2016 On July 19, 2016, the Company closed a public offering (the “Offering”) on a bought deal basis of 12,830,000 Common Shares from treasury at a price of $7.22 (Cdn$9.40) per Common Share. On August 22, 2016, the Company closed the exercise of the over-allotment option and issued an additional 1,500,000 Common Shares at a price of $7.26 (Cdn$9.40) per Common Share. Gross proceeds on closing, including the over-allotment, were $103.5 million (Cdn$134.7 million). Issuance costs of $5.6 million (Cdn$7.3 million) represent underwriters’ commission relating to the Offering, as well as legal and regulatory costs. The net proceeds of the Offering, including the over-allotment, totalled $97.8 million and were expected to be used to fund a planned expansion of the Aurora Gold Mine that is anticipated to increase capacity from 5,000 tpd to 8,000 tpd, for expanded exploration activities, for debt repayment, for general corporate purposes, and may also include opportunistic investments in Guyana and elsewhere, all subject to board and lender approval. As part of the debt restructuring the Company paid down its debt balance by $55.7 million in the fourth quarter. For the first phase of the mill expansion, the 2017 Feasibility Study assumed a capital cost of $21.4 million for the first phase of the mill to be spent in 2017 and the first quarter of 2018. The study also assumes an expansion of the mine fleet in 2018 at a cost of approximately $24.3 million. Exploration expenditures of $0.5 million in the fourth quarter were relatively modest, however investment in exploration in 2017 is expected to increase significantly with the commencement of drilling activity in the first quarter. Although the Company intends to expend the net proceeds from the Offering as set forth above, there may be circumstances where for sound business reasons, a reallocation of funds may be deemed prudent or necessary, and may vary materially from that set forth above. -13- FINANCIAL CONDITION (In thousands of dollars) Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Shareholders’ equity Total liabilities and equity December 31, 2016 December 31, 2015 $ $ $ $ 145,366 293,469 438,835 33,923 68,068 101,991 336,844 438,835 $ $ $ $ 42,449 324,942 367,391 61,864 121,711 183,575 183,816 367,391 The financial condition of the Company has strengthened significantly from a working capital deficit of $19.4 million as at December 31, 2015, to a positive working capital balance of $111.4 million as at December 31, 2016. This has been driven by both an increase in current assets and a decrease in current liabilities as outlined below. Current assets have increased by $102.9 million year to date to $145.4 million. This increase can be attributed to the Offering completed in July 2016, free cash flow generation, an increase in value in the Company’s SolGold investment as well as the transfer of $15.5 million in gold, parts and supplies inventory for the Aurora Gold Mine that was previously included within development costs as at December 31, 2015. The decrease in current liabilities of $27.9 million in 2016 to $33.9 million is driven by a $26.7 million reduction in accounts payable and accrued liabilities related to the Aurora Gold Mine development period including the payment of all amounts owing under the engineering, procurement and construction contract (“EPC Contract”) ($18.0 million for the year). In addition, there was also a decrease in the current portion of long-term debt of $8.4 million related to the debt restructuring. The most significant liability on the Company’s balance sheet is the Company’s project loan facility for the Aurora Gold Mine. The original project loan facility was signed September 2, 2014, to provide for a $160.0 million loan with a maximum term of eight years at a weighted average interest rate of 3-month LIBOR plus 5.11%. On December 21, 2016, the Company announced that it had successfully refinanced this facility to a new project loan facility (“New Facility”). The New Facility amounts to $80 million and contemplates sixteen (16) quarterly principal repayments of $5 million each over a period of four (4) years beginning March 31, 2017. Various covenants and restrictions have been removed including the release of $23 million of restricted funds held by the Lenders in the Overrun Equity Account, the elimination of cash sweeps, and a reduction of 1.3% in the interest rate compared to the original loan facility. There is no required gold hedging or other required similar provisions associated with the New Facility and the Company is in compliance with all key covenants under the New Facility as of the date of this MD&A. As at December 31, 2016, $80.0 million of principal was outstanding under the New Facility (current portion of $20.0 million and non-current portion of $60.0 million). Shareholders’ equity has increased by $153.0 million in 2016 to $336.8 million, substantially driven by the Offering completed in July 2016 and by comprehensive income of $47.7 million for the year. -14- LIQUIDITY & CAPITAL RESOURCES The Company finished the year with a cash balance of $73.2 million. This strong cash position provides the Company with ample capacity to meet its most significant near-term liquidity requirements which consist of capital purchase requirements of $14.7 million, scheduled principal debt repayments of $20.0 million over the next 12 months ($5.0 million per quarter) and expected capital expenditure requirements of $21.4 million in 2017 and the first quarter of 2018 for the phase one expansion of the mill. Operating Cash Flows The Company generated $23.5 million of operating cash flow during the fourth quarter, making it the strongest quarter for cash flow generation to date and demonstrating a significant increase on the $13.8 million of operating cash flow in the prior quarter. The primary driver behind this increase was the strong operational results posted in the fourth quarter as previously discussed. For 2016, the Company generated $76.5 million of operating cash flow. In 2015, the Company’s Aurora Gold Mine was not in commercial operations, and as such had negative cash flows from operations for the year of $4.9 million. Financing Activities For 2016, total cash from financing activities was $26.6 million. The primary drivers behind this were a cash inflow of $103.5 million from the Offering which was offset by principal debt repayments of $75.7 million. Total cash from financing activities in the fourth quarter was an outflow of $56.9 million. This primarily related to the debt restructuring and establishment of the New Facility which resulted in principal debt repayments of $55.7 million for the period. For the year ending December 31, 2015, the Company received cash inflow from financing activities of $91.2 million that came from advances under the former loan facility of $87.1 million to enable the construction of the Aurora Gold Mine and proceeds from the exercise of stock options of $4.2 million. Investing Activities Cash from Investing Activities was an inflow of $1.7 million for the fourth quarter. There was a significant cash inflow of $22.0 million that was released from the Company’s restricted cash accounts following the debt restructuring. This was offset an additional $3.5 million investment in SolGold, $3.6 million on deferred stripping and $3.0 million on additions to Property, Plant & Equipment. During the quarter, the Company also spent $8.7 million on the acquisition of a modular 1,000 tpd processing plant and a 6MW power plant. The power plant will be sufficient to meet the additional power needs associated with the new ball mill which is to be installed in the second phase of the proposed mill expansion while the modular plant has the potential to be used at some of the Company’s satellite deposits pending exploration success. The modular plant was originally designed and built for the Hope Bay project in Canada and consists of a primary crusher, ball mill, gravity circuit, leach circuit and flotation circuit. The modular plant has never been used while the power plant was only in operation for approximately 18 months before being put on care and maintenance. The majority of the parts and equipment associated with the modular plant have been shipped and are currently in storage at the Company’s Buckhall facility near Georgetown. The power plant is undergoing routine testing in Canada and is expected to be shipped to Guyana later this year. -15- During the third quarter, the Company purchased 81.3 million shares of SolGold at $0.08 per share for total consideration of $6.5 million pursuant to SolGold’s capital raising that closed on September 2, 2016. In the fourth quarter, the Company purchased an additional 21.9 million shares of SolGold at $0.16 per share for total consideration of $3.5 million pursuant to an additional capital raising that closed on October 17, 2016. In aggregate, the Company owns a 7.2% interest in SolGold’s issued share capital as of the date of this MD&A. SolGold owns an 85% interest in the Cascabel Copper Gold Porphyry project located in Ecuador. The Company believes Cascabel has the potential to be a world-class copper gold porphyry deposit based on the significant high grade intercepts of gold and copper mineralization from initial drilling at the project. The Company reported an unrealized gain of $10.8 million on its investment in the fourth quarter. At the date of this MD&A, the unrealized gain is $48.5 million. The acquired shares of SolGold will be held for investment purposes. The Company may, from time to time, increase or decrease its ownership on SolGold depending on market and other conditions. In 2016, Cash from Investing Activities was an outflow of $42.7 million. This included $25.3 million related to the reduction of accounts payable and accrued liabilities related to the development of the Aurora Gold Mine, $27.2 million on property, plant and equipment, and $10.0 million on the SolGold investment. This was offset by the release of $26.0 million of restricted cash as previously discussed. In 2015, there was a cash outflow from investing activities of $90.1 million. The key component of this outflow was $105.5 million spent on the development costs associated with the construction of the Aurora Gold Mine. Liquidity Outlook The Company anticipates that its mine operations will generate sufficient working capital and cash flow to cover operating requirements for the next twelve months, including principal debt and interest repayments. COMMITMENTS & CONTINGENCIES The Mineral Agreement and Mining Licence for the Aurora Gold Mine require the Company to undertake various obligations and commitments over the twenty-year life of the agreements. The Company is in compliance in all material respects with all terms and conditions of the Mining Licence and Mineral Agreement for the Aurora Gold Mine. The government of Guyana has the right to terminate the agreements in the event of default by written notice to the Company, subject to a dispute resolution process involving arbitration. -16- The Company is currently committed to $101.4 million for purchase obligations, contractual commitments and operating leases, as follows. (in thousands of dollars) Total 2017 2018 2019 2020 80,000 20,000 20,000 20,000 20,000 4,000 1,050 1,000 458 14,695 14,695 1,686 436 1,000 458 - 436 1,000 84 - 436 1,000 50 - 243 $ 101,431 $ 36,589 $ 21,894 $ 21,520 $ 21,293 $ Debt principal repayments Mine closure funding Other contractual commitments Capital purchase commitments Operating leases Total Commitments At December 31, 2016 There- after - - 135 135 The Company has entered into derivative contracts in order to manage its exposure to fluctuations in the market price of diesel. The following is a summary of the Company’s commitments for diesel forward contracts at December 31, 2016: (In thousands of dollars other than per litre amounts) 2017 2018 2019 Total Contracted operating expenses 5,464 $ Number of litres hedged 12,000,000 Average rate per litre 0.46 5,888 3,436 13,400,000 8,200,000 $ 14,788 33,600,000 $ 0.41 0.48 0.44 The diesel commodity swap forward contracts are secured under the Project Facility and documented in the form of an International Swap and Derivatives Association (“ISDA”) master agreement. Fair value estimates for derivative contracts are based on quoted market prices provided by a financial institution and represent the amount the Company would have received from, or paid to, a counterparty to unwind the contract at the market rates in effect at the consolidated balance sheet date. The fair value of derivative instruments is as follows: (In thousands of United States dollars) Diesel forward contracts – net derivative liability December 31, 2016 December 31, 2015 $ 1,092 $ (2,320) -17- SUMMARY OF QUARTERLY FINANCIAL RESULTS (Expressed in thousands of dollars except per share and ounce amounts). (Quarterly results are unaudited) 2016 Q4 Q3 Q2 Q1 Q4 Gold ounces produced 43,800 34,400 32,000 41,300 35,600 Gold ounces sold 45,500 33,300 36,600 40,500 28,900 Metal sales A Cost of sales $ 54,809 44,403 46,411 48,530 Production costs 20,320 16,615 19,167 21,284 Royalty Depreciation 4,374 9,442 3,540 6,841 3,701 7,924 3,869 5,977 Total cost of sales $ 34,136 26,996 30,792 31,130 20,673 14,777 15,619 17,400 - - - - - - Earnings from mine operations Net expenses B 2015 Q3 300 - - - - - - - Q2 Q1 - - - - - - - - - - - - - - - - (2,064) (2,630) (2,464) (1,798) (1,544) (1,734) (2,013) (1,873) Net finance (expense) income (9,231) (2,835) (1,508) (4,107) (2,119) 253 198 (41) Deferred tax (expense) recovery Net earnings (loss) Earnings (loss) per share: Basic Diluted (5,973) (3,021) (4,005) (4,478) 28,936 - - - $ 3,405 8,921 7,642 7,017 25,273 (1,481) (1.815) (1,914) $ $ 0.02 0.02 0.05 0.05 0.05 0.05 0.05 0.04 0.16 0.16 (0.01) (0.01) (0.01) (0.01) (0.01) (0.01) A All metal sales prior to commercial production were credited against capitalized Aurora Gold Mine assets under development, a B component of mineral properties, plant and equipment. Includes corporate general and administrative expenses, exploration and evaluation expenses, stock based compensation, and non-mine related depreciation expense (as separately disclosed in the condensed consolidated interim financial statements). OUTSTANDING SHARE DATA At the date of this MD&A, the issued and outstanding Common Shares totalled 171,383,469. Options outstanding amounted to 8,014,844 at the date of this MD&A, each of which is exercisable to acquire one Common Share in accordance with the terms thereof. NON-IFRS1 PERFORMANCE MEASURES The Company has included certain non-IFRS performance measures in this MD&A. These measures are not defined under IFRS and should not be considered in isolation. The Company believes that these measures, together with measures determined in accordance with IFRS, provide investors with an improved ability to evaluate the underlying performance of the Company. The inclusion of these measures is meant to provide additional information and should not be used as a substitute for performance measures 1 IFRS – International Financial Reporting Standards -18- prepared in accordance with IFRS. These measures are not necessarily standard and therefore may not be comparable to other issuers. The Company has applied the World Gold Council’s June 2013 published guidance in reporting cash costs and all-in sustaining costs to its mining operations. Adoption of cash costs and all-in sustaining cost metrics is voluntary and not necessarily standard, and therefore, these measures presented by the Company may not be comparable to similar measures presented by other issuers. The Company believes that the cash costs and all-in sustaining cost measures complement existing measures reported by the Company. Total cash costs per ounce Total cash costs are a common financial performance measure in the gold mining industry but with no standard meaning under IFRS. The Company reports total cash costs on a sales basis. The Company believes that, in addition to conventional measures prepared in accordance with IFRS, such as sales, certain investors use this information to evaluate the Company’s performance and ability to generate operating earnings and cash flow from its mining operations. Management uses this metric as an important tool to monitor operating cost performance. Total cash costs include production and royalty costs. Production costs include mining, processing, refining and transportation, and site administration, and in total are then divided by gold ounces sold to arrive at total cash costs per gold ounce sold. This measure also includes other mine related costs incurred such as mine standby costs and any current inventory write downs. Production costs are exclusive of depreciation. Other companies may calculate these measures differently. The following table reconciles these non-IFRS measure to the December 31, 2016 consolidated interim statements of operations and comprehensive income (loss). (in thousands of dollars except ounces and per ounce calculations) Production costs (Cash costs) Divided by: Gold ounces sold Total cash costs per ounce - before royalty 2016 Q4 2016 Q3 2016 Q2 2016 Q1 2016 $77,386 156,000 $496 $20,320 45,500 $446 $16,615 33,300 $499 $19,167 36,600 $524 $21,284 40,500 $525 Cash costs - above Add royalty costs Total cash costs Divided by: Gold ounces sold Total cash costs per ounce $77,386 $15,484 $92,870 156,000 $595 $20,320 $16,615 $19,167 $21,284 $4,374 $24,694 45,500 $542 $3,540 $20,156 33,300 $605 $3,701 $22,868 36,600 $625 $3,869 $25,153 40,500 $620 Revenues – metal sales $194,153 $54,809 $44,403 $46,411 $48,530 Production costs Royalty Operating profit Divided by: Gold ounces sold Operating profit per ounce Operating profit margin $77,386 $15,484 $101,283 156,000 $649 52% $20,320 $16,615 $19,167 $21,284 $3,540 $24,248 33,300 $728 55% $3,701 $23,543 36,600 $644 51% $3,869 $23,377 40,500 $576 48% $4,374 $30,115 45,500 $661 55% -19- All-in sustaining cost per ounce “All-in sustaining cost per ounce” is also a non-IFRS performance measure. The Company believes this measure more fully defines the total costs associated with producing gold; however, this performance measure has no standardized meaning. Accordingly, there may be some variation in the method of computation of “all-in sustaining cost per ounce” as determined by the Company compared with other mining companies. In this context, the Company calculates AISC as the sum of total cash costs (as described above), share-based compensation, corporate general and administrative expense, exploration and evaluation expenditures that are sustaining in nature, reclamation cost accretion, sustaining capital including deferred stripping, and realized gains and losses on diesel derivative contracts, all divided by the gold ounces sold to arrive at a per ounce figure. Sustaining capital expenditures are expenditures that do not increase annual gold ounce production at a mine site and excludes expenditures at the Company’s development projects as well as expenditures that are deemed expansionary in nature. The following table reconciles these non-IFRS measure to the December 31, 2016 consolidated interim financial statements. (in thousands of dollars except ounces and per ounce calculations) Total cash costs – as above Sustaining capital (1) (2) Corporate general and administrative expenses Exploration and evaluation costs Stock based compensation Asset retirement obligation – accretion (3) Realized loss on diesel forward contracts (3) All-in sustaining costs Divided by: Gold ounces sold All-in sustaining costs per ounce 2016 Q4 2016 Q3 2016 Q2 2016 Q1 2016 $92,870 12,435 5,740 $24,694 3,924 1,065 $20,156 3,616 1,907 $22,868 1,126 1,618 $25,153 3,769 1,151 1,398 1,588 56 1,053 524 462 15 168 270 384 14 170 381 397 14 267 222 344 13 448 $115,139 156,000 $738 $30,851 45,500 $678 $26,516 33,300 $796 $26,671 36,600 $729 $31,100 40,500 $767 (1) 2016 sustaining capital balance reflects additions to mineral properties, plant and equipment in the consolidated interim statements of cash flows of $27.8 million, less costs of $15.3 million considered non-sustaining relating to major projects that will materially increase production. Comparable changes were made to first quarter amounts to reflect this methodology which resulted in a revision to first quarter all-in sustaining costs from $778 per ounce of gold sold to $767 per ounce sold. The Company considers the acquisitions in 2016 of new drills, excavators and haul trucks to be directly related to the development period of the Aurora Gold Mine, whereby these major capital additions were deferred to the commercial production period rather than requiring a draw-down of the Company’s cost overrun facility in 2015. The Company had supplemented its mining operations with the use of rental equipment since commencing with commercial production on January 1, 2016. (2) Sustaining capital for the 12 months ended December 31st 2016, and three months ended March 31st, 2016, includes $19 and $58 cost per ounce sold for the used Twin Otter airplane for local transport. (3) Included in net finance expense in the consolidated interim statements of operations and comprehensive income (loss) – See Note 13 -20- Operating cash flow per diluted share Operating cash flow per diluted share has been computed as follows: (in thousands of dollars except share and per share amounts) Operating cash flow Diluted weighted average number of common shares outstanding Operating cash flow per diluted share 2016 Q4 2016 Q3 2016 Q2 2016 Q1 2016 $76,534 164,318,183 $23,530 173,492,324 $13,802 169,959,869 $15,565 159,046,613 $23,637 157,475,484 $0.47 $0.14 $0.08 $0.10 $0.15 ADDITIONAL GAAP FINANCIAL PERFORMANCE MEASURES The Company has included the additional IFRS measure “Earnings from mine operations” in the financial statements. Management believes that that “Earnings from mine operations” provides useful information to investors as an indication of the Company’s principal business activities before consideration of how those activities are financed, and before sustaining capital expenditures, corporate general and administrative expenses, exploration and evaluation expenses, stock based compensation, non-mine related depreciation, net finance expenses, and taxation. RISK FACTORS The following list details existing and future material risks to the business of the Company. The risks described below are not listed in any particular order and are not exhaustive. Additional risks and uncertainties not currently known to the Company, or those that it currently deems to be immaterial, may become material and adversely affect the Company’s business. The realization of any of these risks may materially and adversely affect the Company’s business, financial condition, results of operations and/or the market price of the Company’s securities. Exploration, Development and Operating Risks Mining operations generally involve a high degree of risk. Guyana Goldfields’ operations are subject to all the hazards and risks normally encountered in the exploration, development and production of gold, including unusual and unexpected geologic formations, seismic activity, rock bursts, cave-ins, flooding and other conditions involved in the drilling and removal of material, any of which could result in damage to, or destruction of, mines and other producing facilities, damage to life or property, environmental damage and possible legal liability. Although adequate precautions to minimize risk will be taken, milling operations are subject to hazards such as equipment failure or failure of retaining dams around tailings disposal areas which may result in environmental pollution and consequent liability. The exploration for and development of mineral deposits involves significant risks which even a combination of careful evaluation, experience and knowledge may not eliminate. While the discovery of an ore body may result in substantial rewards, few properties which are explored are ultimately developed into producing -21- mines. Major expenses may be required to locate and establish Mineral Reserves, to develop metallurgical processes and to construct mining and processing facilities at a particular site. It is impossible to ensure that the exploration or development programs planned by Guyana Goldfields will result in a profitable commercial mining operation. Whether a mineral deposit will be commercially viable depends on a number of factors, some of which are: the particular attributes of the deposit, such as size, grade and proximity to infrastructure; metal prices which are highly cyclical; and government regulations, including regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals and environmental protection. The exact effect of these factors cannot be accurately predicted, but the combination of these factors may result in Guyana Goldfields not receiving an adequate return on invested capital. There is no certainty that the expenditures made by Guyana Goldfields towards the search and evaluation of mineral deposits will result in discoveries of commercial quantities of ore, or that future operations at the Aurora Gold Mine will be profitable. Licencing Matters Guyana Goldfields’ operations are subject to receiving and maintaining permits and licences from appropriate governmental authorities. Although Guyana Goldfields currently has all required permits and licenses for its operations as currently conducted, there is no assurance that delays will not occur in connection with obtaining all necessary renewals of such permits and licenses for the existing operations or additional permits or licenses for all future operations. There can be no assurance that Guyana Goldfields will continue to hold all permits and licenses necessary to develop or continue operating at any particular property, or that any such licenses or permits awarded will not be cancelled pursuant to applicable legislation. The interest of Guyana Goldfields in the Aurora Gold Mine is held through a MA and Mining Licence that sets out a tax regime and development and production framework. All other properties are held through property licences. The MA and Mining Licence for the Aurora Gold Mine require the Company to undertake various obligations and commitments over the twenty year life of the agreements. The government of Guyana has the right to terminate the agreements in the event of default by written notice to the Company, subject to a dispute resolution process involving arbitration. There can be no assurance that the Company will continue to be in compliance with all terms and conditions of the MA and Mining Licence or assurance that any dispute resolution process will decide in the Company’s favour. Geotechnical Risks Geotechnical risks are present for any mining operation. As part of the risk mitigation strategy, it was important to develop a design that has flexibility to address potential unexpected situations; such as hidden and undetected faults, or deviation from the ore body geometry etc., without major interruption to the mining process. The second important risk mitigation measure is the development and commissioning of comprehensive instrumentation and monitoring programs that will provide early warning and enable mine planners to develop an alternative approach. On February 2, 2017, the Company issued the 2017 Feasibility Study. For this report, Jarek Jakubec of SRK Consulting (Canada) Inc. was the Qualified Person responsible for the Geotechnical Engineering portion of the report. The following open pit geotechnical risks were noted in the report: -22-  Brittle Fault Location and Characterization – Currently, a model of the brittle fault features and large persistent joints expected behind the pit face in the region of the final pit does not exist. Local structure mapping has been conducted on site, however these observations have not been interpreted to extend behind the pit face to the planned interim or final wall locations. The structural model of the rock at the final pit wall location is an integral part of the overall slope design which must be reviewed against the likelihood of faults to avoid large scale slope failures ranging from multi-bench to inter-ramp scale. An improved understanding of the nature and location of any potential brittle fault features at the final pit wall locations should be undertaken as soon as possible. This is commonly achieved through the development of a 3D structural model. All slope designs and angles are contingent to their review against a fault model and should not be considered final until this reconciliation is complete. Pit slope designs may be governed by major structures.  Shear Zone Characterization (Aleck Hill) – The location and geotechnical nature (thickness, strength, etc) of the shear zones at the Aleck Hill pit are based on limited data. Additional boreholes should be drilled to allow for a more complete characterization of these zones. If the shears are found to be extensive, inter-ramp wall angles may be required to be flattened to accommodate for the foliation and weakened rock mass strength.  Wall Control Blasting – The angles provided within this document are based up best industry blasting practices in which wall control is of primary importance. Excessive blast damage will not allow for the achievement of the designed IRA’s. Bench heights may be reduced to 10m if necessary, however, bench widths should also be evaluated to keep the IRA’s in the design sectors similar. The underground geotechnical risks noted in the 2017 Feasibility Study were based on the review of historical data and observations on site and are outlined as follows:  Slope Stability – The current mine design includes open benching to the surface. Instability of the slopes above may lead to excess dilution in the underground mine. Due to their impact on the underground mine, the slopes should be designed to a FOS of 1.3 and above.  Brittle Fault Location and Characterization – Currently, a model of the brittle fault features and large persistent joints expected underground does not exist. Local structure mapping has been conducted on site, however these observations have not been interpreted to extend to the underground locations. An improved understanding of the nature and location of any potential brittle fault features at the underground mine locations should be undertaken as soon as possible. This is commonly achieved through the development of a 3D structural model.  Shear Zone Characterization (Aleck Hill) – The location and geotechnical nature (thickness, strength, etc) of the shear zones at the Aleck Hill pit are based on limited data. Additional boreholes should be drilled to allow for a more complete characterization of these zones. If the shears are found to be extensive, underground development and stope locations may be required to move or be reduced in size to accommodate for the foliation and weakened rock mass strength or an increase in ground support (and associated costs) will be required.  Water Inflow – Any changes in the location and geotechnical nature (thickness, strength, etc) of the shear zones at the Aleck Hill area may affect the local water inflow into the underground excavation. Additional costs may be associated with managing the water inflow.  Ore Geometry – ore geometry which is more complex than expected, may increase damage and dilution during production, and reduce ore recovery. Open Pit Mine Risks The proposed mining operation at the Aurora Gold Mine is located in a region that receives significant tropical rainstorms that could materially impact the mining operation. To minimize the risk, the mining -23- schedule allows for delays due to poor weather, and the mine dewatering is designed to cope with 25 year storm events. In order to minimize the impact of high rainfall, the mine has to adopt “wet mine” culture and proposed recommendations in terms of water diversions, slope erosion preventions etc. has to be implemented. With the global change in weather conditions, there is an elevated risk that significant rainfall outside the expected design parameters could cause further production interruptions. This mine plan accounts for certain external dilution of the ore during the mining operations. This allowance is based on third party consultants’ practical open pit mining experience but requires accurate ore control modeling and field observations, followed by dig face demarcation and digging, in order to achieve the estimated dilution rates. If dilution is higher than estimated, it may result in the loss of certain ore blocks which will drop below the cut-off grade. Underground Mine Risks There are no field-observed hydraulic conductivity values obtained for the shear zones at the Aurora Gold Mine. Higher than expected water inflows may cause delays in the mine plan and may increase the operating costs. To mitigate this risk, a complementary drilling program was proposed to further evaluate geotechnical and hydrogeological conditions of the shear zone. Also, the mine design has 13,500 m3 of storage capacity in the decline and there is provision to increase pumping capacity. Although this would increase the operating cost, a third party consultant has indicated that it would not be a fatal flaw in terms of the mine design. External mudrush risk exists for the underground mine due to the heavy rainfall and the potential for generating fines and clays from the overlaying saprolite material. This risk will be mitigated by partial pre-stripping of saprolites as part of the open pit mining and by implementation of proper dewatering and water diversion programs, such as perimeter drainage, collection sumps, etc. Timely supply of expatriate and skilled local personnel has the potential to be a very significant risk to the success of the project. The ability to adequately train local un-skilled labour to the required level is also a key factor for the underground mine. To mitigate this risk, a third party consultant has assumed that in the years the mine will be developed using an experienced underground contractor, a comprehensive training program is introduced. The underground mine plan, mining method, production rate, and cost estimates were validated by two independent Front End Engineering Development (“FEED”) proposals completed in 2015. Despite these FEED proposals, underground development projects are prone to material cost overruns versus budget. The capital expenditures and time required to develop these projects are considerable and changes in cost or construction schedules can significantly increase both the time and capital required to build the Mine. It is not unusual in the mining industry to experience unexpected problems during the start-up phase, resulting in delays and requiring more capital than anticipated. Mineral Processing Risks In the January 2013 Report, a third party consultant recommended that a full risk assessment of the transportation of reagents and consumables to site at the Aurora Gold Mine should be conducted to determine any logistics issues given the plant site location. Infrastructure Risks Mining, processing, development and exploration activities depend, to one degree or another, on adequate infrastructure. Reliable roads, bridges, power sources and water supply are important determinants, which affect capital and operating costs. Unusual or infrequent weather phenomena, sabotage, government or other interference in the maintenance or provision of such infrastructure could adversely affect Guyana Goldfields’ operations, financial condition and results of operations. -24- The 120 km access road from Buckhall to Tapir was designed for logging operations. This access road has been upgraded and is subject to ongoing maintenance work. Insurance and Uninsured Risks Guyana Goldfields’ business is subject to a number of risks and hazards generally, including adverse environmental conditions, industrial accidents, labour disputes, unusual or unexpected geological conditions, ground or slope failures, cave-ins, changes in the regulatory environment and natural phenomena such as inclement weather conditions, floods and earthquakes. Such occurrences could result in damage to mineral properties or production facilities, personal injury or death, environmental damage to Guyana Goldfields’ properties or the properties of others, delays in mining, monetary losses and possible legal liability. The Company currently maintains directors’ and officers’ liability, general liability, construction, marine cargo and other required insurances in such amounts as it considers to be reasonable. Accordingly, the insurance of the Company may not cover all the potential risks associated with a mining company’s operations. The Company may also be unable to maintain insurance to cover these risks at economically feasible premiums. Insurance coverage may not continue to be available or may not be adequate to cover any resulting liability. Moreover, insurance against risks such as environmental pollution or other hazards as a result of exploration, development or production is not generally available to Guyana Goldfields or to other companies in the mining industry on acceptable terms. Guyana Goldfields might also become subject to liability for pollution or other hazards which may not be insured against or which Guyana Goldfields may elect not to insure against because of premium costs or other reasons. Losses from these events may cause Guyana Goldfields to incur significant costs that could have a material adverse effect upon its financial performance and results of operations. Environmental Risks and Hazards All phases of Guyana Goldfields’ operations are subject to environmental regulation in the various jurisdictions in which it operates. These regulations mandate, among other things, the maintenance of air and water quality standards and land reclamation. They also set forth limitations on the generation, transportation, storage and disposal of solid and hazardous waste. Environmental legislation is evolving in a manner which will require stricter standards and enforcement, increased fines and penalties for non- compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors and employees. There is no assurance that future changes in environmental regulation, if any, will not adversely affect Guyana Goldfields’ operations. Environmental hazards may exist on the properties on which Guyana Goldfields holds interests which are unknown to Guyana Goldfields at present and which have been caused by previous or existing owners or operators of the properties. Government approvals and permits are currently, and may in the future be required in connection with Guyana Goldfields’ operations. To the extent such approvals are required and not obtained, Guyana Goldfields may be curtailed or prohibited from proceeding with planned exploration or development of mineral properties. Failure to comply with applicable laws, regulations and permitting requirements may result in enforcement actions thereunder, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment, or remedial actions. Parties engaged in mining operations or in the exploration or development of mineral properties may be required to compensate those suffering loss or damage by reason of the mining activities and may have civil or criminal fines or penalties imposed for violations of applicable laws or regulations. -25- Amendments to current laws, regulations and permits governing operations and activities of mining and exploration companies, or more stringent implementation thereof, could have a material adverse impact on Guyana Goldfields and cause increases in exploration expenses, development costs, capital expenditures, operating costs or require abandonment or delays in development of new and existing mining properties. Commercial production at the Aurora Gold Mine involves the use of sodium cyanide which is a poison. Should sodium cyanide leak or otherwise be discharged from the containment system then Guyana Goldfields may become subject to liability for cleanup work that may not be insured. While all steps will be taken to prevent discharges of pollutants into the ground water and the environment, Guyana Goldfields may become subject to liability for hazards that may not be insured against. Cyanide used by the processing facility is all destroyed prior to being discharged. Uncertainty Relating to Mineral Resources Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability. Due to the uncertainty which may attach to Mineral Resources, there is no assurance that Mineral Resources will be upgraded to Mineral Reserves as a result of continued exploration. Reliability of Resource and Reserve Estimates There is no certainty that any of the Mineral Resources or Mineral Reserves on any of Guyana Goldfields’ properties will be realized. Until a deposit is actually mined and processed the quantity of Mineral Resources or Mineral Reserves and grades must be considered as estimates only. In addition, the quantity of Mineral Resources or Mineral Reserves may vary depending on, among other things, metal prices. Any material change in quantity of Mineral Resources or Mineral Reserves, grade or stripping ratio may affect the economic viability of any project undertaken by Guyana Goldfields. In addition, there can be no assurance that gold recoveries or other metal recoveries in small scale laboratory tests will be duplicated in a larger scale test under on-site conditions or during production. Fluctuations in gold and other base or precious metals prices, results of drilling, metallurgical testing and production and the evaluation of studies, reports and plans subsequent to the date of any estimate may require revision of such estimate. Any material reductions in estimates of Mineral Resources or Mineral Reserves could have a material adverse effect on Guyana Goldfields’ results of operations and financial condition, and on its ability to comply with the Project Loan Facility requirements. Uncertainty of Feasibility Study Results & Revisions to Estimates Feasibility studies are used to determine the economic viability of a deposit, as are pre-feasibility studies and preliminary assessments. Feasibility studies are the most detailed and reflect a higher level of confidence in the reported capital and operating costs. Generally accepted levels of confidence are plus or minus 15% for feasibility studies, plus or minus 25-30% for pre-feasibility studies and plus or minus 3540% for preliminary assessments. These levels reflect the levels of confidence that exist at the time the study is completed. Accordingly, although the Company has commenced commercial production at the Mine and ceased all development activities, it exceeded its initial development cost estimates by approximately $5 million, or two percent, at December 31, 2015. The Company cannot be certain that future significant construction costs will not be required to correct any deficiencies in constructing the Aurora Gold Mine, or that available funding will be sufficient. Mine Closure -26- Mine closure plans may materialize earlier than planned to reflect market conditions and closure costs may not be fully known for a period of time. The closure plan and site rehabilitation plan may be incomplete and not fully documented. Limited History of Mineral Production Guyana Goldfields did not previously have any interest in mineral producing properties prior to the commencement of commercial production at the Aurora Gold Mine on January 1, 2016. There is no assurance that commercial quantities of minerals will be discovered at any of the properties of Guyana Goldfields, or any future properties, nor is there any assurance that the exploration programs of Guyana Goldfields thereon will yield any positive results. Even if commercial quantities of minerals are discovered, there can be no assurance that any property of Guyana Goldfields will ever be brought to a stage where Mineral Resources can profitably be produced thereon. Factors which may limit the ability of Guyana Goldfields to produce Mineral Resources from its properties include, but are not limited to, the price of the Mineral Resources which are currently being explored for, availability of capital and financing and the nature of any mineral deposits. Land Title Although the title to the properties in which Guyana Goldfields holds an interest were reviewed by or on behalf of Guyana Goldfields, no formal title opinions were delivered to Guyana Goldfields and, consequently, no assurances can be given that there are no title defects affecting such properties. Title insurance generally is not available, and Guyana Goldfields’ ability to ensure that it has obtained secure claim to individual mineral properties or mining concessions may be severely constrained. Guyana Goldfields has not conducted surveys of the claims in which it holds direct or indirect interests and, therefore, the precise area and location of such claims may be in doubt. Accordingly, Guyana Goldfields’ mineral properties may be subject to prior unregistered liens, agreements, transfers or claims, and title may be affected by, among other things, undetected defects. In addition, Guyana Goldfields may be unable to operate its properties as permitted or to enforce its rights with respect to its properties. Global Financial Conditions In recent years financial conditions have been characterized by volatility. Access to financing has been negatively impacted by many factors as a result of the recent global financial crisis. This may impact the Company’s ability to obtain equity or debt financing in the future on terms acceptable or favourable to the Company. A period of renewed uncertainty in the world capital markets could make any project debt component of the financing more expensive than anticipated or, in certain cases, unavailable. It is not uncommon for financial institutions to require some form of cost overrun facility, a price guarantee (hedging) program and/or a completion guarantee in association with the provision of project debt finance. Additionally, global economic conditions may cause decreases in asset values that are deemed to be other than temporary, which may result in impairment losses. If such volatility and market turmoil continue, the Company’s business and financial condition could be adversely impacted. Competition May Hinder Corporate Growth The mining industry is competitive in all of its phases. Guyana Goldfields faces strong competition from other mining companies in connection with the acquisition of properties producing, or capable of producing, precious and base metals. Many of these companies have greater financial resources, operational experience and technical capabilities than Guyana Goldfields. As a result of this competition, Guyana -27- Goldfields may be unable to maintain or acquire attractive mining properties or skilled resources on terms it considers acceptable or at all. Consequently, Guyana Goldfields’ revenues, operations and financial condition could be materially adversely affected. Production and Cost Estimates The Company prepares estimates of future production, operating costs and capital costs for its operations. Despite the Company’s best efforts to budget and estimate such costs, as a result of the substantial expenditures involved in the development of mineral projects and the fluctuation and increase of costs over time, development projects may be prone to material cost overruns. The Company’s actual costs may vary from estimates for a variety of reasons, including: increased competition for resources and development inputs; cost inflation affecting the mining industry in general; short term operating factors; revisions to mine plans; risks and hazards associated with mining; natural phenomena, such as inclement weather conditions, water availability, floods, and earthquakes; and unexpected labour shortages or strikes. Operating costs may also be affected by a variety of factors, including: ore grade metallurgy, labour costs, cost of commodities and other inputs, general inflationary pressures and currency exchange rates. Many of these factors are beyond the Company’s control. No assurance can be given that cost estimates will be achieved. Failure to achieve production or cost estimates, or incurring material increases in costs, could have a material adverse impact on the Company’s future cash flows, profitability, results of operations and financial condition. Additional Capital The development and exploration of Guyana Goldfields’ properties will require substantial additional financing. Failure to obtain sufficient financing may result in delaying or indefinite postponement of exploration, development or production on any or all of Guyana Goldfields’ properties or even a loss of property interest. There can be no assurance that additional capital or other types of financing will be available if needed or that, if available, the terms of such financing will be favourable to Guyana Goldfields. In addition, financing of the underground development at the Aurora Gold Mine may not proceed as planned, and external financing may be unavailable, or prohibitively expensive. With the commencement of commercial production at the Aurora Gold Mine on January 1, 2016, the Company is reliant on the profitable operations of the Mine to fund its current and future liabilities. There can be no assurance that operating cash flow or any additional financing will be sufficient for any unexpected development or other costs for the Aurora Gold Mine. The amount and timing of raising additional capital, which may involve debt or equity, or a combination of both, may be materially impacted by the economic climate in the capital markets. As a result, the cost and availability of any debt and or equity financing may be restricted. Accordingly, there can be no assurance that the Company will be able to raise sufficient funds to satisfy its contractual obligations or to further explore and develop its projects, as applicable, upon terms acceptable to the Company, or at all. Dilution The Company may require additional monies to fund development, construction, operational and exploration programs. The Company cannot predict the size of future issuances of Common Shares or the issuance of debt instruments or other securities convertible into shares or the effect, if any, that future issuances and sales of the Company’s securities will have on the market price of the Common Shares. If the Company raises additional funding by issuing additional equity securities, such financing may substantially dilute the interests of existing shareholders. The cost and availability of equity may also be -28- restricted. Sales of substantial amounts of the Company’s Common Shares, or the availability of such Common Shares for sale, could adversely affect the prevailing market prices for the Company’s securities. Commodity Prices A decline in the price of gold will materially adversely affect the price of the Common Shares, Guyana Goldfields’ financial results and exploration, development and mining activities. Gold prices fluctuate widely and are affected by numerous factors beyond Guyana Goldfields’ control such as the sale or purchase of gold by various central banks and financial institutions, interest rates, exchange rates, inflation or deflation, fluctuation in the value of the United States currency, global and regional supply and demand, and the political and economic conditions of major gold-producing countries throughout the world. The price of gold has fluctuated widely in recent years, and future serious price declines could cause development and or operations of Guyana Goldfields’ properties to be impracticable. Future production from Guyana Goldfields’ properties is dependent on gold prices that are adequate to make these properties economic. In addition to adversely affecting Guyana Goldfields’ reserve and/or resource estimates and its financial condition, declining commodity prices can impact operations by requiring a reassessment of the feasibility of a particular project. Such a reassessment may be the result of a management decision or may be required under financing arrangements related to a particular project. Even if the project is ultimately determined to be economically viable, the need to conduct such a reassessment may cause substantial delays or may interrupt operations until the reassessment can be completed. If the world market price of gold continues to drop and the prices realized by the Company decrease further and remain at such a level for any substantial period, the Company’s profitability and cash flow would be negatively affected. In such circumstances, the Company may determine that it is not economically feasible to continue commercial production at its Aurora Gold Mine, or to pursue the future development of some or all of its current projects, which could have an adverse impact on the Company’s financial performance and results of operations. The Company may curtail or suspend some or all of its activities, with the result that depleted reserves are not replaced. In addition, the market value of the Company’s gold inventory may be reduced and existing reserves may be reduced to the extent that ore cannot be mined and processed economically at the prevailing prices. The Company is also exposed to fair value movements on the available for sale investment. A 10% increase or reduction in SolGold’s share price at December 31, 2016 would have increased or reduced comprehensive income by $3.1 million (December 21, 2015 – Nil). There is no impact on net earnings. Indebtedness and Inability to Satisfy Repayment Obligations Although the Company has been successful in making its scheduled principal debt repayments under its original project loan facility and its New Facility to date, there can be no assurance that it will continue to do so. The Company’s level of indebtedness could have important consequences for its operations and the value of its Common Shares including: (a) limiting its ability to borrow additional amounts for working capital, capital expenditures, debt service requirements, execution of strategic initiatives, or other purposes; (b) limiting the Company’s ability to use operating cash flow in other areas because of its obligations to service debt; (c) increasing the Company’s vulnerability to general adverse economic and industry conditions, including increases in interest rates; (d) limiting the Company’s ability to capitalize on business opportunities and to react to competitive pressures and adverse changes in government regulation; and (e) limiting its ability or increasing the costs to refinance indebtedness. The Company expects to utilize its Aurora Gold Mine cash flow from operations to pay its mine operating costs and to pay principal and interest on its New Facility. The Company’s ability to meet these payment -29- obligations will depend on its future financial performance, which will be affected by financial, business, economic and other factors. The Company will not be able to control many of these factors, such as economic conditions in the markets in which it operates. The Company cannot be certain that its future cash flow from operations will be sufficient to allow it to make principal and interest payments on its New Facility and meet its other obligations. If cash flow from operations are insufficient or if there is a contravention of its New Facility covenants, the Company may be required to refinance all or part of its existing debt, sell assets, borrow more money or issue additional equity. There can be no assurance that the Company will be able to refinance all or part of its existing debt on terms that are commercially reasonable. Interest Rate Fluctuations Fluctuations in interest rates can affect the Company’s results of operations and cash flow. The Company’s New Facility is subject to variable interest rates. Exchange Rate Fluctuations Exchange rate fluctuations may affect the costs that Guyana Goldfields incurs in its operations. The appreciation of non-United States dollar currencies against the United States dollar can increase the cost of gold production in United States dollar terms. Although a majority of the Company’s expenditures for the Aurora Gold Mine are paid in United States currency, a strengthened Canadian and Guyanese dollar relative to the United States dollar would negatively impact the Company. Government Regulation The mining, processing, development and mineral exploration activities of Guyana Goldfields are subject to various laws governing prospecting, development, production, taxes, labour standards and occupational health, mine safety, toxic substances, land use, water use, land claims of local people and other matters. Exploration and development may also be affected in varying degrees by government regulations with respect to, but not limited to, restrictions on future exploration and production, price controls, export controls, currency availability, foreign exchange controls, income taxes, delays in obtaining or the inability to obtain necessary permits, opposition to mining from environmental and other non-governmental organizations, limitations on foreign ownership, expropriation of property, ownership of assets, environmental legislation, labour relations, limitations on repatriation of income and return of capital, limitations on mineral exports, high rates of inflation, increased financing costs, and site safety. This may affect both Guyana Goldfields’ ability to undertake exploration and development activities in respect of present and future properties in the manner contemplated, as well as its ability to continue to explore, develop and operate those properties in which it has an interest or in respect of which it has obtained exploration and/or development rights to date. Although Guyana Goldfields believes that its exploration and operating activities are currently carried out in accordance with all applicable rules and regulations, no assurance can be given that new rules and regulations will not be enacted or that existing rules and regulations will not be applied in a manner which could limit or curtail future exploration, development and mine production activities. Amendments to current laws and regulations governing operations and activities of mining and milling or more stringent implementation thereof could have a substantial adverse impact on Guyana Goldfields. Territorial Risk -30- During the fourth quarter of fiscal 2015, the Company received an unfounded notification of a possible legal claim from the Government of Venezuela that relates to recent developments regarding the Venezuela- Guyana border dispute. The Venezuela-Guyana border dispute was resolved and agreed upon by all parties under the 1899 Arbitration Agreement and any claims made outside of such agreement violate international law. The matter is currently before the United Nations, however Venezuela’s border claim is widely viewed by the international community to be without merit. If the Aurora Gold Mine property subject to the Mining Licence issued by the Government of Guyana is encroached upon by the government of Venezuela, the Company would be unable to realize a recovery of amounts capitalized under mineral properties, plant and equipment, and would recognize a write-down of the full recorded value. Political instability in relation to these or other matters could also have a material adverse impact upon Guyana Goldfields’ ability to access suitable financing on acceptable terms. Furthermore, Guyana Goldfields requires consultants and employees to work in Guyana to carry out its planned exploration programs and operations, and in the event of civil unrest or war, it may be difficult to find or hire qualified people or to obtain all of the necessary services or expertise in Guyana at reasonable rates. In addition, although considered very unlikely, the possibility that Venezuela may secure control over the land underlying the Company’s property interests and the potential expropriation of such assets cannot be ruled out. The occurrence of these uncertainties cannot be accurately predicted and may constrain Guyana Goldfields’ ability to secure claim to its mineral properties, and/or impact its inability to operate its properties as permitted or enforce its rights with respect to its property interests. Any such loss, reduction or expropriation of its entitlements would have a material adverse effect upon Guyana Goldfields. Political Risks All of Guyana Goldfields’ current operations are presently conducted in Guyana, South America and as such, Guyana Goldfields’ operations are exposed to various levels of political, economic and other risks and uncertainties. These risks and uncertainties include, but are not limited to, currency exchange rates; high rates of inflation; labour unrest; renegotiation or nullification of existing concessions, licenses, permits and contracts; changes in taxation policies; restrictions on foreign exchange; and changing political conditions; currency controls and governmental regulations that favour or require the awarding of contracts to local contractors or require foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction. Future political actions cannot be predicted and may adversely affect Guyana Goldfields. Changes, if any, in mining or investment policies or shifts in political attitude in the country of Guyana may adversely affect the Company’s business, results of operations and financial condition. Future operations may be affected in varying degrees by government regulations with respect to, but not limited to, restrictions on production, price controls, export controls, currency remittance, income taxes, foreign investment, maintenance of claims, environmental legislation, land use, land claims of local people, water use and mine safety. The possibility that future governments may adopt substantially different policies, which may extend to the expropriation of assets, cannot be ruled out. Failure to comply strictly with applicable laws, regulations and local practices relating to mineral right applications and tenure, could result in loss, reduction or expropriation of entitlements. The occurrence of these various factors and uncertainties cannot be accurately predicted and could have an adverse effect on the Company’s consolidated business, results of operations and financial condition. The Company has established a community and social relations office in Guyana which is in part, responsible for management and monitoring of government relations. The Company’s senior management -31- meets with government officials on a regular basis to support the continued operation of the Aurora Gold Mine. Labour and Employment Matters While Guyana Goldfields has good relations with its employees, these relations may be impacted by changes in the scheme of labour relations which may be introduced by the relevant governmental authorities in whose jurisdictions Guyana Goldfields carries on business. Adverse changes in such legislation, or the unionization of the Aurora Gold Mine’s work force, may have a material adverse effect on Guyana Goldfields’ business, results of operations and financial condition. Subsidiaries The Company conducts its operations through its domestic and foreign subsidiaries, and holds certain of its assets through its subsidiaries. Accordingly, any limitation on the transfer of cash or other assets between the Company and its subsidiaries could restrict the Company’s ability to fund its operations efficiently. Any such limitations, or the perception that such limitations may exist now or in the future, could have an adverse impact on the Company’s valuation and stock price. Market Price of Common Shares Securities of small-cap companies have experienced substantial volatility in the past, often based on factors unrelated to the financial performance or prospects of the companies involved. These factors include macroeconomic developments in North America and globally and market perceptions of the attractiveness of particular industries. The Company’s share price is also likely to be significantly affected by short-term changes in gold prices or in its financial condition or results of operations as reflected in its quarterly earnings reports. Other factors unrelated to Guyana Goldfields’ performance that may have an effect on the price of the Common Shares include the following: the extent of analytical coverage available to investors concerning Guyana Goldfields’ business may be limited if investment banks with research capabilities do not continue to follow the Company; lessening in trading volume and general market interest in the Company’s securities may affect an investor’s ability to trade significant numbers of Common Shares; the size of the Company’s public float may limit the ability of some institutions to invest in the Company’s securities; and a substantial decline in the price of the Common Shares that persists for a significant period of time could cause the Company’s securities to be delisted from the exchange on which they trade, further reducing market liquidity. As a result of any of these factors, the market price of the Common Shares at any given point in time may not accurately reflect Guyana Goldfields’ long-term value. Securities class action litigation often has been brought against companies following periods of volatility in the market price of their securities. The Company may in the future be the target of similar litigation. Securities litigation could result in substantial costs and damages and divert management’s attention and resources. Future Sales of Common Shares by Existing Shareholders Sales of a large number of Common Shares in the public markets, or the potential for such sales, could decrease the trading price of the Common Shares and could impair the Company’s ability to raise capital through future sales of Common Shares. Guyana Goldfields has previously completed private placements at prices per share which are from time to time lower than the market price of the Common Shares. Accordingly, a significant number of shareholders of the Company have an investment profit in the Common Shares that they may seek to liquidate. -32- Dependence on Management and Key Personnel Guyana Goldfields is dependent on the services of key executives, including the Executive Chairman of the Board, President and Chief Executive Officer, Chief Financial Officer of the Company, and a small number of highly skilled and experienced executives and personnel, which is sufficient for the Company’s present stage of operation. The Company also has an experienced management team supporting its production operations at the Aurora Gold Mine, and is dependent upon the services of these individuals. Guyana Goldfields’ development to date has largely depended, and in the future will continue to depend, on the efforts of key management and other key personnel to develop and operate the Mine. Loss of any of these people, particularly to competitors, could have a material adverse effect on the Company’s business. Further, with respect to the development and operation of the Company’s projects, it may become necessary to attract both international and local personnel. The marketplace for skilled personnel may become more competitive, which means the cost of hiring, training and retaining such personnel may increase. Factors outside the Company’s control, including competition for human capital and the high- level of technical expertise and experience required to execute the development and operation of the Company’s projects, will affect the Company’s ability to employ the specific personnel required. The failure to retain or attract a sufficient number of skilled personnel could have a material adverse effect on the Company’s business, results of operations and financial condition. The Company has not taken out and does not intend to take out key man insurance in respect of any directors, officers or other employees. Competition The international mining industry is highly competitive. Guyana Goldfields may encounter competition from other mining companies in its efforts to hire experienced mining professionals. Competition for services and equipment could cause future development and operating costs to increase materially, resulting in delays if services or equipment cannot be obtained in a timely manner due to inadequate availability, and increase potential scheduling difficulties and cost increases due to the need to coordinate the availability of services or equipment, any of which could materially increase future project development, operations, exploration or construction costs, result in project delays or both. Shortages and Price Volatility of Input Commodities and Equipment The Company is dependent on various input commodities (such as diesel fuel and cyanide) and equipment (including parts) to conduct its mining operations and development projects. A shortage of such input commodities or equipment or a significant increase in their cost could have a material adverse effect on the Company’s ability to carry out its operations and therefore limit, or increase the cost of, production. The Company is also dependent on access to and supply of water to carry out its mining operations, and such access and supply may not be readily available. Market prices of input commodities can be subject to volatile price movements which can be material, occur over short periods of time and are affected by factors that are beyond the Company’s control. An increase in the cost, or decrease in the availability, of input commodities or equipment may affect the timely conduct and cost of operations and development projects. If the costs of certain input commodities consumed or otherwise used in connection with the Company’s operations and development projects were to increase significantly, and remain at such levels for a substantial period, the Company may determine that it is not economically feasible to continue commercial production at its Aurora Gold Mine, which could have an adverse impact on the Company’s financial performance and results of operations. Hedging Risk The Company’s results of operations can vary significantly with fluctuations in the market price of gold. The Company’s practice is not to hedge gold sales. The Company does however enter into forward contracts -33- for the purchase of diesel when deemed advantageous by management. These derivative instruments are not formally recognized as hedging instruments and accordingly are classified as financial instruments. Conflicts of Interest Certain of the directors and officers of the Company also serve as directors and/or officers of other companies involved in natural resource exploration, development and/or operation, and consequently there exists the possibility for such directors and officers to be in a position of conflict. Any decision made by any of such directors and officers involving the Company will be made in accordance with their duties and obligations to deal fairly and in good faith with a view to the best interests of the Company and its shareholders. In addition, each of the directors is required to declare and refrain from voting on any matter in which such directors may have a conflict of interest in accordance with the procedures set forth in the CBCA and other applicable laws. Cyber Security Threats Information systems and other technologies, including those related to the Company’s financial and operational management, are an integral part of the Company’s business activities. Network and information systems-related events, such as computer hackings, cyber-attacks, computer viruses, worms or other destructive or disruptive software, process breakdowns, denial of service attacks, malicious social engineering or other malicious activities, or any combination of the foregoing, or power outages, natural disasters, terrorist attacks or other similar events, could result in damage to the Company’s property, equipment and data. These events also could result in significant expenditures to repair or replace the damaged property or information systems and/or to protect them from similar events in the future. Further, any security breaches, such as misappropriation, misuse, leakage, falsification or accidental release or loss of information maintained in the Company’s information technology systems, including personnel and other data, could damage its reputation and require the Company to expend significant capital and other resources to remedy any such security breach. Insurance maintained by the Company against losses resulting from any such events or security breaches may not be sufficient to cover any consequent losses or otherwise adequately compensate the Company for any disruptions to its business that may result, and the occurrence of any such events or security breaches could have a material adverse effect on the business of the Company. There can be no assurance that these events and security breaches will not occur in the future or not have an adverse effect on the business of the Company. Compliance with Anti-Corruption Laws Guyana Goldfields is subject to various anti-corruption laws and regulations including but not limited to the Canadian Corruption of Foreign Public Officials Act 1999. In general, these laws prohibit a company and its employees and intermediaries from bribing or making other prohibited payments to foreign officials or other persons to obtain or retain business or gain some other business advantage. The Company’s primary operations are located in Guyana and, according to Transparency International, the country of Guyana is perceived as having fairly high levels of corruption relative to the selected sample of countries around the world. Guyana Goldfields cannot predict the nature, scope or effect of future regulatory requirements to which its operations might be subject or the manner in which existing laws might be administered or interpreted. Failure to comply with the applicable legislation and other similar foreign laws could expose the Company and its senior management to civil and/or criminal penalties, other sanctions and remedial measures, legal expenses and reputational damage, all of which could materially and adversely affect the Company’s business, financial condition and results of operations. Likewise, any investigation of any potential violations of the applicable anti-corruption legislation by Canadian or foreign authorities could also have an adverse impact on the Company’s business, financial condition and results of operations, as well -34- as on the market price of the Common Shares. As a consequence of these legal and regulatory requirements, the Company has instituted policies with regard to the code of business conduct and ethics. There can be no assurance or guarantee that such efforts have been and will be completely effective in ensuring Guyana Goldfield’s compliance, and the compliance of its employees, consultants, contractors and other agents, with all applicable anti-corruption laws. Limited History of Earnings or Dividends Prior to fiscal 2016, the Company had no history of earnings and as such the Company has not paid dividends on its Common Shares since incorporation. It currently intends to retain future earnings, if any, to fund the development and growth of its business. The payment of future dividends, if any, will be reviewed periodically by the Company’s Board of Directors and will depend upon, among other things, conditions then existing including earnings, financial condition and capital requirements, restrictions in financing agreements, business opportunities and conditions and such other factors deemed by the Board of Directors to be relevant at the time. Accounting Policies and Internal Control With effect from November 1, 2011, the Company prepares its financial reports in accordance with IFRS. In preparation of financial reports, management may need to rely upon assumptions, make estimates or use their best judgment in determining the financial condition of the Company. Significant accounting policies are described in more detail in the Company’s audited financial statements. In order to have a reasonable level of assurance that financial transactions are properly authorized, assets are safeguarded against unauthorized or improper use, and transactions are properly recorded and reported, the Company has implemented and continues to analyze its internal control systems for financial reporting. Although the Company believes its financial reporting and financial statements are prepared with reasonable safeguards to ensure reliability, the Company cannot provide absolute assurance. FORWARD-LOOKING STATEMENTS Except for statements of historical fact relating to Guyana Goldfields, certain information contained in this MD&A constitutes “forward-looking information” under Canadian securities legislation. Forward-looking information includes, but is not limited to, statements with respect to the potential of the Company’s properties and investments; ability to continue to satisfy all conditions and covenants under the New Facility and make scheduled repayments thereunder; the use of net proceeds from the Offering; the future price of gold; expected operating cash flows and capital costs for the Aurora Gold Mine; success of exploration and development activities; cost and timing of future exploration and development; the estimation of Mineral Resources and Reserves and any anticipated upside potential thereof; conclusions of economic evaluations; successful and profitable operations of the Aurora Gold Mine; the Company’s ability to meet its most significant near-term liquidity and operating requirements; requirements for additional capital, expected improvements in mining, processing and general and administrative costs as well as proposed expanded exploration activities and other potential opportunistic investments in 2017, and other statements relating to the financial and business prospects of Guyana Goldfields. Generally, forward-looking information can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or statements that certain actions, events or results “may”, “could”, “would”, “likely”, “might” or “will be taken”, “occur” or “be achieved”. -35- Forward-looking information is based on the reasonable assumptions, estimates, analysis and opinions of management made in light of its experience and its perception of trends, current conditions and expected developments, as well as other factors that management believes to be relevant and reasonable in the circumstances at the date that such statements are made, and are inherently subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking information, including but not limited to risks related to:      the Company’s ability to continue to successfully satisfy all covenants under the New Facility, its ability to repay the New Facility as currently proposed or at all, and its ability to meet significant near-term liquidity and operation requirements; the Company’s failure to adhere to representations, warranties, affirmative and negative covenants under the New Facility, which could give rise to an event of default under the New Facility; the Company’s ability to achieve its production, cash cost and all-in sustaining cost guidance for 2017 and its anticipated consolidated cash flow forecast for 2017; risks of increases in the anticipated total capital and operating costs relating to commercial production for the Aurora Gold Mine and the Company’s ability to meet such costs; the timing and amounts of expected cash outflows, and expected sales of gold, relating to profitable operations at the Aurora Gold Mine;  expectations that the positive reconciliation between actual tonnes mined versus the Mineral    Reserve model at the Aurora Gold Mine will continue; conducting mining operations, any of which could result in damage to, or destruction of, mines and other producing facilities, damage to life or property, environmental damage and possible legal liability, including the adverse impact on the Company’s cash flows and ability to repay amounts due under the New Facility; risks related to exploration, development and conducting mining operations, any of which could result in damage to, or destruction of, mines and other producing facilities, damage to life or property, environmental damage and possible legal liability, including the adverse impact on the Company’s cash flows and ability to repay amounts due under the New Facility; the success of derivative transactions to establish a ceiling for a portion of the Company’s future diesel fuel purchases;  unusual or unexpected geological formations encountered during development and/or mining operations;  unanticipated operating events which can reduce production or cause production to be shut down  or delayed; the fact that the Aurora Gold Mine is located in a region that is subject to significant annual rainfall that could impact mining operations;  the risk that insurance may not be available to Guyana Goldfields on reasonable terms or at all;  adherence to the terms and condition of the Mineral Agreement and Mining Licence with respect to the Aurora Gold Mine;  uncertain political and economic environments;  environmental hazards and industrial accidents;  unionization of its work force in Guyana;  governmental regulation, political stability in the regions in which the Company operates and environmental liability.  management’s expectations that requisite licenses and permits will be available upon terms acceptable to the Company;  access and supply risks;  reliance on key personnel; -36-      risks that mill optimization efforts, efforts to increase mill capacity and other proposed improvements in mining and processing may not be as effective as proposed, or at all; risks related to disputes concerning property titles and interests; risks relating to changes in project parameters as plans continue to be redefined, including the possibility that mining, exploration and development operations at the Aurora Gold Mine and other exploration activities may not progress as currently proposed, and funds may be reallocated on a going forward basis; risks relating to variations and uncertainties in the estimation of Mineral Resources and Mineral Reserves, grade or recovery rates resulting from exploration and development activities (including risks that new Mineral Resources/Reserves may not be established, or existing Mineral Resources/Reserves may not be realized), with respect to both the properties and investments of the Company; risks relating to changes in gold prices and the worldwide demand for and supply of gold. Fluctuation in the price for gold may adversely affect the Company’s ability to obtain additional financing, influence the course of action taken in operating the Aurora Gold Mine, and affect the Company’s ability to meet the New Facility’s financial and non-financial covenants; risks related to increased competition in the mining industry generally; risks related to current global financial conditions;    uncertain political and economic environments;  the Company’s goal of creating shareholder value by concentrating on the acquisition, development and exploration of properties that have the potential to contain economic gold deposits;  ability to source new, additional or replacement financing through other share or debt issuances in support of the Aurora Gold Mine, corporate general and administrative expenses, and exploration activities and risks relating to whether the Company will be successful in restructuring the Facility as currently proposed or at all; future plans for the Aurora Gold Mine and other property interests held by the Company or which may be acquired on a going forward basis, if at all; and   management’s outlook regarding future trends, outlook and activities, including the ability of Guyana Goldfields to generate sufficient cash flow to cover operating requirements for the next 12 months. Forward-looking information is also subject to the risks further described in the Company’s Annual Information Form for its most recently completed year. Although management of the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking information, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking information. The Company does not undertake to update any forward-looking information, except in accordance with applicable securities laws. Accordingly, readers should not place undue reliance on forward-looking information. TECHNICAL INFORMATION Information Concerning Estimates of Measured, Indicated and Inferred Resources The Mineral Reserve and Resource estimates in respect of the Company’s property interests were prepared in accordance with Canadian NI 43-101 Standards of Disclosure for Mineral Projects (“NI 43-101”), as -37- required by Canadian securities regulatory authorities. For United States reporting purposes, the United States Securities and Exchange Commission (“SEC”) applies different standards in order to classify mineralization as a reserve. In particular, while the terms “measured,” “indicated” and “inferred” Mineral Resources are required pursuant to NI 43-101, the SEC does not recognize such terms. Canadian standards differ significantly from the requirements of the SEC. Investors are cautioned not to assume that any part or all of the mineral deposits in these categories constitute or will ever be converted into reserves. In addition, “inferred” Mineral Resources have a great amount of uncertainty as to their existence and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an inferred Mineral Resource will ever be upgraded to a higher category. Under Canadian securities laws, issuers must not make any disclosure of results of an economic analysis that includes inferred Mineral Resources, except in rare cases. Updated Mineral Reserves at $1,200 per Ounce – At January 1, 2017 On February 2, 2017, the Company updated its Mineral Reserves estimate for its Aurora Gold Mine utilizing a gold price of $1,200 per ounce. For details, refer to the press release of the Company dated February 2, 2017, available on www.sedar.com. -38- NI 43-101 Technical Report 2017 Updated Feasibility Study for the Aurora Gold Project, Guyana On February 2, 2017, the Company filed the 2017 Feasibility Study for the Aurora Gold Mine reflecting an extended open-pit/deferred underground mining scenario, as well as current cost parameters, and updated Mineral Reserves based on a revised gold price of $1,200 per ounce. For details, refer to the report entitled “Independent Technical Report Updated Feasibility Study, Aurora Gold Mine Project” dated February 2, 2017, available on www.sedar.com. The scientific and technical information concerning the updated Mineral Reserve estimate as of January 1, 2017 and other scientific and technical information concerning the 2017 Feasibility Study, was prepared under the supervision of Mr. Bob McCarthy and Mr. Chris Elliott, both “qualified persons” within the meaning of NI 43-101. Other Technical Disclosure Chief Geologist Augusto Flores IV, (P.Geo), a “Qualified Person” within the meaning of NI 43-101, has supervised the preparation and verified the disclosure under the heading “Exploration Activities” in this MD&A. Mr. Flores is the Senior Geologist with the Company. Unless stated otherwise herein, all scientific and technical data contained in this MD&A has been reviewed, approved and verified by Mr. Daniel Noone who is a “Qualified Person” within NI 43-101 and is a member of the Australian Institute of Geoscientists. Mr. Noone serves as a Director of the Company and is also Vice President of Exploration for the Company. ACCOUNTING DISCLOURE National Instrument 52-109 Disclosure The Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) are responsible for establishing and maintaining disclosure controls and procedures (“DC&P”) and internal controls over financial reporting (“ICFR”), as those terms are defined in National Instrument 52-109 for the Company. The Company’s controls are based on the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) (2013) framework. The Company’s CEO and the CFO certify that the Company’s DC&P have been designed to provide reasonable assurance that material information relating to the Company is made known to them by others, particularly during the period in which interim filings are being prepared; and information required to be disclosed by the Company in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation. They also certify that the Company’s ICFR have been designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. During the current period there have been no changes in the Company’s DC&P or ICFR that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. The Company’s management, including the CEO and CFO, believe that any disclosure controls and procedures and internal controls over financial reporting, no matter how well designed, can have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance that the objectives of the control system are met. -39- New Accounting Policies – 2016 With the commencement of commercial production at the Aurora Gold Mine on January 1, 2016, the Company has adopted the following new accounting policies as of such date: Commercial production: The development phase ends and the production phase begin when the mine is in the condition necessary for it to be capable of operating in the manner intended by management. Various relevant criteria are considered to assess when the mine is substantially complete and ready for its intended use and moved into the production phase. Some of the criteria considered include, but are not limited to:  Completion of operational commissioning of each major mine and plant component.  Demonstrated ability to mine and mill consistently and without significant interruption at a pre- determined average rate of design capacity of 75%, composed of both soft and hard rock.  The passage of a reasonable period of time for testing of all major mine and plant components  Gold recoveries are at or near expected production levels. Commercial production is declared on the first day of the calendar month following achievement of the above milestones. Upon achieving commercial production, costs are transferred from assets under development into the appropriate asset classification such as inventory and mineral properties, plant and equipment. Once in commercial production, gold sales are recognized as revenue, and production costs as a component of cost of sales. Development expenditures incurred during the production phase to provide access to ore reserves in future periods; expand existing capacity; or generally provide future economic benefits; are capitalized under the Company’s accounting policies on development costs, and mineral properties, plant and equipment. Effective January 1, 2016, upon declaring commercial production at the Aurora Gold Mine, the Company transitioned from accounting for certain costs as a development stage company to accounting for certain costs as an operating company. This involved significant financial reporting changes as follows:  Capitalized Aurora Gold Mine costs were transferred from assets under development to the relevant asset categories including mineral properties, plant and equipment, and to inventory;  Capitalized costs included within mineral properties, plant and equipment began to be depreciated consistent with the Company’s established accounting policies;  Capitalization of interest expense, stock based compensation, changes to and accretion of asset retirement obligations, amortization of deferred financing costs and depreciation of property and equipment, all ceased;  Capitalization of pre-commercial production revenues and operating costs ceased; and  Commenced recording of mine operating results in the consolidated statement of operations and comprehensive income (loss). Deferred stripping costs: In open pit mining operations, it is necessary to remove overburden and other waste materials in order to produce inventory or to improve access to ore which will be mined in the future. The process of removing overburden and waste materials is referred to as stripping. Prior to the commencement of commercial production, stripping costs are capitalized as part of assets under development. Where the costs are incurred to produce inventory, the production stripping costs are accounted for as a cost of producing those inventories. Where the costs are incurred to improve access to ore which will be mined in the future, the costs are deferred and capitalized to mineral properties, plant and equipment as a stripping activity asset (a non-current asset) if improved access to the ore body is probable, the component -40- of the ore body can be accurately identified, and the costs relating to the stripping activities associated with the component can be reliably measured. Capitalized costs are amortized using a unit-of-production basis over the proven and probable reserves to which they relate. If these criteria are not met, the costs are expensed in the period in which they are incurred. Inventory: Inventory classifications include stockpiled ore, in-circuit inventory, finished goods inventory and materials and supplies. The value of all production inventories include direct production costs and attributable overhead and depreciation incurred to bring the materials to their current point in the processing cycle. General and administrative costs for the corporate office are not included in any inventories. All inventories are valued at the lower of cost and net realizable value, with net realizable value determined with reference to market prices, less estimated future production costs (including royalties) to convert inventories into saleable form. i. ii. Stockpiled ore represents unprocessed ore that has been mined and is available for future processing. Stockpiled ore is measured by estimating the number of tonnes (by truck counts or by physical surveys) added to or removed from the stockpile, the number of contained ounces (based on assay data) and estimated gold recovery percentage. Stockpiled ore value is based on the costs incurred (including depreciation) in bringing the ore to the stockpile. Costs are added to the stockpiled ore based on current mining costs per tonne and are removed at the average costs per tonne of ore in the stockpile. In-circuit inventory represents material that is currently being treated in the processing plant to extract the contained gold and to transform it to a saleable form. The amount of gold in the in- circuit inventory is determined by assay values and by measure of the various gold bearing materials in the recovery process. The in-circuit gold is valued at the average of the beginning inventory and the costs of material fed into the processing stream plus in-circuit conversion costs including applicable mine-site overheads, and depreciation related to the processing facilities. iii. Finished goods inventory is gold in the form of doré bars that have been poured. Included in the costs are the direct costs of mining and processing operations as well as direct mine site overheads, and depreciation. iv. Materials and supplies inventories consist mostly of equipment parts and other consumables required in the mining and ore processing activities, and are valued at the lower of average cost and net realizable value. Revenue recognition: Revenue from the sale of refined gold is recognized when the Company has transferred significant risks and benefits of ownership to the buyer; it is probable that the economic benefits associated with the transaction will flow to the Company; the Company has no significant continuing involvement; and the amount of revenue and costs incurred or costs to be incurred in respect of the transaction can be measured reliably. The above occurs when the refined gold has been physically delivered, which is also the date when title has passed to the buyer pursuant to a purchase agreement that fixes the quantity and price of the gold for each delivery. Prior to achieving commercial production, proceeds from gold sales were included in assets under development. Available for sale securities Investments in equity securities classified as available-for-sale financial assets are accounted for at their fair value, which is determined based on the last quoted market price. Changes in the market value of available-for-sale equity securities as well as the related foreign exchange and tax impact, if any, are -41- accounted for in accumulated other comprehensive income (loss) until the equity securities are sold or are determined to be other-than-temporarily impaired. When available-for-sale equity securities are sold or are determined to be other-than-temporarily impaired, the related accumulated change in accumulated other comprehensive income (loss) is reclassified to net loss. Recent Accounting Pronouncements Revenue recognition In May 2014, the IASB issued IFRS 15 “Revenue from Contracts with Customers” (“IFRS 15”). The standard replaces IAS 11 “Construction Contracts”, IAS 18 “Revenue”, IFRIC 13 “Customer Loyalty Programmes”, IFRIC 15 “Agreements for the Construction of Real Estate”, IFRIC 18 “Transfer of Assets From Customers” and SIC 31 “Revenue – Barter Transactions Involving Advertising Services”. IFRS 15 establishes principles for reporting the nature, amount, timing, and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. This standard is effective for annual periods beginning on or after January 1, 2018, and permits early adoption. The Company is in the process of determining the impact of IFRS 15 on its consolidated financial statements. Financial instruments In July 2014, the IASB issued the final version of IFRS 9 “Financial Instruments” (“IFRS 9”). This standard is effective for annual periods beginning on or after January 1, 2018, and permits early adoption. IFRS 9 provides a revised model for recognition, measurement and impairment of financial instruments and includes a substantially reformed approach to hedge accounting. The Company is in the process of determining the impact of IFRS 9 on its consolidated financial statements. Leases In January 2016, the IASB issued IFRS 16 “Leases” (“IFRS 16”). This standard is effective for annual periods beginning on or after January 1, 2019, and permits early adoption, provided IFRS 15, has been applied, or is applied at the same date as IFRS 16. IFRS 16 requires lessees to recognize assets and liabilities for most leases. The Company is in the process of determining the impact of IFRS 16 on its consolidated financial statements. Taxes In January 2016, the IASB issued Recognition of Deferred Tax Assets for Unrealized Losses (Amendments to IAS 12). The amendments apply retrospectively for annual periods beginning on or after January 1, 2017. Earlier application is permitted. The amendments clarify that the existence of a deductible temporary difference depends solely on a comparison of the carrying amount of an asset and its tax base at the end of the reporting period, and is not affected by possible future changes in the carrying amount or expected manner of recovery of the asset. The amendments also clarify the methodology to determine the future taxable profits used for assessing the utilization of deductible temporary differences. The Company is in the process of determining the impact of the amendment on its consolidated financial statements. Critical Accounting Estimates With the commencement of commercial production at the Aurora Gold Mine on January 1, 2016, the Company has also updated its significant judgements, estimates and assumptions used in the preparation of its financial statements, as follows: The preparation of consolidated financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the -42- consolidated financial statements and the reported amounts of expenses and other income for the reporting period. Judgments, estimates and assumptions are periodically evaluated and are based on management's experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. However, actual outcomes can differ from these estimates. Areas of judgment, estimate and assumptions that have the most significant effect on the amounts recognized in the consolidated financial statements are as follows: Development costs and commencement of commercial production: Mineral properties are comprised of historical costs associated with acquisition, development and construction of mining properties and is stated at historical cost less depletion. Historical cost includes expenditures directly attributable to acquisition and subsequent costs to develop mineral reserves and resources. Such costs are capitalized only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. Mineral properties are not subject to depreciation until processing plant construction associated with a mineral property is completed and initial commercial production is achieved. Incidental revenues and operating costs are included in mineral properties prior to the plant achieving commercial production, which occurs when the plant is substantially complete and ready for its intended use. Revenue recognition and depreciation of mineral properties begins when commercial production has been achieved. There are a number of factors that the Company considers when determining if conditions exist for the commencement of commercial production of an operating mine, including the following judgements:  Completion of operational commissioning of each major mine and plant component.  Demonstrated ability to mine and mill consistently and without significant interruption at a pre- determined average rate of design capacity of 75%, composed of both soft and hard rock.  The passage of a reasonable period of time for testing of all major mine and plant components.  Gold recoveries are at or near expected production levels. Impairment of assets: The Company assesses its cash-generating units annually to determine whether any indication of impairment exists. Where an indicator of impairment exists, an estimate of the recoverable amount is made, which is considered to be the higher of the fair value of the asset less costs of disposal and value in use. The determination of the recoverable amount requires the use of estimates and assumptions such as long-term commodity prices, discount rates, future capital requirements, exploration potential and future operating performance. Fair value less costs to dispose is determined as the amount that would be obtained from the sale of the asset in an arm's-length transaction between knowledgeable and willing parties. Value in use is generally determined as the present value of estimated future cash flows arising from the continued use of the asset, which includes estimates such as the cost of approved future expansion plans and eventual disposal. Cash flows are discounted by an appropriate pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. Changes in any of the assumptions or estimates used in determining the fair value could impact the impairment analysis. Mineral Reserves and Resources: The Company estimates its Mineral Reserves and Mineral Resources based on information compiled by qualified persons as defined in accordance with NI 43-101, “Standards of Disclosure for Mineral Projects” issued by the Canadian Securities Administrators. Mineral Reserves are estimates of the amount of ore that can be economically and legally extracted from the Company’s mining properties. -43- There are numerous estimates in determining Mineral Reserves and Mineral Resources. Such estimation is a subjective process, and the accuracy of any Mineral Reserve or Mineral Resource estimate is a function of the quantity and quality of available data and of the assumptions made and judgements used in engineering and geological interpretation. Changes to management’s assumptions and judgements made in estimating the size and grade of the ore body, metallurgical assumptions made in estimating recovery of the ore body, including economic estimates of commodity prices, production costs, future capital requirements, and exchange rates, will impact Mineral Reserve and Mineral Resource estimates. These estimates and assumptions valid at the time of estimation may change significantly when new information becomes available. This may result in a change in the economic status of the Mineral Reserve and may ultimately result in Mineral Reserves being revised. Changes in the Mineral Reserve or Mineral Resource estimates may impact the carrying value of mineral properties, plant and equipment, the calculation of depreciation expense, asset retirement obligations, and the recognition of deferred tax amounts. Units-of-production (“UOP”) depreciation: The Company uses estimated proven and probable mineral reserves as the basis for determining the depreciation of certain mineral properties, plant and equipment. This results in a depreciation charge proportional to the depletion of the anticipated remaining mine life. These calculations require the use of estimates and assumptions, including the amount of proven and probable mineral reserves. Changes in the estimated mineral reserves will result in changes to the depreciation charges over the remaining life of the operation. A decrease in the mineral reserves would increase depreciation expense and this could have a material impact on operating results. The depreciation base is updated on an annual basis based on the new mineral estimates. Recovery of deferred tax assets: Judgment is required in determining whether deferred tax assets are recognized on the consolidated balance sheet. Deferred tax assets require management to assess the likelihood that the Company will generate taxable income in future periods in order to utilize recognized deferred tax assets. Estimates of future taxable income are based on forecasted income from operations and the application of existing local tax laws. To the extent that future taxable income differs significantly from estimates, the ability of the Company to realize the net deferred tax assets recorded in the consolidated balance sheet could be impacted. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Company has the legal right and intent to offset. Asset retirement obligations: Liabilities for asset retirement obligations are recognized at the time of environmental disturbance, in amounts equal to the discounted value of expected future mine reclamation and closure costs. The Company’s provision for asset retirement obligations represents management’s best estimate of the present value of the future cash outflows required to settle the liability. Factors that affect the final cost of remediation include estimates of the extent and costs of rehabilitation activities, the expected timing, technological changes, cost increases and changes in discount rates. Changes in the above factors can result in a change to the asset retirement obligation recognized by the Company. This liability is reassessed and re-measured at each reporting date. Inventory valuation: Inventories are recorded at the lower of cost or net realizable value. The allocation of costs to in-circuit inventory and the determination of net realizable value for all inventories involves the use of estimates. There is a high degree of judgment in estimating future costs, future production levels, contained gold -44- ounces, gold recovery levels and market prices, including timing and recovery of stockpiled inventory ore, which can vary significantly from the estimates. Actual results can therefore vary significantly from estimates used in the determination of the carrying value of inventories. Depreciation of equipment: Assets such as buildings, plant equipment, mobile fleet, and other equipment are depreciated net of residual value, on a straight line basis, over the useful their useful lives. Significant judgment is involved in the determination of useful life and residual values for the computation of depreciation, and no assurance can be given that actual useful lives and residual values will not differ significantly from current assumptions. -45- GUYANA GOLDFIELDS INC. Consolidated Financial Statements (Expressed in United States Dollars) Years ended December 31, 2016 and 2015 -46-February 23, 2017 Independent Auditor’s Report To the Shareholders of Guyana Goldfields Inc. We have audited the accompanying consolidated financial statements of Guyana Goldfields Inc. and its subsidiaries, which comprise the consolidated balance sheets as at December 31, 2016 and December 31, 2015 and the consolidated statements of comprehensive income, changes in equity and cash flows for the years then ended, and the related notes, which comprise a summary of significant accounting policies and other explanatory information. Management’s responsibility for the consolidated financial statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion. PricewaterhouseCoopers LLP PwC Tower, 18 York Street, Suite 2600, Toronto, Ontario, Canada M5J 0B2 T: +1 416 863 1133, F: +1 416 365 8215 “PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership. -47-Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Guyana Goldfields Inc. and its subsidiaries as at December 31, 2016 and December 31, 2015 and their financial performance and their cash flows for the years then ended in accordance with International Financial Reporting Standards. (Signed) “PricewaterhouseCoopers LLP” Chartered Professional Accountants, Licensed Public Accountants -48-GUYANA GOLDFIELDS INC. MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING The accompanying consolidated financial statements, and notes thereto, and other information of Guyana Goldfields Inc. (the “Company”) were prepared by management in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. Management acknowledges responsibility for the consolidated financial statements, including responsibility for significant accounting judgments and estimates and the choice of accounting principles and methods that are appropriate to the Company’s circumstances. The significant accounting policies of the Company are summarized in Note 3 to the consolidated financial statements. the preparation and presentation of In order to discharge management’s responsibility for the integrity of the financial statements, the Company maintained a system of internal controls over the financial reporting process. These controls are designed to provide reasonable assurance that the Company’s assets are safeguarded, transactions are executed and recorded in accordance with management’s authorization, proper records are maintained and relevant and reliable financial information is produced. The Board of Directors is responsible for reviewing and approving the consolidated financial statements together with other financial information of the Company and for ensuring that management fulfills its financial reporting responsibilities. The Audit Committee assists the Board of Directors in fulfilling this responsibility. The Audit Committee meets with management as well as with the independent auditors to review the internal controls over the financial reporting process, the consolidated financial statements together with other financial information of the Company. The Audit Committee reports its findings to the Board of Directors for its consideration in approving the consolidated financial statements together with other financial information of the Company for issuance to the shareholders. The external auditors have full and unrestricted access to the Audit Committee to discuss the scope of their audit, the adequacy of the system of internal controls, and the review of financial reporting issues. Management recognizes its responsibility for conducting the Company’s affairs in compliance with established financial standards, and applicable laws and regulations, and for maintaining proper standards of conduct for its activities. /s/ Scott Caldwell Chief Executive Officer Toronto, Canada February 23, 2017 /s/ Paul J. Murphy Chief Financial Officer -49-GUYANA GOLDFIELDS INC. Consolidated Balance Sheet (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS) December 31, 2016 December 31, 2015 ASSETS Current assets Cash and cash equivalents (Note 5) Available for sale security (Note 6) Accounts receivable, prepaid expenses, other assets (Note 7) Deposits with suppliers (Note 8) Inventory (Note 9) Restricted cash (Note 10) Non-current assets Restricted cash (Note 10) Mineral properties, plant and equipment (Note 11) Derivative asset (Note12) Deferred tax asset (Note 20) Total assets LIABILITIES AND EQUITY Current liabilities Accounts payable and accrued liabilities Current portion of debt facility (Note 13) Derivative liability (Note 12) Total current liabilities Non-current liabilities Debt facility (net) (Note 13) Asset retirement obligation (Note 14) Restricted Share Unit (RSU) liability (Note 16) Deferred tax liability (Note 20) Derivative liability (Note 12) Total liabilities Equity Share capital (Note 15) Stock options (Note 16) Contributed surplus Accumulated other comprehensive income (Note 6) Accumulated deficit Total equity Total liabilities and equity $ $ $ $ $ $ $ 73,151 30,699 5,531 7,081 28,904 - 145,366 1,184 275,370 1,025 15,890 438,835 14,320 19,603 - 33,923 58,810 4,988 28 4,242 - 101,991 490,600 5,999 26,824 20,698 (207,275) 336,844 438,835 $ $ $ $ $ $ $ 12,899 - 1,404 1,000 - 27,146 42,449 126 295,880 - 28,936 367,391 32,476 28,010 1,378 61,864 116,750 4,019 - - 942 183,575 383,695 7,840 26,543 - (234,262) 183,816 367,391 The notes on pages 54 to 80 are an integral part of these consolidated financial statements. Commitments and Contingencies (Note 22) APPROVED ON BEHALF OF THE BOARD: Subsequent Events (Note 26) “J. Patrick Sheridan” “Wendy Kei” Director Director -50-GUYANA GOLDFIELDS INC. Consolidated Statements of Comprehensive Income (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT PER SHARE AMOUNTS) For the year ended December 31 2016 2015 Revenues Metal sales Cost of sales Production costs Royalty Depreciation Earnings from mine operations Corporate general and administrative expenses (Note 17) Exploration and evaluation expenses (Note 18) Stock-based compensation (Note 16) Depreciation Earnings (loss) before finance income (expense) and taxes Net finance expense (Note 19) Earnings (loss) before tax Deferred tax (expense) recovery (Note 20) Net earnings Other Comprehensive Income Unrealized gain on available-for-sale security, net COMPREHENSIVE INCOME Net earnings per share Basic Diluted Weighted average number of shares outstanding Basic Diluted $ 194,153 $ 77,386 15,484 30,184 71,099 5,739 1,398 1,588 231 62,143 17,681 44,462 (17,477) 26,985 20,698 47,683 0.17 0.16 $ $ $ $ $ $ - - - - - 4,325 1,616 1,074 149 (7,164) 1,709 (8,873) 28,936 20,063 - 20,063 0.13 0.13 161,094,243 164,318,183 151,386,143 155,688,682 The notes on pages 54 to 80 are an integral part of these consolidated financial statements. -51-GUYANA GOLDFIELDS INC. Consolidated Statements of Changes in Equity (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS) Share Capital Stock Options Contribute d Surplus Deficit Accumulated Other Comprehensive Income At December 31, 2015 $ 383,695 $ 7,840 $ 26,543 $ (234,262) $ Shares issued on exercise of options Fair value of options exercised Stock-based compensation Expired options Issued by Prospectus Offering Share issue expense Other comprehensive income Net earnings for the period At December 31, 2016 5,989 - 3,086 (3,086) - - 1,526 (281) 103,462 (5,632) - - - - - - - - - 281 - - - - - - - - - - - $ 490,600 $ 5,999 $ 26,824 $ (207,277) $ 20,698 $ 336,844 20,698 20,698 $26,985 - 26,985 Total Equity $ 183,816 5,989 - 1,526 - 103,462 (5,632) - - - - - - - Share Capital Stock Options Contributed Surplus Deficit At December 31, 2014 $ 377,668 $ 7,670 $ 26,334 $ (254,325) Shares issued on exercise of options Fair value of options exercised Stock-based compensation Expired options Forfeited options Net loss for the period 4,196 - 1,831 (1,831) - - - - 2,210 (163) (46) - - - - 163 46 - - - - - - 20,063 At December 31, 2015 $ 383,695 $ 7,840 $ 26,543 $ (234,262) Accumulated Other Comprehensive Income - Total Equity $ 157,347 - - - - - - - 4,196 - 2,210 - - 20,063 $ 183,816 The notes on pages 54 to 80 are an integral part of these condensed consolidated interim financial statements. -52-GUYANA GOLDFIELDS INC. Consolidated Statements of Cash Flows (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS) For the years ended December 31 Cash provided by (used in) Operations Net income Items not involving cash: Depreciation Deferred tax expense (recovery) Derivative instruments (gain) loss Stock-based compensation Unrealized foreign exchange loss (gain) Amortization of deferred financing Accretion on asset retirement obligation Write-off of deferred financing costs Change in non-cash operating working capital: Change in inventory Deposits with suppliers Accounts receivable, prepaid expenses and other assets Accounts payable and accrued liabilities Financing (Repayment) Proceeds from long-term debt (net) Proceeds from exercise of stock options Deferred financing costs Proceeds from prospectus offering Share issue expenses Investing Expenditures on development Additions to mineral properties, plant and equipment Deposits with suppliers Contract advances Release of restricted cash, net Investment in available for sale security Net change in cash and cash equivalents Effect of exchange rate on cash held in foreign currency Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year (Note 5) Interest paid (included in Net Income) The notes on pages 54 to 80 are an integral part of these consolidated financial statements. 2016 2015 $ 26,985 $ 20,063 30,415 17,477 (3,413) 1,588 467 3,629 56 7,271 (13,362) - (3,136) 8,558 76,535 (75,660) 5,988 (1,587) 103,462 (5,632) 26,571 (25,273) (27,224) (6,175) - 26,000 (10,000) (42,672) 60,434 (182) 12,899 73,151 9,178 $ $ - (28,936) 2,320 1,074 (668) 149 - - - (1,000) 317 1,754 (4,927) 87,087 4,196 (109) - - 91,174 (105,524) (986) 10,417 6,015 (90,078) (3,831) (481) 17,211 12,899 2,216 $ $ -53-GUYANA GOLDFIELDS INC. Notes to Consolidated Financial Statements (Expressed in thousands of United States Dollars, except share and per share amounts) For the twelve months ended December 31, 2016 and December 31, 2015 1. NATURE OF OPERATIONS Guyana Goldfields Inc. (the "Company" or "Guyana Goldfields") is a company domiciled in Canada and was incorporated on December 12, 1994, under the Canadian Business Corporations Act. The Company shares are publicly traded on the Toronto Stock Exchange (TSX:GUY). The Company’s head office is registered at 141 Adelaide Street West, Suite 1608, Toronto, Ontario, Canada. Guyana Goldfields Inc. and its wholly owned subsidiaries are engaged in the acquisition, exploration, development and operation of previous metal mineral properties, principally in Guyana, South America. The Company’s primary asset is its wholly owned Aurora Gold Mine, located in Guyana South America. On January 1, 2016 the Company declared commercial production of the Aurora Gold Mine. 2. BASIS OF PRESENTATION (a) Statement of compliance These consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”) and Interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”). The preparation of consolidated financial statements requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities and expenses. See Note 4 for significant judgements, estimates and assumptions. The consolidated financial statements were authorized for issue by the Board of Directors on February 23, 2017. (b) Basis of measurement These consolidated financial statements have been prepared on the historical cost basis except for derivative instruments and available for sale investments, which are measured at fair value through profit or loss and other comprehensive income, respectively. (c) Functional and presentation currency of presentation These consolidated financial statements are presented in United States dollars, which is the functional currency of the Company and all its subsidiaries. All financial information presented in United States dollars has been rounded to the nearest thousand. Some figures in these statements have been expressed in Canadian Dollars (Cdn$) for information purposes, and have been denoted as such. -54-GUYANA GOLDFIELDS INC. Notes to Consolidated Financial Statements (Expressed in thousands of United States Dollars, except share and per share amounts) For the twelve months ended December 31, 2016 and December 31, 2015 (d) Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company. The consolidated financial statements include the accounts of the Company and the following subsidiaries: Entity name Aranka Gold Inc. AGM Inc. Aranka Gold Inc. (Guyana) Guy Gold Inc. Aranka Gold (Barbados) Inc. Aurora Gold (Barbados) Inc. Guygold Barbados Inc. Aurora USA Ltd Guyana Goldfields Inc. UK Limited Place of Incorporation Canada Guyana Guyana Guyana Barbados Barbados Barbados United States United Kingdom Ownership 100% 100% 100% 100% 100% 100% 100% 100% 100% Control is achieved where the Company has the power to govern the financial and operating policies of an invested entity so as to obtain benefits from its activities. All intra-group transactions, balances, income and expenses are eliminated on consolidation. 3. ACCOUNTING POLICIES The accounting policies set out below have been applied consistently to all years presented in these consolidated the date of financial statements, except commencement of commercial production for the Aurora Gold Mine: for the following new policies adopted effective January 1, 2016, • Commercial production (see Note 3(h)), • Deferred stripping costs (see Note 3(j)), • • Revenue recognition (see Note 3(k)) Inventory (see Note 3(e)), and (a) Cash and cash equivalents Cash and cash equivalents comprise cash at banks, cash on hand and other highly liquid short-term instruments with maturity dates less than ninety days. (b) Restricted cash Cash subject to restrictions that prevent its use for general purposes is presented as restricted cash. (c) Short-term investments Short-term investments are designated as financial assets at fair value through profit and loss and are recorded at fair value using the last bid price. They represent the Company’s investment portfolio in junior mining exploration companies. The purchase and sale of short-term investments is recognized and derecognized as applicable, using settlement date accounting. (d) Available for sale securities Investments in equity securities classified as available-for-sale financial assets are accounted for at their fair value, which is determined based on the last quoted market price. Changes in the market value of available-for-sale equity -55-GUYANA GOLDFIELDS INC. Notes to Consolidated Financial Statements (Expressed in thousands of United States Dollars, except share and per share amounts) For the twelve months ended December 31, 2016 and December 31, 2015 securities as well as the related foreign exchange and tax impact, if any, are accounted for in accumulated other comprehensive income (loss) until the equity securities are sold or are determined to be other-than-temporarily impaired. When available-for-sale equity securities are sold or are determined to be other-than-temporarily impaired, the related accumulated change in accumulated other comprehensive income (loss) is reclassified to net loss. (e) Inventory Inventory classifications include stockpiled ore, in-circuit inventory, finished goods inventory and materials and supplies. The value of all production inventories include direct production costs and attributable overhead and depreciation incurred to bring the materials to their current point in the processing cycle. General and administrative costs for the corporate office are not included in any inventories. All inventories are valued at the lower of cost and net realizable value, with net realizable value determined with reference to market prices, less estimated future production costs (including royalties) to convert inventories into saleable form. i. ii. iii. iv. Stockpiled ore represents unprocessed ore that has been mined and is available for future processing. Stockpiled ore is measured by estimating the number of tonnes (by truck counts or by physical surveys) added to or removed from the stockpile, the number of contained ounces (based on assay data) and estimated gold recovery percentage. Stockpiled ore value is based on the costs incurred (including depreciation) in bringing the ore to the stockpile. Costs are added to the stockpiled ore based on current mining costs per tonne and are removed at the average costs per tonne of ore in the stockpile. In-circuit inventory represents material that is currently being treated in the processing plant to extract the contained gold and to transform it to a saleable form. The amount of gold in the in-circuit inventory is determined by assay values and by measure of the various gold bearing materials in the recovery process. The in-circuit gold is valued at the average of the beginning inventory and the costs of material fed into the processing stream plus in-circuit conversion costs including applicable mine-site overheads, and depreciation related to the processing facilities. Finished goods inventory is saleable gold in the form of doré bars that have been poured. Included in the costs are the direct costs of mining and processing operations as well as direct mine site overheads, and depreciation. Materials and supplies inventories consist mostly of equipment parts and other consumables required in the mining and ore processing activities, and are valued at the lower of average cost and net realizable value. At December 31, 2015, all inventories above are included within assets under development. (f) Exploration and evaluation costs Exploration and evaluation costs incurred on the exploration and evaluation of potential mineral reserves and resources include costs such as: i. ii. iii. iv. v. vi. Acquisition of rights to explore; exploratory drilling, trenching and sampling; accumulating exploration data through topographical and geological studies; determining the volume and grade of resources; test work on geology, metallurgy, mining, geotechnical and environmental; and conducting engineering, marketing and feasibility studies. Exploration and evaluation costs are expensed as incurred. Purchased exploration and evaluation assets are recognized as assets at their cost of acquisition or at fair value if purchased as part of a business combination. -56-GUYANA GOLDFIELDS INC. Notes to Consolidated Financial Statements (Expressed in thousands of United States Dollars, except share and per share amounts) For the twelve months ended December 31, 2016 and December 31, 2015 (g) Development costs Expenditures are considered as development costs when the work completed supports the future development of the property through the issuance of a National Instrument (“NI”) 43-101 technical report or definitive bankable feasibility study, and such development receives appropriate Board of Director approvals. Subsequent to this point, development expenditures are then capitalized and classified as assets under development, a component of mineral properties, plant and equipment. Development expenditures represent costs incurred to obtain access to proven and probable reserves and to provide facilities for extracting, treating, gathering, transporting and storing of minerals. Development expenditures are capitalized to the extent that they are necessary to bring the property to commercial production. Items which meet these criteria include: i. ii. iii. iv. v. vi. vii. the purchase price for acquired development assets, including any duties and any non-refundable taxes; costs directly related to bringing the asset to the location and condition for intended use such as drilling costs and removal of overburden to establish access to the ore reserve; direct and indirect costs incurred if they can be directly attributable to the area of interest; pre-production expenditures (including pre-production revenues) substantially complete and ready for its intended use; the present value of the initial estimate of the future costs of dismantling and removing the item and restoring the site on which it is located; costs incurred to expand operating capacity; and borrowing costs incurred while construction and development activities are in progress, when they directly relate to financing the construction of the project, and when general borrowings would have been avoided if the expenditure on the qualifying assets had not been made. to the mine being incurred prior Projects are assessed to determine the point of commencement of production of the mine. (h) Commercial production The development phase ends and the production phase begins when the mine is in the condition necessary for it to be capable of operating in the manner intended by management. Various relevant criteria are considered to assess when the mine is substantially complete and ready for its intended use and moved into the production phase. Some of the criteria considered include, but are not limited to: • Completion of operational commissioning of each major mine and plant component. • Demonstrated ability to mine and mill consistently and without significant interruption at a pre-determined average rate of design capacity of 75%, composed of both soft and hard rock. The passage of a reasonable period of time for testing of all major mine and plant components. • • Gold recoveries are at or near expected production levels. Commercial production will be declared on the first day of the calendar month following achievement of the above milestones. Upon achieving commercial production, costs are transferred from assets under development into the appropriate asset classification such as inventory and mineral properties, plant and equipment. Once in commercial production, gold sales will be recognized as revenue, and production costs as a component of cost of sales. Development expenditures incurred during the production phase to provide access to ore reserves in future periods; expand existing capacity; or generally provide future economic benefits will continue to be capitalized under the Company’s accounting policies on development costs, and mineral properties, plant and equipment. -57-GUYANA GOLDFIELDS INC. Notes to Consolidated Financial Statements (Expressed in thousands of United States Dollars, except share and per share amounts) For the twelve months ended December 31, 2016 and December 31, 2015 Effective January 1, 2016, upon declaring commercial production at the Aurora mine, the Company transitioned from accounting for certain costs as a development stage company to accounting for certain costs as an operating company. This involved significant financial reporting changes as follows: • Capitalized Aurora mine costs were transferred from assets under development to the relevant asset categories including mineral properties, plant and equipment, and to inventory; • Capitalized costs included within mineral properties, plant and equipment began to be depreciated consistent with the Company’s established accounting policies; • Capitalization of interest expense, stock based compensation, changes to and accretion of asset retirement obligations, amortization of deferred financing costs and depreciation of property and equipment, all ceased; • Capitalization of pre-commercial production revenues and operating costs ceased; and • Commenced recording of mine operating results in the consolidated statement of operations and comprehensive income (loss). (i) Mineral properties, plant and equipment Mineral properties, plant and equipment are recorded at cost, less accumulated depreciation and accumulated impairment losses. The costs of mineral properties, plant and equipment consists of the purchase price, any costs directly attributable to bringing the asset to the location and condition necessary for its intended use and an initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost can be measured reliably. When a project commences commercial production, the accumulated capitalized development costs are transferred to the appropriate mineral properties, plant and equipment and other assets. From this point forward, costs incurred are either capitalized to inventory or expensed as operating costs, except for capitalized costs related to assets under construction that provide a future benefit. Additional development costs incurred after the commencement of commercial production are capitalized to the extent they are expected to give rise to a future economic benefit and are classified as assets under construction. Interest on borrowings related to construction or development projects is capitalized to the point when substantially all the activities that are necessary to make the asset ready for its intended use are complete. Mineral properties and processing plant Mineral properties are depreciated using a unit of production method based on estimated proven and probable mineral reserves to which they relate. Certain components of the processing facility are also depreciated using the unit-of-production basis over the proven and probable reserves of the mine. Buildings, plant equipment, mobile fleet and other equipment Depreciation on the following assets is recognized based on the cost of the item, less its estimated residual value, using the straight line method over its estimated remaining useful life, or the remaining life of the mine if shorter: Buildings Mobile fleet Equipment – process plant and power plant Vehicles Field equipment Computer equipment Office furniture Leasehold improvements 3 to 10 years 3 to 8 years 3 to 10 years 3 to 5 years 3 to 5 years 3 years 5 years Lesser of term of lease or useful life -58-GUYANA GOLDFIELDS INC. Notes to Consolidated Financial Statements (Expressed in thousands of United States Dollars, except share and per share amounts) For the twelve months ended December 31, 2016 and December 31, 2015 Depreciation on mineral properties, the processing facility and related equipment commenced with the start of commercial production on January 1, 2016. An asset's residual value, useful life and depreciation method are reviewed, and adjusted if appropriate, on an annual basis. Where parts (components) of an item has a different useful life or for which a different depreciation rate would be appropriate, it is accounted for as a separate asset. Expenditure on major maintenance or repairs includes the cost of the replacement of parts of assets and overhaul costs. Where an asset or part of an asset is replaced and it is probable that future economic benefits associated with the item will be available to the Company, the expenditure is capitalized and the carrying amount of the item replaced is derecognized. Similarly, overhaul costs associated with major maintenance are capitalized and depreciated over their useful lives where it is probable that the future economic benefits will be available and any remaining carrying amounts of the cost of previous overhauls are derecognized. All other costs are expensed as incurred. An item of plant and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on disposal of the asset, determined as the difference between the net disposal proceeds and the carrying amount of is recognized in the consolidated statements of operations and comprehensive income (loss). the asset, Assets under construction for assets not related to mineral properties Costs incurred in the course of construction of an asset are capitalized and recognized as assets under construction. On completion of construction activities, costs are transferred to the appropriate category of plant and equipment. Costs to bring an asset to the location and condition necessary for it to be capable of operating in the manner intended by management are capitalized. Depreciation commences once the asset is complete and available for use. (j) Deferred stripping costs In open pit mining operations, it is necessary to remove overburden and other waste materials in order to produce inventory or to improve access to ore which will be mined in the future. The process of removing overburden and waste materials is referred to as stripping. Prior to the commencement of commercial production, stripping costs are capitalized as part of assets under development. Where the costs are incurred to produce inventory, the production stripping costs are accounted for as a cost of producing those inventories. Where the costs are incurred to improve access to ore which will be mined in the future, the costs are deferred and capitalized to mineral properties, plant and equipment as a stripping activity asset (a non-current asset) if improved access to the ore body is probable, the component of the ore body can be accurately identified, and the costs relating to the stripping activities associated with the component can be reliably measured. Capitalized costs are depreciated on a systematic basis over the expected useful life of the identified component of the ore body. If these criteria are not met, the costs are expensed in the period in which they are incurred. (k) Revenue recognition Revenue from the sale of refined gold is recognized when the Company has transferred significant risks and benefits of ownership to the buyer; it is probable that the economic benefits associated with the transaction will flow to the Company; the Company has no significant continuing involvement; and the amount of revenue and costs incurred or costs to be incurred in respect of the transaction can be measured reliably. The above occurs when the refined gold has been physically delivered, which is also the date when title has passed to the buyer pursuant to a purchase agreement that fixes the quantity and price of the gold for each delivery. -59-GUYANA GOLDFIELDS INC. Notes to Consolidated Financial Statements (Expressed in thousands of United States Dollars, except share and per share amounts) For the twelve months ended December 31, 2016 and December 31, 2015 Prior to achieving commercial production, proceeds from gold sales were included in assets under development. (l) Asset retirement obligations The Company’s mining and exploration activities are subject to various government laws and regulations relating to the protection of the environment, including adherence to environmental and social management systems as defined under the Debt Facility. The Company recognizes liabilities for statutory, contractual, constructive or legal obligations associated with the retirement of mineral properties, plant and equipment when those obligations result from the construction, development or normal operation of the assets. The Company has recorded a liability and corresponding asset for the estimated future cost of mine reclamation and closure at the Aurora mine, including the dismantling and demolition of infrastructure, removal of residual materials and remediation of disturbed areas, discounted to net present value. The present value of estimated costs is recorded in the period in which the asset is installed or the environment is disturbed and a reasonable estimate of future costs and discount rates can be made. The provision is present valued based on current market assessments of the time value of money using discount rates based on a risk-free rate that approximates the timing of expenditures to be incurred, and estimates of future cash flows are adjusted to reflect risks specific to the liability. Each period the Company reviews cost estimates and other assumptions used in the valuation of the obligation to reflect changes in circumstances and new information available. The main factors that can cause expected cash flows to change are: changes in laws and regulations governing the protection of the environment; construction of new facilities; methods of reclamation; changes to estimated lives of operations and extent of reclamation work required; changes in the life of mine plan; and changing ore characteristics. Provisions for asset retirement obligations do not include any additional obligations which are expected to arise from future disturbances. After the initial measurement, the obligation is adjusted to reflect the passage of time and changes in the estimated future cash flows underlying the obligation. The change in the provision due to the passage of time is capitalized as development costs, and will be recognized in profit and loss as finance expense after the Aurora mine achieves commercial production. Increases and decreases to the provision relating to the changes in estimated future cash flows are capitalized and once in commercial production will be depreciated over the life of the related asset, unless the amount deducted from the cost exceeds the carrying value of the asset, in which case the excess is recorded in profit and loss. Actual costs incurred upon settlement of the asset retirement obligation are charged against the provision to the extent the provision was established for those costs. Upon settlement of the liability, a gain or loss may be recorded. (m) Impairment of non-financial assets At the end of each reporting period, the Company reviews the carrying amounts of its non-financial assets with finite lives to determine whether there is any indication that those assets have suffered an impairment loss. Where such an indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. The recoverable amount is the higher of an asset’s fair value less cost to sell or its value in use, which is the present value of the future cash flows expected to be derived from an asset. Estimated future cash flows are calculated using estimated future commodity prices, mineral resources, operating and capital costs, using appropriate discount rates. Impairment is determined for an individual asset unless the asset does not generate cash inflows that are independent of those generated from other assets or groups of assets, in which case, the individual assets are grouped together into cash generating units for impairment purposes. An impairment loss is reversed if there is indication that there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does -60-GUYANA GOLDFIELDS INC. Notes to Consolidated Financial Statements (Expressed in thousands of United States Dollars, except share and per share amounts) For the twelve months ended December 31, 2016 and December 31, 2015 not exceed the carrying amount that would have been determined, net of depreciation, if no impairment loss had been recognized. (n) Share based payments Stock Option Plan (equity settled) Equity settled share-based payments to employees and non-employees are measured at the fair value of the equity instrument at the grant date. An individual is classified as an employee when the individual is an employee for legal or tax purposes (direct employee) or provides services similar to those performed by a direct employee, including directors of the Company. The fair value is determined using the Black-Scholes option pricing model, taking into account the terms and conditions upon which the options were granted, and recognized over the period during which the options vest. The vesting periods are generally over a prescribed schedule of up to two to five years from date of grant issuance. The fair value is expensed or capitalized to assets under development, a component of mineral properties, plant and equipment, with a corresponding increase in equity, reflecting a graded vesting method based on the company’s estimate of equity instruments that will eventually vest. Management estimates the number of options likely to vest at the time of a grant and at each reporting date up to the vesting date. Annually, the estimated forfeiture rate is adjusted for actual forfeitures in the period. Upon the exercise of stock options, the consideration received is recorded as share capital and the related stock option equity amount is transferred to share capital. Restricted share units (“RSUs”) (cash settled) RSU’s are granted to employees and directors of the Company as part of long term incentive compensation. Each RSU has the same value as one Guyana Goldfields Inc. common share, based on the five-day volume weighted average trading price. The RSUs vest one-third on the first, second and third anniversary of the grant date and are to be settled in cash. A liability for RSUs is measured at fair value on the grant date and is subsequently adjusted for changes in fair value at each reporting date until settlement. The liability is recognized on a graded vesting basis over the vesting period, with a corresponding charge to net earnings (loss). (o) Long-term debt Debt is classified as current when the Company expects to settle the liability in its normal operating cycle or the liability is due to be settled within twelve months after the date of the consolidated balance sheet. Borrowings are recognized initially at fair value, net of transaction costs incurred related to the borrowings. Fees paid to establish debt facilities are recognized as transaction costs of the debt and are deferred. Transaction costs and fees are any expenditures directly connected with establishing and finalizing the borrowing arrangement. These costs include legal and accounting fees, registration fees, agency fees, and arrangement fees. (p) Income taxes Income tax on the profit or loss for the periods presented comprises current and deferred tax. Income tax is recognized in profit or loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity. Current tax expense is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at period end, adjusted for amendments to tax payable with regards to previous years. Deferred tax is recognized on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable earnings. Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred tax assets are recognized to the extent that it is probable that taxable earnings will be available against which deductible temporary differences can be utilized. The following temporary differences are not provided for: goodwill not deductible for tax -61-GUYANA GOLDFIELDS INC. Notes to Consolidated Financial Statements (Expressed in thousands of United States Dollars, except share and per share amounts) For the twelve months ended December 31, 2016 and December 31, 2015 purposes; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit; and, differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet reporting date. Deferred tax is charged or credited to earnings, except when it relates to items charged or credited directly to equity, in which case the deferred tax is reflected in equity. Deferred tax assets and liabilities are offset where they relate to income taxes levied by the same taxation authority and the Company has the legal right and intent to offset. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized. Deferred tax assets and liabilities are presented as non-current. (q) Income (loss) per share Basic income (loss) per share is calculated based on the weighted average number of common shares issued and outstanding during the year. Diluted income (loss) per share is calculated using the treasury stock method and if converted method, as applicable. The treasury method assumes that outstanding share options with an average market price that exceeds the average exercise prices of the options for the period are exercised and the assumed proceeds are used to repurchase shares of the Company at the average market price of the common share for the period. (r) Financial instruments Financial instruments are measured on initial recognition at fair value, plus, in the case of financial instruments other than those classified as “fair value through profit and loss”, directly attributable transaction costs. Measurement of financial assets in subsequent periods depends on whether the financial instrument has been classified as “fair value through profit and loss”, “available-for-sale”, “held-to-maturity”, or “loans and receivables”. Measurement of financial liabilities subsequent to initial recognition depends on whether they are classified as fair value through profit and loss or “other financial liabilities”. Financial assets and financial liabilities at fair value through profit and loss include financial assets and financial liabilities that are held for trading or designated upon initial recognition as at fair value through profit and loss. These financial instruments are measured at fair value with changes in fair values recognized in the consolidated statements of operations and comprehensive income (loss). Financial assets classified as held-to-maturity and loans and receivables are measured subsequent to initial recognition at amortized cost using the effective interest liabilities classified as fair value through profit and loss, are method. Financial measured in subsequent periods at amortized cost using the effective interest method. liabilities, other than financial Cash and cash equivalents, restricted cash and short-term investments are designated as fair value through profit and loss and are measured at fair value. Trade receivables and certain other assets are designated as loans and receivables. Accounts payable and accrued liabilities and long-term debt are classified as other financial liabilities. Derivative assets and liabilities include derivative financial instruments that do not qualify as hedges, or are not designated as hedges and are classified as fair value through profit and loss. (s) Recent Accounting Pronouncements The following new standards, new interpretations and amendments to standards and interpretations have been issued but are not effective until financial years beginning on or after January 1, 2017 and have not been early adopted. Pronouncements that are not applicable to the company have been excluded from those described below. -62-GUYANA GOLDFIELDS INC. Notes to Consolidated Financial Statements (Expressed in thousands of United States Dollars, except share and per share amounts) For the twelve months ended December 31, 2016 and December 31, 2015 Accounting standards effective on or after January 1, 2017: i. ii. iii. Revenue Recognition - The International Accounting Standards Board (“IASB”) has issued a new standard for the recognition of revenue, IFRS 15 – Revenue from Contracts. This standard will replace IAS 18 which covers contracts for goods and services and IAS 11 which covers construction contracts. The new standard is based on the principle that revenue is recognized when control of a good or service transfers to a customer, so the notion of control replaces the existing notion of risks and rewards. The standard permits a modified retrospective approach for the adoption. Under this approach, entities recognize transitional adjustments in retained earnings on the date of initial application (i.e. January 1, 2018), without restating the comparative period. Entities will only need to apply the new rules to contracts that are not completed as of the date of initial application. The standard is effective for annual reporting periods beginning on or after January 1, 2018. Early adoption is permitted. The Corporation is currently evaluating the impact that the adoption will have on its results of operations, financial position and disclosures. Financial Instruments - IFRS 9 addresses the classification, measurement and de-recognition of financial assets and financial liabilities and introduces new rules for hedge accounting. In July 2014, the IASB made further changes to the classification and measurement rules and also introduced a new impairment model. instruments standard. IFRS 7 (Financial These latest amendments now complete the new financial Instruments: Dislcosure) addresses the disclosure of financial assets and financial liabilities in the financial statements. IFRS 7 will be amended to require additional disclosures on transition from IAS 39 to IFRS 9, effective on adoption of IFRS 9. IFRS 9 is effective for annual periods beginning on or after January 1, 2018 with early adoption permitted. The Corporation continues to monitor and assess the impact of this standard. Leases - In January 2016, the IASB issued IFRS 16 – Leases which establishes the principles that an entity should use to determine the recognition, measurement, presentation and disclosure of leases for both parties to a contract: the customer (‘lessee’) and the supplier (‘lessor’). IFRS 16 replaces the previous leases Standard, IAS 17, Leases, and related Interpretations. IFRS 16 is effective from January 1, 2019 though a company can choose to apply IFRS 16 before that date but only in conjunction with IFRS 15 Revenue from Contracts with Customers. The Company is currently assessing the impact of this standard. 4. SIGNIFICANT JUDGMENTS, ESTIMATES AND ASSUMPTIONS The preparation of consolidated financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses and other income for the reporting period. Judgments, estimates and assumptions are periodically evaluated and are based on management's experience and other factors, future events that are believed to be reasonable under the circumstances. However, actual outcomes can differ from these estimates. Areas of judgment, estimate and assumptions that have the most significant effect on the amounts recognized in the consolidated financial statements are as follows: including expectations of Mineral reserves and resources The Company estimates its Mineral Reserves and Mineral Resources based on information compiled by qualified persons as defined in accordance with NI 43-101, “Standards of Disclosure for Mineral Projects” issued by the Canadian Securities Administrators. Mineral Reserves are estimates of the amount of ore that can be economically and legally extracted from the Company’s mining properties. -63-GUYANA GOLDFIELDS INC. Notes to Consolidated Financial Statements (Expressed in thousands of United States Dollars, except share and per share amounts) For the twelve months ended December 31, 2016 and December 31, 2015 There are numerous estimates in determining Mineral Reserves and Mineral Resources. Such estimation is a subjective process, and the accuracy of any Mineral Reserve or Mineral Resource estimate is a function of the quantity and quality of available data and of the assumptions made and judgements used in engineering and geological interpretation. Changes to management’s assumptions and judgements made in estimating the size and grade of the ore body, metallurgical assumptions made in estimating recovery of the ore body, including economic estimates of commodity prices, production costs, future capital requirements, and exchange rates, will impact Mineral Reserve and Mineral Resource estimates. These estimates and assumptions valid at the time of estimation may change significantly when new information becomes available. This may result in a change in the economic status of the Mineral Reserve and may ultimately result in Mineral Reserves being revised. Changes in the Mineral Reserve or Mineral Resource estimates may impact the carrying value of mineral properties, plant and equipment, the calculation of depreciation expense, asset retirement obligations, and the recognition of deferred tax amounts. Development costs and commencement of commercial production: Mineral properties are comprised of historical costs associated with acquisition, development and construction of mining properties and is stated at historical cost less depletion. Historical cost includes expenditures directly attributable to acquisition and subsequent costs to develop mineral reserves and resources. Such costs are capitalized only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. Mineral properties are not subject to depreciation until processing plant construction associated with a mineral property is completed and initial commercial production is achieved. Incidental revenues and operating costs are included in mineral properties prior to the plant achieving commercial production, which occurs when the plant is substantially complete and ready for its intended use. Revenue recognition and depreciation of mineral properties begins when commercial production has been achieved. There are a number of commencement of commercial production of an operating mine, including the following judgements: the Company considers when determining if conditions exist factors that for the • Completion of operational commissioning of each major mine and plant component. • Demonstrated ability to mine and mill consistently and without significant interruption at a pre-determined average rate of design capacity of 75%, composed of both soft and hard rock. The passage of a reasonable period of time for testing of all major mine and plant components. • • Gold recoveries are at or near expected production levels. Impairment of assets The Company assesses its cash-generating units annually to determine whether any indication of impairment exists. Where an indicator of impairment exists, an estimate of the recoverable amount is made, which is considered to be the higher of the fair value of the asset less costs of disposal and value in use. The determination of the recoverable amount requires the use of estimates and assumptions such as long-term commodity prices, discount rates, future capital requirements, exploration potential and future operating performance. Fair value less costs to dispose is determined as the amount that would be obtained from the sale of the asset in an arm's-length transaction between knowledgeable and willing parties. Value in use is generally determined as the present value of estimated future cash flows arising from the continued use of the asset, which includes estimates such as the cost of approved future expansion plans and eventual disposal. Cash flows are discounted by an appropriate pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. Changes in any of the assumptions or estimates used in determining the fair value could impact the impairment analysis. -64-GUYANA GOLDFIELDS INC. Notes to Consolidated Financial Statements (Expressed in thousands of United States Dollars, except share and per share amounts) For the twelve months ended December 31, 2016 and December 31, 2015 Recovery of deferred tax assets Judgment is required in determining whether deferred tax assets are recognized on the consolidated balance sheet. Deferred tax assets require management to assess the likelihood that the Company will generate taxable income in future periods in order to utilize recognized deferred tax assets. Estimates of future taxable income are based on forecasted income from operations and the application of existing local tax laws. To the extent that future taxable income differs significantly from estimates, the ability of the Company to realize the net deferred assets recorded in the consolidated balance sheet could be impacted. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Company has the legal right and intent to offset. Refer to Note 15 for significant components of the Company’s deferred tax assets and liabilities. Asset retirement obligation Liabilities for asset retirement obligations are recognized at the time of environmental disturbance, in amounts equal to the discounted value of expected future mine reclamation and closure costs. The Company’s provision for asset retirement obligations represents management’s best estimate of the present value of the future cash outflows required to settle the liability. Factors that affect the final cost of remediation include estimates of the extent and costs of rehabilitation activities, the expected timing, technological changes, cost increases and changes in discount rates. Changes in the above factors can result in a change to the asset retirement obligation recognized by the Company. This liability is reassessed and re-measured at each reporting date. Inventory valuation Inventories are recorded at the lower of cost or net realizable value. The allocation of costs to in-circuit inventory and the determination of net realizable value for all inventories involves the use of estimates. There is a high degree of judgment in estimating future costs, future production levels, contained gold ounces, gold recovery levels and market prices, including timing and recovery of stockpiled inventory ore, which can vary significantly from the estimates. Actual results can therefore vary significantly from estimates used in the determination of the carrying value of inventories. Depreciation of equipment Assets such as buildings, plant equipment, mobile fleet, and other equipment are depreciated net of residual value, on a straight line basis, over the useful their useful lives. Significant judgment is involved in the determination of useful life and residual values for the computation of depreciation, and no assurance can be given that actual useful lives and residual values will not differ significantly from current assumptions. Stock Based Compensation The computed amount of share based compensation is not based on historical cost, but is derived based on subjective assumptions input into an option pricing model. The model requires that management make forecasts as to future events. including estimates of: the average future hold period of issued stock options or stock appreciation rights before exercise, expiry or cancellation; future volatility of the Company’s share price in the expected hold period (using historical volatility as a reference); and the appropriate risk-free rate of interest. Share- based compensation incorporates an expected forfeiture rate. The expected forfeiture rate is estimated based on historical forfeiture rates and expectations of future forfeiture rates, and is adjusted if the actual forfeiture rate differs from the expected rate. The resulting value calculated is not necessarily the value that the holder of the instrument could receive in an arm’s length transaction, given that there is no market for these instruments and they are not transferable. It is management’s view that the value derived is highly subjective and dependent upon the input assumptions made. -65-GUYANA GOLDFIELDS INC. Notes to Consolidated Financial Statements (Expressed in thousands of United States Dollars, except share and per share amounts) For the twelve months ended December 31, 2016 and December 31, 2015 Contingencies The assessment of contingencies inherently involves the exercise of significant judgment and estimates of the outcome of future events. By their nature, contingencies will only be resolved when one or more future events occur or fail to occur. 5. CASH AND CASH EQUIVALENTS At December 31, 2016 the Company held $73.1 million (2015 - $12.9 million) of cash with approximately $56.8 million (2015 - $10 million) denominated in United States dollars, with the remaining predominantly in Canadian dollars. Cash is deposited primarily in Canadian chartered banks and financial institutions. 6. AVAILABLE FOR SALE SECURITY During the year the Company purchased a combined 103.2 million shares of SolGold Plc (“SolGold”) for total consideration of $10 million pursuant to SolGold’s capital raisings that closed on September 2, 2016 and October 17, 2016. SolGold is traded on the AIM London Stock Exchange (LON:SOLG). Fair market value of the shares at the date of these financial statements is $30.7 million, resulting in an unrealized gain of $20.7 million accounted for through other comprehensive income. 7. ACCOUNTS RECEIVABLE, PREPAID EXPENSES AND OTHER ASSETS For the years ended December 31 Accounts receivable Prepaid expenses & other assets Derivative asset, current (Note 12) Short-term investments Total 8. DEPOSITS WITH SUPPLIERS 2016 $ 1,594 $ 3,870 67 - 5,531 $ $ 2015 193 1,177 - 34 1,404 Deposits with suppliers represents deposits placed on mining and logistics equipment for delivery in early 2017. 9. INVENTORY For the years ended December 31 Ore stockpiled In-circuit Finished goods Materials and supplies Total $ $ $ 2016 5,180 2,082 1,709 19,933 28,904 $ 2015 - - - - - The amount of depreciation included in inventory at December 31, 2016 is $2.5 million (December 21, 2015 – Nil). -66-GUYANA GOLDFIELDS INC. Notes to Consolidated Financial Statements (Expressed in thousands of United States Dollars, except share and per share amounts) For the twelve months ended December 31, 2016 and December 31, 2015 10. RESTRICTED CASH For the years ended December 31 AGM Inc. closure account (i) AGM Inc. cost overrun equity account (ii) AGM Inc. completion account (ii) Other restricted balances Total $ $ 2016 1,000 - - 184 1,184 $ 2015 - 23,000 4,000 272 27,272 (i) (ii) In accordance with the December 23, 2016 revised Debt Facility the company was required to pre-fund a closure account for $1.0 million. In accordance with the previous Project Loan Facility, in October 2014 the Company placed a total of $10 million into restricted bank accounts prior to first draw under the Facility. In May 2015 and March 2016 the Senior Lenders approved the release of $6 million and $4 million, respectively, in funds held in AGM’s restricted completion bank account back to the parent company, Guyana Goldfields Inc. The $23 million cost overrun equity account was released as part of the revised Debt Facility, on December 23, 2016. 11. MINERAL PROPERTIES, PLANT AND EQUIPMENT COST Aurora Gold Mine Development Assets under construction Mineral properties1 At December 31, 2014 $ 172,186 $ Additions during the period Transfers Pre-commercial production revenues less operating costs Change in asset retirement obligations Interest expense and commitment fees Stock-based compensation Accretion of asset retirement obligation Amortization - deferred financing costs Depreciation - buildings and equipment Disposals At December 31, 2015 Transfer on commercial production Additions during the period Transfers Disposals Recovery of development costs At December 31, 2016 $ 101,664 (6,269) (7,984) 3,978 9,371 1,136 41 3,764 4,589 - 282,476 (282,476) - - - - $ - - - - - - - - - - - - - - - - - - - - - - - - - Buildings, plant and equipment Mobile fleet, other equipment Total $ - $ 19,257 $ 191,443 108 625 2,010 5,644 - - - - - - - - 733 - - - - - - - (1,475) 25,436 - 5,553 - (439) - 103,782 - (7,984) 3,978 9,371 1,136 41 3,764 4,589 (1,475) 308,645 (15,543) 29,106 - (439) (1,439) 94,981 171,952 16,401 (2,202) 7,152 505 - 1,697 - (1,439) - $ 14,199 $ 101,199 $ 174,382 $ 30,550 $ 320,330 -67-GUYANA GOLDFIELDS INC. Notes to Consolidated Financial Statements (Expressed in thousands of United States Dollars, except share and per share amounts) For the twelve months ended December 31, 2016 and December 31, 2015 Effective January 1, 2016, the Company declared the commencement of commercial production at the Aurora Gold Mine. The Company transferred the following amounts from assets under development: $95.0 million to mineral properties $172.0 million to buildings, plant and equipment categories; and $15.5 million to inventory ACCUMULATED DEPRECIATION Aurora Gold Mine development Assets under construction Mineral properties1 Buildings, plant and equipment Mobile fleet, other equipment At December 31, 2014 Depreciation for the period Disposals At December 31, 2015 Disposals Depreciation for the period At December 31, 2016 $ $ $ - - - - - - - - - - - - - - $ - - - - - $ - $ 9,238 $ 323 - 323 - 4,679 (1,475) 12,442 (311) 9,519 6,024 16,963 $ 6,024 $ 17,286 $ 21,650 $ 44,960 Total 9,238 5,002 (1,475) 12,765 (311) 32,506 NET BOOK VALUE December 31, 2015 December 31, 2016 Aurora Gold Mine development Assets under construction Mineral properties1 Buildings, plant and equipment Mobile fleet, other equipment Total $ $ 282,476 - - 14,199 $ $ - 95,175 $ $ 410 152,732 $ $ 12,994 8,900 $ $ 295,880 275,370 1Included in Mineral properties above at December 31, 2016 is $5.0 million of deferred stripping costs (2015 -$0), and $1.0 million in accumulated amortization, for a net book value of $4.0 million. 12. DERIVATIVE ASSETS The Company has entered into diesel swap contracts to mitigate risk associated with volatility in diesel price. The Company has not applied hedge accounting to these derivative contracts. The swap contracts are fair valued at each balance sheet date, with the movement in fair value recognized through “net finance income (expense)” in net earnings (loss). The mark-to-market fair values of all contracts is determined by a financial institution using inputs that are observable and determined using standard valuation techniques. Derivative instruments are classified within Level 2 of the fair value hierarchy. The diesel commodity swap forward contracts are secured under the Facility and documented in the form of an International Swap and Derivatives Association (“ISDA”) master agreement. The following is a summary of the Company’s commitments for diesel forward contracts at December 31, 2016: 2017 2018 2019 Total Contracted operating expenses 5,464 5,888 3,436 14,788 $ Number of litres hedged 12,000,000 14,400,000 7,200,000 33,600,000 Average rate per litre 0.46 0.41 0.48 0.44 $ -68-GUYANA GOLDFIELDS INC. Notes to Consolidated Financial Statements (Expressed in thousands of United States Dollars, except share and per share amounts) For the twelve months ended December 31, 2016 and December 31, 2015 Net asset (liability) classifications on the balance sheet date for December 31, 2016, and 2015 respectively were as follows: As at December 31 Current portion derivative asset (liability) Non-current portion derivative asset (liability) Derivative asset (liability), net 2016 67 1,025 1,092 $ $ 2015 (1,378) (942) $ (2,320) Realized and unrealized gains are recognized in net finance income (expense) for the years ended December 31, 2016 and 2015 respectively were as follows: For the years ended December 31 Realized loss on diesel swap instruments Unrealized gain on diesel swap instruments Total realized and unrealized loss (gain) on derivative instruments $ $ 2016 1,053 (3,413) (2,360) $ $ 2015 150 2,209 2,359 13. DEBT FACILITY On December 23, 2016 the Company renegotiated the Debt Facility (“the Facility”) with its Senior Lenders, paying down the outstanding principal to $80 million. The new Facility is payable in sixteen quarterly principal repayments of $5 million each over a period of four years beginning March 31, 2017. Various covenants and restrictions were removed including the release of $23 million of restricted funds held by the Lenders in the Overrun Equity Account and the elimination of cash flow sweeps. The interest rate has been reduced to 3 month LIBOR average plus 3.5%- 3.75%. There will continue to be no gold hedging requirements or other similar provisions associated with the Facility. Under the Common Terms Agreement, the Company has entered into security and debenture agreements pursuant to which the wholly owned subsidiary, AGM Inc, has granted and created a lien over all its assets and property of any kind to the benefits of the Senior Lenders. Similarly, the parent company Guyana Goldfields Inc. and certain of its wholly owned subsidiaries, namely Aurora Gold (Barbados) Inc., Guygold (Barbados) Inc., and Guy Gold Inc., (collectively the “Related Entities”) have entered into security agreements to grant and create liens over all their related rights, titles, and interests that are necessary for the Aurora mine, for the benefits of the Senior Lenders. In addition, certain of the Related Entities have entered into subordination agreements whereby any intercompany debt owed by these companies has been subordinated to the Facility. The debt facility outstanding consists of the following as at: Year ended December 31 Principal outstanding, beginning of period Facility draw during period Principal repayment during period Principal outstanding, end of period Unamortized deferred financing costs (i) Net debt position Less: Current portion Debt Facility, non-current portion 2016 155,600 $ $ - (75,600) 80,000 (1,587) 78,413 19,603 58,810 2015 68,573 91,427 (4,340) 155,660 (10,900) 144,760 28,010 166,750 -69-GUYANA GOLDFIELDS INC. Notes to Consolidated Financial Statements (Expressed in thousands of United States Dollars, except share and per share amounts) For the twelve months ended December 31, 2016 and December 31, 2015 i) As part of the debt restructuring, the previously capitalized financing fees remaining on the balance sheet were written off, in the amount of $7.3 million. Financing fees associated with the renegotiated Debt Facility of $1.6 million were capitalized and will be amortized over the repayment of the Debt Facility. The costs capitalized were primarily Senior Lender’s fees and legal costs. Scheduled principal repayments, reflecting amounts drawn as of December 31, 2016 are as follows: Principal repayment schedule $ 80,000 $ 20,000 $ 20,000 $ 20,000 $ 20,000 Total 2017 2018 2019 2020 14. ASSET RETIREMENT OBLIGATIONS In the fourth quarter of 2016 the Company recorded additional liability and corresponding asset for the estimated increase in disturbance area, related to the future cost of mine reclamation and closure at the Aurora mine. The future costs include the dismantling and demolition of infrastructure, removal of residual materials and remediation of disturbed areas. The present value of estimated costs is recorded in the period in which the asset is installed or the environment is disturbed and a reasonable estimate of future costs and discount rates can be made. The provision is discounted using an inflation protected risk-adjusted rate of 1.22%. The undiscounted value of the estimated future cash flows related to mine closure is $6 million. The majority of the asset retirement expenditures are expected to be incurred towards the end of the current mine plan commencing 2031. Movement in Asset Retirement Obligation Liability Balance at December 31, 2014 Initial recognition of retirement obligation Accretion Balance, December 31, 2015 Change in estimate Accretion Balance December 31, 2016 - 3,978 41 $ 4,019 913 56 $ 4,988 Under the Debt Facility, the Company is required to fund a mine closure reserve account for the estimated mine closure remediation costs to be incurred, with $5 million to be funded by 2020. As of December 31, 2016 the Company has funded $1 million of the closure account, with the remaining funding to be made in equal installments of $1 million annually through 2020. 15. SHARE CAPITAL The Company is authorized to issue an unlimited number of common shares. The issued and outstanding common shares consist of the following: At December 31, 2014 Issued on exercise of options Fair value of options exercised At December 31, 2015 Issued on exercise of options Fair value of options exercised Issued on Prospectus Offering (i) Number of Shares $ $ 150,443,899 1,994,250 - 152,438,149 4,285,324 - 14,330,000 Amount 377,668 4,196 1,831 383,695 5,989 3,086 103,462 -70-GUYANA GOLDFIELDS INC. Notes to Consolidated Financial Statements (Expressed in thousands of United States Dollars, except share and per share amounts) For the twelve months ended December 31, 2016 and December 31, 2015 Share issue expenses (ii) At December 31, 2016 - 171,053,473 $ (5,632) 490,600 (i) On July 19, 2016 the Company closed a bought deal offering (the “Prospectus Offering”) pursuant to which the Company issued 12,830,000 common shares (the “Common Shares”), at a price of Cdn$9.40 per Common Share for gross proceeds of $92.6 million (or approximately Cdn$120.6 million). The Common Shares were sold pursuant to an underwriting agreement with a syndicate of underwriters. On August 22, 2016 the Company closed the over-allotment option by the underwriters and issued an additional 1,500,000 common shares (the “Common Shares”), at a price of $9.40 per Common Share for gross proceeds of 10.9 million (or approximately Cdn$14.1 million). (ii) Share issue expenses represent underwriters’ commission relating to the Offering, and legal and regulatory costs associated with both the above mentioned Prospectus Offering. 16. SHARE BASED PAYMENTS As part of its long term compensation to certain employees and directors, the Company makes use of the following share based compensation programs: Stock Option Plan - equity settled The stock option plan of the Company (the “Option Plan”) was approved by the shareholders on May 15, 2015. The exercise price of stock options granted in accordance with the plan will be not less than the closing price of the common shares on the trading day immediately prior to the effective date of grant. All option exercises to be settled in the Company’s shares. The following table shows the continuity of stock options during the periods presented: Number of Options Amortized Value At December 31, 2014 11,501,250 $ 7,670 $ Stock-based compensation – issued this period Stock–based compensation – issued prior period Exercised Expired Forfeited 580,000 - (1,994,250) (187,833) (111,667) 101 2,109 (1,831) (163) (46) At December 31, 2015 9,787,500 $ 7,840 $ Stock-based compensation – issued this period Stock–based compensation – issued prior period Exercised Expired Forfeited At December 31, 2016 3,281,000 - (4,285,324) (200,000) (231,669) 8,351,507 167 1,359 (3,086) (281) - 5,999 Weighted Average Exercise Price (Cdn$) 2.43 3.05 - 2.65 3.53 2.66 2.40 5.20 - 1.83 3.95 2.65 -71-GUYANA GOLDFIELDS INC. Notes to Consolidated Financial Statements (Expressed in thousands of United States Dollars, except share and per share amounts) For the twelve months ended December 31, 2016 and December 31, 2015 Share-based compensation expense is comprised of: For the year ended December 31 Stock options fair value vesting -issued current period -issued prior period Less value of options expense capitalized to development costs Restricted share unit fair value Total stock-based compensation expense 2016 167 1,359 - 62 1,588 $ $ 2015 101 2,109 (1,136) - 1,074 $ $ The Company determined the fair value of the stock options granted under the Company’s stock option plan using the Black-Scholes option model with the following assumptions on a weighted average basis: Stock options granted to officers, directors and employees: For the year ended December 31 Fair value exercise price (Cdn$) Risk-free interest rate Dividend yield Expected volatility Expected option life Expected forfeiture rate 2016 5.31 0.88% - 59.58% 3.3 years 7% 2015 3.10 0.87% - 69.68% 4.4 years 6% The weighted average fair value on the grant date, of options granted to officers, directors and employees during the twelve months ended December 31, 2016 was $2.15 (2015-Cdn$1.68). The following are the stock options outstanding and stock options exercisable as at December 31, 2016: Stock Options Outstanding Stock Options Exercisable Range of exercise price (Cdn$) $1.48 - $3.00 $3.01 - $4.00 $4.01 - $10.00 Total Number of options 3,097,173 1,973,334 3,281,000 8,351,507 Weighted average exercise price (Cdn$) 2.65 3.05 4.98 3.66 Weighted average remaining contractual life (years) 3.0 0.9 2.9 2.48 Weighted average exercise price (Cdn$) 2.64 3.03 - 2.80 Weighted average remaining contractual life (years) 3.0 0.5 - 1.98 Number of options 2,461,667 1,756,667 - 4,218,333 The intrinsic value of options outstanding at December 31, 2016 is $15.7 million (2015 - $5.0 million). As of December 31, 2016, the remaining fair value of outstanding unvested options is $6.8 million (2015 - $1.7 million). Restricted Share Unit (RSU) Plan - cash settled The restricted share unit plan of the Company (the “RSU Plan”) was approved by the shareholders on May 15, 2015. The fair value measurement of the units is based on the 5-day weighted average price of the Company. Each unit represents one common share of the Company. On vesting, all share units are to be settled by cash of the Company. The following table is the continuity schedule of RSU’s issued, as of December 31, 2016: # of units Fair value of vested units Issued as at December 31, 2014 Issued during period As at December 31, 2015 Issued during period As at December 31, 2016 - - - 210,000 210,000 - - - - 62 -72-GUYANA GOLDFIELDS INC. Notes to Consolidated Financial Statements (Expressed in thousands of United States Dollars, except share and per share amounts) For the twelve months ended December 31, 2016 and December 31, 2015 17. GENERAL AND ADMINISTRATIVE EXPENSES For the year ended December 31 Salaries and related benefits Office, travel, insurance and other expenses Professional fees Shareholder relations and filing fees Total $ 2016 3,384 975 1,100 280 2015 2,476 $ 999 649 201 $ 5,739 $ 4,325 18. EXPLORATION AND EVALUATION EXPENSES For the year ended December 31 Other Properties Aranka Gold Property Aurora Gold Project Total Aranka Gold Property $ $ 2016 482 916 - 1,398 $ $ 2015 1,358 258 - 1,616 The Company’s has a 100% interest in these properties, and at the option of the Company, the permit holders remain entitled to net smelter return royalties that vary from 1.5% to 2% or a fixed payment amount in lieu thereof. Other Properties Other properties represent exploration expenditures at exploration targets near the vicinity of the Aurora mine. The Company has a 100% interest in these other properties and at the option of the Company, the permit holder remains entitled to a net smelter return royalty of 1.5% or a fixed payment amount in lieu thereof. 19. NET FINANCE EXPENSE For the years ended December 31 Interest expense on Project Loan Facility Deferred financing amortization Write-off of deferred financing costs1 Net gain (loss) on derivative instrument (Note 12) Foreign exchange (loss) gain Other items, net Total finance expense $ $ $ 2016 (9,178) (3,629) (7,271) 2,360 (73) 110 2015 - (2,359) 628 22 (17,681) $ (1,709) 1 On December 23, 2016 the company restructured its debt facility, resulting in the write-off of the unamortized deferred financing fees. See Note 13. -73-GUYANA GOLDFIELDS INC. Notes to Consolidated Financial Statements (Expressed in thousands of United States Dollars, except share and per share amounts) For the twelve months ended December 31, 2016 and December 31, 2015 20. INCOME TAXES The Company’s effective income tax rate differs from the amount that would be computed by applying the federal and provincial statutory rate of 26.50% (2015 – 26.50%) to the net loss. The reasons for the differences are a result of the following: For the years ended December 31 Net income (loss) before taxes EXPECTED TAX (EXPENSE) RECOVERY AT STATUTORY RATES Tax effects of: Change in unrecognized deductible temporary differences Stock-based compensation Change in tax rates Foreign tax rate differentials Other Tax (expense) recovery 2016 44,462 (11,782) (1,119) (299) (1,058) (2,501) (718) (17,477) $ $ 2015 (8,873) $ 2,351 27,284 (284) - (95) (320) 28,936 $ Beginning in 2017, the statutory tax rate in Guyana has been reduced from 30% to 27.5%. At December 31, 2016, net deferred tax asset of $11.6 million (December 31, 2015: $28.9 million) has been recognized. This is composed of a net deferred tax liability of $4.2 million (December 31, 2014 net deferred tax asset of $9.1 million) that has been recorded in a foreign subsidiary that arose from non-capital losses on pre-commercial production operations, net of the deferred tax liability relating to deferred financing costs and exploration and evaluation assets in excess of their tax base. Significant components of the deferred tax (liability) asset in the foreign subsidiary includes: For the years ended December 31 Deferred income tax assets Deductible temporary differences related to: Non-capital loss carry-forwards Unrealized derivative losses Asset retirement obligation Deferred income tax liabilities Taxable temporary differences related to: Deferred financing costs Exploration & evaluation assets Unrealized derivative gains Deferred income tax (liability) asset, net 2016 2015 $ $ $ $ $ 10,225 - 7 10,232 (436) (13,707) (331) (14,474) (4,242) $ $ $ $ $ 18,058 663 1,206 19,927 (3,270) (7,538) - (10,808) 9,119 In addition, a deferred tax asset of $15.9 million (December 31, 2014: $19.8 million) has been recorded in a foreign branch that arose from non-capital losses and exploration and evaluation expenditures. Significant components of the deferred tax assets in the foreign branch: As at December 31 Deferred income tax assets Deductible temporary differences related to: 2016 2015 -74-GUYANA GOLDFIELDS INC. Notes to Consolidated Financial Statements (Expressed in thousands of United States Dollars, except share and per share amounts) For the twelve months ended December 31, 2016 and December 31, 2015 Non-capital loss carry-forwards Exploration & evaluation assets Movement in the net deferred taxes: For the years ended December 31 Balance, beginning of year Recognized in profit & loss/change in unrecognized temporary differences Balance, end of year $ $ $ $ 14,333 1,557 15,890 $ $ 18,119 1,698 19,817 2016 28,936 17,288 11,648 2015 - 28,936 28,936 $ $ Projections of income for the Aurora mine and tax planning initiatives between both the foreign subsidiary and foreign branch, support the conclusion that the recoverability of these deferred tax assets is probable and consequently, the Company has fully recognized these deferred tax assets. Deductible temporary differences have not been recognized in respect of: As at December 31 Non-capital losses Net capital losses Property and equipment Exploration and evaluation Share issue expenses Short-term investments $ $ $ $ $ $ The Company has non-capital losses that will expire, if not utilized, as follows: 2021 2022 2023 2024 2025 2016 66,024 181 2,951 110,874 5,730 918 $ $ $ $ $ $ 2026 & beyond Barbados Canada Guyana United Kingdom United States $ 14 $ 136 $ 20 $ 73 $ - $ 2,969 $ - - - - - - - - 164 377 960 54,978 - - - - - - - - - - - 486 2015 61,394 390 837 146,990 2,405 885 Total $ 3,212 56,479 5,146 701 486 No expiry date - - 5,146 701 - $ 14 $ 136 $ 184 $ 450 $ 960 $ 58,433 $ 5,847 $ 66,024 The aggregate amount of taxable temporary differences associated with investments in subsidiaries, for which no deferred tax liability has been recognized as at December 31, 2016 is $9.1 million. No deferred tax liability has been recognized as the Company controls the timing of reversal and it is not probable that they will reverse in the foreseeable future. 21. RELATED PARTY TRANSACTIONS Remuneration of key management personnel of the Company was as follows: For the years ended December 31 Compensation – salaries and related benefits (i) Directors fees $ 2016 1,862 495 $ 2015 2,060 276 -75-GUYANA GOLDFIELDS INC. Notes to Consolidated Financial Statements (Expressed in thousands of United States Dollars, except share and per share amounts) For the twelve months ended December 31, 2016 and December 31, 2015 Share-based compensation Total 860 3,217 $ $ 1,270 3,606 Key management personnel are defined as the senior management team and members of the Board of Directors. (i) For 2015, $0.9 million of salaries and related benefits was capitalized as assets under development, a component of mineral properties, plant and equipment. All the above related party transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. 22. COMMITMENTS AND CONTINGENCIES The Company is committed to $101.4 million for obligations under the debt facility, contractual commitments, purchases of equipment goods and services, and operating leases, summarized as follows: Debt principal repayments Mine closure funding Other contractual commitments Capital purchase commitments Operating leases Total Commitments At December 31, 2016 Total 2017 2018 2019 2020 80,000 4,000 1,050 14,695 1,686 20,000 1,000 458 14,695 436 20,000 1,000 458 - 436 20,000 1,000 20,000 1,000 84 - 436 50 - 243 $ 101,431 $ 36,589 $ 21,894 $ 21,520 $ 21,293 $ There -after - - 135 135 Contractual obligations exist with respect to royalties, however the amount cannot be estimated with certainty as is dependent on net revenues, which is a function of gold price and volume of ounces sold. 23. SEGMENTED INFORMATION As at December 31, 2016, the Company’s operations comprise a single reporting operating segment engaged in mineral exploration, development and production in Guyana. As the operations comprise a single reporting segment, amounts disclosed in the consolidated financial statements also represent segment amounts. Geographical Information The following geographical information is provided as supplemental information to users of the financial statements to further describe the Company’s operations: As at and for the twelve months ended December 31, 2016 Mineral properties, plant and equipment Total assets Total liabilities Net (income) loss Canada Barbados Guyana $ 7 104,794 1,886 10,000 - 86 6 206 275,363 333,955 100,099 (37,367) United Kingdom - - - 176 Total 275,370 438,835 101,991 (26,985) -76-GUYANA GOLDFIELDS INC. Notes to Consolidated Financial Statements (Expressed in thousands of United States Dollars, except share and per share amounts) For the twelve months ended December 31, 2016 and December 31, 2015 As at and for the twelve months ended December 31, 2015 Mineral properties, plant and equipment Total assets Total liabilities Net (income) loss Canada Barbados Guyana $ 50 $ 32,239 1,458 5,167 - - 6 74 $ 295,830 $ 328,152 182,109 (25,508) United Kingdom Total - - 2 204 $ 295,880 367,391 183,575 (20,063) 24. CAPITAL AND FINANCIAL RISK MANAGEMENT Capital Management The Company manages its capital with the following objectives: • • to ensure sufficient financial flexibility to achieve the ongoing business objectives including funding of future growth opportunities, and pursuit of accretive acquisitions; and to maximize shareholder return through enhancing share value The Company considers its capital to be (1) equity, comprising share capital, stock options, contributed surplus and accumulated deficit, which at December 31, 2016 totalled $337.1 million (December 31, 2015 - $183.8 million), and (2) long-term debt, which at December 31, 2016, was $78.4 million net of unamortized debt issuance costs (December 31, 2015 – $116.8 million). The Company manages capital through its financial and operational budgeting processes that are approved by the Company’s Board of Directors. The Company reviews its working capital and forecasts its future cash flows based on operating expenditures, and other investing and financing activities. The forecast is regularly updated based on exploration and mine operating activities, as well as anticipated future gold production plans. Selected information is frequently provided to the Board of Directors of the Company. 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 team to sustain the future development of the business. The Company’s capital management objectives, policies and processes have remained unchanged during the twelve months ended December 31, 2016. The Company monitors its capital structure and makes adjustments according to market conditions in an effort to meet its objectives given the current outlook of the business and industry in general. The Company may manage its capital structure by issuing new shares, repurchasing outstanding shares, taking on debt, adjusting capital spending, or disposing of assets. The capital structure is reviewed by management and the Board of Directors on an ongoing basis. Financial Risk Management The Company’s activities expose it to a variety of financial risks: market risk, liquidity risk and credit risk. Risk management is carried out by the Company's management team with guidance from the Board of Directors. The Board of Directors also provides regular guidance for overall risk management. The Company uses derivatives as part of its risk management program to mitigate variability associated with changing market values related to diesel price risk exposure. The Company does not purchase derivative financial instruments for speculative purposes. (a) Market risk Market risk is the risk that changes in market factors, such as commodity prices, foreign exchange rates or interest rates, will affect the value of the Company’s financial instruments. Commodity price risk -77-GUYANA GOLDFIELDS INC. Notes to Consolidated Financial Statements (Expressed in thousands of United States Dollars, except share and per share amounts) For the twelve months ended December 31, 2016 and December 31, 2015 The Company’s cash flow and financial position are subject to price risk due to fluctuations in the market price of gold. Gold prices are affected by numerous factors beyond the Company’s control. Fluctuation in the price for gold may adversely affect (1) the Company’s ability to profitably operate Aurora Gold Mine, (2) influence the course of action taken in operating the mine in the future, (3) ability to obtain additional financing, and (4) affect the Company’s ability to meet the Facility’s financial and non-financial covenants. For the year ended December 31, 2016 the Company’s revenues and cash flows were subject to high and low gold prices of $1,339/oz and $1,092/oz, respectively. A 10% change in gold price would impact the Company’s net earnings before tax for the year ended December 31, 2016 by $19.4 million (December 21, 2015 – Nil). The Company’s cost of sales is affected by volatility of diesel price. The Company consumed approximately 21.5 million litres of diesel fuel during 2016. To mitigate this volatility, the Company employs a strategy of using derivative contracts to reduce exposure to changes in diesel prices (note 12). For the year ended December 31, 2016, approximately 7.1 million litres of diesel were not hedged using financial contracts and a 10% change in diesel price would impact the Company’s current year net earnings before tax by $0.3 million. The Company is also exposed to fair value movements on the available for sale investment. A 10% increase or reduction in SolGold’s share price at December 31, 2016 would have increased or reduced comprehensive income by $3.1 million (December 21, 2015 – Nil). There is no impact on net earnings. Currency risk Currency risk is the risk that the fair value of, or future cash flows from, the Company’s financial instruments will fluctuate because of changes in foreign exchange rates. The Company's functional currency is the United States dollar and major purchases are transacted in United States dollars. The Company is subject to gains and losses due to fluctuations in the Canadian dollar, Guyanese dollar and British pound against the United States dollar. Sensitivity to a plus or minus 10% change in all foreign currencies (Canadian dollars, Guyanese dollars and British pounds) against the United States dollar with all other variables held constant as at December 31, 2016, would affect the statements of operations and comprehensive income (loss) by approximately $1.2 million (December 31, 2015 - $0.6 million). The Company funds its exploration activities in Guyana on a cash call basis using United States dollars converted from its Canadian dollar bank accounts held in Canada. The Company maintains Canadian and United States dollar bank accounts in Canada, and Guyanese and United States dollar bank accounts in Guyana. Similarly, the Company foreign exchange exposure to fluctuations in the Canadian and Guyanese dollars is not significant as its annual exploration expenditures, and Canadian dollar cash balances, are both relatively small. The share price of Company’s available for sale investment is denominated in British ponds. A significant portion of the Company’s corporate administrative costs are denominated in Canadian dollars. Fluctuations in the United States dollar exchange rate against the Canadian dollar are not expected to cause a significant impact. Interest rate risk Interest rate risk is the impact that changes in interest rates could have on the Company’s earnings and assets. In the normal course of business, the Company is exposed to interest rate fluctuations as a result its long-term debt, and its cash being invested in interest-bearing instruments. The Debt Facility bears interest at a variable rate (3- month LIBOR plus 3.5% - 3.75%). A plus or minus 1% interest rate change on the Company’s cash balances and long-term debt with all other variables held constant as at December 31, 2016 would not have a material impact on net earnings. The Company evaluates on an ongoing basis opportunities to hedge its interest rate exposure on its long-term debt. -78-GUYANA GOLDFIELDS INC. Notes to Consolidated Financial Statements (Expressed in thousands of United States Dollars, except share and per share amounts) For the twelve months ended December 31, 2016 and December 31, 2015 (b) Liquidity risk Liquidity risk is the risk that the Company will not have sufficient cash resources to meet its financial obligations as they come due. The Company’s liquidity and operating results may be adversely affected if its access to the capital market is hindered, whether as a result of a downturn in stock market conditions generally or as a result of conditions specific to the Company. See note 22 for a summary of the Company’s committed financial obligations. The Company’s future operating cash flow and cash position are highly dependent on gold prices, as well as other factors. Taking into consideration the Company’s current cash position, volatile equity markets, and global uncertainty in the capital markets, the Company is continually reviewing expenditures and assessing business opportunities to enhance liquidity in order to ensure adequate liquidity and flexibility to support its growth strategy, while continuing production at its current operations. A period of continuous low gold prices may necessitate the deferral of capital expenditures which may impact development work and project completion, as well as production from mining operations. In addition, in such a price environment, the Company may be required to adopt one or more alternatives to increase liquidity. The Company regularly evaluates its overall cash position and forecasted cash flows to ensure preservation and security of capital as well as maintenance of liquidity. Forecasting takes into consideration the Company’s debt financing, covenant compliance and internal liquidity targets. (c) Credit risk Credit risk is the risk of financial loss to the Company if a third party to a financial instrument fails to meet its contractual obligations, and arises principally from the Company’s sales of gold, and also from its financing activities including deposits with banks, and derivative contracts. The Company sells its gold to a select financial institution. The Company does not have any historical experience relating to customer default, but considers the credit risk associated with gold sales to be minimal. The Company is not economically dependent on a limited number of customers for the sale of its gold. The Company is also exposed to credit risk related to derivative assets which is equal to the carrying value of the asset. There is no credit risk associated with derivative liabilities. The Company manages credit risk related to derivatives by entering into contracts with high credit-quality counterparties. At December 31, 2016, the Company has entered into derivative contracts with a chartered Canadian bank. The maximum credit exposure at December 31, 2016 is approximately $13.6 million (December 31, 2015 - approximately $1.2 million). The Company maintains substantially all of its cash in interest bearing bank accounts at select Canadian chartered banks. -79-GUYANA GOLDFIELDS INC. Notes to Consolidated Financial Statements (Expressed in thousands of United States Dollars, except share and per share amounts) For the twelve months ended December 31, 2016 and December 31, 2015 25. FAIR VALUE MEASUREMENT The following table sets forth the Company’s financial assets and liabilities that are measured at fair value on a recurring basis by level within the fair value hierarchy. Levels 1 to 3 of the fair value hierarchy are defined based on the degree to which fair value inputs are observable or unobservable, as follows: • • • Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and Level 3 inputs are unobservable (supported by little or no market activity). For years ended December 31 2016 2015 Cash and cash equivalents Financial assets fair valued through profit and loss Diesel swaps Available sale comprehensive income for investments through other Available for sale investment Financial liabilities fair valued through profit and loss RSU plan Level 1 Level 2 Level 1 Level 2 73,151 - 12,899 - - - - 1,092 30,699 62 - - - (2,320) - - Total fair value measured assets and liabilities 73,151 31,853 12,899 (2,320) During the year ended December 31, 2015, there were no transfers between Level 1 and Level 2 fair value measurements. The company does not have any financial assets or liabilities that are fair valued based on unobservable inputs (Level 3). Long-term debt is measured at amortized cost and includes transaction costs on debt financing. The recorded value of long-term debt approximates fair value. 26. SUBSEQUENT EVENTS On February 2, 2017, the Company updated its Mineral Reserves for its Aurora Gold Mine. This updated reserves estimate will form the basis of our amortization of mineral property assets from January 1, 2017 onwards. Mineral property assets are depreciated on a units of production basis. -80-DIRECTORY Directors Alan Ferry, John Patrick Sheridan, Daniel Noone, Scott Caldwell, Jean-Pierre Chauvin, Rene Marion David Beatty, Michael Richings, Wendy Kei Officers Scott Caldwell Paul Murphy Offices Chief Executive Officer Executive VP, Finance & Chief Financial Officer 141 Adelaide Street West, Suite 1608 Toronto, Ontario, Canada M5H 3L5 and 7 North Rd., Lacytown, Georgetown, Guyana, South America Transfer Agent Equity Transfer & Trust Company 200 University Avenue, Suite 400, Toronto ON M5H 4H1 Legal Counsel Cassels Brock LLP 2100 Scotia Plaza, 40 King Street West, Toronto, Ontario M5H 3C2 Auditors PricewaterhouseCoopers LLP PwC Tower, 18 York Street, Suite 2600, Toronto ON M5J 0B2 Shares Traded TSX Exchange Symbol T.GUY Y R O T C E R I D -81- A GOLD MINE IN PRODUCTION GUYANA GOLDFIELDS INC. 1608 -141 Adelaide St. West Toronto, ON Canada M5H 3L5 D: 416-628-5936 F: 416-628-5935 E: info@guygold.com 

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