Wesdome 2009 Annual Report

Building
our future
together
WeSdoMe gold MineS ltd.
2009 ANNuAL rePort

Wesdome Gold Mines is 100% unhedged and has never hedged. our strengths
are quality gold deposits and an experienced, efficient operating team. Wesdome
gold Mines is a low-overhead, no-nonsense, owner-operated company working
for its shareholders. Wesdome gold Mines has the capacity to build and operate
underground gold mines, a rare skill in an era driven by contract mining. going
forward, the combination of increasing production, record-high gold prices,
ambitious exploration plans and a commitment to promotion should result in a
significant upward revaluation of the Company’s share price.

Contents

Message to Shareholders...................1

2009 Highlights ................................3

Management’s Discussion and
Analysis ............................................6

5-year Reserve – Production
Reconciliation Table .........................17

Management’s Responsibility for
Financial Statements .......................18

Auditors’ Report .............................19

Consolidated Balance Sheets ..........20

Consolidated Statements of Income
and Comprehensive Income ............21

Consolidated Statements of
Shareholders’ Equity .......................22

Cash Flows ......................................23

Notes to the Consolidated
Financial Statements .......................24

Corporate Information ....................IBC

Message to Shareholders

2009 exceeded expectations across the board. Record production, gold prices, revenue and earnings were
accompanied by successful cost control and exciting drilling results.

At Eagle River the 811 Zone opened up at depth. This zone has generated the bulk of favourable surprises over the last
two years and it is very encouraging to see it extended an additional 300 metres (1,000 feet) to depth. It remains open.

At Kiena, systematic drilling is putting the flesh on the bones of our new Dubuisson discovery. Some higher grade
intersections over impressive widths here have encouraged us to commence an underground exploration and
development program from the 330 metre level.

Cash is piling up in the treasury putting us in an advantageous position to seek growth
opportunities. The priority is a step-wise re-evaluation of our known gold assets in light
of current gold prices. Work was initiated on the Wesdome project in Val d’Or and the
Mishi deposit in Wawa. These offer good potential for organic growth by leveraging
existing experienced workers and mining and milling infrastructure capacity in our own
backyard. Acquisition opportunities which fit our regional development strategy will
continue to be examined diligently and with discipline.

Although forecasting more modest production levels for 2010, we are hopeful the
811 and 808 Zones at Eagle River will continue to surprise on the upside.

We feel fundamentals have never been more favourable for the gold price and feel our
leverage to gold prices has clearly been demonstrated over the last two years. It is with
gratitude that the management and directors tip their hats to our miners, geologists
and engineers.

On behalf of the Board of Directors,

Donovan Pollitt, P.Eng.
President and CEO
March 17, 2010
2009 ANNuAL rePort 1

our strength is in the experience
and quality of our people.

2 WeSdoMe gold MineS ltd.
2009 ANNuAL rePort

Wawa
Val d’Or

• Production totals 96,152 ounces

• Earnings increase to $32.2 million or
$0.32 per share

• Revenues increase to $103.5 million

• Cash flow from operations increases to
$41.3 million or $0.41 per share

• Cash flow after capital spending increases
to $22.1 million

• Cash and bullion at market at year-end
increases to $39.9 million

• Total reserves increase net of depletion

• Bullion inventory grows to 14,032 ounces


our success in 2009 can be attributed
to strong production, high gold prices and
excellent teamwork.

2009 ANNuAL rePort

Management’s Discussion and Analysis

FOR THE YEAR ENDED DECEMBER 31, 2009

This Management’s Discussion and Analysis dated March 17, 2010 should be read in conjunction with Wesdome Gold Mines Ltd.’s
(“Wesdome” or “the Company”) audited consolidated financial statements for the year ended December 31, 2009, and their related notes
which have been prepared in accordance with Canadian generally accepted accounting principles (“GAAP”). This Management’s Discussion
and Analysis contains “forward-looking statements” that are subject to risk factors set out in the cautionary statement below. All figures are
in Canadian dollars unless otherwise stated. Additional information on Wesdome Gold Mines Ltd., including current and previous years’
Annual Information Forms (“AIF”) and other corporate information, can be found at www.wesdome.com or www.sedar.com. Wesdome
trades on the Toronto Stock Exchange under the symbol “WDO”.

CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS

All statements, other than statements of historical fact, constitute “forward-looking statements” and are based on expectations, estimates
and projections as at the date of this MD&A. The words “believe”, “expect”, “anticipate”, “plan”, “intend”, “continue”, “estimate”, “may”,
“will”, “schedule” and similar expressions identify forward-looking statements. The Company cautions the reader that such forward-
looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance
or achievements of Wesdome to be materially different from the Company’s estimated future results, performance or achievements
expressed or implied by the forward-looking statements and the forward-looking statements are not guarantees of future performance.
Factors that could cause results or events to differ materially from current expectations expressed or implied are inherent to the gold
mining industry and include, but are not limited to, those discussed in the section entitled “Risks and Uncertainties”. The Company does
not intend, and does not assume any obligation to update these forward-looking statements, whether as a result of new information,
future events or results or otherwise except as required by applicable laws.

OVERALL PERFORMANCE

The Company owns and operates the Eagle River gold mining operations in Wawa, Ontario and the Kiena Mine Complex in Val d’Or,
Quebec. The Eagle River mine commenced commercial production January 1, 1996 and the Kiena mine August 1, 2006.

At December 31, 2009, the Company had working capital of $35.2 million. During the year ended December 31, 2009, revenue exceeded
operating costs by $45.3 million and $14.2 million was invested in exploration and development, $0.8 million on the acquisition of
exploration properties and $4.2 million in capital equipment. Cash flow from operations totalled $41.3 million before working capital
adjustments and net income was $32.2 million or $0.32 per share in 2009.

The improved financial performance was driven by three key factors:
1) Increased gold sales (92,700 ounces vs. 86,100 ounces in 2008)
2) Increased gold prices realized ($1,113 per ounce vs. $931 per ounce in 2008), and
3) Stabilization in operating costs ($58 million vs. $57.4 million in 2008)

External factors which influenced results were related to general economic conditions (recession) and uncertainty in financial markets.
The former served to ease labour, energy and materials costs. The latter served to increase demand for gold as an investment. We believe
external factors will continue to support increasing gold prices.

SELECTED ANNUAL INFORMATION

(in thousands except loss per common share) 2009 2008 2007
Total revenue $ 103,536 $ 80,961 $ 55,210
Net income (loss) 32,165 9,362 (13,145)
Income (loss) per common share 0.32 0.09 (0.14)
Total assets 143,255 115,384 108,085
Long term financial liabilities 11,997 14,316 13,864

2009 ANNuAL rePort


RESULTS OF OPERATIONS

Three Months Ended Dec 31 Twelve Months Ended Dec 31
2009 2008 2009 2008

Eagle River Mine
Tonnes milled 29,970 32,069 132,004 118,961
Recovered grade (g/t) 13.0 11.0 14.3 13.0
Production (oz) 12,503 11,301 60,754 49,660
Sales (oz) 15,000 11,000 56,300 45,664
Bullion inventory (oz) 12,081 7,627 12,081 7,627
Bullion revenue (thousands) 17,543 11,018 62,649 42,513
Operating costs (thousands) 7,650 8,063 28,273 30,245
Mine operating profit ($m)* 9,893 2,955 34,376 12,268
Gold price realized ($Cdn/oz) 1,168 1,001 1,112 933

Kiena Mine Complex
Tonnes milled 89,536 49,906 302,034 241,641
Recovered grade (g/t) 3.0 7.3 3.6 5.2
Production (oz) 8,690 11,788 35,398 40,344
Sales (oz) 9,000 10,700 36,400 40,600
Mine operating profit (($m)* 3,311 5,860 10,875 10,666
Gold price realized ($Cdn/oz) 1,166 976 1,114 929

Total
Production (oz) 21,193 23,089 96,152 90,004
Sales (oz) 24,000 21,700 92,700 86,100
Mine operating profit ($m)* 13,204 8,815 45,251 22,934
Gold price realized ($Cdn/oz) 1,167 990 1,113 931

*The Company has included in this report certain non-GAAP performance measures, including mine operating profit and operating costs to applicable sales. These measures are
not defined under GAAP and therefore should not be considered in isolation or as an alternative to or more meaningful than, net income (loss) or cash flow from operating activities
as determined in accordance with GAAP as an indicator of our financial performance or liquidity. The Company believes that, in addition to conventional measures prepared in
accordance with GAAP, certain investors use this information to evaluate the Company’s performance and ability to generate cash flow.

In 2009, combined operations produced 96,152 ounces of gold, exceeding initial forecasts of 75,000 ounces by 28%. A total of 92,700 ounces
were sold at an average price of $1,113 per ounce and refined bullion inventory at year end grew to 14,032 ounces (2008: 10,580 ounces).

Gold sales exceeded operating costs resulting in a mine operating profit of $45.3 million. In addition to these direct costs, other costs
including royalty payments, corporate and general costs and interest costs totalled $4.8 million.

At the Eagle River mine, production continued from the high grade western portion of the mine. Grades continued to exceed expectations
here. Drilling traced the 811 zone a further 300 metres (1,000 feet) to depth where it remains open. Proven and probable reserves
contained ounces of gold rose 50%, net of depletion. Eagle River produced 60,754 ounces of gold from 132,004 tonnes milled at an
average recovered grade of 14.3 gAu/tonne. The Eagle River mine contributed 76% of the mine operating profits this year.

The Kiena mine produced 35,398 ounces of gold from 302,034 tonnes milled at an average recovered grade of 3.6 gAu/tonne. Although
mining the lower grade phase of our mining sequence, efforts to gain efficiency by increasing throughput were successful.



Efficiencies and cost controls reduced the overall operating costs per ounce sold to $626Cdn per ounce from $666Cdn per ounce in 2008.

On the exploration front, drilling more than replaced reserves at Eagle River and follow-up drilling on our recent Dubuisson discovery in
Val d’Or generated impressive drill hole intersections, including 26.1 gAu/tonne over 10.3 metres and 16.5 gAu/tonne over 12.3 metres in
holes S552 and S551, respectively (Press Release dated September 8, 2009).

A stepwise re-evaluation of our known gold assets, in light of current gold prices, was initiated with the purpose of examining organic
growth potential. Work was initiated on the Wesdome property in Val d’Or and the Mishi deposit in Wawa.

SUMMARY OF QUARTERLY RESULTS
2009
(in thousands except per share data) 4th Quarter 3rd Quarter 2nd Quarter 1st Quarter
Total revenue $ 28,218 $ 21,489 $ 30,209 $ 23,620
Net income 13,162 3,610 7,817 7,576
Net income per share – basic and diluted 0.12 0.04 0.08 0.08

2008
4th Quarter 3rd Quarter 2nd Quarter 1st Quarter
Total revenue $ 21,830 $ 22,180 $ 20,714 $ 16,237
Net income 6,291 2,151 763 156
Net income per share – basic and diluted 0.06 0.02 0.01 0.00

FOURTH QUARTER

The fourth quarter was very strong as both the gold price and sales rose.

Wesdome’s production totalled 21,193 ounces. Sales during the quarter totalled $28.2 million with 24,000 ounces sold at an average
price of $1,169 per ounce. The cost of sales, or cash cost, was $619Cdn per ounce.

The Eagle River mine produced 12,503 ounces of gold from 29,970 tonnes milled at an average recovered grade of 13.0 gAu/tonne. Sales
totalled 15,000 ounces at an average realized price of $1,169 per ounce. Cost of sales, or cash cost, averaged $510Cdn per ounce. Mine
operating profit for the quarter was $9.9 million.

The Kiena mine produced 8,690 ounces from 89,536 tonnes milled at an average recovered grade of 3.0 gAu/tonne. Sales totalled 9,000
ounces at an average realized price of $1,166 per ounce. Cost of sales, or cash cost, averaged $829Cdn per ounce. Despite processing low
grade material, the Kiena mine generated a mine operating profit, or gross margin, of $3.3 million.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2009, the Company had working capital of $35.2 million, an increase of $22.1 million from year-end 2008. The Company
invested $14.2 million in exploration and development, $0.8 million on the acquisition of exploration properties and $4.2 on capital
equipment for a total of $19.2 million, compared to $14.0 million in exploration and development and $2.3 million on capital equipment
for a total of $16.3 million in 2008.

At December 31, 2009, the Company held 14,032 ounces of gold inventory carried at a cost of $12.1 million. The market value at
December 31, 2009 was $16.2 million.

The Company believes it has sufficient capital resources to cover its operating and capital cost requirements in 2010.

Production planned in 2010 should generate operating cash flow, even at gold prices well below those currently being realized.

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Payments Due by Period (in thousands)
Contractual Obligations Total Less than1 year 1 – 2 years 3 – 5 years After 5 years
Equipment leases $ 2,578 $ 1,400 $ 1,153 $ 25 -
Convertible debentures 12,844 765 12,079 - -
$ 15,422 $ 2,165 $ 13,232 $ 25 -

TRANSACTIONS WITH RELATED PARTIES

In fiscal 2009, the Company paid $5,000 (2008: $10,702) to a company whose managing partner is a Director of the Company and
$98,500 (2008:Nil) to a company whose president is an Officer and Director of the Company.

These transactions were in the normal course of operations and were measured at the exchange amounts.

CRITICAL ACCOUNTING ESTIMATES

(i) Mining properties, plant and equipment
In accordance with the Company’s accounting policies, amortization commences when a property is put into commercial production
and is calculated on the units-of-production method over the expected economic life of the mine. Depreciation is calculated once
the asset is placed in service, using units-of-production method over its estimated useful life.

Mineral reserve and mineral resource estimates are not precise and also depend on statistical inferences drawn from drilling
and other data, which may prove to be unreliable. Future production could differ radically from mineral reserve estimates for the
following reasons:

(a) Mineralization or formation could be different from those predicted by drilling, sampling and similar tests;
(b) The grade of mineral reserves may vary significantly from time to time and there can be no assurance that any particular level of
gold may be recovered from the mineral reserves;
(c) Declines in the market price of gold may render the mining of some or all of the Company’s mineral reserves uneconomic; and
(d) Increase in costs may render the mining of some, or all, of the Company’s mineral reserves uneconomic.

Any of these factors may require the Company to reduce its mineral reserve and mineral resource estimates, change its production
estimates or increase its costs. Changes in reserve quantities would cause corresponding changes in amortization expense in
periods subsequent to the reserve revision, and could result in impairment of the carrying amount of property, plant and equipment.
Management conducts periodic reviews of its mineral properties to determine if write-downs are required. In 2006, the Company
wrote-down the McKenzie Break property to reflect the sale agreement entered into with Britannica Resources Inc. Since 2006, no
write-downs were required.

(ii) Reclamation and closure costs obligations
Environmental laws and regulations relating to the protection of the environment are continually changing and generally becoming
more restrictive. Wesdome has made, and intends to make in the future, expenditures to comply with such laws and regulations.
The Company has recorded a liability and corresponding asset for the fair value of obligations for reclamation and closure costs. The
Company estimates its future closure costs for the Eagle River mine, Mishi mine and the mill to be $0.8 million with an additional
$0.7 million for the Kiena complex.

(iii) Future income tax assets
Future income tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets
and liabilities and on unclaimed losses carried forward and are measured using the substantively enacted tax rates that will be in
effect when the differences are estimated to reverse or losses are estimated to be utilized. A valuation allowance is recognized to
the extent that the recoverability of future income tax assets is not considered more likely than not. The Company has future tax
assets associated with its deductible temporary differences and non-capital loss carryforwards, which are available to reduce taxable
income in the future.



The Company evaluates the likelihood of using all or a portion of the deductible temporary differences and loss carryforwards based
on expected future earnings, the utilization of the deductible temporary differences and the expiry of its loss carryforwards.

Based on this information, the Company determines the appropriate amount of income tax valuation allowance that is required
to reduce the value of its total deductible temporary differences and loss carryforwards to an amount which it estimates it can
more likely than not utilize. As of the end of the current year, the Company determined that it could more likely than not utilize a
substantial portion of its tax loss carryforwards and deductible temporary differences based on expected future earnings and the
expiry date of its loss carryforwards and, therefore, an income tax valuation allowance was not required. Any changes in estimates
would affect the income tax expense on the consolidated statement of income and future tax assets on the consolidated balance
sheets. If the actual amount differs from the current estimates, the future tax value of these deductible temporary differences and
loss carryforwards may change significantly and the Company may incur a non-cash tax expense.

(iv) Significant estimates and assumptions, also those related to the recoverability of mining and exploration properties, include
estimated useful lives of equipment, valuation assumptions, determination as to whether costs are capitalized or expensed and
stock compensation. While management believes that these estimates and assumptions are reasonable, actual results could
vary significantly.

FINANCIAL INSTRUMENTS – DISCLOSURES AND PRESENTATION

Financial instruments disclosures requires the Company to provide information about: a) the significance of financial instruments for
the Company’s financial position and performance and b) the nature and extent of risks arising from financial instruments to which the
Company is exposed during the period and at the balance sheet date, and how the Company manages those risks.

Financial Instruments – Fair Values
Following is a table which sets out the fair values of recognized financial instruments using the valuation methods and assumptions
described below:

(in thousands) 2009 2008
Carrying Fair Carrying Fair
Value Value Value Value
Financial assets
Held-for-trading:
Cash and cash equivalents $ 23,702 $ 23,702 $ 8,029 $ 8,029
Restricted funds 2,588 2,588 2,303 2,303
Loans and receivables:
Receivables 4,022 4,022 4,205 4,205
Available-for-sale:
Marketable securities 211 211 44 44

Financial Liabilities
Other financial liabilities
Payables and accruals 7,322 7,322 7,865 7,865
Convertible 7% debentures 9,483 11,104 9,413 9,838

Determination of Fair Value
The fair value of a financial instrument is the amount of consideration that would be agreed upon in an arm’s length transaction between
willing parties. The Company uses the following methods and assumptions to estimate fair value of each class of financial instruments for
which carrying amounts are included in the Consolidated Balance Sheet as follows:

Cash and cash equivalents and restricted cash – The carrying amounts approximate fair values due to the short maturity of these
financial instruments.

2009 ANNuAL rePort


Receivables – The carrying amounts approximate fair values due to the short maturity of these financial instruments.

Marketable securities – The carrying amounts are measured at fair value with mark-to-market gains and losses excluded from net
income and included in other comprehensive income until such gains or losses are realized. At December 31, 2009, marketable
securities have been valued using the quoted market price to reflect an unrealized gain of $68,000 (2008 unrealized loss:
$157,731).

Other financial liabilities – Payables, accruals and the convertible 7% debentures are carried at amortized cost. The carrying amount
of payables and accruals approximates fair value due to the short maturity of these financial instruments. The carrying amount of the
obligations under capital leases approximates fair value based on an initial fair value of the obligation. The fair value of the convertible
7% debentures is based on the quoted market price.

The fair value hierarchy for financial instruments measured at fair value is Level 1 for cash and cash equivalents, restricted cash and
marketable securities. The Company does not have Level 2 or Level 3 inputs.

Financial Risk Management
The Company is exposed to a number of different risks arising from normal course business exposures, as well as the Company’s use of
financial instruments. These risk factors include: (1) market risks relating to commodity prices, foreign currency risk and interest rate risk;
(2) liquidity risk; and, (3) credit risk. The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk
management framework and establishes and monitors risk management policies to: identify and analyze the risks faced by the Company; to
set appropriate risk limits and controls; and to monitor risks and adherence to market conditions and the Company’s activities.

1) Market Risk
Market risk is the risk or uncertainty arising from possible market price movements and their impact on the future performance
of the business. The market price movements that could adversely affect the value of the Company’s financial assets and
liabilities include commodity price risk, foreign currency exchange risk and interest rate risk.

(a) Commodity price risk
The Company’s financial performance is closely linked to the price of gold which is impacted by world economic events that
dictate the levels of supply and demand. The Company had no gold price hedge contracts in place as at or during the year
ended December 31, 2009.

(b) Foreign currency exchange risk
The Company’s revenue is exposed to changes in foreign exchange rates as the Company’s primary product, gold, is priced in
U.S. dollars. The Company had no forward exchange rate contracts in place as at or during the year ended December 31, 2009.

(c) Interest rate risk
Interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market
interest rates.

Financial assets and financial liabilities with variable interest rates expose the Company to cash flow interest rate risk. The
Company’s cash and cash equivalents include highly liquid investments that earn interest at market rates. Fluctuations in
market rates of interest do not have a significant impact on the Company’s results of operations due to the short term to
maturity of the investments held.

2) Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its obligations as they fall due. The Company manages
its liquidity risk by forecasting cash flows from operations and anticipated investing and financing activities. The Company
believes it has access to sufficient capital through internally generated cash flows and equity and debt capital markets. Senior
management is also actively involved in the review and approval of planned expenditures.



The following table shows the timing of cash outflows relating to trade payables and accruals, capital leases and convertible
debentures:

(in thousands) <1 Year 1-2 Years 3-5 Years Over 5 Years
Accounts payable & accrued liabilities $ 7,322
Capital leases $ 1,400 $ 1,153 $ 25
Convertible debentures $ 765 $ 12,079

3) Credit Risk
Credit risk is the risk of a financial loss to the Company if a customer or counterparty to a financial instrument fails to meet
its contractual obligation. The Company minimizes its credit risk by selling its gold exclusively to financial institutions with
forty-eight hour terms of settlement. The Company’s accounts receivable consist primarily of government refunds and credits.
The Company estimates its maximum exposure to be the carrying value of cash and cash equivalents, accounts receivable and
funds held against standby letters of credit.

The Company manages credit risk by maintaining bank accounts with Schedule 1 Canadian banks and investing only in
Guaranteed Investment Certificates. The Company’s cash is not subject to any external restrictions.

Comprehensive Income
Comprehensive income represents the change in equity of an enterprise during a period from transactions and other events arising from
non-owner sources including gains and losses arising on translation of self-sustaining foreign operations, gains and losses from changes
in fair value of available for sale financial assets and changes in the fair value of the effective portion of cash flow hedging instruments.

RISKS AND UNCERTAINTIES

The operations of the Company are speculative due to the high risk nature of its business which is the operation, exploration and
development of mineral properties. In addition to risks described elsewhere herein, shareholders should note the following:

Nature of Mineral Exploration
The exploration for and development of mineral deposits involves significant financial risks which even a combination of careful
evaluation, experience and knowledge may not eliminate. While the discovery of an orebody may result in substantial rewards, few
properties which are explored are ultimately developed into producing mines. Major expenses may be required to establish ore
reserves, to develop metallurgical processes and to construct mining and processing facilities at a site. It is impossible to ensure that the
exploration programs planned by the Company will result in a profitable commercial mining operation.

Whether a mineral deposit will be commercially viable depends on a number of factors, some of which are the particular attributes of the
deposit, such as size, grade and proximity to infrastructure, as well as metal prices which are highly cyclical and government regulations.
The exact effect of these factors cannot be accurately predicted, but the combination of these factors may result in the Company not
receiving an adequate return on invested capital.

Mining Risks and Insurance
The business of mining is generally subject to a number of risks and hazards, including environmental hazards, industrial accidents,
labour disputes, encountering unusual or unexpected geologic formations, cave-ins, flooding and periodic interruptions due to inclement
or hazardous weather conditions. Such risks could result in damage to, or destruction of, mineral properties or producing facilities,
personal injury, environmental damage, delays in mining, monetary losses and possible legal liability. Insurance against environmental
risks (including potential for pollution or other hazards as a result of disposal of waste products occurring from exploration and
production) is not generally available to the Company or to other companies within the industry.

Government Regulations and Environmental Matters
The Company’s activities are subject to extensive federal, provincial and local laws and regulations controlling not only the mining of
and exploration for mineral properties, but also the possible effects of such activities upon the environment. Permits from a variety of
regulatory authorities are required for many aspects of mine operation and reclamation. Future legislation and regulations could cause
additional expense, capital expenditures, restrictions and delays in the development of the Company’s properties, the extent of which

2009 ANNuAL rePort


cannot be predicted. In the context of environmental permitting, including the approval of reclamation plans, the Company must comply
with known standards, existing laws and regulations which may entail greater or lesser costs and delays depending on the nature of the
activity to be permitted and how stringently the regulations are implemented by the permitting authority. While it is possible that the costs
and delays associated with compliance with such laws, regulations and permits could become such that the Company would not proceed
with the development or operation of a mine, the Company is not aware of any material environmental constraint affecting its properties
that would preclude the economic development or operation of any specific property.

In Ontario, the Company has obtained approval for its closure plan for the Eagle River mill, Eagle River mine and the Mishi-Magnacon
complex and has provided security of approximately $0.8 million to cover estimated rehabilitation and closure costs. In Quebec, the
Company has obtained approval for its closure plan for the Kiena mine and mill and has provided security of approximately $0.7 million to
cover estimated rehabilitation and closure costs. In the event of any future expansion or alteration of a mine on the Eagle River property
or the Kiena mine, the Company would likely be required to amend its closure plans and could also be required to provide further security.
The Company believes it is currently in compliance in all material respects with the legislation described above.

Reliance on Management
The Company is heavily reliant on the experience and expertise of its executive officers. If any of these individuals should cease to be
available to manage the affairs of the Company, its activities and operations could be adversely affected.

Economic Conditions
General levels of economic activity and recessionary conditions may have an adverse impact on the Company’s business.

Mineral Resource and Mineral Reserve Estimates
There are numerous uncertainties inherent in estimating mineral resources and mineral reserves, including many factors beyond the
Company’s control. Such estimation is a subjective process, and the accuracy of any mineral resources and mineral reserves estimate is a
function of the quality of available data and of the assumptions made and judgements used in engineering and geological interpretation.
Differences between management’s assumptions, including economic assumptions such as metal prices and market conditions, could
have a material effect in the future on the Company’s financial position and results of operations.

Competition
The mining industry is intensely competitive in all of its phases, and the Company competes with many companies possessing greater
financial resources and technical facilities in its search for, and the acquisition of, mineral properties as well as the recruitment and
retention of qualified employees with technical skills and experience in the mining industry. There can be no assurance that the Company
will be able to compete successfully with others in acquiring mineral properties, obtaining adequate financing and continuing to attract
and retain skilled and experienced employees.

Conflicts of Interest
Certain officers and directors of the Company are, or may be, associated with other companies that acquire interests in mineral properties.
Such associations may give rise to conflicts of interest from time to time. The directors are required by law to act honestly and in good
faith with a view to the best interests of the Company and to disclose any interest which they may have in any project or opportunity of the
Company. Not every officer or director devotes all of their time and attention to the affairs of the Company.

Insurance
The Company carries insurance to protect against certain risks in such amounts as it considers adequate. Risks not insured against
include environmental pollution, mine flooding or other hazards against which such companies cannot insure or against which they may
elect not to insure.

Additional Funding Requirements
Further exploration on, and development of, the Company’s mineral resource properties, will require additional capital. In addition, a
positive production decision on any of the Company’s development projects would require significant capital for project engineering and
construction. Accordingly, the continuing development of the Company’s properties will depend upon the Company’s ability to either
generate sufficient funds internally or to obtain financing through the joint venturing of projects, debt financing, equity financing or
other means. Although the Company has been successful in the past in obtaining financing through the sale of equity securities and the
issuance of debt instruments, there can be no assurance that it will obtain adequate financing in the future.



CHANGES IN ACCOUNTING POLICIES

On January 1, 2009, the Company adopted the Canadian Institute of Chartered Accountants (“CICA”) Handbook Section 3064, “Goodwill
and Intangible Assets”. The new standard replaces the previous goodwill and intangible asset standard and revises the requirement for
recognition, measurement, presentation and disclosure of intangible assets. The adoption of this standard did not have an impact on the
Company’s consolidated financial statements.

In March 2009, the CICA issued EIC Abstract 174, “Mining, Exploration Costs” (“EIC-174”) which supersedes EIC Abstract 126, “Accounting
by Mining Enterprises for Exploration Costs” (“EIC-126”), to provide additional guidance for mining exploration enterprises on the
accounting for capitalization of exploration costs and when an impairment test of these costs is required. EIC-174 is applicable for
the Company’s interim and annual consolidated financial statements for periods ending on or after March 27, 2009 with retroactive
application. The adoption of this policy did not have an impact on the Company’s consolidated financial statements.

Future Accounting Changes
In January 2009, the CICA issued Handbook Section 1582, “Business Combinations” which requires all assets and liabilities of an acquired
business be recorded at fair value at acquisition. Obligations for contingent consideration and contingencies will also be recorded at
fair value at the acquisition date. The standard also states that acquisition related costs are expensed as incurred and that restructuring
charges will be expensed in the periods after the acquisition date. The standard applies prospectively to business combinations for which
the acquisition date is on or after the beginning of the first annual reporting period on or after January 1, 2011.

In January 2009, the CICA issued Handbook Section 1601, “Consolidations” and Section 1602, “Non-controlling Interests”. Section 1601
establishes standards for the preparation of consolidated financial statements. Section 1602 establishes standards for accounting for a
non-controlling interest in consolidated financial statements subsequent to a business combination. These standards apply to interim and
annual consolidated financial statements relating to fiscal years beginning on or after January 1, 2011.

International Financial Reporting Standards (“IFRS”)
In 2006, the Canadian Accounting Standards Board (“AcSB”) published a new strategic plan that will significantly affect financial reporting
requirements for Canadian companies. The AcSB strategic plan outlines the convergence of Canadian GAAP with IFRS over an expected
five year transitional period. In February 2008, the AcSB announced that 2011 is the changeover date for publicly-listed companies to use
IFRS, replacing Canadian GAAP. The changeover date is for interim and annual financial statements relating to fiscal years beginning on or
after January 1, 2011. The Company’s transition date of January 1, 2011 will require the restatement for comparative purposes of amounts
reported by the Company for the fiscal year commencing January 1, 2010.

The Company has commenced the process to transition from current Canadian GAAP to IFRS. The transition process consists of three
primary phases: scoping and diagnostic phase; impact analysis, evaluation and design phase; and implementation and review phase.
• Scoping and diagnostic phase – A preliminary diagnostic review was completed at a high level which determined the
financial reporting differences under IFRS and the key areas that may be impacted. The areas with the highest potential
impact were identified to include the basis of consolidation, impairment of assets, financial instruments and initial adoption
of IFRS under the provisions of IFRS 1.
• Analysis, quantification and evaluation phase – In this phase, each area identified from the scoping and diagnostic phase
will be addressed in order of descending priority. This phase involves specification of changes required to existing
accounting policies, information systems and business processes, together with an analysis of policy alternatives allowed
under IFRS and development of draft IFRS financial statement content. The Company anticipates that there will be changes
in accounting policies and that these changes may materially impact the financial statements. The full impact on future
financial reporting is not reasonably determinable or estimable at this time.
• Implementation and review phase – This phase includes execution of any changes to information systems and business
processes and completing formal authorization processes to approve recommended accounting policy changes. It will also
include the collection of financial information necessary to compile IFRS-compliant financial statements and audit committee
approval of IFRS financial statements.

Having completed the scoping and diagnostic phase and commenced the analysis phase, the Company expects that the areas
that will be significantly affected by the transition to IFRS will be as follows:

2009 ANNuAL rePort


First Time adoption (IFRS 1)
IFRS 1 provides guidance to entities on the general approach to be taken when first adopting IFRS. The underlying principle of
IFRS 1 is retrospective application of IFRS standards in force at the date an entity first reports using IFRS. IFRS 1 acknowledges that full
retrospective application may not be practical or appropriate in all situations and prescribes:
• Optional exemptions from specific aspects of certain IFRS standards in the preparation of the Company’s opening balance
sheet; and
• Mandatory exceptions to retrospective application of certain IFRS standards.

Additionally, to ensure financial statements contain high-quality information that is transparent to users, IFRS 1 contains disclosure
requirements to highlight changes made to financial statement items due to the transition to IFRS.

Impairment (IAS36)
IFRS requires the use of a one-step impairment test (impairment testing is performed using discounted cash flows) rather than the two-
step under Canadian GAAP (using undiscounted cash flow as a trigger to identify potential impairment loss). IFRS requires reversal of
impairment losses (excluding goodwill) where previous adverse circumstances have changed; this is prohibited under Canadian GAAP.

Impairment testing should be performed at the asset level for long-lived assets and intangible assets. Where the recoverable amount
cannot be estimated for individual assets, it should be estimated as part of a Cash Generating Unit (“CGU”).

Share-based payments (IFRS 2)
Per IFRS, the forfeiture rate, with respect to share options, needs to be estimated by the Company at the grant date instead of recognizing
the entire compensation expense and only record actual forfeitures as they occur. For graded-vesting features, IFRS requires each
instalment to be treated as a separate share option grant, because each instalment has a different vesting period and hence the fair value
of each instalment will differ.

Mineral property interest, exploration and evaluation costs (IFRS 6, IAS16, IAS38)
Under IFRS, the Company would be required to develop an accounting policy to specifically and consistently identify which expenditures
on exploration and evaluation activities will be recorded as assets. Unlike IFRS, Canadian GAAP indicates that exploration costs may
initially be capitalized if the Company considers that such costs have the characteristics of property, plant and equipment. Exploration and
evaluation assets shall be classified as either tangible or intangible according to the nature of the assets acquired.

Information systems
No significant challenges are expected at this point to operate the accounting system under IFRS. The Company has yet to establish
if historical data will have to be regenerated to comply with some of the choices to be made under IFRS 1. Once the extent of the
adjustments needed to convert to IFRS will be established, processes will be put in place to generate the dual accounting needed for 2010.

Internal controls
Management is responsible for ensuring that processes are in place to provide them with sufficient knowledge to support their
certification of the financial statements and MD&A, more specifically assessing that the SEDAR filings are presenting fairly the results of
the Company. Management will make sure that once the convergence process is completed, it can still certify its filings.

Impact on the business
The business processes of the Company are not expected to be effected significantly to operate under IFRS. The Company has no foreign
currency transactions, no hedging activities, no debt or capital covenants. The Company doesn’t expect that IFRS will have an impact on
the requirements or business processes when it enters into flow-through financing. The Company has no compensation arrangements
that will be affected by the IFRS implementation. The Company’s Stock Option Plan is not affected by ratios or financial targets.

The International Accounting Standard Board currently has projects underway that are expected to result in new pronouncements and as
a result, IFRS as at the transition date is expected to differ from its current form. The final impact of IFRS on the financial statements will
only be determined once all applicable standards at the conversion date are known.



SUMMARY OF SHARES ISSUED

As of March 17, 2010, the Company’s share information is as follows:
Common shares issued 100,629,409
Common share purchase options 2,280,250

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Disclosure Controls and Procedures
In accordance with the requirements of National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings.”
the Company’s management, including the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), have evaluated the
effectiveness of the Company’s disclosure controls and procedures. Based upon the results of that evaluation, the Company’s CEO and
CFO have concluded that as at December 31, 2009, the Company’s disclosure controls and procedures to provide reasonable assurance
that the information required to be disclosed by the Company in reports it files is recorded, processed, summarized and reported within
the appropriate time periods and forms were effective.

Internal Control over Financial Reporting
Internal control over financial reporting (“ICFR”) is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with applicable Canadian GAAP. Internal control
over financial reporting should include those policies and procedures that establish the following:
• maintenance of records in reasonable detail, that accurately and fairly reflect the transactions and dispositions of our assets;
• reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with applicable Canadian GAAP;
• receipts and expenditures are only being made in accordance with authorizations of management and the Board of Directors;
• reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets
that could have a material effect on the financial instruments.

The Company’s management, with the participation of the CEO and CFO, assessed the effectiveness of the Company’s internal controls
over financial reporting and concluded that there has been no change in the Company’s internal control over financial reporting during the
year ended December 31, 2009, that has materially affected or is reasonably likely to materially affect the Company’s internal control over
financial reporting. In making its assessment, management and the CEO and the CFO have determined that as at December 31, 2009, the
Company’s internal control over financial reporting was effective except for the disclosable weakness in the lack of segregation of duties.

Segregation of Duties
Segregation of duties is a basic, key internal control and one of the most difficult to achieve. It is used to ensure that errors or irregularities
are prevented or detected on a timely basis by employees in the normal course of business.

Due to the small size of the company and its relatively few accounting staff, segregation of duties within the accounting group was not
achieved. The result is that the Company is highly reliant on the performance of mitigating procedures during its financial close processes
in order to ensure the financial statements are presented fairly in all material respects.

Management will review the current assignment of responsibilities and where possible improve on segregation. Where it is not cost
effective to obtain additional accounting resources, management will review existing mitigating controls and, if thought appropriate,
implement changes to ICFR whereby more effective mitigating controls will be adopted.

Limitations of Controls and Procedures
The Company’s management, including the CEO and CFO, believe that any disclosure controls and procedures or internal control over
financial reporting, no matter how well conceived and operated can provide only reasonable, not absolute, assurance that the objectives
of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that any design will not succeed in achieving its stated goals under all potential future conditions. Accordingly, because
of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and not be detected.

2009 ANNuAL rePort


OUTLOOK

For 2010 we forecast approximately 70,000 ounces of production with about 38,000 ounces from Eagle River and about 32,000 ounces
from Kiena. Although we expect lower grades from Eagle River, mining in the western portion of the mine has, to date, exceeded grade
forecasts. As development and mining progress here we are hopeful that we can again upgrade our forecasts periodically during the year.

We will focus on operations and continue the stepwise re-evaluation of our assets for organic growth potential. Chief amongst these are
the Mishi deposit, the Dubuisson discovery and the Wesdome property. Acquisition opportunities which fit our regional development
strategy will continue to be examined with discipline.

Conditions have never been more favourable for Canadian gold mines, nor have fundamentals ever been so supportive of the gold
market. We feel that our leverage to gold prices has been clearly demonstrated over the last two years. Our unhedged production,
growing bullion inventory and exploration potential serve to maximize leverage to gold prices.


Management’s responsibility for
financial Statements

The accompanying consolidated financial statements and all of the data included in this annual report have
been prepared by and are the responsibility of the management of the Company. The consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in Canada and reflect
management’s best estimate and judgement based on currently available information.

Management is also responsible for a system of internal control which is designed to provide reasonable assurance
that assets are safeguarded, liabilities are recognized and that the accounting systems provide timely and accurate
financial reports.

The Board of Directors is responsible for ensuring that management fulfils its responsibilities in respect of financial
reporting and internal control. The Audit Committee of the Board of Directors meets periodically with management
and the Company’s independent auditors to discuss auditing matters and financial reporting issues. In addition, the
Audit Committee reviews the annual consolidated financial statements before they are presented to the Board of
Directors for approval.

The Company’s independent auditors, Grant Thornton LLP, are appointed by the shareholders to conduct an audit in
accordance with generally accepted auditing standards in Canada, and their report follows.

Toronto, Canada Donald D. Orr
March 17, 2010 Secretary-Treasurer and CFO

2009 ANNuAL rePort

Auditors’ report

To the Shareholders of
Wesdome Gold Mines Ltd.

We have audited the consolidated balance sheets of Wesdome Gold Mines Ltd. as at December 31, 2009 and 2008
and the consolidated statements of income and comprehensive income, shareholders’ equity and cash flows for the
years then ended. These financial statements are the responsibility of the company’s management. Our responsibility
is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards
require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position
of the company as at December 31, 2009 and 2008 and the results of its operations and its cash flows for the years
then ended in accordance with Canadian generally accepted accounting principles.

Toronto, Canada Chartered Accountants
March 17, 2010 Licensed Public Accountants


Consolidated Balance Sheets

December 31 2009 2008
(in thousands)

Assets
Current
Cash and cash equivalents $ 23,702 $ 8,029
Receivables (Note 3) 4,022 4,205
Inventory (Note 4) 14,624 10,165
Marketable securities (Note 9) 211 44
Future income taxes (Note 15) 1,199 -
43,758 22,443

Restricted funds (Note 5) 2,588 2,303
Future income taxes (Note 15) 2,245 -
Capital assets (Note 6) 9 10
Mining properties (Note 7) 64,637 61,294
Exploration properties (Note 8) 30,018 28,956
Property held for sale (Note 9) - 378
$ 143,255 $ 115,384

Liabilities
Current
Payables and accruals $ 7,322 $ 7,865
Current portion of obligations under capital leases 1,240 1,478
8,562 9,343

Income taxes payable 82 173
Obligations under capital leases (Note 10) 1,108 2,396
Convertible 7% debentures (Note 11) 9,483 9,413
Asset retirement obligation (Note 12) 1,324 1,042
Future income taxes (Note 15) - 1,292
20,559 23,659

Minority interest in Moss Lake Gold Mines Ltd. 857 903

Shareholders’ Equity
Capital stock (Note 13) 114,567 113,872
Contributed surplus 3,770 3,648
Accumulated other comprehensive loss (222) (290)
Equity component of convertible debentures (Note 11) 1,970 2,062
Retained earnings (Deficit) 1,754 (28,470)
121,839 90,822

$ 143,255 $ 115,384

On behalf of the Board,

Donovan Pollitt Marc Blais
Director Director

See accompanying notes to the consolidated financial statements

2009 ANNuAL rePort

Income and Comprehensive Income

Years Ended December 31 2009 2008
(in thousands, except per share amounts)

Revenue
Gold and silver bullion $ 103,270 $ 80,306
Interest and other 266 655
103,536 80,961

Costs and expenses
Operating costs 58,019 57,372
Amortization of mining properties 12,869 10,767
Production royalties 1,073 774
Corporate and general 2,064 1,991
Stock based compensation expense 495 398
Interest on long term debt 1,596 1,542
Other interest 16 19
Amortization of capital assets 1 3
Accretion of asset retirement obligation 71 66
76,204 72,932

Net income before the following 27,332 8,029
Dilution gain (loss) on Moss Lake Gold Mines Ltd. 9 (140)
Net income before income tax and minority interest 27,341 7,889
Income tax (recovery) (Note 15)
Current (91) 173
Future (4,676) (1,672)
(4,767) (1,499)

Net income before minority interest 32,108 9,388
Minority interest 57 (26)
Net income 32,165 9,362
Other comprehensive income (loss):
Change in fair value of available-for-sale
marketable securities 68 (158)
Comprehensive income $ 32,233 $ 9,204

Net income per common share (Note 16)
Basic and diluted $ 0.32 $ 0.09


Shareholders’ equity

Accumulated Equity
Other Component of Total
Capital Contributed Comprehensive Convertible Shareholders’
(in thousands) Stock Surplus Loss Debentures Deficit Equity

Balance, December 31, 2007 $ 115,277 $ 2,789 $ (132) $ 2,080 $ (37,851) $ 82,163
Net loss for year ended
December 31, 2008 - - - - 9,362 9,362
Tax effect of flow-through
share renunciation (1,204) - - - - (1,204)
Flow-through shares issued,
net of costs 1,668 - - - - 1,668
Exercise of options 27 - - - - 27
Value attributed to options
exercised 10 (10) - - - -
Shares purchased under NCIB (1,906) 471 - - - (1,435)
Gain on equity component
of early repurchase of
convertible debentures - - - (18) 19 1
Stock based compensation - 398 - - - 398
Revaluation to fair value of
marketable securities - - (158) - - (158)
Balance, December 31, 2008 113,872 3,648 (290) 2,062 (28,470) 90,822
Net income for year ended
December 31, 2009 - - - - 32,165 32,165
Tax effect of flow-through
share renunciation (526) - - - - (526)
Share issuance costs
flow-through shares issued (105) - - - - (105)
Exercise of options 984 - - - - 984
Value attributed to options
exercised 376 (376) - - - -
Shares purchased under NCIB (34) 3 - - (7) (38)
Gain on equity component
of early repurchase of
convertible debentures - - - (92) 61 (31)
Stock based compensation - 495 - - - 495
Revaluation to fair value of
marketable securities - - 68 - - 68
Dividends paid - - - - (1,995) (1,995)
Balance, December 31, 2009 $ 114,567 $ 3,770 $ (222) $ 1,970 $ 1,754 $121,839


2009 ANNuAL rePort

Cash flows

Years Ended December 31 2009 2008
(in thousands)

Operating activities
Net income $ 32,165 $ 9,362
Amortization of mining properties 12,869 10,767
Accretion of discount on convertible debentures 516 463
Gain on sale of Moss Lake shares - (14)
Dilution (gain) loss on Moss Lake Gold Mines Ltd. (9) 140
Minority interest (57) 26
Stock based compensation expense 495 398
Amortization of capital assets 1 3
Future income taxes (4,676) (1,672)
Gain on sale of equipment (1) (41)
Gain on property held for sale (122) -
Accretion of asset retirement obligation 71 66
41,252 19,498
Net changes in non-cash working capital (Note 19) (4,745) (4,833)
36,507 14,665

Financing activities
Exercise of options 984 27
Funds paid to repurchase common shares under NCIB (38) (1,435)
Funds paid to repurchase debentures (477) (87)
Share issuance costs (105) 1,668
Dividends paid (1,995) -
Shares issued by a subsidiary of the company to third parties 17 (4)
Repayment of obligations under capital leases (1,890) (1,740)
(3,504) (1,571)
Net changes in non-cash working capital (Note 19) - 276
(3,504) (1,295)

Investing activities
Additions to mining and exploration properties (17,857) (13,867)
Proceeds on sale of Moss Lake shares to minority interests - 26
Proceeds on sale of equipment 577 261
Proceeds on property held for sale (Note 9) 400 567
Funds held against standby letters of credit (285) 238
(17,165) (12,775)
Net changes in non-cash working capital (Note 19) (165) 25
(17,330) (12,750)
Increase in cash and cash equivalents 15,673 620
Cash and cash equivalents, beginning of year 8,029 7,409
Cash and cash equivalents, end of year (Note 19) $ 23,702 $ 8,029

Supplemental disclosure (Note 19)


Notes to the
Consolidated Financial Statements
December 31, 2009 and 2008

1. DESCRIPTION OF BUSINESS

Wesdome Gold Mines Ltd. (“Wesdome Ltd.” or “the Company”) is a gold producer engaged in gold mining and related activities including exploration,
extraction, processing and reclamation.

The Company is a publicly traded company, continued under Part 1A of the Companies Act (Quebec) and its common shares are listed on the Toronto Stock
Exchange (TSX: WDO).

The Company’s principal assets include the Eagle River mine, the Mishi mine and the Eagle River mill located near Wawa, Ontario and the Kiena mining and
milling complex and exploration properties located in Val D’Or, Quebec.

2. SIGNIFICANT ACCOUNTING POLICIES

These consolidated financial statements have been prepared by management in accordance with accounting principles generally accepted in Canada
(“GAAP”) using the following significant accounting policies.

Basis of Presentation
The consolidated financial statements include the accounts of the Company and its 56% (2008: 56%) owned subsidiary, Moss Lake Gold Mines Ltd.
(“MLGM”).

On December 31, 2009, the Company underwent a reorganization involving its wholly-owned subsidiaries, Wesdome Resources Limited (‘WRL”), Wesdome
Gold Mines Inc. (“WGMI”) and Western Québec Mines Inc. (“Western Québec”). WGMI was amalgamated by way of short-form vertical amalgamation with
WRL to form “New WGMI”. “New WGMI” was then wound up into Wesdome Ltd. by way of dissolution. Western Québec was subsequently wound up into
Wesdome Ltd. by way of dissolution. All of these transactions were under the laws of Québec (The Québec Act).

The benefits of the reorganization will include a reduction of the additional costs of record-keeping, administration and tax compliance as well as the
possibility of utilizing the tax attributes of the inactive companies in one of the operating entities that would otherwise be inaccessible.

Estimates, Risks and Uncertainties
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amount of expenses and other income during the year. Significant estimates and assumptions include those related
to the recoverability of mining and exploration properties, estimated useful lives of capital assets and mining properties, asset retirement obligations,
determination of future income tax assets and liabilities, the equity component of the convertible debentures and stock based compensation expense.
While management believes that these estimates and assumptions are reasonable, actual results could vary significantly. The carrying value of the
Company’s principal assets could be subject to material adjustment in the event that the Company is not successful in generating operating cash flow and
financing for its development and exploration activities.

Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, balances with banks and highly liquid investments with maturities of less than three months.

Inventory
Inventories of gold bullion are recorded at the lower of production costs on a first-in, first-out basis and net realizable value. Production costs include costs
related to mining, crushing, and mill processing, as well as applicable overhead, depreciation and amortization.

Supplies are valued at the lower of average cost and replacement cost.

Capital Assets
Capital assets are recorded at cost less accumulated amortization. Amortization of capital assets used for exploration is capitalized to exploration
properties.

Amortization is provided over the expected useful lives using the following methods and annual rates:
Office equipment – 20% straight line

Mining Properties
Mining properties are carried at cost less accumulated amortization.

All costs associated with pre-production and development activities, including the cost of construction or acquisition of mine buildings, power lines and
equipment, are capitalized as incurred. Capitalized costs also include costs incurred during the exploration stage transferred from exploration properties.

2009 ANNuAL rePort

Wesdome gold Mines ltd. Notes to the Consolidated Financial Statements

Amortization of mine buildings and mills, equipment and pre-production and development costs commences when a property is put into commercial
production, and is calculated on the unit of production method over the expected economic life of the mine.

The amounts capitalized represent costs to be charged to operations in the future and do not necessarily reflect the present or future values of the particular
properties.

Development costs incurred to expand the capacity of an operating mine, develop new ore bodies or develop mine areas substantially in advance of current
production are capitalized and charged to operations calculated on the unit of production method over the expected economic life of the mine.

Exploration Properties
Each property is accounted for as a separate project. All direct costs related to the acquisition and exploration of a property are capitalized as incurred.
If a property proceeds to development, these costs become part of the pre-production and development costs of the mine. If a property is abandoned or
continued exploration is not deemed appropriate in the foreseeable future, the related costs and expenditures are written off.

Capitalized expenditures are charged to operations as amortization or loss on impairment or gain/loss on disposal when operations commence or
impairment is demonstrated or when the properties are disposed of. These capitalized costs do not necessarily reflect the present or future values of
particular properties.

Impairment of Long-Lived Assets
The Company monitors events and changes in circumstances which may require an assessment of the recoverability of its long-lived assets. If required, the
Company would assess recoverability using estimated undiscounted future operating cash flows. If the carrying amount of an asset is not recoverable, an
impairment loss is recognized in operations, measured by comparing the carrying amount of the asset to its fair value.

Asset Retirement Obligation
The Company provides for the fair value of liabilities and capitalized costs for asset retirement obligations in the period in which they are incurred. Over
time, the liability is accreted to its present value and the capitalized cost is amortized over the useful life of the related asset. Asset retirement obligations
are obligations of the Company that arise as a result of an existing law, regulation or contract related to asset retirements. Future costs to retire an asset
include dismantling, remediation and ongoing treatment and monitoring of the site. Subsequent to the initial recognition of the asset retirement obligation
and associated asset retirement cost, any changes resulting from a revision to either timing or amount of estimated cash flows are prospectively reflected in
the year those estimates change.

Financial Instruments – Recognition and Measurement
The Company designates its financial instruments into one of the following five categories: held-for-trading, available-for-sale, held-to-maturity, loans and
receivables, and other financial liabilities. All financial instruments are to be initially measured at fair value. Financial instruments classified as held-for-
trading or available-for-sale are subsequently measured at fair value with any change in fair value recorded in net earnings and other comprehensive
income, respectively. All other financial instruments are subsequently measured at amortized cost using the effective interest method.

As at December 31, 2009 cash and cash equivalents and restricted funds are classified as held-for-trading. Receivables are classified as loans and
receivables. Marketable securities are classified as available-for-sale. Payables and accruals and convertible debentures are classified as financial liabilities.

All derivative financial instruments, including derivative features embedded in financial instruments or other contracts but which are not considered closely
related to the host financial instrument or contract, are generally classified as held-for-trading and, therefore, must be measured at fair value with changes
in fair value recorded in net earnings. However, if a derivative financial instrument is designated as a hedging item in a qualifying cash flow hedging
relationship, the effective portion of changes in fair value is recorded in other comprehensive income. Any change in fair value relating to the ineffective
portion is recorded immediately in net earnings.

Embedded derivatives are required to be separated from the host contract and accounted for as a derivative financial instrument if the embedded derivative
and host contract are not closely related, and the combined contract is not held for trading or designated at fair value.

On the issuance of the related debt, financing costs are reclassified to debt to reflect the adopted policy of capitalizing debt transaction costs within the
related debt. The costs capitalized within debt are amortized using the effective interest method.

Convertible Debentures Payable
Convertible debentures payable were segregated into their debt and equity components at the date of issue. The financial liability component, representing
the value allocated to the liability at inception, was included in convertible debentures payable. The remaining component, representing the value ascribed
to the holders’ option to convert the principal balance into common shares, was classified in shareholders’ equity as “Equity component of convertible
debentures”. The carrying value of the liability component is being accreted to the principal amount as additional interest expense over the term of the
debentures.

Stock-Based Compensation
The Company recognizes compensation expense for grants of stock options to qualifying directors, officers and employees based on the estimated fair value
at the grant date.


Wesdome gold Mines ltd. Notes to the Consolidated Financial Statements

Flow-Through Shares
The Company has financed a portion of its exploration activities through the issuance of flow-through shares. Under the terms of flow-through share
agreements, the tax attributes of the related expenditures are renounced to subscribers. To recognize the tax benefits foregone by the Company, the carrying
value of the shares issued is reduced by the tax effect of the tax benefits renounced to subscribers. The liability relating to the foregone tax benefit is
recognized at the time of the renunciation provided there is reasonable assurance that the expenditures will be incurred.

Revenue Recognition
Revenue comprises the fair value of the consideration received or receivable from the sale of bullion and is recognized when an arrangement exists, risks
pass to the buyer, the price is fixed and collection is reasonably assured.

Income Taxes
Income taxes are calculated using the asset and liability method of tax accounting. Under this method, current income taxes are recognized for the
estimated income taxes payable for the current period. Future income tax assets and liabilities are determined based on differences between the financial
reporting and tax bases of assets and liabilities and on unclaimed losses carried forward and are measured using the substantively enacted tax rates that
will be in effect when the differences are expected to reverse or losses are expected to be utilized. A valuation allowance is recognized to the extent that the
recoverability of future income tax assets is not considered more likely than not. The valuation of future income tax assets is adjusted, if necessary, by the
use of a valuation allowance to reflect the estimated realizable amount.

Income per Common Share
Basic income per share is computed by dividing the income for the period by the weighted average number of common shares outstanding during the period,
including contingently issuable shares which are included when the conditions necessary for issuance have been met. Diluted earnings per share is calculated
in a similar manner, except that the weighted average number of common shares outstanding is increased to include potentially issuable common shares from
the assumed exercise of options and warrants, if dilutive. The number of additional shares included in the calculation is based on the treasury stock method for
options and warrants.

Comprehensive Income
Comprehensive income is the change in the Company’s net assets arising from transactions, events and circumstances not related to the Company’s
shareholders and include items that would not normally be included in net earnings or losses such as unrealized gains or losses on available-for-sale
investments.

Conversion to International Financial Reporting Standards
On February 13, 2008, the Accounting Standards Board confirmed that publicly accountable entities will be required to adopt International Financial
Reporting Standards (“IFRS”) for interim and annual financial statements for fiscal years beginning on or after January 1, 2011, with restatement of
comparative information presented. The conversion to IFRS will impact the Company’s accounting policies, information technology and data systems,
internal controls over financial reporting and disclosure controls and procedures.

Changes in Accounting Policies
On January 1, 2009, the Company adopted the Canadian Institute of Chartered Accountants (“CICA”) Handbook Section 3064, “Goodwill and Intangible
Assets”. The new standard replaces the previous goodwill and intangible asset standard and revises the requirement for recognition, measurement,
presentation and disclosure of intangible assets. The adoption of this standard did not have an impact on the Company’s consolidated financial statements.

In March 2009, the CICA issued EIC Abstract 174, “Mining, Exploration Costs” (“EIC-174”) which supersedes EIC Abstract 126, “Accounting by Mining
Enterprises for Exploration Costs” (“EIC-126”), to provide additional guidance for mining exploration enterprises on the accounting for capitalization of
exploration costs and when an impairment test of these costs is required. EIC-174 is applicable for the Company’s interim and annual consolidated financial
statements for periods ending on or after March 27, 2009 with retroactive application. The adoption of this policy did not have an impact on the Company’s
consolidated financial statements.

In July, 2009, the CICA approved amendments to section 3862, “Financial Instruments – Disclosures”. The amendments require additional fair value
disclosure for financial instruments and liquidity risk disclosures. These amendments require a three-level hierarchy that reflects the significance of the
inputs used in making fair value assessments, as follows:
• Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;
• Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the
asset or liability either directly (i.e. as prices) or indirectly (i.e. derived from prices);
• Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based
on observable market data (unobservable inputs).

The Company adopted the requirements of amendments to Section 3862 in its December 31, 2009 consolidated financial statements (Note 18).

2009 ANNuAL rePort

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