Sailfish Royalty Corp. — M&A Activity 2020

Feb 15, 2020

Form 51-102F4 Business Acquisition Report

Item 1 Identity of Company

1.1 Name and Address of Company

Sailfish Royalty Corp. (the "Company" or "Sailfish") Sea Meadow House, PO Box 116, Road Town Tortola, British Virgin Islands VG1110

1.2 Executive Officer

Below is the name and business telephone number of an executive officer of the Company who is knowledgeable about the significant acquisition and this Report:

Peter Van Zoost, Chief Financial Officer (284) 494-6401

Item 2 Details of Acquisition

2.1 Nature of Business Acquired

The Company acquired (the "Acquisition") all of the issued and outstanding shares of Terraco Gold Corp. ("Terraco"). The Acquisition was completed pursuant to: (i) a court approved plan of arrangement in accordance with an arrangement agreement dated June 19, 2019 between Sailfish and Terraco ("Arrangement Agreement").

2.2 Acquisition Date

August 19, 2019.

2.3 Consideration

Pursuant to the Arrangement Agreement, Sailfish acquired all of the issued and outstanding shares of Terraco in exchange for an aggregate of 22,401,097 common shares of Sailfish distributed to the then current shareholders of Terraco at an exchange rate of 0.12 of a common share of Sailfish for each common share of Terraco held by such shareholders.

2.4 Effect on Financial Position

The Company does not currently have any plans or proposals for material changes in its business affairs or the affairs of the acquired business which may have a significant effect on the financial performance and financial position of the Company, such as any proposal to liquidate the business, to sell, lease or exchange all or a substantial part of its assets, to amalgamate the business with any other business organization or to make any material changes to the Company's business or the business acquired such as changes in corporate structure, management or personnel except the appointment of Akiba Leisman as President and CEO of Terraco.

2.5 Prior Valuations

None.

2.6 Parties to Transaction

The Acquisition was not with an informed person, associate or affiliate of the Company as those terms are defined under applicable securities legislation.

2.7 Date of Report

February 13, 2020.

Item 3 Financial Statements and Other Information

Terraco's consolidated financial statements for the period ending July 31, 2019 and 2018 and the condensed interim consolidated financial statements for the three and nine months ended April 30, 2019 and 2018 are attached to this Report as Schedule "A**"**.

The auditors of the financial statements, which are incorporated by reference and which form a part hereof have not given their consent to include their audit report in this Business Acquisition Report.

SCHEDULE "A"

Terraco Gold Corp. Financial Statements

See attached

CONSOLIDATED FINANCIAL STATEMENTS

JULY 31, 2019 AND 2018

(Expressed in Canadian Dollars)

TSXV: TEN

INDEX

CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION 1
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND DEFICIT 2
CONSOLIDATED STATEMENTS OF CASH FLOWS 3
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) 4
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY 5

Independent Auditor's Report

To the Shareholders of Terraco Gold Corp.

Opinion

We have audited the consolidated financial statements of Terraco Gold Corp. (the "Company"), which comprise the consolidated statements of financial position as at July 31, 2019 and July 31, 2018, and the consolidated statements of income (loss) and deficit, consolidated statements of cash flows, consolidated statements of comprehensive income (loss), and consolidated statements of changes in equity for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of the Company as at July 31, 2019 and July 31, 2018, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards.

Basis for Opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Other Information

Management is responsible for the other information. The other information comprises the information included in Management's Discussion and Analysis.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

We obtained Management's Discussion and Analysis prior to the date of this auditor's report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact in this auditor's report. We have nothing to report in this regard.

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company's financial reporting process.

Auditor's Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
• Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

"D&H Group LLP"

Vancouver, B.C.

January 31, 2020 Chartered Professional Accountants

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(Expressed in Canadian Dollars)

	July 31,2019	July 31,2018
ASSETS
Current assetsCashReceivables	$4,365,24164,227	$285,04433,130
Prepaid expenses and deposits	18,8234,448,291	24,779342,953
Royalty interests (Note 7)Exploration and evaluation assets (Note 4)	23,691,7081,150,000	23,691,70819,817,496
	$29,289,999	$43,852,157
LIABILITIES
Current liabilitiesAccounts payable and accrued liabilities	$537,031	$171,330
Convertible debenture (Note 5)Convertible debenture derivative (Note 6)	12,448,6294,925,109	10,825,3711,848,287
	17,910,769	12,844,988
SHAREHOLDERS' EQUITY
Capital (Note 8)	42,487,308	37,360,271
Contributed surplus	8,143,022	8,010,735
Accumulated other comprehensive incomeDeficit	-(39,251,100)	-(14,363,837)
	11,379,230	31,007,169
	$29,289,999	$43,852,157

NATURE OF OPERATIONS(Note 1) COMMITMENTS (Notes 4 and 12) EVENT AFTER THE REPORTING PERIOD (Note 19)

These consolidated financial statements were approved for issue by the Board of Directors on January 31, 2020 and are signed on its behalf by:

Signed:	"Akiba Leisman"
Signed:	"Cesar Gonzalez"	, Director

Footnotes:

(i) The Convertible Debenture Derivative is valued at fair value in accordance with IFRS. There are no circumstances in which the Corporation would be required to pay cash upon conversion of the Convertible Debenture. See Note 6.

CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND DEFICIT YEARS ENDED JULY 31, 2019 AND 2018 (Expressed in Canadian Dollars)

	Year EndedJuly 31,2019	Year EndedJuly 31,2018
Accounting and auditConsulting fees (Note 9)InsuranceInvestor relationsLegal and professional feesProperty investigationReclamation costsSalaries, wages, office and sundry (Note 9)Shareholder informationShare-based compensation (Note 8 and 9)TelephoneTransfer agent and filing fees	$15,411361,41216,29439,033647,118--99,48019,842132,2874,00926,816	$26,300276,17917,9965,84139,43462,42565108,1532,9444,9303,21520,502
Travel	16,069	5,019
LOSS BEFORE OTHER ITEMS	(1,377,771)	(573,003)
OTHER ITEMSChange in fair value of convertible debenture derivative (Note 6) (i)Foreign exchangeInterest income and otherImpairment charge (Note 4)Finance costs (Note 13)Gain on sale of investment	(3,076,822)(98,125)(7,042)(18,803,152)(1,524,351)-	1,646,364(394,907)3,572-(1,289,730)23,170
NET INCOME (LOSS) BEFORE INCOME TAXES	(24,887,263)	(584,534)
INCOME TAXESDeferred income tax recovery (expense) (Note 16)	-	(680)
NET INCOME (LOSS) FOR THE YEAR	(24,887,263)	(585,214)
DEFICIT, BEGINNING OF YEAR	(14,363,837)	(13,778,623)
DEFICIT, END OF YEAR	$(39,251,100)	$(14,363,837)
EARNINGS (LOSS) PER SHARE, BASICWEIGHTED AVERAGE SHARES OUTSTANDING	$(0.17)148,610,201	$(0.00)146,055,795
EARNINGS (LOSS) PER SHARE, DILUTED (Note 17)	$(0.17)	(0.00)
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING (Note 17)	148,610,201	146,055,795

Footnotes:

(i) The Convertible Debenture Derivative is valued at fair value in accordance with IFRS. There are no circumstances in which the Corporation would be required to pay cash upon conversion of the Convertible Debenture. See Note 6.

CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED JULY 31, 2019 AND 2018 (Expressed in Canadian Dollars)

		Year EndedJuly 31,2019		Year EndedJuly 31,2018
CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIESNet income (loss)	$	(24,887,263)	$	(585,214)
Items not affecting cashDeferred income tax expense (recovery)Change in fair value of the convertible		-		680
debenture derivativeFinance costsGain on marketable securities		3,076,8221,524,351-		(1,646,364)1,289,730(23,170)
Impairment chargeShare based compensationUnrealized foreign exchange loss (gain)Change in reclamation provision		18,803,152132,28798,907-		-4,930416,411(10,925)
Changes in non-cash working capital balances		(1,251,744)		(553,922)
ReceivablesPrepaid expenses and depositsAccounts payable and accrued liabilities		(31,097)5,956371,930		3,216(2,438)68,738
		(904,955)		(484,406)
INVESTING ACTIVITIESReclamation bonds and depositsProceeds from the sale of marketable securitiesExploration and evaluation expenditures		--(141,885)		16,96734,570(168,389)
		(141,885)		(116,852)
FINANCING ACTIVITIESExercise of warrants		433,440		-
Proceeds from private placementsShare issuance costs		4,717,183(23,586)		--
		5,127,037		-
INCREASE (DECREASE) IN CASH		4,080,197		(601,258)
CASH, BEGINNING OF YEAR		285,044		886,302
CASH, END OF YEAR	$	4,365,241	$	285,044
SUPPLEMENTAL CASH FLOW INFORMATION (Note 11)
Interest paid in cashIncome taxes paid in cash	$$	7,961-	$$	7,661-

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

YEARS ENDED JULY 31, 2019 AND 2018 (Expressed in Canadian Dollars)

	Year EndedJuly 31,2019	Year EndedJuly 31,2018
NET INCOME (LOSS) FOR THE YEAR	$(24,887,263)	$(585,214)
OTHER COMPREHENSIVE INCOME (LOSS)Unrealized gain (loss) on available-for-sale securitiesDeferred taxes on net unrealized fair value change inavailable-for-sale securities	--	(4,450)680
COMPREHENSIVE INCOME (LOSS)	$(24,887,263)	$(588,984)

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Expressed in Canadian Dollars)

	Number ofShares	CommonShares	ContributedSurplus	AccumulatedOtherComprehensiveIncome	Deficit	Total Equity
Balance, July 31, 2017Share-based compensationUnrealized holding gain (loss) on available-for-sale	146,055,795-	$37,360,271-	$8,005,8054,930	$4,450-	$(13,778,623)-	$31,591,9034,930
securities, net of deferred income taxesNet income for the year	--	--	--	(4,450)-	-(585,214)	(4,450)(585,214)
Balance, July 31, 2018	146,055,795	$37,360,271	$8,010,735	$-	$(14,363,837)	$31,007,169
Exercise of Warrants	4,334,405	433,440	-	-	-	433,440
Private Placements	36,286,021	4,717,183	-	-	-	4,717,183
Share Issuance Costs	-	(23,586)	-	-	-	(23,586)
Share-based compensation	-	-	132,287	-	-	132,287
Net income for the year	-	-	-	-	(24,887,263)	(24,887,263)
Balance, July 31, 2019	186,676,221	$42,487,308	$8,143,022	$-	$(39,251,100)	$11,379,230

1. NATURE OF OPERATIONS

Terraco Gold Corp. (the "Company" or "Terraco") was incorporated on November 28, 1995 under the Business Corporations Act (Alberta). The Company continued into British Columbia from Alberta on June 8, 2011 under the Business Corporations Act (British Columbia). The Company's common shares are listed on the TSX Venture Exchange (the "Exchange") under the trading symbol "TEN". The Company's principal office is located at #2390 – 1055 West Hastings Street, Vancouver, British Columbia, Canada, V6E 2E9.

The Company is a precious metals royalty and exploration company engaged in the acquisition and exploration of mineral properties and the acquisition of royalty assets. The Company currently has exploration properties and royalty assets in the United States of America. To date, no mineral development projects have been completed and no commercial development or production has commenced.

The Company is primarily in the exploration stage with respect to its mineral properties. Based on the information available to date, the Company has not yet determined whether its mineral properties contain economically recoverable reserves. The recoverability of the amounts shown for exploration and evaluation costs is dependent upon the discovery of economically recoverable reserves, the ability of the Company to obtain necessary financing to successfully complete their exploration and development programs and ultimately upon future profitable production.

	July 31,2019	July 31,2018
Deficit	$39,251,100	$14,363,837
Working capital	$3,911,260	$171,623

2. BASIS OF PRESENTATION

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") applicable to the preparation of financial statements.

The consolidated financial statements have been prepared on the historical cost basis except for the revaluation of certain financial assets and financial liabilities to fair value as explained in the Summary of Significant Accounting Policies set out in Note 3.

The preparation of financial statements requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and further periods if the review affects both current and future periods.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of the Company's significant accounting policies:

(a) Details of the group

In addition to the Company, the consolidated financial statements include all subsidiaries. Subsidiaries are all corporations over which the Company is able, directly or indirectly, to control financial and operating policies, which is the authority usually connected with holding majority voting rights. Subsidiaries are fully consolidated from the date on which control is acquired by the Company. Inter-company transactions and balances are eliminated upon consolidation. They are de-consolidated from the date that control by the Company ceases.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)

As at July 31, 2019, the subsidiaries of the Company are as follows:

Company	Location of Incorporation	Ownership Interest
TGC Holdings Ltd.	United States of America	100%
Western Standard Metals Ltd.	Canada	100%
Western Standard Metals USA, Inc.	United States of America	100%
Terraco Royalties USA, Inc.	United States of America	100%

(b) Critical judgments and sources of estimation uncertainty

The preparation of these consolidated financial statements requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and reported amounts of expenses during the reporting period. Actual outcomes could differ from these estimates. These consolidated financial statements include estimates which, by their nature, are uncertain. The impacts of such estimates are pervasive throughout the consolidated financial statements, and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the period in which the estimate is revised and future periods if the revision affects both current and future periods. These estimates are based on historical experience, current and future economic conditions and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Critical Judgments

The following are critical judgments that management has made in the process of applying accounting policies and that have the most significant effect on the amounts recognized in the consolidated financial statements:

• (i) The determination of categories of financial assets and financial liabilities has been identified as an accounting policy which involves judgments or assessments made by management.
• (ii) Management is required to assess the functional currency of each entity of the Company. In concluding that the Canadian Dollar is the functional currency of the parent and its subsidiaries, management considered the currency that mainly influences the cost of providing goods and services in each jurisdiction in which the Company operates. As no single currency was clearly dominant, the Company also considered secondary indicators including the currency in which funds from financing activities are denominated and the currency in which funds are retained.
• (iii) Management is required to assess impairment in respect of intangible exploration and evaluation assets and royalty interests. The triggering events are defined in IFRS 6. In making the assessment, management is required to make judgments on the status of each project and the future plans towards finding commercial reserves. The nature of exploration and evaluation activity is such that only a proportion of projects are ultimately successful and some assets are likely to become impaired in future periods.

Management has determined that there were triggering events present with respect to the Almaden property and as such, an impairment charge has been recorded as at July 31, 2019. Management has determined that there were no triggering events present with respect to the royalty interests as at July 31, 2019 and 2018.

(iv) Although the Company takes steps to verify title to exploration and evaluation assets in which it has an interest, these procedures do not guarantee the Company's title. Such properties may be subject to prior agreements or transfers and title may be affected by undetected defects.

TERRACO GOLD CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JULY 31, 2019 AND 2018 (Expressed in Canadian Dollars)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Estimation Uncertainty

The following are key assumptions concerning the future and other key sources of estimation uncertainty that have a significant risk of resulting in a material adjustment to the carrying amount of assets and liabilities within the next financial year:

• (i) Provisions for income taxes are made using the best estimate of the amount expected to be paid based on a qualitative assessment of all relevant factors. The Company reviews the adequacy of these provisions at the end of the reporting period. However, it is possible that at some future date an additional liability could result from audits by taxing authorities. Where the final outcome of these tax-related matters is different from the amounts that were originally recorded, such differences will affect the tax provisions in the period in which such determination is made.
• (ii) The assessment of any impairment of exploration and evaluation assets is dependent upon estimates of the recoverable amount that take into account factors such as reserves, economic and market conditions and the useful lives of assets.
• (iii) The cost estimates are updated periodically during the life of a mine to reflect known developments, (e.g. revisions to cost estimates and to the estimated lives of operations) and are subject to review at regular intervals. Decommissioning, restoration and similar liabilities are estimated based on the Company's interpretation of current regulatory requirements, constructive obligations and are measured at fair value. Fair value is determined based on the net present value of estimated future cash expenditures for the settlement of decommissioning, restoration or similar liabilities that may occur upon decommissioning of the mine. Such estimates are subject to change based on changes in laws and regulations and negotiations with regulatory authorities.
• (iv) The valuation of share-based compensation and the convertible debenture derivative are determined using the Black-Scholes Option Pricing Model. Option pricing models require the input of subjective assumptions including expected share price volatility, interest rate and forfeiture rate. Changes in the input assumptions can materially affect the fair value estimate and the Corporation's net loss and equity reserves.
• (c) Cash

Cash consists of cash and money market instruments with terms to maturity not exceeding 90 days at date of acquisition.

(d) Receivables

Receivables are recognized initially at fair value and subsequently measured at amortized cost using the effectiveinterest method, less provision for impairment. Receivables are classified as loans and amortized cost. A provision for impairment of receivables is established when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of the receivables.

(e) Accounts payable and accrued liabilities

Payables are obligations to pay for materials or services that have been acquired in the ordinary course of business from suppliers. Payables are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business, if longer). If not, they are presented as non-current liabilities.

Payables are classified as amortized cost initially at fair value and subsequently measured at amortized cost using the effective-interest method.

TERRACO GOLD CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JULY 31, 2019 AND 2018 (Expressed in Canadian Dollars)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)

(f) Exploration and evaluation assets

The Company is in the exploration stage with respect to its investment in exploration and evaluation assets and, accordingly, follows the practice of capitalizing all costs relating to the acquisition of, exploration for and development of mineral properties and crediting all proceeds received against the cost of the related properties. Such costs include, but are not exclusive to, geological, geophysical studies, exploratory drilling and sampling. At such time as commercial production commences, these costs will be charged to operations on a unit-of-production method based on proven and probable reserves. The aggregate costs related to abandoned mineral properties are charged to operations at the time of any abandonment, or when it has been determined that there is evidence of a permanent impairment. An impairment charge relating to a mineral property is subsequently reversed when new exploration results or actual or potential proceeds on sale or farm-out of the property result in a revised estimate of the recoverable amount, but only to the extent that this does not exceed the original carrying value of the property that would have resulted if no impairment had been recognized.

The recoverability of amounts shown for exploration and evaluation assets is dependent upon the discovery of economically recoverable reserves, the ability of the Company to obtain financing to complete development of the properties, and on future production or proceeds of disposition.

The Company recognizes in income costs recovered on mineral properties when amounts received or receivable are in excess of the carrying amount.

Once the technical feasibility and commercial viability of the extraction of mineral resources in an area of interest are demonstrable, exploration and evaluation assets attributable to that area of interest are first tested for impairment and then reclassified to mining property and development assets.

All capitalized exploration and evaluation expenditures are monitored for indications of impairment. Where a potential impairment is indicated, assessments are performed for each area of interest. Any exploration expenditures that are not expected to be recovered are charged to the results of operations.

(g) Royalty interests

The Company capitalizes all costs relating to the acquisition of royalty interests. Acquisition costs of royalty interests on exploration stage mineral properties, where there are no proven and probable reserves, are not amortized. When the associated mineral property enters the production stage, royalty interests are depleted using the units of production method over the life of the mineral property, which is calculated using estimated reserves. All capitalized royalty interests are monitored for indications of impairment.

Where a potential impairment is indicated, assessments are performed for each area of interest. Any royalty interest that is not expected to be recovered are charged to the results of operations.

(h) Impairment

At each financial position reporting date, the carrying amounts of the Company's assets are reviewed to determine whether there is any indication that those assets are impaired. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment, if any. Where the asset does not generate cash flows that are independent from other assets, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs.

An asset's recoverable amount is the higher of fair value less cost of disposal and value in use. Fair value is determined by the price that would be received to sell an asset in an orderly transaction between market participants. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount and the impairment loss is recognized in the profit or loss for the period.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)

(h) Impairment (Cont'd)

Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognized immediately in profit or loss.

(i) Decommissioning and rehabilitation provision

An obligation to incur restoration, rehabilitation and environmental costs arises when environmental disturbance is caused by the exploration, development or ongoing production of a mineral interest by or on behalf of the Company. Costs for restoration of site damage which is created on an ongoing basis during exploration and evaluation are provided for at their net present values and charged against profits in the period such exploration and evaluation occurs. Discount rates using a risk-free rate that reflects the time value of money are used to calculate the net present value. The related liability is adjusted for each period for the unwinding of the discount rate and for changes to the current market-based discount rate, amount or timing of the underlying cash flows needed to settle the obligation.

(j) Financial instruments

Classification

The Company classifies its financial instruments in the following categories: at fair value through profit and loss ("FVTPL"), at fair value through other comprehensive income ("FVOCI") or at amortized cost. The Company determines the classification of financial assets at initial recognition. The classification of debt instruments is driven by the Company's business model for managing the financial assets and their contractual cash flow characteristics. Equity instruments that are held for trading are classified as FVTPL. For other equity instruments, on the day of acquisition the Company can make an irrevocable election (on an instrument-by-instrument basis) to designate them as at FVOCI. Financial liabilities are measured at amortized cost, unless they are required to be measured at FVTPL (such as instruments held for trading or derivatives) or if the Company has opted to measure them at FVTPL.

Measurement

Financial assets and liabilities at amortized cost are initially recognized at fair value plus or minus transaction costs, respectively, and subsequently carried at amortized cost less any impairment.

Financial assets and liabilities carried at FVTPL are initially recorded at fair value. Realized and unrealized gains and losses arising from changes in the fair value of the financial assets and liabilities held at FVTPL are included in comprehensive income (loss) in the period in which they arise.

Financial assets and liabilities carried at FVOCI are initially recorded at fair value. Unrealized gains and losses arising from changes in the fair value of the financial assets and liabilities held at FVOCI are included in comprehensive income (loss) in the period in which they arise.

Impairment of Financial Assets at Amortized Cost

The Company recognizes a loss allowance for expected credit losses on financial assets that are measured at amortized cost. At each reporting date, the Company measures the loss allowance for the financial asset at an amount equal to the lifetime expected credit losses if the credit risk on the financial asset has increased significantly since initial recognition. If at the reporting date, the expected credit loss has not increased significantly since initial recognition, the Company measures the loss allowance for the financial asset at an amount equal to the twelve month expected credit losses. Regardless of whether credit risk has increased significantly, the loss allowance for trade receivables without a significant financing component classified at amortized cost, are measured using the lifetime expected credit loss approach. The Company shall recognize in the statements of comprehensive income (loss), as an impairment gain or loss, the amount of expected credit losses (or reversal) that is required to adjust the loss allowance at the reporting date to the amount that is required to be recognized.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)

(j) Financial instruments (Cont'd)

Derecognition

The Company derecognizes financial assets only when the contractual rights to cash flows from the financial assets expire, or when it transfers the financial assets and substantially all of the associated risks and rewards of ownership to another entity. Gains and losses on derecognition are generally recognized in the statements of comprehensive income (loss).

(k) Capital

Common shares issued by the Company are classified as equity. Costs directly attributable to the issue of common shares, share purchase warrants and share options are recognized as a deduction from equity, net of any related income tax effects.

(l) Equity financing

The Company engages in equity financing transactions to obtain the funds necessary to continue operations and explore and evaluate mineral properties or royalty acquisitions. These equity financing transactions may involve issuance of common shares or units. Units typically comprise a certain number of common shares and share purchase warrants. Depending on the terms and conditions of the equity financing transaction, the warrants are exercisable into additional common shares at a price prior to expiry as stipulated by the terms of the transaction. The Company adopted a residual value method with respect to the measurement of common shares and share purchase warrants issued as private placement units. The fair value of the common shares issued in the private placements is determined by the closing quoted bid price on the price reservation date, if applicable, or the announcement date. The balance, if any, is allocated to the attached share purchase warrants.

(m) Share-based payments

The fair value, at the grant date, of equity-settled share-based awards is recognized as an expense over the period for which the benefits of employee and others providing similar services are expected to be received using the graded-vesting method. The corresponding accrued entitlement is recorded in contributed surplus. The fair value of awards is calculated using an option pricing model which considers the following factors:

• Exercise price Expected life of the award

• Expected volatility Current market price of the underlying shares

• Risk-free interest rate Expected forfeitures

The amount recognized as an expense is adjusted to reflect the actual number of share options for which the related service and vesting conditions are met. Consideration received on the exercise of share options is recorded as share capital and the related share-based payment reserve is transferred to share capital. Share-based payment transactions with non-employees are measured at the fair value of the goods or services received. However, if the fair value cannot be estimated reliably, the share-based payment transaction is measured at the fair value of the equity instruments granted at the date the non-employee provides the goods or the services.

(n) Current and deferred income taxes

Income tax expense comprises current and deferred tax. Income tax is recognized in profit or loss, except to the extent that it relates to items recognized directly in equity or other comprehensive income. Current tax expense, if any, is the expected tax payable on taxable income for the year, using tax rates enacted or substantively enacted at period end, adjusted for amendments to tax payable with regards to previous years.

TERRACO GOLD CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JULY 31, 2019 AND 2018 (Expressed in Canadian Dollars)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)

(n) Current and deferred income taxes (Cont'd)

Deferred tax is recorded using the liability method, providing for temporary differences, between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Temporary differences are not provided for relating to goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect neither accounting or taxable loss, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the statement of financial position.

A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilized. To the extent that the Company does not consider it probable that a deferred tax asset will be recovered, it provides a valuation allowance against that excess.

(o) Earnings per share

Basic earnings per share is calculated by dividing the profit or loss attributable to the common shareholders of the Company divided by the weighted average number of common shares outstanding during the year. The diluted earnings per share is calculated based on the weighted average number of common shares outstanding during the year, plus the effects of the dilutive common share equivalents using the treasury stock method and if converted method, as applicable. The dilutive effect of outstanding options and warrants issued be calculated using the treasury stock method. This method assumes that all common share equivalents have been exercised at the beginning of the year (or at the time of issuance, if later), and that the funds obtained thereby were used to purchase common shares of the Company at the average trading price of common shares during the year. The dilutive effect of the convertible debenture is calculated using the if-converted method. The if-converted method assumes that all convertible debt has been converted in determining fully diluted earnings or loss per share, except where such conversions would be anti-dilutive.

• (p) Accounting standards adopted during the year
  • (i) IFRS 9 Financial instruments ("IFRS 9")

The Company adopted all the requirements of IFRS 9 as of August 1, 2018. IFRS 9 replaces IAS 39 Financial Instruments: Recognition and Measurement ("IAS 39"). IFRS 9 utilizes a revised model for recognition and measurement of financial instruments and a single, forward looking "expected loss" impairment model. As a result of the adoption of IFRS 9, management has changed its accounting policy for financial assets retrospectively, for assets that continued to be recognized at the date of initial application.

The table below summarizes the classification and carrying amount changes upon transition from IAS 39 to IFRS 9 as at August 1, 2018.

	New under IFRS
	Classification	Original under IAS 39Carrying amount	Classification	Carrying amount
Cash	FVTPL	285,044	FVTPL	285,044
ReceivablesAccounts payable	Loans and receivables	33,130	Amortized cost	33,130
and accrued liabilities	Other liabilities	171,330	Amortized cost	171,330
Convertible debentureConvertible debenture	Other liabilities	10,825,371	Amortized cost	10,825,371
derivative	FVTPL	1,848,287	FVTPL	1,848,287

As the standard permits on transition to IFRS 9, the Company has not restated prior periods with respect to the new amortized cost measurement for financial assets and impairment requirements.

The adoption of IFRS 9 resulted in no impact to the deficit on January 1, 2018.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)

• (p) Accounting standards adopted during the year (Cont'd)
  • (ii) IFRS 15 Revenue from Contracts with Customers ("IFRS 15")

The Company adopted all the requirements of IFRS 15 as of August 1, 2018. This new accounting pronouncement establishes principles for reporting the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers.

There was no significant impact on the Company's consolidated financial statements upon the adoption of IFRS 15, as the Company does not have any revenue from contracts with customers.

• (q) Foreign currency translation
  • (i) Functional and presentation currency

The financial statements of each of the Company's subsidiaries are prepared in the local currency of their home jurisdictions. Consolidation of each subsidiary includes re-measurement from the local currency to the subsidiary's functional currency. Each subsidiary's functional currency, being the currency of the primary economic environment in which the subsidiary operates, is the Canadian Dollar. The consolidated financial statements are presented in Canadian Dollars.

(ii) Foreign currency transactions

Foreign currency transactions are translated into the functional currency using the exchange rates published by the Bank of Canada prevailing on the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in comprehensive income (loss).

(r) Accounting standards and interpretations issued but not yet adopted

As at the date of these financial statements, the following standards have not been applied in these financial statements:

(i) IFRS 16 Leases. In January 2016, the IASB issued IFRS 16 which replaces IAS 17 – Leases and its associated interpretative guidance. IFRS 16 applies a control model to the identification of leases, distinguishing between a lease and a service contract on the basis of whether the customer controls the asset being leased. For those assets determined to meet the definition of a lease, IFRS 16 introduces significant changes to the accounting by lessees, introducing a single, on-balance sheet accounting model that is similar to current finance lease accounting, with limited exceptions for short-term leases or leases of low value assets. Lessor accounting remains similar to current accounting practice. The standard is effective for annual periods beginning on or after January 1, 2019, with early application permitted for entities that apply IFRS 15.

Management is currently assessing the impact of this new standard on the Company's accounting policies and consolidated financial statement presentation.

4. EXPLORATION AND EVALUATION ASSETS

(a) Almaden (Nutmeg Mountain) Property

On January 25, 2011, the Company acquired all of the outstanding securities of Western Standard Metals Ltd. ("Western") in an all-share transaction by way of a plan of arrangement. Accordingly, the Company acquired a 100% interest in the Almaden (Nutmeg Mountain) Property comprising 12 leased patented lode mining claims (approximately 248 acres), 208 unpatented lode mining claims (approximately 4,150 acres) and approximately 280 acres of private fee ground located in Washington County, Idaho.

TERRACO GOLD CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JULY 31, 2019 AND 2018 (Expressed in Canadian Dollars)

4. EXPLORATION AND EVALUATION ASSETS

(a) Almaden (Nutmeg Mountain) Property (Cont'd)

The Company has paid a total of US$284,160 in future minimum payments to date.

The minimum future payments required to maintain the leased patented lode mining claims over the next 5 years are as follows:

• US$35,520 cash before fiscal year ended July 31, 2020;
• US$24,000 cash before fiscal year ended July 31, 2021;
• US$24,000 cash before fiscal year ended July 31, 2022;
• US$24,000 cash before fiscal year ended July 31, 2023;
• US$24,000 cash before fiscal year ended July 31, 2024; and
• US$360,000 thereafter

During the year ended July 31, 2012, the Company staked an additional 2 unpatented mining claims in the surrounding area.

The Almaden Property is subject to a 4% net proceeds royalty interest payable to underlying property owners, a 1% net smelter return ("NSR") royalty (for gold prices equal to or less than US$425/oz.) or 2% (for gold prices greater than US$425/oz.) payable to Royal Gold Inc. and a 0.5% NSR royalty payable to a strategic investor (Note 7).

As at July 31, 2019, the Company determined there were impairment indicators present with respect to the Almaden property and, as a result, the Company performed an impairment test. IAS 36 requires the recoverable amount of the Almaden to be the higher of fair value less costs of disposal and value in use. The Company did not have enough verifiable information to prepare adequately detailed a meaningful calculation of the value in use of the Almaden property. Therefore, the Company applied the fair value less cost of disposal method using the estimated fair market value of the Almaden property in determining an estimated recoverable amount. Management has recorded an impairment charge of $18,803,152 against the carrying value of the Almaden Property.

	PeriodEndedJuly 31,2019	Activity	YearEndedJuly 31,2018	Activity	YearEndedJuly 31,2017
Almaden (Nutmeg
Mountain Gold) Property
Property acquisitioncosts and option
payments	$14,045,558	$-	$14,045,558	$-	$14,045,558
Property
maintenance costs	698,608	89,342	609,266	85,735	523,531
Engineering and
consultingAssays, surveys and	1,291,016	9,054	1,281,962	50,485	1,231,477
analysis	361,855	-	361,855	-	361,855
Environmental	31,003	(9,054)	40,057	-	40,057
Drilling	2,486,933	-	2,486,933	-	2,486,933
PEA	77,333	-	77,333	-	77,333
Communications,
field supplies and
expenses	960,846	46,314	914,532	38,039	876,493
Impairment	(18,803,152)	(18,803,152)	-	-	-
Total exploration and
evaluation assets	$1,150,000	$(18,667,496)	$19,817,496	$174,259	$19,643,237

Exploration and evaluation asset activity during the year:

TERRACO GOLD CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JULY 31, 2019 AND 2018 (Expressed in Canadian Dollars)

5. CONVERTIBLE DEBENTURE

On June 15, 2016, TGC Holdings Inc. ("TGC") issued a senior unsecured convertible debenture (the "Debenture") for gross proceeds of approximately $15.53 (USD$12.03) million. The Debenture bears interest at a rate of 0.05% per annum, payable annually in cash, and has a maturity date of June 15, 2021 (the" Maturity Date"). On the Maturity Date, the outstanding amount of the Debenture is due and payable in either cash or by converting the outstanding amount into common shares of the Company at the market price on the Maturity Date. The Company has guaranteed all amounts under the Debenture.

The holder of the Debenture ("Holder") may convert any portion of the Debenture into:

• common shares of the Company at a price of C$0.18 per share (the "Parent Conversion Option");
• common shares of TGC based on the following formula: (amount to be converted) multiplied by (45) divided by US$12.03 million (the "Subsidiary Conversion Option"). Assuming full conversion, the holder of the Debenture can convert into a maximum of 45% of TGC; or
• any combination of the Parent Conversion Option or the Subsidiary Conversion Option.

From June 15, 2016 to June 15, 2020, the Holder will be prohibited from owning greater than 19.99% of the Company (the "Ownership Limit"). During the term of the Debenture, Company shareholder approval will be required should the holder wish to exercise the Parent Conversion Option to acquire 20% or more of the Company's common shares.

The Holder will not be permitted to exercise the Parent Conversion Option or the Subsidiary Conversion Option until June 15, 2018 unless the Company's common shares trade at or above $0.40 for twenty consecutive days prior to June 15, 2018.

Further, commencing on June 15, 2019, provided the Company's common shares trade at or above $0.40 for twenty consecutive days, TGC shall be permitted to redeem all or any portion of the Debenture in exchange for the Company's common shares. The Holder has the right to participate in any future equity or convertible debt offerings of the Company to maintain its pro-rata ownership as long as the Holder owns (or can convert into) less than 5% of the issued and outstanding shares of the Company ("Equity Participation Right").

The Holder additionally agrees for a period of three years from June 15, 2016, to vote all Company common shares held in accordance with the recommendations of the Company's Board of Directors except in the event that: (i) an event of default under the Debenture has occurred; or (ii) a change of control of the Company has been proposed or announced. During the first three years following June 15, 2016, the Holder will be prohibited from making any purchases or any unsolicited offers to acquire any common shares of the Company, except with respect to the Parent Conversion Option and the Equity Participation Right.

The Debenture has been deemed to contain an embedded derivative ("Debenture Derivative") relating to the Parent Conversion Option. The Debenture Derivative was valued upon initial recognition using the residual approach at approximately $6.99 million (Note 6). At inception, the gross proceeds of the Debenture were reduced by the estimated fair value of the Debenture Derivative (approximately $6.99 million) and the transaction costs related to the Debenture of (approximately $0.40 million) resulting in a balance of approximately $8.14 million. The Debenture is measured at amortized cost and will be accreted to maturity over the term using the effective interest method.

The components of the Debenture are summarized as follows:

	ConvertibleDebenture
Balance, July 31, 2018	$10,825,371
Accretion	1,524,351
Foreign exchange adjustments	98,907
Balance, July 31, 2019	$12,448,629

6. CONVERTIBLE DEBENTURE DERIVATIVE

The Convertible Debenture Derivative related to the Convertible Debenture (Note 5) was valued upon initial recognition at a fair value of approximately $6.99 million using the residual value approach, and is subsequently at each period end remeasured at fair value through the statement of net loss and comprehensive loss using the Black Scholes valuation method. The fair value upon initial recognition was reduced by the transaction costs related to the Debenture Derivative of approximately $0.32 million, resulting in a balance of approximately $6.67 million.

The components of the Debenture Derivative are summarized as follows:

	ConvertibleDebentureDerivative
Balance, July 31, 2018Fair value adjustments including foreign exchange	$1,848,2873,076,822
Balance, July 31, 2019	$4,925,109

Upon conversion of the Debenture, the fair value of the Debenture Derivative and the carrying value of the Debenture will be reclassified to share capital. There are no circumstances in which the Company would be required to pay any cash upon conversion of the Debenture.

The fair value of the Debenture Derivative was calculated using the Black Scholes valuation method. The assumptions used in the valuation model include:

	July 31,	July 31,
	2019	2018
Risk-free interest rate	1.55%	2.10%
Expected term (years)	1.88	2.88
Share Price	$0.13	$0.08
Expected share price volatility	99.57%	72.10%

7. ROYALTY INTERESTS

Spring Valley Royalty #1

On December 21, 2011, the Company entered into an Assignment and Option Agreement ("Assignment and Option Agreement") pursuant to which a wholly-owned subsidiary acquired an option to purchase a 2.5% NSR sliding scale royalty on a portion of the Spring Valley Gold Project ("Spring Valley Project") located in Pershing County, Nevada and received in cash US$5,000,000. The Spring Valley Project is 100% owned and controlled by Waterton Global Resource Management ("Waterton"). The terms of the option provide the Company with the ability to purchase a 2.5% NSR sliding scale royalty on a portion of the Spring Valley Project for US$12,500,000 for a period of 5 years from the closing of the transaction or within 1 year of a change of control of the Company. In exchange for the option, the Company issued a 1% NSR royalty on its Moonlight Property; a 0.5% NSR royalty (and up to a 1.0% NSR royalty in certain circumstances) on its Almaden Property; an off-take for 30% of the minerals produced from the Almaden (Nutmeg Mountain) Property during the life of the mine; and 1,000,000 share purchase warrants with an exercise price of $0.35 per share for a period of 5 years, subject to early expiry at the discretion of the Company, if the Company shares trade at $0.70 or higher for 20 consecutive trading days. The fair value attributed to the share purchase warrants was estimated to be $228,399 using the Black-Scholes option-pricing model with the following assumptions: expected warrant life of 5 years, risk-free interest rate of 1.15%, dividend yield of 0% and expected volatility of 151%. The Company incurred a success fee of $300,000 (paid) in conjunction with this transaction.

TERRACO GOLD CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JULY 31, 2019 AND 2018 (Expressed in Canadian Dollars)

7. ROYALTY INTERESTS (Cont'd)

Spring Valley Royalty #1 (cont'd)

NSR sliding scale royalty:

Gold Price (US$ per oz)	Terraco Royalty Option
<$300	0.71%
$300-$399	1.07%
$400-$499	1.43%
$500-$599	1.79%
$600-$699	2.14%
$700+	2.50%

On June 15, 2016, the Company exercised the Spring Valley Royalty Option #1, under the Assignment and Option Agreement dated December 21, 2011. As a result of the exercise of the Spring Valley Royalty Option #1, the Company has paid US$12,500,000, and in return the Company received a 2.5% NSR sliding scale royalty on a portion of the Spring Valley Project.

Spring Valley Royalty #2

On March 8, 2012, the Company entered into a Royalty Assignment, Purchase and Option Agreement pursuant to which a wholly-owned subsidiary acquired an option to acquire a 0.5% NSR royalty on a portion of the Spring Valley Project. The terms of the option provide the Company with the ability to purchase a 0.5% NSR royalty on a portion of the Spring Valley Project for US$983,211 for a period of 5 years from the closing of the transaction or within 1 year of a change of control of the Company.

On June 15, 2016, the Company exercised the Spring Valley Royalty Option #2 under the Royalty Assignment, Purchase and Option Agreement dated March 8, 2012. As a result of the exercise of the Spring Valley Royalty Option #2, the Company has paid US$983,211, and in return the Company received a 0.5% NSR royalty on a portion of the Spring Valley Project.

Spring Valley Royalty #3

On March 8, 2012, the Company entered into a Royalty Assignment, Purchase and Option Agreement ("Royalty Assignment, Purchase and Option Agreement") pursuant to which the Company acquired a 0.5% NSR royalty from a strategic partner on a portion of the Spring Valley Gold Project ("Spring Valley Project") located in Pershing County, Nevada, in exchange for 2,500,000 common shares with an estimated fair value of $587,500. The Company issued 2,500,000 common shares as consideration for the full purchase price.

Spring Valley Royalty #4

On April 21, 2013, the Company entered into a Royalty Purchase Agreement ("RPA") and a Royalty Purchase and Option Agreement ("RPOA") pursuant to which a wholly-owned subsidiary acquired for US$4,200,000 and sold for US$5,200,000 a 1.0% NSR sliding scale royalty on a portion of the Spring Valley Project while retaining an option to acquire a NSR sliding scale royalty on a portion of the Spring Valley Project.

The terms of the option provide the Company with the ability to purchase a 0.5% NSR sliding scale royalty on a portion of the Spring Valley Project for US$2,600,000 for a period of 3.7 years from the closing of the transaction (expiring on December 30, 2016) or within 1 year of a change of control of the Company. Pursuant to the RPA and RPOA, the Company issued 800,000 common shares as consideration with an estimated fair value of $88,000 and received a net cash infusion of US$1,000,000.

TERRACO GOLD CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JULY 31, 2019 AND 2018 (Expressed in Canadian Dollars)

7. ROYALTY INTERESTS (Cont'd)

Spring Valley Royalty #4 (cont'd)

NSR sliding scale royalty:

Gold Price (US$ per oz)	Terraco Royalty Option
<$300	0.14%
$300-$399	0.21%
$400-$499	0.29%
$500-$599	0.36%
$600-$699	0.43%
$700+	0.50%

On June 15, 2016, the Company exercised the Spring Valley Royalty Option #4 under the Royalty Purchase Agreement ("RPA") and a Royalty Purchase and Option Agreement ("RPOA") dated April 21, 2013. As a result of the exercise of the Spring Valley Royalty Option #4, the Company has paid US$2,600,000, and in return has received a 0.5% NSR sliding scale royalty on a portion of the Spring Valley Project.

Spring Valley Royalty #5

On December 21, 2011, the Company issued 4,000,000 common shares at an estimated fair value of $1,020,000 to acquire a right of first refusal ("ROFR") on a separate 1% area of interest royalty located on the Spring Valley Project.

On February 1, 2017, the Company exercised its ROFR to acquire, from the Schmidt Family Mining Partnership LLC, an additional 1% net smelter returns royalty on certain lands within a one-half mile perimeter ("Perimeter NSR") of the Schmidt Claim Block included in the Spring Valley Project. The ROFR, upon exercise, was subject to an option with RK Mine Finance ("Red Kite") whereby Red Kite's wholly owned subsidiary, EXP2 LLC, could purchase 50% of the 1% Perimeter NSR from TGC (net 0.5% NSR royalty) on the same terms of the TGC purchase price. Red Kite has concurrently exercised its option and has purchased 50% of the Perimeter NSR with TGC retaining the other 50% or 0.5% NSR royalty.

In conjunction with the acquisition of the Perimeter NSR, both the Company and Red Kite have each separately paid $742,466 (US$567,895) for 0.5% of the Perimeter NSR.

Moonlight Property Royalty

On June 15, 2016, the Company entered into definitive agreements with Solidus Resources, LLC (Solidus"), a whollyowned subsidiary of Waterton, pursuant to which Solidus acquired 100% of the Company's claims, leases, title and mineral rights proximate to the Spring Valley Project, including the Company's previously owned Moonlight Property located adjacent to the north of the Spring Valley Project but excluding certain royalties held by the Company, in exchange for US$7,000,000 in cash and a 2% NSR on the Moonlight Property.

The Moonlight Property is comprised of 95 parcels of private fee lands for 3,760 gross acres (including 1,170 net surface acres and 2,952.5 net mineral acres) as well as 3 mineral leases of private fee lands comprising 180 acres and 3 leases of patented mining claims amounting to 393.8 acres, plus 230 unpatented lode mining claims totaling approximately 4,560 acres for a total property position of approximately 8,894 gross acres (including 6,304 nest surface acres and 8,056 net mineral acres).

As at July 31, 2019, the Company had capitalized acquisition costs of $23,691,708 (July 31, 2018 - $23,691,708) under royalty interests.

8. CAPITAL

(a) Authorized:

Unlimited number of voting common shares Unlimited number of non-voting preferred shares, none issued and outstanding

(b) Share purchase options

As at July 31, 2019, the Company had outstanding share purchase options enabling holders to acquire common shares of the Company as follows:

		Price per
Number	Vested	share	Expiry date
5,051,000	5,051,000	$0.16	June 9, 2020 (i)
4,050,000	4,050,000	$0.12	November 26, 2020
300,000	300,000	$0.18	August 15, 2021
250,000	250,000	$0.13	December 29, 2021
3,900,000	2,175,000	$0.07	October 30, 2023
13,551,000	11,826,000

(i) On June 7, 2019, the Company announced that it received TSX Venture Exchange acceptance to extend the expiry date of 5,051,000 share purchase options to June 9, 2020 from June 9, 2019.

A summary of the Company's options and the changes for the year are as follows:

	July 31,2019			July 31,2018
		WeightedAverageExercise		WeightedAverageExercise
	Number	Price	Number	Price
Outstanding, beginning of the yearGrantedExercisedExpired	12,576,0003,900,000-(2,925,000)	$0.140.07-(0.11)	12,576,000---	$0.14---
Outstanding, end of the year	13,551,000	$0.12	12,576,000	$0.14

During the year ended July 31, 2019, 2,925,000 options expired without exercise and 3,900,000 options were granted to certain directors, officers, employees and consultants of the Company. The options have an exercise price of $0.07 per common share and expire on October 30, 2023. The weighted average grant-date fair value of the stock options granted during the year ended July 31, 2019 is $0.05.

The weighted average fair value of the stock options granted was determined by using the Black-Scholes option pricing model with the following assumptions:

	Year endedJuly 31, 2019	Year endedJuly 31, 2018
Risk-free interest rate	2.39%	-
Estimated volatility	73.95%	-
Expected life	4.25 years	-
Expected dividend yield	Nil	-

8. CAPITAL (Cont'd)

The Company has a share purchase option plan under which directors, officers, employees and consultants of the Company are eligible to receive share purchase options. The aggregate number of shares available to be issued upon the exercise of all share purchase options granted under the plan shall not exceed 10% of the issued and outstanding shares of the Company. The plan limits the maximum number of share purchase options issuable in any one 12-month period to any one optionee to 5% of the total common shares outstanding. The Board of Directors shall determine the terms and provisions of the options at the time of grant. The exercise price of each share purchase option shall not be less than the market price of the common shares on the date of the grant less the discount permitted by the Exchange. The maximum term of share purchase options shall not exceed 10 years or such other term as permitted by the Exchange.

Option-pricing models require the use of estimates and assumptions including the expected volatility. Changes in the underlying assumptions can materially affect the fair value estimates and, therefore, existing models do not necessarily provide reliable measures of the fair value of the Company's share purchase options.

(c) Share purchase warrants

As at July 31, 2019, the Company had no outstanding share purchase warrants enabling holders to acquire common shares of the Company.

A summary of the Company's share purchase warrants and the changes for the year are as follows:

	July 31,2019			July 31,2018
			WeightedAverageExercise
	Number	ExercisePrice	Number	Price
Outstanding, beginning of the yearExpired	4,420,698(86,293)	$0.100.10	4,420,698-	$0.10-
Exercised	(4,334,405)	0.10
Outstanding, end of the year	-	-	4,420,698	$0.10

9. RELATED PARTY DISCLOSURES

(a) Transactions with key management personnel

During the year ended July 31, 2019, the Company paid consulting fees of $300,000 (July 31, 2018 – $225,000) and salaries, wages, office and sundry fees of $18,000 (July 31, 2018 – $18,000) to officers and/or directors or companies controlled by officers and/or directors of the Company.

During the year ended July 31, 2019, the Company paid engineering and consulting fees of US$5,600 (July 31, 2018 - US$71,857) to companies controlled by an officer or director of the Company. Of these fees, US$5,600 (July 31, 2018 - US$23,500) has been capitalized under exploration and evaluation assets as the fees were incurred directly for exploration and evaluation projects.

As at July 31, 2019, $5,501 (July 31, 2018 – $139,813) is payable to companies controlled by officers and/or directors of the Company, which is included in accounts payable and accrued liabilities.

During the period ended July 31, 2019, the Company incurred share-based payments of $97,634 (July 31, 2018 – $Nil) to officers and directors of the Company.

9. RELATED PARTY DISCLOSURES (Cont'd)

(b) Transactions with other related parties

As at July 31, 2019, $1,087 (July 31, 2018 – $1,098) is due from a company with a director and officers in common. This amount is included in receivables.

10. OPERATING SEGMENTS

The Company operates in one reportable business segment: the exploration and development of unproven exploration and evaluation assets and royalty assets. Details on a geographic basis are as follows:

			July 31, 2019
		US	Total
	4,417,659-	$	30,6311,150,000	$	4,448,2901,150,000
	-		-		23,691,708-
	4,417,659	$	24,872,339	$	29,289,998
			US		Total
$	257,308	$	85,645		$342,953
	-		19,817,496		19,817,496
	-		23,691,708		23,691,708
	-		-		-
	-		-		-
$	257,308	$	43,594,849	$	43,852,157
		Canada-Canada		23,691,708July 31, 2018

11. SUPPLEMENTAL CASH FLOW INFORMATION

The following significant non-cash transactions have been excluded from the consolidated statements of cash flows:

As at July 31, 2019, exploration and evaluation expenditures incurred of $376 (July 31, 2018 – $6,055) are included under accounts payable and accrued liabilities.

12. COMMITMENTS

The Company has an operating lease commitment for office premises in Vancouver, British Columbia annual rent payments of $38,219 to July 31, 2021, and annual rent payments of $39,575 to July 31, 2023.

The Company has an operating lease commitment for office premises in Weiser, Idaho, requiring basic annual rent payments of US$36,150 subject to the closing price of gold (COMEX) per ounce ("oz") payable to March 31, 2021 as follows:

Annual rent If the closing price of gold on the last trading day of each month exceeds US$1,400/oz US$42,150 Annual rent If the closing price of gold on the last trading day of each month exceeds US$1,800/oz US$48,150 Annual rent If the closing price of gold on the last trading day of each month exceeds US$2,200/oz US$54,150

Minimum payments relating to the above commitments in each of the next five fiscal years are as follows (based on the closing price of gold of less than US$1,400/oz):

2020	$85,749
2021	$69,774
2022	$39,575
2023	$39,575

13. FINANCE COSTS

The Company's finance fees for the period ended July 31, 2019 were $1,524,351, which were comprised of accretion costs associated with the convertible debenture (Note 6).

14. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT

Financial instruments are classified into one of the following categories: fair-value-through-profit or loss ("FVTPL"); fair value through other comprehensive income ("FVOCI"); and amortized cost. The carrying values of the Company's financial instruments are classified into the following categories:

		July 31,	July 31,
Financial Instrument	Category	2019	2018
Cash	FVTPL	$4,365,241	$285,044
Receivables	Amortized cost	64,227	33,130
Accounts payable and accrued liabilities	Amortized cost	(537,031)	(171,330)
Convertible debenture	Amortized cost	(12,448,629)	(10,825,371)
Convertible debenture derivative	FVTPL	(4,925,109)	(1,848,287)

The Company's financial instruments recorded at fair value require disclosure about how the fair value was determined based on significant levels of inputs described in the following hierarchy:

• Level 1 Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions occur in sufficient frequency and value to provide pricing information on an ongoing basis.
• Level 2 Pricing inputs are other than quoted prices in active markets included in Level 1. Prices in Level 2 are either directly or indirectly observable as of the reporting date. Level 2 valuations are based on inputs including quoted forward prices for commodities, time value and volatility factors, which can be substantially observed or corroborated in the marketplace.

14. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (Cont'd)

Level 3 - Valuations in this level are those with inputs for the asset or liability that are not based on observable market data.

The Company's fair value of cash is measured using Level 1 inputs. The recorded amounts for receivables, accounts payable and accrued liabilities approximate their fair value due to their short-term nature. The convertible debenture derivative under the fair value hierarchy is measured using level 2 inputs.

The Company's risk exposures and the impact on the Company's financial instruments are summarized below:

(a) Credit risk

Credit risk is the risk of financial loss to the Company if a counterparty to a financial instrument fails to meet its contractual obligations. The Company's receivables predominately relate to receivables from goods and services input tax credits. Accordingly, the Company views credit risk on receivables as minimal, as it is primarily from an agency of the Government of Canada. The Company is also exposed to credit concentration risk by holding cash. This risk is minimized by holding the investments in large financial institutions or with the Government of Canada.

(b) Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulties meeting its financial obligations as they become due. The Company's approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities and property commitments when due, under both normal and stressed conditions without incurring unacceptable losses or risking harm to the Company's reputation.

The Company prepares annual expenditure budgets, which are regularly monitored and updated as considered necessary. Management attempts to ensure sufficient cash or liquid investments are available to satisfy budgeted expenditures.

(c) Market risk

Market risk consists of currency risk, commodity price risk and interest rate risk. The objective of market risk management is to manage and control market risk exposures within acceptable limits while maximizing returns.

(i) Currency risk

Foreign currency exchange rate risk is the risk that the fair value or future cash flows will fluctuate as a result of changes in foreign exchange rates. Although the Company is considered to be in the exploration stage and has not yet developed commercial mineral interests, the underlying market prices in Canada for minerals are impacted by changes in the exchange rate between the Canadian and the United States Dollar. The Company's exploration and evaluation costs are denominated in Canadian Dollars and United States Dollars. The Company has not entered into any arrangements to hedge its currency risk but does maintain cash balances within each currency.

(i) Currency risk

During the year, the Company maintained a portion of its cash balance and a significant portion of its debt in United States Dollars. There is a risk that the Company's cash balance may be reduced and that the amount owing at maturity of the Company's debt may be increased on a fluctuation in the relevant exchange rate.

TERRACO GOLD CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JULY 31, 2019 AND 2018 (Expressed in Canadian Dollars)

14. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (Cont'd)

(ii) Commodity price risk

Commodity price risk is the risk that the fair value of financial assets and financial liabilities or expected future cash flows will fluctuate as a result of changes in commodity prices. Commodity prices for minerals are impacted by world economic events that dictate the levels of supply and demand as well as the relationship between the Canadian and United States Dollars, as outlined above. As the Company has not yet developed commercial mineral interests, it is not exposed to commodity price risk at this time. However, the Company is exposed to commodity price risk as it impacts the Company's access to capital and funding.

(iii) Interest rate risk

Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. The risk that the Company will realize a loss as a result of a decline in the fair value of cash and term deposits is limited because of their short-term investment nature. A variable rate of interest is earned on cash; changes in market interest rates at the year-end would not have a material impact on the Company's financial statements.

15. CAPITAL MANAGEMENT

The Company's objectives when managing capital are to safeguard the Company's ability to continue as a going concern and to maintain a flexible capital structure which will allow it to pursue the continued development of its mineral properties. Therefore, the Company monitors the level of risk associated with its mineral property expenditures relative to its capital structure.

The Company considers its capital structure to include working capital and shareholders' equity. The Company monitors its capital structure and makes adjustments in light of changes in economic conditions and the risk characteristics of the underlying assets and capital markets. In order to facilitate the management of capital and the development of its mineral properties, the Company prepares annual expenditure budgets which are regularly monitored and updated as considered necessary.

To maintain or adjust the capital structure, the Company may issue new equity, if available, on favourable terms, option its mineral properties for cash and/or expenditure commitments from optionees, enter into joint venture arrangements, or dispose of mineral properties.

The Company's investment policy is to hold cash and term deposits in interest-bearing bank accounts and highly liquid short-term, interest-bearing investments with maturities of one year or less which can be liquidated at any time without penalties. The Company is not subject to externally imposed capital requirements. There has been no change in the Company's approach to capital management during the year ended July 31, 2019.

16. INCOME TAXES

(a) Temporary timing differences between the income tax basis and accounting cost result in the Company's potential deferred income tax assets and liabilities. Significant components of the Company's deferred income tax assets (liabilities) at July 31, 2019 and 2018 are as follows:

	2019	2018
Tax values of mineral properties and deferred costscompared to book values	$13,443,228	(8,268,244)
Tax values of property and equipment in excess of net bookvalue	52,229	52,229
Finance fees	7,975	3,257
Capital loss carry forwards	4,344,714	4,344,714
Non-capital loss carry forwards	18,877,229	16,938,793
	36,725,375	13,070,749
Estimated corporate income tax rate	22.50%	20.97%
Deferred income assets (liabilities)	8.262,408	2,741,583
Valuation allowance	(8,262,408)	(2,741,583)
Multijurisdictional deferred income tax liabilities	-	-
Deferred income tax assets (liabilities)	$-	-

• (b) The Company has available non-capital tax losses of approximately $18,877,229 (2018 $16,938,793), which expire at varying dates up to 2039. The Company has available capital losses of approximately $4,344,714 (2018 – $4,344,714). The potential benefit of the losses has been reduced to Nil in the consolidated financial statements by management's determination of a valuation allowance.
• (c) The actual income tax provision differs from the expected amount calculated by applying the combined Canadian and United States corporate income tax rate to the Company's income before income taxes. The components of these differences are as follows:

	2019	2018
Net income (loss) before income taxes	$(24,887,263)	$(585,214)
Expected tax recovery at 27.0% (2018 – 27.0%)Permanent and other differencesChange in valuation allowanceImpact of tax rate changesOther	(6,719,561)1,244,3185,582,708(8,764)(98,701)	(158,008)(25,288)(619,014)547,830253,800
	$-	$(680)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JULY 31, 2019 AND 2018 (Expressed in Canadian Dollars)

17. EARNINGS/(LOSS) PER SHARE

	July 31, 2019	July 31, 2018
Income/(loss)
Net income/(loss) for the yearInterest on convertible debentureFair value gain/(loss) on convertible debenture	$(24,887,263)(i)(i)	(585,214)(i)(i)
Foreign exchange gainInterest paid	(i)(i)	(i)(i)
Diluted income/(loss) for the year	$(24,887,263)	(585,214)
Number of shares
Weighted average number of sharesConvertible debenture	148,610,201(i)	146,055,795(i)
Diluted weighted average number of shares	148,610,201	146,055,795
Diluted income/(loss) per share	$(0.17)	(0.00)
(i)The convertible debenture was anti-dilutive for this period.

18. COMPARATIVE FIGURES

Certain of the 2018 comparative figures have been reclassified to conform to current presentation.

19. EVENT AFTER THE REPORTING PERIOD

On August 19, 2019, the Company announced the completion of a transaction between the Company and Sailfish Royalty Corp. ("Sailfish"). In connection with the transaction, Sailfish acquired all of the issued and outstanding shares of the Company in exchange for consideration of 0.12 of a common share of Sailfish (each full share, a "Sailfish Share") for each Terraco Share, pursuant to a court approved plan of arrangement. Additionally, Sailfish has repaid in full the US$12,031,055 outstanding senior unsecured convertible debenture held by Solidus Resources, LLC, a wholly-owned subsidiary of Waterton Precious Metals Fund II Cayman, LP (the "Debenture").

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

For the three and nine months ended April 30, 2019 and 2018

(Unaudited - Expressed in Canadian Dollars)

TSXV: TEN

Notice of No Auditor Review of Interim Financial Statements

Under National Instrument 51-102, Continuous Disclosure Obligations, Part 4, subsection 4.3(3) (a), if an auditor has not performed a review of the interim financial statements, they must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor.

The accompanying unaudited condensed interim financial statements of the Company have been prepared by and are the responsibility of the Company's management.

The Company's independent auditor has not performed a review of these financial statements in accordance with standards established by the Chartered Professional Accountants of Canada for a review of interim financial statements by an entity's auditor.

INDEX

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION 1
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS 2
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS 3
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY 4

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(Unaudited - Expressed in Canadian Dollars)

	April 30,2019	July 31,2018
ASSETS
Current assetsCash	$50,921	$285,044
Receivables	30,736	33,130
Prepaid expenses and deposits	24,537	24,779
	106,194	342,953
Royalty interests (Note 6)	23,691,708	23,691,708
Exploration and evaluation assets (Note 3)	19,940,308	19,817,496
	$43,738,210	$43,852,157
LIABILITIESCurrent liabilities
Accounts payable and accrued liabilities	$429,352	$171,330
Promissory note (Note 8)	75,986	-
	505,338	171,330
Convertible debenture (Note 4)	12,299,566	10,825,371
(i)Convertible debenture derivative (Note 5)	2,632,979	1,848,287
	15,437,883	12,844,988
SHAREHOLDERS' EQUITY
Capital (Note 7)	37,360,271	37,360,271
Contributed surplus	8,129,105	8,010,735
Deficit	(17,189,049)	(14,363,837)
	28,300,327	31,007,169
	$43,738,210	$43,852,157

NATURE OF OPERATIONS AND GOING CONCERN (Note 1) COMMITMENTS (Notes 3 and 9) EVENTS AFTER THE REPORTING PERIOD (Note 13)

These condensed interim consolidated financial statements were approved for issue by the Audit Committee of the Board of Directors on June 20, 2019 and are signed on its behalf by:

Signed: "Todd Hilditch" , Director

Signed: "Alfred Fischer" , Director

Footnotes:

(i) The Convertible Debenture Derivative is valued at fair value in accordance with IFRS. There are no circumstances in which the Corporation would be required to pay cash upon conversion of the Convertible Debenture. See Note 5.

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS THREE AND NINE MONTHS ENDED APRIL 30, 2019 AND 2018 (Unaudited - Expressed in Canadian Dollars)

	Three-monthPeriod EndedApril 30,2019	Three-monthPeriod EndedApril 30,	Nine-monthPeriod EndedApril 30,20182019	Nine-monthPeriod EndedApril 30,2018
Accounting and auditConsulting fees (Note 8)InsuranceInvestor relationsLegal and professional feesSalaries, wages, office and sundry (Note 8)Property investigationReclamation costsShareholder informationShare-based payments (Note 7 and 8)TelephoneTransfer agent and filing feesTravel	$1,68988,3504,24930,3678,56425,200--(4,631)30,7931,1458,8562,394	2,75075,7675,1011,83824,43031,09412,696(450)8,4961,415	$8,919265,92112,04637,20813,40371,073--(55)3,989785118,3705533,11621,70611,730	$5,114187,26714,5314,00225,10389,20653,584642,4944,4012,58917,4804,762
INCOME (LOSS) BEFORE OTHER ITEMS	(196,976)	(164,420)	(567,481)	(410,597)
OTHER ITEMSChange in fair value of convertible debenture(i)derivative (Note 5)Finance feeForeign exchangeImpairment recoveryInterest income and otherGain on sale of investments	(1,231,735)(367,607)(250,421)-107-	266,825(309,312)(406,516)11,056	(784,692)(1,119,206)(354,714)-703881--	1,280,693(940,079)(251,571)11,0563,05123,170
NET INCOME (LOSS) BEFORE INCOME TAXES	(2,046,632)	(601,664)	(2,825,212)	(284,277)
INCOME TAXESFuture income tax recovery (expense)	-		--	(680)
NET LOSS AND COMPREHENSIVE LOSS FORTHE PERIOD	(2,046,632)	(601,664)	(2,825,212)	(284,957)
EARNINGS (LOSS) PER SHARE, BASIC ANDDILUTED	(0.01)	$	0.00$(0.02)	$0.00
WEIGHTED AVERAGE SHARES OUTSTANDING	146,055,795	146,055,795	146,055,795	146,055,795

Footnotes:

(i) The Convertible Debenture Derivative is valued at fair value in accordance with IFRS. There are no circumstances in which the Corporation would be required to pay cash upon conversion of the Convertible Debenture. See Note 5.

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED APRIL 30, 2019 AND 2018 (Unaudited - Expressed in Canadian Dollars)

		Period EndedApril 30,2019		Period EndedApril 30,2018
CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIESNet income (loss)Items not affecting cashChange in fair value of the convertible	$	(2,825,212) $		(284,957)
debenture derivativeFinance fees (Note 10)Deferred income tax expenseShare-based payments		784,6921,119,206-118,370		(1,280,693)940,0796804,401
Change in reclamation provisionGain on sale of investmentsUnrealized foreign exchange loss (gain) onconvertible debenture		--354,989		(10,925)(23,170)271,461
Changes in non-cash working capital balancesReceivablesPrepaid expenses and depositsAccounts payable and accrued liabilities		(447,955)2,394242264,453(180,866)		(383,124)9,416(9,146)1,096(381,758)
INVESTING ACTIVITIESSale of investmentsExploration and evaluation expendituresReclamation bonds and deposits		-(129,243)-		34,570(154,907)16,967
FINANCING ACTIVITIESPromissory note		(129,243)75,986		(103,370)-
INCREASE (DECREASE) IN CASH		(234,123)		(485,128)
CASH, BEGINNING OF PERIOD		285,044		886,302
CASH, END OF PERIOD	$	50,921	$	401,174
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid in cashIncome taxes paid in cash	$$	--	$$	--

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Unaudited - Expressed in Canadian Dollars)

	Number ofShares	CommonShares	ContributedSurplus	AccumulatedOtherComprehensiveIncome (Loss)	Deficit	Total Equity
Balance, July 31, 2017Share-based compensationUnrealized holding gain(loss) on available-for-sale	146,055,795-	$37,360,271-	$8,005,8054,401	$4,450-	$(13,778,623)-	$31,591,9034,401
securities, net of deferred income taxesNet income (loss) for the period	--	--	--	(4,450)-	-(284,957)	(4,450)(284,957)
Balance, April 30, 2018	146,055,795	$37,360,271	$8,010,206	$-	$(14,063,580)	$31,306,897
Balance, July 31, 2018Share-based paymentNet income (loss)for the period	146,055,795--	$37,360,271--	$8,010,735118,370-	$---	$(14,363,837)-(2,825,212)	$31,007,169118,370(2,825,212)
Balance, April 30, 2019	146,055,795	$37,360,271	$8,129,105	$-	$(17,189,049)	$28,300,327

TERRACO GOLD CORP. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED APRIL 30, 2019 AND 2018 (Unaudited - Expressed in Canadian Dollars)

1. NATURE OF OPERATIONS AND GOING CONCERN

Terraco Gold Corp. (the "Company" or "Terraco") was incorporated on November 28, 1995 under the Business Corporations Act (Alberta). The Company continued into British Columbia from Alberta on June 8, 2011 under the Business Corporations Act (British Columbia). The Company's common shares are listed on the TSX Venture Exchange (the "Exchange") under the trading symbol "TEN.V". The Company's principal office is located at #2390 – 1055 West Hastings Street, Vancouver, British Columbia, Canada, V6E 2E9.

The Company is a precious metals exploration and royalty company engaged in the acquisition and exploration of mineral properties and the acquisition of royalty assets. The Company currently has exploration properties and royalty assets in the United States of America. To date, no mineral development projects have been completed and no commercial development or production has commenced.

The Company is primarily in the exploration stage with respect to its mineral properties. Based on the information available to date, the Company has not yet determined whether its mineral properties contain economically recoverable reserves. The recoverability of the amounts shown for exploration and evaluation costs is dependent upon the discovery of economically recoverable reserves, the ability of the Company to obtain necessary financing to successfully complete their exploration and development programs and ultimately upon future profitable production.

These condensed interim consolidated financial statements have been prepared on a going concern basis which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. Management believes the Company has sufficient funding available to continue exploration plans for the Company's mineral property interests and to continue normal operations over the next 12 months. The continuing operations of the Company are dependent upon economic and market factors which involve uncertainties including the Company's ability to raise adequate equity financing for future exploration programs and continuing operations. These uncertainties may cast significant doubt upon the Company's ability to continue as a going concern. There can be no assurance that capital will be available, as necessary, to meet the Company's operating commitments and further exploration and development plans.

	April 30,2019	July 31,2018
Deficit	$17,189,049	$14,363,837
Working capital (deficit)	$(399,144)	$171,623

2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

(a) Statement of compliance

The Company's condensed interim consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") applicable to the preparation of interim statements, including IAS 34, Interim Financial Reporting, as issued by the International Accounting Standards Board ("IASB").

The accounting policies followed in these condensed interim consolidated financial statements are consistent with those applied in the Company's annual consolidated financial statements for the year ended July 31, 2018. These condensed interim consolidated financial statements should be read in conjunction with the Company's annual consolidated financial statements for the year ended July 31, 2018 which have been prepared according to IFRS as issued by the IASB. The Audit Committee of the Board of Directors authorized for publication the condensed interim consolidated financial statements on June 20, 2019.

TERRACO GOLD CORP. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED APRIL 30, 2019 AND 2018 (Unaudited - Expressed in Canadian Dollars)

2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Cont'd)

• (b) Significant Accounting Policies adopted
  • (i) Effective on January 1, 2018, the Company adopted IFRS 9 Financial Instruments ("IFRS 9") using the modified retrospective approach. IFRS 9 did not affect the Company's classification and measurement of financial assets and financial liabilities. IFRS 9 also did not affect the carrying amounts of the Company's financial instruments at the transition date.

IFRS 9 uses a single approach to determine whether a financial instrument is classified and measured at amortized cost or fair value. The classification and measurement of financial assets is based on the Company's business models for managing its financial assets and whether the contractual cash flows represent solely payments for principal and interest. Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward in IFRS 9.

• (ii) Effective on January 1, 2018, the Company adopted IFRS 15, "Revenue from Contracts with Customers". The Company reviewed the impact of IFRS 15, and there were no changes as the Company has not incurred revenue to date.
• (c) Significant Accounting Policies not yet adopted
  • (i) IFRS 16 Leases. In January 2016, the IASB issued IFRS 16 which replaces IAS 17 Leases and its associated interpretative guidance. IFRS 16 applies a control model to the identification of leases, distinguishing between a lease and a service contract on the basis of whether the customer controls the asset being leased. For those assets determined to meet the definition of a lease, IFRS 16 introduces significant changes to the accounting by lessees, introducing a single, on-balance sheet accounting model that is similar to current finance lease accounting, with limited exceptions for short-term leases or leases of low value assets. Lessor accounting remains similar to current accounting practice. The standard is effective for annual periods beginning on or after January 1, 2019, with early application permitted for entities that apply IFRS 15.

Management is currently assessing the impact of this new standard on the Company's accounting policies and consolidated financial statement presentation.

3. EXPLORATION AND EVALUATION ASSETS

(a) Almaden (Nutmeg Mountain) Property

On January 25, 2011, the Company acquired all of the outstanding securities of Western Standard Metals Ltd. ("Western") in an all-share transaction by way of a plan of arrangement. Accordingly, the Company acquired a 100% interest in the Almaden (Nutmeg Mountain) Property comprising 12 leased patented lode mining claims (approximately 248 acres), 208 unpatented lode mining claims (approximately 4,150 acres) and approximately 280 acres of private fee ground located in Washington County, Idaho.

The Company has paid a total of US$248,640 in future minimum payments to date.

The minimum future payments required to maintain the leased patented lode mining claims over the next 5 years are as follows:

• US$35,520 cash before fiscal year ended July 31, 2019 (paid);
• US$35,520 cash before fiscal year ended July 31, 2020;
• US$24,000 cash before fiscal year ended July 31, 2021;
• US$24,000 cash before fiscal year ended July 31, 2022;
• US$24,000 cash before fiscal year ended July 31, 2023; and
• US$384,000 thereafter

3. EXPLORATION AND EVALUATION ASSETS (Cont'd)

During the year ended July 31, 2012, the Company staked an additional 2 unpatented mining claims in the surrounding area.

The Almaden Property is subject to a 4% net proceeds royalty interest payable to underlying property owners, a 1% net smelter return ("NSR") royalty (for gold prices equal to or less than US$425/oz.) or 2% (for gold prices greater than US$425/oz.) payable to Royal Gold Inc. and a 0.5% NSR royalty payable to a strategic investor (Note 6).

Exploration and evaluation asset activity during the period/year:

	PeriodEndedApril 30,2019	Activity	YearEndedJuly 31,2018	Activity	YearEndedJuly 31,2017
Almaden (Nutmeg
Mountain Gold)
Property
Property acquisition
costs and option
payments	$14,045,558	$-	$14,045,558	$-	$14,045,558
Property
maintenance costs	698,608	89,342	609,266	85,735	523,531
Engineering andconsulting	1,291,016	9,054	1,281,962	50,485	1,231,477
Assays, surveys
and analysis	361,855	-	361,855	-	361,855
Environmental	31,003	(9,054)	40,057	-	40,057
Drilling	2,486,933	-	2,486,933	-	2,486,933
PEA	77,333	-	77,333	-	77,333
Communications,
field supplies and
expenses	948,002	33,470	914,532	38,039	876,493
Total exploration and
evaluation assets	$19,940,308	$122,812	$19,817,496	$174,259	$19,643,237

4. CONVERTIBLE DEBENTURE

On June 15, 2016, TGC Holdings Inc. ("TGC") issued a senior unsecured convertible debenture (the "Debenture") for gross proceeds of approximately $15.53 (USD$12.03) million. The Debenture bears interest at a rate of 0.05% per annum, payable annually in cash, and has a maturity date of June 15, 2021 (the" Maturity Date"). On the Maturity Date, the outstanding amount of the Debenture is due and payable in either cash or by converting the outstanding amount into common shares of the Company at the market price on the Maturity Date. The Company has guaranteed all amounts under the Debenture.

The holder of the Debenture ("Holder") may convert any portion of the Debenture into:

• common shares of the Company at a price of C$0.18 per share (the "Parent Conversion Option");
• common shares of TGC based on the following formula: (amount to be converted) multiplied by (45) divided by US$12.03 million (the "Subsidiary Conversion Option"). Assuming full conversion, the holder of the Debenture can convert into a maximum of 45% of TGC; or
• any combination of the Parent Conversion Option or the Subsidiary Conversion Option.

From June 15, 2016 to June 15, 2020, the Holder will be prohibited from owning greater than 19.99% of the Company. During the term of the Debenture, Company shareholder approval will be required should the holder wish to exercise the Parent Conversion Option to acquire 20% or more of the Company's common shares.

4. CONVERTIBLE DEBENTURE (Cont'd)

Further, commencing on June 15, 2019, provided the Company's common shares trade at or above $0.40 for twenty consecutive days, TGC shall be permitted to redeem all or any portion of the Debenture in exchange for the Company's common shares. The Holder has the right to participate in any future equity or convertible debt offerings of the Company to maintain its pro-rata ownership as long as the Holder owns (or can convert into) less than 5% of the issued and outstanding shares of the Company ("Equity Participation Right").

The Holder additionally agrees for a period of three years from June 15, 2016, to vote all Company common shares held in accordance with the recommendations of the Company's Board of Directors except in the event that: (i) an event of default under the Debenture has occurred; or (ii) a change of control of the Company has been proposed or announced. During the first three years following June 15, 2016, the Holder will be prohibited from making any purchases or any unsolicited offers to acquire any common shares of the Company, except with respect to the Parent Conversion Option and the Equity Participation Right.

The Debenture has been deemed to contain an embedded derivative ("Debenture Derivative") relating to the Parent Conversion Option. The Debenture Derivative was valued upon initial recognition using the residual approach at approximately $6.99 million (Note 5). At inception, the gross proceeds of the Debenture were reduced by the estimated fair value of the Debenture Derivative (approximately $6.99 million) and the transaction costs related to the Debenture of (approximately $0.40 million) resulting in a balance of approximately $8.14 million. The Debenture is measured at amortized cost and will be accreted to maturity over the term using the effective interest method.

The components of the Debenture are summarized as follows:

	ConvertibleDebenture
Balance, July 31, 2018	$ 10,825,371
Accretion	1,119,206
Foreign exchange adjustments	354,989
Balance, April 30, 2019	$ 12,999,566

5. CONVERTIBLE DEBENTURE DERIVATIVE

The Convertible Debenture Derivative related to the Convertible Debenture (Note 4) was valued upon initial recognition at a fair value of approximately $6.99 million using the residual value approach and is subsequently at each period end re-measured at fair value through the statement of net loss and comprehensive loss using the Black Scholes valuation method. The fair value upon initial recognition was reduced by the transaction costs related to the Debenture Derivative of approximately $0.32 million, resulting in a balance of approximately $6.67 million.

The components of the Debenture Derivative are summarized as follows:

	ConvertibleDebentureDerivative
Balance, July 31, 2018Fair value adjustments including foreign exchange	$1,848,287784,692
Balance, April 30, 2019	$2,632,979

5. CONVERTIBLE DEBENTURE DERIVATIVE (Cont'd)

Upon conversion of the Debenture, the fair value of the Debenture Derivative and the carrying value of the Debenture will be reclassified to share capital. There are no circumstances in which the Company would be required to pay any cash upon conversion of the Debenture.

The fair value of the Debenture Derivative was calculated using the Black Scholes valuation method. The assumptions used in the valuation model include:

	April 30,	July 31,
	2019	2018
Risk-free interest rate	1.56%	2.10%
Expected term (years)	2.13	2.88
Share Price	$0.09	$0.08
Expected share price volatility	90.57%	72.10%

6. ROYALTY INTERESTS

Spring Valley Royalty #1

On December 21, 2011, the Company entered into an Assignment and Option Agreement ("Assignment and Option Agreement") pursuant to which a wholly-owned subsidiary acquired an option to purchase a 2.5% NSR sliding scale royalty on a portion of the Spring Valley Gold Project ("Spring Valley Project") located in Pershing County, Nevada and received in cash US$5,000,000. The Spring Valley Project is 100% owned and controlled by Waterton Global Resource Management ("Waterton"). The terms of the option provide the Company with the ability to purchase a 2.5% NSR sliding scale royalty on a portion of the Spring Valley Project for US$12,500,000 for a period of 5 years from the closing of the transaction or within 1 year of a change of control of the Company. In exchange for the option, the Company issued a 1% NSR royalty on its Moonlight Property; a 0.5% NSR royalty (and up to a 1.0% NSR royalty in certain circumstances) on its Almaden Property; an off-take for 30% of the minerals produced from the Almaden (Nutmeg Mountain) Property during the life of the mine; and 1,000,000 share purchase warrants with an exercise price of $0.35 per share for a period of 5 years, subject to early expiry at the discretion of the Company, if the Company shares trade at $0.70 or higher for 20 consecutive trading days. The fair value attributed to the share purchase warrants was estimated to be $228,399 using the Black-Scholes option-pricing model with the following assumptions: expected warrant life of 5 years, risk-free interest rate of 1.15%, dividend yield of 0% and expected volatility of 151%. The Company incurred a success fee of $300,000 (paid) in conjunction with this transaction.

NSR sliding scale royalty:

Gold Price (US$ per oz)	Terraco Royalty Option
<$300	0.71%
$300-$399	1.07%
$400-$499	1.43%
$500-$599	1.79%
$600-$699	2.14%
$700+	2.50%

On June 15, 2016, the Company exercised the Spring Valley Royalty Option #1, under the Assignment and Option Agreement dated December 21, 2011. As a result of the exercise of the Spring Valley Royalty Option #1, the Company has paid US$12,500,000, and in return the Company received a 2.5% NSR sliding scale royalty on a portion of the Spring Valley Project.

TERRACO GOLD CORP. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED APRIL 30, 2019 AND 2018 (Unaudited - Expressed in Canadian Dollars)

6. ROYALTY INTERESTS (Cont'd)

Spring Valley Royalty #2

On March 8, 2012, the Company entered into a Royalty Assignment, Purchase and Option Agreement pursuant to which a wholly-owned subsidiary acquired an option to acquire a 0.5% NSR royalty on a portion of the Spring Valley Project. The terms of the option provide the Company with the ability to purchase a 0.5% NSR royalty on a portion of the Spring Valley Project for US$983,211 for a period of 5 years from the closing of the transaction or within 1 year of a change of control of the Company.

On June 15, 2016, the Company exercised the Spring Valley Royalty Option #2 under the Royalty Assignment, Purchase and Option Agreement dated March 8, 2012. As a result of the exercise of the Spring Valley Royalty Option #2, the Company has paid US$983,211, and in return the Company received a 0.5% NSR royalty on a portion of the Spring Valley Project.

Spring Valley Royalty #3

On March 8, 2012, the Company entered into a Royalty Assignment, Purchase and Option Agreement ("Royalty Assignment, Purchase and Option Agreement") pursuant to which the Company acquired a 0.5% NSR royalty from a strategic partner on a portion of the Spring Valley Project in exchange for 2,500,000 common shares with an estimated fair value of $587,500. The Company issued 2,500,000 common shares as consideration for the full purchase price.

Spring Valley Royalty #4

On April 21, 2013, the Company entered into a Royalty Purchase Agreement ("RPA") and a Royalty Purchase and Option Agreement ("RPOA") pursuant to which a wholly-owned subsidiary acquired for US$4,200,000 and sold for US$5,200,000 a 1.0% NSR sliding scale royalty on a portion of the Spring Valley Project while retaining an option to acquire a NSR sliding scale royalty on a portion of the Spring Valley Project.

The terms of the option provide the Company with the ability to purchase a 0.5% NSR sliding scale royalty on a portion of the Spring Valley Project for US$2,600,000 for a period of 3.7 years from the closing of the transaction (expiring on December 30, 2016) or within 1 year of a change of control of the Company. Pursuant to the RPA and RPOA, the Company issued 800,000 common shares as consideration with an estimated fair value of $88,000 and received a net cash infusion of US$1,000,000.

NSR sliding scale royalty:

Gold Price (US$ per oz)	Terraco Royalty Option
<$300	0.14%
$300-$399	0.21%
$400-$499	0.29%
$500-$599	0.36%
$600-$699	0.43%
$700+	0.50%

On June 15, 2016, the Company exercised the Spring Valley Royalty Option #4 under the Royalty Purchase Agreement ("RPA") and a Royalty Purchase and Option Agreement ("RPOA") dated April 21, 2013. As a result of the exercise of the Spring Valley Royalty Option #4, the Company has paid US$2,600,000, and in return has received a 0.5% NSR sliding scale royalty on a portion of the Spring Valley Project.

Spring Valley Royalty #5

On December 21, 2011, the Company issued 4,000,000 common shares at an estimated fair value of $1,020,000 to acquire a right of first refusal ("ROFR") on a separate 1% area of interest royalty located on the Spring Valley Project.

TERRACO GOLD CORP. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED APRIL 30, 2019 AND 2018 (Unaudited - Expressed in Canadian Dollars)

6. ROYALTY INTERESTS (Cont'd)

Spring Valley Royalty #5 (Cont'd)

On February 1, 2017, the Company exercised its ROFR to acquire, from the Schmidt Family Mining Partnership LLC, an additional 1% net smelter returns royalty on certain lands within a one-half mile perimeter ("Perimeter NSR") of the Schmidt Claim Block included in the Spring Valley Project. The ROFR, upon exercise, was subject to an option with RK Mine Finance ("Red Kite") whereby Red Kite's wholly owned subsidiary, EXP2 LLC, could purchase 50% of the 1% Perimeter NSR from TGC (net 0.5% NSR royalty) on the same terms of the TGC purchase price. Red Kite has concurrently exercised its option and has purchased 50% of the Perimeter NSR with TGC retaining the other 50% or 0.5% NSR royalty.

In conjunction with the acquisition of the Perimeter NSR, both the Company and Red Kite have each separately paid $742,466 (US$567,895) for 0.5% of the Perimeter NSR.

Moonlight Property Royalty

On June 15, 2016, the Company entered into definitive agreements with Solidus Resources, LLC (Solidus"), a whollyowned subsidiary of Waterton, pursuant to which Solidus acquired 100% of the Company's claims, leases, title and mineral rights proximate to the Spring Valley Project, including the Company's previously owned Moonlight Property located adjacent to the north of the Spring Valley Project but excluding certain royalties held by the Company, in exchange for US$7,000,000 in cash and a 2% NSR on the Moonlight Property.

The Moonlight Property is comprised of 95 parcels of private fee lands for 3,760 gross acres (including 1,170 net surface acres and 2,952.5 net mineral acres) as well as 3 mineral leases of private fee lands comprising 180 acres and 3 leases of patented mining claims amounting to 393.8 acres, plus 230 unpatented lode mining claims totaling approximately 4,560 acres for a total property position of approximately 8,894 gross acres (including 6,304 nest surface acres and 8,056 net mineral acres).

As at April 30, 2019, the Company had capitalized acquisition costs of $23,691,708 (July 31, 2018 - $23,691,708) under royalty interests.

7. CAPITAL

(a) Authorized:

Unlimited number of voting common shares Unlimited number of non-voting preferred shares, none issued and outstanding

(b) Share purchase options

As at April 30, 2019, the Company had outstanding share purchase options enabling holders to acquire common shares of the Company as follows:

		Price per
Number	Vested	share	Expiry date
5,051,000	5,051,000	$0.16	June 9, 2019 (i)
4,050,000	4,050,000	$0.12	November 26, 2020
300,000	300,000	$0.18	August 15, 2021
250,000	250,000	$0.13	December 29, 2021
3,900,000	2,175,000	$0.07	October 30, 2023
13,551,000	11,826,000

(i) On June 7, 2019, the Company announced that it received TSX Venture Exchange acceptance to extend the expiry date of 5,051,000 share purchase options to June 9, 2020 from June 9, 2019.

7. CAPITAL (Cont'd)

(b) Share purchase options (Cont'd)

A summary of the Company's options and the changes for the period/year are as follows:

	April 30,2019		July 31,2018
		WeightedAverageExercise		WeightedAverageExercise
	Number	Price	Number	Price
Outstanding, beginning of the period/yearGrantedExercisedExpired	12,576,0003,900,000-(2,925,000)	$0.140.07-(0.11)	12,576,000---	$0.14---
Outstanding, end of the period/year	13,551,000	$0.12	12,576,000	$0.14

During the period ended April 30, 2019, 2,925,000 options expired without exercise and 3,900,000 options were granted to certain directors, officers, employees and consultants of the Company. The options have an exercise price of $0.07 per common share and expire on October 30, 2023. The weighted average grant-date fair value of the stock options granted during the period ended April 30, 2019 is $0.05.

The weighted average fair value of the stock options granted was determined by using the Black-Scholes option pricing model with the following assumptions:

	Period endedApril 30, 2019	Year endedJuly 31, 2018
Risk-free interest rate	2.39%	-
Estimated volatility	73.95%	-
Expected life	4.25 years	-
Expected dividend yield	Nil	-

The Company has a share purchase option plan under which directors, officers, employees and consultants of the Company are eligible to receive share purchase options. The aggregate number of shares available to be issued upon the exercise of all share purchase options granted under the plan shall not exceed 10% of the issued and outstanding shares of the Company. The plan limits the maximum number of share purchase options issuable in any one 12-month period to any one optionee to 5% of the total common shares outstanding. The Board of Directors shall determine the terms and provisions of the options at the time of grant. The exercise price of each share purchase option shall not be less than the market price of the common shares on the date of the grant less the discount permitted by the Exchange. The maximum term of share purchase options shall not exceed 10 years or such other term as permitted by the Exchange.

Option-pricing models require the use of estimates and assumptions including the expected volatility. Changes in the underlying assumptions can materially affect the fair value estimates and, therefore, existing models do not necessarily provide reliable measures of the fair value of the Company's share purchase options.

7. CAPITAL (Cont'd)

(c) Share purchase warrants

As of April 30, 2019, the Company had outstanding share purchase warrants enabling holders to acquire common shares of the Company as follows:

Expiry date	Exercise price per share	Number
July 31, 2019 (i)	$0.10	4,420,698
		4,420,698

(i) On July 28, 2017, the Company announced that it received TSX Venture Exchange acceptance to extend the expiry date of 4,420,698 warrants to July 31, 2019 from July 31, 2017.

A summary of the Company's share purchase warrants and the changes for the period/year are as follows:

	April 30,2019		July 31,2018
		WeightedAverageExercise		WeightedAverageExercise
	Number	Price	Number	Price
Outstanding, beginning of the period/yearExpired	4,420,698-	$0.10-	4,420,698-	$0.10-
Outstanding, end of the period/year	4,420,698	$0.10	4,420,698	$0.10

8. RELATED PARTY TRANSACTIONS

(a) Transactions with key management personnel

During the period ended April 30, 2019, the Company paid or accrued consulting fees of $225,000 (April 30, 2018 – $150,000) and salaries, wages, office and sundry fees of $13,500 (April 30, 2018 – $13,500) to officers and companies controlled by officers and/or directors of the Company.

During the period ended April 30, 2019, the Company paid engineering and consulting fees of US$Nil (April 30, 2018 - US$53,857) to companies controlled by an officer or director of the Company. Of these fees, US$Nil (April 30, 2018 - US$12,100) has been capitalized under exploration and evaluation assets as the fees were incurred directly for exploration and evaluation projects.

As at April 30, 2019, $376,587 (July 31, 2018 – $139,813) is payable to companies controlled by officers and/or directors of the Company, which is included in accounts payable and accrued liabilities.

As at April 30, 2019, $75,986 (July 31, 2018 - $Nil) is due to a company controlled by an officer and director of the Company in the form of an unsecured promissory note which is inclusive of accrued interest. The notes bear interest at 10% per annum on the unpaid principal amount, calculated annually and is payable on demand. The Company shall be entitled to prepay all or any part of the indebtedness evidenced by this promissory note without notice, bonus or penalty.

During the period ended April 30, 2019, the Company incurred share-based payments of $85,734 (April 30, 2018 – $Nil) to officers and directors of the Company.

TERRACO GOLD CORP. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED APRIL 30, 2019 AND 2018 (Unaudited - Expressed in Canadian Dollars)

8. RELATED PARTY TRANSACTIONS (Cont'd)

(b) Transactions with other related parties

As at April 30, 2019, $792 (July 31, 2018 – $1,098) is due from a Company with a director and officers in common. This amount is included in receivables.

9. COMMITMENTS

The Company has an operating lease commitment for office premises in Vancouver, British Columbia annual rent payments of $38,219 to July 31, 2021, and annual rent payments of $39,575 to July 31, 2023.

The Company has an operating lease commitment for office premises in Weiser, Idaho, requiring basic annual rent payments of US$36,150 subject to the closing price of gold (COMEX) per ounce ("oz") payable to March 31, 2021 as follows:

Annual rent If the closing price of gold on the last trading day of each month exceeds US$1,400/oz	US$42,150
Annual rent If the closing price of gold on the last trading day of each month exceeds US$1,800/oz	US$48,150
Annual rent If the closing price of gold on the last trading day of each month exceeds US$2,200/oz	US$54,150

Minimum payments relating to the above commitments in each of the next five fiscal years are as follows (based on the closing price of gold of less than US$1,400/oz):

2019	$21,837
2020	$86,743
2021	$70,434
2022	$39,575
2023	$39,575

10. FINANCE FEES

The Company's finance fees for the period ended April 30, 2019 were $1,119,206, which were comprised of accretion costs associated with the convertible debenture (Note 4).

11. FINANCIAL INSTRUMENTS – FAIR VALUE

Financial instruments are classified into one of the following four categories: fair-value-through-profit or loss ("FVTPL"); held-to-maturity investments; loans and receivables; and available-for-sale. The carrying values of the Company's financial instruments are classified into the following categories:

Financial Instrument	Category	April 30,2019	July 31,2018
CashFVTPLReceivablesAccounts payable and accrued liabilitiesConvertible debentureConvertible debenture derivativeFVTPLPromissory note	$Loans and receivablesOther liabilitiesOther liabilitiesOther liabilities	50,921$30,736(429,352)(12,299,566)(2,632,979)(75,986)	285,04433,130(171,330)(10,825,371)(1,848,287)-

11. FINANCIAL INSTRUMENTS – FAIR VALUE (Cont'd)

The Company's financial instruments recorded at fair value require disclosure about how the fair value was determined based on significant levels of inputs described in the following hierarchy:

• Level 1 Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions occur in sufficient frequency and value to provide pricing information on an ongoing basis.
• Level 2 Pricing inputs are other than quoted prices in active markets included in Level 1. Prices in Level 2 are either directly or indirectly observable as of the reporting date. Level 2 valuations are based on inputs including quoted forward prices for commodities, time value and volatility factors, which can be substantially observed or corroborated in the marketplace.
• Level 3 Valuations in this level are those with inputs for the asset or liability that are not based on observable market data.

The Company's fair value of cash and available-for-sale securities under the fair value hierarchy are measured using Level 1 inputs. The recorded amounts for receivables, accounts payable and accrued liabilities approximate their fair value due to their short-term nature. The recorded amount for the reclamation bonds approximates its fair value. The convertible debenture derivative under the fair value hierarchy is measured using level 2 inputs.

12. COMPARATIVE FIGURES

Certain 2018 comparative figures have been reclassified to conform to current presentation.

13. EVENTS AFTER THE REPORTING PERIOD

On May 30, 2019, the Company issued an unsecured promissory note to a company controlled by an officer and director of the Company in the amount of $25,000. The note bears interest at a rate of 10% per annum and is due on demand.

On June 7, 2019, the Company received TSX Venture Exchange acceptance to extend the expiry date of 5,051,000 share purchase options to June 9, 2020 from June 9, 2019.

On June 20, 2019, Sailfish Royalty Corp. ("Sailfish") and Terraco announced that on June 19, 2019, they have entered into a definitive arrangement agreement (the "Arrangement Agreement") pursuant to which Sailfish has agreed to acquire all of the issued and outstanding shares of Terraco (the "Terraco Shares") in exchange for consideration of 0.12 of a common share of Sailfish (each full share, a "Sailfish Share") for each Terraco Share, by way of a plan of arrangement under the Business Corporations Act (British Columbia) (the "Arrangement").

Under the terms of the Arrangement Agreement, each Terraco shareholder shall receive 0.12 of a Sailfish Share for each Terraco Share (the "Exchange Ratio"). Existing options and warrants to acquire Terraco shares will be converted into options and warrants to acquire Sailfish Shares, each in accordance with their terms.

Upon closing of the Arrangement, Todd Hilditch will be appointed to the board of directors of Sailfish.

The Arrangement will be carried out by way of a court-approved plan of arrangement and will require the approval of at least 66⅔% of the votes cast by Terraco shareholders at a special meeting (the "Meeting") expected to take place in August 2019. Closing of the Arrangement remains subject to applicable regulatory and court approvals and the satisfaction of certain other closing conditions.

The Arrangement Agreement includes customary provisions, including non-solicitation, right to match, and fiduciary out provisions, as well as other representations, covenants and conditions customary for transactions of this nature.

TERRACO GOLD CORP. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED APRIL 30, 2019 AND 2018 (Unaudited - Expressed in Canadian Dollars)

13. EVENTS AFTER THE REPORTING PERIOD (Cont'd)

A termination fee of $500,000 shall be payable upon the occurrence of certain terminating events.

The board of directors of Terraco, after receiving the unanimous recommendation of the special committee of independent directors of Terraco (the "Terraco Special Committee"), has approved the entering into of the Arrangement Agreement by Terraco and recommends that Terraco shareholders vote in favour of the Arrangement at the Meeting.

Each of the directors and officers of Terraco, representing a total of approximately 13.33% of the issued and outstanding shares of Terraco, have entered into a voting support agreement with Sailfish wherein they have agreed, among other matters, to vote in favour of the Arrangement at the Meeting. Full details of the Arrangement will be contained in a management information circular to be filed with regulatory authorities and mailed to Terraco shareholders in accordance with applicable securities laws prior to the Meeting.

Terraco is also pleased to announce a private placement at a price of $0.13 per Terraco Share for gross proceeds of approximately $4,717,183. The use of proceeds includes working capital, corporate expenses and potential royalty acquisitions. Upon closing of the private placement, it is expected that Wexford Capital LP will hold approximately 19.9% of the outstanding Terraco Shares on a non-diluted basis, subject to a third-party pre-emptive right to maintain its pro-rata interest. The private placement is not conditional on completion of the Arrangement, but is subject to TSX Venture Exchange approval.