TABLE OF CONTENTS

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 20-F

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, ~~2013~~

2016

Commission file number 001-04192

(Exact name of Registrant as specified in its charter)

British Columbia, Canada

(Jurisdiction of incorporation or organization)

Suite ~~1620~~1860 - 400 Burrard Street, Vancouver, British Columbia, CanadaV6C 3A6

(Address of principal ~~offices)~~

executive office)

	Michael J. Smith	~~with a copy to:~~
Suite ~~1620~~1860 - 400 Burrard Street	~~H.S. Sangra~~,~~Sangra Moller LLP~~
Vancouver, British Columbia, Canada V6C 3A6 Telephone: +1 604-683-8286 Facsimile: +1 604-683-3205			with a copy to: H.S. Sangra Sangra Moller LLP 1000 Cathedral Place, 925 West Georgia Street
~~Telephone: +1 604-683-8286~~	Vancouver, British Columbia,,Canada V6C 3L2
~~Facsimile: +1 604-683-3205~~	Facsimile: +1 604-669-8803

(Name, Telephone, E-mail and/or Facsimile number and Address of CompanyContact Person)

Securities registered or to be registered pursuant to Section 12(b) of theAct:

	Title of each class			Name of each exchange on which registered
	Common Shares			New York Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act:None.

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:None.

Indicate the number of outstanding shares of each of the ~~issuer's~~issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

There were ~~62,552,126~~63,142,272 common shares, without par value, issued and outstandingas of December 31, ~~2013.~~

2016.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o☐ YES x☒ NO

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.o ☐ YES x☒ NO

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x☒ YES o☐ NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of ~~"accelerated~~“accelerated filer and large accelerated ~~filer"~~filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o☐

Accelerated filer x☒

Non-accelerated filer o☐

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing.

U.S. GAAP ☐ International Financial Reporting Standards as issued by the International Accounting Standards Board ☒Other

~~U.S. GAAP~~o

~~International Financial Reporting Standards as issued by the International Accounting Standards Board~~x

~~Other~~o

☐

If ~~"Other"~~“Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. o☐ Item 17 o☐ Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) ☐ YES ☒ NO

TABLE OF CONTENTS

DEAR FELLOW SHAREHOLDERS AND BUSINESS PARTNERS:

Today, MFC Bancorp Ltd. (the “Company” or “MFC”) reported its 2016 financial results and announced a proposed plan of arrangement that is designed to improve our corporate structure, reduce expenses and increase our global exposure.

Review of 2016

The beginning of 2016 presented significant challenges. In February 2016, one of our customers filed for insolvency, which was an adjusting subsequent event under IAS 10, oEvents after the Reporting Period. ~~YES~~ x NO

~~OUR PRIMARY FOCUS IS THE GLOBAL~~
~~COMMODITY SUPPLY CHAIN BUSINESS.~~

~~We source, produce, process,~~ ~~transport, warehouse, finance~~This resulted in our first late filing as a public company and ~~assess related risk regarding these commodities for producers~~our recognition of credit losses of more than $50 million in our 2015 financial statements.

But since then we have made progress on our goal to refocus the Company by exiting product lines and ~~consumers around~~geographies with unsatisfactory margins in order to reallocate capital to operations that present higher returns.

To this end, we have:

•

reduced our inventories by $213.4 million in 2016 to $32.0 million, representing a reduction of approximately 87%;

•

reduced $99.7 million of debt and borrowings in 2016;

•

sold our ferrosilicon production facility and interest in quartz quarries to Elkem AS. The cash consideration received under the ~~world.~~transaction was approximately equal to net asset value and was utilized to repay the debt which was incurred to refinance our initial acquisition;

•

exited unprofitable businesses which were generating unsatisfactory returns in multiple jurisdictions, including Germany, Luxembourg, certain eastern European countries and the United States;

~~Our integrated operations span~~ ~~a wide range~~•

substantially reduced our head count and overhead, with the number of commodities such as metals, ceramics, minerals, oil natural gas, silicones, chemicals, plastics, food and beverage additives, animal feed and wood products. These are supported by our captive sources acquired through strategic investments and offtake arrangements and other sourcingemployees worldwide down from ~~third parties.~~

650 to under 450 at the end of 2016. To date, more than 50 employees have been given notice of termination of their employment contracts in 2017;

•

~~SELECTED FINANCIAL DATA~~

~~68%~~

~~Increase in~~~~revenues~~allocated resources for the ~~twelve months~~expansion of ~~2013,~~our merchant banking business; and

•
~~compared~~

in the first quarter of 2017, completed the sale of a non-core commodities trading business that was focused on Latin America. Pursuant to the ~~same period in 2012.~~

transaction, we received total consideration approximately equal to book value, including 450,000 of our common shares at a deemed price of $1.84 per share.

	~~HISTORICAL GROWTH OF TOTAL ASSETS AND TOTAL EQUITY~~
	~~All amounts in United States dollars~~
	~~TOTAL EQUITY~~	~~TOTAL ASSETS~~

	~~HISTORICAL DEBT~~
	~~All amounts in United States dollars, except ratios~~
	~~TOTAL DEBT~~	~~RATIOS~~

~~DEAR FELLOW SHAREHOLDERS~~

We ~~are pleased~~will use the proceeds and expected savings from these actions to ~~present~~reduce our debt and borrowings and reallocate capital to more lucrative projects with the ~~results~~ultimate goal of ~~MFC Industrial Ltd. (“MFC”, the “Company”, “we” or ”us”) for the year ended~~generating an adequate return on our shareholders’ equity.

Inventory Reduction

In 2016, we reduced our inventories by $213.4 million, from $245.3 million as at December 31, ~~2013~~2015 to $32.0 million as at December 31, 2016. This was a result of exiting certain product lines and geographical markets.

The following table highlights the reduction in inventories as at December 31, 2015 and March 31, June 30, September 30 and December 31, 2016:

INVENTORIES (In thousands)			December 31, 2015						March 31, 2016						June 30, 2016						September 30, 2016						December 31, 2016
Inventories				$	245,345					$	197,406					$	154,703					$	129,454					$	31,954

Letter to ~~provide you with an update~~Shareholders

(i)

TABLE OF CONTENTS

Financial Highlights

The following table highlights selected figures on our ~~recent corporate developments.~~~~(All references~~financial position as at December 31, 2016 and December 31, 2015:

FINANCIAL POSITION
(In thousands, except ratios and per share amounts)
December 31,
2016

December 31,
2015

Cash and cash equivalents $ 120,676 $ 197,519
Short-term securities 5,018 170
Trade receivables 135,962 151,229
Tax receivables 11,743 11,705
Other receivables 35,251 14,727
Inventories 31,954 245,345
Total current assets 400,954 785,850
Total current liabilities 214,676 414,562
Working capital 186,278 371,288
Current ratio(1)
1.87 1.90
Acid-test ratio(2)
1.68 1.17
Short-term bank borrowings 95,416 52,864
Total assets 650,338 977,351
Total long-term debt 116,813 259,038
Long-term debt-to-equity(1)
0.25 0.47
Total liabilities 320,908 608,151
Shareholders’ equity 327,520 367,192
Net book value per share 5.19 5.82

Notes:
(1)
The current ratio is calculated as current assets divided by current liabilities and the long-term debt-to-equity ratio is calculated as long-terdm debt, less current portion, divided by shareholders’ equity.

(2)

The acid-test ratio is calculated as cash plus account receivables plus short-term securities, divided by current liabilities (excluding liabilities related to ~~dollar amounts are in United States dollars unless otherwise stated.)~~

~~Our net income~~assets held for ~~the fourth quarter of 2013 was disappointing, even though we saw revenue growth. This situation primarily arose~~sale).

Operating EBITDA

Operating EBITDA from ~~comprehensive internal reviews that were carried out at year end which resulted in significant non-cash adjustments totaling $15.1 million.~~

~~In 2013, our revenues grew by 68% compared to the same period in 2012. This was good progress, but we can certainly improve. Our EBITDA (earnings~~continuing operations is defined as earnings from continuing operations before interest, taxes, depreciation, depletion, amortization and ~~impairment), for the year was $65.4 million (~~impairment. Operating EBITDA is ~~not~~ a non-IFRS financial ~~performance~~ measure ~~under International Financial Reporting Standards (“IFRS”) and has significant limitations as an analytical tool~~ and should not be considered in isolation or as a substitute for ~~our results as reported~~performance measures under IFRS. ~~See page VI~~Management uses Operating EBITDA as a measure of ~~this Letter to Shareholders for a reconciliation of our net income).~~

With the expansion of our commodity platform into new products and new markets, we saw pricing of some commodities come under pressure during the year. We still need to improve our margins as they are not at what we believe are acceptable levels.

During the past five years, global markets for commodities experienced a contraction and have only recently started to recover. This recovery has perhaps been most evident in North America, particularly in the United States, with our principal markets in Europe following at a much slower pace. The supply of commodities is a top-line driven business with narrow margins and cyclical movements affect our operating results ~~accordingly. As the overall world economy continues to recover~~ and ~~grow, we anticipate these revenues and operating results will be enhanced.~~

In addition to this anticipated organic growth, the recently announced acquisitions of FESIL AS Group (“FESIL”) and F.J. Elsner & Co GmbH (“Elsner”) are expected to significantly increase our commodities and resources revenues, which were $778.5 million in 2013, and provide a meaningful contribution to net income.

We have kept to our historic policy, which with any expansion or acquisition is to not dilute our shareholders by issuing any new shares, as well as maintaining our financial discipline with our balance sheet and financial ratios.

I
~~LETTER TO SHAREHOLDERS~~

	~~2013 MAJOR DISAPPOINTMENTS~~
			~~For the three months ended December 31, 2013~~
	►		~~Our net loss of $12.6 million for the fourth quarter of 2013 was disappointing.~~
	►		~~Primary cause of the loss:~~
			~~Increased general and administrative expenses without immediate benefit.~~ ~~Reduction in our deferred income tax assets - $4.9 million.~~ ~~Adjustment of depletion and depreciation - $4.1 million.~~ Impairment charge on our resource properties primarily because of a change in the forward price deck used in the 2013 valuation versus 2012 which projected a lower long-term price for natural gas - $6.1 million.

	~~2013 HIGHLIGHTS~~
			~~For the year ended December 31, 2013~~
	►		~~Revenues increased by 68% to $813.9 million for the year ended December 31, 2013, compared to the same period in 2012.~~
	►		EBITDA was $65.4 million for the year ended December 31, 2013.*
	►		Net income for the year ended December 31, 2013 decreased to $9.7 million, or $0.15 per share on a diluted basis, compared to $200.1 million, or $3.20 per share for the same period of 2012.* This was primarily due to the recognition of a bargain purchase of $218.7 million, or $3.50 per share, in the 2012 period and higher costs of sales, depletion and impairments in 2013.
	►		Completion of a participation arrangement with a drilling partner at Niton (the “Drilling Partner”), who will spend a minimum of CDN$50 million to drill at least 12 net wells on our undeveloped lands in the next three years. MFC can elect to participate for 30% on a look-back basis in such wells or we can elect to receive a 10% gross royalty on the related production. In addition, we will process a substantial portion of the natural gas though our processing plant. Our Drilling Partner has already commenced drilling its first well.
	►		~~Annual cash dividend for 2013 was $0.24 per common share and was paid in equal quarterly installments of $0.06 per common share.~~
	►		Our natural gas hedges currently consist of an outstanding short position of approximately $87.5 million of NYMEX natural gas swaps with maturities ranging from August 2014 to March 2015 at an average weighted price of $4.39 per mcf.
	►		~~Maintained the integrity of our balance sheet and financial ratios.~~

*Note:

EBITDA is not a measure of financial performance under IFRS, has significant limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under IFRS. See page VI of this Letter to Shareholders for a reconciliation of our net income to EBITDA. Certain 2012 figures were recast. Please refer to notes 3 and 41 of our audited annual financial statements for the year ended December 31, 2013.

II
~~LETTER TO SHAREHOLDERS~~

	~~2014 MAJOR DEVELOPMENTS~~
			~~Subsequent events for the three months of 2014~~
	►		Our acquisition of a 100% interest in FESIL, a vertically integrated supply-chain management company with a production facility in Norway, sales companies in Germany, Luxembourg, Spain, the United States and China and an interest in several quartz deposits in Spain, is completing concurrently herewith. Headquartered in Trondheim, Norway, FESIL is one of the leading producers of ferrosilicon, an essential alloy in the production of steel, stainless steel and cast iron.
	►		On February 11, 2014, Cliffs Natural Resources (“Cliffs”), the operator of the Wabush Mine (“Wabush”), announced that it will idle Wabush by the end of the first quarter of 2014 due to high operating costs at the mine. We have started a dialogue with other stakeholders to rationalize this asset.
	►		On March 11, 2014, MFC acquired Elsner, a global commodities supply company which was founded in 1864, with its head office based in Vienna, Austria. Elsner is focused on a full range of steel and related products.
	►		~~In March 2014, MFC announced its annual cash dividend for 2014 will be $0.24 per common share, as well as the appointment of a new Chief Financial Officer.~~
	►		~~Our goal for 2014 is to double our commodities and resource revenue and realize the related margins as we integrate the new companies.~~

FINANCIAL HIGHLIGHTS
All amounts in thousands, except per share amount and ratios
December 31, 2013
Cash, cash equivalents and securities $ 334,241
Short-term deposits 4,381
Trade receivables 115,678
Current assets 711,021
Total assets 1,318,598
Current liabilities 314,709
Working capital 396,312
Current ratio* 2.26
Acid test ratio* 1.60
Total liabilities 618,857
Shareholders’ equity 699,570
Equity per common share 11.18

*Note:

The current ratio is calculated as current assets divided by current liabilities. The acid test ratio is calculated as cash and cash equivalents plus short-term cash deposits, short-term securities and receivables divided by total current liabilities (excluding liabilities relating to assets held for sale).

~~III~~
~~LETTER TO SHAREHOLDERS~~

~~LIQUIDITY~~

As at December 31, 2013, we had cash and cash equivalents, short-term deposits and securities of $338.6 million. We monitor our capital on the basis of our debt-to-adjusted capital ratio and long-term debt-to-equity ratio.

    LIQUIDITY
All amounts in thousands
      December 31, 2013             December 31, 2012
Total debt (current/long-term portions) $ 234,740 $ 162,993
Less: cash and cash equivalents (332,173 ) (273,790 )

Net debt (net cash & cash equivalents)      (97,433 ) (110,797 )
Shareholders' equity 699,570 730,587

~~LONG-TERM DEBT~~

~~The long-term debt-to-equity ratio is calculated as long-term debt divided by shareholders’ equity.~~

    LONG-TERM DEBT AND DEBT METRICS
All amounts in thousands, except ratio
      December 31, 2013             December 31, 2012
Long-term debt, less current portion      $ 189,871 $ 118,824 *
Shareholders' equity      699,570 730,587
Long-term debt-to-equity ratio 0.27 0.16

*Note:

~~This table does not include the term financing relating to our gas processing plant as it involved a purchase option and future processing fees. The option was exercised in 2013.~~

~~CREDIT FACILITIES~~

We maintain various kinds of credit lines and facilities with banks and insurers. Most of these facilities are short-term and are used for day-to-day business and structured financing activities in commodities. The amounts drawn under such facilities fluctuate with the type and level of transactions being undertaken.

As at December 31, 2013, we had credit facilities aggregating $511.6 million, comprised of: (i) unsecured revolving credit facilities aggregating $220.5 million from banks; (ii) revolving credit facilities aggregating $68.9 million from banks for structured solutions, a special trade financing where the margin is negotiable when the facility is used; (iii) a non-recourse factoring arrangement with a bank for up to $130.9 million for our commodities activities. We may factor our commodity receivable accounts upon invoicing at the inter-bank rate plus a margin; (iv) a foreign exchange credit facility of $53.3 million with a bank; and (v) secured revolving credit facilities aggregating $38.0 million. All of these facilities are renewable on a yearly basis.

~~CASH FLOWS~~

Due to the type of businesses we engage in, our cash flows are not necessarily reflective of net earnings and net assets for any reporting period. As a result, instead of using a traditional cash flow analysis solely based on cash flow statements, our management believes it is more useful and meaningful to analyze our cash flows by overall liquidity and credit availability. The global commodity supply chain business can be cyclical and our cash flows vary accordingly. Our principal operating cash expenditures are for financing trading of securities, commodities financing and general and administrative expenses.

IV
~~LETTER TO SHAREHOLDERS~~

~~RESULTS FOR THE YEAR ENDED DECEMBER 31, 2013~~

~~Total revenues~~for the year ended December 31, 2013 increased 68% to $813.9 million, compared to $485.7 million in 2012. Revenues were up for the year ended December 31, 2013 because of several factors, including the integration of our new operations and increases in volumes for some of our commodities.

~~EBITDA~~~~for the year ended December 31, 2013 increased to $65.4 million.~~EBITDA has significant limitations as an analytical tool and should not be considered in isolation or as a substitute for our results as reported under IFRS. See page VI of this letter for a reconciliation of net income to EBITDA.

~~Net income~~for the year ended December 31, 2013 decreased to $9.7 million, or $0.15 per share on a diluted basis, from $200.1 million (which included a bargain purchase gain of $218.7 million), or $3.20 per share on a diluted basis, for the same period last year. Net income for the year was down primarily due to:

~~higher costs of sales;~~
~~depreciation and depletion;~~
~~impairments and income tax adjustments; and~~
~~the catastrophic flooding in Alberta, Canada.~~

The income statement for the year ended December 31, 2013 includes non-cash depletion and depreciation expenses of approximately $28.1 million, as well as an impairment charge of $6.1 million, representing an aggregate of $0.54 per share on a diluted basis. Depletion and depreciation are non-cash expenses and represent the amortization of the historical cost of our natural gas assets and other assets over their economic life. They are income statement expenses but are added back in the cash flow statement.

~~Revenues for our commodities and resources business~~were $778.5 million for the year ended December 31, 2013, compared to $455.9 million for the same period in 2012. Included are the gross revenues generated by our iron ore royalty interest which, for the year ended December 31, 2013, were approximately $25.7 million, compared to $29.1 million in 2012. A total of 2.8 million tons of iron ore products were shipped during 2013, compared to 3.2 million tons shipped during the same period in 2012.

~~Revenues from our merchant banking business~~~~were $12.6 million for the year ended December 31, 2013, compared to $11.8 million for the same period in 2012.~~

~~Other revenues~~~~, which encompass our corporate and other operations, were $22.9 million for the year ended December 31, 2013, compared to $18.0 million for the same period in 2012.~~

~~Costs of sales~~~~increased to $710.4 million during the year ended December 31, 2013 from $406.7 million for the same period in 2012.~~~~Selling, general and administrative~~~~expenses increased to $63.1 million for the year ended December 31, 2013 from $47.7 million for the same period in 2012.~~

~~OVERVIEW OF OUR RESULTS FOR THE YEAR ENDED DECEMBER 31, 2013~~

~~Our total revenues by operating segment for each of the years ended December 31, 2013 and 2012 are broken out in the table below:~~

    REVENUES
All amounts in thousands
      December 31, 2013             December 31, 2012
twelve months twelve months
Commodities and resources   $ 778,487 $ 455,898
Merchant banking 12,568 11,751
Other 22,883 18,010

       Total revenues $ 813,938 $ 485,659

V
~~LETTER TO SHAREHOLDERS~~

~~Our net income from operations for each of the years ended December 31, 2013 and 2012 are broken out in the table below:~~

    INCOME FROM OPERATIONS
All amounts in thousands, except per share amounts
December 31, 2013 December 31, 2012
twelve months twelve months
Commodities and resources $ 7,350

$ (23,946 )⁽¹⁾
Merchant banking 18,293 231,632 ⁽²⁾
Other (9,564 ) (9,301 )

Income before income taxes 16,079 198,385
Income tax recovery (expenses) (1,574 ) 8,528
Resource property revenue tax
     expenses (5,003 ) (5,902 )
Net loss (income) attributable to
     non-controlling interests 163 (867 )

Net income attributable to
     shareholders $ 9,665 $ 200,144

Earning per share, diluted $ 0.15 $ 3.20

~~Notes:~~ ~~(1)~~		~~Including impairment of interest in resource properties of $42.6 million and inventory write-off of $19.4 million in a former subsidiary.~~

~~(2)~~		~~Including bargain purchase of $218.7 million.~~

~~EBITDA BREAKDOWN~~

EBITDA is defined as earnings before interest, taxes, depreciation, depletion and impairment. Management uses EBITDA as a yardstick measurement of its own operating results, and as a benchmark relative to its competitors. Management considers it to be a meaningful supplement to net income as a performance measure, primarily because we incur depreciation and depletion ~~and impairment expenses and EBITDA generally represents cash flow~~ from ~~operations. The following table reconciles our EBITDA~~time to ~~net income for the year ended December 31, 2013.~~

time.

EBITDA (earnings before interest, taxes, depreciation, depletion and impairment)
All amounts in thousands
December 31, 2013
Net income $ 9,502
Income taxes 6,577
Finance costs 15,172
Depreciation, depletion and impairment 34,162

EBITDA* $ 65,413

*Note:

VI
~~LETTER TO SHAREHOLDERS~~

~~REVENUE BREAKDOWN BY REGION~~

~~The following pie chart shows our revenue by region for the year ended December 31, 2013.~~

~~COMMODITY LINES~~

As a result of our recently announced acquisitions, combined with our other integrated commodities and mineral interests operations, we can now supply a wide range of commodities including metals, ceramics, minerals, natural gas, chemicals, plastics, additives for food and beverages and wood products. These are supported by our captive commodities arrangements through strategic direct and indirect investments, and other sources secured by us from third parties. The following charts show some of the commodities we will supply:

~~VIII~~
~~LETTER TO SHAREHOLDERS~~

~~UPDATE ON OUR NATURAL GAS & MIDSTREAM FACILITIES~~

Since the acquisition of the natural gas and midstream facilities, which significantly expanded our global commodities platform into the energy sector, we have been determined to expand these operations as they present an opportunity for growth through value-added projects and the consolidation of regional gas production. To this end, we are in the process of segregating our various operations into three distinct energy divisions:

~~MFC Energy~~~~(“MFCE”)~~

MFCE will act as the corporate office and administrative center for all these energy divisions. It will seek to leverage the existing asset base in transactions that add value to MFC and its shareholders.

~~MFC Processing~~~~(“MFCP”)~~

This entity will manage the existing natural gas processing assets of MFCE on a standalone basis. The following table sets out our average sales prices, operating costs, royalty amounts, transportation costs and total production for the year ended December 31, 2013:

NATURAL GAS WELLS (COSTS AND PRODUCTION)
All amounts in Canadian dollars, except production numbers
For the year ended December 31, 2013
Natural Gas NGLs⁽¹⁾ Crude Oil Total
($/mcf) ($/bbl) ($/bbl) ($/boe)
Price⁽²⁾ $ 3.46 $ 75.63 $ 84.98 $ 30.72
Royalties 0.62 24.53 20.78 6.81
Transportation
costs 0.14 4.92 2.29 1.37
Operating costs⁽³⁾ --- --- --- 12.38
Production⁽⁴⁾ 17,522 mmcf 411.6 mboe 118.7 mbbl 3,450 mboe

~~Notes~~:	~~(1) Includes sulphur.~~

	~~(2) Average sales price includes third party processing fees.~~

IX
~~LETTER TO SHAREHOLDERS~~

	~~(3)~~	A portion of our natural gas production is associated with crude oil production. Excludes the impact of hedging on prices and does not include non-cash operating costs of CDN$8.96 per boe consisting of depletion and depreciation. Operating costs per individual product are not available as they are charged to gas production only and any allocation would be arbitrary.

	~~(4)~~	~~Net of other working interests.~~

~~Our land bank as at December 31, 2013 was 268,875 net undeveloped acres (1,088.1 square kilometers) which we do not plan to sell or develop at this time.~~

~~We will develop midstream businesses at our existing Mazeppa facility and identify and grow the midstream business through re-purposing existing midstream assets or by investing in new projects.~~

~~The restructuring of this emerging midstream business is underway with several MFCE assets identified to be created or transferred to this new division, including:~~

~~Consolidation of the processing facility in the Niton area (the “Niton Plant”) into MFCP. The Niton Plant will processsubstantially all gas produced under the participation agreement.~~
~~Consolidation of the processing facilities in the Callum & Cowley area into MFCP.~~
~~Consolidation of our compression and gas gathering system, which is one of largest such systems in Southern Alberta.~~
~~Construction of a 15MW generating plant at our facility, which is proceeding on schedule.~~
Increasing the Niton Plant’s capacity through a debottlenecking project to increase processing revenue from our DrillingPartner and from other third party production. New drilling from our Drilling Partner should increase natural gas production inthe area.

	Ø		Our Drilling Partner will spend a minimum of CDN$50 million to drill at least three new wells per year for a total of 12 net wells (to a minimum of 800 horizontal meters each) during the initial three-year term. They are in the process of completing drilling of the first well.
	Ø		~~Our Drilling Partner will pay 100% of the drilling and completion costs of each well at its own sole risk and expense.~~
	Ø		~~After a well is drilled and there is continuous production, we can elect to participate for up to a 30% working interest in each well on a look-back basis by paying 25% of its actual costs;~~or~~we can elect to receive a 10% gross royalty on future production instead.~~
	Ø		~~Drilling is currently underway.~~

Planning strategies for a deep-cut and fractionation plant that will generate additional revenue from the sales of naturalgas liquids (extracted from natural gas) including: ethane, propane and butane.

~~MFC Marginal Wells~~~~(“MFCW”)~~~~(in development)~~

~~Provide up-stream marginal well production and services.~~
~~Focus on improving production through innovation and cost optimization.~~
~~Acquire similar marginal well assets and apply best practices to lower costs or raise production through economies ofscale and technical ability.~~

	Ø		~~MFCW would be an upstream-marginal well operator and a service provider.~~
	Ø		~~MFCW’s assets would be comprised of certain MFCE’s assets located in Southern Alberta which share similar operating characteristics.~~
	Ø		This division was created to operate a specialized low-cost structure that the shallow, dry and low-production wells require. In addition to the existing MFCE assets, MFCW would grow through the acquisition of similar assets that are accretive in terms of reduced operating costs and increased production.

~~Hedging Natural Gas Derivatives~~

In December 2013, to hedge the volatility of natural gas prices and organically long nature of our natural gas subsidiary, we entered into a short position of long-term NYMEX natural gas swaps with a notional value of approximately $50 million.

X
~~LETTER TO SHAREHOLDERS~~

In January and February, as natural gas prices continued to rise, we increased our position using shorter-duration swaps which had risen with the uncharacteristically cold winter weather. We continue to hold these hedging derivatives and, as of March 28, 2014, we were short approximately $87.5 million of NYMEX natural gas swaps with maturities ranging from August 2014 to March 2015 at an average weighted price of $4.39 per mcf.

~~UPDATE ON OUR COMMODITIES PLATFORMS~~

In 2013 MFC Commodities GmbH (“MFCC”) continued to intensify its business relationships with the wood pellets industry, which started in 2005. The global pellets industy is growing not only in Europe but also in North America. MFCC will now purchase wood pellets from their production in the United States and transport the goods by sea to Europe.

MFCC has further strengthened its focus on structured supply chain transactions, in combination with its logistics expertise. For example, MFCC has entered into an offtake agreement with a Yakutian producer of sawn larch wood and structured the transaction. Besides sales and risk management, transport logisitics from Yakutia to Europe are a key element of such a transaction.

MFCC has continued to integrate its supply chain and logistics activities in order to enhance business opportunities on a global scale. We have been able to identify additional sourcing opportunities and have expanded our sales teams and continue to search for specialists in these new markets.

The importance of MFC China continues to grow with our expansion, primarily in sourcing and supply. The allocation of additional staff to work alongside existing employees in China will improve our communications, quality control and logistics.

~~UPDATE ON THE ROYALTY INTEREST~~~~(WABUSH MINE)~~

For the year ended December 31, ~~2013, Cliffs shipped~~2016, our Operating EBITDA from continuing operations increased to $10.8 million from a ~~total~~loss of ~~2,840,039 tons of iron ore pellets and concentrate, compared to 3,189,443 tons in 2012. The average gross royalty realized price per ton (ore pellets and/or concentrate)~~$26.1 million for the ~~year ended December 31, 2013 was CDN$9.35.~~

~~In February 2014 Cliffs announced a significant reduction in previously planned 2014 capital expenditures~~same period of 2015 and ~~due~~our loss from continuing operations decreased to ~~the current pricing environment, decided to idle Wabush by the end of the first quarter of 2014.~~

~~This will have an effect on our earnings going forward and we have now started a dialogue with other stakeholders to try to rationalize this asset.~~

~~UPDATE ON OUR CAPTIVE SOURCE OF FERROUS METALS AT PEA RIDGE~~

The project is still currently at a preliminary stage and any decision on proceeding, including development activities, is dependent on the completion of further analysis, including feasibility studies. Activities at the project are proceeding in an orderly fashion and it is currently anticipated that substantial additional expenditures will be incurred in order to determine the feasibility of the project.

~~2014 MAJOR DEVELOPMENTS~~~~(SUBSEQUENT EVENTS)~~

~~FESIL AS Group~~

Our acquisition of FESIL is completing concurrently herewith. FESIL is a vertically integrated commodity supply chain company with a production facility in Norway, sales companies in Germany, Luxembourg, Spain, the United States and China and an interest in quartz deposits in Spain.

~~Headquartered in Trondheim, Norway, FESIL is one of the leading producers of ferrosilicon, an essential alloy in the production of steel, stainless steel and cast iron.~~

~~XII~~
~~LETTER TO SHAREHOLDERS~~

FESIL’s melting plant is located in Mo i Rana and produces a range of ferrosilicon products including granulated and refined qualities (high and semi-high purity), which makes up the bulk of its production. Annual capacity of the plant is approximately 80,000 tonnes of ferrosilicon and 23,000 tonnes of microsilica. The facility is certified according to ISO 9001 and ISO 14001 and complies with Norway’s strict environmental and operational requirements. The purchase price of approximately 500 million Norwegian Krone (approximately $82 million) is based on the net tangible asset value as of September 30, 2013 and will be adjusted to reflect the fair value of certain assets and the operating results over the period to final closing. In addition to the purchase price, MFC will pay a royalty based on tiered ferrosilicon production at the Mo i Rana facility for two years, which is expected to equal approximately 2.9% of ferrosilicon revenue per annum at full production.

FESIL reported net revenues in 2013 of approximately 2.9 billion Norwegian Krone (approximately $487.5 million) with its alloy production representing just over 25% of net revenue. Approximately 60% of FESIL’s ferrosilicon production is sold directly through its own sales offices to customers which include some of the world’s leading steelworks, aluminum/iron foundries and chemical groups. The sales offices also sell a number of complementary products including ferroalloys, metals, minerals, and specialty products. FESIL is a strategic acquisition that will add geographic reach, a diverse product portfolio, an established brand name, a well-respected management team and excellent employees to our global commodity supply-chain platform.

~~F.J. Elsner & Co. GmbH~~

~~In March 2014, MFC acquired a 100% interest in Elsner, a global commodity supply chain company focused on steel and related products with offices in Vienna, Austria and which was founded in 1864.~~

Elsner’s offerings include a full range of steel products including slabs, booms, billets, hot rolled steel plates, hot and cold rolled coils and sheets, reinforcing bars, galvanized material, pipes, tubes and merchant bars. Elsner has longstanding relationships with many steel mills in Eastern and Southern Europe as well as the Baltic States and the CIS.

Revenue for the fiscal year ended June 30, 2013 was $145.5 million and they offer significant diversification with their products, customers and suppliers. The purchase price is for nominal consideration and certain contingent payments. The following highlights certain opportunities related to the acquisition of Elsner:

~~We will now offer structured solutions to Elsner’s customers and suppliers.~~
~~The ability to market steel related raw materials to our current suppliers and industry contacts.~~
~~Our supply chain structured solutions will reduce risks and expand the customer base.~~
~~We may enter into exchange transactions for the supply of raw materials for offtake products with customers.~~

~~Elsner is a company now approaching its 150~~^th ~~anniversary and provides MFC with a solid customer base, an excellent product portfolio and an extremely well-respected management and trading team which will enhance our global supply chain platform.~~

~~XIII~~
~~LETTER TO SHAREHOLDERS~~

~~2014 Cash Dividend~~

On March 24, 2014, MFC Industrial Ltd. announced that its Board of Directors has declared an annual cash dividend for 2014 of $0.24 per common share. The 2014 cash dividend will be paid in quarterly installments by the Company.

The first payment of $0.06 per common share will be paid on April 22, 2014 to shareholders of record on April 10, 2014. For such payment, the Company’s common shares will trade ex-dividend on April 8, 2014. The remaining quarterly dividend payments in 2014 are expected to be made as follows:

~~Second payment of $0.06 will be made July;~~
~~Third payment of $0.06 will be made September; and~~
~~Final payment of $0.06 will be made November.~~

The dividend is subject to customary Canadian withholding tax for non-resident shareholders. Pursuant to applicable tax treaties the withholding rate for eligible U.S. resident shareholders is 15%. The dividend is an eligible dividend under the~~Income Tax Act~~ ~~(Canada).~~

~~Chief Financial Officer Appointment~~

The Company also announced on March 24, 2014, that its Board of Directors had appointed James M. Carter as Chief Financial Officer. He is a Chartered Accountant with over 40 years of experience in both public and private companies, with an emphasis on the commodities sector and international business markets. He has served as Vice-President of the Company for over 15 years.

~~The Board~~

The Board of Directors also elected Peter Kellogg as Chairman and appointed Dr. Shuming Zhao as a Director of the Company. The Company is continuing its search for a new CEO and announced that Michael Smith currently intends to retire at the annual meeting of the Company scheduled for the end of this year.

~~Mr. Smith will continue to serve as a Director of the Company and plans to work with the Board in searching for a successor to ensure an orderly transition.~~

~~Corporate Changes~~

The Board of Directors of the Company has also determined to declassify its Board structure so that all of the Company’s Directors will be elected on an annual basis. It is intended that amendments to the Company’s Articles will be submitted to the Company’s shareholders at its next annual meeting to effect this change. In addition, the Board terminated the Company’s shareholder rights plan agreement dated November 11, 2013.

~~CORPORATE TAXATION~~

~~We are a company that strives to be fiscally responsible. The corporate income tax paid in cash was approximately $2.2~~$23.7 million for the year ended December 31, ~~2013.~~

~~INDUSTRY GROUP COMPARISON~~

2016 from a loss of $244.6 million for the same period of 2015.

The following ~~charts show,~~is a reconciliation of our net loss from continuing operations to Operating EBITDA (loss) from continuing operations for ~~comparison purposes, selected ratios~~the years ended December 31, 2016 and 2015:

OPERATING EBITDA (loss) from continuing operations (In thousands)	Years Ended December 31,
	2016			2015
				(Re-presented)
Net loss from continuing operations(1)		$	(23,720)		$	(244,602)(2)
(Reversal) recognition of impairment losses on resource properties			(8,566)			235,875
Income tax expense (recovery)			7,014			(46,193)
Finance costs			24,102			22,329
Amortization, depreciation and depletion			11,951			6,450
Operating EBITDA (loss) from continuing operations		$	10,781		$	(26,141)(2)

Notes:

(1)

Includes net income attributable to non-controlling interests.

(2)

Includes losses of $51.4 million related to a customer that filed for insolvency in February 2016, $9.9 million on long-term off-take agreements entered into by a subsidiary acquired in 2014, which have since been terminated.

Letter to Shareholders

(ii)

TABLE OF CONTENTS

Proposed Plan of Arrangement

We announced today a plan of arrangement (the “Plan”) that is designed to improve our corporate structure, reduce expenses and increase our global exposure. MFC Bancorp Ltd., a Canadian company will not change, just the ultimate parent company. As part of the Plan:

•

Share Capital. MFC’s stated shareholders’ capital will be reduced by an amount equal to our retained deficit which, as of December 31, 2016, was $88.9 million and in large part resulted from our discontinued operations and impairments of assets.

•

Share Consolidation/Split. MFC common shares will be consolidated on a 100 for 1 basis, with any resulting fractional shares being eliminated and the ~~selected major players~~holders of the same being paid therefor in ~~our industry. Glencore Xstrata PLC~~cash based upon the weighted average price of the common shares over the ten trading days immediately prior to the Plan becoming effective and thereafter such MFC common shares will be split on a 1 for 20 basis. This will reduce the number of share outstanding though each shareholder’s proportional ownership will not change and there will be cost savings from reduced administration expenses.

•

Share Exchange. MFC’s common shares will be exchanged on a one-for-one basis for common shares of a new parent company, which, upon completion of the Plan, will be renamed “MFC Bancorp Ltd.” (“New MFC”) and MFC will become a wholly-owned subsidiary of New MFC. New MFC will be incorporated in the Cayman Islands, where other significant companies such as Alibaba are also incorporated. Our existing shareholders will become shareholders of New MFC.

•

Our New York Stock Exchange (NYSE) listing under the existing symbol (MFCB) will be continuous without interruptions or changes.

Under applicable corporate law, the Plan will require, among other things, court approval and the approval of 66 2/3% of the votes cast at the meeting. Shareholders would also be entitled to exercise dissent rights in connection with the Plan. A shareholder who dissents from the Plan will be entitled, when the Plan becomes effective, to be paid in cash the fair value of their common shares, subject to MFC’s right to terminate the Plan in the event that such dissent rights are exercised with respect to more than a certain percentage of MFC common shares.

The Company believes that the benefits of the plan are, among other things:

•

Stable and Respected Jurisdiction. The Cayman Islands is ~~an Anglo–Swiss multinational commodity trading~~a desirable jurisdiction for New MFC as it has enjoyed a long history of political and ~~mining~~economic stability and is a well-developed international business and financial center, with a large number of public companies organized there.

•

More Flexible Corporate Structure. The separation of the public parent company ~~headquartered in Switzerland. The Noble Group Limited, which manages a portfolio of global supply chains covering a range of agricultural~~from its operating businesses will facilitate future strategic transactions, such as spin-offs and ~~energy products,~~corporate reorganizations as well as ~~metals, minerals~~provide additional options for future financing structures.

•

Additional Fiscal Flexibility. By being located in an international financial center with advantageous tax laws, New MFC will have enhanced flexibility with respect to fiscal and ~~ores~~tax planning and will be able to take advantage of the favourable treatment accorded to non-resident exempted companies under Cayman Islands law. Currently, the Cayman Islands has no corporate income, dividends or capital gains taxes and no withholding taxes on distributions to shareholders.

•

Reduced Compliance Expenses and Cash Proceeds for Odd Lot Interest Shareholders. We believe the Plan will reduce our ongoing administrative costs and allow fractional shareholders to receive cash for their fractional shares without incurring brokerage commissions or expenses.

•

Enhanced Global Exposure. We are a global company, with operations spanning internationally and New MFC’s jurisdiction of incorporation of the Cayman Islands, a recognized international financial center, is ~~headquartered~~more reflective of the international nature of its operations. New MFC would also consider a secondary listing of its shares on a second stock exchange after completion of the Plan to obtain additional global exposure and liquidity.

The Plan is expected to be completed in ~~Hong Kong. Brenntag Group, the global market leader in chemical distribution, covers all major markets with its extensive product and service portfolio~~2017 and is ~~headquartered~~subject to finalization and requisite court, shareholder and board approvals. Further information regarding the Plan will be included in ~~Germany. Bunge Limited is a leading agribusiness and food company~~materials to be mailed to the Company’s shareholders in connection with ~~integrated operations that circle~~ the ~~globe, and is headquartered in Austria.~~

XV
~~LETTER TO SHAREHOLDERS~~

*~~Note~~:

The above information for Glencore Xstrata PLC, Noble Group Limited, Brenntag Group and Bunge Limited is provided for information purposes only. In addition, some of these companies do not use IFRS for financial reporting and/or use other reporting currencies. Any of those factors may materially affect the accuracy and reliability of such comparisons. As a result you should not unduly rely on such comparisons.

~~The following chart shows our year~~shareholder meeting to ~~date share price in comparison~~be held to ~~two other large companies in our industry.~~

approve the Plan.

   SHARE PRICE COMPARISON
   All amounts in US dollars, except change percentages
Company January 2, 2013 December 31, 2013 Changes In 2013
   Noble Group 1.20 1.07 -10.83%
   Glencore International      376.50 312.70 -15.98%
   MFC Industrial 8.72 7.99 -8.14%

Letter to Shareholders

~~PERSONAL NOTE~~

~~On a very personal note~~

(iii)

TABLE OF CONTENTS

Update on Management change

In March 2017, we announced that Michael Smith, our Managing Director, was appointed as the ~~passing~~Company’s President and Chief Executive Officer. Mr. Smith replaced Gerardo Cortina, who resigned as President and Chief Executive Officer of one of our Directors this year, Robert Ian Rigg. Ian was a valuable member of the Board since 2010 and was the chair of our audit committee and a member of our corporate governance committee. Ian provided indispensable guidance to the Company in order to pursue outside opportunities. Mr. Cortina will continue with the Company as a director and on a part-time basis as Vice-President in order to assist with the transition.

Credit Lines and Facilities

We established, utilized and maintain various kinds of credit lines and facilities with banks and insurers. Most of these facilities are short-term. These facilities are used in our day-to-day merchant banking business. The amounts drawn under such facilities fluctuate with the type and level of transactions being undertaken.

As at December 31, 2016, we had credit facilities aggregating $430.0 million as follows: (i) we had unsecured revolving credit facilities aggregating $141.2 million from banks. The banks generally charge an interest rate at inter-bank rate plus an interest margin; (ii) we also had revolving credit facilities aggregating $64.6 million from banks for structured solutions, a special trade financing. The margin is negotiable when the facility is used; (iii) we had a specially structured non-recourse factoring arrangement with a bank up to a credit limit of $198.4 million for our merchant banking activities. We factor certain of our trade receivables upon invoicing, at inter-bank rate plus a margin; and (iv) we had foreign exchange credit facilities of $25.9 million with banks.

All of these facilities are either renewable on a yearly basis or usable until further notice. Many of our credit facilities are denominated in Euros and, accordingly, such amounts may fluctuate when reported in Canadian dollars.

During 2016, we reduced and eliminated certain customer-specific credit facilities for customers with whom we no longer commercially transact, as well as certain credit facilities which were underutilized or in jurisdictions which we are exiting. We continue to evaluate the benefits of certain facilities that may not have strategic long-term relevance to our business and priorities going forward and may modify or eliminate additional facilities in the future. We do not anticipate that this will have a material impact on our overall liquidity.

Our Future

Going forward we will expand our merchant banking activities. Our plan to exit unsatisfactory product lines and geographies, significantly reducing our inventories and receivables and reallocating the capital to more profitable business units is proceeding well. We believe these actions and the announcement of the Plan will help reduce expenses and ultimately result in an adequate return on our equity.

Stakeholder’s Communication

Management welcomes any questions you may have and looks forward to discussing our operations, results and plans with stakeholders:

•

Stakeholders are encouraged to read our entire audited financial ~~matters over~~statements and management’s discussion and analysis for the ~~years. He will truly~~year ended December 31, 2016 as set forth in this annual report on Form 20-F for a greater understanding of our business and operations.

•

All stakeholders who have questions regarding the information in this annual report may call our North American toll free line: 1 (844) 331 3343 (International callers: +1 (604) 662 8873) to book a conference call with of our senior management. Questions may also be ~~missed.~~

emailed to Rene Randall at rrandall@bmgmt.com.

Respectfully submitted,

Michael J. Smith
President and Chief Executive Officer

Letter to Shareholders

(iv)

TABLE OF CONTENTS

Corporate information

~~Respectfully Submitted,~~

~~Michael J. Smith~~

~~President and CEO~~

~~XVI~~
~~LETTER TO SHAREHOLDERS~~

~~CORPORATE INFORMATION~~
BOARD OF DIRECTORS	AUDITORS		TRANSFER AGENT
Michael J. Smith Chairman Director since 1987 *Indrajit ChatterjeeChatterjee** Director since 2005 Silke S. Stenger* Director since 2013 ~~Peter R. Kellogg~~ ~~Director since 2013~~ William C. Horn III* ~~Director since 2013~~ ~~Dr. Shuming Zhao~~ ~~Director since 2014~~ * Member of the Audit Committee ~~AUDITORS~~	PricewaterhouseCoopers LLP Suite 700 250 Howe Street Vancouver, BC V6C 3S7 Canada Telephone: ~~1 (604)~~(1) 604 806 7000 www.pwc.com/ca		Computershare Limited 480 Washington Blvd 27th Floor Jersey City, NJ 07310 USA Telephone: (1) 888 478 2338 www.computershare.com
	STOCK LISTING		CORPORATE OFFICE
Dr. Shuming Zhao* Director since 2014 Gerardo Cortina Director since 2014 Friedrich Hondl* Director since 2015	New York Stock Exchange 11 Wall Street New York, NY 10005 USA Telephone: ~~1 (212)~~(1) 212 656 3000 Email: nyselistings@nyse.com Trading ~~Symbol: MIL~~ symbol: MFCB	~~OFFICES AND SUBSIDIARIES~~ *~~AUSTRIA~~* ~~Millennium Tower, 21st Floor~~	MFC Bancorp Ltd. ~~Handelskai 94-96~~ ~~1200 Vienna, Austria~~ ~~Telephone: (43) 1 24025 0~~ ~~Email: office@mfc-commodities.com~~ *~~MEXICO~~* ~~Bosques de Alisos No. 47B~~ ~~Officina A1 - 01~~ ~~Bosques de las Lomas, Cuajimalpa~~ ~~Mexico D.F. C.P. 05120, Mexico~~ ~~Telephone: (52) 55 9177 7440~~ ~~Email: inquires@possehl.com.mx~~ *~~CANADA~~* 400 Burrard Street Suite ~~1620~~1860 Vancouver, BC ~~Canada~~ V6C 3A6 Canada Telephone: ~~1 (604)~~(1) 604 683 8286 Email: rrandall@bmgmt.com *~~CANADA~~* ~~1035 7th Ave S.W.~~ ~~Suite 400~~ ~~Calgary, AB Canada T2P 3E9~~ ~~Telephone: 1 (403) 237 9400~~ ~~Email: cmt@comptonpetroleum.com~~ *~~UNITED STATES~~* ~~One Maynard Drive~~ ~~Park Ridge, NJ 07656 USA~~ ~~Telephone: 1 (201) 307 1500~~ ~~Email: info@accr.com~~ *~~CHINA~~* ~~Room 2409, Shanghai Mart Tower~~ ~~2299 Yan An Road West~~ ~~Changning District~~ ~~Shanghai, P.R. China 200336~~ ~~Telephone: (86) 21 6115 6996~~ ~~Email: office@mfc-china.com~~	*~~CHINA~~* ~~Room 1807, The Exchange Beijing~~ ~~No. 118, Jianguo Road (Y1)~~ ~~Chaoyang District~~ ~~Beijing, P.R. China 100022~~ ~~Telephone: (86) 10 6567 8200~~ ~~Email: info@accr.com~~ *~~ARGENTINA~~* ~~Avenida Alicia Moreau Justo 1750~~ ~~Segundo Piso “D”~~ ~~C1107AAV Buenos Aires, Argentina~~ ~~Telephone: (54) 11 5238 7788~~ ~~Email: info@accr.com~~ ~~CORPORATE CONTACT~~ ~~R. Randall~~ ~~MFC Industrial Ltd.~~ ~~Telephone: 1 (604) 683 8286~~ ~~Email: rrandall@bmgmt.com~~ ~~INVESTOR RELATIONS~~ ~~Cameron Associates Inc.~~ ~~535 Fifth Ave, 24~~^th ~~Floor~~ ~~New York, NY 10017, USA~~ ~~Telephone: 1 (212) 245 4577~~ ~~Email: kevin@cameronassoc.com~~ ~~TRANSFER AGENT~~ ~~Computershare~~ ~~480 Washington Blvd, 27th Floor~~ ~~Newport Office Center VII~~ ~~Jersey City, NJ 07310, USA~~ ~~Telephone: 1 (888) 478 2338~~ ~~www.computershare.com~~ ~~WEBSITE~~ ~~www.mfcindustrial.com~~
Jochen P. Dümler* ~~XVII~~ Director since 2016~~LETTER TO SHAREHOLDERS~~ * Member of the Audit Committee	CORPORATE WEBSITE www.mfcbancorpltd.com

Letter to Shareholders

(v)

~~Form 20-F~~

TABLE OF CONTENTS

Form 20-F

TABLE OF CONTENTS

PART I		1
FORWARD-LOOKING STATEMENTS		1
~~CAUTIONARY NOTE ON RESOURCE ESTIMATES~~ CURRENCY	3	1
~~NOTE ON NATURAL GAS AND OIL DISCLOSURE AND DEFINITIONS~~	3
~~CURRENCY~~	4
NOTE ON FINANCIAL AND OTHER INFORMATION	4	2
NON-IFRS FINANCIAL MEASURES		2
ITEM 1:IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS	5	2
ITEM 2:OFFER STATISTICS AND EXPECTED TIMETABLE	5	2
ITEM 3:KEY INFORMATION	5	3
A. Selected Financial Data	5	3
B. Capitalization and Indebtedness	6	4
C. Reasons for the Offer and Use of Proceeds	6	4
D. Risk Factors	6	4
ITEM 4:INFORMATION ON THE COMPANY	16	13
A. History and Development of the Company	16	13
B. Business Overview	18	13
C. Organizational Structure	24	16
D. Property, Plants and Equipment	25	16
ITEM 4A: UNRESOLVED STAFF COMMENTS	29	17
ITEM 5:OPERATING AND FINANCIAL REVIEW AND PROSPECTS	29	17
General	29	17
~~Business Environment~~	30
Results of Operations	30	18
Liquidity and Capital Resources	35	24
Application of Critical Accounting Policies	41	31
New Standards and Interpretations Adopted and Not Yet Adopted	43	33
Trend Information	43	34
Off-Balance Sheet Arrangements	43	34
Safe Harbor	44	34
ITEM 6:DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES	44	35
A. Directors and Senior Management	44	35
B. Compensation	46	37
C. Board Practices	48	38
D. Employees	49	39
E. Share Ownership	49	39
ITEM 7:MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS	50	41
A. Major Shareholders	50	41
B. Related Party Transactions	51	41
C. Interests of Experts and Counsel	51	42
ITEM 8:FINANCIAL INFORMATION	52	42
A. Consolidated Statements and Other Financial Information	52	42
B. Significant Changes	53	42

~~(i)~~

ITEM 9: THE OFFER AND LISTING	53	43
A. Offer and Listing Details	53	43
B. Plan of Distribution	53	43
C. Markets	54	43
D. Selling Shareholders	54	43

(i)

TABLE OF CONTENTS

E. Dilution		43
~~E. Dilution~~	54
F. Expenses of the Issue	54	43
ITEM 10:ADDITIONAL INFORMATION	54	44
A. Share Capital	54	44
B. Memorandum and Articles of Association	54	44
C. Material Contracts	56	45
D. Exchange Controls	56	45
E. Taxation	57	46
F. Dividends and Paying Agents	61	51
G. Statement by Experts	61	51
H. Documents on Display	61	51
I. Subsidiary Information	61	51
ITEM 11:QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	61	51
ITEM 12:DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES	61	51
PART II.	61	52
ITEM 13:DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES	61	52
ITEM 14:MATERIAL MODIFICATIONS TO RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS		52
~~OF PROCEEDS~~	61
ITEM 15:CONTROLS AND PROCEDURES	62	52
ITEM 16: [RESERVED]	64	54
ITEM 16A: AUDIT COMMITTEE FINANCIAL EXPERT	64	54
ITEM 16B:CODE OF ETHICS	64	54
ITEM 16C:PRINCIPAL ACCOUNTANT FEES AND SERVICES	65	55
ITEM 16D:EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES	65	55
ITEM 16E: PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS		55
~~AFFILIATED PURCHASERS~~	65
ITEM 16F: CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT	65	56
ITEM 16G:CORPORATE GOVERNANCE	67	56
ITEM 16H:MINE SAFETY DISCLOSURE	67	56
ITEM 17:FINANCIAL STATEMENTS	67	56
ITEM 18:FINANCIAL STATEMENTS	68	57
ITEM 19: EXHIBITS	~~144~~	123

(ii)

TABLE OF CONTENTS

PART I

FORWARD-LOOKING STATEMENTS

This document contains certain forward-looking information and statements, including statements relating to matters that are not historical facts and statements of our beliefs, intentions and expectations about developments, results and events which will or may occur in the future, which constitute “forward-looking information” within the meaning of applicable Canadian securities legislation and “forward-looking statements” within the meaning of the “safe harbor” provisions of theUnited States, Private Securities Litigation Reform Act of 1995, as amended, collectively referred to as “forward-looking statements”. Forward-looking statements are typically identified by words such as “anticipate”, “could”, “project”, “should”, “expect”, “seek”, “may”, “intend”, “likely”, “will”, “plan”, “estimate”, “believe” and similar expressions suggesting future outcomes or statements regarding an ~~outlook.~~

outlook or their negative or other comparable words. Also, discussions of strategy that involve risks and uncertainties share this “forward-looking” character.

Forward-looking statements are included throughout this document and include, but are not limited to, statements with respect to: our projected revenues; markets; production, demand and prices for products and services, including ~~iron ore and other minerals;~~commodities; trends; economic conditions; performance; business prospects; results of operations; capital expenditures; foreign exchange rates; derivatives; and our ability to expand our business. All such forward-looking statements are based on certain assumptions and analyses made by us in light of our experience and perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate in the circumstances. These forward-looking statements are, however, subject to known and unknown risks and uncertainties and other factors. As a result, actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits will be derived therefrom. These risks, uncertainties and other factors include, among ~~others:~~

~~our financial results may fluctuate substantially from period to period;~~
~~our earnings and, therefore, our profitability may be affected by commodities price volatility;~~
~~a weak global economy may adversely affect our business and financial results and have a material adverseeffect on our liquidity and capital resources;~~
others, those set forth under the ~~global commodity supply chain and merchant banking businesses are highly competitive;~~section entitled “Item 3: Key Information – D. Risk Factors
the operation of the iron ore mine underlying our royalty interest is generally determined by a third partyoperator and we have no decision making power as to how the property is operated. In addition, we haveno or very limited access to technical or geological data respecting the mine, including as to reserves.The owner’s failure to perform or other operating decisions made by the owner, including scaling backor ceasing operations, could have a material adverse effect on our revenue, results of operations andfinancial condition;
~~the profitability of our global commodity supply chain operations depends, in part, on the availability ofadequate sources of supply;~~
~~we may face a lack of suitable acquisition or merger or other proprietary investment candidates, whichmay limit our future growth;~~
~~strategic investments or acquisitions and joint ventures, or our entry into new business areas, may resultin additional risks and uncertainties in our business;~~
~~the industries in which we operate may be affected by disruptions beyond our control;~~
~~our commodities activities are subject to counterparty risks associated with performance of obligations byour counterparties and suppliers;~~
~~larger and more frequent capital commitments in our merchant banking business increase the potential forsignificant losses;~~
~~we are subject to transaction risks that may have a material adverse effect on our business, results ofoperations, financial condition and cash flow;~~
our risk management strategies leave us exposed to unidentified or unanticipated risks that could impactour risk management strategies in the future and could negatively affect our results of operations andfinancial condition;

”.

~~derivative transactions may expose us to unexpected risks and potential losses;~~
~~fluctuations in interest rates and foreign currency exchange rates may affect our results of operations andfinancial condition;~~
~~our operations and infrastructure may malfunction or fail;~~
~~the exploration and development of mining and resource properties is inherently dangerous and subject torisks beyond our control;~~
~~our natural gas and related operations are subject to inherent risks and hazards;~~
~~mineral resource calculations are only estimates;~~
~~estimates of natural gas and oil reserves involve uncertainty;~~
~~if we are unsuccessful in acquiring or finding additional reserves, our future natural gas, NGL and oilproduction will decline;~~
~~our global commodity supply chain operations are subject to environmental laws and regulations that mayincrease the costs of doing business and may restrict such operations;~~
~~future environmental and reclamation obligations respecting our resource properties and interests maybe material;~~
~~we, or the operators of our current and any future resource interests, may not be able to secure requiredpermits and licenses;~~
there can be no assurance that we will be able to obtain adequate financing in the future or that the termsof such financing will be favourable and, as a result, we may have to raise additional capital through theissuance of additional equity, which will result in dilution to our shareholders;
~~limitations on our access to capital could impair our liquidity and our ability to conduct our business;~~
~~we may substantially increase our debt in the future;~~
as a result of our global operations, we are exposed to political, economic, legal, operational and otherrisks that could negatively affect our business, our results of operations, financial condition and cash flow;
~~we are exposed to litigation risks in our business that are often difficult to assess or quantify and we mayincur significant legal expenses in defending against such litigation;~~
~~we rely significantly on the skills and experience of our executives and the loss of any of these individualsmay harm our business;~~
we may experience difficulty attracting and retaining qualified management and technical personnel toefficiently operate our business and the failure to operate our business effectively could have a materialand adverse effect on our profitability, financial condition and results of operations;
~~certain of our directors and officers may, from time to time, serve in similar positions with other publiccompanies, which may put them in a conflict of interest position from time to time;~~
~~we conduct business in countries with a history of corruption and transactions with foreign governmentsand doing so increases the risks associated with our international activities;~~
~~employee misconduct could harm us and is difficult to detect and deter;~~
~~we may incur losses as a result of unforeseen or catastrophic events, including the emergence of a pandemic,terrorist attacks or natural disasters;~~
we have identified material weaknesses in our internal control over financial reporting in connection withsubsidiaries acquired in 2012 and, if such weaknesses are not fully remediated, our ability to produce accurateand timely financial statements could be impacted;
~~investors’ interests may be diluted and investors may suffer dilution in their net book value per share if weissue additional shares or raise funds through the sale of equity securities;~~
~~certain factors may inhibit, delay or prevent a takeover of our company, which may adversely affect theprice of our common shares; and~~
~~a small number of our shareholders could significantly influence our business.~~

Although we believe that the expectations reflected in such forward-looking information and statements are reasonable, we can give no assurance that such expectations will prove to be accurate. Accordingly, readers should not place undue reliance upon any of the forward-looking information and statements set out in this document. All of the forward-looking information and statements contained in this document are expressly qualified, in their entirety, by this cautionary statement. The various risks to which we are exposed are described in additional detail in this document under the section entitled “Item 3: Key Information – D. Risk Factors”. The forward-looking information and statements are made as of the date of this document and we assume no obligation to update or revise them except as required pursuant to applicable securities laws.

As used in this annual report, the terms “we”, “us” and “our” mean MFC ~~Industrial~~Bancorp Ltd. and our subsidiaries, unless otherwise indicated.

~~CAUTIONARY NOTE ON RESOURCE ESTIMATES~~

~~As a reporting issuer in Canada, we are required by Canadian law to provide disclosure respecting our mineral interests in accordance with Canadian National Instrument 43-101 -~~~~Standards of Disclosure for Mineral Projects~~, referred to as “NI 43-101”. Accordingly, you are cautioned that the information contained in this annual report on Form 20-F may not be comparable to similar information made public by U.S. companies under the United States federal securities laws and the rules and regulations thereunder. In particular, the terms “measured resource”, “indicated resource” and “inferred resource” as may be used herein are not defined in the Securities and Exchange Commission’s, referred to as the “SEC”,~~Industry Guide 7~~ and are normally not permitted to be used in reports and registration statements filed with the SEC. Investors are cautioned not to assume that any part or all of mineral deposits in these categories will ever be converted into mineral reserves with demonstrated economic viability. In addition, the estimation of inferred resources involves far greater uncertainty as to their existence and economic viability than the estimation of other categories of resources. Under Canadian rules, estimates of inferred mineral resources may not form the basis of feasibility or pre-feasibility studies, except in rare cases. U.S. investors are cautioned not to assume that part or all of an inferred resource exists or is economically or legally minable.

~~NOTE ON NATURAL GAS AND OIL DISCLOSURE AND DEFINITIONS~~

~~On March 15, 2013, we were granted an exemption order by applicable Canadian securities regulators from the requirements of Canadian National Instrument 51-101 -~~~~Standards of Disclosure for Oil and Gas Activities~~, referred to as “NI 51-101”, applicable to our natural gas and oil disclosure. The exemption permits us to prepare such disclosure in accordance with the rules of the SEC in place of much of the disclosure required by NI 51-101. In accordance with the exemption, proved and probable natural gas and oil reserves data and certain other disclosures with respect to our natural gas and related activities in this document have been prepared in accordance with SEC requirements and definitions and, accordingly, may differ from corresponding information otherwise required by NI 51-101. Accordingly, such disclosures may not be comparable to those prepared by other Canadian reporting issuers.

NI 51-101 prescribes a relatively comprehensive set of disclosures in respect of oil and gas reserves and other disclosures about oil and gas activities. The SEC also prescribes an extensive set of disclosures but instructs reporting companies to remain flexible in their disclosure, where appropriate, in order to provide meaningful disclosure in the circumstances. Among other differences, NI 51-101 specifies that proved, probable and possible reserves be determined in accordance with the~~Canadian Oil and Gas Evaluation Handbook~~ definitions and the SEC requirements provide for the use of pricing based on a historic 12-month average for reserves estimation and disclosure, whereas NI 51-101 requires the evaluation of oil and gas reserves to be based on a forecast of economic conditions.

Where applicable, barrels of oil equivalent amounts, referred to as “boe”, have been calculated using a conversion ratio of six thousand cubic feet of natural gas to one barrel of oil which is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. BOEs may be misleading, particularly if used in isolation. In addition, the following industry specific terms are utilized in this annual report on Form 20-F:

~~AECO Daily Index~~ – The daily price as quoted in Canadian Enerdata’s Canadian Gas Price Reporter in the table entitled “Daily Spot Gas Price at AECO C & NOVA Inventory Transfer” in the column “Price ($/GJ)”, Sub column “Avg”, for each individual day.

~~bbl~~ ~~– Barrels.~~

~~bbl/d~~ ~~– Barrels per day.~~

CURRENCY

~~boe/d~~ ~~– Barrels of oil equivalent per day.~~

~~Developed reserves~~ – Reserves that can be expected to be recovered through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared to the cost of a new well.

~~mbbl~~ ~~– Thousand barrels.~~

~~mboe~~ ~~– Thousand barrels of oil equivalent.~~

~~mcf~~ ~~– Thousand cubic feet.~~

~~mcf/d~~ ~~– Thousand cubic feet per day.~~

~~mmcf~~ ~~– Million cubic feet.~~

~~mmcf/d~~ ~~– Million cubic feet per day.~~

~~Natural gas or gas~~ – The lighter hydrocarbons and associated non-hydrocarbon substances occurring naturally in an underground reservoir, which under atmospheric conditions, are essentially gases, but which may contain natural gas liquids. Natural gas can exist in a reservoir either dissolved in crude oil (solution gas) or in a gaseous form (associated gas or non-associated gas). Non-hydrocarbon substances may include hydrogen sulphide, carbon dioxide and nitrogen.

~~Net acres or Net wells~~ ~~– The sum of the fractional working interests owned by us in gross acres or gross wells.~~

~~Net reserves~~ ~~– Remaining reserves, after deduction of estimated royalties and including royalty interests.~~

~~NGL~~ or~~NGLs~~ – Natural gas liquid or natural gas liquids, which are naturally occurring substances found in natural gas, including ethane, butane, isobutane, propane and natural gasoline, that can be collectively removed from produced natural gas, separated into these substances and sold.

~~Probable reserves~~ – Those additional reserves that are less certain to be recovered than proved reserves. It is equally likely that the actual remaining quantities recovered will be greater or less than the sum of the estimated proved plus probable reserves.

~~Producing well~~ ~~– A well that is not a dry well. Productive wells include producing wells and wells that are mechanically capable of production.~~

~~Proved reserves~~ – Proved natural gas, NGL and oil reserves are those quantities of natural gas, NGL and oil, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible.

~~Undeveloped reserves~~ ~~– Proved reserves that are expected to be recovered from new wells on undrilled acreage or from existing wells where a relatively major expenditure is required for recompletion.~~

~~Working interest~~ – The interest in a property that gives the owner that share of production from the property. A working interest owner bears that share of the costs of exploration, development and production in return for a share of production. Working interests are typically burdened by overriding royalty interests or other interests.

~~CURRENCY~~

Unless otherwise indicated, all references in this document to “$” and “dollars” are to ~~United States~~Canadian dollars, all references to ~~“C$~~“US$”~~, “CDN$” and “Canadian dollars”~~ are to ~~Canadian~~United States dollars and all references to “Euro” or “€” are to the European Union Euro. ~~On March 21, 2014,~~

The following table sets out exchange rates, based on the ~~noon buying rates in New York City for cable transfers, as certified by the Federal Reserve~~ Bank of ~~New York,~~Canada daily noon exchange rate, referred to as the “Noon Rate”, for the ~~conversion~~translation of ~~Canadian~~United States dollars and Euros to Canadian dollars in effect at the end of the following periods, the average exchange rates during these periods (based on daily Noon Rates) and the range of high and low exchange rates for these periods:

TABLE OF CONTENTS

	Years Ended December 31,
	2016		2015		2014		2013		2012
	($/US$)
End of period		1.3427		1.3840		1.1601		1.0636		0.9949
High for period		1.2544		1.1728		1.0614		0.9839		0.9710
Low for period		1.4589		1.3990		1.1643		1.0697		1.0418
Average for period		1.3248		1.2787		1.1045		1.0299		0.9996
	($/€)
End of period		1.4169		1.5029		1.4038		1.4655		1.3118
High for period		1.3875		1.3111		1.3927		1.2859		1.2153
Low for period		1.5928		1.5298		1.5549		1.4724		1.3446
Average for period		1.4660		1.4182		1.4671		1.3681		1.2850

On March 30, 2017, the Noon Rate for the translation of United States dollars and Euros to Canadian dollars were C$US$1.00 = ~~$0.8936~~$1.3279 and €1.00 = ~~$1.3783,~~$1.4244, respectively.

NOTE ON FINANCIAL AND OTHER INFORMATION

Unless otherwise stated, all financial information presented herein has been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, referred to as “IFRS” and the “IASB”, respectively, which may not be comparable to financial data prepared by many U.S. companies.

Due to rounding, numbers presented throughout this document may not add up precisely to the totals we provide and percentages may not precisely reflect the absolute figures.

All websites referred to herein are inactive textual references only, meaning that the information contained on such websites is not incorporated by reference herein and you should not consider information contained on such websites as part of this document unless expressly specified.

NON-IFRS FINANCIAL MEASURES

This document includes “non-IFRS financial measures”, that is, financial measures that either exclude or include amounts that are not excluded or included in the most directly comparable measure calculated and presented in accordance with IFRS. Specifically, we make use of the non-IFRS measure “Operating EBITDA from continuing operations”.

Operating EBITDA from continuing operations is defined as earnings from continuing operations before interest, taxes, depreciation, depletion, amortization and impairment. Our management uses Operating EBITDA from continuing operations as a measure of our operating results and considers it to be a meaningful supplement to net income as a performance measurement, primarily because we incur significant depreciation and depletion and the exclusion of impairment losses in Operating EBITDA from continuing operations eliminates the non-cash impact.

Operating EBITDA from continuing operations is used by investors and analysts for the purpose of valuing an issuer. The intent of Operating EBITDA from continuing operations is to provide additional useful information to investors and the measure does not have any standardized meaning under IFRS. Accordingly, this measure should not be considered in isolation or used in substitute for measures of performance prepared in accordance with IFRS. Other companies may calculate Operating EBITDA from continuing operations differently. For a reconciliation of net income from continuing operations to Operating EBITDA from continuing operations, please see “Item 5: Operating and Financial Review and Prospects – Results of Operations”.

ITEM 1: IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2: OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

TABLE OF CONTENTS 

ITEM 3: KEY INFORMATION

A. Selected Financial Data

The following table summarizes selected consolidated financial data prepared in accordance with IFRS for ~~each of~~ the five fiscal years ended December 31, ~~2013, 2012, 2011, 2010~~2016. Effective December 31, 2015, we changed our reporting currency to the Canadian dollar. Our consolidated financial statements as at and ~~2009.~~for each of the years in the three-year period ended December 31, 2014 were reported using the United States dollar. With the change in reporting currency, comparative financial information for years prior to 2015 has been recast from United States dollars to Canadian dollars to reflect our consolidated financial statements as if they had been historically reported in Canadian dollars, consistent with IAS 21, The Effects of Changes in Foreign Exchange Rates, referred to as “IAS 21”. The information in the table was extracted from ~~the detailed~~our consolidated financial statements and related notes included elsewhere in this ~~annual report~~ or previously filed annual reports on Form 20-F, and should be read in conjunction with such financial statements and with the information appearing under the heading “Item 5: Operating and Financial Review and Prospects”.

The results of discontinued operations have been re-presented for prior periods and certain prior period results have been reclassified to conform to current presentation. Please see “Item 5: Operating and Financial Review and Prospects – General – Reclassifications and Prior Periods

” for further information.

Selected Financial Data
(Stated in ~~United States~~Canadian dollars in accordance with IFRS)
(inIn thousands, other than per share amounts)

2013 2012⁽¹⁾ 2011 2010⁽²⁾⁽³⁾ 2009
Net sales       $ 806,831       $ 479,507       $   507,992       $ 84,476       $ 14,718
Net income (loss) from continuing
       operations⁽⁴⁾ 9,665 200,144 ⁽⁵⁾⁽⁶⁾ 12,193 45,839 (16,320 )
Net income (loss) income from
       discontinued operations⁽⁴⁾ — — — (15,523 ) 52,992
Basic earnings (loss) per share:
       Continuing operations 0.15 3.20 ⁽⁵⁾⁽⁶⁾ 0.19 1.28 (0.54 )
       Discontinued operations — — — (0.43 ) 1.75
Diluted earnings (loss) per share:
       Continuing operations 0.15 3.20 ⁽⁵⁾⁽⁶⁾ 0.19 1.28 (0.54 )
       Discontinued operations — — — (0.43 ) 1.75
Net income⁽⁴⁾ 9,665 200,144 ⁽⁵⁾⁽⁶⁾ 12,193 30,316 36,672
Net income per share:
       Basic 0.15 3.20 ⁽⁵⁾⁽⁶⁾ 0.19 0.85 1.21
       Diluted 0.15 3.20 ⁽⁵⁾⁽⁶⁾ 0.19 0.85 1.21
Total assets 1,318,598 1,360,623 858,957 854,256 951,720
Net assets 699,741 736,775 549,147 552,440 441,092
Long-term debt, less current portion 189,871 118,824 20,150 48,604 —
Shareholders’ equity 699,570 730,587 546,623 547,756 435,689
Capital stock, net of treasury stock 314,136 314,136 314,172 314,172 58,270
Weighted average number of common
       stock outstanding, diluted 62,757 62,555 62,561 35,859 30,354
Cash dividends paid to shareholders 15,013 13,762 12,512 — —
____________________

~~Notes:~~

	2016			2015			2014			2013			2012
						(Re-presented)(1)			(Re-presented)(1)			(Re-presented)(1)			(Re-presented)(1)
Gross revenues		$	1,131,657		$	1,629,100		$	1,405,330		$	719,156		$	424,726
(Loss) earnings from continuing operations(2)			(25,361)(3)			(246,228)(4)			17,840(5)			22,782			(16,170)(6)
Net (loss) income from continuing operations per share
Basic			(0.40)			(3.90)			0.28			0.36			(0.26)
Diluted			(0.40)			(3.90)			0.28			0.36			(0.26)
Net (loss) income from discontinued operations(2)			—			(241,402)(7)			(18,522)(8)			(13,050)(9)			212,754(10)
(Loss) earnings per share from discontinued operations:
Basic			—			(3.82)			(0.29)			(0.20)			3.40
Diluted			—			(3.82)			(0.29)			(0.20)			3.40
Net (loss) income(2)			(25,361)(3)			(487,630)(4)(7)			(682)(5)(8)			9,732(9)			196,584(6)(10)
Net (loss) income per share:
Basic			(0.40)			(7.72)			(0.01)			0.16			3.14
Diluted			(0.40)			(7.72)			(0.01)			0.16			3.14
Total assets			650,338			977,351			1,692,219			1,402,460			1,353,684
Net assets			329,430			369,200			778,933			744,245			733,018
Long-term debt, less current portion			80,564			174,333			297,157			201,947			31,012
Shareholders’ equity			327,520			367,192			777,717			744,063			726,862
Capital stock, net of treasury stock			358,831			358,831			358,570			357,322			357,322
Weighted average number of common stock outstanding, diluted			63,142			63,142			62,957			62,757			62,555
Cash dividends paid to shareholders			—			4,388			12,486			15,353			13,789

Notes:

(1)

We consolidated the natural gas operations of MFC Energy Corporation (formerly Compton Petroleum Corporation), referred to as “MFC Energy”, from September 7, 2012. Includes measurement period adjustments and error correction related to the acquisition of MFC Energy.

~~(2)~~

~~We consolidated the operations of Mass Financial Corp., referred to as “Mass”, from November 16, 2010.~~

~~(3)~~

In 2010, we deconsolidated our former industrial plant technology, equipment and service business, referred to as the “Industrial Business”, which resulted in it being accounted for as discontinued operations in our financial statements.

In connection with the reclassification of our mining interest and hydrocarbon properties to continuing operations in 2016, revenues, costs and expenses and income taxes have been re-presented for these periods.

(2)

~~(4)~~	~~Net income attributable to our shareholders.~~

~~(5)~~	Includes a bargain purchase of $218.7 million, or $3.50 per share on a basic and diluted basis, primarily in connection with our acquisition of MFC Energy. The bargain purchase arose as the consideration under the transaction was less than the fair value of the net identifiable assets acquired.

~~(6)~~	~~Includes total impairment and write-down of $48.2 million, or $0.77 per share, net of income tax recovery, on a subsidiary in India, which was subsequently sold in 2013.~~

Attributable to our shareholders.

(3)

Includes a net non-cash reversal of $8.6 million in connection with prior impairments on our remaining hydrocarbon properties.

(4)

Includes total non-cash impairment losses of $235.9 million, before an income tax recovery of $46.5 million, on our mining interest and remaining hydrocarbon properties interest that were reclassified as continuing operations and losses of $51.4 million related to a customer that filed for insolvency in February 2016 and $9.9 million on long-term off-take agreements entered into by a subsidiary acquired in 2014, which were terminated in 2016.

(5)

Includes a non-cash impairment loss on our hydrocarbon properties of $2.8 million.

(6)

Includes a total non-cash impairment loss and write-down of $48.0 million (net of income tax recovery) on a subsidiary in India, which was subsequently sold in 2013.

(7)

Includes total non-cash impairment losses of $176.3 million, before a deferred income tax expense of $50.9 million, recognized on our hydrocarbon properties and iron ore interests.

(8)

Includes total non-cash impairment losses of $30.4 million, before a deferred income tax recovery of $8.4 million, on our hydrocarbon properties.

TABLE OF CONTENTS 

(9)

Includes a non-cash impairment loss on our hydrocarbon properties of $6.5 million, before an income tax recovery of $1.7 million.

(10)

Includes a bargain purchase of $212.5 million, primarily in connection with our acquisition of certain hydrocarbon operations. The bargain purchase arose as the consideration under the transaction was less than the fair value of the net identifiable assets acquired.

B. Capitalization and Indebtedness

Not applicable.

C. Reasons for the Offer and Use of Proceeds

Not applicable.

D. Risk Factors

Certain statements in this annual report on Form 20-F are forward-looking statements, which reflect our management’s expectations regarding our future growth, results of operations, performance and business prospects and opportunities. Forward-looking statements consist of statements that are not purely historical, including any statements regarding beliefs, plans, expectations, projections or intentions regarding the future. While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein.

Such estimates, projections or other forward-looking statements involve various risks and uncertainties as outlined below. We caution the reader that important factors in some cases have affected and, in the future, could materially affect actual results and cause actual results to differ materially from the results expressed in any such estimates, projections or other forward-looking statements.

An investment in our common shares involves a number of risks. You should carefully consider the following risks and uncertainties in addition to other information in this annual report on Form 20-F in evaluating our company and our business before ~~purchasing our common shares.~~making any investment decisions. Our business, ~~operations~~operating and financial condition could be ~~materially and adversely affected by one or more~~harmed due to any of the following ~~risks.~~

risks, which include risks that are primarily or partially related to our discontinued operations.

Risk Factors Relating to Our Business

– Risks Relating to Continuing Operations

Our financial results may fluctuate substantially from period to period.

We expect our business to experience significant periodic variations in its revenues and results of operations in the future. These variations may be attributed in part to the fact that our merchant banking revenues are often earned upon the successful completion of a transaction, the timing of which is uncertain and beyond our control. In many cases, we may receive little or no payment for engagements that do not result in the successful completion of a transaction. Additionally, ~~through our merchant banking business,~~ we seek to acquire undervalued assets where we can use our experience and management to realize upon the value. Often, we will hold or build upon these assets over time and we cannot predict the timing of when these assets’ values may be realized. As a result, we are unlikely to achieve steady and predictable earnings, which could in turn adversely affect our financial condition and results of operations.

A weakening of the global economy, including capital and credit markets, could adversely affect our business and financial results and have a material adverse effect on our liquidity and capital resources.

Our business, by its nature, does not produce predictable earnings and it may be materially affected by conditions in the global financial markets and economic conditions generally. As demand for our products and merchant banking services has historically been determined by general global macro-economic activities, demand and prices for our products and services have historically decreased substantially during economic slowdowns. A significant economic downturn may affect our sales and profitability. Further, our suppliers and customers may also be adversely affected by an economic downturn. Depending on their severity and duration, the effects and consequences of a global economic downturn could have a material adverse effect on our liquidity and capital resources, including our ability to raise capital, if needed, and otherwise negatively impact our business and financial results.

A weakening of global economic conditions would likely aggravate the adverse effects of difficult economic and market conditions on us and on others in the merchant banking industry. In particular, we may face, among others, the following risks related to any future economic downturn: increased regulations of our banking operations; compliance with such regulation may increase the costs of our banking operations, may affect the pricing of our products and services and limit our ability to pursue business opportunities; reduced demand for our products and services; inability of our customers to comply fully or in a timely manner with their existing obligations; and the degree of uncertainty concerning economic conditions may adversely affect the accuracy of our estimates, which, in turn, impact the reliability of the process and the sufficiency of our credit loss allowances.

Further, any disruption or volatility in the global financial markets could have a material adverse effect on us, including our ability to access capital and liquidity on financial terms acceptable to us, if at all. Market deterioration and weakness can result in a material decline in the number and size of the transactions that

TABLE OF CONTENTS

we execute for our own account or for our clients and to a corresponding decline in our revenues. Any market weakness can further result in losses to the extent that we hold assets in such market. If all or some of the foregoing risks were to materialize, this could have a material adverse effect on us.

Our earnings and, therefore, our profitability may be affected by ~~commodities~~ price ~~volatility.~~

volatility in our various products.

The majority of our revenue from our ~~global commodity supply chain~~merchant banking business is currently derived from the sale of ~~commodities, including~~products, which include metals ~~hydrocarbons~~ and other materials. As a result, our earnings are directly related to the prices of these ~~commodities. In addition, our revenues from our iron ore and natural gas interests are directly connected to the prices of such commodities.~~underlying products. There are many factors influencing the price of ~~metals, hydrocarbons and other commodities,~~these products, including: expectations for inflation; global and regional demand and production; political and economic conditions; and production costs in major producing regions. These factors are beyond our control and are impossible for us to predict. Changes in the prices of ~~iron ore, hydrocarbons, metals and other commodities~~our products may adversely affect our operating results.

~~A weak global economy may adversely affect our business and financial results and have a material adverse effect on our liquidity and capital resources.~~

~~Our business, by its nature, does not produce predictable earnings and it may be materially affected by conditions in the global financial markets and economic conditions generally.~~

Global prices for our commodities are influenced strongly by international demand and global economic conditions. Uncertainties or weaknesses in global economic conditions, including the ongoing sovereign debt crisis in Europe, could adversely affect our business and negatively impact our financial results. In addition, the current level of international demand for certain of our commodities, including iron ore used in steel production, is driven largely by industrial growth in China. If the economic growth rate in China slows for an extended period of time, or if another global economic downturn were to occur, we would likely see decreased demand for such products and decreased prices, resulting in lower revenue levels and decreasing margins. We are not able to predict whether the global economic conditions will improve or worsen and the resultant impact it may have on our operations and the industry in general going forward.

Market deterioration and weakness can result in a material decline in the number and size of the transactions that we execute for our own account and for our clients and to a corresponding decline in our revenues. Any market weakness can further result in losses to the extent that we own assets in such market.

The ~~global commodity supply chain and~~ merchant banking ~~businesses are~~business is highly competitive.

All aspects of the ~~global commodity supply chain and~~ merchant banking ~~businesses~~business are highly competitive and we expect them to remain so.

Our competitors include merchant and investment banks, brokerage firms, commercial banks, private equity firms, hedge funds, financial advisory firms and natural resource and mineral royalty companies. Many of our competitors have substantially greater capital and resources, including access to ~~commodities~~ supply, than we do. We believe that the principal factors affecting competition in our business include transaction execution, our products and services, client relationships, reputation, innovations, credit worthiness and price. We have experienced price competition in some of our trading business.

The scale of our competitors has increased in recent years as a result of substantial consolidation. These firms have the ability to offer a wider range of products than we do, which may enhance their competitive position. They also have the ability to support their business with other financial services, such as commercial lending, in an effort to gain market share, which has resulted, and could further result, in pricing pressure on our businesses.

If we are unable to compete effectively with our competitors, our business and results of operations will be adversely affected.

~~The operation~~

During the year ended December 31, 2016, none of our customers accounted for more than 10% of our revenues. However, the ~~iron ore mine underlying~~loss of key customers, due to competitive conditions or otherwise, may adversely affect our ~~royalty interest is generally determined by a third party operator and~~results of operations.

If the fair values of our long-lived assets fall below our carrying values, we ~~have no decision making power as~~would be required to how the property is operated. In addition, we have no or very limited access to technical or geological data respecting the mine including as to reserves. The operator’s failure to perform or other operating decisions, including scaling back or ceasing operations,record non-cash impairment losses that could have a material ~~adverse effect~~impact on our ~~revenue,~~ results of ~~operations and financial condition.~~

~~The commodities and resources segment~~operations.

We review the carrying value of long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Should the markets for our ~~business includes our indirect royalty interest~~products deteriorate, should we decide to invest capital differently or should other cash flow assumptions change, it is possible that we will be required to record non-cash impairment losses in the Wabush iron ore mine. The revenue derived from the interest is based on production generated by the mine’s third party operator. The operator generally has the power to determine the manner in which the iron ore is exploited, including decisions to expand, continue or reduce production from the mine, and decisions about the marketing of products extracted from the mine. The interests of the operator and our interests may not always be aligned. As an example, it will, in almost all cases, be in our interest to advance production as rapidly as possible in order to maximize near-term cash flow, while the operator may, in many cases, take a more cautious approach to development as it is at risk with respect to the cost of development and operations. Our inability to control the operations of the mine can adversely affect our profitability, results of operations and financial condition. Similar adverse effects may result from any other interests we may acquirefuture that ~~are primarily operated by a third party operator.~~

On February 11, 2014, the operator of the Wabush iron ore mine announced that it planned to idle production of the mine by the end of the first quarter of 2014 as a result of increased costs and the lower iron ore pricing environment. If production operations at the mine are not recommenced by the operator, our royalty income from this interest will be limited to minimum royalty payments of C$3.25 million per year, which wouldcould have a material adverse effect on our results of operations.

To the extent that we retain our current indirect royalty interest, we will be dependent to a large extent upon the financial viability and operational effectiveness of the operator of the mine. Payments from production generally flow through the operator and there is a risk of delay and additional expense in receiving such revenues. Payments may be delayed by restrictions imposed by lenders, delays in the sale or delivery of products, accidents or the insolvency of the operator. Our rights to payment under the royalties will likely have to be enforced by contract. This may inhibit our ability to collect outstanding royalties upon a default. Failure to receive any payments from the owners or operators of mines in which we have or may acquire a royalty interest may result in a material and adverse effect on our profitability, results of operations and financial condition.

To the extent grantors of royalties and other interests do not abide by their contractual obligations, we may be forced to take legal action to enforce our contractual rights. Such litigation may be time consuming and costly and, as with all litigation, there would be no guarantee of success. Should any such decision be determined adversely to us, such decision may have a material and adverse effect on our profitability, results of operations and financial condition.

In addition, we have no or very limited access to technical or geological data relating to the mine, including data as to reserves, nor have we received an NI 43-101 compliant technical report in respect of the mine. Accordingly, we can provide no assurances as to the level of reserves at the mine. If the operator determines there are insufficient reserves to economically operate the mine, it may scale back or cease operations, which could have a material adverse effect on our profitability, results of operations and financial condition.

~~The profitability of our global commodity supply chain operations depends, in part, on the availability of adequate sources of supply.~~

Our global commodity supply chain business relies on, among other things, numerous outside sources of supply for our operations. These suppliers generally are not bound by long-term contracts and will have no obligation to provide commodities to us in the future. In periods of low industry prices, suppliers may elect to hold commodities to wait for higher prices or intentionally slow their activities. If a substantial number of suppliers cease selling commodities to us, we will be unable to source and/or execute commodities transactions at desired levels and our results of operations and financial condition could be materially adversely affected.

We may face a lack of suitable acquisition, merger or other proprietary investment candidates, which may limit our growth.

In order to grow our business, we may seek to acquire, merge with or invest in new companies or opportunities. Our failure to make acquisitions or investments may limit our growth. In pursuing acquisition and investment opportunities, we face competition from other companies having similar growth and investment strategies, many of which may have substantially greater resources than us. Competition for these acquisitions or investment targets could result in increased acquisition or investment prices, higher risks and a diminished pool of businesses, services or products available for acquisition or investment.

Strategic investments or acquisitions and joint ventures, or our entry into new business areas, may result in additional risks and uncertainties in our business.

We have grown and intend to continue to grow our business both through internal expansion and through strategic investments, acquisitions or joint ventures. When we make strategic investments or acquisitions or enter into joint ventures, we expect to face numerous risks and uncertainties in combining or integrating the relevant businesses and systems, including the need to combine accounting and data processing systems and management controls and to integrate relationships with customers and business partners.

TABLE OF CONTENTS

Acquisitions also frequently result in the recording of goodwill and other intangible assets, which are subject to potential non-cash impairments in the future that could have a material adverse effect on our operating results. Furthermore, the costs of integrating acquired businesses (including restructuring charges associated with the acquisitions, as well as other related costs, such as accounting, legal and investment banking fees) could significantly impact our operating results.

Although we perform due diligence on the businesses we purchase, in light of the circumstances of each transaction, an unavoidable level of risk remains regarding the actual condition of these businesses. We may not be able to ascertain the value or understand the potential liabilities of the acquired businesses and their operations until we assume operating control of these businesses.

Furthermore, any acquisitions of businesses or facilities ~~including our recent acquisition of MFC Energy,~~ could entail a number of risks, ~~including:~~

including, among others: problems with the effective integration of operations;
inability to maintain key pre-acquisition business relationships;
increased operating costs;
exposure to substantial unanticipated liabilities;
difficulties in realizing projected efficiencies, synergies and cost savings;
the risks of entering markets in which we have limited or no prior experience; and
the possibility that we may be unable to recruit additional managers with the necessary skills to ~~supplementthe~~supplement the management of the acquired businesses.

In addition, geographic and other expansions, acquisitions or joint ventures may require significant managerial attention, which may be diverted from our other operations. If we are unsuccessful in overcoming these risks, our business, financial condition or results of operations could be materially and adversely affected.

~~The industries in which we operate may be affected by disruptions beyond our control.~~

Our global commodity supply chain operations include direct or indirect investments in assets, such as smelting, refining, mining, processing and hydrocarbon operations. Transport disruption, weather and natural disasters such as hurricanes and flooding, unexpected maintenance problems, collapse or damage to mines or wells, unexpected geological variations, labour disruptions and changes in laws and regulations relating to occupational safety, health and environmental matters are some of the factors that may adversely affect our financial condition and results of operations. These factors can affect costs at particular assets for varying periods. In addition, smelting, refining, mining, processing and hydrocarbon operations also rely on key inputs, such as labour, spare parts, fuel and electricity. Disruption to the supply of key inputs, or changes in their pricing, may have a significant adverse impact on our future results.

~~Our commodities~~merchant banking activities are subject to counterparty risks associated with the performance of obligations by our ~~counterparties and suppliers.~~

counterparties.

Our business is subject to commercial risks, which include counterparty risk, such as failure of performance by ~~commodities suppliers and failure of payment by~~ our ~~trading customers.~~counterparties. We seek to reduce the risk of ~~supplier~~ non-performance by requiring credit support from creditworthy financial institutions where appropriate. We also attempt to reduce the risk of non-payment by ~~purchasers of commodities~~customers or other counterparties by imposing limits on open accounts extended to creditworthy customers and imposing credit support requirements for other customers. Nevertheless, we are exposed to the risk that parties owing us or our clients and other financial intermediaries may default on their obligations to us due to bankruptcy, lack of liquidity, operational failure or other reasons. These counterparty obligations may arise, for example, from placing deposits, the extension of credit or guarantees in trading and investment activities and participation in payment, securities and ~~commodity trading~~supply chain transactions on our behalf and as an agent on behalf of our clients. If any such customers or counterparties default on their obligations, our business, results of operations, financial condition and cash flow could be adversely affected.

Larger and more frequent capital commitments in our ~~global commodity supply chain~~merchant banking business increase the potential for significant losses.

We may enter into large transactions in which we commit our own capital as part of our ~~global commodity supply chain business to facilitate client trading activities.~~merchant banking business. The number and size of these large transactions may materially affect our results of operations in a given period. ~~Market fluctuations may also cause us to incur significant losses from our trading activities.~~ To the extent that we own assets (i.e., have long positions), a downturn in the value of those assets or in the markets in which those assets are traded or situated could result in losses. Conversely, to the extent that we have sold assets we do not own (i.e., have short positions) in any of those markets, an upturn in those markets could expose us to potentially large losses as we attempt to cover our short positions by acquiring assets in a rising market.

We are subject to transaction risks that may have a material adverse effect on our business, results of operations, financial condition and cash flow.

We manage transaction risks through allocating and monitoring our capital investments in circumstances where the risk to our capital is minimal, carefully screening clients and transactions and engaging qualified personnel to manage transactions. Nevertheless, transaction risks can arise from ~~among other things,~~ our ~~trading and merchant banking~~proprietary investing activities. These risks include market and credit risks associated with our merchant banking operations. We intend to make investments in highly unstructured situations and in companies undergoing severe financial distress and such investments often involve severe time constraints. These investments may expose us to significant transaction risks. An unsuccessful investment may result in the total loss of such investment and may have a material adverse effect on our business, results of operations, financial condition and cash flow.

TABLE OF CONTENTS

Our risk management strategies may leave us exposed to unidentified or unanticipated risks that could impact our risk management strategies in the future and could negatively affect our results of operations and financial condition.

We use a variety of instruments and strategies to manage exposure to various types of risks. For example, we may use derivative foreign exchange contracts to manage our exposure and our clients’ exposure to foreign currency exchange rate risks. If any of the variety of instruments and strategies we utilize to manage our exposure to various types of risk are not effective, we may incur losses. Many of our strategies are based on historical trading patterns and correlations. However, these strategies may not be fully effective in mitigating our risk exposure in all market environments or against all types of risk. Unexpected market developments may affect our risk management strategies and unanticipated developments could impact our risk management strategies in the future.

Derivative transactions may expose us to unexpected risk and potential losses.

We, from time to time, enter into derivative transactions that require us to deliver to the counterparty ~~the~~an underlying security, loan or other obligation in order to receive payment. Such derivative transactions may expose us to unexpected market, credit and operational risks that could cause us to suffer unexpected losses. Severe declines in asset values, unanticipated credit events or unforeseen circumstances may create losses from risks not appropriately taken into account in the structuring and/or pricing of a derivative transaction. In a number of cases, we may not hold the underlying security, loan or other obligation and may have difficulty obtaining, or be unable to obtain, the underlying security, loan or other obligation through the physical settlement of other transactions. As a result, we are subject to the risk that we may not be able to obtain the security, loan or other obligation within the required contractual time frame for delivery. This could cause us to forfeit the payments due to us under these contracts or result in settlement delays with the attendant credit and operational risk as well as increased costs to us.

The operations of our bank subsidiary are subject to regulation which could adversely affect our business and operations.

The operations of MFC Merchant Bank Limited, referred to as the “Bank”, are subject to a number of directives and regulations, which materially affect our businesses. The statutes, regulations and policies to which we are subject may be changed at any time. In addition, the interpretation and the application by regulators of the laws and regulations to which we are subject may also change from time to time. Extensive legislation affecting the financial services industry has recently been adopted in Europe that directly or indirectly affects our business, including in Malta and other jurisdictions, and regulations are in the process of being implemented. The manner in which those laws and related regulations are applied to the operations of credit institutions is still evolving. Any legislative or regulatory actions and any required changes to our business operations resulting from such legislation and regulations could result in significant loss of revenue, limit our ability to pursue business opportunities in which we might otherwise consider engaging or provide certain products and services, affect the value of assets that we hold, require us to increase our prices and therefore reduce demand for our financial products, impose additional compliance and other costs on us or otherwise adversely affect our businesses. Accordingly, there can be no assurance that future changes in regulations or in their interpretation or application will not adversely affect us. Please see “Item 4: Information on the Company – Regulation

” for further information.

The operations of our Bank are exposed to risks faced by other financial institutions.

The operations of our Bank may involve transactions with counterparties in the financial services industry, including commercial banks, investment banks and other institutional clients. Defaults by, and even rumours or questions about the solvency of certain financial institutions and the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by other institutions. We may enter into transactions that could expose us to significant credit risk in the event of default by one of our significant counterparties. A default by a significant financial counterparty, or liquidity problems in the financial services industry generally, could have a material adverse effect on us.

TABLE OF CONTENTS

Any failure to remain in compliance with sanctions, anti-money laundering laws or other applicable regulations in the jurisdictions in which we operate could harm our reputation and/or cause us to become subject to fines, sanctions or legal enforcement, which could have an adverse effect on our business, financial condition and results of operations.

Our merchant banking business has adopted policies and procedures respecting compliance with sanctions and anti-money laundering laws and we have adopted various policies and procedures to ensure compliance with specific laws applicable to it, including internal controls and “know-your-customer” procedures aimed at preventing money laundering and terrorism financing; however, participation of multiple parties in any given transaction can make the process of due diligence difficult. Further, because trade finance can be more document-based than other banking activities, it is susceptible to documentary fraud, which can be linked to money laundering, terrorism financing, illicit activities and/or the circumvention of sanctions or other restrictions (such as export prohibitions, licensing requirements or other trade controls). While we are alert to high-risk transactions, we are also aware that efforts, such as forgery, double invoicing, partial shipments of goods and use of fictitious goods, may be used to evade applicable laws and regulations. If our policies and procedures are ineffective in preventing third parties from using our finance operations as a conduit for money laundering or terrorism financing without our knowledge, our reputation could suffer and/or we could become subject to fines, sanctions or legal action (including being added to any “blacklists” that would prohibit certain parties from engaging in transactions with us, including our banking subsidiary), which could have an adverse effect on our business, financial condition and results of operations. In addition, amendments to sanctions, anti-money laundering laws or other applicable laws or regulations in countries in which we operate could impose additional compliance burdens on our operations.

Fluctuations in interest rates and foreign currency exchange rates may affect our results of operations and financial condition.

Fluctuations in interest rates may affect the fair value of our financial instruments sensitive to interest rates. An increase or decrease in market interest rates may result in changes to the fair value of our fixed interest rate financial instrument liabilities, thereby resulting in a reduction in the fair value of our equity. Similarly, fluctuations in foreign currency exchange rates may affect the fair value of our financial instruments sensitive to foreign currency exchange rates.

~~Our operations and infrastructure may malfunction or fail.~~

Our business is highly dependent on our ability to process, on a daily basis, a number of transactions across diverse markets and the transactions we process have become increasingly complex. The inability

Some of our systems to accommodate an increasing volume of transactions could also constrain our ability to expand our businesses. If any of these systems do not operate properly or are disabled, or if there are other shortcomings or failures in our internal processes, people or systems, we could suffer impairments, financial loss, a disruption of our businesses, liability to clients, regulatory intervention or reputational damage.

~~The exploration and development of mining and resource properties is inherently dangerous and subject to risks beyond our control.~~

Companies engaged in resource activities are subject to all of the hazards and risks inherent in exploring for and developing natural resource projects. These risks and uncertainties include, but are not limited to, environmental hazards, industrial accidents, labour disputes, increases in the cost of labour, social unrest, fires, changes in the regulatory environment, impact of non-compliance with laws and regulations, explosions,

encountering unusual or unexpected geological formations or other geological or grade problems, unanticipated metallurgical characteristics or less than expected mineral recovery, encountering unanticipated ground or water conditions, cave-ins, pit wall failures, flooding, rock bursts, periodic interruptions due to inclement or hazardous weather conditions, earthquakes, seismic activity, other natural disasters or unfavourable operating conditions and losses. Should any of these risks or hazards affect a company’s exploration or development activities, they may: (i) cause the cost of development or production to increase to a point where it would no longer be economic to produce the metal or other resource from the company’s resources or expected reserves; (ii) result in a write down or write-off of the carrying value of one or more projects; (iii) cause delays or stoppage of mining or processing; (iv) result in the destruction of properties, processing facilities or third party facilities necessary for operations; (v) cause personal injury or death and related legal liability; or (vi) result in the loss of insurance coverage. The occurrence of any of above mentioned risks or hazards could result in an interruption or suspension of operation of the properties in which we hold an interest or any other properties we acquire in the future and have a material and adverse effect on our results of operations and financial condition.

~~Our natural gas and related operations are subject to inherent risks and hazards.~~

There are many operating risks and hazards inherent in exploring for, producing, processing, and transporting natural gas and oil. Drilling operations may encounter unexpected formations or pressures that could cause damage to equipment or personal injury and fires, explosions, blowouts, spills, or other accidents may occur. Additionally, we could experience interruptions to, or the termination of, drilling, production, processing, and transportation activities due to bad weather, natural disasters, delays in obtaining governmental approvals or consents, insufficient storage or transportation capacity, or other geological and mechanical conditions. Any of these events that result in a shutdown or slowdown of operations would adversely affect our business. While close well supervision and effective maintenance operations can contribute to maximizing production rates over time, production delays and declines from normal field operating conditions cannot be eliminated and can be expected to adversely affect revenue and cash flow levels to varying degrees.

Drilling activities, including completions, are subject to the risk that no commercially productive reservoirs will be encountered and we will not recover all or any portion of our investment. The cost of drilling, completing, and operating wells is often uncertain due to drilling in unknown formations, the costs associated with encountering various drilling conditions, such as over pressured zones, and changes in drilling plans and locations as a result of prior exploratory wells or additional seismic data and interpretations thereof.

~~Mineral resource calculations are only estimates.~~

Any figures presented for mineral resources in this document are only estimates. There are numerous uncertainties inherent in estimating mineral resources. Such estimates are subjective, and the accuracy of mineral resource estimation is a function of the quantity and quality of available data and of the assumptions made and judgments used in engineering and geological interpretation. These amounts are estimates only and the actual level of recovery of minerals from such deposits may be different. Differences between our assumptions, including economic assumptions such as mineral prices, market conditions and actual events, could have a material adverse effect on our mineral reserve and mineral resource estimates, financial position and results of operation. No assurance can be given that any mineral resource estimates will be ultimately reclassified as reserves.

~~Estimates of natural gas and oil reserves involve uncertainty.~~

Estimates of natural gas and oil reserves involve a great deal of uncertainty because they depend upon the reliability of available geologic and engineering data, which is inherently imprecise. Geologic and engineering data are used to determine the probability that an oil and gas reservoir exists at a particular location and whether hydrocarbons are recoverable from the reservoir. The probability of the existence and recoverability of reserves is less than 100% and actual recoveries may be materially different from estimates.

Such estimates require numerous assumptions relating to operating conditions and economic factors, including the prices of such commodities, availability of investment capital, recovery costs, the availability of enhanced recovery techniques, the ability to market production, and governmental and other regulatory factors, such as taxes, royalty rates, and environmental laws. A change in one or more of these factors could result in known quantities of natural gas and oil previously estimated becoming unrecoverable. Each of these factors also impacts recovery costs and production rates. In addition, estimates of reserves that are prepared by different independent engineers, or by the same engineers at different times, may vary substantially.

If we are unsuccessful in acquiring or finding additional reserves, our future natural gas, NGL and oil production would decline, thereby reducing our cash flows and results of operations and impairing our financial condition.

The rate of production from our natural gas and oil properties generally declines as reserves are depleted. Except to the extent we acquire interests in additional properties containing proved reserves, conduct successful exploration and development activities or, through engineering studies, optimize production performance or identify additional reserves, our proved reserves will decline materially as natural gas, NGLs and oil are produced. Accordingly, to the extent we are not successful in replacing such production, our future revenues may decline.

~~Creating and maintaining an inventory of prospects for future production depends on many factors, including:~~

~~obtaining rights to explore for, develop and produce hydrocarbons in promising areas;~~
~~drilling success;~~
~~the ability to complete long lead-time, capital-intensive projects timely and on budget;~~
~~the ability to find or acquire additional proved reserves at acceptable costs; and~~
~~the ability to fund such activity.~~

~~Our global commodity supply chain~~ operations are subject to environmental laws and regulations that may increase the costs of doing business and may restrict such operations.

~~All phases~~

Some of ~~a resource business~~our operations present environmental risks and hazards and are subject to environmental regulation pursuant to a variety of government laws and regulations. These regulations mandate, among other things, the maintenance of air and water quality standards and land reclamation. They also set forth limitations on the generation, transportation, storage and disposal of solid and hazardous waste. Compliance with such laws and regulations can require significant expenditures, and a breach may result in the imposition of fines and penalties, which may be material. Environmental legislation is evolving in a manner expected to result in stricter standards and enforcement, larger fines and liability and potentially increased capital expenditures and operating costs. Any breach of environmental legislation by the operator of properties underlying our interests or by us, as an owner or operator of a property, could have a material impact on the viability of the relevant property and impair the revenue derived from the owned property or applicable royalty or other interest, which could have a material adverse effect on our results of operations and financial condition. Further, environmental hazards may exist on the properties on which we hold, or have previously held, interests, which are unknown to us at present and have been caused by previous or existing owners or operators of the properties.

Failure to comply with applicable laws, regulations or permitting requirements may result in enforcement actions thereunder, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed and may include corrective measures requiring capital expenditures, installation of additional equipment or remedial actions. Parties engaged in resource operations or in the exploration or development of resource properties may also be required to compensate those suffering loss or damage by reason of the mining activities and may be subject to civil or criminal fines or penalties imposed for violations of applicable laws or regulations.

We may not be fully insured against certain environmental risks, either because such insurance is not available or because of high premium costs. In particular, insurance against risks from environmental pollution occurring over time, as opposed to sudden and catastrophic damages, is not available on

TABLE OF CONTENTS

economically reasonable terms. Accordingly, our properties may be subject to liability due to hazards that cannot be insured against or that have not been insured against due to prohibitive premium costs or for other reasons.

~~Future environmental and reclamation obligations respecting our resource properties and interests may be material.~~

We have not established a separate reclamation fund for the purpose of funding estimated future environmental and reclamation obligations. Any site reclamation or abandonment costs incurred in the ordinary course in a specific period will be funded out of cash flow from operations. It is not possible for us to predict our ability to fully fund the cost of all of our future environmental, abandonment and reclamation obligations. We expect to incur site restoration costs over a prolonged period as wells reach the end of their economic life. There are significant uncertainties related to decommissioning obligations and the impact of such obligations on the financial statements could be material. The eventual timing of and costs for these asset retirement obligations could differ from current estimates. The main factors that could cause expected cash flows to change are:

~~changes to laws and legislation;~~

~~construction of new facilities;~~
~~changes in the reserve estimates and the resulting amendments to the life of the reserves for our hydrocarbonoperations; and~~
~~changes in technology.~~

~~We or the operators of our current and any future resource interests may not be able to secure required permits and licenses.~~

Operations underlying our resource interests may require licenses and permits from various governmental authorities. There can be no assurance that we or the operator of any given project will be able to obtain all necessary licenses and permits that may be required to carry out exploration, development or other resource operations.

There can be no assurance that we will be able to obtain adequate financing in the future or that the terms of such financing will be favourable and, as a result, we may have to raise additional capital through the issuance of additional equity, which will result in dilution to our shareholders.

There can be no assurance that we will be able to obtain adequate financing in the future or that the terms of such financing will be favourable. Failure to obtain such additional financing could result in delay or indefinite postponement of further business activities. We may require new capital to grow our business and there are no assurances that capital will be available when needed, if at all. It is likely such additional capital will be raised through the issuance of additional equity, which would result in dilution to our shareholders.

Limitations on our access to capital could impair our liquidity and our ability to conduct our businesses.

Liquidity, or ready access to funds, is essential to companies engaged in ~~commodities trading and financing and merchant banking.~~our businesses. Failures of financial firms have often been attributable in large part to insufficient liquidity. Liquidity is of particular importance to our ~~commodities and resources~~merchant banking business and perceived liquidity issues may affect our clients’ and counterparties’ willingness to engage in transactions with us. Our liquidity could be impaired due to circumstances that we may be unable to control, such as a general market disruption or an operational problem that affects our clients, counterparties, our lenders or us. Further, our ability to sell assets may be impaired if other market participants are seeking to sell similar assets at the same time.

Our existing and future financing arrangements that contain operating and financial restrictions may restrict our business and financing activities.

The terms and conditions of our debt agreements and future financial obligations may impose, among other things, operating and financial restrictions on us. For example, they may, among other things, prohibit or otherwise limit our ability to: enter into other financing arrangements; incur additional indebtedness; create or permit liens on our assets; make investments; change the general nature of our business; utilize the proceeds of dispositions; and make capital expenditures. If we are unable to comply with the terms and conditions in our current or future financing agreements, a default could occur under the terms of those agreements. Our ability to comply with these terms and conditions, including meeting financial ratios and tests, is dependent on our future performance and may be affected by events beyond our control. If a default occurs under current or future financing agreements and we do not obtain a corresponding waiver or amendment to the underlying agreement, lenders could terminate their commitments to lend or accelerate our obligations thereunder and declare all amounts borrowed due and payable. If any of these events occur, we may be unable to find alternative financing on acceptable terms or at all.

We may substantially increase our debt in the future.

It may be necessary for us to obtain financing with banks or financial institutions to provide funds for working capital, capital purchases, potential acquisitions and business development. ~~However, because of our cash flow position, we do not expect that we will have any immediate need to obtain additional financing.~~ Interest costs associated with any debt financing may adversely affect our profitability. Further, the terms on which amounts may be borrowed – including standard financial covenants regarding the maintenance of financial ratios, the prohibition against engaging in major corporate transactions or reorganizations and the payment of dividends – may impose additional constraints on our business operations and our financial strength.

As a result of our global operations, we are exposed to political, economic, legal, operational and other risks that could adversely affect our business, results of operations, financial condition and cash flow.

In conducting our business in major markets around the world, we are subject to political, economic, legal, operational and other risks that are inherent in operating in other countries. These risks range from difficulties in settling transactions in emerging markets to possible nationalization, expropriation, price controls and other restrictive governmental actions, and terrorism. We also face the risk that exchange controls or similar restrictions imposed by foreign governmental authorities may restrict our ability to convert local currency received or held by us in their countries into Swiss francs, Canadian dollars, Euros or other hard currencies or to take those other currencies out of those countries. If any of these risks become a reality, our business, results of operations, financial condition and cash flow could be negatively impacted.

TABLE OF CONTENTS

We are exposed to litigation risks in our business that are often difficult to assess or quantify and we could incur significant legal expenses every year in defending against litigation.

We are exposed to legal risks in our business and the volume and amount of damages claimed in litigation against financial intermediaries are increasing. These risks include potential liability under securities or other laws for materially false or misleading statements made in connection with securities and other transactions,

potential liability for advice we provide to participants in corporate transactions and disputes over the terms and conditions of complex trading arrangements. We also face the possibility that counterparties in complex or risky trading transactions will claim that we improperly failed to ~~tell~~inform them of the risks involved or that they were not authorized or permitted to enter into such transactions with us and, accordingly, that their obligations to us are not enforceable. During a prolonged market downturn, we expect these types of claims to increase. We are also exposed to legal risks in our ~~merchant banking~~trade finance and proprietary investing activities.

We seek to invest in undervalued businesses or assets often as a result of financial, legal, regulatory or other distress affecting them. Investing in distressed businesses and assets can involve us in complex legal issues relating to priorities, claims and other rights of stakeholders. These risks are often difficult to assess or quantify and their existence and magnitude often remains unknown for substantial periods of time. We may incur significant legal and other expenses in defending against litigation involved with any of these risks and may be required to pay substantial damages for settlements and/or adverse judgments. Substantial legal liability or significant regulatory action against us could have a material adverse effect on our financial condition and results of operations.

We rely significantly on the skills and experience of our executives and the loss of any of these individuals may harm our business.

Our future success depends to a significant degree on the skills, experience and efforts of our executives and the loss of their services may compromise our ability to effectively conduct our business. We do not maintain “key person” insurance in relation to any of our employees.

We may experience difficulty attracting and retaining qualified management and technical personnel to efficiently operate our business and the failure to operate our business effectively could have a material ~~and~~ adverse effect on our profitability, financial condition and results of operations.

We are dependent upon the continued availability and commitment of our management, whose contributions to immediate and future operations are of significant importance. The loss of any such management could negatively affect our business operations. From time to time, we will also need to identify and retain additional skilled management and specialized technical personnel to efficiently operate our business. The number of persons skilled in the acquisition, exploration and development of royalties and interests in natural resource properties is limited, and competition for such persons is intense. Recruiting and retaining qualified personnel is critical to our success and there can be no assurance of our ability to attract and retain such personnel. If we are not successful in attracting and retaining qualified personnel, our ability to execute our business model and growth strategy could be affected, which could have a material and adverse impact on our profitability, results of operations and financial condition.

~~Certain of our directors and officers may, from time to time, serve in similar positions with other public companies, which may put them in a conflict position with us from time to time.~~

Certain of our directors and officers may, from time to time, serve as directors or officers of other companies involved in similar businesses to us and, to the extent that such other companies may participate in the same ventures in which we may seek to participate, such directors and officers may have a conflict of interest in negotiating and concluding terms respecting the extent of such participation. In all cases where our directors and officers have an interest in other companies, such other companies may also compete with us in commodities trading, financing and merchant banking and for the acquisition of royalties, similar interests or resources properties or projects. Such conflicts of our directors and officers may result in a material and adverse effect on our results of operations and financial condition.

We conduct business in countries with a history of corruption and transactions with foreign governments and doing so increases the risks associated with our international activities.

As we operate internationally, we are subject to the United ~~States~~States’ Foreign Corrupt Practices Act and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by the United States and other business entities that have securities registered in the United States for the purpose of obtaining or retaining business. We have operations and agreements with third parties in countries known to experience corruption. Further international expansion may involve more exposure to such practices. Our activities in these countries create the risk of unauthorized payments or offers of payments by ~~one of~~ our employees or consultants that could be in violation of various laws including theForeign Corrupt Practices Act, even though these parties are not always subject to our control. It is our policy to implement safeguards to discourage these practices by ~~employees.~~our employees and consultants. However, our existing safeguards and any future improvements may

prove to be less than effective and our employees or consultants may engage in conduct for which we might be held responsible. Violations of theForeign Corrupt Practices Act may result in criminal or civil sanctions and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition.

TABLE OF CONTENTS

The operation of the iron ore mine underlying our royalty interest was closed in 2014. Its operation is generally determined by a third-party operator and we currently have no decision-making power as to how the property is operated. In addition, we have no or very limited access to technical or geological data respecting the mine, including as to mineralization or reserves. The operator’s failure to perform or other operating decisions could have a material adverse effect on our revenue, results of operations and financial condition.

In late October 2014, the operator of the mine underlying our royalty interest announced that it would be closing the mine and, in 2015, commenced proceedings under the Companies’ Creditors Arrangement Act

(Canada), referred to as the “CCAA”, which are ongoing. The operator generally has the power to determine the manner in which the property is operated. The interests of the operator and our interests may not always be aligned. Our inability to control the operations of the mine can adversely affect our profitability, results of operations and financial condition.

To the extent grantors of royalties and other interests do not abide by their contractual obligations, we may be forced to take legal action to enforce our contractual rights. Should any decision with respect to such action be determined adversely to us, such decision may have a material and adverse effect on our profitability, results of operations and financial condition.

In addition, we have no or very limited access to technical and geological data relating to the mine, including data as to reserves, nor have we received a Canadian National Instrument 43-101 compliant technical report in respect of the mine. Accordingly, we can provide no assurances as to the level of mineralization or reserves at the mine.

Our hydrocarbon and related operations are subject to inherent risks and hazards.

There are many operating risks and hazards inherent in our resource operations, including environmental hazards, industrial accidents, changes in the regulatory environment, impact of non-compliance with laws and regulations, potential damage to equipment or personal injury and fires, explosions, blowouts, spills or other accidents. Additionally, we could experience interruptions to, or the termination of, production, processing or transportation activities due to bad weather, natural disasters, delays in obtaining governmental approvals or consents, insufficient storage or transportation capacity or other geological or mechanical conditions. Any of these events that result in an interruption or suspension of operations would adversely affect our discontinued operations.

In addition, certain of our undeveloped reserves are, or may in the future be, subject to third-party operating agreements, including farm-out and participation agreements. While such third-party arrangements may provide for committed expenditures and/or drilling activities, our ability to convert such undeveloped reserves within the required timeframe may be subject to operating decisions of such operators and the results of development activities conducted by such third-parties, which may not be entirely within our control.

Future environmental and reclamation obligations respecting our resource properties and interests may be material.

We have not established a separate reclamation fund for the purpose of funding estimated future environmental and reclamation obligations or liabilities. Any site reclamation or abandonment costs incurred in the ordinary course in a specific period will be funded out of cash flow from operations. To the extent our hydrocarbon properties are not disposed of, we expect to incur site restoration costs over a prolonged period as wells reach the end of their economic life and may also be subject to reclamation and other environmental liabilities for past resource activities. There are significant uncertainties related to decommissioning obligations and the impact on the financial statements could be material. The eventual timing of and costs for these asset retirement and other environmental obligations or potential liabilities could differ from current estimates.

Tax audits or disputes, or changes in the tax laws applicable to us, could materially increase our tax payments.

We exercise significant judgment in calculating our provision for income taxes and other tax liabilities. Although we believe our tax estimates are reasonable, many factors may affect their accuracy. Applicable tax authorities may disagree with our tax treatment of certain material items potentially causing an increase in our tax liabilities. Furthermore, changes to existing laws may also increase our effective tax rate. A substantial increase in our tax burden could have an adverse effect on our financial results. Please see “Item 8: Financial Information – A. Consolidated Statements and Other Financial Information” for further information.

TABLE OF CONTENTS

Employee misconduct could harm us and is difficult to detect and deter.

It is not always possible to detect and deter employee misconduct. The precautions we take to detect and prevent employee misconduct may not be effective in all cases and we could suffer significant reputational and economic harm for any misconduct by our employees. The potential harm to our reputation and to our business caused by such misconduct is impossible to quantify.

We may incur losses as a result of unforeseen or catastrophic events, including the emergence of a pandemic, terrorist attacks or natural disasters.

The occurrence of unforeseen or catastrophic events, including the emergence of a pandemic or other widespread health emergency (or concerns over the possibility of such an emergency), terrorist attacks or natural disasters, could create economic and financial disruptions, ~~could~~ lead to operational difficulties (including travel limitations) that could impair our ability to manage our business ~~and could~~or expose our insurance subsidiaries to significant losses.

~~We have identified material weaknesses in our internal control over financial reporting. If we fail to fully remediate these~~

Failures or ~~any future weaknesses or deficiencies or maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired.~~

We have identified material weaknesses in our internal control over financial reporting in connection with: (i) the period end financial reporting process with respect to subsidiaries acquired in 2012; and (ii) the design and implementation of formal processes at the entity level to address risks critical to financial reporting with respect to the monitoring of controls, the control environment and information and communication following the integration of the new subsidiaries. A material weakness is defined by the Public Company Accounting Oversight Board as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. Please see “~~Item 15: Controls and Procedures – Report of Management on Internal Control over Financial Reporting~~~~” for further information regarding the material weakness in internal control that we have identified.~~

~~We are taking steps to remediate the material weaknesses described above. While we believe these steps will improve the effectiveness~~security breaches of our internal control over financial reporting, if our remediation efforts are insufficient to address the material weaknesses, or if additional material weaknesses in our internal controls are discovered in the future, our ability to report our financial results on a timely and accurate basisinformation technology systems could be impacted in a materially adverse manner, and, as a result, our financial statements may contain material misstatements or omissions. If we cannot maintain and execute adequate internal control over financial reporting or implement new or improved controls that provide reasonable assurance of the reliability of the financial reporting and preparation of our financial statements for external use, we could suffer harm to our reputation, fail to meet our public reporting requirements on a timely basis, cause investors to lose confidence in our reported financial information or be unable to properly report on our business and the results ofdisrupt our operations and negatively impact our business.

We use information technologies, including information systems and related infrastructure as well as cloud applications and services, to store, transmit, process and record sensitive information, including employee information and financial and operating data, communicate with our employees and business partners and for many other activities related to our business. Our business partners, including operating partners, suppliers, customers and financial institutions, are also dependent on digital technology. Some of these business partners may be provided limited access to our sensitive information or our information systems and related infrastructure in the ~~trading price~~ordinary course of business.

Despite security design and controls, our information technology systems, and those of our ~~common shares~~third-party partners and providers, may be vulnerable to a variety of interruptions, including during the process of upgrading or replacing software, databases or components thereof, natural disasters, terrorist attacks, telecommunications failures, computer viruses, cyber-attacks, the activities of hackers, unauthorized access attempts and other security issues or may be breached due to employee error, malfeasance or other disruptions. Any such interruption or breach could result in operational disruptions or the misappropriation of sensitive data that could subject us to civil and criminal penalties, litigation or have a negative impact on our reputation. There can be no assurance that such disruptions or misappropriations and the resulting repercussions will not negatively impact our cash flows and materially ~~adversely affected.~~

affect our results of operations or financial condition.

General Risks Faced by Us

Investors’ interests may be diluted and investors may suffer dilution in their net book value per share if we issue additional shares or raise funds through the sale of equity securities.

Our constating documents authorize the issuance of our common shares, Class A common shares and Class A preference shares, issuable in series. In the event that we are required to issue any additional shares or enter into private placements to raise financing through the sale of equity securities, investors’ interests in us will be diluted and investors may suffer dilution in their net book value per share depending on the price at which such securities are sold. If we issue any such additional shares, such issuances will also cause a reduction in the proportionate ownership of all other shareholders. Further, any such issuance may result in a change of control of our company.

Certain factors may inhibit, delay or prevent a takeover of our company, which may adversely affect the price of our common shares.

Certain provisions of our charter documents and the corporate legislation which govern us may discourage, delay or prevent a change of control or changes in our management that shareholders may consider favourable. Such provisions include authorizing the issuance by our board of directors of preferred stock in series, limiting the persons who may call special meetings of shareholders and the adoption of an advance notice policy. ~~Our Articles also provide for a classified board of directors with staggered, three-year terms. In March 2014, our board of directors determined to declassify our board structure. Please see “~~~~Item 6. Directors, Senior Management and Employees – C. Board Practices~~~~” for further information.~~ In addition, theInvestment Canada Actimposes certain limitations on the rights of non-Canadians to acquire our common shares, although it is highly unlikely that this will apply. If a change of control or change in management is delayed or prevented, the market price of our common shares could decline.

~~A small number of our shareholders could significantly influence our business.~~

A small number of shareholders control a significant portion of our outstanding common shares, including Peter Kellogg, our Chairman and a director, who has disclosed control of approximately 33% of our outstanding common shares. In 2013, Mr. Kellogg and IAT Reinsurance Company, Ltd., referred to as “IAT”, launched a proxy solicitation to, among other things, appoint a majority of our board of directors that was the subject of litigation. We entered into a settlement agreement with Mr. Kellogg and IAT in February 2014. Please see “~~Item 10: Additional Information – C. Material Contracts~~”. These few significant shareholders, either individually or acting together, may be able to exercise significant influence over matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions such as a merger or other sale of the company or our assets. This concentration of ownership may make it more difficult for other shareholders to effect substantial changes in the company, may have the effect of delaying, preventing or expediting, as the case may be, a change in control of the company, and may adversely affect the market price of our common shares. Further, the interests of these few shareholders may not be in the best interests of all shareholders.

TABLE OF CONTENTS

ITEM 4: INFORMATION ON THE COMPANY

A. History and Development of the Company

Corporate Information

We are a corporation organized under the laws of the Province of British Columbia, Canada. We were originally incorporated in June 1951 by letters patent issued pursuant to theCompanies Act of 1934(Canada). We were continued under theCanada Business Corporations Actin March 1980, under theBusiness Corporations Act ~~Act~~(Yukon) in August 1996 and under theBusiness Corporations Act ~~(British~~(British Columbia) in November 2004. ~~Our~~On February 16, 2016, in order to better reflect our current activities, we changed our name ~~was changed~~ from ~~“Terra Nova Royalty Corporation” to~~ “MFC Industrial Ltd.” ~~on September 30, 2011~~ to ~~better reflect our focus on the global commodities supply chain business.~~

“MFC Bancorp Ltd.”

Our principal executive office is located at Suite ~~1620~~1860 - 400 Burrard Street, Vancouver, British Columbia, Canada V6C 3A6 and its telephone number is ~~(604) 683-8286.~~+1 604-683-8286. Our registered office is located at Suite 1000 -– 925 West Georgia Street, Vancouver, British Columbia, Canada, V6C 3L2.

General

We are a ~~global commodities~~merchant bank that provides financial services and facilitates structured trade for corporations and institutions. We specialize in markets that are not adequately addressed by traditional sources of supply ~~chain company, which sources~~ and ~~delivers commodities~~finance, with an emphasis on providing solutions for small and ~~materials to clients, with expertise~~medium sized enterprises. We operate in ~~the financing~~multiple geographies and ~~risk management aspects of their businesses.~~

~~Until the first quarter of 2010, we were also active~~participate in ~~the Industrial Business for the cement~~industries including manufacturing, natural resources and ~~mining industries. During the course of 2010, we distributed our shares of the Industrial Business~~medical equipment and services.

As a supplement to our ~~shareholders~~operating business, we commit proprietary capital to assets and ~~following such distribution, we operated primarily in the royalty~~projects where intrinsic values are not properly reflected. These investments can take many forms, and ~~resources business.~~

~~In connection with~~ our ~~long-term strategic plans, involving internal growth initiatives, acquisitions or business combinations, we seek out and evaluate strategic acquisition candidates. After the distribution~~activities are generally not passive. The structure of our Industrial Business to our shareholders, in the fourth quarter of 2010, we acquired all of the outstanding shares of Mass, which was engaged in the commodities, merchant banking and proprietary investment businesses, and consolidated its operations from November 16, 2010.

Since completing the acquisition of Mass in 2010, we have completed several additional acquisitions to further diversify and expand the geographic reach of our global commodities supply chain business and increase our revenues and volumes in order to achieve critical mass. In December 2011, we acquired, together with our partner in the project, Alberici Group, Inc., the Pea Ridge Iron Ore Mine project, located near Sullivan, Missouri, U.S.A. In March 2012, we acquired a 75% equity interest in, and certain debts of, Kasese Cobalt Company Limited, referred to as “KCCL”, whose operations previously consisted of the recovery of cobalt metal from pyrite tailings located near its refinery in Uganda and which also owns a hydro-electric power station. In September 2012, we completed the take-over bid of MFC Energy (formerly known as Compton Petroleum Corporation), which expanded our commodities business to include the energy sector. In November 2012, we acquired a controlling interest in each of ~~MFC Resources Inc. (formerly known as ACC Resources Co., L.P.), referred~~these opportunities is tailored to as “MFCR”, and Possehl Mexico S.A. de C.V., referred to as “Possehl”, which are global commodities supply chain businesses with a presence in the North American and Latin American markets and a focus on refractory and ceramic materials and other products.

~~Recent Developments~~

~~The following is a summary of selected key recent developments in our business.~~

~~Acquisition of FESIL~~

On January 17, 2014, we announced that we entered into an agreement to acquire a 100% interest in the FESIL AS Group, referred to as “FESIL”. FESIL is a vertically integrated supply chain management company and is also among the world’s leading producers of ferrosilicon through its production plant located in Mo i Rana, Norway. FESIL’s operations include sales offices in Germany, Luxembourg, Spain, the United States, India and China. Through its production plant, FESIL produces a range of ferrosilicon products, including granulated and refined qualities (high and semi-high purity), which make up the bulk of its production. Annual capacity of the plant’s two furnaces is approximately 80,000 MT of ferrosilicon and 23,000 MT of microsilica. The facility is certified according to ISO 9001 and ISO 14001 and complies with Norway’s strict environmental and operational requirements. The majority of FESIL’s ferrosilica production is sold by its sales offices to customers, which include established steelworks, aluminum and iron foundries and chemical groups. Through its sales offices, FESIL also supplies customers with other ferroalloys, metals, minerals and specialty products.

The acquisition does not include FESIL’s interests in Mo Industripark AS. The purchase price of approximately 500 million Norwegian Krone (approximately $82 million) is based on the net tangible equity asset value of FESIL as of September 30, 2013 and is subject to adjustment to reflect the fair value of certain assets and profit or loss until closing. In addition to the purchase price, we will pay a two-year base royalty on tiered ferrosilicon production at the Mo i Rana facility, which is expected to equal approximately 2.9% of ferrosilicon revenue per annum at full production. The transaction is currently scheduled to complete in the second quarter of 2014 and is subject to customary conditions.

~~Acquisition Rationale~~ ~~– We determined to pursue the acquisition of FESIL for the following key reasons, among others:~~

~~the addition of FESIL’s operations are expected to significantly increase our revenues and commoditiesvolumes, which we believe will help us achieve critical mass;~~
~~the addition of FESIL’s ferrosilicon and microsilica production facility will further expand our captivesources of commodities and increase our customer base;~~
~~the proposed acquisition will significantly add to our geographic reach through the addition of FESIL’sestablished global sales offices;~~
~~FESIL has an established brand name, which is recognized by commodities customers for quality andlogistical reliability; and~~
~~the proposed transaction presents an opportunity for us to expand our existing commodities tradingactivity by leveraging FESIL’s existing established customer base.~~

each individual transaction.

~~Acquisition of F.J. Elsner~~

On March 11, 2014, we acquired an indirect 100% interest in F.J. Elsner, referred to as “Elsner”, a global commodities supply chain company with its head office in Vienna, Austria, and offices in Austria, China, Dubai, Croatia, Albania, Serbia and the United States. Elsner has longstanding relationships with various steel mills in Eastern and Southern Europe and is focused on steel products, including slabs, booms, billets, hot rolled steel plates, hot and cold rolled coils and sheets, reinforcing bars, galvanized material, pipes, tubers and merchant bars.

Pursuant to the transaction, we indirectly acquired all of the outstanding share capital of Elsner for nominal consideration, with additional contingent payments between the parties over a 10-year period based on recoveries from current inventories and accounts receivable, existing legal actions and the utilization of certain tax loss carry-forwards. In connection with the acquisition, the existing credit facilities of Elsner were amended and we issued guarantees to secure payment obligations under such credit lines and Elsner’s finance derivative transactions with the same bank party to such credit lines. These credit facilities amount to $90.2 million and amounts outstanding thereunder were approximately $70.0 million as of the date of the acquisition.

~~Acquisition Rationale~~ ~~– We determined to pursue and complete the acquisition of Elsner for the following key reasons, among others:~~

the transaction offers an excellent opportunity for us to further diversify and increase the scope of ourexisting global commodity supply chain business and expand our customer relationships and procurementcapabilities with minimal acquisition costs;
~~Elsner’s product offering is complementary to our existing commodities portfolio, which presents anopportunity to increase sales by marketing Elsner’s products to our existing marketing base;~~
~~the acquisition presents an opportunity to expand our existing structured solutions to Elsner’s existingcustomers and suppliers;~~
~~Elsner’s existing management team and personnel complement and enhance our team, bringing specializedexpertise in their existing products and markets; and~~
~~there are significant synergies between our global commodities supply chain business and the existingbusiness of Elsner.~~

~~B. Business Overview~~

We are a global commodities supply chain company, which sources and delivers commodities and materials to clients, with a special expertise on the financing and risk management aspects of the business.

~~Business Segments~~

Our business is divided into ~~three~~two operating segments: (i) ~~commodities and resources,~~Merchant Banking, which includes our ~~commodities activities; (ii) merchant banking, which includes~~marketing activities, captive supply assets, structured solutions, financial services and proprietary investing activities; and ~~(iii) other,~~(ii) All Other, which encompasses our corporate and other investments and business interests, ~~including our~~primarily being its business activities in medical equipment, instruments, supplies and ~~servicing~~services.

Please see “B. Business Overview” for further information regarding our recent developments.

B. Business Overview

The following is a brief description of our business and ~~corporate.~~

~~Commodities~~recent activities.

Recent Developments

The following is a summary of selected recent developments for our business.

Reallocation of Resources to More Profitable Operations

In 2016 and ~~Resources~~

~~Our commodity supply chain business is globally focused~~into the first quarter of 2017, we continued to advance our plan to focus our resources on our merchant banking activities, including exiting product lines and ~~includes our integrated commodities operations and interests. We conduct such operations primarily through our subsidiaries based~~geographies with unsatisfactory margins in Vienna, Austria, the United States, Latin America and Canada and we supply various commodities, including minerals and metals, chemicals, plastics, refractory and ceramic materials and wood products. Our commodities originate either from our directly or indirectly held interests in resource projects, or are secured by us from third parties. We also derive production royalty revenue from a mining sub-lease.

~~Since entering the global supply chain business in 2010,~~order to reallocate capital to higher return operations. To this end, we have, ~~implemented a long-term growth strategy~~among other things:

•

reduced our inventories by 87% from $245.3 million at December 31, 2015 to ~~achieve critical mass by increasing our commodities volumes, revenues and geographic reach and expanding and diversifying our product offerings. Over~~$32.0 million at December 31, 2016;

•

in the ~~last three years, we~~fourth quarter of 2016, completed ~~several strategic acquisitions in furtherance~~the sale of our ~~long-term strategy, including the acquisition of MFC Energy~~ferrosilicon production facility and interest in September 2012, which expanded our commodities portfolio into the production and processing of natural gas and the acquisitions of MFCR and Possehl, which increased our global exposure and presence in the North American and Latin American markets and expanded our commodities platformquartz quarries to include refractory and ceramic materials and other products. In 2014, we expect to significantly expand our revenues, volumes, geographic reach and products through the previously announced acquisition of Elsner and the proposed acquisition of FESIL.

Our commodities operations include sourcing and supplying commodities. To a lesser extent, we also act as an agent for our clients. Our commodities operations often utilize innovative trading strategies and structures. We currently engage in purchases and sales with commodity and other producers who are unable to effectively realize sales due to their specific circumstances.

We often purchase or produce the underlying commodity and sell it to an end buyer or transfer it for another commodity, which will subsequently be sold. Further, commodity producers and end customers often work with us to better manage their internal supply chain, distribution risk and currency and capital requirements. In such commodities operations, we try to capture various commodities, financing and currency spreads. Through our operations, we have been able to develop ongoing relationships with commodity producers, end customers and financiers and integrate them into our financial activities.

~~We generally source commodities from Asia, Africa, Europe, North America and the Middle East. Our commodities are sold in global markets.~~

We provide logistics, supply chain management and other services to producers and consumers of commodities. These activities provide cost effective and efficient transportation, as well as providing payment terms for working capital requirements for our customers and partners. They are supported by strategic direct and indirect investments in natural resource assets operating in our core commodities.

Our commodities and resources business employs personnel worldwide. Our main marketing office is located in Vienna, Austria. We also maintain offices in Canada, the United States, Mexico, Argentina and China and, as a result of the acquisition of Elsner, now have offices in Dubai, Croatia, Albania and Serbia. In addition, we establish relationships with and seek to further market our products through agents located worldwide. Our marketing and investment activities in the commodities and resource sector are supported by a global network of agents and relationships. This network provides us with worldwide sourcing and distribution capabilities.

We indirectly derive royalty revenue from a mining sub-lease of the lands upon which the Wabush iron ore mine is situated in Newfoundland and Labrador, Canada. This sub-lease commenced in 1956 and expires in 2055. The lessor is Knoll Lake Minerals Ltd., which holds a direct mining lease from the Province. The mine is operated by Cliffs Natural Resources Inc.,Elkem AS, referred to as ~~“Cliffs”. In 2013, 2012~~“Elkem”, as more fully described below;

•

exited unprofitable businesses which were generating unsatisfactory returns in several jurisdictions, including Germany, Luxembourg, certain eastern European countries and ~~2011, 2.8 million, 3.2 million and 3.5 million tons of iron products, respectively, were shipped from Pointe Noire, Québec, Canada.~~

~~Iron ore shipments from~~ the Wabush mine are subject to seasonal and cyclical fluctuations. The royalty is paid quarterly and is based on the tonnage of iron ore products shipped. One of the major components in the calculation of the royalty rate payable is based on the most recently published prices of particular iron ore pellets. Pursuant to the terms of the mining sub-lease, the royalty payment is not to be less than C$3.25 million per annum until its expiry. In 1988, the royalty rate was amended to require a base royalty rate of C$1.685 per ton with escalations as defined in the sub-lease. We are obligated to make royalty payments of C$0.22 per ton on shipments of iron ore products to the lessor and Cliffs applies a portion of the royalty payments directly to the lessor.

~~Historically, iron ore benchmark prices were determined~~ United States;

•

in the first quarter of 2017, completed the ~~calendar year through negotiations between the major producers and their most significant customers. These prices were then generally adopted by the other suppliers when published.~~

~~A shift in the marketplace has, among other things, made obsolete certain~~sale of ~~the world iron ore pellet pricing methodology for calculating the royalty rate due to us contained in~~a non-core commodities trading business that was focused on Latin America;

•

substantially reduced our sub-lease for the Wabush iron mine. As a result of these market changes, and as the sub-lease permits us to renegotiate an increase in the royalty rates when the mine achieves certain profitability thresholds,headcount, which we believe have been obtained, we served the mine operator with notice of arbitration respecting our entitlement to a new base rate for the royalty and a determination for the calculation of future royalty pricing. We have also provided the mine operator with a notice of arbitration seeking recovery for royalty underpayments in 2010. The outcome of such proceedings cannot be determined at this time.

Iron ore is typically sold either as a concentrate, whereby the iron ore is in granular form, or as a pellet, whereby iron ore concentrate has been mixed with a binding agent, formed into a pellet and then firedresulted in a ~~furnace. Iron ore pellets can be charged directly into blast furnaces without further processing and are primarily used to produce pig iron which is subsequently transformed into steel.~~

The following table sets forth historical total iron ore shipments (which include pellets, chips and concentrates) and royalty payments to us based upon the amounts reported to us by the Wabush mine operator:

Gross
Average
Total Gross Royalty
Tonnage Shipped Tonnage Royalties Rate/Ton
Year Q1 Q2 Q3 Q4 Shipped Received⁽¹⁾ Received
(In thousands, other than the Royalty Rate)
2009 402 386 1,202 1,198 3,188 C$ 17,350 C$5.44
2010 874 941 832 1,105 3,752 22,915 ⁽²⁾ 6.11
2011 719 796 1,311 646 3,472 31,607 9.10
2012 482 911 945 851 3,189 31,191 9.78
2013 393 465 1,177 805 2,840 26,555 9.35
____________________

~~Notes:~~

~~(1)~~		~~Subject to a 20% resource property revenue tax.~~

~~(2)~~		~~Does not include the amount of arbitration award.~~

In 2013, Cliffs announced that it idled the Pointe Noire pellet plant and transitioned to producing an iron ore concentrate only product from the mine due to high production costs and lower pellet premium pricing. Subsequent to the year ended December 31, 2013, Cliffs announced that it would idle the Wabush mine31% decrease by the end of 2016, with further reductions currently expected in 2017; and

•

allocated resources for the expansion of our merchant banking business.

TABLE OF CONTENTS

Acquisition of Licensed European Bank

As an integral part of our long-term strategy and focus on merchant banking, on February 1, 2016, we completed the acquisition of the Bank, a licenced Western European bank, for total consideration of $142.4 million. The consideration under the transaction equaled the fair value of the identifiable assets acquired and the liabilities assumed on the closing date. Subsequent to the completion of the acquisition, the Bank was renamed “MFC Merchant Bank Limited”.

Sale of Ferrosilicon Plant

In the fourth quarter of 2016, we completed the sale of our interests in FESIL Rana Metall AS, referred to as “FESIL Rana”, our former subsidiary that owned a ferrosilicon production facility in Norway, and Nor-Kvarts (Spanish quartz quarries), referred to as “Nor-Kvarts”, to Elkem for cash consideration approximately equal to net asset value, subject to certain adjustments related to the profitability of FESIL Rana before closing. Elkem is one of the world’s leading companies for environmentally responsible production of materials such as silicon, ferrosilicon, foundry alloys, carbon materials and microsilica. In connection with the transaction, Elkem also purchased all FESIL Rana ferrosilicon inventory held by our other subsidiaries for fair market value at closing.

Sale of Latin American Trading Operations

In the first quarter of ~~2014. While Cliffs has not announced~~2017, we completed the sale of a ~~complete shutdown or closure of the mine, at this time there can be no assurance~~non-core commodities trading business that ~~mining operations will be restarted~~was focused on Latin America to a company controlled by ~~Cliffs or a third party.~~

A minimum royalty payment of C$3.25 million per year continues to be payable while the mine is idled until the expiry in 2055 of the mining sub-lease underlying the Company’s royalty interest in the mine, unless earlier terminated by the parties in accordance with its terms.

We hold a 50% interest in the Pea Ridge Iron Ore Mine, located near Sullivan, Missouri, U.S.A., approximately 70 miles southwest of St. Louis, Missouri, U.S.A. The mill was operated as an underground mine between 1963Gerardo Cortina, our former President and 2001 and was originally developed as a partnership between Bethlehem Steel Corporation and St. Joe Minerals Corp., operating as the Meramec Mining Company. From 1981 to 1987 the mine was operated by Fluor Corporation and was subsequently acquired by Woodridge Resources Corporation until its closure in 2001. From 2001 until we acquired our interest in the Pea Ridge Mine, operations had been limitedChief Executive Officer. Pursuant to the ~~reclamation~~transaction, we received total consideration approximately equal to book value, including 450,000 of ~~resource settlement ponds located below the historical production facilities. Historical data and records indicate that approximately 58.5 million short tons~~our common shares at a deemed price of ~~iron ore were removed from the mine between 1963 and 2001.~~

The Pea Ridge Mine includes the historic mine deposit along with a large tonnage of tailings material. Prior infrastructure remains in place, including access to underground workings, two vertical mine shafts with hoists and headframes, a plant building and tailings and settling ponds. The mine’s location is served by highways connecting to the U.S. interstate highway system and has a presently unused rail spur line connecting to the Union Pacific railway system.

During 2013, together with our partner, we are studying processing the tailings at, and re-opening, the Pea Ridge Mine. In the second quarter of 2012, we completed an updated independent NI 43-101 compliant technical report, referred to as the “Pea Ridge Technical Report”, upgrading previously disclosed historic resources estimates to current resource estimates. Behre Dolbear and Company (USA), Inc., referred to as “Behre Dolbear”, our independent technical consultants, authored the Pea Ridge Technical Report. The estimates include an~~in situ~~ (originally present) measured and indicated resource of 248.7 million short tons at 52.87% magnetic iron and 57.82% total iron and an inferred resource of 15.8 million short tons at 53.67% magnetic iron and 57.64% total iron based on a cut-off grade of 40% magnetic iron.

~~In completing the Pea Ridge Technical Report, Behre Dolbear conducted, among other things, an audit of historic drill hole data~~$1.84 per share and a ~~confirmatory re-sampling and analysis program on the extensive library~~release granted by Mr. Cortina to us of ~~drill core maintained at the Pea Ridge Mine site.~~

~~Readers should refer~~any further obligations to the full text of the Pea Ridge Technical Report, titled “Technical Report on the PRR Mining Pea Ridge Property” dated August 13, 2012, for further information regarding the Pea Ridge Mine, a copy of which is available under our profile at www.sedar.com. The report was co-authored by Betty L. Gibbs, MMSA, and Derek Rance, P. Eng, both of whom were “qualified persons” and “independent” of our company, as such terms are defined in NI 43-101, as at August 13, 2012.

~~In addition~~issue common shares to completion of the Pea Ridge Technical Report, as part of the work necessary to evaluate the re-opening of the mine, we engaged consulting firms to investigate the depth and shape of the top and bottom of the subsidence cave zone which is present above the mine deposit. This work included direct measurements of the size and extent of the cave zone within existing vertical drill holes above a portion of the Pea Ridge Mine deposit. Having received the results of such investigation, we are, together with our consultants, considering additional steps in the evaluation of the cave zone. We believe that the results of this work will be useful in determining the best way to develop the project. Additionally, in 2012 we commenced exploration and development workhim in connection with the ~~large tonnage~~prior share purchase agreement between the parties. We do not expect to recognize any gain or loss in connection with this transaction.

Business Segments

Our business is divided into two operating segments: (i) Merchant Banking, which includes our marketing activities, captive supply assets, structured solutions, financial services and proprietary investing activities; and (ii) All Other, which encompasses our corporate and other investments and business interests, primarily being our business activities in medical equipment, instruments, supplies and services.

Merchant Banking

We are a merchant bank that provides financial services and facilitates structured trade for corporations and institutions. We specialize in markets that are not adequately addressed by traditional sources of ~~tailings materials of the Pea Ridge Mine site.~~

~~A necessary step in completing further analysis, including feasibility studies, is dewatering the existing underground mine workings~~supply and completing additional analysis and investigations in respect of the project. In the years ended December 31, 2013 and 2012, we invested an additional $2.0 million and $5.0 million of capital, respectively, to progress the project.

In the third quarter of 2012, our commodities activities expanded to the energy sector. These activities include the development, production and processing of natural gas, NGLs and, to a far lesser degree, crude oil in Canada. The majority of such operations are located in the central fairway of the Western Canada Sedimentary Basin, primarily situated in the Province of Alberta. For further information regarding our natural gas and oil facilities, please see “~~Item 4: Information on the Company — D. Property, Plants and Equipment – Natural Gas Interests~~”.

In October 2013, we exercised our option under the term financing arrangements to acquire all the outstanding units of the Mazeppa Processing Partnership, referred to as “MPP”, which owns the Mazeppa Processing Facility in Alberta, Canada.

~~In November 2013, we entered into an agreement, referred to as the “Participation Agreement”,~~finance, with an ~~established oil~~emphasis on providing solutions for small and ~~gas operator. Pursuant to the Participation Agreement, the third-party operator has committed to spending a minimum~~medium sized enterprises. We operate in multiple geographies and participate in industries including manufacturing, natural resources and medical equipment and services.

We make proprietary investments as part of ~~C$50.0 million to drill a total of 12 net wells over an initial three-year term, with such drilling being primarily focused on~~ our undeveloped oil and gas properties located in the Niton area of Alberta, Canada. Under the terms of the Agreement, the third-party operator will pay 100% of the costs required to drill and complete each well. If any of the initial 12 wells achieves continuous production, we may elect to: (i) participate for up to a 30% interest in the well by reimbursing the operator 25% of the costs of such well; or (ii) receive a 10% gross royalty on production. Additionally, any gas produced from a large proportion of these wells will be processed exclusively by our existing processing facility in the area. We believe that the transactions contemplated by the Participation Agreement provide us with the opportunity to further our undeveloped properties at minimal investment risk and, at the same time, provide a potential source of revenue expansion through royalty and processing arrangements. The operator commenced its program under the Participation Agreement in January 2014 by spudding an initial farm-out well, which is currently being completed. We currently expect that an additional four wells will be drilled in 2014 pursuant to the Participation Agreement.

~~Merchant Banking~~

~~Our~~overall merchant banking ~~operations include merchant banking~~activities and ~~financial services, third-party financing and other services, proprietary investing and our real property.~~we seek to realize gains on such investments over time. We seek to ~~invest~~participate in many industries, emphasizing those business opportunities where the perceived intrinsic value is not properly ~~recognized.~~

~~We use our~~recognized, often as a result of financial and management expertise to add or unlock value within a relatively short time period. Our merchant banking activity is generally not passive and we seek investments where our financial expertise and management can add or unlock value. Proprietary investments are generated and made as part of our overall merchant banking activities and are realized upon over time, sometimes taking more than one year. In addition, we often seek to acquire interests or establish relationships with commodity producers to realize upon potential synergies. Such interests can be acquired through purchases of, or investments in, commodity producers, or through contractual arrangements with them, including off-take agreements. The investments we make in commodity producers are part of our merchant banking strategy. To a degree, our merchant banking and commodities and resources businesses supplement each other, which results in synergies in our overall business activities.

Our activities include making proprietary investments through investing our own capital and utilizing our expertise to capture investment opportunities. We seek to invest in businesses or assets whose intrinsic value is not properly reflected in their share or other ~~price. Often such~~distress affecting them. These investments ~~are in companies or assets that are under financial, legal or regulatory distress and our services include resolving such distress. Our investing takes~~can take many forms and can include acquiring entire businesses or portions thereof, investing in equity or investing in ~~the~~ existing indebtedness (secured and unsecured) of ~~a business~~businesses or in new equity or debt issues. ~~Our investing is~~

These activities are generally not passive and we invest where we believe our expertise in financial restructuring and management and complementary trading and corporate finance capabilities can add or unlock value. Our investing in distressed businesses and/or assets can result in complex and intricate legal issues relatingpassive. The structure of each of these opportunities is tailored to priorities, claims and other rights of stakeholders. Such issues can result in our being involved in legal and other claims as a result of our overall proprietary investment strategy. Our proprietary investments are often made as a part of, or complementary to, our commodities and resources activities.

each individual transaction.

We consider ~~investment~~ opportunities where: ~~(i)~~ our existing participation in ~~the~~ marketing and production ~~of commodities~~ provides expert insight; ~~(ii)~~ we can obtain a satisfactory return of future capital investment; and ~~(iii) such investment integrates~~there are synergistic benefits with our existing business. Our philosophy is to utilize our financial strength to realize the commercial potential of assets in markets where we have a comprehensive understanding of the drivers of value.

In ~~addition,~~the first quarter of 2016, we completed the acquisition of the Bank, which is licensed in Europe. Through ownership of an “in-house” bank, we will be able to supplement our core business with regulated banking services.

The Bank does not engage in retail or commercial banking, but provides specialty banking services, focused on merchant banking, to our customers, suppliers and group members. These products include: bank guarantees, letters of credit, documentary bank guarantees/stand-by letters of credit, bills of exchange, bills

TABLE OF CONTENTS

of lading, promissory notes and forwarders’ certificate of receipt facilities; with and without recourse factoring; forfaiting; discounting of bills of exchange and promissory notes; purchase financing collateralized by the product; inventory financing collateralized by inventory; structured trade finance, including advisory services, in conjunction with export credit agencies; and merchant banking products and services.

We also provide supply chain services, logistics and other trade and structured finance services to producers and consumers. These activities provide cost effective and efficient transportation, as well as payment terms accommodating working capital requirements for our customers and partners. Our operations often utilize strategies and structures to facilitate the working capital needs of our ~~established~~clients. We engage in purchases and sales with producers who are unable to effectively realize sales due to their specific circumstances.

Often, producers and end consumers work with us to better manage their internal supply chain, distribution risk and currency and capital requirements. In such operations, we try to capture various product, financing and currency spreads. Through our operational history, we have been able to develop long-standing relationships with ~~international financial institutions, insurers~~producers, end customers and ~~factoring companies~~financiers and integrate them into our activities, allowing us to ~~provide flexible, customized financial tools, extensive credit and risk management and structured solutions for~~leverage our ~~customers. Working closely with our customers, our professional staff arrange support of hedging and trading of materials, financing and risk management solutions.~~

~~Our merchant banking activities also include leveraging our trading~~marketing and financial experience and relationships to provide ~~trading services and trade finance~~ services to our customers.

In 2016, we commenced our plan to focus on our core merchant banking activities. Since 2015, we have exited various products and geographies, including disposing of a Latin America-focused commodities trading business, our interest in a ferrosilicon production facility and interest in quartz quarries, our interest in an iron ore property in the United States, the significant portion of our hydrocarbon properties and our steel and ferroalloys trading businesses in Europe and the United States.

Our merchant banking business ~~generates revenues~~employs personnel worldwide and our main business office is located in ~~the form of corporate and trade finance service fees and interest income.~~Vienna, Austria. We also ~~realize gains from time to time on our proprietary investments, upon their sale, the execution~~maintain offices in Canada, Malta, Argentina, China, Serbia, Germany and Uganda. In addition, we establish relationships with marketing agents located worldwide. Our marketing and other business activities in this segment are supported by a network of ~~an equity or debt restructuring or the completion of other forms of divestment.~~

agents and relationships.

All Other

Our ~~other~~All Other segment ~~includes~~encompasses our corporate and other ~~operating segments~~investments and ~~investments, which include financing joint ventures through our China-based subsidiaries~~business interests, primarily relating to business activities in medical equipment, instruments, supplies and ~~providing medical services, equipment and supplies.~~

~~Company Strategy~~

~~Our primary and overriding business objective is to enhance value and create wealth for our shareholders. The key elements of our strategy include the following:~~

~~Expanding our Global Commodity Supply Chain Business to Achieve Critical Mass.~~Since enteringinto the global commodity supply chain business in 2010, we have pursued a long-term strategy to achievecritical mass by increasing our commodities volumes, revenues and geographic reach. In furtherance ofthis strategy, from 2011 to 2013, we completed several strategic acquisitions, including the acquisitions ofMFC Energy, MFCR and Possehl, and have increased our commodities and resource segment revenues byover 64% from $474.9 million in 2011 to $778.5 million in 2013 and expanded our commodities platform,customer base and geographic reach. We expect that such revenues will significantly increase in 2014 as~~a result of the acquisition of Elsner, which completed earlier in 2014, and the acquisition of FESIL.~~
~~Investing in Undervalued Opportunities.~~We seek to invest in businesses or assets whose intrinsic valueis not properly reflected in their share price or where we perceive that our commodities and financialexpertise and management can add or unlock value. These include investments in highly unstructuredsituations and in companies undergoing financial or operational stress. Such investments often involvesevere time constraints and, given our liquid resources, we are well positioned to capitalize on suchopportunities. Unlike traditional companies in the financial services sector, our investing is generally~~not passive.~~
~~Geographic Scope of Operations.~~~~We operate globally, so we supply a diversified range of commoditiesto our customers, develop new relationships with producers and consumers of commodities and selectivelytarget new business and investment opportunities worldwide.~~
~~Strategic Investments.~~~~Strategic investments in resource assets are an important component of ourcommodities trading activities and value added~~ services. We pursue selective strategic acquisitions andalliances to support and strengthen our commodities operations as and when opportunities arise. We willcontinue to apply our investment criteria to our acquisitions, pursuing investments in assets that are ofstrategic importance to our core businesses. At the same time, we continue to evaluate dispositions ofinvestments or assets, in particular when they are no longer deemed to support our core business or whenattractive selling opportunities arise.

~~Create Shareholder Value.~~The nature of our business is cyclical and affected by several factors thatdo not lend themselves to regular evaluation. Therefore, we do not evaluate our performance and do notbelieve we should be scrutinized in terms of our price-to-earnings multiple. We seek to grow our asset~~base and net worth and believe these are the best valuation measures for our business.~~
~~Financial Profile.~~~~We seek to maintain our fiscal profile, so we can access necessary financing oncompetitive terms. In addition, we believe our disciplined fiscal approach helps us to manage acquisitionrisks and maintain a high level of liquidity.~~
~~Risk Approach.~~We have adopted policies intended to mitigate and manage commodity price andcounterparty risks associated with our commodities trading activities. For example, a substantial portionof our inventory of commodities is, at any time, under contract for sale at a pre-determined price. Wealso reduce the risk of non-payment by customers by imposing limits on open accounts extended tocreditworthy customers and imposing credit support requirements for other customers.

~~Competitive Strengths~~

~~We believe that our competitive strengths include the following:~~

~~International Capabilities.~~Unlike other similarly sized companies, we have sought to develop a broadgeographic scope rather than focusing on any one particular market. While many of our larger competitorshave greater presences in more international markets, including merchant and investment banks, tradingfirms, brokerage firms, commercial banks and hedge funds, we believe our smaller size and collegiality~~allow us to work as a team on cross-border transactions better than many of our competitors.~~
~~Liquidity.~~Liquidity is of critical importance to companies in the merchant banking industry and globalcommodity supply chain business and is key to strategic acquisitions to further expand and support ourglobal commodity supply chain business. We therefore maintain liquidity in order to be able to capitalizeon business opportunities in time sensitive transactions, fund our core businesses to continue to generaterevenues and fund a broad range of potential cash outflows in stressed environments, including financingobligations. Our approach to liquidity allows us to meet immediate obligations, without needing to sellother assets or depend on additional funding from credit-sensitive markets, and affords us significantflexibility in structuring our affairs and managing through difficult funding environments. Historically,~~we have funded our businesses with cash generated from our operations.~~
~~Independence.~~We are an independent company managed by our directors and officers, rather than part ofa larger, diversified financial services institution. Such financial services companies can develop conflictswith their clients due to the large number of customers they service, their own investment and tradingpositions and the broad range of products and services they offer. We believe that awareness of thesepotential conflicts has heightened and that such awareness has resulted in increased opportunities for~~independent firms like us in respect of merger, acquisition, restructuring and similar transactions.~~
~~Management.~~~~We believe that our management has expertise in the global commodity supply chainbusiness, including critical expertise with respect to our specialized financial services and corporate financeservices internationally, including expertise in corporate restructurings and mergers and acquisitions.~~
~~Integrated Service Approach.~~We believe our logistics and financing activities allow us to provide afull-service solution to our commodities trading customers and suppliers. We are able to provide ourcustomers and suppliers assistance with transportation and logistics as well as trading, hedging, financing~~and risk management services.~~
~~Operating Structure Allows Prompt Response to Investment Opportunities.~~We have a lean operatingstructure and are therefore able to quickly assess whether a business venture represents an appropriateinvestment for us, responding promptly to all desirable business opportunities. We carefully select thebusiness opportunities we investigate and do not move forward unless we have a high level of confidencethat the opportunities fit within our objectives and core competencies.

Competitive Conditions

~~All~~

Both segments of our business are intensely competitive and we expect them to remain so.

We operate in a highly competitive environment in most of our markets and we face competition in our merchant banking activities, principally from international banks, the majority of which are European, North American or Latin American regulated banks, in our finance and fee-generating activities. Such competition may have the effect of reducing spreads on our financing activities.

Our ~~global commodities supply chain~~merchant banking business is relatively small compared to our competitors in the sector. Many of our competitors have far greater financial resources, a broader range of products and sources of supply, larger customer bases, greater name recognition and marketing resources, a larger number of senior professionals

to serve their clients’ needs, greater global reach and more established relationships with clients than we do. These competitors may be better able to respond to changes in business conditions, to compete for skilled professionals, to finance acquisitions, to fund internal growth and to compete for market share generally. Further, many companies are engaged in the acquisition of resource interests. We may also be at a competitive disadvantage in acquiring such properties and interests, as many of our competitors may have greater financial resources and technical staff. Accordingly, there can be no assurance that we will be able to compete successfully against other companies in acquiring additional interests and resource properties.

The scale of our competitors in the merchant banking business has increased in recent years as a result of substantial consolidation among companies, especially in the banking and financial industries. These firms have the ability to offer a wider range of products than we do, which may enhance their competitive position. They also have the ability to support their businesses with other services such as commercial lending in an effort to gain market share, which has resulted, and could further result, in pricing pressure in our businesses.

We believe that our experience and operating structure permit us to respond more rapidly to our clients’ needs than many of our larger competitors. These traits are important to small and mid-sized business enterprises, many of which do not have large internal corporate finance departments to handle their capital requirements. We develop a partnership approach to assist our clients. This often permits us to develop multiple revenue sources from the same client. For example, we may purchase and sell a client’s products, or commit our own capital to make a proprietary investment in its business or capital structure.

Regulation

Our operations are international in nature and are subject to the laws and regulations of a number of international jurisdictions, as well as oversight by regulatory agencies and bodies in those jurisdictions. In particular, the banking industry is subject to extensive regulation and oversight. The operations of our Bank are subject to the regulations and directives issued by the European Union, as well as any additional

TABLE OF CONTENTS 

Maltese legislation. The Bank is subject to direct supervision by the Malta Financial Services Authority and indirect supervision by the European Central Bank. The regulations which most significantly affect our Bank, or which could most significantly affect it in the future, relate to capital requirements, liquidity and the funding and development of a banking union in the European Union. As a Maltese credit institution, the Bank is subject to the Capital Requirements Directive Framework, referred to as the “CRD IV Framework”, through which the European Union began implementing the Basel III Capital reforms from January 1, 2014, with certain requirements in the process of being phased in by January 1, 2019. The CRD IV Framework, among other things, requires regulatory reporting of “large exposures”, which are generally exposures to a client or group of connected clients in excess of 10% of the Bank’s eligible capital base and such large exposures cannot be greater than 25% of the Bank’s eligible capital base, after taking into account credit risk mitigation.

Our gas and oil operations are subject to various Canadian governmental regulations including those imposed by the Alberta Energy Regulator and Alberta Utilities Commission. Matters subject to regulation include discharge permits for drilling operations, drilling and abandonment bonds and pooling of properties and taxation. The production, handling, storage, transportation and disposal of oil and gas, by-products thereof, and other substances and materials produced or used in connection with such operations are also subject to regulation under federal, provincial and local laws and regulations. We are subject to decommissioning obligations in connection with our ownership interests in hydrocarbon assets, including well sites, gathering systems and processing facilities. The total decommissioning obligation is estimated based on our net ownership interest in wells and facilities, estimated costs to reclaim and abandon same and the estimated timing of the costs to be incurred in future years. We have estimated the net present value of total decommissioning obligations to be $13.2 million as at December 31, 2016.

C. Organizational Structure

The following table describes our direct and indirect ~~significant~~material subsidiaries as at ~~the date hereof,~~March 30, 2017, their respective jurisdictions of organization and our ~~beneficial~~ interest in respect of each subsidiary. The table excludes subsidiaries that only hold inter-company assets and liabilities and do not have active businesses or whose results and net assets do not materially impact our consolidated results and net assets.

Subsidiaries		Country of Incorporation			Proportion of Voting ~~Beneficial~~Interest(1)
		~~Country of Incorporation~~		~~Interest~~⁽¹⁾
	MFC Commodities GmbH		Austria					100%	%
	~~MFC Trade & Financial Services GmbH~~	~~Austria~~		~~100~~	%
	~~IC Managementservice GmbH~~	~~Austria~~		~~100~~	%
	~~International Trade Services GmbH~~	~~Austria~~		~~100~~	%
	MFC Metal Trading GmbH		Austria					100%	%
	Kasese Cobalt Company Limited		Uganda		~~100~~	%		75⁽²⁾%
	~~AFM Aluminiumfolie Merseburg GmbH~~	~~Germany~~		55	%
	~~MAW Mansfelder Aluminiumwerk GmbH~~	~~Germany~~		55	%
	MFC (A) ~~Ltd.~~Ltd		Marshall Islands					100%	%
	MFC (D) ~~Ltd.~~Ltd		Marshall Islands					100%	%
	~~Brock Metals s.r.o~~	~~Slovakia~~		~~100~~	%
	M Financial Corp.		Barbados					100%	%
	~~Mednet (Shanghai) Medical Technical Developing Co., Ltd.~~	~~China~~		~~100~~	%
	~~Hangzhou Zhe-er Optical Co. Ltd.~~	~~China~~		51	%
	MFC Corporate Services AG		Switzerland					100%	%
MFC Power Limited Partnership	~~Compton Holding Austria~~	Canada					100%
MFC Energy Finance Inc.		Canada					100%
F.J. Elsner GmbH		Austria					100%	%
	~~Compton Petroleum Austria~~FESIL Sales GmbH	~~Austria~~	Germany					100%	%
MFC Merchant Bank Limited	~~GPT Global Pellets Trading GmbH~~	~~Austria~~Malta					100%	%
Sino Medical Technology Co. Ltd.	~~MFC Energy Corporation~~	~~Canada~~Marshall Islands					100%	%
	~~MFC Energy (Montana), Inc.~~	~~U.S.~~		~~100~~	%
	~~Mazeppa Processing Partnership~~	~~Canada~~		~~100~~	%
	~~MFC Resources Inc.~~	~~U.S.~~		~~100~~	%
	~~ACC Resources S.R.L.~~	~~Argentina~~		~~100~~	%
	~~Possehl Mexico S.A. de C.V.~~	~~Mexico~~		60	%

~~____________________~~

~~Notes:~~

~~(1)~~		~~Percentages rounded to nearest whole number.~~
~~(2)~~		~~We derive 100% beneficial benefit from the subsidiary from our holding of a shareholder loan and 75% share capital.~~

Note:

(1)

Percentages rounded to nearest whole number. Our proportional voting interests are identical to our proportional beneficial interests, except for a non-wholly owned subsidiary in Africa from which we derive a 100% beneficial interest resulting from our shareholder loan.

Please see Note 31 to our audited consolidated financial statements for the year ended December 31, 2016 for further information.

D. Property, Plants and Equipment

~~Office Space~~

Our principal office is located at Suite ~~1620~~1860 – 400 Burrard Street, Vancouver, British Columbia ~~Canada~~ V6C ~~3A6.~~3A6, Canada. We also maintain offices ~~in:~~globally, with our main marketing office located in Vienna, Austria; Beijing and Shanghai, China; New Jersey and Miami, U.S.A.; Mexico City, Mexico; Buenos Aires, Argentina; Calgary, Canada; Dubai, United Arab Emirates; Zagreb, Croatia; Tirana, Albania; and Belgrade, Serbia.

Austria.

TABLE OF CONTENTS

We believe that our existing facilities are adequate for our needs through the end of the year ending December 31, ~~2014.~~2016. Should we require additional space at that time or prior thereto, we believe that such space can be secured on commercially reasonable terms.

~~Royalty Interest~~

We ~~participate in a royalty~~also hold an interest ~~which consists of~~under a mining sub-lease ~~of the lands upon which the Wabush~~related to an iron ore mine ~~is situated. For a discussion~~located in Wabush, Newfoundland and Labrador, Canada, which commenced in 1956 and expires in 2055. In late 2014, the mine operator announced the closure of the ~~royalty interest, please see “~~~~Item 4: Information on~~mine and, in 2015, commenced proceedings under the ~~Company — B. Business Overview — Business Segments – Commodities and Resources~~”.

~~Pea Ridge Mine~~

~~We hold~~CCAA. These proceedings are ongoing.

In the fourth quarter of 2015, we disposed of certain hydrocarbon interests that were classified as held for sale. As a ~~50% interest~~result, our hydrocarbon interests currently only include interests in ~~the Pea Ridge Iron Ore Mine located in Sullivan, Missouri U.S.A. For a discussion of the Pea Ridge Iron Ore Mine, please see “~~~~Item 4: Information on the Company — B. Business Overview — Business Segments –Commodities and Resources~~”.

~~Natural Gas Interests~~

~~We are active in the energy sector through the development, production and processing of natural gas and NGLs in western~~West Central Alberta, Canada. ~~The majority of such operations are located in the central fairway of the Western Canada Sedimentary Basin, primarily situated in the Province of Alberta.~~ As at December 31, ~~2013, we had an interest in 1,436~~2016, these hydrocarbon interests comprised of approximately 91 producing ~~natural gas wells, 3~~and 87 non-producing natural gas wells ~~112~~and approximately 6 producing ~~oil wells, 3~~and 18 non-producing oil wells and ~~a land position that includes 268,875~~net working interest undeveloped acres. Our assets are situated in the following areas of the Western Canada Sedimentary Basin: (i) the Rock Creek sands and other Cretaceous sands in the Niton area of central Alberta; (ii) the Cretaceous and Tertiary sands in Okotoks and Southern Alberta; (iii) the Mannville sands in the High River area of southern Alberta; and (iv) the deeper, Belly River sands in the Callum area of southern Alberta.

The Niton area includes multi-zone, liquids-rich, tight gas plays with production to date primarily coming from Rock Creek and Ellerslie sandstones. We have a large number of mineral agreements that cover specific zonal rights in this area. We have an average ~~72%~~70.3% working interest in ~~86,000~~approximately 86,500 gross acres of land to the base of the Rock Creek Member of the Fernie Group. The Niton area has other productive zones that provide opportunities to expand our development base by moving into other geological horizons. These zones lie above the Rock Creek and include the Wilrich and Notikewin sandstones of the Upper Mannville and Spirit River Group.

The Southern Plains is comprised primarily of multi Belly River sands along with upper Edmonton Group coal bed methane formations. As well, in select areas of Southern Alberta, there are productive Mannville sands. With control of 411,400 gross acres of land at an average 87% working interest, this land base provides a significant multi-year, low risk natural gas drilling inventory. Infrastructure is in place in the area for future production increases.

~~Our High River asset is primarily a low to medium permeability Basal Quartz channel sandstone pool, which is the southern Alberta extension of the Lower Cretaceous Deep Basin gas trend.~~

We also have interests in substantial established infrastructure, which allows flexibility to effectively manage area development and adjust operations accordingly. Overall, we operate over 50,000 horsepower of compression totaling 200 mmcf/d of available field compression capacity, having over 85 mmcf/d of operated processing capacity and over 2,000 km of pipeline infrastructure in place. Key facilities are as follows:

~~Mazeppa Gas Processing Plant~~– We own the Mazeppa gas processing plant and the Mazeppa gas gatheringsystem through our ownership of MPP. The MPP sour gas processing plant is located in the High Riverarea and currently has production capacity of 90 mmcf/d (licensed plant capacity) of sour natural gas and45 mmcf/d of sweet natural gas.

land.

~~High River~~~~– In the High River area there is 9,150 horsepower installed with a gas compression capacityof 42.5 mmcf/d and 270 km of pipeline infrastructure in place. Volumes are all produced through theMazeppa gas gathering system and sour gas processing plant.~~
~~Southern Alberta Foothills~~– The Callum and Cowley Gas Processing Plants with 100% plant ownershipare currently capable of compressing 19 mmcf/d and ultimately processing 50 mmcf/d through the twoexisting facilities with the addition of field and/or plant compression. There is currently over 60 km of~~pipeline infrastructure in the operating area with minimal third party infrastructure in place.~~
~~Edson, Niton, and McLeod~~– This foothills area property has compression capacity of 23 mmcf/d utilizingover 6,400 horsepower, including the MFC Energy McLeod River Gas Processing Plant with 23 mmcf/dof capacity with 100% plant ownership. Additionally, there is over 185 km of pipeline infrastructure in~~the area.~~
~~Shallow Gas Properties~~– Our shallow gas infrastructure consists of over 110 mmcf/d of compressioncapacity utilizing 30,000 horsepower with over 1,200 km of pipeline infrastructure in place. Finalprocessing gas volumes are linked into the Nova/TransCanada pipeline systems at multiple sales locations.

~~Gas Reserves~~

We retained GLJ Petroleum Consultants, referred to as “GLJ”, to evaluate and prepare a report on our natural gas properties. All of our reserves are located in Alberta, Canada. Please refer to Exhibit 15.3 of this Annual Report on Form 20-F for GLJ’s report on their evaluation and methodology.

~~The following table sets forth our company gross (working interest reserves, before royalty) and company net (working interest reserves, including royalty) as at December 31, 2013.~~

Reserves as of December 31, 2013
Category Natural Gas NGLs Crude Oil Total
Company Company Company Company Company Company Company Company
Gross Net Gross Net Gross Net Gross Net
(mmcf) (mbbl) (mbbl) (mboe)
      Proved
       Developed Producing       137,841       115,474       2,600       1,703       942       673       26,516       21,622
       Developed Non-Producing 1,020 791 13 11 4 3 187 146
       Undeveloped 16,242 14,094 531 399 177 143 3,415 2,891
Total Proved 155,104 130,359 3,145 2,113 1,123 819 30,119 24,660
Probable 66,850 56,111 1,531 1,028 599 458 13,272 10,838
Total Proved plus Probable 221,954 186,470 4,676 3,141 1,722 1,278 43,391 35,497

Estimated reserves shown for the producing properties have been projected on the basis of the extrapolation of performance data where there was sufficient data to suggest a performance trend. A significant percentage of the completions have extensive production histories and provide substantial data with respect to performance trends. In some cases the information suggests that recent well intervention work has been performed. In such cases, we have considered prior historical performance in estimating future reserves. Projections for recently drilled wells have been prepared on the basis of early performance data and/or well tests with consideration for the performance trends observed in those wells with long production histories. Probable reserves are higher risk than proved reserves and are generally believed to be less likely to be accurately estimated or recovered than proved reserves.

~~Estimates of total net proved reserves are not filed with any U.S. federal authority or agency other than the SEC.~~

Our policies and practices regarding internal controls over the recording of reserves are structured to objectively and accurately estimate our gas and oil reserves quantities and present values in compliance with the SEC’s regulations and financial reporting standards. Our controls over reserve estimates included retaining GLJ as our independent petroleum and geological engineering firm. We provided information about our gas and oil properties, including production profiles, prices and costs, to GLJ, and they prepared their own estimates of the reserves attributable to our properties, as of December 31, 2013. All of the information regarding reserves in this annual report on Form 20-F is derived from the report prepared by GLJ. The principal engineer at GLJ is Myron Hladyshevsky, P. Eng., who was responsible for preparing our reserve estimates, has over 30 years of experience in the oil and gas industry and is a professional engineer registered in the Province of Alberta, Canada. He is

also a member of the Society of Professional Engineers in the Province of Alberta. GLJ’s reserves estimates are reviewed by our technical personnel and management and our board of directors meets with such personnel to discuss matters and policies related to our reserves.

There are numerous uncertainties inherent in estimating quantities of proved reserves, including many factors beyond our control or the control of the reserve engineers. Reserve engineering is a subjective process of estimating underground accumulations of gas and oil that cannot be measured in an exact manner. The accuracy of any reserve or cash flow estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. Estimates by different engineers often vary, sometimes significantly. In addition, physical factors, such as the results of drilling, testing and production subsequent to the date of an estimate, as well as economic factors, such as an increase or decrease in product prices that renders production of such reserves more or less economic, may justify revision of such estimates. A significant reduction in our proved reserves may result in a full cost ceiling limitation and/or an accelerated depletion rate. Accordingly, reserve estimates could be different from the quantities of gas and oil that are ultimately recovered. Please refer to “~~Item 3: Key Information - D. Risk Factors~~”~~for further information respecting these risks.~~

As at December 31, 2013, our reserves estimates included 3,415 mboe (2,891 mboe on a net basis) of reserves classified as proved undeveloped, compared to 3,298 mboe (2,788 mboe on a net basis) as of December 31, 2012.

~~Production, Prices and Costs~~

For the year ended December 31, 2013, we produced 17,522 mmcf of natural gas, 411.6 mboe of natural gas liquids (including sulphur) and 118.7 mbbl of crude oil, for total production of natural gas, natural gas liquids and crude oil of 3,450 mboe. The following table sets forth our average daily production by field for the year ended December 31, 2013 and the period from September 7, 2012, the date we commenced consolidating MFC Energy, to December 31, 2012:

Year Ended December 31, 2013 September 7, 2012 to December 31, 2012
Natural Crude Natural Crude
Gas NGLs Oil Total Gas NGLs Oil Total
Area (mcf/d) (bbl/d)⁽¹⁾ (bbl/d) (boe/d) (mcf/d) (bbl/d)⁽¹⁾ (bbl/d) (boe/d)
High River 12,812 263 8 2,406 14,853 281 12 2,769
Okotoks 4,664 185 — 962 5,386 198 — 1,096
Callum/Cowley 3,358 32 — 593 3,671 26 — 638
Niton 11,712 492 81 2,525 12,910 532 105 2,788
Other (Southern Alberta) 15,460 156 236 2,968 19,030 19 331 3,521
Total 48,006 1,128 325 9,454 55,849 1,056 448 10,812
____________________

~~Note:~~

~~(1)~~

~~Includes sulphur.~~

The following table sets our average sales prices, operating costs, royalty amounts and transportation costs for each of the year ended December 31, 2013 and the period from September 7, 2012 to December 31, 2012:

Year Ended December 31, 2013 September 7, 2012 to December 31, 2012
Natural Crude Natural Crude
Gas NGLs Oil Total Gas NGLs Oil Total
Area (C$/mcf) (C$/bbl)⁽¹⁾ (C$/bbl) (C$/boe) (C$/mcf) (C$/bbl)⁽¹⁾ (C$/bbl) (C$/boe)
Price⁽²⁾ C$3.46 C$75.63 C$84.98 C$30.72 C$3.12 C$75.34 C$78.90 C$28.02
Royalties 0.62 24.53 20.78 6.81 0.47 24.17 17.73 5.54
Operating costs⁽³⁾ N/A N/A N/A 12.38 N/A N/A N/A 8.02
Transportation costs 0.14 4.92 2.29 1.37 0.13 4.64 4.64 1.29
____________________

~~Notes:~~

~~(1)~~		~~Includes sulphur.~~

~~(2)~~		~~Includes third party processing fees.~~

~~(3)~~		~~A portion of our natural gas production is associated with crude oil production. As a result, per unit operating costs for each product reflect the allocation of certain common costs.~~

~~Our operating costs per boe increased in 2013 primarily as a result of decreased production due to evaluation and repair activities.~~

~~Present Activities and Productive Wells~~

We did not drill any wells during the period from September 7, 2012 to December 31, 2012 or during the year ended December 31, 2013. In November 2013, we entered into the Participation Agreement with an established oil and gas operator, pursuant to which it has committed to spending a minimum of C$50 million to drill a total of 12 net wells over an initial three-year term, with such drilling being primarily focused on our undeveloped oil and gas properties located in Alberta, Canada. Please see “~~Item 4. Information on the Company – B. Business Overview.~~”

~~The following table summarizes the location of our interests as at December 31, 2013 in natural gas and crude oil wells that are producing or that are mechanically capable of production.~~

Producing Non-producing Producing Non-producing
      Area Natural Gas Wells Natural Gas Wells⁽¹⁾ Crude Oil Wells Crude Oil Wells⁽¹⁾ Total Wells
   Gross      Net      Gross      Net      Gross      Net      Gross      Net      Gross      Net
Niton 137 106    —       —       10       8       —       —    147 114
High River 151 126 1 1 2 2 — — 154 129
Okotoks 25 24 — — — — — — 25 24
Callum/Cowley 25 24 — — — — — — 25 24
Other (Southern Alberta) 1,098 800 2 1 100 20 3 1 1,203 822
Total wells 1,436 ⁽²⁾ 1,080 ⁽²⁾ 3 2 112 30 3 1 1,554 1,113
____________________

~~Notes:~~

~~(1)~~		A portion of the non-producing wells are wells considered capable of production but which, for a variety of reasons including but not limited to a lack of markets and lack of development, cannot be placed on production at the present time.

~~(2)~~		~~The number of wells previously disclosed as at December 31, 2012 did not include certain uneconomic wells that were not previously subject to evaluation.~~

~~The following table sets forth the acreage of our gross and net developed and undeveloped gas and oil properties as at December 31, 2013.~~

      Area Gross Acres Net Acres
Alberta, Canada
       Developed 483,592 410,895
       Undeveloped 234,645 189,718
Montana, U.S.A.
       Undeveloped 79,157 79,157
Total
      Developed 483,592 410,895
      Undeveloped 313,802 268,875

~~Delivery Commitments~~

Our natural gas production is sold to creditworthy counterparties under contracts at AECO Daily Index prices and is transported through regulated pipelines in the Province of Alberta at tariffs that require either Provincial or Federal regulatory approval.

NGLs are re-priced on an annual basis reflecting purchaser monthly pool prices or are based on U.S. market hub locations with a basis differential. Our crude oil sales are priced at market using the Edmonton market hub as a benchmark and are typically made through 30-day evergreen contracts. NGLs and crude oil are transported to the point of sale to creditworthy counterparties using a combination of pipelines and trucking services. Sulphur production attracts market prices based on a combination of domestic sales, off-shore at Vancouver, British Columbia and to Tampa, Florida. Sales are with customers in the oil and gas industry and are subject to normal industry credit risks.

~~Environmental~~

Our gas and oil operations are subject to various Canadian governmental regulations including those imposed by the Alberta Energy Resources Conversation Board and Alberta Utilities Commission. Matters subject to regulation include discharge permits for drilling operations, drilling and abandonment bonds, reports concerning operations, the spacing of wells, and pooling of properties and taxation. The production, handling, storage, transportation and disposal of oil and gas, by-products thereof, and other substances and materials produced or used in connection with oil and gas operations are also subject to regulation under federal, provincial and local

laws and regulations relating primarily to the protection of human health and the environment. We believe that our operations comply in all material respects with applicable laws and regulations and that the existence and enforcement of such laws and regulations have no more restrictive an effect on our operations than on other similar companies in the energy industry.

We are subject to decommissioning obligations in connection with our ownership interests in hydrocarbon assets, including well sites, gathering systems and processing facilities. The total decommissioning obligation is estimated based on our net ownership interest in all wells and facilities, estimated costs to reclaim and abandon these wells and facilities, and the estimated timing of the costs to be incurred in future years. We have estimated the net present value of decommissioning obligations to be $117.4 million as at December 31, 2013.

ITEM 4A: UNRESOLVED STAFF COMMENTS

None.

ITEM 5: OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion and analysis of our financial condition and results of operations for the ~~fiscal years~~year ended December 31, ~~2013, 2012~~2016 and ~~2011~~2015 should be read in conjunction with our audited consolidated financial statements and related notes included in this annual report on Form 20-F. Our financial statements included in this annual report on Form 20-F were prepared in accordance with IFRS. As a result of adjustments and an error correction made in the third quarter of 2013 during the measurement period for the acquisition of MFC Energy, bargain purchase and certain expense accounts have been revised for the year ended December 31, 2012. Please see Notes 3 and 41 to our audited consolidated financial statements for the year ended December 31, 2013 for further information.

notes.

General

We are a ~~global commodities supply chain company which~~merchant bank that provides financial services and facilitates structured trade for corporations and institutions. Our business activities involve customized structured financial solutions and are supported by captive sources and ~~delivers commodities~~products secured from third parties. We do business in multiple geographies and ~~materials to clients, with~~specialize in a ~~special expertise on the financing and risk management aspects~~wide range of ~~the business.~~ industrial products.

We also commit our own capital to promising enterprises and invest and otherwise capture investment opportunities for our own account. We seek to invest in businesses or assets whose intrinsic value is not properly reflected in their share price or value. Our investing isactivities are generally not passive. We actively seek investments where our financial expertise and management can add or unlock value.

Our results of operations have been and may continue to be affected by many factors of a global nature, including economic and market conditions, the availability of capital, the level and volatility of equity prices and interest rates, currency values, ~~commodity~~asset prices and other market indices, technological changes, the availability of credit, inflation and legislative and regulatory developments. Our results of operations may also be materially affected by competitive factors. Our competitors include firms traditionally engaged in ~~merchant banking and financial services~~trade finance such as merchant and investment banks, along with other capital sources such as hedge funds, private equity firms, insurance companies and other ~~trade~~ companies engaged in ~~commodities~~supply chain activities in Europe, Asia and globally.

Our results of operations for any particular period may also be materially affected by our realization on proprietary investments. These investments are made to maximize total return through long-term appreciation and recognized gains on divestment. We realize on our proprietary investments through a variety of methods including sales, capital restructuring or other forms of divestment.

A majority of our revenues is derived from our global commodity supply chain operations. The remaining portions are generally derived from financial services, sales of properties and net gains on securities.

~~We view our net book value per share as a key indicator of our overall financial performance.~~

Our net book value declined by $39.7 million to $327.5 million as at December 31, ~~2013, 2012~~2016, compared to December 31, 2015, due to foreign exchange fluctuations and ~~2011~~a net loss in 2016.

Reclassifications and Prior Periods

On December 31, 2016, we reclassified assets of $45.7 million and associated liabilities of $29.9 million, relating to a non-core Latin America focused commodities trading business, as held for sale. This business was sold in the first quarter of 2017. Please see “Item 4: Information on the Company – B. Business Overview” and Note 5 to our audited consolidated financial statements for the year ended December 31, 2016 for further information.

On June 30, 2016 and September 30, 2016, we ceased to classify our interest as lessor under a mining sub-lease of the lands upon which an iron ore mine is ~~set forth below:~~

December 31, December 31, December 31,
      2013       2012⁽¹⁾       2011
(United States dollars in thousands,
      except per share amounts)
Net book value     $ 699,570         $ 730,587         $ 546,623
Net book value per share 11.18 11.68 8.74
____________________

situated and our remaining hydrocarbon properties, respectively, as assets held for sale as the criteria for assets classified as assets held for sale were no longer

~~Note:~~

~~(1)~~

~~In 2012, we consolidated MFC Energy. Includes measurement period adjustments and error correction related to the acquisition of MFC Energy.~~

TABLE OF CONTENTS

met. Accordingly, the results of operations of these assets for 2015 and 2014 have been reclassified to continuing operations and revenues, costs and expenses, income taxes and cash flows have been re-presented for prior periods. Please see Note 5 to our audited consolidated financial statements for the year ended December 31, 2016 for further information.

Business Environment

Our financial performance is, and our consolidated results in any period can be, materially affected by ~~global~~ economic conditions and financial markets ~~generally.~~

~~Our favourable business environment is characterized by many factors,~~generally, including ~~a stable geopolitical climate, transparent financial markets, low inflation, low interest rates,~~the availability of capital, the availability of credit ~~low unemployment, strong business profitability~~ and ~~high business~~the level of market and ~~investor confidence. Unfavourable or uncertain~~commodity price volatility. Our results of operations may also be materially affected by competitive factors. Our competitors include firms traditionally engaged in merchant banking and trade finance as well as other capital sources such as hedge funds and private equity firms and other companies engaged in similar activities in Europe, Asia and globally.

Ongoing economic conditions and ~~market conditions can be caused by declines in~~uncertainties, including slower economic growth ~~business activity or investor or business confidence, limitations on the availability or increase~~ in ~~the cost of credit~~China and ~~capital, increases~~continuing economic uncertainty in inflation, interest rates, exchange rate volatility, outbreaks of hostilities or other geopolitical instability, corporate, political or other scandals that reduce investor confidence in the capital markets or a combination of these or other factors.

~~Ongoing global economic conditions, including fears of sovereign debt default and a European banking crisis,~~Europe, continued to impact ~~the liquidity in financial~~markets and ~~capital markets, restricting access to financing and causing~~cause significant volatility in commodity prices in ~~2013. There can be no assurance as to~~2016. During 2016, intensifying over the ~~stabilization~~second half of the year and ~~recovery of economic conditions~~into 2017, significant events in the ~~near term. For example,~~global political landscape have introduced macroeconomic and political risks that are difficult to quantify and could have far-reaching implications for the ~~steel sector has seen~~global economy. These events increased the uncertainty surrounding the probable future direction of interest rates, inflation, foreign exchange rates, trade volumes and fiscal and monetary policy. As a ~~drop~~result, the evolution of the global economy and regional economies is increasingly difficult to predict.

We operate internationally and therefore our financial performance and position are impacted by changes in ~~producer stocks, which has~~the Canadian dollar, our reporting currency, against the other functional currencies of our international subsidiaries and operations, particularly the Euro. Changes in currency rates affect our financial performance and position because our European subsidiaries’ assets, liabilities, revenues and operating costs are denominated in Euros. Accordingly, a weakening of the Canadian dollar against the Euro would have the effect of increasing the value of such assets, liabilities, revenues and operating costs when translated into Canadian dollars, our reporting currency. Conversely, a strengthening of the Canadian dollar against these currencies would have the effect of decreasing such values.

As at December 31, 2016, the Canadian dollar had strengthened by 6% against the Euro from the end of 2015. Such strengthening negatively impacted ~~prices and supply chain volumes.~~

~~Natural gas prices increased~~our asset values (net of liabilities) reported in ~~2013 with AECO prices averaging approximately 33% higher than 2012 levels. Colder than normal weather~~Canadian dollars as at December 31, 2016. As a result, we recognized a net $14.6 million currency translation adjustment loss accumulated under other comprehensive income within equity in ~~North America~~2016, compared to a net $79.5 million currency translation adjustment gain in the fourth quarter of 2013 caused increased natural gas demand, which reduced natural gas inventory build-up and subsequently led to increased gas prices. From time to time, we may enter into hedging transactions to manage pricing risks for our commodities. In December 2013, to hedge to the volatility and the organically long nature of our natural gas subsidiary, we entered into a short position of long-term NYMEX natural gas swaps with a notional value of approximately $50 million. In January and February, as natural gas prices continued to rise, we increased our position using shorter-duration swaps. We continue to hold these hedging derivatives, and as of March 28, 2014 we were short approximately $87.5 million of NYMEX natural gas swaps with maturities ranging from August 2014 to March 2015 at an average weighted price of $4.39.

2015.

Results of Operations

The following table sets forth certain selected operating results and other financial information for each of the years ended December 31, ~~2013, 2012~~2016, 2015 and ~~2011:~~

December 31,
2013 2012⁽¹⁾ 2011
(United States dollars in thousands,
except per share amounts)
      Net sales       $ 806,831       $ 479,507       $ 507,992
Gross revenues 813,938 485,659 513,904
Costs and expenses 795,213 512,984 495,790
Costs of sales 710,355 406,708 428,587
Impairment of available-for-sale securities 517 4,265 12,408
Impairment of interest in resource properties 6,077 42,631 —
Selling, general and administrative expense 63,092 47,737 40,378
Share-based compensation expense — 9 7,219
Bargain purchase — 218,679 —
Finance costs 15,172 11,634 7,198
Income (loss) from operations 18,725 (27,325 ) 18,114
Net income⁽²⁾ 9,665 200,144 12,193
Earnings per share:
       Basic 0.15 3.20 0.19
       Diluted 0.15 3.20 0.19
____________________

2014:

	Years Ended December 31,
	2016			2015			2014
				(Re-presented)(1)			(Re-presented)(1)
	(In thousands, except per share amounts)
Gross revenues		$	1,131,657		$	1,629,100		$	1,405,330
Costs and expenses			1,148,363			1,919,895			1,376,016
Costs of sales and services			1,061,052			1,573,868			1,266,430
Selling, general and administrative expense			79,164			86,648			83,862
Finance costs			24,102			22,329			15,967
Share-based compensation – selling, general and administrative			—			—			423
Impairment of available-for-sale securities			91			245			341
(Reversal) recognition of impairment losses on resource properties			(8,566)			235,875			2,813
(Loss) earnings from continuing operations(2)			(25,361)(3)			(246,228)(4)			17,840(5)
Net loss from discontinued operations(2)			—			(241,402)(6)			(18,522)(7)
Net loss(2)			(25,361)(3)			(487,630)(4)(6)			(682)(5)(7)
Loss per share:
Basic			(0.40)			(7.72)			(0.01)
Diluted			(0.40)			(7.72)			(0.01)

TABLE OF CONTENTS

Notes:

(1)		~~We consolidated the operations of MFC Energy from September 7, 2012. Includes measurement period adjustments and error correction related to the acquisition of MFC Energy.~~

~~(2)~~		~~Net income attributable to our shareholders.~~

(2)

Attributable to our shareholders.

(3)

Includes a net non-cash reversal of $8.6 million in connection with prior impairments on our remaining hydrocarbon properties.

(4)

Includes total non-cash impairment losses of $235.9 million, before an income tax recovery of $46.5 million, on our mining interest and remaining hydrocarbon properties that were reclassified as continuing operations and losses of $51.4 million related to a customer that filed for insolvency in February 2016 and $9.9 million on long-term off-take agreements entered into by a subsidiary acquired in 2014, which were terminated in 2016.

(5)

Includes a non-cash impairment loss on our hydrocarbon properties of $2.8 million.

(6)

Includes total non-cash impairment losses of $176.3 million, before a deferred income tax expense of $50.9 million, recognized on our hydrocarbon properties and iron ore interests.

(7)

Includes a non-cash impairment loss of $30.4 million, before a deferred income tax recovery of $8.4 million, on our hydrocarbon properties.

The following table provides a breakdown of our total revenues from continuing operations for each of the years ended December 31, ~~2013, 2012~~2016, 2015 and ~~2011:~~

December 31,
2013 2012⁽¹⁾ 2011
(United States dollars in thousands,
except per share amounts)
Commodities and resources $ 768,795 $ 443,055 $ 470,242
Fees 9,440 8,389 6,670
Gains on securities 6,318 1,150 —
Interest 2,385 10,489 10,701
Dividend 295 360 338
Equity income 7,107 6,152 5,912
Other 19,598 16,064 20,041
Total revenues $ 813,938 $ 485,659 $ 513,904
____________________2014:

	Years Ended December 31,
	2016			2015			2014
				(Re-presented)(1)			(Re-presented)(1)
	(In thousands)
Merchant banking products and services		$	1,078,745		$	1,580,935		$	1,360,979
Gain on securities, net			—			—			333
Interest			3,056			4,237			4,542
Dividends			6			7			8
Other			49,850			43,921			39,468
Total revenues		$	1,131,657		$	1,629,100		$	1,405,330

Note:

(1)

~~Note:~~
~~(1) We consolidated~~

In connection with the reclassification of our mining interest and hydrocarbon properties to continuing operations ~~of MFC Energy from September 7, 2012.~~

in 2016, revenues have been re-presented for these periods.

Year Ended December 31, ~~2013~~2016 Compared to the Year Ended December 31, ~~2012~~

2015

The following is a breakdown of our gross revenues by segment for each of the years ~~ended December 31, 2013~~indicated:

	Years Ended December 31,
	2016			2015
				(Re-presented)(1)
	(In thousands)
Gross Revenues:
Merchant banking		$	1,095,896		$	1,593,879
All other			35,761			35,221
		$	1,131,657		$	1,629,100

Note:

(1)

In connection with the reclassification of our mining interest and ~~2012:~~

December 31,
2013 2012
(United States dollars in thousands)
Gross Revenues:
Commodities and resources $ 778,487 $ 455,898
Merchant banking 12,568 11,751
All other 22,883 18,010
$ 813,938 $ 485,659

~~The following charts illustrate~~hydrocarbon properties to continuing operations in 2016, revenues have been re-presented for this period.

In 2016, 62% of our revenues were from Europe, 25% were from the Americas and 13% were from Asia and other regions.

In 2016, our proportionate revenues by ~~business segment~~product were: (i) 21% from metals; (ii) 28% from steel products; (iii) 45% from minerals, chemicals and ~~geographic distribution in the fiscal year ended December 31, 2013:~~

alloys; and (iv) 6% from other.

~~Revenues by Business Segment~~		~~Revenues by Region~~

Based upon the ~~yearly~~ average exchange rates for ~~2013,~~2016, the ~~United States~~Canadian dollar ~~decreased~~weakened by approximately ~~3.2% and increased by approximately 3.0%~~3% in value against the Euro ~~and the Canadian dollar, respectively,~~ compared to the average exchange rates ~~in 2012. As at December 31, 2013, the United States dollar had decreased by approximately 4.3% against the Euro and increased by approximately 6.9% against the Canadian dollar since December 31, 2012.~~

for 2015.

Revenues for ~~2013 increased~~2016 decreased to ~~$813.9~~$1,131.7 million ~~(consisting of net sales of $806.8~~from $1,629.1 million ~~and equity income from medical joint ventures of $7.1 million) from $485.7 million (consisting of net sales of $479.5 million and equity income from medical joint ventures of $6.2 million)~~ in ~~2012,~~2015, primarily as a result of ~~increased commodities sales resulting from~~our decision to exit certain product lines and geographies, marginally offset by the ~~acquisition~~positive impact of ~~MFC Energy, MFCR and Possehl in~~ the ~~current period and increased transactions in wood pellets in Europe through longer term off-take agreements. As~~weaker Canadian dollar against the Euro ~~was relatively stable during 2013, currency fluctuations had no material impact on~~in 2016. As a substantial portion of our revenues are generated in Euros, the weakening of the Canadian dollar against the Euro positively impacted our revenues in 2016 when such Euro-denominated revenues were translated ~~into U.S.~~to Canadian dollars.

Revenues for our commodities and resources business were $778.5 million for 2013, compared to $455.9 million in 2012, primarily as a result of increased commodities sales due to increases in both values and prices on some commodities and the consolidation of MFC Energy, MFCR and Possehl.

During 2013, gross revenues generated by our royalty marginally decreased to approximately $25.7 million from approximately $29.1 million in 2012. This decrease in gross royalty revenues was mainly attributable to a lower tonnage of shipments in 2013. A total of 2.8 million tons and 3.2 million tons of iron ore products were shipped in 2013 and 2012, respectively.

Subsequent to the year ended December 31, 2013, the operator of the Wabush mine announced that it planned to idle production of the mine by the end of the first quarter of 2014 as a result of increased costs and the lower iron or pricing environment. Our management reviewed related information and performed a sensitivity analysis on the expected future cash flows from our royalty interest. The primary factor which impacts the recoverable amount is the duration of the idle period of the mine. Using a base case, which assumes the mine will recommence production by 2016 and the remaining reserves will be processed over the remaining mine life, we concluded that an impairment charge was not required as at December 31, 2013. We continue to monitor the situation as it develops. In the event that the mine is idled for a prolonged period or if other circumstances change, we may re-assess the value of this asset in the future.

Our commodities operations were adversely affected by historically severe flooding in the Southern Alberta, Canada, region in and around the city of Calgary during the third quarter of 2013. Such flooding caused us to lose 73 days of gas production and incur approximately C$1.9 million in capital expenditures for repairs. These operations returned to normal levels on September 26, 2013.

TABLE OF CONTENTS

Revenues for our merchant banking business ~~were $12.6~~for 2016 decreased to $1,095.9 million ~~for 2013, compared to $11.8~~from $1,593.9 million in ~~2012,~~the same period of 2015, primarily as a result of ~~lower activities.~~

our decision to exit certain product lines, marginally offset by the positive impact of the weaker Canadian dollar against the Euro in 2016.

Revenues for our all other segment were ~~$22.9~~$35.8 million ~~for 2013,~~in 2016, compared to ~~$18.0~~$35.2 million in ~~2012.~~

2015.

Costs of sales ~~increased~~and services decreased to ~~$710.4~~$1,061.1 million ~~for 2013~~during 2016 from ~~$406.7~~$1,573.9 million ~~for 2012,~~in 2015, primarily as a result of ~~an increase in commodities~~our decision to exit certain product lines and ~~resource activities, including as a result~~geographies, marginally offset by the impact of the ~~consolidation of MFC Energy, MFCR and Possehl. In~~weaker Canadian dollar against the prior period, we had a write-down of inventories of $15.7 million, of which $19.4 million related to our former iron ore activities, which we recognized after the Supreme Court of India banned all mining activitiesEuro in ~~the area.~~ 2016.

The following is a breakdown of our costs of sales and services for each of the years ~~ended December 31, 2013 and 2012:~~

December 31,
2013 2012
(United States dollars in thousands)
Commodities and resources $ 705,951 $ 382,245
Credit losses (recovery) on loans and receivables 4,671 (521 )
Fair value gain on investment property — (14 )
Market value (increase) decrease on commodities (5,342 ) 1,509
(Gain) loss on derivative contracts, net (4,488 ) 57
Write-off of inventories — 15,659
Other 9,563 7,773
Total cost of sales $ 710,355 $ 406,708

Selling, general and administrative expenses, excluding share-based compensation, increased to $63.1 million for 2013 from $47.7 million for 2012. The increase is primarily as a result of the consolidation of MFC Energy, MFCR and Possehl.

We recognized an impairment of interest in resource properties of $6.1 million (before an income tax recovery of $1.6 million) for 2013 in connection with our hydrocarbon reserves as a result of a decline in the long-term pricing outlook and future production volumes. In 2012, we recognized an impairment of $42.6 million (before income tax recovery of $13.8 million) in connection with a subsidiary that had engaged in iron ore activities in India (which was sold in 2013), as a result of the Supreme Court of India’s ban on all mining activities in the State of Goa, India. The total impairment and write-down, net of income tax recovery, was $48.2 million for 2012 in relation to such interests.

~~Impairment of available-for-sale securities was $0.5 million for 2013, compared to $4.3 million in 2012. This represented an other-than-temporary impairment charge on our investment portfolio.~~

indicated:

	Years Ended December 31,
	2016			2015
				(Re-presented)(1)
	(In thousands)
Merchant banking products and services		$	1,027,627		$	1,512,970
Credit losses on loans and receivables and guarantees, net of recoveries			17,023			54,540
Fair value gain on government environmental emission refund			—			(4,157)
Fair value loss on investment property			44			—
Market value decrease on commodity inventories			4,273			1,910
Loss (gain) on derivative contracts, net			521			(2,913)
Loss on securities, net			116			84
Other			11,448(2)			11,434
Total costs of sales and services		$	1,061,052		$	1,573,868

Notes:

(1)

During 2013, we incurred finance costs of $15.2 million, primarily related to our commodities business, compared to $11.6 million for 2012. Such finance costs increased as a result of increased borrowings relating to the acquisitions of MFC Energy, MFCR and Possehl.

~~For 2013, we incurred a net foreign currency transaction loss of $1.8 million, compared to a gain of $7.1 million for 2012, in the statement of operations.~~

~~We recognized a bargain purchase of $218.7 million, or $3.50 per share, during 2012, primarily in~~

In connection with the ~~acquisition~~reclassification of ~~MFC Energy. This also included~~our mining interest and hydrocarbon properties to continuing operations in 2016, costs of sales and services have been re-presented for this period.

(2)

Includes a ~~bargain purchase~~ gain on dispositions of ~~$2.4 million in connection with the acquisition of KCCL.~~subsidiaries totaling $2.6 million. Please ~~refer~~see Note 31 to ~~Note 41 of~~ our audited consolidated financial statements for the year ended December 31, ~~2013~~2016 for further ~~information~~information.

In 2016, we recognized a credit loss of $11.3 million on receivables due from a formerly consolidated subsidiary.

Selling, general and administrative expenses decreased to $79.2 million in 2016 from $86.6 million in 2015.

In 2016, finance costs increased to $24.1 million from $22.3 million in 2015, primarily as a result of expanded factoring activities.

In the fourth quarter of 2015, one of our customers in the wood products market experienced financial difficulties and, in February 2016, filed for insolvency, which was an adjusting subsequent event in the prior year under IAS 10, Events after the Reporting Period, referred to as “IAS 10”. As a result, we had to determine an allowance for credit losses against our trade receivables due from this customer and its affiliates, referred to as the “former customer group” as at December 31, 2015. As at December 31, 2015, we had gross trade receivables of $103.3 million due from this former customer group as well as other contracts with such former customer group. Our management conducted an extensive assessment of impairment losses on these trade receivables. This assessment involved a number of judgments and a high level of estimation uncertainty. The factors considered in these estimates include our legal rights and obligations under all related contracts and collateral, which include inventories, mortgages, insurance of collateral and other credit enhancement instruments. We recognized an allowance for credit losses of $10.7 million in connection with this customer and its affiliates as at December 31, 2015.

In addition, we guaranteed certain prepayment loans made by third-party banks to this former customer group to finance, which financed off-take contracts for which we were the off-taker. These guarantees were previously classified as contingent liabilities prior to December 31, 2015 and, as a result, we had recorded a provision of $40.7 million for the expected payments under the guarantees. We paid such amount in the year ended December 31, 2016. During the year ended December 31, 2016, we received proceeds of $39.1 million from risk mitigation assets related to these provisions, of which $35.1 million was credited to profit or loss through a recovery of credit losses and the remainder was credited to trade receivables.

As at December 31, 2016, our management reviewed the underlying contracts, legal documents, credit enhancement instruments and collateral to assess the recoverability of the receivables from this former customer group. This assessment required management to make certain assumptions regarding possible

TABLE OF CONTENTS

future outcomes and carries a degree of estimation uncertainty. While our management believes that these receivables are collectable, a wide range of possible outcomes was considered in its analysis, which resulted in a probability-weighted valuation below the gross carrying amount. Therefore, we recognized a cumulative allowance for credit losses of $43.9 million due in connection with this former customer group as at December 31, 2016, including an additional provision of $33.3 million which was recognized during the second quarter of 2016. The resulting carrying amount is most sensitive to the assumptions regarding the likelihood of recovering amounts based on the ~~revised bargain purchase terms, which were recognized in 2012.~~various sources of collateral. The ~~bargain purchase arose as the consideration under the transaction was less than the fair market value~~timing of the resolution of the uncertainty related to the recoverability of these receivables is dependent on the legal processes being followed to recovering these amounts. After the recognition of such impairment losses, we had net ~~identifiable assets acquired.~~

trade receivables of $100.0 million due from this former customer group as at December 31, 2016.

In 2016, we recognized a net foreign currency transaction gain of $7.5 million, compared to a net foreign currency transaction loss of $0.9 million in 2015, in our consolidated statement of operations. The foreign currency transaction gain and loss primarily represent exchange differences arising on the settlement of monetary items or on translating monetary items into our functional currencies at rates different from those at which they were translated on initial recognition during the period or in previous financial statements and the gains and losses on our foreign currency derivatives.

In 2016, we recognized a net non-cash reversal of $8.6 million in connection with prior impairments on our remaining hydrocarbon properties. In 2015, we recognized non-cash impairment losses of $235.9 million on our resource properties before the recognition of a deferred tax recovery of $46.5 million.

We recognized an income tax expense (other than resource property revenue taxes) of ~~$1.6~~$6.0 million in ~~2013,~~2016, compared to an income tax recovery of ~~$8.5~~$46.5 million in ~~2012.~~2015. Our ~~statutory tax rate was 25.75% in 2013, compared to 25% in 2012, and our effective tax rates are lower than our statutory tax rates in the current period. The~~ income tax paid in cash, ~~(excluding~~excluding resource property revenue ~~taxes)~~taxes, during ~~2013~~2016 was ~~$2.2~~$2.8 million, compared to ~~$4.9~~$5.0 million ~~for 2012.~~

in 2015. We also recognized resource property revenue taxes of ~~$5.0~~$1.0 million in ~~2013~~2016, compared to ~~$5.9~~$0.3 million in 2012. The resource property revenues tax rate was 20% on our gross royalty revenue, deducted at source, which is reduced by 20% of deductible expenses. The decrease in taxes was primarily a result of a decrease in gross royalty revenues in the current period.

2015.

Overall, we recognized an income tax expense of ~~$6.6~~$7.0 million ~~(provision for income taxes~~(income tax expense of ~~$1.6~~$6.0 million and resource property revenue taxes of ~~$5.0~~$1.0 million) ~~for 2013,~~in 2016, compared to an income tax recovery of ~~$2.6~~$46.2 million ~~(recovery~~(income tax recovery of ~~income taxes of $8.5~~$46.5 million and resource property revenue taxes of ~~$5.9~~$0.3 million) in ~~2012.~~

~~For 2013,~~2015. The recovery in 2015 related to impairment losses recognized in 2015.

In 2016, our ~~income~~net loss attributable to shareholders was ~~$9.7~~$25.4 million, or ~~$0.15~~$0.40 per share on a basic and diluted basis, compared to ~~$200.1~~$487.6 million, or ~~$3.20~~$7.72 per share on a basic and diluted basis, in 2015, which included a loss from discontinued operations of $241.4 million, or $3.82 per share on a basic and diluted basis, in 2015.

For 2016, our Operating EBITDA from continuing operations increased to $10.8 million from a loss of $26.1 million for ~~2012.~~2015.

The following is a reconciliation of our net loss from continuing operations to Operating EBITDA from continuing operations for each of the years indicated.

	Years Ended December 31,
	2016			2015
	(In thousands)
Operating EBITDA (loss) from continuing operations
Net loss from continuing operations(1)		$	(23,720)		$	(244,602)(2)
(Reversal) recognition of impairment losses on resource properties			(8,566)			235,875
Income tax expense (recovery)			7,014			(46,193)
Finance costs			24,102			22,329
Amortization, depreciation and depletion			11,951			6,450
Operating EBITDA (loss) from continuing operations		$	10,781		$	(26,141)(2)

Notes:

(1)

Includes net income attributable to non-controlling interests.

(2)

Please see “Non-IFRS Financial Measures

” for additional information.

TABLE OF CONTENTS

Year Ended December 31, ~~2012~~2015 Compared to the Year Ended December 31, ~~2011~~

2014

The following is a breakdown of our gross revenues by segment for each of the years ~~ended December 31, 2012~~indicated:

	Years Ended December 31,
	2015			2014
	(Re-presented)(1)			(Re-presented)(1)
	(In thousands)
Gross Revenues:
Merchant banking		$	1,593,879		$	1,375,526
All other			35,221			29,804
		$	1,629,100		$	1,405,330

Note:

(1)

In connection with the reclassification of our mining interest and ~~2011:~~

December 31,
2012 2011
(United States dollars in thousands)
Gross Revenues:
Commodities and resources $ 455,898 $ 474,872
Merchant banking 11,751 22,487
All other 18,010 16,545
$ 485,659 $ 513,904

~~The following charts illustrate~~hydrocarbon properties to continuing operations in 2016, revenues have been re-presented for these periods.

In 2015, our proportionate revenues by product were: (i) 20% steel products; (ii) 44% minerals, chemicals and alloys; (iii) 16% metals; (iv) 14% wood products; and (v) 6% other. In 2015, 64% of our revenues ~~by business segment~~were from Europe, 24% were from the Americas and ~~geographic distribution in fiscal year ended December 31, 2012:~~

12% were from Asia and other regions.

~~Revenues by Business Segment~~		~~Revenues by Region~~

Based upon the ~~yearly~~ average exchange rates for ~~2012,~~2015, the ~~United States~~Canadian dollar ~~increased~~strengthened by approximately ~~8.3%~~3% and ~~1.1%~~weakened by approximately 14% in value against the Euro and the ~~Canadian~~United States dollar, respectively, compared to the average exchange rates ~~in 2011. As at December 31, 2012, the United States dollar had decreased by approximately 1.6% against the Euro and 2.2% against the Canadian dollar since December 31, 2011.~~

for 2014.

Revenues for ~~2012 decreased~~2015 increased to ~~$485.7~~$1,629.1 million ~~(consisting of net sales of $479.5~~from $1,405.3 million ~~and equity income from medical joint ventures of $6.2 million) from $513.9 million (consisting of net sales of $508.0 million and equity income from medical joint ventures of $5.9 million)~~ in ~~2011,~~2014, primarily as a result of ~~decreased sales~~the consolidation of

~~commodities due to reductions~~ our acquisitions in ~~both~~the second quarter of 2014 and an increase in our finance and supply chain volumes, ~~and prices on some commodities in 2012,~~ partially offset by ~~new products~~the exiting of certain product lines and the ~~consolidation~~negative impact of ~~MFC Energy since September 7, 2012. A weaker~~the marginally stronger Canadian dollar against the Euro ~~also had an adverse impact on~~in 2015. As a substantial portion of our revenues are generated in Euros, the marginal strengthening of the Canadian dollar against the Euro slightly negatively impacted our revenues in 2015 when such Euro-denominated revenues were translated to ~~U.S.~~Canadian dollars.

Revenues for our commodities and resources business were $455.9 million for 2012, compared to $474.9 million for 2011, primarily as a result of decreased sales of commodities due to reductions in both volumes and prices of some commodities in 2012, partially offset by new products and the consolidation of MFC Energy since September 7, 2012.

During 2012, gross revenues generated by our royalty marginally decreased to approximately $29.1 million from approximately $30.8 million in 2011. This decrease in gross royalty revenues was mainly attributable to lower shipments in 2012. A total of 3.2 million tons and 3.5 million tons of iron ore products were shipped in 2012 and 2011, respectively.

Revenues for our merchant banking business were ~~$11.8~~$1,593.9 million for ~~2012,~~2015, compared to ~~$22.5~~$1,375.5 million for ~~2011,~~2014, primarily as a result of ~~lower activities.~~

the consolidation of our acquisitions in the second quarter of 2014 and an increase in our finance and supply chain volumes, partially offset by the exiting of certain product lines and the impact of the marginally stronger Canadian dollar against the Euro.

Revenues for our all other segment were ~~$18.0~~$35.2 million for ~~2012,~~2015, compared to ~~$16.5~~$29.8 million for ~~2011.~~

2014.

Costs of sales ~~decreased~~and services increased to ~~$406.7~~$1,573.9 million during ~~2012~~2015 from ~~$428.6~~$1,266.4 million ~~for 2011,~~during 2014, primarily as a result of ~~a decrease in commodities and resource activities, partially off-set by a write-down~~the consolidation of ~~inventories of $15.7 million ($19.4 million of which related to~~ our ~~former Indian iron ore activities, which we recognized after the Supreme Court of India banned all mining activities~~acquisitions in the ~~area).~~

second quarter of 2014 and increased credit losses on loans and receivables and guarantees as a result of the insolvency of a customer subsequent to December 31, 2015 (see below), partially offset by the exiting of certain product lines and the impact of the marginally stronger Canadian dollar against the Euro.

The following is a breakdown of our costs of sales and services for each of the years ~~ended~~indicated:

	Years Ended December 31,
	2015			2014
	(Re-presented)(1)			(Re-presented)(1)
	(In thousands)
Merchant banking products and services		$	1,512,970		$	1,269,324
Credit losses on loans and receivables and guarantees, net of recoveries			54,540			4,346
Fair value gain on government environmental emission refund			(4,157)			—
Fair value loss on investment property			—			134
Market value decrease (increase) on commodities inventories			1,910			(4,172)
Gain on derivative contracts, net			(2,913)			(10,189)
Write-off of inventories, net			—			165
Loss on trading securities, net			84			—
Other			11,434			6,822
Total costs of sales and services		$	1,573,868		$	1,266,430

Note:

(1)

In connection with the reclassification of our mining interest and hydrocarbon properties to continuing operations in 2016, costs of sales and services have been re-presented for these periods.

TABLE OF CONTENTS

The gain on derivative instruments stemmed from commodity and currency derivatives.

In the fourth quarter of 2015, one of our customers in the wood products market experienced financial difficulties and, subsequent to year end, filed for insolvency. Please see “Year Ended December 31, ~~2012~~2016 Compared to Year Ended December 31, 2015” for further information.

In 2015, we recognized losses of $9.9 million in connection with long-term off-take agreements, which were terminated in 2016. Such long-term off-take agreements were entered into by a subsidiary we acquired in 2014, which produced and ~~2011:~~

December 31,
2012 2011
(United States dollars in thousands)
Commodities and resources $ 382,245 $ 414,745
Loss on securities, net — 4,314
Credit recovery on loans and receivables (521 ) (530 )
Fair value (gain) loss on investment property (14 ) 56
Market value decrease on commodities 1,509 4,422
Loss (gain) on derivative contracts, net 57 (6,805 )
Write-off (recovery) of inventories 15,659 (29 )
Other 7,773 12,414
Total cost of sales $ 406,708 $ 428,587

sold ferro-alloy and other related products, and resulted in losses being incurred as ferrosilicon prices generally declined in 2015.

Selling, general and administrative expenses, excluding share-based compensation, increased to $47.7 million for 2012 from $40.4 million for 2011. The increase was primarily linked to expenses incurred in connection with the acquisition of MFC Energy during the period and its consolidation since September 7, 2012, partially offset by savings associated with streamlining our activities.

We recognized an impairment of interests in resource properties of $42.6 million (before income tax recovery of $13.8 million) for 2012 in connection with a subsidiary that had engaged in iron ore activities in India. We recognized the impairment after the Supreme Court of India banned all mining activities in the area. The total impairment and write-down, net of income tax recovery, was $48.2 million for 2012 in relation to these interests. These interests were sold in 2013.

~~Impairment of available-for-sale securities was $4.3~~$86.6 million in ~~2012, compared to $12.4~~2015 from $83.9 million in ~~2011. This represented an other-than-temporary impairment charge on our investment portfolio.~~

~~During 2012, non-cash and discretionary share-based compensation expense decreased to $9,000 from $7.2 million 2011~~2014, primarily as a result of ~~granting 2,635,000 options~~an increase in professional fees relating to restructuring activities, an arbitration settlement of $2.0 million with the vendor of a subsidiary acquired in 2014, the payment of certain restructuring and severance expenses in 2014 and the consolidation of our ~~directors and employees~~acquisitions in ~~January 2011.~~

~~During 2012, we incurred~~the second quarter of 2014, partially offset by the impact of the marginally stronger Canadian dollar against the Euro.

In 2015, finance costs ~~of $11.6~~increased to $22.3 million ~~primarily related to our commodities business, compared to $7.2~~from $16.0 million ~~for 2011. Such finance costs increased~~in 2014, primarily as a result of ~~increased interest payments on our long term~~higher debt levels and ~~credit facilities.~~

~~For 2012,~~factoring charges in relation to an increase in business volume.

In 2015, we ~~incurred~~recognized a net foreign currency transaction ~~gain of $7.1 million, compared to a~~ loss of $0.9 million, ~~for 2011,~~compared to $6.0 million in 2014, in the consolidated statement of operations.

The loss in 2014 was primarily non-cash and relates to the settlement of certain intercompany accounts of subsidiaries with different functional currencies in pursuit of fiscally responsible strategies. The foreign currency transaction gain and loss represent exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition during the period or in previous financial statements.

We recognized ~~a bargain purchase~~an income tax recovery of ~~$218.7~~$46.2 million in 2015, compared to an income tax expense of $10.1 million in 2014. Our statutory tax rate was 26% in each of 2015 and 2014. The income tax paid in cash during 2015 was $5.0 million, compared to $4.8 million in 2014.

In 2015, our net loss attributable to shareholders from continuing operations was $246.2 million, or ~~$3.50~~$3.90 per share ~~during 2012, primarily~~on a basic and diluted basis, compared to net income attributable to shareholders from continuing operations of $17.8 million, or $0.28 per share on a basic and diluted basis, in ~~connection with the acquisition~~2014.

Our net loss attributable to shareholders from continuing operations for 2015 included credit losses of ~~MFC Energy. This also included a bargain purchase gain of $2.4~~$51.4 million in connection with a customer filing for insolvency in the ~~acquisition~~first quarter of ~~KCCL.~~2016 and losses of $9.9 million incurred in connection with long-term off-take agreements (see above).

Our revenues from discontinued operations were $62.4 million for 2015, compared to $99.7 million for 2014. The decrease was primarily the result of a decrease in natural gas prices and volumes, compared to 2014. Our costs and expenses for discontinued operations were $243.2 million in 2015, which included non-cash impairments of $176.3 million, before income taxes, on our hydrocarbon properties and iron ore interests, compared to $126.5 million in 2014, which included a non-cash impairment of $30.4 million on our hydrocarbon properties.

In connection with the sale of a 95% economic interest in certain of our hydrocarbon assets in the fourth quarter of 2015, we recognized a deferred tax expense of $12.0 million in 2015 resulting from the write-off of previously recognized deferred tax assets.

In 2015, our loss from discontinued operations was $241.4 million, or $3.82 per share on a basic and diluted basis, which includes non-cash impairments of $148.9 million, or $2.36 per share on a basic and diluted basis, and $27.4 million, or $0.43 per share on a basic and diluted basis, before income taxes, respectively, on our hydrocarbon properties and iron ore interests, compared to a net loss of $18.5 million, or $0.29 per share, for 2014, which included a non-cash impairment of $30.4 million, or $0.48 per share on a basic and diluted basis, before income taxes, on our hydrocarbon properties. Please ~~refer~~see Note 5 to ~~Note 41 of~~ our audited consolidated financial statements for the year ended December 31, ~~2013~~2016 for further ~~information on the revised bargain purchase terms, which were recognized in 2012. The bargain purchase arose as the consideration under the transaction was less than the fair market value of the~~information.

For 2015, our net ~~identifiable assets acquired.~~

We recognized an income tax recovery (other than resource property revenue taxes) of $8.5 million during 2012, compared to a provision for income taxes of $1.3 million during 2011. Our statutory tax rate was 25% during 2012, compared to 26.5% for 2011, and our effective tax rates were lower than our statutory tax rates during 2011. The income tax paid in cash during 2012 was $4.9 million, compared to $1.0 million for 2011.

We also recognized resource property revenue taxes of $5.9 million during 2012, compared to $4.6 million during 2011. The resource property revenues tax rate was 20% on the gross royalty revenue, deducted at source, which was reduced by 20% of deductible expenses. The increase in taxes was primarily a result of a claim in 2012.

Overall, we recognized an income tax recovery of $2.6 million (recovery of income taxes of $8.5 million and resource property revenue taxes of $5.9 million) during 2012, compared to an expense of $6.0 million (income taxes of $1.3 million and resource property revenue taxes of $4.6 million) during 2011.

~~For 2012, our income~~loss attributable to shareholders was ~~$200.1~~$487.6 million, or ~~$3.20~~$7.72 per share on a basic and diluted basis, ~~compared to $12.2~~which includes non-cash impairments of $196.5 million, or ~~$0.19~~$3.11 per share on a basic and diluted basis, and $215.6 million, or $3.41 per share on a basic and diluted basis, before income taxes, respectively, on our hydrocarbon properties and iron ore interests, compared to a net loss attributable to shareholders of $0.7 million, or $0.01 per share on a basic and diluted basis, in 2014, which included a

TABLE OF CONTENTS

non-cash impairment of $33.2 million, or $0.53 per share on a basic and diluted basis, before income taxes, on our hydrocarbon properties.

For 2015, our Operating EBITDA from continuing operations decreased to an Operating EBITDA loss of $26.1 million from Operating EBITDA from continuing operations of $56.7 million for ~~2011.~~2014.

The following is a reconciliation of our net (loss) income from continuing operations to Operating EBITDA from continuing operations for each of the years indicated.

	Years Ended December 31,
	2015			2014
	(In thousands)
Operating EBITDA (loss) from continuing operations
Net (loss) income from continuing operations(1)		$	(244,602)(2)		$	19,198
Impairment of hydrocarbon and resource properties			235,875			2,813
Income tax (recovery) expense			(46,193)			10,116
Finance costs			22,329			15,967
Amortization, depreciation and depletion			6,450			8,557
Operating EBITDA (loss) from continuing operations		$	(26,141)(2)		$	56,651

Notes:

(1)

Includes net income attributable to non-controlling interests.

(2)

Includes losses of $51.4 million related to a customer that filed for insolvency in February 2016, $9.9 million on long-term off-take agreements entered into by a subsidiary acquired in 2014.

Please see “Non-IFRS Financial Measures

” for additional information.

Liquidity and Capital Resources

General

Liquidity is of importance to ~~companies in~~ our ~~businesses~~business as insufficient liquidity often results in underperformance.

Our objectives when managing capital are: ~~(i)~~

•

to safeguard our ability to continue as a going concern so that we can continue to provide returns for shareholders and benefits for other ~~stakeholders, (ii)~~ stakeholders;

•

to provide an adequate return to our shareholders by pricing products and services commensurately with the level of ~~risk,~~risk; and ~~(iii)~~

•

to maintain a flexible capital structure that optimizes the cost of capital at acceptable risk.

We set the amount of capital in proportion to risk. We manage our capital structure and make adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust this capital structure, we may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

Consistent with others in our industry, we monitor capital on the basis of our ~~debt-to-adjusted capital~~net debt-to-equity ratio and long-term debt-to-equity ratio. The ~~debt-to-adjusted capital~~net debt-to-equity ratio is calculated as net debt divided by ~~adjusted capital.~~shareholders’ equity. Net debt is calculated as total debt less cash and cash equivalents. ~~Adjusted capital comprises all components of equity and some forms of subordinated debt, if any.~~ The long-term debt-to-equity ratio is calculated as long-term debt divided by shareholders’ equity. The computations are based on continuing operations.

The following table sets forth the calculation of our ~~debt-to-adjusted capital~~net debt-to-equity ratio as at the ~~end of the years~~dates indicated:

2013 2012⁽¹⁾ 2011
(United States dollars in thousands)
Total long-term debt $ 234,740 $ 162,993 $ 47,127
Less: cash and cash equivalents (332,173 ) (273,790 ) (387,052 )
Net long-term debt (net cash and
cash equivalents) (97,433 ) (110,797 ) (339,925 )
Shareholders’ equity 699,570 730,587 546,623
Debt-to-adjusted capital ratio Not applicable Not applicable Not applicable
____________________

	December 31,
	2016			2015			2014
	(In thousands, except ratio amounts)
Total debt		$	116,813		$	259,038		$	363,255
Less: cash and cash equivalents			(120,676)			(197,519)			(344,891)
Net debt			Not applicable			61,519			18,364
Shareholders’ equity			327,520			367,192			777,717
Net debt-to-equity ratio			Not applicable			0.17			0.02

~~Note:~~

~~(1)~~

This table does not include the MPP term financing as it involved a purchase option and future processing fees. The purchase option thereunder was exercised in October 2013. Includes measurement period adjustments and error correction related to the acquisition of MFC Energy.

TABLE OF CONTENTS

There were no amounts in accumulated other comprehensive income relating to cash flow hedges, nor were there any subordinated debt instruments as at December 31, ~~2013, 2012~~2016, 2015 and ~~2011. The debt-to-adjusted capital~~2014. Our net debt-to-equity ratio ~~in 2013, 2012 and 2011~~as at December 31, 2016 was not applicable as we had a net cash and cash equivalents ~~balance.~~

balance and, as at December 31, 2015 and 2014 was 0.17 and 0.02, respectively.

The following table sets forth the calculation of our long-term debt-to-equity ratio as at the ~~end of the years~~dates indicated:

2013 2012⁽¹⁾ 2010
(United States dollars in thousands)
Long-term debt, less current portion $ 189,871 $ 118,824 $ 20,150
Shareholders’ equity 699,570 730,587 546,623
Long-term debt-to-equity ratio 0.27 0.16 0.04
____________________

	December 31,
	2016			2015			2014
	(In thousands, except ratio amounts)
Long-term debt, less current portion		$	80,564		$	174,333		$	297,157
Shareholders’ equity			327,520			367,192			777,717
Long-term debt-to-equity ratio			0.25			0.47			0.38

~~Note:~~

~~(1)~~

During ~~2013,~~2016, our strategy, which ~~was~~remained unchanged from ~~2012~~2015 and ~~2011,~~2014, was to maintain ~~the debt-to-adjusted capital~~our net debt-to-equity ratio and ~~the~~ long-term debt-to-equity ratio at ~~a low level. We had a net cash and cash equivalents balance after the deduction of total long-term debt.~~manageable levels. Our long-term debt-to-equity ratio was ~~0.27, 0.16~~0.25, 0.47 and ~~0.04~~0.38 as at December 31, ~~2013, 2012~~2016, 2015 and ~~2011,~~2014, respectively.

~~Financial Position~~

~~The following table sets out our selected financial information as at the dates indicated:~~

December 31,
2013 2012⁽¹⁾ 2011
(United States dollars in thousands)
Cash and cash equivalents $ 332,173 $ 273,790 $ 387,052
Short-term cash deposits 4,381 182 163
Short-term securities 2,068 6,658 13,062
Trade receivables 115,678 72,820 21,154
Other receivables 30,409 18,314 9,144
Inventories 88,844 142,925 81,223
Assets held for sale 97,344 124,192 —
Real estate held for sale 12,676 12,210 12,012
Deposits, pre-paid and other assets 27,136 27,833 9,344
Total assets 1,318,598 1,360,623 858,957
Working capital 396,312 336,074 361,223
Short-term bank borrowings 129,783 150,396 114,239
Long-term debt, less current portion⁽²⁾ 189,871 118,824 20,150
Decommissioning obligations 105,854 136,642 —
Shareholders’ equity 699,570 730,587 546,623
____________________

~~Notes:~~

~~(1)~~		~~Includes measurement period adjustments and error correction related to the acquisition of MFC Energy.~~

~~(2)~~		~~This amount does not include the MPP term financing, as it involved a purchase option and future processing fees. The purchase option thereunder was exercised in October 2013.~~

We maintain an adequate level of liquidity, with a portion of our assets held in cash and cash equivalents and securities. The liquid nature of these assets provides us with flexibility in managing and financing our business and the ability to realize upon investment or business opportunities as they arise. We also use this liquidity in client-related services by acting as a financial intermediary for third parties (e.g. by acquiring a position or assets and reselling such position or assets) and for our own proprietary trading and investing activities.

As at December 31, 2013, cash and cash equivalents were $332.2 million, compared to $273.8 million and $387.1 million as at December 31, 2012 and 2011, respectively. The increase in cash was primarily a result of cash flows from operating activities and increased borrowings. We had assets held for sale of $97.3 million, representing certain non-core natural gas assets and investment property as at December 31, 2013, compared

to $124.2 million held by MFC Energy and another entity (which was disposed of in February 2013) and $nil as at December 31, 2012 and 2011, respectively. The decrease in assets held for sale was primarily the result of the reclassification of natural gas properties to unproved lands as a result of the Participation Agreement entered into in the fourth quarter of 2013, the reclassification of property, plant and equipment and a disposition of other assets in February 2013. As at December 31, 2013, short-term securities decreased to $2.1 million from $6.7 million and $13.1 million as at December 31, 2012 and 2011, respectively. The decrease in short-term securities in 2012 was a result of dispositions. Trade receivables and other receivables were $115.7 million and $30.4 million, respectively as at December 31, 2013, compared to $72.8 million and $18.3 million, respectively as at December 31, 2012 and $21.2 million and $9.1 million respectively at December 31, 2011. The increase in trade receivables was primarily a result of an increase in trading activities. The value of our inventories decreased to $88.8 million as at December 31, 2013, from $142.9 million and $81.2 million as at December 31, 2012 and 2011, respectively. The decrease in inventories was primarily due to the unwinding of sales and repurchase arrangements. The value of real estate held for sale was $12.7 million as at December 31, 2013, compared to $12.2 million and $12.0 million as at December 31, 2012 and 2011, respectively. The value of deposits, prepaid and other assets was $27.1 million as at December 31, 2013, compared to $27.8 million and $9.3 million as at December 31, 2012 and 2011, respectively. As at December 31, 2013, we had short-term cash deposits of $4.4 million, compared to $0.2 million and $0.2 million as at December 31, 2012 and 2011, respectively. The increase in short-term cash deposits in 2013 was primarily a result of excess cash being invested for higher interest income.

~~We have liabilities relating to assets held for sale of $11.5 million primarily relating to decommissioning obligations associated with such assets.~~

~~Short-Term Bank Loans and Facilities~~

As part of our operations, we establish, utilize and maintain various kinds of credit lines and facilities with banks and insurers. Most of these facilities are short-term. These facilities are used for day-to-day business and structured solutions activities in commodities. The amounts drawn under such facilities fluctuate with the kind and level of transactions being undertaken.

As at December 31, 2013, we had credit facilities aggregating $511.6 million comprised of: (i) unsecured revolving credit facilities aggregating $220.5 million from banks; (ii) revolving credit facilities aggregating $68.9 million from banks for structured solutions, a special trade financing. The margin is negotiable when the facility is used; (iii) a non-recourse specially structured factoring arrangement with a bank for up to a credit limit of $130.9 million for our commodities activities. We may factor our commodity receivable accounts upon invoicing at the inter-bank rate plus a margin; (iv) a foreign exchange credit facility of $53.3 million with a bank; and (v) secured revolving credit facilities aggregating $38.0 million. All of these facilities are renewable on a yearly basis.

~~Long-Term Debt~~

Other than lines of credit drawn and as may be outstanding for trade financing and commodities and structured solutions activities, as of December 31, 2013, the maturities of long-term debt were as follows:

Maturity Principal Interest Total
(United States dollars in thousands)
2014 $ 44,869 $ 6,687 $ 51,556
2015 33,074 5,360 38,434
2016 71,762 4,308 76,070
2017 30,074 2,547 32,621
2018 26,637 1,691 28,328
Thereafter 28,324 1,332 29,656
$ 234,740 $ 21,925 $ 256,665

~~During the year ended December 31, 2013, we paid off $36.7 million of debt. We also incurred additional borrowings of $98.8 million in connection with the development of our commodities business.~~

We expect our maturing debt to be satisfied primarily through the settlement of underlying commodities transactions, trade financing transactions, including structured solutions transactions, cash on hand and cash flow from operations. Much of our maturing debt may either subsequently be made re-available to us by the applicable financial institution or we may replace such facilities with new facilities depending upon particular capital requirements.

Please refer to Note 21 to our audited consolidated financial statements for the year ended December 31, 2013 for further information regarding interest rates, maturities and other payment terms for our bank debts.

In October 2013, we exercised our option to acquire a 100% interest in MPP for consideration of C$6.7 million. As a result, no amounts were outstanding under the MPP term financing as at December 31, 2013.

Cash Flows

Due to the number of ~~the~~ businesses we engage in, our cash flows are not necessarily reflective of net earnings and net assets for any reporting period. As a result, instead of using a traditional cash flow analysis solely based on cash flow statements, our management believes it is more useful and meaningful to analyze our cash flows by overall liquidity and credit availability. Please see the discussion on our financial position, short-term bank loans, facilities and ~~long term~~long-term debt ~~earlier in this section.~~

~~The global commodity supply chain~~below.

Our business can be cyclical and our cash flows can vary accordingly. Our principal operating cash expenditures are for ~~financing trading of securities, commodities financing~~our working capital, proprietary investments and general and administrative expenses.

Working capital levels fluctuate throughout the year and are affected by the level of our ~~commodities~~merchant banking operations, the markets and prices for commodities, ~~and~~ the timing of collection of receivables and the payment of payables and expenses. Changes in the volume of ~~commodities~~ transactions can affect the level of receivables and influence overall working capital levels. We currently have a sufficient level of cash on hand, ~~and~~ credit facility amounts and ~~we believe that we have sufficient~~expected cash flows from operations ~~cash on hand and credit availability~~ to meet our working capital and other requirements as well as unexpected cash demands.

The following table presents a summary of cash flows for our continuing operations for each of the periods indicated:

Years Ended December 31,
2016 2015 2014

(Re-presented)(1)

(Re-presented)(1)

(In thousands)
Cash flows provided by (used in) continuing operating activities $ 99,867 $ (95,048) $ (16,085)
Cash flows provided by (used in) continuing investing activities $ 35,482 $ (8,561) $ (107,115)
Cash flows (used in) provided by continuing financing activities $ (167,275) $ (68,669) $ 71,066
Exchange rate effect on cash and cash equivalents $ (37,540) $ 35,619 $ 36,387
Decrease in cash and cash equivalents $ (69,466) $ (145,058) $ (8,408)

Note:
(1)
In connection with the reclassification of our mining interest and hydrocarbon properties to continuing operations in 2016, cash flows from operating, investing and financing activities have been re-presented for this period.

Cash Flows from Continuing Operating Activities

Operating activities provided cash of ~~$10.1~~$99.9 million in ~~2013,~~2016, compared to using cash of ~~$144.4~~$95.0 million in 2012 and providing cash of $44.7 million in 2011. In 2013, a decrease in short-term bank borrowings for day-to-day business requirements used cash of $26.4 million, compared to $115.5 million in 2012 and an increase in same providing cash of $49.8 million 2011.2015. A decrease in inventories provided cash of ~~$32.5~~$184.9 million in ~~2013,~~2016, compared to $15.7 million in 2015. A decrease in account payables and accrued expenses (including derivative liabilities) used cash of $124.5 million in 2016, compared to $18.6 million in 2015. In 2016, an increase in ~~inventories~~short-term bank borrowings provided cash of $34.7 million, compared to a decrease in short-term bank borrowings using cash of ~~$36.5 million and $22.8~~

TABLE OF CONTENTS

$137.6 million in 2012 and 2011, respectively. An increase in receivables used cash of $29.1 million in 2013, compared to $12.9 million and $8.3 million in 2012 and 2011, respectively. A decrease in accounts payable and accrued expenses used cash of $2.7 million in 2013, compared to $9.1 million in 2012 and $1.4 million in 2011. Changes in short-term securities provided cash of $10.2 million during 2013, compared to $7.2 million and $5.3 million in 2012 and 2011, respectively. An increase in short-term cash deposits used cash of $4.2 million during 2013, compared to $16,000 and $4.1 million during 2012 and 2011, respectively. A decrease in decommissioning obligations used cash of $4.1 million in the year ended December 31, 2013, compared to an increase of the same providing cash of $44,000 and $nil in 2012 and 2011, respectively.2015. A decrease in deposits, prepaid and other provided cash of ~~$1.2~~$24.7 million in ~~2013,~~2016, compared to an increase in deposits, prepaid and other using cash of ~~$8.9~~$8.6 million in ~~2012 and~~2015. An increase in receivables (including derivative assets) used cash of $16.9 million in 2016, compared to a decrease in receivables providing cash of ~~$10.8~~$57.6 million in ~~2011.~~2015. A decrease in ~~income tax liabilities~~short-term securities provided cash of $4.0 million in 2016, compared to $80,000 in 2015.

Operating activities used cash of ~~$1.0~~$95.0 million in ~~2013,~~2015, compared to ~~$2.3~~$16.1 million in ~~2012~~2014. In 2015, a decrease in short-term bank borrowings used cash of $137.6 million, compared to $103.0 million in 2014. A decrease in receivables (including derivative assets) provided cash of $57.6 million in 2015, compared to $9.5 million in 2014, primarily as a result of collections of trade receivables. A decrease in account payables and accrued expenses (including derivative liabilities) used cash of $18.6 million in 2015, compared to an increase in ~~income tax liabilities~~account payables and accrued expenses providing cash of ~~$0.8~~$16.1 million in ~~2011.~~2014. A decrease in inventories provided cash of $15.7 million in 2015, compared to an increase in inventories using cash of $32.0 million in 2014. An increase in ~~assets held for sale in connection with natural gas properties~~deposits, pre-paid and other, used cash of ~~$1.0~~$8.6 million in ~~the year ended December 31, 2013,~~2015, compared to ~~$3.1~~a decrease in deposits, pre-paid and other, providing cash of $41.7 million in 2014. The increase in deposits, pre-paid and ~~$nil~~other, was primarily a result of an increase in ~~each of 2012 and 2011. Other items~~prepaid inventories.

Cash Flows from Continuing Investing Activities

Investing activities provided cash of ~~$2.4~~$35.5 million in ~~2013,~~2016, compared to ~~providing cash of $1.1 million in 2012 and~~ using cash of ~~$0.4~~$8.6 million in ~~2011.~~

~~Cash Flows~~2015. The increase was primarily due to our acquisition of the Bank, net of cash and cash equivalents acquired, and sales of subsidiaries, which provided cash totaling $24.9 million in 2016. In 2016, proceeds from ~~Investing Activities~~

the sale of our equity method investee and investments other than trading securities provided cash of $10.1 million, compared to $nil in 2015.

Investing activities used cash of ~~$0.8~~$8.6 million in ~~2013,~~2015, compared to ~~$55.7~~$107.1 million in ~~2012 and $36.5 million~~2014, primarily in ~~2011, respectively. Proceeds from sales of long-term investments provided cash of $7.0 million~~connection with our acquisitions in 2013, compared to $2.6 million in 2012 and $7.4 million in 2011, respectively. Net distributions from joint ventures provided net cash of $7.2 million in 2013, compared to $7.6 million and $5.1 million in 2012 and 2011, respectively. Purchases of hydrocarbon assets, net of sales used cash of $4.6 million in 2013, compared to $nil in each of 2012 and 2011. Purchases of long-term securities used cash of $2.0 million in 2013, compared to $5.1 million in 2012 and $37.5 million in 2011, respectively.2014. Purchases of property, plant and equipment, net of ~~sales,~~proceeds from dispositions, used cash of�� $8.0 million in 2015, compared to $29.6 million in 2014.

Cash Flows from Continuing Financing Activities

Net cash used by financing activities was $167.3 million in 2016, compared to $68.7 million in 2015. A net decrease in debt used cash of ~~$2.0~~$165.6 million in ~~2013,~~2016, compared to ~~$2.1 million and $1.2~~$63.0 million in ~~2012 and 2011, respectively. The acquisitions of subsidiaries net of~~2015.

Net cash ~~acquired~~ used ~~cash of $6.6~~by financing activities was $68.7 million in ~~2013,~~2015, compared to $78.5 million in 2012 and $95,000 in 2011. Other items provided cash of $74,000 in 2013, compared to using cash of $48,000 in 2012 and providing cash of $3.8 million (primarily consisting of sales of investment property) in 2011.

~~Cash Flows from Financing Activities~~

~~Net~~net cash provided by financing activities ~~was $46.6~~of $71.1 million in ~~2013,~~2014. A net decrease in debt used cash of $63.0 million in 2015, compared to ~~providing $83.4 million in 2012 and using cash of $17.4 million in 2011. A~~a net increase in debt ~~provided cash of $62.1~~providing $107.9 million in ~~2013, compared to $105.2 million in 2012 and a decrease in debt using cash of $4.3 million in 2011.~~2014. In ~~2013,~~2015, dividends paid to our shareholders used cash of ~~$15.0~~$4.4 million in connection with the fourth instalment of our 2014 dividend, which was paid in the first quarter of 2015, compared to $12.5 million in 2014.

Cash Flows from Discontinued Operations

Discontinued operating activities used cash of $7.0 million in 2015, compared to providing cash of $19.0 million in 2014.

Discontinued investing activities used cash of $1.4 million in 2015, compared to $11.7 million in 2014.

TABLE OF CONTENTS

Financial Position

The following table sets out our selected financial information as at the dates indicated:

	December 31,
	2016			2015
	(In thousands)
Cash and cash equivalents		$	120,676		$	197,519
Short-term cash deposits			182			233
Short-term securities			5,018			170
Securities – derivatives			1,240			5,555
Restricted cash			—			639
Trade receivables			135,962			151,229
Tax receivables			11,743			11,705
Other receivables			35,251			14,727
Inventories			31,954			245,345
Real estate held for sale			1,066			1,130
Deposits, prepaid and other			12,195			21,442
Assets held for sale			45,667			136,156
Total assets			650,338			977,351
Working capital			186,278			371,288
Short-term bank borrowings			95,416			52,864
Debt, current portion			36,249			84,705
Account payables and accrued expenses			45,114			182,051
Financial liabilities – derivatives			5,514			3,554
Income tax liabilities			2,486			3,809
Liabilities relating to assets held for sale			29,897			87,579
Long-term debt, less current portion			80,564			174,333
Decommissioning obligations			13,219			—
Shareholders’ equity			327,520			367,192

We maintain an adequate level of liquidity, with a portion of our assets held in cash and cash equivalents and securities. The liquid nature of these assets provides us with flexibility in managing and financing our business and the ability to realize upon investment or business opportunities as they arise. We also use this liquidity in client-related services by acting as a financial intermediary for third parties (e.g., by acquiring a position or assets and reselling such position or assets) and for our own proprietary trading and investing activities.

As at December 31, 2016, cash and cash equivalents decreased to $120.7 million from $197.5 million as at December 31, 2015.

Trade receivables and other receivables were $136.0 million and $35.3 million, respectively, as at December 31, 2016, compared to $151.2 million and $14.7 million, respectively, as at December 31, 2015. The decrease in trade receivables was primarily as a result of an increase in allowance for credit losses of $46.6 million primarily related to our former customer that filed for insolvency in February 2016 and the reclassification of certain trade receivables. The increase in other receivables was primarily as a result of the reclassification of a loan from assets held for sale and an increase in supplier accounts with debit balances. Credit risk from trade receivables is substantially mitigated through credit insurance, bank guarantees, letters of credit and other risk mitigation measures.

Our assets held for sale, consisting of assets related to our former Latin American-focused commodities trading business (subsequently sold in the first quarter of 2017), decreased to $45.7 million as at December 31, 2016 from $136.2 million as at December 31, 2015, which consisted of hydrocarbon and iron ore interests, which were reclassified to continuing operations in 2016. As at December 31, 2016, we had liabilities relating to assets held for sale of $29.9 million, comprised of debt of $20.1 million and other liabilities of $9.8 million, compared to ~~$13.8~~$87.6 million as at December 31, 2015, which was comprised of $59.3 million of debt, $17.9 million of decommissioning obligations, $1.9 million of short-term borrowings, $0.7 million of other indebtedness and ~~$12.5~~$7.8 million of deferred tax liabilities. See “General – Reclassifications and Prior Periods” for further information.

TABLE OF CONTENTS

Inventories decreased to $32.0 million as at December 31, 2016, from $245.3 million as at December 31, 2015, primarily as a result of the decision to rationalize certain product lines and geographies. $21.1 million of our inventories were contracted at fixed prices or hedged as at December 31, 2016.

Deposits, prepaid and other assets were $12.2 million as at December 31, 2016, compared to $21.4 million as at December 31, 2015. The decrease was primarily a result of a decrease in ~~2012~~prepayments and ~~2011, respectively. Dividends paid~~deposits for inventories.

Tax receivables, consisting primarily of refundable value-added taxes, were $11.7 million as at both of December 31, 2016 and 2015.

We had short-term securities of $5.0 million as at December 31, 2016, compared to ~~non-controlling interests used cash~~$0.2 million as at December 31, 2015. The increase was primarily as a result of ~~$0.8~~government-issued securities held by our recently acquired Bank at the date of acquisition.

We had short-term financial assets relating to hedging derivatives of $1.2 million ~~in 2013,~~as at December 31, 2016, compared to $5.6 million as at December 31, 2015. We had current liabilities relating to hedging derivatives of $5.5 million as at December 31, 2016, compared to $3.6 million as at December 31, 2015. We had long-term liabilities relating to hedging derivatives of $0.9 million as at December 31, 2016, compared to $0.7 million as at December 31, 2015.

Account payables and ~~$0.6~~accrued expenses were $45.1 million ~~in 2012 and 2011, respectively. A reduction in facility term financing used cash of $21.9~~as at December 31, 2016, compared to $182.1 million ~~and $7.4 million in 2013 and 2012, respectively. There~~as at December 31, 2015. The decrease was ~~an increase in an amount~~primarily due to payments, including the payment of $40.7 million pursuant to guarantees for which we had recognized a ~~customer,~~provision of equal amount in 2015, and the deconsolidation of former subsidiaries, which ~~provided~~were sold in 2016.

Our short-term bank borrowings increased to $95.4 million as at December 31, 2016, from $52.9 million as at December 31, 2015, primarily as a result of the decrease in trade payables.

Total long-term debt decreased to $116.8 million as at December 31, 2016, from $259.0 million as at December 31, 2015, primarily as a result of long-term debt repayments and the reclassification of liabilities related to assets held for sale.

As at December 31, 2016, we had decommissioning obligations of $13.2 million relating to our remaining hydrocarbon properties.

Short-Term Bank Loans and Facilities

As part of our operations, we establish, utilize and maintain various kinds of credit lines and facilities with banks and insurers. Most of these facilities are short-term. These facilities are used in our day-to-day structured solutions and merchant banking business. The amounts drawn under such facilities fluctuate with the kind and level of transactions being undertaken.

As at December 31, 2016, we had credit facilities aggregating $430.0 million comprised of: (i) unsecured revolving credit facilities aggregating $141.2 million from banks. The banks generally charge an interest rate of inter-bank rates plus an interest margin; (ii) revolving credit facilities aggregating $64.6 million from banks for structured solutions, a special trade financing. The margin is negotiable when the facility is used; (iii) a non-recourse specially structured factoring arrangement with a bank for up to a credit limit of $198.4 million for our merchant banking activities. We may factor our receivable accounts upon invoicing at the inter-bank rate plus a margin; and (iv) foreign exchange credit facilities of $25.9 million with banks. All of these facilities are either renewable on a yearly basis or usable until further notice. A substantial portion of our credit facilities are denominated in Euros and, accordingly, such amounts may fluctuate when reported in Canadian dollars.

In 2016, we reduced and eliminated certain customer- and subsidiary-specific credit facilities with which we no longer commercially transact as well as certain foreign exchange credit facilities which were underutilized. We continue to evaluate the benefits of certain facilities that may not have strategic long-term relevance to our business and priorities going forward and may modify or eliminate additional facilities in the future. We do not anticipate that this will have a material impact on our corporate vision or our liquidity.

TABLE OF CONTENTS

Long-Term Debt

Other than lines of credit drawn and as may be outstanding for trade financing and structured solutions activities, as at December 31, 2016, the maturities of our long-term debt from our continuing operations were as follows:

Maturity	Principal			Interest			Total
	(In thousands)
2017		$	36,249		$	4,134		$	40,383
2018			29,731			2,860			32,591
2019			17,761			1,852			19,613
2020			19,536			1,044			20,580
2021			4,778			408			5,186
Thereafter			8,758			455			9,213
		$	116,813		$	10,753		$	127,566

We expect our maturing debt to be satisfied primarily through the settlement of underlying supply chain transactions, trade financing transactions, including structured solutions transactions, cash on hand and cash flows from operations. Much of ~~$22.2 million, in 2013. This amount was repaid~~our maturing debt may either subsequently be made re-available to us by the ~~customer in January 2014.~~

applicable financial institution or we may replace such facilities with new facilities depending upon particular capital requirements.

Please refer to Note 16 to our audited consolidated financial statements for the year ended December 31, 2016 for further information regarding interest rates, maturities and other terms and conditions for our bank debts.

Future Liquidity

We expect that there will be acquisitions of businesses or commitments to projects in the ~~future, including the proposed acquisition of FESIL.~~future. To achieve the long-term goals of expanding our assets and earnings, including through acquisitions, capital resources will be required. Depending on the size of a transaction, the capital resources that will be required can be substantial. The necessary resources will be generated from cash flows from operations, cash on hand, borrowings against our assets, sales of proprietary investments or the issuance of securities.

Foreign Currency

~~Substantially all of our operations are conducted in international markets and our~~

Our consolidated financial results are subject to foreign currency exchange rate fluctuations.

Our ~~reporting~~presentation currency is the ~~United States~~Canadian dollar. We translate subsidiaries’ assets and liabilities into ~~United States~~Canadian dollars at the rate of exchange on the balance sheet date. Revenues and expenses are translated at exchange rates approximating those at the date of the transactions or, for practical reasons, the average exchange rates for the applicable periods, when they approximate the exchange rate as at the dates of the transactions. As a substantial amount of revenues is ~~received~~generated in Euros, ~~Chinese yuans and Canadian dollars,~~ the financial position for any given period, when reported in ~~United States~~Canadian dollars, can be significantly affected by the exchange rates for these currencies prevailing during that period.

In addition, we also have exposure to the ~~year ended December 31, 2013,~~Chinese yuan and the United States dollar.

In 2016, we reported a net ~~$31.4~~$14.6 million currency translation adjustment loss under other comprehensive ~~income~~loss within equity. This compared to ~~losses~~a net gain of ~~$7.9 and $1.4~~$79.5 million in ~~2012~~2015. This currency translation adjustment did not affect our profit and ~~2011, respectively.~~loss statement. The ~~increase~~loss in ~~2013~~2016 was primarily a result of ~~a weaker~~the strengthening of the Canadian dollar against the Euro and the United States ~~dollar.~~

dollar from 2015.

TABLE OF CONTENTS

Contractual Obligations

The following table sets out our contractual obligations and commitments from continuing operations as at December 31, ~~2013~~2016 in connection with our long-term liabilities.

	Payments Due by Period(1)
	(In thousands)
Contractual Obligations(2)	Less than 1 Year			1 – 3 Years			3 – 5 Years			More than 5 Years			Total
Long-term debt obligations, including interest		$	40,383		$	52,204		$	25,766		$	9,213		$	127,566
Operating lease obligations			1,079			948			79			—			2,106
Purchase obligations			13,747			—			—			—			13,747
Other long-term liabilities			1,911			619			258			93			2,881
Total		$	57,120		$	53,771		$	26,103		$	9,306		$	146,300

Payments Due by Period⁽¹⁾
(United States dollars in thousands)
Contractual Obligations⁽²⁾⁽³⁾       Less than
1 Year       1 – 3 Years       3 – 5 Years       More than
5 Years       Total
Long-term debt obligations $ 51,556 $ 114,504 $ 60,949 $ 29,656 $ 256,665
Operating lease obligations 1,983 2,018 905 192 5,098
Purchase obligations 14,909 1,390 58 — 16,357
Puttable Instruments — 3,936 — — 3,936
Total $ 68,448 $ 121,848 $ 61,912 $ 29,848 $ 282,056

~~____________________~~

Notes:

(1)

Undiscounted.

(2)

~~Notes:~~
~~(1)~~		~~Undiscounted.~~

~~(2)~~		~~The table does not include non-financial instrument liabilities and guarantees.~~

~~(3)~~		~~The table does not include provisions for warranty and decommissioning obligations.~~

This table does not include non-financial instrument liabilities, guarantees and liabilities relating to assets held for sale.

Risk Management

Risk is an inherent part of our business and operating activities. The extent to which we properly and effectively identify, assess, monitor and manage each of the various types of risk involved in our activities is critical to our financial soundness and profitability. We seek to identify, assess, monitor and manage the following principal risks involved in our business activities: market, credit, liquidity, operational, legal and compliance,

new business, reputational and other. Risk management is a multi-faceted process that requires communication, judgment and knowledge of financial products and markets. Our management takes an active role in the risk management process and requires specific administrative and business functions to assist in the identification, assessment and control of various risks. Our risk management policies, procedures and methodologies are fluid in nature and are subject to ongoing review and modification.

Inflation

We do not believe that inflation has had a material impact on our revenues or income over the past two fiscal years. However, increases in inflation could result in increases in our expenses, which may not be readily recoverable in the price of goods or services provided to our clients. To the extent that inflation results in rising interest rates and has other adverse effects on capital markets, it could adversely affect our financial position and profitability.

Summary of Quarterly Results

The following tables provide selected unaudited financial information for the most recent eight ~~quarters presented~~quarters:

	December 31, 2016			September 30, 2016			June 30, 2016			March 31, 2016
							(Re-presented)(1)			(Re-presented)(1)
	(In thousands, except per share amounts)
Gross revenues		$	186,719		$	257,421		$	329,935		$	357,582
Net loss from continuing operations(2)			(16,696)(3)			(7,968)			(636)			(61)
Loss from continuing operations, per share
Basic			(0.26)			(0.13)			(0.01)			—
Diluted			(0.26)			(0.13)			(0.01)			—
Net loss(2)			(16,696)(3)			(7,968)			(636)			(61)
Loss, per share
Basic			(0.26)			(0.13)			(0.01)			—
Diluted			(0.26)			(0.13)			(0.01)			—

Notes:

(1)

In connection with the reclassification of our mining interest and hydrocarbon properties to continuing operations in ~~accordance~~2016, revenues, costs and expenses and income taxes have been re-presented for these periods.

(2)

Attributable to our shareholders.

(3)

Includes a net non-cash reversal of $8.6 million in connection with ~~IFRS:~~

prior impairments on our hydrocarbon properties.

      December 31,
2013       September 30,
2013       June 30,
2013       March 31,
2013
(United States dollars in thousands,
except per share amounts)
Net sales $ 220,707 $ 213,418 $ 166,974 $ 205,732
Equity income 1,428 2,198 1,959 1,522
Total revenues 222,135 215,616 168,933 207,254
Net income (loss)⁽¹⁾ (12,562 )⁽²⁾ 6,977 6,811 8,439
Basic earnings (loss), per share (0.20 )⁽²⁾ 0.11 0.11 0.13
Diluted earnings (loss), per share (0.20 )⁽²⁾ 0.11 0.11 0.13

~~____________________~~

~~Notes:~~

TABLE OF CONTENTS

	December 31, 2015			September 30, 2015			June 30, 2015			March 31, 2015
	(Re-presented)(1)			(Re-presented)(1)			(Re-presented)(1)			(Re-presented)(1)
	(In thousands, except per share amounts)
Gross revenues		$	414,598		$	417,024		$	431,764		$	349,557
Net (loss) income from continuing operations(2)			(48,446)(3)			(208,119)(4)			4,586			5,398
(Loss) earnings from continuing operations, per share
Basic			(0.77)(3)			(3.30)(4)			0.07			0.09
Diluted			(0.77)(3)			(3.30)(4)			0.07			0.09
Net (loss) income(2)			(111,807)(3)			(392,208)(4)(5)			8,548			7,836
(Loss) earnings, per share
Basic			(1.77)(3)			(6.21)(4)(5)			0.14			0.12
Diluted			(1.77)(3)			(6.21)(4)(5)			0.14			0.12

Notes:

(1)

~~Net income attributable to our shareholders.~~

~~(2)~~

~~Includes an impairment to interests in resource properties of $6.1 million.~~

      December 31,
2012       September 30,
2012⁽¹⁾       June 30,
2012       March 31,
2012
(United States dollars in thousands,
except per share amounts)
Net sales $ 110,416 $ 118,597 $ 104,445 $ 146,049
Equity income 1,347 1,515 1,706 1,584
Total revenues 111,763 120,112 106,151 147,633
Net income (loss)⁽²⁾ (45,498 )⁽³⁾ 217,637 ⁽⁴⁾ 11,061 16,944 ⁽⁵⁾
Basic earnings (loss), per share (0.73 )⁽³⁾ 3.48 ⁽⁴⁾ 0.18 0.27 ⁽⁵⁾
Diluted earnings (loss), per share (0.73 )⁽³⁾ 3.48 ⁽⁴⁾ 0.18 0.27 ⁽⁵⁾

~~____________________~~

~~Notes:~~
~~(1)~~		~~We commenced consolidation of MFC Energy’s operations from September 7, 2012. Includes measurement period adjustments and error correction related to the acquisition of MFC Energy.~~

~~(2)~~		~~Net income attributable to our shareholders.~~

~~(3)~~		~~Includes total impairment and write-down of $48.2 million, or $0.77 per share on a basic and diluted basis, net of income tax recovery, on a subsidiary in India, which was subsequently sold in 2013.~~

~~(4)~~		Includes a bargain purchase of $216.3 million, or $3.46 per share on a basic and diluted basis, in connection with the acquisition of MFC Energy. The bargain purchase arose as the consideration under the transaction was less than the fair value of the net identifiable assets acquired. Includes measurement period adjustments for the acquisition of MFC Energy.

~~(5)~~		Includes a bargain purchase of $2.4 million, or $0.04 per share on a basic and diluted basis, in connection with the acquisition of a subsidiary. The bargain purchase arose as the consideration under the transaction was less than the fair value of the net identifiable assets acquired.

(2)

Attributable to our shareholders.

(3)

Includes losses of $51.4 million related to a customer that filed for insolvency in February 2016 (please see “Results of Operations” for further information), $9.9 million on long-term off-take agreements entered into by a subsidiary acquired in 2014, which have since been terminated, and the reversal of non-cash impairment losses of $30.0 million and recognition of a deferred tax liability of $7.8 million in connection with our mining interest.

(4)

Includes non-cash impairments of $265.9 million, consisting of $47.7 million and $218.2 million on our hydrocarbon properties and mining interest, respectively, before an income tax recovery of $54.3 million recognized on mining interest.

(5)

Includes a non-cash impairment of interests in resource properties of $123.3 million before a reduction of deferred tax assets of $50.9 million.

Application of Critical Accounting Policies

The preparation of financial statements in conformity with IFRS requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

Our management routinely makes judgments and estimates about the effects of matters that are inherently uncertain. As the number of variables and assumptions affecting the probable future resolution of the uncertainties increase, these judgments become even more subjective and complex. We have identified certain accounting policies that are the most important to the portrayal of our current financial condition and results of operations. Please refer to Note 12 to our audited consolidated financial statements included in this annual report on Form 20-F for a discussion of the significant accounting policies.

The following accounting policies are the most important to our ongoing financial condition and results of operations from continuing operations:

~~Inventories~~

~~Our inventories consist~~

Allowance for Credit Losses

We apply credit risk assessment and valuation methods to our trade and other receivables. Credit losses arise primarily from receivables but may also relate to other credit instruments issued by or on our behalf, such as guarantees and letters of ~~raw materials, work-in-progress and finished goods.~~

In general, inventories are recorded at the lower of cost or estimated net realizable value. Commodities acquired in commodity broker-trader activities with the purpose of selling them in the near future and generating a profit from fluctuations in price or margin are measured at fair value less costs to sell. Accordingly, our management must make estimates about their pricing when establishing the appropriate provisions for inventories. For the finished goods and commodity inventories, the estimated net selling price is the most important determining factor. However, our management also considers whether there are any alternatives to enhance the value of the finished goods by various marketing strategies and channels. Actual selling price could differ from the estimated selling price and such differences could be material.

~~Receivables~~

~~Receivables are financial instruments that are not classified as held for trading or available for sale. They are net of an~~credit. An allowance for credit losses ~~if any. We perform ongoing credit evaluations~~is increased by provisions which are charged to income and reduced by write-offs net of ~~customers and adjust our allowance accounts for specific customer risks and credit factors. Receivables~~any recoveries.

Provisions are ~~considered past due~~established on an individual receivable basis as well as on gross customer exposures. A country risk provision may be made based on ~~the terms~~exposures in less developed countries and on our management’s overall assessment of the ~~contracts.~~ underlying economic conditions in those countries.

Our allowance for credit losses is maintained at an amount considered adequate to absorb estimated credit-related losses. Such allowance reflects our management’s best estimate of the losses in our receivables and judgments about economic conditions. ~~As at December 31, 2013, we had recognized~~The assessment of allowance for credit losses is a complex process, which involves a significant degree of judgment and a high level of estimation uncertainty. The input factors include our legal rights and obligations under all the contracts and the expected future cash flows from the receivables ~~(including trade~~and their collateral, which include inventories, mortgages and other ~~receivables) aggregating $146.1 million.~~

~~Valuation~~credit enhancement instruments. The major source of ~~Securities~~

~~Securities~~estimation uncertainty relates to the likelihood of the

TABLE OF CONTENTS

various scenarios under which different amounts are expected to be recovered through the security in place on the receivables. The expected future cash flows are projected under different scenarios and weighted by probability, which involves the exercise of significant judgment. Estimates and judgments could change in the near-term and could result in a significant change to a recognized allowance.

In addition, we also provide credit losses for our credit exposures arising from guarantees we issued. The loss assessment process, as well as the exercise of judgment and estimation uncertainty, is similar to the preceding paragraph.

Classification of Assets Held for Sale

We apply judgment to determine whether an asset (disposal group) is available for immediate sale in its present condition and that its sale is highly probable and therefore should be classified as held for ~~trading are carried~~sale at ~~current market value. Any unrealized gains~~the balance sheet date. In order to assess whether it is highly probable that the sale can be completed within one year or ~~losses on securities held~~the extension period in certain circumstances, our management reviews the business and economic factors, both macro and micro, which include the industry trends and capital markets. It is also open to all forms of sales, including exchanges of non-current assets for ~~trading are included~~other non-current assets when the exchange will have commercial substance in ~~our results of operations.~~

accordance with IAS 16, Available-for-sale securities are also carried at current market value when current market value is available. Any unrealized gains or losses are included in other comprehensive income. When there is any objective evidence that an available-for-sale security has experienced a decline in value, other than a temporary decline, the security will be written down to recognize the loss in the determination of income. In determining whether the decline in value is other than temporary, quoted market price is not the only deciding factor, particularly for thinly traded securities, large block holdingsProperty, Plant and restricted shares. We also consider, but such consideration is not limited to, the following factors: (i) the trend of the quoted market price and trading volume; (ii) the investee’s financial position and results for a period of years; (iii) any liquidity or going concern problems of the investee; (iv) changes in or reorganization of the investee and/or its future business plan; (v) the outlook of the investee’s industry; (vi) the current fair value of the investment (based upon an appraisal thereof) relative to its carrying value; (vii) our business plan and strategy to divest the security or to restructure the investee; and (viii) the extent and/or duration of the decline in market value.Equipment

Recent market volatility has made it extremely difficult to value certain securities. Subsequent valuations, in light of factors prevailing at such time, may result in significant changes in the values of these securities in future periods. Any of these factors could require us to recognize further impairments in the value of our securities portfolio, which may have an adverse effect on our results of operations in future periods.

Non-Cash Impairment of Non-Financial Assets

We assess at the end of each reporting period whether there is any indication that an asset may be impaired. If any such indication exists, we ~~shall~~ estimate the recoverable amount of the asset. In assessing whether there is any indication that an asset may be impaired, we consider, as a minimum, the following indications:

External sources of information

	~~(a)~~		~~during the period, an asset’s market value has declined significantly more than would be expected as a result of the passage of time or normal use;~~

	~~(b)~~		significant changes with an adverse effect on the entity have taken place during the period, or will take place in the near future, in the technological, market, economic or legal environment in which the entity operates or in the market to which an asset is dedicated;

	~~(c)~~		market interest rates or other market rates of return on investments have increased during the period, and those increases are likely to affect the discount rate used in calculating an asset’s value in use and decrease the asset’s recoverable amount materially;

	~~(d)~~		~~the carrying amount of the net assets of the entity is more than its market capitalization;~~

(a)

during the period, the asset’s market value has declined significantly more than would be expected as a result of the passage of time or normal use;

(b)

significant changes with an adverse effect on the entity have taken place during the period, or will take place in the near future, in the technological, market, economic or legal environment in which the entity operates or in the market to which an asset is dedicated;

(c)

market interest rates or other market rates of return on investments have increased during the period, and those increases are likely to affect the discount rate used in calculating an asset’s value in use and decrease the asset’s recoverable amount materially;

(d)

the carrying amount of the net assets of the entity is more than its market capitalization;

Internal sources of information

	~~(e)~~		~~evidence is available of obsolescence or physical damage of an asset;~~

	~~(f)~~		(e) evidence is available of obsolescence or physical damage of an asset; (f) significant changes with an adverse effect on the entity have taken place during the period, or are expected to take place in the near future, in the extent to which, or manner in which, an asset is used or is expected to be used. These changes include the asset becoming idle, plans to discontinue or restructure the operation to which an asset belongs, plans to dispose of an asset before the previously expected date and reassessing the useful life of an asset as finite rather than indefinite; and

	~~(g)~~		~~evidence is available from internal reporting that indicates that the economic performance of an asset is, or will be, worse than expected.~~

~~Provisions for Decommissioning Obligations~~

Our provisions for decommissioning obligations represent management’s best estimate of the present value of the future cash outflows required to settle the liability which reflects estimates of future costs, inflation, movements in foreign exchange rates and assumptions of risks associated with the future cash outflows, and the applicable risk-free interest rates for discounting the future cash outflows. Changes in the ~~above factors can result~~near future, in ~~a change~~the extent to which, or manner in which, an asset is used or is expected to be used. These changes include the ~~provision recognized by us.~~

~~Changes in decommissioning obligations are recorded with a corresponding change~~asset becoming idle, plans to discontinue or restructure the ~~carrying amounts~~operation to which an asset belongs, plans to dispose of ~~related properties. Adjustments to~~an asset before the ~~carrying amounts~~previously expected date and reassessing the useful life of ~~related properties can result in a change to future depletion expense.~~

an asset as finite rather than indefinite; and

(g)

evidence is available from internal reporting that indicates that the economic performance of an asset is, or will be, worse than expected.

Income Taxes

Management believes that it has adequately provided for income taxes based on all of the information that is currently available. The calculation of income taxes in many cases, however, requires significant judgment in interpreting tax rules and regulations, which are constantly changing.

Our tax filings are also subject to audits, which could materially change the amount of current and ~~future~~deferred income tax assets and liabilities. Any change would be recorded as a charge or a credit to income tax expense. Any cash payment or receipt would be included in cash from operating activities.

TABLE OF CONTENTS

We currently have deferred income tax assets, which are comprised primarily of tax loss carry-forwards and deductible temporary differences, both of which will reduce taxable income in the future. The amounts recorded for deferred income tax assets are based upon various judgments, assumptions and estimates. We assess the realization of these deferred income tax assets on a periodic basis to determine to what extent it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax credits and unused tax losses can be utilized. We determine whether it is probable that all or a portion of the deferred income tax assets will be realized, based on currently available information, including, but not limited to, the following:

•

the history of the tax loss carry-forwards and their expiry dates;

•

future reversals of temporary differences;

•

our projected earnings; and

•

tax planning opportunities.

On the reporting date, we also reassess unrecognized deferred income tax assets. We recognize a previously unrecognized deferred income tax asset to the extent that it has become probable that future taxable profit will allow the deferred income tax asset to be recovered.

We provide for future liabilities in respect of uncertain tax positions where additional tax may become payable in future periods and such provisions are based on our management’s assessment of exposures. We do not recognize the full deferred income tax liability on taxable temporary differences associated with investments in subsidiaries, joint ventures and associates where we are able to control the timing of the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future. We may change our investment decision in the normal course of our business, thus resulting in additional tax liability.

New Standards and Interpretations Adopted and Not Yet Adopted

IFRS 9, Financial Instruments

~~IFRIC 21,~~ ~~Levies~~, referred to as “IFRS 9”, issued in July 2014 is the IASB’s replacement of IAS 39, Financial Instruments: Recognition and Measurement, referred to as “IAS 39”. IFRS 9 includes requirements for recognition and measurement, impairment, derecognition and general hedge accounting. The version of IFRS 9 issued in 2014 supersedes all previous versions and is mandatorily effective for periods beginning on or after January 1, 2018. Management expects to complete the assessment of IFRS 9 on our consolidated financial statements before the end of the third quarter of 2017.

IFRS 15, Revenue from Contracts with Customers, referred to as “IFRS 15”, specifies how and when an entity will recognize revenue as well as requiring such entities to provide users of financial statements with more informative, relevant disclosures. The standard provides a single, principles based five-step model to be applied to all contracts with customers. IFRS 15 was issued in May 2014. In September 2015, the IASB deferred the effective date of IFRS 15 to annual reporting periods beginning on or after January 1, 2018. Our management expects to complete the assessment of the impacts of IFRS 15 on our consolidated financial statements before the end of the third quarter of 2017.

IFRS 16, Leases, referred to as “IFRS 16”, issued in January 2016, introduces a single on-balance sheet model of accounting for leases by lessees under a single model that eliminates the distinction between operating and finance leases. Lessor accounting remains largely unchanged and the distinction between operating and finance leases is retained. IFRS 16 supersedes IAS 17, Leases, and related interpretations, and is effective for annual reporting periods beginning on or after January 1, 2019, with earlier application permitted if IFRS 15 has also been applied. Management is currently assessing the impacts of IFRS 16 on our consolidated financial statements.

Amendments to IAS 7, Statement of Cash Flows, were issued in January 2016 and require that the following ~~guidance on recognition~~changes in liabilities arising from financing activities are disclosed (to the extent necessary): (i) changes from financing cash flows; (ii) changes arising from obtaining or losing control of ~~a liability~~subsidiaries or other businesses; (iii) the effect of changes in foreign exchange rates; (iv) changes in fair values; and (v) other changes. The IASB defines liabilities arising from financing activities as liabilities “for which cash flows were, or future cash flows will be, classified in the statement of cash flows as cash flows from financing activities”. The new disclosure requirements also relate to ~~pay levies:~~

changes in financial assets if they meet

TABLE OF CONTENTS

the same definition. Finally, the amendments state that changes in liabilities arising from financing activities must be disclosed separately from changes in other assets and liabilities. The ~~liability is recognized progressively if the obligating event occurs over a period of time.~~

~~If an obligation is triggered on reaching a minimum threshold, the liability is recognized when thatminimum threshold is reached.~~

~~The same recognition principles~~amendments are ~~applied in interim financial reports. IFRIC 21 is~~ effective for annual periods beginning on or after ~~1 January 2014. We anticipate that the application of this new standard will not have significant impacts on our consolidated financial statements.~~

~~IFRS 9,~~~~Financial Instruments~~, referred to as “IFRS 9”, was published in November 2009 and contained requirements for financial assets. Requirements for financial liabilities were added to IFRS 9 in October 2010. Most of the requirements for financial liabilities were carried forward unchanged from International Accounting Standard 39. However, some changes were made to the fair value option for financial liabilities to address the issue of own credit risk. The IASB decided that a mandatory date of January 1, ~~2015 would not allow sufficient time for entities to prepare to apply the new standard because the impairment phase of the IFRS 9 project has not yet been completed. Accordingly, the IASB decided~~2017 on a prospective basis. Our management expects that ~~a new date should~~additional disclosures will be decided upon when the entire IFRS 9 project is closer to completion. The amendments made to IFRS 9 in November 2013 remove the mandatory effective date from IFRS 9. However, entities may still choose to apply IFRS 9 early and management has decided not to early apply IFRS 9.

required.

Trend Information

For a discussion of trends relating to revenues derived from our royalty interest, please see “Item 4: Information on the Company – B. Business Overview – Business Segments – ~~Commodities and Resources~~Merchant Banking”.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

~~We have outstanding issued~~

In the normal course of our merchant banking activities, we issue guarantees ~~held by~~to our ~~trading~~trade and ~~financial~~financing partners in ~~connection with our commodities and resources activities. As~~order to secure financing facilities. Upon the use or drawdown of ~~December 31, 2013, we had issued guarantees of up to a maximum of $51.4 million, of which $43.4 million were outstanding and have not been~~the underlying financing facilities, the financing facilities are recorded as liabilities inon the consolidated statement of financial ~~position. There has been no claim against~~position such as short-term bank borrowings or debt. Accordingly, the ~~guarantees.~~

issued guarantees relating to such financing facilities that are used or drawn are not considered contingent liabilities or off-balance sheet transactions. As at December 31, 2016, we had unrecorded contingent liabilities of $28.8 million relating to outstanding guarantees issued to our trade and financing partners in the normal course of our merchant banking activities.

Safe Harbor

The safe harbor provided in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, applies to forward-looking information provided under ““– Off-Balance Sheet Arrangements” and “– Liquidity and Capital Resources – Contractual Obligations”.

TABLE OF CONTENTS

ITEM 6: DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. Directors and Senior Management

We have no arrangement or understanding with major shareholders, customers, suppliers or others pursuant to which any of our directors or officers was selected as a director or officer. Each director holds office until the next annual general meeting of our shareholders or until his or her successor is elected or appointed unless such office is earlier vacated in accordance with our Articles or with the provisions of the Business Corporations Act (British Columbia). The following table sets forth the names of each of our directors and officers as at the date hereof:

Date of
Commencement Expiration of
of Office Term of Office
Name (Age) Present Position with our Company with our Company⁽¹⁾
Michael J. Smith (65) Chief Executive Officer and Director 1986 2014
James M. Carter (68)⁽²⁾ Chief Financial Officer 2014 —
Peter Kellogg (71)⁽³⁾ Chairman, Director 2013 2016
Dr. Shuming Zhao (61)⁽⁴⁾ Director 2014 2014
Indrajit Chatterjee (68)^(3)(5)(6) Director 2005 2015
Silke S. Stenger (45)^(3)(5)(6) Director 2013 2015
William C. Horn III (50)⁽⁵⁾ Director 2013 2016

~~____________________~~

Name (Age)		Present Position	Date of Commencement of Office ~~Notes:~~with our Company
Michael J. Smith (68)(1)	~~In March 2014, we announced that our board of directors had determined to eliminate our staggered board structure.~~	Chairman, Managing Director, President, Chief Executive Officer and Director		1986

~~(2)~~Samuel Morrow (32)	~~Mr. Carter was appointed~~	Deputy Chief Executive Officer and Chief Financial Officer ~~in March 2014.~~		2014
Ferdinand Steinbauer (60)		Treasurer		2014
Dr. Shuming Zhao (64)(2)(3)(4)	~~Member of our Compensation Committee.~~	Director		2014
Indrajit Chatterjee (71)(2)(4)		Director		2005
Silke S. Stenger (48)(2)(3)(4)	~~Dr. Zhao was appointed a director of the Company to fill the vacancy created by the passing of Robert Ian Rigg in March 2014.~~	Director		2013
Gerardo Cortina (61)(5)(6)		Vice President and Director		2014
~~(5)~~ Friedrich Hondl (56)(3)(6)	~~Member of our Audit Committee.~~	Director		2015

Jochen Dümler (62)(2)(3)(6)(7)	~~Member of our Nominating and Corporate Governance Committee.~~	Director		2016

Notes:

(1)

Mr. Smith was appointed Chairman in March 2016 and President and Chief Executive Officer in March 2017.

(2)

Member of our Compensation Committee.

(3)

Member of our Audit Committee.

(4)

Member of our Nominating and Corporate Governance Committee.

(5)

Mr. Cortina resigned as President and Chief Executive Officer in March 2017.

(6)

Member of our Risk Committee.

(7)

Mr. Dümler was appointed a director in January 2016.

Michael J. Smith – Chairman, Managing Director, President and Chief Executive Officer ~~and Director~~

Mr. Smith has been a director of our company since 1986, was appointed Chairman in March 2016 and was ~~Chairman from 2003 to~~appointed President and Chief Executive Officer in March ~~2014.~~2017. Mr. Smith was appointed our Managing Director in May 2014, having served as our President and Chief Executive Officer ~~in March~~from 1996 to 2000 and from 2010 to May 2014 and ~~served as our~~ Chief Financial Officer from 2010 to March 2014. He was our Secretary until March 1, 2008. Mr. Smith was also ~~our Chief Executive Officer between 1996 and 2006. Mr. Smith was also~~ previously the President, Chief Executive Officer, Secretary and a director of Mass Financial Corp. and has served as a director and officer of various public companies. Mr. Smith has experience in corporate finance and restructuring.

~~James M. Carter~~

Samuel Morrow – Deputy Chief Executive Officer and Chief Financial Officer

Mr. ~~Carter~~Morrow was appointed Chief Financial Officer in ~~March~~June 2014 and was appointed Deputy Chief Executive Officer in May 2014. Mr. ~~Carter~~Morrow is a Chartered ~~Accountant with over 40 years~~Financial Analyst and was most recently a Vice President of ~~experience~~MFC in ~~both public~~Vienna, Austria. Before joining MFC, Mr. Morrow was Vice President of Tanaka Capital Management and ~~private companies, with an emphasis on the commodities sector~~Treasurer, Chief Financial Officer and ~~international business markets. He has served as Vice-President~~Chief Operating Officer of the ~~Company and its predecessors for over 15 years.~~Tanaka Growth Fund. Mr. ~~Carter has also served as an officer and director~~Morrow is a graduate of ~~a number of other private and publicly traded companies.~~

~~Peter Kellogg~~St. Lawrence University.

Ferdinand Steinbauer – ~~Chairman and a Director~~

Treasurer

Mr. ~~Kellogg has been a director of our company since December 2013. Mr. Kellogg~~Steinbauer was appointed ~~Chairman of our board of directors~~Treasurer in March 2014. He is currently ~~the Chief Executive Officer of IAT. He was the Senior~~also a Managing Director of ~~Spear, Leeds & Kellogg, one of the largest market making~~MFC Commodities GmbH and ~~securities clearing firms in~~

~~the U.S., until 2000, when it was~~has held that position since 1998. Previously he served as Treasurer for 20 years with KNP Leykam Austria (later acquired by ~~Goldman Sachs.~~SAPPI). Mr. ~~Kellogg~~Steinbauer holds a degree from the Austrian Commercial Academy in Graz and has ~~been the Senior Advisory Director~~over 35 years of ~~Goldman Sachs/Spear, Leeds & Kellogg. He served as the Chairman of Ziegler Companies Inc. since 2003~~experience in banking, structured trade finance and a director of Nam Tai Electronics since 2000. He also serves as a director of the Berkshire School and the U.S. Olympic Ski Team. Previously, Mr. Kellogg served on the board of Advest Group, MCM Corporation, Cityfed Financial Corp., Interstate Air Taxi Inc. and Interstate/Johnson Lane, Inc.

risk management.

TABLE OF CONTENTS

Dr. Shuming Zhao – Director

Dr. Zhao was a director of our company from 2004 until December 2013 and was re-appointed to the board of directors in March 2014. Dr. Zhao is the Chair Professor and Honorary Dean of the School of Business, Nanjing University in the People’s Republic of China. He also serves as President of the International Association of Chinese Management Research (IACMR, Third Term), Vice-President of Chinese Society of Management Modernization, President of the Jiangsu Provincial Association of Human Resource Management and Vice-President of the Jiangsu Provincial Association of Business Management and Entrepreneurs. Since 1994, Dr. Zhao has acted as a management consultant for several Chinese and international firms. He ishas also served as a director of Daqo New Energy Corp. (China) since October 2011 and was a director of Little Swan Company, Ltd. (China). from 2009 to 2014. Dr. Zhao has successfully organized and held ~~seven~~eight international symposia on multinational business management. ~~Since 1997,~~ Dr. Zhao ~~has been~~worked as a visiting professor at Marshall School of Business, University of Southern California, ~~and~~U.S.A. in 1997 to 2003. Now he is the Distinguished Visiting Professor at the College of Business, University of Missouri-St. ~~Louis.~~Louis, U.S.A. and the Distinguished Visiting Professor at the Katz Graduate School of Business, University of Pittsburgh, U.S.A. He has also lectured in various countries, including the United States, Canada, Japan, Singapore, South Korea, the United Kingdom, Germany, the Netherlands, Portugal and Australia.

Indrajit Chatterjee – Director

Mr. Chatterjee has been a director of our company since 2005. He is a retired businessman who was formerly responsible for marketing with the Transportation Systems Division of General Electric for India. Mr. Chatterjee is experienced in dealing with Indian governmental issues.

Silke S. Stenger – Director

Ms. Stenger has been a director of our company since August2013. She is an independent business consultant and business leadership coach, ~~and~~ was a ~~former~~ director of our company when our company was KHD Humboldt Wedag International Ltd. from 2003 to 2010 and ~~has been~~was a director of KHD Humboldt Wedag International ~~AG.~~AG from 2010 to 2012. Ms. Stenger was the Chief Financial Officer of Management One Human Capital Consultants Ltd. from 2006 to 2011. Ms. Stenger is a certified controller (German Chamber of Commerce IHK) and IFRS accountant, specializing in corporate governance and Sarbanes-Oxleycompliance.

~~William C. Horn III~~

Gerardo Cortina – Vice President and Director

Mr. ~~Horn~~Cortina resigned as our President and Chief Executive Officer in March 2017, having served in such position since May 2014. Mr. Cortina was managing director of Possehl Mexico S.A. de C.V., referred to as “Possehl”, from 1986 until June 2014. Possehl has been active in trading and distribution of metals, mineral products, chemicals and ferroalloys to the iron and steel, foundry, refractory, plastics, paints, animal feed and chemicals industries. Mr. Cortina has successfully developed export markets in Central America, the Caribbean and South America. Mr. Cortina has a Master of Business Administration from the Wharton School of Business at the University of Pennsylvania.

Friedrich Hondl – Director

Mr. Hondl has been a director of our company since ~~December 2013.~~October 2015. He is an experienced European banking executive and former member of the Supervisory Board of Oesterreichische Kontrollbank AG, the Austrian Export Credit Agency. From 2013 to 2015, Mr. Hondl was the head of Erste Group Bank AG’s Large Corporates International Division and, from 2009 to 2012, he was the head of International Corporate Relationship Management of UniCredit Bank Austria AG. Mr. Hondl has also served as Chairman of the Supervisory Board of Intermarket Bank AG since 2014.

Jochen Dümler – Director

Mr. Dümler has been a director of our company since January 2016. He was the former President and Chief ~~Operating~~Executive Officer of ~~First Angel Capital (since 2004)~~Euler Hermes North America. From 2002 to 2010, Mr. Dümler was a Member of the Board of Management of Euler Hermes Kreditversicherung AG and, from 1995 to 2002, he was a Member of the Board of Management of PRISMA Kreditversicherung AG. Mr. Dümler is a member of the German-American Chamber of Commerce (New York City), a ~~boutique investment firm focusing on long/short~~Member of the German Executive Roundtable (Washington, D.C.) and ~~macro trading strategies, research, alternative investments, private equity, lending and consulting to institutions for M&A and strategic financial workout and turnaround. Mr. Horn served as~~ a ~~Director~~Board Member of ~~LMS Medical Systems, Inc. from 2008 to 2010 while also acting as interim Chief Executive Officer and Chief Financial Officer of LMS Medical Systems, Inc. over~~ the same period. Prior to First Angel Capital, he was employed by State Street Corporation as Vice-President of Risk Management and Compliance, overseeing risk management and compliance for institutional equity trading and e-finance for State Street Global Markets, State Street’s institutional trading division. Mr. Horn formerly worked for Fidelity Investments in a number of capacities, including Vice-President of Global Risk Management, Senior Counter-Party Credit Analyst and Mortgage-Backed Security Trader. Mr. Horn graduated from St. Lawrence University with a degree in Economics.

German-American Partnership Program.

TABLE OF CONTENTS 

Family Relationships

There are no family relationships between any of our ~~director~~directors and executive officers.

B. Compensation

During the fiscal year ended December 31, ~~2013,~~2016, we paid an aggregate of approximately ~~$1.8~~$3.1 million in cash compensation to our directors and officers, excluding directors’ fees. No other funds were set aside or accrued by our company during the fiscal year ended December 31, ~~2013~~2016 to provide pension, retirement or similar benefits for our directors or officers pursuant to any existing plan provided or contributed to by us.

Executive Officers

The following table provides a summary of compensation paid by us during the fiscal year ended December 31, ~~2013~~2016 to our President and Chief Executive Officer, ~~former~~ Chief Financial Officer and each of our ~~three~~two most highly compensated executive officers (or persons acting in a similar capacity) whose total compensation for the fiscal year exceeded $150,000:

Non-equity Incentive
Compensation Plan
Compensation
($)⁽¹⁾
Name and Principal Position       Salary
($)       Share-
Based
Awards
($)       Option-
Based
Awards
($)       Annual
Incentive
Plans       Long-
Term
Incentive
Plans       Pension
Value
($)       All Other
Compensation
($)       Total
Compensation
($)
Michael J. Smith
       Chief Executive
       Officer and former
       Chairman and
       Chief Financial
       Officer⁽²⁾ 301,239 — — 103,660 — — 190,745 ⁽³⁾ 595,644
Roland Schulien
       Senior Vice President
       Finance, Europe 185,990 — — 7,971 — — 27,098 ⁽⁴⁾ 221,059
Gerardo Cortina
       Managing Director
       Mexico 388,130 — — — — — 4,236 ⁽⁵⁾ 392,366
Ernest Alders
       Vice-President 204,431 ⁽⁶⁾ — — 14,206 — — 5,619 ⁽⁷⁾ 224,256
____________________

							Non-equity incentive compensation plan compensation ($)(1)
Name and Principal Position	Salary ($)		Share- based awards ($)		Option- based awards ($)		Annual incentive plans		Long- term incentive plans		Pension value ($)		All other compensation ($)		Total compensation ($)
Michael J. Smith Chairman, Managing Director, President and Chief Executive Officer(2)		609,593		—		—		—		—		—		290,055(3)		899,648
Samuel Morrow Chief Financial Officer and Deputy Chief Executive Officer		377,801		—		—		—		—		—		15,468(4)		393,269
Gerardo Cortina(5) Former President and Chief Executive Officer		859,842		—		—		—		—		—		142,866(6)		1,002,708
Ferdinand Steinbauer Treasurer		578,475		—		—		—		—		—		—		578,475
Roland Schulien Senior Vice President Finance, Europe		221,187		—		—		—		—		—		—		221,187

Notes:

(1)

All awards under MFC’s non-equity incentive compensation plans are paid during the financial year they were earned.

(2)

~~Notes:~~
~~(1)~~		~~All awards under MFC’s non-equity incentive compensation plans are paid during the financial year they were earned.~~

~~(2)~~		~~Mr. Smith ceased acting as our Chief Financial Officer and Chairman in March 2014.~~

~~(3)~~		~~Consists of housing allowances and expenses.~~

~~(4)~~		~~Consists of auto benefits.~~

~~(5)~~		~~Consists of customary perquisites.~~

~~(6)~~		~~Includes accrued but unpaid amounts.~~

~~(7)~~		~~Consists of customary perquisites, including a housing allowance.~~

Mr. Smith was appointed our President and Chief Executive Officer in March 2017 to fill the vacancy created by Mr. Cortina’s resignation.

(3)

Consists of housing allowances and expenses.

(4)

Consists of medical and other customary perquisites.

(5)

Mr. Cortina resigned as our President and Chief Executive Officer in March 2017.

(6)

Consists of housing allowances and expenses.

For the purposes of the above table, compensation amounts were translated to Canadian dollars at the applicable exchange rate at the date of the transaction or, for practical reasons, the average exchange rates for the applicable periods, when they approximate the exchange rates as at the date of the transactions.

TABLE OF CONTENTS 

Directors’ Compensation

The following table provides a summary of compensation paid by us to, or earned by, the directors of our company during the fiscal year ended December 31, ~~2013~~2016.

Director Compensation Table

Name	Fees Earned ($)		Share- based awards ($)		Option- based awards ($)		Non-equity incentive plan compensation ($)		Pension value ($)		All other compensation ($)		Total ($)
Michael J. Smith(1)		—		—		—		—		—		—		—
Gerardo Cortina(2)		—		—		—		—		—		—		—
Dr. Shuming Zhao		110,092		—		—		—		—		—		110,092
Indrajit Chatterjee		103,428		—		—		—		—		—		103,428
Silke S. Stenger		158,207		—		—		—		—		—		158,207
Friedrich Hondl		207,295(3)		—		—		—		—		—		207,295(3)
Jochen Dümler(4)		146,390		—		—		—		—		—		146,390

Notes:

(1)

Compensation provided to Mr. Smith, in his capacity as managing director is disclosed in the ~~directors of~~table above under the heading “Executive Officers”.

(2)

Compensation provided to Mr. Cortina, in his former capacity as Chief Executive Officer is disclosed in the table above under the heading “Executive Officers”.

(3)

Includes $91,625 paid to, or earned by, Mr. Hondl during the year ended December 31, 2016 in connection with a retainer and meeting and committee fees relating to his acting as a director and board committee member for our ~~company.~~

regulated Bank subsidiary.

(4)

~~DIRECTOR COMPENSATION TABLE~~

Name       Fees
Earned
($)       Share-
based
awards
($)       Option-
based
awards
($)       Non-equity
incentive plan
compensation
($)       Pension
value
($)       All other
compensation
($)       Total
($)
Michael J. Smith⁽¹⁾ — — — — — — —
Peter Kellogg⁽²⁾ — — — — — — —
Dr. Shuming Zhao⁽³⁾ 87,500 — — — — — 87,500
Ian Rigg⁽⁴⁾ 121,233 — — — — — 121,233
Indrajit Chatterjee 87,500 — — — — — 87,500
Ravin Prakash⁽⁵⁾ — — — — — — —
Silke S. Stenger 75,425 — — — — — 75,425
William C. Horn III⁽⁶⁾ — — — — — — —
Mr. Dümler was appointed as a director in January 2016.

~~____________________~~

~~Notes:~~
~~(1)~~		~~Compensation provided to Mr. Smith, in his capacity as an executive officer is disclosed in the table above under the heading “~~~~Executive Officers~~”.

~~(2)~~		~~Mr. Kellogg became a director in December 2013.~~

~~(3)~~		~~Dr. Zhao ceased being a director in December 2013 and was re-appointed as a director in March 2014 to fill a vacancy.~~

~~(4)~~		~~Mr. Rigg passed away in March 2014.~~

~~(5)~~		~~Mr. Prakash received $127,276 in compensation in connection with acting as an advisor to the Group. Mr. Prakash ceased being a director in December 2013.~~

~~(6)~~		~~Mr. Horn became a director in December 2013.~~

A total of ~~$0.4~~$0.7 million was paid to our directors for services rendered as directors (including as directors of our subsidiaries), or for committee participation or assignments, during our most recently completed financial year. Our directors are each paid aan annual fee of ~~$30,000~~US$25,000 and ~~$750~~US$2,500 for each director’s meeting attended as well as additional fees, as applicable, for their respective participation on our ~~Audit and Compensation Committees.~~committees. We also reimburse our directors and officers for expenses incurred in connection with their services as directors and officers.

~~Termination and Change of Control Benefits~~

Effective March 1, 2008, we entered into an independent consulting agreement with Michael Smith, our Chief Executive Officer, pursuant to which he provides us consulting services. In the event that the agreement is terminated by us or in the event of a change of control, Mr. Smith is entitled to receive a termination payment equal to the sum of three times the aggregate consulting fee paid to Mr. Smith in the previous twelve months plus the higher of his current bonus or the highest bonus received by him in the previous five years prior to such termination. In addition, all unvested rights in any stock options or other equity awards made to Mr. Smith will vest in full in the event of a change of control. Mr. Smith will also be entitled, for a period of 365 days following the earlier of the date of the termination of the agreement and the date of the change of control, to require us to purchase all or any part of our common shares held by Mr. Smith on the date of termination or date of change of control, at a price equal to the average closing market price of our common shares on the NYSE for the ten preceding trading days. Assuming a discontinuance of Mr. Smith’s services as a result of termination or a change of control effective December 31, 2013, we would have been required to make a maximum payment to Mr. Smith in the aggregate amount of $3.1 million pursuant to the terms of his consulting arrangement. Ernest Alders is also entitled to a payment of one month’s salary (including the pro rated portion of his bonus for the last fiscal year) for each year of service in the event that MFC or Mr. Alders terminates his engagement within six months after a change of control pursuant to his applicable agreements.

Pension Plan Benefits

As of December 31, ~~2013,~~2016, we did not have any defined benefit, defined contribution or deferred compensation plans for any of our senior officers or directors.

C. Board Practices

~~Our Articles provide for three classes~~

Each of our directors ~~with staggered terms. Each director~~now holds office until the ~~expiry~~close of ~~his or her term~~the next annual general meeting of our shareholders or until his or her successor is elected or appointed, unless such office is earlier vacated in accordance with our Articles or with the provisions of the ~~British Columbia~~BusinessCorporations Act (British Columbia). At each annual meeting of our company, a class of directors is elected to hold office for a three-year term. Successors to the class of directors whose terms expire are identified as being of the same class as the directors they succeed and are elected to hold office for a term expiring at the third succeeding annual meeting of shareholders. A director appointed or elected to fill a vacancy on the board of directors holds office for the unexpired term of his predecessor. The following table sets forth the date of expiration of the current term of office of each of our directors, as well as the period during which that person has served as a director:

Expiration of
Name of Director Director Since Current Term
Michael J. Smith 1986 2014
Dr. Shuming Zhao 2014 2014
Indrajit Chatterjee 2005 2015
Silke S. Stenger 2013 2015
Peter Kellogg 2013 2016
William C. Horn III 2013 2016

In March 2014, our board of directors determined to declassify our board structure and it is intended that amendments to our Articles in connection therewith will be presented to our shareholders for approval at our next annual general meeting. If approved, directors would be elected on an annual basis moving forward.

Other than as discussed elsewhere herein, there are no service contracts between our company and any of our directors providing for benefits upon termination of employment.

Our board of directors has established an Audit Committee. Our Audit Committee currently consists of ~~Indrajit Chatterjee,~~ Silke S. Stenger, Dr. Shuming Zhao, Friedrich Hondl and William C. Horn III, who was appointed to the Audit Committee, in March 2014. During the year ended December 31, 2013 and until his passing in 2014, Ian Rigg was a member of and served as the Chairman of our Audit Committee.Jochen Dümler. The Audit Committee operates pursuant to a charter adopted by the board of directors on October 26, 2013, a copy of which is available online at our website at ~~www.mfcindustrial.com and attached as Schedule “C” to our management proxy circular filed with the SEC on Form 6-K on December 2, 2013.~~www.mfcbancorpltd.com. The Audit Committee is appointed by and generally acts on behalf of the board of directors. The Audit Committee is responsible primarily for monitoring: (i) the integrity of our financial statements; (ii) compliance with legal and regulatory requirements; (iii) the independence, qualifications and performance of our independent auditors; and (iv) the performance and structure of our internal audit function. The Audit Committee also reviews and approves our hiring policies, establishes our procedures for dealing with complaints, oversees our financial reporting processes and consults with management and our independent auditors on matters related to our annual audit and internal controls, published financial statements, risk assessment and risk management, accounting principles and auditing procedures being applied.

TABLE OF CONTENTS

Our board of directors has established a Compensation Committee. Our Compensation Committee currently consists of ~~Peter Kellogg,~~ Indrajit Chatterjee, ~~and~~ Silke S. ~~Stenger. During the year ended December 31, 2013~~Stenger, Dr. Shuming Zhao and ~~until his passing in 2014, Ian Rigg also served on our Compensation Committee.~~Jochen Dümler. Our Compensation Committee operates pursuant to a charter adopted by the board of directors on October 26, 2013, a copy of which is available online at our website at ~~www.mfcindustrial.com.~~www.mfcbancorpltd.com. The Compensation Committee is appointed and generally acts on behalf of the board of directors. The Compensation Committee is responsible for reviewing our board compensation practices and our selection, retention and remuneration arrangements for our executive officers and employees and reviewing and approving our Chief Executive Officer’s compensation in light of our corporate goals and objectives. Except for plans that are, in accordance with their terms or as required by law, administered by our board of directors or another particularly designated group, the Compensation Committee also administers and implements all of our incentive compensation plans and equity-based compensation plans. The Compensation Committee also recommends changes or additions to those plans, monitors our succession planning processes and reports to our board of directors on other compensation matters. Our Chief Executive Officer does not vote upon or participate in the deliberations regarding his compensation.

~~Effective July 15, 2005, we formed~~

Our board of directors has established a Nominating and Corporate Governance Committee. Our Nominating and Corporate Governance Committee currently consists of Indrajit Chatterjee, ~~and~~ Silke S. ~~Stenger. During the year ended December 31, 2013~~Stenger and ~~until his passing in 2014, Ian Rigg also served on our Nominating and Corporate Governance Committee.~~Dr. Shuming Zhao. Our Nominating and Corporate Governance Committee operates pursuant to

a charter adopted by our board of directors on October 26, 2013, a copy of which is available online at our website at ~~www.mfcindustrial.com.~~www.mfcbancorpltd.com. The primary function of the Nominating and Corporate Governance Committee is to assist our board of directors in developing our Corporate Governance Guidelines and monitor the board and management’s performance against the defined approach. The Nominating and Corporate Governance Committee is also responsible for evaluating the board and board committees’ structure and size and the independence of existing and prospective directors, identifying and reporting on candidates to be nominated to our board of directors, reporting on the board’s annual performance and overseeing our process for providing information to the board.

Our board of directors has established a Risk Committee. Our Risk Committee currently consists of Jochen Dümler, Friedrich Hondl and Gerardo Cortina. The Risk Committee reviews and reports to our board of directors respecting our business risks and risk mitigation strategies.

D. Employees

At December 31, ~~2013, 2012~~2016, 2015 and ~~2011,~~2014, we employed approximately ~~951, 955~~448, 651 and ~~616~~809 people, respectively.

Included in the 448 employees as at December 31, 2016 were more than 50 employees who have been given notice of termination of their employment contracts.

E. Share Ownership

There were ~~62,552,126~~62,692,272 common shares, ~~2,525,000~~200,000 stock options and no share purchase warrants issued and outstanding as of March 30, ~~2014.~~2017. Of the common shares and stock options issued and outstanding on that date, our directors and senior officers, who served in such positions at any time during the fiscal year ended December 31, ~~2013,~~2016, beneficially owned the following common ~~shares:~~

      Percentage of Total
Common Shares Common Shares Stock Options⁽¹⁾
Beneficially Owned Outstanding Held
Name and Principal Position (#) (%) (#)
Michael J. Smith
       Chief Executive Officer, Director and former
       Chairman and Chief Financial Officer⁽²⁾ 272,727 0.4% 390,000
Peter Kellogg
       Chairman and Director⁽³⁾ 20,662,400 ⁽³⁾ 33.0% —
Dr. Shuming Zhao
       Director⁽⁴⁾ — — 55,000
Ian Rigg
       Director⁽⁵⁾ 7,230 less than 0.1% 55,000
Indrajit Chatterjee
       Director — — 55,000
Ravin Prakash
       Director⁽⁶⁾ — — 55,000
Silke S. Stenger
       Director — — —
William C. Horn III
       Director 618 less than 0.1% —
____________________shares and held the following stock options:

Name and principal position	Common shares beneficially owned (#)		Percentage of total common shares outstanding (%)		Stock options held (#)
Michael J. Smith Chairman, Managing Director, President and Chief Executive Officer and Director(1)		545,337		0.9%	—
Dr. Shuming Zhao Director	—		—		—
Indrajit Chatterjee Director	—		—		—
Silke S. Stenger Director	—		—		—
Friedrich Hondl Director	—		—		—
Jochen Dümler Director	—		—		—

TABLE OF CONTENTS

Name and principal position	Common shares beneficially owned (#)		Percentage of total common shares outstanding (%)		Stock options held (#)
Gerardo Cortina Vice-President and Director and former President and Chief Executive Officer		109,820		0.2%	—
Samuel Morrow Deputy Chief Executive Officer and Chief Financial Officer		42,390	—*			100,000(2)
Ferdinand Steinbauer Treasurer		306,726		0.5%	—
Roland Schulien Senior Vice President Finance, Europe	—		—		—

Notes:

(1)

Mr. Smith was appointed Chairman in March 2016 and President and Chief Executive Officer in March 2017.

(2)

~~Notes:~~
~~(1)~~	The options are exercisable at a ~~price of $7.81 per common share and expire on January 1, 2016.~~

~~(2)~~	~~Michael Smith ceased acting as our Chief Financial Officer and Chairman in March 2014.~~

~~(3)~~	Mr. Kellogg was appointed Chairman in March 2014. Mr. Kellogg controls 13,405,000 of our common shares through IAT. In his public filings, Mr. Kellogg disclaims beneficial ownership of any shares owned by IAT. In addition, in his public filings, Mr. Kellogg disclaims beneficial ownership of 1,200,000 common shares of our company owned by his wife, Cynthia Kellogg.

~~(4)~~	~~Dr. Zhao ceased being a director in December 2013 and was re-appointed as a director in March 2014 to fill a vacancy.~~

~~(5)~~	~~Mr. Rigg passed away in March 2014. If not exercised, Mr. Rigg’s 55,000 options expire in April 2014.~~

~~(6)~~	~~Mr. Prakash ceased being a director in December 2013.~~

~~Stock Option Plan~~

We have an incentive stock option plan that provides for the grant of incentive stock options to purchase our common shares to our directors, officers and key employees and other persons providing ongoing services to us. Our stock option plan is administered by our board of directors. The maximum number of our common shares that may be reserved and set aside for issuance under our stock option plan is 5,524,000. Each option, upon its exercise, entitles the grantee to purchase one common share. The exercise price of ~~an option may not be less~~US$8.01 per common share and expire on April 2, 2019.

Less than the closing market price of our common shares on the NYSE, on the day prior to the date of grant of the option. In the event our common shares are not traded on such day, the exercise price may not be less than the average of the closing bid and ask prices of our common shares on the NYSE for the ten trading days immediately prior to the date the option is granted. Options may be granted under our stock option plan for an exercise period of up to ten years from the date of grant of the option. No options were granted during the year ended December 31, 2013. There were 1,720,000 options outstanding as at December 31, 2013. There were 12,344 options available for grant under the stock option plan as at December 31, 2013.

0.1%.

2014 Equity Incentive Plan

At our annual and special meeting of our shareholders held in ~~September 2008,~~November 2014, our shareholders passed a resolution approving ~~an equity incentive plan, referred to as the “Incentive Plan”,~~our 2014 Plan to further align the interests of employees and directors with those of our shareholders by providing incentive compensation opportunities tied to the performance of our common shares and promoting increased ownership of our common ~~stock~~shares by such individuals.

The 2014 Plan replaced our 1997 Stock Option Plan and our 2008 Incentive Plan and any plans emanating or deriving therefrom, collectively referred to as the “Prior Plans”; provided, however, that each applicable Prior Plan will continue to govern prior awards granted under such Prior Plan until all awards granted under such Prior Plan prior to November 14, 2014 have been exercised, forfeited, cancelled, expired or otherwise terminated in accordance with the terms thereof.

Pursuant to the terms of the ~~Incentive~~2014 Plan, our board of directors, our Compensation Committee or such other committee as is appointed by our board of directors to administer the ~~Incentive~~2014 Plan, may grant ~~Awards (as hereinafter defined)~~stock options, restricted stock rights, restricted stock, performance share awards, performance share units and stock appreciation rights under the ~~Incentive~~2014 Plan, establish the terms and conditions for those ~~Awards,~~awards, construe and interpret the ~~Incentive~~2014 Plan and establish the rules for the ~~Incentive~~2014 Plan’s administration. Such ~~committee may grant nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock~~ awards ~~stock unit awards, stock awards, performance stock awards and tax bonus awards, each referred to as an “Award”, under the Incentive Plan. Awards~~ may be granted to employees, non-employee directors, officers or consultants of ours or any affiliate or any person to whom an offer of employment with us or any affiliate is extended. Such committee has the authority to determine which employees, non-employee directors, officers, consultants and prospective employees should receive ~~Awards. Non-employee directors and consultants may not receive incentive stock options.~~

such awards.

The maximum number of our common shares that may be issuable pursuant to all ~~Awards~~awards granted under the ~~Incentive~~2014 Plan is ~~1,500,000~~2,877,018 common ~~shares.~~shares, being 2,000,000 plus the number of common shares available for awards under the Prior Plans as of the effective date of the 2014 Plan. Notwithstanding the foregoing, the maximum number of shares that may be issued as incentive stock options under the 2014 Plan is 2,000,000. Forfeited, cancelled, returned and lapsed ~~Awards~~awards are not counted against the ~~1,500,000~~2,000,000 common shares. Any ~~Awards,~~awards granted under the 2014 Plan, or portions thereof, that are settled in cash and not by issuance of our common shares are not counted against the ~~1,500,000 common shares. 915,000 Awards~~foregoing limits. No awards had been issued pursuant to the ~~Incentive~~2014 Plan as at December 31, ~~2013.~~2016. There were ~~585,000 Awards~~no awards available for grant under the ~~Incentive~~2014 Plan as at December 31, ~~2013.~~

2016.

As at December 31, 2016, no awards were outstanding under our 1997 Stock Option Plan and 200,000 stock options were outstanding under our 2008 Incentive Plan.

TABLE OF CONTENTS

ITEM 7: MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A. Major Shareholders

There were ~~62,552,126~~62,692,272 common shares issued and outstanding as of March ~~24, 2014.~~30, 2017. The following table sets forth, as of the date hereof, persons known to us to be the beneficial owner of more than five percent (5%) of our common shares:

Name

~~Name~~

Amount Owned

Percent of Class(1)⁽¹⁾

Peter Kellogg

20,662,400~~20,662,400~~⁽²⁾(2)

~~33.0%~~

~~____________________~~

33.0~~Notes:~~%

~~(1)~~ Lloyd I. Miller, III

~~Based on 62,552,126 common shares issued and outstanding on March 24, 2014.~~

~~(2)~~

Mr. Kellogg controls 13,405,000 of our common shares through IAT. In his public filings, Mr. Kellogg disclaims beneficial ownership of 13,405,000 of the shares, or approximately 21.4% of the issued and outstanding common shares. In addition, in his public filings, Mr. Kellogg disclaims beneficial ownership of 1,200,000 common shares of our company owned by his wife, Cynthia Kellogg.

8,016,640(3)

12.8%

Notes:

(1)

Based on 62,692,272 common shares issued and outstanding on March 30, 2017.

(2)

Mr. Kellogg controls 13,405,000 of our common shares through IAT. In his public filings, Mr. Kellogg disclaims beneficial ownership of all of the shares, or approximately 21.4% of the issued and outstanding common shares, owned by IAT. In addition, in his public filings, Mr. Kellogg disclaims beneficial ownership of 1,200,000 common shares of our company owned by his wife, Cynthia Kellogg.

(3)

Mr. Miller controls such shares through a number of trusts and wholly-owned corporations. In his public filings, Mr. Miller discloses that he exercises sole dispositive and voting control over 7,458,953 of such shares and shared dispositive and voting control over 557,687 of such shares.

As of March 30, 2017, there were 62,692,272 common shares issued and outstanding held by 371 registered shareholders. Of those common shares issued and outstanding, 62,665,564 common shares were registered in the United States (333 registered shareholders).

The voting rights of our major shareholders do not differ from the voting rights of holders of our shares who are not major shareholders.

Peter Kellogg may be considered to control our company as a result of, among other things, his ownership of approximately ~~33%~~33.0% of our common ~~shares and his position as a director on our board of directors.~~

As of March 24, 2014, there were 62,552,126 common shares issued and outstanding held by 404 registered shareholders. Of those common shares issued and outstanding, 62,472,513 common shares were registered in the United States (365 registered shareholders).

~~On February 7, 2014, we entered into a mutual settlement agreement with Peter Kellogg and IAT. Please refer to “~~~~Item 10:~~~~Additional Information – C. Material Contracts~~~~” for further information.~~

shares.

There are no arrangements known to us, the operation of which may at a subsequent date result in a change in the control of our company.

B. Related Party Transactions

Other than as disclosed herein, to the best of our knowledge, ~~since January 1, 2013,~~in the year ended December 31, 2016, there ~~have been~~were no material transactions or loans between our company and: (a) enterprises that directly or indirectly through one or more intermediaries control or are controlled by, or are under common control with, our company; (b) associates; (c) individuals owning, directly or indirectly, an interest in the voting power of our company that gives them significant influence over our company, and close members of any such individual’s family; (d) key management personnel of our company, including directors and senior management of our company and close members of such individuals’ families; ~~and I~~or (e) enterprises in which a substantial interest in the voting power is owned, directly or indirectly, by any person described in (c) or (d) or over which such a person is able to exercise significant influence.

In the normal course of operations, we enter into transactions with related parties, which include, among others, affiliates whereby we have a significant equity interest (10% or more) in the affiliates or have the ability to influence the affiliates’ or our operating and financing policies through significant shareholding, representation on the board of directors, corporate charter and/or bylaws. The affiliates also include certain of our directors, ~~our~~ President and Chief Executive Officer, Chief Financial Officer, Treasurer, Chief Operating Officer and their close family members. ~~These related party transactions are made in arm’s length transactions at normal market prices~~

In April 2014, we entered into a share purchase agreement, referred to as the “SPA”, with Gerardo Cortina, our former President and ~~on normal commercial terms. In addition to transactions disclosed elsewhere in our financial statements for the year ended December 31, 2013 and in this annual report on Form 20-F,~~Chief Executive Officer, whereby we ~~had the following transactions with affiliates during the year ended December 31, 2013:~~

	~~Year Ended~~
	~~December 31, 2013~~
	~~(United States dollars~~
	~~in thousands)~~
Dividend income on common shares*		~~277~~
Royalty expense paid and payable*		~~(604~~	)
~~Sales of goods~~		~~1,969~~

~~____________________~~

*	~~included in income from an interest in resource property~~

~~In addition to the above transactions, in February 2013, we sold our~~acquired from him his 40% minority interest in a ~~group (which held~~commodities trading subsidiary in Mexico. The purchase price under the ~~resource properties in India to a director~~SPA consisted of ~~two~~509,820 of our ~~sub-subsidiaries, resulting~~common shares (which would be delivered upon occurrence of an event (as defined in the agreement), the latest being in 2025) and a ~~non-cash accounting gain~~contingent purchase price whereby 50,000 of ~~$0.4 million on its disposition.~~our common shares would be issued to Mr. Cortina for each year from 2014 to 2025 if the commodities trading subsidiary achieved an annual net income milestone as computed under IFRS for the year. In June 2014, the share purchase agreement was amended whereby the 509,820 of our common shares were released to Mr. Cortina following the approval of the New York Stock Exchange, referred to as the “NYSE”, (which was received in June 2014) and the contingent purchase price was reduced to be payable for each year from 2014 to 2024. All other terms remained unchanged. Mr. Cortina was appointed to our board of directors and as our

TABLE OF CONTENTS

President and Chief Executive Officer in May 2014. The ~~director~~annual target was achieved for 2014. As a result, we issued 50,000 common shares to Mr. Cortina in the first half of 2015. The SPA was terminated and Mr. Cortina resigned ~~from the sub-subsidiaries~~as our President and Chief Executive Officer in March ~~2013.~~2017. In ~~addition, a~~the first quarter of 2017, we also completed the sale of the aforementioned commodities trading subsidiary ~~sold its office furniture and equipment~~ to a company ~~beneficially owned~~controlled by ~~our Chief Executive Officer~~Mr. Cortina. See “Item 4: Information on the Company – B. Business Overview – Recent Developments” for $14,000, resulting in a gain of $14,000. Included in other receivables was an overpayment of net director fees of $8,000, which was subsequently refunded by the director in 2014. As at December 31, 2013, we had $0.2 million of trade receivables due from affiliates in the normal course of business.

further information.

C. Interests of Experts and Counsel

Not applicable.

ITEM 8: FINANCIAL INFORMATION

A. Consolidated Statements and Other Financial Information

Effective January 1, 2010, we adopted IFRS following approval from the Canadian Securities Administrators under National Instrument 52-107 – Acceptable Accounting Principles and Auditing Standards ~~and Reporting Currency~~. The consolidated financial statements have been prepared in compliance with IFRS. See “Item 18: Financial Statements”.

Legal Proceedings

We are subject to routine litigation incidental to our business and are named from time to time as a defendant in various legal actions arising in connection with our activities, certain of which may include large claims for punitive damages. Further, due to the size, complexity and nature of our operations, various legal and tax matters are outstanding from time to time, including a currently ongoing audit by the Canadian taxation authority of our domestic and international transactions covering the years ended December 31, 2006 to ~~2010 taxation years.~~April 19, 2013 and a provincial reassessment received by a predecessor company in November 2016. Currently, based upon information available to us, we do not believe any such matters would have a material adverse effect upon our financial condition or results of operations. However, due to the inherent uncertainty of litigation, we cannot provide certainty as to their outcome. If our current assessments are materially incorrect or if we are unable to resolve any of these matters favorably, there may be a material adverse impact on our financial performance, cash flows or results of operations.

~~Dividend Distributions~~

~~On January 10, 2011, we announced that~~ Please see Note 14 to our ~~board of directors had adopted an annual dividend policy, providing for an annual dividend based on the annual dividend yield of the NYSE Composite Index~~audited consolidated financial statements for the ~~preceding~~ year ~~plus 25 basis points.~~

ended December 31, 2016 for further information.

Dividend Distributions

We did not declare or pay any dividends to our shareholders in 2016. The actual timing, payment and amount of dividends paid on our common shares is determined by our board of directors, based upon things such as our cash flow, results of operations and financial condition, the need for funds to finance ongoing operations and such other business ~~consideration~~considerations as our board of directors considers relevant.

~~Our board of directors declared the following annual cash dividends per common share, payable in four quarterly installments, for the three most recently completed financial years:~~

2011 2012 2013
Dividend declared $0.20 $0.22 $0.24

~~The following dividends per common share were paid during our three most recently completed financial years:~~

			~~Dividend paid~~
~~2011~~
~~January 31~~			~~$0.05~~
~~April 11~~			~~$0.05~~
~~July 11~~			~~$0.05~~
~~September 30~~			~~$0.05~~
~~2012~~
~~February 10~~			~~$0.05~~
~~April 10~~			~~$0.05~~
~~July 13~~			~~$0.06~~
~~October 26~~			~~$0.06~~
~~2013~~
~~February 8~~			~~$0.06~~
~~April 1~~			~~$0.06~~
~~July 30~~			~~$0.06~~
~~October 28~~			~~$0.06~~

On March 24, 2014, we announced that our board of directors had declared an annual cash dividend for 2014 of $0.24 per common share, payable in four quarterly instalments. The first 2014 dividend payment will be made on April 22, 2014 to shareholders of record on April 10, 2014.

B. Significant Changes

Please refer to “Item 4: Information on the Company – A. History and Development of the Company ~~– Recent Developments~~” and Note 4132 of our annual financial statements included herewith for a discussion of significant events that have occurred after December 31, ~~2013.~~

2016.

TABLE OF CONTENTS

ITEM 9: THE OFFER AND LISTING

A. Offer and Listing Details

Since June 18, 2007, our common shares have been quoted on the NYSE, currently under the symbol ~~“MIL”~~“MFCB”. The following table sets forth the high and low ~~sales of~~quoted prices of our common shares on the NYSE for the periods indicated.

Exchange
High ($) Low ($)
Annual Highs and Lows
2013 10.39 7.25
2012 8.80 6.65
2011 9.00 6.17
2010 16.10 6.60
2009 14.20 6.65

Quarterly Highs and Lows
2014
First Quarter 8.19 6.97
2013
Fourth Quarter 8.73 7.25
Third Quarter 9.05 7.94
Second Quarter 9.15 7.88
First Quarter 10.39 8.59
2012
Fourth Quarter 8.77 7.92
Third Quarter 8.80 6.66
Second Quarter 7.59 6.65
First Quarter 8.16 7.03

Monthly Highs and Lows
March 2014 8.19 6.97
February 2014 8.16 7.10
January 2014 8.08 7.51
December 2013 8.08 7.25
November 2013 8.33 7.50
October 2013 8.73 8.04

	High (US$)		Low (US$)
Annual Highs and Lows
2016		2.50		1.56
2015		7.11		1.50
2014		8.25		5.20
2013		10.39		7.25
2012		8.80		6.65
Quarterly Highs and Lows
2017
First Quarter		2.27		1.78
2016
Fourth Quarter		2.26		1.98
Third Quarter		2.43		1.66
Second Quarter		2.34		1.56
First Quarter		2.50		1.71
2015
Fourth Quarter		3.32		1.50
Third Quarter		4.15		2.79
Second Quarter		5.04		3.85
First Quarter		7.11		3.61
Monthly Highs and Lows
March 2017(1)		2.03		1.66
February 2017		2.24		1.96
January 2017		2.27		1.98
December 2016		2.26		1.85
November 2016		2.18		1.66

Note:

(1) Until March 30, 2017.

The transfer of our common shares is managed by our transfer agent, Computershare, 480 Washington Boulevard, Jersey City, NJ 07310 (Tel: 201-680-5258; Fax: 201-680-4604).

B. Plan of Distribution

Not applicable.

C. Markets

Our common shares are quoted on the NYSE under the symbol ~~“MIL”~~“MFCB”.

D. Selling Shareholders

Not applicable.

E. Dilution

Not applicable.

F. Expenses of the Issue

Not applicable.

TABLE OF CONTENTS

ITEM 10: ADDITIONAL INFORMATION

A. Share Capital

Not applicable.

B. Memorandum and Articles of Association

We are organized under the laws of the Province of British Columbia, Canada and have been assigned the number BC0778539.

Our Articles do not contain a description of our objects and purposes.

Our Articles do not restrict a director’s power to vote on a proposal, arrangement or contract in which the director is materially interested, vote on compensation to themselves or any other members of their body in the absence of an independent quorum or exercise borrowing powers. There is no mandatory retirement age for our directors and our directors are not required to own securities of our company in order to serve as directors.

Our authorized capital consists of an unlimited number of common shares without par value, an unlimited number of ~~class~~Class A common shares without par value and an unlimited number of Class A preferred shares without par value. Our Class A preferred shares may be issued in one or more series and our directors may fix the number of shares that is to comprise each series and designate the rights, privileges, restrictions and conditions attaching to each series.

Holders of our common shares may receive dividends when, as and if declared by the board, subject to the preferential dividend rights of any other classes or series of preferred shares issued and outstanding. In no event may a dividend be declared or paid on the common shares if payment of the dividend would cause the realizable value of the assets of our company to be less than the aggregate of its liabilities. Holders of our common shares are entitled to one vote per share at any meeting of shareholders of any class of common shares and, in general and subject to applicable law, all matters will be determined by a majority of votes cast other than fundamental changes with respect to our company. The common shareholders are entitled, in the event of a distribution of assets of our company on the liquidation, dissolution or winding-up of our company, referred to as a “Liquidation Distribution”, to receive, before any Liquidation Distribution is made to the holders of the ~~class~~Class A common shares or any other shares of our company ranking junior to the common shares, but after any prior rights of any of our preferred shares, the stated capital with respect to each common share held by them, together with all declared and unpaid dividends (if any and if preferential) thereon, up to the date of such Liquidation Distribution, and thereafter the common shares shall rankpari passu with all other classes of our common shares in connection with the Liquidation Distribution.

The rights and restrictions attaching to our ~~class~~Class A common shares are the same as those attaching to our common shares, except that, in the event of a Liquidation Distribution, the holders of the ~~class~~Class A common shares are entitled to receive such Liquidation Distribution only after any prior rights of the preferred shares and common shares or any other share ranking prior in right to the ~~class~~Class A common shares.

Our Class A preferred shares of each series rank on a parity with our Class A preferred shares of any other series and are entitled to a preference over our common shares with respect to the payment of dividends and the distribution of assets or return of capital in the event of liquidation, dissolution or winding-up of our company.

The provisions in our Articles attaching to our common shares and Class A preferred shares may be altered, amended, repealed, suspended or changed by the affirmative vote of the holders of not less than two-thirds of the common shares and two-thirds of the Class A preferred shares, respectively, present in person or by proxy at any such meeting of holders.

Our Articles provide for ~~three classes~~the election of directors ~~with staggered terms.~~at each annual general meeting. Each director holds office until the ~~expiry~~next annual general meeting of ~~his term~~our shareholders or until his successor is elected or appointed, unless his office is earlier vacated in accordance with our Articles or with the provisions of the ~~British Columbia~~Business Corporations Act (British Columbia). At each annual meeting of our company, a class of directors is elected to hold office for a three-year term. Successors to the class of directors whose terms expire are identified as being of the same class as the directors they succeed and are elected to hold office for a term expiring at the third succeeding annual meeting of shareholders. A director appointed or elected to fill a vacancy on the board of directors holds office for the unexpired term of his predecessor. In March 2014, our board of directors determined to declassify our board structure. Please refer to “~~Item 6: Directors, Senior Management and Employees – C. Board Practices~~~~” for further information.~~

An annual meeting of shareholders must be held at such time in each year that is not later than fifteen months after the last preceding annual meeting and at such place as our board of directors, or failing it, our Chairman, Managing Director or President, may from time to time determine. The holders of not less than five percent of our issued shares that carry the right to vote at a meeting may requisition our directors to

TABLE OF CONTENTS

call a meeting of shareholders for the purposes stated in the requisition. The quorum for the transaction of business at any meeting of shareholders is two persons who are entitled to vote at the meeting in person or by proxy. Only persons entitled to vote, our directors and auditors and others who, although not entitled to vote, are otherwise entitled or required to be present, are entitled to be present at a meeting of shareholders.

Except as provided in theInvestment Canada Act, there are no limitations specific to the rights of non-Canadians to hold or vote our common shares under the laws of Canada or British Columbia, or in our charter documents. See ~~the section of this annual report on Form 20-F entitled~~ “D. Exchange Controls” below for a discussion of the principal features of theInvestment Canada Actfor non-Canadian residents proposing to acquire our common shares.

As set forth above, our Articles contain certain provisions that would have an effect of delaying, deferring or preventing a change in control of our company, including authorizing the issuance by our board of directors of preferred stock in series, ~~providing for a classified board of directors with staggered, three-year terms~~ and limiting the persons who may call special meetings of shareholders. Our Articles do not contain any provisions that would operate only with respect to a merger, acquisition or corporate restructuring of our company. In addition, on November 18, 2013, we adopted an advance notice policy, which, among other things, fixes a deadline by which director nominations must be submitted to us prior to our meetings of shareholders and sets forth the information that must be included in such notice in order for such nominee to be eligible for election. In the case of an annual meeting, notice must be given to us not less than 30 nor more than 65 days prior to the date of such meeting; provided that if the meeting is to be held on a date that is less than 50 days after the date on which the first public announcement of the date of such meeting was made, notice may be given no later than the close of business on the 10th day following such announcement. In the case of a special meeting called for the purpose of electing directors that is not also an annual meeting, notice must be provided to us no later than the close of business on the 15th day following the day on which the first public announcement of the date of such special meeting was made.

Our Articles do not contain any provisions governing the ownership threshold above which shareholder ownership must be disclosed.

Our Articles are not significantly different from the requirements of theBusiness Corporations Act(British Columbia) and the conditions imposed by our Articles governing changes in capital are not more stringent than what is required by theBusiness Corporations Act(British Columbia).

C. Material Contracts

~~The following summary of certain~~

There have been no material ~~provisions~~contracts outside of the ~~agreement referenced below is not complete and these provisions are qualified in their entirety by reference to the full text~~ordinary course of ~~such agreement.~~

~~In July 2012, we entered into the Support Agreement with MFC Energy, pursuant~~business to which we ~~made~~were a party in the offer to acquire all of its outstanding common shares, referred to as the “Offer”, for all of its issued and outstanding shares. Pursuant to the Offer, on September 6, 2012, our indirect wholly-owned subsidiary acquired approximately 93.8% of the outstanding shares. On September 11, 2012, we completed a compulsory acquisition under the Alberta~~Business Corporations Act~~, whereby our indirect wholly-owned subsidiary acquired all the remaining outstanding shares not already owned by us or our affiliates. For further information, please see the section of this annual report on Form 20-F entitled “~~Item 4:~~~~Information on the Company – A. History and Development of the Company~~”.

On February 7, 2014, we entered into an agreement with Peter Kellogg and IAT in connection with the settlement of litigation between the parties. Pursuant to such agreement, among other things, each party agreed to provide the other with a mutual release and Mr. Kellogg and IAT agreed to abide by certain customary standstill provisions for a 30-month period, subject to earlier termination in accordance with its terms.

On November 11, 2013, we entered into a Shareholder Rights Plan Agreement, referred to as the “Rights Plan”, with Computershare Inc., as Rights Agent. The Rights Plan was terminated in March 2014 by our board of directors in accordance with its terms. Please refer to “~~Item 14: Material Modifications to Rights of Security Holders and Use of Proceeds~~~~” for further information.~~

last two years.

D. Exchange Controls

There are presently no governmental laws, decrees or regulations in Canada that restrict the export or import of capital or that impose foreign exchange controls or affect the remittance of interest, dividends or other payments to non-resident holders of our common shares. However, any remittances of dividends to shareholders not resident in Canada are subject to withholding tax in Canada. See “~~Item 10: Additional Information –~~ E. Taxation”.

Except as provided in theInvestment Canada Act, there are no limitations specific to the rights of non-Canadians to hold or vote our common shares under the laws of Canada or British Columbia or in our charter documents. The following summarizes the principal features of theInvestment Canada Actfor non-Canadian residents proposing to acquire our common shares.

This summary is of a general nature only and is not intended to be, and should not be construed to be, legal advice to any holder or prospective holder of our common shares and no opinion or representation to any holder or prospective holder of our common shares is hereby made. Accordingly, holders and prospective holders of our common shares should consult with their own legal advisors with respect to the consequences of purchasing and owning our common shares.

TheInvestment Canada Actgoverns the direct or indirect acquisition of control of an existing Canadian business by non-Canadians. Under theInvestment Canada Act, non-Canadian persons or entities acquiring “control” (as defined in theInvestment Canada Act) of a corporation carrying on business in Canada are required to either notify, or file an application for review with, Industry Canada, unless a specific exemption, as set out in theInvestment Canada Act, applies. Industry Canada may review any transaction that results in the direct or indirect acquisition of control of a Canadian business, where the ~~gross~~enterprise value of corporate assets exceeds certain threshold levels (which are higher for investors from members of the World Trade Organization, including United States residents, or World Trade Organization

TABLE OF CONTENTS

member-controlled companies) or where the activity of the business is related to Canada’s cultural heritage or national identity. For such purpose, enterprise value is calculated as follows: (i) in the case of a publicly traded Canadian business, as the company’s market capitalization, plus its non-operating liabilities, minus its cash and cash equivalents; (ii) in the case of a non-publicly traded Canadian business, as the acquisition value, plus the company’s non-operating liabilities, minus its cash and cash equivalents; and (iii) in the case of an asset acquisition, as the purchase price, plus the assumed non-operating liabilities, minus the transferred cash and cash equivalents.

No acquisition of control will be deemed to have occurred, for purposes of theInvestment Canada Act but subject to certain exceptions, if less than one-third of the voting shares of a Canadian corporation is acquired by an investor. In addition, theInvestment Canada Actpermits the Canadian government to review any investment where the responsible Minister has reasonable grounds to believe that an investment by a non-Canadian could be injurious to national security or where the responsible Minister determines there has been an acquisition of control in fact by a state-owned enterprise. No financial threshold applies to a national security review and a lower financial ~~thresholds apply~~threshold based on book value of assets applies to direct acquisitions by state-owned enterprises. The Minister may deny the investment, ask for undertakings, provide terms or conditions for the investment or, where the investment has already been made, require divestment. Review can occur before or after closing and may apply to corporate re-organizations where there is no change in ultimate control.

If an investment is reviewable under theInvestment Canada Act, an application for review in the form prescribed is normally required to be filed with Industry Canada prior to the investment taking place and the investment may not be implemented until the review has been completed and the Minister responsible for theInvestment Canada Act ~~Act~~is satisfied that the investment is likely to be of net benefit to Canada. If the Minister is not satisfied that the investment is likely to be of net benefit to Canada, the non-Canadian applicant must not implement the investment or, if the investment has been implemented, the applicant may be required to divest itself of control of the Canadian business that is the subject of the investment. The Minister is required to provide reasons for a decision that an investment is not of net benefit to Canada.

Certain transactions relating to our common shares will generally be exempt from theInvestment Canada Act, subject to the Minister’s prerogative to conduct a national security review, including:

(a)

the acquisition of our common shares by a person in the ordinary course of that person’s business as a trader or dealer in securities;

(b)

the acquisition of control of our company in connection with the realization of security granted for a loan or other financial assistance and not for a purpose related to the provisions of the Investment Canada Act

	~~(a)~~	, provided such acquisitions are subject to approval under the ~~acquisition of our common shares by a person in the ordinary course of that person’s business as a trader or dealer in securities;~~

	~~(b)~~	~~the acquisition of control of our company in connection with the realization of security granted for a loan or other financial assistance and not for a purpose related to the provisions of the~~~~Investment Canada Act~~~~; and~~

	~~(c)~~	the acquisition of control of our company by reason of an amalgamation, merger, consolidation or corporate reorganization, following which the ultimate direct or indirect control in fact of our company, through ownership of our common shares, remains unchanged.

Bank Act, the Cooperative Credit Associations Act, the Insurance Companies Act or the Trust and Loan Companies Act; and

(c)

the acquisition of control of our company by reason of an amalgamation, merger, consolidation or corporate reorganization, following which the ultimate direct or indirect control in fact of our company, through ownership of our common shares, remains unchanged.

An acquisition of control of our company in connection with the realization of security granted for a loan or other financial assistance and not for a purpose related to the provisions of the Investment Canada Act will not be reviewable under the Investment Canada Act if the acquisition is not subject to approval under the Bank Act, the Cooperative Credit Associations Act, the Insurance Companies Act or the Trust and Loan Companies Act.

E. Taxation

Material Canadian Federal Income Tax Consequences

~~We consider that the following~~

The discussion under this heading is a general summary ~~fairly describes~~of the principal Canadian ~~Federal~~federal income tax consequences ~~applicable~~pursuant to ~~a beneficial holder~~the Income Tax Act (Canada), referred to as the “Tax Act”, of holding and disposing of our common shares for a shareholder of our Company who, ~~is a resident of the United States~~at all relevant times and for purposes of the~~Income~~ Tax Act ~~(Canada) and~~ holds such common shares as capital property, deals at arm’s length with the ~~Canada-United States Tax Convention (1980)~~~~, as amended, referred to as the “Treaty”, who~~Company, is not ~~will~~affiliated with the Company and, for purposes of the Tax Act, is not, be and ~~will~~is not be deemed to be, a resident of Canada ~~for purposes of the~~~~Income Tax Act~~~~(Canada)~~ and ~~the Treaty~~has not and ~~who does~~will not use or hold ~~and is not~~or be deemed to use or hold ~~his~~the common

TABLE OF CONTENTS

shares in or in the ~~capital~~course of ~~our company in connection with~~ carrying on a business in Canada, referred to as a ~~“non-resident holder”~~“Non-Resident Holder”. Special rules, which are not discussed below, may apply to an authorized foreign bank, or a non-resident of Canada that is an insurer which carries on business in Canada and elsewhere. Such Non-Resident Holders should consult their own tax advisors.

Our common shares will generally be considered capital property to a Non-Resident Holder unless either (i) the Non-Resident Holder holds the common shares in the course of carrying on a business of buying and selling securities or (ii) the Non-Resident Holder has acquired the common shares in a transaction or transactions considered to be an adventure in the nature of trade.

The term “U.S. Shareholder,” for the purposes of this section, means a Non-Resident Holder who, for purposes of the Canada-United States Tax Convention

(1980) as amended, referred to as the “Convention”, is at all relevant times a resident of the United States and is a “qualifying person”, within the meaning of the Convention, entitled to all benefits of the Convention. In some circumstances, income or gains earned by fiscally transparent entities (including limited liability companies) will be eligible for benefits under the Convention. U.S. Shareholders are urged to consult with their own tax advisors to determine their entitlement to benefits under the Convention based on their particular circumstances.

This summary is based upon the current provisions of the~~Income~~ Tax Act, and the regulations thereunder, referred to as the “Regulations”, in force as of the date hereof, the current publicly announced administrative and assessing policies of the Canada Revenue Agency, referred to as the “CRA”, and the ~~Treaty.~~Convention. This summary also takes into account the amendments to the~~Income~~ Tax Actand the Regulations publicly announced by the Minister of Finance (Canada) prior to the date hereof, referred to as the “Tax Proposals”, and assumes that all such Tax Proposals will be enacted in their present form. However, no assurances can be given that the Tax Proposals will be enacted in the form proposed, or at all. This summary is not exhaustive of all possible Canadian Federal income tax consequences applicable to a holder of our common shares and, except for the foregoing, this summary does not take into account or anticipate any changes in law, whether by legislative, administrative or judicial decision or action, nor does it take into account provincial, territorial or foreign income tax legislation or considerations, which may differ from the Canadian Federal income tax consequences described herein.

This summary is of a general nature only, is not exhaustive of all possible Canadian federal income tax considerations and is not intended to be, and should not be construed to be, legal, business or tax advice to any particular holder or prospective holder of our common shares and no opinion or representation with respect to the tax consequences to any holder or prospective holder of our common shares is hereby made. Accordingly, holders and prospective holders of our common shares should consult their own tax advisors with respect to the income tax consequences of purchasing, owning and disposing of our common shares in their particular circumstances.

~~Dividends~~

~~Dividends paid~~

Currency Conversion

Subject to certain exceptions that are not discussed in this summary, all amounts relevant to computing a Non-Resident Holder’s liability for tax (including dividends, adjusted cost base, and proceeds of disposition) under the Tax Act must, for the purposes of the Tax Act, be determined in Canadian dollars based on ~~our~~the rate quoted by the Bank of Canada for the applicable day or such other rate that is acceptable to the CRA. The amount of any dividend required to be included in a Non-Resident Holder’s income, or any capital gain or capital loss realized by a Non-Resident Holder, may be affected by fluctuations in the Canadian dollar against other currencies.

Dividends

Under the Tax Act, dividends on common shares paid or credited to a ~~non-resident holder~~Non-Resident Holder will be subject ~~under the~~~~Income Tax Act~~to Canadian withholding tax ~~which tax is deducted~~ at ~~source by our company. The~~the rate of 25% of the gross amount of the dividends. This withholding tax ~~rate for dividends prescribed by the~~~~Income Tax Act~~~~is 25% but this rate~~ may be reduced ~~under~~pursuant to the ~~provisions~~terms of an applicable income tax ~~treaty.~~treaty or convention between Canada and the country of residence of a Non-Resident Holder. Under the ~~Treaty, the~~Convention, a U.S. Shareholder will generally be subject to Canadian withholding tax at a rate ~~is reduced to~~of 15% ~~on dividends paid by our company to a resident~~ of the ~~United States who is the beneficial owner~~amount of ~~the dividend, is entitled to all of the benefits of the~~

~~Treaty and who holds less than 10% of the voting shares of our Company.~~such dividends. The ~~25%~~ rate may be further reduced to 5% where the ~~beneficial owner of the dividends~~U.S. Shareholder is a corporation ~~resident~~that owns (or is considered to own) at least 10% of our voting shares. In addition, under the Convention, dividends may be exempt from Canadian non-resident withholding tax if paid to certain U.S. Shareholders that are qualifying religious, scientific, literary, educational or charitable tax-exempt organizations and qualifying trusts, companies, organizations or arrangements operated exclusively to administer or provide pension, retirement or employee benefits that are exempt from tax in the United States ~~who is the beneficial owner of the dividend, is entitled to all of the benefits of the Treaty~~ and ~~owns at least 10% of the voting shares of our company.~~

that have complied with specific administrative procedures.

TABLE OF CONTENTS

Capital Gains

A ~~non-resident holder~~Non-Resident Holder will not be subject to tax under the~~Income~~ Tax Acton any capital gain realized on a disposition of our common shares unless the common shares constitute “taxable Canadian property”, as defined in the~~Income~~ Tax Act,, of the holder at the time of the disposition and such gain is not otherwise exempt from tax under the~~Income~~ Tax Actpursuant to the provisions of an applicable income tax convention.

Generally, a common share of our company will not be taxable Canadian property to a ~~non-resident holder~~Non-Resident Holder at a particular time provided that such share is listed on a “designated stock exchange” (which currently includes the NYSE), as defined in the ~~Income~~ Tax Act, unless at any time during the 60-month period immediately preceding the disposition (i) the ~~non-resident holder,~~Non-Resident Holder, persons with whom the ~~non-resident holder~~Non-Resident Holder did not deal at arm’s length, partnerships in which the Non-Resident Holder or such persons hold a membership interest (directly or indirectly through one or more partnerships) or the ~~non-resident holder~~Non-Resident Holder together with all such persons or partnerships owned 25% or more of the issued shares of any class or series of shares of our capital stock and (ii) more than 50% of the fair market value of the particular share was derived directly or indirectly from one or any combination of real or immovable property situated in Canada, “Canadian resource property”, as defined in the ~~Income~~ Tax Act, “timber resource property”, as defined in the ~~Income~~ Tax Act, and options in respect of, or interests in, or for civil law rights in, any such properties (whether or not such property exists). Notwithstanding the foregoing, in certain circumstances set out in the ~~Income~~ Tax Act, our common shares could be deemed to be taxable Canadian property to a non-resident holder.

Non-Resident Holders, whose shares may constitute taxable Canadian property, should consult their own tax advisors for advice having regard to their particular circumstances.

Even if a common share is taxable Canadian property to a Non-Resident Holder, a taxable capital gain or an allowable capital loss resulting from the disposition of the share will not be included in computing the Non-Resident Holder’s taxable income for purposes of the Tax Act, provided that the share constitutes “treaty-protected property” of such shareholder. Common shares owned by a U.S. Shareholder generally will be treaty-protected property if the gain from the disposition of such share would, because of the Convention, be exempt from tax under the Tax Act. Non-Resident Holders whose shares may constitute taxable Canadian property or treaty-protected property should consult their own tax advisors for advice having regard to their particular circumstances.

If a Non-Resident Holder realizes a capital gain or capital loss from a disposition of a common share of our capital stock which constitutes taxable Canadian property and not treaty-protected property for purposes of the Tax Act, then the capital gain or capital loss is the amount, if any, by which the Non-Resident Holder’s proceeds of disposition exceed (or are exceeded by, respectively) the aggregate of the Non-Resident Holder’s adjusted cost base of the share and reasonable expenses of disposition as determined under the Tax Act. The capital gain or loss must be computed in Canadian currency using a weighted average adjusted cost base for identical properties. Generally, one-half of a capital gain (“taxable capital gain”) is included in income for Canadian tax purposes in the year of the disposition, and one-half of a capital loss (“an allowable capital loss”) must be deducted from taxable capital gains realized by the Non-Resident Holder in that year. Allowable capital losses in excess of taxable capital gains for that year may generally be carried back three years or forward indefinitely and deducted against net taxable capital gains in those years, in the manner permitted under the Tax Act. Reporting and filing requirements will also arise. Such a Non-Resident Holder should consult its own tax advisors.

Material United States Federal Income Tax Consequences

The following is a discussion of certain United States Federal income tax matters under current law, generally applicable to a U.S. Holder (as defined below) of our common shares who holds such shares as capital assets. This discussion does not address all aspects of United States Federal income tax matters and does not address consequences particular to persons subject to certain special provisions of United States Federal income tax law such as those described below. In addition, this discussion does not cover any state, local or foreign tax consequences. See “Material Canadian Federal Income Tax Consequences” above.

The following discussion is based upon theInternal Revenue Code of 1986, as amended, referred to as the “Code”, Treasury Regulations, published by the Internal Revenue Service, referred to as the “IRS”, rulings, published administrative positions of the IRS and court decisions that are currently applicable, any or all of which could be materially and adversely changed, possibly on a retroactive basis, at any time. In addition, this discussion does not consider the potential effects, both adverse and beneficial, of any recently proposed legislation that, if enacted, could be applied, possibly on a retroactive basis, at any time. No assurance can be given that the IRS will agree with the statements and conclusions herein, or will not take, or that a court will not adopt, a position contrary to any position taken herein.

TABLE OF CONTENTS

The following discussion is for general information only and is not intended to be, nor should it be construed to be, legal, business or tax advice to any holder or prospective holder of our common shares and no opinion or representation with respect to the United States Federal income tax consequences to any such holder or prospective holder is hereby made. Accordingly, holders and prospective holders of common shares are urged to consult their own tax advisors with respect to United States Federal, state, local and foreign tax consequences of purchasing, owning and disposing of our common shares.

U.S. Holders

As used ~~herein,~~in this section, a “U.S. Holder” includes: (i) a holder of our common shares who is a citizen or resident of the United States; (ii) a corporation created or organized in or under the laws of the United States or of any political subdivision thereof, or any entity which is taxable as a United States corporation for United States tax purposes; (iii) an estate, the income of which is subject to United States Federal income tax without regard to its source; or (iv) a trust if (1) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (2) the trust has a valid election in effect under applicable Treasury regulations to be treated as a U.S. person.

This summary does not purport to address all material United States Federal income tax consequences that may be relevant to a U.S. Holder and does not take into account the specific circumstances of any particular investors, some of which (such as tax-exempt entities, banks or other financial institutions, insurance companies, broker-dealers, traders in securities that elect to use a mark-to-market method of accounting for their securities holdings, regulated investment companies, real estate investment trusts, U.S. expatriates, investors liable for the alternative minimum tax, partnerships and other pass-through entities, investors that own or are treated as owning 10% or more of our common shares, investors that hold the common shares as part of a straddle, hedge, conversion or constructive sale transaction or other integrated transaction, and U.S. holders whose functional currency is not the ~~U.S.~~United States dollar) may be subject to special tax rules. This summary does not address shareholders who acquired their shares through the exercise of employee stock options or otherwise as compensation.

Distributions

The gross amount of a distribution paid to a U.S. Holder (including amounts withheld in respect of Canadian taxes) in respect of the common shares will be subject to United States Federal income taxation as ordinary income to the extent paid out of our current or accumulated earnings and profits, as determined under United States Federal income tax principles. Such dividends will not be eligible for the dividends received deduction allowed to corporations. Distributions that are taxable dividends and that meet certain requirements will be “qualified dividend income” and will generally be taxed to U.S. Holders who are individuals at a maximum United States Federal income tax rate of 20% (subject to the “Passive Foreign Investment ~~Company”~~Corporation” rules discussed below). Distributions in excess of our current and accumulated earnings and profits will be treated first as a tax-free return of capital to the extent the U.S. Holder’s tax basis in the common shares and, to the extent in excess of such tax basis, will be treated as a gain from a sale or exchange of such shares.

Capital Gains

In general, upon a sale, exchange or other disposition of common shares, a U.S. Holder will generally recognize a capital gain or loss for United States Federal income tax purposes in an amount equal to the difference between the amount realized on the sale or other distribution and the U.S. Holder’s adjusted tax basis in such shares. Such gain or loss will be a United States source gain or loss and will be treated as a long-term capital gain or loss if the U.S. Holder’s holding period of the shares exceeds one year. If the U.S. Holder is an individual, any capital gain will generally be subject to United States Federal income tax at preferential rates if specified minimum holding periods are met. The deductibility of capital losses is subject to significant limitations.

Foreign Tax Credit

Dividends paid by us generally will constitute income from non-U.S. sources and will be subject to various classification rules and other limitations for U.S. foreign tax credit purposes. Subject to generally applicable limitations under United States Federal income tax law, Canadian withholding tax imposed on such dividends, if any, will be treated as a foreign income tax eligible for credit against a U.S. holder’s United States Federal income tax liability (or at a U.S. holder’s election if it does not elect to claim a foreign tax

TABLE OF CONTENTS

credit for any foreign taxes paid during the taxable year, all foreign income taxes paid may instead be deducted in computing such U.S. holder’s taxable income). Generally, it will be more advantageous to claim a credit because a credit reduces United States Federal income taxes on a dollar-for-dollar basis, while a deduction merely reduces the taxpayer’s income subject to tax. There are significant and complex limitations which apply to the tax credit, among which are an ownership period requirement and the general limitation that the credit cannot exceed the proportionate share of the U.S. Holder’s United States Federal income tax liability that the U.S. Holder’s foreign source income bears to his or its worldwide taxable income. In determining the application of this limitation, the various items of income and deduction must be classified into foreign and United States sources. Complex rules govern this classification process. In general, special rules will apply to the calculation of foreign tax credits in respect of dividend income that is subject to preferential rates of United States Federal income tax. The availability of the foreign tax credit and the application of these complex limitations on the tax credit are fact specific and holders and prospective holders of our common shares should consult their own tax advisors regarding their individual circumstances.

Passive Foreign Investment Corporation

We do not believe that we are currently a passive foreign investment corporation, referred to as a “PFIC”. However, since PFIC status depends upon the composition of a corporation’s income and assets and the market value of its assets and shares from time to time, there is no assurance that we will not be considered a PFIC for any taxable year. If we were treated as a PFIC for any taxable year during which a U.S. Holder held shares, certain adverse United States Federal income tax consequences could apply to the U.S. Holder.

If we are treated as a PFIC for any taxable year, gains recognized by a U.S. Holder on a sale or other disposition of shares would be allocated rateably over the U.S. Holder’s holding period for the shares. The amount allocated to the taxable year of the sale or other exchange and to any year before we became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest rate in effect for individuals or corporations, as applicable, and an interest charge would be imposed on the amount allocated to such taxable year. Further, any distribution in respect of shares in excess of 125% of the average of the annual distributions on shares received by the U.S. Holder during the preceding three years or the U.S. Holder’s holding period, whichever is shorter, would be subject to United States federal income taxation as described above. Certain elections might be available to U.S. Holders that may mitigate some of the adverse consequences resulting from PFIC status. However, regardless of whether such elections are made, dividends paid by a PFIC will not be “qualified dividend income” and will generally be taxed at the higher rates applicable to other items of ordinary income.

U.S. Holders and prospective holders should consult their own tax advisors regarding the potential application of the PFIC rules to their ownership of our common shares.

Medicare Tax

A U.S. Holder that is an individual or estate, or a trust that does not fall into a special class of trusts that is exempt from such tax, will be subject to a 3.8% tax on the lesser of (1) the U.S. Holder’s “net investment income” (or undistributed “net investment income” in the case of estates and trusts) for the relevant taxable year and (2) the excess of the U.S. Holder’s modified adjusted gross income for the taxable year over a certain threshold (which in the case of individuals will be between ~~$125,000~~US$125,000 and ~~$250,000,~~US$250,000, depending on the individual’s circumstances). A holder’s net investment income will generally include its interest income and its net gains from the disposition of securities, unless such interest income or net gains are derived in the ordinary course of the conduct of a trade or business (other than a trade or business that consists of certain passive or trading activities). If you are a U.S. Holder that is an individual, estate or trust, you are urged to consult your own tax advisor regarding the applicability of this Medicare tax.

Information Reporting and Backup Withholding

Under United States Federal income tax law and the Treasury Regulations, certain categories of U.S. Holders must file information returns with respect to their investment in, or involvement in, a foreign corporation. For example, certain United States Federal income tax return disclosure obligations (and related penalties) are generally imposed on U.S. Holders that hold certain specified foreign financial assets in excess of ~~$50,000.~~US$50,000. The definition of specified foreign financial assets includes not only financial accounts maintained in foreign financial institutions, but also, unless held in accounts maintained by a financial institution, any stock or security issued by a non-U.S. person, any financial instrument or contract held for investment that has an issuer or counterparty other than a U.S. person and any interest in a foreign

TABLE OF CONTENTS

entity. U.S. Holders may be subject to these reporting requirements unless their common shares are held in an account at a domestic financial institution. Penalties for failure to file certain of these information returns are substantial. U.S. Holders should consult with their own tax advisers regarding the requirements of filing information returns and, if applicable, filing obligations relating to the PFIC rules.

Dividends paid on, and proceeds from the sale or other taxable disposition of, our common shares to a U.S. Holder generally may be subject to United States Federal information reporting requirements and may be subject to backup withholding (currently at the rate of 28%) unless the U.S. Holder provides an accurate taxpayer identification number or otherwise demonstrates that it is exempt. The amount of any backup withholding collected from a payment to a U.S. Holder will generally be allowed as a credit against the U.S. Holder’s United States Federal income tax liability and may entitle the U.S. Holder to a refund, provided that certain required information is timely submitted to the IRS. A non-U.S. holder generally will be exempt from these information reporting requirements and backup withholding tax but may be required to comply with certain certification and identification procedures in order to establish its eligibility for exemption.

F. Dividends and Paying Agents

Not applicable.

G. Statement by Experts

Not applicable.

H. Documents on Display

Documents and agreements concerning our company may be inspected at the offices of Sangra Moller LLP, 1000 Cathedral Place, 925 West Georgia Street, Vancouver, British Columbia, Canada.

I. Subsidiary Information

For a list of our significant wholly-owned direct and indirect subsidiaries and significant non-wholly-owned subsidiaries, see “Item 4: Information on the Company —– C. Organizational Structure”.

ITEM 11: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to various market risks from changes in interest rates, foreign currency exchange rates and equity prices that may affect our results of operations and financial condition and, consequently, our fair value. Generally, our management believes that our current financial assets and financial liabilities, due to their short-term nature, do not pose significant financial risks. We use various financial instruments to manage our exposure to various financial risks. The policies for controlling the risks associated with financial instruments include, but are not limited to, standardized company procedures and policies on matters such as hedging of risk exposures, avoidance of undue concentration of risk and requirements for collateral (including letters of credit) to mitigate credit risk. We have risk managers to perform audits and checking functions to ensure that company procedures and policies are complied with.

We use derivative instruments to manage certain exposures to commodity price and currency exchange rate risks. The use of derivative instruments depends on our management’s perception of future economic events and developments. These types of ~~derivative instruments~~derivatives are ~~generally highly speculative in nature. They are also~~often very volatile, as they are highly leveraged, given that margin requirements are relatively low in proportion to their notional amounts.

Many of our strategies, including the use of derivative instruments and the types of derivative instruments selected by us, are based on historical trading patterns and correlations and our management’s expectations of future events. However, these strategies may not be fully effective in all market environments or against all types of risks. Unexpected market developments may affect our risk management strategies during this time, and unanticipated developments could impact our risk management strategies in the future. If any of the variety of instruments and strategies we utilize isare not effective, we may incur losses.

Please refer to Note 3629 of our annual consolidated financial statements for the years ended December 31, ~~2013, 2012~~2016, 2015 and ~~2011~~2014 for a qualitative and quantitative discussion of our exposure to market risks and the sensitivity analysis of interest rate, currency and other price risks at December 31, ~~2013.~~

2016.

ITEM 12: DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

TABLE OF CONTENTS 

PART II

ITEM 13: DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

ITEM 14:

MATERIAL MODIFICATIONS TO RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

A. Modifications to Rights of Security Holders

~~Shareholder Rights Plan~~

On November 11, 2013, we entered into the Rights Plan, pursuant to which our board of directors authorized the issuance of one common share purchase right for each common share to the shareholders of record at the close of business on November 22, 2013. The rights automatically attached to our common shares, including shares issued in the future.

Subject to the terms of the Rights Plan and to certain exceptions provided therein, the rights would become exercisable in the event that any person, together, with any of its affiliates, associates or joint actors, acquires or announced its intention to acquire 20% or more of our common shares without complying with the permitted bid provisions of the Rights Plan and where application of the Rights Plan was not waived by our board of directors in accordance with its terms. The permitted bid provisions prevented the dilutive effects of the Rights Plan from operating if a take-over bid was made to all holders of our common shares (other than the bidder) by way of a take-over bid circular that remained open for acceptance for a minimum of 60 days and that satisfied certain other conditions. If a take-over bid did not comply with the requirements of the Rights Plan or where the application of the Rights Plan was not waived in accordance with its terms, the rights holders (other than the acquiring person and its affiliates, associates and joint actors) would have been entitled to purchase additional common shares of our company at a discount to the market price. The acquiring persons would not have been entitled to exercise their rights under the Rights Plan. If a shareholder’s beneficial ownership of our common shares as of November 11, 2013 was at or above the 20% threshold, that shareholder’s existing ownership would have been grandfathered under the Rights Plan, but the rights issued would have become exercisable if such grandfathered person increased its ownership by more than 0.01%, including any acquisition of more than 0.01% of our common shares made after any disposition of common shares. Certain derivative positions were also included in the calculation of beneficial ownership under the Rights Plan.

~~The Rights Plan was terminated by the board of directors in March 2014 in accordance with its terms.~~

Advance Notice Policy

At our Annual General and Special Meeting held on December 27, 2013, our shareholders approved a resolution affirming, ratifying and approving our company’s advance notice policy, referred to as the “Advance Notice Policy”. The Advance Notice Policy, among other things, fixes a deadline by which director nominations must be submitted to us prior to any meeting of our shareholders and sets forth the information that must be included in the notice in order for a nominee to be eligible for election. No person will be eligible for election as a director of our company unless nominated in accordance with the Advance Notice Policy.

In the case of an annual meeting, notice to us must be given no less than 30 and no more than 65 days prior to the date of such ~~meeting;~~meeting, provided that if the meeting is to be held on a date that is less than 50 days after the date on which the first public announcement of the date of such meeting was made, notice may be given no later than the close of business on the 10th day following such announcement.

In the case of a special meeting called for the purpose of electing directors that is not also an annual meeting, notice to us must be made no later than the close of business on the 15th day following the day on which the first public announcement of the date of such special meeting was made.

The foregoing summary of the Advance Notice Policy is not complete and is qualified in its entirety by reference to the full text of the Advance Notice Policy, a copy of which iswas filed as Exhibit 1.4 of ~~this Annual Report~~our annual report on Form ~~20-F.~~

20-F filed with the Securities and Exchange Commission, referred to as the “SEC”, on March 31, 2014.

ITEM 15: CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our company’s reports filed or submitted under theSecurities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our company’s reports filed under theSecurities Exchange Act of 1934 is accumulated and communicated to management, including our company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As required by Rule 13a-15 under theSecurities Exchange Act of 1934, we have carried out an evaluation of the effectiveness of the design and operation of our company’s disclosure controls and procedures as of the end of the period covered by this annual report on Form 20-F, being December 31, ~~2013.~~2016. This evaluation was carried out by our Chief Executive Officer (being our principal executive officer) and Chief Financial Officer (being our principal financial officer). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our ~~company’s~~ disclosure controls and procedures are effective.

TABLE OF CONTENTS

Report of Management on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) or 13d-15(f) under theSecurities Exchange Act of 1934, as amended. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with IFRS. Our internal control over financial reporting includes those policies and procedures that:

	1.		~~pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets and our consolidated entities;~~

	2.		provide reasonable assurance that transactions are recorded as necessary to permit preparation of the consolidated financial statements in accordance with IFRS and that receipts and expenditures of our company are being made only in accordance with authorizations of management and our directors; and

	3.		provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements.

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets and our consolidated entities;

provide reasonable assurance that transactions are recorded as necessary to permit preparation of the consolidated financial statements in accordance with IFRS and that receipts and expenditures of our company are being made only in accordance with authorizations of management and our directors; and

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements.

Management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, ~~2013.~~2016. In conducting this evaluation, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) inInternal Control — Integrated Framework ~~(1992)~~(2013).

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected

Based on ~~a timely basis. Management has identified the following material weaknesses in our internal control over financial reporting:~~

In 2012, we acquired MFC Energy, MFCR and Possehl. These entities have significant operations and had accounting systems that differ from ours. As a result, as at December 31, 2013, we determined that we did not maintain effective control over: (i) the period end financial reporting process with respect to such new subsidiaries; and (ii) the design and implementation of formal processes at the entity level to address risks critical to financial reporting with respect to the monitoring of controls, the control environment and information and communication following the integration of the new subsidiaries. These control deficiencies resulted in significant audit adjustments to net income, comprehensive loss, the statement of financial position and the related disclosures in our consolidated financial statements for the years ended December 31, 2013 and 2012. Unless remediated, these control deficiencies could potentially result in a material misstatement of the company’s future consolidated financial statements for various reasons that would not be prevented or detected.

During the period of integration of these subsidiaries, we have responded to specific control deficiencies as they were identified, and implemented remediation plans to address any issues. We are actively remediating these items and are working to strengthen the integration of control procedures across all recently acquired entities. We also recently appointed a new Chief Financial Officer whose priority it will be to develop and implement a remediation plan for the material weaknesses noted above.

~~As a result of the material weaknesses identified above,~~this evaluation, management ~~has~~ concluded that, as of December 31, ~~2013,~~2016, our ~~company’s~~ internal control over financial reporting was ~~not~~ effective.

The effectiveness of our company’s internal control over financial reporting as of December 31, ~~2013~~2016 has been audited by our independent registered chartered accountants, PricewaterhouseCoopers LLP, who also audited our consolidated financial statements for the year ended December 31, ~~2013.~~2016. PricewaterhouseCoopers LLP has expressed an ~~adverse~~unqualified opinion on the effectiveness of our internal control over financial reporting as of December 31, ~~2013.~~2016. Their report is included in this annual report on Form 20-F.

Acquired Business

As described in this annual report on Form 20-F, in the first quarter of 2016, we acquired the Bank, which has been excluded from management’s report on internal control over financial reporting as there was not sufficient time to complete an assessment of the internal controls of such business between the date of the acquisition and the date of management’s assessment of internal controls. We consolidated the Bank from February 1, 2016 and it represents 5.0% of our total assets as of December 31, 2016 and approximately 0.2% of our gross revenues for 2016.

Changes in Internal Control over Financial Reporting

We maintain internal controls over financial reporting that have been designed to provide reasonable assurance of the reliability of external financial reporting in accordance with IFRS, as required by Canadian National Instrument 52-109 –Certification of Disclosure in Issuers’ Annual and Interim Filings.

As reported in our prior annual report on Form 20-F for the year ended December 31, 2015, our management previously concluded that, as of December 31, 2015, our internal controls over financial reporting were not effective due to material weaknesses identified, respecting design deficiencies relating to: (i) interpretations for complex accounting on contingent liabilities, collateral and risk mitigation assets stemming from structured trade finance transactions. Specifically, the insolvency of a customer subsequent to 2015 resulted in management having to evaluate and measure certain receivables and contingent liabilities as at December 31, 2015; and (ii) the determination of the presentation of revenue and costs of sales on a gross or net basis, which resulted in revenues and costs of sales being recast for prior periods. The internal controls over the assessment of these items and the related entity level controls were not sufficiently designed to address the risks of potential misstatement. These material weaknesses could have resulted in the overstatement of assets and understatement of credit losses in the consolidated financial statements as

TABLE OF CONTENTS

at and for the year ended December 31, 2015 and resulted in the restatement of revenues and costs of sales for comparative periods. As these were identified prior to filing, they did not result in misstatements in the consolidated financial statements for the year ended December 31, 2015 or the current period.

Since identifying the material weaknesses described above, our management engaged in the implementation of remediation efforts to address same. Management responded to specific control deficiencies as they were identified and implemented remediation plans to address any issues, including: (i) enhancing the design and documentation of management review controls in order to enhance the precision at which management review controls operate; (ii) improving the documentation of internal control procedures; and (iii) enhancing the evaluation of revenue determinations. As a result of these remediation efforts, our management has determined that the above material weaknesses have been remediated.

Other than the remediation of control weaknesses ~~described above,~~previously identified, there were no changes in our internal control over financial reporting that occurred during the year ended December 31, ~~2013~~2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Internal control over financial reporting has inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements will not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

ITEM 16: [RESERVED]

ITEM 16A: AUDIT COMMITTEE FINANCIAL EXPERT

~~Ian Rigg~~

Silke Stenger was ~~the Chairman~~appointed Chair of our Audit Committee ~~in 2013 and until his passing in~~with effect from March 2014. Our board of directors had determined that ~~Mr. Rigg~~Ms. Stenger qualified as an “audit committee financial expert” and was “independent”, as such terms are used in Section 303A.02 of the NYSE Listed Company Manual.

ITEM 16B: CODE OF ETHICS

Code of Ethics and Code of Conduct

Our board of directors encourages and promotes a culture of ethical business conduct through the adoption and monitoring of our codes of ethics and conduct, the insider trading policy and such other policies as may be adopted from time to time.

Our board of directors ~~has~~ adopted a written Code of Business Conduct and Ethics and Insider Trading Policy on October 26, 2013, ~~(the~~referred to as the “Code of Ethics”). Prior to the adoption of the Code of Ethics, ~~the Board~~our board of directors had previously adopted a written code of ethics on November 9, 2006 and a code of conduct. Since such adoption, our board of directors has conducted an assessment of its performance, including the extent to which the board and each director comply therewith. It is intended that such assessment will be conducted annually.

The Code of Ethics applies to all of our directors, officers and employees. The purpose of the Code of Ethics is to, among other things, promote honest and ethical behavior and conduct, including: (i) ethical handling of actual or apparent conflicts of interest between personal and professional relationships; (ii) full, fair, accurate, timely and understandable disclosure in all reports and documents that we file with, or submit to, the SEC, the Canadian securities regulatory authorities and in all other public communications made by us; (iii) compliance with applicable governmental laws, rules and regulations; (iv) prompt internal reporting of violations of the Code of Ethics to an appropriate person or the persons identified therein; and (v) accountability for adherence to the Code of Ethics.

There has been no conduct of any director or officer that would constitute a departure from the Code of Ethics, and therefore, no material change reports have been filed in this regard.

TABLE OF CONTENTS

The foregoing summary of the Code of Ethics is not complete and is qualified in its entirety by reference to the full text of the Code of Ethics, a copy of which is available online at our website at ~~www.mfcindustrial.com.~~www.mfcbancorpltd.com. A copy of the Code of Ethics iswas filed as Exhibit 11.1 of ~~this Annual Report~~our annual report on Form ~~20-F.~~

20-F for the year ended December 31, 2013.

We will provide a copy of the Code of Ethics to any person without charge, upon request. Requests can be sent by mail to: MFC ~~Industrial~~Bancorp Ltd., Suite ~~1620~~1860 - 400 Burrard Street, Vancouver, British Columbia, Canada V6C 3A6.

ITEM 16C: PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees

The aggregate fees for audit services rendered for the audit of our annual financial statements for the year ended December 31, ~~2013~~2016 by PricewaterhouseCoopers LLP were ~~C$1,710,000~~$1,706,000 (before goods and services tax). The aggregate fees for audit services rendered for the audit of our annual financial statements for the fiscal year ended December 31, ~~2012~~2015 by ~~Deloitte~~PricewaterhouseCoopers LLP were ~~C$1,682,000~~$3,702,500 (before goods and services tax).

~~Audit Related~~

Audit-Related Fees

~~No such fees~~

$21,300 and $27,500 were billed by PricewaterhouseCoopers LLP during the ~~year~~years ended December 31, ~~2013. For the fiscal year ended December 31, 2012, Deloitte LLP performed~~2016 and 2015 for assurance or related services ~~relating~~that were reasonably related to the performance of the audit ~~or review~~ of our financial statements and that ~~are~~were not reported under the ~~caption~~category “Audit Fees” ~~above, with aggregate fees for such audit related services totalling C$330,000 (before goods and services tax).~~

above.

Tax Fees

During the fiscal year ended December 31, ~~2013,~~2016, the aggregate fees billed for tax compliance, tax advice and tax planning by PricewaterhouseCoopers LLP were ~~C$3,350~~$47,000 (before goods and services tax) ~~and C$nil.~~. For the fiscal year ended December 31, ~~2012,~~2015, the aggregate fees ~~billed~~ for tax compliance, tax advice and tax planning by ~~Deloitte~~PricewaterhouseCoopers LLP were ~~C$nil.~~

$100,800 (before goods and services tax).

All Other Fees

During the fiscal year ended December 31, ~~2013,~~2016, the aggregate fees billed by PricewaterhouseCoopers LLP for all services not related to audit or tax were ~~C$93,750~~$3,400 (before goods and services tax). For the fiscal year ended December 31, ~~2012,~~2015, the aggregate fees billed by ~~Deloitte~~PricewaterhouseCoopers LLP for all services not related to audit or tax were ~~C$470,000~~$148,700 (before goods and services tax), ~~in connection with valuation and other services in connection with our acquisition of MFC Energy.~~

which related to certain financial due diligence matters.

Audit Committee Pre-approval Policies and Procedures

The Audit Committee pre-approves all services provided by our independent auditors. All of the services and fees described under the categories of ~~“Audit Fees”, “Audit Related~~“Audit-Related Fees”, “Tax Fees” and “All Other Fees” were reviewed and approved by the Audit Committee before the respective services were rendered and none of such services were approved by the Audit Committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.

The Audit Committee has considered the nature and amount of the fees billed for the fiscal years ended December 31, ~~2013~~2016 and ~~2012~~2015 by PricewaterhouseCoopers LLP ~~and Deloitte LLP, respectively,~~ and believes that the provision of the services for activities unrelated to the audit is compatible with maintaining the independence of PricewaterhouseCoopers ~~LLP and Deloitte LLP, respectively.~~

LLP.

ITEM 16D: EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not applicable.

ITEM 16E:

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

In ~~2013,~~2016, neither we nor any affiliated purchaser (as defined in theSecurities Exchange Act of 1934) purchased any of our common shares.

TABLE OF CONTENTS 

ITEM 16F: CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

~~During the year ended December 31, 2013, the independent accountant that was previously engaged as the principal accountant to audit our financial statements, Deloitte LLP, resigned.~~

~~Resignation of Deloitte LLP~~

Deloitte LLP resigned at our request as our principal accountant effective September 23, 2013 and we appointed PricewaterhouseCoopers LLP as our independent public accounting firm for the year ended December 31, 2013. Our Audit Committee and board of directors considered and approved the decision to change accountants.

Not applicable.

The audit report of Deloitte LLP on our financial statements for the fiscal years ended December 31, 2012 and 2011, prepared in accordance with IFRS, did not contain an adverse opinion, a disclaimer of opinion, a modification or a qualification.

During our two most recent fiscal years, there were no disagreements with Deloitte LLP on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure.

~~None of the following events occurred within our two most recent fiscal years and any subsequent interim period preceding Deloitte LLP’s resignation:~~

~~(A)~~	~~Deloitte LLP advised us that the internal controls necessary for us to develop reliable financial statements did not exist;~~

~~(B)~~	Deloitte LLP advised us that information came to Deloitte LLP’s attention that has led it to no longer be able to rely on our management’s representations or that had made it unwilling to be associated with the financial statements prepared by our management;

~~(C)~~	Deloitte LLP advised us of the need to expand significantly the scope of its audit or that information came to Deloitte LLP’s attention during our two most recent fiscal years and any subsequent interim period that, if further investigated, may:

	~~(i)~~	materially impact the fairness or reliability of either: a previously issued audit report or the underlying financial statements or the financial statements issued or to be issued covering the fiscal period(s) subsequent to the date of the most recent financial statements covered by an audit report (including information that may prevent it from rendering an unqualified audit report on those financial statements); or

	~~(ii)~~	~~cause it to be unwilling to rely on our management’s representations or be associated with our financial statements; and~~

	due to Deloitte LLP’s resignation (due to audit scope limitations or otherwise), or for any other reason, Deloitte LLP, did not so expand the scope of its audit or conduct such further investigation; or

~~(D)~~	~~Deloitte LLP advised us that information came to Deloitte LLP’s attention that it had concluded materially impacts the fairness or reliability of either:~~

	~~(i)~~	~~a previously issued audit report or the underlying financial statements, or~~

	~~(ii)~~	the financial statements issued or to be issued covering the fiscal period(s) subsequent to the date of the most recent financial statements covered by an audit report (including information that, unless resolved to Deloitte LLP’s satisfaction, would prevent it from rendering an unqualified audit report on those financial statements); and

	~~due to Deloitte LLP’s resignation (due to audit scope limitations or otherwise), or for any other reason, the issue had not been resolved to Deloitte LLP’s satisfaction prior to its resignation.~~

~~Appointment of PricewaterhouseCoopers LLP~~

~~Our board of directors appointed PricewaterhouseCoopers LLP to be our principal accountant effective September 23, 2013.~~

Except as they may have advised us in their position as the auditors of our company, during our two most recent fiscal years and any subsequent interim period prior to engaging PricewaterhouseCoopers LLP, we did not consult them regarding (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our financial statements or (ii) any matter that was either the subject of a disagreement (as defined in Item 16F(a)(1)(iv) and the related instructions to Item 16F of Form 20-F) or a reportable event (as described in Item 16F(a)(1)(v) of Form 20-F).

~~Disclosure Provided to Former Accountants~~

We have provided a member of Deloitte LLP and PricewaterhouseCoopers LLP with a copy of our disclosure under Item 16F of this annual report on Form 20-F. We have requested that Deloitte LLP, and provided the opportunity for PricewaterhouseCoopers LLP to, furnish us with a letter addressed to the SEC stating whether it agrees with the statements made by us in response to this Item 16F(a) and, if not, stating the respects in which it does not agree. We have filed the letter from Deloitte LLP as Exhibit 15.1 to this Annual Report on Form 20-F.

ITEM 16G: CORPORATE GOVERNANCE

Shares of our common stock are listed on the NYSE. Summarized below are the significant differences between our corporate governance rules and the corporate governance rules applicable to U.S. domestic issuers under the listing standards of the NYSE:

•

Section 303A.03 of the NYSE’s Listed Company Manual requires the non-management directors of alisted company to meet at regularly scheduled executive sessions without management.

While our independent directors (all of whom are non-management directors) meet regularly for ~~committeemeetings~~committee meetings at which they are all present without non-independent directors or management in attendance,they do not generally hold other regularly scheduled meetings at which non-independent directors andmembers of management are not in attendance.

•

Section 303A.08 of the NYSE’s Listed Company Manual requires shareholder approval of all equitycompensation plans and material revisions to such plans.

Our current stock option and ~~Incentive~~the 2014 Plan have been approved by our shareholders. However, ~~whileour Incentive~~while our 2014 Plan provides that amendments may be submitted for shareholder approval by our ~~boardof~~board of directors to the extent that it deems it necessary or advisable, our plans do not specifically ~~requireshareholder~~require shareholder approval of material revisions.

ITEM 16H: MINE SAFETY DISCLOSURE

~~The information concerning mine safety violations and other regulatory matters required by Section 1503(a) of the~~~~Dodd-Frank Wall Street Reform and Consumer Protection Act~~ ~~is included in Exhibit 16.1 to this annual report on Form 20-F.~~

Not applicable.

ITEM 17: FINANCIAL STATEMENTS

Not applicable. See “Item 18: Financial Statements”.

TABLE OF CONTENTS

ITEM 18: FINANCIAL STATEMENTS

The following attached audit reports and financial statements are incorporated herein:

1. Report of Independent Auditors, PricewaterhouseCoopers LLP, dated March 31, 2014 on the consolidated financial statements of our company for the year ended December 31, 2013 and on the effectiveness of internal controls over financial reporting as at December 31, 2013 69
2. Report of Independent Registered Chartered Accountants, Deloitte LLP, dated April 1, 2013 on the consolidated financial statements of our company as at December 31, 2012 and the two years then ended 71
3. Consolidated statements of financial position as of December 31, 2013 and 2012 72
4. Consolidated statements of operations for the years ended December 31, 2013, 2012 and 2011 73
5. Consolidated statements of comprehensive income for the years ended December 31, 2013, 2012 and 2011 74
6. Consolidated statements of changes in equity for the years ended December 31, 2013, 2012 and 2011 75
7. Consolidated statements of cash flows for the years ended December 31, 2013, 2012 and 2011 76
8. Notes to consolidated financial statements as of December 31, 2013 77

	1. Report of Independent Auditors, PricewaterhouseCoopers LLP, dated March 31, 2017 on the consolidated financial statements of our company for the years ended December 31, 2016 and 2015 and on the effectiveness of internal controls over financial reporting as at December 31, 2016					58
	2. Consolidated statements of financial position as of December 31, 2016 and 2015					60
	3. Consolidated statements of operations for the years ended December 31, 2016, 2015 and 2014					61
	4. Consolidated statements of comprehensive income for the years ended December 31, 2016, 2015 and 2014					62
	5. Consolidated statements of changes in equity for the years ended December 31, 2016, 2015 and 2014					63
	6. Consolidated statements of cash flows for the years ended December 31, 2016, 2015 and 2014					65
	7. Notes to consolidated financial statements as of December 31, 2016					66

TABLE OF CONTENTS 

Independent Auditor’s Report

To the Shareholders of
MFC ~~Industrial~~Bancorp Ltd.

We have completed an integrated ~~audit~~audits of MFC ~~Industrial~~Bancorp Ltd. and its subsidiaries’ ~~(together, “the Company”) 2013~~current year and prior years consolidated financial statements and their internal control over financial reporting as at December 31, ~~2013.~~2016. Our opinions, based on our audits are presented below.

Report on the consolidated financial statements

We have audited the accompanying consolidated financial statements of ~~the Company,~~MFC Bancorp Ltd. and its subsidiaries, which comprise the consolidated ~~statement~~statements of financial position as at December 31, ~~2013~~2016 and December 31, 2015 and the consolidated statements of operations, comprehensive ~~income/~~(loss),/income, changes in equity and cash flows for each of the ~~year then~~three years in the period ended December 31, 2016, and the related notes, which comprise a summary of significant accounting policies and other explanatory information.

Management’s responsibility for the consolidated financial statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our ~~audit.~~audits. We conducted our ~~audit as at December 31, 2013 and for the year then ended~~audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. Canadian generally accepted auditing standards also require that we comply with ethical requirements.

An audit involves performing procedures to obtain audit evidence, on a test basis, about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting principles and policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

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

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of ~~the Company,~~MFC Bancorp Ltd. and its subsidiaries as at December 31, ~~2013~~2016 and ~~its~~December 31, 2015 and their financial performance and ~~its~~their cash flows for each of the ~~year then~~three years in the period ended December 31, 2016 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

~~Other matters~~
The financial statements (before the effects of adjustments to reflect changes in purchase price allocation and correction of an error described in Note 41) of the Company for the years ended December 31, 2012 and 2011, were audited by another auditor who expressed an unmodified opinion on those statements on April 1, 2013.

As part of our audit of the 2013 financial statements, we also audited the adjustments to reflect changes in purchase price allocation and correction of an error described in Note 41 that were applied to restate the 2012 financial statements. In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to audit, review, or apply any procedures to the 2012 financial statements of the Company other than with respect to the adjustments described above and, accordingly, we do not express an opinion or any other form of assurance on the 2012 financial statements taken as a whole.

Report on internal control over financial reporting

We have also audited ~~the Company’s~~MFC Bancorp Ltd. and its subsidiaries’ internal control over financial reporting as at December 31, ~~2013,~~2016, based on criteria established in Internal Control - Integrated Framework ~~(1992)~~(2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Management’s responsibility for internal control over financial reporting

Management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in Item 15 of the Annual Report on Form 20-F.

TABLE OF CONTENTS

Auditor’s responsibility

Our responsibility is to express an opinion on the ~~Company’s~~company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control, based on the assessed risk, and performing such other procedures as we consider necessary in the circumstances.

We believe that our audit provides a reasonable basis for our audit opinion on the ~~Company’s~~company’s internal control over financial reporting.

Definition of internal control over financial reporting

A company’s internal control over financial reporting 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 generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Inherent limitations

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

~~Adverse~~

As described in Form 20-F, management has excluded MFC Merchant Bank Limited from its assessment of internal control over financial reporting as at December 31, 2016 because it was acquired by the Company in a purchase business combination during 2016. We have also excluded MFC Merchant Bank Limited from our audit of internal control over financial reporting. MFC Merchant Bank Limited is a wholly owned subsidiary whose total assets and total revenues represent 5.0% and 0.2%, respectively, of the related consolidated financial statement amounts as at and for the year ended December 31, 2016.

Opinion

In our opinion, ~~the Company did not maintain,~~MFC Bancorp Ltd. and its subsidiaries’ maintained, in all material respects, effective internal control over financial reporting as at December 31, ~~2013,~~2016, based on criteria established in Internal Control - Integrated Framework ~~(1992)~~(2013) issued by COSO because material weaknesses in internal control over financial reporting existed as that date related (i) the period end financial reporting process with respect to subsidiaries acquired in 2012; and (ii) the design and implementation of formal processes at the entity level to address risks critical to financial reporting with respect to the monitoring of controls, the control environment and information and communication following the integration of the new subsidiaries. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses referred to above are described in Management’s Report on Internal Control Over Financial Reporting included in Item 15 of the Annual Report on Form 20-F. We considered these material weaknesses in determining the nature, timing, and extent of audit tests applied in our audit of the December 31, 2013 consolidated financial statements and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements. We do not express an opinion or any other form of assurance on management’s statement referring to management’s remediation plans.

COSO.

/s/ ~~PricewaterhouseCoopers LLP~~

“PricewaterhouseCoopers LLP”

Chartered Professional Accountants

Vancouver, ~~British Columbia~~BC
March 31, ~~2014~~

2017

~~Deloitte LLP~~
~~2800 - 1055 Dunsmuir Street~~
~~4 Bentall Centre~~
~~P.O. Box 49279~~
~~Vancouver BC V7X 1P4~~
~~Canada~~

~~Tel: 604-669-4466~~
~~Fax: 604-685-0395~~
~~www.deloitte.ca~~

~~Report of Independent Registered Public Accounting Firm~~

~~To the Board of Directors and Shareholders of~~

TABLE OF CONTENTS

MFC ~~Industrial Ltd.~~

We audited, before the effects of adjustments to reflect changes in purchase price allocation and the correction of an error as described in Notes 3 and 41 to the consolidated financial statements, the accompanying consolidated financial statements of MFC Industrial Ltd. and subsidiaries (collectively the “Company”), which comprise the consolidated statements of financial position as at December 31, 2012, and the consolidated statements of operations, comprehensive income, changes in equity, and cash flows for the two years then ended, and a summary of significant accounting policies and other explanatory information (the 2012 consolidated financial statements before the effects of the adjustments described in Notes 3 and 41 to the consolidated financial statements are not presented herein).

~~Management’s Responsibility for the Consolidated Financial Statements~~
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

~~Auditor’s Responsibility~~
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

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

~~Opinion~~
In our opinion, the consolidated financial statements, except for the adjustments to reflect changes in the purchase price allocation and the correction of an error described in Notes 3 and 41 to the consolidated financial statements, present fairly, in all material respects, the financial position of MFC Industrial Ltd. and subsidiaries as at December 31, 2012, and their financial performance and cash flows for the two years then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

We were not engaged to audit, review or apply any procedures to the adjustments to reflect changes in the purchase price allocation of the correction of an error described in Notes 3 and 41 to the consolidated financial statements and, accordingly, we do not express an opinion or any form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments were audited by other auditors.

~~/s/ Deloitte LLP~~

~~Chartered Accountants~~
~~April 1, 2013~~
~~Vancouver, Canada~~

BANCORP LTD.

~~MFC INDUSTRIAL LTD.~~

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(~~United States~~Canadian Dollars in Thousands)

December 31, December 31,
      Notes       2013       2012
      (Recast-Notes 3&41)
ASSETS
Current Assets
Cash and cash equivalents $ 332,173 $ 273,790
Short-term cash deposits 4,381 182
Securities 5 2,068 6,658
Restricted cash 6 312 889
Trade receivables 7 115,678 72,820
Other receivables 8 30,409 18,314
Inventories 9 88,844 142,925
Real estate held for sale 12,676 12,210
Deposits, prepaid and other 10 27,136 27,833
Assets held for sale 11 97,344 124,192
       Total current assets 711,021 679,813
Non-current Assets
Securities 12 2,465 9,637
Equity method investments 13 24,366 22,382
Investment property 14 — 34,152
Property, plant and equipment 15 94,493 80,139
Interests in resource properties 16 359,822 383,745
Hydrocarbon probable reserves 17 75,267 99,142
Hydrocarbon unproved lands 17 31,354 31,701
Accrued pension assets, net 18 1,259 —
Deferred income tax assets 19 17,941 19,136
Other 610 776
       Total non-current assets 607,577 680,810
$ 1,318,598 $ 1,360,623
LIABILITIES AND EQUITY
Current Liabilities
Short-term bank borrowings 20 $ 129,783 $ 150,396
Debt, current portion 21 44,869 44,169
Accounts payables and accrued expenses 22 126,649 79,403
Facility term financing 23 — 10,462
Income tax liabilities 1,891 2,866
Deferred sale liabilities 24 — 26,637
Liabilities relating to assets held for sale 11&25 11,517 29,806
       Total current liabilities 314,709 343,739
Long-term Liabilities
Debt, less current portion 21 189,871 118,824
Facility term financing 23 — 12,263
Deferred income tax liabilities 19 3,571 3,391
Decommissioning obligations 25 105,854 136,642
Accrued pension obligations, net 18 — 1,228
Puttable instrument financial liabilities 26 3,936 7,761
Other 916 —
       Total long-term liabilities 304,148 280,109
       Total liabilities 618,857 623,848
Equity
Capital stock, fully paid 27 383,116 382,746
Treasury stock 27 (68,980 ) (68,610 )
Contributed surplus 13,037 13,037
Retained earnings 398,448 399,574
Accumulated other comprehensive income (26,051 ) 3,840
       Total shareholders’ equity 699,570 730,587
Non-controlling interests 171 6,188
       Total equity 699,741 736,775
$ 1,318,598 $ 1,360,623

Notes December 31,
2016 December 31,
2015
ASSETS
Current Assets
Cash and cash equivalents $ 120,676 $ 197,519
Short-term cash deposits 182 233
Securities 5,018 170
Securities – derivatives 1,240 5,555
Restricted cash — 639
Trade receivables 7 135,962 151,229
Tax receivables 11,743 11,705
Other receivables 8 35,251 14,727
Inventories 9 31,954 245,345
Real estate held for sale 1,066 1,130
Deposits, prepaid and other 10 12,195 21,442
Assets held for sale 5 45,667 136,156
Total current assets 400,954 785,850
Non-current Assets
Securities 561 680
Securities – derivatives — 171
Real estate held for sale 13,035 13,812
Investment property 11 35,663 37,873
Property, plant and equipment 12 99,443 95,745
Interests in resource properties 13 79,147 —
Deferred income tax assets 14 16,647 20,641
Other 4,072 21,912
Other, restricted 816 667
Total non-current assets 249,384 191,501
$ 650,338 $ 977,351
LIABILITIES AND EQUITY
Current Liabilities
Short-term bank borrowings 15 $ 95,416 $ 52,864
Debt, current portion 16 36,249 84,705
Account payables and accrued expenses 17 45,114 182,051
Financial liabilities – derivatives 5,514 3,554
Income tax liabilities 2,486 3,809
Liabilities relating to assets held for sale 5 29,897 87,579
Total current liabilities 214,676 414,562
Long-term Liabilities
Debt, less current portion 16 80,564 174,333
Financial liabilities – derivatives 940 682
Accrued pension obligations, net 18 3,259 4,061
Decommissioning obligations 19 13,219 —
Deferred income tax liabilities 14 7,353 13,711
Other 897 802
Total long-term liabilities 106,232 193,589
Total liabilities 320,908 608,151
Equity
Capital stock, fully paid 20 419,916 419,916
Treasury stock 20 (61,085) (61,085)
Contributed surplus 15,417 15,417
Deficit (88,920) (63,559)
Accumulated other comprehensive income 42,192 56,503
Shareholders’ equity 327,520 367,192
Non-controlling interests 1,910 2,008
Total equity 329,430 369,200
$ 650,338 $ 977,351

The accompanying notes are an integral part of these consolidated financial statements.

TABLE OF CONTENTS 

MFC ~~INDUSTRIAL~~BANCORP LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, ~~2013, 2012~~2016, 2015 and ~~2011~~2014
(~~United States~~Canadian Dollars in Thousands, Except per Share Amounts)

            Notes       2013       2012       2011
(Recast-Notes 3&41)
Net sales 5&28 $ 806,831     $ 479,507     $ 507,992
Equity income 13 7,107 6,152 5,912
       Gross revenues 813,938 485,659 513,904

Costs and Expenses:
       Costs of sales 28 710,355 406,708 428,587
       Impairment of available-for-sale securities 517 4,265 12,408
       Impairment of interest in resource properties 6,077 42,631 —
       Selling, general and administrative 63,092 47,737 40,378
       Share-based compensation – selling, general and
              administrative 29 — 9 7,219
       Finance costs 15,172 11,634 7,198

795,213 512,984 495,790

Income (loss) from operations 18,725 (27,325 ) 18,114

Other items:
       Exchange differences on
              foreign currency transactions (1,820 ) 7,108 (933 )
       Change in fair value of puttable
              instrument financial liabilities (826 ) (77 ) —
       Bargain purchase 3 — 218,679 —

Income before income taxes 16,079 198,385 17,181
Income tax (expense) recovery:
Income taxes 30 (1,574 ) 8,528 (1,336 )
Resource property revenue taxes 30 (5,003 ) (5,902 ) (4,647 )
(6,577 ) 2,626 (5,983 )
Net income for the year 9,502 201,011 11,198
       Less: Net loss (income) attributable
              to non-controlling interests 163 (867 ) 995
Net income attributable to owners of
the parent company $ 9,665 $ 200,144 $ 12,193

Basic earnings per share 31 $ 0.15 $ 3.20 $ 0.19

Diluted earnings per share 31 $ 0.15 $ 3.20 $ 0.19

Weighted average number of common shares outstanding
– basic 31 62,552,126 62,555,438 62,561,421
– diluted 31 62,756,791 62,555,438 62,561,421

Notes 2016 2015 2014
(Re-presented) (Re-presented)
Gross revenues 21 $ 1,131,657 $ 1,629,100 $ 1,405,330
Costs and expenses:
Costs of sales and services 21 1,061,052 1,573,868 1,266,430
Selling, general and administrative 79,164 86,648 83,862
Share-based compensation – selling, general and administrative 22 — — 423
Finance costs 24,102 22,329 15,967
Impairment of available-for-sale securities 91 245 341
(Reversal) recognition of impairment losses on resource
properties (8,566) 235,875 2,813
Exchange differences on foreign currency transactions, net (gain) loss (7,480) 930 6,017
Other — — 163
1,148,363 1,919,895 1,376,016
(Loss) income from operations (16,706) (290,795) 29,314
Income tax (expense) recovery:
Income taxes (5,994) 46,518 (7,455)
Resource property revenue taxes (1,020) (325) (2,661)
23 (7,014) 46,193 (10,116)
(Loss) income from continuing operations (23,720) (244,602) 19,198
Loss on discontinued operations 5 — (241,402) (18,522)
Net (loss) income for the year (23,720) (486,004) 676
Less: Net income attributable to non-controlling interests (1,641) (1,626) (1,358)
Net loss attributable to owners of the parent company $ (25,361) $ (487,630) $ (682)
Basic (loss) earnings per share:
Continuing operations 24 $ (0.40) $ (3.90) $ 0.28
Discontinued operations 24 — (3.82) (0.29)
$ (0.40) $ (7.72) $ (0.01)
Diluted (loss) earnings per share:
Continuing operations 24 $ (0.40) $ (3.90) $ 0.28
Discontinued operations 24 — (3.82) (0.29)
$ (0.40) $ (7.72) $ (0.01)
Weighted average number of common shares outstanding
– basic 24 63,142,272 63,142,272 62,922,837
– diluted 24 63,142,272 63,142,272 62,957,105

The accompanying notes are an integral part of these consolidated financial statements.

TABLE OF CONTENTS 

MFC ~~INDUSTRIAL~~BANCORP LTD.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
For the Years Ended December 31, ~~2013, 2012~~2016, 2015 and ~~2011~~2014
(~~United States~~Canadian Dollars in Thousands)

      2013       2012       2011
(Recast-
Notes 3&41)
Net income for the year $ 9,502 $ 201,011 $ 11,198
Other comprehensive income (loss), net of tax
       Exchange differences arising from translating financial statements
              of foreign operations and U.S. dollar reporting (31,394 ) (7,262 ) (1,359 )
       Reclassification adjustment for exchange differences to
              statements of operations for subsidiaries deconsolidated — (609 ) —
                     Net exchange differences (31,394 ) (7,871 ) (1,359 )

       Fair value gain (loss) on available-for-sale securities (112 ) 319 (14,615 )
       Reclassification of fair value loss on available-for-sale
              securities to statements of operations for securities disposed of 312 4,321 7,860
                     Net fair value gain (loss) on available-for-sale securities 200 4,640 (6,755 )

       Remeasurement of the net defined benefit liabilities 1,369 961 —

Other comprehensive loss (29,825 ) (2,270 ) (8,114 )
Total comprehensive (loss) income for the year (20,323 ) 198,741 3,084
Comprehensive loss (income) attributable to
       non-controlling interests 97 (980 ) 1,042
Comprehensive income (loss) attributable to owners
       of the parent company $ (20,226 ) $ 197,761 $ 4,126
Other comprehensive loss, net of income taxes, comprised amounts:
       will not be reclassified subsequently to profit or loss $ 6,788 $ 46 $ 2,627
       will be reclassified subsequently to profit or loss
       when specific conditions are met (36,613 ) (2,316 ) (10,741 )
$ (29,825 ) $ (2,270 ) $ (8,114 )

2016 2015 2014
(Re-presented) (Re-presented)
Net (loss) income for the year $ (23,720) $ (486,004) $ 676
Other comprehensive (loss) income, net of income taxes
Exchange differences arising from translating financial statements of foreign operations (14,067) 79,355 45,767
Reclassification adjustment for exchange differences to statements of operations for subsidiaries deconsolidated (560) 143 (127)
Net exchange differences (14,627) 79,498 45,640
Fair value loss on available-for-sale securities (73) (293) (282)
Reclassification of fair value loss on available-for-sale securities
to statements of operations for securities disposed of or
impaired 141 245 147
Net fair value gain (loss) on available-for-sale securities 68 (48) (135)
Remeasurement of net defined benefit liabilities 192 (298) (1,034)
(14,367) 79,152 44,471
Total comprehensive (loss) income for the year (38,087) (406,852) 45,147
Comprehensive income attributable to non-controlling interests (1,585) (2,028) (1,213)
Comprehensive (loss) income attributable to owners of the parent
company $ (39,672) $ (408,880) $ 43,934
Consisting of:
Continuing operations

$ (39,672) $ (167,478) $ 62,456

Discontinued operations

— (241,402) (18,522)
$ (39,672) $ (408,880) $ 43,934
Other comprehensive (loss) income, net of income taxes, comprised amounts:
will not be reclassified subsequently to profit or loss $ 192 $ (298) $ (1,034)
will be reclassified subsequently to profit or loss when specific conditions are met (14,559) 79,450 45,505
$ (14,367) $ 79,152 $ 44,471

The accompanying notes are an integral part of these consolidated financial statements.

TABLE OF CONTENTS 

MFC ~~INDUSTRIAL~~BANCORP LTD.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the Years Ended December 31, ~~2013, 2012~~2016, 2015 and ~~2011~~2014
(~~United States~~Canadian Dollars in Thousands)

Accumulated Other
Capital Stock Treasury Stock Comprehensive Income
Contributed
Surplus, Available- Defined Currency Non-
Number Number Share-based Retained for-sale Benefit Translation Shareholders’ Controlling Total
     of Shares      Amount      of Shares      Amount      Compensation      Earnings      Securities      Obligations      Adjustment      Equity      Interests      Equity
Balance at December 31, 2010 66,031,916 $ 381,673 (3,470,495 ) $ (67,501 )        $ 5,775        $ 213,519 $ 1,991     $ —     $ 12,299    $ 547,756       $ 4,684    $ 552,440

Net income — — — — — 12,193 — — — 12,193 (995 ) 11,198
Dividends paid — — — — — (12,512 ) — — — (12,512 ) (586 ) (13,098 )
Transfer of an interest in
       resource property — — — — — — — — — — 1,172 1,172
Derecognition of a subsidiary — — — — — — — — — — (1,670 ) (1,670 )
Issuance of preferred shares 616,380 616 (616,380 ) (616 ) — — — — — — — —
Share-based compensation — — — — 7,253 — — — — 7,253 (34 ) 7,219
Net change in available-for-sale
       securities — — — — — — (6,750 ) — — (6,750 ) (5 ) (6,755 )
Net exchange differences — — — — — — — — (1,317 ) (1,317 ) (42 ) (1,359 )
Balance at December 31, 2011 66,648,296 382,289 (4,086,875 ) (68,117 ) 13,028 213,200 (4,759 ) — 10,982 546,623 2,524 549,147

Net income — — — — — 200,144 — — — 200,144 867 201,011
Cancellation of fractional shares (3,267 ) — — — — — — — — — — —
Purchase of subsidiaries — — — — — — — — — — 3,350 3,350
Buy-back of odd-lot shares (6,028 ) (36 ) — — — (8 ) — — — (44 ) — (44 )
Dividends paid and payable — — — — — (13,762 ) — — — (13,762 ) (666 ) (14,428 )
Share-based compensation — — — — 9 — — — — 9 — 9
Issuance of preferred shares 493,105 493 (493,105 ) (493 ) — — — — — — — —
Net fair value gain — — — — — — 4,640 — — 4,640 — 4,640
Net gain on remeasurements — — — — — — — 961 — 961 — 961
Net exchange differences — — — — — — — — (7,984 ) (7,984 ) 113 (7,871 )
Balance at December 31, 2012
       (Recast-Notes 3&41) 67,132,106 382,746 (4,579,980 ) (68,610 ) 13,037 399,574 (119 ) 961 2,998 730,587 6,188 736,775

Net income — — — — — 9,665 — — — 9,665 (163 ) 9,502
Dividends paid — — — — — (15,013 ) — — — (15,013 ) (781 ) (15,794 )
Issuance of preferred shares
       as dividends 369,830 370 (369,830 ) (370 ) — — — — — — — —
Acquisition and elimination of
       noncontrolling interests — — — — — 4,222 — — — 4,222 (5,139 ) (917 )
Net fair value gain — — — — — — 200 — — 200 — 200
Net gain on remeasurements — — — — — — — 1,369 — 1,369 — 1,369
Net exchange differences — — — — — — — — (31,460 ) (31,460 ) 66 (31,394 )
Balance at December 31, 2013 67,501,936 $ 383,116 (4,949,810 ) $ (68,980 ) $ 13,037 $ 398,448 $ 81 $ 2,330 $ (28,462 ) $ (699,570 ) $ 171 $ 699,741

	Capital Stock					Treasury Stock					Contributed Surplus									Accumulated Other Comprehensive Income (Loss)
	Number of Shares		Amount			Number of Shares		Amount			Share-based Compensation			Contingently Issuable Shares			Retained Earnings (Deficit)			Available- for-sale Securities				Defined Benefit Obligations			Currency Translation Adjustment			Share- holders’ Equity			Non- controlling Interests			Total Equity
Balance at December 31, 2013		67,501,936		$	418,407		(4,949,810)		$	(61,085)		$	13,451		$	—		$	438,508		$	86			$	2,478		$	(67,782)		$	744,063		$	182		$	744,245
Net (loss) income		—			—		—			—			—			—			(682)			—				—			—			(682)			1,358			676
Dividends paid and payable		—			—		—			—			��			—			(16,874)			—				—			—			(16,874)			(1,034)			(17,908)
Share-based compensation		—			—		—			—			423			—			—			—				—			—			423			—			423
Exercise of employee stock options		30,326			343		—			—			(84)			—			—			—				—			—			259			—			259
Acquisition and elimination of non-controlling interest		509,820			905		—			—			—			1,830			3,177			—				—			—			5,912			(1,403)			4,509
Purchase of a subsidiary		—			—		—			—			—			—			—			—				—			—			—			140			140
Disposition of subsidiaries		—			—		—			—			—			—			—			—				—			—			—			2,118			2,118
Net fair value loss		—			—		—			—			—			—			—			(135)				—			—			(135)			—			(135)
Net loss on remeasurements		—			—		—			—			—			—			—			—				(1,034)			—			(1,034)			—			(1,034)
Net exchange differences		—			—		—			—			—			—			—			—				—			45,785			45,785			(145)			45,640
Balance at December 31, 2014		68,042,082			419,655		(4,949,810)			(61,085)			13,790			1,830			424,129			(49)				1,444			(21,997)			777,717			1,216			778,933
Net (loss) income		—			—		—			—			—			—			(487,630)			—				—			—			(487,630)			1,626			(486,004)
Deconsolidation of a subsidiary		—			—		—			—			—			—			—			—				(1,645)			—			(1,645)			—			(1,645)
Issuance of contingently issuable shares		50,000			261		—			—			—			(203)			(58)			—				—			—			—			—			—
Dividends paid		—			—		—			—			—			—			—			—				—			—			—			(1,236)			(1,236)
Net fair value loss		—			—		—			—			—			—			—			(48)				—			—			(48)			—			(48)
Net loss on remeasurements		—			—		—			—			—			—			—			—				(298)			—			(298)			—			(298)
Net exchange differences		—			—		—			—			—			—			—			—				—			79,096			79,096			402			79,498
Balance at December 31, 2015		68,092,082			419,916		(4,949,810)			(61,085)			13,790			1,627			(63,559)			(97)				(499)			57,099			367,192			2,008			369,200
Net (loss) income		—			—		—			—			—			—			(25,361)			—				—			—			(25,361)			1,641			(23,720)
Dividends paid		—			—		—			—			—			—			—			—				—			—			—			(1,683)			(1,683)
Net fair value gain		—			—		—			—			—			—			—			68				—			—			68			—			68
Net gain on remeasurements		—			—		—			—			—			—			—			—				192			—			192			—			192
Net exchange differences		—			—		—			—			—			—			—			—				—			(14,571)			(14,571)			(56)			(14,627)
Balance at December 31, 2016		68,092,082		$	419,916		(4,949,810)		$	(61,085)		$	13,790		$	1,627		$	(88,920)		$	(29)	��		$	(307)		$	42,528		$	327,520		$	1,910		$	329,430

Total Comprehensive Income (Loss) for the Year       Shareholders’ Equity       Non-Controlling Interests       Total
2011 $           4,126         $             (1,042 )            $  3,084
2012 197,761 980 198,741
2013 (20,226 ) (97 ) (20,323 )

Common Shares Preferred Shares* Total Capital Stock
Components of Capital Stock      Number of Shares      Amount      Number of Shares      Amount      Number of Shares      Amount
Balance at December 31, 2010      62,889,660      $ 369,139       3,142,256       $ 12,534       66,031,916       $ 381,673
Issuance of preferred shares — — 616,380 616 616,380 616
Balance at December 31, 2011 62,889,660 369,139 3,758,636 13,150 66,648,296 382,289
Cancellation of fractional shares (3,267 ) — — — (3,267 ) —
Buy-back of odd-lot shares (6,028 ) (36 ) — — (6,028 ) (36 )
Issuance of preferred shares — — 493,105 493 493,105 493
Balance at December 31, 2012 62,880,365 369,103 4,251,741 13,643 67,132,106 382,746
Issuance of preferred shares — — 369,830 370 369,830 370
Balance at December 31, 2013 62,880,365 $ 369,103 4,621,571 $ 14,013 67,501,936 $ 383,116
____________________

*	~~All the Preferred Shares were and are held by the Group as Treasury Stock.~~

The accompanying notes are an integral part of these consolidated financial statements.

TABLE OF CONTENTS

MFC ~~INDUSTRIAL~~BANCORP LTD.

CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~CHANGES IN EQUITY (CONTINUED)
For the ~~Year~~Years Ended December 31, ~~2013, 2012~~2016, 2015 and ~~2011~~2014
(~~United States~~Canadian Dollars in Thousands)

      2013       2012       2011
(Recast-
Notes 3&41)
Cash flows from continuing operating activities:
       Net income $ 9,502 $ 201,011 $ 11,198
       Adjustments for:
              Amortization, depreciation and depletion 28,085 20,312 13,204
              Exchange differences on foreign currency transactions 1,820 (7,108 ) 933
              (Gain) loss on short-term securities (5,681 ) (1,162 ) 6,507
              (Gain) loss on available-for-sale securities (231 ) 94 (1,721 )
              Impairment of available-for-sale securities 517 4,265 12,408
              Impairment of interest in resource properties 6,077 42,631 —
              Write-down of inventories — 15,659 (29 )
              Stock-based compensation — 9 7,219
              Deferred income taxes (1,049 ) (12,105 ) (2,533 )
              Equity income (7,107 ) (6,152 ) (5,912 )
              Market value (increase) decrease on commodity inventories (5,342 ) 1,509 4,422
              Credit losses 3,976 — —
              Change in fair value of puttable instrument financial liabilities 826 77 —
              Bargain purchase — (218,679 ) —
              Changes in operating assets and liabilities, net of effects of acquisitions and dispositions
                     Short-term cash deposits (4,189 ) (16 ) (4,148 )
                     Short-term securities 10,154 7,241 5,263
                     Restricted cash 582 (269 ) 2,862
                     Bills of exchange — 10,545 (10,545 )
                     Receivables (29,056 ) (12,899 ) (8,261 )
                     Inventories 32,541 (36,479 ) (22,816 )
                     Deposits, prepaid and other 1,152 (8,936 ) 10,829
                     Assets held for sale (1,017 ) (3,103 ) —
                     Short-term bank borrowings (26,385 ) (115,505 ) 49,836
                     Accounts payable and accrued expenses (2,680 ) (9,064 ) (1,363 )
                     Deferred sale liabilities — (15,080 ) (22,912 )
                     Income tax liabilities (1,049 ) (2,280 ) 783
                     Provisions (10 ) (36 ) (95 )
                     Decommissioning obligations (4,067 ) 44 —
                     Accrued pension obligations 296 (19 ) —
              Other 2,448 1,123 (397 )
Cash flows provided by (used in) operating activities 10,113 (144,372 ) 44,732
Cash flows from continuing investing activities:
       Purchases of property, plant and equipment, net (1,983 ) (2,108 ) (1,168 )
       Purchases of hydrocarbon assets, net (4,617 ) — —
       Purchases of long-term investments (1,950 ) (5,100 ) (37,520 )
       Proceeds from sales of long-term securities 7,039 2,616 7,413
       Increase in loan receivables — (81 ) (21,821 )
       Decrease in loan receivables — 19,950 7,744
       Distributions from joint ventures, net 7,227 7,641 5,072
       Acquisition of subsidiaries (net of cash acquired) (6,637 ) (78,546 ) (95 )
       Other 74 (48 ) 3,847
Cash flows provided by (used in) investing activities (847 ) (55,676 ) (36,528 )
Cash flows from continuing financing activities:
       Debt repayment (36,716 ) (28,259 ) (4,309 )
       Debt borrowing 98,842 133,485 —
       Reduction in facility term financing (21,894 ) (7,388 ) —
       Due to a customer 22,166 — —
       Repurchases of shares — (44 ) —
       Dividends paid to shareholders (15,013 ) (13,762 ) (12,512 )
       Dividends paid to non-controlling interests (781 ) (666 ) (586 )
Cash flows provided by (used in) financing activities 46,604 83,366 (17,407 )
Exchange rate effect on cash and cash equivalents 2,513 3,420 (1,442 )
Increase (decrease) in cash and cash equivalents 58,383 (113,262 ) (10,645 )
Cash and cash equivalents, beginning of year 273,790 387,052 397,697
Cash and cash equivalents, end of year $ 332,173 $ 273,790 $ 387,052
Cash and cash equivalents at end of year consisted of:
       Cash $ 232,104 $ 208,860 $ 286,877
       Money market and highly liquid funds 100,069 64,930 100,175
$ 332,173 $ 273,790 $ 387,052

Supplemental cash flows disclosure (see Note 30)
       Interest received $ 2,875 $ 7,201 $ 9,846
       Dividends received 295 353 504
       Interest paid (9,233 ) (8,120 ) (6,267 )
       Income taxes paid (including resource property revenue taxes) (7,753 ) (10,266 ) (7,620 )

Total Comprehensive Income (Loss) for the Years ended December 31,	Owners of the Parent Company			Non- controlling Interests			Total
2014		$	43,934		$	1,213		$	45,147
2015		$	(408,880)		$	2,028		$	(406,852)
2016		$	(39,672)		$	1,585		$	(38,087)

	Common Shares					Preferred Shares*					Total Capital Stock
Components of Capital Stock	Number of Shares		Amount			Number of Shares		Amount			Number of Shares		Amount
Balance at December 31, 2013		62,880,365		$	401,388		4,621,571		$	17,019		67,501,936		$	418,407
Exercise of employee stock options		30,326			343		—			—		30,326			343
Acquisition and elimination of non-controlling interest		509,820			905		—			—		509,820			905
Balance at December 31, 2014		63,420,511			402,636		4,621,571			17,019		68,042,082			419,655
Issuance of contingently issuable shares		50,000			261		—			—		50,000			261
Balance at December 31, 2015 and 2016		63,470,511		$	402,897		4,621,571		$	17,019		68,092,082		$	419,916

All the Class A Common Shares and Preferred Shares were and are held by the Group as Treasury Stock

The accompanying notes are an integral part of these consolidated financial statements.

TABLE OF CONTENTS 

MFC ~~INDUSTRIAL~~BANCORP LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2016, 2015 and 2014
(Canadian Dollars in Thousands)

2016 2015 2014
(Re-presented) (Re-presented)
Cash flows from continuing operating activities:
Net (loss) income for the year $ (23,720) $ (244,602) $ 19,198
Adjustments for:
Amortization, depreciation and depletion 11,951 6,450 8,557
Exchange differences on foreign currency transactions (7,480) 930 6,017
Loss (gain) on short-term securities 66 84 (299)
Gain on available-for-sale and other securities, net (2,534) — (5,066)
Impairment of available-for-sale securities 91 245 �� 341
(Reversal) recognition of impairment losses on resource properties (8,566) 235,875 2,813
Share-based compensation — — 423
Deferred income taxes 1,454 (50,800) 3,503
Market value decrease (increase) on commodity inventories 4,273 1,910 (4,172)
Interest accretion 471 148 338
Credit losses 18,277 54,528 4,358
Changes in operating assets and liabilities, net of effects of acquisitions and dispositions:
Short-term cash deposits 39 (33) 4,643
Short-term securities 3,997 80 2,305
Restricted cash 624 60 6,593
Receivables (16,869) 57,608 9,486
Inventories 184,944 15,650 (32,026)
Deposits, prepaid and other 24,661 (8,596) 41,685
Short-term bank borrowings 34,707 (137,621) (103,035)
Account payables and accrued expenses (124,528) (18,555) 16,083
Income tax liabilities (1,576) (975) 1,287
Accrued pension assets, net of obligations 43 (760) (119)
Other (458) (6,674) 1,002
Cash flows provided by (used in) continuing operating activities 99,867 (95,048) (16,085)
Cash flows from continuing investing activities:
Purchases of property, plant and equipment, net (198) (8,045) (29,649)
Proceeds from sales of investments, net 10,138 — 1,632
Increase in loan receivables (366) (2) (3,132)
Decrease in loan receivables 693 429 —
Dispositions (acquisitions) of subsidiaries, net of cash (disposed) acquired 24,870 — (74,135)
Other 345 (943) (1,831)
Cash flows provided by (used in) continuing investing activities 35,482 (8,561) (107,115)
Cash flows from continuing financing activities:
Debt repayment (186,286) (68,707) (32,578)
Debt borrowing 20,694 5,662 140,481
Issuance of shares — — 259
Repayment to a customer — — (23,576)
Dividends paid to shareholders — (4,388) (12,486)
Dividends paid to non-controlling interests (1,683) (1,236) (1,034)
Cash flows (used in) provided by continuing financing activities (167,275) (68,669) 71,066
Cash flows (used in) provided by discontinued operating activities — (7,004) 19,045
Cash flows used in discontinued investing activities — (1,395) (11,706)
Exchange rate effect on cash and cash equivalents (37,540) 35,619 36,387
(Decrease) increase in cash and cash equivalents (69,466) (145,058) (8,408)
Cash and cash equivalents, beginning of year 197,519 344,891 353,299
Cash and cash equivalents included in assets held for sale, net (7,377) (2,314) —
Cash and cash equivalents, end of year $ 120,676 $ 197,519 $ 344,891
Cash and cash equivalents at end of year consisted of:
Cash $ 113,591 $ 120,805 $ 279,867
Money market and highly liquid funds 7,085 76,714 65,024
$ 120,676 $ 197,519 $ 344,891
Supplemental cash flows disclosure (see Note 27)
Interest received $ 3,632 $ 4,233 $ 5,404
Dividends received 6 7 6
Interest paid (14,533) (15,273) (12,962)
Income taxes paid (3,317) (5,345) (8,374)

The accompanying notes are an integral part of these consolidated financial statements.

TABLE OF CONTENTS 

MFC BANCORP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, ~~2013~~

2016

Note 1. Nature of Business ~~and Summary of Significant Accounting Policies~~

MFC ~~Industrial~~Bancorp Ltd. (“MFC ~~Industrial”~~Bancorp” or the “Company”) is incorporated under the laws of British Columbia, Canada. MFC Bancorp and the entities it controls are collectively known as the Group in these consolidated financial statements. The ~~primary business~~Group is a merchant bank that provides financial services and facilitates structured trade for corporations and institutions. The Group commits its own capital to promising enterprises and invests and otherwise captures investment opportunities for its own account. The Group seeks to invest in businesses or assets whose intrinsic value is not properly reflected. The Group’s investing activities are generally not passive. The Group actively seeks investments where its financial expertise and management can add or unlock value.

Effective February 1, 2016, the Group completed the acquisition of a western European bank. Subsequent to the acquisition, this bank changed its name to MFC ~~Industrial is~~Merchant Bank Ltd (see Note 4).

In June and September 2016, the ~~commodity supply chain business, which is globally focused. The~~ Company ~~through~~ceased to classify its ~~subsidiaries, source, produce, process, transport, finance, assess risk~~remaining disposal groups as held for sale as the criteria for being classified as assets held for sale were no longer met (see Note 5).

On December 31, 2016, the Company reclassified a non-core commodities trading subsidiary as held for sale (see Note 5).

Note 2. Basis of Presentation and ~~warehouse these commodities for producers and customers around the world.~~

~~In September 2012, MFC Industrial, through its Austrian subsidiary, acquired all~~Summary of the issued and outstanding shares of MFC Energy Corporation ((“MFC Energy”) formerly Compton Petroleum Corporation). MFC Energy and its joint arrangements and special-purpose entity (collectively “MFC Energy Group”) are primarily in the hydrocarbon business. The Company consolidated the results of the operations of MFC Energy Group since September 7, 2012.

Significant Accounting Policies

A. Basis of Presentation

Basis of Accounting

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (the “IASB”). MFC ~~Industrial~~Bancorp complies with all the requirements of IFRS.

These consolidated financial statements were prepared using going concern, accrual (except for cash flow information) and historical cost (except for investment property and certain inventories, financial assets and financial liabilities which are measured at fair value and certain assets that are measured at fair value less costs to ~~sell)~~sell or of disposal) bases.

The presentation currency of these consolidated financial statements is the ~~United States of America (the “U.S.”)~~Canadian dollar ($), as rounded to the nearest thousand (except per share ~~amounts and amounts indicated in specific monetary units)~~amounts).

Principles of Consolidation

~~The Group adopted IFRS 10,~~~~Consolidated Financial Statements~~ ~~(“IFRS 10”), IFRS 11,~~~~Joint Arrangements~~ ~~(“IFRS 11”), IFRS 12,~~~~Disclosure of Interests in Other Entities~~ ~~(“IFRS 12”)~~~~and amendments to~~ ~~IAS 27,~~~~Separate Financial Statements~~ ~~(“IAS 27”) and IAS 28,~~~~Investments in Associates and Joint Ventures~~ ~~(“IAS 28”), effective January 1, 2013. The adoption of these new standards and amendments did not have recognition and measurement impacts on the Company’s consolidated financial statements.~~

These consolidated financial statements include the accounts of MFC ~~Industrial~~Bancorp and entities it ~~controls (collectively, the “Group”).~~controls. The Company controls an investee if and only if ~~the investor~~it has all the following: (a) power over the investee; (b) exposure, or rights, to variable returns from its involvement with the investee; and (c) the ability to use its power over the investee to affect the amount of ~~the investor’s~~its returns. When the Group holds, directly or indirectly, more than 50% of the voting power of the investee, it is presumed that the Group controls the investee, unless it can be clearly demonstrated that this is not the case. The Group also consolidates a structured entity if the Group is exposed, or has rights, to variable returns from its involvement with the entity (“consolidated structured entity”), even though the Group holds 50% or less of the voting power. Subsidiaries are consolidated from the date of their acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. All intercompany balances and transactions, including unrealized profits arising from intragroup transactions, have been eliminated in full. Unrealized losses are eliminated unless the transaction provides evidence of an impairment of the asset transferred.

On the acquisition date, a non-controlling interest is measured at either its fair value or its proportionate share in the recognized amounts of the subsidiary’s identifiable net assets, on a transaction-by-transaction basis. Subsequently, non-controlling interest increases or decreases for its share of changes in equity since the acquisition date.

~~MFC INDUSTRIAL LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2013~~

~~Note 1. Nature~~After initial consolidation of ~~Business and Summary of Significant Accounting Policies (continued)~~

~~When~~a subsidiary, when the proportion of ~~the~~ equity held by non-controlling interests changes, the Group adjusts the carrying amounts of the controlling and non-controlling interests to reflect the changes in their relative interests in the subsidiary. The Group recognizes directly in equity any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received and ~~attribute it~~attributes such difference to the owners of ~~the Group.~~

MFC Bancorp.

TABLE OF CONTENTS

MFC BANCORP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016

Note 2. Basis of Presentation and Summary of Significant Accounting Policies (continued)

When the Group loses control of a subsidiary itit: (a) ~~derecognizes:~~derecognizes (i) the assets (including any goodwill) and liabilities of the subsidiary at their carrying amounts at the date when control is ~~lost;~~lost and (ii) the carrying amount of any non-controlling interests in the former subsidiary at the date when control is lost (including any components of other comprehensive income attributable to them); (b) ~~recognizes:~~recognizes (i) the fair value of the consideration received, if any, from the transaction, event or circumstances that resulted in the loss of ~~control;~~control, (ii) if the transaction, event or circumstances that resulted in the loss of control involves a distribution of shares of the subsidiary to owners in their capacity as owners, that ~~distribution;~~distribution and (iii) any investment retained in the former subsidiary at its fair value at the date when control is ~~lost:~~lost; (c) reclassifies to profit or loss, or ~~transfer~~transfers directly to retained earnings if required by ~~other IFRSs,~~IFRS, the amounts recognized in other comprehensive income in relation to the ~~subsidiary~~subsidiary; and (d) ~~recognize~~recognizes any resulting difference as a gain or loss in profit or loss attributable to the ~~Group.~~

~~Interests in joint arrangements~~~~- A joint arrangement is an arrangement~~owners of which two or more parties have joint control and has the following characteristics: (a) the parties are bound by a contractual arrangement and (b) the contractual arrangement gives two or more of those parties joint control of the arrangement.

A joint arrangement is either a joint operation or a joint venture. The classification of joint arrangements requires the parties to assess their rights and obligations arising from the arrangement. Generally, a joint arrangement that is not structured through a separate vehicle is a joint operation. In such cases, the contractual arrangement establishes the parties’ rights to the assets, and obligations for the liabilities, relating to the arrangement, and the parties’ rights to the corresponding revenues and obligations for the corresponding expenses. A joint arrangement in which the assets and liabilities relating to the arrangement are held in a separate vehicle can be either a joint venture or a joint operation, in such a case the Group examines (i) the legal form of the separate vehicle; (ii) the terms of the contractual arrangement; and (iii) when relevant, other facts and circumstances. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. The Group does not have interests in joint operations.

~~The Group recognizes its interests in joint ventures as investments and accounts for these investments using the equity method in accordance with IAS 28.~~

~~Interests in associates~~ - An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control of those policies. When the Group holds, directly or indirectly, 20% or more of the voting power of the investee, it is presumed that the Group has significant influence, unless it can be clearly demonstrated that this is not the case. The results, assets and liabilities of an associate are incorporated in these consolidated financial statements using the equity method of accounting.

Under the equity method, on initial recognition the investment in an associate or a joint venture is recognized at cost, and the carrying amount is increased or decreased to recognize the Group’s share of the profit or loss of the investee after the date of acquisition. The Group’s share of the investee’s profit or loss is recognized in the Group’s profit or loss. Distributions received from an investee reduce the carrying amount of the investment. Adjustments to the carrying amount may also be necessary for changes in the Group’s proportionate interest in the investee arising from changes in the investee’s other comprehensive income.

After application of the equity method, the Group applies IAS 39, Financial Instruments: Recognition and Measurement (“IAS 39”), to determine whether it is necessary to recognize any impairment loss with respect to its net investment in an associate or joint venture and its interest in an associate or joint venture that does not constitute part of the net investment and the amount of that impairment loss.

~~The Group discontinues the use of the equity method of accounting from the date when the entity in which has interests ceases to be an associate or a joint venture.~~

MFC ~~INDUSTRIAL LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2013~~

~~Note 1. Nature of Business and Summary of Significant Accounting Policies (continued)~~

Bancorp.

The financial statements of MFC ~~Industrial~~Bancorp and its subsidiaries ~~joint arrangements and associates~~ used in the preparation of the consolidated financial statements are prepared as of the same date, using uniform accounting policies for like transactions and other events in similar circumstances.

~~Prior to 2013, the Group consolidated special purpose entities pursuant to SIC-12,~~~~Consolidation – Special Purpose Entities~~ ~~(“SIC-12”). SIC-12 was superseded by IFRS 10 in 2013.~~

Foreign Currency Translation

The presentation currency of the Group’s consolidated financial statements is the ~~U.S.~~Canadian dollar. ~~The Group chose to use the U.S. dollar as its presentation currency because the majority of~~

MFC ~~Industrial’s shareholders are from the U.S.~~

~~MFC Industrial~~Bancorp conducts its business throughout the world through its foreign operations. Foreign operations are entities that are subsidiaries, associates, joint arrangements or branches, the activities of which are based or conducted in countries or currencies other than those of MFC ~~Industrial.~~Bancorp. Functional currency is the currency of the primary economic environment in which an entity operates and is normally the currency in which the entity primarily generates and expends cash. Foreign currency is a currency other than the functional currency of the entity. The functional ~~currency~~currencies of ~~MFC Industrial~~the Company and its subsidiaries and branches primarily comprise the Canadian dollar, Euro (“EUR” or “€”) and the ~~majority of its foreign operations is currencies other than the U.S. dollar.~~

United States dollar (“US$”).

Reporting foreign currency transactions in the functional currency

A foreign currency transaction is a transaction that is denominated or requires settlement in a foreign currency. A foreign currency transaction is recorded, on initial recognition in ~~the~~an entity’s functional currency, by applying to the foreign currency amount the spot exchange rate between the functional currency and the foreign currency at the date of the transaction. At the end of each reporting period: (a) foreign currency monetary items are translated using the closing rate; (b) non-monetary items denominated in a foreign currency that are measured in terms of historical cost are translated using the exchange rate at the date of the transaction; and (c) foreign currency non-monetary items that are measured at fair value are translated using the exchange rates at the date when the fair value was determined.

Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition during the period or in previous periods are recognized in profit or loss in the period in which they arise, except for exchange differences arising on a monetary item that forms part of a reporting entity’s net investment in a foreign operation which are initially recorded in other comprehensive income in the consolidated financial statements and reclassified from equity to profit or loss on disposal of the net investment.

When a gain or loss on a non-monetary item is recognized in other comprehensive income, any exchange component of that gain or loss is recognized in other comprehensive income. Conversely, when a gain or loss on a non-monetary item is recognized in profit or loss, any exchange component of that gain or loss is recognized in profit or loss.

Use of a presentation currency other than the functional currency

~~The~~

When an entity presents its financial statements in a currency that differs from its functional currency, the results and financial position of anthe entity ~~whose functional currency is not the currency of a hyperinflationary economy~~ are translated into ~~a different~~the presentation currency using the following

TABLE OF CONTENTS

MFC BANCORP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016

Note 2. Basis of Presentation and Summary of Significant Accounting Policies (continued)

procedures: (a) assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of ~~that~~the statement of financial position; (b) income and expenses for each statement of ~~comprehensive income or separate income statement~~operations presented are translated at exchange rates at the dates of the transactions or, for practical reasons, the average exchange rates for the periods ~~(which~~when they approximate the exchange rates at the dates of the ~~transactions);~~transactions; (c) individual items within equity are translated at either the historical exchange rates when practical or at the closing exchange rates at the date of the statement of financial position; and ~~(c)~~(d) all resulting exchange differences are recognized in other comprehensive income. ~~The Group does not have any entities in a hyperinflationary economy.~~

~~MFC INDUSTRIAL LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2013~~

~~Note 1. Nature of Business and Summary of Significant Accounting Policies (continued)~~

The following table sets out exchange rates for the translation of ~~Canadian dollars (CDN$ or C$), Euros (EUR or €)~~the Euro and ~~Chinese yuans (Renminbi or RMB),~~U.S. dollar, which represented the major trading currencies of the Group, into ~~U.S. dollars:~~

CDN$ EUR RMB
Closing rate at December 31, 2013 0.9402 1.3779 0.1652
Average rate for the year 2013 0.9710 1.3284 0.1626
Closing rate at December 31, 2012 1.0051 1.3186 0.1605
Average rate for the year 2012 1.0004 1.2855 0.1585
Closing rate at December 31, 2011 0.9833 1.2972 0.1589
Average rate for the year 2011 1.0110 1.3918 0.1548

the Canadian dollar:

EUR US$
Closing rate at December 31, 2016 1.4169 1.3427
Average rate for the year 2016 1.4660 1.3248
Closing rate at December 31, 2015 1.5029 1.3840
Average rate for the year 2015 1.4182 1.2787
Closing rate at December 31, 2014 1.4038 1.1601
Average rate for the year 2014 1.4671 1.1045

Fair Value Measurement

Certain assets and liabilities of the Group are measured at fair ~~value.~~

value (see Note 2B. Significant Accounting Policies).

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value measurement is for a particular asset or liability. Therefore, when measuring fair value, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. A fair value measurement assumes that the transaction to sell the asset or transfer the liability takes place either:

	~~(a)~~	~~in the principal market for the asset or liability; or~~

	~~(b)~~	~~in the absence of a principal market, in the most advantageous market for the asset or liability.~~

(a)

in the principal market for the asset or liability; or

(b)

in the absence of a principal market, in the most advantageous market for the asset or liability.

The Group measures the fair value of an asset or a liability using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data ~~are~~is available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs. IFRS 13,Fair Value Measurement (“(“IFRS 13”), establishes a fair value hierarchy that categorizes the inputs to valuation techniques used to measure fair value into three levels:

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date.

Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3 inputs are unobservable inputs for the asset or liability.

Assessing the significance of a particular input to the fair value measurement in its entirety requires judgment, considering factors specific to the asset or liability.

Non-current Assets Held for Sale

A non-current asset (or disposal group) is classified as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use. For this to be the case, the asset (or disposal group) must be available for immediate sale in its present condition subject only to terms that

TABLE OF CONTENTS

MFC BANCORP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016

Note 2. Basis of Presentation and Summary of Significant Accounting Policies (continued)

are usual and customary for the sale of such asset (or disposal group), the appropriate level of management must be committed to a plan to sell the asset (or disposal group) and an active program to locate a buyer and complete the plan must have been initiated. Further, the asset (or disposal group) must be actively marketed for sale at a price that is reasonable in relation to its current fair value and the sale is highly probable to complete within one year from the date of classification, except as permitted under certain events and circumstances. If the aforesaid criteria are no longer met, the Group ceases to classify the asset (or disposal group) as held for sale.

~~MFC INDUSTRIAL LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2013~~

~~Note 1. Nature of Business and Summary of Significant Accounting Policies (continued)~~

Non-current assets (and disposal groups) ~~are~~ classified as held for sale ~~and~~are measured at the lower of their carrying amounts and fair values less costs to ~~sell, except for investment property which is measured at fair value (see Note 1.B.(xi)).~~sell. The Group does not depreciate or amortize a non-current asset while it is classified as held for sale.

When the criteria for non-current assets held for sale are no longer met, the Group ceases to classify the asset (or disposal group) as held for sale. The Group measures a non-current asset (or disposal group) that ceases to be classified as held for sale at the lower of: (a) its carrying amount before the asset (or disposal group) was classified as held for sale, adjusted for any depreciation, amortization or revaluations that would have been recognized had the asset (or disposal group) not been classified as held for sale; and (b) its recoverable amount at the date of the subsequent decision not to sell.

Re-presentation of Consolidated Financial Statements

In the third quarter of 2015, the Board of Directors of the Company approved a plan to sell all of the Group’s resource properties. As such, the assets of the disposal groups were classified as assets held for sale and discontinued operations effective September 30, 2015. As of June 30, 2016, management no longer expected that the interest in a mine would be rationalized within one year. As of September 30, 2016, the remaining hydrocarbon properties, though being actively marketed for sale at prices that were reasonable in relation to their then current fair values, remained unsold. As a result, the Group ceased to classify the interest in the mine and unsold hydrocarbon properties as assets held for sale as of June 30 and September 30, 2016, respectively. The Group’s consolidated statements of operations and cash flows for the prior years in these consolidated financial statements have been re-presented accordingly by reclassifying the results and cash flows of these two former disposal groups from discontinued operations to continuing operations.

Use of Estimates and Assumptions and Measurement Uncertainty

The timely preparation of the consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management’s best estimates are based on the facts and circumstances available at the time estimates are made, historical experience, general economic conditions and trends and management’s assessment of probable future outcomes of these matters. Actual results could differ from these estimates and such differences could be material. For critical judgments in applying accounting policies and major sources of estimation uncertainty, see Notes 1C2C and ~~1D.~~

2D.

B. Significant Accounting Policies

(i) Financial Instruments

All financial assets and financial liabilities are classified by characteristic and/or management intent. Except for certain financial instruments which are excluded from the scope, all financial assets are classified into one of four categories: (a) at fair value through profit or ~~loss, held-to-maturity,~~loss; (b) held-to-maturity; (c) loans and ~~receivables,~~receivables; and ~~available-for-sale;~~(d) available-for-sale, and all financial liabilities are classified into one of two categories: (a) at fair value through profit or ~~loss~~loss; and (b) at amortized cost.

~~Generally, a~~

A financial asset or financial liability at fair value through profit or loss is a financial asset or financial liability that meets either of the following conditions: (a) it is classified as held for trading if it is (i) acquired or incurred principally for the purpose of selling or repurchasing it in the near ~~term;~~term, (ii) part of

TABLE OF CONTENTS

MFC BANCORP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016

Note 2. Basis of Presentation and Summary of Significant Accounting Policies (continued)

a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit ~~taking;~~taking, or (iii) a derivative, except for a derivative that is a designated and effective hedging instrument; or (b) it is designated by the Group upon initial recognition as at fair value through profit or loss when certain conditions are met. Generally, a financial instrument cannot be reclassified ~~into or~~ out of the fair value through profit or loss category while it is held or ~~issued. Only if a financial asset is no longer held for the purpose of selling it~~issued, except in ~~the near term or in the~~ rare ~~circumstances that a reliable measure of fair value is no longer available, the Group reclassifies the financial asset at its fair value on the date of reclassification.~~

circumstances.

Available-for-sale financial assets are those non-derivative financial assets that are designated as available for sale, or that are not classified as loans and receivables, held-to-maturity investments, or at fair value through profit or loss.

Non-derivative financial liabilities are classified as financial liabilities measured at amortized cost.

When a financial asset or financial liability is recognized initially, the Group measures it at its fair value plus, in the case of a financial asset or financial liability not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability. Transaction costs related to the acquisition or issue of a financial asset or financial liability at fair value through profit or loss are expensed as incurred. The subsequent measurement of a financial instrument and the recognition of associated gains and losses isare determined by the financial instrument classification.

After initial recognition, the Group measures financial assets, including derivatives that are assets, at their fair values, without any deduction for transaction costs it may incur on sale or other disposal, except for the following financial assets: (a) held-to-maturity investments which are measured at amortized cost using the effective interest method; (b) loans and receivables which are measured at amortized cost using the effective interest method; and (c) investments in equity instruments that do not have a quoted market price in an active market

~~MFC INDUSTRIAL LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2013~~

~~Note 1. Nature of Business and Summary of Significant Accounting Policies (continued)~~

and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity instruments which are measured at cost. All financial assets except those measured at fair value through profit or loss are subject to review for impairment.

After initial recognition, the Group measures all financial liabilities at amortized cost using the effective interest method, except for financial liabilities ~~that are classified as~~ at fair value through profit or loss (including derivatives that are liabilities), which are measured at their fair values (except for derivative liabilities that are linked to and must be settled by delivery of an unquoted equity ~~instrument~~instruments whose fair value cannot be reliably measured, which should be measured at cost).

Regular way purchases and sales of financial assets are accounted for at the settlement date.

A gain or loss on a financial asset or financial liability classified as at fair value through profit or loss is recognized in profit or loss for the period in which it arises. A gain or loss on an available-for-sale financial asset is recognized in other comprehensive income, except for impairment losses, until the financial asset is derecognized, at which time the cumulative gain or loss previously recognized in accumulated other comprehensive income is recognized in profit or loss for the period. For financial assets and financial liabilities carried at amortized cost, a gain or loss is recognized in profit or loss when the financial asset or financial liability is derecognized or impaired and through the amortization process.

Whenever quoted market prices are available, bid prices are used for the measurement of fair value of financial assets while ask prices are used for financial liabilities. When the market for a financial instrument is not active, the Group establishes fair value by using a valuation technique. Valuation techniques include using recent arm’s length market transactions between knowledgeable, willing parties, if available; reference to the current fair value of another financial instrument that is substantially the same; discounted cash flow analysis; option pricing ~~models~~models; and other valuation techniques commonly used by market participants to price the financial instrument.

(ii) Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, cash at banks and highly liquid investments (e.g. money market funds) readily convertible to a known amount of cash and subject to an insignificant risk of change in value. They have maturities of three months or less from the date of acquisition and are generally interest-bearing.

TABLE OF CONTENTS

MFC BANCORP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016

Note 2. Basis of Presentation and Summary of Significant Accounting Policies (continued)

(iii) ~~Restricted Cash~~

~~Restricted cash is cash and cash equivalents whose use is restricted pursuant to the terms of a contract or an agreement.~~

~~(iv)~~ Securities

Securities are classified as at fair value through profit or loss (i.e. held for trading), or short-term or long-term available-for-sale securities.

Publicly-traded securities (debt and equity) which are acquired principally for the purpose of selling in the near term are classified as held for trading. Securities held for trading are ~~marked to~~measured at their bid prices on the reporting ~~date and unrealized gains and losses are included in profit or loss.~~

date.

Available-for-sale securities consist of publicly-traded securities and unlisted equity securities which are not held for trading and not held to maturity. Long-term available-for-sale securities are purchased with the intention to hold until market conditions render alternative investments more attractive. ~~Unrealized gains and losses are recorded in other comprehensive income, net of income taxes. Upon disposition of~~Short-term available-for-sale securities are held with the ~~gains and losses previously recorded in other comprehensive income are reclassified~~intention of management to ~~profit or loss.~~

sell within the current operating cycle but do not meet the definition of trading securities.

When a decline in the fair value of an available-for-sale security has been recognized in other comprehensive income and there is objective evidence that the asset is impaired, the cumulative loss that had been recognized in other comprehensive income is reclassified from equity to profit or loss as a reclassification adjustment even though the security has not been derecognized.

~~MFC INDUSTRIAL LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2013~~

~~Note 1. Nature~~ A significant or prolonged decline in the fair value of ~~Business~~an investment in an equity instrument below its cost is an objective evidence of impairment. The Group considers a decline in excess of 25 percent generally as significant and ~~Summary of Significant Accounting Policies (continued)~~

a decline in a quoted market price that persists for 15 months as prolonged. Impairment losses recognized in profit or loss for an investment in an equity instrument classified as available for sale shall not be reversed through profit or loss.

If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss shall be reversed, with the amount of the reversal recognized in profit or loss.

Gains and losses on sales of securities are ~~recognized~~calculated on the average cost basis.

~~(v) Receivables~~

~~Receivables are financial instruments which are not classified as at fair value through profit or loss or available-for-sale. They are classified as loans~~

(iv) Securities and ~~receivables and are measured at amortized cost.~~

Receivables are net of an allowance for credit losses, if any. The Group performs ongoing credit evaluation of customers and adjusts the allowance accounts for specific customer risks and credit factors. Receivables are considered past due on an individual basis based on the terms of the contracts.

~~(vi) Allowance for Credit Losses~~

The Group applies credit risk assessment and valuation methods to its trade and other receivables. The Group’s allowance for credit losses is maintained at an amount considered adequate to absorb estimated credit-related losses. Such allowance reflects management’s best estimate of the losses in the Group’s receivables and judgments about economic conditions. Estimates and judgments could change in the near-term, and could result in a significant change to a recognized allowance. Credit losses arise primarily from receivables but may also relate to other credit instruments issued by or on behalf of the Group, such as guarantees and letters of credit. An allowance for credit losses may be increased by provisions which are charged to income and reduced by write-offs net of any recoveries.

Specific provisions are established on an individual basis. A country risk provision may be made based on exposures in less developed countries and on management’s overall assessment of the underlying economic conditions in those countries. Write-offs are generally recorded after all reasonable restructuring or collection activities have taken place and there is no realistic prospect of recovery.

~~(vii) Derivative~~ Financial ~~Instruments~~

Liabilities – Derivatives

A derivative is a financial instrument or other contract with all three of the following characteristics: (a) its value changes in response to the change in a specified interest rate, financial instrument price, ~~commodity~~product price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable; (b) it requires no initial net investment or an initial net investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors; and (c) it is settled at a future date. A derivative financial instrument is either exchange-traded or negotiated. A derivative financial instrument is included in the consolidated statement of financial position as a security (i.e. financial asset) or a financial liability and is measured at fair value. The recognition and measurement of a derivative financial instrument ~~is covered by~~under IAS 39 ~~which~~ , Financial Instruments: Recognition and Measurement (“IAS 39”), does not apply to a contract that is entered into and continues to be held for the purpose of the receipt or delivery of a non-financial item in accordance with the ~~entity’s~~Group’s expected purchase, sale or usage requirements.

Derivatives embedded in other financial instruments or other host contracts are ~~treated~~separated from the host contracts and accounted for separately as ~~separate~~ derivatives ~~and recorded~~ in the consolidated statement of financial position ~~at fair value~~ when their risks and characteristics are not closely related to those of the host contract. ~~Changes in the fair value of those embedded derivatives recognized in the consolidated statement of financial position are recognized in profit or loss as they arise.~~

Where the Group has both the legal right and intent to settle derivative assets and liabilities simultaneously with athe counterparty, the net fair value of the derivative financial instruments is reported as an asset or liability, as appropriate.

Changes in the fair ~~value~~values of derivative financial instruments that do not qualify for hedge accounting are recognized in profit or loss as they arise.

TABLE OF CONTENTS

MFC ~~INDUSTRIAL~~BANCORP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, ~~2013~~

2016

Note ~~1. Nature~~2. Basis of ~~Business~~Presentation and Summary of Significant Accounting Policies (continued)

~~(viii) Hedge Accounting~~

~~Hedge accounting~~

(v) Restricted Cash

Restricted cash is ~~allowed when there is~~cash and cash equivalents that are set aside for restricted use pursuant to the terms of a high degree of correlation between price movements in the derivative instruments and the items designated as being hedged. The Group formally documents all hedges and the risk management objectives at the inception of the hedge. Derivative instruments that have been designated and qualify for hedge accountingcontract or an agreement.

(vi) Receivables

Receivables are classified as ~~either cash flow or fair value hedges.~~

~~Changes~~loans and receivables and are measured at amortized cost.

Receivables are net of an allowance for credit losses, if any. The Group performs ongoing credit evaluations of its customers and adjusts the allowance accounts for specific customer risks and credit factors. Receivables are considered past due on an individual basis based on the terms of the contracts.

(vii) Allowance for Credit Losses

The Group applies credit risk assessment and valuation methods to its trade and other receivables. The Group’s allowance for credit losses is maintained at an amount considered adequate to absorb estimated credit-related losses. Such allowance reflects management’s best estimate of the losses in the ~~fair values~~Group’s receivables and judgments about economic conditions. Estimates and judgments could change in the near term, and could result in a significant change to a recognized allowance. Credit losses arise primarily from receivables but may also relate to other credit instruments issued by or on behalf of ~~derivatives that are designated~~the Group, such as guarantees and ~~qualify as fair value hedges~~letters of credit. An allowance for credit losses is increased by provisions, which are recognized in profit or loss ~~together with~~and reduced by write-offs net of any ~~changes in the fair values~~recoveries.

Specific provisions are established on an individual receivable basis. Write-offs are generally recorded after all reasonable restructuring or collection activities have taken place and there is no realistic prospect of ~~the hedged items that are attributable to the hedged risk.~~

Changes in the fair value of the effective portion of derivatives that are designated and qualify as cash flow hedges are recognized in equity through other comprehensive income, while changes in the fair value of the ineffective portion of cash flow hedges are recognized in profit or loss. Amounts accumulated in equity are reclassified to profit or loss when the underlying transaction occurs or, if the transaction resultsrecovery.

If, in a ~~non-financial asset or liability, are included in~~subsequent period, the ~~initial cost~~amount of ~~that asset or liability.~~

~~For hedges of net investments, gains and losses resulting from foreign exchange translation of the Group’s net investments in foreign operations~~an impairment loss decreases and the ~~effective portion of~~decrease is related objectively to an event occurring after the ~~hedging instrument~~impairment was recognized, the previously recognized impairment loss is ~~recorded in other comprehensive income. Amounts included in cumulative translation adjustment are reclassified to net income when realized.~~

~~Hedge accounting is discontinued when~~reversed either directly or by adjusting the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. At that time, any cumulative gain or loss on the hedging instrument recognized in equity is retained in equity until the forecasted transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognized in equity is reclassified to profit or loss.

~~(ix)~~allowance account.

(viii) Inventories

Inventories principally consist of raw materials, work-in-progress, and finished goods. Inventories, other than products acquired in commodity activities, are recorded at the lower of cost and ~~estimated~~ net realizable value. Cost, where appropriate, includes an allocation of manufacturing overheads incurred in bringing inventories to their present location and condition and is assigned by using the first-in, first-out ~~formula for the inventories in the commodity business and~~or weighted average cost formula, ~~for other~~depending on the class of inventories. Net realizable value represents the estimated selling price less all estimated costs of completion and ~~cost~~costs to be incurred in marketing, selling and distribution. The amount of any write-down of inventories to net realizable value and all losses of inventories are recognized as an expense in the period the write-down or loss occurs. The ~~amount of a~~ reversal of a write-down of inventories arising from an increase in net realizable value is recognized as a reduction in the amount of ~~inventories recognized as an expense~~costs of sales and services in the period in which the reversal occurs.

~~Commodities~~

Commodity products acquired by the Group as a broker-trader in ~~commodity broker-trader~~the Group’s merchant banking activities with the purpose of selling in the near future and generating a profit from fluctuations in price or broker-traders’ margin are measured at fair value less costs to sell.

~~(x)~~

(ix) Real Estate Held for Sale

Real estate held for sale is real estate intended for sale in the ordinary course of business or in the process of construction or development for such sale.

Real estate held for sale is accounted for as inventories measured at the lower of cost (on a specific item basis) and net realizable value. Net realizable value is estimated by reference to sale proceeds of similar properties sold in the ordinary course of business less all estimated selling expenses around the reporting

TABLE OF CONTENTS

MFC BANCORP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016

Note 2. Basis of Presentation and Summary of Significant Accounting Policies (continued)

date, or by management estimates based on prevailing market conditions. The amount of any write-down of properties to net realizable value is recognized as an expense in the period the write-down occurs. The ~~amount of a~~ reversal of a write-down arising from an increase in net realizable value is recognized in the period in which the reversal occurs.

All of the Group’s real estate held for sale ~~are~~is located in Europe.

~~MFC INDUSTRIAL LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2013~~

~~Note 1. Nature of Business and Summary of Significant Accounting Policies (continued)~~

~~(xi)~~(x) Investment Property

Investment property is property that is held for generating rental income or for capital appreciation or both, rather than for: (a) use in the production or supply of goods or services or for administrative purposes; or (b) sale in the ordinary course of business. The Group’s investment property comprises freehold land and buildings. Investment property is initially recognized at cost including related transaction costs. After initial recognition, investment property is measured at fair value, with changes in fair value recognized in ~~the Group’s~~ profit or loss in the period in which ~~it arises.~~

The fair value of investment property is the price at which the property could be exchanged between knowledgeable, willing parties in an arm’s length transaction. Fair value specifically excludes an estimated price inflated or deflated by special terms or circumstances, special considerations or concessions granted by anyone associated with the sale. they arise.

The Group determines fair value without any deduction for transaction costs it may incur on sale or other disposal. Fair value onof the Group’s investment property is based on valuations prepared annually by external evaluators in accordance with guidance issued by the International Valuation Standard Committee and reviewed by the Group, or these valuations are updated by management when there are no significant changes in the inputs to the valuation prepared by external evaluators in the preceding year, in accordance with guidance on fair value in ~~IAS 40,~~~~Investment Property~~.

~~All of investment property located in Europe.~~

~~(xii)~~IFRS 13.

(xi) Property, Plant and Equipment

Property, plant and equipment are carried at cost, net of accumulated depreciation and, if any, accumulated impairment losses. The initial cost of an item of property, plant and equipment comprises its purchase price or construction cost, any costs directly attributable to bringing the asset into operation, the initial estimate of any decommissioning obligation, if any, and, for qualifying assets, borrowing costs. The purchase price or construction cost is the aggregate amount paid and the fair value of any other consideration given to acquire the asset. Where an item of property, plant and equipment or part of the item that was separately depreciated is replaced and it is probable that future economic benefits associated with the replacement item will flow to the Group, the cost of the replacement item is capitalized and the carrying amount of the replaced asset is derecognized. All other replacement expenditures are recognized in profit or loss when incurred.

~~The depreciable amounts of the Group’s property, plant, and equipment are depreciated according to the following estimated lives and methods:~~

	~~Lives~~	~~Method~~
~~Buildings~~	~~20 years~~	~~straight-line~~
~~Processing plant and equipment~~	~~5 to 20 years~~	~~straight-line~~
~~Refinery and power plants~~	~~20 to 30 years~~	~~straight-line~~
~~Office equipment and other~~	~~3 to 10 years~~	~~straight-line~~

Inspection costs associated with major maintenance programs are capitalized and amortized over the period to the next inspection. ~~The costs of maintenance turnarounds of facilities are capitalized and amortized over the period to the next scheduled turnaround; generally three years.~~ All other maintenance costs are expensed as incurred.

The depreciable amounts of the Group’s property, plant, and equipment (i.e. the costs of the assets less their residual values) are depreciated according to the following estimated useful lives and methods:

	Lives	Method
Buildings	20 years		straight-line
Processing plant and equipment	5 to 20 years		straight-line
Refinery and power plants	20 to 30 years		straight-line
Office equipment and other	3 to 10 years		straight-line

Depreciation expense is included in ~~either~~ costs of sales and services or selling, general and administrative expense, whichever is appropriate.

The residual value and the useful life of an asset are reviewed at least at each financial year-end and, if expectations differ from previous estimates, the changes, if any, are accounted for as a change in an accounting estimate in accordance with IAS 8,Accounting Policies, Changes in Accounting Estimates and Errors ~~(“IAS 8”)~~. The depreciation method applied to an asset is reviewed at least at each financial year-end and, if there has been a significant change in the expected pattern of consumption of the future economic benefits embodied in the asset, the method is changed to reflect the changed pattern. ~~The carrying amount of property, plant and equipment is reviewed for impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable.~~

TABLE OF CONTENTS

MFC ~~INDUSTRIAL~~BANCORP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, ~~2013~~

2016

Note ~~1. Nature~~2. Basis of ~~Business~~Presentation and Summary of Significant Accounting Policies (continued)

The carrying amount of an item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in profit or loss in the period in which the item is derecognized.

(xii) Interests in Resource Properties

The Group’s interests in resource properties comprise exploration and evaluation assets (comprising hydrocarbon probable reserves and hydrocarbon unproved lands), hydrocarbon development and production assets and an interest in an iron ore mine.

(a) ~~(xiii)~~ Exploration and ~~Evaluation Assets~~evaluation assets

~~Pre-license costs are recognized in profit or loss as incurred.~~

Exploration and evaluation costs, including the costs of acquiring undeveloped land and drilling costs are initially capitalized until the drilling of the well is complete and the results have been evaluated in order to determine the technical feasibility and commercial viability of the asset. ~~The technical~~Technical feasibility and commercial viability isare considered to be determinable when proved and/or probable reserves are determined to exist. IfWhen proved and/or probable reserves are found, the drilling costs and the costs of associated hydrocarbon ~~undeveloped land~~unproved lands are reclassified to ~~interests in resource properties;~~hydrocarbon development and production assets or from hydrocarbon ~~undeveloped land~~unproved lands to hydrocarbon probable reserves. The cost of hydrocarbon undeveloped land that expires or any impairment recognized during a period is charged to profit or loss.

~~(xiv) Interests~~ Pre-license costs are recognized in ~~Resource Properties~~profit or loss as incurred.

(b) Hydrocarbon development and production assets and an interest in an iron ore

The Group’s interests in resource properties include ~~a royalty~~an interest in an iron ore mine and hydrocarbon development and production ~~assets, as well as extracting facilities which were sold in 2013.~~

~~(a)~~assets.

(1) Recognition and measurement

Interests in resource properties are initially measured at cost and subsequently carried at cost less accumulated depletion and, if any, accumulated impairment losses.

The cost of an interest in resource property includes the initial purchase price and directly attributable expenditures to find, develop, construct and complete the asset. This cost includes reclassifications from exploration and evaluation assets, installation or completion of infrastructure facilities such as platforms, pipelines and the drilling of development wells, including unsuccessful development or delineation wells. Any costs directly attributable to bringing the asset to the location and condition necessary to operate as intended by management and result in an identifiable future benefit are also capitalized. ~~This includes the~~These costs include an estimate of ~~any~~ decommissioning obligations and, for qualifying assets, capitalized borrowing costs.

~~(b)~~

(2) Subsequent costs

Costs incurred subsequent to the determination of technical feasibility and commercial viability and the costs of replacing parts of property are capitalized only when they increase the future economic benefits embodied in the specific asset to which they relate. Such capitalized costs generally represent costs incurred in developing proved ~~and/or probable~~ reserves and bringing in, or enhancing production from, such reserves and are accumulated on a field or geotechnical area basis. All other expenditures are recognized in profit or loss as incurred. The costs of periodic servicing of the properties are recognized in ~~operating expenses~~costs of sales and services as incurred.

The carrying amount of any replaced or sold component is derecognized.

~~(c)~~

(3) Depletion

The ~~net~~ carrying amount of an interest in a resource property is depleted using the unit of production method by reference to the ratio of production in the period to the related reserves.

TABLE OF CONTENTS

MFC BANCORP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016

Note 2. Basis of Presentation and Summary of Significant Accounting Policies (continued)

For interests in hydrocarbon ~~properties,~~development and production assets, depletion is calculated based on proved producing reserves, taking into account estimated future development costs necessary to bring those reserves into production and the estimated salvage values of the assets at the end of their estimated useful lives. Future development costs are estimated taking into account the level of development required to continue to produce the reserves. Reserves for hydrocarbon ~~properties~~development and production assets are estimated annually by independent qualified reserve evaluators and represent the estimated quantities of natural gas, natural gas liquids and crude oil which geological, geophysical and engineering data

~~MFC INDUSTRIAL LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2013~~

~~Note 1. Nature of Business and Summary of Significant Accounting Policies (continued)~~

demonstrate with a specified degree of certainty to be recoverable in future years from known reservoirs and which are considered commercially producible. For depletion purposes, relative volumes of petroleum and natural gas production and reserves are converted at the energy equivalent conversion rate of six thousand cubic feet of natural gas to one barrel of crude oil.

For the royalty interest in an iron ore ~~and extracting facilities,~~mine, depletion is calculated based on proved and probable reserves. The estimate of the reserves of iron ore is reviewed whenever significant new information about the reserve is available, or at least at each financial year-end.

~~(xv) Intangible Assets~~

Intangible assets are measured at cost, net of accumulated depreciation and, if any, accumulated impairment losses. An intangible asset acquired as part of a business combination is measured at fair value at the date of acquisition and is recognized separately from goodwill if the asset is separable or arises from contractual or other legal rights. Intangible assets with a finite life are amortized on a straight-line basis over their expected useful lives. The expected useful lives of intangible assets are reviewed on an annual basis and, if necessary, changes in useful lives are accounted for prospectively.

~~(xvi) Farm-out Arrangements~~

The Group does not adjust the recognized cost of exploratory property interests, excluding cash consideration received, for which farm-out agreements have been made. No exploration costs incurred by the farmee are recorded.

~~(xvii)~~

(xiii) Impairment of Non-financial Assets

The Group reviews the carrying amounts of its non-financial assets at each reporting date to determine whether there is any indication of impairment. If any such indication exists, ~~then the~~an asset’s recoverable amount is estimated.

Hydrocarbon probable resources are tested for impairment when they are reclassified to interests in resource properties or when indicators exist that suggest the carrying value may exceed the recoverable amount. For purposes of impairment testing, hydrocarbon probable resources are grouped with related producing resource properties into a cash-generating unit (“CGU”) with common geography and geological characteristics.

Unproved land is evaluated for indicators separately from interest in resource properties and hydrocarbon probable resources. Impairment is assessed by comparing the carrying value of unproved land to values determined by an independent land evaluator based on recent market transactions.

The recoverable amount is the higher of an asset’s fair value less costs ~~to sell or value-in-use.~~of disposal and value in use. Where an individual asset does not generate separately identifiable cash flows, an impairment test is performed at the ~~CGU~~cash-generating unit (“CGU”) level. A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Where the carrying amount of an asset ~~or CGU~~(or CGU) exceeds its recoverable amount, the asset (or CGU) is considered impaired and written down to its recoverable amount. In assessing value-in-use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs ~~to sell,~~of disposal, an appropriate valuation model is used. These calculations are corroborated by external valuation metrics or other available fair value indicators wherever possible.

In assessing the carrying amounts of the Group’s unproved properties, management takes into account future plans for those properties, the remaining terms of the leases and any other factors that may be indicators of potential impairment.

An assessment is made at the end of each reporting ~~date as to~~period whether there is an indication that previously recognized impairment losses no longer exist or have decreased. If such indication exists, an estimate of the ~~asset’s~~assets (or CGU’s) recoverable amount is reviewed. A previously recognized impairment loss is reversed to the extent that the events or circumstances that triggered the original impairment have changed. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, depletion and amortization, had no impairment loss been recognized for the asset in prior periods.

~~MFC INDUSTRIAL LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2013~~

~~Note 1. Nature of Business and Summary of Significant Accounting Policies (continued)~~

A reversal of an impairment loss for a CGU is allocated to the assets of the CGU pro-rata with the carrying amounts of those assets.

~~(xviii) Leases~~

~~A lease~~

Hydrocarbon probable reserves are tested for impairment when they are reclassified to hydrocarbon development and production assets or when indicators exist that suggest the carrying amount may exceed the recoverable amount. For purposes of impairment testing, hydrocarbon probable reserves are grouped with related producing resource properties as a CGU with common geography and geological characteristics.

Unproved lands are evaluated for indicators separately from hydrocarbon development and production assets and hydrocarbon probable reserves. Impairment is ~~classified as~~assessed by comparing the carrying amount of unproved lands to values determined by an ~~operating lease if it does not transfer substantially all~~independent land evaluator based on recent market transactions. Management also takes into account future plans for those properties, the ~~risks and rewards incidental to ownership. Operating lease payments are expensed in net earnings on a straight line-basis over the term~~remaining terms of the ~~lease.~~

~~(xix) Sale~~leases and ~~Repurchase Arrangements~~

~~The Group enters into sale~~any other factors that may be indicators of potential impairment.

TABLE OF CONTENTS

MFC BANCORP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016

Note 2. Basis of Presentation and ~~repurchase agreements with other commodity broker-traders pursuant to which the Group sells an agreed quantity~~Summary of commodities at agreed prices and undertakes to buy back the same quantity of the same commodities at the same agreed prices in future periods. These sale and repurchase transactions are accounted for as financing arrangements. The sale and repurchase agreements are non-interest-bearing. Cash received is discounted at the market interest rate and presented as deferred sale liabilities in the consolidated statement of financial position. Deferred sale liabilities are accreted, with the accretion included in profit or loss. When the transaction is unwound in the normal course of business, cash is paid back to the counterparty, with a debit to the deferred sale liabilities.

~~(xx)~~Significant Accounting Policies (continued)

(xiv) Defined Benefit Pension Plan

The Group has defined benefit pension plans.

The Group recognizes ~~a net defined benefit liability,~~an accrued pension obligation, which represents the deficit of a defined benefit pension plan and is calculated by deducting the fair value of plan assets from the present value of the defined benefit obligations, in the consolidated statement of financial position. When the Group has a surplus in a defined benefit plan, it measures the net defined benefit asset at the lower ofof: (a) the surplus in the defined benefit plan; and (b) the asset ceiling. The Group accounts not only for its legal obligation under the formal terms of a defined benefit plan, but also for any constructive obligation that arises from the Group’s informal practices.

An asset relating to one plan is not offset against a liability relating to another plan.

The Group uses the projected unit credit method to determine the present value of its defined benefit obligations and the related current service cost and, where applicable, past service cost. Actuarial assumptions are unbiased and mutually compatible and comprise demographic and financial assumptions.

Past service cost, which is the change in the present value of the defined benefit obligation for employee service in prior periods resulting from a plan amendment or curtailment, is recognized as an expense at the earlier of when the amendment/curtailment occurs or when the Group recognizes related restructuring or termination costs. The gain or loss on a settlement, which is the difference between the present value of the defined benefit obligation being settled and the settlement price, is recognized in profit or loss when the settlement occurs.

Current service cost and net interest on the ~~net defined benefit liability (asset)~~accrued pension obligation are recognized in profit or loss.

Remeasurements of the ~~net defined benefit liability (asset),~~accrued pension obligation, which comprise actuarial gains and losses, the return on plan assets (excluding amounts included in net interest on the net defined benefit liability (asset)) and any change in the effect of the asset ceiling (excluding amounts included in net interest on the net defined benefit liability (asset)), are recognized in other comprehensive income and are not reclassified to profit or loss in a subsequent period.

~~(xxi)~~

(xv) Provisions and Contingencies

Provisions are recognized when the Group has a present obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions are measured at management’s best estimate of the expenditure required to settle the obligation at the reporting date. Where appropriate, the future cash flow estimates are adjusted to reflect risks specific to the liability. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is ~~recognized~~recorded as ~~interest expense.~~

~~MFC INDUSTRIAL LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2013~~

~~Note 1. Nature of Business~~accretion and ~~Summary of Significant Accounting Policies (continued)~~

included in finance costs.

Contingent liabilities are possible obligations whose existence will only be confirmed by future events not wholly within the control of the Group. Contingent liabilities, other than those assumed in connection with business combinations which are measured at fair value at the acquisition date, are not recognized in the consolidated financial statements but are disclosed unless the possibility of an outflow of economic resources is considered remote. Legal costs in connection with a loss contingency are recognized in profit or loss when incurred.

~~(xxii)~~

The Group does not recognize a contingent or reimbursement asset unless it is virtually certain that the contingent or reimbursement asset will be received.

(xvi) Puttable Instrument Financial Liabilities

A puttable financial instrument represents a contractual obligation for the issuer to repurchase or redeem the instrument for cash or another financial asset on exercise of the put. Puttable instruments held by non-controlling interests in a subsidiary are classified as a financial liability, which is recognized at an

TABLE OF CONTENTS

MFC BANCORP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016

Note 2. Basis of Presentation and Summary of Significant Accounting Policies (continued)

amount equal to the present value of the amount that could be required to be paid to the counterparties. Changes in the measurement of the obligation due to the unwinding of the discount or changes in the amount that the Group could be required to pay are recognized in profit or loss.

The financial liability is reclassified to equity when all the features of and conditions for classification as equity are met. At such time, equity is measured at the carrying amount of the financial liability at the date of reclassification.

(xvii) Decommissioning Obligations

The Group provides for decommissioning, restoration and similar liabilities (collectively, decommissioning ~~obligations, or asset retirement~~ obligations) on its resource properties, facilities, production platforms, pipelines and other facilities based on estimates established by current legislation and industry practices. The decommissioning obligation is initially measured at fair value and capitalized to ~~interest~~interests in resource ~~property~~properties or property, plant and equipment as an asset retirement cost. The liability is estimated by discounting expected future cash flows required to settle the liability using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The estimated future asset retirement costs ~~may be~~are adjusted for risks such as project, physical, regulatory and timing. The estimates are reviewed periodically. Changes in the provision as a result of changes in the estimated future costs or discount rates are added to or deducted from the asset retirement cost in the period of the change. The liability accretes for the effect of time value of money until it is settled. The capitalized asset retirement cost is amortized through depreciation, depletion and amortization over the estimated useful life of the related asset. Actual asset retirement expenditures are recorded against the obligation when incurred. Any difference between the accrued liability and the actual expenditures incurred is recorded as a gain or loss in the settlement period.

~~(xxiii) Puttable Instrument Financial Liabilities~~

A puttable financial instrument represents a contractual obligation for the issuer to repurchase or redeem that instrument for cash or another financial asset on exercise of the put. Puttable instrument held by non-controlling parties in a subsidiary are classified as a financial liability, which is recognized at an amount equals to the present value of the amount that could be required to be paid to the counterparties. Changes in the measurement of the gross obligation due to the unwinding of the discount or changes in the amount that the acquirer could be required to pay are recognized in profit or loss.

~~(xxiv)~~

(xviii) Own Equity Instruments

The Group’s holdings of its own equity instruments, including common stock and preferred stock, are ~~classified~~presented as “treasury stock” and deducted from shareholders’ equity at cost and in the determination of the number of equity shares outstanding. No gain or loss is recognized in profit or loss on the purchase, sale, re-issue or cancellation of the Group’s own equity instruments.

~~(xxv)~~

(xix) Revenue Recognition

Revenues include proceeds from sales of ~~commodities~~merchant banking products and ~~resources,~~services, real estate properties, medical instruments and supplies, ~~fees from provisions of financial and other services,~~ rental income ~~from and fair value gains~~ on investment property, ~~royalty~~interest and dividend income and net gains on securities.

In an agency relationship, revenue is the amount of commission earned.

Revenue from the sale of goods is recognized when: (a) the Group has transferred to the buyer the significant risks and rewards of ownership of the goods (which generally coincides with the time when the goods are delivered to ~~customers~~the buyer and title has passed); (b) the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; (c) the amount of revenue can be measured reliably; (d) it is probable that the economic benefits associated with the transaction will flow to the Group; and (e) the costs incurred or to be incurred in respect of the transaction can be measured reliably. ~~For sales of hydrocarbon products, revenue is generally recognized at the time hydrocarbon products enter the trading hub or are at the plant gate, depending on the contractual arrangements.~~

~~MFC INDUSTRIAL LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2013~~

~~Note 1. Nature of Business and Summary of Significant Accounting Policies (continued)~~

Revenue from the rendering of services is recognized when: (a) the amount of revenue can be measured reliably; (b) it is probable that the economic benefits associated with the transaction will flow to the Group; (c) the stage of completion of the transaction at the reporting date can be measured reliably; and (d) the costs incurred for the transaction and the costs to complete the transaction can be measured reliably.

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts, customs duties and sales ~~taxes and royalty obligations to governments and other mineral interest owners.~~taxes. When the Group charges shipping and handling fees to customers, such fees are included in sales revenue. Where the Group acts as an agent on behalf of a third party to procure or market goods, any associated fee income is recognized ~~but~~and no purchase or sale is recorded.

~~For interest,~~

TABLE OF CONTENTS

MFC BANCORP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016

Note 2. Basis of Presentation and Summary of Significant Accounting Policies (continued)

Interest, royalty and dividend income ~~recognition is warranted~~are recognized when it is probable that economic benefits will flow to the Group and the amount of income can be measured reliably. Interest income is recognized ~~on a time proportion basis, taking into account~~using the effective ~~yield on the underlying asset.~~interest method. Royalty income is recognized on an accrual basis in accordance with the ~~terms~~substance of the ~~underlying agreement.~~relevant agreements. Dividend income is recognized when the Group’s right as a shareholder to receive payment ~~has been~~is established.

~~(xxvi)~~

(xx) Costs of Sales

and Services

Costs of sales and services include the ~~cost~~costs of goods ~~(commodities~~(merchant banking products and ~~resources,~~services, real estate properties, medical instruments and supplies) sold. The ~~cost~~costs of goods sold ~~includes~~include both the direct cost of materials and indirect costs, freight charges, purchasing and receiving costs, inspection costs, distribution costs ~~overriding~~ and ~~other royalties, freehold mineral taxes as well as~~a provision for warranty when applicable.

Costs of sales and services also include ~~the~~ write-downs of inventories, net loss on securities, credit losses on loans and receivables and fair value gain and loss on investment property, ~~commodities~~commodity inventories and derivative contracts.

The reversal of write-downs of inventories and allowance for credit losses ~~reduce~~reduces the costs of ~~sales.~~

~~(xxvii)~~sales and services.

(xxi) Employee Benefits

Wages, salaries, bonuses, social security contributions, paid annual leave and sick leave are accrued in the period in which the associated services are rendered by employees of the Group. The employee benefits are included in ~~either~~ costs of sales and services or selling, general and administrative ~~expense,~~expenses, as applicable.

~~(xxviii)~~

(xxii) Leases

A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership of the leased asset. Operating lease payments are expensed in profit or loss over the term of the lease on a straight line basis.

(xxiii) Share-Based Compensation

The cost of equity-settled transactions with employees is measured by reference to the fair value atof the equity instruments on the date at which the equity instruments are granted and is recognized as an expense over the vesting period, which ends on the date on which the relevant employees become fully entitled to the award. Fair value is determined by using an appropriate valuation model. No expense is recognized for awards that do not ultimately vest. At each reporting date before vesting, the cumulative expense is calculated, representing the extent to which the vesting period has expired and management’s best estimate of the achievement or otherwise of non-market conditions and the number of equity instruments that will ultimately vest. The movement in cumulative expense since the previous reporting date is recognized in profit or loss, with a corresponding amount in equity.

When the terms of an equity-settled award are modified or a new award is designated as replacing a cancelled or settled award, the cost based on the original award terms continues to be recognized over the original vesting period. In addition, an expense is recognized over the remainder of the new vesting period for the incremental fair value of any modification, based on the difference between the fair value of the original award and the fair value of the modified award, both as measured on the date of the modification. No reduction is recognized if this difference is negative. When an equity-settled award is cancelled other than by forfeiture when the vesting conditions are not satisfied, it is treated as if it had vested on the date of cancellation and any cost not yet recognized in profit or loss for the award is expensed immediately.

Share-based compensation expenses are ~~classified as~~included in selling, general and administrative expenses. When stock options are exercised, the exercise price proceeds together with the amount initially recorded in ~~the~~ contributed surplus ~~account~~ are credited to capital stock.

TABLE OF CONTENTS

MFC ~~INDUSTRIAL~~BANCORP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, ~~2013~~

2016

Note ~~1. Nature~~2. Basis of ~~Business~~Presentation and Summary of Significant Accounting Policies (continued)

~~(xxix)~~

(xxiv) Finance Costs

Finance costs comprise interest expense on borrowings, accretion of the discount on provisions, decommissioning obligations and other liabilities and charges and fees relating to factoring transactions.

Finance costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use. All other finance costs are recognized in profit or loss in the period in which they are incurred.

~~Share capital~~

Capital stock and debt are recorded at the amount of proceeds received, net of direct issue ~~costs. Finance charges, including premiums payable on settlement or redemption and direct issue~~ costs ~~for~~(transaction costs). The transaction costs attributable to debt issued are ~~charged to profit or loss on an accrual basis~~amortized over the debt term using the effective interest ~~method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.~~

~~(xxx)~~method.

(xxv) Income Taxes

~~Tax~~

Income tax expense ~~(tax recovery)~~(recovery) comprises current income tax expense ~~(current tax recovery)~~(recovery) and deferred income tax expense ~~(deferred tax recovery)~~(recovery) and includes all domestic and foreign taxes which are based on taxable profits. The current income tax ~~currently payable~~provision is based on the taxable profits for the period. Taxable profit differs from ~~net~~ income before income taxes as reported in ~~profit or loss~~the statements of operations because it excludes items of income or expense that are taxable or deductible in other periods and ~~it further excludes~~ items that are never taxable or deductible. The Group’s liability for current income tax is calculated using tax rates that have been enacted or substantively enacted by the reporting date. Deferred income tax is provided, using the liability method, on all temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts ~~for~~in the consolidated statement of financial ~~reporting purposes.~~

position.

Deferred income tax liabilities are recognized for all taxable temporary differences:

	-		except where the deferred income tax liability arises on goodwill that is not tax deductible or the initialrecognition of an asset or liability in a transaction that is not a business combination and, at the time ofthe transaction, affects neither the accounting profit nor taxable profit or loss.

	-		in respect of taxable temporary differences associated with investments in subsidiaries, branches andassociates, and interests in joint arrangements, except where the Group is able to control the timing of thereversal of the temporary differences and it is probable that the temporary differences will not reverse inthe foreseeable future.

except where the deferred income tax liability arises on goodwill that is not tax deductible or the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.

in respect of taxable temporary differences associated with investments in subsidiaries and branches, except where the Group is able to control the timing of the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred income tax assets are recognized for all deductible temporary differences, carry-forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax credits and unused tax losses can be utilized:

	-		except where the deferred income tax asset relating to the deductible temporary difference arises fromthe initial recognition of an asset or liability in a transaction that is not a business combination and, at thetime of the transaction, affects neither the accounting profit nor taxable profit or loss.

	-		in respect of deductible temporary differences associated with investments in subsidiaries, branches andassociates, and interests in joint arrangements, deferred tax assets are recognized only to the extent thatit is probable that the temporary differences will reverse in the foreseeable future.

except where the deferred income tax asset arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.

in respect of deductible temporary differences associated with investments in subsidiaries and branches, deferred tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future.

On the reporting date, management reviews the Group’s deferred income tax assets to determine whether it is probable that the benefits associated with these assets will be realized. The Group also reassesses unrecognized deferred income tax assets. ~~This~~The review and assessment involve evaluating both positive and negative evidence. The Group recognizes a previously unrecognized deferred income tax asset to the extent that it has become probable that future taxable profit will allow the deferred income tax asset to be recovered.

TABLE OF CONTENTS

MFC ~~INDUSTRIAL~~BANCORP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, ~~2013~~

2016

Note ~~1. Nature~~2. Basis of ~~Business~~Presentation and Summary of Significant Accounting Policies (continued)

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the reporting date. Tax relating to items recognized in other comprehensive income or equity is recognized in other comprehensive income or equity and not in profit or loss.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to set off current income tax assets against current income tax liabilities, and when they relate to income tax levied by the same taxation authority and the Group intends to settle its current income tax assets and liabilities on a net basis.

~~Resource property revenue taxes and withholding~~

Withholding taxes (which include withholding taxes payable by a subsidiary ~~associate or joint arrangement~~ on distributions to the Group) are treated as income taxes when they have the characteristics of an income tax. This is considered to be the case when they are imposed under government authority and the amount payable is calculated by reference to revenue derived.

The Group includes interest charges and penalties on current income tax liabilities as a component of interest expense.

~~(xxxi)~~

(xxvi) Earnings Per Share

Basic earnings per share is determined by dividing net income attributable to ~~common shares~~ordinary equity holders of ~~the parent company~~MFC Bancorp by the weighted average number of common shares outstanding during the period, net of treasury stock.

Diluted earnings per share is determined using the same method as basic earnings per share, except that the weighted average number of common shares outstanding includes the ~~potential dilutive~~ effect of ~~stock options.~~dilutive potential ordinary shares. For the purpose of calculating diluted earnings per share, the Group assumes the exercise of its dilutive options with the assumed proceeds from these instruments regarded as having been received from the issue of common shares at the average market price of common shares during the period. The difference between the number of common shares issued and the number of common shares that would have been issued at the average market price of common shares during the period is treated as an issue of common shares for no consideration and added to the weighted average number of common shares outstanding. The amount of the dilution is the average market price of common shares during the period minus the issue price and the issue price includes the fair value of services to be supplied to the Group in the future under the share-based payment arrangement.

Potential ordinary shares are treated as dilutive when, and only when, their conversion to ordinary shares would decrease earnings per share or increase loss per share from continuing operations.

When share-based payments are granted during the period, the shares issuable are weighted to reflect the portion of the period during which the payments are outstanding. The shares issuable are also weighted to reflect forfeitures occurring during the period. When stock options are exercised during the period, shares issuable are weighted to reflect the portion of the period prior to the exercise date and actual shares issued are included in the weighted average number of shares outstanding from the exercise date.

~~(xxxii)~~

(xxvii) Business Combinations

The Group accounts for each business combination by applying the acquisition method. Pursuant to the acquisition method, the Group, when a business combination occurs ~~identifies~~and it is identified as the acquirer, ~~(which obtains control of the acquiree),~~ determines the acquisition date (on which the ~~acquirer~~Group legally transfers the consideration, acquires the assets and assumes the liabilities of the acquiree), ~~recognize~~recognizes and measures the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree, and ~~recognize~~recognizes and ~~measure~~measures goodwill or a gain from a bargain purchase (i.e. negative goodwill). The identifiable assets acquired and the liabilities assumed are measured at their acquisition-date fair values. ~~Non-controlling~~A non-controlling interest is measured at either its fair value or its proportionate share in the recognized amounts of the subsidiary’s identifiable net assets, on a transaction-by-transaction basis.

TABLE OF CONTENTS

MFC BANCORP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016

Note 2. Basis of Presentation and Summary of Significant Accounting Policies (continued)

The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the ~~acquirer,~~Group, the liabilities incurred by the Group to former owners of the acquiree and the equity interests issued by the Group.

In a business combination achieved in stages, the Group remeasures its previously held equity interest in the acquiree at its acquisition-date fair value and recognizes the resulting gain or loss, if any, in profit or loss.

~~MFC INDUSTRIAL LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2013~~

~~Note 1. Nature of Business and Summary of Significant Accounting Policies (continued)~~

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports in its financial statements provisional amounts for the items for which the accounting is incomplete. During the measurement period, the Group retrospectively adjusts the provisional amounts recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date and, if known, would have affected the measurement of the amounts recognized as of that date. During the measurement period, the Group also recognizes additional assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date and, if known, would have resulted in the recognition of those assets and liabilities as of that date. The measurement period ends as soon as the Group receives the information it was seeking about facts and circumstances that existed as of the acquisition date or learns that more information is not obtainable. However, the measurement period does not exceed one year from the acquisition date.

Acquisition-related costs are costs the ~~acquirer~~Group incurs to effect a business combination. Those costs include finder’s fees; advisory, legal, accounting, valuation and other professional or consulting fees; general administrative costs, including the costs of maintaining an internal acquisitions department; and costs of registering and issuing debt and equity securities. The Group accounts for acquisition-related costs as expenses in the periods in which the costs are incurred and the services are received, except for the costs to issue debt or equity securities (see Significant Accounting Policy Item~~(xxix)~~ (xxiv) above).

C. Critical Judgments in Applying Accounting ~~Polices~~

Policies

In the process of applying the Group’s accounting policies, management makes various judgments, apart from those involving estimations under Note ~~1(D)~~2D below, that can significantly affect the amounts it recognizes in the consolidated financial statements. The following are the critical judgments that management has made in the process of applying the Group’s accounting policies and that have the most significant effects on the amounts recognized in the consolidated financial statements:

(i) Identification of Cash-generating Units

The Group’s assets are aggregated into CGUs, for the purpose of assessing and calculating impairment, based on their ability to generate largely independent cash flows. The determination of CGUs requires judgment in defining the smallest identifiable group of assets that generate cash inflows that are largely independent of the cash inflows from other assets or groups of assets. CGUs have been determined based on similar geological structure, shared infrastructure, geographical proximity, ~~commodity~~product type and similar ~~exposures~~exposure to market risks. In the event facts and circumstances surrounding factors used to determine the Group’s CGUs change, the Group will re-determine ~~its appropriate~~the groupings of CGUs.

(ii) Assets Held for Sale

and Discontinued Operations

The Group applies judgment to determine whether an asset ~~(disposal~~(or disposal group) is available for immediate sale in its present condition and that its sale is highly probable and therefore should be classified as held for sale at the balance sheet date. In order to assess whether it is highly probable that the sale can be completed within one year, or the extension period in certain circumstances, management reviews the business and economic factors, both macro and micro, which include the industry trends and capital ~~markets.~~markets, and the progress towards a sale transaction. It is also open to all forms of sales, including exchanges of non-current assets for other non-current assets when the exchange will have commercial substance in accordance with IAS 16,Property, Plant and Equipment.

TABLE OF CONTENTS

MFC BANCORP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016

Note 2. Basis of Presentation and Summary of Significant Accounting Policies (continued)

A discontinued operation is a component of an entity (which comprises operations and cash flows that can be clearly distinguished, operationally and, for financial reporting purposes, from the rest of the entity) that either has been disposed of or is classified as held for sale. While a component of the entity has distinguished financial data, judgments must be exercised on the presentation of inter-company transactions between components that are presented as discontinued operations and those that are presented as continuing operations. Furthermore, the allocation of income tax expense (recovery) also involves the exercise of judgments as the tax position of continuing operations may have an impact on the tax position of discontinued operations, or vice versa.

(iii) Consolidation

Judgment is required when assessing whether the Group controls and therefore consolidates an entity, particularly an entity with complex share capital, management/decision-making or financing structures. Judgment is required to determine whether the Group has decision-making power over the key relevant activities of an investee, whether the Group has exposure or rights to variable returns from its involvement with the investee and whether the Group has the ability to use that power to affect its returns.

(iv) Purchase Price Allocations

~~Purchase prices related to~~

For each business ~~combinations~~combination, the Group measures the identifiable assets acquired and ~~asset acquisitions are allocated to~~ the ~~underlying acquired assets and~~ liabilities ~~based on~~assumed at their ~~estimated~~acquisition-date fair ~~value at the time of acquisition.~~values. The determination of fair value requires the Group to make assumptions, estimates and judgments regarding future ~~events.~~events, including the profit forecast of the new subsidiary in future. The allocation process is inherently subjective and impacts the amounts assigned to individual identifiable assets and liabilities, including the fair value of long-lived assets, the recognition and measurement of any unrecorded intangible assets and/or contingencies and the final determination of the amount of goodwill or bargain ~~purchase calculated.~~purchase. The inputs to the exercise of judgments include legal, contractual, business and economic factors. As a result, the purchase price allocation impacts the Group’s reported assets and liabilities and future net earnings due to the impact on future depreciation, depletion and amortization and impairment tests.

~~MFC INDUSTRIAL LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2013~~

~~Note 1. Nature~~(v) Impairment of ~~Business~~Receivables

A receivable is considered impaired when there is objective evidence that there has been a deterioration of credit quality subsequent to the initial recognition of the receivable to the extent the Group no longer has reasonable assurance as to the timely collection of the full amount of principal and ~~Summary~~interest. The Group assesses receivables for objective evidence of ~~Significant Accounting Policies (continued)~~

impairment individually for receivables that are individually significant, and collectively for receivables that are not individually significant. Management exercises judgment as to the timing of designating a receivable as impaired, the amount of the allowance required and the amount that will be recovered by taking into consideration collateral that is directly linked to the receivable.

D. Major Sources of Estimation Uncertainty

The timely preparation of the consolidated financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported ~~amount~~amounts of assets, liabilities, income and expenses.

The major assumptions about the future and other major sources of estimation uncertainty at the end of the reporting period that have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. These items require management’s most difficult, subjective or complex ~~judgments.~~estimates. Actual results may differ materially from these estimates.

(i) Interests in Resource Properties and Reserve Estimates

The Group had interests in resource properties with an aggregate carrying amount of $79,147 as at December 31, 2016.

TABLE OF CONTENTS

MFC BANCORP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016

Note 2. Basis of Presentation and Summary of Significant Accounting Policies (continued)

Estimation of reported recoverable quantities of proved and probable reserves include judgmental assumptions regarding production profile, ~~commodity~~ prices of products produced, exchange rates, remediation costs, timing and amount of future development costs and production, transportation and marketing costs for future cash flows. It also requires interpretation of geological and geophysical models in anticipated recoveries. The economical, geological and technical factors used to estimate reserves may change from period to period. Changes in reported reserves can impact the carrying amounts of the Group’s interests in resource properties and/or property, plant and equipment, the recognition of impairment losses, the calculation of depletion and depreciation, the provision for decommissioning obligations and the recognition of deferred income tax assets or liabilities due to changes in expected future cash flows. The recoverable quantities of reserves and estimated cash flows from the Group’s hydrocarbon interests are independently evaluated by reserve engineers at least annually.

The Group’s hydrocarbon reserves represent the estimated quantities of petroleum, natural gas and natural gas liquids which geological, geophysical and engineering data demonstrate with a specified degree of certainty to be economically recoverable in future years from known reservoirs and which are considered commercially producible. Such reserves may be considered commercially producible if management has the intention of developing and producing them and such intention is based ~~upon~~upon: (a) a reasonable assessment of the future economics of such production; (b) a reasonable expectation that there is a market for all or substantially all the expected hydrocarbon production; and (c) evidence that the necessary production, transmission and transportation facilities are available or can be made available. Reserves may only be considered proven and probable if producibility is supported by either production or conclusive formation tests.

~~(ii) Recoverable Value of Receivables~~

~~The Group had recognized receivables (including trade and other receivables) aggregating $146,087~~

Included in interests in resource properties as at December 31, 2013. The recoverability of receivables is regularly reviewed and specific provisions are recognized for balances considered to be irrecoverable. The irrecoverable amounts are estimated based on reviewing the macro-economic environment and available micro-economic information specific to each receivable.

~~(iii) Provision for Inventories~~

The Group had recorded inventories of $88,844 at December 31, 2013. The provision for inventories is regularly reviewed and general and specific provisions are recognized for balances considered to be irrecoverable. The irrecoverable amounts are estimated based on reviews of the macro-economic environment and available micro-economic information specific to the product categories.

~~(iv) Impairment of Assets Held for Sale~~

The Group had hydrocarbon assets held for sale aggregating $61,659 at December 31, 2013. The Group measures a non-current asset (or disposal group) classified as held for sale at the lower of its carrying amount and fair value less costs to sell and recognizes an impairment loss for any initial or subsequent write-down of the asset (or disposal group) to fair value less costs to sell, to the extent that it has not been recognized. Fair value is defined as the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date, which generally does not include a transaction which takes place under duress or when

~~MFC INDUSTRIAL LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2013~~

~~Note 1. Nature of Business and Summary of Significant Accounting Policies (continued)~~

the seller is experiencing financial difficulty in a forced sale. Management relies on external valuation reports using discounted cash flows to measure the fair values of the hydrocarbon interests which are classified as assets held for sale. Such valuation is reviewed and compared to market and industry data so as to ensure that the trends and fluctuations are reconciled.

~~The Group had investment property of $35,685 which was classified as assets held for sale at December 31, 2013 and measured at fair value.~~

~~(v) Impairment of Equity Method Investments~~

The Group had investments in joint ventures accounted for using the equity method aggregating $24,366 at December 31, 2013. Investments in joint ventures are reviewed for impairment at the reporting date. Determining whether an investment balance is impaired requires an estimation of the recoverable amount of the joint venture. The recoverable amount calculation requires an estimate to be made of the timing and amount of future cash flows expected to arise from the joint venture and the application of a suitable discount rate in order to calculate the present value. Decreases in estimates of future expected cash flows may result in a write-down of the Group’s investments in equity method investments.

~~(vi) Impairment of Exploration and Evaluation Assets~~

~~The Group had recorded~~2016, were exploration and evaluation assets with an aggregate carrying amount of ~~$106,621 at December 31, 2013.~~$19,455. Exploration and evaluation assets are assessed for impairment when facts and circumstances suggest that the carrying amount of an exploration and evaluation asset may exceed its recoverable ~~amount.~~amount and upon reclassification to hydrocarbon development and production assets. If such indicators exist, impairment, if any, ~~impairment~~ is determined by comparing ~~their~~the carrying amounts to ~~their~~the recoverable amounts. The ~~estimation~~measurement of the recoverable amount involves a number of assumptions, including the timing, likelihood and amount of commercial production, further resource assessment plans and future revenue and costs expected from the asset, if any.

~~(vii)~~

(ii) Impairment of Other Non-financial Assets

The Group had property, plant and equipment ~~and interests in resource properties~~ aggregating ~~$454,315~~$99,443 as at December 31, ~~2013.~~2016, consisting mainly of two power plants and a natural gas processing facility (refinery). Impairment of the Group’s non-financial assets is evaluated at the CGU level. In testing for impairment, the recoverable amounts of the Company’s CGUs are determined ~~based on~~as the ~~greater~~higher of ~~the value-in-use~~their values in use and fair ~~value~~values less costs ~~to sell.~~of disposal. In the absence of quoted market prices, the recoverable amount is based on estimates of ~~reserves,~~future production rates, future ~~oil~~product selling prices and ~~natural gas prices, future~~ costs, discount rates and other relevant assumptions. Increases in future costs and/or decreases in estimates of ~~reserves,~~ future production rates and ~~oil and gas~~product selling prices may result in a write-down of the Group’s property, plant and ~~equipment and interests in resource properties.~~

~~(viii)~~equipment.

(iii) Taxation

The Group is subject to tax in a number of jurisdictions and judgment is required in determining the worldwide provision for income taxes. Deferred income taxes are recognized for temporary differences using the liability method, with deferred income tax liabilities generally being provided for in full (except for taxable temporary differences associated with investments in subsidiaries, branches and associates and interests in joint arrangements where the Group is able to control the timing of the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future) and deferred income tax assets being recognized to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilized.

The operations and organization structures of the Group are complex, and related tax interpretations, regulations and legislation are continually changing. As a result, there are usually some tax matters in

TABLE OF CONTENTS

MFC BANCORP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016

Note 2. Basis of Presentation and Summary of Significant Accounting Policies (continued)

question that result in uncertain tax positions. The Group only recognizes the income tax benefit of an uncertain tax position when it is probable that the ultimate determination of the tax treatment of the position will result in that benefit being realized.

~~MFC INDUSTRIAL LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2013~~

~~Note 1. Nature of Business and Summary of Significant Accounting Policies (continued)~~

The Group companies’ income tax filings are subject to audit by taxation authorities in numerous jurisdictions. There are audits in progress and items under review, some of which may increase the Group’s income tax ~~liability.~~liabilities. In addition, the companies have filed appeals and have disputed certain issues. While the results of these items cannot be ascertained at this time, the Group believes that the Group has an adequate provision for income taxes based on available information.

The Group recognized deferred income tax assets of ~~$17,941~~$16,647 as at December 31, ~~2013.~~2016. In assessing the realizability of deferred income tax assets, management considers whether it is probable that some portion or all of the deferred income tax assets will be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which ~~those~~ temporary differences become deductible or before ~~the~~ tax loss and tax credit carry-forwards expire. Management considers the future reversals of existing taxable temporary differences, projected future taxable income, taxable income in prior years and tax planning strategies in making this assessment. Unrecognized deferred income tax assets are reassessed at the end of each reporting period.

The Group provides for future income tax liabilities in respect of uncertain tax positions where additional income tax may become payable in future periods and such provisions are based on management’s assessment of ~~exposures.~~exposure. The Group did not recognize the full deferred tax liability on taxable temporary differences associated with investments in subsidiaries ~~branches~~ and ~~associates and interests in joint arrangements~~branches where the Group is able to control the timing of the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future. The Group may change its investment decision in its normal course of business, thus resulting in additional income tax ~~liability.~~

~~(ix) Decommissioning Obligations~~

The Group estimates the decommissioning obligations for its resource properties and facilities and had recorded long-term obligations of $105,854 at December 31, 2013. In most instances, dismantling of assets and remediation occurs many years into the future. The amount to be recognized for the decommissioning obligations fluctuates in response to many factors including changes to relevant legal requirements, the emergence of new restoration techniques, experience at other production sites, and changes to the risk-free discount rate.

~~The expected timing and amount of expenditure can also change, for example, in response to changes in reserves or changes in laws and regulations or their interpretation.~~

~~(x)~~liabilities.

(iv) Contingencies

Pursuant to IAS 37,Provisions, Contingent Liabilities and Contingent Assets,the Group does not recognize a contingent liability. By their nature, contingencies will only be resolved when one or more future events occur or fail to occur. The assessment of contingencies inherently involves the exercise of significant judgment and estimates of the outcome of future events. If it becomes probable that an outflow of future economic benefits will be required for an item previously accounted for as a contingent liability, an accrual or a provision is recognized in the consolidated financial statements of the period in which the change in probability occurs.

~~E. Recent Accounting Standards~~ See Note 26 for further disclosures on contingencies.

(v) Allowance for Credit Losses

The Group applies credit risk assessment and ~~Amendments not yet Adopted~~

~~IFRIC 21, Levies, provides~~valuation methods to its trade and other receivables (see Note 2B(vii)). In February 2016, a customer of the ~~following guidance on~~Group filed for insolvency, which was an adjusting subsequent event in the prior year under IAS 10, and, as a result, the Group had to determine an allowance for credit losses against the trade receivables due from the customer and its affiliates, the provisions under certain guarantees which the Group had issued and the potential recoveries as at December 31, 2015. The recognition and measurement of these provisions was a complex process, involving a significant degree of judgment and a high level of estimation uncertainty. The factors considered include the Group’s legal rights and obligations under all the contracts and collateral which include inventories, mortgages and other credit enhancement instruments. After the recognition of ~~a liability to pay levies:~~impairment losses, the Group had net trade receivables of $100,008 due from the customer and its affiliates as at December 31, 2016 (see Note 7).

E. Accounting Changes

Future Accounting Changes

IFRS 9, Financial Instruments,

(“IFRS 9”), issued in July 2014, is the IASB’s replacement of IAS 39. IFRS 9 includes requirements for recognition and measurement, impairment, derecognition and general hedge accounting. The ~~liability~~version of IFRS 9 issued in 2014 supersedes all previous versions and is ~~recognized progressively if the obligating event occurs over a period of time.~~mandatorily

TABLE OF CONTENTS

MFC BANCORP LTD.

~~If an obligation is triggered on reaching a minimum threshold, the liability is recognized when thatminimum threshold is reached.~~

~~MFC INDUSTRIAL LTD.~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, ~~2013~~

2016

Note ~~1. Nature~~2. Basis of ~~Business~~Presentation and Summary of Significant Accounting Policies (continued)

effective for annual reporting periods beginning on or after January 1, 2018. Management expects to complete the assessment of the impacts of IFRS 9 on the Group’s consolidated financial statements before the end of the third quarter in 2017.

IFRS 15, Revenue from Contracts with Customers

(“IFRS 15”), specifies how and when an entity will recognize revenue as well as requiring such entities to provide users of financial statements with more informative, relevant disclosures. The standard provides a single, principles based five-step model to be applied to all contracts with customers. IFRS 15 was issued in May 2014. In September 2015, the IASB deferred the effective date of IFRS 15 to annual reporting periods beginning on or after January 1, 2018. Management expects to complete the assessment of the impacts of IFRS 15 on the Group’s consolidated financial statements before the end of the third quarter in 2017.

IFRS 16, Leases (“IFRS 16”), issued in January 2016, introduces a single on-balance sheet model of accounting for leases by lessees that eliminates the distinction between operating and finance leases. Lessor accounting remains largely unchanged and the distinction between operating and finance leases is retained. IFRS 16 supersedes IAS 17, Leases, and related interpretations and is effective for annual reporting periods beginning on or after January 1, 2019, with earlier application permitted if IFRS 15 has also been applied. Management is currently assessing the impacts of IFRS 16 on the Group’s consolidated financial statements.

Disclosure Initiative (Amendments to IAS 7, Statement of Cash Flows) was issued in January 2016 and requires that the following changes in liabilities arising from financing activities are disclosed (to the extent necessary): (a) changes from financing cash flows; (b) changes arising from obtaining or losing control of subsidiaries or other businesses; (c) the effect of changes in foreign exchange rates; (d) changes in fair values; and (e) other changes. The IASB defines liabilities arising from financing activities as liabilities “for which cash flows were, or future cash flows will be, classified in the statement of cash flows as cash flows from financing activities”. The new disclosure requirements also relate to changes in financial assets if they meet the same ~~recognition principles~~definition. Finally, the amendments state that changes in liabilities arising from financing activities must be disclosed separately from changes in other assets and liabilities. The amendments are ~~applied in interim financial reports. IFRIC 21 is~~ effective for annual periods beginning on or after January 1, ~~January 2014.~~2017 on a prospective basis. Management ~~anticipates~~expects that additional disclosures will be required for the ~~application of this new standard will not have significant impacts~~Group.

Note 3.

Capital Disclosure on the Group’s ~~consolidated financial statements.~~

~~IFRS 9,~~~~Financial Instruments~~~~(“IFRS 9”)~~,~~was published in November 2009~~Objectives, Policies and ~~contained requirements~~Processes for financial assets. Requirements for financial liabilities were added to IFRS 9 in October 2010. Most of the requirements for financial liabilities were carried forward unchanged from IAS 39. However, some changes were made to the fair value option for financial liabilities to address the issue of own credit risk. The IASB decided that a mandatory date of 1 January 2015 would not allow sufficient time for entities to prepare to apply the new Standard because the impairment phase of the IFRS 9 project has not yet been completed. Accordingly, the IASB decided that a new date should be decided upon when the entire IFRS 9 project is closer to completion. The amendments made to IFRS 9 in November 2013 remove the mandatory effective date from IFRS 9. However, entities may still choose to apply IFRS 9 early and management has decided not to early apply IFRS 9.

~~Note 2.~~

~~Capital Disclosure~~on~~the~~~~Group’s~~~~Objectives,~~~~Policies~~~~and~~~~Processes~~~~for~~~~Managing~~~~Its Capital Structure~~

Managing Its Capital

Structure

The Group’s objectives when managing capital ~~are: (i) to~~are to: (a) safeguard the entity’s ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits for other ~~stakeholders, (ii) to~~stakeholders; (b) provide an adequate return to shareholders by pricing products and services commensurately with the level of ~~risk,~~risk; and ~~(iii) to~~(c) maintain a flexible capital structure which optimizes the cost of capital at acceptable risk.

The Group sets the amount of capital in proportion to risk. The Group manages the capital structure and makes adjustments to it in ~~the~~ light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

Consistent with others in the merchant banking industry, the Group monitors capital on the basis of the debt-to-adjusted capital ratio and long-term debt-to-equity ratio. The debt-to-adjusted capital ratio is calculated as net debt divided by adjusted capital. Net debt is calculated as total debt less cash and cash equivalents. Adjusted capital comprises all components of shareholders’ ~~equity other than amounts in accumulated other comprehensive income relating to cash flow hedges, and includes some forms of subordinated debt.~~equity. The long-term debt-to-equity ratio is calculated as long-term debt divided by shareholders’ equity. ~~The calculations are based on continuing operations.~~

2013 2012
(Recast-
Notes 3&41)
Total debt $ 234,740 $ 162,993
Less: cash and cash equivalents (332,173 ) (273,790 )
Net debt (net cash and cash equivalents) $ (97,433 ) $ (110,797 )
Shareholders’ equity $ 699,570 $ 730,587
Debt-to-adjusted capital ratio Not applicable Not applicable

Debt does not include short-term bank borrowings.

TABLE OF CONTENTS

MFC ~~INDUSTRIAL~~BANCORP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, ~~2013~~

~~Note 2.~~

~~Capital Disclosure~~on~~the~~~~Group’s~~~~Objectives,~~2016

Note 3.

Capital Disclosure on the Group’s Objectives, Policies~~and~~~~Processes~~~~for~~~~Managing~~~~Its Capital Structure (continued)~~

~~There were no amounts in accumulated other comprehensive income relating to cash flow hedges~~ and ~~no subordinated debt instruments as at December 31, 2013 and 2012. The debt-to-adjusted capital ratio in 2013 and 2012 were not applicable since the Group had a net cash and cash equivalents balance.~~

2013 2012
(Recast-
Notes 3&41)
Long-term debt $ 189,871 $ 118,824
Shareholders’ equity $ 699,570 $ 730,587
Long-term debt-to-equity ratio 0.27 0.16
Processes for Managing Its Capital

Structure (continued)

As at December 31:	2016	2015
Total debt	$ 116,813	$ 259,038
Less: cash and cash equivalents	(120,676)	(197,519)
Net debt	Not applicable	61,519
Shareholders’ equity	327,520	367,192
Debt-to-adjusted capital ratio	Not applicable	0.17
Long-term debt	$ 80,564	$ 174,333
Shareholders’ equity	327,520	367,192
Long-term debt-to-equity ratio	0.25	0.47

During ~~2013,~~2016, the Group’s strategy, which was unchanged from ~~2012,~~2015, was to maintain the debt-to-adjusted capital ratio and the long-term debt-to-equity ratio at a ~~low~~manageable level. The ~~Group had a net cash~~decrease in the ratios in 2016 reflects the reduction in debt. The terms and ~~cash equivalent balance after deduction~~conditions of the ~~total debt. The~~ Group’s ~~long-term debt-to-equity ratio was 0.27~~debt agreements include, and ~~0.16 as at December 31, 2013~~future debt agreements may include, covenants and ~~2012, respectively. The increase in the debt-to-equity ratio in 2013 reflects the Group’s objectives~~restrictions of ~~long-term business growth and development.~~

a customary nature for such agreements.

Note 3.4. Acquisitions of Consolidated Entities

Year ~~2013~~

2016

Effective February 1, 2016, the Group completed the acquisition of a western European bank, MFC Merchant Bank Ltd. (the “Bank”).

Pursuant to the transaction, the Group acquired the Bank for total purchase consideration of $142,419 which equaled the fair values of the identifiable assets acquired and the liabilities assumed on the closing date. There were no ~~business combinations in 2013.~~

~~Year 2012~~

~~MFC Energy~~

On September 6, 2012, the Company completed the take-over bid (the “Offer”) for all of the issued and outstanding common shares of MFC Energy (the “MFC Energy Shares”) for cash consideration of C$1.25 per MFC Energy Share. The Offer was made pursuant to a support agreement between MFC Energy and the Company dated July 6, 2012. Pursuant to the Offer, on September 6, 2012, the Company, through its indirect wholly-owned subsidiary, acquired approximately 93.8% of the outstanding MFC Energy Shares. On September 11, 2012, the Company completed a compulsory acquisition under the Alberta Business Corporations Act, whereby its indirect wholly-owned subsidiary acquired all the remaining outstanding MFC Energy Shares not already owned by the Group. As a result of such compulsory acquisition, the indirect wholly-owned subsidiary acquired 100% ownership of MFC Energy.

In connection with the Support Agreement, on July 16, 2012, the indirect wholly-owned subsidiary acquired 6,548,498 special warrants (the “Warrants”) in the capital of MFC Energy, at a price of C$1.25 per Warrant. On September 6, 2012, as a result of the conversion of the Warrants, the indirect wholly-owned subsidiary acquired an additional 6,548,498 MFC Energy Shares. No additional consideration was paid in connection with the conversion of the Warrants.

~~The consideration paid by the Group for the MFC Energy Shares under the Offer and compulsory acquisition was approximately $33,535 (C$32,948) in cash.~~

MFC Energy is actively engaged in the exploration, development and production of hydrocarbons in western Canada. The acquisition was made to enhance the investment and strategic growth objectives of the Group’s global commodity supply chain business. As a result, MFC Energy’s financial position and results were included in the Group’s commodities and resources segment.

The acquisition was accounted for as a business combination pursuant to IFRS 3. The aggregated cost of the acquisition totaled $41,866, comprising $33,535 paid in cash to the former holders of MFC Energy Shares and $8,331 (C$8,185) paid for the Warrants.

~~MFC INDUSTRIAL LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2013~~

~~Note 3. Acquisitions of Consolidated Entities (continued)~~

The following table summarizes the final purchase consideration, the preliminary purchase price allocation in the Company’s 2012 consolidated financial statements and the final purchase price allocation, with the applicable recast adjustments made upon finalization during 2013.

Preliminary Final
purchase purchase
price Recast Error price
      allocation       adjustments       correction       allocation
Receivables $ 16,035 $ — $ — $ 16,035
Exploration and evaluation assets 150,564 (17,945 ) — 132,619
Property, plant and equipment 49,552 — — 49,552
Interests in resource properties 223,057 — — 223,057
Assets held for sale 117,062 (4,465 ) — 112,597
Deferred tax assets 57,137 7,130 (6,504 ) 57,763
Other assets 5,089 — — 5,089
618,496 (15,280 ) (6,504 ) 596,712
Short-term bank borrowings (115,061 ) — — (115,061 )
Facility term financing (26,383 ) (4,804 ) — (31,187 )
Accounts payables and accrued expenses (30,583 ) (1,737 ) — (32,320 )
Decommissioning obligations (138,369 ) — — (138,369 )
Deferred income tax liabilities (3,772 ) — — (3,772 )
Accrued pension obligations, net (2,227 ) — — (2,227 )
Liabilities relating to assets held for sale (15,590 ) — — (15,590 )
       Net assets acquired 286,511 (21,821 ) (6,504 ) 258,186
Total consideration paid 41,866 — — (41,866 )
       Bargain purchase $ 244,645 $ (21,821 ) $ (6,504 ) $ 216,320

For a recast and error correction of the consolidated statement of financial position at December 31, 2012 and the consolidated statement of operations for the year ended December 31, 2012, please see Note 41.

MFC Energy was a publicly traded company prior to the Group’s acquisition. As a result of the price of natural gas and high operating expenses, the market capitalization of MFC Energy had been much lower than its net assets at the time of acquisition. The Group acquired the MFC Energy Shares at their market price. As a result, the Group recognized $216,320 in bargain purchase gain in profitgoodwill or ~~loss which is non-taxable.~~

The Group measured 100,000 MFC Energy Shares held by the Group prior to the acquisition at the fair value of $125 at the time of acquisition, thus recognizing a loss of $358 which was included in the net losses on available-for-sale securities under gross revenue in profit or loss.

~~There were no~~ intangible assets ~~other than goodwill~~ acquired.

With respect to acquired receivables, the fair value of the receivables, the gross contractual amounts receivables and the best estimate of the contractual cash flows not expected to be collected on the acquisition date were $16,035, $16,547 and $512, respectively.

The amount of acquisition-related costs was ~~$1,497~~nominal, which was included in selling, general and administrative expenses in profit or loss.

As a result of the completion of the Offer and related transactions, the Group has consolidated MFC Energy’s operations since September 7, 2012. The amounts of revenue and net income of MFC Energy since the acquisition date included in profit or loss for the reporting period of 2012 were $30,402 and $1,916, respectively.

~~MFC INDUSTRIAL LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2013~~

~~Note 3. Acquisitions of Consolidated Entities (continued)~~

~~Immaterial business combinations~~

On March 16, 2012, a subsidiary of MFC Industrial (the “Purchaser”) purchased a 75% equity interest and a shareholder loan in a corporation, for a total purchase price of $28,000 which was paid on March 19, 2012. The corporation has a mineral refinery plant and power plant. The acquisition of the 75% equity interest and the shareholder loan together effectively transferred a 100% economic interest in the corporation to the Purchaser.

This acquisition was not considered asa material business combination and did not have material impact on the Group’s financial position.

Year 2015

There were no business combinations in 2015.

Year 2014

F.J. Elsner & Co. GmbH (“Elsner”)

In March 2014, MFC Bancorp, through its Austrian subsidiary, acquired all of the outstanding shares in Elsner. Elsner is an Austrian-based finance and supply chain company focused on steel and related products. Elsner offers a full range of steel products, including slabs, booms, billets, hot rolled steel plates, hot and cold rolled coils and sheets, reinforcing bars, galvanized material, pipes, tubers and merchant bars.

The purchase price consisted of a nominal consideration (including certain contingent payments between the parties over a 10-year period based on current inventories and account receivables, existing legal actions and utilization of certain tax loss carry-forwards). There were no goodwill or intangible assets acquired. This acquisition was not considered a material business combination. There were no identifiable intangible assets or goodwill acquired. A bargain purchase gain of $2,359 was recognized. The non-controlling interest in the corporation was measured at its fair value on the acquisition date, which was $nil. The amount of acquisition-related costs was ~~nominal.~~

nominal, which was included in selling, general and administrative expenses in profit or loss.

FESIL AS (“FESIL”)

In ~~November 2012, MFC Industrial, through its Austrian subsidiary,~~April 2014, the Company acquired a ~~controlling~~100% interest in Park Ridge, NJ-based ACC Resources Co., L.P. (“ACCR”) and Mexico City-based Possehl Mexico S.A. de C.V. (“Possehl”). Both Possehl and ACCR are fully integrated commodity supply chain companies, specializingFESIL. Headquartered in industrial raw materials, chemicals and various other products. The acquisition of these companies expands the Group’s existing global supply chain network, reaching further into the North and Latin American markets, as well as Chinese activities. The Group has consolidated the resultsTrondheim, Norway, FESIL is one of the ~~operations~~leading producers of ~~ACCR group~~ferrosilicon, an essential alloy in the production of steel, stainless steel and ~~Possehl group since December 1, 2012.~~

cast iron. FESIL’s melting plant is located in Mo i Rana, Norway and produces a range of ferrosilicon products including granulated and refined qualities (high and semi-high purity), which makes up the bulk of its production.

TABLE OF CONTENTS

MFC BANCORP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016

Note 4. Acquisitions of Consolidated Entities (continued)

The ~~combined acquisition~~base purchase price ~~for 80%~~ of ~~ACCR and 60% of Possehl~~$93,480 was ~~$23,232 in cash which was determined~~ based on the net tangible asset value ~~of the entities~~ as of ~~July 31, 2012, of which $14,718 was paid in 2012, $6,201 was paid in January~~September 30, 2013 and ~~$2,313~~ was subsequently adjusted to be paid in November 2013. The purchase price is subject to adjustment based on pending valuations of real property and occurrence of certain adjustment events (as defined). At the time of the approval of these consolidated financial statements,reflect the fair value of certain ~~real property is provisional as no~~assets and the profit and loss over the period to final binding appraisal value has been accepted by the parties. In addition, there are call and put options which allow the Group to acquire up to all of the remaining shares of ACCR, its affiliate and Possehl,closing. There was also a two-year royalty based on tiered ferrosilicon production at the ~~same net tangible asset~~Mo i Rana facility, which management recognized as a contingent consideration liability measured at fair value ~~price formula. The vendors undertake to compensate for any loss or reduction in value of~~on the ~~purchased interest.~~

acquisition date. There were nominal intangible assets and there was no goodwill acquired. This acquisition was not considered as a material business combination. Non-controlling interests in the entities were $3,350 at the time of acquisition. As the non-controlling interests are subject to put options, they are classified as puttable instrument financial liabilities (see Note 26). The fair value of the puttable instrument financial liabilities is provisional pending upon the approval and acceptance of the final valuation of real property. The amount of acquisition-related costs was ~~$752. Intangible~~$615, which was included in selling, general and administrative expenses in profit or loss.

Note 5. Assets Classified as Held for Sale and Discontinued Operations

In 2015, the Board of Directors of the Company approved a plan to sell all of the Group’s resource properties. Pursuant to the resolution, an active program to locate buyers and complete the plan was initiated. Management was of the opinion that the disposal groups were actively marketed for sale at a price that was reasonable in relation to their current fair value and the sales were expected to be completed within one year. As such, the assets ~~totaling $1,073 relating~~of the disposal groups were classified as assets held for sale effective September 30, 2015. In compliance with IFRS 5, Non-current Assets Held for Sale and Discontinued Operations, the operations and cash flows of the disposal groups were accounted for as discontinued operations.

On June 30 and September 30, 2016, the Group ceased to ~~order backlog~~classify the remaining disposal groups as held for sale as the criteria for assets classified as held for sale were ~~identified~~no longer met. Accordingly, the results of operations of these disposal groups for the years ended December 31, 2015 and 2014 have been reclassified to continuing operations in these consolidated financial statements.

On December 31, 2016, the Group reclassified the assets and liabilities of a commodities trading subsidiary as held for sale. The sale was completed in 2017 (see Note 32).

The assets held for sale comprised the following items as at December 31, 2016 and 2015, respectively:

	2016			2015
Assets held for sale:
Hydrocarbon properties		$	—		$	94,556
Amount due from former subsidiaries, net			—			11,600
Royalty interest in an iron ore mine*			—			30,000
Interest in an iron ore development project**			—			—
Commodities trading			45,667			—
			45,667			136,156
Liabilities (including decommissioning obligations) relating to assets held for sale:
Hydrocarbon properties			—			(79,779)
Royalty interest in an iron ore mine, deferred income tax liability*			—			(7,800)
Commodity trading			(29,897)			—
Total liabilities			(29,897)			(87,579)
Net assets held for sale		$	15,770		$	48,577
Represented by:
Hydrocarbon properties		$	—		$	14,777****
Royalty interest in an iron ore mine			—			22,200
Amount due from former subsidiaries, net			—			11,600
Commodities trading			15,770***			—
		$	15,770		$	48,577

The royalty interest in an iron ore mine was reclassified to continuing operations effective June 30, 2016 (see Note 13).

The interest was written down to a nominal amount in 2015 and sold in 2016.

TABLE OF CONTENTS

MFC BANCORP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016

Note 5. Assets Classified as Held for Sale and Discontinued Operations (continued)

***

The major assets and liabilities of the commodities trading subsidiary as at December 31, 2016 comprised the following:

Current assets	$	42,293
Non-current assets held for sale		3,374
Total assets		45,667
Debt		(20,140)
Other liabilities		(9,757)
Net assets held for sale	$	15,770

****

The major assets and liabilities of the hydrocarbon properties disposal group as at December 31, 2015 comprised the following:

Current assets	$	8,583
Non-current assets held for sale		85,973
Total assets		94,556
Debt		(59,252)
Short-term borrowings		(1,859)
Decommissioning obligations		(17,923)
Other liabilities		(745)
Net assets held for sale, owing to the Group entities	$	14,777

The Group’s discontinued operations, as re-presented in these consolidated financial statements, comprised certain hydrocarbon properties and an iron ore interest, both of which were included in ~~deposits, prepaid~~the Company’s merchant banking reportable business segment.

The following summarizes the results of the discontinued operations for the year ended December 31, 2015 and ~~other under current~~2014, respectively. The Group did not have discontinued operations in 2016.

	2015			2015			2014			2014
	Hydrocarbon properties			Iron ore interest			Hydrocarbon properties			Iron ore interest
Revenues		$	62,384		$	—		$	99,714		$	—
Costs and expenses			(215,779)			(27,397)			(126,458)			—
Loss before income taxes			(153,395)			(27,397)			(26,744)			—
Income tax (expense) recovery			(48,623)			—			8,222			—
Net loss from discontinued operations			(202,018)			(27,397)			(18,522)			—
Loss on disposal of assets			—			—			—			—
Income tax expense			(11,987)			—			—			—
Net loss on disposal of assets			(11,987)			—			—			—
Total loss from discontinued operations		$	(214,005)		$	(27,397)		$	(18,522)		$	—

All intercompany transactions with continuing operations, except for those that have continued subsequent to dispositions, have been eliminated. Costs and expenses for the years ended December 31, 2015 and 2014 included the following non-cash impairment losses (before income taxes) on tangible assets ~~due to their short-term nature.~~

and resource properties:

	2015			2014
Hydrocarbon properties		$	148,877		$	30,387
Interest in an iron ore development project			27,397			—
Gross impairment		$	176,274		$	30,387

Hydrocarbon properties

In ~~2013, ACCR was reorganized~~September 2015, the Group’s realized pricing for natural gas, natural gas liquids and ~~became MFC Resources Inc. In 2013,~~oil had declined since December 31, 2014. As such, as at September 30, 2015, the Group ~~also settled~~performed an impairment

TABLE OF CONTENTS

MFC BANCORP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016

Note 5. Assets Classified as Held for Sale and Discontinued Operations (continued)

assessment on its hydrocarbon properties utilizing post-tax discount rates between 10% and 13% and recognized total non-cash impairment losses of $143,609. As a result of the ~~puttable instruments~~impairment charge, a previously recorded deferred tax asset of $50,918 had to be written off. The non-cash impairment losses comprised $46,715 allocated to development and production assets, $16,108 to probable reserves, $33,114 to property, plant and equipment and $47,672 to the properties previously included in assets held for sale. In re-presenting the prior year 2015 results in these consolidated financial statements, of the gross impairment losses of $143,609, impairment losses of $47,672 were reclassified and included in continuing operations, with ~~respect~~the remaining impairment losses of $95,937 (before an associated deferred income tax expense of $50,918) attributable to ~~ACCR~~discontinued operations. In the fourth quarter of 2015, the Group recognized an additional impairment loss of $52,940 in discontinued operations.

On December 30, 2015, the Group sold a 95% economic interest in certain hydrocarbon assets and ~~its affiliate~~the related liabilities to a third party for nominal and contingent consideration (see Note 26).

~~Year 2011~~

~~In August 2011, MFC Industrial reorganized its indirect royalty interest by transferring it~~ Based on the terms of the transaction, the Group continued to ~~0915988 B.C. Ltd. (“091 BC”)~~be the registered holder of the entities holding these assets and liabilities but lost the power to direct the business activities of these entities. As such, effective December 30, 2015 the Group ceased consolidating these entities (the former subsidiaries). No gain or loss was recognized upon the disposition. However, a deferred income tax expense of $11,987 was recognized resulting from the write-off of previously recognized deferred income tax assets. Furthermore, as a result of the deconsolidation of the former subsidiaries, a net receivable of $11,600 due from the former subsidiaries was recognized as at December 31, 2015 as the amount was no longer eliminated within the Group and was included in ~~exchange~~assets held for ~~voting interest of 40.1% (including 9.9% purchased in June 2011 for $128 in cash) and non-voting interest of 100%, or an aggregate~~sale. The remaining economic interest ~~of 99.44%~~was recognized at a nominal value as at December 31, 2015.

In December 2014, the Group’s realized pricing for natural gas, natural gas liquids and oil had declined by 20%, ~~in 091 BC. This exchange transaction was accounted for~~32% and 35%, respectively, on an annual basis. As such, as ~~a purchase other than business combination and 091 BC has been consolidated into~~at December 31, 2014, the Group ~~since August 2011 pursuant to SIC-12. Immediately prior to the initial consolidation into MFC Industrial, 091 BC had total assets~~performed an annual impairment assessment on its hydrocarbon properties utilizing post-tax discount rates between 8.5% and 9.0% and recognized impairment losses of ~~$95 and total liabilities of $430; and did not recognize~~$33,200 before a deferred income tax ~~asset~~recovery of $8,372. The impairment losses comprised $18,780 allocated to development and production assets, $7,191 to probable reserves, $3,707 to unproved lands and $3,522 to assets previously held for sale. In re-presenting the prior year 2014 results in these consolidated financial statements, of the gross impairment losses of $33,200, an impairment loss of $2,813 was reclassified and included in continuing operations with ~~respect~~the remaining impairment loss of $30,387 (before an associated deferred income tax recovery of $8,372) attributable to discontinued operations.

Interest in an iron ore development project

In the third quarter of 2015, the Group reviewed the cash flow projections for the iron ore development project located in the United States. Given the reduced viability of this project, high capital cost to complete requisite studies and management’s business focus on trade finance banking activities, management determined that an impairment loss of $27,397 was required, before a deferred income tax recovery of $nil, as at September 30, 2015, to write down the carrying amount of its ~~non-capital tax~~interest to a nominal amount. The impairment loss ~~carryforwards. Non-controlling~~was included in the results of discontinued operations. The interest ~~of $1,172~~ was ~~initially recognized upon consolidation of 091 BC.~~

sold during 2016 for a nominal amount. There were no impairment losses on the iron ore interest for the year ended December 31, 2014.

Note 4.6. Business Segment Information

The Group is primarily in the ~~global commodities~~merchant banking business, which includes marketing activities, captive supply ~~chain business.~~

~~The Group’s integrated operations include a wide range of commodities such as metals, ceramics, minerals, natural gas, oil, chemicals, plastics, food~~assets, financial services and ~~beverage additives, animal feed and wood products, which are supported by our captive sources of commodities through strategic investments and other sources secured by the Group from third parties.~~

proprietary investing activities.

In reporting to management, the Group’s operating results are categorized into the following operating segments: ~~commodities and resources,~~ merchant banking and all other segments.

TABLE OF CONTENTS

MFC ~~INDUSTRIAL~~BANCORP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, ~~2013~~

2016

Note 4.6. Business Segment Information (continued)

Basis of Presentation

In reporting segments, certain of the Group’s business lines have been aggregated where they have similar economic characteristics and are similar in each of the following areas: ~~(i)~~(a) the nature of the products and services; ~~(ii)~~(b) the methods of ~~distribution,~~distribution; and ~~(iii)~~(b) the types or classes of customers/clients for the products and services.

~~Commodities and resources segment includes trading of commodities and resources, as well as the related producing, processing and extracting activities. It also includes royalty income from the~~

The Group’s ~~interests in resource properties.~~

~~Merchant~~merchant banking segment includes its marketing activities, captive supply assets, structured solutions, financial services and proprietary investing ~~and provision of financial services.~~activities. The Group is a merchant bank that provides financial services and facilitates structured trade for corporations and institutions. The Group specializes in markets that are not adequately addressed by traditional sources of supply and finance, with an emphasis on providing solutions for small and medium sized enterprises. The Group’s merchant banking business operates in multiple geographies, and participates in industries including manufacturing and natural resources. The Group also seeks investments in many industries, emphasizing those business opportunities where the perceived intrinsic value is not properly recognized. The Group uses its financial and management expertise to add or unlock value within a ~~relative~~relatively short time period.

The ~~merchant banking business also provides supply chain structured solutions.~~

~~The~~all other segment includes the Group’s corporate and operating segments whose quantitative amounts do not exceed 10% of any of the ~~Group’s~~Group’s: (a) reported ~~revenue,~~revenue; (b) net ~~income~~income; or (c) total assets. The Group’s all other operating ~~segments~~segment primarily ~~include~~includes business activities in medical equipment, instruments, supplies and services.

The accounting policies of the operating segments are the same as those described in the summary of significant accounting ~~policies.~~policies in Note 2B. The chief operating decision maker evaluates performance on the basis of income or loss from operations before income taxes and does not consider acquisition accounting adjustments in assessing the performance of the Group’s reporting ~~units.~~segments. The segment information presented ~~in this Note 5~~below is prepared according to the following methodologies: (a) revenues and expenses directly associated with each segment are included in determining pre-tax earnings; (b) intersegment sales and transfers are accounted for as if the sales or transfers were to third parties at current market prices; (c) certain selling, general and administrative expenses paid by corporate, particularly incentive compensation and share-based compensation, are not ~~re-allocated~~allocated to reporting ~~units;~~segments; (d) all intercompany investments, receivables and payables are eliminated in the determination of ~~the~~each segment’s assets and liabilities; and (e) deferred income tax assets and liabilities are not ~~reallocated further.~~

~~Products~~allocated.

All data and ~~Services~~

~~The~~discussions on revenues, expenses, income and loss in this Note 6 relate to the Group’s ~~total revenues comprised the following for the years ended December 31, 2013, 2012~~continuing operations only and ~~2011, respectively:~~

2013 2012 2011
Commodities and resources $ 768,795 $ 443,055 $ 470,242
Fees 9,440 8,389 6,670
Gains on securities 6,318 1,150 —
Interest 2,385 10,489 10,701
Dividend 295 360 338
Equity income 7,107 6,152 5,912
Other 19,598 16,064 20,041
Total revenues $ 813,938 $ 485,659 $ 513,904

~~The Group’s revenues for 2012~~do not include ~~the revenues of~~ discontinued operations.

Segment Operating Results

	Year ended December 31, 2016
	Merchant banking			All other			Total
Revenues from external customers		$	1,095,896		$	35,761		$	1,131,657
Intersegment sale			1,975			360			2,335
Interest expense			15,751			—			15,751
Loss before income taxes			(13,785)			(2,921)			(16,706)

	Year ended December 31, 2015
	Merchant banking			All other			Total
Revenues from external customers		$	1,593,879		$	35,221		$	1,629,100
Intersegment sale			1,705			175			1,880
Interest expense			17,631			11			17,642
Loss before income taxes			(290,342)			(453)			(290,795)

TABLE OF CONTENTS

MFC ~~Energy Group from September 7, 2012.~~

BANCORP LTD.

~~MFC INDUSTRIAL LTD.~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, ~~2013~~

2016

Note 4.6. Business Segment Information (continued)

~~Segment Operating Results~~

Year ended December 31, 2013
Commodities Merchant
and resources        banking        All other        Total
Revenues from external customers     $ 778,487         $ 12,568         $ 22,883         $ 813,938
Intersegment sale 1,771 7,641 345 9,757
Interest expense 14,491 28 73 14,592
Income (loss) from continuing operations
       before income taxes 7,350 18,293 (9,564 ) 16,079

Year ended December 31, 2012
Commodities Merchant
and resources banking All other Total
Revenues from external customers $ 455,898 $ 11,751 $ 18,010 $ 485,659
Intersegment sale 455 10,950 343 11,748
Interest expense 11,616 45 4 11,665
(Loss) income from continuing operations
before income taxes (23,946 )* 231,632 ** (9,301 ) 198,385

~~____________________~~

*		~~including impairment of interests in resource properties of $42,631 and inventory write-off of $19,434 in a former subsidiary (which was sold in 2013)(see Note 28).~~

**		~~including bargain purchase of $218,679.~~

	Year ended December 31, 2014
	Merchant banking			All other			Total
Revenues from external customers		$	1,375,526		$	29,804		$	1,405,330
Intersegment sale			242			507			749
Interest expense			14,400			45			14,445
Income (loss) before income taxes			39,968			(10,654)			29,314

	As at December 31, 2016
	Merchant banking			All other			Total
Segment assets		$	552,129		$	98,209		$	650,338

	As at December 31, 2015
	Merchant banking			All other			Total
Segment assets		$	907,337		$	70,014		$	977,351

	As at December 31, 2016
	Merchant banking			All other			Total
Segment liabilities		$	306,050		$	14,858		$	320,908

	As at December 31, 2015
	Merchant banking			All other			Total
Segment liabilities		$	594,842		$	13,309		$	608,151

Year ended December 31, 2011
Commodities Merchant
and resources        banking        All other        Total
Revenues from external customers    $ 474,872       $ 22,487       $ 16,545       $ 513,904
Intersegment sale 2 14,651 456 15,109
Interest expense 6,588 56 42 6,686
Income (loss) from continuing operations before
       income taxes 23,157 8,858 (14,834 ) 17,181

As at December 31, 2013
Commodities Merchant
and resources        banking        All other        Total
Segment assets    $ 1,016,410       $ 268,090       $ 40,106       $ 1,324,606
Equity method investments (included in
       segment assets) 19,113 — 5,253 24,366

As at December 31, 2012
(Recast-Notes 3&41)
Commodities Merchant
and resources        banking        All other        Total
Segment assets    $ 1,139,174       $ 186,547       $ 34,902       $ 1,360,623
Equity method investments (included in
       segment assets) 17,163 — 5,219 22,382

As at December 31, 2013
Commodities Merchant
and resources banking All other Total
Segment liabilities $ 557,825 $ 49,585 $ 11,447 $ 618,857

As at December 31, 2012
(Recast-Notes 3&41)
Commodities Merchant
and resources banking All other Total
Segment liabilities $ 552,335 $ 65,775 $ 5,738 $ 623,848

~~MFC INDUSTRIAL LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2013~~

~~Note 4. Business Segment Information (continued)~~

Geographic Information

Due to the highly integrated nature of international ~~commodities, resources~~products and services, merchant banking activities and markets, and a significant portion of the Group’s activities ~~require~~requiring cross-border coordination in order to serve the Group’s customers and clients, the methodology for allocating the Group’s profitability to geographic regions is dependent on estimates and management judgment.

Geographic results are generally determined as follows:

Segment			Basis for attributing revenues
~~Commodities and resources~~Merchant banking			Locations of external customers
			~~Locations of clients, assets~~ or the reporting units, whichever
~~Merchant banking~~			is appropriate
All other ~~segments~~			Locations of the reporting units

Due to the nature of cross-border business, the Group presents its geographic information by geographic regions, instead of by countries. The following table presents revenues from external customers attributed to MFC ~~Industrial’s~~Bancorp’s country of domicile (i.e. Canada) and all foreign geographic regions from which the Group derives revenues:

Years ended December 31:	2016			2015			2014
Canada		$	28,328		$	77,199		$	131,776
Africa			32,519			26,376			24,633
Americas			256,598			309,217			300,758
Asia			113,821			176,766			81,877
Europe			700,391			1,038,504			866,286
Other			—			1,038			—
		$	1,131,657		$	1,629,100		$	1,405,330

Year ended December 31:
2013 2012 2011
Canada $ 116,371 $ 61,864 $ 37,410
Africa 4,990 2,103 7,914
Americas 172,006 25,954 49,887
Asia 21,760 55,598 87,208
Europe 498,811 340,140 331,485
$ 813,938 $ 485,659 $ 513,904

TABLE OF CONTENTS

MFC BANCORP LTD.

~~Income from a royalty interest in a resource property is earned from a third party entity operating in Canada and amounted to $25,674, $29,065 and $30,782, respectively, in 2013, 2012 and 2011.~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016

Note 6. Business Segment Information (continued)

Except for the geographic concentrations as indicated in the above table and one trading customer in the merchant banking segment representing approximately ~~12%~~8% and 11% of the Group’s total revenues in ~~2013~~2015 and ~~2012~~2014, respectively, there were no other revenue concentrations in ~~2013, 2012~~2016, 2015 and ~~2011.~~

2014.

The following table presents non-current assets other than financial instruments, ~~post employment benefit~~deferred income tax assets and ~~deferred tax~~other non-current assets by geographic area based upon the location of the assets.

2013 2012
(Recast-
As at December 31: Notes 3&41)
Canada $ 530,247 $ 562,860
Africa 25,728 26,136
Americas 3,118 3,201
Asia 435 434
Europe 1,408 36,248
$ 560,936 $ 628,879

~~Investment property, which was included in the non-current~~ The table excludes assets ~~at December 31, 2012, has been reclassified to assets~~classified as held for ~~sale under the current asset section and, as a result, is not included in the geographic location table at December 31, 2013.~~

~~The non-current assets located in Canada comprised primarily the Group’s interests in resource properties and hydrocarbon properties (see Notes 16 and 17).~~

sale.

~~MFC INDUSTRIAL LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2013~~

~~Note 5. Securities~~

~~Short-term securities~~

As at December 31: 2013 2012
Trading securities:
Common shares, at fair value $2,068 $6,658

~~At December 31, 2013, investments in publicly-listed common shares trading securities comprised five companies (of which one company represented 93%).~~

~~At December 31, 2012, investments in publicly-listed common shares trading securities comprised six companies (of which three companies represented 95%).~~

~~Note 6. Restricted Cash~~

As at December 31: 2013 2012
Cash pledged with a bank in connection with sales of securities $ 239 $ 359
Bank accounts temporarily restricted (released in 2013) — 460
Other 73 70
$ 312 $ 889

As at December 31:	2016			2015
Canada		$	138,281		$	27,742
Africa			31,710			33,695
Americas			876			4,651
Asia			6,957			7,770
Europe			49,464			73,572
		$	227,288		$	147,430

Note 7. Trade Receivables

~~Trade Receivables~~

As at December 31:	2016			2015
Trade receivables, gross amount		$	194,450		$	172,439
Less: Allowance for credit losses			(58,488)			(21,210)
Trade receivables, net amount		$	135,962		$	151,229

As at December 31: 2013 2012
Trade receivables, gross amount (including $240 and $nil due from affiliates as
at December 31, 2013 and 2012, respectively $ 116,704 $ 74,066
Less: Allowance for credit losses (1,026 ) (1,246 )
Trade receivables, net amount $ 115,678 $ 72,820

Trade receivables primarily arise from ~~commodities and resources~~merchant banking activities.

The Group has a specially structured non-recourse factoring arrangement with a bank for the Group’s trade receivables (see Note ~~20)~~15).

As at December 31, ~~2013, trade receivables amounting to $9,935 were used as security against bank debt (see Note 21).~~

~~As at December 31, 2013,~~2016, trade receivables of ~~$6,575 (2012: $17,006)~~$25,949 (2015: $13,918) were past due but not impaired. The aging analyses of these trade receivables as at December 31, ~~2013~~2016 and ~~2012~~2015 are as follows:

Past-due	2016			2015
Below 30 days		$	6,767		$	6,847
Between 31 and 60 days			1,847			3,191
Between 61 and 90 days			799			1,936
Between 91 and 365 days			16,491			1,923
Over 365 days			45			21
		$	25,949		$	13,918

Past-due 2013 2012
Below 30 days $ 4,410 $ 9,517
Between 31 and 60 days 762 1,229
Between 61 and 90 days 567 514
Between 91 and 365 days 835 5,746
Over 365 days 1 —
$ 6,575 $ 17,006

~~MFC INDUSTRIAL LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2013~~

~~Note 7. Trade Receivables (continued)~~

As at December 31, ~~2013,~~2016, trade receivables of ~~$4,917 (2012: $4,998)~~$156,243 (2015: $37,454) were impaired and an allowance for credit losses of ~~$1,026 (2012: $1,246)~~$58,488 (2015: $21,210) has been provided. Not all past-due account balances are uncollectible as ~~some~~most of the accounts are covered by credit insurance or other collection procedures. Credit risk from trade account receivables is mitigated since they are credit insured, covered by letters of credit, bank guarantees and/or other credit enhancements (see Note ~~36)~~29).

TABLE OF CONTENTS

MFC BANCORP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016

Note 7. Trade Receivables (continued)

The aging analyses of ~~these~~impaired trade receivables as at December 31, ~~2013~~2016 and ~~2012~~2015 are as follows:

Past-due	2016			2015
Below 30 days		$	7,690		$	13,765
Between 31 and 60 days			489			8,656
Between 61 and 90 days			745			625
Between 91 and 365 days			131,946			2,792
Over 365 days			15,373			11,616
			156,243			37,454
Allowance for credit losses			(58,488)			(21,210)
Expected recoverable amount of impaired trade receivables(1)		$	97,755		$	16,244

Past-due 2013 2012
Below 30 days $ 448 $ 789
Between 31 and 60 days 218 —
Between 61 and 90 days 300 1
Between 91 and 365 days 1,167 814
Over 365 days 2,784 3,394
$ 4,917 $ 4,998

(1)

The recoverable amount of impaired trade receivables is covered by credit insurance, bank guarantees and/or other credit enhancements and, therefore, management of the Group believes this entire net amount to be collectible in the ordinary course of business.

The movements in the allowance for credit losses during ~~2013~~the years ended December 31, 2016 and ~~2012 are~~2015 were as follows:

	2016			2015
Balance, beginning of the year		$	21,210		$	9,255
Additions			46,601			13,381
Reversals			(1,185)			(124)
Write-offs			(1,529)			(95)
Other			(5,123)			(2,946)
Reclassification to assets held for sale			—			(114)
Currency translation adjustment			(1,486)			1,853
Balance, end of the year		$	58,488		$	21,210

2013 2012
Balance, beginning of the year $ 1,246 $ 719
Additions 4,117 593
Reversals (8 ) (12 )
Write-offs (4,517 ) —
Cumulative translation adjustment 188 (54 )
Balance, end of the year $ 1,026 $ 1,246

In February 2016, a customer of the Group filed for insolvency. This was an adjusting subsequent event under IAS 10 and, as a result, the Group had to determine an allowance for credit losses against the Group’s trade receivables due from this customer and its affiliates (the “customer group”) as at December 31, 2015. As at December 31, ~~2013~~2015, the Group had gross trade receivables of $103,300 due from the customer group as well as other contracts with such customer. The Group conducted an extensive assessment of impairment losses on these trade receivables. This assessment involved a number of judgments and ~~2012, there~~a high level of estimation uncertainty. The factors considered in these estimates include the Group’s legal rights and obligations under all related contracts and collateral, which include inventories, mortgages, insurance of collateral and other credit enhancement instruments. The Group recognized an allowance for credit losses of $10,705 in connection with the customer group as at December 31, 2015. After the recognition of such impairment losses, the Group had net trade receivables of $92,595 due from the customer group as at December 31, 2015.

During the year ended December 31, 2016, the Group received proceeds of $39,149 from risk mitigation assets, of which $35,121 was nocredited to profit or loss through a recovery of credit losses and the remainder was credited to trade ~~receivable~~receivables.

As at December 31, 2016, management of the Group reviewed the underlying contracts, legal documents, credit enhancement instruments and collateral to assess the recoverability of the outstanding amounts. This assessment required management to make certain assumptions regarding possible future outcomes and carries a degree of estimation uncertainty. While management of the Group believes that these receivables are collectable, a wide range of possible outcomes were considered in its analysis, which ~~would otherwise be past~~resulted in a

TABLE OF CONTENTS

MFC BANCORP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016

Note 7. Trade Receivables (continued)

probability-weighted valuation below the gross carrying amount. Therefore, management of the Group has recognized a cumulative allowance for credit losses of $43,943 in connection with this former customer group as at December 31, 2016, including an additional provision of $33,301 which was recognized during the second quarter of 2016. The resulting carrying amount is most sensitive to the assumptions regarding the likelihood of recovering amounts based on the various sources of collateral. The timing of the resolution of the uncertainty related to the recoverability of these receivables is dependent on the legal processes being followed to recovering these amounts. After the recognition of such impairment losses, the Group had net trade receivables of $100,008 due ~~or impaired if the terms had not been renegotiated.~~

from this former customer group as at December 31, 2016.

Note 8. Other Receivables

As at December 31:	2016			2015
Government environmental emission refund		$	—		$	4,913
Royalty income			4,000			100
Receivables from insurance company/supplier			2,110			4,333
Suppliers with debit balance			9,670			972
Loans			7,763			745
Other			11,708			3,664
		$	35,251		$	14,727

As at December 31: 2013 2012
Investment income $ 260 $ 219
Government taxes (primarily value-added and goods-and-services taxes) 6,503 6,181
Royalty income from an interest in resource property 5,513 7,528
Employees travel advances 14 38
Derivative assets 1,394 633
Insurance compensation for trade receivables 12,269 —
Sale of securities — 1,683
Suppliers with debit balance — 649
Other 4,456 1,383
$ 30,409 $ 18,314

Other receivables primarily arise in the normal course of business and are expected to be collected within one year from the reporting date.

~~As at December 31, 2013 and 2012, there were no receivables which would otherwise be past due or impaired if the terms had not been renegotiated.~~

~~MFC INDUSTRIAL LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2013~~

Note 9. Inventories

As at December 31: 2013 2012
Raw materials $ 8,347 $ 10,137
Work-in-progress 5,073 4,546
Finished goods 16,316 49,111
Commodity inventories 47,875 75,802
Goods-in-transit 11,017 2,366
Other 216 963
$ 88,844 $ 142,925

~~As at December 31, 2013, inventories with a carrying amount of $6,676 were pledged as security for liabilities.~~

As at December 31:	2016			2015
Raw materials		$	5,404		$	21,852
Work-in-progress			289			5,275
Finished goods			10,488			88,556
Commodity inventories			15,184			120,323
Goods-in-transit			—			7,899
Other			589			1,440
		$	31,954		$	245,345
Comprising:
Inventories contracted at fixed prices or hedged		$	21,071		$	141,344
Inventories – other			10,883			104,001
		$	31,954		$	245,345

Note 10. Deposits, Prepaid and Other

As at December 31:	2016			2015
Prepayments and deposits for inventories		$	11,117		$	19,368
Other			1,078			2,074
		$	12,195		$	21,442

As at December 31: 2013 2012
Prepayments and deposits for inventories $ 22,333 $ 23,154
Prepaid non-income taxes 223 287
Intangible assets relating to order backlog on acquisition dates — 885
Prepaid, deposits and other 4,580 3,507
$ 27,136 $ 27,833

~~Note 11. Assets Held for Sale~~

As at December 31: 2013        2012
(Recast-
Notes 3&41)
Assets held for sale $ 97,344 $ 124,192
Liabilities relating to assets held for sale (11,517 ) (29,806 )
       Net assets held for sale $ 85,827 $ 94,386
       Represented by:
              Hydrocarbon properties $ 50,142 $ 94,675
              Investment property 35,685 —
              Extracting facilities — (289 )
Net assets held for sale $ 85,827 $ 94,386

TABLE OF CONTENTS

�� ~~In connection with the acquisition of~~

MFC Energy, management committed to a plan to sell certain hydrocarbon properties and an active program to locate a buyer and complete the plan was initiated. The assets were actively marketed for sale at a price that was reasonable in relation to their current fair values. The sale was expected to qualify for recognition as a completed sale within one year from September 2012 and actions required to complete the plan indicated that it was unlikely that significant changes to the plan would be made or that the plan would be withdrawn. In 2013, a participation agreement was entered into with a third party with respect to certain assets held for sale. As a result, such assets of $31,378 were reclassified to hydrocarbon properties (see Note 17). Furthermore, a processing plant of $22,248 which was included in the assets held for sale no longer met the classification criteria and, as a result, was reclassified out of the assets held for sale into property, plant and equipment in 2013 (see Note 15). As a result, a catch-up depreciation to the date of reclassification of $1,101 was recorded on assets previously recognized as held for sale. During the initial one-year period, change in economic, industry and market circumstances arose and, as a result, the remaining assets previously classified as held for sale were not sold by the end of that period. However, management took action necessary to respond to the change in circumstances and the assets are still being actively marketed at a price that is reasonable. Accordingly, the Group continues to classify the remaining assets as held for sale at December 31, 2013 as all classification criteria were met. As at December 31, 2013, the assets held for sale (represented by interests in resource properties) and the related liabilities (represented by decommissioning obligations) were $61,659 (2012: $111,138) and $11,517 (2012: $16,463), respectively.

BANCORP LTD.

~~MFC INDUSTRIAL LTD.~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, ~~2013~~

~~Note 11. Assets Held for Sale (continued)~~

In December 2012, management committed to a plan to sell the extracting facilities and the sale was completed in 2013. As at December 31, 2013, the asset classified as held for sale were $nil (2012: $13,054 consisting of $3,103 in cash, $9,030 in other current assets and $921 in non-current assets) and the related current liabilities were $nil (2012: $13,343). The extracting facilities did not represent a separate major line of business or geographical area of operations.

~~The assets held for sale are included in the Group’s commodities and resources segment.~~

~~In September 2013, management committed to a plan to sell the investment property (Note 14). The assets are measured at fair value and are included in the Group’s merchant banking segment.~~

~~Note 12. Long-term securities~~

As at December 31: 2013 2012
Available-for-sale securities:
Publicly-traded $2,465 $9,637
2016

~~At December 31, 2013, available-for-sale securities comprised four publicly-traded equity securities and investment funds (of which the two largest companies represented 90%).~~

~~At December 31, 2012, available-for-sale securities comprised six publicly-traded equity securities and investment funds (of which the largest company represented 61%).~~

~~Note 13. Equity method investments~~

As at December 31: 2013 2012
Joint ventures – China $ 5,253 $ 5,219
Joint ventures – U.S. 19,113 17,163
$ 24,366 $ 22,382

~~Joint ventures – China~~

~~Joint ventures in China provide eye care business. The following table shows the Group’s joint ventures as at December 31, 2013:~~

	~~Proportion of~~
	~~ownership~~
	~~interest~~
~~Zhejiang University No. 2 Hospital Hangzhou Eye Center~~	~~55%~~
~~Chongqing Lasernet Guangji Eye Hospital (incorporated)~~	~~58%~~
~~Chongqing Fuling Lasernet Eye Center~~	~~65%~~
~~Sichuan Suining Lasernet Eye Center~~	~~40%~~

~~The following table presents the book values of the assets and liabilities related to the Group’s interests in the joint ventures as at December 31, 2013 and 2012:~~

2013 2012
Current assets $ 4,512 $ 2,819
Long-term assets 4,717 5,150
9,229 7,969
Current liabilities (3,976 ) (2,750 )
Net $ 5,253 $ 5,219

~~The assets held by the joint ventures primarily consist of medical equipment and are financed from their own working capital and equity.~~

~~MFC INDUSTRIAL LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2013~~

~~Note 13. Equity method investments (continued)~~

As at December 31, 2013, the Group did not incur any contingent liabilities or capital commitments in relation to its interests in the joint ventures, by the Group itself, or through the joint venturers or the joint ventures.

The following table presents the aggregated amounts of income and expenses (including income taxes) related to the Group’s interest in the joint ventures for the years ended December 31, 2013, 2012 and 2011:

2013 2012 2011
Revenues $ 22,555 $ 19,261 $ 17,999
Expenses (15,448 ) (13,109 ) (12,087 )
Net income $ 7,107 $ 6,152 $ 5,912

~~The Group did not receive any fees to manage the joint ventures during the years ended December 31, 2013, 2012 and 2011.~~

~~The Group received dividends of $7,690 from these joint ventures in 2013.~~

~~Joint ventures – U.S.~~

In December 2011, the Group, through joint venture entities, acquired a 50% interest in an exploration and development stage iron ore mine in the U.S. The Group will jointly develop the iron ore mine, including working towards completing a feasibility study on the project, with the mandate to re-open the mine, including exploiting the existing tailings accumulation and other areas for ferrous mineral production. The following table shows the Group’s joint ventures as at December 31, 2013:

	~~Proportion of~~
	~~ownership~~
	~~interest~~
~~Thayer Land Development Company, LLC~~	~~50%~~
~~TTTT Mining, LLC~~	~~50%~~
~~PRR Mining Inc.~~	~~50%~~
~~PRR Processing Inc.~~	~~50%~~

~~The following table presents the assets and liabilities related to the Group’s interest in the joint ventures as of December 31, 2013 and 2012:~~

2013 2012
Current assets $ 116 $ 116
Long-term assets 20,240 19,299
20,356 19,415
Current liabilities (1,243 ) (2,252 )
Net $ 19,113 $ 17,163

~~The assets held by the joint ventures primarily consist of an interest in an exploration and development stage iron ore mine.~~

In 2013, MFC Industrial, on behalf of the U.S. joint ventures, entered into a research and development contract with an institute. The outstanding payment obligation was $375 as of December 31, 2013 which is to be funded by the joint ventures on a pro rata basis. None of these obligations have been recognized in the consolidated statement of financial position as at December 31, 2013.

Except for the aforesaid, as at December 31, 2013, the Group has not incurred any contingent liabilities or capital commitments in relation to its interests in the joint ventures, by the Group itself, or through the joint venturers or the joint venture.

~~MFC INDUSTRIAL LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2013~~

~~Note 13. Equity method investments (continued)~~

~~Summarized financial information:~~

The following table presents summarized financial information (before inter-company eliminations) of the joint ventures as at or for the year ended December 31, 2013. These are amounts included in the IFRS financial statements of the joint ventures and not the Group’s share of those amounts. The summarized financial information is then reconciled to the carrying amount of the Group’s interests in the joint ventures. No comparative information is required to be provided for periods prior to 2013.

Financial Group’s
information of Reconciliation interests in
As at or for the Year Ended December 31, 2013: investees adjustments investees
Current assets $ 232 $ (116 ) $ 116
Non-current assets 40,480 (20,240 ) 20,240
Current liabilities (2,485 ) 1,242 (1,243 )
Non-current liabilities — — —
Non-controlling interests — — —
Shareholders’ equity 38,227 (19,114 ) 19,113

The Group did not record income and expenses related to these joint ventures since their acquisition in December 2011 as the resource property is being developed and all the costs and expenses have been capitalized.

~~The following financial information was included in the above summarized financial information for 2013.~~

As at or for the Year Ended December 31, 2013:
Cash and cash equivalents $ 103
Current financial liabilities (excluding trade and other payables and provisions) 2,482
Non-current financial liabilities (excluding trade and other payables and provisions) —

~~The Group received $nil dividends from these joint ventures.~~

Note ~~14.~~11. Investment ~~property~~

Property

2013 2012
Balance, beginning of year $ 34,152 $ 33,585
Additions — 1
Disposals (74 ) (2 )
Change in fair value during the year — 14
Reclassification to assets held for sale (Note 11) (34,979 ) —
Cumulative translation adjustment 901 554
Balance, end of year $ — $ 34,152

~~The change in fair value~~All of the Group’s investment property is located in Europe.

Investment property was classified as held for sale and included in ~~costs~~current assets as at December 31, 2014. In September 2015, management ceased to classify its investment property as held for sale and, thus, included it in non-current assets as of ~~sales in the consolidated statement of operations.~~

December 31, 2015.

Changes in investment property included in non-current assets:	2016			2015
Balance, beginning of year		$	37,873		$	—
Change in fair value during the year			(39)			—
Reclassification from assets held for sale			—			37,677
Currency translation adjustments			(2,171)			196
Balance, end of year		$	35,663		$	37,873

The amounts recognized in profit or loss in relation to investment property during ~~2013, 2012~~the years ended December 31, 2016, 2015 and ~~2011~~2014 are as follows:

2013 2012 2011
Rental income $ 1,380 $ 1,477 $ 1,766
Direct operating expenses (including repairs and maintenance) from
investment property that generated rental income during the year 333 345 760

~~MFC INDUSTRIAL LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2013~~

	2016			2015			2014
Rental income		$	1,511		$	1,474		$	1,468
Direct operating expenses (including repairs and maintenance) arising from investment property that generated rental income during the year			226			279			243

Note ~~15.~~12. Property, Plant and Equipment

The following changes in property, plant and equipment were recorded ~~in 2013:~~

Reclassified Cumulative
Opening from assets translation Ending
Historical costs      balance      Additions      Disposals      Reclassification      held for sale      adjustments      balance
Land and building $ 2,822 $ 673 $ —        $ —            $ —        $ (657 )          $ 2,838
Refinery and
       power plants 74,943 — — 1,757 22,248 (4,145 ) 94,803
Processing plant
       and equipment 5,435 363 — (1,757 ) — 148 4,189
Office equipment 3,571 972 (79 ) — — (292 ) 4,172
$ 86,771 $ 2,008 $ (79 ) $ — $ 22,248 $ (4,946 ) $ 106,002
during the year ended December 31, 2016:

Costs	Opening balance			Additions			Disposals			Dispositions of subsidiaries*			Reclassified from assets held for sale			Reclassified to assets held for sale			Reclassified from resource properties			Currency translation adjustments			Ending balance
Land and buildings		$	5,890		$	119		$	—		$	(324)		$	—		$	(4,745)		$	—		$	4		$	944
Refinery and power plants			67,336			—			—			—			20,255			—			5,000			(1,199)			91,392
Processing plant and equipment			34,548			3,194			(262)			(25,340)			8,128			(646)			—			(742)			18,880
Office equipment			8,515			770			(22)			(2,918)			—			(237)			—			(919)			5,189
		$	116,289		$	4,083		$	(284)		$	(28,582)		$	28,383		$	(5,628)		$	5,000		$	(2,856)		$	116,405

*
Cumulative
Opening translation Ending
Accumulated depreciation balance Additions Disposals Reclassification adjustments balance
Land and building $ 45 $ 266 $ — $ — $ 6 $ 317
Refinery and power plants 3,065 3,876 — 302 (621 ) 6,622
Processing plant and equipment 1,911 775 — (302 ) 179 2,563
Office equipment 1,611 702 (38 ) — (268 ) 2,007
$ 6,632 $ 5,619 $ (38 ) $ — $ (704 ) $ 11,509
Carrying amount $ 80,139 $ 94,493

Net of acquisition of a subsidiary

Accumulated depreciation	Opening balance			Additions			Disposals			Dispositions of subsidiaries			Reclassified to assets held for sale			Currency translation adjustments			Ending balance
Land and buildings		$	1,600		$	367		$	—		$	(139)		$	(1,663)		$	43		$	208
Refinery and power plants			6,860			2,641			—			—			—			(193)			9,308
Processing plant and equipment			8,392			5,403			—			(9,283)			(421)			(546)			3,545
Office equipment			3,692			880			—			(727)			(170)			226			3,901
			20,544		$	9,291		$	—		$	(10,149)		$	(2,254)		$	(470)			16,962
Carrying amount		$	95,745																	$	99,443

TABLE OF CONTENTS

MFC BANCORP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016

Note 12. Property, Plant and Equipment (continued)

The following changes in property, plant and equipment were recorded ~~in 2012:~~

Reclassified Cumulative
Opening Business to assets translation Ending
Historical costs      balance      Additions      Disposals      combination      held for sale      adjustments      balance
(Recast-Notes 3&41)
Land and buildings $ 482 $ 293     $ —        $ 2,858           $ (737 )           $ (74 )    $ 2,822
Refinery and
       power plants — — — 75,454 — (511 ) 74,943
Processing plant
       and equipment 2,885 418 — 1,927 — 205 5,435
Office equipment 2,547 378 (5 ) 1,199 (595 ) 47 3,571
$ 5,914 $ 1,089 $ (5 ) $ 81,438 $ (1,332 ) $ (333 ) $ 86,771

Reclassified Cumulative
Opening to assets translation Ending
Accumulated depreciation balance        Additions        Disposals        held for sale        adjustments        balance
Land and buildings $ 207       $ 93         $ —             $ (249 )           $ (6 )    $ 45
Refinery and power plants — 3,174 — — (109 ) 3,065
Processing plant and equipment 719 1,129 — — 63 1,911
Office equipment 1,245 695 — (369 ) 40 1,611
$ 2,171 $ 5,091 $ — $ (618 ) $ (12 ) $ 6,632
Carrying amount $ 3,743 $ 80,139

~~As at~~during the year ended December 31, ~~2013, land~~2015:

Costs	Opening balance			Additions			Reclassification			Reclassified to assets held for sale			Currency translation adjustments			Ending balance
Land and buildings		$	3,890		$	18		$	—		$	—		$	1,982		$	5,890
Refinery and power plants			104,779			3,961			—			(48,134)			6,730			67,336
Processing plant and equipment			21,204			3,836			6,769			—			2,739			34,548
Office equipment			8,584			983			(274)			(1,592)			814			8,515
		$	138,457		$	8,798		$	6,495		$	(49,726)		$	12,265		$	116,289

Accumulated depreciation	Opening balance			Additions			Reclassification			Reclassified to assets held for sale			Currency translation adjustments			Ending balance
Land and buildings		$	436		$	425		$	—		$	—		$	739		$	1,600
Refinery and power plants			9,065			1,218			—			(4,636)			1,213			6,860
Processing plant and equipment			2,979			3,936			225			—			1,252			8,392
Office equipment			3,148			871			(225)			(736)			634			3,692
			15,628		$	6,450		$	—		$	(5,372)		$	3,838			20,544
Carrying amount		$	122,829														$	95,745

During the year ended December 31, 2016, 2015 and ~~buildings with a carrying amount of $1,082 were used as security against bank debt (see Note 21).~~

~~During 2013, 2012~~2014 respectively, $nil, $3,948 and ~~2011, $388, $nil and $nil, respectively,~~$23,415 of expenditures were recognized in the carrying ~~amount~~amounts of items of property, plant and equipment in the course of their construction.

~~As at December 31, 2013, there were no contractual commitments for the acquisition of property, plant and equipment.~~

~~MFC INDUSTRIAL LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2013~~

Note ~~16.~~13. Interests in Resource Properties

All of the Group’s interests in resource properties were classified as held for sale and included in current assets as at December 31, 2015 (see Note 5). The interests in an iron ore mine and hydrocarbon properties that ceased to be classified as held for sale effective June 30 and September 30, 2016, respectively, were reclassified to non-current assets. There were no resource properties classified as held for sale as at December 31, 2016.

The Group’s interests in resource properties as at December 31, 2016 comprised the following:

Interest in an iron ore mine	$	30,000
Hydrocarbon development and production assets		29,692
Exploration and evaluation assets – hydrocarbon probable reserves		9,416
Exploration and evaluation assets – hydrocarbon unproved lands		10,039
	$	79,147

As at December 31:
2013 2012
(Recast-
Notes 3&41)
Royalty interest in an iron ore mine $ 163,186 $ 168,071
Interests in hydrocarbon properties 196,636 215,646
Other — 28
Total $ 359,822 $ 383,745

TABLE OF CONTENTS

MFC BANCORP LTD.

~~Iron~~
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016

Note 13. Interests in Resource Properties (continued)

The movements in the interest in the iron ore mine

and hydrocarbon development and production assets included in non-current assets during the year ended December 31, 2016 were as follows:

Costs	Opening balance			Decommissioning obligations			Reclassification to refinery and power plants			Reclassified from assets held for sale			Reversal of impairment losses			Ending balance
Interest in an iron ore mine		$	—		$	—		$	—		$	30,000		$	—		$	30,000
Hydrocarbon development and production assets			—			(4,988)			(5,000)			34,669			7,672			32,353
		$	—		$	(4,988)		$	(5,000)		$	64,669		$	7,672		$	62,353

Accumulated depreciation	Opening balance			Additions			Reclassification			Reclassified from assets held for sale			Impairment losses			Ending balance
Interest in an iron ore mine		$	—		$	—		$	—		$	—		$	—		$	—
Hydrocarbon development and production assets			—			2,661			—			—			—			2,661
			—		$	2,661		$	—		$	—		$	—			2,661
Carrying amount		$	—														$	59,692

The movements in exploration and evaluation assets included in non-current assets, which comprise hydrocarbon probable reserves and unproved lands, during the year ended December 31, 2016 were as follows:

	Probable reserves			Unproved lands
Balance, beginning of year		$	—		$	—
Additions			—			790
Reclassifications from assets held for sale			7,732			10,039
Reversal (recognition) of impairment (losses)			1,684			(790)
Balance, end of year		$	9,416		$	10,039

Interest in an iron ore mine

The Group’s lease of the Canadian iron ore mine expires in 2055. The iron ore deposit is currently sub-leased to a ~~third party~~third-party entity under certain lease agreements which will also expire in 2055. ~~The~~Pursuant and subject to the terms of the lease agreements, the Group collects royalty payments directly from ~~the third party entity~~a third-party operator based on a pre-determined formula, with a minimum payment not to be less than ~~C$3,250~~$3,250 per year.

In the first quarter of 2015, the operator of the mine commenced proceedings under the Companies’ Creditors Arrangement Act (Canada) (the “CCAA”) with respect to its Canadian operations and publicly disclosed that its assets comprising the mine would be included in any sales process.

In the third quarter of 2015, the long-term price curve of iron ore continued to deteriorate. Management of the Group reviewed the underlying legal documents and performed a sensitivity analysis on the expected future cash flows from its royalty interest. Consideration was given to reasonably possible scenarios, including the Company exercising its step-in rights and re-taking the mine. The primary factors which impact the recoverable amount, among others, are the number of years of production, iron ore pricing and/or production costs. Each possible scenario was assigned a probability. Based on the cash flows projections, management determined that total non-cash impairment losses of $218,203 were required, before a deferred income tax recovery of $54,305, as at September 30, 2015, to write down the carrying amount of its interest to a nominal amount. In the fourth quarter of 2015, the Group reversed the previously recognized impairment losses by $30,000 and recognized a related deferred tax liability of $7,800. Such

TABLE OF CONTENTS

MFC BANCORP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016

Note 13. Interests in Resource Properties (continued)

reversal of the previously recognized impairment losses reflected the improvements in the expected future cash flows under possible scenarios, using a pre-tax discount rate of 9% and taking into consideration events that occurred subsequent to the third quarter of 2015.

There were no impairment losses on the Group’s interest in the iron ore mine for the years ended December 31, 2016 and 2014.

Hydrocarbon properties

The Group owns ~~development and production assets in~~ hydrocarbon properties in western Canada. The majority of such operations are located in the Deep Basin fairway of the Western Canada Sedimentary Basin. ~~These interests~~The Group’s hydrocarbon development and production assets include producing natural gas wells, non-producing natural gas wells, producing oil wells and non-producing oil wells, but do not include a land position that includes net working interests in undeveloped acreage and properties containing probable reserves only, both of which are included in exploration and evaluation ~~assets (see Note 17). The hydrocarbon properties were acquired by the Group as a result of the business combination in September 2012 (see Note 3).~~

~~Iron ore extracting facilities~~

An Indian subsidiary (which was sold in February 2013) entered into contracts with leaseholders (the “LH”) for extraction of iron ore from certain mines on behalf of the LH for which the subsidiary receives an extraction fee per ton and gives the subsidiary the right to extract, crush, screen and store the iron ore at the LH’s site on its behalf. Interests in the extracting facilities were impaired and written off in December 2012 (see Note 28).

~~The following changes in interests in resource properties were recorded in 2013:~~

Cumulative
Opening Decommissioning translation Ending
balance Reclassification Additions Impairment obligations adjustments balance
Historical costs $ 422,301 $ 35,270 $ 4,782 $ (6,077 ) $ (21,455 ) $ (14,943 ) $ 419,878
Accumulated depletion (38,556 ) — (22,466 ) — — 966 (60,056 )
Carrying amount $ 383,745 $ 359,822

~~The following changes in interests in resource properties were recorded in 2012:~~

Cumulative
Opening Business Decommissioning translation Ending
balance combination Additions Impairment obligations adjustments balance
Historical costs $ 251,195 223,057 $ 1,073 $ (50,865 ) $ 588 $ (2,747 ) $ 422,301
Accumulated depletion (31,613 ) — (15,221 ) 8,234 — 44 (38,556 )
Carrying amount $ 219,582 $ 383,745

The Group did not capitalize any general and administrative costs in respect of hydrocarbon development and production activities during the years 2013, 2012 and 2011. There were no borrowing costs capitalized in the current or prior years, as the Group did not have any qualifying assets.

~~MFC INDUSTRIAL LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2013~~

~~Note 16. Interests in Resource Properties (continued)~~

In February 2014, the operator of the iron ore mine announced that it would idle the mine. Management of the Group reviewed the underlying legal documents and performed a sensitivity analysis on the expected future cash flows from its royalty interest. The primary factor which impacts the recoverable amount is the duration of the idle period of the mine. Using a base case which assumes the mine will recommence production by 2016 and the remaining reserves will be processed over the remaining mine life, management concluded that an impairment charge was not required as at December 31, 2013. Management continues to monitor the development of the events relating to the iron ore mine.

The recoverable amounts of the Group’s hydrocarbon CGUs are determined ~~on an annual basis or where~~whenever facts and circumstances provide impairment ~~indicator.~~indicators. CGU’s are mainly determined based upon the geographical region of the Group’s producing properties. The recoverable amounts of each CGU are based on ~~each CGU’s~~the future ~~pre-tax~~post-tax cash flows expected to be derived from the Group’s hydrocarbon ~~properties.~~properties using a fair value less costs of disposal methodology (Level 3 fair value hierarchy). The ~~pre-tax~~post-tax cash ~~flows~~flow projections incorporate management’s best estimates of future natural gas prices, production based on current estimates of recoverable reserves and resources, exploration potential, future operating costs, non-expansionary capital expenditures and inflation. Natural gas pricing included in the cash flow projections beyond five years is based on historical volatility and consensus analyst pricing. Projected cash flows are discounted using a ~~pre-tax~~post-tax discount rate which reflects current market assessments of the time value of money and the risks specific to the hydrocarbon ~~interests~~properties for which the future cash flow estimates have not been adjusted. At

On December 31, ~~2013,~~2016, the Group performed an ~~annual~~ impairment assessment on its hydrocarbon properties ~~based on~~utilizing a ~~pre-tax~~post-tax discount rate of 10% and recognized ana net non-cash reversal of impairment losses of ~~$6,077 before an income tax recovery~~$8,566, of ~~$1,561.~~

~~During 2012, the Group recognized an impairment of $42,631 on its extracting facilities. For 2011, there~~which $7,672 were ~~no impairment indicators identified~~allocated to development and ~~accordingly, an impairment test was not required~~production assets and ~~there was no impairment losses. The Group sold the extracting facilities in 2013.~~

~~Note 17. Hydrocarbon Probable Reserves and Unproved Lands~~

~~Exploration and evaluation assets, which comprise hydrocarbon~~$1,684 to probable reserves and ~~undeveloped lands,~~an impairment loss of $790 was allocated to unproved lands. The related deferred income tax expense for 2016 was $2,526. The impairment losses recognized and included in continuing operations for the year ended December 2015 and 2014, respectively, were ~~acquired by the Group as a result~~$47,672 and $2,813, with related deferred income taxes of ~~the business combination in September 2012. The movements in exploration and evaluation assets during 2013 and 2012 were as follows.~~

Probable Undeveloped
      reserves       lands
Balance, beginning of 2013 $ 99,142     $ 31,701
       Additions — 421
       Reclassification from assets held for sale 29,523 1,855
       Land expiries — (104 )
       Reclassification-out (47,565 ) (627 )
       Cumulative translation adjustment (5,833 ) (1,892 )
Balance, end of 2013 $ 75,267 $ 31,354

Probable Undeveloped
reserves lands
(Recast-Notes 3&41)
Balance, beginning of 2012 $ — $ —
       Purchased through business combination 100,393 32,226
       Additions — 96
       Land expiries — —
       Cumulative translation adjustment (1,251 ) (621 )
Balance, end of 2012 $ 99,142 $ 31,701

~~In 2013 and 2012, no indicators of impairment were identified~~$nil for ~~exploration and evaluation assets.~~

both years (see Note 5).

TABLE OF CONTENTS

MFC ~~INDUSTRIAL~~BANCORP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, ~~2013~~

~~Note 17. Hydrocarbon Probable Reserves and Unproved Lands (continued)~~

~~Participation Arrangement~~

In November 2013, the Group entered into a participation agreement with an oil and gas operator to develop certain oil and gas properties which have been classified as assets held for sale. Pursuant to the agreement, (1) the operator will spend a minimum of C$50 million to drill at least three net wells per year and a total of 12 net wells (to a minimum of 800 horizontal meters each) during the initial three-year term; (2) the operator will pay 100% of the drilling and completion costs of each well at its sole risk and expense; (3) after a well is drilled and there is continuous production from each well, the Group can elect to participate for up to 30% on a look-back basis in the working interest of each well by paying 25% of its actual costs or, alternatively, elect to receive a 10% gross royalty on the production instead; and (4) the Group will process the natural gas produced from the new wells through the Group’s processing plant for the life of the wells.

~~Note 18. Accrued Pension Assets (Obligations), Net~~

This participation arrangement did not have financial impacts on these consolidated financial statements as of December 31, 2013, except for the reclassification of assets held for sale to unproved lands, until the drilling is completed in the future.

~~A controlled entity (“the plan sponsor”) of the Group has a defined benefit plan for its employees. The pension obligations are non-recourse to MFC Industrial.~~

The pension plan for the employees of the plan sponsor is a defined benefit plan registered with the Alberta Superintendent of Pensions and the Canada Revenue Agency which provides benefits upon retirement, death and termination prior to retirement. The benefits are based on final average earnings and are partially indexed to inflation. As is typical of a defined benefit plan, the risk that additional funding will be required to pay for the benefits promised to plan members lies with the plan sponsor.

The plan is subject to the minimum funding rules in Employment Pension Plans Act in Alberta, Canada (the “EPPA”) which require that going concern deficiencies are funded over a maximum of 15 years and solvency deficiencies are funded over a maximum of 5 years. There have been two funding relief options under the EPPA that temporarily altered the funding requirements of the plan.

The plan sponsor is required to provide the funding as required under provincial pension legislation as determined by periodic actuarial funding valuations performed by an independent actuary. Funding for 2013 was based on the December 31, 2012 actuarial funding valuation. The plan sponsor funds the pension plan for minimum required contributions annually and assesses additional contributions if and when needed.

In September 2012, the Alberta government enacted temporary pension funding relief measures in response to the continued market declines. The plan sponsor has applied for, and was granted, this temporary pension funding relief which increases the number of years over which the going concern deficiency is required to be eliminated through additional contributions. This had no impact on 2012 payments; however, reduced 2013 annual solvency payments from C$1,016 to C$477.

The plan is an ongoing, open defined benefit plan, meaning that the plan accepts new entrants as employees are hired. Approximately 65% of the liability is attributed to active and disabled members who are accruing service in the plan. The duration of the plan is approximately 16 years.

The investment of the pension plan assets, including the performance of the investment managers, is overseen by the pension committee which is composed of members of the plan sponsor. The underlying objective is to earn an appropriate return given the plan sponsor’s goal of preserving capital within an acceptable level of risk for the pension plan assets.

To achieve the overall performance goals for the pension plan, the pension plan assets are overseen by external investment managers as per the pension plan’s investment policy and governance framework. The pension committee reviews investment manager performance on a regular basis.

~~MFC INDUSTRIAL LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2013~~

~~Note 18. Accrued Pension Assets (Obligations), Net (continued)~~

The cost of pension benefits earned by employees is determined using the projected-benefit method prorated on employment services and is expensed as services are rendered. The plan sponsor funds these plans according to federal and provincial government regulations by contributing to trust funds administered by an independent trustee. These funds are invested primarily in equities and bonds.

The plan sponsor was acquired in September 2012 by the Group and there were no plan amendments, curtailments, settlements or recognition of past service cost during 2013 and 2012. The Group did not have any defined benefit plan in 2011.

~~Reconciliation of the defined benefit obligations~~

      2013       2012
Beginning of year $ 11,866 $ —
       Assumed upon acquisition — 12,274
       Net current service cost 378 136
       Employee contributions 78 29
       Obligation interest cost 505 175
       Actuarial losses from changes in demographic assumptions and
              experience 468 —
       Actuarial gains from changes in financial assumptions (475 ) (506 )
       Benefits paid (1,400 ) (88 )
       Currency translation adjustments (753 ) (154 )
End of year $ 10,667 $ 11,866

Defined benefit obligations from plans that are wholly unfunded $ — $ —
Defined benefit obligations from plans that are wholly or partly funded $ 10,667 $ 11,866

Significant actuarial assumption for defined benefit obligations as at
       December 31: 2013 2012
       Discount rate 4.75% 4.50%
       Rate of salary increases 3.00% 3.00%
       Consumer price index 2.00% 2.00%

~~Reconciliation of the fair value of plan assets~~

      2013       2012
Beginning of year $ 10,638 $ —
       Fair value of plan assets upon acquisition — 10,047
       Return on plan assets 1,925 598
       Administration costs (13 ) (4 )
       Employer contributions 1,449 184
       Employee contributions 78 29
       Benefits paid (1,400 ) (88 )
       Currency translation adjustments (751 ) (128 )
End of year $ 11,926 $ 10,638
Interest income on plan assets $ 455 $ 143
Actuarial gains 1,424 455
       Return on plan assets $ 1,879 $ 598

~~MFC INDUSTRIAL LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2013~~

~~Note 18. Accrued Pension Assets (Obligations), Net (continued)~~

~~Reconciliation to the liability recognized in the statement of financial position~~

      2013       2012
Fair value of plan assets, end of year $ 11,926 $ 10,638
Defined benefit obligations, end of year (10,667 ) (11,866 )
       Plan surplus (deficit) 1,259 (1,228 )
Amount not recognized as an asset because of asset ceiling — —
Additional liability recognized due to IFRIC 14 — —
       Net asset (liability) $ 1,259 $ (1,228 )

~~Recognition of net asset (liability)~~

      2013       2012
Beginning of year $ (1,228 ) $ —
       Net liability assumed on acquisition — (2,228 )
       Employer contributions 1,449 184
       Expense recognized (441 ) (173 )
       Amount recognized in other comprehensive income 1,369 961
       Currency translation adjustments 110 28
End of year $ 1,259 $ (1,228 )

~~Current pension expense for the year~~

2013 2012*
Net current service cost $ 378 $ 136
Obligation interest cost 505 175
Interest income on plan assets (455 ) (142 )
Interest on effect of asset ceiling — —
Administration costs 13 4
End of year $ 441 $ 173

~~____________________~~2016

~~incurred during September 7 to December 31, 2012~~

~~Recognition through other comprehensive income for the year~~

2013 2012*
Net gains during the year $ 1,432 $ 961
Effect of the asset ceiling — —
Effect of impact of additional liability due to IFRIC 14 — —
Currency translation adjustments — —
Recognition of other comprehensive during the year $ 1,432 $ 961

Comprising: experience adjustment on defined benefit obligations $ 8 $ 506
Experience adjustment on assets 1,424 455
$ 1,432 $ 961

~~____________________~~

~~incurred during September 7 to December 31, 2012~~

~~MFC INDUSTRIAL LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2013~~

~~Note 18. Accrued Pension Assets (Obligations), Net (continued)~~

~~Sensitivity analysis~~

A sensitivity analysis for each significant actuarial assumption as of December 31, 2013, showing how the defined benefit obligations would have been affected by changes in the relevant actuarial assumption that were reasonably possible at the date, is as follows:

Discount Rate Sensitivity Analysis       2013
Effect of an increase of 1%
       Defined benefit obligations, end of year $ 9,025
Effect of a decrease of 1%
       Defined benefit obligations, end of year $ 12,758

Salary Increase Sensitivity Analysis       2013
Effect of an increase of 1%
       Defined benefit obligations, end of year $ 10,694
Effect of a decrease of 1%
       Defined benefit obligations, end of year $ 10,591

The defined benefit obligation sensitivity figures were calculated using the same methods and assumptions as the December 31, 2013 defined benefit obligation figures, with the only assumption change being the 1% change in discount rate or salary scale as indicated. There was no change from the previous period in the methods and assumptions used in preparing the sensitivity analyses.

As is the case with the actuarial valuations, formal materiality guidelines were not employed in the derivation of the sensitivity analysis. All benefits were valued using assumptions adopted for each relevant contingency and membership data that were reviewed for consistency with previous data as well as overall reasonableness. To the extent that the assumptions and methods adopted for the valuation were appropriate for the purpose of the valuation; nothing was omitted as being immaterial. Nevertheless, emerging experience differing from the assumptions will result in gains or losses that will be revealed in future valuations and could affect the validity of the sensitivity analysis.

~~Plan assets~~

Plan assets are held by an independent financial services company. The assets do not include the plan sponsor’s or the Group’s own financial instruments or any property occupied by, or other assets used by, the Group.

	~~Targeted~~
~~Plan asset allocation (%)~~	~~2013~~
~~Equity securities~~		60	%
~~Debt securities~~		40	%
~~Total~~		~~100~~	%

~~The fair values of the company’s defined benefit pension plan assets at December 31, 2013 and 2012 by asset category are as follows:~~

Fair value measurements       2013       2012
Asset category
       Cash $ 798 $ 23
       Pooled fund: Balanced trust fund 11,128 10,615
       Total $ 11,926 $ 10,638

The fund indicates that its asset allocation is 40% bonds, 35% Canadian equities and 25% international equities. As the plan assets are primarily invested in equity and debt securities, the plan may expose the plan sponsor to a concentration of financial securities risk.

~~MFC INDUSTRIAL LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2013~~

~~Note 18. Accrued Pension Assets (Obligations), Net (continued)~~

~~Expected contributions and benefit payments~~

~~The expected contributions for 2014 from the employer and employees are $593 and $69, respectively. The employer contributions represent the minimum required contribution under pension legislation.~~

~~The expected benefit payments are as follows:~~

Years ending December 31:
2014 $ 341
2015 375
2016 429
2017 467
2018 506
2019-2023 3,492
2024 and after 5,057
Total $ 10,667

~~As at December 31, 2013, the defined benefit pension plan had a net surplus of $1,259.~~

Note ~~19.~~14. Deferred Income Tax Assets and Liabilities

The tax effect of temporary differences and tax loss carry-forwards that give rise to significant components of the Group’s deferred income tax assets and liabilities are as follows:

As at December 31:	2016			2015
Non-capital tax loss carry-forwards		$	24,308		$	11,848
Interests in resource properties			(10,370)			—
Other assets			5,304			11,469
Other liabilities			(9,948)			(16,387)
		$	9,294		$	6,930
Presented on the consolidated statements of financial position as follows:
Deferred income tax assets		$	16,647		$	20,641
Deferred income tax liabilities			(7,353)			(13,711)
Net		$	9,294		$	6,930

As at December 31: 2013 2012
(Recast-
            Notes 3&41)
Non-capital tax loss carry-forwards $ 18,858 $ 16,955
Interests in resource properties (8,761 ) (3,368 )
Other assets 8,014 4,532
Other liabilities (3,741 ) (2,374 )
$ 14,370 $ 15,745
Deferred income tax assets and liabilities are included in the consolidated
       statement of financial position as follows:
       Deferred income tax assets $ 17,941 $ 19,136
       Deferred income tax liabilities (3,571 ) (3,391 )
              Net $ 14,370 $ 15,745

AtAs at December 31, ~~2013,~~2016, the Group had estimated accumulated non-capital losses, which expire in the following countries as follows. Management is of the opinion that not all of these non-capital losses are probable to be utilized in the future.

Country	Gross amount			Amount for which no deferred income tax asset is recognized	Expiration dates
Canada		$	27,434	$ —	2033-2036
Germany			13,080	9,487	Indefinite
Austria			188,714	160,864	Indefinite
Uganda			58,027	58,027	Indefinite
United Sates of America			13,663	13,663	Indefinite
Malta			93,876	67,570	Indefinite

Amount for which
Gross no deferred asset is
Country amount recognized Expiration dates
Canada $ 65,890 $ — 2028-2032
Germany 5,170 5,170 Indefinite
Switzerland 3,492 3,492 2014-2018
U.S. 20,566 20,566 2024-2030
Austria 8,981 — Indefinite
Slovakia 1,571 1,571 2014-2018

~~MFC INDUSTRIAL LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2013~~

~~Note 19. Deferred Income Tax Assets~~The utilization of the deferred tax assets is dependent on future taxable profits in excess of the profits arising from the reversal of existing taxable temporary differences and ~~Liabilities (continued)~~

Atthe Group companies have suffered losses in either the current or preceding period(s) in the tax jurisdictions to which the deferred tax assets relate.

As at December 31, ~~2013,~~2016, MFC ~~Industrial~~Bancorp had an aggregate amount of ~~$443,679~~$60,737 of temporary differences associated with its investments in subsidiaries ~~branches~~ and ~~associates and interests in joint arrangements,~~branches, for which deferred income tax liabilities have not been recognized because the Group is in a position to control the timing of the reversal of such temporary differences and it is probable that such differences will not reverse in the foreseeable future.

During 2012, the Company, through its Austrian subsidiary, acquired all of the issued and outstanding shares of a Canadian corporation in a business combination. At the time of the acquisition, management was aware that deferred assets were realizable by applying existing taxable profits of the Group. As such, the deferred tax assets of the acquiree in the amount of $57,763 were recognized at the time of the acquisition. Before the date of acquisition, the Company had a viable tax planning strategy to restructure its Canadian entities to access the deferred tax assets to offset future increases in taxable income of the Canadian entities and has subsequently executed this planning strategy. Before the acquisition, the acquiree had suffered a loss in the current and prior period in the tax jurisdictions to which the deferred tax assets relate.

In November 2012 and February 2016, the Company received from the Canada Revenue Agency (“CRA”) tax notices of reassessment relating to ~~the~~ taxation years ended December 31, 2006 to ~~December 31, 2010.~~April 19, 2013. A predecessor also received a provincial reassessment in November 2016, as a consequence of the February 2016 federal reassessments. The reassessments deny a deduction in computing income, attribute income earned by predecessors to the Company and deny the application of losses and deductions by predecessors in computing their taxable income, and deny the application of credits in the computation of ~~tax~~income taxes payable. The Company has filed notices of objection ~~with~~to the ~~CRA.~~November 2012, February 2016 and (provincial) November 2016 notices of reassessment. The Company, ~~in consultation with~~among other things, reviewed the reassessments, the material facts related thereto and the subject transactions and consulted its ~~legal advisors, remains~~advisors. Based on such review, management determined that the probability of the ~~view that its tax filing position is appropriate and does not believe any additional assessment of income tax by the CRA is appropriate.~~CRA’s reassessments being successful in court was remote. Accordingly, the Company has not recorded a liability in these consolidated financial statements in connection with the reassessments. There can be no assurance that the Company will be successful in defending its ~~position.~~positions. If the CRA is successful in respect of either reassessment, then

TABLE OF CONTENTS

MFC BANCORP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016

Note 14. Deferred Income Tax Assets and Liabilities (continued)

the Company will be required to pay a material amount of income tax plus applicable interest. There continues to be tax litigation in progress involving the CRA and other companies which may have a bearing on the Company’s own income tax position with the CRA. The Company will continue to assess its position as such litigation progresses.

The Group companies’ income tax filings are also subject to audit by taxation authorities in numerous jurisdictions. There are audits in progress and items under review, some of which may increase the Group’s income tax liability. In the event that management’s estimate of the future resolution of these matters changes, the Group will recognize the effects of the changes in its consolidated financial statements in the appropriate period relative to when such changes occur.

Note ~~20.~~15. Short-term Bank Borrowings

Short-term bank borrowings are repayable within a year from the borrowing date. They are used to finance the Group’s day-to-day ~~commodities and resources~~merchant banking business.

As at December 31:	2016			2015
Credit facilities from banks		$	95,416		$	52,864

As at December 31: 2013 2012
Credit facilities from banks $129,783 $150,396

As at December 31, ~~2013,~~2016, the Group had credit facilities aggregating ~~$ 511,599~~$430,028 as follows: ~~(i)~~(a) the Group had unsecured revolving credit facilities aggregating ~~$ 220,548~~$141,192 from banks. The banks generally charge an interest rate at inter-bank rate plus an interest margin; ~~(ii)~~(b) the Group also had revolving credit facilities aggregating ~~$68,895~~$64,610 from banks for structured solutions, a special ~~type of~~ trade financing. The margin is negotiable when the facility is used; ~~(iii)~~(c) the Group had a specially structured non-recourse factoring arrangement with a bank up to a credit limit of ~~$ 130,900~~$198,366 for the Group’s ~~commodities~~merchant banking activities. ~~Generally, the~~The Group factors certain of its trade ~~receivable accounts~~receivables upon invoicing, at inter-bank rate plus a margin; ~~(iv)~~and (d) the Group had a foreign exchange credit ~~facility~~facilities of ~~$ 53,256~~$25,860 with ~~a bank; and (v) the Group had secured revolving credit facilities aggregating $ 38,000.~~banks. All these facilities are renewable on a yearly ~~basis.~~

basis or usable until further notice.

100

TABLE OF CONTENTS

MFC ~~INDUSTRIAL~~BANCORP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, ~~2013~~

2016

Note ~~21.~~16. Debt

As at December 31: 2013 2012
Due to a bank, €1,200 and €2,400 at December 2013 and 2012, respectively, interest at the Austrian Export Credit Agency financing rate plus an interest margin and backup guarantee fee (2.29% per annum at December 31, 2013) and payable quarterly and due in 2014 in equal installments
$ 1,653 $ 3,165
Due to a bank, $6,000 and $3,000 at December 31, 2013 and 2012, respectively, interest at LIBOR plus an interest margin (3.52% at December 2013) and payable monthly, secured by trade receivables and due in negotiated periodic repayment with final payment in October 2015
6,000 3,000
Due to a bank, $13,053 and $7,519 at December 31, 2013 and 2012, respectively, interest at LIBOR plus an interest margin (3.9% at December 2013) and payable monthly, secured by real estate and trade receivables and due in negotiated periodic repayment with final payment in October 2018
13,053 7,519
Due to banks, €66,475 and €80,000 at December 31, 2013 and 2012, respectively, interest and backup guarantee fee on €59,300 fixed at 2.8% per annum and the remainder at EURIBOR plus an interest margin and backup guarantee fee (approx. 1.88% per annum at December 2013) and payable quarterly due in semi-annual repayment with final payment in November 2020; final payment on the €7,175 portion with variable interest is in December 2014; 20% credit risk assumed by the Austrian Export Credit Agency
91,569 105,485
Due to a bank, $28,000 and €28,000 at December 31, 2013 and 2012, respectively, interest at LIBOR plus an interest margin and backup guarantee fee (4.28% per annum at December 31, 2013) and payable quarterly and due in equal yearly repayment with final repayment in August 2020; 20% credit risk assumed by the Austrian Export Credit Agency
28,000 28,000
Due to a bank, €30,300 and nil at December 31, 2013 and 2012, respectively, interest and backup guarantee fee on €24,700 fixed at 3.11% per annum and the remainder at EURIBOR plus an interest margin and backup guarantee fee (approx. 2.25% per annum at December 2013) and payable quarterly due in semi - annual repayment with final payment in May 2021; 20% credit risk assumed by the Austrian Export Credit Agency
41,750 —
Due to a bank, $10.000 and nil at December 31, 2013 and 2012, respectively, interest at LIBOR plus an interest margin (2.136% at December 2013) and payable at November 28, 2016
10,000 —
Due to banks, €31,000 and nil at December 31, 2013 and 2012, respectively, interest at LIBOR plus an interest margin (2.26% at December 2013) and payable at November 28, 2020
42,715 —
Due to a bank, €nil and €12,000 at December 31, 2013 and 2012, respectively
— 15,824
$ 234,740 $ 162,993

Current portion $ 44,869 $ 44,169
Long-term portion $ 189,871 118,824
$ 234,740 $ 162,993
The Company and certain of its subsidiaries have entered into long-term debt agreements with numerous banks and financial institutions. These agreements, which include customary terms and conditions in accordance with industry standards for unsecured facilities, include:

As at December 31:	2016			2015
Due to a bank, US$nil and US$886 at December 31, 2016 and 2015, respectively. Repaid in 2016		$	—		$	1,225
Due to a bank, US$9,100 and US$1,700 at December 31, 2016 and 2015, respectively, interest at LIBOR plus an interest margin (3.75% at December 2016) and payable monthly, secured by real estate and trade receivables and due in negotiated periodic repayments with final payment in October 2018. The debt was reclassified to liabilities relating to assets held for sale as at December 31, 2016			—			2,353
Due to a bank, US$19,428 and US$24,000 at December 31, 2016 and 2015, respectively, fixed interest plus an interest margin and backup guarantee fee on US$19,428 (5.05% at December 31, 2016) and payable quarterly, secured by intercompany loan receivables and due in equal annual repayments with final repayment in September 2022			26,085			33,216
Due to a bank, €16,414 and €22,200 at December 31, 2016 and 2015, respectively, fixed interest and backup guarantee fee on €16,260 (4.01% at December 31, 2016) and the remainder at OEKB variable plus an interest margin and backup guarantee fee (3.24% at December 2016) and payable quarterly, due in semi-annual repayments with final payment in December 2022			23,257			33,364
Due to a bank, US$nil and US$10,000 at December 31, 2016 and 2015, respectively. Repaid in 2016			—			13,840
Due to banks, €8,000 and €31,000 at December 31, 2016 and 2015, respectively, interest at EURIBOR plus an interest margin (2.17% at December 2016) and payable from November 2018 to November 2020			11,335			46,590
Due to a bank, €55,035 and €65,708 at December 31, 2016 and 2015, respectively, fixed interest and backup guarantee fee on €55,035 (2.57% at December 31, 2016) payable quarterly, secured by intercompany loan receivables and due in semi-annual repayments with final payment in August 2022. The debt was offset against cash as of December 31, 2016. (See Note 29)			—			98,752
Due to a bank, €nil and €4,043 at December 31, 2016 and 2015, respectively. The debt was derecognized as a result of the disposition of a subsidiary			—			6,076
Due to a bank €25,900 at December 31, 2016, fixed interest and backup guarantee fee on €25,900 (3.99% at December 31, 2016) payable quarterly, due in semi-annual repayments with final payment in November 2020. The debt was included in liabilities relating to assets held for sale as at December 31, 2015			36,699			—
Due to a bank, €14,642 and €16,713 at December 31, 2016 and 2015, respectively, €13,404 at a fixed interest rate (2.7% at December 31, 2016) and the remainder at EURIBOR plus an interest margin (1.55% at December 31, 2016) and payable quarterly, due in semi-annual repayments with final payment in May 2025.			19,437			23,622
		$	116,813		$	259,038
Current portion		$	36,249		$	84,705
Long-term portion			80,564			174,333
		$	116,813		$	259,038

101

TABLE OF CONTENTS

MFC ~~INDUSTRIAL~~BANCORP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, ~~2013~~

2016

Note ~~21.~~16. Debt (continued)

As ofat December 31, ~~2013,~~2016, the contractual maturities of the Group’s debt are as follows:

Years ending December 31:	Principal			Interest			Total
2017		$	36,249		$	4,134		$	40,383
2018			29,731			2,860			32,591
2019			17,761			1,852			19,613
2020			19,536			1,044			20,580
2021			4,778			408			5,186
Thereafter			8,758			455			9,213
		$	116,813		$	10,753		$	127,566

Years ending December 31: Principal Interest Total
2014 $ 44,869 $ 6,687 $ 51,556
2015 $ 33,074 $ 5,360 $ 38,434
2016 $ 71,762 $ 4,308 $ 76,070
2017 $ 30,074 $ 2,547 $ 32,621
2018 $ 26,637 $ 1,691 $ 28,328
Thereafter $ 28,324 $ 1,332 $ 29,656
$ 234,740 $ 21,925 $ 256,665

~~No interest~~Interest expense of $nil, $608 and $1,683 was capitalized and included in property, plant and equipment during the ~~years~~year ended December 31, ~~2013, 2012~~2016, 2015 and ~~2011.~~

2014, respectively.

Note ~~22.~~17. Account Payables and Accrued Expenses

As at December 31:	2016			2015
Trade and account payables		$	27,053		$	110,881
Value-added, goods and services and other taxes (other than income taxes)			3,610			8,821
Compensation			1,837			3,358
Provisions for payments under guarantees (see Note 26)			—			40,677*
Contract liabilities			535			1,239
Deposits from customers			1,471			2,920
Acquisition price payables			1,716			1,769
Sale of shares on behalf of other			3,067			3,070
Contingent consideration on a business combination			—			2,077
Other			5,825			7,239
		$	45,114		$	182,051

As at December 31: 2013 2012
Trade and account payables $ 83,190 $ 62,583
Value-added, goods-and-sales and other taxes (other than income taxes) 3,976 2,384
Compensation 1,879 1,888
Interest 3,812 848
Derivative liabilities 2,081 1,691
Provisions for warranty 74 80
Short-sale of securities 236 367
Deferred revenues 1,815 312
Deposits from customers 3,255 791
Acquisition price payables 1,279 8,459
Sale of shares on behalf of other 2,886 —
Due to a customer 22,166 —
$ 126,649 $ 79,403

The Group coordinated prepayment loans made by third-party banks to one of its customers, which financed off-take contracts to the Group. The Group has guaranteed the bank loans which were previously classified and disclosed as contingent liabilities prior to December 31, 2015. In February 2016, the customer filed for insolvency. Management of the Group expected that the banks would exercise their contractual rights under the guarantees to demand the payments from the Group and, as a result, the Group recorded a provision of $40,677 for the expected payments under the guarantees and a credit loss of $40,677 thereon as at December 31, 2015 and the aforesaid amount was paid during the year ended December 31, 2016.

Trade payables arise from the Group’s day-to-day trading activities. The Group’s expenses for services and other operational expenses are included in account ~~and other~~ payables. Generally, these payables and accrual accounts do not bear interest and ~~they~~ have a maturity of less than one year.

Note 18. Accrued Pension Obligations

The ~~amount due to a customer was repaid~~Group currently has post-retirement defined benefit plans for its employees in ~~January 2014.~~

~~Note 23. Mazeppa Processing Partnership (“MPP”)~~

~~MPP~~Austria and Germany. In addition, there is a ~~limited partnership organized under the laws of the Province of Alberta, Canada and owns certain midstream facilities, including natural gas plants and pipelines in southern Alberta, through~~small jubilee pay plan for an Austrian entity, which ~~the Group processes a significant portion of its production. Until October 2013, the Group’s interaction with MPP was governed by agreements (the “MPP Agreements”) which provided for:~~

	~~(a)~~		~~management of the midstream facility;~~

	~~(b)~~		~~the payment to MPP of a base processing fee and the reimbursement of MPP’s net out-of-pocket costs;~~

	~~(c)~~		~~the dedication through April 30, 2024 of production and reserves from the defined area through the facilities; and~~

	~~(d)~~		~~an option granted to the Group to purchase the MPP at a predetermined amount on April 30, 2014.~~

is based on collective agreements.

The Group had a defined benefit pension plan for its employees in Norway which was ~~considered to be~~derecognized when the ~~beneficiary~~Norwegian subsidiary was disposed of ~~MPP’s operations~~in December 2016.

The Group had a defined benefit pension plan and ~~pursuant to SIC–12~~a termination indemnity plan for its employees in Mexico which were classified as assets held for sale as at December 31, 2016.

The Group had a defined benefit pension plan for its employees in Canada which was classified as assets held for sale and ~~IFRS 10, the assets, liabilities, and operations~~subsequently disposed of the partnership were consolidated into these financial statements even though the Group did not have an ownership interest in the midstream facilities. As a result of an option to purchase MPP, the equity in MPP was attributable to the Group.

during 2015.

102

TABLE OF CONTENTS

MFC ~~INDUSTRIAL~~BANCORP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, ~~2013~~

2016

Note ~~23. Mazeppa Processing Partnership (“MPP”)~~18. Accrued Pension Obligations (continued)

~~The purchase option was exercised in October 2013 and as a result, MPP became a wholly-owned subsidiary of the Group effective October 2013.~~

~~The MPP term financing in these consolidated financial statements comprised the following components at December 31, 2013 and 2012:~~

      2013       2012
(Recast-
      Notes 3&41)
Present value of the base process fees $ —     $ 12,435
Purchase option — 10,290
       Total $ — $ 22,725

Represented by:

Current portion $ — $ 10,462
Long-term portion — 12,263
       Total $ — $ 22,725

The base processing fee component of the MPP term financing was accounted for as an amortizing obligation paid in full over its term to April 30, 2014, through a monthly principal and interest payment totaling C$799 per month. The effective rate of interest was 4.0% per annum.

In these consolidated financial statements, prior to the partnership being a wholly-owned subsidiary, the MPP net out-of-pocket costs were included in operating expense, the interest component of the base processing fee was included in finance costs and the principal component of the base processing fee was recorded as a reduction

As at December 31:	2016			2015
Fair value of plan assets		$	1,453		$	11,838
Defined benefit obligations			(4,712)			(15,899)
Accrued pension obligations, net		$	(3,259)		$	(4,061)

Changes in the ~~MPP term financing liability.~~

~~Note 24. Deferred Sale Liabilities~~

As at December 31: 2013 2012
Current $ — $ 26,637
Long-term — —
$ — $ 26,637

fair value of plan assets for the years ended December 31:

	2016			2015
Balance, beginning of year		$	11,838		$	24,121
Reclassified to assets held for sale			—			(11,425)
Dispositions of subsidiaries			(10,394)			—
Return (loss) on plan assets			957			(241)
Employer contributions			215			448
Benefits paid			(1,386)			(1,272)
Currency translation adjustments			223			207
Balance, end of year		$	1,453		$	11,838

Plan assets are generally held and administered by independent financial services companies. The ~~Group entered into sale and repurchase agreements, which were accounted~~assets do not include the Group’s own financial instruments or any property occupied by, or other assets used by, the Group.

Changes in the defined benefit obligations for ~~as financing arrangements. The agreements were unwound in 2013.~~

the years ended December 31:

	2016			2015
Balance, beginning of year		$	15,899		$	27,088
Dispositions of subsidiaries			(10,581)			—
Reclassified to assets held for sale			(445)			(10,063)
Net current service cost			190			213
Obligation interest cost			392			389
Actuarial losses (gains) from changes in demographic assumptions and experience			196			(618)
Actuarial losses (gains) from changes in financial assumptions			828			(455)
Benefits paid			(1,386)			(1,272)
Currency translation adjustments			(381)			617
Balance, end of year		$	4,712		$	15,899
Consisting of:
Defined benefit obligations for plans that are wholly unfunded		$	3,029		$	3,702
Defined benefit obligations for plans that are wholly or partly funded			1,683			12,197
		$	4,712		$	15,899

Significant actuarial assumptions used in calculating the defined benefit obligations as at December 31:	2016	2015
Discount rate	1.2%–7.8%	2.1%–6.3%
Rate of salary increases	1.0%–5.5%	1.0%–5.5%
Consumer price index	0.0%–4.0%	0%–1.5%

103

TABLE OF CONTENTS

MFC ~~INDUSTRIAL~~BANCORP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, ~~2013~~

2016

Note 18. Accrued Pension Obligations (continued)

Expected contributions and benefit payments

The expected contributions in 2017 from the employers and employees are $207 and $nil, respectively. The employer contributions represent the Group’s minimum required contribution under pension legislation.

As at December 31, 2016, the Group’s expected benefit payments are as follows:

Years ending December 31:
2017	$	303
2018		249
2019		257
2020		230
2021		343
Thereafter		3,330
Total	$	4,712

Note ~~25.~~19. Decommissioning Obligations

All of the Group’s decommissioning obligations as at December 31, 2015 were included in liabilities relating to assets held for sale in current liabilities (see Note 5). The decommissioning obligations relating to hydrocarbon properties and property, plant and equipment that ceased to be classified as held for sale effective September 30, 2016 were reclassified to long-term liabilities on the same effective date. Changes in the carrying amount of the Group’s decommissioning obligations included in long-term liabilities during ~~2013 and 2012~~the year ended December 31, 2016 are as follows:

      2013       2012
Decommissioning obligations, beginning of year $ 153,105 $ —
       Assumption upon acquisitions — 154,784 *
       Changes in estimates (24,499 ) (900 )
       Obligations related to dispositions (577 ) (33 )
       Obligations settled (4,759 ) —
       Accretion 3,085 1,161
       Effects of changes in foreign exchange rates (8,984 ) (1,907 )
Decommissioning obligations, end of year $ 117,371 $ 153,105

Comprising:
       Current portion (included in liabilities relating to assets held for sale) $ 11,517 $ 16,463
       Long-term portion 105,854 136,642
$ 117,371 $ 153,105

~~____________________~~

*	2016
Decommissioning obligations, beginning of year		$	—	~~including $153,959 on hydrocarbon properties (of which $15,590 was included in~~
Reclassifications from liabilities relating to assets held for ~~sale)~~sale			17,923
Changes in estimates			(4,988)
Accretion			284
Decommissioning obligations, end of year		$	13,219

As at December 31, ~~2013,~~2016, decommissioning obligations represented the present value of estimated remediation and reclamation costs associated with ~~interests in~~ hydrocarbon properties and property, plant and equipment. The Group discounted the decommissioning ~~retirement~~ obligations using an average discount rate of ~~2.61% (2012: 1.57%).~~1.73%, which is the risk free rate in Canada for blended government securities.

During 2016 and concurrent with updated assumptions from Alberta regulators, management revised its estimates of the expected decommissioning obligations related to its hydrocarbon production and processing assets. The Group will fund the decommissioning obligations from future cash flows from ~~the~~ operations.

~~Note 26. Puttable Instrument Financial Liabilities~~

In connection with the acquisitions of ACCR and Possehl in November 2012, the Group entered into call and put agreements with the non-controlling interests, which allow or require the Group to acquire up to 100% in each of the entities. As a result of the put options, the non-controlling interests are classified as financial liabilities.

~~The following table discloses the movement of the puttable instrument financial liabilities during 2013 and 2012:~~

      2013       2012
Puttable instrument financial liabilities
       Beginning of year $ 7,761 $ —
       Recognized upon business combinations — 7,684
       Changes in estimates (1,053 ) —
       Settlement (3,598 ) —
       Change in fair value, recognized in profit or loss 826 77
       End of year $ 3,936 $ 7,761

The fair values of the puttable instruments are determined using a discount cash flow (“DCF”) model. The option exercise prices are based on the net tangible asset values of the underlying entities on the calculation time (as defined) when the options are exercised, subject to certain adjustments.

In 2013, the Group made claims against one of the vendors for misrepresentation and breach of contracts. As a result, the Group converted all the puttable instrument financial liabilities due to the vendor into the share capital of the sub-subsidiaries and recognized a payable of $1,278. The transaction resulted in $1,851 credited to the retained earnings account as a result of the purchase of the non-controlling interests in sub-subsidiaries.

~~MFC INDUSTRIAL LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2013~~

Note ~~27.~~20. Shareholders’ Equity

Capital Stock

The authorized share capital of MFC ~~Industrial~~Bancorp consists of an unlimited number of common shares and class A common shares, both without par value and without special rights or restrictions, and an unlimited number of Class A Preference shares without par value and with special rights and restrictions.

Holders of common shares may receive dividends when, as and if declared by the ~~board,~~Board of Directors, subject to the preferential dividend rights of any other classes or series of preferred shares issued and outstanding. In no event may a dividend be declared or paid on the common shares if payment of the dividend would cause the realizable value of the assets of the Company to be less than the aggregate of its

104

TABLE OF CONTENTS

MFC BANCORP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016

Note 20. Shareholders’ Equity (continued)

liabilities. Holders of common shares are entitled to one vote per share at any meeting of shareholders ~~of any class~~ of common shares, and in general and subject to applicable law, all matters will be determined by a majority of votes cast other than fundamental changes with respect to the Company. The holders of common shares are entitled, in the event of a distribution of assets of the Company on the liquidation, dissolution or winding-up of the Company (a “Liquidation Distribution”), to receive, before any Liquidation Distribution is made to the holders of the class A common shares or any other shares of the Company ranking junior to the common shares, but after any prior rights of any preferred shares, the stated capital with respect to each common share held by them, together with all declared and unpaid dividends (if any and if preferential) thereon, up to the date of such Liquidation Distribution, and thereafter the common shares shall rank pari passu with all other classes of common shares in connection with the Liquidation Distribution.

The rights and restrictions attaching to the class A common shares are the same as those attaching to the common shares, except that in the event of a Liquidation Distribution, the holders of the class A common shares are entitled to receive such Liquidation Distribution only after any prior rights of the preferred shares and common shares or any other share ranking prior in right to the class A common shares.

The Class A Preference shares may include one or more series and the ~~directors~~Board of Directors may alter the special rights of and restrictions to such series. Except as may be set out in the rights and restrictions, the holders of the Class A Preference shares are not entitled to vote at or attend shareholder meetings. Holders of Class A Preference shares are entitled to receive repayment of capital on the liquidation or dissolution of MFC ~~Industrial~~Bancorp before distribution is made to holders of common shares.

All of the Company’s issued capital stock ~~are~~is fully paid.

Treasury Stock

As at December 31:	2016			2015
Common shares			328,239			328,239
Preferred Shares			4,621,571			4,621,571
Total number of treasury stock			4,949,810			4,949,810
Total carrying amount of treasury stock		$	61,085		$	61,085

As at December 31:       2013       2012
Common shares 328,239 328,239
Preferred Shares 4,621,571 4,251,741
       Total number of treasury stock 4,949,810 4,579,980
       Total carrying amount of treasury stock $ 68,980 $ 68,610

All of the Company’s treasury stock ~~are~~is held by wholly-owned subsidiaries.

~~MFC INDUSTRIAL LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2013~~

Note ~~28.~~21. Consolidated Statements of Operations

Revenues

Years ended December 31: 2013 2012 2011
Gross revenues as reported $ 813,938 $ 485,659 $ 513,904

~~For the components of the~~The Group’s ~~total~~gross revenues ~~please see Note 4.~~

comprised:

Years ended December 31:	2016			2015			2014
Merchant banking products and services		$	1,078,745		$	1,580,935		$	1,360,979
Gain on securities, net			—			—			333
Interest			3,056			4,237			4,542
Dividends			6			7			8
Other			49,850			43,921			39,468
Gross revenues		$	1,131,657		$	1,629,100		$	1,405,330

The Group’s revenues ~~included~~include the ~~following items:~~

Years ended December 31:       2013       2012       2011
Realized gain on available-for-sale securities $          231 $         264 $          —
Interest income arising from an arbitration
       (included in other revenues) — — 1,236

~~The Group’s net gain on securities comprised:~~

Years Ended December 31:       2013       2012       2011
Trading securities $    5,681 $     1,161 $          —
Available-for-sale securities 231 (94 ) —
Subsidiaries 415 206 —
Holding gain (loss) on advance sales of securities (9 ) (123 ) —
       Net gain on securities $ 6,318 $ 1,150 $ —

~~Expenses~~

~~The Group’s costs~~revenues of ~~sales comprised:~~

the Elsner group and FESIL group from April 1, 2014 in the merchant banking segment.

Years Ended December 31: 2013 2012 2011
Commodities and resources $ 705,951 $ 382,245 $ 414,745
Loss on securities, net — — 4,314
Credit losses (recovery) on loans and receivables 4,671 (521 ) (530 )
Fair value (gain) loss on investment property — (14 ) 56
Market value (increase) decrease on commodities (5,342 ) 1,509 4,422
(Gain) loss on derivative contracts, net (4,488 ) 57 (6,805 )
Write-off (recovery) of inventories, net — 15,659 * (29 )
Other 9,563 7,773 12,414
Total cost of sales $ 710,355 $ 406,708 $ 428,587

105

~~____________________~~

TABLE OF CONTENTS

MFC BANCORP LTD.

The amount included an inventory write-down of $19,434. The Group recognized the inventory write-down and an impairment loss of $42,631 on its interests in resource properties after the Supreme Court of India banned all mining activities in the state in which the Group’s extracting facilities were located. In aggregate, the total loss on the write-down and impairment was $48,231, net of income tax recovery of $13,834.

~~The Group’s net loss on securities comprised:~~

Years ended December 31:       2013       2012       2011
Trading securities $         — $         — $   6,507
Available-for-sale securities — — (1,721 )
Subsidiaries — — (405 )
Short-sale — — (67 )
       Net loss on securities $ — $ — $ 4,314

~~MFC INDUSTRIAL LTD.~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, ~~2013~~

2016

Note ~~28.~~21. Consolidated Statements of Operations (continued)

Expenses

The Group’s costs of sales and services comprised:

Years Ended December 31:	2016			2015			2014
Merchant banking products and services		$	1,027,627		$	1,512,970		$	1,269,324
Credit losses on loans and receivables and guarantees, net of recoveries			17,023*			54,540			4,346
Fair value loss on investment property			44			—			134
Market value decrease (increase) on commodity inventories			4,273			1,910			(4,172)
Loss (gain) on derivative contracts, net			521			(2,913)			(10,189)
Write-off of inventories, net			—			—			165
Loss on securities, net			116			84			—
Other			11,448**			7,277			6,822***
Total costs of sales and services		$	1,061,052		$	1,573,868		$	1,266,430

Includes credit losses of $11,296 on receivables due from a former consolidated entity.

Includes a net gain on dispositions of subsidiaries of $2,585 (see Note 31)

***

Includes a net gain on dispositions of subsidiaries of $4,888 (see Note 31)

The Group included the following items in ~~its~~ costs of ~~sales:~~

Years ended December 31:       2013       2012       2011
Inventories as costs of goods sold (including depreciation,
       amortization and depletion expenses allocated to costs of
       goods sold) $ 624,785 $ 286,426 $ 373,048
Loss on unwinding sale and repurchase arrangements
       (see Note 24) 2,356 — —
Reduction in liabilities for claims (2,425 ) — —

~~The Group collected a reimbursement of legal costs from an arbitration of $218, $nil~~sales and $1,503 in 2013, 2012 and 2011, respectively. The Group also recognized a reversal of accrued advisory fees and other legal provisions of $1,854, $nil and $nil in 2013, 2012 and 2011, respectively. The aforesaid reimbursement and reversal were shown as a reduction in selling, general and administrative expenses.

services:

Years ended December 31: 2016 2015 2014
Inventories as costs of goods sold (including depreciation, amortization and depletion expenses allocated to costs of goods sold) $ 974,497 $ 1,464,925 $ 1,217,079

Additional information on the nature of expenses

Years Ended December 31: 2013 2012 2011
Depreciation, amortization and depletion $ 28,085 $ 20,312 $ 13,204
Employee benefits expenses 28,732 26,055 19,687
incurred in continuing operations

Years Ended December 31:	2016			2015			2014
Depreciation, amortization and depletion		$	11,951		$	6,450		$	8,557
Employee benefits expenses			31,890			37,951			36,041

Note ~~29.~~22. Share-Based Compensation

MFC ~~Industrial~~Bancorp has a 2014 Equity Incentive Plan (the “2014 Plan”), which replaced its 1997 Stock Option Plan (amended) (the “1997 Plan”) and a 2008 Equity Incentive ~~Plan.~~

Plan (the “2008 Plan”).

1997 ~~Stock Option~~Plan

Subject to the terms of the 1997 Plan, ~~(Amended)~~

~~MFC Industrial has a stock option plan (“1997 Plan”) which enables~~the Company granted options to certain employees and directors to acquire common shares ~~and~~of the ~~options may be granted under the plan exercisable over a period not exceeding ten years. MFC Industrial is authorized to issue up to 5,524,000 shares under this plan.~~

Company.

2008 ~~Equity Incentive~~ Plan

Subject to the terms of the 2008 ~~Equity Incentive~~ Plan, ~~(“2008 Plan”),~~ a committee, as appointed by the ~~board~~Company’s Board of directors, may grant awards under the plan, establish the terms and conditions for those awards, construe and interpret the plan and establish the rules for the plan’s administration. The committee may grantDirectors, granted nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock awards, stock unit awards, stock awards, performance stock awards and tax bonus awards under the plan. ~~The maximum number of common shares of~~

106

TABLE OF CONTENTS

MFC ~~Industrial that are issuable under all awards granted under the plan is 1,500,000 common shares.~~

BANCORP LTD.

~~MFC INDUSTRIAL LTD.~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, ~~2013~~

2016

Note ~~29.~~22. Share-Based Compensation (continued)

~~Following~~

2014 Plan

Pursuant to the terms of the 2014 Plan, the Company’s Board of Directors, the compensation committee or such other committee as appointed by the Board of Directors to administer the 2014 Plan, may grant stock options, restricted stock rights, restricted stock, performance share awards, performance share units and stock appreciation rights under the 2014 Plan, establish the terms and conditions for those awards, construe and interpret the 2014 Plan and establish the rules for the 2014 Plan’s administration. Such awards may be granted to employees, non-employee directors, officers or consultants of the Group or any affiliate or any person to whom an offer of employment with the Group or any affiliate is extended. Such committee has the authority to determine which employees, non-employee directors, officers, consultants and prospective employees should receive such awards. The 2014 Plan replaced the 1997 Plan and the 2008 Plan; provided, however, that the 1997 Plan and 2008 Plan will continue to govern prior awards granted under such plans until all awards granted under such plans prior to November 14, 2014 have been exercised, forfeited, cancelled, expired or otherwise terminated in accordance with the terms thereof.

The maximum number of the Company’s common shares that may be issuable pursuant to all awards granted under the 2014 Plan is 2,877,018 common shares, being 2,000,000 plus 267,344 and 609,674 common shares available for awards under the 1997 Plan and 2008 Plan, respectively, as of the effective date of the 2014 Plan. Notwithstanding the foregoing, the maximum number of common shares that may be issued as incentive stock options under the 2014 Plan is 2,000,000. Forfeited, cancelled, returned and lapsed awards are not counted against the 2,000,000 common shares. Any awards granted under the 2014 Plan, or portions thereof, that are settled in cash and not by issuance of the Company’s common shares are not counted against the foregoing limits.

The following table is a summary of the ~~status of~~changes in stock options granted under the plans:

	2008 Plan		2008 Plan		1997 Plan		1997 Plan
	Number of options		Weighted average exercise price per share (US$)		Number of options		Weighted average exercise price per share (US$)
Outstanding as at December 31, 2013		915,000		7.81		1,720,000		7.81
Granted		200,000		8.01		—		—
Expired		(24,674)		7.81		(255,000)		7.81
Exercised		(30,326)		7.81		—		—
Surrendered and cancelled		(200,000)		7.81		—		—
Outstanding as at December 31, 2014		860,000		7.83		1,465,000		7.81
Expired		—		—		(92,500)		7.81
Outstanding as at December 31, 2015		860,000		7.83		1,372,500		7.81
Expired		(660,000)		7.81		(1,372,500)		7.81
Outstanding as at December 31, 2016		200,000		8.01		—		—
As at December 31, 2016:
Options exercisable		200,000				—
Options available for granting in future periods		—				—

2008 Plan 2008 Plan 1997 Plan 1997 Plan
Weighted Weighted
average average
Number of exercise price Number of exercise price
      awards       per share       options       per share
Outstanding at December 31, 2010 — — — —
       Granted 915,000 7.81 1,720,000 7.81
Outstanding at December 31, 2011 2012
       and 2013 915,000 7.81 1,720,000 7.81
As at December 31, 2013:
       Options exercisable (with two years’
              remaining contractual life) 915,000 7.81 1,720,000 7.81
       Options granted and exercised — 3,791,656
       Options available for granting in
              future periods 585,000 12,344
No awards were issued pursuant to the 2014 Plan during the years ended December 31, 2016, 2015 and 2014. There were 2,877,018 awards available for grant under the 2014 Plan as at December 31, 2016.

107

TABLE OF CONTENTS

MFC BANCORP LTD.

No
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016

Note 22. Share-Based Compensation (continued)

The following table summarizes information about stock options ~~expired or were granted in 2013~~outstanding and ~~2012.~~

exercisable as at December 31, 2016:

	Options Outstanding and Exercisable
Exercise Price per Share (US$)	Number outstanding		Weighted average remaining contractual life (in years)
$8.01		200,000		2.25

The following table summarizes the share-based compensation expenses recognized by the Group:

Years ended December 31:	2016			2015			2014
Share-based compensation expenses arising from stock options granted by the Company		$	—		$	—		$	423

Years ended December 31:       2013       2012       2011
Share-based compensation recovery (expenses) arising
       from options granted by:
       MFC Industrial $   — $   — $   (7,291 )
       A Canadian non-wholly owned subsidiary — (9 ) 72
       Total $ — $ (9 ) $ (7,219 )

On ~~January 1, 2011,~~April 2, 2014, the Company granted two employees options to purchase ~~2,635,000~~200,000 MFC Bancorp common shares in aggregate at an exercise price of ~~MFC Industrial were granted to directors~~US$8.01 per share. The options vested immediately and ~~certain employees~~expire on April 2, 2019.

The aggregate fair value of ~~the Group. The information on the stock~~ options granted ~~on January 1, 2011 is~~was $423 which was recognized as ~~follows. The Group used the Black-Scholes-Merton formula to compute the~~ share-based compensation expense in the Group’s consolidated statement of operations for the ~~stock options.~~

Number of options granted 2,635,000
Vesting requirements Immediately
Contractual life 5 years
Method of settlement In equity
Exercise price per share $ 7.81
Market price per share on grant date $ 7.81
Expected volatility 60.09%
Expected option life 3 years
Expected dividends 2.58%
Risk-free interest rate 0.97%
Fair value of option per unit $ 2.767

The expected volatility was determined based on the historical price movement over the expected option life, with adjustments for underlying businesses. The award holders are not entitled to dividends or dividend equivalents until the options are exercised.

year ended December 31, 2014. The share-based compensation expense is not tax deductible under the Canadian income tax act and, therefore, the Group did not recognize any income tax benefit from granting stock options.

~~MFC INDUSTRIAL LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2013~~

Note ~~29. Share-Based Compensation (continued)~~

A director of the Company was not re-elected to the board on December 27, 2013. As a result, his options to purchase 55,000 common shares of MFC Industrial in aggregate expired on January 26, 2014. Another director passed away in March 2014 and his options to purchase 55,000 common shares of MFC Industrial will expire in 2014 if not exercised.

~~Note 30.~~23. Income Taxes

MFC ~~Industrial’s~~Bancorp’s statutory tax rate was ~~25.75%, 25.0%~~26.0% for the years ended December 31, 2016, 2015 and ~~26.5% in 2013, 2012 and 2011, respectively. The increase in the tax rate in 2013 was due to the increase in the British Columbia provincial corporation tax rate.~~

2014.

A reconciliation of the provision for income taxes calculated at applicable statutory income tax rates in Canada to the provision in the consolidated statements of operations is as follows:

Years ended December 31:	2016			2015			2014
(Loss) income before income taxes		$	(16,706)		$	(290,795)		$	29,314
Computed recovery of (provision for) income taxes at MFC Bancorp’s statutory tax rates		$	4,344		$	75,607		$	(7,622)
Decrease (increase) in income taxes resulting from:
Subsidiaries’ tax rate differences			714			(1,107)			522
Other non-taxable income			6,057			2,774			481
Revisions to prior years			(112)			227			(548)
Taxable capital gains on dispositions, net			(3,543)			13			516
Resource property revenue taxes			(755)			(241)			(1,962)
Unrecognized losses in current year			(15,623)			(30,469)			(607)
Previously unrecognized deferred income tax assets, net			5,747			1,449			—
Deferred income tax asset on a purchased asset			—			1,339			—
Permanent differences			(1,448)			(3,865)			(1,109)
Change in future tax rate			—			11			—
Other, net			(2,395)			455			213
(Provision for) recovery of income taxes		$	(7,014)		$	46,193		$	(10,116)
Consisting of:
Resource property revenues taxes		$	(1,020)		$	(325)		$	(2,661)
Current and deferred income tax (expense) recovery			(5,994)			46,518			(7,455)
		$	(7,014)		$	46,193		$	(10,116)

      2013       2012       2011
(Recast-
Notes 3&41)
Income before income taxes from continuing operations $ 16,079 $   198,385 $   17,181
Computed recovery of (provision for) income taxes at
       MFC Industrial’s statutory rates $ (4,140 ) $ (49,596 ) $ (4,553 )
(Increase) decrease in taxes resulting from:
       Foreign tax rate differences 48 3,855 (143 )
       Non-taxable bargain purchase — 54,670 —
       Benefit of purchased income tax reductions 701 6,328 4,655
       Other non-taxable income 1,523 1,949 2,724
       Share-based compensation — (2 ) (1,932 )
       Revisions to prior years 1,111 — —
       Taxable capital gains on dispositions, net (58 ) (121 ) (1,833 )
       Resource property revenue taxes (3,730 ) (4,426 ) (3,414 )
       Unrecognized losses in current year (1,419 ) (6,904 ) (1,160 )
       Permanent differences (940 ) (893 ) —
       Change in future tax rate 244 (25 ) 906
       Transfer of an interest in resource property — — (1,634 )
       Other, net 83 (2,209 ) 401
Recovery of (provision for) income taxes $ (6,577 ) $ 2,626 $ (5,983 )
Consisting of:
       Resource property revenue taxes $ (5,003 ) $ (5,902 ) $ (4,647 )
       Other income taxes (1,574 ) 8,528 (1,336 )
$ (6,577 ) $ 2,626 $ (5,983 )

108

TABLE OF CONTENTS

MFC BANCORP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016

Note 23. Income Taxes (continued)

In addition, the aggregate current and deferred income tax relating to items that are charged directly to equity was ~~$80 (recovery), $68 (recovery)~~an expense of $nil, $109 and ~~$324 (recovery),~~a recovery of $445 for the year ended December 31, 2016, 2015 and 2014, respectively, ~~in 2013, 2012 and 2011, all~~ relating to the changes in ~~the~~fair values of available-for-sale securities and the ~~available-for-sale securities.~~

~~The Group’s tax expense above does not include any amounts for joint ventures and associates whose results are included in profit or loss net~~remeasurements of ~~taxes.~~

defined benefit pension plans.

~~MFC INDUSTRIAL LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2013~~

Note ~~31.~~24. Earnings Per Share

Earnings per share from continuing operations data for the years ended December 31, ~~from operations is~~2016, 2015 and 2014 are summarized as follows:

	2016			2015			2014
Basic (loss) earnings available to holders of common shares		$	(25,361)		$	(246,228)		$	17,840
Effect of dilutive securities:			—			—			—
Diluted (loss) earnings		$	(25,361)		$	(246,228)		$	17,840

	Number of Shares
	2016		2015		2014
Weighted average number of common shares outstanding – basic		63,142,272		63,142,272		62,922,837
Effect of dilutive securities:
Options		—		—		21
Contingently issuable shares		—		—		34,247
Weighted average number of common shares outstanding – diluted		63,142,272		63,142,272		62,957,105

      2013       2012       2011
(Recast-
Notes 3&41)
Basic earnings available to holders of common shares $ 9,665 $ 200,144 $ 12,193
Effect of dilutive securities: — — —
Diluted earnings $ 9,665 $ 200,144 $ 12,193

Number of Shares
2013 2012 2011
Weighted average number of common shares
       outstanding — basic 62,552,126 62,555,438 62,561,421
Effect of dilutive securities:
       Options 204,665 — —
Weighted average number of common shares
       outstanding — diluted 62,756,791 62,555,438 62,561,421
The Group’s potential ordinary shares include stock options outstanding and contingently issuable shares pursuant to a share purchase agreement.

As at ~~both~~ December 31, ~~2012~~2016, 2015 and ~~2011,~~2014, there were ~~2,635,000~~200,000, 2,232,500 and 2,325,000 stock options, respectively, outstanding that could potentially dilute basic earnings per share in the future, but were not included in the calculation of diluted earnings per share because they were antidilutive for ~~2012~~the year ended December 31, 2016, 2015 and ~~2011.~~

2014.

Pursuant to a share purchase agreement (as amended), 50,000 common shares of MFC Bancorp would be issued to a put holder for each year from 2014 to 2024 if Possehl Mexico S.A. de C.V. (“Possehl”) achieves an annual net income milestone as computed under IFRS for the year (see Note 28). The net income milestone for 2015 was not achieved. The net income milestone for 2016 has been achieved, subject to an audit. However, the 50,000 additional common shares of MFC Bancorp were not included in the calculation of diluted earnings per share for the year ended December 31, 2016 because they were antidilutive. For the subsequent event, see Note 32.

Note 25. Dividends ~~paid~~

~~On January 14, 2013, MFC Industrial announced its annual cash dividend for 2013.~~ Paid

The ~~2013 annual cash dividend was $0.24~~Company did not declare dividends in 2016 and 2015. The last and final 2014 quarterly dividends of $4,388 (or US$0.06 per common ~~share in total,~~share) were paid ~~in quarterly installments as follows: (i) $0.06 per common share~~ on ~~February 8, 2013~~January 5, 2015 to shareholders of record on January 25, 2013; (ii) $0.06 per common share on April 22, 2013 to shareholders of record on April 12, 2013; (iii) $0.06 per common share on July 30, 2013 to shareholders of record on July 19, 2013 and (iv) $0.06 per common share on October 28, 2013 to shareholders of record on October 15, 2013.

~~In general, dividend payable by~~ December 29, 2014.

109

TABLE OF CONTENTS

MFC Industrial to its shareholders is subject to customary Canadian withholding tax for non-resident shareholders. Pursuant to applicable tax treaties the withholding rate for eligible U.S. resident shareholders is 15%. The dividend is an eligible dividend under the~~Income Tax Act~~ ~~(Canada).~~

BANCORP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016

Note ~~33.~~26. Commitments and Contingencies

Leases as lessors

The Group leases out land and buildings ~~primarily classified under investment property,~~and equipment under non-cancellable operating lease agreements. The leases have varying terms, subject to the customary practices in the particular regions.

Future minimum rentals under long-term non-cancellable operating leases are as follows:

Years ending December 31:	Amount
2017		$	2,284
2018			861
2019			581
2020			483
2021			384
Thereafter			346
		$	4,939

Years ending December 31: Amount
2014 $ 1,965
2015 1,863
2016 1,762
2017 1,694
2018 190
Thereafter 65
$ 7,539

~~MFC INDUSTRIAL LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2013~~

~~Note 33. Commitments and Contingencies (continued)~~

~~The leases have varying terms, subject to the customary practices in the local regions.~~ The Group recognized rental and lease income of ~~$2,364~~$15,470, $5,345 and $2,821 (including sublease of ~~$14), $2,582 (including subleases of $51) and $2,935 (including subleases of $84)~~$7) for the years ended December 31, ~~2013, 2012~~2016, 2015 and ~~2011,~~2014, respectively.

Leases as lessees

Future minimum commitments under long-term non-cancellable operating leases are as follows:

Years ending December 31:	Amount
2017		$	1,079
2018			692
2019			256
2020			61
2021			18
Thereafter			—
		$	2,106

Years ending December 31: Amount
2014 $ 1,983
2015 1,327
2016 691
2017 560
2018 345
Thereafter 192
$ 5,098

The leases, which principally comprise office space, have varying terms, subject to the customary practices in the local regions. Minimum lease payments recognized as expenses were ~~$4,063, $2,539~~$2,565 (including sublease of $734 and contingent rents of ~~$306)~~$20), $3,569 (including sublease of $875) and ~~$2,803~~$3,953 (including sublease of $218 and contingent rents of ~~$76)~~$87) for the years ended December 31, ~~2013, 2012~~2016, 2015 and ~~2011,~~2014, respectively.

Litigation

The Group is subject to litigation and tax audits in the normal course of business, the ultimate results of which cannot be ascertained at this time. The Group records costs as they are incurred or become determinable.

Guarantees

Guarantees are ~~treated~~accounted for as contingent liabilities unless it becomes probable that the Group will be required to make a payment under the guarantee.

In the normal course of its merchant banking activities, the Group issues guarantees to its trade and financing partners in order to secure financing facilities. Upon the use or drawdown of the underlying financing facilities, the financing facilities are recorded as liabilities on the consolidated statement of financial position such as short-term bank borrowings or debt. Accordingly, the issued guarantees relating

110

TABLE OF CONTENTS

MFC BANCORP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016

Note 26. Commitments and Contingencies (continued)

to such financing facilities that are used or drawn are not considered contingent liabilities or off-balance sheet transactions. As at December 31, ~~2013,~~2016, the Group had ~~issued~~unrecorded contingent liabilities of $28,793 relating to outstanding guarantees ~~up to a maximum of $51,393~~issued to its ~~commodities~~trade and financing partners in the normal course of its commodities activities, of which $43,354 has been used and outstanding and has not been recorded as liabilities in the consolidated statement of financial position. There has been no claim against the guarantees.

merchant banking activities.

Purchase Obligations

As at December 31, ~~2013~~2016, the Group had open purchase contracts aggregating ~~$13,733~~$13,747 due in ~~2014 and take-or-pay contracts aggregating $2,624 due in 2014 to~~ 2017 ~~with respect~~relating to its ~~commodities and resources~~merchant banking activities. None of these ~~had~~contracts have been recognized inon the consolidated statement of financial position as at December 31, ~~2013.~~

~~Contingent Gain~~

In February 2013, the Group sold its interests in the Indian extracting facilities. Pursuant to the share purchase agreement, the sale price includes a certain percentage of the sold entity’s future free cash flow from its operations and investment for a period of seven years. As a result of the significant uncertainties as to the probability of receipt of any future consideration, management determined that the expected value of such future cash flow was $nil at December 31, 2013.

2016.

Note ~~34.~~27. Consolidated Statements of ~~Cash Flows -~~CashFlows — Supplemental Disclosure

Interest paid and received, dividends received and income taxes paid are classified as operating activities. Dividends paid are classified as financing activities.

The Group establishes, utilizes and maintains various kinds of credit lines and facilities with banks and insurers. Most of these facilities are short term. These facilities are used in our day-to-day supply chain business and structured solutions activities. The amounts drawn under such facilities fluctuate with the kind and level of transactions being undertaken. As a result, management considers short-term bank borrowings to be a part of its operating activities and that it is most appropriate to include the changes in short-term bank borrowings within operating activities in the consolidated statements of cash flows.

There are no circumstances in which cash and cash equivalents held by an entity are not available for use by the Group.

~~MFC INDUSTRIAL LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER~~On December 31, 2013,

~~Note 34. Consolidated Statements~~ a customer paid $23,576 to one of ~~Cash Flows - Supplemental Disclosure (continued)~~

the Group’s subsidiaries. However, the underlying invoice was subject to a factoring arrangement with a bank pursuant to which such bank had previously purchased the related receivable and the customer was to submit such payment to the bank directly. The amount, which had been incorrectly paid to the Group’s subsidiary by the customer instead of as directed to the bank, was subsequently repaid in January 2014. As a result, $23,576 was recognized as repayment to a customer. No income or loss was recognized in connection with such transactions.

The Group had the following non-cash transactions:

Non-cash transactions during the year ended December 31, 2016: (1) purchase of certain unproved lands from a former subsidiary for $790 at their fair value in ~~2013:~~exchange for a reduction of the Group’s loan receivables due from the former subsidiary; and (2) settlement of a trade receivable of $1,343 by the customer undertaking to deliver physical commodity goods of equal value to the Group in the future.

Non-cash transactions during the year ended December 31, 2015: (1) recognition of a non-cash gain of $1,194 on the reversal of a decommissioning obligation (which was included in costs of sales and services); (2) issuance of 50,000 common shares of MFC Bancorp to a director pursuant to a share purchase agreement executed in 2014 (see Note 28); and (3) the Group sold a 95% participating interest in certain hydrocarbon assets and related liabilities, resulting in a post-tax loss of $11,987 on disposition which was included in the results of discontinued operations and a net receivable of $11,600 due from the former subsidiaries (see Note 5).

Non-cash transactions during the year ended December 31 2014: (1) conversion of puttable instrument financial liabilities into the share capital of ~~non-wholly-owned subsidiaries~~the Company (see Note ~~26)~~28); and (2) the Group sold its interest in a group ~~(which held the resource properties in India)~~of German entities and recognized a non-cash accounting gain of ~~$415~~$4,535 on ~~its~~ disposition (see Notes 16 and 33); (3) the Group acquired the non-controlling interests in a group for no consideration, resulting in $489 credited to the retained earnings account; and (4) the Group entered into a participation arrangement (see Note ~~17)~~31).

~~Non-cash transaction in 2012: (1) the Group acquired entities with purchase price of $8,514 payable in 2013 (see Note 3).~~

Non-cash transactions in 2011: (1) the Company derecognized a non-wholly-owned subsidiary as a result of loss of control and reclassified it as an available-for-sale security which was eventually written off; and (2) the Company reorganized its indirect royalty interest by transferring it to another entity in exchange for an aggregate economic interest of 99.44% in the entity (see Note 3).

Note ~~35.~~28. Related Party Transactions

In the normal course of operations, the Group enters into transactions with related parties, which include affiliates in which the Group has a significant equity interest (10% or more) or has the ability to influence ~~the~~their operating and financing policies through significant shareholding, representation on the board of

111

TABLE OF CONTENTS

MFC BANCORP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016

Note 28. Related Party Transactions (continued)

directors, corporate charter and/or bylaws. The ~~affiliates~~related parties also include MFC ~~Industrial’s~~Bancorp’s directors, President, Chief Executive Officer, Chief Financial Officer, Chief Operating Officer and their close family members, as well as any person ~~and~~or entity which ~~have~~has significant influence over MFC ~~Industrial. These related party transactions are conducted in arm’s length transactions at normal market prices and on normal commercial terms.~~Bancorp. In addition to transactions disclosed elsewhere in these consolidated financial statements, the Group had the following transactions with ~~affiliates.~~

~~Continuing operations~~

its related parties:

Years ended December 31:	2016			2015			2014
Continuing operations:
Sales of goods		$	—		$	3,349		$	2,994
Fee income			—			—			61
Purchases of goods for sale			—			—			(19,346)*
Reimbursement of office and expenses at cost to a director			—			—			(117)**
Royalty expense paid and payable			—			—			(284)

Years ended December 31: 2013 2012 2011
Dividend income on common shares* $ 277 $ — $ 181
Royalty expense paid and payable* (604 ) (693 ) (773 )
Sales of goods 1,969 1,012 455
Fee income — — 32
Purchases of goods — — (3,476 )
Director’s salary paid by a subsidiary to a close family member
of a director — (20 ) (21 )
Interest income — — 296

~~____________________~~

Related to transactions with two processing facilities which were owned by a former subsidiary of the Company. One of the Company’s employees and one of its directors held unpaid positions on the board of directors of the parent company of the owner of these facilities until July 2014.

~~included in income from an interest in resource property~~

The director (who is also Managing Director, President and Chief Executive Officer of the Company) provided office space and services to the Company at cost.

Puttable instrument financial liability

In connection with the acquisition of Possehl in November 2012, the Group entered into call and put agreements with the non-controlling interest, which allowed or required the Group to acquire up to 100% of the entity. As a result of the put options (i.e. puttable instrument), the non-controlling interest was classified as financial liability.

In April 2014, the Group entered into a share purchase agreement with the holder of the puttable instrument (the “Put Holder”) whereby the Group acquired from the Put Holder his 40% equity shares in Possehl. Upon the execution of the agreement, the puttable instrument was terminated. The purchase price consisted of 509,820 common shares of MFC Bancorp (which would be delivered upon occurrence of an event (as defined in the agreement, the latest being in 2025)) and a contingent purchase price whereby 50,000 common shares of MFC Bancorp would be issued to the Put Holder for each year from 2014 to 2025 if Possehl achieves an annual net income milestone as computed under IFRS for the year. The fair values of the 509,820 common shares of MFC Bancorp and the contingent purchase price were measured at $2,736 in aggregate on the execution date of the share purchase agreement, using a generally accepted financial valuation model, which took into consideration the illiquidity and restrictions of the shares, the expected timing of the triggering events, the probability of the issuance of the contingently issuable shares and appropriate discount rates. As a result, the carrying amount of the puttable instrument financial liability of $4,510 was derecognized and a credit of $3,177 was recognized in retained earnings directly. In May 2014, the Put Holder was appointed by the Board of Directors as the President and Chief Executive Officer of MFC Bancorp.

In June 2014, the share purchase agreement was amended whereby the 509,820 common shares of MFC Bancorp were released to the Put Holder following the approval of the New York Stock Exchange (which was received in June 2014) and the contingent purchase price was reduced to be payable for each year from 2014 to 2024. All other terms remain unchanged. No credit or charge was recognized in profit or loss in connection with these amendments.

In June 2015, the Company issued 50,000 common shares of MFC Bancorp to its President/Chief Executive Officer as the 2014 annual net income milestone of Possehl was achieved. For the subsequent event, see Note 32.

In addition to the transactions above, the Group had the following transactions with related parties:

In February 2013, the Group sold its interest in a group (which held the resource properties in India (see Notes 16 and 33)) to a director of two of the Group’s sub-subsidiaries, resulting in non-cash accounting gain of $415 on its disposition. The director resigned from the subsidiaries in March 2013. In addition, a subsidiary sold its office furniture and equipment to a company beneficially owned by the Chairman of the Company for $14, resulting in a gain of $14. Included in other receivables was an overpayment of net director fee of $8 which was subsequently refunded by the director in 2014.

In 2012, the Group entered into an agreement with a director of two of the Group’s sub-subsidiaries whereby the director agreed to purchase 100% of the shares of a subsidiary from the Group for a nominal amount. The subsidiary did not have significant assets or business at the time of disposition.

~~In 2011, the Group, in the normal course of business, purchased long-term available-for-sale securities with a fair value of $1,415 for cash from an entity which was a related party until June 2011.~~

112

TABLE OF CONTENTS

MFC ~~INDUSTRIAL~~BANCORP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, ~~2013~~

2016

Note ~~35.~~28. Related Party Transactions (continued)

In April 2014, the then-President of the Company surrendered his options to purchase 200,000 MFC Bancorp common shares at an exercise price of US$7.81 per share. The cancellation of these options had no impact on the consolidated financial statements.

Key management personnel

The Group’s key management personnel comprise the members of its Board of Directors, President, Chief Executive Officer and Chief Financial Officer. The remuneration of key management personnel of the Group was as follows:

Years ended December 31: 2013 2012 2011
Short-term employee benefits $ 723 $ 794 $ 1,023
Contributions to defined contribution plans — — —
Post-employment benefits — — —
Other long term benefits — — —
Termination benefits — 456 —
Share-based payments* — — 2,089
Directors’ fees 372 264 201
Total $ 1,095 $ 1,514 $ 3,313
____________________

Years ended December 31:	2016			2015			2014
Short-term employee benefits		$	2,296		$	2,719		$	1,932
Termination benefits*			—			—			1,909
Share-based payments**			—			—			211
Directors’ fees			634			479			402
Total		$	2,930		$	3,198		$	4,454

~~The share-based payments were computed by the reference to the fair value of options measured by Black- Scholes-Merton formula on the grant date (see Note 29).~~

~~Key management personnel comprises~~

Pursuant to a consulting agreement, the ~~members of the Board of Directors,~~Managing Director, President and Chief Executive Officer ~~and Chief Financial Officer.~~

~~The termination benefits in 2012 represented amounts paid~~of the Company was entitled to a ~~former Chief Financial Officer.~~

termination payment of US$1,770 upon the termination of the consulting agreement.

The share-based payments were computed by the reference to the fair value of options calculated using the Black-Scholes-Merton formula on the grant date (see Note 22).

Note ~~36.~~29. Financial Instruments

The disclosures and analyses in this note do not include the financial instruments classified as assets held for sale and their related revenues and expenses presented (or re-presented) in discontinued operations.

The fair ~~value~~values of the Group’s financial instruments as at December 31, is2016 and 2015, other than those with carrying amounts that approximate their fair values due to their short-term nature, are summarized as follows:

As at December 31: 2013 2012
Carrying Fair Carrying Fair
      Amount       Value       Amount       Value
(Recast-Notes 3&41)
Financial Assets:
Fair value through profit or loss:
       Cash and cash equivalents, short-term cash deposits
              and restricted cash $ 336,866 $ 336,866 $ 274,861 $ 274,861
       Short-term securities 2,068 2,068 6,658 6,658
       Derivative assets 1,394 1,394 633 633
Loans and receivables:
       Receivables* 138,190 138,190 84,320 84,320
Available-for-sale instruments:
       Securities, at market value 2,465 2,465 9,637 9,637
              Total $ 480,983 $ 480,983 $ 376,109 $ 376,109

Financial Liabilities:
Financial liabilities measured at amortized cost:
       Short-term borrowings $ 129,783 $ 129,783 $ 150,396 $ 150,396
       Accounts payable and accrued expenses* 120,592 120,592 75,328 75,328
       Debt 234,740 229,045 162,993 160,412
       Facility term financing — — 22,725 22,725
       Puttable instruments 3,936 3,936 7,761 7,761
Fair value through profit or loss:
       Derivative liabilities 2,081 2,081 1,691 1,691
                    Total $ 491,132 $ 485,437 $ 420,894 $ 418,313
____________________

As at December 31: 2016 2015
Carrying
Amount Fair
Value Carrying
Amount Fair
Value
Financial Assets:
Fair value through profit or loss:
Short-term securities $ 7 $ 7 $ 170 $ 170
Derivative assets 1,240 1,240 5,726 5,726
Loans and receivables:
Long-term loan receivables (including current portion) 9,392 9,392 2,828 2,691
Long-term receivables, other — — 4,523 4,523
Available-for-sale instruments:
Securities, at fair value 5,572 5,572 630 630
Securities (including restricted non-current assets – securities), at cost 232 232 298 298
Financial Liabilities:
Financial liabilities measured at amortized cost:
Debt $ 116,813 $ 118,015 $ 259,038 $ 242,808
Fair value through profit or loss:
Derivative liabilities 6,454 6,454 4,236 4,236

113

TABLE OF CONTENTS

MFC BANCORP LTD.

~~not including derivative and tax related items~~

~~MFC INDUSTRIAL LTD.~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, ~~2013~~

2016

Note ~~36.~~29. Financial Instruments (continued)

Fair value of a financial instrument represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal (or most advantageous) market at the measurement date under current market conditions regardless of whether that price is directly observable or estimated using ~~another~~a valuation technique. The price for a transaction which takes place under duress or the seller is forced to accept the price in the transaction might not represent the fair value of an asset or a liability. The best evidence of fair value is published price quotations in an active market. When the market for a financial asset or financial liability is not active, the Group establishes fair value by using a valuation technique. The ~~chosen~~ valuation technique ~~makes maximum~~used maximizes the use of inputs observed ~~from~~in active markets, and ~~relies as little as possible on~~minimizes the use of inputs generated by the Group. Internally generated inputs take into account factors that market participants would consider when pricing the financial instruments, such as liquidity and credit risks. Use of judgment is significantly involved in estimating fair value of financial instruments in inactive markets and actual results could materially differ from the estimates. To value longer-term transactions and transactions in less active markets for which pricing information is not generally available, unobservable inputs may be used.

The fair ~~value of cash and cash equivalents, restricted cash and short-term cash deposits is based on reported market value. The fair value~~values of short-term trading securities isare based on quoted market prices (Level 1 fair value hierarchy). The fair ~~value~~values of available-for-sale securities isare based on quoted market prices, except for those which are not quoted in an active market which are ~~measured by~~estimated using an appropriate valuation method (Level 3 fair value hierarchy). Investments in equity instruments that do not have a quoted price in an active market and whose fair value cannot be reliably measured are measured at cost. The ~~fair values~~carrying amounts of cash and cash equivalents, short-term cash deposits, restricted cash, short-term receivables, short-term borrowings and ~~accounts payable~~account payables and accrued expenses, due to their short-term nature and normal trade credit terms, approximate their ~~carrying value.~~fair values. The fair values of long-term receivables, long-term debt and other long-term liabilities ~~were~~are determined using discounted cash flows at prevailing market rates of interest for a similar ~~instrument with a similar credit rating. The carrying amount of facility term financing was determined based on a discount rate which approximated the current market interest rate for~~ instruments with similar ~~risk profile.~~ credit ratings (Level 2 fair value hierarchy).

The fair values of ~~the puttable instruments approximate their carrying amounts as the carry amounts are revised using a DCF model or other valuation technique.~~

~~The fair values of the~~ derivative financial instruments are based on ~~the~~ quoted market prices when possible; and if not available, estimates from third-party brokers. These broker estimates are corroborated with multiple sources and/or other observable market data utilizing assumptions that market participants would use when pricing the asset or liability, including assumptions about risk and market liquidity (Level 2 fair value hierarchy). Inputs may be readily observable ~~market-corroborated~~ or generally unobservable. The puttable instruments are subject to put agreements and held by non-controlling parties in an inactive market. The fair values of the puttable instruments approximate their carrying amounts.

market-corroborated.

~~MFC INDUSTRIAL LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2013~~

~~Note 36. Financial Instruments (continued)~~

The following tables present the Group’s financial instruments measured at fair value on the consolidated statements of financial position classified by level of the fair value hierarchy as at December 31, ~~2013~~2016 and ~~2012:~~

    As at December 31, 2013       Level 1       Level 2       Level 3       Total
Financial Assets:
Fair value through profit or loss:
       Short-term securities $ 2,068 $ —     $ —     $ 2,068
       Derivative assets — 1,394 — 1,394
Available-for-sale securities 2,465 — — 2,465
              Total $ 4,533 $ 1,394 $ — $ 5,927

Financial Liabilities:
Fair value through profit or loss:
       Derivative liabilities $ — $ 2,081 $ — $ 2,081

As at December 31, 2012 Level 1 Level 2 Level 3 Total
Financial Assets:
Fair value through profit or loss:
       Short-term securities $ 6,658 $ — $ — $ 6,658
       Derivative assets — 633 — 633
Available-for-sale securities 9,637 — — 9,637
              Total $ 16,295 $ 633 $ — $ 16,928

Financial Liabilities:
Fair value through profit or loss:
       Derivative liabilities $ — $ 1,691 $ — $ 1,691
2015, respectively:

As at December 31, 2016	Level 1			Level 2			Level 3			Total
Financial Assets:
Fair value through profit or loss:
Short-term securities		$	7		$	—		$	—		$	7
Derivative assets			—			1,240			—			1,240
Available-for-sale:
Securities			5,572			—			—			5,572
Total		$	5,579		$	1,240		$	—		$	6,819
Financial Liabilities:
Fair value through profit or loss:
Derivative liabilities		$	—		$	6,454		$	—		$	6,454

114

TABLE OF CONTENTS

MFC BANCORP LTD.

The following table presents the level of the fair value hierarchy within which the fair value measurements are categorized for those financial instruments not measured at fair values but for which the fair values are disclosed:

	~~Fair Value Measurements at~~
	~~Reporting Date Using~~
	~~Level 1~~	~~Level 2~~	~~Level 3~~
~~Assets~~
~~Cash and cash equivalents, short-term cash deposits and restricted cash~~	X
~~Receivables~~		X
~~Short-term borrowings~~		X
~~Accounts payable and accrued expenses~~		X
~~Debt~~		X
~~Puttable instruments~~			X

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016

Note 29. Financial Instruments (continued)

As at December 31, 2015	Level 1			Level 2			Level 3			Total
Financial Assets:
Fair value through profit or loss:
Short-term securities		$	170		$	—		$	—		$	170
Derivative assets			—			5,726			—			5,726
Available-for-sale:
Securities			630			—			—			630
Total		$	800		$	5,726		$	—		$	6,526
Financial Liabilities:
Fair value through profit or loss:
Derivative liabilities		$	—		$	4,236		$	—		$	4,236

Generally, management of the Group believes that current financial assets and financial liabilities, due to their short-term nature, do not pose significant financial risks. The Group uses various financial instruments to manage its exposure to various financial risks. The policies for controlling the risks associated with financial instruments include, but are not limited to, standardized company procedures and policies on matters such as hedging of risk ~~exposures,~~exposure, avoidance of undue concentration of risk and requirements for collateral (including letters of ~~credit)~~credit and bank guarantees) to mitigate credit risk. The Group has risk managers and other personnel to perform checking functions and risk assessments so as to ensure that the Group’s procedures and policies are complied with.

Many of the Group’s strategies, including the use of derivative instruments and the types of derivative instruments selected by the Group, are based on historical trading patterns and correlations and the Group’s management’s expectations of future events. However, these strategies may not be fully effective in all market environments or against all types of risks. Unexpected market developments may affect the Group’s

~~MFC INDUSTRIAL LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2013~~

~~Note 36. Financial Instruments (continued)~~

risk management strategies during the period, and unanticipated developments could impact the Group’s risk management strategies in the future. If any of the variety of instruments and strategies the Group utilizes is not effective, the Group may incur losses.

The Group does not trade in financial instruments, including derivative financial instruments, for speculative purposes.

The nature of the ~~risk~~risks that the Group’s financial instruments are subject to as at December 31, ~~2013~~2016 is set out in the following table:

Risks

Market risks

Financial instrument

Credit

~~Liquidity~~

Liquidity

~~Currency~~

Currency

Interest rate

Other price

Cash and cash equivalents, short-term cash deposits

and restricted cash

Short-term securities

Long-term securities

Derivative ~~assets~~securities and financial liabilities

Receivables

Short-term bank borrowings

~~Accounts payable~~Account payables and accrued expenses

~~Long-term debt (including MPP term financing)~~Debt

~~Puttable instruments~~

A sensitivity analysis for each type of market risk to which the Group is exposed on its financial instruments at the end of the reporting period is provided, showing how profit or loss and equity would have been affected by changes in the relevant risk variable that were reasonably possible at that date. These

115

TABLE OF CONTENTS

MFC BANCORP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016

Note 29. Financial Instruments (continued)

ranges of parameters are estimated by management, which are based on the facts and circumstances available at the time estimates are made, and an assumption of stable socio-economic and geopolitical states. No unusual ~~and~~nor exceptional events, for example, natural disasters or human-made crises and calamities, are taken into consideration when the sensitivity analysis is prepared. Actual occurrence could differ from these assumptions and such differences could be material.

Credit risk

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. Financial instruments which potentially subject the Group to credit risk consist of cash and cash equivalents, ~~restricted cash,~~ short-term cash deposits, ~~and~~restricted cash, derivative financial instruments and credit ~~exposures~~exposure (including outstanding receivables and committed transactions). The Group has deposited cash and cash equivalents, ~~restricted cash,~~ short-term cash deposits, restricted cash and entered into derivative financial instrument contracts with reputable financial institutions with high credit ratings ~~from which~~and management believes the risk of loss from these counterparties to be remote. The Group does not have exposure to Eurozone sovereign debt for which the issuing states (Greece, Spain and Portugal) have experienced credit downgrades or other indicators of financial difficulties, and customers of these Eurozone states.

Most of the Group’s credit ~~exposures are~~exposure is with counterparties in the ~~commodities and resources industries~~merchant banking segment and are subject to normal industry credit risk. The Group has receivables from various entities including, primarily, trade customers. Management does not believe that any single customer or geographic region represents significant credit risk. Credit risk concentration with respect to trade receivables is limited due to the Group’s large and diversified customer base. Credit risk from trade ~~account~~ receivables is mitigated since they are credit insured, covered by letters of credit, bank guarantees and/or other credit enhancements. The Group routinely monitors credit risk ~~exposures,~~exposure, including sector, geographic and corporate concentrations of credit and set and regularly review ~~counterpart~~counterparties’ credit limits based on rating agency credit ratings and/or internal assessments of ~~company~~

~~MFC INDUSTRIAL LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2013~~

~~Note 36. Financial Instruments (continued)~~

the customers and industry analysis. The Group also uses factoring and credit insurances to manage credit risk. Management believes that these measures minimize the Group’s overall credit risk; however, there can be no assurance that these processes will protect the Group against all losses from non-performance.

The average contractual credit period for trade receivables is ~~about 60-90 days. However, due~~60-65 days and up to 180 days for certain sales. With the use of ~~the~~ factoring facilities, the average ~~life time of trade receivables are~~cash collection period is reduced to approximately ~~10 days. The average contractual credit period for trade receivables from hydrocarbon sales is about 30~~15 days. For the aging analysis of ~~the~~ past-due receivables, see Note 7.

The maximum credit risk exposure as at December 31, ~~2013~~2016 is as follows:

Amounts recognized in the consolidated statement of financial position:
Cash and cash equivalents, short-term cash deposits and restricted cash $ 336,866
Derivative assets 1,394
Receivables 138,190
476,450
Guarantees (see Note 33) 51,393
Maximum credit risk exposure $ 527,843

As at December 31, 2013, the Group had issued guarantees up to a maximum of $51,393 to its trading and financing partners in the normal course of its commodities activities. As of December 31, 2013, $43,354 has been used and outstanding and has not been recorded as liabilities in the consolidated statement of financial position.

Cash and cash equivalents, short-term cash deposits and restricted cash	$	120,858
Derivative assets		1,240
Receivables		172,842
Amounts recognized in the consolidated statement of financial position		294,940
Guarantees (see Note 26)		28,793
Maximum credit risk exposure	$	323,733

In the past five years, nothere was only one claim ~~has been~~ made against the guarantees issued by the Group. ~~Typically,~~In February 2016, certain guarantees related to a customer filing for insolvency were called and the Group met its obligations under these amounts. Since these guarantees ~~are issued on behalf~~were no longer contingent, but instead were probable, they were recognized as provisions of $40,677 as at December 31, 2015, which were paid during the ~~Group’s trading and financing partners and, in case of non-performance by a trading or financing partner and a claim is made against~~year ended December 31, 2016. During the year ended December 31, 2016, the Group received proceeds of $39,149 from risk mitigation assets related to these guarantees, of which $35,121 was credited to profit or loss through a recovery of credit loss and the ~~Group can make the claim against the defaulting trading or financing partner~~remainder was credited to ~~recover the loss.~~

trade receivables. See Notes 7 and 17.

Please see sub-heading of “Concentration risk” in this note on credit risk concentration.

116

TABLE OF CONTENTS

MFC BANCORP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016

Note 29. Financial Instruments (continued)

Liquidity risk

Liquidity risk is the risk that an entity will encounter difficulty in raising funds to meet commitments associated with financial instruments. The Group requires liquidity specifically to fund capital requirements, satisfy financial obligations as they become due, and to operate ~~the commodities and resources~~its merchant banking business. The Group puts in place an actively managed production and capital expenditure budgeting process for major capital programs. The Group’s approach to managing liquidity is to ensure, as far as possible, that it always has sufficient liquidity to meet its liabilities when they fall due, under normal and stress conditions, without incurring unacceptable losses. The Group ~~is not subject to material~~maintains an adequate level of liquidity, ~~risk because~~with a portion of its ~~strong~~assets held in cash ~~position.~~and cash equivalents. The Group also maintains adequate banking facilities, including factoring arrangements. It is the Group’s policy to invest cash in highly liquid, diversified money market funds or bank deposits for a period of less than three months. The Group may also invest in cash deposits with an original maturity date of more than three months so as to earn a higher interest income.

~~The Group also maintains an acid test ratio greater than one, which indicates that the Group has strong short-term assets to cover its immediate liabilities without selling inventory.~~

Generally, trade payables are due within 90 days and other payables and accrued expenses are due within one year. ~~All~~Approximately 85% of derivative financial liabilities are to be settled within one year. All short-term bank borrowings are renewable on a yearly basis. Please also refer to Note 2116 for the Group’s debt maturity schedule. ~~These~~The schedule of future ~~payment data are~~payments is based on the Group’s historical payment patterns and management’s interpretation of contractual arrangements. The actual cash outflows might occur significantly earlier than indicated in the ~~data~~schedule or be for significantly different amounts from those indicated in the ~~data.~~

schedule.

~~MFC INDUSTRIAL LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2013~~

~~Note 36. Financial Instruments (continued)~~

Currency risk

Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. Currency risk does not arise from financial instruments that are non-monetary items or from financial instruments denominated in the functional currency. The Group operates internationally and is exposed to risks from changes in foreign currency exchange rates, particularly ~~Euros,~~the Euro, Canadian ~~dollars~~dollar and ~~United States dollars.~~U.S. dollar. Currency risk arises principally from future trading transactions, and recognized assets and liabilities. In order to reduce the Group’s exposure to foreign currency risk on material contracts (including intercompany loans) denominated in foreign currencies (other than the functional currencies of the Group companies), the Group may use foreign currency forward contracts and options to protect its financial positions. As at December 31, ~~2013 and 2012,~~2016, in its continuing operations, the Group had foreign currency derivative financial instruments (foreign currency forward contracts and options) with aggregate notional amounts of ~~$171,932 and $86,966, respectively,~~$196,089 (2015: $162,051) and a net unrealized fair value loss of ~~$389 and $1, respectively.~~ $2,416 (2015: a net gain of $2,492).

The Group does not have any material exposure to highly inflationary foreign currencies.

Sensitivity analysis:

At December 31, ~~2013,~~2016, if the U.S. dollar had weakened 10% against the Group companies’ functional currencies with all other variables held constant, ~~income~~loss from continuing operations for the year ~~2013~~ended December 31, 2016 would have been ~~$6,285~~$582 higher. Conversely, if the U.S. dollar had strengthened 10% against the ~~local~~Group companies’ functional currencies with all other variables held constant, ~~income~~loss from continuing operations for the year ended December 31, 2016 would have been ~~$6,285~~$582 lower. The reason for such change is mainly due to certain U.S. dollar denominated financial instrument ~~liabilities~~assets (net of ~~assets).~~liabilities) held by entities whose functional currencies were not the U.S. dollar. There would have been no material impact arising from financial instruments on other comprehensive ~~loss~~income in either case.

At December 31, ~~2013,~~2016, if the Euro had weakened 10% against the Group companies’ functional currencies with all other variables held constant, ~~income~~loss from continuing operations for the year ~~2013~~ended December 31, 2016 would have been ~~$17 higher.~~$3,543 lower. Conversely, if the Euro had strengthened 10% against the ~~local~~Group companies’ functional currencies with all other variables held constant, ~~income~~loss from continuing operations for the year ended December 31, 2016 would have been ~~$17 lower.~~$4,307 higher. The reason for such change is mainly due to certain ~~Euro-denominated financial liabilities (net of assets)~~currency derivative contracts held by ~~entities whose functional currency is not the Euro.~~entities. There would have been no impact arising from financial instruments on other comprehensive ~~loss~~income in either case.

117

TABLE OF CONTENTS

MFC BANCORP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016

Note 29. Financial Instruments (continued)

At December 31, ~~2013,~~2016, if the Canadian ~~dollars~~dollar had weakened 10% against the Group companies’ functional currencies with all other variables held constant, ~~income~~loss from continuing operations for the year ~~2013~~ended December 31, 2016 would have been ~~$3,932 lower.~~$2,373 higher. Conversely, if the Canadian ~~dollars~~dollar had strengthened 10% against the ~~local~~Group companies’ functional currencies with all other variables held constant, ~~income~~loss from continuing operations for the year ended December 31, 2016 would have been ~~$3,932 higher.~~$2,333 lower. The reason for such change is mainly due to certain Canadian dollar-denominated financial assets (net of liabilities) held by entities whose functional ~~currency is~~currencies were not the Canadian ~~dollars.~~dollar. There would have been no impact arising from financial instruments on other comprehensive ~~loss~~income in either case.

Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market interest rates. Short-term financial assets and financial liabilities are generally not exposed to significant interest rate risk, because of their short-term nature. The Group’s long-term debt is not exposed to significant interest rate cash flow risk as the interest rates have been fixed for approximately ~~61%~~90% of the Group’s long-term debt.

Sensitivity analysis:

At December 31, ~~2013,~~2016, if benchmark interest rates (such as EURIBOR, LIBOR or prime rates) at that date had been 100 basis points (1.00%) per annum lower with all other variables held constant, ~~income~~loss from continuing operations for the year ~~2013~~ended December 31, 2016 would have been ~~$2,758 higher,~~$759 lower, arising mainly as a result of lower net interest expense. Conversely, if benchmark interest rates at that date had been 100 basis points (1.00%) per annum higher with all other variables

~~MFC INDUSTRIAL LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2013~~

~~Note 36. Financial Instruments (continued)~~

held constant, ~~income~~loss from continuing operations for the year ~~2013~~ended December 31, 2016 would have been ~~$2,743 lower,~~$759 higher, arising mainly as a result of higher net interest expense. There would have been no impact arising from financial instruments on the Group’s other comprehensive ~~loss.~~

income.

Other price risk

Other price risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market prices, whether those changes are caused by factors specific to the individual instrument or its issuer or factors affecting all instruments traded in the market. The Group’s other price risk includes equity price risk whereby the Group’s investments in equities of other entities that are classified as held for trading or as available for sale are subject to market price ~~fluctuation.~~fluctuations. The Group did not hold any asset-backed securities.

Sensitivity analysis:

At December 31, ~~2013,~~2016, if ~~the~~ equity ~~price~~prices in general had weakened 10% with all other variables held constant, ~~income~~loss and other comprehensive ~~income~~loss from continuing operations for the year ~~2013~~ended December 31, 2016 would have been ~~$206~~$18 higher and ~~$240, respectively, lower.~~$55 higher, respectively. Conversely, if ~~the~~ equity ~~price~~prices in general had strengthened 10% with all other variables held constant, ~~income~~loss and other comprehensive loss from continuing operations for the year ended December 31, 2016 would have been ~~$206~~$18 lower and ~~$240, respectively, higher.~~

$55 lower, respectively.

In addition, the Group buys and sells ~~commodities future~~futures contracts on the London Metal Exchange and enters into financial derivative contracts (e.g. futures and swaps) with banks, customers and ~~commodities~~ brokers. Management uses the financial derivative contracts to manage the price ~~fluctuation~~fluctuations for its own account or for customers. As at December 31, ~~2013 and 2012,~~2016, in its continuing operations, the Group had outstanding ~~commodity~~ derivative financial instruments with an aggregate notional amount of ~~$49,695 and $30,818,~~$37,324 (2015: $43,820), respectively, primarily to hedge against the long position in inventories and the usage of energy, which resulted in a net unrealized fair value loss of ~~$299 and $1,059, respectively.~~

$2,798 (2015: $1,002).

Sensitivity analysis:

At December 31, ~~2013,~~2016, if the ~~commodity price~~underlying prices in the financial instrument contracts in general had weakened 10% with all other variables held constant, ~~income~~loss from continuing operations for the year ~~2013~~ended

118

TABLE OF CONTENTS

MFC BANCORP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016

Note 29. Financial Instruments (continued)

December 31, 2016 would have been ~~$1,149~~$1,092 higher. Conversely, if the ~~commodity price~~underlying prices in the financial instrument contracts in general had strengthened 10% with all other variables held constant, ~~income~~loss from continuing operations for the year ended December 31, 2016 would have been ~~$1,149~~$1,092 lower. There would have been no impact arising from financial instruments on other comprehensive income in either case.

The Group executes contracts with third parties for the sale and physical delivery of ~~commodities~~inventory so as ~~to intend~~ to achieve a targeted price. ~~Contracts for such~~Such contracts are not typically financial instruments and therefore are excluded from the fair value ~~disclosure~~disclosures and sensitivity ~~analysis.~~

analyses.

Concentration risk

Management determines the concentration risk threshold amount as any single financial asset (or liability) exceeding 10% of total financial assets (or liabilities) in the Group’s consolidated statement of financial position.

The Group regularly maintains cash balances in financial institutions in excess of insured limits. The Group has deposited ~~the~~ cash and cash equivalents, short-term cash deposits and restricted cash ~~and term deposits~~ with reputable financial institutions with high credit ~~rating,~~ratings, and management believes the risk of loss to be remote. As at December 31, ~~2013,~~2016, the Group had cash and cash equivalents aggregating ~~$131,257 with~~$13,599 and an investment of ~~$176~~$123 in a banking group in Austria. The Group also owed ~~$230,448~~$140,552 in aggregate short-term banking borrowings and debt to the Austria banking group and had derivative contracts with an aggregate notional amount of $229,379 with the Austria banking group.

A customer filed for insolvency in 2016. As of December 31, 2016, the Group recognized trade receivables of $100,008 (2015: $92,595) due from the customer and its affiliates, net of allowance for credit losses.

Offsetting a financial asset and financial liabilities

In December 2016, the Group and a financial institution reached a legally enforceable agreement whereby the Group would set off its cash account with the financial institution against its debt and payables owing to the same financial institution. The realization of the cash account and the settlement of liabilities were simultaneously completed on January 2, 2017. As a result, the financial assets were set off against the financial liabilities as at December 31, 2016 as follows:

Recognized asset and liabilities	Gross amount			Amount set off			Net amount*
Cash and cash equivalents		$	201,866		$	(81,190)		$	120,676
Debt, current portion			114,228			(77,979)			36,249
Accounts payables and accrued expenses			48,325			(3,211)			45,114

Amounts presented in the consolidated statement of financial position.

119

TABLE OF CONTENTS

MFC ~~INDUSTRIAL~~BANCORP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, ~~2013~~

2016

Note ~~36.~~29. Financial Instruments (continued)

Additional disclosure

In addition to information disclosed elsewhere in these consolidated financial statements, the Group had significant items of income, expense, and gains and losses resulting from financial assets and financial liabilities which were included in profit or loss ~~in 2013, 2012~~from continuing operations for the years ended December 31, 2016, 2015 and ~~2011~~2014 as follows:

2013 2012 2011
      Interest income on financial assets not at fair value through
       profit or loss       $ 61       $ 6,730       $ 2,935
Interest income on financial assets classified at fair value through
       profit or loss 2,324 3,759 7,766
Total interest income $ 2,385 $ 10,489 $ 10,701
Interest expense on financial liabilities not at fair value through
       profit or loss $ 9,110 $ 7,004 $ (2,381 )
Interest expense on financial liabilities classified at fair value
       through profit or loss 5,482 4,661 (4,305 )
Total interest expense $ 14,592 $ 11,665 $ (6,686 )
Dividends income on financial assets at fair value through profit or loss $ 225 $ 256 $ 250
Dividends income on financial assets classified as available for sale,
       resource property related* 277 — 181
Dividends income on financial assets classified as available for
       sale, other 70 104 88
Net gain (loss) on financial assets at fair value through profit or loss 10,169 1,104 298
Credit (recovery) losses 4,671 (521 ) (530 )
____________________

* included in income from an interest in resource property

2016 2015 2014
Interest income on financial assets not at fair value through profit
or loss $    605 $    743 $    1,269
Interest income on financial assets classified at fair value through
profit or loss 2,451 3,494 3,273
Total interest income $    3,056 $    4,237 $    4,542
Interest expense on financial liabilities not at fair value through profit or loss $    7,747 $    3,701 $    4,565
Interest expense on financial liabilities classified at fair value through profit or loss 7,720 13,793 9,542
Total interest expense $    15,467 $    17,494 $    14,107
Dividend income on financial assets at fair value through profit or loss $    — $    — $    —
Dividend income on financial assets classified as available for sale, other 6 7 8
Net gain on financial assets at fair value through profit or loss 1,240 2,829 10,488

Note ~~37.~~30. Fair Value Disclosure

for Non-financial Assets

The ~~Group adopted IFRS 13 effective January 1, 2013~~fair values of the Group’s financial instrument assets and liabilities which are measured at fair value on the consolidated statements of financial position are discussed in Note 29. The following tables present non-financial assets which are measured at fair value in the consolidated statements of financial position, classified by level of the fair value hierarchy:

Assets measured at fair value on a ~~prospective basis. Accordingly, comparative information for 2012 is not required.~~

recurring basis as at December 31, 2016:

	Level 1			Level 2			Level 3
Inventories		$	1,655		$	13,529		$	—
Investment property			—			35,663			—
Total		$	1,655		$	49,192		$	—

Assets ~~and Liabilities Measured~~measured at ~~Fair Value~~fair value on a ~~Recurring Basis~~recurring basis as ofat December 31, ~~2013:~~

Fair Value Measurements at
Reporting Date Using
      Level 1       Level 2       Level 3
      Assets:
Trading securities* $ 2,068 $ —    $ —
Available-for-sale securities* 2,465 — —
Commodity inventories — 47,875 —
Derivative assets* — 1,394 —
Investment property — 35,685 —
       Total $ 4,533 $ 84,954 $ —

Liabilities:
Derivative liabilities* $ — $ 2,081 $ —
____________________

* These2015:

	Level 1			Level 2			Level 3
Inventories		$	3,418		$	116,905		$	—
Investment property			—			37,873			—
Total		$	3,418		$	154,778		$	—

Commodity inventories are ~~financial instruments. Please see Note 36 on further disclosure.~~

measured at fair value less costs to sell. The fair values are determined by reference to their contractual selling prices or quoted prices in marketplaces in the absence of a contract (level 1 fair value hierarchy). An average of past sale prices is used when there are no observable market prices or current contracts but there have been recent past sales of such goods and there are no indications that the market prices have been materially impacted (level 2 fair value hierarchy).

The fair values of investment property are measured using an income approach which includes the following inputs: land value, realized basic rents, operating costs, discount rates and damages and defects

120

TABLE OF CONTENTS

MFC ~~INDUSTRIAL~~BANCORP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, ~~2013~~

2016

Note ~~38.~~30. Fair Value Disclosure for Non-financial Assets (continued)

(level 2 fair value hierarchy). The valuation approach was consistent for both 2016 and 2015, except that the 2016 valuation was performed by an independent external valuator and the 2015 update was performed by internal management as management concluded there were no major changes in the input factors since 2014.

Note 31. MFC ~~Industrial~~Bancorp and its Significant Subsidiaries

MFC ~~Industrial~~Bancorp has its principal executive office at Suite ~~1620 –~~1860 - 400 Burrard Street, Vancouver, British Columbia, Canada.

A subsidiary is an entity that is controlled by MFC ~~Industrial.~~Bancorp. The following table shows the Company’s direct and indirect significant subsidiaries as at December 31, ~~2013.~~2016. The table excludes subsidiaries which only hold intercompany assets and liabilities and do not have an active business as well as subsidiaries whose results and net assets did not materially impact the consolidated results and net assets of the Group.

Proportion Proportion
Country of of Voting of Beneficial
      Subsidiaries       Incorporation       Interest       Interest
MFC Commodities GmbH Austria     100%         100%
MFC Trade & Financial Services GmbH Austria 100% 100%
IC Managementservice GmbH Austria 100% 100%
International Trade Services GmbH Austria 100% 100%
MFC Metal Trading GmbH Austria 100% 100%
Kasese Cobalt Company Limited Uganda 75% 100% *
AFM Aluminiumfolie Merseburg GmbH Germany 55% 55%
MAW Mansfelder Aluminiumwerk GmbH Germany 55% 55%
MFC (A) Ltd. Marshall Islands 100% 100%
MFC (D) Ltd. Marshall Islands 100% 100%
Brock Metals s.r.o. Slovakia 100% 100%
M Financial Corp. Barbados 100% 100%
Mednet (Shanghai) Medical Technical
       Developing Co., Ltd. China 100% 100%
Hangzhou Zhe-er Optical Co. Ltd. China 51% 51%
MFC Corporate Services AG Switzerland 100% 100%
Compton Holding Austria GmbH Austria 100% 100%
Compton Petroleum Austria GmbH Austria 100% 100%
GPT Global Pellets Trading GmbH Austria 100% 100%
MFC Energy Corporation Canada 100% 100%
MFC Energy (Montana), Inc. U.S. 100% 100%
Mazeppa Processing Partnership Canada 100% 100%
MFC Resources Inc. U.S. 100% 100%
ACC Resources S.R.L. Argentina 100% 100%
Possehl Mexico S.A. de C.V. Mexico 60% 60% **
____________________

*Subsidiaries	~~The Group derives 100% beneficial benefit from the subsidiary from its holding~~	Country of ~~a shareholder loan and 75% share capital.~~Incorporation	Proportion of Interest
MFC Commodities GmbH		Austria	100%
**MFC Metal Trading GmbH	~~The non-controlling interests are classified as puttable instrument financial liabilities on the consolidated statement of financial position.~~	Austria	100%
Kasese Cobalt Company Limited		Uganda	75%
MFC (A) Ltd		Marshall Islands	100%
MFC (D) Ltd		Marshall Islands	100%
M Financial Corp.		Barbados	100%
MFC Corporate Services AG		Switzerland	100%
MFC Power Limited Partnership		Canada	100%
MFC Energy Finance Inc.		Canada	100%
F.J. Elsner GmbH		Austria	100%
FESIL Sales GmbH		Germany	100%
MFC Merchant Bank Limited		Malta	100%
Sino Medical Technology Co. Ltd		Marshall Islands	100%

As at December 31, ~~2013,~~2016, the Group controlled entities in which the Group held more than 50% of the voting ~~rights. Conversely, as at December 31, 2013, the Group~~rights and did not control any entities in which the Group held 50% or less of the voting rights.

The Group’s proportional voting interests in the subsidiaries are identical to its proportional beneficial interests, except for a non-wholly-owned subsidiary in Africa from which the Group derives a 100% beneficial interest resulting from holding a shareholder loan. As ofat December 31, ~~2013,~~2016, none of the non-controlling interests are material to the Group. Also, there were no significant restrictions (statutory, contractual and regulatory restrictions, including protective rights of non-controlling interests) on MFC ~~Industrial’s~~Bancorp’s ability to access or use the assets and settle the liabilities of the ~~group.~~

Group.

During the year ~~2013,~~ended December 2016, the ~~Groups~~Group disposed of its FESIL group of companies, except FESIL Sales GmbH, resulting in a gain of $3,590. The Group also recognized a total loss of $1,005 on the dispositions of Elsner group of companies (except F.J. Elsner Trading Gesellschaft mbH) and two minor subsidiaries. These gain and losses on the dispositions of the subsidiaries were included in the consolidated statement of operations.

During the year ended December 31, 2015, the Group sold ~~its~~a 95% economic interest in certain hydrocarbon assets and the related liabilities to a ~~group (which held~~third party for nominal and contingent consideration and derecognized the ~~resource properties in India)~~former subsidiaries holding these assets and liabilities. As a result, the Group recognized a non-cash post-tax loss of $11,987 upon the deconsolidation (see Note 5).

121

TABLE OF CONTENTS

MFC BANCORP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016

Note 31. MFC Bancorp and its Significant Subsidiaries (continued)

During the year ended December 31, 2014, the Group disposed of a group of German entities and recognized an accounting gain of ~~$415~~$4,535 on ~~its disposition. The gain was included in~~ the ~~net sales~~derecognition of these former subsidiaries in the consolidated statement of operations. The ~~Groups also acquired the non-controlling interests in 0915988 B.C. Ltd. (which was a special purpose entity prior to 2013 and became a consolidated structured entity in 2013) and~~

~~MFC INDUSTRIAL LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2013~~

~~Note 38. MFC Industrial and its Significant Subsidiaries (continued)~~

~~another group. There was no income or loss impact on the transactions and non-controlling interests aggregating $2,371 were reclassified to retained earnings. The~~ Group also ~~credited $1,851 to~~disposed of three inactive wholly-owned subsidiaries for cash consideration, resulting in a net gain of $353.

During the ~~retained earnings account when it acquired~~year ended December 31, 2014, the Group purchased the remaining 40% equity interest in ~~MFC Resources Inc. (see Note 26).~~

Possehl. As a result, Possehl became a wholly-owned subsidiary of the Group since April 2014, the date the remaining 40% equity interests were acquired.

Note ~~39.~~32. Subsequent ~~Events~~

~~Dividend~~

Event

Sale of Subsidiary

In 2017, in connection with its previously announced strategy to re-allocate capital and resources and exit certain products and geographies, the Group sold the shares of a non-core commodities trading subsidiary which focused on Latin America to a company controlled by the former President and Chief Executive Officer of MFC Bancorp. Under the transaction, the Group received consideration approximately equaling to the book value of the subsidiary, including 450,000 common shares of MFC Bancorp at US$1.84 a share and the release of any further obligations to issue shares in connection with a prior share purchase agreement between the parties.

Proposed Plan of Arrangement

On March ~~24, 2014, MIL~~31, 2017, the Group announced ~~its annual cash dividend for 2014 will be $0.24 per common share, payable quarterly. Payment and ex-dividend dates and additional information regarding the dividend will be announced in due course.~~

~~The dividend is subject~~a proposed plan of arrangement (the “Plan”) under British Columbia corporate law, pursuant to customary Canadian withholding tax for non-resident shareholders. Pursuant to applicable tax treaties the withholding rate for eligible U.S. resident shareholders is 15%. The dividend is an eligible dividend under the~~Income Tax Act~~ ~~(Canada).~~

~~Business Combination~~

~~(a) FESIL AS~~

~~In January 2014,~~which, among other things, the Company ~~announced that it has entered into~~would reduce its shareholders’ capital by an ~~agreement~~amount equal to ~~acquire~~its retained deficit, complete a ~~100% interest in~~consolidation followed by a split of its common shares and the ~~FESIL AS Group (“FESIL”),~~Company’s existing common shares would be exchanged for the shares of a ~~vertically integrated supply-chain management~~new parent company ~~with a production facility in Norway, sales companies in Germany, Luxembourg, Spain, United States, India and China, and an interest in several quartz deposits in Spain.~~

~~Headquartered in Trondheim, Norway, FESIL is one~~incorporated under the laws of the ~~leading producers~~Cayman Islands, which would become the new publicly traded parent company of ~~ferrosilicon, an essential alloy in~~ the ~~production of steel, stainless steel, and cast iron. FESIL’s melting plant~~Group. The Plan is ~~located in Mo i Rana, Norway and produces a range of ferrosilicon products including granulated and refined qualities (high and semi-high purity), which makes up the bulk of its production.~~

The purchase price of approximately 500 million Norwegian Krone (approximately $82 million) is based on the net tangible equity asset value as of September 30, 2013, and will be adjusted to reflect the fair value of certain assets and the profit and loss over the period to final closing. In addition to the purchase price, the Company will pay a royalty based on tiered ferrosilicon production at the Mo i Rana facility for two years, expected to ~~equal approximately 2.9% of ferrosilicon revenue per annum at full production. The transaction is currently scheduled to complete~~be completed in ~~the second quarter of 2014~~2017 and is subject to, ~~customary conditions.~~

~~(b) Elsner & Co. GmbH~~

~~In March 2014, the Company announced that it acquired 100% interest in F.J. Elsner & Co. GmbH (“Elsner”), a global commodity company focused on steel~~among other things, finalization and ~~related products which was founded in 1864 with its head office based in Vienna Austria.~~

~~Elsner’s offerings include a full range of steel products including slabs, booms, billets, hot rolled steel plates, hot~~requisite court, shareholder and cold rolled coils and sheets, reinforcing bars, galvanized material, pipes, tubers and merchant bars. Elsner has longstanding relationships with many steel mills in Eastern and Southern Europe as well as the Baltic States and the Commonwealth of Independent States.

~~The purchase price is for nominal consideration and certain contingent payments.~~

Since the acquisition of the entity was completed in March 2014, the initial accounting for the business combination is incomplete at the time these consolidated financial statements are authorized for issue. Accordingly, the disclosures required by IFRS 3 for the acquisition of FESIL could not be made.

~~Royalty Interest in an Iron Ore Mine~~

In February 2014, the operator of the iron ore mine announced that it would idle the iron ore mine. Management of the Group expects that the operator’s decision will have profit or loss and cash flow impacts in 2014 and 2015. Please see board approvals.

Note ~~16.~~

~~MFC INDUSTRIAL LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2013~~

~~Note 40.~~33. Approval of Consolidated Financial Statements

These consolidated financial statements were approved by the Board of Directors and authorized for issue on March 31, ~~2014.~~

~~Note 41.~~~~Recast of Consolidated Statements during the Measurement Period and Correction of an Error~~

In September 2012, the Group acquired a 100% equity interest in MFC Energy and recognized a bargain purchase of $244,645 in the consolidated financial statements for the year ended December 31, 2012. During the measurement period from acquisition through to September 2013 and an error correction, the fair values of the assets and liabilities of MFC Energy were finalized and it was determined that the bargain purchase was $216,320 on the acquisition date. As a result, interest on liabilities was recomputed and finance costs were reduced by $797 for the year ended December 31, 2012. In addition, expiry loss of the unproved lands of $918 was derecognized for the year ended December 31, 2012.

~~Pursuant to IFRS 3,~~~~Business Combinations,~~~~comparative information for prior periods presented in financial statements has been revised to account for the above-mentioned adjustments retrospectively.~~

2017.

122

~~MFC INDUSTRIAL LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2013~~

~~Note 41. Recast of Consolidated Statements during the Measurement Period and Correction of an Error (continued)~~

~~Reconciliation of net income for the year ended December 31, 2012:~~

Recast Recast Error
            Historical       adjustments*       adjustments**       correction       Recast
Net sales $ 479,507    $ —    $ — $ — $ 479,507
Equity income 6,152 — — — 6,152
       Gross revenues 485,659 — — — 485,659

Costs and Expenses:
       Costs of sales 407,626 — (918 ) — 406,708
       Impairment of available-for-sale
              securities 4,265 — — — 4,265
       Impairment of interest in resource
              properties 42,631 — — — 42,631
       Selling, general and administrative 47,737 — — — 47,737
       Share-based compensation — selling,
              general and administrative 9 — — — 9
       Finance costs 12,431 — (797 ) — 11,634
514,699 — (1,715 ) — 512,984

Loss from operations (29,040 ) — 1,715 — (27,325 )

Other items:
       Exchange differences on foreign
              currency transactions 7,108 — — — 7,108
       Change in fair value of puttable
              instrument financial liabilities (77 ) — — — (77 )
       Bargain purchase 247,004 (21,821 ) — (6,504 ) 218,679

Income before income taxes 224,995 (21,821 ) 1,715 (6,504 ) 198,385
Income tax (expense) recovery:
       Income taxes 8,528 — — — 8,528
       Resource property revenue taxes (5,902 ) — — — (5,902 )
2,626 — — — 2,626
Net income for the year 227,621 (21,821 ) 1,715 (6,504 ) 201,011
       Less: Net (income) loss attributable to
              non-controlling interests (867 ) — — — (867 )
Net income attributable to owners of the
       parent company $ 226,754 $ (21,821 ) $ 1,715 $ (6,504 ) $ 200,144
Basic and diluted earnings per share $ 3.62 $ (0.35 ) $ 0.03 $ (0.10 ) $ 3.20
____________________

*		~~Adjustments reflecting new information obtained during the measurement period about facts and circumstances that existed as of the acquisition date.~~

**		~~Adjustments representing effects on the post-combination earnings as a result of the revision of assets and liabilities at the acquisition date.~~

The net income, total comprehensive income and comprehensive income attributable to owners of the parent company for the year ended December 31, 2012 were reduced by $26,610 (representing the sum of the recast adjustments and error correction).

TABLE OF CONTENTS

~~MFC INDUSTRIAL LTD.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2013~~

~~Note 41. Recast of Consolidated Statements during the Measurement Period and Correction of an Error (continued)~~

~~Reconciliation of financial position as at December 31, 2012:~~

Recast Recast Error
      Historical       adjustments*       adjustments**       correction       Recast
      ASSETS
Current Assets
       Assets held for sale $ 128,657    $ (4,465 )    $ — $ — $ 124,192
       Other current assets 555,621 — — — 555,621
              Total current assets 684,278 (4,465 ) — — 679,813
Non-current Assets
       Hydrocarbon unproved lands 48,728 (17,945 ) 918 — 31,701
       Deferred income tax assets 18,510 7,130 — (6,504 ) 19,136
       Other non-current assets 629,973 — — — 629,973
              Total non-current assets 697,211 (10,815 ) 918 (6,504 ) 680,810
$ 1,381,489 $ (15,280 ) $ 918 $ (6,504 ) $ 1,360,623

LIABILITIES AND EQUITY
Current Liabilities
       Account payables and
              accrued expenses $ 77,586 $ 1,737 $ 80 *** $ — $ 79,403
       Facility term financing 7,390 3,869 (797 ) — 10,462
       Other current liabilities 253,954 — (80 )*** — 253,874
       Total current liabilities 338,930 5,606 (797 ) — 343,739
Long-term liabilities
       Facility term financing 11,328 935 — — 12,263
       Other long-term liabilities 267,846 — — — 267,846
              Total long-term liabilities 279,174 935 — — 280,109
              Total liabilities 618,104 6,541 (797 ) — 623,848
Equity
       Capital stock, fully paid 382,746 — — — 382,746
       Treasury stock (68,610 ) — — — (68,610 )
       Contributed surplus 13,037 — — — 13,037
       Retained earnings 426,184 (21,821 ) 1,715 (6,504 ) 399,574
       Accumulated other
              comprehensive income 3,840 — — — 3,840
              Shareholders’ equity 757,197 (21,821 ) 1,715 (6,504 ) 730,587
Non-controlling interests 6,188 — — — 6,188
              Total equity 763,385 (21,821 ) 1,715 — 736,775
$ 1,381,489 $ (15,280 ) $ 918 $ (6,504 ) $ 1,360,623
____________________

*		~~Adjustments reflecting new information obtained during the measurement period about facts and circumstances that existed as of the acquisition date.~~

**		~~Adjustments representing effects on the post-combination earnings as a result of the revision of assets and liabilities at the acquisition date.~~

~~***~~		~~Reclassification.~~

~~Cash flow statement for the year ended December 31, 2012:~~

The re-cast adjustments and error correction did not have cash flow impacts on operating activities, investing activities and financing activities, respectively in 2012, though the recast adjustments had immaterial cash flow impacts on certain components within the operating activities which offset each other.

ITEM 19:EXHIBITS

Exhibits Required by Form 20-F

Exhibit
Number		Description
1.1		Amended and Restated Articles of MFC ~~Industrial~~Bancorp Ltd. dated ~~February 7,~~November 14, 2014. Incorporated by reference from our Form 6-K dated ~~February 10,~~November 14, 2014.
1.2*1.2	~~Notice of Articles dated October 11, 2011 of MFC Industrial Ltd.~~
1.3*	Certificate of Change of Name dated ~~September 30, 2011~~February 16, 2016 of MFC ~~Industrial~~Bancorp Ltd. Incorporated by reference from our Form 6-K dated February 16, 2016.
~~1.4~~1.3		Advance Notice Policy adopted by board of directors of MFC ~~Industrial~~Bancorp Ltd. on November 18, 2013. Incorporated by reference from ~~Exhibit 99.2 of~~ our Form 6-K dated November 19, 2013.
~~2.1~~	Shareholder Rights Plan Agreement between MFC Industrial Ltd. and Computershare Inc., as Rights Agent, dated November 11, 2013. Incorporated by reference from Exhibit 99.2 of our Form 6-K dated November 12, 2013.
4.1		Amendment to Mining Lease Agreement dated January 1, 1987 between MFC ~~Industrial~~Bancorp Ltd. and Wabush Iron Co. Limited, Stelco Inc. and Dofasco Inc. Incorporated by reference from our Form 10-K for the year ended December 31, 1989.
4.2		Memorandum of Agreement dated November 24, 1987 between MFC ~~Industrial~~Bancorp Ltd. and Wabush Iron Co. Limited, Stelco Inc. and Dofasco Inc. Incorporated by reference from our Form 10-K for the year ended December 31, 1989.
4.3		First Amendment to the Memorandum of Agreement between MFC ~~Industrial~~Bancorp Ltd. and Wabush Iron Co. Limited, Stelco Inc. and Dofasco Inc. Incorporated by reference from our Form 10-K for the year ended December 31, 1989.
4.4		Amended 1997 Stock Option Plan. Incorporated by reference from our Form S-8 dated May 23, 2007.
4.5	~~Arrangement Agreement dated February 26, 2010 between MFC Industrial Ltd. and KHD Humboldt International (Deutschland) AG. Incorporated by reference from our Form 6-K dated March 3, 2010.~~
~~4.6~~	~~Agreement dated September 24, 2010 between MFC Industrial Ltd. and Mass Financial Corp. Incorporated by reference from our Form 6-K dated September 30, 2010.~~
~~4.7~~	2008 Equity Incentive Plan. Incorporated by reference from our Form F-4 dated October 7, 2010.
~~4.8~~4.6	~~Support Agreement between MFC Industrial Ltd. and MFC Energy Corporation (formerly Compton Petroleum Corporation) dated July 6, 2012.~~	2014 Equity Incentive Plan. Incorporated by reference from our Form 6-K dated ~~July 13, 2012.~~
~~4.9~~	~~Mutual Settlement Agreement between MFC Industrial Ltd., Peter Kellogg and IAT Reinsurance Company, Ltd. dated February 7, 2014. Incorporated by reference from our Form 6-K dated February~~October 10, 2014.
8.1		List of significant subsidiaries of MFC ~~Industrial~~Bancorp Ltd. as at ~~March~~December 31, ~~2014.~~2016.
~~11.1~~11.1*		Code of Business Conduct and Ethics and Insider Trading Policy.
12.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
12.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
13.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
13.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
15.1	~~Letter dated March 31, 2014 of Deloitte LLP as required by Item 16F of Form 20-F.~~
~~15.2~~	Consent dated March 31, ~~2014~~2017 of PricewaterhouseCoopers LLP.
~~15.3~~	~~Consent dated March 31, 2014 of Deloitte LLP.~~
~~15.4~~	~~Third Party Report on Reserves.~~
~~15.5~~	~~Consent dated March 31, 2014 of GLJ Petroleum Consultants Ltd.~~
~~16.1~~	~~Mine Safety and Health Administration Safety Data.~~

~~____________________~~

Incorporated by reference from our Form ~~20-F’s~~20-Fs filed in prior years.

123

TABLE OF CONTENTS

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

Date: March 31, ~~2014~~

2017

MFC ~~INDUSTRIAL~~BANCORP LTD.

	/s/ Michael J. Smith Michael J. Smith
	~~Michael J. Smith~~
	~~Chief Executive Officer and President~~

~~145~~

President and Chief Executive Officer

124

FINANCIAL HIGHLIGHTS
All amounts in thousands, except per share amount and ratios
	December 31, 2013
Cash, cash equivalents and securities	$	334,241
Short-term deposits		4,381
Trade receivables		115,678
Current assets		711,021
Total assets		1,318,598
Current liabilities		314,709
Working capital		396,312
Current ratio*		2.26
Acid test ratio*		1.60
Total liabilities		618,857
Shareholders’ equity		699,570
Equity per common share		11.18

LIQUIDITY
All amounts in thousands
	December 31, 2013			December 31, 2012
Total debt (current/long-term portions)	$	234,740		$	162,993
Less: cash and cash equivalents		(332,173	)		(273,790	)

Net debt (net cash & cash equivalents)		(97,433	)		(110,797	)
Shareholders' equity		699,570			730,587

LONG-TERM DEBT AND DEBT METRICS
All amounts in thousands, except ratio
	December 31, 2013		December 31, 2012
Long-term debt, less current portion	$	189,871	$	118,824	*
Shareholders' equity		699,570		730,587
Long-term debt-to-equity ratio		0.27		0.16

INCOME FROM OPERATIONS
All amounts in thousands, except per share amounts
	December 31, 2013			December 31, 2012
	twelve months			twelve months
Commodities and resources	$	7,350		$	(23,946	)⁽¹⁾
Merchant banking		18,293			231,632	⁽²⁾
Other		(9,564	)		(9,301	)

Income before income taxes		16,079			198,385
Income tax recovery (expenses)		(1,574	)		8,528
Resource property revenue tax expenses		(5,003	)		(5,902	)
Net loss (income) attributable to non-controlling interests		163			(867	)

Net income attributable to shareholders	$	9,665		$	200,144

Earning per share, diluted	$	0.15		$	3.20

NATURAL GAS WELLS (COSTS AND PRODUCTION)
All amounts in Canadian dollars, except production numbers
			For the year ended December 31, 2013
	Natural Gas	NGLs⁽¹⁾		Crude Oil	Total
	($/mcf)	($/bbl)		($/bbl)	($/boe)
Price⁽²⁾	$ 3.46	$ 75.63		$ 84.98	$ 30.72
Royalties	0.62	24.53		20.78	6.81
Transportation costs	0.14	4.92		2.29	1.37
Operating costs⁽³⁾	---	---		---	12.38
Production⁽⁴⁾	17,522 mmcf	411.6 mboe		118.7 mbbl	3,450 mboe

SHARE PRICE COMPARISON All amounts in US dollars, except change percentages
Company	January 2, 2013		December 31, 2013		Changes In 2013
Noble Group		1.20		1.07		-10.83%
Glencore International		376.50		312.70		-15.98%
MFC Industrial		8.72		7.99		-8.14%

	2013		2012⁽¹⁾			2011		2010⁽²⁾⁽³⁾			2009
Net sales	$	806,831	$	479,507		$	507,992	$	84,476		$	14,718
Net income (loss) from continuing
operations⁽⁴⁾		9,665		200,144	⁽⁵⁾⁽⁶⁾		12,193		45,839			(16,320	)
Net income (loss) income from
discontinued operations⁽⁴⁾		—		—			—		(15,523	)		52,992
Basic earnings (loss) per share:
Continuing operations		0.15		3.20	⁽⁵⁾⁽⁶⁾		0.19		1.28			(0.54	)
Discontinued operations		—		—			—		(0.43	)		1.75
Diluted earnings (loss) per share:
Continuing operations		0.15		3.20	⁽⁵⁾⁽⁶⁾		0.19		1.28			(0.54	)
Discontinued operations		—		—			—		(0.43	)		1.75
Net income⁽⁴⁾		9,665		200,144	⁽⁵⁾⁽⁶⁾		12,193		30,316			36,672
Net income per share:
Basic		0.15		3.20	⁽⁵⁾⁽⁶⁾		0.19		0.85			1.21
Diluted		0.15		3.20	⁽⁵⁾⁽⁶⁾		0.19		0.85			1.21
Total assets		1,318,598		1,360,623			858,957		854,256			951,720
Net assets		699,741		736,775			549,147		552,440			441,092
Long-term debt, less current portion		189,871		118,824			20,150		48,604			—
Shareholders’ equity		699,570		730,587			546,623		547,756			435,689
Capital stock, net of treasury stock		314,136		314,136			314,172		314,172			58,270
Weighted average number of common
stock outstanding, diluted		62,757		62,555			62,561		35,859			30,354
Cash dividends paid to shareholders		15,013		13,762			12,512		—			—

								Gross
								Average
					Total	Gross		Royalty
	Tonnage Shipped				Tonnage	Royalties		Rate/Ton
Year	Q1	Q2	Q3	Q4	Shipped	Received⁽¹⁾		Received
	(In thousands, other than the Royalty Rate)
2009	402	386	1,202	1,198	3,188	C$ 17,350		C$5.44
2010	874	941	832	1,105	3,752	22,915	⁽²⁾	6.11
2011	719	796	1,311	646	3,472	31,607		9.10
2012	482	911	945	851	3,189	31,191		9.78
2013	393	465	1,177	805	2,840	26,555		9.35

	Reserves as of December 31, 2013
Category	Natural Gas		NGLs		Crude Oil		Total
	Company	Company	Company	Company	Company	Company	Company	Company
	Gross	Net	Gross	Net	Gross	Net	Gross	Net
	(mmcf)		(mbbl)		(mbbl)		(mboe)
Proved
Developed Producing	137,841	115,474	2,600	1,703	942	673	26,516	21,622
Developed Non-Producing	1,020	791	13	11	4	3	187	146
Undeveloped	16,242	14,094	531	399	177	143	3,415	2,891
Total Proved	155,104	130,359	3,145	2,113	1,123	819	30,119	24,660
Probable	66,850	56,111	1,531	1,028	599	458	13,272	10,838
Total Proved plus Probable	221,954	186,470	4,676	3,141	1,722	1,278	43,391	35,497

	Year Ended December 31, 2013				September 7, 2012 to December 31, 2012
	Natural		Crude		Natural		Crude
	Gas	NGLs	Oil	Total	Gas	NGLs	Oil	Total
Area	(mcf/d)	(bbl/d)⁽¹⁾	(bbl/d)	(boe/d)	(mcf/d)	(bbl/d)⁽¹⁾	(bbl/d)	(boe/d)
High River	12,812	263	8	2,406	14,853	281	12	2,769
Okotoks	4,664	185	—	962	5,386	198	—	1,096
Callum/Cowley	3,358	32	—	593	3,671	26	—	638
Niton	11,712	492	81	2,525	12,910	532	105	2,788
Other (Southern Alberta)	15,460	156	236	2,968	19,030	19	331	3,521
Total	48,006	1,128	325	9,454	55,849	1,056	448	10,812

	Producing				Non-producing				Producing				Non-producing
Area	Natural Gas Wells				Natural Gas Wells⁽¹⁾				Crude Oil Wells				Crude Oil Wells⁽¹⁾				Total Wells
	Gross		Net		Gross		Net		Gross		Net		Gross		Net		Gross	Net
Niton	137		106			—		—		10		8		—		—	147	114
High River	151		126			1		1		2		2		—		—	154	129
Okotoks	25		24			—		—		—		—		—		—	25	24
Callum/Cowley	25		24			—		—		—		—		—		—	25	24
Other (Southern Alberta)	1,098		800			2		1		100		20		3		1	1,203	822
Total wells	1,436	⁽²⁾	1,080	⁽²⁾		3		2		112		30		3		1	1,554	1,113

Area	Gross Acres		Net Acres
Alberta, Canada
Developed		483,592	410,895
Undeveloped		234,645	189,718
Montana, U.S.A.
Undeveloped		79,157	79,157
Total
Developed		483,592	410,895
Undeveloped		313,802	268,875

	December 31,			December 31,			December 31,
	2013			2012⁽¹⁾			2011
	(United States dollars in thousands,
		except per share amounts)
Net book value		$	699,570		$	730,587		$	546,623
Net book value per share			11.18			11.68			8.74

	December 31,
	2013			2012
	(United States dollars in thousands)
Gross Revenues:
Commodities and resources		$	778,487		$	455,898
Merchant banking			12,568			11,751
All other			22,883			18,010
		$	813,938		$	485,659

	2013		2012⁽¹⁾		2010
	(United States dollars in thousands)
Long-term debt, less current portion	$	189,871	$	118,824	$	20,150
Shareholders’ equity		699,570		730,587		546,623
Long-term debt-to-equity ratio		0.27		0.16		0.04

Maturity	Principal		Interest		Total
	(United States dollars in thousands)
2014	$	44,869	$	6,687	$	51,556
2015		33,074		5,360		38,434
2016		71,762		4,308		76,070
2017		30,074		2,547		32,621
2018		26,637		1,691		28,328
Thereafter		28,324		1,332		29,656
	$	234,740	$	21,925	$	256,665

	Payments Due by Period⁽¹⁾
	(United States dollars in thousands)
Contractual Obligations⁽²⁾⁽³⁾	Less than 1 Year			1 – 3 Years			3 – 5 Years			More than 5 Years			Total
Long-term debt obligations		$	51,556		$	114,504		$	60,949		$	29,656	$	256,665
Operating lease obligations			1,983			2,018			905			192		5,098
Purchase obligations			14,909			1,390			58			—		16,357
Puttable Instruments			—			3,936			—			—		3,936
Total		$	68,448		$	121,848		$	61,912		$	29,848	$	282,056

	December 31, 2013			September 30, 2013			June 30, 2013		March 31, 2013
	(United States dollars in thousands, except per share amounts)
Net sales	$	220,707			$	213,418	$	166,974	$	205,732
Equity income		1,428				2,198		1,959		1,522
Total revenues		222,135				215,616		168,933		207,254
Net income (loss)⁽¹⁾		(12,562	)⁽²⁾			6,977		6,811		8,439
Basic earnings (loss), per share		(0.20	)⁽²⁾			0.11		0.11		0.13
Diluted earnings (loss), per share		(0.20	)⁽²⁾			0.11		0.11		0.13

	December 31, 2012			September 30, 2012⁽¹⁾			June 30, 2012		March 31, 2012
	(United States dollars in thousands, except per share amounts)
Net sales	$	110,416		$	118,597		$	104,445	$	146,049
Equity income		1,347			1,515			1,706		1,584
Total revenues		111,763			120,112			106,151		147,633
Net income (loss)⁽²⁾		(45,498	)⁽³⁾		217,637	⁽⁴⁾		11,061		16,944	⁽⁵⁾
Basic earnings (loss), per share		(0.73	)⁽³⁾		3.48	⁽⁴⁾		0.18		0.27	⁽⁵⁾
Diluted earnings (loss), per share		(0.73	)⁽³⁾		3.48	⁽⁴⁾		0.18		0.27	⁽⁵⁾

		Date of
		Commencement	Expiration of
		of Office	Term of Office
Name (Age)	Present Position	with our Company	with our Company⁽¹⁾
Michael J. Smith (65)	Chief Executive Officer and Director	1986		2014
James M. Carter (68)⁽²⁾	Chief Financial Officer	2014		—
Peter Kellogg (71)⁽³⁾	Chairman, Director	2013		2016
Dr. Shuming Zhao (61)⁽⁴⁾	Director	2014		2014
Indrajit Chatterjee (68)^(3)(5)(6)	Director	2005		2015
Silke S. Stenger (45)^(3)(5)(6)	Director	2013		2015
William C. Horn III (50)⁽⁵⁾	Director	2013		2016

					Non-equity Incentive Compensation Plan Compensation ($)⁽¹⁾
Name and Principal Position	Salary ($)		Share- Based Awards ($)	Option- Based Awards ($)	Annual Incentive Plans	Long- Term Incentive Plans	Pension Value ($)	All Other Compensation ($)			Total Compensation ($)
Michael J. Smith
Chief Executive
Officer and former
Chairman and
Chief Financial
Officer⁽²⁾	301,239		—	—	103,660	—	—		190,745	⁽³⁾		595,644
Roland Schulien
Senior Vice President
Finance, Europe	185,990		—	—	7,971	—	—		27,098	⁽⁴⁾		221,059
Gerardo Cortina
Managing Director
Mexico	388,130		—	—	—	—	—		4,236	⁽⁵⁾		392,366
Ernest Alders
Vice-President	204,431	⁽⁶⁾	—	—	14,206	—	—		5,619	⁽⁷⁾		224,256

Name	Fees Earned ($)	Share- based awards ($)	Option- based awards ($)	Non-equity incentive plan compensation ($)	Pension value ($)	All other compensation ($)	Total ($)
Michael J. Smith⁽¹⁾	—	—	—	—	—	—	—
Peter Kellogg⁽²⁾	—	—	—	—	—	—	—
Dr. Shuming Zhao⁽³⁾	87,500	—	—	—	—	—	87,500
Ian Rigg⁽⁴⁾	121,233	—	—	—	—	—	121,233
Indrajit Chatterjee	87,500	—	—	—	—	—	87,500
Ravin Prakash⁽⁵⁾	—	—	—	—	—	—	—
Silke S. Stenger	75,425	—	—	—	—	—	75,425
William C. Horn III⁽⁶⁾	—	—	—	—	—	—	—

		Expiration of
Name of Director	Director Since	Current Term
Michael J. Smith	1986	2014
Dr. Shuming Zhao	2014	2014
Indrajit Chatterjee	2005	2015
Silke S. Stenger	2013	2015
Peter Kellogg	2013	2016
William C. Horn III	2013	2016

				Percentage of Total
	Common Shares			Common Shares	Stock Options⁽¹⁾
	Beneficially Owned			Outstanding	Held
Name and Principal Position	(#)			(%)	(#)
Michael J. Smith
Chief Executive Officer, Director and former
Chairman and Chief Financial Officer⁽²⁾		272,727		0.4%		390,000
Peter Kellogg
Chairman and Director⁽³⁾		20,662,400	⁽³⁾	33.0%		—
Dr. Shuming Zhao
Director⁽⁴⁾		—		—		55,000
Ian Rigg
Director⁽⁵⁾		7,230		less than 0.1%		55,000
Indrajit Chatterjee
Director		—		—		55,000
Ravin Prakash
Director⁽⁶⁾		—		—		55,000
Silke S. Stenger
Director		—		—		—
William C. Horn III
Director		618		less than 0.1%		—

	Exchange
	High ($)	Low ($)
Annual Highs and Lows
2013	10.39	7.25
2012	8.80	6.65
2011	9.00	6.17
2010	16.10	6.60
2009	14.20	6.65

Quarterly Highs and Lows
2014
First Quarter	8.19	6.97
2013
Fourth Quarter	8.73	7.25
Third Quarter	9.05	7.94
Second Quarter	9.15	7.88
First Quarter	10.39	8.59
2012
Fourth Quarter	8.77	7.92
Third Quarter	8.80	6.66
Second Quarter	7.59	6.65
First Quarter	8.16	7.03

Monthly Highs and Lows
March 2014	8.19	6.97
February 2014	8.16	7.10
January 2014	8.08	7.51
December 2013	8.08	7.25
November 2013	8.33	7.50
October 2013	8.73	8.04

1.	Report of Independent Auditors, PricewaterhouseCoopers LLP, dated March 31, 2014 on the consolidated financial statements of our company for the year ended December 31, 2013 and on the effectiveness of internal controls over financial reporting as at December 31, 2013	69
2.	Report of Independent Registered Chartered Accountants, Deloitte LLP, dated April 1, 2013 on the consolidated financial statements of our company as at December 31, 2012 and the two years then ended	71
3.	Consolidated statements of financial position as of December 31, 2013 and 2012	72
4.	Consolidated statements of operations for the years ended December 31, 2013, 2012 and 2011	73
5.	Consolidated statements of comprehensive income for the years ended December 31, 2013, 2012 and 2011	74
6.	Consolidated statements of changes in equity for the years ended December 31, 2013, 2012 and 2011	75
7.	Consolidated statements of cash flows for the years ended December 31, 2013, 2012 and 2011	76
8.	Notes to consolidated financial statements as of December 31, 2013	77

			December 31,				December 31,
		Notes	2013				2012
							(Recast-Notes 3&41)
ASSETS
Current Assets
	Cash and cash equivalents			$	332,173			$	273,790
	Short-term cash deposits				4,381				182
	Securities	5			2,068				6,658
	Restricted cash	6			312				889
	Trade receivables	7			115,678				72,820
	Other receivables	8			30,409				18,314
	Inventories	9			88,844				142,925
	Real estate held for sale				12,676				12,210
	Deposits, prepaid and other	10			27,136				27,833
	Assets held for sale	11			97,344				124,192
	Total current assets				711,021				679,813
Non-current Assets
	Securities	12			2,465				9,637
	Equity method investments	13			24,366				22,382
	Investment property	14			—				34,152
	Property, plant and equipment	15			94,493				80,139
	Interests in resource properties	16			359,822				383,745
	Hydrocarbon probable reserves	17			75,267				99,142
	Hydrocarbon unproved lands	17			31,354				31,701
	Accrued pension assets, net	18			1,259				—
	Deferred income tax assets	19			17,941				19,136
	Other				610				776
	Total non-current assets				607,577				680,810
				$	1,318,598			$	1,360,623
LIABILITIES AND EQUITY
Current Liabilities
	Short-term bank borrowings	20		$	129,783			$	150,396
	Debt, current portion	21			44,869				44,169
	Accounts payables and accrued expenses	22			126,649				79,403
	Facility term financing	23			—				10,462
	Income tax liabilities				1,891				2,866
	Deferred sale liabilities	24			—				26,637
	Liabilities relating to assets held for sale	11&25			11,517				29,806
	Total current liabilities				314,709				343,739
Long-term Liabilities
	Debt, less current portion	21			189,871				118,824
	Facility term financing	23			—				12,263
	Deferred income tax liabilities	19			3,571				3,391
	Decommissioning obligations	25			105,854				136,642
	Accrued pension obligations, net	18			—				1,228
	Puttable instrument financial liabilities	26			3,936				7,761
	Other				916				—
	Total long-term liabilities				304,148				280,109
	Total liabilities				618,857				623,848
Equity
	Capital stock, fully paid	27			383,116				382,746
	Treasury stock	27			(68,980	)			(68,610	)
	Contributed surplus				13,037				13,037
	Retained earnings				398,448				399,574
	Accumulated other comprehensive income				(26,051	)			3,840
	Total shareholders’ equity				699,570				730,587
	Non-controlling interests				171				6,188
	Total equity				699,741				736,775
				$	1,318,598			$	1,360,623

	Notes		December 31, 2016			December 31, 2015
ASSETS
Current Assets
Cash and cash equivalents				$	120,676		$	197,519
Short-term cash deposits					182			233
Securities					5,018			170
Securities – derivatives					1,240			5,555
Restricted cash					—			639
Trade receivables		7			135,962			151,229
Tax receivables					11,743			11,705
Other receivables		8			35,251			14,727
Inventories		9			31,954			245,345
Real estate held for sale					1,066			1,130
Deposits, prepaid and other		10			12,195			21,442
Assets held for sale		5			45,667			136,156
Total current assets					400,954			785,850
Non-current Assets
Securities					561			680
Securities – derivatives					—			171
Real estate held for sale					13,035			13,812
Investment property		11			35,663			37,873
Property, plant and equipment		12			99,443			95,745
Interests in resource properties		13			79,147			—
Deferred income tax assets		14			16,647			20,641
Other					4,072			21,912
Other, restricted					816			667
Total non-current assets					249,384			191,501
				$	650,338		$	977,351
LIABILITIES AND EQUITY
Current Liabilities
Short-term bank borrowings		15		$	95,416		$	52,864
Debt, current portion		16			36,249			84,705
Account payables and accrued expenses		17			45,114			182,051
Financial liabilities – derivatives					5,514			3,554
Income tax liabilities					2,486			3,809
Liabilities relating to assets held for sale		5			29,897			87,579
Total current liabilities					214,676			414,562
Long-term Liabilities
Debt, less current portion		16			80,564			174,333
Financial liabilities – derivatives					940			682
Accrued pension obligations, net		18			3,259			4,061
Decommissioning obligations		19			13,219			—
Deferred income tax liabilities		14			7,353			13,711
Other					897			802
Total long-term liabilities					106,232			193,589
Total liabilities					320,908			608,151
Equity
Capital stock, fully paid		20			419,916			419,916
Treasury stock		20			(61,085)			(61,085)
Contributed surplus					15,417			15,417
Deficit					(88,920)			(63,559)
Accumulated other comprehensive income					42,192			56,503
Shareholders’ equity					327,520			367,192
Non-controlling interests					1,910			2,008
Total equity					329,430			369,200
				$	650,338		$	977,351

																			Accumulated Other
	Capital Stock					Treasury Stock													Comprehensive Income
												Contributed
												Surplus,							Available-					Defined			Currency								Non-
	Number					Number						Share-based			Retained				for-sale					Benefit			Translation				Shareholders’				Controlling				Total
	of Shares		Amount			of Shares		Amount				Compensation			Earnings				Securities					Obligations			Adjustment				Equity				Interests				Equity
Balance at December 31, 2010	66,031,916		$	381,673		(3,470,495	)		$	(67,501	)		$	5,775		$	213,519			$	1,991				$	—		$	12,299			$	547,756			$	4,684		$	552,440

Net income	—			—		—				—				—			12,193					—				—			—				12,193				(995	)		11,198
Dividends paid	—			—		—				—				—			(12,512	)				—				—			—				(12,512	)			(586	)		(13,098	)
Transfer of an interest in
resource property	—			—		—				—				—			—					—				—			—				—				1,172			1,172
Derecognition of a subsidiary	—			—		—				—				—			—					—				—			—				—				(1,670	)		(1,670	)
Issuance of preferred shares	616,380			616		(616,380	)			(616	)			—			—					—				—			—				—				—			—
Share-based compensation	—			—		—				—				7,253			—					—				—			—				7,253				(34	)		7,219
Net change in available-for-sale
securities	—			—		—				—				—			—					(6,750	)			—			—				(6,750	)			(5	)		(6,755	)
Net exchange differences	—			—		—				—				—			—					—				—			(1,317	)			(1,317	)			(42	)		(1,359	)
Balance at December 31, 2011	66,648,296			382,289		(4,086,875	)			(68,117	)			13,028			213,200					(4,759	)			—			10,982				546,623				2,524			549,147

Net income	—			—		—				—				—			200,144					—				—			—				200,144				867			201,011
Cancellation of fractional shares	(3,267	)		—		—				—				—			—					—				—			—				—				—			—
Purchase of subsidiaries	—			—		—				—				—			—					—				—			—				—				3,350			3,350
Buy-back of odd-lot shares	(6,028	)		(36	)	—				—				—			(8	)				—				—			—				(44	)			—			(44	)
Dividends paid and payable	—			—		—				—				—			(13,762	)				—				—			—				(13,762	)			(666	)		(14,428	)
Share-based compensation	—			—		—				—				9			—					—				—			—				9				—			9
Issuance of preferred shares	493,105			493		(493,105	)			(493	)			—			—					—				—			—				—				—			—
Net fair value gain	—			—		—				—				—			—					4,640				—			—				4,640				—			4,640
Net gain on remeasurements	—			—		—				—				—			—					—				961			—				961				—			961
Net exchange differences	—			—		—				—				—			—					—				—			(7,984	)			(7,984	)			113			(7,871	)
Balance at December 31, 2012
(Recast-Notes 3&41)	67,132,106			382,746		(4,579,980	)			(68,610	)			13,037			399,574					(119	)			961			2,998				730,587				6,188			736,775

Net income	—			—		—				—				—			9,665					—				—			—				9,665				(163	)		9,502
Dividends paid	—			—		—				—				—			(15,013	)				—				—			—				(15,013	)			(781	)		(15,794	)
Issuance of preferred shares
as dividends	369,830			370		(369,830	)			(370	)			—			—					—				—			—				—				—			—
Acquisition and elimination of
noncontrolling interests	—			—		—				—				—			4,222					—				—			—				4,222				(5,139	)		(917	)
Net fair value gain	—			—		—				—				—			—					200				—			—				200				—			200
Net gain on remeasurements	—			—		—				—				—			—					—				1,369			—				1,369				—			1,369
Net exchange differences	—			—		—				—				—			—					—				—			(31,460	)			(31,460	)			66			(31,394	)
Balance at December 31, 2013	67,501,936		$	383,116		(4,949,810	)		$	(68,980	)		$	13,037		$	398,448				$	81			$	2,330		$	(28,462	)		$	(699,570	)		$	171		$	699,741

Total Comprehensive Income (Loss) for the Year	Shareholders’ Equity			Non-Controlling Interests			Total
2011	$	4,126		$	(1,042	)	$ 3,084
2012		197,761			980		198,741
2013		(20,226	)		(97	)	(20,323	)