NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF BUSINESS

Guinor Gold Corporation (“Guinor” or “the Company”) was incorporated in Canada on February 12, 2004 for the purposes of acquiring all the issued and outstanding shares of Kenor ASA (“Kenor”), a Norwegian public company listed on the Oslo Stock Exchange. Guinor is primarily listed on the Toronto Stock Exchange with a secondary listing on the Oslo Stock Exchange.

Guinor, together with its subsidiaries, is a fully integrated gold mining and exploration company operating primarily in the Republic of Guinea in West Africa. Its main asset is the 85 per cent interest in Société Minière de Dinguiraye SA (“SMD”), which owns the rights in the Lero gold mines, in the Dinguiraye concession located in the Republic of Guinea.

The financial statements are prepared using the “continuity of interests” method of accounting. Under this method, all activities in Kenor and its subsidiaries are included in the financial statements of Guinor as if Guinor had been the parent company for all periods presented.

Although estimates made in the preparation of these financial statements are based on the Company’s knowledge of current events and actions, actual results ultimately may differ from those estimates.

The recoverability of amounts shown for property, plant and equipment and mineral properties is dependent upon the existence of economically recoverable reserves; the acquisition and maintenance of appropriate permits, licenses and mining rights; the ability of the Company to obtain financing to complete the development of properties where warranted and upon future profitable production; or alternatively upon the Company’s ability to recover expended costs through a disposition of its interests in such properties.

The accompanying consolidated financial statements have been prepared using Canadian generally accepted accounting principles (“Canadian GAAP”) assuming a going concern and do not reflect adjustments which could be material to the carrying value of the assets and liabilities, the reported revenue and expenses and balance sheet classifications that would be necessary were the going concern assumption to be inappropriate. The ability of the Company to continue as a going concern will be dependent upon its ability to raise additional financing. For the year ended December 31, 2004, the Company had a loss of US$21,217,000, working capital of US$16,528,000 and net cash of US$13,174,000.

2. SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below.

A. Basis of consolidation

The financial statements of entities which are controlled by the Company are consolidated. For less than 100% owned subsidiaries, the minority’s share of the net income of each subsidiary is identified and adjusted against income and its share of the net assets of each subsidiary is identified and presented in the balance sheet, separate from liabilities and equity. Interests in jointly controlled entities are proportionately consolidated and associates are accounted for using the equity method.

The consolidated financial statements include the accounts of the Company, its subsidiaries, including Kenor, Delta Gold Mining Limited, Goldex AS and Société Minière de Dinguiraye SA (“SMD”), and the Company’s proportionate interest in the revenues, expenses, assets and liabilities of Scanor Mining AS.

As SMD had a negative shareholders’ equity in all years presented, and the minority shareholder has no obligation to contribute any additional capital, the minority interest related to SMD in the income statement and in the balance sheet was zero.

B. Use of estimates

The preparation of financial statements in conformity with GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Guinor’s estimates and assumptions used in the valuation of ore stockpiled and work in progress inventories include estimates of gold contained in the ore stacked on leach pads, estimates of the amount of gold stacked that is expected to be recovered and estimates of the gold price expected to be realized when the gold is recovered. If the estimates prove to be inaccurate, Guinor could be required to write down the recorded value of its ore stockpiled and work in progress inventory.

C. Cash and cash equivalents

Cash and cash equivalents are carried in the balance sheet at cost and comprise cash on hand, deposits held with banks and other short term highly liquid investments with original maturities of three months or less.

D. Short term investments

Short term investments consists of investments with maturities of between 91 days and one year at the date of purchase and are valued at the lower of cost or market value.

E. Foreign currency translation

Reporting currency

The consolidated financial statements are presented in US dollars (“the reporting currency”). US dollar is the functional currency of the subsidiary SMD, where the majority of Guinor’s income and expenses are generated, because all of SMD’s revenues and loans, as well as the majority of its expenses are denominated in US dollars.

The financial statements of foreign operations are translated into US dollars using the temporal method, where:

• revenues and expenses are translated to US dollars in a manner that produces substantially the same reporting currency amounts that would have resulted had the underlying transactions been translated on the dates they occurred,
• monetary items are translated into US dollars at the rate of exchange in effect at the balance sheet date,
• non-monetary items are translated at historical exchange rates, with corresponding amortization translated at the same exchange rates as the assets to which they relate.

The effects of translation are credited or charged to the income statement as currency gain or loss, included in finance income/(costs), net.

Foreign currency transactions and balances

Foreign currency transactions are translated using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement. Translation differences on debt securities and monetary financial assets and liabilities are included in foreign exchange gains and losses. Translation differences on available-for-sale investments are included in finance income/(costs), net.

F. Property plant and equipment

Property, plant and equipment are stated at cost less amortization. Buildings, machinery and equipment are amortized on a straight-line basis over their estimated useful lives of between three and five years, not exceeding the life of the mine.

Repairs and maintenance are charged to the income statement during the period in which they are incurred. The cost of major renovations is included in the carrying amount of the assets when it is probable that future economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the Company. Major renovations are depreciated over the remaining useful life of the related asset.

G. Impairment testing

Property, plant and equipment, mineral properties and development costs are reviewed for impairment losses whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the carrying amount of the asset exceeds its fair value. Fair value is calculated as the net present value of estimated future cash flows using either existing reserves, and/or existing measured and indicated resources. When resources are used in calculating the value in use, the estimated conversion rate and the cost of converting the resources into
reserves are taken into account.

H. Development costs

Exploration, evaluation and mine development costs

The Company expenses exploration and evaluation costs as incurred until a determination is made that the likelihood of commercial exploitation of an ore-body is probable. From that point on, subsequent costs are carried forward subject to impairment reviews. Any exploration administration costs not directly related to a specific ore-body are expensed when incurred.

Further exploration or resource definition drilling on an ore-body where the likelihood of commercial exploitation is probable, is capitalized only if adding additional commercial exploitable reserves or resources. When an ore-body is brought into production, the capitalized cost is amortized using the units of production method. Amortization is calculated based on proven and probable reserves.

Development costs are amortized using the units of production method, based on proven and probable reserves.

Pre-stripping costs

Mining costs incurred on development activities comprising the removal of the top-soil layer of waste rock before mining commences at open-pit mines, commonly referred to as “pre-stripping costs” or “stripping costs”, are capitalized under development costs and amortized using the units of production method.

I. Mining lease and prospecting permits

Acquired mining leases are carried at amortized cost. Amortization is calculated using the units of production method. The cost of prospecting permits is expensed.

J. Inventories

Ore stockpiled, work-in-progress and gold doré are stated at the lower of cost and net realizable value. Cost comprises raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity). Net realizable value is the estimated selling price in the ordinary course of business, less the costs of completion and selling expenses. Materials and supplies inventories are valued at average cost less appropriate allowance for obsolescence.

K. Income taxes

The provision for income and mining taxes is based on the liability method. Future taxes arise from the recognition of the tax consequences of temporary differences by applying enacted or substantively enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of certain assets and liabilities.

The Company records a valuation allowance against any portion of those future tax assets that it believes will, more likely than not be realized.

L. Share-based compensation

Guinor recognises and measures share-based compensation based on the fair value of the options granted.

Initial recognition of share-based compensation is at grant date, with amortization of the total cost in subsequent periods in which employees provide service, up to the vesting date. Amortization is reflected in the income statement and the credit at grant date is to contributed surplus. The compensation expense is recognized in the period in which the option is granted if the award is for past services.

Compensation expense is recognized as if all instruments granted are expected to vest and the effect of actual forfeitures is recognized when they occur by reversing the accrued compensation expense for any awards which are not fully vested at the date of forfeiture.

When the terms of an option are modified, Guinor recognises an amount that represents the unrecognized compensation cost from issue of the original option plus the incremental value of the modified option. The incremental value is measured by the difference between the fair value of the modified option and the fair value of the old option at the issue date of the modified option. The incremental cost is charged to the income statement in two components: (1) Expense immediately a portion relating to the vesting period that has passed, (2) Charge the remaining portion to the income statement over the remainder of the vesting period.

M. Provision for site reclamation and closure costs

Costs related to ongoing site restoration programs are expensed as incurred. Estimated future reclamation and mine closure costs are provided for when mines are developed. Under the current mining lease, Guinor estimates that it does not have any significant reclamation and mine closure costs.

N. Revenue recognition

Revenue from the sale of goods is recorded when doré is delivered to an outside refinery at which time, risks and rewards of ownership have passed to the purchaser.

Interest income is recognized on a time proportion basis, taking account of the principal outstanding and the effective rate over the period to maturity, when it is determined that such income will flow to the Company. Dividends are recognized when the right to receive payment is established.

O. Earnings or loss per share

Earnings or loss per share (“EPS”) is calculated using the weighted average number of common shares outstanding during the respective fiscal years.

P. Comparative figures

Certain of the prior year figures have been restated to conform to the presentation adopted for the current year.

3. SEGMENT REPORTING

Guinor has revenues from its activities in Guinea only, and is involved solely in the gold exploration, mining and extraction business, and operates only within one business segment, and one geographical segment. In 2004 and 2003, Guinor had a single producing mine, the Léro Gold Project with mining and exploration assets located in the Republic of Guinea. The operating results as a whole are reviewed by the enterprise’s chief operating decision makers. Therefore, no separate segment disclosures are presented as the applicable information is given on the face of the financial statements, or in the accompanying notes.

4. INCOME TAX EXPENSE

The reconciliation of the combined Canadian federal and provincial statutory income tax rate to the effective tax rate is as follows:

5. FUTURE INCOME TAX

The following summarizes the principal temporary differences and the related future tax effect.

Future tax assets:

Guinor has not recognised a future tax asset for non-capital losses carried forward or future tax assets from other temporary differences, other than to offset future tax liabilities, since it is not, more likely than not, that such asset will be utilized in the foreseeable future.

The Canadian non-capital loss balance at December 31, 2004 was approximately US$3,143,000. This loss can be carried forward for seven years and will expire in 2011. Guinean non-capital losses of US$80,000 expired during 2004.

6. LOSS PER SHARE

Basic loss per share is calculated by dividing the net loss attributable to shareholders by the weighted average number of common shares outstanding during the year.

As the Company is reporting a loss for all years presented, and all potential common shares are anti-dilutive, diluted loss per share equals basic loss per share. There are no other securities with potential dilutive effect at December 31, 2004 other than the 7,410,000 outstanding options and the 1,980,000 Broker Warrants described in note 16 – “Share Capital”.

7. CASH AND BANK DEPOSITS

8. INVENTORIES

9. PROPERTY, PLANT AND EQUIPMENT

10. MINERAL PROPERTIES

The Company holds a mining lease covering an area of 1,500 square kilometres, located in the north-eastern administrative region of Siguiri in the Republic of Guinea, West Africa. The lease expires in 2019 and is renewable for an additional 5 years.

11. DEVELOPMENT COSTS

12. INVESTMENT IN ASSOCIATED COMPANY

Guinor owns 29.88% of Valley Metals Exploration AS, its only associated company. In addition, Guinor holds 160,000 subscription rights (Warrants) with an exercise price of NOK 59.82 per share (a total of NOK 9,571,200). The warrants expire September 7, 2006. If Guinor does not exercise its rights, the other shareholders may assume Guinor’s rights under the warrants, in proportion to their shareholdings at the time. Other shareholders (excluding Guinor) hold 130,000 subscription rights, with an exercise price of NOK 39.88 per share (a total of NOK 5,184,000), that expire September 7, 2008. If all shareholders exercise their right for new shares, Guinor would end up with a 46 per cent share in Valley Metals Exploration AS. If none of the other shareholders exercise their right, Guinor would end up with a 64 per cent share in the company if Guinor exercises its rights.

There have been no changes in the interest held in the associate since the acquisition in September 2001.

13. INTEREST IN JOINT VENTURE

Guinor has a 50.0% interest in Scanor Mining AS, which is a jointly controlled exploration company. Joint control is established through an agreement dated August 27, 1998 between the two shareholders Guinor and ScanMining AB (a Swedish company). The following amounts represent the Company’s 50.0% share of the assets, liabilities and results of the joint venture, and are included in the consolidated balance sheet and income statement.

14. LOANS AND BANK OVERDRAFTS

Bank overdraft

The bank overdraft limit is GNF (Guinean Franc) 4.5 billion – equal to about US$1.7 million. The carrying amount approximates the fair value.

Loans

The principal amount of the loans was NOK 29.5 million (USD 4,399,000) at December 31, 2003. The loans were unsecured and carried an interest rate of three-months NIBOR + 5 per cent and were repaid on June 7, 2004, the date of maturity.

The effective interest rates at the balance sheet date were as follows:

15. END OF SERVICE BENEFIT OBLIGATIONS

Guinean employees of SMD are eligible for an end of service benefit in the form of a lump-sum payment at retirement.The amount payable is irrespective of the employee’s salary or service period. This obligation is unfunded.

The movements in the year are as follows:

The principal assumptions used were as follows:

16. SHARE CAPITAL

A. Authorized

Guinor is authorized to issue an unlimited number of common shares and an unlimited number of preferred shares, issuable in series.

B. Issued and Outstanding

At December 31, 2004 and 2003, the total number of issued common shares was 173,092,089 and 142,394,729, respectively.

On January 20, 2004, share capital was increased by the issuance of 150,000 shares as a result of an employee exercising share options. Exercise price for these options was NOK 2.95 per share, and total proceeds from the capital increase were NOK 442,500 (US$64,000).

Share Exchange Offer

In February 2004 Guinor made an offer to the Kenor shareholders to acquire all outstanding Kenor shares pursuant to the laws of Norway. Kenor shareholders received 1 Guinor common share for each Kenor share. Kenor shareholders holding less than 2,000 Kenor shares were offered NOK 5.60 payable in cash per Kenor share in lieu of 1 Guinor common share for each Kenor share.

As a result of the offer, Guinor became the owner of 140,092,089 Kenor shares, with the remaining 2,452,640 Kenor shares acquired for cash for US$1,968,000.

Special warrants

On March 25, 2004, Guinor, following an agreement made with BMO Nesbitt Burns together with RBC Capital Markets and Haywood Securities, issued 33 million “Special Warrants” for a gross total of US$26,061,000. Each warrant granted the right to receive one share in Guinor at no additional consideration, and was sold at the price of C$1.04 per warrant. Net proceeds after payments for issue costs were US$21,642,000.

BMO Nesbitt Burns, together with RBC Capital Markets and Haywood Securities, upon exercise of the Special Warrants received 1,980,000 warrants (“Broker warrants”), equal to 6% of the 33 million issued warrants, as part of their commission. Each Broker Warrant is exercisable at any time, and from time to time, into one common share of Guinor, for a period of 3 years from the issuance of each Broker Warrant, at a purchase price of C$1.04 per share. The fair value assigned to these warrants for the year ended December 31, 2004 was US$510,000. The value is added to Contributed Surplus and charged to Share Capital as share issue costs. The fair value of each warrant was estimated on the date of issue using the Black-Scholes option pricing model with the following assumptions: dividend yield of 0%; expected volatility of 40%; an average risk-free rate of 2.5% and an expected average life of 3 years. The fair value of each warrant issued was C$0.31.

Share Options

Share options are granted to officers and to employees and as at December 31, 2004 7,410,000 (2003: 6,210,000) were outstanding. Movements in the number of share options outstanding are as follows:

A. Norwegian Kroner (NOK) based options

On January 20, 2004 an employee exercised 150,000 share options.

B. Canadian dollar (C$) based options

On August 13, 2004, the board granted 1,350,000 options to some directors and employees at an exercise price of C$1.07 per share. These options expire on April 29, 2005. Exercise of these options after April 29, 2005 requires renewal of an authorization given to the board by the annual general meeting. A compensation expense for these options of US$203,000 has been charged in 2004 as part of corporate administration expenses.

Share options outstanding as at December 31:

All options are vested and exercisable at December 31, 2004.

When calculating the costs of share based compensation Guinor has used the Black – Scholes Option Pricing Model. This model calculates the fair value of the options by using an option-pricing method that takes into consideration the volatility of the shares, and the time-value of the options. This model determines fair value by reference to a number of parameters; these include the share price at grant date, the exercise price, the expected life of the option, the volatility of the underlying shares, the expected dividends and the risk free rate. The fair value of the options are expensed over the vesting period for the options. At December 31, 2004, the Board has authority to issue a further 2,590,000 share options. The authorization expires April 29, 2005. The Board is authorized to issue in total 7,410,000 shares to cover options issued.

Guinor has used the following assumptions for 2004 and 2003:

All options granted had exercise prices equal to, or less than, the market price of the shares on the grant date.

17. CONTRIBUTED SURPLUS

18. RELATED PARTY TRANSACTIONS

During the year ended December 31, 2004, Guinor paid US$463,000 (2003: US$482,000) to Stikeman Elliott LLP, a partner of which is also a director of Guinor. These payments were for services rendered in connection with a prospectus, share issues and the redomiciling and listing of the Company on the Toronto Stock Exchange.

19. COMMITMENTS AND CONTINGENCIES

Environmental

The Company’s mining and exploration activities are subject to the requirements set out in the “Convention de Base” with the Guinean Government. According to this agreement, Guinor has agreed to “operate in a way that will not harm the environment”. The “Convention de Base” has no provisions for Guinor to clean the soil after mining operations have ended.

Guinor has initiated several actions to ensure that the environment is not harmed. Actions taken include, checking the nearby river routinely for pollution and managing and disposing of potential hazardous or pollutive material in an environmental friendly way.

Based on these actions, Guinor believes that it has fulfilled its duties under the contract not to harm the environment, and has therefore not made any provisions for future environmental expenditures.

Reclamation costs

Guinor has not recognized any liability for site restoration. The “Convention de Base” with the Guinean Government only requires Guinor to perform re-afforestation. To meet this obligation, Guinor has established a tree nursery, which provides trees for re-afforestation. As the remaining cost of the re-afforestation is expected to be insignificant, no provision has been recognised in the financial statements.

20. FINANCIAL RISKS

Financial risk factors for Guinor include, but are not limited to the following:

i. Foreign exchange risk

Guinor operates internationally and is exposed to foreign exchange risk arising from exposures primarily with respect to US$, NOK and GNF. The Company does not undertake a systematic hedge program to mitigate currency risk.

ii. Interest rate risk

Guinor’s income and operating cash flows are substantially independent of changes in market interest rates. The Company has no significant interest-bearing assets where the carrying value will fluctuate significantly from a change in interest rates since they either bear a floating interest rate, or mature in three months or less.

iii. Credit risk

Guinor has two significant concentrations of credit risk, being for the Government of Guinea related to VAT claims and for Johnson Matthey plc related to trade receivables. Investments and cash transactions are limited to high credit quality financial institutions. The Company’s sales are to one customer, from which 95 per cent of estimated sales value is payable on the day after delivery.

21. PRINCIPAL SUBSIDIARIES

22. SUBSEQUENT EVENTS

Guinor signed an agreement in early March 2005 to purchase the Kelian CIL Gold Plant from Kelian Equatorial Mining. The cost of the plant is US$15,500,000 and includes the process plant, the diesel power station, workshops and general spares. Delivery of the plant is conditional upon receipt and satisfaction of a number of customary approvals and conditions, including the Indonesian Government not exercising its rights to purchase the plant. Based on precedents management does not expect this right to be exercised.

On March 16, 2005, Guinor entered into an agreement with BMO Nesbitt Burns Inc., on behalf of a syndicate of Underwriters, under which the Underwriters have agreed to buy 70,000,000 Special Warrants from Guinor and sell to the public at a price of C$1.05 per Special Warrant, representing an aggregate amount of C$73,500,000 (approx. US$60,000,000). The Underwriters have been granted an option to purchase up to an additional 17,500,000 Special Warrants at any time up to 48 hours prior to closing. Closing is expected on or about April 5, 2005, and is subject to approval by the TSX.