Financial Instruments and Risk Management

Financial Instruments and Risk Management

The Company’s financial instruments consist of cash and cash equivalents, short-term deposits, other receivables, investments, accounts payable, accrued liabilities, amounts due to related parties and convertible debentures.

The fair values of financial instruments at April 30, 2009 and April 30, 2008 are summarized as follows (expressed in thousands of dollars):

Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest, foreign currency or credit risks arising from these financial instruments.

The Company is exposed to a variety of financial risks by virtue of its activities, including credit risk, interest rate risk and liquidity risk. The Company has limited exposure to foreign currency risk as greater than 99% of its assets and 99% of its liabilities are denominated in Canadian dollars. The Company’s objective with respect to risk management is to minimize potential adverse effects on the Company’s financial performance. The Company’s Board of Directors provides direction and guidance to management with respect to risk management. Management is responsible for establishing controls and procedures to ensure that financial risks are mitigated to acceptable levels.

Credit risk

Credit risk is the risk of financial loss to the Company if a counter-party to a financial instrument fails to meet its contractual obligations. The Company manages credit risk by investing its excess cash in short-term investments with an investment grade rating of “AAA” (R-1 high for money market securities) or better, issued by a Canadian chartered bank. The Company is exposed to credit risk by virtue of its receivables from companies with which it has exploration agreements or options (approximately 57% of the receivables of $2.0 million at April 30, 2009). The remainder of the Company’s receivables at the balance sheet date consist of federal and provincial sales tax refunds where management believes the risk of loss to be remote. The maximum exposure to credit risk at the reporting date is the carrying value of the Company’s receivables.

Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market interest rates. Financial assets and liabilities with variable interest rates expose the Company to interest rate risk with respect to its cash flow. The risk that the Company will realize a loss as a result of a decline in the fair value of any short-term investment included in cash and cash equivalents is limited because these investments, although readily convertible into cash, are generally held to maturity. As of April 30, 2009, management estimates that if interest rates had changed by 1% for those funds invested in guaranteed investment certificates (“GICs”), and 0.05% for the other cash equivalents assuming all other variables remained constant, the impact on the Company’s loss for the year would have been approximately $2,000.

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its obligations as they become due. The Company’s ability to continue as a going concern is dependent on management’s ability to raise the funds required through future equity financings, asset sales or exploration option agreements, or a combination thereof. The Company has no regular cash flow from its operating activities. The Company manages its liquidity risk by forecasting cash flow requirements for its planned exploration and corporate activities and anticipating investing and financing activities. Failure to realize additional funding, as required, could result in the delay or indefinite postponement of further exploration and development of the Company’s properties. As at April 30, 2009, the Company had cash and cash equivalents and short-term deposits of $2.90 million (Comparative Year – $9.78 million) to settle current liabilities of $1.94 million (Comparative Year – $21.9 million). In May 2009, the Company raised $1.43 million through a flow-through private placement. However, the Company will need to consider some form of additional financing to continue operations into 2010 and the Company’s management will continue to consider various alternatives, within the context of existing market conditions. Please see Note 16 of the consolidated financial statements for the years ended April 30, 2009 and 2008 for details on other commitments.