Mano River Resources Inc.
TSX VENTURE : MNO
AIM : MANA

Mano River Resources Inc.

April 30, 2009 10:25 ET

Mano River Resources Inc: Publication of Year End 2008 Accounts

LONDON, UNITED KINGDOM--(Marketwire - April 30, 2009) - The Board of Mano River Resources Inc. ("Mano River" or the "Company") (TSX VENTURE:MNO)(AIM:MANA) is pleased to release the Accounts of the Company for the financial year ended December 31st 2008, together with the Management Discussion & Analysis.

On behalf of the Board of Mano River Resources Inc.

Luis da Silva, President and CEO

For further information on Mano River Resources and its exploration programme, you are invited to visit the Company's website at www.manoriver.com.

MANO RIVER RESOURCES INC

Management's Discussion and Analysis

For the year ended December 31, 2008

The following discussion is management's assessment and analysis of the results and financial condition of Mano River Resources Inc. (the "Company" or "Mano") based upon Canadian Generally Accepted Accounting Principles ("GAAP") and should be read in conjunction with the accompanying audited consolidated financial statements and related notes for the year ended December 31, 2008. This management discussion and analysis has been prepared based on information available to Mano as at April 23, 2009. Unless otherwise indicated all amounts are in US dollars.

Additional information relating to the Company is available on SEDAR at www.sedar.com or on the Company's website at www.manoriver.com.

1. OVERVIEW

(a) DESCRIPTION OF BUSINESS

Mano is an exploration and development company with an attractive portfolio of gold and diamond projects and an investment in the Putu iron ore project in West Africa. Its fundamental strategy is to unlock the value of its exploration assets and increase shareholder value, by fast tracking these assets towards production. Through its subsidiaries, Mano holds interests in mineral properties in Liberia, Sierra Leone, Guinea and the Democratic Republic of Congo (DRC). Mano is listed on the TSX Venture Exchange (TSX-V) and the Alternative Investment Market (AIM) of the London Stock Exchange.

(b) COMPANY HISTORY

Mano was formed in 1998 by a reverse takeover involving the sale of the interests of Mano River Resources Ltd into Zicor Mining Inc. and a subsequent change of name to Mano River Resources Inc.

Mano River Resources Ltd, a BVI registered company, was founded in 1996 by Guy Pas. Mano and its subsidiaries, at the time of the reverse takeover, had spent over $2.4M in establishing the in-country presence, acquiring, evaluating and exploring the properties.

Mano River Resources Ltd itself acquired upon its establishment in July 1996 the pre-existing assets of Golden Limbo Rock Resources Ltd in Guinea, of Golden Leo Resources Ltd in Sierra Leone, and exploration permits and extensive research in Liberia, for a total value of $5M paid in shares.

Golden Limbo Rock Resources Ltd had been actively exploring in Guinea since late 1994,and Golden Leo Resources Ltd researched Sierra Leone's potential in the course of 1995, subsequently applying for licences immediately following the election of 1996.

Licences were also obtained in Liberia where, in Monrovia, a Liberian geologist started assessing the geology in 1995.



(c) ON-GOING PROJECTS

Detailed below is a summary of the main on-going projects and their status:

---------------------------------------------------------------------------
Joint
Current Future Venture Financial
Country Project Commodity Status Plans Partner Statements
---------------------------------------------------------------------------
Severstal
Drilling 55.67%
Liberia Putu Iron ore in 2009 MDA - 2009 control Associate
---------------------------------------------------------------------------
Drilling Feasibility
Liberia NLGM Gold in 2009 study 2010 No partner Subsidiary
---------------------------------------------------------------------------
Drilling Further
Liberia Weaju Gold in 2009 exploration No partner Subsidiary
---------------------------------------------------------------------------
Care & GSR
Sierra Maint- reviewing GSR near to
Leone Sonfon Gold enance(ii) options earning 51% Subsidiary
---------------------------------------------------------------------------
Sierra Trial Full Mano 59.6%
Leone Kono Diamonds production production Petra 51% interest(i)
---------------------------------------------------------------------------
Trial Full Mano 59.6%
Guinea Mandala Diamonds production production No partner interest(i)
---------------------------------------------------------------------------
Sierra Care & Further Mano 59.6%
Leonne Tongo Diamonds Maintenance exploration No partner interest(i)
---------------------------------------------------------------------------
Care & Further Mano 59.6%
Guinea Bouro Diamonds Maintenance exploration No partner interest(i)
---------------------------------------------------------------------------

(i) in Stellar Diamonds Ltd which is accounted for as a subsidiary

(ii) GSR have advised us that they intend to drill in the second half of
2009


2. EXPLORATION PROJECTS

(a) IRON ORE

The Company is targeting a potential iron ore resource of more than 900M tonnes, which is in line with an independent technical report prepared by SRK Consulting (UK) Ltd, at its 44.33% owned Putu Iron Ore Project (Putu) in southeastern Liberia. Putu is located in the centre of a 425 square kilometre exploration licence in Grand Gedeh County of eastern Liberia. The Putu project consists of two prominent ridges, namely Mt. Jideh and Mt. Ghi. Mt Jideh is the priority target and has a strike length of approximately 13km based on mapping, surface sampling and airborne magnetic data. In October 2008 the Government of Liberia granted the Company a two year extension to the Putu exploration licence, extending it to September 30, 2010.

The Company signed certain financing and development agreements with OAO SeverStal Resources (Severstal) on the 22 May 2008 and subsequently completed the transaction on 10 December 2008. On completion Severstal agreed to pay Mano a total consideration of $12.5M for a 25% share in African Iron Ore Group (renamed Severstal Liberia Iron Ore Ltd - SLIO) valuing the project at $50M. Severstal paid Mano $8.3M in December 2008, with the balance of $4.2M deferred until December 2010. Upon payment of the balance owing Mano's interest in SLIO will reduce to 38.5%. Severstal have committed to invest a further $30M in order to advance the project towards a definitive feasibility study.

A 3,960m drilling programme for geological characterisation was completed at Putu in December 2008. Assays from nine out of eleven holes completed included a best intersection in haematite mineralisation of 63m at an average grade of 63.5% iron and a best intersection in fresh magnetite mineralisation of 367m at an average grade of 39% iron. The drill results displayed excellent grade characteristics and indicate that the Putu project has significant iron ore potential.

SLIO is currently preparing regional development and social programmes with the following initiatives already being implemented for the local community:

- Rehabilitation / replacement of drinking water pumps in 6 local villages

- Reconstruction of 18km of road linking local administrative centres

- Preparation for construction of a health post in the village where the exploration camp is located

The key priority is to substantially advance the resource drilling programme and metallurgical testing at Putu. The process to receive a 25 year Mineral Development Agreement is on-going with talks scheduled to start shortly with the Liberian authorities. The immediate operational objectives include an airborne magnetic survey and the first phase construction of the camp. The Putu project now has the financial and technical resources to take the project forward to feasibility.

Despite the current depressed commodity prices the outlook for iron ore is gradually improving. Management of the Company look forward to a very different market environment by late 2012, by which time Putu should be looking for development funding in advance of production targeted for 2015.

Mano's interest in SLIO is recorded in the financial statements as an investment whereas prior to the completion of the Severstal transaction on December 10, 2008 it was treated as a subsidiary of the Company.

(b) GOLD

NLGM, Liberia

The key asset in the Gold division is the 100% owned New Liberty Gold Mine (NLGM) property, a feasibility stage project situated some 90km north of the capital city Monrovia in Liberia, where Mano has a NI43-101 compliant gold resource of 1.38M contained ounces (13.533M tonnes of measured and indicated resources grading 3.18 g/t gold). The most recent drill programme which was completed in quarter two, 2008 brings the total number of holes drilled at NLGM to 130, totaling 15,313m. The results received from the 2008 drill programme confirm that there is potential to expand the current resource through delineation of further resources at depth.

In September 2008 Mano received feedback from AMC Consultants (UK) Ltd, who undertook a conceptual mining study on the potential of NLGM for an underground mining operation. The consultants concluded that although there appeared potential for underground exploitation additional infill drilling work is required to depths of up to 300 metres to re-evaluate the resource potential.

Mano plans to aggressively accelerate the development of NLGM and will now recruit a mining engineer as project manager responsible for overseeing the project. More drilling is planned for 2009 and a revised feasibility study for an underground mine, targeting 100,000 oz pa, is scheduled to be completed in the second half of 2010.

Weaju, Liberia

The other main gold asset in Liberia is Weaju which is situated 30km to the east north east of NLGM and is part of the Bea Mountains Mineral Development Agreement (MDA). Mineralisation is concentrated in shear zones, along a contact zone between granite and schist-belt lithologies, into which quartz-tourmaline veins and pegmatites have been intruded. A soil geochemical grid and geological mapping demonstrated a strike length of 1.5 km in an east north east trend for the mineralisation, open to the east and west. Artisanal workings have confirmed the continuity of mineralisation and previous drilling intersections have included 19.63 g/t gold over 6m from 18m and 27.72 g/t gold over 6m from 47m. A resource definition drill programme will commence in the second half of 2009.

Sonfon, Sierra Leone

The Sonfon project is under joint venture with Golden Star Resources (GSR) and Minerva Resources PLC (formerly Golden Prospect). Sonfon is considered to be Mano's most significant and highest potential gold prospect in Sierra Leone. GSR Mano's joint venture partner on the Sonfon Project has advised the Company that they are nearing the completion of stage three of the agreement. Within 120 days of completing stage three GSR may elect to proceed to a feasibility study. Mano then has the right to elect to contribute pro-rata to the feasibility study to retain a 49% interest. If Mano decides not to elect to contribute GSR may sole fund the feasibility study to earn a further 14% interest, thereby taking its equity to 65%.

Upon completion of a positive feasibility study on Sonfon GSR may elect to proceed to mine development. Mano has the right to contribute pro rata to any mine development to retain its 49% interest or dilute to either a 15% or 29% free carried interest depending on its earlier elections to co-fund the feasibility study and mine construction. Mano will also retain a 2% net smelter return royalty on production in excess of the first 1M ounces of gold from each project.

Under a separate agreement dated May 2002, the Sonfon licence was joint ventured by the Company and its partner Minerva Resources PLC on a 50:50 joint venture basis. Minerva retains a 50% interest in Mano's share of the project.

GSR are operators and completed a diamond and Rotary Air Blast (RAB) drilling programme in the second half of 2008 which intersected zones of sulfides with good grades. The project is currently on care and maintenance while GSR review their options. A decision will be made by the parties on the future of the project during 2009.

(c) DIAMONDS

In 2007, the Company transferred its diamonds properties which had a book value of $8,276,081 to Stellar in exchange for 19,239,541 shares of Stellar. The exchange was recorded at book value as it was a transaction between companies under common control. In 2007, Stellar completed two private placements in order to raise funds to finance the development of its diamond interests. In the first placement 1,211,890 shares were issued at an effective price of Pounds Sterling 0.87 pence per share. 918,484 of those shares were issued for cash consideration, raising proceeds of Pounds Sterling 800,000 (US$1,571,438), while the remaining 293,406 shares were issued to the subscribers in consideration for forfeiture of certain benefits as a result of the diamond reorganisation. In the second placement 4,822,044 shares were issued at a price of Pounds Sterling 0.871 pence per share for proceeds of Pounds Sterling 4,200,000 (US$8,611,361). In addition, Stellar issued in 2007 2,411,022 warrants with a two year term and an exercise price of Pounds Sterling 1.20 per share as well as 260,390 adviser's options with a two year term and an exercise price of Pounds Sterling 0.871 pence per share. As a result of these shares issues by Stellar, the Company recorded a dilution gain of $6,207,005 in the year ended December 31, 2007.

On March 31, 2008 Stellar issued 2,375,000 shares at a price of Pounds Sterling 1 per share for gross proceeds of Pounds Sterling 2,375,000 ($4,724,571). On December 19 2008, Stellar issued a further 15,567,675 shares at a price of Pounds Sterling 0.20 pence per share for gross proceeds of Pounds Sterling 3,113,535 ($4,802,208). Mano purchased 6,920,000 of these shares for Pounds Sterling 1,384,044 ($2,134,701). At the same time Stellar settled debt of Pounds Sterling 622,356 ($1,194,766) owing to Mano through the issue of 3,111,781 shares at a price of Pounds Sterling 0.20 pence per share. As a result of these share issues, the Company recorded a dilution gain of $1,231,793.

The intention of Mano was to list Stellar on AIM but due to the dramatic changes in the financial markets this has been postponed. During 2008 Mano's interest in Stellar reduced from 68.51% to 59.6%, as a result of a number of private equity financings identified above. The immediate priority is to fast track Stellar's two near-term production projects, at Kono with joint venture partner Petra Diamonds in Sierra Leone and at the Mandala alluvial diamond project in Guinea, to production and cash flow.

Kono Project, Sierra Leone

On September 10, 2004, the Company and Petra Diamonds ("Petra") entered into a joint venture for the production of diamonds from the underground mining of diamond-bearing kimberlite dykes defined within Mano's three contiguous licence areas (Yengema, Njaiama and Nimini South) in the Kono diamond district in east Sierra Leone. This is in the heart of the renowned Kono diamond fields that has yielded some spectacular diamonds, including the third largest diamond found, the 972-carat Star of Sierra Leone. Under the terms of the agreement Petra have earned a 51% interest in Mano's 100% owned subsidiary, Basama Diamonds Ltd., by spending $3M over three years.

During 2008 underground trial mining and bulk sampling continued on the Pol-K and Bardu kimberlite fissures. This has produced a total of 3,800-carats of diamonds to the end of March 2009, with the three largest stones recovered being 11.95, 11.45 and 10.55 carats in weight.

At the Pol-K shaft trial stope mining is ongoing between 34m to 64m depth, being designated Level 1. The kimberlite is on average 60cm in diameter with an in-situ grade of approximately 65 carats per hundred tons ("cpht"). The shaft at Pol-K is currently at 84m depth and once it reaches a depth of 98m stope mining will commence on Level 2 between the depths of 68m and 98m. This is expected to be achieved in August 2009 and will lead to an increase in tonnage being delivered to the processing plant.

At the Bardu shaft bulk sampling along development drives at a depth of 45m is continuing. The kimberlite averages 100cm in width, but has widened to between 300cm and 150cm at a distance of 100m to the south west of the shaft. The in-situ grade of Bardu averages 54cpht, but the wide zone of the fissure reported a higher grade of 137cpht, though further blasting and processing of this zone is required to determine this grade with more confidence. Subject to results of the current bulk sampling the shaft at Bardu will be deepened and to where Level 1 will be opened to stope mining.

In September 2008 it was decided to sell a small parcel of Pol-K and Bardu diamonds in order to test the market conditions. Some 811-carats of Pol-K diamonds were sold for an average of $152 per carat, whereas a parcel of 253 carats from Bardu realised an average value of $54 per carat. Neither of these parcels were considered to be representative of what could be the future run of mine product. More recently, a slightly larger parcel, comprising 2,185 carats from Pol-K and 538 carats from Bardu was exported to Antwerp and is currently awaiting sale. Considering the poor state of the rough diamond market, Stellar expects lower average prices to be realised for this parcel.

In January 2009 Stellar reached agreement with Petra Diamonds to assume management control of the Kono project for the duration of the year. Stellar will sole fund the project and in December 2009 Petra will have the right to either reimburse Stellar 51% of the expenditure, or dilute its equity in the project.

Stellar takes a long term view on Kono and follows the strategy of developing the project to be Sierra Leone's first underground diamond mine. However, if weak prices persist in the rough diamond market then the Kono project may be placed under temporary care and maintenance until rough diamond prices recover.

Mandala Project, Guinea

The Mandala alluvial diamond project is 100% owned by Stellar Diamonds and comprises two alluvial mining concessions in the south east of Guinea.

The Mandala project has an independently verified indicated diamond resource of 536,000 carats (NI43-101 compliant). The in-situ grade of the gravel resource is high at 38cpht and before the recent downturn in the diamond market the diamond value was expected to be in excess of $65 per carat. However, even at half this diamond value Stellar expects the project to be cash positive due to forecast lower operating costs. This project is expected to be fundamental to Stellar and the ability for the Company to self-finance itself in the second half of 2009. The new 100 ton per hour DMS processing plant has been constructed and commissioned during April 2009. Processing during commissing yielded 1,649 carats of diamonds from 2,067 cubic metres of gravel for an average grade of 0.8 carats per cubic metre. Mandala is forecast to produce on average 10,000 carats of diamonds per month for the period May to December 2009.

Other Diamond Projects

Stellar's Board has deemed it prudent to fully impair its deferred exploration expenditure in Liberia, at the 100% owned MCA project and at the Kpo project where it has a 50:50 joint venture with Trans Hex Group. In February 2009 the Kpo project was reviewed in detail and the partners agreed to terminate the joint venture and relinquish the ground. This will not affect Mano's gold and iron ore development plans in Liberia. Other exploration projects including Tongo and Bouro in Guinea have been placed on care and maintenance until Stellar is generating cash revenues and is self-financed.

3. SUMMARY OF PERFORMANCE

The prior year figures have been restated to reflect the stock-based compensation granted in Stellar during the eleven months ended December 31, 2007 that was not included in the consolidated financial statements for that period. The prior year restatement is explained in more detail in section 3d (x).

(a) SUMMARY OF SELECTED ANNUAL FINANCIAL INFORMATION

The following table provides a summary of the annual audited consolidated financial information for the three most recently completed financial years as derived from the audited consolidated financial statements and is prepared in accordance with Canadian Generally Accepted Accounting Principles ("GAAP").



---------------------------------------------------------------------------
11 months
US Dollars ended
Year ended December 31 Year ended
December 31 2007 January 31
2008 RESTATED 2007
---------------------------------------------------------------------------
Interest income 74,484 148,041 53,181
---------------------------------------------------------------------------
Administrative and office expenses 1,044,292 63,236 8,747
---------------------------------------------------------------------------
Project Impairment 11,250,591 - -
---------------------------------------------------------------------------
Professional fees 1,938,650 958,629 408,080
---------------------------------------------------------------------------
Dilution gain 7,157,964 6,207,005 -
---------------------------------------------------------------------------
Stock option compensation expense 1,455,625 2,053,887 513,361
---------------------------------------------------------------------------
Gain on disposal of assets 7,762,899 - -
---------------------------------------------------------------------------
Net income/(loss) 1,841,014 2,740,695 (959,609)
---------------------------------------------------------------------------
Basic and diluted income/(loss) per
share 0.006 0.009 (0.004)
---------------------------------------------------------------------------
Working capital 6,939,955 2,868,877 428,368
---------------------------------------------------------------------------
Total assets 54,749,687 45,501,911 28,866,715
---------------------------------------------------------------------------
Exploration expenditure in the year 10,402,580 6,526,656 8,443,801
---------------------------------------------------------------------------
Deferred exploration costs 27,316,442 29,918,050 23,391,394
---------------------------------------------------------------------------
Long term liabilities - convertible
debentures 2,048,638 2,260,738 -
---------------------------------------------------------------------------



(b) SUMMARY OF SELECTED QUARTERLY FINANCIAL INFORMATION

The following is the selected financial information of the Company for the last eight quarters: (unaudited)



---------------------------------------------------------------------------
US Dollars December 31 September 30 June 30 March 31
2008 2008 2008 2008
---------------------------------------------------------------------------
Interest income 2,168 21,415 32,676 18,225
---------------------------------------------------------------------------
Dilution gain 5,327,344 - 442,840 1,387,780
---------------------------------------------------------------------------
Net income/(loss) 8,944,998 (5,362,222) (996,109) (745,653)
---------------------------------------------------------------------------
Basic and diluted income/
(loss) per share 0.028 (0.017) (0.003) (0.002)
---------------------------------------------------------------------------
Total assets 54,749,687 47,082,223 51,393,067 48,617,142
---------------------------------------------------------------------------
December 31
US Dollars 2007 October 31 July 31 April 30
RESTATED 2007 2007 2007
---------------------------------------------------------------------------
Interest income 79,784 55,272 5,213 7,772
---------------------------------------------------------------------------
Dilution gain 6,207,005 - - -
---------------------------------------------------------------------------
Net income/(loss) 3,980,931 (466,135) (496,668) (277,433)
---------------------------------------------------------------------------
Basic income/(loss) per
share 0.013 (0.002) (0.002) (0.001)
---------------------------------------------------------------------------
Diluted income/(loss)
per share 0.012 (0.002) (0.002) (0.001)
---------------------------------------------------------------------------
Total assets 45,501,911 46,105,356 46,672,577 29,813,909
---------------------------------------------------------------------------


Mano's performance is not affected by seasonal trends. The Company is currently not a producer and therefore does not generate a positive cash flow from operating activities. As an explorer it has historically incurred losses, however, in the quarters ended December 31, 2007 and December 31, 2008 it recorded an income of $3,980,931and $8,944,998 respectively. The income in these two quarters arose as a result of one-off transactions. In the quarter ending December 31, 2007 the main reason for the income was the dilution gain recorded on consolidation of Stellar of $6,207,005. In the quarter ending December 31, 2008 there were several one-off transactions which affected the income. These are outlined in detail in section c (i) below but in summary the main one-off transactions were: the dilution gains on Stellar and SLIO; the gain on the sale of shares in SLIO; and the higher impairment charge.

(c) RESULTS OF OPERATIONS

(i) INCOME STATEMENT

Review of three months ended December 31, 2008 (unaudited) compared to the two month period ended December 31, 2007 (unaudited).

The net income for quarter four, 2008 of $8,944,998 is $4,964,067 or 225% above last year. The increase in income can be attributed to a number of factors including: the gain on disposal of shares in SLIO to Severstal ($7,762,899); a higher adjustment for the non-controlling interest in Stellar ($2,430,383) and a lower stock compensation charge ($1,742,361). These favourable variances were partly off-set by a higher impairment charge ($6,089,258), increased interest on the convertible debenture ($614,569) and a lower dilution gain ($879,661).

The gain on the sale of shares in SLIO is the result of Severstal investing in a 25% stake for $12.5M, of which $8.3M was paid in December 2008. The remaining balance of the acquisition price has been deferred until December 2010, at which point the Company expects to receive $4.2M from Severstal. The Company has not recognised the deferred portion of the transaction as it is subject to Severstal continuing with the Putu project at that time.

The impairment charge in quarter four, 2008 of $6,089,258 is in addition to the charge of $5,161,333 made in quarter three and is mainly arising from write-downs on Stellar's Liberia diamond projects which were deemed uneconomic. There was no charge for impairment in quarter four, 2007.

Review of the twelve months ended December 31, 2008 compared to the eleven month period ended December 31, 2007.

During the twelve months ended December 31, 2008 the Company recorded an income of $1,841,014 compared with an income of $2,740,695 for the eleven month period ended December 31, 2007. The reduction in net income of $899,681 or 33% is attributable to a number of factors which are listed below:

(1) Higher administrative and office expenses in 2008 (increase of $981,056) - the new London office was utilised for a full twelve months in 2008 versus only three months in 2007. There were also additional staff costs in 2008 associated with the London office. The main cost items included in this category are: travel ($362,190); public relations ($158,162); staff costs ($251,668); and office related expenses ($209,568).

(2) Directors fees and Management fees in 2008 of $297,409 and $658,314 respectively are in total $549,181 higher than in 2007 reflecting the additional cost of the separate Stellar Board of Directors and the recruitment of key personnel in quarter four 2007 and quarter one 2008.

(3) There was no project impairment charge in the income statement in 2007. The charge in 2008 is $11,250,591 (Diamond projects: $6,401,746; Gold projects: $4,802,345; Other projects: $46,500). Major projects written off in 2008 included Kpo and MCA diamond projects in Liberia and Missamana/Gueliban gold project in Guinea.

(4) Professional fees for the year at $1,938,650 is $980,021 greater than 2007. The significant proportion of the fees incurred relate to the unsuccessful attempt to list Stellar, a subsidiary of Mano on AIM.

(5) Interest on the convertible debentures of $983,242 is $801,946 above 2007. The charge for 2008 included the actual interest charge based on an interest rate of 9% plus an "effective interest charge" of 44% which builds up the financial liability over the life of the instrument to the total value of the consideration received. In 2007 the actual interest charge was based on four months from the date the proceeds were received and there was no "effective interest charge" recognised.

(6) A foreign exchange loss in 2008 of $304,215 is $77,347 higher than 2007 and is due to unfavourable fluctuations in the UK pound-US dollar exchange rates off-set as per (3) below.

The unfavourable variances described above have been partly off-set by:

(1) A gain on sale of shares in SLIO to Severstal of $7,762,899.

(2) Lower stock based compensation in 2008. The charge in 2008 of $1,455,625 is $598,262 below the level in 2007 due to fewer share options being granted to Stellar employees.

(3) An unrealised currency exchange gain on the convertible debentures of $831,873 arose in 2008 due to a weakening of the UK pound exchange rate versus the US dollar. A loss of $168,130 was recorded in 2007 giving rise to a favourable movement of $1,000,003 over the 2007 level.

(4) Dilution gains on Mano's holdings in Stellar and SLIO amounted to $7,157,964 in 2008 an increase of $950,959 over 2007. Although Mano's interest in these two companies was reduced, the net assets representing Mano's shareholdings increased as a result of the cash injections into the companies. The gain on SLIO is $5,926,171 and on Stellar is $1,231,793.

(ii) BALANCE SHEET, LIQUIDITY AND CAPITAL RESOURCES

Current assets amounted to $9,112,445 at December 31, 2008, $4,603,386 above last year. The increase in current assets, and particularly cash and cash equivalents is mainly due to the investment by Severstal into Mano and into SLIO during 2008. Cash and cash equivalents increased by $4,777,719 over 2007.

Investments of $8,093,775 increased by $7,909,685 over 2007, due to the increased value of Mano's investment in SLIO due to a change in treatment from consolidation to equity accounting.

Property, plant and equipment increased by US$1,894,813 over 2007 to US$3,896,933. The majority of the expenditure relates to the diamond processing plant for the Mandala project in Guinea.

Resource properties were valued at $6,330,092 in 2008 which was a reduction of $2,558,500 over 2007, as a result of write downs in the carrying values of Kpo (diamonds-Liberia), Pampana (gold-Sierra Leone) and Missamana/Gueliban (gold-Guinea). Deferred exploration expenditure of $27,316,442 in 2008 declined by $2,601,608 over the 2007 level. Deferred expenditure incurred in 2008 totaled $10,402,580 which was off set by an impairment charge of $8,692,091 and the reclassification of Putu iron ore expenditure of $4,312,097 following the completion of the Severstal transaction.

Non current assets of $45,637,242 increased by $4,644,390 over 2007. Total assets of $54,749,687 at the end of December 2008 increased by $9,247,776 or 20% over the 2007 level.

At December 31, 2008 there were no commitments for capital expenditure.

Current liabilities of $2,172,490 at December 31, 2008 is $532,308 above the December 2007 level reflecting the increased amount owed to joint venture partners. The amount owing to Petra Diamonds is $717,640 as at December 31, 2008. Working capital of $6,939,955 at the end of 2008 is $4,071,078 above the 2007 level and reflects the increased cash holding at the end of 2008.

At December 31, 2008 the Company has determined the amortised cost of the debt component of the convertible debentures to be $2,048,638 representing the present value of the loan liability.

The non-controlling interest in Stellar of $9,011,297 represents an equity of 40.4% and is based on a carrying value of net equity of $22,361,888.

Shareholders' equity of $41,517,262 at December 31, 2008 increased by $7,063,588 over 2007. Share capital increased by $3,367,010 following the successful private placement with Severstal in May 2008. The increase in the contributed surplus of $1,307,564 related to stock based compensation as a result of the award of share options to Mano Directors and employees. The cumulative deficit of $4,098,885 at December 31, 2008 is $1,841,014 lower than the 2007 level due to the income in 2008.

Cash outflow from operating activities during the twelve months ended December 31, 2008 is $1,444,109 (2007: $2,038,842) after adjusting for non-cash activities. Cash outflow on investing activities amounted to $3,985,042 in 2008 and included deferred exploration expenditure of $10,402,580 and $1,990,279 on the purchase of capital assets principally for the diamond processing plant for the Mandala project. The net proceeds from the sale of shares in SLIO to Severstal amounted to $8,333,333. The comparative figure spent on investing activities during the eleven month period to December 31, 2007 was $9,260,793.

Cash in-flow from financing activities in 2008 amounted to $10,121,363 compared to $14,214,302 for the eleven months ended December 31, 2007. Net proceeds raised in the private placement with Severstal amounted to $3,915,010 versus $437,836 raised in equity in 2007. In 2007 $4,641,860 was raised from an issue of convertible debentures.

The net cash inflow during 2008 is $4,777,719, some $1,863,052 higher than in 2007.

(d) OTHER INFORMATION

(i) Outstanding share data

The Company is authorised to issue an unlimited number of common shares without par value. As at April 23, 2009 there were 317,810,818 common shares outstanding.

Outstanding share options in the Company at December 31, 2008 are outlined below. This includes 9,045,000 share options granted in 2008.



Exercise price
Number of Per share
Common Shares (Cdn$) Expiry date
-----------------------------------------------------
2,720,000 0.240 March 23, 2009
2,620,000 0.215 July 25, 2010
2,755,000 0.230 July 31, 2011
600,000 0.230 March 16, 2012
300,000 0.230 May 31, 2012
9,045,000 0.200 Jan 23, 2013
-----------------------------------------------------
18,040,000
-----------------------------------------------------

Outstanding share options in Stellar at December 31, 2008 are outlined
below:

Exercise price
Number of Per share
Common Shares GBP(pound) Expiry date
-----------------------------------------------------
2,600,000 0.87 March 26, 2013
400,000 1.00 April 21, 2013
-----------------------------------------------------
3,000,000
-----------------------------------------------------


As at December 31, 2008, 20,000,000 share purchase warrants were outstanding in the Company at an exercise price of Pounds Sterling 0.14 pence per share with an expiry date of November 29, 2009. These warrants were issued to Severstal as part of the private placement completed on May 29, 2008. 18,679,456 warrants were granted by Stellar on December 19 2008 at an exercise price of Pounds Sterling 0.25 pence, which are outstanding and exercisable at any time over a period of 18 months.

(ii) Convertible debentures

On September 27, 2007 the Company issued unsecured convertible debentures to raise Pounds Sterling 2.3M. The convertible debentures are repayable on August 1, 2010 and bear interest at 9% per annum. The principal amount is convertible by the holders into common shares of the Company (16,428,571) at a conversion price of Pounds Sterling 0.14 pence per share at any time prior to maturity. If prior to the maturity date, the daily volume weighted average trading price of the Company's common shares on AIM, or such other stock exchange where the majority of the Company's trading volume occurs, is greater than Pounds Sterling 0.182 pence per share (or equivalent), for any period of 21 consecutive trading days, the Company shall have the right at its sole option to provide notice to the holder and thereafter the debentures will automatically be converted to common shares.

As the debentures are convertible into common shares at the option of the holder, they have been accounted for in their component parts. The fair value of the conversion option was based on using the Black-Scholes pricing model with the following assumptions: no dividends will be paid, a weighted average volatility of the Company's share price of 172%, a weighted average annual risk free rate of 4.64% and an expected life of three years. The residual was allocated to the debt component and subsequently carried at amortised cost using the effective interest rate of 44.1% to accrete the liability to the value of the consideration received.

During the year ended December 31, 2008, the Company incurred interest expense relating to the convertible debentures of $983,242 including the accretion of the loan to its future value. Interest has been paid up to November 1, 2008 and therefore an accrual of $49,928 is included at the year end. Included in the income statement is $831,873 recognised as an unrealised foreign currency exchange rate gain in the year to December 31, 2008, ($168,130 loss in 2007).

(iii) Off balance sheet arrangements

The Company does not have any off-balance sheet arrangements and does not contemplate having any in the foreseeable future.

(iv) Related party transactions

During the twelve months ended December 31, 2008 the Company incurred related party transactions of $1,305,979 (2007:$403,542) for management fees, directors fees and professional services. The increase over 2007 is principally due to the formation of the Stellar Board of Directors which has been treated as a related party for purposes of the consolidation, as well as higher management and director fees. All transactions with related parties have occurred in the normal course of operations. As at December 31, 2008 the amount due to related parties totaled $142,004 (2007:$174,367). These balances have no fixed terms of repayment and have arisen from the provision of services. The following table summarises the Company's related party transactions for the period:



December 31, December 31,
2008 2007
$ $
-----------------------------------------------------------------------
Incurred management service fees with a
company related by a director in common 150,000 95,000
Incurred management fees by directors 774,805 188,753
Incurred directors fees 297,356 119,789
Incurred professional fees and consultancy
services by a director 83,818 -
------------------------
1,305,979 403,542
------------------------


These transactions have ocurred in the normal course of business and are payable on demand. At the end of 2008, the amounts due to related entities are as follows:



December 31, December 31,
2008 2007
$ $
-------------------------------------------------
Director's companies - 154,414
Various directors 142,004 19,953
------------------------
142,004 174,367
------------------------


(v) Impairment

The Company reviews the carrying values of its mineral property interests whenever events or changes in circumstances indicate that the carrying value of the assets may exceed the estimated net recoverable amounts. An asset's carrying value is written down when the carrying value is not recoverable and exceeds its fair value. Impairment reviews for deferred exploration and acquisition costs are carried out on a project by project basis, with each project representing a potential single cash generating unit. An impairment review is undertaken when indicators of impairment arise but typically when one of the following circumstances apply:

(i) title to the asset is compromised;

(ii) variations in metal prices that render the project uneconomic; and

(iii) unexpected geological occurrences that render the resource uneconomic.

Where estimates of future cash flows are not available and where other factors suggest impairment, management assesses if the carrying value is recoverable and records an impairment if so indicated. The impairment review undertaken during the year identified certain projects that were considered uneconomic and were written off and those projects where there was a reasonable probability that the carrying value of the project exceeded its fair value. The total impairment charge recorded in the Income/(Loss) Statement during 2008 is $11,250,591. This relates to the following projects:



Deferred
Acquisition Exploration
Costs Expenditure
Project Geographic Impaired Impaired Total
Project Name Type Segment $ $ $
---------------------------------------------------------------------------

MCA Diamond Liberia - 3,625,594 3,625,594

Laboratory Diamond Liberia - 314,401 314,401

Kpo Diamond Liberia 110,000 2,822,916 2,932,916

AAR Diamond Liberia - 429,072 429,072
Sierra
Pampana Gold Gold Leone 508,500 361,661 870,161
Sierra
Zimmi - Gorahun Diamond Leone - 105,756 105,756

Missamana/Gueliban Gold Guinea 1,940,000 1,992,184 3,932,184

Guinea Iron Ore Iron Ore Guinea - 46,500 46,500

Socerdemi Diamond DRC - 78,832 78,832
Recovery relating
to sale of Stellar
mineral property (1,084,825) (1,084,825)
-----------------------------------------------
2,558,500 8,692,091 11,250,591
------------------------------------
------------------------------------


Some of the projects that remain and have not been impaired are early stage speculative mining projects, the carrying value of these is not supported by future estimated cash flows but management do not believe there to be any indication of impairment.

(vi) Acquisition and deferred exploration costs



Dec. 31, 2008 Dec. 31, 2007
$ $
-----------------------------------------------------------------------

Acquisition costs:
Liberia, West Africa:
Bea 210,000 210,000
Kpo - 110,000
Sierra Leone, West Africa:
Pampana, Sonfon and Nimini South 1,186,500 1,695,000
Guinea, West Africa
Missamana/Gueliban - 1,940,000
Mandala 4,933,592 4,933,592
-----------------------------
6,330,092 8,888,592
-----------------------------
Deferred exploration costs:
Liberia, West Africa:
Bea - KGL 13,756,539 12,624,484
MCA - 3,665,227
Weaju 742,268 -
Gondoja 34,348 -
Kpo - 2,223,124
Putu - 1,730,026
AAR - 388,741
MEA 60,545 60,545
-----------------------------
14,593,700 20,692,147
-----------------------------
Sierra Leone, West Africa:
Kono/Nimini Central 7,979,870 5,232,308
Sonfon 1,190,080 1,524,975
Nimini South 134,574 -
Tongo/Gola 682,836 323,640
Zimmi/Gorahun - 99,906
-----------------------------
9,987,360 7,180,829
-----------------------------
Guinea, West Africa
Missamana/Gueliban - 1,874,833
Guinea Iron Ore - 46,500
Bouro 180,995 1,028,442
Druzhba and ex De Beers 159,289 30,136
Mandala 1,959,539 69,164
Ouria 5,532 -
-----------------------------
2,305,355 3,049,075
-----------------------------
Democratic Republic of Congo
Socerdami/REMEC 430,027 80,824
-----------------------------
Recovery relating to the sale of mineral
property on consolidation of Stellar - (1,084,825)
-----------------------------
Closing balance 27,316,442 29,918,050
-----------------------------




Bea MCA KPO Putu AAR
Acquisition costs $ $ $ $ $
----------------------------------------------------------------------------

Balance at Feb 1,
2007 210,000 - 110,000 - -
Additions - - - - -
--------------------------------------------------------
Balance at Dec 31,
2007 210,000 - 110,000 - -
--------------------------------------------------------

Impairment - - (110,000) - -
--------------------------------------------------------
Balance at Dec 31,
2008 210,000 - - - -
--------------------------------------------------------
Deferred
exploration Bea MCA KPO Putu AAR
expenditure $ $ $ $ $
----------------------------------------------------------------------------

Balance at Feb 1,
2007 11,373,310 2,676,519 1,759,011 477,143 238,672
Additions 1,251,174 988,708 464,113 1,252,883 150,069
--------------------------------------------------------
Balance at Dec 31,
2007 12,624,484 3,665,227 2,223,124 1,730,026 388,741
--------------------------------------------------------

Additions 1,132,055 274,769 599,792 2,582,071 40,331
Expenditures removed
on non consolidation
of SLIO (note 5) - - - (4,312,097) -
Impairment - (3,939,996) (2,822,916) - (429,072)
--------------------------------------------------------
Balance at Dec 31,
2008 13,756,539 - - - -
--------------------------------------------------------


Kono/
Mandala Nimini REPL Other Total
Acquisition costs $ $ $ $ $
----------------------------------------------------------------------------

Balance at Feb 1,
2007 - - - 3,635,000 3,955,000
Additions 4,933,592 - - - 4,933,592
------------------------------------------------------
Balance at Dec 31,
2007 4,933,592 - - 3,635,000 8,888,592
------------------------------------------------------

Impairment - - - (2,448,500) (2,558,500)
------------------------------------------------------
Balance at Dec 31,
2008 4,953,592 - - 1,186,500 6,330,092
------------------------------------------------------
Deferred Kono/
exploration Mandala Nimini REPL Other Total
expenditure $ $ $ $ $
----------------------------------------------------------------------------

Balance at Feb 1,
2007 293,063 3,048,075 31,743 3,493,858 23,391,394
Additions 627,642 2,184,233 291,897 (684,063) 6,526,656
------------------------------------------------------
Balance at Dec 31,
2007 920,705 5,232,308 323,640 2,809,795 29,918,050
------------------------------------------------------

Additions 1,038,834 2,747,562 359,196 1,627,970 10,402,580
Expenditures removed
on non consolidation
of SLIO (note 5) - - - - (4,312,097)
Impairment - - - (1,500,107) (8,692,091)
------------------------------------------------------
Balance at Dec 31,
2008 1,959,589 7,979,870 682,836 2,937,658 27,316,442
------------------------------------------------------


(vii) Going Concern

The Company has prepared its consolidated financial statements on a going concern basis which assumes that the Company will be able to realise assets and discharge liabilities in the normal course of business. The Company's ability to continue on a going concern basis depends on its ability to successfully raise additional finance in the future. If the Company cannot obtain additional finance in the future it may be forced to realise its assets at amounts significantly lower than the current carrying value. At December 31, 2008 the Company had cash and cash equivalents of $8,877,906 sufficient to finance its planned exploration activities. In addition when the business combination with African Aura is completed it will significantly strengthen the Company's financial position with the addition of Cdn$5.9M (as at 30 March 2009). With Putu now financed up to and including the feasibility stage, Mano can now focus its resources on those projects that will add most to the value of the Company.

(viii) Recent accounting pronouncements

(a) Section 1400, General Standards of Financial Statement Presentation

In June 2007, the CICA amended Section 1400 to include requirements to assess an entity's ability to continue as a going concern and disclose any material uncertainties that cast doubt on its ability to continue as a going concern. This new requirement is effective January 1, 2008. The new disclosures resulting from this requirement are set out in note 2 of the Financial Statements.

(b) Financial instrument disclosures

As of January 1, 2008, the Company was required to adopt two new CICA standards, Section 3862, Financial Instruments - Disclosures, and Section 3863, Financial Instruments - Presentation, which replaced Section 3861, Financial Instruments - Disclosure and Presentation. The new disclosure standard increases the emphasis on the risks associated with both recognised and unrecognised financial instruments and how those risks are managed. The new presentation standard carries forward the former presentation requirements. The new financial instruments presentation and disclosure requirements were issued in December 2006. The new disclosures resulting from this requirement are set out in note 18 of the Financial Statements.

(c) Capital disclosures

As of January 1, 2008, the Company was required to adopt CICA Section 1535, Capital Disclosures, which requires companies to disclose their objectives, policies and processes for managing capital. In addition, disclosures include whether companies have complied with externally imposed capital requirements. The new capital disclosure requirements were issued in December 2006. The new disclosures resulting from this requirement are set out in note 19 of the Financial Statements.

(d) Goodwill and intangible assets

In February 2008, the CICA issued Section 3064, Goodwill and Intangible Assets, replacing Section 3062, Goodwill and Other Intangible Assets, and Section 3450, Research and Development Costs. The new pronouncement establishes standards for the recognition, measurement, presentation, and disclosure of goodwill subsequent to its initial recognition and of intangible assets by profit-oriented enterprises. Standards concerning goodwill are unchanged from the standards included in the previous Section 3062. This Section is effective in the first quarter of 2009, and the Company is currently evaluating the impact of the adoption of this new Section on its consolidated financial statements.

(e) Business Combination, Consolidated Financial Statements and non-controlling interest

In January 2009, the CICA issued Handbook Sections 1582 - Business Combinations, 1601 - Consolidated Financial Statements and 1602 - Non-controlling Interests which replace CICA Handbook Sections 1581 - Business Combinations and 1600 - Consolidated Financial Statements. Section 1582 establishes standards for the accounting for business combinations that is equivalent to the business combination accounting standard under International Financial Reporting Standards. Section 1582 is applicable for the Company's business combinations with acquisition dates on or after January 1, 2011. Early adoption of this Section is permitted. Section 1601 together with Section 1602 establishes standards for the preparation of consolidated financial statements. Section 1601 is applicable for the Company's interim and annual consolidated financial statements for its fiscal year beginning January 1, 2011. Early adoption of this Section is permitted. If the Company chooses to early adopt any one of these Sections, the other two sections must also be adopted at the same time.

(ix) International Financial Reporting Standards (IFRS)

In February 2008, the CICA Accounting Standards Board ("AcSB") confirmed that Canadian GAAP for publicly accountable enterprises will be converged with IFRS effective in calendar year 2011, with early adoption allowed starting in calendar year 2009. The conversion to IFRS will be required for the Company, for interim and annual financial statements beginning on January 1, 2011. IFRS uses a conceptual framework similar to Canadian GAAP, but there are significant differences in recognition, measurement and disclosures. In the period leading up to the conversion, the AcSB will continue to issue accounting standards that are converged with IFRS such as IAS 2, Inventories, and IAS 38, Intangible assets, thus mitigating the impact of adopting IFRS at the mandatory transition date.

The Company is currently evaluating the impact of the adoption of IFRS on its consolidated financial statements. In the transition to IFRS, the Company must apply "IFRS 1 - First Time Adoption of IFRS" which sets out the rules for first time adoption. In general, IFRS 1 requires an entity to comply with each IFRS effective at the reporting date for the entity's first IFRS financial statements. This requires that an entity apply IFRS to its opening IFRS balance sheet as at January 1, 2010 (i.e. the balance sheet prepared at the beginning of the earliest comparative period presented in the entity's first IFRS financial statements).

Within IFRS 1 there are exemptions, some of which are mandatory and some of which are elective. The exemptions provide relief for companies from certain requirements in specified areas when the cost of complying with the requirements is likely to exceed the resulting benefit to users of financial statements. IFRS 1 generally requires retrospective application of IFRSs on first-time adoptions, but prohibits such application in some areas, particularly when retrospective application would require judgments by management about past conditions after the outcome of a particular transaction is already known.

On transition, management must apply the mandatory exemptions and make the determination as to which elective exemptions will be made under IFRS 1. Management is currently preparing its timetable for transition and will undertake a high level analysis of the financial statement areas to determine which elections will be taken. After this high level analysis is completed Mano will be in a better position to assess the impact IFRS will have on the financial statements.

Management continues to assess the impact that IFRS will have on the aspects of the business including accounting policy, financial reporting, information technology and communications perspective. Given that the Company is currently in the development phase, accounting policy determinations that will be made leading in the Company's production phase, such as revenue recognition, deferred stripping and diamond inventory costing to name a few examples, will be made during or post transition to IFRS. Management is also currently reviewing accounting systems and assessing the changes that will be required and the strategies that will be employed. Communication and training strategies are also being developed by management.

(x) Prior Year Restatement

The prior year figures for the eleven months ended December 31, 2007 have been restated to reflect the stock-based compensation resulting from 2,600,000 share options being granted to Stellar Directors and key employees. These options were valued using the Black-Scholes model at $1,863,884. The restatement has had the following impact on the figures for the period ending December 31, 2007:



$
-----------------------------------------------------------------------
Consolidated Statement of Income and Comprehensive Income
Stock-based compensation (1,863,884)
Non-controlling interest 587,123
----------
Income and comprehensive income (1,276,761)
----------
----------

Consolidated Balance Sheet
Contributed surplus 1,276,761
Retained earnings (1,276,761)


(xi) Financial instruments and financial risk management

The Company's financial assets and liabilities are cash, amounts receivable, accounts payable and accrued liabilities, due to related parties and convertible debenture. The fair values of these financial instruments are estimated to approximate their carrying values due to their immediate or short-term nature. Due to the nature of the Company's operations, there is no significant credit or interest rate risk.

The carrying amounts for the financial instruments are as follows:



December 31, December 31,
2008 2007
$ $
---------------------------------------------------------------------------
Financial Assets:
Loans and receivables, measured at amortised cost
Cash 8,887,906 4,100,187
Amounts receivable 207,044 296,591
-------------------------
9,094,950 4,396,778
-------------------------
Financial Liabilities:
Other liabilities, measured at amortised cost
Accounts payable and accrued liabilities 1,148,659 1,010,169
Due to related parties 149,660 174,367
Convertible debenture 2,048,638 2,260,738
-------------------------
3,346,957 3,445,274
-------------------------


In the normal course of its operations, the Company is exposed to currency, interest rate, liquidity and credit risks.

Foreign currency risk

In the normal course of business, the Company enters into transactions denominated in foreign currencies (primarily Pound Sterling, Canadian Dollars and Euros). As a result, it is subject to exposure from fluctuations in foreign currency exchange rates. In general, the Company does not enter into derivatives to manage these currency risks. The group attempts to reduce its exposure to currency risk by entering into contracts denominated in US Dollars whenever possible. In 2009, the Board decided to enter into currency forward contracts to hedge part of its exposure to the UK pound.



December 31, December 31,
Carrying value of foreign currency balances 2008 2007
$ $
---------------------------------------------------------------------------
Cash and cash equivalents, include balance
denominated in:
Pound Sterling (GBP) 1,236,356 3,715,232
Canadian Dollar (CAD) 15,233 5,821

Amounts receivable, include balance
denominated in:
Pound Sterling (GBP) 194,498 27,730
Canadian Dollar (CAD) 5,871 9,480

Amounts payable and accrued liabilities,
include balance denominated in:
Pound Sterling (GBP) 498,147 85,273
Canadian Dollar (CAD) 54,277 147,873
Euro (EUR) 15,752 -

Convertible debenture, include balance
denominated in:
Pound Sterling (GBP) 2,048,638 2,260,738

Effect on net
assets of USD
strengthening
Closing 10%
Exchange Rate $
---------------------------------------------------------------------------
At December 31, 2008
Pound Sterling (GBP) 0.6910 111,593
Canadian Dollar (CAD) 1.2228 3,317
Euro (EUR) 0.7095 1,575

At December 31, 2007
Pound Sterling (GBP) 0.5009 (139,695)
Canadian Dollar (CAD) 0.9820 13,257
Euro (EUR) 0.6794 -


The sensitivities above are based on financial assets and liabilities held at 31 December 2008 where balances were not denominated in the functional currency of the Company. The sensitivities do not take into account the Company's income and expenses and the results of these sensitivities could change due to other factors such as changes in the value of financial assets and liabilities as a result of non-foreign exchange influenced factors.

Interest rate and liquidity risk

Fluctuations in interest rates impact on the value of short term cash investments and interest payable on financing activities (including long term loans), giving rise to interest rate risk. The Company has in the past been able to actively source financing through public offerings, corporate dealings or issuing fixed rate convertible debentures. This cash is managed to ensure surplus funds are invested in a manner to achieve maximum returns while minimising risks. In the ordinary course of business, Mano is required to fund working capital and capital expenditure requirements. Mano typically holds financial assets with a maturity of less than 30 days to ensure adequate liquidity and flexibility.

Due to the short maturity of the financial assets and the fixed rate of interest on the convertible debenture, if interest rates were to double, it would have an insignificant impact on the Company's financial performance.

Mano ensures that its liquidity risk is mitigated by placing financial assets on short term maturity, thus all financial liabilities are met as they become due:



6
Within 30 days - months - 1 year -
30 days 6 months 1 year 5 years
$ $ $ $
---------------------------------------------------------------------------
Cash and cash equivalents 8,877,906 - - -
Accounts receivable 207,044 - - -
Accounts payable and accrued (1,148,659) - - -
liabilities
Due to related parties (149,660) - - -
Due to joint venture partners (106,603) - (717,640) -
Convertible debentures - (149,783) (149,783) (3,553,183)
---------------------------------------------
Net Liquidity 7,680,028 (149,783) (867,423) (3,553,183)
---------------------------------------------


The Company anticipates the completion of the SPSA with Severstal in December 2010, which would result in $4.2M cash received which is not reflected in the above table.

Credit risk

The Company's credit risk exposure is solely in connection with the cash and cash equivalents held with financial institutions. The Company manages its risk by holding surplus funds in high credit worthy financial institution and maintains minimum balances with financial institutions in remote locations.



December
31, December 31,
2008 2007
$ $
---------------------------------------------------------------------------
Financial institution with S&P AA- rating or higher 8,743,602 3,729,700
Financial institutions un-rated or unknown rating 134,304 370,487
----------------------
8,877,906 4,100,187
----------------------


(xii) Subsequent Events

On January 19, 2009, the Company granted incentive stock options to certain directors, employees and consultants to purchase up to an aggregate of 5,200,000 common shares in the chase capital of the Company exercisable for a period of five years at a price of Cdn$0.035c per share.

On April 15, 2009 Mano announced it had entered into a legally binding Letter of Intent ("LOI") to conclude a broader agreement to merge with TSX-V listed African Aura Resources Ltd (Africa Aura) pursuant to which Mano will offer 1.57 Mano shares for every one African Aura share outstanding, in order to acquire the entire issued share capital of African Aura. The obligation of Mano and African Aura to enter into the broader agreement is subject to certain conditions being met, including the approval of the TSX-V and satisfactory completion of due diligence. African Aura shareholders approval will be required for the merger. The merger will significantly strengthen Mano's position in west Africa, creating a well capitalised iron ore, gold and diamond exploration and development company.

Highlights of the Agreement:

- All share transaction whereby African Aura shareholders will receive 1.57 Mano shares for each African Aura share held, representing a premium of 18.7% to African Aura's 60 day volume weighted average share price at market close on 14 April 2009, based on Mano's 14 April 2009 closing AIM price and an exchange rate of Cdn$1.80 to Pounds Sterling 1.

- Merged entity to be renamed African Aura Mining Inc. which, at completion, will be owned 75% by Mano shareholders and 25% by African Aura shareholders.

- Proposed board of directors:

-- Luis da Silva - President and CEO

-- David Netherway - Non-Executive Chairman

-- David Evans, Guy Pas and Steven Poulton - Non-Executive Directors

-- Kirill Zimin, who was previously nominated by Severstal Resources to be its representative on Mano's Board after their investment in the Putu Range project, is expected to be appointed as a Non-Executive Director in the coming weeks and will remain post-merger in light of Severstal's strategic investment.

-- A proposed 1 for 6 Mano share consolidation (one new post-consolidation share for every 6 pre-consolidation shares), as previously approved by Mano's shareholders, is expected to take place concurrently with the completion of the proposed merger.

Strategic Rationale for the Merger:

- Strong operational synergies with prospective iron ore and gold assets in west Africa which will considerably enhance Mano's presence in the region with the addition of the following projects wholly-owned by African Aura:

-- 12km long Nkout iron deposit in southern Cameroon. Reconnaissance sampling along a 5km section returned an average grade of 54% iron.

-- Batouri gold project in western Cameroon. Intersections to date include 132g/t gold over 1.0m and 49g/t gold over 1.5m.

- Significantly strengthens Mano's financial position with the addition of Cdn$5.9M held by African Aura (as at 30 March 2009).

- Geographic diversification and risk reduction by stepping out of Mano's traditional operating countries.

- The proposed Board of Directors of the combined company will be strengthened by drawing on the skills and expertise of the African Aura management team.

4. FORWARD-LOOKING STATEMENTS

Certain information included in this document may constitute forward-looking statements. Forward-looking statements are based on current expectations and entail various risks and uncertainties. These risks and
uncertainties could cause or contribute to actual results that are materially different from those expressed or implied. Factors that could cause actual results or events to differ materially from current expectations include but are not limited to: the grade and recovery of ore which is mined varying from estimates; estimates of future production, mine development costs, timing of commencement of operations; changes in exchange rates; access to capital; fluctuations in commodity prices; and adverse political and economic developments in the countries in which we operate. Any forward-looking statement speaks only as of the date on which it is made and, except as may be required by applicable securities laws, the Company disclaims any intent or obligation to update any forward-looking statement, whether as a result of new information, future events or results or otherwise. Although the Company believes that the assumptions inherent in the forward-looking statements are reasonable, forward-looking statements are not guarantees of future performance and accordingly undue reliance should not be put on such statements due to the inherent uncertainty therein.

5. TRENDS

The current world financial crisis has seen demand for commodities fall and in turn a significant fall in commodity prices has taken place. With access to capital more difficult, fewer companies are now listing on stock markets. The Company's majority owned subsidiary Stellar has decided to postpone its listing on London's AIM stock exchange due to the difficult market conditions for raising finance. However, Stellar has still been able to access finance to progress its most advanced projects. Although there is limited funding available, companies with highly prospective projects can still attract investment. Mano was able to attract investment from Severstal for the Putu iron ore project in Liberia, concluding agreements in December 2008. The financial crisis has negatively impacted the market value of exploration and mining companies on world markets. Many companies have reacted to the shortage of finance by placing projects on care and maintenance and reducing wherever possible their operating costs and capital expenditure. This does mean there are attractive opportunities at both company and project level for companies with available cash.

6. RISKS AND UNCERTAINTIES

The Company is subject to a number of risk factors due to the fundamental nature of the exploration business in which it is engaged, the countries in which it primarily operates and not least adverse movements in commodity prices. In recent months the fall in commodity prices has affected the economics of both existing and potential mines. Mano seeks to counter exploration risk as far as possible by selecting exploration areas on the basis of their recognised geological potential to host high grade gold, diamond and iron ore deposits. The under-explored Archaean terrain on which the Company focuses in west Africa is also subject to a second significant risk, namely, political. While the region has suffered serious civil unrest and armed conflict in the past (which is the basic reason why it remained under-explored), conditions have improved markedly in recent years. The following risk factors should be given special consideration when evaluating an investment in the Company's shares:

(a) Exploration, development and operating risk

The Company is engaged in the exploration of mineral properties, an inherently risky business, and there is no assurance that an economic mineral deposit will be discovered. In fact most exploration projects do not result in the discovery of commercially mineable ore deposits. The focus of the Company is on areas in which the geological setting is well understood by management. The technological tools employed by the Company are regularly updated to better focus our exploration efforts.

(b) Reserve and resource estimates

The estimation of mineral resources and reserves is in part an interpretive process and the accuracy of any such estimates is a function of the quality of available data, and of engineering and geological interpretation and judgement. No assurances can be given that the volume and grade of reserves recovered, and rates of production achieved, will not be less than anticipated. The Company contracts the services of independent professional experts to prepare resource and reserve estimates.

(c) Political and country risks

The political risk in sub-Saharan Africa is significant due to prolonged periods of economic and political instability in the area. However, in recent years there has been considerable progress in rebuilding the government institutions and economy in the three key countries in which we operate, namely Liberia, Guinea and Sierra Leone. These countries will continue to need the support of the international community for security and economic assistance to ensure they are successful in creating a prosperous future for their citizens.

(d) Mineral prices

The price of gold is affected by numerous factors totally beyond the control of the Company, including central bank sales, producer hedging activities, the exchange rate of the U.S. dollar relative to other major currencies, demand, political and economic conditions and production levels. In addition, the price of gold has been volatile over short periods of time due to speculative activities. The prices of diamonds, iron ore and other minerals that the Company may explore for, also have the same or similar price risk factors.

(e) Cash flows and additional funding requirements

Mano currently has no revenues from operations although revenues from diamond production are expected to be recognised in 2009 when the 49% owned Kono diamond project in Sierra Leone and the 100% owned Mandala project in Guinea enter production. The Company has historically entered into joint venture agreements with partners to share the risks and the associated costs of exploration. In addition the Company has raised finance through the sale of equity capital and the placement of unsecured convertible debentures. Although Mano has been successful in the past in obtaining finance, there is no assurance that it will be able to obtain adequate finance in the future or that such finance will be on terms advantageous to the Company. As noted above the Company successfully raised $3.9M through a private placement with Severstal in May 2008 and a further $8.3M in December 2008 when it sold its majority shareholding in SLIO to Severstal. Severstal have committed to invest a further $30M in order to advance the project towards a definitive feasibility study. A further $4.2M is expected to be paid by Severstal in December 2010 as part of the transaction completed in December 2008.

(f) Exchange rate fluctuations

Fluctuations in currency exchange rates can significantly impact cash flows. The U.S. dollar exchange rate in particular has varied substantially over time. The U.S. dollar has strengthened considerably vis-a-vis the UK pound during the second half of 2008. While the Company has historically raised a large proportion of its equity financing in UK pounds most of the Company's exploration costs, are denominated in U.S. dollars. Fluctuations in exchange rates may give rise to foreign currency exposure, either favourable or unfavourable, which may impact financial results. Mano did not engage in currency hedging to offset the risk of exchange rate fluctuation during 2008. However, the Board has decided to enter into currency forward contracts in 2009 to hedge part of its exposure to the UK pound.

(g) Environmental

Mano's exploration and development activities are subject to extensive laws and regulations governing environmental protection. The Company is also subject to various reclamation-related requirements. The Company takes extremely seriously its commitment towards the local communities and the environment in which it operates. The Company's policy is to meet all applicable environmental regulations. A failure to comply may result in enforcement actions causing operations to cease or be curtailed, the imposition of fines and penalties, and may include corrective measures requiring significant capital expenditures. In addition, certain types of operations require the submission and approval of environmental impact assessments. As far as the Company is aware it has complied with all environmental regulations in relation to the licences it holds.

(h) Laws and regulations

Mano's exploration activities are subject to local laws and regulations governing prospecting, development, production, exports, taxes, labour standards, occupational health and safety, mine safety and other matters. Such laws and regulations are subject to change and can become more stringent, and compliance can therefore become more costly. The Company applies the expertise of its management, its advisors, its employees and contractors to ensure compliance with current laws.

(i) Title to mineral properties

While the Company has undertaken all the customary due diligence in the verification of title to its mineral properties, this should not be construed as a guarantee of title. The properties may be subject to prior unregistered agreements or transfers and title may be affected by undetected defects.

(j) Competition

There is constant competition from other mineral exploration companies, with operations similar to those of the Company. Many of the mining companies with which the Company competes have operations and financial resources substantially greater than those of Mano.

(k) Dependence on management

Mano relies heavily on the business and technical expertise of its management team and there is little possibility that this dependence will decrease in the near term. In 2008 the financial management of the Company has been strengthened with the appointment of a CFO for Mano, a Finance Director for Stellar and a Group Financial Controller. It should be noted that Mano has no key-man insurance.

(l) Economic environment

As discussed under section 5 above the current financial crisis has seen the demand for commodities fall and in turn a significant fall in commodity prices. This has created a lot of uncertainty in the financial markets leading to a fall in the share prices of many companies. Obtaining debt and equity finance has become more difficult leading to an increase in company failures. Mano is confident it has the projects and resources at its disposal to increase the value of the business to its shareholders.

7. MANAGEMENTS RESPONSIBILITY FOR FINANCIAL REPORTING AND CONTROLS

The audited consolidated financial statements of the Company for the twelve months ended December 31, 2008 have been prepared by management in accordance with Canadian Generally Accepted Accounting Principles (GAAP) and have been approved by the Company's Board of Directors.

Management is responsible for establishing and maintaining a system of controls and procedures over the public disclosure of financial and non-financial information regarding the Company. Management is also responsible for the design and maintenance of effective internal control over financial reporting to provide reasonable assurance regarding the integrity and reliability of the Company's financial information and the preparation of its financial statements in accordance with Canadian GAAP.

Management maintains appropriate information systems, procedures and controls to ensure the integrity of the financial statements and that information used internally and disclosed externally is complete and reliable.

Management of the Company, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls and internal control procedures will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Mano have been detected.

However, given the nature of the business and geographical displacement, management is committed to continuously mitigate any risks and systematically improve operating controls where and when possible in a cost effective manner.

Management recognises the limitation of segregation of duties due to the size of the organisation and is committed to mitigating such risks by introducing compensatory controls.

The Board is responsible for ensuring that management fulfils its responsibilities for financial reporting and internal control. The Board carries out this responsibility principally through its Audit Committee. The Audit Committee is appointed by the Board and meets periodically with management and the external auditor to discuss internal controls over the financial reporting process, auditing matters and financial reporting issues, to satisfy itself that each party is properly discharging its duties and responsibilities and to review the Consolidated Financial Statements.

On March 9, 2009 Mano appointed BDO Stoy Hayward LLP, Chartered Accountants as its auditors. There was no reservation in any former auditors' report, no qualified opinion or denial of opinion in connection with the audit of the Company for the two most recently completed fiscal years or for any subsequent period.

There was no reportable event cited by the former auditors and the Company is not aware of any reportable events and is of the opinion that none exists. The resignation of the former auditors as auditors of the Company and the appointment of the successor auditors has been approved by the Company's audit committee and its board of directors.

8. OUTLOOK

The outlook for the Company in 2009 is very promising despite the difficult trading conditions in the financial markets. Putu is now financed through to the feasibility stage and the immediate priorities are to secure a Mineral Development Agreement (MDA) and significantly increase the resource drilling programme with 27,000m of core drilling. The gold focus is on strengthening Mano's portfolio of properties and expanding the Company's gold resources. The drill programme planned at NLGM in 2009 is another step towards completing a feasibility study on the project during 2010. Despite difficult trading conditions in the diamond market, Stellar is focused on delivering cash flow at its Kono and Mandala operations in 2009. The key operational priorities for Mano in 2009 are summarised below:

(a) Advance the resource drilling programme and metallurgical testing at Putu;

(b) Secure a 25 year MDA for Putu;

(c) Infill core drilling programme at NLGM;

(d) Resource definition drill programme at Weaju;

(e) Close the recently announced business combination with African Aura; and

(f) Deliver positive cash flow from Stellar Diamonds to enable them to become self sufficient and autonomous

On Behalf of the Board,

MANO RIVER RESOURCES INC.

LUIS G. CABRITA da SILVA, President and CEO

Consolidated Financial Statements

Mano River Resources Inc.

For Year Ended December 31, 2008

(Stated in U.S. Dollars)

Statement of directors' responsibilities and approval of the annual financial statements

Management's Responsibility for Consolidated Financial Statements

The accompanying consolidated financial statements of Mano River Resources Inc are the responsibility of management and have been approved by the Board of Directors of the Company. The consolidated financial statements include some amounts that are based on management's best estimate using reasonable judgment.

The consolidated financial statements have been prepared by management in accordance with Canadian generally accepted accounting principles.

Management maintains an appropriate system of internal controls to provide reasonable assurance that transactions are authorised, assets safeguarded and proper records are maintained.

The Audit Committee of the Board of Directors has met with the Company's external auditors to review the scope and results of the annual audit and to review the consolidated financial statements and related financial reporting matters prior to submitting the consolidated financial statements to the Board of Directors for approval.

The consolidated financial statements have been audited by BDO Stoy Hayward LLP, Chartered Accountants, and their report follows.



(Signed) LUIS G. CABRITA da SILVA,DIRECTOR
------------------------------------------
Luis G. Cabrita da Silva

(Signed) DAVID B. EVANS, DIRECTOR
David B. Evans
------------------------------------------


Report of the independent auditors to the Shareholders of Mano River Resources Inc

Auditors' Report to the Shareholders of Mano River Resources Inc

We have audited the consolidated balance sheet of Mano River Resources Inc as at 31 December 2008 and the consolidated statement of income and other comprehensive income, shareholders' equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. 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. Those standards require that we plan and perform an audit to obtain reasonable assurance whether these consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in these consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

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

The consolidated financial statements as at 31 December 2007 and for the eleven month period then ended were audited by other auditors, who expressed an opinion without reservation on those statements in their report dated 29 April 2008.

BDO Stoy Hayward LLP
Chartered Accountants
London, UK
29 April 2009



Mano River Resources Inc.
Consolidated Balance Sheet
As at December 31, 2008
(Stated in U.S. dollars)
---------------------------------------------------------------------------
Restated
Year (Note 2)
ended Year ended
December 31, December 31,
2008 2007
$ $
---------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents 8,877,906 4,100,187
Amounts receivable 207,044 296,591
Due from joint venture partners (Note 6) 27,495 112,281
---------------------------------------------------------------------------
9,112,445 4,509,059
Non Current Assets
Investments (Note 5 and 7) 8,093,775 184,090
Property, plant and equipment (Note 8) 3,896,933 2,002,120
Resource properties (Note 9) 6,330,092 8,888,592
Deferred exploration costs (Note 9) 27,316,442 29,918,050
---------------------------------------------------------------------------
Total Assets 54,749,687 45,501,911
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Liabilities
Current liabilities
Accounts payable and accrued liabilities 1,148,659 1,010,169
Interest payable on convertible debenture (Note 11) 49,928 181,296
Due to related parties (Note 14) 149,660 174,367
Due to joint venture partners (Note 6) 824,243 274,350
---------------------------------------------------------------------------
2,172,490 1,640,182
Convertible debenture (Note 11) 2,048,638 2,260,738
---------------------------------------------------------------------------
Total Liabilities 4,221,128 3,900,920
--------------------------------------------------------------------------
Non-controlling interest (Note 15) 9,011,297 7,147,317
---------------------------------------------------------------------------

Shareholders' equity
Share capital (Note 12) 37,963,124 34,596,114
Equity component of convertible debenture (Note 11) 2,637,802 2,637,802
Warrant reserve 548,000 -
Contributed surplus 4,488,976 3,181,412
Accumulated other comprehensive loss (21,755) (21,755)
Deficit accumulated during development stage (4,098,885) (5,939,899)
---------------------------------------------------------------------------
Total shareholders' equity 41,517,262 34,453,674
---------------------------------------------------------------------------
Total Liabilities, non-controlling interest and 54,749,687 45,501,911
shareholders' equity
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Nature of operations and continuation of business (Note 1)
Approved by the Board

(Signed) LUIS G. CABRITA da SILVA,DIRECTOR
------------------------------------------
Luis G. Cabrita da Silva

(Signed) DAVID B. EVANS, DIRECTOR
David B. Evans
------------------------------------------
The accompanying notes are in integral part of these consolidated financial
statements.



Mano River Resources Inc.
Consolidated Balance Sheet
As at December 31, 2008
(Stated in U.S. dollars)
---------------------------------------------------------------------------
Restated
(Note 2)
Eleven
Year months
ended ended
Dec. 31, Dec. 31,
2008 2007
$ $
---------------------------------------------------------------------------
Expenses

Administrative and office expenses 1,044,292 63,236
Directors' fees 297,409 122,789
Foreign exchange loss 304,215 226,868
Management fees 658,314 283,753
Interest on convertible debenture (Note 11) 983,242 181,296
Professional fees 1,938,650 958,629
Stock-based compensation 1,455,625 2,053,887
Transfer agent and filing fees 79,229 99,560
Project impairment (Note 16) 11,250,591 -
Depreciation 44,289 353,315
---------------------------------------------------------------------------
18,055,856 4,343,333
---------------------------------------------------------------------------
Dilution gain on shares issued by controlled (7,157,964) (6,207,005)
company (Note 15)
Gain on disposal of assets (Note 5) (7,762,899) -
Unrealised foreign exchange (gain)/loss on (831,873) 168,130
convertible debenture
Interest Income (74,484) (148,041)
---------------------------------------------------------------------------
(Loss)/Income before non-controlling
interest (2,228,636) 1,843,583

Non-controlling interest 4,069,650 897,112
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Income and comprehensive income 1,841,014 2,740,695
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Basic and diluted income per share 0.006 0.009

Weighted average number of shares
outstanding 309,668,741 297,256,188

The accompanying notes are in integral part of these consolidated financial
statements.



Mano River Resources Inc.
Consolidated Statements of Cash Flow
For the year ended December 31, 2008
(Stated in U.S. dollars)
---------------------------------------------------------------------------
Year Restated (note 2)
ended Eleven months
Dec. 31, ended Dec. 31,
2008 2007
$ $
---------------------------------------------------------------------------
Operating Activities
Income and comprehensive income 1,841,014 2,740,695
Items not involving cash:
Dilution gain on shares issued by controlled
company (7,157,964) (6,207,005)
Non-controlling interest (4,069,650) (897,112)
Gain on sale of assets (7,762,899) -
Stock-based compensation 1,455,625 2,053,887
Interest income (74,484) -
Interest on convertible debentures 983,242 181,296
Unrealised foreign exchange (gain)/loss on
convertible debt (831,873) 190,003
Unrealised foreign exchange (gain)/loss (90,730) -
Project impairment (Note 16) 11,250,591 -
Depreciation of fixed assets 44,289 353,315
Changes in Working Capital:
Amounts receivable and prepaid expenses 174,333 (207,727)
Due to joint venture partners - (353,259)
Accounts payable and accrued liabilities 2,794,397 107,065
---------------------------------------------------------------------------
(1,444,109) (2,038,842)
---------------------------------------------------------------------------
Investing Activities
Deferred exploration expenditures (10,402,580) (7,611,481)
Interest income 74,484 -
Net proceeds on sale of assets 8,333,333 -
Purchase of capital assets (1,990,279) (1,649,312)
---------------------------------------------------------------------------
(3,985,042) (9,260,793)
---------------------------------------------------------------------------
Financing Activities
Issuance of share capital (net of costs) 3,915,010 437,836
Convertible debentures - 4,641,860
Cash (disposed of) /acquired on consolidation
of subsidiary (585,768) 1,571,438
Proceeds from issue of shares of subsidiary 7,311,665 7,522,508
Interest paid on convertible debenture (494,837) -
Due to related parties (24,707) 40,660
---------------------------------------------------------------------------
10,121,363 14,214,302
---------------------------------------------------------------------------
Impact of foreign exchange on cash balance 85,507 -

Net cash inflow 4,777,719 2,914,667

Cash, Beginning of Period 4,100,187 1,185,520
---------------------------------------------------------------------------

Cash, End of Period 8,877,906 4,100,187
---------------------------------------------------------------------------
The accompanying notes are in integral part of these consolidated financial
statements.



Mano River Resources Inc.
Consolidated Statements of Shareholders' Equity
For the year ended December 31, 2008
(Stated in U.S. dollars)
Common shares
Contrib- Share
uted Warrant subscrip-
Amount surplus Reserve tions
Number $ $ $ $
---------------------------------------------------------------------------
Balance as at
January 31, 2007 293,120,818 34,158,278 1,714,462 - 788,461
Net income for the period - - - - -
Cash transactions:
Equity component of
convertible debenture - - - - -
Exercise of options
at $0.093 4,690,000 437,836 - - -
---------------------------------------------------------------------------
4,690,000 437,836 - - -
Non-cash transactions: - - - - (788,461)
Share subscription
Stock-based compensation - - 190,003 - -
---------------------------------------------------------------------------
Balance at
December 31, 2007
as originally stated 297,810,818 34,596,114 1,904,465 - -
---------------------------------------------------------------------------
Restatement of stock-
based compensation - - 1,863,884 - -
Non-controlling
interest in stock-
based compensation - - (586,937) - -
---------------------------------------------------------------------------
Balance at
December 31, 2007
as revised (note 2) 297,810,818 34,596,114 3,181,412 - -
---------------------------------------------------------------------------
Income for the year - - - - -
Shares issued on
private placement 20,000,000 3,367,010 - 548,000 -
Stock-based compensation - - 1,455,625 - -
Non-controlling interest
in stock-based
compensation - - (148,061) - -
---------------------------------------------------------------------------
Balance at
December 31, 2008 317,810,818 37,963,124 4,488,976 548,000 -
---------------------------------------------------------------------------



Deficit
Equity accumulated Accumulated
component of in the other Total
convertible development comprehensive shareholders
debenture stage deficit equity
$ $ $ $
---------------------------------------------------------------------------
Balance as at
January 31, 2007 - (8,680,594) (21,755) 27,958,852
Net income for the period - 4,017,642 - 4,017,642
Cash transactions:
Equity component of
convertible debenture 2,637,802 - - 2,637,802
Exercise of options
at $0.093 - - - 437,836
---------------------------------------------------------------------------
2,637,802 - - 3,075,638
Non-cash transactions: - - - (788,461)
Share subscription
Stock-based compensation - - - 190,003
---------------------------------------------------------------------------
Balance at
December 31, 2007
as originally stated 2,637,802 (4,662,952) (21,755) 34,453,674
---------------------------------------------------------------------------
Restatement of stock-
based compensation - (1,863,884) - -
Non-controlling
interest in stock-
based compensation - 586,937 - -
---------------------------------------------------------------------------
Balance at
December 31, 2007
as revised (note 2) 2,637,802 (5,939,899) (21,755) 34,453,674
---------------------------------------------------------------------------
Income for the year - 1,841,014 - 1,841,014
Shares issued on
private placement - - - 3,915,010
Stock-based compensation - - - 1,455,625
Non-controlling interest
in stock-based
compensation - - - (148,061)
---------------------------------------------------------------------------
Balance at
December 31, 2008 2,637,802 (4,098,885) (21,755) 41,517,262
---------------------------------------------------------------------------


Mano River Resources Inc.

Notes to the Consolidated Financial Statements

For the year ended December 31, 2008

(Stated in U.S. dollars)

1. Nature of operations

Mano River Resources Inc. ("Mano River" or "the Company") commenced operations on July 10, 1996 and is engaged in the acquisition, exploration and development of gold, iron ore and diamond properties. The Company is in the development stage and has no source of cash flows other than loans from related parties, convertible debentures or equity offerings.

The Company has proven reserves in respect on one of the gold projects and anticipates further operating losses as exploration continues across its property portfolio.

2. Basis of preparation

These financial statements have been prepared in accordance with generally accepted accounting principles in Canada.

These consolidated financial statements are prepared on a going concern basis which assumes that the Company will be able to realise assets and discharge liabilities in the normal course of business. The Company's ability to continue on a going concern basis depends on its ability to successfully raise additional financing. If the Company cannot obtain additional financing it may be forced to realise its assets at amounts significantly lower than the current carrying value.

Uncertainty also exists with respect to the recoverability of the carrying value of certain resource properties. The ability of the Company to realise its investment in resource properties is contingent upon resolution of the uncertainties and continuing confirmation of the Company's title to the resource properties.

In August 2007, the Company changed its fiscal year end from January 31, to December 31, effective as of December 31, 2007. Therefore the prior period presented is for the eleven months ended December 31, 2007.

Prior year adjustment

The prior year figures have been restated to reflect the stock-based compensation granted in Stellar Diamonds Ltd, a subsidiary of the company, during the eleven months ended December 31, 2007 that was not included in the consolidated financial statements for that period. The stock-based compensation is the result of 2,600,000 share options granted by Stellar to Directors and key employees (see note 12(d)). These options were valued using the Black-Scholes model at $1,863,884. The restatement has had the following impact on the figures for the period ending December 31, 2007;



$
------------------------------------------------------------------------
Consolidated Statement of Income and Comprehensive Income
Stock-based compensation (1,863,884)
Non-controlling interest 587,123
----------
Income and comprehensive income (1,276,761)
----------
----------
Consolidated Balance Sheet
Contributed surplus 1,276,761
Retained earnings (1,276,761)


The effect of this restatement was to reduce the earnings per share for the eleven month period ending December 31, 2007 from the previously reported $0.014 to the revised $0.009.

3. Significant accounting policies

(a) Principles of consolidation

These financial statements include the accounts of Mano River Resources Inc. and its principal subsidiaries, Mano Gold Investments Ltd. (formerly Mano River Resources Ltd.) including sub-group Mano River Iron Ore Holdings Ltd. ("MARIOH"), and Mano Diamonds Ltd.



Percentage
Company Place of incorporation ownership
---------------------------------------------------------------------------

Mano Gold Investments Limited
(formerly Mano River Resources Limited)
and its subsidiaries: British Virgin Islands 100.0%

Golden Limbo Rock Resources
Limited and its
subsidiary: Tortola, British
Virgin Islands 93.5%

Golden Limbo Rock Resources SA Conakry, Guinea 100.0%

Golden Leo Resources Limited
and its branch: Tortola, British
Virgin Islands 98.8%

Golden Leo Resources Limited
(Sierra Leone Branch) Freetown, Sierra Leone 100.0%

North West Minerals Ltd. Mahe, Republic of
Seychelles 100.0%

Mano Gold (Liberia) Ltd.
(formerly Lofa Goldiam, Inc.)
and its subsidiary: Tortola, British
Virgin Islands 100.0%

Bea Mountain Mining Corporation Monrovia, Liberia 100.0%
---------------------------------------------------------------------------
Mano Diamonds Limited and
its subsidiaries: Tortola, British
Virgin Islands 100.0%

Friendship Diamonds Guinee S.A. Conakry, Guinea 70.0%

Stellar Diamonds Limited and
its subsidiaries: Guernsey 59.6%

Diamants du Congo Oriental Ltd. Tortola, British
Virgin Islands 100.0%

Western Mineral Resources
Corporation Inc. and its
subsidiary: Tortola, British
Virgin Islands 100.0%

Western Mineral Resources Corp.
(Liberia) Monrovia, Liberia 100.0%

Alpha Minerals Inc. Monrovia, Liberia 100.0%

Weasua Diamonds Ltd and
its subsidiary: Mahe, Republic of
Seychelles 50.0%

Kpo Resources Inc. Monrovia, Liberia 100.0%

Mano Diamonds (Liberia) Inc. Monrovia, Liberia 100.0%

Basama Diamonds Ltd and its branch: Mahe, Republic of
Seychelles 49.0%

Basama Diamond Ltd Sierra
Leone Branch Freetown, Sierra Leone 100.0%

Sierra Diamonds Limited and
its branch: Tortola, British
Virgin Islands 100.0%

Sierra Leone Diamonds Limited
Sierra Leone Branch Freetown, Sierra Leone 100.0%

Mano Diamonds Sierra Leone Ltd. Freetown, Sierra Leone 100.0%

Guinean Diamond Corporation Ltd.
and its subsidiaries Mahe, Republic of
Seychelles 100.0%

Mano River Diamants Guinee S.A. Conakry, Guinea 100.0%

Resources Mandala Guinee S.A. R.L. Conakry, Guinea 100.0%

East Sierra Diamonds Ltd and
its branch: Mahe, Republic of
Seychelles 100.0%

East Sierra Diamonds Ltd. Sierra
Leone Branch Freetown, Sierra Leone 100.0%
---------------------------------------------------------------------------
Mano River Iron Ore Holdings Ltd.
and its subsidiary: 100.0%

Severstal Liberia Iron Ore Ltd.
and its subsidiaries: Tortola, British
Virgin Islands 44.3%
---------------------------------------------------------------------------

Mano River Resources Inc. (UK Branch) United Kingdom 100.0%


The shares not legally owned by the Company in its subsidiaries:
Golden Limbo Rock Resources Limited - 6.5%;
Friendship Diamonds Guinee S.A.- 30.0%;
are held by a third party company. This third party has no beneficial interest in the shares and is holding the shares for the Company's benefit until the Company and the third party agree on their ultimate distribution. As the Company retains the beneficial interest in these shares no non-controlling interest exists at December 31, 2008 in respect of these shares.

Business acquisitions are accounted for under the purchase method and the results of the operations of these businesses are included in these consolidated financial statements from the acquisition date until the date of disposal or loss of control.

Severstal Liberia Iron Ore Ltd. (SLIO) previously African Iron Ore Group Ltd. was 80% owned by MARIOH. One-half of the remaining 20% was held by Eastbound Resources Ltd., a company controlled by G Pas, a director of the Company. During the year MARIOH reduced its holding in SLIO to 44.3% (see note 5). SLIO is consolidated until the date of the reduction in the Company's shareholding and subsequently accounted for using the equity method of accounting and included in investments in the balance sheet.

Investments in associates are accounted for using the equity method of accounting and are initially recognised at cost. The Company's share of its associates' post-acquisition profits or losses is recognised in the consolidated statement of income. Cumulative post-acquisition movements are adjusted against the carrying amount of investment. When the Company's share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Company does not recognise further losses, unless it has unsecured obligations or made payments on behalf of the associate.

The financial statements of entities which are controlled by the Company through voting equity interests, referred to as subsidiaries, are consolidated. Variable interest entities ("VIEs"), which include, but are not limited to, special purpose entities, trusts, partnerships, and other legal structures, as defined by the Accounting Standards Board in Accounting Guideline ("AcG") 15, Consolidation of Variable Interest Entities ("AcG 15"), are entities in which equity investors do not have the characteristics of a "controlling financial interest" or there is not sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. VIEs are subject to consolidation by the primary beneficiary who will absorb the majority of the entities' expected losses and/or expected residual returns. As of December 31, 2008, the Company does not hold an interest in any VIEs.

All intercompany balances and transactions have been eliminated upon consolidation.

(b) Non-controlling interests

Non-controlling interests exist in less than wholly-owned subsidiaries of the Company and represent the outside interest's share of the carrying values of the subsidiaries. When the subsidiary company issues its own shares to outside interests, a dilution gain or loss arises as a result of the difference between the Company's share of the proceeds and the carrying value of the underlying equity.

(c) Cash

Cash and cash equivalents include cash, and those short-term money market instruments that are readily convertible to cash with an original term of less than 90 days.

(d) Property, plant and equipment

Property, plant and equipment is comprised of office furniture, automobiles and various equipment used in the field, that are initially recorded at cost and depreciated at 30% per annum on a declining balance basis. Property, plant and equipment in the course of construction are not depreciated until it is commissioned and available for use.

(e) Long-term investments

Investments are recorded at cost, subject to a provision for any impairment that is determined to be other than temporary.

(f) Resource properties and deferred exploration costs

The Company follows the method of accounting for its mineral properties whereby all costs related to acquisition, exploration and development are capitalised by property. The carrying value of pre-production and exploration properties is reviewed periodically and either written off when it is determined that the expenditures will not result in the discovery of economically recoverable mineral reserves or transferred to producing mining property, plant and equipment when commercial development commences and amortised on a unit of production basis over the life of the related ore reserves.

The recoverability of amounts shown for pre-production and exploration properties is dependent upon the discovery of economically recoverable mineral reserves, confirmation of the Company's interest in the underlying mineral claims, the ability of the Company to finance the development of the properties and on the future profitable production or proceeds from the disposition thereof. Management reviews these factors and considers whether any other events or circumstances indicate that the carrying amount of an asset may not be recoverable. If there is an indication that the carrying amount may not be recoverable future cash flows expected to result from the use of the asset and its disposition must be estimated. If the undiscounted estimated future cash flow is less than the carrying amount of the asset, impairment is recognised and charged to the consolidated income statement.

The success and ultimate recovery of the Company's exploration costs of its mineral exploration properties is influenced by significant financial risks, legal and political risks, commodity prices, and the ability of the Company to discover economically recoverable mineral reserves and to bring such reserves into future profitable production.

(g) Measurement uncertainty

The preparation of financial statements in conformity with Canadian generally accepted accounting principles 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. Significant balances and transactions affected by management estimates include the valuation of investments, resource properties, deferred exploration costs, asset retirement obligations, future income tax, stock-based compensation as well as the recovery of assets, fair value of convertible debt and the allocation of proceeds between share capital and warrants. Actual results could differ from those estimates.

The amounts used to estimate fair values of stock options and warrants issued are based on estimates of future volatility of the Company's share price, expected lives of the options, expected dividends to be paid by the Company and other relevant assumptions.

By their nature, these estimates are subject to measurement uncertainty and the effect of changes in such estimates on the consolidated financial statements of future periods could be significant.

In February 2008, the CICA issued Section 1000. The standard intends to reduce the differences with International Financial Reporting Standards ('IFRS') in the accounting for intangible assets and results in closer alignment with US GAAP. Under current Canadian standards, more items are recognised as assets than under IFRS or US GAAP. This standard will be effective for fiscal years beginning on or after 1 October 2008

(h) Income/(Loss) per share

The basic income/(loss) per share is computed by dividing the income/(loss) and comprehensive income/(loss) by the weighted average number of common shares outstanding during the year. The diluted income/(loss) per share reflects the potential dilution by including other common share equivalents, such as outstanding stock options and share purchase warrants, in the weighted average number of common shares outstanding during the year.

(i) Foreign currency translation

The functional currency of the Company and all subsidiaries is US Dollars with the exception of the UK branch which has a functional currency of Pounds Sterling.

Monetary assets and liabilities denominated in foreign currencies are translated at the exchange rate in effect at the balance sheet date. Non-monetary assets and liabilities and revenue and expenses arising from foreign currency transactions are translated at the exchange rate in effect at the date of the transaction. Exchange gains or losses arising upon translation are included in the consolidated income statement.

Integrated foreign subsidiaries and associates are accounted for under the temporal method. Under this method, monetary assets and liabilities are translated at the exchange rate in effect at the balance sheet date. Non-monetary assets and liabilities are translated at historical rates. Revenue and expenses are translated at actual or average rates for the period. Exchange gains or losses arising from the translation are included in the consolidated income statement.

(j) Stock-based compensation

The Company follows Canadian Institute of Chartered Accountants Handbook Section 3870, Stock-Based Compensation, which requires that all stock-based awards made to non-employees and employees be measured and recognised using a fair value based method. Accordingly, the fair value of options at the date of grant is accrued and charged to the consolidated income statement, with an offsetting credit to contributed surplus, on a straight-line basis over the vesting period.

(k) Joint ventures

The Company has entered into certain agreements with third parties to develop exploration projects that are commonly referred to as joint ventures but do not necessarily meet the requirements to apply joint venture accounting. Where this is the case the Company recognises its share of the expenditure on the project and any liabilities arising in respect of the project. Joint venture agreements that do meet the definition of a joint venture under section 3055 are proportionally consolidated.

(l) Income taxes

The Company accounts for income taxes whereby future income tax assets and liabilities are computed based on differences between the carrying amount of assets and liabilities on the balance sheet and their corresponding tax values using the enacted income tax rates at each balance sheet date. Future income tax assets also result from unused loss carryforwards and other deductions. The valuation of future income tax assets is reviewed annually and adjusted, if necessary, by use of a valuation allowance to reflect the estimated realisable amount. Future income tax assets are not recognised to the extent the recoverability of such assets is not considered more likely than not.

(m) Comprehensive income

Section 1530, Comprehensive Income, is the change in the Company's net assets that results from transactions, events and circumstances from sources other than the Company's shareholders and includes items that would not normally be included in net loss such as unrealised gains or losses on available-for-sale investments, gains or losses on certain derivative instruments and foreign currency gains or losses related to self-sustaining operations. The Company's comprehensive income, components of other comprehensive income, and accumulated other comprehensive income are presented in the statements of comprehensive income and the statements of shareholders' equity. Amounts previously recorded in "cumulative translation adjustment" have been reclassified to "accumulated other comprehensive income".

(n) Asset retirement obligations

The fair value of the liability of an asset retirement obligation is recorded when it is legally incurred and the corresponding increase to the mineral property is depreciated over the life of the mineral property. The liability is adjusted over time to reflect an accretion element considered in the initial measurement at fair value and revisions to the timing or amount of original estimates and for draw-downs as asset retirement expenditures are incurred. As at 31 December 2008 and 2007, the Company has not recognised any asset retirement obligations.

(o) Financial instruments

The Company's cash and cash equivalents have been classified as held for trading and are recorded at fair value. All other financial instruments will be recorded at cost or amortised cost, subject to impairment reviews. Other financial instruments include amounts receivable, amounts payable, amounts due to related parties and convertible debentures.

(p) Adoption of new accounting standards and accounting pronouncements

Section 3855, Financial Instruments - Recognition and Measurement, establishes standards for classification, recognition, measurement, presentation and disclosure of financial instruments (including derivatives) and non-financial derivatives in the financial statements. This standard requires the Company to classify all financial instruments as either held-to-maturity, available-for-sale, held-for-trading, loans and receivables or other financial liabilities. Financial assets and liabilities held-for-trading will be measured at fair value with gains and losses recognised in net income. Financial assets held-to-maturity, loans and receivables and financial liabilities other than those held-for-trading will be measured at amortized cost. Available-for-sale investments are measured at fair value with unrealised gains and losses recognised in other comprehensive income. The standard also permits the designation of any financial instrument as held-for-trading upon initial recognition.

The Company has implemented the following classification of its financial assets and financial liabilities:

- Cash is classified as held-for-trading;

- Amounts receivables, due from joint venture partners are classified as "loans and receivables" and are measured at amortized cost using the effective interest rate method. At December 31, 2008 and 2007, the recorded amount approximates fair value;

- Long-term investments are classified as "available-for-sale"; and

- Short-term and long-term liabilities, accounts payable and due to joint venture partners are classified as "other financial liabilities" and are measured at amortized cost using the effective interest rate method. At December 31, 2008 and 2007, the recorded amount approximates fair value.

Transaction costs directly attributable to the acquisition or issue of a financial asset or financial liability are included in the carrying amount of the financial asset or financial liability, and are amortized to income using the effective interest rate method.

Derivatives may be embedded in other financial instruments (host instruments). Embedded derivatives are treated as separate derivatives when their economic characteristics and risks are not closely related to those of the host instrument. The terms of the embedded derivative are the same as those of a stand-alone derivative, and the combined contract is not classified as held for trading. These embedded derivatives are measured at fair value on the balance sheet with subsequent changes in fair value recognised in the consolidated income statement. The Company adopted the standard, with February 1, 2007 as its transition date for embedded derivatives due to the change in accounting year end as disclosed in note 1. The Company has not identified any embedded derivatives that are required to be accounted for separately from the host contract.

(q) Recent accounting pronouncements

(a) Section 1400, General Standards of Financial Statement Presentation

In June 2007, the CICA amended Section 1400 to include requirements to assess an entity's ability to continue as a going concern and disclose any material uncertainties that cast doubt on its ability to continue as a going concern. This new requirement is effective January 1, 2008. The new disclosures resulting from this requirement are set out in note 2.

(b) Financial instrument disclosures

As of January 1, 2008, the Company was required to adopt two new CICA standards, Section 3862, Financial Instruments - Disclosures, and Section 3863, Financial Instruments - Presentation, which replaced Section 3861, Financial Instruments - Disclosure and Presentation. The new disclosure standard increases the emphasis on the risks associated with both recognised and unrecognised financial instruments and how those risks are managed. The new presentation standard carries forward the former presentation requirements. The new financial instruments presentation and disclosure requirements were issued in December 2006. The new disclosures resulting from this requirement are set out in note 18.

(c) Capital disclosures

As of January 1, 2008, the Company was required to adopt CICA Section 1535, Capital Disclosures, which requires companies to disclose their objectives, policies and processes for managing capital. In addition, disclosures include whether companies have complied with externally imposed capital requirements. The new capital disclosure requirements were issued in December 2006. The new disclosures resulting from this requirement are set out in note 19.

(d) Goodwill and intangible assets

In February 2008, the CICA issued Section 3064, Goodwill and Intangible Assets, replacing Section 3062, Goodwill and Other Intangible Assets, and Section 3450, Research and Development Costs. The new pronouncement establishes standards for the recognition, measurement, presentation, and disclosure of goodwill subsequent to its initial recognition and of intangible assets by profit-oriented enterprises. Standards concerning goodwill are unchanged from the standards included in the previous Section 3062. This Section is effective in the first quarter of 2009, and the Company is currently evaluating the impact of the adoption of this new Section on its consolidated financial statements.

(e) Business Combination, Consolidated Financial Statements and non-controlling interest

In January 2009, the CICA issued Handbook Sections 1582 - Business Combinations, 1601 - Consolidated Financial Statements and 1602 - Non-controlling Interests which replace CICA Handbook Sections 1581 - Business Combinations and 1600 - Consolidated Financial Statements. Section 1582 establishes standards for the accounting for business combinations that is equivalent to the business combination accounting standard under International Financial Reporting Standards. Section 1582 is applicable for the Company's business combinations with acquisition dates on or after January 1, 2011. Early adoption of this Section is permitted. Section 1601 together with Section 1602 establishes standards for the preparation of consolidated financial statements. Section 1601 is applicable for the Company's interim and annual consolidated financial statements for its fiscal year beginning January 1, 2011. Early adoption of this Section is permitted. If the Company chooses to early adopt any one of these Sections, the other two sections must also be adopted at the same time.

(f) Convergence with International Financial Reporting Standards

In February 2008, the CICA Accounting Standards Board ("AcSB") confirmed that Canadian GAAP for publicly accountable enterprises will be converged with IFRS effective in calendar year 2011, with early adoption allowed starting in calendar year 2009. The conversion to IFRS will be required, for the Company, for interim and annual financial statements beginning on January 1, 2011. IFRS uses a conceptual framework similar to Canadian GAAP, but there are significant differences in recognition, measurement and disclosures. In the period leading up to the conversion, the AcSB will continue to issue accounting standards that are converged with IFRS such as IAS 2, Inventories, and IAS 38, Intangible assets, thus mitigating the impact of adopting IFRS at the mandatory transition date.

The Company is currently evaluating the impact of the adoption of IFRS on its consolidated financial statements. In the transition to IFRS, the Company must apply "IFRS 1 - First Time Adoption of IFRS" which sets out the rules for first time adoption. In general, IFRS 1 requires an entity to comply with each IFRS effective at the reporting date for the entity's first IFRS financial statements. This requires that an entity apply IFRS to its opening IFRS balance sheet as at January 1, 2010 (i.e. the balance sheet prepared at the beginning of the earliest comparative period presented in the entity's first IFRS financial statements).

Within IFRS 1 there are exemptions, some of which are mandatory and some of which are elective. The exemptions provide relief for companies from certain requirements in specified areas when the cost of complying with the requirements is likely to exceed the resulting benefit to users of financial statements. IFRS 1 generally requires retrospective application of IFRSs on first-time adoptions, but prohibits such application in some areas, particularly when retrospective application would require judgments by management about past conditions after the outcome of a particular transaction is already known.

On transition, management must apply the mandatory exemptions and make the determination as to which elective exemptions will be made under IFRS 1. Management is currently preparing its timetable for transition and will undertake a high level analysis of the financial statement areas to determine which elections will be taken. After this high level analysis is completed Mano will be in a better position to assess the impact IFRS will have on the financial statements.

Management continues to assess the impact that IFRS will have on the aspects of the business including accounting policy, financial reporting, information technology and communications perspective. Given that the Company is currently in the development phase, accounting policy determinations that will be made leading in the Company's production phase, such as revenue recognition, deferred stripping and diamond inventory costing to name a few examples, will be made during or post transition to IFRS. Management is also currently reviewing accounting systems and assessing the changes that will be required and the strategies that will be employed. Communication and training strategies are also being developed by management.

4. Investments in Stellar Diamonds Limited

During the eleven months ended December 31, 2007 Mano River completed the launch of a new diamond company, Stellar Diamonds Limited ("Stellar"), to maximize the value of its diamond properties. In exchange for the diamond properties which had a book value of $8,276,081, the Company received 19,239,541 new shares in Stellar. The exchange was recorded at book value as it was a transaction between companies under common control. The Company also recognised a recovery relating to the sale of 5.93% of its interest on consolidation of Stellar in the amount of $1,084,825. In addition, during the period Stellar entered into private placements with unrelated parties and issued 8,843,762 shares for a total value of $15,000,029, resulting in a dilution gain in the amount of $6,207,005, which was recognised in the consolidated statements of income for the eleven months ended December 31, 2007. The following is a summary of the agreements entered into:

(a) Pursuant to a share purchase agreement between Stellar Diamonds and Mano Diamonds Limited ("Mano Diamonds"), a wholly-owned subsidiary of the Company, Mano Diamonds transferred its diamond interests in Liberia and Sierra Leone including a 49% interest in the Kono project, to Stellar Diamonds, and in consideration Stellar Diamonds issued 15,442,021 of its shares to Mano Diamonds;

(b) Pursuant to a second share purchase agreement among Stellar Diamonds, Mano Diamonds and two arm's length parties, Searchgold Resources Inc. ("Searchgold") and Siafa Koulibaly ("Koulibaly"), Searchgold, Mano Diamonds and Koulibaly transferred their Guinean diamond interests consisting of a 100% interest in the Bouro/Mandala alluvial property to Stellar Diamonds, and in consideration Stellar Diamonds issued 2,672,629 of its shares to Searchgold, 2,678,117 of its shares to Mano Diamonds, and 137,199 of its shares to Koulibaly. The exchange was recorded at book value as it was a transaction between companies under common control; and

(c) Pursuant to an assignment agreement between the Company and Stellar Diamonds, the Company transferred certain contractual rights to a Guinean diamond exploration database that it had obtained under an agreement with Societe Debsam Guinee Sarl (a subsidiary of DeBeers) dated September 7, 2007 to Stellar Diamonds and in consideration Stellar Diamonds issued up to 1,119,403 of its shares to the Company. The exchange was recorded at book value as it was a transaction between companies under common control.

During the year ended December 31, 2008, Stellar entered into additional private placements and issued 21,054,456 shares for a total value of $10,689,492, resulting in a dilution gain in the amount of $1,231,793, which was recognised in the consolidated statements of income for the year ended December 31, 2008. Stellar is a 59.6% owned subsidiary controlled by the Company and the results of operations and assets and liabilities have been consolidated with the accounts of the Company with effect from the date of acquisition.

5. Investments in Severstal Liberia Iron Ore ("SLIO")

During the year ended December 31, 2008, Mano River entered into an agreement (The SPSA) with OAO Severstal Resources, The SPSA provides for the investment by an indirect wholly-owned subsidiary of Severstal of 25% of the issued and outstanding shares of SLIO for $12.5M from Mano River Iron Ore Holdings Ltd., a wholly-owned subsidiary of Mano, and a further 20% of the issued and outstanding shares of SLIO from the minority interest parties in SLIO, for $10.0M. It also provides for the subscription by Severstal for new ordinary shares in SLIO for an aggregate price of $15m. These acquisitions and the subscription will give the indirectly wholly-owned Severstal subsidiary a 61.5% stake in SLIO on completion of the SPSA.

During the year Severstal completed the acquisition of 16.67% of the shares from Mano River Iron Ore Holdings and 13.33% of the shares from the minority interests as well as completing the $15M subscription for an additional 30% of SLIO. The remaining third of the acquisition element has been deferred until December 2010, at which point the Company will receive $4.2M. The Company has not recorded the disposal of the deferred element of the agreement. At the year end the Company holds 44.33% of the issued share capital of SLIO and from the date of the sale of the shares to Severstal, accounted for as an investment in an associate.

The completion of the SPSA has resulted in a dilution gain in the amount of $5,926,171, which was recognised in the consolidated statements of income for the year ended December 31, 2008. On December 10, 2008 AIOG changed its name to Severstal Liberia Iron Ore Limited.



$
Net assets as at December 31, 2008 18,257,984
Interest held in share capital 44.33%
Equity value of investment in associate 8,093,775


The following gain on disposal has been recognised in the current year:



$
Investment prior to disposal 2,738,027
% disposal 16.667%
Cost of disposal 570,434
Proceeds of disposal 8,333,333
---------
Gain on disposal 7,762,899
---------


6. Due to/from joint venture partners

During the year ended December 31, 2008, certain exploration and development expenditures were carried out by joint venture partners.

The amount owing to Petra Diamonds, who is the operator of the Kono joint venture diamond project in Sierra Leone, is $717,640 as at December 31, 2008. The amount owing to Kpo Resources Inc, the joint venture entity of a diamond project in Liberia, is $106,603 as at December 31, 2008.

As at December 31, 2008 the amount due from joint venture partners amounted to $27,495.

7. Investments



Dec. 31, Dec. 31,
2008 2007
$ $
---------------------------------------------------------------

SLIO (note 5) 8,093,775 -
Mifergui-Nimba - 184,090
---------------------------------------------------------------
---------------------------------------------------------------

The valuation is based on the transactions which happened close to the year
end and represents the share of the net assets of the investment in the
subsidiary.

Dec. 31, Dec. 31,
2008 2007
$ $
---------------------------------------------------------------

Cost of investment 2,167,604 184,090
Dilutive gain on disposal 5,926,171 -
---------------------------------------------------------------
---------------------------------------------------------------
Carrying value 8,093,775 184,090


8. Property and Equipment



Machinery & Assets Under
Equipment Construction Total
$ $ $
----------------------------------------------------------------
Cost
At January 1, 2008 353,315 2,002,120 2,355,435
Additions 147,834 1,791,268 1,939,102
--------------------------------------
At December 31, 2008 501,149 3,793,388 4,294,537
--------------------------------------
Depreciation
At January 1, 2008 353,315 - 353,315
Charge for the year 44,289 - 44,289
--------------------------------------
At December 31, 2008 397,604 - 397,604
--------------------------------------
Carrying amount
At December 31, 2007 - 2,002,120 2,002,120
--------------------------------------
--------------------------------------

At December 31, 2008 103,545 3,793,388 3,896,933
--------------------------------------
--------------------------------------


9. Resource properties and deferred exploration costs



Dec. 31, 2008 Dec. 31, 2007
$ $
------------------------------------------------------------------------

Acquisition costs:
Liberia, West Africa:
Bea 210,000 210,000
Kpo - 110,000
Sierra Leone, West Africa:
Pampana, Sonfon and Nimini South 1,186,500 1,695,000
Guinea, West Africa
Missamana/Gueliban - 1,940,000
Mandala 4,933,592 4,933,592
-----------------------------
-----------------------------
6,330,092 8,888,592
-----------------------------
-----------------------------
Deferred exploration costs:
Liberia, West Africa:
Bea - KGL 13,756,539 12,624,484
MCA - 3,665,227
Weaju 742,268 -
Gondoja 34,348 -
Kpo - 2,223,124
Putu - 1,730,026
AAR - 388,741
MEA 60,545 60,545
-----------------------------
14,593,700 20,692,147
-----------------------------
Sierra Leone, West Africa:
Kono/Nimini Central 7,979,870 5,232,308
Sonfon 1,190,080 1,524,975
Nimini South 134,574 -
Tongo/Gola 682,836 323,640
Zimmi/Gorahun - 99,906
-----------------------------
9,987,360 7,180,829
-----------------------------
Guinea, West Africa
Missamana/Gueliban - 1,874,833
Guinea Iron Ore - 46,500
Bouro 180,995 176,901
Druzhba and ex De Beers 159,289 30,136
Mandala 1,959,539 920,705
Ouria 5,532 -
-----------------------------
2,305,355 3,049,075
-----------------------------
Democratic Republic of Congo
Socerdami/REMEC 430,027 80,824
-----------------------------
Recovery relating to the sale of mineral
property on consolidation of Stellar - (1,084,825)
-----------------------------
Closing balance 27,316,442 29,918,050
-----------------------------



Bea MCA Kpo Putu AAR
Acquisition costs $ $ $ $ $
----------------------------------------------------------------------------
Balance at Feb 1,
2007 210,000 - 110,000 - -
Additions - - - - -
--------------------------------------------------------
Balance at Dec 31,
2007 210,000 - 110,000 - -
--------------------------------------------------------

Impairment - - (110,000) - -
--------------------------------------------------------
Balance at Dec 31,
2008 210,000 - - - -
--------------------------------------------------------

Deferred
exploration Bea MCA Kpo Putu AAR
expenditure $ $ $ $ $
----------------------------------------------------------------------------

Balance at Feb 1,
2007 11,373,310 2,676,519 1,759,011 477,143 238,672
Additions 1,251,174 988,708 464,113 1,252,883 150,069
--------------------------------------------------------
Balance at Dec 31,
2007 12,624,484 3,665,227 2,223,124 1,730,026 388,741
--------------------------------------------------------
Additions 1,132,055 274,769 599,792 2,582,071 40,331
Expenditures removed
on non
consolidation
of SLIO (note 5) - - - (4,312,097) -
Impairment - (3,939,996) (2,822,916) - (429,072)
--------------------------------------------------------
Balance at Dec 31,
2008 13,756,539 - - - -
--------------------------------------------------------



Kono/
Mandala Nimini REPL Other Total
Acquisition costs $ $ $ $ $
--------------------------------------------------------------------------
Balance at Feb 1,
2007 - - - 3,635,000 3,955,000
Additions 4,933,592 - - - 4,933,592
------------------------------------------------------
Balance at Dec 31,
2007 - 4,933,592 - 3,635,000 8,888,592
------------------------------------------------------

Impairment - - - (2,448,500) (2,558,500)
------------------------------------------------------
Balance at Dec 31,
2008 4,953,592 - - 1,186,500 6,330,092
------------------------------------------------------

Deferred Kono/
exploration Mandala Nimini REPL Other Total
expenditure $ $ $ $ $
--------------------------------------------------------------------------

Balance at Feb 1,
2007 293,063 3,048,075 31,743 3,493,858 23,391,394
Additions 627,642 2,184,233 291,897 (684,063) 6,526,656
------------------------------------------------------
Balance at Dec 31,
2007 920,705 5,232,308 323,640 2,809,795 29,918,050
------------------------------------------------------
Additions 1,038,834 2,747,562 359,196 1,627,970 10,402,580
Expenditures removed
on non
consolidation
of SLIO (note 5) - - - - (4,312,097)
Impairment - - - (1,500,107) (8,692,091)
------------------------------------------------------
Balance at Dec 31,
2008 1,959,589 7,979,870 682,836 2,937,658 27,316,442
------------------------------------------------------



----------------------------------------------------------------
----------------------------------------------------------------
Eleven
Year months
ended ended
Dec. 31, Dec. 31,
2008 2007
$ $
----------------------------------------------------------------
Deferred exploration
expenditures
Feasibility 51 4,992
Assays incl. shipment 251,754 130,122
Communications incl. equipment 120,395 37,172
Community relations 151,103 9,523
Consultants and professional fees 1,393,596 722,278
Data, images, reports and maps - 4,340
Drilling 1,886,828 1,017,009
Geologists' support - 122,725
Infrastructure incl. roads and bridges 86,475 157,520
Licenses and permit fees 186,981 345,059
Metallurgy - 14,887
Project/field office costs, incl. field
equip. 435,764 1,355,254
Reconnaissance and geochemical - 66,963
Salaries and wages 2,450,656 860,142
Subsistence 168,490 86,259
Transportation incl. vehicles 438,089 341,334
Net Trans-Hex JV expenditure 91,658 396,228
Kono (Petra) joint venture 2,740,740 1,939,674

----------------------------------------------------------------

Net expenditure during the period 10,402,580 7,611,481
Recovery relating to the sale of
mineral property on consolidation of 1,084,825 (1,084,825)
Stellar
Expenditure removed on non
consolidation of SLIO (note 5) (4,312,097) -
Write off of project expenditure &
Impairment provision (9,776,916) -

Balance, Beginning of period 29,918,050 23,391,394
----------------------------------------------------------------
----------------------------------------------------------------

Balance, End of period 27,316,442 29,918,050
----------------------------------------------------------------
----------------------------------------------------------------


10. Joint Ventures and Project Agreements

(a) Liberia, West Africa

The Company holds two mineral development agreement ("MDA") licences in Liberia for gold and diamond development. These MDAs are in Western Liberia and consist of the Bea Mountains and Kpo Range and are valid for 25 years with an option to renew for another 25 years. Both these MDAs are dated November 28, 2001 and were approved on March 14, 2002. The MDAs will allow the Company to conduct pre-feasibility work and bankable feasibility work including, if required, pilot mining.

On April 22, 2004 the Company executed a Mineral Cooperation Agreement with the Ministry of Lands Mines and Energy granting exploration rights over a licence in western Liberia.

The Company acquired one Mineral Exploration Agreement ("MEA") licence on May 18, 2005, which is valid for five years over the Putu iron ore prospect in eastern Liberia. During the year ending December 31, 2008 the licence rights were extended until September 2010.

(i) Trans-Hex Joint Venture (KPO)

On June 6, 2002, the Company signed a heads of agreement for the creation of a diamond exploration and development joint venture ("JV") in Liberia with Trans Hex Group Limited ("THG") of South Africa. The full JV agreement was subsequently signed on October 12, 2006.

During the year ended December 31, 2008, the decision was made to cease the exploration JV with THG as it was not seen as an economic production site in the current market. All deferred exploration costs incurred to date relating to this project were impaired and charged to the income statement.

(ii) AAR Joint Venture

On March 23, 2005, the Company signed a Joint Venture ("JV") agreement with African Aura Resources ("AAR") targeting diamonds over an area of 400 square kilometres held by AAR in western Liberia.

During the year ended December 31, 2008, the decision was made to cease the exploration JV with AAR as it was not seen as a feasible production site in the current economic climate.

(b) Sierra Leone, West Africa

The Company holds multiple prospecting licences for diamonds and gold in Sierra Leone. The licences are located throughout the eastern and northern provinces of the country.

(i) Petra Diamonds Joint Venture (Kono /Nimini)

On September 10, 2004, the Company and Petra Diamonds ("Petra") entered into a joint venture for the production of diamonds from the underground mining of diamond-bearing kimberlite dykes (the "Lion" dykes) defined within Mano's three contiguous licence areas (Yengema, Njaiama and Nimini South) in the Kono diamond district ("Kono Licences") of Sierra Leone.

Under the terms of the agreement Petra has earned a 51% interest in Mano's 100% owned subsidiary, Basama Diamonds Ltd., by spending $3M over three years.

From 1st January 2009 Stellar has elected to sole fund the Kono project for 2009 and will reinvest all diamond sales revenues in the continued development of the project. At the end of 2009 the Company's joint venture partner Petra Diamonds will have the option to reimburse Stellar 51% of the project costs to maintain its 51% equity in the project, or dilute. The current technical team will remain on the project and Petra will continue to offer technical advice as required.

(ii) Golden Star Joint Venture

On November 24, 2003, the Company signed a comprehensive letter of agreement ("LoA") with Golden Star Resources ("GSR"), which contains all the main terms of a joint venture covering licence packages in Sierra Leone.

Under the terms of the LoA, GSR can earn a 51% interest in the gold rights of the licences currently held by Mano through its subsidiary, Golden Leo Resources Limited subject to GSR meeting set conditions including minimum expenditure limits.

As at December 31, 2008 GSR have informed the Company they are near to meeting the minimum expenditure limit required under stage three of the agreement for the Sonfon Licence, at which point they will earn a 51% interest in the licence.

Within 120 days of completing stage three of the agreement on the Sonfon licence GSR may elect to proceed to a feasibility study (FS). Mano then has the right to elect to contribute pro-rata to the FS to retain a 49% interest. If Mano decides not to elect to contribute GSR may sole fund the FS to earn a further 14% interest, thereby taking its equity to 65%.

Upon completion of a positive FS on Sonfon GSR may elect to proceed to mine development. Mano has the right to contribute pro rata to any mine development to retain its 49% interest or dilute to either a 15% or 29% free carried interest depending on its earlier elections to co-fund the feasibility study and mine construction. Mano will also retain a 2% net smelter return royalty on production in excess of the first 1M ounces of gold from each project.

GSR advised in 2007 that they were terminating both the Nimini and Pampana licence from the agreement.

Under a separate agreement dated May 2002, the Sonfon licence was joint ventured by the Company and its partner Minerva Resources PLC (Minerva) in a 50:50 joint venture basis. Minerva retains a 50% interest in Mano's share of the project.

(c) Guinea, West Africa

The Mandala project is 100% owned by Stellar Diamonds and comprises three kimberlite and two alluvial mining concessions in the south east of Guinea. The Mandala alluvial licence comprises a 536,000 carat indicated and 144,000 carat inferred diamond resource which is scheduled to be brought into production in early 2009. Stellar has approved a $5.8M capital budget which includes a plant with a head feed capacity of 100tons per hour and a 30tons per hour DMS diamond recovery module. At optimum production levels the project could yield between 8,000 and 10,000 carats per month. Based on previous bulk sampling and independent valuation the diamond value is estimated to be a minimum of $65 per carat.

(d) Democratic Republic of Congo

BHP Billiton Joint Venture

On December 4, 2007, Stellar Diamonds Ltd. ("Stellar"), the Company's subsidiary, signed a memorandum of understanding with BHP Billiton over exploration licences in the north of the Democratic Republic of Congo.

In February 2009, an agreement was reached with BHP Billiton to terminate the joint venture as it was not seen as a economically viable project.

11. Convertible Debentures

On September 27, 2007 the Company issued unsecured convertible debentures to raise Pounds Sterling 2.3M ($4.6M). The convertible debentures are repayable on August 1, 2010 and bear interest at 9% per annum. The principal amount is convertible by the holders into common shares of the Company (16,428,571) at a conversion price of Pounds Sterling 0.14 pence per share at any time prior to maturity. If prior to the maturity date, the daily volume weighted average trading price of the Company's common shares on AIM, or such other stock exchange where the majority of the Company's trading volume occurs, is greater than Pounds Sterling 0.182 pence per share (or equivalent), for any period of 21 consecutive trading days, the Company shall have the right at its sole option to provide notice to the holder and thereafter the debentures will be automatically converted to common shares.

As the debentures are convertible into common shares at the option of the holder, they have been accounted for in their component parts. The fair value of the conversion option was determined to be $2,637,802 based on using the Black-Scholes option pricing model with the following assumptions: no dividends were paid, a weighted average volatility of the Company's share price of 172%, a weighted average annual risk free rate of 4.64% and an expected life of three years. The residual was allocated to the debt component and subsequently carried at amortised cost using the effective interest rate of 44.1% to accrete the liability to the value of the consideration received.

During the year ended December 31, 2008, the Company incurred interest expense relating to the convertible debentures of $983,242 including the accretion of the loan to its future value. Interest has been paid up to November 1, 2008 and therefore an accrual of $49,928 is included at the year end. Included in the income statement is $831,873 recognised as an unrealised foreign currency exchange rate gain in the year to December 31, 2008, ($168,130 loss in 2007).



Below is a summary of the debt element of the convertible debenture

December 31, December 31,
2008 2007
$ $
-------------------------------------------------------------------------
Opening balance 2,260,738 -
Subscription - 2,092,608
Fair value accretion 619,773 -
Unrealised foreign currency exchange (gain)/loss (831,873) 168,130
------------------------
Closing balance 2,048,638 2,260,738
------------------------


12. Share capital

(a) Authorised

Unlimited number of common shares without par value.

(b) Issued



Amount
Shares $
---------------------------------------------------------------------------

Balance at January 31, 2005 213,405,818 21,461,793
Shares issued on private placement (net of
costs) 40,000,000 7,180,800
Shares issued on exercise of warrants 12,500 894
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Balance at January 31, 2006 253,418,318 28,643,487
Shares issued on private placement (net of
share issue costs) 39,562,500 5,502,741
Shares issued on exercise of stock options 140,000 12,050
---------------------------------------------------------------------------
Balance at January 31, 2007 293,120,818 34,158,278
Shares issued on exercise of stock options 4,690,000 437,836
---------------------------------------------------------------------------
Balance at December 31, 2007 297,810,818 34,596,114
---------------------------------------------------------------------------
Shares issued on private placement (net of share
issue costs) on May 29, 2008 20,000,000 3,367,010
---------------------------------------------------------------------------
Balance at December 31, 2008 317,810,818 37,963,124
---------------------------------------------------------------------------


During the year ended December 31, 2008:

(i) On May 29, 2008 the Company completed a private placement of 20,000,000 common shares with a wholly owned subsidiary of Severstal, a leading Russian steel and natural resources company, at Pounds Sterling 0.10p ($0.20) each for gross proceeds of Pounds Sterling 2,000,000 ($4,000,000). Associated costs charged to shareholders equity amounted to $84,990. In addition, 20,000,000 warrants were granted at an exercise price of Pounds Sterling 0.14p, which are exercisable at any time over a period of 18 months from the completion of the private placement. Prior to the exercise of all the warrants, Severstal's holding in Mano is 6.29% and would increase to 11.84% (assuming no further issuances of common shares prior to that time) and provide the Company with a further Pounds Sterling 2,800,000 in financing (equivalent to $5.1M) if the warrants were exercised. As required under Canadian generally accepted accounting principles the consideration received was allocated to share capital and the warrant reserve. Based on the share price at the date of issue of Pounds Sterling 0.0863 pence $3,367,010 was allocated to share capital, while the remaining $548,000 was allocated to a warrant reserve within shareholders' equity.

During the eleven month period ended December 31, 2007:

(i) The Company issued 2,000,000 common shares on exercise of stock options at a price of Cdn$0.11 per share and 100,000 common shares at a price of Cdn$0.10 per share. Cash proceeds of $198,276 for exercise of these stock options were received by the Company on January 31, 2007 and recorded as subscriptions under shareholders' equity.

(ii) 590,000 stock options were exercised at a price of CDN$0.10 per share and 15,000 options expired unexercised; and 2,000,000 stock options were exercised at a price of Cdn$0.11 per share and 1,000,000 options expired unexercised. Total option exercise proceeds were $239,560.

(c) Issued shares in Stellar Diamonds

On March 31, 2008, 2,375,000 common shares of Stellar Diamonds Ltd. Mano's majority owned subsidiary, were issued at Pounds Sterling 1 each for gross proceeds of Pounds Sterling 2,375,000 ($4,724,571). Associated costs charged to shareholders equity amounted to $34,326. All other professional fees incurred on the postponed AIM listing of Stellar Diamonds Ltd. during the period, have been charged to the consolidated statement of income/(loss). On December 19, 2008, 15,567,675 common shares of Stellar Diamonds Ltd, were issued at Pounds Sterling 0.20 pence each for gross proceeds of Pounds Sterling 3,113,535 ($4,802,208). In addition Stellar settled debt of Pounds Sterling 622,356 ($1,194,766) through the issue of 3,111,781 shares at the same price of 20 pence per share. In addition 18,679,456 warrants were granted by Stellar on December 19, 2008 at an exercise price of Pounds Sterling 0.25 pence, which are exercisable at any time over a period of 18 months.

(d) Stock options in Company

A summary of the status of the Company's stock option plan as at December 31, 2008 and December 31, 2007 and changes during the periods then ended are as follows:



Dec. 31, Dec.31,
2008 2007
---------------------------------------------------------------------------
Weighted Weighted
average average
exercise exercise
price price
Number of per share Number of per share
option Cdn$ options Cdn$
---------------------------------------------------------------------------
Balance outstanding and
exercisable, beginning of
period 9,900,000 0.21 14,980,000 0.16

Activity during the period
Options granted 9,045,000 0.20 900,000 0.23
Options exercised - - (4,000,000) 0.11
Options exercised - - (690,000) 0.10
Options expired (905,000) 0.10 (1,000,000) 0.11
Options expired - - (225,000) 0.23
Options expired - - (50,000) 0.24
Options expired - - (15,000) 0.10
---------------------------------------------------------------------------
Balance outstanding and
exercisable, end of period 18,040,000 0.21 9,900,000 0.21
---------------------------------------------------------------------------


The fair value of the stock option granted in the year was determined to be $985,591 based on using the Black-Scholes option pricing model with the following assumptions: no dividends were paid, a weighted average volatility of the Company's share price of 73.9% (based on the weighted average volatility from both AIM and TSX listings), a weighted average annual risk free rate of 3.50% and an expected life of five years. The remainder of the stock option charge of $1,455,625 arises from stock options issued by Stellar (note 12(e)).



As at December 31, 2008 the following stock options were outstanding:

Number of Exercise price
stock options per share
Outstanding Cdn$ Expiry date
---------------------------------------------------------------
2,720,000 0.240 March 23, 2009
2,620,000 0.215 July 25, 2010
2,755,000 0.230 July 31, 2011
600,000 0.230 March 16,2012
300,000 0.230 May 20, 2012
9,045,000 0.200 January 17, 2013
---------------------------------------------------------------
---------------------------------------------------------------
18,040,000
---------------------------------------------------------------
---------------------------------------------------------------


(e) Stock options in subsidiaries

The following is a summary of the stock option plan for the Company's majority held subsidiary Stellar Diamonds Ltd, as at December 31, 2008 and December 31, 2007 and changes during the periods then ended are as follows:



Dec. 31, Dec.31,
2008 2007
----------------------------------------------------------------------------
Weighted Weighted
average average
exercise exercise
price price
per share per share
Number of GBP Pounds Number of GBP Pounds
Options Sterling Options Sterling
----------------------------------------------------------------------------
Balance outstanding and
exercisable, beginning of period 2,600,000 0.87 - -
Activity during the period
Options granted 400,000 1.00 2,600,000 0.87
----------------------------------------------------------------------------
Balance outstanding and
exercisable, end of period 3,000,000 0.89 2,600,000 0.87
----------------------------------------------------------------------------

As at December 31, 2008 the following stock options were outstanding:

Number of Exercise price
stock options per share
Outstanding GBP Pounds Sterling Expiry date
------------------------------------------------------
2,600,000 0.87 March 26, 2013
400,000 1.00 April 21, 2013
------------------------------------------------------
3,000,000
------------------------------------------------------


The options issued by Stellar have resulted in a charge to the Income Statement of $470,035 ($1,863,884 in 2007) based on using the Black-Scholes option pricing model with the following assumptions: no dividends were paid, a weighted average volatility of the Company's share price of 76.0% (based on the weighted average volatility from peer company listings), a weighted average annual risk free rate of 2.370% and an expected life of five years.

(f) Share purchase warrants

As at December 31, 2008, 20,000,000 warrants were outstanding at an exercise price of Pounds Sterling 0.14 pence with an expiry date of November 29, 2009. These warrants were granted to Severstal as part of the private placement completed on May 29, 2008.

13. Income taxes

The provision for income taxes reported differs from the amounts computed by applying the cumulative Canadian federal and provincial income tax rates to the loss before tax provision due to the following:



December 31, December 31,
2008 2007
$ $
---------------------------------------------------------------------------
Statutory tax rate 31.00% 34.12%
---------------------------------------------------------------------------

Expected income tax (recovery)/expense (690,877) 629,031
Foreign income taxes at other then CDN statutory
rate 2,321,838 953,012
Non-deductible stock based compensation 451,244 64,829
Non-deductible interest 304,805 -
Non-taxable gain on convertible debt (257,881) 57,366
Non-taxable dilution gain on shares issued
by subsidiary company (2,218,969) (2,117,380)
Non-taxable portion of gain on sale of assets (1,203,249) -
Benefit of previously unrecognized tax pools 1,293,089 413,142
Tax losses not recognized in the in the period
the benefit arose - -
---------------------------
- -
---------------------------


The approximate tax effect of each type of temporary difference that gives rise to the Company's future tax assets are as follows:



December 31, December 31,
2008 2007
$ $
---------------------------------------------------------------------------
Operating loss carryforwards 1,920,000 1,597,571
Non-remitted taxable gain (1,203,249) -

Less: Valuation allowance (716,751) (1,597,571)


The Company evaluates its valuation allowance requirements based on projected future operations. When circumstances change and this causes a change in management's judgment about the recoverability of future tax assets, the impact of the change on the valuation allowance is reflected in current income. As management of the Corporation does not currently believe that it is more likely than not that the Corporation will receive the benefit of this asset, a valuation allowance equal to the future tax asset has been established at both December 31, 2008 and December 31, 2007.

At December 31, 2008, the Company had the following estimated loss carry forwards available for tax purposes:



Amount Expiry
$
--------------------------------------------------------------------------

Canada 6,200,000 2009-2028


These consolidated financial statements do not reflect the potential effect on future income taxes of the application of these losses.

14. Related party transactions

The following table summarises the Company's related party transactions for the period:



December 31, December 31,
2008 2007
$ $
---------------------------------------------------------------------------
Incurred management service fees with a company
related by a director in common 150,000 95,000
Incurred management fees by directors 774,805 188,753
Incurred directors fees 297,356 119,789
Incurred professional fees and consultancy
services by a director 83,818 -
--------------------------
1,305,979 403,542
--------------------------


These transactions are in the normal course of operations. A portion of the management fees have been capitalised within the deferred exploration costs.

At the end of the year, the amounts due to related entities are as follows:



December 31, December 31,
2008 2007
$ $
---------------------------------------------------------------------------
Directors' companies - 154,414
Various directors 142,004 19,953
--------------------------
142,004 174,367
--------------------------


These balances are payable on demand and have arisen from the provision of services rendered as set out above.

Amount due to/from related parties are settled through the course of the operating working capital cycle. Due to the short term nature of the amounts outstanding the fair value approximates to the carrying amount.

15. Non-controlling interest and dilutive gains

The non-controlling interest held in the Company's subsidiaries are:



Non
Mano Controlling Carrying value December December
Ownership Interest of net equity 31, 2008 31, 2007
% % $ $ $
Stellar Diamonds
Ltd. 59.6 40.4 22,361,888 9,011,297 6,801,312
African Iron Ore
Group - - - - 346,005
--------------------
9,011,297 7,147,317
--------------------


In 2007, the Company transferred its diamond properties which had a book value of $8,276,081 to Stellar in exchange for 19,239,541 shares in Stellar. The exchange was recorded at book value as it was a transaction between companies under common control. In 2007, Stellar completed two private placements in order to raise funds to finance the development of its diamond interests. In the first placement 1,211,890 shares were issued at an effective price of Pounds Sterling 0.87 pence per share. 918,484 of those shares were issued for cash consideration, raising proceeds of Pounds Sterling 800,000 ($1,571,438), while the remaining 293,406 shares were issued to the subscribers in consideration for forfeiture of certain benefits as a result of the diamond reorganisation. In the second placement 4,822,044 shares were issued at a price of Pounds Sterling 0.871 pence per share for proceeds of Pounds Sterling 4,200,000 ($8,611,361). In addition, Stellar issued 2,411,022 warrants with a two year term and an exercise price of Pounds Sterling 1.20 per share as well as 260,390 adviser's options with a two year term and an exercise price of Pounds Sterling 0.871 pence per share. As a result of these shares issuances by Stellar, the Company recorded a dilution gain of $6,207,005 in the year ended December 31, 2007.

On March 31, 2008 Stellar issued 2,375,000 shares at a price of Pounds Sterling 1 per share for gross proceeds of Pounds Sterling 2,375,000 ($4,724,571). On December 19 2008, Stellar issued a further 15,567,675 shares at a price of Pounds Sterling 0.20 pence per share for gross proceeds of Pounds Sterling 3,113,535 ($4,802,208). Mano purchased 6,920,000 of these shares for Pounds Sterling 1,384,044 ($2,134,701). At the same time Stellar settled debt of Pounds Sterling 622,356 ($1,194,766) owing to Mano through the issue of 3,111,781 shares at a price of Pounds Sterling 0.20 pence per share. As a result of these share issues, the Company recorded a dilution gain of $1,231,793.

Gains on shares issued by affiliated companies arise when the ownership interest of the Company in a controlled entity is diluted as a result of shares issuances of the investee company. The Company does not receive any cash proceeds in these transactions.



December 31, December 31,
2008 2007
$ $
---------------------------------------------------------------------------

Dilutive gains on shares issued in Stellar
Diamonds Ltd 1,231,793 6,207,005
Dilutive gains on shares issued in Severstal
Liberia Iron Ore Ltd 5,926,171 -
---------------------------
7,157,964 6,207,005
---------------------------


16. Provision for impairment

The Company reviews the carrying values of its mineral property interests whenever events or changes in circumstances indicate that the carrying value of the assets may exceed the estimated net recoverable amounts. An asset's carrying value is written down when the carrying value is not recoverable and exceeds its fair value. Impairment reviews for deferred exploration and acquisition costs are carried out on a project by project basis, with each project representing a potential single cash generating unit. An impairment review is undertaken when indicators of impairment arise but typically when one of the following circumstances apply:

(i) title to the asset is compromised;

(ii) variations in metal prices that render the project uneconomic; and

(iii) unexpected geological occurrences that render the resource uneconomic.

Where estimates of future cash flows are not available and where other factors suggest impairment, management assesses if the carrying value is recoverable and records an impairment if so indicated. The impairment review undertaken during the year identified certain projects that were considered uneconomic and were written off and those projects where there was a reasonable probability that the carrying value of the project exceeded its fair value. The total impairment charge recorded in the Income/(Loss) Statement during 2008 is $11,250,591. This relates to the following projects:



Impairment in Revised
the Income carrying
Carrying value Statement value
Country $ $ $
----------------------------------------------------------------------------
Acquisition Liberia 320,000 110,000 210,000
Costs Sierra Leone 1,695,000 508,500 1,186,500
Guinea 6,873,592 1,940,000 4,933,592
----------------------------------------
Total 8,888,592 2,558,500 6,330,092

Deferred Liberia 21,785,684 7,191,984 14,593,700
Exploration Sierra Leone 10,454,776 467,416 9,987,360
Costs Guinea 4,344,039 2,038,684 2,305,355
DRC 508,859 78,832 430,027
----------------------------------------
Total 37,093,358 9,776,916 27,316,442

Recovery relating to sale of
Stellar mineral property (1,084,825) (1,084,825) -
----------------------------------------

44,897,125 11,250,591 33,646,534
----------------------------------------


The total impairment charge recorded in the Income/(Loss) Statement is $11,250,591. This relates to the following projects:



Deferred
Acquisition Exploration
Geographic Costs Expenditure
Project Name Project Type Segment Impaired Impaired Total
$ $ $
---------------------------------------------------------------------------
MCA Diamond Liberia - 3,625,594 3,625,594
Lab Diamond Liberia - 314,401 314,401
KPO Diamond Liberia 110,000 2,822,916 2,932,916
AAR Diamond Liberia - 429,072 429,072
Pampana Gold Gold Sierra Leone 508,500 361,661 870,161
Zimmi - Gorahun Diamond Sierra Leone - 105,756 105,756
Missamana/Gueliban Gold Guinea 1,940,000 1,992,184 3,932,184
Guinea Iron Ore Iron Ore Guinea - 46,500 46,500
Socerdemi Diamond DRC - 78,832 78,832
Recovery relating
to sale of Stellar mineral property
(1,084,825) (1,084,825)

----------------------------------

2,558,500 8,692,091 11,250,591
----------------------------------


Some of the projects that remain and have not been impaired are early stage speculative mining projects, the carrying value of these is not supported by future estimated cash flows but management do not believe there to be any indication of impairment.

17. Segmented information

(a) Industry information

The Company operates in one reportable operating segment, being the acquisition and exploration and development of resource properties.

(b) Geographic information

Revenues from operations in the year ended December 31, 2008 were derived from interest income of which $408 (December 31, 2007 - $3,951) was earned in Canada and $74,075 (December 31, 2007 - $144,090) was earned in the United Kingdom.

The Company's non-current assets by geographic location are as follows:



December 31, December 31,
2008 2007
$ $
----------------------------------------------------------------------------
Liberia 22,909,175 21,012,147
Sierra Leone 11,179,235 8,875,829
Guinea 11,089,990 11,024,052
Democratic Republic of Congo 458,097 80,824
United Kingdom 745 -
---------------------------
45,637,242 40,992,852
---------------------------

Additional geographic information is provided in note 9 and 16.



18. Financial instruments and financial risk management

The Company's financial assets and liabilities are cash, amounts receivable, accounts payable and accrued liabilities, due to related parties and convertible debenture. The fair values of these financial instruments are estimated to approximate their carrying values due to their immediate or short-term nature. Due to the nature of the Company's operations, there is no significant credit or interest rate risk.

The carrying amounts for the financial instruments are as follows:



December 31, December 31,
2008 2007
$ $
----------------------------------------------------------------------------
Financial Assets:
Loans and receivables, measured at amortised cost
Cash 8,887,906 4,100,187
Amounts receivable 207,044 296,591
---------------------------
9,094,950 4,396,778
---------------------------

Financial Liabilities:
Other liabilities, measured at amortised cost
Accounts payable and accrued liabilities 1,148,659 1,010,169
Due to related parties 149,660 174,367
Convertible debenture 2,048,638 2,260,738
---------------------------
3,346,957 3,445,274
---------------------------


In the normal course of its operations, the Company is exposed to currency, interest rate, liquidity and credit risks.

Foreign currency risk

In the normal course of business, the Company enters into transactions denominated in foreign currencies (primarily Pound Sterling, Canadian Dollars and Euros). As a result, the Company is subject to exposure from fluctuations in foreign currency exchange rates. In general, the Company does not enter into derivatives to manage these currency risks. The Company attempts to reduce its exposure to currency risk by entering into contracts denominated in US Dollars whenever possible. The Company has taken no other action to reduce its exposure to foreign currency risk during 2008. In 2009, the Board decided to enter into currency forward contracts to hedge part of its exposure to the UK pound.



Carrying value of foreign currency December 31, December 31,
balances 2008 2007
$ $
----------------------------------------------------------------------------
Cash and cash equivalents, include balance
denominated in:
Pound Sterling (GBP) 1,236,356 3,715,232
Canadian Dollar (CAD) 15,233 5,821

Amounts receivable, include balance
denominated in:
Pound Sterling (GBP) 194,498 27,730
Canadian Dollar (CAD) 5,871 9,480

Amounts payable and accrued liabilities,
include balance denominated in:
Pound Sterling (GBP) 498,147 85,273
Canadian Dollar (CAD) 54,277 147,873
Euro (EUR) 15,752 -

Convertible debenture, include balance
denominated in:
Pound Sterling (GBP) 2,048,638 2,260,738

Effect on net
assets of USD
Closing strengthening 10%
Exchange Rate $
----------------------------------------------------------------------------
At December 31, 2008
Pound Sterling (GBP) 0.6910 111,593
Canadian Dollar (CAD) 1.2228 3,317
Euro (EUR) 0.7095 1,575

At December 31, 2007
Pound Sterling (GBP) 0.5009 (139,695)
Canadian Dollar (CAD) 0.9820 13,257
Euro (EUR) 0.6794 -


The sensitivities are based on financial assets and liabilities held at 31 December 2008 where balances were not denominated in the functional currency of the Company. The sensitivities do not take into account the Company's income and expenses and the results of the sensitivities could change due to other factors such as changes in the value of financial assets and liabilities as a result of non-foreign exchange influenced factors.

Interest rate and liquidity risk

Fluctuations in interest rates impact on the value of short term cash investments and interest payable on financing activities (including long term loans), giving rise to interest rate risk. The Company has in the past been able to actively source financing through public offerings, corporate dealings or issuing fixed rate convertible debentures. This cash is managed to ensure surplus funds are invested in a manner to achieve maximum returns while minimising risks. In the ordinary course of business, the Company is required to fund working capital and capital expenditure requirements. The Company generally enters into variable interest bearing borrowings. The Company typically holds financial assets with a maturity of less than 30 days to ensure adequate liquidity and flexibility. The maturity of the debt instruments has been set out in note 11.

Due to the short maturity of the financial assets and the fixed rate of interest on the convertible debenture, if interest rates were to double, it would have an insignificant impact on the Company's financial performance.

The Company ensures that its liquidity risk is mitigated by placing financial assets on short term maturity, thus all financial liabilities are met as they become due:



Within 30 days - 6 months - 1 year -
30 days 6 months 1 year 5 years
$ $ $ $
---------------------------------------------------------------------------
Cash and cash equivalents 8,877,906 - - -
Accounts receivable 207,044 - - -
Accounts payable and accrued
liabilities (1,148,659) - - -
Due to related parties (149,660) - - -
Due to joint venture partners (106,603) - (717,640) -
Convertible debenture - (149,783) (149,783) (3,553,183)
----------------------------------------------
Net Liquidity 7,680,028 (149,783) (867,423) (3,553,183)
----------------------------------------------


As disclosed in note 5 the Company anticipates the completion of the SPSA with Severstal in December 2010, which would result in $4.2M cash received.

Credit risk

The Company's credit risk exposure is solely in connection with the cash and cash equivalents held with financial institutions. The Company manages its risk by holding surplus funds in high credit worthy financial institution and maintains minimum balances with financial institutions in remote locations.



December 31, December 31,
2008 2007
$ $
----------------------------------------------------------------------------
Financial institution with S&P AA- rating or higher 8,743,602 3,729,700
Financial institutions un-rated or unknown rating 134,304 370,487
-------------------------
8,877,906 4,100,187
-------------------------


19. Capital risk management

The Company's objectives when managing capital is to maintain its ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to ensure sufficient resources are available to meet day to day operating requirements.

The Company's Board of Directors takes full responsibility for managing the Company's capital and does so through board meetings, review of financial information, and regular communication with Officers and senior management.

In order to maximise ongoing development efforts, the company does not pay out dividends. The Company's investment policy is to invest its cash in deposits with high credit worthy financial institutions with short term maturity.

The Company expects its current capital resources will be sufficient to carry out its plans and operations through its current operating period.

The Company is not subject to externally imposed capital requirements and there has been no change in the overall capital risk management as at 31 December 2008.

20. Subsequent Events

On January 19, 2009, the Company granted incentive stock options to certain directors, employees and consultants to purchase up to an aggregate of 5,200,000 common shares in the Company exercisable for a period of five years at a price of Cdn$0.035 per share.

On April 15, 2009, the Company announced a proposed business combination with African Aura Resources Ltd. Mano will offer 1.57 Mano shares for every one African Aura share in order to acquire the entire issued share capital of African Aura. The obligation of Mano and African Aura to enter into the broader agreement is subject to certain conditions being met, including the approval of the TSX-V and satisfactory completion of due diligence.

Contact Information

  • Mano River Resources Inc
    Luis da Silva
    CEO
    +44 (0) 20 7299 4212
    or
    Mano River Resources Inc
    Bevan Metcalf
    +44 (0) 20 7299 4212
    or
    Evolution Securities Limited
    Simon Edwards / Chris Sim / Neil Elliot
    +44 (0) 20 7071 4300
    or
    Pelham PR
    Charles Vivian / James MacFarlane
    +44 (0) 20 7337 1527