wesdome 2011 annual report

WESDOME GOLD MINES LTD.2011 ANNUAL REPORT

Wesdome has been mining gold in Canada for 25 years. Its philosophy has been to build up longterm, sustainable operations with only modest initial capital costs. This longterm view has enabled the Company to acquire significant property and infrastructure assets in two proven gold mining districts. With three gold mines now operating, the Company is focused on optimizing its assets and securing its future by increasing its reserves and resources on its wholly-owned properties. We see very good, low risk potential for growth through astute investments in exploration, development and infrastructure.

CONTENTSMessage to Shareholders .................................... 1

Tributes ................................................................ 2

Management’s Discussion and Analysis ............. 3

Management’s Responsibility for Financial Statements ........................................... 16

Independent Auditors’ Report ............................ 17

Consolidated Statements of Financial Position ... 18

Consolidated Statements of Income and Comprehensive Income ................. 19

Consolidated Statements of Total Equity ........................................................ 20

Consolidated Statements of Cash Flows ............21

Notes to the Consolidated Financial Statements .................... 22

Corporate Information ....................................... 40

2011 was a challenging year for Wesdome. In spite of these challenges, your Company made significant progress in delivering on its long-term strategy of building shareholder value through its mining operations. Strength in the gold market was accompanied by a very tight labour market and its related pressures on operating costs and development productivity. Despite these challenges we maintained operating costs to only a 3% increase over last year, rectified development advance issues, permitted and commenced mining operations at our third mine (Mishi) and increased reserves to record levels. 2012 marks the Wesdome group’s 25th consecutive year of mining operations and we see steady improvement going forward.

In the fourth quarter of 2011, production demonstrated steady gains from previous quarters. This gives us greater confidence in our 2012 production forecasts, which we expect to be around 60,000 ounces Company-wide.

The Eagle River mine is now into higher grades and 2012 should be a good year. The veins are being mined tightly and development is being kept small in the high-grade 811 Zone. The development of recently-found extensions of the 808 will add operating flexibility into 2013, and exploration of the No-Name Lake parallel structure is exciting to our geologists. Labour turnover is still an issue, but we see less frenzy than we did at the beginning of 2011. As more producers get focused on generating operating cash-flow, we hope to see less turnover of miners and technical staff.

The Mishi mine is now in production. Re-permitting this mine on a larger scale was a major body of work that took place in 2011 and we plan to see it bear fruit in 2012. From commencing the independent NI43-101 compliant resource estimation in January of 2010, to publishing the Preliminary Feasibility Study in November of 2010 to the final permits being received in July of 2011, this represents the first growth project Wesdome has pursued since Kiena in 2006. We believe there is room to increase production at Mishi going forward, and on its own, it represents a large body of ounces at about 2gAu/tonne only two kilometres from our fully-permitting mill. Stay tuned.

The Kiena mine faced significant challenges in 2011. High regional turnover coupled with challenging ground conditions led to large production shortfalls. We see turnover and labour costs easing as investors sour to funding new projects in the area, and we are encouraged by the significant improvement posted in the last quarter of 2011. The path forward at Kiena is clear as we are developing more zones away from previously-mined areas, with greater focus on grade rather than tonnes. Currently the 388, Martin, South, Dubuisson and S-50 Deep Zones are being developed for 2013 and onwards, and recent drilling showed an encouraging, large mineralized block at the Northwest Zone.

2012 will be a year to show you how quickly we can come out of a challenging year. We thank you for your continued support and aim to show you a much stronger year this year.

On behalf of the Board of Directors,

Donovan Pollitt, P.Eng., CFA President and CEO March 14, 2012

MESSAGETO ShAREhOLDERS

“2012 marks the Wesdome group’s 25th consecutive year of mining operations and we see steady improvement going forward.”

~ Donovan Pollitt

1 WESDOME GOLD MINES LTD. 2011 ANNUAL REPORT

Donald D. OrrRETiREMENT

On December 31, 2011, Donald Orr retired from Wesdome. Don was an officer and director of Wesdome and its predecessor companies since 1979. His career with Wesdome and its predecessor companies was highlighted by the development and financing of five gold mines, greater than 1.2 million ounces of production and a swing in gold prices of greater than $1,500 per ounce. Don maintained unflappable good humour throughout several complex acquisitions and mergers during an era when the regulatory, legal and financial reporting environment grew increasingly complicated.

Don worked extensively with Murray Pollitt on developing a family of private and publically-listed enterprises, which eventually merged into Wesdome Gold Mines Ltd. From a shared office above a pawn shop on Church Street to a Bay Street presence, Don enjoyed working with gold miners. We wish him well in his retirement.

iN MEMORANDUM

Murray Pollitt, Company founder, former Chairman and President, will be missed. His involvement with the Wesdome Group dates back to the mid-1970s in Val d’Or when a group of mining properties were merged into Western Québec Mines Inc. After initial production commenced at the Joubi Mine in the late 1980s, Murray helped to create River Gold Mines Ltd. and Wesdome Gold Mines Inc. in the 1990s, which today are known as Wesdome Gold Mines Ltd.

Murray was key in financing the Company’s mining ventures and instrumental in closing key acquisitions. His skills in persuasion and influence were critical to negotiating and closing many win-win deals that ultimately made a productive contribution to society.

A tenacious and vindicated gold bug, Murray predicted gold’s recent rise (the dollars becoming worth less) and was pleased to see his bullish views being realized. Murray always believed in mining and manufacturing as the backbones of the Canadian economy and was always proud of his involvement and the achievements of Wesdome.

TRIBUTES

FOR THE YEAR ENDED DECEMBER 31, 2011

This Management’s Discussion and Analysis (“MD & A”) dated March 14, 2012 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, 2011, and their related notes which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The December 31, 2011, consolidated financial statements are the Company’s first annual consolidated financial statements prepared under IFRS. Consequently, the comparative figures for 2010 have been restated from generally accepted accounting principles in Canada (“Canadian GAAP”) to comply with IFRS. The reconciliations of the statements of total equity and the statement of income and comprehensive income from the previously published Canadian GAAP are summarized in Note 27 to the December 31, 2011 consolidated financial statements.

This MD & A 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, 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”. The Company’s head office is at 8 King Street East, Suite 1305, Toronto, Ontario, Canada.

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. It is developing the Mishi Mine in Wawa and the Dubuisson project in Val-d’Or. The Eagle River mine commenced commercial production January 1, 1996 and the Kiena mine on August 1, 2006.

At December 31, 2011, the Company had $7.2 million in working capital and 8,652 ounces of refined gold bullion in inventory. In 2011 revenue exceeded mining and processing costs by $14.6 million and $19.3 million in capital costs were incurred. Cash flow from operations totalled $4.9 million and net earnings were $0.2 million, or $0.00 per share.

Both mining operations are producing from lower grade areas and are pushing development of higher grade new production areas, which will progressively come onstream starting in 2012. In addition, a third mine, Mishi, is in the pre-production development phase.

More ounces of gold were sold than produced. Favourable gold prices have allowed us to secure development for future years, develop a new mine and invest in drilling to replace and increase reserves – all at reasonable costs during a transitional period of lower grade production and elevated investment.

External factors which favoured results include low interest rates and rising gold prices. We hope this continues. Also, energy prices stabilized and commodity-based input costs and consumables have stabilized or decreased.

MANAGEMENT’SDISCUSSION AND ANALYSIS

Murray H. Pollitt 1941-2012

2 3 WESDOME GOLD MINES LTD. 2011 ANNUAL REPORT WESDOME GOLD MINES LTD. 2011 ANNUAL REPORT

Bullion sales exceeded mining and processing costs resulting in a mine operating profit, or gross margin, of $14.6 million. In addition to these direct operating costs, additional cash costs, including royalty payments, corporate and general costs and interest costs totalled $6.3 million. We pride ourselves in running a tight ship with low corporate and general costs. The regulated implementation of IFRS accounting standards increased these costs significantly in 2010 and 2011. This is now behind us.

At the Eagle River Mine, a large volume of low grade ore from development headings, salvage stopes in the old mine areas and surface stockpiles was processed. Combined with greater than expected dilution in main production stopes, the results represented the lowest grades of annual production to date. The Eagle River Mine produced 28,231 ounces of gold from 182,449 tonnes milled at a recovered grade of 4.8 gAu/tonne. We have made considerable progress in developing deeper levels of the high grade 811 Zone and as previously disclosed, expect to see significant improvements in grade and production starting in 2012 and moving forward.

At the Kiena Mine, production suffered from severe dilution and lost ore caused by caving in two salvage stopes during the first and second quarters. The mine schedule had been relying on these stopes in the transitional period while larger future production areas were being prepared. These unfavourable circumstances were further exacerbated by delayed development of the new production areas due to tight labour markets, lack of advance and financial stress on a key contractor. We have largely addressed these issues and are rapidly catching up on development. This catching up will extend through the first quarter, 2012 with production from higher grade areas scheduled for the second half of 2012. In 2011, the Kiena Mine produced 19,516 ounces of gold from 255,311 tonnes milled at an average recovered grade of 2.4 gAu/tonne.

At the Mishi Mine work commenced in August, 2011, and involves an 8-month pre-production period. This will be an open pit mining operation located just 2 kilometres west of the Eagle River Mill. We are proceeding with an initial 5-year mine plan. At year end 2011, approximately 21,000 tonnes of ore were stockpiled at the mill and scheduled for processing commencing in January, 2012.

In summary, 2011 was a disappointing year in terms of production. However, a committed investment in development and drilling has increased our reserves, built a third mine (Mishi) and put us in an advantageous position moving forwards. We expect a return to life-of-mine type grades over time at Eagle River, hope to get ahead on development at Kiena and look forward to the contribution of new production from Mishi.

SUMMARY OF QUARTERLY RESULTS 2011(inthousandsexceptpersharedata) 4th Quarter 3rd Quarter 2nd Quarter 1st Quarter Totalrevenue $ 17,206 $ 19,623 $ 19,220 $ 23,594Netincome(loss) 496 (1,616) (1,094) 2,454Earnings(loss)pershare–basicanddiluted 0.00 (0.01) (0.01) 0.02

2010 4thQuarter 3rdQuarter 2ndQuarter 1stQuarterTotalrevenue $ 26,634 $ 20,756 $ 22,416 $ 19,577Netincome(loss) 3,380 (118) 291 1,718Earnings(loss)pershare–basicanddiluted 0.03 (0.00) 0.00 0.02

FOURTH QUARTER

In the fourth quarter, 2011, Wesdome’s production totalled 12,722 ounces of gold of which 10,000 ounces were sold at an average price of $1,717 per ounce. This performance showed improvement of 23% and 22% compared to production levels in the third and second quarters respectively.

At Eagle River production increased 18% and grade increased 13% compared to the third quarter, 2011 results. The Eagle River Mine produced 8,104 ounces of gold from 48,639 tonnes of ore milled at an average recovered grade of 5.2 gAu/tonne. Both grade and throughput were up.

At Kiena, production increased 33% and grade increased 32% compared to the third quarter, 2011 results. The Kiena Mine produced 4,618 ounces of gold from 56,414 tonnes of ore milled at an average recovered grade of 2.5 gAu/tonne. Work focused on development of new stopes. Once development catches up a steady production rhythm will result in higher levels of production. We expect this development catch up to continue in the first quarter, 2012 and scheduled production grades to pick up in the second half of 2012.

MANAGEMENT’S DISCUSSION AND ANALYSIS

Negative external conditions were dominated by extreme competition for the skilled and professional labour pool which is of insufficient size to support the booming resource development cycle. In this environment we are finding it more challenging to attain the rate of development advance we are accustomed to and believe, industry-wide, that costs will inflate further and that many projects likely will be delayed. On a more positive note, the tightening of risk capital and credit markets since the summer indicates that some of these competing projects may not get financed.

In light of these pressures, and very strict control of costs, operating costs increased only 3% to $65.0 million for the year ended December 31, 2011, compared to $63.3 million last year. Fortunately, realized gold prices increased 20%, or $254 Cdn per ounce, over this corresponding period.

SELECTED ANNUAL iNFORMATiON

(inthousandsexceptincomepercommonshare) 2011 2010Totalrevenue $ 79,643 $ 89,383Netincome 240 5,271Incomepercommonshare 0.00 0.05Totalassets 151,823 156,974Longtermfinancialliabilities 2,433 13,439

RESULTS OF OPERATiONS ThreeMonthsEndedDec31 TwelveMonthsEndedDec31 2011 2010 2011 2010

Eagle River Mine Tonnesmilled 48,639 39,281 182,449 155,554 Recoveredgrade(g/t) 5.2 7.9 4.8 7.3 Production(oz) 8,104 10,004 28,231 36,712 Sales(oz) 5,000 10,000 29,000 40,000 Bullioninventory(oz) 8,024 8,793 8,024 8,793

Bullionrevenue($000) 8,598 14,013 44,613 50,690 Miningandprocessingcosts($000) 5,604 11,222 29,448 35,163

Mineoperatingprofit($000)* 2,994 2,791 15,165 15,527 Goldpricerealized($Cdn/oz) 1,717 1,399 1,536 1,266

Kiena Mine Complex Tonnesmilled 56,414 84,751 255,311 285,527 Recoveredgrade(g/t) 2.5 4.2 2.4 3.5 Production(oz) 4,618 11,508 19,516 32,162 Sales(oz) 5,000 9,000 23,000 30,000 Bullioninventory(oz) 628 4,113 628 4,113

Bullionrevenue($000) 8,608 12,621 35,030 38,693 Miningandprocessingcosts($000) 8,676 6,276 35,568 28,134

Mineoperatingprofit(loss)($000)* (68) 6,345 (538) 10,559 Goldpricerealized($Cdn/oz) 1,717 1,398 1,519 1,286

Total Production(oz) 12,722 21,512 47,747 68,874 Sales(oz) 10,000 19,000 52,000 70,000 Bullioninventory(oz) 8,652 12,906 8,652 12,906 Bullionrevenue($000) 17,206 26,634 79,643 89,383 Miningandprocessingcosts($000) 14,280 17,498 65,016 63,297

Mineoperatingprofit($000)* 2,926 9,136 14,627 26,086 Goldpricerealized($Cdn/oz) 1,717 1,398 1,529 1,275

*The Company has included in this report certain non-IFRS performance measures, including mine operating profit and mining and processing costs to applicable sales. These measures are not defined under IFRS 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 IFRS as an indicator of our financial performance or liquidity. The Company believes that, in addition to conventional measures prepared in accordance with IFRS, certain investors use this information to evaluate the Company’s performance and ability to generate cash flow.

Mine operating profit excludes the following specific items included as operating expenses on the Consolidated Statements of Income: Depletion, Production royalties, Corporate and general, Share based compensation and Amortization of capital assets.

MANAGEMENT’S DISCUSSION AND ANALYSIS


The new Mishi operation stockpiled 21,000 tonnes of development ore at the mill. The fourth quarter results of operations showed a marked improvement over disappointing second and third quarters. After an extended development cycle, our new generation of production areas and a new mine (Mishi) are coming onstream.

LiQUiDiTY AND CAPiTAL RESOURCES

At December 31, 2011, the Company had working capital of $7.2 million compared to $28.8 million at December 31, 2010. The Company invested $19.1 million in exploration and development, $0.1 million on exploration properties, and $0.1 on capital equipment for a total of $19.3 million, compared to $19.4 million on exploration and development, $0.7 million on exploration properties, and $2.2 million on capital equipment for a total of $22.3 million in 2010.

The Company traditionally maintains an inventory of refined gold bullion. At December 31, 2011, the Company held 8,652 ounces of gold at a market value of $13.9 million. This practice increases the Company’s leverage to gold prices and has proved rewarding during the bull market.

During the second quarter, long term debt, consisting of convertible 7% debentures due May 31, 2012, in the amount of $10.6 million, became a current liability. The Company believes the debentures will either be repaid or refinanced at a favourable rate of interest. The Company is confident it has sufficient flexibility to fund these obligations given the current strong gold market and recent improvements in production.

The following table shows the timing of cash outflows relating to contractual obligations going forward. PaymentsDuebyPeriod(inthousands)ContractualObligations Total <1year 1–2years 3–5years After5yearsEquipmentleases $ 1,851 $ 997 $ 854 - -Convertibledebentures 11,377 11,377 - - - $ 13,228 $ 12,374 $ 854 - -

OFF-BALANCE SHEET ARRANGEMENTS

There are no off-balance sheet arrangements.

TRANSACTiONS WiTH RELATED PARTiES

Key management personnel and director compensation comprised of the following:

ThreemonthsendedDec31 TwelvemonthsendedDec31 2011 2010 2011 2010Salariesandshort-termemployeebenefits $ 355 $ 307 $ 1,266 $ 1,130Postemploymentbenefits 15 8 44 36Fairvalueofshare-basedcompensation 60 17 493 256 $ 430 $ 332 $ 1,803 $ 1,422

In fiscal 2011, the Company paid $23,900 in director’s fees (2010: $13,500) to a company whose managing partner is a director of the Company, $Nil in consulting fees (2010: $36,440) to a company whose president is a former director of the Company.

SiGNiFiCANT JUDGMENTS, ESTiMATES AND ASSUMPTiONS

The preparation of the Company’s consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates and assumptions are continually evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual results could differ from these estimates.

The areas which require management to make significant judgments, estimates and assumptions in determining carrying values include, but are not limited to:

(i) Reserves Proven and probable reserves are the economically mineable parts of the Company’s measured and indicated mineral resources demonstrated by at least a preliminary feasibility study. The Company estimates its proven and probable reserves and measured and indicated and inferred mineral resources based on information compiled by appropriately qualified persons. The information relating to the geological data on the size, depth and shape of the ore body requires complex geological judgments to interpret the data. The estimation of future cash flows related to proven and probable reserves is based upon factors such as estimates of foreign exchange rates, commodity prices, future capital requirements and production costs along with geological assumptions and judgments made in estimating the size and grade of the ore body.

Changes in the proven and probable reserves or measured, indicated and inferred mineral resources estimates may impact the carrying value of mining properties and equipment, depletion, impairment assessments and the timing of decommissioning and remediation obligations.

(ii) DepletionMining properties are depleted using the unit-of-production method (“UOP”) over a period not to exceed the estimated life of the ore body based on recoverable ounces to be mined from proven and probable reserves and measured and indicated resources.

Mobile and other equipment is depreciated, net of residual value over the useful life of the equipment but does not exceed the related estimated life of the mine based on proven and probable reserves and measured and indicated resources.

The calculation of the UOP rate, and therefore the annual depletion expense, could be materially affected by changes in the underlying estimates. Changes in estimates can be the result of actual future production differing from current forecasts of future production, expansion of mineral reserves through exploration activities, differences between estimated and actual costs of mining and differences in the gold price used in the estimation of mineral reserves.

Significant judgment is involved in the determination of useful life and residual values for the computation of depletion and no assurance can be given that actual useful lives and residual values will not differ significantly from current assumptions.

(iii) Provision for decommissioning obligationsThe Company assesses its provision for decommissioning on an annual basis or when new material information becomes available. Mining and exploration activities are subject to various laws and regulations governing the protection of the environment. In general, these laws and regulations are continually changing and the Company has made, and intends to make in the future, expenditures to comply with such laws and regulations. Accounting for decommissioning obligations requires management to make estimates of the future costs the Company will incur to complete the decommissioning work required to comply with existing laws and regulations at each mining operation. Also, future changes to environmental laws and regulations could increase the extent of decommissioning work required to be performed by the Company. Increases in future costs could materially impact the amounts charged to operations for decommissioning. The provision represents management’s best estimate of the present value of the future decommissioning obligation. The actual future expenditures may differ from the amounts currently provided.

(iv) Share-based paymentsThe determination of the fair value of share-based compensation is not based on historical cost, but is derived based on subjective assumptions input into an option pricing model. The model requires that management make forecasts as to future events, including estimates of the average future hold period of issued stock options before exercise, expiry or cancellation; future volatility of the Company’s share price in the expected hold period (using historical volatility as a reference); and the appropriate risk-free rate of interest. Stock-based compensation incorporates an expected forfeiture rate. The expected forfeiture rate is estimated based on historical forfeiture rates and expectations of future forfeiture rates, and is adjusted if the actual forfeiture rate differs from the expected rate.

The resulting value calculated is not necessarily the value that the holder of the option could receive in an arm’s length transaction, given that there is no market for the options and they are not transferable. It is management’s view that the value derived is highly subjective and dependent entirely upon the input assumptions made.

MANAGEMENT’S DISCUSSION AND ANALYSISMANAGEMENT’S DISCUSSION AND ANALYSIS


(v) Deferred taxesPreparation of the consolidated financial statements requires an estimate of income taxes in each of the jurisdictions in which the Company operates. The process involves an estimate of the Company’s current tax exposure and an assessment of temporary differences resulting from differing treatment of items, such as depreciation and depletion, for tax and accounting purposes. These differences result in deferred tax assets and liabilities that are included in the Company’s consolidated statements of financial position.

An assessment is also made to determine the likelihood that the Company’s deferred tax assets will be recovered from future taxable income.

Judgment is required to continually assess changing tax interpretations, regulations and legislation, to ensure liabilities are complete and to ensure assets are realizable. The impact of different interpretations and applications could be material.

(vi) Recoverability of mining propertiesThe Company’s management reviews the carrying values of its mining properties on a regular basis to determine whether any write-downs are necessary. The recovery of amounts recorded for mining properties depends on confirmation of the Company’s interest in the underlying mineral claims, the ability of the Company to obtain the necessary financing to complete the development, and future profitable production or proceeds from the disposition thereof. Management relies on the life-of-mine plans in its assessments of economic recoverability and probability of future economic benefit. Life-of-mine plans provide an economic model to support the economic extraction of reserves and resources. A long-term life-of-mine plan and supporting geological model identifies the drilling and related development work required to expand or further define the existing ore body.

(vii) Exploration and evaluation expendituresJudgment is required in determining whether the respective costs are eligible for capitalization where applicable, and whether they are likely to be recoverable by future exploration, which may be based on assumptions about future events and circumstances. Estimates and assumptions made may change if new information becomes available.

(viii) Equity component of convertible debenturesThe convertible debentures are classified as liabilities, with the exception of the portion relating to the conversion feature, resulting in the carrying value of the liability being less than its face value. The discount is being accreted over the term of the debentures, utilizing the effective interest method which approximates the market rate at the date the debentures were issued. Management uses its judgment to determine an interest rate that would have been applicable to non-convertible debt at the time the debentures were issued.

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 statement of financial position 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:

December 31, 2011 December31,2010 January1,2010 Carrying Fair Carrying Fair Carrying Fair Value Value Value Value Value ValueFinancialAssetsAvailable-for-sale: Marketablesecurities $ - $ - $ - $ - $ 211 $ 211

FinancialLiabilitiesOtherfinancialliabilities Convertible7%debentures $ 10,726 $ 11,040 $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 funds – 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.

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 marketable securities. The Company does not have Level 2 or Level 3 inputs.

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, 2011 and 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 years ended December 31, 2011 and 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 and interest paid on the Company’s convertible debentures is based on a fixed interest rate. 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.



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 $0.9 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 $0.7 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.

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.

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

December 31, 2011 <1Year 1-2Years 3-5Years Over5YearsPayables&accruals $ 8,944 - - -Financeleases $ 997 $ 854 - -Convertibledebentures $ 11,377 - - -

December31,2010 <1Year 1-2Years 3-5Years Over5YearsPayables&accruals $ 12,938 - - -Financeleases $ 1,422 $ 1,653 $ 198 -Convertibledebentures $ 765 $ 11,377 - -

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.

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 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.



application of IAS 32 involves separating two portions of equity, the first portion is in retained earnings and represents the cumulative interest accreted on the liability components, while the other portion represents the original equity component. The Company has utilized this IFRS 1 exemption to not require separation of these two portions if the liability component is no longer outstanding at the transition date.

(d) Mineral property, plant and equipment – deemed costIFRS 1 includes an election to use fair value or revaluation as deemed cost for property, plant and equipment, and is available on an asset-by-asset basis. The IFRS 1 election is separate from the policy choice available to measure long-lived assets at cost or under the revaluation model. The Company has elected to apply the IFRS 1 exemption to certain mobile equipment, which has resulted in an increase in mineral properties and equipment of $6.3 million as at January 1, 2010, with a corresponding increase in retained earnings.

(e) Gain or loss on disposal of mining equipmentAs a result of the Company’s revaluing its mining equipment as at January 1, 2010, disposals of equipment in 2010 resulted in a reduction in the gain on disposals of $0.2 million.

(f) Decommissioning liabilityUnder IFRS 1, an entity can elect not to retrospectively calculate the effect of each change in estimate that occurred prior to the transition date on the decommissioning asset and related depletion. Instead, it can elect to measure the liability at the transition date in accordance with IAS 37. The Company has elected to use the IFRS 1 exemption and has measured the decommissioning asset and liability accordingly. The effect was to increase mineral property and equipment and decommissioning liability by $0.2 million as at January 1, 2010.

Required Changes(g) Dilution reclassification

Under IFRS, dilution gains or losses as a result of a change in percentage ownership of subsidiary companies are recorded in contributed surplus. The Company transferred $0.4 million from retained earnings to contributed surplus as at January 1, 2010.

(h) Reclassification of flow-through sharesThe Company has issued flow-through shares in the past. IFRS requires the difference between quoted market price of the same class of share without the flow-through feature and the amount the investor pays for the shares, or premium, be recorded as a liability. The premium previously recorded in share capital in the amount of $1.1 million was transferred to retained earnings.

Under the terms of flow-through share agreements, the tax attributes of the related expenditures are renounced to subscribers. Under IFRS the tax effect of the flow- through share renunciations are recorded in tax expense. The renunciations previously charged to share capital were transferred to retained earnings in the amount of $5.1 million.

The net effect was a decrease in retained earnings of $4.1 million.

(i) Reclassification of share issuance costsIFRS requires that current and deferred taxes be recognized in equity or in other comprehensive income when they relate to transactions or events recognized in equity or other comprehensive income in either the current or a prior period. This concept impacts the balance of the Company’s unclaimed financing fees as at January 1, 2010. IFRS requires the balance to be transferred from retained earnings to share capital. The balance of deferred taxes relating to unclaimed financing fees as at January 1, 2010 was $0.1 million.

(j) Reclassification and revision of deferred taxesUnder IFRS current future income taxes in the amount of $1.2 million were reclassified to deferred income taxes. On transition, a revision in deferred taxes in the amount of $0.1 million was recorded as a result of the tax impact of the following IFRS transitional adjustments: • revaluation of mobile equipment at deemed cost • re-measurement of the decommissioning liability at the transition date • revision of depletion due to the change in measurement of depletion, and the subsequent impact on the valuation of the bullion inventory

Policy Changes(k) Depletion – Units-of-production

The transition from tonnes to ounces as the Company’s UOP resulted in an increase in the estimated accumulated depletion of $6.0 million as at January 1, 2010. Depletion for 2010 also decreased by $3.0 million, of which $0.2 million was applied to bullion inventory.

CHANGES TO ACCOUNTiNG POLiCiES

Transition to international Financial Reporting Standards (“iFRS”)The Company has adopted IFRS for its 2011 fiscal year as required by the Accounting Standards Board of the Canadian Institute of Chartered Accountants. The Company provided information on its transition to IFRS in its March 31, 2011, Interim Management’s Discussion and Analysis. The consolidated financial statements for the year ended December 31, 2011, are the first annual financial statements prepared under IFRS.

Also, Note 27 of our audited consolidated financial statements for the year ended December 31, 2011, contains a detailed description of our conversion to IFRS, including a line-by-line reconciliation of financial statements previously prepared under Canadian GAAP to those under IFRS.

Below please find a summary of the important elements regarding the transition:

IFRS 1 – “First-time Adoption of International Financial Reporting Standards” (“IFRS 1”) governs the first-time adoption of IFRS. IFRS 1, in general, requires accounting policies under IFRS to be applied retrospectively to determine the statement of financial position of the Company as of the transition date of January 1, 2010, and allows certain exemptions which the Company has elected to apply.

The Company’s financial statements for the year ending December 31, 2011 are the first annual consolidated financial statements to comply with IFRS. The adoption of IFRS has not materially changed the Company’s overall cash flows or operations, however, it has resulted in certain differences in recognition, measurement and disclosure as compared to Canadian generally accepted accounting principles (“Canadian GAAP”).

In preparing the financial statements for the years ended December 31, 2011 and 2010, and the disclosures included in these financial statements, all comparative amounts have been restated to comply with IFRS, except where the Company has applied the optional exemptions and mandatory exceptions under IFRS 1. The Company’s transition date is January 1, 2010 (“the transition date”) and the Company prepared its opening IFRS statement of financial position at that date. These financial statements have been prepared in accordance with the accounting policies described in Note 3. The Company has reconciled the following financial statements as prepared under Canadian GAAP to those prepared under IFRS for the following periods:

• Consolidated statements of financial position as at January 1, 2010 and December 31, 2010• Consolidated statement of total equity as at December 31, 2010• Consolidated statement of income and comprehensive income for the year ended December 31, 2010

IFRS 1 - “First-time Adoption of International Financial Reporting Standards” sets forth guidance for the initial adoption of IFRS. Under IFRS 1, the standards are applied retrospectively at the transitional statement of financial position date with all adjustments to assets and liabilities charged or credited to retained earnings unless certain exemptions are applied. The Company has applied the following exceptions, exemptions, and changes to its opening statement of financial position dated January 1, 2010:

Exceptions(i) Financial instruments

Financial assets and liabilities that had been de-recognized before January 1, 2004 under Canadian GAAP have not been recognized under IFRS.

(ii) EstimatesThe Company has used estimates under IFRS that are consistent with those applied under Canadian GAAP unless there is objective evidence those estimates were in error.

Exemptions(a) Business combinations

IFRS 1 indicates that a first-time adopter may elect not to apply IFRS 3 – “Business Combinations” retrospectively to business combinations that occurred before the date of transition to IFRS. The Company has utilized this election and has therefore applied IFRS 3 only to business combinations that occurred on or after January 1, 2010.

(b) Share-based payment transactionsThe Company has elected not to apply IFRS 2 to awards that vested prior to January 1, 2010, which have been accounted for in accordance with Canadian GAAP. There was no material impact on the financial statements of applying IFRS 2 to unvested options at the transition date. The rate of forfeiture of unvested options was minimal.

(c) Compound financial instruments IAS 32 Financial Instruments: Presentation requires an entity to split a compound financial instrument at inception into separate liability and equity components. If the liability component is no longer outstanding, retrospective



(l) Contributed surplus – Expired warrants and optionsDuring the current fiscal year, after the issuance of the Company’s first interim IFRS financial report, the Company changed its policy of accounting for contributed surplus. Under the new policy, the value of any expired warrants and options recorded to contributed surplus is reclassified to retained earnings at the time of expiry. This changeresulted in an increase in retained earnings of $2.2 million as at January 1, 2010, and $0.1 million as at December 31, 2010.

(m) Contributed surplus – Share repurchasesDuring the current fiscal year, after the issuance of the Company’s first interim IFRS financial report, the Company changed its policy of accounting for share repurchases. Under the new policy, premiums are first recorded to contributed surplus to the extent that there are discounts remaining, before being charged to retained earnings. This change resulted in an increase in retained earnings of $0.0 million as at January 1, 2010, and no change as at December 31, 2010.

Presentation DifferencesCertain presentation differences between previous Canadian GAAP and IFRS have no impact on reported income or total equity.

Some assets and liabilities have been reclassified under IFRS at the transition date. A reclassification has been recorded for “non-controlling interest”. “Deferred income taxes”, “Dilution loss on Moss Lake Gold Mines Ltd.” and “Loss on marketable securities” have also been reclassified on the December 31, 2010 financial statements.

Some line items are described differently (renamed) under IFRS compared to previous Canadian GAAP, although the assets and liabilities included in these line items are unaffected. These line items are as follows (with previous Canadian GAAP description in brackets): Deferred taxes (Future taxes) Equity attributable to owners of the parent (Shareholders’ Equity) Finance leases (Capital leases) Provisions (Decommissioning liability)

Cash Flow StatementThe presentation of the cash flow statement in accordance with IFRS differs from the presentation of the cash flow statement in accordance with Canadian GAAP. The changes made to the statements of financial position and statements of income and comprehensive income have resulted in reclassifications of various amounts on the statement of cash flows.

information SystemsIT implications were assessed with respect to additional information required under IFRS. No significant changes were required 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 is confident it can still certify its filings following the transition to IFRS.

impact on the BusinessThe business processes of the Company were not affected significantly by 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 to enter into flow-through financing arrangements. The Company has no compensation arrangements that were affected by the IFRS implementation. The Company’s Stock Option Plan is not affected by ratios or financial targets.

Training and CommunicationKey finance staff has 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 14, 2012, the Company’s share information is as follows: Commonsharesissued 101,908,159 Commonsharepurchaseoptions 1,828,000

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, 2011, 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: • maintenance of records in reasonable detail, that accurately and fairly reflect the transactions and dispositions of our assets • reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with applicable Canadian GAAP • receipts and expenditures are only being made in accordance with authorizations of management and the Board of Directors • reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our 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 as at December 31, 2011, 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 2012 we expect higher output levels from each mine and a full year’s contribution from the Mishi Mine. Overall production should exceed 60,000 ounces in 2012. We expect the Eagle River Mine to produce about 28,000 ounces from 160,000 tonnes at a recovered grade of 5.4 gAu/tonne, the Kiena Mine to produce about 23,000 ounces from 300,000 tonnes at a recovered grade of 2.4 gAu/tonne and the Mishi Mine to produce about 9,000 ounces from 150,000 tonnes at a recovered grade of 1.9 gAu/tonne. We believe these estimates are conservative with upside potential as progressive improvements in grade are realized.

We expect a slow first quarter at the Kiena Mine as we catch up on development and forecast stronger grades in the second half of the year when the upper portions of the 388 Zone come onstream. This low-grade, high cost operation is extremely leveraged to the gold price.

We are confident in Eagle River’s potential to exceed forecasts. The Mishi Mine is just starting and requires a track record to be established to more confidently forecast production levels. Over Mishi’s 5-year mine plan, each year will improve in sequence as the stripping ratio declines.

Nonetheless, our conservative forecast of 60,000 ounces in 2012 would represent a 25% improvement over 2011 production. We remain very optimistic regarding the gold market and continue to believe our assets demonstrate exceptional leverage to gold prices and the capacity to grow production over the short to medium term.



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 statements of financial position as at December 31, 2011, December 31, 2010 and January 1, 2010, and the consolidated statements of income and comprehensive income, consolidated statements of total equity and consolidated statements of cash flows for the years ended December 31, 2011 and December 31, 2010, and a summary of significant accounting policies and other explanatory information.

Management’s responsibility for the financial statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board, 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 responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits 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 consolidated 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.

Opinion

In 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, 2011, December 31, 2010 and January 1, 2010, and its financial performance and its cash flows for the years ended December 31, 2011 and December 31, 2010, in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board.

Toronto, Ontario Grant Thornton LLP March 14, 2012 Chartered Accountants

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTS

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 International Financial Reporting Standards, as issued by the International Accounting Standards Board 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 Brian Ma March 14, 2012 Chief Financial Officer

INDEPENDENTAUDITOR’S REPORT


YearsEndedDecember31 2011 2010

Revenue Goldandsilverbullion $ 79,643 $ 89,383

Operating expenses Miningandprocessing 65,016 63,296 Depletionofminingproperties 6,540 11,120 Productionroyalties 822 917 Corporateandgeneral 2,604 2,489 Sharebasedcompensation 935 516 Depreciationofcapitalassets - 9 75,917 78,347

Incomefromoperations 3,726 11,036

Interestandotherincome 549 239Interestonlongtermdebt (1,575) (1,598)Otherinterest(Note25) (1,301) -Lossonsaleofmarketablesecurities - (362)Accretionofdecommissioningliability (66) (59)Incomebeforeincometax 1,333 9,256Incometaxexpense(recovery)(Note18) Current (72) 1,293 Deferred 1,165 2,692 1,093 3,985

Netincome 240 5,271Totalcomprehensiveincome $ 240 $ 5,271

Netincome(loss)attributableto: Non-controllinginterest $ (208) $ (112) OwnersoftheCompany 448 5,383 $ 240 $ 5,271

Totalcomprehensiveincome(loss)attributableto: Non-controllinginterest $ (208) $ (112) OwnersoftheCompany 448 5,383 $ 240 $ 5,271

Earningsandcomprehensiveearningspershare Basic(Note19) $ 0.00 $ 0.05 Diluted(Note19) $ 0.00 $ 0.05

See accompanying notes to the consolidated financial statements

December 31 December31 January1 2011 2010 2010 (Note27)

AssetsCurrent Cashandcashequivalents(Note6) $ 5,215 $ 22,806 $ 23,702 Receivables(Note7) 7,337 7,442 4,022 Inventory(Note8) 15,271 14,077 14,638 Marketablesecurities(Note12) - - 211 27,823 44,325 42,573Restrictedfunds(Note9) 2,385 2,420 2,588Deferredincometaxes(Note18) 615 1,780 3,356Capitalassets - - 9Miningpropertiesandequipment(Note10) 90,114 77,687 65,115Explorationproperties(Note11) 30,886 30,762 30,018 $ 151,823 $ 156,974 $ 143,659

LiabilitiesCurrent Payablesandaccruals $ 8,944 $ 12,938 $ 7,322 Miningtaxes - 1,317 - Currentportionofobligationsunderfinanceleases 913 1,262 1,240 Convertible7%debentures(Note14) 10,726 - - 20,583 15,517 8,562Incometaxespayable 22 58 82Obligationsunderfinanceleases(Note13) 818 1,735 1,108Convertible7%debentures(Note14) - 10,072 9,483Provisions(Note15) 1,593 1,574 1,517 23,016 28,956 20,752

EquityEquityattributabletoownersoftheCompany Capitalstock(Note16) 122,685 120,496 118,846 Contributedsurplus 1,960 1,867 2,008 Accumulatedothercomprehensiveloss - - (222) Equitycomponentofconvertibledebentures(Note14) 1,970 1,970 1,970 Retainedearnings(accumulateddeficit) 1,585 2,945 (552) 128,200 127,278 122,050Non-controllinginterest 607 740 857Totalequity 128,807 128,018 122,907 $ 151,823 $ 156,974 $ 143,659

OnbehalfoftheBoard,

DonovanPollitt MarcBlais Director Director

See accompanying notes to the consolidated financial statements

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION(Expressed in thousands of Canadian dollars)

CONSOLIDATED STATEMENTS OFINCOME AND COMPREhENSIvE INCOME

(Expressed in thousands of Canadian dollars)


YearsEndedDecember31 2011 2010

Operating activities Netincome $ 240 $ 5,271 Depletionofminingproperties 6,540 11,020 Accretionofdiscountonconvertibledebentures 654 589 Gainonsaleofequipment (19) - Sharebasedcompensation 935 516 Depreciationofcapitalassets - 9 Deferredincometaxes 1,165 2,692 Lossonsaleofmarketablesecurities - 362 Interestpaid 920 1,009 Accretionofdecommissioningliability 66 59 10,501 21,527 Netchangesinnon-cashworkingcapital(Note23) (5,532) 3,387 4,969 24,914

Financing activities Exerciseofoptions 1,600 1,232 SharesissuedbyasubsidiaryoftheCompanytothirdparties 160 - FundspaidtorepurchasecommonsharesunderNCIB (118) (78) Shareissuancecosts - (40) Repaymentofobligationsunderfinanceleases (1,266) (1,589) Interestpaid (920) (1,009) Dividendspaid (2,028) (2,013) (2,572) (3,497)

Investing activities Additionstominingandexplorationproperties (19,280) (23,449) Proceedsonsaleofequipment 161 234 Proceedsonsaleofmarketablesecurites - 71 Fundsheldagainststandbylettersofcredit 35 168 (19,084) (22,976) Netchangesinnon-cashworkingcapital(Note23) (904) 663 (19,988) (22,313)

Decreaseincashandcashequivalents (17,591) (896)

Cashandcashequivalents,beginningofyear 22,806 23,702

Cashandcashequivalents,endofyear $ 5,215 $ 22,806

Supplementaldisclosure(Note23)

ContributedSurplus Accumulated Equity Total Share Other Component Retained Attributable Capital Based Share Dilution Comprehensive Convertible Earnings toOwners Non-Controlling Total Stock Payments Repurchases Gains Income(loss) Debentures (Deficit)oftheCompany Interest Equity

Balance,January1,2010 $118,846 $ 1,106 $ 467 $ 435 $ (222) $ 1,970 $ (552) $122,050 $ 857 $122,907

Netincome(loss)fortheyear endedDecember31,2010 - - - - - - 5,383 5,383 (112) 5,271

Shareissuancecosts (27) - - - - - - (27) - (27)

Exerciseofoptions 1,232 - - - - - - 1,232 - 1,232

Valueattributedtooptions exercised 479 (479) - - - - - - - -

Valueattributedtooptions expired - (127) - - - - 127 - - -

Sharebasedpayments - 516 - - - - - 516 - 516

Realizedlossonsaleof marketablesecurities - - - - 262 - - 262 - 262

Revaluationtofairvalueof marketablesecurites - - - - (40) - - (40) - (40)

Dividendspaid - - - - - - (2,013) (2,013) - (2,013)

Sharespurchasedunder normalcourseissuerbid (34) - (44) - - - - (78) - (78)

Dilutionofnon-controlling interest - - - (7) - - - (7) (5) (12)

Balance,December31,2010 120,496 1,016 423 428 - 1,970 2,945 127,278 740 128,018

Netincome(loss)fortheyear endedDecember31,2011 - - - - - - 448 448 (208) 240

Exerciseofoptions 1,600 - - - - - - 1,600 160 1,760

Valueattributedtooptions exercised 667 (667) - - - - - - - -

Valueattributedtooptions expired - (220) - - - - 220 - - -

Sharebasedpayments - 935 - - - - - 935 - 935

Sharespurchasedunder normalcourseissuerbid (78) - (40) - - - - (118) - (118)

Dilutionofnon-controlling interest - - - 85 - - - 85 (89) (4)

Subsidiarycapitaltransactions - - - - - - - - 4 4

Dividends(Note19) - - - - - - (2,028) (2,028) - (2,028)

Balance,December31,2011 $ 122,685 $ 1,064 $ 383 $ 513 $ - $ 1,970 $ 1,585 $ 128,200 $ 607 $ 128,807

CONSOLIDATED STATEMENTS OF TOTAL EqUITY(Expressed in thousands of Canadian dollars)

CONSOLIDATED STATEMENTS OFCASh FLOwS(Expressed in thousands of Canadian dollars)

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


YEARS ENDED DECEMBER 31, 2011 AND 2010

(Expressed in thousands of Canadian dollars)

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). Wesdome’s head office is located at 8 King Street, Suite 1305, Toronto, ON, M5C 1B5.

2. BASiS OF PRESENTATiON AND FiRST-TiME ADOPTiON OF iNTERNATiONAL FiNANCiAL REPORTiNG STANDARDS

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). These are the Company’s first IFRS annual consolidated financial statements.

These consolidated financial statements are presented in Canadian dollars (“Cdn $”), which is also the functional currency of the Company.

These consolidated financial statements were authorized for issuance by the Board of Directors of the Company on March 14, 2012.

3. SiGNiFiCANT ACCOUNTiNG POLiCiES

(a) Basis of ConsolidationThese consolidated financial statements include the financial statements of the parent company and its 56.8% (2010: 57.6%) owned subsidiary, Moss Lake Gold Mines Ltd. (“MLGM”).

All transactions and balances between the parent company and its subsidiary are eliminated on consolidation.

Non-controlling interests in the Company’s less than wholly-owned subsidiary are classified as a separate component of equity. On initial recognition, non-controlling interests are measured at their proportionate share of the acquisition-date fair value of identifiable net assets of the related subsidiary acquired by the Company. Subsequent to the acquisition date, adjustments are made to the carrying amount of non-controlling interests for the non-controlling interests’ share of changes to the subsidiary’s equity. Adjustments to recognize the non-controlling interests’ share of changes to the subsidiary’s equity are made even if this results in the non-controlling interests having a deficit balance.

Changes in the Company’s ownership interest in a subsidiary that do not result in a loss of control are recorded as equity transactions. The carrying amount of non-controlling interests is adjusted to reflect the change in the non-controlling interests’ relative interest in the subsidiary and the difference between the adjustment to the carrying amount of non-controlling interests and the Company’s share of proceeds received and/or consideration paid is recognized directly in equity and attributed to shareholders of the Company.

(b) 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, it is probable that the economic benefits will be realized, and collection is reasonably assured.

Interest and other revenue are reported on an accrual basis using the effective interest method.

(c) 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.

(d) 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, and depletion.

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

(e) Mining Properties and Equipment (i) Cost and valuation

Mining properties, plant and equipment are carried at cost less accumulated depletion and any impairment in value. When an asset is disposed of, it is derecognized and the difference between its carrying value and net sales proceeds is recognized as a gain or loss in profit or loss.

(ii) Mining properties and equipmentMining properties and equipment include expenditures incurred on properties under development, payments related to the acquisition of land and mineral rights and property, plant and equipment which are recorded at cost on initial acquisition. Cost includes the purchase price and the directly attributable costs of acquisition or construction required to bring an asset to the location and condition necessary for the asset to be capable of operating in the manner intended by management.

Property acquisition and mine development costs are recorded at cost. Pre-production expenditures are capitalized until the commencement of production. Mine development costs incurred to expand operating capacity, develop new ore bodies or develop mine areas in advance of current production are capitalized. Mine development costs related to current period production are charged to operations as incurred.

(iii) DepletionMine development costs, property, plant and equipment and other mining assets whose estimated useful life is the same as the remaining life of the mine are depleted over a mine’s estimated life using the unit-of-production method (“UOP”) calculated based on proven and probable reserves and measured and indicated resources.

Where components of an asset have a different useful life and cost that is significant to the total cost of the asset, depreciation and depletion is calculated on each separate component.

Depreciation and depletion methods, useful lives and residual values are reviewed at a minimum at the end of each year.

(iv) Subsequent costsRepairs and maintenance costs are expensed as incurred. However, expenditures on major maintenance rebuilds or overhauls are capitalized when it is probable that the expenditures will extend the productive capacity or useful life of an asset. Any remaining costs of previous overhauls relating to the same asset are derecognized. All other expenditures are expensed as incurred.

(v) Deferred stripping costsStripping costs incurred to prepare the ore body for extraction are capitalized as mine development costs (pre-stripping). Stripping costs incurred during the production phase of a mine are considered production costs and are included in the cost of inventory produced during the period in which stripping costs are incurred. Capitalized stripping costs are amortized on a UOP basis over the economically recoverable proven and probable reserves and measured and indicated resources to which they relate.

(f) Leased AssetsWhen the economic ownership of a leased asset is transferred to the lessee, the lessee bears substantially all the risks and rewards related to the ownership of the leased asset. The related asset is then recognized at the inception of the lease at the lower of the present value of minimum lease payments and the fair value of the leased asset and a corresponding amount is recognized as a finance lease liability.

Depreciation methods and useful lives for assets held under finance lease agreements correspond to those applied to comparable assets which are legally owned by the Company. The corresponding finance lease liability is reduced by lease payments less finance charges, which are expensed as part of finance costs.

The interest portion of lease payments is charged to profit or loss over the period of the lease. Associated costs, such as maintenance and insurance, are expensed as incurred.

(g) Exploration and Evaluation CostsExploration expenditures reflect the costs related to the initial search for mineral deposits with economic potential or obtaining more information about existing mineral deposits. Exploration expenditures typically include costs associated with sampling, mapping, diamond drilling and other work involved in searching for ore. All expenditures relating to exploration activities are capitalized as incurred from the point at which the Company receives the legal right to explore.

Evaluation expenditures reflect costs incurred at exploration projects related to establishing the technical and commercial viability of developing mineral deposits identified through exploration or acquired through a business combination or asset acquisition.

Evaluation expenditures include the cost of:

(i) establishing the volume and grade of deposits through drilling of core samples, trenching and sampling activities in an ore body that is classified as either a mineral resource or a proven and probable reserve,

(ii) determining the optimal methods of extraction and metallurgical and treatment processes,

(iii) studies related to surveying, transportation and infrastructure requirements,

(iv) permitting activities, and

(v) economic evaluations to determine whether development of the mineralized material is commercially justified, including scoping, prefeasibility and final feasibility studies.

Costs in relation to these activities are capitalized as incurred under exploration properties until such time as the Company expects that mineral resources will be converted to mineral reserves within a reasonable period and mine development commences. Thereafter, accumulated exploration and evaluation costs for the project are reclassified to mining properties. Exploration and evaluation costs of abandoned properties are expensed in the period in which the project is abandoned.

(h) impairment of Non-Financial AssetsFor impairment assessment purposes, assets are grouped at the lowest levels for which there are largely independent cash inflows (cash generating units (“CGUs”)). The Company’s CGUs are its individual operating mine sites. At the end of each reporting period, the Company reviews and evaluates its mining properties and equipment at the cash-generating unit (“CGU”) level to determine whether there is any indication that these assets are impaired. If any such indication exists, the recoverable amount of the relevant CGU is estimated in order to determine the extent of impairment.

The recoverable amount of a mine site is the greater of its fair value less costs to sell and its value-in-use. The value-in-use is estimated as the discounted future after-tax cash flows expected to be derived from a mine site. If the recoverable amount of a mine site is estimated to be less than its carrying amount, the carrying amount is reduced to its recoverable amount. Impairment losses are recognized as operating expenses in the period they are incurred. When an impairment loss reverses in a subsequent period, the carrying amount of the related asset is increased to the revised estimate of recoverable amount to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset previously. Reversals of impairment losses are recognized in profit or loss in the period the reversals occur.

(i) income TaxesIncome taxes are calculated using the liability method where current income taxes are recognized as an expense for the estimated income taxes payable for the current period.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2011 AND 2010 (Expressed in thousands of Canadian dollars)NOTES TO ThE CONSOLIDATED

FINANCIAL STATEMENTS


Deferred 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, to the extent that it is probable that deductions, credits and tax losses can be utilized, and are measured using the enacted or substantively enacted tax rates that will be in effect when the differences are expected to reverse or losses are expected to be utilized. Deferred income taxes relating to the initial recognition of an asset or liability in a transaction that, at the time of the transaction, neither affects accounting nor taxable income, are not recognized. The deferred tax relating to items recorded in other comprehensive income is linked to these items for reporting purposes.

On a consolidated basis the Company does not offset asset and liability amounts with those of the subsidiary and with amounts owing to different taxation authorities. Deferred tax assets and liabilities are offset only when the Company has a right and intention to set off current tax assets and liabilities from the same taxation authority.

(j) Equity, Reserves and Dividend PaymentsShare capital represents the consideration received for shares that have been issued, net of related issuance costs.

Contributed surplus includes the value of share based payments net of the value of expired grants; discounts, net of premiums, on shares repurchased; and dilution gains and losses relating to non-controlling interest.

Retained earnings include all current and prior period retained profits.

Dividend distributions payable to equity shareholders are included in “current liabilities” when the dividends have been approved in a directors’ meeting prior to the reporting date.

(k) Employee BenefitsSalaries and short-term employee benefitsSalaries and short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.

Post-employment benefitsPost-employment benefits include a defined contribution plan under which the Company pays fixed contributions through a separate entity. Under this plan, the Company will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution plans are recognized as an employee benefit expense when due.

(l) Provisions(i) General

Provisions are recognized when present obligations, as a result of a past event, will probably lead to an outflow of economic resources from the Company and amounts can be estimated reliably. The timing or amount of the outflow may still be uncertain. A present obligation arises from the presence of a legal or constructive commitment that has resulted from past events. Provisions are not recognized for future operating losses.

Provisions are based on the most reliable information available at the reporting date, including the risks and uncertainties associated with the current best estimate.

(ii) Decommissioning LiabilityThe Company’s mining and exploration activities are subject to various government laws and regulations relating to the protection of the environment. These laws and regulations are continually changing and are generally becoming more restrictive. The Company has made, and will continue to make expenditures to comply with such laws and regulations. Decommissioning and closure costs expected to be incurred in the future are estimated by the Company’s management based on the information available to them.

Actual decommissioning and closure costs could be materially different from the current estimates. Any change in cost estimates, discount rates, or other assumptions should additional information become available would be accounted for on a prospective basis. The Company’s estimates are reviewed annually for changes in regulatory requirements, discount rates, and changes in estimates. Management considers the Bank of Canada bond rate related to the life of mine when determining the discount rate. The rate is subsequently adjusted for risk to allow for the indeterminate nature of the mine life.

The net present value of the future rehabilitation cost estimates arising from decommissioning of property, plant and equipment is recognized in the period in which it is incurred with an offsetting amount being recognized as an increase in the carrying amount of the corresponding mining asset. This asset is amortized on a UOP basis over the estimated life of the mine while the corresponding liability accretes to its undiscounted value by the end of the mine’s life.

(m) Financial instrument Classification and MeasurementFinancial instruments are measured on initial recognition at fair value, and, in the case of financial instruments other than those classified as ‘‘fair value through profit and loss’’, directly attributable transaction costs. Measurement of financial assets in subsequent periods depends on whether the financial instrument has been classified as ‘‘fair value through profit and loss’’, ‘‘available-for-sale’’, ‘‘held-to-maturity’’, or ‘‘loans and receivables’’ as defined by IAS 39 – ‘‘Financial Instruments”:

Recognition and MeasurementMeasurement of financial liabilities subsequent to initial recognition depends on whether they are classified as fair value through profit and loss or ‘‘other financial liabilities’’.

Financial assets and financial liabilities at fair value through profit and loss include financial assets and financial liabilities that are held for trading or designated upon initial recognition as at fair value through profit and loss. These financial instruments are measured at fair value with changes in fair values recognized in profit or loss.

Financial assets designated as available-for-sale are measured at fair value, with changes in fair values recognized in other comprehensive income (“OCI”), except when there is objective evidence that the asset is impaired, at which point the cumulative loss that had been previously recognized in OCI is recognized in profit or loss. Financial assets classified as held-to-maturity and loans and receivables are measured subsequent to initial recognition at amortized cost using the effective interest method. Financial liabilities, other than financial liabilities classified as fair value through profit and loss, are measured in subsequent periods at amortized cost using the effective interest method.

Cash and cash equivalents, restricted funds and receivables, are classified as loans and receivables. Long-term investments in equity securities, where the Company cannot exert significant influence, are designated as available-for-sale. Payables and accruals are classified as other financial liabilities.

(n) Convertible NotesThe holder has the right to demand that the Company pay all or part of the liability associated with the Company’s outstanding convertible notes in cash on the conversion date. Accordingly the Company classifies the convertible notes as a financial liability with a conversion feature. The conversion feature is recognized initially at its fair value, as a separate component of equity. The liability component is recognized initially as the difference between the fair value of the convertible notes as a whole and the value of conversion feature. The liability component is recognized at amortized cost using the effective interest method.

Interest, gains and losses related to the liability component are recognized in profit or loss.

(o) 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. The Company allocates the proceeds from the issuance of these shares between the offering of shares and the tax benefits to be renounced to subscribers. The allocation is made based on the difference between the quoted price of the same class of share without the flow-through feature and the amount the investor pays for the flow-through shares. A deferred flow-through premium liability is recognized for the difference. The liability is reversed after the expenditures are made and the Company expresses its intention to renounce the expenditures and is recorded in other income. The renunciation also gives rise to a taxable temporary difference between the accounting and tax bases of the qualifying expenditure.

(p) Share-based PaymentsThe Company’s share-based stock option plan is designed to advance the interests of the Company by encouraging employees, officers and directors to have equity participation in the Company through the acquisition of common shares. Stock options granted vest either immediately or over the term of the option. Stock options have an exercise price of no less than the closing price of the common shares on the Toronto Stock Exchange on the trading day immediately preceding the date on which the options are granted and are exercisable for a period not to exceed five years. The cost of these stock options is measured using the estimated fair value at the date of the grant determined using the Black-Scholes option pricing model.

The Black-Scholes option pricing model requires the input of subjective assumptions, including the expected term of the option and stock price volatility. The expected term of options granted is determined based on historical data on the average hold period before exercise, expiry or cancellation. Annually, the estimated forfeiture rate is adjusted for actual forfeitures in the period.

Expected volatility is estimated with reference to the historical volatility of the share price of the Company. The costs are recognized over the vesting period of the option. The total amount recognized as an expense is adjusted to reflect the number of options expected to vest at each reporting date. The corresponding credit for these costs is recognized in the share-based payment reserve in equity.

(q) 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 profit or loss such as unrealized gains or losses on available-for-sale investments.

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

4. SiGNiFiCANT JUDGMENTS, ESTiMATES AND ASSUMPTiONS

The preparation of the Company’s consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates and assumptions are continually evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual results could differ from these estimates.

The areas which require management to make significant judgments, estimates and assumptions in determining carrying values include, but are not limited to:

(i) ReservesProven and probable reserves are the economically mineable parts of the Company’s measured and indicated mineral resources demonstrated by at least a preliminary feasibility study. The Company estimates its proven and probable reserves and measured and indicated and inferred mineral resources based on information compiled by appropriately qualified persons. The information relating to the geological data on the size, depth and shape of the ore body requires complex geological judgments to interpret the data. The estimation of future cash flows related to proven and probable reserves is based upon factors such as estimates of foreign exchange rates, commodity prices, future capital requirements and production costs along with geological assumptions and judgments made in estimating the size and grade of the ore body.

Changes in the proven and probable reserves or measured, indicated and inferred mineral resources estimates may impact the carrying value of mining properties and equipment, depletion, impairment assessments and the timing of decommissioning and remediation obligations

(ii) DepletionMining properties are depleted using the unit-of-production method (“UOP”) over a period not to exceed the estimated life of the ore body based on recoverable ounces to be mined from proven and probable reserves and measured and indicated resources.

Mobile and other equipment is depreciated, net of residual value over the useful life of the equipment but does not exceed the related estimated life of the mine based on proven and probable reserves and measured and indicated resources.

The calculation of the UOP rate, and therefore the annual depletion expense, could be materially affected by changes in the underlying estimates. Changes in estimates can be the result of actual future production differing from current forecasts of future production, expansion of mineral reserves through exploration activities, differences between estimated and actual costs of mining and differences in the gold price used in the estimation of mineral reserves.

Significant judgment is involved in the determination of useful life and residual values for the computation of depletion and no assurance can be given that actual useful lives and residual values will not differ significantly from current assumptions.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2011 AND 2010 (Expressed in thousands of Canadian dollars)



(iii) Provision for decommissioning obligationsThe Company assesses its provision for decommissioning on an annual basis or when new material information becomes available. Mining and exploration activities are subject to various laws and regulations governing the protection of the environment. In general, these laws and regulations are continually changing and the Company has made, and intends to make in the future, expenditures to comply with such laws and regulations. Accounting for decommissioning obligations requires management to make estimates of the future costs the Company will incur to complete the decommissioning work required to comply with existing laws and regulations at each mining operation. Also, future changes to environmental laws and regulations could increase the extent of decommissioning work required to be performed by the Company. Increases in future costs could materially impact the amounts charged to operations for decommissioning. The provision represents management’s best estimate of the present value of the future decommissioning obligation. The actual future expenditures may differ from the amounts currently provided.

(iv) Share-based paymentsThe determination of the fair value of share-based compensation is not based on historical cost, but is derived based on subjective assumptions input into an option pricing model. The model requires that management make forecasts as to future events, including estimates of the average future hold period of issued stock options before exercise, expiry or cancellation; future volatility of the Company’s share price in the expected hold period (using historical volatility as a reference); and the appropriate risk-free rate of interest. Stock-based compensation incorporates an expected forfeiture rate. The expected forfeiture rate is estimated based on historical forfeiture rates and expectations of future forfeiture rates, and is adjusted if the actual forfeiture rate differs from the expected rate.

The resulting value calculated is not necessarily the value that the holder of the option could receive in an arm’s length transaction, given that there is no market for the options and they are not transferable. It is management’s view that the value derived is highly subjective and dependent entirely upon the input assumptions made.

(v) Deferred taxesPreparation of the consolidated financial statements requires an estimate of income taxes in each of the jurisdictions in which the Company operates. The process involves an estimate of the Company’s current tax exposure and an assessment of temporary differences resulting from differing treatment of items, such as depreciation and depletion, for tax and accounting purposes. These differences result in deferred tax assets and liabilities that are included in the Company’s consolidated statements of financial position.

An assessment is also made to determine the likelihood that the Company’s deferred tax assets will be recovered from future taxable income.

Judgment is required to continually assess changing tax interpretations, regulations and legislation, to ensure liabilities are complete and to ensure assets are realizable. The impact of different interpretations and applications could be material.

(vi) Recoverability of mining propertiesThe Company’s management reviews the carrying values of its mining properties on a regular basis to determine whether any write-downs are necessary. The recovery of amounts recorded for mining properties depends on confirmation of the Company’s interest in the underlying mineral claims, the ability of the Company to obtain the necessary financing to complete the development, and future profitable production or proceeds from the disposition thereof. Management relies on the life-of-mine plans in its assessments of economic recoverability and probability of future economic benefit. Life-of-mine plans provide an economic model to support the economic extraction of reserves and resources. A long-term life-of-mine plan and supporting geological model identifies the drilling and related development work required to expand or further define the existing ore body.

(vii) Exploration and evaluation expendituresJudgment is required in determining whether the respective costs are eligible for capitalization where applicable, and whether they are likely to be recoverable by future exploration, which may be based on assumptions about future events and circumstances. Estimates and assumptions made may change if new information becomes available.

(viii) Equity component of convertible debenturesThe convertible debentures are classified as liabilities, with the exception of the portion relating to the conversion feature, resulting in the carrying value of the liability being less than its face value. The discount is being accreted over the term of the debentures, utilizing the effective interest rate method which approximates the market rate at the date the debentures were issued. Management uses its judgment to determine an interest rate that would have been applicable to non-convertible debt at the time the debentures were issued.

5. UPCOMiNG CHANGES iN ACCOUNTiNG STANDARDS

The IASB has issued IFRS 9 – ‘‘Financial Instruments: Classification and Measurement’’ which proposes to replace IAS 39. The replacement standard has the following significant components: establishes two primary measurement categories for financial assets – amortized cost and fair value; establishes criteria for classification of financial assets within the measurement category based on business model and cash flow characteristics; and eliminates existing held to maturity, available for sale and loans and receivable categories.

This standard is effective for the Company’s annual year end beginning January 1, 2015. The Company will evaluate the impact of the change to its consolidated financial statements based on the characteristics of its financial instruments at the time of adoption.

iFRS 10 – ConsolidationIFRS 10 requires an entity to consolidate an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Under existing IFRS, consolidation is required when an entity has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. IFRS 10 replaces SIC-12 Consolidation – Special Purpose Entities and parts of IAS 27 Consolidated and Separate Financial Statements. IFRS 10 is required to be applied for annual periods beginning January 1, 2013.

iFRS 11 – Joint ArrangementsIFRS 11 requires a venturer to classify its interest in a joint arrangement as a joint venture or joint operation. Joint ventures will be accounted for using the equity method of accounting whereas for a joint operation the venturer will recognize its share of the assets, liabilities, revenue and expenses of the joint operation. Under existing IFRS, entities have the choice to proportionately consolidate or equity account for interests in joint ventures. IFRS 11 supersedes IAS 31, Interests in Joint Ventures, and SIC-13, Jointly Controlled Entities – Non-monetary Contributions by Venturers. IFRS 11 is required to be applied for annual periods beginning January 1, 2013.

iFRS 12 – Disclosure of interests in Other EntitiesIFRS 12 establishes disclosure requirements for interests in other entities, such as joint arrangements, associates, special purpose vehicles and off balance sheet vehicles. The standard carries forward existing disclosures and also introduces significant additional disclosure requirements that address the nature of, and risks associated with, an entity’s interests in other entities. IFRS 12 is required to be applied for annual periods beginning January 1, 2013.

iFRS 13 – Fair Value MeasurementIFRS 13 is a comprehensive standard for fair value measurement and disclosure requirements for use across all IFRS standards. The new standard clarifies that fair value is the price that would be received to sell an asset, or paid to transfer a liability in an orderly transaction between market participants, at the measurement date. It also establishes disclosures about fair value measurement. Under existing IFRS, guidance on measuring and disclosing fair value is dispersed among the specific standards requiring fair value measurements and in many cases does not reflect a clear measurement basis or consistent disclosures. IFRS 13 is required to be applied for annual periods beginning January 1, 2013.

Management has yet to assess the impact that IFRS 10, IFRS 11, IFRS 12 and IFRS 13 would have on the financial statements of the Company.

Amendments to Other StandardsIn addition, there have been amendments to existing standards, including IAS 27, Separate Financial Statements (IAS 27), and IAS 28, Investments in Associates and Joint Ventures (IAS 28). IAS 27 addresses accounting for subsidiaries, jointly controlled entities and associates in non-consolidated financial statements. IAS 28 has been amended to include joint ventures in its scope and to address the changes in IFRS 10 to 13. The Company is currently in the process of analyzing the impact of these amendments on the consolidated financial statements.

The IASB is expected to publish new IFRSs on the following topics during the first half of 2012. The Company will assess the impact of these new standards on the Company’s operations as they are published: • IAS 17 Leases • IAS 18 Revenue Recognition

6. CASH AND CASH EQUiVALENTS December 31 December31 January1 2011 2010 2010Cash $ 5,215 $ 17,777 $ 23,702Termdeposit(2010:0.73%) - 5,029 - $ 5,215 $ 22,806 $ 23,702

7. RECEiVABLES December 31 December31 January1 2011 2010 2010Miningdutiesrefundsandtaxcredits $ 1,012 $ 1,012 $ 1,012Proceedsfrombullionsales - 1,410 -Goodsandservicestax 4,365 2,624 1,340Prepaids 550 587 433RefundduefromCommissiondelasanteetdelasecuritiedutravail 794 944 831Deposits 158 343 263Insuranceclaim - 363 -Other 458 159 143 $ 7,337 $ 7,442 4,022

8. iNVENTORY December 31 December31 January1 2011 2010 2010Goldbullion $ 12,469 $ 10,986 $ 12,163Supplies 2,802 3,091 2,475 $ 15,271 $ 14,077 14,638

9. RESTRiCTED FUNDS December 31 December31 January1 2011 2010 2010Relatingtomineclosureplans(Note15) $ 1,635 $ 1,494 $ 1,537Relatingtohydrodeposit 415 415 370Relatingtofinanceleases 335 511 681 $ 2,385 $ 2,420 $ 2,588

Funds are being held in Guaranteed Investment Certificates at interest rates ranging from 0.89% to 0.95% (December 31, 2010: 0.44% to 0.80%, January 1, 2010: 0.33% to 1.40%) maturing to November 2012 and promissory notes at an interest rate of 6.50% maturing March, 2012.




10. MiNiNG PROPERTiES AND EQUiPMENT Eagle KienaMineGross Carrying Amount River Complex TotalBalance,January1,2010 $ 25,654 $ 65,535 $ 91,189Additions 9,767 14,160 23,927Disposals (215) (20) (235)Balance,December31,2010 35,206 79,675 114,881Additions 10,288 9,326 19,614Disposals (575) (110) (685)Changeindecommissioningprovision 22 (69) (47)Balance,December31,2011 $ 44,941 $ 88,822 $ 133,763 Accumulated Depletion Balance,January1,2010 $ (8,679) $ (17,395) $ (26,074)Depletion (4,590) (6,530) (11,120)Balance,December31,2010 (13,269) (23,925) (37,194)Depletion (2,657) (3,798) (6,455)Balance,December31,2011 $ (15,926) $ (27,723) $ (43,649)

CarryingAmount,January1,2010 $ 16,975 $ 48,140 $ 65,115CarryingAmount,December31,2010 $ 21,937 $ 55,750 $ 77,627Carrying Amount, December 31, 2011 $ 29,015 $ 61,099 $ 90,114

The Eagle River PropertiesThe Eagle River mining properties consist of the Eagle River mine, the Mishi mine and the Eagle River mill and all related infrastructure and equipment.

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, related infrastructure and equipment and 165 mining claims in the Township of Dubuisson, Quebec.

11. EXPLORATiON PROPERTiES

WesdomeGroup MossLake Magnacon Other TotalBalance,January1,2010 $ 24,774 $ 2,930 $ 1,780 $ 534 $ 30,018Explorationexpenditures 16 59 253 416 744Balance,December31,2010 24,790 2,989 2,033 950 30,762Explorationexpenditures 3 120 1 - 124Balance,December31,2011 $ 24,793 $ 3,109 $ 2,034 $ 950 $ 30,886

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

Other propertiesOther 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 an 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 a 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.

12. MARKETABLE SECURiTiES

During 2010, the Company disposed of marketable securities received upon the sale of the McKenzie Break property for a cumulative loss of $362,000 of which $222,000 had been previously recorded as an unrealized loss in accumulated other comprehensive loss. 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.

13. OBLiGATiONS UNDER FiNANCE LEASES

The Company leases, with options to purchase, certain mining equipment. Future minimum payments under finance leases, together with the balance of the obligations under finance leases are as follows: December 31 December31 January1 2011 2010 2010Notlaterthanoneyear $ 997 $ 1,422 $ 1,400Laterthanoneyearandnotlaterthanfiveyears 854 1,851 1,178Totalminimumleasepayments $ 1,851 $ 3,273 $ 2,578Less:Interestportionattheweightedaverageof6.68% (Dec31,2010:6.88%,Jan1,2010:6.85%) 120 276 230Totalobligationsunderfinanceleases,securedbyequipment 1,731 2,997 2,348Less:Currentportion 913 1,262 1,240Longtermportion $ 818 $ 1,735 $ 1,108

The cost of equipment under finance leases at December 31, 2011, is $3,871,000 (December 31, 2010: $4,808,000, January 1, 2010: $3,185,000) with related accumulated depreciation of $1,021,000 (December 31, 2010: $816,000, January 1, 2010: $nil). These assets are included in mining properties.

14. 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, 2011 and 2010.

December 31 December31Liabilitycomponent 2011 2010Balance,beginningofyear $ 10,072 $ 9,483Accretion 654 589Balance,endofyear $ 10,726 $ 10,072

December 31 December31Equitycomponent 2011 2010Balance,beginningofyear $ 1,970 $ 1,970Balance,endofyear $ 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, at the date of issuance, 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%.

At December 31, 2011, December 31, 2010, and January 1, 2010, the face value of debentures available for conversion at $3.25 totalled $10,931,000.




15. PROViSiONS

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 2011 and 2010. The Eagle River ore and waste rocks are not acid generating which minimizes the environmental risks of mining. Although the ultimate amount of decommissioning costs is uncertain, the Company estimates its future decommissioning costs for the Eagle River mine, Mishi mine and the mill to be about $0.9 million and the Kiena mining and milling complex to be about $1.0 million. The Company has provided $1.6 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: Balance,January1,2010 $ 1,517Accretionexpense 57Balance,December31,2010 1,574Accretionexpense 66Changeindecommissioningprovision (47)Balance,December31,2011 $ 1,593

As a result of increased activity at the Eagle River Mishi mine, the Company was required to increase its decommissioning provision. The decommissioning provision is based on current reserve estimates, forecasted production and estimated future cash flows underlying the obligation. The risk adjusted interest rate employed was 3.36% (December 31, 2010: 3.88%, January 1, 2010: 3.88%). The obligation will be accreted to $1.9 million (December 31, 2010: $1.8 million, January 1, 2010: $1.8 million) over the next 5 to 6 years.

16. CAPiTAL STOCK

Authorized:TheauthorizedcapitaloftheCompanyconsistsofanunlimitednumberofcommonshareswithoutparvalue. Shares AmountIssued: Balance,January1,2010 100,431,159 $ 118,846Shareissuancecosts - (27)Exerciseofoptions 775,000 1,232Valueattributedtooptionsexercised - 479SharespurchasedunderNCIB (30,000) (34)Balance,December31,2010 101,176,159 120,496Exerciseofoptions 797,000 1,600Valueattributedtooptionsexercised - 667SharespurchasedunderNCIB (65,000) (78)Balance,December31,2011 101,908,159 $ 122,685

On July 12, 2010, 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 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 July 13, 2011, the Company repurchased for cancellation a total of 37,800 common shares with a carrying value of $43,000 for total cash consideration of $96,100. When the cash cost is less than the carrying amount the difference is charged to contributed surplus; when it is greater it is charged to contributed surplus to the extent there is a balance related to share repurchases, with any remainder charged to retained earnings.

On August 5, 2011, the Company received approval from the TSX for another NCIB. The bid allows the Company to purchase, on the open market, up to 9,999,409 of its common shares for cancellation over a period of one year to end on August 7, 2012. Purchases will be subject to a daily maximum of 28,997 shares. To date the Company has purchased for cancellation a total of 57,200 common shares with a carrying value of $69,000 for total cash consideration of $99,000.

17. COMMON SHARE PURCHASE PLAN

The Company has an equity settled 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. All options granted have a five year life with vesting periods based on the size of the option grant and at prices equal to the closing price for the day immediately preceding the date the options were granted. The maximum aggregate number of common shares under option at any time pursuant to the Plan is set at 5,000,000 of which 3,269,500 are available to be issued.

The following table reflects the continuity for the years ended December 31, 2011 and 2010 of options granted under the plan. WeightedAverage Options ExercisePrice 2011 2010 2011 2010 $ $Outstanding,beginningofyear 1,772,000 2,535,500 1.91 1.76Granted 940,000 215,000 2.67 2.60Exercised (797,000) (775,000) 2.01 1.59Expired (184,500) (203,500) 2.23 1.89Outstanding,endofyear 1,730,500 1,772,000 2.25 1.91

OutstandingOptions ExercisableOptionsRangeof Number Weightedaverage Weightedaverage Number Weightedaverageexerciseprices outstanding remaininglife exerciseprice exercisable exerciseprice (years) $ $lessthan$1.00 18,000 1.93 0.75 10,000 0.75$1.00-$1.50 60,000 1.26 1.26 40,000 1.35$1.51-$2.00 580,000 1.36 1.60 540,000 1.58$2.01-$2.50 307,500 3.44 2.39 209,500 2.39$2.51-$3.00 765,000 4.21 2.79 270,000 2.74 1,730,500 2.99 2.25 1,069,500 2.02

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, 2011 and 2010, grant date fair value indicated was based on the following factors: 2011 2010Weightedaveragefairvalue,peroption($) 1.51 1.54Weightedaveragerisk-freeinterestrate(%) 2.83 2.2Weightedaveragevolatility(%) 66.86 71.0Expectedlife(years) 5.0 5.0Dividendyield(%) 0.7 0.8

The estimated fair value of the options granted is expensed over the vesting period. The fair value compensation and contributed surplus relating to stock options was $934,950 (2010: $515,833). The average fair value of the common shares during the years ended December 31, 2011 and 2010 was $2.54 and $2.47.

18. iNCOME TAXES

Deferred tax arising from temporary differences and unused tax losses are summarized as follows:

Deferredtaxassets(liabilities) January 1 Recognized in December 31 2011 profit and loss 2011 Unclaimednon-capitallosses $ 1,373 $ (597) $ 776ITCcredit 70 1 71UnclaimedSR&EDexpense 128 (3) 125Eligiblecapitalproperty 127 (12) 115Deductiblereclamationcosts 411 6 417Unclaimedfinancingcosts 65 (62) 3Ontarioresourceprofittaxcredit 658 57 715Resourcetaxcredit 1,116 - 1,116 3,948 (610) 3,338Excessofcarryingvalueofminingandexplorationpropertiesover unclaimedresourcepoolsandundepreciatedcapitalcost(includinginventory) (2,168) (555) (2,723)Netdeferredtaxasset $ 1,780 $ (1,165) $ 615

Deferredtaxassets(liabilities) January1 Recognizedin December31 2010 profitandloss 2010Unclaimednon-capitallosses $ 2,567 $ (1,194) $ 1,373ITCcredit - 70 70UnclaimedSR&EDexpense - 128 128Eligiblecapitalproperty 96 31 127Deductiblereclamationcosts 407 4 411Unclaimedfinancingcosts 230 (165) 65Ontarioresourceprofittaxcredit 616 42 658 3,916 (1,084) 3,948Excessofcarryingvalueofminingandexplorationproperties overunclaimedresourcepoolsandundepreciatedcapitalcost(includinginventory) (560) (1,608) (2,168) 3,356 (2,692) 664Recognizedasreductionofminingpropertiesandequipment - 1,116 1,116

Netdeferredtaxasset $ 3,356 $ (1,576) $ 1,780

The following table reconciles the expected income tax expense/recovery at the combined Federal and Ontario statutory income tax rate 28.3% (2010: 30.5%) to the amounts recognized in the consolidated statements of income. 2011 2010 Netincome(loss)reflectedinconsolidatedstatementofincome $ 1,333 $ 9,256Expectedincometaxexpense $ 377 $ 2,823Non-deductibleexpense 379 63Changeinstatutoryrates (25) (109)Dilutiongain - 2Capitalloss - 110Stockcompensationexpense 265 155Accretionofdiscountonconvertiblepromissorynote 185 179Ontarioresourceprofitsallowance (83) (141)Ontarioincometaxharmonization (36) (24)Miningtaxexpense (36) 915Changeintaxbenefitnotrecognized 67 12Taxexpense $ 1,093 $ 3,985

The decrease in the statutory income tax rate is due to the enacted reduction in the Federal and Provincial corporation tax rates.




Non-capital losses available for carry forward to reduce taxable income in future years expire in 2028 and 2029.

No tax benefit has been recorded for the federal and provincial non-capital losses of MLGM. These losses of $1,083,000 will expire between 2013 and 2031.

The Company is subject to income tax laws in various jurisdictions. Tax laws are complex and potentially subject to different interpretations by the taxpayer and the relevant tax authority. The provision for income taxes and deferred tax represents management’s interpretation of the relevant tax laws and its estimate of current and future income tax implications of the transactions and events during the period. The Company may be required to change its provision for income taxes or deferred tax balances when the ultimate deductibility of certain items is successfully challenged by taxing authorities or if estimates used in determining the amount of deferred tax asset to recognized change significantly, or when receipt of new information indicates the need for adjustment in the amount of deferred tax to be recognized. Additionally, future events, such as changes in tax laws, tax regulations, or interpretations of such laws or regulations, could have an impact on the provision for income tax, deferred tax balances and the effective tax rate. Any such changes could materially affect the amounts reported in the consolidated financial statements in the year these changes occur.

19. EARNiNGS PER SHARE AND DiViDENDS

Basic earnings per share (“EPS”) is calculated by dividing the net earnings available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated using the treasury method of calculating the weighted average number of common shares outstanding, except the if-converted method is used in assessing the dilution impact of convertible notes. The treasury method, which assumes that outstanding stock options with an average exercise price below the market price of the underlying shares, are exercised and the assumed proceeds are used to repurchase common shares of the Company at the average price of the common shares for the period. The if-converted method assumes that all convertible notes have been converted in determining diluted EPS if they are in-the-money except where such conversion would be anti-dilutive.

2011 2010Incomeavailabletocommonshareholders $ 448 $ 5,383Weightedaveragenumberofshares,basic 101,707,396 101,808,766Dilutivesecurities Options 273,058 409,959 Convertibledebentures - -Weightedaveragenumberofshares,diluted 101,980,454 101,218,725

Basicearningspershare $ 0.00 $ 0.05Dilutedearningspershare $ 0.00 $ 0.05

Numberofsharesexcludedfromdilutedearningspershare calculationduetoanti-dilutiveeffect: Options 765,000 130,000 Convertibledebentures 3,363,385 3,363,385

DividendsOn April 29, 2011, Wesdome’s Board of Directors paid a dividend of $0.02 per share on the Company’s outstanding common shares to shareholders of record on the close of business on April 15, 2011 in the amount of $2,028,000.

20. EMPLOYEE BENEFiTS

2011 2010Salariesandshort-termemployeebenefits $ 40,162 $ 32,561Postemploymentbenefits 727 721 40,889 32,282Share-basedcompensation 766 516 $ 41,655 $ 33,798

2011 2010Salariesandemployeebenefitsexpensedtominingandprocessingcosts $ 36,826 $ 29,756Salariesandemployeebenefitscapitalized 4,829 4,042 $ 41,655 $ 33,798

21. RELATED PARTY iNFORMATiON

Key management of the Company are its Board of Directors and members of executive management. Key management personnel remuneration includes the following expenses:

2011 2010Salariesandshort-termemployeebenefits $ 1,266 $ 1,130Postemploymentbenefits 44 36Fairvalueofshare-basedcompensation 493 256 $ 1,803 $ 1,422

In fiscal 2011, the Company paid $23,900 in director’s fees (2010: $13,500) to a company whose managing partner is a director of the Company and $Nil in consulting fees for the Kiena mine (2010: $36,440) to a company whose president is a former director of the Company.

22. 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 statement of financial position 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:

December 31, 2011 December31,2010 January1,2010 Carrying Fair Carrying Fair Carrying Fair Value Value Value Value Value ValueFinancialAssetsAvailable-for-sale: Marketablesecurities $ - $ - $ - $ - $ 211 $ 211

FinancialLiabilitiesOtherfinancialliabilities Convertible7%debentures $ 10,726 $ 11,040 $ 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 statements of financial position as follows:

Cash and cash equivalents and restricted funds – 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.

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 marketable securities. The Company does not have Level 2 or Level 3 inputs.

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 years ended December 31, 2011 and 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 years ended December 31, 2011 and 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 and interest paid on the Company’s convertible debentures is based on a fixed interest rate. 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 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 29, 2011 and April 30, 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 sufficient liquidity to meet its operating and growth objectives.

The Company expects its current capital resources and projected 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.

27. EXPLANATiON OF TRANSiTiON TO iFRS

IFRS 1 – “First-time Adoption of International Financial Reporting Standards” (“IFRS 1”) governs the first-time adoption of IFRS. IFRS 1, in general, requires accounting policies under IFRS to be applied retrospectively to determine the statement of financial position of the Company as of the transition date of January 1, 2010, and allows certain exemptions which the Company has elected to apply.

The Company’s financial statements for the year ending December 31, 2011 are the first annual consolidated financial statements to comply with IFRS. The adoption of IFRS has not materially changed the Company’s overall cash flows or operations, however, it has resulted in certain differences in recognition, measurement and disclosure as compared to Canadian generally accepted accounting principles (“Canadian GAAP”).

In preparing the financial statements for the years ended December 31, 2011 and 2010, and the disclosures included in these financial statements, all comparative amounts have been restated to comply with IFRS, except where the Company has applied the optional and mandatory exceptions under IFRS 1. The Company’s transition date is January 1, 2010 (“the transition date”) and the Company prepared its opening IFRS statement of financial position at that date. These financial statements have been prepared in accordance with the accounting policies described in Note 3. The Company has reconciled the following financial statements as prepared under Canadian GAAP to those prepared under IFRS for the following periods: • Consolidated statements of financial position as at January 1, 2010 and December 31, 2010 • Consolidated statement of total equity as at December 31, 2010 • Consolidated statement of income and comprehensive income for the year ended December 31, 2010

IFRS 1 – “First-time Adoption of International Financial Reporting Standards” sets forth guidance for the initial adoption of IFRS. Under IFRS 1, the standards are applied retrospectively at the transitional statement of financial position date with all adjustments to assets and liabilities charged or credited to retained earnings unless certain exemptions are applied. The Company has applied the following exceptions, exemptions, and changes to its opening statement of financial position dated January 1, 2010:

Exceptions(i) Financial instruments Financial assets and liabilities that had been de-recognized before January 1, 2004 under Canadian GAAP have not been recognized under IFRS.

(ii) Estimates The Company has used estimates under IFRS that are consistent with those applied under Canadian GAAP unless there is objective evidence those estimates were in error.

Exemptions(a) Business combinations

IFRS 1 indicates that a first-time adopter may elect not to apply IFRS 3 – “Business Combinations” retrospectively to business combinations that occurred before the date of transition to IFRS. The Company has utilized this election and has therefore applied IFRS 3 only to business combinations that occurred on or after January 1, 2010.

(b) Share-based payment transactionsThe Company has elected not to apply IFRS 2 to awards that vested prior to January 1, 2010, which have been accounted for in accordance with Canadian GAAP. There was no material impact on the financial statements of applying IFRS 2 to unvested options at the transition date. The rate of forfeiture of unvested options was minimal.

(c) Compound financial instrumentsIAS 32 Financial Instruments: Presentation requires an entity to split a compound financial instrument at inception into separate liability and equity components. If the liability component is no longer outstanding, retrospective application of IAS 32 involves separating two portions of equity, the first portion is in retained earnings and represents the cumulative interest accreted on the liability components, while the other portion represents the original equity component. The Company has utilized this IFRS 1 exemption to not require separation of these two portions if the liability component is no longer outstanding at the transition date.

(d) Mineral property, plant and equipment – deemed costIFRS 1 includes an election to use fair value or revaluation as deemed cost for property, plant and equipment, and is available on an asset-by-asset basis. The IFRS 1 election is separate from the policy choice available to measure long-lived assets at cost or under the revaluation model. The Company has elected to apply the IFRS 1 exemption to certain mobile equipment, which has resulted in an increase in mineral properties and equipment of $6.3 million as at January 1, 2010, with a corresponding increase in retained earnings.

(e) Gain or loss on disposal of mining equipmentAs a result of the Company’s revaluing its mining equipment as at January 1, 2010, disposals of equipment in 2010 resulted in a reduction in the gain on disposals of $0.2 million.

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

(inthousands)December 31, 2011 <1 Year 1-2 Years 3-5 Years Over 5 Years Payables&accruals $ 8,944 - - -Financeleases $ 997 $ 854 - -Convertibledebentures $ 11,377 - - -

December31,2010 <1Year 1-2Years 3-5Years Over5YearsPayables&accruals $ 12,938 - - -Financeleases $ 1,422 $ 1,653 $ 198 -Convertibledebentures $ 765 $ 11,377 - -

January1,2010 <1Year 1-2Years 3-5Years Over5YearsPayables&accruals $ 7,322 - - -Financeleases $ 1,400 $ 1,153 $ 25 -Convertibledebentures $ 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 receivables consist primarily of government refunds and credits. The Company estimates its maximum exposure to be the carrying value of cash and cash equivalents, receivables 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.

23. SUPPLEMENTAL CASH FLOW iNFORMATiON

2011 2010

Net changes in non-cash working capitalOperatingactivities Receivables $ 268 $ (3,083) Payablesandaccruals (3,195) 4,493 Incometaxespayable (36) (24) Miningtaxes (1,317) 1,317 Goldinventory (1,483) 1,178 Suppliesandother 231 (494) $ (5,532) $ 3,387Investingactivities Receivables $ (163) $ (337) Payablesandaccruals (799) 1,123 Suppliesandother 58 (123) $ (904) $ 663

Non-cash transactions:Recognitionoffairvalueofstockoptionsandwarrantsexercisedtransferredtosharecapital(Note16) $ 667 $ 479Revisiontoassetretirementobligation(Note15) $ 47 $ -Miningpropertiesacquiredunderfinanceleases $ - $ 2,238

24. 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.

25. OTHER iNTEREST

During 2011, the Company received reassessments relating to previous periods which resulted in a partial repayment of resource tax credits, including an assessment of interest relating to amounts reassessed. The Company is appealing these reassessments and pursuing a full refund of the amount paid, with respect to both tax credits and interest paid.

26. 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 items included in equity net of cash and cash equivalents:

December 31 December31 January1 2011 2010 2010Totalequity $ 128,807 $ 128,018 $ 122,907Cashandcashequivalents (5,215) (22,806) (23,702)Capital $ 123,592 $ 105,212 $ 99,205




(f) Decommissioning liabilityUnder IFRS 1, an entity can elect not to retrospectively calculate the effect of each change in estimate that occurred prior to the transition date on the decommissioning asset and related depletion. Instead, it can elect to measure the liability at the transition date in accordance with IAS 37. The Company has elected to use the IFRS 1 exemption and has measured the decommissioning asset and liability accordingly. The effect was to increase mineral property and equipment and decommissioning liability by $0.2 million as at January 1, 2010.

Required Changes(g) Dilution reclassification

Under IFRS, dilution gains or losses as a result of a change in percentage ownership of subsidiary companies are recorded in contributed surplus. The Company transferred $0.4 million from retained earnings to contributed surplus as at January 1, 2010.

(h) Reclassification of flow-through sharesThe Company has issued flow-through shares in the past. IFRS requires the difference between quoted market price of the same class of share without the flow-through feature and the amount the investor pays for the shares, or premium, be recorded as a liability. The premium previously recorded in share capital in the amount of $1.1 million was transferred to retained earnings.

Under the terms of flow-through share agreements, the tax attributes of the related expenditures are renounced to subscribers. Under IFRS the tax effect of the flow-through share renunciations are recorded in tax expense. The renunciations previously charged to share capital were transferred to retained earnings in the amount of $5.1 million.

The net effect was an increase in retained earnings of $4.1 million.

(i) Reclassification of financing feesIFRS requires that current and deferred taxes be recognized in equity or in other comprehensive income when they relate to transactions or events recognized in equity or other comprehensive income in either the same or a prior period. This concept impacts the balance of the Company’s unclaimed financing fees as at January 1, 2010. IFRS requires the balance to be transferred from retained earnings to share capital. The balance of deferred taxes relating to unclaimed financing fees as at January 1, 2010 was $0.1 million.

(j) Reclassification and revision of deferred taxesUnder IFRS current future income taxes in the amount of $1.2 million were reclassified to deferred income taxes. On transition, a revision in deferred taxes in the amount of $0.1 million was recorded as a result of the tax impact of the following IFRS transitional adjustments: • revaluation of mobile equipment at redeemed cost • re-measurement of the decommissioning liability at the transition date • revision of depletion due to the change in measurement of depletion, and the subsequent impact on the valuation of the bullion inventory

Policy Changes(k) Depletion – Units-of-production

The transition from tonnes to ounces as the Company’s UOP resulted in an increase in the estimated accumulated depletion of $6.0 million as at January 1, 2010. Depletion for 2010 also decreased by $3.0 million, of which $0.2 million was applied to bullion inventory.

(l) Contributed surplus – Expired warrants and optionsDuring the current fiscal year, after the issuance of the Company’s first interim IFRS financial report, the Company changed its policy of accounting for contributed surplus. Under the new policy, the value of any expired warrants and options recorded to contributed surplus is reclassified to retained earnings at the time of expiry. This change resulted in an increase in retained earnings of $2.2 million as at January 1, 2010, and $0.1 million as at December 31, 2010.

(m) Contributed surplus – Share repurchasesDuring the current fiscal year, after the issuance of the Company’s first interim IFRS financial report, the Company changed its policy of accounting for share repurchases. Under the new policy, premiums are first recorded to contributed surplus to the extent that there are discounts remaining, before being charged to retained earnings. This change resulted in an increase in retained earnings of $0.0 million as at January 1, 2010, and no change as at December 31, 2010.

Presentation DifferencesCertain presentation differences between previous Canadian GAAP and IFRS have no impact on reported income or total equity.

Some assets and liabilities have been reclassified under IFRS at the transition date. A reclassification has been recorded for “non-controlling interest”. “Deferred income taxes”, “Dilution loss on Moss Lake Gold Mines Ltd.” and “Loss on marketable securities” have also been reclassified on the December 31, 2010 financial statements.

Some line items are described differently (renamed) under IFRS compared to previous Canadian GAAP, although the assets and liabilities included in these line items are unaffected. These line items are as follows (with previous Canadian GAAP description in brackets): Deferred taxes (Future taxes) Equity attributable to owners of the parent (Shareholders’ Equity) Finance leases (Capital leases) Provisions (Decommissioning liability)

Cash Flow StatementThe presentation of the cash flow statement in accordance with IFRS differs from the presentation of the cash flow statement in accordance with Canadian GAAP. The changes made to the statements of financial position and statements of income and comprehensive income have resulted in reclassifications of various amounts on the statement of cash flows.

Interest paidUnder IFRS, interest paid is classified as a financing activity. Therefore, accordingly, the Company has reclassified $1.0 million from operating activities to financing activities.

Reconciliation of Assets, Liabilities and Equity AsatDecember31,2010AsatJanuary1,2010 Effectof Effectof Transitionto Transitionto Note C-GAAP IFRS IFRS C-GAAP IFRS IFRSAssetsCurrent Cashandcashequivalents $ 22,806 $ - $ 22,806 $ 23,702 $ - $ 23,702 Receivables 7,442 - 7,442 4,022 - 4,022 Inventory k 14,490 (413) 14,077 14,624 14 14,638 Marketablesecurities - - - 211 - 211 Deferredincometaxes j 1,514 (1,514) - 1,199 (1,199) - 46,252 (1,927) 44,325 43,758 (1,185) 42,573Restrictedfunds 2,420 - 2,420 2,588 - 2,588Deferredincometaxes j 940 840 1,780 2,245 1,111 3,356Capitalassets - - - 9 - 9Miningproperties d,f,k 74,771 2,916 77,687 64,637 478 65,115Explorationpropertiesandequipment 30,762 - 30,762 30,018 - 30,018

Total Assets $ 155,145 $ 1,829 $ 156,974 $ 143,255 $ 404 $ 143,659

LiabilitiesCurrent Payablesandaccruals $ 12,938 $ - $ 12,938 $ 7,322 $ - $ 7,322 Miningtaxes 1,317 - 1,317 - - - Currentportionofobligationsunderfinanceleases 1,262 - 1,262 1,240 - 1,240 15,517 - 15,517 8,562 - 8,562Incometaxespayable 58 - 58 82 - 82Obligationsunderfinanceleases 1,735 - 1,735 1,108 - 1,108Convertible7%debentures 10,072 - 10,072 9,483 - 9,483Provisions f 1,597 (23) 1,574 1,324 193 1,517 28,979 (23) 28,956 20,559 193 20,752EquityCapitalstock h,i 116,217 4,279 120,496 114,567 4,279 118,846Contributedsurplus g,l,m 3,807 (1,940) 1,867 3,770 (1,762) 2,008Accumulatedothercomprehensiveloss - - - (222) - (222)Equitycomponentofconvertibledebentures 1,970 - 1,970 1,970 - 1,970Retainedearnings(deficit) d,f,g,h,i,j,k,l,m 3,432 (487) 2,945 1,754 (2,306) (552) 125,426 1,852 127,278 121,839 211 122,050Non-controlling interest 740 - 740 857 - 857 126,166 1,852 128,018 122,696 211 122,907

Total Equity and Liabilities $ 155,145 $ 1,829 $ 156,974 $ 143,255 $ 404 $ 143,659

Transition adjustment recorded to: December31 January1 Note 2010 2010Contributedsurplus Dilutiongainreclassificatiion g $ 428 $ 435 Expiredwarrantsandoptionsreclassification l (2,317) (2,190) Sharerepurchasereclassification m (51) (7) $ (1,940) $ (1,762)

Retainedearnings Netadjustmenttoproperty,plantandequipment d,k $ 2,509 $ 282 Reclassificationofflow-throughshares h (4,141) (4,141) Reclassificationoffinancingfees i (138) (138) Decommissioningrevaluation f 17 17 Dilutionreclassification g (428) (435) Revisionofdeferredtax j (674) (88) Expiredwarrantsandoptionsreclassification l 2,317 2,190 Sharerepurchasereclassification m 51 7 $ (487) $ (2,306)




RESERVES ESTIMATES* December 31, 2011 Category Tonnes Grade ContainedGold (gAu/tonne) (ounces)

EAGLERIVER Proven 75,000 12.0 29,000Probable 429,000 10.6 147,000Proven+Probable 504,000 10.9 176,000 KIENA Proven 584,000 3.0 56,000Probable 651,000 2.9 60,000Proven+Probable 1,235,000 2.9 116,000 MIShI Proven 174,000 2.7 15,000Probable 535,000 2.5 43,000Proven+Probable 709,000 2.6 58,000 TOTAL 350,000

RESOURCES ESTIMATES* December 31, 2011 Category Tonnes Grade ContainedGold (gAu/tonne) (ounces)

EAGLERIVER Inferred 204,000 7.1 46,000 KIENA Measured 197,000 3.7 23,000Indicated 1,264,000 3.0 122,000Measured+Indicated 1,461,000 3.0 145,000 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 583,000INFERRED 186,000

* All Mineral Reserves and Mineral Resources estimates have been made in accordance with the Standards of the Canadian Institute of Mining, Metallurgy and Petroleum and National Instrument 43-101.

All Mineral Resources are in addition to Mineral Reserves except for the Mishi mine where Mineral Reserves are a subset of Mineral Resources.

Mineral Resources are not in the current mine plan and therefore do not have demonstrated economic viability.

As per section 4.2 (b)(ii) of National Instrument 43-101, the change in mineral reserves and resources for the Eagle River and Kiena mines does not constitute a material change in the affairs of the Company. For the Eagle River mine refer to the Technical Report filed on SEDAR, dated December, 2005, by Strathcona Mineral Services Ltd. For the Kiena mine refer to the Technical Report dated April 15, 2005, by Geologica Groupe Conseil, also filed on SEDAR.

The Mishi mine Mineral Resource estimates were completed by InnovExplo Inc. in a 43-101 Technical Report dated August 25, 2010, and filed on SEDAR. The Mishi Mineral Reserves estimates were compiled in a 43-101 Report by InnovExplo Inc. dated January 12, 2011, and also filed on SEDAR. 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, Wesdome Gold Mines Ltd. Kiena: Marc Ducharme, P.Geo., Chief Exploration Geologist, Kiena Mine, Wesdome Gold Mines Ltd. 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 section 5.3.

Reconciliation of income and Comprehensive income AsatDecember31,2010 Effectof Transitionto Note C-GAAP IFRS IFRS Operatingrevenues Goldandsilverbullion $ 89,383 $ - $ 89,383

Operatingexpenses Miningandprocessing d 62,784 512 63,296 Depletionofminingproperties k 14,040 (2,920) 11,120 Productionroyalties 917 - 917 Corporateandgeneral 2,489 - 2,489 Sharebasedcompensation 516 - 516 Depreciationofcapitalassets 9 - 9 80,755 (2,408) 78,347Incomefromoperations 8,628 2,408 11,036

Interestandotherincome e 78 161 239Interestonlongtermdebt (1,598) - (1,598)Lossonsaleofmarketablesecurities - (362) (362)Accretionofdecommissioningliability f (79) 20 (59)Dilution(loss)gainonMossLakeGoldMinesLtd. g (7) 7 -Incomebeforeincometax 7,022 2,234 9,256Incometax Current 1,293 - 1,293 Deferred h 2,106 586 2,692 3,399 586 3,985Netincome 3,623 1,648 5,271Totalcomprehensiveincome $ 3,623 $ 1,648 $ 5,271

Profitfortheyearattributableto: Non-controllinginterest $ (112) $ - $ (112) OwnersoftheCompany 3,735 1,648 5,383 $ 3,623 $ 1,648 $ 5,271

Totalcomprehensiveincomeattributableto: Non-controllinginterest $ (112) $ - $ (112) OwnersoftheCompany 3,735 1,648 5,383 $ 3,623 $ 1,648 $ 5,271

Earningspershare Basic $ 0.04 $ 0.01 $ 0.05 Diluted $ 0.04 $ 0.01 $ 0.05

Comprehensiveearningspershare Basic $ 0.04 $ 0.01 $ 0.05 Diluted $ 0.04 $ 0.01 $ 0.05

Weightedaveragenumberofsharesoutstanding Basic 100,808,766 - 100,808,766 Diluted 101,335,255 - 101,335,255

RESERvES ANDRESOURCES


PROVEN + PROBABLE RESERVE GROWTH


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.

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 Consultant, 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, Scorpio Mining Corporation 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 of Crystallex International Corporation and Goldbelt Resources Ltd. prior to joining Scorpio.

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

Brian Ma, MAcc., CA CFO

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

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

SENIOR STAFFKiena ComplexCarolle Audy Chief Accountant

Bernard Belley Mill Superintendent

Pierre Deschamps Mine Superintendent

Marc Ducharme, P.Geo. Chief Exploration Geologist

Pierre Jeansonne Chief – Geology Department

Michel Lafleur, Eng. Mine Manager

Daniel Petitclerc Maintenance Superintendent

Eagle River MineDavid Boulay Maintenance Superintendent

Don Bridges Mill Superintendent

Jeff Hutchings Mine Manager

Daniel Lapointe, P.Geo., MSc. Mishi Superintendent

Allan MacDonald Office Manager

Don MacFarlane Chief Assayer

John Plecash Chief – Geology Department

Gilbert Wahl Safety/Security Director

Dave Whiteway Mine Superintendent

ANNUAL MEETINGThe Annual Meeting of Shareholders will be held at:

TSX Gallery130 King Street West,Toronto, Ontarioon Wednesday, May 16, 2012at 4:00 p.m.

CORPORATE INFORMATION

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

41 WESDOME GOLD MINES LTD. 2011 ANNUAL REPORT40 WESDOME GOLD MINES LTD. 2011 ANNUAL REPORT

wESDOME.COM

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: 705.856.2986

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