Pembrook Mining Corp. · a number of new high quality ... continued to improve with 13 diamond...

Pembrook Mining Corp.Annual Report 2010

2010 Annual Report

President’s Letter 1

Project Review 2

PERU Copper 4 Precious Metals 9 Nickel 11 MEXICO 13

People 14

Management Team 14 Board of Directors 16

Financial Review 17

Management Discussion and Analysis 18 Independent Auditor’s Report 35 Consolidated Financial Statements 36 Notes to the Consolidated Financial Statements 40

Corporate Information 52

Contents

Pembrook Mining Corp.

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This past year has seen unprecedented activity for the Company with the completion of an ambitious exploration program including regional airborne geophysical surveys, target specific surveys and a preliminary drill program of our ten priority projects located in Peru and Mexico. This program was designed to establish those projects with the highest potential for hosting significant mineral resources. Of the ten projects tested, four have emerged with very positive results and the likelihood of the presence of a large and robust mineralizing system that could lead to the discovery of a world-class mineral deposit. In addition, two new copper projects in Peru have rapidly advanced to the drilling stage and we continue with our strong generative exploration program.

We continue to focus our exploration in world-class mineral belts to maintain a pipeline of high quality prospects that we believe have the best potential for discoveries to significantly increase shareholder value. In Peru, we remain one of the most active explorers in the country and will aggressively drill our top four copper projects: Lidia, Viento, Viruna and Huiniccasa. In Mexico, we have substantially increased our activities with the acquisition of a number of new high quality gold-silver prospects located in the Sonora District.

At Lidia, the 2010 drill program expanded the strike length of the known northernmost Cu-Au ( Iron Oxide Copper-Gold style mineralization) zone significantly to 1.3 kilometres. Reconnaissance surface sampling has identified six additional zones of anomalous surface mineralization extending the Lidia mineralization by an additional 12 kilometres to the south. In addition, an airborne magnetic/radiometric survey and a ground gravity survey designed to aid in determining the structural controls on mineralization and identify 2011 drill targets was completed.

Systematic ground geophysical and geological surveys have significantly enhanced the potential of the Viento Cu-Mo Porphyry project. The 2011 drill program starting in the second quarter is designed to confirm and expand upon historical drilling results in hydrothermal breccias that returned up to 0.52% Cu and 0.24% Mo over a core length of 334 metres. Our exploration in 2010 led to the discovery of a highly altered and mineralized porphyry on the flank of the mineralized breccias; this porphyry will also be drill tested this year.

Several different phases of porphyry intrusion were intersected at Viruna with one intrusion returning very consistent gold assays over wide intersections that will be the focus for follow-up drilling planned for startup in the second quarter of 2011.

The Huiniccasa Cu-Ag-Zn-Mo-Fe Skarn-Porphyry project continued to improve with 13 diamond drill holes put down in 2010.

All 13 holes intersected large sections of distal mineralized skarn over a strike length of plus 1 kilometre over a thickness of 500 metres. Further road development is required as part of the 2011 program to access the drilling targeting on the primary porphyry.

Our Hurricane project advanced considerably in 2010 with a first phase drill program testing three of the eleven high-grade Cu-Ni-PGE occurrences of magmatic sulphide mineralization, a new deposit type in Peru. Drill intersections up to 2.6% Cu, 0.6% Ni, 0.03% Co and 1.0 g/t TPM (total precious metal) over 14 metres in intrusive rocks were intersected. Sediment hosted copper-rich mineralization over significant widths was also intersected in the drilling, opening the potential for these rocks to host strataform sedimentary copper deposits. An airborne electromagnetic survey was partially completed over the northern block which detected numerous conductors in proximity to known mineralization. The remainder of the airborne survey will be completed in 2011 with additional ground follow-up work being undertaken.

Our portfolio of projects in Peru has expanded through the acquisition of the Minascucho Cu prospect, located contiguous to and east of the large world-class Las Bambas porphyry project. In Mexico, we acquired the Cuarentas Au-Ag prospect, contiguous to and on trend from Yamana’s Mercedes gold deposit.

Drilling is scheduled to begin in the second quarter of 2011 at Lidia, Viento and Viruna and, in the latter part of the year, at Huiniccasa, Minascucho and in Mexico.

At year-end, the Company had Cdn $19 million to fund the planned drill programs on our advanced copper projects in Peru and gold projects in Mexico.

As we embark on an exciting drill intensive year, Pembrook continues to be in an enviable position within the junior mining sector with a strong portfolio of advanced, high quality projects that have the potential to contain significant mineral deposits. I believe that our drill plans will provide us with the necessary results to begin to estimate the potential size of our key projects. I remain confident that our portfolio of high quality projects and strong technical team will place us in a position for an IPO in late 2011 to early 2012.

I thank you for your continued patience and support.

Yours truly,

President’s Letter

Brian Booth, President & CEO

Dear fellow shareholder,

Vancouver, BC, CanadaApril 19, 2011

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2010 Annual Report

Pembrook’s logistics: the helicopter landing

pad and road construction at the Huiniccasa

project in Peru.

The Pembrook team flies in by chopper

from the Huiniccasa field camp to the landing

site then travels by road to the drill platforms.

Work started on the Huiniccasa property

in 2008: securing drill permits, completing

engineering studies for road construction and

obtaining community approval to start drilling.

Completion of an 18-kilometre access road

to the Huiniccasa skarn system in 2009 marked

a major road building effort, not only providing

drill access but leaving a legacy for the com-

munity in the future.

In 2010, the first 13 holes in the Phase-1

drill program were completed.

The next permitting phase has been

initiated and will include a new community

agreement, environmental and archeological

studies and will allow the Company to drill up

to 100 holes.

Pembrook Project ReviewCoPPeR, PReCious MetAls And niCkel

Road construction at Huiniccasa.


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2010 Annual Report

HuiniccasaCoPPeR

Main skarn body at Huiniccasa.

Ownership: 100% Location: Ayacucho, Central Peru Deposit type: Porphyry and Skarn Cu (Ag, Zn, Mo, Fe)

The Huiniccasa project is a recently discovered, large polymetallic skarn-porphyry system located 350 kilometres

southeast of Lima. Pembrook has completed preliminary mapping, sampling and ground magnetics, the results

of which indicate the presence of a large magnetite skarn (>1,000 by 500 metres) with associated copper-silver-

zinc-molybdenum and iron mineralization with large deposit potential. The skarn mineralization is developed within

calcareous rocks in contact with a granitic intrusive body and is characterized by a garnet and magnetite assemblage

in a series of stacked mantos and pods ranging in thickness from a few metres to 120 metres and can be traced for

up to 1,000 metres.


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The results from a ground magnetic survey suggest that the mineralized skarn horizon continues over a strike

length in excess of 2 kilometres under colluvial cover and flanking a prime porphyry target located immediately to

the east. A second magnetic skarn target has been identified several kilometres to the north, further enhancing the

potential of the project. The Huiniccasa skarn-porphyry target has the potential for discovery of a major polymetallic

(Cu-Ag-Zn-Mo-Fe) deposit. In 2011, the Company plans on obtaining its Phase-2 drill permit which will allow the

construction of an additional 1 kilometre of new road to access the porphyry target and the south skarn targets for

drilling in the fourth quarter.

Executive visit to the Huiniccasa field camp. Directors Richard Petersen and Daniel Innes (top photo, second and third from left) review core with Pembrook president Brian Booth and senior project geologist Marco Dominguez (fourth and third from right).

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2010 Annual Report

VientoCoPPeR

Ownership: Earning 100%Location: North Central PeruDeposit type: Cu-Mo porphyry

The Viento project is located north of Lima and targets a series of mineralized breccia pipes containing significant

high-grade molybdenum and copper mineralization with associated silver-gold values.

Surface exposed high-grade copper mineralization saw limited production up to 1975. Historical drill results

(vertical holes) returned intersections of 0.52% Cu, 0.25% Mo with 11.4 g/t Ag over 334 metres, 0.63% Cu, 0.40%

Mo over 116 metres and 0.35% Cu, 0.35% Mo over 184 metres. Surface channel samples collected by Pembrook

support the high historical grades returning 0.59% Cu and 0.20% Mo over 36 metres and 45 metres respectively.

Geological and geophysical surveys completed in 2010 supports the presence of a large porphyry target adjacent

to the known breccia pipe. Drilling with multiple drills is planned for the second quarter.

Teams conduct geological surveys on the Viento property.


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LidiaCoPPeR

Ownership: 100% and earning 100% on one claimLocation: Puno, Southern PeruDeposit type: IOCG (iron oxide copper-gold)

Lidia is an IOCG project with the potential to contain a significant gold and copper deposit located in southern Peru

approximately 700 kilometres southeast of Lima.

Mineralization at Lidia consists of gold and copper associated with chalcopyrite veins and disseminations within

zones of intense iron oxide (specularite and magnetite) and potassic alteration. Initial rock-chip channel sampling

returned values of 1.47 g/t Au and 0.31% Cu over 33 metres in one continuous channel sample interval.

The Phase-1 ten hole drill program, completed in late 2009, traced the copper-gold mineralization over a strike

length of at least 1 kilometre returning drill intersections of 0.37% Cu and 0.51 g/t Au over 100 metres, 0.67% Cu

and 0.07 g/t Au over 99 metres and 0.44% Cu and 0.06 g/t Au over 72 metres. In 2010 an airborne magnetic and

radiometric survey along with a ground gravity survey was completed over the property. The results have greatly

enhanced the interpretation of controls on mineralization and will assist in targeting future drilling. The Phase-2

drilling program using multiple drills will begin in the second quarter.

Expansive property at Lidia.

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2010 Annual Report

MinascuchoCoPPeR

Minascucho is a new project acquired in 2010, located contiguous to and east of the large world-class Las Bambas

Cu project owned by Xstrata. The property covers the same intrusive and sedimentary rocks (limestones) that host

the Las Bambas deposits.

Four mineralized skarn targets occur on the property and have returned assay results up to 15% Cu. Ground

mapping, sampling and geophysics are planned in order to define targets for drilling in the fourth quarter.

Ownership: 100%Location: Southern Central PeruDeposit type: Copper Porphyry Skarn

Trekking to sample site at Minascucho.


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VirunaPReCious MetAls

Ownership: 100% and earning 100% on one claim Location: South Central Peru Deposit type: Porphyry Au-Cu-Mo

Viruna is a large gold-copper porphyry target located 540 kilometres southeast of Lima and lies within the world

class Las Bambas-Tintaya Porphyry Belt.

Pembrook completed reconnaissance rock and drainage sampling along with extensive rock chip geochemistry

and geologic mapping that defined a large Cu-Au anomaly. The mineralization is related to a dioritic intrusive complex

covering an area of 2 by 3 kilometres with pervasive porphyry-style fracturing, quartz stockwork, mineralization and

alteration. Extensive areas of low-grade gold enhance the potential size of the mineralized system.

Significant assay values were obtained along peripheral structures to the porphyry and range up to 23 g/t Au and

8% Cu. Preliminary drilling intersected wide sections of consistent gold mineralization that will define the target area

for additional drilling in the second quarter.

Targets at Viruna: porphyry with abundant copper-oxide in fractures (left); and 400 x 400 metre prospect with strong, erratic surface gold (right).

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2010 Annual Report

TamboPReCious MetAls

Ownership: 100% PembrookLocation: Moquegua, Southern PeruDeposit type: Polymetallic vein system (Ag, Pb, Zn, Au, Cu) and epithermal Au-Ag

Tambo hotspring gold target. Gold values to 1.5 g/t with elevated mercury and antimony. Silver mineral is stibnite, an antimony bearing sulphide.

The Tambo project is located in southern Peru, 800 kilometres southeast of Lima and lies at the contact

of the Southern Peru Porphyry Belt. The project encompasses a large mining district hosting multiple target

types and the potential to contain significant mineralization within gold-bearing hot spring epithermal systems

at high elevations, silver-lead-gold-copper-zinc rich veins at mid-level elevations and gold within stockworks and

breccias at low levels in the system.

More than 200 individual veins have been defined over a 5 by 7 kilometre area. Veins range from 0.2 to 7.0 metres

in width and individual veins can be traced for up to 2 kilometres. One of two holes drilled intersected a breccia vein

at a depth of 65 metres and returned 1.30 metres at 3.51 g/t Au, 362 g/t Ag, 0.82% Cu, 47.0% Pb and 9.58% Zn.

The grade and width of the veins is comparable to that of current productive mines in Peru.

In addition to the veins, two disseminated gold zones have been identified. The highest level zone is

associated with silica breccias, laminated silica rock, stibnite and barite and returned values of up to 1.16 g/t Au.

A second gold zone located below the vein systems (i.e. at the base of the system) has gold associated

with specularite, tourmaline and quartz veins, stockworks and breccias returning values of up to 30.3 g/t Au within

quartz-tourmaline-specularite breccias. Drilling is planned for the third quarter.


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HurricaneniCkel

The Hurricane Magmatic Ni-Cu-PGE project is a new deposit type in Peru, and 10 new sulphide occurrences have

been discovered on the property to date.

In late 2010, preliminary drilling tested three of the ten prospects, Ñañohuayco, San Cipriano and Negrohuarcuña.

An airborne electromagnetic survey was completed over the northern part of the property in late 2010 that

detected numerous conductors in proximity of the showings and/or strong stream sediment anomalies.

Plans for 2011 include the completion of the remaining 50% of the airborne electromagnetic survey followed by

ground investigation of the highest priority conductors that will help define targets for the next phase of drilling.

Ownership: 100% Location: Southern Peru Deposit type: Magmatic Ni-Cu-PGE

Russell Evans supervising air survey at Negrohuarcuña, one of Pembrook’s prospects in the Hurricane District.

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2010 Annual Report

Hurricane DistrictniCkel

San Cipriano Ownership: Earning 75% Location: Southern Peru Deposit type: Magmatic Ni-Cu-PGE

The San Cipriano prospect lies in the south central part of the

Hurricane project. Reconnaissance sampling returned values

including copper from 1% to 40%, platinum up to 6.3 g/t, nickel

up to 1%, silver up to 241 g/t along with anomalous gold and

palladium. Drilling returned PGE rich intersections up to 4.4 g/t

TPM (1.8 g/t Pt, 1.2 g/t Pd, 1.4 g/t Au) and 54 g/t Ag over 6.8

metres.

Brian Booth and Bruce Harvey examine mineralized gossan (Cu-Ni-PGE) at San Cipriano, Hurricane.

Ñañohuayco The Ñañohuayco prospect is located a few kilometres south of the San Cipriano project. Mineralization occurs

at the contact of a gabbroic intrusive and an ultramafic in contact with a sedimentary sequence. Two large areas

of heavily gossaned outcrop were discovered and are located approximately 100 metres apart. Preliminary drilling

intersected several high-grade intersections up to 2.6% Cu, 0.6% Ni, 0.03% Co, 0.56 g/t Pd, 0.33 g/t Pt, 0.23 g/t Au

and 8.7 g/t Ag over 14 metres. The mineralization is believed to be flat lying and dipping shallowly into the mountain.

JatunpumaThe Jatunpuma prospect was discovered along a stream located approximately 5 kilometres south of the

Negrohuarcuña occurrence at Hurricane. Prospecting led to the discovery of mafic-ultramafic rocks containing

disseminated to semi-massive sulphides that assay up to 4.4% Cu, 2.43 % Ni, 0.1% Co, 0.46 g/t Pd, 1.3 g/t Pt, 12

g/t Ag over a 1 metre channel sample. This new zone is exposed over 8.5 metres and averages 2.1% Cu, 0.86% Ni,

0.04% Co, 0.96 g/t Pd and 0.6 g/t Pt over its length.


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Rio Sonora, Cuarentas, Guadalcazar MexiCo

Rio SonoraThe Company has title to a 100% interest in this 42,170

hectare project in two claim blocks located between the copper-

molybdenum porphyry deposits at Cananea and Caridad. The

claims are underlain by conglomerate valley fill surrounded by

bedrock hosting a number of copper occurrences and, in the

southern area, strong widespread porphyry style alteration.

The core of each claim block covers magnetic lows similar in

magnitude to the magnetic signature over the known porphyry

deposits at Cananea and Caridad.

Cuarentas This project was acquired through staking and is located adjacent to properties held by Yamana Gold Inc.

and Minera Penoles. The Company has submitted application for title, which is pending. The property covers a

large zone of hydrothermal alteration hosting gold-silver mineralization. Bedrock sampling by the Company returned

values of up to 3 g/t Au and 400 g/t Ag in separate showings. The property adjoins Yamana’s new Mercedes gold-

silver mine located immediately to the west.

Guadalcazar This project, which was acquired through an auction of state-owned properties, consists of three discrete claims

totalling 175 hectares that cover a highly altered quartz porphyry intrusion hosted by carbonates sediments. Low-

grade Au-Ag values occur in the porphyry intrusion and higher grade Au-Ag (Cu-Pb-Zn) are localized in the adjacent

strongly altered iron rich carbonate sedimentary rocks.

Project geologists in Mexico sampling on the Pembrook claims in 2010.

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2010 Annual Report

Pembrook Management TeamCAnAdA, PeRu And MexiCo

Brian Booth

Mr. Booth has over 27 years of experience in mineral exploration. Previously President and CEO of Lake Shore Gold Corp. and Manager of Exploration North America & Europe for Inco Limited.

President & Chief Executive Officer

April Hashimoto

Ms. Hashimoto is a Chartered Accountant and has over 24 years of experience in the accounting and mining industry, and has held various senior positions including CFO at Pacific Rim Mining Corp. and CFO, strategic development and project development for Placer Dome Inc.

Chief Financial Officer

Bruce Harvey

Mr. Harvey has over 26 years of experience in mineral exploration in North and South America. Previously he held the position of Director of South America Exploration for Newmont Mining Company, and Director of Geology, overseeing the Yanacocha Gold District.

Executive Vice President & President, South America

Paul Simpson

Mr. Simpson has practised corporate securities law since 1985 and heads the corporate securities practice at Armstrong Simpson, specializing in publicly listed exploration and mining companies.

Corporate Secretary & Legal Counsel


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Russell Evans

Mr. Evans has over 17 years of exploration experience, including a position with Normandy Mining Ltd. and Newmont Mining Company as a senior geologist. He was responsible for the discovery of the Maraba gold deposit in the Nassau District of Suriname.

Vice President Exploration, South America

Henry Marsden

Mr. Marsden has 29 years experience as an exploration geologist and played a key role in the discovery and advancement of several deposits including Rio Blanco and Pico Machay in Peru, and the Timmins West gold deposit in Ontario.

Vice President Exploration, Mexico

Angela Dearie

Ms. Dearie has 27 years management experience in a broad range of industries, including junior and senior natural resource companies. Her expertise covers diamond branding and marketing, investor relations and corporate communications, and wealth and retail management.

Director of Corporate Communications

Buks Lubbe

Mr. Lubbe is an exploration geophysicist with extensive experience in Africa, the Americas and the Caribbean, designing, processing and interpreting geophysical surveys. For more than two decades, he worked with Gold Fields of South Africa and Newmont Mining Corporation.

Chief Geophysicist, South America

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2010 Annual Report

Alan Moon

Mr. Moon is an independent businessman, corporate director and consultant. He has held a number of executive positions with TransAlta Corporation and previously served as President and COO of TransAlta Energy Corporation. Mr. Moon sits on the boards of Lake Shore Gold Corp., TransAtlantic Petroleum Ltd., AvenEx Energy Corp. and Northern Superior Resources Inc.

Independent Director, Chair of the Board

Brian Booth

Mr. Booth is past President, CEO and Director of Lake Shore Gold Corp. Prior to Lake Shore, he held various management roles over the previous 23 years with Inco Limited. He has explored for nickel-copper, precious and base metal deposits throughout Canada, Europe, South America and southeast Asia for 27 years. Presently, he serves as Director for a number of public and private companies.

Director, President & Chief Executive Officer

Anthony Makuch

Mr. Makuch is President, CEO and Director of Lake Shore Gold (LSG.TSX). He is a professional engineer (Ontario) with over 25 years of management, operations and technical experience in the mining industry, having managed numerous projects in Canada and the United States from advanced exploration through production.

Independent Director, Chair of Compensation Committee

Daniel Innes

Daniel Innes is past Chair, President and CEO of Lake Shore Gold Corp., remains a director of Lake Shore, and serves on the board of Zincore Metals Inc. He has over 35 years experience in the mining industry and has been involved in a number of successful junior mining companies. He has worked in a variety of metal environments in many parts of the world.

Director, Chair of Environment, Health & Safety Committee

Jorge Benavides

Mr. Benavides is President and CEO of Zincore Metals Inc. and has 30 years experience in the mining industry. He was previously an independent consultant and Senior Advisor to the Chairman of Hochschild Mining plc. He was with Hochschild from 2001 through 2008 guiding the Company’s exploration programs and was actively involved in acquisition activities.

Independent Director

Richard Petersen

Mr. Petersen is a Geologist/Mining Engineer with over 50 years international experience. He has been involved in several significant ore deposit discoveries, is a consultant and part of the founding group of Pembrook Mining Corp. Mr. Petersen has held positions with Cerro de Pasco Corporation in Peru, Compañía Vale do Rio Doce, Occidental Minerals, Kennecott, Tenneco, Cyprus Minerals and Southwestern Resources Corp.

Director

Stephen Kurtz

Mr. Kurtz is Managing Member of Kurtz Financial, LLC, formed in 2008, a consulting firm specializing in restructuring, turnarounds and M&A advisory services. He is also a Co-Managing Member of Mankwitz Kurtz Investments, LLC, a Denver-based private equity firm, which he formed in 2001. Mr. Kurtz is also currently the Chair of the Audit and Compensation Committees of CIBER, Inc. (NYSE.CBR) and has held various other public and private board positions.

Independent Director, Chair of Audit Committee

Kevin McArthur

Mr. McArthur is President and CEO of Tahoe Resources Inc., a private exploration and development company, and has considerable mining experience with several minerals companies. He previously served as President and CEO of both Goldcorp Inc. and Glamis Gold Inc. and serves on the Boards of Consolidated Thompson Iron Mines Ltd. and Cloud Peak Energy Inc.

Independent Director, Chair of Corporate Governance & Nominating Committee

Pembrook Board of Directors


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Financial Review

Management Discussion and Analysis 18

Independent Auditor’s Report 35

Consolidated Financial Statements 36

Notes to the Consolidated Financial Statements 40

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2010 Annual Report

Management Discussion and AnalysisFor the year ended December 31, 2010

OverviewThe following Management’s Discussion and Analysis (“MD&A”), reviews Pembrook Mining Corp.’s (the “Company” or “Pembrook”) financial condition and results of operations for the year ended December 31, 2010. This discussion provides management’s analysis of the Company’s historical financial and operating results and provides estimates of the Company’s future financial and operating performance based on information that is currently available.

This MD&A contains forward-looking statements that involve certain risks and uncertainties. There can be no assurance that these statements will prove to be accurate and actual results and future events could differ materially. Please refer to the cautionary language regarding forward-looking statements at the end of this MD&A.

This MD&A is dated March 30, 2011 and should be read in conjunction with the Company’s audited annual consolidated financial statements for the year ended December 31, 2010, together with the notes thereto, prepared by management in accordance with Canadian generally accepted accounting principles (“GAAP”).

All dollar figures are in thousands of Canadian dollars, unless otherwise noted (number of shares and options, per share and per option amounts, option exercise prices and fair market value of options on grant date are not presented in thousands).

Company BackgroundPembrook is a mineral exploration company engaged in the identification, acquisition, evaluation and advancement of mineral properties in Peru, Mexico and Canada. The Company is exploring for copper (“Cu”), gold (“Au”), silver (“Ag”), nickel (“Ni”) and other metals. At present, none of the Company’s mineral properties are at a commercial development or production stage. The Company’s objective is to discover mineral deposits and either sell, option, joint venture, or otherwise participate in their development.

The Company operates in Peru through its subsidiary, Compania de Exploraciones Orion S.A.C. and in Mexico through its subsidiary, Paget Southern Resources S. de R.L. de C.V. As of December 31, 2010, the Company owns a portfolio of properties in Peru, Canada and Mexico.

In March 2009, the Company changed to a fiscal year-end of December 31. The Company’s prior fiscal year-end was February 28, 2009. As a result, the comparative period for the year ended December 31, 2010 is the ten month period ended December 31, 2009.

HighlightsThe Company’s objective for 2010 was to complete the Phase-1 diamond drilling at its ten priority projects located in Peru and Mexico and identify those projects that have the highest potential for significant resources. The drill results of this program distinguished five projects as having significant potential for resources. Highlights for the year ended December 31, 2010 include:

• In Peru, the Company drilled a total of eight projects for a total of 17,619 metres in 81 holes for the year ending December 31, 2010.

• Huiniccasa – The Company drilled 13 holes totalling 3,857 metres on the Huiniccasa polymetallic (copper-zinc-molybdenum-silver-iron) skarn/porphyry system in the Ayacucho area of south-central Peru. Significant

skarn mineralization was intersected in all holes. Wide sections of zinc (“Zn”) mineralization were intersected in the north and upper sections of the skarn with increasing copper and molybdenum (“Mo”) grades and widths to the south. The mineralized skarn has been traced by drilling over a strike length of over 1 kilometre validating the significant size, thickness and overall potential of the mineralized system. Geologic and geophysical vectors suggest the porphyry target to be south and east of the main exposed skarn.

• Viruna – 7 holes totalling 2,577 metres were drilled on the Viruna gold-copper porphyry project in the Cusco region. The first hole intersected a highly altered porphyry that returned a significant gold intersection of 0.47 grams per tonne (“g/t”) Au over 239.7 metres including a higher grade section of 1.5 g/t Au over 28 metres. It also contained an additional 0.48 g/t Au over 70.5 metres from 280.5 metres to 351.0 metres. This gold mineralization remains open at depth and to the west.

• Lidia – District-scale exploration at Lidia has significantly increased the potential of the project. A total of six new target areas including the Puro Puro zone where multiple +1.0 g/t Au and +1% copper assays were found over an area of six kilometres by five kilometres. As a result, the Company expanded its land position to over 19,600 hectares to cover these newly discovered zones along with their strike potential. In the fourth quarter, an airborne magnetic and radiometric and ground gravity survey was completed over the property. The results have expanded the potential and continuity of the Cu-Au mineralization to over ten kilometres.

• Hurricane – Preliminary drilling returned several significant intersections including 2.59% Cu, 0.55% Ni, 0.03% cobalt (“Co”), 1.09% platinum group elements (“PGE”) and 8.53 g/t Ag over 14 metres. In the fourth quarter, an airborne electromagnetic survey (“AEM”) was completed over approximately 50% of the Hurricane project area mainly over the north claim block. Multiple electromagnetic conductors have been detected in the vicinity of the surface high grade Ni, Cu and PGE mineralization. The position of these conductors will be merged into the geologic database to prioritise future Ni-Cu-Co-PGE drill targets.

• Viento – During the fourth quarter, geological mapping and geophysical magnetic and induced polarization surveys were completed over the project to finalize target identification for the phase one diamond drill targets. The results of the program provided an improved understanding of the geology and the position of the primary Cu-Mo porphyry target and expanded the high-grade Cu-Mo breccias.

• In Mexico, the Company increased its property portfolio significantly with the acquisition of several new gold-silver projects. The key projects are the Cuarentas gold-silver vein property which is located contiguous to and east of Yamana’s Mercedes gold-silver mine and the other is the Guadalcazar intrusive related gold property.

In the second quarter, the Company raised $16,100 via a private placement of 8,054,800 shares at a price of $2.00 per share. The Company’s cash position at December 31, 2010 was $20,197.

OutlookAt December 31, 2010, the Company had completed the preliminary drill testing of eight of its highest priority projects in Peru. As a result, the Viento, Lidia, Viruna and Huiniccasa projects have emerged as the copper projects with significant


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deposit potential. In the first half of 2011, the Company plans to aggressively drill test the Lidia iron-oxide-copper-gold (“IOCG”) and Viento Cu-Mo porphyry prospects with multiple drills and up to 30,000 metres of drilling. These programs will be designed to provide the necessary data which could allow the Company to begin to estimate the size and grade of the systems by the end of 2011. At Viruna and Huiniccasa, the Company plans to initiate Phase-2 drilling in the first and fourth quarters respectively, to expand on the known mineralization discovered to date and to test additional targets.

The Hurricane nickel project also has significant potential for Ni-Cu-Co-PGE-Ag deposits based on the drill results obtained to date along with the detection of numerous AEM conductors in the vicinity of the known mineral occurrences. The Company is currently investigating various opportunities with major mining companies and potential new business strategies that will maximize shareholder value of the Hurricane project in 2011.

Preliminary exploration on new gold-silver properties located in the Sonora district of northern Mexico began in the fourth quarter and will continue in 2011.

During the year, the Company also plans to investigate the various business opportunities available, including spin-offs, initial public offerings and sale of assets, to maximise the value to the shareholders for all of the Pembrook assets.

Project Details: PeruDrilling of the Peru portfolio was initiated in April of 2010. Currently the Company has one drill active on the Viruna gold-copper porphyry target in south-central Peru. At year-end, first pass drilling was completed on 7 projects for a total of 17,619 metres drilled in 81 holes as detailed in the following table.

Results from this drilling indicate the discovery of large metal-rich systems at the Hurricane, Lidia, Huiniccasa and Viruna projects.

Viruna Au-Cu Porphyry

The first phase 7 hole drill program was completed at Viruna. Significant gold mineralization was intersected in hole VIR-1, which returned 239.7 metres grading 0.47 g/t gold from 0 to 239.7 metres including a higher grade interval of 28.0 metres at 1.5 g/t gold from 48.0 to 76.0 metres. This 239.7 metre interval is then followed by a late-post mineral dyke from 239.7 to 280.5 metres and then

MD&A

continues into strong mineralization and alteration over 70.5 metres grading 0.48 g/t gold from 280.5 to 351.0 metres.

A summary of the drilling is in the table below.

Diamond drilling designed to expand on the gold mineralization is scheduled to begin in the second quarter of 2011.

Huiniccasa Cu-Zn-Mo-Ag-Fe Skarn Porphyry

At Huiniccasa a drill program was completed of 13 holes totalling 3,857 metres. The drilling resulted in the discovery of multiple, stacked, mineralized skarn horizons ranging from a few metres to up to 113 metres thick and developed over a strike length of greater than 1,000 metres. Drilling has intersected significant copper, zinc, molybdenum, silver and iron mineralization including 23 metres at 0.44% copper and 13.7g/t silver, strong molybdenum mineralization including 52 metres at 0.12% molybdenum, and highly elevated zinc and iron mineralization including 46 metres at 3.13% zinc and 36 metres at 49% iron. Both skarn and retrograde hydrothermal alteration are extensive and evaluation of drill core and assay results along with district-scale geochemistry and geophysics suggest these drill results are from the west margin of a large skarn/porphyry system. Drilling will continue at Huiniccasa in the second quarter of 2011 to test the southern portion of the exposed skarn system where stronger surface copper and molybdenum values have been identified. Additional magnetics completed during the fourth quarter of 2010 improved the interpretation and vectoring towards the position of the porphyry target. The next permitting phase has been initiated to allow drilling to the south and east of the currently exposed skarn system to test the porphyry copper target. The permit will include a new community agreement, environment and archeological studies. This permit will allow the Company to drill up to 100 holes and should be received by the end of the third quarter of 2011. Additional ground magnetics were completed and a new interpretation of the magnetics supports the location of the porphyry target.

Project System type Metal target

Holes drilled (2010)

Metres drilled (2010)

HUINICCASA Skarn/PorphyryCopper-Zinc-

Molybdenum-Silver-Iron 13 3,857

HURRICANEMagmatic Sulphide

Copper-Nickel-Platinum-Palladium-Gold-Silver 23 3,361

LA GOLDA Epithermal Gold 16 3,096

LIDIAIOCG (iron oxide-

copper-gold) Copper-Gold 10 2,622

SAN CIPRIANO

Magmatic Sulphide

Copper-Nickel-Platinum-Palladium-Gold-Silver 9 1,375

UNIGRANSA Epithermal Copper-Gold 3 731

VIRUNA Porphyry Gold-Copper 7 2577

TOTAL 81 17,619

Hole From ToThickness (metres) Au g/t Cu %

VIR-001 0.00 239.70 239.70 0.47 0.01

including 48.00 76.00 28.00 1.50 0.03

280.50 351.00 70.50 0.48 0.03

including 290.50 324.20 33.70 0.72 0.04

VIR-002 182.00 213.00 31.00 0.07 0.11

298.30 342.70 44.40 0.11 0.19

321.00 336.30 15.30 0.16 0.30

VIR-003 33.70 61.40 27.70 0.09 0.12

168.00 186.50 18.50 0.17 0.05

237.00 255.00 18.00 0.09 0.14

251.00 265.00 14.00 0.14 0.09

354.00 395.00 41.00 0.20 0.06

VIR-006 24.00 57.00 33.00 0.24 0.03

65.00 91.00 26.00 0.13 0.04

171.30 205.00 33.70 0.23 0.04

317.00 389.00 72.00 0.21 0.02

*Drill holes 4-5 and 7 did not intersect significant mineralization.

20

2010 Annual Report


The following mineral intercepts are reported:

Hole From ToThickness (metres) Cu % Zn % Mo % Fe % Ag g/t

HUI–01 18.00 30.00 12.00 0.08 0.70 0.02 4.50 1.70

HUI–01 40.00 60.00 20.00 0.07 1.83 – 5.10 1.07

HUI–01 66.00 84.00 18.00 0.05 0.82 – 3.70 1.16

HUI–01 114.00 120.00 6.00 0.03 0.84 – 5.80 0.90

HUI–02 66.45 79.20 12.75 0.20 6.12 – 28.90 5.18

HUI–02 100.90 106.70 5.80 0.07 0.66 – 5.50 1.04

HUI–03 21.40 27.75 6.35 0.23 0.01 – 38.10 4.10

HUI–03 53.50 64.80 11.30 0.39 1.11 – 49.50 4.32

HUI–03 130.00 152.15 22.15 0.03 0.57 – 4.10 0.47

HUI–03 272.45 278.25 5.80 0.02 0.62 – 6.50 2.48

HUI–03 284.25 345.40 61.15 0.01 0.20 0.02 9.90 0.21

HUI–04 82.00 86.90 4.90 0.16 0.52 – 16.40 2.70

HUI–04 108.10 117.80 9.70 0.12 1.05 – 13.60 1.23

HUI–04 133.40 153.80 20.40 0.13 0.43 0.02 12.30 1.79

HUI–04 174.00 188.00 14.00 0.04 0.01 0.02 15.50 0.74

HUI–04 215.25 219.25 4.00 0.18 0.01 – 36.80 0.45

HUI–04 225.25 228.95 3.70 0.30 0.19 – 48.30 1.41

HUI–04 247.75 290.70 44.95 0.07 0.77 0.02 26.00 1.65

including 254.70 257.15 20.45 0.07 1.35 0.04 25.80 1.53

HUI-04 349.65 363.00 13.35 – – 0.04 11.60 0.24

HUI-04 375.60 380.80 5.20 – 0.01 0.12 6.00 0.20

HUI-04 390.80 454.65 63.85 – – 0.03 15.40 0.20

including 396.80 422.65 25.85 – – 0.04 12.10 0.20

HUI-04 472.65 502.20 29.55 – – 0.02 11.20 0.30

HUI-05 10.10 22.10 12.00 0.02 0.33 0.01 13.80 0.90

HUI-05 36.75 43.71 7.00 0.01 – – 30.10 0.23

HUI-05 71.30 72.05 0.75 0.60 0.24 0.01 19.50 15.70

HUI-05 90.05 105.20 15.15 0.08 1.17 – 4.00 11.77

HUI.05 119.20 125.45 6.25 0.15 0.20 0.01 5.80 3.02

HUI-05 175.97 199.20 23.25 0.09 0.02 0.03 27.40 1.03

HUI.05 214.45 230.95 16.50 0.03 0.07 – 4.10 0.23

HUI-05 238.30 240.45 2.15 0.05 1.23 – 20.10 0.13

HUI-05 249.75 267.20 17.45 0.06 1.31 0.02 43.10 1.28

HUI-05 336.15 349.00 12.85 0.17 0.02 0.03 22.10 2.48

HUI-05 358.85 374.75 15.90 0.01 0.01 0.02 7.60 0.24

HUI-05 389.55 445.55 56.00 – – 0.02 22.40 0.96

HUI-05 481.55 501.55 20.00 0.01 – 0.01 2.60 0.22

HUI-06 6.00 12.00 6.00 0.04 0.07 – 5.10 0.87

HUI-06 26.90 32.90 6.00 0.93 1.27 – 21.40 8.63

HUI-06 42.90 44.90 2.00 1.07 0.05 – 18.80 61.30

HUI-06 128.75 132.75 4.00 0.18 0.06 0.01 5.90 5.95

HUI-06 143.60 146.90 3.30 0.47 2.84 0.02 8.70 15.31

HUI-06 175.70 254.95 79.25 0.04 1.32 – 11.40 1.85

including 185.65 192.45 6.80 0.04 1.33 – 9.20 4.56

including 200.45 206.45 6.00 0.02 4.54 0.01 29.40 0.88

including 211.55 224.75 13.20 0.06 2.43 – 19.70 2.31

including 245.10 251.60 6.50 0.03 1.76 – 16.90 1.11

HUI-06 292.35 299.20 6.85 0.02 0.55 – 7.70 0.62

HUI-06 303.50 307.35 3.85 0.02 0.44 0.02 8.00 0.90


21

MD&A

Hole From ToThickness (metres) Cu % Zn % Mo % Fe % Ag g/t

HUI-06 326.60 440.00 113.40 0.01 0.26 0.02 11.80 0.82

including 4.3.50 433.60 30.10 0.01 0.35 0.07 16.20 0.78

HUI-07 10.35 13.50 3.15 0.19 3.80 0.02 4.30 40.98

HUI-07 27.10 72.90 45.80 0.30 3.13 0.01 18.30 8.60

HUI-07 97.55 100.80 3.25 0.13 0.46 – 7.60 4.67

HUI-07 134.45 139.40 4.95 0.12 0.01 – 5.30 1.47

HUI-07 146.00 148.00 2.00 0.17 0.63 – 5.90 1.60

HUI-07 199.70 204.70 6.00 0.24 – 0.02 20.90 1.47

HUI-07 216.95 217.45 0.50 0.19 0.01 0.02 8.30 0.90

HUI-07 235.55 255.55 20.00 0.21 0.10 0.01 22.20 2.56

HUI-08 6.60 10.60 4.00 0.096 083 0.01 8.20 24.40

HUI-08 16.35 23.90 7.55 0.02 0.05 0.06 32.30 0.83

HUI-08 31.30 42.70 11.40 0.10 1.28 – 27.90 9.12

HUI-08 47.30 59.00 11.70 0.12 1.78 – 42.00 3.23

HUI-09 2.00 8.00 6.00 0.001 0.013 0.05 6.40 0.33

HUI-09 15.20 19.80 4.60 – – 0.03 7.30 1.03

HUI-09 25.25 29.25 4.00 0.05 1.52 – 9.30 17.05

HUI-09 43.70 76.20 32.50 0.22 0.83 – 37.80 4.63

HUI-09 88.20 90.90 2.70 0.11 1.30 – 11.50 7.63

HUI-09 97.15 101.50 4.00 0.02 0.02 0.01 7.10 2.40

HUI-09 141.30 145.30 4.00 0.16 – – 20.00 3.35

HUI-10 62.40 74.30 11.90 0.08 0.05 0.04 4.30 3.82

HUI-10 78.70 101.30 22.60 0.28 1.59 – 21.30 5.81

including 78.70 85.20 6.50 0.24 3.19 – 14.60 7.17

HUI-10 189.50 205.60 16.10 0.05 1.15 0.01 10.40 1.21

including 189.50 194.70 5.20 0.05 0.49 – 15.20 2.66

HUI-10 213.70 228.70 15.00 0.06 0.03 0.02 34.50 1.55

HUI-10 227.85 240.40 12.55 0.59 0.03 0.01 41.50 13.29

HUI-10 245.30 258.40 13.10 0.02 0.01 0.04 4.20 0.37

HUI-10 296.70 307.20 10.50 0.03 0.01 0.08 25.40 1.04

HUI-10 313.35 321.50 8.15 0.12 0.15 0.03 20.50 2.45

HUI-10 348.65 360.65 12.00 0.01 0.01 0.05 2.30 0.20

HUI-10 367.90 379.00 11.10 0.01 – 0.02 2.30 0.20

HUI-11 67.20 87.20 20.00 0.25 0.86 0.001 51.90 5.47

including 69.20 79.20 10.00 0.19 1.59 – 55.00 5.14

HUI-11 179.15 191.90 12.75 0.51 0.85 0.01 24.40 14.20

HUI-11 198.40 221.30 22.90 0.44 1.10 0.01 39.50 13.70

HUI-11 270.20 325.25 55.05 0.02 0.02 0.12 15.80 0.45

HUI-11 336.40 340.40 4.00 0.02 0.01 0.09 1.90 0.55

HUI-11 364.50 378.25 13.75 0.01 0.01 0.02 1.80 0.24

HUI-11 384.70 392.70 8.00 0.01 – 0.02 2.10 0.90

HUI-11 406.70 412.70 6.00 0.02 0.01 0.02 2.10 0.87

HUI-12 101.70 107.4 6.30 0.15 3.65 0.00 44.10 5.47

HUI-12 116.90 122.90 6.00 0.17 0.25 0.00 49.55 5.1

HUI-12 199.80 205.40 5.60 0.09 1.19 0.00 8.35 6.61

HUI-12 219.25 237.15 17.90 0.16 0.14 0.01 31.48 4.06

HUI-12 313.90 325.15 10.25 0.03 0.01 0.02 8.18 1.15

HUI-13 63.60 67.70 4.10 0.16 1.24 0.02 32.25 6.15

HUI-13 85.60 89.80 4.20 0.30 3.63 0.01 15.21 8.65

HUI-13 93.55 104.00 10.45 0.37 0.46 0.00 15.51 4.32

HUI-13 181.95 246.50 64.55 0.19 0.06 0.02 26.61 4.37

HUI-13 181.95 236.4 54.45 0.22 0.03 0.01 17.26 4.97

22

2010 Annual Report

Viento Cu-Mo-Ag

On January 11, 2010, the Company signed an option agreement with Geoandina to acquire a 100% interest in the Viento copper-molybdenum-silver project located in central Peru and within the department of Lima. Viento is a former producing mine with high-grade, intrusive-related molybdenum and copper within breccias, pipes, or large volume porphyry style, copper and molybdenum mineralization. Strong copper and molybdenum mineralization along with elevated silver values are present within multiple hydrothermal breccia bodies found over an area of 1,000 by 1,500 metres within a multi-phase intrusive complex. Historical drill data describes strong mineralization within the breccias with reported drill intersections including 334 metres at 0.52% copper, 0.25% molybdenum and 11.4 g/t silver, and 72 metres at 0.59% copper, 0.34% molybdenum and 7.5 g/t silver. Surface channel and rock chip sampling by Pembrook has returned similar high-grade mineralization including 73 metres at 0.28% copper and 0.3% molybdenum, 36 metres at 0.59% copper and 74 metres at 0.24% molybdenum within the breccias. Mapping, sampling and re-logging of available core and ground magnetic and IP/resistivity surveys have been completed and data is now being processed. It is anticipated that drilling will begin in early in the second quarter of 2011 once the final community agreement is signed and the drill permit has been received.

Lidia IOCG Cu-Au

At Lidia, drill intercepts including 135 metres at 0.52% copper and 100 metres at 0.51 g/t gold and 0.37% copper were intersected within a 1,500 metres east-west corridor which remains open along strike and at depth. In addition recent district-scale exploration at Lidia has resulted in the identification of six new target areas including the Puro Puro zone where multiple high-grade (>1.0 g/t) gold and (>1%) copper values were obtained from surface rock chip sampling. These prospects are found over an area of six kilometres by five kilometres and as a consequence the Company has expanded the Lidia land position to 19,600 hectares to cover these new zones. The district mapping and sampling effort along with a ground gravity survey have been completed along with an airborne magnetic/radiometric survey.

The results of the program illustrate the potential size and strength of the Lidia system, as LID-20 is located 1,300 metres west of the Lidia “open pit” zone. Further review of previous drill results suggests mineralization may be continuous between LID-20 and the “open pit” zone and thus for a distance of 1,300 metres. These results confirm that Lidia has many similarities to iron oxide-copper-gold deposits elsewhere in the Andes, including the world-class Candelaria and Mantos Verdes mines in Chile. Similarities include strong iron oxide alteration, chalcopyrite as the dominant sulphide mineral, volcanic and volcaniclastic host rocks, and relation to a major structure. Lidia is localized along a major, regional, northwest-trending structure which is one of a series of parallel, structures in this part of Peru. A full geological interpretation and structural analysis will be completed to select the drill holes for the Phase-2 drill program scheduled to begin in the second quarter of 2011.

Hurricane Magmatic Ni-Cu-PGE

Results from 2010 drilling at the Hurricane and adjacent San Cipriano project verify the presence of a new, and previously unrecognized, copper, nickel and platinum group metals district in south-eastern Peru. Hurricane covers approximately 60 kilometres of the favourable belt, with the potential for multiple discoveries associated with ultramafic intrusive dikes and sills, emplaced into a sequence of structurally complex, pyritic slates and phyllites. Sulphide minerals including chalcopyrite, pentlandite, pyrrhotite and cubanite are found as semi-massive sulphides, blebs, disseminations and interstitial grains within ultramafic ortho-pyroxenites and in gossan zones.

Drill results include 14 metres at 2.59% copper, 0.55% nickel, 0.03% Cobalt, 0.55g/t palladium, 0.35 g/t platinum, 0.24 g/t gold and 8.53 g/t silver at Hurricane and 6.8 metres at 1.30 g/t palladium, 2.13 g/t platinum and 1.42 g/t gold at San Cipriano. In addition to these mineralized zones, regional exploration has resulted in the discovery of additional drainage and rock anomalies through the large, 74,000 hectare, 100% Pembrook Hurricane claim block. An extensive AEM survey is now in progress to aid in the search for discovery of a large, ultramafic-hosted deposit within this new metal-rich region.

This new mineral occurrence type for Peru has many similarities to major copper-nickel and platinum-palladium districts elsewhere in the world including the Sudbury and Voisey’s Bay camps in Canada. To date, ten distinct occurrences have been identified.


Diamond drill hole From To

Thickness (metres) Cu % Au g/t Ag g/t

LID-1 7 38 31 0.13 0.90 3.00

LID-1 77 149 72 0.44 0.08 0.28

LID-1 161 274 113 0.50 0.04 1.13

LID-2 – 32 32 0.32 0.43 1.59

LID-3 – 51 51 0.34 0.12 0.32

LID-3 92 106 14 0.66 0.40 0.32

LID-3 141 237 96 0.31 0.04 0.86

LID-4 10 145 135 0.52 0.07 3.12

LID-4 162 192 30 0.26 0.02 0.25

LID-5 – 142 140 0.30 0.15 2.75

LID-6 – 32 32 0.15 0.07 0.65

LID-6 54 84 30 0.18 0.22 2.84

LID-7 21 75 54 0.33 0.31 1.93

LID-8 – 44 44 0.20 0.24 2.47

LID-8 56 96 40 0.27 0.35 4.20

LID-9 111 126 15 0.12 0.04 0.10

LID-10 34 99 65 0.32 0.22 0.60

LID-10 147 247 100 0.37 0.51 0.90

Reverse circulation drill hole From To

Thickness (metres) Cu % Au g/t Ag g/t

LID-11 – 102 102 0.01 – 4.30

LID-11 124 260 136 0.01 – 2.20

LID-14 – 8 8 0.23 0.01 0.80

LID-16 156 312 156 0.13 0.20 0.43

including 156 168 12 0.13 0.20 0.58

including 218 312 94 0.14 0.24 0.39

including 232 304 72 0.21 0.44 0.40

LID-17 126 134 8 0.01 0.65 –

LID-17 164 178 14 0.40 0.10 7.30

LID-18 60 64 4 0.14 0.01 0.30

LID-19 86 96 10 0.14 0.29 5.80

LID-20 112 138 26 0.12 0.12 1.29

LID-20 152 246 94 0.26 0.24 3.64

including 206 246 40 0.39 0.28 2.25

including 236 246 10 0.69 0.37 2.04

*Drill holes 11-15 and 18 did not intersect significant mineralization.


23

A summary of the drill results for the three prospects (Ñañohuayco, Negrohuarcuña and San Cipriano) are tabled below:

MD&A

Ñañohuayco

Hole From ToThickness (metres) Cu % Ni % Co % Pt g/t Pd g/t Au g/t Ag g/t

ÑAÑO-01 – 14.00 14.00 2.59 0.55 0.03 0.30 0.55 0.24 8.53

ÑAÑO-02 – 12.00 12.00 2.38 0.60 0.03 0.33 0.57 0.23 8.76

ÑAÑO-03 – 12.00 12.00 1.67 0.26 0.01 0.22 0.52 0.19 6.70

ÑAÑO-04 2.30 8.30 6.00 1.16 0.35 0.02 0.09 0.22 0.07 3.69

ÑAÑO-04 69.00 73.50 4.50 0.16 0.06 0.01 0.03 0.03 0.02 0.72

ÑAÑO-05 – 18.00 18.00 1.12 0.30 0.02 0.14 0.26 0.11 5.37

ÑAÑO-06 – 15.00 15.00 0.98 0.26 0.01 0.13 0.23 0.07 4.46

including – 6.00 6.00 1.83 0.43 0.02 0.24 0.44 0.12 7.89

ÑAÑO-07 6.00 15.00 9.00 0.58 0.17 0.01 0.05 0.08 0.04 2.68

ÑAÑO-07 22.50 27.00 4.50 0.27 0.07 0.01 0.02 0.04 0.02 0.88

ÑAÑO-10 5.00 7.00 2.00 0.07 0.23 0.01 – 0.01 – 0.11

*Drill holes 8 and 9 had no significant assays. Additional results from drill hole 10 pending.

San Cipriano


SCI-1 – 2.40 2.40 0.49 0.04 – 0.19 0.11 0.06 7.00

SCI-1 11.50 13.00 3.00 0.20 0.01 – – – – 3.30

SCI-1 46.80 48.50 1.70 0.14 0.15 0.02 – – – 0.10

SCI-3 – 36.90 36.90 0.18 0.02 –

SCI-4 – 3.00 3.00 0.77 0.05 – 0.37 0.18 0.12 5.00

SCI-4 11.00 17.00 6.00 0.17 0.01 – 0.01 – – 0.90

SCI-4 27.00 35.00 8.00 0.12 0.01 – – – – 0.10

SCI-5 – 41.00 41.00 0.13 0.01 – 0.08 0.05 0.03 4.40

including – 4.50 4.50 0.33 0.02 – 0.46 0.27 0.14 10.50

SCI-6 – 6.80 6.80 0.23 – – 2.13 1.30 1.42 59.10

SCI-8 90.00 94.00 4.00 0.313 0.01 – – – – 0.10

*Drill holes 2 and 7 had no significant assays.

Negrohuarcuña


NEH-01 18.50 27.50 11.00 0.83 0.11 – 0.04 0.07 0.02 2.72

NEH-01 37.00 47.00 5.00 0.12 0.01 – – – – 0.19

NEH-01 53.00 61.00 4.00 0.33 0.03 – – – – 0.67

NEH-02 36.80 56.00 19.20 0.24 0.047 – 0.005 0.002 0.003 0.71

NEH-03 31.30 39.60 8.30 0.19 0.07 – 0.015 0.019 0.02 1.36

NEH-04 64.30 68.30 4.00 0.06 0.14 0.01 0.004 0.004 0.001 0.14

NEH-04 118.10 165.40 47.30 0.19 0.02 – – – – 0.03

NEH-05 65.70 73.20 7.50 0.28 0.18 0.01 0.056 0.043 0.028 0.64

NEH-06 80.35 83.80 3.45 0.21 0.03 – – – – 0.43

NEH-06 95.80 109.50 13.70 0.28 0.03 – – – – 0.37

NEH-06 126.00 150.00 24.00 0.50 0.06 – – – – 0.85

NEH-07 67.00 70.00 3.00 0.03 0.11 0.01 – – – 0.07

NEH-08 4.80 30.00 25.20 0.21 0.33 0.02 0.05 0.04 0.02 0.45

NEH-11 18.50 20.60 2.10 0.05 0.18 0.03 – – – 0.12

NEH-11 40.70 41.70 1.00 1.22 0.15 0.14 – – 0.01 2.06

*Drill holes 9, 10, 12 and 13 had no significant assays.

24

2010 Annual Report

Drilling at Ñañohuayco in the eastern claim block was designed to test two gossans which returned strong surface results including 74 of 93 channel samples with over 1% copper and the best interval with 14 metres at 5.7% copper, 1.14 g/t palladium and 0.7 g/t platinum. Drilling confirms strong copper mineralization with 6-14 metre intervals at approximately 2.5% copper and total precious metals at over 1.0 g/t. The gossanous zone appears to be related to a poorly preserved ultramafic intrusive cutting black phyllites/shales.

At Negrohuarcuña in the western claim block, drilling was designed to test multiple targets including a strongly mineralized gossan where trenching over a 100 metre strike length returned the following values:

Individual channel samples returned very strongly enriched metal concentrations up to 28.9 g/t palladium, 15.4 g/t platinum, 10.0 g/t gold, 61.8 g/t silver and 9.6% copper from the gossan zone. In addition to the gossan target, two other targets including a mineralized ultramafic dike (and sill zone) and a cluster with strongly copper-mineralized large boulders were also targeted for drilling with a combination of surface geochemistry and geophysics through the jungle terrain and irregular, steep topography.

A strongly mineralized source to the gossan and the large boulders remains open. Anomalous copper and nickel mineralization is associated with quartz and calcite veinlets and stringers containing fine chalcopyrite and pyrite. These veinlets were also spatially coincident with mafic/ultramafic dikes and sills. In addition, at Ñañohuayco, extensive secondary copper was noted along fractures and bedding surfaces within the black shale host rocks. The extent of this mineralization is not known as many intervals from the black shales have not yet been analyzed. However intervals such as 47 metres of 0.19% copper and 24 metres of 0.5% copper were noted in NEH-4 and NEH-6. Further evaluation of this style of mineralization is in progress.

The Phase-1 drilling has confirmed the presence of strong mineralization associated with ultramafic intrusive dikes and sills, and regional exploration has identified several additional occurrences of this type, illustrating the potential for discovery of a new copper-nickel-platinum-palladium-gold-silver camp and a new deposit type in Peru. The presence of extensive secondary copper mineralization within black shale at both Ñañohuayco and Negrohuarcuña merits additional study as many of the largest copper resources in the world are in similar black shale environments.

Tambo Polymetallic Vein

On January 31, 2011, Minera Oro Vega S.A.C. formally advised Pembrook that they were terminating the option joint venture agreement on the 100% Pembrook owned Tambo prospect. The Tambo prospect includes three levels of mineralization including a high level epithermal gold-silver horizon, a mid-level poly-metallic silver-lead-gold-copper-zinc vein-rich zone, and a lower level quartz-tourmaline-gold horizon with veins, breccias and stockworks. Several new companies have been contacted and have expressed their interest in acquiring the property.

Unigransa Cu-Au

The Unigransa copper-gold prospect is located 15 kilometres southwest of the Lidia district. Initial rock sampling returned strong copper assays up to 7.5%

copper along with anomalous silver values within epithermal quartz veins cutting a volcanic breccia complex. Diamond drilling consisted of 3 holes for a total of 731 metres. The holes did not intersection significant copper-gold mineralization.

La Golda Epithermal Au

First-pass reverse circulation drilling to test the La Golda epithermal gold target located in the Moquegua department of southern Peru was completed, with 16 holes and 3,096 meters drilled. This reverse circulation program was designed to test four distinct targets identified through a combination of surface geochemistry, geology, and geophysics. The Company was earning up to a 100% interest in the property from Rio Tinto Peru Mining and Exploration S.A.C. through an option agreement over a four year period. A target model which suggested potential concentration of mineralization within structural zones and at the lower contact of the favourable tuff horizon was tested with the first-pass drilling. Drill results were similar in grade and thickness to values noted from surface sampling and did not suggest a stronger focus or enrichment of gold mineralization within structures or at the lower contact of the favourable tuff horizon with the underlying andesite unit. Mineralization is strongly related to silicification along structures and correlated well with high resistivity. The Company terminated the agreement in the third quarter of 2010, returned the property to its owner and wrote off all amounts capitalized in the books.

Property planning – Peru

Minascucho Cu-Au Skarn Porphyry

The Minascucho project is a new copper-gold skarn prospect located approximately 20 kilometres east of the Ferrobamba copper porphyry deposit which forms part of the Las Bambas porphyry deposits currently being developed by Xstrata plc. The skarn mineralization contains high-grade copper and gold. Mapping and sampling are underway which will be followed by a ground magnetic survey. Drilling could begin as early as the fourth quarter of 2011.

Project Details: MexicoActivities during the year included drilling 12 holes at the Jacala Au-Ag prospect and 6 holes at the Rio Sonora porphyry Cu projects. An analysis of the drill results at the Jacala project suggested that the project did not have the potential to host a significant deposit so the project was abandoned during the third quarter of 2010, the claims returned to the owner and the amount capitalized written off. Claim applications were successful in three new areas: the Ramard, Cuarentas and Buenavista del Cubo projects. Title for these areas has not been granted but applications have been filed to ensure that the area cannot be staked by competitors and all necessary survey work has been filed. In addition, the Company purchased two state properties at an auction, the Guadalcazar and La Cruz projects. Title for these properties will be granted upon completion of the auction documentation process. Exploration activity will focus on gold and copper exploration, largely in Sonora and Zacatecas, San Luis Potosi.

Ramard

This 4,624 hectare property is located in Sonora roughly 80 kilometres north of Hermosillo. The claims cover a Au and polymetallic stream sediment anomaly as well as a known epithermal stockwork vein showing. Initial fieldwork consisting of mapping and soil sampling was initiated during December 2010 and will continue through the first quarter of 2011.


Pt g/t Pd g/t Au g/t Ag g/t Cu %

West Trench 4.45 8.06 2.56 19.2 2.23

Middle Trench 1.26 2.57 1.35 12.0 0.29

East Trench 1.71 2.36 1.05 13.0 0.21


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Cuarentas

The company was successful in getting 22,000 hectares of this project with both Yamana Mining and Minera Penoles acquiring adjacent blocks of ground. The property covers a large zone of hydrothermal alteration with previous sampling by the company has given up to 3 g/t Au and 400 g/t Ag in separate showings. The block adjoins Yamanas’ new Mercedes mine located immediately to the west.

Buenavista del Cubo

This project comprises 1,187 hectares covering a number of poorly exposed epithermal veins located in Guanajuato. Competitors (Penoles) acquired part of the area of interest and work in early 2011 will evaluate the block to see if there is significant potential for high-grade epithermal Au-Ag veins.

Guadalcazar

This project was offered for sale by the state entity, Servicio Geologico Mexicano and was purchased on September 21, 2010 for a series of payments over four years totalling US$265. The project consists of three discrete claims totalling 175 hectares that cover a highly altered quartz porphyry intrusion in carbonates. Low grade Au-Ag values occur in the stock and higher grade Au-Ag (Cu-Pb-Zn) are localized in strongly altered iron rich rocks in the adjacent carbonates. Mapping and soil sampling will be completed and surface access permits obtained for a 2011 drill program.

La Cruz

This 480 hectare project was also acquired from the Servicio Geologico Mexicano on September 20, 2010 for a total of US$175 payable over four years. The project is located in Sonora 280 southwest of Hermosillo. The project covers polyphase intrusive rocks with widespread strong phyllic alteration, extensive quartz tourmaline and small bodies of pegmatitic quartz with high grade Cu and Mo. The project is located in the core of a large district with widespread alteration abundant anomalous Au and known resources of both low-grade gold and small (7-13 MT) but relatively high-grade Cu-Mo. The project will be mapped and sampled in early 2011 which will develop targets for drilling in 2011.

Rio Sonora

This project consists of 42,179 hectares in two blocks located in between the world class Cu-Mo porphyry deposits at Cananea and Caridad. The claims are underlain by conglomeratic valley fill surrounded by bedrock with Cu occurrences and, in the southern area, strong widespread phyllic alteration. The core of each claim covers magnetic lows similar in magnitude to the known porphyry deposits. The reverse circulation drill program was initiated on November 15, 2010 and consisted of 6 reverse circulation holes to test buried magnetic lows that could be reflecting covered porphyry copper mineralization. The drilling did not intersect significant copper mineralization or porphyry alteration. The Company will seek to locate a partner for the project.

Jacala

The Company holds option rights to acquire a 100% interest in the Jacala property, a gold-silver epithermal prospect located in Hidalgo province. Fieldwork has defined widespread oxide occurrences in brecciated marble and limestone with a core zone of 800 metres by 300 metres showing gold of over 100 ppb in soils and numerous workings with significant gold, silver, lead and zinc. A 3,000 metre drill program commenced in late April to test for the presence of a significant oxidized gold-silver target within this zone. Phase-1 drilling intersected wide oxide

breccia zones containing anomalous Au-Ag values in all 12 holes including a narrow high-grade intersection of 14.8 g/t gold over 1 metre. Although favourable breccias were intersected, assay results were lower than anticipated. The project was terminated in the third quarter of 2010 and all capitalized amounts were written off.

Corporate Transactions

Sajapampa (Peru) and Cariboo (Canada) Zinc Projects

On January 15, 2010, the Company entered into an agreement with Zincore Metals Inc. (“Zincore”), a Canadian company listed on the Toronto Stock Exchange (“TSX”), whereby Zincore can acquire a 100% interest in the Sajapampa property in Peru and the Cariboo property in British Columbia, Canada. Zincore has two directors in common with the Company and is considered a related party. In order to acquire either or both of the projects, Zincore is required to deliver a total of 5 million of its common shares over three years, and expend a total of $876 on the two properties prior to the first anniversary. The expenditure requirement on the Cariboo property can be extended by one year if Zincore issues the Company a further 500,000 common shares. Pembrook will retain a 2% NSR and Zincore has an option to reduce the NSR to 1% by making a payment of $1,500. During the first quarter of 2010, the Company received 1 million common shares of Zincore valued at $310 in connection with this option agreement. The Company recorded $186 as a recovery of Cariboo property costs and $124 to Sajapampa.

On July 29, 2010, Zincore notified the Company that it was invoking force majeure under the agreement due to new limitations placed on the drilling permit for the Cariboo property by government authorities in July 2010. The Company is negotiating with the government authorities to satisfactorily resolve the matter. As a result, all of Zincore’s Cariboo obligations under the agreement after July 29, 2010 have been indefinitely suspended.

On December 14, 2010, Zincore requested an extension of the first anniversary date to May 12, 2011 due to delays in getting drill rigs to the Sajapampa property. The Company agreed to the extension thereby giving Zincore until May 12, 2011 to meet its work commitments on the Sajapampa project and extending the date for the issue of 1 million shares on the first anniversary date to May 12, 2011.

On March 10, 2011, Zincore notified the Company that it had met its spending commitments for the first year for the Sajapampa property and provided notice of its decision to terminate the agreement. The Company provided written acceptance of this notice and upon receipt of Zincore’s exploration report on Sajapampa, will evaluate its options for the property.

Private Placements in Exchange for Properties

On May 2010, the Company entered an agreement with Paget Minerals Corp. (“Paget”), a company listed on the Toronto Stock Exchange – Venture Exchange (“TSX-V”), whereby Paget acquired from the Company, the Xeno property in British Columbia, Canada. Paget has one director and one officer in common with the Company and is considered a related party. Under the agreement, Paget issued 39,702 shares to the Company and in the event of any future sale or other disposition of the property, the Company is entitled to 10% of any cash, shares or royalty receivable by Paget. In addition, the Company retains a 2% NSR of which 1% may be purchased by Paget for $1,000.

On May 26, 2010, the Company entered an agreement with Paget whereby Paget acquired from the Company, the Icy Lake, Fae and Slam properties in British Columbia, Canada. Under the agreement, Paget issued 5,470 shares to the

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Company and in the event of any future sale or other disposition of the properties, the Company will be entitled to 10% of any cash, shares or royalty receivable by Paget. In addition, the Company retains a 2% NSR on the properties, of which 1% may be purchased for $1,000.

Additional Property Disclosure The capitalized exploration expenditures of the Company by mineral property are provided in Pembrook’s audited annual consolidated financial statements for the year ended December 31, 2010.

Information Concerning Financial PerformanceThe Company is an exploration stage company and engages principally in the acquisition, exploration and advancement of mineral properties. The Company’s current properties are in the early stages of exploration, and none of the Company’s properties are in production. Mineral exploration expenditures are capitalized and financial losses are incurred as a result of general exploration and administrative expenses relating to the operation of the Company’s business. Consequently, the Company’s net income is not a meaningful measure of its performance or potential.

The Company capitalizes all acquisition and exploration costs until the property to which those costs are related is placed into production, sold, abandoned or determined by management to be impaired. The decision to abandon a property is largely determined based on exploration results, the Company’s view of future prospects, and whether the property may be of interest to other exploration or mining companies.

The key performance drivers for the Company include securing the best geological expertise it can, and acquiring and successfully exploring high potential mineral


properties. By hiring highly qualified staff and acquiring and exploring projects of superior technical merit, the Company increases its chances of finding and advancing an economic deposit.

Selected Financial Information Selected quarterly financial information for operations of the Company for the last eight quarters ending December 31, 2010, is presented below. Fluctuations in income or expense items from period to period are not necessarily representative of trends or potential future changes.

Unaudited Quarterly Statement of Loss and Comprehensive Loss (figures are in thousands of Canadian dollars except per share information)

Summary of selected annual financial information:

Period RevenuesLoss before other items Net loss

Basic and fully diluted loss per share

$ $ $

4th Quarter ended Dec 31, 2010 Nil (2,865) (2,820) (0.02)

3rd Quarter ended Sep 30, 2010 Nil (2,890) (2,956) (0.03)

2nd Quarter ended Jun 30, 2010 Nil (1,852) (1,663) (0.01)

1st Quarter ended Mar 31, 2010 Nil (2,220) (2,150) (0.02)

4th Quarter ended Dec 31, 2009 Nil (1,986) (1,757) (0.02)

3rd Quarter ended Sep 30, 2009 Nil (1,195) (1,311) (0.01)

2nd Quarter ended Jun 30, 2009* Nil (1,901) (1,685) (0.02)

4th Quarter ended Feb 28, 2009 Nil (1,389) (1,312) (0.01)

*The 2nd Quarter ended June 30, 2009 consists of 4 months due to the change in year-end (see “Company Background” above).

Year ended Dec 31, 2010

Ten months ended Dec 31, 2009

Year ended Feb 28, 2009

Summarized Statements of Loss and Comprehensive Loss

$ $ $

Revenue – – –

Loss before other items (9,827) (5,082) (6,819)

Loss before income taxes (9,589) (5,352) (6,100)

Net loss for the period (9,589) (4,753) (5,965)

Loss per share (basic and fully diluted) (0.08) (0.05) (0.06)

Summarized Statements of Cash FlowsCash flow (used by) operating activities (10,976) (3,671) (2,715)

Cash flow provided by (used for) investing activities 16,233 12,393 11,040

Cash flow provided by financing activities

Summarized Balance Sheet 20,197 21,181 15,603

Cash 45,179 36,107 27,418

Total assets 1,029 405 912

Total liabilities 20,124 21,126 15,602

Working capital 20,124 21,126 15,602

Share structureWeighted average common shares outstanding

(basic and diluted) 115,047,581 104,854,060 100,108,589


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Results of Operations (dollar figures are in thousands of Canadian dollars)

For the year ended December 31, 2010 compared with the ten months ended December 31, 2009

The Company’s net loss for the year ended December 31, 2010 (the “current year-to-date period”) was $9,589 or $0.08 per share compared with a loss of $4,753 (normalized to twelve months equals $5,704) or $0.05 per share for the ten month period ended December 31, 2009 (the “comparable year-to-date period”). The main reasons for the higher loss were increases in general exploration and general and administrative expenses, as well as higher write-offs of mineral property costs, partially offset by higher gains on dilution of investment compared with the comparable year-to-date period.

Significant changes in the levels of expenditures and other items are explained as follows:

• General exploration expense of $2,086 was incurred in the current year-to-date period compared with $1,384 in the comparable year-to-date period (normal-ized to twelve months equals $1,661). General exploration represents costs to identify properties for exploration and reconnaissance work on properties to which the Company has not obtained title. The increase was due to the Company’s increased project generation activities in Peru and Mexico during the current year-to-date period.

• Mineral property costs of $1,965 were written off in the year ended December 31, 2010 compared with $247 in the year-earlier period. The total amount of the write-off is determined by the amount of investment that has been capital-ized prior to management’s determination that no further exploration by the Company is warranted and that the claims are unlikely to be of interest to other mining or exploration companies. The amount written down in the current year-to-date period was higher due write-offs of $1,015 in Peru of which $738 was for the La Golda property, $343 in Canada of which $198 was for the Dragon property and $608 in Mexico, all of which related to the Jacala property. In the comparable year-to-date period, write-offs were comprised of $193 in Peru, $54 in Canada and $nil in Mexico.

• General and administration expenses were $3,951 in the year ended Decem-ber 31, 2010 compared with $1,980 in the comparable year-to-date period (normalized to twelve months equals $2,376). This 99% increase reflects higher professional fees, corporate governance, office and travel costs. The higher professional fees are primarily attributable to accounting, legal and tax consulting services for the evaluation of strategic alternatives by the Company. Increased corporate governance costs reflect the implementation of Board fees in the current year-to-date period and increased costs for travel to Board meet-ings. In addition, higher costs reflect new office space in Lima, increased travel to Peru and severance payments incurred in the Vancouver head office.

• The gain on dilution of investment in Paget was $561 in the current year-to-date period versus $191 in the comparable year-to-date period. The gain in both periods related to share issuances by Paget in which the Company did not participate. The higher level of financing at higher share prices than the cost of the shares held by Pembrook, resulting in a larger gain on the investment being recognized by the Company in the current year-to-date period.

For the three months ended December 31, 2010 compared with the three months ended December 31, 2009

The Company’s net loss for the three month period ended December 31, 2010 (the “current quarter”) was $2,820 or $0.02 per share compared with a net loss of $1,757 or $0.02 per share for the three month period ended December 31, 2009 (the “comparable quarter”). The increase in the net loss is primarily attributable to higher exploration and general and administrative expenses and higher write-downs of mineral property costs, partially offset by lower foreign exchange loss and higher gain on dilution of investment compared with the comparable quarter.

Significant operating and administrative expenses and other items were as follows:

• General and administrative expenses increased by $651 from the comparable quarter to $1,510 in the current quarter. The higher costs are attributable to higher corporate governance costs due to the Board fees paid in the current quarter compared with no fees paid in the comparable quarter and higher salaries due to severance payments incurred in the Vancouver office in the current quarter.

• General exploration expense of $807 was incurred in the three month period ended December 31, 2010 compared with $601 in the comparable quarter. The increase reflects increased generative exploration activity in Peru and Mexico relative to the comparable quarter.

• The write off of mineral property costs of $100 was incurred in the current quarter compared with $nil in the comparable quarter. In the current quarter, the Unigransa property in Peru was written off by $100.

• A foreign exchange loss of $38 was recognized in the current quarter compared with a loss of $150 in the comparable quarter. Gains and losses on foreign exchange result from fluctuations in the value of the Canadian dollar relative to the US dollar, differences between the timing and recognition of payments denominated in foreign currencies and the translation of the net assets of our foreign subsidiaries into Canadian dollars for consolidation. In the current quarter, the Canadian dollar averaged US$0.987 which was 4.2% stronger than the average of US$0.947 in the comparable quarter.

• The gain on dilution of investment was $220 in the current quarter compared with $103 in the comparable quarter reflecting the higher levels of financing raised by Paget in the three month period ended December 31, 2010 compared with the three month period ended December 31, 2009. Pembrook did not participate in any of the financings in these periods which all took place at higher prices than the $0.10 per share that represents Pembrook’s cost basis for these shares.

Liquidity and Capital ResourcesSelected financial information pertaining to liquidity and capital resources during the year ended December 31, 2010 and the ten months ended December 31, 2009, is presented below:

On December 31, 2010, the Company had cash and cash equivalents of $20,197 and working capital of $20,124 versus $21,181 and $21,126 respectively as at December 31, 2009.

Cash utilized in operating activities during the year ended December 31, 2010 was $6,117 compared with $3,081 in the ten month period ended December 31, 2009 (normalized to twelve months equals $3,697). The increase was primarily

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attributable to higher expenditures in the year ended December 31, 2010 on general and administrative costs and general exploration compared with the comparable year-to-date period, and the impact of changes in non-cash working capital.

Cash utilized in investing activities during the year ended December 31, 2010 was $10,976 versus $3,671 for the ten month period ended December 31, 2009 (normalized to nine months equals $4,405). The increase of $7,305 was primarily attributable to $7,086 increase in capitalized expenditures for mineral properties in the current period from $3,638 (normalized to twelve months equals $4,366) in the comparable year-to-date period. The increase in capitalized expenditures for mineral properties was primarily due to the Company’s aggressive drill program in Peru in the current year-to-date period.

Cash provided by financing activities during the year ended December 31, 2010 was $16,233 compared with $12,393 during the comparable period. The primary source of cash inflow during the current year-to-date period was the issuance of 8,054,800 common shares at $2.00 per share pursuant to a private placement and $158 from the issuance of 316,666 common shares upon exercise of stock options. In the comparable period, 6,896,777 shares were issued at $1.80 per share pursuant to a private placement and no stock options were exercised.

At December 31, 2010, share capital was $62,129, comprising 117,782,889 common shares (at December 31, 2009 share capital was $45,783 comprising 109,411,423 common shares). Contributed surplus, which arises from the recognition of the estimated fair value of stock options vesting during the period, was $5,593 (December 31, 2009 – $3,982).

As a result of the net loss of $9,589 for the year ended December 31, 2010 (ten months ended December 31, 2009 – $4,753), the deficit at December 31, 2010 increased to $23,762 (December 31, 2009 – $14,173).

At present, the Company’s operations do not generate cash inflows and its financial success is dependent on the Company’s ability to raise financing, discover economically recoverable mineral deposits and sell, joint venture or otherwise participate in the development of those projects. The Company currently has sufficient capital resources to meet its planned exploration expenditures, administrative overhead expenses and other costs for at least the next year.

Transactions with Related Parties

Balance Sheet

The following amounts were due to/from companies that have directors in common with the Company or have a partner who is a director of the Company:

Zincore has two directors in common with the Company and is considered a related party. The Company has an investment of 1,000,000 common shares of Zincore.

Paget has a director and an officer in common with the Company and is considered a related party. The Company has an investment of 11,975,000 common shares of Paget.

Statement of Operations

Transactions with related parties in the normal course of operations have been measured at the exchange amount, which is the consideration agreed to by the parties.


The Company recovers rent and related costs for shared office space with Paget and provides administrative and geological services to Paget under an intercompany common services and cost allocation agreement.

Proposed TransactionsThere are no proposed transactions.

Current Year Accounting Policy AdoptionsIn March 2009, the Canadian Institute of Chartered Accountants (“CICA”) issued Section 1582 “Business Combinations,” Section 1601 “Consolidated Financial Statements” and Section 1602 “Non-Controlling Interests” to replace Section 1581 and Section 1600. These sections shall be applied prospectively to business combinations on or after the effective date of January 1, 2011 with earlier application permitted. These standards establish updated principles on the recognition, measurement criteria and presentation for acquisitions, the accounting for assets and liabilities assumed and non-controlling interests. On January 1, 2010, the Company adopted these new standards which had no material impact on the Company’s consolidated financial statements.

Transition to International Financial Reporting Standards (“IFRS”)The Canadian Accounting Standards Board has confirmed that effective on January 1, 2011, IFRS will replace Canadian GAAP as the basis for accounting for publicly accountable enterprises. The first period reported under IFRS by the Company will be the three month period ended March 31, 2011 and the Company’s first fiscal year-end date under IFRS will be December 31, 2011.

The change from Canadian GAAP to IFRS will be a significant undertaking with the potential to have significant effects on the Company’s accounting policies, internal controls, disclosure controls and financial statement presentation. The Company expects the transition to IFRS to have an immaterial effect on its information technology and business activities.

The Company commenced its transition plan development in May 2009. The Company has determined its preliminary IFRS policy decisions and significant

Dec 31, 2010 Dec 31, 2009

$ $

Included in accounts receivable 82 40

Included in accounts payable 15 –

TransactionNature of

relationshipYear ended

Dec 31, 2010Ten months ended

Dec 31, 2009

$ $

Expenses included in line items on the Statements of Loss and Comprehensive Loss

Legal fees Partner is an officer 87 58

Management/consulting Director in common 496 588

Recoveries included in line items in the Statements of Loss and Comprehensive Loss

Recovery of common costs, administrative expense and salaries Paget Minerals Corp. 509 407


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expected accounting differences, based on an analysis of the current IFRS standards, and the following section outlines each of these. As the conversion work continues, additional differences between Canadian GAAP and IFRS may be identified. As a result, these accounting policy choices may change prior to the adoption of IFRS on January 1, 2011. The Company has identified a key accounting policy difference between Canadian GAAP and IFRS in accounting for share-based payments and has quantified the impact of this difference on the December 31, 2009 consolidated financial statements. A description of the nature and quantification of this identified material difference is provided below. The Company is in the process of calculating the impact of this difference on, and additional note disclosures required in, the comparative quarterly information disclosed in each of the quarters ended March 31, 2011, June 30, 2011 and September 30, 2011 in accordance with IFRS. In addition, the Company is currently evaluating any potential impact of the difference between Canadian GAAP and IFRS in accounting for foreign exchange and translation of foreign subsidiaries. Any decisions with respect to accounting policy changes, including those outlined below, may change once management has quantified and thoroughly analyzed the effects of such changes and has presented them for final review and approval by the Audit Committee and Board of Directors.

First-time Adoption of IFRS (IFRS 1)

In the first year of transition to IFRS, a company is allowed to elect certain exemptions from IFRS in order not to apply each IFRS on a retrospective basis. IFRS 1 has certain mandatory as well as some limited optional exemptions. Based on analysis to date, the Company expects to apply the following optional exemptions under IFRS 1 that will be significant in preparing the consolidated financial statements under IFRS:

• Business Combinations – A company may elect, on transition to IFRS, to either restate all past business combinations in accordance with IFRS 3 “Business Combinations” or to apply an optional exemption from applying IFRS 3 to past business combinations. Pembrook will elect, on transition to IFRS, to apply the optional exemption such that transactions entered into prior to the transition date of January 1, 2010 will not be restated.

• Share-Based Payments – A company may elect not to apply IFRS 2 “Share-Based Payments” to equity instruments which vested before the transition date to IFRS. Pembrook will elect, on transition to IFRS, to apply the optional exemption such that equity instruments which vested prior to the transition date of January 1, 2010 will not be restated.

IFRS to Canadian GAAP differences

The following has been identified as a difference between the Company’s Canadian GAAP accounting policies and the accounting policies available under IFRS. Based on analysis to date, management has determined that this difference is material:

• Share-Based Payments – Canadian GAAP allows certain policy choices in the calculation of stock based compensation. The Company currently amortizes grants in their entirety on a straight-line basis over the vesting term. IFRS standards require each tranche in the grant to be amortized over its own vesting period. As a result of these changes, share-based compensation expense will be accelerated under IFRS. In addition, unvested options with graded vesting features at January 1, 2010 will be revalued under IFRS, with consequent adjustments to opening retained earnings. The Company has determined the impact of this difference to be a $1,188 increase in the stock based compensa-tion expense which will be reflected as an increase to retained deficit and a corresponding increase in contributed surplus in the re-stated December 31,

2009 financial statements. Pembrook will continue to monitor IFRS amend-ments by the various regulatory bodies for any changes to IFRS standards for accounting for stock based compensation. In the event of such an amendment, the Company would recalculate the impact of the difference, which could differ from the difference currently quantified as $1,188. The Company is in the process of quantifying these differences for each of the quarters ended March 31, 2010, June 30, 2010 and September 30, 2010.

Additional Impacts of Adopting IFRS

• The Company has determined that the main impact of IFRS on the Company will involve a significant increase in note disclosure as well as certain presentation differences.

• The Company intends to revise its methodology and amortization rates for property and equipment on adoption of IFRS, in order to adopt uniform rates and methods of amortization across all entities in the consolidated group. This change is expected to have an immaterial impact on the results of the Company.

• The Company expects the main impact of IFRS on Internal Controls over Financial Reporting (“ICFR”) and Disclosure Controls & Procedures (“DC&P”) to be increased procedures to ensure all required disclosures are presented for each continuous disclosure document, particularly during the transition period.

Current IFRS Transition Work

• The Company has quantified the impact of the known differences between Canadian GAAP and IFRS in accounting for share-based payments on the De-cember 31, 2009 financial statements and is now quantifying the impact of this known differences and identifying the additional note disclosures required for the comparative quarterly information presented in the quarters ended March 31, 2011, June 30, 2011 and September 30, 2011.

• The Company is in the process of determining the impact of the differences between Canadian GAAP and IFRS in accounting for foreign exchange and translation of foreign subsidiaries.

• The Company will continue to review all proposed and continuing IFRS amend-ments by the various regulatory bodies and will update or revise the project plan accordingly to ensure it accomplishes a timely and efficient transition to IFRS.

• The Company is drafting the opening January 1, 2010 statement of financial position and the March 31, 2010 interim financial statements under IFRS.

• The Company’s IFRS conversion project is currently on target to meet the changeover date of January 1, 2011.

Off-Balance Sheet ArrangementsThe Company is not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on the Company’s financial position, revenues, expenses, results of operations, liquidity, capital expenditures or future cash flows.

Financial InstrumentsThe Company’s financial instruments are exposed to certain financial risks, the elements of which are discussed more fully in Note 13 to the Company’s December 31, 2010 audited annual consolidated financial statements. The fair values of the Company’s accounts receivable, deposits, Mineral Exploration Tax Credit (“METC”) receivable and accounts payable approximate their carrying values due

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to their short-term nature. The Company’s investment in Zincore is carried at fair value using a level 1 fair value measurement. The Company’s investment in Paget is accounted for as an equity investment and is not considered a financial instrument. Obligations under capital lease are carried at amortized cost.

Critical Accounting Estimates The Company’s accounting policies are presented in Note 2 of the December 31, 2010 audited annual consolidated financial statements. The preparation of financial statements in accordance with Canadian GAAP requires management to select accounting policies and make estimates. Such estimates may have a significant impact on the financial statements. Actual amounts could differ materially from the estimates used and, accordingly, affect the results of the operations. These include:

• The carrying values of mineral properties

• The assumptions used for asset retirement obligations

• The assumptions used to determine the timing of future income tax events

• The valuation of stock-based compensation expense.

Carrying Value of Mineral Properties

The Company capitalizes acquisition, exploration and development expenditures directly related to specific mineral projects or an area of interest, until such time as the extent of mineralization has been determined and mineral properties are either developed or the Company’s mineral rights are allowed to lapse. At that time, the cost will either be written off or amortized over the expected life of the ore body. The Company capitalizes costs incurred on properties held through property option agreements, where the Company is acquiring or has acquired an ownership interest in the property. Costs incurred by other parties who are earning an ownership interest in a property held by the Company, through a property option agreement, are not recognized by the Company.

General exploration expenditures that are not directly related to specific mining properties are expensed in the period in which they are incurred.

Title to resource properties involves inherent risks due to the difficulties of determining the validity of certain claims as well as the potential for problems arising from the title history of certain resource properties. To the best of its knowledge, titles to all of the Company’s properties are in good standing, or in the process of being granted on an uncontested basis.

Management has reviewed its capitalized mineral property costs on a property-by-property basis. In management’s opinion, economic and market conditions have not reduced the value of mineral properties on the balance sheet below the carrying value of these properties, and as such the Company has not incurred any impairment of mineral property costs for these properties. A write-off of mineral property costs of $1,965 during the year ended December 31, 2010 (ten months ended December 31, 2009 – $247) was recorded due to the Company’s determination that further exploration work was not warranted on four properties in Canada, one property in Mexico and fourteen properties in Peru.

Asset Retirement Obligations

The Company records a liability for retirement obligations associated with long-lived assets at fair value. An asset retirement cost equal to the fair value of the retirement obligation is capitalized as part of the cost of the related asset. These capitalized costs are depreciated using a straight-line method based on the

estimated life of the asset. Amounts are recorded once they become known or can be readily estimated. As at December 31, 2010, management has determined that the asset retirement obligation of the Company for the Ball Creek property is $68.

Future Tax Assets and Liabilities

Income taxes are calculated using the liability method of tax accounting. Temporary differences arising from the difference between the tax basis of an asset or liability and its carrying amount on the balance sheet are used to calculate future income tax assets or liabilities. Future income tax assets or liabilities are calculated using statutory tax rates that will apply in the periods that the temporary differences are expected to reverse. A valuation allowance is provided to reduce the asset to the net amount management estimates to be reasonable to carry as a future income tax asset.

Assessing the recoverability of future income tax assets requires management to make significant estimates related to expectations of future taxable income. Estimates of future taxable income are based on forecasted cash flows from operations and the application of existing tax laws in each jurisdiction. In circumstances where the applicable tax laws and regulations are either unclear or subject to ongoing varying interpretations, it is possible that changes in these estimates could occur that materially affect the amount of future income tax liabilities recorded at the balance sheet date.

Stock-Based Compensation

All stock-based awards made to employees, non-employees and directors are measured and recognized using a fair-value based method. For employees, non-employees and directors, the fair value of the options at the date of the grant is accrued and charged to operations on a straight-line basis over the vesting period, with the offsetting credit to contributed surplus. If and when the stock options are ultimately exercised, the applicable amounts of contributed surplus are transferred to share capital. If any stock options are forfeited, no further expense is recognized from the date of forfeiture.

The Company estimates the fair value of option grants using the Black Scholes option pricing model. Changes in the subjective input assumptions used in the Black-Scholes option pricing model can materially affect the fair value estimate. The weighted average key assumptions used in the year ended December 31, 2010 are a risk-free interest rate of 2.2%, a dividend yield of 0%, an expected volatility of 70%, an expected forfeiture rate of 4.3%, an exercise price of $1.96 and expected life of five years. The resulting estimated average grant date fair value of options granted during the year was $1.16 per option.

Option pricing models require the input of highly subjective assumptions, including expected price volatility. As Pembrook is a privately-owned company, no observable market exists for its shares or options, and management estimates the price volatility of Pembrook options using the average volatility of five comparable exploration and mining company stocks listed on the TSX and the TSX-V. Because the Company entered into a new phase and scale of operations in 2010, management re-assessed the group of comparable companies used for this calculation, and included exploration and mining companies of greater operational scale than the comparable group used previously. Hence, the estimated volatility in the year ended December 31, 2010 was lower than that estimated in prior periods. Several factors, including future changes in stock market volatility, would likely change the estimated fair value of any stock options granted in the future, and as such, future options grants could be more or less expensive to the Company.



31

Other MD&A RequirementsAdditional information relating to the Company may be found in the Company’s audited annual consolidated financial statements and related notes for the year ended December 31, 2010.

CommitmentsThe following table is a summary of the commitments of the Company as at each of the following dates:

The table does not include cash payments or exploration expenditures required to maintain property option agreements in good standing with vendors, as those payments and expenditures are conditional on the Company electing to continue with the individual option agreements. If the Company chooses to terminate an option agreement, no further payments or exploration expenditures are required and the related capitalized costs will be written off.

Other Subsequent EventsSubsequent to December 31, 2010, on January 31, 2011, Minera Oro Vega S.A.C. terminated the option agreement and returned the Tambo property to the Company. Pembrook is currently seeking new partners for the advancement of this property.

On March 10, 2011, Zincore notified the Company that it had met its spending commitments for the first year for the Sajapampa property and provided notice of its decision to terminate the agreement. The Company provided written acceptance of this notice and upon receipt of Zincore’s exploration report on Sajapampa, will evaluate its options for the property.

Disclosure of Outstanding Share DataThe table below provides information concerning the designation and number of each class of equity securities for which there are securities outstanding as of the dates noted below:

early stages of exploration and are without defined mineral bodies. Advancement of Pembrook’s properties will only occur after obtaining satisfactory exploration results. There can be no assurance that Pembrook’s existing or future exploration programs will result in the discovery of economically recoverable mineral deposits. Further, there can be no assurance that even if an economic deposit of minerals in identified, it can be commercially mined.

No Source of Operating Revenue

At present, the Company’s operations do not generate cash inflows and the Company’s continued existence depends on management’s ability to raise additional equity financing, discover recoverable mineral deposits and sell or otherwise participate in the development of those projects. Many factors influence the Company’s ability to raise funds, including the health of the commodity resource market, the climate for mineral exploration investment, the Company’s track record, and the experience and calibre of its management. Actual funding requirements may vary from those planned due to a number of factors, including the progress of exploration activities. Management believes it will be able to raise equity capital as required over time, but recognizes there are risks involved that may be beyond its control. If those risks fully materialize, the Company may not be able to raise adequate funds to continue its operations.

Minerals Exploration and Advancement

The exploration and development of minerals is highly speculative in nature and involves a high degree of financial and other risks over a significant period of time which even a combination of careful evaluation, experience and knowledge may not eliminate. While discovery of a mineral deposit or ore body may result in significant rewards, few properties which are explored are ultimately advanced into producing mines. Substantial expenses are required to establish ore reserves by drilling, sampling and other techniques and to design and construct mining and processing facilities. Whether a mineral deposit will be commercially viable depends on a number of factors, including the particular attributes of the deposit (e.g. size, grade, access and proximity to infrastructure), financing costs, the cyclical nature of commodity prices and government regulations (including those relating to prices, taxes, currency controls, royalties, land tenure, land use, importing and exporting of minerals, and environmental protection). The effect of these factors, or a combination thereof, cannot be accurately predicted but could have a significant adverse impact on the Company.

Minerals Exploration Activities

Mineral exploration activities generally involve a high degree of risk. Pembrook’s operations are subject to all of the hazards and risks normally encountered in mineral exploration and advancement. Such risks include unusual and unexpected geological formations, seismic activity, rock bursts, flowing and other conditions involved in the drilling and removal of material, drilling or transportation accidents, environmental issues including chemical spills or environmental degradation, industrial accidents, periodic interruptions due to adverse weather conditions, labour disputes, community relationship issues and political, community or interest group unrest. The occurrence of any of the foregoing could result in damage to, or destruction of, mineral properties or interests, personal injury, damage to life or property, environmental damage, delays or interruption of operations, increases in costs, monetary losses, legal liability, adverse government action, and a loss in the value of Pembrook’s properties. Pembrook does not currently carry insurance against all these risks and there is no assurance that such insurance will be available in the future, or if available, at economically feasible premiums

MD&A

Risk Factors

Exploration Stage Company

Pembrook is engaged in the business of acquiring and developing mineral properties to locate economic deposits of minerals. All of it properties are in the

Office and warehouse

Management services

Geological services

Drilling, helicopter and geophysical Total

$ $ $ $ $

Dec 31, 2011 228 160 140 228 756

Dec 31, 2012 120 – – – 120

348 160 140 228 876

Type of security Mar 30, 2011 Dec 31, 2010 Dec 31, 2010 Feb 28, 2009

Common shares 117,782,889 117,782,889 109,411,423 102,514,646

Options 10,437,578 10,470,914 10, 239,316 9,322,750

Total 128,220,467 128,253,803 119,650,739 111,837,396

32

2010 Annual Report

or acceptable terms. The potential costs associated with liabilities not covered by insurance or excess insurance coverage may cause substantial delays and require significant capital outlays. Such damages, if uninsured, could under certain circumstances, be greater than the financial capacity of the Company to pay for them.

No Operating History and Financial Resources

Pembrook has a short operating history and no operating revenue, and is unlikely to generate revenues from operating activities sufficient to fund operations in the near future. If the Company’s exploration program is successful, additional funds will be required for further exploration to prove economic deposits and to bring such deposits to production. Additional funds may also be required for Pembrook to acquire and explore other mineral interests. Pembrook has limited financial resources and there is no assurance that sufficient additional funding will be available to fulfill its obligations or to further explore and advance its properties on acceptable terms or on any terms at all. Failure to obtain additional funding on a timely basis could result in delay or indefinite postponement of further exploration and property advancement activities and could cause Pembrook to forfeit its interests in some or all of its properties, or to reduce or terminate its operations.

Political or Economic Instability in Countries Where Pembrook Operates

Certain of our properties are located in countries, provinces and states which may be subject to political and economic instability, or unexpected legislative change which may delay or prevent exploration of our properties. Exploration of our properties could be adversely affected by:

• political instability and violence;

• war and civil disturbance;

• labour unrest or community relations issues;

• permitting issues;

• expropriation or nationalization;

• changing fiscal regimes and uncertain regulatory environments;

• changes to royalty and tax regimes;

• underdeveloped industrial and economic infrastructure; and

• the unenforceability of contractual rights and judgments.

Competition

The mineral exploration and mining business is competitive in all of its phases. Pembrook competes with numerous other companies in the search for and the acquisition of attractive mineral properties and individuals, including competitors with greater financial, technical and other resources, in the search for and the acquisition of attractive mineral properties. Pembrook’s ability to acquire properties in the future will depend not only on its ability to advance its present properties, but also on its ability to select and acquire suitable prospects for mineral exploration or advancement. There is no assurance that Pembrook will be able to compete successfully with others in acquiring such prospects. In addition, there is a limited supply of good geological talent and drilling crews and equipment. There is no assurance that Pembrook will be able to acquire the supply of geological talent or drillers, executives or other employees or contractors that are required to complete our exploration work in planned time frames.

Title to Property

Pembrook has taken precautions to ensure that legal titles to its property interests are properly recorded. There can be no assurance that Pembrook will be able to secure the grant or the renewal of exploration permits or other tenures on terms satisfactory to it, or that governments in the jurisdictions in which the properties are situated will not revoke or significantly alter such permits or other tenures or that such permits and tenures will not be challenged or impugned. In addition, some of Pembrook’s properties are held in the names of others. Third parties may have valid claims underlying portions of Pembrook’s interests and the permits or tenures may be subject to prior unregistered agreements or transfers or native land claims and title may be affected by undetected defects. If a title defect exists, it is possible that Pembrook may lose all or part of its interest in the properties to which such defects relate. In addition, Pembrook may fail, due to error, omission, or technological issues to renew its claims in a timely manner, potentially resulting in the loss of valuable claims to property.

Reliance on Third Parties for Critical Services

Pembrook contracts certain activities critical to its operations to third parties. These include drilling owners/operators, expediters, helicopter and other transport providers, surveyors, experts for 43-101 reports, and assay providers. Any failure to secure such contractors, or errors on their part, could result in significant disruption to Pembrook’s operations, or in accidents which could cause safety issues, environmental damage or liabilities to them and to Pembrook. Pembrook cannot currently insure against all these risks.

Environmental Risks and Hazards

All phases of Pembrook’s operations are subject to environmental regulation in the jurisdictions in which the property is located. These regulations mandate, among other things, the maintenance of air and water quality standards and land reclamation, provide for restrictions and prohibitions on spills, releases or emissions of various substances produced in association with certain exploration activities and operations. They also set forth limitations on the generation, transportation, storage and disposal of hazardous waste. A breach of such regulation may result in the imposition of fines and penalties. In addition, certain types of mining operations require the submission and approval of environmental impact assessments. Environmental legislation is evolving in a manner which will require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors and employees. The cost of compliance with changes in governmental regulations has a potential to reduce the viability or profitability of operations. Environmental hazards may exist on the properties in which Pembrook holds interests or on properties that will be acquired which are unknown to Pembrook at present and which have been caused by previous or existing owners or operators of the properties.

Commodity Prices

The price of Pembrook’s securities, its financial results, and exploration, advancement and mining activities may in the future be significantly adversely affected by declines in the price of precious or base minerals. Precious or base minerals prices fluctuate widely and are affected by numerous factors beyond Pembrook’s control such as the sale or purchase of precious or base metal by various dealers, central banks and financial institutions, interest rates,



33

exchange rates, inflation or deflation, currency exchange fluctuation, global and regional supply and demand; production and consumption patterns, speculative activities, increased production due to improved mining and production methods, government regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals, environmental protection and international political and economic trends, conditions and events and specific demand from emerging countries. The price of precious or base metals has fluctuated widely in recent years, and price declines could cause continued advancement of Pembrook’s properties to be impracticable.

In addition to adversely affecting reserve estimates and its financial condition, declining commodity prices can impact operations by requiring a reassessment of the feasibility of a particular project. Such a reassessment may be the result of a management decision or may be required under financing arrangements related to a particular project. Even if the project is ultimately determined to be economically viable, the need to conduct such a reassessment may cause substantial delays or may interrupt operations until the reassessment can be completed.

Price Volatility and Lack of Active Market

Since 2008, the securities markets in Canada and elsewhere have experienced a high level of price and volume volatility, and the market price of securities of many public companies have experienced significant fluctuations. Some of these fluctuations may not necessarily have been related to the operating performance, underlying asset values or prospects of such companies. Any future market for Pembrook’s securities may be subject to such market trends, and the value of such securities may be affected accordingly. There is currently no market through which the securities of Pembrook can be sold and there can be no assurance that one will develop or be sustained. If an active market does not develop, the liquidity of the investment may be limited and the market price of such securities may decline below the subscription price.

Risk Associated with Joint Venture Agreements

Pembrook may, in the future, enter into joint venture arrangements whereby it agrees to co-develop a property with another mining or mineral exploration company. Such agreements may require significant up-front payments or investments over time by Pembrook. These agreements may also be difficult to enforce, could result in significant differences of interpretation with the joint venture partner or could result in the joint venture partner failing to carry out its responsibilities under the contract. This could cause delays, significant diversion of management time and attention, excess costs, litigation, and the eventual dissolution of the joint venture with unsatisfactory results. All of these could delay or hinder ongoing Pembrook projects, or could result in significant financial damage to Pembrook and its shareholders.

Key Executives

Pembrook is and will be dependent on the services of key executives and a small number of highly skilled and experienced geologists, consultants and personnel, whose contributions to the immediate future operations of Pembrook are likely to be of great importance. Locating mineral deposits depends on a number of factors, not the least of which is the technical skill of the exploration personnel involved. Advancing those projects via joint exploration agreement and operating an organization of increasing scale also require certain specialized skills which are in high demand and difficult to acquire. Due to the relatively small size of Pembrook’s staff, the loss of key personnel or Pembrook’s inability to attract and retain additional highly skilled employees and consultants may adversely affect its

business and future operations. In addition, some officers of Pembrook may be hired on a part-time or consultant basis and may therefore not devote all their time solely to Pembrook’s affairs. This could slow or hinder our corporate development.

Potential Conflicts of Interest

Certain directors and officers of the Company are and may continue to be involved in the mining and minerals exploration industry through their direct and indirect participation in corporations, partnerships or joint ventures which are or could become potential competitors of the Company. Situations may arise in connection with potential acquisitions or investments where the other interests of these directors and officers may conflict with the interests of the Company. Directors and officers of the Company with conflicts of interest are subject to the procedures set out in applicable corporate and securities legislation, regulation, rules, policies and Pembrook’s Code of Ethics.

Litigation

Pembrook does not currently have any claims against it, nor does it have any outstanding claims against others. However, in its normal course of business or due to issues which may arise, Pembrook could face legal action in the future. Such actions could result in significant costs of defense, absorption of management time and focus away from the main activities of the business, and potentially significant settlements or payments by the company. Such settlements or payments may, under certain circumstances, result in losses greater than the Company’s ability to pay.

Objectives May Not Be Fulfilled

As a result of the foregoing factors, as well as other factors, Pembrook’s objective of discovering mineral deposits and economic ore-grade mineral bodies may never be realized. If this occurs, the value of Pembrook’s shares may fall.

Dilution

As the Company does not generate operating cash flow and has no current plans to do so, it will need to raise additional funds over a period of time to continue its operations. As a result, shareholders may incur dilution of their percentage holding in the Company.

Nature of the Securities

The purchase of the Company’s securities involves a high degree of risk and should be undertaken only by investors whose financial resources are sufficient to enable them to assume such risks. The Company’s securities should not be purchased by persons who cannot afford the possible loss of their entire investment.

Investment Risk

The Company currently holds its cash and investments with major Canadian banks and financial insitutions. Canadian banks have recently been ranked among the safest in the world by the World Economic Forum. Due to volatility in credit markets and to several international bank failures, the possibility of bank failures in Canada cannot be entirely ruled out. If a bank with which the Company holds deposits or investments fails, and if the Canadian government does not step in to protect the bank, its depositors or creditors, the Company could lose that portion of its cash and investments. Due to the nature of interest-bearing investments, changes in interest rates can significantly affect the return on the investment, if the investment is redeemed before maturity.

MD&A

Forward-Looking StatementsSome of the statements in this MD&A constitute “forward-looking statements” within the meaning of Canadian securities legislation. These forward-looking statements are made as of the date of this MD&A, or in the case of documents incorporated by reference herein, as of the date of such documents and the Company does not intend and does not assume any obligation to update these forward-looking statements. These forward-looking statements represent management’s best judgment based on facts and assumptions that management considers reasonable, including that exploration plans could be disrupted by issues such as weather, community relations issues, disruptions in access to exploration properties, labour disturbances, delayed or refused permits, environmental issues, political issues, mechanical failures of equipment and availability of financing when needed. Management currently is not aware of any material events that may disrupt our exploration plans or budgets. The Company makes no representation that reasonable business people in possession of the same information would reach the same conclusions.

Forward-looking statements include, but are not limited to, statements with respect to the future price of minerals, the timing of exploration plans, timing of drill results, success of exploration activities, permitting time lines, currency fluctuations, government regulation of exploration operations, environmental risks, unanticipated reclamation expenses, prospects for equity financing activities, title or claims disputes and completion of acquisitions and their potential impact on the Company.

In certain cases, forward-looking statements can be identified by the use of words such as “plans”, “expects” or “does not expect,” “is expected,” “budget,” “scheduled,” “estimates,” “forecasts,” “intends,” “anticipates” or “does not anticipate,” or “believes,” or variations of such words and phrases or statements that certain actions, events or results “may,” “could,” “would,” “might” or “will” be taken, “occur” or “be achieved.”

Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such factors include, among others, risks related to: the inherent uncertainties in minerals exploration and development activities; fluctuations in the price of minerals or in currency markets; the uncertainty of mineral resource and reserve estimates; the uncertainty of financing being available when needed; the uncertainty of mining licences or governmental approvals being granted in a timely manner; changes in regulatory requirements; hiring and retaining personnel with the necessary expertise; the failure of equipment or processes to operate as anticipated; material unanticipated variations in budgeted costs; contractors not completing projects according to schedule; accidents, labour disputes and other risks of the mineral exploration industry; as well as other factors discussed in the section entitled “Risk Factors” in this MD&A. Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements.

Accordingly, readers should not place undue reliance on forward-looking statements.

Additional InformationAdditional information relating to Pembrook is available by contacting:

Pembrook Mining Corp. Suite 1160, 1040 West Georgia Street Vancouver, BC, Canada V6E 4H1 Office 778 327 6540 Fax 778 327 6546 General Inquiries: [email protected] Website: www.pembrookmining.com

34

2010 Annual Report


Brian Booth President & Chief Executive Officer

April Hashimoto Chief Financial Officer


35

Independent Auditor’s Report

To the Shareholders of Pembrook Mining Corp.

We have audited the accompanying consolidated financial statements of Pembrook Mining Corp., which comprise the consolidated balance sheet as at December 31, 2010, and the consolidated statements of loss and comprehensive loss, statements of equity, and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Canadian generally accepted accounting principles, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Pembrook Mining Corp. as at December 31, 2010, and the results of its operations and its cash flows for the year then ended in accordance with Canadian generally accepted accounting principles.

Emphasis of Matter

Without qualifying our opinion, we draw attention to Note 1 in the financial statements which indicates that the Company incurred a net loss of $9,588,916 during the year ended December 31, 2010. This condition, along with other matters as set forth in Note 1, indicates the existence of material uncertainties that may cast significant doubt about the Company’s ability to continue as a going concern.

Chartered AccountantsMarch 30, 2011

Vancouver, British Columbia

36

2010 Annual Report

Stephen Kurtz, Director Brian Booth, Director

Approved by the Board of Directors

The accompanying notes are an integral part of these financial statements

Consolidated Balance SheetsAn exploration stage companyAs at December 31

2010 2009

$ $

AssetsCurrent Assets

Cash and cash equivalents 20,196,991 21,180,929

Accounts receivable and accrued interest 238,587 109,306

Mineral exploration tax credit receivable (Note 5) – 19,507

Deposits 125,000 125,000

Prepaid expenses 449,721 96,314

21,055,299 21,531,056

Reclamation Deposits 58,750 53,750

Investment (Note 3) 500,000 –

Property and Equipment (Note 4) 433,762 350,378

Investment in Paget Minerals Corp. (Note 8) 1,390,887 962,237

Mineral Properties (Notes 5 and 17) 21,740,443 13,209,399

45,179,141 36,106,820

LiabilitiesCurrent Liabilities

Accounts payable and accrued liabilities 914,136 380,809

Capital lease obligation – current portion 5,141 11,630

Lease inducement – current portion 12,516 12,516

931,793 404,955

Capital Lease Obligation 18,285 24,424

Lease Inducement 9,387 21,903

Asset Retirement Obligations (Note 6) 69,718 63,227

1,029,183 514,509

Shareholders’ EquityShare Capital (Note 7) 62,129,182 45,783,386

Contributed Surplus 5,592,815 3,982,048

Accumulated Other Comprehensive Income 190,000 –

Deficit (23,762,039) (14,173,123)

(23,762,039) (14,173,123)

44,149,958 35,592,311

45,179,141 36,106,820

Commitments (Note 11)Subsequent Events (Note 17)


37

Consolidated Statements of Loss and Comprehensive LossAn exploration stage company

For the periods ended December 31, 2009 and 2010




$ $

Operating and Administrative ExpensesGeneral exploration 2,085,768 1,384,140

Write-off of mineral property costs (Notes 5 and 17) 1,965,002 247,411

Recovery of mineral property costs (40,451) (39,407)

General and administration 3,951,449 1,980,222

Amortization and accretion 167,024 84,471

Stock-based compensation (Note 7d) 1,698,250 1,425,110

Loss Before Other Items (9,827,042) (5,081,947)

Other ItemsLoss on equity investment (Note 8) (307,932) (226,692)

Gain on dilution of investment (Note 8) 561,361 190,890

Loss on disposal of property, plant and equipment (8,763)

Foreign exchange loss (161,560) (300,071)

Interest income 155,020 65,870

Loss Before Income Taxes (9,588,916) (5,351,950)

Future income tax recovery – 599,086

Net Loss (9,588,916) (4,752,864)

Other Comprehensive Income

Unrealized gain on available-for-sale investment (Note 3) 190,000 –

Comprehensive Loss (9,339,916) (4,752,864)

Basic and Diluted Loss per Share (0.08) (0.05)

Weighted Average Shares Outstanding During the Period 115,047,581 104,854,060

38

2010 Annual Report

Consolidated Statements of EquityAn exploration stage companyFor the periods ended December 31, 2009 and 2010


Share capital common sharesContributed

surplus

Accumulated other

comprehensive loss Deficit Total

Number $ $ $ $ $

Balance – Feb 28, 2009 102,514,646 33,369,186 2,556,938 – (9,420,259) 26,505,865

Private placement for cash 6,896,777 12,414,200 – – – 12,414,200

Stock-based compensation – – 1,425,110 – – 1,425,110

Loss for the period – – – – (4,752,864) (4,752,864)

Balance – Dec 31, 2009 109,411,423 45,783,386 3,982,048 – (14,173,123) 35,592,311

Private placement for cash 8,054,800 16,109,600 – – – 16,109,600

Share issuance costs – (9,620) – – – (9,620)

Issuance of shares for: Exercise of options 316,666 158,333 – – – 158,333

Shares issued for cash – options exercised – 87,483 (87,483) – – –

Stock-based compensation – – 1,698,250 – – 1,698,250

Loss for the period – – – – (9,588,916) (9,588,916)

Other comprehensive loss – – – 190,000 – 190,000

Balance – Dec 31, 2010 117,782,889 62,129,182 5,592,815 190,000 (23,762,039) 44,149,958


39

Consolidated Statements of Cash FlowsAn exploration stage company

For the periods ended December 31, 2009 and 2010




$ $

Operating ActivitiesNet Loss for the Period (9,588,916) (4,752,864)

Adjustments for non-cash items

Write-off of mineral property costs 1,965,002 247,411

Recovery of mineral property costs (40,451) (39,407)

Loss on equity investment 307,932 226,692

Gain on dilution of investment (561,361) (190,890)

Loss on disposal of property, plant and equipment 8,763 –

Amortization and accretion 167,024 84,471

Stock-based compensation 1,698,250 1,425,110

Unrealized foreign exchange loss 124,206 363,176

Future income tax recovery – (599,086)

(5,919,551) (3,235,387)

Changes in non-cash working capital

Accounts receivable (174,031) (52,274)

Mineral exploration tax credit receivable 19,507 (19,507)

Prepaid expenses (353,407) 491

Deposits and reclamation deposits (5,000) (10,000)

Accounts payable and accrued liabilities 315,974 235,391

(6,116,508) (3,081,286)

Investing ActivitiesMineral property costs (10,723,464) (3,637,808)

Purchase of property, plant and equipment (252,929) (33,125)

(10,976,393) (3,670,933)

Financing ActivitiesNet proceeds on share issuances 16,258,313 12,414,200

Payment on capital lease obligation (12,628) (21,084)

Payment for lease inducement (12,516) –

16,233,169 12,393,116

Effect of exchange rate change on cash and cash equivalents (124,206) (63,105)

Change in Cash and Cash Equivalents (983,938) 5,577,792

Cash and Cash Equivalents – Beginning of Period 21,180,929 15,603,137

Cash and Cash Equivalents – End of Period 20,196,991 21,180,929

Supplemental Cash Flow Information (Note 12)

40

2010 Annual Report

Notes to the Consolidated Financial StatementsAn exploration stage companyDecember 31, 2010

1. Nature of Operations and Going ConcernPembrook Mining Corp. (the “Company” or “Pembrook”) is incorporated under the laws of British Columbia. In March 2009, the Company changed to a fiscal year-end of December 31. The Company’s prior fiscal-year end was February 28, 2009. Hence, the comparative period covers the ten month period from March 1, 2009 to December 31, 2009.

Pembrook is a minerals exploration company engaged in the identification, acquisition, evaluation and advancement of mineral properties in Peru, Mexico and Canada. The Company is exploring for copper, gold, silver, nickel and other minerals. At present, none of the Company’s mineral properties are at a commercial development or production stage. The Company’s objective is to discover mineral deposits and either sell, option, joint venture or otherwise participate in their development.

The recoverability of the amounts shown for mineral properties is dependent upon the discovery of economically recoverable reserves, the ability of the Company to obtain necessary financing to advance the properties, and attaining future profitable production from the properties or proceeds from disposition.

The Company’s continuing operations are dependent upon its ability to secure additional equity capital, divest assets or generate cash flow from operations in the future, none of which are assured. These consolidated financial statements have been prepared on a going concern basis and do not include any adjustments relating to the recoverability and classification of recorded assets and liabilities that might be necessary should the Company be unable to secure additional equity capital or generate sufficient cash to continue operations in the future.

2. Significant Accounting Policies

(a) Principles of consolidation

These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries Pembrook Offshore Inc. (BVI), Pembrook Peru Corp. (BVI), Compania de Exploraciones Orion S.A.C. (Peru), Paget Resources Corporation, and Paget Southern Resources S. de R.L. de C.V. (Mexico). Intercompany balances and transactions have been eliminated. Effective December 31, 2009, Paget Resources Corporation vertically amalgamated with Pembrook, its parent company, and Pembrook is the continuing entity.

(b) Cash and cash equivalents

Cash and cash equivalents consist of cash and short-term deposits with an original maturity of three months or less. The Company holds cash balances at major Canadian financial institutions. Cash is carried at fair value, which approximates cost due to the short-term nature of the instrument.

(c) Mineral properties

The Company capitalizes acquisition, exploration and development expenditures directly related to specific mineral projects or an area of interest, until such time as the extent of mineralization has been determined and mineral deposits are either developed or the Company’s mineral rights will be allowed to lapse. At that time, the cost will either be written off or amortized over the expected life of the ore body. The Company capitalizes costs incurred on properties held through property option agreements, where the Company is acquiring or has acquired an ownership interest in the property. Costs incurred by other parties who are earning an ownership interest in a property held by the Company through an option agreement are not recognized by the Company.

General exploration expenditures that are not directly related to specific mining properties are expensed in the period in which they are incurred.

Title to resource properties involves inherent risks due to the difficulties of determining the validity of certain claims as well as the potential for problems arising from the title history of certain resource properties. To the best of its knowledge, titles to all of the Company’s properties are in good standing or in the process of being granted on an uncontested basis.

(d) Property and equipment

The Company uses the following rates for amortization:

• Field and computer equipment on a declining balance basis at 25% to 30%

• Vehicles on a declining balance basis at 20% to 30%

• Equipment under capital lease on a declining balance basis at 30%

• Leasehold improvements on a straight-line basis over the initial term of lease

• Furniture and fixtures on a declining balance basis at 10% to 20%

• Software on a declining balance basis at 20% to 100%

(e) Impairment of long-lived assets

The Company assesses the impairment of long-lived assets, which consist primarily of property, equipment and mineral property costs, whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying value of the asset to its fair value. If such assets are considered to be impaired, the amount of the impairment is measured by the amount by which the carrying amount of the asset exceeds its fair value. The amount of the impairment is charged to income in the period in which the impairment is determined.

(f) Loss per share

Basic loss per share is computed by dividing the loss available to common shareholders by the weighted average number of common shares outstanding during the year. The computation of diluted earnings per share assumes the conversion, exercise or contingent issuance of securities only when such conversion, exercise or issuance would have a dilutive effect. The dilutive effect of outstanding options and warrants and their equivalents is reflected by application of the treasury stock method. The treasury stock method assumes that the options and/or warrants are exercised at the beginning of the year (or issue date if later) and the proceeds are used to repurchase outstanding shares of common stock. In all periods presented, diluted loss per share is not presented, as it is anti-dilutive.

(g) Use of estimates

The preparation of financial statements in conformity with Canadian generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates and would impact future results of operations and cash flows. Significant estimates include stock-based compensation, amortization, asset retirement obligations, valuation of mineral property costs and future income tax liabilities and provisions.


41

Notes

(h) Income taxes

Income taxes are calculated using the asset and liability method of accounting. Temporary differences arising from the difference between the tax basis of an asset or liability and its carrying amount on the balance sheet are used to calculate future income tax assets or liabilities. Future income tax assets or liabilities are calculated using substantively enacted tax rates that will apply in the periods that the temporary differences are expected to reverse. To the extent that the Company does not consider it more likely than not that a future tax asset will be recovered, it provides a valuation allowance against the excess.

(i) Asset retirement obligation

The Company recognizes contractual, statutory and legal obligations associated with retirement of mineral exploration properties when those obligations result from the acquisition, exploration and advancement of the assets. Initially, an asset retirement obligation liability is recognized at its fair value in the period in which it is incurred, with a corresponding asset retirement cost added to the carrying amount of the asset. The cost is amortized annually as an expense over the estimated economic life of the related asset. Following the initial recognition of the asset retirement obligation, the carrying amount of the liability is increased for the passage of time and adjusted for changes to the amount or timing of the underlying cash flows to settle the obligation with the corresponding change in the asset retirement cost added to the carrying amount of the asset.

(j) Stock-based compensation

All stock-based awards made to employees, non-employees and directors are measured and recognized using a fair-value based method. The fair value of the options at the date of grant is charged to operations, with the offsetting credit to contributed surplus, on a straight-line basis over the vesting period. If and when the stock options are ultimately exercised, the applicable amounts of contributed surplus are transferred to share capital. If any stock options are forfeited, no further expense is recognized from the date of forfeiture.

(k) Deferred lease inducement

The Company received lease inducements for office space which are being amortized on a straight-line basis over the term of the lease. The lease inducements are recorded as a reduction of rent expense and will be fully amortized in 2012.

(l) Foreign currency translation and transactions

The Company’s foreign operations are integrated and have a functional currency of the Canadian dollar. Foreign currency transactions are booked into the functional currency at the exchange rate on the transaction date. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rate prevailing on the balance sheet date. Gains and losses arising on translation are included in profit or loss for the period.

(m) Financial instruments

The Company classifies its financial instruments into one of the following categories: held-for-trading (assets and liabilities), assets available-for-sale, loans and receivables, assets held-to-maturity and other financial liabilities. All financial instruments are measured at fair value on initial recognition. Measurement in subsequent periods depends on the classification of the financial instrument. Financial assets and liabilities “held-for-trading” are subsequently measured at fair value with changes in fair value recognized in net income. Financial assets

designated as “available-for-sale” are subsequently measured at fair value with changes in fair value recognized in other comprehensive income, net of tax. Financial assets designated as “held-to-maturity,” “loans and receivables” and “other financial liabilities” are recorded at amortized cost using the effective interest rate method.

Cash and cash equivalents are classified as held-for-trading and are carried at fair value. Accounts receivable and certain other assets that are financial instruments are classified as loans and receivables. Accounts payable and accrued liabilites are classified as other financial liabilities.

(n) Current year accounting policy adoptions

1) In March 2009, the Canadian Institute of Chartered Accountants (“CICA”) issued Section 1582 “Business Combinations”, Section 1601 “Consoli-dated Financial Statements” and Section 1602 “Non-Controlling Interests” to replace Section 1581 and Section 1600. These sections shall be applied prospectively to business combinations on or after the effective date of January 1, 2011 with earlier application permitted. These standards establish updated principles on the recognition, measurement criteria and presenta-tion for acquisitions, the accounting for assets and liabilities assumed and non-controlling interests. On January 1, 2010, the Company adopted these new standards which had no material impact on the Company’s consolidated financial statements.

2) In December 2009, the CICA issued EIC Abstract 175 “Multiple Deliverable Revenue Arrangements” (“EIC-175”) requiring a vendor to allocate arrange-ment consideration at the inception of an arrangement to all deliverables using the relative selling price method. It also changes the level of evidence of the standalone selling price required to separate deliverables when more objective evidence of the selling price is not available. Given the requirement to use the relative selling price method of allocating arrangement consider-ation, it prohibits the use of the residual method. EIC-175 may be applied prospectively and should be applied to revenue arrangements with multiple deliverables entered into or materially modified in the first annual fiscal period beginning on or after January 1, 2011 with early adoption permitted. The implementation of this standard did not have a material impact on the Company’s consolidated financial statements.

(o) Transition to International Financial Reporting Standards (“IFRS”)

Canadian public companies are required to prepare their financial statements in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board, for financial years beginning on or after January 1, 2011 (“Changeover Date”). Effective January 1, 2011, the Company will adopt IFRS as the basis for preparing its consolidated financial statements. The Company will issue its financial results for the quarter ended March 31, 2011 prepared on an IFRS basis and provide comparative data on an IFRS basis as required.

3. Investment

Dec 31, 2010 Dec 31, 2009

$ $

Marketable securities:

Common shares in Zincore Metals Inc. 500,000 –

42

2010 Annual Report

During the year ended December 31, 2010, the Company received 1,000,000 common shares of Zincore Metals Inc. (“Zincore”), a Canadian company listed on the Toronto Stock Exchange (“TSX”), valued at $310,000, in connection with an option agreement whereby Zincore could acquire a 100% interest in the Company’s Sajapampa property in Peru and the Cariboo property in British Columbia, Canada (Note 5).

The Company classifies its investment as available-for-sale, with mark-to-market gains and losses recognized in accumulated other comprehensive income. If a loss is other than temporary, an impairment is recognized through the statement of loss and comprehensive loss in the period. As at December 31, 2010, the investment had a fair market value of $500,000, resulting in an unrealized gain of $190,000 recognized in other comprehensive income during the year ended December 31, 2010.

4. Property and Equipment

5. Mineral PropertiesAs of December 31, 2010, the Company held a portfolio of properties located in Peru, Canada and Mexico.

Note 17 of the consolidated financial statements summarizes the amounts capitalized to the Company’s mineral properties.

During the year ended December 31, 2010, the Company determined that further exploration work on 19 properties was not warranted and recorded a write-off of $1,965,002 (ten month period ended December 31, 2009 -16 properties written off totaling $247,411).

During the year ended December 31, 2010, the Company received notice that its claim for the Mineral Exploration Tax Credit (“METC”) for exploration work in British Columbia for the December 31, 2009 taxation year had been approved in the amount of $41,152. The $41,152 and the $19,507 receivable at December 31, 2009 were received during 2010.

For properties which had been written off prior to receiving the METC refund, the corresponding credit is to recovery of mineral property costs in the statement of operations.

Existing Property Option Agreements

The Company has previously entered into various acquisition agreements for properties which have optional cash payments and exploration commitments required by specific dates, as follows:

Lidia

On June 24, 2008, Pembrook signed an option agreement for the Lidia property in Peru, with Andes Mineros S.A. Under the terms of the agreement, Pembrook has the option to acquire a 100% interest in the property, subject to a 2% Net Smelter Royalty (“NSR”) by paying US$550,000 as follows:

• Completing a payment of US$60,000 (paid) on execution of the agreement;

• Completing a payment of US$20,000 (paid) on the three month anniversary;

• Completing a payment of US$20,000 (paid) on the six month anniversary;

• Completing a payment of US$20,000 (paid) on the one year anniversary;

• Completing a payment of US$80,000 (paid) on the two year anniversary;

• Completing a payment of US$100,000 on the third year anniversary; and

• Completing a payment of US$250,000 on the fourth year anniversary.

The 2% NSR can be reduced to 1% if the Company makes a US$1,000,000 payment to Andes Mineros. In addition, advance royalty payments of US$35,000 must be made annually commencing on June 24, 2013 until the earlier of the passage of ten years or commencement of production.

Viruna

On May 2, 2008, Pembrook signed an option agreement for the Viruna property in Peru. Under the terms of the agreement Pembrook has an option to acquire a 100% interest by making payments totalling US$300,000 as follows:

• Completing payments of US$15,000 (paid) upon execution of the agreement;

• Completing payments of US$96,000 ($2,000 per month for 48 months from June 2008 to May 2012) ($62,000 paid to December 31, 2010);

• Completing payments of US$189,000 on the five year anniversary.

San Cipriano

On October 13, 2009, Pembrook signed an option agreement for the San Cipriano property in Peru, with Minsur S.A. (“Minsur”), a Peruvian company listed on the Lima Stock Exchange. Pembrook has an option to purchase a 51% interest in the property by:

• Completing exploration spending of US$150,000 in year one (spent), US$350,000 in year two, US$500,000 in year three and US$1,000,000 in year four;

• Completing diamond drilling of at least 1,500 metres by the second anniversary (1,375 metres drilled at December 31, 2010); and

• To exercise this option, before the fourth anniversary paying an additional US$1,000,000.

The agreement contains a second option by which Pembrook can increase its holdings to 75%, by:

• Completing a pre-feasibility study by the third anniversary of exercising the first option; and


Dec 31, 2010 Dec 31, 2009

CostAccumulated amortization

Net book value Cost

Accumulated amortization

Net book value

$ $ $ $ $ $

Field and computer equipment 296,404 148,010 148,394 186,531 82,939 103,592

Vehicles 235,728 93,733 141,995 161,556 63,951 97,605

Equipment under capital lease 32,057 11,861 20,196 80,115 19,727 60,388

Leasehold improvements 146,820 67,465 79,355 87,185 35,876 51,309

Furniture and fixtures 59,120 22,524 36,596 39,754 16,723 23,031

Software 44,471 37,245 7,226 36,985 22,532 14,453

814,600 380,838 433,762 592,126 241,748 350,378


43

• Spending at least US$15,000,000 for exploration and the production of the pre-feasibility study by the seventh anniversary of the agreement.

Tambo

On June 12, 2009, the Company granted an option to Minera Oro Vega S.A.C. (“Oro Vega”), a subsidiary of International Minerals Corporation (“IMC”) regarding the Company’s Tambo property in southern Peru. Under terms of the agreement, Oro Vega could earn a 50% interest in the property, by completing 10,500 metres of diamond drilling over 40 months. Oro Vega could acquire a further 10% interest in the property by completing a pre-feasibility study within a further three years. If Oro Vega did not elect to earn the additional interest, Pembrook would have the right to acquire an additional 10% interest on the same terms. On January 31, 2011, Oro Vega terminated the option agreement and returned the Tambo property to the Company. Pembrook is currently seeking new partners for the advancement of this property.

La Golda

On November 13, 2009, the Company signed an option agreement with Rio Tinto Peru Mining and Exploration S.A.C. (“Rio Tinto”) to acquire the La Golda property in Peru. The Company could earn 100% of the La Golda property by making payments and exploration expenditures of:

• On signing: US$125,000 (paid);

• On or before the first anniversary: paying an additional US$150,000 and completing 2,000 metres of drilling;

• On or before the second anniversary: paying an additional US$250,000 and completing an additional 2,500 metres of drilling;

• On or before the third anniversary: paying an additional US$500,000 and completing an additional 3,500 metres of drilling; and

• On or before the fourth anniversary: paying an additional US$1,000,000 and completing an additional 4,000 metres of drilling.

In addition Rio Tinto retained an option to buy back a 60% interest in the property under certain conditions. Prior to the first anniversary, in September 2010, the Company terminated this option agreement, returned the property to Rio Tinto and wrote off the total amount capitalized for the property.

Jacala

On November 24, 2009, the Company signed an option agreement for the Jacala property in Mexico with a third party individual. The Company had an option to purchase a 100% interest in the property by:

• Completing payments of US$50,000 (paid) on execution of the agreement;

• On or before the first anniversary, paying an additional US$150,000 and completing 2,000 metres of drilling;

• On or before the second anniversary paying an additional US$300,000;

• Drilling an additional 10,000 metres between the first and third anniversary; and

• On or before the third anniversary paying an additional US$1,500,000.

The property was subject to a 2% NSR, which could be reduced to 1% if the Company made a US$1,000,000 payment to the third party.

Prior to the first anniversary, in September 2010, the Company terminated the option agreement, returned the property to its owner and wrote off the total amount capitalized for the project.

New Property Option Agreements during 2010

Viento

On January 11, 2010, the Company signed an option agreement with Geoandina Minerals S.A.C. (“Geoandina”), a private Peruvian company, for the Viento property in Peru. The Company has an option to acquire a 100% interest, subject to a 1% NSR, in the project by completing payments of:

• US$50,000 (paid) on signing;

• US$150,000 (paid on December 7, 2010) at the time the community agreement is finalized (which established the anniversary date for future requirements);

• US$300,000 on the first anniversary;

• US$500,000 on the second anniversary;

• US$1,000,000 on the third anniversary; and

• US$3,000,000 on the fourth anniversary.

In addition, in order to exercise the option, the Company is required to produce a pre-feasibility study by the end of the seventh anniversary. Geoandina may receive a bonus payment by the end of the seventh anniversary based on the resource estimate from a pre-feasibility study. The Company will be required to pay:

• US$5,000,000 if the resource identified is between 200,000 and 500,000 metric tonnes with a minimum copper equivalent grade of 0.5% copper; or

• US$10,000,000 for a resource over 500,000 metric tonnes with a minimum copper equivalent grade of 0.5% copper; or

• If the Company has not completed a pre-feasibility study by the end of seventh anniversary, a bonus payment of US$10,000,000 to Geoandina will be required or the option expires.

On October 4, 2010 (the “agreement day”), the Company signed an option agreement with Adelina Cordova Gaona (“Adelina”), a private Peruvian company, for the additional claims at the Viento property in Peru. The Company has an option to acquire a 100% interest in the project by completing payments of:

• US$24,000 (paid) on signing;

• US$25,000 six months after the agreement day;

• US$25,000 on the first anniversary;

• US$30,000 eighteen months after the agreement day;

• US$30,000 on the second anniversary;

• US$75,000 on the third anniversary; and

• US$290,000 on the fourth anniversary.

Sajapampa and Cariboo

On January 15, 2010, the Company entered into an agreement with Zincore, whereby Zincore can acquire a 100% interest in the Sajapampa property in Peru and the Cariboo property in British Columbia, Canada. Zincore has two directors in common with the Company and is considered a related party. In order to acquire

Notes

44

2010 Annual Report

one or both of the projects, Zincore is required to issue to the Company 5,000,000 common shares over three years, and spend a total of $875,815 on the properties prior to the first anniversary of the agreement ($480,815 on Cariboo, $395,000 on Sajapampa).

The shares are deliverable as follows:

• 1,000,000 on signing (received)

• 1,000,000 by the first and second anniversaries;

• 2,000,000 by the third anniversary; and

• The expenditure requirement on the Cariboo property can be extended by one year if Zincore issues an additional 500,000 common shares to the Company.

Pembrook will retain a 2% NSR and Zincore has an option to reduce the NSR to 1% for $1,500,000.

During the first quarter of 2010, the Company received 1,000,000 common shares of Zincore valued at $310,000 in connection with this option agreement. The Company recorded $186,000 as a recovery of Cariboo property costs and $124,000 to Sajapampa.

On July 29, 2010, Zincore notified the Company that it was invoking force majeure under the agreement due to new limitations placed on the drilling permit for Cariboo property by government authorities in July 2010. The Company is negotiating with the government authorities to satisfactorily resolve the matter. As a result, all of Zincore’s spending obligations on the Cariboo property under the agreement were indefinitely suspended as of that date.

On December 14, 2010, Zincore requested an extension of the first anniversary date to May 12, 2011 due to delays in getting drill rigs to the Sajapampa property. The Company agreed to the extension thereby giving Zincore until May 12, 2011 to meet its work commitments on the Sajapampa project and extending the date for the issue of 1,000,000 shares on the first anniversary date to May 12, 2011.

On March 10, 2011, Zincore notified the Company that it had met its spending commitments for the first year for the Sajapampa property and provided notice of its decision to terminate the agreement. The Company provided written acceptance of this notice and upon receipt of Zincore’s exploration report on Sajapampa will evaluate its options for the property.

Unigransa

On June 3, 2010, the Company signed an option agreement for the Unigransa property in Peru with Universo Grandioso S.A. The Company has an option to purchase a 100% interest in the property by:

• Completing payments of US$11,250 (paid) on execution of the agreement;

• Completing payments of US$11,250 (paid) on successful permitting;

• On or before the first anniversary paying an additional US$27,500;

• On or before the second anniversary paying an additional US$50,000; and

• On or before the third anniversary paying an additional US$100,000.

The property is subject to a 2% NSR, which can be reduced to 1% by paying US$400,000 to the holder of the NSR. In addition, the property is subject to an advance NSR payment of US$20,000 starting on the 4th anniversary of the agreement for 10 years or until production commences, which is credited against the actual NSR payments, if any are incurred. Prior to the first anniversary, in December 2010, the Company terminated the option agreement, returned the property to the owner and wrote off the total amount capitalized of $99,790.


Additional Lidia Claims

On April 29, 2010, the Company signed an option agreement for certain claim blocks in Peru which are adjacent to the Lidia property. The Company will acquire a 100% interest in the property by completing a payment of US$50,000 (paid) on signing of the agreement and US$50,000 (paid) on registration of the agreement with the Peruvian authorities

On July 12, 2010, the Company signed an option agreement for additional Lidia claims in Peru with Compania Minera Ares S.A.C. The Company has an option to purchase a 100% interest in the property by completing payments of US$23,105 on execution of the agreement (paid).

The property is subject to an escalating NSR as follows:

• 1% NSR if less than 100,000 ounces proven resources of gold;

• 2% NSR if between 100,000 and 249,999 ounces proven reserves of gold;

• 3% NSR if between 250,000 and 749,999 ounces proven reserves of gold;

• 3.5% NSR if more than 750,000 ounces proven reserves of gold;

• 1.5% NSR on copper extractions; and

• Advance NSR payments of US$26,895 on the first anniversary of the signing of the agreement and US$50,000 per year for ten years commencing on the second anniversary, all to be credited against the actual NSR payments, if any are incurred.

6. Asset Retirement ObligationsThe Company’s asset retirement obligations consist of reclamation and retirement obligations for exploration projects. The Company has recorded asset retirement obligations as follows:

The total undiscounted amount of estimated future cash flows required to settle the asset retirement obligations at the Ball Creek property is $87,028 (December 31, 2009 – $87,028), which has been inflated at an annual rate of 2.0% and has been discounted using an estimated credit-adjusted risk-free rate of 10%. All asset retirement obligations are expected to be paid several years in the future and are intended to be funded from cash balances at the time.

The amounts and timing of actual payments will depend on several factors including exploration success and alternative exploration plans.

7. Share Capital

(a) Authorized and issued

Unlimited number of common shares without par value authorized.

During the ten month period ended December 31, 2009, the Company closed a private placement of 6,896,777 common shares at $1.80 per share for proceeds of $12,414,200.

Dec 31, 2010 Dec 31, 2009

$ $

Obligations, beginning of period 63,227 16,672

Additions and revisions in estimates – 42,243

Accretion 6,491 4,312

Obligations, end of period 69,718 63,227


45

During the year ended December 31, 2010, the Company issued 316,666 common shares on the exercise of stock options at $0.50 per share for cash proceeds of $158,333, with $87,483 of contributed surplus transferred to common shares.

During the year ended December 31, 2010, the Company closed a private placement of 8,054,800 common shares at $2.00 per share for proceeds of $16,099,980.

(b) Stock option plan

Under the Company’s Stock Option Plan (the “Plan”), a maximum of 10% of the Company’s issued and outstanding common shares (or 11,778,288 shares as of December 31, 2010) can be issued. A total of 10,470,914 options to purchase common shares are currently outstanding under the Plan.

In addition, the number of shares which may be reserved for issuance to any one individual may not exceed 5% of the issued shares on a yearly basis or 2% if the optionee is engaged in investor relations activities or is a consultant.

(c) Stock options

A summary of the Company’s outstanding options is as follows:

Notes

As at December 31, 2010, the Company had stock options outstanding at the following exercise prices:

The stock options were granted with five year lives. In the future, should the Company list on a Canadian Stock Exchange, the options will be given five year lives from the date of listing (with regulatory approval), unless the options have expired prior to any such listing.

(d) Stock-based compensation

The fair value of each option grant during the current year was estimated on the date of grant using the Black-Scholes option pricing model, with the following weighted average assumptions:

During the year ended December 31, 2010, the Company recorded $1,698,250 (ten month period ended December 31, 2009 – $1,425,110) of stock-based compensation expense.

Option pricing models require the input of highly subjective assumptions, including expected price volatility. The estimated price volatility for Pembrook’s options was estimated by evaluating the volatility of a basket of five similar exploration company stocks listed on the Toronto Stock Exchange – Venture Exchange (“TSX-V”). Changes in the subjective input assumptions used in the Black-Scholes option pricing model can materially affect the fair value estimate. The weighted average fair value of options granted during the year ended December 31, 2010 was $1.16 (ten months ended December 31, 2009 – $1.71).

8. Investment in Paget Minerals Corp.Effective July 15, 2007, the Company transferred four properties and the option rights to a fifth property to a wholly owned subsidiary, Paget Minerals Corp. (“Paget Minerals”), formerly named Paget Moly Corporation. In exchange for these properties, the Company received 10,000,000 common shares of Paget Minerals.

Paget Minerals subsequently raised capital via private placements, diluting Pembrook’s equity ownership to 38.5%. As a result, the Company no longer was in control of Paget Minerals, effective June 1, 2008, and ceased recording the results of operations and financial position of Paget Minerals on a consolidated basis. Instead, Pembrook commenced accounting for its investment in Paget Minerals using the equity method. On commencement of equity accounting, Pembrook derecognized cash of $1,609,974 and net assets (excluding cash) of $106,281 of Paget Minerals.

As a result of additional financings by Paget Minerals in 2009 and 2010 in which Pembrook did not participate, the Company’s ownership percentage in Paget Minerals was reduced to 26.7% and 19.8% as at December 31, 2009 and 2010

Options granted during the year ended December 31, 2010:

Number of optionsWeighted average

exercise price

$

Balance, Feb 28, 2009 9,322,750 0.86

Granted 1,283,000 1.78

Forfeitures (366,334) 1.07

Balance, Dec 31, 2009 10,239,416 0.97

Granted 790,000 1.96

Exercised (316,666) 0.50

Forfeitures (241,836) 1.30

Balance, Dec 31, 2010 10,470,914 1.05

Number of options currently exercisable 8,556,577 0.87

Exercise price

Number of options

outstanding

Weighted average remaining life of

outstanding options

Number of options

exercisable

Weighted average remaining life of

exercisable options

$ (years) (years)

0.50 4,650,000 0.7 4,650,000 0.7

0.75 806,750 1.5 806,750 1.5

1.00 845,000 1.3 845,000 1.3

1.25 640,000 2.0 586,665 2.0

1.75 1,880,164 2.7 1,366,333 2.7

1.80 1,024,000 3.9 301,829 3.8

2.00 625,000 4.7 – 4.5

10,470,914 1.8 8,556,577 1.3

Grant date Number Exercise price Expiry date

$

Jan 1, 2010 20,000 1.80 Jan 1, 2015Feb 18, 2010 145,000 1.80 Feb 18, 2015Apr 6, 2010 25,000 2.00 Apr 5, 2015Apr 14, 2010 100,000 2.00 Apr 13, 2015Sep 1, 2010 300,000 2.00 Aug 31, 2015Dec 1, 2010 200,000 2.00 Nov 30, 2015

790,000



Risk-free interest rate 2.2% 2.5%

Expected dividend yield – –

Expected stock price volatility 70% 132%

Expected forfeiture rate 4.3% –

Expected option life in years 5 years 5 years

46

2010 Annual Report

respectively. Subsequent to December 31, 2010, Paget Minerals completed a private placement in which Pembrook did not participate with the effect of reducing Pembrook’s investment in Paget Minerals to 16.5%. Pembrook remains the largest shareholder of Paget Minerals.

In 2009, the Company transferred eleven properties with a book value (which approximated market value) of $336,945, to Paget Minerals as additional consideration for the 10,000,000 common shares. In addition, the Company transferred the Mt. Dunn property to Paget Minerals with a book value (which approximated market value) of $33,295, as additional consideration for the 10,000,000 common shares. The book value of these twelve properties was added to the cost of the Company’s investment in Paget Minerals.

On June 2, 2010, the Company completed the transfer to Paget Minerals of 100% of the Mt. Bisson, Slam, Fae, Xeno and Icy Lake properties which had a combined carrying value of $175,221, in exchange for 1,875,000 shares of Paget Minerals.

The Company recognized a loss on equity investment in Paget Minerals of $307,932 and a gain on dilution of $561,361 for the year ended December 31, 2010 (equity losses of $226,692 and dilution gains of $190,890 for the ten month period ended December 31, 2009).

The Company’s investment in Paget Minerals at December 31, 2010, was as follows:

The Company shareholding of 11,975,000 common shares of Paget Minerals represents 19.8% of the outstanding shares of Paget Minerals at December 31, 2010. The Company has determined that its investment in Paget Minerals is not impaired because its investment basis is $0.10 per share, and at December 31, 2010, the market price was $0.21 per share. If the Company were to attempt to sell the entire investment, or a significant portion thereof, into the market over a short period of time, it is likely that the proceeds would be below the market price. The shares are held under an escrow agreement which releases the shares over 36 months as follows:

9. Income TaxesThe significant components of future income tax assets (liabilities) are as follows:

The Company has non-capital losses that may be carried forward to offset future income taxes of $8.2 million in Canada, $6.6 million in Peru and $2.5 million in Mexico. These losses expire in Canada from 2025-2030, in Peru from 2011-2014 and in Mexico from 2017-2020.

In addition, the Company has capital losses in Canada of $2.1 million that can be carried forward indefinitely to offset future capital gains.

Income tax recovery differs from that which would be expected from applying the statutory Canadian income tax rate of 28.5% (December 31, 2009 – 30%) to net loss as follows:

10. Related Party Transactions

Consolidated Balance Sheets

The following amounts were due to/from companies that have directors in common with the Company or have a Partner who is a director of the Company:


$

Balance, Feb 28, 2009 964,744

Equity loss – Mar 1, 2009 to Dec 31, 2009 (226,692)

Gain on dilution – Mar 1, 2009 to Dec 31, 2009 190,890

Transfer of one mineral property 33,295

Balance, Dec 31, 2009 962,237

Equity loss – Jan 1, 2010 to Dec 31, 2010 (307,932)

Gain on dilution – Jan 1, 2010 to Dec 31, 2010 561,361

Transfer of five mineral properties 175,221

Balance, Dec 31, 2010 1,390,887

Escrow release date Number of shares Status

Aug 2009 1,010,000 Released

Feb 2010 1,515,000 Released

Aug 2010 1,515,000 Released

Feb 2011 1,515,000 Released

Aug 2011 1,515,000 Escrowed

Feb 2012 1,515,000 Escrowed

Aug 2012 1,515,000 Escrowed

10,100,000 Total shares originally escrowed

1,875,000 Shares acquired on Jun 2, 2010

11,975,000 Total shares held

Dec 31, 2010 Dec 31, 2009

$ $

Future income tax assets

Property and equipment 9,604 1,752

Losses 4,759,980 2,752,867

Other 297,322 284,706

Total future income tax asset 5,066,906 3,039,325

Valuation allowance 3,705,378 2,122,737

Net tax assets 1,361,528 916,588

Future income tax liabilities

Property and equipment (3,366) (5,723)

Mineral properties (1,271,791) (852,575)

Other (86,371) (58,290)

Total future income tax liabilities (1,361,528) (916,588)

Net future income tax asset (liability) – –



$ $

Accounting loss before tax for the period (9,588,916) (5,351,950)

Tax recovery (2,732,842) (1,605,494)

Adjustments to statutory recovery

Non-deductible expenses and other permanent differences 1,114,465 438,274

Other 35,737 (432,037)

Increase in valuation allowance 1,582,640 1,000,171

Future income tax recovery – (599,086)

Dec 31, 2010 Dec 31, 2009

$ $

Included in accounts receivable 82,011 39,518

Included in accounts payable 15,120 –


47

The amounts are non-interest bearing and have no specific terms of repayment.

Subsequent to December 31, 2010, the receivable of $79,354, which was due from Paget Minerals was collected.

Subsequent to December 31, 2010, the payable of $11,200, which was due to a director of the Company, was paid.

Consolidated Statements of Loss and Comprehensive Loss

Transactions with related parties in the normal course of operations have been measured at the exchange amount, which is the consideration agreed to by the parties.

The Company recovers rent and related costs for shared office space with Paget Minerals, and provides administrative and geological services to Paget Minerals under an intercompany common services and cost allocation agreement.

11. Commitments The following table is a summary of the commitments of the Company:

Notes

12. Supplemental Cash Flow Information

The table does not include cash payments or exploration expenditures required to maintain property option agreements in good standing with vendors, as those payments and expenditures are conditional on the Company electing to continue with the individual option agreements. If the Company chooses to terminate an option agreement, no further payments or exploration expenditures are required and related capitalized costs will be written off.

13. Financial InstrumentsThe following table summarizes the Company’s financial instruments.

Fair values are determined directly by reference to published price quotation in an active market, when available.

TransactionNature of

relationshipYear ended

Dec 31, 2010Ten months ended

Dec 31, 2009

$ $

Expenses included in line items on the Statements of Loss and Comprehensive Loss

Legal fees Partner is an officer 86,987 57,784

Management/consulting Director in common 495,828 587,912

Recoveries included in line items in the Statements of Loss and Comprehensive Loss

Recovery of common costs, administrative expense and salaries Paget Minerals Corp. 508,795 407,340

Office and warehouse

Management services

Geological services

Drilling, helicopter and geophysical Total

$ $ $ $ $

Dec 31, 2011 228,289 160,024 140,032 227,709 756,053

Dec 31, 2012 119,723 – – – 119,723

348,012 160,024 140,032 227,709 875,776



$ $

Interest received 88,978 34,397

Mineral exploration tax credit 41,152 –

Non-cash investing and financing activities

Shares issued for mineral properties 485,221 –

Assets acquired under capital lease – 32,057

Unrealized gain on investment 190,000 –

Composition of cash and cash equivalents

Cash 13,529,991 21,180,929

Guaranteed investment certificates 6,667,000 –

20,196,991 21,180,929

Dec 31, 2010 Dec 31, 2009

ClassificationsCarrying amount Fair value

Carrying amount Fair value

$ $ $ $

Financial Assets

Held for trading 20,196,991 20,196,991 21,180,929 21,180,929

Cash and cash equivalents 183,750 183,750 178,750 178,750

Deposits and reclamation deposits 183,750 183,750 178,750 178,750

Loans and Receivables

Accounts receivable and mineral exploration tax credits receivable 283,587 283,587 128,813 128,813

Available-for-sale Investment 500,000 500,000 – –

21,164,328 21,164,328 21,488,492 21,488,492

Financial Liabilities

Other financial liabilities

Accounts payable and accrued liabilities 914,136 914,136 380,809 380,809

Capital lease obligations 23,426 23,426 36,054 36,054

937,562 937,562 416,863 416,863

48

2010 Annual Report

The fair value hierarchy established by CICA Section 3862 “Financial Instruments – Disclosures” establishes three levels to classify the inputs to valuation techniques used to measure fair value as described as follows:

Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;

Level 2 – Inputs other than quoted prices that are observable for the assets or liability either directly or indirectly; and

Level 3 – Inputs that are not based on observable market data.

The fair values of the Company’s accounts receivable and accounts payable approximate their carrying values due to their short-term nature. Obligations under capital lease are carried at amortized cost. The Company’s financial instruments are exposed to certain financial risks, including market risk with respect to currency risk, interest risk, credit risk and liquidity risk.

(a) Currency risk

The Company is exposed to financial risk related to the fluctuation of foreign exchange rates. The Company operates in Peru, Mexico and Canada, and its functional currency is the Canadian dollar.

As certain expenses in Peru and Mexico are incurred in U.S. Dollars, the Company has significant transactions in the U.S. dollar, Peruvian soles and Mexican pesos. A significant change in the currency exchange rates between the Canadian dollar and the U.S. dollar, or Peruvian soles or Mexican peso could have a material effect on the Company’s results of operations, financial position or cash flows. The Company has not hedged its exposure to currency fluctuations. The Company does from time to time convert Canadian dollars to U.S. dollars in anticipation of upcoming cash needs in Peru and Mexico.

As of December 31, 2010, the Company is exposed to currency risk through the following assets and liabilities denominated in U.S. dollars, Peruvian soles and Mexican pesos:

Assuming that all other variables remain constant, a one cent depreciation or appreciation of the Canadian Dollar against each of the foreign currencies would result in an increase/decrease in the total value of the financial instruments of approximately of $62,077.

(b) Credit risk

Credit risk is the risk of an unexpected loss if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Company’s maximum exposure to credit risk, defined as the sum of its cash, accounts receivable, METC receivable, deposits, reclamation deposits and investments, is $21,164,328. As of December 31, 2010, the Company had $20,196,991 in

cash, accounts receivable of $283,587, METC receivable of $Nil, deposits of $125,000, reclamation deposits of $58,750 and investment of $500,000. The Company’s cash surplus is invested in highly liquid short-term interest-bearing investments and in savings accounts with major Canadian financial institutions, which are rated among the strongest financial institutions in the world. Through its practice of holding such investments, Pembrook seeks to reduce its credit risk exposure.

(c) Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company manages liquidity risk through the management of its capital structure as discussed in Note 14.

Deposits include $125,000 of term deposits which are held by a bank as collateral for a credit facility. Deposits also include $58,750 (December 31, 2009 – $53,750) of safekeeping term deposits held on behalf of the Ministry of Energy and Mines of British Columbia required for exploration work permits.

(d) Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The risk that the Company will realize a loss due to fluctuations in market rate is mostly mitigated due to surplus funds being held as cash or short-term interest-bearing deposits.

Assuming that all other variables remain constant, a 1% increase or decrease in interest rates would result in an increase/decrease in the annual interest income of the Company of approximately of $194,675.

14. Management of Capital RiskThe Company’s only source of capital to date has been common shares. The Company’s objectives are to pursue the advancement of its mineral properties. In order to do so, it endeavours to safeguard its ability to continue as a going concern, while maintaining a flexible capital structure. As the Company has no cash inflow from operations, the Company may attempt to issue new shares, pursue option agreements and/or joint ventures on properties, or sell assets in order to raise funds. In order to facilitate the management of its capital requirements, the Company prepares annual expenditure budgets that are updated as necessary depending on various factors, including capital deployment, results from the exploration of its properties and general industry conditions.

The Company’s current investment practice is to invest its cash surplus in highly liquid short-term interest-bearing investments generally with maturities of 90 days or less from the original date of acquisition, selected with regards to the expected timing of expenditures from continuing operations and savings accounts from large Canadian financial institutions.

The Company expects its current capital resources will be sufficient to carry its exploration plans and operations beyond its current fiscal year.

15. Segmented InformationThe Company’s operations involve the acquisition, exploration, and advancement of mineral resource properties.


Figures in this table are in Canadian dollar equivalents

U.S. dollars

Peruvian soles

Mexican pesos

Cash and cash equivalents 6,674,433 2,632 7,868

Accounts receivable 58,325 72,465 98,211

Accounts payable and accrued liabilities (449,502) (97,848) (158,916)

6,283,256 (22,751) (52,837)


49

16. Comparative FiguresCertain comparative figures have been reclassified to conform to the current period’s presentation.

Notes

The Company’s reportable operating segments are as follows:

Assets by Geographical Segment

Geographical Regions

Canada Peru Mexico Other Total

$ $ $ $ $

Dec 31, 2010

Property and equipment 171,694 192,036 70,032 – 433,762

Mineral properties 5,066,785 16,388,529 285,129 – 21,740,443

Total assets 27,332,771 16,718,412 1,112,303 15,655 45,179,141

Dec 31, 2009

Property and equipment 191,070 134,301 25,007 – 350,378

Mineral properties 5,758,070 7,299,760 151,569 – 13,209,399

Total assets 28,296,133 7,531,270 279,417 – 36,106,820

Operating Loss by Geographical Segment

Geographical Regions

Canada Peru Mexico Other Total

$ $ $ $ $

Year ended Dec 31, 2010 5,207,011 3,118,546 1,195,153 68,206 9,588,916

Ten months endedDec 31, 2009 3,671,831 682,112 388,134 10,787 4,752,864

50

2010 Annual Report


17. Mineral Properties

December 31, 2010 Canada Mexico

Ball Creek Fernie Dragon Cariboo Schaft Creek Other Total Canada Jacala Other Total Mexico Total

$ $ $ $ $ $ $ $ $ $ $

Balance, Dec 31, 2009 4,677,238 230,594 198,118 203,137 140,867 308,116 5,758,070 79,393 72,176 151,569 13,209,399

Acquisition and mineral licenses – – – 20 – 7,829 7,849 69,373 116,741 186,114 1,456,161

Assays and sample storage – – – – – 505 505 51,741 – 51,741 390,449

Camp costs, supplies and other – – – – – – 48,291 17,792 66,083 3,352,246

Drilling – – – – – – – 286,922 49,501 336,423 2,442,137

Geological consulting fees and salaries 328 217 – 9,064 – 3,300 12,909 69,856 26,131 95,987 1,899,800

Geophysical surveys – – – – – – – – – – 875,665

Transportation 513 – – – – – 513 1,932 2,788 4,720 398,546

Road construction – – – – – – – – – – 175,456

Recovery of mineral exploration expenses – – – (8,488) – – (8,488) – – – (8,488)

METC (705) – – – – – (705) – – – (705)

Option payments received – shares – – – (186,000) – – (186,000) – – – (310,000)

Total 4,677,374 230,811 198,118 17,733 140,867 319,750 5,584,653 607,508 285,129 892,637 23,880,666

Transfer to Paget Minerals – – – – – (175,221) (175,221) – – – (175,221)

Write-offs – – (198,118) – – (144,529) (342,647) (607,508) – (607,508) (1,965,002)

Balance, Dec 31, 2010 4,677,374 230,811 – 17,733 140,867 – 5,066,785 – 285,129 285,129 21,740,443

December 31, 2010 Peru

Huniccasa Hurricane Tambo Cecilia Samana

Santa Helena Lidia Viruna Sajapampa La Golda Viento Other Total Peru

$ $ $ $ $ $ $ $ $ $ $ $

Balance, Dec 31, 2009 1,737,706 1,304,393 782,824 638,322 755,460 780,725 389,842 295,947 193,285 12,882 408,374 7,299,760

Acquisition and mineral licenses 19,325 194,572 479 19,162 8,121 314,322 61,774 17,989 19,164 242,961 364,329 1,262,198

Assays and sample storage 40,845 59,659 143 140 70 109,383 29,632 17 42,023 25,134 31,157 338,203

Camp costs, supplies and other 929,611 733,290 2,178 1,335 4,873 387,819 493,186 3,498 249,802 185,111 295,460 3,286,163

Drilling 413,124 1,203,964 – – – 112,837 155,053 – 104,628 33,965 82,143 2,105,714

Geological consulting fees and salaries 350,617 448,728 – 468 1,884 297,355 179,114 3,609 96,021 297,499 115,609 1,790,904

Geophysical surveys 13,659 443,639 – – – 247,495 9,073 – 26,773 95,449 39,577 875,665

Transportation 25,872 157,297 – – 99 144,816 46,438 – 5,899 6,765 6,127 393,313

Road construction 175,456 – – – – – – – – – – 175,456

Option payment received – shares – – – – – – – (124,000) – – – (124,000)

Total 3,706,215 4,545,542 785,624 659,427 770,507 2,394,752 1,364,112 197,060 737,595 899,766 1,342,776 17,403,376

Write-offs – – – – – – – – (737,595) – (277,252) (1,014,847)

Balance, Dec 31, 2010 3,706,215 4,545,542 785,624 659,427 770,507 2,394,752 1,364,112 197,060 – – 1,065,524 16,388,529


51

Notes

December 31, 2009 Canada Mexico

Ball Creek Fernie Dragon Cariboo Schaft Creek Other Total Canada Jacala Other Total Mexico Total

$ $ $ $ $ $ $ $ $ $ $

Balance, Feb 28, 2009 4,986,157 279,467 226,575 221,706 159,525 382,874 6,256,304 – – – 10,162,217

Acquisition and mineral licenses 16,308 – – 281 – 17,040 33,629 59,517 16,987 76,504 755,556

Assays and sample storage – – – 589 – 6,068 6,657 – – – 112,989

Camp costs, supplies and other – – – 540 – 121 661 9,457 21,334 30,791 530,135

Drilling – – – – – – – – – – 270,306

Geological consulting fees and salaries 3,507 – 317 13,885 – 8,935 26,644 10,419 33,741 44,160 1,113,526

Geophysical surveys – – – – – 536 536 – – – 217,006

Ministry assessment – – – – – – – – – – 43,074

Transportation – – – 2,493 – 4,012 6,505 – 114 114 124,053

Recovery of mineral exploration expenses (370,977) (48,873) (28,774) (36,357) (18,658) (23,502) (527,141) – – – (527,141)

Road construction – – – – – – – – – – 646,740

Asset retirement costs 42,243 – – – – – 42,243 – – – 42,243

Total 4,677,238 230,594 198,118 203,137 140,867 396,084 5,846,038 79,393 72,176 151,569 13,490,704

Transfer to Paget Minerals – – – – – (33,894) (33,894) – – – (33,894)

Write-offs – – – – – (54,074) (54,074) – – – (247,411)

Balance, Dec 31, 2009 4,677,238 230,594 198,118 203,137 140,867 308,116 5,758,070 79,393 72,176 151,569 13,209,399

December 31, 2009 Peru

Huiniccasa Hurricane Tambo Cecilia Samana

Santa Helena Lidia Viruna Sajapampa La Golda Viento Other Total Peru

$ $ $ $ $ $ $ $ $ $ $ $

Balance, Feb 28, 2009 708,705 543,589 712,358 572,334 238,992 312,814 224,211 176,546 – – 416,364 3,905,913

Acquisition and mineral licenses 12,641 180,781 3,522 10,019 131,711 69,713 42,437 45,221 136,249 – 13,129 645,423

Assays and sample storage 946 38,874 540 6,066 38,819 23,630 1,828 208 2,178 – (6,757) 106,332

Camp costs, supplies and other 60,858 143,959 19,486 24,623 120,217 63,046 35,060 13,837 36,669 7,756 (26,828) 498,683

Drilling 49,731 44 – 19 1,011 219,134 – – 367 – – 270,306

Geological consulting fees and salaries 226,932 226,249 45,509 22,002 174,578 80,118 72,053 51,653 17,244 5,126 121,258 1,042,722

Geophysical surveys 3,328 132,400 – – 17,576 – 17 – – – 63,149 216,470

Ministry assessment 213 6,284 415 2,796 5,484 2,698 2,153 7,047 – – 15,984 43,074

Transportation 27,612 32,213 994 463 27,072 9,572 12,083 1,435 578 – 5,412 117,434

Road construction 646,740 – – – – – – – – – – 646,740

Total 1,737,706 1,304,393 782,824 638,322 755,460 780,725 389,842 295,947 193,285 12,882 601,711 7,493,097

Transfer to Paget Minerals – – – – – – – – – – – –

Write-offs – – – – – – – – – – (193,337) (193,337)

Balance, Dec 31, 2009 1,737,706 1,304,393 782,824 638,322 755,460 780,725 389,842 295,947 193,285 12,882 408,374 7,299,760

52

2010 Annual Report

Board of Directors

Alan Moon 35 Chair of the BoardBrian Booth 4 President & Chief Executive OfficerJorge Benavides 125 Daniel Innes 4 Chair, Environment, Health & Safety CommitteeStephen Kurtz 135 Chair, Audit CommitteeAnthony Makuch 125 Chair, Compensation CommitteeKevin McArthur 235 Chair, Corporate Governance & Nominating CommitteeRichard Petersen 4

Management

Brian Booth President & Chief Executive OfficerApril Hashimoto Chief Financial OfficerBruce Harvey Executive VP & President, South AmericaPaul Simpson Corporate Secretary & Legal CounselRussell Evans VP Exploration, South AmericaHenry Marsden VP Exploration, Mexico

Share Structure

Common shares 117,782,889Stock options 10,270,914Total shares* 128,053,803Cash position* CDN $19.7 millionLast private placement April 30, 2010 $2.00/share8,050,000 shares for cash proceeds of $16.1 million*At 31 December 2010

AuditorsDeloitte & Touche LLP2800-1055 Dunsmuir Street4 Bentall CentreVancouver BCCanada V7X 1P4T 604 669 4466F 604 685 0395

ContactAngela DearieDirector of Corporate [email protected] Mining Corp.1160-1040 W Georgia StVancouver, BC V6E 4H1T 778 327 6540 x 223F 778 327 6546

Committees1 Audit2 Compensation3 Corporate Governance & Nominating4 Environment, Health & Safety

5 Independent

Corporate Information


Paper: cover and editorial on Productolith 30% PCW recycled paper, and financial review on Astrolite 100% PCW recycled paper.


Pembrook is committed to sustainability in all its practices. The Company chose to support FSC goals by requesting its reports be printed on FSC chain of custody certified materials.

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