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FORTUNEMINERALS LIMITED

ANNUAL REPORT

2007

2 I FORTUNE MINERALS LIMITED

2007

CORPORATE PROFILE

4 2007 and Recent Corporate Highlights8 Report to Shareholders

OPERATIONS REVIEW12 NICO Cobalt-Gold-Bismuth Project22 Mount Klappan Anthracite Coal Project34 Sue-Dianne Copper-Silver-Gold Project

FINANCIAL REVIEW36 Management’s Discussion and Analysis of

Financial Conditions and Results of Operations50 Management’s Responsibility for Financial Reporting51 Auditor’s Report52 Consolidated Financial Statements

66 Directors, Officers and Corporate Information

Fortune Minerals Limited (TSX: FT) is focussed on the assembly and development of highquality mineral resource projects with the potential to generate strong returns for its share-holders. Fortune currently has interests in three advanced stage projects with productionplanned for two of these projects by the end of the decade, as well as several explorationprojects, all located in Canada.

The Company is proceeding with environmental assessment and mine permitting activitiesfor its NICO cobalt-gold-bismuth deposit near Yellowknife,Northwest Territories,based uponthe positive findings of its independent bankable feasibility study. This study concluded thatthe project shows attractive economics at base case metal price assumptions and very attrac-tive economics at the much higher prices of current commodities markets.

The Company’s world class Mount Klappan anthracite coal project, located near deep-waterport facilities in northwest British Columbia, is in the permitting process after receipt of anindependent positive bankable feasibility study. Metallurgical coal is also being traded atrecord high prices that are substantially higher than those used in the independent feasibil-ity study.

Fortune’s third key project, its Sue-Dianne copper-silver deposit, is located only 25 kilome-tres north of NICO and is a potential future source of mill feed for the process plant plannedfor NICO.

ANNUAL MEETING

The Annual and Special Meeting of Shareholders will be held at The Fairmont Royal YorkHotel,York Room (Mezzanine Level), 100 Front Street West,Toronto,Ontario,M5J 1E3,on the27th day of May, 2008, at 4:30 pm.

For those persons unable to attend, a second, informal meeting for informational purposeswill be held at The London Club, 177 Queens Avenue, London, Ontario, N6A 1J1, on the 28thday of May, 2008, at 4:30 pm.

CONTENTS

2007

ANNUAL REPORT I 3

FORTUNE PROPERTY INTERESTS

Property Commodity Sought1 Hectares Fortune Interest

Mount Klappan Anthracite Coal 15,866 100%2

NICO Co,Au, Bi, Cu 5,140 100%Sue-Dianne Cu,Ag,Au 451 100%2

Salkeld Lake Cu, Zn, Pb,Au,Ag 116 100%2

Camsell River Ag 78 100%2

Great Slave Cu,Au,Ag 2,069 100%

1 Au = gold, Co = cobalt, Bi = bismuth, Cu = copper,Ag = silver, Zn = zinc, Pb = lead.2 Subject to third party royalties.

1. MOUNT KLAPPAN ANTHRACITECOAL DEPOSITS British Columbia

2. NICO COBALT-GOLD-BISMUTHDEPOSIT Northwest Territories

3. HEMLO PLANT Ontario

4. SUE-DIANNECOPPER-SILVER-GOLD DEPOSITNorthwest Territories

5. SALKELD LAKE COPPER-ZINCLEAD-GOLD-SILVER PROJECTNorthwest Territories

6. CAMSELL RIVER SILVER PROJECT Northwest Territories

7. GREAT SLAVE COPPER-GOLD-SILVERPROJECT Northwest Territories

2007


CORPORATE ACCOMPLISHMENTS

• Increased the Company’s interest in the NICO project from 90% to 100%.

• Commenced the dismantling of the Golden Giant Mine buildings and surface facilities near Hemlo, Ontario for their relocationto NICO.

• Initiated salvage and sale of surplus equipment, recoverable gold, silver, copper, aluminum, stainless and structural steels and otherhigh value materials.

• Conducted a second $10-million underground bulk sample program to verify NICO grades, assess mining conditions, and collect 200tonnes of ore for large-scale pilot plant testing.

• Proceeding with environmental assessment and permitting activities for the planned NICO mine.

• The Federal, Northwest Territories and Tlicho governments, together with private industry committed $1 million for environmentaland engineering studies to improve road access to the NICO project and nearby communities.

• Commenced a $4-million pilot plant leading to improved recoveries from flotation for all metals at NICO.

• Rising demand and constrained supply helped push metal prices higher, which at April 2008 were: US$52/pound of cobalt,US$925/ounce of gold and US$16/pound of bismuth.

• Conducted further fieldwork, environmental baseline studies, and engineering for the proposed Mount Klappan anthracite coal mineand its access corridors in support of the environmental assessment and permitting processes.

• Received input from First Nations, the general public, and various government agencies regarding the Terms of Reference documentdefining the scope of work required for the environmental assessment application for Mount Klappan.

• Examined infrastructure enhancements, which could improve the already robust economic future of the coal project.

• A positive prefeasibility study assessed the possible supply of thermal coal fuel from the mine for power generation.

• The Alaska - Canada Rail Link Feasibility Study, jointly funded by the State of Alaska and Yukon Territory, recommended a railwayconnection from northern British Columbia to Alaska that would run past Mount Klappan. The study also recommended a short-cutto the Port of Prince Rupert that would dramatically reduce the rail haulage distance from Mount Klappan to the port from1,400 kilometres to just over 600 kilometres, materially reducing transportation costs.

• Anthracite markets continued to tighten as the two largest producing nations reduced exports in favour of domestic consumption.Coal prices, which have escalated to approximately US$250/tonne for ultra-low volatile PCI and more than US$300/tonne for premiumcharge carbon products, are expected to remain at high levels for the foreseeable future.

CAPITAL STOCK & FINANCIAL POSITION:

• At year-end, Fortune had working capital of $22.7 million, no debt and total assets of $90.4 million.

• As at April 2008, Fortune had 50,100,107 shares outstanding; 57,888,107 shares fully diluted.

2007 AND RECENT CORPORATE HIGHLIGHTS

20072006200520042003

90

75

60

45

30

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2006Q4

2007Q1

2007Q2

2007Q3

2007Q4

2008Q1

6.00

5.00

4.00

3.00

2.00

1.00

0

SHAR

E PR

ICE

CD

N$

2007

ANNUAL REPORT I 5

ABOVE: 2007 tour of NICO underground test mining. From left to

right: Luciano Azzolini (Consultant to the Tlicho Lands Protection

Department), Julian Kemp (CFO), Leon Lafferty (Bechoko Chief),

Carl Clouter (Director), Mike Samuels (Manager Process

Development), Eddie Erasmus (Director, Tlicho Lands Protection

Department), Kathryn Neale (Exploration Manager) and Richard

Gardiner (Driller, Ke Te Whii / Procon Joint Venture).

LEFT: Fortune’s Golden Giant Mine headframe and

administration complex near Hemlo, Ontario.

2007


CORPORATE OBJECTIVES FOR 2008

ADVANCE NICO PROJECT:

• Complete $4-million pilot plant at SGS Lakefield Research toconfirm the operating parameters in the proposed processplant, proving operations for the downstream processing ofcobalt, gold and bismuth to high value metal products.

• Complete engineering and preparations for relocating theGolden Giant Mine buildings, milling equipment, surfacefacilities and inventory to NICO, including sale of excessinventory, high value materials and equipment.

• Conduct Tlicho land use public consultation meetings andnegotiate Access and Impacts and Benefits agreements.

• Conduct environmental assessment proceedings leadingto decisions by the Wek’ èezhi’i Land and Water Board andDepartment of Indian Affairs and Northern Developmentfor mine development.

• Conduct front-end engineering and design portions of detailedengineering for the proposed mine and plant; tender contractsfor the order of equipment requiring long-lead times.

• Conduct definitive financing negotiations regardingalternatives to fund construction of the proposed NICO mine.

ADVANCE MOUNT KLAPPAN PROJECT:

• Advance development of the proposed 3 million tonne perannum Lost-Fox anthracite mine at Mount Klappan throughenvironmental assessment and permitting activities.

• Continue to review strategic options for Mount Klappan,including ongoing discussions with potential joint-ventureand/or investment partners.

• Complete assessment of transportation alternatives, includingslurry pipeline and enhanced trucking options for deliveringcoal products to deep-water port.

• Conduct consultation and advance negotiations with theTahltan and other impacted First Nations particularly regardingenvironmental assessment and Impacts and Benefitsagreements.

GENERAL CORPORATE:

• Continue to build management and staff roster forconstruction, management and operation of the mineswe propose to develop.

• Build relationships with financial institutions and investmentbankers to continue advancing the Company in the investmentcommunity.

2007 AND RECENT CORPORATE HIGHLIGHTS

MANAGEMENT APPOINTMENTS

Added new operational strength to the managementteam with the appointments of:

1. Jim Currie, B.Sc. (Hons), P.Eng.Vice President Operations

2. Mike Samuels, B.Eng.Process Development Manager

3. Nicole Hayduk, LL.B., H.B.A.Contracts Administration Manager

4. Richard Schryer, M.Sc., Ph.D.Manager of Regulatory Affairs

5. Adam Jean, H.B.A., C.A.Controller

6. Pat Moloney, B.Sc., B.Ed.Manager Human Resources

7. Andre Tricoteux, B. Professional ArtsProcurement and Logistics Manager

2007

ANNUAL REPORT I 7

1. 2. 3.

5. 6. 7.

4.

BELOW: Fortune’s outside

hydrometallurgical consulting team

from left to right: Mike Ashbury

(SGS Lakefield), Joe Ferron

(Consultant), Alex Mezei and Marlon

Canizares (SGS Lakefield), Al

Hayden (Consultant), Eliza Ngai and

Debbie Marshall (Aker Kvaerner).

2007


REPORT TO SHAREHOLDERS

While the global resources sector had its share of rewards andchallenges in 2007, Fortune Minerals Limited has aggressivelycontinued to advance its two key projects towards targeted productionnear the decade’s end. At Fortune’s now 100%-owned NICO cobalt-gold-bismuth project in the Northwest Territories, the Company hasachieved several important goals, further demonstrating the robusteconomics and viability of this in-house discovery. At the same time,wecontinue to look to optimize our wholly-owned Mount Klappan coalproject in northwest British Columbia – one of the largest, premium,anthracite coal resources on the planet. Still, the road to productionhas been long and challenging,particularly given the volatility of finan-cial and commodity markets. Regardless, Fortune remains focused,determined and strong, confident in our exceptional assets – bothhuman and mineral – and our firm commitment to becoming a leadingCanadian mining company.

Entering 2008, the evidence is everywhere that Fortune is operatingin a world increasingly hungry for the natural resources that representa vital part of Canada’s great heritage. Even as we drive towardsproduction at NICO and Mount Klappan, the global demand andmarket prices for the key commodities contained in our depositscontinue to trend higher, widely achieving near record and evenunprecedented levels.

Our NICO development project contains a significant, near-surfacedeposit with 21.8 million tonnes of reserves containing 760,000ounces of gold, 61 million pounds of cobalt, and 77 million pounds ofbismuth, all within an even larger total resource.While the gold pricerecently broke US$1,000/ounce making NICO a considerable goldasset, its prominent value is in cobalt, a metal in increasing globaldemand for high strength steel alloys and chemicals used to makerechargeable batteries and catalysts. Cobalt, which is predicted todouble in consumption over the next few years, is currently selling inexcess of US$50/pound, compared with the US$16.50/pound used inthe 2007 definitive feasibility study for the NICO development. As oneof the largest deposits of bismuth in the world, NICO also represents aunique source of supply for an environmentally-friendly, non-toxicreplacement for lead. Market prices for bismuth have strengtheneddue to the approximate 15% annual rise in consumption to a currentprice of about US$16/pound as compared with the US$4.50/poundused in our feasibility study. Based upon the current prices of thesemetals, the NICO reserves contain 5.6 million equivalent ounces ofgold and 3.2 million equivalent ounces using feasibility study base casemetal price assumptions, providing an indisputable measure of signifi-cant value in this unique deposit.

At the same time, our Mount Klappan project in northern BritishColumbia, which contains more than 2.8 billion tonnes of high rank,premium anthracite coal in four deposits, also reflects exceptionalvalue. Today, in the wake of sharply higher prices for all coals,particularly metallurgical, this project alone is worth many times theCompany’s current market capitalization. Notably, ultra-low volatilepulverized coal injection (PCI) coal for the steel industry, the principalproduct we plan to produce at Klappan, has escalated to aboutUS$250/tonne,and premium anthracite charge carbon reductants haveappreciated to more than US$300/tonne, both up by more than 200%over last year’s prices, and a trend upon which the investment commu-nity is beginning to take note.

It is also worth remarking that Fortune’s third key project, the Sue-Dianne copper-silver deposit, located only 25 kilometres north ofNICO, has resources of just over 10 million tonnes containing 177million pounds of copper, 977,000 ounces of silver and 23,000ounces of gold. Again, copper and silver have escalated in value andwere recently selling at US$4/pound and US$18/ounce, respectively.

While the very high market prices being paid for virtually all ofthe commodities found at NICO, Mount Klappan and Sue-Dianne,may not be sustained over the long-term, many forecasters expectthat worldwide demand is likely to remain strong, supporting pricesthat are well above historical averages.Such market dynamics providea firm foundation for a substantial multiple of Fortune’s current shareprice and investment potential.

Corporately in 2007, Fortune increased its interest in NICO from90% to 100%, and as part of the same transaction, sold its non-coreFormosa industrial minerals project.The Company also closed a publicoffering of 9,550,000 units at $3.00 per unit for aggregate grossproceeds of $28,650,000, which included the issuance of 1,200,000units pursuant to the full exercise of the agents’ over-allotment option.The net proceeds of this offering are being used principally to fundthe further exploration, engineering and development of NICO; forenvironmental work, engineering and permitting activities at MountKlappan; and, for additional working capital to be used for generalcorporate purposes.

2007

ANNUAL REPORT I 9

Robin E. GoadPresident and CEO

George M. DoumetChairman

Since reporting to you a year ago, we have made several additionalimportant management appointments of highly experienced individualsto oversee critical areas of the Company’s operations.They include therecent appointment of James Currie to the position of Vice PresidentOperations to drive key engineering and development aspects for ourtwo proposed mine developments. Other notable appointments include:Michael Samuels – Process Development Manager; Andre Tricoteux –Procurement and Logistics Manager; Patrick Moloney – Manager ofHuman Resources; Dr. Richard Schryer, Manager of Regulatory Affairs;Nicole Hayduk – Contracts Administration Manager; and, Adam Jean– Controller. These well qualified professionals clearly reflect ourcommitment to continuing to fortify Fortune’s management team tohelp ensure we meet our development objectives. >

FORTUNE REMAINS FOCUSED,

DETERMINED AND STRONG, CONFIDENT

IN OUR EXCEPTIONAL ASSETS – BOTH HUMAN

AND MINERAL – AND OUR FIRM COMMITMENT

TO BECOMING A LEADING CANADIAN

MINING COMPANY.

2008Q1

2007200620052004

300

250

200

150

100

50

0

AVER

AGE

COAL

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CES

US$

/ton

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1.20

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2007


Early in 2007, Fortune received the long awaited positive results of itsfull bankable feasibility study for the proposed NICO development that was ledby Micon International Limited (Micon) and supported by several other engi-neering and metallurgical consultants. This assessment concluded that NICOshows attractive economics at conservative “base case” metal price assumptionsusing the two-year average prices of the contained metals in 2005 and 2006, andvery attractive economics at recent prices.As a result of the improved metallur-gical response achieved from flotation in the recent pilot plant test, Micon wasretained to provide a memorandum updating the economics for the NICO devel-opment using a variety of updated metal price sensitivities, current exchangerates,and reflecting the improved recoveries for flotation.Notably,at metal pricesof US$750 to $900/ounce of gold, US$20 to $50/pound of cobalt and US$10 to$16/pound of bismuth, the project generates, on a pre-tax basis, internal rates ofreturn (IRR) that range from 32.3% to 97.2% and 8% discounted net present val-ues (NPV) of $360.7 million to $1.5 billion. However, it should be noted thatthese updated economic sensitivities do not take into account any escalation inoperating or capital costs since the 2007 feasibility study was completed. Basedupon the positive findings in the definitive feasibility study as well as otherachievements, the Company announced plans to proceed with an environmen-tal assessment and permitting for the mine.This is being done in conjunctionwith a number of infrastructure initiatives, including collaboration with govern-ments on planned improvements to critical road access to the proposed mineand isolated Tlicho aboriginal communities.The Company is also pursuing a pow-erline connection to the electrical grid at the Snare hydro complex, 22 kilome-tres to the east of the mine.

The year also included a second $10-million program of underground testmining at NICO to assess the mining conditions and continuity of grade in thegold-rich, higher-grade, lower parts of the deposit, approximately 200 metresbeneath the surface.An “Alimak” raise was also driven to surface to provide ven-tilation for the underground workings and an emergency access. Although theobjective of this and other extensive underground work has been primarily forexploration purposes, most of the pre-production development for the under-ground part of the mine has now been completed as an added result.

Approximately 200 tonnes of ore mined during Phase 1 and 2 of the test min-ing program at NICO were shipped to SGS Lakefield Research Limited inLakefield, Ontario and blended to produce samples indicative of the ores theCompany expects to process during commercial operations at the proposedmine.This ore is being used in a six-month, large-scale, pilot plant test of the dif-ferent parts of the NICO process flow sheet, including crushing, grinding andflotation, as well as bismuth, cobalt and gold hydrometallurgical processing tohigh value metal end-products.The results of the flotation parts of the NICO pilotplant significantly improved predicted recoveries for all three metals, which hasindicated a very material improvement to the project’s economics. Thehydrometallurgical components of the pilot plant are expected to be completedMay 2008.

The Company is also moving ahead with preparations for the relocation toNICO of the Golden Giant Mine buildings, equipment and spare parts inventoryat Hemlo, Ontario, that were purchased in 2006 and 2008 for $3.3 million fromNewmont Canada Ltd.This purchase was made to materially reduce projected

REPORT TO SHAREHOLDERS

2008Q1

2007200620052004

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875

700

525

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175

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UTH

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COBALT

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METALLURGICAL COAL

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2007

ANNUAL REPORT I 11

capital costs for the NICO project, but since acquiring the assets, theCompany has identified a wide range of recoverable metals, other highvalue materials, and surplus equipment that are being sold to generate asignificant source of income from the asset.

Meanwhile, Fortune achieved several advances at its wholly-ownedanthracite coal project at Mount Klappan in northwest British Columbiaduring the year in line with the Company’s dual-track efforts to advancethe project while also examining opportunities to bring in a significantpartner to help develop this asset. Fortune is involved in discussionswith several large international organizations interested in pursuingsome form of joint-partnership to develop our world class project.Mount Klappan is capable of producing a range of high value coal prod-ucts for global markets making the project a compelling investment forcompanies determined to find new sources of supply.

The Mount Klappan deposits straddle the B.C. Rail right-of-way andthe railway roadbed provides road access to Highway 37 and the portof Stewart. Track has also been installed to within 100 kilometres southof the proposed mine, providing a potential future rail link to the Portof Prince Rupert. While Fortune continued to complete engineeringand environmental surveys of the proposed mine, studies were alsoconducted to examine a number of alternatives to improve transporta-tion of coal products from the site to the ports. This included animproved truck haulage option to Stewart by utilizing large haul truckson the proposed short-cut road to be built between the site and a trans-fer facility to be located near Bell II together with the use of larger high-way compliant trucks between this transfer facility and Stewart. Thesetrucks would be larger than were contemplated by Marston CanadaLtd. (Marston) in their 2005 full bankable feasibility study for Klappan.In addition, a number of options have been examined for improvingthe storage and loading of coal at the port of Stewart.At the same time,Fortune also commissioned a study from Marston and Pipeline SystemsInc. to examine the merits of transporting coal from Klappan toStewart or Prince Rupert using a slurry pipeline.All of these studies arenearing completion and the Company expects to announce the

favoured transportation alternative in conjunction with a proposedexpansion of production from 1.5 to 3 million tonnes of clean coal perannum.

Further, a feasibility study completed in 2007 concerning a poten-tial Alaska - Canada Rail Link was jointly funded by the State of Alaskaand Yukon Territory. This study recommends a railway connectionfrom Alaska through the Yukon and northern British Columbia, to thecontinental United States that would include a segment running pastMount Klappan.The study also recommends a short-cut that woulddramatically reduce the rail haulage distance of coal products fromMount Klappan to Prince Rupert from 1,400 kilometres to just over600 kilometres and materially reduce transportation costs.Althoughan attractive scenario for transportation of products from Klappan,such a railway initiative is unlikely to be available for timely develop-ment of the mine.

Meanwhile, the Company continued to advance the environmentalassessment for the mine by submitting its Terms of Reference for pub-lic, regulatory and First Nation comment for a truck haulage option tothe port of Stewart.

2007 and early 2008 have been marked by progress and strengthen-ing of our relationships with First Nations people at both NICO andMount Klappan,where we have worked closely with representatives ofboth the Tlicho and Tahltan communities. Our focus has been on com-pleting agreements that promote a clearer understanding of our busi-ness and plans, as well as on developing suitable business, infrastruc-ture and employment opportunities for members of these and othernearby communities. In every case, we are looking to tangibly demon-strate our commitment to contributing positively to the people livingin the region, providing potential benefits from each project, respect-ing local societies and minimizing impacts on the environment.At thesame time, we continue to build critical, open relationships with gov-ernment regulators and other involved stakeholders.

Looking back over the past year, we are very pleased with the oper-ational, corporate, financial, and personnel progress that has beenaccomplished and we continue to be encouraged by the price anddemand trends evident throughout our most important commoditymarkets. The Company’s Board of Directors, executive managementand operational team remain confident in our plans to develop theexceptional properties that underpin Fortune’s true value. We movesteadily closer to our goal of becoming a successful minerals producer.

George Doumet, Robin Goad,Chairman President and C.E.O.

THE GLOBAL DEMAND AND

MARKET PRICES FOR THE KEY

COMMODITIES CONTAINED IN OUR

DEPOSITS CONTINUE TO TREND HIGHER,

WIDELY ACHIEVING NEAR RECORD AND

EVEN UNPRECEDENTED LEVELS.

Base case metal prices for bankable feasibility studies.

In the coal prices graph: ULV PCI Coking Coal

2007


NICOCOBALT-GOLD-BISMUTH PROJECT

Introduction:

Fortune’s 100%-owned NICO project in Canada’s Northwest Territories contains a

near-surface deposit of cobalt, gold and bismuth, which is targeted for production

in late 2010. NICO is located 160 kilometres northwest of the City of Yellowknife,

the regional centre of government and an existing mining community. The leas-

es containing the deposit are located on Tlicho lands, 50 kilometres north of the

community of Wha Ti and 85 kilometres north of Behchoko and Highway 3 to

Edmonton, Alberta. Current access to NICO is from a government winter road,

which passes within 6 kilometres of the property and has been extended to the

site. The governments of Canada, the Northwest Territories and Tlicho, together

with private industry, are planning to re-align and upgrade this to an all-season

road for which consultation, engineering and environmental work are now

underway.NICO is only 22 kilometres west of the Snare hydro complex, which the

Northwest Territories Power Corp.is planning to expand.Fortune intends to estab-

lish a connection to this electrical grid for the proposed NICO mine.

2007

ANNUAL REPORT I 13

BELOW: 2007 NICO mine site showing portal, service complex,

waste rock dumps and ore stockpiles.

2007


MINERAL RESERVES

In 2007, a full (definitive) bankable feasibility study led by Micon International Limited (Micon), established mineral reserves for the NICO depositof 21.8 million tonnes.These reserves were determined using base case metal price assumptions of US$16.50/pound (lb) of cobalt, US$525/ounce(oz) of gold and US$4.50/lb of bismuth,and were based on estimated operating costs and Net Smelter Return (NSR) cut-off values.The reserves con-tain approximately 61 million lbs of cobalt,760,000 ozs of gold and 77 million lbs of bismuth,an equivalent 3.2 million ozs of gold at base case metalprice assumptions. Metal prices are now substantially higher than base case (approximately US$52/lb of cobalt, US$925/oz of gold and US$16/lb ofbismuth) and at these recent metal prices, the NICO deposit contains 5.6 million equivalent ozs of gold. The NICO reserves are contained within alarger mineral resource inventory of 57 million tonnes at a $10 NSR cut-off value. A significant amount of these lower grade resources will be minedto access the reserves and can be processed during periods of higher metal prices as we are experiencing today.

NICO Mineral Reserves

Classification Tonnes Au (g/t) Bi (%) Co (%)

Open Pit Mineral Reserves (Cut-off C$32.21/t NSR)Proven Mineral Reserve 7,058,000 1.14 0.16 0.11Probable Mineral Reserve 13,555,000 0.70 0.16 0.13

Total Open Pit Reserve 20,613,000 0.85 0.16 0.13

Underground Mineral Reserves (Cut-off C$77.13/t NSR)Proven Mineral Reserve 231,000 5.32 0.13 0.13Probable Mineral Reserve 973,000 5.01 0.20 0.15

Total Underground Reserve 1,204,000 5.07 0.19 0.14

Total Mineral Reserves Proven Mineral Reserve 7,289,000 1.27 0.16 0.12Probable Mineral Reserve 14,528,000 0.99 0.16 0.13

Total Mineral Reserve 21,817,000 1.08 0.16 0.13

Total Reserve In-Situ Metal

Gold (oz) Bismuth (lbs) Cobalt (lbs)

Total 759,700 76,956,000 60,603,000

Mineral Resource Sensitivity

NSR CUT-OFF ($C/t) Tonnes Au (g/t) Bi (%) Co (%)

$100 1,031,735 8.19 0.21 0.15$70 2,924,869 5.02 0.23 0.17$50 6,088,021 3.26 0.22 0.17$20 29,819,415 1.09 0.14 0.12$10 57,225,948 0.65 0.10 0.09

The mineral reserves and resources for the NICO deposit were determined by Micon and P&E Mining Consultants Inc. based on net smelter return (NSR) cut-off values. Details of theNICO Proven and Probable Mineral Reserves can be seen in the January 16, 2007 news release announcing the results of the Micon full feasibility study and also in Fortune’s AnnualInformation Form available on the Sedar Website (www.sedar.com). Mr.Terrence Hennessey, P.Geo. and Mr. Eugene Puritch, P.Eng. are the Qualified Persons for this work in accordancewith National Instrument 43-101.

NICO COBALT-GOLD-BISMUTH PROJECT

2007

ANNUAL REPORT I 15

BANKABLE FEASIBILITY STUDY

The Micon full feasibility study for the NICO development was released in January 2007 and concluded that the project shows attractive econom-ics at base case metal price assumptions and very attractive economics at the higher prices paid for these metals since the study was completed. Inaddition to Micon, this study involved a number of other engineering companies retained to work on specific parts of the project, including Met-Chem Canada Inc., Golder Associates Ltd, P&E Mining Consultants Inc., EBA Engineering Ltd, KVK Consulting Associates Inc. and EHA EngineeringLtd.The feasibility study was a comprehensive engineering, economic, social and environmental evaluation of the project’s viability.Typically pre-pared to +/- 15% precision, such studies are normally used by financial institutions to assess the credit worthiness of a proposed development.Thefeasibility study used the two-year trailing average prices for metals as at January 2007 as base case (US$ 16.50/lb of cobalt, US$525/oz of gold, andUS$ 4.50/lb of bismuth) and an exchange rate of US$0.84:C$1.00.

At the time this Annual Report was being prepared (April 2008),prices for these metals had increased to US$52/lb of cobalt,US$925/oz of gold, andUS$16/lb of bismuth and the exchange rate was US$0.97/C$1.00. Fortune retained Micon to prepare a memorandum to assess the impact on NICOproject economics as a result of the current Canadian dollar exchange rate, the higher metal prices at the present time as well as various metal pricesensitivities, and also taking into account the higher metal recoveries from flotation that were attained in its SGS Lakefield Research Limited (SGSLakefield) pilot plant results achieved to date. No increases in operating or capital costs are being included in these revised estimates.

The feasibility study results and updated economics for a number of metal price sensitivities are as follows:

2007 Feasibility 2007 Study Base Updated Base

Feasibility Study Case1 – new Case1,2 – higher Economics usingBase Case flotation results metal prices Current Prices1,2

Metal Price Assumptions3 $525/$16.50/$4.50 $525/$16.50/$4.50 $750/$20/$10 $900/$50/$16Exchange Rate Assumptions US$0.84 = C$1 US$0.84 = C$1 US$0.97 = C$1 US$0.97 = C$18% discounted Net Present Value (NPV) C$ 91.8 million C$ 143.7 million C$ 360.7 million C$ 1.5 billionPre-tax Internal Rate of Return (IRR) 15.3% 18.3% 32.3% 97.2%Annual Gold Production - years 1 & 2 69,000 oz. 70,000 oz. 70,000 oz. 70,000 oz.Annual Gold Production - years 3 to 15 24,000 oz. 24,000 oz. 24,000 oz. 24,000 oz.Annual Cobalt Production - 99.8% cobalt cathode 3.25 million lbs. 3.46 million lbs. 3.46 million lbs. 3.46 million lbs.Annual Bismuth Output4 3.23 million lbs. 3.59 million lbs. 3.59 million lbs. 3.59 million lbs.Initial Capital Costs C$ 215.2 million C$ 215.2 million C$ 215.2 million C$ 215.2 millionAverage Production Cash Costs –

Cobalt (net of by-product credits) US$ 7.05/lb. US$ 6.34/lb. US$ 1.41/lb. US$ (5.51)/lb.Average Production Cash Costs –

per equivalent gold ounce US$ 321/oz. US$ 304/oz. US$ 349/oz. US$ 203/oz.

1 The results of recent pilot plant testing with the fresh ore bulk sample showed improved metallurgical response, compared with the earlier, small scale testing conducted with drillcore samples and on which the feasibility study was based.The recovery levels to final products predicted from the pilot plant results, compared with the recovery values used inthe feasibility study, are improved for all three economic metals.The new calculated recoveries for life-of-mine production for cobalt and bismuth are respectively 5% and 6% high-er than in the 2007 feasibility study, while gold recovery is close to 1% higher.

2 Update economics are based on the operating and capital cost estimates from the 2007 feasibility study and have not been adjusted for inflation and well known recent cost esca-lations prevalent in the industry. To assess possible cost increases, refer to the following sensitivity analysis:

(i) For a $25 million increase in life-of-mine capital, NPV is reduced by $17.0 million and $8.2 million for the two scenarios presented, respectively;(ii) For a 10% increase in operating costs, NPV is reduced by $36.8 million and $35.9 million for the two scenarios presented, respectively.

3 US$ per ounce of gold / US$ per pound of cobalt / US$ per pound of bismuth.

4 Bankable feasibility study assumed production of 45% bismuth concentrate, but current plans are to produce 90% bismuth cement.

2007



NICO LAKE

PEANUT LAKE

GRID POND

PONDLITTLE GRID

ABOVE: 3-dimensional view of the proposed NICO mine.

RIGHT: Plan of the minesite, open pit and waste rock and

tailings impoundment areas.

2007

ANNUAL REPORT I 17

UNDERGROUND TEST MINING

Fortune has completed two $10 million phases of underground test mining at NICO.Theseprograms have verified the mining and environmental conditions,confirmed the ore gradesand geometry, enabled the collection of a composite 200 tonnes of ore for pilot plant test-ing, and produced a tangible demonstration of the project’s viability to local communitiesand government regulatory authorities.The underground workings include: an access por-tal; approximately two kilometres of decline ramp and lateral development work extendingto approximately 200 metres below the surface;cross-cuts through the ore on two levels ofthe mine; and, a ventilation and emergency egress raise to surface. Approximately 6,000tonnes of ore and 60,000 tonnes of waste rock were mined during the test mining.

PROPOSED NICO MINE

The reserves for the NICO deposit are sufficient to support a minimum 15-year mine life at a production rate of 4,000 tonnes of ore/day(1,460,000 tonnes/year). Most of this ore will be sourced from a single open pit that will be mined using a conventional truck and shoveloperation. During the first two years of the mine life, one third of the ore will come from the existing underground workings in order tosupplement production with gold-rich,higher grade ores sourced from deeper parts of the deposit and to accelerate the payback of invest-ed capital.The underground mine will employ trackless mining methods from a decline ramp that was established during two completedphases of underground test mining.

Ores from the NICO deposit will be processed by conventional crushing, grinding and flotation methods to generate gold-bearing cobaltand bismuth concentrates.These concentrates will be processed at the site to produce cobalt cathode, gold doré and bismuth cement ormetal using a combination of pressure acid leach, ion exchange and electro-winning hydrometallurgical methods followed by cyanidationfor gold recovery.Significant parts of the process plant and surface infrastructure have already been purchased from the Golden Giant Mineat Hemlo, Ontario. Fortune has initiated preparations for dismantling and relocation to NICO.

ABOVE: Jumbo drill working at NICO extending the

underground mine workings.

LEFT: Underground haul truck transporting a load of

ore to surface at NICO.

2007


GOLDEN GIANT MINE, HEMLO, ONTARIO

Fortune is moving ahead with plans to relocate Hemlo’s Golden GiantMine mill, surface facilities, equipment and spare parts inventory toNICO. The Company acquired these assets in 2006 from NewmontCanada Ltd. for $3.3 million and recently purchased additional assets atGolden Giant,which collectively will significantly reduce projected cap-ital costs for NICO’s development.The Company has begun to salvagehigh value process, electrical and technical equipment for relocation toa staging site for reconditioning and transport to NICO after receipt ofapplicable permits. Fortune is also assembling the surplus equipmentand has begun selling it on the used equipment market. Fortune hasidentified certain amounts of gold, silver and other valuable metals thatare contained in materials and residues within certain equipment at themine. These materials and residues will be collected and the metalsrecovered and sold to generate revenue from these assets.Fortune is fur-ther reducing its net cost of dismantling the facilities through theplanned collection of other high value materials, including stainless andstructural steels, aluminum, copper and other metals, which theCompany will sell for scrap. Fortune is building a team of internal peo-ple, contractors and suppliers to continue the planning for the salvageand sale of materials and equipment, as well as for the dismantling andrelocation of the mill and equipment needed at the NICO site. Fortuneis not responsible for environmental liabilities at the Hemlo site otherthan to remove the acquired assets to their foundations.

ENGINEERING, ENVIRONMENTAL ASSESSMENT AND PERMITTING

Fortune has begun a number of activities related to engineering and permitting for the NICO development. This includes retaining AkerKvaerner E&C, a division of Aker Kvaerner Canada Inc. to prepare aMETSIM® model for the processing of NICO ores based on the metallur-gical flow sheet developed in the Micon definitive feasibility study. AkerKvaerner was also contracted to conduct a logistics and transportationstudy for the future construction of the NICO project and recentlyentered into an agreement with Fortune to conduct Front-End Engineer-ing and Design (FEED) for the mine.

Fortune has filed its requisite land use and water license applicationswith the Wek’ èezhi’i Land and Water Board. It has also entered into dis-cussions with the Tlicho Government with respect to access as well asImpacts and Benefits agreements. During 2007, Fortune, GolderAssociates Ltd. and representatives of the Tlicho First Nation, continuedwork on environmental baseline studies at NICO in preparation for theenvironmental assessment (EA) process in 2008. Since 1997, work hasincluded aquatic, vegetation and wildlife biology surveys, hydrology,hydrogeology, geochemistry, meteorology, archaeology, socio-economicand traditional use studies that will be used to assess potential impactsof the project and develop mitigation strategies to minimize any effectto the local environment. Environmental test work has also been con-ducted at SGS Lakefield examining the waste products that would beproduced from the NICO process plant.Fortune is targeting commence-ment of production at NICO in late 2010.


PILOT PLANT

Fortune is conducting a $4-million pilot plant at SGS Lakefield Research in Ontario to test the processing of ores from the NICO deposit.The pilot plant will provide a model for detailed engineering and planning for the NICO process plant, and will confirm process condi-tions, metal recoveries and the metallurgical flow sheet.Approximately 200 tonnes of ore from the NICO deposit has been delivered toLakefield, and the crushing, grinding and flotation components have been completed.Test runs for the downstream hydrometallurgicalcomponents of the process plant, including pressure acid leach tests of the cobalt and bismuth concentrates,have also been completed inpreparation for the major hydrometallurgical components of the pilot scheduled to be conducted in April 2008.

Notably, results of the flotation work have determined that recoveries from flotation will be significantly higher than the recoveries usedin the Micon feasibility study and will have a significant positive impact on project economics.The new calculated recoveries for life-of-mine production for cobalt and bismuth are respectivey 5% and 6% higher than in the 2007 feasibility study, while gold recovery is closeto 1% higher. A number of other qualitative improvements were achieved in the pilot plant, including confirmation of work indexes,quickrecovery of the process after upsets, and verification of the use of a high percentage of re-cycled process water.The hydrometallurgicalcomponents of the pilot plant are expected to be completed in May 2008.

2007

ANNUAL REPORT I 19

ABOVE: Metal concentrates being produced in the NICO pilot plant

conducted at SGS Lakefield Research in Ontario.

LEFT: Annette Black from the Tlicho community of Bechoko

helping conduct fisheries studies at the NICO project.

2007


NICO METAL MARKETS

NICO contains significant amounts of cobalt, gold and is alsoone of the world’s largest bismuth deposits. Cobalt is the domi-nant metal, by value, in the deposit and is a high-strength, mag-netic metal, which has seen a relatively steady 20-year increasein demand driven by a number of traditional and new chemicaland metallurgical applications.The greatest market growth hasbeen in chemicals, primarily for the manufacture of recharge-able batteries and catalysts. As consumers’ need has grown forportable electronic products, cellular telephones, computers,power tools, MP3 players, toys and other electronic devices, sodoes the market for high performance rechargeable batteries,primarily, cobalt bearing nickel metal hydride and lithium ionbatteries.Approximately five pounds of cobalt is also containedin the batteries used to power hybrid-electric vehicles whosepopularity is growing in step with concerns over fuel costs andthe environment.Cobalt catalysts are also required in petroleumrefining, liquid natural gas and the manufacture of automobiletires and plastics. Metallurgical uses for cobalt include super-alloys for the aerospace industry, cutting tools, cemented car-bides and industrial magnets. There are still more markets forcobalt in food additives (vitamin B12), pigments and audiorecording tape. In 2007, the cobalt market consumed approxi-mately 65,000 tonnes, double the consumption of eight yearsago. Consumption is expected to double again to 120,000tonnes in the next few years, particularly as a result of its newapplications and Asian economic growth,primarily in China andIndia. Today, the price for 99.8% cobalt metal is more than US$50/lb compared with historical long-term averages of betweenUS$15 and US$20/lb.


BATTERIES - 23%

PIGMENTS - 9%

RECORDING MATERIALS - 2%

ADHESIVES & DRYERS - 8%

SUPERALLOYS - 21%

CATALYSTS - 11%

MAGNETS - 7%

HARDFACING ALLOYS - 8%

CARBIDES - 11% 20072006200520042003

70

60

50

40

30

20

10

0

COBA

LT M

ARKE

TT

hou

sand

s of

Ton

nes

COBALT USES

BELOW: Cobalt lithium ion and nickel metal hydride batteries are used to

power personal portable electronic devices and hybrid-electric vehicles.

Cobalt catalysts are used to manufacture radial tires.

2007

ANNUAL REPORT I 21

20072006200520042003

18

15

12

9

6

3

0

BISM

UTH

MAR

KET

Th

ousa

nds

of T

onne

s

METALLURGICAL - 26.4%(Steel, Free Cutting,

Greases)

FUSIBLE ALLOYS - 8.8%(LMPA, Solder)

OTHERS - 7.6%

CHEMICALS - 57.2%(Electronics, Lead

Oxide Replacement,Pharma, Pigments,

Misc. Chemicals)

BISMUTH USES

Although not widely known by investors, bismuth is a relativelyuncommon and inert metal, recognized by scientists as one of thesafest metals on the periodic table.This makes it ideal for numerouspharmaceuticals and medicines, including Pepto-Bismol™, as well asbandage dressings, cosmetics, and medical devices. Bismuth’s otherunusual properties include its very high density, low melting temper-ature,and the fact that,like water,it expands upon solidification (cool-ing), making it ideally suited for a variety of chemicals and fusiblealloys, particularly dimensionally stable alloys and compounds. Bis-muth is unique as it has physical properties similar to lead, but it isnon-toxic. As a result of increasing health and environmental con-cerns,bismuth is replacing lead in a number of applications includingin solders for plumbing and electronics, as well as in brasses, alloysused in hot-dip galvanizing, paint pigments, ammunition, radiationshielding and free-cutting steel. Bismuth consumption, which wasabout 15,000 tonnes in 2007, has been growing at a rate of between10% and 15% in each of the past five years. Again,much of this grow-ing demand has come from Asia. However, supply constraints haveheld back the bismuth market, an issue being exacerbated by the factthat most bismuth production comes as a by-product from lead min-ing.Thus, as lead consumption is constrained by concerns over toxi-city,bismuth is expected to remain in tight supply.Bismuth is current-ly selling for about US$ 16/lb, compared with just under US$5/lb in2006.

Gold is also an important co-product at NICO. In the past year,prices for gold have increased by 50%, rising from approximatelyUS$650/oz to over US$1,000/oz in April 2008. Although there is awide range of forecasts for the price of gold in the future, almost allagree that a combination of geo-political uncertainties are drivinginvestors to gold as a store of wealth.This coupled with increasingdemand in jewellery and industrial uses are likely to sustain recentprices for many years to come.

BELOW: Bismuth is the active ingredient in Pepto-Bismol™ and other

medicines, but growth in the market is primarily as a non-toxic

replacement for lead in various products, including paint pigments

and solders for plumbing and electronics.

2007


MOUNT KLAPPANANTHRACITE COAL PROJECT

Introduction:

Fortune’s coal licenses cover more than 150 square kilometres in Tahltan traditional

territory in northwest British Columbia and host the “World Class” Mount Klappan

anthracite coal project. Fortune is actively proceeding towards developing an open

pit mine, wash plant and site infrastructure at Klappan to produce ultra-low volatile,

pulverized coal injection (PCI) product for the overseas steel industry. At the same

time, the Company is considering various strategic alternatives for the development

of the project. In addition to ongoing baseline environmental data collection activi-

ties and the continuation of the environmental assessment (EA) process, Fortune is

examining a number of potential infrastructure options that could materially

improve the economics of the project. Fortune is targeting the start-up of production

for Mount Klappan at the end of 2010. Fortune’s licenses straddle the B.C. Railway

right-of-way, 150 kilometres northeast of the port of Stewart and 330 kilometres

northeast of the port of Prince Rupert. The railway roadbed provides road access to

the site from Highway 37 and track has been installed south of the project to within

100 kilometres of the proposed mine.

2007

ANNUAL REPORT I 23

BELOW: 3-dimensional conceptual model of the proposed

Lost-Fox mine at Mount Klappan looking west from the

B.C. Railway right-of-way.

2007


MOUNT KLAPPAN RESOURCES AND RESERVES

Mount Klappan is one of the largest undeveloped resources of high rank anthracite coal in the world.In 2002,Marston Canada Ltd.(Marston) estimated Klappan’s four resource areas – the Lost-Fox,Hobbit-Broatch,Sumittand Nass deposits – contain more than 2.8 billion tonnes of in-situ coal resources of which 108 million tonnesare classified as Measured, 123 million tonnes as Indicated, and 2.6 billion tonnes are in the Inferred andSpeculative classes. In 2005, Marston updated the resources for the Lost-Fox deposit area. Marston alsoassessed the deposit in an updated full Bankable Feasibility Study (2005 BFS) later that year verifying Provenand Probable Reserves of 102 million tonnes of in-situ coal that would produce 60 million product tonnes ofultra-low volatile PCI metallurgical coal for the overseas steel industry. The feasibility study concluded attrac-tive rates of return for the development under a variety of production and coal price scenarios that wouldsupport a minimum 20 year mine-life at a production rate of 3 million tonnes/year.In 2007,Marston also com-pleted a pre-feasibility economic assessment of a thermal coal option for the Lost-Fox deposit at MountKlappan.This study identified reserves of 106 million in-situ tonnes that would support a minimum 25-yearmine life at an annual production rate of 1.1 million tonnes/year of thermal coal and 124,000 tonnes/year ofa premium metallurgical charge carbon by-product.

MOUNT KLAPPAN RESOURCES

Area Measured Indicated Demonstrated Inferred Speculative(MT) (MT) (MT) (MT) (MT)

Lost-Fox 107.9 109.5 217.4 91.5 749.6Hobbit-Broatch – 13.5 13.5 258.4 753.0Summit – – – 9.6 508.9Nass – – – – 201.5

Total 107.9 123.0 230.9 359.5 2,213.0

LOST-FOX METALLURGICAL COAL RESERVES

In Situ Coal Reserves (MT) 10% Ash Product Reserves (MT)Proven Probable Total In-Situ Proven Probable Total Product

85.6 16.1 101.7 51.6 9.2 60.8

LOST-FOX THERMAL COAL RESERVES

ROM Coal Reserves (MT)Proven Probable Total Reserves (MT) ROM Coal Strip Ratio (Bcm/t)

89.5 16.8 106.3 6.6 - life of mine (5.9 - 1st 25 yrs)

MT = millions of tonnes ROM = Run-of-MineBcm/t = bank cubic metres/tonne

The Mount Klappan mineral resource and mineral reserve estimates were prepared in 2002, 2005, and 2007, respectively, by Marston Canada Ltd. in compliance with NationalInstrument 43-101.Richard Marston, P.E. is the Qualified Person responsible for the estimates.For further information on the details of these estimates, please refer to the Company’s dis-closures on the Sedar website at www.sedar.com.

MOUNT KLAPPAN ANTHRACITE COAL PROJECT

2007

ANNUAL REPORT I 25

ABOVE: Mount Klappan pilot plant conducted by Gulf Canada in

1985-86. 100,000 tonnes of anthracite products were produced

for trial cargos to select customers in North America, Asia and

Europe.

LEFT: Test mining the “I-Seam” in the Lost-Fox deposit in

1985-86.

2007


3-dimensional model (above) and plan view (right) of

the proposed Lost-Fox open pit, waste dumps and site

infrastructure at Mount Klappan.


2007

ANNUAL REPORT I 27

SUMMARY OF 2005 MOUNT KLAPPAN FEASIBILITY STUDY

Production Rate 1.5 MT/yr 3 MT/yr 3 MT/yrPort Option Stewart Stewart Prince Rupert

Strip ratio (Bcm/t) 9.7 11.7 11.7Cash Cost at Port C$71 C$74 C$75Mine life 20 years 20 years 20 yearsCapital costs C$275 M C$433 M C$414 MTransportation 40 t trucks 40 t trucks 10,000 t train setsIRR @ US$110/t 40.5% 42.7% 38.3%IRR @ US$100/t 32.0% 34.5% 29.9%IRR @ US$90/t 23.3% 25.7% 20.6%NPV (10%) US$110/t C$469 M C$829 M C$570 MNPV (10%) US$100/t C$332 M C$603 M C$384 MNPV (10%) US$90/t C$193 M C$369 M C$191 M

Note:The 3 million tonne (MT/yr) option to the port of Prince Rupert assumes 50% of the cost of upgrading the rail is provided by others.

BANKABLE FEASIBILITY STUDY

The 2005 bankable feasibility study evaluated the economicviability of an open pit mine at the Lost Fox deposit produc-ing 1.5 or 3 million tonnes/annum of a 10% ash PCI coal in awash plant at the site. It considered two transportation alter-natives to the ports of Stewart and Prince Rupert for exportto the overseas steel industry.These included: construction ofa new 100-kilometre short-cut road for truck haulage of prod-uct to the port of Stewart; and extension of the railway alongthe existing right-of-way for haulage by unit train to the portof Prince Rupert.This feasibility study used a base case coalprice of US$100/tonne and showed a very attractive rate ofreturn for the development under a number of productionrate and transportation scenarios. Notably, the price for ultralow-volatile PCI coal as this report is being prepared (April2008) is approximately US$250/tonne. Premium anthraciteproducts, such as coarse, low-ash charge carbon,currently sellfor in excess of US$300/tonne, similar to the current price forhard coking coal. Fortune has engaged Marston to provideupdated economics for the project to reflect the current coalprices, C$:US$ exchange rate, and various transportationenhancements for the project that could materially improvethe economics of an already robust project.

ABOVE: Overburden stripping for the 1985-86 Gulf Canada test mining

operation at the Lost-Fox deposit at Mount Klappan.

2007


ANTHRACITE MARKET

Anthracite is a high rank,high quality,premium coal with very high carbon and energy content combined with the lowest moisture and volatile con-tent compared to other types of coal. Anthracite deposits account for only about 1% of world coal reserves, making it relatively scarce. Its uniqueproperties make anthracite suitable for use in a broad range of premium metallurgical, thermal, water purification and composite materials applica-tions. In addition, it is used for fuels to manufacture cement and generate electricity.

World annual production of anthracite is approximately 400 million tonnes,most of which is consumed locally for power generation.Notably,Chinaproduces half of the world’s anthracite and, as a result of increasing domestic steel production and power generation, has recently become a netimporter.Vietnam, the world’s second largest producer, has also recently started curtailing exports in order to satisfy their own domestic energyrequirements. These export reductions,combined with increasing global consumption, are restricting supply in traditional markets in other parts ofAsia as well as Europe and North and South America. There are only three significant new anthracite projects in the development stream: MountKlappan plus one in each of Russia and China. Due to growing domestic consumption in Russia and China, it is unlikely production from thesedeposits will supply the export metallurgical coal market. Consequently, Mount Klappan is well positioned to service the growing global demand.Prices for anthracite products have been increasing and currently range from US$100 to more than US$300/tonne. Metallurgical products currentlysell for between US$125 and more than US$300/tonne and filter media commands a similar US$300/tonne price.

Anthracite use is growing in a number of metallurgical applications.The largest growth in the market is as a source of carbon and energy in pulver-ized coal injection (PCI) products used in the steel industry. Coal injection of finely powdered coal sprayed directly into the blast furnace reducesthe consumption of coke, making it a more efficient and cost effective method of manufacturing steel over conventional blast furnace technology.Injection processes favour the high carbon and low volatile content of anthracite, which allows for higher injection rates over PCI products pro-duced from lower rank and higher volatile content bituminous coals.The natural high carbon content of anthracite also makes it suitable for use asa blend coal to reduce consumption of coke in conventional steel industry blast furnaces.The global steel industry also uses anthracite for its sinter-ing plants and as a binding agent to make iron ore pellets. Coarse, low-ash anthracite is used as a reductant in aluminium and titanium processingand as charge carbon used in electric arc furnace steel manufacturing processes.Sized,low-ash anthracite is also used to make carbon filters for waterpurification and carbon composite materials.

Mount Klappan Clean Coal Quality – 10% Ash PCI Product

Specification (air dried basis) Mean

Residual Moisture 0.9%Ash 10%Volatile Matter 6.5%Fixed Carbon 82.6%Sulphur 0.5%Gross Calorific Value 31.1 GJ/tGross Calorific Value 7,423 Kcal.KgGross Calorific Value 13,352 Btu/lbHGI 40-45Size 0-50 mm


Thermal uses for anthracite include smokeless fuels used forspace heating, the manufacture of heating and cooking bri-quettes and kiln fuels used to make cement and lime.Approximately 40% of the world's electricity is generated fromcoal-fired thermal power plants, many of which are configuredto burn anthracite. Notably, anthracite is a preferred fuel sourcefor new “clean coal” technologies for power generation thatreduce greenhouse gas emissions by gasification of coal priorto combustion.The high cost of oil is also making gasificationand coal-to-oil liquefaction technologies economically attrac-tive.This technology has been used for decades to make supe-rior quality synthetic diesel and jet fuels in South Africa andnew plants are now being constructed in China, the U.S.A. andother parts of the world. Notably, a recent study prepared bythe Massachusetts Institute of Technology on the future of coalconcluded that its use is inevitable and will increase for bothpower consumption and as an alternative source of syntheticfuels. It also concluded that carbon capture and geologicsequestration of greenhouse gasses will likely be necessary inthe future, and even with the additional related costs, will becheaper and represents a more secure source of energy supplythan other fossil fuels including oil and natural gas.

2007

ANNUAL REPORT I 29

ABOVE: Anthracite coal products produced

from the Mount Klappan project in the

1985-86 pilot plant including coarse coal

for metallurgical uses, space heating,

briquettes and filter media.

2007


ABOVE: One of four shipments of coal being

loaded at the port of Stewart from the

1985-86 trial cargo.

RIGHT: Modified tridem axle trucks being

considered for haulage of coal products

from Mount Klappan.


2007

ANNUAL REPORT I 31

JOINT VENTURE DISCUSSIONS

The 2005 feasibility study for Mount Klappan assessed a number of development scenarios including1.5 and 3 million tonnes/year production rates and rail and truck transportation options to Stewartand Prince Rupert. However, development scenarios have also been examined that assessed highertonnage production rates and developments including a rail link to the Port of Prince Rupert.Theseinclude an in-house assessment of a 5-million tonnes/year mine with the construction of the railwayshort-cut to Prince Rupert, which shows very attractive economics. Fortune has also investigated thepotential for projects producing multiple products including coal gasification,coal-to-oil liquefaction,and integration with Shell Canada’s coalbed methane project, which is testing an 8-trillion cubic footgas target on overlapping and contiguous licenses. Most of these projects are much greater in scopethan Fortune could currently undertake, but would produce economic returns that would be veryattractive to a larger company.Therefore, Fortune is conducting discussions with potential joint ven-ture partners, including coal, power, oil and gas, and international trading companies.A key objectivewould be to gain the support of a major organization with the financial ability and commitment toaggressively advance the project on a large enough scale to generate economies that reflect the truevalue inherent in this world-class asset.

TRANSPORTATION INITIATIVES

While Fortune is continuing permitting application activities for an export metallurgical coal mine with truck haulage to the port ofStewart, it is also examining a number of enhancements that could materially improve the economics of the project through more efficientmovement of products from the mine to the two available export port options. Fortune engaged AllNorth Engineering to complete engi-neering of the short-cut road between the mine site and Highway 37 for truck haulage of coal products to the port of Stewart. AllNorthand Marston have also been working on more efficient truck configuration options for the truck haul at an expanded 3-million tonnes/yearproduction rate.These include utilization of large, off-road trucks for the short-cut haul road that could handle payloads of 110 tonnes ormore.This would involve re-load from a surge pile at the highway to custom built 44-tonne, highway compliant, tridem axle trucks for theremaining haul on the highway to Stewart.The port facilities would also be modified from what was initially proposed in the 2005 feasi-bility study by the construction of storage facilities on the perimeter of Stewart to eliminate heavy truck traffic through the centre of town.Coal would be transported to an upgraded ship-loader by a high-speed conveyor system capable of handling the coal at a rate of 2,000tonnes/hour to eliminate port congestion and limitations for space at the dockside.

Fortune has also been conducting economic assessments of the viability of transporting coal using a slurry pipeline from its proposedMount Klappan mine to the ports of Stewart and Prince Rupert. Initial scoping level assessments showed very attractive economics forthis transportation alternative by materially reducing operating costs to the ports as compared to the previously evaluated truck or railtransportation options.A slurry pipeline would also help mitigate the future impacts of increasing fuel and labour costs. Further study isbeing undertaken to consider such an option through more rigorous pre-feasibility level engineering assessments.

An independent feasibility study was completed in 2007 concerning a potential Alaska - Canada Rail Link and was jointly funded by theYukon and Alaska governments. This study recommends a railway connection from Alaska through the Yukon and northern BritishColumbia to the continental United States that would include a segment running past Mount Klappan.The study also recommends a short-cut to the Port of Prince Rupert that would dramatically reduce the rail haulage distance of coal products from Mount Klappan to PrinceRupert from 1,400 kilometres to just over 600 kilometres.Further, if built, such a rail line would eliminate most of the costs associated withconstruction of transportation infrastructure for Mount Klappan. Although a very attractive development option for Mount Klappan, thisrail option would take several years of environmental and engineering studies and is too large a project for Fortune to undertake.TheCompany is, therefore, focusing on the truck haulage option to Stewart.

2007


ENVIRONMENT

Fortune has been actively collecting baseline environmental data around Mount Klappan and is in the environmental assessment process. RescanEnvironmental Services Ltd.and their Tahltan First Nation joint venture partner Rescan Tahltan Environmental Consultants (RTEC) are Fortune's envi-ronmental consultants for the project. Since the fall of 2004 they have been conducting a number of environmental baseline studies at the proposedmine site and along the potential transportation corridors. In addition to the current studies, the project has benefited from several similar studiesundertaken in the 1980s by Gulf Canada Resources Ltd.These studies included traditional use, archaeology, socio-economics, human health/countryfoods, land use, soils, vegetation, wildlife, habitat mapping, ground water, surface waters, water quality, wetlands, fisheries, meteorology and metalleaching/acid rock drainage potential. Although many are considered complete, these studies are continuing in order to add to the baseline data.

Fortune is also developing the project description in preparation for finalizing the Terms of Reference (TOR) for the environmental assessment.Progress on the project description was temporarily suspended in late 2007 pending completion of alternative transportation scenario analyses andis expected to resume in 2008. Preparation of the previous draft TOR, completed in 2007, involved considerable consultations and discussions withFirst Nations, government agencies and the general public.The Company plans to submit its final application for its environmental certificate laterthis year subject to the finalization of the TOR. Detailed engineering will be undertaken following receipt of the certificate.

FIRST NATION PARTICIPATION

Another major aspect of our development plans for the Mount Klappan deposit concerns our consultations with the area First Nations. Specifically,Fortune is in discussions with the Tahltan Central Council and other First Nations with respect to communications,environmental assessment,Impactand Benefits and other agreements.

RIGHT: Fortune’s environmental surveys for Mount Klappan are

conducted with participation by members of the Tahltan and

other impacted First Nations groups.


2007

ANNUAL REPORT I 33

ABOVE: Valley being considered for the short-cut haul road to

Mount Klappan from Highway 37.

LEFT: Hydrology, fisheries and other environmental surveys being

conducted for the proposed haul road to Mount Klappan.

2007


SUE-DIANNECOPPER-SILVER-GOLD PROJECT

Introduction:

Early in 2008, Fortune released a new, NI 43-101 compliant resource estimate

for its wholly-owned Sue-Dianne copper-silver project. The independently pre-

pared report estimates that the deposit has indicated resources of 8,444,000

tonnes and inferred resources totaling 1,620,000 million tonnes. This report,

prepared by “Qualified Persons” B. Terrence Hennessey, P.Geo. of Micon and

Eugene J. Puritch, P.Eng. of P&E Mining Consultants, used a 0.40% copper cut-

off grade. The near surface deposit is amenable to low cost open pit mining

and remains open at depth. Metallurgical tests carried out at SGS Lakefield

indicate high recoveries can be achieved for copper, silver and gold from this

deposit using simple flotation, and that a high value cathode copper product

could be produced in the same plant that Fortune plans to construct at NICO.

Located just 25 km north of NICO, Sue-Dianne presents an excellent opportu-

nity to supply incremental mill feed to extend the life of the NICO plant, sub-

ject to more detailed engineering and receipt of applicable permits.

2007

ANNUAL REPORT I 35

SUE DIANNE RESOURCE ESTIMATES

(@0.40% Cu Cut-Off Grade)

Indicated Inferred

Tonnes 8,444,000 1,620,000Cu (%) 0.80 0.79Au (g/t) 0.07 0.07Ag (g/t) 3.20 2.40Cu (millions lbs) 149.10 28.30Au (oz) 19,000 3,600Ag (oz) 855,000 122,000

The mineral resource estimates for the Sue-Dianne project were determined by MiconInternational Limited and P&E Mining Consultants Inc. based on assay data and engineeringstudies. Details of the Sue-Dianne mineral reserves can be seen in the February 22, 2008 newsrelease announcing the results of the Micon technical report dated March 2008, and alsoFortune’s Annual Information Form available on the Sedar website (www.sedar.com). Mr.Terrence Hennessey, P.Geo. and Mr. Eugene Puritch, P.Eng. are Qualified Persons for this work inaccordance with National Instrument 43-101.

BELOW: Block model of the Sue-Dianne copper-silver-gold

deposit (red) with drill holes and open pit optimization.

2007

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITIONS AND RESULTS OF OPERATIONSYear ended December 31, 2007

This Management’s Discussion and Analysis of Fortune Minerals Limited (“Fortune” or the “Company”) is dated February 27, 2008 and shouldbe read in conjunction with the Company’s Annual Audited Consolidated Financial Statements for the year ended December 31,2007 preparedin accordance with Canadian generally accepted accounting principles.All dollar amounts are presented in Canadian dollars.

SELECTED ANNUAL INFORMATION

2007 2006 2005

Total revenues $699,550 $596,034 $579,688Net income (loss) 2,196,067 (39,205) (402,718)Basic and fully diluted income

(loss) per common share 0.05 – (0.01)Total assets 90,353,718 60,236,785 47,851,896Total long term

financial liabilities – – –

SUMMARY OF QUARTERLY RESULTS

2007Dec-31 Sep-30 Jun-30 Mar-31

Revenues $294,749 $203,966 $91,495 $109,340Net income (loss) 2,457,888 (119,701) (112,496) (29,624)Basic and fully diluted

income (loss) percommon share 0.05 – – –

2006Dec-31 Sep-30 Jun-30 Mar-31

Revenues $71,354 $256,385 $128,793 $139,502Net income (loss) 18,856 189,991 (102,386) (145,666)Basic and fully diluted

income (loss) percommon share – – – –

Julian KempVice President Finance and

Chief Financial Officer


2007

ANNUAL REPORT I 37

OVERVIEW

Fortune is a natural resource company with diversified assets, all of which are located in Canada. Currently, the Company is involved in theexploration and development of coal,specialty metals,base metals and precious metals properties.Fortune is making the transition from explo-ration company to mineral producer. The Company’s most significant assets are the Mount Klappan anthracite coal project in northwestBritish Columbia and the NICO cobalt-gold-bismuth project in the Northwest Territories.

Fortune is committed to bringing both of its principal projects into production and accordingly, the Company is evaluating its strategic optionsto allow for the development of these assets in similar timeframes. Fortune intends to develop its NICO project independently, whereas theCompany is contemplating various potential transactions to develop Mount Klappan with a development or joint venture partner. Such a jointventure would be undertaken with the expectation that, with the right business partner(s), the project will ultimately be developed on a larg-er, more profitable scale than Fortune is contemplating on its own. Further, such an arrangement is expected to address issues concerning thefinancing required for putting both projects into commercial production at the same time.The Company’s transition to becoming a produc-er has been facilitated by the successful completion of positive feasibility studies and environmental studies, which have been produced forboth projects. Both feasibility studies have identified sufficient reserves to support long-life mines and the environmental studies have accu-mulated extensive environmental baseline data required to navigate the environmental assessment process.The Company has also completedthe steps required to commence the regulatory permitting process. Operational alternatives are being evaluated to enhance the economics ofeach project, including various construction, processing and transportation options. In addition, the Company has augmented its board andmanagement team and maintained a strong financial position. While it is taking longer than anticipated to achieve certain key milestones,including the negotiation of appropriate agreements with First Nations,obtaining various required permits and arranging project funding,man-agement continues to seek proactive ways to manage the risks that delay or extend the time it takes to conclude these and other necessarytasks.

Fortune offers its investors exposure to a unique combination of commodities with positive long term fundamentals. The markets foranthracite, cobalt, gold and bismuth all demonstrate growing demand and strong prices which has more than offset the strengtheningexchange rate between the Canadian and U.S. dollars. For its feasibility studies, the Company used what management believed to be conser-vative price assumptions.These prices compared to approximate current market prices together with the estimated Canadian dollar equiva-lents are as follows:

Unit of Feasibility Study Market Prices atMeasure Assumptions February 27, 2008 (1)

US$ C$ US$ C$

Anthracite Coal (2) Tonne 100 125 150(3) 150(3)

Cobalt Pound 16.50 19.64 50.00 50.00Gold Ounce 525 625 950 950Bismuth Pound 4.50 5.36 15.00 15.00

(1) Estimated prices based on either publicly quoted prices or Fortune’s internal data generated from industry sources.(2) The Mount Klappan feasibility study was based on producing one bulk product being a 10% ash pulverized coal injection (“PCI”)

product.(3) Estimated market price for a premium anthracite PCI product.Various anthracite coal products are trading between US$100 to

over US$300 per tonne. >

2007


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONSAND RESULTS OF OPERATIONSYear ended December 31, 2007

These price increases reflect market realities both on a demand and supply side. Coal is used to generate 40% of the world’s electricity and isa principal ingredient in the manufacture of steel and other metals. Increasing use of anthracite in these and other applications has resulted inChina (the largest anthracite producer) becoming a net importer, and Vietnam, the second largest producer and exporter, curtailing exports infavour of domestic requirements.The consumption of cobalt is forecast to increase between 8-12% in 2008 and the market has averaged about10% compounded growth per year for the last several years driven primarily by its use in high performance rechargeable batteries,high strengthsteel alloys and catalysts.Growing concerns about the U.S.economy and increasing demand has contributed to significant increases in the priceof gold and it continues to be used as a store of wealth. Bismuth consumption is also increasing principally as a replacement for lead due to itsinert properties and concerns for lead toxicity. Bismuth, a relatively rare metal, has limited supply dominated by China. Globally, the supply ofthese commodities are impacted by rising production costs as a result of increasing costs for steel, fuel, labour and power, increasing regulato-ry costs, resource nationalism and depletion of near-surface higher grade deposits.

Looking ahead, Fortune’s management continues to pursue the implementation of an appropriate strategic alternative related to MountKlappan, is undertaking negotiations with affected First Nations to reach agreements related to environmental assessment funding, access,impacts and benefits, is navigating the permitting process, is enhancing its management skill and depth and is looking to arrange appropriateforms of project financing.

Fortune’s total cash expenditures for exploration and development activities over the last three years were: 2007 – $15,622,043; 2006 –$17,912,606; and 2005 – $7,270,061. Most of these expenditures were on the Company’s Mount Klappan and NICO projects.Total deferredexploration and development expenditures were $53,546,669 as at December 31, 2007, as compared to $37,647,706 as at December 31, 2006.

The Company’s 2007 project related expenditures for NICO focused on the underground bulk sample program, metallurgical test work includ-ing the pilot plant in progress, salvage and dismantling activities at the Golden Giant Mine site, and engineering,environmental studies and com-munity consultation activities. For Mount Klappan, expenditures were focused on examining mine and infrastructure enhancements, planningand engineering design work, environmental studies, and community consultation activities. The actual cash exploration and developmentexpenditures for NICO and Mount Klappan totalled $15.6 million and exceeded the forecast expenditures by $1.6 million due to additionalengineering, project enhancement activities and environmental work that was carried out in addition to originally forecasted activities.

These expenditures incurred by Fortune to develop its assets reflect the Company’s drive to become a producer.Until such time, if any, as oper-ations generate earnings and cash flow, the Company will rely on equity and project debt financings to fund its activities.The Company hassought to minimize equity dilution while building shareholder value by focusing on managing the primary risks inherent in undertaking suchmining activities. In furtherance of these aims, Fortune has: (i) minimized administrative and other expenditures to focus on project activities;(ii) purchased assets, most notably the Golden Giant Mine mill, buildings and equipment to secure significant portions of the required materi-als for its NICO development at advantageous prices; (iii) conducted studies to test the feasibility of its projects; (iv) planned and executed bulksampling and pilot plant tests to verify reserves, process methods and provide data to complete the detailed engineering; (v) conducted envi-ronmental studies to support permitting; and (vi) carried out extensive consultation activities with First Nations and communities impacted byour proposed developments.

Prudent management of its financial position is reflected in Fortune’s negligible net losses before income taxes of $249,933 and $719,205 forthe years ended December 31, 2007 and 2006, respectively.The Company’s 2007 loss before income taxes decreased when compared to 2006principally as a result of higher investment income, and lower stock-based compensation, offset by higher administrative and investor relationscosts.The Company’s net income of $2,196,067 or $0.05 per share for the year ended December 31, 2007 compares with a net loss of $39,205or $nil per share and includes the recovery of future income taxes of $2,446,000 and $680,000, respectively.The Company’s net income of$2,457,888 or $0.05 per share for the three months ended December 31, 2007 and the net income of $18,856 or $nil per share for the threemonths ended December 31, 2006 reflect the same positive trends.

2007

ANNUAL REPORT I 39

RESULTS OF OPERATIONS

RevenuesFortune’s primary source of revenue remains its investment income, which increased to $699,550 in 2007 compared to $596,034 in 2006.Theincreased revenue was the result of higher investment yields related to increasing short term interest rates during 2006 and 2007 as well asstrengthened working capital balances due to the financing completed in July 2007.The Company invests its surplus cash in low risk, liquidinvestments, which typically have low yields. Given the anticipated expenditures in 2008 related to project engineering, pilot plant testing, dis-mantling of the Hemlo assets, environmental assessment and permitting activities, increased payroll and other development activities, manage-ment anticipates declining cash balances and reduced revenues for 2008 compared to 2007.

ExpensesExpenses decreased in 2007 to $906,977 compared to $1,292,709 in 2006.The decrease is primarily attributable to lower stock-based compen-sation expense offset by higher administrative and investor relations costs during 2007 compared to 2006.

Upon the grant of stock options, management estimates the fair value of the options using the Black-Scholes model.The estimated fair value ofthe options is allocated to stock-based compensation expense, capital assets and deferred assets based on an approximation of the allocation ofthe optionee’s future compensation. In the case of directors who do not receive any cash compensation, the entire fair value of the optionsgranted is recorded as a stock-based compensation expense.

Summary estimated fair value of stock options granted:

2007 2006

Options granted during the year 225,000 900,000Total estimated fair value $290,750 $1,158,000Average fair value per option $1.29 $1.29Allocated to:

Stock-based compensation expense $103,250 $798,000Deferred exploration expenditures $150,000 $295,000Capital assets $37,500 $65,000

The increases in administrative and public relations expenses reflect the growth in personnel and investor relations activities related to growthof the Company.

The Company’s net income for 2007 includes its share in losses in Formosa Environmental Aggregates Ltd. (“Formosa”) of $844 (following theequity method of accounting for investments) up to August 8, 2007, the date Fortune disposed of its interest in Formosa. Upon disposal of itsinterest, the Company recognized a $2,665 gain.Also included in the Company’s net income was the write-off of $44,327 in deferred explo-ration expenditures related to certain mineral claims it has chosen not to pursue. In 2006, the Company’s share of losses in its equity investeewas $1,838 and $20,692 of deferred exploration expenditures was written off.

Future Tax RecoveryThe Company recognized a future income tax recovery and reduced the Company’s future tax liability by $2,446,000 in 2007 compared to areduction of future tax liability of $680,000 in 2006.This difference is a result of reductions in the substantively enacted future tax rates andrecognition of the benefit of certain non-capital losses and un-deducted share issue expenses.The Company’s future tax liability has arisen,prin-cipally, due to the increasing difference between the book and tax values of its assets.This increased difference primarily reflects the renuncia-tion of tax deductions to investors of flow through shares.

2007



Cash FlowCash provided by operating activities in 2007 was $756,446 compared to cash used in operating activities in 2006 of $84,611. However, oper-ating activities before changes in non-cash working capital used cash of $97,354 in 2007 compared to providing a source of cash of $79,314 in2006. In 2006, investment income earned was sufficient to fully fund the Company’s administrative and investor relations costs.This was notthe case in 2007 due to increasing administrative and investor relations activities. Management anticipates this trend will continue and thatinvestment income will not fully cover these costs in 2008.The source of cash from the changes in working capital balances for 2007 primari-ly reflected a decrease in receivables and an increase in accounts payable and accrued liabilities.

Cash used in investing activities decreased to $16,183,108 in 2007 from $22,720,088 in 2006.The 2006 figure primarily includes deferred explorationexpenditures of $17,912,606 and the purchase of capital assets of $4,806,275.The 2007 figure primarily consists of deferred exploration expendituresof $15,622,043, the purchase of capital assets of $375,519 and the posting of $342,127 in security deposits pursuant to the dismantling and removalof the Hemlo assets.The nature and size of its investing activities reflect the Company’s transformation into a production company.

The Company raised net cash proceeds of $26,703,173 in 2007 from the issuance of 10,610,000 shares and 5,448,000 warrants.This comparesto $11,547,623 in 2006 from the issuance of 4,065,500 shares.The shares and warrants issued in 2007 include 1,000,000 shares and 100,000warrants issued related to the purchase of the minority interest in the NICO project and 573,000 warrants issued to agents in lieu of fees.Theissuance of these shares and warrants are non-cash transactions.

Reconciliation of cash and non-cash changes in share capital:2007

Shares/Warrants Cash Non-cash TotalIssued Proceeds, Net Proceeds, Net Proceeds, Net

# $ $ $

Common shares issued during the yearPublic offering (1) 9,550,000 25,067,463 (367,560) 24,699,903Purchase of property interest 1,000,000 – 3,000,000 3,000,000Exercise of options 60,000 138,000 68,572 206,572Future tax impact – (2,030,000) (2,030,000)

Total common shares issued 10,610,000 25,205,463 671,012 25,876,475Average proceeds per share 2.38 0.06 2.44

Warrants issued during the yearPublic offering (1) 4,775,000 1,497,710 (22,080) 1,475,630Warrants in lieu of fees 573,000 – 389,640 389,640Purchase of property interest 100,000 – 174,790 174,790Future tax impact – (54,000) (54,000)

Total warrants issued 5,448,000 1,497,710 488,350 1,986,060Average proceeds per warrant 0.27 0.09 0.36

Change in share capital 26,703,173 3,216,440 27,862,535

(1) Public offering consisted of 9,550,000 units for $3.00 per unit. Each unit consisted of one common share and one half of onecommon share purchase warrant.

2007

ANNUAL REPORT I 41

2006

Shares/Warrants Cash Non-cash TotalIssued Proceeds, Net Proceeds, Net Proceeds, Net

# $ $ $

Common shares issued during the yearPrivate Placement 3,481,000 11,057,970 – 11,057,970Exercise of warrants 30,800 100,100 21,560 121,660Exercise of options 553,700 389,553 171,823 561,376Future tax impact – (2,920,000) (2,920,000)

Total common shares issued 4,065,500 11,547,623 (2,726,617) 8,821,006Average proceeds per share 2.84 (0.67) 2.17

Warrants issued during the yearExercised (30,800) – (21,560) (21,560)Expired (310,596) – (594,792) (594,792)

Total warrants issued (341,396) – (616,352) (616,352)Average proceeds per warrant – (1.81) (1.81)

Change in share capital 11,547,623 (3,443,023) 8,204,654

LIQUIDITY AND CAPITAL RESOURCES

As at December 31, 2007, Fortune had cash and cash equivalents of $23,218,869 and working capital of $22,679,084, with no debt. TheCompany’s principal operational objectives for 2008 are focused on activities related to the advancement of both its NICO and Mount Klappanprojects.This includes the completion of pilot plant, metallurgical test work on the NICO bulk sample collected in 2006 and 2007; the tender-ing of a contract to deconstruct and move the Golden Giant Mine buildings,milling equipment, surface facilities and inventory; continuing withthe environmental assessment and permitting process for both projects;negotiations with First Nations for various agreements related to impactand benefits at both projects; conducting front-end engineering and design activities for NICO; implementing strategic plans arising out of theongoing review of strategic alternatives for Mount Klappan’s development; and the continued assessment of potential enhancements to projectdesigns. Forecasted expenditures for 2008 at NICO, Hemlo and Mount Klappan total approximately $10 million, $5 million and $2 million,respectively. Fortune has sufficient resources to carry out its 2008 planned activities and, if warranted,may expand its activities.The costs of dis-mantling Hemlo will be partially offset by the sale of surplus equipment, recyclable and scrap metals and the recovery of residual precious met-als from the equipment, tanks and other facilities. Ultimately, additional financing will be required to construct the mine infrastructure andacquire additional equipment.The Company will continue evaluating its alternatives and to execute a financing plan to suitably fund the trans-formation of Fortune into a producer.

OUTLOOK

The Company’s principal objective is to achieve successful commercial production at its Mount Klappan and NICO projects.The Company’sactivities in pursuit of this objective are subject to many risks as discussed below under the “Risks and Uncertainties”section.However, the mostsignificant risks to meeting its objective in the targeted time frame are currently permitting, financing and industry competition for resources,principally workers.These risks arise to a great extent due to the many external people or organizations such as government regulators, FirstNations, investors, competitors, and workers who have significant influence over the outcome of the Company’s efforts.As such, managementhas sought proactive ways to address risks in its business model and believes the Company has developed the necessary platform to go forward.To manage and mitigate these identified risks, Fortune has taken the following actions:

2007



Permitting:• Fortune has contracted leading environmental consulting firms including Rescan Environmental Services and Golder Associates, which

have appropriate depth, knowledge and track records in the environmental assessment and permitting fields.The Company has workedwith these firms over many years in order to acquire and accumulate the environmental baseline data required for the permitting process.

• The Company has engaged in-house expertise, such as Dr. Richard Schryer and James Mucklow to manage and direct the necessary issuesconcerning regulatory, environmental, and community affairs.

• Fortune has endeavored to build strong relationships with the First Nations affected by our projects.Through these ongoing efforts, theCompany believes it is in a position to successfully negotiate major impacts and benefits agreements with various First Nations.Completionof these agreements requires the participants to endeavor to ensure appropriate terms and conditions exist to enable the pursuit andachievement of common goals of sustainable development.

Financing:• The Company has improved its ability to debt finance its projects by carefully managing operational risks. Operational risks have been

reduced by having completed extensive engineering and geological studies culminating in the completion of independent feasibility stud-ies prepared by recognized and respected engineering firms such as Micon International, Met-Chem Canada and Marston & Marston. Inaddition, enhancements, refinements and further test work have been undertaken, such as a two-year underground test mining program atNICO, with large scale pilot plant testing being undertaken at SGS Lakefield Research.This latter work resulted in refinements to the pro-cessing system,including enhanced flotation recoveries,and the demonstrated ability to produce a bismuth metal or cement product ratherthan a concentrate.

• The Company has an experienced and knowledgeable board and management team and has been able to complement its strengths by hir-ing people with vital skills and experience.These include Mike Samuels,who is highly skilled and experienced in process design and devel-opment, Nicole Hayduk a lawyer with extensive experience in contracts administration in a mining environment,Andre Tricoteux, who isknowledgeable and widely experienced in procurement and logistics in the Northwest Territories and Adam Jean, a Chartered Accountantexperienced in establishing, testing and managing financial reporting and control environments.

• Strong markets exist for the commodities Fortune will produce due to increasing global demand.Currently, anthracite coal,gold,cobalt andbismuth are all selling at or near their respective all-time highs.

• The Company’s two positive, independently produced feasibility studies support reserves for long life mines producing needed and valu-able commodities, positioning the Company to be an attractive investment for both equity and debt markets.

Industry Competition for Workers:• Although competition for experienced resource industry personnel is intense, Fortune has certain advantages and unique characteristics

that present an opportunity to build a work force for its projects. For example, although the Company’s projects are in relatively remotelocations, there are local communities nearby which offer the benefit of enabling local people and prospective First Nation employees totravel to and from work each day rather than working extended periods of time away from home. Further, due to the relative unique orebodies and commodities found at NICO and Mount Klappan, the projects themselves offer rewarding and challenging environments bothfrom a technical and market perspective.

• To help take advantage of the opportunity, Fortune hired an experienced human resources specialist, Patrick Moloney, to guide, establishand manage an attractive and safe work environment, which provides competitive compensation rates, training and career developmentopportunities to attract and retain skilled workers.

The Company, as it moves forward, will continue to focus on mitigating these risk areas.At the same time, management believes the technicaland construction risks of commencing production are largely in the control of the Company and can be mitigated such as through the imple-mentation of appropriate insurance programs.Also, the Company is confident that such technical and construction risks have, to a great extent,been dealt with through the technical work already completed.

2007

ANNUAL REPORT I 43

TRANSACTIONS WITH RELATED PARTIES

During 2007, the Company paid Robin Goad, the President and CEO, $239,200 for geological consulting and administrative consulting serviceson behalf of the Company;Kemp Management Services, a sole proprietorship of Julian Kemp, the Vice President Finance and CFO,$195,800 forfinancial, management and administrative consulting services on behalf of the Company; Macleod Dixon LLP, a partnership of which DavidKnight, the Secretary and a director, is a partner, $177,700 for legal services; and Clouter Enterprises Inc., a private company controlled by CarlClouter, a director, $57,400 for third-party management, community relations and project related consulting services on behalf of the Company.

On August 8, 2007, the Company acquired from Candou Industries Ltd. (“Candou”), a company controlled by George Doumet, the Chairman ofthe Company, its minority interest in the NICO claims in exchange for 1,000,000 common shares of Fortune, 100,000 common share purchasewarrants of Fortune, Fortune’s 30% ownership interest in Formosa and the receivable due Fortune from Formosa. Prior to that date, the NICOclaims were subject to a joint venture agreement between Candou and Fortune, and Federal White Cement, Ltd., (“Federal White”), a companycontrolled by George Doumet, owned the remaining 70% interest in Formosa.At August 8, 2007 and December 31, 2006, in addition to its equi-ty contributions, the Company had advanced, cumulatively, a total of $240,210 to Formosa to fund its activities. Federal White had advanced$383,089.These advances were unsecured, non-interest bearing and had no fixed terms of repayment.

CRITICAL ACCOUNTING ESTIMATES

Interests in Mining Properties and Deferred Exploration ExpendituresIn accordance with the Company’s accounting policies,acquisition costs and exploration expenditures relating to mineral properties are deferreduntil the properties are brought into commercial production or disposed.Amortization will commence when a property is put into commercialproduction.As the Company does not currently have any properties in commercial production, no amortization has been recorded.

Mineral reserve and mineral resource estimates are not precise and also depend on statistical inferences drawn from drilling and other data,which may prove to be unreliable. Future production could differ from mineral resource estimates for the following reasons:

(a) Mineralization or formation could be different from those predicted by drilling, sampling and similar tests;(b) The grade of mineral resources may vary from time to time and there can be no assurance that any particular level of recov-

ery can be achieved from the mineral resources; and(c) Declines in the market prices of contained minerals may render the mining of some or all of the Company’s mineral

resources uneconomic.

Any of these factors may result in impairment of the carrying amount of interests in mining properties or deferred exploration expenditures.

Future Income TaxesThe Company follows the liability method of tax allocation in accounting for income taxes. Under this method, future tax assets and liabilitiesare determined based on differences between the financial reporting and tax bases of assets and liabilities, and measured using the substantive-ly enacted tax rates and laws that will be in effect when the differences are expected to reverse.Assessing the recoverability of deferred taxassets requires management to make significant estimates related to expectations of future taxable income and substantively enacted tax rates.The Company,by 2007,has completed feasibility studies for both of its principal projects and undertaken related permitting and financing activ-ities. Management has determined it is more likely than not that the Company will achieve production and realize the benefit of certain non-capital losses and its un-deducted share issuance costs.The benefit of these amounts is estimated to be $1,196,000 and has been recorded inthe consolidated financial statements to the extent that the deduction for share issuance costs and operating losses expire post-2015.A futuretax liability of $8,098,000 has also been recorded in the consolidated financial statements for the book value of deferred exploration expendi-tures and capital assets in excess of tax value.

2007



Stock Based CompensationThe Company recognizes an expense for option awards using the fair value method of accounting.Management estimates the fair value of stockoptions using the Black-Scholes model.The Black-Scholes model, used by the Company to calculate option values, as well as other acceptedoption valuation models, was developed to estimate fair value of freely tradable, fully transferable options, which significantly differ from theCompany’s stock option awards.These models also require four highly subjective assumptions, including future stock price volatility and expect-ed time until exercise, which greatly affect the calculated values.Accordingly, management believes that these models do not necessarily pro-vide a reliable single measure of the fair value of the Company’s stock option awards.The valuation models are used to provide a reasonableestimate of fair value given the variables used.

Asset Retirement ObligationsLegal obligations associated with site restoration on the retirement of assets are recognized when they are incurred when a reasonable estimateof fair value can be made. If a reasonable estimate of fair value cannot be made in the period the asset retirement obligation is incurred, the lia-bility should be recognized when a reasonable estimate of fair value can be made.The Company has not commenced operations on its miningproperties and the principal projects are in the development stage. Due to the uncertainty around the amount and timing of potential assetretirement obligations for the Company’s projects, management is not able to make a reasonable estimate of fair value at this time. Each period,management reviews whether a reasonable estimate of fair value can be made on potential future asset retirement obligations for each project.

NEW ACCOUNTING STANDARDS

Section 3855 Financial Instruments – Recognition and MeasurementEffective January 1, 2007, the Company adopted the CICA Handbook Section 3855 Financial Instruments – Recognition and Measurementand the related Sections 3860 Financial Instruments – Hedging and 3861 Financial Instruments – Disclosure and Presentation.The adop-tion of these new standards resulted in changes in the accounting for financial instruments,as well as the recognition of certain transition adjust-ments.The comparative consolidated financial statements have not been restated.The principal changes in the accounting for financial instru-ments due to the adoption of these accounting standards are described in notes to the financial statements.The adoption of these Sections hasbeen completed retroactively without restatement of the consolidated financial statements of prior periods.As at January 1, 2007, the effect ofadopting these standards was to increase short-term investments by $453,decrease reclamation bonds by $4,934 and increase deficit by $4,481.

Section 3862 Financial Instruments – Disclosure and 3863 Financial Instruments – PresentationEffective the fiscal year beginning January 1, 2008, the Company is required to adopt Section 3862 Financial Instruments – Disclosure andSection 3863 Financial Instruments – Presentation.The new standards replace the disclosure and presentation requirements of Section 3861Financial Instruments – Presentation & Disclosure.

Section 3862 Financial Instruments – Disclosure establishes standards for disclosures about financial instruments and non-financial derivatives.The new standard places increased emphasis on disclosure about risks associated with financial instruments and how these risks are managed.The adoption of this standard is expected to increase the Company’s financial instruments note disclosure only with respect to financial instru-ments.

Section 3863 Financial Instruments – Presentation carries forward the financial instrument presentation requirements of Section 3861.Theadoption of this standard is not expected to impact the presentation of the Company’s financial statements.

Section 1535 Capital DisclosuresEffective the fiscal year beginning January 1, 2008, the Company is required to adopt Section 1535 Capital Disclosures. The new standardrequires disclosure of information about the Company’s objectives,policies and processes for managing capital,as well as quantitative data aboutcapital and compliance with any capital requirements.The adoption of this standard is expected to increase the Company’s financial statementnote disclosures only with respect to capital.

2007

ANNUAL REPORT I 45

International Financial Reporting StandardsEffective January 1,2011, the accounting framework under which financial statements are prepared in Canada for all publicly accountable enter-prises is schedule to change to International Financial Reporting Standards (“IFRS”). Generally accepted accounting principles (“GAAP”) inCanada will cease to apply and will be replaced by IFRS. The Accounting Standards Board plans to implement changes to Canadian generallyaccepted accounting principles between now and the implementation date to smooth the transition; however, it is expected that IFRS imple-mentation will significantly impact current financial statement presentation and disclosure. An IFRS convergence strategy is planned for cre-ation during fiscal 2008 with disclosure of a more detailed plan in 2009. Commencing in fiscal 2010, the Company will need to prepareaccounts in accordance with Canadian GAAP and IFRS in order to have comparative financial statements on full implementation of IFRS in 2011.

ENVIRONMENT

Fortune is committed to a program of environmental protection at its development projects and exploration sites. Fortune was in compliancewith government regulations in 2007.The Company has provided secured letters of credit in the aggregate amount of $518,000 to be heldagainst future environmental obligations with respect to the Mount Klappan and NICO properties.

RISK AND UNCERTAINTIES

The operations of the Company are speculative due to the high-risk nature of its business, which is the acquisition, financing, exploration anddevelopment of mining properties.The risks below are not the only ones facing the Company. Additional risks not currently known to theCompany, or that the Company currently deems immaterial, may also impair the Company’s operations. If any of the following risks actuallyoccur, the Company’s business, financial condition and operating results could be adversely affected.

Nature of Mineral Exploration and MiningAt the present time the Company does not hold any interest in a mining property in production.The Company’s viability and potential successis based on its ability to develop, exploit and generate revenue from mineral deposits.The exploration and development of mineral depositsinvolve significant financial risk over a significant period of time, which even a combination of careful evaluation, experience and knowledgemay not eliminate.While discovery of a mine may result in substantial rewards, few properties which are explored are ultimately developed intoproducing mines. Major expenses may be required to establish reserves by drilling and to construct mining and processing facilities at a site. Itis impossible to ensure that the current or proposed exploration and development programs on the properties in which the Company has aninterest will result in a profitable commercial mining operation.

The operations of the Company are subject to all of the hazards and risks normally incident to exploration and development of mineral prop-erties, any of which could result in damage to life and property, the environment and possible legal liability for any and all damage.The activi-ties of the Company may be subject to prolonged disruptions due to weather conditions depending on the location of the operations in whichthe Company has interests. Hazards, such as unusual or unexpected geological structures, rock bursts, pressure, cave-ins, flooding or other con-ditions may be encountered in the drilling and removal of material. While the Company may obtain insurance against certain risks in suchamounts as it considers adequate, the nature of these risks are such that liabilities could exceed policy limits or could be excluded from cover-age.There are also risks against which the Company cannot insure or against which it may elect not to insure.The potential costs which couldbe associated with any liabilities not covered by insurance or in excess of insurance coverage or associated with compliance with applicablelaws and regulations may cause substantial delays and require significant capital outlays, adversely affecting the future earnings and competitiveposition of the Company and, potentially, its financial position.

Whether a mineral deposit will be commercially viable depends on a number of factors, some of which are the particular attributes of thedeposit,such as size and grade,proximity to infrastructure,financing costs and governmental regulations, including regulations relating to prices,taxes, royalties, infrastructure, land use, importing and exporting and environmental protection.The effect of these factors cannot be accurate-ly predicted, but the combination of these factors may result in the Company not receiving an adequate return on invested capital.

2007



Limited Financial Resources The existing financial resources of the Company are not sufficient to bring any of its properties into commercial production.The Company willneed to obtain additional financing from external sources and/or find suitable joint venture partners in order to fund the development of theMount Klappan and NICO properties.There is no assurance that the Company will be able to obtain such financing or joint venture partnerson favourable terms, or at all. Failure to obtain financing or joint venture partners could result in delay or indefinite postponement of furtherexploration and development of the Company’s properties.

Dependence on Key Personnel and Limited Management TeamFortune is dependent on the services of its senior management, including Robin Goad, its President and Chief Executive Officer, and a smallnumber of skilled and experienced employees and consultants.The loss of any such individuals could have a material adverse effect on Fortune’soperations. In addition, Fortune may need to supplement its existing management team in order to bring any of its projects into production.

Fluctuating PricesFactors beyond the control of the Company may affect the marketability of coal, cobalt, bismuth, gold or any other minerals discovered.Commodity prices have fluctuated widely and are affected by numerous factors beyond the Company’s control.The effect of these factors can-not accurately be predicted.

Permits and LicensesThe operations of the Company require licenses and permits from various governmental authorities.The Company believes that it presentlyholds all necessary licenses and permits required to carry out the activities which it is currently conducting under applicable laws and regula-tions and the Company believes it is presently complying in all material respects with the terms of such licenses and permits. However, suchlicenses and permits are subject to change in regulations and in various operating circumstances.The Company has submitted requisite appli-cations for land use and water licenses in order to construct and operate a mine at its NICO project.These applications may trigger an environ-mental assessment of the project and are subject to review or approval by several regulatory and First Nation bodies. In addition, the Companyis navigating the environmental assessment process related to its Mount Klappan project. Subject to receiving an environmental certificate fromthis process, the Company is still required to apply and obtain mining permits in order to build and operate a mine.There can be no assurancethat the Company will be able to obtain all necessary licenses and permits required to carry out future exploration, development and miningoperations at its projects.

CompetitionThe mineral exploration and mining business is competitive in all its phases.The Company competes with numerous other companies and indi-viduals, including other resource companies with greater financial, technical and other resources than the Company, in the search for and theacquisition of attractive mineral properties, the acquisition of mining equipment and related supplies and the attraction and retention of quali-fied personnel.The ability of the Company to acquire properties, purchase required equipment, and hire qualified personnel in the future willdepend not only on its ability to develop its present properties, but also on its ability to identify, arrange, negotiate, select or acquire suitableproperties or prospects for mineral exploration, source suitable equipment and hire qualified people. Based on the feasibility studies preparedfor its two principal properties, the estimated capital costs for the construction of a mine and related infrastructure at NICO exceed $200 mil-lion and at Mount Klappan,depending on the production profile,exceed $400 million. In addition, forecast employment levels are approximate-ly 250 and 400 people for NICO and Mount Klappan, respectively.There is no assurance that the Company will continue to be able to competesuccessfully with its competitors in the acquisition of building materials, sourcing equipment or hiring people.

2007

ANNUAL REPORT I 47

Environmental and Climate Change RegulationThe operations of the Company are subject to environmental regulations promulgated by government agencies from time to time.Environmentallegislation provides for restrictions and prohibitions on spills, releases or emissions of various substances produced in association with certainmining industry operations, such as seepage from tailings disposal areas, which would result in environmental pollution.A breach of such leg-islation may result in the imposition of fines and penalties. In addition, certain types of operations require the submission and approval of envi-ronmental impact assessments. Environmental legislation is evolving in a manner which means standards, enforcement, fines and penalties fornon-compliance are more stringent.Environmental assessments of proposed projects carry a heightened degree of responsibility for companiesand their directors, officers and employees.The Company has carried out and completed significant environmental baseline studies to positionthe Company to successfully complete any required environmental assessments but there is no assurance that environmental certificates canbe obtained in a timely manner.The cost of compliance with changes in governmental regulations has the potential to reduce the profitabilityof future operations.The impacts of the Kyoto Protocol or alternative potential climate change legislation are difficult to predict and are not yetfully understood. Such impacts may have an adverse effect on the capital and operating cost of the Company’s operations or those of its futurecustomers that may materially affect future operations.

Aboriginal Title and Rights ClaimsAboriginal title and rights may be claimed with respect to Crown properties or other types of tenure with respect to which mining rights havebeen conferred.The Company is not aware of any aboriginal land claims having been formally asserted or any legal actions relating to aborigi-nal issues having been instituted with respect to the properties other than certain treaty rights established by the Nisga’a and Tlicho for theMount Klappan and NICO projects, respectively.The Company is aware of certain First Nations that claim certain title and rights with respectto Crown properties related to the Company’s projects that may or may not be formally asserted with the Crown in order to seek comprehen-sive land claim settlements. Further, in 2005, the Company’s Mount Klappan property was the subject of a blockade by a group of individuals,most being aboriginals, which required the Company to obtain a court injunction to remove the blockade.There can be no assurance that sim-ilar events will not occur or that additional title and rights claims will not be asserted in the future in respect of the Company’s properties.TheCompany is aware of the mutual benefits afforded by co-operative relationships with indigenous people in conducting exploration and devel-opment activity and is supportive of measures established to achieve such cooperation including preferential hiring practices, local businessdevelopment activities, involvement in environmental stewardship and other forms of accommodation. It will also be necessary for theCompany to negotiate and enter into appropriate impacts and benefits agreements with relevant First Nations in order to bring its projects intoproduction and there is no assurance that the Company will be able to negotiate such agreements on favourable terms or at all. In addition,other parties may dispute the Company’s title to the properties and the properties may be subject to prior unregistered agreements or trans-fers or land claims by aboriginal peoples, and title may be affected by undetected encumbrances or defects or government actions.

Estimates of Mineral Reserves and Resources May Not be RealizedThe mineral reserve and resource estimates published from time to time by the Company with respect to its properties are estimates only andno assurance can be given that any particular level of recovery of minerals will in fact be realized or that an identified resource will ever qual-ify as a commercially mineable (or viable) deposit which can be legally and economically exploited. In addition, the grade of mineralization ulti-mately mined may differ from that indicated by drilling results and such differences could be material. Production can be affected by such fac-tors as permitting regulations and requirements, weather, environmental factors, unforeseen technical difficulties, unusual or unexpected geo-logical formations, inaccurate or incorrect geological,metallurgical or engineering work,and work interruptions,among other things.Short-termfactors, such as the need for orderly development of deposits or the processing of new or different grades, may have an adverse effect on min-ing operations or the results of operations.There can be no assurance that minerals recovered in small-scale laboratory tests will be duplicatedin large scale tests under on-site conditions or in production scale operations. Material changes in resources, grades, stripping ratios or recoveryrates may affect the economic viability of projects.The estimated resources described herein should not be interpreted as assurances of minelife or of the profitability of future operations.

The Company has engaged expert independent technical consultants to advise it with respect to mineral reserves and resources and projectengineering, among other things.The Company believes that those experts are competent and that they have carried out their work in accor-dance with all internationally recognized industry standards. However, if the work conducted by those experts is ultimately found to be incor-rect or inadequate in any material respect, the Company may experience delays and increased costs in developing its properties.

2007



Health and Safety Matters The Company’s development and exploration projects are affected by various laws and regulations, including those which cover health and safe-ty matters. Existing legislation and regulations are subject to change, the impacts of which are difficult to measure. It is the policy of theCompany to maintain safe working conditions at all its work sites, comply with health and safety legislation, maintain equipment and premisesin safe condition and ensure that all employees are trained and comply with safety procedures.

FINANCIAL INSTRUMENTS

The Company’s financial instruments consist of cash and cash equivalents, short-term investments, accounts receivable, reclamation bonds,accounts payable and accrued liabilities and income taxes payable. These financial instruments are recorded at their fair values except foraccounts receivable,accounts payable and accrued liabilities and income taxes payable which are recorded at amortized cost. It is management’sopinion that the Company is not exposed to significant interest or credit risks arising from these financial instruments.The Company mitigatesits risk by holding its short-term investments in instruments low in risk and highly rated with large financial institutions.

ADDITIONAL INFORMATION

Additional information relating to the Company, including its current and previous year’s annual information forms are available on SEDAR atwww.sedar.com.

SHARE DATA

As at the date hereof, the Company has 50,100,047 common shares issued and outstanding, as well as options to purchase an aggregate of2,090,000 common shares expiring at various dates between April 13, 2008 and February 28, 2013 and exercisable at various prices between$1.75 and $4.95 per share and common share purchase warrants to purchase an aggregate of 5,448,000 warrants all of which expire on July26, 2009, except for 100,000 warrants expiring on August 8, 2012, and exercisable at either $3.00 or $3.75 per share.

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Disclosure controls and procedures are designed to provide reasonable assurance that all relevant information is gathered and reported to sen-ior management, including the Company’s Chief Executive Officer and Chief Financial Officer, on a timely basis so that appropriate decisionscan be made regarding public disclosure.As at the end of the period covered by this management’s discussion and analysis, management ofthe Company, with the participation of the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of theCompany’s disclosure controls and procedures as required by Canadian securities laws. Based on that evaluation, the Chief Executive Officerand the Chief Financial Officer have concluded that, as of the end of the period covered by this MD&A, the disclosure controls and proce-dures were effective to provide reasonable assurance that information required to be disclosed in the Company’s annual filings and interimfilings (as such terms are defined under Multilateral Instrument 52-109 — Certification of Disclosure in Issuers’Annual and Interim Filingsof the Canadian Securities Administrators) and other reports filed or submitted under Canadian securities laws is recorded, processed, summa-rized and reported within the time periods specified by those laws and that material information is accumulated and communicated to man-agement of the Company, including the Chief Executive Officer and the Chief Financial Officer,as appropriate to allow timely decisions regard-ing required disclosure.

2007

ANNUAL REPORT I 49

INTERNAL CONTROLS OVER FINANCIAL REPORTING

Internal controls over financial reporting are designed to provide reasonable assurance regarding the reliability of the Company’s financialreporting and the preparation of financial statements in compliance with Canadian generally accepted accounting principles.Any system ofinternal control over financial reporting, no matter how well-designed, has inherent limitations.Therefore, even well-designed systems of inter-nal control can provide only reasonable assurance with respect to financial statement preparation and presentation.

The Company assesses internal controls over financial reporting on an ongoing basis and where determined appropriate, proactively imple-ments enhancements to the design of controls required to support anticipated changes to and growth of the business.Due to operational, finan-cial and administrative changes planned to occur over the next three years as the Company transforms from an exploration company to a pro-ducer together with the adoption of IFRS,changes will be required to the Company’s internal controls over financial reporting in order to main-tain reasonable assurance regarding the reliability of the Company’s financial reporting and preparation of financial statements.As such the fol-lowing changes to the Company’s internal controls over financial reporting during the year ended December 31,2007 that have materially affect-ed, or are reasonably likely to materially affect, its internal controls over financial reporting were implemented:

• Comprehensive formal policies and procedures related to expenditure controls and labour activities;• Increased segregation of duties and controls over compliance with contractual obligations with the hiring of a Contracts

Administration Manager.

There were no other changes to the Company ‘s internal controls over financial reporting during the year ended December 31, 2007 that havematerially affected, or are reasonably likely to materially affect, its internal controls over financial reporting.

This discussion contains certain forward-looking information.This forward-looking information includes, or may be based upon, estimates,forecasts, and statements as to management’s expectations with respect to, among other things, the size and quality of the Company’s min-eral resources, progress in development of mineral properties, demand and market outlook for metals and future metal prices.Forward-look-ing information is based on the opinions and estimates of management at the date the information is given, and is subject to a variety ofrisks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking information.These factors include the inherent risks involved in the exploration and development of mineral properties, the uncer-tainties involved in interpreting drilling results and other geological data, fluctuating metal prices, delays in the development of theCompany’s projects caused by unavailability of equipment, labour or supplies, climatic conditions or otherwise, the possibility of project costoverruns or unanticipated costs and expenses, uncertainties relating to the availability and costs of financing needed in the future and otherfactors. Readers are cautioned to not place undue reliance on forward-looking information because it is possible that predictions, forecasts,projections and other forms of forward-looking information will not be achieved by the Company. These forward-looking statements aremade as of the date hereof and the Company assumes no responsibility to update them or revise them to reflect new events or circumstances,except as required by law.

2007


The consolidated financial statements, the Management Discussion and Analysis, and all other information in this annual report are the responsibil-ity of management and have been approved by the Board of Directors.The consolidated financial statements have been prepared by managementin accordance with accounting principles generally accepted in Canada.When alternative accounting methods exist,management has chosen thoseit deems most appropriate in the circumstances. Financial statements are not precise since they include certain amounts based on estimates andjudgments.Management has determined such amounts on a reasonable basis given currently available information in order to ensure that the finan-cial statements are presented fairly, in all material respects. Management has prepared the financial information presented elsewhere in the annu-al report and has ensured that it is consistent with that in the consolidated financial statements.

The Company maintains systems of internal accounting and administrative controls in order to provide, on a reasonable basis, assurance that thefinancial information is relevant, reliable and accurate and that the Company’s assets are appropriately accounted for and adequately safeguarded.

The Board of Directors is responsible for ensuring that management fulfills its responsibility for financial reporting and is ultimately responsiblefor reviewing and approving the consolidated financial statements. The Board carries out this responsibility principally through its AuditCommittee.

The Audit Committee is appointed by the Board, and its members are outside directors.The Committee meets with management as well as theexternal auditors to discuss auditing matters and financial reporting issues and to review the annual report, the consolidated financial statements,the Management Discussion and Analysis and the external auditors’ report.The Committee reports its findings to the Board for consideration whenapproving the consolidated financial statements for issuance to the shareholders. The Committee also considers, for review by the Board andapproval by the shareholders, the engagement or reappointment of the external auditors.

The consolidated financial statements have been audited by Ernst & Young LLP, the external auditors, in accordance with generally accepted audit-ing standards on behalf of shareholders.The external auditors have free access to the Audit Committee.

Robin Goad Julian KempPresident and Vice President Finance andChief Executive Officer Chief Financial Officer

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING

2007

ANNUAL REPORT I 51

To the Shareholders ofFortune Minerals Limited

We have audited the consolidated balance sheets of Fortune Minerals Limited as at December 31, 2007 and 2006 and the consolidated state-ments of loss and deficit and cash flows for the years then ended.These financial statements are the responsibility of the Company’s management.Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing standards.Those standards require that we plan and performan audit to obtain reasonable assurance whether the financial statements are free of material misstatement.An audit includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financial statements.An audit also includes assessing the accounting principles usedand significant estimates made by management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December31, 2007 and 2006 and the results of its operations and its cash flows for the years then ended in accordance with Canadian generally acceptedaccounting principles.

London, Canada, Chartered AccountantsFebruary 19, 2008. Licensed Public Accountants

AUDITORS’ REPORT

2007


As at December 31 2007 2006$ $

ASSETSCurrent assetsCash and cash equivalents [note 9[a]] 23,218,869 11,942,358Short-term investments – 267,872Accounts receivable 728,243 1,398,971Prepaid expenses 49,119 29,557

Total current assets 23,996,231 13,638,758

Security deposit [note 6[i]] 342,127 –Reclamation bonds [note 6[i] and note 6[ii]] 585,546 563,785Investment in and advances to affiliated company [note 6[i]] – 331,389 Capital assets, net [note 5] 26,718 28,128 Mining properties [note 6] 65,403,096 45,674,725

90,353,718 60,236,785

LIABILITIES AND SHAREHOLDERS’ EQUITYCurrent liabilitiesAccounts payable and accrued liabilities 1,292,814 1,090,180Income taxes payable 24,333 24,333

Total current liabilities 1,317,147 1,114,513

Future income taxes [note 8] 6,902,000 7,230,000

Total liabilities 8,219,147 8,344,513

SHAREHOLDERS’ EQUITYShare capital [note 7] 78,616,328 50,753,793Contributed surplus 3,606,237 3,418,059Deficit (87,994) (2,279,580)

Total shareholders’ equity 82,134,571 51,892,272

90,353,718 60,236,785

See accompanying notes

On behalf of the Board:

Robin Goad Mahendra NaikDirector Director

CONSOLIDATED BALANCE SHEETSIncorporated under the laws of Ontario

ANNUAL REPORT I 53

2007

Years ended December 31 2007 2006$ $

REVENUEInterest and other income 699,550 596,034

EXPENSESAdministrative 521,390 361,228Investor relations 275,514 123,863Stock-based compensation [note 7[f]] 103,250 798,000 Amortization 6,823 9,618

906,977 1,292,709

Loss before other items (207,427) (696,675)

Share in loss of equity investee (844) (1,838)Gain on disposal equity investee 2,665 –Write-off of interest in mining properties (44,327) (20,692)

Loss before income taxes (249,933) (719,205)

Recovery of future income taxes [note 8] (2,446,000) (680,000)

Net income (loss) for the year 2,196,067 (39,205)

Deficit, as previously reported (2,279,580)Change in accounting policy [note 2[j]] (4,481)

Deficit, beginning of year, as restated (2,284,061) (2,240,375)

Deficit, end of year (87,994) (2,279,580)

Basic and diluted income (loss) per share [note 7[b]] 0.05 –


CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND DEFICITIncorporated under the laws of Ontario

2007


Years ended December 31 2007 2006$ $

OPERATING ACTIVITIESNet income (loss) for the year 2,196,067 (39,205)Add (deduct) items not involving cash

Amortization 6,823 9,618Future income taxes (2,446,000) (680,000)Stock-based compensation 103,250 798,000Share in loss of equity investee 844 1,838Gain on disposal of capital asset or equity investee (2,665) (31,629)Write-off of interest in mining operations 44,327 20,692

(97,354) 79,314

Changes in non-cash working capital balances related to operationsAccounts receivable 670,728 (554,508)Prepaid expenses (19,562) (7,888)Accounts payable and accrued liabilities 202,634 398,471

Cash provided by (used in) operating activities 756,446 (84,611)

INVESTING ACTIVITIESPayments from affiliated company – (1,765)Proceeds from disposal of short-term investments 268,325 –Increase in security deposit (342,127) –Purchase of plant and equipment and capital assets (375,519) (4,806,275)Proceeds on disposal of capital asset – 86,250Posting of security for reclamation bonds (26,695) (85,692)Purchase of mining properties (85,049) –Increase in deferred exploration expenditures (15,622,043) (17,912,606)

Cash used in investing activities (16,183,108) (22,720,088)

FINANCING ACTIVITYProceeds on issuance of shares, net 26,703,173 11,547,623

Increase (decrease) in cash and cash equivalents during the year, net 11,276,511 (11,257,076)Cash and cash equivalents, beginning of period 11,942,358 23,199,434

Cash and cash equivalents, end of year [note 9[a]] 23,218,869 11,942,358


CONSOLIDATED STATEMENTS OF CASH FLOWSIncorporated under the laws of Ontario

2007

ANNUAL REPORT I 55

1. NATURE OF OPERATIONS

Fortune Minerals Limited [the “Company”] is a natural resource company with mineral deposits and exploration projects in Canada.The Company is focused on the exploration and the assembly and development of natural resource projects.The recoverability ofamounts shown for mineral properties and related deferred exploration expenditures is dependent upon the economic viability ofrecoverable reserves, the ability of the Company to obtain the necessary financing to complete the development, and future profitableproduction or proceeds from the disposition thereof.

The Company currently operates in one geographic region, Canada, and in one industry segment, mining.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

These consolidated financial statements have been prepared by management in accordance with Canadian generally acceptedaccounting principles and are within the framework of the significant accounting policies summarized below.The preparation of finan-cial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities andthe disclosure of contingent assets and liabilities.The reported amounts and note disclosure are determined using management’s bestestimates based on assumptions that reflect the most probable set of economic conditions and planned courses of action. Actualresults, however, may differ from the estimates used in the consolidated financial statements.

[a] Principles of consolidation

The consolidated financial statements reflect the financial position and results of operations of the Company and its wholly-owned subsidiaries Fortune Minerals NWT Inc.and Fortune Coal Limited [“Fortune Coal”].All intercompany transactions andbalances have been eliminated.

The Company owned a 30% interest in Formosa Environmental Aggregates Ltd. [“Formosa”] and was the managing partner.As such, its investment in Formosa was recorded using the equity method of accounting.Advances to Formosa were record-ed at cost.The interest in Formosa was disposed of during 2007.

[b] Comprehensive income

Effective January 1,2007,the Company adopted the Canadian Institute of Chartered Accountants [“CICA”] Handbook Section1530 Comprehensive Income.

This Section describes the reporting and disclosure standards with respect to comprehensive income and its components.Comprehensive income is composed of net income and other comprehensive income (loss). Other comprehensive income(loss) includes unrealized gains and losses on available-for-sale financial assets, translation gains and losses on self-sustainingforeign operations and accounting for certain derivative instruments and hedging activities.The components of comprehen-sive income, if any, are disclosed in consolidated statements of comprehensive income (loss).As at December 31, 2007, theCompany has no other comprehensive income (loss) to report therefore its net income (loss) is equal to the comprehensiveincome (loss).

[c] Cash and cash equivalents

Cash and cash equivalents consist of cash on hand, balances with banks, and short-term fixed income deposits with originalmaturity dates shorter than three months.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2007

2007


[d] Short-term investments

Short-term investments consist of marketable securities and guaranteed deposits and are recorded at fair market value.

[e] Capital assets

Capital assets are stated at cost less accumulated amortization.Amortization of capital assets is recorded using the decliningbalance method at the following rates:

Asset class Rate of amortization (%)

Surface facilities 20Camp structures 30Mobile equipment 30Computer equipment 30Site furniture and equipment 30Furniture and fixtures 20 to 30Leasehold improvements 50Software 35

[f] Mineral properties and deferred exploration expenditures

The Company defers acquisition costs and exploration expenditures relating to mineral properties until the properties arebrought into commercial production,disposed,or the mineral property is no longer economically viable or there is a perma-nent impairment in value, at which time the deferred costs will be written off. Payments received for exploration rights onthe Company’s mineral properties are treated as cost recoveries and reduce the cost of deferred exploration expendituresrelated to the mineral claims.

[g] Income taxes

The Company follows the liability method of tax allocation in accounting for income taxes. Under this method, future taxassets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabili-ties, and measured using the substantively enacted tax rates and laws that will be in effect when the differences are expect-ed to reverse.

[h] Administrative expenses

Included in deferred exploration expenses and certain capital assets is a partial allocation of administrative and generalexpenses.The allocation is distributed among each project based on its pro rata share of direct expenditures.

[i] Stock-based compensation plans

The Company has a fixed stock-based compensation plan approved by the shareholders at the Company’s annual meetingheld on June 22, 2005.The plan was re-approved including certain amendments at the Company’s annual meeting held onMay 29, 2007. Under the plan, the Company may grant options to eligible individuals for up to 10% of the issued and out-standing common shares subject to certain conditions. As at December 31, 2007, the Company has 2,032,241 [2006 –641,241] options available for grant in addition to any options issued and outstanding.The exercise price of each option isequal or higher than the market price of the Company’s stock on the date of grant.The plan does not provide for a maxi-mum term. Options are granted and their terms determined at the discretion of the Board of Directors.

The Company recognizes an expense for option awards using the fair value method of accounting.The expense is capital-ized or deferred to a similar extent as the optionee’s salary, wages or fees are capitalized or deferred.

2007

ANNUAL REPORT I 57

[j] Financial instruments

Effective January 1,2007, the Company adopted the CICA Handbook Section 3855 Financial Instruments – Recognition andMeasurement and the related Sections 3860 Financial Instruments – Hedging and 3861 Financial Instruments – Disclosureand Presentation.The adoption of these new standards resulted in changes in the accounting for financial instruments, aswell as the recognition of certain transition adjustments.The comparative consolidated financial statements have not beenrestated.The principal changes in the accounting for financial instruments due to the adoption of these accounting standardsare described below.

The adoption of these Sections has been completed retroactively without restatement of the consolidated financial state-ments of prior periods.As at January 1, 2007, the effect of adopting these standards was to increase short-term investmentsby $453, decrease reclamation bonds by $4,934 and increase deficit by $4,481.

Section 3855 Financial InstrumentsThis Section sets out the standards for the recognition and measurement of financial assets and financial liabilities.The stan-dard prescribes when an entity should recognize a financial instrument on the balance sheet and the amount at which finan-cial instruments should be recorded. Depending on their balance sheet designation, fair value or cost-based measures areused.This standard also prescribes the basis of presentation for gains and losses on financial instruments. Based on financialstatement designation, gains and losses on financial instruments are recognized in net income or other comprehensiveincome.

The Company has made the following designations:• Cash and cash equivalents are designated as “assets held for trading” and are measured at fair value. Gains and losses

resulting from the periodic revaluation of these items are recorded in net income.• Short-term investments are designated as “assets held for trading”and are measured at fair value. Gains and losses result-

ing from the periodic revaluation of these items are recorded in net income.• Accounts receivable are designated as “receivables” and are recorded at amortized cost, which upon their initial meas-

urement is equal to their fair value. Subsequent measurement of accounts receivable is on the basis of amortized costusing the effective interest rate method.

• Reclamation bonds are designated as “assets held for trading” and are measured at fair value. Gains and losses resultingfrom the periodic revaluation of these items are recorded in net income.

• Accounts payable and accrued liabilities are designated as “other liabilities” and are recorded at amortized cost, whichupon their initial measurement is equal to their fair value. Subsequent measurement of these liabilities is on the basis ofamortized cost using the effective interest rate method.

Section 3865 Financial Instruments – HedgesThis Section establishes standards for when and how hedge accounting may be applied. It defines hedge accounting as beingoptional and requires certain criteria to be met in order to use hedge accounting. Hedging is an activity designed to modifyan entity’s exposure to one or more risks, by creating an offset between changes in the fair value of, or the cash flows attrib-utable to,the hedged item and the hedging item (or changes resulting from a particular risk exposure relating to those items).

The purpose of hedge accounting is to ensure that counterbalancing gains, losses, revenues and expenses (including theeffects of counterbalancing changes in cash flows) are recognized in net income in the same period or periods. Hedgeaccounting is applied only when gains, losses, revenues and expenses on a hedging item would otherwise be recognized inincome in a different period than gains, losses, revenues and expenses on the hedged item.Where gains, losses, revenues andexpenses on the hedging item and counterbalancing gains, losses, revenues and expenses on the hedged item are recognizedin income in the same period, hedge accounting is both considered not necessary and not permitted by the standards.

As at December 31, 2007, the Company was not a party to any forward foreign exchange or metal pricing contracts, but mayuse such instruments in the future.

2007


[k] Income (loss) per common share

Basic income (loss) per share is calculated by dividing net income (loss) for the year by the weighted average number ofcommon shares outstanding in each respective period.Diluted income (loss) per share reflects the potential dilution of secu-rities by adding other common stock equivalents in the weighted average number of common shares outstanding during theyear, if dilutive, and is calculated using the treasury stock method.

3. SHORT-TERM INVESTMENTS

Short-term investments consist of the following:2007 2006

Cost Market value Cost Market value$ $ $ $

Marketable securities – – 267,872 268,325

The marketable securities consisted of a variable rate bond which had a coupon rate of 3.9% and matured June 21, 2007.

4. INVESTMENT IN AND ADVANCES TO AFFILIATED COMPANY

Investment in and advances to affiliated company consist of the following:2007 2006

$ $

Formosa Environmental Aggregates Ltd.Equity investment [30% interest] – 91,179Advances [unsecured, non-interest bearing with no fixed terms of repayment] – 240,210

– 331,389

The Company disposed of its interest in Formosa Environmental Aggregates Ltd. (“Formosa”) during 2007. Refer to note 6[i].

5. CAPITAL ASSETS

Capital assets consist of the following:2007 2006

Accumulated AccumulatedCost amortization Cost amortization

$ $ $ $

Computer equipment 35,740 22,693 27,145 16,140Furniture and fixtures 24,778 15,282 21,457 11,108Leasehold improvements 9,602 6,417 9,282 4,488Software 4,752 3,762 4,752 2,772

74,872 48,154 62,636 34,508Less accumulated amortization 48,154 34,508

Net book value 26,718 28,128

2007

ANNUAL REPORT I 59

6. MINING PROPERTIES

Interests in mining properties consist of the following:2007

Plant and Property Deferred Total - Miningequipment costs expenditures properties

$ $ $ $

NICO Project [i] 5,079,841 3,593,049 36,446,106 45,118,996Mount Klappan Project [ii] 30,257 3,144,116 14,984,987 18,159,360Sue-Dianne Project – 9,164 1,996,810 2,005,974Other properties – – 118,766 118,766

5,110,098 6,746,329 53,546,669 65,403,096

2006

Plant and Property Deferred Total - Miningequipment costs expenditures properties

$ $ $ $

NICO Project [i] 4,828,782 – 22,894,561 27,723,343Mount Klappan Project [ii] 44,957 3,144,116 12,664,684 15,853,757Sue-Dianne Project – 9,164 1,981,065 1,990,229Other properties – – 107,396 107,396

4,873,739 3,153,280 37,647,706 45,674,725

During the year ended December 31,2007,$454,182 of administrative expenses,$283,748 of amortization and $37,500 of stock-basedcompensation were charged to deferred expenditures within mining properties.

Plant and equipment consist of the following:2007 2006

Accumulated AccumulatedCost amortization Cost amortization

$ $ $ $

Surface facilities under construction 3,990,136 – 3,555,538 –Surface facilities 841,857 269,227 735,976 141,760Camp structures 632,898 259,974 632,898 99,142Mobile equipment 342,505 181,416 291,001 119,590Site furniture and equipment 28,495 15,176 25,764 6,946

5,835,891 725,793 5,241,177 367,438Less accumulated amortization 725,793 367,438

Net book value 5,110,098 4,873,739

During the year ended December 31, 2007, $81,430 of amortization and $150,000 of stock-based compensation were charged to sur-face facilities under construction.

2007


[i] NICO Project, Northwest Territories

The NICO Project and the related claims in the Mazenod Lake Area, Northwest Territories are, effective August 8, 2007, whollyowned by the Company. Prior to that date, the project was subject to a joint venture agreement and a company controlledby a director owned a minority interest in the NICO project.The Company recorded its proportionate share of costs relat-ing to the joint venture under the NICO deferred explorations expenditures.At December 31, 2006, the joint venture part-ner owned a 9.99% interest.As the joint venture partner has not participated in the planned expenditures during 2007, itsinterest was diluted in accordance with the joint venture agreement. Based on the expenditures to June 30, 2007, theCompany had calculated that the joint venture partner had been diluted to 7.98%.On July 6,2007, the Company entered intoan agreement with the joint venture partner to purchase its minority interest in the NICO project. On August 8, 2007, theCompany completed a purchase agreement with the NICO project joint venture partner whereby the Company acquired itsminority interest in NICO in exchange for 1,000,000 common shares of the Company,100,000 common share purchase war-rants of the Company, Fortune’s 30% ownership interest in Formosa, and the receivable due to the Company from Formosa.Each warrant entitles the holder to purchase one common share for $3.00 on or before August 8, 2012.The acquisition ofthe minority interest was recorded as property costs within mining properties at the fair market value of the considerationpaid as follows:

$

Common shares issued 3,000,000Warrants issued 174,790Sale of shares in Formosa 93,000Sale of receivable due from Formosa 240,210Transaction costs 85,049

3,593,049

Related to the purchase of the NICO minority interest, the elected tax value of the Company’s acquisition cost of propertywas reduced by an amount equal to the fair market value of the common shares and warrants issued.This gives rise to afuture tax liability of $984,000 and the recorded common shares and warrant values were reduced by $930,000 and $54,000,respectively.

The Company has provided a reclamation bond of $211,000 [2006 - $211,000] with the Wek’èezhìi Land and Water Boardwith respect to the bulk sample programs carried out in 2006 and 2007.The bond is in the form of a letter of credit in favourof the Receiver General for Canada.The Company has $232,642 [2006 - $226,909], recorded at fair value, held in variousinvestments as security for the letter of credit.

On August 31, 2006, the Company acquired certain mill, related surface facilities and processing equipment for future use atthe NICO project.All costs of purchase, including previously deferred amounts and ongoing maintenance, security and otherrelated costs, have been capitalized. No amortization has been charged against these assets as they are recorded as surfacefacilities under construction and are not available for use.

Pursuant to the purchase agreement of these facilities, the Company has an obligation to the vendor to dismantle and removethe assets from the site by August 31, 2009.The Company has received a third party feasibility study and has commenceddetailed engineering and planning related to the use of these assets at NICO but a construction decision has not been taken.As a result, the course of action with reference to using the assets is still not known.

In addition, the Company is required to post a maximum of $1 million in financial assurance or a performance bond in favourof the vendor.The posting of this financial assurance is required upon removal of assets in amounts equal to the appraisedmarket value of assets being removed.Assets not required at the NICO site will be sold or disposed of to fulfill the Company’sobligation.As at December 31, 2007, the Company has received $342,912 [2006 – Nil] in net proceeds from the disposal ofsurplus assets. In accordance with the agreement, $342,127 has been posted as financial assurance and recorded as securitydeposit. Upon completion of the Company’s obligation to remove the assets from the site, the financial assurance will bereleased to the Company.

2007

ANNUAL REPORT I 61

[i] NICO Project, Northwest Territories (continued)

The net cost of the deconstruction, removal, and reconstruction of the assets will be accumulated as surface facilities underconstruction until such time as the physical assets are reconstructed and available for use at which time they will be classi-fied as appropriate.

[ii] Mount Klappan Project, British Columbia

At December 31, 2007, a reclamation bond of $307,000 has been posted with respect to this property.The bond is in theform of a letter of credit in favour of the Government of British Columbia.The Company’s wholly owned subsidiary, FortuneCoal Limited, has $352,904 [2006 – $336,876], recorded at fair value, held in various investments as security for the letter ofcredit.

7. SHARE CAPITAL

[a] Issued and outstanding common shares:

2007 2006# $ # $

Common sharesBeginning of period 38,936,407 50,753,793 34,870,907 41,932,787Issued as a result of:

Public offering [c] 9,550,000 27,026,500 – –Purchase of property interest [note 6[i]] 1,000,000 3,000,000 – –Private placement of shares [d] – – 3,481,000 11,732,250Exercise of warrants [e] – – 30,800 121,660Exercise of options 60,000 206,572 553,700 561,376

Share issuance costs, net of tax [c] – (2,326,597) – (674,280)Future tax impact of renunciation of

development costs expended andreduction in tax basis of miningproperties acquired – (2,030,000) – (2,920,000)

End of period [b] 49,546,407 76,630,268 38,936,407 50,753,793

WarrantsBeginning of period – – 341,396 616,352

Public offering [c] 4,775,000 1,623,500 – –In lieu of fees [c] 573,000 389,640 – –Purchase of property interest [note 6[i]] 100,000 174,790 – –Warrant issuance costs, net of tax [c] – (147,870) – –Future tax impact of reduction in tax basis

of mining properties acquired – (54,000) – –Exercised [e] – – (30,800) (21,560)Expired – – (310,596) (594,792)

End of period 5,448,000 1,986,060 – –

78,616,328 50,753,793

2007


[b] At December 31,2007,the weighted average number of common shares outstanding was 43,506,763 for calculating the basicearnings per share. For calculating the fully diluted earnings per share, the weighted average number of common shares out-standing increased to 43,948,317 due to the effect of including in the computation options to purchase 1,183,700 commonshares for proceeds of $1,864,275 from the beginning of the year. Options to purchase 1,125,000 common shares and war-rants to purchase 5,448,000 common shares were not included in the computation of diluted loss per share because theexercise prices of these options and warrants were greater than the average market price of the common shares.

[c] On July 26, 2007, the Company issued 9,550,000 units at $3.00 per unit for gross proceeds of $28,650,000. Each unit con-sisted of one common share and one-half common share purchase warrant. Each whole warrant entitles the holder to pur-chase one common share of the Company for $3.75 on or before July 26, 2009.The agents were paid a cash commissionequal to 6% of the total gross proceeds raised together with compensation options equal to 6% of the total number of unitssold. Each compensation option entitles the agents to purchase one common share for $3.00 on or before July 26, 2009.

[d] On June 28, 2006 and November 17, 2006, the Company completed private placements that resulted in the issuance of2,095,000 flow-through common shares at a price of $3.45 per share and 1,386,000 flow-through common shares at a priceof $3.25 per share, respectively.

[e] During January 2006, 30,800 warrants were exercised for gross proceeds of $100,100. Each warrant to purchase a commonshare was exercisable at a price of $3.25.All remaining warrants expired on maturity.

[f] The estimated fair value of 225,000 options granted and vested during the year ended December 31, 2007 has been allocat-ed to stock-based compensation expense, deferred exploration expenditures and capital assets in the amounts of $103,250,$37,500 and $150,000, respectively. Share capital was increased and contributed surplus decreased by $68,572 representingthe fair value compensation recorded for options exercised during the period, and contributed surplus was increased by$290,750 representing the fair value compensation recorded less $34,000 related to the tax effect of the amount capitalized.

The fair value of the options granted was estimated at the date of grant using the Black-Scholes option pricing model withthe following assumptions:

Assumptions

Expected Expected EstimatedNumber of Risk free dividend Expected option fair valueoptions granted interest rate yield volatility life [years] per option# % % % # $

75,000 4.25 — 62 5 1.65100,000 4.25 — 47 2 0.9250,000 4.60 — 61 5 1.50

The Black-Scholes model, used by the Company to calculate option values, as well as other accepted option valuation mod-els, was developed to estimate fair value of freely tradable, fully transferable options, which significantly differ from theCompany’s stock option awards.These models also require four highly subjective assumptions, including future stock pricevolatility and expected time until exercise, which greatly affect the calculated values.Accordingly, management believes thatthese models do not necessarily provide a reliable single measure of the fair value of the Company’s stock option awards.

2007

ANNUAL REPORT I 63

A summary of the status of the Company’s stock option plan as at December 31, 2006 and December 31, 2007, and changesduring the periods ending on those dates are presented below:

2007 2006

Weighted- Weighted-average average

Number exercise Number exerciseof shares price of shares price

# $ # $

Options outstanding, beginning of period 2,278,700 2.54 1,932,400 2.07Granted 225,000 3.02 900,000 2.42Exercised (60,000) 2.30 (553,700) 0.70Expired (135,000) 4.35 — —

Options outstanding, end of period 2,308,700 2.49 2,278,700 2.54

The following summarizes information about the options outstanding at December 31, 2007:

Options outstanding and exercisable

Number Weighted averageoutstanding at remainingDecember 31, contractual life

Exercise prices 2007 [years]$ # #

0.75 553,700 0.12.30 630,000 4.02.80 50,000 4.72.84 100,000 3.22.90 100,000 0.32.96 75,000 4.43.18 100,000 1.43.30 200,000 1.83.45 300,000 1.23.86 50,000 2.74.95 150,000 2.3

2,308,700

Subsequent to December 31,2007,553,700 stock options were exercised at $0.75 per share for gross proceeds of $415,275.

As at December 31,2007, the Company has, subject to Board approval,contractual obligations to issue 135,000 stock optionspursuant to the Company’s stock option plan to recently hired employees. Subsequent to year end, the Company has, sub-ject to Board approval, contractual obligations to issue an additional 120,000 stock options to new employees.

[g] At December 31, 2007, 900,000 [2006 - 900,000] issued common shares are being held in escrow, subject to certain pro-duction thresholds for the NICO property.

2007


8. INCOME TAXES

The Company has non-capital loss carryforwards totalling $3,800,000 which expire beginning in 2008 and un-deducted share issuancecosts of $2,600,000. In addition, the Company has Ontario corporate minimum tax credits of $34,000 which expire in 2009. TheCompany, by 2007, has completed feasibility studies for both of its principle projects and undertaken related permitting and financ-ing activities. Management has determined it is more likely than not that the Company will achieve production and will realize thebenefit of certain non-capital losses and its un-deducted share issuance costs.The benefit of these amounts has been recorded in theconsolidated financial statements to the extent that the deduction for share issuance costs and operating losses expire post-2015.

Significant components of the Company’s future income tax assets and liabilities are as follows:

2007 2006$ $

Future tax assetsNet operating loss carryforwards 1,003,000 770,000Un-deducted share issuance costs 689,000 510,000Ontario corporate minimum tax 34,000 34,000

1,726,000 1,314,000 Less valuation allowance related to operating losses,

share issuance costs and corporate minimum tax (530,000) (1,314,000)

Future tax assets 1,196,000 –

Future tax liabilitiesBook value of deferred exploration expenditures and

capital assets in excess of tax value (8,098,000) (7,230,000)

Net future tax liabilities (6,902,000) (7,230,000)

The reconciliation of income taxes computed at the statutory income tax rates to the provision for income taxes is as follows:

2007 2006$ $

Combined federal and provincial income tax rate 36.12% 36.12%

Corporate income tax at statutory rate (90,300) (259,800)Increase (decrease) in income taxes resulting from:

Non-deductible stock compensation expenses 37,300 288,200Resource allowance – 26,400Other 53,000 (54,800)Benefit of recognizing future tax assets (1,196,000) —Benefit of reduction of substantively enacted tax rates (1,250,000) (680,000)

(2,446,000) (680,000)

2007

ANNUAL REPORT I 65

9. CONSOLIDATATED STATEMENT OF CASH FLOWS

[a] Cash and cash equivalents consist of the following:2007 2006

$ $

Cash on hand and balances with banks 955,914 4,302,904Short-term fixed income deposits 22,262,955 7,639,454

23,218,869 11,942,358

[b] Supplemental cash flow information:2007 2006

$ $

Income taxes received – –Interest and investment income received 640,680 403,465

10. RELATED PARTY TRANSACTIONS

In addition to any related party transactions noted elsewhere, the following related party transactions have been recorded at theirexchange amount:

[a] During the year, the Company paid an officer and director $239,200 [2006 - $200,000] for third-party geological consultingand for administrative consulting services on behalf of the Company.

[b] During the year, the Company paid an officer $195,800 [2006 - $162,520] for financial,management and administrative con-sulting services on behalf of the Company.

[c] During the year,$177,700 [2006 - $94,360] was paid to the Company’s law firm for various legal services.An officer and direc-tor of the Company is a partner of that firm.

[d] During the year, the Company paid a director $57,400 [2006 - nil] for third-party management,community relations and otherproject related consulting on behalf of the Company.

11. COMMITMENTS

The Company has the following commitments, in addition to any commitments identified elsewhere in these consolidated financialstatements:

[a] The Company has entered into a lease for office space.The lease term commenced in September 2005,ends in October 2010and has a five-year renewal option.The initial term requires minimum lease payments and additional rent for operating costsand taxes of approximately $70,000 per year.

[b] The Company has certain annual payments due to maintain its interests in its mineral property leases and licenses. For itsMount Klappan licenses, its NICO leases and other property leases the Company is required to make annual payments of$132,300.These payments are subject to government regulation and are required each year to maintain the mineral proper-ties in good standing.

WILLIAM A. BREUKELMAN, M.B.A., B.A.Sc., P.Eng.,Mississauga, Ontario.

Bill Breukelman has owned, founded and funded numerous business-es in the high technology field, with particular interests in informa-tion systems and imaging. Bill co-owned and later chaired IMAXCorporation from 1970 to 1995 and helped grow IMAX into a multi-national entertainment company. Today, Bill is the Chairman andPrincipal of Business Arts Inc., a technology incubation and invest-ment firm, which funds and co-develops companies such as MDSSCIEX, Arius3D and GEDEX.

THE HONOURABLE CARL L. CLOUTER,Gander, Newfoundland.

Carl Clouter is a commercial pilot and former owner of a charter air-line in the Northwest Territories. He has been active in mineralexploration during his 35 years of flying in remote areas of Canada.As a resident of Behchoko, Carl served as a Sentencing Justice of thePeace and on the board for the mineral development assistance pro-gram for the Northwest Territories. Carl works for Fortune as a liai-son with senior members of government and aboriginal peoples tofacilitate their involvement in NICO's development.

GEORGE M. DOUMET, M.Sc., M.B.A.,Vancouver, B.C. (Chairman of the Board)

George Doumet is a chemical and nuclear engineer who has found-ed and owns a number of industrial companies. He is President andC.E.O. of Federal White Cement Ltd., a specialty cement manufactur-er. He is also a principal in other businesses involved in the mining,production, marketing and distribution of specialty building prod-ucts, chemicals and industrial minerals.

JAMES D. EXCELL, B.A.Sc.,Kelowna, B.C.

Jim Excell is a metallurgical engineer and President and C.E.O. ofNorth American Palladium Inc., a mining company that producesplatinum group metals, nickel and copper. During a three-decadecareer with BHP Billiton, Jim served as a senior executive and man-aged some of the world's premier mining projects, including metal-lurgical and thermal coal mines in Australia and the U.S.A., as well asthe Ekati Diamond Mine and Island Copper Mine in Canada. Jim isalso a director of Diamondex Resources Ltd.and the Prospectors andDevelopers Association of Canada.

ROBIN E. GOAD, M.Sc., P.Geo.,Arva, Ontario.

Robin Goad is President and C.E.O. of Fortune Minerals Limited andits coal and metal subsidiaries. He is a geologist with more than 28years of mining and exploration industry experience. Robin hasworked for a number of major mining companies and as a consult-ant to resource companies and government in Canada and interna-tionally. He also serves as a director of Ursa Major MineralsIncorporated, and has previously served as President and a directorof other TSX-listed mineral exploration companies.

DAVID A. KNIGHT, B.A., LL.B.,Oakville, Ontario.

David Knight is a partner with Macleod Dixon LLP, Barristers andSolicitors, a major Canadian law firm, with extensive expertise in theresource sector. David specializes in all areas of securities law,including public and private financings, stock exchange listings,mergers and acquisitions and regulatory compliance. He acts forboth investment dealers and issuers, including various resource com-panies. David has previously worked with other national Canadianlaw firms and is a member of the Law Society of Upper Canada.

2007


DIRECTORS, OFFICERS AND CORPORATE INFORMATION

MAHENDRA NAIK, B.Comm., C.A.,Unionville, Ontario.

Mahendra Naik is a Chartered Accountant and C.F.O. of Fundeco Inc., a private investment company.Mahendra is also one of the founding directors of IAMGOLD Corporation, a TSX- and NYSE-listed mid-tiergold mining company.As IAMGOLD’s C.F.O. from 1990 to 1999, Mahendra led negotiations of the SadiolaMine and Yatela Mine joint ventures with Anglo American and was responsible for raising more thanUS$400 million in project debt financings for mine development and more than C$150 million in equityfinancings. Mahendra also serves as a director of several private companies.

LEFT TO RIGHT:WILLIAM A. BREUKELMANCARL L. CLOUTERGEORGE M. DOUMETJAMES D. EXCELLROBIN E. GOADDAVID A. KNIGHTMAHENDRA NAIK

OFFICERS

• George M. Doumet, M.Sc. M.B.A.Chairman of the Board

• Robin E. Goad, M.Sc., P.Geo.President and C.E.O.

• Julian B. Kemp, BBA, C.A.Vice President Finance and C.F.O.

• James A. Currie, B.Sc. (Hons.), P.Eng.Vice President Operations

• David A. Knight, B.A., LL.B.Secretary

MANAGERS

• Nicole M. Hayduk, LL.B., H.B.A.Contracts Administration Manager

• Adam G.J. Jean, H.B.A., C.A.Controller

• James P. Mucklow, M.E.Sc., P.Eng.Environment and Community AffairsManager

• Patrick J. Moloney, B.Sc., B.Ed.Manager Human Resources

• Kathryn L. Neale, Ph.D.Exploration Manager

• Michael T. Samuels, B.Eng.Process Development Manager

• Richard P. Schryer, M.Sc., Ph.D.Manager of Regulatory Affairs

• Andre J. Tricoteux, B. Professional ArtsProcurement and Logistics Manager

• Ghislain J.R. GervaisHemlo Site Manager

CORPORATE INFORMATION

• AuditorsErnst & Young LLPLondon, Ontario

• Transfer AgentComputershare Trust Company of Canada,Toronto, Ontario

• BankCanadian Imperial Bank of CommerceLondon, Ontario

• CapitalizationAuthorized: UnlimitedIssued (April 10, 2008): 50,100,107

• Stock Exchange ListingThe Toronto Stock Exchange,Trading Symbols:Common Shares – “FT”Warrants – “FT.WT”

• Legal CounselMacleod Dixon LLP, Barristers & Solicitors,Toronto, Ontario

ANNUAL REPORT I 67

2007

FORTUNEMINERALS LIMITED140 Fullarton Street, Suite 1902, London, Ontario N6A 5P2 Tel: (519) 858-8188 Fax: (519) 858-8155

Website: www.fortuneminerals.com E-mail: [email protected]

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