Notes to Consolidated

Financial Statements
December 31, 1976

1. ACCOUNTING POLICIES

Principles of consolidation: i
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 — straight-line at 5%

Equipment — straight-line at 10%

Leasehold improvements — straight-line at 20%

Automotive equipment cost is charged to operations on a unit of use basis.

At Clinton mine the remaining equipment and the undepreciated cost of buildings less the estimated salvage value is being
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 $6,097,270 (1975: $5,056,745).

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 removal by the estimated ore reserves.
During the year waste removal costs charged to cost of production amounted to $11,864,337 (1975: $12,159,074).
Effective January 1, 1976, the Company began treating all plant burden and distributable mine services as period costs
rather than deferring a portion as a component of waste removal costs. Had the previous policy been continued net
income for the year ended December 31, 1976 would have been approximately $1,300,000 greater.
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 $932,334
(1975: $969,660).
Cost of mining claims and land:
The direct cost of acquiring mining claims and lands is being amortized over the related mine life. During the year
amortization of mining claims and land charged to cost of production amounted to $199,849 (1975: $199,848).
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 affected or considered probable, the net gain or loss is reflected
in the statement of operations.
Taxes:
The Company follows the tax allocation method of accounting for all differences in the timing of deductions for tax and
accounting purposes arising from mining claims and land, depreciation, waste removal costs, and exploration, development and
preproduction costs. Taxes deferred of $23,101,000 represent tax reductions which have arisen to date from claiming such
items for tax purposes in excess of the amounts recorded in the accounts.

2. BANK CREDIT
The Company's bank indebtedness is secured by a general assignment of accounts receivable and inventories of asbestos fibre,
ore and supplies and by a first floating charge on its assets and undertakings.

At the year end borrowing consisted of the following:

1976 1975
TONTIDEIO AI ees reece Meee ee eseee te sea an oe OR te ee ear $ 7,000,000 $ 9,000,000
BankemssacceptanCenMOLesy creo cn as cetacean ee alee 2,000,000
Demanctloambrvessn mmr ot tek Sou ween cen te van ar ee ee 13,017,110 2,048,822
$20,017,110 $13,048,822
Portion of above classified as long term liability ............0.. 0000.0 cc cece. $ 5,000,000 $ 7,000,000

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