2008 annuaL RePoRt · Drilling to date has been successful in outlining substantial zones of silica...

2 0 0 8 a n n u a L R e P o R t

2 0 0 8 a n n u a L R e P o R t

P R o f i L e

Gossan Resources Limited is engaged in the exploration and development of a broadly diversified portfolio of properties hosting gold, platinum group and base metals, as well as the specialty and minor metals - tantalum, lithium, chromium, titanium and vanadium. Gossan also holds a large deposit of magnesium-rich dolomite and a high-purity silica sand deposit. All of the properties are located in Manitoba and north-western Ontario. Gossan also holds a 47% equity interest in The Claims Network, a web-based pro-vider of loss assessment information to the Property & Casualty Insurance industry.Gossan trades on the TSX Venture Exchange under the symbol GSS and on the Frank-furt-Freiverkehr & the Xetra Exchanges under the symbol GSR. As at July 29, 2008, there were 29,020,900 common shares outstanding.

G o s s a n R e s o u R c e s

i s e n G a G e d i n t h e

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d e v e L o P m e n t o f a

c o m m o d i t y - d i v e R s e

P o R t f o L i o o f

P R o P e R t i e s h o s t i n G

P R e c i o u s , b a s e ,

s P e c i a L t y a n d

m i n o R m e t a L s .

a b o v e : G o s s a n a n d m a r a t h o n

p G m G e o l o G i s t s d i s c u s s i n G

b i r d r i v e r G e o l o G y

L e f t : d o u G l a s r e e s o n a n d

r y a n c o o k e o v e r s e e i n G d r i l l i n G

a t m a n i G o t a G a n

R i G h t : m a G n e s i u m

d o l o m i t e c o r e f r o m t h e

i n w o o d d r i l l p r o G r a m

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Dear Shareholders,

Over the past year the liquidity crisis resulting from the US credit crunch has precipitated a global flight from equity to cash. The junior resource sector in Canada has experienced particularly sharp declines in share prices even with high commodity prices and positive developments. Gossan remains well-funded and will husband its cash while continuing to move select projects forward during this period of financial uncertainty.

Gossan has made significant progress in the development of its commodity-diverse property portfolio over the past year. Meaningful drill programs were conducted at the Manigotagan Silica and the Bird River Project, the lat-ter funded by our partner Marathon PGM. Evaluation of the Zuliani Process for magnesium production has been advanced with successful completion of first-phase thermodynamic testing and second-phase bench scale testing has been contracted and is in progress.

In March of 2007, Gossan entered into an option and joint venture agreement on the Bird River Property with Marathon PGM Corporation. Marathon can earn an undivided 50% interest in the Bird River Property by spending $3.0 million on exploration and making cash payments of $500,000 to Gossan within four years. Thereafter, Mara-thon can earn a further 15% interest by completing a bankable feasibility study and an additional 5% interest, to a total 70% interest, by arranging project financing. Early in 2008, the property package was expanded to include the adjacent Ore Fault Property. Marathon undertook a drill program, comprised of 38 holes (6,938m), on both of these Bird River properties during the winter and into the spring of 2008. Based on the success of the drill program, initial NI 43-101 compliant resource estimates for the Page and Ore Fault North Zones are expected to be completed by year end.

In May of 2008, Gossan conducted a 26-hole sonic drill program at its Manigotagan Silica Property. This ini-tial program of sonic drilling yielded near-perfect 10-foot core sections with excellent recovery. The quality of the sampling, which was previously problematic, will have important economic implications for assessing the Property. Drilling to date has been successful in outlining substantial zones of silica sand with a thickness exceeding 5 metres and ranging to over 15 metres. Test results of various samples of Manigotagan silica sand have exceeded all of the minimum standards for frac sand used by the oil and gas industry. Frac sand is considered to be the highest and best use of material from this Property. Further testing is currently underway and the results from this analysis may lead to a scoping study.

In March of 2007, Gossan entered into a Memorandum of Understanding to acquire up to a 100% exclusive interest in the Zuliani Process for the worldwide rights to a new technology for the production of magnesium metal from dolomite. The Zuliani Process is designed to improve recoveries and reduce operating costs. Thermodynamic modelling of the process was successfully completed and the second-phase bench scale tests are currently proceeding at CANMET Laboratories. Magnesium prices have doubled over the past year and now exceed US $ 2.00 per pound. Gossan has initiated initial site and infrastructure planning for a production facility at Inwood where the Company has a substantial, high-purity magnesium dolomite deposit.

It is my pleasure to thank Gossan’s officers, directors, staff and consultants for their efforts and the Company’s shareholders, whom we serve, for their continuing support. Gossan is a unique company well positioned for a turn-around in the mineral resource sector. The outlook for magnesium, platinum and palladium, and frac sand will all benefit from the ongoing concern with high energy prices, global warming and the resultant effects upon the trans-portation industry.

July 29, 2008

Douglas ReesonPresident & Director

L e t t e R t o s h a R e h o L d e R s

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P R e c i o u s m e t a L s

b i R d R i v e R P R o j e c tPalladium/Platinum/base metals

The Bird River Property, which covers over 21 kilometres of the Bird River Sill Com-plex, is comprised of the Western (Ward’s - Coppermine) Extension and 4 separate faulted blocks of the Sill – the National Ledin, the Chrome and its Extension, the Peterson and the Page Blocks. This complex carries significant concentrations of pal-ladium and platinum along with nickel, copper, zinc and chromite. The Bird River Property is located about 40 km east of Lac Du Bonnet, Manitoba and, along the Sill, approximately 6 km west and northwest of Mustang Minerals’ Maskwa Deposit.

On March 26, 2007 the Company entered into an option and joint venture agree-ment on the Bird River Property with Marathon PGM Corporation (Marathon). Under the terms of the agreement, Marathon can earn an undivided 50% interest in the property by spending $3.0 million on exploration and making cash payments of $500,000 to the Company by April 30, 2011. Thereafter, Marathon can earn a further 15% interest by completing a bankable feasibility study and an additional 5% interest, to a total 70% interest, by arranging project financing.

On January 7, 2008, Marathon announced the Option & Joint Venture of the adjacent 446-hectare Ore Fault Property. The Ore Fault Property lies within the area of influence and is part of the Gossan-Marathon Option and Joint Venture Agreement. The two properties together are referred to as the Bird River Project.

Marathon undertook a major drill program on both of the Bird River properties during the winter and into the spring of 2008 with the goal of developing a NI 43-101 resource. The program was comprised of 38 holes (6,938m). At Gossan’s Property, 13 holes (2,047m) were drilled at the Page Block and 4 holes (582.4m) were drilled at the Galaxy Zone. At the Ore Fault Property which is part of the Gossan – Marathon joint venture, 21 holes (4,308m) were drilled at the Ore Fault North Zone.

Results from the 13 holes drilled at the Page Block confirm historic drill results and expand the known dimensions of the Page Zone mineralization. The current drill

program has established that the Page Zone is actu-ally much wider than previ-ously thought with thicker intersections of mineraliza-tion extending further to the south. The mineraliza-tion outlined to date dips to the south at a shallow angle making it ideal for potential extraction by open pit min-ing. Currently the maxi-mum thickness of the min-eralized sequence is known to be 180 metres.

R i G h t : c o r e c u t t i n G

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P R e c i o u s m e t a L s

s h a R P e L a K e P R o j e c tG o L d

Gossan’s Sharpe Lake Properties are located adjacent to Rolling Rock Resources’ (for-merly held by a Wolfden-Bema Gold Joint-venture) Monument Bay Project which straddles the Ontario border, approximately 560 km north-east of Winnipeg. Gos-san’s Properties are comprised of three exploration permits which cover 16,615 hectares (41,055 acres) along a strike length of 40 km.

Gossan has focused its attention on the Bear Showing at the west end of Sharpe Lake. The pervasive and intense alteration at the Bear Showing is highly significant and reflective of major hydrothermal fluid migration.

The Sharpe Lake Property and its Bear Showing is the subject of a National Instru-ment 43-101 Report which was filed with SEDAR on October 27, 2006. The Report is a compilation of the exploration programs that have been conducted on the property and recommends a drill program to investigate gold mineralization at the Bear Show-ing. Gossan intends to seek a joint venture partner to undertake the drill program. Work to date has identified co-incident geophysical and geochemical anomalies. With a minimum strike length of six kilometres bounded by bifurcations of the Stull Lake-Wunnummin Fault Zone, a major crustal break, the Bear zone is considered a high priority target for economic gold deposits.

Government geological mapping has confirmed that the Stull Lake-Wunnummin Fault Zone (SWFZ) in the Sharpe Lake area is the western strike-extension of the de-formation zone that transects the Monument Bay-Twin Lakes area where Rolling Rock Resources developed a 4.88 million ton resource grading 6.01 gpt for a total of 944,000 ounces of contained gold. The SWFZ and its related greenstone belt trend east-west under Sharpe Lake and transect Gossan’s Properties over a 40-km strike length.

W i t h c o - i n c i d e n t

G e o P h y s i c a L a n d

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a n o m a L i e s , t h e

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P R o P e R t y i s

d R i L L R e a d y

Marathon’s geological interpreta-tion from the Ore Fault North Zone drilling reveals that there are two sepa-rate mineralized systems. Nickel-Cop-per-PGM sulphide mineralization is hosted within north-west trending and moderately dipping ultramafic units of the Bird River Sill and north trending VMS-type Zinc-Silver-Copper miner-alization is hosted within near vertical quartz veins and associated chlorite-garnet schist. A total of 21 holes (4,308 m) were drilled at the Ore Fault North Zone.

Marathon intends to independently calculate NI 43-101 compliant resources at the Page Block and the Ore North Fault Zone. The Ore Fault Property is located adjacent to Mustang Mineral’s Maskwa deposit where a positive prefeasibility study was an-nounced on June 26, 2008.

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s P e c i a L t y m e t a L s

i n W o o d P R o j e c tmagnesium

The 1,635-hectare Inwood Magnesium Property is located in south-central Manitoba. In total Gossan’s regional land package covers 6,231 hectares in several claim blocks. The Company’s land position is designed is to hold all of the area’s near-surface beds of high-purity dolomite.

The Inwood Magnesium Project is being advanced based on high magnesium prices – currently over US $2.00 per pound - and the development of more efficient magne-sium extraction processes. Magnesium extraction technology is the current focus of this project. Gossan has acquired the option on the worldwide rights to a new modified magnesium extraction process.

On March 15, 2007, Gossan entered into a licensing arrangement for a new high efficiency magnesium production process being developed by Douglas J. Zuliani. The new process is based on an efficient adaptation of the Magnetherm process. The Zuliani process is designed to achieve operating cost savings by process efficiency improve-ments that significantly reduce both energy and key raw material requirements. These enhancements to the traditional Magnetherm method should materially improve both magnesium recovery and silicon reduction efficiency without the need for a vacuum. Energy use is reduced by development of a technically straightforward method that will ensure highly efficient condensation of liquid magnesium metal. Low cost hydro electricity is abundantly available in Manitoba.

In order to prove out the technology prior to commercialization, Gossan is under-taking a three phase evaluation process. Initially thermodynamic modelling was suc-cessfully used to verify the process fundamentals. The second phase, which will involve bench scale testing, is currently being designed and prepared at the CANMET Materials Technology Laboratory in Ottawa. Thereafter a third phase of pilot plant testing will be required to demonstrate commercial viability. Gossan may seek a joint venture partner to assist in the pilot plant testing and subsequent commercialization of the process.

Gossan completed a 27-hole drill program, totaling 496.2 metres, on the Property in 2006. Watts, Griffis and McOuat independently calculated a National Instrument 43-101 compliant resource based on the results from the 2006 drill program and 25 holes previously drilled on the Property. The recent program targeted the Fisher Branch Forma-tion which typically outcrops at surface and extends to a depth of about 12-15 metres.

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The Watts, Griffis and McOuat National Instrument 43-101 Report on the Inwood Dolomite Project provided resource estimates for three zones of high-purity magnesium dolomite in the Fisher Branch Formation as summarized in the table below:

Resource Class Tonnage Grade MgO (wt%) Grade CaO (wt%)Measured 28,819,000 21.15% 30.91%Indicated 5,057,000 21.40% 30.66%Inferred 131,236,000 21.64% 30.51%

t h e h i G h c o s t o f

e n e R G y c R e a t e s

d e m a n d f o R L i G h t -

W e i G h t m a G n e s i u m

i n a L L a s P e c t s o f

t R a n s P o R t a t i o n .

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s e P a R a t i o n R a P i d s P R o j e c tLithium/tantalum

The 432-hectare Separation Rapids Specialty Minerals Project is located 58 km north of Kenora, Ontario in the highly prospective English River greenstone belt, which hosts lithium, tantalum and cesium mineralization. The Property is situated immediately adjacent to the east of Avalon Ventures Ltd.’s Big Whopper property, one of the largest rare metal pegmatite deposits in the world.

In the summer of 2007, Gossan conducted a field program at the Property com-prised of line cutting and an Enzyme Leach geochemical survey to follow-up on a promising multi-element geochemical soil anomaly that was identified in 2004. A con-sultant has been retained to conduct a site visit to examine the surface geology and assess the merits of conducting a drill program.

The demand for tantalum, the high-tech metal, is growing steadily for use in the manufacture of capacitors that regulate the flow of electricity in cellular phones, pagers, computers and other electrical appliances. Other applications range from artificial hips to super-alloys for the aeronautics industry to corrosion resistant equipment for the chemical and pharmaceutical sectors.

P i P e s t o n e L a K e P R o j e c tvanadium/titanium/iron

Our 50% joint venture partner in the Pipestone Lake Deposit, Cross Lake Mineral Ex-plorations Inc., is a wholly-owned private corporation of the Cross Lake First Nation. It has been involved in protracted negotiations with the Federal and Provincial govern-ments to settle the Nelson River Flood Agreement. Development of the Pipestone Lake Deposit has been stalled pending this settlement. As a result, Gossan decided to offer the 3584-hectare property for sale. Gossan has appointed a representative to assist in the ne-gotiations for the development or sale of this property and discussions are ongoing.

In July 2008, the Cross Lake First Nation held a 2-day mining symposium at Cross Lake. Gossan was a Sponsor of the symposium and management presented information on the Pipestone Project at an exhibitor’s booth.

The Pipestone Lake property is located in north central Manitoba, approximately 150 km south of Thompson. At Pipestone Lake’s Areas 1 and 2, drilling to date has out-lined a non-compliant NI-43-101 indicated resource of 156.8 million tonnes grading 5.56% TiO2, 28.11% Fe2O3 and 0.22% vanadium pentoxide (Reedman & Associ-ates-1998). Additional infill drilling could significantly increase the resource.

A preliminary mine plan has been prepared for the Pipestone by J. H. Reedman and Associates which classifies various tonnages according to titanium dioxide cut-off grades, provides proposed open pits, and estimates stripping ratios; however more de-tailed drilling is required to support a 30,000 tons per day operation. Metallurgical studies by Dr. D. Yang have provided a flow sheet for the economic processing of tita-nium dioxide, vanadium pentoxide and magnetite; however more metallurgical work will be required. These studies will form the basis for a feasibility study of the deposit.

Paints, paper and plastics are the main uses of titanium dioxide, while magnetite and vanadium pentoxide are mostly used in the steel industry.

v a n a d i u m i s

o f i n c R e a s i n G

i m P o R t a n c e t o

t h e s t e e L i n d u s t R y

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i n d u s t R i a L m i n e R a L s & t e c h n o L o G y

m a n i G o t a G a n P R o P e R t ysilica

At Manigotagan, 170 km northeast of Winnipeg, Gossan continued to consolidate its land po-sition covering a silica sand deposit on the east shore of Lake Winnipeg by registering two ad-ditional Quarry Leases in July 2007. This Property, which now encompasses 297 hectares, is directly across from Black Island where silica sand was extensively quarried prior to the island becoming a Provincial Park.

In May of 2008, Gossan conducted a 26-hole sonic drill program to test the eastern border of the Property towards an open pit where the silica sand formation outcrops near surface; to assess the known area of the silica formation to the south; and to investigate the southern portion of the Property. This initial program of sonic drilling yielded near-perfect 10-foot core sections with excellent recovery. The quality of the sampling will have important economic implications for assessing the Property. A number of holes could not be completed to depth. Samples have been sent to laboratories for whole rock analysis and for attrition scrubbing.

Drilling to date has been successful in outlining substantial zones of silica sand with a thick-ness exceeding 5 metres and ranging to over 15 metres. These zones, with lengths known to exceed 400m and 600m, are both open on one or more sides.

Manigotagan silica sand has potential uses in foundries and smelters; in the production of float or container glass; and in the oil & gas industry as frac sand. Silica sand from the property has been subjected to a variety of tests that indicate it is of a high purity with few contaminants and that it is similar to the silica sands previously quarried at nearby Black Island. A composite of 19 samples, returned a silica content of 94.2% without sizing or treatment. Sizing, washing or other simple treatments significantly improve the purity. Tests to date indicate that components

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of these silica sands meet the requirements for frac sand in shallow gas wells and metallurgical flux.Sample preparation and analysis takes considerable time. Test results of various samples of

Manigotagan silica sand have exceeded all of the minimum standards for frac sand used by the oil and gas industry. Further testing is currently underway. Results from this analysis may lead to a scoping study giving initial consideration to markets and logistics. Gossan has received several inquiries from potential purchasers of silica sand over the past year.

t h e c L a i m s n e t W o R Kinsurance technology

Gossan holds a 47% equity investment in The Claims Network (TCN), a web-based technology company with an extensive library of product data information, engaged in providing the Property and Causality Insurance Industry with loss assessment valuations.

Most recently TCN has been focused on establishing a network of independent asses-sors in key regional markets to handle on-site claims and providing a capability for direct online client access to its data library. TCN operates profitably and has adequate cash to pursue and develop its business.


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m a n a G e m e n t ’ s R e s P o n s i b i L i t y L e t t e R

Management acknowledges responsibility for the preparation and presentation of the financial statements, including responsibility for significant accounting judgments and estimates and the choice of accounting principles and methods that are appropriate to the Company’s circumstances. The financial statements have been prepared in accor-dance with Canadian generally accepted accounting principles and necessarily include amounts based on estimates and judgments of management.

Meyers Norris Penny LLP, our independent auditors, is engaged to express a profes-sional opinion on the financial statements. Their examination is conducted in ac-cordance with Canadian generally accepted auditing standards and includes tests and other procedures which allow the auditors to report whether the financial statements prepared by management are presented fairly in accordance with Canadian generally accepted accounting principles.

The Board of Directors must ensure that management fulfils its responsibilities for financial reporting. In furtherance of the foregoing, the Board of Directors has ap-pointed an Audit Committee composed of three directors, two of whom are inde-pendent. The Audit Committee meets with the independent auditors to discuss the results of their audit report prior to submitting the financial statements to the Board of Directors for its approval. On the recommendation of the Audit Committee, the Board of Directors has approved the Company’s financial statements.

Douglas Reeson Andrew Thomson President and C.E.O. Director


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a s s e t s

L i a b i L i t i e s

s h a R e h o L d e R s ’ e q u i t y

a P R R o v e d o n b e h a L f o f t h e b o a R d :

CurrentCashShort term investmentsMarketable securities (Note 3)Accounts receivablePrepaid expenses

Non-Current Mineral properties (Note 4) Investment in The Claims Network (Note 5) Furniture and equipment (Note 6)

Current Accounts payable Due to related parties (Note 7)

Share capital (Note 8)Contributed surplus (Note 11)Deficit

See accompanying notes to financial statements

Nature of Operations and Going Concern (Note 1)Committment (Note 14)

Douglas Reeson, Director Andrew Thomson, Director

b a L a n c e s h e e t s

2007

56,781-

24,40068,94311,875

161,999

3,299,000112,080

9,452

3,420,532

3,582,531

80,672141,160

221,832

8,829,441691,820

(6,160,562)

3,360,699

3,582,531

2008

95,1761,941,526

-9,937

26,586

2,073,225

3,475,331150,920

16,147

3,642,398

5,715,623

70,475108,846

179,321

11,304,7781,187,236

(6,955,712)

5,536,302

5,715,623

$

$

$

$

$

$

$

$

AS AT MARCH 31,

(Expressed in Canadian $)

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statements of Loss and comPRehensive Loss

e x P e n s e s Administrative feesManagement feesConsultingOffice and generalPublic company expensesInvestor relationsTravel and relatedInterest expenseStock-based compensation expense (Note 9)Amortization and other

o t h e R i n c o m eInterest and other incomeGain on sale of marketable securities

L o s s , b e f o R e t h e f o L L o W i n G

Share of TCN profit (Note 5)Write-down of mineral propertiesWrite-down of marketable securities (Note 3)

n e t L o s s a n d c o m P R e h e n s i v e L o s s f o R t h e y e a R

n e t L o s s P e R s h a R e - Basic and diluted (Note 12)

Weighted average number of shares outstanding

2007

-134,000

-148,878102,66965,23735,46714,191

135,3402,609

638,391

3,00724,550

(610,834)

49,135(231,634)

(4,800)

798,133

0.04

20,480,179


2008

27,643131,040

57,843124,330142,76185,18037,221

-258,063

5,717

869,798

37,2861,322

(831,190)

38,840-

(2,800)

(795,150)

0.03

28,003,985

$

$

$

$

$

$

FOR THE YEARS ENDED MARCH 31,


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o P e R a t i n G a c t i v i t i e s

i n v e s t i n G a c t i v i t i e s

f i n a n c i n G a c t i v i t i e s

i n c R e a s e ( d e c R e a s e ) i n c a s h

c a s h , b e G i n n i n G o f y e a R

c a s h , e n d o f y e a R

s u P P L e m e n t a R y i n f o R m a t i o n

s t a t e m e n t s o f c a s h f L o W s

Net Loss for the year

Amortization and otherGain on sale of marketable securitiesWrite-off of mineral propertiesWrite-down of marketable securities (Note 3)Share of TCN profit (Note 5)Stock-based compensation (Note 9)Accrued interests

Net change in non-cash working capital:Accounts receivablePrepaid expensesAccounts payableDue to related parties

Proceeds on sale of marketable securitiesPurchase of marketable securitiesExpenditures on mineral propertiesPurchase of short-term investmentsAcquisition of furniture and equipment

Issuance of share capital, net of share issue costsExercise of stock options

Shares issued as payment on mineral properties (Note 4 (iii)(iv))

$

$

$


2008

(795,150)

5,717(1,322)

-2,800

(38,840)258,063(21,526)

59,006(14,711)(10,197)(32,314)

(588,474)

67,922(45,000)

(155,331)(1,920,000)

(12,412)

(2,064,821)

2,641,24050,450

2,691,690

38,395

56,781

95,176

21,000

2007

(798,133)

2,609(24,550)231,634

4,800(49,135)135,340

-

(48,446)25,325

(32,844)81,160

(472,240)

71,350-

(607,054)-

(2,420)

(538,124)

508,650-

508,650

(501,714)

558,495

56,781

5,000

FOR THE YEARS ENDED MARCH 31, c a s h ( u s e d i n ) P R o v i d e d b y :

$

$

$

(Expressed in Canadian $)statements of Loss and comPRehensive Loss

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s tatements of chanGes in shaRehoLdeRs’ equit y

s h a R e c a P i t a L Balance at beginning of year Private placement, net Property acquisition Fair value of shares issued for licensing rights Exercise of stock options - cash Exercise of stock options - Black-Scholes valuation Fair value assigned to warrants issued pursuant to private placements

b a L a n c e a t e n d o f y e a R

c o n t R i b u t e d s u R P L u s Balance at beginning of year Fair value of stock options granted Fair value of stock options exercised Fair value of warrants issued


d e f i c i tBalance at beginning of year Net loss and comprehensive loss for the year


t o t a L s h a R e h o L d e R s ’ e q u i t y , e n d o f y e a R

2007

8,418,091508,650

5,000---

(102,300)

8,829,441

454,180135,340

-102,300

691,820

(5,362,429)(798,133)

(6,160,562)

3,360,699

2008

8,829,4412,641,240

-21,00050,45014,718

(252,071)

11,304,778

691,820258,063(14,718)252,071

1,187,236

(6,160,562)(795,150)

(6,955,712)

5,536,302

$

$

$

$

$

$

$

$

$

$

$

$

$

$

FOR THE YEARS ENDED MARCH 31,



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1 . n a t u R e o f o P e R a t i o n s a n d G o i n G c o n c e R nGossan Resources Limited (the “Company”) is a public corporation that was incorporated federally on June 16, 1980. The Company, directly and through joint ventures is in the business of acquiring and exploring resource properties that it believes contain mineralization. To date, the Company has not earned significant revenues and is considered to be in the exploration and development stage. It is an exploration and development enterprise and carries on business in one segment, being the exploration for valuable minerals, exclusively in Canada. In the opinion of management, all adjustments considered necessary for the fair presentation have been included in these financial state-ments. All amounts in these financial statements are expressed in Canadian dollars. These financial statements have been prepared in accordance with Canadian generally accepted accounting principles applicable to a going concern. Accordingly, they do not give effect to adjustments that would be necessary should the Company be unable to continue as a going concern and, therefore, be required to realize its assets and liquidate its liabilities and commitments in other than the normal course of business and at amounts different from those in the accompanying financial statements. The ability of the Company to continue as a going concern and the recoverability of amounts shown for mineral properties are dependent upon the discovery of economically recoverable reserves; confirmation of the Company’s ownership in the underlying mineral claims; the acqui-sition of required permits to mine; the ability of the Company to obtain necessary financing to complete exploration and development; and the future profitable production or proceeds from disposition of such properties. These financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern. All of these outcomes are uncertain and taken together cast doubt over the ability of the Company to continue as a going concern. The Company is traded on the TSX Venture Exchange under the symbol “GSS” and on the Frankfurt/Freiverkehr & Xetra Exchanges under the symbol “GSR”.

2 . s i G n i f i c a n t a c c o u n t i n G P o L i c i e sThese financial statements have been prepared in accordance with Canadian generally accepted accounting principles and include the follow-ing significant accounting policies:

(a) Mineral PropertiesCosts of acquisition and maintenance of interests of non-producing mineral properties together with direct exploration and development expenditures less related recoveries, partial sales and option payments received are deferred in the accounts. At such time as the Company loses or abandons title or its interest in any property, the accumulated expenditures on such property are charged to income in that year. If any property reaches commercial production, the applicable deferred expenditures will be amortized against related production revenues on a unit of production basis. The amounts shown for mineral properties represent costs incurred to date and do not necessarily represent present or future values. Peri-odically, a determination is made as to the status of each property by completing an impairment test of undiscounted cash flows and assessing the net recoverable amount. Where a property shows no promise from prior exploration results and is dormant, the claims may be allowed to lapse. Claims will be written off or written down to a nominal value where an interest in the claims remains. Periodically, the Company assesses whether the exploration property is impaired when the carrying value of such property should be written down.

(b) Furniture and EquipmentFurniture and equipment are stated at cost less accumulated amortization. Amortization is recorded on the declining balance basis at rates designed to amortize the cost of the furniture and equipment over their estimated useful lives, based on the following annual rates: Equipment 20% Computer equipment 30% Computer software 100% Furniture and fixtures 20%

(c) Use of EstimatesThe preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and related notes. Accounts receivable are stated after evaluation as to their collectibility and an appropriate allowance for doubtful accounts is provided where necessary. Amortization is based on the estimated useful lives of the furniture and equipment. Other significant areas requiring the use of estimates include the determination of impairment of mineral properties, asset retirement obligations and the valuation of stock-based securities. Although these estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future, actual results could differ from the estimates. These esti-mates are reviewed periodically and as adjustments become necessary, they are reported in earnings in the period in which they become known.

N o t e s t o F i N a N c i a l s t a t e m e N t sFOR THE YEARS ENDED MARCH 31, 2008 AND 2007 (expressed in Canadian $)

statements of chanGes in shaRehoLdeRs’ equit y


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(d) Investment in The Claims Network Inc. (TCN)The Company accounts for its long-term investment in The Claims Network Inc. using the equity accounting method to the extent that the Company has significant influence over the investee’s strategic operating, financing and investing policies. Under the equity method, the Company’s proportionate share of income or loss is included in the statement of operations and any dividends received are recorded as a reduc-tion to the investment. The carrying value of the investment is periodically reviewed to ensure that there is no permanent impairment.

(e) Stock-based Compensation and Other Stock-based PaymentsAll stock-based awards made to employees and non-employees are measured and recognized using a fair value based method. The Company uses the Black-Scholes method of calculating stock-based compensation. The Company measures stock-based compensation on the date of the grant and recognizes this cost over the vesting period, if any, in the results from operations, with an offsetting credit to contributed surplus. When stock options are exercised the consideration paid together with the amount previously recognized in contributed surplus is recorded as share capital. In the event that vested options expire, previously recognized compensation expense associated with such stock options is not reversed. In the event that unvested options are forfeited, previously recognized compensation expense associated with such stock options is reversed.

(f) Basic and Diluted Loss per ShareBasic loss per share is calculated using the weighted average number of shares outstanding during the respective fiscal years. Diluted earnings per share reflect the potential dilution that could occur if potentially dilutive securities were exercised or converted to common shares. The dilutive effect of options and warrants and their equivalent is computed by application of the treasury stock method. Fully diluted amounts are not presented when the effect of the computations are anti-dilutive due to the losses incurred. Accordingly, in such circumstances, there is no difference in the amounts presented for basic and diluted loss per share.

(g) Income TaxesThe Company accounts for income taxes using the asset and liability method. Under this method, future income tax assets and liabilities are determined based on the differences between the carrying amount of the assets and the liabilities on the balance sheet and their correspond-ing tax values. Future income tax assets and liabilities are measured using the substantively enacted tax rates expected to be in effect when the temporary differences are likely to reverse. The amount of future income tax assets recognized is limited to the amount that is, in manage-ment’s estimation, more likely than not to be realized.

(h) Impairment of Long-Lived AssetsThe Company assesses the impairment of long-lived assets, which consist primarily of mineral properties, and furniture and equipment, whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If changes in circumstances indicate that the carrying amount of an asset that an entity expects to hold and use may not be recoverable, future cash flows expected to result from the use of the asset and its disposition must be estimated. If the undiscounted value of the future cash flows is less than the carrying amount of the asset, impairment is recognized.

(i) Asset Retirement ObligationsThe fair value of a liability or an asset retirement obligation is recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The estimate excludes the residual value of the related assets. The associated retirement costs are capitalized as part of the carrying amount of the long-lived assets and amortized over the life of the asset. The amount of liability is subject to re-measurement at each reporting period. At the present time, the Company has concluded that there are no asset retirement obligations associated with any of the properties.

(j) Government AssistanceThe Company periodically applies for financial assistance under available government incentive programs. All government assistance received is reflected as a reduction to the related asset category.

(k) Revenue RecognitionThe Company recognizes interest income on its cash and cash equivalents on an accrual basis at the stated rates over the term to maturity. Revenue from investments is recognized when it is sold and it is deemed collectible.

(l) Flow-through SharesThe resource expenditure deductions for income tax purposes related to exploratory and development activities funded by flow-through share arrangements are renounced to investors in accordance with tax legislation. Under the liability method of accounting for income taxes, the future income taxes related to the temporary difference arising at the renunciation date are recorded at the time together with a corresponding reduction to the carrying value of the shares issued.

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N o t e s t o F i N a N c i a l s t a t e m e N t s

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FOR THE YEARS ENDED MARCH 31, 2008 AND 2007 (expressed in Canadian $)

(m) Joint VenturesThe Company’s exploration and development activities may be conducted jointly with others. These financial statements reflect only the Company’s proportionate interest in such activities.

(n) Financial InstrumentsThe Company holds various financial instruments. The nature of these instruments and the Company’s operations expose the Company to commodity price risk and credit risk. The Company manages its exposure to the extent practical.

Commodity Price RiskThe Company will be subject to commodity price risk for the delivery of gold, platinum group and base metals. The Company may manage and minimize the risk by entering into various joint operating agreements with subparticipants. As at March 31, 2008, the Company has not entered into any commodity contracts.

Credit RiskSubstantially all of the Company’s accounts receivable are from working interest partners in the mining industry and, as such, the Company is exposed to all the risks associated with that industry. At March 31, 2008 substantially all of the Company’s cash was held at one financial institution and, as such the Company is exposed to concentration of credit risk.

Fair Value of Financial InstrumentsThe carrying values of current financial assets and liabilities including cash, short-term investments, marketable securities, accounts receivable and accounts payable, approximates their fair value due to short-term nature of these instruments. The fair value of the amounts due to related parties cannot be determined with sufficient reliability as these instruments are not traded in an organized financial market.

Financial Instruments, Comprehensive Income (Loss), and HedgesIn January 2005, the Canadian Institute of Chartered Accountants (“CICA”) issued Handbook Sections 3855, “Financial Instruments - Recognition and Measurement”, 1530, “Comprehensive Income”, and 3865, “Hedges”. These new standards are effective for interim and annual financial statements relating to fiscal years commencing on or after October 1, 2006 on a prospective basis; accordingly, comparative amounts for prior periods have not been restated. The Company has adopted these new standards effective April 1, 2007.

(i) Financial Instruments - Recognition and MeasurementSection 3855 prescribes when a financial instrument is to be recognized on the balance sheet and at what amount. It also specifies how finan-cial instrument gains and losses are to be presented. This Section requires that:

• All financial assets be measured at fair value on initial recognition and certain financial assets to be measured at fair value subsequent to initial recognition;• All financial liabilities be measured at fair value if they are classified as held for trading purposes. Other financial liabilities are measured at amortized cost using the effective interest method; and• All derivative financial instruments be measured at fair value on the balance sheet, even when they are part of an effective hedg-ing relationship.

(ii) Comprehensive Income (Loss)Section 1530 introduces a new requirement to temporarily present certain gains and losses from changes in fair value outside net income. It includes unrealized gains and losses, such as: changes in the currency translation adjustment relating to self-sustaining foreign operations; unrealized gains or losses on available-for-sale investments; and the effective portion of gains or losses on derivatives designated as cash flow hedges or hedges of the net investment in self-sustaining foreign operations.

(iii) HedgesSection 3865 provides alternative treatments to Section 3855 for entities which choose to designate qualifying transactions as hedges for accounting purposes. It replaces and expands on Accounting Guideline 13 “Hedging Relationships”, and the hedging guidance in Section 1650 “Foreign Currency Translation” by specifying how hedge accounting is applied and what disclosures are necessary when it is applied.

(iv) Impact Upon Adoption of Sections 1530, 3855, and 3865Upon adoption of these new standards, the Company has designated its cash, short-term investments and marketable securities as held-for-trading, which are measured at fair value. Accounts receivable is classified as loans and receivables, which are measured at amortized cost.


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Accounts payable and due to related parties are classified as other financial liabilities, which are measured at amortized cost. All derivative instruments, including embedded derivatives, are recorded in the balance sheet and statement of operations at fair value unless exempted from derivative treatment as a normal purchase and sale. All changes in their fair value are recorded in operations. The valuation techniques used to determine the fair value of financial instruments have remained substantially the same despite the adoption of these new accounting standards. Transaction costs related to held-for-trading financial assets are expensed as incurred. Transaction costs related to loans and receivables and other financial liabilities are netted against the carrying value of the asset or liability and amortized over the expected life of the instrument using the effective interest rate method. The Company has evaluated the impact of Sections 1530, 3855 and 3865 on its financial statements and determined that no adjust-ments are required.

(o) Short-term InvestmentsShort-term investments are comprised of guaranteed investment certificates and term deposits with initial terms to maturity of over ninety days but less than one year.

(p) Accounting Policy Choice for Transaction CostsOn June 1, 2007, the Emerging Issues Committee of the CICA issued Abstract No. 166, Accounting Policy Choice for Transaction Costs (EIC166). This EIC addresses the accounting policy choice of expensing or adding transaction costs related to the acquisition of financial assets and financial liabilities that are classified as other than held-for-trading. Specifically, it requires that the same accounting policy choice be applied to all similar financial instruments classified as other than held-for-trading, but permits a different policy choice for financial instruments that are not similar. The Company has adopted EIC166 effective September 30, 2007 and requires retroactive application to all transaction costs accounted for in accordance with CICA Handbook Section 3855, Financial Instruments-Recognition and Measurement. The Company has evaluated the impact of EIC166 and determined that no adjustments are required.

(q) Accounting ChangesIn July 2006, the Accounting Standards Board (“AcSB”) issued a replacement of the CICA Handbook Section 1506, Accounting Changes. The new standard allows for voluntary changes in accounting policy only when they result in the financial statements providing reliable and more relevant information, requires changes in accounting policy to be applied retrospectively unless doing so is impracticable, requires prior period errors to be corrected retrospectively and calls for enhanced disclosures about the effects of changes in accounting policies, estimates and errors on the financial statements. The impact that the adoption of Section 1506 will have on the Company’s results of operations and financial condition will depend on the nature of future accounting changes.

(r) Future Accounting Changes

Capital Disclosures and Financial Instruments – Disclosures and PresentationOn December 1, 2006, the CICA issued three new accounting standards: Handbook Section 1535, Capital Disclosures, Handbook Section 3862, Financial Instruments – Disclosures, and Handbook Section 3863, Financial Instruments – Presentation. These standards are effective for interim and annual financial statements for the Company’s reporting period beginning on April 1, 2008. Section 1535 specifies the disclosure of (i) an entity’s objectives, policies and processes for managing capital; (ii) quantitative data about what the entity regards as capital; (iii) whether the entity has complied with any capital requirements; and (iv) if it has not complied, the consequences of such non-compliance. The new Sections 3862 and 3863 replace Handbook Section 3861, Financial Instruments — Disclosure and Presentation, revising and enhancing its disclosure requirements, and carrying forward unchanged its presentation requirements. These new sections place increased emphasis on disclosures about the nature and extent of risks arising from financial instruments and how the entity manages those risks. The Company is currently assessing the impact of these new accounting standards on its financial statements.

International Financial Reporting Standards (“IFRS”)In January 2006, AcSB formally adopted the strategy of replacing Canadian GAAP with IFRS for Canadian enterprises with public account-ability. The current conversion timetable calls for financial reporting under IFRS for accounting periods commencing on or after January 1, 2011. On February 13, 2008 the AcSB confirmed that the use of IFRS will be required in 2011 for publicly accountable profit-oriented enterprises. For these entities, IFRS will be required for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. The Company is currently assessing the impact of IFRS on its financial statements.

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Goodwill and Intangible Assets In October 2007, the CICA approved Handbook Section 3064, “Goodwill and Intangible Assets” which replaces the existing Handbook Sections 3062, “Goodwill and Other Intangible Assets” and 3450 “Research and Development Costs”. This standard is effective for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2009, with earlier application encouraged. The stan-dard provides guidance on the recognition, measurement and disclosure requirements for goodwill and intangible assets. The Company is currently assessing the impact of this new accounting standard on its financial statements.

3 . m a R K e t a b L e s e c u R i t i e sOn March 3, 2006, the Company sold its interest in the Angelina Property to Marum Resources Inc. (“Marum”) for 500,000 common shares of Marum, 400,000 warrants to acquire Marum common shares at $0.15 per common share and a 2.0% Net Smelter Return. A valuation of $76,000 was placed on the shares and warrants based on market value of the shares of $60,000 and a Black-Scholes calculation (expected dividend yield of 0%; expected volatility of 75%; a risk-free interest rate of 3.5% and an expected average life of 2.6 years) placing a value on the warrants of $16,000. During the prior year, the Company sold 390,000 shares to hold 110,000 shares at March 31, 2007 realizing a gain of $24,550. As at March 31, 2007, marketable securities were recorded at cost; $13,200 for common shares, and $11,200 deemed value for the warrants. The market value of the common shares at March 31, 2007 was $13,750. The deemed value of the warrants were written down by $4,800 in the prior year. During the current year, the Company exercised 300,000 warrants and sold 410,000 shares realizing a gain of $1,322 for proceeds of $67,922. As at March 31, 2008, all common shares of Marum were sold. The 100,000 remaining warrants expired on March 3, 2008 and the remaining value of the warrants were written off by $2,800.

4 . m i n e R a L P R o P e R t i e s

During the 2008 fiscal year, the Company incurred $188,736 of exploration expenditures and property acquisition costs of which $21,000 was paid through the issue of 100,000 common shares. Gossan also received a $12,405 government exploration grant, which reduced the carrying value of its Mineral Properties by the same amount.

March 31, 2007 Expenditures Grants & Option Payments Write Downs March 31, 2008

Pipestone Lake (i) $ 1,662,580 $ 450 $ - $ - $ 1,663,030

Bird River (ii) 475,582 1,864 - - 477,446

Inwood (iii) 365,091 78,957 - - 444,048

Separation Rapids (iv) 98,930 29,904 - - 128,834

Manigotagan Silica (v) 228,923 77,331 (12,405) - 293,849

Sharpe Lake 467,891 230 - - 468,121

Other 3 - - - 3

$ 3,299,000 $ 188,736 $ (12,405) $ - $ 3,475,331

March 31, 2006 Expenditures Grants & Option Payments Write Downs March 31, 2007

Pipestone Lake (i) $ 1,662,580 $ - $ - $ - $ 1,662,580

Bird River (ii) 447,467 68,115 (40,000) - 475,582

Inwood (iii) 163,396 208,209 (6,514) - 365,091

Separation Rapids (iv) 92,160 6,770 - - 98,930

Manigotagan Silica (v) 91,559 137,364 - - 228,923

Sharpe Lake 431,148 48,934 (12,191) - 467,891

Alto-Gardner (vi) 30,267 201,367 - (231,634) -

Other 3 - - - 3

$ 2,918,580 $ 670,759 $ (58,705) $ (231,634) $ 3,299,000


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(i) The Pipestone Lake project is a 50% joint venture with Cross Lake Mineral Explorations Inc.

(ii) On March 26, 2007, the Company entered into an Option and Joint Venture Agreement on its Bird River Property (“The Property”) with Marathon PGM Corporation (MAR-TSX). The Property, encompassing over 7,000 hectares, covers over 21 kilometres of the Bird River Sill Complex. This complex carries significant concentrations of palladium and platinum along with nickel, copper, zinc and chromite. The Property is located about 40-km east of Lac Du Bonnet, Manitoba and, along the Sill, approximately 6-km west and northwest of Mustang Minerals’ Maskwa Deposit and the historic Dumbarton mine. Under the terms of the Agreement, Marathon PGM Corporation (“MPGM”) can earn an undivided 50% interest in the Property by spending $3.0 million on exploration and making cash payments of $500,000 to the Company by April 30, 2011. Thereafter, MPGM can earn a further 15% interest by completing a bankable feasibility study and an additional 5% interest, to a total 70% interest, by arranging project financing. Under certain conditions and subject to regulatory approval, MPGM may elect to issue its common shares in lieu of cash pay-ments. Upon formation of a joint venture, MPGM must also make semi-annual, recoverable, advance payments of $50,000 until commercial production is achieved. In the first stage of this Agreement, MPGM’s work expenditure commitment is $500,000 of exploration expenditures by April 30, 2008 and an initial cash payment of $50,000. A $10,000 finders fee was paid in connection with the transaction. The first stage of this Agreement was completed subsequent to year end (Note 15). On November 1, 2007, MPGM finalized an Option and Joint Venture Agreement on the adjacent Ore Fault Property held by Bird River Inc. to explore and potentially acquire the property, subject to a 1% NSR. The Ore Fault Property is part and subject to the Company and MPGM Agreement.

(iii) On March 15, 2007, the Company entered into a licensing arrangement for a new magnesium production process, including an option to secure exclusive worldwide rights to the process. A component of the consideration is the conditional payment of up to 150,000 common shares related to specific measurable events. On November 12, 2007, 100,000 common shares were issued with an assigned fair value of $21,000 related to the completion of Phase I of the arrangement.

(iv) On June 5, 2006 the Company entered into an agreement and acquired the remaining 50.1% interest, to hold 100%, in the Separation Rapids Property from Angus & Ross Canada Ltd. for 25,000 common shares having a fair value of $5,000.

(v) During the year, the Company received a mineral exploration grant from the Government of Manitoba in the amount of $12,405 for prior work undertaken on the Manigotagan Silica Project.

(vi) On December 19, 2006 the Company returned the optioned Alto-Gardner property to the optioners and as a result wrote off all explora-tion expenditures incurred.

5 . i n v e s t m e n t i n t h e c L a i m s n e t W o R K i n c .The Claims Network Inc. (TCN) provides the property and casualty insurance industry with valuation information and software systems to facilitate the settlement of insurance claims. In 2002, the Company invested $455,000 in TCN to hold a 30% equity interest and has ap-pointed two directors. During the prior year, TCN redeemed outstanding shares resulting in the Company’s interest increasing to 37.04%. In the current year, TCN redeemed additional shares and made a small share issuance resulting in the Company’s interest increasing to 46.71%. As TCN is a private company, there is no liquid market for the shares. During the current year, management has recorded its investment in TCN using the equity method and accordingly has recognized $38,840 (2007 - $49,135) as income being the Company’s 46.71% proportionate share of TCN’s profit, resulting in the carrying value increas-ing by $38,840 to $150,920 (2007 - $112,080).

6 . f u R n i t u R e a n d e q u i P m e n t

Cost Accumulated Amortization

Total March 31, 2008

Total March 31, 2007

Computer equipment $ 17,253 $ 7,978 $ 9,275 $ 6,675

Computer software 7,435 2,788 4,647 -

Field equipment 1,155 746 409 509

Fiurniture and fixtures 4,549 2,733 1,816 2,268

$ 30,392 $ 14,245 $ 16,147 $ 9,452

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Shares Amount

Balance, March 31, 2006 19,694,900 $ 8,418,091

Property acquisition (Note 4 (iv)) 25,000 5,000

Private placement, net - October 2006 (i) 1,201,000 297,400

Fair value assigned to warrants (i) - (60,050)

Private placement, net - December 2006 (ii) 845,000 211,250

Fair value assigned to warrants (ii) - (42,250)

Balance, March 31, 2007 21,765,900 8,829,441

Private placement, net - May 2007 (iii) 7,000,000 2,641,240

Fair value assigned to warrants (iii) - (252,071)

Exercise of options - cash 155,000 50,450

Exercise of options - Black-Scholes valuation - 14,718

Fair values of shares issued for licensing rights (Note 4(iii)) 100,000 21,000

Balance, March 31, 2008 29,020,900 $ 11,304,778

7 . R e L a t e d P a R t y t R a n s a c t i o n sDuring the year ended March 31, 2008, a director was paid $37,020 (2007 - $48,020) for geological field work and is owed $4,116 (2007 - $Nil) by the Company as at March 31, 2008. Another director, appointed President on October 1, 2004 was paid $92,000 (2007 $86,000) for corporate administration services, and is owed $33,439 (2007 - $42,660) by the Company as at March 31, 2008. Another officer charged $30,000 (2007 - $30,000) for management services, and is owed $8,216 (2007 - $Nil) as at March 31, 2008. Another director was paid $1,575 (2007-$Nil) as a salary and is owed $1,575 (2007 - $Nil) by the Company as at March 31, 2008. These transactions are in the normal course of business and are measured at the exchange amount (the amount established and agreed to by the parties). On March 30, 2007, $50,000 was advanced from a director to the Company. The amount was unsecured and non-interest bearing. It was repaid May 15, 2007. During fiscal 2008, fees were paid to Directors in the amount of $36,000 for director’s fees (2007 – $30,000) and $18,000 (2007 – $14,000) for committee and other board activities. In the current year, thirty percent of the fees paid to directors were retained by the Com-pany for acquisition of the Company’s common shares on the director’s behalf. At March 31, 2008, $61,500 (2007 - $48,500) was owed in regard to these fees. The amounts due to related parties, which totals $108,846 (2007 - $141,160) are unsecured, non-interest bearing and have no fixed terms of repayment.

8 . s h a R e c a P i t a L(a) AUTHORIZED Unlimited number of common shares with no par value

(b) ISSUED

(i) In October 2006, the Company closed a private placement consisting of 1,201,000 units at 25 cents per unit, for net proceeds of $297,400. Each unit consisted of one common share and one share purchase warrant exercisable over a two-year period at $0.35 per unit.

(ii) On December 28, 2006, the Company closed a private placement consisting of 845,000 units at 25 cents per unit, for net proceeds of $211,250. Each unit consisted of one common share and one share purchase warrant. Each warrant entitles the holder to acquire one common share for $0.35 over a two year period.

(iii) On May 18, 2007, the Company closed a non-brokered private placement financing of $2,800,000 comprising the sale of 7,000,000 units at $0.40 per unit. Each unit consists of one common share and one-half of a share purchase warrant. A whole warrant is exercisable over a one year period at $0.60 per share and callable in certain circumstances if the Company’s shares trade at or above $0.90 for 20 consecutive trading days.

Finders fees of 7% cash ($158,760) and 7% warrants (396,900 finders warrants) to purchase common shares at $0.40 per share for a one year period were paid on a portion of the placement. The securities issued under the private placement are subject to a four-month hold period.


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Number of Stock Options Weighted Average Exercise Price

Balance, March 31, 2006 1,736,000 $ 0.39

Granted (i) 960,000 $ 0.31

Expired (680,000) $ 0.31

Balance, March 31, 2007 2,016,000 $ 0.38

Granted (ii)(iii)(iv)(v) 1,298,000 $ 0.41

Exercised (155,000) $ 0.33

Expired (580,000) $ 0.36

Balance, March 31, 2008 2,579,000 $ 0.38

9 . s t o c K o P t i o n s A summary of changes in stock options is as follows:

(i) During the year ended March 31, 2007, the fair value of stock options granted was estimated using the Black-Scholes option pricing model with the following weighted average assumptions: expected dividend yield of 0%; expected volatility of 85.0%; a risk-free interest rate of 4.00% and an expected average life of 2.9 years. During the prior fiscal year, 960,000 options were granted and an amount of $135,340 was recorded as an expense.

(ii) On May 1, 2007, the Company granted 420,000 stock options to directors and officers and employees of the Company. The options are exercisable at $0.40 and expire on May 1, 2011. The resulting fair value of $88,200 was estimated using the Black-Scholes option pricing model with the following assumptions: expected dividend yield of 0%; expected volatility of 85.0%; a risk-free interest rate of 4.50% and an expected average life of 2.7 years. 50,000 of the 420,000 options granted are subject to vesting terms ranging from nine to eighteen months.

(iii) On June 26, 2007, the Company granted 430,000 stock options to directors, consultants, and employees. The options vest immediately, are exercisable at $0.50, and expire on June 25, 2011. The resulting fair value of $100,190 was estimated using the Black-Scholes option pricing model with the following assumptions: expected dividend yield of 0%; expected volatility of 85.0%; a risk-free interest rate of 4.50% and an expected average life of 2.7 years.

(iv) On September 27, 2007, the Company granted 288,000 stock options to directors, consultants, and employees. The options vest immediately, are exercisable at $0.34, and expire on September 27, 2011. The resulting fair value of $51,552 was estimated using the Black-Scholes option pric-ing model with the following assumptions: expected dividend yield of 0%; expected volatility of 85.0%; a risk-free interest rate of 4.50% and an expected average life of 2.5 years.

(v) On March 28, 2008, the Company granted 160,000 stock options to directors and consultants. The options vest immediately, are exercisable at $0.30, and expire on March 28, 2012. The resulting fair value of $18,720 was estimated using the Black-Scholes option pricing model with the following assumptions: expected dividend yield of 0%; expected volatility of 85.0%; a risk-free interest rate of 3.00% and an expected average life of 2.6 years.

The following table reflects the stock options outstanding as at March 31, 2008:

Of the options outstanding 2,569,000 (2007 - 2,016,000) are exercisable.

Date of Grant Exercise Price ($) Options Outstanding Expiry Date

July 6, 2005 0.35 157,000 June 30, 2008

September 23, 2005 0.36 90,000 September 30, 2008

March 14, 2007 0.32 160,000 March 14, 2009

November 8, 2005 0.50 190,000 April 30, 2009

March 21, 2006 0.35 60,000 September 21, 2009

October 31, 2006 0.30 434,000 April 30, 2010

March 14, 2007 0.32 190,000 September 14, 2010

May 1, 2007 0.40 420,000 May 1, 2011

June 26, 2007 0.50 430,000 June 26, 2011

September 27, 2007 0.34 288,000 September 27, 2011

March 28, 2008 0.30 160,000 March 28, 2012

0.38 2,579,000

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1 0 . W a R R a n t sThe following table reflects the continuity of warrants for the year:

Number of Warrants Weighted Average Exercise Price

Balance, March 31, 2006 3,712,776 $ 0.62

Granted 2,046,000 $ 0.35

Expired (1,935,000) $ 0.35

Balance, March 31, 2007 3,823,776 $ 0.62

Granted (i)(ii) 3,896,900 $ 0.58

Expired (1,777,776) $ 0.93

Balance, March 31, 2008 5,942,900 $ 0.50

The following table reflects the actual warrants outstanding as of March 31, 2008:

Date of Grant Exercise Price ($) Warrants Outstanding Expiry Date

May 18, 2007 $ 0.40 396,900 May 18, 2008

May 18, 2007 $ 0.60 3,500,000 May 18, 2008

October 30, 2006 $ 0.35 1,201,000 October 30, 2008

December 28, 2006 $ 0.35 845,000 December 28, 2008

$ 0.50 5,942,900

(i) On May 18, 2007, the Company issued 3,500,000 warrants in conjunction with the private placement described in Note 8(b)(iii). The warrants are exercisable at $0.60 and expire on May 18, 2008. A fair value of $210,000 was estimated using the Black-Scholes pricing model with the following assumptions: expected dividend yield of 0%; expected volatility of 0.85%; a risk-free interest rate of 4.50% and an expected average life of 0.83 years.

(ii) On May 18, 2007, the Company issued 396,900 warrants as a finders fee in conjunction with the private placement described in Note 8(b)(iii). The warrants are exercisable at $0.40 and expire on May 18, 2008. A fair value of $42,071 was estimated using the Black-Scholes pricing model with the following assumptions: expected dividend yield of 0%; expected volatility of 85%; a risk-free interest rate of 4.50% and an expected average life of 0.83 years.

1 1 . c o n t R i b u t e d s u R P L u s

Balance March 31, 2006 $ 454,180 Fair value of stock options granted 135,340 Warrants issued 102,300

Balance March 31, 2007 691,820 Fair value of stock options granted 258,063 Fair value of stock options exercised (14,718) Fair value of warrants issued 252,071

Balance March 31, 2008 $ 1,187,236


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2008 2007

Loss before income taxes as reflected in the statement of operation $ (795,150) $ (798,133)

Expected income tax recovery at statutory rate (281,086) (287,328)

Permanent difference due to stock-based compensation 91,225 48,722

Non-taxable portion of capital gains (233) (4,419)

Permanent difference due to equity income (13,730) (17,689)

Other temporary differences not recognized in year 9,218 22,073

Change in valuation allowance 194,606 238,641

Actual income taxes $ - $ -

The following table reflects the future income tax assets (liabilities): 2008 2007

Future income tax asset (liability)

Non-capital loss carry-forwards for Canadian purposes $ 790,568 $ 634,452

Excess of undepreciated capital cost over net book value of furniture and equipment 7,213 5,555

Share issue costs 36,832 -

Excess of book value of Mineral Properties over tax value (350,637) (350,637)

483,976 289,370

Less: Valuation allowance (483,976) (289,370)

$ - $ -

1 2 . b a s i c a n d d i L u t e d L o s s P e R s h a R eBasic loss per share is computed using the weighted average number of common shares outstanding during the year. Diluted loss per share, which reflects the maximum possible dilution from the potential exercise of warrants and stock options, is the same as basic loss per share for the year ended. The conversion of warrants and stock options to calculate diluted loss per share was not done, because the conversion was anti-dilutive.

1 3 . i n c o m e t a x e sThe following table reconciles the expected income tax recovery at the statutory income tax rate to the amounts recognized in the statements of operations.

The valuation allowance reflects the Company’s estimate that the tax assets will likely not be realized and consequently they have not been recorded in these financial statements. As at March 31, 2008, the following amounts are available to be applied against future years’ income for tax purposes.

No amounts have been recorded in the financial statements to recognize these potential benefits.

Canadian earned depletion base $ Canadian exploration expenditures Foreign exploration and development expense Share issue costs Noncapital losses (expiring 2009 to 2028) 2009 2010 2014 2015 2026 2027 2028

128,4591,553,847

583,931127,008346,743130,717189,741630,851374,962465,666587,418

$ 5,119,343

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1 4 . c o m m i t m e n tBy agreement dated June 14, 2007, the Company is committed under an operation lease for its office premises with the following lease pay-ments to the expiration of the lease on September 30, 2012: 2009 $ 9,600 2010 9,600 2011 9,600 2012 9,600 $ 38,400

1 5 . s u b s e q u e n t e v e n t n o t eSubsequent to the year end, Marathon PGM Corporation completed the first stage of the Option and Joint Venture Agreement on the Bird River Property which consisted of a work expenditure commitment of $500,000 and a cash payment of $50,000.

1 6 . c o m P a R a t i v e f i G u R e sCertain comparative figures have been reclassified to conform with current year presentation.

1 7 . d i f f e R e n c e s b e t W e e n c a n a d i a n a n d u . s . G e n e R a L Ly a c c e P t e d a c c o u n t i n G P R i n c i P L e s a n d P R a c t i c e sThe financial statements have been prepared in accordance with accounting principles and practices generally accepted in Canada (Canadian generally accepted accounting principles GAAP) which differ in certain respects from those principals and practices that the Company would have followed had its financial statements been prepared in accordance with principals and practices generally accepted in the United States of America (U.S. generally accepted accounting principles GAAP). Under U.S. generally accepted accounting principles, the accounting treatment would differ as follows: Before April 1, 2007, under Canadian GAAP, the Company recorded its investments using the lower of cost or market method. In addi-tion, if there was a loss other than temporary, the investment was written down to recognize the loss. However, under U.S. GAAP, marketable equity securities that are available-for-sale are recognized at market value with any unrealized gains or losses recognized in other comprehen-sive income, except if there is a loss other than temporary, which is directly recognized as a loss.

Under Canadian income tax legislation, the Company is permitted to issue shares whereby the Company agrees to incur Canadian Explora-tion Expenditures (as defined in the Canadian Income Tax Act) and renounce the related income tax deductions to the investors. Under Canadian GAAP, the full amount of funds received from flow-through share issuances are recorded as share capital. Under U.S. GAAP, the premium paid for the flow-through shares in excess of market value is credited to liabilities and included in income when the related tax benefits are renounced by the Company.

Under U.S. GAAP the statements of operations and cash flow would disclose cumulative amounts since inception. Furthermore, under U.S. GAAP, and notwithstanding that there is not a specific requirement to segregate the funds pursuant to the flow-through agreements, the flow through funds which are unexpended at the balance sheet date are separately classified as restricted cash. As at March 31, 2008 there were no unexpended flow-through funds (2007 - $Nil).

Under U.S. GAAP, exploration costs are expensed as incurred. As a result, under U.S. generally accepted accounting principles, there is a greater expense in earlier periods and fewer write-downs in subsequent periods than under Canadian generally accepted accounting principles.


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Statements of loss and comprehensive loss 2008 2007 2006 (Restated)

Net loss under Canadian GAAP $ (795,150) $ (798,133) $ (479,826)

Fair value of marketable securities under U.S. GAAP (550) 550 -

Write-down of mineral properties under Canadian GAAP - 231,634 184,909

Write-down of acquisition costs under U.S. GAAP (176,331) (612,054) (271,638)

Net loss under U.S. GAAP $ (972,031) $ (1,178,003) $ (566,555)

Basic and diluted net loss per common share under U.S. GAAP $ (0.04) $ (0.06) $ (0.04)

Balance Sheets 2008 2007 2006

(a) Effect on mineral properties

Mineral properties under Canadian GAAP $ 3,475,331 $ 3,299,000 $ 2,918,580

Adjustment for capitalization of exploration costs

Current year differences (176,331) (380,420) (86,729)

Prior year accumulated differences (3,299,000) (2,918,580) (2,831,851)

Mineral properties under U.S. GAAP $ - $ - $ -

(b) Effect on marketable securities $ - $ 24,400 $ 76,000

Adjustment for fair value (550) 550 -

Marketable securities under U.S. GAAP $ (550) $ 24,950 $ 76,000

(c) Effect on shareholders‘ equity

Shareholders‘ equity under Canadian GAAP $ 5,536,302 $ 3,360,699 $ 3,509,842

Current year difference (176,881) (379,870) (86,729)

Prior year accumulated differences (3,298,450) (2,918,580) (2,831,851)

Shareholders‘ equity under U.S. GAAP $ 2,060,971 $ 62,249 $ 591,262

Had the Company followed U.S. generally accepted accounting principles in accounting for the exploration costs, the effect on the financial statements would have been as follows:

Also, the impact on the statement of cash flows would be as follows:

As a result of the treatment of mining interests under item (a) above, cash expended for the exploration costs would have been classified under U.S. GAAP as an operating activity rather than an investing activity.

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Also, U.S. GAAP requires disclosure of combined financial information with regard to the equity investment in The Claims Network Inc. The combined information is as follows:

2008 2007 2006

Cash $ 259,724 $ 174,697 $ 660,644

Short term investments 1,941,526 - -

Marketable securities - 24,400 76,000

Prepaid expenses 31,034 15,409 37,200

Accounts receivable 164,449 196,292 134,034

Mining properties 3,475,331 3,299,000 2,918,580

Future income tax 12,400 33,400 296,000

Fixed assets 32,006 20,551 21,568

Accounts payable (243,260) (270,454) (206,125)

Share capital (11,685,239) (9,495,189) (9,166,839)

$ (6,012,029) $ (6,001,894) $ (5,228,938)

Revenue $ 900,565 $ 837,836 $ 815,710

Expenses (1,651,403) (1,355,708) (1,341,382)

Loss $ (750,838) $ (517,872) $ (525,672)

Recent US GAAP accounting pronouncements

In March 2005, the FASB ratified a consensus reached by the EITF on Issue No. 4-6 entitled “Accounting for Stripping Costs Incurred during Production in the Mining Industry.” This consensus affects the accounting for costs of removing overburden and waste materials during the production phase of a mine. The consensus requires that stripping costs are to be accounted for as variable production costs and charged to operations during the period that the stripping costs are incurred. This consensus is required to be adopted in the fiscal year ending January 31, 2007. This consensus has had no effect in the current fiscal year since the Company is not yet in the production phase.

In May 2005, the FASB issued SFAS 154 Accounting Changes and Error Corrections, effective for accounting changes and error corrections made in fiscal years beginning after December 15, 2005, has been introduced and requires, unless impracticable, retroactive application as the required method for reporting changes in accounting principles in the absence of transitional provisions specific to the newly adopted accounting principle.

In July 2006, the FASB issued FASB Interpretation No.48, “Accounting for Uncertainty in Income Taxes” (FIN 48). FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective in fiscal years beginning after December 15, 2006. The provisions of FIN 48 are to be applied to all tax positions upon initial adoption, with the cumulative effect adjustment reported as an adjustment to the opening balance of retained earnings. The Company does not expect a material effect on the financial statements from the adoption of this standard.

In September 2006, the FASB issued Statement 157 “Fair Value Measurements”. Statement 157 will become effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. This statement defines fair value,


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establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measure-ments. The Company is currently evaluating the potential impact, if any, that the adoption of Statement 157 “Fair Value Measurements” will have on the financial statements. In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations”, which requires the acquiring entity in a business combina-tion to recognize and measure all assets and liabilities assumed in the transaction and any non-controlling interest in acquiree at fair value as of the acquisition date. SFAS No. 141(R) also establishes guidance for the measurement of the acquirer shares issued in consideration for a business combination, the recognition of contingent consideration, the accounting treatment pre-acquisition gain and loss contingencies, the treatment of acquisition related costs, and the recognition of changes in the acquirer’s income tax valuation allowance and deferred taxes. SFAS No. 141(R) is effective for fiscal years beginning after December 15, 2008 and is to be applied prospectively as of the beginning of the fiscal year in which the statements is applied.

Early adoption is not permitted. SFAS No. 141(R) will be effective for the Company beginning with the 2009 fiscal year. The Company is evaluating the potential impact of SFAS No. 141(R), if any, on its financial statements.

In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interest in Consolidated Financial Statements - an amendment of ARB 51”, which establishes accounting and reporting standards that required non-controlling interests to be reported as a component of equity. SFAS No. 160 also requires that changes in a parent’s ownership interest while the parent retains its controlling interest be accounted for as equity transactions and that any retained non-controlling equity investments upon deconsolidation of a subsidiary be initially measured at fair value. SFAS No. 160 is effective for fiscal years beginning after December 15, 2008 and is to be applied prospectively as of the beginning of the fiscal year in which the statement is applied. SFAS No. 160 will be effective for the Company beginning with the 2009 fiscal year. The Company is evaluating the potential impact of SFAS No. 160, if any, on the Company’s financial instruments but, at minimum it would required the reclassifying of the non-controlling interests from liabilities to a component of equity.

In February 2007, the FASB issued Statement 159 “Fair Value Option”. Statement 159 will become effective for financial statements issued for fiscal years beginning November 15, 2007, and interim periods within those fiscal years. This statement permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This statement is expected to expand the use of fair value measurement for accounting for financial instruments. The Company is currently evaluating potential impact, if any, that the adoption of statement 159 “Fair Value Option” will have on the statements.

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Gossan Resources LimitedSuite 404 - 171 Donald StreetWinnipeg Manitoba Canada R3C 1M4 Tel: (204) 943-1990 Fax: (204) 942-3434E-mail: [email protected] Website: www.gossan.ca

GSS on the TSX Venture Exchange GSR on the Frankfurt-Freiverkehr & Xetra Exchanges

Outstanding: 29,020,900Fully Diluted: 33,758,900

CIBC Mellon Trust CompanyPO Box 1 - 320 Bay StreetToronto, Ontario M5H 4A6Tel: 1-800-387-0825 Tel: (416) 643-5500

R. Stefanyshyn, L.L.B. 80 St. Anne’s RoadWinnipeg, Manitoba R2M 2Y7

Meyers Norris Penny LLP500 - 1661 Portage AvenueWinnipeg, Manitoba R3J 3T7

Douglas Reeson, MBA Director & PresidentRichard Stefanyshyn, LLB LLB, Secretary & CFOCarl Chester Vice-President G. Ryan Cooke, P.Geo. DirectorLouis Chastko, P.Geo. DirectorCharles de Chezelles, MBA, LLB Director William McGuinty, B.Sc., P.Geo. DirectorAndrew Thomson Director

James W. Campbell, P.Geo., P.Eng. Honourary Chair

h e a d o f f i c e

L i s t i n G

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t R a n s f e R a G e n t

L e G a L c o u n s e L

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c o R P o R a t e d i R e c t o R y

G o s s a n R e s o u R c e s L i m i t e d Suite 404 - 171 Donald Street Winnipeg, MB • R3C 1M4 • Canada Tel: (204) 943-1990 • Fax: (204) 942-3434E-mail: [email protected] • Website: www.gossan.ca

2008 annuaL RePoRt · Drilling to date has been successful in outlining substantial zones of silica...

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