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WESTERN CANADIAN MINING CORPORATION (‘Western Canadian”)

In August 1986, the Company and Consolidated Brinco Limited, the largest shareholder of the
Company at the time, both sold exploration properties of equal value to Western Canadian in
exchange for 50 per cent each of the outstanding shares. Effective January 14, 1987, Western
Canadian was amalgamated with a Vancouver listed public company. The company continued
under the name of Western Canadian, of which the Company owns 2,571,292 shares, being
33% of those issued. On January 21, 1987, the stock commenced trading. Due to the
Company’s exploration properties having been previously written-off, for accounting purposes
this investment is carried at no cost in the balance sheet.

. REDEEMABLE PREFERRED SHARES OF SUBSIDIARY

During 1985, the Company's indebtedness with a Canadian chartered bank, together with the
related security interests, was purchased by and assigned to 144603 Canada Limited (“144603”).
The bank purchased cumulative, redeemable, retractable Preferred Shares (“Preferred Shares”)
of 144603. The Preferred Shares are retractable at the option of the holder at any time at the
issue price plus accrued and unpaid dividends thereon. The Preferred Shares are redeemable at
the option of 144603 at any time (on 90 days notice unless all shares are redeemed) for the same
price, in minimum amounts of $100,000, excluding accrued and unpaid dividends thereon.
144603 may be required to redeem the Preferred Shares in the event of certain adverse changes in
income tax treatment afforded to the Preferred Shares. The retraction or redemption price for
the Preferred Shares may be satisfied by 144603 in cash or by assigning to the bank the interest
of 144603 in the indebtedness of the Company and the related security. Sixty days after the end
of each quarter, net cash flow of the Company, as defined in the bank loan agreement, must be
applied to the redemption of Preferred Shares. An aggregate of $13,235,000 of Preferred Shares
was redeemed during 1987 (1986 - $1,764,000) and a further $1,689,000 is committed to be
redeemed on February 29, 1988.

The Preferred Shares entitle the holder to a monthly dividend which is payable on the first
business day of the following month at a rate equal to 50% of the bank's average prime rate for
such month, plus a premium, applied to the stated capital and accrued and unpaid dividends on
such Preferred Shares as are issued and outstanding from time to time.

The security purchased by and assigned to 144603 from the bank includes a debenture of the
Company containing both a fixed and floating charge on substantially all of the assets of the
Company, other than security held by the bank under the Bank Act.

In certain circumstances the Company must purchase the Preferred Shares from the holder. A
pledge by the Company of its Common Shares in 144603 and a guarantee of 144603 in favour of
the bank have been given as security for this obligation. A debenture of 144603 containing a
charge on substantially all of its assets and an assignment of accounts receivable in favour of the
bank have been given as security for this guarantee.

. INCOME AND MINING TAXES

The income and mining tax expense is comprised of the following:

1987 1986
(in thousands)
Current $1,854 5-9. .474
Deferred 2,620 1,264
Income and mining taxes $ 4,474 §$ 1,688

A reconciliation of the combined federal and provincial income tax rate and the Com-
pany’s effective tax rate of income and mining taxes is as follows:

1987 1986
Combined federal and provincial income tax rate 51.6% 53.8%
Provincial mining tax yj: IVES
69.1 JAE)
Increase (decrease) resulting from:
Resource, depletion and processing allowances (25.6) (24.5)
Miscellaneous (.2) 11.3

43.3% 58.1%