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MFC Bancorp Ltd. – ‘20-F’ for 12/31/12

On:  Monday, 4/1/13, at 6:30am ET   ·   For:  12/31/12   ·   Accession #:  1206774-13-1248   ·   File #:  1-04192

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 4/01/13  MFC Bancorp Ltd.                  20-F       12/31/12   11:4.8M                                   DG3/FA

Document/Exhibit                   Description                      Pages   Size 

 1: 20-F        Annual and Transition Report of Foreign Private     HTML   2.01M 
                          Issuers                                                
 2: EX-8.1      List of Significant Subsidiaries of Our Company as  HTML     16K 
                          at April 1, 2013                                       
 5: EX-13.1     Certification of Chief Executive Officer Pursuant   HTML     10K 
                          to 18 U.S.C. Section 1350                              
 6: EX-13.2     Certification of Chief Financial Officer Pursuant   HTML     11K 
                          to 18 U.S.C. Section 1350                              
 3: EX-12.1     Certification of Chief Executive Officer Pursuant   HTML     14K 
                          to Section 302                                         
 4: EX-12.2     Certification of Chief Financial Officer Pursuant   HTML     14K 
                          to Section 302                                         
 7: EX-15.1     Consent Dated April 1, 2013 of Deloitte LLP         HTML      8K 
 8: EX-15.2     Consent Dated April 1, 2013 of Davidson & Company   HTML      9K 
                          LLP                                                    
 9: EX-15.3     Third Party Report on Reserves                      HTML     37K 
10: EX-15.4     Consent Dated April 1, 2013 of Glj Petroleum        HTML     11K 
                          Consultants Ltd                                        
11: EX-16.1     Mine Safety and Health Administration Safety Data   HTML     16K 

Form 20-F

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2012

Commission file number 001-04192

(Exact name of Registrant as specified in its charter)

British Columbia, Canada
(Jurisdiction of incorporation or organization)

Suite 1620 - 400 Burrard Street, Vancouver, British Columbia, Canada V6C 3A6
(Address of principal offices)

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Securities registered or to be registered pursuant to Section 12(g) of the Act: None.

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None.

Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report.

There were 62,552,126 common shares, without par value, issued and outstanding as of December 31, 2012.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o YES      x NO

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. o YES      x NO

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x YES      o NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing.

If "Other" has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. o Item 17      o Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) o YES      x NO

DEAR FELLOW SHAREHOLDERS

We are pleased to present the results of MFC Industrial Ltd. (“MFC”) for the year ended December 31, 2012 and to provide you with an update on our recent corporate developments. (All references to dollar amounts are in United States dollars unless otherwise stated).

2012 was a time of challenges and opportunities. We saw commodities prices experience a weaker than expected year, which opened the doors to two significant opportunities for us. These opportunities have allowed us to enlarge our commodities footprint, enter new markets and expand our supply chain platform, thus offering growth and the potential for significant contributions to the economics of our company in a recovering economy. We still have a long way to go to reach our goals. However, we are fortunate to have a good business platform and a sound financial foundation.

On the negative side, we saw a major shift in the mining landscape in India during the year. In September 2012, the Indian government halted all mining activity in the State of Goa following the tabling in Parliament of the Shah Commission report on illegal mining. Subsequently, in October 2012, the Supreme Court further banned all mining activities in the State. We believe these orders will take many years to resolve and, as a result, made the decision to exit the market and recognized an impairment charge and write-down, net of income tax recovery of $48.2 million.

We completed the takeover of CPC, a company active in the production of natural gas and natural gas liquids. This transaction reflected our strategy to increase our captive commodities sources and meets our stated investment objectives.

In 2012, we were also pleased to announce that we acquired Park Ridge, NJ-based, ACCR and its affiliated company, Mexico City-based, Possehl. ACCR and Possehl were privately owned, fully integrated commodity supply chain companies, specializing in industrial raw materials, chemicals and various other products. These companies will expand our existing global supply chain network, reaching further into the North and Latin American markets.

During 2012, we also acquired KCCL, which owns a cobalt refinery plant and a hydroelectric power station. The refinery should deplete its pyrite tailings supply by the end of 2013 and we are now in the planning stages of shutting down the refinery. Discussions are in progress to sell the equipment to third parties upon completion of the dismantling of the refinery itself. KCCL will retain ownership of the hydroelectric power station, which will sell electricity directly to the grid.

II
LETTER TO SHAREHOLDERS

We must now integrate all of our newly acquired businesses, which we view as both a challenge and a good opportunity. MFC will continue to focus on increasing its efforts in acquiring undervalued captive commodities assets and operating businesses, as well as streamlining its existing operations. Our financial foundation has allowed us to expand and diversify our commodities business in an expedient manner.

RESULTS FOR THE YEAR ENDED DECEMBER 31, 2012 

Total revenues for the year ended December 31, 2012 decreased to $485.7 million compared to $520.7 million in 2011. Our income for 2012, including a non-cash bargain purchase accounting gain of $247.0 million, primarily from the CPC acquisition, and a one-time non-cash impairment and write-down charge (net of income tax recovery) of $48.2 million for our former subsidiary, increased to $226.8 million, or $3.62 per share on a diluted basis, from $12.2 million, or $0.19 per share on a diluted basis from the same period last year.

Excluding a non-cash bargain purchase accounting gain of $247.0 million (which was primarily a net gain on the purchase of CPC excluding our cost), one-time non-cash impairment charge and inventory write-down (net of an income tax recovery) of $48.2 million (on our former subsidiary) and certain one-time transaction expenses of $2.6 million, our income for the year ended December 31, 2012 increased to $30.6 million, or $0.49 per share on a diluted basis, from $12.2 million, or $0.19 per share on a diluted basis from the same period last year.

Revenues were down for 2012 because of several factors, including the fact that the Euro depreciated against the United States dollar by 7.6%. We also had lower volumes and price reductions on some commodities during the first half of the year. However, we did offset some of the revenue reduction through the introduction of new products. Our revenue numbers were disappointing, but we believe the new acquisitions will be integrated and will be major contributors in 2013.

Revenues for our commodities and resources business were $455.9 million for the year ended December 31, 2012, compared to $481.7 million for the same period in 2011. Included are the gross revenues generated by our royalty interest, which for the year ended December 31, 2012 were approximately $29.1 million, compared to $30.8 million in 2011. A total of 3,189,443 tons of iron ore pellets and concentrate were shipped during the year ended December 31, 2012, compared to 3,472,643 tons shipped in the same period in 2011.

Revenues for our merchant banking business were $11.8 million for the year ended December 31, 2012, compared to $22.5 million for the same period in 2011.

Other revenues, which encompass our corporate and other investments, were $18.0 million for the year ended December 31, 2012, compared to $16.5 million for the same period in 2011.

Costs of sales decreased to $407.6 million during the year ended December 31, 2012 from $435.4 million for the same period in 2011. Selling, general and administrative expenses increased to $47.7 million for the year ended December 31, 2012 from $40.4 million for the same period in 2011.

OVERVIEW OF OUR RESULTS FOR THE YEAR ENDED DECEMBER 31, 2012

The table below shows our revenues by operating segments for each of the years ended December 31, 2012 and 2011:

III
LETTER TO SHAREHOLDERS

Our income from operations for each of the years ended December 31, 2012 and 2011 are broken out in the table below:

REVENUE BREAKDOWN BY REGION

The following pie chart shows our revenue by region for the year ended December 31, 2012.

IV
LETTER TO SHAREHOLDERS

FINANCIAL

The following table highlights certain selected key financial numbers and ratios as of December 31, 2012.

V
LETTER TO SHAREHOLDERS

LIQUIDITY

Liquidity is of great importance to companies in our business. As at December 31, 2012, we had cash, short-term deposits and securities of $280.6 million. Our objectives when managing capital are: to safeguard our ability to do business so that we can continue to provide returns to shareholders; and to provide an adequate return by pricing products and services commensurately with the level of risk. We also maintain a flexible capital structure which optimizes the cost of capital at acceptable risk and we set the amount of capital allocated proportionate to risk. We manage our capital structure and make adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets.

LONG-TERM DEBT

The following table highlights certain selected key numbers and ratio as of December 31, 2012.

As at December 31, 2012, the majority of our long-term debt, less current portion in the amount of $105.5 million, consists of borrowing from banks. All-in costs for this unsecured loan, which is due November 2020, are 2.54% annually.

CREDIT FACILITIES

We maintain various types of credit lines and facilities with various banks, and most of these are short-term. These facilities are used for day-to-day business, structured solutions and various other activities in both the commodities and finance areas.

As at December 31, 2012, we had credit facilities aggregating $439.7 million as follows: (i) revolving credit facilities aggregating $119.2 million from banks; (ii) revolving credit facilities aggregating $63.8 million from banks for structured solutions. The margin is negotiable when the facility is used; (iii) a structured factoring arrangement with a bank for up to $122.6 million for our commodities activities. Generally, we can factor our commodity receivables upon invoicing at the inter-bank rate plus a margin; and (iv) a foreign exchange credit facility of $58.1 million with a bank. All of these bank lines and facilities are renewable on a yearly basis.

VI
LETTER TO SHAREHOLDERS

COMMODITY LINES

As a result of our recent acquisitions combined with our other integrated commodities and mineral interests operations, we can now supply a wide range of commodities including metals, ceramics, minerals, natural gas, chemicals, plastics, additives for food and beverages, and wood products. These are supported by our captive commodities arrangements through strategic direct and indirect investments and other sources secured by us from third parties. The following charts show some of the commodities we now supply:

VIl
LETTER TO SHAREHOLDERS

UPDATE ON OUR SOURCES OF FERROUS METALS IN INDIA

In September 2012, the Indian government halted all mining activity in the State of Goa following the tabling in Parliament of the Shah Commission report on illegal mining. Subsequently, in October 2012, the Supreme Court, acting on a filed petition, stayed all mining operations, including transport of mined minerals (iron ore and manganese), in the State until further orders.

We believe the orders will take many years to resolve for the existing mines and that there is a very strong possibility that no new mining will ever occur. As a result, it was our decision to move on and recognize a loss on our investment. We have sold our position for nominal consideration, consisting of an interest in any future cash flow if mining actually resumes.

With this former subsidiary being sold in 2013, MFC recognized an impairment charge of $42.6 million on these interests and a $19.4 million write-down on inventories. The total impairment and write-down was $48.2 million, net of an income tax recovery of $13.8 million. MFC has no further cash flow obligations associated with these operations.

EXPANDED OUR COMMODITIES PLATFORM INTO NATURAL GAS & MIDSTREAM FACILITIES

The acquisition of CPC in 2012 expanded our commodities platform into natural gas and midstream facilities. We determined to pursue and complete the acquisition of CPC for, among other things, the following key reasons:

• to significantly expand our global commodities platform into the energy sector;
   
• the price paid under our takeover of CPC was attractive and considerably below CPC's net asset value, which resulted in our recognition of a bargain purchase gain of $244.6 million for the year ended December 31, 2012 in connection with the acquisition of CPC;
   
• CPC's operations include significant midstream facilities, which present an opportunity for growth through value-added projects and the consolidation of regional gas production;
   
• in addition to its producing properties, CPC has a significant undeveloped land package, which, as at December 31, 2012, included 309,782 net undeveloped acres which can be further developed; and
   
• at the time we completed the takeover, our acquisition cost per mcf equivalent for CPC's proved and probable natural gas, NGL and oil reserves was approximately CDN$0.10 based on CPC's most recent reserves estimates prior to completion of the acquisition, which were as of June 30, 2012. Please note that these reserves estimates are historic in nature, do not represent our reserves as at December 31, 2012 and were prepared by CPC based upon Canadian securities requirements and are not comparable to the updated reserves figures that we have prepared in accordance with SEC requirements, which are in our Annual Report on Form 20-F.

LETTER TO SHAREHOLDERS
VIII

The following are selected highlights of this acquisition.

In reviewing these assets, we will use our financial strength to arrange credit facilities. We have reduced CPC’s selling, general and administrative expenses and we also refinanced their bank debt. As a consequence, we can now look to rationalize these assets and better manage their supply, distribution risk and capital requirements. The following is an overview of our current plans and intentions for CPC’s assets in 2013.

Developing midstream operations

Our plan for our Mazeppa Gas Processing Facility (sweet and sour gas facility), is to develop midstream facilities which will help to reduce our exposure to the volatility of natural gas prices and have the potential to create long-term stable processing income as well as an value-added component to our natural gas. Sour gas is gas containing significant amounts of hydrogen sulfide, whereas sweet gas is a natural gas low in concentration of sulphur compounds. The Mazeppa facility was originally built by Canadian Occidental Petroleum and we are advised that the replacement cost of this facility today would be in excess of $100 million.

Using the Mazeppa facility as the foundation, our strategy involves pursuing bolt-on or value-added projects, which may involve aggregate investments of over $300 million, including the following potential projects:

IX
LETTER TO SHAREHOLDERS

We have been approached by several interested parties who wish to be our partner in our midstream operations. These projects are in the initial planning, design and contracting phases and the current timing for execution is expected to be approximately 24 to 36 months.

Wells and other processing facilities

It is our intention to sell certain assets as well as some of our smaller low volume wells in due course.

Significant undeveloped land bank

We have approximately 309,782 net undeveloped acres on which, due to the current pricing environment in natural gas, we do not intend to do any drilling at this time.

EXPANDED OUR COMMODITIES SUPPLY CHAIN MANAGEMENT PLATFORM AND ENTERED NEW MARKETS

MFC acquired, Park Ridge, NJ-based, ACCR and its affiliated company, Mexico City-based, Possehl in November of 2012.

X
LETTER TO SHAREHOLDERS

History

ACCR, established in 1957, has a head office in New Jersey and a network of offices in Latin America, including Argentina and Brazil, as well as a sourcing office in China. Possehl, which was established in 1986, has a network of offices, warehousing and agencies in Mexico. They source internationally and sell primarily in Mexico and Central and South America.

Purchase price

The acquisition price for 60% of Possehl and 70% of ACCR was equal to the Net Tangible Asset Value (“NTAV”), which equals approximately $20.9 million, subject to adjustments. An additional $2.3 million is payable by us in November 2013, at which time we will acquire an additional 10% interest in ACCR. In addition we have created a series of options for additional ACCR shares to retain key individuals with the same NTAV price formula. MFC’s notable financial strength and its already substantial global reach will be resources that will enable growth and agility for the combined companies.

It is ACCR, Possehl and MFC’s belief that China will be an excellent sourcing market for us. As the Chinese slowdown continues, their commodities prices should start to come down and they will appreciate relationships with reliable counterparties from international supply chain organizations with ready financing.

UPDATE ON THE ROYALTY INTEREST AT THE WABUSH MINE

On March 11, 2013, Cliffs Natural Resources Inc. (“Cliffs”) announced that due to high production costs and lower pellet premium pricing, which is expected to persist in certain markets during the year, it would be taking measures to adjust iron ore pellet production at its Wabush operation, while continuing to meet its customer commitments. Cliffs's current product mix in its Eastern Canadian iron ore business segment is comprised of iron ore pellets and concentrate.

Cliffs expects to idle production at its Pointe Noire iron ore pellet plant within the city of Sept-Iles, Quebec and transition to producing an iron ore concentrate from its Wabush Scully Mine in the Province of Newfoundland and Labrador by the end of the second quarter in 2013.

We do not expect that this will affect the royalty payment that we receive from Cliffs. Our royalties are paid on all iron ore products (i.e. pellets, concentrate and chips) shipped from the Wabush Mine.

Cliffs also disclosed that, for 2013, it is maintaining its full-year sales and production volume expectations of 9 to 10 million tons out of its Eastern Canada business segment. This is comprised of approximately 3 million tons of both iron ore pellets and/or concentrate products from its Wabush operation. We believe it is a positive development that Cliffs maintained its 2013 guidance for the same 3 million ton production levels as in 2012. On another Cliffs issue, we are again in arbitration over the underpayment of royalties and the method to calculate the royalty prices going forward. We expect the related hearings to be held in the fall of 2013.

UPDATE ON OUR CAPTIVE SOURCES OF FERROUS METALS AT PEA RIDGE

MFC currently holds an indirect 50% interest in the Pea Ridge Iron Ore project (“Project”), a past-producing iron ore mine located in Sullivan, Missouri. The Project is a 50/50 joint venture between MFC and Alberici Group Inc., who joined forces with the goal to re-open and further develop the former Pea Ridge Iron Ore Mine.

XI
LETTER TO SHAREHOLDERS

To date our activities at the Project have included, among other things:

• a total investment of approximately $16.7 million in the Project; and
   
• completing a Canadian National Instrument 43-101 compliant technical report dated August 13, 2012 by Behre Dolbear and Company (USA), Inc. and titled "Technical Report on the PRR Mining Pea Ridge Property" (the "Technical Report"), to update previously disclosed historic resources estimate to current resource estimates. The Technical Report estimated the following resources at a cut-off grade of 40% magnetic iron:
   
• measured and indicated resources of 248.7 million short tons at 57.82% total iron and 52.87% magnetic iron; and
   
• inferred resources of 15.8 million short tons at 57.64% total iron and 53.67% magnetic iron.

Please refer to the Technical Report, a copy of which is available under our profile on www.sedar.com, for further information regarding the Project and the above estimates.

In addition to completion of the Technical Report, as part of the work necessary to evaluate the Pea Ridge Mine for re-opening, we engaged the consulting firm Geotechnology, Inc. to investigate the depth and shape of the top and bottom of the subsidence cave zone which is present above the Pea Ridge Mine deposit. This work included direct measurements of the size and extent of the cave zone within existing vertical drill holes above a portion of the Pea Ridge Mine deposit. Having received the results of such investigation, we are, together with our consultants, considering additional steps in the evaluation of the cave zone, including re-drilling several existing holes above the mineralized zone, and conducting a three-dimensional detailed seismic survey over the Pea Ridge Mine site. We believe that the results of this work will be useful in determining the best way to develop and mine the iron deposit. Additionally, in 2012 we commenced confirmatory exploration and development work in connection with the large tonnage of tailings materials of the Pea Ridge Mine site.

Together with our consultants, we are conducting additional analysis and investigation regarding the re-opening of the mine, including commencing confirmatory work in connection with the large tonnage of tailings materials present at the Project site. If we determine to move forward with the Project, significant additional investment would be required. We currently expect that development activities would take place in two main phases:

XII
LETTER TO SHAREHOLDERS

• The first phase focusing on the tailings materials. This would likely require construction of a beneficiation plant to process the tailing at the project.
   
• The second phase would center on re-opening of the underground mine. This will involve dewatering the mine, substantial new development work, installing new equipment and, in part, will require construction of additional beneficiating facilities.

The Project is currently at a preliminary stage and any decision on proceeding with the Project, including development activities, is dependent on the completion of further analysis, including feasibility studies. Activities at the Project are proceeding in an orderly fashion. It is currently anticipated that substantial additional expenditures will be incurred in order to determine the feasibility of the Project.

DEFERRED INCOME TAX ASSETS AND LIABILITIES

It is important to understand what has happened with these different tax assets and liabilities. In 2011 we had a liability of approximately $61.0 million primarily related to the increase in value of the royalty at Wabush that was recognized upon adoption of IFRS. Following the CPC transaction and reorganization of its tax pools, we had enough new benefit in essence to off-set the $50 million and have a net asset of $18.6 million for future use.

CORPORATE TAXATION

We are a company that strives to be fiscally responsible. The corporate income tax paid in cash was approximately $4.9 million for the year ended December 31, 2012.

ANNUAL CASH DIVIDEND

On January 14, 2013, our Board of Directors declared an annual cash dividend for 2013 of US$0.24 per common share. The dividend is 9% higher than the dividend paid in 2012 and, based on the closing price of $8.55 for the Company's common shares on December 31, 2012, represents a yield of approximately 2.81% compared to an annual dividend yield of approximately 2.5% for the NYSE Composite Index in 2012.

• The 2013 cash dividend will be paid in equal quarterly instalments of $0.06 per common share.
   
• The first payment of $0.06 per common share was paid on February 8, 2013 to shareholders of record on January 25, 2013.
   
• The second payment of $0.06 per common share will be paid on April 22, 2013 to shareholders of record on April 12, 2013.
   
• The remaining quarterly dividend payments of $0.06 per common share in 2013 are expected to be made to shareholders of record in June and September.

Respectfully Submitted,

Michael J. Smith

Chairman of the Board

XIII
LETTER TO SHAREHOLDERS

Form 20-F

TABLE OF CONTENTS

(i)

(ii)

PART I

FORWARD-LOOKING STATEMENTS

This document contains certain forward-looking information and statements, including statements relating to matters that are not historical facts and statements of our beliefs, intentions and expectations about developments, results and events which will or may occur in the future, which constitute "forward-looking information" within the meaning of applicable Canadian securities legislation and "forward-looking statements" within the meaning of the "safe harbour" provisions of the United States Private Securities Litigation Reform Act of 1995, collectively referred to as "forward-looking statements". Forward-looking statements are typically identified by words such as "anticipate", "could", "should", "expect", "seek", "may", "intend", "likely", "will", "plan", "estimate", "believe" and similar expressions suggesting future outcomes or statements regarding an outlook.

Forward-looking statements are included throughout this document and include, but are not limited to, statements with respect to: our projected revenues; markets; production, demand and prices for products and services, including iron ore and other minerals; trends; economic conditions; performance; business prospects; results of operations; capital expenditures; foreign exchange rates; derivatives; our ability to expand our business; and other such matters. All such forward-looking statements are based on certain assumptions and analyses made by us in light of our experience and perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate in the circumstances. These statements are, however, subject to known and unknown risks and uncertainties and other factors. As a result, actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits will be derived therefrom. These risks, uncertainties and other factors include, among others:

• our financial results may fluctuate substantially from period to period;
   
• our earnings and, therefore, our profitability may be affected by commodities price volatility;
   
• a weak global economy can adversely affect our business and financial results and have a material adverse effect on our liquidity and capital resources;
   
• the global commodity supply chain and merchant banking businesses are highly competitive;
   
• the operation of the iron ore mine underlying our royalty interest is generally determined by a third party operator and we have no decision making power as to how the property is operated. In addition, we have no or very limited access to technical or geological data respecting the mine, including as to reserves. The owner's failure to perform or other operating decisions made by the owner, including scaling back or ceasing operations, could have a material adverse effect on our revenue, results of operations and financial condition;
   
• the profitability of our global commodity supply chain operations depends, in part, on the availability of adequate sources of supply;
   
• we may face a lack of suitable acquisition or merger or other proprietary investment candidates, which may limit our future growth;
   
• strategic investments or acquisitions and joint ventures, or our entry into new business areas, may result in additional risks and uncertainties in our business;
   
• the industries in which we operate may be affected by disruptions beyond our control;
   
• our commodities activities are subject to counterparty risks associated with performance of obligations by our counterparties and suppliers;
   
• larger and more frequent capital commitments in our merchant banking business increase the potential for significant losses;
   
• we are subject to transaction risks that may have a material adverse effect on our business, results of operations, financial condition and cash flow;
   
• our risk management strategies leave us exposed to unidentified or unanticipated risks that could impact our risk management strategies in the future and could negatively affect our results of operations and financial condition;

1

• derivative transactions may expose us to unexpected risks and potential losses;
   
• fluctuations in interest rates and foreign currency exchange rates may affect our results of operations and financial condition;
   
• our operations and infrastructure may malfunction or fail;
   
• the exploration and development of mining and resource properties is inherently dangerous and subject to risks beyond our control;
   
• our natural gas and related operations are subject to inherent risks and hazards;
   
• mineral resource calculations are only estimates;
   
• estimates of natural gas and oil reserves involve uncertainty;
   
• if we are unsuccessful in acquiring or finding additional reserves, our future natural gas, NGL and oil production will decline;
   
• our global commodity supply chain operations are subject to environmental laws and regulations that may increase the costs of doing business and may restrict such operations;
   
• future environmental and reclamation obligations respecting our resource properties and interests may be material;
   
• we or the operators of our current and any future resource interests may not be able to secure required permits and licenses;
   
• there can be no assurance that we will be able to obtain adequate financing in the future or that the terms of such financing will be favourable, and, as a result, we may have to raise additional capital through the issuance of additional equity, which will result in dilution to our shareholders;
   
• limitations on our access to capital could impair our liquidity and our ability to conduct our business;
   
• we may substantially increase our debt in the future;
   
• as a result of our global operations, we are exposed to political, economic, legal, operational and other risks that could negatively affect our business, our results of operations, financial condition and cash flow;
   
• we are exposed to litigation risks in our business that are often difficult to assess or quantify. We anticipate that we will incur significant legal expenses every year in defending against litigation;
   
• we rely significantly on the skills and experience of our executives, and the loss of any of these individuals may harm our business;
   
• we may experience difficulty attracting and retaining qualified management and technical personnel to efficiently operate our business, and the failure to operate our business effectively could have a material and adverse effect on our profitability, financial condition and results of operations;
   
• certain of our directors and officers may, from time to time, serve in similar positions with other public companies, which may put them in a conflict position from time to time;
   
• we conduct business in countries with a history of corruption and transactions with foreign governments, and doing so increases the risks associated with our international activities;
   
• employee misconduct could harm us and is difficult to detect and deter;
   
• we may incur losses as a result of unforeseen or catastrophic events, including the emergence of a pandemic, terrorist attacks or natural disasters;
   
• investors' interests may be diluted and investors may suffer dilution in their net book value per share if we issue additional shares or raise funds through the sale of equity securities; and
   
• certain factors may inhibit, delay or prevent a takeover of our company, which may adversely affect the price of our common shares.

2

Although we believe that the expectations reflected in such forward-looking information and statements are reasonable, we can give no assurance that such expectations will prove to be accurate. Accordingly, readers should not place undue reliance upon any of the forward-looking information and statements set out in this document. All of the forward-looking information and statements contained in this document are expressly qualified, in their entirety, by this cautionary statement. The various risks to which we are exposed are described in additional detail in this document under the section entitled "Item 3: Key Information – D. Risk Factors". The forward-looking information and statements are made as of the date of this document, and we assume no obligation to update or revise them except as required pursuant to applicable securities laws.

As used in this annual report, the terms "we", "us" and "our" mean MFC Industrial Ltd. and our subsidiaries, unless otherwise indicated.

CAUTIONARY NOTE ON RESOURCE ESTIMATES

As a reporting issuer in Canada, we are required by Canadian law to provide disclosure respecting our mineral interests in accordance with Canadian National Instrument 43-101 - Standards of Disclosure for Mineral Projects, referred to as "NI 43-101". Accordingly, you are cautioned that the information contained in this annual report on Form 20-F may not be comparable to similar information made public by U.S. companies under the United States federal securities laws and the rules and regulations thereunder. In particular, the terms "measured resource", "indicated resource" and "inferred resource" as may be used herein are not defined in Securities and Exchange Commission, referred to as the "SEC", Industry Guide 7 and are normally not permitted to be used in reports and registration statements filed with the SEC. Investors are cautioned not to assume that any part or all of mineral deposits in these categories will ever be converted into mineral reserves with demonstrated economic viability. In addition, the estimation of inferred resources involves far greater uncertainty as to their existence and economic viability than the estimation of other categories of resources. Under Canadian rules, estimates of inferred mineral resources may not form the basis of feasibility or pre-feasibility studies, except in rare cases. U.S. investors are cautioned not to assume that part or all of an inferred resource exists, or is economically or legally minable.

NOTE ON NATURAL GAS AND OIL DISCLOSURE AND DEFINITIONS

On March 15, 2013, we were granted an exemption order by applicable Canadian securities regulators from the requirements of Canadian National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities, referred to as "NI 51-101", applicable to our natural gas and oil disclosure. The exemption permits us to prepare such disclosure in accordance with the rules of the SEC in place of much of the disclosure required by NI 51-101. In accordance with the exemption, proved and probable natural gas and oil reserves data and certain other disclosures with respect to our natural gas and related activities in this document have been prepared in accordance with SEC requirements and definitions and, accordingly, may differ from corresponding information otherwise required by NI 51-101. Accordingly, such disclosures may not be comparable to those prepared by other Canadian reporting issuers.

NI 51-101 prescribes a relatively comprehensive set of disclosures in respect of oil and gas reserves and other disclosures about oil and gas activities. The SEC also prescribes an extensive set of disclosures but instructs reporting companies to remain flexible in their disclosure, where appropriate, in order to provide meaningful disclosure in the circumstances. Among other differences, NI 51-101 specifies that proved, probable and possible reserves be determined in accordance with the Canadian Oil and Gas Evaluation Handbook definitions and the SEC requirements provide for the use of pricing based on a historic 12-month average for reserves estimation and disclosure, whereas NI 51-101 requires the evaluation of oil and gas reserves to be based on a forecast of economic conditions.

Where applicable, barrels of oil equivalent, referred to as "boe", amounts have been calculated using a conversion ratio of six thousand cubic feet of natural gas to one barrel of oil which is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. BOEs may be misleading, particularly if used in isolation. In addition, the following oil and gas industry specific terms are utilized in this annual report on Form 20-F:

AECO Daily Index – The daily price as quoted in Canadian Enerdata's Canadian Gas Price Reporter in the table entitled "Daily Spot Gas Price at AECO C & NOVA Inventory Transfer" in the column "Price ($/GJ)", Sub column "Avg", for each individual day.

bbl – Barrels.

bbl/d – Barrels per day.

boe/d – Barrels of oil equivalent per day.

Developed reserves – Reserves that can be expected to be recovered through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared to the cost of a new well.

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mbbl – Thousand barrels.

mboe – Thousand barrels of oil equivalent.

mcf – Thousand cubic feet.

mcf/d – Thousand cubic feet per day.

mmcf – Million cubic feet.

mmcf/d – Million cubic feet per day.

Natural gas or gas – The lighter hydrocarbons and associated non-hydrocarbon substances occurring naturally in an underground reservoir, which under atmospheric conditions are essentially gases, but which may contain natural gas liquids. Natural gas can exist in a reservoir either dissolved in crude oil (solution gas) or in a gaseous phase (associated gas or non-associated gas). Non-hydrocarbon substances may include hydrogen sulphide, carbon dioxide, and nitrogen.

Net acres or Net wells – The sum of the fractional working interests owned by us in gross acres or gross wells.

Net reserves – Remaining reserves, after deduction of estimated royalties and including royalty interests.

NGL or NGLs – Natural gas liquid or natural gas liquids, which are naturally occurring substances found in natural gas, including ethane, butane, isobutane, propane and natural gasoline, that can be collectively removed from produced natural gas, separated into these substances and sold.

Probable reserves – Those additional reserves that are less certain to be recovered than proved reserves. It is equally likely that the actual remaining quantities recovered will be greater or less than the sum of the estimated proved plus probable reserves.

Producing well – A well that is not a dry well. Productive wells include producing wells and wells that are mechanically capable of production.

Proved reserves – Proved natural gas, NGL and oil reserves are those quantities of natural gas, NGL and oil, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible.

Undeveloped reserves – Proved reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion.

Working interest – The interest in a property which gives the owner that share of production from the property. A working interest owner bears that share of the costs of exploration, development and production in return for a share of production. Working interests are typically burdened by overriding royalty interest or other interests.

CURRENCY

Unless otherwise indicated, all references in this document to "$" and "dollars" are to United States dollars, all references to "C$", "CDN$" and "Canadian dollars" are to Canadian dollars and all references to "Euro" or "€" are to the European Union Euro. On March 22, 2013, the noon buying rate in New York City for cable transfers as certified by the Federal Reserve Bank of New York for the conversion of Canadian dollars and Euros to United States dollars was C$1.00 = $0.9781 and €1.00 = $1.2996, respectively.

NOTE ON FINANCIAL INFORMATION

Unless otherwise stated, all financial information presented herein has been prepared in accordance with the English language version of International Financial Reporting Standards as issued by the International Accounting Standards Board, referred to as "IFRS", which may not be comparable to financial data prepared by many U.S. companies.

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Due to rounding, numbers presented throughout this document may not add up precisely to the totals we provide and percentages may not precisely reflect the absolute figures.

ITEM 1: IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

     Not applicable.

ITEM 2: OFFER STATISTICS AND EXPECTED TIMETABLE

     Not applicable.

ITEM 3: KEY INFORMATION

A. Selected Financial Data

The following table summarizes selected consolidated financial data prepared in accordance with IFRS, for each of the fiscal years ended December 31, 2012, 2011, 2010 and 2009. The information in the table was extracted from the detailed consolidated financial statements and related notes included elsewhere in this annual report or previously filed on Form 20-F and should be read in conjunction with such financial statements and with the information appearing under the heading "Item 5: Operating and Financial Review and Prospects".

Selected Financial Data
(Stated in United States dollars in accordance with IFRS)
(in thousands, other than per share amounts)

B. Capitalization and Indebtedness

Not applicable.

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C. Reasons for the Offer and Use of Proceeds

Not applicable.

D. Risk Factors

Certain statements in this annual report on Form 20-F are forward-looking statements, which reflect our management's expectations regarding our future growth, results of operations, performance and business prospects and opportunities. Forward-looking statements consist of statements that are not purely historical, including any statements regarding beliefs, plans, expectations, projections or intentions regarding the future. While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein.

Such estimates, projections or other forward-looking statements involve various risks and uncertainties as outlined below. We caution the reader that important factors in some cases have affected and, in the future, could materially affect actual results and cause actual results to differ materially from the results expressed in any such estimates, projections or other forward-looking statements.

An investment in our common shares involves a number of risks. You should carefully consider the following risks and uncertainties in addition to other information in this annual report on Form 20-F in evaluating our company and our business before purchasing our common shares. Our business, operations and financial condition could be materially and adversely affected by one or more of the following risks.

Risk Factors Relating to Our Business

Our financial results may fluctuate substantially from period to period.

We expect our business to experience significant periodic variations in its revenues and results of operations in the future. These variations may be attributed in part to the fact that our merchant banking revenues are often earned upon the successful completion of a transaction, the timing of which is uncertain and beyond our control. In many cases, we may receive little or no payment for engagements that do not result in the successful completion of a transaction. Additionally, through our merchant banking business, we seek to acquire undervalued assets where we can use our experience and management to realize upon the value. Often, we will hold or build upon these assets over time, and we cannot predict the timing of when these assets' values may be realized. As a result, we are unlikely to achieve steady and predictable earnings, which could in turn adversely affect our financial condition and results of operations.

Our earnings and, therefore, our profitability may be affected by commodities price volatility.

The majority of our revenue from our global commodity supply chain business is derived from the sale of commodities, including metals, hydrocarbons, plastics and other materials. As a result, our earnings are directly related to the prices of these commodities. In addition, our revenues from our iron ore and natural gas interests are directly connected to the prices of such commodities. There are many factors influencing the price of metals, hydrocarbons, plastics and other commodities, including: expectations for inflation; global and regional demand and production; political and economic conditions; and production costs in major producing regions. These factors are beyond our control and are impossible for us to predict. Changes in the prices of iron ore, hydrocarbons, plastics, metals and other commodities may adversely affect our operating results.

A weak global economy can adversely affect our business and financial results and have a material adverse effect on our liquidity and capital resources.

Our business, by its nature, does not produce predictable earnings, and it may be materially affected by conditions in the global financial markets and economic conditions generally.

Global prices for our commodities are influenced strongly by international demand and global economic conditions. Uncertainties or weaknesses in global economic conditions, including the ongoing sovereign debt crisis in Europe, could adversely affect our business and negatively impact our financial results. In addition, the current level of international demand for certain of our commodities, including iron ore, used in steel production is driven largely by industrial growth in China. If the economic growth rate in China slows for an extended period of time, or if another global economic downturn were to occur, we would likely see decreased demand for such products and decreased prices, resulting in lower revenue levels and decreasing margins. We are not able to predict whether the global economic conditions will continue or worsen and the impact it may have on our operations and the industry in general going forward.

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Market deterioration and weakness can result in a material decline in the number and size of the transactions that we execute for our own account and for our clients and to a corresponding decline in our revenues. Any market weakness can further result in losses to the extent that we own assets in such market.

The global commodity supply chain and merchant banking businesses are highly competitive.

All aspects of the global commodity supply chain and merchant banking businesses are highly competitive, and we expect them to remain so.

Our competitors include merchant and investment banks, brokerage firms, commercial banks, private equity firms, hedge funds, financial advisory firms and natural resource and mineral royalty companies. Many of our competitors have substantially greater capital and resources, including access to commodities supply, than we do. We believe that the principal factors affecting competition in our business include transaction execution, our products and services, client relationships, reputation, innovations, credit worthiness and price. We have experienced price competition in some of our trading business.

The scale of our competitors has increased in recent years as a result of substantial consolidation. These firms have the ability to offer a wider range of products than we do, which may enhance their competitive position. They also have the ability to support their business with other financial services such as commercial lending in an effort to gain market share, which has resulted, and could further result, in pricing pressure in our businesses.

If we are unable to compete effectively with our competitors, our business and results of operations will be adversely affected.

The operation of the iron ore mine underlying our royalty interest is generally determined by a third party operator, and we have no decision making power as to how the property is operated. In addition, we have no or very limited access to technical or geological data respecting the mine, including as to reserves. The operator's failure to perform or other operating decisions made by the operator, including scaling back or ceasing operations, could have a material adverse effect on our revenue, results of operations and financial condition.

The commodities and resources segment of our business includes our indirect royalty interest in the iron ore mine. The revenue derived from the interest is based on production generated by the mine's third party operator. The operator generally has the power to determine the manner in which the iron ore is exploited, including decisions to expand, continue or reduce production from the mine, and decisions about the marketing of products extracted from the mine. The interests of the third party operator and our interests may not always be aligned. As an example, it will, in almost all cases, be in our interest to advance production as rapidly as possible in order to maximize near-term cash flow, while the third party operator may, in many cases, take a more cautious approach to development, as it is at risk with respect to the cost of development and operations. Our inability to control the operations of the mine can adversely affect our profitability, results of operations and financial condition. Similar adverse effects may result from any other interests we may acquire that are primarily operated by a third party operator.

To the extent that we retain our current indirect royalty interest, we will be dependent to a large extent upon the financial viability and operational effectiveness of owners and operators of our interests. Payments from production generally flow through the operator and there is a risk of delay and additional expense in receiving such revenues. Payments may be delayed by restrictions imposed by lenders, delays in the sale or delivery of products, accidents, the recovery by operators of expenses incurred in the operation of any royalty properties, the establishment by operators of reserves for such expenses or the insolvency of an operator. Our rights to payment under the royalties will likely have to be enforced by contract. This may inhibit our ability to collect outstanding royalties upon a default. Failure to receive any payments from the owners and operators of mines in which we have or may acquire a royalty interest may result in a material and adverse effect on our profitability, results of operations and financial condition.

To the extent grantors of royalties and other interests do not abide by their contractual obligations, we may be forced to take legal action to enforce our contractual rights. Such litigation may be time consuming and costly, and, as with all litigation, there is no guarantee of success. Should any such decision be determined adversely to us, such decision may have a material and adverse effect on our profitability, results of operations and financial condition.

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In addition, we have no or very limited access to technical, geological data relating to the mine, including data as to reserves, nor have we received a NI 43-101 compliant technical report in respect of the mine. As such, we cannot independently determine reserve amounts or the estimated life of the mine and are instead wholly dependent on the determination of the reserves by the operator of the mine. We can provide no assurances as to the level of reserves at the mine. If the operator of the mine determines there are insufficient reserves to economically operate the mine, it may scale back or cease operations, which could have a material adverse effect on our profitability, results of operations and financial condition.

The profitability of our global commodity supply chain operations depends, in part, on the availability of adequate sources of supply.

Our global commodity supply chain business relies on, among other things, numerous outside sources of supply for our operations. These suppliers generally are not bound by long-term contracts and will have no obligation to provide commodities to us in the future. In periods of low industry prices, suppliers may elect to hold commodities to wait for higher prices or intentionally slow their activities. If a substantial number of suppliers cease selling commodities to us, we will be unable to source and/or execute commodities transactions at desired levels and our results of operations and financial condition could be materially adversely affected.

We may face a lack of suitable acquisition or merger or other proprietary investment candidates, which may limit our growth.

In order to grow our business, we may seek to acquire, merge with or invest in new companies or opportunities. Our failure to make acquisitions or investments may limit our growth. In pursuing acquisition and investment opportunities, we face competition from other companies having similar growth and investment strategies, many of which may have substantially greater resources than us. Competition for these acquisitions or investment targets could result in increased acquisition or investment prices, higher risks and a diminished pool of businesses, services or products available for acquisition or investment.

Strategic investments or acquisitions and joint ventures, or our entry into new business areas, may result in additional risks and uncertainties in our business.

We have grown and intend to continue to grow our business both through internal expansion and through strategic investments, acquisitions or joint ventures. When we make strategic investments or acquisitions or enter into joint ventures, we expect to face numerous risks and uncertainties in combining or integrating the relevant businesses and systems, including the need to combine accounting and data processing systems and management controls and to integrate relationships with customers and business partners.

Acquisitions also frequently result in recording of goodwill and other intangible assets, which are subject to potential impairments in the future that could have a material adverse effect on our operating results. Furthermore, the costs of integrating acquired businesses (including restructuring charges associated with the acquisitions, as well as other acquisition costs, such as accounting fees, legal fees and investment banking fees) could significantly impact our operating results.

Although we perform due diligence on the businesses we purchase, in light of the circumstances of each transaction, an unavoidable level of risk remains regarding the actual condition of these businesses. We may not be able to ascertain the value or understand the potential liabilities of the acquired businesses and their operations until we assume operating control of the assets and operations of these businesses.

Furthermore, any acquisitions of businesses or facilities, including our recent acquisition of Compton, could entail a number of risks, including:

• problems with the effective integration of operations;
   
• inability to maintain key pre-acquisition business relationships;
   
• increased operating costs;
   
• exposure to substantial unanticipated liabilities;
   
• difficulties in realizing projected efficiencies, synergies and cost savings;
   
• the risks of entering markets in which we have limited or no prior experience; and
   
• the possibility that we may be unable to recruit additional managers with the necessary skills to supplement the management of the acquired businesses.

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In addition, geographic and other expansions, acquisitions or joint ventures may require significant managerial attention, which may be diverted from our other operations. If we are unsuccessful in overcoming these risks, our business, financial condition or results of operations could be materially and adversely affected.

The industries in which we operate may be affected by disruptions beyond our control.

Our global commodity supply chain operations include direct or indirect investments in assets, such as smelting, refining, mining, processing and hydrocarbon operations. Transport disruption, weather and natural disasters such as hurricanes and flooding, unexpected maintenance problems, collapse or damage to mines or wells, unexpected geological variations, labour disruptions and changes in laws and regulations relating to occupational safety, health and environmental matters are some of the factors that may adversely affect our financial condition and results of operations. These factors can affect costs at particular assets for varying periods. In addition, smelting, refining, mining, processing and hydrocarbon operations also rely on key inputs, such as labour, spare parts, fuel and electricity. Disruption to the supply of key inputs, or changes in their pricing, may have a significant adverse impact on our future results.

Our commodities activities are subject to counterparty risks associated with performance of obligations by our counterparties and suppliers.

Our business is subject to commercial risks, which include counterparty risk, such as failure of performance by commodities suppliers and failure of payment by our trading customers. We seek to reduce the risk of supplier non-performance by requiring credit support from creditworthy financial institutions where appropriate. We attempt to reduce the risk of non-payment by purchasers of commodities by imposing limits on open accounts extended to creditworthy customers and imposing credit support requirements for other customers. Nevertheless, we are exposed to the risk that parties owing us or our clients and other financial intermediaries may default on their obligations to us due to bankruptcy, lack of liquidity, operational failure or other reasons. These counterparty obligations may arise, for example, from placing deposits, the extension of credit in trading and investment activities and participation in payment, securities and commodity trading transactions on our behalf and as an agent on behalf of our clients. If any of these parties default on their obligations, our business, results of operations, financial condition and cash flow could be adversely affected.

Larger and more frequent capital commitments in our global commodity supply chain business increase the potential for significant losses.

We may enter into large transactions in which we commit our own capital as part of our global commodity supply chain business to facilitate client trading activities. The number and size of these large transactions may materially affect our results of operations in a given period. Market fluctuations may also cause us to incur significant losses from our trading activities. To the extent that we own assets (i.e., have long positions), a downturn in the value of those assets or in the markets in which those assets are traded could result in losses. Conversely, to the extent that we have sold assets we do not own (i.e., have short positions) in any of those markets, an upturn in those markets could expose us to potentially large losses as we attempt to cover our short positions by acquiring assets in a rising market.

We are subject to transaction risks that may have a material adverse effect on our business, results of operations, financial condition and cash flow.

We manage transaction risks through allocating and monitoring our capital investments in circumstances where the risk to our capital is minimal, carefully screening clients and transactions, and engaging qualified personnel to manage transactions. Nevertheless, transaction risks can arise from, among other things, our trading and merchant banking activities. These risks include market and credit risks associated with our merchant banking operations. We intend to make investments in highly unstructured situations and in companies undergoing severe financial distress. Such investments often involve severe time constraints. These investments may expose us to significant transaction risks. An unsuccessful investment may result in the total loss of such an investment and may have a material adverse effect on our business, results of operations, financial condition and cash flow.

Our risk management strategies leave us exposed to unidentified or unanticipated risks that could impact our risk management strategies in the future and could negatively affect our results of operations and financial condition.

We use a variety of instruments and strategies to manage exposure to various types of risks. For example, we use derivative foreign exchange contracts to manage our exposure and our clients' exposure to foreign currency exchange rate risks. If any of the variety of instruments and strategies we utilize to manage our exposure to various types of risk are not effective, we may incur losses. Many of our strategies are based on historical trading patterns and correlations. However, these strategies may not be fully effective in mitigating our risk exposure in all market environments or against all types of risk. Unexpected market developments may affect our risk management strategies during this time, and unanticipated developments could impact our risk management strategies in the future.

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Derivative transactions may expose us to unexpected risk and potential losses.

We, from time to time, enter into derivative transactions that require us to deliver to the counterparty the underlying security, loan or other obligation in order to receive payment. In a number of cases, we may not hold the underlying security, loan or other obligation and may have difficulty obtaining, or be unable to obtain, the underlying security, loan or other obligation through the physical settlement of other transactions. As a result, we are subject to the risk that we may not be able to obtain the security, loan or other obligation within the required contractual time frame for delivery. This could cause us to forfeit the payments due to us under these contracts or result in settlement delays with the attendant credit and operational risk as well as increased costs to us.

Fluctuations in interest rates and foreign currency exchange rates may affect our results of operations and financial condition.

Fluctuation in interest rates may affect the fair value of our financial instruments sensitive to interest rates. An increase or decrease in market interest rates may result in changes to the fair value of our fixed interest rate financial instrument liabilities, thereby resulting in a reduction in the fair value of our equity. Similarly, fluctuations in foreign currency exchange rates may affect the fair value of our financial instruments sensitive to foreign currency exchange rates.

Our operations and infrastructure may malfunction or fail.

Our business is highly dependent on our ability to process, on a daily basis, a number of transactions across diverse markets, and the transactions we process have become increasingly complex. The inability of our systems to accommodate an increasing volume of transactions could also constrain our ability to expand our businesses. If any of these systems do not operate properly or are disabled, or if there are other shortcomings or failures in our internal processes, people or systems, we could suffer impairments, financial loss, a disruption of our businesses, liability to clients, regulatory intervention or reputational damage.

The exploration and development of mining and resource properties is inherently dangerous and subject to risks beyond our control.

Companies engaged in resource activities are subject to all of the hazards and risks inherent in exploring for and developing natural resource projects. These risks and uncertainties include, but are not limited to, environmental hazards, industrial accidents, labour disputes, increases in the cost of labour, social unrest, fires, changes in the regulatory environment, impact of non-compliance with laws and regulations, explosions, encountering unusual or unexpected geological formations or other geological or grade problems, unanticipated metallurgical characteristics or less than expected mineral recovery, encountering unanticipated ground or water conditions, cave-ins, pit wall failures, flooding, rock bursts, periodic interruptions due to inclement or hazardous weather conditions, earthquakes, seismic activity, other natural disasters or unfavourable operating conditions and losses. Should any of these risks or hazards affect a company's exploration or development activities, it may: (i) cause the cost of development or production to increase to a point where it would no longer be economic to produce the metal or other resource from the company's resources or expected reserves; (ii) result in a write down or write-off of the carrying value of one or more projects; (iii) cause delays or stoppage of mining or processing; (iv) result in the destruction of properties, processing facilities or third party facilities necessary for operations; (v) cause personal injury or death and related legal liability; or (vi) result in the loss of insurance coverage. The occurrence of any of above mentioned risks or hazards could result in an interruption or suspension of operation of the properties in which we hold an interest or any other properties we acquire in the future and have a material and adverse effect on our results of operations and financial condition.

Our natural gas and related operations are subject to inherent risks and hazards.

There are many operating risks and hazards inherent in exploring for, producing, processing, and transporting natural gas and oil. Drilling operations may encounter unexpected formations or pressures that could cause damage to equipment or personal injury and fires, explosions, blowouts, spills, or other accidents may occur. Additionally, we could experience interruptions to, or the termination of, drilling, production, processing, and transportation activities due to bad weather, natural disasters, delays in obtaining governmental approvals or consents, insufficient storage or transportation capacity, or other geological and mechanical conditions. Any of these events that result in a shutdown or slowdown of operations will adversely affect our business. While close well supervision and effective maintenance operations can contribute to maximizing production rates over time, production delays and declines from normal field operating conditions cannot be eliminated and can be expected to adversely affect revenue and cash flow levels to varying degrees.

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Drilling activities, including completions, are subject to the risk that no commercially productive reservoirs will be encountered and we will not recover all or any portion of our investment. The cost of drilling, completing, and operating wells is often uncertain due to drilling in unknown formations, the costs associated with encountering various drilling conditions, such as over pressured zones, and changes in drilling plans and locations as a result of prior exploratory wells or additional seismic data and interpretations thereof.

Mineral resource calculations are only estimates.

Any figures presented for mineral resources in this document are only estimates. There are numerous uncertainties inherent in estimating mineral resources. Such estimates are subjective, and the accuracy of mineral resource estimation is a function of the quantity and quality of available data and of the assumptions made and judgments used in engineering and geological interpretation. These amounts are estimates only, and the actual level of recovery of minerals from such deposits may be different. Differences between our assumptions, including economic assumptions such as mineral prices, market conditions and actual events, could have a material adverse effect on our mineral reserve and mineral resource estimates, financial position and results of operation. No assurance can be given that any mineral resource estimates will be ultimately reclassified as reserves.

Estimates of natural gas and oil reserves involve uncertainty.

Estimates of natural gas and oil reserves involve a great deal of uncertainty because they depend upon the reliability of available geologic and engineering data, which is inherently imprecise. Geologic and engineering data are used to determine the probability that an oil and gas reservoir exists at a particular location and whether hydrocarbons are recoverable from the reservoir. The probability of the existence and recoverability of reserves is less than 100% and actual recoveries may be materially different from estimates.

Such estimates require numerous assumptions relating to operating conditions and economic factors, including the prices of such commodities, availability of investment capital, recovery costs, the availability of enhanced recovery techniques, the ability to market production, and governmental and other regulatory factors, such as taxes, royalty rates, and environmental laws. A change in one or more of these factors could result in known quantities of natural gas and oil previously estimated becoming unrecoverable. Each of these factors also impacts recovery costs and production rates. In addition, estimates of reserves that are prepared by different independent engineers, or by the same engineers at different times, may vary substantially.

If we are unsuccessful in acquiring or finding additional reserves, our future natural gas, NGL and oil production would decline, thereby reducing our cash flows and results of operations and impairing our financial condition.

The rate of production from our natural gas and oil properties generally declines as reserves are depleted. Except to the extent we acquire interests in additional properties containing proved reserves, conduct successful exploration and development activities or, through engineering studies, optimize production performance or identify additional reserves, our proved reserves will decline materially as natural gas, NGLs and oil are produced. Accordingly, to the extent we are not successful in replacing such production, our future revenues may decline.

Creating and maintaining an inventory of prospects for future production depends on many factors, including:

• obtaining rights to explore for, develop and produce hydrocarbons in promising areas;
   
• drilling success;
   
• the ability to complete long lead-time, capital-intensive projects timely and on budget;
   
• the ability to find or acquire additional proved reserves at acceptable costs; and
   
• the ability to fund such activity.

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Our global commodity supply chain operations are subject to environmental laws and regulations that may increase the costs of doing business and may restrict such operations.

All phases of a resource business present environmental risks and hazards and are subject to environmental regulation pursuant to a variety of government laws and regulations. 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. Compliance with such laws and regulations can require significant expenditures, and a breach may result in the imposition of fines and penalties, which may be material. Environmental legislation is evolving in a manner expected to result in stricter standards and enforcement, larger fines and liability and potentially increased capital expenditures and operating costs. Any breach of environmental legislation by the operator of properties underlying our interests or by us, as an owner or operator of a property, could have a material impact on the viability of the relevant property and impair the revenue derived from the owned property or applicable royalty or other interest, which could have a material adverse effect on our results of operations and financial condition. Further, environmental hazards may exist on the properties on which we hold interests, which are unknown to us at present and have been caused by previous or existing owners or operators of the 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 resource operations or in the exploration or development of resource properties may also 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.

We are not fully insured against certain environmental risks, either because such insurance is not available or because of high premium costs. In particular, insurance against risks from environmental pollution occurring over time, as opposed to sudden and catastrophic damages, is not available on economically reasonable terms. Accordingly, our properties may be subject to liability due to hazards that cannot be insured against or that have not been insured against due to prohibitive premium costs or for other reasons.

Future environmental and reclamation obligations respecting our resource properties and interests may be material.

We have not established a separate reclamation fund for the purpose of funding estimated future environmental and reclamation obligations. Any site reclamation or abandonment costs incurred in the ordinary course in a specific period will be funded out of cash flow from operations. It is not possible for us to predict our ability to fully fund the cost of all of our future environmental, abandonment and reclamation obligations. We expect to incur site restoration costs over a prolonged period as wells reach the end of their economic life. There are significant uncertainties related to decommissioning obligations, and the impact on the financial statements could be material. The eventual timing of and costs for these asset retirement obligations could differ from current estimates. The main factors that can cause expected cash flows to change are:

• changes to laws and legislation;
   
• construction of new facilities;
   
• change in the reserve estimate and the resulting amendment to the life of the reserves for our hydrocarbon operations; and
   
• changes in technology.

We or the operators of our current and any future resource interests may not be able to secure required permits and licenses.

Operations underlying our resource interests may require licenses and permits from various governmental authorities. There can be no assurance that we or the operator of any given project will be able to obtain all necessary licenses and permits that may be required to carry out exploration, development or other resource operations.

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There can be no assurance that we will be able to obtain adequate financing in the future or that the terms of such financing will be favourable, and, as a result, we may have to raise additional capital through the issuance of additional equity, which will result in dilution to our shareholders.

There can be no assurance that we will be able to obtain adequate financing in the future or that the terms of such financing will be favourable. Failure to obtain such additional financing could result in delay or indefinite postponement of further business activities. We may require new capital to grow our business, and there are no assurances that capital will be available when needed, if at all. It is likely such additional capital will be raised through the issuance of additional equity, which would result in dilution to our shareholders.

Limitations on our access to capital could impair our liquidity and our ability to conduct our businesses.

Liquidity, or ready access to funds, is essential to companies engaged in commodities trading and financing and merchant banking. Failures of financial firms have often been attributable in large part to insufficient liquidity. Liquidity is of particular importance to our commodities and resources business, and perceived liquidity issues may affect our clients' and counterparties' willingness to engage in transactions with us. Our liquidity could be impaired due to circumstances that we may be unable to control, such as a general market disruption or an operational problem that affects our clients, counterparties, our lenders or us. Further, our ability to sell assets may be impaired if other market participants are seeking to sell similar assets at the same time.

We may substantially increase our debt in the future.

We expect that it may be necessary for us to obtain financing with a bank or financial institution to provide funds for working capital, capital purchases, potential acquisitions and business development. However, because of our cash flow position, we do not expect that we will have any immediate need to obtain additional financing. Interest costs associated with any debt financing may adversely affect our profitability. Further, the terms on which amounts may be borrowed – including standard financial covenants regarding the maintenance of financial ratios, the prohibition against engaging in major corporate transactions or reorganizations and the payment of dividends – may impose additional constraints on our business operations and our financial strength.

As a result of our global operations, we are exposed to political, economic, legal, operational and other risks that could adversely affect our business, our results of operations, financial condition and cash flow.

In conducting our business in major markets around the world, we are subject to political, economic, legal, operational and other risks that are inherent in operating in other countries. These risks range from difficulties in settling transactions in emerging markets to possible nationalization, expropriation, price controls and other restrictive governmental actions, and terrorism. We also face the risk that exchange controls or similar restrictions imposed by foreign governmental authorities may restrict our ability to convert local currency received or held by us in their countries into Swiss francs, Canadian dollars, Euros or other hard currencies, or to take those other currencies out of those countries. If any of these risks become a reality, our business, results of operations, financial condition and cash flow could be negatively impacted.

We are exposed to litigation risks in our business that are often difficult to assess or quantify. We anticipate that we will incur significant legal expenses every year in defending against litigation.

We are exposed to legal risks in our business, and the volume and amount of damages claimed in litigation against financial intermediaries are increasing. These risks include potential liability under securities or other laws for materially false or misleading statements made in connection with securities and other transactions, potential liability for advice we provide to participants in corporate transactions and disputes over the terms and conditions of complex trading arrangements. We also face the possibility that counterparties in complex or risky trading transactions will claim that we improperly failed to tell them of the risks involved or that they were not authorized or permitted to enter into such transactions with us and that their obligations to us are not enforceable. During a prolonged market downturn, we expect these types of claims to increase. We are also exposed to legal risks in our merchant banking activities.

We seek to invest in undervalued businesses or assets often as a result of financial, legal, regulatory or other distress affecting them. Investing in distressed businesses and assets can involve us in complex legal issues relating to priorities, claims and other rights of stakeholders. These risks are often difficult to assess or quantify, and their existence and magnitude often remains unknown for substantial periods of time. We may incur significant legal and other expenses in defending against litigation involved with any of these risks and may be required to pay substantial damages for settlements and/or adverse judgments. Substantial legal liability or significant regulatory action against us could have a material adverse effect on our financial condition and results of operations.

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We rely significantly on the skills and experience of our executives, and the loss of any of these individuals may harm our business.

Our future success depends to a significant degree on the skills, experience and efforts of our executives, and the loss of their services may compromise our ability to effectively conduct our business. We do not maintain "key person" insurance in relation to any of our employees.

We may experience difficulty attracting and retaining qualified management and technical personnel to efficiently operate our business, and the failure to operate our business effectively could have a material and adverse effect on our profitability, financial condition and results of operations.

We are dependent upon the continued availability and commitment of our management, whose contributions to immediate and future operations are of significant importance. The loss of any such management could negatively affect our business operations. From time to time, we will also need to identify and retain additional skilled management and specialized technical personnel to efficiently operate our business. The number of persons skilled in the acquisition, exploration and development of royalties and interests in natural resource properties is limited, and competition for such persons is intense. Recruiting and retaining qualified personnel is critical to our success, and there can be no assurance of our ability to attract and retain such personnel. If we are not successful in attracting and retaining qualified personnel, our ability to execute our business model and growth strategy could be affected, which could have a material and adverse impact on our profitability, results of operations and financial condition.

Certain of our directors and officers may, from time to time, serve in similar positions with other public companies, which may put them in a conflict position with us from time to time.

Certain of our directors and officers may, from time to time, serve as directors or officers of other companies involved in similar businesses to us, and, to the extent that such other companies may participate in the same ventures in which we may seek to participate, such directors and officers may have a conflict of interest in negotiating and concluding terms respecting the extent of such participation. In all cases where our directors and officers have an interest in other companies, such other companies may also compete with us in commodities trading, financing and merchant banking and for the acquisition of royalties, similar interests or resources properties or projects. Such conflicts of our directors and officers may result in a material and adverse effect on our results of operations and financial condition.

We conduct business in countries with a history of corruption and transactions with foreign governments, and doing so increases the risks associated with our international activities.

As we operate internationally, we are subject to the United States Foreign Corrupt Practices Act, and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by United States and other business entities that have securities registered in the United States for the purpose of obtaining or retaining business. We have operations and agreements with third parties in countries known to experience corruption. Further international expansion may involve more exposure to such practices. Our activities in these countries create the risk of unauthorized payments or offers of payments by one of our employees or consultants that could be in violation of various laws including the Foreign Corrupt Practices Act, even though these parties are not always subject to our control. It is our policy to implement safeguards to discourage these practices by employees. However, our existing safeguards and any future improvements may prove to be less than effective, and our employees or consultants may engage in conduct for which we might be held responsible. Violations of the Foreign Corrupt Practices Act may result in criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition.

Employee misconduct could harm us and is difficult to detect and deter.

It is not always possible to detect and deter employee misconduct. The precautions we take to detect and prevent employee misconduct may not be effective in all cases, and we could suffer significant reputational and economic harm for any misconduct by our employees. The potential harm to our reputation and to our business caused by such misconduct is impossible to quantify.

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We may incur losses as a result of unforeseen or catastrophic events, including the emergence of a pandemic, terrorist attacks or natural disasters.

The occurrence of unforeseen or catastrophic events, including the emergence of a pandemic or other widespread health emergency (or concerns over the possibility of such an emergency), terrorist attacks or natural disasters, could create economic and financial disruptions, could lead to operational difficulties (including travel limitations) that could impair our ability to manage our business and could expose our insurance subsidiaries to significant losses.

General Risks Faced by Us

Investors' interests may be diluted and investors may suffer dilution in their net book value per share if we issue additional shares or raise funds through the sale of equity securities.

Our constating documents authorize the issuance of our common shares, Class A common shares and Class A Preference Shares, issuable in series. In the event that we are required to issue any additional shares or enter into private placements to raise financing through the sale of equity securities, investors' interests in us will be diluted, and investors may suffer dilution in their net book value per share depending on the price at which such securities are sold. If we issue any such additional shares, such issuances will also cause a reduction in the proportionate ownership of all other shareholders. Further, any such issuance may result in a change of control of our company.

Certain factors may inhibit, delay or prevent a takeover of our company, which may adversely affect the price of our common shares.

Certain provisions of our charter documents and the corporate legislation which govern us may discourage, delay or prevent a change of control or changes in our management that shareholders may consider favourable. Such provisions include authorizing the issuance by our board of directors of preferred stock in series, providing for a classified board of directors with staggered, three-year terms and limiting the persons who may call special meetings of shareholders. In addition, the Investment Canada Act imposes certain limitations on the rights of non-Canadians to acquire our common shares, although it is highly unlikely that this will apply. If a change of control or change in management is delayed or prevented, the market price of our common shares could decline.

ITEM 4: INFORMATION ON THE COMPANY

A. History and Development of the Company

Corporate Information

We are a corporation organized under the laws of the Province of British Columbia, Canada. We were originally incorporated in June 1951 by letters patent issued pursuant to the Companies Act of 1934 (Canada). We were continued under the Canada Business Corporations Act in March 1980, under the Business Corporations Act (Yukon) in August 1996 and under the Business Corporations Act (British Columbia) in November 2004. Our name was changed from "Terra Nova Royalty Corporation" to "MFC Industrial Ltd." on September 30, 2011 to better reflect our focus on the global commodities supply chain business.

Our principal office is located at Suite 1620 - 400 Burrard Street, Vancouver, British Columbia, Canada V6C 3A6 and the telephone number is (604) 683-8286. Our registered office is located at Suite 1000 - 925 West Georgia Street, Vancouver, British Columbia, Canada, V6C 3L2.

General

We are a global commodities supply chain company, which sources and delivers commodities and materials to clients, with an expertise on the financing and risk management aspects of their businesses.

Until the first quarter of 2010, we were also active in the Industrial Business through our interest in KHD Humboldt Wedag International (Deutschland) AG, referred to as "KID". Our former Industrial Business supplied plant systems as well as machinery and equipment worldwide for the manufacture of cement, whether for new plants, redevelopments of existing plants or capacity increases for existing plants. It also designed and provided equipment that produced clinker and cement and offered basic engineering, detail engineering, plant and equipment for complete plants and plant sections. During the course of 2010, we distributed our shares of KID to our shareholders. Upon the distribution to our shareholders of our Industrial Business, we operated primarily in the royalty and resources business.

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In connection with our long-term strategic plans, involving internal growth initiatives, acquisitions or business combinations, we seek out and evaluate strategic acquisition candidates. After the distribution of our Industrial Business to our shareholders, in the fourth quarter of 2010, we acquired all of the outstanding shares of Mass, which was engaged in the commodities, merchant banking and proprietary investment businesses, and consolidated its operations from November 16, 2010. In December 2011, we acquired, together with our partner in the project, Alberici Group, Inc., referred to as "Alberici", the Pea Ridge Iron Ore Mine project, located near Sullivan, Missouri, U.S.A.

In 2012, in order to further our long-term strategy to expand our global commodities business, we completed the following acquisitions, which increased our geographic range and added new products to our commodities platform:

• in September 2012, we completed the take-over bid of Compton, which expanded our commodities business to include the energy sector;
   
• in November 2012, we acquired a controlling interest in each of ACC Resources Co., L.P., referred to as "ACCR" and Possehl Mexico S.A. de C.V., referred to as "Possehl", which are global commodities supply chain businesses with a presence in the North American and Latin American markets and a focus on refractory and ceramic materials and other products that are new to our commodities platform; and
   
• in March 2012, we acquired a mineral refinery plant and power plant.

Recent Developments

The following is a summary of selected key recent developments in our business.

Impairment of Indian Iron Ore Activities

In the year ended December 31, 2012, we recognized an impairment and write-down, net of income tax recovery, of $48.2 million in relation to our iron ore activities in India. In October 2012, the Supreme Court of India banned all mining activities in the State of Goa, India. As we believe the situation will take many years to resolve, we determined to exit the market and recognized the aforementioned impairment and write-down. These interests were sold in 2013.

Acquisition of Compton Petroleum Corporation

On September 6, 2012, we completed our previously announced take-over bid, referred to as the "Offer", for all of the issued and outstanding common shares of Compton, referred to as the "Compton Shares". The Offer was made pursuant to a support agreement, referred to as the "Support Agreement", between Compton and us dated July 6, 2012. Pursuant to the Offer, on September 6, 2012, our indirect wholly-owned subsidiary acquired approximately 93.8% of the outstanding Compton Shares. On September 11, 2012, we completed a compulsory acquisition under the Alberta Business Corporations Act, whereby our indirect wholly-owned subsidiary acquired all the remaining outstanding Compton Shares not already owned by us or our affiliates. As a result of such compulsory acquisition, our indirect wholly-owned subsidiary acquired 100% ownership of Compton. Total cash consideration paid to holders of Compton Shares under the Offer and compulsory acquisition was C$32.9 million.

In connection with the Support Agreement, on July 16, 2012, our indirect wholly-owned subsidiary acquired 6,548,498 special warrants, referred to as the "Warrants", in the capital of Compton, at a price of C$1.25 per Warrant. On September 6, 2012, as a result of the conversion of the Warrants, our indirect wholly-owned subsidiary, acquired an additional 6,548,498 Compton Shares. No additional consideration was paid in connection with the conversion of the Warrants.

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The following diagram describes the ownership of Compton:

As a result of the completion of the Offer and related transactions, we have consolidated Compton's operations since September 7, 2012.

Acquisition Rationale – We determined to pursue and complete the acquisition of Compton for, among other things, the following key reasons:

• to significantly expand our global commodities platform into the energy sector; 
   
• the price paid under the Offer was attractive and below Compton's net asset value, which resulted in our recognition of a bargain purchase of $244.6 million for the year ended December 31, 2012 in connection with the acquisition of Compton;
   
• Compton's operations include significant midstream facilities, which present an opportunity for growth through value-added projects and the consolidation of regional gas production to such facilities;
   
• in addition to its producing properties, Compton has a significant undeveloped land package, which, as at December 31, 2012, included 309,782 net undeveloped acres which can be further developed; and
   
• at the time we completed the Offer, our acquisition cost per mcf equivalent for Compton's proved and probable natural gas, NGL and oil reserves was approximately $0.10 based on Compton's most recent reserves estimates prior to completion of the Offer, which were as of June 30, 2012. Please note that these reserves estimates are historic in nature, do not represent our reserves as at December 31, 2012 and were prepared by Compton based upon Canadian securities requirements under NI 51-101 and are not comparable to the updated reserves figures that we have prepared in accordance with SEC requirements, which are disclosed elsewhere in this annual report on Form 20-F.

Acquisition of ACCR and Possehl

In November 2012, we acquired a controlling interest in each of ACCR and Possehl, which are based in New Jersey, U.S.A. and Mexico City, Mexico, respectively. ACCR and Possehl are fully integrated commodity supply chain companies, specializing in industrial raw materials, chemicals and various other products. The aggregate purchase price for a 80% interest in ACCR and a 60% interest in Possehl was approximately $23.2 million. We paid $14.7 million of the purchase price in 2012 and $6.2 million in January 2013 for a 70% interest in ACCR and 60% interest in Possehl. An additional $2.3 million is payable by us in November 2013 at which time we will acquire an additional 10% interest in ACCR. The purchase price is subject to adjustment based on pending valuations of real property and occurrence of certain adjustment events. In addition, the underlying agreements provide for, among other things, the future acquisition of additional interests in ACCR and Possehl in certain circumstances.

The acquisition of ACCR and Possehl expanded our existing global supply chain network, reaching further into North and Latin American markets. Additionally, as ACCR's and Possehl's product base included various products that were not previously in our commodities platform, the acquisition has resulted in an expansion of our commodities operations into new products, including refractory and ceramic materials, such as bauxite, flint clay, magnesium oxide, alumina cements and chrome ore, talcs and plastics, industrial chemicals and other products.

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Acquisition Rationale – We entered into the transaction to acquire controlling interests in ACCR and Possehl for, among other things, the following key reasons:

• the transaction price was based on the net tangible asset value of the assets, which is consistent with our acquisition strategy;
   
• there are significant synergies between our global commodity supply chain business and the businesses of ACCR and Possehl;
   
• the acquisition presented an attractive opportunity to expand the geographic reach of our global commodity supply chain business further into the North American and Latin American markets and increase our customer base with new customers and industries;
   
• ACCR's and Possehl's existing management team and personnel complement and enhance our existing team; and
   
• it allowed us to diversify the scope of our global commodity supply chain business into new and unique commodities.

Acquisition of Kasese Cobalt Company Limited

Pursuant to an asset purchase agreement with a vendor, in March 2012, we acquired a shareholder loan held by the vendor and a 75% controlling interest in Kasese Cobalt Company Limited, referred to as "KCCL", for cash consideration of $28.0 million. As a result of the acquisition, we hold a mineral refinery plant and power plant in Uganda. KCCL's operations comprised the recovery of cobalt metal from pyrite tailings located near its refinery. Supply from the tailings pile for the refinery is expected to be depleted by the end of 2013. A bargain purchase of $2.4 million was recognized in connection with the acquisition.

Acquisition Rationale – We completed the KCCL acquisition for, among other things, the following key reasons:

• the acquisition of KCCL presented an opportunity for us to leverage our experience to complete the closure of KCCL's mining operations and rationalize its assets;
   
• the acquisition allowed us to acquire the related power plant, which presented a potential upside opportunity in connection with the sale of energy production; and
   
• the opportunity to realize upon the benefits of reducing the general and administrative costs of KCCL.

Dividend Payments

In 2012, pursuant to our previously announced annual dividend policy, we declared and paid a cash dividend of $0.22 per common share, which was paid in four quarterly installments throughout the year. On January 14, 2013, we announced that our board of directors had declared an annual cash dividend for 2013 of $0.24 per common share, payable in four quarterly installments. The 2013 dividend is approximately 9% higher than the dividend paid in 2012, and, based on the closing price on December 31, 2012 of $8.55 on the New York Stock Exchange, referred to as the "NYSE", represents a dividend yield of approximately 2.81%, compared to an annual dividend yield of approximately 2.5% for the NYSE Composite Index in 2012. The first 2013 dividend payment of $0.06 per share was made on February 8, 2013 to shareholders of record on January 25, 2013. On April 1, 2013 we announced that the second dividend payment for 2013, of $0.06 per share, would be made on April 22, 2013 to shareholders of record on April 12, 2013.

B. Business Overview

We are a global commodities supply chain company, which sources and delivers commodities and materials to clients, with a special expertise on the financing and risk management aspects of the business.

Business Segments

Our business is divided into three reportable segments: (i) commodities and resources, which includes our commodities activities and mineral and energy resources; (ii) merchant banking, which includes structured solutions, financial services and proprietary investing activities; and (iii) other, which encompasses our corporate and other investments and business interests, including our medical supplies and servicing business and corporate.

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Commodities and Resources

Our commodity supply chain business is globally focused and includes our integrated commodities operations and our mineral interests. We conduct such operations primarily through our subsidiaries based in Vienna, Austria and our recently acquired subsidiaries in the United States, Latin America and Canada, and supply various commodities, including minerals and metals, chemicals, plastics, refractory and ceramic materials and wood products to our customers. As a result of our acquisition of Compton in the third quarter of 2012, we are now active in the energy sector of the commodities business through our natural gas and other hydrocarbon production and processing activities in Alberta, Canada. Our commodities originate either from our directly or indirectly held interests in resource projects or are secured by us from third parties. We also derive production royalty revenue from a mining sub-lease.

Through our global commodity supply chain business, we also provide logistics, supply chain management and other services to producers and consumers of commodities. These activities are supported by strategic direct or indirect investments in natural resource assets operating in our core commodities, including plastics, non-ferrous metals and minerals.

Our commodities operations include sourcing and supplying commodities. To a lesser extent, we also act as an agent for our clients. Our commodities operations often utilize innovative trading strategies and structures. We currently engage in purchases and sales with commodity and other producers who are unable to effectively realize sales due to their specific circumstances.

We often purchase or produce the underlying commodity and sell it to an end buyer or transfer it for another commodity, which will subsequently be sold. Further, commodity producers and end customers often work with us to better manage their internal supply chain, distribution risk and currency and capital requirements. In such commodities operations, we try to capture various commodities, financing and currency spreads. Through our operations, we have been able to develop ongoing relationships with commodity producers, end customers and financiers and integrate them into our financial activities.

We generally source commodities from Asia, Africa, Europe, North America and the Middle East. Our commodities are sold in global markets.

Our commodities operations are supported by our logistics and finance activities in order to provide cost effective and efficient transportation, as well as the granting of payment terms for working capital requirements for our customers and partners.

Our commodities and resources business employs personnel worldwide. Our main marketing office is located in Vienna, Austria. In addition, we establish relationships with and seek to further market our products through agents located worldwide. Our marketing and investment activities in the commodities and resource sector are supported by a global network of agents and relationships. This network provides us with worldwide sourcing and distribution capabilities.

We had indirectly entered into agreements with third party leaseholders of iron ore mines in India pursuant to which our subsidiary was the sole contractor, and the third parties agreed to sell iron ore to our subsidiary at a fixed price per ton based on the extraction costs plus a royalty payment to the owner dependent upon the iron content. During the year ended December 31, 2012, we recognized an inventory write-down of $19.4 million as well as an impairment loss of $42.6 million on such interests after the Supreme Court of India banned all mining activities in the area. In aggregate, the total loss on the write-down and impairment was $48.2 million, net of an income tax recovery of $13.8 million. We sold these interests in 2013 for nominal consideration and an interest in future cash flow if mineral extraction actually resumes.

We indirectly derive production royalty revenue from a mining sub-lease of the lands upon which the Wabush iron ore mine is situated in Newfoundland and Labrador, Canada. This sub-lease commenced in 1956 and expires in 2055. The lessor is Knoll Lake Minerals Ltd., referred to as "Knoll Lake Minerals", which holds a direct mining lease from the Province. The mine is owned by Cliffs Natural Resources Inc., referred to as "Cliffs". In August 2011, we reorganized our royalty asset to hold an indirect 99.44% economic interest therein.

In 2012, 2011 and 2010, 3.1 million, 3.3 million and 3.8 million tons of iron pellets, respectively, were shipped from Pointe Noire, Québec, Canada. Subsequent to the year ended December 31, 2012, Cliffs announced that it expects to idle the Wabush Pointe Noire pellet plant by the end of the second quarter 2013 and transition to producing an iron ore concentrate only product from the mine due to high production costs and lower pellet premium pricing.

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Iron ore shipments from the Wabush iron ore mine are subject to seasonal and cyclical fluctuations. The royalty is paid quarterly and is based on the tonnage of iron ore products shipped. One of the major components in the calculation of the royalty rate payable is based on the most recently published price of a particular iron ore pellet. Pursuant to the terms of the mining sub-lease, the royalty payment is not to be less than C$3.25 million per annum until its expiry. In 1988, the royalty rate was amended to require a base royalty rate of C$1.685 per ton with escalations as defined in the sub-lease. We are obligated to make royalty payments of C$0.22 per ton on shipments of iron ore products to Knoll Lake Minerals, which holds the direct lease over the mine property. Cliffs applies a portion of the royalty payments under the sub-lease to make such royalty payments to Knoll Lake Minerals.

Historically, iron ore benchmark prices were determined in the first quarter of the calendar year through negotiations between the major producers and their most significant customers. These prices were then generally adopted by the other suppliers when published.

A shift in the marketplace has, among other things, made obsolete certain of the world iron ore pellet pricing methodology for calculating the royalty rate due to us contained in our sub-lease for the Wabush iron mine. As a result of these market changes, and as the sub-lease permits us to renegotiate an increase in the royalty rates when the mine achieves certain profitability thresholds, which we believe have been obtained, we served the mine operator with notice of arbitration respecting our entitlement to a new base rate for the royalty. We have also provided the mine operator with a notice of arbitration seeking recovery for royalty underpayments in 2010 and a determination for the calculation of future royalty pricing. The outcome of such proceedings cannot be determined at this time.

Iron ore is typically sold either as a concentrate, whereby the iron ore is in granular form, or as a pellet, whereby iron ore concentrate has been mixed with a binding agent, formed into a pellet and then fired in a furnace. Iron ore pellets can be charged directly into blast furnaces without further processing and are primarily used to produce pig iron which is subsequently transformed into steel. The ore resources at the Wabush mine contain manganese in quantities that make the resulting iron ore concentrates unattractive to some steel plant customers. The operator of the mine has announced that it is addressing this by installing mill components that reduce manganese content, with the final plant reconfiguration requiring four to six independent manganese reduction circuits, two of which were installed in 2011. The operator of the mine has indicated that this manganese reduction program would extend the mine life by six years.

The following table sets forth historical total iron ore shipments (which include pellets, chips and concentrates) and royalty payments to us based upon the amounts reported to us by the Wabush mine operator:

In the fourth quarter of 2011, along with Alberici, we acquired the Pea Ridge Iron Ore Mine, located near Sullivan, Missouri, U.S.A. We previously acquired various secured debt and interests respecting the properties underlying the Pea Ridge Mine, with our investment being approximately $12.1 million in 2011 to acquire our indirect 50% interest in the Pea Ridge Mine. Pursuant to the transaction, the previous owners retained a 2.6% net smelter returns royalty on ferrous minerals produced at the mine. Additionally, the previous owners hold 70% of another entity which has a mineral license respecting non-ferrous minerals at the mine, with the remaining 30% of such entity indirectly held jointly by us and Alberici.

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The Pea Ridge Mine is located approximately 70 miles southwest of St. Louis, Missouri and was operated as an underground mine between 1963 and 2001, producing approximately 58.5 million short tons during such period. The mine was originally developed as a partnership between Bethlehem Steel Corporation and St. Joe Minerals Corp., operating as the Meramec Mining Company. From 1981 to 1987 the mine was operated by Fluor Corporation and was subsequently acquired by Woodridge Resources Corporation, which operated the mine until its closure in 2001. From 2001 until we acquired our interest in the Pea Ridge Mine, operations at the mine had been limited to reclamation of resource settlement ponds located below the historical production facilities.

The Pea Ridge Mine project includes the historic mine deposit along with a large tonnage of tailings material. Prior infrastructure remains in place, including access to underground workings, two vertical mine shafts with hoists and headframes, a plant building and tailings and settling ponds. The Pea Ridge Mine's location is served by highways connecting to the U.S. interstate highway system and has a presently unused rail spur line connecting to the Union Pacific railway system.

During 2012, we and our partner, Alberici, continued to study the re-opening of the Pea Ridge Mine. During the second quarter of 2012, we completed an updated independent NI 43-101 compliant technical report, referred to as the "Pea Ridge Technical Report", upgrading previously disclosed historic resources estimates to current resource estimates. Behre Dolbear and Company (USA), Inc., referred to as "Behre Dolbear", our independent technical consultants, authored the Pea Ridge Technical Report. The estimates include an in situ (originally present) measured and indicated resource of 248.7 million short tons at 52.87% magnetic iron and 57.82% total iron and an inferred resource of 15.8 million short tons at 53.67% magnetic iron and 57.64% total iron based on a cut-off grade of 40% magnetic iron.

In completing the Pea Ridge Technical Report, Behre Dolbear conducted, among other things, an audit of historic drill hole data and a confirmatory re-sampling and analysis program on the extensive library of drill core maintained at the Pea Ridge Mine site.

Readers should refer to the full text of the Pea Ridge Technical Report, titled "Technical Report on the PRR Mining Pea Ridge Property" dated August 13, 2012, for further information regarding the Pea Ridge Mine, a copy of which is available under our profile at www.sedar.com.

In addition to completion of the Pea Ridge Technical Report, as part of the work necessary to evaluate the Pea Ridge Mine for re-opening, we engaged the consulting firm Geotechnology, Inc. to investigate the depth and shape of the top and bottom of the subsidence cave zone which is present above the Pea Ridge Mine deposit. This work included direct measurements of the size and extent of the cave zone within existing vertical drill holes above a portion of the Pea Ridge Mine deposit. Having received the results of such investigation, we are, together with our consultants, considering additional steps in the evaluation of the cave zone, including re-drilling several existing holes above the mineralized zone, and conducting a three-dimensional detailed seismic survey over the Pea Ridge Mine site. We believe that the results of this work will be useful in determining the best way to develop and mine the iron deposit. Additionally, in 2012 we commenced confirmatory exploration and development work in connection with the large tonnage of tailings materials of the Pea Ridge Mine site.

A necessary step in completing further analysis, including feasibility studies, and re-opening the Pea Ridge Mine is dewatering the existing underground mine workings. De-watering activities have been delayed while we complete further preliminary analysis and investigations regarding the re-opening of the mine. In the year ended December 31, 2012, we invested an additional $5.0 million of capital to progress the project.

As a result of our acquisition of Compton, our commodities activities have expanded to the energy sector through the development, production and processing of natural gas, NGLs and, to a far lesser degree, crude oil in western Canada. The majority of such operations are located in the central fairway of the Western Canada Sedimentary Basin, primarily situated in the Province of Alberta. As at December 31, 2012, these interests included 945 producing natural gas wells, 17 non-producing natural gas wells, 116 producing oil wells, 7 non-producing oil wells and a land position that includes 309,782 net undeveloped acres. Our assets are situated in the following areas of the Western Canada Sedimentary Basin: (i) the Rock Creek sands and other Cretaceous sands in the Niton area of central Alberta; (ii) the Cretaceous and Tertiary sands in Okotoks and Southern Alberta; (iii) the Mannville sands in the High River area of southern Alberta; and (iv) the deeper, Belly River sands in the Callum area of southern Alberta. For further information regarding our natural gas and oil facilities, please see "Item 4: Information on the Company — D. Property, Plants and Equipment – Natural Gas Interests".

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Merchant Banking

Our merchant banking operations include merchant banking and financial services, third-party financing and other services, proprietary investing and our real property. We seek to invest in many industries, emphasizing those business opportunities where the perceived intrinsic value is not properly recognized.

We use our financial and management expertise to add or unlock value within a relatively short time period. Our merchant banking activity is generally not passive, and we seek investments where our financial expertise and management can add or unlock value. Proprietary investments are generated and made as part of our overall merchant banking activities and are realized upon over time, sometimes taking more than one year. In addition, we often seek to acquire interests or establish relationships with commodity producers to realize upon potential synergies. Such interests can be acquired through purchases of, or investments in, commodity producers, or through contractual arrangements with them, including off-take agreements. The investments we make in commodity producers are part of our merchant banking strategy. To a degree, our merchant banking and commodities and resources businesses supplement each other, which results in synergies in our overall business activities.

Our activities include making proprietary investments through investing our own capital and utilizing our expertise to capture investment opportunities. We seek to invest in businesses or assets whose intrinsic value is not properly reflected in their share or other price. Often such investments are in companies or assets that are under financial, legal or regulatory distress and our services include resolving such distress. Our investing takes many forms and can include acquiring entire businesses or portions thereof, investing in equity, investing in the existing indebtedness (secured and unsecured) of a business or in new equity or debt issues. Our investing is generally not passive, and we invest where we believe our expertise in financial restructuring and management and complementary trading and corporate finance capabilities can add or unlock value. Our investing in distressed businesses and/or assets can result in complex and intricate legal issues relating to priorities, claims and other rights of stakeholders. Such issues can result in our being involved in legal and other claims as a result of our overall proprietary investment strategy. Our proprietary investments are often made as a part of, or complementary to, our commodities and resources activities.

We consider investment opportunities where: (i) our existing participation in the marketing and production of commodities provides expert insight; (ii) we can obtain a satisfactory return of future capital investment; and (iii) such investment integrates with our business. Our philosophy is to utilize our financial strength to realize the commercial potential of assets in markets where we have a comprehensive understanding of the drivers of value.

Our merchant banking operations provide innovative finance services for corporate and trade finance transactions. We focus on meeting the financial needs of small to mid-sized companies and other business enterprises primarily in Europe and Asia. We believe that many of these clients are underserviced by the large global investment banks and financial service providers. We specialize in advising and structuring business enterprises involved in unstructured and novel situations where a strong financial partner is needed and traditional, off-the-shelf solutions are not workable.

In addition, we utilize our established relationships with international financial institutions, credit insurance and factoring companies to provide flexible, customized financial tools, extensive credit and risk management and structured solutions for our customers. Working closely with our customers, our professional staff arrange support of hedging and trading of materials, financing and risk management solutions.

Our merchant banking activities also include leveraging our trading and financial experience and relationships to provide trading services and trade finance services to our customers.

Our merchant banking business generates revenues in the form of corporate and trade finance service fees and interest income. We also realize gains from time to time on our proprietary investments, upon their sale, the execution of an equity or debt restructuring, or the completion of other forms of divestment.

Other

Our other segment includes our corporate and other operating segments and investments, which include financing joint ventures through our Shanghai, China-based subsidiary which provides medical services, equipment and supplies.

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Company Strategy

Our primary and overriding business objective is to enhance value and create wealth for our shareholders. The key elements of our strategy include the following:

• Investing in Undervalued Opportunities. We seek to invest in businesses or assets whose intrinsic value is not properly reflected in their share price or where we perceive that our commodities and financial expertise and management can add or unlock value. These include investments in highly unstructured situations and in companies undergoing financial or operational stress. Such investments often involve severe time constraints, and, given our liquid resources, we are well positioned to capitalize on such opportunities. Unlike traditional companies in the financial services sector, our investing is generally not passive.
   
• Geographic Scope of Operations. We operate globally, so we supply a diversified range of commodities to our customers, develop new relationships with producers and consumers of commodities and selectively target new business and investment opportunities worldwide.
   
• Strategic Investments. Strategic investments in resource assets are an important component of our commodities trading activities and value added services. We pursue selective strategic acquisitions and alliances to support and strengthen our commodities operations as and when opportunities arise. We will continue to apply our investment criteria to our acquisitions, pursuing investments in assets that are of strategic importance to our core businesses. At the same time, we continue to evaluate dispositions of investments or assets, in particular when they are no longer deemed to support our core business or when attractive selling opportunities arise.
   
• Create Shareholder Value. The nature of our business is cyclical and affected by several factors that do not lend themselves to regular evaluation. Therefore, we do not evaluate our performance and do not believe we should be scrutinized in terms of our price-to-earnings multiple. We seek to grow our asset base and net worth and believe these are the best valuation measures for our business.
   
• Financial Profile. We seek to maintain our fiscal profile, so we can access necessary financing on competitive terms. In addition, we believe our fiscal approach helps us to manage acquisition risks and maintain a high level of liquidity.
   
• Risk Approach. We have adopted policies intended to mitigate and manage commodity price and counterparty risks associated with our commodities trading activities. For example, a substantial portion of our inventory of commodities is at any time under contract for sale at a pre-determined price. We also reduce the risk of non-payment by customers by imposing limits on open accounts extended to creditworthy customers and imposing credit support requirements for other customers.

Competitive Strengths

We believe that our competitive strengths include the following:

• International Capabilities. Unlike other similarly sized companies, we have sought to develop a broad geographic scope rather than focusing on any one particular market. While many of our larger competitors have greater presences in more international markets, including merchant and investment banks, trading firms, brokerage firms, commercial banks and hedge funds, we believe our smaller size and collegiality allow us to work as a team on cross-border transactions better than many of our competitors.
   
• Liquidity. Liquidity is of critical importance to companies in the merchant banking industry and global commodity supply chain business and is key to strategic acquisitions to further expand and support our global commodity supply chain business. We therefore maintain liquidity in order to be able to capitalize on business opportunities in time sensitive transactions, fund our core businesses to continue to generate revenues, and fund a broad range of potential cash outflows in stressed environments, including financing obligations. Our approach to liquidity allows us to meet immediate obligations without needing to sell other assets or depend on additional funding from credit-sensitive markets, and affords us significant flexibility in structuring our affairs and managing through difficult funding environments. Historically, we have funded our businesses with cash generated from our operations.
   
• Independence. We are an independent company managed by our directors and officers, rather than part of a larger, diversified financial services institution. Such financial services companies can develop conflicts with their clients due to the large number of customers they service, their own investment and trading position and the broad range of products and services they offer. We believe that awareness of these potential conflicts has heightened and that such awareness has resulted in increased opportunities for independent firms like us in respect of merger, acquisition, restructuring and similar transactions.

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• Management. We believe that our management has expertise in the global commodity supply chain business, including critical expertise with respect to our specialized financial services and corporate finance services internationally, including on corporate restructurings and mergers and acquisitions.

• Integrated Service Approach. We believe our logistics and financing activities allow us to provide a full-service solution to our commodities trading customers and suppliers. We are able to provide our customers and suppliers assistance with transportation and logistics as well as trading, hedging, financing and risk management services.

• Operating Structure Allows Prompt Response to Investment Opportunities. We have a lean operating structure and are therefore able to quickly assess whether a business venture represents an appropriate investment for us, responding promptly to all desirable business opportunities. We carefully select the business opportunities we investigate and do not move forward unless we have a high level of confidence that the opportunities fit within our objectives and core competencies.

Competitive Conditions

All segments of our business are intensely competitive, and we expect them to remain so.

Our operations are relatively small compared to our competitors. Many of our competitors have far greater financial resources, a broader range of products and services, larger customer bases, greater name recognition and marketing resources, a larger number of senior professionals to serve their clients' needs, greater global reach and more established relationships with clients than we do. These competitors may be better able to respond to changes in business conditions, to compete for skilled professionals, to finance acquisitions, to fund internal growth and to compete for market share generally. Further many companies are engaged in the acquisition of resource interests. We may also be at a competitive disadvantage in acquiring such properties and interests as many competitors may have greater financial resources and technical staff. Accordingly, there can be no assurance that we will be able to compete successfully against other companies in acquiring additional interests and resource properties.

The scale of our competitors in the merchant banking business has increased in recent years as a result of substantial consolidation among companies, especially in the banking and financial industries. These firms have the ability to offer a wider range of products than we do which may enhance their competitive position. They also have the ability to support their businesses with other services such as commercial lending in an effort to gain market share, which has resulted, and could further result, in pricing pressure in our businesses.

We believe that our experience and operating structure permit us to respond more rapidly to our clients' needs than many of our larger competitors. These traits are important to small and mid-sized business enterprises, many of which do not have large internal corporate finance departments to handle their capital requirements. We develop a partnership approach to assist clients. This often permits us to develop multiple revenue sources from the same client. For example, we may purchase and sell a client's products, or commit our own capital to make a proprietary investment in its business or capital structure.

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C. Organizational Structure

The following table describes our direct and indirect significant subsidiaries as at the date hereof, their respective jurisdictions of organization and our beneficial interest in respect of each subsidiary. The table excludes subsidiaries which only hold inter-company assets and liabilities and do not have active businesses or whose results and net assets did not materially impact our consolidated results and net assets.

D. Property, Plants and Equipment

Office Space

Our principal office is located at Suite 1620 – 400 Burrard Street, Vancouver, British Columbia, Canada V6C 3A6. We also maintain offices in Vienna, Austria, Hong Kong, Beijing and Shanghai, China, New Jersey, U.S.A., Mexico City, Mexico, Buenos Aires, Argentina and Calgary, Alberta, Canada.

We believe that our existing facilities are adequate for our needs through the end of the year ending December 31, 2013. Should we require additional space at that time, or prior thereto, we believe that such space can be secured on commercially reasonable terms.

Royalty Interest

We participate in a royalty interest which consists of a mining sub-lease of the lands upon which the Wabush iron ore mine is situated. For a discussion of the royalty interest, please see "Item 4: Information on the Company — B. Business Overview — Business Segments – Commodities and Resources".

Pea Ridge Mine

We hold a 50% interest in the Pea Ridge Iron Ore Mine located in Sullivan, Missouri U.S.A. For a discussion of the Pea Ridge Iron Ore Mine, please see "Item 4: Information on the Company — B. Business Overview — Business Segments –Commodities and Resources".

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Natural Gas Interests

As a result of our acquisition of Compton on September 6, 2012, our commodities activities have expanded to the energy sector through the development, production and processing of natural gas and NGLs in western Canada. The majority of such operations are located in the central fairway of the Western Canada Sedimentary Basin, primarily situated in the Province of Alberta. As at December 31, 2012, Compton had an interest in 945 producing natural gas wells, 17 non-producing natural gas wells, 116 producing oil wells, 7 non-producing oil wells and a land position that includes 309,782 net working interest undeveloped acres. Our assets are situated in the following areas of the Western Canada Sedimentary Basin: (i) the Rock Creek sands and other Cretaceous sands in the Niton area of central Alberta; (ii) the Cretaceous and Tertiary sands in Okotoks and Southern Alberta; (iii) the Mannville sands in the High River area of southern Alberta; and (iv) the deeper, Belly River sands in the Callum area of southern Alberta.

The Niton area includes multi-zone, liquids-rich, tight gas plays with production to date primarily coming from Rock Creek and Ellerslie sandstones. We have a large number of mineral agreements that cover specific zonal rights in this area. We have an average 71% working interest in 93,000 gross acres of land to the base of the Rock Creek Member of the Fernie Group. The Niton area has other productive zones that provide opportunities to expand our development base by moving into other geological horizons. These zones lie above the Rock Creek and include the Wilrich and Notikewin sandstones of the Upper Mannville and Spirit River Group.

The Southern Plains is comprised primarily of multi Belly River sands along with upper Edmonton Group coal bed methane formations. As well, in select areas of Southern Alberta there are productive Mannville sands. With control of 426,600 gross acres of land at an average 88% working interest, this land base provides a significant multi-year, low risk natural gas drilling inventory. Infrastructure is in place in the area for future production increases.

Our High River asset is primarily a low to medium permeability Basal Quartz channel sandstone pool, which is the southern Alberta extension of the Lower Cretaceous Deep Basin gas trend.

We also have interests in substantial established infrastructure, which allows flexibility to effectively manage area development and adjust operations accordingly. Overall, we operate over 50,000 horsepower of compression totaling 200 mmcf/d, of available field compression capacity, having over 85 mmcf/d of operated processing capacity and over 2,000 km of pipeline infrastructure in place. Key facilities are as follows:

• Mazeppa Gas Processing Plant – Through Compton, we provide the management team and corporate guidance for the Mazeppa Processing Partnership, referred to as "MPP", which has 100% ownership of the Mazeppa gas processing plant and the Mazeppa gas gathering system. The Mazeppa sour gas processing plant is located in the High River area and currently has production capacity of 90 mmcf/d (licensed plant capacity) of sour natural gas and 45 mmcf/d of sweet natural gas.

• High River – In the High River area there is 9,150 horsepower installed with a gas compression capacity of 42.5 mmcf/d and 270 km of pipeline infrastructure in place. Volumes are all produced through the Mazeppa gas gathering system and sour gas processing plant.

• Southern Alberta Foothills – The Callum and Cowley Gas Processing Plants with 100% plant ownership are currently capable of compressing 19 mmcf/d and ultimately processing 50 mmcf/d through the two existing facilities with the addition of field and/or plant compression. There is currently over 60 km of pipeline infrastructure in the operating area with minimal third party infrastructure in place.

• Edson, Niton, and McLeod – This foothills area property has compression capacity of 23 mmcf/d utilizing over 6,400 horsepower, including the Compton McLeod River Gas Processing Plant with 23 mmcf/d of capacity with 100% plant ownership. Additionally, there is over 185 km of pipeline infrastructure in the area.

• Shallow Gas Properties – Our shallow gas infrastructure consists of over 110 mmcf/d of compression capacity utilizing 30,000 horsepower with over 1,200 km of pipeline infrastructure in place. Final processing gas volumes are linked into the Nova/TransCanada pipeline systems at multiple sales locations.

Gas Reserves

We retained GLJ Petroleum Consultants, referred to as "GLJ", to evaluate and prepare report on our natural gas properties. All of our reserves are located in Alberta, Canada. Please refer to Exhibit 15.3 of this Annual Report on Form 20-F for GLJ's report on their evaluation and methodology.

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The following table sets forth our company gross (working interest reserves, before royalty) and company net (working interest reserves, including royalty) as at December 31, 2012.

Estimated reserves shown for the producing properties have been projected on the basis of the extrapolation of performance data where there was sufficient data to suggest a performance trend. A significant percentage of the completions have extensive production histories and provide substantial data with respect to performance trends. In some cases the information suggests that recent well intervention work has been performed. In such cases we have considered prior historical performance in estimating future reserves. Projections for recently drilled wells have been prepared on the basis of early performance data and/or well tests with consideration for the performance trends observed in those wells with long production histories. Probable reserves are higher risk than proved reserves and are generally believed to be less likely to be accurately estimated or recovered than proved reserves.

Estimates of total net proved reserves are not filed with any U.S. federal authority or agency other than the SEC.

Our policies and practices regarding internal controls over the recording of reserves are structured to objectively and accurately estimate our gas and oil reserves quantities and present values in compliance with the SEC's regulations and financial reporting standards. Our controls over reserve estimates included retaining GLJ as our independent petroleum and geological engineering firm. We provided information about our gas and oil properties, including production profiles, prices and costs, to GLJ, and they prepared their own estimates of the reserves attributable to our properties, as of December 31, 2012. All of the information regarding reserves in this annual report on Form 20-F is derived from the report prepared by GLJ. The principal engineer at GLJ is Myron Hladyshevsky, P. Eng., who was responsible for preparing our reserve estimates, has over 30 years of experience in the oil and gas industry and is a professional engineer registered in the Province of Alberta, Canada. He is also a member of the Society of Professional Engineers in the Province of Alberta. GLJ's reserves estimates are reviewed by our technical personnel and management, and our board of directors meets with such personnel to discuss matters and policies related to our reserves.

There are numerous uncertainties inherent in estimating quantities of proved reserves, including many factors beyond our control or the control of the reserve engineers. Reserve engineering is a subjective process of estimating underground accumulations of gas and oil that cannot be measured in an exact manner. The accuracy of any reserve or cash flow estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. Estimates by different engineers often vary, sometimes significantly. In addition, physical factors, such as the results of drilling, testing and production subsequent to the date of an estimate, as well as economic factors, such as an increase or decrease in product prices that renders production of such reserves more or less economic, may justify revision of such estimates. A significant reduction in our proved reserves may result in a full cost ceiling limitation and/or an accelerated depletion rate. Accordingly, reserve estimates could be different from the quantities of gas and oil that are ultimately recovered. Please refer to "Item 3: Key Information - D. Risk Factors" for further information respecting these risks.

Production, Prices and Costs

The following table sets forth gas and oil production, average prices and costs for the period from September 7, 2012, being the date we consolidated Compton, until December 31, 2012.

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For the period between September 7 and December 31, 2012, we produced 6,479 mmcf of natural gas, 123 mboe of natural gas liquids (including sulphur) and 52 mbbl of crude oil, for total production of natural gas, natural gas liquids and crude oil of 1,254 mboe. The following table sets forth our average daily production by field for the period between September 7 and December 31, 2012:

The following table sets our average sales prices, operating costs, royalty amounts and transportation costs for the period between September 7 and December 31, 2012:

Present Activities and Productive Wells

During the period from September 7, 2012, being the date we consolidated Compton, until December 31, 2012, we did not drill any wells.

The following table summarizes the location of our interests as at December 31, 2012 in natural gas and crude oil wells that are producing or that are mechanically capable of production.

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The following table sets forth the acreage of our gross and net developed and undeveloped gas and oil properties, all of which were located in Alberta, Canada, as at December 31, 2012.

Delivery Commitments

Compton's natural gas production is sold to creditworthy counterparties under contracts at AECO Daily Index price sales with transactions at TransCanada Pipeline Nova Inventory Transfer. Natural gas is transported through regulated pipelines in the Province of Alberta at tariffs which require either Provincial or Federal regulatory approval.

NGLs are re-priced on an annual basis with respect to product premiums with the base price for each component reflecting posted prices. Compton's crude oil sales are priced at market using Edmonton postings as a benchmark and are typically 30-day evergreen contracts. NGLs and crude oil are transported to the point of sale to creditworthy counterparties using a combination of pipelines and trucking services.

From time to time, Compton may enter into hedging arrangements to mitigate commodity price risk and take advantage of opportunistic pricing. Compton's risk management policy provides comprehensive guidance that allows management to enter into hedging transactions that mitigate risk from commodity prices, interest rates, foreign exchange rates and electricity prices. The policy specifically prohibits speculative hedging and sets limits on the volume and length of hedging contracts. The hedging policy provides for hedging of up to 50% of gross budgeted volumes for any particular quarter for a period up to 24 months from the day they are entered into.

ITEM 4A: UNRESOLVED STAFF COMMENTS

None.

ITEM 5: OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion and analysis of our financial condition and results of operations for the fiscal years ended December 31, 2012, 2011 and 2010 should be read in conjunction with our audited consolidated financial statements and related notes included in this annual report on Form 20-F. Our financial statements included in this annual report on Form 20-F were prepared in accordance with IFRS. We adopted IFRS as of January 1, 2010.

General

We are a global commodities supply chain company which sources and delivers commodities and materials to clients, with a special expertise on the financing and risk management aspects of the business. We also commit our own capital to promising enterprises and invest and otherwise capture investment opportunities for our own account. We seek to invest in businesses or assets whose intrinsic value is not properly reflected in their share price or value. Our investing is generally not passive. We actively seek investments where our financial expertise and management can add or unlock value.

Our results of operations have been and may continue to be affected by many factors of a global nature, including economic and market conditions, the availability of capital, the level and volatility of equity prices and interest rates, currency values, commodity prices and other market indices, technological changes, the availability of credit, inflation and legislative and regulatory developments. Our results of operations may also be materially affected by competitive factors. Our competitors include firms traditionally engaged in merchant banking and financial services such as merchant and investment banks, along with other capital sources such as hedge funds, private equity firms and insurance companies, and other trade companies engaged in commodities activities in Europe, Asia and globally.

Our results of operations for any particular period may also be materially affected by our realization on proprietary investments. These investments are made to maximize total return through long-term appreciation and recognized gains on divestment. We realize on our proprietary investments through a variety of methods including sales, capital restructuring or other forms of divestment.

A majority of our revenues is derived from our global commodity supply chain operations. The remaining portions are generally derived from financial services, sales of properties and net gains on securities.

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We view our net book value per share as a key indicator of our overall financial performance. Our net book value as at December 31, 2012, 2011 and 2010 is set forth below:

Business Environment

Our financial performance is, and our consolidated results in any period can be, materially affected by global economic conditions and financial markets generally.

Our favourable business environment is characterized by many factors, including a stable geopolitical climate, transparent financial markets, low inflation, low interest rates, availability of credit, low unemployment, strong business profitability and high business and investor confidence. Unfavourable or uncertain economic and market conditions can be caused by declines in economic growth, business activity or investor or business confidence, limitations on the availability or increase in the cost of credit and capital, increases in inflation, interest rates, exchange rate volatility, outbreaks of hostilities or other geopolitical instability, corporate, political or other scandals that reduce investor confidence in the capital markets, or a combination of these or other factors.

Commencing in mid-2008 and continuing through most of 2009, the macro business environment for many of our activities was extremely challenging. During such period, capital and securities markets generally were materially and adversely affected by significant declines in the values of nearly all investment classes and by a serious lack of liquidity. The global markets were characterized by substantially increased volatility and an overall loss of investor confidence, initially in financial institutions, but later in companies in a number of other industries and in the broader markets. The decline in asset values has caused increases in margin calls for investors, requirements that derivatives counterparties post additional collateral and redemptions by mutual and hedge fund investors, all of which have increased the downward pressure on asset values and outflows of funds across the financial services industry. In addition, increased redemptions and unavailability of credit caused hedge funds and other investors to rapidly reduce leverage, which has increased volatility and further contributed to the decline in asset values.

Ongoing global economic conditions, including fears of sovereign debt default and a European banking crisis continued to impact the liquidity in financial and capital markets, restricting access to financing and causing significant volatility in commodity prices in 2012. There can be no assurance as to the stabilization and recovery of economic conditions in the near term.

Presentation of Financial Information/Accounting Treatment

We completed our acquisition of Compton in September 2012, and, as a result, we commenced consolidating Compton's operation from September 7, 2012.

We completed our acquisition of Mass in November 2010 and caused the amalgamation of Mass and our wholly-owned subsidiary in December 2010. As a result of the successful acquisition, we commenced consolidating Mass's operations, including its commodities and merchant banking activities from November 16, 2010.

Until March 30, 2010, we also operated in the Industrial Business through KID. As at March 30, 2010, we completed a plan of arrangement pursuant to which, among other things, we distributed approximately 26% of the outstanding shares of our Industrial Business (at such time) to our shareholders and ceased to consolidate it as at March 31, 2010. We distributed the Industrial Business to our shareholders over the course of 2010.

The disposition of our former Industrial Business in 2010 resulted in it being accounted for as discontinued operations.

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Results of Operation

Summary of Quarterly Results

The following tables provide selected financial information for the most recent eight quarters presented in accordance with IFRS:

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Year Ended December 31, 2012 Compared to the Year Ended December 31, 2011

The following table sets forth, for the periods indicated, certain key operating results and other financial information:

The following is a breakdown of our gross revenues by segment for each of the years ended December 31, 2012 and 2011:

The following charts illustrate our revenues by business segment and geographic distribution in fiscal year ended December 31, 2012:

Revenues by Business Segment	Revenues by Region

Based upon the yearly average exchange rates for the year ended December 31, 2012, the United States dollar increased by approximately 8.3% and 1.1% in value against the Euro and the Canadian dollar, respectively, compared to the average exchange rates in 2011. As at December 31, 2012, the United States dollar had decreased by approximately 1.6% against the Euro and 2.2% against the Canadian dollar since December 31, 2011.

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Gross revenues for the year ended December 31, 2012 decreased to $485.7 million (consisting of net sales of $479.5 million and equity income from medical joint ventures of $6.2 million) from $520.7 million (consisting of net sales of $514.8 million and equity income from medical joint ventures of $5.9 million) in the same period of 2011, primarily as a result of decreased sales of commodities due to reductions in both volumes and prices on some commodities in 2012, partially offset by new products and the consolidation of Compton since September 7, 2012. A weaker Euro also had an adverse impact on our revenues when Euro-denominated revenues were translated to U.S. dollars.

Gross revenues for our commodities and resources business were $455.9 million for the year ended December 31, 2012, compared to $481.7 million for the same period in 2011, primarily as a result of decreased sales of commodities due to reductions in both volumes and prices of some commodities in 2012, partially offset by new products and the consolidation of Compton since September 7, 2012.

During the fiscal year ended December 31, 2012, gross revenues generated by our royalty marginally decreased to approximately $29.1 million from approximately $30.8 million in the same period in 2011. This decrease in gross royalty revenues was mainly attributable to lower shipments in 2012. A total of 3.2 million tons and 3.5 million tons of iron ore products were shipped during the fiscal years ended December 31, 2012 and 2011, respectively.

Gross revenues for our merchant banking business were $11.8 million for the year ended December 31, 2012, compared to $22.5 million for the same period in 2011, primarily as a result of lower activities.

Gross revenues for our other segment were $18.0 million for the year ended December 31, 2012, compared to $16.5 million for the same period in 2011.

Costs of sales decreased to $407.6 million during the fiscal year ended December 31, 2012 from $435.4 million for the same period in 2011, primarily as a result of a decrease in commodities and resource activities, partially off-set by a write-down of inventories of $15.7 million (of which $19.4 million related to our former Indian iron ore activities, which we recognized after the Supreme Court of India banned all mining activities in the area). The following is a breakdown of our costs of sales for each of the years ended December 31, 2012 and 2011: