Cassiar Asbestos Corporation Limited

and its subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1973

Fixed Assets

The basis of depreciation 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.
During the year the depreciation charged to operations amounted to $4,768,177 (1972 — $4,589,820).

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

Amortization of 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 tons of ore to be released.

During the year waste removal costs charged to cost of production amounted to $7,461,405 (1972 — $5,094,200).

Amortization of 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 $897,938 (1972 —
$916,589).

Write-off of exploration costs —
The companies’ 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. Upon disposal or abandonment of such interest the net gain or loss is reflected in the statement of operations.

Bank Credit

The companies have established a line of credit secured pursuant to section 88 of the Bank Act by a general assignment of
accounts receivable and inventories of asbestos fibre, ore and supplies.

At the year end borrowings consisted of the following —

1973 1972
Tam We: s55coucuacwacocssnese sso $ 4,000,000 $ 5,000,000
Banker’s acceptance notes ............ 5,500,000 5,500,000
Demands loanwemr ee ree eee Saye 2,120,137 2,796,510

$11,620,137 $13,296,510

The term loan is repayable in annual instalments of $1,000,000 each with a final payment in October 1976 of $2,000,000.
Interest is payable at the bank prime rate plus 1% on the term loan. Interest expense on the term loan was $422,671 in 1973.
Subsequent to the year end the company negotiated an increase in the line of bank credit to $18,000,000.

Income Taxes

The companies follow the income tax allocation method of accounting for all differences in the timing of deductions for tax
and accounting purposes arising from depreciation, waste removal costs, and exploration, development and preproduction
costs. Income taxes deferred of $16,575,000 represent income tax reductions which have arisen to date from claiming such items
for tax purposes in excess of the amounts recorded in the accounts. The variance from the customary relationship between
profit before the provision for income taxes and the provision for income taxes in 1973 is due to certain permanent differences
which are not expected to recur in 1974.

The decision (presently under appeal in the Supreme Court of Canada) of Federal Court of Appeal in the case of another
taxpayer delivered on May 9, 1973, raises a possibility that a portion of the income from the Clinton mine for the period

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