Mercator Minerals Ltd MLKKF

results

[Birpind1]

Mercator Minerals Ltd.

Consolidated Interim Financial Statements

June 30, 2009 and 2008

(Stated in US Dollars)

(Unaudited)

Consolidated Balance Sheets 2

Consolidated Statements of Operations and Comprehensive Loss and Deficit 3

Consolidated Statements of Cash Flows 4

Notes to the Consolidated Financial Statements 5-21

- 2 -

Mercator Minerals Ltd.

Consolidated Balance Sheets

(Stated in Thousands of US Dollars)

(Unaudited)

June 30, 2009 December 31, 2008

Current Assets

Cash and cash equivalents $ 7,624 $ 3,007

Accounts receivable 7,488 36

Marketable securities 158 192

Income taxes refundable 2,611 3,297

Prepaid expenses 625 326

Inventories (Note 3) 12,553 8,023

Total Current Assets 31,059 14,881

Property, plant and equipment (Note 6) 232,786 221,319

Inventories (Note 3) 6,993 8,387

Future income tax asset 1,068 1,068

Land reclamation bond (Note 5) 1,545 1,499

Environmental bond (Note 4) 2,086 2,004

Total Assets $ 275,537 $ 249,158

Current Liabilities

Accounts payable and accrued liabilities $ 23,510 $ 36,722

Current portion - equipment loans (Note 11) 3,558 3,513

Total Current Liabilities 27,068 40,235

Long Term Liabilities

Equipment loans (Note 11) 4,944 6,575

Asset retirement obligation (Note 12) 2,503 2,413

Deferred Revenue - (Note 13) 41,919 42,000

Notes Payable - Secured Notes (Note 10) 113,086 111,841

Total Liabilities 189,520 203,064

Shareholders' equity

Share Capital (Note 8)

Authorized - Unlimited common shares, no par value

Issued - 146,623,910 (2008 – 74,805,417) common shares 102,273 54,888

Contributed Surplus (Note 9) 37,325 29,735

Deficit (53,581) (38,529)

Total Shareholders' Equity 86,017 46,094

Total Liabilities and Shareholders' Equity $ 275,537 $ 249,158

The accompanying notes are an integral part of these consolidated financial statements.

Mercator Minerals Ltd.

Consolidated Statements of Operations and Comprehensive Loss and Deficit

(Stated in Thousands of US Dollars)

(Unaudited)

Six Month Period Ended Three Month Period Ended

June 30, 2009 June 30, 2008 June 30, 2009 June 30, 2008

Revenue

Copper sales $ 2 3,895 $ 1 8,820 $ 1 8,087 $ 1 1,197

Molybdenum sales 3 ,297 - 2 ,910 -

Silver sales 3 74 - 2 37 -

Sale of landscaping materials 2 2 1 37 1 1 2 3

2 7,588 1 8,957 2 1,245 1 1,220

Costs and expenses

Freight, Smelting & Refining 7 ,006 - 5 ,472 -

Mining and Processing 1 8,041 9 ,150 9 ,181 7 ,043

Administration includes stock based compensation of

$3,217 (June 30, 2008 - $1,390) (Note 9) 6 ,253 7 ,880 4 ,268 5 ,260

Exploration and development 4 9 2 58 1 4 1 70

Amortization of property, plant and equipment 3 ,032 8 34 2 ,573 4 01

Accretion of asset retirement obligation (Note 12) 9 0 8 4 4 5 4 2

Interest income (217) (1,116) (153) (339)

Interest on long-term liabilities 7 ,097 7 ,326 3 ,648 3 ,655

Accretion of long-term note discount (Note 10) 1 ,245 1 ,277 6 23 6 38

4 2,596 2 5,694 2 5,671 1 6,870

Loss from operations (15,008) (6,737) (4,426) (5,650)

Gain (loss) on sale of assets - (210) - (206)

Unrealized loss on marketable securities (Note 15(a)) (34) - 3 6 -

Foreign exchange gain (loss) (10) - (10) -

Net loss before taxes (15,052) (6,947) (4,400) (5,856)

Income taxes (recovery)

Current - 6 19 - 6 19

Net loss and comprehensive loss for the period (15,052) (7,566) (4,400) (6,475)

Deficit, beginning of period (38,529) (10,196) (49,181) (11,287)

Deficit, end of period $ (53,581) $ (17,762) $ (53,581) $ (17,762)

Loss per share – basic and diluted ($0.11) ($0.10) ($0.04) ($0.09)

Weighted average shares outstanding - basic and diluted 131,665,271 74,802,667 114,196,464 74,474,525

The accompanying notes are an integral part of these consolidated financial statements.

- 4 -

Six Month Period Ended Three Month Period Ended

June 30, 2009 June 30, 2008 June 30, 2009 June 30, 2008

Cash provided by (used in)

Operating activities

Net loss for the period $ (15,052) $ (7,566) $ (4,400) $ (6,475)

Amortization of property, plant and equipment 3,032 834 2,573 401

Accretion of long-term note discount 1,245 1,277 623 638

Accretion of asset retirement obligation 90 84 45 42

Stock-based compensation 3,217 1,390 2,667 800

Loss (gain) on sale of assets - 210 - 206

Unrealized loss on marketable securities 34 - (36) -

Change in assets and liabilities

Accounts receivable (7,452) (4,076) (7,043) (487)

Income taxes refundable 686 454 233 4

Prepaid expenses (299) (269) 379 (8)

Inventories (3,136) (3,854) (4,174) 32

Deferred revenue (81) - 12 -

Accounts payable and accrued liabilities (18,488) (23,034) (20,034) (10,781)

(36,204) (34,550) (29,155) (15,628)

Financing activities

Deferred revenue - 42,000 - 42,000

Proceeds from secured notes, net of finance issuance costs - 623 - -

51,758 - 34,172 527

Net proceeds interest liability repayment - (147) - -

Equipment loan repayment (1,586) (976) (806) (79)

50,172 41,500 33,366 42,448

Investing activities

Acquisition of property, plant and equipment (9,223) (49,302) (1,002) (31,887)

Environmental bond and reclamation deposits (128) (142) (65) (72)

(9,351) (49,444) (1,067) (31,959)

Increase (decrease) in cash and cash equivalents 4,617 (42,494) 3,144 (5,139)

Cash and cash equivalents, beginning of period 3,007 104,542 4,480 67,187

Cash and cash equivalents, end of period $ 7,624 $ 62,048 $ 7,624 $ 62,048

Supplemental Information

Interest Paid $ 7,097 $ 7,326 $ 3,648 $ 3,655

Income Taxes Paid $ (462) $ - $ - $ -

Proceeds from issuance of shares, net of share issuance costs

Adjustments to reconcile net loss to cash from operating

activities

Mercator Minerals Ltd.

Consolidated Statements of Cash Flows

(Stated in Thousands of US Dollars)

(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

Mercator Minerals Ltd.

Notes to the Consolidated Interim Financial Statements

(Tabular amounts in thousands, Stated in US Dollars)

(Unaudited)

Six months ended June 30, 2009 and 2008

- 5 -

Interim Financial Statements

These interim financial statements follow the same accounting policies and methods of their application as the most

recent audited annual consolidated financial statements.

The interim financial statements included herein have been prepared by the Company, without audit, pursuant to the

rules and regulations of the applicable Canadian Securities Commissions and Regulatory Authorities. Certain

information and footnote disclosures normally included in financial statements prepared in accordance with

generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations,

although the Company believes that the disclosures are adequate to make the information presented not misleading.

These statements reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of

management, are necessary for fair presentation of the information contained therein. It is suggested that these

interim financial statements be read in conjunction with the audited financial statements of the Company for the

years ended December 31, 2008 and 2007 included in the Company’s Annual Report.

Results of operations for the interim periods are not necessarily indicative of annual results.

1. Nature of Business and Ability to Continue as a Going Concern

Mercator Minerals Ltd. (the “Company”) and its indirect wholly-owned subsidiary Mineral Park Inc. are

engaged in the exploration, development and extraction of copper in Mohave County, Arizona, USA and in the

business of exploring, developing and mining resource properties. Copper extraction and sales commenced

upon the acquisition of Mineral Park Inc. (“Mineral Park”) in 2003. As of January 15, 2005, the Company’s

principal asset, the Mineral Park Mine, reached commencement of commercial production from its solvent

extraction electro-winning operations.

On January 12, 2007, the Company incorporated Mercator Mineral Park Holdings Ltd. (“Mercator Holdings”)

as a wholly-owned subsidiary under the laws of the Province of British Columbia.

Effective January 15, 2007, the Company completed the transfer of the shares of Mineral Park to Mercator

Holdings. As a result, the Company indirectly owns, and Mercator Holdings directly owns, 100% of the issued

and outstanding shares of Mineral Park, a private company incorporated under the laws of the State of Delaware

which owns a 100% interest in the Mineral Park Mine located in Kingman, Arizona.

On March 10, 2008, the Company incorporated Mercator Minerals (Barbados) Ltd. (“Mercator Barbados”) as a

wholly-owned subsidiary under the laws of Barbados.

Effective June 23, 2008, the Company closed the previously announced agreement with an affiliate of Silver

Wheaton Corp. (“Silver Wheaton”) for the sale of the life-of-mine silver production from Mercator's Mineral

Park copper/molybdenum mine in Arizona. Under the agreement, Silver Wheaton’s affiliate has made an upfront

payment of $42 million in cash to Mercator Barbados. Upon delivery of the silver, Silver Wheaton will

then also pay Mercator Barbados in cash the lesser of the silver spot price or $3.90 per ounce of silver

(escalated by 1% per annum starting in the fourth year of silver production).

The up-front payment is accounted for as deferred revenue, and will be recognized as sales revenue evenly over

the estimated life-of-mine silver ounces expected to be produced at the Company’s Mineral Park Mine.

Mercator Minerals Ltd.

Notes to the Consolidated Interim Financial Statements

(Tabular amounts in thousands except number of shares, Stated in US Dollars)

(Unaudited)

Six months ended June 30, 2009 and 2008

- 6 -

1. Nature of Business and Ability to Continue as a Going Concern - continued

The Company, through its subsidiary Mineral Park is engaged in the exploration, development and extraction of copper and

molybdenum in Mohave County, Arizona. As of November, 2008, the Company's principal asset, the Mineral Park Mine,

began commissioning of the mill processing facility for production of copper and molybdenum concentrates. The

recoverability of Company's inventory and long-terms assets are dependent upon its ability to continue profitable operations.

The Company incurred a net loss of $15.05 million for the six month period ended June 30, 2009, and as at June 30,

2009, had an accumulated deficit of $53.58 million and working capital of $3.99 million.

The Company anticipates incurring substantial expenditures to further its capital development programs, particularly

those related to the completion of Second Stage of the Phase 4 Expansion at its Mineral Park Mine. The Company’s cash

flow from operating activities may not be sufficient to satisfy its obligations as they come due and meet the requirements

of its capital investment programs and covenants on its long term debt. The continued existence of the Company is

dependent upon its ability to generate profit from the new mill at Mineral Park Mine and to meet its obligations as they

become due. The Company intends to finance the future payments required for its capital projects and continued

operations from a combination of traditional debt and equity markets and cash flow from operations. However, there is

no assurance that (a) traditional debt and equity markets may be accessible as required, or if so, on acceptable

terms and, or (b) the demand for and selling prices of the Company’s products, may not be sufficient to meet

cash flow. The outcome of these matters cannot be predicted with certainty and therefore the Company may not be able

to continue as a going concern. These consolidated financial statements do not include any adjustments to the amounts

and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going

concern.

Management continues to pursue efforts to diversify the Company's resource property holdings through

continued exploration, acquisition and merger opportunities. The timing of such events occurring, if at all, is

not yet determinable.

The Company’s ability to repay its debt obligations depends on a number of factors, some of which are beyond

the Company’s control. These include general global economic, credit and capital market conditions, and the

demand for and selling price of the Company’s products, in particular, copper, molybdenum and silver. There is

no assurance that the expected cash flows from operations in combination with other steps being taken will

allow the Company to meet these obligations as they become due.

In a cyclical industry, history has shown that periodic spikes in commodity prices can result in substantial

increases in the Company’s cash flow. The Company’s major operations are long-life assets with significant

reserves and resources. The Company believes that its access to financial resources has been limited mainly due

to the weakened capital and credit markets brought about by the significant deterioration in the financial

markets in the latter half of 2008, which the Company believes has also contributed to the significant decline in

the demand for and selling price of our products. Accordingly, there is some risk that the steps described above

will not be successful in allowing the Company to meet our obligations, which may require the Company to sell

core assets or raise additional debt or equity capital, which management believes would enable the Company to

satisfy its obligations as they fall due. However, these actions may have a material adverse effect on our

business and on the market prices of our equity and debt securities.

Mercator Minerals Ltd.

Notes to the Consolidated Interim Financial Statements

(Tabular amounts in thousands except number of shares, Stated in US Dollars)

(Unaudited)

Six months ended June 30, 2009 and 2008

- 7 -

2. Adoption of New Accounting Standards

Effective January 1, 2009, the Company adopted the new CICA issued Section 3064, “Goodwill and Intangible

Assets”, which replaces Section 3062, “Goodwill and Other Intangible Assets”. This new standard provides

guidance on the recognition measure, presentation and disclosure of goodwill and intangible assets. Concurrent with

the adoption of this standard, EIC-27, “Revenues and Expenditures in the Pre-Operating Period”, was withdrawn.

The adoption of this standard did not have any impact on the Company’s consolidated financial statements.

Effective January 1, 2009 the Company adopted the new CICA Handbook Section 1000, “Financial Statement

Concepts”, which has been amended to focus on the capitalization of costs that meet the definition of an asset and

de-emphasizes the matching principle. The adoption of this standard did not have any impact on the Company’s

consolidated financial statements.

In 2006, The Canadian Accounting Standards Board (“AcSB”) published a new strategic plan that will significantly

affect financial reporting requirements for Canadian companies. The AcSB strategic plan outlines the convergence

of Canadian GAAP with IFRS over an expected five-year transitional period. In February 2008, the AcSB

announced that 2011 is the changeover date for publicly listed companies to use IFRS, replacing Canada’s own

GAAP. The date is for interim and annual financial statements relating to fiscal years beginning on or after

January 1, 2011. The transition date of January 1, 2010 will require the restatement for comparative purposes of

amounts reported by the Company for the year ended December 31, 2011. While the Company has begun assessing

the adoption of IFRS for 2011, the financial reporting impact of the transition to IFRS cannot be reasonably

estimated at this time.

3. Inventories

As described below, costs that are incurred in or benefit the productive process are accumulated as ore on leach

pads and in-process inventories. Ore on leach pads and in-process inventories are carried at the lower of average

cost or net realizable value. Net realizable value represents the estimated future sales price of the product based on

prevailing and long-term metals prices, less the estimated costs to complete production and bring the product to sale.

Write-downs of ore on leach pads and in-process inventories resulting from net realizable value impairments are

reported as a component of Mining and Processing Costs on the Statement of Operations. The ore on leach pads and

inventories consists of amounts expected to be processed within the twelve month period. The major classifications

are as follows:

Ore on Leach Pad

The quantity of material in ore on the leach pad is based on surveyed volumes of mined material and daily

production records. Sampling and assaying of blast-hole cuttings determine the estimated amount of copper

contained in material delivered to the leach pad. Expected copper recovery rates are determined using small-scale

laboratory tests, small and large-scale column testing (which simulates the production-scale process), historical

trends and other factors, including mineralogy of the ore and rock type. Estimated amounts of copper contained in

the leach pad are reduced as pads are leached, the leach solution is fed to the solvent extraction – electrowinning

(SX-EW) process, and copper cathodes are produced. The ultimate recovery of copper contained in leach stockpiles

can vary from a very low percentage to over 90 percent depending on several variables, including type of

processing, and mineralogy. As at June 30, 2009 the current ultimate recovery copper has been estimated at 70%

(December 31, 2008 – 70%).

Mercator Minerals Ltd.

Notes to the Consolidated Interim Financial Statements

(Tabular amounts in thousands except number of shares, Stated in US Dollars)

(Unaudited)

Six months ended June 30, 2009 and 2008

- 8 -

3. Inventories - continued

In-process Inventory

In-process inventories represent copper ore that is currently in the process of being converted to a saleable product.

In-process material is measured based on assays of the copper fed into the process and the projected recoveries. Inprocess

inventories are valued at the average cost of the copper fed into the process attributable to the source

material coming from the stockpiles and/or leach pads plus the in process conversion costs, including applicable

depreciation relating to the process facilities incurred to that point in the process.

Concentrate Inventory

Copper, Molybdenum, and Silver contained in salable concentrates are valued based on the lower of average

production cost and net realizable value. Net realizable value is determined as the market price of the metal less the

freight, smelting, refining and marketing costs associated with delivery of concentrate to the customer.

Supplies Inventory

Supplies inventory is stated at the lower of average cost and replacement cost. Interest costs incurred on equipment

used in the mining of copper are capitalized.

The following table summarizes these various components of inventory as at June 30, 2009 and December 31, 2008:

June 30, 2009 December 31, 2008

Ore on Leach Pad $ 13,449 $ 15,824

In-process inventory 356 250

Concentrate inventory 5,180 -

Supplies 561 336

19,547 16,410

Less: non-current Ore on

inventory ( 6,993) ( 8,387)

$ 12,553 $ 8,023

4. Environmental Bond

The Aquifer Protection Permit and underlying bond (“APP Bond”) is a requirement by the State of Arizona.

The Mineral Park Mine is required to fund the bond as a contingency against any damage to the aquifer that

might ensue as a result of mining operations which may exceed the amount provided for in the financial

statements. Actual amounts payable may ultimately exceed the amount provided for in these financial

statements. This bond represented a trust fund balance of $920,000 at the time of the Company’s acquisition of

the Mineral Park Mine and requires quarterly deposits of $33,000 until the fund reaches a value of $2,100,000.

At June 30, 2009 the fund totals $2,086,434 (December 31, 2008 - $2,003,752).

5. Land Reclamation Bond

The State of Arizona has approved a bonding liability requirement of $1,324,000. The Company has satisfied this

State bonding requirement with an irrevocable letter of credit issued by the Bank. The letter of credit is collateralized

by cash on deposit with a bank in the amount of $1,545,383 at June 30, 2009 (December 31, 2008 - $1,499,084).

$1,324,000 of this balance is restricted and not available to the Company for working capital needs.

Mercator Minerals Ltd.

Notes to the Consolidated Interim Financial Statements

(Tabular amounts in thousands except number of shares, Stated in US Dollars)

(Unaudited)

Six months ended June 30, 2009 and 2008

- 9 -

6. Property Plant and Equipment

During the six months ended June 30, 2009, the Company incurred $14,365,325 (June 30, 2008 - $62,761,050)

on work in progress related to the mill construction and recorded $3,031,551 (June 30, 2008 - $834,481) in

amortization.

7. Net Proceeds Interest

On June 24, 2003, the Company completed the acquisition of all the outstanding shares of Mineral Park Inc. pursuant to

an original agreement dated May 29, 2000, and amended and restated February 8, 2003 with Equatorial Mining North

American Inc. (“EMNA”) (the “Acquisition Agreement”). Under the terms of the Acquisition Agreement, the Company

acquired all the issued and outstanding common shares of Mineral Park Inc. for consideration of 4,612,175 common

shares at price of CDN$0.15 per common share. Under the Acquisition Agreement, $2,753,000 will be reimbursed to the

vendor by an unsecured net proceeds interest (“NPI”) in the Mineral Park Mine. The NPI liability is calculated each

quarter and equals cumulative revenue less cumulative cash operating expenses, as defined in the NPI agreement, then

multiplied by 5%. On the acquisition date, the Company recognized $568,152 of the NPI representing the excess of net

assets over the common share purchase price. Any NPI paid or accrued in excess of the $568,152 amount are

recognized as a mineral property cost. As at June 30, 2009, $1,457,332 (December 31, 2008 - $1,457,332) of the

$2,753,000 contingent consideration has been paid to EMNA. Of these amounts paid to June 30, 2009, $889,180

(December 31, 2008 - $889,180) has been recognized as a mineral property cost.

8. Share Capital

Authorized

Unlimited Common Shares without par value

i. Issued

Issued Common Shares June 30, 2009 December 31, 2008

Number of Shares Amount Number of Shares Amount

Balance, beginning of year 7 4,805,417 $ 54,888 7 4,141,279 $ 5 3,490

Shares issued pursuant to financing 6 8,349,425 53,668 - -

Exercise of warrants 2 ,910,965 2,105 6 7,500 2 01

Exercise of stock options 5 58,103 - 5 96,638 1 ,197

Less: Fair value of warrants issued to agents - (4,373) - -

Less: Share issuance costs - (4,015) - -

Balance, end of period 1 46,623,910 $ 102,273 7 4,805,417 $ 5 4,888

On January 29, 2009 the Company sold to a syndicate of underwriters, 33,349,425 units (each a “Unit”), of

which 4,349,925 Units were issued pursuant to the exercise in full of the over-allotment option granted to the

underwriters, to raise gross proceeds of CDN$23,344,597 ($19,044,377). Net proceeds from this transaction

were CDN$21,863,564 ($17,836,159). Each Unit was comprised of one common share (the “Common Shares”)

and one-half of one common share purchase warrant (the “Warrants”). Each Warrant entitles the holder to

purchase one additional Common Share of the Company at a price of CDN$1.00 per share for four years after

closing.

Mercator Minerals Ltd.

Notes to the Consolidated Interim Financial Statements

(Tabular amounts in thousands except number of shares, Stated in US Dollars)

(Unaudited)

Six months ended June 30, 2009 and 2008

- 10 -

8. Share Capital - continued

The agents received a cash commission of 6% of the gross proceeds of the financing. The agents also received

2,000,965 agent’s warrants. Each agent’s warrant, upon exercise, will entitle the holder to acquire one common

share at an exercise price of CDN$0.70 per common share for a period of 24 months from the date of issue.

The agent’s warrants were valued on the closing date of the financing using the Black-Scholes option pricing

model using the Company’s historical prices and the following assumptions (i) risk-free interest rate of 1.40%,

(ii) expected volatility of 127.4%, (iii) expected life of 2 years, and (iv) a dividend yield of Nil. The value of the

agent warrants of $1,143,151 was charged as commission against share capital as share issuance costs (see

below) with a corresponding credit to contributed surplus.

The cash commission, agent’s warrants and other transaction costs related to the financing, in the amount of

CDN$1,481,033 ($1,208,218), have been offset against the gross proceeds received.

On May 5, 2009 the Company sold to a syndicate of underwriters, 35,000,000 common shares (each a “Share”),

of which 4,565,217 Shares were issued pursuant to the exercise in full of the over-allotment option granted to

the underwriters, to raise gross proceeds of CDN$40,250,000 ($34,623,453). Net proceeds from this transaction

were CDN$37,533,750 ($32,286,907).

The agents received a cash commission of 6% of the gross proceeds of the financing. The agents also received

2,275,000 agent’s warrants. Each agent’s warrant, upon exercise, will entitle the holder to acquire one common

share at an exercise price of CDN$1.15 per common share for a period of 24 months from the date of issue.

The agent’s warrants were valued on the closing date of the financing using the Black-Scholes option pricing

model using the Company’s historical prices and the following assumptions (i) risk-free interest rate of 1.01%,

(ii) expected volatility of 136.5%, (iii) expected life of 2 years, and (iv) a dividend yield of Nil. The value of the

agent warrants of $3,230,045 was charged as commission against share capital as share issuance costs with a

corresponding credit to contributed surplus.

The cash commission, agent’s warrants and other transaction costs related to the financing, in the amount of

CDN$2,716,250 ($2,336,546), have been offset against the gross proceeds received.

ii. Warrants

The following table summarizes the number of fully exercisable warrant transactions as at June 30, 2009:

Number

Weighted Average

Exercise Price

($Cdn)

Balance, January 1, 2009 6,061,307 $ 3.99

Warrants issued pursuant to financing 1 6,674,712 1.00

Broker Warrants issued 4 ,275,965 0.94

Broker Warrants exercised (2,910,965) 0.84

Expired (65,057) 3.00

Balance, June 30, 2009 24,035,962 $ 1.71

Mercator Minerals Ltd.

Notes to the Consolidated Interim Financial Statements

(Tabular amounts in thousands except number of shares, Stated in US Dollars)

(Unaudited)

Six months ended June 30, 2009 and 2008

- 11 -

8. Share Capital - continued

ii. Warrants - continued

The following is a summary of common share purchase warrants outstanding and exercisable as at June 30,

2009:

Number

Exercise Price

$Cdn Expiry Date

5 ,996,250 4 .00 February 16, 2012

1 6,674,712 1 .00 January 29, 2013

1 ,365,000 1 .15 May 5, 2011

2 4,035,962

65,057 warrants expired unexercised during the six-month period ended June 30, 2009.

iii. Options

The Company has a Stock Option Plan (“the Plan”) for directors, officers and employees. Under this Plan the

aggregate number of common shares which may be subject to issuance pursuant to options granted under the

Plan shall in aggregate not exceed 10% of the total number of shares issued and outstanding as at the date of

grant. The number of shares reserved for issuance at any one time to any one person shall not exceed 5% of the

outstanding shares issued. Options granted must be exercised no later than 10 years after the date of the grant or

such lesser periods as regulations require. All options are subject to vesting restrictions as implemented by the

directors. The exercise price is the fair market value of the Company’s common shares at the grant date. The

maximum number of common shares to be issued under the Plan reserved for issuance as at June 30, 2009, was

14,662,391 (December 31, 2008 – 7,480,541).

Under the Plan, an Optionee may, rather than exercise any Option to which the Optionee is then entitled

pursuant to the Plan, elect to terminate such Option, in whole or in part, and, in lieu of purchasing the Optioned

Shares to which the Option, or part thereof, so terminated relates, elect to exercise the right to receive that

number of Optioned Shares, disregarding fractions, which, when multiplied by the Weighted Average Market

Price, has a value equal to the product of the number of Optioned Shares to which the Option, or part thereof, so

terminated relates, multiplied by the difference between the Weighted Average Market Price determined as of

the day immediately preceding the date of termination of such Option, or part thereof, and the Option Price per

share of the Optioned Shares to which the Option, or part thereof, so terminated relates, less any amount (which

amount may be withheld in Optioned Shares) required to be withheld on account of income taxes, which

withheld income taxes will be remitted by the Company.

Mercator Minerals Ltd.

Notes to the Consolidated Interim Financial Statements

(Tabular amounts in thousands except number of shares, Stated in US Dollars)

(Unaudited)

Six months ended June 30, 2009 and 2008

- 12 -

8. Share Capital - continued

iii. Options

The following table summarizes for the period presented the number of stock option transactions and the

weighted average exercise prices thereof:

Number of Options

Weighted Average

Exercise Price

($CDN)

Outstanding at January 1, 2009 5,998,500 $ 3.41

Granted* 4,404,500 1.31

Exercised** (730,000) 0.45

Cancelled/Forfeited** (153,000) 2.37

Expired (92,000) 5.22

Outstanding at June 30, 2009 9,428,000 $ 2.66

Exercisable at June 30, 2009 7,362,250 $ 2.85

* The weighted average fair value of options granted during the six month period ended June 30, 2009 was

CDN$1.02 (2008 - CDN$7.19) equivalent to $0.88 (2008 – $7.06) based on the Black-Scholes option

pricing model using weighted average assumptions, as described in Note 9. The weighted average

remaining contractual life of options at June 30, 2009 is 3.26 years (2008 – 3.30 years).

** During the six month period ended June 30, 2009 there were 730,000 options were exercised using the

cashless exercise arrangement, resulting in a total of 558,103 shares being issued.

Mercator Minerals Ltd.

Notes to the Consolidated Interim Financial Statements

(Tabular amounts in thousands except number of shares, Stated in US Dollars)

(Unaudited)

Six months ended June 30, 2009 and 2008

- 13 -

8. Share Capital - continued

iii. Options

A summary of the stock options exercisable and outstanding at June 30, 2009 was as follows:

Issued Date Number

Exercise Price

$CDN Expiry Date Exercisable

July 6, 2004 20,000 0.30 July 6, 2009 20,000

October 18, 2005 101,133 0.85 October 18, 2010 101,133

January 4, 2006 60,000 0.98 January 4, 2011 60,000

January 4, 2006 100,000 1.00 January 4, 2011 100,000

January 11, 2006 306,667 1.00 January 11, 2011 306,667

May 19, 2006 350,000 2.09 May 19, 2011 350,000

August 28, 2006 250,000 2.14 August 28, 2011 250,000

February 21, 2007 1,872,700 3.30 February 21, 2012 1,872,700

March 15, 2007 1,100,000 3.10 March 15, 2012 1,100,000

July 28, 2007 100,000 8.02 July 28, 2012 100,000

November 22, 2007 441,000 8.75 November 22, 2012 441,000

January 2, 2008 7,000 9.07 January 2, 2013 7,000

April 2, 2008 25,000 10.44 April 2, 2013 25,000

June 13, 2008 25,000 11.10 June 13, 2013 25,000

July 25, 2008 25,000 8.45 July 25, 2013 12,500

August 19, 2008 150,000 7.20 August 19, 2013 7 5,000

October 8, 2008 742,000 2.15 October 8, 2013 3 77,500

February 23, 2009 525,000 0.385 February 19, 2014 5 25,000

May 2, 2009 3,157,500 1.65 May 2, 2013 1,578,750

June 14, 2008 70,000 1.65 June 14, 2013 3 5,000

9,428,000 7,362,250

9. Stock-Based Compensation and Contributed Surplus

Weighted average assumptions used in calculating compensation expense in respect of options granted were as

follows:

2009 2008

2.46% 3.76%

nil nil

155% 88%

Weighted average expected life of the options 60 60

Expected volatility factor of the expected market

price of the company's common shares

Risk-free interest rate

Dividend yield

For the three and six month period ended June 30, 2009, the compensation cost for stock options granted totaled

$2,666,534 and $3,217,451, (June 30, 2008 – $799,853 and $1,390,107), which was included in the

Consolidated Statements of Operations and Comprehensive Loss and Deficit, and credited to contributed

surplus.

Mercator Minerals Ltd.

Notes to the Consolidated Interim Financial Statements

(Tabular amounts in thousands except number of shares, Stated in US Dollars)

(Unaudited)

Six months ended June 30, 2009 and 2008

- 14 -

9. Stock-Based Compensation and Contributed Surplus - continued

In addition $4,373,196 (June 30, 2008 - $Nil) of share issuance costs for agent warrants granted, which was

deducted from Share Capital was credited to contributed surplus.

Contributed surplus is comprised of the following:

Amount

Balance at December 31, 2007 $ 26,615

Stock-based compensation 3,120

Balance at December 31, 2008 29,735

Fair value of warrants issued to agents 4,373

Stock-based compensation 3,217

Balance at June 30, 2009 $ 37,325

10. Notes Payable – Secured Notes

On February 15, 2007, the Company completed an issuance of secured note units. A total of 120,000 units (the

“Units”) were sold at a price of $980 per unit for gross proceeds of $117,600,000. Each unit consisted of one

secured note in the principal amount of $1,000 (a “Note”) and 50 detachable common share purchase warrants.

The Notes bear interest at 11.5% per annum payable semi-annually in equal installments on June 30 and

December 31 of each year. The Notes mature on February 16, 2012, at which time the Company will be

required to repay the principal amount of $120,000,000. The Notes are secured by the assets of the Company

including the shares of its wholly-owned subsidiary Mercator Mineral Park Holdings Ltd. and the debt of its

indirect wholly-owned subsidiary Mineral Park Inc. owed to the Company and rank senior to the Company’s

other existing and future unsecured indebtedness (if any) and will have recourse to the assets of the Company.

The Notes may be redeemed by the Company any time three years after the closing date at a redemption price

equal to $1,050 per Note including accrued and unpaid interest.

The Notes are governed by a Note Indenture which provides for among other things, restrictions on the

Company engaging in transactions outside the ordinary course of business or engaging in material non arms

length transactions, restricts the Company’s ability to incur additional indebtedness other than as prescribed.

Additionally, in the event the earnings of the Company before interest, taxes, depreciation and amortization

("EBITDA") on a consolidated basis in any quarter beginning after March 31, 2009 does not exceed interest

expenses under the Notes for that quarter, the Company will be obliged to repay to the holders of the Notes the

lesser of its Free Cash Balance and 25% of the outstanding principal of the Notes, such payment to be made

within 60 days of the end of such quarter. The total of all amounts repayable under the EBITDA provision will

not exceed 25% of the original total principal of the Notes, and the 25% limit will apply on a cumulative basis

during the term of the Notes.

Mercator Minerals Ltd.

Notes to the Consolidated Interim Financial Statements

(Tabular amounts in thousands except number of shares, Stated in US Dollars)

(Unaudited)

Six months ended June 30, 2009 and 2008

- 15 -

10. Notes Payable – Secured Notes - continued

"Free Cash Balance" is defined in the Note Indenture to mean, at a particular time, the cash and cash equivalents of

the Company and its subsidiaries determined on a consolidated basis and in accordance with Canadian generally

accepted accounting principles as of the most recently ended financial quarter of the Company, and for greater

certainty, the following will be included in cash equivalents for this purpose (i) any evidence of indebtedness with a

maturity of 180 days or less, (ii) certificates of deposit or acceptances with a maturity of 180 days or less, (iii)

commercial paper with a maturity date of 180 days or less issued by a corporation that is not an affiliate of the

Corporation, (iv) any money market deposit accounts, and (v) any repurchase agreements and reverse repurchase

agreements. As at June 30, 2009 the Company was in compliance with all the covenants in the Notes.

Each detachable common share warrant entitles the holder to purchase one common share at a price of

CDN$4.00 per share until February 16, 2012.

In accordance with the requirements of CICA handbook S3855, Financial Instruments – Recognition and

Measurement, the notes have been designated as other liabilities. Furthermore the proceeds raised from the

issuance of the notes were allocated between the liability (notes) and equity (share purchase warrants)

components using the residual method whereby the Company determined the fair value of the share purchase

warrants and allocated the residual to the notes. The Company used the Black-Scholes option pricing model to

determine the fair value of the share purchase warrants using the Company’s historical prices and the following

assumptions (i) risk-free interest rate of 3.79%, (ii) expected volatility of 79.7%, (iii) expected life of 5 years,

and (iv) a dividend yield of Nil.

At the date of issuance of the Notes, the Company allocated $10,374,382 to the share purchase warrants

(credited to contributed surplus), and $107,225,618 to the Notes. The amount allocated to the share purchase

warrants and the difference between the redemption value and proceeds received ($2,400,000) represents a

discount on the debt financing which is accreted to income over the term of the debt using the effective interest

rate method.

In consideration for the agent’s services, the Company paid a cash commission of $4,800,000 plus $785,108 in

legal, audit and consulting fees which have been expensed in the period as finance issuance costs in accordance

with the Company’s accounting policy.

The Notes payable and debt discount are summarized as follows:

Face Amount Discount Carrying Value

Notes payable – at December 31, 2007 $ 120,000 $ 10,649 $ 109,351

Accretion of debt discount - (2,490) 2,490

Notes payable – at December 31, 2008 120,000 8,159 111,841

Accretion of debt discount - (1,245) 1,245

Notes payable – at June 30, 2009 $ 120,000 $ 6,914 $ 113,086

Mercator Minerals Ltd.

Notes to the Consolidated Interim Financial Statements

(Tabular amounts in thousands except number of shares, Stated in US Dollars)

(Unaudited)

Six months ended June 30, 2009 and 2008

- 16 -

11. Equipment Loans

The Company has secured term loans outstanding as follows:

June 30, 2009 December 31, 2008

Term loan bearing interest at a rate of 9.58% per annum, matures in April 19,

2009, payable monthly in instalments of $1,474 of principal and interest. $ - $ 7

Term loan bearing interest at a rate of 7.5% per annum, matures on September 1,

2010, payable monthly in instalments of $60,270 of principal and interest. 860 1,082

Term loan bearing interest at a rate of 9.50% per annum, matures in January 1,

2010, payable monthly in instalments of $5,513 of principal and interest. 43 73

Term loan bearing interest at a rate of 7.50% per annum, matures August 25, 2011,

payable monthly in instalments of $18,375 of principal and interest. 470 545

Term loan bearing interest at a rate of 7.75% per annum, matures in November 28,

2011, payable monthly in instalments of $61,608 of principal and interest. 1,525 2,008

Term loan bearing interest at a rate of 7.71% per annum, matures in October 10,

2011, payable monthly in instalments of $31,897 of principal and interest. 816 1,008

Term loan bearing interest at a rate of 7.09% per annum, matures in May 1, 2012,

payable monthly in instalments of $33,731 of principal and interest. 1,091 1,280

Term loan bearing interest at a rate of 7.00% per annum, matures in April 13,

2012, payable monthly in instalments of $75,000 (months 1-12), $70,000 (months

13-24) and $52,418 (months 25-59) of principal and interest. 1,903 2,007

Term loan bearing interest at a rate of 7.34% per annum, matures in July 1, 2012,

payable monthly in instalments of $10,587 of principal and interest. 341 409

Term loan bearing interest at a rate of 7.34% per annum, matures in September 1,

2012, payable monthly in instalments of $20,199 of principal and interest. 696 826

Term loan bearing interest at a rate of 5.46% per annum, matures in June 1, 2013,

payable monthly in instalments of $12,833 of principal and interest. 563 626

Term loan bearing interest at a rate of 5.19% per annum, matures in September 1,

2013, payable monthly in instalments of $4,287 of principal and interest. 196 217

Term loans 8,502 10,088

Current portion 3,558 3,513

Long-term portion $ 4 ,944 $ 6,575

All term loans are collateralized by certain mining equipment.

Principal repayments over the remaining terms of the loans are:

Twelve months ended June 30, 2010 3,558

Twelve months ended June 30, 2011 2,932

Twelve months ended June 30, 2012 1,804

Twelve months ended June 30, 2013 199

Twelve months ended June 30, 2014 9

$ 8,502

Mercator Minerals Ltd.

Notes to the Consolidated Interim Financial Statements

(Tabular amounts in thousands except number of shares, Stated in US Dollars)

(Unaudited)

Six months ended June 30, 2009 and 2008

- 17 -

12. Asset Retirement Obligation

The Company estimated its asset retirement obligation based on its understanding of the requirements to

reclaim, decommission and clean up its Mineral Park Mine site. The Company estimated $3,277,000 (December

31, 2008 – $3,277,000) commencing in 25 (December 31, 2008 -10) years would be required to complete the

retirement obligations given current operations. In determining the estimated initial present value of the

obligation, a discount factor of 7.5% (December 31, 2008 – 7.5%) (the credit-adjusted risk-free rate), and an

inflation rate of 2.5% (December 31, 2008 – 2.5%) were used. The Company’s retirement obligation related to

the Mineral Park Mine was incurred when the Company initially acquired the facility in 2003; accordingly,

amortization of the discount has been retroactively recalculated from 2003. As at June 30, 2009, the asset

retirement obligation balance was $2,503,241 (December 31, 2008 – $2,412,677).

The asset retirement obligation accrual required management to make significant estimates and assumptions.

Actual results could materially differ from these estimates. The liability for accrued asset retirement obligations

is comprised as follows:

Amount

Balance, January 1, 2008 $ 2,244

Accretion expense 169

Balance, December 31, 2008 2,413

Accretion expense 90

Balance, June 30, 2009 $ 2,503

13. Deferred Revenue

Effective June 23, 2008, the Company closed the previously announced agreement with an affiliate (“Silver

Wheaton”) of Silver Wheaton Corp. for the sale of the life-of-mine silver production from Mercator's Mineral

Park copper/molybdenum mine in Arizona. Under the agreement, Silver Wheaton’s affiliate has made an upfront

payment of $42 million in cash to Mercator Barbados. Upon delivery of the silver, Silver Wheaton’s

affiliate will then also pay Mercator Barbados in cash the lesser of the silver spot price or the Fixed Price. The

Fixed Price is defined as $3.90 per ounce of silver (escalated by 1% per annum compounded starting in the

fourth year of silver production). If the silver spot price is greater than the Fixed Price, an amount equal to the

Fixed Price will be payable in cash for each ounce of refined silver sold and delivered by Mercator to Silver

Wheaton. The difference between the silver spot price and the Fixed Price, which when multiplied by the

number of ounces of refined silver, will be credited against the $42 million upfront payment such as to reduce

the uncredited balance of the deposit until the full amount of the original deposit has been credited and the

remaining uncredited balance of the deposit is reduced to nil. After such time the silver purchase price will be

the lesser of the Fixed Price and the silver spot price payable in cash.

The $42 million prepayment is accounted for as deferred revenue, and will be recognized as sales revenue

evenly over the estimated life-of-mine silver ounces expected to be produced at the Company’s Mineral Park

Mine.

During the three and six month period ended June 30, 2009 38,847 and 50,026 (2008 – Nil and Nil) ounces of

silver was produced from the Mineral Park Mine respectively and thus Mercator Barbados delivered 22,583 and

accrued 27,443 ounces of silver for credit to Silver Wheaton.

Mercator Minerals Ltd.

Notes to the Consolidated Interim Financial Statements

(Tabular amounts in thousands except number of shares, Stated in US Dollars)

(Unaudited)

Six months ended June 30, 2009 and 2008

- 18 -

14. Related Party Transactions

Related party transactions not disclosed elsewhere in these consolidated financial statements include $64,070 and

$79,395 (June 30, 2008 - $Nil and $46,741) of legal services rendered during the three and six-month periods

ended June 30, 2009, respectively, by a law firm, of which a director of the Company is a partner. This abovenoted

transaction was in the normal course of business and was measured at the exchange value which was the

amount of consideration established and agreed to by the related parties. In addition, the company incurred

directors fees of $Nil and $14,364 during the three and six-month periods ended June 30, 2009 respectively (June

30, 2008 – $Nil and $Nil).

15. Financial Instruments

a) Fair Value of Financial Instruments

The Company’s financial instruments include cash and cash equivalents, marketable securities, accounts

receivable, environmental and land reclamation bonds, accounts payable and accrued liabilities, equipment

loans, notes payable and net proceeds interest liability.

Cash and cash equivalents, marketable securities, environmental and land reclamation bonds are designated as

held for trading and therefore carried at fair value, with the unrealized gain or loss recorded in income. Interest

income and expense are both recorded in income.

Accounts payable and accrued liabilities and net proceeds interest have been classified as other financial

liabilities.

Equipment loans and notes payable are classified as held-to-maturity and are measured at amortized costs.

The fair values of cash and cash equivalents, receivables, accounts payable and accrued liabilities, approximate

carrying value because of the short term nature of these instruments. The fair value for the equipment loans and

net proceeds interest approximates book value using current rates of interest. Based on market prices, the fair

value of the secured notes payable on June 30, 2009 was $115,800,000 (December 31, 2008 – $60,600,000).

Based on market prices the fair value of the marketable securities on June 30, 2009 was determined to be

$158,089 (December 31, 2008 - $192,189) and thus there was an unrealized loss on marketable securities

recognized on the Consolidated Statements of Operations and Comprehensive Loss and Deficit of $34,100

(June 30, 2008 - $Nil). Other than previously mentioned there are no other differences between the carrying

values and the fair values of any financial assets or liabilities.

b) Financial Instrument Risk Exposure and Risk Management

The Company is exposed in varying degrees to a variety of financial instrument related risks. The types of risk

exposure and the way in which such exposure is managed is provided as follows:

Mercator Minerals Ltd.

Notes to the Consolidated Interim Financial Statements

(Tabular amounts in thousands except number of shares, Stated in US Dollars)

(Unaudited)

Six months ended June 30, 2009 and 2008

- 19 -

15. Financial Instruments

b) Financial Instrument Risk Exposure and Risk Management - continued

Credit Risk

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the

other party to incur a financial loss. Financial instruments that potentially subject the Company to credit risk

consist of cash and cash equivalents and accounts receivable. The Company is primarily exposed to credit risk

on its bank accounts. Credit risk exposure is limited through maintaining its cash and equivalents with highcredit

quality financial institutions. The Company operates in the United States, and the majority of the

Company’s expenses and sources of cash are denominated in US dollars. As at June 30, 2009 the balance of

receivables was minimal and thus exposure at that date to credit risk was minimal.

Liquidity Risk

Our consolidated financial statements have been prepared on a going concern basis, which contemplates the

realization of assets and the settlement of liabilities in the normal course of business.

Liquidity risk is the risk that an entity will encounter difficulty in raising funds to meet commitments associated

with financial instruments. As at June 30, 2009, the Company had positive working capital of $3.99 million.

The Company anticipates incurring substantial expenditures to further its capital development programs, particularly

those related to the completion of Second Stage of the Phase 4 Expansion at its Mineral Park Mine. The Company’s

cash flow from operating activities may not be sufficient to satisfy its current obligations and meet the requirements of

its capital investment programs and could potentially result in covenant breaches in respect of long-term debt. The

continued existence of the Company is dependent upon its ability to generate profitability from the new mill at its

Mineral Park Mine and to meet its obligations as they become due. The Company intends to finance the future

payments required for its capital projects and continued operations from a combination of traditional debt and equity

markets and cash flow from operations. Accordingly, there is a risk that the Company may not be able to secure

adequate funding on reasonable terms, or at all, at that future date.

Prudent management of liquidity risk requires the regular review of existing and future covenants to meet expected

expenditures and possible contingencies. The Company believes that profits generated from the new mill at its

Mineral Park Mine and external financing will be sufficient to meet its financial obligations and remain compliant

on its existing equipment loans (Note 11) and with covenants on the Notes (Note 10).

Further discussion on liquidity risk is included in Note 1.

Market Risk

The significant market risk exposures to which the Company is exposed are foreign exchange risk, interest rate

risk, and commodity price risk.

Mercator Minerals Ltd.

Notes to the Consolidated Interim Financial Statements

(Tabular amounts in thousands except number of shares, Stated in US Dollars)

(Unaudited)

Six months ended June 30, 2009 and 2008

- 20 -

15. Financial Instruments - continued

b) Financial Instrument Risk Exposure and Risk Management - continued

Market Risk – continued

Foreign Currency Risk - The Company’s operations in Canada and the United States make it subject to foreign

currency fluctuations. The Company’s operating expenses are incurred in United States dollars (“US dollars”)

and Canadian dollars, and the fluctuation of the US dollar in relation to these currencies will have an impact

upon the profitability of the Company and may also affect the value of the Company’s assets and the amount of

shareholders’ equity. The Company’s mineral leaching, electro-winning, and transportation costs as well as a

majority of other operating and administration costs are primarily incurred in US dollars while some

administration and most share issuance costs are denominated in Canadian dollars. The Company has not

entered into any agreements or purchased any instruments to hedge possible currency risks.

Financial assets and liabilities denominated in Canadian dollars are as follows:

June 30, 2009 December 31, 2008

Carrying amount Fair value Carrying amount Fair value

Financial Assets

Held for Trading

Cash and cash equivalents $ 7,624 $ 7,624 $ 33 $ 33

Investment $ 158 $ 158 $ 130 $ 130

Financial Liabilities

Accunts payable and accrued liabilities $ - $ - $ 125 $ 125

Of the financial assets listed above, $349,595 (December 31, 2008 $33,146) represents cash held in Canadian

dollars. The remaining cash is held in United States dollars.

As at June 30, 2009, with other variables unchanged, a 10% strengthening of the US dollar against the Canadian

dollar would (increase/decrease) the loss for the year by approximately $nil.

Interest Rate Risk - In respect of financial assets, the Company’s policy is to invest cash at fixed rates of interest

and cash reserves are to be maintained in cash equivalents in order to maintain liquidity. Fluctuations in interest

rates affect the value of cash equivalents. In respect of financial liabilities, the secured notes are not subject to

interest rate risk given the fixed rate of 11.5% per annum. The various credit facilities, as disclosed in Note 11,

are similar and not subject to interest rate risk given the fixed rate of interest on each credit facility. The fair

value of fixed-rate debt fluctuates with changes in market interest rates, but unless the Company makes a

prepayment, the cash flows on interest bearing debt denominated in US dollars do not fluctuate.

Commodity Price Risk - The value of the Company’s mineral resource properties is related to the prices of

copper, molybdenum and silver, and the outlook for these minerals. The Company does not have any hedging or

other commodity based risks in respect to its operations.

Mercator Minerals Ltd.

Notes to the Consolidated Interim Financial Statements

(Tabular amounts in thousands except number of shares, Stated in US Dollars)

(Unaudited)

Six months ended June 30, 2009 and 2008

- 21 -

15. Financial Instruments - continued

b) Financial Instrument Risk Exposure and Risk Management - continued

Commodity Price Risk – continued

Copper, molybdenum and silver prices have historically fluctuated widely and are affected by numerous factors

outside of the Company’s control, including, but not limited to, industrial and retail demand, central bank

lending, forward sales by producers and speculators, levels of worldwide production, short-term changes in

supply and demand because of speculative hedging activities, and certain other factors.

The long term profitability of the Company’s operations is highly correlated to the market price of its

commodities and in particular copper, molybdenum and silver. To the extent that these prices increase, asset

values increase and cash flows improve; conversely, declines in metal prices directly impact value and cash

flows. A protracted period of depressed prices could impair the Company’s operations and development

opportunities, and significantly erode shareholder value.

A 10% change in copper prices would have an estimated +/- $2,389,500 impact on revenue during the six

months ended June 30, 2009 (June 30, 2008 - $762,000). A 10% change in molybdenum would have an

estimated $291,000 and $329,700 impact on revenue during the three and six month periods ended June 30,

2009 respectively (June 30, 2008 - $Nil and $Nil).

16. Capital Management

The Company’s objective when managing capital is to safeguard the Company’s ability to continue as a going

concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders.

The Company considers the items included in shareholders’ equity as capital. The Company manages the

capital structure and makes adjustments to it in the light of changes in economic conditions and the risk

characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Company may

issue new shares through private placements, sell assets to reduce debt or return capital to shareholders. Under

its credit facilities, the Company must meet certain covenants (Note 10). As at June 30, 2009, the Company was

in compliance with these covenants. The Company is not subject to externally imposed capital requirements.

17. Subsequent Events

Subsequent to June 30, 2009:

a) the Company obtained the consent of the holders of its secured 11.5% notes issued February 15, 2007 (the

“Notes”) providing for an amendment to the Note Indenture and enabling the Company to redeem the

Notes prior to February 15, 2010 (the earliest date permitted for redemption under the Note Indenture);

b) the Company received net proceeds of Cdn$190,296 on the exercise of 153,562 agent’s warrants and

40,000 stock options.

18. Comparative Figures

Certain comparative figures have been reclassified to conform to current presentation.