Heatherdale Resources Ltd. · 2013-03-28 · Heatherdale Resources Ltd. Condensed Consolidated Interim Statements of Financial Position (Unaudited ‐ Expressed in United States Dollars)

HeatherdaleResourcesLtd.

CONDENSEDCONSOLIDATEDINTERIMFINANCIALSTATEMENTS

THREEMONTHSENDEDJANUARY31,2013

(ExpressedinUnitedStatesDollars,unlessotherwisestated)

(Unaudited)

NoticeofNoAuditorReviewofCondensedConsolidatedInterimFinancialStatements

In accordance with National Instrument 51‐102 Part 4, subsection 4.3(3)(a), if anauditor has not performed a review of these condensed consolidated interim financialstatements they must be accompanied by a notice indicating that the condensedconsolidatedinterimfinancialstatementshavenotbeenreviewedbyanauditor.

The accompanying unaudited condensed consolidated interim financial statements ofthe Company have been prepared by and are the responsibility of the Company'smanagement.

HeatherdaleResourcesLtd.CondensedConsolidatedInterimStatementsofFinancialPosition(Unaudited‐ExpressedinUnitedStatesDollars)

January31 October31Notes 2013 2012

ASSETS

Non‐currentassetsExplorationandevaluationassets 3 17,526,119$ 17,556,235$Restrictedcash 5 1,221,408 1,221,408

Totalnon‐currentassets 18,747,527 18,777,643

CurrentassetsPrepaidexpensestoarelatedparty 10 111,868 114,807Amountsreceivableandotherprepaidexpenses 4 131,028 145,093Cashandcashequivalents 5 2,791,728 1,363,561

Totalcurrentassets 3,034,624 1,623,461

TotalAssets 21,782,151$ 20,401,104$

EQUITY

Sharecapital 6 48,464,831$ 48,464,831$Reserves 3,930,974 3,846,016Deficit (35,798,852) (34,052,997)Totalequity 16,596,953 18,257,850

LIABILITIES

Non‐currentliabilitiesConvertibledebenture 7 3,221,536 –Provisionforrehabilitationobligation 8 1,409,959 1,409,959

Totalnon‐currentliabilities 4,631,495 1,409,959

CurrentLiabilitiesDerivativefinancialliabilities 9 31,529 90,966Payablestorelatedparties 10 304,641 480,223Tradeandotherpayables 11 217,533 162,106

Totalcurrentliabilities 553,703 733,295

TotalEquityandLiabilities 21,782,151$ 20,401,104$

Theaccompanyingnotesareanintegralpartofthesecondensedconsolidatedinterimfinancialstatements.

TheyaresignedontheCompany'sbehalfby:

/s/PatrickSmith /s/JudyThomson

PatrickSmith JudyThomsonDirector Director

ThesecondensedconsolidatedinterimfinancialstatementsareauthorizedforissuebytheBoardofDirectorsonMarch19,2013.

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HeatherdaleResourcesLtd.CondensedConsolidatedInterimStatementsofComprehensiveLoss(Unaudited‐ExpressedinUnitedStatesDollars) ThreemonthsendedJanuary31

Notes 2013 2012

Expenses 14Explorationandevaluationexpenses 874,266$ 1,156,273$Generalandadministrationexpenses 433,456 552,664Share‐basedcompensation 84,958 188,461

Lossfromoperatingactivities 1,392,680 1,897,398Foreignexchange(gain)loss (53) 27,605Interestincome (4,561) (761)Gainonderivativefinancialliabilities 9 (59,437) (1,382,626)Lossonconvertibledebenture 2(d),7 207,067 –Transactioncostsonissueofconvertibledebenture 7 210,159 –

Lossbeforeincometaxes 1,745,855 541,616Incometaxes 13 – –Lossandcomprehensivelossfortheperiod 1,745,855$ 541,616$

Basicanddilutedlosspercommonshare 6(c) 0.01$ 0.01$


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HeatherdaleResourcesLtd.CondensedConsolidatedInterimStatementsofCashFlows(Unaudited‐ExpressedinUnitedStatesDollars)

ThreemonthsendedJanuary31Notes 2013 2012

CashflowsfromoperatingactivitiesLossfortheperiod (1,745,855)$ (541,616)$

Adjustmentsfornon‐cashornonoperatingitems:Depreciation 30,116 1,610Foreignexchange(gain)loss (7,426) 26,091Gainonderivativefinancialliabilities (59,437) (1,382,626)Lossonconvertibledebenture 7 207,067 –Interestreceived (4,561) (761)Share‐basedcompensation 84,958 188,461Transactioncostsonissueofconvertibledebenture 7 210,159 –

460,876 (1,167,225)

Changesinnon‐cashworkingcapitalitems:Increaseinprepaidexpensestoarelatedparty 2,939 –Decrease(increase)inamountsreceivableandotherprepaidexpenses 14,065 (1,250)

Increaseintradeandotherpayables 55,427 190,483(Decrease)increaseinpayablestorelatedparties (175,582) 1,140,353

(103,151) 1,329,586

Netcashusedinoperatingactivities (1,388,130) (379,255)

CashflowsfrominvestingactivitiesInterestreceived 4,561 761

Netcashfrominvestingactivities 4,561 761

CashflowsfromfinancingactivitiesCashandcashequivalentsacquiredonacquisitionofnon‐controllinginterest – 1,365

Costsincurredinacquisitionofnon‐controllinginterest 3 – (105,407)Proceedsfromissueofconvertibledebenture 6(b) 3,014,469 –Transactioncostsonissueofconvertibledebenture (210,159) –Subscriptionsreceivedforprivateplacement 6(b) – 92,976

Netcashfrom(usedin)financingactivities 2,804,310 (11,066)

Netincrease(decrease)incashandcashequivalents 1,420,741 (389,560)Effectofexchangeratefluctuationsoncashheld 7,426 (26,091)

1,428,167 (415,651)Cashandcashequivalentsatbeginningoftheperiod 1,363,561 925,302Cashandcashequivalentsatendoftheperiod 5 2,791,728$ 509,651$

SupplementarycashflowinformationNon‐cashfinancingandinvestingactivitiesinclude:Issuanceofsharesonacquisitionofnon‐controllinginterest 3 –$ 8,553,906$

Theaccompanyingnotesareanintegralpartofthesecondensedconsolidatedinterimfinancialstatements

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HeatherdaleResourcesLtd.CondensedConsolidatedInterimStatementsofChangesinEquity(Unaudited‐ExpressedinUnitedStatesDollarsexceptforshareinformation)

Notes

Numberofshares

(Note6(a)) Amount Subscriptions

Equitysettledshare‐basedpaymentsreserve Deficit Total

Non‐controlling

interest(Note3) TotalEquity

BalanceatNovember1,2011 69,110,216 32,926,724$ –$ 3,356,696$ (33,000,751)$ 3,282,669$ 11,764,705$ 15,047,374$Subscriptionsreceivedforprivateplacement 6(b) – – 92,976 – – 92,976 – 92,976Sharesissuedforacquisitionofnon‐controllinginterest 3 19,221,578 8,553,906 – – – 8,553,906 – 8,553,906

Share‐basedcompensation – – – 188,461 – 188,461 – 188,461Acquisitionofnon‐controllinginterest 3 – – – – 3,580,923 3,580,923 (11,764,705) (8,183,782)Lossandcomprehensivelossfortheperiod – – – – (541,616) (541,616) – (541,616)

BalanceatJanuary31,2012 88,331,794 41,480,630$ 92,976$ 3,545,157$ (29,961,444)$ 15,157,319$ –$ 15,157,319$

BalanceatNovember1,2012 119,548,127 48,464,831$ –$ 3,846,016$ (34,052,997)$ 18,257,850$ –$ 18,257,850$Share‐basedcompensation – – – 84,958 – 84,958 – 84,958Lossandcomprehensivelossfortheperiod – – – – (1,745,855) (1,745,855) – (1,745,855)

BalanceatJanuary31,2013 119,548,127 48,464,831$ –$ 3,930,974$ (35,798,852)$ 16,596,953$ –$ 16,596,953$


SharecapitalAttributabletoequityholdersoftheCompany

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HeatherdaleResourcesLtd.NotestotheCondensedConsolidatedInterimFinancialStatementsForthethreemonthsendedJanuary31,2013and2012(Unaudited‐ExpressedinUnitedStatesdollars,unlessstatedotherwise)

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1. NATUREOFOPERATIONSANDCONTINUANCEOFOPERATIONS

HeatherdaleResourcesLtd.(the"Company"or"Heatherdale")wasincorporatedunderthelawsofthe Province of Alberta, Canada on November 6, 2007 and continued under the laws of theProvinceofBritishColumbia,CanadaonNovember16,2009. TheCompany’scorporateofficeislocatedat1040WestGeorgiaStreet,15thFloor,Vancouver,BritishColumbia. These condensedconsolidated interim financialstatements("FinancialStatements")compriseHeatherdaleand itssubsidiaries (together referred to as the "Group" and individually as "Group entities").HeatherdaleistheultimateparententityoftheGroup.

The Group holds a 100% interest in the Niblack copper–gold–zinc‐silver project in southeastAlaska(the"NiblackProject")(note3).TheGroupalsoholdsa60%interestsubjecttocompletionofcertainfundingrequirements,withoptionstoacquiretheremaining40%interest,intheDeltavolcanogenicmassivesulphideproject(the"DeltaProject")locatedineast‐centralAlaska(note3).TheGroupisintheprocessofexploringtheseprojectsandhasyettodetermineiftheseprojectscontain economically recoverablemineral reserves. TheGroup’s continuing operations and theunderlyingvalueandrecoverabilityoftheamountshownformineralpropertyinterestsisentirelydependent upon the existence of economically recoverable mineral reserves, the ability of theGroup to obtain the necessary financing to complete the exploration and development of theseprojects,obtainingthenecessarypermitstomine,futureprofitableproductionfromanymineandproceedsfromthedispositionoftheseprojects.

TheseFinancialStatementshavebeenpreparedonagoingconcernbasiswhichcontemplatestherealization of assets and discharge of liabilities in the normal course of business for theforeseeable future. As at January31,2013, the Group had cash and cash equivalents of$2.8million, working capital (excluding derivative financial liabilities) of $2.5million, andaccumulatedlossesof$35.8millionsinceinception.

During the period the Group completed a Cdn$3million private placement of a convertibledebenturewithatwo‐yearterm(note7).Thedebenturedoesnotentitleitsholdertoreceivecashfortherepaymentoftheprincipalamount.

Although management believes that the available cash resources are sufficient to meet itsexpectedexpenditurerequirements,additionaldebtorequity financingwillberequired to fundadditionalexplorationordevelopmentprogramsatboththeNiblackandDeltaProjects.

WhiletherecanbenoassurancesthattheGroup’splanstoraiseadditionalfinancinginthefuturewill be successful or at favourable terms, management has a reasonable expectation thatadditional financingwill be available to continue its planned activities in the normal course ofoperations.IftheGroupisunabletoraisethenecessarycapitalresourcesandgeneratesufficientcash flows to meet obligations as they come due, the Groupmay have to reduce or curtail itsoperationsorobtainfinancingatunfavourableterms.Furthermore,failuretocontinueasagoingconcernwould require that the Group’s assets and liabilities be restated on a liquidation basiswhichwoulddiffersignificantlyfromthegoingconcernbasis.TheseFinancialStatementsdonotinclude any adjustments to the amounts and classification of assets and liabilities thatmay benecessaryshouldtheGroupbeunabletocontinueasagoingconcern.


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2. SIGNIFICANTACCOUNTINGPOLICIES

(a) StatementofComplianceThese Financial Statements have been prepared in accordance with IAS 34, Interim FinancialReporting,asissuedbytheInternationalAccountingStandardsBoard("IASB")andinterpretationsof the IFRS Interpretations committee ("IFRIC"s). They do not include all of the informationrequired by International Financial Reporting Standards ("IFRS") for complete annual financialstatements,andshouldbereadinconjunctionwiththeGroup’sconsolidatedfinancialstatements,asatandfortheyearendedOctober31,2012.Accordingly,accountingpoliciesappliedotherthannotedinNote2(f)arethesameasthoseappliedintheGroup’sannualfinancialstatementswhichwerefiledundertheCompany’sprofileonSEDARatwww.sedar.com.Certaincomparativeamountshavebeenreclassifiedtoconformtothepresentationadoptedinthecurrentperiod.

(b) BasisofPreparation

These Financial Statements have been prepared under the historical cost convention using theaccrual basis of accounting, except for cash flow information and for the revaluation of theconvertibledebentureandderivativefinancialliabilitiesatfairvaluethroughprofitorloss.

(c) BasisofConsolidationTheseFinancial Statements incorporate theaccountsof theCompanyandentities controlledbytheCompany(itssubsidiaries).ControlisachievedwheretheGrouphasthepowertogovernthefinancialandoperatingpoliciesofanentitysoastoobtainbenefitsfromitsactivities.Intercompanybalances and transactions, including anyunrealized income and expenses arisingfromintercompanytransactions,areeliminatedinfullonconsolidation.


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AtJanuary31,2013,theCompanyretainedanownershipinterestinthefollowingsubsidiaries:NameofSubsidiary Placeof

IncorporationOwnershipInterest

PrincipalActivity

DeltaCanada(Holdco)Ltd. BritishColumbia,Canada

100% HoldsinterestinDeltaProjectHoldings(US)Inc.

DeltaProjectHoldings(US)Inc. Nevada,USA 100% HoldsinterestinDeltaProjectLLC

DeltaProjectLLC Delaware,USA 60% ExplorationofDeltaProject

HeatherdaleAcquisitionsLtd.(formerlyHunterDickinsonAcquisitionsInc.)

BritishColumbia,Canada

100% HoldsinterestinDeltaCanada(Holdco)Ltd.

HeatherdaleHoldings(Canada)Ltd.


100% HoldsinterestinNiblackHoldings(US)Inc.

NiblackHoldings(US)Inc. Nevada,USA 100% Holds60%interestinNiblackProjectLLC

NiblackMineralDevelopmentInc.(1)


100% HoldsinterestinCBRAlaskaHoldingsInc.

CBRAlaskaHoldingsInc.(1) BritishColumbia,Canada

100% HoldsinterestinAbacusAlaska,Inc.andCapeMuzonBarge,Inc.

AbacusAlaska,Inc.(1) Alaska,USA 100% Holds40%interestinNiblackProjectLLC

CapeMuzonBarge,Inc.(1) Alaska,USA 100% Ownssiteaccommodationbarge

NiblackProjectLLC Delaware,USA 100% ExplorationofNiblackProject

(1) RefertoNote3.

(d) FinancialLiabilitiesatFairValueThroughProfitorLossTheGrouphasdesignatedtheConvertibleDebenture(note7)asa financial liabilityat fairvaluethroughprofitorloss("FVTPL").A financial liability other than a financial liability held for tradingmay be designated at FVTPLuponinitialrecognitionifitformspartofacontractcontainingoneormoreembeddedderivatives,and IAS39, Financial Instruments:Recognition andMeasurement, permits the entire combinedcontract(assetorliability)tobedesignatedatFVTPL.A financial liability at FVTPL is stated at fair value, with any gains or losses arising on re‐measurementrecognizedinprofitorloss.Thetransactioncostisexpensedasincurred.Thenetgainorlossrecognizedinprofitorlossincorporatesanyinterestpaidonthefinancialliability.FairvalueisdeterminedinthemannerdescribedinNote7.


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(e) SignificantAccountingEstimatesandJudgmentsThe preparation of these Financial Statements requires management to make estimates andassumptionsthataffectthereportedamountsofassetsandliabilitiesatthedateoftheFinancialStatementsandreportedamountsofexpensesduringthereportingperiod.Actualoutcomescoulddifferfromtheseestimates.TheseFinancialStatementsincludeestimateswhich,bytheirnature,areuncertain.TheimpactsofsuchestimatesarepervasivethroughouttheFinancialStatements,andmay require accounting adjustmentsbasedon future occurrences. Revisions to accountingestimatesarerecognizedintheperiodinwhichtheestimate isrevisedandfutureperiodsif therevisionaffectsbothcurrentandfutureperiods.During the three months ended January 31, 2013, the Group issued a convertible debenture(note7). The Group has designated the convertible debenture at FVTPL. The Group has usedjudgment in concluding that the convertible debenture and embedded derivatives do notrepresent a residual interest in theCompanyand that theydonotmeet thedefinitionof equityunder IAS32,FinancialInstruments:Presentation. TheGrouphasusedestimates indeterminingthe fair value of the convertible debenture. The valuation methods and the underlyingassumptions used in re‐measurement of the convertible debenture at January 31, 2013 aredisclosedinNote7.TheGroupuses judgment indeterminingwhether thereare facts and circumstances suggestingthat the carrying amount of its exploration and evaluation assets ("E&E assets"), including siteequipment, may exceed their recoverable amount. In particular, in view of recent volatility instockmarketswhichhavelargelyimpactedsharepricesofjuniorresourcecompaniesdespitehighcommodityprices, theGrouphasbeenmonitoring itsmarketcapitalization. TheGroupbelievesthatthemarketcapitalizationatapointintimealonewouldnotindicatethatimpairmentexists.However,theGrouphascarefullyconsideredmorerelevantfactsandcircumstancesinaccordancewith IFRS6, Exploration for and Evaluation ofMineral Resources, and has concluded that thecarryingamountoftheGroup’sE&Eassetsdidnotexceedtheirrecoverableamount.Except as aforesaid, there were no material changes in significant accounting estimates andjudgmentsduringthethreemonthsendedJanuary31,2013.

(f) AccountingStandards,InterpretationsandAmendmentstoExistingStandardsNewandamendedstandardsadoptedbytheGroupEffective November 1, 2012, the Group adopted the following amendments to IFRS that wereissuedbytheIASB:

• Amendments to IAS1, Presentation of Financial Statements: Items of Other ComprehensiveIncome

• AmendmentstoIAS12,IncomeTaxesTheamendmentstoIAS1requireseparatepresentationofitemsofothercomprehensiveincomethat are potentially reclassifiable to profit or loss subsequently (i.e. those that might bereclassified)fromthosethatwillnotbereclassified.Ifitemsofothercomprehensiveincomearepresentedbeforetax,thenincometaxisallocatedtoeachrespectivegroup.


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Theapplicationof theseamendmentshasnothadanymaterial impactontheamountsreportedfor the current and prior years but may affect the accounting for future transactions orarrangements.Newstandards,amendmentsandinterpretationstoexistingstandardsnotyeteffectiveEffectivefortheGroup’sannualreportingperiodbeginningNovember1,2013 IFRS10,ConsolidatedFinancialStatements IFRS11,JointArrangements IFRS12,DisclosureofInterestsinOtherEntities IFRS13,FairValueMeasurement IAS27,SeparateFinancialStatements(asrevisedin2011) IAS28,InvestmentsinAssociatesandJointVentures(asrevisedin2011) IFRIC20,StrippingCostsintheProductionPhaseofaSurfaceMine

EffectivefortheGroup’sannualreportingperiodbeginningNovember1,2014• AmendmentstoIAS32,FinancialInstruments:Presentation

EffectivefortheGroup’sannualreportingperiodbeginningNovember1,2015 IFRS9,FinancialInstruments,ClassificationandMeasurementTheGrouphasnotearlyadoptedthesenewstandards,interpretationsoramendmentstoexistingstandards.TheGroupiscurrentlyassessingtheirimpactontheGroup’sfinancialstatements.

3. EXPLORATIONANDEVALUATIONASSETS

ThreemonthsendedJanuary31,2013

NiblackProject(a)

DeltaProject(b) Total

Mineralpropertyinterests Balanceatbeginningandendofperiod $14,411,765 $2,221,118 $16,632,883 Siteplantandequipment Cost Balanceatbeginningandendofperiod $1,060,063 $– $1,060,063

Accumulateddepreciation Balanceatbeginningofperiod $136,711 $– $136,711Chargefortheperiod(1) 30,116 – 30,116Totalaccumulateddepreciationforperiod $166,827 $– $166,827Netcarryingvalueofsiteplantandequipment $893,236 $– $893,236 Totalcarryingvalueatbeginningofperiod $15,335,117 $2,221,118 $ 17,556,235Totalcarryingvalueatendofperiod $15,305,001 $ 2,221,118 $ 17,526,119(1) Depreciationhasbeenrecognizedinexplorationandevaluationexpenses


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ThreemonthsendedJanuary31,2012

NiblackProject(a)

DeltaProject(b) Total

Mineralpropertyinterests Balanceatbeginningandendofperiod $14,411,765 $2,221,118 $16,632,883 Siteplantandequipment Cost Balanceatbeginningofperiod $45,312 $– $45,312Additions Barge 850,000 – 850,000Campandfieldequipment 164,751 – 164,751

Balanceatendofperiod $1,060,063 $– $1,060,063Accumulateddepreciation Balanceatbeginningofperiod $23,854 $– $23,854Chargefortheperiod(1) 1,610 – 1,610Totalaccumulateddepreciationforperiod $25,464 $– $25,464Netcarryingvalueofsiteplantandequipment $1,034,599 $– $1,034,599 Totalcarryingvalueatendofperiod $ 15,446,364 $ 2,221,118 $ 17,667,482(1) Depreciationhasbeenrecognizedinexplorationandevaluationexpenses

(a) NiblackProject

OnJanuary18,2012,theGroupincreaseditsownershipinterestinNiblackProjectLLC("NiblackLLC") from60% to 100% through the acquisition ofNiblackMineralDevelopment Inc. ("NIB"),whichheldtheremaining40%interestinNiblackLLC.NiblackLLCownsthe6,200‐acreNiblackproperty,locatedonPrinceofWalesIsland,some27milesfromKetchikan,Alaska.AspartoftheacquisitionofNIB,theGroupacquiredcertainsiteplantandequipmentassets.During the year ended October 31, 2011, the Group’s ownership interest in Niblack LLC wasincreased from 50% to 60% after completing the relevant earn‐in expenditure requirementsunder the Niblack limited liability company agreement (the "LLC Agreement"), resulting in aproportionate reduction in the carrying amount of the non‐controlling interest ("NCI") by$2,647,060andacorrespondingincreaseinshareholders’equity.Sincetheacquisitionofitsinitialownership interest in Niblack LLC in June 2009, the Group has funded 100% of the mineralexplorationandevaluationactivitiesofNiblackLLCand,pursuanttotheLLCAgreement,100%oftheexpendituresofNiblackLLCwereattributabletotheGroup.With the NIB acquisition, the Group issued 19,221,578 common shares of the Company to NIBshareholderswithanestimatedfairvalueofCdn$8,649,710($8,553,906)andassumed4,107,000share purchase warrants of NIB with an estimated fair value of $347,619 and which wereamended to entitle thewarrantholders to acquireone commonshareof theCompany for everytwo NIB share purchase warrants outstanding. The Group deemed the transaction to be anacquisitionoftheNCI,whichhadacarryingamountintheequityoftheCompanyof$11,764,705.Additionally,thetransactionalsoinvolvedtheacquisitionofotherassetsandliabilitiesofNIBwithanestimatednetfairvalueof$823,150.Thedeficiencyoftheconsiderationgivenrelativetothecarrying amount of theNCI, the fair value of the assets and liabilities acquired and transactioncostsof$105,407amountedto$3,580,923whichwasrecordeddirectlyinequity.


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TheGroupwillbe required tomakeaone‐timepaymentof$1,250,000 toanarm’s length thirdparty upon the earliest to occur of: the commencement of commercial production, the Groupholdinglessthan35%interestintheNiblackProject,orachangeofcontrolofHeatherdale.

(b) DeltaProjectInMay2011, in anon‐arm’s length transaction, theGroupacquireda60% interest in theDeltaProject, subject to certain funding requirements,with options to increase this interest to 100%pursuanttoanunderlyinglimitedliabilitycompanyagreement(the"DeltaLLCAgreement")withanindependentthirdparty,GraydResourceCorporation(whichis100%ownedbyAgnico‐EagleMines Ltd.) and itswholly owned subsidiaryGraydResources (USA) Inc. ("Agnico‐Eagle"). TheGroup’s acquisition of the interest in the Delta Project was accomplished by acquiring HunterDickinsonAcquisitions Inc. (subsequently renamed toHeatherdale Acquisitions Ltd. (“HAL”)), arelatedprivateentitythatheldthe60%interest,andinwhichcertainkeymanagementpersonnelof theGroupwere shareholders, for consideration of $2,192,430 and thepayment of additionalconsiderationuponcompletionoffundingmilestonesandtheexerciseofoptionsundertheDeltaLLC Agreement. The initial purchase consideration included the issuance of 2,000,000Heatherdale common shareswith a fair value of $1,673,208 based on the quotedmarket shareprice and the reimbursement of $519,222 in costs incurred byHAL,which included the cost ofstaking of additional claims on the property. The Group incurred $28,688 in legal and otherexpenditures relating to the acquisition. On the date of the transaction, neitherHAL nor DeltaProjectLLCmetthedefinitionofabusinessunderIFRS.TheDeltaProjectcomprisesa39,840‐acrepropertyineast‐centralAlaska,approximately19milesfrom the Alaska Highway. Under the terms of the Delta LLC Agreement, to maintain its 60%ownership interest in theDeltaProject, theGroupmust fund at least $1,000,000 in explorationexpendituresonorbeforeJanuary1,2012(completedinAugust2011)andafurther$2,000,000on or before January 1, 2013 (of which approximately $600,000 has been funded to date)(the"Initial Contribution"). TheGroup, at its sole election,may contribute an equivalent amount ofcashtoDeltaLLCinlieuofincurringexpenditurestosatisfytheInitialContributionrequirements.TheGroup received an initial extensionof thedeadline toFebruary1, 2013andhas received afurther 90 day extension toMay 1, 2013. The Group has the option to increase its ownershipinterestto80%byfundingadditionalexplorationexpendituresof$4,000,000onorbeforeJanuary1, 2014 (the "First Option"). Within 90 days of exercising the First Option, the Group has theoption to increase its ownership interest to 100% by issuing to Agnico‐Eagle, at the Group’selectionandsubjecttoregulatoryapproval,either2,000,000HeatherdalecommonsharesorsuchnumberofHeatherdalecommonsharesthatequatestoamarketvalueof$4,000,000basedontheprior5dayvolumeweighted‐averageshareprice(the"SecondOption").Iftheownershipinterestofeitherpartyisreducedbelow10%,thatinterestshallthenconverttoa1%NetSmelterReturnsroyalty ("NSR"), with the other party having the option to acquire the NSR at any time for$1,000,000.Under the terms of the acquisition of HAL, the Group is required to issue to the former HALshareholders2,000,000Heatherdalecommonsharesuponcompletionof the InitialContributionandadditionalHeatherdalecommonsharesthatequatestoCdn$2,000,000basedontheprior10day volumeweighted‐average share priceupon exercise of eachof theFirstOption andSecondOption.IneachcasetheGroupmaymakeacashpaymentinlieuthereofincertaincircumstances.


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The Group accounts for contingent consideration relating to an asset acquisition upon theoccurrenceofthespecifiedcontingentfutureevent.

(c) OtherinterestsWiththeacquisitionofNIB(note3)theGroupacquiredtheKhayyamandRubyTuesdayclaims,whichare locatedapproximately19miles fromtheNiblackProject. TheGroupestimated theseclaimsasbeingofnominalvalueasitcouldnotreliablyestimatethefairvalueoftheseclaims.

4. AMOUNTSRECEIVABLEANDOTHERPREPAIDEXPENSES

January31 October31

Fallingduewithinoneyear 2013 2012

Salestaxreceivable $96,758 $106,464

Prepaidexpenses 34,270 38,629

$131,028 $145,093

5. CASHANDCASHEQUIVALENTSANDRESTRICTEDCASH

(a) CashandCashEquivalents January31 October31

2013 2012

Businessandsavingsaccounts $2,791,728 $1,363,561

CashandcashequivalentscomprisecashinbusinessandsavingsaccountsheldatmajorfinancialinstitutionswhichareavailableondemandbytheGroup.

(b) RestrictedCash January31 October31

2013 2012

Termdeposits $1,221,408 $1,221,408

The Group has term deposits totaling $1,221,408 which it acquired on the acquisition of NIB(note3)thathavebeenpledgedascashcollateralforaletterofcreditissuedinfavourofAlaskanregulatory authorities, and which represent the 2007 approved closure cost estimate of theNiblackProject.ThesedepositswillbereleasedoncereclamationworkhasbeenperformedandassessedbytheAlaskanregulatoryauthorities.


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6. SHARECAPITALANDRESERVES

(a) AuthorizedShareCapitalAt January 31, 2013, the authorized share capital consisted of an unlimited (2012 – unlimited)number of common shares without par value and an unlimited number (2012 – unlimited) ofpreferredshareswithnoparvalue.Allissuedsharesarefullypaid.

(b) PrivatePlacementFinancingsIn December 2012, the Group completed a non‐brokered private placement of a convertibledebentureforgrossproceedofCdn$3,000,000($3,014,469)(note7).DuringtheperiodendedJanuary31,2012,theGroupreceived$92,976insubscriptionsforanon‐brokered private placement thatwas completed by theGroup in two tranches on February 10,2012andMarch2,2012.

(c) BasicandDilutedLossPerShare ThreemonthsendedJanuary31

2013 2012

Lossattributabletocommonshareholders $1,745,855 $541,616

Weightedaveragenumberofcommonsharesoutstanding 119,548,127 72,035,239

(d) ShareOptionPlan

The following summarizes the changes in the Group’s share options for the period endedJanuary31,2013and2012: 2013 2012

Continuityofshareoptions

Numberofoptions

outstanding

Weightedaverageexercise

price

Numberofoptions

outstanding


priceBalanceatbeginningofperiod 7,862,210 Cdn$0.79 5,808,000 Cdn$1.01Expired (2,089,400) Cdn$1.00 – –Forfeited (120,800) Cdn$1.09 (25,600) Cdn$1.00Balanceattheendoftheperiod 5,652,010 Cdn$0.70 5,782,400 Cdn$1.01Theweightedaverageremainingcontractual lifeof theoutstandingoptions is2.6years(2012–2.2 years). Of theoutstanding shareoptions 3,572,300 (2012–4,478,334) are exercisable at aweightedaverageexercisepriceofCdn$1.00(2012–Cdn$1.01).Theweightedaverage fairvalueof theshareoptionsoutstandingat January31,2013was$0.47pershareoption(2012–$0.64pershareoption).TherewerenoshareoptionsgrantedduringthethreemonthsendedJanuary31,2013and2012.


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The Group's management believes that the fair value of services provided by non‐employeesagainsttheissuanceofsharepurchaseoptionscannotbemeasuredreliably,astheoccurrenceandtimingofsuchservicesarenottypicallyascertainableatthetimeoftheoptiongrant.Accordingly,share‐basedpayments tonon‐employeeshavebeenmeasuredat theestimated fair valueof theshareoptionsissued.

7. CONVERTIBLEDEBENTURE

In December 2012, the Group completed a non‐brokered private placement with Sino‐CanadaNaturalResourcesFundI("Sino‐CanadaFund"),pursuanttowhichSino‐CanadaFundsubscribedforaconvertibledebenture(the"Debenture")foranaggregateprincipalamountofCdn$3,000,000($3,014,469).TheDebenturehasatwo‐yeartermwithamaturitydateofDecember31,2014(the"MaturityDate").AtanytimeaftertheissuanceoftheDebentureandbeforetheMaturityDate,Sino‐CanadaFundcan convert the principal amount of the Debenture or any part thereof into common shares ofHeatherdale("HeatherdaleShares")atapriceofCdn$0.20perHeatherdaleShare.AttheMaturityDate,anyremainingprincipalandinterestamountswillberedeemedattheoptionoftheGroupincash, by the issuance ofHeatherdale Shares, or by a combination of both cash andHeatherdaleShares(the"RedemptionOption").TheDebenture earns interest at a rate of 8%per annum,with4%payable in cashquarterly inarrearsand4%payableinHeatherdaleSharessemi‐annuallyinarrears,atthehigherofCdn$0.20perHeatherdaleShareandthemarketpriceofHeatherdaleSharesonthedateofsuchconversion.The Group may, with Sino‐Canada Fund's consent, prepay in cash all or part of the amountsoutstandingundertheDebenture.TheGroupincurredatotaltransactioncostof$210,159whichis comprised of a finder’s fee of $180,918 (Cdn$180,000) and legal and other costs of $29,241(Cdn$28,977).The Group has designated the Debenture at FVTPL and its fair value is determined using thefollowingvaluationmodels:

• thepartialdifferentialequationvaluationmodelforthedebthostandtheconversionoption;• theCox‐RubinsteinbinomialmodelforthepaymentofinterestinHeatherdaleShares;and• theBlack‐Scholesoptionpricingmodel for theRedemptionOptionwith itsvalueprobability

weighted.AtJanuary31,2013,thefairvalueoftheDebenturewasestimatedat$3,221,536resultinginalossrecognizedinComprehensiveLossof$207,067.The following assumptions were used in determining the fair value of the Debenture atJanuary31,2013:


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Assumptions January31,2013Risk‐freeinterestrate 1.14%Expectedvolatility 96%Expectedlife 1.92yearsValuationdateshareprice Cdn$0.16Expecteddividendyield NilCreditspread 36.4%

8. PROVISIONFORREHABILITATIONOBLIGATION

January31 October31

2013 2012

Balanceatbeginningofperiod $1,409,959 $–

RecognitiononacquisitionofNIB(1) – 1,343,000

Increaseinprovision(2) – 66,959

$1,409,959 $1,409,959

(1) WiththeacquisitionofNIB(note3),theGrouprecognizedaprovisionof$1,343,000fortherestorationandrehabilitationoftheNiblackProjectsiteincludingundergroundworkings.Priortotheacquisition,NIBhad indemnified theGroup for anypriorobligation resulting fromhistorical rehabilitationwork.The settlement of the obligation is to occur upon closure of themine site. In relation to this futurerehabilitation, theGrouphas termdepositswhichhavebeenpledgedas cash collateral for a letterofcreditissuedinfavouroftheAlaskaregulatoryauthorities(note5(b)).

(2) TheGroupincreasedtheprovisioninlinewitharevisedandupdatedreclamationandclosureplanthatwas approved by the Alaska regulatory authorities. The charge for the increase was included inexplorationandevaluationexpenses.

9. DERIVATIVEFINANCIALLIABILITIES

The followingsummarizessharepurchasewarrants (eachwarrantredeemable foronecommonshare)fortheperiodendedJanuary31,2013and2012: 2013 2012

Continuityofsharepurchasewarrants

Numberofsharessubjecttowarrantsoutstanding


price

Numberofsharessubjecttowarrantsoutstanding


priceBalanceatbeginningofperiod 22,584,088 Cdn$0.96 – –Issued – – 19,203,755 Cdn$1.20Expired (11,314,255) Cdn$1.20 – –AssumedonNIBacquisition

(note3) – – 2,053,500 Cdn$1.22Balanceattheendofperiod 11,269,833 Cdn$0.71 21,257,255 Cdn$1.20Theweightedaverageremainingcontractuallifeofwarrantsoutstandingis0.6years(2012–0.9years).Alloutstandingwarrantsareexercisable.


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The warrants issued and assumed by the Company have an exercise price denominated in acurrencyotherthantheGroup’sfunctionalcurrency.Theydonotmeetthedefinitionofanequityinstrumentandasaresultareclassifiedasderivativefinancialliabilities.Thederivativefinancialliabilitieshavebeenrecognizedatfairvalueondateofissuewithsubsequentchangesinfairvaluedeterminedattheendofeachreportingperiodrecognizedinlossfortheperiod.At January31,2013, the fair value of the warrant derivative financial liabilities was estimatedusingtheBlack‐Scholesoptionpricingmodelwiththefollowingassumptions:

Warrants

Riskfreeinterest

rateShareprice

usedExpectedvolatility

Expectedlife(inyears)

Expecteddividend

yieldJanuary2012warrants(note3) 1.16% Cdn$0.16 96% 1.9 NilFebruary2012warrants 1.16% Cdn$0.16 96% 0.3 NilMarch2012warrants 1.16% Cdn$0.16 96% 0.3 NilThefollowingtablesreconcilethechangeinfairvalueandtheresultinggainrecognizedinlossasfollows:ForthethreemonthsendedJanuary31,2013Warrants

FairvalueatOctober31,2012

Fairvalueondateofissue

Changeinfairvalue(gain)

FairvalueatJanuary31,2013

January2012 $50,353 $–

$(21,687) $28,666February2012 33,811 – (31,278) 2,533March2012 6,802 – (6,472) 330Total $90,966 $– $(59,437) $31,529ForthethreemonthsendedJanuary31,2012

Warrants

FairvalueatOctober31,2011

Fairvalueondateofissue

Changeinfairvalueloss(gain)

FairvalueatJanuary31,2012

December2010 $505,771 $– $(469,299) $36,472June2011 1,433,761 – (916,127) 517,634January2012 – 347,619 2,800 350,419Total $1,939,532 $347,619 $1,382,626 $904,525


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10. RELATEDPARTYBALANCESANDTRANSACTIONS

(a) TransactionswithKeyManagementPersonnelThe aggregate value of transactions with key management personnel which includes directors(executiveandnon‐executive)andseniormanagementandadvisorsfortheperiodendedJanuary31,2013and2012wasasfollows:Transactions 2013 2012

Short‐termemployeebenefits(1) $245,238 $208,000

Share‐basedcompensation 44,145 107,768

$289,383 $315,768(1) Short‐termemployeebenefitsincludesalariesanddirectorsfees.

Certain key management personnel are paid through private companies controlled by suchpersonnel. January31 October31

Balancespayableontransactionswithkeymanagement 2013 2012

Balancepayableforservicesreceived $1,172 $2,500

(b) EntitieswithSignificantInfluenceovertheGroup

TheGroup’smanagementbelievesthatcertainentitieshavepowertoparticipateinthefinancialoroperatingpoliciesoftheGroup.Severaldirectorsandotherkeymanagementpersonnelofoneof theseentities,HunterDickinsonServices Inc. ("HDSI"),whoareclosebusinessassociates,arealsokeymanagementpersonneloftheGroup.PursuanttoamanagementagreementbetweentheGroup and HDSIwhich has significant influence over the Group, the Group receives geological,engineering, corporate development, administrative, management and shareholdercommunication services from this entity. For theperiodended January31,2013and2012 thevalueoftransactionswasasfollows:Transactions 2013 2012

Servicesreceived:

Basedonannuallysetrates $609,476 $711,132

Basedonannualfixedfees $– $23,534

Reimbursementofthirdpartyexpensespaid $40,233 $54,453

January31 October31

Balances(payable)/prepaidexpenses 2013 2012

Balances(payable)forservicesreceived $(303,469) $(477,723)

PrepaymentagainstservicestobereceivedbytheGroup $111,868 $114,807

Additionally,theGroupborrowed$392,465inJanuary2012pursuanttoaloanagreementsignedinMarch2011. TheGrouprepaid theamount inMarch2012. No interestwas charged for the


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periodinwhichthefundswereadvanced. January31 October31

Summary 2013 2012

Balancespayabletorelatedparties

Entitycontrolledbykeymanagementpersonnel $1,172 $2,500

EntitywithsignificantinfluenceovertheGroup 303,469 477,723

Totalamountpayabletorelatedparties $304,641 $480,223

PrepaymentagainstservicestobereceivedbytheGroup $111,868 $114,807

11. TRADEANDOTHERPAYABLES

January31 October31

Fallingduewithinoneyear: 2013 2012

Tradepayables $217,533 $162,106

Tradepayablesarenon‐interestbearingandarenormallysettledon30dayterms.

12. FINANCIALRISKMANAGEMENT

(a) LiquidityRiskLiquidityriskistheriskthattheGroupwillnotbeabletomeetitsfinancialobligationsastheyfalldue. TheGroup ensures that there are sufficient capital resources in order tomeet short termbusiness requirements, after taking into account cash flows from operations and the Group'sholdings of cash and cash equivalents. The Group's cash and cash equivalents are currentlyinvestedinbusinessandsavingsaccountswithhigh‐creditqualityfinancialinstitutionswhichareavailableondemandbytheGroupforitsprograms.TheGroup’smajorsourceoffundinghasbeentheissuanceofequitysecuritiesforcash,primarilythrough private placements to sophisticated investors and institutions. InDecember 2012, theGroupcompletedaCdn$3,000,000privateplacementofaconvertibledebenture(note7).TheGroup is required to fund thebalanceof its InitialContribution tosecure its interest in theDeltaProject(note3(b)).

(b) MarketRiskMarketriskistheriskthatchangesinmarketprices,suchasforeignexchangeandinterestrateswillaffecttheGroup'sincomeorthevalueofitsholdingsoffinancialinstruments.Theobjectiveofmarket risk management is to manage and control market risk exposures within acceptableparameters,whileoptimizingthereturn.


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(i) InterestRateRisk

TheGroupissubjecttointerestrateriskwithrespecttoitsinvestmentsincashandcashequivalents.TheGroup'spolicyistoinvestcashatfixedratesofinterestandcashreservesare to bemaintained in cash and cash equivalents in order tomaintain liquidity, whileachievingasatisfactoryreturnforshareholders. Fluctuationsininterestrateswhencashandcashequivalentsmatureimpactinterestincomeearnedhowever,fortheperiodendedJanuary31,2013,theexposurefortheGroupisnotsignificant.

(ii) ForeignExchangeRisk

In thenormal courseof business, theGroupenters into transactions for thepurchaseofsuppliesandservicesdenominatedinacurrencyotherthanthefunctionalcurrencyoftheGroup. As a result, the Group is subject to foreign exchange risk from fluctuations inforeignexchangerates. TheGrouphasnotentered intoanyderivativeorother financialinstrumentstomitigatethisforeignexchangerisk.

A10%changeinvalueoftheCanadiandollarrelativetotheUSdollaratJanuary31,2013wouldhave increasedthenet lossby$224,100(2012–$77,000). Thisanalysisassumesthatallothervariables,inparticularinterestrates,remainconstant.

(c) FairValueThefairvalueoftheGroup’sfinancialassetsandliabilitiesapproximatetheircarryingvalues.Financialinstrumentsmeasuredatfairvalueareclassifiedintooneofthreelevelsinthefairvaluehierarchyaccordingto therelativereliabilityof the inputsusedtoestimate the fairvalues. Thethreelevelsofthefairvaluehierarchyare:

Level1–Unadjustedquotedpricesinactivemarketsforidenticalassetsorliabilities; Level2–Inputsotherthanquotedpricesthatareobservablefortheassetorliabilityeither

directlyorindirectly;and Level3–Inputsthatarenotbasedonobservablemarketdata.

FinancialliabilitiescarriedatfairvalueatJanuary31,2013areasfollows: Level1 Level2 Level3 Total

FinancialliabilitiesatFVTPL

Derivativefinancialliabilities(note9) $– $– $31,529 $31,529

ConvertibledebenturedesignatedatFVTPL(note7) – – 3,221,536 3,221,536

Total $– $– $3,253,065 $3,253,065


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FinancialliabilitiescarriedatfairvalueatOctober31,2012areasfollows: Level1 Level2 Level3 Total

FinancialliabilitiesatFVTPL

Derivativefinancialliabilities(note9) $– $– $90,966 $90,966

Total $– $– $90,966 $90,966

13. TAXATION

(a) ProvisionforcurrenttaxNoprovisionhasbeenmadeforcurrentincometaxes,astheGrouphasnotaxableincome.

(b) ProvisionfordeferredtaxAsfuturetaxableprofitsoftheGroupareuncertain,nodeferredtaxassethasbeenrecognized.Asat January31,2013, the Group has unused non‐capital loss carry forwards of approximately$14,066,000 (October 31, 2012 – $15,067,000) in Canada and approximately $30,901,000(October31,2012–$29,761,000)intheUnitedStates.Inaddition,theGrouphasapproximately$6,894,000(October31,2012–$7,183,000)ofresourcetaxpoolsavailable,whichmaybeusedtosheltercertainresourceincomeintheUnitedStates.

14. EMPLOYMENTCOSTS

Theamountofsalariesandbenefits includedinexpensesfortheperiodendedJanuary31,2013and2012isasfollows: 2013 2012Salariesincludedin: Explorationandevaluationexpenses $302,477 $245,144Generalandadministrationexpenses 312,078 327,669

Share‐basedcompensation 84,958 188,461Total $699,513 $761,274

15. SEGMENTREPORTING

TheGrouphasasinglereportableoperatingsegmentwhichincorporatesboththeNiblackProjectandDeltaProject.Allnon‐currentassetsareheldinAlaska,USA.Althoughbothprojectscouldbeclassified as operating segments,management has aggregated these operating segments for thefollowingreasons:

1. Theprojectsarelocatedinthesamejurisdiction,Alaska,USA,sotheregulatoryenvironmentisthesame;and

2. The projects have similar mineralization and geology (both are volcanogenic massivesulphideprojects).


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16. EVENTSAFTERTHEREPORTINGPERIOD

Sharepurchaseoptionsgrantedandexpired44,500and90,000sharepurchaseoptionsweregrantedwithanexercisepriceofCdn$0.20peroptionandexpirydatesofFebruary13,2016andMarch19,2016,respectively.18,100 sharepurchaseoptionswithaweighted average exerciseprice ofCdn$0.165peroptionandwithanexpirydateofAugust20,2015wereforfeited.

HeatherdaleResourcesLtd.

MANAGEMENT'SDISCUSSIONANDANALYSIS

THREEMONTHSENDEDJANUARY31,2013

HeatherdaleResourcesLtd.Management’sDiscussionAndAnalysisThreemonthsendedJanuary31,2013

2

TABLEOFCONTENTS

1.1 Date............................................................................................................................................................3

1.2 Overview.................................................................................................................................................4

1.2.1 Summary ......................................................................................................................... 4

1.2.2 Financings ....................................................................................................................... 5

1.2.3 NiblackProject,SoutheastAlaska ................................................................................ 5

1.2.4 DeltaProject,east‐centralAlaska ............................................................................... 11

1.2.5 MarketTrends .............................................................................................................. 14

1.3 SelectedAnnualInformation........................................................................................................15

1.4 SummaryandDiscussionofQuarterlyResults.....................................................................15

1.5 ResultsofOperations.......................................................................................................................16

1.6 Liquidity.................................................................................................................................................17

1.7 CapitalResources...............................................................................................................................19

1.8 Off‐BalanceSheetArrangements................................................................................................19

1.9 TransactionswithRelatedParties..............................................................................................20

1.10 FourthQuarter....................................................................................................................................21

1.11 ProposedTransactions....................................................................................................................21

1.12 CriticalAccountingEstimates.......................................................................................................21

1.13 ChangesinAccountingPoliciesincludingInitialAdoption..............................................21

1.14 FinancialInstrumentsandOtherInstruments......................................................................22

1.15 OtherMD&ARequirements...........................................................................................................24


3

1.1 Date

This Management’s Discussion and Analysis ("MD&A") should be read in conjunction with theunauditedcondensedconsolidatedinterimfinancialstatements("InterimFinancialStatements")ofHeatherdaleResourcesLtd.(the"Company"or"Heatherdale")forthethreemonthsendedJanuary31, 2013 and the audited consolidated financial statements for the year endedOctober31,2012andtheannualMD&Aforthesameperiod,aspubliclyfiledundertheCompany’sprofileonSEDARatwww.sedar.com.

TheCompanyreportsinaccordancewithInternationalFinancialReportingStandardsasissuedbythe International Accounting Standards Board ("IASB") and interpretations of the IFRSInterpretationsCommittee("IFRIC"s) (together, "IFRS"). The followingdisclosureandassociatedconsolidatedfinancialstatementsarepresentedinaccordancewithIFRS.ThisMD&Aispreparedas ofMarch 19, 2013. All dollar amounts herein are expressed inUnitedStatesDollars unlessotherwisespecified.Unlessindicatedotherwisethereferencesto2012,2011and2010representeach of the Company’s fiscal years ended October 31 respectively and the threemonth periodsdenotedbytheletter"Q"aretheCompany’sfiscalquarters.

Thisdiscussionincludescertainstatementsthatmaybedeemed"forward‐lookingstatements".

Allstatementsinthisdisclosure,otherthanstatementsofhistoricalfacts,thataddresspermitting,explorationdrilling,exploitationactivitiesandeventsordevelopments that thecompanyexpectsare forward‐looking statements. Although the Company believes the expectations expressed insuch forward‐looking statements are based on reasonable assumptions, such statements are notguaranteesof futureperformanceandactual resultsordevelopmentsmaydiffermaterially fromthoseintheforward‐lookingstatements.Factorsthatcouldcauseactualresultstodiffermateriallyfrom those in forward‐looking statements include market prices, exploitation and explorationsuccesses, continuity of mineralization, potential environmental issues and liabilities associatedwithexploration,developmentandminingactivities,uncertaintiesrelated to theability toobtainnecessary permits, licenses and title and delays due to third party opposition, changes ingovernmentpoliciesregardingminingandnaturalresourceexplorationandexploitation,continuedavailabilityofcapitalandfinancing,andgeneraleconomic,marketorbusinessconditions.Investorsarecautionedthatanysuchstatementsarenotguaranteesoffutureperformanceandactualresultsordevelopmentsmaydiffermateriallyfromthoseprojectedintheforward‐lookingstatements.FormoreinformationontheCompany, investorsshouldreviewtheCompany'scontinuousdisclosurefilingsthatareavailableatwww.sedar.com.

Forward‐lookingstatementsaregenerally,butnotalways,identifiedbytheuseofforward‐lookingterminology such as "plans", "expects", "is expected", "budget", "scheduled", "estimates","forecasts", "intends", "anticipates", "projects", "potential", "believes" or variationsof suchwordsandphrasesorstatementsthatcertainactions,eventsorresults"may","could","would","should","might"or"willbetaken","occur"or"beachieved".

The Company reviews its forward‐looking statements on an ongoing basis and updates thisinformationwhencircumstancesrequireit.


4

InformationConcerningEstimatesofIndicatedandInferredResources

The following discussion uses the terms "indicated resources" and "inferred resources".HeatherdaleadvisesinvestorsthatalthoughthesetermsarerecognizedandrequiredbyCanadianregulations under National Instrument 43‐101,StandardsofDisclosure forMineralProjects ("43‐101"), the U.S. Securities and Exchange Commission does not recognize them. Investors arecautionednottoassumethatalloranypartofthemineraldepositsinthesecategorieswilleverbeconvertedintoreserves.Inaddition,"inferredresources"haveagreatamountofuncertaintyastotheirexistence,andeconomicandlegalfeasibility.ItcannotbeassumedthatalloranypartofanInferred Mineral Resource will ever be upgraded to a higher category. Under Canadian rules,estimates of Inferred Mineral Resources may not form the basis of feasibility or pre‐feasibilitystudies, or economic studies except for a Preliminary Assessment as defined under 43‐101.Investors are cautioned not to assume that all or part of an inferred resource exists, or iseconomicallyorlegallymineable.

1.2 Overview

1.2.1 Summary

HeatherdaleisanexplorationanddevelopmentcompanywithinterestsintwoAlaska‐basedassets,theadvancedexplorationstageNiblackProjectandtheearlierstageDeltaProject.

NiblackProject

Heatherdale’s100%‐ownedNiblackProject("Niblack")islocatedinsoutheastAlaska.

Thepropertyhostsvolcanogenicmassivesulphide("VMS")mineralizationwithinafoldedsequenceof felsicvolcanicrocksthatextendsforsomesixmilesacrosstheproperty. Sixcopper‐gold‐zinc‐silver VMS zones ‐ Lookout, Trio, Dama, Lindsy,Mammoth and the historicNiblackmine – havebeen identifiedwithin thesequencewithsignificantmineral resourcesestimated for theLookoutandTriozones. Asonlyonequarterof theextentof theprospectivehorizonhasbeen testedbydrilling so far, there is excellent potential to discover additional VMS deposits and substantiallyincreasethemineralresources.

Explorationactivity,includingexcavationofanexplorationaditandapproximately396,000feetofsurfaceandundergrounddrillinghastakenplacetodateatNiblack,includinga15,500‐footsurfacedrillingprogramin2012thatextendedtheTriozone. Engineeringstudies,basedontheLookoutandTriodepositsbeganin2011,andareongoing.

DeltaProject

Heatherdaleholdsa60%interestsubjecttofundingrequirements,withoptionstoacquirea100%interest,intheDeltaProjectwhichislocatedineast‐centralAlaska.

TheDeltapropertyhostsseveralknownVMSoccurrences,withimportantzinc‐silver‐gold‐copper‐leadmineral resources,as indicated fromapreliminaryestimatebasedonwidely‐spaceddrillingcompleted up to and including 2006 at several of these zones. There is excellent potential toexpandtheresourcesaswellasmakenewdiscoveriesonthe39,840‐acreDeltaproperty.


5

Themid‐stage Delta Project complements the Niblack Project because it provides the Companywithasecond,similarassetwithlonger‐termdevelopmentpotential.

1.2.2 Financings

PrivatePlacementbySino‐CanadaNaturalResourcesFundI

InDecember2012, theCompanycompletedanon‐brokeredprivateplacementwithSino‐CanadaNaturalResourcesFundI("Sino‐CanadaFund"),pursuanttowhichSino‐CanadaFundsubscribedforaconvertibledebenture(the"Debenture")foranaggregateprincipalamountofCdn$3million,whichwillearninterestatarateof8%perannum,with4%payableincashquarterly inarrearsand 4% payable in common shares of the Company ("Shares") semi‐annually in arrears. TheprincipalamountofthedebenturewillbeconvertibleintoSharesatapriceofCdn$0.20perShare,andinterestthereonwillbeconvertibleatthehigherofCdn$0.20perShareandthemarketpriceoftheSharesonthedateofsuchconversion.

At theendof the two‐year termof theDebenture,anyremainingprincipal and interestamountswillberedeemedattheoptionoftheCompanyincash,bytheissuanceofShares,oracombinationofbothcashandShares.TheCompanymay,withSino‐CanadaFund’sconsent,prepayincashallorpartoftheamountsoutstandingundertheDebenture.

Aspartofthefinancing,afivememberTechnicalAdvisoryCommittee("TAC")wasformed. Sino‐CanadaFundwillhavetherighttonominateoneindividualforappointmentontheTACforsolongas Sino‐CanadaFundholds a portion of theDebenture anduntil such time as Sino‐Canada Fundeither: (i)beneficiallyownsat least10%of the total issuedandoutstandingShares;or (ii)holdswrittenproxiestovotetheSharesofoneormorenewinvestorsintroducedbySino‐CanadaFundwho hold in aggregate at least 10% of the issued and outstanding Shares (the "ThresholdOwnership Condition"). When the ThresholdOwnership Condition has beenmet and until suchtime as that condition fails, Sino‐Canada Fund will no longer have the right to nominate anindividual forappointmentasa technical advisory committeemember,butwillhave the right tonominateoneindividualforappointmentasadirectoroftheCompany.

1.2.3 NiblackProject,SoutheastAlaska

1.2.3.1NiblackProjectAgreement

InJuly2009,NiblackMineralDevelopmentInc.("NIB")andHeatherdaleenteredintoanagreement(the "NiblackLLCAgreement") to formandoperate a limited liability company ("NiblackProjectLLC") tohold the joint ventureassetsandconstruct facilities inorder to explore, evaluate and iffeasible,developandminetheNiblackproperty.

UnderthetermsoftheNiblackLLCAgreement,Heatherdalefunded$15millioninexplorationanddevelopment expenditures on the Niblack Project in order to retain a 51% interest in NiblackProjectLLCandcompletedanoptiontoincreaseitsownershipinterestto60%byfundingafurther$10millioninadditionalexpenditures.


6

In October 2011, Heatherdale and NIB entered into an arrangement agreement relating to theacquisition by Heatherdale of all the issued and outstanding shares of NIB by way of a plan ofarrangement(the“Arrangement”)undertheBusinessCorporationsAct(Alberta).TheacquisitionwascompletedonJanuary18,2012,andasaresult,HeatherdaleincreaseditsownershipinterestintheNiblackProjectto100%.

OnclosingoftheArrangement,HeatherdaleacquiredalltheoutstandingcommonsharesofNIBinexchangefortheissuanceof19,221,578Heatherdalecommonshares.TheformershareholdersofNIB received 0.50 common shares of Heatherdale for each common share of NIB. OutstandingunexercisedNIBsharepurchasewarrantswereamended togive thewarrantholders theright topurchase one Heatherdale common share for every two NIB share purchase warrants, at anexercise price of Cdn$1.20 in the case of warrants that had an exercise price of Cdn$0.45 andCdn$1.73inthecaseofwarrantsthathadanexercisepriceofCdn$0.65.AllunexercisedNIBshareoptionsatclosingwerecancelledforCdn$0.01peroptionbyNIB.

Heatherdalewillberequiredtomakeaone‐timepaymentof$1,250,000toanarm’s lengthpartyupontheearliesttooccurof:thecommencementofcommercialproduction,Heatherdaleholdingalessthan35%interestintheNiblackProject,orachangeofcontrolofHeatherdale.

1.2.3.2TechnicalPrograms

The6,200‐acreNiblackpropertyissituatedattidewateronPrinceofWalesIsland,some27milesfromtheCityofKetchikan. Ketchikanisacommunityof8,000peoplewithimportantservicestosupportprojectdevelopment,includingadeepwaterportandaninternationalairport.

Geology

The geology of the Niblack property consists of three main rock units: the Footwall Successionconsistingprimarilyofdaciticandbasalticvolcanicandvolcaniclasticrocks;theFelsicSuccessioncomprisingfelsicflowsandvolcaniclasticrockswhichhostallknownsulphideoccurrences;andtheHangingWall Succession,madeupofmafic volcano‐sedimentary rocksandbasaltic flows. Alloftheseunitsarecutbymafic to felsicdykesand/orsills,andtwomain faultsoffsetordisrupt therocks.

MineralizationoccursasVMSdeposits. Differingsomewhat fromtheclassicVMSmodel,mostofthe sulphide deposition at Niblack appears to have taken place beneath the seafloor withinpermeablevolcanicrocks;hence,zonesofsemi‐massiveandmassivesulphideoccuraspore‐spacefillingsor‘matrixreplacement’zones.

Copper, gold, zinc and silver are themainmetals of potential economic importance,with locallyelevated concentrations of lead. Gold content is noticeably higher than the average forvolcanogenic systems and is associated with all styles of mineralization. There is also a lowconcentrationof‘undesirable’traceelements(e.g.arsenic,antimony,cadmium,mercury,selenium)forthedeposittype.


7

History

TheNiblackpropertyhasahistoryofmineralexplorationanddevelopment.Itsupportedhistoricalundergroundminingoperations from1905‐08,andproducedapproximately20,000 tonsgrading4.9%copper,2.2g/tgoldand30g/tsilver.

Some $41million was spent by previous owners over 34 years to the end of 2008. This workincludes:

Excavationofa2,800‐footundergrounddevelopmentdriveand500feetofcrosscuts.Theundergrounddevelopmentfacilitatescost‐effectiveundergrounddrillingatNiblack.

Preliminarymetallurgicaltesting.Averageresultsincluderecoveriestocopperconcentrateof95%Cu,56%Auand53%Agwithpayablemetalfactorsof96.5%forcopper,90.7%forgoldand89.5%forsilver.Recoveriestozincconcentrateare93%zinc,16%goldand24%silverwithpayablemetalfactorsof85%forzinc,80%forgoldand20%forsilver.

Completionof195,000 feetofdrilling in246holes. The last twoholes(U027andU028)drilledinthe2008undergrounddrillingprogramreturnedgradessignificantlyhigherthanthehistoricaverages,indicatingthepresenceofanewhigh‐gradezonetothesouthwestoftheLookoutDeposit.

An initial mineral resource was estimated in 2009 based on historical drilling in theLookoutandTriodepositstothattime.

WorkbyHeatherdale

Heatherdale initiatedworkatNiblack in2009,andhascompletednearly200,000 feetofdrilling,including176,000feetinundergroundholesand23,300feetinsurfaceholes.TheCompany’s2009and 2010 underground drilling programs focused on expanding the high‐grade discovery atLookout.Substantialincreasestothesizeofthedepositwereachievedandaninternalhighgradezone was identified. Drilling in 2011 consisted of underground and some surface drilling thatcontinued to delineate the Lookout deposit, aswell as testing a number of other targets on theproperty.

In 2012, the Company’s work focused on the Trio deposit. Ten surface holes were completed,confirmingimportantextensionstothedeposit.

MineralResources

MineralresourceswereestimatedfortheLookoutandTriodepositsatNovember2011,basedonadatabase of 373 drill holes, three‐dimensional geostatisticalmodeling techniques and estimationparametersestablishedfromcarefulstudyofthegeologicalsetting.


8

LOOKOUTANDTRIOMINERALRESOURCESNOVEMBER2011ata$50NSRcutoff

INDICATEDDeposit Tonnes Cu(%) Au(g/t) Zn(%) Ag(g/t)Lookout(sulphide) 5,638,000 0.95 1.75 1.73 29.52TOTAL 5,638,000 0.95 1.75 1.73 29.52

INFERREDDeposit Tonnes Cu(%) Au(g/t) Zn(%) Ag(g/t)Trio(sulphide) 1,023,000 1.00 1.11 1.56 16.56Lookout(sulphide) 2,370,000 0.73 1.42 1.17 21.63TOTAL 3,393,000 0.81 1.32 1.29 20.10

Notes: Net Smelter Return ("NSR") cutoff uses long‐term metal forecasts: gold $1,150/oz, silver $20.00/oz, copper$2.50/lb,andzinc$1.00/lb;Recoveries(usedforallNSRcalculations)toCuconcentrateof95%Cu,56%Auand53%Agwithpayablemetalfactorsof96.5%forCu,90.7%forAu,and89.5%forAg;toZnconcentrateof93%Zn,16%Au,and24% Ag with payable metal factors of 85% for Zn, 80% for Au and 20% for Ag. Detailed engineering studies willdeterminethebestcutoff.

A continuous high grade zone occurs within the indicated resources of the Lookout Zonecomprising1.16milliontonnesgrading1.71%Cu,3.21g/tAu,3.83%Znand62.68g/tAgata$150NSRcutoff.

The November 2011 resource estimateswere completed by Deon Van Der Heever, Pr. Sci. Nat.,SeniorManagerMineralResourcesforHunterDickinsonServicesInc.,aQualifiedPersonwhoisnotindependentoftheCompany.ThemineralresourceestimateswerereviewedandverifiedbySRKConsulting ("SRK"). A technical report has been filed under the Company’s profile atwww.sedar.com.

OtherZonesandTargets

TheMammothzone is situatedapproximately3,000 feetnorthwestof theTriodepositalong theprospective felsic horizon. Narrow widths of sea floor accumulation‐style mineralization wereintersectedinseveralholesinthisareainthepastbutpriorto2011,onlylimitedeffortshadbeenmade to extend those intersections along strike or down dip. Significant mineralization wasintersected in holes U112 and U114 drilled from underground in 2011. Follow up drilling isrequiredtodelineatemineralresourcesatMammoth.

Detailedgeologicalmapping,samplinganddiamonddrillingcompletedbyHeatherdalefrom2009‐2011establishedseveralnewtargetsalongthefavorablefelsicstratigraphicsequence.Inaddition,there are a number of compelling targets frompastwork that have yet to be fully explored andwould best be initially tested by surface drilling. This includes the Dama zone,where previousdrillingintersected63feetgrading6.4%Cu,1.37g/tAu3.2%Znand53g/tAg.

TrioDeposit

Tenholes, totalingapproximately15,500feet,weredrilledatTrioin2012. Thedrillpatternanddrill hole spacing employedwas designed to provide themost effectivemeans of adding to theinferredresourceatTrio.TheprogramwassuccessfulinextendingtheTriomineralizationdown‐


9

dipandalsodemonstratedthatthefelsicstratigraphythathoststhemineralizationflattenstothesouth. As a result, there is excellent potential for extending themineralization even further bydrillingtoreasonabledepthsfromsurface. Inaddition,intersectionsindrillholesS171andS173(showninthetablebelowwithotherimportantintersectionsfromthe2012program)locatedthefurthestdown‐diphaveahigherfrequencyofsignificantmineralizedintervals,suggestingthatthemineralizedfelsicpackageisbecomingthickerandthesystemmaybestrengthening.

Twoor threemineralizedhorizonswerenoted in theTriodrilling,separatedbyaunitcalledthe‘white rhyolite’whichhosts ‘stringer zone’mineralization inwhat is interpreted tobe a rhyoliteflowdomesequence.Thepresenceofthisstringerstylemineralizationandthefurtherrefinementof thegeologicalmodelwillguideexplorationforadditionalmineralizationbetweentheTrioandLookoutdepositsandelsewhereintheNiblackdistrict.

DrillHoleNumber

From(feet)

To(feet)

Intercept(feet)

Cu% Aug/t Zn% Agg/t

S164 645.3 718.5 73.2 0.16 0.65 1.20 9S164 incl. 681.5 697.2 15.7 0.23 1.04 1.66 12S164 975.0 1010.7 35.7 0.94 0.35 0.28 6S165 1415.0 1420.2 5.2 0.78 0.23 0.50 11S166 866.6 870.6 4.0 0.18 3.17 4.35 13S166 1169.0 1172.1 3.1 1.04 2.82 1.65 23S167 834.4 838.0 3.6 0.22 2.31 6.15 21S167 1105.0 1137.1 32.1 0.27 0.29 1.42 4S167 incl. 1125.0 1137.1 12.1 0.23 0.26 2.73 3S169 1167.0 1168.5 1.5 0.26 0.20 12.35 4S169 1309.6 1317.4 7.8 0.88 0.63 0.07 3S170 739.2 743.0 3.8 0.31 4.01 0.05 9S170 934.4 953.0 18.6 0.12 0.57 0.78 5S171 1116.0 1122.5 6.5 0.85 0.20 2.03 4S171 1130.0 1137.5 7.5 0.42 0.45 2.03 3S171 1463.9 1472.5 8.6 1.07 0.34 0.14 5S171 incl. 1463.9 1466.6 2.7 2.31 0.45 0.01 7S171 1505.0 1512.8 7.8 0.85 0.32 0.15 5S172 1100.0 1105.1 5.1 0.36 0.21 1.03 4S172 1114.8 1130.0 15.2 0.11 0.68 0.68 3S172 1183.3 1185.2 1.9 2.99 0.60 0.20 25S172 1216.7 1237.0 20.3 0.23 0.40 2.75 6S172 1410.0 1420.0 10.0 0.67 0.68 0.99 9S172 incl. 1414.0 1415.0 1.0 3.89 2.51 7.78 55S173 1378.0 1388.0 10.0 0.13 0.10 2.21 1S173 1398.0 1406.0 8.0 0.67 0.18 0.36 5S173 1562.1 1565.9 3.8 0.33 0.34 2.44 2S173 1585.0 1590.0 5.0 0.70 0.36 0.05 5S173 1598.3 1604.0 5.7 0.47 0.84 1.78 13


10

NosignificantresultswereencounteredinholeS168Holesdenotedwithan“S”weredrilledfromsurface.Truewidthsofintersectionshavenotyetbeenaccuratelyestablished.

Engineering

Preliminary consideration of options for locating project infrastructure for a potential minedevelopment was undertaken in 2012. Initial results indicate there will be both economic andlogisticaladvantagestodirect‐shippingmaterialfromanundergroundmineatNiblacktoanoffsitelocationformillprocessing.Severallocationsfortheprocessingplantandtailingsstoragefacilitywere identified; twoof the threealternatives are industrial sites in southeastAlaska’sKetchikanarea, which have advantages such as a locally available and skilled workforce, existingtransportationinfrastructure;anddirectaccesstohydroelectricpower.

In August 2012, Heatherdale’s subsidiary Niblack Project LLC signed a Memorandum ofUnderstanding with the Ketchikan Gateway Borough under which the parties will workcooperativelytoassessthesuitabilityoftheGravinaIslandIndustrialComplexasapotentialsiteforamillandtailingsfacilityfortheNiblackProject.

CommunityEngagement

HeatherdaleiscommittedtocontinuingtoworkwiththepeopleofsoutheastAlaskatofindwaystooptimizelocalbenefitsassociatedwithdevelopmentatNiblack. TheCompany’smanagementandtechnical team continues to engage with project stakeholders to get their input and keep theminformedaboutactivitiesrelatedtotheproject.

People in the communities aswell as the elected leadership at the local, state and federal levelshavedemonstratedstrong interestandinvolvement intheNiblackProject. Forexample,abill toauthorize the establishment of a Niblack mining‐area road corridor was introduced in the USCongresslastJune.TheroadinitiativeistheresultofagrassrootseffortledbythecommunitiesonPrince of Wales Island. The Niblack Project has also received support from elected officials,business and community leaders throughout southeast Alaska and Heatherdale gratefullyacknowledgesthissupport.

InearlyFebruary2013,AlaskaSenatorLisaMurkowskire‐introducednewlegislationtoallowforroadbuildingthrougharoadlessareaonPrinceofWalesIslandtotheNiblackandBokanMountainprojects. Theprojectcalls for26milesofroadtoNiblack,18milesofwhichwouldbethrougharoadlessarea,andanother50milesofroadtotheBokanMountaindeposit. AlaskaSenatorMarkBegichco‐sponsoredthebill.

TheStateofAlaska is alsoadvancingplans toprovide financing support for energy facilitiesandotherinfrastructurenecessaryfordevelopmentoftheNiblackProjectthroughtheAlaskaIndustrialDevelopmentofExportAuthority("AIDEA"),thestate’sdevelopmentcorporation.AIDEAtypicallyhelpsfinanceinfrastructurebutcanalsomakeequityinvestmentsinqualifyingprojects.

Plansfor2013

MineralizationattheTriodepositisstillopeninthreedirectionsandwillbeprioritizedforfurtherdrilltestingin2013,subjecttotheCompany’sabilitytosecurefundingforthework.Therearealso


11

opportunities to further delineate and extend the Lookout deposit and make new discoveriesthroughexplorationofothertargetsalongtheprospectivestratigraphyontheNiblackproperty.

Engineering and environmental studies are also planned to advance the project towardprefeasibility.

1.2.4 DeltaProject,east‐centralAlaska

1.2.4.1DeltaProjectAgreement

HeatherdaleacquiredHeatherdaleAcquisitionsLtd("HAL",previouslyknownasHunterDickinsonAcquisitions Inc.), a non‐arm’s length private company which held a 60% interest, subject tofundingrequirements,withoptionstoacquirea100%interest,intheDeltaProjectunderaLimitedLiability Company Agreement of Delta Project LLC ("Delta LLC Agreement"), datedOctober20,2010 with Grayd Resource Corporation and its wholly owned subsidiary GraydResources (USA) Inc. (which as of January 24, 2012, is 100%ownedbyAgnico‐EagleMines Ltd."Agnico‐Eagle"). At the time of the transaction, certain directors of HALwere also directors ofHeatherdale.

IntermsoftheHALpurchase(the"HALSharePurchaseAgreement")andtheunderlyingDeltaLLCAgreement, in addition to assuming certain acquisition costs, Heatherdale has made or, will berequiredtomakethefollowingpaymentsandincurexplorationexpendituresassetoutbelow:

Heatherdale issued2,000,000commonsharestotheformershareholdersofHALinMay2011onclosingoftheHALSharePurchaseAgreement.

Toretainits60%interestintheDeltaProject,undertheDeltaLLCAgreementHeatherdalemust expend at least $1,000,000 on or before January 1, 2012 (ofwhich $519,222wasspentbyHALandtheremainingexpenditureswerecompletedbyHeatherdaleinAugust2011)andanadditionalamountofatleast$2,000,000onorbeforeJanuary1,2013(the"Initial Contribution"). The Company, at its sole election, may contribute equivalentamount of cash to Delta Project in lieu of incurring expenditures to satisfy the InitialContributionrequirements.TheCompanyreceivedaninitialextensionofthedeadlinetoFebruary1,2013fromAgnico‐Eagle,whichhasbeenfurtherextendedtoMay1,2013.

Under the HAL Share Purchase Agreement, upon completion of its Initial Contribution,Heatherdalewillissue2,000,000commonsharestotheformershareholdersofHAL.

If Heatherdale does not complete its Initial Contribution, it shall be deemed to havewithdrawnfromtheDeltaProjectandits60%ownershipinterestintheDeltaProjectLLCwill be divested to Agnico‐Eagle. In this event no further paymentswill be due to theformerHALshareholdersundertheHALSharePurchaseAgreement.

Uponcompletionof its InitialContribution,Heatherdaleshallhaveanadditionalearn‐inoption under the Delta LLC Agreement to increase its ownership interest in the DeltaProject to 80% by funding additional expenditures of $4,000,000 on or beforeJanuary1,2014(the"FirstOption").

Under the HAL Share Purchase Agreement, if Heatherdale exercises the First Option,Heatherdale will issue Cdn$2,000,000 worth of common shares based on the 10‐dayvolumeweightedaveragepricebeforedateofissue,totheformerHALshareholders,(ormake a cash payment in lieu thereof in the event that: (i) there has been a change in


12

controlofHeatherdale; (ii) its shares areno longer listedon theTSXVentureExchange("TSX‐V") or a similar exchange; or (iii)Heatherdale shareholder approval, if necessary,hasnotbeenobtained).

Within90daysofexercisingtheFirstOption,undertheDeltaLLCAgreement,Heatherdaleshallhave theoption to increase itsownership interest in theDeltaProject to100%byissuing to Agnico‐Eagle, at Heatherdale’s election and subject to regulatory approval,either two million shares or shares with a market value of $4,000,000 (the "SecondOption").

Under the HAL Share Purchase Agreement, if Heatherdale exercises the Second Option,Heatherdale will issue Cdn$2,000,000 worth of common shares based on the 10‐dayvolumeweightedaveragepricebeforedateof issue,totheformerHDAIshareholdersormake a cash payment in lieu thereof in the event that: (i) there has been a change incontrol of Heatherdale; (ii) its shares are no longer listed on the TSX‐V or a similarexchange;or(iii)Heatherdaleshareholderapproval,ifnecessary,hasnotbeenobtained.

IfHeatherdaleelectsnottocompleteeithertheFirstOptionortheSecondOption,underthe Delta LLC Agreement its ownership interest will remain at the last ownershipmilestoneearned, andunder theHALSharePurchaseAgreement itwill haveno furtherobligationstoissuesharesormakepaymentstotheformerHALshareholders.

1.2.4.2TechnicalPrograms

The Delta Project includes a district‐scale land position comprised of 249 Alaska State miningclaimswithanareaof39,840acres.

Geology

The property lies within a regionally extensive package of Devonian to Mississippian agemetasedimentaryandmetavolcanicrocksreferredtoastheYukon‐TananaTerrane,whichoccursin east‐central Alaska and extends in an east to southeasterly trending arc across Yukon intonorthernBritishColumbia.SeveralclustersofVMSmineraloccurrencesareknowntooccurwithintheAlaskaportionoftheterrane.

AtDelta,massive sulphidemineralization is known to occur in three southeast to northwesterlytrendinghorizons:theUpperLagoonSeriesandLowerLagoonSerieswhichhaveastrikelengthofapproximately9.5milesand themore localDrumSeries. A12.5mile long, thrust‐fault repeatedsectionoftheLagoonSeriesalsohostssulphidemineralization.

History

Sincean initialdiscoverywasmadeon theDeltaproperty in1976,more than40occurrencesofmassive sulphide mineralization have been explored by various operators, and includes over75,000feetofdrillingin143widely‐spacedholes.

Aninitialestimateofthemineralresourcesinsevenofthezoneswasdonebasedonworkthrough2006,whichwas reviewed forHeatherdale in 2011. Inferredmineral resources in seven of the


13

occurrenceswereestimatedtobe15.4milliontonnesgrading0.60%Cu,1.7%Pb,3.8%Zn,62g/tAg,and1.7g/tAu1.

Severalofthezonesremainopentoexpansionbothlaterallyandvertically.Inaddition,therearenumerousotherexplorationtargetsonthelarge,under‐exploredDeltaproperty.

WorkbyHeatherdale

Heatherdale drilled four core holes at the Mid Zone in 2011. Significant intersections wereencounteredintwooffourholesdrilled.Resultsaretabulatedbelow:

DrillHoleNumber

From(feet)

To(feet)

Intercept(feet)

Cu%

Zn%

Pb%

Aug/t

Agg/t

2011‐153 739.2 814.9 75.7 0.42 2.91 1.07 0.99 442011‐153 incl. 739.2 798.0 58.8 0.41 3.56 1.34 1.05 532011‐153 incl. 759.0 794.0 35.0 0.38 4.64 1.78 1.24 662011‐153 833.0 838.0 5.0 0.12 0.02 2.27 0.79 982011‐154 558.1 606.2 48.1 0.57 4.87 2.21 1.45 802011‐154 incl. 558.1 602.0 43.9 0.56 5.21 2.36 1.56 85

Holenumber2011‐151producednosignificantresultsHolenumber2011‐152wasabandonedinoverburdenanddidnotachievebedrockTruewidthshavenotyetbeendetermined.

TheCompanyalsocarriedoutsamplingandothersurfaceevaluationattheDW,DDSandSCzones.Thirtymassivesulphidebouldersampleswerecollectedwithanaveragegradeof0.91%Cu,3.11%Zn,3.57%Pb,14.86g/tAu,and477.03g/tAg.

Sixoutcropgrabsampleswerecollectedthathaveanaveragegradeof0.53%Cu,5.46%Zn,4.93%Pb,3.62g/tAu,and150.16g/tAg.

1Basedonthe2006estimateby independentqualifiedpersonsSamuelS.Dashevsky,CPG,andCarlF.Schaefer,CPG,ofNorthernAssociates,Inc.,usingapolygonalmethod,whichappliedan$80/tonoveraminimumtruewidthof8feetcut‐off,usingmetalpricesof$2.00/lbforCu,$0.50/lbforPb,$1.00/lbforZn,$10.00/ozforAgand$550/ozforAu,forsevensulphidelenses,includingtheDDN,DDS,DW,Mid,LP,LPHandPP2deposits.


14

1.2.5 MarketTrends

Thediscussioninthissectionreferencescalendaryears.

Althoughtherehasbeenperiodicvolatilityinthegoldmarket,theaverageannualpricehasbeenonanupwardtrendforthepastfiveyears.Inresponsetotheglobaleconomicuncertaintythatbeganin mid‐2008, gold prices were strong in 2009 and 2010, and continued their upward trend toSeptember2011,reachingmorethan$1,800perounce.Thisresultedinanincreaseintheaveragepricein2011showinga largeincreaseover2010. Thistrendcontinuedin2012aspricesvariedbetween$1,575and$1,780perounce.In2013,priceshaveremainedrangeboundbetween$1,574and$1,693perounce.

Copperpricesincreasedsignificantlybetweenlate2003andmid2008beforedeclininginlate2008and through early 2009 but steadily increasing through 2009 to early 2011, reaching as high as$4.60/lb. Prices have generally ranged from $3.32 to $3.90 per pound since September 2011averaging$3.61perpoundin2012.In2013pricesarerangingbetween$3.42and$3.72perpoundandaretrendingtothelowersideoftherange.

Zinc prices were variable in 2008 and 2009. In 2010, prices weakened mid‐year, and thenimproved steadily, reaching as high as $1.13/lb in July 2011. Prices have ranged from $0.82 to$0.99perpoundsinceAugust2011resulting inanaverage for2012of $0.88perpound. In thecurrentyear,priceshavetrendedupwards,rangingbetween$0.86and$0.99perpound.

Silverpriceswere impactedbyeconomicvolatility in2008‐2009. Anupward trend in the silverpricebeganin2010,andcontinuedtolateSeptember2011,reachingashighas$43perounce.Thisresulted in theaverage for2011beingat itshighestsince2008. Pricesrangedbetween$26and$35perouncesinceOctober2011resultinginadeclineintheaveragein2012.In2013pricesarerangingbetween$28and$32perounce.

Average annual prices through 2012 aswell as the average prices so far in 2013 for gold (Au),copper(Cu),zinc(Zn)andsilver(Ag)areshowninthetablebelow:

Year

AverageMetalPrice

Au Cu Zn Ag

2008 $871/oz $3.16/lb $0.80/lb $14.95/oz

2009 $974/oz $2.34/lb $0.75/lb $14.70/oz

2010 $1,228/oz $3.42/lb $0.98/lb $20.24/oz

2011 $1,572/oz $4.00/lb $0.99/lb $35.25/oz

2012 $1,669/oz $3.61/lb $0.88/lb $31.16/oz

2013todateoftheMD&A $1,635/oz $3.62/lb $0.93/lb $30.29/oz

Source:www.metalprices.com


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1.3 SelectedAnnualInformation

NotrequiredforinterimMD&A

1.4 SummaryandDiscussionofQuarterlyResults

AllmonetaryamountsinthissectionareexpressedinthousandsofUnitedStatesdollarsexceptpershareamountsandwhereotherwiseindicated.Minordifferencesareduetorounding.

Statementsof Comprehensive(Income)Loss

Jan312013

Oct312012

Jul312012

Apr302012

Jan312012

Oct312011

Jul312011

Apr302011

Expenses: Explorationandevaluation NiblackProject $790 $2,487 $1,000 $811 $1,079 $3,753 $4,438 $3,690DeltaProject 84 18 13 14 77 657 591 10

Total 874 2,505 1,013 825 1,156 4,410 5,029 3,700Generalandadministration 434 429 573 575 553 675 667 752Share‐basedcompensation 85 104 71 126 188 305 363 319

Lossfromoperatingactivities 1,393 3,038 1,657 1,526 1,897 5,390 6,059 4,771Otherincomeandexpense

items(i)353 (165) (337) (1,628) (1,355) (1,676) (1,258) (2,065)

Loss(income)andcomprehensiveloss(income) $1,746 $2,873 $1,320 $(102) $542 $3,714 $4,801 $2,706

Basicanddilutedlosspercommonshare $0.01 $0.02 $0.01 $0.00 $0.01 $0.05 $0.08 $0.05

(i) Otherincomeandexpenseitemsincludeforeignexchangedifferences,financeincomeandcostsandfairvalueadjustmentsfor

financialinstrumentsthroughprofitandloss.

DiscussionofQuarterlyTrends

Explorationandevaluationexpenses("E&E")increasedfromQ2toQ3of2011asanadditionalrigwasaddedtotheexistingtworigsatNiblackandatDeltatheCompanycommencedaninitialdrillprograminQ22011.InQ4of2011,E&Edecreasedto$4,410astheCompany’sactivitiesatNiblackwound down. In Q1 and Q2 of 2012, E&E decreased to $1,156 and $825 respectively as theCompany reduced its site activities at Niblack and focus turned towards the completion ofengineeringandtechnicalstudiesonNiblack. InQ3of2012,theCompanyinitiateda15,000‐footsurface drilling program in early July. In Q4 of 2012, the Company completed the 2012 drillprogram.

Generalandadministrationexpenses("G&A")followedthetrendinCompanyactivitiestosupporttheCompany’sroleasmanagerandoperatoroftheNiblackandDeltaProjectsandtomeetongoingcontinuousdisclosureobligationsasalistedentityontheTSX‐V.InadditionG&AwasimpactedbylegalandotherprofessionalservicesreceivedbytheCompanyinrelationtotheacquisitionofthe60%interestintheDeltaProject,theacquisitionof100%ofNIBandprivateplacementsinitiatedandcompletedduringthesequarters.

Share‐basedcompensationtypicallyfluctuatesbasedonthetimingofshareoptiongrantsandthevestingperiodsassociatedwiththesegrants. The fairvalueofshareoptions isrecognizedat thegrantdateandeachtrancheisrecognizedovertheperiodduringwhichshareoptionsvests.


16

TheCompanyhasalsorecognizedgains in thechange in the fairvalueof thederivative financialliabilitiesrelatingtotheCompany’sCanadianDollar‐denominatedsharepurchasewarrantsattheend of each quarter. In the current quarter, with the issue of the Debenture which has beendesignatedasafinancialliabilityatfairvaluethroughprofitandloss,alosshasbeenrecognizedforthechangeinfairvalue.

1.5 ResultsofOperations

The following financial data has been prepared in accordancewith IFRS effective for the periodendedJanuary31,2013andisexpressedinUnitedStatesdollarsunlessotherwisespecified.Minordifferencesareduetorounding.

1.5.1 ResultsofOperationsfortheThreeMonthsEndedJanuary31,2013vs.2012

TheCompanyrecordedalossof$1,746,000intheperiodcomparedtoalossof$542,000in2012.The increase over last year is due to theCompany recording a large gain onderivative financialliabilitiesin2012.

E&Etotaled$874,000(2012‐$1,156,000) for theperiodofwhich$790,000(2012‐$1,079,000)related to the Niblack Project and $84,000 (2012 ‐ $77,000) related to the Delta Project. ThereducedexpenditureistheresultoftheCompanyfocusingonengineeringandtechnicalstudiesontheNiblackProjectandhavingthecamponcareandmaintenance.In2012,theGroupcompletedadrillingprogramat theTriodeposit atNiblack, the resultsofwhichwere issued inNovemberof2012.Thefollowingtableprovidesthebreakdownofexpensesincurred:

E&E 2013 2012 Delta Niblack Total Delta Niblack Total

Assaysandanalysis $1,599 $16,541 $18,140 $1,200 $72,560 $73,760

Depreciation – 30,116 30,116 – 1,610 1,610Drilling – 1,872 1,872 – 63,432 63,432Engineering – 95,152 95,152 – 344,775 344,775Environmental – 61,321 61,321 – 48,592 48,592Equipmentrental – 41,337 41,337 – – –Freight – 5,480 5,480 – 25,402 25,402Geological 28,230 242,806 271,036 24,425 189,931 214,356Graphics – 194 194 – 250 250Propertyfeesandassessments 45,260 15,667 60,927 45,035 3,481 48,516

Siteactivities 8,313 242,697 251,010 6,707 294,257 300,964Travelandaccommodation 727 36,954 37,681 – 34,616 34,616

Total $84,129 $790,137 $874,266 $77,367 $1,078,906 $1,156,273


17

ThefollowingtableprovidesabreakdownoftheG&Aincurred:

G&A 2013 2012

Legal,accountingandaudit $13,582 $21,833

Managementandconsulting 9,159 38,159

Officeandadministration 64,821 62,336

Salaries 275,376 294,549

Shareholdercommunication 33,088 62,861

Travel 29,586 35,828

Trustandfiling 7,844 37,098

Total $433,456 $552,664

G&A decreased to $434,000 from $553,000 in 2012. The decrease is due primarily to highercorporateactivitiesin2012relatingtothefinalizationoftheNiblackacquisitionandcompletionofaprivateplacementfinancing.

The Company recognized share‐based compensation of $85,000 (2012 – $188,000). The lowerexpenseisduetolowerweightedaveragefairvaluefor2013of$0.47ascomparedtotheweightedaveragefairvalueofoptionsin2012of$0.64.

TheCompanyrecognizedasmallergainof$59,000onderivative financial liabilitiesrepresentingthe Company’s Canadian‐Dollar denominated share purchase warrants, compared to a gain of$1,383,000intheprioryear.

WiththeissueoftheDebenture(1.2.2Financings),theCompanyincurred$210,000intransactionfeeswhich iscomprisedofa finder’s feeof$181,000(Cdn$180,000)and legalandothercostsof$29,000(Cdn$29,000).Additionallyonre‐measurementoftheDebentureatJanuary31,2013,theCompany recognized a loss of $207,000 in the quarter (refer note7 in theNotes to the InterimFinancialStatementsthataccompanytheMD&A).

1.5.2 FinancialpositionasatJanuary31,2013vs.October31,2012

Total assets increased to $21,782,000 from $20,401,000. The increase is attributable to theincrease in cash and cash equivalents as the Company received funds with the issue of theDebenture(1.2.2Financings).

1.6 Liquidity

TheCompany'smajorsourceoffundinghasbeentheissuanceofequitysecuritiesandconvertibledebt instruments for cash, primarily through private placements to sophisticated investors andinstitutions.

As at January31, 2013, the Company had cash and equivalents of $2.8million compared to$1.4millionatOctober31,2012whichissufficienttomeetitsexpectedexpenditurerequirementshowever additional debt or equity financing will be required to fund further exploration ordevelopmentprogramsatboththeNiblackandDeltaProjects.


18

During the current quarter the Company raised net proceeds of $2.8million from financingactivities through a private placement (discussed below), and used $1.4million in its operatingactivitiesasdiscussedin1.5ResultsofOperations.

In December 2012, the completed a private placement of a Debenture (refer 1.2.2 Financings).SincetheDebenturedoesnotentitle itsholdertoreceivecashfortherepaymentof theprincipalamount,theCompanybelievesthattheissuanceoftheDebenturehasa favourable impactontheCompany’s liquidity position. Under the terms of the Debenture, if there is any outstandingprincipal atmaturity,Heatherdalehas an option to redeem theDebenture in common shares, incashoracombinationofboth.TheDebenturebearsinterestattherateof8%perannum,ofwhich4%perannumispayableincommonsharesoftheCompany

Since the latter part of calendar 2012, generalmarket conditions for junior resource companieshavedeterioratedandhaveresultedindepressedsharepricesforresourcecompanies,despitehighcommodityprices.AlthoughtheCompanywasabletosuccessfullycompletetheabovementionedfinancing, the deterioration inmarket conditions could potentially increase the cost of obtainingfurther funding and/or limit the availability of funds in the future. Accordingly,management isactivelymonitoring theeffectsof the current economic and financing conditionson thebusinessandreviewingdiscretionaryspendingandoperatingexpendituresand implementingappropriatecashandcostmanagementstrategies.

Themining industry is capital intensive and sources of funding can be subject to fluctuations inmetal prices. There can be no certainty that the Company's existing cash balances or that theproceedsfromtheissuanceofitscommonsharesinthefuturewillprovidesufficientfundsforalloftheCompany'scashrequirementsforfutureworkprograms.Shouldtheneedarise,theCompanymaypursueotherfinancingoptionsorrelyonjointventurepartnerstosupplysomeofthefundsrequired to explore and develop itsmineral property interests. There is no assurance that theCompanywillbesuccessfulinobtainingthefundsitwillrequireforitsprogramsorthatthetermsofanyfinancingobtainedwillbeacceptable.

ThefollowingobligationsexistedatJanuary31,2013: Paymentsduebyperiod Total Lessthan1year After5yearsAmountspayableandotherliabilities $217,533 $217,533 $–

DuetoHunterDickinsonServicesInc.(1) 303,469 303,469 –

DuetoC.E.C.EngineeringLtd.(1) 1,172 1,172 –

Rehabilitationprovision(2) 1,409,959 – 1,409,959

Total $1,932,133 $522,174 $1,409,959

(1)Referto1.9,TransactionswithRelatedParties.

(2)Thesettlementoftheobligationwillonlyoccuruponclosureoftheminesite.Currently$1,221,408oftheobligation is securedby termdeposits thathavebeenpledgedascashcollateral fora letterofcredit infavourofAlaskanregulatoryauthorities.


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WiththeissueoftheDebenture(refer1.2.2Financings),theCompanywillhaveaCdn$3.0millionlong‐termobligation. However, theDebenturedoesnotentitletheholder toreceivecash for therepaymentoftheprincipalamount.

The Company is responsible for allmaintenance payments on the Delta andNiblack properties.Except as noted above, the Company has no long term debt, capital lease obligations, operatingleasesoranyotherlongtermobligation. TheCompanyhasno"PurchaseObligations",definedasany agreement to purchase goods or services that is enforceable and legally binding on theCompany that specifies all significant terms, including: fixed or minimum quantities to bepurchased; fixed, minimum or variable price provisions; and the approximate timing of thetransaction.

1.7 CapitalResources

The Company’s capital resources consist of its cash reserves. The Company had 119,548,127commonsharesissuedandoutstanding.AtJanuary31,2013,theCompanyhadlong‐termdebtinthe form of the convertible debenture. Refer to 1.6 Liquidity for further discussion on theDebentureissuedbytheCompany.

FortheCompanytoretainits60%interestintheDeltaProject,theCompanyisrequiredtofunduptoanadditional$1.4million tocomplete its InitialContributiononorbeforeMay1,2013. UponcompletionoftheInitialContribution,Heatherdale isrequiredto issue2,000,000commonsharestotheformerHALshareholders(refer1.2.4.1).

Otherthannotedabove, theCompanyhadnofurthercommitmentsforcapitalexpendituresasatJanuary31,2013.

TheavailablecashresourcesallowtheCompanytomeetitsexpectedexpenditurerequirementsforitscurrentactivitiesforthefiscalyear.Additionaldebtorequityfinancingwillberequiredtofundfurther exploration or development programs. While there can be no assurances that theCompany’splanstoraiseadditionalfinancinginthefuturewillbesuccessfuloratfavourableterms,managementhasareasonableexpectationthatadditionalfinancingwillbeavailabletocontinueitsplanned activities in the normal course of operations. If the Company is unable to raise thenecessary capital resources and generate sufficient cash flows tomeet obligations as they comedue,theCompanymayhavetoreduceorcurtailitsoperationsorobtainfinancingatunfavourableterms.

TheCompanyhasnolinesofcreditorothersourcesoffinancingwhichhavebeenarranged.

1.8 Off‐BalanceSheetArrangements

None.


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1.9 TransactionswithRelatedParties

(a) EntitycontrolledbyadirectoroftheCompany

C.E.C.EngineeringLtd. isaprivatecompanycontrolledbyadirectorthatprovidesadministrativeandengineeringservicestotheCompanyatmarketrates. AsatJanuary31,2013,theCompany’sbalancepayabletoC.E.C.EngineeringLtdamountedto$1,172(October31,2012–$2,500).

(b) EntitieswithsignificantinfluenceovertheCompany

TheCompany’smanagementbelievesthatcertainentitieshavepowertoparticipateinthefinancialoroperatingpoliciesof theCompany. Severaldirectorsandotherkeymanagementpersonnelofoneoftheseentities,whoareclosebusinessassociates,arealsokeymanagementpersonneloftheCompany.PursuanttoamanagementagreementbetweentheCompanyandthisentitywhichhassignificant influence over the Company, the Company receives geological, engineering, corporatedevelopment, administrative, management and shareholder communication services from thisentity.

ThevalueoftransactionsfortheperiodendedJanuary31,2013and2012wasasfollows:Transactions 2013 2012

Servicesrendered:

Basedonannuallysetrates(i) $609,476 $711,132

Basedonannualfixedfees(ii) $– $23,534

Reimbursementofthirdpartyexpensespaid $40,233 $54,453

January31 October31

Balances(payable)/prepaidexpenses 2013 2012

Balances(payable)forservicesreceived $(303,469) $(477,723)

PrepaymentagainstservicestobereceivedbytheCompany $111,868 $114,807

January31 October31

Summary 2013 2012

Balancespayabletorelatedparties

Entitycontrolledbykeymanagementpersonnel $1,172 $2,500

EntitywithsignificantinfluenceovertheCompany(i) 303,469 477,723

Totalamountpayabletorelatedparties $304,641 $480,223

PrepaymentagainstservicestobereceivedbytheCompany(i) $111,868 $114,807

(i) The Company transacts with Hunter Dickinson Services Inc. ("HDSI"), a wholly ownedsubsidiary of Hunter Dickinson Inc. ("HDI"), a private company with certain directors incommon with the Company. HDSI provides geological, corporate development,administrativeandfinancialmanagementservicesbasedonannuallysetrates.Wherethird


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partycostsareincurredbyHDSIonbehalfoftheCompany,theCompanyreimbursesHDSIforthesecosts.

InJanuary2012,theCompanyborrowed$392,465fromHDSIpursuanttoaloanagreementsignedinMarch2011withHDSI.TheGrouprepaidtheamountinMarch2012.Nointerestwaschargedfortheperiodinwhichthefundswereadvanced.

(ii) The Company transacted with HDI Asia Limited ("HDI Asia"), a private company whollyownedbyHDSI.HDIAsiaprovidedcorporatemanagementandshareholdercommunicationserviceswith the intent toexpand theCompany’sprofile inAsia. TheCompany’soneyearagreementwithHDI Asia effective February 1, 2011 came to an end on January 31, 2012.Theseserviceswereprovidedonanannualfixedfeebasis,paidquarterly.

1.10 FourthQuarter

Notapplicable.

1.11 ProposedTransactions

There are no proposed assets or business acquisitions or dispositions, other than those in theordinarycourse,beforetheboardofdirectorsforconsideration.

1.12 CriticalAccountingEstimates

NotrequiredastheCompanyisaventureissuer.

1.13 ChangesinAccountingPoliciesincludingInitialAdoption

FinancialLiabilitiesatFairValueThroughProfitorLoss

TheGrouphasdesignated theConvertibleDebentureas a financial liability at fair value throughprofitorloss("FVTPL").AfinancialliabilityotherthanafinancialliabilityheldfortradingmaybedesignatedatFVTPLuponinitialrecognitionifitformspartofacontractcontainingoneormoreembeddedderivatives,andIAS39,FinancialInstruments:RecognitionandMeasurement,permitstheentirecombinedcontract(assetorliability)tobedesignatedatFVTPL.A financial liability at FVTPL is stated at fair value, with any gains or losses arising on re‐measurementrecognizedinprofitor loss. Thetransactioncost isexpensedas incurred. Thenetgainorlossrecognizedinprofitorlossincorporatesanyinterestpaidonthefinancialliability.FairvalueisdeterminedinthemannerdescribedinNote7oftheaccompanyingInterimFinancialStatements.

NewandamendedstandardsadoptedbytheCompany

EffectiveNovember1,2012, theCompanyadoptedamendments to IFRS thatwere issuedby theIASB.


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Amendments to IAS1, PresentationofFinancialStatements: ItemsofOtherComprehensiveIncome

AmendmentstoIAS12,IncomeTaxesTheamendments to IAS1requireseparatepresentationof itemsofothercomprehensive incomethatarepotentiallyreclassifiabletoprofitorlosssubsequently(i.e.thosethatmightbereclassified)from those thatwill not be reclassified. If items of other comprehensive income are presentedbeforetax,thenincometaxisallocatedtoeachrespectivegroup.

Theapplicationoftheseamendmentshasnothadanymaterialimpactontheamountsreportedforthecurrentandprioryearsbutmayaffecttheaccountingforfuturetransactionsorarrangements.

Newstandards,amendmentsandinterpretationstoexistingstandardsnotyeteffective

EffectivefortheCompany’sannualreportingperiodbeginningNovember1,2013 IFRS10,ConsolidatedFinancialStatements IFRS11,JointArrangements IFRS12,DisclosureofInterestsinOtherEntities IFRS13,FairValueMeasurement IAS27,SeparateFinancialStatements(asrevisedin2011) IAS28,InvestmentsinAssociatesandJointVentures(asrevisedin2011) IFRIC20,StrippingCostsintheProductionPhaseofaSurfaceMineEffectivefortheCompany’sannualreportingperiodbeginningNovember1,2014 AmendmentstoIAS32,FinancialInstruments:PresentationEffectivefortheCompany’sannualreportingperiodbeginningNovember1,2015 IFRS9,FinancialInstruments,ClassificationandMeasurementThe Company has not early adopted these new standards, interpretations or amendments toexisting standards. TheCompany is currently assessing their impact on theCompany’s financialstatements.

1.14 FinancialInstrumentsandOtherInstruments

PleaserefertotheaccompanyingInterimFinancialStatements.

1.14.1 FinancialRiskManagement

Overview

TheCompanyhas exposure to credit risk, liquidity risk andmarket risk from its useof financialinstruments.This following presents information about the Company's exposure to each of these risks, theCompany'sobjectives,policiesandprocessesformeasuringandmanagingrisk,andtheCompany'smanagementofcapital.


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The Board of Directors has overall responsibility for the establishment and oversight of theCompany'sriskmanagementframework.

CreditRisk

CreditriskistheriskofpotentiallosstotheCompanyifthecounterpartytoafinancialinstrumentfailstomeet itscontractualobligations. TheCompany'screditriskisprimarilyattributableto itsliquidfinancialassetsincludingcashandcashequivalents,restrictedcashandamountsreceivable.TheCompanylimitsitsexposuretocreditriskonliquidfinancialassetsbyonlyinvestingitscashandcashequivalentsandrestrictedcashwithhigh‐creditqualityfinancialinstitutionsinbusinessand savings accounts. Amounts receivable consists of HST receivable from the Canadiangovernment.TherewasnochangeintheCompany’sobjectivesandpoliciesformanagingthisriskexceptforchangesinthecarryingamountsoffinancialassetsexposedtocreditrisk,andtherewasno significant change to the Company’s exposure to credit risk during the three months endedJanuary31,2013.AtJanuary31,2013theCompanyconcludedthatthereisnoobjectiveevidenceofimpairmenttoitstradeandotherreceivables.

LiquidityRisk

LiquidityriskistheriskthattheCompanywillnotbeabletomeetitsfinancialobligationsastheyfalldue.TherehasbeennochangeintheCompany’sobjectivesandpoliciesformanagingthisrisk.TheCompany’sliquiditypositionhasbeendiscussedin1.6Liquidity.

MarketRisk

Marketrisk is therisk thatchanges inmarketprices,suchas foreignexchangeratesand interestrateswill affect theCompany's incomeor thevalueof itsholdingsof financial instruments. Theobjective of market risk management is to manage and control market risk exposures withinacceptableparameters,whileoptimizingthereturn.

InterestRateRisk

The Company is subject to interest rate risk with respect to its investments in cash and cashequivalents.TheGroup'spolicyistoinvestcashatfixedratesofinterestandcashreservesaretobe maintained in cash and cash equivalents in order to maintain liquidity, while achieving asatisfactoryreturnforshareholders.Fluctuationsininterestrateswhencashandcashequivalentsmature impact interest income earned however, for the period ended January31,2013, theexposurefortheGroupisnotsignificant.

ForeignExchangeRisk

Inthenormalcourseofbusiness,theCompanyentersintotransactionsforthepurchaseofsuppliesandservicesdenominatedinacurrencyotherthanthefunctionalcurrencyoftheCompany. Asaresult,theCompanyissubjecttoforeignexchangeriskfromfluctuationsinforeignexchangerates.TheCompanymanages foreign exchange risk by closelymonitoring relevant exchange rates andwhen possible, executes currency exchange transactions at timeswhen exchange rates aremostadvantageousfortheCompany.TheCompanyhasnotenteredintoanyderivativeorotherfinancialinstrumentstomitigatethisforeignexchangerisk.


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TherehasbeennochangeintheCompany’sobjectivesandpoliciesformanagingthisriskandtherewasno significant change to theCompany’s exposure to foreign exchange riskduring theperiodended January 31, 2013, except for the changes in the carrying amounts of financial assets andliabilitiesexposedtoforeignexchangeriskintheordinarycourse.

PriceRisk

Market risk arises from the possibility that changes inmarket priceswill affect the value of thefinancial instrumentsof theCompany. TheCompany is exposed to fair value fluctuationson theCanadian Dollar‐denominated share purchase warrants and convertible debenture, which havebeenclassifiedasderivative financial liabilitiesand financial liabilityatFVTPLrespectively. Thefairvalueof thewarrantshasbeendeterminedusingtheBlack‐Scholesvaluationmodel. Fortheconvertibledebenture,threevaluationmodelshavebeenemployedtodetermineitsfairvalue.TherelevantdisclosuresareincludedintheCompany’sInterimFinancialStatementswhichaccompanythisMD&AandwhicharepubliclyfiledundertheCompany’sprofileonSEDARatwww.sedar.com.Therehasbeennochange intheCompany’sobjectivesandpolicies formanagingthisriskduringtheperiodendedJanuary31,2013.

1.15 OtherMD&ARequirements

AdditionalinformationrelatingtotheCompanyisavailableonSEDARundertheCompany’sprofileatwww.sedar.com.

1.15.1 AdditionalDisclosureforVentureIssuerswithoutSignificantRevenue

(a) Capitalizedorexpensedexplorationanddevelopmentcosts;

Therequireddisclosureispresentedin1.5.1.

(b) expensedresearchanddevelopmentcosts;

Notapplicable.

(c) deferreddevelopmentcosts;

Notapplicable.

(d) generalandadministrationexpenses;

Therequireddisclosureispresentedin1.5.1.

(e) anymaterialcosts,whethercapitalized,deferredorexpensed,notreferredto in(a) through(d);

None.


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1.15.2 DisclosureofOutstandingShareData

Thefollowingdetailsthesharecapitalstructure:

Commonsharesissuedandoutstanding AsofMarch19,2013 119,548,127AsofJanuary31,2013 119,548,127

Shareoptions–asofMarch19,2013 5,768,410(Weightedaverageexercisepricepershare:Cdn$0.69)Warrants(1)–asofMarch19,2013 11,269,833(Weightedaverageexercisepricepershare:Cdn$0.71)MaximumnumberofcommonsharestobeissueduponconversionoftheDebenture(2) 15,000,000

(1) Assumesthenumberofwarrantsthatcanberedeemedintoonecommonshare,takingintoaccountthatthe4,107,000warrantsassumedfromNIBcanonlyberedeemedinto2,053,500commonshares(refer1.2.3.1NiblackProjectAgreement).

(2) Referto1.2.2Financings.

Additionally, under the term of the Debenture agreement, the Company will issue a variablenumberofitssharesforaportionofinterestpayableontheDebenture.Themaximumnumberofshares that may be issued for interest payment over the term of the Debenture is 1.2 millioncommonshares.

1.15.3 InternalControlsoverFinancialReporting

The Company's management is responsible for establishing and maintaining adequate internalcontrols over financial reporting. Any system of internal controls over financial reporting, nomatterhowwelldesigned,hasinherentlimitations.Therefore,eventhosesystemsdeterminedtobeeffectivecanprovideonlyreasonableassurancewithrespecttofinancialstatementpreparationandpresentation.

1.15.4 DisclosureControlsandProcedures

TheCompanyhasdisclosurecontrolsandproceduresinplacetoprovidereasonableassurancethatanyinformationrequiredtobedisclosedbytheCompanyundersecuritieslegislationisrecorded,processed, summarized and reported within the applicable time periods and that requiredinformationisgatheredandcommunicatedtotheCompany'smanagementsothatdecisionscanbemadeaboutthetimelydisclosureofthatinformation.

1.15.5 RiskFactors

TheriskfactorsassociatedwiththeprincipalbusinessofHeatherdalearediscussedbelow.Briefly,theseincludethehighlyspeculativenatureoftheminingindustrycharacterizedbytherequirementfor largecapital investment fromanearlystageandaverysmallprobabilityof findingeconomicmineral deposits. In addition to the general risks of mining, there are country‐specific risksassociatedwithoperatinginaforeigncountry,includingcurrency,political,social,andlegalrisk.


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DuetothenatureofHeatherdale’sbusinessandthepresentstageofexplorationanddevelopmentof the Niblack Project and the Delta Project, Heatherdale may be subject to significant risks.Readers should carefully consider all such risks set out in the discussion below. Heatherdale’sactualexplorationandoperatingresultsmaybeverydifferentfromthoseexpectedasatthedateofthisMD&A.

ExplorationandMiningRisks

Resource exploration, development, and operations are highly speculative, characterized by anumber of significant risks, which even a combination of careful evaluation, experience andknowledgemaynoteliminate,including,amongotherthings,unprofitableeffortsresultingnotonlyfrom the failure to discover mineral deposits but from finding mineral deposits which, thoughpresent,areinsufficientinquantityandqualitytoreturnaprofitfromproduction.Fewpropertiesthat are explored are ultimately developed into producing mines. Unusual or unexpectedformations, formation pressures, fires, power outages, labour disruptions, flooding, explosions,cave‐ins,landslidesandtheinabilitytoobtainsuitableoradequatemachinery,equipmentorlabourare other risks involved in the operation of mines and the conduct of exploration programs.Heatherdale will rely on consultants and others for exploration, development, construction andoperating expertise. Substantial expenditures are required to establish mineral resources andmineral reserves through drilling, to develop metallurgical processes to extract the metal frommineralresources,andinthecaseofnewproperties,todeveloptheminingandprocessingfacilitiesandinfrastructureatanysitechosenformining.

No assurance can be given that minerals will be discovered in sufficient quantities to justifycommercialoperationsorthatfundsrequiredfordevelopmentcanbeobtainedonatimelybasis.Whether amineraldepositwillbe commerciallyviabledependsonanumberof factors, someofwhichare:

theparticularattributesofthedeposit,suchassize,gradeandproximitytoinfrastructure; metalprices,whicharehighlycyclical;and government regulations, including regulations relating to prices, taxes, royalties, land

tenure,landuse,importingandexportingofminerals,andenvironmentalprotection.

The exact effect of these factors cannot accurately be predicted, but the combination of thesefactorsmayresultinHeatherdalenotreceivinganadequatereturnoninvestedcapital.

Heatherdale will carefully evaluate the political and economic environment in considering anyproperties foracquisition. There canbenoassurance that additional significant restrictionswillnotbeplacedontheNiblackProject,theDeltaProjectandanyotherpropertiesHeatherdalemayacquire.SuchrestrictionsmayhaveamaterialadverseeffectonHeatherdale’sbusinessandresultsofoperation.

FutureProfits/LossesandProductionRevenues/Expenses

Heatherdale has no history of operations and expects that its losses will continue for theforeseeablefuture.NodepositoneithertheNiblackProjectortheDeltaProjecthasyetbeenfoundandshowntobeeconomic.Itsentireprospectsrestsolelywiththesetwoprojects.TherecanbenoassurancethatHeatherdalewillbeprofitableinthefuture.Heatherdale’soperatingexpensesandcapital expenditures may increase in subsequent years as costs for consultants, personnel and


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equipmentassociatedwithadvancingexploration,developmentandcommercialproductionoftheNiblackProjectand theDeltaProjectare incurred. Theamountsand timingofexpenditureswilldependon:

theprogressofongoingexplorationanddevelopment; theresultsofconsultants’analysesandrecommendations; therateatwhichoperatinglossesareincurred; theexecutionofanyjointventureagreementswithstrategicpartners;and the acquisitionof any additionalproperties andother factors,manyofwhicharebeyond

Heatherdale’scontrol.

Heatherdaledoesnotexpecttoreceiverevenuesfromoperationsintheforeseeablefuture,ifatall.Heatherdale expects to incur losses unless and until such time as the Niblack Project, the DeltaProject or any other properties Heatherdalemay acquire enter into commercial production andgenerate sufficient revenues to fund its continuing operations. The development of these twoprojectsandanyotherpropertiesHeatherdalehasandmayacquirewillrequirethecommitmentofsubstantial resources to conduct the time‐consuming exploration and development of theproperties. There can be no assurance that Heatherdale will generate any revenues or achieveprofitability.Therecanbenoassurancethattheunderlyingassumedlevelsofexpenseswillprovetobeaccurate.

AdditionalFundingRequirements

Further exploration on, and development of, Heatherdale’s two projects, will require additionalresources/funding.Heatherdalecurrentlydoesnothavesufficientfundstomeetallitsexplorationcommitmentson theDeltaProjectaswell asany furtherdevelopmentof theNiblackProject. Inaddition, a positive production decision that may be made on these projects or any otherdevelopment projects acquired in the future would require significant resources or funding forproject engineering and construction. Accordingly, the continuingdevelopment ofHeatherdale’spropertieswilldependuponHeatherdale’sabilitytoobtainfinancingthroughdebtfinancing,equityfinancing,thejointventuringofprojects,orothermeans. ThereisnoassurancethatHeatherdalewill be successful in obtaining the required financing for these or other purposes, including forgeneralworkingcapital.

Refertodiscussionin1.6Liquidity.

EnvironmentalMatters

All of Heatherdale’s mining operations will be subject to environmental regulations, which canmakeoperationsexpensiveorprohibitthemaltogether.

Heatherdale may be subject to potential risks and liabilities associated with pollution of theenvironment and the disposal of waste products that could occur as a result of its mineralexploration,developmentandproduction.

To the extentHeatherdale is subject to environmental liabilities over and abovebonds set up infavourofregulatorybodies,thepaymentofsuchliabilitiesorthecoststhatitmayincurtoremedyenvironmental pollution would reduce funds otherwise available which could have a materialadverseeffectonHeatherdale.IfHeatherdaleisunabletofullyremedyanenvironmentalproblem,


28

itmight be required to suspend operations or enter into interim compliancemeasures pendingcompletionof the required remedy. Thepotential exposuremaybe significant andcouldhaveamaterialadverseeffectonHeatherdale.

All of Heatherdale’s exploration, development and any production activities will be subject toregulationunderoneormoreenvironmentallawsandregulations.ManyoftheregulationsrequireHeatherdale toobtainpermits for itsactivities. Heatherdalemustupdateandreview itspermitsfrom time to time, and is subject to environmental impact analyses and public reviewprocessespriortoapprovaloftheadditionalactivities. It ispossiblethatfuturechangesinapplicablelaws,regulationsandpermitsorchangesintheirenforcementorregulatoryinterpretationcouldhaveasignificant impact on some portion of Heatherdale’s business, causing those activities to beeconomicallyre‐evaluatedatthattime.

MarketforSecuritiesandVolatilityofSharePrice

There can be no assurance that an active trading market in Heatherdale’s securities will beestablishedor sustained. Themarketprice forHeatherdale’s securities couldbe subject towidefluctuations.Factorssuchasannouncementsofexplorationresults,aswellasmarketconditionsinthe industry, may have a significant adverse impact on the market price of the securities ofHeatherdale. The stock market has from time to time experienced extreme price and volumefluctuations, which have often been unrelated to the operating performance of particularcompanies.

ConflictsofInterest

CertainofHeatherdale’sdirectorsandofficersmayserveasdirectorsorofficersofothercompaniesorcompaniesprovidingservicestoHeatherdaleortheymayhavesignificantshareholdingsinothercompanies. Situationsmayarisewhere thesedirectorsand/orofficersofHeatherdalemaybe incompetitionwithHeatherdale.Anyconflictsofinterestwillbesubjecttoandgovernedbythelawapplicabletodirectors’andofficers’conflictsofinterest.IntheeventthatsuchaconflictofinterestarisesatameetingofHeatherdale’sdirectors,adirectorwhohassuchaconflictwillabstainfromvoting for or against the approval of such participation or such terms. In accordance withapplicablelaws,thedirectorsofHeatherdalearerequiredtoacthonestly,ingoodfaithandinthebestinterestsofHeatherdale.

PaymentofDividendsUnlikely

There is no assurance that Heatherdale will pay dividends on its shares in the near future.Heatherdalewilllikelyrequireallitsfundstofurtherthedevelopmentofitsbusiness.

LackofRevenues;HistoryofOperatingLosses

Heatherdale does not have any operational history or earnings and has incurred net losses andnegative cash flow from its operations since incorporation. Although Heatherdale hopes toeventuallygeneraterevenues,significantoperatinglossesaretobeanticipatedforatleastthenextseveralyearsandpossiblylonger.Totheextentthatsuchexpensesdonotresultinthecreationofappropriate revenues, Heatherdale’s business may be materially adversely affected. It is notpossibletoforecasthowthebusinessofHeatherdalewilldevelop.


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GeneralEconomicConditions

MarketconditionsandunexpectedvolatilityorilliquidityinfinancialmarketsmayadverselyaffecttheprospectsofHeatherdaleandthevalueofitsshares.

Refertodiscussionin1.6Liquidity.

RelianceonKeyPersonnel

Heatherdalewillbedependenton thecontinuedservicesof its seniormanagement team,and itsabilitytoretainotherkeypersonnel.Thelossofsuchkeypersonnelcouldhaveamaterialadverseeffect on Heatherdale. There can be no assurance that any of the Heatherdale’s employees willremain with Heatherdale or that, in the future, the employees will not organize competitivebusinessesoracceptemploymentwithcompaniescompetitivewithHeatherdale.

Furthermore, as part of Heatherdale’s growth strategy, itmust continue to hire highly qualifiedindividuals.TherecanbenoassurancethatHeatherdalewillbeabletoattract,assimilateorretainqualifiedpersonnelinthefuture,whichwouldadverselyaffectitsbusiness.

Documents

Heatherdale Resources Ltd. · 2013-03-28 · Heatherdale Resources Ltd. Condensed Consolidated Interim Statements of Financial Position (Unaudited ‐ Expressed in United States Dollars)