Pan Global Resources Inc. — Interim / Quarterly Report 2022

Dec 17, 2021

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited - Expressed in Canadian dollars)

October 31, 2021

NOTICE TO READER

The accompanying unaudited condensed interim consolidated financial statements of Pan Global Resources Inc. for the nine months ended October 31, 2021 and 2020 have been prepared by management and approved by the Audit Committee and the Board of Directors of the Company. These condensed interim consolidated financial statements have not been reviewed by the Company's external auditors.

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(Unaudited - Expressed in Canadian dollars)

	October 31,	January 31,
	2021	2021
ASSETS
Current assets
Cash	$16,124,007	$3,897,290
Receivables (Note 3)	448,558	219,129
Prepaid expenses	77,064	41,147
Total current assets	16,649,629	4,157,566
Non-current assets
Exploration and evaluation assets (Note 4)	1,909,183	1,909,183
Reclamation deposits	69,796	75,569
Right-of-use assets (Note 5)	9,174	16,762
Total non-current assets	1,988,153	2,001,514
TOTAL ASSETS	$18,637,782	$6,159,080
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities (Note 6)	$1,146,928	$484,456
Lease liabilities (Note 7)	9,475	10,580
Total current liabilities	1,156,403	495,036
Non-current liabilities
Lease liabilities (Note 7)	-	7,751
Total liabilities	1,156,403	502,787
SHAREHOLDERS' EQUITY
Share capital (Note 8)	40,804,031	22,979,849
Reserves (Note 8)	8,094,725	6,580,131
Deficit	(31,417,377)	(23,903,687)
Total shareholders' equity	17,481,379	5,656,293
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$18,637,782	$6,159,080

Nature of operations and going concern (Note 1)

These condensed interim consolidated financial statements are authorized for issuance by the Board of Directors on December 15, 2021.

Approved on behalf of the Board of Directors

"Timothy Moody" Director "Patrick Evans" Director

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS

(Unaudited - Expressed in Canadian dollars)

	Three months ended October 31,		Nine months ended October 31,
	2021		2020	2021		2020
Exploration expenditures (Note 4)	$1,549,373	$	940,689	$4,632,805	$	1,690,098
General and administrative expenses
Accounting, tax, and audit (Note 10)	24,948		34,208	60,948		65,314
Depreciaton (Note 5)	2,294		4,409	7,588		13,227
Consulting and management fees (Note 10)	30,000		30,000	135,036		142,000
Investor relations	98,530		48,385	198,599		169,481
Office and rent	3,214		7,055	16,571		9,900
Professional fees (Note 10)	21,900		11,663	73,890		35,203
Regulatory and transfer agent	15,165		7,238	45,805		20,888
Share-based compensation (Notes 8, 10)	2,192,337		-	2,192,337		1,273,845
Travel and related	13,865		102	15,966		2,311
	2,402,253		143,060	2,746,740		1,732,169
Loss from operations	(3,951,626)		(1,083,749)	(7,379,545)		(3,422,267)
Interest income	9,301		-	21,491		-
Accretion expense (Note 7)	(169)		(395)	(622)		(1,359)
Foreign exchange and other	(12,744)		(21,213)	(155,014)		58,589
LOSS AND COMPREHENSIVE LOSS	$(3,955,238) $		(1,105,357) $	(7,513,690) $		(3,365,037)
Loss and comprehensive loss attributable to:Equity holders of the Company	$(3,955,238) $		(1,105,357) $	(7,513,690) $		(3,353,503)
Non-controlling interest (Note 9)	-		-	-		(11,534)
	$(3,955,238) $		(1,105,357) $	(7,513,690) $		(3,365,037)
Loss per common share - basic and diluted	$(0.02) $		(0.01) $	(0.04) $		(0.03)
Weighted average number of common shares
basic and diluted	193,182,912		146,577,333	173,762,105		131,439,784

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited - Expressed in Canadian dollars)

	Nine months ended October 31,
	2021	2020
CASH FLOWS FROM OPERATING ACTIVITIES
Loss for the period	$(7,513,690) $	(3,365,037)
Items not affecting cash:
Depreciaton	7,588	13,227
Share-based compensation	2,192,337	1,273,845
Interest income	(21,491)	-
Accretion expense	622	1,359
Unrealized foreign exchange effect	4,644	10,879
Changes in non-cash working capital items:
Receivables	(229,429)	210,086
Prepaid expenses	(35,917)	(58,903)
Accounts payable and accrued liabilities	662,472	252,368
Net cash used in operating activities	(4,932,864)	(1,662,176)
CASH FLOWS FROM INVESTING ACTIVITIES
Interest earned	21,491	-
Exploration and evaluation assets	-	(37,636)
Option payment	-	(250,000)
Reclamation deposits	-	22,412
Net cash provided by (used in) investing activities	21,491	(265,224)
CASH FLOWS FROM FINANCING ACTIVITIES
Private placement financing	14,950,230	4,095,719
Share issue costs	(1,103,049)	(196,749)
Exercise of stock options	8,990	26,500
Exercise of share purchase warrants	3,290,267	604,698
Lease payments	(8,348)	(14,744)
Net cash provided by financing activities	17,138,090	4,515,424
Change in cash during the period	12,226,717	2,588,024
Cash, beginning of period	3,897,290	1,119,914
Cash, end of period	$16,124,007$	3,707,938

Supplemental disclosure with respect to cash flows (Note 11)

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(Unaudited - Expressed in Canadian dollars)

	Number of
	common	Share			Non-controlling
	shares	capital	Reserves	Deficit	interest	Total
Balance at January 31, 2020	121,828,903$	17,895,123$	4,549,299$	(18,790,711)$	(309,940)$	3,343,771
Shares issed on private placement	22,753,997	2,421,485	1,674,234	-	-	4,095,719
Share issue costs	-	(196,749)	-	-	-	(196,749)
Finders' warrants issued	-	(79,529)	79,529	-	-	-
Exercise of stock options	190,000	48,768	(22,268)	-	-	26,500
Exercise of share purchase warrants	3,093,240	717,511	(112,813)	-	-	604,698
Share-based compensation	-	-	1,273,845	-	-	1,273,845
Exercise of option agreement	-	-	-	(571,474)	321,474	(250,000)
Loss for the period	-	-	-	(3,353,503)	(11,534)	(3,365,037)
Balance at October 31, 2020	147,866,140$	20,806,609$	7,441,826$	(22,715,688)$	-$	5,532,747

	Number of
	common	Share			Non-controlling
	shares	capital	Reserves	Deficit	interest	Total
Balance at January 31, 2021	153,430,635$	22,979,849$	6,580,131$	(23,903,687)$	-$	5,656,293
Shares issed on private placement	24,917,050	14,950,230	-	-	-	14,950,230
Share issue costs	-	(1,103,049)	-	-	-	(1,103,049)
Exercise of stock options	29,000	17,786	(8,796)	-	-	8,990
Exercise of share purchase warrants	15,407,344	3,959,215	(668,947)	-	-	3,290,268
Share-based compensation	-	-	2,192,337	-	-	2,192,337
Loss for the period	-	-	-	(7,513,690)	-	(7,513,690)
Balance at October 31, 2021	193,784,029$	40,804,031$	8,094,725$	(31,417,377)$	-$	17,481,379

1. NATURE OF OPERATIONS AND GOING CONCERN

Pan Global Resources Inc. (hereafter referred to as the "Company") was incorporated under the laws of the Province of British Columbia and was established as a legal entity on February 1, 2006. On December 21, 2009, the Company changed its name from Mosam Capital Corp. to Pan Global Resources Inc.

The Company's principal business activities are the acquisition of rights to explore for minerals and the exploration of acquired rights. The Company is primarily focused on the early stage exploration through to development of resources of copper and other metals in Spain. In addition, the Company acquired 100% interest in Minera Aguila S.L.U. ("MASL") (Note 4) and signed a Letter of Intent ("LOI") with EVALAM2003 S.L. ("EVALAM") to acquire the Escacena Investigation Permit (Note 4). The Company is continuing to review a number of other opportunities.

The Company's common shares are listed on the TSX Venture Exchange ("TSX-V") under the trading symbol "PGZ". The Company's principal office is located at 700 - 1199 West Hastings Street, Vancouver, British Columbia, V6E 3T5.

As at October 31, 2021, the Company had a working capital of $15,493,226, recorded a net loss of $7,513,690 for the nine months then ended, and had accumulated a total deficit of $31,417,377. These condensed interim consolidated financial statements are prepared on a going concern basis, which presumes the realization of assets and discharge of liabilities in the normal course of business for the foreseeable future. The ability of the Company to continue as a going concern depends upon its ability to raise adequate financing and develop profitable operations. These condensed interim consolidated financial statements do not include any adjustments to amounts and classification of assets and liabilities that might be necessary should the Company be unable to continue operations. As at October 31, 2021, the Company has not achieved profitable operations and has accumulated losses since inception.

In March 2020, the World Health Organization declared coronavirus COVID-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, economies, and financial markets globally, potentially leading to an economic downturn. It is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company's business or ability to raise funds.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Preparation and Measurement

The condensed interim consolidated financial statements have been prepared using accounting policies in compliance with International Financial Reporting Standards ("IFRS") as issued by International Accounting Standards Board ("IASB") and Interpretations of the International Financial Reporting Interpretations Committee ("IFRIC"). These condensed interim consolidated financial statements have been prepared on a historical cost basis, except for financial instruments, which have been measured at fair value. In addition, these condensed interim consolidated financial statements have been prepared using the accrual basis of accounting except for cash flow information.

These condensed interim consolidated financial statements follow the same accounting policies and methods of application as our most recent annual consolidated financial statements, except as described below, and should be read in conjunction with the annual audited consolidated financial statements of the Company for the year ended January 31, 2021.

3. RECEIVABLES

The Company's receivables arise from GST and VAT due from the Canadian and Spanish taxation authorities.

4. EXPLORATION AND EVALUATION ASSETS

Aguilas Project, Spain

In November 2016, the Company entered into a share option agreement with a related party (Note 10) for an option to acquire up to a 100% interest of a Spanish exploration company, MASL, who has been granted two mineral exploration licenses, and applied for the issuance of an additional seven mineral exploration licenses in the Provinces of Cordoba and Ciudad Real, Kingdom of Spain, collectively referred to as the "Aguilas Project". For the duration of the agreement, MASL shall act as the operator of the exploration program and the related exploration expenditures shall be funded by the Company. The Company has agreed to the aggregate consideration of 4,700,000 common shares of the Company, cash payments of $450,000, and exploration expenditure commitments as follows:

	Cash	Common	Exploration
	payments	shares	expenditures⁽²⁾
6-month anniversay of final TSX-V approval⁽¹⁾	$50,000	2,200,000	$-
18-month anniversay of final TSX-V approval⁽¹⁾	150,000	2,500,000	-
36-month anniversay of final TSX-V approval⁽¹⁾	250,000	-	-
36-month anniversay of agreement closing date⁽¹⁾	-	-	1,000,000
	$450,000	4,700,000	$1,000,000

⁽¹⁾ Cash paid and common shares issued; expenditure requirement completed

⁽²⁾ No less than $250,000 have been completed notwithstanding any decision by the Company not to proceed with further exploration.

Furthermore, the Company may pay $100,000 (or issue 1,000,000 common shares the Company, at the election of the optionor) if the Company acquires additional exploration rights in the area of 10 kilometers surrounding the boundaries of the three exploration licenses. In November 2017, the Company paid $50,000 to the optionor to remove this term of the agreement.

In April 2018, the Company exercised its first option to acquire a 70% equity interest in MASL. The Company paid $50,000 and issued 2,200,000 common shares (valued at $440,000) to the optionor. In addition, net advances of $341,466 from the Company, representing unspent funds held by MASL, remained in MASL.

In September 2018, the Company paid $150,000 and issued 2,500,000 common shares of the Company, valued at $425,000.

In August 2020, the Company made the final payment for the remaining 30% ownership interest of MASL.

4. EXPLORATION AND EVALUATION ASSETS (cont'd…)

Escacena Project

In December 2018, EVALAM was granted the Escacena Investigation Permit located in the Iberian Pyrite Belt in southern Spain, which is the subject of the LOI between EVALAM and the Company, who has an option to acquire 100% of the Escacena Investigation Permit for the following consideration: (a) $350,000 in cash and (b) $1,000,000 in exploration work commitments over a three-year period (spent). EVALAM will retain a net smelter return ("NSR") of 0.5% on the first 12,500 tonnes of copper equivalent and 0.75% on any amount in excess of 12,500 tonnes of copper equivalent. The NSR also has a lifetime cap of $5,000,000.

In November 2019, the Company entered into an agreement, through its subsidiary, with Strategic Minerals Spain, S.L. to acquire all rights to the Al Andalus Investigation Permit, covering an area adjacent to the Company's Escacena Project. The Company paid €300,000 consisting of an initial payment of €275,000 and a final payment of €25,000.

Exploration Expenditures

For the nine months ended October 31, 2021	Aguilas	Escacena	Total
Drilling	$14,985$	2,402,060$	2,417,045
License fees	-	347,738	347,738
Professional fees	114,540	357,819	472,359
Technical consulting	45,000	45,000	90,000
Technical services	-	1,279,904	1,279,904
Travel	5,020	20,739	25,759
	$179,545$	4,453,260$	4,632,805

For the nine months ended October 31, 2020	Aguilas	Escacena	Total
Drilling	$-$	788,311$	788,311
License fees	50,435	109,786	160,221
Professional fees	36,803	121,103	157,906
Technical consulting	45,000	45,000	90,000
Technical services	22,741	465,292	488,033
Travel	380	5,247	5,627
	$155,359$	1,534,739$	1,690,098

PAN GLOBAL RESOURCES INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited - Expressed in Canadian dollars) FOR THE SIX MONTHS ENDED JULY 31, 2021

5. RIGHT-OF-USE ASSETS

	Amount
As at January 31, 2021, net	$16,762
Depreciation	(7,588)
As at October 31, 2021, net	$9,174

6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

The Company's accounts payable and accrued liabilities consist of the following:

	October 31,	January 31,
	2021	2021
Accounts payable	$1,038,428	$401,956
Accrued liabilities	108,500	82,500
	$1,146,928	$484,456

7. LEASE LIABILITIES

	October 31,	January 31,
	2021	2021
Not later than one year	$9,785$	11,370
Later than one year and not later than five years	-	7,946
Later than five years	-	-
Total minimum lease payments	9,785	19,316
Future finance charges at implicit rate	(310)	(985)
Total balance	9,475	18,331
Less: current portion	9,475	10,580
Long-term portion	$-$	7,751

During the nine months ended October 31, 2021, the Company recognized accretion charge of $622 (2020 - $1,359) on its liabilities.

8. SHARE CAPITAL

Authorized Share Capital

Authorized share capital consists of:

• unlimited number of common shares without par value
• unlimited class "A" common shares with a par value of $1
• unlimited class "B" common shares with a par value of $5

8. SHARE CAPITAL (cont'd…)

Authorized Share Capital

In July 2021, the Company completed an underwritten private placement issuing 24,917,050 common shares at a price of $0.60 per share for aggregate gross proceeds of $14,950,230. The Company paid cash commission of $897,014. The common shares issued are subject to a four-month holding period.

In July 2020, the Company completed a non-brokered private placement issuing 22,753,997 units at a price of $0.18 per unit for aggregate gross proceeds of $4,095,719, where each unit is comprised of one common share and onehalf share purchase warrant, where each full warrant is exercisable at $0.28 per share for two years. The Company paid finders' fees of $96,300 and issued 535,000 finders' warrants valued at $79,529, where each warrant is exercisable at $0.28 per share for two years. The share purchase warrants and finders' warrants issued may be subject to acceleration. The units, common shares, share purchase warrants, finders' warrants and shares issued upon exercise of the share purchase warrants and/or the finders' warrants are subject to a four-month holding period. In accordance with the Company's accounting policy, $1,674,234 of the gross proceeds were allocated to its reserves.

Stock Options

The continuity of stock options for the nine months ended October 31, 2021 are as follows:

	Number of	Weighted
	stock	average
	options	exercise price
Balance, January 31, 2021	11,030,000	$0.21
Granted	3,840,000	0.60
Exercised	(29,000)	0.31
Expired/cancelled	(90,000)	0.16
Balance, October 31, 2021	14,751,000	$0.31

As at October 31, 2021, the weighted average remaining life of the stock options outstanding is 7.87 (January 31, 2021 - 7.93) years. The Company's outstanding stock options as at October 31, 2021 are as follows:

	Exercise
Expiry date	price	Outstanding	Exercisable
Apr 18, 2027	$0.10	2,310,000	2,310,000
Dec 01, 2027	$0.20	2,650,000	2,650,000
Jun 20, 2028	$0.215	125,000	125,000
Apr 16, 2029	$0.10	1,655,000	1,655,000
Jul 31, 2030	$0.31	4,171,000	4,171,000
Aug 18, 2031	$0.60	3,840,000	3,840,000
Total		14,751,000	14,751,000

8. SHARE CAPITAL (cont'd…)

Share Purchase Warrants

The continuity of share purchase warrants for the nine months ended October 31, 2021 are as follows:

	Number ofshare purchase	Weightedaverage
	warrants	exercise price
Balance, January 31, 2021	32,371,815	$0.24
Exercised	(15,407,344)	0.21
Balance, October 31, 2021	16,964,471	$0.26

As at October 31, 2021, the weighted average remaining life of the share purchase warrants outstanding is 0.48 (January 31, 2021 - 0.97) years. The Company's outstanding share purchase warrants as at October 31, 2021 are as follows:

	Exercise
Expiry date	price	Outstanding
Dec 16, 2021	$0.24	6,892,683
Jul 20, 2022⁽¹⁾	$0.28	10,071,788
Total		16,964,471

⁽¹⁾ Expiry may be accelerated, if the volume weighted average trading price of the Company's common shares on the TSX-V was greater than $0.32 for 20 consecutive trading days.

Share-based payments

In August 2021, the Company granted 3,840,000 stock options to directors, officers, and employees of the Company with an exercise price of $0.60 per option with an expiry date of August 18, 2031. Using the fair value method for share-based payments, the Company determined the weighted average fair value of the options granted to be $2,192,337 or $0.57 per share.

In July 2020, the Company granted 4,200,000 stock options to directors, officers, and employees of the Company with an exercise price of $0.31 per option with an expiry date of April 31, 2030. Using the fair value method for share-based payments, the Company determined the weighted average fair value of the options granted to be $1,273,845 or $0.30 per share.

8. SHARE CAPITAL (cont'd…)

Share-based payments (cont'd…)

The fair value of the stock options granted and share purchase warrants issued was estimated using the Black-Scholes option pricing model with weighted average assumptions as follows:

	October 31,	October 31,2020
For the nine months ended	2021
Risk free interest rate	1.16%	0.28%
Expected dividend yield	0%	0%
Expected stock price volatility	134%	153%
Expected life in years	10	4
Forfeiture rate	0%	0%

9. NON-CONTROLLING INTEREST

Up until the final option payment was made (Note 4), MASL was a 70%-owned subsidiary of the Company and was 30%-owned by a minority shareholder. For the nine months ended October 31, 2020, loss of $11,534 has been allocated to the non-controlling interest of MASL. Summarized financial information about MASL is as follows:

For the nine months ended	October 31,2021⁽¹⁾	October 31,2020⁽¹⁾
Current assets	$-$	-
Non-current assets	-	-
Current liabilities	-	-
Net loss and comprehensive loss	$-$	38,446

⁽¹⁾ In August 2020, the Company acquired the minority shareholder's 30% ownership

10. RELATED PARTY TRANSACTIONS

The aggregate value of transactions and outstanding balances relating to directors and key management personnel including the Company's President & Chief Executive Officer ("CEO"), Chief Financial Officer ("CFO"), and Corporate Secretary were as follows:

	Fees or	Share-based
For the nine months ended October 31, 2021	salaries	compensation	Total
President & CEO	$180,000	$456,737	$636,737
Corporate Secretary	73,390	57,092	130,482
CFO	18,000	28,546	46,546
Directors	43,000	1,370,211	1,413,211
	$314,390	$1,912,586	$2,226,976

10. RELATED PARTY TRANSACTIONS (cont'd…)

	Fees or	Share-based
For the nine months ended October 31, 2020	salaries	compensation	Total
President & CEO	$180,000	$242,637	$422,637
Corporate Secretary	61,953	30,330	92,283
CFO	18,000	15,165	33,165
Directors	52,000	879,560	931,560
	$311,953	$1,167,692	$1,479,645

As at October 31, 2021, included in accounts payable and accrued liabilities is $62,381 (January 31, 2021 - $15,500) owing to the related parties as follows: $20,000 (January 31, 2021 - $Nil) to the CEO, $22,000 (January 31, 2021 - $12,000) to the CFO, $8,000 (January 31, 2021 - $3,500) to the Corporate Secretary, and $12,381 (January 31, 2021 - $Nil) to the directors of the Company.

11. SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS

During the nine months ended October 31, 2021, the Company reallocated $677,743 from reserves for exercise of stock options and share purchase warrants.

During the nine months ended October 31, 2020, the Company:

• a) reallocated $1,674,234 of gross proceeds to reserves on the closing of its private placement (Note 8);
• b) issued 535,000 finders' warrants, valued at $79,529, as finders' fees (Note 8); and
• c) reallocated $135,081 from reserves for exercise of stock options and share purchase warrants.

12. SEGMENTED INFORMATION

The Company operates in one reportable operating segment: the exploration and development of mineral properties. Summarized financial information for the geographic segments the Company operates in are as follows:

Canada	Spain	Total
$-$	1,909,183$	1,909,183
-	69,796	69,796
-	9,174	9,174
$-$	1,988,153$	1,988,153

As at January 31, 2021	Canada	Spain	Total
Exploration and evaluation assets	$-$	1,909,183$	1,909,183
Reclamation deposits	-	75,569	75,569
Right-of-use assets	-	16,762	16,762
Total	$-$	2,001,514$	2,001,514

13. FINANCIAL INSTRUMENTS, RISK AND CAPITAL MANAGEMENT

Financial Instruments

The Company classified its financial instruments as follows:

October 31,	January 31,
2021	2021
$16,124,007	$3,897,290
$1,146,928	$484,456

Fair Value

Financial instruments recorded at fair value on the consolidated statement of financial position are classified using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:

• a) Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities;
• b) Level 2 Inputs other than quoted prices that are observable for assets or liabilities, either directly or indirectly; and
• c) Level 3 Inputs for assets and liabilities that are not based on observable market data.

The fair value hierarchy requires the use of observable market inputs whenever such inputs exist. A financial instrument is classified to the lowest level of the hierarchy for which a significant input has been considered in measuring fair value. The carrying value of cash and accounts payable and accrued liabilities approximated their fair value because of the short-term nature of these instruments.

Risk and Capital Management

The Company's capital includes share capital and the cumulative deficit. The Company's objectives when managing capital are to safeguard the entity's ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders. The Company manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. The Company may issue new shares in order to meet its financial obligations. There was no change in the Company's approach to managing capital during the six months ended July 31, 2021. The Board of Directors has overall responsibility for the establishment and oversight of the Company's risk management framework.

The Company's activities expose it to a variety of financial risks, market risk (including currency risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The Company's overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the financial performance of the Company. This note presents information about the Company's exposure to each of these risks, the Company's objectives and processes for measuring and managing risk, and the Company's management of capital.

13. FINANCIAL INSTRUMENTS, RISK AND CAPITAL MANAGEMENT (cont'd…)

Credit Risk

Credit risk arises from cash and deposits with banks, as well as credit exposure on outstanding receivables and committed transactions. There is no significant concentration of credit risk. The Company's cash deposits are primarily held with a Canadian chartered bank. The Company has minimal accounts receivable exposure as it relates to amounts due from the governments of Canada and Spain pursuant to goods and services tax and VAT credits.

Interest Rate Risk

As the Company's interest-bearing assets do not have significant interest rates, the Company's income and operating cash flows are not significantly affected by changes in market interest rates.

Currency Risk

The Company has identified its functional currency as the Canadian dollar. Certain of the Company's exploration expenditures have been denominated in Euros and United States dollars ("USD"). The Company's exposure to foreign currency risk arises primarily on fluctuations between the Canadian dollar and those currencies. The Company has not entered into any derivative instruments to manage foreign exchange fluctuations. Management believes the foreign exchange risk related to currency conversions is minimal.

Liquidity Risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company has in place a planning and budgeting process to help determine the funds required to ensure the Company has the appropriate liquidity to meet its operating and growth objectives. The Company has historically relied on the issuance of shares and warrants to fund exploration programs and will require doing so again in the future.