wesdome 2010 annual report

long-term sustainability

performance

GO

LD

Kiena

safety

responsibility

Eagle

Rive

r

canadian

growthunhedged

Setting the Stage for growth

WESDOME GOLD MINES LTD.2010 ANNUAL REPORT


performance

GO

LD

Kiena

safety

responsibility

Eagle

Rive

r

canadian

growth

unhedged

wesdome was created to provide investors a leveraged

investment in gold and has been producing gold

continuously for over 20 years. the Company has put five

mines into production since 1987 and is well-positioned

for the next five years. wesdome survived through

low gold price periods and thrived in higher

gold price periods by focusing both short-term and

long-term decisions on the pursuit of excellence in

Safety, Sustainability and Performance. this purpose-

driven philosophy will continue to guide our Company

through the continued operation of its established

mining assets as well as through the exploration and

development of our next generation of mines.

ContentSMessage to Shareholders ......................................... 2

2010 Highlights ...................................................... 4

Management’s Discussion and Analysis ................... 7

Management’s Responsibility for Financial Statements ............................................. 24

Independent Auditors’ Report ............................... 25

Consolidated Balance Sheets ................................ 26

Consolidated Statements of Income and Comprehensive Income ......................................... 27

Consolidated Statements of Shareholders’ Equity ... 28

Consolidated Statements of Cash Flows .................. 29

Notes to the Consolidated Financial Statements ...... 31

Reserves and Resources ......................................... 43

Corporate Information ........................................... 44

WESDOME GOLD MINES LTD. 2010 ANNUAL REPORTWESDOME GOLD MINES LTD. 2010 ANNUAL REPORT 1


performance

GO

LD

Kiena

safety

responsibility

Eagle

Rive

r

canadian

growth

unhedged

In 2010, our company made a significant investment in exploration and new project development. Despite achieving only modest production levels with respectable earnings, this investment extends our mines’ lives and sets the stage for an achievable and affordable growth profile moving forward.

In light of a very competitive acquisition market in the gold mining sector, the Company pursued a strategy of organic growth by leveraging existing expertise and mining and milling infrastructure in our own backyard. Our large, strategically located properties are proven gold producers and continue to offer significant untapped exploration and development potential. This past year’s investment in drilling and development resulted in a 70% increase in Proven and Probable reserves, and a 365% increase in Measured and Indicated resources. This drilling was funded entirely by operating cash flow. We have an equally aggressive drilling program designed for 2011.

In Ontario, the 811 zone at Eagle River generated some very high grade drilling results at depth. In 2010, production came from lower grade portions of the mine while we developed a new decline to provide access to this high grade at depth. Despite a 16-year mining history at Eagle River, almost all production has come from above 500 metres depth – still very modest depths for underground gold mining.

We advanced our Mishi Project through a Preliminary Feasibility Study which demonstrates significant incremental production potential with little capital at risk. We are developing this project immediately with an initial 5-year mine plan. Perhaps more importantly, comprehensive compilation and resource modelling indicates a much larger mineralized system than previously recognized. Ongoing drilling will progressively examine the potential and economics of a much larger surface and underground mining scenario.

In Val d’Or, the Kiena mine continued its steady, efficient and safe operations. We commenced an exploration drift to the Dubuisson discovery, have progressed steadily and will be in position to systematically drill it this year. We are confident it provides potential for significant production increases at above average grades.

The Company continues to focus on increasing shareholders’ returns and improving longevity through resource growth.

We forecast significant production growth in 2012 as the results of this year’s investments start showing up at the mill. We are proud of our operating team and congratulate them again on a job well done.

On behalf of the Board of Directors,

Donovan Pollitt, P.Eng., CFA President and CEO March 22, 2011

meSSageto ShareholderS

“Our large, strategically located properties are proven gold producers and continue to offer significant untapped exploration and development potential.”

~ donovan Pollitt

WESDOME GOLD MINES LTD. 2010 ANNUAL REPORTWESDOME GOLD MINES LTD. 2010 ANNUAL REPORT2 3


performance

GO

LD

Kiena

safety

responsibility

Eagle

Rive

r

canadian

growth

unhedged

2010 highlightS

k Proven and Probable reserves increase 70% to 319,000 ounces

k measured and indicated resources increase 365% to 629,000 ounces

k net income of $3.7 million or $0.04 per share

k Cash flow from operations of $21.1 million or $0.21 per share

k eagle river drilling demonstrates increasing grades and widths at depth

k Kiena achieves record safety milestone

k mishi Pit pre-feasibility study demonstrates robust economics



performance

GO

LD

Kiena

safety

responsibility

Eagle

Rive

r

canadian

growth

unhedged

Setting the Stagefor Safety & reSPonSibility

management’SdiSCuSSionand analySiS

Safety is our utmost responsibility. Zero underground

fatalities in over 20 years of underground mining is

our track record. although our operating teams have

achieved excellent safety records to date, tomorrow is

another day and we must be unrelenting in our vigilance,

training and communication.


SELECTED ANNUAL INFORMATION

(in thousands except loss per common share) 2010 2009 2008

Total revenue $ 89,461 $ 103,536 $ 80,961

Net income 3,735 32,165 9,362

Income per common share 0.04 0.32 0.09

Total assets 155,145 143,255 115,384

Long term financial liabilities 13,462 11,997 14,316

RESULTS OF OPERATIONS

Three Months Ended Dec 31 Twelve Months Ended Dec 31

2010 2009 2010 2009

Eagle River Mine

Tonnes milled 39,281 29,970 155,554 132,004

Recovered grade (g/t) 7.9 13.0 7.3 14.3

Production (oz) 10,004 12,503 36,712 60,754

Sales (oz) 10,000 15,000 40,000 56,300

Bullion inventory (oz) 8,793 12,081 8,793 12,081

Bullion revenue ($thousands) 14,013 17,543 50,690 62,649

Operating costs ($thousands) 10,760 7,650 34,700 28,273

Mine operating profit ($thousands) * 3,253 9,893 15,990 34,376

Gold price realized ($Cdn/oz) 1,399 1,168 1,266 1,112

Kiena Mine Complex

Tonnes milled 84,751 89,536 285,527 302,034

Recovered grade (g/t) 4.2 3.0 3.5 3.6

Production (oz) 11,508 8,690 32,162 35,398

Sales (oz) 9,000 9,000 30,000 36,400






Total

Production (oz) 21,512 21,193 68,874 96,152

Sales (oz) 19,000 24,000 70,000 92,700






*The Company has included in this report certain non-GAAP performance measures, including mine operating profit and operating costs to applicable sales.These measures are not defined under GAAP and therefore should not be considered in isolation or as an alternative to or more meaningful than, net income(loss) or cash flow from operating activities as determined in accordance with GAAP as an indicator of our financial performance or liquidity. The Company believes that, in addition to conventional measures prepared in accordance with GAAP, certain investors use this information to evaluate the Company’s performance and ability to generate cash flow.

management’S DiscUssiON AND ANALysis

FOR THE YEAR ENDED DECEMBER 31, 2010

This Management’s Discussion and Analysis dated March 22, 2011 should be read in conjunction with Wesdome Gold Mines Ltd.’s (“Wesdome” or “the Company”) audited consolidated financial statements for the year ended December 31, 2010, and their related notes which have been prepared in accordance with Canadian generally accepted accounting principles (“GAAP”). This Management’s Discussion and Analysis contains “forward-looking statements” that are subject to risk factors set out in the cautionary statement below. All figures are in Canadian dollars unless otherwise stated. Additional information on Wesdome Gold Mines Ltd., including current and previous years’ Annual Information Forms (“AIF”) and other corporate information, can be found at www.wesdome.com or www.sedar.com. Wesdome trades on the Toronto Stock Exchange under the symbol “WDO”.

CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS

All statements, other than statements of historical fact, constitute “forward-looking statements” and are based on expectations, estimates and projections as at the date of this MD&A. The words ”believe”, “expect”, “anticipate”, “plan”, “intend”, “continue”, “estimate”, “may”, ”will”, “schedule” and similar expressions identify forward-looking statements. The Company cautions the reader that such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Wesdome to be materially different from the Company’s estimated future results, performance or achievements expressed or implied by the forward-looking statements and the forward-looking statements are not guarantees of future performance. Factors that could cause results or events to differ materially from current expectations expressed or implied are inherent to the gold mining industry and include, but are not limited to, those discussed in the section entitled “Risks and Uncertainties”. The Company does not intend, and does not assume any obligation to update these forward-looking statements, whether as a result of new information, future events or results or otherwise except as required by applicable laws.

OVERALL PERFORMANCE

The Company owns and operates the Eagle River gold mining operations in Wawa, Ontario and the Kiena Mine Complex in Val d’Or, Quebec. The Eagle River mine commenced commercial production January 1, 1996 and the Kiena mine August 1, 2006.

At December 31, 2010, the Company had working capital of $30.7 million. During the year ended December 31, 2010, cash flow from operations totalled $21.1 million, $19.6 million of capital investments in exploration, development and mining equipment were made and $2.0 million in dividends were paid. Net income for the year ended December 31, 2010, was $3.7 million.

In 2010, mining operations at the Eagle River mine were in a low grade sequence with recovered grades averaging about half those of 2009. During this time development work to access the higher grade western portions of the mine was undertaken. Once access is established at new depths the orebody will be developed for mining of higher grade material over the next three years. We expect these better grades to come onstream in 2012. Also, in 2010, the Company launched development programs for the Dubuisson Zone in Val d’Or and the Mishi open pit mine in Ontario. These new projects form the basis of the Company’s internal production growth prospects over the short and medium term.

management’S DiscUssiON AND ANALysis


Gold sales exceeded operating costs resulting in a mine operating profit, or gross margin, of $26.6 million. In addition to these direct operating costs, additional costs, including royalty payments, corporate and general costs and interest costs totalled $5.0 million.

At the Eagle River mine grades averaged 7.3 gAu/tonne in 2010 compared to 14.3 gAu/tonne in 2009. We were mining low grade portions of the mine while establishing access at deeper levels to the high grade western portion of the mine. Very encouraging drilling results in this area served to increase Eagle River’s proven and probable mineral reserves 50%, net of depletion, compared to last year. More importantly, the quality of the reserves improved with the average diluted grade almost doubling to 15.0 gAu/tonne. This material will start being introduced into the mining sequence in 2012.

The Kiena mine produced 32,162 ounces of gold and posted a strong fourth quarter. Kiena continues to be a steady, efficient, lower margin mine with a tremendous safety record and outstanding exploration potential.

Overall average operating costs rose to $897Cdn per ounce sold in 2010 compared to $626Cdn per ounce in 2009. The gross margin declined to $378Cdn per ounce compared to $488Cdn per ounce in 2009. The difference is almost entirely related to the mining of lower grade ore in the mine sequence at Eagle River. The average sales price increased 14.5% to $1,275Cdn from $1,113Cdn in 2009.

In 2010, the Company started driving a one kilometre long exploration drift to the Dubuisson Zone, east of the Kiena mine. Detailed drilling proposed for 2011 will establish size, continuity and mineability of this material. Positive results would offer potential to generate production growth for our Val d’Or operations over the short to medium term.

In Wawa, we completed a prefeasibility study for the Mishi Project located two kilometres west of the Eagle River mill. A 5-year initial mine plan was developed which offers very attractive returns at current gold prices and very modest capital costs. We intend to generate initial production in the fourth quarter of 2011 pending successful completion and regulatory approval of key preproduction activities. The successful initiation of production for Mishi is expected to generate significant incremental cost savings for the Eagle River mine operations.

In 2010, we advanced our internal growth projects and developed access towards higher grade portions of our mines. Combined with an aggressive drilling program we significantly increased our mineral reserves and resources, mine lives and advanced growth projects.

SUMMARY OF QUARTERLY RESULTS 2010

(in thousands except per share data) 4th Quarter 3rd Quarter 2nd Quarter 1st Quarter

Total revenue $ 26,471 $ 20,869 $ 22,408 $ 19,713

Net income (loss) 1,715 (584) 320 2,284

Earnings (loss) per share – basic and diluted 0.02 (0.00) 0.00 0.02

2009

4th Quarter 3rd Quarter 2nd Quarter 1st Quarter

Total revenue $ 28,218 $ 21,489 $ 30,209 $ 23,620

Net income 13,162 3,610 7,817 7,576

Earnings per share – basic and diluted 0.12 0.04 0.08 0.08

FOURTH QUARTER

Wesdome’s production totalled 21,512 ounces. Sales during the quarter totalled $26.6 million with 19,000 ounces sold at an average price of $1,398Cdn per ounce. The cost of sales, or cash cost, was $894Cdn per ounce.

The Eagle River mine produced 10,004 ounces of gold from 39,281 tonnes milled at an average recovered grade of 7.9 gAu/tonne. Sales totalled 10,000 ounces at an average realized price of $1,399Cdn per ounce. Cost of sales, or cash cost, averaged $1,076Cdn per ounce. Mine operating profit for the quarter was $3.3 million.

The Kiena mine produced 11,508 ounces from 84,751 tonnes milled at an average recovered grade of 4.2 gAu/tonne. Sales totalled 9,000 ounces at an average realized price of $1,398Cdn per ounce. Cost of sales, or cash cost, averaged $692Cdn per ounce. With the combination of higher grades, throughput and gold prices the Kiena mine generated a mine operating profit, or gross margin, of $6.4 million.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2010, the Company had working capital of $30.7 million, compared to $35.2 million at year-end 2009. The Company invested $16.7 million in exploration and development, $0.7 million on exploration properties and $2.2 on capital equipment for a total of $19.6 million, compared to $14.2 million in exploration and development, $0.8 million on the acquisition of exploration properties and $4.2 million on capital equipment for a total of $19.2 million in 2009.

The Company’s inventory includes 12,906 ounces of gold bullion, a liquid asset with a market value of $18.1 million on December 31, 2010.

The Company believes it has sufficient capital resources to cover its obligations, capital and operating costs going forward. On April 30, 2010, the Company paid a dividend of $0.02 per share.

Production planned in 2011 should generate operating cash flow, even at gold prices well below those currently being realized.

The following table shows the timing of cash outflows relating to contractual obligations.

Payments Due by Period (in thousands)

Contractual Obligations Total Less than1 year 1 – 2 years 3 – 5 years After 5 years

Equipment leases $ 3,273 $ 1,422 $ 1,653 $ 198 -

Convertible debentures 12,142 765 11,377 - -

$ 15,415 $ 2,187 $ 13,030 $ 198 -

TRANSACTIONS WITH RELATED PARTIES

In fiscal 2010, the Company paid $13,500 in director’s fees (2009: $5,000) to a company whose managing partner is a director of the Company, $36,440 in consulting fees at the Kiena mine (2009: $Nil) to a company whose president is a director of the Company and $Nil (2009: $98,500) to a company whose president was an officer and director of the Company.

These transactions were in the normal course of operations and were measured at the exchange amounts.

management’S DiscUssiON AND ANALysis management’S DiscUssiON AND ANALysis


CRITICAL ACCOUNTING ESTIMATES

(i) Mining properties, plant and equipmentIn accordance with the Company’s accounting policies, amortization commences when a property is put into commercial production and is calculated on the units-of-production method over the expected economic life of the mine. Depreciation is calculated once the asset is placed in service, using units-of-production method over its estimated useful life.

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

(a) Mineralization or formation could be different from those predicted by drilling, sampling and similar tests;(b) The grade of mineral reserves may vary significantly from time to time and there can be no assurance that any particular level of gold may be recovered from the mineral reserves;(c) Declines in the market price of gold may render the mining of some or all of the Company’s mineral reserves uneconomic; and(d) Increase in costs may render the mining of some, or all, of the Company’s mineral reserves uneconomic.

Any of these factors may require the Company to reduce its mineral reserve and mineral resource estimates, change its production estimates or increase its costs. Changes in reserve quantities would cause corresponding changes in amortization expense in periods subsequent to the reserve revision, and could result in impairment of the carrying amount of property, plant and equipment. Management conducts periodic reviews of its mineral properties to determine if write-downs are required.

(ii) Reclamation and closure costs obligationsEnvironmental laws and regulations relating to the protection of the environment are continually changing and generally becoming more restrictive. Wesdome has made, and intends to make in the future, expenditures to comply with such laws and regulations. The Company has recorded a liability and corresponding asset for the fair value of obligations for reclamation and closure costs. The Company estimates its future closure costs for the Eagle River mine, Mishi mine and the mill to be $0.8 million with an additional $1.0 million for the Kiena complex.

(iii) Future income tax assets Future income tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and on unclaimed losses carried forward and are measured using the substantively enacted tax rates that will be in effect when the differences are estimated to reverse or losses are estimated to be utilized. A valuation allowance is recognized to the extent that the recoverability of future income tax assets is not considered more likely than not. The Company has future tax assets associated with its deductible temporary differences and non-capital loss carryforwards, which are available to reduce taxable income in the future.

The Company evaluates the likelihood of using all or a portion of the deductible temporary differences and loss carryforwards based on expected future earnings, the utilization of the deductible temporary differences and the expiry of its loss carryforwards. Based on this information, the Company determines the appropriate amount of income tax valuation allowance that is required to reduce the value of its total deductible temporary differences and loss carryforwards to an amount which it estimates it can more likely than not utilize. As of the end of the current year, the Company determined that it could more likely than not utilize a substantial portion of its tax loss carryforwards and deductible temporary differences based on expected future earnings and the expiry date of its loss carryforwards and, therefore, an income tax valuation allowance was not required. Any changes in estimates would affect the income tax expense on the consolidated statement of income and future tax assets on the consolidated balance sheets. If the actual amount differs from the current estimates, the future tax value of these deductible temporary differences and loss carryforwards may change significantly and the Company may incur a non-cash tax expense.

(iv) Significant estimates and assumptions, also those related to the recoverability of mining and exploration properties, include estimated useful lives of equipment, valuation assumptions, determination as to whether costs are capitalized or expensed and stock compensation. While management believes that these estimates and assumptions are reasonable, actual results could vary significantly.

FINANCIAL INSTRUMENTS – DISCLOSURES AND PRESENTATION

Financial instruments disclosures requires the Company to provide information about: a) the significance of financial instruments for the Company’s financial position and performance and b) the nature and extent of risks arising from financial instruments to which the Company is exposed during the period and at the balance sheet date, and how the Company manages those risks.

Financial Instruments – Fair ValuesFollowing is a table which sets out the fair values of recognized financial instruments using the valuation methods and assumptions

described below:

(in thousands) 2010 2009

Carrying Fair Carrying Fair

Value Value Value Value

Financial assets

Held-for-trading:

Cash and cash equivalents $ 22,806 $ 22,806 $ 23,702 $ 23,702

Restricted funds 2,420 2,420 2,588 2,588

Loans and receivables:

Receivables 7,442 7,442 4,022 4,022

Available-for-sale:

Marketable securities - - 211 211

Financial Liabilities

Other financial liabilities

Payables and accruals 12,938 12,938 7,322 7,322

Convertible 7% debentures 10,072 11,696 9,483 11,122

Determination of Fair ValueThe fair value of a financial instrument is the amount of consideration that would be agreed upon in an arm’s length transaction between willing parties. The Company uses the following methods and assumptions to estimate fair value of each class of financial instruments for which carrying amounts are included in the Consolidated Balance Sheet as follows:

Cash and cash equivalents and restricted cash – The carrying amounts approximate fair values due to the short maturity of these financial instruments.

Receivables – The carrying amounts approximate fair values due to the short maturity of these financial instruments.

Marketable securities – The carrying amounts are measured at fair value with mark- to-market gains and losses excluded from net income and included in other comprehensive income until such gains or losses are realized. At December 31, 2009, marketable securities were valued using the quoted market price to reflect an unrealized gain of $68,000. At December 31, 2010, the Company had disposed of its holdings in marketable securities.

Other financial liabilities – Payables and accruals, and the convertible 7% debentures are carried at amortized cost. The carrying amount of payables and accruals approximates fair value due to the short maturity of these financial instruments. The fair value of the convertible 7% debentures is based on the quoted market price.



3) Credit RiskCredit risk is the risk of a financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligation. The Company minimizes its credit risk by selling its gold exclusively to financial institutions with forty-eight hour terms of settlement. The Company’s accounts receivable consist primarily of government refunds and credits. The Company estimates its maximum exposure to be the carrying value of cash and cash equivalents, accounts receivable and funds held against standby letters of credit.

The Company manages credit risk by maintaining bank accounts with Schedule 1 Canadian banks and investing only in Guaranteed Investment Certificates. The Company’s cash is not subject to any external limitations.

Comprehensive IncomeComprehensive income represents the change in equity of an enterprise during a period from transactions and other events arising from non-owner sources including gains and losses arising on translation of self-sustaining foreign operations, gains and losses from changes in fair value of available for sale financial assets and changes in the fair value of the effective portion of cash flow hedging instruments.

RISKS AND UNCERTAINTIES

The operations of the Company are speculative due to the high risk nature of its business which is the operation, exploration and development of mineral properties. In addition to risks described elsewhere herein, shareholders should note the following:

Nature of Mineral ExplorationThe exploration for and development of mineral deposits involves significant financial risks which even a combination of careful evaluation, experience and knowledge may not eliminate. While the discovery of an orebody may result in substantial rewards, few properties which are explored are ultimately developed into producing mines. Major expenses may be required to establish ore reserves, to develop metallurgical processes and to construct mining and processing facilities at a site. It is impossible to ensure that the exploration programs planned by the Company will result in a profitable commercial mining operation.

Whether a mineral deposit will be commercially viable depends on a number of factors, some of which are the particular attributes of the deposit, such as size, grade and proximity to infrastructure, as well as metal prices which are highly cyclical and government regulations. The exact effect of these factors cannot be accurately predicted, but the combination of these factors may result in the Company not receiving an adequate return on invested capital.

Mining Risks and InsuranceThe business of mining is generally subject to a number of risks and hazards, including environmental hazards, industrial accidents, labour disputes, encountering unusual or unexpected geologic formations, cave-ins, flooding and periodic interruptions due to inclement or hazardous weather conditions. Such risks could result in damage to, or destruction of, mineral properties or producing facilities, personal injury, environmental damage, delays in mining, monetary losses and possible legal liability. Insurance against environmental risks (including potential for pollution or other hazards as a result of disposal of waste products occurring from exploration and production) is not generally available to the Company or to other companies within the industry.

Government Regulations and Environmental MattersThe Company’s activities are subject to extensive federal, provincial and local laws and regulations controlling not only the mining of and exploration for mineral properties, but also the possible effects of such activities upon the environment. Permits from a variety of regulatory authorities are required for many aspects of mine operation and reclamation. Future legislation and regulations could cause additional expense, capital expenditures, restrictions and delays in the development of the Company’s properties, the extent of which cannot be predicted. In the context of environmental permitting, including the approval of reclamation plans, the Company must comply with known standards, existing laws and regulations which may entail greater

The fair value hierarchy for financial instruments measured at fair value is Level 1 for cash and cash equivalents, restricted cash and marketable securities. The Company does not have Level 2 or Level 3 inputs (Note 2).

Financial Risk ManagementThe Company is exposed to a number of different risks arising from normal course business exposures, as well as the Company’s use of financial instruments. These risk factors include: (1) market risks relating to commodity prices, foreign currency risk and interest rate risk; (2) liquidity risk; and, (3) credit risk. The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework and establishes and monitors risk management policies to: identify and analyze the risks faced by the Company; to set appropriate risk limits and controls; and to monitor risks and adherence to market conditions and the Company’s activities.

1) Market RiskMarket risk is the risk or uncertainty arising from possible market price movements and their impact on the future performance of the business. The market price movements that could adversely affect the value of the Company’s financial assets and liabilities include commodity price risk, foreign currency exchange risk and interest rate risk.

(a) Commodity price riskThe Company’s financial performance is closely linked to the price of gold which is impacted by world economic events that dictate the levels of supply and demand. The Company had no gold price hedge contracts in place as at or during the year ended December 31, 2010.

(b) Foreign currency exchange riskThe Company’s revenue is exposed to changes in foreign exchange rates as the Company’s primary product, gold, is priced in U.S. dollars. The Company had no forward exchange rate contracts in place as at or during the year ended December 31, 2010.

(c) Interest rate riskInterest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

Financial assets and financial liabilities with variable interest rates expose the Company to cash flow interest rate risk. The Company’s cash and cash equivalents include highly liquid investments that earn interest at market rates. Fluctuations in market rates of interest do not have a significant impact on the Company’s results of operations due to the short term to maturity of the investments held.

2) Liquidity RiskLiquidity risk is the risk that the Company will not be able to meet its obligations as they fall due. The Company manages its liquidity risk by forecasting cash flows from operations and anticipated investing and financing activities. The Company believes it has access to sufficient capital through internally generated cash flows and equity and debt capital markets. Senior management is also actively involved in the review and approval of planned expenditures.

The following table shows the timing of cash outflows relating to trade payables and accruals, capital leases and convertible debentures:

(in thousands) <1 Year 1-2 Years 3-5 Years Over 5 Years

Payables & accruals $ 12,938 - - -

Mining taxes $ 1,317 - - -

Capital leases $ 1,422 $ 1,653 $ 198 -

Convertible debentures $ 765 $ 11,377 - -



Additional Funding RequirementsFurther exploration on, and development of, the Company’s mineral resource properties, will require additional capital. In addition, a positive production decision on any of the Company’s development projects would require significant capital for project engineering and construction. Accordingly, the continuing development of the Company’s properties will depend upon the Company’s ability to either generate sufficient funds internally or to obtain financing through the joint venturing of projects, debt financing, equity financing or other means. Although the Company has been successful in the past in obtaining financing through the sale of equity securities and the issuance of debt instruments, there can be no assurance that it will obtain adequate financing in the future.

FUTURE ACCOUNTING CHANGES

International Financial Reporting Standards (“IFRS”)The Canadian Accounting Standards Board (“AcSB”) confirmed in February 2008 that (“IFRS”) will replace Canadian generally accepted (“GAAP”) for publicly accountable enterprises for financial periods beginning on and after January 1, 2011. Accordingly, the Company will issue its first set of interim financial statements prepared under IFRS in the first quarter of 2011 including comparative IFRS financial results and an opening balance sheet as at January 1, 2010 (the “transition date”). The first annual IFRS consolidated financial statements will be prepared for the year ended December 31, 2011 with restated comparatives for the year ended December 31, 2010.

The Company is proceeding with the transition from current Canadian GAAP to IFRS. The transition process consists of three primary phases: scoping and diagnostic phase; impact analysis, evaluation and design phase; and implementation and review phase.

• Scopinganddiagnosticphase–Apreliminarydiagnosticreviewwascompletedatahighlevelwhichdetermined the financial reporting differences under IFRS and the key areas that may be impacted. The areas with the highest potential impact were identified to include the basis of consolidation, impairment of assets, financial instruments and initial adoption of IFRS under the provisions of IFRS 1.• Analysis,quantificationandevaluationphase–Inthisphase,eachareaidentifiedfromthescopinganddiagnostic phase is being addressed in order of descending priority. This phase involves specification of changes required to existing accounting policies, information systems and business processes, together with an analysis of policy alternatives allowed under IFRS and development of draft IFRS financial statement content. The Company anticipates that there will be changes in accounting policies and that these changes may materially impact the financial statements. The full impact on future financial reporting has not been determined or estimated at this time.• Implementationandreviewphase–Thisphaseincludesexecutionofanychangestoinformationsystemsand business processes and completing formal authorization processes to approve recommended accounting policy changes. It will also include the collection of financial information necessary to compile IFRS-compliant financial statements and audit committee approval of IFRS financial statements.

Having completed the scoping and diagnostic phase finalization and approval of accounting policies and IFRS 1 exemptions are underway. Preparation of the opening IFRS balance sheet is in progress. The Company has identified the areas that will be affected by the transition to IFRS.

or lesser costs and delays depending on the nature of the activity to be permitted and how stringently the regulations are implemented by the permitting authority. While it is possible that the costs and delays associated with compliance with such laws, regulations and permits could become such that the Company would not proceed with the development or operation of a mine, the Company is not aware of any material environmental constraint affecting its properties that would preclude the economic development or operation of any specific property.

In Ontario, the Company has obtained approval for its closure plan for the Eagle River mill, Eagle River mine and the Mishi-Magnacon complex and has provided security of approximately $0.8 million to cover estimated rehabilitation and closure costs. In Quebec, the Company has obtained approval for its closure plan for the Kiena mine and milling complex and has provided security of approximately $1.0 million to cover estimated rehabilitation and closure costs. In the event of any future expansion or alteration of a mine on the Eagle River property or the Kiena mine, the Company would likely be required to amend its closure plans and could also be required to provide further security. The Company believes it is currently in compliance in all material respects with the legislation described above.

Reliance on ManagementThe Company is heavily reliant on the experience and expertise of its executive officers. If any of these individuals should cease to be available to manage the affairs of the Company, its activities and operations could be adversely affected.

Economic ConditionsGeneral levels of economic activity and recessionary conditions may have an adverse impact on the Company’s business.

Mineral Resource and Mineral Reserve EstimatesThere are numerous uncertainties inherent in estimating mineral resources and mineral reserves, including many factors beyond the Company’s control. Such estimation is a subjective process, and the accuracy of any mineral resources and mineral reserves estimate is a function of the quality of available data and of the assumptions made and judgements used in engineering and geological interpretation. Differences between management’s assumptions, including economic assumptions such as metal prices and market conditions, could have a material effect in the future on the Company’s financial position and results of operations.

CompetitionThe mining industry is intensely competitive in all of its phases, and the Company competes with many companies possessing greater financial resources and technical facilities in its search for, and the acquisition of, mineral properties as well as the recruitment and retention of qualified employees with technical skills and experience in the mining industry. There can be no assurance that the Company will be able to compete successfully with others in acquiring mineral properties, obtaining adequate financing and continuing to attract and retain skilled and experienced employees.

Conflicts of InterestCertain officers and directors of the Company are, or may be, associated with other companies that acquire interests in mineral properties. Such associations may give rise to conflicts of interest from time to time. The directors are required by law to act honestly and in good faith with a view to the best interests of the Company and to disclose any interest which they may have in any project or opportunity of the Company. Not every officer or director devotes all of their time and attention to the affairs of the Company.

InsuranceThe Company carries insurance to protect against certain risks in such amounts as it considers adequate. Risks not insured against include environmental pollution, mine flooding or other hazards against which such companies cannot insure or against which they may elect not to insure.



First Time Adoption (IFRS 1)IFRS 1 provides guidance to entities on the general approach to be taken when first adopting IFRS. The underlying principle of IFRS 1 is retrospective application of IFRS standards in force at the date an entity first reports using IFRS. IFRS 1 acknowledges that full retrospective application may not be practical or appropriate in all situations and prescribes: • OptionalexemptionsfromspecificaspectsofcertainIFRSstandardsinthepreparationoftheCompany’sopening balance sheet; and • MandatoryexceptionstoretrospectiveapplicationofcertainIFRSstandards.

Additionally, to ensure financial statements contain high-quality information that is transparent to users, IFRS 1 contains disclosure requirements to highlight changes made to financial statement items due to the transition to IFRS.

The Company has elected to apply the following exemptions in its preparation of an opening IFRS statement of consolidated financial position as at the transition date:

• ToapplyIFRS2Share-BasedPaymentsonlytoequityinstrumentsthatwereissuedafterNovember7,2002andhad not vested by the transition date; and• ToapplyIFRS3BusinessCombinationsprospectivelyfromthetransitiondate,thereforenotrestatingbusiness combinations that took place prior to the transition date.

In accordance with the requirements of IFRS 1, the Company will record transition adjustments where applicable against retained earnings as at January 1, 2010 for differences between our Canadian GAAP and IFRS accounting.

Prior to reporting interim consolidated financial statements in accordance with IFRS for the year ending December 31, 2011, the Company may decide to apply other optional exemptions contained in IFRS 1.

Property, Plant and Equipment (IAS 16)Under IFRS, the Company can elect to measure property, plant and equipment (“PP&E”) using either the cost model or the revaluation model. Canadian GAAP only accepts the cost model. The Company will not select the revaluation model due to the difficulty and effort needed to determine the fair value. As a result, there will not be a significant impact on the Company’s financial statements on adoption of IFRS. On transition to IFRS, IFRS 1 allows the Company to record property, plant and equipment at fair value. This fair value becomes the deemed cost of the asset for reporting under IFRS. The Company is planning to use this election for its equipment.

Asset Retirement Obligation (IAS 37)Unlike Canadian GAAP, IFRS uses the term decommissioning in place of asset retirement obligation (“ARO”) for legal or constructive obligations to dismantle, remove and restore items of PP&E. IFRS requires discount rates reflect the specific risks involved in the decommissioning provision while under Canadian GAAP, discount rates are based on the Company’s credit adjusted risk free rate. Under Canadian GAAP, the discount rate used to estimate the liability is not updated to current market discount rates, while under IFRS, the rate is updated at each reporting period. The Company has determined that there will not be any significant impact on the consolidated financial statements resulting from this difference.

Impairment (IAS 36)IFRS requires a write down of assets if the higher of the fair market value and the value in use of a group of assets is less than its carrying value. Value in use is determined using discounted estimated future cash flows. Current Canadian GAAP requires a write down to estimated fair value only if the undiscounted estimated future cash flows of a group of assets are less than its carrying value. This approach is different than GAAP (i.e. one step model under IFRS compared to two step model under GAAP). IFRS also requires reversal of impairment losses (excluding goodwill) where previous adverse circumstances have changed; this is prohibited under Canadian GAAP impairment testing which should be performed at the asset level for long-lived assets and intangible assets. Where the recoverable amount cannot be estimated for individual assets, it should be estimated as part of a Cash Generating Unit (“CGU”). The Company has determined that there will not be a material impact to its statements of accounting for impairment under IFRS.

Share-based Payments (IFRS 2)Per IFRS, the forfeiture rate, with respect to share options, needs to be estimated by the Company at the grant date instead of recognizing the entire compensation expense and only record actual forfeitures as they occur. For graded-vesting features, IFRS requires each instalment to be treated as a separate share option grant, because each instalment has a different vesting period and hence the fair value of each instalment will differ. The Company has considered the potential effect of share based payments under IFRS and has concluded that there will be no material impact on its financial statements on adoption of IFRS.

Mineral Property Interest, Exploration and Evaluation Costs (IFRS 6)IFRS 6 applies to expenditures incurred on properties in the exploration and evaluation (“E&E”) phase, which begins when an entity obtains the legal rights to explore a specific area and ends when the technical feasibility and commercial viability of extracting a mineral resource are demonstrable. IFRS 6 requires entities to select and consistently apply an accounting policy specifying which E&E expenditures are capitalized and which are expensed. Unlike IFRS, Canadian GAAP indicates that exploration costs may initially be capitalized if the Company considers that such costs have the characteristics of property, plant and equipment. Exploration and evaluation assets shall be classified as either tangible or intangible according to the nature of the assets acquired. Under the Company’s current accounting policy, acquisition costs of mineral properties, together with direct exploration and development expenses incurred thereon are capitalized. The Company is currently in the process of determining the impact on its statements of a change to its accounting policies.

Income Taxes (IAS 12)Both Canadian GAAP and IFRS follow the liability method of accounting for income taxes, where tax liabilities and assets are recognized on temporary differences. However, there are certain exceptions to the treatment of temporary differences under IFRS that may result in an adjustment to Wesdome future tax liabilities and assets under IFRS. In addition the Company’s future tax liabilities and assets may be impacted by the tax effects of any other changes noted in the above areas. The Company is in the process of analyzing the impact of IAS 12 on the consolidated financial statements.

Convertible Debenture (IAS 32)Under Canadian GAAP the convertible notes were considered to have an embedded share purchase option which was valued separately from the debt component and the value attributed to shareholders’ equity. Following assessment of the terms of the convertible notes under IFRS it was concluded that the embedded share purchase option should be classified as a derivative liability. This change in accounting methodology impacts the classification and measurement of the instrument. The Company’s existing approach complies with recognition and measurement of the instrument. There will be no material change on transition.

Subsequent DisclosuresFurther disclosures of the IFRS transition process are expected as follows:

• TheCompany’sfirstconsolidatedfinancialstatementspreparedinaccordancewithIFRSwillbetheinterim consolidated financial statements for the three months ending March 31, 2011, which will include notes disclosing transitional information and disclosure of new accounting policies under IFRS. These statements will also include 2010 consolidated financial statements for the comparative period, adjusted to comply with IFRS and the Company’s transition date IFRS statement of financial position.

Information SystemsIT implications were assessed with respect to additional information required under IFRS. No significant changes are expected to operate the accounting system under IFRS. Internal ControlsManagement is responsible for ensuring that processes are in place to provide them with sufficient knowledge to support their certification of the financial statements and MD&A, more specifically assessing that the SEDAR filings are presenting fairly the results of the Company. Management will make sure that once the convergence process is completed, it can still certify its filings. The Company does not expect to make a change that materially affects, or is reasonably likely to materially affect, the Company’s ICFR in fiscal 2010 and 2011 due to the transition to IFRS.



Impact on the BusinessThe business processes of the Company are not expected to be effected significantly to operate under IFRS. The Company has no foreign currency transactions, no defined benefit pension plan, no hedging activities, no debt or capital covenants. The Company doesn’t expect that IFRS will have an impact on the requirements or business processes when it enters into flow-through financing. The Company has no compensation arrangements that will be affected by the IFRS implementation. The Company’s Stock Option Plan is not affected by ratios or financial targets.

The International Accounting Standard Board currently has projects underway that are expected to result in new pronouncements and as a result, IFRS as at the transition date is expected to differ from its current form. The final impact of IFRS on the financial statements will only be determined once all applicable standards at the conversion date are known.

Training and CommunicationKey finance staff have attended and continue to attend various IFRS update and training courses. IFRS standard requirements have been communicated to other finance staff.

SUMMARY OF SHARES ISSUED

As of March 22, 2011, the Company’s share information is as follows: Common shares issued 101,336,459 Common share purchase options 1,796,700

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Disclosure Controls and ProceduresIn accordance with the requirements of National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, the Company’s management, including the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), have evaluated the effectiveness of the Company’s disclosure controls and procedures. Based upon the results of that evaluation, the Company’s CEO and CFO have concluded that as at December 31, 2010, the Company’s disclosure controls and procedures to provide reasonable assurance that the information required to be disclosed by the Company in reports it files is recorded, processed, summarized and reported within the appropriate time periods and forms were effective.

Internal Control over Financial ReportingInternal control over financial reporting (“ICFR”) is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with applicable Canadian GAAP. Internal control over financial reporting should include those policies and procedures that establish the following: • Maintenanceofrecordsinreasonabledetail,thataccuratelyandfairlyreflectthetransactionsanddispositionsof our assets; • Reasonableassurancethattransactionsarerecordedasnecessarytopermitpreparationoffinancialstatementsin accordance with applicable Canadian GAAP; • ReceiptsandexpendituresareonlybeingmadeinaccordancewithauthorizationsofmanagementandtheBoardof Directors; and • Reasonableassuranceregardingpreventionortimelydetectionofunauthorizedacquisition,useordispositionofour assets that could have a material effect on the financial instruments.


The Company’s management, with the participation of the CEO and CFO, assessed the effectiveness of the Company’s internal controls over financial reporting and concluded that the change in segregation of duties resulted in a material change in the Company’s internal control over financial reporting during the year ended December 31, 2010. In making its assessment, management and the CEO and the CFO have determined that as at December 31, 2010, the Company’s internal control over financial reporting was effective.

Limitations of Controls and ProceduresThe Company’s management, including the CEO and CFO, believe that any disclosure controls and procedures or internal control over financial reporting, no matter how well conceived and operated can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that any design will not succeed in achieving its stated goals under all potential future conditions. Accordingly, because of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and not be detected.

OUTLOOK

In 2011, we expect similar outputs from Kiena and Eagle River plus initial production from Mishi. This should put us over 70,000 ounces for the year. Clarity on the contribution from Mishi will improve as regulatory requirements are met. We expect 2012 to be a very strong year, perhaps our best ever, as grades rise at Eagle River and the first full year of Mishi kicks in. At Dubuisson drilling will provide information to decide on further development potential.



performance

GO

LD

Kiena

safety

responsibility

Eagle

Rive

r

canadian

growth

unhedged

Setting the Stage for SuStainability

in mining, sustainability encompasses minimizing one’s

ecological footprint, replacing and developing new

ore reserves and investing in the people who make it

happen. our properties, technical know-how, discipline

and track record are a testament to our commitment to

sustainable, long-term operations and our aim is to be

operating clean, safe mines well into the future.

finanCialS


To the Shareholders of Wesdome Gold Mines Ltd.

We have audited the accompanying consolidated financial statements of Wesdome Gold Mines Ltd., which comprise the consolidated balance sheets as at December 31, 2010 and 2009, the consolidated statements of income and comprehensive income, shareholders’ equity and cash flows for the years then ended, and a summary of significant accounting policies and other explanatory information.

Management’s responsibility for the financial statementsManagement is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Canadian generally accepted accounting principles, 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.

Auditor’s responsibilityOur responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements 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 entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.

OpinionIn our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Wesdome Gold Mines Ltd. as at December 31, 2010 and 2009, and the results of its operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles.

Toronto, Canada Chartered AccountantsMarch 22, 2011 Licensed Public Accountants

The accompanying consolidated financial statements and all of the data included in this annual report have been prepared by and are the responsibility of the management of the Company. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Canada and reflect management’s best estimate and judgement based on currently available information.

Management is also responsible for a system of internal control which is designed to provide reasonable assurance that assets are safeguarded, liabilities are recognized and that the accounting systems provide timely and accurate financial reports.

The Board of Directors is responsible for ensuring that management fulfils its responsibilities in respect of financial reporting and internal control. The Audit Committee of the Board of Directors meets periodically with management and the Company’s independent auditors to discuss auditing matters and financial reporting issues. In addition, the Audit Committee reviews the annual consolidated financial statements before they are presented to the Board of Directors for approval.

The Company’s independent auditors, Grant Thornton LLP, are appointed by the shareholders to conduct an audit in accordance with generally accepted auditing standards in Canada, and their report follows.

Toronto, Canada Donald D. OrrMarch 22, 2011 Secretary-Treasurer and CFO

MANAgEMENT’s REsPONsibiLiTy for finanCial StatementS indePendent AUDiTORs’ REPORT


Years Ended December 31 2010 2009 (in thousands, except per share amounts)

Revenue Gold and silver bullion $ 89,383 $ 103,270 Interest and other 78 266 89,461 103,536

Costs and expenses Operating costs 62,784 58,019 Amortization of mining properties 14,040 12,869 Production royalties 917 1,073 Corporate and general 2,489 2,064 Stock based compensation expense 516 495 Interest on long term debt 1,598 1,596 Other interest - 16 Amortization of capital assets 9 1 Accretion of asset retirement obligation 79 71 82,432 76,204

Net income before the following 7,029 27,332Dilution gain (loss) on Moss Lake Gold Mines Ltd. (7) 9Net income before income tax and non-controlling interest 7,022 27,341Income tax (recovery) (Note 15) Current 1,293 (91) Future 2,106 (4,676) 3,399 (4,767)

Net income before non-controlling interest 3,623 32,108

Non-controlling interest 112 57

Net income 3,735 32,165

Other comprehensive income: Change in fair value of available-for-sale marketable securities - 68

Comprehensive income $ 3,735 $ 32,233

Earnings per share (Note 16) Basic and diluted $ 0.04 $ 0.32

See accompanying notes to the consolidated financial statements

ConSolidated bALANcE shEETs ConSolidated StatementS of iNcOME AND cOMPREhENsivE iNcOME

December 31 2010 2009 (in thousands)

AssetsCurrent Cash and cash equivalents (Note 19) $ 22,806 $ 23,702 Receivables (Note 3) 7,442 4,022 Inventory (Note 4) 14,490 14,624 Marketable securities (Note 9) - 211 Future income taxes (Note 15) 1,514 1,199 46,252 43,758

Restricted funds (Note 5) 2,420 2,588Future income taxes (Note 15) 940 2,245Capital assets (Note 6) - 9Mining properties (Note 7) 74,771 64,637Exploration properties (Note 8) 30,762 30,018

$ 155,145 $ 143,255

LiabilitiesCurrent Payables and accruals $ 12,938 $ 7,322 Mining taxes 1,317 - Current portion of obligations under capital leases 1,262 1,240 15,517 8,562

Income taxes payable 58 82Obligations under capital leases (Note 10) 1,735 1,108Convertible 7% debentures (Note 11) 10,072 9,483Asset retirement obligation (Note 12) 1,597 1,324 28,979 20,559

Non-controlling interest in Moss Lake Gold Mines Ltd. 740 857

Shareholders’ EquityCapital stock (Note 13) 116,217 114,567 Contributed surplus 3,807 3,770Accumulated other comprehensive loss - (222)Equity component of convertible debentures (Note 11) 1,970 1,970Retained earnings 3,432 1,754 125,426 121,839

$ 155,145 $ 143,255

Subsequent Event (Note 22)

On behalf of the Board,

Donovan Pollitt Marc Blais Director Director

See accompanying notes to the consolidated financial statements


ConSolidated StatementS of shAREhOLDERs’ EqUiTy ConSolidated StatementS of of cAsh FLOws

Years Ended December 31 2010 2009 (in thousands)

Operating activities Net income $ 3,735 $ 32,165 Amortization of mining properties 14,040 12,869 Accretion of discount on convertible debentures 589 516 Dilution (gain) loss on Moss Lake Gold Mines Ltd. 7 (9) Non-controlling interest (112) (57) Stock based compensation expense 516 495 Amortization of capital assets 9 1 Future income taxes 2,106 (4,676) Gain on sale of equipment (216) (1) Gain on property held for sale - (122) Loss on sale of marketable securities 362 - Accretion of asset retirement obligation 79 71 21,115 41,252 Net changes in non-cash working capital (Note 19) (568) (4,745) 20,547 36,507

Financing activities Exercise of options 1,232 984 Funds paid to repurchase common shares under NCIB (78) (38) Funds paid to repurchase debentures - (477) Share issuance costs (40) (105) Dividends paid (2,013) (1,995) Shares issued by a subsidiary of the company to third parties - 17 Repayment of obligations under capital leases (1,589) (1,890) (2,488) (3,504)

Investing activities Additions to mining and exploration properties (23,620) (17,857) Proceeds on sale of equipment 235 577 Proceeds on sale of marketable securites 71 - Proceeds on property held for sale (Note 9) - 400 Funds held against standby letters of credit 168 (285) (23,146) (17,165) Net changes in non-cash working capital (Note 19) 4,191 (165) (18,955) (17,330)

(Decrease) increase in cash and cash equivalents (896) 15,673

Cash and cash equivalents, beginning of year 23,702 8,029

Cash and cash equivalents, end of year (Note 19) $ 22,806 $ 23,702

Supplemental disclosure (Note 19)

Accumulated Equity Other Component Retained Total Capital Contributed Comprehensive Convertible Earnings Shareholders’(in thousands) Stock Surplus Loss Debentures (Deficit) Equity

Balance, December 31, 2008 $ 113,872 $ 3,648 $ (290) $ 2,062 $ (28,470) $ 90,822

Net income for year ended December 31, 2009 - - - - 32,165 32,165

Tax effect of flow-through share renunciation (526) - - - - (526)

Share issuance costs flow-through shares issued (105) - - - - (105)

Exercise of options 984 - - - - 984

Value attributed to options exercised 376 (376) - - - -

Shares purchased under NCIB (34) 3 - - (7) (38)

Gain on equity component of early repurchase of convertible debentures - - - (92) 61 (31)

Stock based compensation - 495 - - - 495

Revaluation to fair value of marketable securities - - 68 - - 68

Dividends paid - - - - (1,995) (1,995)

Balance, December 31, 2009 114,567 3,770 (222) 1,970 1,754 121,839

Net income for year ended December 31, 2010 - - - - 3,735 3,735

Share issuance costs flow-through shares issued (27) - - - - (27)

Exercise of options 1,232 - - - - 1,232

Value attributed to options exercised 479 (479) - - - -

Stock based compensation - 516 - - - 516

Realized loss on sale of marketable securities - - 222 - - 222

Shares purchased under NCIB (34) - - - (44) (78)

Dividends paid - - - - (2,013) (2,013)

Balance, December 31, 2010 $ 116,217 $ 3,807 $ - $ 1,970 $ 3,432 $ 125,426

See accompanying notes to the consolidated financial statements See accompanying notes to the consolidated financial statements



performance

GO

LD

Kiena

safety

responsibility

Eagle

Rive

r

canadian

growth

unhedged

Setting the Stagefor PerformanCe

operating performance is a core pursuit at wesdome.

with solid operating performance comes profit and

growth – not the other way around. our investment in

properties, people and infrastructure when the gold price

was low has resulted in superior operating performance

in recent years. going forward, wesdome’s disciplined

approach to acquisitions, focus on organic growth within

its wholly-owned mining operations and daily pursuit of

operational excellence should deliver better long-term

cumulative returns to investors. as one of the rare gold

mining companies with retained earnings on its balance

sheet, our Company looks to be on the right track.

noteS to the ConSolidated finanCial StatementS


1. DESCRIPTION OF BUSINESS

Wesdome Gold Mines Ltd. (“Wesdome Ltd.” or “the Company”) is a gold producer engaged in gold mining and related activities including exploration, extraction, processing and reclamation. The Company’s principal assets include the Eagle River mine, the Mishi mine and the Eagle River mill located near Wawa, Ontario and the Kiena mining and milling complex and exploration properties located in Val D’Or, Quebec. The Company is a publicly traded company, continued under Part 1A of the Companies Act (Quebec) and its common shares are listed on the Toronto Stock Exchange (TSX : WDO).

2. SIGNIFICANT ACCOUNTING POLICIES

These consolidated financial statements have been prepared by management in accordance with accounting principles generally accepted in Canada (“GAAP”) using the following significant accounting policies.

Basis of PresentationThe consolidated financial statements are expressed in Canadian dollars (C$) which is the functional and reporting currency and include the accounts of the Company and its 57.58% (2009: 56.45%) owned subsidiary Moss Lake Gold Mines Ltd. (“MLGM”).

On December 31, 2009, the Company underwent a reorganization involving its wholly-owned subsidiaries, Wesdome Resources Limited (‘WRL”), Wesdome Gold Mines Inc. (“WGMI”) and Western Québec Mines Inc. (“Western Québec”). WGMI was amalgamated by way of short-form vertical amalgamation with WRL to form “New WGMI”. “New WGMI” was then wound up into Wesdome Ltd. by way of dissolution. Western Québec was subsequently wound up into Wesdome Ltd. by way of dissolution. All of these transactions were under the laws of Québec.

Estimates, Risks and UncertaintiesThe preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amount of expenses and other income during the year. Significant estimates and assumptions include those related to the recoverability of mining and exploration properties, estimated useful lives of capital assets and mining properties, asset retirement obligations, determination of income tax assets and liabilities, the equity component of the convertible debentures and stock based compensation expense. Certain estimates relating to tax credits on exploration activities have been revised during the year, however, determination of the estimated impact on future periods is not practicable. While management believes that these estimates and assumptions are reasonable, actual results could vary significantly. The carrying value of the Company’s principal assets could be subject to material adjustment in the event that the Company is not successful in generating operating cash flow and financing for its development and exploration activities.

Cash and Cash EquivalentsCash and cash equivalents include cash on hand, balances with banks and highly liquid investments with maturities of less than three months.

InventoryInventories of gold bullion are recorded at the lower of production costs on a first-in, first-out basis and net realizable value. Production costs include costs related to mining, crushing, and mill processing, as well as applicable overhead, depreciation and amortization.

Supplies are valued at the lower of average cost and replacement cost, which approximates net realizable value.

Capital AssetsCapital assets are recorded at cost less accumulated amortization. Amortization of capital assets used for exploration is capitalized to exploration properties.

Amortization is provided over the expected useful lives using the following methods and annual rates: Office equipment – 20% straight-line

Mining PropertiesMining properties are carried at cost less accumulated amortization.

All costs associated with pre-production and development activities, including the cost of construction or acquisition of mine buildings, power lines and equipment, are capitalized as incurred. Capitalized costs also include costs incurred during the exploration stage transferred from exploration properties.

Amortization of mine buildings and mills, equipment and pre-production and development costs commences when a property is put into commercial production, and is calculated on the unit of production method over the expected economic life of the mine.

The amounts capitalized represent costs to be charged to operations in the future and do not necessarily reflect the present or future values of the particular properties.

Development costs incurred to expand the capacity of an operating mine, develop new ore bodies or develop mine areas substantially in advance of current production are capitalized and charged to operations calculated on the unit of production method over the expected economic life of the mine.

Exploration PropertiesEach property is accounted for as a separate project. All direct costs related to the acquisition and exploration of a property are capitalized as incurred. If a property proceeds to development, these costs become part of the pre-production and development costs of the mine. If a property is abandoned or continued exploration is not deemed appropriate in the foreseeable future, the related costs and expenditures are written off.

Capitalized expenditures are charged to operations as amortization or loss on impairment or gain/loss on disposal when operations commence or impairment is demonstrated or when the properties are disposed of. These capitalized costs do not necessarily reflect the present or future values of particular properties.

Impairment of Long-lived AssetsThe Company monitors events and changes in circumstances which may require an assessment of the recoverability of its long-lived assets. If required, the Company would assess recoverability using estimated undiscounted future operating cash flows. If the carrying amount of an asset is not recoverable, an impairment loss is recognized in operations, measured by comparing the carrying amount of the asset to its fair value.

Asset Retirement ObligationThe Company provides for the fair value of liabilities and capitalized costs for asset retirement obligations in the period in which they are incurred. Over time, the liability is accreted to its present value and the capitalized cost is amortized over the useful life of the related asset. Asset retirement obligations are obligations of the Company that arise as a result of an existing law, regulation or contract related to asset retirements. Future costs to retire an asset include dismantling, remediation and ongoing treatment and monitoring of the site. Subsequent to the initial recognition of the asset retirement obligation and associated asset retirement cost, any changes resulting from a revision to either timing or amount of estimated cash flows are prospectively reflected in the year those estimates change.

Financial Instruments – Recognition and MeasurementThe Company designates its financial instruments into one of the following five categories: held-for-trading, available-for-sale, held-to-maturity, loans and receivables, and other financial liabilities. All financial instruments are to be initially measured at fair value. Financial instruments classified as held-for-trading or available-for-sale are subsequently measured at fair value with any change in fair value recorded in net earnings and other comprehensive income, respectively. All other financial instruments are subsequently measured at amortized cost using the effective interest method.

As at December 31, 2010 cash and cash equivalents and restricted funds are classified as held-for-trading. Receivables are classified as loans and receivables. Payables and accruals and convertible debentures are classified as other financial liabilities.

All derivative financial instruments, including derivative features embedded in financial instruments or other contracts but which are not considered closely related to the host financial instrument or contract, are generally classified as held-for-trading and, therefore, must be measured at fair value with changes in fair value recorded in net earnings. However, if a derivative financial instrument is designated as a hedging item in a qualifying cash flow hedging relationship, the effective portion of changes in fair value is recorded in other comprehensive income. Any change in fair value relating to the ineffective portion is recorded immediately in net earnings.

Embedded derivatives are required to be separated from the host contract and accounted for as a derivative financial instrument if the embedded derivative and host contract are not closely related, and the combined contract is not held for trading or designated at fair value.

On the issuance of the related debt, financing costs are reclassified to debt to reflect the adopted policy of capitalizing debt transaction costs within the related debt. The costs capitalized within debt are amortized using the effective interest method.

Financial Instruments – DisclosuresCICA Handbook Section 3862, “Financial Instruments – Disclosures” was amended to require disclosure about the inputs used in making fair value measurements, including their classification within a hierarchy that prioritizes their significance. The three levels of the fair value hierarchy are:Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; andLevel 3 – Inputs that are not based on observable market data.

See Note 18 for relevant disclosures.

Convertible Debentures PayableConvertible debentures payable were segregated into their debt and equity components at the date of issue. The financial liability component, representing the value allocated to the liability at inception, was included in convertible debentures payable. The remaining component, representing the value ascribed to the holders’ option to convert the principal balance into common shares, was classified in shareholders’ equity as “Equity component of convertible debentures”. The carrying value of the liability component is being accreted to the principal amount as additional interest expense over the term of the debentures.

Stock Based CompensationThe Company recognizes compensation expense for grants of stock options to qualifying directors, officers and employees based on the estimated fair value at the grant date.

NOTEs to the ConSolidated finanCial StatementSdeCember 31, 2010 and 2009



Flow-through SharesThe Company has financed a portion of its exploration activities through the issuance of flow-through shares. Under the terms of flow-through share agreements, the tax attributes of the related expenditures are renounced to subscribers. To recognize the tax benefits foregone by the Company, the carrying value of the shares issued is reduced by the tax effect of the tax benefits renounced to subscribers. The liability relating to the foregone tax benefit is recognized at the time of the renunciation provided there is reasonable assurance that the expenditures will be incurred. Revenue RecognitionRevenue comprises the fair value of the consideration received or receivable from the sale of bullion and is recognized when an arrangement exists, risks pass to the buyer, the price is fixed and collection is reasonably assured.

Income TaxesIncome taxes are calculated using the asset and liability method where current income taxes are recognized for the estimated income taxes payable for the current period. Future income tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and on unclaimed losses carried forward and are measured using the substantively enacted tax rates that will be in effect when the differences are expected to reverse or losses are expected to be utilized. A valuation allowance is recognized to the extent that the recoverability of future income tax assets is not considered more likely than not. The valuation of future income tax assets is adjusted, if necessary, by the use of a valuation allowance to reflect the estimated realizable amount.

Earnings per ShareBasic earnings per share is computed by dividing the income for the period by the weighted average number of common shares outstanding during the period, including contingently issuable shares which are included when the conditions necessary for issuance have been met. Diluted earnings per share is calculated in a similar manner, except that the weighted average number of common shares outstanding is increased to include potentially issuable common shares from the assumed exercise of options and warrants, if dilutive. The number of additional shares included in the calculation is based on the treasury stock method for options and warrants.

Comprehensive IncomeComprehensive income is the change in the Company’s net assets arising from transactions, events and circumstances not related to the Company’s shareholders and include items that would not normally be included in net earnings or losses such as unrealized gains or losses on available-for-sale investments.

Operating SegmentsThe Company operates in one industry segment, the gold mining and related activities industry including exploration, extraction, processing and reclamation. All of the Company’s operations are located within one geographical area.

Adoption of International Financial Reporting StandardsThe Canadian Institute of Chartered Accountants announced that publicly accountable enterprises will be required to adopt IFRS effective January 1, 2011. At the effective date, the balance sheet as at January 1, 2010 will require conversion to IFRS to establish opening balances which will form the basis for comparative information to be reported in 2011. Accordingly, this is the last set of financial statements for the Company using pre-IFRS Canadian GAAP.

3. RECEIVABLES

(in thousands) 2010 2009 Mining duties refunds and tax credits $ 1,012 $ 1,012Proceeds from bullion sales 1,410 -Goods and services tax 2,624 1,340Prepaids 587 433CSST 944 831Deposits 343 263Insurance claim 363 -Other 159 143 $ 7,442 $ 4,022

4. INVENTORY

(in thousands) 2010 2009 Gold bullion $ 11,399 $ 12,149Supplies 3,091 2,475 $ 14,490 $ 14,624

5. RESTRICTED FUNDS

(in thousands) 2010 2009 Relating to mine closure plans (Note 12) $ 1,494 $ 1,537Relating to hydro deposit 415 370Relating to capital leases 511 681 $ 2,420 $ 2,588

Funds are being held in Guaranteed Investment Certificates at interest rates ranging from 0.44% to 0.80% (2009: 0.33% to 1.40%) maturing to November 2011 and promissory notes at interest rates of 2.75% and 6.50% maturing in 2011 and 2012, respectively.

6. CAPITAL ASSETS

(in thousands) 2010 2009 Office EquipmentCost $ 16 $ 16Less: Accumulated amortization 16 7 Net book value $ - $ 9

7. MINING PROPERTIES

(in thousands) 2010 2009 Eagle RiverCost $ 48,517 $ 40,663Less: Accumulated amortization 26,540 21,363 21,977 19,300 Kiena Mine complexCost 79,403 65,059Less: Accumulated amortization 26,609 19,722 52,794 45,337 Mining propertiesCost 127,920 105,722Less: Accumulated amortization 53,149 41,085 $ 74,771 $ 64,637

The Eagle River PropertiesThe Eagle River mining properties consist of the Eagle River mine, the Mishi mine and the Eagle River mill.

The Eagle River mine is subject to a 2% net smelter return royalty payable to the original vendors of the property.

The Mishi mine is subject to royalty payments of $1 per tonne for open pit mining and $2 per tonne for underground mining in respect of ore mined and milled from the underlying claims in excess of 700,000 tonnes.

Kiena Mine Complex – Wesdome GroupThe Kiena mine complex consists of the Kiena mine concession, Kiena mill, other mining assets and 165 mining claims in the Township of Dubuisson, Quebec.

8. EXPLORATION PROPERTIES

(in thousands) Wesdome Group Moss Lake Magnacon Other Total Balance, December 31, 2008 $ 25,065 $ 2,876 $ 1,000 $ 15 $ 28,956Acquisitions (586) - 750 25 189Exploration expenditures 313 54 30 494 891Mining duties refund and tax credits (18) - - - (18)Balance, December 31, 2009 24,774 2,930 1,780 534 30,018Exploration expenditures 16 59 253 416 744 Balance, December 31, 2010 $ 24,790 $ 2,989 $ 2,033 $ 950 $ 30,762




The Wesdome Group PropertiesThe Wesdome Group Properties include the Wesdome, Shawkey, Siscoe and Siscoe-Extension, Mine École, Lamothe, Lamothe-Extension, Yankee Clipper and Callahan properties. These properties, in conjunction with the mining property Kiena mine complex, are contiguous and are integrated into the Company’s long term strategy of progressive exploration and development from a central infrastructure.

Wesdome property – The Company has a 100% interest in this property which consists of 51 claims totalling 2,003 acres and is located under de Montigny Lake in Vassan and Dubuisson Townships, Quebec and is contiguous to the Kiena mine complex. The property is subject to a 1% net smelter royalty.

Shawkey properties – The Company has a 100% interest in the Shawkey and the Shawkey South properties, which are contiguous to the Kiena mine complex and consist of four mining concessions and three mining claims, respectively, in Dubuisson Township, Quebec.

Siscoe and Siscoe-Extension properties – The Siscoe property is located in Dubuisson and Vassan Townships, Quebec and consists of two mining concessions. The Siscoe-Extension property consists of 13 contiguous claims. These properties are contiguous to the Kiena mine complex.

The Company owns a 100% interest in the Siscoe property and a 75% interest in the Siscoe-Extension property. The original vendor of these properties retains a 3% net smelter return royalty of which 1% can be purchased for $500,000.

Mine École property – The Mine École property is located in Dubuisson Township and consists of 23 claims located southeast and contiguous to the Shawkey property.

Other properties – Other properties consist of interests in the Lamothe, Lamothe-Extension, Yankee Clipper and Callahan properties which are contiguous to the Wesdome property.

The Lamothe and Callahan properties are subject to a 1% net smelter royalty and 8 of the 10 claims comprising the Yankee Clipper property are subject to a 2% net profits royalty.

Moss Lake PropertiesThe Moss Lake property is owned by Moss Lake Gold Mines Ltd. (“MLGM”) which is obligated to pay underlying advance royalties of $5,469 per quarter to the vendors of the Moss Lake property until commercial production is achieved. Upon commencement of commercial production, the property is subject to a 8.75% net profits royalty, as defined, to these underlying vendors in lieu of the underlying advance royalty.

MLGM owns a 100% interest in the Fountain Lake property which consists of 149 mining claims contiguous to the Moss Lake property to the east, west and south. This property is subject to a 2.5% net smelter return royalty payable to certain original vendors of the property. This royalty is subject to a buyback clause whereby the royalty may be reduced to 1.5% net smelter return for consideration of $1.0 million.

Magnacon PropertiesIn 2000, the Company acquired a 75% joint venture interest in the Magnacon properties located adjacent to the Eagle River mill and entered into a joint venture agreement with the two companies holding the remaining 25% interest. Subsequently, the joint venture partners’ interest was reduced to approximately 22.72%. In June 2009, the Company purchased the joint venture partners’ interest for $750,000 and an additional 1% net smelter royalty. The Company owns 100% of the Magnacon properties which are subject to net smelter royalties of 1.5% on the Magnacon property and 2% on the adjacent property.

Other PropertiesIn June 2009, the Company entered into an exploration and option agreement to earn up to a 60% interest in the Pukaskwa claims. By spending or causing to be spent $1.5 million before June 30, 2012, the Company shall have earned a 30% undivided working interest in the claims. By spending or causing to be spent another $1.5 million before June 30, 2014, the Company shall have earned a further 30% undivided working interest in the claims. The Company paid $25,000 to the owner upon closing. The Pukaskwa property is located 15 kilometres west of the Eagle River Mill.

9. MARKETABLE SECURITIES

On November 27, 2006 the Company entered into an agreement with Britannica Resources Corporation (“Britannica”) to sell 100% of the McKenzie Break property for $2.0 million in cash and common shares.

On February 23, 2009 Britannica granted Northern Star Mining Corp. (“Northern Star”) an option to acquire an undivided 60% interest in the McKenzie Break property in consideration for Northern Star funding Britannica’s final option payment. A gain of $122,000 was recognized in 2009 upon completion of the obligations and transfer of title.

As at December 31, 2010, the Company had disposed of its holdings in Northern Star and Britannica recognizing the unrealized loss of $222,000 previously recorded in accumulated other comprehensive loss. The cumulative loss from sale of marketable securities was $362,000.

The Company retains a royalty of 1,000 ounces of gold payable annually from the McKenzie Break property after the property has produced an initial production of 250,000 ounces of gold. The gold value may be payable in common shares at the time of the receipt.

10. OBLIGATIONS UNDER CAPITAL LEASES

The Company leases, with options to purchase, certain mining equipment. Future minimum payments under capital leases, together with the balance of the obligations under capital leases are as follows:

(in thousands) 2010 2009 2010 $ - $ 1,4002011 1,422 7892012 996 3642013 657 252014 198 - Total minimum lease payments 3,273 2,578Less: Interest portion at the weighted average of 6.85% in 2010 (2009: 7.59%) 276 230 Total obligations under capital leases, secured by equipment 2,997 2,348Less: Current portion 1,262 1,240 Long term portion $ 1,735 $ 1,108

The gross amount of equipment under capital leases at December 31, 2010, is $7,587,000 (2009: $6,759,000) with related accumulated amortization of $1,570,000 (2009: $1,411,000). These assets are included in mining properties.

11. CONVERTIBLE 7% DEBENTURES

The following table summarizes the changes in the liability and equity components of the convertible debentures during the years ended December 31, 2010 and 2009.

Liability component (in thousands) 2010 2009 Balance, beginning of year $ 9,483 $ 9,413Accretion 589 516Early redemption - (446)Balance, end of year $ 10,072 $ 9,483

Equity component (in thousands) 2010 2009 Balance, beginning of year $ 1,970 $ 2,062Early redemption - (92)Balance, end of year $ 1,970 $ 1,970

On May 30, 2007, the Company completed a private placement of senior unsubordinated convertible debentures in the amount of $11,539,000. The debentures are convertible into common shares of the Company at $3.25 per common share until the maturity date of May 31, 2012.

The liability component of the debentures was calculated as the present value of the principal and interest, discounted at 12%, a rate approximating the interest rate that would have been applicable to non-convertible debt at the time the loan was issued. The liability component is recorded at amortized cost and accreted to the principal amount over the term of the convertible debentures by charges to interest expenses using an effective interest rate of 13.92%.

In 2009 the purchase of $508,000 of debentures for $477,000 inclusive of $11,000 of interest payable reduced the liability component by $466,000 and the equity component by $92,000 creating a gain on the equity component of $61,000 recorded in deficit.

At December 31, 2010 and 2009 the debentures available for conversion at $3.25 totalled $10,931,000.

12. ASSET RETIREMENT OBLIGATION

The Company is committed to a program of environmental protection at its operating mines, development projects and exploration sites. Management believes that it was in compliance with government regulations in 2010 and 2009. The Eagle River ore and waste rocks are not acid generating which minimizes the environmental risks of mining. Although the ultimate amount of reclamation and closure costs is uncertain, the Company estimates its future closure costs for the Eagle River mine, Mishi mine and the mill to be about $0.8 million and the Kiena mining and milling complex are estimated to be about $1.0 million. The Company has provided $1.5 million standby letters of credit to be held against these future environmental obligations.




The following table presents the reconciliation of the beginning and ending aggregate carrying amount of the obligation associated with the retirement of mining properties:

As at December 31 2010 2009 (in thousands)Asset retirement obligation, beginning of year $ 1,324 $ 1,042Accretion expense 79 71Revision of estimate 194 211 Asset retirement obligation, end of year $ 1,597 $ 1,324

The asset retirement obligation is based on current reserve estimates, forecasted production and estimated future cash flows underlying the obligation. The credit adjusted risk free interest rate employed was 3% (2009: 3%). The obligation will be accreted to its present value of $1.8 million (2009: $1.5 million) over the next 3 to 4 years. Full value for this obligation has been set aside as restricted funds.

13. CAPITAL STOCK

Authorized:The authorized capital of the Company consists of an unlimited number of common shares without par value. Shares Amount Issued: (in thousands)Balance, December 31, 2008 99,676,659 $ 113,872Tax effect of 2008 flow-through share renunciations - (526)Share issuance costs - (105)Exercise of options 784,500 984Value attributed to options exercised - 376Shares purchased under NCIB (30,000) (34)Balance, December 31, 2009 100,431,159 114,567Share issuance costs - (27)Exercise of options 775,000 1,232Value attributed to options exercised - 479Shares purchased under NCIB (30,000) (34)Balance, December 31, 2010 101,176,159 $ 116,217

On June 19, 2008, the Company received approval from the TSX for a Normal Course Issuer bid (“NCIB”). The bid allowed the Company to purchase on the open market up to 7,439,368 of its common shares for cancellation over a period of one year to end on June 22, 2009. During the period January 1, 2009 to June 22, 2009, the Company repurchased and cancelled a total of 15,000 common shares with a carrying value of $17,000 for a total cash consideration of $14,000.

On June 23, 2009, the Company received approval from the TSX for another NCIB. The bid allows the Company to purchase on the open market up to 7,151,772 of its common shares for cancellation over a period of one year to end on June 24, 2010. During the period June 23, 2009 to December 31, 2009, the Company repurchased and cancelled a total of 15,000 common shares with a carrying value of $17,000 for a total cash consideration of $24,000.

On July 12, 2010, the Company received approval from the TSX for another NCIB. The bid allows the Company to purchase on the open market up to 6,681,620 of its common shares for cancellation over a period of one year to end on July 13, 2011. During the period July 12, 2010 to December 31, 2010, the Company repurchased for cancellation a total of 30,000 common shares with a carrying value of $34,000 for a total cash consideration of $78,000. When the cash cost was greater than the carrying amount the difference was charged to retained earnings, when it was less it was charged to contributed surplus.

14. COMMON SHARE PURCHASE PLAN

The Company has a common share purchase plan under which the Board of Directors may grant options to purchase common shares to qualified directors, officers, employees and consultants providing on-going services to the Company or any subsidiary of the Company. The maximum aggregate number of common shares under option at any time pursuant to the Plan is set at 5,000,000 of which 3,228,000 are available to be issued.

The following table reflects the continuity for the years ended December 31, 2010 and 2009 of options granted under the plan. Weighted Average Options Exercise Price 2010 2009 2010 2009 $ $Outstanding, beginning of year 2,535,500 3,459,250 1.76 1.73Granted 215,000 345,000 2.60 2.08Exercised (775,000) (784,500) 1.59 1.25Expired (203,500) (484,250) 1.89 2.64 Outstanding, end of year 1,772,000 2,535,500 1.91 1.76

Outstanding options Exercisable options Range of exercise Number Weighted average Weighted average Number Weighted average prices outstanding remaining life exercise price exercisable exercise price (years) $ $less than $1.00 72,500 2.93 0.76 36,500 0.75$1.00 - $1.50 148,500 1.91 1.30 88,500 1.35$1.51 - $2.00 663,000 1.91 1.62 553,000 1.64$2.01 - $2.50 773,000 1.59 2.27 704,000 2.25$2.51 - $3.00 115,000 4.79 2.76 95,000 2.77 1,772,000 2.00 1.91 1,477,000 1.96

The fair value of the options granted was estimated on the date of grant using the Black-Scholes option pricing model. For the years ended December 31, 2010 and 2009, grant date fair value was based on the following factors: 2010 2009 Weighted average fair value, per option ($) 1.54 1.23Weighted average risk-free interest rate (%) 2.2 2.0Weighted average volatility (%) 71.0 77.0Expected life (years) 5.0 5.0Dividend yield (%) 0.8 1.4

The estimated fair value of the options is expensed over the vesting period. The fair value compensation and contributed surplus relating to stock options was $515,833 (2009: $495,053).

15. INCOME TAXES

The following table reconciles the expected income tax expense/recovery at the combined Federal and Ontario statutory income tax rate 30.5% (2009: 33.0%) to the amounts recognized in the consolidated statements of income.

(in thousands) 2010 2009 Net income reflected in consolidated statements of income $ 7,022 $ 27,341 Expected income tax expense $ 2,141 $ 9,023Non-deductible expense and other items 63 330Dilution loss 2 3Adjustment to reflect differing jurisdictional tax rates - (69)Impact of change in substantively enacted rates (13) (1,557)Capital loss 110 -Ontario resource profits (141) (616)Ontario income tax harmonization (24) (91)Mining tax (net of federal benefit) 915 -Stock based compensation expense 155 163Accretion of discount on convertible debenture 179 170Change in the valuation allowance 12 (12,123)Net income tax expense (recovery) $ 3,399 $ (4,767)

The following table reflects future income tax assets (liabilities) at December 31, 2010 and 2009.

(in thousands) 2010 2009 Future income tax assets (liabilities) Excess of unclaimed resource pools and undepreciated capital cost over carrying value of mining and exploration properties $ 606 $ 664 Unclaimed non-capital losses 1,645 2,760 Provincial resource tax credit 1,774 616 Eligible capital property 127 96 Deductible reclamation costs 417 351 Unclaimed financing costs 74 230 Other 198 - Less: valuation allowance (869) (857) Recognized future tax assets 3,972 3,860 Excess of carrying value of mining and exploration properties over unclaimed resource pools and undepreciated capital cost (1,518) (416)Net future tax assets $ 2,454 $ 3,444




Future income taxes are classified on the balance sheet as:

(in thousands) 2010 2009 Current asset $ 1,514 $ 1,199Non-current asset $ 940 $ 2,245 Net future tax assets $ 2,454 $ 3,444

Non-capital losses available for carry forward to reduce taxable income in future years expire between 2014 and 2028.

No tax benefit has been recorded for the federal and provincial non capital losses of MLGM. These losses of $786,000 will expire between 2013 and 2030.

16. EARNINGS PER SHARE

The basic earnings per common share is based on a weighted average number of shares outstanding of 100,808,766 for 2010 and 100,115,709 for 2009. Diluted earnings per share reflects the dilutive effect of the potential exercise of the common share options outstanding as at December 31, 2010. The number of shares for the dilutive earnings per share calculations for 2010 was 101,335,255 (2009: 100,685,174) and excluded 90,000 (2009: 370,000) common share purchase options and 3,363,385 (2009: 3,363,385) convertible debentures as anti-dilutive.

17. RELATED PARTY INFORMATION

In fiscal 2010, the Company paid $13,500 in director’s fees (2009: $5,000) to a company whose managing partner is a director of the Company, $36,440 in consulting fees at the Kiena mine (2009: $Nil) to a company whose president is a director of the Company and $Nil (2009: $98,500) to a company whose president was an officer and director of the Company in 2009.

These transactions were in the normal course of operations and were measured at the exchange amounts.

18. FINANCIAL INSTRUMENTS – DISCLOSURES AND PRESENTATION

Financial instruments disclosures requires the Company to provide information about: a) the significance of financial instruments for the Company’s financial position and performance and, b) the nature and extent of risks arising from financial instruments to which the Company is exposed during the period and at the balance sheet date, and how the Company manages those risks.

Financial Instruments – Fair ValuesFollowing is a table which sets out the fair values of recognized financial instruments using the valuation methods and assumptions described below:

(in thousands) 2010 2009 Carrying Fair Carrying Fair Value Value Value ValueFinancial assetsHeld-for-trading: Cash and cash equivalents $ 22,806 $ 22,806 $ 23,702 $ 23,702 Restricted funds 2,420 2,420 2,588 2,588Loans and receivables: Receivables 7,442 7,442 4,022 4,022Available-for-sale: Marketable securities - - 211 211

Financial liabilitiesOther financial liabilities Payables and accruals 12,938 12,938 7,322 7,322 Convertible 7% debentures 10,072 11,696 9,483 11,122

Determination of Fair ValueThe fair value of a financial instrument is the amount of consideration that would be agreed upon in an arm’s length transaction between willing parties. The Company uses the following methods and assumptions to estimate fair value of each class of financial instruments for which carrying amounts are included in the consolidated balance sheets as follows:

Cash and cash equivalents and restricted cash – The carrying amounts approximate fair values due to the short maturity of these financial instruments.

Receivables – The carrying amounts approximate fair values due to the short maturity of these financial instruments.

Marketable securities – The carrying amounts are measured at fair value with mark- to-market gains and losses excluded from net income and included in other comprehensive income until such gains or losses are realized. At December 31, 2009, marketable securities were valued using the quoted market price to reflect an unrealized gain of $68,000. At December 31, 2010, the Company had disposed of its holdings in marketable securities.

Other financial liabilities – Payables and accruals, and the convertible 7% debentures are carried at amortized cost. The carrying amount of payables and accruals approximates fair value due to the short maturity of these financial instruments. The fair value of the convertible 7% debentures is based on the quoted market price.

The fair value hierarchy for financial instruments measured at fair value is Level 1 for cash, cash equivalents, restricted funds and marketable securities. The Company does not have Level 2 or Level 3 inputs (Note 2).

Financial Risk ManagementThe Company is exposed to a number of different risks arising from normal course business exposures, as well as the Company’s use of financial instruments. These risk factors include: (1) market risks relating to commodity prices, foreign currency risk and interest rate risk;(2) liquidity risk; and, (3) credit risk. The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework and establishes and monitors risk management policies to: identify and analyze the risks faced by the Company; to set appropriate risk limits and controls; and to monitor risks and adherence to market conditions and the Company’s activities.

1) Market RiskMarket risk is the risk or uncertainty arising from possible market price movements and their impact on the future performance of the business. The market price movements that could adversely affect the value of the Company’s financial assets and liabilities include commodity price risk, foreign currency exchange risk and interest rate risk.

(a) Commodity price riskThe Company’s financial performance is closely linked to the price of gold which is impacted by world economic events that dictate the levels of supply and demand. The Company had no gold price hedge contracts in place as at or during the year ended December 31, 2010.

(b) Foreign currency exchange riskThe Company’s revenue is exposed to changes in foreign exchange rates as the Company’s primary product, gold, is priced in U.S. dollars. The Company had no forward exchange rate contracts in place and no foreign currency holdings as at or during the year ended December 31, 2010.

(c) Interest rate riskInterest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

Financial assets and financial liabilities with variable interest rates expose the Company to cash flow interest rate risk. The Company’s cash and cash equivalents include highly liquid investments that earn interest at market rates. Fluctuations in market rates of interest do not have a significant impact on the Company’s results of operations due to the short term to maturity of the investments held.

2) Liquidity RiskLiquidity risk is the risk that the Company will not be able to meet its obligations as they fall due. The Company manages its liquidity risk by forecasting cash flows from operations and anticipated investing and financing activities. The Company believes it has access to sufficient capital through internally generated cash flows and equity and debt capital markets. Senior management is also actively involved in the review and approval of planned expenditures.

The following table shows the timing of cash outflows relating to trade payables and accruals, mining taxes, capital leases and convertible debentures:

December 31, 2010 (in thousands) <1 Year 1-2 Years 3-5 Years Over 5 Years Payables & accruals $ 12,938 - - -Mining taxes $ 1,317 - - - Capital leases $ 1,422 $ 1,653 $ 198 -Convertible debentures $ 765 $ 11,377 - -

December 31, 2009 (in thousands) <1 Year 1-2 Years 3-5 Years Over 5 Years Payables & accruals $ 7,322 - - - Capital leases $ 1,400 $ 1,153 $ 25 -Convertible debentures $ 765 $ 12,079 - -

3) Credit RiskCredit risk is the risk of a financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligation. The Company minimizes its credit risk by selling its gold exclusively to financial institutions with forty-eight hour terms of settlement. The Company’s accounts receivable consist primarily of government refunds and credits. The Company estimates its maximum exposure to be the carrying value of cash and cash equivalents, accounts receivable and funds held against standby letters of credit.

The Company manages credit risk by maintaining bank accounts with Schedule 1 Canadian banks and investing only in Guaranteed Investment Certificates. The Company’s cash is not subject to any external limitations.




19. SUPPLEMENTAL CASH FLOW INFORMATION

(in thousands) 2010 2009

Net changes in non-cash working capitalOperating activities Receivables $ (3,083) $ 198 Payables and accruals 965 (434) Income taxes payable (24) (91) Mining taxes 1,317 - Gold inventory 750 (4,254) Supplies and other (493) (164) $ (568) $ (4,745)

Investing activities Receivables $ (337) $ (15) Payables and accruals 4,651 (109) Supplies and other (123) (41) $ 4,191 $ (165)

Cash and cash equivalents consist of:Cash $ 17,777 $ 23,702Term deposit (interest rate of 0.73%) 5,029 - $ 22,806 $ 23,702

Non-cash transactions:Recognition of fair value of stock options and warrants exercised transferred to share capital (Note 13) $ 479 $ 376 Marketable securities received as consideration for properties held for sale (Note 9) $ - $ 100 Mining property assets acquired under capital leases $ 2,238 $ 364 Revision to asset retirement obligation (Note 12) $ 194 $ 212

Other:Interest paid $ 1,009 $ 1,080

20. INDEMNITIES

The Company has agreed to indemnify its directors and officers, and certain of its employees in accordance with the Company’s by-laws. The Company maintains insurance policies that may provide coverage against certain claims.

21. CAPITAL RISK MANAGEMENT

The Company’s objectives of capital management are intended to safeguard its ability to support the Company’s normal operating requirements on an ongoing basis, continue the development and exploration of its mineral properties and support any expansionary plans.

The capital of the Company consists of the items included in shareholders’ equity and debt obligations net of cash and cash equivalents. The Company manages the capital structure and makes adjustments in light of changes in economic conditions and the risk characteristics of the Company’s assets. In order to maintain or adjust its capital structure, the Company may issue new shares, issue new debt or issue new debt to replace existing debt with different characteristics.

There is no restriction on the ability of the Company to pay dividends other than cash flow considerations. The Company paid dividends of $0.02 per share on April 30, 2009 and 2010. Dividend payments in the future will depend on the Company’s ability to generate earnings.

To effectively manage its capital investments, the Company has in place a planning and budgeting process to help determine the funds required to ensure the Company has the appropriate liquidity to meet its operating and growth objectives.

The Company expects its current capital resources and projected free cash flow from continuing operations to support further exploration and development of its mineral properties.

Neither the Company nor its subsidiaries are subject to any externally imposed capital requirements such as loan covenants or capital ratios.

There were no changes to the Company’s approach to capital management during the current period.

22. SUBSEQUENT EVENT

On March 10, 2011, Wesdome’s Board of Directors declared a dividend of $0.02 per share on the Company’s outstanding common shares. The dividend is payable on April 29, 2011 to shareholders of record on the close of business on April 15, 2011.


RESERVES ESTIMATES December 31, 2010 Category Tonnes Grade Contained Gold (gAu/tonne) (ounces)

EAGLE RIVER Proven 88,400 11.0 31,000Probable 256,600 16.5 136,000Proven + Probable 345,000 15.0 167,000 KIENA Proven 534,000 2.9 50,000Probable 563,000 2.7 49,000Proven + Probable 1,097,000 2.8 99,000 MISHI Proven 174,000 2.7 14,000Probable 535,000 2.5 39,000Proven + Probable 709,000 2.6 53,000 TOTAL 319,000

RESOURCES ESTIMATES December 31, 2010 Category Tonnes Grade Contained Gold (gAu/tonne) (ounces)

EAGLE RIVER Indicated 83,000 7.9 21,000Inferred 331,000 6.6 70,000 KIENA Measured 409,000 3.6 47,000Indicated 956,000 4.0 123,000Measured + Indicated 1,365,000 3.9 170,000 MISHI Measured 281,000 2.5 22,000Indicated 5,455,000 2.4 416,000Measured + Indicated 5,736,000 2.4 438,000Inferred 1,202,000 3.6 140,000 TOTAL MEASURED + INDICATED 629,000

*Qualified Persons for the Mineral Reserves and Mineral Resources estimates as per 43-101 are as follows:

Eagle River: George N. Mannard, P.Geo., Vice President Exploration; W. Lucko, P.Geo., Senior Geologist, Eagle River mine

Kiena: Ron Leber, P.Geo., Chief Mine Geologist, Kiena mine; Marc Ducharme, P.Geo., Chief Exploration Geologist, Kiena mine

Mishi: Carl Pelletier, P.Geo., InnovExplo Inc., independent; Karine Brosseau, P.Eng., InnovExplo Inc., independent; Nathalie Gauthier, P.Eng., InnovExplo Inc., independent

The Company is a Producing Issuer as per national Instrument 43-101.

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board of direCtorS

Will F. Bawden, P.Eng.2 CEO, Mine Design Technologies Inc. Toronto, Ontario Dr. Bawden, the CEO of Mine Design Technologies Inc., previously served as the Director of the Lassonde Mineral Engineering Program at the University of Toronto and was formerly the Department Head for Geomechanical mine design at Noranda Technology, Montreal. Dr. Bawden holds a PhD from the University of Toronto an MSc from the University of Illinois and a B.Sc. from Queens University.

Eldon Bennett 2 Managing Partner, Aird & Berlis LLP Toronto, Ontario Eldon Bennett holds a Ph.D. from Duke University and a law degree from the University of Toronto. He has taught both political science and law at York University and practices law in the areas of civil litigation and labour relations.

Marc Blais, CGA 1 Chief Operating Officer, Sunset Cove Mining Saint-Lambert, Quebec Marc Blais is a certified general accountant and has been with Sunset Cove Mining, a publicly traded mining firm since 2008. Previously he was President of Dynacor Mines from 1993 to 2007. From 1988 to 1993 he worked as senior CGA and as a financial planner and consultant. Earlier on in his career he worked as an accountant in various assignments.

Roger Jolicoeur President, RWJ Mining Consulting Val-d’Or, Quebec Roger Jolicoeur’s career began in 1965 working in milling operations, leading to plant superintendent of the Kiena mill for Falconbridge. For the last 15 years Roger has been President of RWJ Mining Consulting, consulting on mineral processing as well as building and commissioning plants all over the world.

Brian Northgrave 2,3 Consultant, Trade Facilitation Office of Canada Ottawa, Ontario Brian Northgrave has been a director of Wesdome since 2007, having been a director of Western Quebec Mines since 2004. Brian is a retired former Ambassador to the Eastern Republic of Uruguay for the Canadian government and has held various foreign assignments while employed by the Department of Foreign Affairs from 1966 to his retirement in 2002. Brian holds an M.B.A. from the University of Toronto, a Diploma of Business Administration from the London School of Economics and a B.A. (Economics & Political Science) from the University of Toronto.

Donald D. Orr, CA Secretary-Treasurer and CFO, Wesdome Gold Mines Ltd. Toronto, Ontario Don Orr is a Chartered Accountant with a B.Comm from the University of Toronto. Don has been involved in the mining industry since 1977. He has been the Secretary-Treasurer and a Director of Wesdome Gold Mines since 1994.

Donovan Pollitt, P.Eng., CFA 3 President and CEO, Wesdome Gold Mines Ltd. Toronto, Ontario Donovan Pollitt is a Professional Engineer in Ontario and holds a BASc. in Mining Engineering from the University of Toronto. Previously as VP Corporate Development, Donovan worked on mergers, financings and long-term planning at Wesdome. Donovan is also a holder of the Chartered Financial Analyst designation.

Hemdat Sawh, CA 1,3 CFO Crystallex International Oakville, Ontario Hemdat Sawh is a Chartered Accountant, and holds an MBA degree in accounting from York University, a bachelor of science degree in geology from Concordia University and a graduate diploma in geology from McGill University. Hemdat has over 16 years of accounting and auditing experience at Grant Thornton LLP, culminating in the position of principal, where he acted as lead supervisor for auditing teams of businesses with a concentration in publicly listed mining companies. Hemdat also served as Chief Financial Officer for Goldbelt Resources Ltd. for up to two years prior to joining Crystallex as their Chief Financial Officer.

A. William (Bill) Stein 1 CFO & CIO, Digital Realty Trust San Francisco, California, USA Since 2004, Bill Stein has been the Chief Financial and Investment Officer of Digital Realty Trust, an NYSE listed real estate investment trust that owns, develops and manages data centers and internet gateways throughout North America and Europe. Bill has more than 30 years of investment, financial and operating management experience in both large company environments and small, rapidly growing companies. Prior to joining Digital Realty, Bill provided turnaround management advice to both public and private companies. Bill received a B.A. degree from Princeton University, a J.D. degree from the University of Pittsburgh and an M.S. degree with distinction from the Graduate School of Industrial Administration at Carnegie Mellon University.1 Audit committee member 2 Compensation committee member 3 Governance committee member

offiCerS Brian Northgrave Chairman of the Board

Donovan Pollitt, P.Eng., CFA President and CEO

Donald D. Orr, CA Secretary-Treasurer and CFO

André Roy, P.Eng., MScA Vice President – Operations

George N. Mannard, P.Geo, MScA Vice President – Exploration

Senior StaffKiena ComplexBernard Belley Mill SuperintendentDavid Delisle, CMA Chief AccountantMarc Ducharme, P.Geo. Chief Geologist – ExplorationDenis Éthier Mine SuperintentantMichel Lafleur, Eng. Chief EngineerRon Leber, P.Geo. Chief Geologist – ProductionSylvain Lehoux Mine ManagerDaniel Petitclerc Maintenance SuperintendentNadia Tanguay Chief Assayer

Eagle River MineDavid Boulay Maintenance SuperintendentJeff Hutchings Mine ManagerDaniel Lapointe, P.Geo., MSc. Chief Geologist – ExplorationAllan MacDonald Office ManagerDon MacFarlane Chief AssayerJohn Plecash Chief GeologistPaul Robitaille Mill SuperintendentGilbert Wahl Safety/Security DirectorDave Whiteway Mine Superintendent

HEAD OFFICE8 King Street East, Suite 1305 • Toronto, ON M5C 1B5Tel: 416.360.3743 Fax: 416.360.7620email: [email protected]

KIENA MINE950 chemin Kienawisik, C.P. 268 • Val d’Or, QC J9P 4P3Tel: 819.738.4031 Fax: 819.738.5452

EAGLE RIVER MINE93 Mission Road, P.O. Box 1520 • Wawa, ON P0S 1K0Wawa OfficeTel: 705.856.2718 Fax: 705.856.7173Mine SiteTel: 705.856.2721 Fax: 705.856.2879

www.wesdome.com

annual meetingThe Annual Meeting of Shareholders will be held at:TSX Gallery130 King Street West,Toronto, Ontarioon Tuesday, May 3, 2011 at 4:00 p.m.

tranSfer agent and regiStrarComputershare Investor Services Inc.Toronto, OntarioTel: 1.800.564.6253 or 514.982.7555www.computershare.com

auditorSGrant Thornton LLPToronto, Ontariowww.grantthornton.ca

legal CounSelHeenan Blaikie LLPToronto, Ontariowww.heenan.ca

StoCK exChange liStingToronto Stock ExchangeSymbol: WDOwww.tsx.com


wesdome 2010 annual report

Documents

gold producers

growthwesdome gold mines

gold message

underground gold mining

gold mining sector

significant production

ounces eagle river

low gold price periods