Cash and cash equivalents

Cash and cash equivalents consist of cash on deposit with banks and highly liquid short-term interest bearing investments with maturities of less than 90 days from the original date of acquisition.

Inventories

Inventories are valued at the lower of average cost and net realizable value.

Property, plant and equipment

Property, plant and equipment are recorded at cost. Amortization of heavy machinery and equipment and office furniture and equipment is calculated on a straight-line basis at annual rates of 30% and 20%, respectively.

Investments

The Company accounts for its investments in shares of other resource companies as long-term investments. They are recorded at cost unless an other-than-temporary decline in value has been determined, in which case they are written down to market value.

Land and gravel resource

Land is recorded at cost and at the time of acquisition cost is allocated to each of the identifiable parcels of land on a pro rata basis in accordance with that parcel’s estimated value as a percentage of the value of the entire parcel acquired. Revenue is recorded upon transfer of title to the purchaser and cost of sales is determined on the basis of the allocated costs. The costs of the remaining unsold parcels of land are reviewed regularly to determine if impairment exists and if impairment is determined the costs would be written down to recoverable value. To date, there have been no charges for impairment. Property taxes are charged as a current expense rateably over the year.

Gravel property is recorded at cost and is being amortized at the straight-line rate of 10% per year which is estimated to approximate the useful life of the estimated resources.

Mineral properties and related deferred costs

The Company records its interest in mineral properties at cost. Exploration expenditures relating to properties that have resources or significant mineralization requiring additional exploration, as well as interest and costs to finance those expenditures, are deferred and will be amortized against future production following commencement of commercial production, or written off if the properties are sold, allowed to lapse, or abandoned.

Management of the Company regularly reviews the net carrying value of each mineral property. Where information is available and conditions suggest impairment, estimated future net cash flows from each property are calculated using estimated future prices, resources, and operating, capital and reclamation costs on an undiscounted basis. Reductions in the carrying value of each property would be recorded to the extent the net book value of the investment exceeds the estimated future cash flows.

Where estimates of future net cash flows are not available and where other conditions suggest impairment, management assesses whether carrying value can be recovered.

Management’s estimates of mineral prices, recoverable proven and probable reserves, and operating, capital and reclamation costs are subject to certain risks and uncertainties which may affect the recoverability of mineral property costs. Although management has made its best estimate of these factors, it is possible that changes could occur in the near term, which could adversely affect management’s estimate of the net cash flow to be generated from its properties.

The acquisition of title to mineral properties is a detailed and time-consuming process. The Company has taken steps, in accordance with industry standards, to verify mineral properties in which it has an interest. Although the Company has taken every precaution to ensure that legal title to its properties is properly recorded in the name of the Company, there can be no assurance that such title will ultimately be secured.

Mineral property option and royalty agreements

Option payments and certain royalties are exercisable at the discretion of the optionee and, accordingly, are accounted for on a cash basis.

Option payments received are treated as a reduction of the carrying value of the related mineral property and deferred costs until the Company’s option and royalty payments received are in excess of costs incurred and are then credited to income.

Reclamation costs

In recent years, the Company’s activities have primarily focused on exploration directed toward the discovery of mineral resources and the evaluation phase relating to assessing the technical feasibility and commercial viability of discovered mineral resources. When it is determined that a future reclamation cost is likely, and the amount can be reasonably estimated, those costs will be accrued.

Income taxes

The Company uses the liability method of accounting for income taxes. Under this method, current income taxes are recognized for the estimated income taxes payable for the current year. Future income tax assets and liabilities are recognized for temporary differences between the tax and accounting bases of assets and liabilities as well as for the benefit of losses available to be carried forward to future years for tax purposes. Future income tax assets are evaluated and if realization is not considered more likely than not, a valuation allowance is provided.

Translation of foreign currencies

Foreign operations are integrated with the parent company and, consequently, the financial statements of foreign subsidiaries are translated into Canadian currency using the temporal method.

Monetary assets and liabilities are translated at the exchange rate in effect at the balance sheet date and non-monetary assets and liabilities at the exchange rates in effect at the time of acquisition or issue. Revenues and expenses are translated at rates approximating exchange rates in effect at the time of the transactions. Exchange gains or losses arising in translation are included in income or loss for the year.

Earnings per share

Loss per common share is calculated based on the weighted average number of common shares outstanding during the year. The exercise of outstanding stock options and warrants would be anti-dilutive.

Effective December 1, 2001, the Company adopted the new accounting standard for the calculation of earnings per share which follows the ‘treasury stock method’ in the calculation of diluted earnings per share. This has not impacted the financial statements.

Financial instruments

The fair values of the Company’s monetary assets and liabilities approximate their carrying values. The fair values of the Company’s investments are disclosed in note 4.

Stock option plan

The Company has a stock option plan which is described in note 9(d). No compensation expense is recognized when stock options are issued as the exercise price equals the market price of the common stock at the time of grant. Consideration paid on the exercise of stock options or purchase of shares is credited to share capital.

Use of estimates

The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenditures during the reported period. Significant estimates include the recoverable amounts of land and gravel resource, mineral properties and the provision for reclamation costs. Actual results could differ from those reported.

Included in other investments is an investment of 1,000,000 shares of New Island Resources Inc. with a quoted market value of $30,000 and a carrying value of $40,000. The Company considers this a temporary decline in value as there have been increases in the share price to a value in excess of the carrying value subsequent to the year-end.

Also included within other investments is an investment of 126,625 shares (cost - $4,875; market value -$151,950) in Etruscan Resources Incorporated (Etruscan). The Province of New Brunswick holds the Company’s shares of Etruscan pending the settlement of outstanding mining taxes aggregating $363,000 (2001 - $365,000).

Donlin Creek, Alaska

On July 14, 2001, the Company signed an agreement with Placer Dome U.S. Inc. (Placer Dome) to acquire a 70% interest in the Donlin Creek gold deposit located in southwest Alaska.

On February 10, 2003, Placer Dome elected to exercise an option to earn an additional 40% interest from the Company, for a total of 70%, in the Donlin Creek project by spending three times the Company’s expenditures to November 13, 2002 toward project development (a total of approximately US$30 million), completing a project feasibility study, and making a positive decision to construct a mine at Donlin Creek to produce not less than 600,000 ounces of gold per year, all before November 14, 2007.

Under this option Placer Dome will not earn any incremental interest in the project, above the 30% level, until, and unless, all of the above conditions are met before November 14, 2007. The Company is not required to contribute any additional funding until Placer Dome completes the US$30 million expenditure and, at the Company’s election, Placer Dome is required to assist the Company with financing for the Company’s share of construction costs.

Shotgun, Alaska

In 1998, the Company acquired a 49% interest in the Shotgun group of claims and Sleitat group of claims located in southwest Alaska at a cost of US$0.9 million. On July 2, 1998, the Company entered into a letter of agreement for a joint venture for the exploration and development of the Shotgun group of claims with Teck-Cominco Limited (Teck-Cominco), owner of a 51% interest in the claims. On June 21, 2001, the Company acquired a 100% interest in the Shotgun group of claims from Teck-Cominco. Teck-Cominco retains a 5% net proceeds interest in the Shotgun group of claims and received a 50% interest in the nearby Sleitat tin deposit subject to a 5% net proceeds interest to the Company.

Rock Creek, Alaska

As part of its acquisition of Alaska Gold Company (Alaska Gold), the Company acquired a 100% interest in patented mineral claims surrounding the city of Nome, Alaska. By agreement dated July 13, 1999 and superseded by agreement dated March 13, 2002, the Company increased its land position by entering into a five-year option with Golden Glacier Inc. to acquire its sublease with the Bering Straits Native Corporation. The agreement calls for annual property payments ranging from US$0.02 million to US$0.03 million and annual work commitments ranging from US$0.05 million to US$0.15 million. This land package contains two known areas of interest - Rock Creek and part of the Nome Gold Project.

The Company entered into an agreement dated June 1, 2002 with TNR whereby TNR could earn a 49.9% interest in the Rock Creek project by paying US$0.05 million to the Company, issuing 500,000 shares to the Company, of which 250,000 were issued, and expending US$0.95 million by May 31, 2003, US$3 million by May 31, 2004 and US$6 million by May 31, 2005.

Nome Gold Project

The Company owns a large area of the coastal plain adjacent to the city of Nome that is underlain by unconsolidated sand and gravel deposits containing alluvial gold.

North Donlin, Alaska

Pursuant to an option agreement dated December 1, 1998 with Placer Dome, the Company can earn a 100% interest in the North Donlin property by expending US$0.2 million on exploration and development prior to December 1, 2003. Placer Dome would retain a 5% net profits interest in the property.

The Company is then required to incur within 10 years an additional US$5 million in exploration and development costs on the property to maintain its 100% interest. After this expenditure, Placer Dome has 90 days to elect to convert its 5% net profits interest to a 51% ownership interest by paying to the Company an amount equal to the property expenditures incurred by the Company in excess of the initial US$0.2 million.

Yukon properties

On April 26, 1999, the Company acquired from Viceroy Resource Corporation (Viceroy) title to certain Yukon mineral properties and assumed Viceroy’s position on the option agreement on the McQuesten property and the option/joint venture agreement on the Sprogge property in exchange for the issuance of 3,400,000 common shares. The value attributed to these common shares, based on the market value at the date of issue, was $2.2 million. This purchase price has been allocated, based on management estimates of relative values at the time of acquisition, to the primary properties acquired, being Harlan, McQuesten and Sprogge.

McQuesten, Yukon

The Company acquired Viceroy’s 70% option in the McQuesten property as outlined in an option agreement with Eagle Plains Resources Ltd. and Miner River Resources Ltd. This agreement allows the Company to earn a 70% interest in the property by expending $0.88 million on the property, which the Company has completed. The Company is also required to make all annual property payments to the underlying property owner and to complete a 10,000 foot drilling program by October 1, 2003. A 2% net smelter royalty has been granted on future production from the property. The Company must make minimum annual royalty payments in the amount of $0.02 million commencing in 2003.

Sprogge, Yukon

The Company has assumed Viceroy’s interest in an option/joint venture agreement with Newmont Mining Corporation. This agreement provides the Company with a 60% interest in the property. Under the terms of the agreement, the Company has been designated as the operator with respect to exploration programs for the property. The Company’s interest in the property increases as it funds the ongoing exploration and development expenditures. At November 30, 2002, the Company’s interest in the property was approximately 77%.

Convertible debenture

The convertible debenture had an original maturity date of April 21, 2001, bore interest at the Royal Bank of Canada prime rate, and was convertible into shares of the company at a price of $0.66 per share.

The shares of Alaska Gold and a first charge against certain assets were pledged as security for the debt. During the year ended November 30, 2001, the maturity date of the convertible debenture was extended to July 31, 2001. On September 18, 2001, the holder of the convertible debenture exercised its option to convert the convertible debenture plus accrued interest totalling $2,319,055.

Accordingly, the company issued 2,468,220 common shares in settlement of $1,629,025 of the debt and paid the remaining $690,030 in cash. This transaction also resulted in the reclassification of $245,900 of the equity portion of the convertible debt to share capital and the recognition of $104,100 of contributed surplus. As a result, the common shares issued on conversion of the convertible debenture have an ascribed value of $1,874,925.

Convertible royalty payable

As part of the March 26, 1999 purchase agreement to acquire Alaska Gold from Mueller Industries (Mueller), the Company granted a 10% net proceeds royalty on all placer gold production to a maximum of US$1 million. Mueller had the right to convert the total unpaid balance of the net proceeds royalty to free trading common shares at any time based upon the 10-day average trading price immediately preceding the date that notice is given.

On February 18, 2002, the Company entered into an agreement with Mueller to settle the convertible royalty payable for US$750,000 financed by private placement of 319,543 common shares of the Company in May 2002. The settlement of the convertible royalty resulted in a gain of $105,000.

Murray Brook

As at November 30, 2002, the Company had reclamation deposits with the Province of New Brunswick totalling $105,000 (2001 - $105,000). Management estimates that the provision of $53,000 adequately provides for future reclamation costs of the site.

Alaska Gold Company

A provision in the amount $1.4 million has been recorded for the future reclamation of the Company’s land holdings in the Nome and Fairbanks areas of Alaska. The provision was determined by internal cost estimates of the prior owners of Alaska Gold. Management estimates that any future liability for reclamation that would currently be required has been fully provided for with this provision, although management does not currently possess the information to determine accurately the time frame over which payments will be made.

Capital stock

Authorized
           100,000,000 common shares without nominal or par value
           10,000,000 preferred shares issuable in one or more series

Issuance of common stock

Share purchase warrants

A summary of the Company’s share purchase warrants at November 30, 2002 and 2001, and the changes for the years then ended, is presented below:

Stock options

The Company has a stock option plan providing for the issuance of up to 6,500,000 options, whereby the Company may grant options to its directors, officers, employees and service providers. The exercise price of each option cannot be lower than the market price of the shares at the date of grant of the option. The number of shares optioned to any single optionee may not exceed 5% of the issued and outstanding shares at the date of grant. The options are exercisable immediately for a 10-year period from the date of grant.

No compensation expense has been recognized in the financial statements.

A summary of the Company’s stock option plan at November 30, 2002 and 2001, and changes during the years ended on those dates, is as follows:

The following table summarizes information about the stock options outstanding and exercisable at November 30, 2002:

For the year ended November 30, 2000, options, warrants and convertible instruments to purchase 6,932,631 common shares outstanding at year-end were excluded from the computation of diluted earnings per share because the exercise price of the options was greater than the average market price of the common shares.

For the years ended November 30, 2002 and 2001, diluted loss per share is the same as basic loss per share as the exercise of dilutive convertible securities would be anti-dilutive.

Royalty agreements

The Company has royalty agreements on certain mineral properties entitling the vendors of the property to a net smelter return royalty or net profits royalty, ranging from 3% to 7%, commencing if the properties enter commercial production.

The shares issued and transferred are non-cash transactions and have been excluded from the consolidated statement of cash flows.

Exploration costs

Resource property costs and related exploration expenditures are accounted for in accordance with Canadian GAAP. For U.S. GAAP purposes, the Company expenses, as incurred, the exploration costs relating to unproven mineral properties. When proven and probable reserves are determined for a property and a feasibility study prepared, then subsequent exploration and development costs of the property would be capitalized. The capitalized costs of such properties would then be measured periodically for recoverability of carrying values under Statement of Financial Accounting Standard (SFAS) No. 144.

Convertible debenture and royalty

Canadian GAAP requires that a portion of the convertible debenture and royalty be classified as equity. The difference between the carrying amount of the debenture and royalty and their face value is accreted over the life of the debt and charged to earnings (loss) for the year. U.S. GAAP would classify the debenture and royalty as a liability at their face value.

As described in note 7, a portion of the convertible royalty was settled during 2002, resulting in a gain of $105,000 under Canadian GAAP. Under U.S. GAAP, the gain on settlement would have been $212,000 and would be classified as an extraordinary item.

Available for sale securities

Under U.S. GAAP, securities that are available for sale are recorded at fair value and unrealized gains or losses are part of comprehensive income. Under Canadian GAAP, there is no adjustment made for unrealized gains.

Comprehensive income

In addition to net income, comprehensive income includes all changes in equity during a period such as the cumulative unrecognized changes in fair value of securities that are available for sale.

Stock compensation

As described in note 9 to the consolidated financial statements, the Company has granted stock options to directors and employees. For U.S. GAAP purposes, SFAS No. 123, ‘Accounting for Stock-Based Compensation’, (SFAS 123) requires that an enterprise recognize or, at its option, disclose the pro forma impact of the fair value of stock options and other forms of stock-based compensation in the determination of income. The Company has elected under SFAS 123 to continue to measure compensation cost by the intrinsic value method set out in APB Opinion No. 25 (APB 25). As options are granted at exercise prices based on the market value of the Company’s shares at the date of grant, no adjustment for compensation expense is required. Under SFAS 123, where a company chooses to continue to apply APB 25 in its basic financial statements, supplemental pro forma information as if the fair value method was applied must be disclosed. This pro forma information is set out below. The pro forma stock compensation expense has been determined by reference to a Black Scholes option pricing model that takes into account the stock price as of the grant date, the exercise price, the expected life of the option, the estimated volatility of the underlying stock, expected dividends and the risk free interest rate over the term of the option. Compensation expense is amortized over the vesting period of the options.

The calculations applied have assumed that the weighted average expected life of the options is five years, no dividends will be paid, expected volatility is 75% for the years ended November 30, 2002 and 2001, and risk free interest rates ranged from 4.06% to 5.00% for 2002 and 4.52% to 5.35% for 2001.

New accounting standards

The Financial Accounting Standards Board (FASB) has issued SFAS No. 143, ‘Accounting for Asset Retirement Obligations’. The statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. It requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. The Company is analyzing the impact of SFAS No. 143 and will adopt the standard on December 1, 2003.

The FASB has issued SFAS No. 146, ‘Accounting for Costs Associated with Exit or Disposal Activities.’ Under this standard, exit costs and restructuring liabilities generally will be recognized only when incurred. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002. The Company does not expect that the implementation of these guidelines will have a material impact on its consolidated financial position or results of operations.

On December 31, 2002, the FASB issued SFAS No. 148, ‘Accounting for Stock Based Compensation - Transition and Disclosure - an amendment of SFAS 123’. This statement provides additional guidance to those entities that elect to voluntarily adopt the accounting provisions of SFAS 123.

The Accounting Standards Board of the Canadian Institute of Chartered Accountants (CICA) has issued CICA 3063, ‘Impairment of Long-Lived Assets.’ This statement establishes standards for the recognition, measurement and disclosure of the impairment of non-monetary long-lived assets, including property, plant and equipment, intangible assets with finite useful lives, deferred pre-operating costs and long-term prepaid assets. The Company does not expect that the implementation of this new standard will have a material impact on its consolidated financial position or results of operations.

The CICA has approved, subject to written ballot, a new Handbook section, ‘Asset Retirement Obligations,’ to replace the current guidance on future removal and site restoration costs included in CICA 3061 ‘Property, Plant and Equipment.’ The standard, which is similar to SFAS No. 143, is effective for years beginning on or after January 1, 2004. The standard requires recognition of a liability at its fair value for the obligation associated with the retirement of a tangible long-lived asset. A corresponding asset retirement cost would be added to the carrying amount of the related asset and amortized to expense over the useful life of the asset. The Company is analyzing the impact of this new standard which will be adopted on December 1, 2003.