Notes to Consolidated Financial Statements

December 31, 1977

1. 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, except for Clinton Creek 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 Creek 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 $6,355,747 (1976 — $6,097,270).

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 sum of the cost of
waste to be removed and the unamortized bal-
ance by the estimated ore reserves.

During the year waste removal costs charged to
cost of production amounted to $18,745,169
(1976 — $11,864,337).

Development and preproduction costs —
Preproduction costs for the Cassiar mine have
been written off over prior periods. Prepro-
duction costs for the Clinton Creek mine and
development costs for both mines are amortized
on a per ton of ore mined basis, the rate being
determined by dividing the costs by the esti-
mated ore reserves.

During the year development and preproduction
costs charged to cost of production amounted to
$944,737 (1976 — $932,334).

Cost of mining claims and land —
The direct cost of acquiring mining claims and
land is being amortized over the related mine
life. During the year amortization of mining
claims and land charged to cost of production
amounted to $200,302 (1976 — $199,849).
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 acquisi-
tion and expenditure thereon in mining proper-
ties 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.

Taxes:

The Company follows the tax allocation method of account-

ing 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

$25,664,000 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 Indebtedness

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.

3. Remuneration of Officers and Directors
The Company paid aggregate direct remuneration during
the year ended December 31, 1977 as follows:

To the twelve directors ............ 000.05. $ 20,900

To the five officers of whom
thneeraresdirectonSeaace: a4 an ee eae ens 299,879
$320,779