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Corsa Coal Corp. Consolidated Financial Statements December 31, 2014 and 2013

KPMG LLP Telephone (416) 777-8500 Bay Adelaide Centre Fax (416) 777-8818 333 Bay Street Suite 4600 Internet www.kpmg.ca Toronto ON M5H 2S5 Canada

KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG Network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. KPMG Canada provides services to KPMG LLP

To the Shareholders of Corsa Coal Corp.

We have audited the accompanying consolidated financial statements of Corsa Coal Corp.,

which comprise the consolidated balance sheets as at December 31, 2014 and December 31,

2013, the consolidated statements of operations and comprehensive (loss) income, changes

in shareholders’ equity and cash flows for the years then ended, and notes, comprising a

summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated

financial statements in accordance with International Financial Reporting Standards, and for

such internal control as management determines is necessary to enable the preparation of

consolidated financial statements that are free from material misstatement, whether due to

fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based

on our audits. We conducted our audits in accordance with Canadian generally accepted

auditing standards. Those standards require that we comply with ethical requirements and plan

and perform the audit to obtain reasonable assurance about whether the consolidated financial

statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and

disclosures in the consolidated financial statements. The procedures selected depend on our

judgment, including the assessment of the risks of material misstatement of the consolidated

financial statements, whether due to fraud or error. In making those risk assessments, we

consider internal control relevant to the entity’s preparation and fair presentation of the

consolidated financial statements in order to design audit procedures that are appropriate in

the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the

entity’s internal control. An audit also includes evaluating the appropriateness of accounting

policies used and the reasonableness of accounting estimates made by management, as well

as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate

to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the

consolidated financial position of Corsa Coal Corp. as at December 31, 2014 and December

31, 2013, and its consolidated financial performance and its consolidated cash flows for the

years then ended in accordance with International Financial Reporting Standards.

Chartered Professional Accountants, Licensed Public Accountants April 30, 2015 Toronto, Canada

Corsa Coal Corp. Consolidated Balance Sheets Expressed in United States dollars, tabular amounts in thousands except for per share amounts

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As at December 31, Assets 2014 2013 Cash $ 13,925 $ 20,066 Amounts receivable (note 7) 26,494 5,152 Prepaid expenses and other 4,973 873 Inventories (note 8) 20,079 2,830 Current 65,471 28,921

Restricted cash (note 9) 32,141 4,840 Advance royalties and other assets 9,317 1,936 Property, plant and equipment (note 10) 256,921 165,746 Deferred income tax assets (note 23) 104 1,281

Total assets $ 363,954 $ 202,724 Liabilities Accounts payable and accrued liabilities $ 23,423 $ 9,033

Notes payable (note 11) 2,615 4,620 Finance lease obligations (note 12) 4,333 4,941 Other liabilities (note 14) 13,612 - Reclamation provision (note 15) 5,061 2,733

Tax distributions payable - 353 Current 49,044 21,680

Notes payable (note 11) 1,803 2,133 Finance lease obligations (note 12) 4,907 6,078 Loan payable (note 13) 20,793 - Other liabilities (note 14) 9,401 2,208 Reclamation provision (note 15) 80,643 4,080 Warrant financial liability (note 13(b)) 1,967 - Redeemable Unit financial liability (note 16(a)) - 36,787

Total liabilities $ 168,558 $ 72,966 Equity Share capital (note 17) 145,980 72,671 Contributed surplus 2,379 625 Retained earnings 2,003 56,462 Total shareholders' equity 150,362 129,758 Non-controlling interest (note 16(b)) 45,034 - Total equity 195,396 129,758 Total liabilities and equity $ 363,954 $ 202,724

Subsequent events (note 28)

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

Approved by the Board of Directors:

Corbin J. Robertson III, Director Alan M. De'ath, Director

(signed) (signed)

Corsa Coal Corp. Consolidated Statements of Operations and Comprehensive (Loss) Income Expressed in United States dollars, tabular amounts in thousands except for per share amounts

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For the year ended December 31, 2014 2013 Revenue (note 18) $ 140,547 $ 102,067 Cost of sales (note 19, 10 (b)(c)) (164,105) (88,521)Gross margin (23,558) 13,546 Corporate and administrative expense (note 20, 29) (11,092) (5,792)(Loss) income from operations (34,650) 7,754 Net finance expense (note 21) (16,427) (10,833)Transaction expenses (note 5, 6) (2,083) (2,660)Bargain purchase gain (note 6) - 60,026 (18,510) 46,533 (Loss) income for the year before tax (53,160) 54,287 Current income tax expense (note 23) 477 1,924 Deferred income tax expense (note 23) 1,177 1,716 1,654 3,640 Net and comprehensive (loss)

income for the year $ (54,814) $ 50,647

Attributable to

Shareholders $ (54,477) $ 50,647 Non-controlling interest $ (337) $ -

Basic earnings per share (note 22) $ (0.06) $ 0.10

Diluted earnings per share (note 22) $ (0.07) $ 0.10


Corsa Coal Corp. Consolidated Statements of Changes in Shareholders’ Equity Expressed in United States dollars, tabular amounts in thousands except for per share amounts

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For the year ended December 31, 2014 Number of Corsa Common Share Contributed Retained Non-Controlling Total Shares Capital Surplus Earnings Interest Equity (000’s) Note (17) (17) Balance, January 1, 2014 667,107 $ 72,671 $ 625 $ 56,462 $ - $ 129,758 Stock based compensation 20 - - 1,772 - - 1,772 Stock option expiration/forfeiture 20 (18) 18 - - Redemption of Redeemable Units 16(a) 59,841 8,132 - - - 8,132

Issue of shares 5 463,822 65,425 - - - 65,425 Share issuance costs - (248) - - - (248) Modification of Redeemable Units 16(b) - - - - 45,371 45,371

Net and comprehensive loss - - - (54,477) (337) (54,814) Balance, December 31, 2014 1,190,770 $ 145,980 $ 2,379 $ 2,003 $ 45,034 $ 195,396

For the year ended December 31, 2013 Number of Corsa Number Common of QKGI Share Contributed Retained Total Shares Units Capital Surplus Earnings Equity

(000’s) (000’s) Note (17) (17) (17) Balance, January 1, 2013 - 8,930 $ 9,104 $ - $ 12,374 $ 21,478 Unit based compensation expense 17(b) - - 40 - - 40

Extinguishment of Unit repayable on Demand - - 7,838 - - 7,838

Distributions to Legacy QKGI - - - - (4,869) (4,869) Stock based compensation 20 - - - 259 - 259

Stock option expiration/forfeiture 20 - - - (12) 12 - Quintana Transaction:

Replacement of QKGI units with Corsa common shares 289,916 (8,930) - - - -

Working capital distribution 6(a) - - - - (1,702) (1,702) Convertible debenture 6(a) 60,224 - 10,061 - - 10,061 Equity private placement 6(a) 182,374 - 30,000 - - 30,000 Existing shares of Corsa acquired

by QKGI 6(a) 134,593 - 15,628 - - 15,628 Replacement of stock options of

Corsa by QKGI - - - 378 - 378 Net and comprehensive income - - - - 50,647 50,647 Balance, December 31, 2013 667,107 - $ 72,671 $ 625 $ 56,462 $ 129,758

The accompanying notes form an integral part of these consolidated financial statements

Corsa Coal Corp. Consolidated Statements of Cash Flows Expressed in United States dollars, tabular amounts in thousands except for per share amounts

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For the year ended December 31, 2014 2013 Operating Activities Net and comprehensive (loss) income for the year $ (54,814) $ 50,647 Items not affecting cash:

Amortization 25,470 11,325 Stock-based compensation expense (note 20) 1,772 259 Unit based compensation expense - 40 Net finance expense (note 21) 15,895 10,389 Tax distribution expense - 353 Change in estimate on reclamation 7,304 53 Other non-cash operating expense 504 23 Deferred income tax expense 1,177 1,716

Write-off of mineral properties (note 10 (b)(c)) 5,309 613 Bargain purchase gain (note 6(b)) - (60,026)

2,617 15,392 Cash spent on reclamation activities (4,292) (720)Changes in working capital balances related to operations (note 24) (12,519) 5,985 Cash (used in) provided by operating activities (16,811) 20,657 Investing Activities Restricted cash 15,510 (7)Advance royalties and other assets (528) 389 PBS Transaction net of cash acquired (note 5) (71,144) - Cash acquired under the Quintana Transaction - 9,827 Property, plant and equipment additions (17,350) (6,078)Cash (used in) provided by investing activities (73,512) 4,131 Financing Activities Proceeds from issue of share capital 65,425 - Proceeds from loans payable (note 5) 25,000 - Debt issuance costs (note 5) (662) - Share issuance costs (248) - Repayment of notes payable (2,521) (1,854)Repayment of finance lease obligations (5,076) (1,507)Tax distributions paid (353) - Distributions to Legacy QKGI - (6,571)Cash provided by (used in) financing activities 81,565 (9,932)Net (decrease) increase in cash for the year (6,141) 14,856 Cash, beginning of year 20,066 5,210 Cash, end of year $ 13,925 $ 20,066

Supplemental disclosure (note 24)


Corsa Coal Corp. Notes to Consolidated Financial Statements For the years ended December 31, 2014 and December 31, 2013 Expressed in United States dollars, tabular amounts in thousands except for per share amounts

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1. Basis of presentation and nature of operations Nature of operations Corsa Coal Corp. (“Corsa” or the “Company”) is in the business of mining, processing and selling of metallurgical and thermal coal, as well as exploring, acquiring and developing resource properties that are consistent with its existing coal business. The Company is registered under the Canada Business Corporations Act and is domiciled in Canada and the registered office is located at Suite 601-110 Yonge Street, Toronto, Ontario M5C 1T4. The Company has two main operating divisions, Northern Appalachian and Central Appalachian, which are described below. Northern Appalachian Division (“NAPP Division” or “NAPP”) The NAPP Division is based in Somerset, Pennsylvania, USA and produces and sells a low volatile metallurgical coal used for the production of coke from its mines in the Northern Appalachia coal region of the USA. This includes the properties acquired under the PBS Transaction (note 5). Central Appalachian Division (“CAPP Division” or “CAPP”) The CAPP Division, based in Knoxville, Tennessee, USA, produces and sells high-BTU, low and mid sulfur thermal coal used in power and industrial applications from its mines in the Southern Appalachia coal region of the USA. Statement of Compliance These consolidated financial statements of the Company and its subsidiaries have been prepared in accordance with International Financial Reporting Standard (“IFRS”), as issued by the International Accounting Standards Board (“IASB”). The Company has consistently applied the same accounting policies throughout all periods presented, as if these policies had always been in effect. These consolidated financial statements were authorized for issue by the Company’s Board of Directors on April 29, 2015. Basis of measurement These consolidated financial statements have been prepared on a historical cost basis except for certain financial assets and liabilities which are measured at fair value. 2. Summary of significant accounting policies Functional and presentation currency The functional currency of the Company and each of its subsidiaries is the United States dollar, which is also the presentation currency of the consolidated financial statements. All amounts are rounded to the nearest thousand, except for share and per share data, or as otherwise noted. Basis of Consolidation

The legal ownership structure for the Company’s subsidiaries is presented below. All inter-company balances and transactions are eliminated upon consolidation including unrealized income and expenses arising from such intercompany transactions.


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2. Summary of significant accounting policies (continued) Basis of Consolidation (continued)

Legal entity name Jurisdiction of

incorporation or formation

Corsa

Legal parent Operating indirect

division ownership

Corsa Coal Corp. Canada Publicly traded Corporate N/A

Wilson Creek Holdings, Inc. ("WCH") Delaware, USA Corsa - 100% Corporate 100%

Corsa Coal Pennsylvania, Inc. Pennsylvania, USA Corsa - 100% Corporate 100%

Wilson Creek Energy, LLC ("WCE") Delaware, USA WCH – 81% NAPP 81%

Maryland Energy Resources, LLC Delaware, USA WCE – 100% NAPP 81%

Mincorp Acquisition Corp. ("MAC") Delaware, USA WCH - 100% NAPP 100%

Mincorp, Inc. Delaware, USA MAC- 100% NAPP 100%

PBS Coals, Inc. ("PBS") Delaware, USA Mincorp, Inc - 100% NAPP 100%

RoxCoal, Inc. Pennsylvania, USA Mincorp, Inc - 100% NAPP 100%

Norwich Services, Inc. Pennsylvania, USA PBS Coals, Inc - 100% NAPP 100%

Quecreek Mining, Inc. Pennsylvania, USA PBS Coals, Inc - 100% NAPP 100%

Croner, Inc. Pennsylvania, USA PBS Coals, Inc - 100% NAPP 100%

Elk Lick Energy, Inc. Pennsylvania, USA PBS Coals, Inc - 100% NAPP 100%

Kopper Glo Mining, LLC Delaware, USA WCE – 100% CAPP 81%

Business Combination The Company uses the acquisition method of accounting to account for business combinations. The fair value of the acquisition of a subsidiary is based on the fair value of the assets acquired, the liabilities assumed, and the fair value of the consideration. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities assumed in a business combination are measured initially at their fair values on the acquisition date. The excess, if any, of the consideration and the amount of any non-controlling interest in the acquiree over the fair value of the identifiable net assets is recorded as goodwill. In the case of a bargain purchase, where the total consideration and any non-controlling interest recognized are less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the consolidated statements of operations and comprehensive (loss) income. Subsidiaries Subsidiaries are all entities over which the Company has control. The Company controls an entity when it is exposed to, or has rights to, variable returns from the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date control is acquired by the Company and are deconsolidated from the date control ceases. Financial statements of the subsidiaries are prepared for the same reporting period as the parent company using consistent accounting policies. All intercompany balances, and revenues, expenses, earnings and losses from inter-company transactions are eliminated on consolidation.


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2. Summary of significant accounting policies (continued) Non-controlling interest Non-controlling interests in the net assets of consolidated subsidiaries are a separate component of the Company’s equity. Non-controlling interests consist of the non-controlling interests on the date of the original business combination, recognized either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets, plus the non-controlling interests’ share of changes in equity since the date of acquisition. Foreign currency translation Monetary assets and liabilities which are denominated in foreign currencies are translated into the Company’s functional currency at the exchange rate prevailing at the consolidated balance sheet dates. Non-monetary assets and liabilities are translated at historical rates at each transaction date. Revenues and expenses are translated at exchange rates prevailing in the transaction period. All foreign exchange gains and losses are recognized in the consolidated statement of operations and comprehensive (loss) income. Inventories Raw coal inventory is valued at the lower of the average mining cost or average purchase cost and net realizable value. Mining costs include contractor costs, direct labour, operating materials and supplies, transportation costs to the preparation plant, royalties and amortization of mining assets. Clean coal inventory is valued at the lower of average mining cost, including preparation plant costs, amortization of preparation plant assets, and net realizable value. Net realizable value represents the average selling price for coal less the costs to get the coal into saleable form and to the selling location. Parts and supplies inventory consists of parts, supplies and other consumables and is valued at the lower of average cost and net realizable value. Amounts receivable

Amounts receivable are recorded at amortized cost, which approximates fair value. The amounts are recognized when they are probable to be recovered by the Company. Any allowance for uncollectible receivables are offset against the amounts receivable with an offsetting charge to the consolidated statement of operations.

Advance royalties and other assets

Advance royalties consist of royalty payments that are required on certain mineral properties in advance of actual coal production or sales from those mineral properties. These items will be outstanding for at least one year from the balance sheet date. When production or sales commence from the properties, the royalty payments are expensed on the basis of units-of-production or percentage of selling price, depending on the terms of the royalty.

Deposits and prepaids are included in advance royalties and other assets. Deposits are for payments made towards the purchase price of other assets where the physical asset has yet to be received by the Company.

Property, plant and equipment Major parts of property, plant and equipment include mining and other equipment, preparation plants, land and mineral properties. Costs include expenditures that are directly attributable to the acquisition of the asset. Subsequent expenditures are capitalized only when it is probable that future economic benefits will flow to the Company and the cost can be measured reliably. The carrying amount of a replaced asset is derecognized when replaced. Maintenance and repairs are expensed as incurred. Property, plant and equipment is measured at cost less accumulated amortization and accumulated impairment losses.


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2. Summary of significant accounting policies (continued) Property, plant and equipment (continued) Mineral properties include the costs of acquiring the surface and mineral rights required to mine mineral properties, the costs of developing new surface and underground mines until commencement of commercial production, along with certain underground expansion projects and reclamation cost assets recognized at the same time as a reclamation provision for a specific mineral property. Development costs, which are the costs incurred to make the mineral physically accessible, include costs for driving main entries for ventilation, haulage, personnel, construction of airshafts, roof protection and support facilities. All stripping costs incurred for surface mining operations are charged to cost of sales produced or included in the cost of inventories at period end. Interest and financing costs relating to the construction or development of an item of property, plant and equipment as well as costs incurred to bring the asset to the condition intended by management are capitalized as part of the cost of mineral property, plant and equipment. Interest and financing costs are capitalized for projects for which a direct relationship between the borrowed funds and use of these funds towards the development or construction of an item of property, plant and equipment can be established. Interest and financing costs related to general borrowings are capitalized towards qualifying assets by applying a capitalisation rate to the expenditures on that asset. The Company allocates the amount initially recognized in respect of an item of property, plant and equipment to its significant parts and depreciates separately each such part. Residual values, method of amortization and useful lives of the assets are reviewed annually and adjusted if appropriate. Depletion of producing mineral properties and other development costs is provided using a unit-of-production method based upon the proven and probable mineral reserve position of the mine at the beginning of the fiscal year. Plant, structures and equipment are amortized using the straight line method. The useful lives are generally three to five years for mobile equipment and five to twenty years for plant, structures and other equipment but do not exceed the related estimated mine life. During the year ended December 31, 2014, the Company changed the depreciation method on certain assets within the NAPP division from units of production to straight line due to the fact that it better reflected the asset’s future economic benefits. Exploration and evaluation costs Exploration and evaluation costs include expenditures for the acquisition of rights to explore, topographical, geological, geochemical and geophysical studies, exploratory drilling and other activities related to determining the technical feasibility and commercial viability of a specific property. Exploration costs not supported by geological evidence to support economically viable projects are expensed as incurred. Capitalized exploration and evaluation costs are carried initially at historical cost and are subject to impairment testing if there are indications of impairment identified.


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2. Summary of significant accounting policies (continued) Impairment of non-financial assets Items of property, plant and equipment are tested for impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. For the purposes of recognition and measurement of an impairment loss, assets are grouped at the lowest levels for which there are identifiable separate cash flows referred to as cash generating units (“CGUs”). For the Company, CGUs tend to be separate mineral properties with reserve bases. Recoverable amounts for impairment testing of assets to be held and used are measured by comparison of the carrying amount of an asset to the greater of the fair value less costs of disposal and value in use. Value in use is measured using the present value of the expected future cash flows to be derived for a specific asset or CGU that are directly associated with, and that are expected to arise as a direct result of, its use and eventual disposition. Fair value less costs of disposal is measured using marketplace participant information for determining fair value. An impairment loss is recognized when the carrying amount of the CGU exceeds the recoverable amount and is charged to the consolidated statement of operations and comprehensive (loss) income. The Company evaluates impairment losses previously recognized for potential reversals when events or changes in circumstances warrant such consideration. Financial instruments Financial assets and liabilities are recognized when the Company becomes a party to the contractual provisions of the instrument. Financial assets are derecognized when the rights to receive cash flows from the assets have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership. Financial liabilities are derecognized at the time a substantial modification of the liability occurs or when the Company discharges any continuing or further obligation for the specific liability. At initial recognition, the Company classifies its financial instruments in the following categories depending on the nature of the items:

(i) Financial assets and liabilities at fair value through profit or loss (“FVTPL”): A financial asset or liability is classified in this category if acquired principally for the purpose of selling or repurchasing in the short-term. Derivatives are also included in this category unless they are designated as hedges. Financial instruments in this category are recognized at fair value. Transaction costs are expensed in the statement of operations. Gains and losses arising from changes in fair value are presented in the statement of operations and comprehensive income (loss) within net finance expense in the period in which they arise. Cash, restricted cash, warrant financial liability and the interest rate swaps included in notes payable represent financial liabilities through profit or loss.

(ii) Available-for-sale investments: Available-for-sale investments are non-derivatives that are either designated in this category or not classified in any of the other categories. Available-for-sale investments are recognized initially at fair value plus transaction costs and are subsequently carried at fair value. Gains or losses arising from changes in fair value are recognized in other comprehensive income. Transaction costs are added to the value of the instrument at acquisition. The Company does not currently have any instruments designated as available-for-sale.

(iii) Loans and receivables: Loans and receivables are non-derivative financial assets with fixed or

determinable payments that are not quoted in an active market. Loans and receivables consist of amounts receivable. Loans and receivables are initially recognized at the amount expected to be received, less, when material, a discount to reduce the loans and receivables to fair value. Subsequently, loans and receivables are measured at amortized cost using the effective interest method less a provision for impairment.


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2. Summary of significant accounting policies (continued) Financial instruments (continued)

(iv) Other financial liabilities: Other financial liabilities include accounts payable and accrued liabilities, tax distributions payable, notes payable, finance lease obligations, loan payable and other liabilities. Other financial liabilities are recognized initially at fair value net of transaction costs incurred and are subsequently measured at amortized cost.

Impairment of financial assets

At each reporting date, the Company assesses whether there is any objective evidence that a financial asset is impaired. A financial asset is deemed to be impaired if there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset and the loss has an impact on the estimated cash flows of the financial asset that can be reliably estimated.

If there is objective evidence that an impairment loss has been incurred, the amount of the loss is recognized in the consolidated statements of operations and comprehensive (loss) income and is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows. If, in a subsequent period, the estimated impairment loss decreases because of an event, any reversal would be credited to the consolidated statements of operations and comprehensive (loss) income.

Cash

Cash consists of balances with banks and the carrying value approximates fair value.

Restricted cash

Cash which is subject to legal or contractual restrictions on its use is classified separately as restricted cash.

Leases Leases that transfer to the Company substantially all of the risks and rewards of ownership are classified as finance leases. All other leases are treated as operating leases with the required payments under the agreement charged to the statement of operations on a straight line basis over the term of the lease. For finance leases, the lesser of the present value of minimum lease payments and the fair value of the leased assets is recognized, at the time the lease is executed and an unavoidable obligation exists for the Company, as a finance lease obligation and an offsetting asset within property, plant and equipment. The finance lease obligation is subsequently carried at amortized cost with payments made under the agreement reducing the carrying value. Interest on the outstanding finance lease obligation is charged to the statement of operations using the effective interest rate method and added to the carrying value of the finance lease obligation. Revenue recognition Revenue associated with the sale of coal is recognized when all significant risks and rewards of ownership are transferred to the customer and the amount of revenue can be measured reliably. Transportation costs from preparation plants to customers are included in cost of sales on the statement of operations and comprehensive (loss) income and amounts billed by the Company to its customers for these transportation costs are included in revenue.


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2. Summary of significant accounting policies (continued) Reclamation provision The Company recognizes a reclamation provision for the expected costs of reclamation at mining properties where the Company is legally or contractually responsible for such costs. Reclamation provisions arise from the Company’s obligations to undertake site reclamation and remediation in connection with the ongoing operations, exploration and development of mineral properties and other facilities. The Company recognizes the estimated reclamation costs when environmental disturbance occurs but only when a reasonable estimate of the estimated reclamation costs can be made. The reclamation provision recognized is estimated based on the risk adjusted costs required to settle present obligations, discounted using a pre-tax risk free discount rate consistent with the expected timing of expected cash flows. Changes in the estimated undiscounted cash flows and risk-free discount rate used in calculating the present value of the reclamation provision are recognized using the same present value technique as above at the time of the change in estimate, when such changes are not the result of current inventory production. An offsetting amount for the change in estimate is added to the reclamation cost asset previously recognized for the specific property. For such properties where mining has ceased, an offsetting charge for the change in estimate is recorded to cost of sales in the statement of operations. Actual reclamation expenditures incurred reduce the carrying value of the reclamation provision as incurred. Share-based payments All share-based payments, including stock options, are measured and recognized using a fair value based method and are equity settled. Accordingly, the fair value of the options at the date of the grant, adjusted for the number of options expected to vest, is charged to corporate and administrative expenses in the statement of operations, with the offsetting credit to contributed surplus over the vesting period. Each tranche is considered its own award with its own vesting period and fair value at grant date. The number of awards expected to vest is reviewed at least annually, with any impact being recognized to the statement of operations immediately. If and when the stock options are ultimately exercised, the applicable amounts of contributed surplus are transferred to share capital. Should the stock-based awards expire before exercise, the appropriate amount of contributed surplus is reclassified within equity to retained earnings. If and when the stock options are forfeited, the amount of stock based compensation recognized historically, to contributed surplus, for vested stock options is transferred to retained earnings. For stock options forfeited which have not yet vested, the amount of stock based compensation recognized historically is credited to corporate and administrative expenses. Income taxes Income taxes consist of current and deferred taxes. Income tax expense is recognized in the statement of operations except to the extent it relates to items recognized directly in equity, in which case the income tax is directly recognized in equity.


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2. Summary of significant accounting policies (continued) Income taxes (continued) Current tax consists of the income tax payable by the Company on income, calculated using tax rates enacted or substantively enacted, at the end of the reporting period, and any adjustment to tax payable in respect of previous years. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date. The effect on deferred income taxes for a change in tax rates is recognized in income in the year that includes the date of enactment or substantive enactment. In addition, the method requires the recognition of future tax benefits to the extent that future benefit to the Company is probable. Earnings per share The Company uses the treasury stock method to compute the dilutive effect of options, warrants and similar instruments. Under this method the dilutive effect on loss per share is recognized on the use of the proceeds that could be obtained upon exercise of options, warrants and similar instruments. It assumes that the proceeds would be used to purchase common shares at the average market price during the period. Basic earnings (loss) per common share is calculated using the weighted-average number of shares outstanding during the period. Critical accounting estimates and judgements The preparation of the consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reported periods. Actual outcomes may differ from those estimates should different assumptions or conditions arise. Significant areas of estimation uncertainty that could cause a material adjustment to the carrying amounts of assets and liabilities within one year are presented below.

(a) Property, plant and equipment

The useful life of property, plant and equipment is based on management’s best estimate of the useful life at the time of acquisition. The useful lives are reviewed at least annually or when other changes or circumstances warrant this review. The useful lives impact the amortization expense recorded in the statement of operations and the carrying value of the items of property, plant and equipment. Accordingly, a significant departure from management’s expectation, including the impact of any changes in economic, technological or regulatory circumstances beyond management’s control, may impact the carrying value of items of property, plant and equipment.

(b) Reserve and resource estimates Coal reserve and resource estimates indicate the amount of coal that can be feasibly extracted from the Company’s mineral properties. These estimates involve the inclusion of various complex inputs requiring interpretation by qualified geological personnel such as the size, shape and depth of the mineral deposit and other geological assumptions. Other estimates include commodity prices, production costs and capital expenditure requirements. Significant departures from the estimates utilized in management’s calculations may impact the carrying value of the mineral properties, reclamation provisions and amortization expense.


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2. Summary of significant accounting policies (continued) Critical accounting estimates and judgements (continued)

(c) Reclamation provision estimates Reclamation provisions are recognized by the Company for the estimated costs to reclaim the site at the end of mine life. The carrying amount of the reclamation provision in the consolidated financial statements is subject to various estimates including mine life, undiscounted cash flows to reclaim mineral properties, inflation and discount rates. The provision at the balance sheet date represents management’s best estimate but significant departures from management’s expectation, including the impact of any changes in economic, technological or regulatory circumstances, may impact the carrying value of the reclamation provision and associated reclamation cost asset included in property, plant and equipment.

(d) Impairment of long-term assets The Company reviews and tests the carrying amounts of long-term assets when an indicator of impairment is considered to exist. The Company considers both external and internal sources of information in assessing whether there are any indications that long-term assets are impaired. External sources of information that the Company considers include changes in the market, economic and legal environment in which the Company operates that are not within its control and affect the recoverable amounts of long-term assets. Internal sources of information that the Company considers include the manner in which long-term assets are being used or are expected to be used and indications of economic performance of the assets. For the purposes of determining whether an impairment of an asset has occurred, and the amount of any impairment or its reversal, management uses key assumptions in estimating the recoverable value of a CGU which is calculated as the higher of the CGU’s value in-use and fair value less costs of disposal. Changes in these estimates which decrease the estimated recoverable amount of the CGU could affect the carrying amounts of assets and result in an impairment charge. During the year ended December 31, 2014, the Company recognized an impairment charge of $5,309,000 (2013 - $613,000) (note 10(b)).

(e) Evaluation of exploration and evaluation costs Management makes estimates as to when a known mineral deposit would provide future benefit sufficient enough to begin capitalization of exploration and evaluation costs. Actual results as to when a project provides future benefit may vary from management’s estimate.

(f) Deferred income tax assets The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. Unrecognized deferred income tax assets are reassessed at each balance sheet date and are recognized to the extent that it has become probable that future taxable profit will be available to allow the deferred tax asset to be recovered. There is no certainty that income tax rates will be consistent with current estimates. Changes in tax rates increase the volatility of the Company’s earnings. (g) Purchase price accounting Management uses judgement in applying the acquisition method of accounting for business combinations and in determining fair values of the identifiable assets and liabilities acquired. The value placed on the acquired assets and liabilities are determined on a preliminary basis (note 5) and, as such, upon finalization, may differ materially from the amounts previously recorded.


15

2. Summary of significant accounting policies (continued) Recently adopted accounting pronouncements IFRIC 21 – Levies On May 21, 2013, the IASB issued IFRIC 21 - Levies, an interpretation on the accounting for levies imposed by governments. IFRIC 21 is an interpretation of IAS 37 - Provisions, contingent liabilities and contingent assets (“IAS 37”). IAS 37 sets out criteria for the recognition of a liability, one of which is the requirement for the entity to have a present obligation as a result of a past event (known as an obligating event). The interpretation clarifies that the obligating event that gives rise to a liability to pay a levy is the activity described in the relevant legislation that triggers the payment of the levy. There was no material impact to the Company’s consolidated financial statements as a result of adopting this standard. Future accounting pronouncements Certain new standards, interpretations, amendments and improvements to existing standards were issued by the International Accounting Standards Board (“IASB”) or International Financial Reporting Interpretations Committee (“IFRIC”) that are mandatory for accounting periods after January 1, 2014. Updates that are not applied or are not consequential to the Company have been excluded.

(a) IFRS 9 - Financial instruments

On July 24, 2014, the IASB issued the complete IFRS 9 - Financial instruments (“IFRS 9”), which introduced new requirements for the classification and measurement of financial assets. Under IFRS 9, financial assets are classified and measured based on the business model in which they are held and the characteristics of their contractual cash flows. The standard introduces additional changes relating to financial liabilities. It also amends the impairment model by introducing a new ‘expected credit loss’ model for calculating impairment. IFRS 9 (2014) also includes a new general hedge accounting standard which aligns hedge accounting more closely with risk management. This new standard does not fundamentally change the types of hedging relationships or the requirement to measure and recognize ineffectiveness, however it will provide more hedging strategies that are used for risk management to qualify for hedge accounting and introduce more judgment to assess the effectiveness of a hedging relationship. IFRS 9 is effective for annual periods beginning January 1, 2018. The Company intends to adopt IFRS 9 in its consolidated financial statements for the annual period beginning on January 1, 2018. The impact to the presentation of the Company’s consolidated financial statements upon adoption of this standard has not yet been determined.

(b) IFRS 15 – Revenue from contracts with customers

In May 2014, the IASB issued IFRS 15 - Revenue from contracts with customers (“IFRS 15”). IFRS 15 is effective for periods beginning on or after January 1, 2017 and is to be applied retrospectively. IFRS 15 clarifies the principles for recognizing revenue from contracts with customers. The Company intends to adopt IFRS 15 in its consolidated financial statements for the annual period beginning January 1, 2017. The extent of the impact of adoption of IFRS 15 has not yet been determined.


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3. Capital management The Company defines managed capital as its total equity. The objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order to provide returns for the shareholders and benefits for other stakeholders. At December 31, 2014, total managed capital was $195,396,000 (December 31, 2013 - $129,758,000).

The Company’s capital structure reflects the requirements of a company focused on sustaining cash flows from its current mining operations and financing both internal and external growth opportunities and development projects. The Company faces lengthy development lead times as well as risks associated with increasing capital costs and project completion due to unavailability of resources, permits and other factors beyond the Company’s control. The Company’s operations are also significantly affected by the market price of coal. There are no external restrictions on managed capital of the Company. The Company continually assesses its capital structure and makes adjustments to it in light of changes in economic conditions and risk characteristics associated with its underlying assets. In order to maintain or adjust the capital structure, the Company may issue new common shares or enter into new debt arrangements. 4. Financial instruments The Company’s financial instruments consist of cash, restricted cash, warrant financial liability, amounts receivable, accounts payable and accrued liabilities, notes payable, finance lease payable, tax distributions payable, loan payable and other liabilities.

(a) Financial risk management The Company is exposed in varying degrees to a variety of financial instrument related risks as described below.

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. The Company’s primary exposure to credit risk is on its bank accounts with a balance at December 31, 2014 of $13,925,000 (December 31, 2013 - $20,066,000). Bank accounts are held with high credit quality institutions in Canada and the USA. Restricted cash consists of certificates of deposit and interest bearing securities invested with highly rated financial institutions. Amounts receivable consist of trade receivables, indemnification asset receivable, and other. The Company assesses the quality of its customers, taking into account their creditworthiness and reputation, past experience and other factors. The aging of the amounts receivables at each reporting date was as follows:

As at As at

December 31, December 31,

2014 2013

Less than one month $ 13,817 $ 4,808

One to three months 4,734 -

Over three months 7,943 344

$ 26,494 $ 5,152


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4. Financial instruments

(a) Financial risk management (continued) Currency risk

The Company has a corporate office in Canada and is therefore exposed to foreign exchange risk arising from transactions denominated in Canadian dollars. The Company’s cash, amounts receivable and accounts payable and accrued liabilities that are held in Canadian dollars (as at December 31, 2014 - $593,000, $41,000 and $911,000, respectively) are subject to fluctuation against the United States dollar. A +/- 5% change in the exchange rates between the Canadian and United States dollars would, based on the Company’s consolidated financial statements as at December 31, 2014, have an effect on the income before taxes of approximately +/- $14,000.

Commodity risk The value of the Company’s mineral properties is related to the price of metallurgical and thermal coal, and the outlook for these commodities, which is beyond the control of the Company.

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. At December 31, 2014 the Company had a consolidated cash balance of $13,925,000 and consolidated working capital of $16,427,000. However, the future operations of the Company are dependent on its ability to generate positive cash flows from operations, stability of metallurgical and thermal coal prices and reduction in the cost of production on a per ton basis. The Company believes that based on its current consolidated cash and working capital balances, together with its ability to sell its non-critical capital equipment, successful completion of its working capital dispute (note 5) and the realization of certain cost efficiencies through the successful integration of PBS in 2015, it will have sufficient funds to meet its minimum obligations until at least the next fiscal year. To the extent that one or a combination of the previous factors is not achieved during 2015, the Company may have to obtain additional financing to continue future operations. As at December 31, 2014, the Company had available committed undrawn credit facilities amounting to $4,390,000 (2013 - $2,000,000). The Company’s commitments based on contractual terms are as follows:


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4. Financial instruments (continued)

Liquidity risk (continued)

Payments due by period

Carrying

values at

December 31, Less than 1 After 5

2014 Total year 1 to 3 years 4 to 5 years years

Accounts payable and

accrued liabilities $ 23,423 $ 23,423 $ 23,423 $ - $ - $ -

Notes payable 4,418 4,606 2,680 1,926 - -

Finance lease

obligation 9,240 9,779 4,447 4,694 638 -

Loan payable 20,793 25,000 - - 25,000

Other liabilities 9,309 10,000 7,000 - - 3,000

Workers compensation trust

funding (note 9) - 2,000 2,000 - - -

Water treatment trust funding (note 9)

- 20,340 3,390 6,780 6,780 3,390

Purchase commitments

on capital equipment - 9,856 9,856 - - -

Operating leases and

other obligations - 4,866 3,087 1,759 20 -

Total $ 67,183 $ 109,870 $ 55,883 $ 15,159 $ 32,438 $ 6,390

Interest rate risk

The Company is exposed to minimal risks associated with the effects of fluctuations in the prevailing levels of market interest rates on its assets and liabilities and cash flows. The Company’s loan payable, finance lease obligations and all NAPP Division notes payable bear interest at a fixed rate. The CAPP Division has one note payable bearing interest at a variable rate (note 11 (a)). A change of 100 basis points in the rate of interest would not materially affect the Company’s net income or equity.

(b) Fair value The estimated fair values of cash, restricted cash, amounts receivable, accounts payable and accrued liabilities, tax distributions payable and notes payable approximate their respective carrying values.

Fair value hierarchy Fair value is the price that would be received to sell an asset or paid to transfer a liability in an ordinary transaction between market participants at the measurement date.


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4. Financial instruments (continued)

Fair value hierarchy (continued) The fair value hierarchy categorizes into three levels the inputs to valuation techniques used to measure fair value. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3 inputs). Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. Level 2 inputs are those other than quoted market prices in active markets, which are observable for the asset or liability, either directly or indirectly such as derived from prices. Level 3 inputs are unobservable inputs for the asset or liability. The following table provides an analysis of the Company’s financial instruments that are measured subsequent to initial recognition at fair value, grouped into Level 1 to 3 based on a degree to which the inputs used to determine the fair value are observable.

Fair value

hierarchy December 31, 2014 December 31, 2013

Financial assets

Cash Level 1 $ 13,925 $ 20,066

Amounts receivable Level 1 26,494 5,152

Restricted cash Level 1 32,141 4,840

$ 72,560 $ 30,058

Financial liabilities Accounts payable and accrued liabilities Level 1 $ 23,423 $ 9,033

Finance lease payable Level 2 9,240 11,019

Notes payable Level 2 4,418 6,753

Loan payable Level 2 20,793 -

Warrant financial liability Level 2 1,967 -

Redeemable unit financial liability Level 1 - 36,787

Other liabilities Level 2 23,013 2,208

$ 82,854 $ 65,800

The Company’s only financial instrument classified as fair value through profit or loss, and thus required to be measured at fair value each reporting period is the warrant financial liability. The inputs used to measure the warrant financial liability are based on observable unadjusted market prices for identical assets and are therefore classified as Level 2 inputs under the financial instruments hierarchy. As at December 31, 2014, the fair value of all financial instruments approximated carrying value, except for the loan payable which has a fair value of $20,343,000. The fair value of the loan payable was determined by discounting the future contractual cash flows at a discount rate that represent an approximation of the borrowing rates presently available to the Company, which was determined to be 15.5%. As at December 31, 2013, all financial instruments fair value approximated carrying value. As at December 31, 2014 and 2013, the Company had no financial instruments which used Level 3 fair value measurements.


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5. Acquisition of PBS

(a) The PBS Transaction

On August 19, 2014, the Company completed the acquisition of all of the outstanding shares of PBS Coals Limited, a wholly-owned subsidiary of OAO Severstal, which has subsequently been wound up, for $53,606,000 in cash and the requirement to fund $20,000,000 of cash into escrow accounts for water treatment and certain other liabilities, (collectively the “PBS Transaction”). The Company funded the escrow accounts on December 17, 2014 and has the ability to make claims against OAO Severstal to cover certain liabilities incurred by PBS historically, deficiencies in the agreed upon working capital and net debt levels on closing and certain other agreed upon items. If such claims are determined eligible by the escrow agent, funds to cover such costs will be released from escrow to Corsa. Any amounts remaining in escrow, subject to certain conditions, are to be released to OAO Severstal as additional consideration.

PBS is a producer of low-volatile metallurgical coal with mining properties in the vicinity of the Company’s existing metallurgical coal assets.

The primary purpose of the acquisition was to continue the Company’s strategic focus on low-volatile metallurgical coal and secure additional infrastructure, operating capacity and reserves of low-volatile metallurgical coal.

(b) Accounting for the PBS Transaction

The determination of the purchase price, the fair value of the PBS net assets and purchase accounting equation for the PBS Transaction, which has been treated as a business combination under IFRS 3 – Business Combinations, are presented below. The figures included in the purchase accounting equation are based on management’s preliminary estimates and material differences between these estimates and the final purchase accounting equation may result.

Cash paid to acquire PBS (i) $ 53,606 Cash paid to escrow accounts 20,000 Purchase consideration $ 73,606 Fair value of PBS Net Assets 73,606 Goodwill $ -

(i) The cash paid to acquire PBS increased by $505,000 from the amount reported in the September 30,

2014 condensed unaudited interim consolidated financial statements. The amount was related to bonding collateral that was released to the Company subsequent to the PBS Transaction and was required to be paid to OAO Severstal as part of the share purchase agreement.

Final valuations of net working capital amounts are incomplete due to disputes over the balances with OAO Severstal. In addition, valuation of property, plant and equipment and the reclamation provision are not final due to complexities inherent in the valuation process where significant assumptions are used and as such, management expects to finalize the purchase accounting equation prior to the end of the third quarter of 2015.

Details of the provisional fair value of the PBS net assets acquired as reported in the September 30, 2014 condensed interim consolidated financial statements and the adjustments made for new information obtained are summarized below.


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5. Acquisition of PBS (continued)

(b) Accounting for the PBS Transaction (continued)

Provisional fair value of PBS net assets at Provisional fair value as reported in September 30, 2014 condensed of PBS net assets at unaudited interim consolidated financial Adjustments August 19, 2014 Cash $ 2,462 - 2,462 Amounts receivable (i) 9,450 - 9,450 Indemnification assets receivable (ii) - 6,000 6,000 Prepaid expenses and other 708 - 708 Inventories (iii) 20,904 550 21,454 Restricted cash (iv) 41,965 846 42,811 Advance royalties and other assets 6,858 - 6,858 Property, plant and equipment (v) 99,816 4,250 104,066 Accounts payable and accruals (vi) (23,460) (1,607) (25,067)Other liabilities (20,407) - (20,407)Reclamation and water

treatment provision (vii) (65,195) (9,534) (74,729) $ 73,101 505 73,606

(i) The Company expects to receive the gross contractual amounts disclosed for amounts receivable and indemnification asset receivable, as a result no allowance for credit losses have been recorded.

(ii) An adjustment of $6,000,000 was made to indemnification assets receivable, to recognize the amount expected to be recovered from escrow to reimburse the Company for estimated penalties resulting from violations under the Clean Water Act, which occurred prior to the PBS Transaction. The related liability has been provided for in the current portion of other liabilities (note 14).

(iii) The fair value of inventory was adjusted by $550,000 to account for spare parts which were not

included in the original valuation.

(iv) An adjustment of $846,000 was made to the fair value of restricted cash and investments, to reflect changes in the value of the investments in the restricted cash balances as at August 19, 2014.

(v) The fair value of property, plant and equipment was determined using a life of mine discounted cash flow model utilizing a discount rate of 13% Significant assumptions include, but are not limited to, coal reserves at PBS mines, plant recovery rates, mining conditions, annual production rates, mining costs and future selling prices for metallurgical coal. An adjustment of $4,250,000 was made to the fair value due to refinement of these assumptions. Due to the significant assumptions used in estimating the fair value of property, plant and equipment, management is undertaking a further analysis and as such the balance reported at December 31, 2014 is provisional.

(vi) The accounts payable and accruals balance was adjusted by $1,607,000 as a result of changes in the expected cash outflows associated with certain accrued liabilities.


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5. Acquisition of PBS (continued)

(b) Accounting for the PBS Transaction (continued)

(vii) Reclamation provision, including water treatment liabilities, include provisions where the timing of

settlement of such provisions may vary depending on certain assumptions, which include but are not limited to, expected mine life, discount rates, inflation and management’s expected undiscounted costs associated with each provision (note 15). An adjustment of $9,534,000 was made to the balance due to changes in these assumptions. Due to the significant assumptions used in estimating the fair value of the reclamation provision, management is undertaking a further analysis and as such the balance reported at December 31, 2014 is provisional.

(viii) Transaction expenses to consummate the PBS Transaction of $2,083,000 for the year ended December 31, 2014 have been included in the consolidated statements of operations and comprehensive (loss) income.

(ix) Certain pro forma financial information is required to be disclosed under IFRS 3. The pro forma figures assume the business combination occurred January 1, 2014. The pro forma revenue and earnings have been adjusted as follows: a. To adjust amortization for the fair value increments recognized under the purchase price

accounting outlined; b. To recognize the tax effect of these adjustments; and c. To remove intercompany transactions between PBS and the Company.

Actual Adjustments Pro forma Revenue $ 140,547 $ 78,648 $ 219,195 Net income (i) $ (54,814) $ (135,757) $ (190,571)

(i) Includes impairment charge booked by PBS prior to the acquisition by the Company of $73,552,000

(x) The amount of revenue included in the consolidated statements of comprehensive (loss) income attributable to PBS since the acquisition date is $33,513,000. The net loss included in the consolidated statements of comprehensive (loss) income attributable to PBS since the acquisition date is $20,007,000.

6. Reverse takeover transaction between Corsa and Quintana Kopper Glo Investment, LLC (“QKGI”)

(a) The Quintana Transaction On March 21, 2013, Corsa raised $10,000,000 by issuing a Cdn$10.2 million 8% unsecured convertible note to QKGI New Holdings LP (“New QKGI”), a QEP controlled entity, convertible into common shares of the Company (“Common Shares”) at Cdn$0.17 per Common Share, (“Convertible Note”). On July 31, 2013, Corsa completed the following transactions (collectively, the “Quintana Transaction”) with entities ultimately controlled by QEP:

i. Conversion of the Convertible Note into Common Shares of the Company resulting in the issuance of

60,224,000 Common Shares to New QKGI (“Conversion of Convertible Note”);


23

6. Reverse takeover transaction between Corsa and QKGI

(a) The Quintana Transaction (continued)

ii. New QKGI subscribed for 182,374,000 Common Shares at Cdn$0.17 per share for gross proceeds of $30,000,000 (“Corsa share subscription”). The cash proceeds were used to retire $25,361,000 of loans payable outstanding in Corsa prior to the Quintana Transaction with the remainder used for general corporate purposes;

iii. Corsa acquired all of the outstanding membership units of Quintana Kopper Glo Holding, Inc. (“KGH”), a subsidiary of QKGI, in exchange for 134,593,000 Common Shares where such shares are held by Legacy QKGI (“KGH Transfer”);

iv. Corsa acquired the outstanding membership units of QKGI in exchange for 230,158,000 Redeemable Units of WCE (see note 16) where such units are held by Legacy QKGI (“QKGI Transfer”). The Redeemable Units entitle Legacy QKGI to a pro rata interest in the net income and net assets of WCE; and

v. A working capital adjustment amounting to $1,702,000 was distributed to the former owners of QKGI in accordance with the terms of the Quintana Transaction. The amount was accrued as a distribution payable as at July 31, 2013 and was paid during the year ended December 31, 2013.

(b) Net assets acquired by QKGI and calculation of bargain purchase gain A summary of the fair value of Corsa’s identifiable net assets at the date of acquisition deemed to be acquired by QKGI under the Quintana Transaction are summarized below. The figures included below are the final purchase accounting equation.

Final fair value of Corsa Net Assets

Cash $ 9,827 Other working capital 5,195 Restricted cash 5,010 Advance royalties and other 1,819 Property, plant and equipment 125,223 Accounts payable and accruals (365) Notes payable (3,150) Finance lease obligations (5,137) Other liabilities (2,159) Reclamation provision (4,303) Deferred tax asset 10,858

$ 142,818

Purchase Consideration deemed paid $ 82,792 Less: Fair value of net assets of Corsa deemed to be acquired (142,818) Bargain purchase gain $ (60,026)


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6. Reverse takeover transaction between Corsa and QKGI (continued)

(c) Share capital transactions prior to the Quintana Transaction Prior to the Quintana Transaction, QKGI had multiple classes of common units outstanding entitling the holders thereof to an equity interest in the results of QKGI. As at July 31, 2013, 5,225,000 Series A Mining Units, 275,000 Series A-1 Mining Units, 3,257,142 Series A Holding Units, 171,429 Series A-1 Holding Units, 300 Series B Units and 700 Series B-1 Units were authorized and outstanding. All Series A Mining, Series A-1 Mining, Series A Holdings, Series A-1 Holdings, Series B and Series B-1 Units were exchanged for general membership interests of QKGI directly before the consummation of the Quintana Transaction (note 6(a)). The Series A-1 Mining, Series A-1 Holdings and Series B-1 Units were repayable on demand and were presented as current liabilities. This liability was re-measured to fair value at each reporting period with changes in the consolidated balance sheet value flowing through net finance expense in the consolidated statement of operations and comprehensive income. For the year ended December 31, 2013, finance income of $417,000, was charged to the consolidated statement of operations and comprehensive (loss) income. 7. Amounts receivable Amounts receivable consist of the following:

As at As at


2014 2013

Trade receivables $ 20,277 $ 4,905

Indemnification asset receivable (note 5(b)(i)) 6,000 -

Other 217 247

$ 26,494 $ 5,152

The Company has not recorded any allowance for credit losses for the periods presented above.

8. Inventories

Inventories consist of the following:

As at As at December 31, December 31, 2014 2013 Metallurgical coal

Clean coal stockpiles $ 4,638 $ 296 Raw coal stockpiles 2,250 65 6,888 361

Thermal coal Clean coal stockpiles 2,112 1,621 Raw coal stockpiles 649 183 2,761 1,804

Parts and supplies 10,430 665 $ 20,079 $ 2,830


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8. Inventories (continued)

The net realizable value adjustment, measured as the inventory balances at full cost less the net realizable value, as at December 31, 2014 was $1,130,000 (December 31, 2013 - $308,000). The net realizable value adjustment was recorded in cost of sales. 9. Restricted cash Restricted cash consists of the following:

As at As at December 31, December 31, 2014 2013 Collateral posted for reclamation bonds (a) $ 11,442 $ 4,216 Workers compensation trust funds (b) 4,761 541 Water treatment trust funds (c) 15,901 -Other restricted deposits 37 83 Balance, end of period $ 32,141 $ 4,840

a) The Company is required to post bonds to ensure reclamation is completed on its mining properties as

required under USA state and federal regulations. The Company has agreements with insurers to provide the bonds. The insurers require cash collateral ranging from zero to one-third of the face amount of the bonds and charge a premium for the portion of the face value of the bonds which is not collateralized. The cash collateral is invested in certificates of deposit which earn interest ranging from 0.67% to 1.66%, are insured by the Federal Deposit Insurance Corporation and are held in escrow.

b) The Company has established separate trust funds with its insurance carriers to pay potential awards and

claims related to workers’ compensation claims. As at December 31, 2014, the Company had $4,761,000 (December 31, 2013 – $541,000) of funds held in trust included in restricted cash. The Company is also committed to fund an additional $2,000,000 over the next twelve months to such trust funds based on agreements in place with its insurers.

c) The Company has signed certain agreements with environmental and regulatory agencies which require the perpetual monitoring and treatment of water in areas where the Company is operating or has operated in the past. As a result of these agreements, the Company was required to establish separate trust funds to ensure water treatment activities would continue after the Company ceased operating in the affected areas. As at December 31, 2014, the balance in the trust funds was $15,901,000 (December 31, 2013 – nil). The cash is invested in fixed income and equities and income earned on such funds, under certain circumstances, may be used by the Company to pay for certain water treatment costs once the trust funds have been fully funded. As of December 31, 2014, the Company is required to contribute an additional $3,390,000 annually for the next six years to such trust funds.


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10. Property, plant and equipment Property, plant and equipment consist of the following:

Mineral Plant and Properties equipment Total (a) Cost Balance, January 1, 2013 $ 26,703 $ 34,702 $ 61,405 Additions - 8,015 8,015 Capitalized development costs 941 - 941 Change in reclamation provision 1,258 - 1,258 Capitalized borrowing costs 107 - 107 Additions through the Quintana Transaction (note 6) 91,292 33,931 125,223 Write – off of mineral properties (b) (2,926) - (2,926)Disposals (651) (3,270) (3,921)Balance, December 31, 2013 116,724 73,378 190,102 Additions - 11,737 11,737 Additions through the PBS Transaction (note 5) 35,177 68,889 104,066 Capitalized development costs 5,613 - 5,613Change in reclamation provision 492 - 492 Write – off of mineral properties (c) (5,532) - (5,532)Capitalized borrowing costs (note 11) 285 - 285 Disposals - (3,888) (3,888)Balance, December 31, 2014 $ 152,759 $ 150,116 $ 302,875

Accumulated amortization Balance, January 1, 2013 $ (5,467) $ (14,078) $ (19,545) Amortization (2,709) (8,154) (10,863)Write – off of mineral properties (b) 2,312 - 2,312 Disposals 651 3,089 3,740 Balance, December 31, 2013 (5,213) (19,143) (24,356) Amortization (3,500) (21,970) (25,470)Write – off of mineral properties (c) 223 - 223 Disposals - 3,649 3,649 Balance, December 31, 2014 $ (8,490) $ (37,464) $ (45,954)

Net book value December 31, 2013 $ 111,511 $ 54,235 $ 165,746

December 31, 2014 $ 144,269 $ 112,652 $ 256,921


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10. Property, plant and equipment (continued)

a) Mineral properties include the cost of obtaining the mineral and surface rights required to conduct mining operations. The lease rights in the states of Tennessee, Kentucky, Maryland and Pennsylvania are separated for surface rights, which provide access to the surface of a specific property, and mineral rights, which provide the right to extract the minerals from a specific property. The Company either purchases outright or leases these rights from various vendors specific to each property. Mineral and surface rights which are leased are subject to royalty payments to the various vendors based on the tons of coal extracted from that specific property. Royalty rates on leased mineral rights range from 0.0% to 10.0% of the selling price of the coal. Mineral and surface rights which are owned by the Company are not subject to royalties.

b) The write-off of mineral properties for the year ended December 31, 2013 was the result of the termination of mining on certain properties. For one of the Company’s properties management determined mining was no longer economically feasible due to unexpected geological issues and as such ceased mining and wrote-off the associated asset as an impairment charge of $285,000. An impairment charge of $328,000 was made on a separate mining property due to geological issues which rendered the property uneconomical to mine.

c) As at December 31, 2014, a triggering event was identified for the Barbara B, Kimberly Run and Ankeny properties of the NAPP division. An impairment charge of $5,309,000 was recognized in cost of sales (note 19). The impairment loss was triggered as a result of management’s decision to cease operations at the properties. Management made the decision to put the Barbara B Project, an underground development project, on care and maintenance, due to unfavourable geological conditions. The Kimberly Run and Ankeny mines were nearing the exhaustion of their economic reserve lives and with a high cost per ton of operations, management decided to permanently close both mines. The impairment losses recognized for Barbara B and Kimberly Run, are preliminary at December 31, 2014, as the properties were purchased in the PBS Transaction, and the valuation of property, plant and equipment is not final (note 5(b)).

11. Notes payable Notes payable consist of the following:

As at As at December 31, December 31, 2014 2013 Note payable CAPP (a) $ 2,115 $ 3,525 Note payable NAPP (b) 2,247 3,056 Other notes payable due within one year 56 172 Balance, end of period 4,418 6,753 Less: Current portion (2,615) (4,620) $ 1,803 $ 2,133

(a) CAPP has a note payable which bears interest at a floating rate calculated at the one month LIBOR rate

plus 2.25%, however the Company entered into an interest rate swap to establish a fixed interest rate of 3.07%. The note is repayable in monthly payments of $117,000 plus interest until June 1, 2016. All of the assets of CAPP are pledged as collateral for the loan except those pledged under finance leases of CAPP (note 12). The terms of the note requires CAPP to maintain a minimum free cash flow coverage ratio greater than 1.2 to 1.0, measured quarterly, a lease adjusted cash flow leverage ratio of less than 3.5 to 1.0, measured quarterly, and a lease adjusted balance sheet leverage ratio not to exceed 4.5 to1.0. The facility also carries an undrawn line of credit with total credit available amounting to $4,390,000 as at December 31, 2014 which expires July 30, 2015.


28

11. Notes payable (continued)

(b) NAPP has a note payable which bears interest at 4.0%. As at December 31, 2014, the repayment terms of the note were $1,000,000 payable on April 5, 2015 and $1,000,000 payable on April 5, 2016. Subsequent to December 31, 2014, the repayment terms were revised to a $600,000 payment on April 5, 2015 and nineteen monthly payments of $101,000 due beginning on October 5, 2015 (note 28). The note carries a mortgage against the Alumbaugh property (owned portion of Acosta Deep project). The direct relationship between the note payable and use of the funds towards the acquisition of the Alumbaugh mineral property requires the borrowing costs to be capitalized as part of the development costs of the property. During the year ended December 31, 2014, $191,000 of finance and interest expense was capitalized to the cost of the mineral property (2013 – $99,000). The interest expense was recorded using the effective interest rate on this note of 3.80%.

As at December 31, 2014, the Company was in compliance with all covenants related to the notes payable.

12. Finance lease obligations Finance lease obligations consist of the following:

As at As at December 31, December 31, 2014 2013 Leases expiring from 2014-2019 bearing interest ranging from 3.75%-4.99% (a) $ 2,430 $ 3,818 Leases expiring from 2015-2018 bearing interest at 4.15%-5.81% (b) 6,800 7,201 Lease expiring in 2015 bearing no interest with total monthly payments of $2,500 10 Balance, end of period 9,240 11,019 Less: Current portion (4,333) (4,941) $ 4,907 $ 6,078

(a) These finance lease obligations are for certain mobile equipment at the CAPP Division. There are no

covenants under the terms of these lease agreements. The value of the loan is securitized by the mobile equipment being leased.

(b) These finance lease obligations are for certain mobile equipment at the NAPP Division. The terms of these

leases are guided by a master lease agreement which requires a specified debt service coverage ratio of at least 1.25 to 1.00 on a quarterly basis, a debt to tangible net worth ratio not exceeding 2.0 to 1.0 and a minimum cash balance of $2,000,000, required at all times, to be met by WCE and it’s subsidiaries based on historical results. The value of the loan is also securitized by the mobile equipment being leased.

Finance lease obligations are payable as follows:

Less than 1 year $ 4,447 1-3 years 4,694 4-5 years 638 Total payments 9,779 Less: amounts representing interest (539) Total finance lease obligations $ 9,240


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12. Finance lease obligations (continued)

As at December 31, 2014, the Company was in compliance with all covenants under the lease agreements. The Company has entered into operating leases for various equipment used in production at the CAPP Division. The operating leases are recognized in cost of sales on a straight line basis over the lease period. Operating lease payments are as follows:

Less than 1 year $ 3,087 1-3 years 1,759 4-5 years 20 Total operating lease payments $ 4,866

13. Loan payable a) On August 19, 2014, the Company entered into a $25,000,000 secured term loan (“Facility”). The Facility is

for a five year term and bears interest at 10% per annum compounded quarterly. For the period up to and including the second anniversary of the Facility, the Company will have the option of adding any interest payable under the Facility to the principal amount or, subject to approval of the TSX Venture Exchange, satisfying any interest payment by the issuance of Common Shares (based on five day volume weighted average trading price for Common Shares immediately prior to the last business day of the period multiplied by 105%). On the third and fourth anniversary of the PBS Transaction, the Company is required to make an anniversary payment for an amount equal to 2% of the principal amount of the Facility then outstanding, if any. In addition, the Facility may be prepaid without penalty, in whole or in part, at any time after three months of interest has been paid. The Facility requires the Company to maintain a minimum cash balance of $2,000,000 and positive working capital. The Company was in compliance with these covenants as at December 31, 2014.

In consideration of the Facility, the Company issued 36,100,000 Common Share purchase warrants of the Company (“Bonus Warrants”). Each Bonus Warrant has a term of five years and is exercisable for one Common Share at an exercise price of Cdn$0.195. The effective interest rate, including accretion charged on the discounts of the loan payable, is 14.8%.

The changes in the Loan Payable balance for the year ended December 31, 2014 are as follows:

Balance, beginning of period $ - Issuance of Loan Payable 25,000 Accrued interest 916 Issuance costs of Loan Payable (i) (662) Discount on Loan Payable (b) (4,829) Accretion on Discount on Loan Payable (note 21) 368 Balance, end of period $ 20,793

(i) The Company incurred $662,000 of costs associated with the issuance of the Facility, all of which

were recorded as a discount against the carrying value at the issuance date. These amounts will be accreted over the life of the Facility.


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13. Loan payable (continued) b) The Bonus Warrants qualify for recognition as a financial liability given that the exercise price is different from

the Company’s functional currency. At initial recognition on August 19, 2014, the fair value of the Bonus Warrants was determined to be $4,829,000 using a Black-Scholes option pricing model (expected life of 5 years, exercise price of Cdn$0.195, risk-free interest rate of 1.59%, Common Share price of Cdn$0.29, expected volatility of 40%, dividend yield of 0%, forfeiture rate of 0% and CAD/USD exchange rate of 0.9139). The initial value was recorded as a reduction to the Loan Payable and an offsetting credit was recorded to the Warrant financial liability on the consolidated balance sheet. The Warrant financial liability is revalued to fair value at each reporting period. As at December 31, 2014, the fair value was determined to be $1,967,000 using a Black Scholes option pricing model (expected life of 4.6 years, exercise price of Cdn$0.195, risk-free interest rate of 1.65%, Corsa share price of Cdn$0.185, expected volatility of 40%, dividend yield of 0%, forfeiture rate of 0% and CAD/USD exchange rate of 0.8620). The revaluation amounted to $2,862,000 for the year ended December 31, 2014 and is included in net finance expense (note 21) on the consolidated statements of operations and comprehensive (loss) income.

The inputs used were based on the observable rates at the time of valuation with the exception of volatility which was determined based on an agreed upon rate with the counterparty.

14. Other liabilities Other liabilities consist of the following:

As at As at


2014 2013

Workers compensation provision (a) $ 7,584 $ -

Water audit (b) 6,000 -

CSX liquidated damages (c) 7,000 -

Processing fee payable (d) 2,309 2,208

Other 120 -

Balance, end of period $ 23,013 $ 2,208

Less: current portion (b, c) (13,612) -

$ 9,401 $ 2,208

a) The provision relates to workers’ compensation and occupational disease claims that have not yet been

paid by the Company. The estimates use an actuarial valuation approach based on historical claims and known events, where such estimates may differ materially from the estimates used herein. The Company has established separate trust funds with its insurance carriers to pay potential awards and claims related to workers’ compensation claims (note 9).

b) Corsa is undergoing an audit by the United States Environmental Protection Agency (“EPA”) and United States Department of Justice (“DOJ”) into Clean Water Act (“CWA”) violations made prior to the PBS Transaction. The liability was estimated to be $6,000,000 as of December 31, 2014 and is expected to be settled within one year of the reporting date. As part of the PBS Transaction, the Company funded $10,000,000 of cash into escrow accounts to cover the estimated penalty, and has the ability to make claims against OAO Severstal to reimburse the Company for the penalty paid. Accordingly, $6,000,000 has been recognized in accounts receivable as at December 31, 2014 (note 7).


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14. Other liabilities (continued)

c) Corsa had a contractual agreement with CSX Corporation (“CSX”), a transportation supplier, which indicated minimum levels of coal to be shipped via CSX’s rail trains over the contract period. Under the terms of the contract, a fee was to be charged based on the minimum contractual tons less the number of tons shipped in the contract period. As at December 31, 2014, a provision of $7,000,000 has been made for the estimated amount of fees owing to CSX.

d) The processing fee payable represents an amount to be paid to a third party in relation to a royalty agreement signed historically by Corsa. Fees were payable to the third-party when specified operating levels at a NAPP preparation plant were achieved. Corsa is required to pay the third-party $3,000,000 in aggregate, $1,500,000 in 2019 and 2020. The processing fee payable balance is being recorded at amortized cost.

15. Reclamation provisions The Company’s reclamation provision arises from its obligations to undertake site reclamation and remediation as well as certain water treatment activities in connection with its historical operations.

The changes in the site reclamation and remediation and water treatment obligation during the years ended December 31, 2014 and December 31, 2013 are as follows:

Site Water Total Reclamation and Treatment Reclamation

Remediation Obligation Provision (a) (b) Balance, January 1, 2013 $ 1,806 $ - $ 1,806

Assumed under Quintana Transaction (note 6) 4,303 - 4,303

Reclamation costs incurred (1,051) - (1,051)

Change in estimate of reclamation (i) 1,710 - 1,710

Accretion expense 45 - 45

Balance, December 31, 2013 $ 6,813 $ - $ 6,813 Assumed under PBS Transaction (note 5) 46,830 27,899 74,729

Reclamation costs incurred (3,372) (920) (4,292)

Change in estimate of reclamation (i) 4,098 3,698 7,796

Accretion expense 389 269 658

Balance, December 31, 2014 $ 54,758 $ 30,946 $ 85,704 Less: current portion (ii) (2,986) (2,075) (5,061)

$ 51,772 $ 28,871 $ 80,643

Estimated costs (undiscounted cash flow basis) $ 62,448 $ 50,413 $ 112,861End of reclamation period 1-20 years Perpetual Discount rate 0.3%-2.5% 2.5% Inflation rate 2.0% 2.0%

a) Site reclamation and remediation

(i) The portions of the change in estimate of reclamation relating to properties which have ceased operating are included in cost of sales in the consolidated statement of operations and comprehensive (loss) income and amounted to $1,968,000 (2013 - $52,000).


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15. Reclamation provision (continued) a) Site reclamation and remediation (continued)

(ii) The current portion represents the amount expected to be incurred by the Company within one

year from the end of December 31, 2014.

(iii) As of December 31, 2014, the Company had $84,820,000 in surety bonds outstanding to secure reclamation obligations.

b) Water treatment obligation The Company has signed certain agreements with environmental and regulatory agencies which require the monitoring and treatment of water in areas where the Company is operating or has operated in the past. The Company has the obligation to fund such water treatment activities and has recorded a provision for the total expected costs of such water treatment.

Water treatment costs incurred are offset against the water treatment provision. At each reporting period, the Company makes a determination of the estimated costs of water treatment using assumptions effective as of the end of the reporting period. The change in estimate within the reporting period is charged to cost of sales, where the underlying water treatment sites have ceased operating, or to property, plant and equipment for all active sites.

Certain factors may cause the expected water treatment costs to vary materially from the estimates included herein, including, but not limited to, changes in water quality and changes in laws and regulations. The estimates used herein represent management’s best estimate as at the end of the reporting period.

(i) The portions of the change in estimate of water treatment obligation relating to properties which have

ceased operating are included in cost of sales in the consolidated statement of operations and comprehensive (loss) income which amounted to $5,336,000 (2013 - $nil).

16. Redeemable Units WCE had 897,265,035 membership units outstanding as at December 31, 2014. A majority of these membership units are owned by WCH which are eliminated upon consolidation of the financial results of the Company. The remaining membership units of WCE are owned by Legacy QKGI which entitle them to a pro rata interest in the net and comprehensive (loss) income and net assets of WCE and are redeemable at the option of Legacy QKGI for cash equal to the product of (i) the number of membership units to be redeemed; and (ii) the 10-day volume weighted average trading price, prior to date of notice of redemption, of the Company’s Common Shares. The Company has the option to satisfy the redemption price for the Redeemable Units with Common Shares on a 1.0 to 1.0 basis (referred to as “Redeemable Units”). The Company is restricted from paying cash to Legacy QKGI for the redemption of Redeemable Units if a balance remains outstanding for the Facility (note 13).

a) Classification of Redeemable Units as Redeemable Unit financial liability Prior to August 19, 2014, specific pro rata tax distributions were required to be made by WCE, subject to the availability of cash as determined by WCH, in good faith, to satisfy the Legacy QKGI and WCH estimated and final tax liabilities relating to their respective interests in WCE for a specific taxation year. The pro rata tax distributions to be paid to Legacy QKGI were recognized in the consolidated balance sheet as tax distributions payable and in the consolidated statement of operations and comprehensive (loss) income as finance expenses. If the final tax liability of Legacy QKGI, related to its pro rata interest in WCE, was in excess of the tax distributions paid by WCE, Legacy QKGI had the right to redeem Redeemable Units consistent with the terms above, and in such cases the Company did not have the right to satisfy the redemption with Common Shares.


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16. Redeemable Units (continued)

a) Classification of Redeemable Units as Redeemable Unit financial liability (continued)

The following illustrates the changes in the number of outstanding Redeemable Units by Legacy QKGI and the Redeemable Unit financial liability:

WCE Membership Redeemable Units owned by Unit financial Legacy QKGI (000's) liability Balance, January 1, 2014 230,158 $ 36,787 Revaluation (i) - 16,716 Redemption (ii) (59,841) (8,132)

Modification of terms of Redeemable Unit (note 16(b)) - (45,371)

Balance, December 31, 2014 170,317 $ -

(i) Prior to August 19, 2014, the Redeemable Unit financial instrument liability was required to be measured at fair value at each reporting period. Revaluation losses amounting to $16,716,000 (2013 - $10,062,000) were included in finance expense in the consolidated statement of operations and comprehensive (loss) income (note 21) representing the change in value up to August 19, 2014 for the year ended December 31, 2014.

(ii) On June 30, 2014, Legacy QKGI completed the redemption of 59,840,982 Redeemable Units. The fair

value of these Redeemable Units was determined to be $8,132,000 (equal to the product of 59,840,982 Redeemable Units; Common Share price on June 30, 2014 of Cdn$0.145; and CAD/USD exchange at 0.9372). Corsa satisfied this redemption through the issuance of 59,840,982 Common Shares.

b) Classification of Redeemable Units as non-controlling interest On August 19, 2014, the terms of the Redeemable Units were modified to eliminate mandatory distributions previously required to be made to the holders of the Redeemable Units. As a result, the Redeemable Units no longer qualify for recognition as a financial liability. The Redeemable Unit financial liability was revalued up to August 19, 2014 with an offsetting charge to net finance expense on the consolidated statements of operations and comprehensive (loss) income. On August 19, 2014, the balance of the Redeemable Units was reclassified from the Redeemable Unit financial liability to non-controlling interest on the consolidated balance sheet.

17. Share Capital a) Share capital

Authorized capital stock of the Company consists of an unlimited number of common voting shares without par value. As at December 31, 2014, the Company had 1,190,770,362 outstanding common shares (December 31, 2013 - 667,107,414). Legacy QKGI also owns 170,316,639 Redeemable Units of Wilson Creek (December 31, 2013 - 230,157,621) entitling them to a 19% minority interest in the net assets, income and expenses of Wilson Creek (note 16).


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17. Share Capital (continued) b) Historical members equity of QKGI

Prior to the Quintana Transaction (note 6), at which point the membership units described below were fully extinguished and no longer exist, the Company had three series of membership units outstanding: Series A Mining Units, Series A Holdings Units, and Series B Units. The Series A and A-1 Mining Units represent the profits and losses of, and the right to receive distributions from the assets of the Company's direct or indirect investment in the consolidated results of QKGI. The Series A and A-1 Holdings Units represent the profits and losses of, and the right to receive distributions from the assets of the Company's investment in KGH. The Series B and B-1 units may be vested or unvested and are subject to certain conditions set forth in the applicable Restricted Unit Agreements.

As at December 31, 2012, 5,225,000 Series A Mining Units, 275,000 Series A-1 Mining Units, 3,257,142 Series A Holding Units, 171,429 Series A-1 Holding Units, 300 Series B Units and 700 Series B-1 Units were authorized and outstanding. The Series A-1 Mining, Series A-1 Holdings and Series B-1 units were repayable on demand and are presented as current liabilities on the consolidated balance sheet at that date. The 700 Series B-1 Units were issued on July 6, 2007 and vested over a period of five years at 25% per year starting on the second anniversary of the grant date and were fully vested by December 31, 2012. All Series B Units became vested on the date of the Quintana Transaction and were extinguished (note 6). All Series A Mining, Series A-1 Mining, Series A Holdings, Series A-1 Holdings, Series B and Series B-1Units were exchanged for general membership interests of QKGI directly before the consummation of the Transaction. At the date of the Quintana Transaction, Corsa then legally acquired the membership interests of QKGI (note 6).The net impact of these transactions resulted in the historical QKGI units being exchanged for membership interests of QKGI which were subsequently acquired by Corsa under the Quintana Transaction. The Company recognized $40,000 of unit based compensation expense during the year ended December 31, 2013 (2014 - nil). The expense was all recognized prior to the consummation of the Quintana Transaction.

18. Revenue Revenue includes amounts realized for metallurgical coal sales from the NAPP Division, thermal coal sales from the CAPP Division and tolling and other revenue from the NAPP Division. Tolling revenue is the fees charged to third parties for processing their coal through the Company’s preparation plants. Revenue consists of the following:

For the year ended December 31, 2014 2013 Metallurgical coal sales $ 74,207 $ 17,521 Thermal coal sales 62,782 84,546 Tolling and other revenue 3,558 - $ 140,547 $ 102,067


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19. Cost of sales Cost of sales consists of the following:

For the year ended December 31, 2014 2013 Mining and processing costs $ 95,304 $ 58,319Purchased coal costs 9,555 8,079 Royalties expense 12,539 8,516 Amortization expense 25,470 10,843 Transportation costs from preparation plant to customer 7,874 2,079Change in estimate in reclamation provision 7,304 53 Write-off of mineral properties (note 10 (b)(c)) 5,309 614 Loss on sale of assets and other costs 750 18 $ 164,105 $ 88,521

20. Stock based compensation The Company has a stock option plan providing for the issuance of stock options to directors, officers, employees and service providers. The number of Common Shares that may be acquired under an option granted to a certain participant is determined by the Company’s Board of Directors and may not exceed 5% of the total number of issued and outstanding Common Shares on the grant date on a non-diluted basis. The exercise price of the options granted shall comply with the requirements of the stock exchange on which the Company’s Common Shares are listed. The maximum term of any option may not exceed five years. Generally, options vest over three years, however, options have historically been granted with vesting periods up to four years. At December 31, 2014, there were 37,481,000 stock options (December 31, 2013 – 25,934,000) available for grant under the stock option plan. The changes in issued and outstanding stock options during the year ended December 31, 2014 are as follows:

As at December 31, 2014 As at December 31, 2013

Number of Weighted Average Number of Weighted Average Stock options Exercise Price Stock options Exercise Price

(000’s) (Cdn$) (000’s) (Cdn$)

Balance, January 1 40,776 $ 0.30 - $ -Corsa stock options deemed

to be replaced by QKGI under the Quintana Transaction (i) - - 17,476 0.48

Granted to directors, officers and employees (i) (iii) (iv) 41,645 0.22 24,250 0.17

Forfeiture of options (825) 0.24 (950) 0.39 Balance, December 31 81,596 $ 0.26 40,776 $ 0.30


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20. Stock based compensation (continued)

(i) The stock options of Corsa outstanding at the date of the Transaction were deemed to be replaced by QKGI at the date of the Quintana Transaction (note 6). These options were valued using a Black Scholes pricing model at the date of the Transaction using the following valuation assumptions:

Expected life in years: 1 to 3 Exercise price: Cdn$0.25 to $1.07 Risk-free interest rate: 0.11% to 0.71% Share price: Cdn$0.12 Expected volatility: 115.47% to 141.70% Dividend yield: 0.0% Forfeiture rate: 4.0%

(ii) 24,250,000 stock options were granted on October 23, 2013 to directors, officers and employees of the

Company. These options were valued using a Black Scholes pricing model at the date granted using the following valuation assumptions:

Expected life in years: 2 to 4

Exercise price: Cdn$0.17 Risk-free interest rate: 0.31% to 0.95% Share price: Cdn$0.13 Expected volatility: 112% to 123% Dividend yield: 0.0% Forfeiture rate: 4.0%

(iii) 18,200,000 stock options were granted on August 19, 2014 to directors, officers and employees of the Company. These options were valued using a Black Scholes pricing model at the date granted using the following valuation assumptions:



(iv) 23,445,000 stock options were granted on December 3, 2014 to directors, officers and employees of the

Company. These options were valued using a Black Scholes pricing model at the date granted using the following valuation assumptions:




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20. Stock based compensation (continued) The risk-free interest rate used is the United States Treasury Yield Curve Rate for the time period relating to the expected life of the options granted. The expected volatility is based on historic market data for the Company using a look back period equivalent to the expected life of the options granted. The estimated forfeiture rate is based on the historical forfeiture rate. The weighted average fair value per option for the options issued during the year ended December 31, 2014 was Cdn$0.14. The following tables summarize information about the stock options outstanding and exercisable at December 31, 2014: Options outstanding:

Weighted

average Weighted

remaining average

Exercise Stock options contractual exercise

prices outstanding life price

(Cdn$) (000’s) (years) (Cdn$)

0.17 to 0.24 46,995 4.36 0.17

0.25 to 0.41 23,400 4.10 0.27

0.42 to 0.53 2,775 1.45 0.51

0.54 to 0.80 7,421 0.86 0.55

0.81 to 1.07 1,005 1.33 1.06

0.17 to 1.07 81,596 3.83 $ 0.26

Options exercisable:

Weighted

average

Exercise Stock options exercise

price exercisable price

(Cdn$) (000’s) (Cdn$)

0.17 to 0.24 7,850 0.17

0.25 to 0.41 3,967 0.25

0.42 to 0.53 2,417 0.51

0.54 to 0.80 7,422 0.55

0.81 to 1.07 1,005 1.06

0.17 to 1.07 22,661 0.38

During the year ended December 31, 2014, the Company recorded stock based compensation expense on the outstanding stock options to corporate and administrative expenses of $1,772,000 (2013 – $259,000) and stock options forfeitures of $18,000 (2013 – $12,000) to retained earnings.


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21. Net finance expense Net finance expenses of the Company included in the consolidated statement of operations and comprehensive (loss) income are summarized below.

For the year ended December 31, Note 2014 2013 Redeemable Units 16 (a)(i) $ (16,716) $ (10,062)Tax distribution - (353)Warrant financial liability 13(b) 2,862 -Discount on loan payable 13(b) (368) -Unit repayable on demand 6(c) - 417 Bond premium expenses (627) -Interest expense (1,532) (423)Interest and other income 789 32 Foreign exchange loss (81) (46)Accretion on reclamation provision (658) (381)Other (96) (17) $ (16,427) $ (10,833)

22. Earnings per share Basic and diluted earnings (loss) per common share are summarized as follows: For the year ended December 31, 2014 2013 Basic (loss) earnings attributable to common shareholders $ (54,477) $ 50,647

Net finance income on Warrant financial liability (note 21) (2,862) -

Diluted (loss) earnings $ (57,339) $ 50,647

Basic weighted average number of Common Shares outstanding 867,553 499,052 Effect of Warrant financial liability 4,435 - Diluted weighted average number of Common Shares 871,988 499,052

Basic (loss) earnings per share $ (0.06) $ 0.10 Diluted (loss) earnings per share $ (0.07) $ 0.10 There were no other instruments, including stock options, which would result in the issuance of common shares whose effect would be dilutive on earnings per share.


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23. Income taxes

(a) Rate reconciliation Major items causing the Company’s income tax rate to differ from the combined federal and provincial statutory rate of 26.5% (2013 – 26.5%) were as follows: For the year ended December 31, 2014 2013 Net income (loss) before income taxes $ (53,160) $ 54,287 Expected income tax expense (recovery) based on statutory tax rate (14,087) 14,397 Increase (decrease) resulting from:

Non-taxable bargain purchase gain (i) - (15,907) Impact of changes in tax rates (ii) - 3,822 Resource allowance and depletion (589) (1,657) Impact of taxable income passed through to former owners of QKGI (iii) - (966) Impact of taxable income passed through to Legacy QKGI (iv) 374 (272) Unrecognized future tax benefits 15,964 - Revaluation loss on redeemable units 4,430 2,760 Accounting expenses disallowed for tax 1,171 1,012 Accounting Income not subject to tax - (168) Foreign tax rate differential (5,236) 541 Others (373) 78 Income tax expense (recovery) $ 1,654 $ 3,640

Effective tax rate (3.1%) 6.7%

(i) The net income of the Company includes a bargain purchase gain related to the Quintana

Transaction (note 6). The bargain purchase gain is not taxable to the Company or any of its subsidiaries.

(ii) In the year ended December 31, 2013, the effective income tax rate of Kopper Glo Mining, LLC increased from 6.5% to 40.4% as a result of the Quintana Transaction. As such, the net deferred tax liability balance of Kopper Glo Mining, LLC in existence prior to the Quintana Transaction increased by approximately $3,822,000.

(iii) Prior to the Quintana Transaction, QKGI was a limited liability company formed under Delaware’s state statutes and was taxed as a partnership for USA federal and state tax purposes. As such, the taxable income of QKGI was passed through to its members. Certain US subsidiaries of QKGI were corporate entities that were subject to USA federal and state tax. The tax provision for QKGI prior to the Quintana Transaction related to those taxable subsidiaries. The effect on the consolidated tax provision of the taxable income passed through to the members of QKGI for the period January 1 to July 31, 2013 amounted to $966,000.


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23. Income taxes (continued)

(a) Rate reconciliation (continued)

(iv) Subsequent to the Quintana Transaction, QKGI and its subsidiaries were consolidated and became a subsidiary of WCE. As such, QKGI’s taxable income is no longer passed through to its former members. Instead, QKGI’s taxable income is included in the return of WCE. WCE is a limited liability company and is treated as a partnership for USA federal and state tax purposes. Therefore, the taxable income and loss of WCE is passed through to its two partners WCH and Legacy QKGI in proportion to their respective percentage interest in WCE. The current tax expense recognized in the consolidated financial statements includes only the income tax expense of WCH on its share of the taxable income or losses passed through from WCE. The effect on the consolidated tax provision of the taxable income (loss) passed through to Legacy QKGI amounted to an increase of $374,000 for the year ended December 31, 2014 (period from August 1 to December 31, 2013 - decrease of $272,000). The estimated tax liability of Legacy QKGI related to its share of the taxable income passed through from Wilson Creek was recognized in the consolidated financial statements as a tax distribution payable.

(b) Income tax receivable (payable)

The Company had income tax payable amounting to $486,000 as at December 31, 2014 (2013 - $Nil) which is included in accounts payable and accrued liabilities, and income tax receivable of $125,000 (2013 - $214,000) which is included in amounts receivable.


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(c) Deferred tax assets and liabilities

The tax effects of temporary differences that give rise to deferred tax assets and liabilities as at December 31, 2014 and 2013 are as follows: As at December 31, 2014 2013 Deferred tax assets Property plant and equipment $ 42,848 $ - Assets retirement obligation 22,158 2,857 Water treatment reserves 13,221 - Intercompany interest expense 7,215 4,352 Accrued expenses 3,130 - Reserves for bad debts 1,483 - Acquisition costs 935 1,243 Finance expenses - 246 Loss carry forwards and unused tax credits (i) 35,461 17,173 Other deferred tax assets 604 336 Gross deferred income tax assets 127,055 26,207 Unrecognized tax benefit related to tax losses (84,243) -Total deferred income tax assets 42,812 26,207

Deferred tax liabilities: Coal reserves (35,981) (5,772) Mine development costs (5,769) (3,928) Capital assets (1) (14,901) Unrealized foreign exchange gain (325) (325) Finance expenses (248) - Other deferred tax liabilities (384) - (42,708) (24,926)Net deferred tax assets (liabilities) (ii) $ 104 $ 1,281

(i) As at December 31, 2014 the Company has no Canadian non-capital losses (2013 - $1,200,000) and

United States non-capital losses of $88,000,000 (2013 - $41,800,000) expiring between 2030 and 2034 for which no deferred income tax assets had been recognized.

(ii) Deferred tax assets and liabilities have been offset where they relate to income taxes levied by the same taxation authority and the Company has the legal right and intent to offset.


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(c) Deferred tax assets and liabilities

The movement of net deferred tax assets and amount of deferred tax expense is summarized as follows:

As at December 31,

2014 2013 Balance, beginning of year $ 1,281 $ (7,861) Recognized in net income (loss) as deferred tax expense due to reversal of temporary differences (596) 2,105 Recognized in net income (loss) as deferred tax expense

due to de-recognition of the deferred tax assets that were recognized in previous period (581) -

Recognized in net income (loss) as deferred tax expense from the change in tax rate of QKGI as a result of the Transaction (note 6) - (3,821) Acquired under the Quintana Transaction (note 6) - 10,858 Balance, end of year $ 104 $ 1,281

24. Supplemental cash flow information

For the year ended December 31, 2014 2013 Change in working capital balances related to operations: Amounts receivable $ (5,894) $ 3,761 Prepaid expenses and other (1,746) 519 Inventories 4,356 2,358 Accounts payable and accrued liabilities (9,235) (653) $ (12,519) $ 5,985

Cash paid for interest $ 609 $ 489

Cash paid (received) for income taxes $ (89) $ 1,334


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25. Related party transactions Related party transactions include any transactions with employees, other than amounts earned as a result of their employment, transactions with companies that employees or directors either control or have significant influence over and transactions with companies who are under common control with the Company’s controlling shareholder, QEP. Transactions with related parties included in the statement of operations and comprehensive (loss) income of the Company are summarized below:

For the year ended

December 31,

2014 2013

Royalties (i) $ 4,047 $ 5,090

Mining equipment lease (ii) 911 967

Management fee (iii) - 175

Supplies purchase (iv) 247 -

$ 5,763 $ 6,232

(i) During the year ended December 31, 2014, the Company paid royalties to related parties who are

commonly controlled by QEP in the amount of $4,047,000 (2013 - $5,090,000) for coal extracted from mineral properties where the surface or mineral rights of the specific property are leased by the Company and owned by the related party.

(ii) During the year ended December 31, 2014, the Company also made lease payments to related parties

controlled by an officer of the Company for use of mining equipment owned by the related party amounting to $911,000 (2013 – $967,000). These amounts were included in cost of sales in the statement of operations and comprehensive (loss) income.

(iii) During the year ended December 31, 2013, the Company paid a management fee of $175,000 to an

affiliated entity related through common ownership. On July 31, 2013, the agreement requiring the management fee was terminated. These amounts were included in cost of sales on the statement of operations and comprehensive (loss) income.

(iv) During the year ended December 31, 2014, the Company purchased from related parties, who are

significantly influenced by a key management personnel of QEP, supplies used in coal separation process amounting to $247,000 (2013 – nil). These amounts were included in cost of sales in the statement of operations and comprehensive (loss) income.

As of December 31, 2014, the Company had a note receivable totaling $120,000 (December 31, 2013 - $116,000) from an employee of the Company. Included in accounts payable and accrued liabilities at December 31, 2014 is $690,000 (December 31, 2013 - $555,000) due to related parties, as a result of the transactions noted above, who are employees, directors and companies either controlled or significantly influenced by QEP. These amounts are unsecured and non-interest bearing


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26. Key management personnel Key management personnel are comprised of senior management and executives of the Company. The following is a summary of compensation awarded to key management personnel for the periods presented.

For the year ended

December 31,

2014 2013

Salaries and short-term benefits $ 1,138 $ 1,182

Post-employment benefits 50 18

Share-based payments 924 173

$ 2,112 $ 1,373


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27. Segment disclosures Management has identified its operating segments based on geographical location and product offerings. Management has identified three distinct operating segments which require separate disclosures under IFRS 8 – Operating Segments. All three segments below are reported on the same basis as the internal reporting of the Company using accounting policies consistent with the annual consolidated financial statements. NAPP is a distinct operating segment based on its metallurgical coal operations and location in the USA along the Northern Appalachia coal belt. CAPP is a distinct operating segment based on its thermal coal operations and location in the USA along the Southern Appalachia coal belt. The Company’s corporate office provides support and manages the mining investments. Management analyzes the operations of each segment noted above on a standalone basis for key decisions related to such operations. The amounts charged for transactions between reportable segments were measured at the exchange value, which represented the amount of consideration established and agreed to by the reportable segments. The required disclosures for the operating segments for the year ended December 31, 2014 are presented below.

As at and for the year ended December 31, 2014

NAPP CAPP Corporate Total Total assets $ 312,184 $ 49,210 $ 2,560 $ 363,954

Total liabilities $ 132,653 11,621 $ 24,284 $ 168,558 Revenues $ 77,765 $ 62,782 $ - $ 140,547 Cost of sales (104,366) (59,739) - (164,105)

Gross margin $ (26,601) $ 3,043 $ - $ (23,558) Corporate and administrative expenses (4,464) (1,522) (5,106) (11,092)

(Loss) income from operations $ (31,065) $ 1,521 $ (5,106) $ (34,650)

Finance (expense) income (917) (324) (15,186) (16,427)Transaction expenses - - (2,083) (2,083)

$ (917) $ (324) $ (17,269) $ (18,510)(Loss) income for the year before tax $ (31,982) $ 1,197 $ (22,375) $ (53,160)

Current income tax expense - - 477 477 Deferred income tax expense - - 1,177 1,177 $ - $ - $ 1,654 $ 1,654 Net and comprehensive (loss)

income for the year $ (31,982) $ 1,197 $ (24,029) $ (54,814)


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27. Segment disclosures (continued)

For the year ended December 31, 2013 NAPP CAPP Corporate Total Revenues $ 17,521 $ 84,546 $ - $ 102,067 Cost of sales (19,352) (69,169) - (88,521)

Gross margin $ (1,831) $ 15,377 $ - $ 13,546 Corporate and administrative expenses (1,199) (2,763) (1,830) (5,792)

Income (loss) from operations $ (3,030) $ 12,614 $ (1,770) $ 7,754

Finance (expense) income (504) (231) (10,098) (10,833)Transaction expenses - - (2,660) (2,660)Bargain purchase gain - - 60,026 60,026

$ (504) $ (231) $ 47,268 $ 46,533 (Loss) Income for the year before tax $ (3,534) $ 12,383 $ 45,438 $ 54,287

Current income tax expense - - 1,924 1,924 Deferred income tax expense - - 1,716 1,716 $ - $ - $ 3,640 $ 3,640

Net (loss) income for the year $ (3,534) $ 12,383 $ 41,798 $ 50,647

All of the Company’s mining properties are located in the USA. The following geographic data includes revenues, net income (loss), non-current assets and total assets:

For the year ended December 31, 2014 For the year ended December 31, 2013

USA Canada Total USA Canada Total

Revenue $ 140,547 $ - $ 140,547 $ 102,067 $ - $ 102,067

Net (loss) income $ (30,785) $ (24,029) $ (54,814) $ 8,849 $ 41,798 $ 50,647

As at December 31, 2014 As at December 31, 2013

USA Canada Total USA Canada Total

Non-current assets $ 298,316 $ 167 $ 298,483 $ 172,428 $ 24 $ 172,452

Total assets $ 361,394 $ 2,560 $ 363,954 $ 196,238 $ 5,137 $ 201,375

The CAPP Division had two customers which accounted for 72% and 10%, respectively, of total CAPP coal revenue for the year ended December 31, 2014 (2013 – one customer accounting for 80%). The NAPP Division had three customers which accounted for 32%, 29% and 19%, respectively, of total NAPP coal revenue for the year ended December 31, 2014 (2013 – three customers accounting for 48%, 30% and 12%).


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28. Subsequent Events

a) Stock option grant On February 16, 2015, the Company granted stock options to purchase a total of 2,400,000 Common Shares. The options will vest equally over a three year period and were valued using the Black Scholes option pricing model at the date of the grant using the following assumptions:



b) Amendment to note payable On March 18, 2015, the Company amended its existing note payable with Miljohn Capital Partners, L.P (note 11) by extending the payments of principal and interest. All other terms and conditions remain the same. Prior to the amendment, remaining payments of $1,000,000 were due on April 5, 2015 and 2016. Subsequent to the amendment, a $600,000 payment is due on April 5, 2015 and nineteen monthly payments of $101,000 are due beginning on October 5, 2015.

29. Reclassifications

The Company has reclassified general and administrative expenses relating to divisional administration to corporate and administrative expenses to conform to industry standard. These costs were previously reported as part of cost of sales in the consolidated statement of operations and comprehensive (loss) income. The reclassifications resulted in a reduction in cost of sales amounting to $3,921,000 for the year ended December 31, 2014 (2013 - $3,964,000) and an offsetting increase in corporate and administrative expenses. This reclassification did not materially affect the consolidated balance sheet and did not affect earnings (loss) per share.

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