condensed interim consolidated financial statements of ... · condensed interim consolidated...

Condensed interim consolidated financial statements of

Pembrook Mining Corp.

For the nine months ended September 30, 2016 and 2015

NOTICE TO READER These condensed interim consolidated financial statements have been prepared by management. The Company’s external auditors have not reviewed these condensed interim consolidated financial statements.

Pembrook Mining Corp. Condensed Interim Consolidated Statements of Financial Position All amounts in Canadian dollars

1

ASSETS September 30,

2016 December 31,

2015 Current Assets Cash and cash equivalents $ 3,713,686 $ 6,109,460 Other receivables 608,839 1,142,293 Prepaid expenses 97,123 74,437 4,419,648 7,326,190 Investments (Note 3) 388,934 409,200 Property and Equipment (Note 4) 55,128 109,687 Pecoy Mineral Property (Note 5) 16,777,668 14,007,386 Mineral Properties (Notes 6 & 14) 7,003,143 20,481,496 Total Assets $ 28,644,521 $ 42,333,959

LIABILITIES Current Liabilities

Trade and other payables $ 499,581 $ 411,744 Finance lease obligation – current portion (Notes 4 & 9) 4,864 -

504,445 411,744 Finance Lease Obligation (Notes 4 & 9) 5,857 - 510,302 411,744 EQUITY Share Capital (Note 7) 121,415,277 118,250,988 Reserves 18,133,932 22,536,149 Deficit (111,414,990) (98,864,922) 28,134,219 41,922,215 Total Liabilities and Equity $ 28,644,521 $ 42,333,959 Commitments (Note 9) APPROVED BY THE BOARD OF DIRECTORS ON NOVEMBER 29, 2016: __________________________________, Director __________________________________, Director

- The accompanying notes are an integral part of these condensed interim consolidated financial statements -

Pembrook Mining Corp. Condensed Interim Consolidated Statements of Loss and Comprehensive Loss All amounts in Canadian dollars

2

Three months ended

September 30, Nine months ended

September 30, 2016 2015 2016 2015

Operating and Administrative Expenses

General exploration

$ 49,078

$ 212,256

$ 251,489

$ 457,908 Write-off of mineral properties (Notes 6 & 14) - - 10,110,280 6,570,471 General and administration 605,238 741,014 2,203,899 2,620,463 Loss before other items $ 654,316 $ 953,270 $ 12,565,668 $ 9,648,842 Other Items Write-down of available-for-sale investments (Note 3)

-

-

-

205,756

Loss/(gain) on disposal of available-for-sale investments (Note 3)

(230,635) 25 (230,635) 21,990

Loss on disposal of property and equipment 5,511 - 55,761 62

Loss on contingent shares receivable - - - 184,187

Foreign exchange loss/(gain) 34,108 (538,825) 175,100 (714,833)

Finance income (5,399) (13,793) (15,826) (59,048) Net Loss $ 457,901 $ 400,677 $ 12,550,068 $ 9,286,956 Other Comprehensive Loss Items that may be reclassified subsequently to net

earnings: Mark-to-market loss/(gain) on available-for-sale

investments (Note 3) 210,931 25 (125,619) 227,746 Reclassification adjustment for loss on sale of

available-for-sale investments (Note 3) - (25) - (21,990) Reclassification adjustment for impairment losses

included in net loss - - - (205,756) 210,931 - (125,619) - Foreign currency translation differences (Note 2(b)) (287,394) (2,164,152) 4,435,815 (2,523,211) Total Comprehensive Loss/(Gain) $ 381,438 $ (1,763,475) $ 16,860,264 $ 6,763,745 Basic and Diluted Loss Per Share (Note 7(e)) $ 0.00 $ 0.00 $ 0.09 $ 0.07 Weighted Average Shares Outstanding During the Period – Basic and Diluted 141,361,726 140,064,987

140,706,593

139,829,602


Pembrook Mining Corp. Condensed Interim Consolidated Statements of Changes in Equity All amounts in Canadian dollars

3

Reserves

Share Capital Common Shares

Share-based

Payment Reserve

Available- For-Sale Reserve

Foreign Currency

Translation Reserve

Total Reserves

Deficit

Total Number $ $ $ $ $ $ $ Balance – December 31, 2014 137,684,987 112,304,405 15,621,635 - 2,892,238 18,513,873 (88,197,997) 42,620,281

Net loss for the period - - - - - - (9,286,956) (9,286,956) Other comprehensive loss - - - (16,026) 2,523,211 2,507,185 - 2,507,185

Total comprehensive loss - - - (16,026) 2,523,211 2,507,185 (9,286,956) (6,779,771)

Private placement for cash 2,380,000 5,950,000 - - - - - 5,950,000

Share issuance costs - (3,417) - - - - - (3,417)

Share-based payments - - 219,367 - - 219,367 - 219,367 Balance – September 30, 2015 140,064,987 118,250,988 15,841,002 (16,026) 5,415,449 21,240,425 (97,484,953) 42,006,460

Net loss for the period - - - - - - (1,379,969) (1,379,969) Other comprehensive Income - - - 80,131 1,111,111 1,191,242 - 1,191,242

Total comprehensive Income - - - 80,131 1,111,111 1,191,242 (1,379,969) (188,727)

Share-based payments

-

-

104,482

-

-

104,482

-

104,482

Balance – December 31, 2015 140,064,987 118,250,988 15,945,484 64,105 6,526,560 22,536,149 (98,864,922) 41,922,215

Net loss for the period - - - - - - (12,550,068) (12,550,068) Other comprehensive Loss

-

-

-

125,619

(4,435,815)

(4,310,196)

-

(4,310,196)

Total comprehensive Loss

-

-

-

125,619

(4,435,815)

(4,310,196) (12,550,068)

(16,860,264)

Private placement for cash 1,500,000 2,961,125 - - - - - 2,961,125

Issuance of shares for: Exercise of options

200,000

100,000

-

-

-

- -

100,000

Transfer of contributed surplus on exercise of options

103,164 (103,164) - - (103,164) -

-

Share-based payments - - 11,143 - - 11,143 - 11,143 Balance – September 30, 2016 141,764,987 121,415,277 15,853,463 189,724 2,090,745 18,133,932 (111,414,990) 28,134,219


Pembrook Mining Corp. Condensed Interim Consolidated Statements of Cash Flow All amounts in Canadian dollars

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Nine months ended September 30 2016 2015 Operating Activities

Net Loss $ (12,550,068) $ (9,286,956) Items not affecting cash:

Write off of mineral properties Write down of available-for-sale investment

10,110,280 -

6,570,471 205,756

Loss/(gain) on disposal of available-for-sale investment

(230,635) 21,990

Finance income (15,826) (59,048) Loss on disposal of property and equipment 55,761 62 Depreciation expense 16,332 20,421 Share-based payments 11,143 219,367 Unrealized foreign exchange loss/(gain) 175,100 (714,833) Loss on contingent shares receivable - 184,187

$ (2,427,913) $ (2,838,583) Changes in non-cash working capital: Other receivables 533,310 422,076 Prepaid expenses (22,687) (49,935) Trade and other payables (10,563) (150,642) Net Cash Used in Operating Activities $ (1,927,853) $ (2,617,084)

Investing Activities

Additions to mineral properties $ (291,367) $ (829,426) Expenditures related to Pecoy mineral property (Note 5) (3,436,622) (4,509,818) Purchase of property and equipment (14,983) (26,871) Proceeds on sale of property and equipment 1,721 11,254 Proceeds received on sale of available-for-sale investment 376,520

21,990

Proceeds received on recovery of mineral property - 124,462 Finance income 15,970 59,131

Net Cash Used in Investing Activities $ (3,348,761) $ (5,149,278)

Financing Activity

Net proceeds on share issuances 3,061,125 5,946,583 Payment on finance lease obligation (3,400) -

Net Cash Provided by Financing Activity $ 3,057,725 $ 5,946,583 Effect of exchange rate on cash and cash equivalents (176,885) 965,777 Change in cash and cash equivalents (2,395,774) (854,002)

Cash and cash equivalents – beginning of period 6,109,460 11,363,129 Cash and Cash Equivalents - end of period $ 3,713,686 $ 10,509,127

Supplemental cash flow information (Note 10)

- The accompanying notes are an integral part of these condensed interim consolidated financial statements –

Pembrook Mining Corp. Notes to the Condensed Interim Consolidated Financial Statements All amounts in Canadian dollars

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1. Nature of Operations and Going Concern Pembrook Mining Corp. (the “Company” or “Pembrook”) is incorporated under the laws of British Columbia. The Company’s head office, principal address and records office are located at 1030 West Georgia Street, Suite 1212, Vancouver, British Columbia, Canada, V6E 2Y3. Pembrook is a minerals exploration company engaged in the identification, acquisition, evaluation and advancement of mineral properties in Peru. The Company is exploring for copper, gold, silver, nickel and other metals. At present, none of the Company’s mineral properties are at a commercial development or production stage. The Company’s objective is to discover mineral deposits and either sell, option, joint venture, or otherwise participate in their development. The recoverability of the amounts shown for mineral properties is dependent upon the discovery of economically recoverable reserves, the ability of the Company to obtain necessary financing to advance the properties, and attaining future profitable production from the properties or proceeds from disposition. The Company’s continuing operations are dependent upon its ability to secure additional equity capital, divest assets or generate cash flow from operations in the future, none of which are assured. The unaudited condensed interim consolidated financial statements have been prepared on a going concern basis and do not include any adjustments relating to the recoverability and classification of recorded assets and liabilities that may be necessary should the Company be unable to secure additional equity capital or generate sufficient cash to continue operations in the future.

2. Significant Accounting Policies

(a) Statement of compliance These unaudited condensed interim consolidated financial statements of the Company have been prepared in accordance with IAS 34 – Interim Financial Reporting. Accordingly, certain disclosures included in annual financial statements prepared in accordance with International Financial Reporting Standards (“IFRSs”) have been condensed or omitted and these unaudited condensed interim consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2015.

The accounting policies applied in preparation of these unaudited condensed interim consolidated financial statements are consistent with those applied and disclosed in the Company’s consolidated financial statements for the year ended December 31, 2015.


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2. Significant Accounting Policies (continued) (a) Statement of Compliance (continued)

The Company’s management makes judgments in its process of applying the Company’s accounting policies in the preparation of its unaudited condensed interim consolidated financial statements. In addition, the preparation of financial data requires that the Company’s management make assumptions and estimates of the effects of uncertain future events on the carrying amounts of the Company’s assets and liabilities at the end of the reporting period and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates as the estimation process is inherently uncertain. Estimates are reviewed on an ongoing basis based on historical experience and other factors that are considered to be relevant under the circumstances. Revisions to estimates and the resulting effects on the carrying amounts of the Company’s assets and liabilities are accounted for prospectively. The critical judgments and estimates applied in the preparation of the Company’s unaudited condensed interim consolidated financial statements are consistent with those applied and disclosed in note 2 to the Company’s consolidated financial statements for the year ended December 31, 2015.

(b) Foreign currency translation

The functional currency is the currency of the primary economic environment in which the Company and each of its subsidiaries operates. The functional currency of each subsidiary has been determined through an analysis of the consideration factors specified in IAS 21 “The Effects of Changes in Foreign Exchange Rates”. The Company operates in Peru where its functional currency is the US Dollar. The functional currency of the corporate headquarters is the Canadian dollar.

For the purpose of presenting consolidated financial statements, the assets and liabilities of entities with a functional currency other than Canadian dollars are converted from functional currency to presentation currency at the exchange rate in effect at the reporting date and revenue and expense items are translated at the average exchange rate for the period and exchange differences arising are recognized directly in equity.

(c) Application of New and Revised Accounting Standards

Accounting Standards issued and effective January 1, 2018 The Company is currently evaluating the impact of adopting the following new accounting standards, noted below, on the Company’s condensed interim consolidated financial statements: IFRS 9 Financial Instruments Classification and Measurement (“IFRS 9”) IFRS 9, Financial Instruments: IFRS 9 introduces the new requirements for the classification, measurement and de-recognition of financial assets and financial liabilities. The amendments are effective for annual periods beginning on or after January 1, 2018, with earlier application permitted.


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2. Significant Accounting Policies (continued)

(c) Application of New and Revised Accounting Standards (continued) Accounting Standards issued and effective January 1, 2018 (continued) IFRS 9 Financial Instruments (Hedge Accounting and amendments to IFRS 9, IFRS 7 and IAS 39) (Amendment) The amendment to IFRS 9 Financial Instruments which includes the new hedge accounting requirements and some related amendments to IAS 39 Financial Instruments; Recognition and Measurement and IFRS 7 Financial Instruments; Disclosures. IFRS 9 (2013) also replicates the amendments in IAS 39 in respect of novations. The amendments allow for early adoption of the requirement to present fair value changes due to own credit on liabilities designated as at fair value through profit or loss to be presented in other comprehensive income. The amendments are effective for annual periods beginning on or after January 1, 2018, with earlier application permitted.

Accounting Standards issued and effective January 1, 2019

IFRS 16 Leases Under IFRS 16 Leases, the current dual accounting model for leases which distinguishes between on-balance sheet finance leases and off-balance sheet operating leases for lessees, is replaced with a single, on-balance sheet accounting model. The new standard is effective for annual periods beginning on or after January 1, 2019, with early application permitted.

3. Investments

Fair Value as at September 30,

2016 December 31,

2015 $ $ Marketable securities: Common shares in Paget Minerals Corp. - 8,545 Common shares in Millrock Resources Inc. 388,934 400,655 388,934 409,200

At December 31, 2015, the Company’s wrote down its investment in 8,645,000 common shares of Paget Minerals Corp (“Paget”) by $77,905 to its fair value of $8,545. During the nine months ended September 30, 2016, the Company sold all of its 8,645,000 shares of Paget Minerals Corp. (“Paget”) for gross proceeds of $8,545.


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3. Investments (continued)

Under the terms of an agreement with Millrock Resources Inc. (“Millrock”), the Company acquired 7,297,297 shares of Millrock on June 5, 2014 and 872,890 shares of Millrock on June 5, 2015 as part of a transaction to sell its 100% owned subsidiary, Pembrook Mexico Holdings Corp. (“PMHC”) to Millrock. In October 2014, Millrock consolidated its shares on a 10:1 basis resulting in the Company owning 1,602,619 Millrock shares at June 30, 2016 and December 31, 2015. During the three months ended September 30, 2016, the Company sold 654,000 Millrock shares for gross proceeds of $367,975 resulting in the Company holding 948,619 shares with a fair value of $388,934 at September 30, 2016, resulting in the recognition of an unrealized gain of $125,619 being recognized in other comprehensive income.

4. Property and Equipment

Leasehold Improvement

$

Field & Computer Equipment

$

Furniture & fixtures

$

Software $

Vehicles $

Equipment Under

Finance lease $

Total $

Cost As at December 31, 2015 166,249 336,484 49,809 98,116 55,023 32,057 737,738 Additions - 2,926 12,057 - - 14,121 29,104 Disposals (126,856) (112,911) (24,507) - (1,479) (32,057) (297,810) Foreign exchange movement - (30,382) - (4,130) (3,345) - (37,857) As at September 30, 2016 39,393 196,117 37,359 93,986 50,199 14,121 431,175 Accumulated depreciation As at December 31, 2015 (130,773) (297,534) (39,252) (94,163) (34,272) (32,057) (628,051) Charges for the period (1,480) (7,951) (771) (2,310) (1,761) (2,059) (16,332) Eliminated on disposition 92,860 97,303 15,222 - 1,164 32,057 238,606 Foreign exchange movement - 37,824 - 4,730 (12,824) - 29,730 As at September 30, 2016 (39,393) (170,358) (24,801) (91,743) (47,693) (2,059) (376,047) Carrying amount As at September 30, 2016 - 25,759 12,558 2,243 2,506 12,062 55,128

Leasehold Improvement

$

Field & Computer Equipment

$

Furniture & fixtures

$

Software $

Vehicles $

Equipment Under

Finance lease $

Total $

Cost As at December 31, 2014 166,249 269,689 49,809 85,392 76,715 32,057 679,911 Additions - 26,871 - - - - 26,871 Disposals - - - - (26,652) - (26,652) Foreign exchange movement - 39,924 - 12,724 4,960 - 57,608 As at December 31, 2015 166,249 336,484 49,809 98,116 55,023 32,057 737,738 Accumulated depreciation As at December 31, 2014 (126,831) (250,085) (38,079) (78,074) (42,277) (25,667) (561,013) Charges for the year (3,942) (10,174) (1,173) (3,933) (3,233) (6,390) (28,845) Eliminated on disposition - - - - 15,336 - 15,336 Foreign exchange movement - (37,275) - (12,156) (4,098) - (53,529) As at December 31, 2015 (130,773) (297,534) (39,252) (94,163) (34,272) (32,057) (628,051) Carrying amount As at December 31, 2015 35,476 38,950 10,557 3,953 20,751 - 109,687


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4. Property and Equipment (continued)

Depreciation expense included in General and Administration in the Statement of Loss

Three months ended September 30, Nine months ended September 30, 2016 2015 2016 2015 $ $ $ $ General and administration 3,076 4,098 6,890 12,227 General exploration 3,101 3,060 9,442 8,194

5. Pecoy Mineral Property

On August 28, 2013 (the “Execution Date”), the Company signed an agreement to earn an interest in Pecoy Sociedad Minera S.A.C. (“PSM”), a company which owns a 100% interest in the Pecoy mineral property located in Peru. Under the agreement, the Company can earn a 51% interest in PSM by completing cash payments totaling US$4,000,000, completing 30,000 metres of drilling and incurring US$12,000,000 in exploration expenditures as follows:

• Completing a payment of US$250,000 on the Execution Date (paid); • Completing a payment of US$250,000 on the earlier of 10 days from the Effective Date

and 12 months after the Execution Date (where the Effective Date is the day that is the earlier of (i) the granting of all the required drill permits and (ii) a deemed date between 18 and 24 months after the Execution Date, as determined in the agreement and which has been established to be February 16, 2014) (paid);

• Completing a payment of US$500,000 on February 16, 2015 (paid); • Completing 6,000 metres of drilling and incurring exploration expenditures of

US$2,000,000 by February 16, 2015 (completed); • Completing a payment of US$500,000 on February 16, 2016 (paid); • Completing 10,000 metres of drilling and incurring US$4,000,000 of exploration

expenditures by February 16, 2016 (completed); • Completing 14,000 metres of drilling and incurring US$6,000,000 of exploration

expenditures by February 16, 2017; and, • Completing a payment of US$2,500,000 on February 16, 2017.

In addition, the Company can earn an additional 29% interest in PSM, bringing the Company’s total interest in PSM to 80%, at its sole discretion, by completing the following within 84 months of the Effective Date:

• Completing a payment of US$1,500,000 on February 16, 2018; • Either completing a feasibility study or completing a minimum additional expenditure

of US$25,000,000; and, • Completing a payment of US$15,000,000 on February 16, 2021.

Under the terms of the agreement, one of the current shareholders of PSM has the right to purchase up to 50% of the product produced by the Pecoy project at fair market value.

The option to acquire an interest in the Pecoy mineral property is classified as a financial asset at fair value through profit and loss, although it is currently carried at cost as the fair value cannot be reliably measured due to the early stage of the project.


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5. Pecoy Mineral Property (continued)

Capitalized expenditures relating to the Pecoy project are summarized as follows:

Nine months ended September 30, 2016

Year ended December 31, 2015

$ $ Balance, beginning of period 14,007,386 4,909,696 Acquisition and mineral licences 924,957 1,349,711 Assays and sample storage 7,280 381,587 Camp costs, supplies and other 204,022 386,378 Drilling 1,370,086 4,011,282 Geological consulting fees and salaries 892,759 968,828 Geophysical surveys 12,132 357,614 Transportation 25,386 333,348 Total 17,444,008 12,698,444 Foreign exchange movement (666,340) 1,308,942 Balance, end of period 16,777,668 14,007,386

On October 28, 2015, the Company entered into a land surface access agreement to an area over the Pecoy mineral property. The agreement has a term of 30 years and can be extended for an additional 30 years. The Company has a First Right of Refusal to purchase the land if it is held for sale by the land owners. The two remaining lease payments under the agreement of US$237,500 are disclosed as Commitments in Note 9.

6. Mineral properties

As of September 30, 2016, the Company held a portfolio of properties in Peru. Note 14 of these condensed interim consolidated financial statements summarizes the amounts capitalized to the Company’s mineral properties. In June 2015, the Company signed an agreement with a multinational mining company whereby the multinational mining company has an option to acquire up to a 60% interest in the Hurricane nickel project by making cash payments and incurring exploration expenditures over a five year period commencing on the date that the multinational mining company is able to commence exploration activities at the project, which occurred on July 14, 2016. Upon signing this agreement, the Company received a cash payment of US$100,000. During the nine months ended September 30, 2016, the Company relinquished and wrote off the Lidia ($1,387,574), Acero ($721,710), Corporaque ($24,296) projects and a portion of the La Yasera project ($45,931) due to unsatisfactory exploration results. In addition, the Company wrote down its Huiniccasa project ($7,930,769) to reflect an agreement to sell its 100% interest in the project in exchange for an NSR royalty. During the year ended December 31, 2015, the Company wrote off the Tambo ($483,332) and Joras ($172,207) projects in Peru following an assessment of exploration priorities in advance of annual June land payments. In addition, the land position at the Lidia project was reduced to the area with the highest potential, resulting in a write-off totalling $5,914,932 during the year ended December 31, 2015.


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7. Share Capital (a) Authorized and Issued

Unlimited number of common shares without par value authorized. On February 4, 2015, the Company closed a private placement for 2,380,000 shares at $2.50 per share for total net proceeds of $5,946,583 after share issuance costs of $3,417. On April 13, 2016, the Company closed a private placement for 500,000 shares at $1.92 (USD$1.50) per share for total gross proceeds of $961,125 (USD$750,000). On May 25, 2016, the Company closed a private placement for 500,000 shares at $2.00 per share for total gross proceeds of $1,000,000. On August 8, 2016, the Company closed a private placement for 500,000 shares at $2.00 per share for total gross proceeds of $1,000,000. On September 27, 2016, the Company issued 200,000 shares pursuant to the exercise of stock options for gross proceeds of $100,000.

(b) Stock option plan Under the Company's Stock Option Plan (the "Plan"), a maximum of 10% of the Company's issued and outstanding common shares (or 14,176,499 shares as at September 30, 2016) can be issued. A total of 9,011,500 options to purchase common shares have been granted and are currently outstanding under the Plan. In addition, the number of shares which may be reserved for issuance to any one individual may not exceed 10% of the issued shares on a yearly basis or 2% if the optionee is engaged in investor relations activities or is a consultant.

(c) Stock options

A summary of the Company's outstanding stock options is as follows:

Number of options

Weighted average

exercise price Balance, December 31, 2014 10,021,250 $ 1.64 Forfeitures (11,000) $ 1.79 Balance, September 30, 2015 and December 31, 2015 10,010,250 $ 1.64 Forfeitures (548,750) $ 2.19 Expired (250,000) 0.50 Exercised (200,000) 0.50 Balance, September 30, 2016 9,011,500 $ 1.66 Number of options exercisable at September 30, 2016 9,011,500 $ 1.66


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7. Share Capital (continued)

(c) Stock options (continued)

Exercise

price

Number of options

outstanding

Weighted average remaining life of

outstanding options

Number of options

exercisable

Weighted average remaining life of

exercisable options $ (years) (years)

0.50 2,200,000 0.2 2,200,000 0.2 0.75 207,500 0.7 207,500 0.7 1.00 250,000 0.4 250,000 0.4 1.25 600,000 1.4 600,000 1.4 1.75 1,071,000 2.0 1,071,000 2.0 1.80 848,000 3.1 848,000 3.1 2.00 500,000 4.0 500,000 4.0 2.50 3,335,000 5.5 3,335,000 5.5

9,011,500 2.9 9,011,500 2.9

During the nine months ended September 30, 2016 and the year ended December 31, 2015, no stock options were granted. On May 25, 2016, the Board of Directors approved the extension of the lives of 1,150,000 outstanding stock options from lives of 10 years to 10 years and four months, resulting in a total additional charge of $11,143 to be recognized in share-based payment expense in the nine months ended September 30, 2016. The fair value of the extension of the stock option lives was calculated as the difference between the fair value of the stock options before and after the extension, using the Black-Scholes option pricing model: Before Extension of

Stock Options After Extension of

Stock Options Expected dividend yield - - Expected stock price volatility 62% - 73% 62% - 74% Risk-free rate 1.18% 1.18% Expected option life 6.6 years 6.8 years

(d) Share-based payments

The fair value of option grants are estimated on the date of grant using the Black- Scholes option pricing model. Changes in the input assumptions used in the Black-Scholes option pricing model can materially affect the fair value estimate. Option pricing models require the input of highly subjective assumptions, including expected price volatility. As Pembrook is a privately-owned company, no observable market exists for its shares or options, and management estimates the price volatility of Pembrook options using the average volatility of five similar mineral exploration company stocks listed on the TSX and the TSX Venture Exchange. The risk-free interest rate assumption is based on yield curves on Canadian government zero-coupon bonds with a remaining term equal to the stock options’ life.


13

7. Share Capital (continued)

(d) Share-based payments (continued)

Total share-based payments have been included in the Condensed Interim Consolidated Statements of Loss as follows:

Three months ended September 30, Nine months ended September 30, 2016 2015 2016 2015 $ $ $ $ General and administrative - 77,754 11,143 219,367 (e) Loss per share

In periods where the Company has incurred a loss, exercise or contingent issue of securities has not been included in the calculation of diluted loss per share as increasing the number of shares outstanding would be anti-dilutive.

8. Related Party Transactions

Condensed Interim Consolidated Statements of Financial Position The following amounts were due to companies that have directors in common with the Company:

September 30,

2016 December 31,

2015 $ $ Included in trade and other payables - 20,804

Condensed Interim Consolidated Statements of Loss and Comprehensive Loss Transactions with related parties in the normal course of operations have been measured at the fair value, which is the consideration agreed to by the parties.

Three months ended Sept 30, Nine months ended Sept 30,

Transaction Nature of Relationship 2016 2015 2016 2015 $ $ $ $ Expenses included in general and administration on the Statement of Loss Management and consultants Director and management in

common 94,506 97,728 293,619 410,649

Expenses included in general exploration on the Statement of Loss Management and consultants Director and management in

common

- 60,000 60,000 180,000

Expenses included in Option to Acquire Interest in Pecoy Mineral Property on Statement of Financial Position

Vehicle Rental Relative of an Officer 7,040 7,056 21,415 13,954 Expenses included in Mineral Properties on Statement of Financial Position Vehicle Rental Relative of an Officer - - - 4,208


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8. Related Party Transactions (continued) Compensation of Key Management Personnel

Three months ended September 30, Nine months ended September 30, 2016 2015 2016 2015 $ $ $ $ Short-term employee benefits 196,279 300,820 769,054 1,119,256 Share-based payments - 55,976 8,675 154,027

In accordance with IAS 24, key management personnel are those persons having authority and responsibility for planning, directing, and controlling the activities of the Company directly or indirectly, including any directors (executive and non-executive) of the Company.

Employee benefit expenses included in the Condensed Interim Consolidated Statements of Loss

Three months ended September 30, Nine months ended September 30, 2016 2015 2016 2015 $ $ $ $ General and administrative 385,765 309,180 1,247,877 1,095,513 General exploration - 442 47,536 16,967

9. Commitments

The following table is a summary of the commitments of the Company at September 30, 2016:

Office and Warehouse

Management

Services Drilling

Helicopter and Geophysical

Pecoy

Surface Rights

Total

$ $ $ $ $ Within one year 54,528 37,234 73,666 - 165,428 One to two years 28,594 - - - 28,594 Two to three years - - - - - Three to five years - - - 312,104 312,104 Over five years - - - 312,104 312,104 83,122 37,234 73,666 624,208 818,230

The table does not include cash payments or exploration expenditures required to maintain property option agreements in good standing with vendors, as those payments and expenditures are conditional on the Company electing to continue with the individual option agreements. If the Company chooses to terminate an option agreement, no further payments or exploration expenditures are required and related capitalized costs are written off. During the nine months ended September 30, 2016, the Company entered into a two year finance lease for a photocopier.


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10. Supplemental Cash Flow Information

As at September 30, 2016 2015 $ $ Composition of cash and cash equivalents:

Cash 3,664,236 10,459,677 Guaranteed investment certificates 49,450 49,450 3,713,686 10,509,127

11. Financial Instruments

The fair value hierarchy establishes three levels to classify the inputs to valuation techniques used to measure fair value as described as follows: Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities; Level 2 – Inputs other than quoted prices that are observable for the assets or liability either

directly or indirectly; and Level 3 – Inputs that are not based on observable market data. Fair values are determined directly by reference to published price quotation in an active market, when available. Investments in equity instruments that do not have an active quoted market price are measured at cost.

The following table summarizes the Company’s financial instruments:

September 30, 2016 December 31, 2015 Classifications

Carrying amount

Fair value

Carrying amount

Fair value

$ $ $ $ Financial Assets Loans and Receivables Cash and cash equivalents 3,713,686 3,713,686 6,109,460 6,109,460 n/a Other receivables 608,839 608,839 1,142,293 1,142,293 n/a Available-for-sale Investments 388,934 388,934 409,200 409,200 Level 1 4,711,459 4,711,459 7,660,953 7,660,953 Financial Liabilities Other financial liabilities Trade and other payables 499,581 499,581 411,744 411,744 n/a 499,581 499,581 411,744 411,744

The Company’s policy for determining when a transfer occurs between levels in the fair value hierarchy is to assess the impact at the date of the event or the change in circumstances that could result in a transfer. There were no transfers between levels during the nine months ended September 30, 2016 or the year ended December 31, 2015.


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11. Financial Instruments (continued) The fair values of the Company’s cash and cash equivalents, other receivables and trade and other payables approximate their carrying values due to their short term nature. The Company’s financial instruments are exposed to certain financial risks, including credit risk, liquidity risk and market risk with respect to currency risk and interest risk. a) Currency risk

The Company is exposed to financial risk related to the fluctuation of foreign exchange rates. The Company operates in Peru where its functional currency is the US Dollar. The functional currency of the corporate headquarters is the Canadian dollar.

As many expenses in Peru are incurred in US Dollars with smaller exposure to Peruvian soles, a significant change in the currency exchange rates between the Canadian Dollar and these currencies could have a material effect on the Company’s financial performance, financial position or cash flows. The Company has not hedged its exposure to currency fluctuations. The Company does, from time to time, convert Canadian Dollars to US Dollars in anticipation of upcoming cash needs in Peru.

As of September 30, 2016, the Company is exposed to currency risk through the following foreign currency denominated assets and liabilities:

Amounts in Canadian dollar equivalents Canadian

Dollars

Cash and cash equivalents 1,167,743 Trade and other receivables 605,541 Trade and other payables (358,501)

Assuming that all other variables remain constant, a 1% depreciation or appreciation of the Canadian Dollar against US Dollar would result in an increase/decrease in the total value of the financial instruments of approximately of $14,148.

b) Credit risk

Credit risk is the risk of an unexpected loss if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Company’s maximum exposure to credit risk, defined as the sum of its cash and cash equivalents, other receivables and investments, is $4,711,459. As at September 30, 2016, the Company had $3,713,686 in cash. The Company’s cash is invested in highly liquid short-term interest-bearing investments and in savings accounts with major Canadian financial institutions, which are rated among the strongest financial institutions in the world.


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11. Financial Instruments (continued) c) Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company manages its liquidity risk through a planning, budgeting and cash forecasting process through which future cash needs are planned and anticipated. The Company’s goal is to ensure that cash balances are sufficient to cover in excess of one year of expenditures. The Company has funded all of its activities through private placements, including $5,950,000 and $2,961,125 raised in 2015 and 2016, respectively. Cash and cash equivalents and working capital total $3,713,686 and $3,915,203 respectively at September 30, 2016 (December 31, 2015 - $6,109,460 and $6,914,446).

In the normal course of business, the Company enters into contracts that give rise to commitments for future minimum payments. The following table summarizes the Company’s significant liabilities and corresponding maturities.

At September 30, 2016 Total < 1 year 1-3 years 3-5 years > 5 years $ $ $ $ $ Trade and other payables 499,581 499,581 - - - Finance obligation 10,721 4,864 5,857 - - Commitments 818,230 165,428 28,594 312,104 312,104

At December 31, 2015 Total < 1 year 1-3 years 3-5 years > 5 years $ $ $ $ $ Trade and other payables 411,744 411,744 - - - Commitments 1,260,900 537,874 64,248 329,389 329,389

d) Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The risk that the Company will realize a loss due to fluctuations in interest rates is mitigated due to surplus funds being held as cash or short-term interest bearing deposits. Assuming that all other variables remain constant, a 1% increase or decrease in interest rates would result in an increase/decrease in the annual interest income of the Company of approximately $30,000.


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12. Management of Capital

The capital structure of the Company consists of equity attributable to common shareholders, comprising issued capital, share-based payments reserve, available-for-sale reserve, deficit and foreign currency translation reserve. The Company’s objectives are to pursue the advancement of its mineral properties. In order to do so, it endeavours to safeguard its ability to continue as a going concern, while maintaining a flexible capital structure. As the Company has no cash inflow from operations, the Company may attempt to issue new shares, pursue option agreements and/or joint ventures on properties, or sell assets in order to raise funds in the future. In order to facilitate the management of its capital requirements, the Company prepares annual expenditure budgets that are updated as necessary depending on various factors, including capital deployment, results from the exploration of its properties and general industry conditions. The Company’s current investment practice is to invest its cash surplus in savings accounts with major Canadian financial institutions and in highly liquid short-term interest-bearing investments, generally with maturities of 90 days or less from the original date of acquisition, selected with regards to the expected timing of expenditures from continuing operations. The Company expects its current capital resources will be sufficient to carry its exploration plans and operations beyond its current fiscal year.

13. Segmented Information

The Company’s operations involve the acquisition, exploration, and advancement of mineral resource properties. The Company’s reportable operating segments are as follows:

Assets by Geographical Segment September 30, 2016 Canada Peru British Virgin

Islands Total

$ $ $ $ Property and equipment 33,977 21,151 - 55,128 Mineral properties - 7,003,143 - 7,003,143 Pecoy mineral property - 16,777,668 - 16,777,668 Total assets 4,028,988 24,615,533 - 28,644,521 Total liabilities 154,237 354,740 1,325 510,302 December 31, 2015 Canada Peru British Virgin

Islands Total

$ $ $ $ Property and equipment 62,044 47,643 - 109,687 Mineral properties - 20,481,496 - 20,481,496 Pecoy mineral property - 14,007,386 - 14,007,386 Total assets 6,544,535 35,789,424 - 42,333,959 Total liabilities 111,839 298,690 1,215 411,744


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13. Segmented Information (continued)

Operating Loss by Geographical Segment Canada Peru British Virgin

Islands Total

$ $ $ $ Three months ended September 30, 2016

Finance (income) (5,399) - - (5,399) Depreciation 3,076 3,101 - 6,177 Gain on disposal of available for

sale investments

(230,635) - - (230,635) Net loss 68,192 388,394 1,315 457,901

Nine months ended September 30, 2016 Finance (income) (15,826) - - (15,826) Depreciation 6,890 9,442 - 16,332 Write-off of mineral properties - 10,110,280 - 10,110,280 Gain on disposal of available for

sale investments (230,635) - - (230,635)

Net loss 1,358,551 11,177,918 13,599 12,550,068

Three months ended September 30, 2015 Finance (income) (13,793) - - (13,793) Depreciation 4,097 3,061 - 7,158 Loss on disposal of available for sale

investments 25 - - 25

Net loss (33,405) 432,893 1,189 400,677

Nine months ended September 30, 2015 Finance (income) (59,048) - - (59,048) Depreciation 12,227 8,194 - 20,421 Write-off of mineral properties - 6,570,471 - 6,570,471 Write-down of available for sale investments

205,756 - - 205,756

Loss on disposal of available for sale investments

21,990 - - 21,990

Loss on shares receivable 184,187 - - 184,187 Net loss 1,567,433 7,706,502 13,021 9,286,956

Pembrook Mining Corp. Notes to the Condensed Interim Consolidated Financial Statements September 30, 2016

Note 14 - Mineral properties

Huiniccasa Hurricane Lidia Acero Tororume Other Total Peru

$ $ $ $ $ $ $Balance, December 31, 2015 10,064,657 2,997,649 1,759,512 916,092 4,384,326 359,260 20,481,496 Acquisition and mineral licenses - - - - 201,519 - 201,519 Camp costs, supplies and other 11,240 - 1,512 867 27,123 3,817 44,559 Geological consulting fees and salaries 686 - 1,544 - 42,847 101 45,178 Transportation - - - - 111 - 111 Total 10,076,583 2,997,649 1,762,568 916,959 4,655,926 363,178 20,772,863 Write-offs (7,930,769) - (1,387,574) (721,710) - (70,227) (10,110,280) Foreign exchange movement (2,145,814) (290,215) (374,994) (195,249) (384,311) (268,857) (3,659,440) Balance, September 30, 2016 - 2,707,434 - - 4,271,615 24,094 7,003,143

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Peru

Pembrook Mining Corp. Notes to the Condensed Interim Consolidated Financial StatementsSeptember 30, 2016

Note 14 - Mineral properties (continued)

Huiniccasa Hurricane Tambo Lidia Acero Tororume Other Total Peru $ $ $ $ $ $ $ $

Balance, December 31, 2014 8,641,858 2,574,527 533,327 7,903,878 797,954 3,396,200 495,632 24,343,376 Acquisition and mineral licenses 34,626 156,788 - 147,001 - 173,129 6,220 517,764 Assays and sample storage - - - - - 237 - 237 Camp costs, supplies and other 49,807 689 932 7,281 - 58,583 622 117,914 Geological consulting fees and salaries 26,122 - 610 5,021 - 141,417 319 173,489 Transportation 2,246 - - 56 - 8,510 - 10,812 Total 8,754,659 2,732,004 534,869 8,063,237 797,954 3,778,076 502,793 25,163,592 Write-offs - - (483,332) (5,914,932) - - (172,207) (6,570,471) Recovery of mineral property cost - (124,462) - - - - - (124,462) Foreign exchange movement 1,309,998 390,107 (51,537) (388,793) 118,138 606,250 28,674 2,012,837 Balance, December 31, 2015 10,064,657 2,997,649 - 1,759,512 916,092 4,384,326 359,260 20,481,496

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Peru

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