z:

Cassiar Asbestos Corporation Limited

and its subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1974

Accounting Policies

Principles of consolidation:

The consolidated financial statements include the accounts of the company and its wholly-owned subsidiaries, Cassiar
Asbestos (Alaska) Inc., Kutcho Creek Asbestos Company Limited and Territorial Supply Company Limited.

Inventories:

Inventories of asbestos fibre and ore stockpiled are valued at the lower of cost and net realizable value. Supplies are
valued at the lower of cost and replacement cost.

Fixed assets:

The basis of depreciation, subject to the exception at Clinton Mine noted below, is as follows:

Buildings — 5% per annum on cost

Equipment — 10% per annum on cost
Automotive equipment cost is charged to operations at uniform rates over the estimated useful life.

It is anticipated that operations at the Clinton Mine will cease in 1977 which is earlier than originally anticipated.
Accordingly, in order to adjust accumulated depreciation to reflect the shorter life of the mine the company has in 1974
recorded a non-recurring depreciation adjustment on buildings and equipment of $4,000,000. The remaining equipment
less the undepreciated cost of buildings and estimated salvage value will be amortized over the remaining life of the mine
requiring an annual charge of approximately $2,250,000.

During the year total depreciation provided in the accounts amounted to $9,706,587, including the aforementioned
non-recurring adjustment (1973 — $4,768,177).

Deferred charges:

The basis of amortization and write-off is as follows:

Waste removal costs —

Waste removal costs are charged to operations on a per ton of ore mined basis, the rate being determined by
dividing the cost of waste removed by the estimated tons of ore released.

During the year waste removal costs charged to cost of production amounted to $10,887,603 (1973 — $7,461,405).

Development and preproduction costs —

Preproduction costs for the Cassiar Mine have been written off over prior periods. Preproduction costs for the
Clinton Mine and development costs for both mines are amortized on a per ton of ore mined basis, the rate
being determined by dividing the cost by the estimated ore reserves.

During the year development and preproduction costs charged to cost of production amounted to $1,056,582
(1973 — $897,938).

Cost of mining claims and land —

In 1974 the company retroactively adopted the policy of amortizing the direct cost of acquiring mining claims
and lands over the related mine life. Accordingly, the comparative figures for 1973 have been restated resulting
in a reduction of the net profit for 1973 of $180,000 and a reduction of retained earnings as of January 1, 1973
by $905,000.

Exploration costs —

The Company’s policy is to write off all general exploration expenditures incurred during the year and to capitalize
the direct cost of acquisition and expenditure thereon in mining properties which were in good standing at the
year end. When disposal or abandonment of any such interest is effected or considered probable, the net gain
or loss is reflected in the statement of operations.

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