Marathon Gold Corporation Condensed Interim Consolidated Financial Statements for the Three and Six Months Ended June 30, 2013 and 2012

TORONTO, Aug. 13, 2013 /CNW/ -

Notice to Reader

Under National Instrument 51-102, Part 4, subsection 4.3(3)(a), if an auditor has not performed a review of the unaudited interim financial statements, they must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor.

The accompanying unaudited condensed interim consolidated financial statements have been prepared by and are the responsibility of the Corporation's management.

The Corporation's independent auditor has not performed a review of these financial statements in accordance with standards established by the Canadian Institute of Chartered Accountants for a review of unaudited interim financial statements by an entity's auditor.

Marathon Gold Corporation

Consolidated Balance Sheets

(Unaudited - Expressed in Canadian dollars)

Going concern (note 1)

These financial statements have been approved by the board of directors and authorized for issue on August 12, 2013 and have been signed on their behalf.

Marathon Gold Corporation

Consolidated Statements of Operations, Loss and Comprehensive Loss

For the three and six months ended June 30, 2013 and 2012

(Unaudited - Expressed in Canadian dollars)

Marathon Gold Corporation

Consolidated Statements of Cash Flow

For the six months ended June 30, 2013 and 2012

(Unaudited - Expressed in Canadian dollars)

Marathon Gold Corporation

Consolidated Statement of Changes in Equity

For the six months ended June 30, 2013 and 2012

(Unaudited - Expressed in Canadian dollars)

1) GOING CONCERN
The consolidated financial statements of Marathon Gold Corp. (Marathon", the "Company", "we" or "us") have been prepared in accordance with International Financial Reporting Standards applicable to a going concern, which assumes continuity of operations and realization of assets and settlement of liabilities in the normal course of business for the foreseeable future.

Marathon has no sources of revenue, has incurred losses amounting to $7.3 million since its inception, and is dependent on financings to fund its operations. In addition, as Marathon is in the development stage, it is subject to the risks, uncertainties and challenges similar to other companies in a comparable stage of development. These include, but are not limited to, the continuation of losses in future periods; the ability to raise sufficient funds, and on acceptable commercial terms, to continue its exploration programs; the ability to establish the economic viability of mineral deposits on any of its mining properties; the acquisition of required permits to mine; and the attainment of profitable operations. These material uncertainties lend significant doubt over the applicability of the going concern assumption and ultimately the use of accounting principles pertinent to a going concern. These consolidated financial statements do not reflect the adjustments to the carrying values of assets and liabilities, the reported expenses and balance sheet classifications that would be necessary if the going concern assumption were inappropriate. These adjustments could be material.

Marathon funded its operations in the period ended June 30, 2013 through the use of its existing cash reserves obtained through an equity financing completed on December 12, 2012. In addition, Marathon continues to seek additional financing opportunities in order to raise necessary funds for the advancement of its properties. However there can be no assurance that the Company will be successful in these efforts.

2) GENERAL INFORMATION
Marathon's primary business focus is the acquisition, exploration and development of precious and base metal prospects, including the further development of the Valentine Lake Project in the Province of Newfoundland and Labrador in eastern Canada, the Golden Chest project in Idaho, USA, and the Bonanza project in Oregon, USA.

Marathon was incorporated under the Canada Business Corporations Act on December 3, 2009. On December 3, 2010, Marathon's common shares commenced trading on the Toronto Stock Exchange under the symbol "MOZ".

Marathon's registered address is 357 Bay Street, Suite 800, Toronto, Ontario M5H 2T7.

Marathon's operations and level of spending on its mining properties are impacted by seasonality, which at times limits the ability of the Company or its exploration partners to carry out drilling and other surface operations on its properties, and by the extent of Marathon's working capital.

3) BASIS OF PRESENTATION
These condensed interim consolidated financial statements have been prepared in accordance with IFRS as issued by the IASB applicable to the preparation of interim financial statements, including IAS34, Interim Financial Reporting. These condensed interim consolidated financial statements should be read in conjunction with the audited annual financial statements for the year ended December 31, 2012, which were prepared in accordance with IFRS as issued by the IASB.

These condensed interim consolidated financial statements were approved by the Board of Directors for issue on August 12, 2013.

4) ACCOUNTING POLICIES
The accounting policies followed in the preparation of these condensed interim consolidated financial statements are consistent with those followed in the previous financial year, except as disclosed below.

Marathon has adopted the following new and revised accounting standards, with effect from January 1, 2013.

IFRS 10 - Consolidated Financial Statements
IFRS 10, Consolidated Financial Statements, replaces the guidance on control and consolidation in IAS 27, Consolidated and Separate Financial Statements, and SIC-12, Consolidation - Special Purpose Entities. IFRS 10 requires consolidation of an investee only if the investor possesses power over the investee, has exposure to variable returns from its involvement with the investee and has the ability to use its power over the investee to affect its returns. Detailed guidance is provided on applying the definition of control. The accounting requirements for consolidation have remained largely consistent with IAS 27.

Marathon assessed its consolidation conclusions on January 1, 2013 and determined that the adoption of IFRS 10 did not result in any change in the consolidation status of any of its subsidiaries and investees.

IFRS 11 - Joint Arrangements
IFRS 11, Joint Arrangements, supersedes IAS 31, Interests in Joint Ventures, and requires joint arrangements to be classified either as joint operations or joint ventures depending on the contractual rights and obligations of each investor that jointly controls the arrangement. For joint operations, a company recognizes its share of assets, liabilities, revenues and expenses of the joint operation. An investment in a joint venture is accounted for using the equity method as set out in IAS 28, Investments in Associates and Joint Ventures (amended in 2011). The other amendments to IAS 28 did not affect the Company.

Marathon assessed the applicability of this standard to its accounting for its investment in Golden Chest LLC and concluded that no change was required with respect to IFRS 11.

IFRS 13 - Fair Value Measurement
IFRS 13, Fair Value Measurement, provides a single framework for measuring fair value. The measurement of the fair value of an asset or liability is based on assumptions that market participants would use when pricing the asset or liability under current market conditions, including assumptions about risk. The Company adopted IFRS 13 on January 1, 2013 on a prospective basis. The adoption of IFRS 13 did not require any adjustments to the valuation techniques used by the Company to measure fair value and did not result in any measurement adjustments as at January 1, 2013.

IAS 1 Amendment - Presentation of Items of Other Comprehensive Income
Marathon has adopted the amendments to IAS 1 effective January 1, 2013. These amendments required the Company to group other comprehensive income items by those that will be reclassified subsequently to profit or loss and those that will not be reclassified. Marathon has reclassified comprehensive income items of the comparative period. These changes did not result in any adjustments to other comprehensive income or comprehensive income.

5) MINERAL EXPLORATION AND EVALUATION ASSETS

a) Valentine Lake gold property, Newfoundland
In December 2009, Marathon PGM Corp. ("MPGM"), the parent company of Marathon at the time, entered into an option agreement with Mountain Lake Resources Inc. ("MOA") to earn an initial 50% interest in the Valentine Lake property. In November 2010, the option agreement and all of MPGM's rights and interests thereunder were assigned to Marathon, and Marathon completed its earn-in on January 24, 2011.

On July 9, 2012, Marathon completed the purchase of the net assets of MOA pursuant to an arrangement agreement (the "Arrangement"), which resulted in Marathon increasing its ownership of the Valentine Lake project to 100%. A total of 20,309,586 common shares of Marathon were exchanged for the common shares of MOA on the basis of 0.40 common shares of Marathon for each MOA share.

The Valentine Lake property is subject to two overlapping royalties, which cover the Leprechaun Gold Deposit but not the entire Valentine Lake property.

The Reid Newfoundland Company retains a 7.5% net profits interest ("NPI"). In addition, Xstrata Canada Corporation retains a 2% net smelter return royalty ("NSR") on base metals and a 3% NSR on precious metals, which is reduced from 3% to 1.5% over the life of production until the earlier of the following:

• Cumulative production exceeding 250,000 ounces of gold, and
• An amount becoming payable under the terms of the Reid NPI.

Amounts payable in any period under the Xstrata NSR's on precious and base metals are reduced by amounts payable in the same periods under the Reid NPI.

b) Golden Chest gold property, Idaho
At December 31, 2012 and at all times prior to May 22, 2013 Marathon held an undivided 50% interest in Golden Chest LLC ("GCLLC"), a company formed to hold a 100% interest in the Golden Chest gold property located near Kellogg, Idaho. Exploration activity at the Golden Chest property is carried out by New Jersey Mining Company ("NJMC"), the manager of the project.

Prior to May 22, 2013, Marathon and NJMC had each contributed cash and other assets to GCLLC with fair values amounting to US $4,922,000. On May 22, 2013, Marathon provided funding amounting to US $50,000 to GCLLC pursuant to a cash call presented by NJMC, for which NJMC elected not to fund its proportionate share. The default by NJMC in funding the operations of GCLLC resulted in Marathon's interest in GCLLC increasing to 50.50%, resulting in Marathon acquiring effective control of the project. Accordingly, Marathon began to consolidate the operating results, financial position and cash flows of GCLLC with effect from May 22, 2013.

The fair values of the net assets acquired were estimated by Marathon using a cost approach due to the nature of the net assets acquired. The estimated fair values of the assets and liabilities acquired are set out below.

On June 13, 2013, Marathon provided funding to GCLLC amounting to US $150,000 pursuant to a cash call issued by NJMC for which NJMC elected not to contribute its proportionate share. This default by NJMC resulted in Marathon's interest in GCLLC increasing to 51.99% at June 13, 2013. Marathon recognized a gain of $141,399 from the resulting diminution of NJMC's non-controlling interest, which was charged to Other reserve.

GCLLC's title to certain patented mining claims which make up a portion of the Golden Chest property is secured against a non-interest bearing promissory note, which is repayable according to the following schedule:

Marathon is not directly liable for repayment of this note. In the event that GCLLC were unable to repay the note, title to the claims would revert to the note holder.

c) Bonanza Mine gold property, Oregon
On December 16, 2011, Marathon purchased a 100% interest in the Bonanza Mine gold property, a past producing gold mine located in the Green Horn gold district of Oregon, USA. The Bonanza property at the time of this transaction consisted of 13 patented lode claims and one patented parcel covering a total of approximately 120 hectares.

On closing, Marathon paid the vendor US $126,711 and 300,000 common shares with a fair value of $345,000. In connection with this acquisition, the vendor retained timber rights to the patented claims for a period of 20 years and a 2% net smelter returns royalty. Marathon has the right to purchase 1% of the royalty by paying the vendor US $1,000,000.

Concurrent with and subsequent to this property acquisition, Marathon staked additional unpatented claims around the Bonanza property. There are no royalties on the unpatented claims.

6) INVESTMENTS
Marathon's investments at June 30, 2013 and December 31, 2012 are summarized below.

Mountain Lake Minerals Inc.:

Under the terms of the Arrangement, Marathon subscribed for a total of 1,500,000 common share units issued by Mountain Lake Minerals Inc. ("MLM") at a price of $0.20 per unit for a total of $300,000, with each unit consisting of one common share and one-half of one warrant. Each whole warrant is exercisable at a price of $0.30 per share and expiring on July 9, 2014.

Marathon's investment in common shares of MLM was valued at the closing trading price of the shares on the Canadian National Stock Exchange on June 30, 2013. The fair value of the warrants was estimated using the Black Scholes option pricing model with the following inputs:

New Jersey Mining Company:

Marathon's investment in common shares of NJMC was valued at the closing trading price of the shares on the OTC Bulletin Board on June 30, 2013, being US $0.04.

7) FINANCIAL INSTRUMENTS
Measurement categories
Marathon's financial assets and liabilities have been classified into categories that determine their basis of measurement and, for items measured at fair value, whether changes in fair value are recognized in the statement of income or comprehensive income. Those categories are: fair value through profit or loss; loans and receivables; available for sale assets; and, for liabilities, amortized cost. The following table shows the carrying values of assets and liabilities for each of these categories at June 30, 2013 and December 31, 2012.

The carrying values of Marathon's cash, trade receivables, loans, and trade payables approximate fair value. The methods used to estimate the fair value of Marathon's investments in warrants and equity securities are detailed in note 6 to the financial statements.

Fair value hierarchy
The following table classifies financial assets and liabilities that are recognized on the balance sheet at fair value in a hierarchy that is based on significance of the inputs used in making the measurements. The levels in the hierarchy are:

• Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities
• Level 2 - Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices)
• Level 3 - Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs).

8) CAPITAL MANAGEMENT
Marathon is not subject to externally imposed capital requirements.

Marathon manages its capital structure and makes adjustments to it based on the funds available to support the acquisition, exploration and development of our mineral properties. The Board of Directors does not establish quantitative return on capital criteria for management but rather relies on the expertise of management to sustain the future development of the business.

Marathon's properties are in the exploration and evaluation stages, and as such the Company depends on external financing to fund its activities. In order to carry out its exploration and development activities and to pay for administrative costs, Marathon spends existing working capital and raises additional amounts as needed. Management continues to assess new properties and seeks to acquire interests in additional properties if there is sufficient geologic or economic potential and if Marathon has adequate financial resources to do so.

9) SHARE CAPITAL
a) Common shares issued and outstanding

Authorized:

Unlimited common shares without par value

Unlimited preference shares, issuable in series

b) Issued and outstanding:

10) WARRANTS
The movements in the number and estimated fair value of outstanding warrants are as follows:

a) On July 9, 2012, Marathon assumed obligations with respect to the potential issuance of 2,571,555 Marathon shares upon the exercise of warrants issued by MOA and outstanding at closing, as set out below.

The fair value of these obligations was estimated at July 9, 2012 using the Black-Scholes option pricing model with the following weighted average assumptions:

• risk free interest rate of 0.92%;
• expected dividend yield of nil;
• expected volatility of 80%; and
• expected term of 0.57 years,

which yielded an estimated weighted average fair value of $0.04 per warrant.

b) Pursuant to a private placement which closed on December 12, 2012, Marathon issued 2,737,250 share purchase warrants exercisable at a price of $0.75 per share and expiring on December 12, 2014 and 560,851 broker compensation warrants exercisable at a price of $0.58 per share, with both warrants expiring on December 12, 2014. The fair value of these warrants was estimated using the Black-Scholes option pricing model with the following assumptions:

• risk free interest rate of 1.07%;
• expected dividend yield of nil;
• expected volatility of 80%; and
• expected term of 2 years,

which yielded an estimated fair value of $0.23 per share purchase warrant and $0.27 per broker compensation warrant.

The warrants outstanding at June 30, 2013 are set out below.

11) STOCK BASED COMPENSATION
Marathon has a stock option plan (the "Plan") which was adopted on November 30, 2010, under which Marathon may grant options to directors, officers, and consultants. The number of shares reserved for issue under the Plan may not exceed 10% of the number of issued and outstanding common shares at any time.

The purpose of the Plan is to attract, retain and motivate directors, officers, and external service providers by providing them with the opportunity to acquire a proprietary interest in Marathon and benefit from its growth. The options granted under the Plan are non-assignable, have a term of up to 5 years and vest upon grant.

Options to purchase common shares outstanding at June 30, 2013 carry exercise prices and remaining terms to maturity as follows:

The fair value of the options granted by Marathon in the three and six month periods ended June 30, 2013 and 2012 was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:

The Company recognized total stock based compensation costs of $203,546 in the period ended June 30, 2013 (2012 - $Nil), of which $152,823 was charged to operations and $50,723 was capitalized as a component of Marathon's exploration and evaluation assets.

12) EXPLORATION EXPENSES

13) GENERAL AND ADMINISTRATIVE EXPENSES

14) WAGES, SALARIES AND BENEFITS

15) COMMITMENTS

a) Operating leases
Marathon has the following commitments under operating leases.

b) Indemnities
In connection with the acquisition of the net assets of MOA, Marathon indemnified past officers and directors of MOA against liability arising from actions prior to the acquisition.

At December 31, 2012 and March 31, 2013 two former directors of MOA were defendants in a securities action brought against them by the Nova Scotia Securities Commission ("NSSC"). At March 31, 2013, the costs of defending this action, both prior and subsequent to Marathon's acquisition, amounted to approximately $81,000 and had been borne by MOA's liability insurer on the basis of a waiver of its rights. If the directors were found liable upon the exhaustion of due process, Marathon could be liable to repay the legal costs incurred by the insurer, as well as civil penalties imposed by the NSSC.

On May 7, 2013 the NSSC dismissed the allegations against the two former directors.

16) RELATED PARTY TRANSACTIONS

Key management
Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company, directly or indirectly. Key management personnel include Marathon's executive officers, vice-presidents and members of its Board of Directors.

Marathon incurred the following compensation costs related to key management and directors in the normal course of business.

17) SUBSEQUENT EVENT
On July 3, 2013, Marathon provided funding to GCLLC amounting to US $25,000 pursuant to a cash call issued by NJMC for which NJMC elected not to contribute its proportionate share. This default by NJMC resulted in Marathon's interest in GCLLC increasing to 52.22%.

SOURCE Marathon Gold Corp.